-----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, GIts+0ZHiqAUvNV7G/2dIMuVxTm9PkLU9f6C2dvBW2dIwQxF5K4bwt4KU01RX+iF oA7v4yP1CwmiwnnRTTsa+w== 0000004904-96-000103.txt : 19961115 0000004904-96-000103.hdr.sgml : 19961115 ACCESSION NUMBER: 0000004904-96-000103 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 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: 96660523 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 September 30, 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 October 31, 1996 was 187,835,000. /TABLE AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES FORM 10-Q For The Quarter Ended September 30, 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 Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . . A-6 - A-8 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-6 - B-7 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-7 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 September 30, 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 Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . G-6 - G-8 Part II. OTHER INFORMATION Item 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1 Item 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1 - II-2 Item 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . II-2 SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-3 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 Nine Months Ended September 30, September 30, 1996 1995 1996 1995 OPERATING REVENUES . . . . . . . . . . . $1,484,422 $1,523,390 $4,403,144 $4,244,901 OPERATING EXPENSES: Fuel and Purchased Power . . . . . . . 416,470 456,496 1,262,361 1,225,538 Other Operation. . . . . . . . . . . . 299,496 316,850 903,927 868,667 Maintenance. . . . . . . . . . . . . . 129,140 131,134 373,606 393,130 Depreciation and Amortization. . . . . 151,809 150,424 450,337 444,844 Taxes Other Than Federal Income Taxes. 128,155 125,052 376,771 371,282 Federal Income Taxes . . . . . . . . . 99,607 80,886 263,650 210,052 TOTAL OPERATING EXPENSES . . . 1,224,677 1,260,842 3,630,652 3,513,513 OPERATING INCOME . . . . . . . . . . . . 259,745 262,548 772,492 731,388 NONOPERATING INCOME. . . . . . . . . . . 3,655 5,693 3,558 10,574 INCOME BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS. . . . . . . . . . 263,400 268,241 776,050 741,962 INTEREST CHARGES . . . . . . . . . . . . 90,878 99,784 289,266 301,040 PREFERRED STOCK DIVIDEND REQUIREMENTS OF SUBSIDIARIES. . . . . . . . . . . . 10,198 14,301 31,782 42,438 NET INCOME . . . . . . . . . . . . . . . $ 162,324 $ 154,156 $ 455,002 $ 398,484 AVERAGE NUMBER OF SHARES OUTSTANDING . . 187,528 186,024 187,118 185,671 EARNINGS PER SHARE . . . . . . . . . . . $0.87 $0.83 $2.43 $2.15 CASH DIVIDENDS PAID PER SHARE. . . . . . $0.60 $0.60 $1.80 $1.80 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . $1,478,193 $1,347,260 $1,409,645 $1,325,581 NET INCOME . . . . . . . . . . . . . . . 162,324 154,156 455,002 398,484 DEDUCTIONS: Cash Dividends Declared. . . . . . . . 112,463 111,563 336,651 334,058 Other. . . . . . . . . . . . . . . . . 9 (154) (49) - BALANCE AT END OF PERIOD . . . . . . . . $1,528,045 $1,390,007 $1,528,045 $1,390,007 See Notes to Consolidated Financial Statements. /TABLE AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1996 1995 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $ 9,278,377 $ 9,238,843 Transmission . . . . . . . . . . . . . . . . . . . . 3,357,849 3,316,664 Distribution . . . . . . . . . . . . . . . . . . . . 4,321,685 4,184,251 General (including mining assets and nuclear fuel) . 1,489,816 1,442,086 Construction Work in Progress. . . . . . . . . . . . 344,492 314,118 Total Electric Utility Plant . . . . . . . . 18,792,219 18,495,962 Accumulated Depreciation and Amortization. . . . . . 7,451,534 7,111,123 NET ELECTRIC UTILITY PLANT . . . . . . . . . 11,340,685 11,384,839 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 866,659 825,781 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 112,704 79,955 Accounts Receivable (net). . . . . . . . . . . . . . 525,564 492,283 Fuel . . . . . . . . . . . . . . . . . . . . . . . . 252,822 271,933 Materials and Supplies . . . . . . . . . . . . . . . 249,518 251,051 Accrued Utility Revenues . . . . . . . . . . . . . . 145,078 207,919 Prepayments and Other. . . . . . . . . . . . . . . . 111,126 98,717 TOTAL CURRENT ASSETS . . . . . . . . . . . . 1,396,812 1,401,858 REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 1,875,724 1,979,446 DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 206,709 310,377 TOTAL. . . . . . . . . . . . . . . . . . . $15,686,589 $15,902,301 See Notes to Consolidated Financial Statements.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, 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 . . . . . .196,834,992 195,634,992 (8,999,992 shares were held in treasury) . . . . . $ 1,279,427 $ 1,271,627 Paid-in Capital. . . . . . . . . . . . . . . . . . . 1,702,102 1,658,524 Retained Earnings. . . . . . . . . . . . . . . . . . 1,528,045 1,409,645 Total Common Shareholders' Equity. . . . . . 4,509,574 4,339,796 Cumulative Preferred Stocks of Subsidiaries: Not Subject to Mandatory Redemption. . . . . . . . 115,365 148,240 Subject to Mandatory Redemption. . . . . . . . . . 490,225 515,085 Long-term Debt . . . . . . . . . . . . . . . . . . . 4,813,827 4,920,329 TOTAL CAPITALIZATION . . . . . . . . . . . . 9,928,991 9,923,450 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 968,175 884,707 CURRENT LIABILITIES: Preferred Stock and Long-term Debt Due Within One Year . . . . . . . . . . . . . 97,304 144,597 Short-term Debt. . . . . . . . . . . . . . . . . . . 275,351 365,125 Accounts Payable . . . . . . . . . . . . . . . . . . 177,779 220,142 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 283,763 420,192 Interest Accrued . . . . . . . . . . . . . . . . . . 112,716 80,848 Obligations Under Capital Leases . . . . . . . . . . 93,260 89,692 Other. . . . . . . . . . . . . . . . . . . . . . . . 311,369 304,466 TOTAL CURRENT LIABILITIES. . . . . . . . . . 1,351,542 1,625,062 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 2,616,045 2,656,651 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 412,262 430,041 DEFERRED GAIN ON SALE AND LEASEBACK - ROCKPORT PLANT UNIT 2. . . . . . . . . . . . . . . . 242,917 249,875 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 166,657 132,515 CONTINGENCIES (Note 3) TOTAL. . . . . . . . . . . . . . . . . . . $15,686,589 $15,902,301 See Notes to Consolidated Financial Statements.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1996 1995 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 455,002 $ 398,484 Adjustments for Noncash Items: Depreciation and Amortization. . . . . . . . . . . . . . 442,205 431,936 Deferred Federal Income Taxes. . . . . . . . . . . . . . (14,126) 2,747 Deferred Investment Tax Credits. . . . . . . . . . . . . (17,643) (17,862) Amortization of Deferred Property Taxes. . . . . . . . . 132,061 120,710 Amortization of Operating Expenses and Carrying Charges (net) . . . . . . . . . . . . . . . . 38,226 39,975 Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . (33,281) (69,061) Fuel, Materials and Supplies . . . . . . . . . . . . . . 20,644 33,484 Accrued Utility Revenues . . . . . . . . . . . . . . . . 62,841 28,364 Accounts Payable . . . . . . . . . . . . . . . . . . . . (42,363) (50,855) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (136,429) (127,377) Interest Accrued . . . . . . . . . . . . . . . . . . . . 31,868 36,056 Other (net). . . . . . . . . . . . . . . . . . . . . . . . 45,555 (20,101) Net Cash Flows From Operating Activities . . . . . . 984,560 806,500 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . . (355,878) (427,716) Proceeds from Sale of Property and Other . . . . . . . . . 8,825 11,560 Net Cash Flows Used For Investing Activities . . . . (347,053) (416,156) FINANCING ACTIVITIES: Issuance of Common Stock . . . . . . . . . . . . . . . . . 49,337 35,302 Issuance of Long-term Debt . . . . . . . . . . . . . . . . 406,905 425,309 Retirement of Cumulative Preferred Stock . . . . . . . . . (39,966) - Retirement of Long-term Debt . . . . . . . . . . . . . . . (594,609) (381,607) Change in Short-term Debt (net). . . . . . . . . . . . . . (89,774) (104,435) Dividends Paid on Common Stock . . . . . . . . . . . . . . (336,651) (334,058) Net Cash Flows Used For Financing Activities . . . . (604,758) (359,489) Net Increase in Cash and Cash Equivalents. . . . . . . . . . 32,749 30,855 Cash and Cash Equivalents at Beginning of Period . . . . . . 79,955 62,866 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 112,704 $ 93,721 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $247,393,000 and $255,342,000 and for income taxes was $278,050,000 and $220,897,000 in 1996 and 1995, respectively. Noncash acquisitions under capital leases were $108,340,000 and $78,170,000 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 SEPTEMBER 30, 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. 2. FINANCING AND RELATED ACTIVITIES During the first nine months of 1996, subsidiaries issued $410 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; two series of junior subordinated deferrable interest debentures totaling $115 million at 8% and 8-1/4% due in 2026; two 6.75% term loans totaling $20 million due 2001 and three term loans totaling $75 million at 6.42%, 6.57% and 7.445% due in 1999, 2000 and 2002, respectively. In 1996 the subsidiaries redeemed the outstanding shares of two series of $100 par value cumulative preferred stock: 75,000 shares at 9.5% and 300,000 shares at 7.08%; and retired $588 million principal amount of long-term debt: $529 million of first mortgage bonds with interest rates ranging from 5% to 9-7/8% with due dates ranging from 1996 to 2022; $31 million of sinking fund debentures with interest rates ranging from 5-1/8% to 7-7/8% with due dates ranging from 1996 to 1999; and $28 million of term loans with interest rates ranging from 5.79% to 10.78% at maturity. The redemption of three series of first mortgage bonds in 1996, a 7-7/8% series and a 7-1/2% series both due in 2002 and a 9-7/8% series due in 2020, reduced the restriction on subsidiaries use of retained earnings for the payment of cash dividends on their common stock from $230 million to $30 million. 3. CONTINGENCIES The Company continues to be involved in certain 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 THIRD QUARTER 1996 vs. THIRD QUARTER 1995 AND YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 1995 RESULTS OF OPERATIONS Although operating revenues decreased 3% for the comparative third quarter, net income increased $8.2 million or 5% due primarily to the effect of a provision for severance pay recorded in 1995 and refinancings which reduced interest charges and preferred stock dividends. Net income increased 14% or $56.5 million for the comparative year-to-date period due mainly to a 9% increase in energy sales and refinancings of long-term debt and retirements of preferred stock. Income statement lines which changed significantly were: Increase (Decrease) Third Quarter Year-To-Date (in millions) % (in millions) % Operating Revenues . . . . . . $(39.0) (3) $158.2 4 Fuel and Purchased Power Expense. . . . . . . . (40.0) (9) 36.8 3 Other Operation Expense. . . . (17.4) (5) 35.3 4 Maintenance Expense. . . . . . (2.0) (2) (19.5) (5) Federal Income Taxes . . . . . 18.7 23 53.6 26 Interest Charges . . . . . . . (8.9) (9) (11.8) (4) Preferred Stock Dividend Requirements of Subsidiaries. (4.1) (29) (10.7) (25) Operating revenues decreased for the third quarter as a result of a 2% decrease in energy sales to retail customers due to milder summer weather in 1996 as compared with the unseasonably warm summer of 1995. Energy sales to weather-sensitive residential and commercial customers declined 9% and 1%, respectively. Energy sales to industrial and wholesale customers showed continued growth with increases for the quarter of 3% and 17%, respectively. Increased customer usage and the addition of a new large industrial customer in late 1995 accounted for the rise in industrial sales. The increase in wholesale sales can be attributed largely to new wholesale energy transactions with power marketers. The increase in operating revenues for the comparative year-to-date period resulted from increased energy sales. Retail energy sales increased 2% due to growth in the number of customers and increased usage largely as a result of the unseasonable weather in the first six months of 1996. Energy sales to wholesale customers were up 39% due to wholesale energy transactions with power marketers and weather-related demand for energy. The decrease in fuel and purchased power expense for the comparative third quarter and the increase for the comparative year-to-date period were due mainly to the above noted weather-related changes in energy demand. Also contributing to the decline in fuel expense during the quarter was the availability in 1996 of the Cook Nuclear Plant which had a maintenance and refueling outage at one unit during the third quarter of 1995. Other operation expense decreased for the comparative third quarter due primarily to the effect of a $27.2 million ($17.7 million after-tax) provision for severance pay recorded in 1995. The increase in other operation expense for the comparative year-to-date period was due to increased pension and other employee benefit expenses, rent and other operating costs of the recently installed Gavin Plant scrubbers and amortization, commensurate with recovery in rates, of previously deferred Gavin scrubber expenses. The decline in maintenance expense for the comparative year-to-date period was due primarily to the reversal in March 1996 of a loss provision recorded in 1995 for deferred Virginia incremental storm damage expenses, and workforce reductions and less contract labor at the Company's nuclear plant. Federal income tax expense attributable to operations increased in both periods due to an increase in pre-tax operating income and changes in certain book/tax differences accounted for on a flow-through basis for ratemaking and financial reporting purposes. Interest charges declined in both periods due to refinancing programs of several subsidiaries which reduced the interest rate for outstanding debt and reductions in long-term debt. Preferred stock dividend requirements of the subsidiaries also decreased in both comparative periods reflecting preferred stock redemptions in November 1995 and the first half of 1996. FINANCIAL CONDITION Total plant and property additions including capital leases for the first nine months were $466 million. During the first nine months of 1996 subsidiaries issued $410 million principal amount of long-term debt at interest rates ranging from 6-3/8% to 8-1/4%; retired $588 million principal amount of long-term debt with interest rates ranging from 5% to 10.78%; redeemed 375,000 shares of $100 par value cumulative preferred stock at 9.5% and 7.08% and decreased short-term debt by $90 million. AEP GENERATING COMPANY STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (in thousands) OPERATING REVENUES . . . . . . . . . . . $56,821 $58,916 $169,618 $172,910 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . 23,701 25,422 68,969 74,062 Rent - Rockport Plant Unit 2 . . . . . 17,070 17,070 51,218 49,689 Other Operation. . . . . . . . . . . . 3,036 2,944 9,147 8,621 Maintenance. . . . . . . . . . . . . . 3,154 2,618 10,530 8,959 Depreciation . . . . . . . . . . . . . 5,413 5,421 16,239 16,255 Taxes Other Than Federal Income Taxes. 821 897 2,703 2,175 Federal Income Taxes . . . . . . . . . 987 979 2,924 2,466 TOTAL OPERATING EXPENSES . . . 54,182 55,351 161,730 162,227 OPERATING INCOME . . . . . . . . . . . . 2,639 3,565 7,888 10,683 NONOPERATING INCOME. . . . . . . . . . . 1,018 1,012 2,642 2,757 INCOME BEFORE INTEREST CHARGES . . . . . 3,657 4,577 10,530 13,440 INTEREST CHARGES . . . . . . . . . . . . 1,042 1,977 3,186 6,787 NET INCOME . . . . . . . . . . . . . . . $ 2,615 $ 2,600 $ 7,344 $ 6,653 STATEMENTS OF RETAINED EARNINGS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . $2,184 $4,321 $1,955 $4,268 NET INCOME . . . . . . . . . . . . . . . 2,615 2,600 7,344 6,653 CASH DIVIDENDS DECLARED. . . . . . . . . 3,000 5,000 7,500 9,000 BALANCE AT END OF PERIOD . . . . . . . . $1,799 $1,921 $1,799 $1,921 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)
September 30, December 31, 1996 1995 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production. . . . . . . . . . . . . . . . . . . . . . . . $627,198 $627,298 General . . . . . . . . . . . . . . . . . . . . . . . . . 2,933 2,919 Construction Work in Progress . . . . . . . . . . . . . . 1,990 1,397 Total Electric Utility Plant. . . . . . . . . . . 632,121 631,614 Accumulated Depreciation. . . . . . . . . . . . . . . . . 233,330 218,055 NET ELECTRIC UTILITY PLANT. . . . . . . . . . . . 398,791 413,559 CURRENT ASSETS: Cash and Cash Equivalents . . . . . . . . . . . . . . . . 2,153 22 Accounts Receivable . . . . . . . . . . . . . . . . . . . 19,356 19,028 Fuel. . . . . . . . . . . . . . . . . . . . . . . . . . . 19,786 19,008 Materials and Supplies. . . . . . . . . . . . . . . . . . 4,771 4,820 Prepayments . . . . . . . . . . . . . . . . . . . . . . . 412 673 TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . 46,478 43,551 REGULATORY ASSETS . . . . . . . . . . . . . . . . . . . . . 5,912 6,076 DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . . 2,298 1,693 TOTAL . . . . . . . . . . . . . . . . . . . . . $453,479 $464,879 See Notes to Financial Statements.
AEP GENERATING COMPANY BALANCE SHEETS (UNAUDITED)
September 30, 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 . . . . . . . . . . . . . . . . . . . . 1,799 1,955 Total Common Shareholder's Equity . . . . . . . . 50,034 50,690 Long-term Debt. . . . . . . . . . . . . . . . . . . . . . 89,550 89,538 TOTAL CAPITALIZATION. . . . . . . . . . . . . . . 139,584 140,228 OTHER NONCURRENT LIABILITIES. . . . . . . . . . . . . . . . 1,736 1,830 CURRENT LIABILITIES: Short-term Debt - Notes Payable . . . . . . . . . . . . . - 21,725 Accounts Payable. . . . . . . . . . . . . . . . . . . . . 5,174 9,094 Taxes Accrued . . . . . . . . . . . . . . . . . . . . . . 5,198 2,997 Rent Accrued - Rockport Plant Unit 2. . . . . . . . . . . 23,427 4,963 Other . . . . . . . . . . . . . . . . . . . . . . . . . . 2,026 4,508 TOTAL CURRENT LIABILITIES . . . . . . . . . . . . 35,825 43,287 DEFERRED GAIN ON SALE AND LEASEBACK - ROCKPORT PLANT UNIT 2 . . . . . . . . . . . . . . . . . . 145,865 150,043 REGULATORY LIABILITIES: Deferred Investment Tax Credits . . . . . . . . . . . . . 74,418 76,949 Amounts Due to Customers for Income Taxes . . . . . . . . 35,547 36,517 Other . . . . . . . . . . . . . . . . . . . . . . . . . . - 201 TOTAL REGULATORY LIABILITIES. . . . . . . . . . . 109,965 113,667 DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . 20,504 15,824 TOTAL . . . . . . . . . . . . . . . . . . . . . $453,479 $464,879 See Notes to Financial Statements.
AEP GENERATING COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1996 1995 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 7,344 $ 6,653 Adjustments for Noncash Items: Depreciation . . . . . . . . . . . . . . . . . . . . . . 16,239 16,255 Deferred Federal Income Taxes. . . . . . . . . . . . . . 3,710 5,881 Deferred Investment Tax Credits. . . . . . . . . . . . . (2,531) (2,537) Amortization of Deferred Gain on Sale and Leaseback - Rockport Plant Unit 2. . . . . . . . . (4,178) (4,178) Changes in Certain Current Assets and Liabilities: Accounts Receivable. . . . . . . . . . . . . . . . . . . (328) 184 Fuel, Materials and Supplies . . . . . . . . . . . . . . (729) 269 Accounts Payable . . . . . . . . . . . . . . . . . . . . (3,920) (1,332) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . 2,201 (209) Interest Accrued . . . . . . . . . . . . . . . . . . . . (133) (2,635) Rent Accrued - Rockport Plant Unit 2 . . . . . . . . . . 18,464 16,937 Other (net). . . . . . . . . . . . . . . . . . . . . . . . (2,791) (3,989) Net Cash Flows From Operating Activities . . . . . . 33,348 31,299 INVESTING ACTIVITIES - Construction Expenditures . . . . . . (1,492) (3,127) FINANCING ACTIVITIES: Capital Contributions Returned to Parent Company . . . . . (500) - Issuance of Long-term Debt . . . . . . . . . . . . . . . . - 88,368 Change in Short-term Debt (net). . . . . . . . . . . . . . (21,725) 3,825 Retirement of Long-term Debt . . . . . . . . . . . . . . . - (111,347) Dividends Paid . . . . . . . . . . . . . . . . . . . . . . (7,500) (9,000) Net Cash Flows Used For Financing Activities . . . . (29,725) (28,154) Net Increase in Cash and Cash Equivalents. . . . . . . . . . 2,131 18 Cash and Cash Equivalents at Beginning of Period . . . . . . 22 7 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 2,153 $ 25 Supplemental Disclosure: Cash paid (received) for interest net of capitalized amounts was $3,009,000 and $9,136,000 and for income taxes was $(1,374,000) and $(2,136,000) in 1996 and 1995, respectively. See Notes to Financial Statements.
AEP GENERATING COMPANY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) 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. AEP GENERATING COMPANY MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS THIRD QUARTER 1996 vs. THIRD QUARTER 1995 AND YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 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 was virtually unchanged for the comparative quarter and increased $0.7 million or 10% for the comparative year-to-date period. The increase in year-to-date net income resulted from the increased recoveries of interest expense through the return on the other capital component of the unit power bills as compared to 1995. Income statement lines which changed significantly were as follows: Increase (Decrease) Third Quarter Year-To-Date (in millions) % (in millions) % Operating Revenues. . . . . $(2.1) (4) $(3.3) (2) Fuel Expense. . . . . . . . (1.7) (7) (5.1) (7) Rent Expense-Rockport Plant Unit 2. . . . . . . - - 1.5 3 Other Operation Expense . . 0.1 3 0.5 6 Maintenance Expense . . . . 0.5 20 1.6 18 Taxes Other Than Federal Income Taxes. . . (0.1) (8) 0.5 24 Federal Income Taxes. . . . - - 0.5 19 Interest Charges. . . . . . (0.9) (47) (3.6) (53) The decrease in operating revenues for both periods reflects a decrease in recoverable operating expenses as well as a reduction in the return on other capital due to a decrease in interest expense on long-term debt. A reduction in generation coupled with a decline in the average price per ton of coal consumed caused the decrease in fuel expense. The reduction in generation was due to reduced demand for wholesale power as customers obtained power from lower priced sources and in the year-to-date period due to an outage of Rockport Plant Unit 2 for planned boiler inspection and repair. The decline in the average price per ton of coal consumed resulted from a $1.6 million credit received in settlement of disputed coal transportation charges. Rent expense for Rockport Plant Unit 2 increased in the year-to-date period due to the effect of a favorable determination by the Indiana Department of Revenue that resulted in a reduction in rent expense in 1995. The increase in both periods for other operation expense was due to an increase in the FERC assessment fee. The increase in maintenance expense during the third quarter was due to an increase in AEP Service Corporation billings for managerial, engineering and other professional services and a write-off of obsolete materials. The increase in the year-to-date period was also due to boiler inspection and repairs performed on Rockport Unit 2 during the previously mentioned outage. Taxes other than federal income taxes increased for the year-to-date period due to the effect of a favorable Indiana property tax accrual adjustment recorded in the second quarter of 1995. Federal income taxes attributable to operations increased for the comparative year-to-date period due to an increase in pretax book income. Interest charges declined in both periods as a result of the refinancing of $90 million of long-term debt at lower variable interest rates and the retirement of $20 million of long-term debt in third quarter 1995. APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (in thousands) OPERATING REVENUES . . . . . . . . . . . $393,797 $403,786 $1,214,656 $1,151,259 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . 82,432 98,091 263,935 270,066 Purchased Power. . . . . . . . . . . . 84,388 82,526 252,025 219,378 Other Operation. . . . . . . . . . . . 53,561 57,689 177,370 163,604 Maintenance. . . . . . . . . . . . . . 28,279 32,550 87,655 101,976 Depreciation and Amortization. . . . . 33,450 33,535 99,491 99,963 Taxes Other Than Federal Income Taxes. 29,758 29,489 90,074 88,831 Federal Income Taxes . . . . . . . . . 20,670 14,545 55,991 44,097 TOTAL OPERATING EXPENSES . . . 332,538 348,425 1,026,541 987,915 OPERATING INCOME . . . . . . . . . . . . 61,259 55,361 188,115 163,344 NONOPERATING INCOME (LOSS) . . . . . . . (240) 25 336 (4,614) INCOME BEFORE INTEREST CHARGES . . . . . 61,019 55,386 188,451 158,730 INTEREST CHARGES . . . . . . . . . . . . 26,380 27,008 82,082 79,929 NET INCOME . . . . . . . . . . . . . . . 34,639 28,378 106,369 78,801 PREFERRED STOCK DIVIDEND REQUIREMENTS. . 4,099 4,102 12,300 12,303 EARNINGS APPLICABLE TO COMMON STOCK. . . $ 30,540 $ 24,276 $ 94,069 $ 66,498 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . $208,399 $195,165 $199,021 $206,361 NET INCOME . . . . . . . . . . . . . . . 34,639 28,378 106,369 78,801 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . . . . 27,075 26,709 81,225 80,127 Cumulative Preferred Stock . . . . . 3,914 3,918 11,748 11,755 Capital Stock Expense. . . . . . . . . 184 184 552 548 BALANCE AT END OF PERIOD . . . . . . . . $211,865 $192,732 $211,865 $192,732 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)
September 30, December 31, 1996 1995 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $1,867,474 $1,857,621 Transmission . . . . . . . . . . . . . . . . . . . . 1,048,420 1,041,415 Distribution . . . . . . . . . . . . . . . . . . . . 1,469,249 1,409,407 General. . . . . . . . . . . . . . . . . . . . . . . 186,375 169,602 Construction Work in Progress. . . . . . . . . . . . 81,106 80,391 Total Electric Utility Plant . . . . . . . . 4,652,624 4,558,436 Accumulated Depreciation and Amortization. . . . . . 1,762,800 1,694,746 NET ELECTRIC UTILITY PLANT . . . . . . . . . 2,889,824 2,863,690 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 29,776 31,523 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 9,825 8,664 Accounts Receivable. . . . . . . . . . . . . . . . . 154,595 142,411 Allowance for Uncollectible Accounts . . . . . . . . (1,119) (2,253) Fuel . . . . . . . . . . . . . . . . . . . . . . . . 61,777 69,037 Materials and Supplies . . . . . . . . . . . . . . . 53,821 55,756 Accrued Utility Revenues . . . . . . . . . . . . . . 43,955 65,078 Prepayments. . . . . . . . . . . . . . . . . . . . . 14,216 8,579 TOTAL CURRENT ASSETS . . . . . . . . . . . . 337,070 347,272 REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 432,945 435,352 DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 40,527 57,541 TOTAL. . . . . . . . . . . . . . . . . . . $3,730,142 $3,735,378 See Notes to Consolidated Financial Statements.
APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, 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. . . . . . . . . . . . . . . . . . . 550,676 525,051 Retained Earnings. . . . . . . . . . . . . . . . . . 211,865 199,021 Total Common Shareholder's Equity. . . . . . 1,022,999 984,530 Cumulative Preferred Stock: Not Subject to Mandatory Redemption. . . . . . . . 54,857 55,000 Subject to Mandatory Redemption. . . . . . . . . . 165,225 190,085 Long-term Debt . . . . . . . . . . . . . . . . . . . 1,365,637 1,278,433 TOTAL CAPITALIZATION . . . . . . . . . . . . 2,608,718 2,508,048 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 98,678 102,178 CURRENT LIABILITIES: Cumulative Preferred Stock Due Within One Year . . . 25,007 150 Long-term Debt Due Within One Year . . . . . . . . . - 7,251 Short-term Debt. . . . . . . . . . . . . . . . . . . 20,700 125,525 Accounts Payable . . . . . . . . . . . . . . . . . . 81,815 82,224 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 35,996 48,666 Customer Deposits. . . . . . . . . . . . . . . . . . 13,800 14,411 Interest Accrued . . . . . . . . . . . . . . . . . . 31,645 19,057 Other. . . . . . . . . . . . . . . . . . . . . . . . 61,325 75,153 TOTAL CURRENT LIABILITIES. . . . . . . . . . 270,288 372,437 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 653,486 656,006 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 85,497 89,682 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 13,475 7,027 CONTINGENCIES (Note 4) TOTAL. . . . . . . . . . . . . . . . . . . $3,730,142 $3,735,378 See Notes to Consolidated Financial Statements. /TABLE APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1996 1995 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 106,369 $ 78,801 Adjustments for Noncash Items: Depreciation and Amortization. . . . . . . . . . . . . . 100,471 101,123 Deferred Federal Income Taxes. . . . . . . . . . . . . . 838 (2,975) Deferred Investment Tax Credits. . . . . . . . . . . . . (3,614) (3,645) Provision for Rate Refunds . . . . . . . . . . . . . . . (5,547) 11,425 Storm Damage Expense Amortization (Deferrals). . . . . . (1,395) 13,184 Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . (13,318) (3,983) Fuel, Materials and Supplies . . . . . . . . . . . . . . 9,195 4,560 Accrued Utility Revenues . . . . . . . . . . . . . . . . 21,123 7,162 Prepayments. . . . . . . . . . . . . . . . . . . . . . . (5,637) (7,980) Accounts Payable . . . . . . . . . . . . . . . . . . . . (409) (6,748) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (12,670) (188) Interest Accrued . . . . . . . . . . . . . . . . . . . . 12,588 17,164 Other (net). . . . . . . . . . . . . . . . . . . . . . . . 7,898 3,505 Net Cash Flows From Operating Activities . . . . . . 215,892 211,405 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . . (120,761) (151,498) Proceeds from Sale of Property . . . . . . . . . . . . . . 1,546 7,284 Net Cash Flows Used For Investing Activities . . . . (119,215) (144,214) FINANCING ACTIVITIES: Capital Contributions from Parent Company. . . . . . . . . 25,000 30,000 Issuance of Long-term Debt . . . . . . . . . . . . . . . . 273,340 128,785 Change in Short-term Debt (net). . . . . . . . . . . . . . (104,825) (57,650) Retirement of Cumulative Preferred Stock . . . . . . . . . (146) - Retirement of Long-term Debt . . . . . . . . . . . . . . . (195,909) (74,950) Dividends Paid on Common Stock . . . . . . . . . . . . . . (81,225) (80,127) Dividends Paid on Cumulative Preferred Stock . . . . . . . (11,751) (11,755) Net Cash Flows Used For Financing Activities . . . . (95,516) (65,697) Net Increase in Cash and Cash Equivalents. . . . . . . . . . 1,161 1,494 Cash and Cash Equivalents at Beginning of Period . . . . . . 8,664 5,297 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 9,825 $ 6,791 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $67,073,000 and $60,835,000 and for income taxes was $54,583,000 and $46,449,000 in 1996 and 1995, respectively. Noncash acquisitions under capital leases were $10,741,000 and $11,339,000 in 1996 and 1995, respectively. See Notes to Consolidated Financial Statements. /TABLE APPALACHIAN POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 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. 2. RATE MATTERS 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 Virginia (WVPSC) Expanded Net Energy Cost (ENEC) recovery mechanism until October 31, 1996. The Company has been engaged in negotiations with the interested parties and on November 12, 1996, the parties filed a settlement agreement with the WVPSC. Under the terms of the settlement agreement, the Company would reduce base rates by $5 million annually, reduce the ENEC rates by $28 million annually and not request a rate increase to become effective prior to January 1, 2000. The proposed rate reductions would be retroactive to November 1, 1996. During the period rates are fixed, ENEC cost variances would be subject to deferral accounting and a cumulative ENEC recovery balance would be maintained. The parties agreed that regardless of the actual balance in this cumulative recovery balance at December 31, 1999, ratepayers will not be responsible for any cumulative underrecovery. ENEC overrecoveries during the annual periods through December 31, 1999 in excess of $10 million per period would be shared equally between the Company and its ratepayers. The settlement agreement is subject to WVPSC approval. 3. FINANCING ACTIVITIES During the first nine months of 1996, the Company issued two series of first mortgage bonds of $100 million each with rates of 6-3/8% and 6.80% due in 2001 and 2006. The Company also issued $75 million of 8-1/4% Series Junior Subordinated Deferrable Interest Debentures due in 2026. Also in the first nine months, eight series of long-term debt were redeemed: seven series of first mortgage bonds totaling $187 million with rates ranging from 7-1/2% to 9-7/8% due 1998 through 2022 and $7 million of 6% Series Sinking Fund Debentures due March 1996. As a result of the early redemption of the 7-1/2% Series First Mortgage Bonds, the restriction on the use of retained earnings for common stock dividends was removed. In June 1996, the Company received a $25 million cash capital contribution from its parent which was credited to paid-in capital. The Company called for redemption of $25 million of its 7.40% Cumulative Preferred Stock on November 1, 1996. Therefore the preferred stock was classified as a current liability on the balance sheet. 4. CONTINGENCIES The Company continues to be involved in certain matters discussed in its 1995 Annual Report. APPALACHIAN POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THIRD QUARTER 1996 vs. THIRD QUARTER 1995 AND YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 1995 RESULTS OF OPERATIONS Net income increased $6.3 million or 22% in the third quarter due mainly to a reduction in operating expenses. For the year-to-date period net income increased $27.6 million or 35% mainly as a result of weather-related demand for energy by residential, commercial and wholesale customers and customer growth in the residential and commercial sectors. Income statement items which changed significantly were: Increase (Decrease) Third Quarter Year-to-Date (in millions) % (in millions) % Operating Revenues . . . . $(10.0) (2) $ 63.4 6 Fuel Expense . . . . . . . (15.7) (16) (6.1) (2) Purchased Power Expense. . 1.9 2 32.6 15 Other Operation Expense. . (4.1) (7) 13.8 8 Maintenance Expense. . . . (4.3) (13) (14.3) (14) Federal Income Taxes . . . 6.1 42 11.9 27 The decrease in revenues for the comparative third quarter period was largely due to a 10% decrease in residential energy sales reflecting a return to normal summer weather as compared with unusually hot weather in 1995. Although the cooler summer weather reduced the demand for wholesale energy, wholesale revenues remained relatively unchanged as reduced sales to unaffiliated wholesale customers were offset by increased energy supplied to the AEP System Power Pool (Power Pool) and new wholesale energy transactions with unaffiliated power marketers. Revenues increased in the comparative year-to-date period primarily due to a substantial increase in wholesale energy sales and a 3% increase in sales to retail customers. Unseasonable weather in the first six months of 1996 was mainly responsible for the increased energy consumption as sales to unaffiliated utilities by the Power Pool increased and usage by weather-sensitive residential customers rose more than offsetting the decline in the third quarter. Fuel expense decreased for both the comparative periods as coal-fired generation declined. The reduction in energy demand by retail customers in the third quarter was responsible for the generation decrease. Increased purchases of energy from the Power Pool to meet the increased demand for energy experienced during the first six months of 1996 contributed to the reduction in internal generation and accounted for the rise in purchased power expense for the year-to-date comparative period. Other operation expense decreased during the quarter due to the recognition of gains on the sale of emission allowances and the effect of a provision for severance pay recorded in 1995. In the comparative year-to-date period the increase in other operation expense was due to an increase in employee benefit costs and the recognition of previously deferred research costs and capitalized software costs in expense as a result of a final rate order from the Virginia State Corporation Commission (Virginia SCC). These items more than offset the aforementioned third quarter recognition of gains on the sale of emission allowances and the effect of the severance pay provision. Reduced levels of maintenance activity led to a decline in the quarter's maintenance expense. While the levels of maintenance were reduced in the year-to-date period as well, the primary reason for the decrease in maintenance expense was the reversal in March 1996 of a $7.9 million loss provision for deferred Virginia retail incremental storm damage expenses recorded in March 1995. The provision was reversed as a result of a Virginia SCC Hearing Examiner's Report. The increase in federal income tax expense attributable to operations was primarily due to an increase in pre-tax operating income in both periods and in the quarter the increase was also due to changes in certain book/tax differences accounted for on a flow-through basis for ratemaking and financial reporting purposes. FINANCIAL CONDITION Total plant and property additions including capital leases for the first nine months of 1996 were $132 million. During the first nine months of 1996, the Company issued two series of first mortgage bonds of $100 million each with rates of 6-3/8% and 6.80% due in 2001 and 2006, respectively. The Company also issued $75 million of 8-1/4% Series Junior Subordinated Deferrable Interest Debentures due in 2026. The proceeds of these issuances were used to redeem seven series of first mortgage bonds totaling $187 million with rates ranging from 7-1/2% to 9-7/8% due 1998 through 2022 and $7 million of 6% Series Sinking Fund Debentures due March 1996. Also, short-term debt decreased $105 million from year end. As a result of the early redemption of the 7-1/2% Series First Mortgage Bonds, the restriction on the use of retained earnings for the payment of common stock dividends was removed. In June 1996, the Company received a $25 million cash capital contribution from its parent which was credited to paid-in capital. The Company called for redemption of $25 million of its 7.40% Cumulative Preferred Stock on November 1, 1996. Therefore the preferred stock was classified as a current liability on the balance sheet. COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (in thousands) OPERATING REVENUES . . . . . . . . . . . $303,270 $310,141 $843,333 $813,311 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . 47,189 40,854 139,864 128,908 Purchased Power. . . . . . . . . . . . 47,099 51,607 130,539 124,706 Other Operation. . . . . . . . . . . . 55,609 49,630 146,617 139,233 Maintenance. . . . . . . . . . . . . . 17,053 18,082 48,385 52,071 Depreciation . . . . . . . . . . . . . 22,072 21,386 65,829 63,840 Amortization of Zimmer Plant Phase-in Costs . . . . . . . . . . . 9,699 10,026 26,112 25,549 Taxes Other Than Federal Income Taxes. 29,985 26,740 86,180 80,932 Federal Income Taxes . . . . . . . . . 22,159 25,274 51,803 47,914 TOTAL OPERATING EXPENSES . . . 250,865 243,599 695,329 663,153 OPERATING INCOME . . . . . . . . . . . . 52,405 66,542 148,004 150,158 NONOPERATING INCOME (LOSS) . . . . . . . 1,164 197 (1,356) 2,636 INCOME BEFORE INTEREST CHARGES . . . . . 53,569 66,739 146,648 152,794 INTEREST CHARGES . . . . . . . . . . . . 18,810 19,607 59,267 59,587 NET INCOME . . . . . . . . . . . . . . . 34,759 47,132 87,381 93,207 PREFERRED STOCK DIVIDEND REQUIREMENTS. . 1,493 3,308 4,537 9,714 EARNINGS APPLICABLE TO COMMON STOCK. . . $ 33,266 $ 43,824 $ 82,844 $ 83,493 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . $ 86,019 $50,625 $ 74,320 $46,976 NET INCOME . . . . . . . . . . . . . . . 34,759 47,132 87,381 93,207 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . . . . 18,969 17,975 56,907 53,925 Cumulative Preferred Stock . . . . . 1,422 3,203 4,266 9,609 Capital Stock Expense. . . . . . . . . 71 35 212 105 BALANCE AT END OF PERIOD . . . . . . . . $100,316 $76,544 $100,316 $76,544 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)
September 30, December 31, 1996 1995 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $1,490,153 $1,481,309 Transmission . . . . . . . . . . . . . . . . . . . . 320,689 314,413 Distribution . . . . . . . . . . . . . . . . . . . . 874,568 843,228 General. . . . . . . . . . . . . . . . . . . . . . . 126,046 117,185 Construction Work in Progress. . . . . . . . . . . . 63,947 64,073 Total Electric Utility Plant . . . . . . . . 2,875,403 2,820,208 Accumulated Depreciation . . . . . . . . . . . . . . 1,004,700 953,170 NET ELECTRIC UTILITY PLANT . . . . . . . . . 1,870,703 1,867,038 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 24,389 25,950 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 13,816 10,577 Accounts Receivable (net). . . . . . . . . . . . . . 80,603 65,853 Fuel . . . . . . . . . . . . . . . . . . . . . . . . 19,463 24,316 Materials and Supplies . . . . . . . . . . . . . . . 23,841 23,519 Accrued Utility Revenues . . . . . . . . . . . . . . 29,568 40,389 Prepayments. . . . . . . . . . . . . . . . . . . . . 30,584 32,116 TOTAL CURRENT ASSETS . . . . . . . . . . . . 197,875 196,770 REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 394,845 438,005 DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 20,389 66,363 TOTAL. . . . . . . . . . . . . . . . . . . $2,508,201 $2,594,126 See Notes to Consolidated Financial Statements.
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, 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. . . . . . . . . . . . . . . . . . . 574,638 574,427 Retained Earnings. . . . . . . . . . . . . . . . . . 100,316 74,320 Total Common Shareholder's Equity. . . . . . 715,980 689,773 Cumulative Preferred Stock - Subject to Mandatory Redemption . . . . . . . . . . . . . . . 75,000 75,000 Long-term Debt . . . . . . . . . . . . . . . . . . . 897,164 990,796 TOTAL CAPITALIZATION . . . . . . . . . . . . 1,688,144 1,755,569 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 38,056 34,571 CURRENT LIABILITIES: Preferred Stock Due Within One Year. . . . . . . . . - 7,500 Short-term Debt. . . . . . . . . . . . . . . . . . . 59,075 34,325 Accounts Payable . . . . . . . . . . . . . . . . . . 53,667 52,029 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 79,566 120,093 Interest Accrued . . . . . . . . . . . . . . . . . . 26,299 17,016 Other. . . . . . . . . . . . . . . . . . . . . . . . 26,235 30,955 TOTAL CURRENT LIABILITIES. . . . . . . . . . 244,842 261,918 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 446,988 464,413 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 58,274 61,010 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 31,897 16,645 CONTINGENCIES (Note 3) TOTAL. . . . . . . . . . . . . . . . . . . $2,508,201 $2,594,126 See Notes to Consolidated Financial Statements.
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1996 1995 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 87,381 $ 93,207 Adjustments for Noncash Items: Depreciation . . . . . . . . . . . . . . . . . . . . . . 65,549 63,556 Deferred Federal Income Taxes. . . . . . . . . . . . . . (9,777) (510) Deferred Investment Tax Credits. . . . . . . . . . . . . (2,736) (2,752) Deferred Fuel Cost (net) . . . . . . . . . . . . . . . . 6,032 (7,969) Amortization of Zimmer Plant Operating Expenses and Carrying Charges . . . . . . . . . . . . . . . . . . . 24,539 22,244 Amortization of Deferred Property Taxes. . . . . . . . . 45,673 43,314 Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . (14,750) (23,733) Fuel, Materials and Supplies . . . . . . . . . . . . . . 4,531 9,209 Accrued Utility Revenues . . . . . . . . . . . . . . . . 10,821 6,949 Accounts Payable . . . . . . . . . . . . . . . . . . . . 1,638 (8,434) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (40,527) (48,873) Interest Accrued . . . . . . . . . . . . . . . . . . . . 9,283 9,665 Other (net). . . . . . . . . . . . . . . . . . . . . . . . 17,432 1,762 Net Cash Flows From Operating Activities . . . . . . 205,089 157,635 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . . (61,321) (74,400) Proceeds from Sale and Leaseback Transactions and Other. . 2,624 2,922 Net Cash Flows Used For Investing Activities . . . . (58,697) (71,478) FINANCING ACTIVITIES: Issuance of Long-term Debt . . . . . . . . . . . . . . . . - 72,526 Change in Short-term Debt (net). . . . . . . . . . . . . . 24,750 - Retirement of Cumulative Preferred Stock . . . . . . . . . (7,500) - Retirement of Long-term Debt . . . . . . . . . . . . . . . (99,053) (50,000) Dividends Paid on Common Stock . . . . . . . . . . . . . . (56,907) (53,925) Dividends Paid on Cumulative Preferred Stock . . . . . . . (4,443) (9,609) Net Cash Flows Used For Financing Activities . . . . (143,153) (41,008) Net Increase in Cash and Cash Equivalents. . . . . . . . . . 3,239 45,149 Cash and Cash Equivalents at Beginning of Period . . . . . . 10,577 14,065 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 13,816 $ 59,214 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $47,124,000 and $46,745,000 and for income taxes was $46,943,000 and $45,117,000 in 1996 and 1995, respectively. Noncash acquisitions under capital leases were $9,707,000 and $8,914,000 in 1996 and 1995, respectively. See Notes to Consolidated Financial Statements. /TABLE COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 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. 2. FINANCING ACTIVITIES In June 1996 the Company redeemed 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%. In August 1996 the Company redeemed the entire $30 million outstanding principal amount of the 9.31% Series First Mortgage Bonds Due 2001 at the regular redemption price of 102.66%. 3. CONTINGENCIES The Company continues to be involved in certain matters discussed in its 1995 Annual Report. COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS THIRD QUARTER 1996 vs. THIRD QUARTER 1995 AND YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 1995 Net income decreased 26% for the third quarter due mainly to a decrease in retail sales as a result of milder summer weather in 1996. The 6% decrease in year-to-date net income resulted from increased operating expenses and a decrease in first quarter nonoperating income. Income statement lines which changed significantly were: Increase (Decrease) Third Quarter Year-to-Date (in millions) % (in millions) % Operating Revenues. . . . . $(6.9) (2) $30.0 4 Fuel Expense. . . . . . . . 6.3 16 11.0 8 Purchased Power Expense . . (4.5) (9) 5.8 5 Other Operation Expense . . 6.0 12 7.4 5 Maintenance Expense . . . . (1.0) (6) (3.7) (7) Taxes Other Than Federal Income Taxes. . . 3.2 12 5.2 6 Federal Income Taxes. . . . (3.1) (12) 3.9 8 Nonoperating Income . . . . 1.0 N.M. (4.0) N.M. N.M. = Not Meaningful The 2% decrease in operating revenues for the comparative third quarter period was due mainly to a return to normal temperatures in the summer of 1996 as compared with the hot summer of 1995. Energy sales to weather-sensitive residential customers declined 8%. Revenues from wholesale customers decreased 12% during the third quarter of 1996 as a result of a reduction in energy supplied to the AEP System Power Pool (Power Pool) and reduced sales to unaffiliated wholesale customers due to decreased weather-related demand. In the year-to-date comparative period operating revenues rose 4% due to increased energy sales to commercial and wholesale customers. Growth in the number of commercial customers and unseasonable weather in the first six months of 1996 led to the increased demand. The increase in energy sales to wholesale customers was due primarily to an increase in sales made by the Power Pool to unaffiliated utilities as a result of the unseasonable weather in the first six months of 1996. Energy sales to residential customers were virtually unchanged in the year-to-date period as the effect of unseasonable weather in the first six months of the year was offset by the return to more normal temperatures in the third quarter of 1996. The increase in fuel expense in both periods was due mainly to the operation of the fuel clause adjustment mechanism whereby the amortization of previously underecovered fuel costs resulted in an increase in fuel expense commensurate with recovery in rates. Purchased power expense declined for the comparative third quarter due predominantly to decreased demand from retail customers. On a year-to-date basis purchased power expense increased due to additional energy purchases from the Power Pool during the first half of 1996 to supply the increased energy demands of retail and wholesale customers. The increase in both periods in other operation expense was due to increased employee benefit expenses as a result of a provision recorded in the third quarter for contributions made to an employee benefits trust fund that are not included in base rates. Maintenance expense decreased due mainly to the effect of workforce reductions at the Company's power plants and reduced plant maintenance work. Last year's maintenance expense included expenditures associated with outages at the Conesville and Picway plants. The increase in taxes other than federal income taxes was due primarily to higher gross receipts taxes which increased due to higher revenues during the assessment period and increased property taxes due to increases in the tax base and tax rates. A decrease in the third quarter in federal income tax expense attributable to operations was primarily due to a decrease in pre-tax operating income offset in part by changes in certain book/tax differences accounted for on a flow-through basis for ratemaking and financial reporting purposes. On a year-to-date basis federal income taxes attributable to operations increased primarily due to changes in certain book/tax differences accounted for on a flow-through basis and an increase in pre-tax operating book income. Nonoperating income declined for the comparative year-to-date period due to after tax provisions recorded in the first quarter of $2.2 million for certain deferred demand side management program costs and $0.9 million for the clean-up of underground fuel storage tanks at one of the Company's facilities. INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (in thousands) OPERATING REVENUES . . . . . . . . . . . $339,847 $334,846 $993,224 $969,843 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . 59,546 53,967 176,101 173,584 Purchased Power. . . . . . . . . . . . 33,887 39,745 103,203 93,156 Other Operation. . . . . . . . . . . . 74,853 78,992 232,349 226,628 Maintenance. . . . . . . . . . . . . . 28,269 34,319 84,818 98,893 Depreciation and Amortization. . . . . 35,193 34,800 105,171 103,883 Amortization of Rockport Plant Unit 1 Phase-in Plan Deferrals. . . . . . . 3,911 3,911 11,733 11,733 Taxes Other Than Federal Income Taxes. 19,823 19,254 58,184 55,087 Federal Income Taxes . . . . . . . . . 23,242 15,458 57,094 44,782 TOTAL OPERATING EXPENSES . . . 278,724 280,446 828,653 807,746 OPERATING INCOME . . . . . . . . . . . . 61,123 54,400 164,571 162,097 NONOPERATING INCOME (LOSS) . . . . . . . (255) 736 (620) 1,387 INCOME BEFORE INTEREST CHARGES . . . . . 60,868 55,136 163,951 163,484 INTEREST CHARGES . . . . . . . . . . . . 16,322 17,732 50,131 53,912 NET INCOME . . . . . . . . . . . . . . . 44,546 37,404 113,820 109,572 PREFERRED STOCK DIVIDEND REQUIREMENTS. . 2,406 3,031 8,264 8,843 EARNINGS APPLICABLE TO COMMON STOCK. . . $ 42,140 $ 34,373 $105,556 $100,729 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . $242,269 $227,505 $235,107 $216,658 NET INCOME . . . . . . . . . . . . . . . 44,546 37,404 113,820 109,572 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . . . . 28,127 27,713 84,381 83,139 Cumulative Preferred Stock . . . . . 2,359 2,890 7,608 8,670 Capital Stock Expense. . . . . . . . . 47 58 656 173 BALANCE AT END OF PERIOD . . . . . . . . $256,282 $234,248 $256,282 $234,248 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)
September 30, December 31, 1996 1995 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $2,518,216 $2,507,667 Transmission . . . . . . . . . . . . . . . . . . . . 877,834 867,541 Distribution . . . . . . . . . . . . . . . . . . . . 688,591 666,810 General (including nuclear fuel) . . . . . . . . . . 199,549 186,959 Construction Work in Progress. . . . . . . . . . . . 79,103 90,587 Total Electric Utility Plant . . . . . . . . 4,363,293 4,319,564 Accumulated Depreciation and Amortization. . . . . . 1,834,768 1,751,965 NET ELECTRIC UTILITY PLANT . . . . . . . . . 2,528,525 2,567,599 NUCLEAR DECOMMISSIONING AND SPENT NUCLEAR FUEL DISPOSAL TRUST FUNDS. . . . . . . . . . . . . . . . . 466,942 433,619 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 160,729 150,994 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 8,120 13,723 Accounts Receivable (net). . . . . . . . . . . . . . 125,853 115,431 Fuel . . . . . . . . . . . . . . . . . . . . . . . . 26,515 29,093 Materials and Supplies . . . . . . . . . . . . . . . 75,488 72,861 Accrued Utility Revenues . . . . . . . . . . . . . . 30,347 43,937 Prepayments. . . . . . . . . . . . . . . . . . . . . 9,930 10,191 TOTAL CURRENT ASSETS . . . . . . . . . . . . 276,253 285,236 REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 421,381 458,525 DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 22,181 32,364 TOTAL. . . . . . . . . . . . . . . . . . . $3,876,011 $3,928,337 See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, 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. . . . . . . . . . . . . . . . . . . 731,214 731,102 Retained Earnings. . . . . . . . . . . . . . . . . . 256,282 235,107 Total Common Shareholder's Equity. . . . . . 1,044,080 1,022,793 Cumulative Preferred Stock: Not Subject to Mandatory Redemption. . . . . . . . 21,977 52,000 Subject to Mandatory Redemption. . . . . . . . . . 135,000 135,000 Long-term Debt . . . . . . . . . . . . . . . . . . . 1,039,819 1,034,048 TOTAL CAPITALIZATION . . . . . . . . . . . . 2,240,876 2,243,841 OTHER NONCURRENT LIABILITIES: Nuclear Decommissioning. . . . . . . . . . . . . . . 295,755 269,392 Other. . . . . . . . . . . . . . . . . . . . . . . . 187,683 184,103 TOTAL OTHER NONCURRENT LIABILITIES . . . . . 483,438 453,495 CURRENT LIABILITIES: Long-term Debt Due Within One Year . . . . . . . . . - 6,053 Short-term Debt. . . . . . . . . . . . . . . . . . . 40,425 89,975 Accounts Payable . . . . . . . . . . . . . . . . . . 34,994 60,706 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 64,898 71,696 Interest Accrued . . . . . . . . . . . . . . . . . . 18,608 16,158 Rent Accrued - Rockport Plant Unit 2 . . . . . . . . 23,427 4,963 Obligations Under Capital Leases . . . . . . . . . . 33,523 31,776 Other. . . . . . . . . . . . . . . . . . . . . . . . 67,500 69,500 TOTAL CURRENT LIABILITIES. . . . . . . . . . 283,375 350,827 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 584,638 612,147 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 149,257 155,202 DEFERRED GAIN ON SALE AND LEASEBACK - ROCKPORT PLANT UNIT 2. . . . . . . . . . . . . . . . 97,052 99,832 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 37,375 12,993 CONTINGENCIES (Note 3) TOTAL. . . . . . . . . . . . . . . . . . . $3,876,011 $3,928,337 See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1996 1995 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 113,820 $ 109,572 Adjustments for Noncash Items: Depreciation and Amortization. . . . . . . . . . . . . . 110,934 111,209 Amortization of Rockport Plant Unit 1 Phase-in Plan Deferrals. . . . . . . . . . . . . . . . 11,733 11,733 Deferred Federal Income Taxes. . . . . . . . . . . . . . (19,438) (11,166) Deferred Investment Tax Credits. . . . . . . . . . . . . (5,945) (5,989) Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . (10,422) 2,028 Fuel, Materials and Supplies . . . . . . . . . . . . . . (49) 4,054 Accrued Utility Revenues . . . . . . . . . . . . . . . . 13,590 5,423 Accounts Payable . . . . . . . . . . . . . . . . . . . . (25,712) (11,557) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (6,798) (16,732) Rent Accrued - Rockport Plant Unit 2 . . . . . . . . . . 18,464 16,937 Other (net). . . . . . . . . . . . . . . . . . . . . . . . 31,674 (17,091) Net Cash Flows From Operating Activities . . . . . . 231,851 198,421 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . . (58,283) (78,957) Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 979 1,151 Net Cash Flows Used For Investing Activities . . . . (57,304) (77,806) FINANCING ACTIVITIES: Issuance of Long-term Debt . . . . . . . . . . . . . . . . 38,579 96,819 Retirement of Cumulative Preferred Stock . . . . . . . . . (30,568) - Retirement of Long-term Debt . . . . . . . . . . . . . . . (46,091) (101,122) Change in Short-term Debt (net). . . . . . . . . . . . . . (49,550) (28,200) Dividends Paid on Common Stock . . . . . . . . . . . . . . (84,381) (83,139) Dividends Paid on Cumulative Preferred Stock . . . . . . . (8,139) (8,670) Net Cash Flows Used For Financing Activities . . . . (180,150) (124,312) Net Decrease in Cash and Cash Equivalents. . . . . . . . . . (5,603) (3,697) Cash and Cash Equivalents at Beginning of Period . . . . . . 13,723 9,907 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 8,120 $ 6,210 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $45,635,000 and $49,511,000 and for income taxes was $87,746,000 and $75,420,000 in 1996 and 1995, respectively. Noncash acquisitions under capital leases were $44,848,000 and $19,500,000 in 1996 and 1995, respectively. In connection with the early termination of a western coal land sublease the Company will receive cash payments from the lessee of $30.8 million over a ten year period which has been recorded at a net present value of $22.8 million. See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 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. 2. FINANCING ACTIVITIES In the first nine months of 1996, the Company issued $40 million of 8% Junior Subordinated Deferrable Interest Debentures and retired $40 million of 9.50% First Mortgage Bonds and $6 million of Sinking Fund Debentures. Additionally, the Company retired 300,000 shares of 7.08% Cumulative Preferred Stock, par value $100. 3. CONTINGENCIES The Company continues to be involved in certain 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 THIRD QUARTER 1996 vs. THIRD QUARTER 1995 AND YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 1995 RESULTS OF OPERATIONS Net income increased $7.1 million or 19% for the comparative quarter and $4.2 million or 4% for the comparative year-to-date period due largely to increased wholesale revenues, a reduction in maintenance expense and reduced financing costs due to the refinancing at lower interest rates of long-term debt. Operating revenues increased in the third quarter reflecting increased wholesale sales to the AEP System Power Pool (Power Pool) due to increased internal generation being available for sale in 1996 as one of the Company's nuclear generating units was out-of-service for maintenance and refueling in the third quarter of 1995. The increase in wholesale sales was partially offset by reduced sales to weather-sensitive residential and unaffiliated wholesale customers due to the milder summer weather in 1996 as compared with unusually hot weather in 1995. In the year-to-date comparative period operating revenues increased as a result of increased wholesale and industrial sales. Sales to the Company's non-affiliated municipal and cooperative wholesale customers and sales by the Power Pool to unaffiliated utilities allocated to the Company increased due mainly to colder winter weather and unseasonable spring weather. The rise in industrial sales can be attributed to the addition of a major new industrial customer in late 1995. Operating expense line items which changed significantly were: Increase (Decrease) Third Quarter Year-to-Date (in millions) % (in millions) % Fuel Expense. . . . . . . $ 5.6 10 $ 2.5 1 Purchased Power Expense . (5.9) (15) 10.0 11 Other Operation Expense . (4.1) (5) 5.7 3 Maintenance Expense . . . (6.1) (18) (14.1) (14) Taxes Other Than Federal Income Taxes . . . . . . 0.6 3 3.1 6 Federal Income Taxes. . . 7.8 50 12.3 27 The increase in fuel expense for the comparative third quarter resulted from the outage related increase in availability of nuclear generation in 1996. Purchased power expense decreased during the quarter but increased for the year-to-date comparative period. The reduction in purchased power expense was due to a decline in purchases from the Power Pool reflecting the increased availability of nuclear generation and a reduction of purchases from unaffiliated utilities for pass-through sales to other unaffiliated utilities. The increase for the year-to-date comparative period reflects additional purchases under an agreement with an affiliated company, Ohio Valley Electric Corporation, and increased purchases from the Power Pool to support the Company's allocated share of the increased Power Pool wholesale transactions. The reduction in other operation expense for the quarter reflects the recognition of a $6.8 million gain from the sale of pollution control emission allowances. Maintenance expense decreased significantly in both periods as a result of a reduction in the number of generation employees and reduced contract labor at the Company's nuclear power plant. The increase in taxes other than federal income taxes for the year-to-date comparative period was the result of a favorable accrual adjustment for Indiana real and personal property taxes recorded in 1995. Federal income taxes attributable to operations increased significantly in both periods due to an increase in pre-tax operating income and changes in certain book/tax differences accounted for on a flow-through basis for ratemaking and financial reporting purposes. FINANCIAL CONDITION Total plant and property additions including capital leases for the year-to-date period were $104 million. During the first nine months of 1996 short-term debt outstanding declined by $49.6 million. During the first nine months of 1996, the Company redeemed 300,000 shares of 7.08% Cumulative Preferred Stock, par value $100, at $101.85. Also, the Company redeemed $40 million of 9.5% First Mortgage Bonds due 2021 and $6,053,000 of Sinking Fund Debentures and issued $40 million of 8% Junior Subordinated Debentures due 2026. KENTUCKY POWER COMPANY STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (in thousands) OPERATING REVENUES . . . . . . . . . . . . $78,499 $79,532 $245,818 $237,533 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . . 16,821 15,654 58,611 55,390 Purchased Power. . . . . . . . . . . . . 23,643 24,819 68,264 67,446 Other Operation. . . . . . . . . . . . . 9,774 10,854 34,104 33,135 Maintenance. . . . . . . . . . . . . . . 7,485 7,016 22,839 20,675 Depreciation and Amortization. . . . . . 6,288 6,117 18,809 18,236 Taxes Other Than Federal Income Taxes. . 2,246 2,078 6,364 6,098 Federal Income Taxes . . . . . . . . . . 1,849 823 4,975 2,177 TOTAL OPERATING EXPENSES. . . . . 68,106 67,361 213,966 203,157 OPERATING INCOME . . . . . . . . . . . . . 10,393 12,171 31,852 34,376 NONOPERATING LOSS. . . . . . . . . . . . . (97) (57) (526) (157) INCOME BEFORE INTEREST CHARGES . . . . . . 10,296 12,114 31,326 34,219 INTEREST CHARGES . . . . . . . . . . . . . 5,855 6,114 17,760 17,857 NET INCOME . . . . . . . . . . . . . . . . $ 4,441 $ 6,000 $ 13,566 $ 16,362 STATEMENTS OF RETAINED EARNINGS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . . $88,374 $88,075 $91,381 $89,173 NET INCOME . . . . . . . . . . . . . . . . 4,441 6,000 13,566 16,362 CASH DIVIDENDS DECLARED. . . . . . . . . . 6,066 5,730 18,198 17,190 BALANCE AT END OF PERIOD . . . . . . . . . $86,749 $88,345 $86,749 $88,345 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)
September 30, December 31, 1996 1995 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $231,074 $230,054 Transmission . . . . . . . . . . . . . . . . . . . . 263,624 261,619 Distribution . . . . . . . . . . . . . . . . . . . . 317,063 313,783 General. . . . . . . . . . . . . . . . . . . . . . . 63,086 59,611 Construction Work in Progress. . . . . . . . . . . . 41,941 14,590 Total Electric Utility Plant . . . . . . . . 916,788 879,657 Accumulated Depreciation and Amortization. . . . . . 284,803 270,590 NET ELECTRIC UTILITY PLANT . . . . . . . . . 631,985 609,067 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 6,372 6,438 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 1,387 1,031 Accounts Receivable. . . . . . . . . . . . . . . . . 31,678 30,172 Allowance for Uncollectible Accounts . . . . . . . . (49) (259) Fuel . . . . . . . . . . . . . . . . . . . . . . . . 5,124 3,526 Materials and Supplies . . . . . . . . . . . . . . . 11,970 12,481 Accrued Utility Revenues . . . . . . . . . . . . . . 5,059 13,500 Prepayments. . . . . . . . . . . . . . . . . . . . . 1,878 1,701 TOTAL CURRENT ASSETS . . . . . . . . . . . . 57,047 62,152 REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 82,552 82,388 DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 7,666 12,153 TOTAL. . . . . . . . . . . . . . . . . . . $785,622 $772,198 See Notes to Financial Statements.
KENTUCKY POWER COMPANY BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1996 1995 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock - $50 Par Value: Authorized - 2,000,000 Shares Outstanding - 1,009,000 Shares . . . . . . . . . . $ 50,450 $ 50,450 Paid-in Capital. . . . . . . . . . . . . . . . . . . 88,750 78,750 Retained Earnings. . . . . . . . . . . . . . . . . . 86,749 91,381 Total Common Shareholder's Equity. . . . . . 225,949 220,581 First Mortgage Bonds . . . . . . . . . . . . . . . . 179,278 224,235 Notes Payable. . . . . . . . . . . . . . . . . . . . 75,000 - Subordinated Debentures. . . . . . . . . . . . . . . 38,884 38,854 TOTAL CAPITALIZATION . . . . . . . . . . . . 519,111 483,670 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 17,352 15,031 CURRENT LIABILITIES: Long-term Debt Due Within One Year . . . . . . . . . - 29,436 Short-term Debt. . . . . . . . . . . . . . . . . . . 33,250 27,050 Accounts Payable . . . . . . . . . . . . . . . . . . 14,784 21,766 Customer Deposits. . . . . . . . . . . . . . . . . . 3,454 3,704 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 9,204 7,972 Interest Accrued . . . . . . . . . . . . . . . . . . 6,442 5,853 Other. . . . . . . . . . . . . . . . . . . . . . . . 14,306 13,283 TOTAL CURRENT LIABILITIES. . . . . . . . . . 81,440 109,064 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 146,136 145,005 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 17,464 18,397 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 4,119 1,031 CONTINGENCIES (Note 3) TOTAL. . . . . . . . . . . . . . . . . . . $785,622 $772,198 See Notes to Financial Statements.
KENTUCKY POWER COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1996 1995 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 13,566 $ 16,362 Adjustments for Noncash Items: Depreciation and Amortization. . . . . . . . . . . . . . 18,864 18,291 Deferred Federal Income Taxes. . . . . . . . . . . . . . (16) (1,693) Deferred Investment Tax Credits. . . . . . . . . . . . . (933) (943) Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . (1,716) (2,288) Fuel, Materials and Supplies . . . . . . . . . . . . . . (1,087) 2,836 Accrued Utility Revenues . . . . . . . . . . . . . . . . 8,441 3,741 Accounts Payable . . . . . . . . . . . . . . . . . . . . (6,982) (651) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . 1,232 (2,283) Other (net). . . . . . . . . . . . . . . . . . . . . . . . 9,048 (4,749) Net Cash Flows From Operating Activities . . . . . . 40,417 28,623 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . . (38,561) (26,169) Proceeds from Sales of Property. . . . . . . . . . . . . . 250 - Net Cash Flows Used For Investing Activities . . . . (38,311) (26,169) FINANCING ACTIVITIES: Capital Contributions from Parent Company. . . . . . . . . 10,000 - Issuance of Long-term Debt . . . . . . . . . . . . . . . . 74,985 38,647 Change in Short-term Debt (net). . . . . . . . . . . . . . 6,200 (23,850) Retirement of Long-term Debt . . . . . . . . . . . . . . . (74,737) - Dividends Paid . . . . . . . . . . . . . . . . . . . . . . (18,198) (17,190) Net Cash Flows Used For Financing Activities . . . . (1,750) (2,393) Net Increase in Cash and Cash Equivalents. . . . . . . . . . 356 61 Cash and Cash Equivalents at Beginning of Period . . . . . . 1,031 879 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 1,387 $ 940 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $16,920,000 and $17,126,000 and for income taxes was $4,585,000 and $4,092,000 in 1996 and 1995, respectively. Noncash acquisitions under capital leases were $4,571,000 and $2,693,000 in 1996 and 1995, respectively. See Notes to Financial Statements.
KENTUCKY POWER COMPANY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 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. 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. The redemption of this series of first mortgage bonds removed the restriction on the use of retained earnings for common stock dividends. In September 1996 the Company refinanced short-term debt with a $25 million term loan agreement due in 2002 at a 7.445% annual interest rate. 3. CONTINGENCIES The Company continues to be involved in certain matters discussed in its 1995 Annual Report. KENTUCKY POWER COMPANY MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS THIRD QUARTER 1996 vs. THIRD QUARTER 1995 AND YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 1995 Net income decreased $1.6 million or 26% in the comparative third quarter as a result of decreased energy sales to retail customers attributable to milder summer weather in 1996 and increased federal income tax expense. Although operating revenues increased 3%, net income decreased $2.8 million or 17% for the year-to-date period mainly due to increases in maintenance and federal income tax expenses. Income statement items that changed significantly were: Increase (Decrease) Third Quarter Year-To-Date (in millions) % (in millions) % Operating Revenues. . . . . $(1.0) (1) $8.3 3 Fuel Expense. . . . . . . . 1.2 7 3.2 6 Purchased Power Expense . . (1.2) (5) 0.8 1 Other Operation Expense . . (1.1) (10) 1.0 3 Maintenance Expense . . . . 0.5 7 2.2 10 Federal Income Taxes. . . . 1.0 125 2.8 129 For the quarter residential and commercial energy sales declined 11% and 5%, respectively, due to the decreased demand as a result of milder summer temperatures. Although the cooler summer weather reduced the demand for energy, wholesale revenues remained relatively unchanged as a decline in weather-related sales to unaffiliated wholesale customers was offset by new wholesale energy transactions with unaffiliated power marketers. Operating revenues increased for the year-to-date period due to increased energy sales to unaffiliated utilities by the AEP System Power Pool (Power Pool) mainly as a result of weather-related demand in the first six months of the year. Revenues from retail customers were unchanged as the effects of milder summer weather largely offset the impact of colder winter and April weather and warmer May weather. Fuel expense rose in the quarter due to the operation of the fuel clause adjustment mechanism partly offset by decreased generation as a result of a scheduled boiler inspection and repair outage at Big Sandy Plant Unit 2. Under the fuel clause adjustment mechanism the Company defers fuel expense to the extent it varies from the allowed fuel rate. The increase in fuel expense for the year-to-date period was mainly due to increased generation to meet the increase demand for energy in the first six months of 1996. The decrease in purchased power expense for the quarter resulted from a decline in energy purchases from an affiliate under a long-term unit power agreement, reflecting the weather related reduction in demand by retail customers, and decreased energy purchases from unaffiliated utilities for pass-through sales, reflecting the milder summer weather. The increase in year-to-date purchased power expense resulted mainly from increased energy purchases from the Power Pool as a result of increased weather-related demand by unaffiliated utilities during the first six months of the year. Other operation expense decreased in the quarter due to the recognition of gains on the sale of emission allowances. In the year-to-date period other operation expense increased due to a provision for deferred demand side management program costs and the accrual of uncollectible accounts expense, corporate-owned life insurance and AEP Service Corporation billings for engineering and other professional services. Maintenance expense rose in both comparative periods reflecting an increased level of scheduled steam plant maintenance work at the Big Sandy Plant. The increase in federal income tax expense attributable to operations in the comparative quarter and year-to-date periods was primarily due to changes in certain book/tax differences accounted for on a flow-through basis for ratemaking and financial reporting purposes and the completion in March 1996 of Kentucky Public Service Commission ordered amortization of deferred federal income taxes in excess of the statutory tax rate. OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (in thousands) OPERATING REVENUES . . . . . . . . . . . $483,957 $507,516 $1,438,081 $1,360,319 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . 162,606 185,612 485,358 458,591 Purchased Power. . . . . . . . . . . . 17,086 19,315 48,326 49,118 Other Operation. . . . . . . . . . . . 83,518 96,623 245,394 238,429 Maintenance. . . . . . . . . . . . . . 43,645 34,751 114,795 105,951 Depreciation and Amortization. . . . . 34,499 34,001 103,142 101,730 Taxes Other Than Federal Income Taxes. 43,214 44,312 125,949 131,466 Federal Income Taxes . . . . . . . . . 30,137 24,624 90,738 71,557 TOTAL OPERATING EXPENSES . . . 414,705 439,238 1,213,702 1,156,842 OPERATING INCOME . . . . . . . . . . . . 69,252 68,278 224,379 203,477 NONOPERATING INCOME. . . . . . . . . . . 4,338 3,886 6,600 9,295 INCOME BEFORE INTEREST CHARGES . . . . . 73,590 72,164 230,979 212,772 INTEREST CHARGES . . . . . . . . . . . . 18,670 23,356 65,574 70,424 NET INCOME . . . . . . . . . . . . . . . 54,920 48,808 165,405 142,348 PREFERRED STOCK DIVIDEND REQUIREMENTS. . 2,201 3,860 6,681 11,578 EARNINGS APPLICABLE TO COMMON STOCK. . . $ 52,719 $ 44,948 $ 158,724 $ 130,770 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . $552,605 $499,330 $518,029 $483,222 NET INCOME . . . . . . . . . . . . . . . 54,920 48,808 165,405 142,348 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . . . . 35,714 34,857 107,142 104,571 Cumulative Preferred Stock . . . . . 2,167 3,826 6,555 11,476 Capital Stock Expense. . . . . . . . . 43 34 136 102 BALANCE AT END OF PERIOD . . . . . . . . $569,601 $509,421 $569,601 $509,421 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)
September 30, December 31, 1996 1995 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $2,544,263 $2,534,893 Transmission . . . . . . . . . . . . . . . . . . . . 814,041 798,854 Distribution . . . . . . . . . . . . . . . . . . . . 851,689 833,944 General (including mining assets). . . . . . . . . . 681,143 688,253 Construction Work in Progress. . . . . . . . . . . . 71,981 59,278 Total Electric Utility Plant . . . . . . . . 4,963,117 4,915,222 Accumulated Depreciation and Amortization. . . . . . 2,188,562 2,091,148 NET ELECTRIC UTILITY PLANT . . . . . . . . . 2,774,555 2,824,074 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 106,933 107,510 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 72,967 44,000 Accounts Receivable (net). . . . . . . . . . . . . . 212,008 199,293 Fuel . . . . . . . . . . . . . . . . . . . . . . . . 120,157 126,952 Materials and Supplies . . . . . . . . . . . . . . . 78,476 80,468 Accrued Utility Revenues . . . . . . . . . . . . . . 32,522 40,100 Prepayments. . . . . . . . . . . . . . . . . . . . . 44,473 42,286 TOTAL CURRENT ASSETS . . . . . . . . . . . . 560,603 533,099 REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 543,806 562,329 DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 70,811 129,552 TOTAL. . . . . . . . . . . . . . . . . . . $4,056,708 $4,156,564 See Notes to Consolidated Financial Statements.
OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, 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. . . . . . . . . . . . . . . . . . . 460,567 459,474 Retained Earnings. . . . . . . . . . . . . . . . . . 569,601 518,029 Total Common Shareholder's Equity. . . . . . 1,351,369 1,298,704 Cumulative Preferred Stock: Not Subject to Mandatory Redemption. . . . . . . . 38,532 41,240 Subject to Mandatory Redemption. . . . . . . . . . 115,000 115,000 Long-term Debt . . . . . . . . . . . . . . . . . . . 1,002,495 1,138,425 TOTAL CAPITALIZATION . . . . . . . . . . . . 2,507,396 2,593,369 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 237,890 214,726 CURRENT LIABILITIES: Long-term Debt Due Within One Year . . . . . . . . . 67,294 89,207 Short-term Debt. . . . . . . . . . . . . . . . . . . 83,337 9,400 Accounts Payable . . . . . . . . . . . . . . . . . . 100,676 102,580 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 84,028 161,430 Interest Accrued . . . . . . . . . . . . . . . . . . 26,311 20,807 Obligations Under Capital Leases . . . . . . . . . . 23,917 25,172 Other. . . . . . . . . . . . . . . . . . . . . . . . 77,005 80,507 TOTAL CURRENT LIABILITIES. . . . . . . . . . 462,568 489,103 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 737,801 731,959 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 47,318 49,860 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 63,735 77,547 CONTINGENCIES (Note 3) TOTAL. . . . . . . . . . . . . . . . . . . $4,056,708 $4,156,564 See Notes to Consolidated Financial Statements.
OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1996 1995 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 165,405 $ 142,348 Adjustments for Noncash Items: Depreciation, Depletion and Amortization . . . . . . . . 123,326 114,836 Deferred Federal Income Taxes. . . . . . . . . . . . . . 14,291 14,489 Deferred Investment Tax Credits. . . . . . . . . . . . . (2,542) (2,532) Deferred Fuel Costs (net). . . . . . . . . . . . . . . . (8,933) (21,126) Amortization of Deferred Property Taxes. . . . . . . . . 59,738 50,437 Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . (12,715) (39,285) Fuel, Materials and Supplies . . . . . . . . . . . . . . 8,787 12,568 Accrued Utility Revenues . . . . . . . . . . . . . . . . 7,578 2,806 Prepayments. . . . . . . . . . . . . . . . . . . . . . . (2,187) (6,846) Accounts Payable . . . . . . . . . . . . . . . . . . . . (1,904) (30,378) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (77,402) (56,890) Interest Accrued . . . . . . . . . . . . . . . . . . . . 5,504 7,370 Other (net). . . . . . . . . . . . . . . . . . . . . . . . 15,526 30,155 Net Cash Flows From Operating Activities . . . . . . 294,472 217,952 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . . (72,288) (87,302) Proceeds from Sale of Property and Other . . . . . . . . . 7,113 2,571 Net Cash Flows Used For Investing Activities . . . . (65,175) (84,731) FINANCING ACTIVITIES: Change in Short-term Debt (net). . . . . . . . . . . . . . 73,937 14,965 Retirement of Cumulative Preferred Stock . . . . . . . . . (1,752) - Retirement of Long-term Debt . . . . . . . . . . . . . . . (158,818) (44,188) Dividends Paid on Common Stock . . . . . . . . . . . . . . (107,142) (104,571) Dividends Paid on Cumulative Preferred Stock . . . . . . . (6,555) (11,476) Net Cash Flows Used For Financing Activities . . . . (200,330) (145,270) Net Increase (Decrease) in Cash and Cash Equivalents . . . . 28,967 (12,049) Cash and Cash Equivalents at Beginning of Period . . . . . . 44,000 30,700 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 72,967 $ 18,651 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $57,949,000 and $61,043,000 and for income taxes was $79,932,000 and $51,487,000 in 1996 and 1995, respectively. Noncash acquisitions under capital leases were $19,903,000 and $25,908,000 in 1996 and 1995, respectively. See Notes to Consolidated Financial Statements.
OHIO POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 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. 2. FINANCING ACTIVITY During the first nine months of 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. The Company also retired six series of long-term debt before maturity: four series of first mortgage bonds totaling $94 million with rates ranging from 7-5/8% to 9-7/8% and two series of sinking fund debentures totaling $9 million with rates of 6-5/8% and 7-7/8%. As a result of the early redemption of the 9-7/8% Series First Mortgage Bonds due in 2020, the restriction on the use of retained earnings for common stock dividends was reduced from $156.5 million to $23.9 million. 3. CONTINGENCIES The Company continues to be involved in certain matters discussed in the 1995 Annual Report. OHIO POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THIRD QUARTER 1996 vs. THIRD QUARTER 1995 AND YEAR-TO-DATE 1996 vs. YEAR-TO-DATE 1995 RESULTS OF OPERATIONS Although energy sales decreased 4% in the third quarter, net income increased $6.1 million or 13% primarily due to the effect of a $7.2 million after-tax provision for severance pay recorded in 1995 and a reduction in interest charges. Net income increased 16% or $23.1 million in the year-to-date period reflecting a 15% increase in energy sales. Income statement lines which changed significantly were: Increase (Decrease) Third Quarter Year-To-Date (in millions) % (in millions) % Operating Revenues. . . . . $(23.6) (5) $ 77.8 6 Fuel Expense. . . . . . . . (23.0) (12) 26.8 6 Other Operation Expense . . (13.1) (14) 7.0 3 Maintenance Expense . . . . 8.9 26 8.8 8 Federal Income Taxes. . . . 5.5 22 19.2 27 Interest Charges. . . . . . (4.7) (20) (4.9) (7) Operating revenues decreased in the third quarter as a result of decreased energy sales due predominantly to more normal temperatures during the summer of 1996 as compared with the unseasonably warm summer of 1995. Energy sales to weather-sensitive residential and commercial customers declined 10% and 2%, respectively. Sales to wholesale customers decreased 6% during the third quarter of 1996 as a result of a reduction in energy supplied to the AEP System Power Pool (Power Pool) reflecting the weather-related decrease in demand for electricity by customers of the affiliated members of the Power Pool. Energy usage by industrial customers increased slightly during the period. Year-to-date energy sales increased 15% primarily as a result of a 45% increase in energy sales to wholesale customers and increased energy sales to all major retail customer classes. The significant rise in wholesale sales reflects an increase in energy supplied to the Power Pool primarily due to increased weather-related demand for electricity. The unseasonable winter weather in the first quarter of 1996 significantly increased demand for electricity and more than offset the decrease in sales during the third quarter of 1996. Wholesale energy sales by the Power Pool to unaffiliated utilities also increased largely as a result of the weather-related demand for energy during the winter months. Retail energy sales for the comparative nine month period rose 1% reflecting increased usage due to the unseasonable winter weather in 1996 and growth in the number of customers. A retail base rate increase in March 1995 also contributed to the higher revenues in the year-to-date period. The decrease in fuel expense in the third quarter and the increase in the year-to-date period was mainly due to the effect on generation of the weather-related changes in demand. Other operation expense declined in the third quarter primarily due to the effect of the $11.1 million ($7.2 million after-tax) provision for severance pay recorded in 1995. The increase in other operation expense during the first nine months of 1996 was mainly due to rent and other operating costs of the recently installed Gavin Plant scrubbers and amortization, commensurate with recovery in rates, of previously deferred Gavin scrubber expenses. The increases in maintenance expense for both periods were mainly due to increased boiler plant maintenance and maintenance on the new scrubbers. Federal income tax expense attributable to operations also increased in both periods due to an increase in pre-tax operating income and changes in certain book/tax differences accounted for on a flow-through basis for ratemaking and financial reporting purposes. Interest charges declined in both periods due to a reduction in the average levels of long-term debt outstanding and a decrease in commission authorized carrying charges recorded on deferred gains on the sale of emission allowances. FINANCIAL CONDITION Total plant and property additions including capital leases for the first nine months of 1996 were $93 million. During the first nine months of 1996, the Company and a subsidiary retired $158 million principal amount of long-term debt with interest rates ranging from 5% to 9-7/8% and increased short-term debt by $74 million. As a result of the early redemption of the remaining $2.5 million outstanding balance of the 9-7/8% Series First Mortgage Bonds due in 2020, the restriction on the use of retained earnings for the payment of common stock dividends was reduced from $156.5 million to $23.9 million. PART II. OTHER INFORMATION Item 1. Legal Proceedings. American Electric Power Company, Inc. ("AEP") and Ohio Power Company ("OPCo") Reference is made to page 33 of the Annual Report on Form 10-K for the year ended December 31, 1995 ("1995 10-K") for a discussion of litigation instituted by Ormet Primary Aluminum Corporation ("Ormet"), formerly known as Ormet Corporation, regarding the ownership of certain SO2 allowances which OPCo received for its Kammer Plant pursuant to the Clean Air Act Amendments of 1990. On October 23, 1996, the Fourth Circuit issued its opinion reversing the District Court, holding that Ormet's claim raised a federal question justifying federal juris- diction and remanding the case for further proceedings. On November 6, 1996, OPCo filed a Petition for Rehearing and Sugges- tion for Rehearing in banc with the Fourth Circuit. Item 5. Other Information. AEP and OPCo Reference is made to page 6 of the 1995 10-K for a discus- sion of the contracts with Ravenswood Aluminum Corporation ("Ravenswood") and Ormet for the power requirements of their aluminum reduction plants. On October 3, 1996, The Public Utilities Commission of Ohio ("PUCO") approved, with some exceptions, a contract pursuant to which OPCo will continue to provide electric service to Ravens- wood for the period July 1, 1996, through July 31, 2003. On November 1, 1996, OPCo and Ravenswood filed a request with the PUCO for reconsideration of those exceptions. On September 19, 1996, OPCo filed with the PUCO for its approval (i) an interim agreement pursuant to which OPCo will continue to provide electric service to Ormet for the period December 1, 1997 through December 31, 1999 and (ii) a joint peti- tion with an electric cooperative to transfer the right to serve Ormet to the electric cooperative after December 31, 1999. As part of the territorial transfer, OPCo and Ormet entered into an agreement which contains penalties and other provisions designed to avoid having OPCo provide involuntary back-up power to Ormet. AEP Reference is made to page 10 of the 1995 10-K for a discus- sion of AEP's non-regulated business development. AEP Resources International, Limited ("AEPRI"), through a subsidiary, has entered into a joint venture with two Chinese companies to develop and own two 125-megawatt coal-fired units in Henan Pro- vince, China. AEPRI's subsidiary will hold a 70 percent interest and the Chinese partners will hold an aggregate interest of 30 percent. The approximate cost of the facility is $172,000,000. Both units are expected to be operational in 1999. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: AEP, Appalachian Power Company ("APCo") and OPCo Exhibit 10 - Performance Share Incentive Plan as Amended and Restated through November 1, 1996. APCo, Columbus Southern Power Company ("CSPCo"), Indiana Michigan Power Company ("I&M"), Kentucky Power Company ("KEPCo") and OPCo Exhibit 12 - Statement re: Computation of Ratios. AEP, AEP Generating Company ("AEGCo"), APCo, CSPCo, I&M, KEPCo and OPCo Exhibit 27 - Financial Data Schedule. (b) Reports on Form 8-K: AEP, AEGCo, APCo, CSPCo, I&M, KEPCo and OPCo No reports on Form 8-K were filed during the quarter ended September 30, 1996. 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: November 12, 1996 II-3
EX-10 2 American Electric Power System Performance Share Incentive Plan as Amended and Restated through November 1, 1996 Article 1. Establishment and Purpose 1.1 Establishment of the Plan. The Company hereby establishes an incentive compensation plan to be known as the "American Electric Power System Performance Share Incentive Plan" (the "Plan"), as set forth in this document. 1.2 Purposes. The Purposes of the Plan are to provide competitive, longer-term, performance driven, incentive compensation opportunities to Participants, which are directly related to and dependent upon the competitiveness of the longer-term returns realized by the Company's shareholders; and to facilitate ownership of Restricted Stock Units by Participants so as to equate further their long-term financial interests with those of the shareholders. Article 2. Effective Date and Term of Plan The Plan was approved by the Company's shareholders and the Securities and Exchange Commission effective January 1, 1994. While the Board may suspend or terminate the Plan at any time, no such suspension or termination shall adversely affect any outstanding Performance Share Units without the Participant's written consent as specified in Section 12.2. No Performance Share Units shall be granted for Performance Periods commencing after December 31, 2003. Article 3. Definitions Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized: (a) "Award Certificate" means a certificate setting forth the terms and provisions applicable to each grant of Performance Share Units, which shall include, but shall not be limited to, the number of Performance Share Units granted to the Participant, the Performance Measure, the levels of Performance Share Unit payment opportunities based on the Performance Measure, the method of determining earned Performance Share Units pursuant to Section 8.1 and the length of the Performance Period. (b) "Board" means the Board of Directors of the Company. (c) "Committee" shall mean the Human Resources Committee of the Board. (d) "Common Stock" shall mean the common stock of the Company. (e) "Company" means American Electric Power Company, Inc., a New York corporation, and any successor thereto. (f) "Director" means an individual who is a member of the Board. (g) "Disability" shall have the definition set forth in the American Electric Power System Retirement Plan. (h) "Equivalent Stock Ownership Target" means a stock ownership target for each Participant established by the Board which is a combination of Common Stock and Common Stock equivalents held by a Participant. (i) "Fair Market Value" means the closing sale price of the Common Stock, as published in The Wall Street Journal report of New York Stock Exchange - Composite Transactions on the date in question or, if the Common Stock shall not have been traded on such date or if the New York Stock Exchange is closed on such date, then the first day prior thereto on which the Common Stock was so traded. (j) "Participant" means any full-time, nonunion employee of any Subsidiary, who has been selected to participate in the Plan for a stipulated Performance Period by the Committee. (k) "Performance Measure" means, for a period of at least three years, the financial objective to be applied to the Performance Period in which Performance Share Units held by a Participant for a Performance Period are earned, based on the relative ranking of the Company's TSR compared to the TSR's of the companies comprising the S&P Electric Utility Index. (l) "Performance Period" means the period established by the Committee, during which the number of Performance Share Units earned by Participants shall be determined. (m) "Performance Share Unit" means a measure of participation, expressed as a share of Common Stock, received as a grant under Section 7.1 or as a dividend under Section 7.2. (n) "Restricted Stock Unit" means a measure of value, expressed as a share of Common Stock, allocated to a Participant under Section 8.1. No certificates shall be issued with respect to such Restricted Stock Units, but the Company shall maintain a bookkeeping account in the name of the Participant to which the Restricted Stock Units shall relate. (o) "Retirement" means termination of employment with any Subsidiary other than for cause after attaining age 55 and at least five (5) years of service. (p) "Section 162(m)" means Section 162(m) of the Internal Revenue Code of 1986, as amended and applicable interpretive authority thereunder. (q) "Subsidiary" shall mean any corporation in which the Company owns directly or indirectly through its Subsidiaries, at least fifty percent (50%) of the total combined voting power of all classes of stock, or any other entity (including, but not limited to, partnerships and joint ventures) in which the Company owns at least fifty percent (50%) of the combined equity thereof. (r) "Transition Performance Period" means the one (1) and two (2) year Performance Periods that may be made available on a one-time basis to Participants receiving Performance Share Units at the commencement of the Plan and Participants receiving their first grant of Performance Share Units for a Performance Period at any time during the term of the Plan. (s) "TSR" means total shareholder return and is the compound product of the annual TSR amounts obtained by dividing: (1) the sum of: (i) the annual amount of dividends for each year of the Performance Period, assuming dividend reinvestment, and (ii) the difference between the share price at the end and the beginning of each year of the Performance Period; by (2) the share price at the beginning of each year of the Performance Period. Article 4. Administration 4.1 The Committee. The Plan shall be administered by the Committee consisting of not less than three (3) Directors. Each member of the Committee shall at all times while serving be an "outside director" within the meaning of Section 162(m). 4.2 Authority of the Committee. Subject to the provisions herein and to the approval of the Board, the Committee shall have full power for the following: (a) Selecting Participants to whom Performance Share Units are granted. (b) Determining the size and frequency of grants (which need not be the same for each Participant), except as limited by Article 5. (c) Construing and interpreting the Plan and any agreement or instrument entered into under the Plan. (d) Establishing, amending, rescinding or waiving rules and regulations for the Plan's administration. (e) Amending, modifying, and/or terminating the Plan, subject to the provisions of Article 12 herein. Further, the Committee shall have the full power to make all other determinations which may be necessary or advisable for the administration of the Plan, to the extent consistent with the provisions of the Plan, and subject to the approval of the Board. As permitted by law, the Committee may delegate its authority as identified hereunder; provided, however, that the Committee may not delegate certain of its responsibilities hereunder if such delegation may jeopardize compliance with the "outside directors" provision of Section 162(m). 4.3 Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Plan, and all related orders or resolutions of the Board shall be final, conclusive, and binding on all persons, including the Company, its shareholders, Participants and their estates, and beneficiaries. Article 5. Maximum Awards and Adjustments 5.1 Maximum Amount Available for Awards. The maximum number of Performance Share Units which may be earned during the term of the Plan on an aggregate basis is 1,000,000 and, for one Performance Period, the maximum number of Performance Share Units which may be earned by a Participant is 25,000. Not more than 1,000,000 shares of Common Stock will be available for delivery upon payment for Performance Share Units earned under the Plan. The shares to be delivered under the Plan will be made available from shares reacquired by the Company. The limitations in this Section 5.1 on the maximum amount of Performance Share Units and shares of Common Stock available under the Plan are subject to adjustment as provided in Section 5.2. 5.2 Adjustments. If the Committee determines that the occurrence of any merger, reclassification, consolidation, recapitalization, stock dividend or stock split requires an adjustment in order to preserve the benefits intended under the Plan, then the Committee may, in its discretion, make equitable proportionate adjustments in the maximum number of Performance Share Units which may be earned on an aggregate basis or by a Participant, the maximum number of shares of Common Stock which may be delivered, as specified in Section 5.1, and the number of Restricted Stock Units held by a Participant. Article 6. Eligibility and Participation 6.1 Eligibility. Eligibility for participation in the Plan shall be limited to senior officers of the Company and/or its Subsidiaries who, in the opinion of the Committee, have the capacity for contributing in a substantial measure to the successful performance of the Company. 6.2 Actual Participation. Participation in the Plan shall begin on the first day of each Performance Period. At the beginning of each Performance Period, the Committee will identify which, if any, Participants shall receive a grant of Performance Share Units for that Performance Period. As soon as practicable following selection, a Participant shall receive an Award Certificate. Article 7. Grants of Performance Share Units 7.1 Grant Timing, Frequency and Number. Performance Share Units may be granted to Participants as of the first day of each Performance Period on an annual basis. It is intended that Performance Periods will overlap. However, grants do not necessarily have to be on an annual basis. The number of Performance Share Units to be granted to each Participant shall be determined by the Committee in its sole discretion. 7.2 Dividends. During the Performance Period, Participants will be credited with dividends, equivalent in value to those declared and paid on shares of the Common Stock, on all Performance Share Units granted to them. These dividends will be regarded as having been reinvested in Performance Share Units on the date of the Common Stock dividend payments based on the then Fair Market Value of the Common Stock, thereby increasing the number of Performance Share Units held by a Participant. Participants will be credited with dividend equivalents, equal in value to those declared and paid on shares of Common Stock, on all Restricted Stock Units allocated to the Participants. Dividend equivalents on Restricted Stock Units required to be held pursuant to Section 8.2 or deferred pursuant to Section 8.4 will be regarded as having been reinvested in Restricted Stock Units on the date of the Common Stock dividend payments based on the then Fair Market Value of the Common Stock, thereby increasing the number of Restricted Stock Units held by a Participant. 7.3 Performance Periods. Subject to the next sentence, the Committee shall establish Performance Periods in its discretion. Performance Periods shall, in all cases, be at least three (3) years in length, except for the Transition Performance Periods. The first Performance Periods shall be the one (1) and two (2) year Transition Performance Periods ending December 31, 1994 and December 31, 1995, respectively, and the three-year period beginning January 1, 1994 and ending December 31, 1996. Performance Share Units granted as part of the initial grant of Performance Share Units for such Performance Periods shall be deemed to be granted as of the first day of such Performance Periods. Article 8. Determination and Payment 8.1 Determination. The number of Performance Share Units earned by a Participant for a Performance Period shall be determined by multiplying the number of Performance Share Units held by the Participant at the end of the Performance Period by a factor based upon the Performance Measure. No Performance Share Units shall be earned by any Participant if, at the end of the Performance Period, shareholders do not realize a positive TSR under the Performance Measure. In any event, the Committee may, at its discretion, reduce the number of Performance Share Units earned by any Participant for a Performance Period. Earned Performance Share Units shall be converted to Restricted Stock Units if the Participant has not met the Equivalent Stock Ownership Target. A Participant shall receive one Restricted Stock Unit for each earned Performance Share Unit. Once a Participant has attained the Equivalent Stock Ownership Target, earned Performance Share Units shall be paid to the Participant at the end of the Performance Period as provided in Section 8.3 or may be deferred by the Participant as provided in Section 8.4. 8.2 Holding of Restricted Stock Units. Restricted Stock Units required to meet the Equivalent Stock Ownership Target will be held until the Participant terminates employment at which time the Participant shall receive payment for the Restricted Stock Units unless the Participant has elected deferral of such payment in accordance with Section 8.4. 8.3 Payment of Restricted Stock Units and Earned Performance Share Units. The payment of Restricted Stock Units that were required to be held pursuant to Section 8.2 shall be made in cash or shares of Common Stock, or a combination of both, as then elected by the Participant. Any cash payments of Restricted Stock Units shall be calculated on the basis of the average of the Fair Market Value of the Common Stock for the last 20 trading days prior to the date the Participant terminates employment. Payment in Common Stock shall be at the rate of one share of Common Stock for each Restricted Stock Unit. The payment of earned Performance Share Units not required to be converted to Restricted Stock Units pursuant to Section 8.1 shall be made in cash or shares of Common Stock, or a combination of both, as then elected by the Participant. Any cash payment of earned Performance Share Units shall be calculated on the basis of the average of the Fair Market Value of the Common Stock for the last 20 trading days of the Performance Period for which the Performance Share Units were earned. Payment in Common Stock shall be at the rate of one share of Common Stock for each earned Performance Share Unit. 8.4 Deferrals. Once the Participant attains the Equivalent Stock Ownership Target, the Participant may make annual elections to defer the payment of subsequent earned Performance Share Units for one or more years; however, if the Participant's deferral period extends beyond the Participant's employment termination date, payment will be made no later than five years after the Participant's termination of employment. The deferral election must be made at least one year prior to the end of the Performance Period for which the Participant has received an allocation with regard to a Performance Period and each earned Performance Share Unit shall be converted into a Restricted Stock Unit. The Participant may also elect to defer the payment of Restricted Stock Units provided under Section 8.2 for a period of one or more years up to a maximum of five years following termination of employment, but such election must be made at least one year prior to termination of employment. Payment of the elective deferrals will be made at the end of the deferral period in cash or shares of Common Stock, or a combination of both as then elected by the Participant. Cash payments of Restricted Stock Units shall be calculated on the basis of the average of the Fair Market Value of the Common Stock for the last 20 trading days of the deferral period. Payment in Common Stock shall be at the rate of one share of Common Stock for each Restricted Stock Unit. 8.5 Performance Share Units Granted in 1994. Performance Share Units granted in 1994 for the two Transition Performance Periods ending December 31, 1994 and December 31, 1995 and for the Performance Period ending December 31, 1996 shall be paid 50% in cash and 50% in Common Stock unless the Participant consents to have the Performance Share Units earned for the Transition Performance Period ending December 31, 1995 and the Performance Share Units earned for the Performance Period ending December 31, 1996 paid in accordance with the provisions of Sections 8.1 through 8.4. The payment in cash and Common Stock shall be as provided in the second paragraph of Section 8.3. 8.6 Limitations on Sales of Common Stock. A Participant shall not be permitted to sell the shares of Common Stock distributed to such Participant pursuant to Section 8.5 which are required to meet the Equivalent Stock Ownership Target until the Participant terminates employment with the Subsidiaries. In order to enforce the limitations imposed upon the shares of Common Stock distributed pursuant to Section 8.5, the Committee may (i) direct the delivery of stock certificates to Participants to be withheld until the shares of Common Stock covered by such certificates may be sold by the Participant, (ii) cause a legend or legends to be placed on any such certificates, and/or (iii) issue "stop transfer" instructions as it deems necessary or appropriate. Holders of shares of Common Stock limited as to sale under this Section 8.6 shall have rights as a shareholder with respect to such shares to receive dividends in cash or other property or other distribution or rights in respect of such shares and to vote such shares as the record owner thereof. Article 9. Termination of Employment 9.1 Termination of Employment Due to Death, Disability, Retirement or Involuntary Termination Other Than for Cause. In the event of a Participant's termination of employment with the Subsidiaries, prior to the end of a Performance Period but after the first six months of such Performance Period, by reason of the Participant's death, Disability, Retirement or involuntary termination other than for cause, the Participant will be eligible to earn prorated Performance Share Units for each such Performance Period which has not yet ended, determined pursuant to Section 8.1 for such period and the number of days of participation during such Performance Period. In the case of the Transition Performance Periods, the Performance Share Units earned would not be subject to proration if the employment period and termination conditions specified in this Section 9.1 were met. 9.2 Termination for Reasons Other Than Death, Disability, Retirement or Involuntary Termination Other Than for Cause. In the event a Participant's employment is terminated for reasons other than death, Disability, Retirement or involuntary termination other than for cause, all rights to any unearned Performance Share Units under the Plan shall be forfeited. Article 10. Beneficiary Designation 10.1 Designation of Beneficiary. Each Participant shall be entitled to designate a beneficiary or beneficiaries who, following the Participant's death, will be entitled to receive any amounts that otherwise would have been paid to the Participant under the Plan. All designations shall be signed by the Participant, and shall be in such form as prescribed by the Committee. Each designation shall be effective as of the date delivered to the Company by the Participant. The Participant may change his or her designation of beneficiary on such form as prescribed by the Committee. The payment of any amounts owing to a Participant pursuant to such Participant's outstanding Performance Share Units or Restricted Stock Units held under the Plan shall be in accordance with the last unrevoked written designation of beneficiary that has been signed by the Participant and delivered by the Participant to the Company prior to the Participant's death. 10.2 Death of Beneficiary. In the event that all of the beneficiaries named by a Participant pursuant to Section 10.1 herein predecease the Participant, any amounts that would have been paid to the Participant or the Participant's beneficiaries under the Plan shall be paid to the Participant's estate. Article 11. Rights of Participants 11.1 Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or Subsidiary. 11.2 Participation. No Participant shall at any time have a right to be selected for participation in the Plan for any Performance Period, despite having been selected for participation in a previous Performance Period. 11.3 Nontransferability. No Performance Share Units held by a Participant or Restricted Stock Units held pursuant to Sections 8.2 or 8.4 may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. 11.4 Rights to Common Stock. Performance Share Units or Restricted Stock Units do not give a Participant any rights whatsoever with respect to shares of Common Stock until such time and to such extent that payment of earned Performance Share Units or Restricted Stock Units is made in shares of Common Stock as requested by the Participant. Article 12. Amendment, Modification and Termination 12.1 Amendment, Modification and Termination. The Committee may amend or modify the Plan at any time, with the approval of the Board. However, without the approval of the shareholders of the Company, no such amendment or modification may: (a) Materially modify the eligibility requirements of the Plan. (b) Materially increase the benefits accruing to Participants under the Plan. (c) Materially increase the number of Performance Share Units which may be earned on an aggregate basis or by a Participant (except as provided in Section 5.2). (d) Materially increase the maximum number of shares of Common Stock available for payment under the Plan (except as provided in Section 5.2). (e) Modify the Performance Measure and the method of determining Performance Share Units earned pursuant to Section 8.1, except as may be permitted by Section 162(m). 12.2 Performance Share Units Previously Granted. No termination, amendment or modification of the Plan shall in any manner adversely affect any outstanding Performance Share Units or Restricted Stock Units under the Plan, without the written consent of the Participant holding such Performance Share Units or Restricted Stock Units. Article 13. Miscellaneous Provisions 13.1 Costs of the Plan. The costs of the Plan awards shall be paid directly by the Subsidiary that pays each Participant's base salary during the Performance Period. Although not prohibited from doing so, the Subsidiary is not required in any way to segregate assets in any manner or to specifically fund the benefits provided under the Plan. 13.2 Relationship to Other Benefits. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, group insurance, or other benefit plan of the Company and/or its Subsidiaries. 13.3 Governing Law. To the extent not preempted by Federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of New York. EX-27 3 ARTICLE UT FIN. DATA SCH. FOR 10-Q
UT 0000004904 AMERICAN ELECTRIC POWER COMPANY, INC. 1,000 9-MOS DEC-31-1995 SEP-30-1996 PER-BOOK 11,340,685 866,659 1,396,812 206,709 1,875,724 15,686,589 1,279,427 1,702,102 1,528,045 4,509,574 490,225 115,365 4,813,827 69,364 0 205,987 72,297 25,007 330,337 93,260 4,961,346 15,686,589 4,403,144 279,838 3,350,814 3,630,652 772,492 3,558 776,050 289,266 455,002 31,782 455,002 336,651 190,437 984,560 $2.43 $2.43 Represents preferred stock dividend requirements of subsidiaries; deducted before computation of net income.
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