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CENTRAL 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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CENTRAL OHIO COAL COMPANY
STATEMENT OF INCOME
FOR THE QUARTER ENDED JUNE 30, 1999
(UNAUDITED)
(in thousands)
OPERATING REVENUES $22,240
COST OF OPERATION 22,904
OPERATING LOSS (664)
NONOPERATING INCOME 397
LOSS BEFORE FEDERAL INCOME TAXES (267)
FEDERAL INCOME TAX CREDIT (267)
NET INCOME $ -
STATEMENT OF RETAINED EARNINGS
FOR THE QUARTER ENDED JUNE 30, 1999
(UNAUDITED)
(in thousands)
BALANCE AT BEGINNING OF PERIOD $1
NET INCOME -
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)
JUNE 30,
1999
(in thousands)
ASSETS
MINING PLANT:
Mining Plant in Service $ 50,932
Accumulated Depreciation and Amortization 41,614
NET MINING PLANT 9,318
OTHER PROPERTY AND INVESTMENTS 12,244
CURRENT ASSETS:
Cash and Cash Equivalents 52,953
Accounts Receivable:
General 1,239
Affiliated Companies 3,813
Coal 132
Materials and Supplies 6,825
Prepayments 71
TOTAL CURRENT ASSETS 65,033
DEFERRED INCOME TAXES 52,546
DEFERRED CHARGES 424
TOTAL $139,565
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CENTRAL OHIO COAL COMPANY
BALANCE SHEET
(UNAUDITED)
JUNE 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 1
TOTAL SHAREHOLDER'S EQUITY 8
OTHER NONCURRENT LIABILITIES:
Accrued Postretirement Benefits Other Than Pensions 48,345
Accrued Reclamation Costs 45,306
Other Operating Reserves 27,297
TOTAL OTHER NONCURRENT LIABILITIES 120,948
CURRENT LIABILITIES:
Accounts Payable:
General 1,552
Affiliated Companies 299
Taxes Accrued 9,024
Accrued Vacation Pay 985
Workers' Compensation Claims 581
Other 1,681
TOTAL CURRENT LIABILITIES 14,122
DEFERRED CREDITS 4,487
TOTAL $139,565
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CENTRAL 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 $10.8 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.
LEASE BUYOUT
In April 1999 the Company bought out its only remaining lease for
$25.7 million. The lease, which was for a dragline, had been
accounted for as an operating lease and was not reflected on the
balance sheet. After taking into account amounts previously provided
for the lease buyout and the unamortized gain from the prior sale and
leaseback of the dragline, the Company recorded in mining plant an
asset of $9.7 million for the dragline.
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 American Electric Power's (AEP's) efforts to comply
with Phase II of the Clean Air Act Amendments of 1990. The reduction
will take place in late October.
The Company will reduce approximately 100 positions, which will
include those represented by the United Mine Workers of America
(UMWA), as well as non-represented, salaried positions.
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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 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 $ 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 $ -
Add: Interest Charges -
Less: Nonoperating Income 397
E. Applied Cost-of-Capital Billing Adder:
1. Current Quarter $ (397)
2. Year-to-Date $ (1,215)
II. Coal Billing Calculation:
A. Total Operating Expenses (a) $ 22,637
B. Add: Cost-of-Capital Billing Adder as Applied per E. 1. of Section I (397)
C. Cost Applicable to Current Quarter Coal Billings 22,240
Less: Cost Applicable to Coal Sold to Unaffiliated Companies 590
Cost Applicable to Current Quarter Coal Billings to Ohio Power $ 21,650
D. Coal Sold and Shipped in Current Quarter to Ohio Power (in tons) 306,903
E. Average Price per Ton to Ohio Power (in dollars) (C/D) $70.54
(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 JUNE 30, 1999
(in thousands)
Direct Labor-UMW* $ 525
Indirect Labor-UMW* 1,793
Benefits-UMW* 1,908
Salaries and Benefits-Nonunion 1,161
Operating Supplies 1,128
Repair Parts and Materials 1,297
Electricity and Other Utilities 684
Outside Services-Maintenance, Haulage and Reclamation 561
Taxes Other Than Federal Income Taxes** 489
Rental of Equipment 12
Depreciation, Depletion and Amortization 3,969
Mining Cost Normalization*** 5,715
Reclamation 3,106
Other Production Costs 589
Subtotal 22,937
Transfers of Production Costs (to)/from Coal Inventory (33)
Total $22,904
* 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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CENTRAL 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 $ 324 $ - $ 324
Mining Structures and Equipment 47,718 39,322 8,396
Coal Interests (net of depletion) 598 - 598
Leasehold Improvements 2,292 2,292 -
Total Mining Plant in Service $50,932 $41,614 $9,318
