35-CERT 1 socsec.txt 35-CERT SOUTHERN OHIO COAL COMPANY QUARTERLY REPORT PER REQUIREMENTS OF HOLDING COMPANY ACT RELEASE NO. 26573 FOR THE QUARTER ENDED DECEMBER 31, 2000 CONTENTS Page Statements of Income and Retained Earnings 1 Balance Sheets 2-3 Information Concerning Mine Operations and Capital Improvements 4-5 Calculation of Cost of Capital and Statement of Cost of Commercial Coal Sold and Shipped 6 Statement of Cost of Operation 7 Analysis of Mining Plant in Service 8 Construction Expenditure Budget 9 SOUTHERN OHIO COAL COMPANY STATEMENT OF INCOME FOR THE QUARTER ENDED DECEMBER 31, 2000 (UNAUDITED) (in thousands) OPERATING REVENUES $163,616 COST OF OPERATION 125,533 OPERATING INCOME 38,083 INTEREST CHARGES 9,617 OPERATING INCOME BEFORE FEDERAL INCOME TAXES 28,466 FEDERAL INCOME TAXES ON OPERATIONS 32,099 NET LOSS FROM OPERATIONS (3,633) NONOPERATING INCOME 3,633 NET INCOME $ - STATEMENT OF RETAINED EARNINGS FOR THE QUARTER ENDED DECEMBER 31, 2000 (UNAUDITED) (in thousands) BALANCE AT BEGINNING OF PERIOD $26,446 NET INCOME - BALANCE AT END OF PERIOD $26,446 The common stock of the Company is wholly owned by Ohio Power Company. SOUTHERN OHIO COAL COMPANY BALANCE SHEET (UNAUDITED) December 31, 2000 (in thousands) ASSETS MINING PLANT: Mining Plant in Service $370,214 Accumulated Depreciation and Amortization 322,176 NET MINING PLANT 48,038 OTHER PROPERTY AND INVESTMENTS 52,049 CURRENT ASSETS: Cash and Cash Equivalents 205 Accounts Receivable: General 5,165 Affiliated Companies 71,979 Advances to Affiliates 171,619 Coal 653 Materials and Supplies 10,197 Other 706 TOTAL CURRENT ASSETS 260,524 DEFERRED INCOME TAXES 92,996 REGULATORY ASSETS 6,964 DEFERRED CHARGES 1,914 TOTAL $462,485 SOUTHERN OHIO COAL COMPANY BALANCE SHEET (UNAUDITED) December 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 26,446 TOTAL SHAREHOLDER'S EQUITY 55,333 OTHER NONCURRENT LIABILITIES: Obligations Under Capital Leases 3,598 Accrued Postretirement Benefits Other Than Pensions 120,271 Accrued Workers Compensation 24,129 Accelerated Leased Assets 18,241 UMWA Trust Liability 17,956 Accrued Reclamation Costs 39,316 Operating Reserves 26,239 TOTAL OTHER NONCURRENT LIABILITIES 249,750 CURRENT LIABILITIES: Long-term Debt Due Within One Year 42,506 Accounts Payable: General 9,214 Affiliated Companies 5,324 Taxes Accrued 42,159 Interest Accrued 2,327 Accrued Vacation Pay 3,060 Workers' Compensation Claims 5,148 Obligations Under Capital Leases 18,492 Other 21,771 TOTAL CURRENT LIABILITIES 150,001 DEFERRED CREDITS 7,401 TOTAL $462,485 SOUTHERN OHIO COAL COMPANY INFORMATION CONCERNING MINE OPERATIONS AND CAPITAL IMPROVEMENTS FOR THE QUARTER ENDED DECEMBER 31, 2000 TAXES On February 20, 2001, the U.S. District Court for the Southern District of Ohio ruled against the Company in its suit against the United States over deductibility of interest claimed by the Company in its consolidated federal income tax return related to its COLI program. The Company had filed suit to resolve the IRS's assertion that interest deductions for the Company's COLI program should not be allowed. In 1998 and 1999 the Company paid the disputed taxes and interest attributable to COLI interest deductions for taxable years 1991-98 to avoid the potential assessment by the IRS of additional interest on the contested tax. The payments were included in other property and investments pending the resolution of this matter. As a result of the U.S. District Court's decision to deny the COLI interest deductions, the Company expensed and recovered from Ohio Power Company (OPCo) all of its costs under terms of the coal supply agreement. The Company plans to appeal the decision. MINE CLOSURE The Company closed the Meigs mine in 2001 and efforts are underway to reclaim the property. Ongoing efforts continue to sell the Meigs mine along with the Windsor and Muskingum mine. MONEY POOL On June 15, 2000, the Company became a participant in the American Electric Power (AEP) System Money Pool (Money Pool). The Money Pool is a mechanism structured to meet the short-term cash requirements of the participants with AEP Company, Inc. acting as the primary borrower on behalf of the Money Pool. The Company's affiliates that are U.S. domestic electric utility operating companies and coal-mining companies are the primary participants in the Money Pool. The operation of the Money Pool is designed to match on a daily basis the available cash and borrowing requirements of the participants. Participants with excess cash loan funds to the Money Pool reducing the amount of external funds AEP Company, Inc. needs to borrow to meet the short-term cash requirements of other participants with advances from the Money Pool. AEP Company, Inc. borrows the funds needed on a daily basis to meet the net cash requirements of the Money Pool participants. A weighted average daily interest rate which is calculated based on the outstanding short-term debt borrowings made by AEP Company, Inc. is applied to each Money Pool participant's daily outstanding investment or debt position to determine interest income or interest expense. Interest income is included in nonoperating income, and interest expense is included in interest charges. As a result of becoming a Money Pool participant, the Company retired its short-term debt. At December 31, 2000 the Company was net investor in the Money Pool and reports its investment in the Money Pool as Advances to Affiliates on the Balance Sheet. 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, 2000 (in thousands, except as noted)
October through December 2000 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: 10.27% per annum, 2.5675% per quarter .025675 C. Earnings Allowable on Equity Investment 1. Current Quarter $ 742 2. Year-to-Date $ 2,979 D. Net Income per Statement of Income (a) $ - Add: Interest Charges 9,617 Less: Nonoperating Income 3,633 E. Applied Cost-of-Capital Billing Adder: 1. Current Quarter $ 5,984 2. Year-to-Date $ 17,181 II. Coal Billing Calculation - Meigs Division: A. Total Operating Expenses (b) $157,632 B. Add: Cost-of-Capital Billing Adder as Applied per E. 1. of Section I 5,984 C. Cost Applicable to Current Quarter Coal Billings to Ohio Power $163,616 D. Coal Sold and Shipped in Current Quarter to Ohio Power (in tons) 1,049,392 E. Average Price per Ton to Ohio Power (in dollars) (C/D) $155.92 (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.
SOUTHERN OHIO COAL COMPANY STATEMENT OF COST OF OPERATION FOR THE QUARTER ENDED DECEMBER 31, 2000 (in thousands) Direct Labor-UMW* $ 1,429 Indirect Labor-UMW* 5,298 Benefits-UMW* 4,840 Salaries and Benefits-Nonunion 3,797 Operating Supplies 3,302 Repair Parts and Materials 6,458 Electricity and Other Utilities 1,737 Outside Services-Maintenance, Haulage and Reclamation 1,760 Taxes Other Than Federal Income Taxes** (1,252) Rental of Equipment 8,219 Depreciation, Depletion and Amortization 14,731 Mining Cost Normalization*** (93,309) Other Production Costs 168,670 Subtotal 125,680 Transfers of Production Costs (to)/from Coal Inventory (147) Total $125,533 * 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. SOUTHERN OHIO COAL COMPANY ANALYSIS OF MINING PLANT IN SERVICE AND RELATED ACCUMULATED PROVISIONS FOR DEPRECIATION AND AMORTIZATION December 31, 2000 Net Gross Accumulated Carrying Cost Provisions Amount (in thousands) Description Surface Lands $ 7,570 $ - $ 7,570 Mining Structures and Equipment 228,039 196,815 31,224 Coal Interests (net of depletion) 456 - 456 Mine Development Costs 134,149 125,361 8,788 Total Mining Plant in Service $370,214 $322,176 $48,038 SOUTHERN OHIO COAL COMPANY CONSTRUCTION EXPENDITURE BUDGET - 2001* Description Budgeted Amount (in thousands) The Company has no construction expenditures planned for 2001. *This budget does not include any possible lease transactions.