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CENTRAL 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
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CENTRAL OHIO COAL COMPANY
STATEMENT OF INCOME
FOR THE QUARTER ENDED DECEMBER 31, 1998
(UNAUDITED)
(in thousands)
OPERATING REVENUES $21,446
COST OF OPERATION 22,956
OPERATING LOSS (1,510)
NONOPERATING INCOME 883
LOSS BEFORE INTEREST CHARGES (627)
INTEREST CHARGE (CREDIT) (2)
LOSS BEFORE FEDERAL INCOME TAXES (625)
FEDERAL INCOME TAX CREDIT (625)
NET INCOME $ -
STATEMENT OF RETAINED EARNINGS
FOR THE QUARTER ENDED DECEMBER 31, 1998
(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)
December 31,
1998
(in thousands)
ASSETS
MINING PLANT:
Mining Plant in Service $ 42,042
Accumulated Depreciation and Amortization 36,584
NET MINING PLANT 5,458
OTHER PROPERTY AND INVESTMENTS:
Disputed Tax and Interest Payment Related to COLI 10,211
Other 1,456
TOTAL OTHER PROPERTY AND INVESTMENTS 11,667
CURRENT ASSETS:
Cash and Cash Equivalents 52,477
Accounts Receivable:
General 277
Affiliated Companies 4,118
Coal 140
Materials and Supplies 6,667
Prepayments 148
TOTAL CURRENT ASSETS 63,827
DEFERRED INCOME TAXES 45,394
REGULATORY ASSETS 142
DEFERRED CHARGES 998
TOTAL $127,486
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CENTRAL OHIO COAL COMPANY
BALANCE SHEET
(UNAUDITED)
December 31,
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 40,855
Accrued Reclamation Costs 35,741
Mine Closure 27,652
Other Operating Reserves 9,435
TOTAL OTHER NONCURRENT LIABILITIES 113,683
CURRENT LIABILITIES:
Accounts Payable:
General 2,367
Affiliated Companies 409
Taxes Accrued 3,246
Accrued Reclamation Costs 4,681
Accrued Vacation Pay 607
Workers' Compensation Claims 619
Other 549
TOTAL CURRENT LIABILITIES 12,478
DEFERRED CREDITS 1,317
TOTAL $127,486
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CENTRAL 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 $10.8 million (including interest). 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.
Mine Closure
In October 1998 the Company announced plans to discontinue mining
operations effective October 31, 1999. Consequently, a provision of
$44.6 million for mine closure costs was recorded in October and
November 1998. The Company billed and recovered these costs from OPCo.
An additional provision of $6.3 million for other postretirement
benefits was recorded in February 1999 and billed to OPCo.
Big Muskie
In January 1999 the Company announced that it awarded a contract for
the dismantling and disposal of its Big Muskie dragline. The salvage
value of Big Muskie is expected to cover the cost of dismantling and
disposal.
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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 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 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 $ -
Add: Interest Charges (2)
Less: Nonoperating Income 883
E. Applied Cost-of-Capital Billing Adder:
1. Current Quarter $ (885)
2. Year-to-Date $ (2,818)
II. Coal Billing Calculation:
A. Total Operating Expenses (a) $ 22,331
B. Add: Cost-of-Capital Billing Adder as Applied per E. 1. of Section I (885)
C. Cost Applicable to Current Quarter Coal Billings 21,446
Less: Cost Applicable to Coal Sold to Unaffiliated Companies -
Cost Applicable to Current Quarter Coal Billings to Ohio Power $ 21,446
D. Coal Sold and Shipped in Current Quarter to Ohio Power (in tons) 421,584
E. Average Price per Ton to Ohio Power (in dollars) (C/D) $50.87
(a) As represented by Cost of Operation" plus Federal Income Taxes" reported in Statements of Income.
/TABLE
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CENTRAL OHIO COAL COMPANY
STATEMENT OF COST OF OPERATION
FOR THE QUARTER ENDED DECEMBER 31, 1998
(in thousands)
Direct Labor-UMW* $ 589
Indirect Labor-UMW* 1,876
Benefits-UMW* 1,473
Salaries and Benefits-Nonunion 1,173
Operating Supplies 1,534
Repair Parts and Materials 1,917
Electricity and Other Utilities 652
Outside Services-Maintenance, Haulage and Reclamation 945
Taxes Other Than Federal Income Taxes** 312
Rental of Equipment 817
Depreciation, Depletion and Amortization 987
Mining Cost Normalization*** (37,634)
Reclamation 1,320
Mine Closure Provision 44,632
Other Production Costs 2,346
Subtotal 22,939
Transfers of Production Costs (to)/from Coal Inventory 17
Total $ 22,956
* 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 any deferral is
eliminated by year-end. The $37.6 million credit represents mine
closure costs included in the normalized selling prices billed
monthly but not accrued as a liability until October 1998 when
the Board of Directors approved the closing of the Muskingum
mine.
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CENTRAL 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 $ 324 $ - $ 324
Mining Structures and Equipment 38,048 34,292 3,756
Coal Interests (net of depletion) 1,378 - 1,378
Leasehold Improvements 2,292 2,292 -
Total Mining Plant
in Service $42,042 $36,584 $5,458
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CENTRAL OHIO COAL COMPANY
CONSTRUCTION EXPENDITURE BUDGET - 1999
The Company has no significant construction expenditures planned
for 1999.
