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CENTRAL OHIO COAL COMPANY
QUARTERLY REPORT PER REQUIREMENTS
OF HOLDING COMPANY ACT RELEASE NO. 26573
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
CONTENTS
Page
Statements of Income and Retained Earnings 1
Balance Sheets 2-3
Information Concerning Mine Operations and
Capital Improvements 4
Calculation of Cost of Capital and
Statement of Cost of Commercial Coal Sold and Shipped 5
Statement of Cost of Operation 6
Analysis of Mining Plant in Service 7
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CENTRAL OHIO COAL COMPANY
STATEMENT OF INCOME
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(in thousands)
OPERATING REVENUES $28,135
COST OF OPERATION 28,873
OPERATING LOSS (738)
NONOPERATING INCOME 829
INCOME BEFORE INTEREST CHARGES 91
INTEREST CHARGES 26
INCOME BEFORE FEDERAL INCOME TAXES 65
FEDERAL INCOME TAXES 64
NET INCOME $ 1
STATEMENT OF RETAINED EARNINGS
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(in thousands)
BALANCE AT BEGINNING OF PERIOD $ -
NET INCOME 1
BALANCE AT END OF PERIOD $ 1
The common stock of the Company is wholly owned by Ohio Power Company.
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CENTRAL OHIO COAL COMPANY
BALANCE SHEET
(UNAUDITED)
September 30,
1998
(in thousands)
ASSETS
MINING PLANT:
Mining Plant in Service $ 39,136
Construction Work in Progress 1,687
Total Mining Plant 40,823
Accumulated Depreciation and Amortization 35,979
NET MINING PLANT 4,844
OTHER PROPERTY AND INVESTMENTS 11,996
CURRENT ASSETS:
Cash and Cash Equivalents 54,591
Accounts Receivable:
General 100
Affiliated Companies 6,692
Coal 157
Materials and Supplies 7,127
Prepayments 148
TOTAL CURRENT ASSETS 68,815
DEFERRED INCOME TAXES 28,997
REGULATORY ASSETS 91
DEFERRED CHARGES 1,320
TOTAL $116,063
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CENTRAL OHIO COAL COMPANY
BALANCE SHEET
(UNAUDITED)
September 30,
1998
(in thousands)
CAPITALIZATION AND LIABILITIES
SHAREHOLDER'S EQUITY:
Common Stock - Par Value $0.10:
Authorized - 100,000 Shares
Outstanding - 69,000 Shares $ 7
Retained Earnings 1
TOTAL SHAREHOLDER'S EQUITY 8
OTHER NONCURRENT LIABILITIES:
Accrued Postretirement Benefits Other Than Pensions 16,215
Accrued Reclamation Costs 35,165
Other Operating Reserves 13,282
TOTAL OTHER NONCURRENT LIABILITIES 64,662
CURRENT LIABILITIES:
Accounts Payable:
General 2,087
Affiliated Companies 765
Taxes Accrued 1,224
Accrued Reclamation Costs 4,508
Accrued Vacation Pay 990
Workers' Compensation Claims 762
Other 1,712
TOTAL CURRENT LIABILITIES 12,048
DEFERRED CREDITS 39,345
TOTAL $116,063
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CENTRAL OHIO COAL COMPANY
INFORMATION CONCERNING MINE OPERATIONS AND CAPITAL IMPROVEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
As discussed in Note 6, "Federal Income Taxes" of the Notes to
Financial Statements in the 1997 Annual Report, the Internal Revenue
Service (IRS) agents auditing the AEP System's consolidated federal
income tax returns requested a ruling from their National Office that
certain interest deductions relating to corporate owned life insurance
(COLI) claimed by the Company should not be allowed. As a result of a
suit filed in United States District Court (discussed below) this
request for ruling has been withdrawn. Adjustments have been or will be
proposed by the IRS disallowing COLI interest deductions for taxable
years 1991-96. A disallowance of the COLI interest deduction through
September 30, 1998 would reduce earnings by approximately $10.6 million
(including interest). The Company has made no provision for any
possible adverse earnings impact from this matter.
In order to resolve this issue without further delay, on March 24,
1998, the Company filed suit against the United States in the United
States District Court for the Southern District of Ohio. Management
believes that it has a meritorious position and will vigorously pursue
this lawsuit. In July 1998 the Company made a payment of taxes and
interest attributable to COLI interest deductions for taxable years
1991-96 to avoid the potential assessment by the IRS of any additional
above market rate interest on the contested amount. In September 1998
the Company made an additional payment for the 1997 tax year. The
payments were included on the balance sheet in other property and
investments pending the resolution of this matter. The Company will
seek refund, either administratively or through litigation, of all
amounts paid. In the event the resolution of this matter is
unfavorable, the Company expects to recover from OPCo all of its costs
under the terms of the coal supply agreement.
Mine Closure
In October 1998 the Company announced plans to discontinue mining
operations effective October 31, 1999. Consequently, a provision of
$38.9 million for mine closure costs was recorded in October 1998. The
Company billed and recovered these costs from OPCo.
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CENTRAL OHIO COAL COMPANY
CALCULATION OF COST OF CAPITAL AND STATEMENT OF COST OF COMMERCIAL COAL SOLD AND SHIPPED
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
(in thousands, except as noted)
<CAPTION> July through
September
1998
<S> <C>
I. Calculation of Cost-of-Capital Compensation:
A. Equity Investment at Beginning of Period:
Common Stock $ 7
B. Rate of Return Allowable per HCAR No. 26573:
10.51% per annum, 2.6275% per quarter .026275
C. Earnings Allowable on Equity Investment
1. Current Quarter $ -
2. Year-to-Date $ -
D. Net Income per Statement of Income $ 1
Add: Interest Charges 26
Less: Nonoperating Income 829
E. Applied Cost-of-Capital Billing Adder:
1. Current Quarter $ (802)
2. Year-to-Date $ (1,933)
II. Coal Billing Calculation:
A. Total Operating Expenses (a) $ 28,937
B. Add: Cost-of-Capital Billing Adder as Applied per E. 1. of Section I (802)
C. Cost Applicable to Current Quarter Coal Billings 28,135
Less: Cost Applicable to Coal Sold to Unaffiliated Companies -
Cost Applicable to Current Quarter Coal Billings to Ohio Power $ 28,135
D. Coal Sold and Shipped in Current Quarter to Ohio Power (in tons) 469,847
E. Average Price per Ton to Ohio Power (in dollars) (C/D) $59.88
(a) As represented by Cost of Operation plus Federal Income Taxes reported in Statement of Income.
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CENTRAL OHIO COAL COMPANY
STATEMENT OF COST OF OPERATION
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
(in thousands)
Direct Labor-UMW* $ 559
Indirect Labor-UMW* 1,866
Benefits-UMW* 1,846
Salaries and Benefits-Nonunion 1,045
Operating Supplies 1,204
Repair Parts and Materials 1,877
Electricity and Other Utilities 641
Outside Services-Maintenance, Haulage and Reclamation 621
Taxes Other Than Federal Income Taxes** 671
Rental of Equipment 806
Depreciation, Depletion and Amortization 783
Mining Cost Normalization*** 11,653
Reclamation Cost-Net 2,716
Other Production Costs 2,696
Subtotal 28,984
Transfers of Production Costs (to)/from Coal Inventory (111)
Total $28,873
* United Mine Workers of America.
** Excludes FICA, Federal Unemployment and State Unemployment.
These costs are reflected in employee benefits.
*** Represents the deferral/accrual required to establish a selling
price based on forecasted results for the remainder of the year.
The amount of mining cost normalization is established on an
"overall" company basis(i.e., not itemized) and is eliminated by
year-end.
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CENTRAL OHIO COAL COMPANY
ANALYSIS OF MINING PLANT IN SERVICE
AND RELATED ACCUMULATED PROVISIONS FOR
DEPRECIATION AND AMORTIZATION
September 30, 1998
Net
Gross Accumulated Carrying
Cost Provisions Amount
(in thousands)
Description
Surface Lands $ 324 $ - $ 324
Mining Structures and Equipment 34,760 33,687 1,073
Coal Interests (net of depletion) 1,760 - 1,760
Leasehold Improvements 2,292 2,292 -
Total Mining Plant in Service $39,136 $35,979 $3,157
