AEP reported 2002 ongoing earnings of $957 million, or $2.89 per share. Ongoing earnings exclude unusual or one-time items, providing a basis for year-to-year comparison of the company’s ongoing operations. As-reported, or actual, earnings for 2002 show a loss of $519 million, or a loss of $1.57 per share, after AEP recorded fourth-quarter write-offs of approximately $1 billion to reduce the valuation of under-performing assets. The company previously reported write-offs of approximately $500 million in prior quarters for a total of approximately $1.5 billion in charges for 2002.
“Last year was a difficult one for us, especially when compared with 2001, when very favorable market conditions for much of the year boosted our earnings,” said E. Linn Draper Jr., AEP’s chairman, president and chief executive officer. “Our utility operations did reasonably well in 2002 in the face of escalating costs. But the collapse of wholesale markets hurt our earnings from wholesale operations, an area that had been highly profitable for us in previous years.”
Results were:
| Fourth quarter ended Dec. 31 | Year ended Dec. 31 | |||||
| 2001 | 2002 | Variance | 2001 | 2002 | Variance | |
| Revenue($ in billions): | 2.9 | 3.8 | 0.9 | 12.7 | 14.5 | 1.8 |
| Earnings ($ in millions): | ||||||
| Ongoing | 114 | 177 | 63 | 1,087 | 957 | (130) |
| As reported | 52 | (837) | (889) | 971 | (519) | (1,490) |
| EPS($): | ||||||
| Ongoing | 0.35 | 0.52 | 0.17 | 3.38 | 2.89 | (0.49) |
| As reported | 0.16 | (2.47) | (2.63) | 3.01 | (1.57) | (4.58) |
The impairments booked in the fourth quarter, combined with a change to other comprehensive income of $585 million for pension liability adjustments, had a negative effect on AEP’s balance sheet.
“We are committed to strengthening our balance sheet and have developed a three-part plan for doing so,” Draper said. “First, we will reduce operations and maintenance costs and capital expenditures, and we have already made substantial progress in that area. Second, we will revise our dividend policy and have discussed that with our board of directors this week. Third, we plan to systematically dispose of non-core assets. In addition, we will continue to evaluate the potential for issuing additional equity.”
AEP provided details in a separate news release issued today.
UTILITY AND MARKETING OPERATIONS
($ in millions except per share data; EPS based on 322mm shares in 2001, 339mm shares in Q4 2002 and 332mm shares in FY2002)
| Q42001 | Q42002 | Variance | FY2001 | FY2002 | Variance | |
| Retail Margin - Regulated Integrated Cos | 668 | 756 | 88 | 2,852 | 2,943 | 91 |
| Ohio Companies | 437 | 435 | (2) | 1,716 | 1,894 | 178 |
| Total Texas | 233 | 437 | 204 | 1,089 | 1,339 | 250 |
| FERC Municipal and Co-op Customers | 49 | 61 | 12 | 263 | 242 | (21) |
| System Sales | 34 | 64 | 30 | 377 | 272 | (105) |
| Trading | (19) | (2) | 17 | 267 | 53 | (214) |
| Transmission Revenue - 3rd Party | 102 | 109 | 7 | 441 | 440 | (1) |
| Other Operating Revenue | 35 | 52 | 17 | 140 | 222 | 82 |
| __________________________________ | ||||||
| Total Gross Margin | 1,539 | 1,912 | 373 | 7,145 | 7,405 | 260 |
| Operations & Maintenance | (798) | (857) | (59) | (2,966) | (3,088) | (122) |
| Depreciation & Amortization | (298) | (311) | (13) | (1,189) | (1,261) | (72) |
| Taxes Other Than FIT | (154) | (173) | (19) | (730) | (781) | (51) |
| Capital Cost and Other | (182) | (194) | (12) | (698) | (684) | 14 |
| Federal Income Taxes | (30) | (127) | (97) | (534) | (510) | 24 |
| __________________________________ | ||||||
| Net Earnings | 77 | 250 | 173 | 1,028 | 1,081 | 53 |
| EPS | $0.24 | $0.74 | $0.50 | $3.19 | $3.26 | $0.07 |
The earnings improvement in AEP’s utility and marketing operations is largely attributable to the company’s Texas operations. During the fourth quarter, AEP booked approximately $260 million, or $0.50 per share, in earnings associated with stranded cost recovery in Texas. These non-cash earnings reflect the difference between the actual price received from the state-mandated auction of 15 percent of Central Power & Light’s generation capacity and the earlier estimate of market prices derived from the Public Utility Commission of Texas (PUCT) model. The $260 million represents activity for all of 2002. It has been established as a regulatory asset that is recoverable through the 2004 true-up process established by deregulation laws in Texas.
“We could not book this cost recovery earlier in the year because we did not have a defined process to determine stranded costs for the 2004 true-up,” Draper said. “The plan we filed with the PUCT in December defines the divestiture of our generation in the Electricity Reliability Council of Texas as the method to determine our stranded costs.”
Retail gross margins in other operating utilities were up for the year by about $270 million because of increased usage by residential customers. However, system sales (wholesale sales from AEP’s generating plants) were off by $105 million primarily because of plant availability and lower wholesale prices. Trading was down by $214 million versus the prior year, as expected, because of AEP’s previously announced plan to reduce trading activity and the fact that earnings from trading in 2001 were exceptionally strong.
Operations and maintenance expenses for the year increased $122 million from the prior year, primarily because of increased administrative costs for the implementation of customer choice in Texas, higher costs for pensions and other benefits, and higher insurance costs in the post 9/11 market.
WHOLESALE INVESTMENTS
($ in millions except per share data; EPS based on 322mm shares in 2001, 339mm shares in Q4 2002 and 332mm shares in FY2002)
| Q4 2001 | Q4 2002 | Variance | FY 2001 | FY 2002 | Variance | |
| Gas Holdings | (5) | 1 | 6 | 11 | 15 | 4 |
| Memco | 2 | 4 | 2 | 2 | 8 | 6 |
| AEP Coal | 1 | 3 | 2 | 1 | 1 | 0 |
| UK Generation | 0 | (35) | (35) | 0 | (59) | (59) |
| IPPs and Wind Farms | 21 | (6) | (27) | 19 | (10) | (29) |
| __________________________________ | ||||||
| Total Wholesale Investments | 19 | (33) | (52) | 33 | (45) | (78) |
| EPS | $0.06 | ($0.10) | ($0.16) | $0.11 | ($0.13) | ($0.24) |
“The performance of our wholesale investments was a major disappointment,” Draper said. “The UK generation results are especially troubling, as the oversupply conditions that plagued that market throughout the year worsened in the fourth quarter after the British government’s decision to subsidize British Energy.”
The decline in earnings from independent power plants (IPPs) and wind farms is attributed to a gain in 2001 from the sale of an asset and higher fuel prices in 2002 associated with the Eastex plant.
OTHER INVESTMENTS
($ in millions except per share data; EPS based on 322mm shares in 2001, 339mm shares in Q4 2002 and 332mm shares in FY2002)
| Q4 2001 | Q4 2002 | Variance | FY 2001 | FY 2002 | Variance | |
| SEEBOARD (sale closed 7/29/2002) | 10 | (8) | (18) | 83 | 50 | (33) |
| CitiPower (sale closed 8/30/2002) | (3) | 0 | 3 | (6) | (10) | (4) |
| AEP Communications | (10) | (10) | 0 | (48) | (36) | 12 |
| CSW International | 18 | 10 | (8) | 38 | 1 | (37) |
| Other | 3 | (32) | (35) | (41) | (84) | (43) |
| __________________________________ | ||||||
| Total Other Investments | 18 | (40) | (58) | 26 | (79) | (105) |
| EPS | $0.05 | ($0.12) | ($0.17) | $0.08 | $0.24) | ($0.32) |
During 2002, AEP completed the sale of SEEBOARD, a regional electric company in the UK, and CitiPower, an Australian electricity provider. The decline in earnings from CSW International is attributed to a 2001 gain from the sale of an asset.
FOURTH QUARTER SPECIAL ITEMS
($ in millions except per share data; EPS based on 339mm shares in Q4 2002)
| Impairment | Per share | |
| UK Generation Assets | (414.8) | ($1.22) |
| South Coast Power | (53.5) | ($0.16) |
| AEP Coal | (38.9) | ($0.12) |
| Telecommunications | (159.6) | ($0.47) |
| Eastex | (142.2) | ($0.42) |
| Grupo Rede - Brazil (Vale) | (141.1) | ($0.42) |
| Other impairments | (69.2) | ($0.20) |
| Other special items | 4.9 | $0.02 |
| ________________ | ||
| Total Special Items | (1,014.4) | ($2.99) |
“Some of the write-offs, like AEP Communications and our investment in Vale, a utility in Brazil, were anticipated,” Draper said. “The write-down of Fiddler’s Ferry and Ferrybridge, two UK power plants we acquired in 2001, is the result of our recent analyses that indicate UK power prices will not recover to levels that would permit us to carry the plants on our books at the original purchase price of approximately $1 billion.
“The British government’s intervention in the competitive market through concessions to financially troubled British Energy kept that company’s inefficient generation in the marketplace,” Draper said. “The concessions exacerbated an existing oversupply situation in the UK and proved particularly detrimental to the valuation of other generation assets.”
AEP revised its 2003 guidance to a range of $2.50 to $2.70 per share. The reduction in guidance is based on assumptions that earnings from utility operations will be flat from year to year and expectations of further erosion in non-utility investments.
American Electric Power 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 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. EST today at http://www.firstcallevents.com/service/ajwz372675150gf12.html or http://www.AEP.com/investors/webcasts/default.htm.
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 4th Quarter 2002 vs 4th Quarter 2001: Also see the printer-friendly version (PDF: 8KB: get viewer)
-Summary of Selected Sales Data For Domestic and Trading Operation 3 Months Ended December 31: Also see the printer-friendly version (PDF: 6KB: get viewer)
-Financial Results for YTD December 2002 vs YTD December 2001: Also see the printer-friendly version (PDF: 8KB: get viewer)
-Summary of Selected Sales Data For Domestic and Trading Operations 12 Months Ended December 31: Also see the printer-friendly version (PDF: 6KB: 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
614/716-1620
Analysts:
Bette Jo Rozsa
Managing Director, Investor Relations
614/716-2840
Pat D. Hemlepp
Director, Corporate Media Relations
614/716-1620
Analysts:
Bette Jo Rozsa
Managing Director, Investor Relations
614/716-2840