Document YGrYabdEkeJ3MknabD5JgmE50

Saint Joe Annual Report ~ 1977 America's Corporate Foundation; 1977; ProQuest Historical Annual Reports pg. 0_1 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. : . * . - . ^ --1 C* . " ' ' ~ . ' -,*V. % 'cdmpanles^n'd wjirset'tiie.prace^ ^ ` oper^ionsJ'pUtfop'jfs-and pHiI'osjpph^wili set th'e'tone f9^'SjIUoe''iexpXnsion.' :, m'thefujure.''''-' r^r.-'r? &?>;v - `rJr-'V!..._ . -. - .*:* " '*. -! \ i -v *-i.-; ''Y.- .' -; YY`",'r}\V?V" * '"-. '...' 1 ; "-ki ' - . " s , wfm IV/, > * fct \v-. V/ * \ / %f -, \ . * I FINANCIAL HIGHLIGHTS 1973 1974 19751976 1977 Earnings Per Share 1977 Net sales $791,280,000 Nonrecurring items $ 33,723,000 Income taxes $ 42,786,000 Net income $ 67,757,000 Dividends $ 28,687,000 Net income per share $3.03 Dividends per share ; $1.30 Shares of common stock outstanding December 31 22,357,520 Number of shareholders 20,071 Shareholders' equity $469,181,000 Shareholders' equity per share * 1976 Is reslated lor pooling-of-interests. $20.99 1976* % Change $791,408,000 -- ---- $ 39,472,000 +8.4 $ 71,894,000 -5.8 $ 26,594,000 +7.9 $3.23 -6.2 $1.2772 +2.0 22,290,642 19,851 $428,927,000 $19.24 +0.3 +1.1 +9.4 +9.1 1973 1974 1975 19761977 Funds Provided From Operations (millions) 1973 1974 1975 19761977 TO THE SHAREHOLDERS During 1977, St. Joe completed the down by 24%, or 660 per share, com decentralization of its major operations pared to 870 in the fourth quarter of into four profit centers--lead, zinc, 1976. Fourth quarter results included coal and oil and gas. In this report a 60 per share of a non-recurring nature, number of St. Joe's top managers dis consisting of gains from termination of cuss, in their own words, their jobs and the iron ore joint venture with Bethle the challenges and opportunities they hem Steel Corporation, offset in part by see ahead. Below, John C. Duncan, a write-down of certain Canadian min Chairman and Chief Executive Officer, eral properties. These special items and D. Broward Craig, President, give caused the tax rate for the fourth quar the overview. ter and the year to rise to 46% and 39%, respectively. The coal strike and 1977 results reduced prices in the zinc industry Craig; St. Joe's 1977 results, as shown were the primary factors adversely in the financial highlights table, were affecting this quarter. not as good as those of 1976. Sales For the year as well, the big prob were almost identical at $791.3 million, lems were zinc and coal. In the zinc but net income per share dropped 5.8%, market a combination of slow industrial despite the inclusion of roughly 810 a demand and a flood of imports drove share from non-recurring items, such prices down some 60 a pound dur as the sale of 80% of a coal property to ing the year. In coal, it was weather, Austrian interests and the termination labor and demand--freeze-ups in the of our Meramec iron ore joint venture winter, floods in the spring, wildcat with Bethlehem Steel. strikes In the summer, tne United Mine- In the fourth quarter, earnings fol workers' strike in December and a tail- lowed the trend for thp year and were off in steelmaking. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Fortunately the lead business, bol stered by strong demand for batteries, ran at record levels. And our oil and gas business, though still relatively small, continues to have good potential. Reorganization Duncan: One of the most important events of 1977 was the decentralization of our lead and zinc businesses. Form erly, our mining operations, both lead and zinc, were under one manager and our smelting operations, both lead and zinc, were under another--and the overall profit and loss responsibil ity didn't really come together until it reached the President's desk. Now we have two separate companies, St. Joe Lead Company, headquartered in St. Louis, and St. Joe Zinc Company, headquartered in Pittsburgh, each headed by an outstanding young man. A great problem of the mining indus try has been the failure to develop profit-and-loss-oriented top manage ment. Now we have presidents for each of our industries. And I expect them to bring in the other young members of their teams, so they, too, will learn to see their business in profit and loss terms. Following the acquisition of Coquina Oil Corporation of Midland, Texas, last March, we have consolidated our domestic oil and gas operations under Coquina's management. In a move that strengthens our cor porate office, Broward Craig, who had been Executive Vice President, was named President last May and I be came Chairman. Given our rate of growth, size and future plans, St. Joe really needs at least two experienced executives with appropriate titles and authority to deal with a widening range of complex business matters. With the new decentralization, Broward and I have more time to look hard at the long-term direction of the company. 2 In addition, there's an awful lot of work to do in Washington. We're also more involved with shareholders, with the analysts and with the investment community generally. At the same time, we still have to be assured that everything is being run well. This involves periodic visits to each operating unit. We must know our people, and make sure that the opera tions are well-managed. I don't think the top management of a company, at least one our size, can delegate this responsibility. , Financial strength; internal development Craig: St. Joe's balance sheet is very strong, and that's the main reason we have high bond ratings. Our long-term debt-to-equity ratio is 15% and our total debt-to-equity ratio is 25%. We have a relatively small amount of long term debt, almost half of which consists of tax-free pollution control revenue bonds. We have significant additional general borrowing power, as well as the ability to do special project financing. I'm enthusiastic over the fact that we now have some building blocks with which to make significant strides. For example, our coal business can really get much biggeh Our oil and gas base is tiny and has been a little slow blos soming, but it has to be considered a growth area. Our future in metals depends very much on finding and developing new ore bodies through exploration and on developing new or improved products using the metals we produce. In 1978, we will continue the high level of exploration of recent years, looking in the U.S. and in selected overseas areas for such min erals as uranium, copper, gold, lead, zinc, silver and some of the industrial minerals. The successes of recent years, such as the Australian Woodlawn zinc-copper-lead-silver deposit, the Pachon copper deposit in Argen tina and the possible El Indio goldcopper-silver ore body in Chile, need to be repeated to make St. Joe an in creasingly significant and profitable mining entity, In product research and develop ment, St, Joe was the leading devel oper of nonantimonial lead alloy and strip for battery grids, resulting in the maintenance-free lead-acid storage battery. The construction of a commer cial lead strip manufacturing plant at our lead smelter is an outgrowth of this development. We are actively involved in expanding zinc markets through and with the aid of our research and de velopment group, including one-sided galvanizing, super-plastic zinc prod ucts and the now-operational zinc dust plant. In addition, our subsidiary, Energy Research Corporation, has developed silver-zinc propulsion battery systems for U.S. Navy underwater vehicles; is working on nickel-zinc batteries for U.S. mobile missile defensive systems and for automobile propulsion; and has various fuel cell production and devel opment contracts relating to use in power plants and total energy systems. Most of ERC's contracts are with agen cies of the U.S. government, but the fruits of its research can ultimately have an impact in private industry. St. Joe strategy Duncan: As far back as 1970-71, our strategy was to take a narrowly based lead and zinc company and diversify it. Energy was an obvious area. It had a different business cycle than non-fer rous metals. We made our first acquisi tion in oil in May 1972 and in coal in January of 1974. Looking ahead, we would like to see St Joe double in sales and earnings over the next five years. Moreover, we would hope to have additional acquisitions, mergers or joint ventures. Despite current prob lems, we could conceivably get into the copper business. I hope we will find a way into precious minerals--gold, silver, diamonds. And there's always Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. the possibility that we will make a major change in the direction of the company. We could, for example, get into renew able resources, such as forest products. Today, the natural resources indus try faces innumerable problems wrich result from attacks by every facet of government: environmental expendi tures, potential price controls, possible loss of the depletion allowance, vastly increased paperwork and related ex pense, etc. It seems as if everything the government does transfers income away from the basic producer and puts it in the hands of the consumer. Companies that are in restaurants or retailing don't have the same regula tion problems, don't have the same taxation problems and do have in creasingly affluent customers buying from them. In the end, our society still depends on the basic industries to sustain our extraordinary standard of living; the fact is that basic industries are not generating the capital neces sary to modernize their plants today. Capital program Craig: We spent about $146 million in 1977 and plan to spend $175 million in 1978. The scope of our program is pre sented on pages 4 and 5. With minor exceptions, the program is on target. The big areas of expenditure for both 1977 and 1978 are coal and petroleum. The domestic metals operations will not require much capital other than for complying with increasingly stringent and elusive environmental control standards; of course, our active work in developing new technology for con verting ore to metal may ultimately re sult in putting new capital into zinc and lead. Overseas, on the other hand, metals development projects are active in Australia, Argentina and Chile. In 1978 the Woodlawn project in Australia is scheduled to begin produc tion. The $88 million mine-mill facility is a three-way joint venture with Phelps Dodge Corporation and Australian Mining & Smelting Ltd. The highly min Jnnn C Duncan, Chairman and Chiel Executive Olllcet D. Broward Craig, President eralized deposit is estimated to contain over 10 million tons of ore, averaging 9.1 % zinc, 3.5% lead, 1.8% copper and 1.8 ounces of silver per ton. In 1980 we should start getting sig nificant cash flow from the Buchan oil field in the North Sea, where St. Joe and CanDel together have a 28% inter est. In that year, we should also get the benefit of meaningful production from the Marrowbone coal project in West Virginia. Dividend policy Duncan: As I recall,- the day I became president in May 1971, the directors cut the dividend That was because St. Joe followed a typical mining dividend policy--when you make big profits, you pay them out. If you don't make money, you cut the dividend. It was a proper policy for a company that saw itself primarily as a mining company. But, now we look at St. Joe as a long-term basic resources company. As such we have many uses for our capital. Our approach to dividends is to try to establish a rate that is consistent with what we expect our long-term earning pattern to be. We hope to improve the dividend little by little over the years. We do not, however,`expect to pay out a high percentage of our earnings as long as we can continue to find good projects to give us a high re turn for our shareholders. ;v.; ; Future outlook The business community is accused by many of displaying a lack of confidence in the future, witness the poor perform ance in the stock market and the rela tively low level of capital spending. We do not share this apparent lack of con fidence in the future of the U.S. econo my, Therefore, our capital investment program for 1978 will be a record $175 million. This highlights our feeling that the direction the company is following, i.e., developing, principally, additional energy resources and, secondly, nonferrous markets, is the correct one for the shareholders. In the short run, 1978 could be a diffi cult year, requiring the company to borrow the capital required to support the expanded investment program. The extended coal strike will not only affect our earnings, but, if it continues,"it may affect the ability of our customers to operate their facilities and, in turn, to buy our other products. Also there is no immediate relief in sight for the zinc industry. On the other hand, we expect an excellent year for lead in 1978 and sharply higher earnings from our growing oil and gas business. John C. Duncan Chairman and Chief Executive Officer D. Broward Craig President February 17,1978 3 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. ; - * TIMETABLE OF MAJOR PROJECTS AND DEVELOPMENTS ' ,. ,A pair of charts on page IS '.hows how $t. Joe has made capilal\ expenditures during too past (odr years and projects how it will'make additional bxpondituros during tho next four years '' 1977 1978 Included here is a project timetable which ` summarizes the Corporation's presqnt plans for certain projects over (ho next four years. It shows the many steps involved In bringing a project trom tho prospect stage to produc tion. Each succeeding stepls based on the Oil and Gas Coquina Oil Corporation was Oil and Gas Development of North Gin Field, Minerals Delineation of reserves at-Carthage/ acquired nnr| assumed U S, operations o( Texas and Giasslnnd Field, Wyoming to con Tennessee zinc property scheduled for com St. Joo Petroleum .Two daj33lopmcnt wolls tinue. Coquina lo |5a'rlicipate in drilling 75 pletion, and if sufficient reserves are found, ` completed on Greens Crock gas field in prospects Three wells lo go on production in additional expenditures will be made. Zinc Mississippi One development well completed Greens'Creek Field, M'ssissippi. South Tim dust plant goes on-stream and capacity is . and one well drilling in South Timbalier field balier, offshore Louisiana, goes Into produc raised lo 4,000 TPY by year-end. 30,000 TPY offshore.Louisiana. Two dovo.opment wells ` tion late In year, Development and exploratory lead strip mill construction begins to meet' ' and one exploalory well completed offshore * programs'to continue in Kansas, Guff of demand for maintenance-free batteries. Texas. Farm-out arrangement consummated Mexico, Texas, Wyoming and other areas of Plant located at Herculaneum, Missouri.1 on Knnsns acreage; 65-wcl! program initiated. the U.S. , Anticipated issuance of mining promotion FiVc development wells completed on'Tcxas CanDel to participate^In 60 wells in Atbarja law in Argentina leads to formal negotiations North Gtn Field:and 10 wells producing. Com- nnd British Columbia involving development for investment conditions on Pnchon project. p'nlion o( 'l development wells in Foster Con of existing.properties and exploration of ( Financing plan scheduled to bo completed. ger Field in Texas and 27 wells producing - deeper basin area of Central Alberta Water- Elind'to gold property further delineated. Lease acreage up to over 60,000 gross acres Hood facilities at Ccssford expected to be Extensive sampling, assaying and bench mill CanDol pmticipated m dulling 84 wells in completed in second half of year, with sub testing to 'develop data for a feasibility study. Alberta nm( Drrhsn Columbia Farm-in agree stantial increases in production volumes, Metallurgical resoarch continues on process- , ment consummated lo uarn 25% interest in ` Four development wells to be drilled in ' ing of high-arsenic ore. Preliminary explora !77,000 rieros in Corilrul Alberta. . U.K. Buchan Field development began with Buchan Fiolcrpliis one satellite well in flank ' area of field Contract? awarded for sub-sea tion continues on northern extension of El'Indio. . . lomplnlc,posilionod and first of 5 dovolopmont wolls drilling Exploration drilling on completion facility Exploratory wells com pleted on Block 21/6. Another well to be Extensive bulk-sampling pro'gram continues on Aito Co(ta diamond prospect in Brazil, adjacent Block ?. I/G begun . Con! Capacity raised 500,000 tons to 12 mil driilcd.on Block 21/2 (St, Joe interest 4.5%) lo appraise discovery made on Block in 1975, Woodlawn scheduled for completion by,. mid-year, with mining of 3,000 Ions of ore per. lion tons. Sprouse Crook plant put into pro In Netherlands sector North Sea, gas ap .day to produce zinc, copper, silver and lead / duction in September 80% of Virginia Crows praisal drilling on Block P/6 will continue. concentrates. San Juan gold project In Calj- complex sold. Initial production from Sun * Exploration drilling pja'nned on Block Q/7 tfornia delayed;awaitlne environment-' " ' Coal Company in Colorado Denver office ` following separate structure gas discovery ^ , r.,n[aflrsncas:^.iJ' - opens and begins evaluations,' . * made in 1973. - * ./fJ./Vj? Minerals Exploratory shaft began at Carthago, Coal !,2 million tons added to enquiroi''' "f Tennosseo zinc proporty. 2,000 TPY unit ol Ity, bringing total lo 13,2 million _ xinc dust plant at Monaco, Pennsylvania completed. ^ ' . Continued construction ol permanent road creasos.slem from Sprouse Creek,.SuVtjtS'ff and Virginia Crows (20% owned), Marrow^, bone preparation plant construction corn-': . In Piirhon copper ere body in Argentina. mences, with small raw coaf production from'-, >c Citicorp nnd Morgan GuarantyTctalnbd to . mines- 1 proporo-project financing plan. Forolgn in- . - ' voslmont contract signed with Chilean Gov ernment for potential Investment In El Indio copper/gold/sllvor properly in the'Andes, ,ancl Position negotiated and pro- iiminarVdrilling and sampling completed. L\. Secured exploration concessionsJor,*allif- vial.diamond prospect (Alto Colte) In Brazil s* Mh<nnnnt!nlnrl Aiirlnnn rlnhls" Inlllnt hulk Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. assumptions thatekplofatlon and devolopmoot activities will continue to yield,positive results and that there will be no materially . adverse change In other matters affecting the viability of the project. Thus, shareholders] p, ; should keep In mind that the projects de-. scriped may be modified, delayed, or oven terminated as a result of adverse geological or mining results or chhnges in prices, costs, operating conditions or governmental regutations. Despito this degree of uncertainty, we believe that the inclusion of a step by step description of these projects will give share holders a greater appreciation of the Corpo ration's activities and Its'present'plahs for ffiese projects. , ` .% , 1979 . : ' 1980 ' , : 1981' : - ' Oil and Gas Cjbqulpa continues exploration , 011 and Gas Coquina continues domestic and development program in U.S.. oil and gas exploration and development' .'! ' CanDel to Increase participation in'cxplora program. ,, .. lory `and development programs In Alberta. . CanDorcontinues tp expand Canadian pro- and British Columbia. Vt/ater-lloo'd facilities '' gram with production anticipated at Rainbow; in production-at Cessford. Gas processing . Redcliffo and Deep Basin areas of central facilities should bp completed in newly con Alberta.- , ,' traded areas, ,` f ....... Buchan Field in full production vvith St. Joo Development-well'sJo be completed In ..........--CanDel share estimated at 13.400 barrols Buchan Field. Main production installations . ' per day. Development drilling on Blocks 21/2 to "bo madbln August, and field brought ori- and P/6 continues. Appraisal drilling con- stream late in the year. Appraisal drilling tinues,on Block Q/7. ` .. . continues on Blocks 21/2, P/6 and Q/7. , . Coal Plans ca>l fon 1.7 million tons of add!- Coal Additional 600,000 tons of capacity frcfm tional, production capacity, bringing total an- Marrowbone, Sun Coal, Tug River and - , dual capacity .to 15.5 million ton3. Major . . ' Sprouse Creek, lo be added,'bringing total .= additions to capacity from'oxpanslon of capacity to 13.Q million tons per year. Mar Marrowbone, Omar, Sun Coal, Robinson- rowbone preparation plant scheduled for Phillips, Sprouse Creek and Tennessee Con ' completion mid-year, to have ultimate capac solidated Coat. Steam and metallurgical coal ity of 4 million-tons per year in mid-1980s., - balance expected to remain constant at ' Mmbrals-lf conditions warrant, work on set- 58%-42%: . . , . . .j .. ond shaft; surface plants and mill commences Minerals.Underground development and sur- ^i'QaHtiaigi^ztno pro)P!gfly.''..-.ri>"'- . . .. . . f`.ace;cpnstructlon.t'o co.r.t.t.i.n..u..o...a..tCarlhage . V:rals8d.i$ 6,000. tons per,vzlhelprdjkqt;?--^ ^; : if HamtorifMunrVahfe-- vvb I'**' ^u v.'A;V`irAr\\ fMlnli'ctarte of Marniilon Oil and Gas Both Coquina and CanDel con tinue* expanded exploratory and development programs. Buchan Field should achieve full yearly production capability. Development drilling on Block 21/2 continues, with com-, . pletion expected in 1982. Block P/6 gas ' development drilling continues. Appraisal. drilling continues on Blpck Q/7., CoarCool capacity at Marrowbone is raised 1.1 million tons, bonginq' totnl annual capnc- i'ty to 16.6 million Ions. This is an increase of 38% ovor 1977 capacity levels - ' ; Minerals Completion scheduler! for Carthago zinc project with capacity estimated at ` 50,000-75,000 ions ol zinc in concentrates , ` per year' * , ,. . , ' " Completion ol engineering design and mi- tintidn ol construction of Pachon'mmo/mill/ Smelter complex. ' - - ., El Indio mine/mlll construction* continues . .witirimtial production expected by year-end. .Wry-'-: Reproduced with permission of the copyright owner. Further reproduction prohibited without permission COAL IN 1977 Coal is washed at the new Sprouse Creek, West Virginia, preparation plant which came on stream during the third quarter. Operating Profit: $14.5 Sales: $430.3 (millions) E. Morgan Massey, 51, is President of A.T. Massey Coal Company, Inc. He joined the firm In 1948 and has spent the entire period working in all iacets oi the operation. 1 The A.T. Massey Coal Company encompasses all of St. Joe's coal activities. Massey is a sales company--its subsidiaries and affiliates mine coal primarily in West Virginia, Kentucky, Tennessee and Colorado. Massey also functions as a sales agent for other producers and is a large exporter from the United States. In 1977, Massey pro duced 8.9 million tons of coal, compared with 10.5 million tons in 1976. Massey brokered an addi tional 4.6 million tons in 1977, compared with 5.0 million tons in 1976. Massey's sales were $430.3 million for the year, compared with $456.0 million in 1976. Operating profit amounted to $14,5 million, down from $44.5 million. In addition $25.7 million of 1977's pre-tax income is the result of selling an 80% interest in the Virginia Crews property to a subsidiary of Voest-Alpine, A.G., an Austrian steel group; Results were down Production, sales and oper ating profits were down in 1977, below our projec tions, for a number of reasons. A freezeup in Janu ary and February brought mining operations to a standstill for almost 20 days. Flooding in April closed three mines, resulting in 300,000 tons of lost production that month and 700,000 for the bal ance of 1977. Summer wildcat strikes in West Vir ginia lasted a total of 11 weeks. Finally, we were affected by the nationwide coal strike forthree weeks in December. Che bright spot was the per formance of Tennessee Consolidated Coal Com pany. It had an excellent year, with sales of over 900,000 tons of coal, most of which was sold to Japan under long-term contract. Higher production anticipated In i 978, despite the United Mine Workers strike, we expect to pro duce significantly more coal tonnage, Earnings should improve in the steam coal sector because we've negotiated a number of new contracts with electric utilities that have built-in escalation clauses. But the market for metallurgical coal is in bad shape, and we cannot forecast any substan tial improvement in profitability for our metallurgi cal mines. world we are facing tremendously increased costs from operating restrictions. The predicted growth just hasn't occurred. What has happened is that the productivity of coal mining industry has dropped during the last decade from over 20 tons per man day to about SVfe tons per man day as a result of governmental restrictions and environ mental regulation, togetherwith the union's intern al strife and resulting wildcat strike syndrome. We have contracts that assure our utility customers a permanent supply of steam coal at the lowest possible cost, but, at the same time, provide us with a virtually built-in profit. So, we are not at the mercy of the fluctuations of the spot market. Steam coal accounts for 63% of our out put, and all of it is sold under long-term contract. Careful acquisition program We have been careful to acquire only high-grade metallurgical or steam coal properties, As a result, almost 100% of our acquired properties are backed up with long-term commitments. Sale of property In 1977, we sold 80% of our Virginia Crews coal property to a subsidiary of Voest-Alpine. The United States has the highest quality metallurgical coal in the world, and many European steel concerns have either acquired or are actively seeking a position here. Voest wanted to acquire not only a coal reserve but also some mining know-how in the United States. Therefore, it retained Massey to operate the mines and sell the coal. It's possible we can make a similar arrange ment with other firms. We prefer to sell coal on contract, but if the customer is determined to own a producing U.S. mine, then we are not adverse to selling equity or joint venturing a por tion of our metallurgical reserves. Export market outlook As for the export market, most of it is metallurgical coal for the steel industry and the 1978 outlook is less than bright. However, to supplement our traditional market areas of Asia and South America, we are looking to a number of countries where there is potential. Currently, we're selling to some 14 different countries. Forces affecting industry President Carter may want to double coal production, but in the real Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. LEAD AND IRON PELLETS IN 1977 Bubbles formed in a flotation cell at the Viburnum, Missouri, concentrating mill carry lead particles to the surlace for recovery. Lead Operating Profit: $66,0 Sales: $147,3 (millions) Iron Pellets Operating Profit: Sales: $25.9 (millions) B John A. Wright, 35, is President of St. Joe Lead Company. He was previously Vice PresidentSales for the parent corporation and joined St. Joe in 1971 from international Paper Company. St. Joe Lead Company, presently the nation's larg est lead producer, operates five mine and four mill complexes in Southeastern Missouri, and a smelt er in Herculaneum, Missouri. St, Joe Lead is also responsible for the Pea Ridge Mine, an iron mine and pelletizing complex in Sullivan, Missouri, which was shut down in December 1977. In 1977 St. Joe's mines produced 342,573 tons of lead concentrate (316,5710 tons in 1976). Lead metal produced In 1977 was 228,780 tons com pared to 222,483 tons in 1976. Sales were $147.3 million, up from $115.9 million, because of higher prices, and operating profits rose to $66.0 million from $39.5 million. : Prices benefit During 1977 we benefited from a steady increase in lead prices, from 260 per pound to 330 per pound. A number of complex variables created this extraordinary demand. The severe winter of 1976-77 used up battery inventor ies, and throughout 1977 our battery customers were replacing inventories. Also during 1977, lead inventories were reduced due td several work stoppages at other operations, resulting in record low inventories for all lead producers. In the world market, the Soviet Union, Japan and China were unusually active buyers. , ' ' I ' . : . Maintenance-free battery success An important contributor to the increased demand for lead is the success of the maintenance-free battery and its requirement for primary lead. This, combined with a cold winter, a good year for automobile sales and increased worldwide demand for lead, pro duced our best year ever. , Looking ahead to 1978, we see the battery mar ket, which takes nearly 80% of our product, operating at peak levels. We see further growth for the maintenance-free battery. For the 1978 model year, all General Motors' cars will have maintenance-free batteries and we believe that in the next several years all major automobi'e manu facturers will switch to maintenance-free systems. St. Joe pioneered the lead-calcium-tin alloy that is predominantly used in maintenance-free batteries. Our further development of precision wrought alloys enables the high speed produc tion of longer-lasting battery grids, replacing the cast grid produced that uses secondary lead. The net effect has been a doubling of our potential share of the battery segment of the lead market. We look forward to supplying a significant por tion of the demand for wrought lead alloys and as sisting the battery industry in its conversion to the maintenance-free system. As a result, we are planning the construction of a commercial wrought lead strip plant in conjunction with the needs of several customers. Tetraethyl lead market The tetraethyl lead mar ket has been slowly declining, and in 1977 ac counted for about 10% of our sales compared with 17% a few years ago. Problems and opportunities in 1978 We are proceeding as fast as possible on a new lead smelting process that will be environmentally ac ceptable and economically sound, but it is going to be expensive. We predict that in the next five years, just to keep even with environmental costs mandated by present legislation will require sig nificant capital investment. As good citizens we intend to make the environment as clean as possi ble but in line with maintaining a profitable business. Meramec terminated The Meramec joint venture was terminated at the request of our co-venturer, Bethlehem Steel Corporation. Due to steel import problems and large stockpiles of iron ore pellets, Bethlehem felt it could not utilize the pellets pro duced at Meramec. Bethlehem assumed all em ployee and benefit plan liabilities relating to the termination and will pay St. Joe $21.9 million as a termination settlement. The mine, pellet plant and equipment reverted to St. Joe, which assumed the costs of closing down the facility. We are keeping the mine and plant maintained while we determine the next step, The future Looking at St. Joe Lead Company for the future, our challenges are to find new and diversified markets for lead, solve problems of complying with environmental regulations and continue to find innovative ways to keep costs down. This will require increasing emphasis on research and development. , ; i r '.1: . . Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. ZINC IN 1977 Zinc flame from an American Process zinc oxide furnace at the St Joe smelter in Monaca, Pennsylvania, Operating Profit: $5.1 Sales: $141.1 (millions) 10 James L. Broadhead, 42, is President of St Joe Zinc Company. He has served as Vice PresidentDevelopment and Secretary and General Counsel of St. Joe Minerals Corporation. . ;/ . y St. Jos Zinc Company operates the largest zinc mine and largest zinc smelter in the United States. St. Joe's mines, in 1977, produced 166,493 tons of zinc concentrates containing 96,897 tons of metal compared with 161,647 tons of concentrates con taining 95,345 tons of metal ip 1976. The smelter at Monaca, Pennsylvania took all of the Balmat-1 Edwards output plus additional purchased feed materials and produced 175,260 tons of various grades of zinc metal and zinc oxide. Zinc sales totaled $141.1 million in 1977 ($158.4 million in 1976). Operating profit was $5.1 million ($15.9 million in 1976). Industry problems The domestic zinc industry has serious problems; shipments of U.S. produc ers have fallen more than 30% since 1973 even though consumption is nearly twice domestic capacity. The primary cause of these excessively low operating levels has been a flood of foreignproduced zinc. in recent years, the U.S. economy pas been stronger than most foreign economies and, as a consequence, foreign zinc producers have shipped their excess metal supplies to Our market place without regard to normal supply/demand relationships. In effect, they are exporting their unemployment here. These foreign producers have virtually unrestricted access to the U.S, mar ket, while American producers confront restric tions on their exports and investments abroad. Some foreign producers also enjoy subsidies, special tax arrangements and other forms of gov ernmental assistance that are not available to American zinc producers. The problems faced by U.S producers have been intensified by a decline in U.S. consumption attributable, in part, to a decrease in die-cast zinc automotive parts, low levels of industrial construc tion, more efficient galvanizing processes and in roads by competing materials. The average 1978 domestic passenger vehicle, for example, uses about 20 pounds less zinc than its 1973 counter part. profits for all domestic producers. St. Joe is espe cially affected because it is not a low cost pro ducer. Our smelter was built almost 50 years ago and employs a labor-and energy-intensive pro cess. Our current price of 3OV20 per pound of Prime Western zinc is the lowest it has been since 1973 and, without a higher price, the Zinc Com pany will almost certainly be unprofitable in 1978. Because of these adverse business conditions, we were forced in early March to schedule a substantial reduction in staff and operating personnel. St. Joe's advantages More than any other zinc producer, we are well-respected for our cus tomer-oriented approach. St. Joe is a reliable producer of high quality products to which we add a multiple of extra services. In addition, our zinc metal product mix is oriented towards galvanizing, which is the largest potential area for increased zinc usage. A comprehensive plan My major objective this year is to analyze thoroughly the industry and our role in it and to formulate a comprehensive plan of action to maximize the return on the Invested capital of St. Joe. For that purpose l am giving my staff the opportunity to take responsibility and to exercise judgment. This approach encourages new ideas and motivates people. Action taken We have taken steps to improve our situation: an overall planning group has been formed to evaluate problems and opportunities; the management structure of the smelter has been changed and a study group formed to devise methods of improving the facilities; a marketing department has been created to inform architects, engineers and designers that galvanized steel offers superior corrosion resistance at the lowest cost over the total expected life of a project; and, working through the Lead-Zinc Producers Committee, St. Joe has participated in instituting an action under the 1974 Trade Act seeking relief from excessive foreign imports. Future aims This is not a healthy industry at present, and we have our share of its problems, We assure you, however, that we are addressing our best efforts to their solution with a view to returning zinc to its former status as a profitable and important part of St. Joe. Result of problems The net effect of these condi tions has been to reduce sales volume, prices and Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission GEL AND GAS IN 1977 Exploring lor oil from a platform In Ihe Gulf of Mexico oflshore Texas. Operating Profit: $11.1 Sales: $42.2 (millions) 12 L, Chase Ritts, Jr., 57, is President of St. Joe Petroleum Corporation. Prior to joining St. Joe in 1972, Mr. Ritts, with twenty-five years in the oil and gas industry, had been president of sub sidiaries of Standard Oil of Indiana and Union Carbide Corporation. ' Pomeroy Smith, 54, is Chairman and Chief Executive Officer of Coquina Oil Corpora tion. He was a founder of the company in 1969 and has 24 years of experience in the industry. Smiley Raborn, 62, is Chairman and Chief Execu tive Officer of CanDel Oil Ltd. He has been with CanDel since its inception in 1950, and involved in the oil industry since 1932. St. Joe's oil and gas business consists of St. Joe Petroleum Corporation, operating internationally; CanDel Oil Ltd., a 94.4% owned Canadian sub sidiary; and Coquina Oil Corporation of Midland, Texas, which was acquired in March 1977. During 1977 these subsidiaries together pro duced from the U.S. and Canada an average of 5,412 barrels of oil per day and 78,Si 6,000 cubic feet of gas per day, and had total oil and gas sales of $42.2 million, up from $38.3 million in 1976. Total funds provided from operations of the group increased to $28.7 million in i977 from $23.7 million in 1976, resulting mostly from increased oil and gas prices as production vol umes remained about the same. However, operating profits' for the group declined from $15.7 million in 1976 to $11.1 mil lion in 1977. Although CanDel had a good year in 1977 with increased revenues and operating profits as well as reserve additions that offset production, recent year-end engineering studies reduced reserves significantly on St. Joe's prop erties transferred to Coquina. This, in addition to Coquina's increased administrative costs relating to its move out of drilling fund programs, resulted in charges against income that depressed the over-all group's operating profit for 1977. Reserves As a result of the downward reserve adjustments and production during the year, the group's 1977 North American oil and gas reserves stand at 18,328,709 barrels of oil and 400,771,520 mcf of gas as compared with 1976 reserves of 19,342,977 barrels of oil; 446,879,812 mcf of gas. Coquina merger With the Coquina merger in March 1977, St. Joe's oil and gas activities have achieved increased organizational strength to capitalize on opportunities in the U.S. As a result, the group's capital expenditures for 1978 are projected at $74 million, up from $48 million in 1977. This provides for a strong explora tion effort in Canada, for Coquina's plans to evaluate and develop numerous prospects in the key U.S. producing areas, and for a portion of development funds to bring our North Sea Buchan Field on production. North Sea involvement Our major stake in the international area is in the U.K. sector of the North Sea, a high-cost, difficult operating area, but also an area with large fields, high production volumes and potentially attractive profits. St. Joe and CanDel each have a 14% interest in the Buchan Field, discovered by our Transworld group in 1974. Last spring, British Petroleum acquired a 54% interest in the venture and has taken over management of the project. During 1977 work began on the subsea production facility, the second such installation in the North Sea. The first development well drilled through a sea floor template has been completed and successfully tested. When the field is in full pro duction in 1980, St. Joe and CanDel should receive about $30 million of cash flow during the first full year. In the adjoining block to the east, where St, Joe has a 4.5% working interest, appraisal drilling continues to delineate an oil discovery that could have commercial potential similar to the Buchan Field. Mr, Ritts Outlook good Although the group's 1977 finan cial results did not meet expectations, the next several years are anticipated to be increasingly profitable. Production increases in the U.S. and Canada are projected from a number of proper ties that have development potential, from new reserve discoveries, and from the North Sea, beginning late in 1979. Other active areas In the Dutch sector of the North Sea, previous gas discoveries should gen erate revenues in 1980-82. Mr. Smith 1977 as transition year 1977 was a year of tran sition for Coquina as we joined St. Joe and assumed the operation of St. Joe Petroleum (U.S.) Corporation's domestic properties. These include Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. OIL AND GAS (continued) 175 wells and more than 250,000 acres of oil and gas leases. Also in 1977, we decided to discon tinue the public exploration programs through which Coquina had been operating. The transi tion into St. Joe has gone smoothly and^Coquina's staff is happy to be part of this diversified and aggressive company. ' Concentration of efforts Coquina's management has decided to concentrate its efforts on develop-i ing high quality drilling prospects and accumulat ing acreage. Coquina's acreage inventory at the end of 1977 included about 85 prospects in T1 states, with over 600,000 acres. 1978 expectations up Although our drilling activ ity was at a low level in 1977, we expect a sub stantial increase in exploration in 1978. Coquina's staff of over 100 includes 13 geologists and geo physicists who cover most of the major explora tion provinces in the domestic United States, Leroy K. Wheelock, 52, is Vice President in charge of Latin American operations and investments. He joined St, Joe in 1965 after being with Engi neers Joint Council and C. Tennant Sons & Co. St. Joe's subsidiaries conduct extensive explor ation, development and production activities in Argentina, Chile, Peru and Brazil. Expenditures for worldwide metals exploration in 1977 came to $10,8 million, compared with $8.7 million in 1976. In 1977 St. Joe received $4.3 million from Latin American operations. St. Joe's Argentine subsi diary, Compania Minera Aguilar, S.A., produced 46,707 tons of lead/silver concentrates and 85,723 of zinc concentrates (46,582 and 89,287 respectively, in 1976). In Peru, our subsidiary, Compania Minerales Santander, Inc., produced the following tons of concentrates: zinc, 37,481; lead, 2,056; copper, 1,999 (comparable 1976 data was 44,089,3,159,2,008). Mr. Raborn 1977 record for CanDel Record results were Opportunities in Latin America There are sub achieved for CanDel in 1977, largely through im stantial opportunities for natural resource devel proved well-head prices. Production was similar opment in Latin America, and in recent years to 1976, but 1978 should prove to be an excellent there has been a shift toward more favorable ac year. We have 115 employees here in Canada, ceptance of foreign source investments. Various including over 45 with technical expertise in oil countries have established reasonable rules for and gas. r such investments, particularly Argentina and Successful drilling ratio Canpel'd drilling suc cess ratio was excellent and additions to proven Chile, where we now have interesting potential projects, Brazil also offers a favorable climate. reserves again exceeded production on a barrel Aguilar outlook good Compania Minera Aguilar equivalent basis. We participated in the drilling of operates the largest non-ferrous metal mine in 84 wells in Alberta and British Columbia. Capital Argentina. With gradual improvement in the expenditures are projected at record levels for the Argentine economic and political climate since coming year and all programs Will continue to the change in government in 1976, the operations accelerate. Included in our exploration plans is a and financial results of Aguilar have also im major search for natural gas in the promising deep proved, following a period of regulatory controls basin area of Alberta, through a farm-in agree 'and runaway inflation, Despite the current de ment to earn a 25% interest in 177,000 acres. pressed zinc market, we anticipate continued sat Canadian oil problems The problems that isfactory earnings for 1978, beleaguered the Canadian oil industry in 1974 re Santander results not improved Results from sulting from confrontation between the Federal Compania Minerales Santander have been much and Provincial governments over control of natural less satisfactory in recent years. Although the resources have abated. Some questions remain present Peruvian administration has been revising pertaining to markets for production, but we be some of the past policies which discouraged lieve they will be answered soon. The business investment, obstacles remain to a favorable clim climate for the oil industry is reasonably stable ate. Peru's grave financial crisis has made foreign here in Canada and CanDel should continue to exchange unavailable. Mine production has been prosper. below capacity for the past two years but improve ment is expected in 1978. These conditions, cou pled with depressed world zinc prices, will prob 14 ably not enable Santander to be profitable in 1978. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. CAPITAL EXPENDITURES (millions) 1974-1977 Total: $443.2 Coal: $209.0 Minerals: $80.9 Oil & Gas: $153.3 1978-1981 (projected) Total: $655.8 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 15 STATEMENTS OF CONSOLIDATED INCOME St. Joe Minerals Corporation and Consolidated Subsidiaries For the years ended December 31,1977 and 1976 1 977 Net Sales Costs and Expenses: Cost of sales Depletion, depreciation and amortization Administrative and selling Exploration Research Interest Amortization of goodwill Total Costs and Expenses $791,280 619,150 53,610 28,712 12,922 3,580 7,506 1,510 726,990 1977 vs 1976 1976 vs 1975 Increase (Decrease) 1976* (Decrease) 1975*f . . (In thousands except per share data) . . . $ (128) $791,408 S 19,042 $772,366 4,991 9,746 5,897 7,053 531 814 (42) 28,990 614,159 43,864 22,815 5,869 3,049 6,692 1,552 698,000 40,589 8,411 3,266 2,133 (231) 1,984 50 56,202 573,570 35,453 19,549 3,736 3,280 4,708 1,502 641,798 1974*f $718,592 520,245 27,527 16,201 2,320 3,149 5,236 1,599 576,277 Income From Operations Other Income: Dividends from unconsolidated subsidiaries Interest, royalties, etc. Income Before Nonrecurring Items Nonrecurring Items Income Before Income Taxes Income Taxes Net Income 64,290 (29,118) 93,408 (37,160) 130,568 142,315 4,349 8,181 76,820 33,723 110,543 42,786 $ 67,757 (3,603) (1,825) (34,546) 33,723 (823) 3,314 $ (4,137) 7,952 10,006 111,366 -- 111,366 39,472 $ 71,894 5,952 (225) 2,000 10,231 (31,433) 142,799 (6,504) 6,504 (37,937) (17,994) 149,303 57,466 $(19,943) $ 91,837 7,585 149,900 -- 149,900 53,913 $ 95,987 1973*t $410,582 321,201 19,246 11,381 2,336 1,954 4,028 1,039 361,185 49,397 4,697 5,483 59,577 -- 59,577 20,387 $ 39,190 Per Share of Common Stock: Net income Cash dividends Average Number of Shares of Common Stock Outstanding Income Taxes: A reconciliation between the statutory Federal income tax rate of 48% and the Corporation's income taxes follows: 48% of income before income taxes Statutory depletion Investment tax credits DISC State income taxes Capital gains Minimum tax Foreign operation losses where benefits cannot be currently utilized Other-net Income taxes Effective income tax rate $3.03 $1.30 22,332 $ 53,061 (13,932) (7,090) -- 3,154 (4,802) 3,921 4,158 4,316 $ 42,786 39% $3.23 ; $1.27,/2 22,257 $ 53,456 (16,848) (3,819) 3,456 3,089 (393) 1,607 682 (1,758) V $ 39,472 35% $4.14 $1.17V2 $4.33 $ .97V2 $1.79 $ .761/ 22,184 22,152 21,860 $ 71,665 (17,175) (2,953) (622) 2,867 (403) 308 $ 71,951 (16,805) (2,117) (1,798) 1,453 (329) 128 $ 28,596 (6,029) (1,969) (577) 545 (172) 493 270 3,509 $ 57,466 38% 366 1,064 $ 53,913 36% 107 (607) $ 20,387 34% fThe comparative income statement data tor the years 1973 through 1975 are not covered by Auditors' Opinion. * Restated tor pooling-ot-inierests. Pages 19,21 and 23 to 30 are an integral part ol these financial statements. 16 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. MANAQEMBHTS REVIEW OF OPERATING RESULTS Net Sales-- Product Line ($ millions) 772 ^7914 7913 7186 4106 Sales Sales of $791.3 million during 1977 were almost identical to the 1976 level of $791.4 million. Coal sales declined 5.6% (from $456.0 million to $430.3 million) as a result of lower volume. Metals sales increased 7.3% (from $297.1 million to $318.8 million), because of higher lead prices and improved iron pellets volume. This was partially offset by lower prices for zinc and zinc oxide, Oil and gas sales increased by $3.9 million or 10.2% over 1976. Sales in 1976 increased 2.5% over the 1975 level. Coal sales declined 9.9% (from $506.1 million to $456.0 million) as a result of lower prices. Metals sales increased 25,1 % (from $237.5 million to $297.1 million) due to improved lead and zinc volumes and higher lead prices. This was partially offset by lower zinc prices and lower iron pellets volume. Oil and gas sales increased by $9.6 million or 33.2% over 1975. 1973 1974 1975 1976 1977 Coal Oil & Gas Q Lead Iron Pellets D Zinc IN Other Operating ProfitProduct Line ($ millions) 160 0 151 9 1200 Costs and Expenses Cost of sales in 1977 increased slightly over the 1976 level. Unit cost increases occurred in all metals products, as well as in coal because of inflation and, in the case of coal and zinc, lower sales volume. Cost of sales in 1976 increased by 7.1 % over the 1975 level. While unit costs of sales of lead and zinc decreased as a result of improved volume, the greater volume itself caused total cost of sales to increase. Unit production costs for coal increased because of inflation but were offset by lower purchased coal costs. Depletion, depreciation and amortization have increased in the 1975 to 1977 period, as capital spending has increased. Capital spending has been concentrated in the areas of expanding and modernizing coal operations and in oil and gas exploration and development. The increase in administrative and selling expense is due to inflation and the increased scope and complexity of the Corporation's operations. Exploration expense increases reflect both the Corporation's expanded mineral exploration program and the fact that the Corporation does not capitalize such costs but, rather, expenses them as incurred. Interest expense has increased in the 1975 to 1977 period principally as a result of higher ievels of borrowings. Average short-term borrowings have increased from $11.5 million in 1975 to $43.0 million in 1977, and long-term borrowings have increased from $51.9 million at the end of 1975 to $71.1 million at the end of 1977. Other Income Dividends from the Corporation's unconsolidated Argentine subsidiaries were $4.3 million and $3.8 million in 1977 and 1976, respectively. These dividends reflect continued profitability by such subsidiaries. No dividends were received from the Corporation's Peruvian subsidiary in 1977, due to unprofitable ope. ations and currency exchange restrictions. Dividends from this subsidiary were $4.2 million and $2.0 million in 1976 and 1975, respectively. 1973 1974 1975 19761977 Nonrecurring Items Nonrecurring items in 1977 include pre-tax gains aggregating $33.7 million, resulting from the sale of an 80% interest in three coal subsidiaries, the termination of the Meramec joint venture opera tion and a write-down of certain Canadian mineral properties. Nonrecurring items in 1975 con sisted principally of the sale by CanDel of its Athabasca tar sands and Saskatchewan properties. ; 't Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 17 STATEMENTS OF CONSOLIDATED FINANCIAL POSITION St. Joe Minerals Corporation and Consolidated Subsidiaries December 31,1977 and 1976 Current Assets: Cash and marketable securities Trade accounts receivable Inventories Prepaid expenses and other current assets Total current assets Current Liabilities: Notes payable Long-term debt-current portion Accounts payable and accrued liabilities Income taxes Total current liabilities Working Capital Noncurrent Assets: Investments Property--net Goodwill Deferred charges and other assets Total noncurrent assets Total Assets Less Current Liabilities Noncurrent Liabilities: Long-term debt--less current portion Deferred income taxes Liability for employee benefits Minority interest Total noncurrent liabilities Excess of Assets Over Liabilities 1 Shareholders' Equity: Preferred stock, par value $50 per share; authorized, 1977--2,000,000 shares; 1976--1,000,000 shares; none issued Common stock, par value, 1977--$1 per share; 1976--$10 per share: Shares 1977 1976 Authorized 60,000,000 25,000,000 Issued In Treasury--at cost 23,250,214 892,694 23,250,214 959,572 Outstanding 22,357,520 22,290,642 Other capital Retained earnings Total Shareholders' Equity 1977 1976* (tn thousands) $ 31,148 86,299 87,527 45,444 250,418 $ 46,138 91,971 82,018 19,169 239,296 40,410 5,947 83,949 33,677 163,983 86,435 7,251 481,546 25,680 15,177 529,654 616,089 71,090 56,365 8,550 10,903 146,908 $469,181 32,644 9,025 86,975 16,831 145,475 93,821 4,878 412,344 27,190 19,701 464,113 557,934 60,519 51,718 6,235 10,535 129,007 $428,927 $ 23,250 (9,887) 209,641 246,177 $469,181 $232,502 (10,628) -- 207,053 $428,927 * Restated tor pooling-of-interests, Pages 19, 21 and 23 to 30 are an Integral part ol these financial statements. 18 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Shareholders' Equity (millions) 1973 1974 1975 1976 1977 Marketable Securities Marketable securities are stated at cost which approximates market. Inventories Inventories, which are stated at the lower of cost (principally the last-in, first-out "LIFO" method) or market, comprise the following: i Finished metals Coal Metals in process and concentrates Raw materials and supplies , Total 1977 1976 (In thousands) $ 24,082 8,710 19,553 35,182 $ 26,591 7,838 14,809 32,780 $ 87,527 $ 82,018 The current cost of LIFO inventories at December 31,1977 and 1976 exceeds the related LIFO values by $26,169,000 and $33,830,000, respectively. Property Property (at cost) comprises the following: Mining properties and mineral rights Mine development . Oil and gas properties, including exploration and development thereon Land, buildings, plant and equipment Total Less accumulated depletion, depreciation and amortization Property-net < 1977 1976 (In thousands) $ 9,246 40,956 214,361 500,661 $ 13,526 30,135 171,682 447,793 765,224 (283,678) 663,136 (250,792) $481,546 $412,344 Foreign Operations The Corporation's subsidiaries operating in Argentina (Compania Minera Aguilar, S.A.) and Peru (Compania Minerales Santander, Inc.) are carried in investments at cost or less, and are excluded from the consolidated financial statements primarily because of unsettled economic conditions and currency exchange restrictions, Dividends from such subsidiaries are recognized in income as they are remitted to the Corporation. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 19 STATEMENTS OF CHANGES IN CONSOLIDATED FINANCIAL POSITION , ., St Joe Minerals Corporation and Consolidated Subsidiaries For the years ended December 31, 1977 and 1976 Funds Provided: Operations: Net income Add (deduct) items not requiring (providing) working capital: Depletion, depreciation and amortization Deferred income taxes Writedown of properties Cancellation of debt Exploration projects abandoned Amortization of goodwill Other Total From Operations Disposals of property (excluding gains of $37,723,000 in 1977) Proceeds from long-term debt Proceeds from stock options exercised ; Total Funds Provided Funds Applied: Cash dividends Additions to property Property of companies acquired Reduction of long-term debt Other--net Total Funds Applied Decrease in Working Capital t Analysis of Decrease in Working Capital: Cash and marketable securities Trade accounts receivable Inventories Prepaid expenses and other current assets Notes payable Long-term debt--current portion Accounts payable and accrued liabilities Income taxes Decrease in Working Capital ; 1977 1976* (In thousands) $ 67,757 53,610 4,647 9,633 (5,667) 2,128 1,510 2,683 136,301 15,376 23,234 1,184 176,095 28,687 146,104 -- 6,996 1,694 183,481 $ (7,386) $(14,990) (5,672) 5,509 26,275 (7,766) 3,078 3,026 (16,846) $ (7,386) $ 71,894 43,864 8,077 -- -- 795 1,552 2,256 128,438 4,702 29,454 1,117 163,711 26,594 107,904 7,827 20,834 7,249 170,408 $ (6,697) $ (58) 3,097 5,621 4,752 (19,054) (1,273) (7,980) 8,198 $ (6,697) fThe net assets ol companies acquired in 1976 Included a working capital deficit ot $6,682,000. * Restated for pooling-of-interests. Pages 19, 21 and 23 to 30 are an integral part of these financial statements. 20 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. FINANCING Long-term Debt (millions) 1973 1974 1975 19761977 Long-Term Debt Long-term debt at December 31,1977 and 1976 was as follows: Pollution control financing (a) $20,000,000 Eurodollar credit and guaranty agreement payable in ten equal semiannual installments from January 1981 through July 1985 at 1 % above the London Interbank Offered Rate ("LIBO") (714% at December 31,1977) (b) $10,000,000 Eurodollar credit and guaranty agreement payable in ten equal semiannual installments from February 1981 through August 1985 at 1 % above LIBO (b) $10,000,000 loan agreement payable in ten equal semiannual installments from December 1979 through June 1984 at 8% to June 1982, thereafter at 128% of prime rate(b) $15,000,000 loan agreement payable in monthly installments (subject to certain minimum and maximum amounts) from October 1978 through September 1982 from 72% of the proceeds of Coquina's oil and gas sales at prime rate to September 1978, thereafter 14 % above prime rate (7%% at December 31,1977), not to exceed 11 % (b) Note payable to bank at 14 % above prime rate payable through 1982 414% notes payable, due 1984 (cancelled in 1977) 6% to 8% notes payable through 1980 to former stockholders of acquired companies 8% to 814 % notes payable through 1979 814 % mortgage note payable through 1983 Notes payable to banks (various ratesend maturities) Other notes (various rates and maturities) ' Total Less current portion Long-term debt 1977 1976 (In thousands) $34,059 $28,798 1,500 900 6,900 15,000 4,294 -- 1,900 2,691 2,007 5,096 2,690 77,037 (5,947) $71,090 15,000 -- 6,667 5,946 5,143 2,513 3,338 2,139 69,544 (9,025) $60,519 (a) This liability represents the portion of the proceeds from pollution control revenue bonds expended for pollution control facilities at the Corporation's lead and zinc smelters, The Corporation has agreed to make sufficient payments to Trustees in order to pay all amounts due on the following bonds: Beaver County (Pennsylvania) Industrial Development Authority 6% bonds dated May 1,1977, due May 1,2007 ......................................................................... $21,100,000 State Environmental Improvement Authority (Missouri) 5.75% bonds dated December 15,1973, due December 15,1998 ................................................ $ 7,000,000 Beaver County (Pennsylvania) Industrial Development Authority 5.60% bonds dated December 1, 1972, due December 1, 1997 .................................................. $22,500,000 The bonds are subject to optional redemption commencing in 1982 and mandatory redemption in 1988. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 21 STATEMENTS OF SHAREHOLDERS8 EQUITY St. Joe Minerals Corporation and Consolidated Subsidiaries '{ For the years ended December 31,1977 and 1976 Balance, December 31,1975, as previously reported Adjustment in connection with the pooling-ofinterests with Coquina (1,084,342 shares Issued) Balance, December 31,1975, as adjusted Net income Cash dividends: Si Joe ice Employee stock options exercised (78,369 shares issued from treasury) . Adjustment in connection with the pooling-ofinterests with Coquina Balance, December 31,1976 Net income , Cash dividends Employee stock options exercised (66,878 shares issued from treasury) Transfer to other capital in connection with reduction in par value from $10 to SI Adjustment in connection with the pooling-ofinterests with Coquina Balance, December 31,1977 Common Stock Par Value Per Share 1977--$1; 1976--$10 Issued In Treasury At Cost Total Other Retained Shareholders' Capital Earnings Equity . (In thousands).............. $221,659 $(11,496) -- $162,339 $372,502 10,843 232,502 (11,496) -- (835) 161,504 71,894 10,008 382,510 71,894 (26,400) (194) (26,400) (194) 868 $ 249 1,117 232,502 (10,628) (249) -- 249 207,053 67,757 (28,687) 428,927 67,757 (28,687) 741 443 1,184 (209,252) 209,252 (54) 54 $ 23,250 $ (9,887) $209,641 $246,177 $469,181 Pages 19, 21 and 23 to 30 are an integral part ol these financial statements. 22 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Shareholders' Equity Per Share 1973 1974 1 975 1976 1 977 Return on Shareholders' Equity* (b) These liabilities represent the amounts drawn down under the above agreements. The agree ments contain covenants relating to maintenance of financial ratios, borrowings, declaration of cash dividends, etc. The Corporation and Coquina pay a Vs % annual commitment fee on the unused portions of such agreements. At December 31,1977 approximately $45,000,000 of Coquina's assets were pledged as collateral to secure the borrowings under its line of credit agreement. The amounts of long-term debt payable in each of the four years subsequent to December 31,1978 are $8,005,000 in 1979, $7,614,000 in 1980, $8,056,000 In 1981 and $6,413,000 In 1982. Interest expense relating to long-term debt was $4,636,000 and $4,374,000 for 1977 and 1976, respectively. Short-Term Debt (Notes Payable) Information relating to the Corporation's short-term borrowings in 1977 and 1976 follows: Balance at end of year Maximum amount of short-term borrowings outstanding at any month end during the year Average short-term borrowings outstanding during the year Weighted average interest rate on average short-term borrowings during the year (a) Weighted average interest rate on short-term borrowings at end of year 1977 1976 (In thousands) $40,410 $32,644 56,723 43,001 41,652 29,686 6.3% 6.9% 7.3% 6.3% (a) Calculated by dividing average short-term borrowings outstanding during the year by related interest expense, The Corporation has informal,arrangements with various banks to maintain average cash balances of approximately 10% of Its unused lines of credit. At December 31,1977 and 1976 such unused lines of credit aggregated $50,000,000. Coquina has a line of credit agreement with a bank aggregating $22,000,000, ofwhich $7,000,000 is for short-term borrowings and $15,000,000 is for long-term borrowings (see long-term debt for noncurrent portion, repayment terms and collateral agreement). At December31,1977 the unused portion of such line of credit amounted to $2,000,000. 1973 1974 1975 1976 1977 'Based on not income divided by average shareholders' equity. :'U Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 23 OTHER FINANCIAL INFORMATION Stock Option Plans The Corporation's qualified Stock Option Incentive Plan, which was adopted in 1967, expired In 1977 except with respect to outstanding options. Under this plan key management employees were granted options to purchase the Corporation's common stock at fair market value on date of grant. Options granted become exercisable one year after date of grant at the rate of 25% each year, The Corporation also has a non-qualified Stock Option Plan, adopted in 1972, for its key management employees. Options granted underthis Plan are exercisable at prices which may be less than fair market value but not less than par value at date of grant; these options expire ten years from date of grant. Options granted become exercisable one year after date of grant at the rate of 25% each year. Options granted to date have been at fair market value at date of grant, In connection with the acquisition of Coquina, the Corporation assumed the Coquina stock options outstanding at the acquisition date. The assumed options provide for the purchase of 46,364 shares of the Corporation's common stock. A summary of shares issuable under options outstanding during 1977 and 1976 follows: - :; 1977 1976 Number of Shares Options outstanding at beginning of year Granted or assumed Exercised Cancelled or expired 746,506 256,164 (66,878) (30,040) 583,955 256,200 (78,369) (15,280) Options outstanding at end of year , 905,752 746,506 Shares under option at December 31,1977 are exercisable at prices of $13.01 to $40.25 per share. The number of shares reserved for the granting of additional options under the non-qualified Stock Option Plan amounted to 106,900 at December 31,1977. CanDel has an Employees' Stock Option Plan whereunder 200,000 shares (approximately equal to 5% of CanDel's outstanding shares) were reserved for purchase by its officers and employees at fair market value on date of grant. As of December 31,1977, options were outstanding to purchase 146,550 shares at prices of $5.75 to $16,25 per share. Options to purchase 7,650 and 6,850 shares were exercised in 1977 and 1976, respectively. Pension and Profit Sharing Plans Pension expense for all plans, including amortization of prior service costs over periods of five to thirty years, was $10,598,000 in 1977 and $8,532,000 in 1976. Aggregate unfunded prior service pension costs of the companies was $36,531,000 at December 31,1977. The actuarialiy computed values of vested benefits of certain plans exceeded the total market values of the related pension funds by $26,825,000 at December 31,1977. The Corporation has a deferred profit sharing plan for salaried employees. Annual contributions to the plan are based on a formula involving consolidated net income and aggregate salaries of eligible employees. Profit sharing expense was $2,399,000 in 1977 and $2,113,000 in 1976. ; r?<: " Minority Interest Minority interest includes $8,000,000 of;8% cumulative preferred stock of Martin County Coal Corporation, a subsidiary of Massey, Dividends are paid quarterly and are deducted from other income. , Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Dividends Per Share Acquisitions During 1977 and 1976, in transactions accounted for as poolings-of-interests, the Corporation acquired all of the capital stock of the following companies in exchange for its common stock: Year 1977 1976 Company Coquina Oil Corporation Tennessee Consolidated Coal Company Common Shares Issued 1,084,342 971,300 In connection with the pooling-of-interests with TCC, 72,848 shares remain in escrow pending resolution of certain contingencies. The accompanying financial statements for the year ended December 31,1976 have been restated to give effect to the pooling-of-interests with Coquina, A reconciliation of net sales and net income previously reported by the Corporation to those appearing in the statement of consolidated income for the year ended December 31,1976 follows: 1973 19741975 19761977 As previously reported Effect of pooling-of-interests As restated Net Sales Net Income (In thousands) $778,331 13,077 $68,748 3,146 $791,408 $71,894 The pooling-of-interests with Coquina increased 1977 net income by approximately $189,000 ($.01 per share) for the period in such year prior to acquisition. The pooling-of-interests with TCC increased 1976 net income by approximately $4,600,000 ($.21 per share) for the period in such year prior to acquisition. Nonrecurring Items In September 1977, Massey sold 80% of its interest in three coal subsidiaries for $33,683,000 in cash. The gain on the sale before provision for income taxes was $25,689,000. In December 1977, the Corporation and Bethlehem Steel Corporation terminated their joint venture operation of Meramec Mining Company. As a result of the termination of the joint venture, owner ship of the mine and plant reverted to the Corporation and operations were suspended pending an evaluation of future economic conditions. In addition, the Corporation wrote down its carrying value in Meramec by $5,633,000 to an estimated realizable value and provided $4,200,000 for mainte nance costs expected to be incurred during the suspension period. Bethlehem has cancelled $5,667,000 in notes issued to it by the Corporation and will pay the Corporation $16,200,000 in cash during 1978. The foregoing resulted in a gain before provision for income taxes of $12,034,000. In December 1977, the Corporation wrote down certain Canadian mineral properties by $4,000,000. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 25 Income Texes Income taxes for the years ended December 31,1977 and 1976 are comprised of: "' 1977 1976 {In thousands) Current: Federal Investment tax credits Foreign State ; ' $32,613 (7,090) 6,550 6,066 $21,883 (3,819) 7,390 5,941 Total current , . 38,139 31,395 Deferred: Federal Foreign Total deferred Total 2,693 1,954 4,647 $42,786 7,912 165 8,077 $39,472 1973 1974 1975 19761977 * Adjusted lor the Iwo-tor- one stock split paid July 15, 1975 Deferred income taxes for the years ended December 31, 1977 and 1976 relate to the following timing differences: Accelerated depreciation Write-off of exploration and development as incurred DISC Liability for employee benefits State income taxes Other--net 1977 1976 (In thousands) $1,952 6,807 (102) (1,076) (1,429) (1,505) $2,141 4,262 3,354 (996) (922) 238 Total $4,647 $8,077 Commitments and Contingent Liabilities The Corporation is contingently liable as guarantor of leases to Quemetco, Inc. (a company sold in 1972), under which rental payments approximate $315,000 per year for the initial lease term ending in 1997. RSR Corporation, the purchaser of Quemetco has agreed to indemnify the Corporation against any loss which may be suffered as a result of such contingent liability. In connection with the acquisition of certain foreign oil exploratory rights, the Corporation is contingently liable for future payments aggregating $6,667,000. Coquina is contingently liable for notes payable of partnerships relating to oil and gas exploration programs of approximately $2,971,000. In addition, under the terms of agreements relating to certain of Coquina's oil and gas programs, Coquina may be required to purchase partnership interests based on a fair value formula, 26 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. BUSINESS SEGMENT INFORMATION SI, Joe Minerals Corporation and Consolidated Subsidiaries Net Sales: 1977: Domestic Operations Foreign Operations Export Sales <*' Total Goal' Lead (In thousands) Zinc Iron Oil and Gas Other Total $223,360 $143,429 $139,464 $25,884 206,914 3,851 1,627 $430,274 $147,280 $141,091 $25,884 $ 18,867 23,321 $ 42,188 $ 3,500 $554,504 1,063 24,384 212,392 $ 4,563 $791,280 1976: Domestic Operations Foreign Operations 01 2 3 4 Export Sales 111 Total Operating Profit 1977; Domestic Operations Foreign Operations1,1 Total Unallocated Income/Expense Income Before Income Taxes $217,859 3110,464 $157,636 $21,395 238,178 5,418 799 $456,037 $115,882 $158,435 $21,395 $ 16,878 21,413 $ 38,291 $ 1,368 $525,600 21,413 244,395 $ 1,368 $791,408 $ 14,474 $ 66,009 $ 5,138 $ 2,835 $ 14,474 $ 66,009 $ 5,138 $ 2,835 $ 1,212 9,908 $ 11,120 $ (193) $ 89,475 (227) 9,681 $ (420) 99,156 11,387 $110,543 1976: Domestic Operations Foreign Operations{l* Total Unallocated Income/Expense Income Before Income Taxes Assets at December 31|4): 1977: Domestic Operations Foreign Operations1,1 Total 1976; Domestic Operations Foreign Operations|l) Total Depletion, Depreciation and Amortization: 1977 1976 Capital Expenditures: 1977 1976 $ 44,549 $ 39,539 $ 15,922 $ 4,706 $ 44,549 $ 39,539 $ 15,922 $ 4,706 $ 6,879 8,857 $ 15,736 $ (428) $111,167 8,857 $ (428) 120,024 (8,658) $111,366 $241,459 $111,069 $153,424 $13,576 15,765 $241,459 $111,069 $169,189 $13,576 $ 89,124 115,873 $204,997 $28,969 $637,621 10,813 142,451 $39,782 $780,072 $225,385 $104,447 $132,207 $16,782 6,331 $225,385 $104,447 $138,538 $16,782 $ 80,923 108,209 $189,132 $13,776 $573,520 15,349 129,889 $29,125 $703,409 $ 22,475 $ 5,163 $ 5,617 $ 1,410 $ 17,993 $ 4,999 $ 5,277 $ 1,249 $ 18,447 $ 14,139 $ 498 $ 53,610 $ 207 $ 43,864 $ 62,375 $ 2,621 $ 29,716 $ 696 $ 52,055 $ 2,082 $ 9,928 $ 576 $ 48,094 $ 49,693 $ 2,602 $146,104 $ 1,397 $115,731 (1) Principally Canadian operations, (2) Export sales in 1977 were 42% to Japan, 32% to Europe, 18% to South America and 8% other, Export sates in 1976 were 38% to Japan, 44% to Europe, 15% to South America and 3% other. (3) Operating profit is calculated as net sales plus/minus all items of income/expense directly associated with the business segment, In computing operating profit, none of the following Items have been added or deducted: corporate overhead expenses, exploration, interest income/expense, dividends from unconsolidated subsidiaries, income taxes and sundry income/expense, (4) Identifiable assets by industry are those assets that are used in the Corporation's operations In each segment of business. Corporate assets included under the caption "Other" are $32,760,000 and $18,238,000 for 1977 and 1976, respectively. 27 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. SUMMARY OR SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Corporation and all subsidiaries except those operating in South America (see foreign operations). All significant intercompany transactions and balances are eliminated. The comparative income statement data for the three years ended December 31,1975 are presented for information only, and, as such, do not include all note information and related statements of changes in consolidated financial position for such years. Exploration and Development Oil and Gas Costs related to the exploration and development of oil and gas properties are capitalized by certain broad areas of interest under the full-cost method of accounting. Such costs include land and lease acquisition costs, geological and geophysical expenditures and costs of drilling productive and non-productive wells. Pending the discovery of commercial reserves in any area of interest, exploration and development expenditures are amortized generally over five years. When commer cial reserves are discovered, the unamortized expenditures are depleted on the unit-of-production method based upon estimated recoverable reserves in the area of interest; when areas of interest are abandoned, the unamortized expenditures are charged to expense, Coal Development costs of specific coal properties when expected to be significant are capitalized in mine development and depleted on the unit-of-production method. Significant lease acquisition costs are capitalized in mining properties and mineral rights and depleted on the unit-of-production method. Metals Costs incurred for exploration of metals are generally expensed as incurred. Development expendi tures to bring new mineral properties into production, comprising substantially all surface mine development expenditures and initial1 underground installations, are capitalized and charged to expense on the straight-line method over 20 years. Subsequent maintenance and underground development expenditures are charged to expense. Depreciation Buildings, plant and equipment are depreciated essentially by the straight-line method over estimated lives (ranging from 3 to 50 years). Upon disposal of depreciable assets, their cost and related accumulated depreciation are cleared from the accounts and the resultant profit or loss is included in net income. Maintenance and repair expenditures are charged to expense as incurred; major renewals and betterments are capitalized. Goodwill Goodwill arising from acquisitions is amortized over appropriate periods not exceeding 40 years. Pension Plan Costs The Corporation and its subsidiaries have several pension plans (principally non-contributory) covering substantially all of their ehiployees, Pension costs consist of normal costs and amortization of prior service costs over periods ranging from 5 to 30 years and are generally funded as accrued. Income Taxes Deferred Federal and Canadian income taxes are provided for the tax effects of items reported in different periods for financial and income tax reporting purposes relating principally to accelerated depreciation, and write-off for tax purposes of mineral and oil and gas exploration and development expenditures as incurred Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Deferred Federal income taxes ($3,456,000) on the accumulated earnings of a Domestic International Sales Corporation ("DISC") ($7,200,000 at December 31,1976) were provided In 1976, since the Corporation no longer intends to postpone indefinitely the remittance of such earnings. Deferred Federal income taxes on the accumulated undistributed earnings ($26,308,000 at December 31,1977) of consolidated foreign subsidiaries are not provided because it is expected that such earnings will be reinvested by such subsidiaries. Investment tax credits are applied as reductions of Federal income tax provisions in years in which they arise. Net Income Per Share Net income per share is computed based on the average number of shares of common stock outstanding during each year. The dilution in net income per share which would arise from the assumed exercise of stock options is not material. Auditing Committee The Corporation's auditing committee, which is composed of four outside members of the Board of Directors, meets a minimum of four times a year. The Committee has unrestricted access to the Corporation's independent auditors. Oil and Gas Accounting Standard In December 1977, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies" (the "Statement"). The Statement requires that effective with fiscal years beginning January 1,1979, all companies engaged in oil and gas production adopt a prescribed form of the successful efforts method of accounting for exploration and development costs. The Corporation's present accounting policy with respect to exploration and development costs is to capitalize such costs under the full-cost method of accounting. In order to conform to the provisions of the Statement, the Corporation will be required to retro actively restate its financial statements. However, due to the time required to accumulate the necessary data, it is not practical at this time to quantify the potential effect upon the Corporation's financial statements of applying the provisions of the Statement. It is management's best judgment at the present time that the adoption of the standards required by the Statement will not have a significant effect upon either the Corporation's dividend policy or its ability to comply with covenants of its debt agreements. Replacement Cost (Unaudited) In compliance with rules and regulations of the Securities and Exchange Commission, the Corporation has calculated information related to the replacement cost of its productive capacity and the depreciation charges that would correspond with such replacement costs. Inventories and cost of sales have also been calculated on a replacement cost basis. The details of this information are available in the Corporation's 1977 Annual Report on Form 1G-K to the SEC. The Corporation establishes the sales prices of, its products primarily on the basis of competitive market conditions, rather than directly on costs incurred. Consequently, the impact on the Corporation's earnings of increased costs arising from inflation is not readily determinable. ;' " 29 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. AUDITORS' OPIMIOM HASKINS 8c SELLS CERTIFIED PUBLIC ACCOUNTANTS TWO BROADWAY NEW YORK, NEW YORK 10004 The Shareholders of St, Joe Minerals Corporation: We have examined the statements of consolidated financial position of St. Joe Minerals Corporation and consolidated subsidiaries as of December 31,1977 and 1976 and the related statements of income, shareholders' equity and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We did not examine the financial statements for 1976 of certain consolidated subsidiaries which statements reflect total assets constituting 18%, and revenues constituting 5%, of the respective consolidated totals for such year. These statements were examined by other auditors whose reports thereon have been furnished to us and our opinion expressed herein, insofar as it relates to the amounts included for such consolidated subsidiaries, is based solely upon the reports of the other auditors. In our opinion, based upon our examinations and the reports of other auditors, the aforemen tioned consolidated financial statements present fairly the financial position of St. Joe Minerals Corporation and consolidated subsidiaries at December 31,1977 and 1976 and the results of their operations and the changes in their financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. February 2,1978 Quarterly Financial Data (Unaudited) Summarized quarterly financial data for 1977 and 1976 follows: Period Net Sales ; Gross Profit Net Income Per Common Net Income Share Stock Prices* High Low 1977:1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Year $205,004 195,605 186,184 204,487 $791,280 $ 40,598 45,588 38,228 47,716 $172,130 $11,064 14,251 27,506 14,936 $67,757 $ .50 .63 1.24 .66 $3.03 43V4 44% 34% 35% 44 Va 361/2 33% 29 Via 28% 28% 1976:1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. $179,100 204,650 197,060 210,598 $ 43,799 . 45,241 42,945 45,264 $18,287 18,841 15,389 19,377 $ .82 .85 .69 .87 45% 50 49 43 Vs 33 Va 40% 39 Vb 33V2 Year $791,408 $177,249 $71,894 $3.23 50 33 V2 * Stock prices as reported on the composite tape by The Walt Street Journal. Fourth Quarter 1977 Transactions (Unaudited) The Corporation received $2,000,000 in dividend income from its South American subsidiaries. As explained in the note describing nonrecurring items, the Corporation realized a pre-tax gain of $12,034,000 as a result of the termination of the Meramec joint venture operation. In addition, the Corporation wrote down1 certain Canadian mineral properties by $4,000,000. .J'; ` : The above transactions caused a change in the Corporation's effective tax rate from 36% for the first nine months to 39% for the full year. 30 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. PRODUCTION! AMD FINANCIAL STATISTICS LEAD 1973 1974 1975 1976 1977 ZINC 1973 1974 1975 1976 1977 IRON 1973 1974 1975 1976 1977 COAL 1973 1974 1975 1976 1977 OIL & GAS 1973 1974 1975 1976 1977 OTHER 1973 1974 1975 1976 1977 Tons Concentrate Mined 283,602 339,976 284,200 316,570 342,573 Tons Concentrate Mined 180,502' 221,436' 169,885 161,647 166,493 Long Tons Iron Pellets Produced 814,796 563,457 756,133 670,206 545,942 Tons Produced Coal Sold 7,871,603 8,924,342 10,037,405 10,457,336 8,914,551 MCF Gas Sold 25,263,519 24,654,378 22.099,789 21,212,166 28,543,699 Tons Metal Produced 215,012 230,873 185,889 222,483 228,780 Tons Metal Equivalent Produced Tons Metal Sold 284,018 281,424 182,340 237,177 238,352 Tons Metal Equivalent Sold 231,085 223,968 142,406 206,844 175,260 Long Tons Iron Pellets Sold 813,405 567,278 779,009 604,964 699,382 Tons Purchased Coal Sold : 281,657 245,603 137,009 186,431 175,527 5,159,419 4,639,264 5,530,353 5,034,598 4,630,943 Bbls. Oil & Gas Liquids Sold 2,465,807 1,787,301 1,411,727 1,531,392 1,999,840 1; '' (In thousands; Net Sales' Operating Profit (Loss)' $ 97,543 $ 28,811 127,316 47,369 84,278 21,074 115,682 39,539 147,280 66,009 Net Sales' Operating Profit (Loss)5 $132,723 201,633 125,059 158,435 141,091 Net Sales' $ 13,320 11,468 27,410 21,395 25,884 Net Sales $153,117 357,009 506,099 456,037 430,274 Net Sales $ 13,879 20,746 28,738 38,291 42,188 Net Sales $ -0420 782 1,368 4,563 $ 18,044 52,681 14,881 15,922 5,138 Operating Profit (Loss)' $ 1,593 (2,686) 9,901 4,706 2,835 Operating Profit (Loss)3 $ 9,054 54,490 93,470 44,549 14,474 Operating Profit (Loss)1 2 3 4 $ 5,419 8,857 11,606 15,736 11,120 Operating Profit (Loss)' $ -0(713) 1,008 (428) (420) 1. Includes 11,996 tons In 1973 and 8,072 tons in 1974 derived from purchased ore, 2. Net Sales Includes by-products, 3. See Business Segment Information for definition of Operating Profit. 4. Includes nonrecurring adjustment to income, Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 31 ST. JOE MINERALS CORPORATION Incorporated March 25,1864, under the laws of ihe State of New York. Corporate Headquarters: 250 Park Avenue, New York, N.Y, 10017 (212)953-5000 BOARD OF DIRECTORS Gene K. Bearet Director of Various Corporations D. Broward Craig* President Bernard F. Desloget Vice President Killark Electric Manufacturing Co. Electrical fittings John C. Duncan* Chairman and Chief Executive Officer Warren E. Fenzi* President Phelps Dodge Corporation Metal mining William R. Grant*t Vice Chairman Endowment Management and Research Corporation Investment counselors :.. Arthur Howe, Jr.t Educational Consultant Wing L. Lew Consultant Robert V. Lindsay* Executive Vice President Morgan Guaranty Trust Company of New York , Commercial banking E. Morgan Massey President and Chief Executive Officer A. T. Massey Coal Co., Inc. Joseph V. McKee, Jr. Chairman and President National Union Electric Company Electrical appliances Smiley Raborn, Jr. Chairman and Chief Executive Officer CanDel Oil Ltd. Lawrason Riggs III Former Chairman L, Chase Rltts, Jr. Vice President--Petroleum CORPORATE OFFICERS John C. Duncan Chairman and Chief Executive Officer D. Broward Craig President James L. Broadhead Vice President--Zinc Charles R. Carlisle Vice President R. V. Cronin Vice President John W. Hanselman Vice President--Administration John C. Harned Vice President Peter B. Nalle Vice President--Mining L. Chase Rltts, Jr. Vice President--Petroleum Joseph G. Sevick Vice President--Technology Thomas N. Walthier Vice P resi d ent--ExpIo ration Leroy K. Wheelock Vice President John A. Wright Vice President--Lead Charles E. Barnett General Counsel and Secretary Harold T. Read Controller Robert A. Sherman Treasurer John T. Leyden Assistant Vice President-Taxes John L. Afton Assistant Secretary Paul Kershon Assistant Controller Member of Executive Committee fMember of Auditing Committee 32 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. EXPLORATION AND DEVELOPMENT Thomas N.Walthier Vice President--Exploration J. W. Horton Vice President, St. Joe American Corporation Tucson, Arizona Merwin Bernstein International Exploration Manager, Tucson, Arizona RESEARCH AND DEVELOPMENT Gardner L. Brown Director--Corporate Research Michael V. Rose Director--Commercial Development Stanley J. Kostman Director-Corporate Development ENVIRONMENTAL PLANNING Gary E. Welch Director--Corporate Environmental Planning COMMUNICATIONS AND SHAREHOLDER INFORMATION Robert W. Peckham Director of Corporate Communications Annual Meeting The annual meeting of the Corporation will be held on May 8,1978 at 10:30 A.M. at the Auditorium of the McGraw-Hill Building, 1221 Avenue of the Americas, New York, New York. Stock Trading The stock of St. Joe Minerals Corporation is traded on the New York, M idwest, Pacific Coast and Toronto stock exchanges, Its symbol is SJO. Transfer Agents Bankers Trust Company Two Broaoway, New York, New York 10004 National Trust Company, Limited 21 King Street East Toronto, Ontario M5C1B3 Registrars Bankers Trust Company Two Broadway, New York, New York 10004 Crown Trust Company 312 Bay Street Toronto, Ontario M5H 2P4 Auditors Haskins & Sells Two Broadway, New York, New York 10004 AFFILIATE AND SUBSIDIARY EXECUTIVES Coal A, T. Massey Coal Co., Inc.--Richmond, Virginia E. Morgan Massey, President and Chief Executive Officer Tennessee Consolidated Coal Company-- Jasper, Tennessee Paul V. CallIs, President and Chief Executive Officer Oil and Gas CanDel Oil Ltd .--Calgary, Alberta, Canada Smiley Raborn, Jr., Chairman and Chief Executive Officer Coquina Oil Corporation--Midland, Texas Pomeroy Smith, Chairman and Chief Executive Officer St. Joe Petroleum Corporation--New York, New York L. Chase Ritts, Jr., President Minerals St. Joe Lead Company--Clayton, Missouri John A. Wright, President St. Joe Zinc Company-Pittsburgh, Pennsylvania James L Broadhead, President Ci'a. Minera Aguilar, S.A.--Buenos Aires, Argentina Marco J. Rossetti, Managing Director !' Cia. Minerales Santander, Inc.--Lima, Peru Harold E. Waller, Jr., Vice President and General Manager Energy Research Corporation--Danbury, Connecticut Bernard s. Baker, President Formet Technology Corporation--Pittsburgh, Pennsylvania J. A. Young, President Jododex Australia Pty. Ltd .--Sydney, N.S.W., Australia Desmond F. O'Driscoll, Chairman Mineracao Sao Jose Ltda.--Rio de Janeiro, Brazil Jan D. Koene, Manager Placer Service Corp.-New York, New York Wiliam H. Breeding, President St. Joe American Corporation--New York, New York Thomas N. Walthier, President St. Joseph Explorations Limited--Toronto, Ontario, Canada Robert M. Ginn, Vice President Copies of St. Joe's current Annual Report on Form 10-K to the Securities and Exchange Commission are available to shareholders upon written request to the Director of Corporate Communications, St. Joe Minerals Corporation, 250 Park Avenue, New York, New York 10017 St. Joe Mlnetals Corporation Is an equal opportunity employer. Reproduced with permission of the copyright owner- Further reproduction prohibited without permission. ST* JOE MINERALS CORPORATION 250 PARK AVENUE NEW YORK, N.Y. 10017 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission