Summary
American Electric Power Company, Inc. (AEP) reported a significant decline in net income for the second quarter and year-to-date ended June 30, 2002, compared to the same periods in 2001. Net income for the second quarter was $62 million ($0.19 per share), down from $232 million ($0.72 per share) in the prior year's quarter. Year-to-date, the company posted a net loss of $107 million ($0.33 per share) compared to a net income of $498 million ($1.54 per share) in 2001. The primary drivers for this decline were reduced margins from lower wholesale energy prices, losses in gas trading and marketing operations, and charges associated with the impairment and divestiture of foreign retail electricity and gas supply and distribution investments, notably SEEBOARD in the UK and CitiPower in Australia. The adoption of SFAS 142 also resulted in a substantial goodwill impairment loss related to these foreign operations. Investors should note the significant impact of these factors on profitability, as well as the ongoing efforts to manage costs and potentially divest underperforming assets.
Key Highlights
- 1Net income significantly declined year-over-year, with the second quarter reporting $62 million ($0.19/share) versus $232 million ($0.72/share) in Q2 2001, and year-to-date showing a net loss of $107 million ($0.33/share) compared to $498 million ($1.54/share) in 2001.
- 2Key factors contributing to the earnings decline include lower wholesale energy prices, gas trading losses, and significant charges from the impairment and divestiture of foreign investments (SEEBOARD and CitiPower).
- 3The adoption of SFAS 142 led to a $350 million goodwill impairment loss related to foreign operations, recorded as a cumulative effect of an accounting change.
- 4Electricity marketing and trading revenues decreased due to lower wholesale energy prices and reduced system sales, while gas marketing and trading revenues saw a substantial increase driven by expanded operations and higher volumes.
- 5Operating expenses increased overall, driven by maintenance and other operating costs related to gas-fired plant construction, acquisitions, and impairment charges, though partially offset by reductions in trading incentive compensation.
- 6AEP is actively managing its portfolio, with agreements in place to sell SEEBOARD and CitiPower, indicating a strategic shift or divestiture of certain foreign assets.
- 7Total revenues increased slightly year-over-year for the second quarter due to higher gas marketing and trading revenues, despite a decline in electricity marketing and trading revenues.