UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
| [X] | ANNUAL REPORT PURSUANT TO SECTION 15(d) |
| | OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the year ended December 31, 2012
OR
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 15(d) |
| | OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
AMERICAN ELECTRIC POWER SYSTEM
RETIREMENT SAVINGS PLAN
(Full title of the plan)
AMERICAN ELECTRIC POWER COMPANY, INC.
1 Riverside Plaza, Columbus, Ohio 43215
(Name of issuer of the securities held
pursuant to the plan and the address
of its principal executive office)
| TABLE OF CONTENTS | | Page Number |
| | | |
| Signatures | | 2 |
| | | |
| Report of Independent Registered Public Accounting Firm | | 3 |
| | | |
| Financial Statements | | |
| Statements of Net Assets Available for Benefits | | 4 |
| Statements of Changes in Net Assets Available for Benefits | | 5 |
| Notes to Financial Statements | | 6-17 |
| | | |
| Supplemental Schedules | | |
| Schedule of Assets (Held as of End of Year) | | 18-48 |
| Schedule of Assets (Acquired and Disposed of Within Year) | | 49 |
| Schedule of Reportable Transactions | | 50 |
| Schedule of Nonexempt Transaction | | 51 |
| | | |
| Exhibits | | |
| Exhibit Index | | 52 |
| | | |
| Consent of Independent Registered Public Accounting Firm | | 53 |
| | | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Benefits Finance Committee has duly caused this annual report to be signed by the undersigned thereunto duly authorized.
By: /s/ Julia A. Sloat
Julia A. Sloat, Secretary
Date: June 28, 2013
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees and Participants of the American Electric Power System Retirement Savings Plan
We have audited the accompanying statements of net assets available for benefits of the American Electric Power System Retirement Savings Plan (the “Plan”) as of December 31, 2012 and 2011, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2012 and 2011, and the changes in net assets available for benefits for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of (1) assets held as of December 31, 2012, (2) assets acquired and disposed of in 2012, (3) reportable transactions, and (4) nonexempt transaction, are presented for the purpose of additional analysis and are not a required part of the basic financial statements, but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These schedules are the responsibility of the Plan's management. Such schedules have been subjected to the auditing procedures applied in our audit of the basic 2012 financial statements and, in our opinion, are fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole.
/s/ Deloitte & Touche LLP
Columbus, Ohio
June 28, 2013
AMERICAN ELECTRIC POWER SYSTEM RETIREMENT SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 2012 and 2011
| | | 2012 | | 2011 |
| ASSETS | | | | | | |
| Investments at Fair Value: | | | | | | |
| Participant Directed Investments | | $ | 3,268,509,701 | | $ | 2,949,303,441 |
| Wrap Contracts | | | - | | | 456,104 |
| TOTAL INVESTMENTS AT FAIR VALUE | | | 3,268,509,701 | | | 2,949,759,545 |
| | | | | | | |
| Notes Receivable from Participants | | | 79,060,932 | | | 74,987,631 |
| | | | | | | |
| TOTAL ASSETS | | | 3,347,570,633 | | | 3,024,747,176 |
| | | | | | | |
| Adjustment from Fair Value to Contract Value for Fully Benefit Responsive Wrap Contracts | | | (17,178,669) | | | (6,071,315) |
| | | | | | | |
| NET ASSETS AVAILABLE FOR BENEFITS | | $ | 3,330,391,964 | | $ | 3,018,675,861 |
| | | | | | | |
| See Notes to Financial Statements. | | | | | | |
AMERICAN ELECTRIC POWER SYSTEM RETIREMENT SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
For the Years Ended December 31, 2012 and 2011
| | | 2012 | | 2011 |
| INVESTMENT INCOME | | | | | | |
| Net Appreciation in Fair Value of Investments | | $ | 255,472,235 | | $ | 17,822,948 |
| Interest | | | 11,457,388 | | | 9,625,575 |
| Dividends | | | 33,392,767 | | | 18,442,370 |
| Total Investment Income | | | 300,322,390 | | | 45,890,893 |
| | | | | | | |
| CONTRIBUTIONS | | | | | | |
| Participants | | | 147,216,242 | | | 142,067,219 |
| Employer | | | 65,123,578 | | | 63,376,474 |
| Total Contributions | | | 212,339,820 | | | 205,443,693 |
DISTRIBUTIONS TO PARTICIPANTS | | | (198,027,366) | | | (227,643,846) |
| | | | | | | |
| ADMINISTRATIVE AND MANAGEMENT FEES | | | | | | |
| Professional Fees | | | (697,438) | | | (737,977) |
| Investment Advisory and Management Fees | | | (5,339,996) | | | (5,313,267) |
| Other Fees | | | (482,541) | | | (532,758) |
| Total Administrative and Management Fees | | | (6,519,975) | | | (6,584,002) |
| | | | | | | |
INTEREST INCOME ON NOTES RECEIVABLE FROM PARTICIPANTS | | | 3,449,226 | | | 3,508,423 |
| | | | | | | |
| TRANSFERS INTO PLAN | | | 152,008 | | | - |
| | | | | | | |
| INCREASE IN NET ASSETS | | | 311,716,103 | | | 20,615,161 |
| | | | | | | |
| NET ASSETS AVAILABLE FOR BENEFITS BEGINNING OF YEAR | | | 3,018,675,861 | | | 2,998,060,700 |
| | | | | | | |
| NET ASSETS AVAILABLE FOR BENEFITS END OF YEAR | | $ | 3,330,391,964 | | $ | 3,018,675,861 |
| | | | | | | |
| See Notes to Financial Statements. | | | | | | |
AMERICAN ELECTRIC POWER SYSTEM RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2012 and 2011
The following description of the American Electric Power System Retirement Savings Plan (Plan) is provided for general information purposes only. Participants should refer to the Plan documents for a more complete description of the Plan’s information.
General
The Plan is a defined contribution plan that became effective and commenced operations on January 1, 1978. The Plan covers eligible regularly-scheduled full-time and part-time employees of the participating subsidiaries of American Electric Power Company, Inc. (AEP or the Company). American Electric Power Service Corporation (AEPSC) is the plan administrator (Plan Administrator) and plan sponsor (Plan Sponsor). AEPSC is a wholly-owned subsidiary of AEP. JPMorgan Chase Bank N.A. is the custodian and trustee and JPMorgan Retirement Plan Services LLC is the record keeper with respect to the Plan, collectively (JPMorgan or the Trustee).
Contributions
Newly eligible employees are automatically enrolled in the Plan with a 3% pretax deferral. Employees may opt out of the automatic enrollment or revise their elections within a reasonable period of time after they are notified of their right not to have such pretax deferrals made on their behalf (or to have such pretax deferrals made at a different percentage) and how their account will be invested in the absence of their making an investment election. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Generally, eligible employees participating in the Plan may make contributions (pretax, after-tax or Roth 401(k) contributions) in 1% increments up to 50% of their eligible pay (within Internal Revenue Service (IRS) limits). Participants who are age 50 and older are able to contribute additional pretax or Roth 401(k) amounts as catch-up contributions. The catch-up contribution limit was $5,500 for both 2012 and 2011. The Company contributes to the Plan, on behalf of each participant, an amount equal to 100% of the participant’s contributions up to 1% of the participant’s eligible compensation for each payroll period, plus 70% of the participant’s contributions for the next 5% of the participant’s eligible compensation for each payroll period, subject to certain limitations. All contributions are deposited in the American Electric Power System Retirement Savings Plan Trust after each pay period. The Plan, in a manner consistent with the requirements under section 401 of the Internal Revenue Code (IRC), restricts the amount that certain participants who are deemed highly compensated may contribute to the Plan, provided that it is AEPSC’s intent that the Plan include a “qualified automatic contribution arrangement” (as defined in Section 401(k)(13) of the IRC) effective January 1, 2009, such that only the after-tax contributions made by such highly compensated participants may be subject to such restrictions.
On November 1, 2012, assets of $152,008 were transferred into the Plan in connection with the merger of the terminated AEP Ohio Coal, LLC, Employee Savings Plan into the Plan. The merger of the plans was necessary under applicable tax regulations that preclude the distribution of amounts from a terminated plan to participants who have not consented to such a distribution to the extent a related employer maintains another individual account retirement plan to which such amounts may be transferred.
Investments
The investment options offered by the Plan are a series of separately managed accounts, interests in commingled and collective trusts, the AEP Stock Fund and self-directed mutual fund brokerage accounts. Affiliates of JPMorgan provide custody, trustee, recordkeeping and other services with regard to investments.
Participant Loans
Participants may borrow from their savings plan accounts a minimum of $1,000 but no more than the lesser of $50,000 or 50% of their account balance. Loan terms range from 12 months to 60 months (or up to 180 months for
certain residential loans), or any monthly increment in-between. Interest rates, fixed for the life of the loan, are calculated by adding 1% to the prime rate, as reported in the Wall Street Journal. For loans taken before July 1, 2006, the interest rate was in effect as of the first business day of the calendar quarter in which the loan was taken. For loans taken after July 1, 2006, the interest rate is in effect as of the first business day of the calendar month in which the loan is taken. Active employees repay principal and interest payments through payroll deductions.
Participant loans and the accrued interest are collateralized by the account balance, and upon default, the outstanding balance is subject to income taxes and possible tax penalty.
Participant Accounts
Individual accounts are maintained for each Plan participant. Each participant’s account is credited with the participant’s contributions, the Company’s matching contributions and investment earnings and losses and charged with benefit payments and allocations of Plan expenses. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s account.
Participants may transfer the value of their cumulative contributions, in any whole percentage or dollar amount, among investments, and change their investment elections on a daily basis. Participants may change their payroll contribution elections coinciding with the Company’s payroll periods.
Vesting and Distribution
Participants are immediately vested in their pretax, after-tax, Roth 401(k) and the Company matching contributions, including earnings thereon. Excluding participants’ pretax and Roth 401(k) contributions and post-2008 Company matching contributions, all participants may make an unlimited number of withdrawals of their interest in the Plan, including their pre-2009 Company matching contributions. Pretax and Roth 401(k) contributions are eligible for withdrawal by participants only after age 59-1/2, or earlier upon hardship (as defined by the Plan) or following termination of employment. Post-2008 Company matching contributions are eligible for withdrawal by participants only after age 59-1/2, or earlier following earlier termination of employment, but not upon hardship.
The AEP Stock Fund, a Plan investment option, is an Employee Stock Ownership Plan. As a result, participants can elect to have dividends generated from their AEP Stock Fund holdings paid out in cash, rather than automatically reinvested in the fund. The dividend payouts are made periodically (at least annually) and are treated as ordinary income to the participants for tax purposes.
Basis of Accounting
The accompanying financial statements are prepared on an accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of America (GAAP).
Investment Valuation and Income Recognition
Participants direct the investment of their contributions into various investment options offered by the Plan. Investments are reported in the Statements of Net Assets Available for Benefits at fair value while benefit responsive investment contracts are reported at fair value with an adjustment to contract value. Fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Purchases and sales of securities have been recorded on a trade-date basis. Interest income is recorded on an accrual basis. Dividends are recorded on the ex-dividend date. These amounts are reinvested by the Trustee in the funds that generated such income with the exception of the AEP Stock Fund, which pays or reinvests dividends at the direction of each participant.
Notes Receivable from Participants
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent participant loans are not recorded as distributions until actually distributed based on the terms of the Plan document.
Administrative Expenses and Management Fees
Administrative and Management Fees incurred relating to JPMorgan during 2012 and 2011 totaled $2,529,547 and $2,998,142, respectively. The Plan directly pays for administrative, recordkeeping and management fees.
Distributions to Participants
Benefits are recorded when paid. There were no material amounts of distributions due to participants who requested distributions from the Plan as of December 31, 2012 and 2011.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of net assets available for benefits and changes therein and disclosure of contingent assets. Actual results could differ from the estimates.
Fair Value Measurements of Assets
The accounting guidance for “Fair Value Measurements and Disclosures” establishes a hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to securities with unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). AEP’s internal staff independently monitors our valuation policies and procedures and provides members of the Benefits Finance Committee (BFC) various monthly and quarterly reports, regarding compliance with policies and procedures. The BFC consists of our Chief Financial Officer, Treasurer, Chief Administrative Officer, Chief Risk Officer, and EVP General Counsel.
The Plan utilizes its trustee’s external pricing service to estimate the fair value of the underlying investments held in the Plan. The Plan’s investment managers review and validate the prices utilized by the trustee to determine fair value. The Company performs its own valuation testing to verify the fair values of the securities. The Company receives audit reports of the trustee’s operating controls and valuation processes. The trustee uses multiple pricing vendors for the assets held in the trust.
Assets in the Plan are classified using the following methods. Equities are classified as Level 1 holdings if they are actively traded on exchanges. Items classified as Level 1 are investments in money market funds, fixed income and equity mutual funds and domestic equity securities. They are valued based on observable inputs primarily unadjusted quoted prices in active markets for identical assets. Items classified as Level 2 are primarily investments in individual fixed income securities and cash equivalents funds. Fixed income securities do not trade on an exchange and do not have an official closing price but their valuation inputs are based on observable market data. Pricing vendors calculate bond valuations using financial models and matrices. The models use observable inputs including yields on benchmark securities, quotes by securities brokers, rating agency actions, discounts or premiums on securities compared to par prices, changes in yields for U.S. Treasury securities, corporate actions by bond issuers, prepayment schedules and histories, economic events and, for certain securities, adjustments to yields to reflect changes in the rate of inflation. Cash equivalent funds are held to provide liquidity and meet short term cash needs. The underlying holdings in the cash funds consist of commercial paper, certificates of deposit, treasury bills, and other short-term debt securities. Short-term debt securities are valued based on observable market data by the trust banks pricing vendor. Other securities with model-derived valuation inputs that are observable are also classified as Level 2 investments. Investments with unobservable valuation inputs are classified as Level 3 investments. Plan assets included in Level 3 are primarily real estate and private equity investments that are valued using methods requiring judgment, including appraisals.
Equities and Registered Investment Companies are valued based on observable inputs, primarily unadjusted quoted prices in active markets for identical assets.
Investment Descriptions
Common Collective Trusts and the Managed Income Fund are valued at the net asset value per share (NAV). The basis of the reported NAV is the total fair value of all underlying holdings less expenses and liabilities. The value of each unit is determined by dividing the net asset value of the fund by the number of applicable units outstanding on the valuation date. These investments are categorized as Level 2 if they can be redeemed at the NAV price. The JPMorgan Strategic Property Fund has been categorized as a Level 3 investment since the underlying holdings are diversified real estate assets that are difficult to value and rely on unobservable inputs to measure fair value. JPMorgan Emerging Markets Fund is classified as Level 3. The majority of the holdings in the JPMorgan Emerging Markets Fund are equity securities traded on foreign stock exchanges in emerging nations that have limited liquidity.
JPMorgan Liquidity Fund
The objective of this fund is to provide liquidity and meet short-term cash needs while preserving principal. The underlying holdings in the fund are investment grade money market instruments including commercial paper, certificates of deposit, treasury bills and other types of investment grade short-term debt securities. The fund is valued each business day.
JPMorgan US Treasury Plus Money Market Fund
The objective of this fund is to provide liquidity and meet short-term cash needs while preserving principal. The underlying holdings in the fund include U.S. Treasury obligations, including Treasury bills, bonds and notes and other obligations issued or guaranteed by the U.S. Treasury, and repurchase agreements fully collateralized by U.S. Treasury securities.
Mellon Capital Small Cap Stock Index Fund
The objective of this fund is to track the performance of the Russell 2000 Index. The underlying equity holdings of this fund are actively traded on major domestic stock exchanges and have readily available market quotes.
Mellon Capital Stock Index Fund
The objective of this fund is to track the performance of the S&P 500 Index. The underlying equity holdings of this fund are actively traded on major domestic stock exchanges and have readily available market quotes.
Mellon Capital International Stock Index Fund
The objective of this fund is to track the performance of the MSCI Europe, Australia, and Far East (MSCI EAFE) Index. The underlying equity holdings of this fund are actively traded on the major non-U.S stock exchanges and have readily available market quotes.
JPMorgan US Real Estate Securities Fund
The objective of this fund is to exceed the performance of the MSCI Real Estate Investment Trust (MSCI U.S. REIT) Index. The underlying real estate investment trust equity holdings of this fund are actively traded on the major domestic stock exchanges and have readily available market quotes.
Mellon Capital Aggregate Bond Index Fund
The objective of this fund is to track the performance of the Barclay’s Capital U.S. Aggregate Bond Index. Fixed income securities do not trade on an exchange and do not have an official closing price.
Mellon Capital Treasury Inflation-Protected Securities Fund
The objective of this fund is to track the performance of the Barclays Capital U.S. Treasury Inflation-Protected Securities Index. Treasury Inflation-Protected Securities are backed by the U.S. government and protect investors from the effects of inflation. The securities are not actively traded on exchanges and do not have an official closing price.
JPMorgan Strategic Property Fund
The objective of this fund is to exceed the performance of the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index. The underlying holdings in the fund are diversified real estate assets. This diversified fund consists of multiple properties and no single asset, tenant or location has undue influence over the fund’s value or performance. The fund’s diversified holdings help mitigate the risk of default and concentration risk.
JPMorgan Emerging Markets Fund
The objective of this fund is to exceed the performance of the MSCI Emerging Markets (MSCI EM) Free Index. The majority of the underlying holdings of this fund are traded on foreign stock exchanges in emerging markets. The securities in these economies are typically less efficient and less liquid than those in developed markets.
Metlife Separate Account No. 690
The objective of the fund is to exceed the performance of the Barclays Capital 1-3 year Government/Credit Index. The fund seeks to preserve principal and an above average level of income with the goal of minimizing overall portfolio risk. Fixed income securities do not trade on an exchange and do not have an official closing price.
Wells Fargo Fixed Income Fund N
The objective of the fund is to exceed the performance of the Barclays Capital Intermediate Government/Credit Index. The fund seeks to preserve principal and an above average level of income with the goal of minimizing overall portfolio risk. Fixed income securities do not trade on an exchange and do not have an official closing price.
Although it has not expressed any intent to do so, AEPSC has the right to take such actions as will allow contributions to the Plan to be discontinued at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants remain 100 percent vested in their accounts.
The Managed Income Fund provides a stable value investment option that includes fully benefit-responsive wrap contracts which assure the book value of investments for plan participants. The fund’s underlying assets, which are held in a trust, utilize wrap contracts issued by four financial institutions as of December 31, 2012 and 2011. The contracts provide that participants execute plan transactions at contract value. Contract value represents contributions made to the fund, plus credited interest, less participant withdrawals, without regard to changes in the fair value of the investments and securities underlying the fund. The rates for crediting interest are reset periodically based on market rates of other similar investments, the current yield of the underlying investments and the spread between the market value and contract value. The interest crediting rate cannot be less than 0%. Certain events initiated by the Plan Sponsor, such as plan termination or a plan merger, would limit the ability of the Plan to administer participant-level transactions at contract value or may allow for the termination of the wrap contract at market value, rather than contract value. In April 2012, AEP initiated a process to identify employee repositioning opportunities and efficiencies. The process resulted in the redeployment of employees and involuntary severances. The most intensive part of this process was completed in early 2013, although additional review and steps continue.
This process is not expected to have a material impact on the Managed Income Fund. The Plan sponsor does not believe that any events that may limit the ability of the plan to transact at contract value are probable as of December 31, 2012 or the date these financial statements are issued. During the year ended December 31, 2012, the average yield based on underlying earnings and the average yield based on interest credited to participants were 0.83% and 1.49%, respectively. During the year ended December 31, 2011, the average yield based on underlying earnings and the average yield based on interest credited to participants were 1.50% and 1.71%, respectively.
5. INVESTMENTS EXCEEDING FIVE PERCENT OF THE PLAN’S NET ASSETS
Investments exceeding five percent of the Plan’s net assets as of December 31, 2012 and 2011 were as follows:
| | | December 31, |
| | | 2012 | | 2011 |
| American Electric Power Company, Inc. Common Stock | | $ | 282,978,430 | | $ | 285,559,258 |
| Mellon Capital Aggregate Bond Index Fund | | | 464,002,734 | | | 371,262,961 |
| Mellon Capital Stock Index Fund | | | 481,200,145 | | | 423,823,169 |
| Mellon Capital International Stock Index Fund | | | 305,480,758 | | | 260,688,324 |
6. NET APPRECIATION OF INVESTMENTS
During 2012 and 2011, the Plan's investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated (depreciated) in value as follows:
| | | Years Ended December 31, |
| | | 2012 | | 2011 |
| American Electric Power Company, Inc. Common Stock | | $ | 9,617,491 | | $ | 39,332,060 |
| Common/Collective Trusts | | | 165,034,728 | | | 681,279 |
| Corporate Stock | | | 70,090,069 | | | (14,985,551) |
| Fixed Income Securities | | | 964,770 | | | 2,128,176 |
| Registered Investment Companies | | | 9,765,177 | | | (9,333,016) |
| Net Appreciation in Fair Value of Investments | | $ | 255,472,235 | | $ | 17,822,948 |
7. PARTY-IN-INTEREST TRANSACTIONS |
Certain transactions involving the Plan and its assets involved parties in interest with respect to the Plan, but those transactions were not prohibited transactions under ERISA because of the applicability of one or more exemptions. The exempt party-in-interest transactions involving the Plan included the following: JPMorgan Chase Bank, N.A. has been acting as trustee and custodian under the Plan, while its affiliates have been acting as (a) investment manager for a number of the Plan’s investment options, (b) the Plan’s record keeper and (c) investment advisor or investment manager for a number of plan participants with respect to the amounts held in their Plan accounts.
As of December 31, 2012 and 2011, the Plan held 6,630,235 and 6,912,594 shares, respectively, of common stock of American Electric Power Company, Inc., the Plan Sponsor, with a cost basis of $234,634,292 and $240,862,421, respectively. During the years ended December 31, 2012 and 2011, the Plan recorded dividend income of $13,252,757 and $13,695,209, respectively, related to its investment in that common stock.
The Plan entered into a non-exempt prohibited transaction when it issued a $21,000 loan to a participant, who, as an employee of the Company, was a party-in-interest with respect to the Plan. An exemption under ERISA 408(b)(1) requires that the loan be made in accordance with specific plan provisions, but the $21,000 loan was issued on April 9, 2008, when the participant’s highest outstanding loan balance in the preceding 12 months was approximately $32,500. In the aggregate, these two loan balances exceeded the $50,000 limit imposed under the terms of the Plan by $3,500. The Company undertook steps to remediate the prohibited transaction as relates to the participant, but had not completed the steps to fully remediate the prohibited transaction with the interested government agencies by December 31, 2012. Because the participant is not a “disqualified person” for purposes of Section 4975 of the IRC, 5330 is not required in connection with this transaction.
8. FAIR VALUE MEASUREMENTS
For a discussion of fair value accounting and the classification of assets within the fair value hierarchy, see the “Fair Value Measurements of Assets” section of Note 2.
Plan Assets within the Fair Value Hierarchy as of December 31, 2012 |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
| Equities | | |
| Corporate Stocks | | $ | 494,382,946 | | $ | - | | $ | - | | $ | 494,382,946 |
| AEP Stock | | | 282,978,430 | | | - | | | - | | | 282,978,430 |
| Subtotal Equities | | | 777,361,376 | | | - | | | - | | | 777,361,376 |
| | | | | | | | | | | | | |
| Fixed Income | | | | | | | | | | | | |
| Government Bonds | | | - | | | 105,989,433 | | | - | | | 105,989,433 |
| Corporate Debt Securities | | | - | | | 159,049,975 | | | - | | | 159,049,975 |
| Mortgage Backed Securities | | | - | | | 204,001,237 | | | - | | | 204,001,237 |
| Subtotal Fixed Income | | | - | | | 469,040,645 | | | - | | | 469,040,645 |
| | | | | | | | | | | | | |
| Common/Collective Trusts | | | | | | | | | | | | |
| JPMorgan Liquidity Fund | | | - | | | 14,005,564 | | | - | | | 14,005,564 |
| JPMorgan US Treasury Plus Money Market Fund | | | - | | | 109,448,923 | | | - | | | 109,448,923 |
Mellon Capital Small Cap Stock Index Fund | | | - | | | 163,278,652 | | | - | | | 163,278,652 |
Mellon Capital Stock Index Fund | | | - | | | 481,200,145 | | | - | | | 481,200,145 |
Mellon Capital International Stock Index Fund | | | - | | | 305,480,758 | | | - | | | 305,480,758 |
| JPMorgan US Real Estate Securities Fund | | | - | | | 17,816,967 | | | - | | | 17,816,967 |
Mellon Capital Aggregate Bond Index Fund | | | - | | | 464,002,734 | | | - | | | 464,002,734 |
| Mellon Capital Treasury Inflation-Protected Securities Fund | | | - | | | 14,704,660 | | | - | | | 14,704,660 |
| Metlife Separate Account No. 690 | | | - | | | 150,986,394 | | | - | | | 150,986,394 |
| Wells Fargo Fixed Income Fund N | | | - | | | 125,425,281 | | | - | | | 125,425,281 |
| JPMorgan Strategic Property Fund | | | - | | | - | | | 31,791,671 | | | 31,791,671 |
| JPMorgan Emerging Markets Fund | | | - | | | - | | | 18,068,713 | | | 18,068,713 |
| Subtotal Common/Collective Trusts | | | - | | | 1,846,350,078 | | | 49,860,384 | | | 1,896,210,462 |
| | | | | | | | | | | | | |
| Registered Investment Companies | | | 109,253,314 | | | - | | | - | | | 109,253,314 |
| Cash Equivalents | | | - | | | 19,864,466 | | | - | | | 19,864,466 |
| Accrued Items and Unsettled Trades | | | 545,362 | | | (3,765,924) | | | - | | | (3,220,562) |
| | | | | | | | | | | | | |
| Total Assets Reflecting Investments at Fair Value | | $ | 887,160,052 | | $ | 2,331,489,265 | | $ | 49,860,384 | | $ | 3,268,509,701 |
Plan Assets within the Fair Value Hierarchy as of December 31, 2011 |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
| Equities | | |
| Corporate Stocks | | $ | 442,805,802 | | $ | - | | $ | - | | $ | 442,805,802 |
| AEP Stock | | | 285,559,258 | | | - | | | - | | | 285,559,258 |
| Subtotal Equities | | | 728,365,060 | | | - | | | - | | | 728,365,060 |
| | | | | | | | | | | | | |
| Fixed Income | | | | | | | | | | | | |
| Government Bonds | | | - | | | 165,171,072 | | | - | | | 165,171,072 |
| Corporate Debt Securities | | | - | | | 174,701,942 | | | - | | | 174,701,942 |
| Mortgage Backed Securities | | | - | | | 406,542,746 | | | - | | | 406,542,746 |
| Subtotal Fixed Income | | | - | | | 746,415,760 | | | - | | | 746,415,760 |
| | | | | | | | | | | | | |
| Common/Collective Trusts | | | | | | | | | | | | |
| JPMorgan Liquidity Fund | | | - | | | 142,411,611 | | | - | | | 142,411,611 |
Mellon Capital Small Cap Stock Index Fund | | | - | | | 146,226,734 | | | - | | | 146,226,734 |
Mellon Capital Stock Index Fund | | | - | | | 423,823,169 | | | - | | | 423,823,169 |
Mellon Capital International Stock Index Fund | | | - | | | 260,688,324 | | | - | | | 260,688,324 |
| JPMorgan US Real Estate Securities Fund | | | - | | | 12,741,862 | | | - | | | 12,741,862 |
Mellon Capital Aggregate Bond Index Fund | | | - | | | 371,262,961 | | | - | | | 371,262,961 |
| Mellon Capital Treasury Inflation-Protected Securities Fund | | | - | | | 8,878,231 | | | - | | | 8,878,231 |
| JPMorgan Strategic Property Fund | | | - | | | - | | | 34,096,695 | | | 34,096,695 |
| JPMorgan Emerging Markets Fund | | | - | | | - | | | 15,195,847 | | | 15,195,847 |
| Subtotal Common/Collective Trusts | | | - | | | 1,366,032,892 | | | 49,292,542 | | | 1,415,325,434 |
| | | | | | | | | | | | | |
| Registered Investment Companies | | | 94,923,728 | | | - | | | - | | | 94,923,728 |
| Cash Equivalents | | | - | | | 21,875,447 | | | - | | | 21,875,447 |
| Wrap Contracts | | | - | | | - | | | 456,104 | | | 456,104 |
| Accrued Items and Unsettled Trades | | | 593,548 | | | (58,195,536) | | | - | | | (57,601,988) |
| | | | | | | | | | | | | |
| Total Assets Reflecting Investments at Fair Value | | $ | 823,882,336 | | $ | 2,076,128,563 | | $ | 49,748,646 | | $ | 2,949,759,545 |
The following tables set forth a summary of the Plan's investments with a reported Net Asset Value as of December 31, 2012 and 2011:
Fair Value Estimated Using Net Asset Value per Share as of December 31, 2012 |
| | | Fair Value | | Redemption Frequency (If currently eligible) | | Redemption Notice Period |
| | | | | | | |
| JPMorgan Liquidity Fund | | $ | 14,005,564 | | Daily | | 1 Day |
| JPMorgan US Treasury Plus Money Market Fund | | | 109,448,923 | | Daily | | Trade Date + 0 |
| Mellon Capital Small Cap Stock Index Fund | | | 163,278,652 | | Daily | | Trade Date + 1 |
| Mellon Capital Stock Index Fund | | | 481,200,145 | | Daily | | Trade Date + 1 |
| Mellon Capital International Stock Index Fund | | | 305,480,758 | | Daily | | Trade Date + 1 |
| JPMorgan US Real Estate Securities Fund | | | 17,816,967 | | Daily | | 1 Day |
| Mellon Capital Aggregate Bond Index Fund | | | 464,002,734 | | Daily | | Trade Date + 1 |
| Mellon Capital Treasury Inflation-Protected Securities Fund | | | 14,704,660 | | Daily | | Trade Date + 1 |
| JPMorgan Strategic Property Fund | | | 31,791,671 | | Quarterly | | 45 Days |
| JPMorgan Emerging Markets Fund | | | 18,068,713 | | Daily | | 1 Day |
| Metlife Separate Account No. 690 | | | 150,986,394 | | Monthly | | 1 Month |
| Wells Fargo Fixed Income Fund N | | | 125,425,281 | | Monthly | | 1 Month |
| Total Assets | | $ | 1,896,210,462 | | | | |
Fair Value Estimated Using Net Asset Value per Share as of December 31, 2011 |
| | | Fair Value | | Redemption Frequency (If currently eligible) | | Redemption Notice Period |
| | | | | | | |
| JPMorgan Liquidity Fund | | $ | 142,411,611 | | Daily | | 1 Day |
| Mellon Capital Small Cap Stock Index Fund | | | 146,226,734 | | Daily | | Trade Date + 1 |
| Mellon Capital Stock Index Fund | | | 423,823,169 | | Daily | | Trade Date + 1 |
| Mellon Capital International Stock Index Fund | | | 260,688,324 | | Daily | | Trade Date + 1 |
| JPMorgan US Real Estate Securities Fund | | | 12,741,862 | | Daily | | 1 Day |
| Mellon Capital Aggregate Bond Index Fund | | | 371,262,961 | | Daily | | Trade Date + 1 |
| Mellon Capital Treasury Inflation-Protected Securities Fund | | | 8,878,231 | | Daily | | Trade Date + 1 |
| JPMorgan Strategic Property Fund | | | 34,096,695 | | Quarterly | | 45 Days |
| JPMorgan Emerging Markets Fund | | | 15,195,847 | | Daily | | 1 Day |
| Total Assets | | $ | 1,415,325,434 | | | | |
There have been no transfers between Level 1, Level 2, and Level 3 during the years ended December 31, 2012 and 2011.
The following tables set forth a reconciliation of changes in the fair value of investments classified as Level 3 in the fair value hierarchy.
| Changes in Fair Value Measurements for the Year Ended December 31, 2012 | |
| | |
| | | JPMorgan Strategic Property Fund | | JPMorgan Emerging Markets Fund | | Wrap Contracts | | Total |
| Balance at Beginning of Year | | $ | 34,096,695 | | $ | 15,195,847 | | $ | 456,104 | | $ | 49,748,646 |
| | | | | | | | | | | | | |
| Realized Gains (Losses) | | | (1,030,618) | | | 520,253 | | | (456,104) | | | (966,469) |
| Unrealized Gains (Losses) | | | (6,980,456) | | | 2,274,613 | | | - | | | (4,705,843) |
| Purchases | | | (1,513,950) | | | (1,825,000) | | | - | | | (3,338,950) |
| Sales | | | 7,220,000 | | | 1,903,000 | | | - | | | 9,123,000 |
| Issuances | | | - | | | - | | | - | | | - |
| Settlements | | | - | | | - | | | - | | | - |
| Balance at End of Year | | $ | 31,791,671 | | $ | 18,068,713 | | $ | - | | $ | 49,860,384 |
Changes in Fair Value Measurements for the Year Ended December 31, 2011 | |
| | |
| | | JPMorgan Strategic Property Fund | | JPMorgan Emerging Markets Fund | | Wrap Contracts | | Total |
| Balance at Beginning of Year | | $ | 29,191,929 | | $ | 14,787,949 | | $ | 914,421 | | $ | 44,894,299 |
| | | | | | | | | | | | | |
| Realized Gains | | | - | | | 133,801 | | | - | | | 133,801 |
| Unrealized Gains (Losses) | | | 5,119,766 | | | 3,313,297 | | | (458,317) | | | 7,974,746 |
| Purchases | | | (215,000) | | | (3,504,200) | | | - | | | (3,719,200) |
| Sales | | | - | | | 465,000 | | | - | | | 465,000 |
| Issuances | | | - | | | - | | | - | | | - |
| Settlements | | | - | | | - | | | - | | | - |
| Balance at End of Year | | $ | 34,096,695 | | $ | 15,195,847 | | $ | 456,104 | | $ | 49,748,646 |
9. RISK AND UNCERTAINTIES |
The Plan utilizes various investment instruments, including common stock, bonds, commingled funds and investment contracts. Investment securities are exposed to various risks, such as interest rate, credit and market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the financial statements.
The IRS has determined that the Plan meets the requirements of Section 401(a) of the IRC and recognizes the exempt status of the Plan’s trust pursuant to Section 501(a) of the IRC.
The Plan has been amended subsequent to the issuance of the most recent IRS determination letter and the Plan Sponsor submitted an application to the IRS on January 30, 2012, for an updated determination letter that will take into account those additional amendments. Plan management believes that the Plan is currently designed and operated in compliance with the applicable requirements of the IRC and that the Plan’s trust continues to be tax-exempt. Therefore, no provision for income taxes has been included in the Plan’s financial statements.
GAAP requires Plan management to evaluate tax positions taken by the Plan and to recognize a tax liability if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Plan Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2012 and 2011, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions. However, there are currently no audits for any tax periods in progress. The Plan Administrator believes it is no longer subject to income tax examinations for years prior to 2009.
11. RECONCILIATION OF FINANCIAL STATEMENTS TO THE FORM 5500 |
Due to changes in the IRS Form 5500 filing requirements, the income statement in Schedule H, Part II, is now required to separately report certain deemed distributions of participant loans, whether or not those loans may otherwise remain collectible and would still be (and are) reflected as assets on the accompanying financial statements, which are prepared on the accrual basis of accounting. Because loans deemed distributed are no longer to be carried as assets of the Plan unless and until the participant actually undertakes the repayment, amounts reported on Schedule H as Participant Loans as of the beginning and ending of the year were adjusted so that prospectively the amounts reported on Schedule H, Part I, Line 1c(8), columns (a) and (b) are in conformity with the Form 5500 filing requirements, but differ from those reported in the accompanying financial statements.
| | | January 1, |
| Participant Loans – Schedule H, Part I, Line 1c(8), Column (a) | | 2012 | | 2011 |
| Beginning Balance per Financial Statements | | $ | 74,987,631 | | $ | 70,565,226 |
| Less: Loans Deemed Distributed with No Post-Default Payments | | | (1,695,638) | | | (1,474,224) |
| Balance Reported on Form 5500 | | $ | 73,291,993 | | $ | 69,091,002 |
| | | December 31, |
| Participant Loans – Schedule H, Part I, Line 1c(8), Column (b) | | 2012 | | 2011 |
| Ending Balance per Financial Statements | | $ | 79,060,932 | | $ | 74,987,631 |
| Less: Assets and Activity Related to Loans Deemed Distributed with No Post-Default Payments | | | (2,053,161) | | | (1,695,638) |
| Balance Reported on Form 5500 | | $ | 77,007,771 | | $ | 73,291,993 |
As a result of the changes to Form 5500, beginning and ending Net Assets Available for Benefits as well as Increase (Decrease) in Net Assets will differ between reported amounts on the Financial Statements and Form 5500 as follows:
| | | January 1, |
| Net Assets – Schedule H, Part I, Line 1l, Column (a) | | 2012 | | 2011 |
| Beginning Balance per Financial Statements | | $ | 3,018,675,861 | | $ | 2,998,060,700 |
| Less: Adjustment from Contract Value to Fair Value | | | 6,071,315 | | | (8,599,095) |
| Less: Loans Deemed Distributed with No Post-Default Payments | | | (1,695,638) | | | (1,474,224) |
| Beginning Balance Reported on Form 5500 | | $ | 3,023,051,538 | | $ | 2,987,987,381 |
| | | December 31, |
| Net Assets – Schedule H, Part I, Line 1l, Column (b) | | 2012 | | 2011 |
| Ending Balance per Financial Statements | | $ | 3,330,391,964 | | $ | 3,018,675,861 |
| Less: Adjustment from Contract Value to Fair Value | | | 17,178,669 | | | 6,071,315 |
| Less: Assets and Activity Related to Loans Deemed Distributed with No Post-Default Payments | | | (2,053,161) | | | (1,695,638) |
| Balance Reported on Form 5500 | | $ | 3,345,517,472 | | $ | 3,023,051,538 |
| | | December 31, |
| Increase in Net Assets – Schedule H, Part II, Line 2k | | 2012 | | 2011 |
| Per Financial Statements | | $ | 311,716,103 | | $ | 20,615,161 |
| Less: Adjustment from Contract Value to Fair Value | | | 11,107,354 | | | 14,670,410 |
| Less: Loans Deemed Distributed | | | (357,523) | | | (221,414) |
| Reported on Form 5500 | | $ | 322,465,934 | | $ | 35,064,157 |
