-----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, Uq/b5OKGDlVXLNFEF0gopG8U+RIgUk3DgrkqFOYun72KR8RkowEpB/X3re8pMICu pqjOHxvbozA8O3UDi4buyQ== 0000004904-95-000127.txt : 19951119 0000004904-95-000127.hdr.sgml : 19951119 ACCESSION NUMBER: 0000004904-95-000127 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OHIO POWER CO CENTRAL INDEX KEY: 0000073986 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 314271000 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06543 FILM NUMBER: 95590136 BUSINESS ADDRESS: STREET 1: 301 CLEVELAND AVE S W CITY: COLUMBUS STATE: OH ZIP: 44702 BUSINESS PHONE: 6142231000 10-Q 1 THE CONSOLIDATED 10-Q FOR AMERICAN ELECTRIC POWER CO., INC, AND SUBSIDIARIES IS REQUESTED TO BE INCLUDED AS PART OF THE FILING. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended September 30, 1995 [ ] 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 (216) 456-8173 AEP Generating Company, Columbus Southern Power Company and Kentucky Power Company meet the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H(2) to Form 10-Q. Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of American Electric Power Company, Inc. Common Stock, par value $6.50, at October 31, 1995 was 186,285,000. /TABLE AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES FORM 10-Q For The Quarter Ended September 30, 1995 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-6 - B-7 Appalachian Power Company and Subsidiaries: Consolidated Statements of Income and Consolidated Statements of Retained Earnings . . . . . . . C-1 Consolidated Balance Sheets. . . . . . . . . . . . . . . . . C-2 - C-3 Consolidated Statements of Cash Flows. . . . . . . . . . . . C-4 Notes to Consolidated Financial Statements . . . . . . . . . C-5 Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . . C-6 - C-8 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-9 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-8 Ohio Power Company and Subsidiaries: Consolidated Statements of Income and Consolidated Statements of Retained Earnings . . . . . . . G-1 Consolidated Balance Sheets. . . . . . . . . . . . . . . . . G-2 - G-3 Consolidated Statements of Cash Flows. . . . . . . . . . . . G-4 Notes to Consolidated Financial Statements . . . . . . . . . G-5 Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . . G-6 - G-8 AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES FORM 10-Q For The Quarter Ended September 30, 1995 INDEX Page Part II. OTHER INFORMATION Item 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1 Item 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1 - II-2 Item 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . II-2 SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-3 This combined Form 10-Q is separately filed by American Electric Power Company, Inc., AEP Generating Company, Appalachian Power Company, Columbus Southern Power Company, Indiana Michigan Power Company, Kentucky Power Company and Ohio Power Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per-share amounts) (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 OPERATING REVENUES . . . . . . . . . .$1,523,390 $1,385,278 $4,244,901 $4,222,026 OPERATING EXPENSES: Fuel and Purchased Power . . . . . . 456,496 427,125 1,225,538 1,359,517 Other Operation. . . . . . . . . . . 316,850 243,056 868,667 736,581 Maintenance. . . . . . . . . . . . . 131,134 133,690 393,130 409,217 Depreciation and Amortization. . . . 150,424 145,516 444,844 426,958 Taxes Other Than Federal Income Taxes . . . . . . . . . . . 125,052 122,076 371,282 371,233 Federal Income Taxes . . . . . . . . 80,886 66,800 210,052 194,492 TOTAL OPERATING EXPENSES . . 1,260,842 1,138,263 3,513,513 3,497,998 OPERATING INCOME . . . . . . . . . . . 262,548 247,015 731,388 724,028 NONOPERATING INCOME. . . . . . . . . . 5,693 3,989 10,574 4,946 INCOME BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS. . . . . . . . . 268,241 251,004 741,962 728,974 INTEREST CHARGES . . . . . . . . . . . 99,784 96,975 301,040 291,704 PREFERRED STOCK DIVIDEND REQUIREMENTS OF SUBSIDIARIES. . . . . . . . . . . 14,301 14,203 42,438 40,696 NET INCOME . . . . . . . . . . . . . .$ 154,156 $ 139,826 $ 398,484 $ 396,574 AVERAGE NUMBER OF SHARES OUTSTANDING . 186,024 184,621 185,671 184,564 EARNINGS PER SHARE . . . . . . . . . . $0.83 $0.76 $2.15 $2.15 CASH DIVIDENDS PAID PER SHARE. . . . . $0.60 $0.60 $1.80 $1.80
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . .$1,347,260 $1,304,036 $1,325,581 $1,269,283 NET INCOME . . . . . . . . . . . . . . 154,156 139,826 398,484 396,574 DEDUCTIONS: Cash Dividends Declared. . . . . . . 111,563 110,723 334,058 332,168 Other. . . . . . . . . . . . . . . . (154) (54) - 496 BALANCE AT END OF PERIOD . . . . . . .$1,390,007 $1,333,193 $1,390,007 $1,333,193 See Notes to Consolidated Financial Statements. /TABLE AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1995 1994 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . . $ 9,231,228 $ 9,172,766 Transmission . . . . . . . . . . . . . . . . . . . . 3,299,451 3,247,280 Distribution . . . . . . . . . . . . . . . . . . . . 4,109,423 3,966,442 General (including mining assets and nuclear fuel) . 1,468,520 1,529,436 Construction Work in Progress. . . . . . . . . . . . 313,846 258,700 Total Electric Utility Plant . . . . . . . . 18,422,468 18,174,624 Accumulated Depreciation and Amortization. . . . . . 7,055,191 6,826,514 NET ELECTRIC UTILITY PLANT . . . . . . . . . 11,367,277 11,348,110 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 788,874 735,042 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . . 93,721 62,866 Accounts Receivable. . . . . . . . . . . . . . . . . 504,576 436,915 Allowance for Uncollectible Accounts . . . . . . . . (6,545) (4,056) Fuel . . . . . . . . . . . . . . . . . . . . . . . . 265,961 306,700 Materials and Supplies . . . . . . . . . . . . . . . 223,996 216,741 Accrued Utility Revenues . . . . . . . . . . . . . . 139,122 167,486 Prepayments and Other. . . . . . . . . . . . . . . . 118,619 94,786 TOTAL CURRENT ASSETS . . . . . . . . . . . . 1,339,450 1,281,438 REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 1,992,692 2,033,892 DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 211,417 340,274 TOTAL. . . . . . . . . . . . . . . . . . . $15,699,710 $15,738,756 See Notes to Consolidated Financial Statements.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1995 1994 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock-Par Value $6.50: 1995 1994 Shares Authorized . . . .300,000,000 300,000,000 Shares Issued . . . . . .195,284,992 194,234,992 (8,999,992 shares were held in treasury) . . . . . $ 1,269,352 $ 1,262,527 Paid-in Capital. . . . . . . . . . . . . . . . . . . 1,653,238 1,640,661 Retained Earnings. . . . . . . . . . . . . . . . . . 1,390,007 1,325,581 Total Common Shareholders' Equity. . . . . . 4,312,597 4,228,769 Cumulative Preferred Stocks of Subsidiaries: Not Subject to Mandatory Redemption. . . . . . . . 233,240 233,240 Subject to Mandatory Redemption. . . . . . . . . . 515,300 590,300 Long-term Debt . . . . . . . . . . . . . . . . . . . 4,845,908 4,686,648 TOTAL CAPITALIZATION . . . . . . . . . . . . 9,907,045 9,738,957 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 806,667 735,689 CURRENT LIABILITIES: Preferred Stock Due Within One Year. . . . . . . . . 75,085 85 Long-term Debt Due Within One Year . . . . . . . . . 200,736 293,671 Short-term Debt. . . . . . . . . . . . . . . . . . . 212,550 316,985 Accounts Payable . . . . . . . . . . . . . . . . . . 200,331 251,186 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 255,300 382,677 Interest Accrued . . . . . . . . . . . . . . . . . . 124,972 88,916 Obligations Under Capital Leases . . . . . . . . . . 90,063 93,252 Other. . . . . . . . . . . . . . . . . . . . . . . . 371,922 339,913 TOTAL CURRENT LIABILITIES. . . . . . . . . . 1,530,959 1,766,685 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 2,639,962 2,657,062 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 438,044 456,043 DEFERRED GAIN ON SALE AND LEASEBACK - ROCKPORT PLANT UNIT 2. . . . . . . . . . . . . . . . 252,195 259,152 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 124,838 125,168 CONTINGENCIES (Note 4) TOTAL. . . . . . . . . . . . . . . . . . . $15,699,710 $15,738,756 See Notes to Consolidated Financial Statements.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1995 1994 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 398,484 $ 396,574 Adjustments for Noncash Items: Depreciation and Amortization. . . . . . . . . . . . . 431,936 419,219 Deferred Income Taxes. . . . . . . . . . . . . . . . . 2,747 (16,122) Deferred Investment Tax Credits. . . . . . . . . . . . (17,862) (22,332) Amortization of Deferred Property Taxes. . . . . . . . 120,710 98,377 Amortization of Operating Expenses and Carrying Charges (net) . . . . . . . . . . . . . . . 39,975 14,028 Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . (65,172) 39,268 Fuel, Materials and Supplies . . . . . . . . . . . . . 33,484 24,535 Accrued Utility Revenues . . . . . . . . . . . . . . . 28,364 35,591 Accounts Payable . . . . . . . . . . . . . . . . . . . (50,855) (74,429) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . (127,377) (138,524) Other (net). . . . . . . . . . . . . . . . . . . . . . . 12,066 44,069 Net Cash Flows From Operating Activities . . . . . 806,500 820,254 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . (427,716) (443,172) Proceeds from Sale of Property and Other . . . . . . . . 11,560 38,853 Net Cash Flows Used For Investing Activities . . . (416,156) (404,319) FINANCING ACTIVITIES: Issuance of Common Stock . . . . . . . . . . . . . . . . 35,302 10,732 Issuance of Cumulative Preferred Stock . . . . . . . . . - 88,787 Issuance of Long-term Debt . . . . . . . . . . . . . . . 425,309 361,639 Retirement of Cumulative Preferred Stock . . . . . . . . - (35,800) Retirement of Long-term Debt . . . . . . . . . . . . . . (381,607) (440,451) Change in Short-term Debt (net). . . . . . . . . . . . . (104,435) (64,797) Dividends Paid on Common Stock . . . . . . . . . . . . . (334,058) (332,168) Net Cash Flows Used For Financing Activities . . . (359,489) (412,058) Net Increase in Cash and Cash Equivalents. . . . . . . . . 30,855 3,877 Cash and Cash Equivalents at Beginning of Period . . . . . 62,866 42,561 Cash and Cash Equivalents at End of Period . . . . . . . . $ 93,721 $ 46,438 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $255,342,000 and $249,101,000 and for income taxes was $220,897,000 and $242,975,000 in 1995 and 1994, respectively. Noncash acquisitions under capital leases were $78,170,000 and $155,857,000 in 1995 and 1994, respectively. See Notes to Consolidated Financial Statements. /TABLE AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial state-ments should be read in conjunction with the 1994 Annual Report as incorporated in and filed with the Form 10-K. Certain prior-period amounts have been reclassified to conform to current-period presentation. 2. FINANCING AND RELATED ACTIVITIES Significant financing transactions by subsidiaries during the first nine months of 1995 included the following: Principal Amount (in thousands) Issuances: Junior Subordinated Deferrable Interest Debentures 8.72% Series due 2025 $ 40,000 8-3/8% Series due 2025 75,000 First Mortgage Bonds 6.89% Series due 2005 30,000 8% Series due 2005 50,000 8% Series due 2025 50,000 Pollution Control Revenue Refunding Bonds 6.55% Series 1995 A due 2025 50,000 (a) Series 1995 B due 2025 50,000 (b) Series 1995 A due 2025 45,000 (b) Series 1995 B due 2025 45,000 Total Issuances $435,000 (a) The variable rate Series B will bear interest at a rate set weekly which ranged from 2.9% to 4.4% during 1995. The Company may designate the use of a daily, commercial paper or term rate instead of the weekly rate. (b) Both variable rate Series A and Series B will bear interest at a market rate set daily which ranged from 3.15% to 4.5% during 1995. The Company may designate the use of a weekly, commercial paper or term rate instead of the daily rate. Principal Amount (in thousands) Retirements: First Mortgage Bonds 9-1/8% Series due 2019 $ 47,000 9-7/8% Series due 2020 26,900 9-7/8% Series due 2020 43,600 Pollution Control Revenue Bonds 9-1/4% Series due 2014 50,000 9-3/8% Series due 2014 55,000 (c) 6-5/8% Series due 2014 55,000 (c) 6-3/4% Series due 2014 50,000 Notes Payable 8.79% due 1995 50,000 Total Retirements $377,500 (c) Adjustable rate series. Redemption of the 9-1/8% Series First Mortgage Bonds due in 2019 reduced the restriction on the subsidiaries use of retained earnings for the payment of cash dividends on their common stock from $234 million to $230 million. In October 1995 a subsidiary issued $85 million of an 8.16% Series of Junior Subordinated Deferrable Interest Debentures due in 2025. The proceeds will be used to redeem three series of $100 par value cumulative preferred stock in November 1995: 350,000 shares of the 7.60% Series; 350,000 shares of the 7-6/10% Series; and 150,000 shares of the 8.04% Series. In November 1995 a subsidiary used the proceeds of their September issuance of junior subordinated debentures to redeem 675,000 shares of their 9.50% cumulative preferred stock, $100 par value, at $106.33 per share. 3. RESTRUCTURING The Company recorded severance costs of $27.2 million ($17.7 million net of income taxes) in the third quarter of 1995 in connection with a planned staffing reduction of approximately 900 positions at the Company s power plants. The staffing reduction is part of an AEP restructuring program to functionally realign operations in preparation for increased competition. 4. CONTINGENCIES The Company continues to be involved in certain matters discussed in the 1994 Annual Report. AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THIRD QUARTER 1995 vs. THIRD QUARTER 1994 AND YEAR-TO-DATE 1995 vs. YEAR-TO-DATE 1994 RESULTS OF OPERATIONS Net income increased $14.3 million or 10% for the quarter primarily due to increased energy sales resulting from warmer weather in the summer of 1995 partially offset by the unfavorable earnings effect of a $17.7 million after-tax provision for severance pay recorded during the quarter. Net income increased sightly for the year-to-date period due to the increased energy sales in the third quarter which were offset by the severance pay provision and a reduction in sales in the first six months of 1995 due to milder winter weather in 1995. Income statement lines which changed significantly were: Increase (Decrease) Third Quarter Year-To-Date (in millions) % (in millions) % Operating Revenues . . . . . $138.1 10 $ 22.9 1 Fuel and Purchased Power Expense. . . . . . . 29.4 7 (134.0) (10) Other Operation Expense. . . 73.8 30 132.1 18 Federal Income Taxes . . . . 14.1 21 15.6 8 The increase in operating revenues during the third quarter was primarily due to a 7% increase in energy sales to retail customers and a 22% increase in sales to wholesale customers. Retail sales rose mainly due to increased usage by residential and commercial customers reflecting the warmer summer weather in 1995 and growth in the number of retail customers. The increase in wholesale sales also resulted from the weather-related energy demand. Year-to-date operating revenues rose slightly mainly due to a 3% increase in energy sales to retail customers resulting from increased usage and growth in the number of retail customers. The increase in retail sales was partially offset by a 7% decline in sales to wholesale customers as a result of milder weather during the first six months of 1995 and a reduction in the fuel cost component of retail revenues due to rate commission orders that reduced fuel recoveries in certain jurisdictions and decreased fuel costs. Fuel and purchased power expense increased during the third quarter due to the weather-related increase in energy demand which resulted in increased generation and fuel consumption and increased energy purchases. Partially offsetting the quarter s increases was a deferral of under-recovered fuel expense in 1995 and the effect of amortization in 1995 of deferred over-recovered fuel expense in 1994. The decline in fuel and purchased power expense for the year-to-date period resulted from the deferral of under and over-recovered fuel expense described above; increased utilization of low-cost nuclear generation which had been unavailable in the first six-months of 1994 due to refueling and maintenance outages at the Cook Plant; a decrease in the average cost of fossil fuel resulting from reduced coal prices reflecting the renegotiation of certain long-term coal contracts and a reduction of coal prices under the terms of other contracts; and decreased energy purchases due to the mild weather during the first half of 1995. The significant rise in other operation expense during both periods was primarily due to rent expense and other operating costs of the Gavin Plant's flue gas desulfurization systems (scrubbers) which went into service in the first quarter of 1995, costs related to the development of a new activity based budgeting system and a $27.2 million ($17.7 million after-tax) provision for severance pay recorded in the third quarter of 1995 discussed below. Federal income tax expense attributable to operations increased for both periods due to an increase in pre-tax operating income and changes in certain book/tax differences accounted for on a flow-through basis. FINANCIAL CONDITION Total plant and property additions including capital leases for the first nine months were $508 million. During the first nine months subsidiaries issued $295 million principal amount of long-term debt at fixed interest rates ranging from 6.55% to 8.72% and $140 million at variable rates which ranged from 2.9% to 4.5% in 1995; retired $378 million principal amount of long-term debt with interest rates ranging from 6-5/8% to 9-7/8%; and decreased short-term debt by $104 million. In October 1995, a subsidiary issued $85 million of an 8.16% Series of Junior Subordinated Deferrable Interest Debentures due in 2025. The proceeds will be used to redeem three series of $100 par value cumulative preferred stock in November 1995: 350,000 shares of the 7.60% Series; 350,000 shares of the 7-6/10% Series; and 150,000 shares of the 8.04% Series. In November 1995, a subsidiary will use the $75 million proceeds of their September issuance of junior subordinated debentures to redeem 675,000 shares of their 9.50% cumulative preferred stock, $100 par value, at $106.33 per share. The remaining 75,000 shares of this series are expected to be redeemed on February 1, 1996 at $100 per share. Under the terms of the sinking fund, the redemption of 37,500 shares is required by February 1 and an additional 37,500 shares may be redeemed. RESTRUCTURING As part of an AEP restructuring program, the Company is reducing staff at the subsidiary companies power plants. The restructuring program, which is part of an effort to prepare for increased competition, calls for the functional realignment of operations. As indicated above, in the third quarter of 1995 the Company provided for the cost of currently identified staff reductions at its power plants. AEP GENERATING COMPANY STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (in thousands) OPERATING REVENUES . . . . . . . . . . . $58,916 $60,828 $172,910 $180,259 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . . 25,422 26,281 74,062 78,020 Rent - Rockport Plant Unit 2 . . . . . 17,070 17,897 49,689 52,042 Other Operation. . . . . . . . . . . . 2,944 2,618 8,621 7,901 Maintenance. . . . . . . . . . . . . . 2,618 2,788 8,959 8,363 Depreciation . . . . . . . . . . . . . 5,421 5,396 16,255 16,212 Taxes Other Than Federal Income Taxes. 897 1,000 2,175 3,023 Federal Income Taxes . . . . . . . . . 979 929 2,466 2,862 TOTAL OPERATING EXPENSES . . . 55,351 56,909 162,227 168,423 OPERATING INCOME . . . . . . . . . . . . 3,565 3,919 10,683 11,836 NONOPERATING INCOME. . . . . . . . . . . 1,012 820 2,757 2,505 INCOME BEFORE INTEREST CHARGES . . . . . 4,577 4,739 13,440 14,341 INTEREST CHARGES . . . . . . . . . . . . 1,977 2,448 6,787 7,283 NET INCOME . . . . . . . . . . . . . . . $ 2,600 $ 2,291 $ 6,653 $ 7,058
STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . . . $4,321 $1,185 $4,268 $1,339 NET INCOME . . . . . . . . . . . . . . . 2,600 2,291 6,653 7,058 CASH DIVIDENDS DECLARED. . . . . . . . . 5,000 2,260 9,000 7,181 BALANCE AT END OF PERIOD . . . . . . . . $1,921 $1,216 $1,921 $1,216 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Financial Statements. /TABLE AEP GENERATING COMPANY BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1995 1994 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production. . . . . . . . . . . . . . . . . . . . . . . $628,110 $627,429 General . . . . . . . . . . . . . . . . . . . . . . . . 2,933 2,658 Construction Work in Progress . . . . . . . . . . . . . 1,385 1,441 Total Electric Utility Plant. . . . . . . . . . 632,428 631,528 Accumulated Depreciation. . . . . . . . . . . . . . . . 213,245 199,264 NET ELECTRIC UTILITY PLANT. . . . . . . . . . . 419,183 432,264 CURRENT ASSETS: Cash and Cash Equivalents . . . . . . . . . . . . . . . 25 7 Accounts Receivable . . . . . . . . . . . . . . . . . . 19,684 19,868 Fuel. . . . . . . . . . . . . . . . . . . . . . . . . . 18,305 18,368 Materials and Supplies. . . . . . . . . . . . . . . . . 3,961 4,167 Prepayments . . . . . . . . . . . . . . . . . . . . . . 789 452 TOTAL CURRENT ASSETS. . . . . . . . . . . . . . 42,764 42,862 REGULATORY ASSETS . . . . . . . . . . . . . . . . . . . . 6,185 1,520 DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . 2,543 2,573 TOTAL . . . . . . . . . . . . . . . . . . . . $470,675 $479,219 See Notes to Financial Statements.
AEP GENERATING COMPANY BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1995 1994 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock - Par Value $1,000: Authorized and Outstanding - 1,000 Shares . . . . $ 1,000 $ 1,000 Paid-in Capital . . . . . . . . . . . . . . . . . . 47,735 47,735 Retained Earnings . . . . . . . . . . . . . . . . . 1,921 4,268 Total Common Shareholder's Equity . . . . . 50,656 53,003 Long-term Debt. . . . . . . . . . . . . . . . . . . 89,535 53,340 TOTAL CAPITALIZATION. . . . . . . . . . . . 140,191 106,343 OTHER NONCURRENT LIABILITIES. . . . . . . . . . . . . 1,947 2,019 CURRENT LIABILITIES: Long-term Debt Due Within One Year. . . . . . . . . - 55,000 Short-term Debt - Notes Payable . . . . . . . . . . 11,025 7,200 Accounts Payable. . . . . . . . . . . . . . . . . . 8,174 9,506 Taxes Accrued . . . . . . . . . . . . . . . . . . . 3,439 3,648 Interest Accrued. . . . . . . . . . . . . . . . . . 320 2,955 Rent Accrued - Rockport Plant Unit 2. . . . . . . . 23,427 6,490 Other . . . . . . . . . . . . . . . . . . . . . . . 1,311 4,456 TOTAL CURRENT LIABILITIES . . . . . . . . . 47,696 89,255 DEFERRED GAIN ON SALE AND LEASEBACK - ROCKPORT PLANT UNIT 2 . . . . . . . . . . . . . . . 151,436 155,614 REGULATORY LIABILITIES: Deferred Investment Tax Credits . . . . . . . . . . 77,934 80,471 Amounts Due to Customers for Income Taxes . . . . . 37,097 38,101 TOTAL REGULATORY LIABILITIES. . . . . . . . 115,031 118,572 DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . 14,178 7,293 DEFERRED CREDITS. . . . . . . . . . . . . . . . . . . 196 123 TOTAL . . . . . . . . . . . . . . . . . . $470,675 $479,219 See Notes to Financial Statements.
AEP GENERATING COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1995 1994 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 6,653 $ 7,058 Adjustments for Noncash Items: Depreciation . . . . . . . . . . . . . . . . . . . . . 16,255 16,212 Deferred Income Taxes. . . . . . . . . . . . . . . . . 5,881 3,286 Deferred Investment Tax Credits. . . . . . . . . . . . (2,537) (2,538) Amortization of Deferred Gain on Sale and Leaseback - Rockport Plant Unit 2. . . . . . . . (4,178) (4,178) Changes in Certain Current Assets and Liabilities: Accounts Receivable. . . . . . . . . . . . . . . . . . 184 (1,555) Fuel, Materials and Supplies . . . . . . . . . . . . . 269 (4,037) Accounts Payable . . . . . . . . . . . . . . . . . . . (1,332) (3,030) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . (209) 2,492 Interest Accrued . . . . . . . . . . . . . . . . . . . (2,635) (2,218) Rent Accrued - Rockport Plant Unit 2 . . . . . . . . . 16,937 19,290 Other (net). . . . . . . . . . . . . . . . . . . . . . . (3,989) 1,836 Net Cash Flows From Operating Activities . . . . . 31,299 32,618 INVESTING ACTIVITIES - Construction Expenditures . . . . . (3,127) (2,938) FINANCING ACTIVITIES: Capital Contributions Returned to Parent Company . . . . - (6,700) Issuance of Long-term Debt . . . . . . . . . . . . . . . 88,368 - Change in Short-term Debt (net). . . . . . . . . . . . . 3,825 (15,250) Retirement of Long-term Debt . . . . . . . . . . . . . . (111,347) - Dividends Paid . . . . . . . . . . . . . . . . . . . . . (9,000) (7,181) Net Cash Flows Used For Financing Activities . . . (28,154) (29,131) Net Increase in Cash and Cash Equivalents. . . . . . . . . 18 549 Cash and Cash Equivalents at Beginning of Period . . . . . 7 3 Cash and Cash Equivalents at End of Period . . . . . . . . $ 25 $ 552 Supplemental Disclosure: Cash paid (received) for interest net of capitalized amounts was $9,136,000 and $9,227,000 and for income taxes was $(2,136,000) and $(1,026,000) in 1995 and 1994, respectively. See Notes to Financial Statements.
AEP GENERATING COMPANY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED) 1. GENERAL The accompanying unaudited financial statements should be read in conjunction with the 1994 Annual Report as incorporated in and filed with the Form 10-K. Certain prior-period amounts have been reclassified to conform to current-period presentation. 2. FINANCING On July 18, 1995, the Company entered into transactions relating to two series (Series 1995 A and Series 1995 B) of $45 million City of Rockport, Indiana, Pollution Control Revenue Refunding Bonds (Bonds) with maturity dates of July 1, 2025. The proceeds from the Series 1995 A Bonds along with additional funds were used to redeem the $55 million City of Rockport, Indiana, 9-3/8% Fixed Rate Bonds, Series 1985 A, on September 1, 1995. The proceeds from the Series 1995 B Bonds along with additional funds were used to redeem the $55 million City of Rockport, Indiana, Adjustable Rate Bonds (6-5/8%), Series 1985 A, on September 1, 1995. The two new series of Bonds bear interest at a rate set daily which has ranged from 3.15% to 4.5%. The Company may designate the use of a weekly, commercial paper or term rate instead of the daily rate. AEP GENERATING COMPANY MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS THIRD QUARTER 1995 vs. THIRD QUARTER 1994 AND YEAR-TO-DATE 1995 vs. YEAR-TO-DATE 1994 Operating revenues are derived from the sale of Rockport Plant energy and capacity to two affiliated companies and one unaffiliated utility pursuant to Federal Energy Regulatory Commission (FERC) approved long-term unit power agreements. The unit power agreements provide for recovery of costs including a FERC approved rate of return on common equity and a return on other capital net of temporary cash investments. Net income increased $0.3 million or 13% in the third quarter and decreased $0.4 million or 6% in the year-to-date period. The increase for the quarter resulted from refinancing transactions that led to decreased interest charges as $20 million of debt was retired and $90 million was refinanced at lower rates and increased interest income from debt issuance proceeds held from mid-July to September 1, 1995. The decrease in the year-to-date period reflects a reduction in common equity on which a return is earned and a decreased return on other capital due to an increase in temporary cash investments during the second quarter 1995 offset in part by the favorable effects of the third quarter 1995 refinancing transactions. The reduction in common equity resulted from the return of $6.7 million of capital to the parent company in 1994. Income statement items which changed significantly were as follows: Increase (Decrease) Third Quarter Year-To-Date (in millions) % (in millions) % Operating Revenues. . . . . $(1.9) (3) $(7.3) (4) Fuel Expense. . . . . . . . (0.9) (3) (4.0) (5) Rent Expense-Rockport Plant Unit 2. . . . . . . (0.8) (5) (2.4) (5) The decrease in operating revenues for the third quarter and year-to-date periods reflects the decrease in recoverable operating expenses in accordance with the unit power agreements as well as the reduced return on capital previously discussed. The decrease in fuel expense for the third quarter was due to a 5% reduction in generation. The decline for the year-to-date period is mainly attributable to 15% lower generation in the second quarter of 1995 when Rockport Plant Unit 1 was out-of-service for general boiler inspection and repair. Rent expense for Rockport Plant Unit 2 decreased in both periods due to a reversal of a provision recorded in the third quarter of 1994 for Indiana gross income taxes applicable to the lease. APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (in thousands) OPERATING REVENUES . . . . . . . . $403,786 $371,842 $1,151,259 $1,179,799 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . 98,091 92,453 270,066 299,147 Purchased Power. . . . . . . . . 82,526 78,716 219,378 250,320 Other Operation. . . . . . . . . 57,689 46,770 163,604 141,237 Maintenance. . . . . . . . . . . 32,550 30,311 101,976 101,307 Depreciation and Amortization. . 33,535 32,195 99,963 95,377 Taxes Other Than Federal Income Taxes . . . . . . . . . 29,489 28,559 88,831 90,964 Federal Income Taxes . . . . . . 14,545 11,992 44,097 41,997 TOTAL OPERATING EXPENSES 348,425 320,996 987,915 1,020,349 OPERATING INCOME . . . . . . . . . 55,361 50,846 163,344 159,450 NONOPERATING INCOME (LOSS) . . . . 25 (697) (4,614) (4,240) INCOME BEFORE INTEREST CHARGES . . 55,386 50,149 158,730 155,210 INTEREST CHARGES . . . . . . . . . 27,008 24,418 79,929 72,939 NET INCOME . . . . . . . . . . . . 28,378 25,731 78,801 82,271 PREFERRED STOCK DIVIDEND REQUIREMENTS . . . . . . . . . . 4,102 4,277 12,303 11,557 EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . . . $ 24,276 $ 21,454 $ 66,498 $ 70,714
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (in thousands) BALANCE AT BEGINNING OF PERIOD . . $195,165 $222,835 $206,361 $227,816 NET INCOME . . . . . . . . . . . . 28,378 25,731 78,801 82,271 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . 26,709 27,035 80,127 81,105 Cumulative Preferred Stock . . 3,918 3,921 11,755 11,002 Capital Stock Expense. . . . . . 184 185 548 555 BALANCE AT END OF PERIOD . . . . . $192,732 $217,425 $192,732 $217,425 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Consolidated Financial Statements. /TABLE APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1995 1994 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . $1,852,420 $1,848,263 Transmission . . . . . . . . . . . . . . . . . . 1,037,390 1,010,344 Distribution . . . . . . . . . . . . . . . . . . 1,388,661 1,315,915 General. . . . . . . . . . . . . . . . . . . . . 164,726 160,752 Construction Work in Progress. . . . . . . . . . 67,576 63,453 Total Electric Utility Plant . . . . . . 4,510,773 4,398,727 Accumulated Depreciation and Amortization. . . . 1,679,447 1,627,852 NET ELECTRIC UTILITY PLANT . . . . . . . 2,831,326 2,770,875 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . 30,622 48,928 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . 6,791 5,297 Accounts Receivable. . . . . . . . . . . . . . . 129,224 124,092 Allowance for Uncollectible Accounts . . . . . . (1,979) (830) Fuel . . . . . . . . . . . . . . . . . . . . . . 60,938 65,581 Materials and Supplies . . . . . . . . . . . . . 49,534 49,451 Accrued Utility Revenues . . . . . . . . . . . . 44,524 51,686 Prepayments. . . . . . . . . . . . . . . . . . . 14,467 6,487 TOTAL CURRENT ASSETS . . . . . . . . . . 303,499 301,764 REGULATORY ASSETS. . . . . . . . . . . . . . . . . 431,855 467,213 DEFERRED CHARGES . . . . . . . . . . . . . . . . . 49,495 59,015 TOTAL. . . . . . . . . . . . . . . . . $3,646,797 $3,647,795 See Notes to Consolidated Financial Statements.
APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1995 1994 (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. . . . . . . . . . . . . . . . . . . 524,867 504,408 Retained Earnings. . . . . . . . . . . . . . . . . . 192,732 206,361 Total Common Shareholder's Equity. . . . . . 978,057 971,227 Cumulative Preferred Stock: Not Subject to Mandatory Redemption. . . . . . . . 55,000 55,000 Subject to Mandatory Redemption. . . . . . . . . . 190,300 190,300 Long-term Debt . . . . . . . . . . . . . . . . . . . 1,278,298 1,228,911 TOTAL CAPITALIZATION . . . . . . . . . . . . 2,501,655 2,445,438 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 85,520 68,515 CURRENT LIABILITIES: Long-term Debt Due Within One Year . . . . . . . . . 7,251 - Short-term Debt. . . . . . . . . . . . . . . . . . . 65,175 122,825 Accounts Payable . . . . . . . . . . . . . . . . . . 86,964 93,712 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 34,435 34,623 Customer Deposits. . . . . . . . . . . . . . . . . . 14,406 14,362 Interest Accrued . . . . . . . . . . . . . . . . . . 34,511 17,347 Other. . . . . . . . . . . . . . . . . . . . . . . . 71,942 74,877 TOTAL CURRENT LIABILITIES. . . . . . . . . . 314,684 357,746 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 645,752 658,660 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 91,692 95,907 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 7,494 21,529 CONTINGENCIES (Note 4) TOTAL. . . . . . . . . . . . . . . . . . . $3,646,797 $3,647,795 See Notes to Consolidated Financial Statements. /TABLE APPALACHIAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1995 1994 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 78,801 $ 82,271 Adjustments for Noncash Items: Depreciation and Amortization. . . . . . . . . . . . . . 101,123 97,283 Deferred Income Taxes. . . . . . . . . . . . . . . . . . (2,975) 13,374 Deferred Investment Tax Credits. . . . . . . . . . . . . (3,645) (3,672) Deferred Power Supply Costs (net). . . . . . . . . . . . (2,557) 9,981 Provision for Rate Refunds . . . . . . . . . . . . . . . 11,425 (9,975) Storm Damage Expense Amortization (Deferrals). . . . . . 13,184 (22,617) Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . (3,983) 14,475 Fuel, Materials and Supplies . . . . . . . . . . . . . . 4,560 (26,421) Accrued Utility Revenues . . . . . . . . . . . . . . . . 7,162 16,925 Prepayments. . . . . . . . . . . . . . . . . . . . . . . (7,980) (3,677) Accounts Payable . . . . . . . . . . . . . . . . . . . . (6,748) 16,868 Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (188) (22,467) Interest Accrued . . . . . . . . . . . . . . . . . . . . 17,164 14,530 Other (net). . . . . . . . . . . . . . . . . . . . . . . . 6,062 4,149 Net Cash Flows From Operating Activities . . . . . . 211,405 181,027 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . . (151,498) (154,061) Proceeds from Sales of Property. . . . . . . . . . . . . . 7,284 824 Net Cash Flows Used For Investing Activities . . . . (144,214) (153,237) FINANCING ACTIVITIES: Capital Contributions from Parent Company. . . . . . . . . 30,000 - Issuance of Cumulative Preferred Stock . . . . . . . . . . - 29,574 Issuance of Long-term Debt . . . . . . . . . . . . . . . . 128,785 20,817 Change in Short-term Debt (net). . . . . . . . . . . . . . (57,650) 71,550 Retirement of Long-term Debt . . . . . . . . . . . . . . . (74,950) (58,221) Dividends Paid on Common Stock . . . . . . . . . . . . . . (80,127) (81,105) Dividends Paid on Cumulative Preferred Stock . . . . . . . (11,755) (10,641) Net Cash Flows Used For Financing Activities . . . . (65,697) (28,026) Net Increase (Decrease) in Cash and Cash Equivalents . . . . 1,494 (236) Cash and Cash Equivalents at Beginning of Period . . . . . . 5,297 4,626 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 6,791 $ 4,390 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $60,835,000 and $56,652,000 and for income taxes was $46,449,000 and $37,400,000 in 1995 and 1994, respectively. Noncash acquisitions under capital leases were $11,339,000 and $18,740,000 in 1995 and 1994, respectively. See Notes to Consolidated Financial Statements. /TABLE APPALACHIAN POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial state-ments should be read in conjunction with the 1994 Annual Report as incorporated in and filed with the Form 10-K. Certain prior-period amounts have been reclassified to conform to current-period presentation. 2. FINANCING ACTIVITY In 1995 the Company issued the following series of first mortgage bonds: Series Due Date Principal Amount (in thousands) 8.00% 2005 $50,000 8.00% 2025 50,000 6.89% 2005 30,000 In April 1995 the Company redeemed the remaining $46.5 million outstanding balance of its 9-1/8% Series First Mortgage Bonds due in 2019. This redemption decreased the restriction on the use of retained earnings for common stock cash dividends from $37.0 million to $33.2 million. Also in June 1995, the Company redeemed at 103.95% $26.2 million of its 9-7/8% Series First Mortgage Bonds due in 2020. The Company received $30 million of cash capital contributions from its parent which were credited to paid-in capital. 3. RESTRUCTURING The Company recorded severance costs of $5.6 million ($3.7 million net of income taxes) in the third quarter of 1995 in connection with a planned staffing reduction of approximately 160 positions at the Company s power plants. The staffing reduction is part of an AEP restructuring program to functionally realign operations in preparation for increased competition. 4. CONTINGENCIES The Company continues to be involved in certain matters discussed in the 1994 Annual Report. APPALACHIAN POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THIRD QUARTER 1995 vs. THIRD QUARTER 1994 AND YEAR-TO-DATE 1995 vs. YEAR-TO-DATE 1994 RESULTS OF OPERATIONS A substantial increase in energy sales to weather-sensitive wholesale, residential and commercial customers in response to warmer summer weather resulted in a net income increase for the quarter of $2.6 million or 10%. Although energy sales to retail customers increased for the year-to-date period, net income decreased $3.5 million or 4%. The favorable impact of the increased energy sales was partially offset by provisions for severance pay recorded in the second and third quarters of 1995 and increased software development expenses. Higher interest charges in both periods also negatively impacted earnings. Income statement items which changed significantly were: Increase (Decrease) Third Quarter Year-to-Date (in millions) % (in millions) % Operating Revenues . . . . $31.9 9 $(28.5) (2) Fuel Expense . . . . . . . 5.6 6 (29.1) (10) Purchased Power Expense. . 3.8 5 (30.9) (12) Other Operation Expense. . 10.9 23 22.4 16 Maintenance. . . . . . . . 2.2 7 0.7 1 Federal Income Taxes . . . 2.6 21 2.1 5 Interest Charges . . . . . 2.6 11 7.0 10 Operating revenues increased for the third quarter primarily due to a 31% increase in energy sales to wholesale customers and a 7% increase in retail sales. Wholesale sales rose due to increased energy sales to unaffiliated utilities by the AEP System Power (Power Pool) resulting from weather-related demand. The increase in retail energy sales was due to increased usage by residential and commercial customers as a result of the warmer summer weather in 1995. The decrease in revenues in the year-to-date period reflects reduced wholesale energy sales to unaffiliated utilities resulting from milder winter and spring weather, and increased availability of unaffiliated generating units in the first half of 1995. While wholesale revenues decreased, retail revenues increased for the year-to-date period as a result of increased sales partially offset by a decrease in the fuel component of Virginia retail rates of $28.9 million annually effective November 1994. A reduction in fuel costs accounted for the reduction in fuel revenues. The increase in fuel and purchased power expenses for the third quarter reflects the rise in weather-related energy demand which resulted in increased generation and increased energy purchases from unaffiliated utilities for pass-through sales to other unaffiliated utilities. A lower average cost of fuel consumed partially offset the effects of the increased generation during the quarter. The primary reason for the year-to-date fuel expense decrease was the lower average fuel costs which resulted mainly from a reduction in coal prices due to the renegotiation of certain long-term coal contracts. The decline during the year-to-date period in purchased power expense was due to a reduction in the Power Pool capacity charges and decreased purchases from unaffiliated utilities for pass-through sales to other unaffiliated utilities reflecting the effects of the milder winter and cooler spring weather. The decrease in Power Pool capacity charges resulted from a reduction in the Company's prior twelve-month peak demand relative to the total peak demand of all Power Pool members. Power Pool members whose internal demand exceeds their capacity are allocated capacity costs based on the relative peak demands and generating reserves of all Power Pool members. The increase in other operation expense was primarily due to provisions for severance pay recorded in the second and third quarters of 1995 related to an organizational review study and planned power plant staffing reductions, respectively. Other operation expense also increased due to costs associated with the development of a new activity based budgeting system and in the year-to-date period due to the effect of a $4.6 million favorable adjustment in 1994 which capitalized previously expensed software costs in accordance with an order of the Virginia regulatory commission. Maintenance expense increased as a result of the amortization of deferred Virginia retail incremental storm damage expenses incurred to repair distribution facilities from two major ice storms in February and March 1994. Concurrent with rate recovery being collected subject to refund, the Company is amortizing over a three-year period the deferred storm damage expenses. The increase in federal income tax expense was primarily due to an increase in pre-tax operating income and changes in certain book/tax differences accounted for on a flow-through basis. Interest charges increased primarily as a result of an increase in the balance of long-term debt outstanding and for the year-to-date period higher rates on increased average balances of short-term borrowings. FINANCIAL CONDITION Total plant and property additions including capital leases for the first nine months of 1995 were $163 million. During the first nine months of 1995, the Company issued $130 million of first mortgage bonds with interest rates ranging from 6.89% to 8% due from 2005 to 2025. The proceeds were used to redeem first mortgage bonds totaling $74 million principal amount with interest rates of 9-1/8% and 9-7/8% due in 2019 and 2020, respectively, and to repay short-term debt. Short-term debt decreased by $58 million since the beginning of the year. The restriction on the use of retained earnings for common stock cash dividends was reduced from $37 million to $33.2 million by certain first mortgage bond redemptions. Also in 1995 the Company received $30 million of cash capital contributions from its parent which were credited to paid-in capital. RESTRUCTURING As part of an AEP restructuring program, the Company is reducing staff at its power plants. The restructuring program, which is part of an effort to prepare for increased competition, calls for the functional realignment of operations. As indicated above, in the third quarter of 1995 the Company provided for the cost of currently identified staff reductions at its power plants. COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (in thousands) OPERATING REVENUES . . . . . . . . . .$310,141 $ 280,470 $813,311 $793,053 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . 40,854 52,430 128,908 154,084 Purchased Power. . . . . . . . . . . 51,607 35,028 124,706 109,673 Other Operation. . . . . . . . . . . 49,630 40,106 139,233 126,968 Maintenance. . . . . . . . . . . . . 18,082 17,512 52,071 50,120 Depreciation . . . . . . . . . . . . 21,386 20,870 63,840 62,188 Amortization of Zimmer Plant Phase-in Costs . . . . . . . . . . 10,026 8,960 25,549 19,811 Taxes Other Than Federal Income Taxes . . . . . . . . . . . 26,740 24,261 80,932 75,705 Federal Income Taxes . . . . . . . . 25,274 19,706 47,914 44,916 TOTAL OPERATING EXPENSES . . 243,599 218,873 663,153 643,465 OPERATING INCOME . . . . . . . . . . . 66,542 61,597 150,158 149,588 NONOPERATING INCOME. . . . . . . . . . 197 1,402 2,636 5,958 INCOME BEFORE INTEREST CHARGES . . . . 66,739 62,999 152,794 155,546 INTEREST CHARGES . . . . . . . . . . . 19,607 20,471 59,587 63,124 NET INCOME . . . . . . . . . . . . . . 47,132 42,528 93,207 92,422 PREFERRED STOCK DIVIDEND REQUIREMENTS. 3,308 3,203 9,714 8,880 EARNINGS APPLICABLE TO COMMON STOCK. .$ 43,824 $ 39,325 $ 83,493 $ 83,542
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended Nine Months Ended Sepember 30, September 30, 1995 1994 1995 1994 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . .$50,625 $ 27,895 $46,976 $ 18,288 NET INCOME . . . . . . . . . . . . . . 47,132 42,528 93,207 92,422 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . . . 17,975 17,197 53,925 51,591 Cumulative Preferred Stock . . . . 3,203 3,203 9,609 9,026 Capital Stock Expense. . . . . . . . 35 35 105 105 BALANCE AT END OF PERIOD . . . . . . .$76,544 $ 49,988 $76,544 $ 49,988 The common stock of the Company is wholly owned by American Electric Power Company,Inc. See Notes to Consolidated Financial Statements. /TABLE COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1995 1994 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . $1,468,400 $1,461,484 Transmission . . . . . . . . . . . . . . . . . . . 308,392 306,744 Distribution . . . . . . . . . . . . . . . . . . . 828,005 797,570 General. . . . . . . . . . . . . . . . . . . . . . 117,454 111,623 Construction Work in Progress. . . . . . . . . . . 79,624 52,156 Total Electric Utility Plant . . . . . . . 2,801,875 2,729,577 Accumulated Depreciation . . . . . . . . . . . . . 935,845 884,237 NET ELECTRIC UTILITY PLANT . . . . . . . . 1,866,030 1,845,340 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . 26,106 26,744 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . 59,214 14,065 Accounts Receivable (net). . . . . . . . . . . . . 77,670 53,937 Fuel . . . . . . . . . . . . . . . . . . . . . . . 21,428 28,060 Materials and Supplies . . . . . . . . . . . . . . 22,346 24,923 Accrued Utility Revenues . . . . . . . . . . . . . 24,646 31,595 Prepayments and Other. . . . . . . . . . . . . . . 31,271 31,241 TOTAL CURRENT ASSETS . . . . . . . . . . . 236,575 183,821 REGULATORY ASSETS. . . . . . . . . . . . . . . . . . 444,865 475,019 DEFERRED CHARGES . . . . . . . . . . . . . . . . . . 23,146 63,418 TOTAL. . . . . . . . . . . . . . . . . . $2,596,722 $2,594,342 See Notes to Consolidated Financial Statements.
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1995 1994 (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. . . . . . . . . . . . . . . . . . . 563,641 565,642 Retained Earnings. . . . . . . . . . . . . . . . . . 76,544 46,976 Total Common Shareholder's Equity. . . . . . 681,211 653,644 Cumulative Preferred Stock - Subject to Mandatory Redemption . . . . . . . . . . . . . . . 75,000 150,000 Long-term Debt . . . . . . . . . . . . . . . . . . . 992,950 917,608 TOTAL CAPITALIZATION . . . . . . . . . . . . 1,749,161 1,721,252 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 38,827 38,072 CURRENT LIABILITIES: Preferred Stock Due Within One Year. . . . . . . . . 75,000 - Long-term Debt Due Within One Year . . . . . . . . . 30,000 80,000 Accounts Payable . . . . . . . . . . . . . . . . . . 40,557 48,991 Taxes Accrued. . . . . . . . . . . . . . . . . . . . 64,489 113,362 Interest Accrued . . . . . . . . . . . . . . . . . . 28,588 18,923 Other. . . . . . . . . . . . . . . . . . . . . . . . 33,675 25,310 TOTAL CURRENT LIABILITIES. . . . . . . . . . 272,309 286,586 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 463,304 467,593 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 61,741 64,597 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 11,380 16,242 CONTINGENCIES (Note 4) TOTAL. . . . . . . . . . . . . . . . . . . $2,596,722 $2,594,342 See Notes to Consolidated Financial Statements.
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1995 1994 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . .$ 93,207 $ 92,422 Adjustments for Noncash Items: Depreciation . . . . . . . . . . . . . . . . . . . . . 63,556 61,900 Deferred Income Taxes. . . . . . . . . . . . . . . . . (510) 2,391 Deferred Investment Tax Credits. . . . . . . . . . . . (2,752) (2,765) Deferred Fuel Cost (net) . . . . . . . . . . . . . . . (7,969) (1,760) Amortization of Zimmer Plant Operating Expenses and Carrying Charges . . . . . . . . . . . . . . . . . . 22,244 13,176 Amortization of Deferred Property Taxes. . . . . . . . 43,314 41,884 Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . (23,733) (9,450) Fuel, Materials and Supplies . . . . . . . . . . . . . 9,209 5,679 Accrued Utility Revenues . . . . . . . . . . . . . . . 6,949 4,799 Prepayments and Other Current Assets . . . . . . . . . (30) 5,141 Accounts Payable . . . . . . . . . . . . . . . . . . . (8,434) (13,084) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . (48,873) (53,576) Other (net). . . . . . . . . . . . . . . . . . . . . . . 11,457 4,735 Net Cash Flows From Operating Activities . . . . . 157,635 151,492 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . (74,400) (52,179) Proceeds from Sale and Leaseback Transactions and Other. 2,922 518 Net Cash Flows Used For Investing Activities . . . (71,478) (51,661) FINANCING ACTIVITIES: Issuance of Cumulative Preferred Stock . . . . . . . . . - 24,596 Issuance of Long-term Debt . . . . . . . . . . . . . . . 72,526 198,298 Change in Short-term Debt (net). . . . . . . . . . . . . - (25,225) Retirement of Long-term Debt . . . . . . . . . . . . . . (50,000) (225,834) Dividends Paid on Common Stock . . . . . . . . . . . . . (53,925) (51,591) Dividends Paid on Cumulative Preferred Stock . . . . . . (9,609) (8,589) Net Cash Flows Used For Financing Activities . . . (41,008) (88,345) Net Increase in Cash and Cash Equivalents. . . . . . . . . 45,149 11,486 Cash and Cash Equivalents at Beginning of Period . . . . . 14,065 6,633 Cash and Cash Equivalents at End of Period . . . . . . . .$ 59,214 $ 18,119 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $46,745,000 and $52,895,000 and for income taxes was $45,117,000 and $46,663,000 in 1995 and 1994, respectively. Noncash acquisitions under capital leases were $8,914,000 and $8,736,000 in 1995 and 1994, respectively. See Notes to Consolidated Financial Statements. /TABLE COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial statements should be read in conjunction with the 1994 Annual Report as incorporated in and filed with the Form 10-K. Certain prior-period amounts have been reclassified to conform to current-period presentation. 2. FINANCING ACTIVITIES In September 1995, the Company issued $75 million of 8-3/8% Junior Subordinated Debentures Series A due in 2025. The proceeds were used to redeem 675,000 shares of the 9.50% Cumulative Preferred Stock, $100 par value, on November 1, 1995 at $106.33 per share. 3. RESTRUCTURING The Company recorded severance costs of $3.2 million ($2.1 million net of income taxes) in the third quarter of 1995 in connection with a planned staffing reduction of approximately 90 positions at the Company s power plants. The staffing reduction is part of an AEP restructuring program to functionally realign operations in preparation for increased competition. 4. CONTINGENCIES The Company continues to be involved in certain matters discussed in its 1994 Annual Report. COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS THIRD QUARTER 1995 vs. THIRD QUARTER 1994 AND YEAR-TO-DATE 1995 vs. YEAR-TO-DATE 1994 Net income increased $4.6 million or 11% for the quarter and $0.8 million or 1% for the year-to-date period primarily due to increased energy sales resulting from warmer summer weather in 1995. Income statement lines which changed significantly were: Increase (Decrease) Third Quarter Year-to-Date (in millions) % (in millions) % Operating Revenues. . . . . $ 29.7 11 $ 20.3 3 Fuel Expense. . . . . . . . (11.6) (22) (25.2) (16) Purchased Power Expense . . 16.6 47 15.0 14 Other Operation Expense . . 9.5 24 12.3 10 Amortization of Zimmer Plant Phase-in Costs. . . 1.1 12 5.7 29 Taxes Other Than Federal Income Taxes. . . 2.5 10 5.2 7 Federal Income Taxes. . . . 5.6 28 3.0 7 Nonoperating Income . . . . (1.2) (86) (3.3) (56) Interest Charges. . . . . . (0.9) (4) (3.5) (6) The increase in operating revenues in both periods was mainly due to increased energy usage by retail customers attributable to the warm summer weather in 1995. In the third quarter increased sales to wholesale customers, reflecting the warm summer weather, also contributed to the increase in operating revenues. Mild winter and cooler spring weather in 1995 caused wholesale revenues to decline for the year-to-date period. Although increased energy demand in the quarter resulted in a small increase in generation, fuel expense for the quarter declined due to 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 electric fuel component rate until such deferrals are amortized to expense commensurate with their inclusion in fuel rates in later months. In the third quarter of 1995 the fuel clause adjustment mechanism decreased fuel expense due to the deferral of undercollections in 1995, increased amortizations in 1995 of previously deferred overcollections and the effect of the deferral of overcollections in 1994. The decrease in year-to-date fuel expense was due to decreased generation and the operation of the fuel clause adjustment mechanism. Maintenance outages at several Conesville Plant units and at the Picway Plant reduced the Company s generation. In the year-to-date period the fuel clause adjustment mechanism decreased fuel expense due to deferral of undercollected fuel cost in 1995 compared with the effect of the deferral of overcollections in 1994. Purchased power expense increased in both periods due to increased energy purchases from the AEP System Power Pool (Power Pool) as a result of the weather-related increase in demand for energy. The increase in other operation expense resulted from a favorable adjustment in 1994 to the provision for injuries and damages claims and the recordation in 1995 of production plant severance expenses. A $3.2 million ($2.1 million after-tax) provision for severance pay recorded in the third quarter of 1995 was related to planned power plant staffing reductions. An AEP restructuring program to functionally realign operations in an effort to prepare for increased competition caused the staffing reductions. The increase during the quarter and year-to-date periods of amortization of Zimmer Plant phase-in costs, which is based on a rate per kilowatthour sold, reflects the rise in kilowatthour sales and, in the year-to-date period, the conclusion of phase-in plan deferrals on February 1, 1994. The rise in taxes other than federal income taxes was due to an increase in the gross receipts tax reflecting the increase in retail revenues and higher property taxes due to increases in the tax base and tax rates. Federal income taxes increased during both periods primarily due to an increase in pre-tax operating income and in the third quarter due to changes in certain book/tax differences accounted for on a flow-through basis. The decrease in nonoperating income was due to a decline in deferred Zimmer Plant carrying charges as a result of a reduction in the deferred balance on which a return is earned and in the year-to-date period the effect of the cessation of deferrals in February 1994 commensurate with inclusion of the Zimmer Plant investment in rate base. The deferred balance declined due to its amortization and recovery through a rate surcharge. Interest charges declined due to the retirement of long-term debt during the second quarter of 1995. INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (in thousands) OPERATING REVENUES . . . . . . . . $334,846 $317,061 $969,843 $965,086 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . 53,967 51,591 173,584 151,534 Purchased Power. . . . . . . . . 39,745 29,956 93,156 110,186 Other Operation. . . . . . . . . 78,992 73,628 226,628 219,309 Maintenance. . . . . . . . . . . 34,319 36,479 98,893 109,486 Depreciation and Amortization. . 34,800 33,911 103,883 102,051 Amortization of Rockport Plant Unit 1 Phase-in Plan Deferrals 3,911 3,911 11,733 11,733 Taxes Other Than Federal Income Taxes . . . . . . . . . 19,254 19,155 55,087 54,760 Federal Income Taxes . . . . . . 15,458 12,961 44,782 36,992 TOTAL OPERATING EXPENSES 280,446 261,592 807,746 796,051 OPERATING INCOME . . . . . . . . . 54,400 55,469 162,097 169,035 NONOPERATING INCOME. . . . . . . . 736 328 1,387 5,077 INCOME BEFORE INTEREST CHARGES . . 55,136 55,797 163,484 174,112 INTEREST CHARGES . . . . . . . . . 17,732 18,061 53,912 54,119 NET INCOME . . . . . . . . . . . . 37,404 37,736 109,572 119,993 PREFERRED STOCK DIVIDEND REQUIREMENTS . . . . . . . . . . 3,031 2,898 8,843 8,783 EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . $ 34,373 $ 34,838 $100,729 $111,210
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (in thousands) BALANCE AT BEGINNING OF PERIOD . . $227,505 $200,611 $216,658 $177,638 NET INCOME . . . . . . . . . . . . 37,404 37,736 109,572 119,993 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . 27,713 26,652 83,139 79,956 Cumulative Preferred Stock . . 2,890 2,890 8,670 8,760 Capital Stock Expense. . . . . . 58 56 173 166 BALANCE AT END OF PERIOD . . . . . $234,248 $208,749 $234,248 $208,749 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1995 1994 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . $2,514,884 $2,494,834 Transmission . . . . . . . . . . . . . . . . . . 864,133 849,920 Distribution . . . . . . . . . . . . . . . . . . 658,437 644,720 General (including nuclear fuel) . . . . . . . . 185,396 204,909 Construction Work in Progress. . . . . . . . . . 80,718 74,923 Total Electric Utility Plant . . . . . . 4,303,568 4,269,306 Accumulated Depreciation and Amortization. . . . 1,738,733 1,659,940 NET ELECTRIC UTILITY PLANT . . . . . . . 2,564,835 2,609,366 NUCLEAR DECOMMISSIONING AND SPENT NUCLEAR FUEL DISPOSAL TRUST FUNDS. . . . . . . . . . . . . . . 407,111 341,089 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . 140,063 127,424 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . 6,210 9,907 Accounts Receivable. . . . . . . . . . . . . . . 126,443 132,053 Allowance for Uncollectible Accounts . . . . . . (428) (121) Fuel . . . . . . . . . . . . . . . . . . . . . . 27,859 35,802 Materials and Supplies . . . . . . . . . . . . . 63,786 59,897 Accrued Utility Revenues . . . . . . . . . . . . 35,159 40,582 Prepayments. . . . . . . . . . . . . . . . . . . 11,948 8,414 TOTAL CURRENT ASSETS . . . . . . . . . . 270,977 286,534 REGULATORY ASSETS. . . . . . . . . . . . . . . . . 467,124 482,107 DEFERRED CHARGES . . . . . . . . . . . . . . . . . 25,766 31,515 TOTAL. . . . . . . . . . . . . . . . . $3,875,876 $3,878,035 See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1995 1994 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock - No Par Value: Authorized - 2,500,000 Shares Outstanding - 1,400,000 Shares . . . . . . . . $ 56,584 $ 56,584 Paid-in Capital. . . . . . . . . . . . . . . . . 731,044 733,650 Retained Earnings. . . . . . . . . . . . . . . . 234,248 216,658 Total Common Shareholder's Equity. . . . 1,021,876 1,006,892 Cumulative Preferred Stock: Not Subject to Mandatory Redemption. . . . . . 52,000 52,000 Subject to Mandatory Redemption. . . . . . . . 135,000 135,000 Long-term Debt . . . . . . . . . . . . . . . . . 1,037,790 929,887 TOTAL CAPITALIZATION . . . . . . . . . . 2,246,666 2,123,779 OTHER NONCURRENT LIABILITIES: Nuclear Decommissioning. . . . . . . . . . . . . 255,949 211,963 Other. . . . . . . . . . . . . . . . . . . . . . 171,799 179,013 TOTAL OTHER NONCURRENT LIABILITIES . . . 427,748 390,976 CURRENT LIABILITIES: Long-term Debt Due Within One Year . . . . . . . 40,000 140,000 Short-term Debt. . . . . . . . . . . . . . . . . 22,400 50,600 Accounts Payable . . . . . . . . . . . . . . . . 51,580 63,137 Taxes Accrued. . . . . . . . . . . . . . . . . . 46,889 63,621 Interest Accrued . . . . . . . . . . . . . . . . 21,787 19,436 Rent Accrued - Rockport Plant Unit 2 . . . . . . 23,427 6,490 Obligations Under Capital Leases . . . . . . . . 31,623 39,003 Other. . . . . . . . . . . . . . . . . . . . . . 73,678 72,664 TOTAL CURRENT LIABILITIES. . . . . . . . 311,384 454,951 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . 621,613 634,902 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . 158,217 164,206 DEFERRED GAIN ON SALE AND LEASEBACK - ROCKPORT PLANT UNIT 2. . . . . . . . . . . . . . 100,759 103,539 DEFERRED CREDITS . . . . . . . . . . . . . . . . . 9,489 5,682 CONTINGENCIES (Note 4) TOTAL. . . . . . . . . . . . . . . . . $3,875,876 $3,878,035 See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1995 1994 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 109,572 $ 119,993 Adjustments for Noncash Items: Depreciation and Amortization. . . . . . . . . . . . . . 111,209 110,331 Amortization of Rockport Plant Unit 1 Phase-in Plan Deferrals. . . . . . . . . . . . . . . . 11,733 11,733 Amortization (Deferral) of Incremental Nuclear Refueling Outage Expenses (net). . . . . . . . . . . . 5,998 (10,881) Deferred Income Taxes. . . . . . . . . . . . . . . . . . (11,166) (9,446) Deferred Investment Tax Credits. . . . . . . . . . . . . (5,989) (10,208) Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . 5,917 4,901 Fuel, Materials and Supplies . . . . . . . . . . . . . . 4,054 1,430 Accrued Utility Revenues . . . . . . . . . . . . . . . . 5,423 (3,065) Accounts Payable . . . . . . . . . . . . . . . . . . . . (11,557) (8,722) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (16,732) 5,073 Rent Accrued - Rockport Plant Unit 2 . . . . . . . . . . 16,937 19,290 Other (net). . . . . . . . . . . . . . . . . . . . . . . . (26,978) (5,506) Net Cash Flows From Operating Activities . . . . . . 198,421 224,923 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . . (78,957) (83,904) Proceeds from Sale and Leaseback Transactions and Other. . 1,151 1,207 Net Cash Flows Used For Investing Activities . . . . (77,806) (82,697) FINANCING ACTIVITIES: Issuance of Cumulative Preferred Stock . . . . . . . . . . - 34,618 Issuance of Long-term Debt . . . . . . . . . . . . . . . . 96,819 89,221 Retirement of Cumulative Preferred Stock . . . . . . . . . - (35,798) Retirement of Long-term Debt . . . . . . . . . . . . . . . (101,122) (101,833) Change in Short-term Debt (net). . . . . . . . . . . . . . (28,200) (38,375) Dividends Paid on Common Stock . . . . . . . . . . . . . . (83,139) (79,956) Dividends Paid on Cumulative Preferred Stock . . . . . . . (8,670) (8,364) Net Cash Flows Used For Financing Activities . . . . (124,312) (140,487) Net Increase (Decrease) in Cash and Cash Equivalents . . . . (3,697) 1,739 Cash and Cash Equivalents at Beginning of Period . . . . . . 9,907 3,752 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 6,210 $ 5,491 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $49,511,000 and $49,498,000 and for income taxes was $75,420,000 and $66,249,000 in 1995 and 1994, respectively. Noncash acquisitions under capital leases were $19,500,000 and $70,933,000 in 1995 and 1994, respectively. See Notes to Consolidated Financial Statements. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial statements should be read in conjunction with the 1994 Annual Report as incorporated in and filed with the Form 10-K. Certain prior-period amounts have been reclassified to conform to current-period presentation. 2. FINANCINGS On June 28, 1995, the Company entered into transactions relating to two series (Series 1995 A and Series 1995 B) of $50 million City of Rockport, Indiana, Pollution Control Revenue Refunding Bonds (Bonds) with maturity dates of June 1, 2025. The proceeds from the Series 1995 A Bonds were used on August 1, 1995 to redeem the $50 million City of Rockport, Indiana, 9-1/4% Fixed Rate Series 1985 A Bonds. The proceeds from the Series 1995 B Bonds were used on August 1, 1995 to redeem the $50 million City of Rockport, Indiana, Adjustable Rate Series 1985 A Bonds. The Series 1995 A Bonds will accrue interest at 6.55% per annum while the Series 1995 B Bonds will accrue interest at a market rate set weekly which has ranged from 2.9% to 4.4%. The Company may designate the use of a daily, commercial paper, or term rate instead of the weekly rate. 3. RESTRUCTURING The Company recorded severance costs of $5.6 million ($3.7 million net of income taxes) in the third quarter of 1995 in connection with a planned staffing reduction of approximately 200 positions at the Company s power plants. The recorded severance provision includes amounts for the Rockport Plant which is operated by the Company but jointly owned and leased with an affiliate. Half the amounts for that plant will be billed to the affiliate which has long-term unit power agreements for the sale of its power. The staffing reduction is part of an AEP restructuring program to functionally realign operations in preparation for increased competition. 4. CONTINGENCIES In September 1995, the Indiana Supreme Court ruled in favor of the Company when it denied an appeal of a March 1995 opinion from the Court of Appeals of Indiana. The appeals court upheld and affirmed a lower court s decision. The case resulted from an earlier Supreme Court of Indiana decision which overruled a lower court decision and voided an Indiana Utility Regulatory Commission order assigning a customer to the Company. The Company had received approximately $29 million in gross revenues from the customer which was not in the Company s service territory. The lower court had dismissed the case filed under a provision of Indiana law that allows a utility to seek damages equal to the gross revenues received by the Company for rendering service in the designated service territory of another utility. The Company continues to be involved in certain other matters discussed in its 1994 Annual Report. INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THIRD QUARTER 1995 vs. THIRD QUARTER 1994 AND YEAR-TO-DATE 1995 vs. YEAR-TO-DATE 1994 RESULTS OF OPERATIONS Although retail energy sales for the third quarter increased 7% due to warmer summer weather, net income decreased $0.3 million or 1% for the quarter primarily due to the recordation of provisions for severance pay. In the year-to-date period net income decreased $10 million or 9% reflecting a decline in sales to residential customers and unaffiliated utilities during the first half of 1995 due to milder winter and cooler spring weather, the provision for severance pay and the favorable federal income tax effect of the retirement of the Breed Plant in the first quarter of 1994. Income statement line items which changed significantly were: Increase (Decrease) Third Quarter Year-to-Date (in millions) % (in millions) % Operating Revenues. . . . $17.8 6 $ 4.8 N.M. Fuel Expense. . . . . . . 2.4 5 22.1 15 Purchased Power Expense . 9.8 33 (17.0) (15) Other Operation Expense . 5.4 7 7.3 3 Maintenance Expense . . . (2.2) (6) (10.6) (10) Federal Income Taxes. . . 2.5 19 7.8 21 Nonoperating Income . . . 0.4 N.M. (3.7) (73) N.M. = Not Meaningful The increase in operating revenues for the quarter resulted from increased energy sales to retail customers, including a 19% increase to weather-sensitive residential customers reflecting warmer summer temperatures in 1995. The increase in retail revenues was partially offset by decreased wholesale energy sales as energy deliveries to the AEP System Power Pool (Power Pool) were reduced due to a refueling outage at one unit of the D.C. Cook Nuclear Plant (Cook Plant). Year-to-date revenues increased slightly due to increased energy sales; however, the effects of the increased sales were largely offset by reduced recoveries of fuel and purchased power supply costs. Sales to retail customers increased 2% due to the warmer summer weather in 1995. Year-to-date wholesale energy sales rose due to the increased availability of the Cook Plant units mainly because of reduced outages in 1995. Maintenance and refueling outages were performed on both of the Cook Plant units during the first nine months of 1994, while only one unit was out of service for refueling in 1995. During 1994, one of the Cook Plant units was out of service for refueling from mid-February until the end of May and the other unit experienced an unscheduled maintenance outage from late-February through late-April and was removed from service for refueling in early September. In 1995 only one Cook Plant unit was out of service for unscheduled maintenance and scheduled refueling from mid-July through early-November. The reduced fuel and purchased power supply cost recovery revenues resulted from lower average fuel costs and reduced purchased power costs which are reflected in regulator-approved fuel and power supply cost recovery mechanisms. The reduction in fuel and power supply revenue does not affect net income since fuel costs are matched with accrued revenues in accordance with rate commission orders. Fuel expense increased in the quarter reflecting increased generation from higher cost fossil units as the availability of nuclear generation was reduced by the maintenance and refueling outage of one of the Cook Plant units during most of the third quarter of 1995. Year-to-date fuel expense increased reflecting a 26% increase in generation due to the increased availability of the Cook Plant units in the first half of of 1995. The increase in purchased power expense for the quarter reflected the unavailability of the one Cook Plant unit and the weather-related summer demand in 1995. Year-to-date purchased power expense declined from the prior year due to reduced demand, as a result of the milder winter weather in 1995, and the Cook Plant outages in the first half of 1994. Other operation expense increased mainly due to the provision for severance pay recorded in the third quarter of 1995 discussed below and increased accruals of nuclear plant decommissioning expense. The recordation of an increased provision for decommissioning expense reflects increased earnings on the nuclear decommissioning trust funds. The Company records nuclear decommissioning expense in an amount equal to recoveries through rates plus the earnings on the nuclear decommissioning trust funds. The reduction in maintenance expense reflects a lower level of fossil plant maintenance and reduced preventive maintenance of transmission and distribution towers and poles. The year-to-date reduction also includes the effect of the 1994 Breed Plant retirement. In both periods federal income taxes attributable to operations increased due to changes in certain book/tax timing differences accounted for on a flow-through basis. The quarter increase was also due to an increase in pre-tax operating income. Nonoperating income declined in the year-to-date period reflecting the favorable tax effect in 1994 of the retirement of the Breed Plant. FINANCIAL CONDITION Total plant and property additions including capital leases for the first nine months were $99 million. During the first nine months of 1995 short-term debt outstanding decreased $28 million from year-end levels. The Company entered into two series of $50 million City of Rockport, Indiana, Pollution Control Revenue Refunding Bonds (Bonds) with maturity dates of June 1, 2025. The proceeds were used to redeem higher interest rate Bonds issued in 1985. The interest rates for the new series are 6.55% per annum fixed and a variable rate to be determined weekly. The retired series paid interest at 9-1/4% and 6-3/4% per annum. LEGAL MATTERS In September 1995, the Indiana Supreme Court ruled in favor of the Company when it denied an appeal of a March 1995 opinion from the Court of Appeals of Indiana. The appeals court upheld and affirmed a lower court s decision. The case resulted from an earlier Supreme Court of Indiana decision which overruled a lower court decision and voided an Indiana Utility Regulatory Commission order assigning a customer to the Company. The Company had received approximately $29 million in gross revenues from the customer which was not in the Company s service territory. The lower court had dismissed the case filed under a provision of Indiana law that allows a utility to seek damages equal to the gross revenues received by the Company for rendering service in the designated service territory of another utility. RESTRUCTURING As part of an AEP restructuring program, the Company is reducing staff at the Company s power plants. The restructuring program, which is part of an effort to prepare for increased competition, calls for the functional realignment of operations. As indicated above, in the third quarter of 1995 the Company provided for the cost of currently identified staff reductions at its power plants. KENTUCKY POWER COMPANY STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (in thousands) OPERATING REVENUES . . . . . . . . . .$79,532 $75,346 $237,533 $238,459 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . . 15,654 16,151 55,390 54,571 Purchased Power. . . . . . . . . . . 24,819 23,346 67,446 70,355 Other Operation. . . . . . . . . . . 10,854 9,622 33,135 28,463 Maintenance. . . . . . . . . . . . . 7,016 7,204 20,675 24,712 Depreciation and Amortization. . . . 6,117 5,778 18,236 17,231 Taxes Other Than Federal Income Taxes . . . . . . . . . . . . 2,078 2,004 6,098 6,272 Federal Income Taxes . . . . . . . . 823 609 2,177 3,236 TOTAL OPERATING EXPENSES. . . 67,361 64,714 203,157 204,840 OPERATING INCOME . . . . . . . . . . . 12,171 10,632 34,376 33,619 NONOPERATING LOSS. . . . . . . . . . . (57) (49) (157) (174) INCOME BEFORE INTEREST CHARGES . . . . 12,114 10,583 34,219 33,445 INTEREST CHARGES . . . . . . . . . . . 6,114 5,192 17,857 15,466 NET INCOME . . . . . . . . . . . . . .$ 6,000 $ 5,391 $ 16,362 $ 17,979
STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (in thousands) BALANCE AT BEGINNING OF PERIOD . . . .$88,075 $87,186 $89,173 $85,296 NET INCOME . . . . . . . . . . . . . . 6,000 5,391 16,362 17,979 CASH DIVIDENDS DECLARED. . . . . . . . 5,730 5,349 17,190 16,047 BALANCE AT END OF PERIOD . . . . . . .$88,345 $87,228 $88,345 $87,228 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Financial Statements. /TABLE KENTUCKY POWER COMPANY BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1995 1994 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . $231,372 $224,365 Transmission . . . . . . . . . . . . . . . . . . 261,416 258,178 Distribution . . . . . . . . . . . . . . . . . . 305,721 297,754 General. . . . . . . . . . . . . . . . . . . . . 58,322 56,613 Construction Work in Progress. . . . . . . . . . 14,149 15,002 Total Electric Utility Plant . . . . . . 870,980 851,912 Accumulated Depreciation and Amortization. . . . 267,424 259,984 NET ELECTRIC UTILITY PLANT . . . . . . . 603,556 591,928 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . 6,454 6,533 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . 940 879 Accounts Receivable. . . . . . . . . . . . . . . 24,065 21,706 Allowance for Uncollectible Accounts . . . . . . (331) (260) Fuel . . . . . . . . . . . . . . . . . . . . . . 9,162 11,735 Materials and Supplies . . . . . . . . . . . . . 9,352 9,615 Accrued Utility Revenues . . . . . . . . . . . . 5,387 9,128 Prepayments. . . . . . . . . . . . . . . . . . . 2,350 1,476 TOTAL CURRENT ASSETS . . . . . . . . . . 50,925 54,279 REGULATORY ASSETS. . . . . . . . . . . . . . . . . 81,320 76,006 DEFERRED CHARGES . . . . . . . . . . . . . . . . . 8,846 11,049 TOTAL. . . . . . . . . . . . . . . . . $751,101 $739,795 See Notes to Financial Statements.
KENTUCKY POWER COMPANY BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1995 1994 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock - $50 Par Value: Authorized - 2,000,000 Shares Outstanding - 1,009,000 Shares . . . . . . . . $ 50,450 $ 50,450 Paid-in Capital. . . . . . . . . . . . . . . . . 68,750 68,750 Retained Earnings. . . . . . . . . . . . . . . . 88,345 89,173 Total Common Shareholder's Equity. . . . 207,545 208,373 First Mortgage Bonds . . . . . . . . . . . . . . 224,213 253,583 Subordinated Debentures. . . . . . . . . . . . . 38,844 - TOTAL CAPITALIZATION . . . . . . . . . . 470,602 461,956 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . 11,660 11,449 CURRENT LIABILITIES: Long-term Debt Due Within One Year . . . . . . . 29,436 - Short-term Debt. . . . . . . . . . . . . . . . . 31,300 55,150 Accounts Payable . . . . . . . . . . . . . . . . 18,769 19,420 Customer Deposits. . . . . . . . . . . . . . . . 3,837 4,297 Taxes Accrued. . . . . . . . . . . . . . . . . . 3,973 6,256 Interest Accrued . . . . . . . . . . . . . . . . 6,336 5,794 Other. . . . . . . . . . . . . . . . . . . . . . 12,151 14,467 TOTAL CURRENT LIABILITIES. . . . . . . . 105,802 105,384 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . 143,707 140,490 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . 18,932 19,875 DEFERRED CREDITS . . . . . . . . . . . . . . . . . 398 641 CONTINGENCIES (Note 4) TOTAL. . . . . . . . . . . . . . . . . $751,101 $739,795 See Notes to Financial Statements.
KENTUCKY POWER COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1995 1994 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 16,362 $ 17,979 Adjustments for Noncash Items: Depreciation . . . . . . . . . . . . . . . . . . . . . . 18,291 17,255 Deferred Income Taxes. . . . . . . . . . . . . . . . . . (1,693) (1,080) Deferred Investment Tax Credits. . . . . . . . . . . . . (943) (952) Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . (2,288) 5,483 Fuel, Materials and Supplies . . . . . . . . . . . . . . 2,836 (437) Accrued Utility Revenues . . . . . . . . . . . . . . . . 3,741 6,601 Accounts Payable . . . . . . . . . . . . . . . . . . . . (651) (4,356) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (2,283) (643) Other (net). . . . . . . . . . . . . . . . . . . . . . . . (4,749) 4,639 Net Cash Flows From Operating Activities . . . . . . 28,623 44,489 INVESTING ACTIVITIES - Construction Expenditures . . . . . . (26,169) (32,795) FINANCING ACTIVITIES: Capital Contributions from Parent Company. . . . . . . . . - 10,000 Issuance of Subordinated Debentures. . . . . . . . . . . . 38,647 - Change in Short-term Debt (net). . . . . . . . . . . . . . (23,850) (5,425) Dividends Paid . . . . . . . . . . . . . . . . . . . . . . (17,190) (16,047) Net Cash Flows Used For Financing Activities . . . . (2,393) (11,472) Net Increase in Cash and Cash Equivalents. . . . . . . . . . 61 222 Cash and Cash Equivalents at Beginning of Period . . . . . . 879 858 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 940 $ 1,080 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $17,126,000 and $15,801,000 and for income taxes was $4,092,000 and $5,672,000 in 1995 and 1994, respectively. Noncash acquisitions under capital leases were $2,693,000 and $3,093,000 in 1995 and 1994, respectively. See Notes to Financial Statements.
KENTUCKY POWER COMPANY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED) 1. GENERAL The accompanying unaudited financial statements should be read in conjunction with the 1994 Annual Report as incorporated in and filed with the Form 10-K. Certain prior-period amounts were reclassified to conform with current-period presentation. 2. FINANCING ACTIVITIES In April 1995 the Company issued $40 million of 8.72% Junior Subordinated Deferrable Interest Debentures Series A, due 2025 and used the proceeds primarily to reduce short-term debt. 3. RESTRUCTURING The Company recorded severance costs of $1.8 million ($1.1 million net of income taxes) in the third quarter of 1995 in connection with a planned staffing reduction of approximately 35 positions at the Big Sandy Power Plant and the Company s share of planned staffing reductions at an affiliated company s generating plant with which the Company has a unit power agreement. The staffing reduction is part of an AEP restructuring program to functionally realign operations in preparation for increased competition. 4. CONTINGENCIES The Company continues to be involved in certain matters discussed in the 1994 Annual Report. KENTUCKY POWER COMPANY MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS THIRD QUARTER 1995 vs. THIRD QUARTER 1994 AND YEAR-TO-DATE 1995 vs. YEAR-TO-DATE 1994 Net income increased $0.6 million or 11% for the quarter primarily as a result of increased energy sales to retail customers attributable to warmer summer weather in 1995. Such increase was partly offset by the accrual of severance costs due to AEP s functional realignment. Net income decreased $1.6 million or 9% for the year-to-date period mainly due to a decrease in sales to unaffiliated utilities, the accrual of severance costs and increased interest expense resulting from additional long-term borrowings. Income statement items that changed significantly were: Increase (Decrease) Third Quarter Year-To-Date (in millions) % (in millions) % Operating Revenues $ 4.2 6 $(0.9) N.M. Purchased Power Expense 1.5 6 (2.9) (4) Other Operation Expense 1.2 13 4.7 16 Maintenance Expense (0.2) (3) (4.0) (16) Federal Income Taxes 0.2 35 (1.1) (33) Interest Charges 0.9 18 2.4 15 N.M. = Not Meaningful The warmer summer weather in 1995 led to a residential sales increase of 19% and a commercial sales increase of 11% for the quarter. Although warmer summer weather caused year-to-date retail energy sales to rise 4%, year-to-date operating revenues declined due to a 12% decline in wholesale energy sales reflecting reduced energy deliveries to the AEP System Power Pool (Power Pool) and reduced demand by unaffiliated utilities due to mild winter weather and cooler spring weather in 1995. The increase in purchased power expense for the quarter resulted from increased Power Pool capacity charges and increased energy purchases from unaffiliated utilities to meet the increased energy demand resulting from the hot summer weather in 1995. As a Power Pool member whose internal demand exceeds its capacity, the Company pays its share of capacity charges allocated to Power Pool members based on their relative peak demands. 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 year-to-date purchased power expense resulted from decreased energy purchases from unaffiliated utilities for pass-through sales due to the mild winter and spring weather in 1995, decreased purchases from an affiliated company under a unit power agreement due to an outage at the affiliate s generating unit and a reduction in energy purchases from the AEP System Power Pool reflecting increased availability of lower cost affiliated nuclear generation. These decreases were partly offset by an increase in the Company's share of Power Pool capacity charges. A $1.8 million ($1.1 million after tax) provision for severance costs related to planned power plant staffing reductions recorded in the third quarter of 1995 was the reason for the increase in other operation expense during the quarter. The staffing reductions are part of an AEP restructuring program and the resulting functional realignment of operations as part of management's efforts to prepare for increased competition. The year-to-date increase in other operation expense reflects the severance provision, accruals for incentive pay and a reduction in transmission equalization credits under the AEP System transmission equalization agreement as a result of the aforementioned increase in the Company s peak demand. The transmission agreement provides for the sharing through equalization payments and receipts of the cost of investment in the AEP System s transmission facilities in proportion to the System companies respective peak demands. On that basis, the Company receives equalization payments. Maintenance expense decreased reflecting the cost of significant distribution line maintenance expenditures to repair damage from severe winter storms in 1994 and a decrease in planned steam plant maintenance. The decrease in federal income tax expense in the year-to-date period was primarily due to the decrease in pre-tax operating income. The issuance of $40 million of Junior Subordinated Debentures in April 1995 was the main reason for the increase in interest charges. OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (in thousands) OPERATING REVENUES . . . . . . . . .$507,516 $429,496 $1,360,319 $1,333,889 OPERATING EXPENSES: Fuel . . . . . . . . . . . . . . . 185,612 167,530 458,591 528,119 Purchased Power. . . . . . . . . . 19,315 12,503 49,118 50,661 Other Operation. . . . . . . . . . 96,623 50,295 238,429 153,001 Maintenance. . . . . . . . . . . . 34,751 37,829 105,951 110,909 Depreciation and Amortization. . . 34,001 33,331 101,730 98,913 Taxes Other Than Federal Income Taxes . . . . . . . . . . 44,312 44,804 131,466 133,695 Federal Income Taxes . . . . . . . 24,624 21,014 71,557 65,786 TOTAL OPERATING EXPENSES . 439,238 367,306 1,156,842 1,141,084 OPERATING INCOME . . . . . . . . . . 68,278 62,190 203,477 192,805 NONOPERATING INCOME. . . . . . . . . 3,886 2,624 9,295 4,820 INCOME BEFORE INTEREST CHARGES . . . 72,164 64,814 212,772 197,625 INTEREST CHARGES . . . . . . . . . . 23,356 22,416 70,424 67,016 NET INCOME . . . . . . . . . . . . . 48,808 42,398 142,348 130,609 PREFERRED STOCK DIVIDEND REQUIREMENTS . . . . . . . . . . . 3,860 3,826 11,578 11,476 EARNINGS APPLICABLE TO COMMON STOCK.$ 44,948 $ 38,572 $ 130,770 $ 119,133
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (in thousands) BALANCE AT BEGINNING OF PERIOD . . .$499,330 $485,759 $483,222 $474,500 NET INCOME . . . . . . . . . . . . . 48,808 42,398 142,348 130,609 DEDUCTIONS: Cash Dividends Declared: Common Stock . . . . . . . . . . 34,857 34,617 104,571 103,851 Cumulative Preferred Stock . . . 3,826 3,826 11,476 11,476 Capital Stock Expense. . . . . . . 34 33 102 101 BALANCE AT END OF PERIOD . . . . . .$509,421 $489,681 $509,421 $489,681 The common stock of the Company is wholly owned by American Electric Power Company, Inc. See Notes to Consolidated Financial Statements. /TABLE OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1995 1994 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production . . . . . . . . . . . . . . . . . . . . $2,536,043 $2,516,390 Transmission . . . . . . . . . . . . . . . . . . . 796,380 790,736 Distribution . . . . . . . . . . . . . . . . . . . 814,054 798,387 General (including mining assets). . . . . . . . . 724,851 782,719 Construction Work in Progress. . . . . . . . . . . 65,077 49,889 Total Electric Utility Plant . . . . . . . 4,936,405 4,938,121 Accumulated Depreciation and Amortization. . . . . 2,092,690 2,077,626 NET ELECTRIC UTILITY PLANT . . . . . . . . 2,843,715 2,860,495 OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . 110,171 120,856 CURRENT ASSETS: Cash and Cash Equivalents. . . . . . . . . . . . . 18,651 30,700 Accounts Receivable. . . . . . . . . . . . . . . . 198,528 158,681 Allowance for Uncollectible Accounts . . . . . . . (1,581) (1,019) Fuel . . . . . . . . . . . . . . . . . . . . . . . 128,271 147,152 Materials and Supplies . . . . . . . . . . . . . . 74,032 67,719 Accrued Utility Revenues . . . . . . . . . . . . . 25,969 28,775 Prepayments. . . . . . . . . . . . . . . . . . . . 50,740 43,894 TOTAL CURRENT ASSETS . . . . . . . . . . . 494,610 475,902 REGULATORY ASSETS. . . . . . . . . . . . . . . . . . 566,404 540,080 DEFERRED CHARGES . . . . . . . . . . . . . . . . . . 85,199 153,807 TOTAL. . . . . . . . . . . . . . . . . . $4,100,099 $4,151,140 See Notes to Consolidated Financial Statements.
OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1995 1994 (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. . . . . . . . . . . . . . . . . . 461,346 463,100 Retained Earnings. . . . . . . . . . . . . . . . . 509,421 483,222 Total Common Shareholder's Equity. . . . . 1,291,968 1,267,523 Cumulative Preferred Stock: Not Subject to Mandatory Redemption. . . . . . . 126,240 126,240 Subject to Mandatory Redemption. . . . . . . . . 115,000 115,000 Long-term Debt . . . . . . . . . . . . . . . . . . 1,089,278 1,188,319 TOTAL CAPITALIZATION . . . . . . . . . . . 2,622,486 2,697,082 OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . 196,383 181,446 CURRENT LIABILITIES: Long-term Debt Due Within One Year . . . . . . . . 56,049 670 Short-term Debt. . . . . . . . . . . . . . . . . . 32,200 17,235 Accounts Payable . . . . . . . . . . . . . . . . . 92,054 122,432 Taxes Accrued. . . . . . . . . . . . . . . . . . . 99,635 156,525 Interest Accrued . . . . . . . . . . . . . . . . . 30,051 22,681 Obligations Under Capital Leases . . . . . . . . . 27,242 25,314 Other. . . . . . . . . . . . . . . . . . . . . . . 95,410 95,218 TOTAL CURRENT LIABILITIES. . . . . . . . . 432,641 440,075 DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . 718,102 712,646 DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . 50,898 53,430 DEFERRED CREDITS . . . . . . . . . . . . . . . . . . 79,589 66,461 CONTINGENCIES (Note 4) TOTAL. . . . . . . . . . . . . . . . . . $4,100,099 $4,151,140 See Notes to Consolidated Financial Statements.
OHIO POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1995 1994 (in thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 142,348 $ 130,609 Adjustments for Noncash Items: Depreciation, Depletion and Amortization . . . . . . . . 114,836 109,780 Deferred Income Taxes. . . . . . . . . . . . . . . . . . 14,489 (19,438) Deferred Investment Tax Credits. . . . . . . . . . . . . (2,532) (2,606) Deferred Fuel Costs (net). . . . . . . . . . . . . . . . (21,126) (4,351) Amortization of Deferred Property Taxes. . . . . . . . . 50,437 50,808 Changes in Certain Current Assets and Liabilities: Accounts Receivable (net). . . . . . . . . . . . . . . . (39,285) 15,094 Fuel, Materials and Supplies . . . . . . . . . . . . . . 12,568 48,419 Accrued Utility Revenues . . . . . . . . . . . . . . . . 2,806 8,682 Prepayments. . . . . . . . . . . . . . . . . . . . . . . (6,846) 26 Accounts Payable . . . . . . . . . . . . . . . . . . . . (30,378) (52,798) Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (56,890) (65,955) Interest Accrued . . . . . . . . . . . . . . . . . . . . 7,370 9,844 Other (net). . . . . . . . . . . . . . . . . . . . . . . . 30,155 (4,319) Net Cash Flows From Operating Activities . . . . . . 217,952 223,795 INVESTING ACTIVITIES: Construction Expenditures. . . . . . . . . . . . . . . . . (87,302) (110,660) Proceeds from Sale of Property and Other . . . . . . . . . 2,571 36,693 Net Cash Flows Used For Investing Activities . . . . (84,731) (73,967) FINANCING ACTIVITIES: Issuance of Long-term Debt . . . . . . . . . . . . . . . . - 48,302 Change in Short-term Debt (net). . . . . . . . . . . . . . 14,965 (38,146) Retirement of Long-term Debt . . . . . . . . . . . . . . . (44,188) (54,566) Dividends Paid on Common Stock . . . . . . . . . . . . . . (104,571) (103,851) Dividends Paid on Cumulative Preferred Stock . . . . . . . (11,476) (11,476) Net Cash Flows Used For Financing Activities . . . . (145,270) (159,737) Net Decrease in Cash and Cash Equivalents. . . . . . . . . . (12,049) (9,909) Cash and Cash Equivalents at Beginning of Period . . . . . . 30,700 20,803 Cash and Cash Equivalents at End of Period . . . . . . . . . $ 18,651 $ 10,894 Supplemental Disclosure: Cash paid for interest net of capitalized amounts was $61,043,000 and $55,187,000 and for income taxes was $51,487,000 and $85,171,000 in 1995 and 1994, respectively. Noncash acquisitions under capital leases were $25,908,000 and $31,837,000 in 1995 and 1994, respectively. See Notes to Consolidated Financial Statements.
OHIO POWER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED) 1. GENERAL The accompanying unaudited consolidated financial state-ments should be read in conjunction with the 1994 Annual Report as incorporated in and filed with the Form 10-K. Certain prior-period amounts have been reclassified to conform to current-period presentation. 2. FINANCING ACTIVITY In August 1995, the Company redeemed $43.6 million of the 9-7/8% Series First Mortgage Bonds due in 2020. At September 30, 1995, $2.5 million of the 9-7/8% Series First Mortgage Bonds remained outstanding. In October 1995, the Company issued $85 million of an 8.16% Series of Junior Subordinated Deferrable Interest Debentures due in 2025. The proceeds will be used to redeem three series of $100 par value cumulative preferred stock in November 1995: 350,000 shares of the 7.60% Series; 350,000 shares of the 7-6/10% Series; and 150,000 shares of the 8.04% Series. 3. RESTRUCTURING The Company recorded severance costs of $11.1 million ($7.2 million net of income taxes) in the third quarter of 1995 in connection with a planned staffing reduction of approximately 360 positions at the Company s power plants. The staffing reduction is part of an AEP restructuring program to functionally realign operations in preparation for increased competition. 4. CONTINGENCIES The Company continues to be involved in certain other matters discussed in the 1994 Annual Report. OHIO POWER COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THIRD QUARTER 1995 vs. THIRD QUARTER 1994 AND YEAR-TO-DATE 1995 vs. YEAR-TO-DATE 1994 RESULTS OF OPERATIONS Net income increased $6.4 million or 15% for the quarter primarily due to increased energy sales resulting from warmer weather and a retail base rate increase in March of 1995. Net income increased $11.7 million or 9% for the year-to-date period mainly due to the retail rate increase and the favorable effect of a $12.7 million adjustment to revenues recorded in June 1995 under a major industrial contract. Income statement lines which changed significantly were: Increase (Decrease) Third Quarter Year-To-Date (in millions) % (in millions) % Operating Revenues. . . . . . $ 78.0 18 $ 26.4 2 Fuel Expense. . . . . . . . . 18.1 11 (69.5) (13) Purchased Power Expense . . . 6.8 54 (1.5) (3) Other Operation Expense . . . 46.3 92 85.4 56 Maintenance Expense . . . . . (3.1) (8) (5.0) (4) Federal Income Taxes. . . . . 3.6 17 5.8 9 The large increase in operating revenues for the third quarter was primarily due to an 83% increase in sales to wholesale customers and increased usage by residential and commercial retail customers resulting from the warm summer weather. Wholesale energy sales rose mainly due to an increase in energy supplied to the AEP System Power Pool (Power Pool) reflecting increased weather-related energy demand of affiliated members of the Power Pool, increased sales to unaffiliated utilities by the Power Pool and the unavailability of an affiliate s nuclear generating unit which was out of service for maintenance and refueling during part of the quarter. The increase in retail base rates also contributed to the increase in revenues. Year-to-date operating revenues increased mainly due to the increase in retail base rates and the industrial revenues contract adjustment in June 1995. Energy sales during the nine-month period remained unchanged. A 2% increase in retail energy sales as a result of increased energy usage and growth in the number of retail customers offset a 4% decline in energy sales to wholesale customers during the year. Wholesale sales decreased primarily due to a reduction in the Company s share of sales to unaffiliated utilities by the Power Pool resulting from mild weather during the first six months of 1995. Fuel and purchased power expenses increased during the third quarter due to the weather-related increase in energy demand which resulted in increased generation and fuel usage and increased energy purchases. A lower average cost of fuel consumed partially offset the effects of increased generation during the quarter. The primary reason for the decrease in year-to-date fuel expense was lower average fuel cost which resulted mainly from a reduction in coal prices under the terms of long-term coal contracts. The effect of retiring coal-mining equipment at an affiliated mining operation in June 1994 also contributed to the decline in comparable fuel expense. The significant increase in other operation expense in both periods was primarily due to rent expense and other operating costs of the Gavin Plant's flue gas desulfurization systems (scrubbers) which went into service in 1995 and an $11.1 million ($7.2 million after-tax) provision for severance pay recorded in the third quarter of 1995 discussed below. Maintenance expense declined in both periods as a result of reduced steam plant boiler maintenance. Federal income tax expense attributable to operations increased in both periods due to the increase in pre-tax operating income. FINANCIAL CONDITION Total plant and property additions including capital leases for the first nine months of 1995 were $114 million. During the first nine months of 1995, the Company redeemed $43.6 million of the 9-7/8% Series First Mortgage Bonds due in 2020. Short-term debt increased by $15 million since the beginning of the year. In October 1995, the Company issued $85 million of an 8.16% Series of Junior Subordinated Deferrable Interest Debentures due in 2025. The proceeds will be used to redeem three series of $100 par value cumulative preferred stock in November 1995: 350,000 shares of the 7.60% Series; 350,000 shares of the 7-6/10% Series; and 150,000 shares of the 8.04% Series. RESTRUCTURING As part of an AEP restructuring program, the Company is reducing staff at its power plants. The restructuring program, which is part of an effort to prepare for increased competition, calls for the functional realignment of operations. As indicated above, in the third quarter of 1995 the Company provided for the cost of currently identified staff reductions at its power plants. PART II. OTHER INFORMATION Item 1. Legal Proceedings. American Electric Power Company, Inc. ("AEP") and Ohio Power Company ("OPCo") Reference is made to page 34 of the Annual Report on Form 10-K for the year ended December 31, 1994 ("1994 10-K") and page II-1 of the Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 for a discussion of proceedings instituted by the U.S. Environmental Protection Agency ("Federal EPA") alleging that OPCo's Kammer Plant has been operating in violation of applicable federally enforceable air pollution control requirements for sulfur dioxide since January 1, 1989. On September 22, 1995, the West Virginia Division of Environmental Protection submitted a proposed schedule to Federal EPA providing for development of a revised State Implementation Plan for sulfur dioxide for sources in the Marshall County area by November 1998. On September 25, 1995, Federal EPA accepted the proposal. Negotiations are underway to modify the consent decree to reflect this proposal and extend the deadline for compliance by the Kammer Plant with the federally enforceable sulfur dioxide emission limit. At the request of the parties, a moratorium has been granted by the U.S. District Court with respect to the penalty portion of the litigation to allow the parties to pursue settlement negotiations. Item 5. Other Information. AEP, AEP Generating Company ("AEGCo"), Appalachian Power Company ("APCo"), Columbus Southern Power Company ("CSPCo"), Indiana Michigan Power Company ("I&M"), Kentucky Power Company ("KEPCo") and OPCo Reference is made to pages 2 and 3 of the 1994 10-K and page II-3 of the Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 for a discussion of possible changes to the Public Utility Holding Company Act of 1935, as amended ("PUHCA"). On October 12, 1995, legislation was introduced in the U.S. Senate to repeal PUHCA. The proposed legislation generally codifies the changes recommended by the Securities and Exchange Commission in June 1995. AEP and APCo Reference is made to pages 8 through 10 of the 1994 10-K for a discussion of competition. By order dated September 18, 1995, the State Corporation Commission of Virginia ("Virginia SCC") instituted a proceeding to review and consider policy regarding restructuring and the role of competition in the electric utility industry in Virginia. The Virginia SCC has directed its staff to conduct an investigation of current issues in the electric utility industry and to file a report of its observations and recommendations on issues identified in the Virginia SCC's order. The staff report is scheduled for issuance on or before March 29, 1996. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: AEP, APCo and OPCo Exhibit 10 - Performance Share Incentive Plan as Amended and Restated through October 1, 1995. APCo, CSPCo, I&M, KEPCo and OPCo Exhibit 12 - Statement re: Computation of Ratios. AEP, AEGCo, APCo, CSPCo, I&M, KEPCo and OPCo Exhibit 27 - Financial Data Schedule. (b) Reports on Form 8-K: AEP, AEGCo, APCo, CSPCo, I&M, KEPCo and OPCo No reports on Form 8-K were filed during the quarter ended September 30, 1995. In the opinion of the companies, the financial statements contained herein reflect all adjustments (consisting of only normal recurring accruals) which are necessary to a fair presentation of the results of operations for the interim periods. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signatures for each undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. AMERICAN ELECTRIC POWER COMPANY, INC. G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Controller and Secretary AEP GENERATING COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Controller APPALACHIAN POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Controller COLUMBUS SOUTHERN POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Controller INDIANA MICHIGAN POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Controller KENTUCKY POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Controller OHIO POWER COMPANY G.P. Maloney P.J. DeMaria G.P. Maloney, Vice President P.J. DeMaria, Vice President and Controller Date: November 10, 1995 II-5 EX-10 2 PSI PLAN REVISED AMERICAN ELECTRIC POWER SYSTEM PERFORMANCE SHARE INCENTIVE PLAN AS AMENDED AND RESTATED THROUGH OCTOBER 1, 1995 ARTICLE 1. ESTABLISHMENT AND PURPOSE 1.1 ESTABLISHMENT OF THE PLAN. The Company hereby establishes an incentive compensation plan to be known as the "American Electric Power System Performance Share Incentive Plan" (the "Plan"), as set forth in this document. 1.2 PURPOSES. The Purposes of the Plan are to provide competitive, longer-term, performance driven, incentive compensation opportunities to Participants, which are directly related to and dependent upon the competitiveness of the longer-term returns realized by the Company's shareholders; and to facilitate ownership of Restricted Stock Units by Participants so as to equate further their long-term financial interests with those of the shareholders. ARTICLE 2. EFFECTIVE DATE AND TERM OF PLAN The Plan was approved by the Company's shareholders and the Securities and Exchange Commission effective January 1, 1994. While the Board may suspend or terminate the Plan at any time, no such suspension or termination shall adversely affect any outstanding Performance Share Units without the Participant's written consent as specified in Section 12.2. No Performance Share Units shall be granted for Performance Periods commencing after December 31, 2003. ARTICLE 3. DEFINITIONS Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized: (a) "Award Certificate" means a certificate setting forth the terms and provisions applicable to each grant of Performance Share Units, which shall include, but shall not be limited to, the number of Performance Share Units granted to the Participant, the Performance Measure, the levels of Performance Share Unit payment opportunities based on the Performance Measure, the method of determining earned Performance Share Units pursuant to Section 8.1 and the length of the Performance Period. (b) "Board" means the Board of Directors of the Company. (c) "Committee" shall mean the Human Resources Committee of the Board. (d) "Common Stock" shall mean the common stock of the Company. (e) "Company" means American Electric Power Company, Inc., a New York corporation, and any successor thereto. (f) "Director" means an individual who is a member of the Board. (g) "Disability" shall have the definition set forth in the American Electric Power System Retirement Plan. (h) "Equivalent Stock Ownership Target" means a stock ownership target for each Participant established by the Board which is a combination of Common Stock and Common Stock equivalents held by a Participant. (i) "Fair Market Value" means the closing sale price of the Common Stock, as published in THE WALL STREET JOURNAL report of New York Stock Exchange - Composite Transactions on the date in question or, if the Common Stock shall not have been traded on such date or if the New York Stock Exchange is closed on such date, then the first day prior thereto on which the Common Stock was so traded. (j) "Participant" means any full-time, nonunion employee of any Subsidiary, who has been selected to participate in the Plan for a stipulated Performance Period by the Committee. (k) "Performance Measure" means, for a period of at least three years, the financial objective to be applied to the Performance Period in which Performance Share Units held by a Participant for a Performance Period are earned, based on the relative ranking of the Company's TSR compared to the TSR's of the companies comprising the S&P Electric Utility Index. (l) "Performance Period" means the period established by the Committee, during which the number of Performance Share Units earned by Participants shall be determined. (m) "Performance Share Unit" means a measure of participation, expressed as a share of Common Stock, received as a grant under Section 7.1 or as a dividend under Section 7.2. (n) "Restricted Stock Unit" means a measure of value, expressed as a share of Common Stock, allocated to a Participant under Section 8.1. No certificates shall be issued with respect to such Restricted Stock Units, but the Company shall maintain a bookkeeping account in the name of the Participant to which the Restricted Stock Units shall relate. (o) "Retirement" means termination of employment with any Subsidiary other than for cause after attaining age 55 and at least five (5) years of service. (p) "Rule 16b-3" means Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (or any successor provision at the time in effect). (q) "Section 162(m)" means Section 162(m) of the Internal Revenue Code of 1986, as amended and applicable interpretive authority thereunder. (r) "Subsidiary" shall mean any corporation in which the Company owns directly or indirectly through its Subsidiaries, at least fifty percent (50%) of the total combined voting power of all classes of stock, or any other entity (including, but not limited to, partnerships and joint ventures) in which the Company owns at least fifty percent (50%) of the combined equity thereof. (s) "Transition Performance Period" means the one (1) and two (2) year Performance Periods that may be made available on a one-time basis to Participants receiving Performance Share Units at the commencement of the Plan and Participants receiving their first grant of Performance Share Units for a Performance Period at any time during the term of the Plan. (t) "TSR" means total shareholder return and is the compound product of the annual TSR amounts obtained by dividing: (1) the sum of: (i) the annual amount of dividends for each year of the Performance Period, assuming dividend reinvestment, and (ii) the difference between the share price at the end and the beginning of each year of the Performance Period; by (2) the share price at the beginning of each year of the Performance Period. ARTICLE 4. ADMINISTRATION 4.1 THE COMMITTEE. The Plan shall be administered by the Committee consisting of not less than three (3) Directors. Each member of the Committee shall at all times while serving be a "disinterested person" within the meaning of Rule 16b-3 and an "outside director" within the meaning of Section 162(m). 4.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions herein and to the approval of the Board, the Committee shall have full power for the following: (a) Selecting Participants to whom Performance Share Units are granted. (b) Determining the size and frequency of grants (which need not be the same for each Participant), except as limited by Article 5. (c) Construing and interpreting the Plan and any agreement or instrument entered into under the Plan. (d) Establishing, amending, rescinding or waiving rules and regulations for the Plan's administration. (e) Amending, modifying, and/or terminating the Plan, subject to the provisions of Article 12 herein. Further, the Committee shall have the full power to make all other determinations which may be necessary or advisable for the administration of the Plan, to the extent consistent with the provisions of the Plan, and subject to the approval of the Board. As permitted by law, the Committee may delegate its authority as identified hereunder; provided, however, that the Committee may not delegate certain of its responsibilities hereunder if such delegation may jeopardize compliance with the "disinterested administration" requirement of Rule 16b-3 and the "outside directors" provision of Section 162(m). 4.3 DECISIONS BINDING. All determinations and decisions made by the Committee pursuant to the provisions of the Plan, and all related orders or resolutions of the Board shall be final, conclusive, and binding on all persons, including the Company, its shareholders, Participants and their estates, and beneficiaries. ARTICLE 5. MAXIMUM AWARDS AND ADJUSTMENTS 5.1 MAXIMUM AMOUNT AVAILABLE FOR AWARDS. The maximum number of Performance Share Units which may be earned during the term of the Plan on an aggregate basis is 1,000,000 and, for one Performance Period, the maximum number of Performance Share Units which may be earned by a Participant is 25,000. Not more than 1,000,000 shares of Common Stock will be available for delivery upon payment for Performance Share Units earned under the Plan. The shares to be delivered under the Plan will be made available from shares reacquired by the Company. The limitations in this Section 5.1 on the maximum amount of Performance Share Units and shares of Common Stock available under the Plan are subject to adjustment as provided in Section 5.2. 5.2 ADJUSTMENTS. If the Committee determines that the occurrence of any merger, reclassification, consolidation, recapitalization, stock dividend or stock split requires an adjustment in order to preserve the benefits intended under the Plan, then the Committee may, in its discretion, make equitable proportionate adjustments in the maximum number of Performance Share Units which may be earned on an aggregate basis or by a Participant, the maximum number of shares of Common Stock which may be delivered, as specified in Section 5.1, and the number of Restricted Stock Units held by a Participant. ARTICLE 6. ELIGIBILITY AND PARTICIPATION 6.1 ELIGIBILITY. Eligibility for participation in the Plan shall be limited to senior officers of the Company and/or its Subsidiaries who, in the opinion of the Committee, have the capacity for contributing in a substantial measure to the successful performance of the Company. 6.2 ACTUAL PARTICIPATION. Participation in the Plan shall begin on the first day of each Performance Period. At the beginning of each Performance Period, the Committee will identify which, if any, Participants shall receive a grant of Performance Share Units for that Performance Period. As soon as practicable following selection, a Participant shall receive an Award Certificate. ARTICLE 7. GRANTS OF PERFORMANCE SHARE UNITS 7.1 GRANT TIMING, FREQUENCY AND NUMBER. Performance Share Units may be granted to Participants as of the first day of each Performance Period on an annual basis. It is intended that Performance Periods will overlap. However, grants do not necessarily have to be on an annual basis. The number of Performance Share Units to be granted to each Participant shall be determined by the Committee in its sole discretion. 7.2 DIVIDENDS. During the Performance Period, Participants will be credited with dividends, equivalent in value to those declared and paid on shares of the Common Stock, on all Performance Share Units granted to them. These dividends will be regarded as having been reinvested in Performance Share Units on the date of the Common Stock dividend payments based on the then Fair Market Value of the Common Stock, thereby increasing the number of Performance Share Units held by a Participant. Participants will be credited with dividend equivalents, equal in value to those declared and paid on shares of Common Stock, on all Restricted Stock Units allocated to the Participants. Dividend equivalents on Restricted Stock Units required to be held pursuant to Section 8.2 or deferred pursuant to Section 8.4 will be regarded as having been reinvested in Restricted Stock Units on the date of the Common Stock dividend payments based on the then Fair Market Value of the Common Stock, thereby increasing the number of Restricted Stock Units held by a Participant. 7.3 PERFORMANCE PERIODS. Subject to the next sentence, the Committee shall establish Performance Periods in its discretion. Performance Periods shall, in all cases, be at least three (3) years in length, except for the Transition Performance Periods. The first Performance Periods shall be the one (1) and two (2) year Transition Performance Periods ending December 31, 1994 and December 31, 1995, respectively, and the three-year period beginning January 1, 1994 and ending December 31, 1996. Performance Share Units granted as part of the initial grant of Performance Share Units for such Performance Periods shall be deemed to be granted as of the first day of such Performance Periods. ARTICLE 8. DETERMINATION AND PAYMENT 8.1 DETERMINATION. The number of Performance Share Units earned by a Participant for a Performance Period shall be determined by multiplying the number of Performance Share Units held by the Participant at the end of the Performance Period by a factor based upon the Performance Measure. No Performance Share Units shall be earned by any Participant if, at the end of the Performance Period, shareholders do not realize a positive TSR under the Performance Measure. In any event, the Committee may, at its discretion, reduce the number of Performance Share Units earned by any Participant for a Performance Period. Earned Performance Share Units shall be converted to Restricted Stock Units if the Participant has not met the Equivalent Stock Ownership Target. A Participant shall receive one Restricted Stock Unit for each earned Performance Share Unit. Once a Participant has attained the Equivalent Stock Ownership Target, earned Performance Share Units shall be paid to the Participant at the end of the Performance Period as provided in Section 8.3 or may be deferred by the Participant as provided in Section 8.4. 8.2 HOLDING OF RESTRICTED STOCK UNITS. Restricted Stock Units required to meet the Equivalent Stock Ownership Target will be held until the Participant terminates employment at which time the Participant shall receive payment for the Restricted Stock Units unless the Participant has elected deferral of such payment in accordance with Section 8.4. 8.3 PAYMENT OF RESTRICTED STOCK UNITS AND EARNED PERFORMANCE SHARE UNITS. The payment of Restricted Stock Units that were required to be held pursuant to Section 8.2 shall be made in cash or shares of Common Stock, or a combination of both, as then elected by the Participant and as approved by the Committee. Any cash payments of Restricted Stock Units shall be calculated on the basis of the average of the Fair Market Value of the Common Stock for the last 20 trading days prior to the date the Participant terminates employment. Payment in Common Stock shall be at the rate of one share of Common Stock for each Restricted Stock Unit. The payment of earned Performance Share Units not required to be converted to Restricted Stock Units pursuant to Section 8.1 shall be made in cash or shares of Common Stock, or a combination of both, as then elected by the Participant and as approved by the Committee. Any cash payment of earned Performance Share Units shall be calculated on the basis of the average of the Fair Market Value of the Common Stock for the last 20 trading days of the Performance Period for which the Performance Share Units were earned. Payment in Common Stock shall be at the rate of one share of Common Stock for each earned Performance Share Unit. 8.4 DEFERRALS. Once the Participant attains the Equivalent Stock Ownership Target, the Participant may make annual elections to defer the payment of subsequent earned Performance Share Units for one or more years; however, if the Participant's deferral period extends beyond the Participant's employment termination date, payment will be made no later than five years after the Participant's termination of employment. The deferral election must be made at least one year prior to the end of the Performance Period for which the Participant has received an allocation with regard to a Performance Period and each earned Performance Share Unit shall be converted into a Restricted Stock Unit. The Participant may also elect to defer the payment of Restricted Stock Units provided under Section 8.2 for a period of one or more years up to a maximum of five years following termination of employment, but such election must be made at least one year prior to termination of employment. Payment of the elective deferrals will be made at the end of the deferral period in cash or shares of Common Stock, or a combination of both as then elected by the Participant and as approved by the Committee. Cash payments of Restricted Stock Units shall be calculated on the basis of the average of the Fair Market Value of the Common Stock for the last 20 trading days of the deferral period. Payment in Common Stock shall be at the rate of one share of Common Stock for each Restricted Stock Unit. 8.5 PERFORMANCE SHARE UNITS GRANTED IN 1994. Performance Share Units granted in 1994 for the two Transition Performance Periods ending December 31, 1994 and December 31, 1995 and for the Performance Period ending December 31, 1996 shall be paid 50% in cash and 50% in Common Stock unless the Participant consents to have the Performance Share Units earned for the Transition Performance Period ending December 31, 1995 and the Performance Share Units earned for the Performance Period ending December 31, 1996 paid in accordance with the provisions of Sections 8.1 through 8.4. The payment in cash and Common Stock shall be as provided in the second paragraph of Section 8.3. 8.6 LIMITATIONS ON SALES OF COMMON STOCK. A Participant shall not be permitted to sell the shares of Common Stock distributed to such Participant pursuant to Section 8.5 which are required to meet the Equivalent Stock Ownership Target until the Participant terminates employment with the Subsidiaries. In order to enforce the limitations imposed upon the shares of Common Stock distributed pursuant to Section 8.5, the Committee may (i) direct the delivery of stock certificates to Participants to be withheld until the shares of Common Stock covered by such certificates may be sold by the Participant, (ii) cause a legend or legends to be placed on any such certificates, and/or (iii) issue "stop transfer" instructions as it deems necessary or appropriate. Holders of shares of Common Stock limited as to sale under this Section 8.6 shall have rights as a shareholder with respect to such shares to receive dividends in cash or other property or other distribution or rights in respect of such shares and to vote such shares as the record owner thereof. ARTICLE 9. TERMINATION OF EMPLOYMENT 9.1 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, RETIREMENT OR INVOLUNTARY TERMINATION OTHER THAN FOR CAUSE. In the event of a Participant's termination of employment with the Subsidiaries, prior to the end of a Performance Period but after the first six months of such Performance Period, by reason of the Participant's death, Disability, Retirement or involuntary termination other than for cause, the Participant will be eligible to earn prorated Performance Share Units for each such Performance Period which has not yet ended, determined pursuant to Section 8.1 for such period and the number of days of participation during such Performance Period. In the case of the Transition Performance Periods, the Performance Share Units earned would not be subject to proration if the employment period and termination conditions specified in this Section 9.1 were met. 9.2 TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY, RETIREMENT OR INVOLUNTARY TERMINATION OTHER THAN FOR CAUSE. In the event a Participant's employment is terminated for reasons other than death, Disability, Retirement or involuntary termination other than for cause, all rights to any unearned Performance Share Units under the Plan shall be forfeited. ARTICLE 10. BENEFICIARY DESIGNATION 10.1 DESIGNATION OF BENEFICIARY. Each Participant shall be entitled to designate a beneficiary or beneficiaries who, following the Participant's death, will be entitled to receive any amounts that otherwise would have been paid to the Participant under the Plan. All designations shall be signed by the Participant, and shall be in such form as prescribed by the Committee. Each designation shall be effective as of the date delivered to the Company by the Participant. The Participant may change his or her designation of beneficiary on such form as prescribed by the Committee. The payment of any amounts owing to a Participant pursuant to such Participant's outstanding Performance Share Units or Restricted Stock Units held under the Plan shall be in accordance with the last unrevoked written designation of beneficiary that has been signed by the Participant and delivered by the Participant to the Company prior to the Participant's death. 10.2 DEATH OF BENEFICIARY. In the event that all of the beneficiaries named by a Participant pursuant to Section 10.1 herein predecease the Participant, any amounts that would have been paid to the Participant or the Participant's beneficiaries under the Plan shall be paid to the Participant's estate. ARTICLE 11. RIGHTS OF PARTICIPANTS 11.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or Subsidiary. 11.2 PARTICIPATION. No Participant shall at any time have a right to be selected for participation in the Plan for any Performance Period, despite having been selected for participation in a previous Performance Period. 11.3 NONTRANSFERABILITY. No Performance Share Units held by a Participant or Restricted Stock Units held pursuant to Sections 8.2 or 8.4 may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. 11.4 RIGHTS TO COMMON STOCK. Performance Share Units or Restricted Stock Units do not give a Participant any rights whatsoever with respect to shares of Common Stock until such time and to such extent that payment of earned Performance Share Units or Restricted Stock Units is made in shares of Common Stock as requested by the Participant. ARTICLE 12. AMENDMENT, MODIFICATION AND TERMINATION 12.1 AMENDMENT, MODIFICATION AND TERMINATION. The Committee may amend or modify the Plan at any time, with the approval of the Board. However, without the approval of the shareholders of the Company, no such amendment or modification may: (a) Materially modify the eligibility requirements of the Plan. (b) Materially increase the benefits accruing to Participants under the Plan. (c) Materially increase the number of Performance Share Units which may be earned on an aggregate basis or by a Participant (except as provided in Section 5.2). (d) Materially increase the maximum number of shares of Common Stock available for payment under the Plan (except as provided in Section 5.2). (e) Modify the Performance Measure and the method of determining Performance Share Units earned pursuant to Section 8.1, except as may be permitted by Section 162(m). 12.2 PERFORMANCE SHARE UNITS PREVIOUSLY GRANTED. No termination, amendment or modification of the Plan shall in any manner adversely affect any outstanding Performance Share Units or Restricted Stock Units under the Plan, without the written consent of the Participant holding such Performance Share Units or Restricted Stock Units. ARTICLE 13. MISCELLANEOUS PROVISIONS 13.1 COSTS OF THE PLAN. The costs of the Plan awards shall be paid directly by the Subsidiary that pays each Participant's base salary during the Performance Period. Although not prohibited from doing so, the Subsidiary is not required in any way to segregate assets in any manner or to specifically fund the benefits provided under the Plan. 13.2 RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, group insurance, or other benefit plan of the Company and/or its Subsidiaries. 13.3 GOVERNING LAW. To the extent not preempted by Federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of New York. ARTICLE 14. RULE 16B-3 COMPLIANCE The Company intends that the Plan meet the requirements of Rule 16b-3. In all cases, the terms, provisions, conditions and limitations of the Plan shall be construed and interpreted consistent with the Company's intent as stated in this Article 14. In the event the Plan does not include a provision required by Rule 16b-3 to be stated therein, such provision shall be deemed to be incorporated by reference into the Plan as it relates to eligible Participants subject to Section 16 of the Securities Exchange Act of 1934, with such incorporation to be deemed effective as of the effective date of such Rule 16b-3 provision. [PSI-PLAN.DOC] EX-12 3 EXHIBIT 12 OHIO POWER COMPANY Computation of Consolidated Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements Combined (in thousands except ratio data)
Twelve Months Year Ended December 31, Ended 1990 1991 1992 1993 1994 9/30/95 Fixed Charges: Interest on First Mortgage Bonds . . . . . . . $ 67,079 $ 71,765 $ 83,572 $ 74,121 $ 63,805 $ 62,913 Interest on Other Long-term Debt . . . . . . . 28,425 28,575 26,611 24,510 21,453 21,696 Interest on Short-term Debt. . . . . . . . . . 4,943 5,973 2,711 1,122 992 2,652 Miscellaneous Interest Charges . . . . . . . . 3,177 3,237 2,800 2,958 5,140 6,891 Estimated Interest Element in Lease Rentals. . 25,000 22,800 22,800 15,300 13,900 42,000 Total Fixed Charges . . . . . . . . . . . 128,624 132,350 138,494 118,011 105,290 136,152 Preferred Stock Dividend Requirements (1) . . . 24,915 24,972 24,895 22,801 22,253 22,681 Total Fixed Charges and Preferred Stock Dividend Requirements Combined. . . . . $153,539 $157,322 $163,389 $140,812 $127,543 $158,833 Earnings: Net Income . . . . . . . . . . . . . . . . . . $179,990 $166,102 $160,553 $185,770 $162,626 $174,365 Plus Federal Income Taxes. . . . . . . . . . . 72,816 78,480 75,783 64,244 74,822 84,180 Plus State Income Taxes. . . . . . . . . . . . 2,771 1,898 1,082 2,626 3,375 2,920 Plus Fixed Charges (as above). . . . . . . . . 128,624 132,350 138,494 118,011 105,290 136,152 Total Earnings. . . . . . . . . . . . . . $384,201 $378,830 $375,912 $370,651 $346,113 $397,617 Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements . . . . . 2.50 2.40 2.30 2.63 2.71 2.50 (1) Represents preferred stock dividend requirements less the effect of preferred stock dividend deduction for federal income tax purposes ($872,000 in each period 1990 through 1992 and $847,000 in each period 1993 through 1995) multiplied by the ratio of earnings before income taxes to net income with the preferred stock dividend deduction added to the result of the calculation.
EX-12 4 EXHIBIT 12 OHIO POWER COMPANY Computation of Consolidated Ratio of Earnings to Fixed Charges (in thousands except ratio data)
Twelve Months Year Ended December 31, Ended 1990 1991 1992 1993 1994 9/30/95 Fixed Charges: Interest on First Mortgage Bonds. . . . . . . . $ 67,079 $ 71,765 $ 83,572 $ 74,121 $ 63,805 $ 62,913 Interest on Other Long-term Debt. . . . . . . . 28,425 28,575 26,611 24,510 21,453 21,696 Interest on Short-term Debt . . . . . . . . . . 4,943 5,973 2,711 1,122 992 2,652 Miscellaneous Interest Charges. . . . . . . . . 3,177 3,237 2,800 2,958 5,140 6,891 Estimated Interest Element in Lease Rentals . . 25,000 22,800 22,800 15,300 13,900 42,000 Total Fixed Charges. . . . . . . . . . . . $128,624 $132,350 $138,494 $118,011 $105,290 $136,152 Earnings: Net Income. . . . . . . . . . . . . . . . . . . $179,990 $166,102 $160,553 $185,770 $162,626 $174,365 Plus Federal Income Taxes . . . . . . . . . . . 72,816 78,480 75,783 64,244 74,822 84,180 Plus State Income Taxes . . . . . . . . . . . . 2,771 1,898 1,082 2,626 3,375 2,920 Plus Fixed Charges (as above) . . . . . . . . . 128,624 132,350 138,494 118,011 105,290 136,152 Total Earnings . . . . . . . . . . . . . . $384,201 $378,830 $375,912 $370,651 $346,113 $397,617 Ratio of Earnings to Fixed Charges. . . . . . . . 2.98 2.86 2.71 3.14 3.28 2.92
EX-27 5 ARTICLE UT FIN. DATA SCH. FOR 10-K
UT 0000073986 OHIO POWER COMPANY 1,000 9-MOS DEC-31-1994 SEP-30-1995 PER-BOOK 2,843,715 110,171 494,610 85,199 566,404 4,100,099 321,201 461,346 509,421 1,291,968 115,000 126,240 1,089,278 32,200 0 0 56,049 0 104,350 27,242 1,257,772 4,100,099 1,360,319 72,947 1,083,895 1,156,842 203,477 9,295 212,772 70,424 142,348 11,578 130,770 104,571 47,005 217,952 0 0 All common stock owned by parent company; no EPS required.
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