“The ongoing earnings for the third quarter were better than the $1.05 per share that we had anticipated because of stronger wholesale and retail sales due to favorable weather, and improved margins due to lower-than-anticipated fuel costs,” said E. Linn Draper Jr., AEP’s chairman, president and chief executive officer. “We still expect earnings for 2002 will be between $2.85 and $3.15 per share.”
Sales from AEP’s regulated integrated utilities and wholesale sales from the company’s power plants showed strong increases in earnings when compared with the same period last year. But lower earnings from energy trading and a loss from power generation in the United Kingdom offset the positives and led to the decline in earnings from last year’s third quarter. The earnings per share comparison was also affected by an increase in the number of shares outstanding for 2002.
Results were:
| Third quarter ended Sept. 30 | Nine months ended Sept. 30 | ||||||
| 2001 | 2002 | Variance | 2001 | 2002 | Variance | ||
| Revenue ($ in billions) | 3.7 | 3.9 | 0.2 | 10.2 | 10.8 | 0.6 | |
| Earnings ($ in millions): | |||||||
| Ongoing | 459 | 409 | (50) | 973 | 780 | (193) | |
| As reported | 421 | 425 | 4 | 919 | 318 | (601) | |
| EPS ($): | |||||||
| Ongoing | 1.43 | 1.21 | (0.22) | 3.01 | 2.37 | (0.64) | |
| As reported | 1.31 | 1.25 | (0.06) | 2.85 | 0.97 | (1.88) | |
Revenue is presented on a net basis after an accounting change to comply with a decision by the Financial Accounting Standards Board that affects the energy industry. FASB ruled that revenue from energy trading contracts must be accounted for on a net rather than gross basis.
Adjustments for the sale of SEEBOARD and CitiPower, offset by impairments associated with the closing of mothballed West Texas Utilities plants, account for the difference between ongoing and as-reported earnings.
($ in millions except per share data; EPS based on 322mm shares in 2001, 339mm shares in 2002)
| Q3 2001 | Q3 2002 | Variance | |
| Retail Margin | 1,544 | 1,616 | 72 |
| FERC Municipal and Co-op Customers | 65 | 70 | 5 |
| System Sales | 104 | 139 | 35 |
| Trading | 96 | 39 | (57) |
| Transmission Revenue - 3rd Party | 86 | 95 | 9 |
| Other Operating Revenue | 41 | 41 | 0 |
| -------------------- | |||
| Total Gross Margin | 1,936 | 2,000 | 64 |
| Operations & Maintenance | (661) | (698) | (37) |
| Depreciation & Amortization | (262) | (297) | (35) |
| Taxes Other Than FIT | (156) | (182) | (26) |
| Capital Cost and Other | (199) | (199) | 0 |
| Federal Income Taxes | (232) | (192) | 40 |
| -------------------- | |||
| Net Earnings Utility and Marketing Operations | 426 | 432 | 6 |
| EPS | $1.33 | $1.28 | $(0.05) |
“Our business portfolio includes a fairly predictable stream of earnings from traditional utility and marketing operations: our regulated integrated utilities, our unregulated generation under contract in Ohio and Texas, wholesale sales of power from our plants, transmission, and our unbundled distribution system in unregulated states,” Draper said. “This fundamental strength of our company is often overlooked, but it provides liquidity and stability of earnings.”
Earnings from system sales, the sale of wholesale power from AEP’s plants, improved significantly over the same period last year because of higher margins. Lower fuel costs and favorable weather brought improved earnings from the regulated integrated utilities, although increased operating expenses over the prior period offset the increase in gross margins. Earnings from natural gas trading, while positive for the quarter, were lower when compared to the same period last year and were the primary reason for the significant reduction in earnings from energy trading.
“We have announced a significant downsizing of our trading operation in the U.S. and Europe to focus only on managing the value of our own assets,” Draper said. “Simply put, we will be involved in wholesale markets where we own assets - primarily the power markets in the Midwest, Texas and England, and gas markets in the Gulf Coast.
“We’ve seen a significant drop in volumes since Oct. 10 when we announced plans to reduce our exposure to speculative trading,” Draper said. “We are flattening our positions in an orderly way and not liquidating positions just to get out. We have reduced our risk limits, reduced our value at risk by 50 percent and expect a reduction in overheads as we transform the existing organization to manage risk around our assets in the regions we serve.”
($ in millions except per share data; EPS based on 322mm shares in 2001, 339mm shares in 2002)
| Q3 2001 | Q3 2002 | Variance | |
| Gas Holdings | 5 | 5 | 0 |
| Memco | - | 1 | 1 |
| AEP Coal | - | 1 | 1 |
| UK Generation | - | (18) | (18) |
| Other | 5 | 3 | (2) |
| ------------------ | |||
| Total Wholesale Investments | 10 | (8) | (18) |
| EPS | $0.03 | $(0.03) | $(0.06) |
Memco, AEP Coal and AEP’s two power plants in the United Kingdom - Fiddler’s Ferry and Ferrybridge - were acquired after the third quarter last year.
“We are very disappointed with the performance of our UK generation,” Draper said. “The generation has been cash flow positive, but market conditions in the UK have been terrible and power prices continue to be depressed. We expect the UK plants to be profitable in the fourth quarter when electricity demand picks up in England and margins typically improve.”
($ in millions except per share data; EPS based on 322mm shares in 2001, 339mm shares in 2002)
| Q3 2001 | Q3 2002 | Variance | |
| SEEBOARD (sale closed 7/29/2002) | 20 | - | (20) |
| CitiPower (sale closed 8/30/2002) | (8) | 1 | 9 |
| AEP Communications | (13) | (7) | 6 |
| CSW International | 22 | (6) | (28) |
| Other | 2 | (3) | (5) |
| Total Other Investments | 23 | (15) | (38) |
| EPS | $0.07 | $(0.04) | $(0.11) |
Earnings from SEEBOARD and CSW International’s sale of its Altamira plant in the prior period were significant contributors in the period-to-period variance.
“Our other investments continue to be a drag on earnings,” Draper said. “We’ve dramatically reduced operations of our communications business, but it continues to show losses. Even in today’s market environment, where communications assets have few buyers, we are evaluating options for exiting this business.”
American Electric Power, an energy company with a balanced portfolio of energy assets, owns and operates more than 42,000 megawatts of generating capacity in the United States and select international markets and is the largest electricity generator in the U.S. AEP is a leading wholesale marketer of energy commodities, utilizing its energy expertise and risk management skills to make optimal use of its generation, natural gas pipeline systems, natural gas storage, coal mines and inland barge fleet. AEP is also one of the largest electric utilities in the United States, with almost 5 million customers linked to AEP’s 11-state electricity transmission and distribution grid. The company is based in Columbus, Ohio.
AEP´s quarterly conference call with financial analysts is available live on the Internet at 9:30 a.m. EDT today. The webcast is available at http://www.aep.com or http://www.firstcallevents.com/service/ajwz368371290gf12.html .
If using the AEP site, click on Investors, then click on Conference calls/webcasts. The call will be archived on http://www.aep.com for use by those unable to listen during the live webcast.
Minimum requirements to listen to broadcast: The Windows Media Player software, free from http://www.microsoft.com/windows/windowsmedia/EN/default.asp, and at least a 28.8Kbps connection to the Internet. If you experience problems listening to the broadcast, send an e-mail to webcastsupport@tfprn.com.
-Financial Results for the 3rd Quarter 2002 vs. 3rd Quarter 2001: Also see the printer-friendly version (PDF: 10KB: get viewer)
- Financial Results for 3rd Quarter 2002 vs 3rd Quarter 2001 ($ Millions) (a): Also see the printer-friendly version (PDF: 15KB: get viewer)
- Summary of Selected Sales Data For Domestic and Trading Operations 3 Months Ended September 30: Also see the printer-friendly version (PDF: 7KB: get viewer)
- Financial Results for YTD September 2002 vs YTD September 2001: Also see the printer-friendly version (PDF: 13KB: get viewer)
- Summary of Selected Sales Data For Domestic and Trading Operations 9 Months Ended September 30: Also see the printer-friendly version (PDF: 7KB: get viewer)
The comments set forth above include forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, including (1) statements concerning the Company´s plans, objectives, expected performance and expenditures and (2) other statements that are other than statements of historical fact. These forward-looking statements reflect assumptions, and involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially from forward-looking statements are electric load and customer growth, abnormal weather conditions, availability of generating capacity, the ability to recover net regulatory assets and other stranded costs in connection with deregulation of generation, the outcome of environmental regulation and litigation, the impact of fluctuation in commodity prices and interest rates, and other risks and unforeseen events over which the Company has no control. The reader is also directed to the Company´s periodic filings with the Securities and Exchange Commission for additional factors that may impact the Company´s results of operations and financial condition. Furthermore, historical results may not be indicative of the Company´s future performance.
Media:
Pat D. Hemlepp
Director, Corporate Media Relations
614/223-1620
Analysts:
Bette Jo Rozsa
Managing Director, Investor Relations
614/223-2840
Pat D. Hemlepp
Director, Corporate Media Relations
614/223-1620
Analysts:
Bette Jo Rozsa
Managing Director, Investor Relations
614/223-2840