<PAGE>
C O N E S V I L L E C O A L
P R E P A R A T I O N C O M P A N Y
1994 Annual Report
AMERICAN ELECTRIC POWER SYSTEM<PAGE>
<PAGE>
CONESVILLE COAL PREPARATION COMPANY
Page
CONTENTS
Statements of Income and Statements of Retained Earnings . . . 1
Balance Sheets . . . . . . . . . . . . 2
Statements of Cash Flows . . . . . . . . . . 3
Notes to Financial Statements . . . . . . . . . 4-8
<PAGE>
<PAGE>
<TABLE>
CONESVILLE COAL PREPARATION COMPANY
STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Year Ended December 31,
1994 1993 1992
(in thousands)
<S> <C> <C> <C>
OPERATING REVENUES - Services to Parent Company. . . . $9,093 $9,371 $9,051
OPERATING EXPENSES . . . . . . . . . . . . . . . . . . 9,008 9,303 8,967
OPERATING INCOME . . . . . . . . . . . . . . . . . . . 85 68 84
NONOPERATING INCOME. . . . . . . . . . . . . . . . . . 11 8 -
INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . 96 76 84
INTEREST CHARGES . . . . . . . . . . . . . . . . . . . 1 1 -
INCOME BEFORE FEDERAL INCOME TAXES . . . . . . . . . . 95 75 84
FEDERAL INCOME TAXES . . . . . . . . . . . . . . . . . 25 5 14
NET INCOME . . . . . . . . . . . . . . . . . . . . . . $ 70 $ 70 $ 70
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
<CAPTION>
Year Ended December 31,
1994 1993 1992
(in thousands)
<S> <C> <C> <C>
RETAINED EARNINGS JANUARY 1. . . . . . . . . . . . . . $540 $470 $400
NET INCOME . . . . . . . . . . . . . . . . . . . . . . 70 70 70
RETAINED EARNINGS DECEMBER 31. . . . . . . . . . . . . $610 $540 $470
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
CONESVILLE COAL PREPARATION COMPANY
BALANCE SHEETS
(UNAUDITED)
<CAPTION>
December 31,
1994 1993
(in thousands)
ASSETS
<S> <C> <C>
MINING PLANT IN SERVICE . . . . . . . . . . . . . . . . . . . . . $ 531 $ 648
CURRENT ASSETS:
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . 40 8
Accounts Receivable - Affiliated Companies. . . . . . . . . . . 2,609 2,671
Materials and Supplies - at average cost. . . . . . . . . . . . 854 900
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 56
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . 3,541 3,635
DEFERRED FEDERAL INCOME TAXES . . . . . . . . . . . . . . . . . . 670 653
REGULATORY ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 366 349
DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . 24 4
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $5,132 $5,289
CAPITALIZATION AND LIABILITIES
SHAREOWNER'S EQUITY:
Common Stock - Par Value $1,000:
Authorized - 500 Shares
Outstanding - 100 Shares. . . . . . . . . . . . . . . . . . . $ 100 $ 100
Paid-in Capital . . . . . . . . . . . . . . . . . . . . . . . . 400 400
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . 610 540
TOTAL SHAREOWNER'S EQUITY . . . . . . . . . . . . . . . 1,110 1,040
OTHER NONCURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . 264 343
CURRENT LIABILITIES:
Accounts Payable - General. . . . . . . . . . . . . . . . . . . 199 387
Accounts Payable - Affiliated Companies . . . . . . . . . . . . 131 138
Accrued Rentals . . . . . . . . . . . . . . . . . . . . . . . . 906 867
Accrued Other Postretirement Benefits . . . . . . . . . . . . . 444 214
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421 407
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . 2,101 2,013
DEFERRED GAIN ON SALE OF PLANT. . . . . . . . . . . . . . . . . . 1,657 1,893
COMMITMENTS AND CONTINGENCIES (Note 2)
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $5,132 $5,289
See Notes to Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
CONESVILLE COAL PREPARATION COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Year Ended December 31,
1994 1993 1992
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . $ 70 $ 70 $ 70
Adjustments for Noncash Items:
Depreciation . . . . . . . . . . . . . . . . . . . 15 15 15
Deferred Federal Income Taxes. . . . . . . . . . . 26 23 133
Amortization of Deferred Gain on Sale of Plant . . (236) (237) (237)
Changes in Certain Current Assets
and Liabilities:
Accounts Receivable. . . . . . . . . . . . . . . . 62 (538) 242
Materials and Supplies . . . . . . . . . . . . . . 46 127 71
Accounts Payable . . . . . . . . . . . . . . . . . (195) 326 (140)
Accrued Other Postretirement Benefits. . . . . . . 230 214 -
Other (net). . . . . . . . . . . . . . . . . . . . . 14 4 (165)
Net Cash Flows From (Used For)
Operating Activities . . . . . . . . . . . . 32 4 (11)
Net Increase (Decrease) in Cash and Cash Equivalents . 32 4 (11)
Cash and Cash Equivalents January 1. . . . . . . . . . 8 4 15
Cash and Cash Equivalents December 31. . . . . . . . . $ 40 $ 8 $ 4
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
CONESVILLE COAL PREPARATION COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES:
Organization and Regulation. Conesville Coal Preparation Company (the Company
or CCPC), is a wholly-owned subsidiary of Columbus Southern Power Company
(CSPCo), which is a subsidiary of American Electric Power Company, Inc. (AEP
Co., Inc.), a public utility holding company. The Company provides coal
washing services to CSPCo's Conesville generating plant. Coal washing prices
are regulated by the Securities and Exchange Commission (SEC) under the Public
Utility Holding Company Act of 1935 (1935 Act). Prices billed in connection
with coal washing services are sufficient to recover expenses and provide for
a return on CSPCo's equity investment excluding retained earnings.
Basis of Accounting. As a cost-based rate-regulated entity, CCPC's financial
statements reflect actions of regulators that may result in the recognition of
revenues and expenses in different time periods than enterprises that are not
regulated. In accordance with Statement of Financial Accounting Standards
(SFAS) No. 71, Accounting for the Effects of Certain Type of Regulation,
regulatory assets and liabilities are recorded and represent deferred expenses
and revenues, respectively, resulting from regulatory actions. Such
deferrals are amortized commensurate with their inclusion in billings to
CSPCo.
Coal Washing Agreement. Pursuant to a coal washing agreement with CSPCo, the
Company is obligated to provide coal washing services to CSPCo and entitled to
receive payment for all costs incurred, even under circumstances when such
services are not performed due to a natural disaster, labor unrest or any
other forced or voluntary cessation of operations, either temporary or
permanent.
Mining Plant. Mining plant is stated at original cost and consists primarily
of assets under capital leases net of accumulated amortization.
Cash and Cash Equivalents. Cash and cash equivalents include temporary cash
investments with original maturities of three months or less.
Inventories. Materials and supplies inventories are stated at cost,
determined on a moving-average basis.
Income Taxes. The Company follows the liability method of accounting for
income taxes as prescribed by SFAS 109, Accounting for Income Taxes. Under
the liability method, deferred income taxes are provided for all temporary
differences between book cost and tax basis of assets and liabilities which
will result in a future tax consequence. Where the flow-through method of
accounting for temporary differences is reflected in the Company's billings
and CSPCo's fuel rates, regulatory assets and liabilities are recorded in
accordance with SFAS 71.
Reclassifications. Certain prior-period amounts were reclassified for
comparative purposes.
<PAGE>
<PAGE>
2. COMMITMENTS AND CONTINGENCIES:
Construction expenditures for the years 1995 through 1997 are
estimated to be $343,000 and, in connection with the construction program,
commitments have been made.
The Company is involved in a number of legal proceedings and claims.
While management is unable to predict the outcome of litigation, it is not
expected that the resolution of these matters will have a material adverse
effect on financial condition.
The Company recovers all costs from CSPCo under the coal washing
agreement.
3. CONTINUATION OF COAL WASHING OPERATIONS:
The Clean Air Act Amendments of 1990 (CAAA) requires significant
reductions in sulfur dioxide and nitrogen oxides emitted from CSPCo's
generating plants. A compliance plan was filed with the Public Utilities
Commission of Ohio (PUCO) which sets forth, as part of a least-cost strategy
for the AEP System, the compliance measures for affected generating units. In
November 1992 the PUCO approved the plan. If fuel switching is employed as a
compliance alternative at CSPCo's Conesville Plant generating units, CCPC's
operations could be shut down. Under the terms of the coal washing agreement,
shutdown costs would be fully recovered from CSPCo.
4. OTHER RELATED-PARTY TRANSACTIONS:
American Electric Power Service Corporation (AEPSC) provides certain
managerial and professional services to AEP System companies including CCPC.
The costs of the services are billed by AEPSC on a direct-charge basis to the
extent practicable and on reasonable bases of proration for indirect costs.
The charges for services are made at cost and include no compensation for the
use of equity capital, which is furnished to AEPSC by AEP Co., Inc. Billings
from AEPSC are capitalized or expensed depending on the nature of the services
rendered. AEPSC and its billings are subject to the regulations of the SEC
under the 1935 Act.
5. BENEFIT PLANS:
United Mine Workers of America (UMWA) Pension Plans
The Company provides UMWA pension benefits for UMWA employees
meeting eligibility requirements. Benefits are based on age at retirement and
years of service. As of June 30, 1994, the UMWA actuary estimates that the
Company's share of the UMWA pension plans unfunded vested liabilities was
approximately $611,000. In the event the Company ceases or significantly
reduces operations or contributions to the UMWA pensions plans, a withdrawal
obligation may be triggered for all or a portion of its share of the unfunded
vested liability. Contributions are based on the number of hours worked, are
expensed when paid and totaled $31,000 in both 1994 and 1993 and $32,000 in
1992.
<PAGE>
<PAGE>
AEP System Pension Plan
The Company participates in the AEP pension plan, a trusteed,
noncontributory defined benefit plan covering all employees meeting
eligibility requirements, except participants in the UMWA pension plans.
Benefits are based on service years and compensation levels. Pension costs
are allocated by first charging each System company with its service cost and
then allocating the remaining pension cost in proportion to its share of the
projected benefit obligation. The funding policy is to make annual trust fund
contributions equal to the net periodic pension cost up to the maximum amount
deductible for federal income taxes, but not less than the minimum
contribution required by the Employee Retirement Income Security Act of 1974.
The Company's share of net pension cost of the AEP System pension plan
for the years ended December 31, 1994, 1993 and 1992 was $25,000, $23,000 and
$27,000, respectively.
AEP System Savings Plan
An employee savings plan is offered to non-UMWA employees which
allows participants to contribute up to 17% of their salaries into three
investment alternatives, including AEP Co., Inc. common stock. An employer
matching contribution, equaling one-half of the employees' contribution to the
plan up to a maximum of 3% of the employees' base salary, is invested in AEP
Co., Inc. common stock. The employer's annual contributions totaled $14,000
in both 1994 and 1993 and $13,000 in 1992.
Postretirement Benefits Other Than Pensions
Postretirement medical benefits for the Company's UMWA employees who
have retired or will retire after January 1, 1976 are the liability of the
Company. They are eligible for postretirement health care and life insurance
if they have at least 10 service years and are age 55 at retirement. Non-
active UMWA employees become eligible at age 55 if they have 20 service years.
The cost of health care benefits for the non-active UMWA employees was
expensed when paid in 1992 and totaled $224,000.
SFAS 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions, was adopted in January 1993 for the Company's aggregate
liability for postretirement benefits other than pensions (OPEB). SFAS 106
requires the accrual of the present value liability for OPEB costs during the
employee's service years. Costs for the accumulated postretirement benefits
earned and not recognized at adoption are being recognized, in accordance with
SFAS 106, as a transition obligation over 20 years. OPEB costs are determined
by the application of AEP System actuarial assumptions to each company's
employee complement. The Company's annual accrued costs for 1994 and 1993
required by SFAS 106 for employees and retirees, which includes the
recognition of one-twentieth of the prior service transition obligation, was
$291,000 and $260,000, respectively.
<PAGE>
<PAGE>
In order to fund OPEB benefits the Company established a Voluntary
Employees Beneficiary Association (VEBA) trust fund and a corporate owned life
insurance (COLI) program. The insurance policies have a substantial cash
surrender value which is recorded, net of equally substantial policy loans, as
other property and investments. The amount contributed to the VEBA trust fund
is the difference between the pay-as-you-go OPEB cost and SFAS 106 total OPEB
cost. This contribution is funded by amounts billed to OPCo plus net earnings
from the COLI program. Contributions to the VEBA trust fund were $32,000 in
both 1994 and 1993.
The Energy Policy Act of 1992 (Energy Act) permits recovery of
excess Black Lung Trust funds of the AEP System to pay certain postretirement
medical benefits under one of the UMWA health plans. Reimbursement
limitations apply to the System's excess funding. The Company has a fund
surplus from which cash reimbursements are received. In 1994 $11,000 and in
1993 $33,000 of Black Lung surplus was applied in accordance with the Energy
Act to reimburse the Company for benefits paid. The Company's share of the
excess Black Lung Trust funds at December 31, 1994 and 1993 was $10,000 and
$13,000, respectively.
6. FEDERAL INCOME TAXES:
The details of federal income taxes are as follows:
Year Ended December 31,
1994 1993 1992
(in thousands)
Current (net). . . . . . . . . . . . . . . . . $(1) $(18) $(119)
Deferred (net) . . . . . . . . . . . . . . . . 26 23 133
Total Federal Income Taxes . . . . . . . . . $25 $ 5 $ 14
Federal income taxes as reported are different from pre-tax book
income multiplied by the statutory tax rate predominantly due to non-taxable
effects of corporate owned life insurance and the reversal of deferred taxes
recorded in prior years at tax rates different than the current statutory tax
rate.
The following tables show the elements of the net deferred tax
liability and the significant temporary differences that gave rise to it:
December 31,
1994 1993
(in thousands)
Deferred Tax Assets . . . . . . . . . . . . . $ 810 $ 807
Deferred Tax Liabilities. . . . . . . . . . . (140) (154)
Net Deferred Tax Asset. . . . . . . . . . . $ 670 $ 653
Deferred Book Gain - Sale/Leaseback of Plant. $ 580 $ 662
Amounts Due From Customers
For Future Federal Income Taxes . . . . . . (107) (122)
All Other (net) . . . . . . . . . . . . . . . 197 113
Total Net Deferred Tax Asset. . . . . . . . $ 670 $ 653
<PAGE>
<PAGE>
7. SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid (received) for income taxes was $46,000 in 1994, $(26,000)
in 1993 and $(80,000) in 1992. Noncash acquisitions under capital leases were
$47,000 in 1994, $82,000 in 1993 and $12,000 in 1992.
8. LEASES:
Leases of property, plant and equipment are for periods up to 15
years and require payments of related property taxes, maintenance and
operating costs. The majority of the leases have purchase or renewal options
and will be renewed or replaced by other leases as long as coal washing
operations continue.
Lease rentals are primarily charged to operating expenses. The
components of rental cost are as follows:
Year Ended December 31,
1994 1993 1992
(in thousands)
Operating Leases . . . . . . . . . . . . $3,468 $3,468 $3,468
Amortization of Capital Leases . . . . . 149 171 165
Interest on Capital Leases . . . . . . . 37 49 63
Total Rental Cost. . . . . . . . . . $3,654 $3,688 $3,696
Properties under capital leases and related obligations recorded on
the balance sheet are as follows:
December 31,
1994 1993
(in thousands)
Mining Plant. . . . . . . . . . . . . . . . . $1,183 $1,280
Accumulated Provision for Amortization. . . . 827 822
Net Properties under Capital Leases . . . $ 356 $ 458
Obligations under Capital leases:
Noncurrent Liability. . . . . . . . . . . . $220 $312
Liability Due Within One Year . . . . . . . 136 146
Total Capital Lease Obligations . . . . . $356 $458
Properties under operating leases and related obligations are not
included in the balance sheet.
The Company sold its preparation plant and began a 15-year leaseback in
1986. The gain on the sale/leaseback is being amortized (approximately
$19,700 a month) over the life of the lease and is recorded as a reduction to
operating expenses.
<PAGE>
<PAGE>
Future minimum lease rentals consisted of the following at December 31,
1994:
Non-
Cancelable
Capital Operating
Leases Leases
(in thousands)
1995. . . . . . . . . . . . . . . . . . . . $160 $ 3,468
1996. . . . . . . . . . . . . . . . . . . . 99 3,468
1997. . . . . . . . . . . . . . . . . . . . 57 3,468
1998. . . . . . . . . . . . . . . . . . . . 41 3,468
1999. . . . . . . . . . . . . . . . . . . . 20 3,468
Later Years . . . . . . . . . . . . . . . . 30 6,936
Total Future Minimum Lease Rentals. . . . . 407 $24,276
Less Estimated Interest Element . . . . . . 51
Estimated Present Value of Future
Minimum Lease Rentals . . . . . . . . . . $356