UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM U-3A2
December 31, 2003
Statement by Holding Company Claiming Exemption under Rule U-3a-2 from the
provisions of the Public Utility Holding Company Act of 1935
ALASKA POWER & TELEPHONE COMPANY
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(Name of Company)
hereby files with the Securities Exchange Commission, pursuant to Rule 2, its
statement claiming exemption as a holding company from the provisions of the
Public Utility Holding Company Act of 1935, and submits the following
information:
1. Name, State of organization, location and nature of business of claimant
and every subsidiary thereof, other than any exempt wholesale generator
(EWG) or foreign utility company in which claimant directly or indirectly
holds an interest.
2. A brief description of the properties of claimant and each of its
subsidiary public utility companies used for the generation,
transmission, and distribution of electric energy for sale, or for the
production, transmission and distribution of natural or manufactured gas,
indicating the location of principal generating plants, transmission
lines, producing fields, gas manufacturing plants, and electric and gas
distribution facilities, including all such properties which are outside
the State in which claimant and its subsidiaries are organized and all
transmission or pipelines which deliver or receive electric energy or gas
at the borders of such State.
3. The following information for the last calendar year with respect to
claimant and each of its subsidiary public utility companies:
(a) Number of kWh. Of electric energy sold (at retail or wholesale) and
Mcf. Of natural or manufactured gas distributed at retail.
(b) Number of kWh. of electric energy and Mfc. Of natural or manufactured
gas distributed at retail outside the State in which each company is
organized.
(c) Number of kWh. Of electric energy and MCF. OF NATURAL OR MANUFACTURED
AS SOLD AT WHOLESALE OUTSIDE THE State in which each such company is
organized, or at the State line.
(d) Number of kWh. Of electric energy and Mcf. Of natural or manufactured
gas purchased outside the State in which each such company is
organized or at the State line.
4. The following information for the reporting period with respect to
claimant and each interest it holds directly or indirectly in an EWG or a
foreign utility company, stating monetary amounts in United States
dollars:
(a) Name, location, business address and description of the facilities
used by the EWG or foreign utility company for the generation,
transmission and distribution of electric energy for sale or for the
distribution at retail of natural or manufactured gas.
(b) Name of each system company that holds an interest in such EWG or
foreign utility company; and description of the interest held.
(c) Type and amount of capital invested, directly or indirectly, by the
holding company claiming exemption; any direct or indirect guarantee
of the security of the EWG or foreign utility company by the holding
company claiming exemption; and any debt or other financial
obligation for which there is recourse, directly or indirectly, to
the holding company claiming exemption or another system company,
other than the EWG or foreign utility company.
Potential persons who are to respond to the collection of information contained
in this form are not required to respond unless the form displays a currently
valid OMB control number. SEC 1834 (2-97)
(d) Capitalization and earnings of the EWG or foreign utility company
during the reporting period.
(e) Identify any service, sales or construction contract(s) between
the EWG or foreign utility company and a system company, and describe
the services to be rendered or goods sold and fees or revenues under
such agreement(s).
EXHIBIT A
ALASKA POWER & TELEPHONE COMPANY
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Name of claimant
By Russell A. Smith
------------------
(title) VP/CFO
--------------
CORPORATE SEAL
Attest: ROBERT S. GRIMM, PRESIDENT
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Name, title, and address of officer to whom notices and correspondence
concerning this statement should be addressed:
ALASKA POWER & TELEPHONE COMPANY RUSSELL A. SMITH, VP/CFO
-------------------------------- --------------------------------
(Name) (Title)
P.O. BOX 3222, PORT TOWNSEND, WASHINGTON 98368
EXHIBIT B
ALASKA POWER & TELEPHONE COMPANY
AND SUBSIDIARIES
INDEPENDENT AUDITOR'S REPORT
AND
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
TABLE OF CONTENTS
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INDEPENDENT AUDITOR'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheet 2-3
Consolidated statement of operations 4-5
Consolidated statement of stockholders' equity 6
Consolidated statement of cash flows 7-8
Notes to the consolidated financial statements 9-25
MOSS-ADAMS LLP [LOGO]
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CERTIFIED PUBLIC ACCOUNTANTS 601 WEST RIVERSIDE, SUITE 1800
SPOKANE, WA 99201-0663
PHONE 509.747.2600
TOLL FREE 1.800.888.4065
FAX 509.624.5129
www.mossadams.com
REPORT OF INDEPENDENT AUDITORS
The Board of Directors Alaska Power & Telephone Company
We have audited the accompanying consolidated balance sheets of Alaska Power &
Telephone Company and its subsidiaries as of December 31, 2003 and 2002, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Alaska Power &
Telephone Company and its subsidiaries at December 31, 2003 and 2002, and the
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ MOSS ADAMS LLP
Spokane, Washington
March 26, 2004
A member of
Moores Rowland International Offices in
an association of idependent Principal Cities of
accounting firms throuhgout Washington, Oregon
the world and California
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
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ASSETS
DECEMBER 31,
--------------------------------
2003 2002
--------------------------------
PROPERTY, PLANT, AND EQUIPMENT
Electric $ 77,961,432 $ 77,348,649
Telecommunications 39,160,838 38,211,574
Non-utility 399,544 1,444,872
--------------- ---------------
117,521,814 117,005,095
Less accumulated depreciation 43,918,810 38,801,746
--------------- ---------------
73,603,004 78,203,349
Utility plant under construction 1,384,041 1,173,185
--------------- ---------------
Total plant, property, and equipment 74,987,045 79,376,534
--------------- ---------------
OTHER ASSETS
Preliminary survey and investigation costs 821,838 640,299
Investments 6,967,520 5,519,202
Goodwill 9,266,403 9,266,403
Rate stabilization asset 2,437,300 1,666,127
Special funds, restricted 6,610,774 6,545,587
Other assets 3,377,681 3,801,324
--------------- ---------------
Total other assets 29,481,516 27,438,942
--------------- ---------------
CURRENT ASSETS
Cash 4,882,706 1,063,893
Receivables, less allowance for doubtful accounts
of $261,704 in 2003 and $22,503 in 2002 3,850,206 5,073,328
Inventory and other current assets 1,299,308 1,520,048
Deferred tax assets 138,606 116,006
Income taxes recoverable 924,562 521,727
--------------- ---------------
Total current assets 11,095,388 8,295,002
--------------- ---------------
$ 115,563,949 $ 115,110,478
--------------- ---------------
2
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
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LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31,
--------------------------------
2003 2002
--------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value, 2,000,000 shares authorized
1,236,915 and 1,222,965 shares issued and outstanding
in 2003 and 2002, respectively $ 1,236,915 $ 1,222,965
Additional paid-in capital 6,410,083 6,416,593
Retained earnings 6,852,045 5,519,872
--------------- ---------------
Total stockholders' equity 14,449,043 13,159,430
--------------- ---------------
LONG-TERM DEBT, less current portion
Goat Lake Hydro, Inc. note payable 20,657,663 21,026,819
Other term debt 70,338,282 55,056,637
Liabilities subject to compromise - 16,637,634
--------------- ---------------
Total long-term debt 90,995,945 92,721,090
--------------- ---------------
OTHER LIABILITIES AND DEFERRED CREDITS
Deferred income taxes 3,970,185 2,318,010
Other deferred credits 285,625 346,098
--------------- ---------------
Total other liabilities and deferred credits 4,255,810 2,664,108
--------------- ---------------
CURRENT LIABILITIES
Accounts payable and other accrued liabilities 2,115,608 1,955,707
Current portion of long-term debt 3,697,543 4,610,143
--------------- ---------------
Total current liabilities 5,813,151 6,565,850
--------------- ---------------
$ 115,563,949 $ 115,110,478
=============== ===============
See accompanying notes. 3
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
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DECEMBER 31,
--------------------------------
2003 2002
--------------------------------
REVENUE
Electric $ 13,969,199 $ 12,822,645
Telecommunications 14,653,312 14,012,584
Nonregulated telecommunications 1,555,598 1,570,350
--------------- ---------------
30,178,109 28,405,579
--------------- ---------------
EXPENSES
Electric 5,505,445 6,230,757
Telecommunications 8,716,509 10,132,113
Nonregulated telecommunications 1,399,507 1,391,902
--------------- ---------------
Operations and maintenance expense 15,621,461 17,754,772
Depreciation and amortization expense 5,710,159 5,287,225
--------------- ---------------
21,331,620 23,041,997
--------------- ---------------
Income from telecommunications and electric operations 8,846,489 5,363,582
--------------- ---------------
OTHER INCOME (EXPENSE)
Equity in earnings of investments 441,542 481,317
Costs related to Hydro West International investments (335,041) (363,092)
Loss from sale of assets (548,101) (26,081)
Loss from impaired assets (484,500) (1,997,975)
Miscellaneous 89,951 4,315
--------------- ---------------
Total other expense (836,149) (1,901,516)
--------------- ---------------
Interest income 321,970 278,501
Interest expense (4,023,097) (4,516,242)
--------------- ---------------
Net interest expense (3,701,127) (4,237,741)
--------------- ---------------
4
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
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DECEMBER 31,
--------------------------------
2003 2002
--------------------------------
Income (loss) from continuing operations $ 4,309,213 $ (775,675)
--------------- ---------------
Losses related to Summit Alaska - (26,970,411)
Other reorganization expense (1,818,822) (557,587)
Gain from extinguishment of debt - 15,651,973
--------------- ---------------
(1,818,822) (11,876,025)
--------------- ---------------
Income (loss) before tax and discontinued operations 2,490,391 (12,651,700)
Benefit from (provision for) income taxes (1,158,218) 4,981,728
--------------- ---------------
Income (loss) before discontinued operations 1,332,173 (7,669,972)
Loss from discontinued operations net of income tax - (1,339,157)
--------------- ---------------
NET INCOME (LOSS) $ 1,332,173 $ (9,009,129)
--------------- ---------------
Basic and diluted earnings (loss) per share
Before discontinued operations $ 1.08 $ (6.23)
From discontinued operations - (1.09)
--------------- ---------------
$ 1.08 $ (7.32)
--------------- ---------------
See accompanying notes. 5
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
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Additional
Common Paid-In Retained
Stock Capital Earnings Total
---------------- ---------------- ---------------- ----------------
Balance at December 31, 2001 $ 1,239,717 $ 6,869,345 $ 14,754,559 $ 22,863,621
Net loss - - (9,009,129) (9,009,129)
Cash dividends declared - - (225,558) (225,558)
Repurchase of common stock from
ESOP, net (127) (39,412) - (39,539)
Repurchase of common stock (16,625) (413,340) - (429,965)
---------------- ---------------- ---------------- ----------------
Balance at December 31, 2002 1,222,965 6,416,593 5,519,872 13,159,430
Net income - - 1,332,173 1,332,173
Sale of common stock to ESOP 10,857 32,575 - 43,432
Repurchase of common stock from
ESOP (2,292) (33,700) - (35,992)
Other 5,385 (5,385) - -
---------------- ---------------- ---------------- ----------------
Balance at December 31, 2003 $ 1,236,915 $ 6,410,083 $ 6,852,045 $ 14,499,043
================ ================ ================ ================
6 See accompanying notes.
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
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Year Ended December 31,
---------------------------------------
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,332,173 $ (9,009,129)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 5,710,159 5,287,225
Depreciation and amortization, allocated (5,226) 390,031
Provision for restructuring charges - 17,117,342
Forgiveness of debt due to reorganization - (15,651,973)
Loss from sale and disposal of investments - 8,460,976
Loss from sale of assets 548,101 26,081
Loss on impairment of assets 484,500 1,997,975
Equity in earnings of investments (441,542) (481,317)
Deferred income tax provision 1,629,575 (5,855,431)
Accretion of rate stabilization asset (771,173) (450,239)
Changes in assets and liabilities:
Receivables 476,499 (96,072)
Income taxes recoverable (402,835) 256,518
Other assets and liabilities 101,285 967,063
------------------ ------------------
Net cash provided by operating activities 8,661,516 2,959,050
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property, plant, and equipment, net (1,727,549) (5,361,318)
Change in other assets 526,580 (848,407)
Change in preliminary survey and investigation costs (691,692) 1,224,845
------------------ ------------------
Net cash used by investing activities (1,892,661) (4,984,880)
------------------ ------------------
7
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
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Year Ended December 31,
---------------------------------------
2003 2002
---------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt $ 223,245 $ 7,480,636
Payments on long-term debt (3,115,539) (4,029,293)
Proceeds from special funds, restricted (65,188) (68,356)
Payment of cash dividends - (225,558)
Proceeds from sale of common stock 43,432 -
Repurchase of common stock (35,992) (469,504)
------------------ ------------------
Net cash provided (used) by financing activities (2,950,042) 2,687,925
------------------ ------------------
NET CHANGE IN CASH 3,818,813 662,095
Cash, beginning of the year 1,063,893 401,798
------------------ ------------------
Cash, end of the year $ 4,882,706 $ 1,063,893
================== ==================
NONCASH INVESTING ACTIVITIES
Acquisition of equipment with capital lease $ 140,134 $ -
================== ==================
Transfer of receivables and preliminary survey costs of HWI
to investments $ 1,256,776 $ -
================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for interest expenses $ 4,208,091 $ 4,881,814
================== ==================
8 See accompanying notes.
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Alaska Power & Telephone Company and subsidiaries (AP&T) supplies electric and
telephone service to several communities in the state of Alaska. AP&T is subject
to regulation by the Regulatory Commission of Alaska (RCA), the Federal
Communications Commission, and the Federal Energy Regulatory Commission (the
Commissions) with respect to rates for service and maintenance of its accounting
records. AP&T's accounting policies conform to generally accepted accounting
principles as applied to regulated public utilities and are in accordance with
the accounting requirements and rate-making practices of the Commissions.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of AP&T
and its wholly owned energy subsidiaries, Alaska Power Company, BBL Hydro, Inc.,
and Goat Lake Hydro, Inc.; its wholly owned telecommunications subsidiaries,
Alaska Telephone Company, AP&T Long Distance, Inc., AP&T Wireless, Inc., Bettles
Telephone, Inc. and North Country Telephone, Inc.; and its wholly owned
subsidiary HydroWest International, a Cayman Island Limited Company. All
material intercompany balances have been eliminated in consolidation.
CASH EQUIVALENTS
All highly liquid investments with original maturities of 90 days or less are
carried at cost plus accrued interest, which approximates fair value, and are
considered to be cash equivalents. All other investments not considered to be
cash equivalents are separately categorized as investments.
CONCENTRATION OF CREDIT RISK
At various times throughout the year, the cash balances deposited in local
institutions exceed federally insured limits. A possible loss exists for those
amounts in excess of $100,000. AP&T minimizes this risk by utilizing numerous
financial institutions for deposits of cash funds.
VALUATION OF ACCOUNTS RECEIVABLE
Accounts receivable are stated at the amount management expects to collect on
outstanding balances. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation allowance based on its
assessment of the current status of individual accounts. Balances that are still
outstanding after management has used reasonable collection efforts are written
off through a charge to the valuation allowance and a credit to accounts
receivable.
9
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT, EQUIPMENT, AND DEPRECIATION
The cost of additions to and replacements of plant and equipment are
capitalized. Cost includes direct material, labor, and similar items and charges
for such indirect costs as engineering, supervision, payroll taxes, and pension
benefits. AP&T capitalizes, as an additional cost of electric utility plant, an
allowance for funds used during construction (AFUDC), which represents the
allowed cost of capital used to finance a portion of construction work in
progress for projects of more than one year in duration. AFUDC consists of debt
and equity components that, when capitalized, are credited as noncash items to
other income and interest charges. Capitalized AFUDC was $50,430 and $63,287 for
2003 and 2002, respectively. The cost of current repairs and maintenance is
charged to expense, while the cost of betterment is capitalized. The original
cost of property and plant together with removal cost, less salvage, is charged
to accumulated depreciation at such times as assets are retired and removed from
service. For financial statement purposes, depreciation is computed on the
straight-line method using rates based on average service lives. For income tax
purposes, AP&T computes depreciation using accelerated methods where permitted.
GOODWILL
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. Under the new
rules, goodwill is no longer amortized but is subject to annual impairment tests
in accordance with the Statement. At December 31, 2003 and 2002, respectively,
the Company had no other intangible assets.
In 1999, the Company purchased certain properties of GTE Alaska. The excess of
the purchase price over the assets acquired has been recorded as goodwill. Prior
to adopting SFAS No. 142, the goodwill was amortized to expense on a
straight-line basis over 40 years. In accordance with SFAS No. 142, goodwill was
tested for impairment by comparing the fair value of the reporting unit to the
carrying value. The fair value of AP&T's goodwill exceeded its carrying value
and no impairment loss was recorded.
PRELIMINARY SURVEY AND INVESTIGATION COSTS
AP&T defers costs incurred for the preliminary survey and investigation of
proposed construction projects in accordance with the rules of the Commissions.
These deferred costs are capitalized into utility plant when the preliminary
survey and investigation projects are completed or are charged to expense in the
period that a proposed project is abandoned. These projects are in various
stages of licensing and development. During 2002, management's evaluation of
these projects resulted in an amount of $268,265 being charged to expense and
believes that as of December 31, 2003, no further impairment exists.
FUEL, SUPPLIES, AND OTHER INVENTORY
are valued at the lower of cost or market on a first-in, first-out basis. The
supplies and other inventory are primarily held for use in construction projects
including repairs and maintenance of the Company's delivery systems.
10
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CUSTOMER ADVANCES FOR CONSTRUCTION
Customer advances for construction of additions to the electric distribution
systems are deferred and amortized through discounted service billings to the
customer over a 60-month period. At the end of the amortization period, any
remaining balance is recorded as a reduction of the respective utility plant
accounts. Deferred customer advances for construction were $285,625 and $244,177
at December 31, 2003 and 2002, respectively.
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and deferred tax liabilities
are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
basis. Deferred tax assets relate primarily to net operating loss carry-forwards
and asset impairment deductions on the books. Deferred tax liabilities relate
primarily to survey and investigation costs and depreciation expense. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax will not be realized. Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the date of enactment.
STOCK-BASED COMPENSATION
The Company adopted the disclosure-only provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, and applied Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for its employee stock
option plans. Accordingly, the Company's stock-based compensation expense is
recognized based on the intrinsic value of the option on the date of grant. The
employee stock option plan expired in 2001. Disclosure in accordance with
Statement No. 123 is provided in Note 11.
EARNINGS PER SHARE
The Company has calculated its basic earnings per share data according to the
method prescribed in Financial Accounting Standards Board SFAS Statement No.
128, Earnings Per Share. Under this Statement, basic earnings per share are
based on the weighted-average number of shares of common stock outstanding,
excluding any potential dilution that could occur if any outstanding options
were exercised. Diluted earnings per share reflect the impact of the dilution
caused by outstanding stock options using the treasury stock method. There was
no dilutive effect of the outstanding stock options in 2003 and 2002.
Weighted-average shares outstanding for purposes of calculating basic and
diluted earnings per share were 1,229,940 in 2003 and 1,231,341 in 2002.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates include depreciation,
interstate access revenue settlements, and deferred income taxes. Actual results
could differ from those estimates.
11
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The financial statements of Hydro West de Guatemala are prepared in quetzales
and consolidated into the financial statements of Hydro West International.
Income statement amounts are translated at average exchange rates for the year
and assets and liabilities are translated at year-end exchange rates.
Translation adjustments are not material for inclusion as a component of
stockholder's equity.
RECLASSIFICATIONS
Certain accounts have been classified differently than as originally reported on
the 2002 financial statements. These reclassifications made to conform to 2003
classifications have no effect on previously reported net loss or equity.
NOTE 2 - PROCEEDINGS UNDER CHAPTER 11
On December 18, 2002, Alaska Power & Telephone Company filed a petition for
relief under Chapter 11 of the federal bankruptcy laws in the United States
Bankruptcy Court for the Western District of Washington in Seattle. The
wholly-owned subsidiaries of AP&T were excluded from the Chapter 11 filings.
The Chapter 11 case was commenced by AP&T primarily because of the failure of
its investment in Summit Alaska, Inc. (Summit). Summit was a diversified civil
construction contractor located in Anchorage, Alaska, and was engaged in the
manufacture of aggregate, asphalt and other gravel-based construction products.
On December 13, 2002, Summit filed a petition of liquidation under Chapter 7 of
the federal bankruptcy laws in the United States Bankruptcy Court for the
District of Alaska in Anchorage. AP&T acquired a 39% interest in Summit in
March, 2001 and accounted for its investment using the equity method. Due to
recurring operating losses, the Company advanced in excess of $10 million to
Summit and guaranteed virtually all debt obligations incurred by Summit. Total
losses to AP&T related to its investment in Summit amounted to approximately $27
million.
From December 18, 2002, until August 18, 2003, the Company operated and managed
its business as a debtor-in-possession pursuant to Sections 1107 and 1108 of the
Bankruptcy Code and concentrated its efforts on emerging from Chapter 11 as
quickly as possible. The proposed Plan of Reorganization was filed on June 9,
2003, and was confirmed and became effective on the closing date of August 18,
2003. As described below, the losses related to Summit Alaska and the gain from
extinguishment of debt, as determined by the confirmed Plan of Reorganization
were reported in 2002. Liabilities at December 31, 2002, reflected the amounts
as restructured by the bankruptcy court. Each existing holder of common stock
retained ownership equal to 100% of the shares, which they previously held, and
no additional shares were issued.
On March 31, 2004, the United States Bankruptcy Court Western District of
Washington issued an order effectively closing the Chapter 11 case.
12
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 2 - PROCEEDINGS UNDER CHAPTER 11 (CONTINUED)
While in Chapter 11 under the U.S. Bankruptcy Code, the Company applied the
provisions of SOP 90-7, Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code, which does not significantly change the application of
accounting principles generally accepted in the United States of America,
however, it does require that the financial statements for periods including and
subsequent to the Chapter 11 bankruptcy distinguish transactions and events that
are directly associated with the reorganization from those that result from
ongoing operations of the business. In accordance with SOP 90-7, the Company had
classified $32,289,607 of liabilities incurred pre-petition as liabilities
subject to compromise. Upon confirmation of the Plan of Reorganization,
liabilities subject to compromise were restated at the present values of amounts
expected to be paid pursuant to the confirmed plan. The restated amount of
liabilities subject to compromise net of a gain relating to the early
extinguishment of debt was $16,637,634 as of December 31, 2002. The following
summarizes the restated obligations resulting from the confirmed Plan of
Reorganization:
Discontinued unsecured debt $ 14,551,023
Reclassified long-term debt 1,599,514
Priority claims 487,097
Gain on extinguishment of debt 15,651,973
------------------
$ 32,289,607
==================
In accordance with SOP 90-7, the Company has segregated various reorganization
items representing amounts incurred as a result of the Chapter 11 proceedings.
The following table summarizes the reorganization charges recorded by the
Company during the years ended December 31:
2003 2002
------------------ ------------------
Summit Alaska obligations guaranteed by Alaska Power &
Telephone Co.
Unsecured nonpriority claim - National Cooperative Bank $ - $ 1,100,000
Unsecured nonpriority claim - Wells Fargo Bank - 6,707,867
Unsecured nonpriority claim - Travelers Casualty & Surety - 5,650,040
Unsecured nonpriority claim - General Electric Capital Corp - 5,125,904
Investment in Summit Alaska - 1,399,990
Receivable due from Summit Alaska - 6,986,610
------------------ ------------------
Total losses related to Summit Alaska - 26,970,411
Legal, consulting, and other reorganization expense 1,818,822 557,587
------------------ ------------------
$ 1,818,822 $ 27,527,998
------------------ ------------------
13
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3 - NEW ACCOUNTING POLICIES
Effective January 1, 2003, the Company adopted SFAS No. 143, Accounting for
Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting obligations associated with the retirement of long-lived assets. SFAS
No. 143 requires that companies recognize the fair value of a liability for
asset retirement obligations in the period in which the obligations are incurred
and capitalize that amount as part of the book value of the long-lived asset.
The Company has assessed its asset retirement obligations and concluded the
adoption of SFAS No. 143 has no material effect on its financial statements.
SFAS No. 143 also precludes companies from accruing removal costs that exceed
gross salvage in their depreciation rates and accumulated depreciation balances
if there is no legal obligation to remove the long-lived assets. The Company has
no material cost of removal amounts included in depreciation rates or
accumulated depreciation balances.
NOTE 4 - RATE STABILIZATION ASSET
The Company is subject to the provisions of SFAS No. 71, Accounting for the
Effects of Certain Types of Regulation. SFAS No. 71 allows the establishment of
regulatory assets for the allowable revenue requirement or the capitalization of
costs if those items are expected to be recovered in future rates. The Company
has a regulatory asset of $2,437,300 and $1,666,127 in 2003 and 2002,
respectively. The Company continues to meet the requirements of SFAS 71 since
the Company's rates are intended to recover the cost of service plus a rate of
return on the Company's investment, as well as providing specific recovery of
deferred items in prior periods.
NOTE 5 - OPERATING LEASE AGREEMENTS
AP&T leases a portion of its office space and a portion of its utility plant
under noncancellable leases expiring through 2011. Rent expense was $313,421 and
$487,236 for 2003 and 2002, respectively. Certain leases include renewal
provisions at AP&T's option. Minimum rental commitments under noncancellable
operating leases, excluding hydroelectric operations, are $27,242. Minimum
annual rental commitments are $3,205 in each of the next five years. Additional
cancelable lease agreements have been secured for the use of the land for
hydroelectric operations. The term of the agreements extend for the life of the
hydroelectric license of 50 years. Rent expense for hydroelectric operations was
$212,381 in 2003 and $180,845 in 2002.
14
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
2003 2002 Depreciation Rate
-------------------- ------------------- ------------------
Electric:
Hydroelectric $ 20,275,920 $ 20,270,830 2%
Other generation 14,944,681 14,696,632 4% to 8%
Transmission and distribution 30,302,880 30,188,481 2.5% to 4%
Other 11,380,612 11,093,826 2.5% to 20%
Land 773,477 773,477 ---
Utility plant acquisition adjustment 283,862 325,403 6%
-------------------- -------------------
77,961,432 77,348,649
-------------------- -------------------
Telecommunications:
General support assets 8,340,793 8,768,061 2.5% to 20%
Central office assets 12,547,158 12,223,359 8% to 14%
Cable and wire facilities 15,293,178 14,296,161 3% to 6%
Nonregulated investment 2,725,725 2,670,009 10% to 20%
Land 253,984 253,984 ---
-------------------- -------------------
39,160,838 38,211,574
-------------------- -------------------
Non-utility:
Computer equipment 31,112 - 13%
Furniture and other equipment 72,598 - 5%
Buildings 126,825 126,825 4%
Leasehold improvements 27,532 223,770 10%
Land 141,477 1,094,277 ---
-------------------- -------------------
399,544 1,444,872
-------------------- -------------------
TOTAL PROPERTY, PLANT, AND
EQUIPMENT $ 117,521,814 $ 117,005,095
-------------------- -------------------
During 2002, the Company transferred various computers and office equipment from
nonutility assets to electric and telecommunications assets.
15
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 7 - INVESTMENTS
The Company's investments consist of the following at December 31:
2003 2002
------------- -------------
Investment in CoBank $ 2,059,770 $ 1,731,874
Investment in Ketchikan Electric Company, LLC 750,000 1,000,000
Investments of Hydro West International 4,157,750 2,787,328
------------- -------------
$ 6,967,520 $ 5,519,202
------------- -------------
COBANK
CoBank is organized similar to a cooperative and is owned by the customers it
serves. As such, a portion of CoBank's earnings is returned to its customers
based on their patronage with the bank. Investment income was reported in the
amount of $327,896 and $295,248 for 2003 and 2002, respectively.
KETCHIKAN ELECTRIC COMPANY
The Company owns a 50% share of Ketchikan Electric Company LLC (KEC). The
principal purpose and business of KEC is to construct, own, operate and manage a
hydroelectric power system in the Ketchikan Gateway Borough. The investment
represents capital contributions to KEC, as the company is still in the
development stage. There was no activity in 2002 or 2003. In 2002, management
felt that changes in circumstances indicated that the carrying value of its
investment was not recoverable in full and at December 31, 2002, an impairment
loss was recorded in income from continuing operations in the amount of $670,418
and receivables due from KEC in the amount of $215,555 were written off.
Management estimated the fair value of this investment to be $1,000,000. In
2003, management has reviewed events and circumstances that could indicate
additional other than temporary impairment on its investment in KEC and
determined a fair value of $750,000 to be appropriate. An impairment loss of
$250,000 was recorded in other income. At December 31, 2003, KEC owed the
Company $468,500 as payment on a contract receivable. Ultimate collection of the
full amount of the receivable is unlikely and management has written off
$234,250 related to this contract.
HYDRO WEST INTERNATIONAL
On September 7, 2000, AP&T entered into an agreement to purchase 100% of the
members' equity in Hydro West Group LLC (HWG), a subsidiary of Puget Sound
Energy, Inc. (PSE). The total purchase price of $2.3 million was allocated to
the assets. PSE provided $1,725,000 of the financing requirement for the
purchase. The principal assets of HWG were a 100% share of HydroWest
International (HWI), a Cayman Island Limited Company, a 25% investment in the
capital stock of Inversiones Pasabien, S.A., and a 32.4% investment in the
capital stock of Hydro Honduras.
16
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 7 - INVESTMENTS (CONTINUED)
In 2001, the Company transferred the minority investments of HWG to HWI and in
2002 discontinued the operations of HWG. At December 31, 2002, a loss in the
amount of $663,008 related to HWG was recorded as discontinued operations. HWI
accounts for its investments in Inversiones Pasabien and Hydro Honduras using
the equity method. The accounts and financial results of HWI are included in the
consolidated financial statements of AP&T.
HWI's equity method investments increased by $1,370,422 during 2003. The
increase consisted of an exchange of accounts receivable and preliminary survey
costs in the amount of $1,256,776 for investment equity, plus $113,646 in
investment income. Investment earnings for 2002 were $186,069. At December 31,
2002, management determined that the fair value of its HWI investments was less
than its carrying value and recorded an impairment loss of $868,531. At December
31, 2003, management reassessed the carrying value of its HWI investments and
determined that no additional impairment exists. The investments consist of the
following:
Inversiones Pasabien S.A.: This company owns a 12.5 MW hydroelectric plant in
Guatemala, Central America.
Hydro Honduras: This company was formed to construct a 50 MW hydroelectric
project in Honduras Central America. Hydro Honduras has completed the licensing
and environmental study requirements but the project is currently inactive.
Hydro West de Guatemala (HGU): A 100% owned subsidiary providing management and
consulting services to hydroelectric facilities in Guatemala. Currently, HGU
manages the Inversiones Pasabien project. In 2003, the accounts and financial
results of HGU are included in the consolidated financial statements of HWI. In
2002, HGU was reported as an equity method investment, not a consolidated
subsidiary of HWI.
Rio Hondo Holding Co. (RHH): During 2002, HWI made an investment in 50% of the
stock RHH, a Cayman Island Limited Company, which owns 100% of S.D. Rio Hondo
Ltda., whose principal purpose is to construct the Rio Hondo II project, a 32 MW
hydroelectric plant in Guatemala, Central America. The project company has
completed the design, licensing, and environmental studies, and is in
negotiations to obtain project financing.
During 2003, HWI restructured its investment in RHH in order to obtain
additional equity participation in the Rio Hondo II project by Ghella S.p.A., an
Italian corporation. At December 31, 2003, HWI owned 100% of RHH, which owns 50%
of S.D. Rio Hondo, Ltda. S.D. (restructured to become Hidroelectrica Rio Hondo,
a Guatemalan corporation). The accounts and financial results of RHH are
included in the consolidated financial statements of HWI. RHH accounts for its
investment in Hidroelectrica Rio Hondo using the equity method.
17
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 8 - LONG-TERM DEBT
2003 2002
------------------ ------------------
Goat Lake Hydro, Inc. (GLH), note payable to secure Power
Revenue Bonds series 1997. Face amount of $23,000,000 less
the original issue discount of $252,337 in 2003 and $268,181 in
2002, and the bond sinking fund amount of $365,000 in 2003
and $345,000 in 2002, secured by the Power Sales Agreement,
a Construction Funding Agreement, and all assets of Goat Lake
Hydro, Inc. Interest rate average of 6% per year, principal due in
annual installments from 2000 through 2032. $ 21,022,663 $ 21,371,819
Note payable to CoBank, note payable, secured by all assets
of AP&T and its subsidiaries, due in monthly installments
and based on a 25-year amortization with a balloon payment
due in July 2013. Interest at 5.25%. 55,090,531 57,014,860
Note payable to PSE, secured by all assets of HydroWest,
due in interest only installments through 2005, at 5.25% fixed
interest with principle and interest payments due, starting in 2006
through December 2010. 1,718,068 1,599,514
Notes payable to state of Alaska, secured by certain electric
assets, with interest rates ranging from 0% to 5.45%,
maturing at various dates from 2008 through 2037. 2,088,349 2,195,272
Other debt, unsecured, maturing at various dates from 2004
through 2009, with interest rates ranging from 0% to 9.30%. 222,854 111,648
Unsecured Class 8 term debt - Tranche A, due in 2013,
with imputed interest of 7.25%. 13,008,850 13,008,850
Unsecured Class 8 term debt - Tranche B, due in 2013,
with imputed interest of 10%. 1,542,173 1,542,173
Unclassified administrative expense claim, noniterest-
bearing, payable in 2003, as per the plan of reorganization. - 487,097
------------------ ------------------
94,693,488 97,331,233
Less current portion (3,697,543) (4,610,143)
------------------ ------------------
$ 90,995,945 $ 92,721,090
================== ==================
18
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 8 - LONG-TERM DEBT (CONTINUED)
Annual maturities for the five years beginning January 1, 2004, are $3,697,543,
$4,084,411, $4,011,860, $4,458,952, and $4,982,256, respectively, and
$74,075,803 thereafter.
The note payable by GLH to secure the Power Revenue Bonds series 1997 is the
result of the issuance on December 31, 1997, of a series of tax-exempt bonds by
the Alaska Industrial Development and Export Authority (AIDEA). The proceeds are
restricted in use for the purpose of financing the acquisition, purchase,
construction, improvement, and equipment of the project known as the Upper Lynn
Canal Regional Power Supply System. Of these restricted funds, $2 million is
required to remain in reserve for the term of the bonds. To secure payment of
bond principal and interest, AIDEA has assigned to U.S. Bank Trust National
Association all rights and interests in the note. The note is secured by all
assets and revenues of GLH and a Power Sales Agreement (PSA) between GLH and
Alaska Power Co. (APC), both wholly-owned subsidiaries of AP&T. The Regulatory
Commission of Alaska has approved the PSA for the life of the GLH note. This
approval allows APC to charge its customers the entire annual costs as defined
in the PSA, i.e., principal and interest due on the bonds, all operating costs
(excluding depreciation), general and administrative costs, and the return on
equity permitted by the Commission. A portion of these annual costs is charged
to the rate stabilization asset (see Note 6), representing the amounts to be
collected from customers in future years. The PSA requires all GLH's production
and sales of electricity be sold to and purchased by APC for the life of the
agreement.
A single note payable to CoBank which is secured by all assets and equity of
AP&T and all of its wholly-owned subsidiaries replaced the previous eight
obligations outstanding to CoBank and was an integral component of the Plan of
Reorganization. Based on the plan, the principal balance owing to CoBank as of
August 18, 2003 (the closing date), was $55,769,128, which included accrued
interest of $299,259 and a broken funding surcharge of $1,750,000. The loan
agreement contains provisions and restrictions pertaining to, among other
things, annual cash flow, debt service coverage, equity capitalization, and
minimum cash balances.
The Plan of Reorganization outlines how payments are to be made to the Unsecured
Class 8 claimants. In 2003 and 2004, the Company owes fixed payments of
$1,065,000 and $1,285,000, respectively, to Class 8 claimants. Beginning in
2005, the Company shall make quarterly payments on the discounted Tranche A
amount from 65.7% of the "cash available for sharing" as defined in the plan,
through 2013 or until the amount is fully satisfied. The Company is not required
to make installment payments on Tranche B amounts, but is required to make
payments upon the sale, refinance or monetization of any of the "Excluded
Assets" as defined in the plan. The payments shall be made on a Pro Rata basis
to the Class 8 claimants who have an approved claim by the U.S. Bankruptcy
court.
On February 13, 2004, the Company paid $1,632,000 to Class 8 claimants. Included
in this amount was the scheduled 2003 payment to Tranche A claimants and a
$568,500 payment to Tranche B claimants resulting from the sale of certain
excluded assets. On April 8, 2004, the remaining balance of Tranche B was repaid
in full.
19
--------------------------------------------------------------------------------
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES
The components of the consolidated (benefit from) provision for income taxes are
as follows:
2003 2002
------------------ ------------------
Current $ - $ (886,842)
Deferred 1,158,218 (4,094,886)
------------------ ------------------
$ 1,158,218 $ (4,981,728)
================== ==================
A tax benefit of $873,703 is included as a component of discontinued operations
for the year ended December 31, 2002, resulting in a total tax benefit of
$5,855,431.
Total tax expense differs from that computed at the statutory federal income tax
rate due to the following:
2003 2002
-------------- ----------------
Income tax provision at federal rate of 34% $ 846,733 $ (5,053,950)
State income taxes, net of federal benefit 159,829 (814,976)
Benefit of cash dividends paid to ESOP members - (75,896)
Other 151,656 89,391
Benefit included in discontinued operations - 873,703
-------------- ----------------
PROVISION FOR INCOME TAXES $ 1,158,218 $ (4,981,728)
============== ================
The components of the deferred tax assets and liabilities as of December 31 are
as follows:
2003 2002
------------------ ------------------
Current:
Deferred tax assets $ (168,168) $ (140,225)
Deferred tax liabilities 29,562 24,219
------------------ ------------------
$ (138,606) $ (116,006)
================== ==================
Noncurrent:
Deferred tax assets $ (6,335,982) $ (7,263,277)
Deferred tax liabilities 10,306,167 9,581,287
------------------ ------------------
$ 3,970,185 $ 2,318,010
================== ==================
20
--------------------------------------------------------------------------------
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (CONTINUED)
There were no federal or state income taxes paid in 2003 and 2002. Income tax
recoverable reported as a current asset in the amount of $924,562 and $521,727
for the years ended December 31, 2003 and 2002, respectively, relate to net
operating loss carryback claims from 2002 and 2001 tax losses.
Management anticipates generating enough taxable income in future years to
utilize all of the deferred tax assets, which consist primarily of net operating
loss carryforwards, and therefore has not recorded a valuation allowance to
offset the deferred tax asset.
At December 31, 2003, the Company had unused federal net operating loss
carryforwards of approximately $7,250,000 and state net operating carryforwards
of approximately $6,200,000, which expire in 2022.
NOTE 10 - EMPLOYEE STOCK OWNERSHIP PLAN
AP&T maintains an employee stock ownership plan. All employees who have
completed one year of full-time service (1,000 hours) and have attained the age
of 21 are eligible to participate in the plan. Participants may elect to
contribute from 1% to 13.5% of their wages to the plan, which can be invested in
the common stock of AP&T or into other investment accounts. Until March 2003,
employer contributions matched the participant's contributions up to the first
3% of the participant's wages in Company stock.
Prior to reorganization, additional employer contributions were made annually at
8% of the eligible employees' gross wages. These additional employer
contributions totaled $487,097 in 2002. Employer contributions are allocated to
all plan participants as of December 31, the end of the plan year. The plan
provides that participants' interests in employer-funded contributions become
fully vested after three years of full-time employment. ESOP shares outstanding
are included in the earnings per share calculations.
As part of the Plan of Reorganization, the ESOP was modified to replace the 8%
contribution with a defined contribution of 4% (3% in 2004 and thereafter) that
will be made to each eligible participants account annually. Additionally a
matching contribution will be made at the discretion of the employer in an
amount up to 5% of participant's wages. Employer matching contributions and
defined contributions totaled $-0- and $253,955, respectively, in 2003.
NOTE 11 - STOCK OPTIONS
In 1991, AP&T established a stock option plan. The plan provided for the grant
of incentive stock options for a period of ten years. Stockholders approved a
total of 310,000 shares to be reserved for the plan from the authorized and
unissued common stock. The options vest and are exercisable five years after the
grant date and expire ten years after the grant date. In accordance with the
plan provisions, the stock option plan expired in 2001 and no options have been
granted or exercised since that time. Management believes it is unlikely that
remaining options will be exercised as they will expire before the stock price
exceeds the exercise price.
21
--------------------------------------------------------------------------------
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 11 - STOCK OPTIONS (CONTINUED)
In the event of employee termination, any unexercised options are canceled as of
the employee's termination date. Options canceled in 2003 and 2002, amounted to
44,200 and zero, respectively due to employee terminations.
The effect on net income and earnings per share of the fair value approach under
FASB Statement No. 123 is not materially different from those amounts recorded
under APB 25.
The following summarizes options outstanding at December 31:
Weighted-
Average
Remaining Weighted
Options Contractual Options Average
Range of Exercise Price Outstanding Life Exercisable Exercise Price
--------------------------- ------------- ------------- ------------- ----------------
$17.40 - $26.00 171,800 6.09 58,800 $ 23.34
============= ============= ============= ================
NOTE 12 - BUSINESS SEGMENT INFORMATION
The Company's electric segment provides retail and wholesale electric service
including both hydro electric and diesel generation facilities in rural portions
of Alaska. The Company's telecommunications segment provides local telephone
service also in rural areas of Alaska. The Company's reportable segments are
strategic business units managed separately due to their different operating and
regulatory environments. The "All other" category includes the parent company
and segments below the quantitative threshold for separate disclosure.
Regulated Regulated
(All numbers in thousands) Electric Telecom All Other Consolidated
----------- ----------- ----------- --------------
2003
Operating revenue $ 13,969 $ 14,653 $ 1,556 $ 30,178
Depreciation and amortization 2,583 2,968 159 5,710
Operating income 5,881 2,882 83 8,846
Interest expense 1,303 - 2,720 4,023
Interest income 239 - 83 322
Equity earnings in investments - - 422 422
Total fixed assets 77,961 39,161 400 117,522
Capital expenditure 1,379 1,042 55 2,476
22
--------------------------------------------------------------------------------
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 12 - BUSINESS SEGMENT INFORMATION (CONTINUED)
Regulated Regulated
(All numbers in thousands) Electric Telecom All Other Consolidated
----------- ----------- ----------- --------------
2002
Operating revenue $ 12,823 $ 14,013 $ 1,570 $ 28,406
Depreciation and amortization 2,556 2,554 177 5,287
Operating income 4,036 1,322 6 5,364
Interest expense 2,505 1,110 901 4,516
Interest income 201 - 78 279
Equity earnings in investments - - 481 481
Total fixed assets 77,348 38,212 1,445 117,005
Capital expenditure 3,940 2,280 281 6,501
NOTE 13 - DISPOSITION OF SUBSIDIARY BUSINESSES
In December 2002, Alaska Power & Telephone's Board of Directors approved a new
strategic direction that included the disposition of several businesses. These
businesses include AP&T Construction L.L.C., AP&T Solutions L.L.C., Hydro West
Group L.L.C., and Treeline Electric L.L.C. The results of operations of these
businesses are included in AP&T's consolidated statements of income Loss from
discontinued operations.
In December 2002, AP&T Construction, L.L.C. ceased all activities associated
with this "start up" business. AP&T Construction concluded its activities with
an operating loss of $293,912 for the year then ended. All assets of AP&T
Construction were absorbed by the parent company.
In December 2002, AP&T Solutions, L.L.C. ceased all activities associated with
this "start up" business. AP&T Solutions concluded its activities with an
operating loss of $106,587 for the year then ended. All assets of AP&T Solutions
were absorbed by the parent company.
In December 2002, Hydro West Group L.L.C. ceased all operations. An operating
loss of $404,308 and a loss of $258,701 from disposition of assets was recorded
for the year then ended.
In December 2002, Treeline Electric L.L.C. was sold for $50,000 resulting in a
loss on disposition of assets of $606,840. Operations of Treeline Electric for
the year then ended resulted in a loss of $542,514.
23
--------------------------------------------------------------------------------
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 13 - DISPOSITION OF SUBSIDIARY BUSINESSES (CONTINUED)
The summary of results from discontinued operations at December 31, 2002, is as
follows:
Operating revenue $ 2,718,501
Operating expenses $ 4,065,821
--------------
Net operating loss (1,347,320)
Impairment loss (865,540)
--------------
Loss before income taxes (2,212,860)
Income tax benefit 873,703
--------------
LOSS FROM DISCONTINUED OPERATIONS $ (1,339,157)
==============
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Significant differences can arise
between the fair value and carrying amount of financial instruments that are
recognized at historical cost amounts.
The following methods and assumptions were used by AP&T in estimating fair value
disclosures for financial instruments:
CASH, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED LIABILITIES, CUSTOMER
DEPOSITS, AND ACCRUED EMPLOYEE BENEFITS The carrying amounts at December 31,
2003, approximate the fair values due to the short maturity of these
instruments.
LONG-TERM DEBT
The fair value of AP&T's long-term debt is estimated by discounting the future
cash flows of the various instruments at rates currently available to the
Company for similar debt instruments of comparable maturities.
The carrying amount of long-term debt approximates the estimated fair value at
December 31, 2003, due to the low interest rate environment and the current
rates for the Company's long-term debt obligations.
24
--------------------------------------------------------------------------------
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 15 - CAPITAL LEASES
The Company leases vehicles under two capital leases. The lease terms expire in
2007.
The assets being leased are included in property, plant, and equipment as
follows at December 31, 2003:
Equipment $ 140,134
Less accumulated amortization 10,496
--------------
NET CAPITALIZED $ 129,638
==============
Amortization on assets under capital leases charged to depreciation expense was
$10,496 and in 2003.
The following is a schedule by years of future lease payments for the above
capital leases, together with the present value of the net minimum lease
payments as of December 31, 2003.
2004 $ 36,658
2005 36,658
2006 36,658
2007 27,502
--------------
Total lease payments 137,476
Less amount representing interest 21,918
--------------
Present value of lease payments 115,558
Less current portion 26,978
--------------
$ 88,580
==============
The Company's obligations under capital leases are included as long-term debt in
Note 8.
25
--------------------------------------------------------------------------------
EXHIBIT C
1. Name of claimant is Alaska Power & Telephone Company (AP&T). AP&T operates as
a regulated public utility providing electric and/or telephone service. AP&T is
fully regulated by the Regulatory Commission of Alaska (RCA). AP&T is a Holding
Company with the following subsidiaries:
Electric Operations
Alaska Power Company - Serving the following communities in Alaska: Skagway,
Haines, Tok, Dot Lake, Chistochina, Mentasta Lake, Tetlin, Tanacross, Healy
Lake, Bettles/Evansville, Northway, Northway Village, Allakaket/Alatna,
Eagle, Eagle Village, Craig, Hydaburg, Hollis, Coffman Cove, Klawock, and
Whale Pass. (Retail and wholesale electric generation and distribution).
BBL Hydro, Inc. - Prince of Wales Island (wholesale hydroelectric generation).
Goat Lake Hydro, Inc. - Skagway (wholesale hydroelectric generation).
Telecommunication Operations
Alaska Telephone Company - Serving the following communities in Alaska: Skagway,
Tok, Dot Lake, Dry Creek, Tetlin, Chisana, Healy Lake, Craig, Hydaburg,
Hollis, Naukati, Whale Pass, Myers Chuck, Edna Bay, Metlakatla, Petersburg,
Wrangell, and Haines.
Bettles Telephone, Inc. - Serving; Bettles, Evansville and Jim River Camp.
North Country Telephone, Inc. - Serving; Eagle and Eagle Village.
AP&T Wireless Inc. - Serving; Ketchikan, Juneau and the surrounding areas.
AP&T Long Distance Inc. - Serving; Alaska communities
2. All public utility operations of AP&T are conducted solely within Alaska.
There is no natural gas activity. Diesel-powered generators and or hydroelectric
generation systems generate the electric service in each location. There is no
intertie to other electric systems or generation sources.
3. (a) Number of kWh sold (by individual subsidiary):
Alaska Power Company 62,036,743 kWh retail
0 kWh wholesale
(b) None sold or distributed out of the state of Alaska.
(c) None sold or distributed out of the state of Alaska.
(d) None sold or distributed out of the state of Alaska.
4. There are no holdings directly or indirectly in an EWG. The following
subsidiary of AP&T holds an interest in a foreign hydroelectric generation
company.
Nonregulated Operations
HydroWest International ("HWI"), located in Cayman Islands, is a holding company
for offshore operations related to the HydroWest Group, providing engineering
and consulting services, primarily related to small hydroelectric power
projects.
(a) HWI, Ltd is a wholly-owned subsidiary of AP&T, equity was $4,435,337 at
12/31/2003.