10-QPeriod: Q2 FY2009

AMERICAN ELECTRIC POWER CO INC Quarterly Report for Q2 Ended Jun 30, 2009

Filed August 4, 2009For Securities:AEP

Summary

This 10-Q filing for American Electric Power Co. Inc. (AEP) as of June 29, 2009, primarily details significant legal proceedings and updated risk factors. A key concern for investors is the ongoing litigation and regulatory challenges impacting revenue recovery and project approvals across various subsidiaries. Specifically, the Turk Plant's permits face potential reversal, and rate recovery approvals in Ohio, Texas, Virginia, and Oklahoma are subject to appeals, which could adversely affect net income and cash flow if not fully upheld. The filing also touches upon credit rating sensitivity, noting recent downgrades impacting AEP's subsidiaries, which could increase borrowing costs and limit access to capital. Shareholder meeting results from April and May 2009 confirm the election of directors and ratification of auditors, indicating stable governance. While no major financial performance figures are highlighted in this section, the focus on regulatory and legal risks is paramount for understanding the company's operating environment and potential future headwinds.

Financial Highlights

47 data points
Beta

Revenue

$3.20B

Net Income

$316.00M

9.9% Net Margin

EPS (Diluted)

$0.67

Total Assets

$46.34B

Cash & Equivalents

$358.00M

Free Cash Flow

$529.00M

Financial Statements
Beta
Revenue$3.20B
Operating Expenses$2.52B
Operating Income$682.00M
Interest Expense$240.00M
Net Income$316.00M
EPS (Basic)$0.67
EPS (Diluted)$0.67
Shares Outstanding (Basic)472.22M
Shares Outstanding (Diluted)472.22M

Key Highlights

  • 1Several regulatory rate recovery decisions for subsidiaries (CSPCo, OPCo, TCC, APCo, PSO) are under appeal, posing a risk to future net income and cash flow.
  • 2The construction and operation of the Turk Plant by SWEPCo are at risk due to potential reversal of permits on appeal, with a significant impact on net income and cash flow if construction cannot be completed.
  • 3AEP's credit ratings and those of its subsidiaries are under scrutiny, with recent downgrades for I&M and SWEPCo, potentially increasing borrowing costs and limiting access to capital.
  • 4Power trading business profitability is linked to investment-grade credit ratings, which could be negatively impacted by downgrades.
  • 5Shareholder meetings have confirmed the election of directors and ratified the appointment of independent auditors for the fiscal year 2009.
  • 6Limited repurchases of equity securities were made during the quarter, primarily through privately negotiated transactions by subsidiaries PSO and OPCo.

Frequently Asked Questions

The primary risks highlighted revolve around regulatory and legal challenges. These include potential reversals of rate recovery approvals in Ohio, Texas, Virginia, and Oklahoma, which could negatively impact future earnings and cash flows. Additionally, the Turk Plant project faces significant permit uncertainty due to ongoing appeals, posing a risk to its completion and operational viability.

Downgrades in credit ratings, as seen with I&M and SWEPCo, can negatively impact AEP's ability to access capital at favorable rates and terms. This could lead to increased borrowing costs, potentially harming financial condition and future net income. It also affects the company's power trading business, as counterparties often require investment-grade ratings for transactions.

Yes, the Turk Plant construction project is explicitly mentioned as being at risk. The project requires air permit approval, which is still pending and expected in 2010, and its main construction permit has been challenged and potentially reversed on appeal. Failure to complete and operate the Turk Plant could adversely impact AEP's net income, cash flow, and financial condition.

The shareholder meetings, held in April and May 2009, resulted in the election of directors for the upcoming terms and the ratification of Deloitte & Touche LLP as the independent registered public accounting firm for 2009. The voting results for directors and the auditor ratification were overwhelmingly in favor.