-----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, ISUjk1UMmSvLrWwbkIhf14HLquVUdLo0L2dowE3ONAUyXZwO4BnvWORdI/otw4bd l6pkeNluiOxNqa0LnjPLiQ== 0000004904-97-000064.txt : 19970520 0000004904-97-000064.hdr.sgml : 19970520 ACCESSION NUMBER: 0000004904-97-000064 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 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: 97606421 BUSINESS ADDRESS: STREET 1: 1 RIVERSIDE PLZ CITY: COLUMBUS STATE: OH ZIP: 43215 BUSINESS PHONE: 6142231000 FORMER COMPANY: FORMER CONFORMED NAME: KINGSPORT UTILITIES INC DATE OF NAME CHANGE: 19660906 10-Q 1 THE CONSOLIDATED 10-Q FOR AMERICAN ELECTRIC POWER CO., INC, AND SUBSIDIARIES IS REQUESTED TO BE INCLUDED AS PART OF THE FILING. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended March 31, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Transition Period from to
Commission Registrant; State of Incorporation; I. R. S. Employer File Number Address; and Telephone Number Identification No. 1-3525 AMERICAN ELECTRIC POWER COMPANY, INC. 13-4922640 (A New York Corporation) 1 Riverside Plaza, Columbus, Ohio 43215 Telephone (614) 223-1000 0-18135 AEP GENERATING COMPANY (An Ohio Corporation) 31-1033833 1 Riverside Plaza, Columbus, Ohio 43215 Telephone (614) 223-1000 1-3457 APPALACHIAN POWER COMPANY (A Virginia Corporation) 54-0124790 40 Franklin Road, Roanoke, Virginia 24011 Telephone (540) 985-2300 1-2680 COLUMBUS SOUTHERN POWER COMPANY (An Ohio Corporation) 31-4154203 215 North Front Street, Columbus, Ohio 43215 Telephone (614) 464-7700 1-3570 INDIANA MICHIGAN POWER COMPANY (An Indiana Corporation) 35-0410455 One Summit Square P.O. Box 60, Fort Wayne, Indiana 46801 Telephone (219) 425-2111 1-6858 KENTUCKY POWER COMPANY (A Kentucky Corporation) 61-0247775 1701 Central Avenue, Ashland, Kentucky 41101 Telephone (800) 572-1141 1-6543 OHIO POWER COMPANY (An Ohio Corporation) 31-4271000 301 Cleveland Avenue S.W., Canton, Ohio 44702 Telephone (330) 456-8173 AEP Generating Company, Columbus Southern Power Company and Kentucky Power Company meet the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H(2) to Form 10-Q. Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of American Electric Power Company, Inc. Common Stock, par value $6.50, at April 30, 1997 was 188,710,000. /TABLE AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES FORM 10-Q For The Quarter Ended March 31, 1997 INDEX
Page Part I. FINANCIAL INFORMATION American Electric Power Company, Inc. and Subsidiary Companies: Consolidated Statements of Income and Consolidated Statements of Retained Earnings . . . . . . . A-1 Consolidated Balance Sheets. . . . . . . . . . . . . . . . . A-2 - A-3 Consolidated Statements of Cash Flows. . . . . . . . . . . . A-4 Notes to Consolidated Financial Statements . . . . . . . . . A-5 - A-6 Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . . A-7 - A-9 AEP Generating Company: Statements of Income and Statements of Retained Earnings . . B-1 Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . B-2 - B-3 Statements of Cash Flows . . . . . . . . . . . . . . . . . . B-4 Notes to Financial Statements. . . . . . . . . . . . . . . . B-5 Management's Narrative Analysis of Results of Operations . . B-5 - B-6 Appalachian Power Company and Subsidiaries: Consolidated Statements of Income and Consolidated Statements of Retained Earnings . . . . . . . C-1 Consolidated Balance Sheets. . . . . . . . . . . . . . . . . C-2 - C-3 Consolidated Statements of Cash Flows. . . . . . . . . . . . C-4 Notes to Consolidated Financial Statements . . . . . . . . . C-5 Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . . C-6 - C-7 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-8 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 March 31, 1997 INDEX Page Ohio Power Company and Subsidiaries: Consolidated Statements of Income and Consolidated Statements of Retained Earnings . . . . . . G-1 Consolidated Balance Sheets. . . . . . . . . . . . . . . . G-2 - G-3 Consolidated Statements of Cash Flows. . . . . . . . . . . G-4 Notes to Consolidated Financial Statements . . . . . . . . G-5 - G-6 Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . G-7 - G-8 Part II. OTHER INFORMATION Item 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1 Item 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 March 31, 1997 1996 OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . $1,492,069 $1,517,781 OPERATING EXPENSES: Fuel and Purchased Power . . . . . . . . . . . . . . . . 434,697 440,977 Other Operation. . . . . . . . . . . . . . . . . . . . . 302,280 303,708 Maintenance. . . . . . . . . . . . . . . . . . . . . . . 99,385 105,423 Depreciation and Amortization. . . . . . . . . . . . . . 151,952 149,114 Taxes Other Than Federal Income Taxes. . . . . . . . . . 126,614 127,626 Federal Income Taxes . . . . . . . . . . . . . . . . . . 105,163 98,811 TOTAL OPERATING EXPENSES. . . . . . . . . . . . . 1,220,091 1,225,659 OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . 271,978 292,122 NONOPERATING INCOME (LOSS) . . . . . . . . . . . . . . . . 4,509 (1,127) INCOME BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS . . 276,487 290,995 INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . 93,822 100,025 PREFERRED STOCK DIVIDEND REQUIREMENTS OF SUBSIDIARIES. . . 10,103 10,958 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . $ 172,562 $ 180,012 AVERAGE NUMBER OF SHARES OUTSTANDING . . . . . . . . . . . 188,347 186,723 EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . . . $0.92 $0.96 CASH DIVIDENDS PAID PER SHARE. . . . . . . . . . . . . . . $0.60 $0.60
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . . . . $1,547,746 $1,409,645 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 172,562 180,012 DEDUCTIONS: Cash Dividends Declared. . . . . . . . . . . . . . . . . 112,943 111,983 Other. . . . . . . . . . . . . . . . . . . . . . . . . . (411) (178) BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . . . $1,607,776 $1,477,852 See Notes to Consolidated Financial Statements. /TABLE AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1997 1996 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $ 9,353,218 $ 9,341,849 Transmission . . . . . . . . . . . . . . . . . . . . 3,379,638 3,380,258 Distribution . . . . . . . . . . . . . . . . . . . . 4,432,353 4,402,449 General (including mining assets and nuclear fuel) . 1,506,921 1,491,781 Construction Work in Progress. . . . . . . . . . . . 395,070 353,832 Total Electric Utility Plant . . . . . . . . 19,067,200 18,970,169 Accumulated Depreciation and Amortization. . . . . . 7,650,991 7,549,798 NET ELECTRIC UTILITY PLANT . . . . . . . . . 11,416,209 11,420,371 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 917,497 892,674 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 86,083 57,539 Accounts Receivable. . . . . . . . . . . . . . . . . 584,514 535,024 Allowance for Uncollectible Accounts . . . . . . . . (7,437) (3,692) Fuel . . . . . . . . . . . . . . . . . . . . . . . . 215,067 235,257 Materials and Supplies . . . . . . . . . . . . . . . 246,168 251,896 Accrued Utility Revenues . . . . . . . . . . . . . . 153,941 174,966 Prepayments. . . . . . . . . . . . . . . . . . . . . 129,444 103,891 TOTAL CURRENT ASSETS . . . . . . . . . . . . 1,407,780 1,354,881 REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 1,871,497 1,889,482 DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 292,707 328,139 TOTAL. . . . . . . . . . . . . . . . . . . $15,905,690 $15,885,547 See Notes to Consolidated Financial Statements.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1997 1996 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock-Par Value $6.50: 1997 1996 Shares Authorized . . . .300,000,000 300,000,000 Shares Issued . . . . . .197,709,992 197,234,992 (8,999,992 shares were held in treasury) . . . . . $ 1,285,115 $ 1,282,027 Paid-in Capital. . . . . . . . . . . . . . . . . . . 1,731,695 1,715,554 Retained Earnings. . . . . . . . . . . . . . . . . . 1,607,776 1,547,746 Total Common Shareholders' Equity. . . . . . 4,624,586 4,545,327 Cumulative Preferred Stocks of Subsidiaries: Not Subject to Mandatory Redemption. . . . . . . . 46,933 90,323 Subject to Mandatory Redemption. . . . . . . . . . 127,605 509,900 Long-term Debt . . . . . . . . . . . . . . . . . . . 4,786,636 4,796,768 TOTAL CAPITALIZATION . . . . . . . . . . . . 9,585,760 9,942,318 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 1,065,046 1,002,208 CURRENT LIABILITIES: Preferred Stock and Long-term Debt Due Within One Year. . . . . . . . . . . . . . . . 344,039 86,942 Short-term Debt. . . . . . . . . . . . . . . . . . . 334,318 319,695 Accounts Payable . . . . . . . . . . . . . . . . . . 158,749 206,227 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 476,480 414,173 Interest Accrued . . . . . . . . . . . . . . . . . . 111,530 75,124 Obligations Under Capital Leases . . . . . . . . . . 83,827 89,553 Other. . . . . . . . . . . . . . . . . . . . . . . . 328,069 304,323 TOTAL CURRENT LIABILITIES. . . . . . . . . . 1,837,012 1,496,037 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 2,621,692 2,643,143 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 398,168 404,050 DEFERRED GAIN ON SALE AND LEASEBACK - ROCKPORT PLANT UNIT 2. . . . . . . . . . . . . . . . 238,278 240,598 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 159,734 157,193 CONTINGENCIES (Note 4) TOTAL. . . . . . . . . . . . . . . . . . . $15,905,690 $15,885,547 See Notes to Consolidated Financial Statements.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 172,562 $ 180,012 Adjustments for Noncash Items: Depreciation and Amortization. . . . . . . . . . . . . . 151,716 146,776 Deferred Federal Income Taxes. . . . . . . . . . . . . . (8,192) (8,519) Deferred Investment Tax Credits. . . . . . . . . . . . . (5,836) (5,878) Amortization of Operating Expenses and Carrying Charges (net) . . . . . . . . . . . . . . . . 1,295 15,411 Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . (45,745) (53,764) Fuel, Materials and Supplies . . . . . . . . . . . . . . 25,918 28,818 Accrued Utility Revenues . . . . . . . . . . . . . . . . 21,025 44,386 Prepayments. . . . . . . . . . . . . . . . . . . . . . . (25,553) (51,954) Accounts Payable . . . . . . . . . . . . . . . . . . . . (47,478) (34,617) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . 62,307 50,842 Interest Accrued . . . . . . . . . . . . . . . . . . . . 36,406 43,992 Rent Accrued - Rockport Plant Unit 2 . . . . . . . . . . 39,928 36,928 Other (net). . . . . . . . . . . . . . . . . . . . . . . . 38,658 20,742 Net Cash Flows From Operating Activities . . . . . . 417,011 413,175 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . . (125,687) (90,517) Proceeds from Sale of Property and Other . . . . . . . . . 1,048 2,788 Net Cash Flows Used For Investing Activities . . . . (124,639) (87,729) FINANCING ACTIVITIES: Issuance of Common Stock . . . . . . . . . . . . . . . . . 19,572 14,573 Issuance of Long-term Debt . . . . . . . . . . . . . . . . 274,352 256,845 Change in Short-term Debt (net). . . . . . . . . . . . . . 14,623 (199,949) Retirement of Cumulative Preferred Stock . . . . . . . . . (382,932) (7,500) Retirement of Long-term Debt . . . . . . . . . . . . . . . (76,500) (167,966) Dividends Paid on Common Stock . . . . . . . . . . . . . . (112,943) (111,983) Net Cash Flows Used For Financing Activities . . . . (263,828) (215,980) Net Increase in Cash and Cash Equivalents. . . . . . . . . . 28,544 109,466 Cash and Cash Equivalents at Beginning of Period . . . . . . 57,539 79,955 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 86,083 $ 189,421 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $54,005,000 and $52,763,000 and for income taxes was $3,839,000 and $9,074,000 in 1997 and 1996, respectively. Noncash acquisitions under capital leases were $56,916,000 and $50,899,000 in 1997 and 1996, respectively. See Notes to Consolidated Financial Statements. /TABLE AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial state-ments should be read in conjunction with the 1996 Annual Report as incorporated in and filed with the Form 10-K. 2. FINANCING AND RELATED ACTIVITIES During the first three months of 1997, subsidiaries issued two series of first mortgage bonds totaling $96 million at 6.35% and 6.4% due in 2000 and $180 million of junior subordinated deferrable interest debentures at 7.92% and 8% due in 2027. The proceeds were used during the first quarter to retire: two series of first mortgage bonds totaling $56 million with interest rates ranging from 8.75% to 9.35% and due dates ranging from 2021 to 2022 and a $20 million term loan with an interest rate of 7.19% at maturity. Two subsidiaries redeemed cumulative preferred stock at a total cost of $54 million: the entire 500,000 shares of 7-7/8% series and 16,263 shares of 4.56% series. In March 1997 the Company, as part of a tender offer for certain subsidiaries' preferred stock, reacquired and retired the following number of shares at the range of prices listed plus an amount equal to accrued dividends: Number Total of Shares Reacquisition Series Retired Price Range Price (in thousands) 4.08%-4.56% 417,644 $ 62.31-$ 69.94 $ 28,192 5.90%-5.92% 1,515,900 101.83- 103.20 156,074 6.02%-6-7/8% 1,307,050 103.71- 107.26 137,071 7.80% 22,500 105.50 2,374 In April 1997, a subsidiary issued $300 million of adjustable interest rate debt under a revolving credit agreement which expires in June 1999. The initial rate is 5.93% for two months. A subsidiary redeemed 478,133 shares of cumulative preferred stock for approximately $50 million in April and May 1997. In April 1997, two subsidiaries each called their entire $50 million outstanding balance of 8.75% Series First Mortgage Bonds due in 2022 for early redemption in the second quarter of 1997. Consequently the bonds are classified as a current liability on the balance sheet. 3. YORKSHIRE ACQUISITION The tender offer for all of the outstanding shares of Yorkshire Electricity Group plc, a distribution company in the United Kingdom, by the Company and Public Service Company of Colorado through an equally owned joint venture was declared wholly unconditional in April 1997. Total consideration to be paid was estimated to be $2.4 billion which was financed by a combination of equity and non-recourse debt. The investment in the joint venture is not shown in these statements. 4. CONTINGENCIES As discussed in Note 9, "Federal Income Taxes" of the Notes to Consolidated Financial Statements in the 1996 Annual Report, the Internal Revenue Service agents auditing the federal income tax returns for the years 1991 through 1993 requested a ruling from their National Office that certain interest deductions relating to corporate owned life insurance (COLI) claimed by the Company for 1991 through 1993 should not be allowed. The COLI program was established in 1990 as part of the Company's strategy to fund and reduce the cost of medical benefits for retired employees. The Company filed a brief with the IRS National Office refuting the agents' position. Although no adjustments have been proposed, a disallowance of the COLI interest deductions through March 31, 1997 would reduce earnings by approximately $260 million (including interest). Management believes it will ultimately prevail on this issue and will vigorously contest any adjustments that may be assessed. The Company continues to be involved in certain other matters discussed in the 1996 Annual Report. AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1997 vs. FIRST QUARTER 1996 RESULTS OF OPERATIONS Net income decreased 4% or $7.45 million due primarily to a 3% weather-related decline in retail energy sales, partially offset by increased nonoperating income, lower interest charges and lower preferred stock dividends. Income statement lines which changed significantly were: Increase (Decrease) (in millions) % Operating Revenues . . . . . . . . . . $(25.7) (2) Fuel and Purchased Power Expense . . . (6.3) (1) Maintenance Expense. . . . . . . . . . (6.0) (6) Federal Income Taxes . . . . . . . . . 6.4 6 Nonoperating Income. . . . . . . . . . 5.6 N.M. Interest Charges . . . . . . . . . . . (6.2) (6) N.M. = Not Meaningful The decrease in operating revenues was predominantly due to the 3% decrease in energy sales to retail customers resulting from the milder winter weather in 1997. Sales to weather-sensitive residential and commercial customers decreased 8% and 1%, respectively, and industrial sales were flat. Revenues from wholesale customers were flat while sales increased 10% due to a lower average wholesale price per kilowatt. The wholesale kilowatt sales increase is primarily due to increased coal conversion service sales and related transmission service sales. Coal conversion service sales are from the conversion of customers' coal to electricity. The substantial increase in coal conversion service sales demonstrates the acceptance of this new service by customers who are able to obtain low cost spot market coal. The decrease in fuel and purchased power expense is primarily due to reduced generation resulting from lower energy demand offset in part by increased purchases from an unaffiliated utility with favorably priced power. Maintenance expense declined due to lower expenditures for maintenance of transmission and distribution facilities. The increase in federal income tax expense attributable to operations was primarily due to changes in certain book/tax differences accounted for on a flow-through basis for rate-making purposes, including recent federal legislation limiting corporate owned life insurance tax benefits, partially offset by a decrease in pre-tax operating income. Nonoperating income increased due to the effect of losses in 1996 for deferred demand side management program costs and the clean-up of underground storage tanks at one of the Company's facilities. The decline in interest charges is primarily due to the reduction in outstanding balances of long-term debt and refinancings at lower interest rates on both long-term and short-term borrowings. FINANCIAL CONDITION Total plant and property additions including capital leases for the current period were $183 million. During the quarter subsidiaries issued $277 million principal amount of long-term debt at interest rates ranging from 6.35% to 8%, retired $76 million principal amount of long-term debt at interest rates ranging from 7.19% to 9.35%, redeemed 3,779,357 shares of cumulative preferred stock at a total cost of $383 million and increased short-term debt by $15 million. In April and May 1997, a subsidiary redeemed 478,133 shares of cumulative preferred stock for approximately $50 million. In April 1997, a subsidiary issued $300 million adjustable rate debt under a revolving credit agreement with an initial rate of 5.93% for two months as part of the funding for the acquisition of Yorkshire Electricity Group plc. Two subsidiaries each called $50 million of outstanding 8.75% Series First Mortgage Bonds due in 2022 for early redemption in the second quarter of 1997. Consequently the bonds are classified as a current liability on the balance sheet. YORKSHIRE ACQUISITION The tender offer for all of the outstanding shares of Yorkshire Electricity Group plc (Yorkshire Electricity) a distribution company in the United Kingdom, by Yorkshire Holdings plc (YH), a wholly owned subsidiary of Yorkshire Power Group Limited (YPG), an equally owned joint venture of the Company and Public Service Company of Colorado (PSCo), was declared wholly unconditional in all respects on April 1, 1997. YH is committed to purchase all the outstanding shares of Yorkshire Electricity. As of April 9, 1997, valid acceptance of the offer to purchase shares of Yorkshire Electricity had been received representing over 90% of Yorkshire Electricity's issued share capital. Under the provisions of the United Kingdom's Companies Act 1985, YH has exercised its rights to acquire, under the terms of the offer, the remaining shares in Yorkshire Electricity for which acceptances of the offer have not been received. Total consideration to be paid by the joint venture partners was estimated to be approximately $2.4 billion. The acquisition was financed through a combination of approximately 25% equity and 75% debt, including the assumption of the existing debt of Yorkshire Electricity. The funds for the acquisition will be obtained from the Company's and PSCo's investment in YPG, the joint venture, of approximately $360 million each, and the issuance by YPG of non-recourse debt. The investment in the joint venture is not shown in these statements. AEP GENERATING COMPANY STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . . . $59,096 $57,484 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,350 23,532 Rent - Rockport Plant Unit 2 . . . . . . . . . . . . . . . . 17,071 17,077 Other Operation. . . . . . . . . . . . . . . . . . . . . . . 3,130 3,149 Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . 2,386 3,493 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . 5,395 5,413 Taxes Other Than Federal Income Taxes. . . . . . . . . . . . 879 975 Federal Income Taxes . . . . . . . . . . . . . . . . . . . . 757 1,051 TOTAL OPERATING EXPENSES . . . . . . . . . . . . . . 56,968 54,690 OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . 2,128 2,794 NONOPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 850 790 INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . . . . . 2,978 3,584 INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . . . 941 1,086 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,037 $ 2,498
STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . $1,886 $1,955 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . 2,037 2,498 CASH DIVIDENDS DECLARED. . . . . . . . . . . . . . . . . . . . 1,286 2,500 BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . . . . . $2,637 $1,953 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Financial Statements. /TABLE AEP GENERATING COMPANY BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1997 1996 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production. . . . . . . . . . . . . . . . . . . . . . . . $627,666 $627,926 General . . . . . . . . . . . . . . . . . . . . . . . . . 2,923 2,931 Construction Work in Progress . . . . . . . . . . . . . . 1,657 1,400 Total Electric Utility Plant. . . . . . . . . . . 632,246 632,257 Accumulated Depreciation. . . . . . . . . . . . . . . . . 243,710 238,532 NET ELECTRIC UTILITY PLANT. . . . . . . . . . . . 388,536 393,725 CURRENT ASSETS: Cash and Cash Equivalents . . . . . . . . . . . . . . . . 10,333 139 Accounts Receivable . . . . . . . . . . . . . . . . . . . 20,789 18,879 Fuel. . . . . . . . . . . . . . . . . . . . . . . . . . . 10,575 17,792 Materials and Supplies. . . . . . . . . . . . . . . . . . 4,266 4,266 Prepayments . . . . . . . . . . . . . . . . . . . . . . . 697 804 TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . 46,660 41,880 REGULATORY ASSETS . . . . . . . . . . . . . . . . . . . . . 5,803 5,857 DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . . 3,716 1,449 TOTAL . . . . . . . . . . . . . . . . . . . . . $444,715 $442,911 See Notes to Financial Statements.
AEP GENERATING COMPANY BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1997 1996 (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 . . . . . . . . . . . . . . . . . . . . . 42,235 44,235 Retained Earnings . . . . . . . . . . . . . . . . . . . . 2,637 1,886 Total Common Shareholder's Equity . . . . . . . . 45,872 47,121 Long-term Debt. . . . . . . . . . . . . . . . . . . . . . 89,558 89,554 TOTAL CAPITALIZATION. . . . . . . . . . . . . . . 135,430 136,675 OTHER NONCURRENT LIABILITIES. . . . . . . . . . . . . . . . 1,496 1,613 CURRENT LIABILITIES: Short-term Debt - Notes Payable . . . . . . . . . . . . . - 9,575 Accounts Payable. . . . . . . . . . . . . . . . . . . . . 3,025 7,510 Taxes Accrued . . . . . . . . . . . . . . . . . . . . . . 5,373 2,903 Rent Accrued - Rockport Plant Unit 2. . . . . . . . . . . 23,427 4,963 Other . . . . . . . . . . . . . . . . . . . . . . . . . . 1,239 3,932 TOTAL CURRENT LIABILITIES . . . . . . . . . . . . 33,064 28,883 DEFERRED GAIN ON SALE AND LEASEBACK - ROCKPORT PLANT UNIT 2 . . . . . . . . . . . . . . . . . . 143,079 144,472 REGULATORY LIABILITIES: Deferred Investment Tax Credits . . . . . . . . . . . . . 72,618 73,460 Amounts Due to Customers for Income Taxes . . . . . . . . 33,557 33,893 Other . . . . . . . . . . . . . . . . . . . . . . . . . . 28 66 TOTAL REGULATORY LIABILITIES. . . . . . . . . . . 106,203 107,419 DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . 25,443 23,849 TOTAL . . . . . . . . . . . . . . . . . . . . . $444,715 $442,911 See Notes to Financial Statements.
AEP GENERATING COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 2,037 $ 2,498 Adjustments for Noncash Items: Depreciation . . . . . . . . . . . . . . . . . . . . . . 5,395 5,413 Deferred Federal Income Taxes. . . . . . . . . . . . . . 1,258 1,234 Deferred Investment Tax Credits. . . . . . . . . . . . . (842) (844) Amortization of Deferred Gain on Sale and Leaseback - Rockport Plant Unit 2. . . . . . . . . . . . . . . . . (1,393) (1,393) Deferred Property Taxes. . . . . . . . . . . . . . . . . (2,217) (2,356) Changes in Certain Current Assets and Liabilities: Accounts Receivable. . . . . . . . . . . . . . . . . . . (1,910) 638 Fuel, Materials and Supplies . . . . . . . . . . . . . . 7,217 (2,500) Accounts Payable . . . . . . . . . . . . . . . . . . . . (4,485) 215 Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . 2,470 3,455 Rent Accrued - Rockport Plant Unit 2 . . . . . . . . . . 18,464 18,464 Other (net). . . . . . . . . . . . . . . . . . . . . . . . (2,625) 76 Net Cash Flows From Operating Activities . . . . . . 23,369 24,900 INVESTING ACTIVITIES - Construction Expenditures . . . . . . (314) (359) FINANCING ACTIVITIES: Return of Capital to Parent Company. . . . . . . . . . . . (2,000) (500) Change in Short-term Debt (net). . . . . . . . . . . . . . (9,575) (21,550) Dividends Paid . . . . . . . . . . . . . . . . . . . . . . (1,286) (2,500) Net Cash Flows Used For Financing Activities . . . . (12,861) (24,550) Net Increase in Cash and Cash Equivalents. . . . . . . . . . 10,194 (9) Cash and Cash Equivalents at Beginning of Period . . . . . . 139 22 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 10,333 $ 13 Supplemental Disclosure: Cash paid (received) for interest net of capitalized amounts was $889,000 and $1,095,000 and for income taxes was $2,000 and ($491,000) in 1997 and 1996, respectively. See Notes to Financial Statements. /TABLE AEP GENERATING COMPANY NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997 (UNAUDITED) The accompanying unaudited financial statements should be read in conjunction with the 1996 Annual Report as incorporated in and filed with the Form 10-K. AEP GENERATING COMPANY MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS FIRST QUARTER 1997 vs. FIRST QUARTER 1996 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 decreased $.5 million or 18% in the period as a result of a decrease in the return on common equity due to a return of capital to the parent company and a decrease in the return on other capital. These decreases are partly offset by income earned on temporary cash investments and lower financing costs. Income statement items which changed significantly were: Increase(Decrease) (in millions) % Operating Revenues 1.6 3 Fuel Expense 3.8 16 Maintenance Expense (1.1) (32) Taxes Other Than Federal Income Taxes (.1) (10) Federal Income Taxes (.3) (28) Nonoperating Income .1 8 Interest Charges (.1) (13) The increase in operating revenues reflects recovery of increased fuel expenses partly offset by the decreased returns previously mentioned. The increase in fuel expense was due to an increase in the average cost of coal consumed and higher generation this year as Rockport Plant Unit 2 was out-of-service in the first quarter of 1996 for planned general boiler inspection and repair. Reduced maintenance work on Rockport Plant Unit 2 during 1997 compared with 1996 when the unit was out of service caused the decrease in maintenance expense. Taxes other than federal income taxes decreased due to a reduction in the Indiana supplemental net income tax accrual resulting from lower pre-tax income. Federal income taxes attributable to operations decreased due to lower pre-tax operating income. The increase in nonoperating income reflects interest income earned on higher balances of temporary cash investments in 1997. Interest charges declined due to reduced outstanding short-term debt balances. APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . $416,450 $440,972 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . 94,904 89,596 Purchased Power. . . . . . . . . . . . . . . . . . . . . 85,540 91,127 Other Operation. . . . . . . . . . . . . . . . . . . . . 63,840 62,743 Maintenance. . . . . . . . . . . . . . . . . . . . . . . 22,810 23,151 Depreciation and Amortization. . . . . . . . . . . . . . 33,975 32,873 Taxes Other Than Federal Income Taxes. . . . . . . . . . 30,273 31,302 Federal Income Taxes . . . . . . . . . . . . . . . . . . 20,774 26,543 TOTAL OPERATING EXPENSES . . . . . . . . . . . . 352,116 357,335 OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . 64,334 83,637 NONOPERATING INCOME. . . . . . . . . . . . . . . . . . . . 244 597 INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . . . 64,578 84,234 INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . 28,094 28,610 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 36,484 55,624 PREFERRED STOCK DIVIDEND REQUIREMENTS. . . . . . . . . . . 4,965 4,101 EARNINGS APPLICABLE TO COMMON STOCK. . . . . . . . . . . . $ 31,519 $ 51,523
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . . . . $208,472 $199,021 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 36,484 55,624 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . . . . . . . . . . . . . 28,609 27,075 Cumulative Preferred Stock . . . . . . . . . . . . . . 1,504 3,917 Capital Stock Expense. . . . . . . . . . . . . . . . . . 3,461 184 BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . . . $211,382 $223,469 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Consolidated Financial Statements. /TABLE APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1997 1996 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $1,891,997 $1,883,271 Transmission . . . . . . . . . . . . . . . . . . . . 1,058,130 1,054,207 Distribution . . . . . . . . . . . . . . . . . . . . 1,515,757 1,495,445 General. . . . . . . . . . . . . . . . . . . . . . . 194,924 188,740 Construction Work in Progress. . . . . . . . . . . . 90,506 95,469 Total Electric Utility Plant . . . . . . . . 4,751,314 4,717,132 Accumulated Depreciation and Amortization. . . . . . 1,805,653 1,782,017 NET ELECTRIC UTILITY PLANT . . . . . . . . . 2,945,661 2,935,115 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 29,233 29,621 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 9,618 7,260 Accounts Receivable. . . . . . . . . . . . . . . . . 166,306 160,021 Allowance for Uncollectible Accounts . . . . . . . . (2,163) (687) Fuel . . . . . . . . . . . . . . . . . . . . . . . . 49,923 52,605 Materials and Supplies . . . . . . . . . . . . . . . 55,024 56,605 Accrued Utility Revenues . . . . . . . . . . . . . . 32,268 51,843 Prepayments. . . . . . . . . . . . . . . . . . . . . 16,783 10,797 TOTAL CURRENT ASSETS . . . . . . . . . . . . 327,759 338,444 REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 446,571 451,272 DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 65,583 56,928 TOTAL. . . . . . . . . . . . . . . . . . . $3,814,807 $3,811,380 See Notes to Consolidated Financial Statements.
APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1997 1996 (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. . . . . . . . . . . . . . . . . . 575,197 575,380 Retained Earnings. . . . . . . . . . . . . . . . . 211,382 208,472 Total Common Shareholder's Equity. . . . . 1,047,037 1,044,310 Cumulative Preferred Stock: Not Subject to Mandatory Redemption. . . . . . . 19,859 29,815 Subject to Mandatory Redemption. . . . . . . . . 22,310 190,000 Long-term Debt . . . . . . . . . . . . . . . . . . 1,445,630 1,365,834 TOTAL CAPITALIZATION . . . . . . . . . . . 2,534,836 2,629,959 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . 122,891 109,203 CURRENT LIABILITIES: Cumulative Preferred Stock and Long-term Debt Due Within One Year. . . . . . . . . . . . . . . 47,763 8 Short-term Debt. . . . . . . . . . . . . . . . . . 76,450 60,700 Accounts Payable . . . . . . . . . . . . . . . . . 85,918 85,892 Taxes Accrued. . . . . . . . . . . . . . . . . . . 65,415 40,935 Customer Deposits. . . . . . . . . . . . . . . . . 13,736 13,750 Interest Accrued . . . . . . . . . . . . . . . . . 30,676 20,938 Other. . . . . . . . . . . . . . . . . . . . . . . 70,369 80,352 TOTAL CURRENT LIABILITIES. . . . . . . . . 390,327 302,575 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . 664,899 669,964 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . 81,939 83,320 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . 19,915 16,359 CONTINGENCIES (Note 3) TOTAL. . . . . . . . . . . . . . . . . . $3,814,807 $3,811,380 See Notes to Consolidated Financial Statements.
APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 36,484 $ 55,624 Adjustments for Noncash Items: Depreciation and Amortization. . . . . . . . . . . . . 34,301 33,199 Deferred Federal Income Taxes. . . . . . . . . . . . . (2,832) (2,689) Deferred Investment Tax Credits. . . . . . . . . . . . (1,190) (1,205) Deferred Power Supply Costs (net). . . . . . . . . . . 5,230 (207) Provision for Rate Refunds . . . . . . . . . . . . . . 33 15,869 Storm Damage Expense Amortization (Deferrals). . . . . 612 (7,303) Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . (4,809) (31,024) Fuel, Materials and Supplies . . . . . . . . . . . . . 4,263 11,776 Accrued Utility Revenues . . . . . . . . . . . . . . . 19,575 10,019 Prepayments. . . . . . . . . . . . . . . . . . . . . . (5,986) (10,299) Accounts Payable . . . . . . . . . . . . . . . . . . . 26 9,027 Taxes Accrued. . . . . . . . . . . . . . . . . . . . . 24,480 32,869 Interest Accrued . . . . . . . . . . . . . . . . . . . 9,738 15,965 Other (net). . . . . . . . . . . . . . . . . . . . . . . (8,967) (26,267) Net Cash Flows From Operating Activities . . . . . 110,958 105,354 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . (38,924) (29,164) Proceeds from Sale of Property . . . . . . . . . . . . . 931 95 Net Cash Flows Used For Investing Activities . . . (37,993) (29,069) FINANCING ACTIVITIES: Issuance of Long-term Debt . . . . . . . . . . . . . . . 135,575 198,266 Change in Short-term Debt (net). . . . . . . . . . . . . 15,750 (125,525) Retirement of Cumulative Preferred Stock . . . . . . . . (133,541) - Retirement of Long-term Debt . . . . . . . . . . . . . . (56,332) (23,560) Dividends Paid on Common Stock . . . . . . . . . . . . . (28,609) (27,075) Dividends Paid on Cumulative Preferred Stock . . . . . . (3,450) (3,917) Net Cash Flows From (Used For) Financing Activities . . . . . . . . . . . . . . . . . . . (70,607) 18,189 Net Increase in Cash and Cash Equivalents. . . . . . . . . 2,358 94,474 Cash and Cash Equivalents at Beginning of Period . . . . . 7,260 8,664 Cash and Cash Equivalents at End of Period . . . . . . . . $ 9,618 $ 103,138 Supplemental Disclosure: Cash paid (received) for interest net of capitalized amounts was $17,490,000 and $11,902,000 and for income taxes was $1,325,000 and $(506,000) in 1997 and 1996, respectively. Noncash acquisitions under capital leases were $6,170,000 and $2,699,000 in 1997 and 1996, respectively. See Notes to Consolidated Financial Statements.
APPALACHIAN POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial statements should be read in conjunction with the 1996 Annual Report as incorporated in and filed with the Form 10-K. 2. FINANCING ACTIVITIES In February 1997, the Company issued $48 million of 6.35% First Mortgage Bonds due in 2000 and in March 1997 $90 million of 8% Series Junior Subordinated Deferrable Interest Debentures due in 2027. In March 1997, the Company redeemed $56 million of first mortgage bonds with interest rates of 8.75% and 9.35%. As part of a tender offer, the following number of shares of Cumulative Preferred Stock were reacquired and retired at the prices listed plus an amount equal to accrued dividends: Number Price Total of Shares Paid Per Reacquisition Series Retired Share Price (in thousands) 4-1/2% 99,563 $ 69.02 $ 6,872 5.90% 422,900 103.17 43,631 5.92% 538,500 103.20 55,573 6.85% 215,500 107.26 23,114 7.80% 22,500 105.50 2,374 3. CONTINGENCIES As discussed in Note 9, "Federal Income Taxes" of the Notes to Consolidated Financial Statements in the 1996 Annual Report, the Internal Revenue Service agents auditing the federal income tax returns for the years 1991 through 1993 requested a ruling from their National Office that certain interest deductions relating to corporate owned life insurance (COLI) claimed by the Company for 1991 through 1993 should not be allowed. The COLI program was established in 1990 as part of the Company's strategy to fund and reduce the cost of medical benefits for retired employees. AEP filed a brief with the IRS National Office refuting the agents' position. Although no adjustments have been proposed, a disallowance of the COLI interest deductions through March 31, 1997 would reduce earnings by approximately $65 million (including interest). Management believes it will ultimately prevail on this issue and will vigorously contest any adjustments that may be assessed. The Company continues to be involved in certain other matters discussed in its 1996 Annual Report. APPALACHIAN POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1997 vs. FIRST QUARTER 1996 RESULTS OF OPERATIONS Net income decreased $19 million or 34% as a result of milder winter weather. Income statement line items which changed significantly were: Increase (Decrease) (in millions) % Operating Revenues. . . . . . . . . . $(24.5) (6) Fuel Expense. . . . . . . . . . . . . 5.3 6 Purchased Power Expense . . . . . . . (5.6) (6) Federal Income Taxes. . . . . . . . . (5.8) (22) Both retail and wholesale revenues declined. The reduction in retail revenues resulted from the milder winter weather which decreased sales to weather-sensitive residential and commercial customers by 14% and 5%, respectively. Revenues from wholesale customers decreased 6% while wholesale sales increased 2%. The decrease in revenues largely resulted from a decrease in the average price per kilowatt sold. While sales to unaffiliated utilties declined 15%, coal conversion service sales and related transmission services more than doubled. Coal conversion service sales are from the conversion of customers' coal to electricity. The substantial increase in coal conversion service reflects the utilization of this service as customers obtained low cost spot market coal. The reduction in sales to unaffiliated utilities resulted from the effects of milder winter weather and the competitive nature of the wholesale power markets. Fuel expense increased primarily due to the operation of the West Virginia power supply cost recovery mechanism as over-collections of fuel cost were deferred in accordance with a rate order. Purchased power expense declined as lower demand led to reduced purchases of energy from the AEP System Power Pool (Power Pool), partly offset by an increase in Power Pool capacity charges. An increase in the Company's prior twelve-month peak demand relative to the total peak demand of all Power Pool members caused the increase in Power Pool capacity charges. The decrease 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 rate-making purposes. FINANCIAL CONDITION Total plant and property additions including capital leases for the first three months of 1997 were $45 million. In February 1997, the Company issued $48 million of 6.35% First Mortgage Bonds due in 2000 and in March 1997 $90 million of 8% Junior Subordinated Deferrable Interest Debentures due in 2027. In March 1997, the Company redeemed $56 million of first mortgage bonds with interest rates of 8.75% and 9.35%. Short-term debt increased by $16 million during the quarter. As part of a January 1997 tender offer for all of the Company's outstanding preferred stock that was announced in conjunction with a special meeting of shareholders, 1,298,963 shares of $100 stated value preferred stocks were reacquired. The total cost of the stock reacquisition was $134 million. At the special meeting of shareholders held on February 28, 1997, the Company's articles of incorporation were amended to remove certain capitalization ratio requirements which restricted the Company's ability to issue debt. As a result unsecured borrowings are now limited only by the Public Utility Holding Company Act of 1935 and the Virginia State Corporation Commission with the current limitation set at $250 million for unsecured short-term borrowings. In April 1997, all remaining shares of the 7.80% Series of Preferred Stock were reacquired for $50 million. COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . . . $265,007 $271,040 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,800 47,506 Purchased Power. . . . . . . . . . . . . . . . . . . . . . . 38,515 43,469 Other Operation. . . . . . . . . . . . . . . . . . . . . . . 42,130 44,164 Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . 13,324 13,923 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . 22,447 21,791 Amortization of Zimmer Plant Phase-in Costs. . . . . . . . . 8,407 8,448 Taxes Other Than Federal Income Taxes. . . . . . . . . . . . 29,969 28,107 Federal Income Taxes . . . . . . . . . . . . . . . . . . . . 17,985 15,206 TOTAL OPERATING EXPENSES. . . . . . . . . . . . . . . 217,577 222,614 OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . 47,430 48,426 NONOPERATING INCOME (LOSS) . . . . . . . . . . . . . . . . . . 1,036 (2,905) INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . . . . . 48,466 45,521 INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . . . 19,142 20,395 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . 29,324 25,126 PREFERRED STOCK DIVIDEND REQUIREMENTS. . . . . . . . . . . . . 1,493 1,670 EARNINGS APPLICABLE TO COMMON STOCK. . . . . . . . . . . . . . $ 27,831 $ 23,456
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . $ 99,582 $74,320 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . 29,324 25,126 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . . . . . . . . . . . . . . . 19,671 18,969 Cumulative Preferred Stock . . . . . . . . . . . . . . . . 437 1,422 Capital Stock Expense. . . . . . . . . . . . . . . . . . . . 71 71 BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . . . . . $108,727 $78,984 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Consolidated Financial Statements.
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1997 1996 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $1,505,580 $1,503,371 Transmission . . . . . . . . . . . . . . . . . . . . 322,115 326,247 Distribution . . . . . . . . . . . . . . . . . . . . 898,195 885,267 General. . . . . . . . . . . . . . . . . . . . . . . 134,104 130,946 Construction Work in Progress. . . . . . . . . . . . 58,658 54,062 Total Electric Utility Plant . . . . . . . . 2,918,652 2,899,893 Accumulated Depreciation . . . . . . . . . . . . . . 1,036,138 1,016,909 NET ELECTRIC UTILITY PLANT . . . . . . . . . 1,882,514 1,882,984 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 23,900 24,069 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 12,783 9,134 Accounts Receivable (net). . . . . . . . . . . . . . 95,646 63,003 Fuel . . . . . . . . . . . . . . . . . . . . . . . . 19,160 18,278 Materials and Supplies . . . . . . . . . . . . . . . 23,929 23,999 Accrued Utility Revenues . . . . . . . . . . . . . . 42,658 31,826 Prepayments. . . . . . . . . . . . . . . . . . . . . 25,723 32,330 TOTAL CURRENT ASSETS . . . . . . . . . . . . 219,899 178,570 REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 371,991 385,689 DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 54,000 70,274 TOTAL. . . . . . . . . . . . . . . . . . . $2,552,304 $2,541,586 See Notes to Consolidated Financial Statements. /TABLE COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1997 1996 (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. . . . . . . . . . . . . . . . . . . 571,826 574,709 Retained Earnings. . . . . . . . . . . . . . . . . . 108,727 99,582 Total Common Shareholder's Equity. . . . . . 721,579 715,317 Cumulative Preferred Stock - Subject to Mandatory Redemption . . . . . . . . . . . . . . . 25,000 25,000 Long-term Debt . . . . . . . . . . . . . . . . . . . 864,498 882,641 TOTAL CAPITALIZATION . . . . . . . . . . . . 1,611,077 1,622,958 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 42,203 40,068 CURRENT LIABILITIES: Preferred Stock Due Within One Year. . . . . . . . . - 50,000 Long-term Debt Due Within One Year . . . . . . . . . 71,640 14,640 Short-term Debt. . . . . . . . . . . . . . . . . . . 99,217 51,800 Accounts Payable . . . . . . . . . . . . . . . . . . 34,864 54,828 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 117,903 129,429 Interest Accrued . . . . . . . . . . . . . . . . . . 26,296 13,605 Other. . . . . . . . . . . . . . . . . . . . . . . . 26,309 32,314 TOTAL CURRENT LIABILITIES. . . . . . . . . . 376,229 346,616 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 438,853 441,477 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 56,201 57,101 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 27,741 33,366 CONTINGENCIES (Note 3) TOTAL. . . . . . . . . . . . . . . . . . . $2,552,304 $2,541,586 See Notes to Consolidated Financial Statements. /TABLE COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 29,324 $ 25,126 Adjustments for Noncash Items: Depreciation . . . . . . . . . . . . . . . . . . . . . . 22,506 21,697 Deferred Federal Income Taxes. . . . . . . . . . . . . . 632 (1,988) Deferred Investment Tax Credits. . . . . . . . . . . . . (900) (912) Deferred Fuel Costs (net). . . . . . . . . . . . . . . . (5,391) (838) Amortization of Zimmer Plant Operating Expenses and Carrying Charges. . . . . . . . . . . . . 8,349 7,776 Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . (32,643) (765) Fuel, Materials and Supplies . . . . . . . . . . . . . . (812) 3,524 Accrued Utility Revenues . . . . . . . . . . . . . . . . (10,832) 8,688 Prepayments. . . . . . . . . . . . . . . . . . . . . . . 6,607 (9,125) Accounts Payable . . . . . . . . . . . . . . . . . . . . (19,964) (12,308) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (11,526) (10,244) Interest Accrued . . . . . . . . . . . . . . . . . . . . 12,691 12,708 Other (net). . . . . . . . . . . . . . . . . . . . . . . . 12,979 15,741 Net Cash Flows From Operating Activities . . . . . . 11,020 59,080 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . . (20,302) (15,127) Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 986 955 Net Cash Flows Used For Investing Activities . . . . (19,316) (14,172) FINANCING ACTIVITIES: Issuance of Long-term Debt . . . . . . . . . . . . . . . . 38,574 - Change in Short-term Debt (net). . . . . . . . . . . . . . 47,417 (16,050) Retirement of Cumulative Preferred Stock . . . . . . . . . (52,953) (7,500) Dividends Paid on Common Stock . . . . . . . . . . . . . . (19,671) (18,969) Dividends Paid on Cumulative Preferred Stock . . . . . . . (1,422) (1,600) Net Cash Flows From (Used For) Financing Activities. 11,945 (44,119) Net Increase in Cash and Cash Equivalents. . . . . . . . . . 3,649 789 Cash and Cash Equivalents at Beginning of Period . . . . . . 9,134 10,577 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 12,783 $ 11,366 Supplemental Disclosure: Cash paid (received) for interest net of capitalized amounts was $5,453,000 and $6,717,000 and for income taxes was $89,000 and $(2,110,000) in 1997 and 1996, respectively. Noncash acquisitions under capital leases were $2,942,000 and $1,723,000 in 1997 and 1996, respectively. See Notes to Consolidated Financial Statements. /TABLE COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial statements should be read in conjunction with the 1996 Annual Report as incorporated in and filed with the Form 10-K. 2. FINANCING ACTIVITIES Termination of Sales of Receivables Agreement - In January 1997, the Company terminated an agreement under which $50 million of undivided interests in designated pools of accounts receivable and accrued utility revenues were sold with limited recourse. In March 1997 the Company redeemed the entire 500,000 shares outstanding of its 7-7/8% Series of Cumulative Preferred Stock, par value $100, at the regular redemption price of $105.25 per share and issued $40 million of 7.92% Junior Subordinated Deferrable Interest Debentures due in 2027. 3. CONTINGENCIES As discussed in Note 8, "Federal Income Taxes" of the Notes to Consolidated Financial Statements in the 1996 Annual Report, the Internal Revenue Service agents auditing the federal income tax returns for the years 1991 through 1993 requested a ruling from their National Office that certain interest deductions relating to corporate owned life insurance (COLI) claimed by the Company for 1991 through 1993 should not be allowed. The COLI program was established in 1990 as part of the Company's strategy to fund and reduce the cost of medical benefits for retired employees. AEP filed a brief with the IRS National Office refuting the agents' position. Although no adjustments have been proposed, a disallowance of the COLI interest deductions through March 31, 1997 would reduce earnings by approximately $35 million (including interest). Management believes it will ultimately prevail on this issue and will vigorously contest any adjustments that may be assessed. The Company continues to be involved in other matters discussed in its 1996 Annual Report. COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS FIRST QUARTER 1997 vs. FIRST QUARTER 1996 Net income increased $4.2 million or 17% in the first quarter of 1997 mainly due to an increase in nonoperating income and decreased interest charges. Nonoperating income increased primarily due to the effect of losses recorded in the first quarter of 1996 for certain demand side management program deferrals and for environmental clean-up costs. Interest charges declined reflecting the retirement and partial replacement of high cost long-term debt with lower cost short-term debt. A 2% decrease in operating expenses was more than offset by a 2% decline in operating revenues which caused operating income to decline slightly in the first quarter of 1997. Both retail and wholesale revenues declined. The 2% reduction in retail revenues resulted from milder winter weather and reduced fuel clause revenues. Retail sales to weather-sensitive residential customers decreased 5%. The decrease in fuel clause revenues did not affect net income since it corresponds to changes in fuel expense. Revenues from wholesale customers decreased 3% while wholesale sales increased 10%. The decrease in revenues largely resulted from a decrease in the average price per kilowatt sold. While sales to unaffiliated utilities declined 19%, coal conversion service sales and related transmission service revenues more than doubled. Coal conversion service sales are from the conversion of customers' coal to electricity. The substantial increase in revenues from this new service reflects the cost effectiveness of this service to customers who can obtain low cost spot market coal. The reduction in sales to unaffiliated utilities resulted from the effects of milder winter weather and the competitive nature of the wholesale power markets. Income statement lines which changed significantly were as follows: Increase (Decrease) (in millions) % Fuel Expense . . . . . . . . . . . . . . $(2.7) (6) Purchased Power Expense. . . . . . . . . (5.0) (11) Other Operation. . . . . . . . . . . . . (2.0) (5) Taxes Other Than Federal Income Taxes. . 1.9 7 Federal Income Taxes . . . . . . . . . . 2.8 18 Nonoperating Income. . . . . . . . . . . 3.9 N.M. Interest Charges . . . . . . . . . . . . (1.3) (6) N.M. = Not Meaningful The decline in fuel expense was due to the operation of the fuel clause adjustment mechanism which caused a deferral of underrecovered fuel expenses this period compared to the accrual of overrecovered fuel expenses last period. This reduction in fuel expense caused by the fuel clause adjustment merchanism was partly offset by the effect of increased generation. The rise in generation during the first quarter of 1997 resulted in reduced energy purchases from the AEP System Power Pool. The main reason for the decrease in other operation expense was a gain on the sale of emission allowances. The increase in taxes other than federal income taxes was due primarily to increased property taxes, as a result of increases in assessed property values and tax rates, and higher gross receipts taxes, as a result of the effect of a tax credit recorded in 1996 and increased revenues during the assessment period. Federal income taxes attributable to operations increased primarily due to an increase in pre-tax operating income and changes in certain book/tax differences accounted for on a flow-through basis for rate-making purposes. Nonoperating income increased due to losses recorded in the first quarter of 1996 regarding certain deferred demand side management program costs and clean-up of underground storage tanks at one of the Company's facilities. Interest charges declined due to a reduction in the average amount of long-term debt outstanding partially offset by increased interest on short-term debt reflecting an increase in the average balance of short-term debt outstanding. INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . $341,313 $329,883 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . 60,250 60,023 Purchased Power. . . . . . . . . . . . . . . . . . . . . 35,996 34,663 Other Operation. . . . . . . . . . . . . . . . . . . . . 78,611 78,810 Maintenance. . . . . . . . . . . . . . . . . . . . . . . 25,236 26,442 Depreciation and Amortization. . . . . . . . . . . . . . 35,018 34,892 Amortization of Rockport Plant Unit 1 Phase-in Plan Deferrals. . . . . . . . . . . . . . . . 3,911 3,911 Taxes Other Than Federal Income Taxes. . . . . . . . . . 18,285 19,921 Federal Income Taxes . . . . . . . . . . . . . . . . . . 24,112 18,203 TOTAL OPERATING EXPENSES . . . . . . . . . . . . 281,419 276,865 OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . 59,894 53,018 NONOPERATING INCOME (LOSS) . . . . . . . . . . . . . . . . 468 (637) INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . . . 60,362 52,381 INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . 16,103 16,614 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 44,259 35,767 PREFERRED STOCK DIVIDEND REQUIREMENTS. . . . . . . . . . . 2,108 2,948 EARNINGS APPLICABLE TO COMMON STOCK. . . . . . . . . . . . $ 42,151 $ 32,819
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . . . . $269,071 $235,107 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 44,259 35,767 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . . . . . . . . . . . . . 29,065 28,127 Cumulative Preferred Stock . . . . . . . . . . . . . . 1,203 2,890 Capital Stock Expense. . . . . . . . . . . . . . . . . . 905 58 BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . . . $282,157 $239,799 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1997 1996 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $2,521,750 $2,525,969 Transmission . . . . . . . . . . . . . . . . . . . . 879,878 881,407 Distribution . . . . . . . . . . . . . . . . . . . . 700,627 696,069 General (including nuclear fuel) . . . . . . . . . . 206,527 189,619 Construction Work in Progress. . . . . . . . . . . . 95,209 84,605 Total Electric Utility Plant . . . . . . . . 4,403,991 4,377,669 Accumulated Depreciation and Amortization. . . . . . 1,889,534 1,861,893 NET ELECTRIC UTILITY PLANT . . . . . . . . . 2,514,457 2,515,776 NUCLEAR DECOMMISSIONING AND SPENT NUCLEAR FUEL DISPOSAL TRUST FUNDS . . . . . . . . . . . . . . . . 509,946 490,778 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 149,944 154,265 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 8,700 8,233 Accounts Receivable. . . . . . . . . . . . . . . . . 125,468 125,822 Allowance for Uncollectible Accounts . . . . . . . . (1,481) (156) Fuel . . . . . . . . . . . . . . . . . . . . . . . . 16,129 23,977 Materials and Supplies . . . . . . . . . . . . . . . 75,809 77,074 Accrued Utility Revenues . . . . . . . . . . . . . . 34,292 38,295 Prepayments. . . . . . . . . . . . . . . . . . . . . 16,760 10,271 TOTAL CURRENT ASSETS . . . . . . . . . . . . 275,677 283,516 REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 426,005 421,692 DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 40,559 31,457 TOTAL. . . . . . . . . . . . . . . . . . . $3,916,588 $3,897,484 See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1997 1996 (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. . . . . . . . . . . . . . . . . . . 732,372 731,272 Retained Earnings. . . . . . . . . . . . . . . . . . 282,157 269,071 Total Common Shareholder's Equity. . . . . . 1,071,113 1,056,927 Cumulative Preferred Stock: Not Subject to Mandatory Redemption. . . . . . . . 9,499 21,977 Subject to Mandatory Redemption. . . . . . . . . . 68,445 135,000 Long-term Debt . . . . . . . . . . . . . . . . . . . 1,042,289 1,042,104 TOTAL CAPITALIZATION . . . . . . . . . . . . 2,191,346 2,256,008 OTHER NONCURRENT LIABILITIES: Nuclear Decommissioning. . . . . . . . . . . . . . . 330,353 313,845 Other. . . . . . . . . . . . . . . . . . . . . . . . 196,112 174,903 TOTAL OTHER NONCURRENT LIABILITIES . . . . . 526,465 488,748 CURRENT LIABILITIES: Long-term Debt Due Within One Year . . . . . . . . . 50,000 - Short-term Debt. . . . . . . . . . . . . . . . . . . 13,675 43,500 Accounts Payable . . . . . . . . . . . . . . . . . . 47,134 61,892 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 100,914 65,400 Interest Accrued . . . . . . . . . . . . . . . . . . 18,921 15,281 Rent Accrued - Rockport Plant Unit 2 . . . . . . . . 23,427 4,963 Obligations Under Capital Leases . . . . . . . . . . 26,513 29,740 Other. . . . . . . . . . . . . . . . . . . . . . . . 55,515 61,473 TOTAL CURRENT LIABILITIES. . . . . . . . . . 336,099 282,249 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 589,300 594,879 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 144,504 146,473 DEFERRED GAIN ON SALE AND LEASEBACK - ROCKPORT PLANT UNIT 2. . . . . . . . . . . . . . . . 95,199 96,125 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 33,675 33,002 CONTINGENCIES (Note 3) TOTAL. . . . . . . . . . . . . . . . . . . $3,916,588 $3,897,484 See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 44,259 $ 35,767 Adjustments for Noncash Items: Depreciation and Amortization. . . . . . . . . . . . . . 36,922 36,813 Amortization of Incremental Nuclear Refueling Outage Expenses (net). . . . . . . . . . . . (10,965) 3,724 Deferred Federal Income Taxes. . . . . . . . . . . . . . (2,151) (6,607) Deferred Investment Tax Credits. . . . . . . . . . . . . (1,969) (1,982) Deferred Property Taxes. . . . . . . . . . . . . . . . . (11,793) (12,323) Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . 1,679 (4,888) Fuel, Materials and Supplies . . . . . . . . . . . . . . 9,113 (647) Accrued Utility Revenues . . . . . . . . . . . . . . . . 4,003 13,825 Prepayments. . . . . . . . . . . . . . . . . . . . . . . (6,489) (7,313) Accounts Payable . . . . . . . . . . . . . . . . . . . . (14,758) (15,991) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . 35,514 29,652 Rent Accrued - Rockport Plant Unit 2 . . . . . . . . . . 18,464 18,464 Other (net). . . . . . . . . . . . . . . . . . . . . . . . 7,797 20,352 Net Cash Flows From Operating Activities . . . . . . 109,626 108,846 INVESTING ACTIVITIES - Construction Expenditures . . . . . . (16,800) (17,961) FINANCING ACTIVITIES: Issuance of Long-term Debt . . . . . . . . . . . . . . . . 47,728 38,579 Retirement of Long-term Debt . . . . . . . . . . . . . . . - (6,091) Change in Short-term Debt (net). . . . . . . . . . . . . . (29,825) (89,975) Retirement of Cumulative Preferred Stock . . . . . . . . . (78,838) - Dividends Paid on Common Stock . . . . . . . . . . . . . . (29,065) (28,127) Dividends Paid on Cumulative Preferred Stock . . . . . . . (2,359) (2,890) Net Cash Flows Used For Financing Activities . . . . (92,359) (88,504) Net Increase in Cash and Cash Equivalents. . . . . . . . . . 467 2,381 Cash and Cash Equivalents at Beginning of Period . . . . . . 8,233 13,723 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 8,700 $ 16,104 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $11,765,000 and $11,859,000 and for income taxes was $125,000 and $6,817,000 in 1997 and 1996, respectively. Noncash acquisitions under capital leases were $34,342,000 and $31,719,000 in 1997 and 1996, respectively. See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial statements should be read in conjunction with the 1996 Annual Report as incorporated in and filed with the Form 10-K. 2. FINANCING ACTIVITIES In February 1997 the Company issued $48 million of 6.40% First Mortgage Bonds due 2000. In March 1997 the Company, as part of a tender offer, reacquired and retired the following number of shares of Cumulative Preferred Stock at the prices listed plus an amount equal to accrued dividends: Number Price Total of Shares Paid Per Reacquisition Series Retired Share Price (in thousands) 4.12% 20,669 $ 64.17 $ 1,326 4-1/8% 59,325 62.31 3,697 4.56% 28,525 69.94 1,995 5.90% 233,000 101.83 23,726 6-1/4% 97,500 103.79 10,120 6.30% 217,550 103.71 22,562 6-7/8% 117,500 106.45 12,508 The Company called for redemption in May 1997, $50 million of its 8.75% First Mortgage Bonds due 2022. Therefore, the bonds were classified as a current liability on the balance sheet. 3. CONTINGENCIES As discussed in Note 7, "Federal Income Taxes" of the Notes to Consolidated Financial Statements in the 1996 Annual Report, the Internal Revenue Service agents auditing the federal income tax returns for the years 1991 through 1993 requested a ruling from their National Office that certain interest deductions relating to corporate owned life insurance (COLI) claimed by the Company for 1991 through 1993 should not be allowed. The COLI program was established in 1990 as part of the Company's strategy to fund and reduce the cost of medical benefits for retired employees. AEP filed a brief with the IRS National Office refuting the agents' position. Although no adjustments have been proposed, a disallowance of the COLI interest deductions through March 31, 1997 would reduce earnings by approximately $53 million (including interest). Management believes it will ultimately prevail on this issue and will vigorously contest any adjustments that may be assessed. The Company continues to be involved in other matters discussed in its 1996 Annual Report. INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1997 vs. FIRST QUARTER 1996 RESULTS OF OPERATIONS Net income increased 24% or $8.5 million due to increased retail revenues and cost reduction efforts. Operating revenues increased 3% primarily due to a 3% increase in retail sales partly offset by an 8% decrease in wholesale sales. The increase in retail sales is mainly attributable to increased industrial customer usage. The increase in retail revenues also reflects an increase in fuel clause recoveries. Under the fuel clause recovery mechanism unrecovered fuel costs are deferred in both of the Company's retail jurisdictions and for replacement power costs in the Michigan jurisdiction until approved for billing and recovery. Wholesale sales to affiliates decreased this period as a result of Unit 1 of the Cook nuclear plant being removed from service on March 1 for scheduled refueling, inspection and general maintenance. The reduction in the availability of nuclear generation resulted in decreased deliveries to the AEP System Power Pool (Power Pool). Partly offsetting this decline in wholesale revenues were additional Power Pool sales to unaffiliated companies for coal conversion service sales and related transmission services. Coal conversion service sales are from the conversion of customers' coal to electricity. The increase in coal conversion service sales reflects acceptance of this new service by customers which allows customers to obtain low cost spot market coal. Other income statement line items which changed significantly were: Increase (Decrease) (in millions) % Maintenance Expense . . . . . . . . . . . $(1.2) (5) Taxes Other Than Federal Income Taxes . . (1.6) (8) Federal Income Taxes. . . . . . . . . . . 5.9 32 Nonoperating Income . . . . . . . . . . . 1.1 N.M. N.M. = Not Meaningful The decrease in maintenance expense is the result of cost-cutting measures in transmission and distribution functions. The decrease in taxes other than federal income taxes was the result of lower Indiana real and personal property tax accruals. Federal income taxes attributable to operations increased due to an increase in pretax operating income and changes in certain book/tax timing differences accounted for on a flow-through basis for rate-making purposes. Nonoperating income increased as a result of a loss in 1996 on the sale of a western coal property. FINANCIAL CONDITION Total plant and property additions including capital leases for the period were $52 million. During the first three months of 1997 short-term debt outstanding decreased by $30 million. In February 1997, the Company issued $48 million of 6.40% First Mortgage Bonds due 2000. As part of a January 1997 tender offer for all of the Company's outstanding preferred stock that was announced in conjunction with a special meeting of shareholders, 774,069 shares of $100 stated value preferred stocks were reacquired. The total cost of the stock reacquisition was $78 million. At the special meeting of shareholders held on February 28, 1997, the Company's articles of incorporation were amended to remove certain capitalization ratio requirements which restricted the Company's ability to issue unsecured debt. As a result unsecured borrowings are now limited only by the Public Utility Holding Company Act of 1935 with the current limitation set at $175 million for unsecured short-term borrowings. KENTUCKY POWER COMPANY STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) OPERATING REVENUES . . . . . . . . . . . . . . . . . $88,580 $88,589 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . . . . . . . 19,164 21,680 Purchased Power. . . . . . . . . . . . . . . . . . 23,230 22,519 Other Operation. . . . . . . . . . . . . . . . . . 12,009 12,356 Maintenance. . . . . . . . . . . . . . . . . . . . 5,107 7,720 Depreciation and Amortization. . . . . . . . . . . 6,540 6,254 Taxes Other Than Federal Income Taxes. . . . . . . 2,794 2,374 Federal Income Taxes . . . . . . . . . . . . . . . 4,496 2,528 TOTAL OPERATING EXPENSES . . . . . . . . . 73,340 75,431 OPERATING INCOME . . . . . . . . . . . . . . . . . . 15,240 13,158 NONOPERATING LOSS. . . . . . . . . . . . . . . . . . (141) (334) INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . 15,099 12,824 INTEREST CHARGES . . . . . . . . . . . . . . . . . . 5,968 6,068 NET INCOME . . . . . . . . . . . . . . . . . . . . . $ 9,131 $ 6,756
STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . $84,090 $91,381 NET INCOME . . . . . . . . . . . . . . . . . . . . . 9,131 6,756 CASH DIVIDENDS DECLARED. . . . . . . . . . . . . . . 6,690 6,066 BALANCE AT END OF PERIOD . . . . . . . . . . . . . . $86,531 $92,071 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Financial Statements. /TABLE KENTUCKY POWER COMPANY BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1997 1996 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . $240,703 $244,805 Transmission . . . . . . . . . . . . . . . . 264,638 264,563 Distribution . . . . . . . . . . . . . . . . 324,569 329,184 General. . . . . . . . . . . . . . . . . . . 65,124 64,650 Construction Work in Progress. . . . . . . . 63,652 48,400 Total Electric Utility Plant . . . . 958,686 951,602 Accumulated Depreciation and Amortization. . 286,702 286,640 NET ELECTRIC UTILITY PLANT . . . . . 671,984 664,962 OTHER PROPERTY AND INVESTMENTS . . . . . . . . 6,439 6,452 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . 3,503 1,106 Accounts Receivable. . . . . . . . . . . . . 31,686 28,589 Allowance for Uncollectible Accounts . . . . (553) (272) Fuel . . . . . . . . . . . . . . . . . . . . 9,997 9,244 Materials and Supplies . . . . . . . . . . . 13,108 13,175 Accrued Utility Revenues . . . . . . . . . . 5,073 8,175 Prepayments. . . . . . . . . . . . . . . . . 1,403 2,011 TOTAL CURRENT ASSETS . . . . . . . . 64,217 62,028 REGULATORY ASSETS. . . . . . . . . . . . . . . 88,992 88,776 DEFERRED CHARGES . . . . . . . . . . . . . . . 10,783 11,361 TOTAL. . . . . . . . . . . . . . . $842,415 $833,579 See Notes to Financial Statements.
KENTUCKY POWER COMPANY BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1997 1996 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock - Par Value $50: Authorized - 2,000,000 Shares Outstanding - 1,009,000 Shares . . . . . . $ 50,450 $ 50,450 Paid-in Capital. . . . . . . . . . . . . . . 108,750 108,750 Retained Earnings. . . . . . . . . . . . . . 86,531 84,090 Total Common Shareholder's Equity. . 245,731 243,290 First Mortgage Bonds. . . . . . . . . . . . . 179,331 179,305 Notes Payable . . . . . . . . . . . . . . . . 75,000 75,000 Subordinated Debentures . . . . . . . . . . . 38,903 38,893 TOTAL CAPITALIZATION . . . . . . . . 538,965 536,488 OTHER NONCURRENT LIABILITIES . . . . . . . . . 20,644 19,467 CURRENT LIABILITIES: Short-term Debt. . . . . . . . . . . . . . . 59,150 51,675 Accounts Payable . . . . . . . . . . . . . . 23,212 31,057 Customer Deposits. . . . . . . . . . . . . . 3,334 3,409 Taxes Accrued. . . . . . . . . . . . . . . . 9,387 5,064 Interest Accrued . . . . . . . . . . . . . . 6,355 5,217 Other. . . . . . . . . . . . . . . . . . . . 10,181 9,199 TOTAL CURRENT LIABILITIES. . . . . . 111,619 105,621 DEFERRED INCOME TAXES. . . . . . . . . . . . . 154,160 153,538 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . 16,699 17,007 DEFERRED CREDITS . . . . . . . . . . . . . . . 328 1,458 CONTINGENCIES (Note 2) TOTAL. . . . . . . . . . . . . . . $842,415 $833,579 See Notes to Financial Statements.
KENTUCKY POWER COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . $ 9,131 $ 6,756 Adjustments for Noncash Items: Depreciation and Amortization. . . . . . . . . . 6,543 6,273 Deferred Federal Income Taxes. . . . . . . . . . 521 (148) Deferred Investment Tax Credits. . . . . . . . . (308) (311) Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . (2,816) (2,212) Fuel, Materials and Supplies . . . . . . . . . . (686) (2,664) Accrued Utility Revenues . . . . . . . . . . . . 3,102 5,184 Accounts Payable . . . . . . . . . . . . . . . . (7,845) (2,102) Taxes Accrued. . . . . . . . . . . . . . . . . . 4,323 1,314 Other (net). . . . . . . . . . . . . . . . . . . . 3,183 506 Net Cash Flows From Operating Activities . . 15,148 12,596 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . (13,536) (8,614) Proceeds from Sales of Property. . . . . . . . . . - 250 Net Cash Flows Used For Investing Activities (13,536) (8,364) FINANCING ACTIVITIES: Capital Contributions from Parent Company. . . . . - 10,000 Change in Short-term Debt (net). . . . . . . . . . 7,475 21,200 Retirement of Long-term Debt . . . . . . . . . . . - (29,436) Dividends Paid . . . . . . . . . . . . . . . . . . (6,690) (6,066) Net Cash Flows From (Used For) Financing Activities . . . . . . . . . . . 785 (4,302) Net Increase (Decrease) in Cash and Cash Equivalents 2,397 (70) Cash and Cash Equivalents at Beginning of Period . . 1,106 1,031 Cash and Cash Equivalents at End of Period . . . . . $ 3,503 $ 961 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $4,755,000 and $6,028,000 in 1997 and 1996, respectively, and for income taxes was $1,152,000 in 1996. Noncash acquisitions under capital leases were $822,000 and $1,054,000 in 1997 and 1996, respectively. See Notes to Financial Statements.
KENTUCKY POWER COMPANY NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997 (UNAUDITED) 1. GENERAL The accompanying unaudited financial statements should be read in conjunction with the 1996 Annual Report as incorporated in and filed with the Form 10-K. 2. CONTINGENCIES As discussed in Note 7, "Federal Income Taxes" of the Notes to Financial Statements in the 1996 Annual Report, the Internal Revenue Service agents auditing the federal income tax returns for the years 1991 through 1993 requested a ruling from their National Office that certain interest deductions relating to corporate owned life insurance (COLI) claimed by the Company for 1992 and 1993 should not be allowed. The COLI program was established in 1992 as part of the Company's strategy to fund and reduce the cost of medical benefits for retired employees. AEP filed a brief with the IRS National Office refuting the agents' position. Although no adjustments have been proposed, a disallowance of the COLI interest deductions through March 31, 1997 would reduce earnings by approximately $5 million (including interest). Management believes it will ultimately prevail on this issue and will vigorously contest any adjustments that may be assessed. The Company continues to be involved in certain other matters discussed in its 1996 Annual Report. KENTUCKY POWER COMPANY MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS FIRST QUARTER 1997 vs. FIRST QUARTER 1996 Although operating revenues remained essentially unchanged, net income increased $2.4 million or 35%. The rise in net income was attributable to a decrease in fuel and maintenance expenses. Income statement lines which changed significantly were: Increase(Decrease) (in millions) % Fuel Expense. . . . . . . . . . . . . . $(2.5) (11.6) Maintenance Expense . . . . . . . . . . (2.6) (33.8) Taxes Other Than Federal Income Taxes . 0.4 17.7 Federal Income Taxes. . . . . . . . . . 2.0 77.8 Revenues remained relatively constant as decreased retail revenues were offset by increased wholesale transactions. Residential and commercial revenues declined 11% and 3%, respectively, due to decreased customer usage as a result of warmer winter weather. The rise in revenues from wholesale transactions was due to increased energy sales to the AEP System Power Pool reflecting outages at various affiliated generating plants and increased coal conversion and transmission service revenues. The decrease in fuel expense is attributable to a decline in the cost of fuel consumed and the operation of the fuel clause adjustment mechanism. Under the fuel clause adjustment mechanism the Company defers fuel expense to the extent it varies from the allowed fuel rate until reflected in billings to customers in subsequent months. The decrease in maintenance expense reflects a decreased level of scheduled steam plant maintenance at the Company's Big Sandy Plant and reduced overhead distribution line maintenance expenditures. Taxes other than federal income taxes increased primarily due to increased state income taxes as a result of an increase in pre-tax operating income. The increase in federal income tax expense was primarily due to an increase in pre-tax operating income and the completion of the amortization of deferred federal income taxes in excess of the statutory tax rate as ordered by the Kentucky Public Service Commission. OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . . . . $484,300 $504,741 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162,002 178,326 Purchased Power. . . . . . . . . . . . . . . . . . . . . . . . 16,459 15,065 Other Operation. . . . . . . . . . . . . . . . . . . . . . . . 82,363 82,891 Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . 29,477 29,067 Depreciation and Amortization. . . . . . . . . . . . . . . . . 34,940 34,274 Taxes Other Than Federal Income Taxes. . . . . . . . . . . . . 41,913 42,203 Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . 36,615 35,071 TOTAL OPERATING EXPENSES . . . . . . . . . . . . . . . 403,769 416,897 OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . 80,531 87,844 NONOPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . . 4,970 2,134 INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . . . . . . 85,501 89,978 INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . . . . 19,910 23,442 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,591 66,536 PREFERRED STOCK DIVIDEND REQUIREMENTS. . . . . . . . . . . . . . 1,538 2,240 EARNINGS APPLICABLE TO COMMON STOCK. . . . . . . . . . . . . . . $ 64,053 $ 64,296
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . $584,015 $518,029 NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,591 66,536 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 37,562 35,714 Cumulative Preferred Stock . . . . . . . . . . . . . . . . . 2,089 2,194 Capital Stock Expense. . . . . . . . . . . . . . . . . . . . . 21 46 BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . $609,934 $546,611 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Consolidated Financial Statements. /TABLE OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1997 1996 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $2,565,522 $2,556,507 Transmission . . . . . . . . . . . . . . . . . . . . 821,723 820,636 Distribution . . . . . . . . . . . . . . . . . . . . 869,175 872,936 General (including mining assets). . . . . . . . . . 682,686 680,443 Construction Work in Progress. . . . . . . . . . . . 80,875 66,099 Total Electric Utility Plant . . . . . . . . 5,019,981 4,996,621 Accumulated Depreciation and Amortization. . . . . . 2,255,313 2,216,534 NET ELECTRIC UTILITY PLANT . . . . . . . . . 2,764,668 2,780,087 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 105,645 106,485 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 29,528 24,003 Accounts Receivable. . . . . . . . . . . . . . . . . 218,268 232,734 Allowance for Uncollectible Accounts . . . . . . . . (2,081) (1,433) Fuel . . . . . . . . . . . . . . . . . . . . . . . . 109,283 113,361 Materials and Supplies . . . . . . . . . . . . . . . 73,360 75,908 Accrued Utility Revenues . . . . . . . . . . . . . . 34,903 38,852 Prepayments. . . . . . . . . . . . . . . . . . . . . 60,466 44,203 TOTAL CURRENT ASSETS . . . . . . . . . . . . 523,727 527,628 REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 537,423 540,123 DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 102,844 137,843 TOTAL. . . . . . . . . . . . . . . . . . . $4,034,307 $4,092,166 See Notes to Consolidated Financial Statements.
OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1997 1996 (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. . . . . . . . . . . . . . . . . . . 462,285 460,662 Retained Earnings. . . . . . . . . . . . . . . . . . 609,934 584,015 Total Common Shareholder's Equity. . . . . . 1,393,420 1,365,878 Cumulative Preferred Stock: Not Subject to Mandatory Redemption. . . . . . . . 17,575 38,532 Subject to Mandatory Redemption. . . . . . . . . . 11,850 109,900 Long-term Debt . . . . . . . . . . . . . . . . . . . 929,067 1,002,436 TOTAL CAPITALIZATION . . . . . . . . . . . . 2,351,912 2,516,746 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 249,565 245,032 CURRENT LIABILITIES: Long-term Debt Due Within One Year . . . . . . . . . 169,635 67,293 Short-term Debt. . . . . . . . . . . . . . . . . . . 35,400 41,302 Accounts Payable . . . . . . . . . . . . . . . . . . 81,269 89,399 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 170,458 162,798 Interest Accrued . . . . . . . . . . . . . . . . . . 25,985 18,094 Obligations Under Capital Leases . . . . . . . . . . 26,648 24,153 Other. . . . . . . . . . . . . . . . . . . . . . . . 91,278 84,385 TOTAL CURRENT LIABILITIES. . . . . . . . . . 600,673 487,424 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 729,826 738,626 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 45,463 46,308 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 56,868 58,030 CONTINGENCIES (Note 3) TOTAL. . . . . . . . . . . . . . . . . . . $4,034,307 $4,092,166 See Notes to Consolidated Financial Statements. /TABLE OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1997 1996 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 65,591 $ 66,536 Adjustments for Noncash Items: Depreciation, Depletion and Amortization . . . . . . . . 43,728 41,119 Deferred Federal Income Taxes. . . . . . . . . . . . . . (4,363) 245 Amortization of Deferred Property Taxes. . . . . . . . . 18,739 19,656 Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . 15,114 (17,229) Fuel, Materials and Supplies . . . . . . . . . . . . . . 6,626 19,322 Accrued Utility Revenues . . . . . . . . . . . . . . . . 3,949 5,611 Prepayments. . . . . . . . . . . . . . . . . . . . . . . (16,263) (20,825) Accounts Payable . . . . . . . . . . . . . . . . . . . . (8,130) (18,089) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . 7,660 (2,565) Interest Accrued . . . . . . . . . . . . . . . . . . . . 7,891 9,409 Other (net). . . . . . . . . . . . . . . . . . . . . . . . 24,434 12,701 Net Cash Flows From Operating Activities . . . . . . 164,976 115,891 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . . (25,701) (19,903) Proceeds from Sale of Property and Other . . . . . . . . . 715 4,177 Net Cash Flows Used For Investing Activities . . . . (24,986) (15,726) FINANCING ACTIVITIES: Issuance of Long-term Debt . . . . . . . . . . . . . . . . 48,858 - Change in Short-term Debt (net). . . . . . . . . . . . . . (5,902) 39,001 Retirement of Cumulative Preferred Stock . . . . . . . . . (117,601) - Retirement of Long-term Debt . . . . . . . . . . . . . . . (20,169) (88,879) Dividends Paid on Common Stock . . . . . . . . . . . . . . (37,562) (35,714) Dividends Paid on Cumulative Preferred Stock . . . . . . . (2,089) (2,194) Net Cash Flows Used For Financing Activities . . . . (134,465) (87,786) Net Increase in Cash and Cash Equivalents. . . . . . . . . . 5,525 12,379 Cash and Cash Equivalents at Beginning of Period . . . . . . 24,003 44,000 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 29,528 $ 56,379 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $11,365,000 and $13,325,000 and for income taxes was $934,000 and $2,599,000 in 1997 and 1996, respectively. Noncash acquisitions under capital leases were $8,023,000 and $8,933,000 in 1997 and 1996, respectively. See Notes to Consolidated Financial Statements.
OHIO POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial statements should be read in conjunction with the 1996 Annual Report as incorporated in and filed with the Form 10-K. 2. FINANCING ACTIVITY The Company issued $50 million of 7.92% Junior Subordinated Deferrable Interest Debentures due 2027 in March 1997. In January 1997 a subsidiary of the Company retired $20 million of long-term debt at maturity. In March 1997 the Company, as part of a tender offer, reacquired and retired the following number of shares of Cumulative Preferred Stock at the prices listed plus an amount equal to accrued dividends: Number Price Total of Shares Paid Per Reacquisition Series Retired Share Price (in thousands) 4.08% 27,182 $ 64.56 $ 1,755 4-1/2% 97,616 69.02 6,737 4.20% 28,875 66.46 1,919 4.40% 55,889 69.62 3,891 5.90% 321,500 103.09 33,143 6.02% 364,000 103.71 37,750 6.35% 295,000 105.14 31,016 In April 1997, the Company called the entire $50 million outstanding balance of 8.75% Series First Mortgage Bonds due in 2022 for early redemption in June 1997. Consequently the bonds are classified as a current liability on the balance sheet. 3. CONTINGENCIES As discussed in Note 8, "Federal Income Taxes" of the Notes to Consolidated Financial Statements in the 1996 Annual Report, the Internal Revenue Service agents auditing the federal income tax returns for the years 1991 through 1993 requested a ruling from their National Office that certain interest deductions relating to corporate owned life insurance (COLI) claimed by the Company for 1991 through 1993 should not be allowed. The COLI program was established in 1990 as part of the Company's strategy to fund and reduce the cost of medical benefits for retired employees. AEP filed a brief with the IRS National Office refuting the agents' position. Although no adjustments have been proposed, a disallowance of the COLI interest deductions through March 31, 1997 would reduce earnings by approximately $97 million (including interest). Management believes it will ultimately prevail on this issue and will vigorously contest any adjustments that may be assessed. The Company continues to be involved in certain other matters discussed in the 1996 Annual Report. OHIO POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST QUARTER 1997 vs. FIRST QUARTER 1996 RESULTS OF OPERATIONS Net income decreased 1% or $1 million primarily due to a 4% decrease in retail energy sales the effect of which was partially offset by reduced fuel costs and interest charges. Income statement lines which changed significantly were: Increase (Decrease) (in millions) % Operating Revenues. . . . . . . . . . . $(20.4) (4) Fuel Expense. . . . . . . . . . . . . . (16.3) (9) Purchased Power Expense . . . . . . . . 1.4 9 Interest Charges. . . . . . . . . . . . (3.5) (15) Both retail and wholesale revenues declined. The reduction in retail revenues resulted from milder weather, a labor strike at a major industrial customer and a reduction in the contract price for the sale of electricity to another major industrial customer. Retail sales to weather-sensitive residential and commercial customers decreased 7% and 2%, respectively, and industrial sales declined 4%. Revenues from wholesale customers decreased 7% while wholesale sales increased 1%. The decrease in revenues largely resulted from a decrease in the average price per kilowatt sold. While sales to unaffiliated utilities declined 22%, coal conversion service sales and related transmission service more than doubled. Coal conversion service sales are from the conversion of customers' coal to electricity. The substantial increase in coal conversion service sales reflects the utilization of this service as customers obtained low cost spot market coal. The reduction in sales to unaffiliated utilities resulted from the effects of milder winter weather and the competitive nature of the wholesale power markets. The decrease in fuel expense was due to a decline in generation resulting from the reduced demand for energy and the unavailability of certain generating units. Purchased power expense increased due to increased purchases from an unaffiliated utility reflecting favorable prices and outages at the Company's generating units. Interest charges decreased due to lower outstanding balances of long-term debt in 1997 reflecting debt retirements in the first half of 1996 and reduced interest accruals on emission allowances. FINANCIAL CONDITION Total plant and property additions including capital leases for the current period were $34 million. During the first quarter of 1997, the Company issued $50 million of 7.92% Junior Subordinated Deferrable Interest Debentures due 2027 and a subsidiary of the Company retired $20 million principal amount of long-term debt with an interest rate of 7.19%. Short-term debt decreased by $6 million from the beginning of 1997. As part of a January 1997 tender offer for all of the Company's outstanding preferred stock that was announced in conjunction with a special meeting of shareholders, 1,190,062 shares of $100 par value preferred stocks were reacquired. The total cost of the stock reacquisition was $118 million. At the special meeting of shareholders held on February 28, 1997 the Company's articles of incorporation were amended to remove certain capitalization ratio requirements which restricted the Company's ability to issue unsecured debt. As a result unsecured borrowings are now limited only by the Public Utility Holding Company Act of 1935 with the current limitation set at $250 million for unsecured short-term borrowings. In April 1997, the Company called the entire $50 million outstanding balance of 8.75% Series First Mortgage Bonds due in 2022 for early redemption in June 1997. Consequently the bonds are classified as a current liability on the balance sheet. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. Appalachian Power Company ("APCo") A special meeting of stockholders was held on February 28, 1997. The holders of shares entitled to vote at the meeting or their proxies cast votes at the meeting with respect to the con- sideration of an amendment to the Restated Articles of Incorpora- tion of APCo to remove a provision of the Articles limiting APCo's ability to issue debt, as indicated below: Cumulative Preferred Common Stock Stock Votes FOR 1,650,164 13,499,500 Votes AGAINST 34,012 0 Votes ABSTAINED 293 0 Indiana Michigan Power Company ("I&M") A special meeting of stockholders was held on February 28, 1997. The holders of shares entitled to vote at the meeting or their proxies cast votes at the meeting with respect to the con- sideration of an amendment to the Amended Articles of Acceptance of I&M to remove a provision of the Articles limiting I&M's ability to issue unsecured debt, as indicated below: Cumulative Preferred Common Stock Stock Votes FOR 1,210,512 1,400,000 Votes AGAINST 93,188 0 Votes ABSTAINED 1,146 0 Ohio Power Company ("OPCo") A special meeting of stockholders was held on February 28, 1997. The holders of shares entitled to vote at the meeting or their proxies cast votes at the meeting with respect to the fol- lowing matters, as indicated below: 1. Consideration of an amendment to the Amended Articles of Incorporation of OPCo to remove a provision of the Articles limiting OPCo's ability to issue unsecured debt: Cumulative Preferred Common Stock Stock Votes FOR 1,222,428 27,952,473 Votes AGAINST 60,434 0 Votes ABSTAINED 2,530 0 II-1 2. Consideration of an amendment to the Amended Articles of Incorporation of OPCo to add a provision regarding the scope of the authority of the Board of Directors to pur- chase or otherwise acquire shares of OPCo's cumulative preferred stock. Cumulative Preferred Common Stock Stock Votes FOR 1,222,428 27,952,473 Votes AGAINST 60,434 0 Votes ABSTAINED 2,530 0 Item 5. Other Information. American Electric Power Company, Inc. ("AEP") and APCo Reference is made to page 10 of the Annual Report on Form 10-K for the year ended December 31, 1996 for a discussion of the investigation into electric industry restructuring in West Virginia. On May 8, 1997, after holding a hearing, the Public Service Commission of West Virginia issued an order establishing a Task Force, including AEP among other parties, to study further restructuring issues. The Task Force has been directed to file its final report by October 15, 1997. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: APCo, Columbus Southern Power Company ("CSPCo"), 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: Company Reporting Date of Report Items Reported AEP, APCo, CSPCo, December 23, 1996 Item 5. Other Events I&M, KEPCo and OPCo AEP February 24, 1997 Item 5. Other Events AEGCo No reports on Form 8-K were filed during the quarter ended March 31, 1997. II-2 In the opinion of the companies, the financial statements contained herein reflect all adjustments (consisting of only normal recurring accruals) which are necessary to a fair presentation of the results of operations for the interim periods. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signatures for each undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. AMERICAN ELECTRIC POWER COMPANY, INC. G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Controller and Secretary AEP GENERATING COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Controller APPALACHIAN POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Controller COLUMBUS SOUTHERN POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Controller INDIANA MICHIGAN POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Controller KENTUCKY POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Controller OHIO POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Controller Date: May 12, 1997 II-3 EX-27 2 ARTICLE UT FIN. DATA SCH. FOR 10-Q
UT 0000004904 AMERICAN ELECTRIC POWER COMPANY, INC. 1,000 3-MOS DEC-31-1996 MAR-31-1997 PER-BOOK 11,416,209 917,497 1,407,780 292,707 1,871,497 15,905,690 1,285,115 1,731,695 1,607,776 4,624,586 127,605 46,933 4,786,636 74,046 0 260,272 296,289 47,750 353,361 83,827 5,204,385 15,905,690 1,492,069 111,888 1,108,203 1,220,091 271,978 4,509 276,487 93,822 172,562 10,103 172,562 112,943 60,321 417,011 $0.92 $0.92 Represents preferred stock dividend requirements of subsidiaries; deducted before computation of net income.
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