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SOUTHERN OHIO COAL COMPANY
QUARTERLY REPORT PER REQUIREMENTS
OF HOLDING COMPANY ACT RELEASE NO. 26573
FOR THE QUARTER ENDED DECEMBER 31, 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
Construction Expenditure Budget 8
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SOUTHERN OHIO COAL COMPANY
STATEMENT OF INCOME
FOR THE QUARTER ENDED DECEMBER 31, 1999
(UNAUDITED)
(in thousands)
OPERATING REVENUES $56,182
COST OF OPERATION 55,023
OPERATING INCOME 1,159
INTEREST CHARGES 548
OPERATING INCOME BEFORE FEDERAL INCOME TAXES 611
FEDERAL INCOME TAXES ON OPERATIONS 1,018
NET LOSS FROM OPERATIONS (407)
NONOPERATING INCOME 545
NET INCOME $ 138
STATEMENT OF RETAINED EARNINGS
FOR THE QUARTER ENDED DECEMBER 31, 1999
(UNAUDITED)
(in thousands)
BALANCE AT BEGINNING OF PERIOD $23,338
NET INCOME 138
CASH DIVIDENDS DECLARED 276
BALANCE AT END OF PERIOD $23,200
The common stock of the Company is wholly owned by Ohio Power Company.
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SOUTHERN OHIO COAL COMPANY
BALANCE SHEET
(UNAUDITED)
December 31,
1999
(in thousands)
ASSETS
MINING PLANT:
Mining Plant in Service $386,568
Construction Work in Progress 754
Total Mining Plant 387,322
Accumulated Depreciation and Amortization 275,104
NET MINING PLANT 112,218
OTHER PROPERTY AND INVESTMENTS 85,937
CURRENT ASSETS:
Cash and Cash Equivalents 16,758
Accounts Receivable:
General 4,836
Affiliated Companies 4,893
Coal 112
Materials and Supplies 10,834
Other 713
TOTAL CURRENT ASSETS 38,146
REGULATORY ASSETS 32,364
DEFERRED INCOME TAXES 1,613
DEFERRED CHARGES 2,234
TOTAL $272,512
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SOUTHERN OHIO COAL COMPANY
BALANCE SHEET
(UNAUDITED)
December 31,
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 2,562
Other Paid-in Capital 26,320
Retained Earnings 23,200
TOTAL SHAREHOLDER'S EQUITY 52,087
LONG-TERM DEBT:
Notes Payable 30,000
Finance Obligations 12,506
TOTAL LONG-TERM DEBT 42,506
OTHER NONCURRENT LIABILITIES:
Obligations Under Capital Leases 20,318
Accrued Postretirement Benefits Other Than Pensions 44,636
Accrued Reclamation Costs 23,885
Operating Reserves 17,714
TOTAL OTHER NONCURRENT LIABILITIES 106,553
CURRENT LIABILITIES:
Long-term Debt Due Within One Year 11,677
Short-term Debt 5,400
Accounts Payable:
General 10,634
Affiliated Companies 3,797
Taxes Accrued 2,108
Interest Accrued 814
Accrued Vacation Pay 3,242
Workers' Compensation Claims 8,213
Obligations Under Capital Leases 20,339
Other 3,908
TOTAL CURRENT LIABILITIES 70,132
DEFERRED CREDITS 1,234
TOTAL $272,512
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SOUTHERN OHIO COAL COMPANY
INFORMATION CONCERNING MINE OPERATIONS AND CAPITAL IMPROVEMENTS
FOR THE QUARTER ENDED DECEMBER 31, 1999
TAXES
As discussed in Note 2 of the Notes to Financial Statements in the
1998 Annual Report, the deductibility of certain interest deductions
related to 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 December 31, 1999 would increase expenses by approximately $30.7
million (including interest).
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. In 1999 a US Tax Court judge decided in the Winn-Dixie
Stores v. Commissioner case that a corporate taxpayer's COLI
interest deductions should be disallowed. Notwithstanding the Tax
Court's decision in Winn-Dixie, management has made no provision for any
possible adverse earnings impact from the matter because it 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.
RETURN OF CAPITAL
In October 1999, the Company declared and paid a return of capital
of $15,944,000 to its parent, Ohio Power Company.
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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 DECEMBER 31, 1999
(in thousands, except as noted)
<CAPTION> October through
December
1999
<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 2,562
Other Paid-in Capital 26,320
28,887
B. Rate of Return Allowable per HCAR Nos. 26573:
10.43% per annum, 2.6075% per quarter .026075
C. Earnings Allowable on Equity Investment
1. Current Quarter $ 753
2. Year-to-Date $ 4,257
D. Net Income per Statement of Income (a) $ 138
Add: Interest Charges 548
Less: Nonoperating Income 545
E. Applied Cost-of-Capital Billing Adder:
1. Current Quarter $ 141
2. Year-to-Date $ 2,526
II. Coal Billing Calculation - Meigs Division:
A. Total Operating Expenses (b) $ 56,041
B. Add: Cost-of-Capital Billing Adder as Applied per E. 1. of Section I 141
C. Cost Applicable to Current Quarter Coal Billings 56,182
Less: Cost Applicable to Coal Sold to Unaffiliated Companies -
Cost Applicable to Current Quarter Coal Billings to Ohio Power $ 56,182
D. Coal Sold and Shipped in Current Quarter to Ohio Power (in tons) 968,675
E. Average Price per Ton to Ohio Power (in dollars) (C/D) $58.00
(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>
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SOUTHERN OHIO COAL COMPANY
STATEMENT OF COST OF OPERATION
FOR THE QUARTER ENDED DECEMBER 31, 1999
(in thousands)
Direct Labor-UMW* $ 2,106
Indirect Labor-UMW* 5,542
Benefits-UMW* 7,400
Salaries and Benefits-Nonunion 4,672
Operating Supplies 3,634
Repair Parts and Materials 4,029
Electricity and Other Utilities 1,794
Outside Services-Maintenance, Haulage and Reclamation 5,007
Taxes Other Than Federal Income Taxes** 1,291
Rental of Equipment 8,196
Depreciation, Depletion and Amortization 5,045
Mining Cost Normalization*** 2,362
Other Production Costs 3,664
Subtotal 54,742
Transfers of Production Costs (to)/from Coal Inventory 281
Total $55,023
* 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.
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SOUTHERN OHIO COAL COMPANY
ANALYSIS OF MINING PLANT IN SERVICE
AND RELATED ACCUMULATED PROVISIONS FOR
DEPRECIATION AND AMORTIZATION
December 31, 1999
Net
Gross Accumulated Carrying
Cost Provisions Amount
(in thousands)
Description
Surface Lands $ 7,578 $ - $ 7,578
Mining Structures and Equipment 243,228 178,421 64,807
Coal Interests (net of depletion) 1,613 - 1,613
Mine Development Costs 134,149 96,683 37,466
Total Mining Plant
in Service $386,568 $275,104 $111,464
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SOUTHERN OHIO COAL COMPANY
CONSTRUCTION EXPENDITURE BUDGET - 2000*
Description Budgeted Amount
(in thousands)
Mine Plant Blanket $1,440
Continuous Miner 750
Refuse Area and Slurry Pond 539
Rebuild Continuous Miner 500
Purchase Mineral Rights 325
Bulldozer 305
Belt Storage Unit 260
Transportation Blanket 210
Subsidence 35
$4,364
*This budget does not include any possible lease transactions.
