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SOUTHERN OHIO COAL COMPANY
QUARTERLY REPORT PER REQUIREMENTS
OF HOLDING COMPANY ACT RELEASE NO. 26573
FOR THE QUARTER ENDED JUNE 30, 1999
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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SOUTHERN OHIO COAL COMPANY
STATEMENT OF INCOME
FOR THE QUARTER ENDED JUNE 30, 1999
(UNAUDITED)
(in thousands)
OPERATING REVENUES $55,233
COST OF OPERATION 52,803
OPERATING INCOME 2,430
INTEREST CHARGES 546
OPERATING INCOME BEFORE FEDERAL INCOME TAXES 1,884
FEDERAL INCOME TAXES ON OPERATIONS 1,729
NET INCOME FROM OPERATIONS 155
NONOPERATING INCOME 257
NET INCOME $ 412
STATEMENT OF RETAINED EARNINGS
FOR THE QUARTER ENDED JUNE 30, 1999
(UNAUDITED)
(in thousands)
BALANCE AT BEGINNING OF PERIOD $23,338
NET INCOME 412
CASH DIVIDENDS DECLARED 412
BALANCE AT END OF PERIOD $23,338
The common stock of the Company is wholly owned by Ohio Power Company.
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SOUTHERN OHIO COAL COMPANY
BALANCE SHEET
(UNAUDITED)
June 30,
1999
(in thousands)
ASSETS
MINING PLANT:
Mining Plant in Service $377,707
Construction Work in Progress 24
Total Mining Plant 377,731
Accumulated Depreciation and Amortization 256,359
NET MINING PLANT 121,372
OTHER PROPERTY AND INVESTMENTS 87,400
CURRENT ASSETS:
Cash and Cash Equivalents 2,685
Accounts Receivable:
General 4,616
Affiliated Companies 15,154
Coal 3,629
Materials and Supplies 11,414
Other 409
TOTAL CURRENT ASSETS 37,907
REGULATORY ASSETS 28,511
DEFERRED CHARGES 16,924
TOTAL $292,114
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SOUTHERN OHIO COAL COMPANY
BALANCE SHEET
(UNAUDITED)
June 30,
1999
(in thousands)
CAPITALIZATION AND LIABILITIES
SHAREHOLDER'S EQUITY:
Common Stock - Par Value $1:
Authorized and Outstanding - 5,000 Shares $ 5
Premium on Common Stock 9,996
Other Paid-in Capital 34,693
Retained Earnings 23,338
TOTAL SHAREHOLDER'S EQUITY 68,032
LONG-TERM DEBT:
Notes Payable 30,000
Finance Obligations 18,445
TOTAL LONG-TERM DEBT 48,445
OTHER NONCURRENT LIABILITIES:
Obligations Under Capital Leases 23,094
Accrued Postretirement Benefits Other Than Pensions 41,026
Operating Reserves 37,234
TOTAL OTHER NONCURRENT LIABILITIES 101,354
CURRENT LIABILITIES:
Long-term Debt Due Within One Year 11,283
Short-term Debt 5,200
Accounts Payable:
General 7,003
Affiliated Companies 4,044
Taxes Accrued 4,569
Interest Accrued 798
Accrued Vacation Pay 3,907
Workers' Compensation Claims 8,592
Obligations Under Capital Leases 15,447
Other 5,402
TOTAL CURRENT LIABILITIES 66,245
DEFERRED INCOME TAXES 6,800
DEFERRED CREDITS 1,238
TOTAL $292,114
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SOUTHERN OHIO COAL COMPANY
INFORMATION CONCERNING MINE OPERATIONS AND CAPITAL IMPROVEMENTS
FOR THE QUARTER ENDED JUNE 30, 1999
LITIGATION
As discussed in Note 2, of the Notes to Financial Statements
in the 1998 Annual Report, the deductibility of certain interest
deductions related to American Electric Power's corporate owned
life insurance (COLI) program for taxable years 1991-1996 is
under review by the Internal Revenue Service (IRS). Adjustments
have been or will be proposed by the IRS disallowing COLI
interest deductions. A disallowance of COLI interest deductions
through June 30, 1999 would reduce earnings by approximately
$30.6 million (including interest). The Company has made no
provision for any possible earnings impact from this matter.
In 1998 the Company made payments of taxes and interest
attributable to COLI interest deductions for taxable years 1991-1997 to
avoid the potential assessment by the IRS of any
additional above market rate interest on the contested amount.
These payments to the IRS are included on the Balance Sheet in
other property and investments pending the resolution of this
matter. The Company is seeking refunds through litigation of all
amounts paid plus interest.
In order to resolve this issue, the Company filed suit
against the United States (U.S.) in the U.S. District Court for
the Southern District of Ohio in March 1998. Management believes
that it has a meritorious position and will vigorously pursue
this lawsuit. In the event the resolution of this matter is
unfavorable, the Company expects to recover from Ohio Power
Company (OPCo) all of its costs under the terms of the coal
supply agreement.
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<TABLE> SOUTHERN OHIO COAL COMPANY
CALCULATION OF COST OF CAPITAL AND STATEMENT OF COST OF COMMERCIAL COAL SOLD AND SHIPPED
FOR THE QUARTER ENDED JUNE 30, 1999
(in thousands, except as noted)
<CAPTION> April through
June
1999
<S> <C>
I. Calculation of Cost-of-Capital Compensation:
A. Equity Investment at Beginning of Period:
Common Stock $ 5
Premium on Common Stock 9,996
Other Paid-in Capital 34,693
44,694
B. Rate of Return Allowable per HCAR No. 26573:
10.43% per annum, 2.6075% per quarter .026075
C. Earnings Allowable on Equity Investment
1. Current Quarter $ 1,165
2. Year-to-Date $ 2,339
D. Net Income per Statement of Income (a) $ 412
Add: Interest Charges 546
Less: Nonoperating Income 257
E. Applied Cost-of-Capital Billing Adder:
1. Current Quarter $ 701
2. Year-to-Date $ 1,579
II. Coal Billing Calculation - Meigs Division:
A. Total Operating Expenses (b) $ 54,532
B. Add: Cost-of-Capital Billing Adder as Applied per E. 1. of Section I 701
C. Cost Applicable to Current Quarter Coal Billings to Ohio Power $ 55,233
D. Coal Sold and Shipped in Current Quarter to Ohio Power (in tons) 1,226,801
E. Average Price per Ton to Ohio Power (in dollars) (C/D) $45.02
(a) The Company sold its Martinka mining division and most of the Martinka related coal reserves
to an unaffiliated company. No return on equity investment associated with these operations has been billed
since the division ceased mining coal effective July 1, 1992. All results associated with the Martinka
division since then are billed to the Parent Company, Ohio Power Company, eliminating any earnings
effect to the Company.
(b) As represented by "Cost of Operation" plus "Federal Income Taxes On Operations" reported in Statement of
Income.
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SOUTHERN OHIO COAL COMPANY
STATEMENT OF COST OF OPERATION
FOR THE QUARTER ENDED JUNE 30, 1999
(in thousands)
Direct Labor-UMW* $ 1,742
Indirect Labor-UMW* 4,961
Benefits-UMW* 5,700
Salaries and Benefits-Nonunion 5,027
Operating Supplies 3,850
Repair Parts and Materials 7,495
Electricity and Other Utilities 1,837
Outside Services-Maintenance, Haulage and Reclamation 5,061
Taxes Other Than Federal Income Taxes** 1,803
Rental of Equipment 7,232
Depreciation, Depletion and Amortization 5,021
Mining Cost Normalization*** (4,972)
Other Production Costs 7,439
Subtotal 52,196
Transfers of Production Costs (to)/from Coal Inventory 607
Total $52,803
* United Mine Workers of America.
** Excludes FICA, Federal Unemployment and State Unemployment Taxes.
These costs are reflected in employee benefits.
*** Represents the deferral/accrual required to establish a selling
price based on forecasted results for 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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SOUTHERN OHIO COAL COMPANY
ANALYSIS OF MINING PLANT IN SERVICE
AND RELATED ACCUMULATED PROVISIONS FOR
DEPRECIATION AND AMORTIZATION
June 30, 1999
Net
Gross Accumulated Carrying
Cost Provisions Amount
(in thousands)
Description
Surface Lands $ 7,629 $ - $ 7,629
Mining Structures and Equipment 233,995 165,517 68,478
Coal Interests (net of depletion) 1,934 - 1,934
Mine Development Costs 134,149 90,842 43,307
Total Mining Plant in Service $377,707 $256,359 $121,348
