AEP reports increased 2001 earnings; lowers 2002 estimates

By the OGJ Online Staff

HOUSTON, Jan. 22, 2002 -- Despite a poor 2001 fourth quarter, American Electric Power Co. Inc. reported earnings in 2001 of $970.8 million, or $3.01/share, up from $267 million, or 83¢/share for 2000. Revenue was $61.3 billion compared to $36.7 billion.

The Columbus, Ohio company lowered its projections for 2002 earnings to $3.60- $3.75/share from $3.70-$3.80/share because of the recession and dilution from new equity to be issued to boost the company's capitalization.

Before extraordinary items, AEP's fourth quarter earnings per share were 35¢, down from 62¢/share in the comparable 2000 fourth quarter. AEP blamed reduced energy demand and mild weather for the lower results. The biggest drop came from wholesale earnings that contributed 16¢/share, down from 50¢/share for the comparable quarter last year.

For the year, the wholesale group contributed $2.40/share, up from $1.93/share in 2000. The company attributed the increase to the restart of the Cook nuclear plant. AEP said that growth in 2002 will come from development of wholesale products in other areas such as a planned move into global coal markets and Nordic energy, plus earnings from an entire year of operation of the Houston Pipe Line purchased from Enron Corp. in 2001.

AEP took a 2¢/share charge resulting from Enron's Chapter 11 bankruptcy protection filing and a one time charge of 8¢/share related to indemnities and purchase price obligations for Houston Pipe Line. The company said it didn't expect any other long-term negative impact from Enron's collapse.

"Enron's bankruptcy has increased Wall Street's scrutiny of companies with energy trading groups. For AEP Enron's bankruptcy didn't have an effect on our credit rating, our access to financing, or our stability," said CEO Linn Draper.

In mid-day trading Tuesday, AEP's share price fell to $42.49 from a close of $43 Monday.

AEP executives reminded the financial community in a conference call of plans to issue $1 billion of securities in 2002. The "mix" of equity and convertible securities hasn't been determined yet, executives said.

The company's balance sheet is leveraged with only 37% equity, 14% short-term debt, and 49% long-term debt. The goal for 2002 is to reduce the short-term debt to less than 10% and increase equity to 40-45%, Draper said.

"We have had some conversations with the ratings agencies," he said. "They are looking at the need to shore up equity more quickly." That's why common shares will be issued during the course of the year and the earnings guidance was adjusted, Draper said. "Market prices are lower so we need to be more conservative," he said.

Analysts quizzed AEP officials about capital requirements for the trading organization. They wanted to know if more collateral was being required or if contracts had shorter terms compared to trades and transactions completed before the Enron collapse.

Executives said no changes in capital requirements have occurred for the trading business. They said increasing the equity of the company was more in response to "conversations" with the ratings agencies.

Analysts also asked how much of AEP's 2001 earnings came from noncash mark-to-market gains. Mark-to-market is an accounting technique that estimates and records the value of long-term contracts using current market prices. AEP executives said they didn't have that number but would provide it by the end of the week.

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