UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM U-3A2/A
December 31, 2002
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
--------------------------------------------------------------------------------
(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
----------------------------
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
Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
with Report of Independent Auditors
Alaska Power & Telephone Company and Subsidiaries
Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
CONTENTS
Report of Independent Auditors............................................. 1
Audited Consolidated Financial Statements
Consolidated Balance Sheets........................................... 2
Consolidated Statements of Income..................................... 4
Consolidated Statements of Stockholders' Equity....................... 6
Consolidated Statements of Cash Flows................................. 7
Notes to Consolidated Financial Statements............................ 8
Report of Independent Auditors
The Board of Directors
Alaska Power & Telephone Company
We have audited the accompanying balance sheet of Alaska Power & Telephone
Company as of December 31, 2002 and the related statements of income and
retained earnings and cash flows for the year 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 audit. The accompanying balance sheet of Alaska Power & Telephone Company as
of December 31, 2001 and the related statements of income and retained earnings
and cash flows for the year then ended were audited by other auditors whose
report dated March 1, 2002 expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alaska Power & Telephone
Company at December 31, 2002 and the results of its operations and its cash
flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
Spokane, Washington
March 19, 2003, except for Note 2 and Note 8
as to which the date is August 18, 2003.
1
Alaska Power & Telephone Company and Subsidiaries
Consolidated Balance Sheets
-------------------------------------
DECEMBER 31
2002 2001
-------------------------------------
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Electric $ 77,348,649 $ 73,430,746
Telecommunications 38,211,574 33,466,191
Non-utility 1,444,872 5,078,218
-------------------------------------
117,005,095 111,975,155
Less accumulated depreciation 38,801,746 34,426,701
-------------------------------------
78,203,349 77,548,454
Utility plant under construction 1,173,185 2,144,018
-----------------------------------------------------------------------------------------------------------
Total property, plant and equipment, net 79,376,534 79,692,472
-----------------------------------------------------------------------------------------------------------
OTHER ASSETS
Preliminary survey and investigation costs 640,299 1,865,144
Investments (See Note 6) 5,519,202 7,352,746
Goodwill - net of accumulated amortization 9,266,403 9,266,403
Notes receivable - Summit Alaska (See Note 6) - 6,390,568
Rate stabilization asset (See Note 7) 1,666,127 1,215,888
Special Funds - Restricted (See Note 8) 6,545,587 6,477,231
Other assets - net of amortization 3,801,324 1,508,772
-----------------------------------------------------------------------------------------------------------
Total other assets 27,438,942 34,076,752
-----------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash 1,063,893 401,798
Receivables, less allowance for
doubtful accounts of $22,503 in 2002, and
$27,977 in 2001 5,073,328 4,977,256
Inventory and other current assets 1,520,048 1,694,480
Deferred income taxes (See Note 10) 116,006 135,333
Income taxes recoverable 521,727 924,663
-----------------------------------------------------------------------------------------------------------
Total current assets 8,295,002 8,133,530
-----------------------------------------------------------------------------------------------------------
$115,110,478 $121,902,754
=====================================
See accompanying notes. 2
Alaska Power & Telephone Company and Subsidiaries
Consolidated Balance Sheets
--------------------------------------
DECEMBER 31
2002 2001
--------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY Common stock, $1 par value:
Authorized shares - 2,000,000
Issued and outstanding shares - 1,222,965 in 2002, $ 1,222,965 $ 1,239,717
and 1,239,717 in 2001
Additional paid-in capital 6,416,593 6,869,345
Retained earnings 5,519,872 14,754,559
------------------------------------------------------------------------------------------------------------
Total stockholders' equity 13,159,430 22,863,621
------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, LESS CURRENT PORTION (See Note 8)
Goat Lake Hydro, Inc. note payable 21,371,819 21,700,989
Other term debt 55,056,637 59,379,245
Liabilities subject to compromise (See Note 2) 16,637,634 -
------------------------------------------------------------------------------------------------------------
Total long-term debt 93,066,090 81,080,234
------------------------------------------------------------------------------------------------------------
OTHER LIABILITIES
Deferred income taxes (See Note 10) 2,318,010 8,339,186
Customer deposits and other 346,098 264,774
------------------------------------------------------------------------------------------------------------
Total other liabilities 2,664,108 8,603,960
------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable 1,955,707 2,287,963
Lines of credit (See Note 8) - 4,000,000
Short term notes payable 1,055,097 -
Current portion of long-term debt 3,210,046 3,066,976
------------------------------------------------------------------------------------------------------------
Total current liabilities 6,220,850 9,354,939
------------------------------------------------------------------------------------------------------------
$115,110,478 $121,902,754
======================================
See accompanying notes. 3
Alaska Power & Telephone Company and Subsidiaries
Consolidated Statements of Income
-------------------------------------
YEAR ENDED DECEMBER 31
2002 2001
-------------------------------------
REVENUES
Electric $ 12,822,645 $ 12,949,959
Telecommunications 14,008,371 13,850,206
Non-regulated telecommunications 1,570,350 1,345,294
-----------------------------------------------------------------------------------------------------------
Total revenues 28,401,366 28,145,459
-----------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Electric 6,230,757 6,250,406
Telecommunications 10,132,113 9,066,500
Non-regulated telecommunications 1,391,902 1,484,167
-------------------------------------
Operations and maintenance expense 17,754,772 16,801,073
Depreciation and amortization expense 5,287,225 5,224,803
-----------------------------------------------------------------------------------------------------------
Income from telecommunications and electric operations 5,359,369 6,119,583
-----------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Equity in earnings from investments 629,789 399,434
Costs related to investments (806,812) (198,060)
Loss from sale of assets (26,081) (113,479)
Loss from impaired assets (See Note 6) (1,997,975) (203,569)
Miscellaneous 8,528 (59,521)
-------------------------------------
Total other income (expense) (2,192,551) (175,195)
-------------------------------------
Interest income 278,501 652,038
Interest expense (4,220,994) (4,449,052)
-------------------------------------
Net interest (expense) (3,942,493) (3,797,014)
-----------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations (775,675) 2,147,374
-----------------------------------------------------------------------------------------------------------
Losses related to Summit Alaska (See Note 2) (26,970,411) -
Other reorganization expense (See Note 2) (557,587) -
Gain from extinguishment of debt (See Note 2) 15,651,973 -
-----------------------------------------------------------------------------------------------------------
Income (loss) before tax and discontinued operations (12,651,700) 2,147,374
-----------------------------------------------------------------------------------------------------------
See accompanying notes. 4
Alaska Power & Telephone Company and Subsidiaries
Consolidated Statements of Income (continued)
-------------------------------------
YEAR ENDED DECEMBER 31
2002 2001
-------------------------------------
Provision for income tax benefit (expense) $ 4,981,728 $ (617,019)
-----------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS (7,669,972) 1,530,355
-----------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations net of
income tax (See Note 14) (1,339,157) 41,237
-------------------------------------
NET INCOME (LOSS) $ (9,009,129) $ 1,571,592
=====================================
BASIC EARNINGS (LOSS) PER SHARE
Before discontinued operations $ (6.23) $ 1.36
From discontinued operations $ (1.09) $ (.08)
-------------------------------------
Total $ (7.32) $ 1.28
=====================================
DILUTED EARNINGS (LOSS) PER SHARE
Before discontinued operations $ (6.23) $ 1.33
From discontinued operations $ (1.09) $ (.08)
-------------------------------------
Total $ (7.32) $ 1.25
=====================================
See accompanying notes. 5
Alaska Power & Telephone Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
---------------------------------------------------------------------
ADDITIONAL RETAINED
COMMON STOCK PAID-IN CAPITAL EARNINGS TOTAL
---------------------------------------------------------------------
BALANCE AT JANUARY 1, 2001 $ 1,210,288 $ 6,160,221 $ 14,153,795 $ 21,524,304
Net income - - 1,571,592 1,571,592
Cash dividends declared - - (970,828) (970,828)
Sale of common stock to ESOP 31,705 792,625 - 824,330
Sale of common stock 2,043 50,984 - 53,027
Repurchase of common stock (7,119) (177,975) - (185,094)
Common stock options exercised 2,800 43,490 - 46,290
---------------------------------------------------------------------
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 stock from ESOP - net (127) (39,412) - (39,539)
Sale of common stock - - - -
Repurchase of common stock (16,625) (413,340) - (429,965)
Common stock options exercised - - - -
---------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002 $ 1,222,965 $ 6,416,593 $ 5,519,872 $ 13,159,430
=====================================================================
See accompanying notes. 6
Alaska Power & Telephone Company and Subsidiaries
Consolidated Statements of Cash Flows
-------------------------------------
YEAR ENDED DECEMBER 31
2002 2001
-------------------------------------
OPERATING ACTIVITIES
Net income / (loss) $ (9,009,129) $ 1,571,592
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 5,677,256 5,475,438
Provision for restructuring charges 19,141,398 -
Forgiveness of debt due to reorganization (15,651,973) -
Loss from sale and disposal of investments 8,460,976 113,479
Equity in earnings of investments 58,383 (410,194)
Deferred income tax provision (5,855,431) 1,340,441
Accretion of rate stabilization asset (450,239) (455,170)
Changes in operating activities:
Receivables (96,072) (186,280)
Income taxes recoverable 256,518 (562,841)
Other assets and liabilities 427,363 (173,716)
-----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,959,050 6,712,749
-----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisitions of property, plant and equipment (5,361,318) (10,558,861)
Acquisition of stock in equity investments - (2,336,483)
Increase in receivables from Summit Alaska - (6,390,568)
Change in other assets (848,407) (13,986)
Change in preliminary survey and investigation costs 1,224,845 (888,098)
-----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,984,880) (20,187,996)
-----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt 7,480,636 30,462,878
Payments on long-term debt (4,029,293) (17,136,535)
Proceeds from special funds - restricted (68,356) 275,873
Payment of cash dividends (225,558) (727,342)
Proceeds from sale of common stock - 923,647
Repurchase of common stock (469,504) (185,094)
-----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,687,925 13,613,427
-----------------------------------------------------------------------------------------------------------
Net increase in cash 662,095 138,180
CASH AT BEGINNING OF YEAR 401,798 263,618
-------------------------------------
CASH AT END OF YEAR $ 1,063,893 $ 401,798
=====================================
NON-CASH INVESTING ACTIVITIES
Transfer of receivables from investment in KEC $ - $ 468,500
Transfer of receivables from GTE to Goodwill $ - $ 330,210
=====================================
See accompanying notes. 7
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
1. PETITION FOR RELIEF UNDER CHAPTER 11
On December 18, 2002, Alaska Power & Telephone Company (the Debtor) 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 Alaska Power & Telephone Co. have been
excluded from the Chapter 11 filings. Since the petition date, the Debtor has
continued in possession of its respective properties and has operated and
managed its business as debtor-in-possession pursuant to Sections 1107 and 1108
of the Bankruptcy Code.
Under bankruptcy law, actions by creditors to collect amounts owed by the Debtor
at the filing date are stayed and other pre-petition contractual obligations may
not be enforced against the Debtor, without approval by the Court to settle
these claims. Additional claims may arise subsequent to the filing date
resulting from rejection of executory contracts, including leases, and from the
determination by the Court (or agreed to by parties in interest) of allowed
claims for contingencies, guarantees and other disputed amounts. Secured claims
against the Debtor's assets are also stayed, although the holders of such claims
have the right to move the court for relief from the stay. Secured claims are
secured primarily by liens on the property, plant and equipment of the Debtor
and all of its wholly owned subsidiaries as guarantors, including the revenues
and accounts receivable of the subsidiaries. The amounts of claims filed by
creditors could be significantly different from recorded amounts.
The Debtor has received approval from the Bankruptcy Court to pay or otherwise
honor certain of its pre-petition obligations, including employee wages,
benefits, reimbursements and vendor payments related to the operations of its
subsidiaries. The Court has authorized the Debtor to operate its cash management
systems substantially as they were operated prior to the Chapter 11 filing. In
addition, a Cash Collateral Agreement was authorized by the Court allowing the
Debtor continued use of the secured creditors' collateral for working capital.
Due to the Debtor's current financial condition, financing arrangements and
capital structure, the Debtor cannot obtain unsecured credit allowable under
Bankruptcy Code section 503(b)(1) as an administrative expense. Financing on a
post-petition basis is available only under the terms set forth in the Cash
Collateral Agreement.
The Chapter 11 case was commenced by the Debtor 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 for liquidation under Chapter 7 of
the federal bankruptcy laws in the United States Bankruptcy Court for the
District of Alaska in Anchorage. The Debtor acquired a 39% interest in Summit in
March 2001 and accounted for this investment using the equity method. Due to
recurring operating losses, the Debtor advanced in excess of $10 million to
Summit and guaranteed virtually all debt obligations incurred by Summit.
Management estimates total losses to the Debtor related to its investment in
Summit are approximately $27 million.
8
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
2. RECENTLY COMPLETED PROCEEDINGS UNDER CHAPTER 11
The Debtor filed its proposed Chapter 11 plan of reorganization on June 9, 2003
and its disclosure statement in support of its plan of reorganization on June
11, 2003. Subsequently, the Company continued to operate its businesses as a
debtor-in-possession pursuant to Chapter 11 of the Bankruptcy Code and
concentrated its efforts on emerging from Chapter 11 as quickly as possible.
In its plan of reorganization, the Debtor classified the claims of its creditors
and interests of its equity security holders and provided for the treatment of
such claims and interests. Under the Bankruptcy Code, various classes of claims
and interests were entitled to vote on whether to accept or reject the plan of
reorganization. On July 9, 2003, the Debtor filed it's Debtor's Second Amended
and Restated Chapter 11 Plan of Reorganization, as Modified (the "Plan") and
Debtor's Second Amended and Restated Disclosure Statement in Support of Chapter
11 Plan of Reorganization, as Modified (the "Disclosure Statement"). On July 14,
2003, the Court issued an order approving the Modified Plan of Reorganization
and Disclosure Statement, and authorizing the ballots to be disseminated to
creditors and equity security holders and scheduled a hearing on confirmation of
the Plan for August 1, 2003.
As the date of the confirmation hearing approached, the Debtor engaged in
further negotiations with objecting creditors in an effort to resolve their
objections to the Plan. By July 29, 2003, most of the objections had been
resolved and the Debtor filed a modification of the Plan reflecting the
resolution of those objections. As of July 30, 2003, the principal remaining
objection was the objection of Puget Sound Energy, Inc. (PSE). However, the
Debtor reached agreement with PSE shortly before the commencement of the
confirmation hearing. Under the agreement, PSE withdrew its objections to the
Plan, and changed its rejection to acceptance of the Plan.
The hearing on confirmation of the Plan, took place on August 1, 2003. At the
close of the hearing, the Court issued its Order Confirming Debtor's Second
Amended and Restated Chapter 11 Plan of Reorganization, and issued the
"Confirmation Order". The Confirmed Plan of Reorganization became effective on
August 18, 2003.
In accordance with the Confirmed Plan of Reorganization, each existing holder of
Common Stock retained their ownership equal to 100% of the shares which they
previously held. No issuance of additional shares took place. Therefore the
existing shareholders own an aggregate of 1,222,965 shares representing the
total number of shares of common stock outstanding after affecting the Confirmed
Plan of Reorganization.
9
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
2. RECENTLY COMPLETED PROCEEDINGS UNDER CHAPTER 11 (CONTINUED)
While in Chapter 11 under the U.S. Bankruptcy Code, Alaska Power & Telephone Co.
(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, 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 liabilities incurred pre-petition as
liabilities subject to compromise. At December 31, 2002, these liabilities
totaled $32,289,607. Prior to the issuance of the financial statements, the
Court confirmed the Company's Plan of Reorganization and consequently, these
liabilities have been 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:
Discounted 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
Currently, the Company is working to resolve any remaining open bankruptcy
claims. Settlement of these claims will not result in the execution of
additional debt agreements pursuant to the provisions of the Confirmed Plan of
Reorganization. See Note 8 for a description of the debt agreements that have
been executed as settlement of certain bankruptcy claims. The Company's
restructured secured and unsecured debt, as well as assumed leases and executory
contracts, will require substantial payments over extended future periods. The
Company's future success will depend, in part, on its ability to meet these
payment obligations. As in any projection of future events there is no assurance
that the Company will be able to do so.
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 year ended December 31, 2002.
10
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
2. RECENTLY COMPLETED PROCEEDINGS UNDER CHAPTER 11 (CONTINUED)
Summit Alaska obligations guaranteed by Alaska Power & Telephone Co.
Unsecured Nonpriority Claim - U.S. Bancorp Equipment Finance $ 300,000
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
Receivables due from Summit Alaska 6,986,610
-----------
Total losses related to Summit Alaska 26,970,411
Other reorganization expense, e.g. Legal, Consulting and Other 557,587
---------------
$ 27,527,998
===============
Additionally, on the Petition Date, the Company stopped accruing interest on all
unsecured pre-petition debt in accordance with SOP 90-7. With the confirmation
of the Plan of Reorganization, the Company will make regular payments on all
debt pursuant to the Confirmed Plan.
3. 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 subsidiaries, after elimination of significant Intercompany
transactions and balances. The equity method of accounting is used for
investments in which the company has significant influence. This is defined as
ownership of at least 20% and not more than 50%.
11
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
3. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE AND COST RECOGNITION
The Company recognizes revenues from fixed-price and modified fixed-price
construction contracts on the percentage-of-completion method, measured by the
percentage of cost incurred to date to estimated total cost for each contract.
This method is used because management considers total cost to be the best
available measure of progress on these contracts. Because of inherent
uncertainties in estimating costs and percentage of completion, actual results
could differ from those estimates.
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
An estimate of collectibility of accounts receivable is made annually. A
provision for uncollectible accounts is accrued based upon this estimate.
Specific accounts are charged against this provision when it is determined that
the account will not be collected.
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 non-cash items to
other income and interest charges. 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
12
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
3. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 SFAS No. 142, Goodwill and Other
Intangible Assets. Under the new rules, goodwill (and intangible assets deemed
to have indefinite lives) will no longer be amortized but is subject to annual
impairment tests in accordance with the Statement. Other intangible assets will
continue to be amortized over their useful lives. At December 31, 2002 and 2001
respectively, the Company had no other intangible assets.
In 1999, the Company entered into an agreement through ATEAC Inc. to purchase
the assets and assume the related liabilities of GTE Alaska, a subsidiary of the
GTE Corporation. The agreement was between GTE Corporation and ATEAC Inc., of
which the Company is a 25% shareholder. 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.
The following table provides a reconciliation of previously reported financial
information to amounts that reflect the elimination of goodwill amortization
prior to adopting SFAS No. 142 at December 31:
2002 2001
--------------------------------------
Reported net income (loss) $ (9,009,129) $ 1,571,592
Add back goodwill amortization - 221,056
--------------------------------------
$ (9,009,129) $ 1,792,648
======================================
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, 2002 no further impairment exists.
13
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
3. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FUEL, SUPPLIES, AND OTHER INVENTORY
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.
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.
INCOME TAXES
The Company is a member of a group that files consolidated federal tax returns.
Accordingly, income taxes payable to (refundable from) the tax authorities are
recognized on the financial statements of the parent company who is the taxpayer
for income tax purposes. 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 has adopted the disclosure only provisions of FASB Statement No.
123, and applies Accounting Principles Board Opinion No. 25 and related
interpretation 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. Disclosure in accordance
with Statement 123 is provided in Note 12.
EARNINGS PER SHARE
The Company has calculated its basic earnings per share data according to the
method prescribed in FASB Statement No. 128 "Earnings per Share." Under this
Statement, basic
14
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
3. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. FASB Statement No. 128 requires the dual presentation of basic and
diluted earnings per share. Average stock outstanding for purposes of
calculating diluted earnings per share was 1,259,643 in 2002 and 1,253,305 in
2001 (including the dilutive effect of stock options of 32,211 and 28,302
respectively).
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation. The effect of any reclassifications is immaterial.
4. NEW ACCOUNTING POLICIES
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset
Retirement Obligations effective for fiscal years beginning after June 15, 2002.
This statement provides accounting guidance for legal obligations associated
with the retirement of long-lived assets. Management is currently assessing its
legal obligations but believes there will be no material impact on the Company's
results of operations, financial position, or cash flows.
Effective January 1, 2002, the Company adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses the accounting and
reporting of all long-lived assets, except goodwill, that are either held and
used or disposed of through sale or other means. Long-lived assets are evaluated
for impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. Impairment losses are
measured as the amount by which the carrying values of the assets exceed their
fair values. (See Note 6)
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 supercedes Emerging Issues Task Force
(EITF) Issue
15
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
4. NEW ACCOUNTING POLICIES (CONTINUED)
No. 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in
Restructuring). SFAS No. 146 requires that costs associated with an exit or
disposal activity be recognized when the liability is incurred, whereas EITF No.
94-3 required recognition of a liability when an entity committed to an exit
plan. The effect of SFAS No. 146 will be to change the timing of recognition of
liabilities associated with disposal activities. SFAS No. 146 is effective for
exit or disposal activities that are initiated after December 31, 2002, with
early application encouraged. The Company has adopted the provisions of SFAS
No.146 as of December 31, 2002 and accounts for liabilities associated with
disposal activities when they are incurred.
5. PROPERTY, PLANT AND EQUIPMENT
DEPRECIATION
2002 2001 RATE
--------------------------------------------------------
Electric:
Hydroelectric $ 20,270,830 $ 19,659,123 2%
Other generation 14,696,632 14,347,912 4% to 8%
Transmission and distribution 30,188,481 29,132,703 2.5% to 4%
Other 11,093,826 9,592,531 2.5% to 20%
Land 773,477 698,477 -
Utility plant acquisition adjustment 325,403 - 6%
-------------------------------------
77,348,649 73,430,746
Electric -------------------------------------
Telecommunications:
General support assets 8,768,061 5,996,958 2.5% to 20%
Central office assets 12,223,359 12,019,256 8% to 13%
Cable and wire facilities 14,296,161 12,876,785 4% to 6%
Nonregulated investment 2,670,009 2,319,208 10% to 20%
Land 253,984 253,984 -
-------------------------------------
Telecommunications 38,211,574 33,466,191
-------------------------------------
Non-utility:
Computer equipment 2,813,426 20%
Furniture and other equipment 618,003 7%
Buildings 126,825 126,825 2.5%
Leases and leasehold improvements 223,770 425,688 10%
Land 1,094,277 1,094,276 -
-------------------------------------
Non-utility 1,444,872 5,078,218
-------------------------------------
Total property, plant and equipment $ 117,005,095 $ 111,975,155
=====================================
During 2002, the Company transferred various computers and office equipment from
non- utility assets to electric and telecommunications assets.
16
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
6. INVESTMENTS
2002 2001
-------------------------------------
Investment in CoBank $ 1,731,874 $ 1,436,627
Investment in Ketchikan Electric Company, LLC 1,000,000 1,670,418
Investments of Hydro West International 2,787,328 2,845,711
Investment in Summit Alaska, Inc. - 1,399,990
-------------------------------------
$ 5,519,202 $ 7,352,746
=====================================
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.
AP&T reinvests a portion of those earnings in additional stock of CoBank based
on a five-year average of the outstanding borrowings.
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. Management feels that changes in circumstances indicate that
the carrying value of this investment may not be recoverable in full and
expects, more likely than not, the asset will be sold or otherwise disposed of
significantly before the end of its previously estimated useful life. At
December 31, 2002, an impairment loss was recorded in Income from continuing
operations, as other income (loss) on impaired assets, in the amount of
$670,418. Additionally, receivables related to the management of KEC in the
amount of $215,555 have been included as loss on impaired assets. Management has
estimated the fair value of this investment to be $1,000,000.
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 Hydro West International (HWI),
a 25% investment in the capital stock of Inversiones Pasabien, S.A. and a 32.4%
investment in the capital stock of Hydro Honduras. Both minority investments are
accounted for under the Equity Method. Additionally, during 2001, AP&T
transferred the minority investments of HWG to its fully owned subsidiary HWI, a
Cayman Island Limited Company, and subsequently during 2002, discontinued the
operations of HWG. At December 31, 2002, a loss in the amount of $663,008
related to HWG was recorded on the Income Statement in Discontinued Operations.
17
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
6. INVESTMENTS (CONTINUED)
Hydro Honduras' principal purpose is to construct a 50 MW hydroelectric project
in Honduras, C.A. known as The Cangrejal Project. Hydro Honduras has completed
the licensing and environmental study requirements, and will continue
negotiations to obtain project financing. Management's belief is that the
decline in value of its investment in Hydro Honduras is other than temporary,
and a loss of $55,282 was recorded as loss from impaired assets. As of December
31, 2002, AP&T's investment in this entity totaled $500,000.
Inversiones Pasabien, S.A. owns a 12.5 MW hydroelectric plant in Guatemala, C.A.
During 2002, the board of directors of Inversiones Pasabien declared a cash
dividend payable to HWI of $186,904. Management's belief is that the decline in
value of its investment in HWI is other than temporary, and a loss of $813,249
was recorded as loss from impaired assets. As of December 31, 2002, AP&T's
investment in this entity totaled $1,748,296.
During 2002, HWI made an additional investment in 50% of the stock in Rio Hondo
Holding Co., a Cayman Island Limited Company, whose principal purpose is to
construct a 32 MW hydroelectric project in Guatemala, C.A. known as The Rio
Hondo II Project. The project company has completed the design, licensing and
environmental studies, and is currently in negotiations to obtain additional
equity participation and project financing. As of December 31, 2002, AP&T's
investment in this entity totaled $539,032.
Summit Alaska, Inc. (See Note 2)
On March 8, 2001 (the "closing"), the Company purchased 44,000 shares of common
stock of Summit Alaska Inc., (Summit), at a total cost of $1,212,141, which
equaled 39% of the 112,907 shares outstanding. The Company's underlying equity
in the net assets of Summit was $838,973. The difference represented goodwill of
$373,168.
The Company also purchased land at closing for $950,000 where Summit operates a
gravel pit under a management contract. The contract included a provision that
required Summit to pay the company a royalty fee based upon the tons of
aggregate shipped. The royalty fee for 2001 was $46,537. As part of the assumed
agreement the company also purchased a Summit subordinated note payable of
$800,000.
During 2002 and 2001, the Company loaned additional amounts to Summit to
purchase equipment and support its operations. The Company has also provided
guarantees to creditors of Summit. The Company's guarantees to commercial banks
and other financing sources for obligations of Summit were estimated to be $18.6
million at December 31, 2002.
On December 15, 2002, Summit Alaska Inc. filed a petition for liquidation under
Chapter 7 of the federal bankruptcy laws in the United States Bankruptcy Court
for the District of Alaska in Anchorage. At December 31, 2002, losses related to
the disposal of this investment totaled $26,970,411. Management has estimated
the fair value of this investment to be $0.
18
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
7. RATE STABILIZATION ASSET
The Company is subject to the provisions of Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of Regulation"
(SFAS 71). SFAS 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
$1,666,127 and $1,215,888 in 2002 and 2001, 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.
8. LONG-TERM DEBT
2002 2001
-----------------------------------
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 $268,181, and the bond sinking fund amount of
$345,000, 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 $ 21,371,819 $ 21,700,989
NOTES 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%. At the
settlement date, August 18, 2003 the amount of the outstanding
principal due to CoBank under the plan of reorganization was
$55,769,128 57,014,860 -
Note payable in 2001, secured by BBL Hydro Inc., assets and
revenues, restructured under the company's plan of reorganization. - 7,503,531
Note payable in 2001, secured by telephone assets, restructured
under the company's plan of reorganization - 3,464,341
Note payable in 2001, secured by electric assets, restructured under
the company's plan of reorganization - 3,275,798
Note payable in 2001, secured by electric assets, restructured under
the company's plan of reorganization - 3,034,968
19
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
8. LONG-TERM DEBT (CONTINUED)
NOTES PAYABLE TO COBANK (CONTINUED): 2002 2001
-----------------------------------
Note payable in 2001, secured by electric assets, restructured under
the company's plan of reorganization $ - $ 5,415,262
Note payable in 2001, secured by telephone assets, restructured
under the company's plan of reorganization - 5,811,794
Note payable in 2001, secured by telephone assets and revenues,
restructured under the company's plan of reorganization - 15,167,096
Note payable in 2001, secured by electric assets, restructured under
the company's plan of reorganization - 7,947,146
OTHER DEBT, unsecured, restructured under the company's plan of
reorganization - 6,700,000
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. 1,599,514 1,725,000
NOTES PAYABLE TO STATE OF ALASKA, secured by certain electric assets,
with interest rates ranging from 0% to 4.2%, maturing at various
dates from 2019 through 2037 2,195,272 2,187,480
OTHER DEBT, unsecured, with interest rates ranging from 5.45% to 11%,
maturing at various dates from 2006 through 2007 111,648 213,805
UNSECURED CLASS 8 TERM DEBT - TRANCHE A, due in 10 years, with imputed
interest of 7.25% 13,008,850 -
UNSECURED CLASS 8 TERM DEBT - TRANCHE B, due in 10 years, with imputed
interest of 10%. (less $568,000 payable in 2003, as per the plan of
reorganization) 974,173 -
-----------------------------------
96,276,136 84,147,210
Less current portion 3,210,046 3,066,976
-----------------------------------
Total long-term debt $93,066,090 $81,080,234
===================================
20
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
8. LONG-TERM DEBT (CONTINUED)
Annual maturities for the five years beginning January 1, 2003 are $3,210,046,
$1,638,891, $1,918,005, $1,907,290, and $1,991,490 respectively, and $85,610,414
thereafter.
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 7), 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 the
Company 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 effective date) was $55,769,128 which included accrued
interest of $299,259 and a broken funding surcharge of $1,750,000.
The Plan of Reorganization outlines how payments are to be made to the Unsecured
Class 8 Claimants. 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, for a period of ten years 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.
At December 31, 2002, the Company had no unsecured lines of credit with
commercial banks. At December 31, 2001, the Company had a secured line of credit
of $4,000,000 from CoBank and unsecured lines of credit of $10,000,000 from
other commercial banks. The amount outstanding was $14,000,000 and carried
variable interest from 3.90% to 4.06%.
21
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
8. LONG-TERM DEBT (CONTINUED)
Interest paid on debt was $4,881,814 in 2002 and $4,773,599 in 2001. There is no
material difference between reported interest and contractual interest at
December 31, 2002.
At December 31, 2002, the company was in default of certain negative covenants
and financial ratio covenants under the Master Loan Agreement with CoBank. Under
the plan of reorganization these covenant defaults have been resolved. (See Note
1)
9. OPERATING LEASE AGREEMENTS
AP&T leases a portion of its administrative office space and a portion of its
utility plant under noncancellable leases expiring through 2011. Rent expense
was $487,236 and $482,239 for 2002 and 2001, respectively. Certain of the leases
include renewal provisions at AP&T's option. Minimum rental commitments under
noncancellable operating leases, excluding hydroelectric operations, are
$356,580. Minimum annual rental commitments are $59,985 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 $180,845 in 2002 and $202,083 in 2001.
10. INCOME TAXES
The components of the consolidated provision for income taxes are as follows:
2002 2001
------------------------------------
Current:
Federal $ 0 $ (627,666)
State 0 (79,130)
------------------------------------
0 (706,796)
Deferred (5,855,431) 1,340,441
------------------------------------
Provision for income taxes $ (5,855,431) $ 633,645
====================================
Total tax expense differs from that computed at the statutory federal income tax
rate due to the following:
2002 2001
---------------------------------------
Income tax provision at federal rate of 34% $ (5,053,950) $ 749,781
State income taxes, net of federal benefit (814,976) 119,201
Benefit of cash dividends paid to ESOP members (75,896) (108,799)
Other 86,931 (126,538)
---------------------------------------
Provision for income taxes $ (5,855,431) $ 633,645
=======================================
22
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
10. INCOME TAXES (CONTINUED)
The components of the deferred tax assets and liabilities as of December 31,
2002 and 2001 are as follows:
2002 2001
-------------------------------------
Current:
Deferred tax assets $ (140,225) $ (174,557)
Deferred tax liabilities 24,219 39,224
-------------------------------------
(116,006) (135,333)
=====================================
Noncurrent:
Deferred tax assets (7,263,277) (386,003)
Deferred tax liabilities 9,581,287 8,725,189
-------------------------------------
$ 2,318,010 $ 8,339,186
=====================================
Federal and state income taxes paid were $ 0 in 2002 and $ 78,520 in 2001.
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 net deferred tax asset.
At December 31, 2002, the Company had unused net operating loss carryforwards of
approximately $4,150,000 which expire in 2022.
11. 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. Employer
contributions match the participant's contributions up to the first 3% of the
participant's wages. Employer matching contributions were $0 and $170,633 in
2002 and 2001, respectively. Additional employer contributions are made annually
at 8% of the eligible employees' gross wages. These additional employer
contributions were $487,097 and $486,200 in 2002 and 2001, respectively.
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
provide that matching contributions will be made at the desecration of the
employer in an amount up to 5% of participant's wages. Additionally, a defined
contribution of 3% will be made to each eligible participants account annually.
23
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
12. STOCK OPTION PLAN
In 1991, AP&T established a stock option plan. The plan provides for the grant
of incentive stock options. Stockholders have approved a total of 310,000 shares
to be reserved for the plan from the authorized and unissued common stock. These
options vest and become exercisable five years after the date of grant and
expire ten years after the date of grant. 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.
A summary of the activity related to the plan is as follows:
WEIGHTED
SHARES AVERAGE EXERCISE
UNDER PRICE PER SHARE
OPTION
-----------------------------------
Balance at December 31, 2000, unexercised 188,000 21.19
Granted 74,500 26.00
Canceled (15,700) 17.01
Exercised (2,800) 16.53
-----------------
Balance at December 31, 2001, unexercised 244,000 $ 22.98
-----------------
Granted - -
Canceled - -
Exercised - -
-----------------
Balance at December 31, 2002, unexercised 244,000 $ 22.98
=================
13. 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,
segments below the quantitative threshold for separate disclosure, and other
business activities. Other segments principally include global hydro electric
power development. Other business activities principally included the gains and
losses on the sale and disposition of other non-core businesses.
24
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
13. BUSINESS SEGMENT INFORMATION (CONTINUED)
(All numbers in thousands) Regulated Regulated
Electric Telecom All Other Consolidated
------------ ----------- ----------- --------------
2002
Operating Revenue $ 12,823 $ 14,008 $ 1,570 $ 28,401
Depreciation and amortization 2,556 2,554 188 5,298
Operating Income 4,036 1,322 (9) 5,349
Interest expense 2,505 1,110 595
Interest income 201 - 78 279
Equity Earnings in Investments - - (629) (629)
Total Assets 77,488 36,426 3,091 117,005
Capital Expenditure 3,940 2,280 281 6,501
2001
Operating Revenue 12,949 13,850 1,346 28,145
Depreciation and amortization 2,357 2,673 195 5,225
Operating Income 4,343 2,111 (334) 6,120
Interest expense 2,670 1,503 276 4,449
Interest income 391 - 261 652
Equity Earnings in Investments - - (399) (399)
Total Assets 73,431 32,003 6,541 111,975
Capital Expenditure $ 4,060 $ 3,840 $ 2,700 $ 10,600
Intercompany payables are due to the Parent company from Regulated Electric and
Telecom subsidiaries in the amounts of $16.3 million and $16.5 million at the
end of 2002 respectively. AP&T and its subsidiaries are being treated as though
they were substantively consolidated with Intercompany transactions being
allowed claims for purposes of its reorganization, but are eliminated in
consolidation for financial accounting purposes.
14. 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."
25
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
14. DISPOSITION OF SUBSIDIARY BUSINESSES (CONTINUED)
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.
The summary of results from discontinued operations at December 31 is as
follows:
2002 2001
-------------------------------------
Operating revenue $ 2,718,501 $ 1,189,996
Operating expenses 4,065,821 1,131,254
-------------------------------------
Net operating income (loss) (1,347,320) 57,863
Impairment loss ( 865,540) -
-------------------------------------
Income (loss) before income taxes 57,863
-------------------------------------
Income tax benefit (expense) 873,703 (16,626)
-------------------------------------
Income (loss) from discontinued operations $ (1,339,157) $ 41,237
=====================================
15. 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.
26
Alaska Power & Telephone Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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,
2002 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 approximate the estimated fair value at
December 31, 2002 due to the low interest rate environment and the current rates
for the company's long-term debt obligations.
27
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 60,842,753 kWh retail
905,800 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 25% equity ownership share of Inversiones Pasabien, S.A. was
transferred from HWG to HWI in 2001.
(a) HWI, Ltd is a wholly-owned subsidiary of AP&T, equity was $4,228,683 at
12/31/2002.
Hydro West Group, LLC. ("HWG") - Located in Port Townsend, Washington and
providing engineering and consulting services, primarily related to small
hydroelectric power projects. HWG transferred its 25% equity share of
Inversiones Pasabien, S.A. to HWI in 2001.
As of December 31, 2002, all operations of HWG were discontinued.