SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended March 31, 1997 Commission file no. 0-10610
-------------- -------
BLUE DIAMOND COAL COMPANY
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 62-0133200
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 59015, 341 Troy Circle, Knoxville, Tennessee 37950-9015
- ----------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (423) 588-8511
-------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Par Value
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X__
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No____
Indicate by check mark whether registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes X No_____
As of May 31, 1997, 935,220 shares of Common Stock were outstanding,
and the aggregate market value of the shares of Common Stock (based
upon the average bid and asked price of such stock on May 31, 1997)
held by nonaffiliates of the Company was approximately $11,050,000.
Documents Incorporated by Reference
The Company's definitive proxy statement for the Annual Meeting
of Stockholders scheduled for August 26, 1997 is incorporated by
reference in Part III hereof.
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Disagreements on Accounting and Financial
Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
PART I
ITEM 1. BUSINESS
Blue Diamond Coal Company ("Blue Diamond" or "Company" or "Registrant") was
incorporated on November 8, 1922 under the laws of the state of Delaware.
The principal offices are located at 341 Troy Circle, Knoxville, Tennessee
37919. At March 31, 1997, Blue Diamond was engaged, together with its
wholly owned subsidiary, Blue Diamond Coal Export Company, in the leasing
of coal properties and the purchasing, processing and selling of bituminous
coal. Eolia Resources, a wholly owned subsidiary, owns certain mineral
rights for sand, clay and mica in Swain and Jackson Counties, North
Carolina.
The principal product of the Registrant is low-sulfur coal suitable for
industrial and utility uses. The Company purchases coal produced by
independent operators from underground and surface mines on properties
owned or leased by it in southeastern Kentucky. Blue Diamond also purchases
a limited amount of coal for processing from other properties. The
processing and loading for shipment to the customer of coal purchased from
said operators is performed by employees of the Company. The Company's
operations accounted for less than 1% of the nation's 1996 coal production.
The following table sets forth Blue Diamond's production (100% by
contractors) on a clean coal basis for each of the last five fiscal years:
<TABLE>
<CAPTION>
Fiscal Year Total
Ended March 31 Production
-------------- -----------
<S> <C>
1993 2,014,631
1994 1,953,044
1995 2,479,487
1996 2,934,798
1997 2,994,941
</TABLE>
Blue Diamond also acts as Sales Agent for other producers whose tonnages
are produced and shipped from properties and locations other than Blue
Diamond's and are not included in the above table. The Company's coal,
both purchased and brokered, is sold primarily to utility companies and
industrial users. The coal is transported by rail and truck, except for
destinations in the Great Lakes area and on inland waterways where rail or
truck to barge is utilized.
Blue Diamond's steam coal competes with hydroelectric and nuclear power as
well as other fossil fuels in the production of electricity. The Company
competes in markets located in the southeastern and midwestern United
States.
The following table sets forth on a per ton basis, the selling price, cost
of sales and depreciation expense for each of the last five fiscal years.
<TABLE>
<CAPTION>
Fiscal Year Average Selling Cost of Sales Depreciation
Ended March 31 Price Per Ton Per Ton Expense Per Ton
-------------- ---------------- -------------- ---------------
<S> <C> <C> <C>
1993 $29.03 $27.62 $1.47
1994 $29.27 $29.73 $1.20
1995 $29.15 $26.26 $1.26
1996 $29.74 $27.76 $1.34
1997 $29.19 $27.06 $1.34
</TABLE>
Sales are primarily through the Registrant's sales department which has
offices in Knoxville, Tennessee, and Cincinnati, Ohio. During the fiscal
year ending March 31, 1997, the total dollar sales were divided as follows:
Steam Coal, 82.6% and Industrial and Domestic Coal, 17.4%. These figures
compare with 89.0% and 11.0%, respectively, in the previous fiscal year and
with 90.1% and 9.9%, respectively, in the fiscal year ending March 31,
1995. There were no export sales on a direct basis during the year,
although Blue Diamond shipped approximately 180,000 tons of coal for export
through four brokers.
During the fiscal year ended 1997, two customers each accounted for more
than 10% of total coal sales. Georgia Power Company and Orlando Utilities
Commission accounted for 31.8% and 30.9%, respectively, of consolidated
revenue from coal sales.
Blue Diamond is subject to substantial environmental regulation, primarily
as a result of the Surface Mining Control and Reclamation Act of 1977 and
Amendments. The Act and regulations thereunder set forth requirements for
surface mining operations and for the surface effects of deep mining
operations. The provisions of the Act are enforced by the state of
Kentucky through its Department of Natural Resources and Environmental
Protection (DNREP) and by the federal government through the Office of
Surface Mining (OSM). The Company is also subject to the Federal Water
Pollution Control Act and the Federal Clean Air Act, which are enforced by
the Environmental Protection Agency (EPA) and other federal and state
agencies.
The Company believes the mining operations covered by the permits it holds
are in substantial compliance with applicable laws and regulations
regarding the environment. During the past fiscal year, only two (2)
Notices of Noncompliance were issued Company-wide by the Commonwealth of
Kentucky. One was abated without any penalty being imposed. The second
was issued March 25, 1997 and is still pending. No violations were issued
to Blue Diamond by the Division of Water during the past fiscal year.
The Company has made, and continues to make, substantial capital
expenditures in the construction of dams, sedimentation ponds, diversion
ditches, piping, culverting and sump ponds. For the fiscal year ended
March 31, 1997, capital expenditures related to environmental projects
totaled $168,090 for all mines. Similar capital expenditures for the
fiscal years ending March 31, 1998 and March 31, 1999 are estimated to
amount to $850,000 and $400,000, respectively. These amounts may change as
a result of new regulations or unforeseeable conditions and would be
significantly higher if operations of the Company were permanently
discontinued.
On May 17, 1991, Blue Diamond Coal Company filed for protection under the
provisions of Chapter 11 of the United States Bankruptcy Code. The Plan of
Reorganization was confirmed on December 11, 1992 and a Final Decree
closing the Bankruptcy Case was issued on April 6, 1995. The reader is
directed to Note 2 to the Consolidated Financial Statements for a
discussion of the treatment of the remaining liabilities under the Plan.
As of March 31, 1997, Blue Diamond employed 52 people, including management
personnel.
ITEM 2. PROPERTIES
Blue Diamond controls various coal seams through ownership or long-term
leases at its coal mining complex at the Beech Fork/Leatherwood Operation
at Slemp, Kentucky. Underground production is derived from the Alma,
Hazard #4 and Leatherwood (Hazard #5A) coal seams. Surface production
consists primarily of the Leatherwood Seam and the Hazard #10 - #12 Seams.
Several other seams of mineable thickness are located on the Company's
properties.
Independent producers currently operate ten deep and four surface mines
producing coal from the Company's reserves. From time to time, the Company
has procureed very limited amounts of production from mines not on the
Company's property. The Company and/or its contractors are continually in
the process of permitting additional mines on Company reserves.
The Jasper K. Cornett Preparation Plant at Beech Fork can process up to
1,250 tons per hour of raw coal and can handle production from all the
contractor operations. The plant utilizes heavy media vessels for the
coarse coal circuit and Deister tables and spiral classifiers for the fine
coal circuit. It is located on leased property and was completed in 1990 at
a cost of approximately $34 million.
The reserves for the properties described above are located in Harlan,
Leslie, Letcher and Perry Counties, Kentucky. Approximately 6,270 acres
are owned by the Company in either fee or mineral rights only, while
another 59,500 acres are held under leases which generally remain in effect
until exhaustion of mineable and merchantable coal. The owned coal
properties were purchased at various times in the 1970's and 1980's for a
total cost of $889,000.
The registrant owns approximately 375 acres of non-coal land in Knox
County, Kentucky. This land is recorded on the Company's books at a value
of $206,500.
For a summary of all the Company's property, plant and equipment, including
depreciation and depletion, the reader is directed to the Consolidated
Balance Sheet at Page 23.
The engineering firm of Marshall Miller and Associates, headquartered in
Bluefield, Virginia recently completed an estimate of the coal reserves
controlled by the Company. The last such estimate had been done in 1989
and, in recent years, some additional long term leases were acquired which
needed to be added to the reserve estimate. The company had also had a
number of exploratory core holes drilled at strategic locations to firm up
estimates which in the past had only been inferred.
The above referenced report reflects the recoverable reserves at March 31,
1997 which have been determined to be both economically and legally
extractable at this time as follows:
<TABLE>
<CAPTION>
Summary of Clean Recoverable Coal Reserves
(In Thousands of Clean Tons)
Measured Indicated Total (1) (2)
-------- --------- -------
<S> <C> <C>
60,543 55,875 116,418
</TABLE>
(1) Of this total, 109.9 million tons are deep mine reserves.
(2) The average recovery on extraction of surface mine reserves is
calculated using an 85% and a 90% factor on tons in-place for contour
strip and mountaintop reserves, respectively. The deep mine reserves
are mined using continuous miner equipment with a mining recovery
ranging from 50% to 65%. A washer loss of 10% is used for deep mine
tonnage which allows for spillage, displaced coal and plant
efficiency.
ITEM 3. LEGAL PROCEEDINGS
The Coal Industry Retiree Health Benefit Act of 1992 ("Coal Act") was
enacted by Congress to fund deficits which existed in certain United Mine
Workers of America (UMWA) Welfare Funds. Although Blue Diamond employees
were last covered by a UMWA Wage Agreement which expired in 1964, the
Company was assessed significant annual premiums under this legislation to
fund a portion of said deficits. Adversary Proceeding No. 93-3065 styled
Blue Diamond Coal Company vs. Donna Shalala, Secretary of Health and Human
Services, and Joseph P. Connors, Sr., Marty D. Hudson, Thomas O.S. Rand,
Elliott A. Segal, Carlton R. Sickles, Gail R. Wilensky, Trustees of the
United Mine Workers' of America Combined Benefit Fund was filed on May 24,
1993, seeking a Declaratory Judgment declaring the Coal Act to be in
violation of the Company's fundamental rights under the United States
Constitution. It was dismissed by the District Court by the Opinion
entered November 9, 1994. An appeal was filed with the United States Court
of Appeals for the Sixth Circuit at Cincinnati, Ohio, and a three judge
panel filed a Decision on March 21, 1996 which upheld the Order of the
District Court. A Petition for Rehearing and Suggestion for Rehearing En
Banc was denied and the Company's attorneys filed a Petition For A Writ of
Certiorari with the Supreme Court of the United States. This Petition was
also denied by an Order entered January 6, 1997.
The Company is seeking administrative relief in regard to the beneficiary
assignments it received from the Social Security Administration (SSA).
Evidence supporting Blue Diamond's position has been transmitted to the SSA
Service Centers. The reader is referred to Note 8 to the Consolidated
Financial Statements for a discussion of the Company's recognition on its
balance sheet of the present value of the future post-retirement premiums
brought about by The Coal Act.
A number of administrative actions are pending against the Company
involving claims for compensation of employees who have allegedly
contracted "Black Lung" disease or who were injured in the course of their
employment. In March 1975, Blue Diamond established a trust, approved by
the Internal Revenue Service, which made the actual payments to individuals
qualifying for Workers' Compensation Benefits, including Black Lung
benefits. On June 10, 1991, the Commonwealth of Kentucky's Workers
Compensation Commission withdrew the Company's self-insurance certificate
and called a $10.6 million letter of credit which was secured, in part, by
the assets of the Trust. First American Trust Company subsequently
liquidated the majority of the Trust assets and applied the proceeds toward
the obligation of the Company to the Bank.
Certain obligations for state and federal workers' compensation remain due
to actions by the Commonwealth of Kentucky and the assumption of obligation
for payment of federal claims by the United States Department of Labor. In
conjunction with its' confirmed Plan of Reorganization, Blue Diamond
entered into settlement agreements with the Commonwealth of Kentucky for
state workers' compensation claims and the United States Department of
Labor for federal claims. The Commonwealth agreed to recognize Blue
Diamond's self-insurance through June 18, 1991, and in return, Blue Diamond
agreed that to the extent that the $10.6 million was insufficient to
satisfy claims filed for employees terminated prior to June 19, 1991, the
shortfall would be assumed and paid by Blue Diamond. Payments resulting
from this shortfall commenced in July 1995. Attention should be directed to
Note 8 to the Consolidated Financial Statements for further discussion.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year reported on.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
An established public trading market does not exist for Blue Diamond's
common stock, but a few brokers make a market from time to time
over-the-counter. The following table sets forth the high and low bid
quotations for Blue Diamond common stock in the over-the-counter market in
each of the last two fiscal years.
<TABLE>
<CAPTION>
Year Ending March 31 High Low
-------------------- ------ -----
<S> <C> <C>
1996
1st Quarter $19 1/2 $13
2nd Quarter $21 1/2 $16
3rd Quarter $22 $19
4th Quarter $23 $22
1997
1st Quarter $22 1/2 $21 1/2
2nd Quarter $22 1/2 $22 1/2
3rd Quarter $23 $22 1/2
4th Quarter $24 1/2 $23
</TABLE>
The foregoing quotations were taken from the National Quotation Bureau
Report with quotes supplied by the National Association of Securities
Dealers through the NASD OTC Bulletin Board. They represent inter-dealer
prices without retail markup, markdown or commission and may not
necessarily represent actual transactions.
No dividends have been paid on the Company's stock since the year ended
March 31, 1990.
Under the terms and conditions of the Company's Loan Agreement with PNC
Bank, Kentucky, Inc. (formerly Citizens Fidelity Bank and Trust Company),
and First American National Bank, no dividends may be paid on the Company's
capital stock or funds set aside for such purpose during any fiscal year in
an aggregate amount in excess of the lesser of $1,000,000 or the "Excess
Cash Flow" for the immediately preceding fiscal year. "Excess Cash Flow"
means after tax net income plus depreciation minus principal payments to
creditors under the Plan of Reorganization minus capital expenditures and
capital lease payments, minus gain on assets sold and minus dividends
declared and paid for the applicable fiscal year. In addition, the Company
may not redeem or purchase any of its capital stock without the prior
written consent of the banks.
The Registrant had 406 stockholders of record on May 31, 1997.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SELECTED FINANCIAL INFORMATION OF BLUE DIAMOND COAL COMPANY
(Amounts in Thousands Except Per Share Amounts)
1997 1996 1995 1994 1993
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net Sales & Operating
Revenues $90,372 $89,967 $77,254 $69,276 $65,029
Net Income (Loss) 4,167 (a) 5,242 (b) 3,713 (28,409)(c) 851 (d)
Net Income (Loss)
Per Common Share 4.46 5.61 3.97 (30.38) 1.67
Total Assets 84,380 86,846 86,054 86,818 89,055
Long Term Debt &
Capital Leases 11,132 13,937 17,200 21,100 24,383 (e)
Cash Dividends Declared
Per Common Share .00 .00 .00 .00 .00
</TABLE>
Note (a) Includes credit for UMWA coal miners retiree health care
in the amount of $408,500.
(b) Includes credit for UMWA coal miners retiree health care
and charge for Workers Compensation benefits in the net
benefit amount of $484,900 before taxes.
(c) Includes provisions for UMWA coal miners retiree health
care and Kentucky workers' compensation benefits in the
amount of $35,722,300 before taxes.
(d) Includes price adjustments of $917,900 for common stock issued
in prior years in exchange for notes receivable secured by the
common stock.
(e) Virtually all 1992 debt was classified as short-term as the
Company's Loan Agreement had expired and was being extended
periodically through the Bankruptcy proceedings. The majority
of this debt was reclassified to long-term when the new
Term Loan Agreement was executed in December 1992.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of the Company's coal operations for the three years ended
March 31, 1997, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net product sales $89,781,300 $89,468,400 $76,785,600
Operating expenses
and purchased products 65,634,400 64,208,600 57,658,300
Other operating expenses 15,870,400 17,062,200 9,809,800
Administrative, transportation,
and selling expenses 1,723,100 2,232,100 1,699,300
---------- ---------- ----------
Total Expenses 83,227,900 83,502,900 69,167,400
---------- ---------- ----------
Income From
Coal Operations $ 6,553,400 $ 5,965,500 $ 7,618,200
========== ========== ==========
Tons Sold 3,075,300 3,008,400 2,634,200
Sales Per Ton $29.19 $29.74 9.15
Expenses Per Ton 27.06 27.76 26.26
----- ----- -----
Income Per Ton $ 2.13 $ 1.98 $ 2.89
===== ===== =====
</TABLE>
Production and sale of coal tonnage for the three (3) years ended March 31,
1997, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Deep Coal 1,888,100 1,804,500 1,176,500
Surface Coal (Nally & Hamilton) 1,102,500 1,130,300 1,303,000
Surface Coal (Other) 4,300 0 0
--------- --------- ---------
Total Company Production 2,994,900 2,934,800 2,479,500
Brokered Coal 210,500 74,500 147,900
--------- --------- ---------
Total Coal Produced & Brokered 3,205,400 3,009,300 2,627,400
Coal (to) From Inventory (130,100) (900) 6,800
--------- --------- ---------
COAL SHIPPED 3,075,300 3,008,400 2,634,200
========= ========= =========
</TABLE>
(i) 1997 Vs. 1996 Operations. In 1997, Company produced coal increased 2%
over 1996; however, coal inventoried at year end resulted in a 2.4%
decrease in Company coal sold during the same period. The selling price of
produced coal declined less than 1%. The cost of Company coal decreased
slightly over 1%. Brokered coal contributed $776,300 to net income in 1997
compared to $402,000 in 1996.
During the year, one contract mine began a conversion to a continuous
haulage system. Preliminary work has commenced on the development of a
significant block of low-seam coal (32 inches). Nally & Hamilton, the
Company's majority stockholder and primary surface coal provider produced
approximately 37% of the year's produced coal. Production is expected to
remain at the same level during 1998, market conditions permitting. Based
on current and projected production, the Company expected to realize the
recorded value of its coal reserves and related facilities.
In 1997 and 1996, approximately 63% and 62%, respectively, of shipments
went to two major southern utility customers with whom the Company has
contracts extending beyond the year 2000. Spot market shipments to
utility, industrial and export markets comprised the remaining 1997
shipments. Market conditions remain extremely soft at this time and may
dictate lower production and shipment tonnages in 1998.
Interest expense declined $774,000 from 1996 to 1997 due primarily to lower
bank debt and reduced reserves for Coal Act liabilities. Interest expense
is summarized as follows:
<TABLE>
<CAPTION>
Increase
1997 1996 (Decrease)
---------- -------- ----------
<S> <C> <C> <C
Coal Miners' Retiree Health Care $1,269,200 $1,598,600 $(329,400)
Workers Compensation Benefits 619,600 558,400 61,200
Bank Debt 1,281,000 1,786,800 (505,800)
--------- --------- ---------
$3,169,800 $3,943,800 $(774,000)
========= ========= ========
</TABLE>
As detailed in Note 8 to the Financial Statements, the Company had an
extraordinary item, including tax credit, for coal miners retiree health
care of $408,500 and $2,674,100 in 1997 and 1996, respectively. These
credits primarily reflect a reduction of claimants assignable to the
Company and a reduction of expected premiums. The Company continues to
await possible additional administrative relief from the Social Security
Administration's assignment of beneficiaries. The Company has exhausted
all appeals to the adverse ruling on the Coal Act's constitutionality. The
1996 $2,015,200 charge to operations for Kentucky Workers' Compensation
obligations reflected actual claim experience for previously pending claims
and adjusted mortality for lifetime claims.
No income tax provision was required for 1997 due to the benefit of net
operating loss carryovers recognized in the current year. In 1996,
alternative minimum tax not offset by net operating loss carry forwards
($24,500) and a reduction of net deferred income tax liabilities ($365,500)
were recorded. In analyzing the valuation allowance for deferred tax
assets, no future taxable income has been assumed. No revision to the net
deferred income tax liability was required in 1997 in accordance with FAS
109, since additional deferred tax liabilities were offset by a
corresponding increase in deferred tax assets, net of reserves. Note 7 to
the Consolidated Financial Statements provides additional information
concerning the Company's Income Taxes.
(ii) 1996 Vs. 1995 Operations. During the year ended March 31, 1996, coal
operations generated income of $5,965,500 ($1.98 per ton) compared to
$7,618,200 ($2.89 per ton) during the preceding year, a decrease of
$1,652,700 or $.91 per ton. Product sales dollars increased $12,682,800
(16.5%), reflecting an increase in tonnage sold of 374,200 (14.2%) and an
increase in the average selling price of $.59 per ton (2.0%). Total cost
of tonnage sold increased $14,335,500 or $1.50 per ton.
Per ton cost increases due to effective royalty and tax rate increases and
an additional accrual for the Company's future Kentucky workers'
compensation claim obligations ($2,015,200 or $.67 per ton) offset
reductions in operating expenses and purchased coal per ton costs. The
Company continues to adjust the mix of its underground and surface
production to accomplish more cost and marketing efficiencies. To
accomplish this, management continued to pursue the development of
underground mining capacity by the addition and expansion of mines.
Shipments of tonnage from the Company's properties increased by 447,600
tons, reflecting a full year's production from the Hazard #4 Seam
Development which commenced in the middle of last year. Shipments from
outside sources on behalf of the Company (brokered coal) decreased from
147,900 to 74,500. Surface coal mined by the Company's major stockholder
provided approximately 1,130,300 tons, a decrease of 260,000 tons from the
preceding year.
Approximately 62% of the Company's shipments went to two major utility
customers with whom the Company has long-term contracts extending past the
year 2000. Intermediate terms and spot market shipments to utility, stoker
and export markets comprised the balance of the Company's current business.
The increase in average selling price per ton reflected increased stoker
sales, more BTU premiums on utility shipments and less reliance on low
quality spot business. Bad debt write-offs (in administrative expense)
increased $546,900, reflecting primarily the write-off of a broker trade
account receivable. Although the Company has obtained a judgment for the
delinquent account, the collection depends on the existence of debtor
assets. The Company is vigorously pursuing the collection of this
judgment.
Interest expense declined $336,400, reflecting primarily decreases in
interest accrued on coal miner retiree health care obligations ($106,400)
and bank debt ($206,600).
As detailed in Note 8 to the Financial Statements, the Company had an
extraordinary credit for coal miners retiree health care of $2,674,100
(including tax benefit) in 1996, reflecting primarily a reduction of
claimants assignable to the Company and a reduction of expected premiums.
The Company continues to await possible additional administrative relief
from the Social Security Administration's assignment of beneficiaries. The
$2,015,200 charge to operations for Kentucky Workers' Compensation
obligations reflects actual claim experience for previously pending claims
and adjusts mortality for lifetime claims.
In 1996, alternative minimum tax not offset by net operating loss carry
forwards ($24,500) and a reduction of net deferred income tax liabilities
($365,500) were recorded. In analyzing the valuation allowance for
deferred tax assets, no future taxable income has been assumed. No income
tax provision was required for 1995 due to taxable losses generated by
timing differences related to depreciation and Coal Act premiums. No
revision to the net deferred income tax liability was required in 1995 in
accordance with FAS 109, since additional deferred tax liabilities were
offset by a corresponding increase in deferred tax assets, net of reserves.
Note 7 to the Consolidated Financial Statements provides additional
information concerning the Company's Income Taxes.
(iii) Liquidity and Capital Resources. The Company continued to make all
pre-petition debt payments as required and expects to continue to do so.
The Company's working capital ratio improved from 1.12 at March 31, 1996 to
1.30 at March 31, 1997. Trade accounts receivable decreased $2,762,900,
while coal inventory net realizable value increased $3,620,900, reflecting
an additional 130,100 tons of coal inventory over the previous year end.
Weakening market prices have hampered the Company's ability to maximize its
capacity of high and low quality coal production and has resulted in an
accumulation of excess coal inventory. The Company is curtailing the
purchase of lower quality coal to balance shipments and production,
reflecting the fact that weak coal prices have become the greatest
challenge to the Company's liquidity.
All current bank notes ($1,210,600) were paid off during the year. Long-
term debt, lease obligations and reorganization liabilities of $2,804,900
were paid, reducing the liabilities from $13,936,900 to $11,132,000. Coal
Act premium payments amounted to $2,264,000 and direct workers'
compensation benefits of $938,000 were paid. No sales of significant
assets occurred during the year.
The Company anticipates the following 1998 cash debt service requirements
to be funded by its operations and current bank lines of credit.
<TABLE>
<S> <C>
Reorganization Liabilities $ 441,700
Long-term debt 1,969,200
Capital Leases 254,800
Workers' compensation benefits 712,500
Coal Act Premiums 1,372,500
Capital expenditures 2,600,000
Interest To Be Paid 2,750,000
----------
Total $10,100,700
==========
</TABLE>
The Company currently maintains a $7,500,000 bank revolving agreement which
expires in December, 1997. The line may be and is expected to be extended
at the lender's discretion. No sale of significant assets is anticipated
during the next year.
The Company has received some reductions to coal miner retiree health care
premiums and is hopeful of additional reductions of assigned beneficiaries.
A commercial insurance program has provided significant workers'
compensation premium reductions for the Company and its operators. No
dividends were paid during 1997.
(iv) Inflationary Impact. General inflation of costs had no material
impact on the Company's operations during fiscal year 1997 and no adverse
effects from inflation are anticipated in 1998. Price adjustment
provisions of long-term sales contracts are designed to provide protection
from inflationary cost increases.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in a separate section of this report
beginning on page 19.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The members of Blue Diamond's Board of Directors and the executive officers
and their respective positions are listed below.
Name Age Position or Office
---- --- ------------------
Ted B. Helms 48 President and Director
Alexander A. Bonnyman* 40 Director
Thomas H. Dickenson* 43 Director
Leo Hamilton* 57 Director
Stephen Hamilton 43 Director
Thomas R. Hamilton 58 Director
Thomas O'Connell 54 Director
K. Roger Foster 57 Vice President & Secretary
John E. Way, Jr. 50 Administrative Vice President
William S. Lyon, III 45 Treasurer
*Members of Audit Committee
The aforementioned directors were elected pursuant to the bylaws of
Registrant. The executive officers are elected by the Board of Directors
to serve one year terms. Leo Hamilton and Stephen Hamilton are brothers
and Thomas Hamilton is their cousin. There is no other family relationship
between any of the Directors or Officers.
Ted B. Helms was elected President of the Company effective September 1,
1984. Mr. Helms was elected to the Board of Directors in August, 1983.
Alexander A. Bonnyman is currently the Principal in Pellissippi Marketing
Consultants, established in January, 1993 and a Director, since 1994, of
Powermetrics Corporation of Knoxville, Tennessee. He is also Vice
President, since 1996, of Resource Optimization, Inc. of Knoxville,
Tennessee. Mr. Bonnyman was elected a Director of Blue Diamond in August,
1987.
Thomas H. Dickenson has been a Partner in the Knoxville law firm of Hodges,
Doughty and Carson since 1988. He is a member of the National Association
of Bankruptcy Trustees and the American, Tennessee and Knox County Bar
Associations. He represented Blue Diamond Coal Company in its bankruptcy
case which culminated in a confirmed plan of reorganization. Mr. Dickenson
was elected a Director in November, 1993.
Leo Hamilton has served as Vice President of Nally & Hamilton Enterprises
for more than five years. He is a minority stockholder in Nally & Hamilton
Enterprises, Inc. and Hamilton Holdings, Ltd. Mr. Hamilton is a mechanical
engineer with extensive experience in the surface mining of coal, as well
as manufacturing engineering. He was elected to Blue Diamond's Board of
Directors in January, 1993.
Stephen Hamilton has served as Secretary/Treasurer of Nally & Hamilton
Enterprises for more than five years. He is a minority stockholder in
Hamilton Holdings, Ltd. and Nally & Hamilton Enterprises, Inc. (Surface
contractor for Blue Diamond). He is a civil engineer with extensive
experience in the administrative and financial aspects of surface coal
mining. He was elected to the Board of Directors in August, 1995.
Thomas R. Hamilton is co-founder and the majority stockholder in Nally &
Hamilton Enterprises, Inc., a contract surface mining company. He has
served as President for more than five years. Mr. Hamilton also has
controlling interest in Hamilton Holdings, Ltd., the owner of over 50% of
the common stock of Blue Diamond Coal Company. He has extensive experience
in the surface mining of coal and in highway construction, and was elected
a Director of Blue Diamond in January, 1993.
Thomas L. O'Connell is Chairman of the Board and President of Drill Steel
Services, Inc. of Whitesburg, Kentucky and has served in that capacity for
more than five years. He was elected a Director of Blue Diamond in March,
1993.
K. Roger Foster has held the office of Secretary since April, 1981. In
addition, he was elected to serve as Vice President effective February 1,
1991.
John Edward Way, Jr. was elected to serve as Administrative Vice President,
effective February 1, 1991. He had previously served as controller since
1981 and Assistant Treasurer from August 1975 to November 1, 1984.
William S. Lyon, III was elected to serve as Treasurer effective
February 1, 1991. He had previously served as Assistant Treasurer since
November 1, 1984.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the
Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days following the Company's fiscal year
ended March 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to the
Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days following the Company's fiscal year
ended March 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's equity capital investor, Hamilton Holdings, Ltd, is a
Kentucky limited partnership and is affiliated with Nally and Hamilton
Enterprises, Inc. (Nally & Hamilton). Blue Diamond has had an on-going
relationship with Nally & Hamilton as contract miners since the Fall of
1990. For the fiscal year ended March 31, 1997, production by Nally &
Hamilton amounted to approximately 37% of all contractor coal purchased by
Blue Diamond. The funds necessary to purchase this tonnage are reported in
Note 13 to the Consolidated Financial Statements.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The response to parts (a)(1) and (2) and (d) is submitted as a separate
section of this report at page 17.
EXHIBIT TABLE
Page Number or
Incorporation by
Exhibit No. Description Reference to
----------- ----------- ----------------
3 (a) Articles of Incorporation Exhibit 3(a) to
(As amended February 25, 1993) Annual Report on
Form 10-K filed
June, 1993
3 (b) Bylaws (as amended Exhibit 3(b) to
June 28, 1983, effective Annual Report on
August 30, 1983) Form 10-K Filed
June 29, 1984
10 Material Contracts Exhibit 10 to Form
10 Registration
Filed July 29, 1982
10 (a) Coal Supply Agreement with Exhibit 10(a) to
Georgia Power Company Annual Report on
Form 10(K) Filed June, 1988
10 (b) Coal Supply Agreement with Exhibit 10(d) to
Orlando Utilities Commission Annual Report on
Form 10-K Filed
June 29, 1984
10 (c) Form 11K, Annual Report for 44
Blue Diamond Savings Plan
22 Subsidiaries of Registrant 63
24 Consent of Independent 64
Certified Public Accountants
27 Financial Data Summary 65
There were no reports filed on Form 8-K for the quarter ended March 31,
1997.
SIGNATURES
Pursuant to the requirements of Section 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.
BLUE DIAMOND COAL COMPANY
Date: June 17, 1997 By: /s/ Ted B. Helms
------------------------ -----------------------------
Ted B. Helms, President
SIGNATURES DATE
/s/ Ted B. Helms June 17, 1997
- -------------------------------- --------------------------------
/s/ Alexander A. Bonnyman June 17, 1997
- -------------------------------- --------------------------------
/s/ Thomas H. Dickenson June 25, 1997
- -------------------------------- --------------------------------
/s/ Leo Hamilton June 18, 1997
- -------------------------------- --------------------------------
/s/ Stephen Hamilton June 17, 1997
- -------------------------------- --------------------------------
/s/ Thomas R. Hamilton June 17, 1997
- -------------------------------- --------------------------------
/s/ Thomas L. O'Connell June 17, 1997
- -------------------------------- --------------------------------
/s/ K. Roger Foster June 17, 1997
- -------------------------------- --------------------------------
/s/ John E. Way, Jr. June 18, 1997
- -------------------------------- --------------------------------
/s/ William S. Lyon, III June 20, 1997
- -------------------------------- --------------------------------
Annual Report on Form 10-K
Item 8, Item 14(a)(1) and (2), (c) and (d)
List of Financial Statements
Financial Statements and Supplementary Data
Year ended March 31, 1997
Blue Diamond Coal Company
Knoxville, Tennessee
Contents
Form 10-K--Item 14(a)(1) and (2)
Blue Diamond Coal Company and Subsidiaries
List of Financial Statements
The following consolidated financial statements of Blue Diamond Coal
Company and subsidiaries are included in Item 8:
Consolidated Balance Sheets--March 31, 1997 and 1996...............23
Consolidated Statements of Operations--Years ended
March 31, 1997, 1996 and 1995....................................25
Consolidated Statements of Shareholders' Equity--Years ended
March 31, 1997, 1996 and 1995....................................26
Consolidated Statements of Cash Flows--Years ended
March 31, 1997, 1996 and 1995....................................27
Notes to Consolidated Financial Statements.........................29
All consolidated financial statement schedules for which provision is made
in the applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable, and therefore have been omitted.
Report of Independent Auditors
Board of Directors
Blue Diamond Coal Company
We have audited the accompanying consolidated balance sheets of Blue
Diamond Coal Company and subsidiaries as of March 31, 1997 and 1996, and
the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended March 31, 1997.
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Blue
Diamond Coal Company and subsidiaries as of March 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended March 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Coulter & Justus, P.C.
May 27, 1997
Blue Diamond Coal Company and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 98,657 $ 304,815
Short-term investments - 83,126
Receivables:
Trade accounts (less allowance for doubtful
accounts of $460,475 in 1997 and $524,854
in 1996) 7,129,563 9,892,470
Other accounts and notes (less allowance for
doubtful accounts of $56,714 in 1997 and
$80,000 in 1996) 861,701 962,165
Coal inventories 5,588,665 1,967,780
Operating supplies 1,864,524 1,814,562
Prepaid expenses and other current assets 468,017 575,330
----------- -----------
Total current assets 16,011,127 15,600,248
Other assets:
Investments 515,966 515,966
Notes receivable, less current portion 161,581 672,418
Assets held for sale 108,472 89,972
Other miscellaneous assets 1,402,143 1,147,464
----------- -----------
Total other assets 2,188,162 2,425,820
Property, plant and equipment:
Land, mine development and property rights 28,629,710 28,713,125
Buildings and improvements 1,532,747 1,380,155
Plant and equipment 81,720,522 80,794,898
Construction in progress 626,268 285,373
----------- -----------
112,509,247 111,173,551
Less allowances for depreciation,
depletion and amortization 46,328,486 42,354,058
----------- -----------
Net property, plant and equipment 66,180,761 68,819,493
----------- -----------
Total assets $ 84,380,050 $ 86,845,561
=========== ===========
Liabilities and shareholders' equity
Current liabilities:
Note payable $ - $ 1,201,630
Outstanding checks in excess of bank balance 3,005,203 3,133,239
Accounts payable 2,703,332 2,267,261
Accrued compensation and related liabilities 242,603 237,473
Income taxes payable - 24,500
Other accrued liabilities 1,642,346 1,045,841
Current portion of long-term debt 1,969,163 2,640,611
Current portion of liabilities under
the Plan of Reorganization 441,669 463,174
Current portion of capital lease obligations 254,849 237,668
Current portion of reserve for coal
miners retiree health care 1,372,452 1,692,229
Current portion of reserve for
workers' compensation benefits 712,504 954,358
----------- -----------
Total current liabilities 12,344,121 13,897,984
Long-term liabilities:
Long-term debt, less current portion 5,092,013 7,200,230
Capital lease obligations, less current portion 3,625,506 3,880,355
Liabilities under the Plan of Reorganization,
less current portion 2,414,503 2,856,287
Deferred income taxes 1,569,500 1,569,500
Reserve for coal miners retiree health care,
less current portion 16,428,043 17,963,702
Reserve for workers' compensation benefits, less
current portion 7,675,954 8,372,068
Other 738,244 780,481
----------- -----------
Total long-term liabilities 37,543,763 42,622,623
Shareholders' equity:
Common stock, par value $1 per share--1,000,000
shares authorized, 961,132 shares issued
(including shares in treasury) 961,132 961,132
Additional paid-in capital 24,305,480 24,305,480
Retained earnings 11,422,974 7,255,762
----------- -----------
36,689,586 32,522,374
Less cost of 25,912 shares of common
stock in treasury (2,197,420) (2,197,420)
----------- -----------
Total shareholders' equity 34,492,166 30,324,954
----------- -----------
Total liabilities and shareholders' equity $ 84,380,000 $ 86,845,561
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Blue Diamond Coal Company and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended March 31
------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Net product sales $89,781,276 $89,468,420 $76,785,601
Interest 90,171 108,149 92,586
Gain (loss) on sale of assets 237,587 121,965 (54,805)
Other 263,148 268,305 430,207
---------- ---------- ----------
Total revenues 90,372,182 89,966,839 77,253,589
Costs and expenses:
Operating expenses and purchased products 65,634,424 64,208,597 57,658,252
Other operating charges 15,870,361 15,047,013 9,809,829
Provision for workers' compensation benefits - 2,015,194 -
Administrative and selling expenses 1,723,086 2,232,132 1,699,332
Interest expense--coal miners retiree health care 1,269,207 1,598,564 1,704,920
Interest expense--workers' compensation benefits 619,574 558,399 499,578
Interest expense--other 1,280,985 1,786,830 2,075,716
Other 215,881 119,243 92,880
---------- ---------- ----------
Total costs and expenses 86,613,518 87,565,972 73,540,507
---------- ---------- ----------
Income before income taxes & extraordinary item 3,758,664 2,400,867 3,713,082
Provision for federal income taxes (benefit) - (167,047) -
---------- ---------- ----------
Income before extraordinary item 3,758,664 2,567,914 3,713,082
Extraordinary item--benefit from coal miners
retiree health care, including tax benefit
of $173,953 in 1996 408,548 2,674,064 -
---------- ---------- ----------
Net income $ 4,167,212 $ 5,241,978 $ 3,713,082
========== ========== ==========
Income per share before extraordinary item $4.02 $2.75 $3.97
Extraordinary item--benefit from coal miners
retiree health care, including tax benefit .44 2.86 -
---- ---- ----
Net income per share $4.46 $5.61 $3.97
==== ==== ====
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
BLUE DIAMOND COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION> Notes
Receivable
Additional Retained Cost of Secured By
Common Paid-in Earnings Common Stock Company
Stock Capital (Deficit) in Treasury Common Stock
-------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at
April 1,
1994 $961,132 $24,305,480 $(1,699,298) $(2,197,420) $ (47,480)
Net Income - - 3,713,082 - -
Payments received on
notes receivable
secured by Company
common stock - - - - 31,805
------- ---------- ---------- ---------- -------
Balance at
March 31,
1995 961,132 24,305,480 2,013,784 (2,197,420) (15,675)
Net income - - 5,241,978 - -
Payments received on notes
receivable secured by
Company common
stock - - - - 15,675
------- ---------- ---------- --------- ------
Balance at
March 31,
1996 961,132 24,305,480 7,255,762 (2,197,420) -
Net income - - 4,167,212 - -
------- ---------- ---------- --------- ------
Balance at
March 31,
1997 $961,132 $24,305,480 11,422,974 $(2,197,420) $ -
======= ========== ========== ========= ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Blue Diamond Coal Company and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended March 31
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities
Net income $4,167,212 $5,241,978 $3,713,082
Adjustments to reconcile net incometo net
cash provided by operating activities:
Depreciation and amortization 4,127,466 4,028,093 3,314,271
Deferred income tax benefit - (365,500) -
Provision for bad debts 68,288 546,857 -
Benefit from coal miners retiree heath care (408,548) (2,500,111) -
(Gain) loss on sale of assets (237,587) (121,965) 54,805
Changes in operating assets and liabilities:
Accounts receivable 2,705,514 (5,150,579) (1,538,997)
Inventories (3,670,847) (127,327) 118,486
Other assets (147,366) (234,833) (245,889)
Reserve for workers' compensation benefits (937,968) 1,222,669 499,578
Accounts payable and other liabilities 970,969 160,695 (1,191,352)
--------- --------- ---------
Net cash provided by operating activities 6,637,133 2,699,977 4,723,984
Financing activities
Net change in note payable to banks (1,201,630) 1,201,630 -
Principal payments on long-term debt and
capital lease obligations (3,017,333) (2,881,978) (2,562,735)
Change in outstanding checks in
excess of bank balance (128,036) 808,459 1,167,539
Principal payments on liabilities
under the Plan of Reorganization (463,289) (920,810) (374,645)
Principal payments for coal miners
retiree health care (1,446,888) (1,190,832) (2,287,977)
--------- --------- ---------
Net cash used in financing activities (6,257,176) (2,983,531) (4,057,818)
Investing activities
Purchases of property, plant and equipment$ (1,577,847) (1,026,040) (1,250,828)
Purchases of assets held for sale (18,500) (132,800) (393,567)
Proceeds from sales of assets 302,700 198,880 70,650
Purchases of investments - (5,737) (31,045)
Proceeds from sales of investments 83,126 534,711 -
Issuance of notes receivable (10,000) - (49,179)
Payments received on notes receivable 634,406 324,544 229,058
--------- --------- ---------
Net cash used in investing activities (586,115) (106,442) (1,424,911)
--------- --------- ---------
Net decrease in cash and cash equivalents (206,158) (389,996) (758,745)
Cash and cash equivalents at beginning of year 304,815 694,811 1,453,556
--------- --------- ---------
Cash and cash equivalents at end of year $ 98,657 $ 304,815 $ 694,811
======= ======= =======
</TABLE>
Supplemental Schedule of Noncash Activities
During 1997, 1996 and 1995, the Company sold property, plant and equipment
and assets held for sale through the issuance of notes receivable totaling
$24,000, $740,154 and $39,000, respectively.
During 1996, the Company made a royalty payment to a lessor through the
transfer of land with a carrying value of $250,207.
During 1995, the Company purchased assets held for sale through the
issuance of long-term debt totaling $240,500.
See accompanying Notes to Consolidated Financial Statements.
Blue Diamond Coal Company and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1997
1. Significant Accounting Policies
Fiscal Year-End
The Company operates on a fiscal year ending March 31. All references
in these notes refer to the fiscal year-end unless otherwise specified.
Industry
The Company operates in the coal mining industry. Collateral is generally
not required from customers, which are comprised primarily of utility
companies, manufacturers engaged in steel and other metal production, and
other types of industrial users in the Southeastern United States.
However, bad debts have historically not been significant to the Company's
operations. The Company does not have any derivative financial instruments
or use hedging transactions for long-term contracts.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, each of which is wholly-owned. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Investment Tax Credit
The Company accounts for investment tax credit by the flow-through method.
Inventories
Coal inventories are stated principally at lower of last-in, first-out cost
or market. Operating supplies are stated at lower of first-in, first-out
cost or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Maintenance and repairs
are expensed as incurred. Depreciation, depletion and amortization are
based on the estimated useful lives of the assets and are computed
principally by the straight-line and units of production methods.
Income Per Share
Income per share is computed based on the weighted average number of shares
of common stock outstanding during the year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Reclassifications
Certain amounts in prior years have been reclassified to conform with 1997
classifications.
2. Chapter 11 Reorganization
On May 17, 1991, Blue Diamond Coal Company (the "Company") filed a
voluntary petition for reorganization under Chapter 11 of the Federal
Bankruptcy Code in the United States Bankruptcy Court for the Eastern
District of Tennessee (the "Bankruptcy Court"). The filing was preceded by
a merger of all significant wholly-owned subsidiaries into the Company.
This filing was precipitated by cash flow problems from extensive capital
expenditures for new coal processing facilities coupled with unanticipated
operating losses at existing mines.
As Debtor-in-Possession, the Company continued to operate its business and
manage its properties. The Company formulated a business plan for future
operations. This plan formed the basis for the Company's proposed plan of
reorganization that was intended to enable the Company to satisfy its pre-
petition obligations and emerge from Chapter 11. This proposed plan of
reorganization developed into the Fourth Amended Plan of Reorganization
dated December 10, 1992 (as implemented and approved by the Confirmation
Order, the "Plan of Reorganization"). On December 11, 1992, the Bankruptcy
Court entered an order confirming the Plan of Reorganization.
On April 6, 1995, the Bankruptcy Court entered a final decree that the
Company's bankruptcy case was closed.
In accordance with AICPA SOP 90-7, the Company reported liabilities payable
under the Plan of Reorganization at the present value of amounts to be
paid, determined at appropriate current interest rates (7%). A summary of
liabilities payable under the Plan of Reorganization is as follows:
<TABLE>
<CAPTION>
March 31
-------------------------
1997 1996
----------- ----------
<S> <C> <C>
Class 6A - due in monthly installments of $3,500
through January 1997, including interest $ - $ 32,521
Class 8 - due in quarterly installments of
$75,000 through December 1999, plus an additional
payment of $575,000 when certificates of deposit
held in escrow are released (see Note 11),
including interest 1,341,960 1,539,313
Class 9 - due in quarterly installments of $75,000
through January 2003, including interest 1,459,551 1,649,021
Taxes - due in various installments, including
interest,through various dates
(from April 1997 to January 1999) 54,661 98,606
--------- ---------
2,856,172 3,319,461
Current portion 441,669 463,174
--------- ---------
Long-term portion $2,414,503 $2,856,287
========= =========
</TABLE>
Maturities of liabilities under the Plan of Reorganization as of March 31,
1997 (assuming certificates of deposit held in escrow will be released in
December 1999), are as follows:
<TABLE>
<S> <C>
1998 $ 441,669
1999 472,028
2000 1,137,007
2001 250,086
2002 268,056
Thereafter 287,326
---------
$2,856,172
=========
</TABLE>
3. Notes Payable and Long-Term Debt
Long-term debt is summarized as follows as of March 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Reducing revolving credit loan agreement $7,023,664 $9,693,540
Other 37,512 147,301
--------- ---------
7,061,176 9,840,841
Less current portion 1,969,163 2,640,611
--------- ---------
Long-term portion $5,092,013 $7,200,230
========= =========
</TABLE>
As outlined in the Plan of Reorganization, the Company entered a term loan
agreement during 1993 for repayment of amounts outstanding under a prior
loan agreement. This agreement has been amended to provide a reducing
revolving credit loan, whereby the amount available will be reduced by
$160,971 per month through December 2000. The Company may borrow, repay
and reborrow amounts up to the amount available ($7,243,693 at March 31,
1997) at any time. Interest is payable monthly based on either the bank
prime rate (8.5% at March 31, 1997) or the bank libor rate plus 1.5% (6.94%
to 7.07% at March 31, 1997).
The agreement also provides a working capital revolving loan for up to
$7,500,000 which expires in December 1997, and may be extended at the
lender's discretion. Advances under this working capital revolving loan
are limited to the sum of 85% of eligible accounts receivable plus 50% of
eligible coal inventories (up to $1,500,000). Substantially all of the
$7,500,000 was available and unused at March 31, 1997. Interest is payable
monthly on any used portion based on the same rates as in the reducing
revolving credit loan discussed above. Also, a 0.25% per annum commitment
fee is payable quarterly based on the average unused portion of the loan.
Substantially all of the Company's assets, including sales contracts and
leases for coal and/or mining rights, are security under the term loan
agreement. Under the terms of the agreement, dividend payments by the
Company are subject to certain restrictions; no dividends were eligible for
payment at March 31, 1997. The agreement also requires the Company to
maintain certain financial covenants.
Maturities of long-term debt as of March 31, 1997, are as follows:
<TABLE>
<S> <C>
1998 $1,969,163
1999 1,931,652
2000 1,931,652
2001 1,228,709
---------
$7,061,176
=========
</TABLE>
The interest rate on the notes payable outstanding at March 31, 1996,
was the bank prime rate plus 0.5% (8.75%).
4. Interest Costs
A summary of interest costs, excluding amounts relating to workers'
compensation and UMWA retiree benefits (see Note 8), is as follows
for the years ended March 31:
<TABLE>
<CAPTION>
Total Interest Interest Interest Interest
Costs Incurred Capitalized Expensed Paid
-------------- ----------- -------- ----------
<S> <C> <C> <C> <C>
1997 $1,306,247 $25,262 $1,280,985 $1,327,853
1996 1,807,809 20,979 1,786,830 1,770,211
1995 2,084,203 8,487 2,075,716 2,085,313
</TABLE>
5. Leases
The Company leases certain plant and equipment under long-term capital
leases. The remaining leases outstanding are to be repaid in monthly
installments of $43,200 through December 1999 and $75,700 from January
2000 through December 2003.
As of March 31, 1997, future minimum payments under the agreement
are as follows:
1998 $ 518,400
1999 518,400
2000 615,900
2001 908,400
2002 908,400
Thereafter 1,589,700
---------
Total minimum lease payments 5,059,200
Amounts representing interest 1,178,845
---------
Present value of minimum lease payments
(including $254,849 classified as current) $3,880,355
=========
6. Employee Benefit Plans
At March 31, 1997, the Company and its subsidiaries have a defined benefit
pension plan covering substantially all full-time employees. The Company's
funding policy is to contribute amounts deductible for federal income
taxes. Benefits under the Plan are based on average compensation and/or
years of service. The following table sets forth the Plans' funded status
and the amounts recognized in the Company's Consolidated Balance Sheets:
March 31
-----------------------
1997 1996
---------- ----------
Actuarial present value of benefit obligations:
Accumulated benefit obligation:
Vested benefits $ 729,430 $ 585,395
Nonvested benefits 195 1,251
--------- --------
$ 729,625 $ 586,646
========= =========
Plan assets at fair value $1,578,916 $1,400,925
Projected benefit obligation for
service rendered to date 905,332 986,737
--------- ---------
Plan assets in excess of projected benefit obligation 673,584 414,188
Unrecognized net gain (483,544) (175,385)
Prior service cost not yet recognized in net
periodic pension cost 300,589 324,220
Unrecognized net asset at January 1, 1985,
recognized over 15 years (67,276) (89,701)
--------- ---------
Prepaid pension cost recognized in the
Consolidated Balance Sheet $ 423,353 $ 473,322
========= =========
Plan assets at March 31, 1997, consist of equity securities (99%) and cash
equivalents (1%). The Plan's benefit provisions were amended during 1996
which increased the projected benefit obligation by $256,575; this
difference is being amortized over 13 years.
Net pension cost includes the following components:
Year ended March 31
-----------------------------
1997 1996 1995
-------- -------- -------
Service cost-benefits earned during the period $ 96,508 $ 60,113 $ 72,200
Interest cost on projected benefit obligation 68,962 39,595 36,134
Actual return on plan assets (181,095) (324,127) 81,934
Net amortization and deferral 65,594 201,383 (198,833)
------- ------- -------
Net periodic pension expense (credit) $ 49,969 $(23,036) $ (8,565)
======= ======= =======
The weighted average discount rates and rates of increase in future
compensation levels used in determining the actuarial present value of the
projected benefits obligation were 7% and 4%, respectively, in 1997 and 7%
and 3%, respectively, in 1996. The change in the rates of increase in
future compensation levels did not significantly impact the valuation. The
expected long-term rate of return on assets was 9% for 1997 and 1996.
The Company also sponsors a defined contribution plan (the Blue Diamond
Savings Plan) which covers all full-time employees. Employee contributions
to the Plan are optional, and Company contributions are at the discretion
of management. The net expense, including trustee fees, for 1997, 1996 and
1995 was $31,368, $22,203 and $3,566, respectively.
7. Income Taxes
For tax purposes, at March 31, 1997, the Company has net operating loss,
investment tax credit and alternative minimum tax credit carryovers
available to offset future income taxes. These carryovers expire as
follows:
<TABLE>
<CAPTION>
NET OPERATING LOSS CARRYOVER
------------------------ Alternative
Alternative Investment Minimum
Year Year of Regular Minimum Tax Credit Tax Credit
Generated Expiration Tax Tax Carryover Carryover
- --------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1983 1998 $ 68,320 $ - $ 431,387 $ -
1984 1999 7,114,717 - 556,018 -
1985 2000 4,660,902 - 386,272 -
1986 2001 5,622,806 2,748,230 549,323 -
1987 2002 1,749,092 1,540,320 - -
1988 N/A - - - 341,921
1989 2004 6,787,003 6,694,639 - -
1990 2005 7,713,074 7,004,526 - -
1991 2006 6,722,460 6,404,335 - -
1992 2007 7,756,546 7,756,546 - -
1993 N/A - - - 2,155
1994 2009 2,423,037 2,369,447 - -
1995 2010 1,314,483 730,994 - -
1996 N/A - - - 12,520
1997 2012 1,729,021 629,021 - -
---------- ----------- --------- -------
$53,661,461 $35,878,058 $1,923,000 $356,596
========== ========== ========= =======
</TABLE>
These carryovers provide a potential future income tax benefit of
$20,524,493. For financial statement purposes, a valuation allowance of
$17,070,693 has been recognized to offset the deferred tax assets related
to these carryovers.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
as of March 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $11,052,216 $10,490,626
Prepaid expenses deducted for tax purposes 143,090 158,052
---------- ----------
Total deferred tax liabilities 11,195,306 10,648,678
Deferred tax assets:
Capitalized leases 1,319,321 1,400,127
Inventory market reserve 13,944 53,320
Reclamation reserve 251,003 265,205
Reserve for coal miners retiree health care 6,052,168 6,683,016
Reserve for workers' compensation benefits 2,852,076 3,170,985
Net operating loss carryovers 18,244,897 17,484,216
Tax credit carryovers 2,279,596 3,028,067
Allowance for doubtful accounts 175,844 205,650
Other 2,746 2,457
---------- ----------
Total deferred tax assets 31,191,595 32,293,043
Valuation allowance for deferred tax assets (21,565,789) (23,213,865)
---------- ----------
Net deferred tax assets 9,625,806 9,079,178
---------- ----------
Net deferred tax liabilities $ 1,569,500 $ 1,569,500
========== ==========
</TABLE>
These temporary differences are expected to reverse in various years
through 2028. The valuation allowance for deferred tax assets was
decreased by $1,648,074 during 1997 and $2,201,724 in 1996.
Significant components of the provision for income tax expense (benefit)
attributable to continuing operations are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ------- ----
<S> <C> <C> <C>
Current federal $ - $ 24,500 $ -
Deferred:
Federal - (156,165) -
State - (35,382) -
--- ------- ---
Total deferred - (191,547) -
--- ------- ---
Net income tax benefit $ - $(167,047) $ -
=== ======= ===
</TABLE>
The reconciliation of income taxes attributable to continuing operations
computed at the U.S. federal statutory tax rates to the income tax benefit
is:
<TABLE>
<CAPTION>
1997 1996 1995
---------- -------- ----------
<S> <C> <C> <C>
Tax at U.S. statutory rates $1,416,852 $ 816,295 $1,262,448
Benefit of net operating loss
carryovers recognized in the
current year (1,416,852) (947,960) (1,262,448)
State income taxes, net of
federal tax benefit - (35,382) -
--------- ------- ---------
$ - $(167,047) $ -
======== ======= =========
</TABLE>
8. Workers' Compensation and UMWA Retiree Benefits
The Company is required under Federal and State legislation to pay injury-
related and pneumoconiosis (black lung) benefits to eligible employees,
certain former employees and dependents. Effective June 19, 1991, the
Company obtained commercial insurance to cover these benefits. Prior to
that time, the Company was self-insured and maintained a Workers'
Compensation Benefit Trust (the "Trust") through which the Company's
portion of the ultimate payment of claims was funded. The Company's
liability to the Trust was determined on the basis of annual actuarial
valuations and actual experience.
The Company had letters of credit with a bank totaling $11,642,389 to
satisfy the statutory requirement of securing the payment of workers'
compensation benefits to employees. As a result of the Company's
bankruptcy filing, the State of Kentucky revoked the Company's self-
insurance certificate and assumed responsibility for state workers'
compensation benefits related to claimants last employed by the Company on
and before June 18, 1991. The State called a $10,642,389 letter of credit,
deposited the funds in an account of the State and proceeded to pay
benefits and defense costs of the benefit claims assumed. An insurance
company also called a $1,000,000 letter of credit due to the bank's refusal
to renew the letter of credit securing its bond.
$500,000 of the proceeds were paid to the U.S. Department of Labor (DOL)
during 1996, and the remaining proceeds are being held in escrow on behalf
of the Company (see Note 2 and 11). The bank liquidated the assets of the
Trust and required the Company to sell other collateral to recover its
payments under these letters of credit.
With the liquidation of the Trust, the Office of Workers' Compensation
Programs of the DOL assumed responsibility for the payment of approved
federal claims of the Company. During 1993, a settlement agreement was
reached with the DOL in connection with the Company's Plan of
Reorganization (see Notes 2 and 11).
As a condition of a settlement agreement reached during 1993 between the
Company and the State of Kentucky, the Company became responsible for
payment of claims during August 1995 when the funds available from the
letters of credit were exhausted. During 1994, the Company performed an
internal valuation of the future liability based on claims settled, filed
or expected to be filed and recorded a provision of $7,604,179, which was
the estimated present value of future payments which will be made by the
Company. During 1995, the valuation was updated and the reserve increased
by $499,578 for interest expense during the year. During 1996, the
valuation was updated and the reserve increased $1,222,669. This net
increase was due to $558,399 in interest expense for the year and an
increase in the reserve of $2,015,194 based on additional information on
claims offset by benefit payments made by the Company of $1,350,924.
During 1997, the valuation was updated and the reserve increased by
$619,574 for interest expense during the year and decreased by benefit
payments made by the Company of $1,557,542. The discount rate used in
determining the reserve was 7% in 1997 and 1996.
As of March 31, 1997, estimated future undiscounted payments for workers'
compensation claims which will be made by the Company are summarized as
follows:
1998 $ 1,275,000
1999 1,020,000
2000 960,000
2001 960,000
2002 960,000
Thereafter 7,308,558
----------
Total estimated future undiscounted payments 12,483,558
Amounts representing interest 4,095,100
----------
Present value of estimated future payments
(including $712,504 classified as current) $ 8,388,458
==========
During 1994, the Company received notice from the Social Security
Administration claiming the Company is responsible for health care and
death benefit premiums for certain retired coal miners who were members of
the United Mine Workers of America (UMWA) and their beneficiaries under the
newly-effective Coal Industry Retiree Health Benefit Act of 1992 (the Act).
The premiums are assessed annually and relate to retired miners who are
said to have worked for the Company. These payments should tend to
diminish over time, but could continue as long as there are eligible
participants.
Based on information received from various sources and initial actuarial
assumptions and analysis, an extraordinary provision of $26,624,737 (net of
tax benefits totaling $1,493,366) was recorded in 1994 in accordance with
the conclusions of the Financial Accounting Standards Board's Emerging
Issues Task Force. The tax benefit related to this provision will be
realized as these cash payments are made.
The weighted average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) is 5.5% for 1997
and is assumed to decrease to 5% for 1998 and remain at that level
thereafter. The health care cost trend rate assumption has a significant
effect on the amounts reported. For example, increasing the assumed health
care cost trend rate by 1% in each year would increase the reserve for coal
miners retiree health care by $341,375 and $482,767 as of March 31, 1997
and 1996, respectively. The discount rate used in determining the reserve
for coal miners retiree health care was 7% at March 31, 1997 and 1996.
The reserve for coal miners retiree health care decreased from $25,634,851
at March 31, 1994, to $23,346,874 at March 31, 1995, due to payments made
exceeding interest expense during the year. During 1997 and 1996, the
reserve decreased $1,855,436 and $3,690,943, respectively, due to payments
made exceeding interest expense during the year along with reductions in
the reserve of $408,548 and $2,500,110, respectively. These extraordinary
reductions, which are shown including tax benefits totaling $173,953 in
1996 in the Consolidated Statements of Income, were due primarily to the
Company's successful efforts to have certain of the original assigned
beneficiaries reassigned to other coal companies (Note 9) and reductions in
the monthly premiums.
As of March 31, 1997, estimated future undiscounted payments for coal
miners retiree health care are summarized as follows:
<TABLE>
<S> <C>
1998 $ 2,722,179
1999 2,640,000
2000 2,520,000
2001 2,340,000
2002 2,010,000
Thereafter 14,810,626
----------
Total estimated future undiscounted payments 27,042,805
Amounts representing interest 9,242,310
----------
Present value of estimated future payments
(including $1,372,452 classified as current) $17,800,495
==========
</TABLE>
Additional information becoming available for workers' compensation and
UMWA retiree benefits may result in revisions to the recorded reserves that
are recorded in the period in which the revisions are determined. Because
of inherent uncertainties associated with these benefits, it is at least
reasonably possible that the estimates used will change within the near
term.
9. Contingent Gains
Since the Company has not had a contractual relationship with the UMWA
since 1964 and never bargained for nor guaranteed any health care or death
benefits, a lawsuit was filed which challenges the constitutionality of the
Act discussed in Note 8. During 1995, this lawsuit was dismissed by the
Federal District Court; however, an appeal was filed. During 1996, the
United States Court of Appeals upheld the Federal District Court decision;
however, a petition for rehearing was then filed. During 1997, the petition
was dismissed by the United States Court of Appeals and the Company's
petition to the United States Supreme Court was rejected. Accordingly, all
appeals related to this lawsuit have been exhausted.
The Company has also made additional requests to the Social Security
Administration for relief based on an administrative review of the assigned
individuals. This matter could cause future payments under the Act to be
reduced significantly. The ultimate outcome of these requests is uncertain
at the present time.
10. Major Customers
The Company had sales to individual customers in excess of 10% of total
sales as follows for the years ended March 31:
Percentage of Total Sales
To Individual Customers
-------------------------
1997 32% and 31%
1996 31% and 31%
1995 38%, 32% and 10%
Accounts receivable from these customers totaled $5,198,211 in 1997 and
$5,589,173 in 1996.
11. Investments
Investments are stated at cost, which approximates market value, and
consist of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Common stock $ 15,966 $ 15,966
Certificates of deposit held in escrow 500,000 500,000
Other certificates of deposit - 83,126
------- -------
$515,966 $599,092
======= =======
</TABLE>
Proceeds from the release of the certificates of deposit held in escrow
will be paid to the DOL (see Notes 2 and 8).
12. Incentive Stock Option Plan
The Company has established an incentive stock option plan under which
options for up to 20,000 shares of the Company's common stock may be
granted to certain key employees. At March 31, 1997, no options are
outstanding under this Plan.
13. Related Party Transactions
A shareholder of the Company is affiliated with one of the Company's major
contract mining suppliers. The Company made coal purchases of $25,753,564,
$25,558,421 and $26,907,355 from this supplier during 1997, 1996 and 1995,
respectively. Also, included in accounts payable are amounts due to this
supplier totaling $1,002,637 and $598,427 at March 31, 1997 and 1996,
respectively.
14. Reclamation Reserves
As of March 31, 1997, the Company has undiscounted reserves totaling
$738,244 (included in other long-term liabilities in the Consolidated
Balance Sheet) for future reclamation costs. These reserves are primarily
associated with the reclamation of mine openings for underground deep
mines, sediment control structures, the site of a closed preparation and
processing facility and preparation plant disposal areas. The total
estimated future reclamation costs are $1,300,000; these costs are recorded
over the estimated useful lives of the assets. Over the past five fiscal
years, the Company has recorded costs of $512,500 and paid costs of
$395,832 relating to these reclamation projects. The Company feels the
reserves being recorded, as determined by Company engineers, are adequate
to reclaim all existing sites other than the present coal preparation and
processing facility for which no reserves have yet been established because
it is expected to continue operating in excess of 30 years. No reserves
have been established for reclamation of properties, mines or businesses
previously sold by the Company, because the purchasers were required to
assume responsibility for this reclamation as a condition of the sale.
15. Fair Value of Financial Instruments
The carrying amount in the Consolidated Balance Sheet of all financial
instruments approximates estimated fair value. Considerable judgment is
necessarily required in interpreting market data to develop estimates of
fair value and accordingly, the estimates are not necessarily indicative of
the amounts the Company could realize in a current market exchange.
16. Supplemental Quantity Reserve Information (Unaudited)
Information concerning the Company's coal reserves is as follows:
<TABLE>
<CAPTION>
Year ended March 31
----------------------------------
1997 1996 1995
----------------------------------
(In thousands except per ton data)
<S> <C> <C> <C>
Estimated proven recoverable tons 60,543 38,793 40,323
Estimated probable recoverable tons 55,875 22,718 24,090
------- ------ ------
Total proven and probable tons 116,418 61,511 64,413
======= ====== ======
Total tons produced 2,995 2,935 2,479
Average selling price per ton $29.19 $29.74 $29.15
</TABLE>
During 1997, an engineering firm completed an evaluation of existing coal
reserves. Accordingly, this evaluation resulted in an increase in
estimated proven and probable tons.
Certain amortization is based on the proven recoverable reserves to which
the facilities are related.
EXHIBIT 10(C)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended March 31, 1996
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
Blue Diamond Savings Plan
P.O. Box 59015
Knoxville, TN 37950-9015
B. Names of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
Blue Diamond Coal Company
P.O. Box 59015
Knoxville, TN 37950-9015
Item 1. Changes in the Plan
Effective April 1, 1995, First American Trust Company, Knoxville,
Tennessee, was replaced as Trustee of the Plan. The four members of the
Advisory Committee of the Plan now serve as Trustees of the Plan. This
change was made as a result of administrative difficulties encountered with
the previous Trustee, its investment funds and its record-keeper. Record-
keeping functions are now performed by Blue Diamond Coal Company personnel
and the assets are invested in the Fidelity Family of Funds or Blue Diamond
Coal Company stock as directed by the participants. Funds offered include
the Fidelity Retirement Money Market Fund, the Fidelity Intermediate Bond
Fund, the Fidelity Blue Chip Growth Fund and the Fidelity Puritan Fund.
Item 2. Changes in Investment Policy
In connection with the change in Trustees, the Plan was amended to allow
investment in one or more of the funds offered and to provide more
flexibility for the participant to transfer assets among selected funds.
Item 3. Contributions Under the Plan
Not applicable
Item 4. Participating Employees
Fifty employees were eligible to participate in the Plan at March 31, 1997,
of which forty-one had elected to be active participants.
Item 5. Administration of the Plan
(a) The Advisory Committee, whose members also serve as Plan Trustees,
is responsible for authorizing remittance of contributions to the
fund custodian and disbursement of benefits by the fund custodian;
for making necessary rules and regulations; for establishing and
maintaining appropriate records; for preparing and filing
required reports and documents; for computation of benefits; for
interpretation of the Plan and related matters; and, for
employment of necessary actuaries, accountants and counsel.
The Advisory Committee is composed of four members, all employees
of Blue Diamond Coal Company, who are appointed by and serve at
the pleasure of the Board of Directors of Blue Diamond Coal
Company. The present members of the Committee are: John E. Way,
Jr., Administrative Vice President of the Company, Ted B. Helms,
President of the Company, K. Roger Foster, Secretary and Vice
President of the Company and William S. Lyon, III, Treasurer of
the Company. The address of the members of the Committee is Blue
Diamond Coal Company, P.O. Box 59015, Knoxville, Tennessee 37950-
9015.
(b) The members of the Advisory Committee serve without any
compensation and no other compensation was paid by the Plan.
Item 6. Custodian of Investments
(a) Members of the Plan's Advisory Committee also serve as its
Trustees effective April 1, 1995. Plan Assets invested in mutual
funds are held by Fidelity Investment Institutional Service
Company, Inc. (Fidelity), 400 E. Las Colinas Blvd., Irving, Texas.
Plan assets invested in Blue Diamond Coal Company Common Stock are
maintained by J. J. B. Hilliard, W. L. Lyons, Inc. (Hilliard
Lyon), 106 W. Vine Street, Lexington, Kentucky.
(b) The total amount of compensation received by the Advisory
Committee in its capacity as Trustee and Fidelity and Hilliard
Lyons in their capacity as Custodians of Plan Assets was $0.00.
(c) The Plan Trustees are covered by a Pension Trust Fiduciary
Liability Insurance policy in the amount of $1,000,000.
Item 7. Reports Made to Participating Employees Relating to Plan
Operations and the Status of Employees' Accounts
Blue Diamond Coal Company Annual Report
Quarterly Investment Summary
Blue Diamond Savings Plan Annual Report
Item 8. Investment of Funds
The Plan buys and sells company stock on a net basis for which the broker's
commission approximates three (3) percent of the market value of the
transaction. No broker through which the Trustee executed trades for this
period on behalf of the Plan is an affiliated person (as contemplated by
the Investment Act of 1949) of the Trustee. Neither the Plan nor the
Trustee, pursuant to an agreement or understanding with a broker or
otherwise through an internal allocation procedure, has directed the Plan's
brokerage transactions to a broker because of research services provided by
said broker.
Item 9. Financial Statements and Exhibits
Page No.
(a) Financial Statements:
Report of Independent Auditors 4
Statement of Net Assets Available for Benefits
March 31, 1997 5
Statement of Net Assets Available for Benefits
March 31, 1996 6
Statement of Changes in Net Assets Available
for Benefits-Year ended March 31, 1997 7
Statement of Changes in Net Assets Available
for Benefits-Year ended March 31, 1996 8
Statement of Changes in Net Assets Available
for Benefits-Year ended March 31, 1995 .9
Notes to Financial Statements 10
Schedules:
Schedules I, II and III have been omitted because the required
information is shown in the financial statements.
(b) Exhibits: None
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Blue Diamond Coal Company
We have audited the accompanying consolidated balance sheets of Blue
Diamond Coal Company and subsidiaries as of March 31, 1997 and 1996, and
the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended March 31, 1997.
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Blue
Diamond Coal Company and subsidiaries as of March 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended March 31, 1997, in conformity with generally
accepted accounting principles.
/S/ Coulter & Justus, P.C.
May 27, 1997
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
BLUE DIAMOND SAVINGS PLAN
MARCH 31, 1997
<TABLE>
<CAPTION>
Mutual Blue Diamond
Funds Stock Fund Loan Fund Total
----------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Cash $ .00 $ 1,919.16 $ .00 $ 1,919.16
Participant Loan
Receivables .00 .00 40,689.13 40,689.13
Investments, at market:
Blue Diamond Coal Co.
Common Stock
(Cost $313,547.47) .00 536,721.50 .00 536,721.50
Other unaffiliated investments:
Equity Mututal
Funds 494,367.54 .00 .00 494,367.54
Fixed Income
Mutual Funds 71,368.76 .00 .00 71,368.76
Short-term Investment
Mutual Funds 198,547.29 .00 .00 198,547.29
---------- ---------- ---------- ------------
Total other unaffiliated
Investments 764,283.59 .00 .00 764,283.59
---------- ---------- ---------- ------------
Total
Investments 764,283.59 536,721.50 .00 1,301,005.09
---------- ---------- ---------- ------------
NET ASSETS
AVAILABLE
FOR BENEFITS $764,283.59 $538,640.66 $ 40,689.13 $1,343,613.38
========== ========== ========== ============
</TABLE>
See notes to financial statements.
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
BLUE DIAMOND SAVINGS PLAN
March 31, 1996
<TABLE>
<CAPTION>
Mutual Blue Diamond Loan
Funds Stock Fund Fund Total
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Cash $ 51.68 $ 10.09 $ .00 $ 61.77
Participant Loan
Receivables .00 .00 44,677.42 44,677.42
Investments, at market:
Blue Diamond Coal Co.
Common Stock
(Cost $302,103.13) .00 489,491.87 .00 489,491.87
Other unaffiliated investments:
Equity Mututal
Funds 417,083.75 .00 .00 417,083.75
Fixed Income
Mutual Funds 60,114.29 .00 .00 60,114.29
Short-term Investment
Mutual Funds 177,400.18 6.12 .00 177,406.30
---------- ---------- ---------- ------------
Total other unaffiliated
Investments 654,598.22 6.12 .00 654,604.34
---------- ---------- ---------- ------------
Total
Investments 654,598.22 489,497.99 .00 1,144,096.21
---------- ---------- ---------- ------------
NET ASSETS
AVAILABLE
FOR BENEFITS $654,649.90 $489,508.08 $ 44,677.42 $1,188,835.40
========== ========= ========== ============
</TABLE>
See notes to financial statements.
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
BLUE DIAMOND SAVINGS PLAN
Year ended March 31, 1997
<TABLE>
<CAPTION>
Mutual Blue Diamond Loan
Funds Stock Fund Fund Total
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Additions:
Employee cash
contributions $ 79,989.55 $ 16,855.60 $ .00 $ 96,845.15
Employer cash
contributions 11,563.55 3,421.61 .00 14,985.16
Investment Income:
Dividends 53,856.10 .00 .00 53,856.10
Interest .00 .00 3,390.94 3,390.94
Net Realized and
Unrealized
appreciations
of investments 11,316.19 40,797.80 .00 52,113.99
---------- ---------- ---------- ------------
Total Additions 156,725.39 61,075.01 3,390.94 221,191.34
Deductions:
Benefit Payments (53,459.31) (12,954.05) .00 (66,413.36)
Inter-fund Transfers 6,367.61 1,011.62 (7,379.23) .00
---------- ---------- ---------- ------------
NET ADDITIONS
(DEDUCTIONS) 109,633.69 49,132.58 (3,988.29) 154,777.98
Net assets available for
benefits at
beginning of year 654,649.90 489,508.08 44,677.42 1,188,835.40
---------- ---------- ---------- ------------
NET ASSETS AVAILABLE FOR
BENEFITS AT END
OF YEAR $764,283.59 $538,640.66 $ 40,689.13 $1,343,613.38
========== ========== ========== ============
</TABLE>
See notes to financial statements.
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
BLUE DIAMOND SAVINGS PLAN
Year ended March 31, 1996
<TABLE>
<CAPTION>
Blue
SEI Diamond
Mutual Model Stock Loan
Funds Fund Fund Fund Total
---------- --------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Additions:
Employee
cash
contrib $ 70,144.71 $ .00 $ 16,033.72 $ .00 $ 86,178.43
Employer cash
contrib 10,972.69 .00 3,302.02 .00 14,274.71
Investment income:
Dividends 39,377.78 2,146.80 .00 .00 41,524.58
Interest 51.68 .00 38.35 4,840.04 4,930.07
Net realized and
unrealized
appreciation
of invests. 39,549.47 2,451.36 146,534.22 .00 188,535.05
--------- ---------- ---------- --------- ------------
Total
additions 160,096.33 4,598.16 165,908.31 4,840.04 335,442.84
Deductions:
Benefit
payments (88,264.95) .00 (7,731.21) .00 (95,996.16)
Inter-fund
transfers 582,818.52 (610,135.71) 38,614.71 (11,297.52) .00
---------- ---------- ---------- --------- ------------
NET ADDITIONS
(DEDUCTIONS) 654,649.90 (605,537.55) 196,791.81 (6,457.48) 239,446.68
Net assets available
for benefits
at beginning
of year .00 605,537.55 292,716.27 51,134.90 949,388.72
----------- ---------- ---------- --------- ------------
NET ASSETS AVAILABLE
FOR BENEFITS AT
END OF
YEAR $654,649.90 $ .00 $489,508.08 $44,677.42 $1,188,835.40
========== ========== ========== ========= ============
</TABLE>
See notes to financial statements.
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
BLUE DIAMOND SAVINGS PLAN
Year ended March 31, 1995
<TABLE>
<CAPTION>
Blue
PNC SEI Diamond
STIF Models Stock Loan
Fund Fund Fund Fund Total
---- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Additions:
Employee cash
contributions .00 $ 63,546.11 $ 17,869.53 $ .00 $ 81,415.64
Transfers from other
qualified plans .00 2,047.76 .00 .00 2,047.76
Investment income:
Dividends .00 22,617.89 .00 .00 22,617.89
Interest 174.16 7,850.41 57.67 3,543.21 11,625.45
Net realized and
unrealized appreciation
(depreciation) of
investments .00 12,733.57 (34.87) .00 12,698.70
--------- ---------- --------- --------- ---------
Total additions 174.16 108,795.74 17,892.33 3,543.21 130,405.44
Deductions:
Benefit
payments .00 (97,246.06) .00 .00 (97,246.06)
Inter-fund
transfers (624,818.64) 593,987.87 78,121.98 (47,291.21) .00
---------- ---------- --------- --------- ----------
NET ADDITIONS
(DEDUCTIONS) (624,644.48) 605,537.55 96,014.31 (43,748.00) 33,159.38
Net assets available
for benefits
at beginning
of year 624,644.48 .00 196,701.96 94,882.90 916,229.34
---------- ---------- ---------- --------- ----------
NET ASSETS AVAILABLE
FOR BENEFITS
AT END OF
YEAR $ .00 $605,537.55 $292,716.27 $51,134.90 $949,388.72
========== ========== ========== ========= ==========
</TABLE>
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
BLUE DIAMOND SAVINGS PLAN
March 31, 1997
NOTE A--SIGNIFICANT ACCOUNT POLICIES
The accounting records of the Plan are maintained on an accrual basis.
Investments are stated at current value measured by quoted prices in an
active market. Gains or losses on sales of securities are based on the
specific identification method. Net appreciation or depreciation in fair
value of investments is reflected in the statement of changes in net assets
available for benefits. The Plan's investments are not collateralized.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Contributions by Blue Diamond Coal Company, if any, are based on
percentages of compensation elected by Plan participants.
NOTE B--DESCRIPTION OF PLAN
The Blue Diamond Savings Plan is a defined contribution plan covering full-
time employees of Blue Diamond Coal Company. The Plan is subject to the
provisions of the Employment Retirement Income Security Act of 1974
(ERISA). The Plan became effective January 1, 1985.
Each year, participants may contribute up to 12% of regular salary or
wages. Contributions by Blue Diamond Coal Company are at the discretion of
management. Members employed by Blue Diamond Coal Company contributed
$96,845.15, $86,178.43 and $81,415.64 during the years ended March 31,
1997, 1996 and 1995, respectively. Blue Diamond Coal Company contributed
$14,985.16 and $14,274.71 of matching funds during the years ended March
31, 1997 and 1996, respectively, but made no contribution during the year
ended March 31, 1995.
Member contributions and employer contributions may be invested in various
Investment Options offered by the Plan. Each participant's account is
credited with the participant's contribution, any Company matching
contribution and an allocation of Plan earnings. Allocation of earnings
are based on participant contributions and account balances. The benefit
to which a participant is entitled is the benefit that can be provided from
the participant's account.
Participants may request a loan from the Plan to be repaid through payroll
deductions over a maximum of five years. The amount of the individual
loans may range from $1,000.00 to the lesser of $50,000.00 or 50% of the
total vested value of the participant's Plan account. Loans to
participants are secured by the participants' Plan accounts. Interest
rates range from 7% to 9.75% on loans outstanding as of March 31, 1997.
Participants are immediately vested in their voluntary contributions and
Company matching contributions plus actual earnings thereon.
On termination of service, a participant may elect to receive a lump sum
amount equal to the value of his or her account at any time prior to
attaining the age of 62, at which time a distribution is mandatory if
required by the Advisory Committee.
The Company has the right under the Plan to discontinue its contributions
at any time and, although it has not expressed any intent to do so, to
terminate the Plan subject to the provisions of ERISA.
Fees for legal, accounting and other administrative expenses are paid by
the Company.
Additional information related to the Plan can be found in the booklet,
Blue Diamond Savings Plan Summary Plan Description.
NOTE C--DESCRIPTION OF FUNDS AND INVESTMENTS
During the Plan year ended March 31, 1997, the Plan offered five investment
choices to the participants. A money market fund, fixed income fund, two
equity funds and Blue Diamond Coal Company common stock were offered to
provide investment choices compatible with the participants' risk and
return preferences. The Fidelity Retirement Money Market Fund seeks as
high a level of current income as is consistent with the preservation of
capital and liquidity by investing in high-quality, U. S. dollar-
denominated money market instruments of U. S. and foreign issuers. The
Fidelity Intermediate Bond Fund seeks high current income by investing in
fixed-income obligations with a dollar-weighted portfolio maturity ranging
between 3 and 10 years. The Fidelity Puritan Fund invests primarily in
high-yielding common stocks and bonds of any quality to earn as much income
as possible while preserving capital. The Fidelity Blue Chip Growth Fund
is an equity growth fund which seeks long-term capital appreciation. This
Fund is invested in a broadly diversified portfolio of common stocks of
well-known and established companies believed to have above-average growth
potential. The Blue Diamond Stock Fund invests entirely in the common
stock of Blue Diamond Coal Company except for fund liquidity requirements.
At March 31, 1997, the Money Market Fund had 28 participants, the
Intermediate Bond Fund had 6 participants, the Puritan Fund had 11
participants, the Blue Chip Growth Fund had 27 participants and the Blue
Diamond Stock Fund had 14 participants. Fidelity Investments Institutional
Services, Inc. held the Plan's Mutual Funds and J. J. B. Hilliard, W. L.
Lyons, Inc. held the Plan's Blue Diamond Coal Company Stock. The members
of the Plan's Advisory Committee serve as Trustees of the Plan's Assets.
Investments at March 31, 1997, were as follows:
<TABLE>
<CAPTION>
Percentage
of
Market Net
Issuer Investment Cost Value Assets
- ------ ---------- ---- ------ ----------
<S> <C> <C> <C> <C>
BLUE DIAMOND COAL
COMPANY COMMON STOCK 21,907 shares $ 313,547.47 $ 536,721.50 41.25%
UNAFFILIATED INVESTMENTS
MUTUAL FUNDS
Fixed Income Mutual Fund
Fidelity Intermediate Bond (1) 71,368.76 5.49%
Equity Mutual Funds
Fidelity Puritan (1) 142,043.68
Fidelity Blue Chip Growth (1) 352,323.86
------------ -----
Total Equity Mutual Funds 494,367.54 38.00%
Money Market Funds
Fidelity Retirement
Money Market (1) 198,547.29 15.26%
------------- -----
TOTAL UNAFFILIATED INVESTMENTS 764,283.59 58.75%
------------- -----
TOTAL INVESTMENTS $1,301,005.09 100.00%
============ ======
</TABLE>
(1) Cost information is not available from Fidelity Investments Institutional
Services, Inc.
Investments at March 31, 1996, were as follows:
<TABLE>
<CAPTION>
Percentage
of
Market Net
Issuer Investment Cost Value Assets
- ------ ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
BLUE DIAMOND
COAL COMPANY
COMMON STOCK 21,635 shares $302,103.13 $ 489,491.87 42.78%
UNAFFILIATED INVESTMENTS
MUTUAL FUNDS
Fixed Income Mutual Fund
Fidelity Intermediate Bond (1) 60,114.29 5.25%
Equity Mutual Funds
Fidelity Puritan (1) 120,874.91
Fidelity Blue Chip Growth (1) 296,208.84
------------
Total Equity Mutual Funds 417,083.75 36.46%
Money Market Funds
Fidelity Retirement
Money Market (1) 177,400.18
Valuestar Prime Money Market
Fund 6.12 6.12
------------
Total Money Market Funds 177,406.30 15.51%
------------ ------
TOTAL UNAFFILIATED INVESTMENTS 654,604.34 57.22%
------------ ------
TOTAL INVESTMENTS $1,144,096.21 100.00%
============ ======
</TABLE>
(1) Cost information is not available from Fidelity Investments
Institutional Services, Inc.
During the years ended March 31, 1997, 1996 and 1995, the Plan's
investments (including investments bought, sold, as well as held during the
year) experienced a net appreciation in fair market value of $52,113.99,
$188,535.05 and $12,698.70, respectively
NOTE D--MUTUAL FUNDS AND SEI MODEL FUNDS ACTIVITY
Effective April 1, 1994, the Plan offered investment options to
participants in the form of "Models" which provided allocations of the
participants' investments among various short-term investment, fixed and
equity mutual funds. Allocations among these mutual funds were designated
to meet predetermined risk and return criteria desired by the participant.
The "Models" were replaced by four (4) Fidelity Mutual Funds in April,
1995. The allocation of net assets available for benefits as of March 31,
1997, and March 31, 1996, and the related changes in net assets available
for benefits from April 1, 1996 to March 31, 1997, from April 1, 1995 to
March 31, 1996, and from April 1, 1994 to March 31, 1995, for the various
"Models" and four Fidelity Mutual Funds are as follows:
<TABLE>
<CAPTION>
TOTAL
4/1/96 INVESTMENT 3/31/97
FUND DESCRIPTION BALANCE CONTRIBUTIONS EARNINGS TRANSFERS WITHDRAWALS BALANCE
- ---------------- ----------- ------------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Fidelity Intermediate
Bond $ 60,114.29 $ 6,718.65 $ 2,847.12 $ 2,544.70 $ (856.00) $ 71,368.76
Fidelity Puritan 120,874.91 14,569.53 15,526.22 3,759.00 (12,685.98) 142,043.68
Fidelity Blue
Chip Growth 296,208.84 47,165.42 36,987.09 6,738.59 (34,776.08) 352,323.86
---------- --------- ---------- --------- ----------- ----------
Total Equity 417,083.75 61,734.95 52,513.31 10,497.59 (47,462.06) 494,367.54
Fidelity Retirement
Money Market 177,451.86 23,099.50 9,811.86 (6,674.68) (5,141.25) 198,547.29
---------- --------- --------- --------- ---------- ----------
$654,649.90 $91,553.10 $65,172.29 $ 6,367.61 $(53,459.31) $764,283.59
========== ========= ========= ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
4/01/95 CONTRI- INVESTMENT WITH- 3/31/96
FUND DESCRIPTION BALANCE BUTIONS EARNINGS TRANSFERS DRAWALS BALANCE
- ---------------- ----------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Stable Asset Fund $225,631.93 $ .00 $ 1,346.87 $(226,978.80) $ .00 $ .00
Short Term Gov't 6,562.43 .00 173.79 (6,736.22) .00 .00
Intermediate
Government 248.58 .00 2.03 (250.61) .00 .00
GNMA 69,070.86 .00 794.18 (69,865.04) .00 .00
Bond Fund 24,550.19 .00 207.46 (24,757.65) .00 .00
Core Fixed 68,872.22 .00 471.55 (69,343.77) .00 .00
Fidelity Inter-
mediate Bond Fund .00 6,008.35 3,466.89 51,161.05 (522.00) 60,114.29
---------- --------- --------- ---------- --------- ----------
394,936.21 6,008.35 6,462.77 (346,771.04) (522.00) 60,114.29
Small Cap Growth 26,830.04 .00 81.59 (26,911.63) .00 .00
Cap Appreciation 73,454.40 .00 333.30 (73,787.70) .00 .00
Value Fund 44,430.67 .00 152.94 (44,583.61) .00 .00
Equity Income 36,141.62 .00 189.29 (36,330.91) .00 .00
Mid-Cap Growth 27,106.61 .00 6.59 (27,113.20) .00 .00
Fidelity Puritan Fund .00 17,169.51 19,008.75 87,454.65 (2,758.00) 120,874.91
Fidelity Blue
Chip Growth .00 37,804.17 45,536.56 213,334.11 (466.00) 296,208.84
---------- --------- --------- ---------- --------- ----------
Total 207,963.34 54,973.68 65,309.02 92,061.71 (3,224.00) 417,083.75
Prime Obligation 2,638.00 .00 18.87 (2,656.87) .00 .00
Fidelity Retirement
Money Market Fund .00 20,135.37 11,786.43 230,049.01 (84,518.95) 177,451.86
---------- --------- --------- ---------- --------- ----------
2,638.00 20,135.37 11,805.30 227,392.14 (84,518.95) 177,451.86
---------- --------- --------- ---------- --------- ----------
$605,537.55 $81,117.40 $83,577.09 $(27,317.19) $(88,264.95) $654,649.90
========== ========= ========= ========== ========= ==========
</TABLE
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT
EARNINGS 3/31/95
FUND DESCRIPTION CONTRIBUTIONS (LOSSES) TRANSFERS WITHDRAWALS BALANCE
- ---------------- ------------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Stable Asset Fund $11,061.62 $ 5,883.52 $209,577.35 $ (890.56) $225,631.93
Short Term Government 506.97 61.72 5,993.74 .00 6,562.43
Intermediate Government .00 .00 248.58 .00 248.58
GNMA 4,459.17 3,929.44 60,822.46 (140.21) 69,070.86
Bond Fund 1,079.37 1,790.66 21,820.37 (140.21) 24,550.19
Core Fixed 3,740.55 4,361.88 61,036.18 (266.39) 68,872.22
Blue Government Fund .00 (58.89) 2,575.04 (2,516.15) .00
--------- --------- ---------- --------- ----------
20,847.68 15,968.33 362,073.72 (3,953.52) 394,936.21
Small Cap Growth 1,219.10 2,667.38 23,027.68 (84.12) 26,830.04
Cap Appreciation 3,288.78 2,582.38 67,891.68 (308.44) 73,454.40
Value Fund 1,974.67 3,433.59 39,204.68 (182.27) 44,430.67
Equity Income 1,615.80 2,800.68 31,879.37 (154.23) 36,141.62
Mid-Cap Growth 1,206.42 603.13 25,409.22 (112.16) 27,106.61
Blue Equity Fund .00 5,374.13 (5,374.13) .00 .00
--------- --------- ---------- --------- ----------
9,304.77 17,461.29 182,038.50 (841.22) 207,963.34
Prime Obligation 192.90 1,159.86 8,047.52 (6,762.28) 2,638.00
Blue Money Market 33,200.76 8,612.39 43,875.89 (85,689.04) .00
--------- --------- ---------- --------- ----------
33,393.66 9,772.25 51,923.41 (92,451.32) 2,638.00
--------- --------- ---------- --------- ----------
$63,546.11 $43,201.87 $596,035.63 $(97,246.06) $605,537.55
========= ========= ========== ========= ==========
</TABLE>
NOTE E--INCOME TAX STATUS
The Plan received a determination letter dated July 18, 1985, in which the
Internal Revenue Service stated that the Plan, as then designed, was in
compliance with the applicable requirements of the Internal Revenue Code
(IRC). The Plan has been amended since receiving the determination letter.
The Plan administrator believes the Plan is currently designed and being
operated in compliance with the applicable requirements of the IRC.
Therefore, the Plan is considered qualified and the related Trust is exempt
from tax.
Company contributions made to the Plan on behalf of the participants are
not included in the employee's taxable income at the time of contribution.
All dividends, interest and gains in asset value are non-taxable at the
time realized by the Plan. When a distribution is made from the Plan, the
amount distributed is taxable in the year of receipt by the participant.
NOTE F--TRANSACTIONS WITH PARTIES-IN-INTEREST
During the year ended March 31, 1997, the Plan purchased 829 shares of Blue
Diamond common stock for $19,378.25 and sold 557 shares of Blue Diamond
common stock for $12,946.37, resulting in a gain of $5,012.46.
During the year ended March 31, 1996, the Plan purchased 4,533 shares of
Blue Diamond common stock for $77,795.56 and sold 1,284 shares of Blue
Diamond common stock for $15,336.50, resulting in gains totaling
$12,039.59. During the year ended March 31, 1995, the Plan purchased 4,556
shares of Blue Diamond common stock for $93,987.00.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other person who administer the Plan), have duly caused this
Annual Report to be signed by the undersigned thereunto duly authorized:
THE BLUE DIAMOND SAVINGS PLAN
Date: June 25, 1997 By: Savings Plan Advisory Committee
---------------------
By: /s/ John Edward Way, Jr.
---------------------------------
John Edward Way, Jr., Chairman
of the Advisory Committee
By: /s/ K. Roger Foster
---------------------------------
K. Roger Foster, a member
of the Advisory Committee
By: /s/ Ted B. Helms
---------------------------------
Ted B. Helms, a member
of the Advisory Committee
By: /s/ William S. Lyon, III
---------------------------------
William S. Lyon, III, a member
of the Advisory Committee
NAME OF CORPORATION STATE OF INCORPORATION
- ------------------- ----------------------
Blue Diamond Coal Export Company Delaware
Eolia Resources, Inc. North Carolina
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 Number 33-12517) pertaining to the Savings Plan of Blue Diamond
Coal Company of our report dated May 27, 1997, with respect to the
consolidated financial statements of Blue Diamond Coal Company and
subsidiaries included in the Annual Report (Form 10-K) for the year ended
March 31, 1997, and of our report dated May 21, 1997, with respect to the
financial statements and schedules of the Blue Diamond Savings Plan
included in the Annual Report (Form 11-K) for the year ended March 31,
1997.
/s/ Coulter & Justus, P.C.
June 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<PERIOD-TYPE> YEAR
<CASH> 98,657
<SECURITIES> 0
<RECEIVABLES> 7,590,038
<ALLOWANCES> 460,475
<INVENTORY> 7,453,189
<CURRENT-ASSETS> 16,011,127
<PP&E> 112,509,247
<DEPRECIATION> 46,328,486
<TOTAL-ASSETS> 84,380,050
<CURRENT-LIABILITIES> 12,344,121
<BONDS> 8,717,519
<COMMON> 961,132
0
0
<OTHER-SE> 33,531,034
<TOTAL-LIABILITY-AND-EQUITY> 84,380,000
<SALES> 89,781,276
<TOTAL-REVENUES> 90,372,182
<CGS> 81,504,785
<TOTAL-COSTS> 83,227,871
<OTHER-EXPENSES> 215,881
<LOSS-PROVISION> 68,288
<INTEREST-EXPENSE> 3,169,766
<INCOME-PRETAX> 3,758,664
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,758,664
<DISCONTINUED> 0
<EXTRAORDINARY> 408,548
<CHANGES> 0
<NET-INCOME> 4,167,212
<EPS-PRIMARY> 4.46
<EPS-DILUTED> 4.46
</TABLE>
