Form 1O-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or
15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended March 31, 1999
Commission File No. 0-1392
Central Coal & Coke Corporation and Subsidiaries
Incorporated in State of Delaware IRS Number: 44-0195290
127 West 10th Street, Room 666
Kansas City, Missouri 64105
Phone: 816-842-2430
Common stock outstanding as of March 31, 1999
$1 par value; 355,000 shares
The Registrant (l) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such
filing requirements for the past ninety days.
Yes [X] No [ ]
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets - March 31, 1999 and
December 31, 1998
Consolidated Statements of Earnings and Retained Earnings
- Three months ended March 31, 1999 and 1998
Consolidated Statements of Comprehensive Income
- Three months ended March 31, 1999 and 1998
Consolidated Statements of Cash Flows - Three months
ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
(Unaudited)
(amounts in unit dollars)
ASSETS 1999 1998
__________ __________
Current assets:
Cash and cash equivalents $ 1,663,430 1,606,992
Accounts receivable 0 22,500
Securities maturing within one year, at
amortized cost (note 2) (fair value
$7,405,355 and $7,476,560 at March 31,
1999 and December 31, 1998) 7,406,140 7,474,053
Notes receivable, current 14,508 12,465
Income tax receivable 32,505 32,505
Other 10,145 4,578
__________ __________
Total current assets 9,126,728 9,153,093
Equity securities, at fair value (note 2) 1,321,381 1,220,167
Notes receivable, noncurrent 109,677 115,409
Coal deposits, real estate, equipment and
leasehold improvements:
Coal deposits 1,602,882 1,602,882
Mineral rights 39,988 39,988
Surface land 26,131 26,131
Equipment and leasehold improvements 6,053 6,053
__________ __________
1,675,054 1,675,054
Less accumulated depletion, depreciation
and amortization 580,666 580,636
__________ __________
Net coal deposits, real estate, equipment
and leasehold improvements 1,094,388 1,094,418
__________ __________
$ 11,652,174 11,583,087
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 30,229 25,967
Deferred oil lease bonus 73,018 97,357
Federal and state income taxes 670 0
__________ __________
Total current liabilities 103,917 123,324
Deferred income taxes 225,362 188,772
Stockholders' equity:
Common stock of $1 par value; authorized
500,000 shares, issued 376,688 shares 376,688 376,688
Additional capital 1,631,200 1,631,200
Retained earnings 9,606,634 9,591,919
__________ __________
11,614,522 11,599,807
Less cost of 21,688 shares in 1999 and
and 20,693 in 1998 held in treasury (648,398) (617,632)
Accumulated other comprehensive income,
net of deferred taxes of $192,107
and $155,517 at March 31, 1999
December 31, 1998 356,771 288,816
__________ __________
Total stockholders' equity 11,322,895 11,270,991
$ 11,652,174 11,583,087
<FN>
See accompanying notes to consolidated financial statements.
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Consolidated Statements of Earnings
Three months ended March 31, 1999 and 1998
(Unaudited)
(amounts in unit dollars)
1999 1998
__________ __________
Operating revenue:
Coal royalties $ 2,417 2,493
Oil and gas royalties 61,408 172,456
Oil and other mineral lease
rentals and bonuses 32,376 28,434
__________ __________
Total operating revenue 96,201 203,383
General and administrative expenses 193,697 95,030
__________ __________
Operating income (loss) (97,496) 108,353
___________ __________
Nonoperating income:
Investment income 112,876 140,640
Gain on sales of real estate 0 36,897
Other 5 37
__________ __________
Total nonoperating income 112,881 177,574
Earnings from continuing
operations before income taxes 15,385 285,927
Income taxes 670 95,994
__________ __________
Earnings from continuing operations 14,715 189,933
Discontinued operations, net of
income taxes (note 3) 0 (24,492)
_________ _________
Net earnings 14,715 165,441
Retained earnings at
beginning of period 9,591,919 9,252,798
Deduct cash dividends declared
of $.50 per share in 1998 0 (178,298)
_________ _________
Retained earnings at end
of period $ 9,606,634 9,239,941
Earnings per share from
continuing operations -
basic and diluted $ 0.04 0.53
Loss per share for
discontinued operations -
basic and diluted $ 0 (0.07)
Earnings per share - basic
and diluted $ 0.04 0.46
Weighted average number
of shares of common
stock outstanding 355,716 365,595
<FN>
See accompanying notes to consolidated financial statements.
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Consolidated Statements of Comprehensive Income
Three months ended March 31, 1999 and 1998
(amounts in unit dollars)
1999 1998
___________ ___________
Net earnings $ 14,715 165,441
___________ ___________
Other comprehensive income:
Net unrealized appreciation
of investments during the
period, net of income taxes
of $38,070 and $32,020 70,702 59,467
Reclassification adjustment
for the amounts included in
net earnings, net of income
taxes of $1,480 and $7,334 (2,747) (13,621)
___________ ___________
67,955 45,846
Comprehensive income 82,670 211,287
<FN>
See accompanying notes to consolidated financial statements.
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and 1998
(Unaudited)
(amounts in unit dollars)
1999 1998
__________ __________
Cash flows from operating activities:
Net earnings $ 14,715 165,441
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depletion, depreciation and amortization 30 16,839
Amortization of premiums and discounts
of securities, net (89,360) (102,222)
Gain on sales of real estate 0 (36,897)
Gain on sales of equity securities (4,227) (20,955)
Changes in assets and liabilities:
Accounts receivable, income taxes
receivable and other assets 16,933 19,276
Deferred oil lease bonus (24,339) 170,374
Accounts payable and accrued expenses 4,262 12,238
Federal and state income taxes payable 670 63,550
__________ __________
Total adjustments (96,031) 122,203
Net cash provided by (used in) operating activities (81,316) 287,644
Cash flows from investing activities:
Proceeds from note receivable 3,689 0
Proceeds from matured/called investment
debt securities 11,500,000 7,500,000
Purchases of investment debt securities (11,342,727) (7,393,617)
Proceeds from sales of land 0 37,567
Purchases of equity securities (1,099) (27,567)
Proceeds from sales of equity securities 8,657 51,119
__________ __________
Net cash provided by investing activities 168,520 167,502
Cash flows from financing activities-purchase
of common stock for treasury (30,766) 0
Net increase in cash and cash equivalents 56,438 455,146
Cash and cash equivalents, beginning of year 1,606,992 1,493,966
Cash and cash equivalents, end of year $ 1,663,430 1,949,112
<FN>
See accompanying notes to consolidated financial statements.
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
March 31, 1999
Note (1) Basis of Presentation:
In the opinion of the Central Coal & Coke Corporation (the
Company), the accompanying unaudited consolidated financial statements
contain all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position as of March 31, 1999,
and the results of operations and cash flows for the three months ended
March 31, 1999 and 1998.
Oil Lease Bonuses
Oil lease bonuses which relate to future periods are deferred and
recognized as income over the related future periods (generally one
year).
Note (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 March 31, 1999
and December 31, 1998 are as follows:
March 31, 1999
______________________________________________
Gross Gross
unrealized unrealized
Amortized holding holding Fair
cost gains losses value
__________ __________ __________ __________
Held-to-maturity:
U. S. government
securities $ 7,406,140 0 (785) 7,405,355
Available-for-sale:
Equity securities $ 772,503 617,820 (68,942) 1,321,381
December 31, 1998
______________________________________________
Held-to-maturity:
U. S. government
agency securities $ 7,474,053 2,507 0 7,476,560
Available-for-sale:
Equity securities $ 775,834 525,664 (81,331) 1,220,167
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
Note (3) Segment/Discontinued Operations Information
The Company has operated in two segments - energy and food. On
September 1, 1998, the Company sold its remaining food operations and, as
a result, the accompanying 1998 consolidated financial statements have
been reclassified to present the food operations as discontinued operations.
The Company now operates in only one segment, the energy segment, which
consists of the leasing of real properties and mineral interests in the
midwestern and southern United States to operating leasees. The Company has
no foreign revenues.
The loss from the Company's discontinued food business is comprised
of the following for the three months ended March 31, 1998:
Revenues $ 207,620
Cost of food sales 81,298
_________
Gross margin 126,322
Food operations expense:
Salaries and wages 61,970
Occupancy expense 24,089
Depreciation and
amortization expense 14,007
Utility expense 8,398
Other expenses 54,729
_________
163,193
Loss from food operations
before income taxes (36,871)
Income tax benefit 12,379
Loss from food
Operations $ (24,492)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
There was no significant change in the financial condition of the
Registrant during the first quarter of 1999 from the end of the last
fiscal year, and it continues very strong. The liquidity of the Registrant
continues to be high.
Operating revenue was down substantially in the first quarter of 1999
from the first quarter of 1998 due primarily to reduced revenue from oil
and gas royalties. The reason for reduced revenue from that source was
lower oil prices than in the prior year and somewhat reduced production.
The reduced revenue from that source was somewhat offset by a slight
increase in revenue from oil and other mineral lease rentals and bonuses
which resulted from more new leases with income recognizable in the current
quarter.
As to nonoperating income, revenue from investment income was
down approximately 20% in the first quarter of 1999 from the first quarter
of 1998. This was due primarily to more capital gains realized on sales
of equities during the first quarter of 1998 than the current quarter,
and slightly lower rates of return on temporary fixed income investments
during the current quarter. Additionally, in the category of nonoperating
income, gain on sales of real estate decreased simply because there were
no sales of surface land during the current quarter.
General and administrative expenses were up substantially in the
first quarter of 1999 over the first quarter of 1998. This increase was
attributable primarily to significant fees paid to outside service
providers during the first quarter of 1999, particularly to financial
advisers and appraisers of the Registrant's real estate and mineral
assets.
Income taxes were lower in the first quarter of 1999 than in the
first quarter of 1998 as a result of decreased earnings before income
taxes.
The accompanying consolidated statement of earnings shows a loss
from discontinued operations, net of income taxes, in the first quarter
of 1998 and no gain or loss from that category in the first quarter of
1999. Losses from that source resulted during prior periods from the
operation of Beekman's Deli Systems, Limited Liability Company, a limited
liability company in which the Registrant is a majority member
(hereinafter "Beekman's"). Beekman's operated fast food and delicatessen
facilities in four different locations throughout the country, however,
sales and profitability of this operation were disappointing and all of
the operations were terminated by September 1, 1998, and Beekman's now
has no active operations. As described in more detail in note 3 to the
accompanying consolidated financial statements, as a result of the
operations of Beekman's during the first quarter of 1998, a loss was
incurred, however, since the operations were terminated later in the
year 1998, there were no activities in 1999 and thus no income or loss
during that later year.
Cash flows increased in the first quarter of 1999 and the first
quarter of 1998, but the increase was significantly greater in the first
quarter of 1998. The most significant components of the changes between
the periods were materially lower net earnings in the first quarter of
1999 than in the first quarter of 1998, and decreased deferred oil lease
bonuses in the current period. Other items contributing materially to
the change in cash flows during the periods under comparison include
differences in federal and state income tax liabilities, differences
in the amount of proceeds from matured/called investment debt securities,
which were reinvested, and the timing of purchases and sales of equity
securities during the respective periods, and purchases of treasury
stock during the current period.
During the first quarter of 1999, the Registrant's Board of Directors
considered the declaration of the semiannual dividend, but deferred the
decision until the Board meeting held on April 21, 1999, at which time a
cash dividend of $.50 per share was declared payable June 30, 1999 to
stockholders of record as of June 1, 1999. A dividend of the same amount
was paid on May 1, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
On January 1, 1998 the Registrant adopted Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income,
which established standards for reporting and presentation of comprehensive
income and its components in a full set of financial statements. The
application of this statement is shown in the consolidated statements
of comprehensive income in the accompanying consolidated financial
statements. The application of this requirement only requires additional
disclosures and does not affect the Registrant's financial position or
results of operations.
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued by the Financial Accounting Standards Board in
June 1998. SFAS No. 133 standardizes the accounting for derivative instruments.
Under the statement, entities are required to carry all derivative instruments
in the statement of financial position at fair value. The Registrant must
adopt SFAS No. 133 by January 1, 2000, however, early adoption is permitted.
On adoption, the provisions of SFAS No. 133 must be applied prospectively.
The Registrant anticipates that the adoption of SFAS No. 133 will not have
a material impact on its financial position or results of operations.
As the year 2000 approaches, issues have emerged regarding how existing
computer application software programs and operating systems can accommodate
this date because certain computer programs being utilized use two digits
rather than four digits to define the applicable year. As a result, it
is possible that computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000, which,
in turn, could result in system failure or miscalculation causing disruption
of the business of the Registrant or its suppliers and customers. Management
of the Registrant is confident that its state of readiness with respect
to this matter is high. The Registrant utilizes only one stand-alone personal
computer in the administration of its business operations and internal
accounting, and it is not anticipated that any significant modifications
or upgrades will be necessary to its existing computer hardware or
software. However, the cost to address the Registrant's own year 2000
issues would not be material, even if it would become necessary to replace
the entire hardware and software currently utilized, as this could be done
for less than $5,000, However, the Registrant has relationships with
third parties that utilize computer systems that may not be year 2000
compliant. Thus, there is a possible risk that to the extent such third-party
systems are not fully year 2000 compliant, there could be potential
systems interruption causing disruptions in operations of such third parties
which, in turn, could effect normal business activities of the Registrant.
Given the nature of the Registrant's business activities, management does
not anticipate that there will be any such potential systems interruptions
of operation or business prospects. The foregoing may constitute "forward
looking statements" about matters that are inherently difficult to predict.
These statements include statements regarding the intent, belief, or
current expectations of the Registrant and its management. Some of the
important factors that effect these statements have been described above,
but such forward looking statements involve risks and uncertainties that
may possibly affect future developments, such as the ability to deal with
year 2000 problems experienced by third parties with whom the Registrant
does business and over which it has no control. If modifications and
conversions required by third parties to make their computer systems year
2000 compliant are not made or are not completed on a timely basis, the
resulting problems could have a material impact on the operations of the
Registrant even though not presently anticipated. The Registrant has not,
to date, implemented a year 2000 Contingency Plan. As reported above, it
is not anticipated that compliance will create any systems interruptions or
material costs to the Registrant. If conditions develop as a result of
failure of third parties to be year 2000 compliant on a timely basis,
the Registrant may hereafter need to develop a Contingency Plan, such as
changing third parties with whom it does business, but that is not
currently contemplated.
The Registrant has no specific commitment for material capital
expenditures at the present time. Management continues to actively
pursue other business opportunities which will result in a more productive
deployment of its assets and ultimately increase earnings. Management
continues to aggressively pursue development of increased income from its
oil and gas and coal properties and continues to attempt to lease more of
its mineral properties in order to generate additional rental, bonus,
and royalty income.
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risk exposures of the Registrant relate to changes
in interest rates, changes in equity security prices, and changes in certain
commodity prices.
The Registrant's exposure to market risk for changes in interest rates
relates solely to its fixed income investment portfolio which consists of
U. S. government agency securities. All such securities are held-to-maturity
and have original maturities of less than one year. The Registrant does not
use derivative financial instruments to hedge interest rates on its fixed
income investment securities.
The Registrant's exposure to market risk for changes in equity security
prices relates solely to its marketable equity investment portfolio which
consists principally of common stocks of domestic publicly-held enterprises.
The Registrant periodically enters into equity option contracts on a limited
basis principally relating to marketable equity securities held in its
investment portfolio. At March 31, 1999, the Registrant held four option
contracts with a short position relating principally to marketable equity
securities held by it. The fair value of option contracts at March 31, 1999
was approximately $12,300.
The Registrant's exposure to market risk for changes in commodity prices
relates to changes in the prices of coal, oil, and natural gas and the effect
thereof on its royalties and rentals relating to coal deposits and mineral
rights, as is discussed in more detail in Management's Discussion and Analysis
of Financial Condition and Results of Operations set forth in Part 1,
Item 2 of this report. The Registrant does not use derivative commodity
instruments to hedge its commodity risk exposures.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - Attached
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - Attached
PART II, ITEM 4. - SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
The following meeting of stockholders was held after the close of
the quarter to which this report pertains, however, it was held prior to
the filing of this report so disclosure is made as hereinafter set forth.
(a) The annual meeting of stockholders was held April 21, 1999.
(b) The meeting involved the election of Directors and the following
are the Directors elected at that meeting:
Ray Infantino
Patrick J. Moran
James Ukropina
Phelps C. Wood
Phelps M. Wood
There were no other Directors whose term of office as a Director
continued after the meeting. At a subsequent Board of Directors
meeting, the Bylaws of the Registrant were amended to increase
the number of Directors to seven. Bruce Franke and Beekman Winthrop
were elected to fill the vacancies created by the increase in number
of Directors. Mr. Franke accepted election as a Director and
Mr. Winthrop is considering the election as a Director and will
subsequently accept such election or decline it.
(c) For the election of Directors, the votes received by all nominees
were as follows:
Leonard Noah 155,792
Gary J. Pennington 155,792
Beekman Winthrop 155,793
Phelps M. Wood 327,063
Ernest N. Yarnevich, Jr. 155,792
Ray Infantino 171,270
Patrick J. Moran 171,270
James Ukropina 171,270
Phelps C. Wood 171,270
Thus, the five nominees receiving the highest number of votes and
therefore elected were as follows:
Ray Infantino
Patrick J. Moran
James Ukropina
Phelps C. Wood
Phelps M. Wood
Cumulative voting is not permitted.
At the same meeting, the stockholders approved the appointment of
the accounting firm of KPMG LLP as independent public accountants
to examine the financial statements of the Registrant for the year
ending December 31, 1999 and to perform other appropriate accounting
services.
(d) There were no settlements between the Registrant and any other
participants with respect to matters voted on by the stockholders at
such meeting.
PART II, ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(b) A Form 8-K, dated April 27, 1999, was filed with respect to the
election of Directors disclosed in Item 4 above that occurred on
April 21, 1999. No financial statements were included in such report.
SIGNATURES
Pursuant to the requirements 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)
Date: May 13, 1999
____________________________
By: /s/ Gary J. Pennington
____________________________
Gary J. Pennington,
Assistant Secretary-
General Manager, Principal
Financial and Accounting Officer
Date: May 13, 1999
____________________________
By: /s/ Phelps M. Wood
____________________________
Phelps M. Wood,
President