SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities Exchange
Act of 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
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APPALACHIAN POWER COMPANY
-------------------------
(Name of Registrant As Specified in Its Charter)
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APPALACHIAN POWER COMPANY
1 Riverside Plaza
Columbus, Ohio 43215
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS OF
APPALACHIAN POWER COMPANY:
The annual meeting of the stockholders of Appalachian Power Company will
be held on Tuesday, April 27, 2004, at 11:00 a.m. at the principal office of
American Electric Power Service Corporation, 1 Riverside Plaza, Columbus, Ohio,
for the following purposes:
1. To elect nine directors of the Company to hold office for one
year or until their successors are elected and qualified; and
2. To transact such other business (none known as of the date of
this notice) as may legally come before the meeting or any
adjournment thereof.
Only holders of record of Common Stock and certain issues of Cumulative
Preferred Stock, no par value, at the close of business on March 10, 2004 are
entitled to notice of and to vote at the annual meeting.
THERE WILL BE NO SOLICITATION OF PROXIES BY THE BOARD OF DIRECTORS OF
THE COMPANY.
TIMOTHY A. KING,
Secretary
March 22, 2004
INFORMATION STATEMENT
This information statement is being furnished in connection with the
annual meeting of stockholders of Appalachian Power Company (the "Company"), to
be held on Tuesday, April 27, 2004 at 11:00 a.m. at the principal office of
American Electric Power Service Corporation, 1 Riverside Plaza, Columbus, Ohio.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
Voting at Meeting
On March 10, 2004, the date for determining stockholders entitled to
notice of and to vote at the meeting, there were 177,899 shares of 4-1/2%
Cumulative Preferred Stock and 13,499,500 shares of Common Stock outstanding.
Each holder of the 4-1/2% Cumulative Preferred Stock and each holder of
Common Stock has the right to one vote for each share standing in such holder's
name on the books of the Company at the close of business on March 10, 2004 for
the election of directors and on any other business which may come before the
meeting. Holders of 5.40% and 5.92% Cumulative Preferred Stock issued by the
Company are not entitled to notice of, or to vote at, the meeting.
Principal Stockholders
American Electric Power Company, Inc. ("AEP"), 1 Riverside Plaza,
Columbus, Ohio 43215, a registered public utility holding company under the
Public Utility Holding Company Act of 1935, owns all of the Company's
outstanding Common Stock. The Common Stock represents approximately 99% of the
combined voting power of the capital stock of the Company entitled to vote at
the meeting. Management of the Company does not know of any person (including
any "group" as that term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934) who beneficially owns more than 5% of the Cumulative Preferred
Stock of the Company entitled to vote at the meeting.
AEP also owns, directly or indirectly, all of the common stock of the
other companies which constitute the American Electric Power System (the "AEP
System"). The AEP System is an integrated electric utility system and, as a
result, the member companies of the AEP System, including the Company, have
contractual, financial and other business relationships with the other member
companies, such as participation in the AEP System savings and retirement plans
and tax returns; sales of electricity; and sales, transportation and handling of
fuel. American Electric Power Service Corporation (the "Service Corporation"), a
wholly-owned subsidiary of AEP, renders management, advisory, engineering and
other similar services at cost to the principal operating companies of the AEP
System, including the Company.
ELECTION OF DIRECTORS
Nine directors are to be elected to hold office for one year or until
their successors are elected and qualified. The Company has been informed that
AEP will nominate, and cast the votes of all of the outstanding shares of Common
Stock for, the persons named below. In the event that any of such persons should
unexpectedly be unable to stand for election, AEP has informed the Company that
it will cast its votes for a substitute chosen by the Board of Directors of the
Company and approved by AEP.
The following brief biographies of the nominees include their ages as of
March 15, 2004, an account of their business experience and the names of certain
publicly-held corporations of which they are also directors.
Name Age Business Experience
---- --- -------------------
MICHAEL G. MORRIS 57 Elected president and chief executive officer
of AEP in January 2004, chairman of the board in
February 2004 and chairman, president and chief
executive officer of all of its major
subsidiaries in January 2004. From 1997 to 2003
was chairman of the board, president and chief
executive officer of Northeast Utilities, an
unaffiliated electric utility. From 1994 to 1997
was president and chief executive officer of
Consumers Power Company and executive vice
president and chief operating officer from 1992
to 1994. A director of the Edison Electric
Institute, the American Gas Association, Nuclear
Electric Insurance Limited, Cincinnati Bell,
Inc., Flint Ink and Spinnaker Exploration Co.
Mr. Morris is also a Regent of Eastern Michigan
University.
JEFFREY D. CROSS 47 Assistant secretary of the Company and of AEP
and senior vice president, general counsel,
assistant secretary and director of the
Service Corporation. Joined the Service
Corporation in 1984 as an attorney in the
Legal Department, became assistant secretary of
certain other AEP System companies in 1987 and
assistant general counsel of the Service
Corporation in 1994. From 1994 to June 2000,
was general counsel of AEP Resources, Inc., an
AEP subsidiary, and was named a vice president
of AEP Resources in 1996. Became senior vice
president and deputy general counsel of the
Service Corporation in June 2000 and assumed
his present position in January 2002. A
director of the Company and assistant secretary
and director of certain other AEP System
companies.
HENRY W. FAYNE 57 President of the Company, vice president of AEP
and executive vice president and director of the
Service Corporation. Joined the Service
Corporation in 1974, became assistant controller
in 1978, controller in 1984, vice president and
controller in 1988, senior vice president in
1993, senior vice president-corporate planning
and budgeting in 1995, executive vice
president-financial services in 1998, executive
vice president-finance and analysis in 2000 and
assumed his present position in 2001. A director
of the Company and president and director of
certain other AEP System companies.
THOMAS M. HAGAN 59 Vice president of the Company and executive
vice president-shared services and director of
the Service Corporation. Joined the Service
Corporation in 2000 as senior vice president-
governmental affairs and assumed his present
position in 2002. From 1996-2000 was senior
vice president-external affairs of Central
and South West Corporation ("CSW"). A director
of the Company and vice president and director
of certain other AEP System companies.
ARMANDO A. PENA 59 Vice president of the Company and senior vice
president-financial policy of the Service
Corporation. Joined the Service Corporation in
1971, became assistant vice president in 1982,
vice president-finance in 1989, senior vice
president in 1996, senior vice president-
finance, treasurer and chief financial officer
in 1998 and assumed his present position in
2003. From 1996-2003 was treasurer of the
Company and AEP. A director of the Company and
vice president and director of certain other
AEP System companies.
ROBERT P. POWERS 50 Vice president of the Company and executive
vice president-generation and director of the
Service Corporation. Joined the Service
Corporation in 1998 as senior vice president-
nuclear generation, became senior vice
president-nuclear operations in 2000, executive
vice president-nuclear generation and technical
services in 2001 and assumed his present
position in 2003. From 1996-1998 was vice
president of Pacific Gas & Electric and plant
manager of its Diablo Canyon Nuclear Generating
Station. A director of the Company and vice
president and director of certain other AEP
System companies.
THOMAS V. SHOCKLEY, III 58 Vice president of the Company, vice chairman of
AEP and vice chairman and chief operating
officer of the Service Corporation. A director
of the Company, AEP and the Service Corporation
and vice president and director of certain
other AEP System companies. Joined the Service
Corporation in 2000 as vice chairman and
assumed his present position in 2001. From
1997-2000 was president and chief operating
officer of CSW and from 1990-1997 was
executive vice president of CSW.
STEPHEN P. SMITH 43 Joined the Service Corporation in 2003 as senior
vice president-corporate accounting, planning
and strategy. Became treasurer of the Service
Corporation and certain other AEP System
companies in 2003, director of the Service
Corporation and a vice president and director
of the Company and certain other AEP System
companies in 2004. From November 2000 to
January 2003 was president and chief operating
officer-corporate services for NiSource. Was
senior vice president and deputy chief financial
officer of Columbia Energy Group from 1999 to
2000 and senior vice president and chief
financial officer of Columbia Gas Transmission
Corporation from 1997 to 1999. A director of
Natural Resource Partners L.P.
SUSAN TOMASKY 50 Vice president of the Company, vice president,
chief financial officer and secretary of AEP,
and executive vice president-policy, finance and
strategic planning, assistant secretary and
director of the Service Corporation. A vice
president and director of the Company and of
certain other AEP System companies. Joined the
Service Corporation in 1998 as senior vice
president and general counsel, became executive
vice president-legal, policy and corporate
communications and general counsel in 2000 and
assumed her present position in 2001. From
1993-1997 was general counsel of the Federal
Energy Regulatory Commission.
Messrs. Morris, Cross, Fayne, Hagan, Pena, Powers, Shockley and Smith and
Ms. Tomasky are directors of AEP Texas Central Company, AEP Texas North Company,
Columbus Southern Power Company, Kentucky Power Company, Ohio Power Company,
Public Service Company of Oklahoma and Southwestern Electric Power Company, all
of which are direct or indirect subsidiaries of AEP and have one or more classes
of publicly held preferred stock or debt securities. Messrs. Morris, Fayne,
Hagan, Powers, Shockley and Ms. Tomasky are directors of Indiana Michigan Power
Company. Messrs. Morris, Cross, Fayne, Hagan, Pena, Powers, Shockley and Smith
and Ms. Tomasky are also directors of AEP Generating Company, another subsidiary
of AEP.
OTHER BUSINESS
Management does not intend to bring any matters before the meeting other
than the election of directors and does not know of any matters that will be
brought before the meeting by others.
EXECUTIVE COMPENSATION
Certain executive officers of the Company are employees of the Service
Corporation. The salaries of these executive officers are paid by the Service
Corporation and a portion of their salaries has been allocated and charged to
the Company. The following table shows for 2003, 2002 and 2001 the compensation
earned from all AEP System companies by the chief executive officer and the four
other most highly compensated executive officers (as defined by regulations of
the Securities and Exchange Commission) of the Company at December 31, 2003.
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation
Awards Payouts
Name and Securities LTIP All Other
Principal Salary Bonus Underlying Payouts Compensation
Position Year ($)(1) ($)(2) Options(#) ($)(3) ($)(4)
- -------- ---- ------ ------ ------------------ ------------
E. Linn Draper, Jr. - 2003 1,094,192 980,031 -0- -0- 63,429
Chairman of the board 2002 1,054,038 -0- 350,000 -0- 135,417
and chief executive 2001 913,500 682,090 -0- 311,253 123,217
officer the Company;
chairman of the board,
president and chief
executive officer of
AEP and the Service
Corporation; chairman
of the board and chief
executive officer of
other AEP System
companies
Thomas V. Shockley, III - 2003 667,558 291,475 49,000 -0- 45,845
Vice president and 2002 642,461 49,116 150,000 -0- 122,141
director of the Company; 2001 592,269 353,788 -0- 79,781 145,400
vice chairman and chief
operating officer of the
Service Corporation;
vice chairman of AEP;
vice president and
director of other
AEP System companies
Henry W. Fayne - President 2003 501,923 256,225 25,000 -0- 39,150
and director of the 2002 481,846 49,116 88,000 -0- 80,830
Company; executive vice 2001 421,615 305,861 -0- 83,697 75,955
president and director of
the Service Corporation;
vice president of AEP;
president and director of
other AEP System companies
Susan Tomasky - Vice 2003 476,827 256,137 25,000 -0- 37,208
president and director 2002 451,731 49,116 88,000 -0- 79,373
of the Company; 2001 411,577 300,365 -0- 54,455 73,853
executive vice
president-policy, finance
and strategic planning,
assistant secretary and
director of the Service
Corporation; vice
president, secretary and
chief financial officer
of AEP; vice president
and director of other AEP
System companies
Thomas M. Hagan - 2003 421,615 237,850 25,000 -0- 29,326
Vice president and 2002 345,517 -0- 88,000 -0- 59,976
director of the Company;
Executive vice president-
shared services of the
Service Corporation;
vice president and director
of other AEP System
companies(5)
____________
(1) Amounts in the Salary column reflect an additional day of pay earned in 2003
and 2002 related to the number of calendar workdays and holidays in each year
and AEP's use of bi-weekly pay periods.
(2) Amounts in the Bonus column reflect awards under the Senior Officer Annual
Incentive Compensation Plan (SOIP) for 2001 and 2003. Payments pursuant to
the SOIP are made in the first quarter of the succeeding fiscal year for
performance in the year indicated. No SOIP awards were made for 2002. In
addition, Messrs. Fayne and Shockley and Ms. Tomasky received payments of
$49,116 each in February 2002 in recognition of their efforts in connection
with a management reorganization.
(3) Amounts in the Long-Term Compensation -- Payouts column reflect performance
share units earned under the AEP 2000 Long-Term Incentive Plan for three-year
performance periods concluding at the end of the year shown. See below under
Long-Term Incentive Plans -- Awards in 2003.
(4) Amounts in the All Other Compensation column include (i) AEP's matching
contributions under the AEP Retirement Savings Plan and the AEP Supplemental
Retirement Savings Plan, a non-qualified plan designed to supplement the AEP
Savings Plan; (ii) subsidiary companies director fees; and (iii) imputed
interest on a pay advance provided to employees in 2001 impacted by a change
in payroll schedule that shifted pay one week in arrears. Detail of the 2003
amounts in the All Other Compensation column is shown below.
Dr. Mr. Mr. Ms. Mr.
Item Draper Shockley Fayne Tomasky Hagan
- ---- ------ -------- ----- ------- -------
Savings Plan Matching
Contributions........... $ 5,611 $ 9,000 $ 5,555 $ 5,724 $ 9,050
Supplemental Savings
Plan
Matching Contributions.. 39,389 20,895 16,921 15,620 9,826
Subsidiaries Directors
Fees.................... 17,400 15,950 16,200 15,400 10,450
Imputed Interest on Pay
Advance................. 1,029 -0- 474 464 -0-
(5) No 2001 compensation information is reported for Mr. Hagan because he was
not an executive officer in that year.
OPTION GRANTS IN 2003
Individual Grants
-------------------------------------------
Number of Percent
Securities of Total
Underlying Options Exercise Grant Date
Options Granted to or Base Present
Granted Employees Price Expiration Value
(#)(1) In 2002(2) ($/Sh) Date ($)(3)
E. L. Draper, Jr...... -0- -0- -0- -- -0-
T. V. Shockley, III... 49,000 5.3% 27.95 12-10-2013 258,230
H. W. Fayne........... 25,000 2.7% 27.95 12-10-2013 131,750
S. Tomasky............ 25,000 2.7% 27.95 12-10-2013 131,750
T. M. Hagan........... 25,000 2.7% 27.95 12-10-2013 131,750
____________
(1) Options were granted on December 10, 2003 to the executive officers named in
the Summary Compensation Table, other than Dr. Draper, pursuant to the AEP
Long-Term Incentive Plan. All options granted on December 10, 2003 have an
exercise price of $27.95, which is equal to the closing price of AEP Common
Stock on the New York Stock Exchange on that date. All options granted in
2003 will vest in three approximately equal annual amounts beginning on
January 1, 2005. These options also fully vest upon termination due to
retirement no sooner than one year following the grant date or due to death.
In the above circumstances, these options will expire on the earlier of five
years from the date of termination or death, or the original expiration. All
AEP stock options may also vest as the result of a change-in-control of AEP
(see discussion of the Change-in-Control Agreements on page 11) and expire
upon termination of employment for reasons other than retirement, disability
or death, unless the Human Resources Committee determines that circumstances
warrant continuation of the options for up to five years. Options are
nontransferable.
(2) A total of 927,400 options were granted in 2003.
(3) Value was calculated using the Black-Scholes option valuation model. The
actual value, if any, ultimately realized depends on the market value of
AEP's Common Stock at a future date.
Significant assumptions for the grant on December 10, 2003 are shown below:
Stock Price Volatility 27.51% Dividend Yield 4.84%
Risk-Free Rate of Return 3.93% Option Term 7 years
AGGREGATED OPTION EXERCISES IN 2003 AND YEAR-END OPTION VALUES
Shares
Acquired
on Value Number of Securities Value of Unexercised
Exercise Realized Underlying Unexercised In-The-Money
Name (#) ($) Options at 12-31-02(#) Options at 12-31-02($)
- ---- -------- -------- ---------------------- ----------------------
Exercisable Unexercisable Exercisable Unexercisable
E. L.
Draper, Jr. -- -- 466,666 583,334 -0- $1,207,500
T. V.
Shockley, III -- -- 166,666 282,334 -0- $ 642,940
H. W. Fayne -- -- 133,333 179,667 -0- $ 367,600
S. Tomasky -- -- 41,666 133,834 -0- $ 367,600
T. M. Hagan -- -- 133,333 179,667 -0- 367,600
____________
* Based on the difference between the closing price of AEP Common Stock on the
New York Stock Exchange on December 31, 2003 ($30.51) and the option exercise
price. "In-the-money" means the market price of the stock is greater than the
exercise price of the option on the date indicated.
LONG-TERM INCENTIVE PLANS - AWARDS IN 2003
The performance share units set forth in the tables below were awarded in
January 2003 and December 2003, respectively, pursuant to AEP's 2000 Long-Term
Incentive Plan. Performance share units are equivalent to shares of AEP
Common Stock. Dividends are reinvested in additional performance share units for
the same performance and vesting period using the closing price of the AEP
Common Stock on the dividend payment date. The value of the January 2003
performance share unit awards is dependent on the Company's total shareholder
return for the applicable performance period relative to the S&P electric
utilities, the market price of AEP Common Stock at the end of the performance
period, the value of dividends paid during the performance period and the AEP
Common Stock price on each dividend payment date. The value of the December 2003
performance share unit awards is dependent on AEP's earnings per share target
versus a target established by the Human Resources Committee in addition to each
of the factors described above. The number of performance share units earned can
vary between 0% and 200% of the initial award plus reinvested dividends.
The number of common stock equivalent units that may be earned at
threshold, target and maximum performance levels, excluding any reinvested
dividends, is shown in the table below. The Human Resources Committee may, in
its discretion, reduce the number of performance share unit targets otherwise
earned. In accordance with the performance goals established for the periods set
forth below, the threshold, target and maximum awards are equal to 20%, 100% and
200%, respectively, of the performance share unit awards.
Deferral of earned performance share units into phantom stock units
(equivalent to shares of AEP Common Stock) is mandatory until the officer has
met his or her stock ownership requirements discussed in the Human Resources
Committee Report on Executive Compensation. Once their stock ownership
requirement is met, officers may elect to continue to defer earned performance
share units or to receive subsequently earned awards in cash and/or Common Stock
once their stock ownership requirement is met.
JANUARY 2003 AWARD
Estimated Future Payouts of
Performance Share Units Under
Non-Stock Price-Based Plan
--------------------------------------
Performance
Number of Period Until
Performance Maturation Threshold Target Maximum
Name Share Units or Payout (#) (#) (#)
---- ----------- ----------- --- --- ---
E.L. Draper, Jr. 40,236 2003-2005 8,047 40,236 80,472
T.V. Shockley, III 15,956 2003-2005 3,191 15,956 31,912
H.W. Fayne 11,074 2003-2005 2,215 11,074 22,148
S. Tomasky 10,520 2003-2005 2,104 10,520 21,040
T.M. Hagan 9,302 2003-2005 1,860 9,302 18,604
DECEMBER 2003 AWARD(1)
Estimated Future Payouts of
Performance Share Units Under
Non-Stock Price-Based Plan
--------------------------------------
Performance
Number of Period Until
Performance Maturation Threshold Target Maximum
Name Share Units or Payout (#) (#) (#)
---- ----------- ----------- --- --- ---
E.L. Draper, Jr. -0- 12/10/03- -0- -0- -0-
12/31/04
T.V. Shockley, III 41,400 12/10/03- 8,280 41,400 82,800
12/31/04
H.W. Fayne 21,200 12/10/03- 4,240 21,200 42,400
12/31/04
S. Tomasky 21,200 12/10/03- 4,240 21,200 42,400
12/31/04
T.M. Hagan 21,200 12/10/03- 4,240 21,200 42,400
12/31/04
____________
(1) Any performance shares earned for the December 2003 award will vest on
December 31, 2006.
RETIREMENT BENEFITS
AEP maintains qualified and nonqualified defined benefit ERISA pension
plans for eligible employees. The tax-qualified plans are the American Electric
Power System Retirement Plan (AEP Retirement Plan) and the Central and South
West Corporation Cash Balance Retirement Plan (CSW Cash Balance Plan). The
nonqualified plans are the American Electric Power System Excess Benefit Plan
(AEP Excess Benefit Plan) (together with the AEP Retirement Plan, the AEP Plans)
and the Central and South West Corporation Special Executive Retirement Plan
(CSW SERP) (together with the CSW Cash Balance Plan, the CSW Plans), each of
which provides (i) benefits that cannot be payable under the respective
tax-qualified plans because of maximum limitations imposed on such plans by the
Internal Revenue Code and (ii) benefits pursuant to individual agreements with
certain AEP employees. The CSW Plans continue as separate plans for those AEP
System employees who were participants in the CSW Cash Balance Plan as of
December 31, 2000. Each of the executive officers named in the Summary
Compensation Table (other than Mr. Shockley and Mr. Hagan) participates in the
AEP Plans. Mr. Shockley and Mr. Hagan participate in the CSW Plans.
The benefit formula generally used to calculate benefit additions under
the pension plans for all plan participants (including the executive officers
named in the Summary Compensation Table) is a cash balance formula. When the
cash balance formula was added to each plan, an opening balance was established
for employees then participating under each plan's prior benefit formula (as
further described below), using a number of factors as set forth in the
appropriate plan. Under the cash balance formula, each participant has an
account established (for record keeping purposes only) to which dollar amount
credits are allocated each year based on a percentage of the participant's
eligible pay not in excess of $1,000,000. The applicable percentage is
determined by the participant's age and years of vesting service as of December
31 of each year (or as of the participant's termination date, if earlier). The
following table shows the applicable percentage used to determine the annual
dollar amount credits based on the sum of age and years of service indicated:
Sum of Age Plus Applicable
Years of Percentage
Service
Less than 30 3.0%
30-39 3.5%
40-49 4.5%
50-59 5.5%
60-69 7.0%
70 or more 8.5%
All dollar amount balances in the cash balance accounts of participants
earn a fixed rate of interest that is also credited annually. The interest rate
for a particular year is the Applicable Interest Rate set in accordance with
Section 417(e)(3)(A)(ii) of the Internal Revenue Code and is currently the
average interest rate on 30-year Treasury securities for the month of November
of the prior year. For 2003, the interest rate was 4.96%. Interest continues to
be credited as long as the participant's balance remains in the plan.
The CSW SERP also provides that the cash balance account of participants
who at termination of employment hold the office of Vice President or higher of
an employer participating in the CSW Plans will be no less than (i) the sum of
the Applicable Percentages from the foregoing table generally for each year that
the participant earned credited service under the CSW Cash Balance Plan,
multiplied by (ii) the participant's final average pay. "Final average pay"
generally is the average annual compensation (consisting of the following
amounts when paid: wages as reported in the Salary column of the Summary
Compensation Table and that the portion of the Bonus column attributable to the
Senior Officer Annual Incentive Compensation Plan, which is described in the
Human Resources Committee Report on Executive Compensation under the heading,
Annual Incentive) during the 36 consecutive months of highest pay during the 120
months prior to retirement.
Under the cash balance formula, an amount equal to the vested balance
(including tax-qualified and nonqualified benefits) then credited to the account
is payable to the participant in the form of an immediate or deferred lump-sum
or an annuity or, with respect to the nonqualified benefits, in installments.
Benefits (from both the tax-qualified and nonqualified plans) under the cash
balance formula are not subject to reduction for Social Security benefits or
other offset amounts, except that Dr. Draper has an individual agreement which
provides that his supplemental retirement benefits are reduced by pension
entitlements, if any, from plans sponsored by prior employers. The estimated
annual benefit that would be payable as a single life annuity under the cash
balance formula to each of the executive officers named in the Summary
Compensation Table at age 65 is:
Annual
Name Benefit
---- --------
E. L. Draper, Jr. $536,200
T. V. Shockley, III 218,400
H. W. Fayne 263,300
S.Tomasky 296,500
T. M. Hagan 112,400
These amounts are based on the following assumptions:
o The amounts shown in the Salary column of the Summary Compensation Table are
used for calendar year 2003 and all subsequent years, assuming no salary
changes. The portion of the Bonus column attributable to the Senior Officer
Annual Incentive Compensation Plan is used for 2004 and annual incentive
awards at the 2003 target level (as further described in the Human Resources
Committee Report on Executive Compensation under the heading Annual Incentive
on page 13) are used for all subsequent years beyond 2004. For Dr. Draper,
the annual salary rate reflected in the Salary column for calendar year 2003
is used for the period from January 1, 2004 through April 30, 2004, the
approximate date as of which he is expected to retire.
o Conversion of the lump-sum cash balance to a single life annuity at age 65,
based on an interest rate of 5.12% and the 1994 Group Annuity Reserving Table
published by the Internal Revenue Service.
o Dr. Draper and Ms. Tomasky have individual agreements with AEP that credit
them with years of service in addition to their years of service with AEP as
follows: Dr. Draper, 24 years; and Ms. Tomasky, 20 years. As mentioned above,
the agreement for Dr. Draper provides that his supplemental retirement
benefits are reduced by pension entitlements, if any, from plans sponsored by
prior employers.
In addition, employees who have continuously participated in the AEP Plans
since December 31, 2000 remain eligible for a pension benefit using the final
average pay formula that was in place before the implementation of the cash
balance formula described above. Employees that are eligible for both formulas
will receive their benefits under the formula that provides the higher benefit,
given the participant's choice of the form of benefit (single life annuity, lump
sum, etc.). Participants that remain eligible to receive the final average pay
formula will continue to accrue pension benefits under that formula until
December 31, 2010, at which time each participant's final average pay benefit
payable at the participant's normal retirement age (the later of age 65 or 5
years of service) will be frozen and unaffected by the participant's subsequent
service or compensation. After December 31, 2010, each participant's frozen
final average pay benefit will be the minimum benefit a participant can receive
from the AEP Plans at the participant's normal retirement age.
Final average pay under the AEP Plans is computed using the highest
average 36 consecutive months of the salary and bonus out of the participant's
most recent 10 years of service. The information used to compute the final
average pay benefit for executive officers named in the Summary Compensation
Table above, other than Mr. Shockley and Mr. Hagan, is consistent with that
shown in the Salary column of the Summary Compensation Table and that portion of
the Bonus column attributable to the Senior Officer Annual Incentive
Compensation Plan.
The following table shows the approximate annual annuities that would be
payable to executive officers and other management employees under the final
average pay formula of the AEP Plans, assuming termination of employment on
December 31, 2003 after various periods of service and with benefits commencing
at age 65.
AEP PLANS PENSION PLAN TABLE
Years of Accredited Service
-------------------------------------------------------------
-------------------------------------------------------------
Highest Average
Annual Earnings 15 20 25 30 35 40
- --------------- -------------------------------------------------------------
$ 400,000 $ 92,850 $123,800 $154,750 $ 185,700 $ 216,650 $ 243,250
500,000 116,850 155,800 194,750 233,700 272,650 305,900
600,000 140,850 187,800 234,750 281,700 328,650 368,850
800,000 188,850 251,800 314,750 377,700 440,650 493,150
1,000,000 236,850 315,800 394,750 473,700 552,650 619,450
1,200,000 284,850 379,800 474,750 569,700 664,650 744,650
2,000,000 476,850 635,800 794,750 953,700 1,112,650 1,245,650
2,500,000 596,850 795,800 994,750 1,193,700 1,392,650 1,558,900
The amounts shown in the table are the straight life annuities payable
under the final average pay formula of the AEP Plans without reduction for any
optional features that may be elected at the participant's expense. Retirement
benefits listed in the table are not subject to any further deduction for Social
Security or other offset amounts. The retirement annuity is reduced 3% per year
for each year prior to age 62 in the event of a termination of employment after
age 55 and the participant's election to commence benefits between ages 55 and
62. If an employee terminates employment after age 55 and commences benefits at
or after age 62, there is no reduction in the retirement annuity.
Under the AEP Plans, as of December 31, 2003, for the executive officers
named in the Summary Compensation Table (except for Mr. Shockley and Mr. Hagan
as discussed below in connection with the CSW Plans), the number of years of
service applicable for the final average pay formula were as follows: Dr.
Draper, 35.9 years; Mr. Fayne, 29.1 years; and Ms. Tomasky, 25.5 years. The
years of service for Dr. Draper and Ms. Tomasky include years of service
provided by their respective agreements with AEP as described above in
connection with the cash balance formula. The agreement for Dr. Draper provides
that his supplemental retirement benefits are reduced by pension entitlements,
if any, from plans sponsored by prior employers.
Under the CSW Plans, certain employees who were 50 or over and had
completed at least 10 years of service as of July, 1997, remain eligible for
benefits under the prior pension formulas that are based on career average pay
and final average pay. Of the executive officers named in the Summary
Compensation Table, Mr. Shockley and Mr. Hagan are eligible to participate in
the CSW Plans and have a choice upon their termination of employment to elect
their benefit based on the cash balance formula or the prior pension formulas.
The following table shows the approximate annual annuities that would be
payable to employees in certain higher salary classifications under the prior
benefit formulas provided through the CSW Plans, assuming termination of
employment on December 31, 2003 after various periods of service and with
benefits commencing at age 65, and prior to reduction by up to 50 percent of the
participant's Social Security benefit.
CSW PLANS PENSION PLAN TABLE
Years of Accredited Service
-----------------------------------------
-----------------------------------------
Highest
Average
Annual 30 or
Earnings 15 20 25 more
- ----------- -----------------------------------------
$ 400,000 $100,000 $133,333 $166,667 $200,000
500,000 125,000 166,667 208,333 250,000
600,000 150,000 200,000 250,000 300,000
700,000 175,000 233,333 291,667 350,000
800,000 200,000 266,667 333,333 400,000
900,000 225,000 300,000 375,000 450,000
1,000,000 250,000 333,333 416,667 500,000
1,200,000 300,000 400,000 500,000 600,000
Under the CSW Plans, the annual normal retirement benefit payable from the
final average pay formula is based on 1-2/3% of "Average Compensation" times the
number of years of credited service (up to a maximum of 30 years), reduced by no
more than 50 percent of the participant's age 62 or later Social Security
benefit and then adjusted annually based on changes in the consumer price index.
"Average Compensation" equals the average annual compensation, reported as
Salary in the Summary Compensation Table, during the 36 consecutive months of
highest pay during the 120 months prior to retirement. Mr. Shockley and Mr.
Hagan each have an agreement entered into with CSW prior to its merger with AEP
under which each is entitled to a retirement benefit that will bring his
credited years of service to 30 if he remains employed with AEP until age 60 or
thereafter. Mr. Shockley's years of credited service and age, as of December 31,
2003, are 20 and 58. Mr. Hagan's years of credited service and age, as of
December 31, 2003, are 23 and 59.
In addition to the benefits described above, Mr. Fayne is the only
executive officer named in the Summary Compensation Table who is eligible for
certain supplemental retirement benefits if his pension benefits are adversely
affected by amendments to the AEP Retirement Plan made as a result of the Tax
Reform Act of 1986. Such benefits, if any, will be equal to any reduction
occurring because of such amendments. If Mr. Fayne's employment had terminated
by December 31, 2003, he would not be eligible for any additional annual
supplemental benefit.
AEP also made available a voluntary deferred-compensation program in 1986,
which permitted certain members of AEP System management to defer receipt of a
portion of their salaries. Under this program, a participant was able to
annually defer up to 10% of his or her salary over a four-year period, and
receive supplemental retirement or survivor benefit payments over a 15-year
period. The amount of supplemental retirement payments received is dependent
upon the amount deferred, age at the time the deferral election was made, and
number of years until the participant retires. Mr. Fayne is the only executive
officer named in the Summary Compensation Table who participated in this
program. He deferred $9,000 of his salary annually over a four-year period and,
as a result, qualified for supplemental retirement payments of $95,400 per year
for fifteen years assuming he would retire at age 65.
CHANGE-IN-CONTROL AGREEMENTS
AEP has change-in-control agreements with its executives, including all of
the executive officers named in the Summary Compensation Table. If there is a
"change-in-control" of AEP and the executive officer's employment is terminated
(i) by AEP without "cause" or (ii) by the officer because of a detrimental
change in responsibilities, a required relocation or a reduction in salary or
benefits, these agreements provide for:
o A lump sum payment equal to three times the officer's annual base salary plus
target annual incentive under the Senior Officer Annual Incentive
Compensation Plan.
o Maintenance for a period of three additional years of all medical and dental
insurance benefits substantially similar to those benefits to which the
officer was entitled immediately prior to termination, reduced to the extent
comparable benefits are otherwise received.
o Outplacement services not to exceed a cost of $30,000 or use of an office and
secretarial services for up to one year.
o Three years of service credited for purposes of determining non-qualified
retirement benefits, with such credited service proportionately reduced to
zero if termination occurs between ages 62 and 65.
o Payment, if required, to make the officer whole for any excise tax imposed by
Section 4999 of the Internal Revenue Code.
Under these agreements, "change-in-control" means:
o The acquisition by any person of the beneficial ownership of securities
representing 25% or more of AEP's voting stock;
o A change in the composition of a majority of the Board of Directors
under certain circumstances within any two-year period; or
o Approval by the shareholders of the liquidation of AEP, disposition of all or
substantially all of the assets of AEP or, under certain circumstances, a
merger of AEP with another corporation.
In addition to the change-in-control agreements described above, the
American Electric Power System 2000 Long-Term Incentive Plan authorizes the
Human Resources Committee to include change-in-control provisions in an award
agreement (defined in a manner similar to the change-in-control agreements
described above). Such provisions may include one or more of the following: (1)
the acceleration or extension of time periods for purposes of exercising,
vesting in or realizing gains from any award; (2) the waiver or modification of
performance or other conditions related to the payment or other rights under an
award; (3) provision for the cash settlement of an award for an equivalent cash
value; and (4) modification or adjustment to the award as the Human Resources
Committee deems appropriate to protect the interests of participants upon or
following a change-in-control. The outstanding award agreements issued to the
executive officers contain provisions that accelerate the vesting and exercise
dates of unexercised options and that offer a cash settlement upon a
change-in-control.
The AEP Excess Benefit Plan also provides that all accrued supplemental
retirement benefits become fully vested upon a change-in-control.
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
AEP's Human Resources Committee regularly reviews executive compensation
policies and practices and evaluates the performance of management in the
context of AEP's performance. None of the members of the Committee is or has
been an officer or employee of any AEP System company or receives remuneration
from any AEP System company in any capacity other than as a director. In
addition, each of the current members of the Human Resources Committee has been
determined to be independent by the Board of Directors in accordance with SEC
and New York Stock Exchange rules.
The Human Resources Committee recognizes that the executive officers are
charged with managing a large and diverse energy company during difficult times
and a volatile business environment for the industry.
AEP's executive compensation program is designed to maximize shareholder
value, to support the implementation of AEP's business strategy and to improve
both corporate and personal performance. The Human Resources Committee's
compensation policies supporting this program are:
o To pay in a manner that motivates both short- and long-term performance,
focuses on meeting specified corporate goals and promotes the long-term
interests of shareholders.
o To place a significant amount of compensation for senior executives at risk
in the form of variable incentive compensation instead of fixed or base pay,
with much of this risk similar to the risk experienced by other AEP
shareholders.
o To establish compensation opportunities that enhance AEP's ability to
attract, retain, reward, motivate and encourage the development of
exceptionally knowledgeable, highly qualified and experienced executives.
o To target compensation levels that are reflective of current market practices
in order to maintain a stable and successful management team.
In carrying out its responsibilities, the Human Resources Committee has
hired a nationally recognized independent consultant to provide information on
current trends in executive compensation and benefits within the energy services
industry and among U.S. industrial companies in general, and to provide
recommendations to the Human Resources Committee regarding AEP's compensation
and benefits programs and practices.
The Human Resources Committee annually reviews AEP's executive
compensation program and practices relative to a Compensation Peer Group
comprised of companies that represent the talent markets from which AEP must
compete to attract and retain executives. The Human Resources Committee annually
reviews and adjusts the composition of the Compensation Peer Group to ensure
that it provides appropriate compensation comparisons. For 2003, the
Compensation Peer Group consists of 12 large and diversified energy services
companies, plus 12 Fortune 500 companies, which, taken as a whole, approximately
reflect AEP's size, scale, business complexity and diversity. The Human
Resources Committee generally uses median compensation information of the
Compensation Peer Group as its benchmark but does consider other comparisons,
such as industry-specific compensation surveys, when setting pay levels.
Stock Ownership Guidelines
The Human Resources Committee believes that linking a significant portion
of an executive's current and potential future net worth to AEP's success, as
reflected in the stock price and dividends paid, gives the executive a stake
similar to that of AEP's shareholders and further encourages long-term
management strategies for the benefit of shareholders. Therefore, the Human
Resources Committee maintains stock ownership targets for senior managers who
receive performance share awards, described below, in order to further align
executive and shareholder interests.
AEP's target ownership levels are directly related to the officer's
corporate position, with the greatest ownership target assigned to the chief
executive officer. The stock ownership targets in effect for 2003 for the
executive officers named in the Summary Compensation Table were as follows:
Chief Executive Officer (CEO), 45,000 shares; Chief Operating Officer (COO),
20,000 shares; and other executive officers, 15,000 shares each.
Effective January 1, 2004 new stock ownership targets were assigned to
executive officers as follows: CEO, 109,300 shares; COO, 52,700 shares; and
other executive officers, 35,300 shares each. Executives are expected to achieve
both their previous and new ownership target within five years of the date each
was assigned. Common Stock equivalents resulting from deferred compensation and
contributions to the AEP System Retirement Savings Plan and the AEP System
Supplemental Retirement Savings Plan are included in determining compliance with
the stock ownership targets. AEP's ownership targets reflect the minimum total
stock ownership each executive is expected to achieve within the specified
five-year period and, therefore, all AEP common stock and stock equivalents are
counted towards all ownership targets simultaneously. Dr. Draper, Mr. Fayne and
Mr. Shockley have met their previous stock ownership guidelines. Ms. Tomasky and
Mr. Hagan are expected to reach their previous stock ownership target by January
2005. It is too soon to reliably forecast when executive officers will achieve
their new ownership targets. See the table on page 15 for actual ownership
amounts.
Components of Executive Compensation
Base Salary. When reviewing base salaries, the Human Resources Committee
considers the pay practices of its Compensation Peer Group; the
responsibilities, performance, and experience of each executive officer;
reporting relationships; management recommendations; and the relationship of the
base salaries of executive officers to the base salaries of other AEP employees.
Base salaries are reviewed annually and adjusted, when and as appropriate, to
reflect individual and corporate performance and changes within the Compensation
Peer Group.
Base salary levels in 2003 for the CEO and the other executive officers of
AEP named in the Summary Compensation Table approximated the median of AEP's
Compensation Peer Group consistent with AEP's policy to target the salaries of
executive officers at that level and to place more emphasis on incentive
compensation. For 2003, base pay represented less than one-third of the 2003
compensation opportunity for executive officers when annual and long-term
incentive compensation is included (presuming target performance levels were
achieved).
Annual Incentive. The primary purpose of annual incentive compensation is
to motivate senior management to meet and exceed annual objectives that are part
of AEP's strategic plan for maximizing shareholder value. The annual Senior
Officer Incentive Compensation Plan (SOIP) provides a variable,
performance-based annual incentive as part of total compensation for executive
officers.
SOIP participants are assigned an annual target award expressed as a
percentage of their base earnings for the period. For 2003 the Human Resources
Committee established SOIP targets as follows: Dr. Draper, 100%; Mr. Shockley,
65%; and the other executive officers named in the compensation table, 60%.
SOIP awards for 2003 were based on the following pre-established
performance measures:
o Earnings Per Share (25%),
o Operations and Maintenance Expense vs. Budget (25%),
o Financial Credit Quality (25%), and
o Annual strategic objectives (25%), which include:
o Workforce Safety (15%), and
o Workforce Diversity (10%).
Actual awards for 2003 could have varied from 0% to 190% of the target
award based on performance. The maximum award was based on a maximum payout of
200% of target for each of the performances measures described above, except for
Workforce Diversity, which had a maximum payout of 100% of target. Annual
incentive payments are subject to adjustment at the discretion of the Human
Resources Committee.
For 2003, the above performance measures produced an aggregate award score
of 103.8% of each employee's target award for the SOIP. The Human Resources
Committee reduced the aggregate award score to a level that it believes more
appropriately reflects the 2003 performance of AEP and allocated the resulting
award pool among executive officers based on individual award recommendations
from Dr. Draper and Mr. Morris. The amounts earned for 2003 are shown for the
executive officer listed in the Summary Compensation Table on page 5.
Long-Term Incentive. The primary purpose of longer-term, equity-based,
incentive compensation is to motivate senior managers to maximize shareholder
value by linking a portion of their compensation directly to shareholder return.
Long-term incentive awards to executive officers are made under the
shareholder-approved American Electric Power System 2000 Long-Term Incentive
Plan. This plan provides various types of long-term incentives and performance
measures from which the Human Resources Committee may select to provide the most
effective incentives to AEP management for achievement of AEP's strategies
and goals. In 2003, the Human Resources Committee awarded long-term incentive
compensation to executive officers as described below.
Stock Options
The Human Resources Committee considers stock options to be an appropriate
component of AEP's total compensation package for executive officers and
anticipates that it will continue to make prudent use of stock options for
executive officers and other selected employees in the future. For 2003 the
Human Resources Committee did, however, rebalance the mix of stock options and
performance shares in AEP's long-term incentive program by reducing the
proportion of stock options and thereby increasing the emphasis on performance
shares. The Human Resources Committee believes this change was necessary to
better reflect AEP's changing business objectives and external market
compensation practices for executive officers and other management employees.
The Human Resources Committee periodically establishes guidelines for
stock option awards for each executive officer level. These guidelines are
established at levels that, in combination with the other components of AEP's
executive compensation program, provide compensation that approximates the
median of AEP's Compensation Peer Group for each officer level. The Human
Resources Committee also considers each executive officer's current performance
and potential future contribution to AEP in determining the number of stock
options to grant to each executive officer. Accordingly, in 2003, the Human
Resources Committee granted the number of stock options to the executive
officers shown in the Summary Compensation Table on page xx. Due to Dr. Draper's
announcement of his planned retirement, he did not receive stock options as part
of this award cycle.
Performance Shares
The Human Resources Committee has annually granted target performance
share awards to senior AEP management for the three-year performance period
beginning January 1st of the current year. Performance share awards are earned
based on AEP's subsequent three-year total shareholder return measured relative
to the S&P electric utility index with at least median performance required to
earn the target award. The value of performance share awards ultimately earned
for a performance period can range from 0%-200% of the target value plus
accumulated dividends. In January 2003, the Human Resources Committee
established targets equal to the same percentages of base salaries as those for
the SOIP, as previously described.
Payments of earned performance share awards are initially deferred in the
form of phantom stock units (equivalent to shares of AEP Common Stock) until the
participant has met his or her stock ownership target. Such deferrals continue
until at least their termination of employment. Once participants reach their
respective stock ownership target, they may then elect either to defer
subsequent awards into AEP's deferred compensation plan, which offers returns
equivalent to various market based investment options including AEP stock
equivalents, or to receive further earned performance share awards in cash
and/or Common Stock.
AEP's total shareholder return for the 2001-2003 performance period ranked
20th relative to the S&P peer utilities, which falls below the minimum level
required for an award payout. Therefore, no performance shares were awarded for
the three-year period ending December 31, 2003.
In December 2003 the Human Resources Committee granted performance share
awards to executive officers and other selected management employees in lieu of
its normal January 2004 performance share awards. The number of performance
shares awarded reflects the increased emphasis on performance shares and reduced
emphasis on stock options approved by the Human Resources Committee for new
awards. These performance shares are earned in equal parts based on (i) AEP's
subsequent total shareholder return measured relative to the S&P electric
utility index from the grant date through December 31, 2004, with at least
median performance required to earn the target award; and (ii) AEP's earnings
per share performance relative to a 2004 earnings target established by the
Human Resources Committee. The value ultimately earned from these performance
share awards can range from 0%-200% of the target value plus accumulated
dividends. Vesting of these performance share awards is generally subject to
continued employment through December 31, 2006. In October 2003, the Human
Resources Committee established target performance share awards for the COO and
Executive Vice-Presidents listed in the Summary Compensation Table as 41,400 and
21,200 performance shares, respectively. Due to Dr. Draper's expected retirement
he did not receive performance shares as part of this award cycle.
A further description of performance share awards is shown under Long-Term
Incentive Plans - Awards in 2003 on page 7.
Tax Policy On Deductibility Of Compensation
The Human Resources Committee has considered the impact of Section 162(m)
of the Internal Revenue Code, which provides a limit on the deductibility of
compensation in excess of $1,000,000 paid in any year to AEP's chief executive
officer or any of its other four executive officers named in the Summary
Compensation Table who are serving as such at the end of the year. It is the
Human Resources Committee's intention to qualify incentive compensation for tax
deductibility under Section 162(m) to the extent that this objective is
consistent with sound executive compensation principles.
Award payments under the AEP 2000 Long-Term Incentive Plan have been
structured to be exempt from the deduction limit because they are made pursuant
to a shareholder-approved, performance-driven plan.
Award payments under the SOIP are not eligible for the performance-based
exemption and the deduction limit does apply to such awards. However, because
Dr. Draper is contributing to the savings program and has elected to defer his
annual incentive awards to dates past his retirement from AEP (providing an
exemption from the deduction limit), the Human Resources Committee has not
deemed it necessary at this time to qualify compensation paid pursuant to the
SOIP for deductibility under Section 162(m). The Human Resources Committee may
decide to do so in the future.
No executive officer named in the Summary Compensation Table had taxable
compensation paid in 2003 in excess of the deduction limit and all such
compensation was fully deductible. The Human Resources Committee intends to
continue to evaluate the impact of this Code restriction.
Human Resources Committee Members
John P. DesBarres, Chair
Robert W. Fri
William R. Howell
SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the beneficial ownership of AEP Common
Stock and stock-based units as of January 1, 2004 for all nominees to the Board
of Directors, each of the persons named in the Summary Compensation Table and
all such directors and executive officers as a group. Unless otherwise noted,
each person had sole voting and investment power over the number of shares of
AEP Common Stock and stock-based units of AEP set forth across from his or her
name. Fractions of shares and units have been rounded to the nearest whole
number.
Options
Exercisable
Stock Within
Name Shares Units(a) 60 Days Total
---- ------ -------- ------- -------
J. D. Cross................ 2,712(b) 468 44,667 47,847
E. L. Draper, Jr........... 5,693(b) 125,233 816,666 947,592
H. W. Fayne................ 6,844(b) 13,143 229,333 249,320
T. M. Hagan................ 14,110(b) 149 91,833 106,092
M. G. Morris............... 300,000(g) -- -- 300,000
A. A. Pena................. 6,817(b) 6,576 71,666 85,059
R. P. Powers............... 632(b) 1,378 139,033 141,043
T. V. Shockley, III........ 45,323(b)(d)(e) -- 300,000 345,323
S. P. Smith................ -0- -0- -0- -0-
S. Tomasky................. 1,967(b) 6,502 229,333 237,802
All directors, nominees and
executive officers as a group
(10 persons)............. 384,098(f) 153,449 1,922,531 2,460,078
____________
(a) This column includes amounts deferred in stock units and held under AEP's
various director and officer benefit plans.
(b) Includes the following numbers of share equivalents held in the AEP
Retirement Savings Plan: Mr. Cross, 2,712; Dr. Draper, 4,938; Mr. Fayne,
6,152; Mr. Hagan, 3,617; Mr. Pena, 5,109; Mr. Powers, 632; Mr. Shockley,
7,530; Ms. Tomasky, 1,967; and all directors and executive officers as a
group, 32,657.
(c) Includes the following numbers of shares held in joint tenancy with a
family member: Dr. Draper, 755.
(d) Does not include, for Messrs. Fayne and Shockley and Ms. Tomasky, 85,231
shares in the American Electric Power System Educational Trust Fund over
which Messrs. Fayne and Shockley and Ms. Tomasky share voting and investment
power as trustees (they disclaim beneficial ownership). The amount of shares
shown for all directors and executive officers as a group includes these
shares.
(e) Includes the following numbers of shares held by family members over which
beneficial ownership is disclaimed: Mr. Shockley, 496.
(f) Represents less than 1% of the total number of shares outstanding.
(g) Consists of restricted shares with different vesting schedules.
MEETINGS OF THE BOARD OF DIRECTORS
Regular meetings of the Board of Directors were held once each month
during the year. In addition, the Board of Directors holds special meetings from
time to time as required. During 2003, the Board held twelve regular meetings.
Directors of the Company receive a fee of $50 for each meeting of the
Board of Directors attended in addition to their salaries.
The Board of Directors of the Company has no committees.
INDEPENDENT AUDITORS
The public accounting firm of Deloitte & Touche LLP has been selected as
the independent auditors of the Company for the year 2004.
A representative of Deloitte & Touche LLP will not be present at the
meeting unless prior to the day of the meeting the Secretary of the Company has
received written notice from a stockholder addressed to the Secretary at 1
Riverside Plaza, Columbus, Ohio 43215, that such stockholder will attend the
meeting and wishes to ask questions of a representative of the firm.
Audit and Non-Audit Fees
The following table presents fees for professional audit services rendered
by Deloitte & Touche LLP for the audit of the Company's annual financial
statements for the years ended December 31, 2003 and December 31, 2002, and fees
billed for other services rendered by Deloitte & Touche LLP during those
periods. While the Company has neither an Audit Committee nor pre-approval
procedures, AEP's Audit Committee pre-approval procedures are applicable to the
Company. Deloitte & Touche LLP also provides professional and other services,
the cost of which may be allocated to the Company but is not directly billed to
the Company.
2002 2003
---- ----
Audit Fees(1)....................... $ 411,900 $ 339,600
Audit-Related Fees.................. -0- -0-
Tax Fees(2)......................... 366,000 228,000
All Other Fees...................... -0- -0-
----------- -----------
TOTAL......................... $ 777,900 $ 567,600
____________
(1) Audit fees consisted of audit work performed in the preparation of financial
statements, as well as work generally only the independent auditor can
reasonably be expected to provide, such as statutory audits.
(2) Tax fees consisted principally of tax compliance, tax advice and tax
planning.
AEP's Policy on Audit Committee Pre-Approval of Audit and Permissible
Non-Audit Services of Independent Auditors
AEP's Audit Committee's policy is to pre-approve all audit and permissible
non-audit services provided by the independent auditors. These services may
include audit services, audit-related services, tax services and other services.
Pre-approval is generally provided for up to one year and any pre-approval is
detailed as to the particular service or category of services and is generally
subject to a specific budget. The independent auditors and management are
required to periodically report to the AEP Audit Committee regarding the extent
of services provided by the independent auditors in accordance with this
pre-approval, and the fees for the services performed to date. The AEP Audit
Committee may also pre-approve particular services on a case-by-case basis. All
Deloitte & Touche LLP fees incurred after April 22, 2003 (the date this policy
was adopted by the AEP Audit Committee) were pre-approved by the AEP Audit
Committee.
TIMOTHY A. KING,
Secretary
March 22, 2004