ONE HUNDRED AND SIXTEENTH ANNUAL REPORT OF THE BOARD OF MANAGERS TO THE STOCKHOLDERS

Transcription

1 1936 ONE HUNDRED AND SIXTEENTH ANNUAL REPORT OF THE BOARD OF MANAGERS OF The Lehigh Coal and Navigation Company TO THE STOCKHOLDERS FISCAL YEAR ENDED DECEMBER 31, 1936 NOTE: THE INFORMATION HERElN CONTAINED IS FURNISHED UPON YOUR REQUEST AND IS NOT A REPRESENTATION OR PROSPECTUS IN RESPECT OF ANY STOCK OR SECURITY, AND IS NOT FURlWiEO IN CONNECTION WITH ANY SALES OR PURCHASES OF STOCKS AND SECURITIES OR OTHER RUSINESS TRANSACTIONS,

2 B OARD OF M ANAGERS OF THE LEHIGH COAL AND NAVIGATION COMPANY PRESIDENT S. D. WARRINER MANAGERS Term Expires 1937 Term Expires 1939 EDWARD J. Fox * E DWARD W ALTER C LARK E. B. LEISENRING BEN JAMIN RUSH GEORGE L. OHRSTROM PARKER S. WILLIAMS Term Expires 1938 Term Expires 1940 P. M. CHANDLER ROBERT C. ADAMS W ILLIAM JAY T URNER S. D. WARRINER WILLIAM P. G EST CLARENCE H. GEIST H ENRY H. PEASE... W ILLIAM JAY T URNER.... T. P. SCOTT.... F. M. FISHER... R.V.PIERCE H ENRY LODGE.... GEORGE CRAIG.... G. K. MCALLISTER.... GENERAL, OFFICERS Vice-President and Secretary.. General Counsel... Treasurer... Comptroller.. Assistant Secretary... Assistant Secretary,. Assistant Treasurer... Assistant Comptroller LEHIGH NAVIGATION COAL COMPANY J. B. WARRINER President LEHIGH AND NEW ENGLAND RAILROAD COMPANY ROLLIN H. WILBUR Vice-President and General Manager * Died February 5, 1937.

3 PHILADELPHIA, PA., February 17, To the Stockholders of The Lehigh Coal and Navigation Company:- The Board of Managers respectfully submits the One Hundred and Sixteenth Annual Report covering the business of your Company for the fiscal year ended December 31, 1936: INCOME The net income of your Company for the year 1936, accruing from its direct operations and from railroad rentals, dividends from subsidiary and other companies, and income from other sources, but not including the undistributed earnings and losses of subsidiary companies, the stock of which is owned or controlled by your Company, was $1,500, as shown on the Income Account on page 13. Giving effect to the earnings and losses of subsidiary companies, the consolidated net income of your Company amounted to $651, as shown on the Consolidated Income Account on page 16. For details of the financial condition of your Company, as well as the consolidated financial condition of your Company and its subsidiaries, as of December 31, 1936, together with the operating results during the year, reference is made to the following statements, which have been certified as correct by Messrs. Lybrand, Ross Bros. & Montgomery, Accountants and Auditors, as shown by their certificate on page 11: General Balance Sheet, page 12. Income Account, page 13. Surplus Account, page 13. Consolidated Balance Sheet, pages 14 and 1.5. Consolidated Income Account, page 16. Consolidated Profit and Loss Account-Surplus from Income, page 17. Statement of Funded Debt, page 18. Securities Owned, page 19. CAPITAL STOCK AND FUNDED DEBT During the year, 14 shares of the old capital stock having the par value of $50.00 per share were exchanged for 42 shares of common capital stock without nominal or par value, leaving 26 shares of the old capital stock unconverted at the end of the year.

4 The Lehigh Coal and Navigation Company Bonds issued under the Funding and Improvement Mortgage of 1898, to the amount of $17,000.00, were called for redemption during the year. The funds for this purpose were provided by the payment to the trustee by your Company of $ , under the sinking fund provisions of the Mortgage. The bonds thus called were Series A, Nos. A 324, 752, 887, 1680, 1800, 1894, 2211 and 2807, and Series B, Nos. B 3066, 3461, 3476, 3550, 3703, 3887, 4055, 4080 and At the end of the year, the amount of Funding and Improvement Mortgage Bonds outstanding in the hands of the public and not called for redemption was $3,500, Bonds issued under the Consolidated Sinking Fund Mortgage of 1914, to the amount of $55,000.00, were called for redemption during the year. The funds for this purpose were provided by the payment to the trustee by your Company of $49,795.32, under the sinking fund provisions of the Mortgage, together with $8,400.00, being the proceeds from the redemption, under the sinking fund provisions, of $8, of The Panther Valley Water Company General Mortgage Sinking Fund 6% Gold Bonds, pledged under the Consolidated Sinking Fund Mortgage. At the end of the year, the amount of Consolidated Mortgage Sinking Fund Gold Bonds outstanding in the hands of the public and not called for redemption was $19,524, The total amount of funded debt of your Company outstanding in the hands of the public and not called for redemption at the close of the year was $23,024,000.00, a decrease of $72, during the year. A detailed statement of the funded debt of your Company appears on page 18. In addition to the funded debt of your Company, there were outstanding in the hands of the public at the end of the year bonds, equipment trust obligations and serial notes of subsidiary companies as follows: $7,358, bonds, $1,192, equipment trust obligations, and $1,000, serial notes, of the Lehigh and New England Railroad Company; $.500, bonds of the Wilkes-Barre and Scranton Railway Company (guaranteed principal and interest by your Company); and $27, bonds of the Summit Hill Water Company; making the total funded debt of your Company and its subsidiaries outstanding in the hands of the public at the end of the year, and not called for redemption, $33,101,100.00, as shown on the Con-

5 1936 The Lehigh Coal and Navigation Company 7 solidated Balance Sheet on page 15. This is an increase of $55, as compared with the previous year, due to the issue of $410, Equipment Trust Certificates, Series J, and $l,ooo,ooo.oo Serial Notes, Issue of 1936, of the Lehigh and New England Railroad Company, offset by the following retirements: $42, Lehigh and New England Railroad Company General Mortgage 4% Bonds, Series A, under the terms of the sinking fund; $239, Lehigh and New England Equipment Trust Certificates, Series F, Series G and Series H, under the terms of the respective agreements; $1,000, Lehigh and New England Equipment Trust Certificates, Series H, called for redemption on November 1, 1936; $1, Summit Hill Water Company Bonds, under the terms of the sinking fund; and $72, of bonds of your Company as noted above. There are also outstanding $399, General Mortgage Sinking Fund 6yo Gold Bonds of The Panther Valley Water Company, a subsidiary. All of these bonds are owned by your Company and are pledged under its Consolidated Sinking Fund Mortgage of CANALS The Lehigh Canal was maintained, and water powers were operated throughout the year, except when interrupted by severe floods. Canal operations for the year Show a net loss of $64,833.62, an increase of $31, as compared with the previous year, due principally to extraordinary repairs required on account of damages by the extremely he&vy floods in March. Charges to operation on account of Depreciation of Canal Boats and Other Equipment amounted By the Act of Assembly approved June 26, 1931, certain canal companies were relieved from the obligation of maintaining their canals for transportation purposes, upon compliance with the provisions of the Act. The Delaware Division Canal Company, in order to obtain the benefit of this Act, conveyed to the Commonwealth, by deed dated September 30, 1931, all its right, title and interest in and to the canal bed, towpath and berm bank between Raubsville and Yardley, a distance of about forty miles. In October, 1935, the Commonwealth advised the Canal Company that in the opinion of the Attorney General the Act of 1931 was unconstitutional and the conveyance to the Commonwealth was therefore void. In March, 1936, proceedings were instituted in the

6 The Lehigh Coal and Navigation Company Supreme Court of Pennsylvania by certain taxpayers of Bucks County with a view to determining the constitutionality of the Act; and on May 25, 1936, that Court decided that the Act was unconstitutional and void and the title to the portion of the canal conveyed to the Commonwealth in 1931 therefore remained in the Canal Company. In the month of March, 1936, floods of unusual magnitude greatly damaged a large portion of the canal, and it was estimated that the cost of restoring navigation would approximate $125,000, exclusive of the amount of $47, expended by the Canal Company, because of the floods, in repairs between the Easton dam and Raubsville and below that point. The Commonwealth having inquired whether the Canal Company intended to restore the canal as a public waterway, the Canal Company, in the circumstance, replied that it was unable to do so; and the Commonwealth on February 2, 1937, instituted proceedings in equity in the Court of Common Pleas of Dauphin County against the Canal Company seeking a decree of forfeiture of the property which the Canal Company acquired in 1858 from the Commonwealth, through the Sunbury and Erie Railroad Company, under and subject to the covenants, restrictions and conditions contained in the Act of Assembly approved April 21, The operations of The Delaware Division Canal Company in 1936 resulted in a net loss of $66,921.16, including the sum of $47, expended as aforesaid because of the floods. WATER The operations of The Panther Valley Water Company and the Summit Hill Water Company, controlled by your Company and serving the territory between Nesquehoning and Tamaqua, including the Borough of Summit Hill, resulted in a consolidated net income of $35,664.22, a decrease of $6, as compared with the previous year. GENERAL The rentals received by your Company during the year from The Central Railroad Company of New Jersey for the Lehigh & Susquehanna Railroad and Branches amounted to $2,278, In addition thereto, The Central Railroad Company of New Jersey paid your Company as rental under assignment of lease of the Wilkes-Barre and Scranton Railway $66, Out of the latter

7 1936 The Lehigh Coal and Navigation Company 9 amount your Company paid the Wilkes-Barre and Scranton Railway Company $52, with which to pay its interest, dividends, taxes and corporate expenses. The annual reports showing the operations of the Lehigh Navigation Coal Company and the Lehigh and New England Railroad Company, the capital stocks of which companies are controlled by your Company, are shown on pages 21 to 38. The operations of the Greenwood Corporation (the capital stock of which is controlled by your Company) and its subsidiary retail companies resulted in the sale of 831,858 net tons of coal, of which 707,735 were anthracite. The consolidated net loss of the Greenwood Corporation and its subsidiaries was $149, for the year, after provisions for reserves for depreciation and bad debts. This loss was caused by the continuance of unstable competitive conditions, particularly in the markets of Greater New York. Two dividends of 15 cents per share each and a special dividend of 30 cents per share, aggregating $1,158,039.00, were paid during the year on the 1,930,065 shares of the common capital stock of your Company without nominal or par value. The payment of this special dividend was authorized by the Board of Managers because of the heavy Federal taxes imposed on the undistributed profits for the year, without any deduction for the losses of its subsidiary companies. The following dividends were received by your Company from its ownership of the several stocks mentioned: National Power & Light Company Common $420, Lehigh and New England $525, Decrease $105, Railroad Company ,940.OO 339, Decrease 67, Lehigh and Hudson River Railway Company ,820.OO 42,138.OO Increase 4,682.OO Wilkes-Barre and Scranton Railway Company ,ooo.oo 25,ooo.oo Allentown Terminal Railroad Company ,250.oo 11,250.oo Panther Valley Water Company ,ooo.oo Increase 14,ooo.oo Greenwood Corporation.... 3,125.OO Increase 3,125.OO Glen Alden Coal Company.. Lehigh and Wilkes-Barre 3,ooo.oo 4,OOO.OO Decrease 1,ooo.oo C&al Company of New Jersey (Liquidating) Decrease Total $795, x48, Decrease $152,665.50

8 The Lehigh Coal and Navigation Company In the early part of the year, the Lehigh Navigation Coal Company repaid to your Company $600, on account of advances made to the Coal Company in Later, however, it was again necessary for your Company to make additional advances to the Coal Company amounting to $850, for capital expenditures, payment of taxes and current expenses, making the total advances $1,900, at the end of the year, an increase of $250, as compared with the previous year. Advances made by your Company to subsidiary companies other than Lehigh Navigation Coal Company were increased by $56, during the year. Pursuant to the application filed with the Securities and Exchange Commission, referred to in the last Annual Report, that Commission issued an order, dated May 23, 1936, declaring your Company not to be a holding company under the provisions of the Public Utility Holding Company Act of Your Company, on behalf of itself and its subsidiary companies, has heretofore obtained exemption from the necessity of insuring under the Workmen s Compensation Act of Pennsylvania since the Act became effective in 1916, your Company guaranteeing to the Workmen s Compensation Board the payment of compensation liabilities incurred by its exempted subsidiary companies. As security for its guarantee, your Company during the year deposited with The Pennsylvania Company for Insurances on Lives and Granting Annuities $400, of its Consolidated Mortgage Sinking Fund Gold Bonds, Series A, under an agreement providing that the bonds so deposited shall constitute a Trust Fund for the payment of any compensation that may be in default at any time or that may become due and payable by reason of commutation and for no other purpose. These bonds were listed on the New York and Philadelphia Stock Exchanges. On November 25, 1936, Mr. C. S. W. Packard and Mr. Charles F. Batchelder resigned as members of the Board of Managers of your Company and Mr. George L. Ohrstrom and Mr. P. M. Chandler were elected to serve for the respective unexpired terms of Mr. Packard and Mr. Batchelder. Through the death on February 5, 1937, of Honorable Edward J. Fox, your Company sustained the loss of a valued member of its Board of Managers. The Board acknowledges its appreciation of the services rendered by the officers and employees during the year. By order of the Board of Managers. S. D. WARRINER, President.

9 1936 The Lehigh Coal and Navigation Company 11 LYBRAND, ROSS BROS. & MONTGOMERY A ccountants and A uditors PACKARD BUILDING PHILADELPHIA Mr. S. D. Warriner, President, The Lehigh Coal 6 Navigation Company, Philadelphia. February 6, We have made an examination of the balance sheets of THE LEHIGH COAL & NAVIGATION COMPANY AND ITS SUBSIDIARY COMPANIES, other than the Lehigh and New England Railroad Company and its subsidiaries as at December 31, 1936, and of the related statements of income and surplus for the year In connection therewith, we examined or tested accounting records of the companies and other supporting evidence and obtained information and explanations from officers and employees of the companies. We also made a general review of their accounting methods and of the operating and income accounts for the year, but we did not make detailed audits of the transactions. The consolidated balance sheet of the Lehigh and New England Railroad Company and its subsidiaries as at December 31, 1936, and the related statements of income and surplus for the year 1936 were examined by Messrs. Haskins & Sells, and their certificate indicates the scope of their examination to have been equivalent to that outlined above. In the balance sheet of The Lehigh Coal & Navigation Companv as at December 31, 1936, the item Bonds and stocks of affiliated companies includes stock of The Delaware Division Canal Company in the amount of $281,910.51, and the item Advances to affiliated companies includes the amount of $105,000, advances to the said canal company. In the consolidated balance sheet of The Lehigh Coal & Navigation Company and Subsidiary Companies, the item Canal property includes $1,621,370.64, representing the property of The Delaware Division Canal Company, and the item Capital surplus includes $1,321, applicable to the capital stock of the canal company. Attention is called to the fact that on February 2, 1937, legal proceedings were instituted by the Commonwealth of Pennsylvania seeking a decree of forfeiture of the canal property of The Delaware Division Canal Company on the ground of its failure to maintain the same as a public highway or waterway. In our opinion, based upon such examinations, and subject to the foregoing explanation, the accompanying balance sheets and related statements of income and surplus and schedules fairly present, in accordance with accepted principles of accounting consistently maintained by the companies during the year under review, in conjunction with the consolidated statements presented, the position of The Lehigh Coal & Navigation Company at December 31, 1936, and the results of its operations for the year ended that date, and the consolidated position of The Lehigh Coal & Navigation Company and its Subsidiary Companies at December 31, 1936, and the results of their consolidated operations for the year ended that date. LYBRAND, Ross BROS. & MONTGOMERY

10 The Lehigh Coal and Navigation Company THE LEHIGH COAL & NAVIGATION COMPANY GENERAL BALANCE SHEET, December 31, ASSETS: Railroads, canal and other fixed assets Bonds and stocks of affiliated companies :34;091, $19,629, (Includes bonds and stocks pledged aggregating $9,216, and stock of affiliated company whose coal lands are subject to liens of The Lehigh Coal & Navigation Company mortgage4 Other investments (see note) ,s 19, ,610, Advances to affiliated companies ,872, WORKING ASSETS: Cash (includes $1,145, time deposits).... 2,860, Sundry debtors : Affiliated companies $2,05 7,943.S 7 Others , ,109, Materials and supplies , Suspended debit accounts LIABILITIES: Funded debt $37,322, Less treasury bonds: Pledged $400, Unpledged ,898, ,298,OOO.OO WORKING LIABILITIES: Audited vouchers and pay rolls Accruedtaxes... Matured and accrued interest on funded debt : : Dividends unclaimed , , , Suspended credit accounts Depreciationreserve :::::::::::::: CAPITAL STOCK AND SURPLUS: Capital stock: 1,929,987 shares, no par value shares, $50 par value jo o. (Exchangeable for 78 shares of * no par value stock) Surplus ,284, ,986, , $65,426, $23,024, ,592, , , ,452, $65,426, Note: Of these investments, certain securities aggregating $2,868, have an indicated value of $8,339,250 based on market quotations at December 31, The remaining securities included herein are not quoted. The Company is guarantor of subsidiary company s bonds aggregating $500,000.

11 1936 The Lehigh Coal and Navigation Company 13 THE LEHIGH COAL & NAVIGATION COMPANY INCOME ACCOUNT FOR THE YEAR ENDED DECEMBER 31, REVENUES: Railroad rentals $2,293, Dividends ,510.oo Interest :::::::::::::: 107, Canal revenue , Miscellaneous I 1: 38, EXPENSES: Interest Taxes other than Federal income and undistributed 1,021, profits taxes l Canaloperation...::::: 122, General expenses , $3,291, ,617, ,674, Provision for Federal income tax , Provision for Federal undistributed profits tax , J46.15 Net income $1,500, THE LEHIGH COAL & NAVIGATION COMPANY SURPLUS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, Debit Balance, January 1, Net income for the year ended December 31, Sundry accounts adjusted $3, DIVIDENDS: 1936 May 29, $15 per share on 1,930,065 shares. $289, Nov. 30, $.15 per share on 1,930,065 shares. 289, Dec. 24, $.30 per share on 1,930,065 shares. 579, Credit $7,946, ,500, Total dividends year Balance, surplus from income December 3 1, ,158, ,284, $9,446, $9,446, Balance brought forward, January 1, $8,284,

12 The Lehigh Coal and Navigation Company THE LEHIGH COAL & NAVIGATION ASSETS: CONSOLIDATED BALANCE Coal lands, mining and marketing property... $31,649, Canalproperty... 3,739, Railroad property ,725, Water property... 3,241, Realestate , INVESTMENTS (see note) : Free... $3,578, Pledged ,500.OO 3,800, WORKING ASSETS: Cash (includes $1,145, time deposits).... 4,461, Customers accounts, less reserve.... 1,82 1, Notes receivable , Coal (in storage and in transit).... 1,355, Material and supplies , Sundry debtors , Workingfunds... 58, ,678, DEFERRED AND SUSPENDED ACCOUNTS.... 1,181, SINKING FUND ASSETS... 9, $94,957, Note: Of these investments, certain securities aggregating $2,868, have an indicated value of $8,339,250 based on market quotations at December 31, The remaining securities included herein are not quoted. i

13 1936 The Lehigh Coal and Navigation Company 15 COMPANY and SUBSIDIARY COMPANIES SHEET, DECEMBER 31, LIABILITIES: FUNDED DEBT... $47,399, Less treasury bonds : Pledged.... $400, Unpledged ,898,OOO.OO 14,298,OOO.OO - - $33,101, MORTGAGE PAYABLE ,125.OO WORKING LIABILITIES: Audited vouchers and pay rolls... 1,381, Sundry creditors , Accrued taxes... 1,491, Matured and accrued interest.....i : 1: : : : : 621, ,604, , DEFERRED AND SUSPENDED ACCOUNTS RESERVES: Depletion , Depreciation... 12,342, Workmen s compensation insurance , MINORITY INTERESTS... 13,1;9;;;.;5,. CAPITAL STOCK AND SURPLUS: Capital stock, authorized 3,000,OOO shares: Issued : 1,929,987 shares, no par value shares, $50 par value (Exchangeable for 78 shares 32,167, of no par value stock) SURPLUS: Capital-Represents net excess of par values of stocks and bonds of subsidiary companies over amount at which carried on the books of the parent company, net of goodwill of certain other subsidiaries eliminated ,394, Appropriated under rulings of Interstate Commerce Commission and Public Service Commission of Pennsylvania 69, Appropriated-Sinking fund reserves , Funded debt retired through income and surplus , Profit and loss-surplus from income ,626, ,252, $50,537, ,419, $94,957,296.48

14 The Lehigh Coal and Navigation Company THE LEHIGH COAL & NAVIGATION COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED INCOME ACCOUNT FOR THE YEAR ENDED DECEMBER 31, Gross earnings $23,720, Operating expenses, including provision for workmen s compensation and uncollectable accounts ,745, Railroad rental Dividends... $2,345, ,445.OO 1,974, Interest * * , Miscellaneous , Taxes, other than Federal income and undistributed profits taxes ,422, ,959, ,934, Depreciation and depletion, , Interest ,446, General expenses , ,052, Income before provision for Federal income and undistributed profits taxes i... $881, Provision for Federal income tax a , , Provision for Federal undistributed profits taxes , , Net loss apportioned to minority interests , Net income of The Lehigh Coal & Navigation Company and subsidiaries $651,464.69

15 1936 The Lehigh Coal and Navigation Company 17 THE LEHIGH COAL & NAVIGATION COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED PROFIT AND Loss ACCOUNT-SURPLUS FROM INCOME FOR THE YEAR ENDED DECEMBER 31, Balance, January 1, $10,314, Net income for the year ended December 31, 1936, as annexed.. 651, $10,966, Sundry adjustments, net $215, Dividends paid , ,160, ,376, $9,589, Adjustment for minority interests , Balance, December 31, $9,626, =

16 THE LEHIGH COAL & NAVIGATION COMPANY STATEMENT OF FUNDED DEBT, DECEMBER 31, Interest Dates of Maturity Rates Payable A cc;?-eedy~~gzg Principal Funding and Improvement Fifty-Year Gold Bonds: Series A, Coupon Jul 1 4 pet. Jan 1, Jul 1 Series B, Coupon Consolidated Mortgage Sinking Fund Gold Bonds : I $140, $3,500, t; 1 4 pet. Jan 1, Jul lj Series A, Coupon and Registered.., Jan 1 4% pet. Jan 1, Jul 1 879, Series C, Coupon and Registered % pet. Jan 1, Jul 1 - Total interest accrued during year $1,020, ,715,ooo.oo 5,809,OOO.OO Total funded debt outstanding in the hands of the public, December 31, $23,024, Amount of Company s securities in treasury: Consolidated Mortgage Sinking Fund Gold Bonds: SeriesA... 2,325,000.00* Series B ,390, Seriesc... 8,583,OOO.OO Total Company s securities in treasury ,298,OOO.OO Total funded debt, per general balance sheet, page $37,322, ~- *Treasury bonds agg regating $400,000 are pledged.

17 1936 The Lehigh Coal and Navigation Company 19 THE LEHIGH COAL & NAVIGATION COMPANY SECURITIES OWNED, December 31, ,000 shs. Capital stock Allentown Iron Company, par value per share $41.60 *4, *32,069 2,000 25,000 2,000,000 9,364 *135, N 700,000 *28,372 *7,000 cc 500 2,475 *2,600 Capital stock Allentown Terminal Railroad Company, par value per share $50 Capital stock Blue Ridge Real Estate Company (10 pet. paid), par value per share $50 Capital stock Delaware Division Canal Company of Pennsylvania, par value per share $50 Capital stock Glen Alden Coal Company, no par value Capital stock Greenwood Corporation, no par value Capital stock Lehigh Navigation Coal Company, no par value Capital stock Lehigh & Hudson River Railway Company, par value per share $100 Capital stock Lehigh & New England Railroad Company, par value per share $50 Capital stock Lehigh & Wilkes-Barre Coal Company of New Jersey, no par value Capital stock Monroe Water Supply Company (10 pet. paid), par value per share $50 Ca;z&& stock National Power & Light Company common, no par Capital stock Nesquehoning Valley Railroad Company, par value per share $50 Capital stock Panther Valley Water Company, par value per share $100 Capital stock Schuylkill Water Company (10 pet. paid), par value per share $100 Cai$al stock Summit Hill Water Company, par value per share Cal:?1 stock Tresckow Railroad Company, par value per share *10,000 Capital stock Wilkes-Barre & Scranton Railway Company, par value per share $50 *$399,000 Par value Panther Valley Water Company General Mortgage Sinking Fund 6 pet. Gold Bonds, due 1943 Mortgages and miscellaneous securities Book value of the above j&37,610, * Pledged, with the exception of qualifying shares, under the mortgages of The Lehigh Coal & Navigation Company.

18 1930 Lehigh Navigation Coal Company 21. ANNUAL REPORT OF LEHIGH NAVIGATION COAL COMPANY The results of the operations of the Lehigh Navigation Coal Company for the year 1936, after deduction of charges for taxes, depletion and depreciation, show a net loss of $759,530.80, as compared with a net loss of $1,543, in the previous year. The Balance Sheet as at December 31, 1936, and the related Income and Deficit Accounts of the Lehigh Navigation Coal Company will be found on pages 26 and 27. These statements have been certified as correct by Messrs. Lybrand, Ross Bros. & Montgomery, Accountants and Auditors, as shown by their certificate on page 25. The production of commercial anthracite by the Company for the year was 2,754,647 net tons, a decrease, as compared with 1935, of 423,695 net tons, or per cent. There were sold during the year 2,769,350 net tons, a decrease of 488,318 net tons, or per cent. The production from the Company s lands by lessees was 132,548 net tons, a decrease of 3,852 net tons. The decrease in sales was caused chiefly by the competition of lower priced coal sold by other producers. This Company adhered to its published prices throughout the year and maintained these at as nearly a remunerative level as the competitive situation would permit. Another factor in reduced sales was the cessation of operations by the Company at Alliance and Cranberry Collieries during the year. While this resulted in operating economies, the local markets at these collieries were lost as well as some special markets where anthracite from other collieries of the Company for various reasons could not be substituted. Alliance Colliery was.shut down in March because of continued losses at this operation and because the outlook for the anthracite industry in the immediate future did not promise improved results. The underground workings were kept free of water until September in the hope that a responsible lessee could be obtained. Failing in this, the pumps were withdrawn from the mine and all activities discontinued,

19 Lehigh Navigation Coal Company The Company s lease of Cranberry Colliery at Hazleton expired on June 30th. It was not thought wise to renew this lease except for a very limited period, and such a lease could not be arranged with the owners. The wage agreement between the United Mine Workers of America and individual anthracite operators expired on April 1st. A new two year agreement was negotiated, effective May 7, The principal provision of this was an agreement to replace the present eight hour day in the industry with a seven hour day on May 1, The agreement also contained a provision in respect of the equalization of working time at the collieries, and provided for a complete check-off system for the collection of union dues by the companies. Labor conditions at the Company s mines in the Panther Creek Valley were about the same as in previous years. There were no general strikes except a brief one at the end of the year, but local strikes and threats of strikes were numerous. In the new agreement the officers of the United Mine Workers of America have pledged themselves to abolish illegal strikes, and while they have made efforts to do so, conditions are still far from satisfactory. The men have not yet fully grasped the fact that petty strikes are very costly to them by reason of loss of markets to other anthracite producers as well as to competing fuels. However, some progress toward a better understanding has been made. Bootleg mining of coal from the lands of the companies in the Southern Anthracite Field continued unabated in spite of all efforts that were made to induce the authorities to abolish what amounts to a state of anarchy in these areas. There is no theft of coal from the Company s lands in the Panther Creek Valley where working time is equalized between the different collieries, and the theft of coal from the reserve lands west of the Schuylkill River is not a serious matter, though it has increased since the closing down of Alliance Colliery. The sale of bootleg coal at very low prices, however, results in loss of markets to all legitimate producers. A bill has passed the Pennsylvania Legislature providing for the appointment of a commission to study this problem. It is hoped that this commission will find a solution. Appeals from tax assessments on the coal property of the Company were continued in the Carbon County Court, and reductions

20 1930 Lehigh Navigation Coal Company 23 in valuations were granted by the Court in respect of the Mauch Chunk Township and Surnmit Hill Borough properties. However, the valuations set by the Court are still, in the opinion of the Company s engineers, greater than actual market values. Appeal from the Court s decision in the Mauch Chunk Township case has been taken to the Supreme Court, and proceedings are still pending in Carbon County in respect of the decision in the Summit Hill case. The Lansford appeals have not yet been tried and are awaiting the convenience of the Court. With the cessation of operations at Cranberry and Alliance Collieries, the Company s operations are now confined to the mines in the Panther Creek Valley. These properties were fully maintained throughout the year and the necessary development work carried on. The improved facilities constructed in recent years to cope with floods resulted in these collieries weathering a severe flood in March with only temporary interruptions to operations. Arrangements were made during the year, at a cost of approximately $100,000, to transport the output of Greenwood mine to Tamaqua and to prepare this coal at night in the Tamaqua Breaker which was reconstructed and improved last year. This permitted the discontinuance in December of Greenwood Breaker with a material saving in maintenance and other costs. Income for the year is still materially less than operating expenses and fixed charges, as will be seen by reference to the Income Account on page 27. Borrowings during the year to meet expenses increased $250,ooo.00 to $1,900,ooo.00. Tax payments under the Federal Social Security Act will amount to three per cent. of the Company s payrolls in 1937, and these, under the terms of the Act, will increase in subsequent years. The seven hour day, effective May 1, 1937, will also undoubtedly add to costs. In addition, legislation providing for increased accident compensation and also compensation for occupational diseases has been introduced in the State Legislature. If enacted into law, these measures will greatly increase the cost of operation. A corporation under the name of Anthracite Industries, Inc., was organized on July 1st by most of the principal anthracite producers to promote the development and sale of modern anthracite burning equip-

21 Lehigh Navigation Coal Company ment. This corporation has already made material progress. The support of manufacturers and retailers has been enlisted. Several shows have been held at important centers where manufacturers have exhibited modern equipment equal to the best that is in use for other fuels. When the public is fully acquainted with these developments the situation of the industry should improve,. Respectfully submitted, J. B. WARRINER, President.

22 1930 Lehigh Navigation Coal Company 25 LYBRAND, ROSS BROS. & MONTGOMERY Accountants and Auditors PACKARD BUILDING PHILADELPHIA February 6, Mr. S. D. Warriner, Chairman of Board of Directors, Lehigh Navigation Coal Co., Philadelphia. We have made an examination of the balance sheet of L EHIGH N AVIGATION C OAL Co. as at December 31, 1936, and of the related statements of income and deficit for the year In connection therewith, we examined or tested accounting records of the Company and other supporting evidence and obtained information and explanations from officers and employees of the Company. We also made a general review of the accounting methods and of the operating and income accounts for the year, but we did not make a detailed audit of the transactions. In our opinion, based upon such examination, the accompanying balance sheet and related statements of income and deficit fairly present in accordance with accepted principles of accounting consistently maintained by the Company during the year under review its position at December 31, 1936, and the results of its operations for the year ended that date. LYBFUND, Ross B ROS. & MONTGOMERY

23 Lehigh Navigation Coal Company LEHIGH NAVIGATION COAL CO. BALANCE SHEET, DECEMBER 31, ASSETS : Coal lands, mining and marketing property... $28,689, * INVESTMENTS : Capital stock of and advances to wholly owned subsidiary.... $448, Other... 20, , WORKING ASSETS: Cash , Loans receivable, customers , Loans receivable, afhliated companies , Loans receivable, miscellaneous Customers accounts, less reserve.... 1,828, Sundry debtors , Coal stock , Materials and supplies , Accounts receivable, Navicoal Corporation (Subsidiary)... 42, ,317, SUSPENDED DEBIT ACCOUNTS , $34,82 1, LIABILITIES : WORKING LIABILITIES: Audited vouchers and pay rolls... $700, Account payable, affiliated company... 1,900, Sundry creditors... 14, Accruedtaxes , $2,846, SUSPENDED CREDIT ACCOUNTS , RESERVE ACCOUNTS: Depletion , Depreciation... 8,150, Workmen s compensation insurance reserve , CAPITAL: Capital stock, 2,000,bOO shares, without par value. 23,500,OOO.OO Capital surplus , ,842, ,675, Deficit since January 1, 1936, as annexed , ,926, $34,821, * This property is pledged under the bond issues of The Lehigh Coal and Navigation Co.

24 1930 Lehigh Navigation Coal Company 27 LEHIGH NAVIGATION COAL CO. INCOME ACCOUNT FOR THE YEAR ENDED DECEMBER 31, Coal: Revenue (including sales to affiliated companies) $14,289, Expenses $13,572, Property taxes , Depletion , Depreciation , ~ 14,822, Loss before general expenses and fixed charges General expenses and fixed charges: General administrative expenses , General taxes ,500.OO Sinking fund assumed in purchase of property from prior owners , Interest expense s , $533, , Loss for the year ended December 31, 1936, carried to deficit account $759, LEHIGH NAVIGATION COAL CO. DEFICIT ACCOUNT FOR THE YEAR ENDED DECEMBER 31, Loss for the year ended December 31, 1936, as annexed... Sundry adjustments $759, ,432.OO Deficit, December 31, $749,098.80

25 1936 Lehigh Navigatiovt Coal Company 27 LEHIGH NAVIGATION COAL CO. INCOME ACCOUNT FOR THE YEAR ENDED DECEMBER 31, Coal: Revenue (including sales to affiliated companies).... $14,289, Expenses..... $13,572, Property taxes , Depletion , Depreciation , ,822, Loss before general expenses and fixed charges... General expenses and fixed charges: General administrative expenses , General taxes ,500.OO Sinking fund assumed in purchase of property from prior owners... 67, Interest expense , $533, , Loss for the year ended December 31, 1936, carried to deficit account $759, LEHIGH NAVIGATION COAL CO. DEFICIT ACCOUNT FOR THE YEAR ENDED DECEMBER 31, Loss for the year ended December 31, 1936, as annexed... Sundry adjustments... $759, ,432.OO Deficit, December 31, $749,098.80

26 1936 Lehigh and New England Railroad Company 29 ANNUAL REPORT OF LEHIGH AND NEW ENGLAND RAILROAD COMPANY The operations of the Lehigh and New England Railroad Company resulted in a net income of $ for the year The Consolidated Balance Sheet and the Statements of Income and Profit and Loss of this Company as at December 31, 1936, together with Certificate of Messrs. Haskins & Sells, Certified Public Accountants, will be found on pages 33 to 38. The following statement shows the Revenue Freight Traffic carried during the year 1936 as compared with 1935: Net Tons Net Tons Net Tons Anthracite Coal ,940,264 2,848,602 Increase 91,662 Bituminous Coal ,562,176 1,414,Oll Increase 148,165 Cement , ,314, ,804 Increase 418,433 Miscellaneous , ,7 12 Increase 123,047 Total..... : ,570,436 $789,129 Increase 781,307 em The Net Revenue from Railway Operations increased $189, but the Net Income decreased $ , which is largely accounted for by the increase of $143, in Railway Tax Accruals, due to increased Federal and State Income Taxes, Federal Excise Tax on Employees Compensation, and Pennsylvania Tax for Unemployment Insurance, and also by ths falling off of $51, in Hire of Freight Cars-Credit Balance, due principally to the failure of the Company s own cars to be returned by foreign lines as a result of the operation of the Average Per Diem Plan applicable to box cars, as established by the Association of American Railroads. Bonds issued under the General Mortgage of the Company, dated April 1, 1935, to the amount of $42, were retired during the year under the sinking fund provisions of the Mortgage, leaving $6,358, of these bonds outstanding in the hands of the public. Financial conditions being favorable for the refinancing of Lehigh and New England Equipment Trust, Series H, 4% Certificates, issued under agreement and lease dated April 17, 1934, the Company called for redemption on November 1, 1936, at par and accrued dividends in accordance with the terms of the agreement, $1,000, of these

27 Lehigh and New England Railroad Company certificates, the total amount outstanding, and the Trustee delivered to the Company a duly executed bill of sale for the equipment included in that trust. The funds required for such redemption were provided by the issue, with the approval of the Interstate Commerce Commission, of $1,000, Serial Notes, Issue of 1936, dated September 1, 1936, which were sold at par and accrued interest, in the amounts, bearing interest, and maturing as follows : Interest Per Annum Maturity $145,000 94% September 1, ,000 l%% 1, ,000 (6 l%% 1, ,000 U 294% 1,194o 140,000 (6 254% 1,194l 140,000 (6 2?4% 1, ,000 u 3% 1, 1943 To secure the said notes, the Company, under date of September 1, 1936, executed and delivered an indenture to The Pennsylvania Company for Insurances on Lives and Granting Annuities, Trustee, The refunding will result in a material saving in interest charges. With the approval of the Interstate Commerce Commission, $410, Lehigh and New England Equipment Trust Certificates, Series J, dated September 15, 1936, were issued by The Pennsylvania Company for Insurances on Lives and Granting Annuities, Trustee under equipment trust agreement and lease created for the acquisition of 250 steel hopper cars, 100,000 pounds capacity. The certificates are guaranteed, principal and interest, by the Lehigh and New England Railroad Company. They mature in instalments of $27, on September 15 in each year from 1937 to 1950, inclusive, and $32, on September 15, 1951, and the dividend rate thereon is 2gyo per annum. The entire issue was offered by public advertisement and sold to the highest bidder at These cars were purchased in order to enable the Railroad Company properly to handle its business and to replace old equipment that is being retired, and so furnish adequate and satisfactory transportation to the public. One switching locomotive, weighing 183,900 pounds, was purchased and received during the year.

28 1936 Lehigh and New England Railroad Company Equipment retired during the year consisted of 116 steel hopper cars and 17 box cars. The spur track to the Maryd Colliery was removed on account of the cessation of the operation of that Colliery. With the approval of the Interstate Commerce Commission, the East Bangor Branch, extending from Quarry Junction to Bangor, Pa., a distance of approximately three and one-quarter miles, was retired. With these exceptions, the property and equipment of the Company were fully maintained. Respectfully submitted, ROLLIN H. WILBUR, Vice-President and General Manager.

29 1936 Lehigh and New ENgland Railroad Company 33 HASKINS & SELLS CERTIFIED PUBLIC ACCOUNTANTS 15 BROAD STREET NEW YORK ACCOUNTANTS CERTIFICATE Lehigh and New England Railroad Company: We have made an examination of the consolidated balance sheet of Lehigh and New England Railroad Company and its subsidiaries, Campbell Hall Connecting Railroad Company and Pochuck Railroad Company, as of December 31, 1936, and of the statements of income and profit and loss of the Lehigh and New England Railroad Company for the year In connection therewith, we examined or tested accounting records of the companies (which consistently have been kept in accordance with the classification of accounts prescribed by the Interstate Commerce Commission) and other supporting evidence. Such examination included the verification, by inspection or confirmation of depositaries or trustees, of the cash and securities owned at December 31, We also made a general review of the operating and income accounts for the year. In our opinion, based upon such examination and taking investments in affiliated and other companies at the values stated, the accompanying consolidated balance sheet and statements of income and profit and loss of Lehigh and New England Railroad Company fairly present the consolidated financial condition at December 31, 1936, and the results of operations for the year ended that date. HASKINS & SELLS N EW Y ORK, January 27, 1937.

30 Lehigh and New Eytgland Railroad Company ASSETS INVESTMENTS: Road and equipment: Road $14,766, Equipment ,746, General expenditures , LEHIGH AND NEW ENGL AND SUBSIDIA CONSOLIDATED GENERAL BALAN Total road and equipment $21,759, Sinking funds-general Mortgage Bonds Miscellaneous physical property Investments in affiliated companies: 36, Stocks... $ Advances ,841.Ol Total investments in affiliated companies. Other investments: Stocks... $5, Advances , ,941.Ol CURRENT ASSETS : Total other investments , Totalinvestments..... Cash... Special deposits.... $7;; ;;36.;$ Traffic and car-service balances receivable :541:93 Net balances due from agents and conductors... 18, Miscellaneous accounts receivable , Material and supplies , Interest and dividends receivable Other current assets $21,961, Total current assets DEFERRED ASSETS: Working fund advances $3, Denosit-State Industrial Commission. New?ork... 20, Other deferred assets... 34, Total deferred assets... UNADJUSTED DEBITS : Insurance premiums paid in advance.... $2, Discount on funded debt , Other unadjusted debits... 66, ,480, , Total unadjusted debits , Total $23,701,017.90

31 1936 Lehigh and New England Railroad Company 3.5 AND RAILROAD COMPANY RY COMPANIES CE SHEET, DECEMBER 31, 1936 LIABILITIES CAPITAL STOCK: Lehigh and New England Railroad Company... $6,800, Campbell Hall Connecting Railroad Company- Minority interest , Total capital stock FUNDED DEBT UNMATURED: Mortgage bonds Equipment trust obligations Serial Notes, issue of $7,358, ,192,OOO.OO 1,000, Total funded debt unmatured... CURRENT LIABILITIES : Traffic and car-service balances payable.... $192, Audited vouchers and wages payable , Miscellaneous accounts payable... 63, Interest matured unpaid... 25,775.oo Unmatured interest accrued , Other current liabilities... 7, Total current liabilities DEFERRED LIABILITIES -OTHER UNADJUSTED CREDITS : Tax liability Premium on funded debt Insurance and casualty reserves Accrued depreciation-equipment Other unadjusted credits $262, , , ,962, , Total unadjusted credits CORPORATE SURPLUS: Additions to property through income and surplus, Funded debt retired through income and surplus. Sinking fund reserves Capital Surplus Profit and loss $69, , , *566, ,645, $6,803, ,550,OOO.OO 573, , ,390, Total corporate surplus ,365, Total $23,701, NOTES : *Represents excess of par value of securities of subsidiary companies over the value carried on the books of the Lehigh and New England Railroad Company. No provision, other than in corporate surplus, is made in the above Consolidated General Balance Sheet for $39, (representing 10% of net income for the year ended December 31, 1936) to be paid into the general mortgage sinking fund on March 1, 1937.