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SOUTHERN OHIO COAL COMPANY
QUARTERLY REPORT PER REQUIREMENTS
OF HOLDING COMPANY ACT RELEASE NO. 26573
FOR THE QUARTER ENDED MARCH 31, 2000
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
Calculation of Allowed Cost of Capital -
Effective April 1, 2000 8
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SOUTHERN OHIO COAL COMPANY
STATEMENT OF INCOME
FOR THE QUARTER ENDED MARCH 31, 2000
(UNAUDITED)
(in thousands)
OPERATING REVENUES $138,214
COST OF OPERATION 131,925
OPERATING INCOME 6,289
INTEREST CHARGES 538
OPERATING INCOME BEFORE FEDERAL INCOME TAXES 5,751
FEDERAL INCOME TAXES ON OPERATIONS 6,214
NET LOSS FROM OPERATIONS (463)
NONOPERATING INCOME 463
NET INCOME $ -
STATEMENT OF RETAINED EARNINGS
FOR THE QUARTER ENDED MARCH 31, 2000
(UNAUDITED)
(in thousands)
BALANCE AT BEGINNING OF PERIOD $23,200
NET INCOME -
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)
March 31,
2000
(in thousands)
ASSETS
MINING PLANT:
Mining Plant in Service $383,776
Construction Work in Progress 906
Total Mining Plant 384,682
Accumulated Depreciation and Amortization 295,498
NET MINING PLANT 89,184
OTHER PROPERTY AND INVESTMENTS 87,373
CURRENT ASSETS:
Cash and Cash Equivalents 87,383
Accounts Receivable:
General 5,260
Affiliated Companies 22,560
Coal 641
Materials and Supplies 11,571
Other 270
TOTAL CURRENT ASSETS 127,685
REGULATORY ASSETS 18,448
DEFERRED INCOME TAXES 41,003
DEFERRED CHARGES 1,623
TOTAL $365,316
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SOUTHERN OHIO COAL COMPANY
BALANCE SHEET
(UNAUDITED)
March 31,
2000
(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 9,433
TOTAL LONG-TERM DEBT 39,433
OTHER NONCURRENT LIABILITIES:
Obligations Under Capital Leases 15,467
Accrued Postretirement Benefits Other Than Pensions 46,446
Accrued Reclamation Costs 30,696
Operating Reserves 33,851
TOTAL OTHER NONCURRENT LIABILITIES 126,460
CURRENT LIABILITIES:
Long-term Debt Due Within One Year 11,881
Short-term Debt 4,400
Accounts Payable:
General 7,265
Affiliated Companies 3,687
Taxes Accrued 40,426
Interest Accrued 333
Accrued Vacation Pay 4,433
Workers' Compensation Claims 8,882
Accrued Rent 3,291
Obligations Under Capital Leases 20,209
Other 4,961
TOTAL CURRENT LIABILITIES 109,768
REGULATORY LIABILITIES 37,568
TOTAL $365,316
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SOUTHERN OHIO COAL COMPANY
INFORMATION CONCERNING MINE OPERATIONS AND CAPITAL IMPROVEMENTS
FOR THE QUARTER ENDED MARCH 31, 2000
TAXES
As discussed in Note 3 of the Notes to Financial Statements in the
1999 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 March 31, 2000 would increase expenses by approximately $30.8
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.
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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 MARCH 31, 2000
(in thousands, except as noted)
<CAPTION> January through
March
2000
<S> <C>
I. Calculation of Cost-of-Capital Compensation:
A. Investment 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: (re investment in item A)
1. Current Quarter $ 753
2. Year-to-Date $ 753
D. Net Income per Statement of Income (a) $ -
Add: Interest Charges 538
Less: Nonoperating Income 463
E. Applied Cost-of-Capital Billing Adder:
1. Current Quarter $ 75
2. Year-to-Date $ 75
II. Coal Billing Calculation - Meigs Division:
A. Total Operating Expenses (b) $138,139
B. Add: Cost-of-Capital Billing Adder as Applied per E. 1. of Section I 75
C. Cost Applicable to Current Quarter Coal Billings to Ohio Power $138,214
D. Coal Sold and Shipped in Current Quarter to Ohio Power (in tons) 1,051,929
E. Average Price per Ton to Ohio Power (in dollars) (C/D) $131.39
(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 results 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.
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SOUTHERN OHIO COAL COMPANY
STATEMENT OF COST OF OPERATION
FOR THE QUARTER ENDED MARCH 31, 2000
(in thousands)
Direct Labor-UMW* $ 2,331
Indirect Labor-UMW* 6,796
Benefits-UMW* 8,979
Salaries and Benefits-Nonunion 5,780
Operating Supplies 3,797
Repair Parts and Materials 7,486
Electricity and Other Utilities 1,926
Outside Services-Maintenance, Haulage and Reclamation 5,478
Taxes Other Than Federal Income Taxes** 1,569
Rental of Equipment 8,362
Depreciation, Depletion and Amortization 17,585
Mining Cost Normalization*** 36,289
Other Production Costs 26,076
Subtotal 132,454
Transfers of Production Costs (to)/from Coal Inventory (529)
Total $131,925
* 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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SOUTHERN OHIO COAL COMPANY
ANALYSIS OF MINING PLANT IN SERVICE
AND RELATED ACCUMULATED PROVISIONS FOR
DEPRECIATION AND AMORTIZATION
March 31, 2000
Net
Gross Accumulated Carrying
Cost Provisions Amount
(in thousands)
Description
Surface Lands $ 7,578 $ - $ 7,578
Mining Structures and Equipment 240,932 187,291 53,641
Coal Interests (net of depletion) 1,117 - 1,117
Mine Development Costs 134,149 108,207 25,942
Total Mining Plant in Service $383,776 $295,498 $88,278
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OHIO POWER COMPANY'S (OPCo's) ACTIVE COAL MINES
CENTRAL OHIO COAL COMPANY; SOUTHERN OHIO COAL - MEIGS;
AND WINDSOR COAL COMPANY
ALLOWED AFTER-TAX COMPOSITE COST-OF-CAPITAL IS 10.27%
EFFECTIVE 4-1-00
THE 10.27% IS OPCo's WEIGHTED AVERAGE COST-OF-CAPITAL AND WAS
CALCULATED AS FOLLOWS:
CAPITALIZATION AFTER-TAX
@12/31/99 PERCENT EFFECTIVE WEIGHTED
COMPONENT (000) OF TOTAL COST RATE OF RETURN
Long-term Debt $1,077,200(a) 43.67% 7.19%(c) 3.14%
Preferred Stock 25,787 1.05% 4.88%(c) 0.05%
Common Stock 1,363,572(b) 55.28% 12.81%(d) 7.08%
Total $2,466,559 100.00% 10.27%*
Authorization: HCAR 35-26573 dated 9-13-96
(SEC File No. 70-8611).
(a) Includes long-term debt due in one year and is net of
unamortized debt premium and discount, unamortized debt
expense and unamortized loss on reacquired debt.
(b) Common equity includes premium on preferred stock and
excludes undistributed subsidiary earnings.
(c) Embedded cost at 12/31/99.
(d) No more than the rate allowed by the PUCO in a retail rate
proceeding involving OPCo and settled in 1995.
* Rate will be applied for billing purposes to the twelve
month period commencing April 1, 2000.
