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 September 30, 1998
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 September 30, 1998
$1 par value; 356,595 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 [ ]
<PAGE>
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets - September 30, 1998 and
December 31, 1997
Consolidated Statements of Earnings and Retained Earnings
- Nine and three months ended September 30, 1998 and 1997
Consolidated Statements of Cash Flows - Nine months
ended September 30, 1998 and 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
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
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
(Unaudited)
(amounts in unit dollars)
<CAPTION>
ASSETS 1998 1997
__________ __________
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,587,298 1,493,966
Accounts receivable 0 22,500
Securities maturing within one year,
at amortized cost (note 2) (fair value
$7,430,425 and $7,443,950 at September 30,
1998 and December 31, 1997) 7,417,632 7,443,948
Note receivable, current position 16,346 0
Other 10,721 46,382
__________ __________
Total current assets 9,031,997 9,006,796
Equity securities, at fair value (note 2) 966,478 828,797
Note receivable 118,654 0
Coal deposits, real estate, equipment
and leasehold improvements:
Coal deposits 1,602,882 1,602,882
Mineral rights 39,988 39,988
Surface land 26,768 28,115
Equipment and leasehold improvements 6,053 284,373
__________ __________
1,675,691 1,955,358
Less accumulated depletion, depreciation
and amortization 579,500 785,537
__________ __________
Net coal deposits, real estate,
equipment and leasehold improvements 1,096,191 1,169,821
__________ __________
$ 11,213,320 11,005,414
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 48,459 16,962
Deferred oil lease bonus 121,696 0
Federal and state income taxes 25,095 26,520
__________ __________
Total current liabilities 195,250 43,482
Deferred income taxes 14,037 69,840
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 9,468,372 9,252,798
__________ __________
11,476,260 11,260,686
Less cost of 20,093 shares held in treasury 599,032 599,032
Accumulated other comprehensive income 126,805 230,438
__________ __________
Total stockholders' equity 11,004,033 10,892,092
__________ __________
$ 11,213,320 11,005,414
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Consolidated Statements of Earnings and Retained Earnings
Nine months ended September 30, 1998 and 1997 and
three months ended September 30, 1998 and 1997
(Unaudited)
(amounts in unit dollars)
<CAPTION>
Nine months Three months
ended September 30, ended September 30,
1998 1997 1998 1997
_________ _________ _________ _________
<S> <C> <C> <C> <C>
Operating revenue:
Coal royalties $ 51,514 51,506 23,616 24,085
Oil and gas royalties 329,241 685,014 40,018 192,040
Oil and other mineral lease
rentals and bonuses 100,920 127,816 34,877 10,537
_________ _________ _________ _________
Total operating revenue 481,675 864,336 98,511 226,662
Operating expenses - general
and administrative expenses 218,613 265,561 51,660 49,315
Operating income 263,062 598,775 46,851 177,347
Nonoperating income:
Investment income 378,133 509,046 113,106 251,964
Gain on sale of real estate 71,719 785 34,530 0
Other 467 2,976 15 415
_________ _________ _________ _________
Total nonoperating income 450,319 512,807 147,651 252,379
Earnings before income
taxes 713,381 1,111,582 194,502 429,726
Income taxes 243,651 375,761 69,260 149,695
_________ _________ _________ _________
Earnings from continuing
operations before income taxes 469,730 735,821 125,242 280,031
Discontinued operations, net of
income taxes (note 3):
Loss from operations of
discontinued food
operations (88,724) (86,919) (32,974) (30,165)
Gain on disposal of food
operations 12,866 0 12,866 0
_________ _________ _________ _________
Net earnings 393,872 648,902 105,134 249,866
Retained earnings at
beginning of period 9,252,798 9,014,237 9,363,238 9,230,590
Deduct cash dividends declared
of $.50 per share in 1998
and $1.50 per share 1997 (178,298) (539,278) 0 (356,595)
_________ _________ _________ _________
Retained earnings at end
of period $ 9,468,372 9,123,861 9,468,372 9,123,861
Earnings per share from
continuing operations - basic
and diluted $ 1.32 2.02 0.35 0.78
Earnings per share from
discontinued operations -
basic and diluted $ (0.22) (0.23) (0.06) (0.09)
Earnings per share - basic
and diluted $ 1.10 1.79 0.29 0.69
Weighted average number
of shares of common
stock outstanding 356,595 363,514 356,595 360,481
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Consolidated Statements of Cash Flows
Nine months ended September 30, 1998 and 1997
(Unaudited)
(amounts in unit dollars)
<CAPTION>
1998 1997
__________ __________
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 393,872 648,902
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depletion, depreciation and amortization 38,830 48,647
Amortization of premiums and
discounts of securities, net (303,622) (300,407)
Gains on sales of real estate and subsidiary (91,213) (785)
Gain on sale of equity securities (19,124) (161,458)
Changes in assets and liabilities:
Accounts receivable 22,500 22,500
Other assets 35,661 9,925
Deferred oil lease bonus 121,696 (74,166)
Accounts payable and accrued expenses 31,497 27,146
Federal and state income taxes payable (1,425) 65,811
__________ __________
Total adjustments (165,200) (362,787)
Net cash provided by operating activities 228,672 286,115
Cash flows from investing activities:
Capital expenditures (16,521) (6,454)
Proceeds from matured/called investment
debt securities 22,500,000 19,000,000
Purchases of investment debt securities (22,170,062) (18,709,233)
Proceeds from sale of real estate 73,066 801
Proceeds from sale of subsidiary 69,468 0
Note receivable (135,000) 0
Purchases of equity securities (389,617) (104,356)
Proceeds from sales of equity
securities 111,624 425,304
__________ __________
Net cash provided by
investing activities 42,958 606,062
Cash flows from financing activities:
Purchase of treasury stock 0 (263,644)
Payment of dividends (178,298) (182,683)
__________ __________
Net cash used in financing activities (178,298) (446,327)
Net increase in cash and cash equivalents 93,332 445,850
Cash and cash equivalents,
beginning of year 1,493,966 1,342,955
Cash and cash equivalents,
end of period $ 1,587,298 1,788,805
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
September 30, 1998
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 September 30,
1998, and the results of operations and cash flows for the periods
ended September 30, 1998 and 1997.
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).
Reporting Comprehensive Income
The Company adopted Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income, on January 1, 1998. This
statement requires the reporting of comprehensive income and its
components. Comprehensive income is defined as the change in equity
from transactions and other events and circumstances from nonowner
sources, and excludes investments by and distributions to owners.
Comprehensive income includes net income and other items of
comprehensive income meeting the above criteria. The Company's only
component of other comprehensive income is the unrealized holding
gains and losses on available-for-sale securities, net of related
deferred income taxes.
<TABLE>
<CAPTION>
For the nine For the three
months ended months ended
September 30, September 30,
1998 1997 1998 1997
________ ________ ________ ________
<S> <C> <C> <C> <C>
Net earnings $ 393,872 648,902 105,134 249,866
Other comprehensive income (103,633) 81,954 (150,008) 11,549
________ ________ ________ ________
Comprehensive income $ 290,239 730,856 (44,874) 261,415
</TABLE>
<PAGE>
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
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 September 30,
1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized
Amortized holding holding Fair
September 30, 1998 cost gains losses value
__________________ __________ __________ __________ __________
<S> <C> <C> <C> <C>
Held-to-maturity:
U. S. government
securities $ 7,417,632 12,793 0 7,430,425
Available-for-sale:
Equity securities $ 771,394 337,004 (141,920) 966,478
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
_________________
<S> <C> <C> <C> <C>
Held-to-maturity:
U. S. government
securities $ 7,443,948 113 (111) 7,443,950
Available-for-sale:
Equity securities $ 474,277 388,761 (34,241) 828,797
</TABLE>
<PAGE>
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
Note (3) Food Operations
On September 1, 1998, the Company sold its food operations for
$135,000. The Company recorded a gain of $19,494 (less applicable
income taxes of $6,628). Prior to the sale, food operations of the
Company's fast food bagel and delicatessen business includes the
following expenses for the nine months and three months ended
September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Nine months Three months
ended September 30, ended September 30,
1998 1997 1998 1997
__________ __________ __________ __________
<S> <C> <C> <C> <C>
Revenues $ 428,637 676,745 33,722 179,206
Cost of food operations 172,630 272,288 15,796 69,093
Food operations expenses:
Salaries and wages $ 145,968 212,846 23,509 55,991
Occupancy expense 59,446 84,720 13,560 24,317
Depreciation expense 32,021 39,037 4,007 11,314
Utility expense 22,630 29,080 5,339 10,927
Other expenses 130,372 170,469 21,472 53,268
__________ __________ __________ __________
$ 390,437 536,152 67,887 155,817
Loss from food
operations (134,430) (131,695) (49,961) (45,704)
Income tax effect (45,706) (44,776) (16,987) (15,539)
Loss from food
operations (88,724) (86,919) (32,974) (30,165)
</TABLE>
<PAGE>
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 nine months of 1998 from the end of the last
fiscal year, and it continues very strong. The liquidity of the
Registrant continues to be high.
Revenue from oil and gas royalties decreased substantially in the first
nine months of 1998 from the first nine months of 1997, and also in the
third quarter of 1998 from the third quarter of 1997. The decreases in
the current periods were due to low oil prices and reduced production.
Revenue from oil and other mineral lease rentals and bonuses were down
materially in the first nine months of 1998 from the first nine months
of 1997, while increasing somewhat in the third quarter of 1998 over the
third quarter of 1997. Overall, the revenue from this source was
greater in the year-to-date period in 1997 because more new leases with
income recognizable during that period were made during that period than
in the first nine months of 1998. However, revenue from this source was
greater in the third quarter of 1998 due to more income being
recognizable in that period than in the corresponding period of 1997.
The consolidated statements of earnings and retained earnings shows loss
from operations of discontinued food operations and gain on disposal of
food operations. In prior periods, revenue from food sales resulted
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 bagel and
delicatessen facilities in four different locations. Sales and
profitability of this operation were disappointing, and one facility had
been closed in March of 1997 and that lease terminated, and a second
facility closed effective July 1, 1998, with the premises being
subleased to another party. The assets of the final two facilities
(facilities located at Athens, Ohio and Columbus, Ohio) were sold to an
unrelated party and the respective leases assigned effective September
1, 1998, and Beekman's now has no active business operations. As a
result of the disposal of assets of the final two operations as
described above, after recognition of substantial earlier losses and a
writedown of the carrying value of the assets of this venture in 1997
for book purposes, the Registrant realized a nominal gain from the sale
of assets, and that gain is reflected in the item captioned "gains on
disposal of food operations" under discontinued operations for both the
first nine months of 1998 and the third quarter of 1998.
Under nonoperating income, revenue from investment income was down
approximately 26% in the first nine months of 1998 from the first nine
months of 1997, and also was significantly lower in the third quarter of
1998 than in the third quarter of 1997. These fluctuations are
basically due to variations in rate of return on temporary fixed income
investments and somewhat lower capital gains income in the current
periods under comparison. Additionally, there was increased income from
gains on sales of real estate in the first nine months of 1998 over the
first nine months of 1997 and also in the third quarter of 1998 over the
third quarter of 1997 due to more surface land being sold in the current
periods than in the previous periods under comparison.
General and administrative expenses were down approximately 18% in the
first nine months of 1998 from the first nine months of 1997 but were up
slightly in the third quarter of 1998 over the third quarter of 1997.
The decrease in the year-to-date amount reflects reduced payments to
outside service providers, particularly in connection with the operation
of the bagel and delicatessen business, and reduced state franchise tax
expenses which are components of this expense item. The increase in the
third quarter of 1998 over the same period in 1997 was due somewhat to
increased rental on the Registrant's general office facility in Kansas
City, Missouri.
Income taxes were lower in the 1998 periods than in the 1997 periods as
a result of decreased earnings before income taxes.
In 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income, effective for the period beginning
January 1, 1998. The effect of the application of this statement is
explained in note 1 to the accompanying consolidated financial
statements.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
Cash flows increased in the first nine months of 1998 and also in the
first nine months of 1997, but the increase was significantly greater in
the first nine months of 1997. Significant components of the increase
of net cash and cash equivalents include gain on sale of assets of the
subsidiary as described above and additional gains on sale of real
estate and 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,
partially offset by an increase of liabilities for deferred oil lease
bonuses. Also, there were treasury stock purchases during the 1997
period and no such purchases during the 1998 period.
During the first quarter of 1998, the Company's Board of Directors
declared a cash dividend of $.50 per share which was paid on May 1,
1998. A dividend in the same amount was paid on May 1, 1997. An
additional dividend of $1.00 per share was declared in September of 1997
and paid in November of 1997 for total dividends in 1997 of $1.50. The
Registrant's Board of Directors determined in September of 1998 not to
declare a dividend payable in November as in the prior year, due to
decreased earnings this year and a desire to retain liquidity for future
internal capital growth.
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 miscalculations causing disruptions to the operation 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 parties' systems are not fully Year 2000 compliant,
there could be potential systems interruptions causing disruptions in
operations of such third parties which could, in turn, affect normal
business activities of the Registrant. Given the nature of the
Registrant's business activities, management does not anticipate that
there will be nay such potential systems interruptions of third parties
which would create a material adverse effect on the Registrant's
business, financial condition, results 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 affect 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 the 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 cost 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
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.
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, (Statement 133) was
issued by the Financial Accounting Standards Board in June 1998.
Statement 133 standardizes the accounting for derivative instruments.
Under the standard, entities are required to carry all derivative
instruments in the statement of financial position at fair value. The
Registrant must adopt Statement 133 by January 1, 2000; however, early
adoption is permitted. On adoption, the provisions of Statement 133
must be applied prospectively. The Registrant anticipates that the
adoption of Statement 133 will not have a material impact in the
Registrant's consolidated financial statements.
<PAGE>
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 - None
Item 5. Other Information - Attached
Item 6. Exhibits and Reports on Form 8-K - None
<PAGE>
CENTRAL COAL & COKE CORPORATION
Form 10-Q
Item 5, Other Information
(A) Change of Directors. S.M. "Slim" Riddle, who served as a Director
of the Registrant since 1975 and also served as Secretary, passed
away on August 24, 1998. The Board of Directors elected Gary J.
Pennington, General Manager of the Registrant, to fill the vacancy
as Director occasioned by Mr. Riddle's death. The Board elected
Ernest N. Yarnevich, Jr. as Secretary of the Registrant filling
the vacancy in that office occasioned by Mr. Riddle's death.
(B) Disposition of Assets. A majority-owned subsidiary of the
Registrant disposed of the assets of its fast food bagel and
delicatessen business as described in more detail in Management's
Discussion & Analysis of Financial Condition and Results of
Operations. The financial effect of such disposition is reflected
in the consolidated financial statements of earnings and retained
earnings and is described in footnote 3 to such financial
statements. This disposition of assets does not constitute the
disposition of a significant amount of assets.
<PAGE>
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: November 13, 1998
______________________________
By: /s/ Gary J. Pennington
______________________________
Gary J. Pennington,
Assistant Secretary-
General Manager, Principal
Financial and Accounting Officer
Date: November 13, 1998
______________________________
By: /s/ Leonard L. Noah
______________________________
Leonard L. Noah,
Vice President, Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> SEP-30-1998
<CASH> 1587298
<SECURITIES> 7417632
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9031997
<PP&E> 1675691
<DEPRECIATION> 579500
<TOTAL-ASSETS> 11213320
<CURRENT-LIABILITIES> 195250
<BONDS> 0
<COMMON> 376688
0
0
<OTHER-SE> 10627345
<TOTAL-LIABILITY-AND-EQUITY> 11213320
<SALES> 428637
<TOTAL-REVENUES> 910312
<CGS> 172630
<TOTAL-COSTS> 781680
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 713381
<INCOME-TAX> 243651
<INCOME-CONTINUING> 469730
<DISCONTINUED> (88724)
<EXTRAORDINARY> 12866
<CHANGES> 0
<NET-INCOME> 393872
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
</TABLE>
