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AEP Posts Lower 4Q Ongoing Earnings; to Fully Fund Pension Plan

American Electric Power (AEP) last Thursday reported that ongoing earnings (excluding special items) for the fourth quarter of 2004 were $167 million, or $0.42 per share, compared with $197 million, or $0.50 per share, in the fourth quarter of 2003. Separately, the utility said that it intends to fully fund its pension plan by the end of this year.

From a Generally Accepted Accounting Principles (GAAP) perspective, AEP reported fourth quarter 2004 GAAP earnings of $177 million, or $0.45 per share, compared with a loss of $762 million, or a loss of $1.93 per share, in fourth quarter 2003.

AEP's 2004 fourth quarter GAAP earnings were higher than ongoing earnings by $10 million, primarily because of a gain resulting from the exit of United Kingdom operations, included in discontinued operations.

AEP also reported 2004 year-end earnings, prepared in accordance with GAAP, of $1.089 billion, or $2.75 per share, compared with $110 million, or $0.29 per share, for 2003. Ongoing earnings for 2004 were $924 million, or $2.33 per share, compared with $975 million, or $2.53 per share, for 2003.

AEP also established an ongoing earnings guidance range for 2005 of between $2.30 and $2.50 per share. In providing ongoing earnings guidance, there could be differences between 2005 ongoing earnings and 2005 GAAP earnings for matters such as, but not limited to, divestitures or changes in accounting principles. AEP management is not able to estimate the impact, if any, on GAAP earnings of these items. Therefore, AEP is not able at this time to provide a corresponding GAAP equivalent for 2005 earnings guidance.

Meanwhile, the company said that it has made a voluntary $200 million cash contribution to its pension fund to help secure future plan benefits and reduce the company's future pension-related expenses. The company also announced plans to make quarterly contributions of approximately $100 million per quarter in 2005 with the goal of fully funding its pension liabilities by the end of 2005.

"Poor stock market performance and low interest rates have brought many pension funds in the United States to an under-funded status," said Michael Morris, AEP's chairman. "Although we are not required to make these contributions to our fund, we determined that our current cash position makes this the right time to invest in the future financial well being of our employees, retirees and their dependents. Funding the plan also will improve our balance sheet and enhance our future earnings potential by lowering pension costs and reducing our tax liabilities."

AEP funded the $200 million contribution using cash received through divestiture of non-core assets earlier in 2004. This contribution is in addition to approximately $31 million in pension plan contributions made in 2004, bringing the total 2004 pension contribution to $231 million and significantly exceeding the company's minimum contribution requirements for 2004.

The AEP retirement trust currently holds more than $3.5 billion in assets, covering pension obligations for more than 40,000 individuals.

The $200 million contribution made Dec. 29 and included in AEP's 2004 earnings allows the company to reduce the Accumulated Other Comprehensive Income (AOCI) equity charges associated with the under-funded status of the plan by $100 million after-tax. Additional planned payments of approximately $100 million per quarter in 2005 will fully fund the AEP pension plan by the end of that year and eliminate an additional $327 million after-tax of remaining AOCI equity charges.

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