THE CONSOLIDATED 10-Q FOR AMERICAN ELECTRIC POWER CO., INC. AND
SUBSIDIARIES IS REQUESTED TO BE INCLUDED AS PART OF THE FILING.
<PAGE>
<TABLE>
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, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period from to
Commission Registrant; State of Incorporation; I. R. S. Employer
File Number Address; and Telephone Number Identification No.
<S> <C> <C>
1-3525 AMERICAN ELECTRIC POWER COMPANY, INC. 13-4922640
(A New York Corporation)
1 Riverside Plaza, Columbus, Ohio 43215
Telephone (614) 223-1000
0-18135 AEP GENERATING COMPANY (An Ohio Corporation) 31-1033833
1 Riverside Plaza, Columbus, Ohio 43215
Telephone (614) 223-1000
1-3457 APPALACHIAN POWER COMPANY (A Virginia Corporation) 54-0124790
40 Franklin Road, Roanoke, Virginia 24011
Telephone (540) 985-2300
1-2680 COLUMBUS SOUTHERN POWER COMPANY (An Ohio Corporation) 31-4154203
215 North Front Street, Columbus, Ohio 43215
Telephone (614) 464-7700
1-3570 INDIANA MICHIGAN POWER COMPANY (An Indiana Corporation) 35-0410455
One Summit Square
P.O. Box 60, Fort Wayne, Indiana 46801
Telephone (219) 425-2111
1-6858 KENTUCKY POWER COMPANY (A Kentucky Corporation) 61-0247775
1701 Central Avenue, Ashland, Kentucky 41101
Telephone (800) 572-1141
1-6543 OHIO POWER COMPANY (An Ohio Corporation) 31-4271000
301 Cleveland Avenue S.W., Canton, Ohio 44702
Telephone (330) 456-8173
AEP Generating Company, Columbus Southern Power Company and Kentucky Power Company meet
the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are
therefore filing this Form 10-Q with the reduced disclosure format specified in General
Instruction H(2) to Form 10-Q.
Indicate by check mark whether the registrants (1) have filed all reports required to
be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrants were required to
file such reports), and (2) have been subject to such filing requirements for the past
90 days.
Yes X No
The number of shares outstanding of American Electric Power Company, Inc. Common Stock,
par value $6.50, at October 31, 1997 was 189,611,006.
/TABLE
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<TABLE>
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
FORM 10-Q
For The Quarter Ended September 30, 1997
<CAPTION>
INDEX
Page
Part I. FINANCIAL INFORMATION
<S> <C>
American Electric Power Company, Inc. and Subsidiary Companies:
Consolidated Statements of Income. . . . . . . . . . . . . . A-1
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . A-2 - A-3
Consolidated Statements of Cash Flows. . . . . . . . . . . . A-4
Consolidated Statements of Retained Earnings . . . . . . . . A-5
Notes to Consolidated Financial Statements . . . . . . . . . A-6 - A-8
Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . . A-9 - A-12
AEP Generating Company:
Statements of Income and Statements of Retained Earnings . . B-1
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . B-2 - B-3
Statements of Cash Flows . . . . . . . . . . . . . . . . . . B-4
Notes to Financial Statements. . . . . . . . . . . . . . . . B-5
Management's Narrative Analysis of Results of Operations . . B-6 - B-7
Appalachian Power Company and Subsidiaries:
Consolidated Statements of Income and
Consolidated Statements of Retained Earnings . . . . . . . C-1
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . C-2 - C-3
Consolidated Statements of Cash Flows. . . . . . . . . . . . C-4
Notes to Consolidated Financial Statements . . . . . . . . . C-5 - C-7
Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . . C-8 - C-10
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 - D-6
Management's Narrative Analysis of Results of Operations . . D-7 - D-9
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 - E-7
Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . . E-8 - E-10
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 - F-6
Management's Narrative Analysis of Results of Operations . . F-7 - F-8
<PAGE>
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
FORM 10-Q
For The Quarter Ended September 30, 1997
INDEX
Page
Ohio Power Company and Subsidiaries:
Consolidated Statements of Income and
Consolidated Statements of Retained Earnings . . . . . . G-1
Consolidated Balance Sheets. . . . . . . . . . . . . . . . G-2 - G-3
Consolidated Statements of Cash Flows. . . . . . . . . . . G-4
Notes to Consolidated Financial Statements . . . . . . . . G-5 - G-6
Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . G-7 - G-10
Part II. OTHER INFORMATION
Item 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
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.
</TABLE>
<PAGE>
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<TABLE>
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per-share amounts)
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . $1,583,994 $1,484,422 $4,458,221 $4,403,144
OPERATING EXPENSES:
Fuel and Purchased Power . . . . . . . 522,776 416,470 1,349,351 1,262,361
Other Operation. . . . . . . . . . . . 302,307 299,496 904,892 903,927
Maintenance. . . . . . . . . . . . . . 123,781 129,140 347,894 373,606
Depreciation and Amortization. . . . . 144,342 151,809 447,843 450,337
Taxes Other Than Federal Income Taxes. 123,943 128,155 372,723 376,771
Federal Income Taxes . . . . . . . . . 91,755 99,607 267,195 263,650
TOTAL OPERATING EXPENSES . . . 1,308,904 1,224,677 3,689,898 3,630,652
OPERATING INCOME . . . . . . . . . . . . 275,090 259,745 768,323 772,492
NONOPERATING INCOME. . . . . . . . . . . 32,835 3,655 43,030 3,558
INCOME BEFORE INTEREST CHARGES AND
PREFERRED DIVIDENDS. . . . . . . . . . 307,925 263,400 811,353 776,050
INTEREST CHARGES . . . . . . . . . . . . 103,378 90,878 300,851 289,266
PREFERRED STOCK DIVIDEND REQUIREMENTS
OF SUBSIDIARIES. . . . . . . . . . . . 2,801 10,198 15,056 31,782
INCOME BEFORE EXTRAORDINARY ITEM . . . . 201,746 162,324 495,446 455,002
EXTRAORDINARY LOSS - U. K. WINDFALL TAX. (110,565) - (110,565) -
NET INCOME . . . . . . . . . . . . . . . $ 91,181 $ 162,324 $ 384,881 $ 455,002
AVERAGE NUMBER OF SHARES OUTSTANDING . . 189,287 187,528 188,819 187,118
EARNINGS PER SHARE:
Before Extraordinary Item . . . . . . . $1.07 $0.87 $2.62 $2.43
Extraordinary Loss - U. K. Windfall Tax (0.59) - (0.58) -
Net Income. . . . . . . . . . . . . . . $0.48 $0.87 $2.04 $2.43
CASH DIVIDENDS PAID PER SHARE. . . . . . $0.60 $0.60 $1.80 $1.80
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
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<TABLE>
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
September 30, December 31,
1997 1996
(in thousands)
ASSETS
<S> <C> <C>
ELECTRIC UTILITY PLANT:
Production . . . . . . . . . . . . . . . . . . . . . $ 9,424,789 $ 9,341,849
Transmission . . . . . . . . . . . . . . . . . . . . 3,417,136 3,380,258
Distribution . . . . . . . . . . . . . . . . . . . . 4,551,816 4,402,449
General (including mining assets and nuclear fuel) . 1,549,018 1,491,781
Construction Work in Progress. . . . . . . . . . . . 419,754 353,832
Total Electric Utility Plant . . . . . . . . 19,362,513 18,970,169
Accumulated Depreciation and Amortization. . . . . . 7,860,161 7,549,798
NET ELECTRIC UTILITY PLANT . . . . . . . . . 11,502,352 11,420,371
OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 1,313,845 892,674
CURRENT ASSETS:
Cash and Cash Equivalents. . . . . . . . . . . . . . 91,767 57,539
Accounts Receivable. . . . . . . . . . . . . . . . . 580,677 535,024
Allowance for Uncollectible Accounts . . . . . . . . (7,009) (3,692)
Fuel . . . . . . . . . . . . . . . . . . . . . . . . 236,716 235,257
Materials and Supplies . . . . . . . . . . . . . . . 240,084 251,896
Accrued Utility Revenues . . . . . . . . . . . . . . 149,402 174,966
Prepayments. . . . . . . . . . . . . . . . . . . . . 87,443 103,891
TOTAL CURRENT ASSETS . . . . . . . . . . . . 1,379,080 1,354,881
REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 1,838,720 1,889,482
DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 216,417 325,580
TOTAL. . . . . . . . . . . . . . . . . . . $16,250,414 $15,882,988
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
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<TABLE>
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
September 30, December 31,
1997 1996
(in thousands)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
CAPITALIZATION:
Common Stock-Par Value $6.50:
1997 1996
Shares Authorized . . . .300,000,000 300,000,000
Shares Issued . . . . . .198,610,998 197,234,992
(8,999,992 shares were held in treasury) . . . . . $ 1,290,971 $ 1,282,027
Paid-in Capital. . . . . . . . . . . . . . . . . . . 1,762,296 1,715,554
Retained Earnings. . . . . . . . . . . . . . . . . . 1,592,705 1,547,746
Total Common Shareholders' Equity. . . . . . 4,645,972 4,545,327
Cumulative Preferred Stocks of Subsidiaries:
Not Subject to Mandatory Redemption. . . . . . . . 46,869 90,323
Subject to Mandatory Redemption. . . . . . . . . . 127,605 509,900
Long-term Debt . . . . . . . . . . . . . . . . . . . 5,122,382 4,796,768
TOTAL CAPITALIZATION . . . . . . . . . . . . 9,942,828 9,942,318
OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 1,173,160 1,002,208
CURRENT LIABILITIES:
Long-term Debt Due Within One Year . . . . . . . . . 219,422 86,942
Short-term Debt. . . . . . . . . . . . . . . . . . . 507,750 319,695
Accounts Payable . . . . . . . . . . . . . . . . . . 207,669 206,227
Taxes Accrued. . . . . . . . . . . . . . . . . . . . 260,739 414,173
Interest Accrued . . . . . . . . . . . . . . . . . . 112,043 75,124
Obligations Under Capital Leases . . . . . . . . . . 95,609 89,553
Other. . . . . . . . . . . . . . . . . . . . . . . . 358,942 304,323
TOTAL CURRENT LIABILITIES. . . . . . . . . . 1,762,174 1,496,037
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 2,573,150 2,643,143
DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 383,981 401,491
DEFERRED GAIN ON SALE AND LEASEBACK -
ROCKPORT PLANT UNIT 2. . . . . . . . . . . . . . . . 233,640 240,598
DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 181,481 157,193
COMMITMENTS AND CONTINGENCIES (Note 5)
TOTAL. . . . . . . . . . . . . . . . . . . $16,250,414 $15,882,988
See Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
September 30,
1997 1996
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 384,881 $ 455,002
Adjustments for Noncash Items:
Depreciation and Amortization. . . . . . . . . . . . . . 455,494 442,205
Deferred Federal Income Taxes. . . . . . . . . . . . . . (35,566) (14,126)
Deferred Investment Tax Credits. . . . . . . . . . . . . (17,510) (17,643)
Amortization of Deferred Property Taxes. . . . . . . . . 132,251 132,061
Amortization of Operating Expenses and
Carrying Charges (net) . . . . . . . . . . . . . . . . 24,356 38,226
Extraordinary Loss - U.K. Windfall Tax . . . . . . . . . 110,565 -
Changes in Certain Current Assets and Liabilities:
Accounts Receivable (net). . . . . . . . . . . . . . . . (42,336) (33,281)
Fuel, Materials and Supplies . . . . . . . . . . . . . . 10,353 20,644
Accrued Utility Revenues . . . . . . . . . . . . . . . . 25,564 62,841
Accounts Payable . . . . . . . . . . . . . . . . . . . . 1,442 (42,363)
Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (153,434) (136,429)
Interest Accrued . . . . . . . . . . . . . . . . . . . . 36,919 31,868
Other (net). . . . . . . . . . . . . . . . . . . . . . . . 33,016 45,555
Net Cash Flows From Operating Activities . . . . . . 965,995 984,560
INVESTING ACTIVITIES:
Construction Expenditures. . . . . . . . . . . . . . . . . (496,155) (355,878)
Investment in Yorkshire Electricity Group plc. . . . . . . (361,795) -
Proceeds from Sale of Property and Other . . . . . . . . . 2,492 8,825
Net Cash Flows Used For Investing Activities . . . . (855,458) (347,053)
FINANCING ACTIVITIES:
Issuance of Common Stock . . . . . . . . . . . . . . . . . 58,045 49,337
Issuance of Long-term Debt . . . . . . . . . . . . . . . . 776,441 406,905
Retirement of Cumulative Preferred Stock . . . . . . . . . (433,234) (39,966)
Retirement of Long-term Debt . . . . . . . . . . . . . . . (325,931) (594,609)
Change in Short-term Debt (net). . . . . . . . . . . . . . 188,055 (89,774)
Dividends Paid on Common Stock . . . . . . . . . . . . . . (339,685) (336,651)
Net Cash Flows Used For Financing Activities . . . . (76,309) (604,758)
Net Increase in Cash and Cash Equivalents. . . . . . . . . . 34,228 32,749
Cash and Cash Equivalents at Beginning of Period . . . . . . 57,539 79,955
Cash and Cash Equivalents at End of Period . . . . . . . . . $ 91,767 $ 112,704
Supplemental Disclosure:
Cash paid for interest net of capitalized amounts was $253,884,000 and $247,393,000
and for income taxes was $290,682,000 and $278,050,000 in 1997 and 1996, respectively.
Noncash acquisitions under capital leases were $171,947,000 and $108,340,000 in
1997 and 1996, respectively.
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
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<TABLE>
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands)
<S> <C> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD . . . . . $1,615,039 $1,478,193 $1,547,746 $1,409,645
NET INCOME . . . . . . . . . . . . . . . 91,181 162,324 384,881 455,002
DEDUCTIONS:
Cash Dividends Declared. . . . . . . . 113,515 112,463 339,685 336,651
Other. . . . . . . . . . . . . . . . . - 9 237 (49)
BALANCE AT END OF PERIOD . . . . . . . . $1,592,705 $1,528,045 $1,592,705 $1,528,045
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated financial state-ments should
be read in conjunction with the 1996 Annual
Report as incorporated in and filed with the Form 10-K.
Certain prior-period amounts have been reclassified to
conform to current-period presentation.
2. FINANCING AND RELATED ACTIVITIES
During the first nine months of 1997, the utility
operating subsidiaries issued $422 million principal amount
of long-term obligations: three series of first mortgage
bonds totaling $144 million at 6.35%, 6.4% and 6.71% all due
in 2000; $180 million of junior subordinated deferrable
interest debentures at 7.92% and 8% due in 2027; one $48
million unsecured note due 2004 at 6.73% and $50 million of
financing obligations under a sale leaseback agreement.
The proceeds were used during 1997 to redeem 4,257,490
shares of cumulative preferred stock as detailed in the
table below and to retire $243 million principal amount of
long-term debt: $203 million of first mortgage bonds with
interest rates ranging from 6-1/2% to 9.35% due from 1997 to
2022; $20 million of variable rate installment purchase
contracts due in 2025; and a $20 million term loan with an
interest rate of 7.19% at maturity.
Number Total
of Shares Reacquisition
Series Retired Price Range Price
(in thousands)
4.08%-4.56% 434,540 $ 61.00-$ 69.94 $ 29,361
5.90%-5.92% 1,515,900 101.83- 103.20 156,074
6.02%-6-7/8% 1,307,050 103.71- 107.26 137,071
7.80%-7-7/8% 1,000,000 105.20- 105.50 105,232
$427,738
As a result of the redemption of the 6-1/2% series first
mortgage bonds due in 1997, the restriction on the use of
retained earnings for the payment of common stock dividends
was reduced to $27 million.
At September 30, 1997, AEP Resources, Inc., a subsidiary
which is pursuing new business opportunities, had $270
million of outstanding debt at LIBOR rates under its long-term revolving
credit agreement which expires in 1999,
primarily for its investment in Yorkshire Electricity Group,
plc.
In October 1997 two domestic electric operating
subsidiaries issued $96 million of unsecured medium term
notes due in 2005 and 2007 at 6.85% and 6.91%, respectively.
<PAGE>
3. EXTRAORDINARY LOSS - WINDFALL TAX
The Company and New Century Energies, Inc. acquired a
United Kingdom distribution company, Yorkshire Electricity
Group plc, through an equally owned joint venture in April
1997. Total consideration paid by the joint venture was
approximately $2.4 billion which was financed by a
combination of equity and non-recourse debt. The Company
uses the equity method of accounting for its $273 million
equity investment in Yorkshire Electricity which is included
in other property and investments.
In July 1997 the British government enacted a new law
that imposed a one-time windfall tax on a revised
privatization value which originally had been computed in
1990 of certain privatized utilities. The windfall tax is
actually an adjustment of the original privatization price
by the U.K. government. The windfall tax liability for
Yorkshire Electricity Group plc is estimated to be 135
million pounds ($221 million) and is payable in two equal
installments with the first due in December 1997 and the
second installment a year later. The Company's $110.6
million share of the tax is reported as an extraordinary
loss. The earnings from the Yorkshire investment excluding
the extraordinary loss, which are included in nonoperating
income, are $34 million for the third quarter and $38
million for the year-to-date period which includes $26
million of nonrecurring tax benefits related to a reduction
of the United Kingdom corporate income tax rate from 33% to
31% and the utilization of foreign tax credits.
4. ZIMMER PHASE-IN PLAN
In June 1997, a domestic electic operating subsidiary,
Columbus Southern Power Company, completed recovery of its
Zimmer Plant phase-in plan deferrals through the cessation
of a 3.39% temporary surcharge. The temporary surcharge was
placed into effect on February 1, 1994 to allow recovery of
a rate phase-in deferral of $93.9 million. The amount of
net phase-in deferrals that were collected through the
surcharge was $18.5 million in 1994, $28.5 million in 1995,
$31.5 million in 1996 and $15.4 million in 1997. The
cessation of the surcharge recovery of amounts deferred
under the phase-in plan did not affect net income since the
deferred costs were amortized commensurate with their
recovery. For other information regarding the Zimmer rate
case refer to the 1996 Annual Report - Notes to Consolidated
Financial Statements - Note 3.
5. CONTINGENCIES
Taxes
As discussed in Note 9, "Federal Income Taxes" of the
Notes to Consolidated Financial Statements in the 1996
Annual Report, the Internal Revenue Service (IRS) agents
auditing the consolidated federal income tax returns for the
years 1991 through 1993 requested a ruling from their
National Office as to whether certain interest deductions
relating to corporate owned life insurance (COLI) should be
disallowed. The COLI program was established in 1990 as
part of the Company's strategy to fund and reduce the cost
of medical benefits for retired employees. The Company
filed a brief with the IRS National Office defending the
subject deductions. Although no disallowance has been
proposed, a disallowance of COLI interest deductions through
September 30, 1997 would reduce earnings by approximately
$276 million inclusive of interest. Management believes it
will ultimately prevail on this issue and will vigorously
contest any disallowance that may be proposed.
Revised Air Quality Standards
On July 18, 1997, the United States Environmental
Protection Agency published a revised National Ambient Air
Quality Standard (NAAQS) for ozone and a new NAAQS for fine
particulate matter (less than 2.5 microns in size). The new
ozone standard is expected to result in redesignation of a
number of areas of the country that are currently in
compliance with the existing standard to nonattainment
status which could ultimately dictate more stringent
emission restrictions for AEP System generating units. New
stringent emission restrictions on AEP System generating
units to achieve attainment of the fine particulate matter
standard could also be imposed. The AEP System operating
companies joined with other utilities to appeal the revised
NAAQS and filed petitions for review in August and September
1997 in the U.S. Court of Appeals for the District of
Columbia Circuit.
Management is unable to estimate compliance costs
without knowledge of the reductions that may be necessary to
meet the new standards. If such costs are significant, it
could have a material adverse effect on results of
operations and possibly financial condition unless such
costs are recovered.
Cook Plant Shutdown
On September 9 and 10, 1997, during a Nuclear Regulatory
Commission (NRC) architect engineer design inspection,
questions regarding the operability of certain safety
systems caused Company operations personnel to shut down
Units 1 and 2 of the Cook Nuclear Plant. On September 19,
1997, the NRC issued a Confirmatory Action Letter requiring
the Company to address certain issues identified in the
letter. The Company is working with the NRC to resolve this
matter. At this time management is unable to determine when
the units will be returned to service. If the units are not
returned to service in a timely manner, it could have an
adverse impact on results of operations and possibly
financial condition.
The Company continues to be involved in certain other
matters discussed in the 1996 Annual Report.
<PAGE>
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
THIRD QUARTER 1997 vs. THIRD QUARTER 1996
AND
YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996
RESULTS OF OPERATIONS
Income before extraordinary loss increased by $39.4 million
for the quarter and $40.4 for the year-to-date period due
predominantly to increased wholesale sales, reduced preferred
stock dividends due to a redemption program and nonoperating
income from AEP's April 1997 investment in Yorkshire Electricity
Group plc. Net income decreased $71.1 million or 44% for the
third quarter and $70.1 million or 15% for the year-to-date
period primarily due to an extraordinary loss incurred by
Yorkshire Electricity Group plc. The extraordinary loss resulted
from the United Kingdom's one-time windfall tax on a revision or
recomputation of the original privatization value of certain
privatized utilities.
Income statement lines which changed significantly were:
Increase (Decrease)
Third Quarter Year-to-Date
(in millions) % (in millions) %
Operating Revenues . . . . . . $ 99.6 7 $55.1 1
Fuel and Purchased
Power Expense . . . . . . . . 106.3 26 87.0 7
Maintenance Expense. . . . . . (5.4) (4) (25.7) (7)
Depreciation and Amortization
Expense . . . . . . . . . . . (7.5) (5) (2.5) (1)
Federal Income Taxes . . . . . (7.9) (8) 3.5 1
Nonoperating Income. . . . . . 29.2 N.M. 39.5 N.M.
Interest Charges . . . . . . . 12.5 14 11.6 4
Preferred Stock Dividend
Requirements of Subsidiaries. (7.4) (73) (16.7) (53)
N.M. = Not Meaningful
Operating revenues increased for the third quarter as a
result of a 43% increase in sales to wholesale customers largely
as a result of new power marketing transactions which began in
July 1997. The new power marketing transactions involve the
purchase and sale of electricity outside the AEP transmission
system. Although energy sales to retail customers rose 2%
primarily due to growth in the number of commercial customers and
increased industrial customer usage, retail revenues were flat
reflecting price reductions from rate decreases, expiration of a
phase-in plan surcharge and reduced prices negotiated with
certain industrial customers.
The increase in operating revenues for the year-to-date
period resulted from increased wholesale energy sales. Sales to
wholesale customers rose 22% due to the new power marketing
transactions and an increase in coal conversion service sales,
which are for the conversion of customers' coal to electricity.
Operating revenues from retail customers declined 2% primarily
due to a 4% decrease in energy sales to residential customers
reflecting mild weather in the first and second quarters of 1997.
The increases in fuel and purchased power expense for both
periods were due mainly to purchases of electricity as part of
the new power marketing transactions. Also contributing to the
increase in the quarter were increased fuel costs resulting from
increased coal-fired generation and reduced nuclear generation as
both units of the Cook Nuclear Plant were shut down in September
1997 to resolve concerns regarding the documentation of safety
systems.
Maintenance expense decreased for the year-to-date period
due primarily to reduced levels of repairs to distribution
facilities in 1997 and the effects of the recognition of
incremental storm damage expense in accordance with an order of
the Virginia regulatory commission in the second quarter of 1996.
The reduction in depreciation and amortization expense for
the third quarter reflects the completion of a rate phase-in plan
for Zimmer Plant costs which had been deferred and were being
amortized commensurate with recovery in rates.
Federal income tax expense attributable to operations
decreased in the third quarter due to a decrease in pre-tax
operating income inclusive of interest charges and changes in
certain book/tax differences accounted for on a flow-through
basis for rate-making and financial reporting purposes.
The increases in nonoperating income for both periods
reflects the Company's share of Yorkshire Electricity Group plc's
earnings of $34 million for the third quarter and $38 million for
the year-to-date period which includes $26 million of
nonrecurring tax benefits related to a reduction of the United
Kingdom corporate income tax rate from 33% to 31% and the
utilization of foreign tax credits.
Interest charges increased in both periods due to higher
outstanding balances of long-term and short-term debt. The
increase in borrowing was primarily for international investment,
including the acquisition of a 50% interest in Yorkshire
Electricity in April 1997, and to redeem preferred stock.
Preferred stock dividend requirements of the subsidiaries
decreased in both periods reflecting the redemption of over 4
million shares of cumulative preferred stock during the first
half of 1997 as part of a redemption program.
FINANCIAL CONDITION
Total plant and property additions including capital leases
for the first nine months of 1997 were $670 million.
During the first nine months of 1997 subsidiaries and their
minority interest partners issued $699 million principal amount
of long-term obligations at interest rates ranging from 6.1% to
12.42%; retired $243 million principal amount of long-term debt
with interest rates ranging from 6-1/2% to 9.35%; redeemed
4,257,490 shares of cumulative preferred stock with rates ranging
from 4.08% to 7-7/8% at a total cost of $433 million and
increased short-term debt by $188 million.
REVISED AIR QUALITY STANDARDS
On July 18, 1997, the United States Environmental Protection
Agency published a revised National Ambient Air Quality Standard
(NAAQS) for ozone and a new NAAQS for fine particulate matter
(less than 2.5 microns in size). The new ozone standard is
expected to result in redesignation of a number of areas of the
country that are currently in compliance with the existing
standard to nonattainment status which could ultimately dictate
more stringent emission restrictions for AEP System generating
units. New stringent emission restrictions on AEP System
generating units to achieve attainment of the fine particulate
matter standard could also be imposed. The AEP System operating
companies joined with other utilities to appeal the revised NAAQS
and filed petitions for review in August and September 1997 in
the U.S. Court of Appeals for the District of Columbia Circuit.
Management is unable to estimate compliance costs without
knowledge of the reductions that may be necessary to meet the new
standards. If such costs are significant, it could have a
material adverse effect on results of operations and possibly
financial condition unless such costs are recovered.
JOINT VENTURES ANNOUNCED
On October 2, 1997 the Company and Conoco, the energy
subsidiary of DuPont, signed a letter of intent to form two
jointly held venture companies to provide energy management and
capital to industrial and large commercial customers. AEP Conoco
Energy Capital will acquire and lease back energy assets at
industrial and large commercial facilities and provide future
capital for energy projects. AEP Conoco Energy Management
Services will also provide energy management services. The
ventures will initially acquire and manage industrial energy
assets valued at approximately $1 billion for DuPont energy
facilities at 33 U.S. industrial plants. The Company, through
its AEP Resources subsidiary, and DuPont will each invest
approximately $125 million in equity in the joint ventures with
the remainder to be financed through non-recourse debt.
COOK PLANT SHUTDOWN
On September 9 and 10, 1997, during a Nuclear Regulatory
Commission (NRC) architect engineer design inspection, questions
regarding the operability of certain safety systems caused
Company operations personnel to shut down Units 1 and 2 of the
Cook Nuclear Plant. On September 19, 1997, the NRC issued a
Confirmatory Action Letter requiring the Company to address
certain issues identified in the letter. The Company is working
with the NRC to resolve this matter. At this time management is
unable to determine when the units will be returned to service.
If the units are not returned to service in a timely manner, it
could have an adverse impact on results of operations and
possibly financial condition.
<PAGE>
<PAGE>
<TABLE>
AEP GENERATING COMPANY
STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . $58,136 $56,821 $170,665 $169,618
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . 26,354 23,701 72,443 68,969
Rent - Rockport Plant Unit 2 . . . . . 17,071 17,070 51,212 51,218
Other Operation. . . . . . . . . . . . 2,518 3,036 8,362 9,147
Maintenance. . . . . . . . . . . . . . 2,372 3,154 10,115 10,530
Depreciation . . . . . . . . . . . . . 5,402 5,413 16,209 16,239
Taxes Other Than Federal Income Taxes. 1,015 821 2,744 2,703
Federal Income Taxes . . . . . . . . . 922 987 2,529 2,924
TOTAL OPERATING EXPENSES . . . 55,654 54,182 163,614 161,730
OPERATING INCOME . . . . . . . . . . . . 2,482 2,639 7,051 7,888
NONOPERATING INCOME. . . . . . . . . . . 831 1,018 2,631 2,642
INCOME BEFORE INTEREST CHARGES . . . . . 3,313 3,657 9,682 10,530
INTEREST CHARGES . . . . . . . . . . . . 986 1,042 2,997 3,186
NET INCOME . . . . . . . . . . . . . . . $ 2,327 $ 2,615 $ 6,685 $ 7,344
STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands)
BALANCE AT BEGINNING OF PERIOD . . . . . $3,672 $2,184 $1,886 $1,955
NET INCOME . . . . . . . . . . . . . . . 2,327 2,615 6,685 7,344
CASH DIVIDENDS DECLARED. . . . . . . . . 3,286 3,000 5,858 7,500
BALANCE AT END OF PERIOD . . . . . . . . $2,713 $1,799 $2,713 $1,799
The common stock of the Company is wholly owned by
American Electric Power Company, Inc.
See Notes to Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
AEP GENERATING COMPANY
BALANCE SHEETS
(UNAUDITED)
<CAPTION>
September 30, December 31,
1997 1996
(in thousands)
ASSETS
<S> <C> <C>
ELECTRIC UTILITY PLANT:
Production. . . . . . . . . . . . . . . . . . . . . . . . $626,880 $627,926
General . . . . . . . . . . . . . . . . . . . . . . . . . 3,082 2,931
Construction Work in Progress . . . . . . . . . . . . . . 2,007 1,400
Total Electric Utility Plant. . . . . . . . . . . 631,969 632,257
Accumulated Depreciation. . . . . . . . . . . . . . . . . 252,026 238,532
NET ELECTRIC UTILITY PLANT. . . . . . . . . . . . 379,943 393,725
CURRENT ASSETS:
Cash and Cash Equivalents . . . . . . . . . . . . . . . . 1,810 139
Accounts Receivable . . . . . . . . . . . . . . . . . . . 20,683 18,879
Fuel. . . . . . . . . . . . . . . . . . . . . . . . . . . 10,735 17,792
Materials and Supplies. . . . . . . . . . . . . . . . . . 4,174 4,266
Prepayments . . . . . . . . . . . . . . . . . . . . . . . 483 804
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . 37,885 41,880
REGULATORY ASSETS . . . . . . . . . . . . . . . . . . . . . 5,694 5,857
DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . . 2,419 1,449
TOTAL . . . . . . . . . . . . . . . . . . . . . $425,941 $442,911
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
AEP GENERATING COMPANY
BALANCE SHEETS
(UNAUDITED)
<CAPTION>
September 30, December 31,
1997 1996
(in thousands)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
CAPITALIZATION:
Common Stock - Par Value $1,000:
Authorized and Outstanding - 1,000 Shares . . . . . . . $ 1,000 $ 1,000
Paid-in Capital . . . . . . . . . . . . . . . . . . . . . 42,235 44,235
Retained Earnings . . . . . . . . . . . . . . . . . . . . 2,713 1,886
Total Common Shareholder's Equity . . . . . . . . 45,948 47,121
Long-term Debt. . . . . . . . . . . . . . . . . . . . . . 69,565 89,554
TOTAL CAPITALIZATION. . . . . . . . . . . . . . . 115,513 136,675
OTHER NONCURRENT LIABILITIES. . . . . . . . . . . . . . . . 1,358 1,613
CURRENT LIABILITIES:
Short-term Debt - Notes Payable . . . . . . . . . . . . . - 9,575
Accounts Payable. . . . . . . . . . . . . . . . . . . . . 4,855 7,510
Taxes Accrued . . . . . . . . . . . . . . . . . . . . . . 5,195 2,903
Rent Accrued - Rockport Plant Unit 2. . . . . . . . . . . 23,427 4,963
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 3,031 3,932
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . 36,508 28,883
DEFERRED GAIN ON SALE AND LEASEBACK -
ROCKPORT PLANT UNIT 2 . . . . . . . . . . . . . . . . . . 140,294 144,472
REGULATORY LIABILITIES:
Deferred Investment Tax Credits . . . . . . . . . . . . . 70,934 73,460
Amounts Due to Customers for Income Taxes . . . . . . . . 32,885 33,893
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 28 66
TOTAL REGULATORY LIABILITIES. . . . . . . . . . . 103,847 107,419
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . 28,421 23,849
TOTAL . . . . . . . . . . . . . . . . . . . . . $425,941 $442,911
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
AEP GENERATING COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
September 30,
1997 1996
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 6,685 $ 7,344
Adjustments for Noncash Items:
Depreciation . . . . . . . . . . . . . . . . . . . . . . 16,209 16,239
Deferred Federal Income Taxes. . . . . . . . . . . . . . 3,564 3,710
Deferred Investment Tax Credits. . . . . . . . . . . . . (2,526) (2,531)
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. . . . . . . . . . . . . . . . . . . (1,804) (328)
Fuel, Materials and Supplies . . . . . . . . . . . . . . 7,149 (729)
Accounts Payable . . . . . . . . . . . . . . . . . . . . (2,655) (3,920)
Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . 2,292 2,201
Rent Accrued - Rockport Plant Unit 2 . . . . . . . . . . 18,464 18,464
Other (net). . . . . . . . . . . . . . . . . . . . . . . . (2,044) (2,924)
Net Cash Flows From Operating Activities . . . . . . 41,156 33,348
INVESTING ACTIVITIES - Construction Expenditures . . . . . . (2,042) (1,492)
FINANCING ACTIVITIES:
Return of Capital to Parent Company. . . . . . . . . . . . (2,000) (500)
Retirement of Long-term Debt . . . . . . . . . . . . . . . (20,010) -
Change in Short-term Debt (net). . . . . . . . . . . . . . (9,575) (21,725)
Dividends Paid . . . . . . . . . . . . . . . . . . . . . . (5,858) (7,500)
Net Cash Flows Used For Financing Activities . . . . (37,443) (29,725)
Net Increase in Cash and Cash Equivalents. . . . . . . . . . 1,671 2,131
Cash and Cash Equivalents at Beginning of Period . . . . . . 139 22
Cash and Cash Equivalents at End of Period . . . . . . . . . $ 1,810 $ 2,153
Supplemental Disclosure:
Cash paid (received) for interest net of capitalized amounts was $2,699,000 and
$3,009,000 and for income taxes was $(1,598,000) and $(1,374,000) in 1997 and
1996, respectively.
See Notes to Financial Statements.
</TABLE>
<PAGE>
AEP GENERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
GENERAL
The accompanying unaudited financial statements should
be read in conjunction with the 1996 Annual Report as
incorporated in and filed with the Form 10-K.
FINANCING ACTIVITIES
In June 1997, the Company redeemed $10 million each of
the 1995 Series A and 1995 Series B Pollution Control
Revenue Bonds due 2025.
In 1997, the Company returned capital to its parent in
the amount of $2 million.
<PAGE>
AEP GENERATING COMPANY
MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
THIRD QUARTER 1997 vs. THIRD QUARTER 1996
AND
YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996
Operating revenues are derived from the sale of Rockport
Plant energy and capacity to two affiliated companies and one
unaffiliated utility pursuant to Federal Energy Regulatory
Commission (FERC) approved long-term unit power agreements. The
unit power agreements provide for recovery of costs including a
FERC approved rate of return on common equity and a return on
other capital, net of temporary cash investments.
Net income decreased $0.3 million or 11% for the third
quarter and $0.7 million or 9% for the year-to-date period as a
result of the decrease in the return on common equity due to a
return of capital to the parent company and a decrease in the
return on other capital due to lower financing costs, partially
offset in the year-to-date period by income earned on temporary
cash investments.
Income statement items which changed significantly were as
follows:
Increase (Decrease)
Third Quarter Year-to-Date
(in millions) % (in millions) %
Operating Revenues. . . . . $1.3 2 $1.0 1
Fuel Expense. . . . . . . . 2.7 11 3.5 5
Other Operation Expense . . (.5) (17) (.8) (9)
Maintenance Expense . . . . (.8) (25) (.4) (4)
Taxes Other Than
Federal Income Taxes. . . .2 24 - -
Federal Income Taxes. . . . (.1) (7) (.4) (14)
Nonoperating Income . . . . (.2) (18) - -
Interest Charges. . . . . . (.1) (5) (.2) (6)
The increase in operating revenues for both periods is
primarily attributable to collection of increased fuel expense
under the terms of the unit power agreements, partly offset by
the decrease in allowed returns previously mentioned. It should
be noted that increases in operating expenses are recoverable
through the unit power agreement and do not impact net income.
Fuel expense increased due to an increase in generation for
the quarter and an increase in the average cost of fuel consumed
for both the quarter and year-to-date periods.
A decrease in other operation expense for both periods was
caused by a reduction in the annual Federal Energy Regulatory
Commission fee assessment.
<PAGE>
Maintenance expense decreased due to the effect of recording
a write-off of obsolete maintenance materials in the third
quarter of 1996.
Taxes other than federal income taxes increased for the
quarter due to the effect of an unfavorable accrual adjustment
for Indiana property tax.
Federal income taxes attributable to operations decreased
reflecting the decline in pre-tax operating income.
The decrease in nonoperating income for the current period
was due to the effect of a credit adjustment recorded in 1996.
Interest charges decreased for both periods due to the
redemption of $20 million of Pollution Control Revenue Bonds in
June of this year. Additionally year-to-date interest charges
declined due to a reduction in the average balances of short-term
debt outstanding.
<PAGE>
<PAGE>
<TABLE>
APPALACHIAN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . $438,510 $393,797 $1,228,044 $1,214,656
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . 104,514 82,432 288,773 263,935
Purchased Power. . . . . . . . . . . . 100,587 84,388 261,595 252,025
Other Operation. . . . . . . . . . . . 60,585 53,561 185,852 177,370
Maintenance. . . . . . . . . . . . . . 27,615 28,279 79,505 87,655
Depreciation and Amortization. . . . . 34,568 33,450 102,817 99,491
Taxes Other Than Federal Income Taxes. 29,544 29,758 89,580 90,074
Federal Income Taxes . . . . . . . . . 16,317 20,670 45,411 55,991
TOTAL OPERATING EXPENSES . . . 373,730 332,538 1,053,533 1,026,541
OPERATING INCOME . . . . . . . . . . . . 64,780 61,259 174,511 188,115
NONOPERATING INCOME (LOSS) . . . . . . . 305 (240) 628 336
INCOME BEFORE INTEREST CHARGES . . . . . 65,085 61,019 175,139 188,451
INTEREST CHARGES . . . . . . . . . . . . 30,332 26,380 88,524 82,082
NET INCOME . . . . . . . . . . . . . . . 34,753 34,639 86,615 106,369
PREFERRED STOCK DIVIDEND REQUIREMENTS. . 681 4,099 6,326 12,300
EARNINGS APPLICABLE TO COMMON STOCK. . . $ 34,072 $ 30,540 $ 80,289 $ 94,069
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands)
BALANCE AT BEGINNING OF PERIOD . . . . . $197,471 $208,399 $208,472 $199,021
NET INCOME . . . . . . . . . . . . . . . 34,753 34,639 86,615 106,369
DEDUCTIONS:
Cash Dividends Declared:
Common Stock . . . . . . . . . . . . 28,609 27,075 85,827 81,225
Cumulative Preferred Stock . . . . . 572 3,914 2,649 11,748
Capital Stock Expense. . . . . . . . . 109 184 3,677 552
BALANCE AT END OF PERIOD . . . . . . . . $202,934 $211,865 $202,934 $211,865
The common stock of the Company is wholly owned by
American Electric Power Company, Inc.
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
APPALACHIAN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
September 30, December 31,
1997 1996
(in thousands)
ASSETS
<S> <C> <C>
ELECTRIC UTILITY PLANT:
Production . . . . . . . . . . . . . . . . . . . . . $1,915,626 $1,883,271
Transmission . . . . . . . . . . . . . . . . . . . . 1,067,090 1,054,207
Distribution . . . . . . . . . . . . . . . . . . . . 1,557,679 1,495,445
General. . . . . . . . . . . . . . . . . . . . . . . 206,130 188,740
Construction Work in Progress. . . . . . . . . . . . 94,011 95,469
Total Electric Utility Plant . . . . . . . . 4,840,536 4,717,132
Accumulated Depreciation and Amortization. . . . . . 1,850,887 1,782,017
NET ELECTRIC UTILITY PLANT . . . . . . . . . 2,989,649 2,935,115
OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 36,699 29,621
CURRENT ASSETS:
Cash and Cash Equivalents. . . . . . . . . . . . . . 8,667 7,260
Accounts Receivable. . . . . . . . . . . . . . . . . 147,498 160,021
Allowance for Uncollectible Accounts . . . . . . . . (1,622) (687)
Fuel . . . . . . . . . . . . . . . . . . . . . . . . 59,509 52,605
Materials and Supplies . . . . . . . . . . . . . . . 51,464 56,605
Accrued Utility Revenues . . . . . . . . . . . . . . 32,901 51,843
Prepayments. . . . . . . . . . . . . . . . . . . . . 7,102 10,797
TOTAL CURRENT ASSETS . . . . . . . . . . . . 305,519 338,444
REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 441,959 451,272
DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 35,295 46,285
TOTAL. . . . . . . . . . . . . . . . . . . $3,809,121 $3,800,737
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
APPALACHIAN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
September 30, December 31,
1997 1996
(in thousands)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
CAPITALIZATION:
Common Stock - No Par Value:
Authorized - 30,000,000 Shares
Outstanding - 13,499,500 Shares. . . . . . . . . . $ 260,458 $ 260,458
Paid-in Capital. . . . . . . . . . . . . . . . . . . 592,924 575,380
Retained Earnings. . . . . . . . . . . . . . . . . . 202,934 208,472
Total Common Shareholder's Equity. . . . . . 1,056,316 1,044,310
Cumulative Preferred Stock:
Not Subject to Mandatory Redemption. . . . . . . . 19,795 29,815
Subject to Mandatory Redemption. . . . . . . . . . 22,310 190,000
Long-term Debt . . . . . . . . . . . . . . . . . . . 1,494,283 1,365,834
TOTAL CAPITALIZATION . . . . . . . . . . . . 2,592,704 2,629,959
OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 132,777 109,203
CURRENT LIABILITIES:
Short-term Debt. . . . . . . . . . . . . . . . . . . 83,525 60,700
Accounts Payable . . . . . . . . . . . . . . . . . . 99,080 85,892
Taxes Accrued. . . . . . . . . . . . . . . . . . . . 42,577 40,935
Customer Deposits. . . . . . . . . . . . . . . . . . 13,764 13,750
Interest Accrued . . . . . . . . . . . . . . . . . . 33,223 20,938
Other. . . . . . . . . . . . . . . . . . . . . . . . 58,424 80,360
TOTAL CURRENT LIABILITIES. . . . . . . . . . 330,593 302,575
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 656,896 669,964
DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 69,106 72,677
DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 27,045 16,359
CONTINGENCIES (Note 4)
TOTAL. . . . . . . . . . . . . . . . . . . $3,809,121 $3,800,737
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
APPALACHIAN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
September 30,
1997 1996
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 86,615 $106,369
Adjustments for Noncash Items:
Depreciation and Amortization. . . . . . . . . . . . . . 103,796 100,471
Deferred Federal Income Taxes. . . . . . . . . . . . . . (8,719) 838
Deferred Investment Tax Credits. . . . . . . . . . . . . (3,571) (3,614)
Provision for Rate Refunds . . . . . . . . . . . . . . . 3,083 (5,547)
Deferred Power Supply Costs (net). . . . . . . . . . . . 13,951 (425)
Changes in Certain Current Assets and Liabilities:
Accounts Receivable (net). . . . . . . . . . . . . . . . 13,458 (13,318)
Fuel, Materials and Supplies . . . . . . . . . . . . . . (1,763) 9,195
Accrued Utility Revenues . . . . . . . . . . . . . . . . 18,942 21,123
Prepayments. . . . . . . . . . . . . . . . . . . . . . . 3,695 (5,637)
Accounts Payable . . . . . . . . . . . . . . . . . . . . 13,188 (409)
Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . 1,642 (12,670)
Interest Accrued . . . . . . . . . . . . . . . . . . . . 12,285 12,588
Other (net). . . . . . . . . . . . . . . . . . . . . . . . (8,076) 6,928
Net Cash Flows From Operating Activities . . . . . . 248,526 215,892
INVESTING ACTIVITIES:
Construction Expenditures. . . . . . . . . . . . . . . . . (146,039) (120,761)
Proceeds from Sale of Property . . . . . . . . . . . . . . 4,204 1,546
Net Cash Flows Used For Investing Activities . . . . (141,835) (119,215)
FINANCING ACTIVITIES:
Capital Contributions from Parent Company. . . . . . . . . 20,000 25,000
Issuance of Long-term Debt . . . . . . . . . . . . . . . . 183,257 273,340
Change in Short-term Debt (net). . . . . . . . . . . . . . 22,825 (104,825)
Retirement of Cumulative Preferred Stock . . . . . . . . . (183,842) (146)
Retirement of Long-term Debt . . . . . . . . . . . . . . . (56,378) (195,909)
Dividends Paid on Common Stock . . . . . . . . . . . . . . (85,827) (81,225)
Dividends Paid on Cumulative Preferred Stock . . . . . . . (5,319) (11,751)
Net Cash Flows Used For Financing Activities . . . . (105,284) (95,516)
Net Increase in Cash and Cash Equivalents. . . . . . . . . . 1,407 1,161
Cash and Cash Equivalents at Beginning of Period . . . . . . 7,260 8,664
Cash and Cash Equivalents at End of Period . . . . . . . . . $ 8,667 $ 9,825
Supplemental Disclosure:
Cash paid for interest net of capitalized amounts was $73,466,000 and $67,073,000
and for income taxes was $46,965,000 and $54,583,000 in 1997 and 1996, respectively.
Noncash acquisitions under capital leases were $14,377,000 and $10,741,000 in 1997
and 1996, respectively.
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
APPALACHIAN POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated financial
statements should be read in conjunction with the 1996
Annual Report as incorporated in and filed with the Form
10-K. Certain prior-period amounts have been reclassified to
conform with current-period presentation.
2. RATE MATTERS
On June 13, 1997, the Company filed an application with
the Virginia State Corporation Commission (Virginia SCC) for
approval of an alternative regulatory plan (Plan) and for an
increase of $30.5 million in base rates on an annual basis
to be effective July 13, 1997. The Company's Plan would
institute a moratorium period during which no changes in
rates would be made prior to January 1, 2001, from the
current rate levels (including the Company's current 1.482
cents/kwh fuel factor) proposed by the Company. In
addition, it includes a sharing of earnings above certain
levels between the Company and its customers, and
acceleration of the recovery of certain regulatory assets.
On July 10, 1997, the Virginia SCC issued an order
suspending implementation of new rates until November 11,
1997. A public hearing has been scheduled for May 19, 1998
to consider the Company's proposal.
3. FINANCING ACTIVITIES
During the first nine months of 1997, the Company issued
two series of first mortgage bonds of $48 million each with
rates of 6.35% and 6.71% due in 2000 and $90 million of 8%
Series Junior Subordinated Deferrable Interest Debentures
due in 2027. In March 1997, the Company redeemed $56
million of first mortgage bonds with interest rates of 8.75%
and 9.35%.
As part of a tender offer, the following shares of
Cumulative Preferred Stock were reacquired and retired at
the prices listed plus an amount equal to accrued dividends:
Number Price Total
of Shares Paid Per Reacquisition
Series Retired Share Price
(in thousands)
4-1/2% 99,563 $ 69.02 $ 6,872
5.90% 422,900 103.17 43,631
5.92% 538,500 103.20 55,573
6.85% 215,500 107.26 23,114
7.80% 22,500 105.50 2,374
In April 1997, the Company redeemed the remaining
477,500 shares of 7.80% Series Cumulative Preferred Stock,
par value $100, at $105.20 per share.
In June 1997, the Company received a $20 million cash
capital contribution from its parent which was credited to
paid-in capital.
4. CONTINGENCIES
Taxes
As discussed in Note 9, "Federal Income Taxes" of the
Notes to Consolidated Financial Statements in the 1996
Annual Report, the Internal Revenue Service (IRS) agents
auditing the AEP System's consolidated federal income tax
returns for the years 1991 through 1993 requested a ruling
from their National Office as to whether certain interest
deductions relating to corporate owned life insurance (COLI)
should be disallowed. The COLI program was established in
1990 as part of the Company's strategy to fund and reduce
the cost of medical benefits for retired employees. AEP
filed a brief with the IRS National Office defending the
subject deductions. Although no disallowance has been
proposed, a disallowance of the COLI interest deductions
through September 30, 1997 would reduce earnings by
approximately $69 million inclusive of interest. Management
believes it will ultimately prevail on this issue and will
vigorously contest any disallowance that may be proposed.
Revised Air Quality Standards
On July 18, 1997, the United States Environmental
Protection Agency published a revised National Ambient Air
Quality Standard (NAAQS) for ozone and a new NAAQS for fine
particulate matter (less than 2.5 microns in size). The new
ozone standard is expected to result in redesignation of a
number of areas of the country that are currently in
compliance with the existing standard to nonattainment
status which could ultimately dictate more stringent
emission restrictions for AEP System generating units. New
stringent emission restrictions on AEP System generating
units to achieve attainment of the fine particulate matter
standard could also be imposed. The AEP System operating
companies joined with other utilities to appeal the revised
NAAQS and filed petitions for review in August and September
1997 in the U.S. Court of Appeals for the District of
Columbia Circuit.
Management is unable to estimate compliance costs
without knowledge of the reductions that may be necessary to
meet the new standards. If such costs are significant, it
could have a material adverse effect on results of
operations and possibly financial condition unless such
costs are recovered.
Other
The Company continues to be involved in certain other
matters discussed in its 1996 Annual Report.
<PAGE>
APPALACHIAN POWER COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
THIRD QUARTER 1997 vs. THIRD QUARTER 1996
AND
YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996
RESULTS OF OPERATIONS
Net income remained relatively unchanged for the quarter as
a significant increase in operating revenues was offset by
increases in operating expenses and interest charges. Net income
decreased $19.8 million or 19% for the year-to-date period mainly
due to a decline in more profitable retail revenues reflecting
milder weather during the first six months of 1997 and an
increase in interest charges.
Income statement items which changed significantly were:
Increase (Decrease)
Third Quarter Year-to-Date
(in millions) % (in millions) %
Operating Revenues . . . . $44.7 11 $ 13.4 1
Fuel Expense . . . . . . . 22.1 27 24.8 9
Purchased Power Expense. . 16.2 19 9.6 4
Other Operation Expense. . 7.0 13 8.5 5
Maintenance Expense. . . . (0.7) (2) (8.2) (9)
Federal Income Taxes . . . (4.4) (21) (10.6) (19)
Interest Charges . . . . . 4.0 15 6.4 8
Retail revenues increased for the quarter and decreased for
the year-to-date period, while wholesale revenues increased for
both periods. The increase in retail energy sales for the
quarter reflects a return to warmer weather. The decrease in
retail revenue for the year-to-date period can be attributed to
lower rates, while energy sales remained unchanged as milder
weather during the first six months of 1997 largely offset the
effects of warmer summer weather. The wholesale revenue increase
in both periods reflects an increase in less profitable wholesale
sales from new power marketing transactions, coal conversion
services and related transmission services. New power marketing
transactions involve the purchase and sale of electricity outside
of AEP's transmission system. Coal conversion service sales are
for the conversion of customers' coal to electricity.
The increases in fuel expense for the quarter and year-to-date period were
primarily due to the operation of the West
Virginia power supply cost recovery mechanism as overcollections
of fuel cost were deferred for future refund to customers through
a charge to fuel expense in accordance with a rate order and
increased coal fired generation to meet increased demand for
retail energy.
Purchased power expense increased as a result of additional
energy purchases related to the new power marketing transactions.
The effect of recording a gain in 1996 on the disposition of
emission allowances accounted for the increase in other operation
expense.
Maintenance expense decreased as a result of the effect of
the recognition in 1996 of deferred incremental storm damage
costs in accordance with directions of the Virginia State
Corporation Commission and reduced repairs to distribution
facilities in 1997.
The decrease in federal income tax expense attributable to
operations was primarily due to a decrease in pre-tax operating
income and for the quarter due to changes in certain book/tax
differences accounted for on a flow-through basis for rate-making
and financial reporting purposes.
A January 1997 tender offer that retired $130 million stated
value preferred stock on February 28, 1997 and the redemption of
$48 million stated value preferred stock in April 1997 are
responsible for an increase in the balance of long-term debt
outstanding which was issued to finance the reacquisitions
resulting in increased interest charges.
FINANCIAL CONDITION
Total plant and property additions including capital leases
for the first nine months of 1997 were $160 million.
The Company issued two series of first mortgage bonds of $48
million each with rates of 6.35% and 6.71% due in 2000. The
Company also issued $90 million of 8% series Junior Subordinated
Deferrable Interest Debentures due in 2027. In March 1997, the
Company redeemed $56 million of first mortgage bonds with
interest rates of 8.75% and 9.35%. Short-term debt increased by
$23 million from year-end balances. In June 1997, the Company
received a $20 million cash capital contribution from its parent
which was credited to paid-in capital.
As part of the January 1997 tender offer for all of the
Company's outstanding preferred stock, 1,298,963 shares of $100
stated value preferred stock were reacquired. The total cost of
the stock reacquisition was $134 million. At a special meeting
of shareholders held on February 28, 1997, the Company's articles
of incorporation were amended to remove certain capitalization
ratio requirements which restricted the Company's ability to
issue debt. As a result unsecured borrowings are now limited
only by the Public Utility Holding Company Act of 1935 and the
Virginia State Corporation Commission with the current limitation
set at $250 million for unsecured short-term borrowings. In
April 1997, all remaining shares of the 7.80% Series of Preferred
Stock were reacquired for $50 million.
REVISED AIR QUALITY STANDARDS
On July 18, 1997, the United States Environmental Protection
Agency published a revised National Ambient Air Quality Standard
(NAAQS) for ozone and a new NAAQS for fine particulate matter
(less than 2.5 microns in size). The new ozone standard is
expected to result in redesignation of a number of areas of the
country that are currently in compliance with the existing
standard to nonattainment status which could ultimately dictate
more stringent emission restrictions for AEP System generating
units. New stringent emission restrictions on AEP System
generating units to achieve attainment of the fine particulate
matter standard could also be imposed. The AEP System operating
companies joined with other utilities to appeal the revised NAAQS
and filed petitions for review in August and September 1997 in
the U.S. Court of Appeals for the District of Columbia Circuit.
Management is unable to estimate compliance costs without
knowledge of the reductions that may be necessary to meet the new
standards. If such costs are significant, it could have a
material adverse effect on results of operations and possibly
financial condition unless such costs are recovered.
<PAGE>
<PAGE>
<TABLE>
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . $313,024 $303,270 $841,294 $843,333
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . 52,269 47,189 134,198 139,864
Purchased Power. . . . . . . . . . . . 54,444 47,099 138,278 130,539
Other Operation. . . . . . . . . . . . 46,505 55,609 132,256 146,617
Maintenance. . . . . . . . . . . . . . 17,535 17,053 50,602 48,385
Depreciation . . . . . . . . . . . . . 22,784 22,072 67,800 65,829
Amortization of Zimmer Plant
Phase-in Costs . . . . . . . . . . . - 9,699 15,744 26,112
Taxes Other Than Federal Income Taxes. 29,861 29,985 89,484 86,180
Federal Income Taxes . . . . . . . . . 24,731 22,159 57,639 51,803
TOTAL OPERATING EXPENSES . . . 248,129 250,865 686,001 695,329
OPERATING INCOME . . . . . . . . . . . . 64,895 52,405 155,293 148,004
NONOPERATING INCOME (LOSS) . . . . . . . 658 1,164 2,018 (1,356)
INCOME BEFORE INTEREST CHARGES . . . . . 65,553 53,569 157,311 146,648
INTEREST CHARGES . . . . . . . . . . . . 20,065 18,810 59,069 59,267
NET INCOME . . . . . . . . . . . . . . . 45,488 34,759 98,242 87,381
PREFERRED STOCK DIVIDEND REQUIREMENTS. . 532 1,493 1,909 4,537
EARNINGS APPLICABLE TO COMMON STOCK. . . $ 44,956 $ 33,266 $ 96,333 $ 82,844
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands)
BALANCE AT BEGINNING OF PERIOD . . . . . $111,953 $ 86,019 $ 99,582 $ 74,320
NET INCOME . . . . . . . . . . . . . . . 45,488 34,759 98,242 87,381
DEDUCTIONS:
Cash Dividends Declared:
Common Stock . . . . . . . . . . . . 19,671 18,969 59,013 56,907
Cumulative Preferred Stock . . . . . 437 1,422 1,312 4,266
Capital Stock Expense. . . . . . . . . 95 71 261 212
BALANCE AT END OF PERIOD . . . . . . . . $137,238 $100,316 $137,238 $100,316
The common stock of the Company is wholly owned by American Electric Power Company, Inc.
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
September 30, December 31,
1997 1996
(in thousands)
ASSETS
<S> <C> <C>
ELECTRIC UTILITY PLANT:
Production . . . . . . . . . . . . . . . . . . . . . $1,512,032 $1,503,371
Transmission . . . . . . . . . . . . . . . . . . . . 332,834 326,247
Distribution . . . . . . . . . . . . . . . . . . . . 919,204 885,267
General. . . . . . . . . . . . . . . . . . . . . . . 130,887 130,946
Construction Work in Progress. . . . . . . . . . . . 61,196 54,062
Total Electric Utility Plant . . . . . . . . 2,956,153 2,899,893
Accumulated Depreciation . . . . . . . . . . . . . . 1,058,186 1,016,909
NET ELECTRIC UTILITY PLANT . . . . . . . . . 1,897,967 1,882,984
OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 34,652 24,069
CURRENT ASSETS:
Cash and Cash Equivalents. . . . . . . . . . . . . . 12,596 9,134
Accounts Receivable (net). . . . . . . . . . . . . . 115,789 63,003
Fuel . . . . . . . . . . . . . . . . . . . . . . . . 17,392 18,278
Materials and Supplies . . . . . . . . . . . . . . . 23,521 23,999
Accrued Utility Revenues . . . . . . . . . . . . . . 45,883 31,826
Prepayments. . . . . . . . . . . . . . . . . . . . . 27,061 32,330
TOTAL CURRENT ASSETS . . . . . . . . . . . . 242,242 178,570
REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 357,773 385,689
DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 21,950 70,274
TOTAL. . . . . . . . . . . . . . . . . . . $2,554,584 $2,541,586
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
September 30, December 31,
1997 1996
(in thousands)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
CAPITALIZATION:
Common Stock - No Par Value:
Authorized - 24,000,000 Shares
Outstanding - 16,410,426 Shares. . . . . . . . . . $ 41,026 $ 41,026
Paid-in Capital. . . . . . . . . . . . . . . . . . . 572,017 574,709
Retained Earnings. . . . . . . . . . . . . . . . . . 137,238 99,582
Total Common Shareholder's Equity. . . . . . 750,281 715,317
Cumulative Preferred Stock - Subject to
Mandatory Redemption . . . . . . . . . . . . . . . 25,000 25,000
Long-term Debt . . . . . . . . . . . . . . . . . . . 840,002 882,641
TOTAL CAPITALIZATION . . . . . . . . . . . . 1,615,283 1,622,958
OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 41,997 40,068
CURRENT LIABILITIES:
Preferred Stock Due Within One Year. . . . . . . . . - 50,000
Long-term Debt Due Within One Year . . . . . . . . . 96,390 14,640
Short-term Debt. . . . . . . . . . . . . . . . . . . 94,725 51,800
Accounts Payable . . . . . . . . . . . . . . . . . . 56,836 54,828
Taxes Accrued. . . . . . . . . . . . . . . . . . . . 78,784 129,429
Interest Accrued . . . . . . . . . . . . . . . . . . 26,312 13,605
Other. . . . . . . . . . . . . . . . . . . . . . . . 32,395 32,314
TOTAL CURRENT LIABILITIES. . . . . . . . . . 385,442 346,616
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 432,018 441,477
DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 54,396 57,101
DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 25,448 33,366
CONTINGENCIES (Note 4)
TOTAL. . . . . . . . . . . . . . . . . . . $2,554,584 $2,541,586
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
September 30,
1997 1996
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 98,242 $ 87,381
Adjustments for Noncash Items:
Depreciation . . . . . . . . . . . . . . . . . . . . . . 67,978 65,549
Deferred Federal Income Taxes. . . . . . . . . . . . . . (741) (9,777)
Deferred Investment Tax Credits. . . . . . . . . . . . . (2,705) (2,736)
Deferred Fuel Cost (net) . . . . . . . . . . . . . . . . (4,089) 6,032
Amortization of Zimmer Plant Operating Expenses and
Carrying Charges . . . . . . . . . . . . . . . . . . . 15,936 24,539
Amortization of Deferred Property Taxes. . . . . . . . . 48,601 45,673
Changes in Certain Current Assets and Liabilities:
Accounts Receivable (net). . . . . . . . . . . . . . . . (52,786) (14,750)
Fuel, Materials and Supplies . . . . . . . . . . . . . . 1,364 4,531
Accrued Utility Revenues . . . . . . . . . . . . . . . . (14,057) 10,821
Accounts Payable . . . . . . . . . . . . . . . . . . . . 2,008 1,638
Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (50,645) (40,527)
Interest Accrued . . . . . . . . . . . . . . . . . . . . 12,707 9,283
Other (net). . . . . . . . . . . . . . . . . . . . . . . . (4,477) 17,432
Net Cash Flows From Operating Activities . . . . . . 117,336 205,089
INVESTING ACTIVITIES:
Construction Expenditures. . . . . . . . . . . . . . . . . (82,696) (61,321)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,586 2,624
Net Cash Flows Used For Investing Activities . . . . (81,110) (58,697)
FINANCING ACTIVITIES:
Issuance of Long-term Debt . . . . . . . . . . . . . . . . 38,574 -
Change in Short-term Debt (net). . . . . . . . . . . . . . 42,925 24,750
Retirement of Cumulative Preferred Stock . . . . . . . . . (52,953) (7,500)
Retirement of Long-term Debt . . . . . . . . . . . . . . . - (99,053)
Dividends Paid on Common Stock . . . . . . . . . . . . . . (59,013) (56,907)
Dividends Paid on Cumulative Preferred Stock . . . . . . . (2,297) (4,443)
Net Cash Flows Used For Financing Activities . . . . (32,764) (143,153)
Net Increase in Cash and Cash Equivalents. . . . . . . . . . 3,462 3,239
Cash and Cash Equivalents at Beginning of Period . . . . . . 9,134 10,577
Cash and Cash Equivalents at End of Period . . . . . . . . . $ 12,596 $ 13,816
Supplemental Disclosure:
Cash paid for interest net of capitalized amounts was $43,341,000 and $47,124,000
and for income taxes was $50,609,000 and $46,943,000 in 1997 and 1996, respectively.
Noncash acquisitions under capital leases were $6,583,000 and $9,707,000 in 1997 and
1996, respectively.
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated financial
statements should be read in conjunction with the 1996
Annual Report as incorporated in and filed with the Form 10-K.
2. FINANCING ACTIVITIES
In January 1997 the Company terminated an agreement
under which $50 million of undivided interests in designated
pools of accounts receivable and accrued utility revenues
were sold with limited recourse.
In March 1997 the Company redeemed the entire 500,000
shares outstanding of its 7-7/8% Series of Cumulative
Preferred Stock, par value $100, at the regular redemption
price of $105.25 per share and issued $40 million of 7.92%
Junior Subordinated Deferrable Interest Debentures due in
2027.
In October 1997 the Company issued $48 million of 6.85%
Unsecured Medium Term Notes due 2005. Also the Company
redeemed the entire $14.6 million outstanding balance of 6-1/4% First
Mortgage Bonds due in 1997.
3. ZIMMER PHASE-IN PLAN
In June 1997 the Company completed recovery of its
Zimmer Plant phase-in plan deferrals through the cessation
of a 3.39% temporary surcharge. The temporary surcharge was
placed into effect on February 1, 1994 to allow recovery of
a rate phase-in deferral of $93.9 million. The amount of
net phase-in deferrals that were collected through the
surcharge was $18.5 million in 1994, $28.5 million in 1995,
$31.5 million in 1996 and $15.4 million in 1997. The
cessation of the surcharge recovery of amounts deferred
under the phase-in plan did not affect net income since the
deferred costs were amortized commensurate with their
recovery. For other information regarding the Zimmer rate
case refer to the 1996 Annual Report - Notes to Consolidated
Financial Statements - Note 2.
4. CONTINGENCIES
Taxes
As discussed in Note 8, "Federal Income Taxes" of the
Notes to Consolidated Financial Statements in the 1996
Annual Report, the Internal Revenue Service (IRS) agents
auditing the AEP System's consolidated federal income tax
returns for the years 1991 through 1993 requested a ruling
from their National Office as to whether certain interest
deductions relating to corporate owned life insurance (COLI)
should be disallowed. The COLI program was established in
1990 as part of the Company's strategy to fund and reduce
the cost of medical benefits for retired employees. AEP
filed a brief with the IRS National Office defending the
subject deductions. Although no disallowance has been
proposed, a disallowance of COLI interest deductions through
September 30, 1997 would reduce earnings by approximately
$38 million inclusive of interest. Management believes it
will ultimately prevail on this issue and will vigorously
contest any disallowance that may be proposed.
Revised Air Quality Standards
On July 18, 1997, the United States Environmental
Protection Agency published a revised National Ambient Air
Quality Standard (NAAQS) for ozone and a new NAAQS for fine
particulate matter (less than 2.5 microns in size). The new
ozone standard is expected to result in redesignation of a
number of areas of the country that are currently in
compliance with the existing standard to nonattainment
status which could ultimately dictate more stringent
emission restrictions for AEP System generating units. New
stringent emission restrictions on AEP System generating
units to achieve attainment of the fine particulate matter
standard could also be imposed. The AEP System operating
companies joined with other utilities to appeal the revised
NAAQS and filed petitions for review in August and September
1997 in the U.S. Court of Appeals for the District of
Columbia Circuit.
Management is unable to estimate compliance costs
without knowledge of the reductions that may be necessary to
meet the new standards. If such costs are significant, it
could have a material adverse effect on results of
operations and possibly financial condition unless such
costs are recovered.
Other
The Company continues to be involved in certain other
matters discussed in its 1996 Annual Report.
<PAGE>
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
THIRD QUARTER 1997 vs. THIRD QUARTER 1996
AND
YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996
Net income increased $10.7 million or 31% for the third
quarter of 1997 due to an increase in wholesale sales and a
decrease in operating expenses. Year-to-date net income
increased $10.9 million or 12% as a result of a reduction in
operating expenses and an increase in non-operating income.
Operating revenues increased 3% for the third quarter and
were flat for the year-to-date period. The third quarter
increase was primarily due to increased wholesale revenues
partially offset by decreased retail revenues. In the year-to-date period the
increase in wholesale revenues was offset by a
decline in retail revenues. The reduction in retail revenues
resulted from the cessation in June 1997 business of a revenue
surcharge in connection with the recovery of phase-in deferrals
relating to the Zimmer Plant and reduced fuel clause revenues
reflecting the refund of previously over collected fuel costs.
Under the Public Utilities Commission of Ohio fuel clause
adjustment mechanism, over recoveries of fuel costs are deferred
as a regulatory liability and subsequently refunded to customers
as a reduction to fuel clause revenues. The cessation of the
Zimmer revenue surcharge and the refund of previously over
collected fuel costs did not affect net income since it was
commensurate with the amortization of regulatory costs and
liabilities, respectively.
Revenues from wholesale customers increased 64% on a 70%
increase in sales for the third quarter and increased 23% on a
33% sales increase for the year-to-date period. New power
marketing transactions and increased coal conversion service
sales, which are for the conversion of customers' coal to
electricity, accounted for the increase in wholesale sales. The
new power marketing transactions involve the purchase and sale of
electricity outside of the AEP transmission system.
<PAGE>
Income statement lines which changed significantly were:
Increase (Decrease)
Third Quarter Year-to-Date
(in millions) % (in millions) %
Fuel Expense. . . . . . . . $ 5.1 11 $ (5.7) (4)
Purchased Power Expense . . 7.3 16 7.7 6
Other Operation Expense . . (9.1) (16) (14.4) (10)
Amortization of Zimmer
Plant Phase-in Costs. . . (9.7) N.M. (10.4) (40)
Federal Income Taxes. . . . 2.6 12 5.8 11
Nonoperating Income . . . . (0.5) (43) 3.4 N.M.
N.M. = Not Meaningful
The increase in fuel expense for the quarter was due to an
increase in generation reflecting the increase in demand for
electricity. The decline in fuel expense on a year-to-date
basis was due to the operation of the fuel clause adjustment
mechanism which credited fuel expenses in the current period with
the amortization of previously over collected fuel costs deferred
as a regulatory liability in the prior period.
Purchased power expense increased primarily as a result of
the new power marketing transactions.
The decrease in other operation expense was mainly due to
the recognition of deferred gains on the sale of emission
allowances, commensurate with a reduction of customers bills
through the fuel clause adjustment mechanism, and a decline in
employee pensions and benefits expense.
The reduction in the amortization of deferred Zimmer Plant
phase-in costs reflects the completion of the amortization. The
reduction does not affect net income since the amortization was
being fully recovered in revenues through a surcharge which was
terminated when the amortization was completed.
Federal income taxes attributable to operations increased
primarily due to an increase in pre-tax operating income partly
offset in the quarter by changes in certain book/tax differences
accounted for on a flow-through basis for rate-making and
financial reporting purposes.
The decrease in nonoperating income for the third quarter
was due to the cessation of deferred Zimmer Plant carrying
charges as a result of the completion of the amortization and
surcharge recovery of the deferred Zimmer Plant phase-in revenues
in June 1997. As a result net income was unaffected.
Nonoperating income for the year-to-date period increased due to
the effect of losses recorded in the first quarter of 1996 from
certain deferred demand side management program costs and the
clean-up of underground fuel storage tanks at one of the
Company's facilities.
<PAGE>
<PAGE>
<TABLE>
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . $362,058 $339,847 $1,023,879 $993,224
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . 62,275 59,546 176,051 176,101
Purchased Power. . . . . . . . . . . . 54,043 33,887 124,216 103,203
Other Operation. . . . . . . . . . . . 80,399 74,853 240,310 232,349
Maintenance. . . . . . . . . . . . . . 29,408 28,269 85,103 84,818
Depreciation and Amortization. . . . . 35,271 35,193 105,395 105,171
Amortization of Rockport Plant Unit 1
Phase-in Plan Deferrals. . . . . . . 2,999 3,911 10,821 11,733
Taxes Other Than Federal Income Taxes. 15,781 19,823 49,657 58,184
Federal Income Taxes . . . . . . . . . 21,433 23,242 61,843 57,094
TOTAL OPERATING EXPENSES . . . 301,609 278,724 853,396 828,653
OPERATING INCOME . . . . . . . . . . . . 60,449 61,123 170,483 164,571
NONOPERATING INCOME (LOSS) . . . . . . . 499 (255) 1,464 (620)
INCOME BEFORE INTEREST CHARGES . . . . . 60,948 60,868 171,947 163,951
INTEREST CHARGES . . . . . . . . . . . . 15,857 16,322 48,689 50,131
NET INCOME . . . . . . . . . . . . . . . 45,091 44,546 123,258 113,820
PREFERRED STOCK DIVIDEND REQUIREMENTS. . 1,219 2,406 4,544 8,264
EARNINGS APPLICABLE TO COMMON STOCK. . . $ 43,872 $ 42,140 $ 118,714 $105,556
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands)
BALANCE AT BEGINNING OF PERIOD . . . . . $285,783 $242,269 $269,071 $235,107
NET INCOME . . . . . . . . . . . . . . . 45,091 44,546 123,258 113,820
DEDUCTIONS:
Cash Dividends Declared:
Common Stock . . . . . . . . . . . . 44,066 28,127 102,196 84,381
Cumulative Preferred Stock . . . . . 1,186 2,359 3,573 7,608
Capital Stock Expense. . . . . . . . . 33 47 971 656
BALANCE AT END OF PERIOD . . . . . . . . $285,589 $256,282 $285,589 $256,282
The common stock of the Company is wholly owned
by American Electric Power Company, Inc.
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
September 30, December 31,
1997 1996
(in thousands)
ASSETS
<S> <C> <C>
ELECTRIC UTILITY PLANT:
Production . . . . . . . . . . . . . . . . . . . . . $2,536,799 $2,525,969
Transmission . . . . . . . . . . . . . . . . . . . . 884,842 881,407
Distribution . . . . . . . . . . . . . . . . . . . . 717,222 696,069
General (including nuclear fuel) . . . . . . . . . . 209,412 189,619
Construction Work in Progress. . . . . . . . . . . . 107,721 84,605
Total Electric Utility Plant . . . . . . . . 4,455,996 4,377,669
Accumulated Depreciation and Amortization. . . . . . 1,947,158 1,861,893
NET ELECTRIC UTILITY PLANT . . . . . . . . . 2,508,838 2,515,776
NUCLEAR DECOMMISSIONING AND SPENT NUCLEAR FUEL
DISPOSAL TRUST FUNDS. . . . . . . . . . . . . . . . . 548,614 490,778
OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 166,324 154,265
CURRENT ASSETS:
Cash and Cash Equivalents. . . . . . . . . . . . . . 8,275 8,233
Accounts Receivable. . . . . . . . . . . . . . . . . 119,700 125,822
Allowance For Uncollectible Accounts . . . . . . . . (1,063) (156)
Fuel . . . . . . . . . . . . . . . . . . . . . . . . 18,865 23,977
Materials and Supplies . . . . . . . . . . . . . . . 73,481 77,074
Accrued Utility Revenues . . . . . . . . . . . . . . 31,011 38,295
Prepayments. . . . . . . . . . . . . . . . . . . . . 4,904 10,271
TOTAL CURRENT ASSETS . . . . . . . . . . . . 255,173 283,516
REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 406,214 421,692
DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 22,754 31,457
TOTAL. . . . . . . . . . . . . . . . . . . $3,907,917 $3,897,484
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
September 30, December 31,
1997 1996
(in thousands)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
CAPITALIZATION:
Common Stock - No Par Value:
Authorized - 2,500,000 Shares
Outstanding - 1,400,000 Shares . . . . . . . . . . $ 56,584 $ 56,584
Paid-in Capital. . . . . . . . . . . . . . . . . . . 732,439 731,272
Retained Earnings. . . . . . . . . . . . . . . . . . 285,589 269,071
Total Common Shareholder's Equity. . . . . . 1,074,612 1,056,927
Cumulative Preferred Stock:
Not Subject to Mandatory Redemption. . . . . . . . 9,499 21,977
Subject to Mandatory Redemption. . . . . . . . . . 68,445 135,000
Long-term Debt . . . . . . . . . . . . . . . . . . . 1,012,162 1,042,104
TOTAL CAPITALIZATION . . . . . . . . . . . . 2,164,718 2,256,008
OTHER NONCURRENT LIABILITIES:
Nuclear Decommissioning. . . . . . . . . . . . . . . 363,296 313,845
Other. . . . . . . . . . . . . . . . . . . . . . . . 208,440 174,903
TOTAL OTHER NONCURRENT LIABILITIES . . . . . 571,736 488,748
CURRENT LIABILITIES:
Long-term Debt Due Within One Year . . . . . . . . . 35,000 -
Short-term Debt. . . . . . . . . . . . . . . . . . . 57,850 43,500
Accounts Payable . . . . . . . . . . . . . . . . . . 25,430 61,892
Taxes Accrued. . . . . . . . . . . . . . . . . . . . 51,785 65,400
Interest Accrued . . . . . . . . . . . . . . . . . . 17,337 15,281
Rent Accrued - Rockport Plant Unit 2 . . . . . . . . 23,427 4,963
Obligations Under Capital Leases . . . . . . . . . . 32,891 29,740
Dividends Declared . . . . . . . . . . . . . . . . . 16,185 2,359
Other. . . . . . . . . . . . . . . . . . . . . . . . 65,231 59,114
TOTAL CURRENT LIABILITIES. . . . . . . . . . 325,136 282,249
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 575,529 594,879
DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 140,567 146,473
DEFERRED GAIN ON SALE AND LEASEBACK -
ROCKPORT PLANT UNIT 2. . . . . . . . . . . . . . . . 93,346 96,125
DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 36,885 33,002
CONTINGENCIES (Note 4)
TOTAL. . . . . . . . . . . . . . . . . . . $3,907,917 $3,897,484
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
September 30,
1997 1996
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 123,258 $ 113,820
Adjustments for Noncash Items:
Depreciation and Amortization. . . . . . . . . . . . . . 111,176 110,934
Amortization of Rockport Plant Unit 1
Phase-in Plan Deferrals. . . . . . . . . . . . . . . . 10,821 11,733
Deferred Federal Income Taxes. . . . . . . . . . . . . . (9,753) (19,438)
Deferred Investment Tax Credits. . . . . . . . . . . . . (5,906) (5,945)
Changes in Certain Current Assets and Liabilities:
Accounts Receivable (net). . . . . . . . . . . . . . . . 7,029 (10,422)
Fuel, Materials and Supplies . . . . . . . . . . . . . . 8,705 (49)
Accrued Utility Revenues . . . . . . . . . . . . . . . . 7,284 13,590
Accounts Payable . . . . . . . . . . . . . . . . . . . . (36,462) (25,712)
Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (13,615) (6,798)
Rent Accrued - Rockport Plant Unit 2 . . . . . . . . . . 18,464 18,464
Other (net). . . . . . . . . . . . . . . . . . . . . . . . 15,010 31,674
Net Cash Flows From Operating Activities . . . . . . 236,011 231,851
INVESTING ACTIVITIES:
Construction Expenditures. . . . . . . . . . . . . . . . . (79,066) (58,283)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,798 979
Net Cash Flows Used For Investing Activities . . . . (77,268) (57,304)
FINANCING ACTIVITIES:
Issuance of Long-term Debt . . . . . . . . . . . . . . . . 47,728 38,579
Retirement of Cumulative Preferred Stock . . . . . . . . . (78,838) (30,568)
Retirement of Long-term Debt . . . . . . . . . . . . . . . (50,000) (46,091)
Change in Short-term Debt (net). . . . . . . . . . . . . . 14,350 (49,550)
Dividends Paid on Common Stock . . . . . . . . . . . . . . (87,195) (84,381)
Dividends Paid on Cumulative Preferred Stock . . . . . . . (4,746) (8,139)
Net Cash Flows Used For Financing Activities . . . . (158,701) (180,150)
Net Increase (Decrease) in Cash and Cash Equivalents . . . . 42 (5,603)
Cash and Cash Equivalents at Beginning of Period . . . . . . 8,233 13,723
Cash and Cash Equivalents at End of Period . . . . . . . . . $ 8,275 $ 8,120
Supplemental Disclosure:
Cash paid for interest net of capitalized amounts was $44,575,000 and $45,635,000
and for income taxes was $83,580,000 and $87,746,000 in 1997 and 1996, respectively.
Noncash acquisitions under capital leases were $80,231,000 and $44,848,000 in 1997
and 1996, respectively.
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated financial
statements should be read in conjunction with the 1996
Annual Report as incorporated in and filed with the Form 10-K. Certain
prior-period amounts have been reclassified to
conform to current-period presentation.
2. FINANCING ACTIVITIES
In February 1997, the Company issued $48 million of
6.40% First Mortgage Bonds due 2000. In May 1997, the
Company redeemed $50 million of 8.75% First Mortgage Bonds
due 2022.
In March 1997, the Company, as part of a tender offer,
reacquired and retired the following shares of Cumulative
Preferred Stock at the prices listed plus an amount equal to
accrued dividends:
Number Price Total
of Shares Paid Per Reacquisition
Series Retired Share Price
(in thousands)
4.12% 20,669 $ 64.17 $ 1,326
4-1/8% 59,325 62.31 3,697
4.56% 28,525 69.94 1,995
5.90% 233,000 101.83 23,726
6-1/4% 97,500 103.79 10,120
6.30% 217,550 103.71 22,562
6-7/8% 117,500 106.45 12,508
3. NUCLEAR DECOMMISSIONING AND RATE PHASE-IN PLANS
Decommissioning and Low Level Waste Accumulation Disposal
Costs
A 1997 nuclear decommissioning study has been
completed. The estimated cost of decommissioning at the
Company's Donald C. Cook Nuclear Plant ranges from $700
million to $1,152 million in 1997 nondiscounted dollars.
The previous estimated costs including low level radioactive
waste accumulation disposal ranged from $634 million to $988
million in 1993 nondiscounted dollars. See Note 3
"Commitments and Contingencies" of the Notes to Consolidated
Financial Statements in the 1996 Annual Report for further
discussion of decommissioning.
Rate Phase-in Plans
A rate phase-in plan in the Indiana jurisdiction
provides for the recovery and straight-line amortization of
deferred Rockport Plant Unit 1 costs over ten years
beginning in August 1987. In August 1997 the amortization
of the deferred Rockport Plant Unit 1 Phase-in Plan costs
attributable to the Indiana jurisdiction was completed. In
an effort to accelerate the recovery of the Cook Nuclear
Plant's decommissioning cost, on September 9, 1997 the
Company filed a petition with the Indiana Utility Regulatory
Commission requesting authority to increase accrual of its
nuclear decommissioning expense in an amount equal to the
expired Rockport Plant Unit 1 Phase-in Plan amortization
expense, with no effect on customers' rates and net income.
The matter is pending.
4. COMMITMENTS AND CONTINGENCIES
Taxes
As discussed in Note 7, "Federal Income Taxes" of the
Notes to Consolidated Financial Statements in the 1996
Annual Report, the Internal Revenue Service (IRS) agents
auditing the AEP System's consolidated federal income tax
returns for the years 1991 through 1993 requested a ruling
from their National Office as to whether certain interest
deductions relating to corporate owned life insurance (COLI)
claimed on Federal income tax returns should be disallowed.
The COLI program was established in 1990 as part of the
Company's strategy to fund and reduce the cost of medical
benefits for retired employees. AEP filed a brief with the
IRS National Office defending the subject deductions.
Although no disallowance has been proposed, a disallowance
of the COLI interest deductions through September 30, 1997
would reduce earnings by approximately $57 million inclusive
of interest. Management believes it will ultimately prevail
on this issue and will vigorously contest any disallowance
that may be proposed.
Revised Air Quality Standards
On July 18, 1997, the United States Environmental
Protection Agency published a revised National Ambient Air
Quality Standard (NAAQS) for ozone and a new NAAQS for fine
particulate matter (less than 2.5 microns in size). The new
ozone standard is expected to result in redesignation of a
number of areas of the country that are currently in
compliance with the existing standard to nonattainment
status which could ultimately dictate more stringent
emission restrictions for AEP System generating units. New
stringent emission restrictions on AEP System generating
units to achieve attainment of the fine particulate matter
standard could also be imposed. The AEP System operating
companies joined with other utilities to appeal the revised
NAAQS and filed petitions for review in August and September
1997 in the U.S. Court of Appeals for the District of
Columbia Circuit.
Management is unable to estimate compliance costs
without knowledge of the reductions that may be necessary to
meet the new standards. If such costs are significant, it
could have a material adverse effect on results of
operations and possibly financial condition unless such
costs are recovered.
Cook Plant Shutdown
On September 9 and 10, 1997, during a Nuclear Regulatory
Commission (NRC) architect engineer design inspection,
questions regarding the operability of certain safety
systems caused Company operations personnel to shut down
Units 1 and 2 of the Cook Nuclear Plant. On September 19,
1997, the NRC issued a Confirmatory Action Letter requiring
the Company to address certain issues identified in the
letter. The Company is working with the NRC to resolve this
matter. At this time management is unable to determine when
the units will be returned to service. If the units are not
returned to service in a timely manner, it could have an
adverse impact on results of operations and possibly
financial condition.
<PAGE>
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
THIRD QUARTER 1997 vs. THIRD QUARTER 1996
AND
YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996
RESULTS OF OPERATIONS
Net income increased slightly for the quarter and increased
8% or $9.4 million for the year-to-date period due primarily to
increased revenues and a reduction in taxes other than federal
income taxes.
Income statement line items which changed significantly
were:
Increase (Decrease)
Third Quarter Year-to-Date
(in millions) % (in millions) %
Operating Revenues . . . . . $22.2 7 $30.7 3
Fuel Expense . . . . . . . . 2.7 5 (.1) -
Purchased Power Expense. . . 20.2 59 21.0 20
Other Operation Expense. . . 5.5 7 8.0 3
Taxes Other Than Federal
Income Taxes. . . . . . . . (4.0) (20) (8.5) (15)
Federal Income Taxes . . . . (1.8) (8) 4.7 8
Operating revenues increased for both periods due
predominantly to an increase in sales to wholesale customers
largely as a result of new power marketing transactions which
began in July 1997. The new power marketing transactions involve
the purchase and sale of electricity outside of AEP's
transmission system. The increase in wholesale sales for the
year-to-date period is also due to increased coal conversion and
transmission services. The increase for the year-to-date period
can be attributed to an increase in retail revenues reflecting an
increase in revenues under a fuel cost recovery mechanism and an
increase in sales to industrial customers due to increased usage.
Under the fuel cost recovery mechanism, fuel and purchased power
costs not reflected in rates are deferred for future recovery.
Fuel expense increased for the quarter due to increased
utilization of higher cost coal-fired generation due to reduced
nuclear generation. The Donald C. Cook Nuclear Plant (Cook
Nuclear Plant) Units 1 and 2 were taken out of service in early
September to resolve concerns regarding the documentation of
safety systems. See discussion below of Cook Plant Shutdown.
Cook Nuclear Plant Unit 2 began a refueling, inspection and
general maintenance process on October 13, 1997.
The increase in purchased power expense for both periods was
the result of the new power marketing transactions and additional
energy purchases from the Power Pool due to the unavailability of
the nuclear units.
Other operation expense increased for both periods as a
result of the effect of recording a gain in 1996 on the
disposition of emission allowances and, for the year-to-date
period, increased administrative and general expenses and
uncollectible accounts receivable expense.
The decrease in taxes other than federal income taxes for
both periods was the result of lower Indiana and Michigan real
and personal property tax accruals.
Federal income taxes attributable to operations decreased
for the quarter due to changes in certain book/tax differences
accounted for on a flow-through basis for rate-making and
financial reporting purposes. The increase in federal income
taxes for the year-to-date period resulted from an increase in
pre-tax operating income.
FINANCIAL CONDITION
Total plant and property additions including capital leases
for the year-to-date period were $160 million. During the first
nine months of 1997 short-term debt outstanding increased by $14
million.
In February 1997 the Company issued $48 million of 6.40%
First Mortage Bonds due in 2000. In May 1997 the Company
redeemed $50 million of 8.75% First Mortgage Bonds due in 2022.
As part of a January 1997 tender offer for all of the
Company's outstanding preferred stock, 774,069 shares of $100 par
value preferred stock were reacquired. The total cost of the
stock reacquisition was $78 million. At a special meeting of
shareholders held on February 28, 1997, the Company's articles of
incorporation were amended to remove certain capitalization ratio
requirements which restricted the Company's ability to issue
unsecured debt. As a result, unsecured borrowings are now
limited only by the Public Utility Holding Company Act of 1935
with the current limitation set at $175 million for unsecured
short-term borrowings.
REVISED AIR QUALITY STANDARDS
On July 18, 1997, the United States Environmental Protection
Agency published a revised National Ambient Air Quality Standard
(NAAQS) for ozone and a new NAAQS for fine particulate matter
(less than 2.5 microns in size). The new ozone standard is
expected to result in redesignation of a number of areas of the
country that are currently in compliance with the existing
standard to nonattainment status which could ultimately dictate
more stringent emission restrictions for AEP System generating
units. New stringent emission restrictions on AEP System
generating units to achieve attainment of the fine particulate
matter standard could also be imposed. The AEP System operating
companies joined with other utilities to appeal the revised NAAQS
and filed petitions for review in August and September 1997 in
the U.S. Court of Appeals for the District of Columbia Circuit.
Management is unable to estimate compliance costs without
knowledge of the reductions that may be necessary to meet the new
standards. If such costs are significant, it could have a
material adverse effect on results of operations and possibly
financial condition unless such costs are recovered.
COOK PLANT SHUTDOWN
On September 9 and 10, 1997, during a Nuclear Regulatory
Commission (NRC) architect engineer design inspection, questions
regarding the operability of certain safety systems caused
Company operations personnel to shut down Units 1 and 2 of the
Cook Nuclear Plant. On September 19, 1997, the NRC issued a
Confirmatory Action Letter requiring the Company to address
certain issues identified in the letter. The Company is working
with the NRC to resolve this matter. At this time management is
unable to determine when the units will be returned to service.
If the units are not returned to service in a timely manner, it
could have an adverse impact on results of operations and
possibly financial condition.
<PAGE>
<PAGE>
<TABLE>
KENTUCKY POWER COMPANY
STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . $89,791 $78,499 $256,472 $245,818
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . . 20,020 16,821 58,647 58,611
Purchased Power. . . . . . . . . . . . . 28,632 23,643 73,775 68,264
Other Operation. . . . . . . . . . . . . 13,241 9,774 37,130 34,104
Maintenance. . . . . . . . . . . . . . . 6,148 7,485 16,826 22,839
Depreciation and Amortization. . . . . . 6,649 6,288 19,708 18,809
Taxes Other Than Federal Income Taxes. . 2,427 2,246 7,266 6,364
Federal Income Taxes . . . . . . . . . . 1,837 1,849 7,614 4,975
TOTAL OPERATING EXPENSES. . . . . 78,954 68,106 220,966 213,966
OPERATING INCOME . . . . . . . . . . . . . 10,837 10,393 35,506 31,852
NONOPERATING LOSS. . . . . . . . . . . . . (62) (97) (351) (526)
INCOME BEFORE INTEREST CHARGES . . . . . . 10,775 10,296 35,155 31,326
INTEREST CHARGES . . . . . . . . . . . . . 6,323 5,855 18,431 17,760
NET INCOME . . . . . . . . . . . . . . . . $ 4,452 $ 4,441 $ 16,724 $ 13,566
STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands)
BALANCE AT BEGINNING OF PERIOD . . . . . . $82,982 $88,374 $84,090 $91,381
NET INCOME . . . . . . . . . . . . . . . . 4,452 4,441 16,724 13,566
CASH DIVIDENDS DECLARED. . . . . . . . . . 6,690 6,066 20,070 18,198
BALANCE AT END OF PERIOD . . . . . . . . . $80,744 $86,749 $80,744 $86,749
The common stock of the Company is wholly owned by
American Electric Power Company, Inc.
See Notes to Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
KENTUCKY POWER COMPANY
BALANCE SHEETS
(UNAUDITED)
<CAPTION>
September 30, December 31,
1997 1996
(in thousands)
ASSETS
<S> <C> <C>
ELECTRIC UTILITY PLANT:
Production . . . . . . . . . . . . . . . . . . . . . $247,665 $244,805
Transmission . . . . . . . . . . . . . . . . . . . . 267,281 264,563
Distribution . . . . . . . . . . . . . . . . . . . . 337,797 329,184
General. . . . . . . . . . . . . . . . . . . . . . . 67,187 64,650
Construction Work in Progress. . . . . . . . . . . . 63,959 48,400
Total Electric Utility Plant . . . . . . . . 983,889 951,602
Accumulated Depreciation and Amortization. . . . . . 292,629 286,640
NET ELECTRIC UTILITY PLANT . . . . . . . . . 691,260 664,962
OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 6,434 6,452
CURRENT ASSETS:
Cash and Cash Equivalents. . . . . . . . . . . . . . 1,477 1,106
Accounts Receivable. . . . . . . . . . . . . . . . . 29,158 28,589
Allowance for Uncollectible Accounts . . . . . . . . (536) (272)
Fuel . . . . . . . . . . . . . . . . . . . . . . . . 9,492 9,244
Materials and Supplies . . . . . . . . . . . . . . . 13,040 13,175
Accrued Utility Revenues . . . . . . . . . . . . . . 6,463 8,175
Prepayments. . . . . . . . . . . . . . . . . . . . . 1,809 2,011
TOTAL CURRENT ASSETS . . . . . . . . . . . . 60,903 62,028
REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 89,808 88,776
DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 6,903 11,361
TOTAL. . . . . . . . . . . . . . . . . . . $855,308 $833,579
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
KENTUCKY POWER COMPANY
BALANCE SHEETS
(UNAUDITED)
<CAPTION>
September 30, December 31,
1997 1996
(in thousands)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
CAPITALIZATION:
Common Stock - $50 Par Value:
Authorized - 2,000,000 Shares
Outstanding - 1,009,000 Shares . . . . . . . . . . $ 50,450 $ 50,450
Paid-in Capital. . . . . . . . . . . . . . . . . . . 118,750 108,750
Retained Earnings. . . . . . . . . . . . . . . . . . 80,744 84,090
Total Common Shareholder's Equity. . . . . . 249,944 243,290
First Mortgage Bonds . . . . . . . . . . . . . . . . 179,384 179,305
Notes Payable. . . . . . . . . . . . . . . . . . . . 75,000 75,000
Subordinated Debentures. . . . . . . . . . . . . . . 38,923 38,893
TOTAL CAPITALIZATION . . . . . . . . . . . . 543,251 536,488
OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 22,191 19,467
CURRENT LIABILITIES:
Short-term Debt. . . . . . . . . . . . . . . . . . . 71,450 51,675
Accounts Payable . . . . . . . . . . . . . . . . . . 22,017 31,057
Customer Deposits. . . . . . . . . . . . . . . . . . 3,580 3,409
Taxes Accrued. . . . . . . . . . . . . . . . . . . . 3,827 5,064
Interest Accrued . . . . . . . . . . . . . . . . . . 6,442 5,217
Other. . . . . . . . . . . . . . . . . . . . . . . . 11,388 9,199
TOTAL CURRENT LIABILITIES. . . . . . . . . . 118,704 105,621
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 154,003 153,538
DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 16,083 17,007
DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 1,076 1,458
CONTINGENCIES (Note 4)
TOTAL. . . . . . . . . . . . . . . . . . . $855,308 $833,579
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
KENTUCKY POWER COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
September 30,
1997 1996
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 16,724 $ 13,566
Adjustments for Noncash Items:
Depreciation and Amortization. . . . . . . . . . . . . . 19,718 18,864
Deferred Federal Income Taxes. . . . . . . . . . . . . . 163 (16)
Deferred Investment Tax Credits. . . . . . . . . . . . . (924) (933)
Amortization of Deferred Property Taxes. . . . . . . . . 3,690 3,528
Changes in Certain Current Assets and Liabilities:
Accounts Receivable (net). . . . . . . . . . . . . . . . (305) (1,716)
Fuel, Materials and Supplies . . . . . . . . . . . . . . (113) (1,087)
Accrued Utility Revenues . . . . . . . . . . . . . . . . 1,712 8,441
Accounts Payable . . . . . . . . . . . . . . . . . . . . (9,040) (6,982)
Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (1,237) 1,232
Other (net). . . . . . . . . . . . . . . . . . . . . . . . 5,301 5,520
Net Cash Flows From Operating Activities . . . . . . 35,689 40,417
INVESTING ACTIVITIES:
Construction Expenditures. . . . . . . . . . . . . . . . . (45,023) (38,561)
Proceeds from Sales of Property. . . . . . . . . . . . . . - 250
Net Cash Flows Used For Investing Activities . . . . (45,023) (38,311)
FINANCING ACTIVITIES:
Capital Contributions from Parent Company. . . . . . . . . 10,000 10,000
Issuance of Long-term Debt . . . . . . . . . . . . . . . . - 74,985
Change in Short-term Debt (net). . . . . . . . . . . . . . 19,775 6,200
Retirement of Long-term Debt . . . . . . . . . . . . . . . - (74,737)
Dividends Paid . . . . . . . . . . . . . . . . . . . . . . (20,070) (18,198)
Net Cash Flows From (Used For) Financing Activities. 9,705 (1,750)
Net Increase in Cash and Cash Equivalents. . . . . . . . . . 371 356
Cash and Cash Equivalents at Beginning of Period . . . . . . 1,106 1,031
Cash and Cash Equivalents at End of Period . . . . . . . . . $ 1,477 $ 1,387
Supplemental Disclosure:
Cash paid for interest net of capitalized amounts was $16,950,000 and $16,920,000
and for income taxes was $8,115,000 and $4,585,000 in 1997 and 1996, respectively.
Noncash acquisitions under capital leases were $3,571,000 and $4,571,000 in 1997
and 1996, respectively.
See Notes to Financial Statements.
</TABLE>
<PAGE>
KENTUCKY POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. GENERAL
The accompanying unaudited financial statements should
be read in conjunction with the 1996 Annual Report as
incorporated in and filed with the Form 10-K.
2. FINANCING ACTIVITIES
The Company received from its parent a cash capital
contribution of $10 million in June 1997 which was credited
to paid-in capital. In October 1997 the Company issued $48
million of Unsecured Medium Term Notes at 6.91% due 2007.
3. RATE MATTERS
In a May 27, 1997 order the Kentucky Public Service
Commission (KPSC) approved the Company's request for a
monthly surcharge to recover environmental compliance costs.
The surcharge was applied to bills rendered on and after
July 7, 1997. However, as part of the May 27, 1997 order
the KPSC directed the Company to refund to ratepayers the
emission allowance sale proceeds, through a reduction of the
first twelve months of environmental surcharge revenues.
Management believes the KPSC's order unlawfully requires the
Company to refund the allowance sale proceeds and is
pursuing a favorable resolution of this matter through the
appeals process. The Company believes, based on written
advice of outside counsel, that it is probable it will
prevail on appeal. No provision for loss has been recorded.
At September 30, 1997 the effect on net income should the
Company not prevail is $1.7 million ($1.1 million after
tax).
4. CONTINGENCIES
Taxes
As discussed in Note 7, "Federal Income Taxes" of the
Notes to Financial Statements in the 1996 Annual Report, the
Internal Revenue Service (IRS) agents auditing the AEP
System's consolidated federal income tax returns for the
years 1991 through 1993 requested a ruling from their
National Office as to whether certain interest deductions
relating to corporate owned life insurance (COLI) claimed by
the Company for 1992 and 1993 should be disallowed. The
COLI program was established in 1992 as part of the
Company's strategy to fund and reduce the cost of medical
benefits for retired employees. AEP filed a brief with the
IRS National Office defending the subject deductions.
Although no disallowance has been proposed, a disallowance
of COLI interest deductions through September 30, 1997 would
reduce earnings by approximately $6 million inclusive of
interest. Management believes it will ultimately prevail on
this issue and will vigorously contest any disallowance that
may be proposed.
Revised Air Quality Standards
On July 18, 1997, the United States Environmental
Protection Agency published a revised National Ambient Air
Quality Standard (NAAQS) for ozone and a new NAAQS for fine
particulate matter (less than 2.5 microns in size). The new
ozone standard is expected to result in redesignation of a
number of areas of the country that are currently in
compliance with the existing standard to nonattainment
status which could ultimately dictate more stringent
emission restrictions for AEP System generating units. New
stringent emission restrictions on AEP System generating
units to achieve attainment of the fine particulate matter
standard could also be imposed. The AEP System operating
companies joined with other utilities to appeal the revised
NAAQS and filed petitions for review in August and September
1997 in the U.S. Court of Appeals for the District of
Columbia Circuit.
Management is unable to estimate compliance costs
without knowledge of the reductions that may be necessary to
meet the new standards. If such costs are significant, it
could have a material adverse effect on results of
operations and possibly financial condition unless such
costs are recovered.
Other
The Company continues to be involved in certain other
matters discussed in its 1996 Annual Report.
<PAGE>
KENTUCKY POWER COMPANY
MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
THIRD QUARTER 1997 vs. THIRD QUARTER 1996
AND
YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996
Net income remained relatively unchanged for the quarter and
increased $3.2 million or 23% for the year-to-date period. The
increase in net income for the year-to-date period is
attributable to an increase in wholesale revenues and a decrease
in maintenance expense.
Income statement items that changed significantly were:
Increase (Decrease)
Third Quarter Year-to-Date
(in millions) % (in millions) %
Operating Revenues. . . . . $11.3 14 $10.7 4
Fuel Expense. . . . . . . . 3.2 19 - -
Purchased Power Expense . . 5.0 21 5.5 8
Other Operation Expense . . 3.5 35 3.0 9
Maintenance Expense . . . . (1.3) (18) (6.0) (26)
Taxes Other Than Federal
Income Taxes. . . . . . . 0.2 8 0.9 14
Federal Income Taxes. . . . - - 2.6 53
The increase in operating revenues for the third quarter and
year-to-date periods was due primarily to increased wholesale
revenues from new power marketing transactions and increased
energy sales to the AEP System Power Pool (Power Pool) due to
increased availability of Big Sandy Plant Unit 2 in 1997. The
new power marketing transactions involve the purchase and sale of
electricity outside of the AEP transmission system. Year-to-date
wholesale revenues also rose due to an increase in coal
conversion service revenues which are for the conversion of
customers' coal to electricity.
Fuel expense rose for the quarter due to increased
generation reflecting the effect of scheduled maintenance work
in 1996 at the Company's Big Sandy Plant Unit 2.
The increases in purchased power expense for both periods
resulted mainly from the new power marketing transactions.
Other operation expense increased for the quarter and year-to-date periods
primarily due to the effects of gains on the sale
of emission allowances recorded in 1996 and the write-down in
1997 of certain preliminary survey costs related to a future
plant site.
The significant decrease in maintenance expense in both
periods reflects the effects of scheduled steam plant maintenance
work in 1996 at the Company's Big Sandy Plant Unit 2 and reduced
overhead distribution line maintenance work in 1997.
The increase in taxes other than federal income taxes, which
was due to an increase in state income taxes, and the increase in
federal income taxes resulted from an increase in pre-tax
operating income.
<PAGE>
<PAGE>
<TABLE>
OHIO POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . $486,398 $483,957 $1,417,845 $1,438,081
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . 156,482 162,606 462,720 485,358
Purchased Power. . . . . . . . . . . . 37,270 17,086 69,738 48,326
Other Operation. . . . . . . . . . . . 78,623 83,518 240,182 245,394
Maintenance. . . . . . . . . . . . . . 39,443 43,645 102,292 114,795
Depreciation and Amortization. . . . . 35,323 34,499 105,351 103,142
Taxes Other Than Federal Income Taxes. 42,938 43,214 126,801 125,949
Federal Income Taxes . . . . . . . . . 27,203 30,137 92,022 90,738
TOTAL OPERATING EXPENSES . . . 417,282 414,705 1,199,106 1,213,702
OPERATING INCOME . . . . . . . . . . . . 69,116 69,252 218,739 224,379
NONOPERATING INCOME. . . . . . . . . . . 2,273 4,338 9,803 6,600
INCOME BEFORE INTEREST CHARGES . . . . . 71,389 73,590 228,542 230,979
INTEREST CHARGES . . . . . . . . . . . . 20,718 18,670 61,961 65,574
NET INCOME . . . . . . . . . . . . . . . 50,671 54,920 166,581 165,405
PREFERRED STOCK DIVIDEND REQUIREMENTS. . 370 2,201 2,278 6,681
EARNINGS APPLICABLE TO COMMON STOCK. . . $ 50,301 $ 52,719 $ 164,303 $ 158,724
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands)
BALANCE AT BEGINNING OF PERIOD . . . . . $573,236 $552,605 $584,015 $518,029
NET INCOME . . . . . . . . . . . . . . . 50,671 54,920 166,581 165,405
DEDUCTIONS:
Cash Dividends Declared:
Common Stock . . . . . . . . . . . . 37,562 35,714 161,771 107,142
Cumulative Preferred Stock . . . . . 370 2,167 2,829 6,555
Capital Stock Expense. . . . . . . . . - 43 21 136
BALANCE AT END OF PERIOD . . . . . . . . $585,975 $569,601 $585,975 $569,601
The common stock of the Company is wholly owned by
American Electric Power Company, Inc.
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
OHIO POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
September 30, December 31,
1997 1996
(in thousands)
ASSETS
<S> <C> <C>
ELECTRIC UTILITY PLANT:
Production . . . . . . . . . . . . . . . . . . . . . $2,585,787 $2,556,507
Transmission . . . . . . . . . . . . . . . . . . . . 831,336 820,636
Distribution . . . . . . . . . . . . . . . . . . . . 893,807 872,936
General (including mining assets). . . . . . . . . . 699,169 680,443
Construction Work in Progress. . . . . . . . . . . . 85,651 66,099
Total Electric Utility Plant . . . . . . . . 5,095,750 4,996,621
Accumulated Depreciation and Amortization. . . . . . 2,319,694 2,216,534
NET ELECTRIC UTILITY PLANT . . . . . . . . . 2,776,056 2,780,087
OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 118,563 106,485
CURRENT ASSETS:
Cash and Cash Equivalents. . . . . . . . . . . . . . 38,826 24,003
Accounts Receivable. . . . . . . . . . . . . . . . . 243,760 232,734
Allowance for Uncollectible Accounts . . . . . . . . (2,567) (1,433)
Fuel . . . . . . . . . . . . . . . . . . . . . . . . 120,723 113,361
Materials and Supplies . . . . . . . . . . . . . . . 73,658 75,908
Accrued Utility Revenues . . . . . . . . . . . . . . 28,808 38,852
Prepayments. . . . . . . . . . . . . . . . . . . . . 36,282 44,203
TOTAL CURRENT ASSETS . . . . . . . . . . . . 539,490 527,628
REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 541,358 540,123
DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 78,350 137,843
TOTAL. . . . . . . . . . . . . . . . . . . $4,053,817 $4,092,166
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
OHIO POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
September 30, December 31,
1997 1996
(in thousands)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
CAPITALIZATION:
Common Stock - No Par Value:
Authorized - 40,000,000 Shares
Outstanding - 27,952,473 Shares. . . . . . . . . . $ 321,201 $ 321,201
Paid-in Capital. . . . . . . . . . . . . . . . . . . 462,285 460,662
Retained Earnings. . . . . . . . . . . . . . . . . . 585,975 584,015
Total Common Shareholder's Equity. . . . . . 1,369,461 1,365,878
Cumulative Preferred Stock:
Not Subject to Mandatory Redemption. . . . . . . . 17,575 38,532
Subject to Mandatory Redemption. . . . . . . . . . 11,850 109,900
Long-term Debt . . . . . . . . . . . . . . . . . . . 1,014,661 1,002,436
TOTAL CAPITALIZATION . . . . . . . . . . . . 2,413,547 2,516,746
OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 286,037 245,032
CURRENT LIABILITIES:
Long-term Debt Due Within One Year . . . . . . . . . 83,024 67,293
Short-term Debt. . . . . . . . . . . . . . . . . . . 94,425 41,302
Accounts Payable . . . . . . . . . . . . . . . . . . 124,111 89,399
Taxes Accrued. . . . . . . . . . . . . . . . . . . . 82,687 162,798
Interest Accrued . . . . . . . . . . . . . . . . . . 23,997 18,094
Obligations Under Capital Leases . . . . . . . . . . 28,980 24,153
Other. . . . . . . . . . . . . . . . . . . . . . . . 97,001 84,385
TOTAL CURRENT LIABILITIES. . . . . . . . . . 534,225 487,424
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 726,664 738,626
DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 43,774 46,308
DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 49,570 58,030
CONTINGENCIES (Note 3)
TOTAL. . . . . . . . . . . . . . . . . . . $4,053,817 $4,092,166
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
OHIO POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
September 30,
1997 1996
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 166,581 $ 165,405
Adjustments for Noncash Items:
Depreciation, Depletion and Amortization . . . . . . . . 129,597 123,326
Deferred Federal Income Taxes. . . . . . . . . . . . . . 85 14,291
Deferred Fuel Costs (net). . . . . . . . . . . . . . . . (22,257) (8,933)
Amortization of Deferred Property Taxes. . . . . . . . . 57,646 59,738
Changes in Certain Current Assets and Liabilities:
Accounts Receivable (net). . . . . . . . . . . . . . . . (9,892) (12,715)
Fuel, Materials and Supplies . . . . . . . . . . . . . . (5,112) 8,787
Accrued Utility Revenues . . . . . . . . . . . . . . . . 10,044 7,578
Prepayments. . . . . . . . . . . . . . . . . . . . . . . 7,921 (2,187)
Accounts Payable . . . . . . . . . . . . . . . . . . . . 34,712 (1,904)
Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (80,111) (77,402)
Other (net). . . . . . . . . . . . . . . . . . . . . . . . 21,556 18,488
Net Cash Flows From Operating Activities . . . . . . 310,770 294,472
INVESTING ACTIVITIES:
Construction Expenditures. . . . . . . . . . . . . . . . . (102,469) (72,288)
Proceeds from Sale of Property and Other . . . . . . . . . 8,553 7,113
Net Cash Flows Used For Investing Activities . . . . (93,916) (65,175)
FINANCING ACTIVITIES:
Issuance of Long-term Debt . . . . . . . . . . . . . . . . 146,589 -
Change in Short-term Debt (net). . . . . . . . . . . . . . 53,123 73,937
Retirement of Cumulative Preferred Stock . . . . . . . . . (117,601) (1,752)
Retirement of Long-term Debt . . . . . . . . . . . . . . . (119,542) (158,818)
Dividends Paid on Common Stock . . . . . . . . . . . . . . (161,771) (107,142)
Dividends Paid on Cumulative Preferred Stock . . . . . . . (2,829) (6,555)
Net Cash Flows Used For Financing Activities . . . . (202,031) (200,330)
Net Increase in Cash and Cash Equivalents. . . . . . . . . . 14,823 28,967
Cash and Cash Equivalents at Beginning of Period . . . . . . 24,003 44,000
Cash and Cash Equivalents at End of Period . . . . . . . . . $ 38,826 $ 72,967
Supplemental Disclosure:
Cash paid for interest net of capitalized amounts was $54,010,000 and $57,949,000
and for income taxes was $98,341,000 and $79,932,000 in 1997 and 1996, respectively.
Noncash acquisitions under capital leases were $41,667,000 and $19,903,000 in 1997
and 1996, respectively.
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
OHIO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated financial state-ments should
be read in conjunction with the 1996 Annual
Report as incorporated in and filed with the Form 10-K.
2. FINANCING ACTIVITY
During the first nine months of 1997 the Company issued
$50 million of 7.92% Junior Subordinated Deferrable Interest
Debentures due 2027, $48 million of 6.73% Unsecured Medium
Term Notes due 2004 and a coal mining subsidiary received
$50 million under a sale-leaseback agreement accounted for
as a financing transaction. Under this accounting the
assets sold remain on the books and the seller recognizes a
financing liability as part of long-term debt. The Company
and a subsidiary also retired $117 million of long-term
debt: $50 million of 8.75% Series First Mortgage Bonds due
in 2022 under maintenance provisions at 100%, $47 million of
6-1/2% Series First Mortgage Bonds and $20 million of 7.19%
Notes Payable at maturity.
As a result of the redemption at maturity of the 6-1/2%
Series First Mortgage Bonds due in 1997, the restriction on
the use of retained earnings for the payment of common stock
dividends was reduced to $20.8 million.
In March 1997 the Company, as part of a tender offer,
reacquired and retired the following shares of cumulative
preferred stock at the prices listed plus an amount equal to
accrued dividends:
Number Price Total
of Shares Paid Per Reacquisition
Series Retired Share Price
(in thousands)
4.08% 27,182 $ 64.56 $ 1,755
4.20% 28,875 66.46 1,919
4.40% 55,889 69.62 3,891
4-1/2% 97,616 69.02 6,737
5.90% 321,500 103.09 33,143
6.02% 364,000 103.71 37,750
6.35% 295,000 105.14 31,016
3. CONTINGENCIES
Taxes
As discussed in Note 8, "Federal Income Taxes" of the
Notes to Consolidated Financial Statements in the 1996
Annual Report, the Internal Revenue Service (IRS) agents
auditing the AEP System's consolidated federal income tax
returns for the years 1991 through 1993 requested a ruling
from their National Office as to whether certain interest
deductions relating to corporate owned life insurance (COLI)
should be disallowed. The COLI program was established in
1990 as part of the Company's strategy to fund and reduce
the cost of medical benefits for retired employees. AEP
filed a brief with the IRS National Office defending the
subject deduction. Although no disallowance has been
proposed, a disallowance of COLI interest deductions through
September 30, 1997 would reduce earnings by approximately
$103 million inclusive of interest. Management believes it
will ultimately prevail on this issue and will vigorously
contest any disallowance that may be proposed.
Revised Air Quality Standards
On July 18, 1997, the United States Environmental
Protection Agency published a revised National Ambient Air
Quality Standard (NAAQS) for ozone and a new NAAQS for fine
particulate matter (less than 2.5 microns in size). The new
ozone standard is expected to result in redesignation of a
number of areas of the country that are currently in
compliance with the existing standard to nonattainment
status which could ultimately dictate more stringent
emission restrictions for AEP System generating units. New
stringent emission restrictions on AEP System generating
units to achieve attainment of the fine particulate matter
standard could also be imposed. The AEP System operating
companies joined with other utilities to appeal the revised
NAAQS and filed petitions for review in August and September
1997 in the U.S. Court of Appeals for the District of
Columbia Circuit.
Management is unable to estimate compliance costs
without knowledge of the reductions that may be necessary to
meet the new standards. If such costs are significant, it
could have a material adverse effect on results of
operations and possibly financial condition unless such
costs are recovered.
Other
The Company continues to be involved in certain other
matters discussed in the 1996 Annual Report.
<PAGE>
OHIO POWER COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
THIRD QUARTER 1997 vs. THIRD QUARTER 1996
AND
YEAR-TO-DATE 1997 vs. YEAR-TO-DATE 1996
RESULTS OF OPERATIONS
Although energy sales increased slightly for the third
quarter, net income decreased $4.3 million or 8% primarily due to
an increase in purchased power expense, a decrease in
nonoperating income and an increase in interest charges. Net
income increased $1.2 million for the year-to-date period
reflecting an increase in nonoperating income and a reduction in
interest charges.
Operating revenues increased slightly for the third quarter
due predominantly to a 3% increase in sales to wholesale
customers largely as a result of new power marketing
transactions. Although total energy sales increased for the
quarter, sales to retail customers decreased 1% as usage by
weather-sensitive residential customers declined by 1% reflecting
the mild summer weather and consumption by industrial customers
decreased by 1% due to a major industrial customer's labor
strike.
Year-to-date operating revenues declined $20 million or 1%
predominantly due a reduction in retail revenues reflecting a 4%
decrease in energy sales to weather-sensitive residential
customers and decreased industrial sales due to the labor strike
and the negative effect on revenues of a contract price reduction
for another major industrial customer. Although sales to retail
customers declined, total energy sales for the year-to-date
period increased 3% primarily as a result of an 11% increase in
energy sales to wholesale customers. The significant rise in
wholesale sales reflects the new power marketing transactions and
an increase in coal conversion service sales, which are for the
conversion of customers' coal to electricity. The new power
marketing transactions involve the purchase and sale of
electricity outside of the AEP transmission system.
<PAGE>
Income statement lines which changed significantly were:
Increase (Decrease)
Third Quarter Year-to-Date
(in millions) % (in millions) %
Fuel Expense. . . . . . . . $(6.1) (4) $(22.6) (5)
Purchased Power . . . . . . 20.2 118 21.4 44
Other Operation Expense . . (4.9) (6) (5.2) (2)
Maintenance Expense . . . . (4.2) (10) (12.5) (11)
Federal Income Taxes. . . . (2.9) (10) 1.3 1
Nonoperating Income . . . . (2.1) (48) 3.2 49
Interest Charges. . . . . . 2.0 11 (3.6) (6)
The decreases in fuel expense for the third quarter and
year-to-date periods were mainly due to a reduction in generation
attributable to the decrease in energy demand by retail
customers.
Purchased power expense increased for both periods primarily
due to the new power marketing transactions which began in July
1997.
Other operation expense declined in the third quarter
primarily due to decreased employee pension and benefit costs.
The decreases in maintenance expense for both periods were
mainly due to decreased boiler plant maintenance reflecting a
reduction in planned maintenance work on the Company's generating
units.
Federal income tax expense attributable to operations
decreased in the third quarter due to a decrease in pre-tax
operating income and changes in certain book/tax differences
accounted for on a flow-through basis for rate-making and
financial reporting purposes.
The decrease in nonoperating income for the quarter was due
to the effect of adjustments recorded in 1996 related to emission
allowance transactions. On a year-to-date basis nonoperating
income increased as a result of the effect of losses recorded in
1996 related to emission allowance transactions.
Interest charges increased in the third quarter due to the
effect of a September 1996 adjustment to commission authorized
carrying charges recorded on deferred gains from the sale of
emission allowances. The decrease in interest charges for the
year-to-date period was due to a reduction in the average levels
of long-term debt outstanding resulting from the redemption of
long-term debt.
FINANCIAL CONDITION
Total plant and property additions including capital leases
for the first nine months of 1997 were $144 million.
During the first nine months of 1997, the Company and a
subsidiary retired $117 million principal amount of long-term
debt with interest rates ranging from 6-1/2% to 8.75%, issued
$148 million of long-term obligations at interest rates ranging
from 6.73% to 7.92% and increased short-term debt by $53 million.
As part of the January 1997 tender offer for all of the
Company's outstanding preferred stock, 1,190,062 shares of $100
par value preferred stock were reacquired. The total cost of the
stock reacquisition was $118 million. At a special meeting of
shareholders held on February 28, 1997 the Company's articles of
incorporation were amended to remove certain capitalization ratio
requirements which restricted the Company's ability to issue
unsecured debt. As a result unsecured borrowings are now limited
only by the Public Utility Holding Company Act of 1935 with the
current limitation set at $250 million for unsecured short-term
borrowings.
As a result of the redemption at maturity of the 6-1/2%
Series First Mortgage Bonds due in 1997, the restriction on the
use of retained earnings for the payment of common stock
dividends was reduced to $20.8 million.
REVISED AIR QUALITY STANDARDS
On July 18, 1997, the United States Environmental Protection
Agency published a revised National Ambient Air Quality Standard
(NAAQS) for ozone and a new NAAQS for fine particulate matter
(less than 2.5 microns in size). The new ozone standard is
expected to result in redesignation of a number of areas of the
country that are currently in compliance with the existing
standard to nonattainment status which could ultimately dictate
more stringent emission restrictions for AEP System generating
units. New stringent emission restrictions on AEP System
generating units to achieve attainment of the fine particulate
matter standard could also be imposed. The AEP System operating
companies joined with other utilities to appeal the revised NAAQS
and filed petitions for review in August and September 1997 in
the U.S. Court of Appeals for the District of Columbia Circuit.
Management is unable to estimate compliance costs without
knowledge of the reductions that may be necessary to meet the new
standards. If such costs are significant, it could have a
material adverse effect on results of operations and possibly
financial condition unless such costs are recovered.
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information.
American Electric Power Company, Inc. ("AEP") and Appalachian
Power Company ("APCo")
Reference is made to page 12 of the Annual Report on Form
10-K for the year ended December 31, 1996 ("1996 10-K") for a
discussion of APCo's proposed transmission facilities. On
September 30, 1997, APCo filed applications for certificates to
build its 765,000-volt line from its Wyoming station to its
Cloverdale station, at a cost estimated to be $263,000,000, with
the Virginia State Corporation Commission and Public Service
Commission of West Virginia.
AEP, AEP Generating Company ("AEGCo"), APCo, Columbus Southern
Power Company ("CSPCo"), Indiana Michigan Power Company ("I&M"),
Kentucky Power Company ("KEPCo") and Ohio Power Company ("OPCo")
Reference is made to page 22 of the 1996 10-K and page II-4
of the Quarterly Report on Form 10-Q for the quarter ended June
30, 1997 for a discussion of the assessment of long range
transport of ozone precursors.
On or about August 14, 1997, eight northeast states filed
petitions with the United States Environmental Protection Agency
("Federal EPA") under Section 126 of the Clean Air Act alleging
that nitrogen oxides ("NOx") emissions from sources in upwind
midwestern states are significantly contributing to non-attainment of the
ambient air quality standard for ozone in the
petitioning states. These petitions seek the development of
controls for the upwind sources in a rulemaking to be undertaken
by Federal EPA. AEP System coal-fired generating plants are
included (directly or indirectly) as sources in each of these
petitions and the rulemaking could require significant reductions
of NOx emissions at such AEP plants. AEP System operating
companies have joined with other unaffiliated utilities in the
filing of a petition for review in October 1997 in the U.S. Court
of Appeals for the District of Columbia Circuit of actions
outlined in an August 8, 1997 letter from Federal EPA to the
State of New Hampshire with regard to the filing of, and standard
of review for, these petitions.
In a separate related proceeding, on November 7, 1997,
Federal EPA published in the Federal Register a proposed
rulemaking under Section 110 of the Clean Air Act requiring the
revision of state implementation plans in 22 eastern states,
including those states in which the operating companies of the
AEP System have coal-fired generating plants. The proposed rule,
if finalized in its current form, will require reductions in NOx
emissions from utility sources of approximately 85% below 1990
levels and entail very substantial capital and operating
expenditures by AEP System operating companies. Pollution
controls to meet the proposed revised NOx emission limits would
have to be in place by 2002.<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
AEP
Exhibit 3(a) - Restated Certificate of Incorporation
of AEP, dated October 29, 1997.
AEP, APCo and OPCo
Exhibit 10 - American Electric Power System Excess
Benefit Plan as Amended through August 25, 1997.
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:
Company
Reporting Date of Report Item Reported
AEP July 2, 1997 Item 5. Other Events
AEGCo, APCo, CSPCo, I&M, KEPCo and OPCo
No reports on Form 8-K were filed during the quarter
ended September 30, 1997.
<PAGE>
<PAGE>
In the opinion of the companies, the financial statements contained
herein reflect all adjustments (consisting of only normal recurring accruals)
which are necessary to a fair presentation of the results of operations for
the interim periods.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signatures for each undersigned
company shall be deemed to relate only to matters having reference to such
company and any subsidiaries thereof.
AMERICAN ELECTRIC POWER COMPANY, INC.
G.P. Maloney P.J. DeMaria
G.P. Maloney, Vice President P.J. DeMaria, Controller
and Secretary
AEP GENERATING COMPANY
G.P. Maloney P.J. DeMaria
G.P. Maloney, Vice President P.J. DeMaria, Vice President
and Controller
APPALACHIAN POWER COMPANY
G.P. Maloney P.J. DeMaria
G.P. Maloney, Vice President P.J. DeMaria, Vice President
and Controller
COLUMBUS SOUTHERN POWER COMPANY
G.P. Maloney P.J. DeMaria
G.P. Maloney, Vice President P.J. DeMaria, Vice President
and Controller
INDIANA MICHIGAN POWER COMPANY
G.P. Maloney P.J. DeMaria
G.P. Maloney, Vice President P.J. DeMaria, Vice President
and Controller
KENTUCKY POWER COMPANY
G.P. Maloney P.J. DeMaria
G.P. Maloney, Vice President P.J. DeMaria, Vice President
and Controller
OHIO POWER COMPANY
G.P. Maloney P.J. DeMaria
G.P. Maloney, Vice President P.J. DeMaria, Vice President
and Controller
Date: November 12, 1997
II-2
Exhibit 3(a)
RESTATED CERTIFICATE OF INCORPORATION
OF
AMERICAN ELECTRIC POWER COMPANY, INC.
Under Section 807 of the Business Corporation Law
The undersigned, being respectively the Vice President and
Assistant Secretary of American Electric Power Company, Inc.,
hereby certify that:
I. NAME. The name of the corporation is AMERICAN ELECTRIC
POWER COMPANY, INC. The name under which the corporation was
formed is American Gas and Electric Company.
II. DATE OF FILING OF CERTIFICATE OF INCORPORATION. The
certificate of consolidation forming the corporation was filed by
the Department of State on February 18, 1925.
III. ORIGINAL CERTIFICATE SUPERSEDED. The certificate of
incorporation, as amended heretofore, is hereby restated without
further amendment or change to read as herein set forth in full:
1. The name of the corporation shall be AMERICAN
ELECTRIC POWER COMPANY, INC.
2. The purposes for which the corporation is formed
are:
a) To acquire, hold and dispose of the stock,
bonds, notes, debentures and other securities and
obligations (hereinafter called "securities") of
any person, firm, association, or corporation,
private, public or municipal, or of any body
politic, including, without limitation, securities
of electric and gas utility companies; and while
the owner of such securities, to possess and
exercise in respect thereof all the rights, powers
and privileges of ownership thereof, including
voting power;
(b) To aid in any manner permitted by law any
person, firm, association or corporation in whose
securities the corporation may be interested,
directly or indirectly, and to do any other act or
thing permitted by law for the preservation,
protection, improvement or enhancement of the
value of such securities or the property
represented thereby or securing the same or owned,
held or possessed by such person, firm,
association or corporation;
(c) To acquire, construct, own, maintain, operate
and dispose of real or personal property used or
useful in the business of an electric utility
company or gas utility company and such other real
or personal property as may be permitted by law;
and
(d) To do everything necessary, proper, advisable
or convenient for the accomplishment of the
foregoing purposes, and to do all other things
incidental to them or connected with them that are
not forbidden by law or by this certificate of
incorporation.
3. The city and county in which the office of the
corporation is to be located are the City and County of
New York.
4.1. The aggregate number of shares which the
corporation is authorized to issue is 300,000,000
shares of Common Stock of the par value of $6.50 each.
4.2. Each share of the Common Stock shall be equal in
all respects to every other share of the Common Stock.
Every holder of record of the Common Stock shall have
one vote for each share of Common Stock held by him
for the election of directors and upon all other
matters; provided, however, that at all elections of
directors by stockholders each holder of record of
shares of the Common Stock then entitled to vote, shall
be entitled to as many votes as shall equal the number
of votes which (except for this provision as to
cumulative voting) he would be entitled to cast for the
election of directors with respect to his shares of
Common Stock multiplied by the number of directors to
be elected, and such holder may cast all of such votes
for a single director or may distribute them among the
number of directors to be voted for, or any two or more
or them, as he may see fit, which right, when
exercised, shall be termed cumulative voting.
4.3. The corporation may, at any time and from time to
time, issue and dispose of any of the authorized and
unissued shares of the Common Stock for such
consideration as may be fixed by the Board of
Directors, subject to any provisions of law then
applicable, and subject to the provisions of any
resolutions of the stockholders of the corporation
relating to the issue and disposition of such shares.
4.4. Upon any issuance for money or other
consideration of any stock of the corporation, or of
any securities convertible into any stock of the
corporation, of any class whatsoever which may be
authorized from time to time, no holder of stock of any
kind shall have any preemptive or other right to
subscribe for, purchase or receive any proportionate or
other share of the stock or securities so issued, but
the Board of Directors may dispose of all or any
portion of such stock or securities as and when it may
determine free of any such rights, whether by offering
the same to stockholders or by sale or other
disposition as the Board of Directors may deem
advisable; provided, however, that if the Board of
Directors shall determine to issue and sell any shares
of Common Stock (including, for the purposes of this
paragraph, any security convertible into Common Stock,
but excluding shares of Common Stock and securities
convertible into Common Stock theretofore reacquired by
the corporation after having been duly issued, and
excluding shares of Common Stock and securities
convertible into Common Stock issued to satisfy
conversion or option rights theretofore granted by the
corporation) solely for money and other than by:
(i) a public offering thereof, or
(ii) an offering thereof to or through
underwriters or dealers who shall agree promptly
to make a public offering thereof, or
(iii) any other offering thereof which shall have
been authorized or approved by the affirmative
vote, cast in person or by proxy, of the holders
of record of a majority of the outstanding shares
of Common Stock entitled to vote at the
stockholders' meeting at which action shall have
been taken with respect to such other offering,
such shares of Common Stock shall first be offered pro rata,
except that the corporation shall not be obligated to offer
or to issue any fractional interest in a full share of
Common Stock, to the holders of record of the then
outstanding shares of Common Stock (excluding outstanding
shares of Common Stock held for the benefit of holders of
scrip certificates or other instruments representing
fractional interests in a full share of Common Stock) upon
terms which, in the judgment of the Board of Directors of
the corporation, shall be not less favorable (without
deduction of such reasonable compensation for the sale,
underwriting or purchase of such shares by underwriters or
dealers as may lawfully be paid by the corporation) to the
purchaser than the terms upon which such shares are offered
to others than such holders of Common Stock; and provided
that the time within which such preemptive rights shall be
exercised may be limited to such time as to the Board of
Directors may seem proper, not less, however, than fourteen
(14) days after the mailing of notice that such preemptive
rights are available and may be exercised.
5. Directors shall hold office after the expiration of
their terms until their successors are elected and have
qualified. Directors need not be stockholders.
6. To the fullest extent permitted by the New York
Business Corporation Law as it exists on the date hereof or
as it may hereafter be amended, no director of the
corporation shall be liable to the corporation or its
stockholders for damages for any breach of duty as a
director. Any repeal or modification of the foregoing
sentence by the stockholders of the corporation shall not
adversely affect any right or protection of a director of
the corporation existing at the time of such repeal or
modification.
7.1.(A) In addition to any affirmative vote required
by law or this certificate of incorporation (any other
provision of this certificate of incorporation
notwithstanding), and except as otherwise expressly provided
in paragraph 7.2:
(1) any merger or consolidation of the
corporation or any Subsidiary (as hereinafter defined)
with (i) any Interested Stockholder (as hereinafter
defined) or (ii) any other corporation (whether or not
itself an Interested Stockholder) which is, or after
such merger or consolidation would be, an Affiliate (as
hereinafter defined) of an Interested Stockholder; or
(2) any sale, lease, license, exchange, mortgage,
pledge, transfer or other disposition (in one
transaction or a series of transactions) to or with any
Interested Stockholder or any Affiliate of any
Interested Stockholder of any assets of the corporation
or any Subsidiary having an aggregate Fair Market Value
(as hereinafter defined) of $100,000,000 or more; or
(3) the issuance or transfer by the corporation
or any Subsidiary (in one transaction or a series of
transactions) of any securities of the corporation or
any Subsidiary to any Interested Stockholder or any
Affiliate of any Interested Stockholder having an
aggregate Fair Market Value of $100,000,000 or more,
other than the issuance of securities upon the
conversion of convertible securities of the corporation
or any Subsidiary which were not acquired by such
Interested Stockholder (or such Affiliate) from the
corporation or a Subsidiary; or
(4) the adoption of any plan or proposal for the
liquidation or dissolution of the corporation proposed
by or on behalf of any Interested Stockholder or any
Affiliate of any Interested Stockholder; or
(5) any reclassification of securities (including
any reverse stock split), or recapitalization or
reorganization of the corporation, or any merger or
consolidation of the corporation with any of its
Subsidiaries, or any self tender offer for or
repurchase of securities of the corporation by the
corporation or any Subsidiary or any other transaction
(whether of not with or into or otherwise involving any
Interested Stockholder) which has the effect, directly
or indirectly, of increasing the proportionate share of
the outstanding shares of any class or series of equity
or convertible securities of the corporation or any
Subsidiary which is directly or indirectly owned by any
Interested Stockholder or any Affiliate of any
Interested Stockholder;
shall require the affirmative vote of the holders of at
least (i) seventy-five per centum of the combined voting
power of the then issued and outstanding capital stock of
all classes and series of the corporation having voting
powers (the "Voting Stock"), voting together as a single
class, and (ii) a majority of the combined voting power of
the then issued and outstanding Voting Stock beneficially
owned by persons other than such Interested Stockholder,
voting together as a single class, given at any annual
meeting of stockholders or at any special meeting called for
that purpose. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or
that a lesser percentage may be specified, by law, by any
other provision of this certificate of incorporation or in
any agreement with any national securities exchange or
otherwise.
(B) The term "Business Combination" as used
herein shall mean any transaction which is referred to
in any one or more of clauses (1) through (5) of
sub-paragraph (A) of this paragraph 7.1.
7.2. The provisions of paragraph 7.1 shall not be
applicable to any particular Business Combination, and such
Business Combination shall require only such affirmative
vote, if any, as is required by law, any other provision of
this certificate of incorporation, and any agreement with
any national securities exchange, if all of the conditions
specified in either of the following sub-paragraphs (A) or
(B) are met:
(A) The Business Combination shall have been
approved by a majority of the Disinterested Directors
(as hereinafter defined).
(B) All of the following conditions shall have
been met:
(1) The aggregate amount of the cash and the
Fair Market Value as of the date of the
consummation of the Business Combination (the
"Consummation Date") of consideration other than
cash to be received per share by holders of Common
Stock in such Business Combination shall be at
least equal to the highest of the following (it
being intended that the requirements of this
clause (1) shall be required to be met with
respect to every share of outstanding Common
Stock, whether or not the Interested Stockholder
has previously acquired any shares of Common
Stock):
(i) (if applicable) the highest per
share price (including any brokerage
commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested
Stockholder for any shares of Common Stock
acquired by it (x) within the five-year
period immediately prior to the first public
announcement of the terms of the proposed
Business Combination (the "Announcement
Date") or (y) in the transaction in which it
became an Interested Stockholder, whichever
is higher;
(ii) the Fair Market Value per share of
Common Stock on the Announcement Date or on
the date on which the Interested Stockholder
became an Interested Stockholder (such latter
date is referred to herein as the
"Determination Date"), whichever is higher;
and
(iii) an amount which bears the same or
greater percentage relationship to the Fair
Market Value per share of Common Stock on the
Announcement Date as the highest per share
price determined in clause (B)(1)(i) above
bears to the Fair Market Value per share of
Common Stock on the date of the commencement
of the acquisition of the Common Stock by
such Interested Stockholder.
(2) The aggregate amount of cash and the
Fair Market Value as of the Consummation Date of
consideration other than cash to be received per
share by holders of shares of any other class or
series of outstanding Voting Stock shall be at
least equal to the highest of the following (it
being intended that the requirements of this
clause (2) shall be required to be met with
respect to every class or series of outstanding
Voting Stock, whether or not the Interested
Stockholder has previously acquired any shares of
a particular class or series of Voting Stock):
(i) (if applicable) the highest per
share price (including any brokerage
commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested
Stockholder for any shares of such class or
series of Voting Stock acquired by it (x)
within the five-year period immediately prior
to the Announcement Date or (y) in the
transaction in which it became an Interested
Stockholder, whichever is higher;
(ii) the Fair Market Value per share of
such class or series of Voting Stock on the
Announcement Date or on the Determination
Date, whichever is higher;
(iii) (if applicable) the highest
preferential amount per share to which the
holders of shares of such class or series of
Voting Stock are entitled in the event of any
liquidation, dissolution or winding up of the
corporation, whether voluntary or
involuntary; and
(iv) an amount which bears the same or
greater percentage relationship to the Fair
Market Value per share of such class or
series of Voting Stock on the Announcement
Date as the highest per share price
determined in clause (B)(2)(i) above bears to
the Fair Market Value per share of such
Voting Stock on the date of the commencement
of the acquisition of such Voting Stock by
such Interested Stockholder.
(3) The consideration to be received by
holders of a particular class or series of
outstanding Voting Stock (including Common Stock)
shall be in cash or in the same form as the
Interested Stockholder has previously paid for
shares of such class or series of Voting Stock.
If the Interested Stockholder has paid for shares
of any class or series of Voting Stock with
varying forms of consideration, the form of
consideration to be received by each holder of
such class or series of Voting Stock shall be, at
the option of such holder, either cash or the form
used by the Interested Stockholder to acquire the
largest number of shares of such class or series
of Voting Stock previously acquired by it prior to
the Announcement Date. The price determined in
accordance with clauses (1) and (2) of this
sub-paragraph (B) shall be subject to appropriate
adjustment in the event of any stock dividend,
stock split, combination of shares or similar
event.
(4) After the Determination Date and prior
to the Consummation Date:
(i) except as approved by a majority of
the Disinterested Directors, there shall have
been no failure to declare and pay at the
regular dates therefor the full amount of any
dividends (whether or not cumulative) payable
on any class or series of stock of the
corporation having a preference over the
Common Stock as to dividends or upon
liquidation; and
(ii) there shall have been (x) no
reduction in the quarterly rate of dividends
paid on the Common Stock (except as necessary
to reflect any subdivision of the Common
Stock), except as approved by a majority of
the Disinterested Directors, and (y) an
increase in such quarterly rate of dividends
paid on such Common Stock as necessary to
reflect any reclassification (including any
reverse stock split), recapitalization,
reorganization, self tender offer for or
repurchase of securities of the corporation
by the corporation or any Subsidiary or any
similar transaction which has the effect of
reducing the number of outstanding shares of
the Common Stock, unless the failure so to
increase such quarterly rate is approved by a
majority of the Disinterested Directors; and
(iii) such Interested Stockholder shall
not have become the beneficial owner of any
additional shares of Voting Stock except as
part of the transaction which results in such
Interested Stockholder becoming an Interested
Stockholder or upon conversion of convertible
securities acquired by it prior to becoming
an Interested Stockholder or as a result of a
pro rata stock dividend or stock split; and
(iv) such Interested Stockholder shall
not have received the benefit, directly or
indirectly (except proportionately as a
stockholder), of any loans, advances,
guarantees, pledges or other financial
assistance or tax credits or other tax
advantages provided by the corporation or any
Subsidiary, whether in anticipation of or in
connection with such Business Combination or
otherwise; and
(v) such Interested Stockholder shall
not have caused any material change in the
corporation's business or capital structure,
including, without limitation, the issuance
of shares of capital stock of the corporation
to any third party.
(5) A proxy or information statement
describing the proposed Business Combination and
complying with the requirements of the Securities
Exchange Act of 1934, as amended (the "Act"), and
the rules and regulations thereunder (or any
subsequent provisions replacing the Act, rules and
regulations), shall be mailed by and at the
expense of the Interested Stockholder to public
stockholders of the corporation at least 30 days
prior to the Consummation Date (whether or not
such proxy or information statement is required to
be mailed pursuant to the Act). The proxy or
information statement shall contain at the front
thereof in a prominent place (i) any
recommendation as to the advisability (or
inadvisability) of the Business Combination which
a majority of the Disinterested Directors may
choose to state, and (ii) if a majority of the
Disinterested Directors so requests, the opinion
of a reputable national investment banking firm as
to the fairness (or not) of such Business
Combination from the point of view of the
remaining public stockholders of the corporation
(such investment banking firm to be engaged solely
on behalf of the remaining public stockholders, to
be paid a reasonable fee for their services by the
corporation upon receipt of such opinion, to be
unaffiliated with such Interested Stockholder,
and, to be selected by a majority of the
Disinterested Directors).
(6) The holders of all outstanding shares of
Voting Stock not beneficially owned by the
Interested Stockholder prior to the consummation
of any Business Combination shall be entitled to
receive in such Business Combination cash or other
consideration for their shares of such Voting
Stock in compliance with clauses (1), (2) and (3)
of sub-paragraph (B) of this paragraph 7.2
(provided, however, that the failure of any such
holders who are exercising their statutory rights
to dissent from such Business Combination and
receive payment of the fair value of their shares
to exchange their shares in such Business
Combination shall not be deemed to have prevented
the condition set forth in this clause (6) from
being satisfied).
7.3. The following terms shall be deemed to have the
meanings specified below:
(A) The term "person" shall mean any individual,
firm, corporation, group (as such term is used in
Regulation 13D-G of the rules and regulations under the
Act, as in effect on January 1, 1988) or other entity.
(B) The term "Interested Stockholder" shall mean
any person (other than the corporation, any Subsidiary
or any pension, profit sharing, employee stock
ownership, employee savings or other employee benefit
plan, or any dividend reinvestment plan, of the
corporation or any Subsidiary or any trustee of or
fiduciary with respect to any such plan acting in such
capacity) who or which:
(1) is the beneficial owner, directly or
indirectly, of more than five per centum of the
combined voting power of the then outstanding
Voting Stock; or
(2) is an Affiliate of the corporation and
at any time within the five-year period
immediately prior to the date in question was the
beneficial owner, directly or indirectly, of more
than five per centum of the combined voting power
of the then outstanding Voting Stock; or
(3) is an assignee of or has otherwise
succeeded to any shares of Voting Stock which were
at any time within the five-year period
immediately prior to the date in question
beneficially owned by an Interested Stockholder,
if such assignment or succession shall have
occurred in the course of a transaction or series
of transactions not involving a public offering
within the meaning of the Securities Act of 1933,
as amended (or any subsequent provisions replacing
such).
(C) A person shall be deemed a "beneficial owner"
of any Voting Stock:
(1) which such person or any of its
Affiliates or Associates (as hereinafter defined)
beneficially owns, directly or indirectly; or
(2) which such person or any of its
Affiliates or Associates has (i) the right to
acquire (whether such right is exercisable
immediately or only after the passage of time),
pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to
any agreement, arrangement or understanding; or
(3) which is beneficially owned, directly or
indirectly, by any other person with which such
person or any of its Affiliates or Associates has
any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or
disposing of any shares of Voting Stock.
(D) For the purpose of determining whether a
person is an Interested Stockholder pursuant to
sub-paragraph (B) of this paragraph 7.3, the number of
shares of Voting Stock deemed to be outstanding shall
include shares deemed owned through application of
sub-paragraph (C) of this paragraph 7.3, but shall not
include any other shares of Voting Stock which may be
issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights,
exchange rights, warrants or options, or otherwise.
(E) The term "Affiliate" of, or a person
"affiliated" with, a specified person shall mean a
person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is
under common control with, the person specified.
(F) The term "Associate" as used to indicate a
relationship with any person shall mean (1) any
corporation or organization (other than the corporation
or a Subsidiary) of which such person is an officer or
partner or is, directly or indirectly, the beneficial
owner of ten per centum or more of any class or series
of equity securities, (2) any trust or other estate in
which such person has a substantial beneficial interest
or as to which such person serves as trustee or in a
similar fiduciary capacity, and (3) any relative or
spouse of such person, or any relative of such spouse,
who has the same home as such person.
(G) The term "Subsidiary" shall mean any
corporation of which a majority of any class or series
of equity security is owned, directly or indirectly, by
the corporation or by a Subsidiary or by the
corporation and one or more Subsidiaries; provided,
however, that for the purposes of the definition of
Interested Stockholder set forth in sub-paragraph (B)
of this paragraph 7.3, the term "Subsidiary" shall mean
only a corporation of which a majority of each class or
series of equity security is owned, directly or
indirectly, by the corporation.
(H) The term "Fair Market Value" shall mean: (1)
in the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date
in question of a share of such stock on the Composite
Tape for New York Stock Exchange-Listed Stocks, or, if
such stock is not quoted on the Composite Tape, on the
New York Stock Exchange, or if such stock is not listed
on such Exchange, on the principal United States
securities exchange registered under the Act on which
such stock is listed or, if such stock is not listed on
any such exchange, the highest closing bid quotation
with respect to a share of such stock during the 30-day
period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated
Quotations System or any similar system then in use, or
if no such quotations are available, the fair market
value on the date in question of a share of such stock
as determined by a majority of the Disinterested
Directors in good faith, in each case with respect to
any class or series of such stock, appropriately
adjusted for any dividend or distribution in shares of
such stock or any subdivision or reclassification of
outstanding shares of such stock into a greater number
of shares of such stock or any combination or
reclassification of outstanding shares of such stock
into a smaller number of shares of such stock; and (2)
in the case of property other than cash or stock, the
fair market value of such property on the date in
question as determined by a majority of the
Disinterested Directors in good faith.
(I) In the event of any Business Combination in
which the corporation is the survivor, the phrase
"consideration other than cash to be received" as used
in clauses (1) and (2) of sub-paragraph (B) of
paragraph 7.2 shall include the shares of Common Stock
and/or the shares of any other class or series of
outstanding Voting Stock retained by the holders of
such shares.
(J) The term "Disinterested Director" shall mean
any member of the Board of Directors of the corporation
who is unaffiliated with, and not a nominee of, the
Interested Stockholder and who was a member of the
Board of Directors prior to the Determination Date, and
any successor of a Disinterested Director who is
unaffiliated with, and not a nominee of, the Interested
Stockholder and is recommended to succeed a
Disinterested Director by a majority of the total
number of Disinterested Directors then on the Board of
Directors.
(K) References to "highest per share price" shall
in each case with respect to any class or series of
stock reflect an appropriate adjustment for any
dividend or distribution in shares of such stock or any
subdivision or reclassification of outstanding shares
of such stock into a greater number of shares of such
stock or any combination or reclassification of
outstanding shares of such stock into a smaller number
of shares of such stock.
7.4. A majority of the Board of Directors of the
corporation shall have the power and duty to determine for
the purpose of these paragraphs 7.1 through 7.6, on the
basis of information known to them after reasonable inquiry,
whether a person is an Interested Stockholder. Once the
Board of Directors has made a determination, pursuant to the
preceding sentence, that a person is an Interested
Stockholder, a majority of the total number of directors of
the corporation who would qualify as Disinterested Directors
shall have the power and duty to interpret all of the terms
and provisions of these paragraphs 7.1 through 7.6, and to
determine on the basis of information known to them after
reasonable inquiry all facts necessary to ascertain
compliance therewith, including, without limitation, (A) the
number of shares of Voting Stock beneficially owned by any
person, (B) whether a person is an Affiliate or Associate of
another, (C) whether the assets which are the subject of any
Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the
corporation or any Subsidiary in any Business Combination
has, an aggregate Fair Market Value of $100,000,000 or more
and (D) whether all of the applicable conditions set forth
in sub-paragraph (B) of paragraph 7.2 have been met with
respect to any Business Combination. Any determination
pursuant to this paragraph 7.4 made in good faith shall be
binding and conclusive on all parties.
7.5. Nothing contained in these paragraphs 7.1 through
7.6 shall be construed to relieve any Interested Stockholder
from any fiduciary obligation imposed by law.
7.6. Notwithstanding any other provisions of this
certificate of incorporation or the by-laws of the
corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this certificate of
incorporation or the by-laws of the corporation), the
affirmative vote of the holders of at least (A) seventy-five
per centum of the combined voting power of the then issued
and outstanding Voting Stock, voting together as a single
class, and (B) a majority of the combined voting power of
the then issued and outstanding Voting Stock beneficially
owned by persons other than an Interested Stockholder,
voting together as a single class, given at any annual
meeting of stockholders or at any special meeting called for
that purpose, shall be required to amend, alter, change or
repeal, or adopt any provisions inconsistent with, these
paragraphs 7.1 through 7.6; provided, however, that the
foregoing provisions of this paragraph 7.6 shall not apply
to, and such vote shall not be required for, any such
amendment, alteration, change, repeal or adoption approved
by a majority of the disinterested Directors, and any such
amendment, alteration, change, repeal or adoption so
approved shall require only such vote, if any, as is
required by law, any other provision of this certificate of
incorporation or the by-laws of the corporation.
8. The Secretary of State of the State of New York is
hereby designated as the agent of the corporation upon whom
any process in any action or proceeding against it may be
served. The address to which the Secretary of State shall
mail a copy of any process against the corporation served
upon him is: c/o CT Corporation System, 1633 Broadway, New
York, NY 10019.
9. The name of the registered agent upon whom and the
address of the registered agent at which process against the
corporation may be served is: c/o CT Corporation System,
1633 Broadway, New York, NY 10019.
IV. MANNER OF AUTHORIZATION. The foregoing restatement of
the certificate of incorporation was authorized by the unanimous
affirmative vote of the Board of Directors of the corporation at
its meeting duly called and held on the 29th day of October,
1997, a quorum being present.
IN WITNESS WHEREOF, the undersigned have signed this
certificate this 29th day of October, 1997, and do affirm the
contents to be true under the penalties of perjury.
/s/ G. P. Maloney
------------------------------
G. P. Maloney, Vice President
/s/ John F. Di Lorenzo, Jr.
------------------------------
John F. Di Lorenzo, Jr.,
Assistant Secretary
Exhibit 10
American Electric Power System
Excess Benefit Plan
As Amended through August 25, 1997
ARTICLE I
Purposes and Effective Date
Section 1.1 The American Electric Power System Excess Benefit Plan
is established to provide benefits for certain employees in excess of the
limitations on benefits imposed by provisions of the Internal Revenue
Code of 1986, as amended from time to time.
Section 1.2 The effective date of the Excess Plan is January 1,
1990.
ARTICLE II
Definitions
Section 2.1 "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
Section 2.2 "Committee" shall mean the Employee Benefits Trust
Committee established pursuant to a resolution adopted by the American
Electric Power Service Corporation Board of Directors as in effect from
time to time.
Section 2.3 "Company" shall mean American Electric Power Service
Corporation.
Section 2.4 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974 as amended from time to time.
Section 2.5 "Maximum Benefit" shall mean the monthly equivalent of
the maximum benefit permitted by the Code to be paid to a Participant or
the Participant's Surviving Spouse from the Retirement Plan.
Section 2.6 "Participant" shall mean any exempt salaried employee
of the Company, who is an active Participant in the Retirement Plan on or
after the Effective Date, whose Unrestricted Benefit, calculated on a
basis which excludes the effects of earned Management Incentive
Compensation Plan and Senior Officer Annual Incentive Compensation Plan
awards, exceeds the Maximum Benefit and who either is an officer of the
Company or has been designated and confirmed by the Committee as eligible
to participate in the Plan.
Section 2.7 "Plan" shall mean the American Electric Power System
Excess Benefit Plan, as from time to time amended or restated.
Section 2.8 "QDRO" shall mean a qualified domestic relations order
as defined in section 414(p) of the Code or section 206(d) of ERISA.
Section 2.9 "Retirement Plan" shall mean the American Electric
Power System Retirement Plan, as amended from time to time.
Section 2.10 "Supplemental Retirement Benefit" shall mean any
supplemental retirement benefit payable to a Participant or a
Participant's spouse pursuant to the terms of an employment agreement
entered into between the Participant and the Company. The term
Supplemental Retirement Benefit shall not include deferred compensation
payable to a Participant pursuant to a Participant's participation in a
deferred compensation arrangement entered into prior to January 1, 1987
or deferred compensation payable to the Participant pursuant to the terms
and conditions of the Management Incentive Compensation Plan or the
Senior Officer Annual Incentive Compensation Plan.
Section 2.11 "Surviving Spouse" shall mean the spouse of a
Participant who is legally married to the Participant and whose marriage
to the Participant occurred at least one year prior to the earlier of the
Participant's termination of employment or death.
Section 2.12 "Unrestricted Benefit" shall mean either (a) the
monthly Normal, Early, or Deferred Vested retirement benefit payable to
the Participant, whichever is applicable, or (b) the pre-retirement or
post-retirement surviving spouse's benefit payable to the Participant's
Surviving Spouse, whichever is applicable, determined under the
provisions of the Retirement Plan without regard to the limitation
imposed by the Code and based upon Participant earnings that, for each
plan year, are the total of: (1) the Participant's Retirement Plan
Earnings, (2) the Participant's contributions to the American Electric
Power System Supplemental Savings Plan, (3) for Participants who
terminate employment after December 31, 1995, Management Incentive
Compensation Plan ("MICP") awards earned, but not necessarily paid, in
the plan year, including MICP awards earned prior to January 1, 1996, and
(4) Senior Officer Annual Incentive Compensation Plan
awards earned, but not necessarily paid, in the plan year.
<PAGE>
ARTICLE III
Benefits
Section 3.1 Upon the Normal Retirement of a Participant,as provided
under the Retirement Plan, the Participant shall be entitled to a monthly
benefit equal in amount to the Participant's Unrestricted Benefit less
the Maximum Benefit and less any Supplemental Retirement Benefit.
Section 3.2 Upon the Early Retirement of a Participant, as provided
under the Retirement Plan, the Participant shall be entitled to a monthly
benefit equal to the Participant's Unrestricted Benefit less the Maximum
Benefit and less any Supplemental Retirement Benefit.
Section 3.3 If a Participant terminates employment with the Company
and is entitled to a Deferred Vested Retirement Benefit provided under
the Retirement Plan, the Participant shall be entitled to a monthly
benefit equal to the Participant's Unrestricted Benefit less the Maximum
Benefit and less any Supplemental Retirement Benefit.
Section 3.4 Supplemental Retirement Benefits accrued as of December
31, 1993 shall be vested as of December 31, 1993. Supplemental
Retirement Benefits accrued after 1993 shall vest when the Participant
terminates employment.
ARTICLE IV
Spousal Benefit
Section 4.1 Upon the death of a Participant whose spouse is
entitled to a pre-retirement or a post-retirement surviving spouse's
benefit from the Retirement Plan, the Participant's Surviving Spouse
shall be entitled to receive a monthly benefit equal in amount to the
Surviving Spouse's pre-retirement or post-retirement Unrestricted Benefit
less the Maximum Benefit and less any Supplemental Retirement Benefit.
ARTICLE V
Benefit Payments
Section 5.1 Payment of retirement benefits under Article 3 or 4
shall commence at the same time Retirement Plan benefits are paid.
Section 5.2 The Plan benefit payable to a Participant shall be paid
in the same form in which the Retirement Plan benefit is payable to the
Participant. The Participant's election under the Retirement Plan of an
optional form of payment (with the valid consent of the Participant's
Spouse where required under the Retirement Plan) shall be deemed to be
the form of payment elected for the payment of benefits from this Plan.
Retirement Plan benefit payments subject to an assignment pursuant to the
terms of a QDRO shall not be treated as a form of benefit payment
selected by the Participant under the terms of the Retirement Plan.
ARTICLE VI
Administration
Section 6.1 The Company shall be responsible for the general
operation and administration of the Plan and for carrying out the
provisions thereof.
Section 6.2 All provisions set forth in the Retirement Plan with
respect to the administrative powers and duties of the Company, expenses
of administration and procedures for filing claims shall also be
applicable with respect to the Plan. The Company shall be entitled to
rely conclusively upon all tables, valuations, certificates, opinions and
reports furnished by any actuary, accountant, controller, counsel or
other person employed or engaged by the Company with respect to the Plan
or with respect to any Supplemental Retirement Benefit.
Section 6.3 The Company shall provide a retired Participant, at the
time of retirement or as soon thereafter as practicable, with a copy of
the Plan and a certificate stating that the retired Participant is
entitled to benefits under the Plan and the amount thereof.
ARTICLE VII
Amendment or Termination
Section 7.1 The Company intends the Plan to be permanent but
reserves the right to amend or terminate the Plan when, in the sole
opinion of the Company, such amendment or termination is advisable. Any
such amendment or termination shall be made pursuant to a resolution of
the Board and shall be effective as of the date of such resolution.
<PAGE>
Section 7.2 No amendment or termination of the Plan shall directly
or indirectly deprive any current or former Participant or Surviving
Spouse of all or any portion of any retirement benefit or surviving
spouse benefit payment which commenced prior to the effective date of
such amendment or termination or which would be payable if the
Participant terminated employment for any reason, including death, on
such effective date.
ARTICLE VIII
General Provisions
Section 8.1 Except as otherwise expressly provided herein, all
terms and conditions of the Retirement Plan applicable to a retirement
benefit or a surviving spouse benefit shall also be applicable to a
retirement benefit or a surviving spouse benefit payable hereunder. Any
Plan retirement benefit or surviving spouse benefit, or any other benefit
payable under the Plan, shall be paid solely in accordance with the terms
and conditions of the Retirement Plan and nothing in this Plan shall
operate or be construed in any way to modify, amend or affect the terms
and provisions of the Retirement Plan.
Section 8.2 Nothing contained in the Plan shall constitute a
guaranty by the Company or any other entity or person that the assets of
the Company will be sufficient to pay any benefit hereunder. The
benefits under this Plan shall not be funded, but shall constitute
liabilities of the Company payable when due.
Section 8.3 No Participant or Surviving Spouse shall have any right
to a benefit under the Plan except in accordance with the terms of the
Plan. Establishment of the Plan shall not be construed to give any
Participant the right to be retained in the service of the Company.
Section 8.4 No interest of any person or entity in, or right to
receive a benefit under, the Plan shall be subject in any manner to sale,
transfer, assignment, pledge, attachment, garnishment, or other
alienation or encumbrance of any kind; nor may such interest or right to
receive a benefit be taken, either voluntarily or involuntarily, for the
satisfaction of the debts of, or other obligations or claims against,
such person or entity, including claims for alimony, support, separate
maintenance and claims in bankruptcy proceedings.
Section 8.5 The Plan shall be construed and administered under the
laws of the State of Ohio.
<PAGE>
Section 8.6 If the actuarial value of any retirement benefit or
surviving spouse benefit is less than $3,500, the Company may pay the
actuarial value of such Benefit to the Participant or Surviving Spouse in
a single lump sum in lieu of any further benefit payments hereunder.
Section 8.7 If any person entitled to a benefit payment under the
Plan is deemed by the Company to be incapable of personally receiving and
giving a valid receipt for such payment, then, unless and until claim
therefor shall have been made by a duly appointed guardian or other legal
representative of such person, the Company may provide for such payment
or any part thereof to be made to any other person or institution then
contributing toward or providing for the care and maintenance of such
person. Any such payment shall be a payment for the account of such
person and a complete discharge of any liability of the Company and the
Plan therefor.
Section 8.8 The Plan shall not be automatically terminated by a
transfer or sale of assets of the Company or by the merger or
consolidation of the Company into or with any other corporation or other
entity, but the Plan shall be continued after such sale, merger or
consolidation only if and to the extent that the transferee, purchaser or
successor entity agrees to continue the Plan. In the event that the
Excess Plan is not continued by the transferee, purchaser or successor
entity, then the Plan shall terminate subject to the provisions of
Section 7.2.
Section 8.9 Each Participant shall keep the Company informed of his
current address and the current address of his spouse. The Company shall
not be obligated to search for the whereabouts of any person. If the
location of a Participant is not made known to the Company within three
(3) years after the date on which payment of the Participant's retirement
benefit may first be made, payment may be made as though the Participant
had died at the end of the three-year period. If, within one additional
year after such three-year period has elapsed, or, within three years
after the actual death of a Participant, the Company is unable to locate
any Surviving Spouse of the Participant, then the Company shall have no
further obligation to pay any benefit hereunder to such Participant or
Surviving Spouse or any other person and such benefit shall be
irrevocably forfeited.
Section 8.10 Notwithstanding any of the preceding provisions of the
Plan, neither the Company nor any individual acting as an employee or
agent of the Company shall be liable to any Participant, former
Participant, Surviving Spouse or any other person for any claim, loss,
liability or expense incurred in connection with the Plan.
<PAGE>
Section 8.11 An assignment of part or all of a Participant's
Maximum Benefit pursuant to the terms of a QDRO shall not reduce the
Participant's Maximum Benefit for the purpose of determining the benefit,
if any, to be paid pursuant to the provisions of this Plan.
Section 8.12 The benefits paid by this Plan shall not duplicate
benefits being paid or to be paid by the Retirement Plan or any
Supplemental Retirement Benefit the Participant or Participant's spouse
is receiving or may be entitled to receive.
Section 8.13 In the event a Participant's claim for Plan benefits
is denied or in the event the Participant disputes the computation of the
benefit amount, the Participant shall be entitled to the same claims
appeal procedure that is available to the Participant under the terms of
the Retirement Plan.
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000004904
<NAME> AMERICAN ELECTRIC POWER COMPANY, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 11,502,352
<OTHER-PROPERTY-AND-INVEST> 1,313,845
<TOTAL-CURRENT-ASSETS> 1,379,080
<TOTAL-DEFERRED-CHARGES> 216,417
<OTHER-ASSETS> 1,838,720
<TOTAL-ASSETS> 16,250,414
<COMMON> 1,290,971
<CAPITAL-SURPLUS-PAID-IN> 1,762,296
<RETAINED-EARNINGS> 1,592,705
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4,645,972
127,605
46,869
<LONG-TERM-DEBT-NET> 5,122,382
<SHORT-TERM-NOTES> 123,925
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 383,825
<LONG-TERM-DEBT-CURRENT-PORT> 219,422
0
<CAPITAL-LEASE-OBLIGATIONS> 396,289
<LEASES-CURRENT> 95,609
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,088,516
<TOT-CAPITALIZATION-AND-LIAB> 16,250,414
<GROSS-OPERATING-REVENUE> 4,458,221
<INCOME-TAX-EXPENSE> 284,978
<OTHER-OPERATING-EXPENSES> 3,404,920
<TOTAL-OPERATING-EXPENSES> 3,689,898
<OPERATING-INCOME-LOSS> 768,323
<OTHER-INCOME-NET> 43,030
<INCOME-BEFORE-INTEREST-EXPEN> 811,353
<TOTAL-INTEREST-EXPENSE> 300,851
<NET-INCOME> 384,881 <F1>
15,056 <F2>
<EARNINGS-AVAILABLE-FOR-COMM> 384,881
<COMMON-STOCK-DIVIDENDS> 339,685
<TOTAL-INTEREST-ON-BONDS> 177,973
<CASH-FLOW-OPERATIONS> 965,995
<EPS-PRIMARY> $2.04 <F3>
<EPS-DILUTED> $2.04 <F3>
<FN>
<F1> Net income includes an extraordinary loss of $(110,565,000)
for United Kingdom windfall tax.
<F2> Represents preferred stock dividend requirements of
subsidiaries; deducted before computation of net income.
<F3> EPS includes an extraordinary loss of $(0.58) for United
Kingdom windfall tax.
</FN>
</TABLE>
