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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, 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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CENTRAL OHIO COAL COMPANY
STATEMENT OF INCOME
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(in thousands)
OPERATING REVENUES $14,999
COST OF OPERATION 15,780
OPERATING LOSS (781)
NONOPERATING INCOME 964
INCOME BEFORE FEDERAL INCOME TAXES 183
FEDERAL INCOME TAXES 182
NET INCOME $ 1
STATEMENT OF RETAINED EARNINGS
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(in thousands)
BALANCE AT BEGINNING OF PERIOD $ 1
NET INCOME 1
BALANCE AT END OF PERIOD $ 2
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,
1999
(in thousands)
ASSETS
MINING PLANT:
Mining Plant in Service $ 50,440
Accumulated Depreciation and Amortization 48,475
NET MINING PLANT 1,965
OTHER PROPERTY AND INVESTMENTS 12,567
CURRENT ASSETS:
Cash and Cash Equivalents 56,167
Accounts Receivable:
General 702
Affiliated Companies 3,019
Coal 215
Materials and Supplies 6,704
Prepayments 112
TOTAL CURRENT ASSETS 66,919
DEFERRED INCOME TAXES 54,297
DEFERRED CHARGES 295
TOTAL $136,043
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CENTRAL OHIO COAL COMPANY
BALANCE SHEET
(UNAUDITED)
September 30,
1999
(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 2
TOTAL SHAREHOLDER'S EQUITY 9
OTHER NONCURRENT LIABILITIES:
Accrued Postretirement Benefits Other Than Pensions 47,819
Accrued Reclamation Costs 45,090
Mine Closure Costs 14,412
Other Operating Reserves 10,856
TOTAL OTHER NONCURRENT LIABILITIES 118,177
CURRENT LIABILITIES:
Accounts Payable:
General 1,642
Affiliated Companies 337
Taxes Accrued 6,241
Accrued Reclamation Costs 2,490
Accrued Vacation Pay 1,015
Workers' Compensation Claims 609
Other 933
TOTAL CURRENT LIABILITIES 13,267
DEFERRED CREDITS 4,590
TOTAL $136,043
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CENTRAL OHIO COAL COMPANY
INFORMATION CONCERNING MINE OPERATIONS AND CAPITAL IMPROVEMENTS
FOR THE QUARTER ENDED SEPTEMBER 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 (AEP'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
September 30, 1999 would increase expenses by approximately $10.8
million (including interest). The Company has made no provision for
any possible impact from this matter.
The Company made payments of taxes and interest attributable to
COLI interest deductions for taxable years 1991-1998 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 (US) in the US District Court for the Southern
District of Ohio in March 1998. A US Tax Court judge recently
decided in the Winn-Dixie Stores v. Commissioner case that a
corporate taxpayer's COLI interest deductions should be disallowed.
Notwithstanding the decision in Winn-Dixie, management believes, and
has been advised by outside counsel, that it has a meritorious
position and will vigorously pursue its 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.
Layoffs
In August 1999 the Company announced plans to reduce the
232-member work force at its Muskingum Mine by approximately one-half
as a consequence of AEP's efforts to comply with Phase II of the
Clean Air Act Amendments of 1990.
In October 1999 the Company discontinued mining operations,
except for incidental coal mining available during the final
reclamation process, and reduced approximately 100 positions, which
included those represented by the United Mine Workers of America
(UMWA) as well as non-represented salaried positions. The remaining
employees will finish reclamation work and complete incidental
mining activities.
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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, 1999
(in thousands, except as noted)
<CAPTION> July through
September
1999
<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:
10.43% per annum, 2.6075% per quarter .026075
C. Earnings Allowable on Equity Investment
1. Current Quarter $ -
2. Year-to-Date $ -
D. Net Income per Statement of Income $ 1
Add: Interest Charges -
Less: Nonoperating Income 964
E. Applied Cost-of-Capital Billing Adder:
1. Current Quarter $ (963)
2. Year-to-Date $ (2,178)
II. Coal Billing Calculation:
A. Total Operating Expenses (a) $ 15,962
B. Add: Cost-of-Capital Billing Adder as Applied per E. 1. of Section I (963)
C. Cost Applicable to Current Quarter Coal Billings 14,999
Less: Cost Applicable to Coal Sold to Unaffiliated Companies 1,162
Cost Applicable to Current Quarter Coal Billings to Ohio Power $ 13,837
D. Coal Sold and Shipped in Current Quarter to Ohio Power (in tons) 258,265
E. Average Price per Ton to Ohio Power (in dollars) (C/D) $53.58
(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, 1999
(in thousands)
Direct Labor-UMW* $ 382
Indirect Labor-UMW* 1,678
Benefits-UMW* 1,810
Salaries and Benefits-Nonunion 979
Operating Supplies 933
Repair Parts and Materials 1,198
Electricity and Other Utilities 567
Outside Services-Maintenance, Haulage and Reclamation 1,003
Taxes Other Than Federal Income Taxes** 389
Rental of Equipment 22
Depreciation, Depletion and Amortization 7,352
Mining Cost Normalization*** (1)
Reclamation Cost-Net 2,765
Other Production Costs (3,214)
Subtotal 15,863
Transfers of Production Costs (to)/from Coal Inventory (83)
Total $15,780
* 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 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, 1999
Net
Gross Accumulated Carrying
Cost Provisions Amount
(in thousands)
Description
Surface Lands $ 324 $ - $ 324
Mining Structures and Equipment 47,800 46,183 1,617
Coal Interests (net of depletion) 24 - 24
Leasehold Improvements 2,292 2,292 -
Total Mining Plant in Service $50,440 $48,475 $1,965
