Exhibit 99
AEP Third-Quarter Earnings $0.76 Ongoing, $0.65 As Reported;
Unfavorable Midwest Weather, Investment Losses Impact Results
Company affirms low end of 2003 guidance range, announces guidance for 2004
COLUMBUS, Ohio, Oct. 23 /PRNewswire-FirstCall/ -- American Electric Power
(NYSE: AEP) today reported 2003 third-quarter ongoing earnings of $0.76 per
share, down from $1.21 a share for the same period last year. Reduced
electricity demand caused by the second consecutive quarter of unfavorable
weather, losses by gas and UK investments and dilution from additional shares
outstanding decreased earnings per share for the quarter.
Results were:
Third quarter ended Nine months ended
Sept. 30 Sept. 30
2002 2003 Variance 2002 2003 Variance
Revenue ($ in billions) 3.8 4.1 0.3 10.4 11.9 1.5
Earnings ($ in millions):
Ongoing 409 302 (107) 780 695 (85)
As reported 425 257 (168) 318 872 554
EPS ($):
Ongoing 1.21 0.76 (0.45) 2.37 1.82 (0.55)
As reported 1.25 0.65 (0.60) 0.97 2.28 1.31
"This quarter was a challenging one," said E. Linn Draper Jr., AEP's
chairman, president and chief executive officer. "The continuation of the
mild weather in the Midwest reduced power demand in that area, but our success
in wholesale markets helped minimize that effect. We also had severe storms
that resulted in unexpected repair expenses.
"Despite unfavorable conditions, our utility operations performed well,"
Draper said. "However, we continue to be disappointed by the underperformance
of our non-core investments and remain committed to divest these assets."
AEP affirmed 2003 ongoing earnings guidance at the low end of the
previously announced range of $2.20 to $2.40 per share. Ongoing earnings for
2004 are expected to be between $2.10 and $2.30 per share.
Ongoing and as-reported EPS for third-quarter 2003 are based on an average
of approximately 395 million shares outstanding, compared to an average of
approximately 339 million shares outstanding for the same period in 2002.
Year-to-date 2003 ongoing and as-reported EPS are based on an average of
approximately 382 million shares outstanding, compared to an average 329 million
shares outstanding for the same period in 2002. The dilutive effect of
additional shares outstanding reduced third-quarter 2003 ongoing earnings by
$0.13 per share and 2003 year- to-date ongoing earnings by $0.29 when compared
to the prior period.
AEP's as-reported earnings are prepared in accordance with accounting
principles generally accepted in the United States and represent the company's
earnings as reported to the Securities and Exchange Commission. AEP's
management believes that the company's ongoing earnings data, or as-reported
earnings adjusted for certain items as described in the news release and
charts, provides a more meaningful representation of the company's
performance. AEP uses ongoing earnings as the primary performance measurement
when communicating with analysts and investors regarding its earnings outlook
and results. The company also uses ongoing earnings data internally to
measure performance against budget and to report to AEP's board of directors.
An item excluded from third-quarter 2003 ongoing earnings was a $45.5
million, or $0.11 per share, impairment on two independent power production
plants. A full reconciliation of items contributing to the difference between
ongoing and as-reported earnings for this period and comparable prior periods
is included in the charts at the end of this news release.
ONGOING RESULTS BY SEGMENT
($ in millions except per share data; EPS based on 339mm shares in 2002,
395mm shares in 2003)
Q3 2002 EPS Q3 2003 EPS
Utility operations 432 1.28 394 1.00
Investments (19) (0.06) (71) (0.18)
Parent company (4) (0.01) (21) (0.06)
Ongoing Earnings 409 1.21 302 0.76
"The weather in the Midwest has been mild, with cooling degree days 13
percent below normal for the quarter and down 33 percent from the same period
last year," Draper said. "The mild weather reduced the electricity needs for
our utility customers in that region. But we had success selling that
electricity in the wholesale markets. As a result, earnings from system sales
nearly doubled, which partially offset the impact of mild weather.
"Our investments continue to be a drag on earnings," Draper said. "The
quarter's earnings were reduced by the negative impact of timing differences
related to the accounting treatment of freight hedges in our UK operations and
lower margins related to reduced activity in our domestic gas business."
Draper said that work continues to systematically dispose of non-core
assets.
"We continue to look for opportunities to exit both the gas and UK
businesses," Draper said. "We plan to divest of the Houston Pipe Line (HPL)
assets sometime after the resolution of the Enron bankruptcy issues. An
advisor has been selected for the Louisiana Intrastate Gas (LIG) disposition
and the information memorandum is about to be circulated. We have also
selected an advisor for the disposition of our UK business."
ONGOING RESULTS FROM UTILITY OPERATIONS
($ in millions except per share data; EPS based on 339mm shares in 2002,
395mm shares in 2003)
Q3 2002 Q3 2003 Variance
Retail Margin - Regulated Integrated Utilities 831 760 (71)
Ohio Companies 549 534 (15)
Texas Wires 158 177 19
Texas Supply/REP 181 92 (89)
FERC Municipal and Co-op Customers 74 52 (22)
System Sales 81 157 76
Other Wholesale Transactions 0 1 1
Transmission Revenue - 3rd Party 122 121 (1)
Other Operating Revenue 84 92 8
Total Gross Margin 2,080 1,986 (94)
Operations & Maintenance (733) (718) 15
Depreciation & Amortization (327) (316) 11
Taxes Other Than Federal Income Taxes (229) (198) 31
Capital Cost and Other (147) (165) (18)
Federal Income Taxes (212) (195) 17
Ongoing Net Earnings Utility Operations 432 394 (38)
Ongoing Earnings Per Share 1.28 1.00 (0.28)
The impact of weather is reflected in lower year-to-year gross margin from
AEP's regulated integrated utilities and from the Ohio companies.
The gain in gross margin from Texas wires is primarily attributed to $61
million in non-cash earnings associated with stranded cost recovery in Texas,
which reflects the difference between the actual price received from the state-
mandated auction of 15 percent of generation capacity and the earlier estimate
of market prices derived from the Public Utility Commission of Texas (PUCT)
model. It has been established as a regulatory asset that is recoverable through
the 2004 true-up process established by deregulation laws in Texas. In 2002,
these non-cash earnings were not recorded until the fourth quarter.
The period-to-period decrease in Texas supply margin primarily reflects
the loss of contributions from two Texas retail electricity providers sold to
Centrica in December 2002. The demand from the two retail electricity
providers was replaced, in part, with a power supply contract with Centrica
that extends through 2004. Texas supply margin was also decreased by an
outage at a Texas nuclear plant, South Texas Project Unit 1, which reduced the
amount of electricity available for sale by AEP. STP Unit 1 returned to
service on Aug. 12 following a 19-week outage to repair a leaking valve. AEP
owns 25 percent of the plant.
Gross margin from FERC municipal and co-op customers was down from the
prior period mostly because of FERC contracts being renegotiated at
market-based rates.
AEP nearly doubled the gross margin from system sales when compared with
the prior period. "The strong performance was driven by the combination of
available low-cost generation to be sold to the wholesale market resulting
from the weather-related reduction in retail demand, our successful
optimization efforts, and higher on-peak power prices," Draper said.
The company's ongoing efforts to reduce operations and maintenance
expenses continue to be successful. AEP reduced O&M expenditures from period
to period despite incurring $13 million in third-quarter costs for repairing
damage from severe summer storms, a $10 million increase from the same period
last year. For the year to date, AEP has spent $31 million to repair storm
damage, compared to $11 million in 2002.
ONGOING RESULTS FROM INVESTMENTS
($ in millions except per share data; EPS based on 339mm shares in 2002,
395mm shares in 2003)
Q3 2002 Q3 2003 Variance
AEP Energy Services,
includes Gas HoldCo (HPL & LIG) 5 (20) (25)
MEMCO 2 3 1
AEP Coal 1 1 0
UK Generation, includes European and
Nordic Trading net earnings (5) (51) (46)
Independent Power Plants and Wind Farms 0 4 4
AEP Resources - Other (7) (4) 3
SEEBOARD (sale closed 7/29/2002) 0 0 0
CitiPower (sale closed 8/30/2002) 1 0 (1)
AEP Communications (7) (3) 4
CSW International (6) 0 6
Other (3) (1) 2
Ongoing Total Investments (19) (71) (52)
Ongoing Earnings Per Share (0.06) (0.18) (0.12)
The significant period-to-period decline in income from AEP Energy
Services is attributable to lower margins associated with the scaling back of
gas optimization and marketing activities. AEP announced in October 2002 that
it was reducing its exposure to speculative energy trading markets and
downsizing its trading and wholesale marketing operation. "Lower staffing and
interest costs have helped offset a portion of the thinner margins," Draper
said.
The loss in UK generation is attributable to a timing difference
associated with the accounting in the fuel procurement operations of physical
freight contracts requiring accrual treatment versus freight hedging contracts
requiring mark-to-market treatment, reduced trading activity from reduced risk
appetite, and increased operating cost largely associated with the exit of
non-core markets.
"Our fuel procurement strategy for Fiddler's Ferry and Ferrybridge, our
two plants in the UK, is tied to the limitations on the amount of sulfur they
can emit," Draper said. "In order to maximize generation hours within these
emissions limits, we obtain low-sulfur coal from international sources that
require transportation by ship. So there is a coal component and a freight
component to our procurement work."
"The third quarter has witnessed an unprecedented increase in freight
costs driven by a worldwide shortage of vessels," Draper said. "Freight costs
have more than doubled."
"While physical contracts are accounted for on an accrual basis, freight
hedges are marked to market," Draper said. "So, when prices go up, as they
did in the third quarter, the accounting related to a hedged position reflects
a loss in the present period that is offset by corresponding gains due to
settlements occurring over time. Conversely, if prices drop, the gains occur
immediately and there is a corresponding reduction in the accruals over time.
The dramatic run-up in freight prices has amplified the effect of the timing
differences associated with freight hedges and was a major contributor to the
weaker earnings this quarter.
"What is important to know is that the company is well hedged in its
freight exposure and will show corresponding gains due to settlements
occurring over time, predominantly during 2004," Draper said.
American Electric Power owns and operates more than 42,000 megawatts of
generating capacity in the United States and select international markets and
is the largest electricity generator in the U.S. AEP is also one of the
largest electric utilities in the United States, with almost 5 million
customers linked to AEP's 11-state electricity transmission and distribution
grid. The company is based in Columbus, Ohio.
American Electric Power's quarterly earnings conference call with
financial analysts will be broadcast live over the Internet at 9:30 a.m. EDT
today. Audio will be available at
http://www.firstcallevents.com/service/ajwz390047094gf12.html or
http://www.aep.com/go/webcasts.
The call will be archived on http://www.aep.com for use by those unable to
listen during the live webcast.
Minimum requirements to listen to broadcast: The Windows Media Player
software, free from
http://www.microsoft.com/windows/windowsmedia/EN/default.asp, and at least a
28.8Kbps connection to the Internet. If you experience problems listening to
the broadcast, send an e-mail to webcastsupport@tfprn.com.
The comments set forth above include forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934. Although AEP
and its registrant subsidiaries believe that their expectations are based on
reasonable assumptions, any such statements may be influenced by factors that
could cause actual outcomes and results to be materially different from those
projected. Among the factors that could cause actual results to differ
materially from those in the forward-looking statements are: electric load
and customer growth; abnormal weather conditions; available sources and costs
of fuels; availability of generating capacity; the speed and degree to which
competition is introduced to the company's service territories; the ability to
recover stranded costs in connection with deregulation; new legislation and
government regulation including requirements for reduced emissions of sulfur,
nitrogen, carbon and other substances; pending as future rate cases and
negotiations; oversight and/or investigation of the energy sector or its
participants; the company's ability to successfully control costs; the success
of acquiring new business ventures and disposing of existing investments that
no longer match the company's corporate profile; international and country-
specific developments affecting foreign investments including the disposition
of any current foreign investments and potential additional foreign
investments; the economic climate and growth in the company's service
territory and changes in market demand and demographic patterns; inflationary
trends; accounting pronouncements periodically issued by accounting standard-
setting bodies; the performance of AEP's pension plan; electricity and gas
market prices; interest rates; liquidity in the banking, capital and wholesale
power markets; actions of rating agencies; changes in technology, including
the increased use of distributed generation within the company's transmission
and distribution service territory; and other risks and unforeseen events,
including wars, the effects of terrorism, embargoes and other catastrophic
events.
American Electric Power
Financial Results for 3rd Quarter 2003 Actual vs 3rd Quarter 2002 Actual
2002 Actual 2003 Actual
($millions) EPS ($millions) EPS
UTILITY OPERATIONS:
Gross Margin:
1 Retail Margin - Regulated
Integrated Utilities 831 760
2 Ohio Cos. 549 534
3 Texas Wires 158 177
4 Texas Supply / REP 181 92
5 FERC Municipal and Co-op
Customers 74 52
6 System Sales 81 157
7 Other Wholesale Transactions -- 1
8 Transmission Revenue - 3rd Party 122 121
9 Other Operating Revenue 84 92
10 Total Gross Margin 2,080 1,986
11 Operations & Maintenance (733) (718)
12 Depreciation & Amortization (327) (316)
13 Taxes Other than FIT (229) (198)
14 Capital Cost and Other (147) (165)
15 Federal Income Taxes (212) (195)
16 Net Earnings Utility
Operations 432 1.28 394 1.00
INVESTMENTS:
17 AEPES, inclds Gas HoldCo
(HPL & LIG) 5 (20)
18 MEMCO 2 3
19 AEP Coal 1 1
20 UK Generation, inclds European
and Nordic Trading net earnings (5) (51)
21 IPPs and Wind Farms -- 4
22 AEP Resources - Other (7) (4)
23 SEEBOARD (Sale closed 7/29/2002) -- --
24 CitiPower (Sale closed 8/30/2002) 1 --
25 AEP Communications (7) (3)
26 CSW International (6) --
27 Other (3) (1)
28 Total Investments (19) (0.06) (71) (0.18)
29 Parent Company (4) (0.01) (21) (0.06)
30 ON-GOING EARNINGS 409 1.21 302 0.76
Note: For analysis purposes, certain financial statement amounts have been
reclassified for this effect on earnings presentation.
American Electric Power
Financial Results for 3rd Quarter 2003 Actual vs 3rd Qtr 2002 Actual
2002 Actual 2003 Actual
($millions) EPS ($millions) EPS
On-going Earnings 408.9 1.21 301.8 0.76
Special Items:
IPP Impairment (45.5) (0.11)
Adjustment to SEEBOARD Impairment 46.0 0.13
Adjustment to CitiPower Impairment (8.0) (0.03)
Asset Impairment - Texas Plants (22.2) (0.06)
Total Special Items 15.8 0.04 (45.5) (0.11)
Reported Earnings 424.7 1.25 256.3 0.65
American Electric Power
Summary of Selected Sales Data
For Domestic Operations
(Data based on preliminary, unaudited results)
3 Months Ended September 30,
2002** 2003** Change
ENERGY SUMMARY
Retail - Domestic Electric (in
millions of kWh):
Residential 13,405 12,606 -6.0%
Commercial 10,118 10,341 2.2%
Industrial 13,154 12,932 -1.7%
Miscellaneous 891 829 -7.0%
Total Domestic Retail 37,568 36,708 -2.3%
Wholesale - Domestic Electric (in
millions of kWh): 20,938 22,093 5.5%
EAST REGION WEATHER SUMMARY (in
degree days):
Actual - Heating 22 78 254.5%
- Cooling 916 618 -32.5%
Normal - Heating 80 -2.5% *
- Cooling 708 -12.7% *
WEST REGION WEATHER SUMMARY (in
degree days):
Actual - Heating 0 0 0.0%
- Cooling 1,438 1,386 -3.6%
Normal - Heating 0 0.0% *
- Cooling 1,398 -0.9% *
* 2003 Actual vs. Normal
** Excludes energy transported on behalf of non-affiliated REP's in Texas;
energy sold to affiliated REP's in Texas are included in wholesale
sales.
American Electric Power
Financial Results for September 2003 YTD Actual
vs September 2002 YTD Actual
2002 Actual 2003 Actual
($millions) EPS ($millions) EPS
UTILITY OPERATIONS:
Gross Margin:
1 Retail Margin - Regulated
Integrated Utilities 2,185 2,053
2 Ohio Cos. 1,472 1,461
3 Texas Wires 372 509
4 Texas Supply / REP 438 265
5 FERC Municipal and Co-op
Customers 191 181
6 System Sales 224 401
7 Other Wholesale Transactions 64 (4)
8 Transmission Revenue - 3rd Party 318 350
9 Other Operating Revenue 232 261
10 Total Gross Margin 5,496 5,477
11 Operations & Maintenance (2,161) (2,122)
12 Depreciation & Amortization (950) (922)
13 Taxes Other than FIT (599) (562)
14 Capital Cost and Other (434) (485)
15 Federal Income Taxes (456) (458)
16 Net Earnings Utility
Operations 896 2.72 928 2.43
INVESTMENTS:
17 AEPES, inclds Gas HoldCo (HPL & LIG)(75) (59)
18 MEMCO 6 4
19 AEP Coal (3) (2)
20 UK Generation, inclds European
and Nordic Trading net earnings 6 (88)
21 IPPs and Wind Farms (5) (6)
22 AEP Resources - Other (37) (22)
23 SEEBOARD (Sale closed 7/29/2002) 58 --
24 CitiPower (Sale closed 8/30/2002) (10) --
25 AEP Communications (26) (7)
26 CSW International (9) (4)
27 Other (1) (10)
28 Total Investments (96) (0.29) (194) (0.51)
29 Parent Company (20) (0.06) (39) (0.10)
30 ON-GOING EARNINGS 780 2.37 695 1.82
Note: For analysis purposes, certain financial statement amounts have been
reclassified for this effect on earnings presentation.
American Electric Power
Financial Results for September 2003 YTD Actual
vs September 2002 YTD Actual
2002 Actual 2003 Actual
($millions) EPS ($millions) EPS
On-going Earnings 779.9 2.37 694.9 1.82
Special Items:
SFAS 143 Asset Retirement Obligation 241.8 0.63
Net Proceeds from Sale of Mutual
Energy (back office operations) 25.6 0.07
Adjustment to South Coast Impairment 6.0 0.02
Adjustment to sale of water
heater rental program (2.5) (0.01)
Cessation of EITF 98-10 re: MTM accounting (49.0) (0.13)
Gain on Disposition of Nordic 0.4 --
IPP Impairment (45.5) (0.12)
SFAS 142 Goodwill Transition
Impairment - SEEBOARD (323.0) (0.98)
SFAS 142 Goodwill Transition
Impairment - CitiPower (27.3) (0.08)
SFAS 142 Goodwill Impairment -
AEP Gas Power GP, LLC (8.0) (0.02)
Impairment of Investment -
SEEBOARD 24.0 0.07
Impairment of Investment -
CitiPower (105.7) (0.32)
Asset Impairment - Texas Plants (22.2) (0.07)
Total Special Items (462.2) (1.40) 176.8 0.46
Reported Earnings 317.7 0.97 871.7 2.28
American Electric Power
Summary of Selected Sales Data
For Domestic Operations
(Data based on preliminary, unaudited results)
9 Months Ended September 30,
2002** 2003** Change
ENERGY SUMMARY
Retail - Domestic Electric (in
millions of kWh):
Residential 35,781 34,813 -2.7%
Commercial 27,797 28,082 1.0%
Industrial 40,287 38,620 -4.1%
Miscellaneous 2,059 2,258 9.7%
Total Domestic Retail 105,924 103,773 -2.0%
Wholesale - Domestic Electric (in
millions of kWh): 53,393 56,385 5.6%
EAST REGION WEATHER SUMMARY (in
degree days):
Actual - Heating 2,910 3,444 18.4%
- Cooling 1,269 782 -38.4%
Normal - Heating 3,298 4.4% *
- Cooling 1,002 -22.0% *
WEST REGION WEATHER SUMMARY (in
degree days):
Actual - Heating 789 839 6.3%
- Cooling 2,063 1,941 -5.9%
Normal - Heating 840 -0.1% *
- Cooling 1,919 1.1% *
* 2003 Actual vs. Normal
** Excludes energy transported on behalf of non-affiliated REP's in Texas;
energy sold to affiliated REP's in Texas are included in wholesale
sales.