<PAGE>
CENTRAL OHIO COAL COMPANY
1996 ANNUAL REPORT
Page
CONTENTS
Statements of Income and Statements of Retained Earnings . . . 1
Statements of Cash Flows . . . . . . . . . . . 2
Balance Sheets . . . . . . . . . . . . . 3-4
Notes to Financial Statements . . . . . . . . . 5-11
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<TABLE>
CENTRAL OHIO COAL COMPANY
STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Year Ended December 31,
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . . . $ 65,478 $ 52,158 $100,837
OPERATING EXPENSES (including depreciation, depletion
and amortization of mining plant of $4,890,000 in
1996, $3,315,000 in 1995 and $1,802,000 in 1994) . . 64,932 49,638 98,813
OPERATING INCOME . . . . . . . . . . . . . . . . . . . 546 2,520 2,024
NONOPERATING INCOME. . . . . . . . . . . . . . . . . . 2,699 1,307 1,253
INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . 3,245 3,827 3,277
INTEREST CHARGES (including $38,000 in 1996,
$50,000 in 1995 and $49,000 in 1994 on
long-term debt to Parent Company). . . . . . . . . . 53 55 57
INCOME BEFORE FEDERAL INCOME TAXES . . . . . . . . . . 3,192 3,772 3,220
FEDERAL INCOME TAXES . . . . . . . . . . . . . . . . . 1,389 1,116 564
NET INCOME . . . . . . . . . . . . . . . . . . . . . . $ 1,803 $ 2,656 $ 2,656
</TABLE>
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<TABLE>
STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
<CAPTION>
Year Ended December 31,
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
RETAINED EARNINGS JANUARY 1. . . . . . . . . . . . . . $ - $ 348 $ 347
NET INCOME . . . . . . . . . . . . . . . . . . . . . . 1,803 2,656 2,656
CASH DIVIDENDS DECLARED. . . . . . . . . . . . . . . . 1,603 3,004 2,655
RETAINED EARNINGS DECEMBER 31. . . . . . . . . . . . . $ 200 $ - $ 348
See Notes to Financial Statements.
</TABLE>
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<TABLE>
CENTRAL OHIO COAL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Year Ended December 31,
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . $ 1,803 $ 2,656 $ 2,656
Adjustments for Noncash Items:
Depreciation, Depletion and Amortization . . . . 4,890 3,315 1,802
Deferred Federal Income Taxes. . . . . . . . . . (3,536) 1,312 (9,937)
Accrued Other Postretirement Benefits. . . . . . 2,273 3,026 3,032
Equipment Buyout and Recovery. . . . . . . . . . 917 3,119 (5,920)
Reclamation Reserve. . . . . . . . . . . . . . . 12,393 (2,110) (975)
Provision for Future Rent Payments . . . . . . . 4,738 2,999 -
Changes in Certain Current Assets
and Liabilities:
Accounts Receivable. . . . . . . . . . . . . . . (1,821) (391) 1,583
Coal, Materials and Supplies . . . . . . . . . . 880 (1,751) 5,989
Accounts Payable . . . . . . . . . . . . . . . . 1,024 (811) (490)
Taxes Accrued. . . . . . . . . . . . . . . . . . 596 (1,447) 712
Other (net). . . . . . . . . . . . . . . . . . . . (4,908) (52) (1,514)
Net Cash Flows From (Used For) Operating
Activities . . . . . . . . . . . . . . . . 19,249 9,865 (3,062)
INVESTING ACTIVITIES:
Cash Used for Construction Expenditures. . . . . . (280) (153) (1,053)
Proceeds from Sales of Property. . . . . . . . . . 1 68 546
Net Cash Flows From (Used For)
Investing Activities . . . . . . . . . . . (279) (85) (507)
FINANCING ACTIVITIES:
Issuance of Long-term Debt . . . . . . . . . . . . - 18 604
Retirement of Long-term Debt . . . . . . . . . . . (1,604) (104) (25)
Return of Capital Contributions to Parent Company. (19,962) - -
Change in Short-term Debt (net). . . . . . . . . . - (18) 18
Dividends Paid . . . . . . . . . . . . . . . . . . (1,603) (3,004) (2,655)
Net Cash Flows Used For Financing Activities (23,169) (3,108) (2,058)
Net Increase (Decrease) in Cash and Cash Equivalents (4,199) 6,672 (5,627)
Cash and Cash Equivalents January 1. . . . . . . . . 12,697 6,025 11,652
Cash and Cash Equivalents December 31. . . . . . . . $ 8,498 $12,697 $ 6,025
See Notes to Financial Statements.
/TABLE
<PAGE>
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<TABLE>
CENTRAL OHIO COAL COMPANY
BALANCE SHEETS
(UNAUDITED)
<CAPTION>
December 31,
1996 1995
(in thousands)
<S> <C> <C>
ASSETS
MINING PLANT:
Surface Lands . . . . . . . . . . . . . . . . . . . . . . . . . $ 324 $ 324
Mining Structures and Equipment . . . . . . . . . . . . . . . . 62,969 64,082
Coal Interests (net of depletion) . . . . . . . . . . . . . . . 5,120 8,193
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,292 2,292
Construction Work in Progress . . . . . . . . . . . . . . . . . - 2
Total Mining Plant. . . . . . . . . . . . . . . . . . . 70,705 74,893
Accumulated Depreciation and Amortization . . . . . . . . . . . 51,830 48,885
NET MINING PLANT. . . . . . . . . . . . . . . . . . . . 18,875 26,008
CURRENT ASSETS:
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . 8,498 12,697
Accounts Receivable:
General . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,895 390
Affiliated Companies. . . . . . . . . . . . . . . . . . . . . 2,062 1,746
Coal - at average cost. . . . . . . . . . . . . . . . . . . . . 193 234
Materials and Supplies - at average cost. . . . . . . . . . . . 8,398 9,237
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,020 1,082
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . 22,066 25,386
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . 20,448 15,896
REGULATORY ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 1,487 2,758
DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . 201 360
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $63,077 $70,408
See Notes to Financial Statements.
</TABLE>
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<PAGE>
<TABLE>
CENTRAL OHIO COAL COMPANY
BALANCE SHEETS
(UNAUDITED)
<CAPTION>
December 31,
1996 1995
(in thousands)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
SHAREHOLDER'S EQUITY:
Common Stock - 1996 Par Value $0.10
1995 Par Value $100:
Authorized - 100,000 Shares
Outstanding - 69,000 Shares . . . . . . . . . . . . . . . . . $ 7 $ 6,900
Paid-in Capital . . . . . . . . . . . . . . . . . . . . . . . . - 13,069
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . 200 -
TOTAL SHAREHOLDER'S EQUITY. . . . . . . . . . . . . . . 207 19,969
LONG-TERM DEBT:
Advances from Parent Company. . . . . . . . . . . . . . . . . . - 1,500
Finance Obligation. . . . . . . . . . . . . . . . . . . . . . . 286 390
TOTAL LONG-TERM DEBT. . . . . . . . . . . . . . . . . . 286 1,890
OTHER NONCURRENT LIABILITIES:
Obligations Under Capital Leases. . . . . . . . . . . . . . . . 6,537 8,965
Accrued Postretirement Benefits Other Than Pensions . . . . . . 12,272 9,999
Accrued Reclamation Costs . . . . . . . . . . . . . . . . . . . 18,040 5,647
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,145 4,942
TOTAL OTHER NONCURRENT LIABILITIES. . . . . . . . . . . 45,994 29,553
CURRENT LIABILITIES:
Long-term Debt Due Within One Year. . . . . . . . . . . . . . . 104 104
Accounts Payable:
General . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,369 803
Affiliated Companies. . . . . . . . . . . . . . . . . . . . . 878 420
Taxes Accrued . . . . . . . . . . . . . . . . . . . . . . . . . 596 -
Accrued Reclamation Costs . . . . . . . . . . . . . . . . . . . 1,226 4,496
Accrued Vacation Pay. . . . . . . . . . . . . . . . . . . . . . 714 647
Workers' Compensation Claims. . . . . . . . . . . . . . . . . . 1,500 1,290
Obligations Under Capital Leases. . . . . . . . . . . . . . . . 3,389 3,379
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,238 1,759
TOTAL CURRENT LIABILITIES . .. . . . . . . . . . . . . 12,014 12,898
DEFERRED GAIN ON SALE AND LEASEBACK OF PLANT. . . . . . . . . . . 4,476 6,097
DEFERRED CREDITS. . . . . . . . . . . . . . . . . . . . . . . . . 100 1
CONTINGENCIES (Note 2)
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $63,077 $70,408
See Notes to Financial Statements.
</TABLE>
<PAGE>
<PAGE>
CENTRAL OHIO COAL COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES:
Organization and Regulation. Central Ohio Coal Company (the Company or
COCCo), is a wholly-owned subsidiary of Ohio Power Company (OPCo), which is a
subsidiary of American Electric Power Company, Inc. (AEP Co., Inc.), a public
utility holding company. The Company conducts surface mining operations in
southeastern Ohio to supply coal to OPCo's Muskingum River Plant. Coal is
sold to OPCo at prices 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 sales are sufficient to recover
expenses and provide for a return on OPCo's equity investment excluding
retained earnings. The Company also has been authorized to sell coal to
unaffiliated companies with the net proceeds used to reduce the price of coal
sold to OPCo.
Basis of Accounting. As a cost-based rate-regulated entity, COCCo's
financial statements reflect the actions of regulators that result in the
recognition of revenues and expenses in different time periods than
enterprises that are not rate regulated. In accordance with Statement of
Financial Accounting Standards (SFAS) No. 71 "Accounting for the Effects of
Certain Types of Regulation," regulatory assets (deferred expenses) and
regulatory liabilities (deferred income) are recorded to reflect the economic
effects of regulation. Such deferrals are amortized commensurate with their
inclusion in billings to OPCo.
Use of Estimates. The preparation of these financial statements in
conformity with generally accepted accounting principles requires in certain
instances the use of management s estimates. Actual results could differ
from those estimates.
Coal Supply Agreement. Pursuant to a coal supply agreement with OPCo, the
Company is obligated to deliver substantially all coal it mines to OPCo and
entitled to receive payment for all costs incurred, even under circumstances
in which such coal is not mined and/or delivered due to a natural disaster,
labor unrest or any other forced or voluntary cessation or curtailment of
mining, either temporary or permanent.
Mining Plant and Depreciation, Depletion and Amortization. Mining plant is
stated at cost and includes expenditures for mine development. Mine
development includes all costs to develop the mines in excess of amounts
realized from coal produced during the mine development period. As a
subsidiary of a regulated public utility, an allowance for funds used during
construction (AFUDC) is recorded as a noncash income item that is recovered
over the service life of mining plant through depreciation and represents a
reasonable return on funds used to finance construction projects. The
amounts of AFUDC for 1996, 1995 and 1994 were not significant.
Depreciation, depletion and amortization are provided over the
estimated useful asset lives and are calculated using the straight-line
method for mining structures and equipment and the units-of-production method
for coal rights and mine development costs. In 1995 the Company changed the
respective rates to reflect a revised mining plan. This change in estimate
had no impact on net income.
Costs of ordinary maintenance, repairs, renewals and minor
replacements of property are expensed while major additions of property,
replacements of property and betterments are capitalized. Mining plant and
related accumulated provisions for depreciation and amortization are relieved
upon disposition of the related property with any gain or loss recorded as
income or expense in the period of disposition. Such
gains and losses are included in costs billed to OPCo under the coal supply
agreement.
Cash and Cash Equivalents. Cash and cash equivalents include temporary cash
investments with original maturities of three months or less.
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 coal
billings and OPCo's fuel rates, deferred income taxes are recorded with
related regulatory assets and liabilities in accordance with SFAS 71.
Black Lung Benefits and Workers' Compensation. The Company is liable under
the Federal Coal Mine Health and Safety Act of 1969 (Act), as amended, to pay
certain black lung benefits to eligible present and former employees. An
irrevocable Black Lung Benefits Trust is maintained under the Internal
Revenue Code which, based on the most recent actuarial study, is fully
funded. No accruals for Black Lung liabilities were made in 1996, 1995 or
1994.
The Company is self-insured for workers' compensation. The
estimated present value of workers' compensation claims is provided for based
on known events and claims.
Reclamation. Accruals are made for estimated costs of direct reclamation
as a result of the surface mining of coal. The accrual is for the estimated
amount necessary to restore the land and water resources affected by the
mining operations to their post mining land uses, as approved by the Ohio
Department of Natural Resources.
The Surface Mining and Reclamation Act of 1977 established minimum
standards for the final closure of mines after their coal reserves are
exhausted. This would include reclaiming the support acreage at surface
mines and the removal or covering of refuse piles and water settling ponds.
Reclamation costs associated with support operations at the Company's surface
mines are recorded and billed to OPCo in accordance with the coal supply
agreement.
2. CONTINGENCIES:
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 the results of operations or financial condition.
The Company recovers all costs from OPCo under the coal supply
agreement.
3. CONTINUATION OF MINING OPERATIONS:
The Clean Air Act Amendments of 1990 (CAAA) require significant
reductions in sulfur dioxide and nitrogen oxides emitted from OPCo's
generating plants. Muskingum River Plant Unit 5 has been switched to low
sulfur coal, as part of the AEP System's least-cost compliance plan. The
plan also includes fuel switching to lower sulfur coal at other AEP System
generating units, including Muskingum River Plant Units 1 through 4 in Phase
II (year 2000); nonetheless, at this point, all Phase II plans are tentative
and subject to further review.
Under settlement agreements applicable to OPCo's Public Utilities
Commission of Ohio (PUCO) jurisdiction, OPCo's recovery of fuel costs is
fixed at predetermined prices and OPCo is provided with the opportunity to
recover its Ohio jurisdictional
share of its investment in and the liabilities and future shut-down costs of
the Muskingum mine to the extent the actual cost of coal is sufficiently
below the predetermined prices. Based on the estimated future cost of coal
supplies, from both affiliated and unaffiliated sources, OPCo's management
believes that OPCo will recover under the terms of the settlement agreements
the cost of the Muskingum mining operations including eventual mine closure
liabilities attributable to its PUCO jurisdiction.
It may be necessary in the future to shut down the Muskingum mining
operations if for some unforeseen reason the predetermined price is not
adequate to recover the Muskingum mining cost from PUCO jurisdictional fuel
clause customers or if it is no longer economical due to the CAAA or
otherwise to continue mining operations. The cost of a shutdown would be
substantial and would include not only any possible loss on disposition of
assets but also employee benefits, lease commitments, unaccrued reclamation
and other shutdown costs. If a shutdown should become necessary, results of
operations are not expected to be affected since shutdown costs would be
recoverable from OPCo under the coal supply agreement.
4. OTHER RELATED-PARTY TRANSACTIONS:
American Electric Power Service Corporation (AEPSC) provides certain
managerial and professional services to AEP System companies including COCCo.
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. Contributions are based on the number of hours worked,
are expensed when paid and totaled $247,000 in 1996, $258,000 in 1995 and
$315,000 in 1994. As of June 30, 1996, the UMWA actuary estimates that the
Company's share of the UMWA pension plans unfunded vested liabilities was
approximately $5.4 million. In the event the Company ceases or significantly
reduces mining operations or contributions to the UMWA pension plans, a
withdrawal obligation may be triggered for all or a portion of its share of
the unfunded vested liability.
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
required contribution in accordance with 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, 1996, 1995 and 1994 was
$46,000, $66,000 and $231,000, 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 various
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 Company's annual contributions totaled
$82,000 in 1996, $93,000 in 1995 and $114,000 in 1994.
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 or older when
employment terminates. Non-active UMWA employees become eligible at age 55
if they have 20 service years.
The AEP System provides certain other benefits for retired
employees. Substantially all non-UMWA employees are eligible for
postretirement health care and life insurance if they have at least 10
service years and are age 55 or older when employment terminates.
Postretirement benefits other than pensions (OPEB) are provided for
retired employees under an AEP System plan. Substantially all employees are
eligible for postretirement health care and life insurance if they retire
from active service after reaching age 55 and have at least 10 service years.
OPEB costs are determined by the application of AEP System actuarial
assumptions to each operating company's employee complement. The annual
accrued costs, which includes the recognition of one-twentieth of the prior
service transition obligation, was $4.4 million in 1996, $5.4 million in 1995
and $5.1 million in 1994. The funding policy for AEP's OPEB plan is to make
contributions to an external Voluntary Employees Beneficiary Association
trust fund for all non-UMWA employees equal to the incremental OPEB costs
(i.e., the amount that the total postretirement benefits cost under SFAS 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions,"
exceeds the pay-as-you-go amount). Contributions were $125,000 in 1996,
$233,000 in 1995 and $341,000 in 1994.
Several UMWA health plans pay the postretirement medical benefits
for the Company's UMWA retirees who retired before January 2, 1976 and their
survivors plus retirees and others whose last employer is no longer a
signatory to the UMWA contract or is no longer in business. The UMWA health
plans are funded by payments from current and former UMWA wage agreement
signatories, the 1950 UMWA Pension Plan surplus and the Abandoned Mine Land
Reclamation Fund Surplus. Required annual payments to the UMWA health funds
made by the Company were recognized as expense when paid and totaled $95,000
in 1996, $153,000 in 1995 and $233,000 in 1994.
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 that it is able to transfer to other AEP System Companies that are
members of the fund and have a deficit. In 1996 $1.5 million, in 1995 $1.6
million and in 1994 $1.1 million of Black Lung surplus was utilized in
accordance with the Energy Act to reimburse the Company for benefits paid.
In 1996 $0.1 million of Black Lung surplus was utilized to reallocate from
the Company's surplus Black Lung trust fund to other System member companies.
No transfers were made to other companies in 1995 or 1994. The Company's
share of the Black Lung Trust funds surplus at December 31, 1996, 1995 and
1994 was $3.4 million, $3.9 million and $4.7 million, respectively.
6. FEDERAL INCOME TAXES:
The details of Federal income taxes are as follows:
Year Ended December 31,
1996 1995 1994
(in thousands)
Current (net) . . . . .. . . . . . . . . . . . . . $ 4,925 $ (196) $10,501
Deferred (net). . . . .. . . . . . . . . . . . . . (3,536) 1,312 (9,937)
Total Federal Income Taxes.. . . . . . . . . . . . $ 1,389 $1,116 $ 564
Federal income taxes as reported are different from pre-tax book
income multiplied by the statutory tax rate predominantly due to permanent
differences for corporate owned life insurance and the practice of flow-through
accounting for book/tax differences associated with certain
depreciation differences.
The Company joins in the filing of a consolidated federal income tax
return with its affiliated companies in the AEP System. The allocation of
the AEP System's current consolidated federal income tax to the System
companies is in accordance with SEC rules under the 1935 Act. These rules
permit the allocation of the benefit of current tax losses to the System
companies giving rise to them in determining their current tax expense. The
tax loss of the System parent company, AEP Co., Inc., is allocated to its
subsidiaries with taxable income. With the exception of the loss of the
parent company, the method of allocation approximates a separate return
result for each company in the consolidated group.
The AEP System has settled with the Internal Revenue Service (IRS)
all issues from the audits of the consolidated federal income tax returns for
the years prior to 1991. Returns for the years 1991 through 1993 are
presently being audited by the IRS. During the audit the IRS agents
requested a ruling from their National Office that certain interest
deductions relating to corporate owned life insurance (COLI) claimed by the
Company for 1991 through 1993 should not be allowed. The COLI program was
established in 1990 as part of the Company's strategy to fund and reduce the
cost of medical benefits for retired employees. AEP filed a brief with the
IRS National Office refuting the agents' position. Although no adjustments
have been proposed, a disallowance of the COLI interest deductions through
December 31, 1996 would increase expenses by approximately $8.5 million
(including interest). Management believes it will ultimately prevail on this
issue and will vigorously contest any adjustments that may be assessed.
Accordingly, no provision for this amount has been recorded. In the event of
an unfavorable resolution of the COLI interest deduction matter, the Company
expects to recover from OPCo all of its costs under the terms of the coal
supply agreement. In the opinion of management, the final settlement of open
years will not have a material effect on results of operations.
<PAGE>
The following tables show the elements of the net deferred tax asset
and the significant temporary differences giving rise to such deferrals:
December 31,
1996 1995
(in thousands)
Deferred Tax Assets . . . . . . . . . . . . . . . $22,822 $19,778
Deferred Tax Liabilities. . . . . . . . . . . . . (2,374) (3,882)
Net Deferred Tax Assets . . . . . . . . . . . . $20,448 $15,896
Property Related Temporary Differences. . . . . . $ (805) $(2,376)
Amounts Due From Parent Company
For Future Federal Income Taxes . . . . . . . . (429) (838)
Accrued Mine Reclamation Expense. . . . . . . . . 6,771 3,682
Abandonment of Dragline . . . . . . . . . . . . . 4,950 7,191
Deferred State Income Taxes . . . . . . . . . . . 428 583
Deferred Book Gain - Sale/Leaseback of Plant. . . 1,566 2,134
Accrued Postretirement Expense. . . . . . . . . . 4,339 3,500
Accrued Leased Asset Book Rent Expense. . . . . . 2,708 1,050
All Other (net) . . . . . . . . . . . . . . . . . 920 970
Total Net Deferred Tax Assets . . . . . . . . . $20,448 $15,896
7. SUPPLEMENTARY CASH FLOW INFORMATION:
Year Ended December 31,
1996 1995 1994
(in thousands)
Cash was paid for:
Interest. . . . . . . . . . . . . . . . .$ 53 $ 55 $ 57
Income Taxes. . . . . . . . . . . . . . . 4,352 1,858 10,167
Noncash acquisitions under capital leases . 527 4,025 7,276
8. RETURN OF CAPITAL:
In September 1996, the Company was granted permission by the SEC to
reduce the par value of its authorized common shares from $100 per share to
$0.10 per share, thereby reducing its stated capital from $6.9 million to
$6,900. Also the Company was granted permission to return to its parent
$19,962,000 out of capital surplus through December 31, 1998. On October 1,
1996 the Company returned $19,962,000 to its parent out of capital along with
a $408,000 dividend from retained earnings.
9. LONG-TERM DEBT:
Long-term debt was outstanding as follows:
December 31,
1996 1995
(in thousands)
Advances from Parent - 3.3% Open Account . . . $ - $1,500
Finance Obligation . . . . . . . . . . . . . . 390 494
390 1,994
Less Portion Due Within One Year . . . . . . . 104 104
Total . . . . . . . . . . . . . . . . . . .$ 286 $1,890
A finance obligation was entered into for the Mid Rail Loadout
facility in 1994 through a sale and leaseback transaction. The term of the
obligation is six years, with a bargain purchase option at the expiration of
the agreement. In accordance with SFAS 98, the transaction did not qualify
as a sale and leaseback for accounting purposes. Future minimum payments
under the agreement are $104,000 per year for 1997 through 1999 and $78,000
in 2000. In October 1996, the Company returned to its parent the advance of
$1,500,000.
10. LEASES:
Leases of property, plant and equipment are for periods of up to 30
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 mining operations
continue.
Lease rentals for both operating and capital leases are generally
charged to operating expenses. The components of rental cost are as follows:
Year Ended December 31,
1996 1995 1994
(in thousands)
Operating Leases. . . . . . . . . . . . . . . $ 4,265 $ 6,060 $ 9,220
Amortization of Capital Leases. . . . . . . . 3,443 3,487 3,242
Interest on Capital Leases. . . . . . . . . . 606 644 620
Total Rental Costs. . . . . . . . . . . . $ 8,314 $10,191 $13,082
Properties under capital leases and related obligations recorded on
the balance sheets are as follows:
December 31,
1996 1995
(in thousands)
Mining Plant. . . . . . . . . . . . . . . . . $28,299 $29,615
Accumulated Provision for Amortization. . . . . 18,373 17,271
Net Property under Capital Leases . . . . . . $ 9,926 $12,344
Capital Lease Obligations:
Noncurrent Liability. . . . . . . . . . . . . $ 6,537 $ 8,965
Liability Due Within One Year . . . . . . . . 3,389 3,379
Total Capital Lease Obligations . . . . . . $ 9,926 $12,344
Properties under operating leases and related obligations are not
included in the balance sheets.
<PAGE>
Future minimum lease rentals consisted of the following at December
31, 1996:
Non-
Cancelable
Capital Operating
Leases Leases
(in thousands)
1997. . . . . . . . . . . . . . . . . . . . . . $ 3,835 $ 4,190
1998. . . . . . . . . . . . . . . . . . . . . . 3,359 4,144
1999. . . . . . . . . . . . . . . . . . . . . . 2,046 3,796
2000. . . . . . . . . . . . . . . . . . . . . . 965 3,701
2001. . . . . . . . . . . . . . . . . . . . . . 322 3,666
Later Years . . . . . . . . . . . . . . . . . . 245 8,860
Total Future Minimum Lease Rentals. . . . . . . 10,772 $28,357
Less Estimated Interest Element . . . . . . . . 846
Estimated Present Value
of Future Minimum Lease Rentals . . . . . . . $ 9,926
