THE CONSOLIDATED 10-Q FOR AMERICAN ELECTRIC POWER CO., INC, AND
SUBSIDIARIES IS REQUESTED TO BE INCLUDED AS PART OF THE FILING.
<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended MARCH 31, 1998
[ ] 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 April 30, 1998 was 190,428,046.
/TABLE
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AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
FORM 10-Q
For The Quarter Ended March 31, 1998
<CAPTION>
INDEX
Page
Part I. FINANCIAL INFORMATION
<S> <C>
American Electric Power Company, Inc. and Subsidiary Companies:
Consolidated Statements of Income and
Statements of Retained Earnings. . . . . . . . . . . . . . A-1
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . A-2 - A-3
Consolidated Statements of Cash Flows. . . . . . . . . . . . A-4
Notes to Consolidated Financial Statements . . . . . . . . . A-5 - A-7
Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . . A-8 - A-10
AEP Generating Company:
Statements of Income and Statements of Retained Earnings . . B-1
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . B-2 - B-3
Statements of Cash Flows . . . . . . . . . . . . . . . . . . B-4
Notes to Financial Statements. . . . . . . . . . . . . . . . B-5
Management's Narrative Analysis of Results of Operations . . B-6 - B-7
Appalachian Power Company and Subsidiaries:
Consolidated Statements of Income and
Consolidated Statements of Retained Earnings . . . . . . . C-1
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . C-2 - C-3
Consolidated Statements of Cash Flows. . . . . . . . . . . . C-4
Notes to Consolidated Financial Statements . . . . . . . . . C-5 - C-6
Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . . C-7 - C-8
Columbus Southern Power Company and Subsidiaries:
Consolidated Statements of Income and
Consolidated Statements of Retained Earnings . . . . . . . D-1
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . D-2 - D-3
Consolidated Statements of Cash Flows. . . . . . . . . . . . D-4
Notes to Consolidated Financial Statements . . . . . . . . . D-5 - D-6
Management's Narrative Analysis of Results of Operations . . D-7 - D-8
Indiana Michigan Power Company and Subsidiaries:
Consolidated Statements of Income and
Consolidated Statements of Retained Earnings . . . . . . . E-1
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . E-2 - E-3
Consolidated Statements of Cash Flows. . . . . . . . . . . . E-4
Notes to Consolidated Financial Statements . . . . . . . . . E-5 - E-6
Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . . E-7 - E-8
Kentucky Power Company:
Statements of Income and Statements of Retained Earnings . . F-1
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . F-2 - F-3
Statements of Cash Flows . . . . . . . . . . . . . . . . . . F-4
Notes to Financial Statements. . . . . . . . . . . . . . . . F-5 - 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 March 31, 1998
INDEX
Page
Ohio Power Company and Subsidiaries:
Consolidated Statements of Income and
Consolidated Statements of Retained Earnings . . . . . . G-1
Consolidated Balance Sheets. . . . . . . . . . . . . . . . G-2 - G-3
Consolidated Statements of Cash Flows. . . . . . . . . . . G-4
Notes to Consolidated Financial Statements . . . . . . . . G-5 - G-6
Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . G-7 - G-8
Part II. OTHER INFORMATION
Item 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.
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AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per-share amounts)
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . $2,170,582 $1,492,069
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . 437,979 408,289
Purchased Power. . . . . . . . . . . . . . . . . . . . . 708,502 26,408
Other Operation. . . . . . . . . . . . . . . . . . . . . 291,499 302,280
Maintenance. . . . . . . . . . . . . . . . . . . . . . . 119,943 99,385
Depreciation and Amortization. . . . . . . . . . . . . . 143,616 151,952
Taxes Other Than Federal Income Taxes. . . . . . . . . . 125,173 126,614
Federal Income Taxes . . . . . . . . . . . . . . . . . . 87,938 105,163
TOTAL OPERATING EXPENSES. . . . . . . . . . . . . 1,914,650 1,220,091
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . 255,932 271,978
NONOPERATING INCOME. . . . . . . . . . . . . . . . . . . . 794 4,509
INCOME BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS . . 256,726 276,487
INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . 103,551 93,822
PREFERRED STOCK DIVIDEND REQUIREMENTS OF SUBSIDIARIES. . . 2,589 10,103
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . $ 150,586 $ 172,562
AVERAGE NUMBER OF SHARES OUTSTANDING . . . . . . . . . . . 190,084 188,347
EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . . . $0.79 $0.92
CASH DIVIDENDS PAID PER SHARE. . . . . . . . . . . . . . . $0.60 $0.60
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
(in thousands)
BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . . . . $1,605,017 $1,547,746
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 150,586 172,562
DEDUCTIONS:
Cash Dividends Declared. . . . . . . . . . . . . . . . . 113,996 112,943
Other. . . . . . . . . . . . . . . . . . . . . . . . . . - (411)
BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . . . $1,641,607 $1,607,776
See Notes to Consolidated Financial Statements.
/TABLE
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AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
March 31, December 31,
1998 1997
(in thousands)
ASSETS
<S> <C> <C>
ELECTRIC UTILITY PLANT:
Production . . . . . . . . . . . . . . . . . . . . . $ 9,497,574 $ 9,493,158
Transmission . . . . . . . . . . . . . . . . . . . . 3,531,071 3,501,580
Distribution . . . . . . . . . . . . . . . . . . . . 4,641,887 4,654,234
General (including mining assets and nuclear fuel) . 1,610,709 1,604,671
Construction Work in Progress. . . . . . . . . . . . 408,740 342,842
Total Electric Utility Plant . . . . . . . . 19,689,981 19,596,485
Accumulated Depreciation and Amortization. . . . . . 8,080,362 7,963,636
NET ELECTRIC UTILITY PLANT . . . . . . . . . 11,609,619 11,632,849
OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 1,483,751 1,358,810
CURRENT ASSETS:
Cash and Cash Equivalents. . . . . . . . . . . . . . 133,190 91,481
Accounts Receivable (net). . . . . . . . . . . . . . 714,868 667,518
Fuel . . . . . . . . . . . . . . . . . . . . . . . . 218,597 224,967
Materials and Supplies . . . . . . . . . . . . . . . 263,178 263,613
Accrued Utility Revenues . . . . . . . . . . . . . . 163,345 189,191
Prepayments. . . . . . . . . . . . . . . . . . . . . 92,457 81,366
TOTAL CURRENT ASSETS . . . . . . . . . . . . 1,585,635 1,518,136
REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 1,833,663 1,817,540
DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 285,735 288,011
TOTAL. . . . . . . . . . . . . . . . . . . $16,798,403 $16,615,346
See Notes to Consolidated Financial Statements.
</TABLE>
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AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
March 31, December 31,
1998 1997
(in thousands)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
CAPITALIZATION:
Common Stock-Par Value $6.50:
1998 1997
Shares Authorized . . . .300,000,000 300,000,000
Shares Issued . . . . . .199,374,727 198,989,981
(8,999,992 shares were held in treasury) . . . . . $ 1,295,936 $ 1,293,435
Paid-in Capital. . . . . . . . . . . . . . . . . . . 1,795,378 1,778,782
Retained Earnings. . . . . . . . . . . . . . . . . . 1,641,607 1,605,017
Total Common Shareholders' Equity. . . . . . 4,732,921 4,677,234
Cumulative Preferred Stocks of Subsidiaries:
Not Subject to Mandatory Redemption. . . . . . . . 46,566 46,724
Subject to Mandatory Redemption. . . . . . . . . . 127,605 127,605
Long-term Debt . . . . . . . . . . . . . . . . . . . 5,181,556 5,129,463
TOTAL CAPITALIZATION . . . . . . . . . . . . 10,088,648 9,981,026
OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 1,307,883 1,246,537
CURRENT LIABILITIES:
Long-term Debt Due Within One Year . . . . . . . . . 120,285 294,454
Short-term Debt. . . . . . . . . . . . . . . . . . . 640,150 555,075
Accounts Payable . . . . . . . . . . . . . . . . . . 342,162 353,256
Taxes Accrued. . . . . . . . . . . . . . . . . . . . 416,331 380,771
Interest Accrued . . . . . . . . . . . . . . . . . . 110,284 76,361
Obligations Under Capital Leases . . . . . . . . . . 100,784 101,089
Other. . . . . . . . . . . . . . . . . . . . . . . . 325,541 322,687
TOTAL CURRENT LIABILITIES. . . . . . . . . . 2,055,537 2,083,693
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 2,552,020 2,560,921
DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 370,502 376,250
DEFERRED GAIN ON SALE AND LEASEBACK -
ROCKPORT PLANT UNIT 2. . . . . . . . . . . . . . . . 229,001 231,320
DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 194,812 135,599
CONTINGENCIES (Note 5)
TOTAL. . . . . . . . . . . . . . . . . . . $16,798,403 $16,615,346
See Notes to Consolidated Financial Statements.
</TABLE>
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AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1998 1997
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 150,586 $ 172,562
Adjustments for Noncash Items:
Depreciation and Amortization. . . . . . . . . . . . . . 153,576 151,716
Deferred Federal Income Taxes. . . . . . . . . . . . . . 8,333 (8,192)
Deferred Investment Tax Credits. . . . . . . . . . . . . (5,748) (5,836)
Changes in Certain Current Assets and Liabilities:
Accounts Receivable (net). . . . . . . . . . . . . . . . (47,350) (45,745)
Fuel, Materials and Supplies . . . . . . . . . . . . . . 6,805 25,918
Accrued Utility Revenues . . . . . . . . . . . . . . . . 25,846 21,025
Prepayments. . . . . . . . . . . . . . . . . . . . . . . (11,091) (25,553)
Accounts Payable . . . . . . . . . . . . . . . . . . . . (11,094) (47,478)
Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . 35,560 62,307
Interest Accrued . . . . . . . . . . . . . . . . . . . . 33,923 36,406
Rent Accrued - Rockport Plant Unit 2 . . . . . . . . . . 36,928 36,928
Other (net). . . . . . . . . . . . . . . . . . . . . . . . (37,284) 42,953
Net Cash Flows From Operating Activities . . . . . . 338,990 417,011
INVESTING ACTIVITIES:
Construction Expenditures. . . . . . . . . . . . . . . . . (153,025) (125,687)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . (7,645) 1,048
Net Cash Flows Used For Investing Activities . . . . (160,670) (124,639)
FINANCING ACTIVITIES:
Issuance of Common Stock . . . . . . . . . . . . . . . . . 18,760 19,572
Issuance of Long-term Debt . . . . . . . . . . . . . . . . 184,374 274,352
Change in Short-term Debt (net). . . . . . . . . . . . . . 85,075 14,623
Retirement of Cumulative Preferred Stock . . . . . . . . . (117) (382,932)
Retirement of Long-term Debt . . . . . . . . . . . . . . . (310,707) (76,500)
Dividends Paid on Common Stock . . . . . . . . . . . . . . (113,996) (112,943)
Net Cash Flows Used For Financing Activities . . . . (136,611) (263,828)
Net Increase in Cash and Cash Equivalents. . . . . . . . . . 41,709 28,544
Cash and Cash Equivalents at Beginning of Period . . . . . . 91,481 57,539
Cash and Cash Equivalents at End of Period . . . . . . . . . $ 133,190 $ 86,083
Supplemental Disclosure:
Cash paid for interest net of capitalized amounts was $66,422,000 and $54,005,000
and for income taxes was $1,946,000 and $3,839,000 in 1998 and 1997, respectively.
Noncash acquisitions under capital leases were $47,365,000 and $56,916,000 in 1998
and 1997, respectively.
See Notes to Consolidated Financial Statements.
</TABLE>
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AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated financial state-ments should be
read in conjunction with the 1997 Financial
Statements and Management's Discussion and Analysis of Results
of Operations and Financial Condition as incorporated in and
filed with the Form 10-K. In the opinion of management, the
financial statements reflect all adjustments (consisting of
only normal recurring accruals) which are necessary for a fair
presentation of the results of operations for interim periods.
2. FINANCING AND RELATED ACTIVITIES
During the first three months of 1998, subsidiaries issued
two series of senior unsecured notes totaling $152 million ($52
million at 6.51% and $100 million at 7.20% due in 2008 and
2038, respectively,) and increased the outstanding balance
under a long-term revolving credit agreement by $15 million.
The proceeds and short-term debt were used during the first
quarter to retire: first mortgage bonds totaling $250 million
with interest rates ranging from 6-3/4% to 9.15% and due dates
ranging from 1998 to 2022, $25 million of variable rate
pollution control revenue bonds due in 2025 and a $16.7 million
term loan with an interest rate of 6.85% at maturity.
As a result of the redemption of the 6-3/4% series first
mortgage bonds due in 1998, the restriction on the use of
retained earnings for the payment of common stock dividends was
reduced to $6 million.
In April 1998 a subsidiary issued $100 million of 7.30%
senior unsecured notes due in 2038 and in May another
subsidiary redeemed $35 million of its 7% series first mortgage
bonds at maturity. A subsidiary called $100 million of
outstanding first mortgage bonds ($50 million each at 8.25% and
8.10%) due in 2002 for early redemption in May 1998 and issued
$140 million of 7-3/8% senior unsecured notes due in 2038.
Consequently the bonds were not reclassified as a current
liability on the balance sheet.
<PAGE>
3. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 130
"Reporting Comprehensive Income" was adopted by the Company in
the first quarter of 1998. SFAS No. 130 established the
standards for reporting and displaying components of
"comprehensive income," which is the total of net income and
all transactions not included in net income affecting equity
except those with shareholders. For the quarter ended March
31, 1998, there were no material differences between
comprehensive income and net income.
In the first quarter of 1998 the Company adopted the
American Institute of Certified Public Accountants' Statement
of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". The SOP
requires the capitalization and amortization of certain costs
of acquiring or developing internal use computer software.
Previously the Company expensed all software acquisition and
development costs. The SOP must be adopted at the beginning
of a fiscal year with no restatement or retroactive adjustment
of prior periods. The adoption of the SOP did not have a
material effect on results of operations, cash flows or
financial condition.
4. INVESTMENT IN YORKSHIRE
The Company has a 50% ownership interest in Yorkshire Power
Group Limited which is accounted for using the equity method
of accounting and included in nonoperating income. The
following amounts which are not included in AEP's consolidated
financial statements represent summarized consolidated
financial information of Yorkshire Power Group Limited for the
three months ended March 31, 1998:
(in millions)
Income Statement Data:
Operating Revenues $663.2
Operating Income 89.7
Net Income 6.9
5. CONTINGENCIES
Taxes
As discussed in Note 10, "Federal Income Taxes", of the
Notes to Consolidated Financial Statements in the 1997
Financial Statements and Management's Discussion and Analysis
of Results of Operations and Financial Condition, the Internal
Revenue Service (IRS) agents auditing the federal income tax
returns requested a ruling from their National Office that
certain interest deductions relating to corporate owned life
insurance (COLI) claimed by the Company should not be allowed.
The Company filed a brief with the IRS National Office refuting
the agents' position. No ruling has been received from the IRS
National Office. Although no adjustments have been formally
proposed, a disallowance of the COLI interest deductions
through March 31, 1998 would reduce earnings by approximately
$296 million (including interest). No provisions for this
amount have been recorded. In the event the Company is
unsuccessful it could have a material adverse impact on results
of operations and cash flows.
In order to resolve this issue without further delay, on
March 24, 1998, the Company filed suit against the United
States in the United States District Court for the Southern
District of Ohio. Management believes that it has a
meritorious position and will vigorously pursue this lawsuit.
Cook Plant Shutdown
As discussed in Note 4 of the Notes to Consolidated
Financial Statements in the 1997 Financial Statements and
Management's Discussion and Analysis of Results of Operations
and Financial Condition, both units of the Cook Plant were shut
down in September 1997 due to questions regarding the
operability of certain safety systems during a Nuclear
Regulatory Commission (NRC) architect engineer design
inspection. The NRC issued a Confirmatory Action Letter in
September 1997 requiring the Company to address the issues
identified in the letter. Certain issues identified in the
letter have been addressed. The Company is working with the
NRC to resolve the remaining issues in the letter and other
issues related to the restart of the units. 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 reasonable period of time, it could have a material
adverse impact on results of operations, cash flows and
possibly financial condition.
Other
The Company continues to be involved in certain other
matters discussed in the 1997 Financial Statements and
Management's Discussion and Analysis of Results of Operations
and Financial Condition.
<PAGE>
<PAGE>
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
FIRST QUARTER 1998 vs. FIRST QUARTER 1997
RESULTS OF OPERATIONS
Net income decreased $22 million or 13% due primarily to the
effect of mild weather on electricity sales to residential
customers and damage from two severe snowstorms. The outage of the
Cook Nuclear Plant limited the amount of energy the AEP System was
able to sell to other utilities in the first quarter of 1998.
Income statement line items which changed significantly were:
Increase (Decrease)
(in millions) %
Operating Revenues . . . . . . . . . . $678.5 45
Fuel Expense . . . . . . . . . . . . . 29.7 7
Purchased Power Expense. . . . . . . . 682.1 N.M.
Other Operation Expense. . . . . . . . (10.8) (4)
Maintenance Expense. . . . . . . . . . 20.6 21
Depreciation and Amortization. . . . . (8.3) (5)
Federal Income Taxes . . . . . . . . . (17.2) (16)
Interest Charges . . . . . . . . . . . 9.7 10
Preferred Stock Dividend
Requirements of Subsidiaries . . . . (7.5) (74)
N.M. = Not Meaningful
The significant increase in operating revenues was
predominantly due to a substantial increase in wholesale sales from
a new power marketing business started in July 1997. The power
marketing business involves the purchase and sale of large
quantities of electricity. The increase in wholesale sales and
related revenues were offset by a nearly equivalent increase in
power purchases by the new power marketing operation resulting in
a minor positive impact on net income.
While wholesale sales increased, retail sales were unchanged
as a 4% decline in weather-sensitive residential sales was offset
by growth related increases in commercial and industrial sales.
Moderate temperatures throughout the winter months were responsible
for the decrease in residential customers' energy usage.
<PAGE>
The increase in fuel expense is primarily attributable to an
increase in the average cost of fuel consumed reflecting the
unavailability of lower cost nuclear generation due to the
unplanned outage of both nuclear units in 1998.
Purchases of electricity for the power marketing business
caused the significant increase in purchased power expense.
The decrease in other operation expense is primarily due to a
refund of nuclear insurance policy premiums and reduced employee
pension and benefit costs.
Maintenance expense increased due to expenditures for repair
of transmission and distribution facilities resulting from two
snowstorms in the Company's Kentucky, Virginia and West Virginia
service territories.
The reduction in depreciation and amortization expense reflects
the completion of the amortization of deferrals under rate phase-in
plans by two subsidiaries. Net income was not affected by the
completion of the phase-in amortizations since the recovery of the
amortization in revenues ceased concurrent with the amortization.
The decrease in federal income tax expense attributable to
operations was primarily 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 purposes.
Additional borrowings to fund the Company's non-regulated
operations (including the investment in Yorkshire Electricity Group
plc) and to refinance reacquired preferred stock were the primary
reason interest charges increased.
Preferred stock dividend requirements of subsidiaries decreased
due to the reacquisition of over 4 million shares of cumulative
preferred stock in March and April 1997.
FINANCIAL CONDITION
Total plant and property additions including capital leases for
the current period were $201 million.
During the quarter subsidiaries issued $167 million principal
amount of long-term debt at interest rates ranging from 5.8675% to
7.20%, retired $267 million principal amount of fixed rate long-term debt at
interest rates ranging from 6.75% to 9.15% and $25 million
of daily variable rate debt.<PAGE>
In April 1998 a subsidiary issued
$100 million of 7.30% senior unsecured notes due in 2038 and in
May another subsidiary redeemed
$35 million of its 7% series first mortgage bonds at maturity. A
subsidiary called $100 million of outstanding first mortgage bonds
($50 million each at 8.10% and 8.25%) due in 2002 for early
redemption in May 1998 and issued $140 million of 7-3/8% senior
unsecured notes due in 2038. Consequently the bonds were not
reclassified as a current liability on the balance sheet.
Market Risks
The Company as a major power producer, a trader of electricity
and gas and an investor in foreign operations has certain financial
market risks inherent in its routine business activities. The
trading of electricity and gas and related future contracts exposes
the Company to commodity price fluctuations. The Company is
subject to currency translation rate risk from investment in two
foreign currency denominated joint ventures. Short- and long-term
borrowings to fund business operations exposes the Company to
changes in interest rates. From December 31, 1997 through March
31, 1998 there have been no material changes in the Company's
exposures to market risks from that discussed under "Market Risks"
in the December 31, 1997 Management's Discussion and Analysis of
Results of Operations and Financial Condition.
<PAGE>
<PAGE>
<TABLE>
AEP GENERATING COMPANY
STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1998 1997
(in thousands)
<S> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . . . $54,052 $59,096
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,501 27,350
Rent - Rockport Plant Unit 2 . . . . . . . . . . . . . . . . 17,071 17,071
Other Operation. . . . . . . . . . . . . . . . . . . . . . . 2,649 3,130
Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . 2,178 2,386
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . 5,412 5,395
Taxes Other Than Federal Income Taxes. . . . . . . . . . . . 943 879
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . 962 757
TOTAL OPERATING EXPENSES . . . . . . . . . . . . . . 51,716 56,968
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . 2,336 2,128
NONOPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 829 850
INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . . . . . 3,165 2,978
INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . . . 785 941
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,380 $ 2,037
STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
(in thousands)
BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . $2,528 $1,886
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . 2,380 2,037
CASH DIVIDENDS DECLARED. . . . . . . . . . . . . . . . . . . . 3,176 1,286
BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . . . . . $1,732 $2,637
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>
March 31, December 31,
1998 1997
(in thousands)
ASSETS
<S> <C> <C>
ELECTRIC UTILITY PLANT:
Production. . . . . . . . . . . . . . . . . . . . . . . . $627,953 $627,803
General . . . . . . . . . . . . . . . . . . . . . . . . . 3,138 3,137
Construction Work in Progress . . . . . . . . . . . . . . 3,688 2,510
Total Electric Utility Plant. . . . . . . . . . . 634,779 633,450
Accumulated Depreciation. . . . . . . . . . . . . . . . . 262,636 257,191
NET ELECTRIC UTILITY PLANT. . . . . . . . . . . . 372,143 376,259
CURRENT ASSETS:
Cash and Cash Equivalents . . . . . . . . . . . . . . . . 127 237
Accounts Receivable - Affiliated Companies. . . . . . . . 17,731 20,710
Fuel. . . . . . . . . . . . . . . . . . . . . . . . . . . 13,916 10,107
Materials and Supplies. . . . . . . . . . . . . . . . . . 4,258 4,246
Prepayments . . . . . . . . . . . . . . . . . . . . . . . 340 368
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . 36,372 35,668
REGULATORY ASSETS . . . . . . . . . . . . . . . . . . . . . 6,164 5,639
DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . . 3,400 1,492
TOTAL . . . . . . . . . . . . . . . . . . . . . $418,079 $419,058
See Notes to Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
AEP GENERATING COMPANY
BALANCE SHEETS
(UNAUDITED)
<CAPTION>
March 31, December 31,
1998 1997
(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 . . . . . . . . . . . . . . . . . . . . . 39,235 39,235
Retained Earnings . . . . . . . . . . . . . . . . . . . . 1,732 2,528
Total Common Shareholder's Equity . . . . . . . . 41,967 42,763
Long-term Debt. . . . . . . . . . . . . . . . . . . . . . 44,786 69,570
TOTAL CAPITALIZATION. . . . . . . . . . . . . . . 86,753 112,333
OTHER NONCURRENT LIABILITIES. . . . . . . . . . . . . . . . 1,133 1,259
CURRENT LIABILITIES:
Short-term Debt - Notes Payable . . . . . . . . . . . . . 15,175 11,750
Accounts Payable. . . . . . . . . . . . . . . . . . . . . 13,823 9,704
Taxes Accrued . . . . . . . . . . . . . . . . . . . . . . 6,136 3,420
Interest Accrued. . . . . . . . . . . . . . . . . . . . . 159 461
Rent Accrued - Rockport Plant Unit 2. . . . . . . . . . . 23,427 4,963
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 840 3,747
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . 59,560 34,045
DEFERRED GAIN ON SALE AND LEASEBACK -
ROCKPORT PLANT UNIT 2 . . . . . . . . . . . . . . . . . . 137,508 138,901
REGULATORY LIABILITIES:
Deferred Investment Tax Credits . . . . . . . . . . . . . 69,175 70,016
Amounts Due to Customers for Federal Income Tax . . . . . 31,051 31,375
TOTAL REGULATORY LIABILITIES. . . . . . . . . . . 100,226 101,391
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . 32,899 31,129
TOTAL . . . . . . . . . . . . . . . . . . . . . $418,079 $419,058
See Notes to Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
AEP GENERATING COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1998 1997
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 2,380 $ 2,037
Adjustments for Noncash Items:
Depreciation . . . . . . . . . . . . . . . . . . . . . . 5,412 5,395
Deferred Federal Income Taxes. . . . . . . . . . . . . . 1,446 1,258
Deferred Investment Tax Credits. . . . . . . . . . . . . (841) (842)
Amortization of Deferred Gain on Sale and Leaseback -
Rockport Plant Unit 2. . . . . . . . . . . . . . . . . (1,393) (1,393)
Deferred Property Taxes. . . . . . . . . . . . . . . . . (2,385) (2,217)
Changes in Certain Current Assets and Liabilities:
Accounts Receivable. . . . . . . . . . . . . . . . . . . 2,979 (1,910)
Fuel, Materials and Supplies . . . . . . . . . . . . . . (3,821) 7,217
Accounts Payable . . . . . . . . . . . . . . . . . . . . 4,119 (4,485)
Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . 2,716 2,470
Rent Accrued - Rockport Plant Unit 2 . . . . . . . . . . 18,464 18,464
Other (net). . . . . . . . . . . . . . . . . . . . . . . . (3,019) (2,625)
Net Cash Flows From Operating Activities . . . . . . 26,057 23,369
INVESTING ACTIVITIES - Construction Expenditures . . . . . . (1,416) (314)
FINANCING ACTIVITIES:
Return of Capital to Parent Company. . . . . . . . . . . . - (2,000)
Retirement of Long-term Debt . . . . . . . . . . . . . . . (25,000) -
Change in Short-term Debt (net). . . . . . . . . . . . . . 3,425 (9,575)
Dividends Paid . . . . . . . . . . . . . . . . . . . . . . (3,176) (1,286)
Net Cash Flows Used For Financing Activities . . . . (24,751) (12,861)
Net Increase (Decrease) in Cash and Cash Equivalents . . . . (110) 10,194
Cash and Cash Equivalents at Beginning of Period . . . . . . 237 139
Cash and Cash Equivalents at End of Period . . . . . . . . . $ 127 $ 10,333
Supplemental Disclosure:
Cash paid for interest net of capitalized amounts was $982,000 and $889,000 and for
income taxes was $15,000 and $2,000 in 1998 and 1997, respectively.
See Notes to Financial Statements.
/TABLE
<PAGE>
<PAGE>
AEP GENERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. GENERAL
The accompanying unaudited financial statements should be read
in conjunction with the 1997 Annual Report as incorporated in and
filed with the Form 10-K. In the opinion of management, the
financial statements reflect all adjustments (consisting of only
normal recurring accruals) which are necessary for a fair
presentation of the results of operations for interim periods.
2. FINANCING ACTIVITIES
In March 1998 $25 million of pollution control revenue bonds
due in 2025 were redeemed; $12.5 million of the 1995 Series A bonds
and $12.5 million of the 1995 Series B bonds.
3. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 130
"Reporting Comprehensive Income" was adopted by the Company in the
first quarter of 1998. SFAS No. 130 established the standards for
reporting and displaying components of "comprehensive income,"
which is the total of net income and all transactions not included
in net income affecting equity except those with shareholders. For
the quarter ended March 31, 1998, there were no material
differences between comprehensive income and net income.
In the first quarter of 1998 the Company adopted the American
Institute of Certified Public Accountants' Statement of Position
(SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". The SOP requires the
capitalization and amortization of certain costs of acquiring or
developing internal use computer software. Previously the Company
expensed all software acquisition and development costs. The SOP
must be adopted at the beginning of a fiscal year with no
restatement or retroactive adjustment of prior periods. The
adoption of the SOP did not have a material effect on results of
operations, cash flows or financial condition.
<PAGE>
<PAGE>
AEP GENERATING COMPANY
MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
FIRST QUARTER 1998 vs. FIRST QUARTER 1997
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 the cost of producing
the power including a FERC approved rate of return on common equity
and a return on other capital net of temporary cash investments.
Net income increased $0.3 million or 17% primarily as a result
of the March 1998 redemption of $25 million of pollution control
revenue bonds. The resultant reduction in interest charges caused
net income to increase since decreased borrowing costs are not
reflected in billings to customers as a component of the return on
other capital until the subsequent month.
Income statement line items which changed significantly were:
Increase (Decrease)
(in millions) %
Operating Revenues $(5.0) (9)
Fuel Expense (4.8) (18)
Other Operation Expense (0.5) (15)
Maintenance Expense (0.2) (9)
Federal Income Taxes 0.2 27
Interest Charges (0.2) (17)
The decrease in operating revenues reflects recovery of lower
operating expenses primarily fuel expense.
Fuel expense decreased due to a decrease in the average cost
of fuel consumed due to lower coal prices and a reduction in
generation in the first quarter of 1998 due to reduced availability
of the Rockport Plant. Rockport Plant generation was reduced as a
result of a planned general boiler inspection and repair outage for
Unit 1 and an unscheduled Unit 2 outage for tube leaks.
The decrease in other operation expense is primarily due to a
decline in administration and general expenses reflecting reduced
employee benefit costs and a reduction in the FERC annual
assessment.
Maintenance expense decreased for Rockport Plant during 1998
reflecting outage cost reduction efforts.
<PAGE>
Federal income taxes attributable to operations increased due
to an increase in pre-tax operating income.
The decline in interest charges was due to a reduction in
outstanding long-term debt balances reflecting the redemption of
$20 million in June 1997 and $25 million in March 1998 of pollution
control revenue bonds.
<PAGE>
<PAGE>
<TABLE>
APPALACHIAN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1998 1997
(in thousands)
<S> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . $617,490 $416,450
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . 108,209 94,904
Purchased Power. . . . . . . . . . . . . . . . . . . . . 271,386 85,540
Other Operation. . . . . . . . . . . . . . . . . . . . . 54,867 63,840
Maintenance. . . . . . . . . . . . . . . . . . . . . . . 35,352 22,810
Depreciation and Amortization. . . . . . . . . . . . . . 35,405 33,975
Taxes Other Than Federal Income Taxes. . . . . . . . . . 30,244 30,273
Federal Income Taxes . . . . . . . . . . . . . . . . . . 17,778 20,774
TOTAL OPERATING EXPENSES . . . . . . . . . . . . 553,241 352,116
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . 64,249 64,334
NONOPERATING INCOME (LOSS) . . . . . . . . . . . . . . . . (387) 244
INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . . . 63,862 64,578
INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . 30,663 28,094
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 33,199 36,484
PREFERRED STOCK DIVIDEND REQUIREMENTS. . . . . . . . . . . 469 4,965
EARNINGS APPLICABLE TO COMMON STOCK. . . . . . . . . . . . $ 32,730 $ 31,519
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
(in thousands)
BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . . . . $207,544 $208,472
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 33,199 36,484
DEDUCTIONS:
Cash Dividends Declared:
Common Stock . . . . . . . . . . . . . . . . . . . . . 29,729 28,609
Cumulative Preferred Stock . . . . . . . . . . . . . . 362 1,504
Capital Stock Expense. . . . . . . . . . . . . . . . . . 107 3,461
BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . . . $210,545 $211,382
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>
March 31, December 31,
1998 1997
(in thousands)
ASSETS
<S> <C> <C>
ELECTRIC UTILITY PLANT:
Production . . . . . . . . . . . . . . . . . . . . . $1,945,818 $1,942,325
Transmission . . . . . . . . . . . . . . . . . . . . 1,095,260 1,079,919
Distribution . . . . . . . . . . . . . . . . . . . . 1,600,375 1,583,161
General. . . . . . . . . . . . . . . . . . . . . . . 211,360 207,380
Construction Work in Progress. . . . . . . . . . . . 84,476 88,261
Total Electric Utility Plant . . . . . . . . 4,937,289 4,901,046
Accumulated Depreciation and Amortization. . . . . . 1,896,903 1,869,057
NET ELECTRIC UTILITY PLANT . . . . . . . . . 3,040,386 3,031,989
OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 51,069 35,467
CURRENT ASSETS:
Cash and Cash Equivalents. . . . . . . . . . . . . . 6,494 6,947
Accounts Receivable. . . . . . . . . . . . . . . . . 168,960 164,657
Allowance for Uncollectible Accounts . . . . . . . . (954) (1,333)
Fuel . . . . . . . . . . . . . . . . . . . . . . . . 50,708 47,901
Materials and Supplies . . . . . . . . . . . . . . . 57,520 57,359
Accrued Utility Revenues . . . . . . . . . . . . . . 35,758 51,208
Prepayments. . . . . . . . . . . . . . . . . . . . . 5,572 6,037
TOTAL CURRENT ASSETS . . . . . . . . . . . . 324,058 332,776
REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 439,039 441,223
DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 53,720 41,975
TOTAL. . . . . . . . . . . . . . . . . . . $3,908,272 $3,883,430
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
APPALACHIAN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
March 31, December 31,
1998 1997
(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. . . . . . . . . . . . . . . . . . 613,256 613,048
Retained Earnings. . . . . . . . . . . . . . . . . 210,545 207,544
Total Common Shareholder's Equity. . . . . 1,084,259 1,081,050
Cumulative Preferred Stock:
Not Subject to Mandatory Redemption. . . . . . . 19,589 19,747
Subject to Mandatory Redemption. . . . . . . . . 22,310 22,310
Long-term Debt . . . . . . . . . . . . . . . . . . 1,435,432 1,415,026
TOTAL CAPITALIZATION . . . . . . . . . . . 2,561,590 2,538,133
OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . 158,816 137,371
CURRENT LIABILITIES:
Long-term Debt Due Within One Year . . . . . . . . 19,504 79,509
Short-term Debt. . . . . . . . . . . . . . . . . . 142,400 130,300
Accounts Payable . . . . . . . . . . . . . . . . . 81,713 96,816
Taxes Accrued. . . . . . . . . . . . . . . . . . . 65,119 41,549
Customer Deposits. . . . . . . . . . . . . . . . . 13,692 13,713
Interest Accrued . . . . . . . . . . . . . . . . . 29,729 20,949
Other. . . . . . . . . . . . . . . . . . . . . . . 73,830 71,394
TOTAL CURRENT LIABILITIES. . . . . . . . . 425,987 454,230
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . 653,049 658,655
DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . 66,314 67,496
DEFERRED CREDITS . . . . . . . . . . . . . . . . . . 42,516 27,545
CONTINGENCIES (Note 4)
TOTAL. . . . . . . . . . . . . . . . . . $3,908,272 $3,883,430
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
APPALACHIAN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1998 1997
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 33,199 $ 36,484
Adjustments for Noncash Items:
Depreciation and Amortization. . . . . . . . . . . . . 35,731 34,301
Deferred Federal Income Taxes. . . . . . . . . . . . . (2,138) (2,832)
Deferred Investment Tax Credits. . . . . . . . . . . . (1,182) (1,190)
Deferred Power Supply Costs (net). . . . . . . . . . . 7,390 5,230
Provision for Rate Refunds . . . . . . . . . . . . . . 14,965 33
Changes in Certain Current Assets and Liabilities:
Accounts Receivable (net). . . . . . . . . . . . . . . (4,682) (4,809)
Fuel, Materials and Supplies . . . . . . . . . . . . . (2,968) 4,263
Accrued Utility Revenues . . . . . . . . . . . . . . . 15,450 19,575
Prepayments. . . . . . . . . . . . . . . . . . . . . . 465 (5,986)
Accounts Payable . . . . . . . . . . . . . . . . . . . (15,103) 26
Taxes Accrued. . . . . . . . . . . . . . . . . . . . . 23,570 24,480
Interest Accrued . . . . . . . . . . . . . . . . . . . 8,780 9,738
Other (net). . . . . . . . . . . . . . . . . . . . . . . (14,392) (8,355)
Net Cash Flows From Operating Activities . . . . . 99,085 110,958
INVESTING ACTIVITIES:
Construction Expenditures. . . . . . . . . . . . . . . . (40,066) (38,924)
Proceeds from Sale of Property . . . . . . . . . . . . . 535 931
Net Cash Flows Used For Investing Activities . . . (39,531) (37,993)
FINANCING ACTIVITIES:
Issuance of Long-term Debt . . . . . . . . . . . . . . . 96,781 135,575
Change in Short-term Debt (net). . . . . . . . . . . . . 12,100 15,750
Retirement of Cumulative Preferred Stock . . . . . . . . (117) (133,541)
Retirement of Long-term Debt . . . . . . . . . . . . . . (138,470) (56,332)
Dividends Paid on Common Stock . . . . . . . . . . . . . (29,729) (28,609)
Dividends Paid on Cumulative Preferred Stock . . . . . . (572) (3,450)
Net Cash Flows Used For Financing Activities . . . (60,007) (70,607)
Net Increase (Decrease) in Cash and Cash Equivalents . . . (453) 2,358
Cash and Cash Equivalents at Beginning of Period . . . . . 6,947 7,260
Cash and Cash Equivalents at End of Period . . . . . . . . $ 6,494 $ 9,618
Supplemental Disclosure:
Cash paid for interest net of capitalized amounts was $20,933,000 and $17,490,000
and for income taxes was $570,000 and $1,325,000 in 1998 and 1997, respectively.
Noncash acquisitions under capital leases were $6,120,000 and $6,170,000 in 1998
and 1997, respectively.
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
APPALACHIAN POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated financial
statements should be read in conjunction with the 1997 Annual
Report as incorporated in and filed with the Form 10-K. In the
opinion of management, the financial statements reflect all
adjustments (consisting of only normal recurring accruals)
which are necessary for a fair presentation of the results of
operations for interim periods.
2. FINANCING ACTIVITIES
In March 1998, the Company issued $100 million of 7.20%
senior unsecured notes due in 2038.
During the first quarter of 1998, the Company reacquired
the following first mortgage bonds for $138 million including
reacquisition premiums:
Principal
Amount
% Rate Due Date Reacquired
(in thousands)
8.75 2022 - February 1 $29,919
8.70 2022 - May 22 35,000
7.95 2002 - March 1 60,000
8.43 2022 - June 1 12,529
In April 1998 the Company issued $100 million of 7.30%
senior unsecured notes due in 2038.
3. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 130
"Reporting Comprehensive Income" was adopted by the Company in
the first quarter of 1998. SFAS No. 130 established the
standards for reporting and displaying components of
"comprehensive income," which is the total of net income and
all transactions not included in net income affecting equity
except those with shareholders. For the quarter ended March
31, 1998, there were no material differences between
comprehensive income and net income.
In the first quarter of 1998 the Company adopted the
American Institute of Certified Public Accountants' Statement
of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". The SOP
requires the capitalization and amortization of certain costs
of acquiring or developing internal use computer software.
Previously the Company expensed software acquisition and
development costs with the exception of certain software costs
which were capitalized in accordance with an order of the
Virginia State Corporation Commission. The SOP must be adopted
at the beginning of a fiscal year with no restatement or
retroactive adjustment of prior periods. The adoption of the
SOP did not have a material effect on results of operations,
cash flows or financial condition.
4. CONTINGENCIES
As discussed in Note 9, "Federal Income Taxes", of the
Notes to Consolidated Financial Statements in the 1997 Annual
Report, the Internal Revenue Service (IRS) agents auditing the
federal income tax returns requested a ruling from their
National Office that certain interest deductions relating to
corporate owned life insurance (COLI) claimed by the Company
should not be allowed. AEP filed a brief with the IRS National
Office refuting the agents' position. No ruling has been
received from the IRS National Office. Although no adjustments
have been formally proposed, a disallowance of the COLI
interest deductions through March 31, 1998 would reduce
earnings by approximately $74 million (including interest).
No provisions for this amount have been recorded. In the event
the Company is unsuccessful it could have a material adverse
impact on results of operations and cash flows.
In order to resolve this issue without further delay, on
March 24, 1998, AEP filed suit against the United States in the
United States District Court for the Southern District of Ohio.
Management believes that it has a meritorious position and will
vigorously pursue this lawsuit.
The Company continues to be involved in certain other
matters discussed in its 1997 Annual Report.
<PAGE>
<PAGE>
APPALACHIAN POWER COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
FIRST QUARTER 1998 vs. FIRST QUARTER 1997
RESULTS OF OPERATIONS
Net income decreased $3.3 million or 9% as a result of
increased interest charges reflecting higher outstanding balances
of long-term and short-term debt and increased maintenance expense
for damage caused by two snowstorms. Income statement line items
which changed significantly were:
Increase (Decrease)
(in millions) %
Operating Revenues. . . . . . . . . . $201.0 48
Fuel Expense. . . . . . . . . . . . . 13.3 14
Purchased Power Expense . . . . . . . 185.8 217
Other Operation Expense . . . . . . . (9.0) (14)
Maintenance Expense . . . . . . . . . 12.5 55
Federal Income Taxes. . . . . . . . . (3.0) (14)
Interest Charges. . . . . . . . . . . 2.6 9
Both retail and wholesale revenues increased. The increase in
retail revenues resulted from increased sales to commercial and
industrial customers of 8% and 5%, respectively. Partially
offsetting the increase in commercial and industrial sales and
revenues was a 4% decline in revenues and sales to weather-sensitive
residential customers.
Wholesale revenues increased 254% from a 191% increase in
wholesale sales. The increase in wholesale sales and revenues is
primarily due to new power marketing transactions which began in
July 1997 and involve the purchase and sale of large quantities of
electricity. The increases in wholesale sales and related revenues
were offset by a nearly equivalent increase in power purchases by
the new power marketing operation resulting in a minor positive
impact on net income.
The increase in fuel expense was primarily due to an increase
in generation to meet the increased demand for electricity.
Purchased power expense increased due to the Company's share
of purchases of electricity by the power marketing business.
<PAGE>
The decrease in other operation expense reflects a reduction
in employee pension and benefit costs and lower charges under an
AEP System transmission equalization agreement. The transmission
equalization agreement combines certain AEP System companies'
investment in transmission facilities and shares the costs of
ownership of those facilities in proportion to each AEP System
company's peak demand relative to the peak demands of all AEP
System companies utilizing the AEP System transmission system. The
charges paid by the Company under the agreement decreased due to a
decrease in the Company's prior twelve month peak demand relative
to the total peak demand of all transmission agreement members.
Maintenance expense increased significantly due to the cost of
repairing overhead transmission and distribution lines following
two severe snowstorms.
The decrease in federal income tax expense attributable to
operations was primarily 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 purposes.
Interest charges increased due to higher outstanding balances
of long-term and short-term debt in 1998. The issuance of debt in
March 1997 to partially fund the redemption of preferred stock led
to the increased level of debt outstanding.
FINANCIAL CONDITION
Total plant and property additions including capital leases for
the first three months of 1998 were $46 million.
In March 1998 the Company issued $100 million of 7.20% senior
unsecured notes due in 2038. During the first quarter of 1998 the
Company redeemed $137.4 million of first mortgage bonds with
interest rates from 7.95% to 8.75%. Short-term debt increased by
$12 million during the quarter.
In April 1998 the Company issued $100 million of 7.30% senior
unsecured notes due in 2038.
<PAGE>
<PAGE>
<TABLE>
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1998 1997
(in thousands)
<S> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . . . $375,481 $265,007
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,980 44,800
Purchased Power. . . . . . . . . . . . . . . . . . . . . . . 156,919 38,515
Other Operation. . . . . . . . . . . . . . . . . . . . . . . 44,582 42,130
Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . 14,307 13,324
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . 22,850 22,447
Amortization of Zimmer Plant Phase-in Costs. . . . . . . . . - 8,407
Taxes Other Than Federal Income Taxes. . . . . . . . . . . . 29,936 29,969
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . 14,678 17,985
TOTAL OPERATING EXPENSES. . . . . . . . . . . . . . . 330,252 217,577
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . 45,229 47,430
NONOPERATING INCOME (LOSS) . . . . . . . . . . . . . . . . . . (28) 1,036
INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . . . . . 45,201 48,466
INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . . . 19,556 19,142
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . 25,645 29,324
PREFERRED STOCK DIVIDEND REQUIREMENTS. . . . . . . . . . . . . 533 1,493
EARNINGS APPLICABLE TO COMMON STOCK. . . . . . . . . . . . . . $ 25,112 $ 27,831
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
(in thousands)
BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . $138,172 $ 99,582
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . 25,645 29,324
DEDUCTIONS:
Cash Dividends Declared:
Common Stock . . . . . . . . . . . . . . . . . . . . . . . 20,661 19,671
Cumulative Preferred Stock . . . . . . . . . . . . . . . . 437 437
Capital Stock Expense. . . . . . . . . . . . . . . . . . . . 96 71
BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . . . . . $142,623 $108,727
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>
March 31, December 31,
1998 1997
(in thousands)
ASSETS
<S> <C> <C>
ELECTRIC UTILITY PLANT:
Production . . . . . . . . . . . . . . . . . . . . . $1,520,064 $1,521,381
Transmission . . . . . . . . . . . . . . . . . . . . 336,111 336,446
Distribution . . . . . . . . . . . . . . . . . . . . 911,411 926,178
General. . . . . . . . . . . . . . . . . . . . . . . 139,365 138,041
Construction Work in Progress. . . . . . . . . . . . 87,624 54,064
Total Electric Utility Plant . . . . . . . . 2,994,575 2,976,110
Accumulated Depreciation . . . . . . . . . . . . . . 1,092,927 1,074,588
NET ELECTRIC UTILITY PLANT . . . . . . . . . 1,901,648 1,901,522
OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 41,265 33,653
CURRENT ASSETS:
Cash and Cash Equivalents. . . . . . . . . . . . . . 9,520 12,626
Accounts Receivable:
Customers. . . . . . . . . . . . . . . . . . . . . 83,719 87,357
Affiliated Companies . . . . . . . . . . . . . . . 50,686 12,317
Miscellaneous. . . . . . . . . . . . . . . . . . . 13,381 12,353
Allowance for Uncollectible Accounts . . . . . . . (996) (1,058)
Fuel . . . . . . . . . . . . . . . . . . . . . . . . 22,251 19,549
Materials and Supplies . . . . . . . . . . . . . . . 27,381 27,628
Accrued Utility Revenues . . . . . . . . . . . . . . 47,326 51,765
Prepayments. . . . . . . . . . . . . . . . . . . . . 33,662 29,979
TOTAL CURRENT ASSETS . . . . . . . . . . . . 286,930 252,516
REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 354,490 359,481
DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 53,090 66,688
TOTAL. . . . . . . . . . . . . . . . . . . $2,637,423 $2,613,860
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
March 31, December 31,
1998 1997
(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. . . . . . . . . . . . . . . . . . . 572,207 572,112
Retained Earnings. . . . . . . . . . . . . . . . . . 142,623 138,172
Total Common Shareholder's Equity. . . . . . 755,856 751,310
Cumulative Preferred Stock - Subject to
Mandatory Redemption . . . . . . . . . . . . . . . 25,000 25,000
Long-term Debt . . . . . . . . . . . . . . . . . . . 939,659 887,850
TOTAL CAPITALIZATION . . . . . . . . . . . . 1,720,515 1,664,160
OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 42,723 42,271
CURRENT LIABILITIES:
Long-term Debt Due Within One Year . . . . . . . . . 24,750 81,750
Short-term Debt. . . . . . . . . . . . . . . . . . . 60,050 66,600
Accounts Payable - General . . . . . . . . . . . . . 44,034 43,199
Accounts Payable - Affiliated Companies. . . . . . . 61,880 28,088
Taxes Accrued. . . . . . . . . . . . . . . . . . . . 115,926 131,107
Interest Accrued . . . . . . . . . . . . . . . . . . 26,055 14,198
Other. . . . . . . . . . . . . . . . . . . . . . . . 24,714 28,619
TOTAL CURRENT LIABILITIES. . . . . . . . . . 357,409 393,561
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 431,794 433,593
DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 52,046 52,934
DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 32,936 27,341
CONTINGENCIES (Note 4)
TOTAL. . . . . . . . . . . . . . . . . . . $2,637,423 $2,613,860
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1998 1997
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 25,645 $ 29,324
Adjustments for Noncash Items:
Depreciation . . . . . . . . . . . . . . . . . . . . . . 22,907 22,506
Deferred Federal Income Taxes. . . . . . . . . . . . . . 1,481 632
Deferred Investment Tax Credits. . . . . . . . . . . . . (888) (900)
Deferred Fuel Costs (net). . . . . . . . . . . . . . . . (522) (5,391)
Amortization of Zimmer Plant Phase-in Costs. . . . . . . - 8,407
Changes in Certain Current Assets and Liabilities:
Accounts Receivable (net). . . . . . . . . . . . . . . . (35,821) (32,643)
Fuel, Materials and Supplies . . . . . . . . . . . . . . (2,455) (812)
Accrued Utility Revenues . . . . . . . . . . . . . . . . 4,439 (10,832)
Prepayments. . . . . . . . . . . . . . . . . . . . . . . (3,683) 6,607
Accounts Payable . . . . . . . . . . . . . . . . . . . . 34,627 (19,964)
Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (15,181) (11,526)
Interest Accrued . . . . . . . . . . . . . . . . . . . . 11,857 12,691
Other (net). . . . . . . . . . . . . . . . . . . . . . . . 7,568 12,921
Net Cash Flows From Operating Activities . . . . . . 49,974 11,020
INVESTING ACTIVITIES:
Construction Expenditures. . . . . . . . . . . . . . . . . (22,113) (20,302)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,129 986
Net Cash Flows Used For Investing Activities . . . . (19,984) (19,316)
FINANCING ACTIVITIES:
Issuance of Long-term Debt . . . . . . . . . . . . . . . . 51,552 38,574
Change in Short-term Debt (net). . . . . . . . . . . . . . (6,550) 47,417
Retirement of Cumulative Preferred Stock . . . . . . . . . - (52,953)
Retirement of Long-term Debt . . . . . . . . . . . . . . . (57,000) -
Dividends Paid on Common Stock . . . . . . . . . . . . . . (20,661) (19,671)
Dividends Paid on Cumulative Preferred Stock . . . . . . . (437) (1,422)
Net Cash Flows From (Used For) Financing Activities. (33,096) 11,945
Net Increase (Decrease) in Cash and Cash Equivalents . . . . (3,106) 3,649
Cash and Cash Equivalents at Beginning of Period . . . . . . 12,626 9,134
Cash and Cash Equivalents at End of Period . . . . . . . . . $ 9,520 $ 12,783
Supplemental Disclosure:
Cash paid for interest net of capitalized amounts was $6,744,000 and $5,453,000 and
for income taxes was $129,000 and $89,000 in 1998 and 1997, respectively. Noncash
acquisitions under capital leases were $3,378,000 and $2,942,000 in 1998 and 1997,
respectively.
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated financial
statements should be read in conjunction with the 1997 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. In the opinion of
management, the financial statements reflect all adjustments
(consisting of only normal recurring accruals) which are
necessary for a fair presentation of the results of operations
for interim periods.
2. FINANCING ACTIVITIES
In February 1998 the Company redeemed $57 million of 9.15%
first mortgage bonds at maturity and issued $52 million of
6.51% senior unsecured notes due in 2008.
3. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 130
"Reporting Comprehensive Income" was adopted by the Company in
the first quarter of 1998. SFAS No. 130 established the
standards for reporting and displaying components of
"comprehensive income," which is the total of net income and
all transactions not included in net income affecting equity
except those with shareholders. For the quarter ended March
31, 1998, there were no material differences between
comprehensive income and net income.
In the first quarter of 1998 the Company adopted the
American Institute of Certified Public Accountants' Statement
of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". The SOP
requires the capitalization and amortization of certain costs
of acquiring or developing internal use computer software.
Previously the Company expensed all software acquisition and
development costs. The SOP must be adopted at the beginning
of a fiscal year with no restatement or retroactive adjustment
of prior periods. The adoption of the SOP did not have a
material effect on results of operations, cash flows or
financial condition.
4. CONTINGENCIES
As discussed in Note 8, "Federal Income Taxes", of the
Notes to Consolidated Financial Statements in the 1997 Annual
Report, the Internal Revenue Service (IRS) agents auditing the
federal income tax returns requested a ruling from their
National Office that certain interest deductions relating to
corporate owned life insurance (COLI) claimed by the Company
should not be allowed. AEP filed a brief with the IRS National
Office refuting the agents' position. No ruling has been
received from the IRS National Office. Although no adjustments
have been formally proposed, a disallowance of the COLI
interest deductions through March 31, 1998 would reduce
earnings by approximately $40 million (including interest).
No provisions for this amount have been recorded. In the event
the Company is unsuccessful it could have a material adverse
impact on results of operations and cash flows.
In order to resolve this issue without further delay, on
March 24, 1998, AEP filed suit against the United States in the
United States District Court for the Southern District of Ohio.
Management believes that it has a meritorious position and will
vigorously pursue this lawsuit.
The Company continues to be involved in certain other
matters discussed in its 1997 Annual Report.
<PAGE>
<PAGE>
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
FIRST QUARTER 1998 vs. FIRST QUARTER 1997
Net income decreased $3.7 million or 13% in the first quarter
of 1998 due primarily to the effect of mild weather on electricity
sales to residential customers.
Income statement line items which changed significantly were:
Increase (Decrease)
(in millions) %
Operating Revenues . . . . . . . . . . . $110.5 42
Fuel Expense . . . . . . . . . . . . . . 2.2 5
Purchased Power Expense. . . . . . . . . 118.4 307
Other Operation Expense. . . . . . . . . 2.5 6
Amortization of Zimmer Plant
Phase-in Costs . . . . . . . . . . . . (8.4) (100)
Federal Income Taxes . . . . . . . . . . (3.3) (18)
Although mild winter weather reduced residential customers'
electricity consumption by 3%, revenues increased significantly as
a result of a substantial increase in wholesale sales from a new
power marketing business the AEP System started in July 1997. The
increases in wholesale sales and related revenues were offset by a
nearly equivalent increase in power purchases by the new power
marketing operation resulting in a minor positive impact on net
income.
The increase in fuel expense was due to the operation of the
fuel clause adjustment mechanism which resulted in a credit to fuel
expense in 1997 from the amortization of previously deferred
overrecovered fuel costs.
The Company's share of purchases by the new power marketing
business were the main reason for the increase in purchased power
expense.
Other operation expense increased primarily due to an increase
in generation costs including an increase in the cost of emission
allowances consumed and the recognition of gains on the sale of
allowances in 1997.
The reduction in the amortization of deferred Zimmer Plant
phase-in costs reflects the completion of the surcharge recovery
plan and the full amortization of the original deferral. The
cessation of the amortization did not affect net income since the
amortization was being recovered in revenues through a surcharge
which terminated with the completion of the amortization.
Federal income taxes attributable to operations decreased
primarily 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 purposes.
<PAGE>
<PAGE>
<TABLE>
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1998 1997
(in thousands)
<S> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . $456,415 $341,313
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . 44,879 60,250
Purchased Power. . . . . . . . . . . . . . . . . . . . . 186,106 35,996
Other Operation. . . . . . . . . . . . . . . . . . . . . 76,433 78,611
Maintenance. . . . . . . . . . . . . . . . . . . . . . . 27,078 25,236
Depreciation and Amortization. . . . . . . . . . . . . . 35,793 35,018
Amortization of Rockport Plant Unit 1
Phase-in Plan Deferrals. . . . . . . . . . . . . . . . - 3,911
Taxes Other Than Federal Income Taxes. . . . . . . . . . 16,392 18,285
Federal Income Taxes . . . . . . . . . . . . . . . . . . 18,366 24,112
TOTAL OPERATING EXPENSES . . . . . . . . . . . . 405,047 281,419
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . 51,368 59,894
NONOPERATING INCOME (LOSS) . . . . . . . . . . . . . . . . (990) 468
INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . . . 50,378 60,362
INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . 16,634 16,103
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 33,744 44,259
PREFERRED STOCK DIVIDEND REQUIREMENTS. . . . . . . . . . . 1,217 2,108
EARNINGS APPLICABLE TO COMMON STOCK. . . . . . . . . . . . $ 32,527 $ 42,151
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
(in thousands)
BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . . . . $278,814 $269,071
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 33,744 44,259
DEDUCTIONS:
Cash Dividends Declared:
Common Stock . . . . . . . . . . . . . . . . . . . . . 29,366 29,065
Cumulative Preferred Stock . . . . . . . . . . . . . . 1,184 1,203
Capital Stock Expense. . . . . . . . . . . . . . . . . . 33 905
BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . . . $281,975 $282,157
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>
March 31, December 31,
1998 1997
(in thousands)
ASSETS
<S> <C> <C>
ELECTRIC UTILITY PLANT:
Production . . . . . . . . . . . . . . . . . . . . . $2,542,488 $2,545,484
Transmission . . . . . . . . . . . . . . . . . . . . 909,815 908,736
Distribution . . . . . . . . . . . . . . . . . . . . 739,418 737,902
General (including nuclear fuel) . . . . . . . . . . 232,239 233,888
Construction Work in Progress. . . . . . . . . . . . 106,262 88,487
Total Electric Utility Plant . . . . . . . . 4,530,222 4,514,497
Accumulated Depreciation and Amortization. . . . . . 2,001,265 1,973,937
NET ELECTRIC UTILITY PLANT . . . . . . . . . 2,528,957 2,540,560
NUCLEAR DECOMMISSIONING AND SPENT NUCLEAR FUEL
DISPOSAL TRUST FUNDS . . . . . . . . . . . . . . . . 592,494 566,390
OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 175,850 156,228
CURRENT ASSETS:
Cash and Cash Equivalents. . . . . . . . . . . . . . 11,614 5,860
Accounts Receivable (net). . . . . . . . . . . . . . 136,026 136,122
Fuel . . . . . . . . . . . . . . . . . . . . . . . . 22,757 17,182
Materials and Supplies . . . . . . . . . . . . . . . 78,965 78,701
Accrued Utility Revenues . . . . . . . . . . . . . . 31,485 30,521
Prepayments. . . . . . . . . . . . . . . . . . . . . 5,908 4,685
TOTAL CURRENT ASSETS . . . . . . . . . . . . 286,755 273,071
REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 411,042 400,489
DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 43,265 31,060
TOTAL. . . . . . . . . . . . . . . . . . . $4,038,363 $3,967,798
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
March 31, December 31,
1998 1997
(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. . . . . . . . . . . . . . . . . . . 732,506 732,472
Retained Earnings. . . . . . . . . . . . . . . . . . 281,975 278,814
Total Common Shareholder's Equity. . . . . . 1,071,065 1,067,870
Cumulative Preferred Stock:
Not Subject to Mandatory Redemption. . . . . . . . 9,435 9,435
Subject to Mandatory Redemption. . . . . . . . . . 68,445 68,445
Long-term Debt . . . . . . . . . . . . . . . . . . . 1,017,419 1,014,237
TOTAL CAPITALIZATION . . . . . . . . . . . . 2,166,364 2,159,987
OTHER NONCURRENT LIABILITIES:
Nuclear Decommissioning. . . . . . . . . . . . . . . 405,419 381,016
Other. . . . . . . . . . . . . . . . . . . . . . . . 240,724 232,667
TOTAL OTHER NONCURRENT LIABILITIES . . . . . 646,143 613,683
CURRENT LIABILITIES:
Long-term Debt Due Within One Year . . . . . . . . . 35,000 35,000
Short-term Debt. . . . . . . . . . . . . . . . . . . 110,475 119,600
Accounts Payable - General . . . . . . . . . . . . . 34,154 36,729
Accounts Payable - Affiliated Companies. . . . . . . 44,811 31,665
Taxes Accrued. . . . . . . . . . . . . . . . . . . . 64,401 46,850
Interest Accrued . . . . . . . . . . . . . . . . . . 17,290 15,741
Rent Accrued - Rockport Plant Unit 2 . . . . . . . . 23,427 4,963
Obligations Under Capital Leases . . . . . . . . . . 33,497 34,033
Other. . . . . . . . . . . . . . . . . . . . . . . . 45,499 58,287
TOTAL CURRENT LIABILITIES. . . . . . . . . . 408,554 382,868
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 562,547 559,708
DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 136,136 138,045
DEFERRED GAIN ON SALE AND LEASEBACK -
ROCKPORT PLANT UNIT 2. . . . . . . . . . . . . . . . 91,492 92,419
DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 27,127 21,088
CONTINGENCIES (Note 3)
TOTAL. . . . . . . . . . . . . . . . . . . $4,038,363 $3,967,798
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1998 1997
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 33,744 $ 44,259
Adjustments for Noncash Items:
Depreciation and Amortization. . . . . . . . . . . . . . 36,889 36,922
Amortization (Deferral) of Incremental Nuclear
Refueling Outage Expenses (net). . . . . . . . . . . . 4,777 (10,965)
Deferred Federal Income Taxes. . . . . . . . . . . . . . 6,494 (2,151)
Deferred Investment Tax Credits. . . . . . . . . . . . . (1,909) (1,969)
Deferred Property Taxes. . . . . . . . . . . . . . . . . (8,185) (11,793)
Unrecovered Fuel and Purchased Costs . . . . . . . . . . (22,203) (2,888)
Changes in Certain Current Assets and Liabilities:
Accounts Receivable (net). . . . . . . . . . . . . . . . 96 1,679
Fuel, Materials and Supplies . . . . . . . . . . . . . . (5,839) 9,113
Accrued Utility Revenues . . . . . . . . . . . . . . . . (964) 4,003
Prepayments. . . . . . . . . . . . . . . . . . . . . . . (1,223) (6,489)
Accounts Payable . . . . . . . . . . . . . . . . . . . . 10,571 (14,758)
Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . 17,551 35,514
Rent Accrued - Rockport Plant Unit 2 . . . . . . . . . . 18,464 18,464
Other (net). . . . . . . . . . . . . . . . . . . . . . . . (18,242) 10,685
Net Cash Flows From Operating Activities . . . . . . 70,021 109,626
INVESTING ACTIVITIES - Construction Expenditures . . . . . . (24,592) (16,800)
FINANCING ACTIVITIES:
Issuance of Long-term Debt . . . . . . . . . . . . . . . . - 47,728
Change in Short-term Debt (net). . . . . . . . . . . . . . (9,125) (29,825)
Retirement of Cumulative Preferred Stock . . . . . . . . . - (78,838)
Dividends Paid on Common Stock . . . . . . . . . . . . . . (29,366) (29,065)
Dividends Paid on Cumulative Preferred Stock . . . . . . . (1,184) (2,359)
Net Cash Flows Used For Financing Activities . . . . (39,675) (92,359)
Net Increase in Cash and Cash Equivalents. . . . . . . . . . 5,754 467
Cash and Cash Equivalents at Beginning of Period . . . . . . 5,860 8,233
Cash and Cash Equivalents at End of Period . . . . . . . . . $ 11,614 $ 8,700
Supplemental Disclosure:
Cash paid for interest net of capitalized amounts was $14,412,000 and $11,765,000 in
1998 and 1997, respectively and for income taxes was $125,000 in 1997. Noncash
acquisitions under capital leases were $16,630,000 and $34,342,000 in 1998 and 1997,
respectively.
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated financial statements
should be read in conjunction with the 1997 Annual Report as
incorporated in and filed with the Form 10-K. In the opinion of
management, the financial statements reflect all adjustments
(consisting of only normal recurring accruals) which are necessary
for a fair presentation of the results of operations for interim
periods.
2. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 130
"Reporting Comprehensive Income" was adopted by the Company in the
first quarter of 1998. SFAS No. 130 established the standards for
reporting and displaying components of "comprehensive income,"
which is the total of net income and all transactions not included
in net income affecting equity except those with shareholders. For
the quarter ended March 31, 1998, there are no material differences
between comprehensive income and net income.
In the first quarter of 1998 the Company adopted the American
Institute of Certified Public Accountants' Statement of Position
(SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". The SOP requires the
capitalization and amortization of certain costs of acquiring or
developing internal use computer software. Previously the Company
expensed all software acquisition and development costs. The SOP
must be adopted at the beginning of a fiscal year with no
restatement or retroactive adjustment of prior periods. The
adoption of the SOP did not have a material effect on results of
operations, cash flows or financial condition.
3. CONTINGENCIES
Taxes
As discussed in Note 7, "Federal Income Taxes", of the Notes to
Consolidated Financial Statements in the 1997 Annual Report, the
Internal Revenue Service (IRS) agents auditing the federal income
tax returns requested a ruling from their National Office that
certain interest deductions relating to corporate owned life
insurance (COLI) claimed by the Company should not be allowed. The
Company filed a brief with the IRS National Office refuting the
agents' position. No ruling has been received from the IRS
National Office. Although no adjustments have been formally
proposed, a disallowance of the COLI interest deductions through
March 31, 1998 would reduce earnings by approximately $61 million
(including interest). No provisions for this amount have been
recorded. In the event the Company is unsuccessful it could have
a material adverse impact on results of operations and cash flows.
<PAGE>
In order to resolve this issue without further delay, on March
24, 1998, AEP filed suit against the United States in the United
States District Court for the Southern District of Ohio.
Management believes that it has a meritorious position and will
vigorously pursue this lawsuit.
Cook Plant Shutdown
As discussed in Note 3 of the Notes to Consolidated Financial
Statements in the 1997 Annual Report, both units of the Cook Plant
were shut down in September 1997 due to questions regarding the
operability of certain safety systems during a Nuclear Regulatory
Commission (NRC) architect engineer design inspection. The NRC
issued a Confirmatory Action Letter in September 1997 requiring the
Company to address the issues identified in the letter. Certain
issues identified in the letter have been addressed. The Company
is working with the NRC to resolve the remaining issues in the
letter and other issues related to the restart of the units. 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 reasonable period of time, it could have a material adverse
impact on results of operations, cash flows and possibly financial
condition.
Other
The Company continues to be involved in other matters discussed
in its 1997 Annual Report.
<PAGE>
<PAGE>
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
FIRST QUARTER 1998 vs. FIRST QUARTER 1997
RESULTS OF OPERATIONS
Net income decreased $10.5 million or 24% due to the effect of
mild winter weather on energy sales to residential customers and a
decrease in capacity credits from the AEP System Power Pool (Power
Pool). Under the terms of the Power Pool, capacity credits and
charges are designed to allocate the cost of the AEP System's
capacity among the Pool members based on their relative peak
demands and generating reserves. The reduction in capacity credits
received can be attributed to an increase in the Company's prior
twelve month peak demand relative to the total peak demand of all
Power Pool members.
As discussed in Note 3 of the Notes to Consolidated Financial
Statements, the Cook Nuclear Plant was shut down in September 1997.
Although the shutdown did not have a material effect on results of
operations, it did have a significant impact on the operations of
the Company as reflected in the variations of certain income
statement line items discussed below. Income statement line items
which changed significantly were:
Increase (Decrease)
(in millions) %
Operating Revenues. . . . . . . . . . . . $115.1 34
Fuel Expense. . . . . . . . . . . . . . . (15.4) (26)
Purchased Power Expense . . . . . . . . . 150.1 417
Other Operation Expense . . . . . . . . . (2.2) (3)
Maintenance Expense . . . . . . . . . . . 1.8 7
Amortization of Rockport Plant Unit 1
Phase-in Plan Deferrals . . . . . . . . (3.9) (100)
Taxes Other Than Federal Income Taxes . . (1.9) (10)
Federal Income Taxes. . . . . . . . . . . (5.7) (24)
Operating revenues increased significantly due to a 6% increase
in retail revenues and a 72% increase in wholesale sales. The
increase in retail revenues reflects an increase in fuel and power
supply clause recovery accruals. Under the fuel clause recovery
mechanism, revenues are accrued for increased fuel expenses in both
of the Company's retail jurisdictions and for replacement power
costs in the Michigan jurisdiction until approved for billing and
recovery. During the extended outage of both nuclear units, retail
revenues increased from the accrual of revenues for the increased
cost of fuel and replacement power. The increase in wholesale
sales was mainly due to the commencement of power marketing
transactions in July 1997. The new power marketing business
involves the purchase and sale of large quantities of electricity.
The increases in wholesale sales and related revenues were offset
by a nearly equivalent increase in power purchases by the power
marketing operation resulting in a minor positive impact on net
income. The unavailability of nuclear generation decreased energy
delivered to the Power Pool which partly offset the increased sales
from power marketing transactions.
Fuel expense decreased significantly as a result of the decline
in nuclear generation reflecting the outage of both nuclear units
in the first quarter of 1998.
The significant increase in purchased power expense resulted
from purchases of power by the new power marketing business and
increased purchases from the Power Pool to replace power usually
generated by the nuclear units which were unavailable.
Other operation expense decreased due to a reduction in employee
pension and other benefit costs and a refund of nuclear insurance
premiums. The decrease was partially offset by increased nuclear
operation expenses for engineering and supervision during the
extended shutdown.
The extended shutdown of the Cook Plant accounted for the
increase in maintenance expense.
The recovery periods for Rockport Plant Unit 1 costs deferred
under a rate phase-in plan in the Indiana and FERC jurisdictions
ended in fall of 1997 causing the decrease in amortization of
phase-in plan deferrals. The deferred costs were amortized over a
10-year period commensurate with their collection from customers
pursuant to commission orders.
The decrease in taxes other than federal income taxes was the
result of a reduction in Indiana income taxes reflecting a decrease
in taxable income.
Federal income taxes attributable to operations decreased due
to a decrease in pre-tax operating income.
FINANCIAL CONDITION
Total plant and property additions including capital leases for
the period were $42 million. During the first three months of 1998
short-term debt outstanding decreased by $9 million.<PAGE>
<PAGE>
<TABLE>
KENTUCKY POWER COMPANY
STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1998 1997
(in thousands)
<S> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . . $129,870 $88,580
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . . . . . . . 22,301 19,164
Purchased Power. . . . . . . . . . . . . . . . . . 63,736 23,230
Other Operation. . . . . . . . . . . . . . . . . . 10,994 12,009
Maintenance. . . . . . . . . . . . . . . . . . . . 9,166 5,107
Depreciation and Amortization. . . . . . . . . . . 6,910 6,540
Taxes Other Than Federal Income Taxes. . . . . . . 2,492 2,794
Federal Income Taxes . . . . . . . . . . . . . . . 2,180 4,496
TOTAL OPERATING EXPENSES . . . . . . . . . 117,779 73,340
OPERATING INCOME . . . . . . . . . . . . . . . . . . 12,091 15,240
NONOPERATING LOSS. . . . . . . . . . . . . . . . . . (71) (141)
INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . 12,020 15,099
INTEREST CHARGES . . . . . . . . . . . . . . . . . . 7,003 5,968
NET INCOME . . . . . . . . . . . . . . . . . . . . . $ 5,017 $ 9,131
STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
(in thousands)
BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . $78,076 $84,090
NET INCOME . . . . . . . . . . . . . . . . . . . . . 5,017 9,131
CASH DIVIDENDS DECLARED. . . . . . . . . . . . . . . 7,075 6,690
BALANCE AT END OF PERIOD . . . . . . . . . . . . . . $76,018 $86,531
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>
March 31, December 31,
1998 1997
(in thousands)
ASSETS
<S> <C> <C>
ELECTRIC UTILITY PLANT:
Production . . . . . . . . . . . . . . . . . $ 254,759 $ 249,184
Transmission . . . . . . . . . . . . . . . . 308,685 303,456
Distribution . . . . . . . . . . . . . . . . 341,575 350,793
General. . . . . . . . . . . . . . . . . . . 71,845 71,462
Construction Work in Progress. . . . . . . . 35,392 32,060
Total Electric Utility Plant . . . . 1,012,256 1,006,955
Accumulated Depreciation and Amortization. . 301,368 296,318
NET ELECTRIC UTILITY PLANT . . . . . 710,888 710,637
OTHER PROPERTY AND INVESTMENTS . . . . . . . . 8,064 6,591
CURRENT ASSETS:
Cash and Cash Equivalents. . . . . . . . . . 990 1,381
Accounts Receivable:
Customers. . . . . . . . . . . . . . . . . 22,759 24,127
Affiliated Companies . . . . . . . . . . . 7,859 1,722
Miscellaneous. . . . . . . . . . . . . . . 3,692 3,276
Allowance for Uncollectible Accounts . . . (610) (525)
Fuel . . . . . . . . . . . . . . . . . . . . 10,146 10,685
Materials and Supplies . . . . . . . . . . . 14,051 14,054
Accrued Utility Revenues . . . . . . . . . . 10,255 12,981
Prepayments. . . . . . . . . . . . . . . . . 1,037 1,538
TOTAL CURRENT ASSETS . . . . . . . . 70,179 69,239
REGULATORY ASSETS. . . . . . . . . . . . . . . 90,698 90,045
DEFERRED CHARGES . . . . . . . . . . . . . . . 9,129 10,159
TOTAL. . . . . . . . . . . . . . . $ 888,958 $ 886,671
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
KENTUCKY POWER COMPANY
BALANCE SHEETS
(UNAUDITED)
<CAPTION>
March 31, December 31,
1998 1997
(in thousands)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
CAPITALIZATION:
Common Stock - Par Value $50:
Authorized - 2,000,000 Shares
Outstanding - 1,009,000 Shares . . . . . . $ 50,450 $ 50,450
Paid-in Capital. . . . . . . . . . . . . . . 128,750 128,750
Retained Earnings. . . . . . . . . . . . . . 76,018 78,076
Total Common Shareholder's Equity. . 255,218 257,276
Long-term Debt . . . . . . . . . . . . . . . 338,891 341,051
TOTAL CAPITALIZATION . . . . . . . . 594,109 598,327
OTHER NONCURRENT LIABILITIES . . . . . . . . . 26,727 26,693
CURRENT LIABILITIES:
Long-term Debt Due Within One Year . . . . . 2,203 -
Short-term Debt. . . . . . . . . . . . . . . 39,275 36,500
Accounts Payable . . . . . . . . . . . . . . 18,353 24,574
Customer Deposits. . . . . . . . . . . . . . 3,737 3,660
Taxes Accrued. . . . . . . . . . . . . . . . 8,825 6,130
Interest Accrued . . . . . . . . . . . . . . 7,986 6,015
Other. . . . . . . . . . . . . . . . . . . . 14,344 14,935
TOTAL CURRENT LIABILITIES. . . . . . 94,723 91,814
DEFERRED INCOME TAXES. . . . . . . . . . . . . 154,150 153,945
DEFERRED INVESTMENT TAX CREDITS. . . . . . . . 15,310 15,615
DEFERRED CREDITS . . . . . . . . . . . . . . . 3,939 277
CONTINGENCIES (Note 3)
TOTAL. . . . . . . . . . . . . . . $888,958 $886,671
See Notes to Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
KENTUCKY POWER COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1998 1997
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . $ 5,017 $ 9,131
Adjustments for Noncash Items:
Depreciation and Amortization. . . . . . . . . . 6,913 6,543
Deferred Federal Income Taxes. . . . . . . . . . 32 521
Deferred Investment Tax Credits. . . . . . . . . (305) (308)
Changes in Certain Current Assets and Liabilities:
Accounts Receivable (net). . . . . . . . . . . . (5,100) (2,816)
Fuel, Materials and Supplies . . . . . . . . . . 542 (686)
Accrued Utility Revenues . . . . . . . . . . . . 2,726 3,102
Accounts Payable . . . . . . . . . . . . . . . . (6,221) (7,845)
Taxes Accrued. . . . . . . . . . . . . . . . . . 2,695 4,323
Interest Accrued . . . . . . . . . . . . . . . . 1,971 1,139
Other (net). . . . . . . . . . . . . . . . . . . . 2,192 2,044
Net Cash Flows From Operating Activities . . 10,462 15,148
INVESTING ACTIVITIES - Construction Expenditures . . (6,553) (13,536)
FINANCING ACTIVITIES:
Change in Short-term Debt (net). . . . . . . . . . 2,775 7,475
Dividends Paid . . . . . . . . . . . . . . . . . . (7,075) (6,690)
Net Cash Flows From (Used For)
Financing Activities . . . . . . . . . . . (4,300) 785
Net Increase (Decrease) in Cash and Cash Equivalents (391) 2,397
Cash and Cash Equivalents at Beginning of Period . . 1,381 1,106
Cash and Cash Equivalents at End of Period . . . . . $ 990 $ 3,503
Supplemental Disclosure:
Cash paid for interest net of capitalized amounts was $4,931,000 and
$4,755,000 in 1998 and 1997, respectively. Noncash acquisitions under
capital leases were $1,568,000 and $822,000 in 1998 and 1997, respectively.
See Notes to Financial Statements.
/TABLE
<PAGE>
<PAGE>
KENTUCKY POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. GENERAL
The accompanying unaudited financial statements should be
read in conjunction with the 1997 Annual Report as incorporated
in and filed with the Form 10-K. In the opinion of management,
the financial statements reflect all adjustments (consisting of
only normal recurring accruals) which are necessary for a fair
presentation of the results of operations for interim periods.
2. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 130
"Reporting Comprehensive Income" was adopted by the Company in
the first quarter of 1998. SFAS No. 130 established the
standards for reporting and displaying components of
"comprehensive income," which is the total of net income and all
transactions not included in net income affecting equity except
those with shareholders. For the quarter ended March 31, 1998,
there were no material differences between comprehensive income
and net income.
In the first quarter of 1998 the Company adopted the
American Institute of Certified Public Accountants' Statement
of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". The SOP
requires the capitalization and amortization of certain costs
of acquiring or developing internal use computer software.
Previously the Company expensed all software acquisition and
development costs. The SOP must be adopted at the beginning of
a fiscal year with no restatement or retroactive adjustment of
prior periods. The adoption of the SOP did not have a material
effect on results of operations, cash flows or financial
condition.
3. CONTINGENCIES
As discussed in Note 8, "Federal Income Taxes", of the Notes
to Financial Statements in the 1997 Annual Report, the Internal
Revenue Service (IRS) agents auditing the federal income tax
returns requested a ruling from their National Office that
certain interest deductions relating to corporate owned life
insurance (COLI) claimed by the Company should not be allowed.
AEP filed a brief with the IRS National Office refuting the
agents' position. No ruling has been received from the IRS
National Office. Although no adjustments have been formally
proposed, a disallowance of the COLI interest deductions through
March 31, 1998 would reduce earnings by approximately $7 million
(including interest). No provisions for this contingency have
been recorded. In the event the Company is unsuccessful it
could have a material adverse impact on results of operations.<PAGE>
In order to resolve this issue without further delay, on
March 24, 1998, AEP filed suit against the United States in the
United States District Court for the Southern District of Ohio.
Management believes that it has a meritorious position and will
vigorously pursue this lawsuit.
The Company continues to be involved in certain other
matters discussed in its 1997 Annual Report.
<PAGE>
<PAGE>
KENTUCKY POWER COMPANY
MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
FIRST QUARTER 1998 vs. FIRST QUARTER 1997
Net income decreased $4.1 million or 45% due to an increase
in operating expenses and an increase in interest charges.
Income statement line items which changed significantly were:
Increase(Decrease)
(in millions) %
Operating Revenues. . . . . . . . . . . $41.3 47
Fuel Expense. . . . . . . . . . . . . . 3.1 16
Purchased Power Expense . . . . . . . . 40.5 174
Other Operation Expense . . . . . . . . (1.0) (8)
Maintenance Expense . . . . . . . . . . 4.1 79
Depreciation and Amortization . . . . . 0.4 6
Taxes Other Than Federal Income Taxes . (0.3) (11)
Federal Income Taxes. . . . . . . . . . (2.3) (52)
Interest Charges. . . . . . . . . . . . 1.0 17
Operating revenues increased significantly due to an increase
in wholesale sales from a new powering marketing business the AEP
System started in July 1997. The increases in wholesale sales and
related revenues were offset by a nearly equivalent increase in
power purchases by the new power marketing operation resulting in
a minor positive impact on net income.
The increase in fuel expense is primarily attributable to the
operation of the fuel clause mechanism whereby previously deferred
overrecoveries of fuel costs were credited to expense in 1997 and
previously deferred underrecoveries of fuel costs were charged to
expense in the current period.
Purchased power expense increased primarily due to purchases
for the new power marketing business.
The decline in other operation expense is due to increased
credits received under the AEP System's transmission equalization
agreement and decreased demand side management costs. The
transmission equalization agreement combines certain AEP System
companies' investments in transmission facilities and shares the
cost of ownership of those facilities in proportion to each AEP
System company's peak demand relative to the peak demands of all
AEP System companies utilizing the AEP System transmission system.
The credit received by the Company under the agreement increased
due to a decrease in the Company's prior twelve month peak demand
relative to the total peak demand of all transmission agreement
members.
The increase in maintenance expense was primarily due to
increased overhead distribution line maintenance expenditures
resulting from storm damage in 1998.
The increase in depreciation and amortization expense reflects
additional investment in depreciable plant as a result of
improvements in 1997 to the transmission and distribution systems.
A decline in pre-tax operating income was the primary cause of
the decrease in federal income taxes attributable to operations and
state income taxes included in taxes other than federal income
taxes.
The increase in interest charges was due to an increase in
outstanding long-term debt reflecting the issuance of senior
unsecured notes in October 1997.
<PAGE>
<PAGE>
<TABLE>
OHIO POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1998 1997
(in thousands)
<S> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . . . . $695,166 $484,300
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193,275 162,002
Purchased Power. . . . . . . . . . . . . . . . . . . . . . . . 199,084 16,459
Other Operation. . . . . . . . . . . . . . . . . . . . . . . . 80,901 82,363
Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . 30,593 29,477
Depreciation and Amortization. . . . . . . . . . . . . . . . . 35,863 34,940
Taxes Other Than Federal Income Taxes. . . . . . . . . . . . . 42,658 41,913
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . 33,723 36,615
TOTAL OPERATING EXPENSES . . . . . . . . . . . . . . . 616,097 403,769
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . 79,069 80,531
NONOPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . . 1,238 4,970
INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . . . . . . 80,307 85,501
INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . . . . 19,871 19,910
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,436 65,591
PREFERRED STOCK DIVIDEND REQUIREMENTS. . . . . . . . . . . . . . 370 1,538
EARNINGS APPLICABLE TO COMMON STOCK. . . . . . . . . . . . . . . $ 60,066 $ 64,053
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
(in thousands)
BALANCE AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . $590,151 $584,015
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,436 65,591
DEDUCTIONS:
Cash Dividends Declared:
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 52,775 37,562
Cumulative Preferred Stock . . . . . . . . . . . . . . . . . 370 2,089
Capital Stock Expense. . . . . . . . . . . . . . . . . . . . . - 21
BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . $597,442 $609,934
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>
March 31, December 31,
1998 1997
(in thousands)
ASSETS
<S> <C> <C>
ELECTRIC UTILITY PLANT:
Production . . . . . . . . . . . . . . . . . . . . . $2,606,491 $2,606,981
Transmission . . . . . . . . . . . . . . . . . . . . 845,378 837,953
Distribution . . . . . . . . . . . . . . . . . . . . 920,140 927,239
General (including mining assets). . . . . . . . . . 706,562 709,475
Construction Work in Progress. . . . . . . . . . . . 87,280 74,149
Total Electric Utility Plant . . . . . . . . 5,165,851 5,155,797
Accumulated Depreciation and Amortization. . . . . . 2,381,164 2,349,995
NET ELECTRIC UTILITY PLANT . . . . . . . . . 2,784,687 2,805,802
OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . 126,792 113,925
CURRENT ASSETS:
Cash and Cash Equivalents. . . . . . . . . . . . . . 83,662 44,203
Accounts Receivable (net). . . . . . . . . . . . . . 329,798 293,672
Fuel . . . . . . . . . . . . . . . . . . . . . . . . 98,819 119,543
Materials and Supplies . . . . . . . . . . . . . . . 80,047 80,853
Accrued Utility Revenues . . . . . . . . . . . . . . 35,095 37,586
Prepayments. . . . . . . . . . . . . . . . . . . . . 41,541 36,611
TOTAL CURRENT ASSETS . . . . . . . . . . . . 668,962 612,468
REGULATORY ASSETS. . . . . . . . . . . . . . . . . . . 536,643 523,891
DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 82,975 107,116
TOTAL. . . . . . . . . . . . . . . . . . . $4,200,059 $4,163,202
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
OHIO POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
March 31, December 31,
1998 1997
(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. . . . . . . . . . . . . . . . . . . 462,296 462,296
Retained Earnings. . . . . . . . . . . . . . . . . . 597,442 590,151
Total Common Shareholder's Equity. . . . . . 1,380,939 1,373,648
Cumulative Preferred Stock:
Not Subject to Mandatory Redemption. . . . . . . . 17,542 17,542
Subject to Mandatory Redemption. . . . . . . . . . 11,850 11,850
Long-term Debt . . . . . . . . . . . . . . . . . . . 994,312 1,012,031
TOTAL CAPITALIZATION . . . . . . . . . . . . 2,404,643 2,415,071
OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . 297,583 295,375
CURRENT LIABILITIES:
Long-term Debt Due Within One Year . . . . . . . . . 26,031 83,195
Short-term Debt. . . . . . . . . . . . . . . . . . . 167,500 78,700
Accounts Payable . . . . . . . . . . . . . . . . . . 177,525 184,747
Taxes Accrued. . . . . . . . . . . . . . . . . . . . 156,138 160,055
Interest Accrued . . . . . . . . . . . . . . . . . . 25,026 16,255
Obligations Under Capital Leases . . . . . . . . . . 27,835 30,307
Other. . . . . . . . . . . . . . . . . . . . . . . . 83,823 94,338
TOTAL CURRENT LIABILITIES. . . . . . . . . . 663,878 647,597
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . 722,404 723,172
DEFERRED INVESTMENT TAX CREDITS. . . . . . . . . . . . 41,979 42,821
DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . 69,572 39,166
CONTINGENCIES (Note 4)
TOTAL. . . . . . . . . . . . . . . . . . . $4,200,059 $4,163,202
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
OHIO POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1998 1997
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 60,436 $ 65,591
Adjustments for Noncash Items:
Depreciation, Depletion and Amortization . . . . . . . . 43,259 43,728
Deferred Federal Income Taxes. . . . . . . . . . . . . . 3,466 (4,363)
Deferred Fuel Costs (net). . . . . . . . . . . . . . . . (11,000) (1,359)
Amortization of Deferred Property Taxes. . . . . . . . . 19,344 18,739
Changes in Certain Current Assets and Liabilities:
Accounts Receivable (net). . . . . . . . . . . . . . . . (36,126) 15,114
Fuel, Materials and Supplies . . . . . . . . . . . . . . 21,530 6,626
Accrued Utility Revenues . . . . . . . . . . . . . . . . 2,491 3,949
Prepayments. . . . . . . . . . . . . . . . . . . . . . . (4,930) (16,263)
Accounts Payable . . . . . . . . . . . . . . . . . . . . (7,222) (8,130)
Taxes Accrued. . . . . . . . . . . . . . . . . . . . . . (3,917) 7,660
Interest Accrued . . . . . . . . . . . . . . . . . . . . 8,771 7,891
Other (net). . . . . . . . . . . . . . . . . . . . . . . . 15,712 25,793
Net Cash Flows From Operating Activities . . . . . . 111,814 164,976
INVESTING ACTIVITIES:
Construction Expenditures. . . . . . . . . . . . . . . . . (35,186) (25,701)
Proceeds from Sale of Property and Other . . . . . . . . . 2,413 715
Net Cash Flows Used For Investing Activities . . . . (32,773) (24,986)
FINANCING ACTIVITIES:
Issuance of Long-term Debt . . . . . . . . . . . . . . . . - 48,858
Change in Short-term Debt (net). . . . . . . . . . . . . . 88,800 (5,902)
Retirement of Cumulative Preferred Stock . . . . . . . . . - (117,601)
Retirement of Long-term Debt . . . . . . . . . . . . . . . (75,237) (20,169)
Dividends Paid on Common Stock . . . . . . . . . . . . . . (52,775) (37,562)
Dividends Paid on Cumulative Preferred Stock . . . . . . . (370) (2,089)
Net Cash Flows Used For Financing Activities . . . . (39,582) (134,465)
Net Increase in Cash and Cash Equivalents. . . . . . . . . . 39,459 5,525
Cash and Cash Equivalents at Beginning of Period . . . . . . 44,203 24,003
Cash and Cash Equivalents at End of Period . . . . . . . . . $ 83,662 $ 29,528
Supplemental Disclosure:
Cash paid for interest net of capitalized amounts was $10,377,000 and $11,365,000
and for income taxes was $539,000 and $934,000 in 1998 and 1997, respectively.
Noncash acquisitions under capital leases were $10,294,000 and $8,023,000 in
1998 and 1997, respectively.
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
OHIO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated financial
statements should be read in conjunction with the 1997 Annual
Report as incorporated in and filed with the Form 10-K. In the
opinion of management, the financial statements reflect all
adjustments (consisting of only normal recurring accruals)
which are necessary for a fair presentation of the results of
operations for interim periods.
2. FINANCING ACTIVITIES
The Company and a subsidiary redeemed at maturity $55.7
million of 6-3/4% series first mortgage bonds and $16.7 million
of 6.85% notes payable.
In April 1998, the Company called the entire $50 million
outstanding balances each of 8.25% and 8.10% series first
mortgage bonds due in 2002 for early redemption in May 1998 and
issued $140 million of 7-3/8% senior unsecured notes due in
2038. Consequently the bonds were not reclassified as a
current liability on the balance sheet.
As a result of the redemption of the 6-3/4% series first
mortgage bonds due in 1998, the restriction on the use of
retained earnings for the payment of common stock dividends was
eliminated.
3. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 130
"Reporting Comprehensive Income" was adopted by the Company in
the first quarter of 1998. SFAS No. 130 established the
standards for reporting and displaying components of
"comprehensive income," which is the total of net income and
all transactions not included in net income affecting equity
except those with shareholders. For the quarter ended March
31, 1998, there were no material differences between
comprehensive income and net income.
In the first quarter of 1998 the Company adopted the
American Institute of Certified Public Accountants' Statement
of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". The SOP
requires the capitalization and amortization of certain costs
of acquiring or developing internal use computer software.
Previously the Company expensed all software acquisition and
development costs. The SOP must be adopted at the beginning
of a fiscal year with no restatement or retroactive adjustment
of prior periods. The adoption of the SOP did not have a
material effect on results of operations, cash flows or
financial condition.<PAGE>
4. CONTINGENCIES
As discussed in Note 8, "Federal Income Taxes", of the
Notes to Consolidated Financial Statements in the 1997 Annual
Report, the Internal Revenue Service (IRS) agents auditing the
federal income tax returns requested a ruling from their
National Office that certain interest deductions relating to
corporate owned life insurance (COLI) claimed by the Company
should not be allowed. AEP filed a brief with the IRS National
Office refuting the agents' position. No ruling has been
received from the IRS National Office. Although no adjustments
have been formally proposed, a disallowance of the COLI
interest deductions through March 31, 1998 would reduce
earnings by approximately $110 million (including interest).
No provisions for this amount have been recorded. In the event
the Company is unsuccessful it could have a material adverse
impact on results of operations and cash flows.
In order to resolve this issue without further delay, on
March 24, 1998, AEP filed suit against the United States in the
United States District Court for the Southern District of Ohio.
Management believes that it has a meritorious position and will
vigorously pursue this lawsuit.
The Company continues to be involved in certain other
matters discussed in the 1997 Annual Report.<PAGE>
<PAGE>
OHIO POWER COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
FIRST QUARTER 1998 vs. FIRST QUARTER 1997
RESULTS OF OPERATIONS
Net income decreased $5 million or 8% due to the effects of
mild winter weather on energy sales to residential customers and a
reduction in nonoperating income resulting from the effect of gains
on the sale of emission allowances recorded in 1997.
Income statement line items which changed significantly were:
Increase (Decrease)
(in millions) %
Operating Revenues. . . . . . . . . . . $210.9 44
Fuel Expense. . . . . . . . . . . . . . 31.3 19
Purchased Power Expense . . . . . . . . 182.6 N.M.
Federal Income Taxes. . . . . . . . . . (2.9) (8)
Nonoperating Income . . . . . . . . . . (3.7) (75)
N.M. = Not Meaningful
Both retail and wholesale revenues increased. The increase in
retail revenues resulted from increased sales to a major industrial
customer reflecting a return to work following a labor strike. The
increase in industrial sales was partially offset by a 5% decline
in sales to weather-sensitive residential customers reflecting mild
winter weather.
Revenues from wholesale customers increased 153% while
wholesale sales increased 135%. The substantial increase was
largely due to a new power marketing business the AEP System
started in July 1997. The substantial increases in wholesale sales
and related revenues were offset by a nearly equivalent increase in
power purchases by the power marketing operations resulting in a
minor positive impact on net income. Also contributing to the
increase in wholesale revenues were increased sales to the AEP
System Power Pool (Power Pool) to replace the power from an
affiliate's nuclear units which were out of service.
The increase in fuel expense was due to an increase in
generation to meet the increased demand from the Power Pool
resulting from the outage of the affiliate's nuclear units.
Purchased power expense increased due to the Company's share
of purchases of electricity by AEP's power marketing business.
<PAGE>
The decrease in federal income expense attributable to
operations is primarily due to a decline in pre-tax operating
income and changes in certain book/tax differences accounted for on
a flow-through basis.
Nonoperating income decreased due to the effect of gains in
1997 on emission allowance transactions.
FINANCIAL CONDITION
Total plant and property additions including capital leases for
the current period were $46 million.
During the first quarter of 1998, the Company and a subsidiary
retired at maturity $55.7 million of 6-3/4% series first mortgage
bonds and $16.7 million of notes payable with an interest rate of
6.85%. Short-term debt increased by $89 million from the beginning
of 1998.
In April 1998, the Company called the entire $50 million
outstanding balances each of 8.25% and 8.10% series first mortgage
bonds due in 2002 for early redemption in May 1998 and issued $140
million of 7-3/8% senior unsecured notes due in 2038. Consequently
the bonds were not reclassified as a current liability on the
balance sheet.
<PAGE>
<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 10 of the Annual Report on Form 10-K
for the year ended December 31, 1997 ("1997 10-K") for a discussion
of "retail customer choice" legislation passed in Virginia and West
Virginia. Both bills have been signed into law.
On March 20, 1998, the State Corporation Commission of Virginia
("Virginia SCC") issued an order which, among other things,
directed APCo and another unaffiliated utility to begin work on the
implementation of at least one retail access pilot program and
study in their respective service territories. The details of such
proposed pilot programs are to be filed with the Virginia SCC by
August 1, 1998.
AEP
Reference is made to page 11 of the 1997 10-K for a discussion
of the request for approval filed with the Securities and Exchange
Commission ("SEC") to issue and sell securities in an amount up to
100% of AEP's consolidated retained earnings (approximately
$1,600,000,000 at December 31, 1997), and to use the proceeds for
investment in exempt wholesale generators and foreign utility
companies. On April 27, 1998, the SEC issued an order approving
this request.
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 pages 22 and 23 of the 1997 10-K for a
discussion of the NOx SIP Call issued by the U.S. Environmental
Protection Agency ("Federal EPA") and the Section 126 petitions
filed by eight northeastern states.
On April 29, 1998, Federal EPA released a Supplemental Notice
of Proposed Rulemaking addressing a number of issues initially
raised in the October 1997 rulemaking, including a determination
regarding proposed NOx emission budgets for the states affected by
the rulemaking, a proposed model emissions trading rule for NOx and
the results of computer modeling of the budget levels.
On April 30, 1998, Federal EPA published an Advance Notice of
Proposed Rulemaking initiating a proceeding to determine whether
Federal EPA should approve the petitions filed by the eight
northeastern states in August 1997 under Section 126 of the Clean
Air Act.
<PAGE>
On April 28, 1998, the U.S. Court of Appeals for the District
of Columbia Circuit issued a decision granting Federal EPA's motion
to dismiss the petitions filed by a number of utilities (including
the AEP System operating companies) that sought a review of Federal
EPA's Memorandum of Agreement. The court concluded that Federal
EPA's actions were not final for purposes of judicial review.
On March 30, 1998, a number of utilities (including the AEP
System operating companies) filed motions to intervene in, and to
dismiss, the litigation initiated by eight northeastern states in
the U.S. District Court for the Southern District of New York that
seeks an order directing Federal EPA to rule on the Section 126
petitions within 60 days of receipt.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
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.
Exhibit 99 - Press Release of AEP and Central and South
West Corporation, dated April 30, 1998
announcing the joint filing of requests
with the Federal Energy Regulatory Commission
for approval of their proposed merger and with
the Public Utility Commission of Texas for
a finding that the merger is in the public
interest.
(b) Reports on Form 8-K:
AEP, AEGCo, APCo, CSPCo, I&M, KEPCo and OPCo
No reports on Form 8-K were filed during the quarter ended
March 31, 1998.
<PAGE>
<PAGE>
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.
A.A. Pena P.J. DeMaria
A.A. Pena, Treasurer P.J. DeMaria, Controller
AEP GENERATING COMPANY
A.A. Pena P.J. DeMaria
A.A. Pena, Treasurer P.J. DeMaria, Vice President
and Controller
APPALACHIAN POWER COMPANY
A.A. Pena P.J. DeMaria
A.A. Pena, Treasurer P.J. DeMaria, Vice President
and Controller
COLUMBUS SOUTHERN POWER COMPANY
A.A. Pena P.J. DeMaria
A.A. Pena, Treasurer P.J. DeMaria, Vice President
and Controller
INDIANA MICHIGAN POWER COMPANY
A.A. Pena P.J. DeMaria
A.A. Pena, Treasurer P.J. DeMaria, Vice President
and Controller
KENTUCKY POWER COMPANY
A.A. Pena P.J. DeMaria
A.A. Pena, Treasurer P.J. DeMaria, Vice President
and Controller
OHIO POWER COMPANY
A.A. Pena P.J. DeMaria
A.A. Pena, Treasurer P.J. DeMaria, Vice President
and Controller
Date: May 13, 1998
II-3<PAGE>
<TABLE>
EXHIBIT 12
KENTUCKY POWER COMPANY
Computation of Ratio of Earnings to Fixed Charges
(in thousands except ratio data)
<CAPTION>
Twelve
Months
Year Ended December 31, Ended
1993 1994 1995 1996 1997 3/31/98
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest on First Mortgage Bonds . . . . . . $17,472 $19,090 $19,090 $14,914 $14,867 $15,696
Interest on Other Long-term Debt . . . . . . 2,033 - 2,422 6,446 8,597 8,597
Interest on Short-term Debt. . . . . . . . . 1,001 1,621 2,242 2,849 3,034 2,845
Miscellaneous Interest Charges . . . . . . . 523 485 510 555 559 592
Estimated Interest Element in Lease Rentals. 800 700 700 800 1,700 1,700
Total Fixed Charges . . . . . . . . . . $21,829 $21,896 $24,964 $25,564 $28,757 $29,430
Earnings:
Net Income . . . . . . . . . . . . . . . . . $18,031 $25,273 $25,128 $16,973 $20,746 $16,632
Plus Federal Income Taxes. . . . . . . . . . 1,620 2,178 3,914 5,119 9,415 7,100
Plus State Income Taxes. . . . . . . . . . . 1,116 1,154 1,420 598 2,190 1,808
Plus Fixed Charges (as above). . . . . . . . 21,829 21,896 24,964 25,564 28,757 29,430
Total Earnings. . . . . . . . . . . . . $42,596 $50,501 $55,426 $48,254 $61,108 $54,970
Ratio of Earnings to Fixed Charges . . . . . . 1.95 2.30 2.22 1.88 2.12 1.86
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000055373
<NAME> KENTUCKY POWER COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 710,888
<OTHER-PROPERTY-AND-INVEST> 8,064
<TOTAL-CURRENT-ASSETS> 70,179
<TOTAL-DEFERRED-CHARGES> 9,129
<OTHER-ASSETS> 90,698
<TOTAL-ASSETS> 888,958
<COMMON> 50,450
<CAPITAL-SURPLUS-PAID-IN> 128,750
<RETAINED-EARNINGS> 76,018
<TOTAL-COMMON-STOCKHOLDERS-EQ> 255,218
0
0
<LONG-TERM-DEBT-NET> 338,891
<SHORT-TERM-NOTES> 575
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 38,700
<LONG-TERM-DEBT-CURRENT-PORT> 2,203
0
<CAPITAL-LEASE-OBLIGATIONS> 15,045
<LEASES-CURRENT> 3,854
<OTHER-ITEMS-CAPITAL-AND-LIAB> 234,472
<TOT-CAPITALIZATION-AND-LIAB> 888,958
<GROSS-OPERATING-REVENUE> 129,870
<INCOME-TAX-EXPENSE> 2,802
<OTHER-OPERATING-EXPENSES> 114,977
<TOTAL-OPERATING-EXPENSES> 117,779
<OPERATING-INCOME-LOSS> 12,091
<OTHER-INCOME-NET> (71)
<INCOME-BEFORE-INTEREST-EXPEN> 12,020
<TOTAL-INTEREST-EXPENSE> 7,003
<NET-INCOME> 5,017
0
<EARNINGS-AVAILABLE-FOR-COMM> 5,017
<COMMON-STOCK-DIVIDENDS> 7,075
<TOTAL-INTEREST-ON-BONDS> 3,509
<CASH-FLOW-OPERATIONS> 10,462
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1> All common stock owned by parent company; no EPS required.
</FN>
</TABLE>
