- 2003 results: GAAP $0.29 per share, ongoing $2.53 per share
- UK operations, LIG moved to discontinued from ongoing
- Ongoing EPS $2.21 including discontinued operations, consistent with guidance
- Robust wholesale sales and cost control boost utility businesses
- Company increases ongoing earnings guidance range for 2004
AMERICAN ELECTRIC POWER
Preliminary, unaudited results
($ in millions except per share data; EPS based on 339mm shares Q4 2002, 395mm in Q4 2003, 332mm in FY2002 and 385mm in FY2003)
| | Fourth quarter ended Dec. 31 | Year ended Dec. 31 |
| | 2002 | 2003 | Variance | 2002 | 2003 | Variance |
Revenue ($ in billions) | | 3.5 | 3.3 | (0.2) | 13.3 | 14.5 | 1.2 |
Earnings ($ in millions): | | | | | | | |
GAAP | | (837) | (762) | 75 | (519) | 110 | 629 |
Ongoing | | 232 | 198 | (34) | 948 | 975 | 27 |
EPS ($): | | | | | | | |
GAAP | | (2.47) | (1.93) | 0.54 | (1.57) | 0.29 | 1.86 |
Ongoing | | 0.68 | 0.51 | (0.17) | 2.86 | 2.53 | (0.33) |
COLUMBUS, Ohio, Feb. 3, 2004 - American Electric Power (NYSE: AEP) today reported 2003 earnings, prepared in accordance with Generally Accepted Accounting Principles (GAAP), of $110 million, or $0.29 per share, compared with a loss of $519 million, or $1.57 per share, in 2002. Fourth quarter GAAP earnings were a loss of $762 million, or $1.93 per share, for 2003 compared with a loss of $837 million, or $2.47 per share, in 2002.
Ongoing earnings for 2003 increased to $975 million from $948 million in 2002, but ongoing earnings per share decreased to $2.53 from $2.86 because of the $0.41 dilutive effect of additional shares outstanding in 2003. Including discontinued operations that previously were part of ongoing earnings, AEP´s ongoing earnings for 2003 would have been $2.21 per share, consistent with AEP´s previously announced earnings guidance for 2003. In the fourth quarter of 2003, AEP´s United Kingdom operations and Louisiana Intrastate Gas (LIG) became discontinued since the assets have been identified for sale during 2004. SEEBOARD and CitiPower, sold during 2002, also were discontinued operations. Ongoing earnings for current and prior periods were adjusted to reflect the changes.
Increased ongoing earnings from AEP´s utility businesses, which benefited from robust wholesale sales and continued success in controlling costs, and reduced ongoing losses by investments contributed to the improvement in ongoing earnings.
GAAP and ongoing EPS for fourth-quarter 2003 are based on an average of approximately 395 million shares outstanding, compared to an average of approximately 339 million shares outstanding for the same period in 2002. Fiscal 2003 GAAP and ongoing EPS are based on an average of approximately 385 million shares outstanding, compared to an average 332 million shares outstanding for the same period in 2002.
Among items excluded from fourth-quarter and 12-month ongoing earnings are impairments for non-core businesses, losses from discontinued operations and changes in accounting principles totaling charges of $960 million for fourth-quarter 2003 and charges of $865 million for 12-month 2003. A full reconciliation of items contributing to the difference between ongoing and GAAP earnings for this period and comparable prior periods is included at the end of this news release.
2004 EARNINGS GUIDANCEAEP revised its 2004 ongoing earnings guidance to between $2.20 and $2.40 per share from the previous guidance of between $2.10 and $2.30 per share. The primary drivers for this change in guidance are the reclassification of the UK operations and LIG to discontinued and anticipated improved operational performance.
In providing ongoing earnings guidance, AEP management is aware of potential differences between 2004 ongoing earnings and 2004 GAAP earnings because of the classification of UK operations and LIG as discontinued. At this time AEP management is not able to accurately estimate the impact on GAAP earnings of potential differences in timing of planned disposals of UK operations, LIG and other non-core assets, or the potential impact of any future changes in accounting principles. Therefore, AEP is not able at this time to provide a corresponding GAAP equivalent for 2004 earnings guidance.
ONGOING RESULTS BY SEGMENT
($ in millions except per share data; EPS based on 339mm shares Q4 2002, 395mm in Q4 2003, 332mm in FY2002 and 385mm in FY2003)
| | | Q4 2002 | Q4 2003 | Variance | FY 2002 | FY 2003 | Variance |
Utility Operations | | | 267 | 284 | 17 | 1,163 | 1,213 | 50 |
Ongoing EPS | | | 0.79 | 0.72 | (0.07) | 3.51 | 3.15 | (0.36) |
Investments | | | (19) | (12) | 7 | (179) | (124) | 55 |
Ongoing EPS | | | (0.06) | (0.03) | 0.03 | (0.54) | (0.32) | 0.22 |
Parent Company | | | (16) | (74) | (58) | (36) | (114) | (78) |
Ongoing EPS | | | (0.05) | (0.18) | (0.13) | (0.11) | (0.30) | (0.19) |
Ongoing Earnings | | | 232 | 198 | (34) | 948 | 975 | 27 |
Ongoing EPS | | | $0.68 | $0.51 | ($0.17) | $2.86 | $2.53 | ($0.33) |
"We´re pleased with the continued improvement in ongoing earnings from our utility operations in the quarter and year, despite unfavorable weather in both periods," said Michael G. Morris, AEP president and chief executive officer. "Wholesale power sales were strong, which allowed us to overcome relatively flat retail demand, and we are continuing to see positive results from our efforts to reduce and control utility operating and maintenance expenses.
"We are actively working to divest our investments in the UK, Louisiana Intrastate Gas and various other non-core investments this year," Morris said. "We have assumed that the sale of the UK assets will happen toward the end of the year and LIG toward mid-year, although we will complete the transactions as soon as possible."
The increase in parent company expenses is primarily attributed to a provision related to certain litigation contingencies.
ONGOING RESULTS FROM UTILITY OPERATIONS
($ in millions except per share data; EPS based on 339mm shares Q4 2002, 395mm in Q4 2003, 332mm in FY2002 and 385mm in FY2003)
| | Q42002 | Q42003 | Variance | FY2002 | FY2003 | Variance |
Regulated Integrated Utilities | | 717 | 716 | (1) | 3,022 | 2,896 | (126) |
OhioCompanies | | 456 | 492 | 36 | 1,972 | 1,997 | 25 |
TexasWires | | 364 | 140 | (224) | 736 | 648 | (88) |
TexasSupply/REP | | 72 | 121 | 49 | 537 | 420 | (117) |
SystemSales | | 76 | 83 | 7 | 300 | 461 | 161 |
OtherWholesale Transactions | | (7) | (8) | (1) | 57 | (13) | (70) |
TransmissionRevenue - 3rd Party | | 104 | 117 | 13 | 422 | 467 | 45 |
OtherOperating Revenue | | 58 | 77 | 19 | 290 | 339 | 49 |
TotalGross Margin | | 1,840 | 1,738 | (102) | 7,336 | 7,215 | (121) |
Operations& Maintenance | | (819) | (719) | 100 | (2,980) | (2,841) | 139 |
Depreciation& Amortization | | (311) | (321) | (10) | (1,261) | (1,243) | 18 |
TaxesOther Than FIT | | (166) | (126) | 40 | (765) | (688) | 77 |
CapitalCost and Other | | (159) | (155) | 4 | (593) | (639) | (46) |
FederalIncome Taxes | | (118) | (133) | (15) | (574) | (591) | (17) |
TotalUtility Operations | | 267 | 284 | 17 | 1,163 | 1,213 | 50 |
Ongoing EPS | | $0.79 | $0.72 | ($0.07) | $3.51 | $3.15 | ($0.36) |
Mild weather in 2003, primarily in the eastern states in AEP´s service territory, was a factor in the $126 million year-to-year decrease in gross margin for Regulated Integrated Utilities. Cooling degree days in the east were down 40 percent from 2002, which reduced retail demand for electricity. Higher capacity payments to the AEP system pool and under recovery of fuel costs also contributed to the decrease.
The Ohio Companies benefited from increased fuel recovery and higher capacity payments from the AEP system pool to improve gross margins by $25 million in 2003 when compared to 2002.
The reduction in gross margin from Texas Wires in the quarter and year comparisons is primarily attributed to non-cash earnings associated with stranded cost recovery in Texas, which reflects the difference between the actual price received from the state-mandated auction of 15 percent of generation capacity and the earlier estimate of market prices derived from the Public Utility Commission of Texas (PUCT) model. It has been established as a regulatory asset that is recoverable through the 2004 true-up process established by deregulation laws in Texas. AEP recorded $218 million in non-cash Texas stranded cost recovery in 2003 and $262 million in 2002. The non-cash earnings were recorded in the fourth quarter of 2002 for all of 2002 but were recorded on a quarterly basis in 2003.
The year-to-year $117 million decrease in Texas Supply/REP margin reflects the loss of contributions from two Texas retail electricity providers (REPs) sold to Centrica in December 2002. The demand from the two REPs was replaced, in part, with a power supply contract with Centrica that extends through 2004. A 19-week outage ending in August at South Texas Project Unit 1 also contributed to the decrease. AEP owns 25 percent of the nuclear plant. Also contributing to the year-to-year decline is a provision for a $101.5 million fuel disallowance by the PUCT. AEP is challenging the disallowance.
Gross margin from System Sales for 2003 increased $161 million, or almost 54 percent, from 2002. Much of the increase came in the first nine months of 2003; fourth-quarter results were relatively flat with the prior period. System Sales includes the sale of surplus power from AEP´s generating plants into the wholesale market.
"We had excellent plant availability through much of 2003, which was beneficial because our low-cost generation - not required by our retail load because of lower demand - was available when wholesale prices were favorable," Morris said.
The transition electric trading book, associated with AEP’s decision to exit from markets where it doesn’t own assets, is included in Other Wholesale Transactions. The 2003 results, which reflect AEP’s “flattened” positions in those markets, are compared to gains in 2002 when AEP was an active participant.
The year-to-year and quarter-to-quarter increases in Transmission Revenue reflect the result of the increases in wholesale sales.
AEP reduced Operations & Maintenance expenses in 2003 by $139 million, or almost 5 percent, from 2002 despite greater storm damage costs in 2003 associated with severe storms in the Midwest and higher pension and post-retirement benefits costs. Much of the reduction came in the fourth quarter primarily as a result of savings in administrative and general expenses such as salaries and other associated employee expenses, outside services, insurance, and the sale of the Texas REP back office.
"It´s important to note that we reduced O&M costs without compromising our commitment to reliability and safety," Morris said. "We focus on making decisions that are cost effective, but we know we can´t save our way to prosperity. We need to be growing our business while maintaining our focus on cost control."
ONGOING RESULTS FROM INVESTMENTS
($ in millions except per share data; EPS based on 339mm shares Q4 2002, 395mm in Q4 2003, 332mm in FY2002 and 385mm in FY2003)
AEP Energy Services, includes | Q4 2002 | Q4 2003 | Variance | FY 2002 | FY 2003 | Variance |
Gas HoldCo (HPL) | (7) | 3 | 10 | (91) | (62) | 29 |
MEMCO | 4 | 7 | 3 | 11 | 12 | 1 |
Independent Power Plants and Wind Farms | (6) | 10 | 16 | (10) | 4 | 14 |
AEP Resources - Other | (8) | (26) | (18) | (45) | (48) | (3) |
Other | (2) | (6) | (4) | (44) | (30) | 14 |
Total Investments | (19) | (12) | 7 | (179) | (124) | 55 |
Ongoing EPS | ($0.06) | ($0.03) | $0.03 | ($0.54) | ($0.32) | $0.22 |
Reduced operating expenses, improved gross margins and reduced administrative expenses related to the transition gas trading activities resulted in the AEP Energy Services earnings improvement in the fourth quarter of 2003 as compared to 2002. For the year, a significant reduction in losses from the transition trading activities, combined with reduced operating and administrative expenses, resulted in a reduction of losses as compared to 2002. AEP announced in October 2002 that it was reducing its exposure to speculative energy trading markets and downsizing its trading and wholesale marketing operation.
A strong fourth quarter helped MEMCO to improve its 12-month results from 2002. Improving economic conditions during 2003 have strengthened the freight market, allowing MEMCO to utilize additional barges and increase earnings.
The sale of two independent power plants (IPPs) during 2003 and an increase in profitability by AEP´s wind farms resulted in $4 million in earnings from IPPs and Wind Farms in 2003 after a $10 million loss in 2002.
"We are proud to be one of the largest wind generators in the U.S., especially now that the wind generation is more profitable," Morris said.
Increased fourth-quarter losses by AEP Resources-Other are primarily attributed to intercompany tax allocations.
DISCONTINUED OPERATIONS
($ in millions except per share data; EPS based on 339mm shares Q4 2002, 395mm in Q4 2003, 332mm in FY2002 and 385mm in FY2003)
| Q4 2002 | Q4 2003 | Variance | FY 2002 | FY 2003 | Variance |
UK operations | (45) | (44) | 1 | (39) | (132) | (93) |
EPS | ($0.13) | ($0.11) | $0.02 | ($0.12) | ($0.34) | ($0.22) |
Louisiana Intrastate Gas | (2) | 2 | 4 | 8 | 8 | 0 |
EPS | ($0.01) | $0.00 | $0.01 | $0.03 | $0.02 | ($0.01) |
SEEBOARD (sale closed 7/29/2002) | (8) | - | 8 | 50 | - | (50) |
EPS | ($0.02) | - | $0.02 | $0.15 | - | ($0.15) |
CitiPower (sale closed 8/30/2002) | - | - | - | (10) | - | 10 |
EPS | - | - | - | ($0.03) | - | $0.03 |
Total Discontinued Operations | (55) | (42) | 13 | 9 | (124) | (133) |
EPS | ($0.16) | ($0.11) | $0.05 | $0.03 | ($0.32) | ($0.35) |
AEP reclassified UK operations and LIG as discontinued during the fourth quarter after finalizing plans to exit these businesses during 2004.
Continued unfavorable plant and trading margins were factors in the significant losses recorded by the UK operations during the year. The accounting treatment of freight hedges in the third quarter was also a key factor in increased losses for 2003 when compared to 2002. Other factors include reduced trading activity from reduced risk appetite and increased operating costs largely associated with the exit of non-core markets.
Morris expressed optimism about AEP´s outlook for 2004.
"All things considered, 2003 was a reasonably successful year, demonstrating the continuing strength of our core utility operations," Morris said. "We have put many open issues behind us and are taking steps to improve our results going forward. We remain focused on strengthening our balance sheet, improving utility operations, and investing in our core utility businesses.
"I´m confident we are on the right course," Morris said.
WEBCASTAmerican Electric Power’s quarterly conference call with financial analysts will be broadcast live over the Internet at 9:30 a.m. EST today on
http://www.aep.com/go/webcasts or
http://www.firstcallevents.com/service/ajwz397409303gf12.html .
The call will be archived on
http://www.aep.com/go/webcasts 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/
download/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 .
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 GAAP earnings are prepared in accordance with accounting principles generally accepted in the United States and represent the company’s earnings as reported to the Securities and Exchange Commission. AEP’s management believes that the company’s ongoing earnings, or GAAP earnings adjusted for certain items as described in the news release and charts, provide a more meaningful representation of the company’s performance. AEP uses ongoing earnings as the primary performance measurement when communicating with analysts and investors regarding its earnings outlook and results. The company also uses ongoing earnings data internally to measure performance against budget and to report to AEP’s board of directors.
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Summary of Selected Sales Data For Domestic Operations 3 Months Ended December 31: Also see the
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These reports made by AEP and its registrant subsidiaries contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although AEP and its registrant subsidiaries believe that their expectations are based on reasonable assumptions, any such statements may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. Among the factors that could cause actual results to differ materially from those in the forward-looking statements are: electric load and customer growth; abnormal weather conditions; available sources and costs of fuels; availability of generating capacity; the speed and degree to which competition is introduced to the company´s service territories; the ability to recover stranded costs in connection with deregulation; new legislation and government regulation including (i) requirements for reduced emissions of sulfur, nitrogen, carbon and other substances and (ii) electricity transmission policy; pending and future rate cases and negotiations; oversight and/or investigation of the energy sector or its participants; the company´s ability to successfully control costs; the success of disposing of existing investments that no longer match the company´s corporate profile; international and country-specific developments affecting foreign investments including the disposition of any current foreign investments; the economic climate and growth in the company´s service territory and changes in market demand and demographic patterns; inflationary trends; accounting pronouncements periodically issued by accounting standard-setting bodies; the performance of AEP’s pension plan; electricity and gas market prices; interest rates; liquidity in the banking, capital and wholesale power markets; actions of rating agencies; changes in technology, including the increased use of distributed generation within the company´s transmission and distribution service territory; other risks and unforeseen events, including wars, the effects of terrorism, embargoes and other catastrophic events.
Media:
Pat D. Hemlepp
Director, Corporate Media Relations
614/716-1620
Analysts:
Julie Sloat
Managing Director, Investor Relations
614/716-2885
Bette Jo Rozsa
Managing Director, Investor Relations
614/716-2840