<PAGE>
SOUTHERN OHIO COAL COMPANY
QUARTERLY REPORT PER REQUIREMENTS
OF HOLDING COMPANY ACT RELEASE NO. 26573
FOR THE QUARTER ENDED DECEMBER 31, 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
Construction Expenditure Budget 8
<PAGE>
<PAGE>
SOUTHERN OHIO COAL COMPANY
STATEMENT OF INCOME
FOR THE QUARTER ENDED DECEMBER 31, 1998
(UNAUDITED)
(in thousands)
OPERATING REVENUES $56,169
COST OF OPERATION 54,711
OPERATING INCOME 1,458
INTEREST CHARGES 646
OPERATING INCOME BEFORE FEDERAL INCOME TAXES 812
FEDERAL INCOME TAXES ON OPERATIONS 619
NET INCOME FROM OPERATIONS 193
NONOPERATING INCOME 223
NET INCOME $ 416
STATEMENT OF RETAINED EARNINGS
FOR THE QUARTER ENDED DECEMBER 31, 1998
(UNAUDITED)
(in thousands)
BALANCE AT BEGINNING OF PERIOD $23,338
NET INCOME 416
CASH DIVIDENDS DECLARED 416
BALANCE AT END OF PERIOD $23,338
The common stock of the Company is wholly owned by Ohio Power Company.
<PAGE>
<PAGE>
SOUTHERN OHIO COAL COMPANY
BALANCE SHEET
(UNAUDITED)
December 31,
1998
(in thousands)
ASSETS
MINING PLANT:
Mining Plant in Service $373,694
Construction Work in Progress 3,308
Total Mining Plant 377,002
Accumulated Depreciation and Amortization 241,071
NET MINING PLANT 135,931
OTHER PROPERTY AND INVESTMENTS 87,652
CURRENT ASSETS:
Cash and Cash Equivalents 4,500
Accounts Receivable:
General 3,607
Affiliated Companies 9,015
Coal 1,794
Materials and Supplies 10,819
Accrued Tax Benefit 1,753
Other 644
TOTAL CURRENT ASSETS 32,132
REGULATORY ASSETS 41,167
DEFERRED CHARGES 3,192
TOTAL $300,074
<PAGE>
<PAGE>
SOUTHERN OHIO COAL COMPANY
BALANCE SHEET
(UNAUDITED)
December 31,
1998
(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 25,043
TOTAL LONG-TERM DEBT 55,043
OTHER NONCURRENT LIABILITIES:
Obligations Under Capital Leases 26,838
Accrued Postretirement Benefits Other Than Pensions 37,984
Operating Reserves 35,862
TOTAL OTHER NONCURRENT LIABILITIES 100,684
CURRENT LIABILITIES:
Long-term Debt Due Within One Year 10,903
Short-term Debt 6,000
Accounts Payable:
General 8,343
Affiliated Companies 2,834
Interest Accrued 798
Accrued Vacation Pay 3,555
Workers' Compensation Claims 7,704
Obligations Under Capital Leases 13,945
Other 5,034
TOTAL CURRENT LIABILITIES 59,116
DEFERRED INCOME TAXES 15,837
DEFERRED CREDITS 1,362
TOTAL $300,074
<PAGE>
<PAGE>
SOUTHERN OHIO COAL COMPANY
INFORMATION CONCERNING MINE OPERATIONS AND CAPITAL IMPROVEMENTS
FOR THE QUARTER ENDED DECEMBER 31, 1998
As discussed in Note 2 under the heading Litigation of the Notes to
Financial Statements in the 1998 Annual Report, the Internal Revenue
Service (IRS) agents auditing the AEP System's consolidated federal
income tax returns for the years 1991 to 1993 requested a ruling from
their National Office that certain interest deductions claimed by the
Company relating to AEP's corporate owned life insurance (COLI) program
should not be allowed. As a result of a suit filed by the Company in US
District Court (discussed below) this request for ruling was withdrawn
by the IRS agents. Adjustments have been or will be proposed by the IRS
disallowing COLI interest deductions for taxable years 1991-96.
In 1998 the Company made payments of taxes and interest attributable
to COLI interest deductions for taxable years 1991-97 to avoid the
potential assessment by the IRS of any additional above market rate
interest on the contested amount. The payments to the IRS are 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 plus
interest. In order to resolve this issue without further delay, on
March 24, 1998, the Company filed suit against the US in the US District
Court for the Southern District of Ohio. Management believes that it
has a meritorious position and will vigorously pursue this lawsuit. A
disallowance of the COLI interest deductions through December 31, 1998
would total approximately $30.6 million (including interest). In the
event the resolution of this matter is unfavorable, the Company expects
to recover from Ohio Power Company all of its costs under the terms of
the coal supply agreement.
<PAGE>
<PAGE>
<TABLE> SOUTHERN OHIO COAL COMPANY
CALCULATION OF COST OF CAPITAL AND STATEMENT OF COST OF COMMERCIAL COAL SOLD AND SHIPPED
FOR THE QUARTER ENDED DECEMBER 31, 1998
(in thousands, except as noted)
<CAPTION> October through
December
1998
<S> <C>
I. Calculation of Cost-of-Capital Compensation:
A. Equity Investment exclusive of Retained Earnings 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 Nos. 26573:
10.51% per annum, 2.6275% per quarter .026275
C. Earnings Allowable on Equity Investment
1. Current Quarter $ 1,174
2. Year-to-Date $ 4,672
D. Net Income per Statement of Income (a) $ 416
Add: Interest Charges 646
Less: Nonoperating Income 223
E. Applied Cost-of-Capital Billing Adder:
1. Current Quarter $ 839
2. Year-to-Date $ 3,739
II. Coal Billing Calculation - Meigs Division:
A. Total Operating Expenses (b) $ 55,330
B. Add: Cost-of-Capital Billing Adder as Applied per E. 1. of Section I 839
C. Cost Applicable to Current Quarter Coal Billings 56,169
Less: Cost Applicable to Coal Sold to Unaffiliated Companies -
Cost Applicable to Current Quarter Coal Billings to Ohio Power $ 56,169
D. Coal Sold and Shipped in Current Quarter to Ohio Power (in tons) 1,031,702
E. Average Price per Ton to Ohio Power (in dollars) (C/D) $54.44
(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 costs 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.
/TABLE
<PAGE>
<PAGE>
SOUTHERN OHIO COAL COMPANY
STATEMENT OF COST OF OPERATION
FOR THE QUARTER ENDED DECEMBER 31, 1998
(in thousands)
Direct Labor-UMW* $ 1,887
Indirect Labor-UMW* 5,446
Benefits-UMW* 6,178
Salaries and Benefits-Nonunion 4,663
Operating Supplies 3,538
Repair Parts and Materials 6,930
Electricity and Other Utilities 1,759
Outside Services-Maintenance, Haulage and Reclamation 3,543
Taxes Other Than Federal Income Taxes** 1,523
Rental of Equipment 6,990
Depreciation, Depletion and Amortization 4,241
Mining Cost Normalization*** 3,542
Other Production Costs 4,679
Subtotal 54,919
Transfers of Production Costs (to)/from Coal Inventory (208)
Total $54,711
* United Mine Workers of America.
** Excludes FICA, Federal Unemployment and State Unemployment
Taxes. These costs are reflected in benefits.
*** Represents the deferral/accrual required to establish a monthly
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.
<PAGE>
<PAGE>
SOUTHERN OHIO COAL COMPANY
ANALYSIS OF MINING PLANT IN SERVICE
AND RELATED ACCUMULATED PROVISIONS FOR
DEPRECIATION AND AMORTIZATION
December 31, 1998
Net
Gross Accumulated Carrying
Cost Provisions Amount
(in thousands)
Description
Surface Lands $ 7,629 $ - $ 7,629
Mining Structures and Equipment 229,540 156,756 72,784
Coal Interests (net of depletion) 2,376 - 2,376
Mine Development Costs 134,149 84,315 49,834
Total Mining Plant
in Service $373,694 $241,071 $132,623
<PAGE>
<PAGE>
SOUTHERN OHIO COAL COMPANY
CONSTRUCTION EXPENDITURE BUDGET - 1999*
Description Budgeted Amount
(in thousands)
Mine 2 Northeast Bleeder Shaft $1,342
Mine 2 Water Treatment Facility Thickener 732
Mine Plant Blanket 651
Mine 31 Expansion of Refuse Area & Slurry Pond 550
Mine 2 Third Northeast Substation 548
Subsidence 189
Purchase of Mineral Rights 125
Pre-Planning Blanket 100
$4,237
*This budget does not include any possible lease transactions.
