1
Exhibit 99(i)
Audited Consolidated Financial Statements
THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES
As of December 31, 1996 and 1995
Report of Independent Public Accountants...............................1
Consolidated Balance Sheets............................................2
Consolidated Statements of Income......................................4
Consolidated Statements of Stockholder's Equity........................5
Consolidated Statements of Cash Flows..................................6
Notes to Consolidated Financial Statements.............................7
2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
The North American Coal Corporation:
We have audited the accompanying consolidated balance sheets of The North
American Coal Corporation and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, stockholder's equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of The North American Coal
Corporation and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Dallas, Texas,
February 4, 1997
3
THIS PAGE INTENTIONALLY LEFT BLANK
4
THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1996 and 1995
(Amounts in Thousands)
1996 1995
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,310 $ 4,700
Note receivable from Parent Company 41,952 14,939
Accounts receivable 27,753 23,156
Inventories 27,204 29,736
Other current assets 1,892 2,002
--------- ---------
103,111 74,533
OTHER ASSETS:
Notes receivable 2,621 3,217
Costs recoverable under sales contracts 4,895 5,785
Other investments and receivables 16,485 13,804
--------- ---------
24,001 22,806
PROPERTY, PLANT AND EQUIPMENT--at cost:
Coal lands and real estate 94,017 93,052
Plant and equipment 451,774 439,862
Construction in progress 7,346 6,485
--------- ---------
553,137 539,399
Less allowance for depreciation, depletion
and amortization (230,453) (208,330)
--------- ---------
322,684 331,069
DEFERRED CHARGES:
Advance royalties 6,326 5,952
Deferred lease costs 36,516 34,936
Other 7,452 4,654
--------- ---------
50,294 45,542
--------- ---------
$ 500,090 $ 473,950
========= =========
The accompanying notes are an integral part of these statements.
-2-
5
1996 1995
-------- --------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 15,048 $ 19,769
Payable to affiliated companies 556 948
Accrued liabilities 26,585 25,596
Borrowings under revolving credit agreement 29,000 -
Current maturities of long-term obligations 17,861 16,489
-------- --------
89,050 62,802
NON-CURRENT LIABILITIES:
Deferred income taxes 19,852 19,156
Pension compensation and other accrued liabilities 29,138 24,955
-------- --------
48,990 44,111
LONG-TERM OBLIGATIONS:
Subsidiaries' liabilities--(not guaranteed by the
Company or the Parent Company):
Advances from customers 184,234 176,384
Notes payable 20,751 23,872
Notes payable to affiliated company 19 32
Capitalized lease obligations 136,630 146,384
-------- --------
341,634 346,672
MINORITY INTEREST 5,291 5,240
STOCKHOLDER'S EQUITY:
Common stock, par value $1 a share:
authorized 750 shares; issued and
outstanding 500 shares 1 1
Capital in excess of par value 15,124 15,124
Retained income - -
-------- --------
15,125 15,125
-------- --------
$500,090 $473,950
======== ========
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6
THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1996 and 1995
(Amounts in Thousands)
1996 1995
-------- --------
TONS OF COAL SOLD 27,597 26,680
======== ========
INCOME:
Net sales $245,046 $234,354
Royalties, rental and other operating income 4,004 13,632
Interest, gain on sale of assets and miscellaneous income 4,752 4,984
-------- --------
253,802 252,970
-------- --------
COSTS AND EXPENSES:
Cost of sales 166,696 162,377
Depreciation, depletion and amortization 31,162 30,382
Selling, administrative and general expenses 10,961 9,448
Interest expense of subsidiaries 13,832 15,312
-------- --------
222,651 217,519
-------- --------
Income before income taxes and minority interest 31,151 35,451
INCOME TAXES:
Current 8,574 9,150
Deferred 1,312 1,690
-------- --------
9,886 10,840
Minority interest in income of consolidated subsidiary 2,074 2,018
-------- --------
Net income $ 19,191 $ 22,593
======== ========
The accompanying notes are an integral part of these statements.
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7
THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
For the Years Ended December 31, 1996 and 1995
(Amounts in Thousands)
Capital In
Common Excess of Retained
Stock Par Value Income Total
------ ------- ---- --------
Balance at January 1, 1995 $ 1 $15,124 $ - $ 15,125
Net income - - 22,593 22,593
Dividends - - (22,593) (22,593)
------ ------- -------- --------
Balance at December 31, 1995 $ 1 $15,124 $ - $ 15,125
Net income - - 19,191 19,191
Dividends - - (19,191) (19,191)
------ ------- -------- --------
Balance at December 31, 1996 $ 1 $15,124 $ - $ 15,125
====== ======= ======== ========
The accompanying notes are an integral part of these statements.
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8
THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996 and 1995
(Amounts in Thousands)
OPERATING ACTIVITIES: 1996 1995
-------- ---------
Net income $ 19,191 $ 22,593
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 31,162 30,382
Gain on sale of assets (84) (279)
Costs recovered under sales contracts 890 1,160
Deferred lease costs (1,580) (1,782)
Deferred income taxes 1,312 1,690
Pensions and other accruals 3,610 1,280
Other deferred costs (2,495) 208
-------- ---------
52,006 55,252
Working capital changes:
(Increase) decrease in accounts receivable and other assets (4,114) 113
(Increase) decrease in inventories 2,532 (2,525)
Increase (decrease) in accounts payable and other liabilities (5,538) 10,920
-------- ---------
(7,120) 8,508
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 44,886 63,760
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (19,534) (22,611)
Proceeds from property disposals 171 552
(Additions to) repayment of note receivable from Parent
Company, net (27,013) 7,770
Receipt of notes receivable 574 552
Advance royalties (428) (610)
Other - net (3,216) (1,841)
-------- ---------
NET CASH USED BY INVESTING ACTIVITIES (49,446) (16,188)
FINANCING ACTIVITIES:
Additions to (repayment of) lines of credit, net 29,000 (16,717)
Additions to advances from customers, net 7,850 40,411
Additions to long-term obligations 60,979 52,535
Repayment of long-term obligations (74,468) (102,070)
Dividends (19,191) (22,593)
-------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 4,170 (48,434)
-------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (390) (862)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,700 5,562
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,310 $ 4,700
======== =========
The accompanying notes are an integral part of these statements.
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9
THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Amounts In Thousands)
December 31, 1996 and 1995
NOTE A--ORGANIZATION
The North American Coal Corporation ("Company") is a wholly owned subsidiary of
NACCO Industries, Inc. ("Parent Company"). The Company is the owner of The
Coteau Properties Company ("Coteau"), The Falkirk Mining Company ("Falkirk"),
The Sabine Mining Company ("Sabine"), Red River Mining Company, its joint
venture, ("Red River Mining"), and North American Coal Royalty Company. The
Company is principally engaged in lignite mining through the operation of
surface mines in North Dakota, Texas and Louisiana. The Company also operates a
dragline at a limestone quarry in Florida.
Three of the Company's consolidated coal mining subsidiaries were organized to
assume sales agreements with public utilities. All of the coal of these
subsidiaries is sold to these public utilities pursuant to long-term contracts
with terms up to 20 years and with extensions at the public utilities option.
The sales prices provided by such contracts are based on cost, plus a profit per
ton. As each mining subsidiary has a contract to provide coal to its customer, a
significant portion of their revenue is derived from a single source. The
financial position of the mining subsidiary and the Company could be materially
impacted if the relationship with the customer was terminated or altered.
In December 1996, the Company was the successful bidder for a long-term coal
mining project in south Texas, the San Miguel Lignite Project. The Company will
provide mining services to San Miguel Electric Cooperative, Inc.'s lignite mine
in Texas under a contract for 10.5 years, beginning on July 1, 1997. The Company
expects to deliver to San Miguel Electric Cooperative approximately 1.8 million
tons in 1997 and approximately 3 million tons annually through 2007.
NOTE B--ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company, its wholly owned subsidiaries and its joint venture.
Intercompany accounts have been eliminated.
CASH AND CASH EQUIVALENTS: Cash equivalents are investments purchased with an
original maturity of three months or less.
INVENTORIES: Supply inventories are stated at average cost. Coal inventories are
stated at the lower of cost or market.
COSTS RECOVERABLE UNDER SALES CONTRACTS: The coal sales agreements
("Agreements") of three subsidiaries provided for selling prices which allowed
a profit during the defined development period of the mines. Production costs
incurred during the development period in excess of the established selling
price, as set forth in the Agreements, were deferred and are being recovered as
a cost of coal tonnage sold after the development period. Recoveries of these
costs amounted to approximately $890,000 and $1,160,000 in 1996 and 1995,
respectively, and are included in net sales in the accompanying consolidated
statements of income.
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10
THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE B--ACCOUNTING POLICIES --continued
DEPRECIATION, DEPLETION AND AMORTIZATION: Depreciation, depletion and
amortization are provided in amounts sufficient to amortize the cost of related
assets (including assets recorded under capitalized lease obligations) over
their estimated range of useful lives and are calculated by either the
straight-line method or the units-of-production method based on estimated
recoverable tonnage.
RECLAMATION COSTS: Under certain federal and state regulations, the Company's
subsidiaries are required to reclaim land disturbed as a result of mining.
Reclamation of disturbed land is a continuous process throughout the term of the
related Agreements. Current reclamation costs are being recovered as a cost of
coal tonnage sold. Costs to complete reclamation after mining has been completed
are reimbursed under the Agreements.
PRIOR YEAR FINANCIAL STATEMENTS: Certain reclassifications have been made to the
1995 consolidated financial statements to conform to the 1996 presentation.
FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS: The fair values of
financial instruments have been determined through information obtained from
quoted market sources and management estimates. The Company does not hold or
issue financial instruments or derivative financial instruments for trading
purposes. The Company enters into interest rate swap agreements with terms
ranging from one to six years. The differential between the floating interest
rate and the fixed interest rate which is to be paid or received is recognized
in interest expense as the floating interest rate changes over the life of the
agreement.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
LONG-LIVED ASSETS: During fiscal year 1996, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." This statement had no material effect on the Company's
accompanying financial statements.
CHANGE IN ACCOUNTING METHOD: In 1996, the mines converted to a new
inventory/purchasing system. The conversion resulted in a change from the
first-in, first-out method to the average cost method of the supply inventory
valuation. As of December 31, 1996, average cost approximated first-in, first
out. The cumulative effect is immaterial to the financial statements.
CHANGE IN ACCOUNTING ESTIMATE: Due to the extension of Falkirk's contract with
its customers, Falkirk extended the estimated useful lives of preproduction
costs and fixed assets.
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11
THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE C--ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
December 31,
----------------------
1996 1995
------- -------
Accounts receivable $24,648 $18,783
Accounts receivable from affiliated companies 2,327 3,588
Refundable income taxes 778 785
------- -------
$27,753 $23,156
======= =======
NOTE D--INVENTORIES
Inventories are summarized as follows:
December 31,
----------------------
1996 1995
------- -------
Coal $ 8,328 $10,618
Mining supplies 18,876 19,118
------- -------
$27,204 $29,736
======= =======
NOTE E--ADVANCES FROM CUSTOMERS
Advances from customers represent amounts advanced to Coteau and Falkirk from
public utilities to develop, operate and provide working capital for the mines.
These advances are secured by all owned assets and assignment of all rights
under the Agreements of Coteau and Falkirk, are non interest-bearing, and are
without recourse to the Company and the Parent Company. No repayment schedule
has been established for the Falkirk advances due to the funding agreement with
the customers.
Estimated maturities for Coteau for the next five years, including current
maturities which are included in accrued liabilities in the accompanying balance
sheets, are as follows:
1997 $ 9,079
1998 9,750
1999 9,750
2000 9,750
2001 9,750
Thereafter 72,175
--------
$120,254
========
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THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995
NOTE F--NOTES PAYABLE
Notes payable, less current maturities, are summarized in the following table.
Neither the Company nor the Parent Company have guaranteed these borrowings. The
promissory note for Sabine represents borrowings which the public utility
arranged for Sabine.
December 31,
1996 1995
------- -------
THE COTEAU PROPERTIES COMPANY
Mortgage note with no interest. The note requires
eight equal quarterly payments, beginning January 5, 1996,
and is secured by the related coal lands. $ - $ 3,000
THE SABINE MINING COMPANY
Secured note payable due February 20, 2003, with
semi-annual payments and an interest rate of LIBOR plus
.25% on the unpaid balance (interest rate of 5.75% at
December 31, 1996). Under the terms of such agreement,
substantially all assets are pledged and all rights under
the Agreement are assigned. 11,786 -
Promissory note payable to a bank under a revolving
agreement providing for borrowings up to $10 million in
1996 and $25 million in 1995. Interest is based on the
bank's daily cost of funds plus .45% (6.75% and 6.45%
interest rate as of December 31, 1996 and 1995,
respectively). Under the terms of such agreement,
substantially all assets are pledged and all rights
under the Agreement are assigned. 5,298 16,172
Secured note payable due June 1, 2001, with semi-annual
payments and a fixed interest rate of 8.65% per annum
on the unpaid balance. Under the terms of such
agreement, substantially all assets are pledged and all
rights under the Agreement are assigned. 3,500 4,500
OTHER 167 200
------- -------
$20,751 $23,872
======= =======
Note maturities for the next five years, including current maturities, are as
follows:
1997 $ 6,310
1998 3,310
1999 3,143
2000 3,143
2001 2,643
Thereafter 8,512
----------------
$ 27,061
================
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THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995
NOTE F--NOTES PAYABLE--continued
Commitment fees paid to banks were approximately $18,000 and $46,000 in 1996 and
1995, respectively, and are included in interest expense in the accompanying
consolidated statements of income.
NOTE G--REVOLVING CREDIT AGREEMENT
During 1996, the Company had a revolving credit agreement with a financial
institution which is summarized as follows:
Amount of revolving credit agreement $50,000,000
Amount available at December 31, 1996 $21,000,000
Stated interest rate LIBOR + .4375%
Interest rate at December 31, 1996 6.06%
Commitment and facility fee .20% per annum
Expiration date (with annual renewal option) September 27, 2001
The Company's revolving credit agreement includes certain financial covenants.
The Company was in compliance with such covenants at December 31, 1996.
The Company enters into interest rate swap agreements which allow the Company to
enter into long-term credit arrangements that have performance based, floating
rates of interest and then swap them into fixed rates as opposed to entering
into higher cost fixed-rate credit arrangements. These agreements are with major
commercial banks; therefore, the risk of credit loss from nonperformance by the
banks is minimal. The Company evaluates its exposure to floating rate debt on an
ongoing basis. The following table summarizes the notional amount and related
rate on the interest rate swap agreement outstanding at December 31, 1996:
Variable Fixed
Notional Rate Rate
Amount Received Paid
-------- -------- ----
$13,929 5.75% 6.85%
NOTE H--POSTRETIREMENT PLANS
The Company and its affiliates, representing the mining operations of the Parent
Company, sponsor defined benefit pension plans which cover substantially all
salaried employees of the Company and its subsidiaries. Benefits under the plans
are based on years of service and average compensation during certain periods.
The Company's funding policy is to contribute within the range allowed by the
applicable regulations. Plan assets are primarily listed stocks and U.S. bonds.
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14
THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995
The following is a detail of net periodic pension expense for all mining
operations of the Parent Company:
December 31,
-----------------------
1996 1995
------- -------
Service cost $ 2,192 $ 1,805
Interest cost on projected benefit obligation 2,808 2,414
Actual return on plan assets (2,697) (6,891)
Net amortization and deferral (71) 4,538
------- -------
Net periodic pension expense $ 2,232 $ 1,866
======= =======
The following sets forth the funded status of the plans:
Actuarial present value of benefit obligation December 31,
-------------------------
1996 1995
-------- --------
Vested accumulated benefit obligation $ 20,086 $ 19,034
Nonvested accumulated benefit obligation 2,780 3,313
-------- --------
Total accumulated benefit obligation 22,866 22,347
Value of future salary projections 14,948 17,738
-------- --------
Total projected benefit obligation 37,814 40,085
Fair value of plan assets 34,473 30,622
-------- --------
Projected benefit obligation in excess of plan assets (3,341) (9,463)
Amounts not recognized:
Unrecognized net transition asset (670) (838)
Unrecognized net gain (15,288) (6,578)
Prior service cost 646 705
-------- --------
Pension obligation recognized $(18,653) $(16,174)
======== ========
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THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995
NOTE H--POSTRETIREMENT PLANS--continued
Assumptions used in accounting for the defined benefit plans:
December 31,
------------------
1996 1995
---- ----
Weighted average discount rates 8.00% 7.50%
Rate of increase in compensation levels 5.00% 4.50%
Expected long-term rate of return on assets 9.00% 9.00%
The Company and its subsidiaries participate in a defined contribution plan
sponsored by the Company which covers substantially all salaried employees. The
plan provides for employee contributions to be matched, by the respective
company, up to a limit of 5% of the employee's salary. Company contributions to
the plan were approximately $2,773,000 and $2,515,000 in 1996 and 1995,
respectively.
NOTE I--OTHER POSTRETIREMENT BENEFITS
The expected cost of retirement benefits other than pensions is charged to
expense during the years that the employees render service. Under the provisions
of the Agreements of three subsidiaries, costs will be recovered as a cost of
coal tonnage sold. Because SFAS 106 is not material to the Company's results of
operations and financial condition, the detailed disclosures required by SFAS
106 have not been presented.
Coteau and Sabine established Voluntary Employees' Beneficiary Association
(VEBA) trusts in 1993 to provide for such future retirement benefits. Coteau and
Sabine made cash contributions to the VEBA trusts of approximately $364,000 and
$462,000 in 1996 and 1995, respectively. Contributions made to an IRS approved
VEBA trust are irrevocable and must be used for employee benefits.
NOTE J--COMMITMENTS
Certain mining equipment leased by Coteau, Falkirk, and Sabine is capitalized
for financial statement purposes. Under the provisions of the Agreements, the
customer is required to pay, as part of the cost of coal purchased, an amount
equal to the annual lease payments. Interest expense and amortization in excess
of annual lease payments are deferred and are recognized in years when annual
lease payments exceed interest expense and amortization.
Interest paid on notes and capitalized lease obligations amounted to
approximately $13,775,000 and $15,841,000 in 1996 and 1995, respectively.
Assets recorded under capitalized lease obligations are included with property,
plant and equipment and consist of the following:
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THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995
NOTE J--COMMITMENTS--continued
December 31,
---------------------------
1996 1995
--------- ---------
Plant and equipment $ 198,744 $ 201,048
Accumulated amortization (87,077) (78,291)
--------- ---------
$ 111,667 $ 122,757
========= =========
Capitalized lease obligations are renewable for additional periods at terms
based upon fair market value of the leased items at the renewal dates.
During 1996 and 1995, subsidiaries of the Company incurred capitalized lease
obligations of approximately $1,839,000 and $17,985,000, respectively, in
connection with lease agreements to acquire plant and equipment.
Future minimum lease payments as of December 31, 1996, for all capitalized lease
obligations are as follows:
1997 $ 22,624
1998 21,918
1999 21,518
2000 20,609
2001 20,342
Thereafter 120,061
---------------
Total minimum lease payments 227,072
Amounts representing interest (78,891)
---------------
Present value of net minimum lease payments 148,181
Current maturities (11,551)
---------------
$ 136,630
===============
The Company is committed under non cancelable operating leases, The Parent
Company is not obligated under operating lease agreements of the Company.
Minimum lease payments as of December 31, 1996, as follows:
1997 $ 2,710
1998 1,788
1999 1,225
2000 1,074
2001 1,074
Thereafter 4,295
----------
$ 12,166
==========
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17
THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995
Rental expenses for all operating leases amounted to approximately $2,000,000
and $992,000 during 1996 and 1995, respectively.
At December 31, 1996, the unexpended portion of capital expenditures authorized
by the respective boards of directors, and customers where required, of the
Company and its subsidiaries approximated $54,188,000, of which $49,361,000 is
being financed under the arrangements with public utilities served by the
subsidiaries.
NOTE K--INCOME TAXES
The Company and its subsidiaries are included in the consolidated federal income
tax return filed by the Parent Company. The Company and each of its subsidiaries
entered into a tax-sharing agreement with the Parent Company under which federal
income taxes are computed by the Company and each of its subsidiaries on a
separate return basis. The current portion of such tax is paid to the Parent
Company. During 1996 and 1995, the federal and state income taxes paid by the
Company were approximately $8,464,000 and $12,122,000, respectively.
The Company's effective tax rate differs from the federal statutory rate
primarily due to state income taxes and percentage depletion.
Provision for income taxes consists of the following:
Year Ended December 31,
-----------------------
1996 1995
Federal $ 7,278 $8,795
State 1,296 355
------- ------
Total current tax expense $ 8,574 $9,150
======= ======
Federal $ 1,401 $1,399
State (89) 291
------- ------
Total deferred tax expense $ 1,312 $1,690
======= ======
A summary of components of the net deferred tax assets (liabilities) included in
the accompanying consolidated balance sheets resulting from differences in the
book and tax bases of assets and liabilities are as follows:
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18
THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995
NOTE K--INCOME TAXES--continued
December 31,
------------------------
1996 1995
-------- --------
Current portion:
Accrued expenses and reserves $ 521 $ 448
Inventory (40) (37)
-------- --------
Total current $ 481 $ 411
======== ========
Long-term portion:
Depreciation, depletion and amortization $(23,379) $(19,522)
Pensions 5,527 5,714
Installment sales (1,211) (928)
Partnership investment (1,796) (1,811)
Deferred compensation 1,700 1,327
Other - net (693) (3,936)
-------- --------
Total long-term $(19,852) $(19,156)
======== ========
The current portion of deferred income taxes shown above, a net deferred tax
asset, is included in other current assets in the accompanying consolidated
balance sheets.
NOTE L--DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments", requires disclosure about the fair value of
financial instruments. Carrying amounts for cash and cash equivalents and
revolving credit approximate fair value. The fair value of notes receivable and
payable is estimated based on the discounted value of the future cash flows
using borrowing rates currently available to the Company for bank loans with
similar terms and average maturities. The fair value compared to the carrying
value are summarized as follows:
December 31,
----------------------
1996 1995
---- ----
FAIR VALUE:
Notes receivable $ 3,906 $ 5,023
Notes payable $27,176 $29,367
CARRYING VALUE:
Notes receivable $ 2,621 $ 3,790
Notes payable $27,061 $29,053
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19
THE NORTH AMERICAN COAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1996 and 1995
NOTE M--TRANSACTIONS WITH AFFILIATED COMPANIES
Costs and expenses include net receipts from the Parent Company and other
subsidiaries of the Parent Company. These receipts approximated $1,185,000 in
1996 and $1,150,000 in 1995 for administrative and other services.
The note receivable from Parent Company of $41,952,000 in 1996 and $14,939,000
in 1995 is a demand note, with interest of 5.94% at December 31, 1996, and 5.78%
at December 31, 1995.
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