ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS. During the year 1993, the registrant formed a new wholly-owned subsidiary corporation which was authorized to become involved in a newly created fast food bagel and delicatessen business located in Athens, Ohio, near the campus of Ohio University. The business commenced operation during the fourth quarter of 1993. A second facility located in Columbus, Ohio, near the campus of Ohio State University, opened during the third quarter of 1994. As of December 31, 1994, the subsidiary was merged with and into Beekman's Deli Systems, Limited Liability Company, an Ohio limited liability company in which the registrant is a majority member and a wholly-owned subsidiary of the registrant is the only other member, and this business segment is now being conducted by the limited liability company. A third facility was opened in State College, Pennsylvania in the third quarter of 1995, and a lease was signed on a new facility located in an area of San Diego, California known as Pacific Beach early in 1996. The results of operation of the Pacific Beach location have been disappointing and it is scheduled to be closed upon termination of the Lease as of March 31, 1997. The registrant had invested approximately $819,000 in the aggregate in this venture as of December 31, 1996. Other than the expansion of that venture, since the beginning of the fiscal year there have been no material changes or developments in the business done or intended to be done by registrant. However, as described more fully in Management's Discussion & Analysis of Financial Condition & Results of Operations described in Item 7 of this report, it had previously been anticipated that the business of that venture would be expanded into
additional locations but the operating results of the venture have been mixed, and management of the registrant is rethinking its strategy. The initial two locations operate profitably, but overall profitability has not been achieved, and the registrant may not follow through with the anticipated expansion. Also, management continues to investigate other activities involving deployment of registrant's assets in an effort to increase earnings. Since the beginning of the fiscal year, there have been no bankruptcy, receivership or similar proceedings with respect to the registrant; there has been no material reclassification, merger or consolidation of the registrant; there has been no acquisition or disposition of any material amount of assets otherwise than in the ordinary course of business; and there has been no material change in the mode of conducting the business of the registrant.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. During the year 1996, the registrant had two reportable segments which are identified as the Energy Business Segment and the Retail Food Business Segment. See footnote 10 to the accompanying consolidated financial statements for more detail as to these separate Business Segments and financial information with respect thereto. There were no separate segments of the registrant prior to 1993.
(c) NARRATIVE DESCRIPTION OF BUSINESS. One business activity of the registrant consists of the management of its interests in real properties and as discussed above is now identified as the Energy Business Segment. Such real property interests have been held and managed by registrant for lease to others for exploration for and the extraction of coal and oil and gas and for surface use. From time to time sales of portions of such properties have been made. During 1994 the registrant sold forty (40) acres of surface land located in Macon County, Missouri and the timber rights on some adjoining property which generated a gain of approximately $33,000, and in 1995 sold
approximately 4.41 additional acres of surface land in that county generating a gain of $2,141.58 and 40 additional acres of timber rights were sold for $8,900. In 1996 the registrant sold 7.25 acres of real property in Sebastian County, Arkansas, for $6,050, and in 1995 had sold 103 acres of surface land in that county for a gain of $56,768. Also sold in 1996 was 45 acres of real property in Pittsburg County, Oklahoma for $31,500. The properties owned at the end of the fiscal year are described in Item 2.
ITEM 2. PROPERTIES
(a) The principal physical properties of the registrant are whole or partial interests in approximately 64,000 acres of real property located in Arkansas, Louisiana, Texas, Kansas, Oklahoma and Missouri. Its mineral reservation under the Sam Houston National Forest in Texas on an additional 76,000 acres expired on January 1, 1985, but was extended for a five-year period on about 6,280 acres with producing wells, which period expired January 1, 1990. Another 640 of these acres were lost on January 1, 1990, and an additional 1,623 of these acres were lost on January 1, 1995, leaving the registrant's rights in 4,017 remaining acres, now to expire January 1, 2000, unless extended. In later parts of this Item 2 references are made to the ownership of "minerals." The registrant is the owner of all or part of the subsurface minerals on large portions of the properties involved, but the only minerals of primary interest to the registrant are coal, oil and gas.
(1) REAL PROPERTY INTERESTS IN THE STATE OF ARKANSAS.
The registrant is the owner of approximately 1,701 acres in fee simple, of minerals underlying approximately 16,404 additional acres, and of a number of town lots in three small towns, all in Sebastian County, Arkansas, having sold approximately 103 acres of surface in 1995, and 7.25 Acres in 1996.
Mineral interests underlying approximately 13,600 acres are under a coal lease to the assignee of Bethlehem Steel Corporation under the coal lease described in Item l(c). An additional 48 acres of the registrant's Arkansas properties are currently being leased under coal leases. Another 586 acres were leased in 1993 under two separate oil and gas leases (both to the same lessee) for 5-year terms. As yet there is no production under either of these new leases.
Of the 13,600 acres currently under a coal lease to the assignee of Bethlehem Steel Corporation as described in the preceding paragraph, 10,537.23 acres were leased to C.D. Exploration, Inc. in 1995 under an Oil & Gas Lease for a term of five years, for which the lessee paid a bonus of approximately $105,000. An additional 414 acres were leased in 1994 under three separate oil and gas leases (two to the same lessee), one for a three year term and the other two for five year terms. An additional 1,483.31 acres were leased in 1996 in one oil and gas lease for a term of five years. As yet there is no production under any of these leases. In addition, registrant has fractional royalty interests in 8 small producing gas wells which are located on a 5,354 acre tract of which registrant owns 1,044 acres.
(2) REAL PROPERTY INTERESTS IN THE STATE OF TEXAS.
The registrant was the owner of practically all of the mineral interests in approximately 90,551 acres located in the Texas counties of San Jacinto, Walker and Montgomery, of which approximately 82,674 acres were under a reservation (in a deed of December, 1935) which covered all oil, gas, sulphur and other minerals on, in, under or that may be produced from the lands for a period commencing with the date of the deed and ending on January 1, 1985, and provided further that if on said latter date minerals were being produced in paying quantities then the reservation
would be extended for a five-year period as to an area of one square mile of which the well is the center and for subsequent extensions for additional five-year periods so long as paying operations are being conducted on the premises. The right to prospect for and mine and remove minerals was further limited by various requirements of the United States. As described in Item 2(a) above, this reservation expired on January 1, 1985, and the wells then producing on such properties permitted the registrant to retain until January 1, 1990, about 6,280 acres in the Mercy Field, West Mercy Field and Moroil Field, and as of January 1, 1995, the registrant continued to retain 4,017 of such acres, while production continues. The reservation is extended for an additional five-year term ending January 1, 2000, at the end of which this acreage will be lost if there is no production then continuing.
The registrant's mineral interests in its remaining acreages in Texas are reservations of perpetual mineral rights. In the case of approximately 7,600 acres, one-thirty-second of the minerals are vested in the owner of the surface of said properties but with the right in the registrant to make all leases on the acreage and to keep all bonuses and rentals received under such leases. In January, 1995, 7,788.55 acres of these mineral interests were leased under one oil and gas lease for a term of three years with one option to renew for an additional two years. The lessee paid a bonus of approximately $311,000 in connection with this lease. As yet there is no production under this lease.
(3) REAL PROPERTY INTERESTS IN THE STATE OF LOUISIANA.
In January, 1967, the registrant sold approximately 35,000 acres of Louisiana real property reserving mineral servitudes thereon. Under Louisiana law the ownership of mineral servitudes not exercised through
production or drilling to a depth at which production reasonably can be expected to be found expires by liberative prescription after a period of such nonuser of ten years. No production or drilling occurred on approximately 14,000 of the acres sold in 1967 within the ten-year period and, hence, the registrant's ownership of the mineral servitudes under such approximately 14,000 acres was extinguished as of January 26, 1977. During 1978, the registrant's ownership of the mineral servitudes under 1,243 additional acres was extinguished because production had been exhausted for ten years. Mineral servitudes under the remaining acres sold in 1967 have been extended by drilling or production for various periods expiring after January 26, 1977. The registrant's rights to approximately 8,530 additional acres of these servitudes expired during 1994.
In the Hurricane Creek Field, Beauregard Parish, Louisiana, 880 acres are held by production which commenced in 1947. The leases of the registrant in the Hurricane Creek Field provide for one-eighth gross royalties except as to 160 acres for which the gross royalty is one-fourth. In 1964, a Unitization Agreement covering one producing sand was executed by various interested parties in the Hurricane Creek Field so as to permit a secondary recovery program, and a second Unitization Agreement was executed in March, 1994.
In the Clear Creek Field, Beauregard Parish, Louisiana, approximately 600 acres were held under oil and gas leases by production which commenced in 1955 and were terminated during 1991. The registrant's interest in this 600 acres will continue for 10 years from this date pursuant to the Louisiana law concerning mineral servitudes as described above. In addition, approximately 400 additional acres in Beauregard Parish, Louisiana, are held under production pursuant to a lease, the original term of which expired many years ago but which continues by production.
The registrant leased approximately 9339 acres of its real property in Vernon Parish, Louisiana, for a term of four years, pursuant to the exercise of a geo-option made in early 1991. This lease was extended for an additional year in 1995, and one well was drilled but it turned out to be a "dry hole," and there was no production. If there is no further attempted production by December, 2006, the registrant's rights in this property will expire.
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(4) REAL PROPERTY INTERESTS IN OKLAHOMA AND KANSAS.
The registrant is the owner of interests in real property in three counties in eastern Oklahoma and three counties in southeast Kansas, which ownership consists of approximately 1,385 acres in fee simple, and approximately 13,511 additional acres of underlying minerals. A substantial part of such 13,511 acres of mineral ownership is described in the conveyances or reservations giving rise to such ownership as "coal" or "coal and asphaltic minerals."
The registrant in the past has also rented the surface of portions of its lands in Kansas and Oklahoma, largely for agricultural purposes, under leases of not to exceed one year.
(5) REAL PROPERTY INTERESTS IN THE STATE OF MISSOURI.
In Randolph and Macon Counties, Missouri, the registrant is the owner of approximately 380 acres in fee simple (having sold 4 acres of surface land in 1995) and of the minerals underlying 5,837 acres. Substantially all of the mineral ownership is described in the conveyances from which it arose as "coal" or "coal and other minerals." The properties involved were acquired by predecessor companies for the principal purpose of mining coal therefrom, and extensive mining was conducted thereon by the predecessors.
The registrant has rented the surface of portions of its lands in Missouri, largely for agricultural purposes, under leases of not to exceed one year.
(b) The registrant does not participate in any oil and gas operations. However, the registrant is the owner of certain properties (fully described above in this Item), part of which are leased to outside interests for the production of oil and gas. The registrant receives bonuses, rentals and royalties for the use of the land and mineral interests leased by it.
(6) RETAIL FOOD BUSINESS SEGMENT LEASES.
The operations of the fast food bagel and delicatessen facilities constituting the Retail Food Business Segment are carried out from premises leased at the locations specified in Item 1(a) above. The financial commitments for those leases are described in Note 7 to the accompanying financial statements.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
(a) There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the registrant is a party or of which any of its property is the subject. There are no material proceedings to which any director, officer of affiliate of the registrant, any owner of record or beneficially of more than five percent of any class of voting securities of the registrant, or any associate of any such director, officer or security holder is a party adverse to the registrant or has a material interest adverse to the registrant. Further, there are no administrative or judicial proceedings involving the registrant arising under any federal, state or local provisions which have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment.
(b) There were no such material legal proceedings which were terminated during the fourth quarter of the fiscal year covered by this report.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders through the solicitation of proxies or otherwise.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is set forth on the back cover of the Annual Report as of December 31, 1996, furnished to the stockholders of the registrant, and attached as an exhibit hereto, which portion of the Annual Report is incorporated herein by this reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is set forth under the caption "SELECTED CONSOLIDATED FINANCIAL DATA" in the Annual Report as of December 31, 1996, furnished to the stockholders of the registrant, and attached as an exhibit hereto, which portion of the Annual Report is incorporated herein by this reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this item is set forth under the caption "MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS" in the Annual Report as of December 31, 1996, furnished to the
stockholders of the registrant, and attached as an exhibit hereto, which portion of the Annual Report is incorporated herein by this reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements required by this item are as follows:
Consolidated Balance Sheets as of December 31, 1996 and 1995;
Consolidated Statements of Earnings - Years ended December 31, 1996, 1995 and 1994;
Consolidated Statements of Stockholders' Equity - Years ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994;
Notes to Consolidated Financial Statements
These financial statements are filed as a part of this report, beginning on page 23 hereof, and are incorporated herein by this reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
(a) The only independent accountant who was engaged during the registrant's two most recent fiscal years or any subsequent interim period as the principal accountant to audit the registrant's financial statements has not resigned (nor indicated it has declined to stand for re-election after the completion of the current audit) nor was dismissed.
(b) No new independent accountant has been engaged as the principal accountant to audit the registrant's financial statements during the registrant's two most recent fiscal years or any subsequent interim period.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth on pages 2, 3 and 4 of registrant's definitive proxy statement filed with the Securities and Exchange Commission pursuant to Schedule 14A promulgated under the Securities Exchange Act of 1934, under the caption "ELECTION OF DIRECTORS", which portion of said definitive proxy statement is incorporated herein by this reference.
No disclosure is being made herein of reporting person delinquencies in response to Item 405 of Securities and Exchange Commission regulation S- K, and the registrant, at the time of filing of this FORM 10-K, has reviewed the information necessary to ascertain, and has determined that, Item 405 disclosure is not expected to be contained in this Part III of FORM 10-K or incorporated by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth on pages 2, 3 and 4 of registrant's definitive proxy statement filed with the Securities and Exchange Commission pursuant to Schedule 14A promulgated under the Securities Exchange Act of 1934, under the caption "ELECTION OF DIRECTORS", which portion of said definitive proxy statement is incorporated herein by this reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth on pages 1, 2 and 3 of registrant's definitive proxy statement filed with the Securities and Exchange Commission pursuant to Schedule 14A promulgated under the Securities Exchange Act of 1934, under the captions "VOTING SECURITIES OUTSTANDING AND VOTING RIGHTS" and "ELECTION OF DIRECTORS", which portions of said definitive proxy statement are incorporated herein by this reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth on pages 2, 3 and 4 of registrant's definitive proxy statement filed with the Securities and Exchange Commission pursuant to Schedule 14A promulgated under the Securities Exchange Act of 1934, under the caption "ELECTION OF DIRECTORS," which portion of said definitive proxy statement is incorporated herein by this reference.
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PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Independent Auditors' Report
2. Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Earnings - Years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity - Years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
3. Consolidated Financial Statement Schedules:
All schedules are omitted as none are currently required.
4. Exhibits:
(3) (i) Certificate of Incorporation (including all amendments to date) is incorporated herein by reference to Exhibit (3) to the Annual Report on Form 10-K for the registrant for the fiscal year ended December 31, 1989. (ii) Bylaws (including all amendments to date) are incorporated herein by reference to Exhibit 3(ii) to the Annual Report on Form 10-K for the registrant for the fiscal year ended December 31, 1993.
(10) Material Contracts:
(iii)(A) Central Coal & Coke Corporation's Directors Non-
Qualified Stock Option Plan is incorporated herein by reference to Exhibit (10)(iii)(A) to the Annual Report on Form 10-K for the registrant for the fiscal year ended December 31, 1994. This Plan was approved by the registrant's stockholders at the Annual Meeting held April 19, 1995, and is discussed in the Definitive Proxy
Statement for that meeting previously filed with the Commission and in the Definitive Proxy Statement for the Annual Meeting of Stockholders to be held April 16, 1997 previously filed with the Commission.
(13) Portions of the Annual Report to security holders for year ended December 31, 1996 captioned "Selected Consolidated Financial Data," "Management's Discussion & Analysis of Financial Condition & Results of Operations" and "Market for Registrant's Common Equity and Related Stockholder Matters."
(21) Subsidiaries of the registrant
(b) No reports on Form 8-K were filed during the last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CENTRAL COAL & COKE CORPORATION _______________________________ Registrant
By /s/ Beekman Winthrop ________________________________ Beekman Winthrop, President
Date: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /s/ Beekman Winthrop ________________________________ Beekman Winthrop, President Principal Executive Officer Date: March 26, 1997
/s/ Gary Pennington ________________________________ Gary J. Pennington General Manager, Principal Financial Officer, and Date: March 26, 1997 Principal Accounting Officer
By /s/ Leonard Noah ________________________________ Leonard Noah, Director Date: March 26, 1997
By /s/ Beekman Winthrop ________________________________ Beekman Winthrop, Director Date: March 26, 1997
By /s/ Ernest N. Yarnevich, Jr. ________________________________ Ernest N. Yarnevich, Jr., Director
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES KANSAS CITY, MISSOURI
Index to Consolidated Financial Statements
Independent Auditors' Report
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Earnings - years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity - years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - years ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
KPMG Peat Marwick, LLP 1000 Walnut, Suite 1600 P.O. Box 13127 Kansas City, MO 64199
The Board of Directors Central Coal & Coke Corporation and Subsidiaries:
We have audited the consolidated financial statements of Central Coal & Coke Corporation and subsidiaries as listed in the accompanying index. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Central Coal & Coke Corporation and subsidiaries as of December 31, 1996 and 1995 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick, LLP
Kansas City, Missouri January 17, 1997
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of Central Coal & Coke Corporation (the Company) and its two wholly-owned subsidiaries. The Company's subsidiaries are engaged in the ownership and operation of a fast food bagel/delicatessen business. All significant intercompany accounts and transactions have been eliminated in consolidation.
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposit accounts and a money market deposit account. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.
Investment Securities
Investments in debt and certain equity securities are classified in one of three categories: (1) held-to-maturity securities, which are carried at amortized cost; (2) trading securities, which are carried at fair value, with unrealized gains and losses included in earnings; and (3) available- for-sale securities, which are carried at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders' equity, net of related income taxes until realized.
Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available-for-sale are included in earnings and are derived using the specific identification method for determining the cost of securities sold.
Coal Deposits, Real Estate, Equipment and Leasehold Improvements
Coal deposits, mineral rights and surface lands were acquired from the trustee in bankruptcy for predecessor companies (pursuant to a plan of reorganization approved by the federal court) and were initially recorded at the valuations placed thereon by the receivers in bankruptcy in 1931. Subsequent additions and all other fixed assets are stated at cost. Maintenance and repairs are charged to expense as incurred. Renewals and betterments which extend the useful life of the asset are capitalized.
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
Depreciation, Depletion and Amortization
Equipment and leasehold improvements are depreciated/amortized using the straight-line method over their estimated useful lives or lease terms which range from one to ten years.
Depletion of coal deposits is computed at the rate of $.025 per ton of coal produced or purchased which approximates depletion computed on a wasting- asset basis.
Coal, Oil and Gas Income
Coal royalties are based on a percentage of the production of land leased from the Company or, in the case of no production, the minimum annual royalty (see note 3). Oil and gas royalties are based on a percentage of the production on land leased from the Company. Oil and other mineral lease rentals and bonuses are derived from the leasing of land and mineral rights prior to production.
Oil lease bonuses which relate to future periods are deferred and recognized as income over the related future periods (generally one year).
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities for subsequent changes in tax rates is recognized in income in the period that includes the tax rate change.
Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted Statements of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair value- based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123 (see note 11).
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," on January 1, 1996. This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this statement did not have a material impact on the Company's financial position, results of operations or liquidity.
Earnings and Dividends Per Common Share
Earnings per common share are based on the weighted average number of common shares and dilutive common equivalent shares outstanding during the year. Dividends per share are based on the number of shares outstanding on the dividend dates of record.
(2) Investment Securities
The amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value for held-to-maturity and available-for-sale securities by major security type at December 31, 1996 and 1995 are presented below. Substantially all equity securities represent common stocks of domestic corporations.
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
At December 31, 1996 and 1995, all U. S. government and government agency securities mature within one year.
Investment income consists of the following for each of the years in the three-year period ended December 31, 1996:
(3) Coal Deposits
The rights to 14,000 acres of coal deposits totaling approximately 84,000,000 tons of coal in place (of which from 50% to 90% could be expected to be recoverable) are leased under agreements which extend for periods of two to twenty years. The agreements provide for minimum annual royalties of $94,600. Coal deposits aggregating approximately 92,000,000 tons in place with a net carrying value of approximately $710,000 at December 31, 1996 are not presently leased or producing coal in commercial quantities.
(4) Mineral Rights
At December 31, 1996, the Company owns approximately 64,000 acres of mineral rights in Missouri, Kansas, Oklahoma, Arkansas, Louisiana and Texas.
(5) Income Taxes
Total income taxes for the years ended December 31, 1996, 1995 and 1994 were allocated as follows:
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
The components of income tax expense are as follows:
Total income tax expense for 1996, 1995 and 1994 includes deferred income tax benefits of $(6,076), $(1,421) and $0, respectively.
Total income tax expense for 1996, 1995 and 1994 includes deferred income tax benefits Income tax expense has been provided at effective rates of 30.3%, 29.8% and 40.7% for the years ended December 31, 1996, 1995 and 1994, respectively. The reasons for the difference between the effective tax rates and the corporate federal income tax rates of 34.0% in 1996, 1995 and 1994 are as follows:
The Company's Missouri corporation income tax returns were examined by the Missouri Department of Revenue, and additional taxes and interest thereon were assessed. The Company made certain payments under protest in 1993 and 1994 in connection with the examination adjustments.
In 1995, the Company entered into a settlement agreement with the Missouri Department of Revenue which settled all issues relating to the examinations. As a result of this settlement, in 1995 the Company recorded a reduction to its estimated state income tax accrual established in prior years amounting to $75,000.
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996 and 1995 are presented below:
(6) Pension Plan
The Company sponsored a defined contribution pension plan for eligible employees. Contributions to the plan were $1,055 and $1,052 in 1995 and 1994, respectively.
In September 1996, an amendment to the pension plan was approved by the Board of Directors. The amendment terminated the plan and all participants became 100% vested in their accounts. No new participants were eligible to participate in the plan after December 31, 1995.
(7) Operating Leases
The Company has an operating lease on a month-to-month basis for its administrative office space in Kansas City, Missouri. In addition, the subsidiaries of the Company have operating leases for certain retail facilities. Rent expense for operating leases in the aggregate amounted to $142,190, $90,192 and $47,541 for the years ended December 31, 1996, 1995 and 1994, respectively.
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
A summary of minimum lease commitments, all of which relate to the food operation, follows:
It is expected that, in the ordinary course of business, leases will be renewed or replaced.
(8) Disclosures About Fair Value of Financial Instruments
Cash, Cash Equivalents, Trade Receivables and Trade Payables
The carrying amount approximates fair value because of the short maturity of these financial instruments.
Debt and Equity Securities
The fair values of debt and equity securities are based on quoted market prices. The fair value of debt and equity securities are disclosed in note 2.
(9) Related Party Transaction
During February 1994, an Investment Management Agreement was entered into between the Company and Woodwin Management, Inc. The Company's president is also the president, director and stockholder of Woodwin Management, Inc. Under this agreement, the Company has agreed to pay a fee at an annual rate of .50% of the market value of the assets under management. Woodwin Management, Inc. is managing the Company's equity securities portfolio. The fee paid in 1996, 1995 and 1994 to Woodwin Management, Inc. was $4,530, $3,625 and $1,845, respectively. In the opinion of management of the Company, the terms of this Investment Management Agreement are reasonable and competitive.
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
(10) Business Segment Information
The Company operates in two business segments: energy and retail food. The energy segment consists of the leasing of real properties and mineral interests in the midwestern and southern United States to operating leasees. Coal royalties in 1996 were received from four customers, with 92% being received from one customer. Oil and mineral leases and bonuses were received from six customers in 1996, with 38% being recognized from the largest customer. Oil and gas royalties were received from four customers in 1996, with 97% being received from one customer. The retail food segment, which commenced in 1993, consists of the operation of a fast food bagel and delicatessen business with two locations in Ohio, one location in Pennsylvania and one location in California. Business segment information for 1996, 1995 and 1994 is as follows:
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
Identifiable assets are those assets used in the Company's operations in each segment. Corporate assets are principally cash and cash equivalents and investments in securities. The operating income of each industry segment includes the revenue generated on transactions involving products and services within that industry segment less identifiable and allocated expenses.
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
(11) Stock Option Plan
In April 1995, the Company adopted a nonqualified stock option plan (the Plan) pursuant to which the Company's Board of Directors may grant stock options to Directors in lieu of cash compensation. The Plan authorizes grants of options to purchase up to 25,000 shares of common stock. Stock options are granted with an exercise price equal to the stock's fair market value at the date of grant. All stock options have a term of ten years and vest and become fully exercisable on the date of grant.
During 1996, 2,500 options were granted with an exercise price of $30.50. During 1995, 2,500 options were granted with an exercise price of $29.00. No options were exercised during 1996 or 1995. At December 31, 1996, there were 20,000 shares available for grant under the Plan.
The per share weighted average fair value of stock options granted during 1996 and 1995 was $1.84 and $2.29 on the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions: 1996 - expected dividend yield 6.0%, expected volatility of 9.0%, risk-free interest rate of 6.3% and an expected life of five years; 1995 - expected dividend yield 6.0%, expected volatility of 9.0%, risk- free interest rate of 6.3% and an expected life of five years.
The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its stock options in the accompanying consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
(12) Food Operations
Food operations of the Company's fast food bagel and delicatessen business includes the following expenses for the years ended December 31, 1996, 1995 and 1994: