UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment Number 1 to
FORM U-3A2
December 31, 2004
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
----------------------------
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
ALASKA POWER & TELEPHONE COMPANY
AND SUBSIDIARIES
INDEPENDENT AUDITOR'S REPORT
AND
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
TABLE OF CONTENTS
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INDEPENDENT AUDITOR'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheet 2-3
Consolidated statement of income 4
Consolidated statement of stockholders' equity 5
Consolidated statement of cash flows 6-7
Notes to consolidated financial statements 8-24
INDEPENDENT AUDITORS REPORT
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, 2004 and 2003, and the
related consolidated statements of income, 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, 2004 and 2003, 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.
Spokane, Washington
March 25, 2005
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
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ASSETS
December 31,
---------------------------
2004 2003
---------------------------
PROPERTY, PLANT, AND EQUIPMENT
Electric $78,824,394 $77,961,432
Telecommunications 40,664,238 39,160,838
Nonutility 274,196 399,544
------------- -------------
119,762,828 117,521,814
Less accumulated depreciation 49,333,349 43,918,810
------------- -------------
70,429,479 73,603,004
Utility plant under construction 3,146,388 1,384,041
------------- -------------
Total plant, property, and equipment 73,575,867 74,987,045
------------- -------------
OTHER ASSETS
Preliminary survey and investigation costs - 821,838
Investments 7,198,252 6,967,520
Goodwill 9,266,403 9,266,403
Rate stabilization asset 2,950,455 2,437,300
Special funds, restricted 6,488,823 6,610,774
Other assets 2,856,224 3,377,681
------------- -------------
Total other assets 28,760,157 29,481,516
------------- -------------
CURRENT ASSETS
Cash 6,250,844 4,882,706
Receivables, less allowance for doubtful accounts
of $23,656 in 2004 and $27,454 in 2003 5,409,117 3,850,206
Inventory and other current assets 1,466,867 1,299,308
Deferred tax assets 125,499 138,606
Income taxes recoverable 10,000 924,562
------------- -------------
Total current assets 13,262,327 11,095,388
------------- -------------
$115,598,351 $115,563,949
============= =============
See accompanying notes.
2
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
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LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
----------------------------
2004 2003
----------------------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value, 2,000,000 shares authorized
1,376,232 and 1,236,915 shares issued and outstanding
in 2004 and 2003, respectively $ 1,376,232 $ 1,236,915
Additional paid-in capital 6,956,217 6,410,083
Retained earnings 9,246,142 6,852,045
------------- -------------
Total stockholders' equity 17,578,591 14,499,043
------------- -------------
LONG-TERM DEBT, less current portion
Goat Lake Hydro, Inc. note payable 20,268,203 20,657,663
Other term debt 66,707,661 70,338,282
------------- -------------
Total long-term debt 86,975,864 90,995,945
------------- -------------
OTHER LIABILITIES AND DEFERRED CREDITS
Deferred income taxes 5,517,895 3,970,185
Other deferred credits 864,424 285,625
Other 69,505 -
------------- -------------
Total other liabilities and deferred credits 6,451,824 4,255,810
------------- -------------
CURRENT LIABILITIES
Accounts payable and other accrued liabilities 2,118,338 2,115,608
Current portion of long-term debt 2,473,734 3,697,543
------------- -------------
Total current liabilities 4,592,072 5,813,151
------------- -------------
$115,598,351 $115,563,949
============= =============
See accompanying notes.
3
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
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Year Ended December 31,
---------------------------
2004 2003
---------------------------
REVENUE
Electric $14,364,686 $13,969,199
Telecommunications 15,883,313 14,653,312
Other nonregulated 2,113,468 2,099,091
------------ ------------
32,361,467 30,721,602
------------ ------------
EXPENSES
Electric 6,152,071 5,505,445
Telecommunications 9,563,657 8,716,509
Other nonregulated 2,259,995 2,239,869
------------ ------------
Operations and maintenance expense 17,975,723 16,461,823
Depreciation and amortization expense 6,083,390 5,825,163
------------ ------------
24,059,113 22,286,986
------------ ------------
Income from operations 8,302,354 8,434,616
------------ ------------
OTHER INCOME (EXPENSE)
Equity in earnings of investments 240,257 252,747
Loss from sale of assets (20,425) (548,101)
Loss from impaired assets (381,312) (484,500)
Dividend income 545,351 473,746
Other reorganization expense (227,078) (1,818,822)
Gain from extinguishment of debt 318,068 -
Miscellaneous 44,057 (48,857)
------------ ------------
Total other income (expense) 518,918 (2,173,787)
------------ ------------
Interest income 289,008 321,970
Interest expense (5,136,468) (4,092,408)
------------ ------------
Net interest expense (4,847,460) (3,770,438)
------------ ------------
Income before tax 3,973,812 2,490,391
Provision for income taxes (1,573,629) (1,158,218)
------------ ------------
NET INCOME $2,400,183 $1,332,173
============ ============
Basic and diluted earnings per share $ 1.84 $ 1.08
============ ============
Weighted-average basic and diluted
shares outstanding 1,306,574 1,229,940
============ ============
See accompanying notes.
4
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
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Additional
Paid-In Retained
Common Stock Capital Earnings Total
------------ ------------ ------------ -------------
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 10,857 32,575 - 43,432
Repurchase of common stock (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
Net income - - 2,400,183 2,400,183
Sale of common stock 153,888 632,831 - 786,719
Repurchase of common stock (14,571) (86,697) - (101,268)
Other - - (6,086) (6,086)
------------ ------------ ------------ -------------
Balance at December 31, 2004 $ 1,376,232 $ 6,956,217 $ 9,246,142 $ 17,578,591
============ ============ ============ =============
See accompanying notes.
5
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
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Year Ended December 31,
-------------------------
2004 2003
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,400,183 $1,332,173
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,083,390 5,825,163
Gain on extinguishment of debt (318,068) -
Loss from disposal of assets 20,425 548,101
Loss on impairment of assets 381,312 484,500
Noncash patronage dividends (327,210) (331,622)
Equity in earnings of investments (240,257) (252,747)
Deferred income tax provision 1,560,817 1,629,575
Other noncash activity 69,505 -
Accretion of rate stabilization asset (513,155) (771,173)
Changes in assets and liabilities:
Receivables (1,416,788) 476,499
Income taxes recoverable 914,562 (402,835)
Other assets and liabilities 354,094 101,285
----------- -----------
Net cash provided by operating activities 8,968,810 8,638,919
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property, plant, and equipment, net(5,035,239) (1,847,779)
Change in other assets 227,145 669,407
Change in preliminary survey and investigation costs - (691,692)
Receipt of subsidies for acquisition of plant 1,360,000 -
----------- -----------
Net cash used by investing activities (3,448,094) (1,870,064)
----------- -----------
See accompanying notes.
6
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ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
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Year Ended December 31,
--------------------------
2004 2003
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt $1,103,560 $ 223,245
Payments on long-term debt (6,057,454) (3,115,539)
Proceeds from special funds, restricted 121,951 (65,188)
Proceeds from sale of common stock 786,719 43,432
Repurchase of common stock (101,268) (35,992)
Other changes in equity (6,086) -
----------- -----------
Net cash used by financing activities (4,152,578) (2,950,042)
----------- -----------
NET CHANGE IN CASH 1,368,138 3,818,813
Cash, beginning of the year 4,882,706 1,063,893
----------- -----------
Cash, end of the year $6,250,844 $4,882,706
=========== ===========
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 $4,951,166 $4,208,091
=========== ===========
Cash paid during the year for income taxes $ 22,270 $ -
=========== ===========
See accompanying notes.
7
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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 accounting principles generally
accepted in the United States of America 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.
REVENUE RECOGNITION:
Electric:
---------
AP&T utilizes cycle billing and records revenue billed to its customers when the
meters are read each month. In addition, beginning in 2003 AP&T began
recognizing unbilled revenue, revenues from electric power delivered but not yet
billed. The effect of this change was to record an unbilled revenue receivable
and 2003 revenues of approximately $403,000. Of this amount, $71,000 actually
related to 2003 and $332,000 to previous years. Unbilled revenues of $44,355
were recorded for 2004.
8
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)
REVENUE RECOGNITION (CONTINUED):
Telecommunications:
AP&T is subject to regulation by the Federal Communications Commission (FCC) and
the Regulatory Commission of Alaska. AP&T's local wireline rates and access
revenues (revenues earned for originating and terminating long distance calls)
are determined by rates approved by regulators. Other sources of revenues, such
as Internet, equipment sales, wireless, and long distance resale are not rate
regulated. Pending and future regulatory actions may have a significant impact
on AP&T's future operations and financial condition.
Monthly service fees derived from local wireline, data services, and wireless
are billed one month in advance, but recognized in the month that service is
provided.
Usage sensitive revenues such as long distance and other wireless services are
generally billed as a per-minute charge. Unbilled revenues from these services
are insignificant.
AP&T also receives significant universal service support revenue based on the
higher costs of providing rural telephone service. These revenues are included
in interstate access revenues and are based on AP&T's relative level of
operating expense and plant investment. The interstate program is governed by
the FCC and administered by the Universal Service Administration Company (USAC).
Interstate access revenues also include settlements based on AP&T's
participation in the revenue pools administered by the National Exchange Carrier
Association (NECA) and regulated by the FCC. These revenues are determined by
annually prepared separations and interstate access cost studies. Revenues for
the current year are based on estimates prior to the submission of the cost
study reporting actual results of operations. Additionally, the studies are
subject to a 24-month pool adjustment period and final review and acceptance by
the pool administrators. Management does not anticipate significant adjustments
to recorded revenues for the years ended December 31, 2004 and 2003.
Intrastate access revenues include revenues received from revenue pools
administrated by the Alaska Exchange Carriers Association that are based on
AP&T's relative cost of providing intrastate access service. These revenues are
based on projections submitted periodically and intrastate access cost studies
that are submitted every two years. Management does not anticipate significant
adjustments to recorded revenues for the years ended December 31, 2004 and 2003.
9
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 $31,092 and $50,430 for
2004 and 2003, 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:
In 1999, AP&T purchased certain properties of GTE Alaska. The excess of the
purchase price over the assets acquired has been recorded as goodwill. In
accordance with accounting standards, 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. As of December 31, 2004, there were
no projects under investigation.
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 AP&T'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. Deferred customer advances for construction were $307,683 and $285,625
at December 31, 2004 and 2003, respectively.
10
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)
INCOME TAXES:
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for taxable temporary differences and deferred tax liabilities
are recognized for deductible 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.
RECENT ACCOUNTING STANDARD:
In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based
Payment. This statement replaces SFAS No. 123, Accounting for Stock-Based
Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS No. 123(R) requires that the compensation cost relating to
share-based payment transactions (for example, stock options granted to
employees of AP&T) be recognized in AP&T's financial statements. That cost will
be measured based on the fair value of the equity or liability instruments used.
SFAS No. 123(R) covers a wide range of share-based compensation arrangements
including share options, restricted share plans, performance-based awards, share
appreciation rights, and employee share purchase plans. Nonpublic entities will
be required to apply SFAS No. 123(R) as of the first interim or annual reporting
period beginning after December 15, 2005. AP&T intends to adopt the provisions
of SFAS No. 123(R) effective January 1, 2006, and is in the process of
evaluating the impact on its consolidated balance sheet and consolidated results
of operations.
STOCK-BASED COMPENSATION
AP&T adopted the disclosure-only provisions of SFAS No. 123 and applied APB
Opinion No. 25 and related interpretations in accounting for its employee stock
option plans. Accordingly, AP&T'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 SFAS No. 123 is
provided in Note 10.
EARNINGS PER SHARE:
AP&T has calculated its basic earnings per share data according to the method
prescribed in SFAS 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
2004 and 2003. Weighted-average shares outstanding for purposes of calculating
basic and diluted earnings per share were 1,306,574 in 2004 and 1,229,940 in
2003.
11
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)
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.
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 2003 financial statements. These reclassifications made to conform to 2004
classifications have no effect on previously reported net loss or equity.
ADVERTISING COSTS:
AP&T expenses advertising costs as incurred. Advertising expenses during years
ended December 31, 2004 and 2003, were $111,002 and $85,527, respectively.
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 Chapter
11 case was commenced by AP&T primarily because of the failure of its investment
in Summitt, Alaska, Inc. The losses, comprised of significant operating losses
funded by AP&T and debt obligations guaranteed by AP&T, were recognized prior to
2003. The wholly-owned subsidiaries of AP&T were excluded from the Chapter 11
filings.
From December 18, 2002, until August 18, 2003, AP&T 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.
On March 31, 2004, the United States Bankruptcy Court Western District of
Washington issued an order effectively closing the Chapter 11 case.
12
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, AP&T 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, AP&T 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 AP&T during
the years ended December 31:
2004 2003
---------- -----------
Legal, consulting, and other reorganization expense $ 227,078 $1,818,822
========== ===========
NOTE 3 - RATE STABILIZATION ASSET
AP&T 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. AP&T has a regulatory
asset of $2,950,455 and $2,437,300 in 2004 and 2003, respectively. AP&T
continues to meet the requirements of SFAS No. 71 since AP&T's rates are
intended to recover the cost of service plus a rate of return on AP&T's
investment, as well as providing specific recovery of deferred items in prior
periods.
NOTE 4 - 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 $398,395 and
$313,421 for 2004 and 2003, respectively. Certain leases include renewal
provisions at AP&T's option. Minimum rental commitments under noncancellable
operating leases, excluding hydroelectric operations, are $23,662. Minimum
annual rental commitments are $3,155 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
$350,601 in 2004 and $212,381 in 2003.
13
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Depreciation
2004 2003 Rate
------------- ------------- ------------
Electric:
Hydroelectric $22,760,149 $20,275,920 2%
Other generation 15,257,089 14,944,681 4% to 8%
Transmission and distribution 30,704,160 30,302,880 2.5% to 4%
Other 9,018,996 11,380,612 2.5% to 20%
Land 841,678 773,477 ---
Utility plant acquisition adjustment 242,322 283,862 6%
------------- -------------
78,824,394 77,961,432
------------- -------------
Telecommunications:
General support assets 8,582,864 8,340,793 2.5% to 20%
Central office assets 13,193,813 12,547,158 8% to 14%
Cable and wire facilities 15,761,521 15,293,178 3% to 6%
Nonregulated investment 2,789,403 2,725,725 10% to 20%
Land 336,637 253,984 ---
------------- -------------
40,664,238 39,160,838
------------- -------------
Nonutility:
Computer equipment 35,676 31,112 13%
Furniture and other equipment 74,976 72,598 5%
Buildings 101,924 126,825 4%
Leasehold improvements 28,489 27,532 10%
Land 33,131 141,477 ---
------------- -------------
274,196 399,544
------------- -------------
TOTAL PROPERTY, PLANT, AND
EQUIPMENT $119,762,828 $117,521,814
============= =============
14
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 6 - INVESTMENTS
AP&T's investments consist of the following at December 31:
2004 2003
----------- -----------
Investment in CoBank $2,244,856 $2,059,770
Investment in Ketchikan Electric Company, LLC 750,000 750,000
Investments of Hydro West International 4,203,396 4,157,750
----------- -----------
$7,198,252 $6,967,520
=========== ===========
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. Dividend income was reported in the
amount of $545,351 and $473,746 for 2004 and 2003, respectively, related to
these earnings.
KETCHIKAN ELECTRIC COMPANY:
AP&T 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 2004 or 2003. In 2003, management
reviewed events and circumstances that could indicate additional other than
temporary impairment on its investment in KEC and determined its fair value. An
impairment loss was recorded in other income. At December 31, 2003, KEC owed
AP&T payment on a contract receivable. Although management intends to vigorously
pursue collection, it is believed that ultimate collection of the full amount of
the receivable is unlikely. Management wrote off the entire balance in 2003 and
2004 and recorded a loss in other income.
HYDRO WEST INTERNATIONAL:
Hydro West International (HWI), a Cayman Island limited company and wholly-owned
subsidiary of AP&T, owns and operates several hydroelectric projects in Central
America. The principal assets of HWI are a 32.4% investment in the capital stock
of Hydro Honduras, S.A., a 25% investment in the capital stock of Inversiones
Pasabien, S.A., and sole ownership of Hydro West de Guatemala, LTDA., and Rio
Hondo Holding Company.
HWI accounts for its investments in Inversiones Pasabien and Hydro Honduras
using the equity method. AP&T recorded earnings of $240,257 and $252,747 related
to these investments in 2004 and 2003, respectively. The accounts and financial
results of HWI are included in the consolidated financial statements of AP&T.
15
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 6 - INVESTMENTS (CONTINUED)
HWI's 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.
Rio Hondo Holding Co. (RHH): HWI owns 100% of the stock of RHH, a Cayman Island
limited company, which owns 41% of Hidroelectrica Rio Hondo, S.A., a Guatemalan
corporation 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 2004, Ghella S.P.A., an Italian corporation, increased its capital
investment in Hidroelectricia Rio Hondo, S.A. reducing RHH's ownership from 50%
to 41%. 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.
NOTE 7 - LONG-TERM DEBT
2004 2003
------------ ------------
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 $236,797 in 2004 and
$252,337 in 2003, and the bond sinking fund amount of
$385,000 in 2004 and $365,000 in 2003, 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. $20,653,203 $21,022,663
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%. 53,945,142 55,090,531
16
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 7 - LONG-TERM DEBT (CONTINUED)
2004 2003
------------ ------------
NOTE PAYABLE TO PSE, secured by all assets of HydroWest.
This debt was repaid during 2004. $ - $1,718,068
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. 3,133,285 2,088,349
OTHER DEBT, unsecured, maturing at various dates through
2009, with interest rates ranging from 0% to 9.30%. 88,599 222,854
UNSECURED CLASS 8 TERM DEBT - TRANCHE A, due in 2013,
with imputed interest of 7.25%. 11,629,369 13,008,850
UNSECURED CLASS 8 TERM DEBT - TRANCHE B, due in 2013,
with imputed interest of 10%. This debt was repaid
in full during 2004. - 1,542,173
------------ ------------
89,449,598 94,693,488
Less current portion (2,473,734) (3,697,543)
------------ ------------
$86,975,864 $90,995,945
============ ============
Annual maturities for the five years beginning January 1, 2004, are $2,473,734,
$2,385,354, $2,398,406, $2,314,285, and $3,395,932 respectively, and $76,481,887
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 3), 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.
17
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 7 - LONG-TERM DEBT (CONTINUED)
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 2004 and 2003, AP&T owed fixed payments of $1,285,000 and
$1,065,000, respectively, to Class 8 claimants. Beginning in 2005, AP&T 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. AP&T repaid all outstanding obligations on Tranche B
amounts during 2004. 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.
AP&T entered into an agreement with PSE during 2004 to repay the outstanding
loan balance with one lump sum payment at an amount less than the carrying value
of the debt. A gain of $318,068 was recorded related to the extinguishment of
this debt.
NOTE 8 - INCOME TAXES
The components of the consolidated provision for income taxes are as follows:
2004 2003
------------- -------------
Current $ (1,037,981) $ -
Deferred (1,560,817) (1,158,218)
Utilization of net operating loss carryforwards 1,037,981 -
Prior year under accrual (12,812) -
------------- -------------
$ (1,573,629) $ (1,158,218)
============= =============
Total tax expense differs from that computed at the statutory federal income tax
rate due to the following:
2004 2003
------------- -------------
Income tax provision at federal rate of 34% $ (1,351,096) $ (846,733)
State income taxes, net of federal benefit (222,533) (159,829)
Other - (151,656)
------------- -------------
PROVISION FOR INCOME TAXES $ (1,573,629) $ (1,158,218)
============= =============
18
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES (CONTINUED)
The components of the deferred tax assets and liabilities as of December 31 are
as follows:
2004 2003
------------ -------------
Current:
Deferred tax assets $ 168,141 $ 168,168
Deferred tax liabilities (42,642) (29,562)
------------ -------------
Net current deferred tax asset $ 125,499 $ 138,606
------------ -------------
Noncurrent:
Deferred tax liabilities $10,485,329 $10,306,167
Deferred tax assets (5,643,947) (6,335,982)
------------ -------------
4,841,382 3,970,185
------------ -------------
Valuation allowance 676,513 -
------------ -------------
Net noncurrent deferred tax liability $5,517,895 $3,970,185
============ =============
Income tax recoverable reported as a current asset in the amount of $924,562 for
the year ended December 31, 2003, relates to net operating loss carryback
claims.
At December 31, 2004, AP&T had unused federal net operating loss carryforwards
of approximately $6,000,000 and state net operating carryforwards of
approximately $4,800,000, which expire in 2022. AP&T has capital loss
carryforwards of $1,785,192, which expire in varying amounts beginning in 2006.
Management anticipates generating enough taxable income in future years to
utilize all of the net operating loss carryforwards. A valuation allowance is
recorded against capital loss carryforwards, which may not be utilized.
NOTE 9 - 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 AP&T stock.
19
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 9 - EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)
Prior to reorganization, additional employer contributions were made annually at
8% of the eligible employees' gross wages. 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 participant's 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 $128,557 and $221,428, respectively, in 2004 and
$-0- and $253,955, respectively, in 2003.
NOTE 10 - 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.
In the event of employee termination, any unexercised options are canceled as of
the employee's termination date. Options canceled in 2004 and 2003, amounted to
3,500 and 44,200, 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- Weighted-
Average Average
Remaining Weighted Exercise Price
Range of Exercise Options Contractual Options Average of Options
Price Outstanding Life Exerciseable Exercise Price Exerciseable
------------------ ----------- ----------- ------------ -------------- ------------
$17.40- $26.00 171,800 6.09 58,800 $ 23.34 $ 20.61
20
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 11 - BUSINESS SEGMENT INFORMATION
AP&T's electric segment provides retail and wholesale electric service including
both hydro electric and diesel generation facilities in rural portions of
Alaska. AP&T's telecommunications segment provides local telephone service also
in rural areas of Alaska. AP&T's reportable segments are strategic business
units managed separately due to their different operating and regulatory
environments. The "Other nonregulated" category includes the parent company and
segments below the quantitative threshold for separate disclosure.
(All numbers in thousands) Regulated Regulated Other
Electric Telecom Nonregulated Consolidated
-------- -------- -------- ------------
2004
Operating revenue $ 14,365 $ 15,883 $ 2,113 $ 32,361
Depreciation and amortization 2,614 3,064 405 6,083
Operating income 5,599 3,256 (553) 8,302
Interest expense 1,281 - 3,855 5,136
Interest income 211 - 78 289
Equity earnings in investments - - 240 240
Total fixed assets 78,825 40,664 274 119,763
Capital expenditure 2,162 1,603 140 3,905
(All numbers in thousands) Regulated Regulated Other
Electric Telecom Nonregulated Consolidated
-------- -------- -------- ------------
2003
Operating revenue $ 13,969 $ 14,653 $ 2,100 $ 30,722
Depreciation and amortization 2,583 2,942 300 5,825
Operating income 5,881 2,995 (441) 8,435
Interest expense 1,303 - 2,789 4,092
Interest income 239 - 83 322
Equity earnings in investments - - 253 253
Total fixed assets 77,961 39,161 400 117,522
Capital expenditure 1,379 1,042 55 2,476
NOTE 12 - 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.
21
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 12 - 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,
2004, 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 AP&T for
similar debt instruments of comparable maturities.
The carrying amount of long-term debt approximates the estimated fair value at
December 31, 2004, due to the low interest rate environment and the current
rates for AP&T's long-term debt obligations.
NOTE 13 - CAPITAL LEASES
AP&T 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, 2004:
Equipment $ 140,134
Less accumulated amortization 20,992
----------
NET CAPITALIZED $ 119,142
==========
Amortization on assets under capital leases charged to depreciation expense was
$10,496 in 2004.
22
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 13 - CAPITAL LEASES (CONTINUED)
The following is a schedule by years of future lease payments for the capital
leases listed on the previous page, together with the present value of the net
minimum lease payments as of December 31, 2004.
2005 $ 36,658
2006 36,658
2007 27,520
---------
Total lease payments 100,836
Less amount representing interest 12,237
---------
Present value of lease payments 88,599
Less current portion 29,614
---------
$ 58,985
=========
AP&T's obligations under capital leases are included as long-term debt in Note
7.
NOTE 14 - SPECIAL FUNDS - RESTRICTED
Special funds - restricted consists of the balance of proceeds from the note
payable to secure Power Revenue Bonds Series 1997 at Goat Lake Hydro, Inc. (see
Note 7). U.S. Bank Trust National Association in accordance with the Trust
Indenture dated December 1, 1997, is holding these funds. The funds are
restricted for use according to provisions of the Loan Agreement and by the Use
of Proceeds and Arbitrage Certificate dated December 1, 1997.
Restricted funds are held in the following accounts and are recorded at cost:
2004 2003
----------- -----------
Project Fund $4,289,389 $4,307,933
Bond Reserve Fund 1,674,621 1,808,105
Bond Renewal and Replacement Fund 504,813 494,737
Other miscellaneous restricted funds 20,000 -
----------- -----------
$6,488,823 $6,610,775
=========== ===========
AP&T is required to maintain in the Bond Reserve Fund, at a minimum, an amount
equal to the interest and principal due in the next twelve months. The Bond
Renewal and Replacement Funds are required to remain in reserve for the term of
the bonds. The Project Fund is available for use on other designated projects.
23
ALASKA POWER & TELEPHONE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 15 - OTHER DEFERRED CREDITS
Other deferred credits consist of the following at December 31:
2004 2003
---------- ----------
Refundable construction deposits $ 307,684 $ 285,625
Construction grant in excess of costs 556,740 -
---------- ----------
$ 864,424 $ 285,625
========== ==========
24
Alaska Power & Telephone Co.
Consolidated BS -- Page 1 of 3
December 31, 2004
Power
APC BBL GLH Total
ASSETS
Property plant and equipment:
Electric $50,784,021 $10,513,612 $17,526,762 $78,824,396
Telecommunications 0 0 0 0
Non-utility 0 0 0 0
------------ ------------ ------------ -----------
50,784,021 10,513,612 17,526,762 78,824,396
Less: accumulated depreciation (21,937,322) (2,009,138) (2,175,263) (26,121,723
------------ ------------ ------------ -----------
28,846,699 8,504,474 15,351,499 52,702,672
Utility plant under construction 2,888,823 854 0 2,889,677
------------ ------------ ------------ -----------
Total prop, plant and equipment net 31,735,522 8,505,328 15,351,499 55,592,349
Other assets:
Preliminary survey
Investments 0 0 0 0
Goodwill, net of amortization 0 0 0 0
Notes Receivable
Rate stabilization asset 0 0 2,950,455 2,950,455
Special funds - restricted 0 0 6,488,823 6,488,823
Other assets 304,243 230,107 398,101 932,452
Deferred income taxes
Intercompany (32,533) 0 (227,036) (259,569
------------ ------------ ------------ -----------
Total other assets 271,711 230,107 9,610,343 10,112,161
Current assets:
Cash 98,235 0 0 98,235
Receivables, less allowance 2,998,578 0 712,961 3,711,539
Inventory and other current assets 665,926 0 0 665,926
Income taxes recoverable 0 0 0 0
Deferred income taxes 5,089 0 0 5,089
------------ ------------ ------------ -----------
Total current assets 3,767,827 0 712,961 4,480,788
------------ ------------ ------------ -----------
Total Assets $35,775,061 $8,735,435 $25,674,802 $70,185,298
============ ============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity:
Common stock $0 $0 $0 $0
Additional paid-in capital 0 0 0 0
Retained earnings 32,715,752 7,186,716 1,695,179 41,597,646
Current year earnings
------------ ------------ ------------ -----------
Total stockholders' equity 32,715,752 7,186,716 1,695,179 41,597,646
Long-term debt
CoBank debt 0 0 0 0
Goat Lake Hydro, Inc. note payable 0 0 20,268,203 20,268,203
AEA term debt
Capital Leases
Puget Sound Energy 0 0 0 0
Unsecured term debt - Tranche A 0 0 0 0
Unsecured term debt - Tranche B
------------ ------------ ------------ -----------
Total long-term debt 0 0 20,268,203 20,268,203
Other liabilities:
Deferred income taxes 2,590,093 1,540,719 2,769,681 6,900,493
Other deferred credits 307,682 0 556,740 864,422
------------ ------------ ------------ -----------
Total other liabilities 2,897,775 1,540,719 3,326,421 7,764,915
Current liabilities:
Accounts payable and accruals 161,534 8,001 0 169,535
Deferred income taxes
Current portion of long-term debt 0 0 385,000 385,000
------------ ------------ ------------ -----------
Total current liabilities 161,534 8,001 385,000 554,535
------------ ------------ ------------ -----------
Total Liabilities and
Stockholders' Equity $35,775,061 $8,735,435 $25,674,802 $70,185,298
============ ============ ============ ===========
Alaska Power & Telephone Co.
Consolidated BS -- Page 2 of 3
December 31, 2004
Telecom
ATC BTT NCT Total
ASSETS
Property plant and equipment:
Electric $0 $0 $0 $0
Telecommunications 37,538,177 853,857 374,321 38,766,356
Non-utility 0 0 0 0
------------ --------- --------- ------------
37,538,177 853,857 374,321 38,766,356
Less: accumulated depreciation (21,075,364) (652,896) (252,052) (21,980,313)
------------ --------- --------- ------------
16,462,813 200,961 122,269 16,786,044
Utility plant under construction 179,677 (0) 0 179,677
------------ --------- --------- ------------
Total prop, plant and equipment net 16,642,490 200,961 122,269 16,965,720
Other assets:
Preliminary survey
Investments 0 0 0 0
Goodwill, net of amortization 8,550,741 0 0 8,550,741
Notes Receivable
Rate stabilization asset 0 0 0 0
Special funds - restricted 0 0 0 0
Other assets 69,548 0 0 69,548
Deferred income taxes
Intercompany 0 0 0
------------ --------- --------- ------------
Total other assets 8,620,290 0 0 8,620,290
Current assets:
Cash 34,809 0 0 34,809
Receivables, less allowance 1,180,922 58,250 34,363 1,273,535
Inventory and other current assets 193,230 1,220 1,690 196,140
Income taxes recoverable 0 0 0 0
Deferred income taxes 3,484 39 104 3,627
------------ --------- --------- ------------
Total current assets 1,412,445 59,508 36,157 1,508,111
------------ --------- --------- ------------
Total Assets 26,675,225 $260,470 $158,426 $27,094,121
============ ========= ========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity:
Common stock $0 $0 $0 $0
Additional paid-in capital 0 0 0 0
Retained earnings 23,472,209 216,877 89,692 23,778,778
Current year earnings
------------ --------- --------- ------------
Total stockholders' equity 23,472,209 216,877 89,692 23,778,778
Long-term debt
CoBank debt 0 0 0 0
Goat Lake Hydro, Inc. note payable 0 0 0 0
AEA term debt 0
Capital Leases
Puget Sound Energy 0 0 0
Unsecured term debt - Tranche A 0 0 0 0
Unsecured term debt - Tranche B
------------ --------- --------- ------------
Total long-term debt 0 0 0 0
Other liabilities:
Deferred income taxes 2,827,834 35,164 63,552 2,926,550
Other deferred credits 0 0 0 0
------------ --------- --------- ------------
Total other liabilities 2,827,834 35,164 63,552 2,926,550
Current liabilities:
Accounts payable and accruals 375,181 8,428 5,183 388,792
Deferred income taxes
Current portion of long-term debt 0 0 0 0
------------ --------- --------- ------------
Total current liabilities 375,181 8,428 5,183 388,792
------------ --------- --------- ------------
Total Liabilities and
Stockholders' Equity 26,675,225 $260,470 $158,426 $27,094,121
============ ========= ========= ============
Alaska Power & Telephone Co.
Consolidated BS -- Page 3 of 3
December 31, 2004
HWI NonReg
ALD ATW Combined Total APT Total
ASSETS
Property plant and equipment:
Electric $0 $0 $0 $0 $0 $78,824,394
Telecommunications 0 1,897,883 0 1,897,883 (1) 40,664,238
Non-utility 0 0 139,141 139,141 135,055 274,196
---- ----------- ----------- ----------- ------------ -------------
0 1,897,883 139,141 2,037,024 135,054 119,762,828
Less: accumulated depreciation 0 (1,148,181) (81,859) (1,230,040) (1,273) (49,333,349)
---- ----------- ----------- ----------- ------------ -------------
0 749,703 57,282 806,984 133,781 70,429,479
Utility plant under construction 0 77,032 0 77,032 2 3,146,388
---- ----------- ----------- ----------- ------------ -------------
Total prop, plant and equipment net 0 826,735 57,282 884,017 133,783 73,575,867
Other assets:
Preliminary survey
Investments 0 0 4,203,396 4,203,396 2,994,856 7,198,252
Goodwill, net of amortization 0 0 0 0 715,662 9,266,403
Notes Receivable
Rate stabilization asset 0 0 0 0 0 2,950,455
Special funds - restricted 0 0 0 0 0 6,488,823
Other assets 0 0 2,174 2,174 1,852,049 2,856,224
Deferred income taxes
Intercompany 0 0 (7,225) (7,225) 266,794 (0)
---- ----------- ----------- ----------- ------------ -------------
Total other assets 0 0 4,198,345 4,198,345 5,829,361 28,760,157
Current assets:
Cash 0 12,765 287,977 300,742 5,817,059 6,250,844
Receivables, less allowance 0 71,778 17,514 89,292 334,752 5,409,117
Inventory and other current assets 0 388,209 4,160 392,370 212,431 1,466,867
Income taxes recoverable 0 0 0 0 10,000 10,000
Deferred income taxes 0 727 0 727 116,056 125,499
---- ----------- ----------- ----------- ------------ -------------
Total current assets 0 473,479 309,651 783,130 6,490,298 13,262,327
---- ----------- ----------- ----------- ------------ -------------
Total Assets $0 $1,300,214 $4,565,277 $5,865,492 $12,453,443 $115,598,351
==== =========== =========== =========== ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity:
Common stock $0 $0 $0 $0 $1,376,232 $1,376,232
Additional paid-in capital 0 0 0 0 6,956,217 6,956,217
Retained earnings 0 1,221,997 4,463,211 5,685,208 (61,815,492) 9,246,141
Current year earnings
---- ----------- ----------- ----------- ------------ -------------
Total stockholders' equity 0 1,221,997 4,463,211 5,685,208 (53,483,042) 17,578,591
Long-term debt
CoBank debt 0 0 0 0 52,738,148 52,738,148
Goat Lake Hydro, Inc. note payable 0 0 0 0 0 20,268,203
AEA term debt
Capital Leases
Puget Sound Energy 0 0 0 0 3,074,382 3,074,382
Unsecured term debt - Tranche A 0 0 0 0 10,895,131 10,895,131
Unsecured term debt - Tranche B
---- ----------- ----------- ----------- ------------ -------------
Total long-term debt 0 0 0 0 66,707,661 86,975,864
Other liabilities:
Deferred income taxes 0 73,884 0 73,884 (4,383,032) 5,517,895
Other deferred credits 0 0 0 0 69,507 933,929
---- ----------- ----------- ----------- ------------ -------------
Total other liabilities 0 73,884 0 73,884 (4,313,525) 6,451,824
Current liabilities:
Accounts payable and accruals 0 4,333 102,065 106,399 1,453,612 2,118,338
Deferred income taxes
Current portion of long-term debt 0 0 0 0 2,088,734 2,473,734
---- ----------- ----------- ----------- ------------ -------------
Total current liabilities 0 4,333 102,065 106,399 3,542,347 4,592,072
---- ----------- ----------- ----------- ------------ -------------
Total Liabilities and
Stockholders' Equity $0 $1,300,214 $4,565,277 $5,865,491 $12,453,441 $115,598,351
==== =========== =========== =========== ============ =============
Alaska Power & Telephone Co.
Consolidated IS
For the Twelve Months Ending December 31, 2004
Page 1 of 3
Power
APC BBL GLH Total
REVENUE
Gross Revenue $14,340,681 $24,000 $0 14,364,681
Less: Cost of Goods Sold 5,394,349 (1,511,019) (1,536,436) 2,346,894
------------ ----------- ------------ -----------
Net Revenue 8,946,332 1,535,019 1,536,436 12,017,786
OPERATING EXPENSE
Labor 1,872,549 69,444 109,247 2,051,240
Fringe 929,716 35,852 56,413 1,021,981
Corporate Allocations 437,539 20,569 30,278 488,386
Direct Costs 696,887 27,085 60,175 784,146
Operating Taxes 56,423 1,100 14,431 71,954
Pole Rental/(Income) (151,026) 0 0 (151,026)
Property Insurance 167,039 31,548 112,224 310,811
Property Lease 79,633 181,815 9,900 271,348
Regulatory Commission Exp 53,736 0 8,388 62,124
Uncollectable Accounts 29,028 0 0 29,028
Vehicle Expense 86,161 3,947 10,155 100,263
Less: Capitalized G&A (694,781) (533) (26,614) (721,927)
------------ ----------- ------------ -----------
Total Operating Expense 3,562,905 370,827 384,598 4,318,329
Depreciation Expense 1,974,682 266,420 372,931 2,614,033
Rate Stabilization 0 0 (513,155) (513,155)
------------ ----------- ------------ -----------
Operating Income 3,408,746 897,772 1,292,062 5,598,579
Gain / (Loss) on Investment 0 0 0 0
Gain on Extinguishment of Debt 0 0 0 0
Miscellaneous 0 0 0 0
Reorganizational Expense 0 0 0 0
------------ ----------- ------------ -----------
Net Other Income (Expense) 0 0 0 0
------------ ----------- ------------ -----------
Net Income before Int and Tax 3,408,746 897,772 1,292,062 5,398,559
Interest Income 0 0 210,781 210,781
Interest Expense 0 0 (1,281,054) (1,281,054)
------------ ----------- ------------ -----------
Net Interest Inc / (Expense) 0 0 (1,070,273) (1,070,273)
------------ ----------- ------------ -----------
Net Income before Tax 3,408,746 897,772 221,789 4,528,306
Provision for Income Tax 1,349,863 355,518 87,828 1,793,209
------------ ----------- ------------ -----------
Net Income / (Loss) 2,058,883 542,254 133,961 2,735,097
============ =========== ============ ===========
Alaska Power & Telephone Co.
Consolidated IS
For the Twelve Months Ending December 31, 2004
Page 2 of 3
Telecom
ATC BTT NCT Total
REVENUE
Gross Revenue $15,222,231 $362,222 $298,860 15,883,313
Less: Cost of Goods Sold 0 0 0 0
------------ --------- --------- ----------
Net Revenue 15,222,231 362,222 298,860 15,883,313
OPERATING EXPENSE
Labor 2,889,469 72,390 63,115 3,024,975
Fringe 1,494,581 37,721 32,784 1,565,086
Corporate Allocations 483,724 34,275 30,121 548,121
Direct Costs 3,812,390 78,512 22,959 3,913,861
Operating Taxes 72,963 1,238 1,062 75,263
Pole Rental/(Income) 146,511 0 11,028 157,539
Property Insurance 178,895 4,284 3,048 186,227
Property Lease 144,239 836 1,200 146,275
Regulatory Commission Exp 0 0 0 0
Uncollectable Accounts 0 0 0 0
Vehicle Expense 68,548 1,581 937 71,066
Less: Capitalized G&A 0 0 0 0
------------ --------- --------- ----------
Total Operating Expense 9,291,320 230,837 166,255 9,688,412
Depreciation Expense 2,857,608 57,978 28,379 2,943,965
Rate Stabilization 0 0 0 0
------------ --------- --------- ----------
Operating Income 3,073,303 73,407 104,226 3,250,936
Gain / (Loss) on Investment 0 0 0 0
Gain on Extinguishment of Debt 0 0 0 0
Miscellaneous 0 0 0 0
Reorganizational Expense 0 0 0 0
------------ --------- --------- ----------
Net Other Income (Expense) 0 0 0 0
------------ --------- --------- ----------
Net Income before Int and Tax 3,073,303 73,407 104,226 3,250,936
Interest Income 0 0 0 0
Interest Expense 0 0 0 0
------------ --------- --------- ----------
Net Interest Inc / (Expense) 0 0 0 0
------------ --------- --------- ----------
Net Income before Tax 3,073,303 73,407 104,226 3,250,936
Provision for Income Tax 1,217,028 29,069 43,272 1,289,369
------------ --------- --------- ----------
Net Income / (Loss) 1,856,275 44,338 60,954 1,961,567
============ ========= ========= ==========
Alaska Power & Telephone Co.
Consolidated IS
For the Twelve Months Ending December 31, 2004
Page 3 of 3
NonReg Cons
ALD ATW HWI Total APT Total
REVENUE
Gross Revenue $511,421 $1,108,390 $491,011 2,110,822 $2,651 32,361,467
Less: Cost of Goods Sold 497,495 272,023 67,711 837,229 0 3,184,124
--------- ----------- --------- ---------- ----------- -----------
Net Revenue 13,926 836,367 423,300 1,273,593 2,651 29,177,343
OPERATING EXPENSE
Labor 18,571 216,827 330,965 566,363 1 5,642,579
Fringe 17,355 114,663 140,660 272,678 0 2,859,746
Corporate Allocations 16,915 58,790 11,962 87,667 0 1,124,173
Direct Costs 2,677 232,048 214,868 449,594 (124,755) 5,022,846
Operating Taxes 0 0 0 0 0 147,217
Pole Rental/(Income) 0 0 0 0 0 6,513
Property Insurance 1,344 9,120 0 10,464 0 507,502
Property Lease 0 42,660 0 42,660 0 460,283
Regulatory Commission Exp 0 0 0 0 0 62,124
Uncollectable Accounts 0 (6,660) 0 (6,660) 0 22,368
Vehicle Expense 0 0 0 0 0 171,329
Less: Capitalized G&A 0 0 0 0 0 (721,927)
--------- ----------- --------- ---------- ----------- -----------
Total Operating Expense 56,862 667,448 698,456 1,422,766 (124,755) 15,304,753
Depreciation Expense 0 176,231 28,160 204,391 321,002 6,083,390
Rate Stabilization 0 0 0 0 0 (513,154)
--------- ----------- --------- ---------- ----------- -----------
Operating Income (42,936) (7,313) (303,315) (353,564) (193.597) 8,302,354
Gain / (Loss) on Investment 0 0 93,195 93,195 290,676 383,871
Gain on Extinguishment of Debt 0 0 0 0 318,068 318,068
Miscellaneous 0 0 124 124 43,933 44,057
Reorganizational Expense 0 0 0 0 (227,078) (227,078)
--------- ----------- --------- ---------- ----------- -----------
Net Other Income (Expense) 0 0 93,319 93,319 425,599 518,918
--------- ----------- --------- ---------- ----------- -----------
Net Income before Int and Tax (42,936) (7,313) (209,996) (260,245) 232,002 8,821,272
Interest Income 0 0 1,227 1,227 77,000 289,008
Interest Expense 0 0 0 0 (3,855,410) (5,136,468)
--------- ----------- --------- ---------- ----------- -----------
Net Interest Inc / (Expense) 0 0 1,227 1,227 (3,978,430) (4,847,460)
--------- ----------- --------- ---------- ----------- -----------
Net Income before Tax (42,936) (7,313) (208,770) (259,019) (3,746,428) 3,973,812
Provision for Income Tax (17,003) (2,896) 0 (19,899) (1,489,050) 1,573,629
--------- ----------- --------- ---------- ----------- -----------
Net Income / (Loss) (25,933) (4,417) (208,770) (239,120) (2,257,378) 2,400,183
========= =========== ========= ========== =========== ===========
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, Naukati, 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, Thorne Bay, Metlakatla, Petersburg,Wrangell, Hyder, Haines, and
Klukwan.
Bettles Telephone, Inc. - Serving; Allakaket, Bettles,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 63,459,402 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.
Other Nonregulated Operations
HydroWest International ("HWI"), located in Cayman Islands, is a holding company
for offshore operations, 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 $4,463,211 at
12/31/2004.
ALASKA POWER & TELEPHONE COMPANY RUSSELL A. SMITH, VP/CFO
-------------------------------- --------------------------------
(Name) (Title)
P.O. BOX 3222, PORT TOWNSEND, WASHINGTON 98368