PROSPECTUS SUPPLEMENT
(To prospectus dated April 28, 2004)
$50,000,000
PUBLIC SERVICE COMPANY OF OKLAHOMA
4.70% Senior Notes, Series D, due 2009
Interest on the Senior Notes is payable semi-annually on June 15 and
December 15 of each year, beginning December 15, 2004. The Senior Notes will
mature on June 15, 2009. We may redeem the Senior Notes in whole or in part at
our option at any time, and from time to time, at a redemption price equal to
100% of the principal amount of the Senior Notes being redeemed plus, if
applicable, a make-whole premium, together with accrued and unpaid interest to
the date of redemption. The Senior Notes do not have the benefit of a sinking
fund.
The Senior Notes are unsecured and rank equally with all of our other
unsecured and unsubordinated indebtedness from time to time outstanding and will
be effectively subordinated to all secured debt from time to time outstanding,
including approximately $100 million of outstanding first mortgage bonds as of
March 31, 2004.
Per Note Total
Public offering price(1) . . . . . . . . . . . . . . 99.932% $49,966,000
Underwriting discount . . . . . . . . . . . . . . . 0.600% $ 300,000
Proceeds, before expenses,
to Public Service Company of Oklahoma . . . . . . . . 99.332% $49,666,000
(1)Plus accrued interest, if any, from June 7, 2004.
INVESTING IN THESE NOTES INVOLVES RISKS. SEE THE SECTION ENTITLED "RISK
FACTORS" BEGINNING ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR MORE
INFORMATION.
Neither the U.S. Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the Senior Notes or
determined that this prospectus supplement or the accompanying prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
The Senior Notes will be ready for delivery in book-entry form only
through The Depository Trust Company on or about June 7, 2004.
LEHMAN BROTHERS
RBS GREENWICH CAPITAL
The date of this prospectus supplement is June 2, 2004.
You should rely only on the information incorporated by reference or
provided in this prospectus supplement or the accompanying prospectus. We have
not authorized anyone to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus
supplement is accurate as of any date other than the date on the front of the
document.
TABLE OF CONTENTS
Prospectus Supplement
USE OF PROCEEDS.......................................................... S-3
SUPPLEMENTAL DESCRIPTION OF THE SENIOR NOTES............................. S-3
UNDERWRITING............................................................. S-6
Prospectus
THE COMPANY................................................................ 2
RISK FACTORS............................................................... 2
PROSPECTUS SUPPLEMENTS..................................................... 13
RATIO OF EARNINGS TO FIXED CHARGES......................................... 14
WHERE YOU CAN FIND MORE INFORMATION........................................ 14
USE OF PROCEEDS ........................................................... 15
DESCRIPTION OF THE NOTES .................................................. 15
PLAN OF DISTRIBUTION....................................................... 20
LEGAL OPINIONS............................................................. 21
EXPERTS.................................................................... 22
USE OF PROCEEDS
We propose to use the net proceeds from the sale of the Senior Notes to
redeem or repurchase certain of our outstanding debt (including the repayment of
advances from affiliates), to fund our construction program and for other
corporate purposes.
We estimate that our construction costs in 2004 will approximate $80
million. At May 26, 2004, we had approximately $144 million in advances from
affiliates outstanding.
SUPPLEMENTAL DESCRIPTION OF THE SENIOR NOTES
The following description of the particular terms of the Senior Notes
supplements and in certain instances replaces the description of the general
terms and provisions of the Senior Notes under "Description of the Notes" in the
accompanying Prospectus. We will issue the Senior Notes under an Indenture,
dated as of November 1, 2000, between us and The Bank of New York, as Trustee,
as supplemented and amended and as to be further supplemented and amended.
Principal Amount, Maturity, Interest and Payment
The Senior Notes will initially be issued in an aggregate principal amount
of $50,000,000. We may from time to time, without consent of the holders of the
Senior Notes, issue additional notes having the same ranking, interest rate,
maturity and other terms as the Senior Notes. These notes, together with the
applicable Senior Notes, will be a single series of notes under the Indenture.
The Senior Notes will mature and become due and payable, together with any
accrued and unpaid interest, on June 15, 2009 and will bear interest at the rate
of 4.70% per year from June 7, 2004 until June 15, 2009. The Senior Notes are
not subject to any sinking fund provision.
Interest on each Senior Note will be payable semi-annually in arrears on
each June 15 and December 15 and at redemption, if any, or maturity. The initial
interest payment date is December 15, 2004. Each payment of interest shall
include interest accrued through the day before such interest payment date.
Interest on the Senior Notes will be computed on the basis of a 360-day year
consisting of twelve 30-day months.
We will pay interest on the Senior Notes (other than interest payable at
redemption, if any, or maturity) in immediately available funds to the owners of
the Senior Notes as of the Regular Record Date (as defined below) for each
interest payment date.
We will pay the principal of the Senior Notes and any premium and interest
payable at redemption, if any, or at maturity in immediately available funds at
the office of The Bank of New York, 101 Barclay Street in New York, New York.
If any interest payment date, redemption date or the maturity is not a
Business Day (as defined below), we will pay all amounts due on the next
succeeding Business Day and no additional interest will be paid, except that if
such Business Day is in the next succeeding calendar year, we will make payment
on the immediately preceding Business Day.
The "Regular Record Date" will be the May 31 or November 30 prior to the
relevant interest payment date.
"Business Day" means any day that is not a day on which banking
institutions in New York City are authorized or required by law or regulation to
close.
Optional Redemption
We may redeem the Senior Notes at our option at any time, upon no more
than 60 and not less than 30 days' notice. We may redeem the Senior Notes either
as a whole or in part at a redemption price equal to the greater of (1) 100% of
the principal amount of the Senior Notes being redeemed and (2) the sum of the
present values of the remaining scheduled payments of principal and interest on
the Senior Notes being redeemed (excluding the portion of any such interest
accrued to the date of redemption) discounted (for purposes of determining
present value) to the redemption date on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Treasury Rate (as defined below)
plus 20 basis points, plus, in each case, accrued interest thereon to the date
of redemption.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Senior Notes that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of the Senior Notes.
"Comparable Treasury Price" means, with respect to any redemption date,
(1) the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (2) if such release (or any successor release) is not
published or does not contain such prices on such third Business Day, the
Reference Treasury Dealer Quotation for such redemption date.
"Independent Investment Banker" means one of the Reference Treasury
Dealers appointed by us and reasonably acceptable to the Trustee.
"Reference Treasury Dealer" means a primary U.S. Government Securities
Dealer selected by us and reasonably acceptable to the Trustee.
"Reference Treasury Dealer Quotation" means, with respect to the Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at or before 5:00 p.m.,
New York City time, on the third Business Day preceding such redemption date.
"Treasury Rate" means, with respect to any redemption date, the rate per
year equal to the semi-annual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
Limitations on Liens
So long as any of our Senior Notes issued pursuant to this prospectus
supplement are outstanding, we will not create or suffer to be created or to
exist any additional mortgage, pledge, security interest, or other lien
(collectively "Liens") on any of our utility properties or tangible assets now
owned or hereafter acquired to secure any indebtedness for borrowed money
("Secured Debt"), without providing that such Senior Notes will be similarly
secured. This restriction does not apply to our subsidiaries, nor will it
prevent any of them from creating or permitting to exist Liens on their property
or assets to secure any Secured Debt. Further, this restriction on Secured Debt
does not apply to our existing first mortgage bonds that have previously been
issued under our mortgage indenture or any indenture supplemental thereto;
provided that this restriction will apply to future issuances thereunder (other
than issuances of refunding first mortgage bonds). In addition, this restriction
does not prevent the creation or existence of:
o Liens on property existing at the time of acquisition or construction of
such property (or created within one year after completion of such
acquisition or construction), whether by purchase, merger, construction or
otherwise, or to secure the payment of all or any part of the purchase
price or construction cost thereof, including the extension of any Liens
to repairs, renewals, replacements, substitutions, betterments, additions,
extensions and improvements then or thereafter made on the property
subject thereto;
o Financing of our accounts receivable for electric service;
o Any extensions, renewals or replacements (or successive extensions,
renewals or replacements), in whole or in part, of liens permitted by the
foregoing clauses; and
o The pledge of any bonds or other securities at any time issued under any
of the Secured Debt permitted by the above clauses.
In addition to the permitted issuances above, Secured Debt not otherwise
so permitted may be issued in an amount that does not exceed 15% of Net Tangible
Assets as defined below.
"Net Tangible Assets" means the total of all assets (including
revaluations thereof as a result of commercial appraisals, price level
restatement or otherwise) appearing on our balance sheet, net of applicable
reserves and deductions, but excluding goodwill, trade names, trademarks,
patents, unamortized debt discount and all other like intangible assets (which
term shall not be construed to include such revaluations), less the aggregate of
our current liabilities appearing on such balance sheet. For purposes of this
definition, our balance sheet does not include assets and liabilities of our
subsidiaries.
This restriction also will not apply to or prevent the creation or
existence of leases made, or existing on property acquired, in the ordinary
course of business.
UNDERWRITING
Lehman Brothers Inc. is acting as representative of the underwriters named
below. Subject to the terms and conditions of the underwriting agreement, we
have agreed to sell to each of the underwriters named below and each of the
underwriters has severally and not jointly agreed to purchase from us the
respective principal amount of Senior Notes set forth opposite its name below:
Principal Amount
Underwriter of Senior Notes
Lehman Brothers Inc............................. $ 45,000,000
Greenwich Capital Markets, Inc.................. $ 5,000,000
-------------
$ 50,000,000
============
In the underwriting agreement, the underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the Senior Notes
offered hereby if any of the Senior Notes are purchased.
The expenses associated with the offer and sale of the Senior Notes are
expected to be approximately $145,000.
The underwriters propose to offer the Senior Notes to the public initially
at the offering price set forth on the cover page of this prospectus supplement,
and to certain dealers initially at that price less a concession not in excess
of 0.375% per Senior Note. The underwriters may allow, and those dealers may
reallow, a concession to certain other dealers not in excess of 0.200% per
Senior Note. After the initial offering of the Senior Notes to the public, the
public offering price and the concession may be changed.
Prior to this offering, there has been no public market for the Senior
Notes. The Senior Notes will not be listed on any securities exchange. Certain
underwriters have advised us that they intend to make a market in the Senior
Notes. The underwriters will have no obligation to make a market in the Senior
Notes, however, and may cease market making activities, if commenced, at any
time. There can be no assurance of a secondary market for the Senior Notes, or
that the Senior Notes may be resold.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or
contribute payments that each underwriter may be required to make in respect
thereof.
In connection with the offering, the underwriters may purchase and sell
the Senior Notes in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the offering. Stabilizing
transactions consist of certain bids or purchases for the purposes of preventing
or retarding a decline in the market price of the Senior Notes and syndicate
short positions involve the sale by the underwriters of a greater number of
Senior Notes than they are required to purchase from us in the offering. The
underwriters also may impose a penalty bid, whereby selling concessions allowed
to syndicate members or other broker dealers in respect of the securities sold
in the offering for their account may be reclaimed by the syndicate if such
Senior Notes are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Senior Notes, which may be higher than the price that might
otherwise prevail in the open market; and these activities, if commenced, may be
discontinued at any time. These transactions may be effected in the
over-the-counter market or otherwise.
Some of the underwriters or their affiliates engage in transactions with,
and have performed services for, us and our affiliates in the ordinary course of
business.
PROSPECTUS
PUBLIC SERVICE COMPANY OF OKLAHOMA
1 Riverside Plaza
Columbus, Ohio 43215
614-716-1000
$200,000,000
UNSECURED NOTES
TERMS OF SALE
The following terms may apply to the $200,000,000 unsecured notes (the "notes")
that we may sell at one or more times. A pricing supplement or prospectus
supplement will include the final terms for each note. If we decide to list upon
issuance any note or notes on a securities exchange, a pricing supplement or
prospectus supplement will identify the exchange and state when we expect
trading could begin.
- Mature 9 months to 50 years
- Fixed or floating interest rate
- Remarketing features
- Certificate or book-entry form
- Subject to redemption
- Not convertible, amortized or subject to a sinking fund
- Interest paid on fixed rate notes quarterly or semi-annually
- Interest paid on floating rate notes monthly, quarterly, semi-annually,
or annually
- Issued in multiples of a minimum denomination
INVESTING IN THESE NOTES INVOLVES RISKS. SEE THE SECTION ENTITLED "RISK
FACTORS" BEGINNING ON PAGE 2 FOR MORE INFORMATION.
The notes have not been approved or disapproved by the Securities and Exchange
Commission ("SEC") or any state securities commission, nor have these
organizations determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
The date of this prospectus is April 28, 2004.
THE COMPANY
We generate, sell, purchase, transmit and distribute electric power. We serve
approximately 505,000 retail customers in eastern and southwestern Oklahoma. We
also sell and transmit power at wholesale to other electric utilities,
municipalities, electric cooperatives and non-utility entities engaged in the
wholesale power market. Our principal executive offices are located at 1
Riverside Plaza, Columbus, Ohio 43215 (telephone number 614-716-1000). We are a
subsidiary of American Electric Power Company, Inc., a public utility holding
company, and we are a part of the American Electric Power integrated utility
system. The executive offices of American Electric Power Company, Inc. are
located at 1 Riverside Plaza, Columbus, Ohio 43215 (telephone number
614-716-1000).
RISK FACTORS
RISKS RELATED TO OUR REGULATED
BUSINESS AND EVOLVING REGULATION
o We are unable to predict the outcome of a general rate review.
We operate in, and are subject to the laws and regulations of, the state of
Oklahoma. In February 2003, the Director of the Oklahoma State Corporation
Commission ("OSCC") filed an application requiring us to file all documents
necessary for a general rate review. In October 2003, we filed financial
information and supporting testimony in response to the OSCC's requirements. Our
response indicates that our annual revenues are $36 million less than costs. As
a result, we are seeking OSCC approval to increase our base rates by that
amount, which is a 3.6% increase over our existing revenues. Hearings are
scheduled for October 2004. Management is unable to predict the ultimate effect
of this review on our rates or its impact on our results of operations, cash
flows and financial condition.
o There is uncertainty regarding our recovery of fuel expenses.
We had a $44 million under-recovery of fuel costs resulting from a 2002
reallocation among certain of our utility affiliates of purchased power costs
for periods prior to January 1, 2002. In July 2003, we filed with the OSCC
seeking recovery of the $44 million over an 18-month time period. In August
2003, the OSCC Staff filed testimony recommending that we be granted recovery of
$42.4 million over three years. In September 2003, the OSCC expanded the case to
include a full review of our 2001 fuel and purchased power practices. We filed
our testimony in February 2004 and hearings will occur in June 2004. If the OSCC
determines as a result of the review that a portion of our fuel and purchased
power costs should not be recovered, there will be an adverse effect on our
results of operations, cash flows and possibly financial condition.
In Oklahoma, fuel costs are recovered from retail customers based on quarterly
fuel factors. The fuel factors are changed quarterly based on projected fuel
costs and include provisions for recovery or refund of prior months' over- and
under-recoveries of actual fuel costs. The OSCC audits our fuel costs annually.
To the extent the OSCC does not permit us to recover fuel costs under the
procedures described above, our net income could be materially reduced.
o Our rates are subject to regulation by the state of Oklahoma and a federal
agency whose regulatory paradigms and goals may not be consistent.
We are currently a vertically integrated electric utility and most of our
revenue results from the sale of electricity to retail customers subject to
bundled rates that are approved by the applicable state utility commission and,
to a certain extent, the Federal Energy Regulatory Commission (the "FERC").
Oklahoma adopted an electric restructuring law, but enacted legislation in June
2001 delaying competition indefinitely.
FERC has pursued several regulatory initiatives, such as the formation and
operation of new regional transmission organizations, or "RTOs", which have been
designed to generally facilitate competition in the energy sector. States have
questioned both the FERC's jurisdiction to pursue such initiatives and their
benefit, if any, to the ratepayers in their state. OSCC generally has authority
over the sale or other transfer of control, of transmission assets to an RTO.
Exposure to inconsistent state and Federal regulatory standards may limit our
ability to operate profitably. Further alteration of the regulatory landscape in
which we operate may harm our financial condition and results of operations.
o The different regional power markets in which we compete or will compete
in the future have changing transmission regulatory structures, which
could affect our performance in these regions.
Our results are likely to be affected by differences in the market and
transmission regulatory structures in various regional power markets. Problems
or delays that may arise in the formation and operation of RTOs may restrict our
ability to sell power produced by our generating capacity to certain markets if
there is insufficient transmission capacity otherwise available. The rules
governing the various regional power markets may also change from time to time,
which could affect our costs or revenues. Because it remains unclear which
companies will be participating in the various regional power markets, or how
RTOs will develop or what regions they will cover, we are unable to assess fully
the impact that these power markets may have on our business.
We are currently a member of the Southwest Power Pool ("SPP"). In February 2004,
FERC granted RTO status to the SPP, subject to fulfilling specified
requirements. State utility commissions having jurisdiction over an affiliated
utility that is also a member of the SPP have taken steps that may delay or
prevent our affiliate, and possibly us, from participating in an RTO.
Management is unable to predict the outcome of these transmission regulatory
actions and proceedings or their impact on the timing and operation of RTOs, our
transmission operations or future results of operations and cash flows.
o AEP's merger with CSW may ultimately be found to violate the Public
Utility Holding Company Act of 1935 ("PUHCA").
AEP acquired CSW in a merger completed on June 15, 2000. As a result of the
merger AEP acquired four additional domestic electric utility companies,
including us. On January 18, 2002, the U.S. Court of Appeals for the District of
Columbia ruled that the SEC's June 14, 2000 order approving the merger failed to
properly find that the merger meets the requirements of PUHCA and sent the case
back to the SEC for further review. Specifically, the Court told the SEC to
revisit its conclusion that the merger met PUHCA's requirement that the electric
utilities be "physically interconnected" and confined to a "single area or
region."
We believe that the merger meets the requirements of PUHCA and expect the matter
to be resolved favorably. We intend to fully cooperate with the staff of the SEC
in supplementing the record, if necessary, to ensure the merger complies with
PUHCA. We can give no assurance, however, that: (i) the SEC or any applicable
court review will find that the merger complies with PUHCA, or (ii) the SEC or
any applicable court review will not impose material adverse conditions on us in
order to find that the merger complies with PUHCA. If the merger were ultimately
found to violate PUHCA, it may require AEP to take remedial actions or divest
assets, which may harm our results of operations or financial condition.
RISKS RELATED TO OUR POWER TRADING
AND WHOLESALE BUSINESSES
o We have significantly reduced the scope and scale of our power trading and
marketing operations.
In October 2002 AEP announced its plans to reduce the exposure to energy trading
markets of its subsidiaries that trade power (including us) and to downsize the
trading and wholesale marketing operations conducted on behalf of such
subsidiaries. Our power trading and marketing operations are limited to risk
management around our generation assets and those of our regulated affiliates.
Trading and marketing operations that were not limited to risk management around
such assets have contributed to our wholesale revenues and earnings in the past.
Management expects this downsizing of our trading operations to reduce our
future results of operations and cash flows. The following risk factors
appearing under this subheading should be read in light of the announcements
discussed in this paragraph.
o Our revenues and results of operations are subject to market risks that
are beyond our control.
We sell power from our generation facilities into the spot market or other
competitive power markets or on a contractual basis. We also enter into
contracts to purchase and sell electricity as part of our power marketing and
trading operations. With respect to such transactions, we are not guaranteed any
rate of return on our capital investments through regulated rates, and our
revenues and results of operations are likely to depend, in large part, upon
prevailing market prices for power in our regional markets and other competitive
markets. These market prices may fluctuate substantially over relatively short
periods of time. It is reasonable to expect that trading margins may erode as
markets mature and that there may be diminished opportunities for gain should
volatility decline. In addition, the FERC, which has jurisdiction over wholesale
power rates, as well as independent system operators that oversee some of these
markets, may impose price limitations, bidding rules and other mechanisms to
address some of the volatility in these markets. Fuel prices may also be
volatile, and the price we can obtain for power sales may not change at the same
rate as changes in fuel costs. These factors could reduce our margins and
therefore diminish our revenues and results of operations.
Volatility in market prices for fuel and power may result from:
- weather conditions;
- seasonality;
- power usage;
- illiquid markets;
- transmission or transportation constraints or inefficiencies;
- availability of competitively priced alternative energy sources;
- demand for energy commodities;
- natural gas, crude oil and refined products, and coal production levels;
- natural disasters, wars, embargoes and other catastrophic events; and
- federal, state and foreign energy and environmental regulation and
legislation.
o Our power trading (including fuel procurement and power marketing) and
risk management policies cannot eliminate the risk associated with these
activities.
Our power trading (including fuel procurement and power marketing) activities
expose us to risks of commodity price movements. We attempt to manage our
exposure through enforcement of established risk limits and risk management
procedures. These risk limits and risk management procedures may not always be
followed or may not work as planned and cannot eliminate the risks associated
with these activities. As a result, we cannot predict the impact that our power
trading and risk management decisions may have on our business, operating
results or financial position.
We routinely have open trading positions in the market, within established
guidelines, resulting from the management of our trading portfolio. To the
extent open trading positions exist, fluctuating commodity prices can improve or
diminish our financial results and financial position.
Our power trading and risk management activities, including our power sales
agreements with counterparties, rely on projections that depend heavily on
judgments and assumptions by management of factors such as the future market
prices and demand for power and other energy-related commodities. These factors
become more difficult to predict and the calculations become less reliable the
further into the future these estimates are made. Even when our policies and
procedures are followed and decisions are made based on these estimates, results
of operations may be diminished if the judgments and assumptions underlying
those calculations prove to be wrong or inaccurate.
o Our financial performance may be adversely affected if we are unable to
successfully operate our electric generating facilities.
Our performance depends on the successful operation of our electric generating
facilities. Operating electric generating facilities involves many risks,
including:
- operator error and breakdown or failure of equipment or processes;
- operating limitations that may be imposed by environmental or other
regulatory requirements;
- labor disputes;
- fuel supply interruptions; and
- catastrophic events such as fires, earthquakes, explosions, floods or
other similar occurrences.
A decrease or elimination of revenues from power produced by our electric
generating facilities or an increase in the cost of operating the facilities
would adversely affect our results of operations.
o Parties with whom we have contracts may fail to perform their obligations,
which could harm our results of operations.
We are exposed to the risk that counterparties that owe us money or power will
breach their obligations. Should the counterparties to these arrangements fail
to perform, we may be forced to enter into alternative hedging arrangements or
honor underlying commitments at then-current market prices that may exceed our
contractual prices, which would cause our financial results to be diminished and
we might incur losses. Although our estimates take into account the expected
probability of default by a counterparty, our actual exposure to a default by a
counterparty may be greater than the estimates predict if defaults by
counterparties exceed our estimates.
o We rely on electric transmission facilities that we do not own or control.
If these facilities do not provide us with adequate transmission capacity,
we may not be able to deliver our wholesale electric power to the
purchasers of our power.
We depend on transmission facilities owned and operated by other unaffiliated
power companies to deliver the power we sell at wholesale. This dependence
exposes us to a variety of risks. If transmission is disrupted, or transmission
capacity is inadequate, we may not be able to sell and deliver our wholesale
power. If a region's power transmission infrastructure is inadequate, our
recovery of wholesale costs and profits may be limited. If restrictive
transmission price regulation is imposed, the transmission companies may not
have sufficient incentive to invest in expansion of transmission infrastructure.
The FERC has issued electric transmission initiatives that require electric
transmission services to be offered unbundled from commodity sales. Although
these initiatives are designed to encourage wholesale market transactions for
electricity, access to transmission systems may in fact not be available if
transmission capacity is insufficient because of physical constraints or because
it is contractually unavailable. We also cannot predict whether transmission
facilities will be expanded in specific markets to accommodate competitive
access to those markets.
o We do not fully hedge against price changes in commodities.
As part of our power marketing and trading operations, we routinely enter into
contracts to purchase and sell electricity and to procure fuel. In connection
with these trading activities, we routinely enter into financial contracts,
including futures and options, over-the counter options, swaps and other
derivative contracts. These activities expose us to risks from price movements.
If the values of the financial contracts change in a manner we do not
anticipate, it could harm our financial position or reduce the financial
contribution of our trading operations.
We manage our exposure by establishing risk limits and entering into contracts
to offset some of our positions (i.e., to hedge our exposure to demand, market
effects of weather and other changes in commodity prices). However, we do not
always hedge the entire exposure of our operations from commodity price
volatility. To the extent we do not hedge against commodity price volatility,
our results of operations and financial position may be improved or diminished
based upon our success in the market.
o We are unable to predict the course, results or impact, if any, of current
or future energy market investigations.
AEP (and by extension, certain of its subsidiaries, including us) and other
energy market participants received data requests, subpoenas and requests for
information from the FERC, the SEC and a state utility commission during 2002.
Management responded to the inquiries and provided the requested information and
has continued to respond to supplemental data requests in 2003 and 2004.
In March 2003, we received a subpoena from the SEC as part of the SEC's ongoing
investigation of energy trading activities. In August 2002, we had received an
informal data request from the SEC asking that we voluntarily provide
information. The subpoena sought additional information and is part of the SEC's
formal investigation. We responded to the subpoena and will continue to
cooperate with the SEC.
Management is unable to predict the course or outcome of these or any future
energy market investigations or their impact, if any, on power commodity trading
generally or, more specifically, on our trading operations or future results of
operations and cash flows.
o Diminished liquidity in the wholesale power markets could negatively
impact our earnings
The Enron Corp. bankruptcy and enhanced regulatory scrutiny have contributed to
more rigorous credit rating review of wholesale power market participants.
Credit downgrades and financial difficulties of certain other market
participants have significantly reduced such participants' participation in the
wholesale power and gas markets. These events have caused a decrease in the
number of significant participants in the wholesale power and gas markets, which
has resulted in decreases in transaction volumes and market liquidity. Such
decreases have had a negative impact on our results of operations, cash flows
and financial condition. Reduced liquidity in these markets makes risk
management of the assets more difficult and could also hamper our efforts to
exit transactions not related to risk management of our assets that we entered
into before reducing the scale of our power trading and marketing operations. We
are unable to predict the extent of the impact on our power marketing and
trading business if such developments continue.
o Uncertainty regarding FERC proposed security standards
In July 2002, the FERC published for comment its proposed security standards as
part of the Standards for Market Design ("SMD"). These standards are intended to
ensure all market participants have a basic security program that effectively
protects the electric grid and related market activities and require compliance
by January 1, 2004. The impact of these proposed standards is far-reaching and
has significant penalties for non-compliance. These standards apply to
marketers, transmission owners, and power producers, including us. Compliance
with these standards would represent a significant effort that will impact us.
Unless the cost of compliance can be recovered from customers, results of
operations and cash flows would be adversely affected. After the FERC's proposal
in 2002, the North American Electric Reliability Council ("NERC"), with FERC's
support, developed a new set of standards to address industry compliance. These
new standards closely parallel the initial, proposed FERC standards in both
content and compliance time frames, and were approved by the NERC ballot body in
June of 2003. AEP is developing financial requirements for security
implementation and compliance with these NERC standards. Since these financial
requirements are not yet determined, management cannot predict the impacts of
such standards on future results of operations and cash flows.
o Potential for disruption if the delay of a FERC market power mitigation
order is lifted
A FERC order on AEP's triennial market based wholesale power rate authorization
update required certain mitigation actions that certain AEP subsidiaries,
including us, would need to take for sales/purchases within its control area and
required AEP to post information on its website regarding its power systems
status. As a result of a request for rehearing filed by AEP and other market
participants, FERC issued an order delaying the effective date of the mitigation
plan until after a planned technical conference on market power determination.
In January 2004, the FERC held a technical conference and on April 14, 2004
issued new standards for measuring generation market power in market based rate
applications. AEP has 60 days to file with the FERC its generation market power
analysis pursuant to the indicative screens contained in the new standards.
Management is unable to predict the results of such analysis, the timing of any
further action by the FERC or its affect on future results of our operations and
cash flows.
o We are unable to predict the outcome of Enron litigation
In December 2003, Enron filed a complaint in a bankruptcy court against our
affiliated service corporation seeking approximately $93 million plus interest
in connection with a transaction for the sale and purchase of physical power
among Enron, certain AEP affiliates, including us, and Allegheny Energy Supply,
LLC during November 2001. Enron's claim seeks to unwind the effects of the
transaction. We believe we have several defenses to the claims in the action
being brought by Enron. Management is unable to predict the outcome of this
lawsuit, our allocation of any amounts payable or its impact on results of
operations, cash flows or financial condition.
RISKS RELATED TO MARKET OR ECONOMIC VOLATILITY
o We are subject to risks associated with a changing economic environment.
In response to the occurrence of several recent events, including the September
11, 2001 terrorist attack on the United States, the ongoing war against
terrorism by the United States, and the bankruptcy of Enron Corp., the financial
markets have been disrupted in general, and the availability and cost of capital
for our business and that of our competitors has been at least temporarily
harmed. In addition, following the bankruptcy of Enron Corp., the credit ratings
agencies initiated a thorough review of the capital structure and earnings power
of energy companies, including us. These events could constrain the capital
available to our industry and could limit our access to funding for our
operations. Our business is capital intensive, and we are dependent upon our
ability to access capital at rates and on terms we determine to be attractive.
If our ability to access capital becomes significantly constrained, our interest
costs will likely increase and our financial condition could be harmed and
future results of operations could be significantly diminished.
The insurance industry has also been disrupted by these events. As a result, the
availability of insurance covering risks we and our competitors typically insure
against may decrease. In addition, the insurance we are able to obtain may have
higher deductibles, higher premiums and more restrictive policy terms.
o A downgrade in our credit rating could negatively affect our ability to
access capital and/or to operate our power trading businesses.
Standard & Poor's and Moody's rate our senior, unsecured debt at BBB and Baa1,
respectively. If Moody's or Standard & Poor's were to downgrade our long-term
rating, particularly below investment grade, our borrowing costs would increase,
which would diminish our financial results. In addition, we would likely be
required to pay a higher interest rate in future financings, and our potential
pool of investors and funding sources could decrease.
On February 10, 2003, Moody's downgraded AEP's short-term debt rating to P-3
(with stable outlook) from P-2. On March 7, 2003, S&P affirmed AEP's short-term
rating of A-2 with stable outlook. As a result of Moody's downgrade, AEP's
access to the commercial paper market may be limited and our short-term
borrowing costs may increase because we conduct our short-term borrowing through
AEP and on the same terms available to AEP.
Our power trading business relies on the investment grade ratings of our senior,
unsecured debt. Most of our counterparties require the creditworthiness of an
investment grade entity to stand behind transactions. If our rating were to
decline below investment grade, our ability to profitably operate our power
trading business would be diminished because we would likely have to deposit
cash or cash related instruments, which would reduce our profits.
o Our operating results may fluctuate on a seasonal and quarterly basis.
Electric power generation is generally a seasonal business. In many parts of the
country, demand for power peaks during the hot summer months, with market prices
also peaking at that time. In other areas, power demand peaks during the winter.
As a result, our overall operating results in the future may fluctuate
substantially on a seasonal basis. The pattern of this fluctuation may change
depending on the terms of power sale contracts we enter into. In addition, we
have historically sold less power, and consequently earned less income, when
weather conditions are milder. We expect that unusually mild weather in the
future could diminish our results of operations and harm our financial
condition.
o Changes in technology may significantly affect our business by making our
power plants less competitive.
A key element of our business model is that generating power at central power
plants achieves economies of scale and produces power at relatively low cost.
There are other technologies that produce power, most notably fuel cells,
microturbines, windmills and photovoltaic (solar) cells. It is possible that
advances in technology will reduce the cost of alternative methods of producing
power to a level that is competitive with that of most central power station
electric production. If this were to happen and if these technologies achieved
economies of scale, our market share could be eroded, and the value of our power
plants could be reduced. Changes in technology could also alter the channels
through which retail electric customers buy power, thereby harming our financial
results.
o Changes in commodity prices may increase our cost of producing power or
decrease the amount we receive from selling power, harming our financial
performance.
We are exposed to changes in the price and availability of coal and natural gas
because a significant portion of our generating capacity is coal-fired with the
remainder using natural gas as fuel. We have contracts of varying durations for
the supply of fuel for most of our existing generation capacity, but as these
contracts end, we may not be able to purchase fuel on terms as favorable as the
current contracts. Our exposure to such changes in fuel costs is mitigated in
part by our ability to recover fuel costs from regulated customers pursuant to
state and Federal fuel recovery provisions, subject to applicable review by
these regulatory bodies.
Changes in the cost of fuel and changes in the relationship between such cost
and the market price of power will affect our financial results. Since the price
we obtain for power may not change at the same rate as the change in fuel costs,
we may be unable to pass on the changes in costs to our customers in the
future.
Actual power prices and fuel costs will differ from those assumed in financial
projections used to initially value our trading and marketing transactions, and
those differences may be material. As a result, our financial results may be
diminished in the future as those transactions are marked to market.
o Demand for power could exceed our supply capacity.
We are currently obligated to supply power to our regulated retail and wholesale
customers. At peak times, the demand for power required to meet this obligation
will exceed our available generation capacity. If current consumption trends
continue in the future, we may be required to buy more power on the market or
build additional generation. Either the market or regulators (through rate
recovery) may not permit us to pass all of these purchase or construction costs
on to our customers. To the extent regulators do not permit timely recovery of
the base rate portion of these costs, we have exposure to regulatory lag
associated with the time between the incurrence of costs of purchased or
constructed capacity and their recovery in customers' rates.
o The underfunding of our affiliate retirement plans may require additional
significant contributions
We, along with other AEP affiliates, participate in defined benefit pension
plans ("Pension Plans") for our respective employees. In addition, we, along
with other AEP affiliates, participate in health care and life insurance benefit
plans for retired employees.
The recent decreases in applicable interest rates have increased the plans'
liability. The Pension Plans' liabilities based on service and pay to date
("Accumulated Benefit Obligation") exceeded the value of the assets at December
31, 2003. As of December 31, 2003, the fair value of the AEP Pension Plans
assets was $3.18 billion while the Accumulated Benefit Obligation was estimated
at $3.63 billion, an underfunding of approximately $450 million. Because of the
underfunded status of the Pension Plan, $65 million was contributed to the
Pension Plan in 2003. As of March 2, 2004 and based on actuarial assumptions,
AEP's cash contributions to the Pension Plan are expected to be approximately
$41 million, $76 million, and $103 million in 2004, 2005 and 2006 respectively.
Our portion of the contributions made to the pension trust account was not
material in 2003 but may be material in 2004, 2005 and 2006, respectively.
AEP also made contributionsof $183 million to postretirement health care and
life insurance benefits trust funds in 2003, and as of March 2, 2004 expects to
contribute approximately $169 million, $164 million and $155 million in 2004,
2005 and 2006, respectively. Our portion of the contribution was $10 million in
2003, and may be material in 2004, 2005 and 2006, respectively.
We cannot predict the future performance of the investment markets. A downturn
in the investment markets could have a material negative impact on the net asset
value of the plans' trust accounts and increase the underfunding of the Pension
Plan, net of benefit obligations. This may necessitate significant cash
contributions to the Pension Plan. Changes in interest rates may also materially
affect the pension and postretirement health care and life insurance benefit
liabilities and the cash contributions needed to fund those liabilities. Changes
in the laws and regulations governing the plans may increase or decrease the
required contributions.
RISKS RELATED TO ENVIRONMENTAL REGULATION
o Our costs of compliance with environmental laws are significant, and the
cost of compliance with future environmental laws could harm our cash flow
and profitability.
Our operations are subject to extensive federal, state and local environmental
statutes, rules and regulations relating to air quality, water quality, waste
management, natural resources and health and safety. Compliance with these legal
requirements requires us to commit significant capital toward environmental
monitoring, installation of pollution control equipment, emission fees and
permits at all of our facilities. These expenditures have been significant in
the past and we expect that they will increase in the future. We estimate that
we will invest approximately $8 million to comply with existing federal and
state regulations designed to limit NOx emissions. Costs of compliance with
environmental regulations could harm our industry, our business and our results
of operations and financial position, especially if emission and/or discharge
limits are tightened, more extensive permitting requirements are imposed,
additional substances become regulated and the number and types of assets we
operate increase.
o Governmental authorities may assess penalties on us for failures to comply
with environmental laws and regulations.
If we fail to comply with environmental laws and regulations, even if caused by
factors beyond our control, that failure may result in the assessment of civil
or criminal penalties and fines against us. Recent lawsuits by the EPA and
various states filed against certain of our affiliate utility companies
highlight the environmental risks faced by generating facilities, in general,
and coal-fired generating facilities, in particular.
PROSPECTUS SUPPLEMENTS
We may provide information to you about the notes in up to three separate
documents that progressively provide more detail: (a) this prospectus provides
general information some of which may not apply to your notes, (b) the
accompanying prospectus supplement provides more specific terms of your notes,
and (c) if not in the accompanying prospectus supplement, the pricing supplement
will provide the final terms of your notes. It is important for you to consider
the information contained in this prospectus, the prospectus supplement and any
pricing supplement in making your investment decision.
RATIO OF EARNINGS TO FIXED CHARGES
The Ratio of Earnings to Fixed Charges for each of the periods indicated is as
follows:
Twelve Months
Period Ended Ratio
December 31, 1999........3.34
December 31, 2000........3.26
December 31, 2001........3.00
December 31, 2002........2.49
December 31, 2003........2.96
For current information on the Ratio of Earnings to Fixed Charges, please see
our most recent Form 10-K and Form 10-Q. See Where You Can Find More
Information.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement we filed with the SEC. We
also file annual, quarterly and special reports and other information with the
SEC. You may read and copy any document we file at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the Public Reference Room. You may
also examine our SEC filings through the SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and later information that we file with the SEC
will automatically update and supersede this information. We incorporate by
reference the document listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until we sell all the notes.
Annual Report on Form 10-K for the year ended December 31, 2003.
You may request a copy of these filings, at no cost, by writing or telephoning
us at the following address:
Brian Capo
American Electric Power Service Corporation
1 Riverside Plaza
Columbus, Ohio 43215
614-716-1000
You should rely only on the information incorporated by reference or provided in
this prospectus or any supplement. We have not authorized anyone else to provide
you with different information. We are not making an offer of these notes in any
state where the offer is not permitted. You should not assume that the
information in this prospectus or any supplement is accurate as of any date
other than the date on the front of those documents.
USE OF PROCEEDS
Unless otherwise stated in a prospectus supplement, the net proceeds from the
sale of the notes will be used for general corporate purposes relating to our
utility business. These purposes include redeeming or repurchasing outstanding
debt or preferred stock and replenishing working capital. If we do not use the
net proceeds immediately, we temporarily invest them in short-term,
interest-bearing obligations. We estimate that our construction costs in 2004
will approximate $80 million.
DESCRIPTION OF THE NOTES
General
We will issue the notes under the Indenture dated November 1, 2000 (as
previously supplemented and amended) between us and the Trustee, The Bank of New
York. This prospectus briefly outlines some provisions of the Indenture. If you
would like more information on these provisions, you should review the Indenture
and any supplemental indentures that we have filed or will file with the SEC.
See Where You Can Find More Information on how to locate these documents. You
may also review these documents at the Trustee's offices at 101 Barclay
Street-8W, New York, New York 10286.
The Indenture does not limit the amount of notes that may be issued. The
Indenture permits us to issue notes in one or more series or tranches upon the
approval of our board of directors pursuant to any supplemental indentures. Each
series of notes may differ as to their terms.
The notes are unsecured and will rank equally with all our unsecured
unsubordinated debt. Substantially all of our fixed properties and franchises
are subject to the lien of our first mortgage bonds issued under and secured by
a Mortgage and Deed of Trust, dated as of July 1, 1945 (as previously
supplemented and amended) between us and Liberty Bank and Trust Company of
Tulsa, National Association, successor to The First National Bank and Trust
Company of Tulsa, as trustee. For current information on our debt outstanding
see our most recent Form 10-K and Form 10-Q. See Where You Can Find More
Information.
The notes will be denominated in U.S. dollars and we will pay principal and
interest in U.S. dollars. Unless an applicable pricing or prospectus supplement
states otherwise, the notes will not be subject to any conversion, amortization,
or sinking fund. We expect that the notes will be "book-entry," represented by a
permanent global note registered in the name of The Depository Trust Company, or
its nominee. We reserve the right, however, to issue note certificates
registered in the name of the noteholders.
In the discussion that follows, whenever we talk about paying principal on the
notes, we mean at maturity or redemption. Also, in discussing the time for
notices and how the different interest rates are calculated, all times are New
York City time and all references to New York mean the City of New York, unless
otherwise noted.
The following terms may apply to each note as specified in the applicable
pricing or prospectus supplement and the note.
Redemptions
If we issue redeemable notes, we may redeem such notes at our option unless an
applicable pricing or prospectus supplement states otherwise. The pricing or
prospectus supplement will state the terms of redemption. We may redeem notes in
whole or in part by delivering written notice to the noteholders no more than
60, and not less than 30, days prior to redemption. If we do not redeem all the
notes of a series at one time, the Trustee selects the notes to be redeemed in a
manner it determines to be fair.
Remarketed Notes
If we issue notes with remarketing features, an applicable pricing or prospectus
supplement will describe the terms for the notes including: interest rate,
remarketing provisions, our right to redeem notes, the holders' right to tender
notes, and any other provisions.
Book-Entry Notes - Registration, Transfer, and Payment of Interest and Principal
Unless otherwise stated in a prospectus supplement, book-entry notes of a series
will be issued in the form of a global note that the Trustee will deposit with
The Depository Trust Company, New York, New York ("DTC"). This means that we
will not issue note certificates to each holder. One or more global notes will
be issued to DTC who will keep a computerized record of its participants (for
example, your broker) whose clients have purchased the notes. The participant
will then keep a record of its clients who purchased the notes. Unless it is
exchanged in whole or in part for a note certificate, a global note may not be
transferred; except that DTC, its nominees, and their successors may transfer a
global note as a whole to one another.
Beneficial interests in global notes will be shown on, and transfers of global
notes will be made only through, records maintained by DTC and its participants.
DTC has provided us the following information: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the United States
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered under the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds
securities that its participants ("Direct Participants") deposit with DTC. DTC
also records the settlement among Direct Participants of securities
transactions, such as transfers and pledges, in deposited securities through
computerized records for Direct Participants' accounts. This eliminates the need
to exchange note certificates. Direct Participants include securities brokers
and dealers, banks, trust companies, clearing corporations and certain other
organizations.
Other organizations such as securities brokers and dealers, banks and trust
companies that work through a Direct Participant also use DTC's book-entry
system. The rules that apply to DTC and its participants are on file with the
SEC.
A number of its Direct Participants and the New York Stock Exchange, Inc., The
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. own DTC.
We will wire principal and interest payments to DTC's nominee. We and the
Trustee will treat DTC's nominee as the owner of the global notes for all
purposes. Accordingly, we, the Trustee and any paying agent will have no direct
responsibility or liability to pay amounts due on the global notes to owners of
beneficial interests in the global notes.
It is DTC's current practice, upon receipt of any payment of principal or
interest, to credit Direct Participants' accounts on the payment date according
to their respective holdings of beneficial interests in the global notes as
shown on DTC's records. In addition, it is DTC's current practice to assign any
consenting or voting rights to Direct Participants whose accounts are credited
with notes on a record date. The customary practices between the participants
and owners of beneficial interests will govern payments by participants to
owners of beneficial interests in the global notes and voting by participants,
as is the case with notes held for the account of customers registered in
"street name." However, payments will be the responsibility of the participants
and not of DTC, the Trustee or us.
According to DTC, the foregoing information with respect to DTC has been
provided to the Direct Participants and other members of the financial community
for informational purposes only and is not intended to serve as a
representation, warranty or contract modification of any kind.
Unless otherwise described in a prospectus supplement, notes represented by a
global note will be exchangeable for note certificates with the same terms in
authorized denominations only if DTC notifies us that it is unwilling or unable
to continue as depositary or if DTC ceases to be a clearing agency registered
under applicable law and a successor depositary is not appointed by us within 90
days.
Note Certificates-Registration, Transfer, and Payment of Interest and Principal
If we issue note certificates, they will be registered in the name of the
noteholder. The notes may be transferred or exchanged, pursuant to
administrative procedures in the indenture, without the payment of any service
charge (other than any tax or other governmental charge) by contacting the
paying agent. Payments on note certificates will be made by check.
Interest Rate
The interest rate on the notes will either be fixed or floating. The interest
paid will include interest accrued to, but excluding, the date of maturity or
redemption. Interest is generally payable to the person in whose name the note
is registered at the close of business on the record date before each interest
payment date. Interest payable at maturity or redemption, however, will be
payable to the person to whom principal is payable.
If we issue a note after a record date but on or prior to the related interest
payment date, we will pay the first interest payment on the interest payment
date after the next record date. We will pay interest payments by check or wire
transfer, at our option.
Fixed Rate Notes
A pricing or prospectus supplement will designate the record dates, payment
dates and the fixed rate of interest payable on a note. We will pay interest
quarterly or semi-annually, and upon maturity or redemption. Unless an
applicable pricing or prospectus supplement states otherwise, if any payment
date falls on a day that is not a business day, we will pay interest on the next
business day and no additional interest will be paid. Interest payments will be
the amount of interest accrued to, but excluding, each payment date. Interest
will be computed using a 360-day year of twelve 30-day months.
Floating Rate Notes
Each floating rate note will have an interest rate formula. The applicable
pricing supplement will state the initial interest rate or interest rate formula
on each note effective until the first interest reset date. The applicable
pricing or prospectus supplement will state the method and dates on which the
interest rate will be determined, reset and paid.
Events of Default
"Event of Default" means any of the following:
- failure to pay the principal of (or premium, if any, on) any note of a
series for three days after payment is due;
- failure to pay any interest on any note of any series for 30 days after
payment is due;
- failure to perform any other requirements in such notes, or in the
Indenture in regard to such notes, for 90 days after notice;
- failure to pay any sinking fund installment for three days after payment
is due;
- certain events of bankruptcy or insolvency; or
- any other event of default specified in a series of notes.
An Event of Default for a particular series of notes does not necessarily mean
that an Event of Default has occurred for any other series of notes issued under
the Indenture. If an Event of Default occurs and continues, the Trustee or the
holders of at least 33% of the principal amount of the notes of the series
affected may require us to repay the entire principal of the notes of such
series within ten days after the date of such notice ("Repayment Acceleration").
In most instances, the holders of at least a majority in aggregate principal
amount of the notes of the affected series may rescind a previously triggered
Repayment Acceleration if we have first cured our default by depositing with the
Trustee enough money to pay all (unaccelerated) past due amounts and penalties,
if any.
The Trustee must within 90 days after a default occurs, notify the holders of
the notes of the series of default unless such default has been cured or waived.
We are required to file an annual certificate with the Trustee, signed by an
officer, concerning any default by us under any provisions of the Indenture.
Subject to the provisions of the Indenture relating to its duties in case of
default, the Trustee shall be under no obligation to exercise any of its rights
or powers under the Indenture at the request, order or direction of any holders
unless such holders offer the Trustee reasonable indemnity. Subject to the
provisions for indemnification, the holders of a majority in principal amount of
the notes of any series may direct the time, method and place of conducting any
proceedings for any remedy available to, or exercising any trust or power
conferred on, the Trustee with respect to such notes.
Modification of Indenture
Under the Indenture, our rights and obligations and the rights of the holders of
any notes may be changed. Any change affecting the rights of the holders of any
series of notes requires the consent of the holders of not less than a majority
in aggregate principal amount of the outstanding notes of all series affected by
the change, voting as one class. However, we cannot change the terms of payment
of principal or interest, or a reduction in the percentage required for changes
or a waiver of default, unless the holder consents. We may issue additional
series of notes and take other action that does not affect the rights of holders
of any series by executing supplemental indentures without the consent of any
noteholders.
Consolidation, Merger or Sale
We may merge or consolidate with any entity or sell our assets substantially as
an entirety as long as the successor or purchaser expressly assumes the payment
of principal, and premium, if any, and interest on the notes.
Legal Defeasance
We will be discharged from our obligations on the notes of any series on the
91st day after the date of the deposit referred to in the first item below if,
among other things:
- we deposit with the Trustee sufficient cash or government securities to
pay (i) the principal, interest, any premium and any other sums due to the
stated maturity date or a redemption date of the note of the series and
(ii) any applicable mandatory sinking fund payments on the day such
payments are due;
- we deliver to the Trustee an opinion of counsel to the effect that such
provision would not cause any outstanding notes then listed on a national
security exchange to be delisted; and
- we deliver to the Trustee an opinion of counsel stating that the federal
income tax obligations of noteholders of that series will not change as a
result of our performing the action described above.
If this happens, the noteholders of the series will not be entitled to the
benefits of the Indenture except for registration of transfer and exchange of
notes and replacement of lost, stolen or mutilated notes.
Covenant Defeasance
We will be discharged from our obligations under certain restrictive covenants
applicable to the notes of a particular series if, among other things, we
perform all of the actions described above. See Legal Defeasance. If this
happens, any later breach of that particular restrictive covenant will not
result in Repayment Acceleration. If we cause an Event of Default apart from
breaching that restrictive covenant, there may not be sufficient money or
government obligations on deposit with the Trustee to pay all amounts due on the
notes of that series. In that instance, we would remain liable for such amounts.
Governing Law
The Indenture and notes of all series will be governed by the laws of the State
of New York.
Concerning the Trustee
We and our affiliates use or will use some of the banking services of the
Trustee and other services of its affiliates in the normal course of business.
PLAN OF DISTRIBUTION
We may sell the notes (a) through agents; (b) through underwriters or dealers;
or (c) directly to one or more purchasers.
By Agents
Notes may be sold on a continuing basis through agents designated by us. The
agents will agree to use their reasonable efforts to solicit purchases for the
period of their appointment.
The Agents will not be obligated to make a market in the notes. We cannot
predict the amount of trading or liquidity of the notes.
By Underwriters
If underwriters are used in the sale, the underwriters will acquire the notes
for their own account. The underwriters may resell the notes in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. The obligations of
the underwriters to purchase the notes will be subject to certain conditions.
The underwriters will be obligated to purchase all the notes of the series
offered if any of the notes are purchased. Any initial public offering price and
any discounts or concessions allowed or re-allowed or paid to dealers may be
changed from time to time.
Direct Sales
We may also sell notes directly. In this case, no underwriters or agents would
be involved.
General Information
Underwriters, dealers, and agents that participate in the distribution of the
notes may be underwriters as defined in the Securities Act of 1933 (the "Act"),
and any discounts or commissions received by them from us and any profit on the
resale of the notes by them may be treated as underwriting discounts and
commissions under the Act.
We may have agreements with the underwriters, dealers and agents to indemnify
them against certain civil liabilities, including liabilities under the Act.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, us or our affiliates in the ordinary course of their businesses.
LEGAL OPINIONS
Our counsel, Simpson Thacher & Bartlett LLP, New York, NY, and one of our
lawyers will each issue an opinion about the legality of the notes for us. Dewey
Ballantine LLP, New York, NY will issue an opinion for the agents or
underwriters. From time to time, Dewey Ballantine LLP acts as counsel to our
affiliates for some matters.
EXPERTS
The financial statements and the related financial statement schedule
incorporated in this prospectus by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 2003 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports (which reports
express an unqualified opinion and include an explanatory paragraph concerning
the adoption of a new accounting pronouncement in 2003), which are incorporated
by reference herein, and have been so incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
Table of Contents
THE COMPANY........................ 2
RISK FACTORS....................... 2
PROSPECTUS SUPPLEMENTS............. 12
RATIO OF EARNINGS TO
FIXED CHARGES................... 13
WHERE YOU CAN FIND MORE
INFORMATION ................... 13 $200,000,000 UNSECURED NOTES
USE OF PROCEEDS ................... 14
DESCRIPTION OF THE NOTES .......... 14
General ........................... 14
Redemptions ....................... 15
Remarketed Notes................... 15
Book-Entry Notes - Registration, PROSPECTUS
Transfer, and Payment of
Interest and Principal ... 15
Note Certificates - Registration,
Transfer, and Payment of
Interest and Principal .... 16
Interest Rate ..................... 17 The date of this
Fixed Rate Notes .................. 17 Prospectus is April 28, 2004
Floating Rate Notes ............... 17
Events of Default.................. 17
Modification of Indenture.......... 18
Consolidation, Merger or Sale...... 18
Legal Defeasance................... 18
Covenant Defeasance................ 19
Governing Law...................... 19
Concerning the Trustee............. 19
PLAN OF DISTRIBUTION............... 19
By Agents.......................... 20
By Underwriters.................... 20
Direct Sales....................... 20
General Information................ 20
LEGAL OPINIONS..................... 20
EXPERTS............................ 21