Form 1O-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or
15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended March 31, 2001
Commission File No. 0-1392
Central Natural Resources, Inc. and Subsidiaries
Incorporated in State of Delaware IRS Number: 44-0195290
127 West 10th Street, Room 666
Kansas City, Missouri 64105
Phone: 816-842-2430
Common stock outstanding as of March 31, 2001
$1 par value; 503,924 shares
The Registrant (l) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such
filing requirements for the past ninety days.
Yes [X] No [ ]
CENTRAL NATURAL RESOURCES, INC. AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets - March 31, 2001 and
December 31, 2000
Consolidated Statements of Earnings and Retained Earnings
- Three months ended March 31, 2001 and 2000
Consolidated Statements of Comprehensive Income
- Three months ended March 31, 2001 and 2000
Consolidated Statements of Cash Flows - Three months
ended March 31, 2001 and 2000
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
CENTRAL NATURAL RESOURCES, INC. AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Consolidated Balance Sheets
March 31, 2001 and December 31, 2000
(Unaudited)
(amounts in unit dollars)
ASSETS 2001 2000
__________ __________
(Unaudited)
Current assets:
Cash and cash equivalents $ 1,452,875 1,748,510
Accounts receivable 0 22,500
Securities maturing within one year, at
amortized cost (note 2) 3,993,629 3,970,189
Notes receivable, current 17,034 16,720
Other 11,458 10,064
__________ __________
Total current assets 5,474,996 5,767,983
Equity securities, at fair value (note 2) 1,332,959 1,544,018
Notes receivable, noncurrent 78,987 83,287
Other investments 350,002 100,002
Coal deposits, real estate, equipment and
leasehold improvements:
Coal deposits 1,602,882 1,602,882
Mineral rights 39,988 39,988
Surface land 25,581 25,581
Equipment and leasehold improvements 1,303 1,303
__________ __________
1,669,754 1,669,754
Less accumulated depletion, depreciation
and amortization 580,551 580,541
__________ __________
Net coal deposits, real estate, equipment
and leasehold improvements 1,089,203 1,089,213
__________ __________
$ 8,326,147 8,584,503
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 13,068 10,946
Federal and state income taxes 82,229 62,525
__________ __________
Total current liabilities 95,297 73,471
Deferred income taxes 66,036 149,993
Stockholders' equity:
Preferred stock of $1 par value, authorized
100,000 shares; no shares issued - -
Common stock of $1 par value; authorized
2,500,000 shares, issued 503,924 shares 503,924 503,924
Retained earnings 7,599,355 7,639,660
Accumulated other comprehensive income,
net of deferred taxes of $33,135
and $117,901 at March 31, 2001
and December 31, 2000 61,535 217,455
__________ __________
Total stockholders' equity 8,164,814 8,361,039
$ 8,326,147 8,584,503
<FN>
See accompanying notes to consolidated financial statements.
CENTRAL NATURAL RESOURCES, INC. AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Consolidated Statements of Earnings and Retained Earnings
Three months ended March 31, 2001 and 2000
(Unaudited)
(amounts in unit dollars)
2001 2000
__________ __________
Operating revenue:
Coal royalties $ 800 1,115
Oil and gas royalties 198,703 145,422
Oil and other mineral lease
rentals and bonuses 4,025 5,025
__________ __________
Total operating revenue 203,528 151,562
General and administrative expenses 164,962 116,875
__________ __________
Operating income 38,566 34,687
___________ __________
Nonoperating income:
Investment income 79,046 291,896
Gain on sales of real estate 0 3,385
Other 16 509
__________ __________
Total nonoperating income 79,062 295,790
Earnings from operation
before income taxes 117,628 330,477
Income taxes 31,951 119,261
__________ __________
Net earnings 85,677 211,216
Retained earnings at
beginning of period 7,639,660 9,799,931
Less cash dividends declared
of $.25 per share in 2001 and 2000 (125,982) (127,775)
_________ _________
Retained earnings at end
of period $ 7,599,355 9,883,372
Earnings per share - basic
and diluted $ 0.17 0.32
Weighted average number
of shares of common
stock outstanding-basic 503,924 650,004
Weighted average number
of shares of common
stock outstanding-diluted 509,924 650,004
<FN>
See accompanying notes to consolidated financial statements.
CENTRAL NATURAL RESOURCES, INC. AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Consolidated Statements of Comprehensive Income
Three months ended March 31, 2001 and 2000
(Unaudited)
(amounts in unit dollars)
2001 2000
___________ ___________
Net earnings $ 85,677 211,216
___________ ___________
Other comprehensive income:
Realized gains and unrealized
appreciation (depreciation)
on investments (236,921) 633,682
Income taxes 82,921 221,789
___________ __________
Realized gains and unrealized
appreciation (depreciation)
on investments, net (154,000) 411,893
___________ __________
Less:
Realized investments gains
included in net
earnings (2,960) (117,288)
Income taxes 1,036 62,051
___________ ___________
1,924 (115,237)
___________ ___________
(155,924) 296,656
___________ ___________
Comprehensive income (loss) $ (70,247) 507,872
___________ ___________
<FN>
See accompanying notes to consolidated financial statements.
CENTRAL NATURAL RESOURCES, INC. AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Consolidated Statements of Cash Flows
Three months ended March 31, 2001 and 2000
(Unaudited)
(amounts in unit dollars)
2001 2000
__________ __________
Cash flows from operating activities:
Net earnings $ 85,677 211,216
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depletion, depreciation and amortization 10 14
Gain on sales of real estate 0 (3,385)
Gain on sales of equity securities (2,960) (177,288)
Amortization of premiums and discounts
Of securities, net (57,033) (87,803)
Changes in assets and liabilities:
Accounts receivable and other assets 21,106 41,366
Accounts payable and accrued expenses 2,122 5,565
Federal and state income taxes payable 19,704 98,630
__________ __________
Net cash provided by (used in) operating activities 68,626 88,615
Cash flows from investing activities:
Proceeds from note receivable 3,986 5,732
Proceeds from matured/called
Investment debt securities 4,000,000 10,972,217
Purchases of investment debt securities (3,966,408) (7,393,635)
Proceeds from sales of land 0 3,424
Purchases of equity securities (81,239) (377,441)
Proceeds from sales of equity securities 55,382 254,605
Purchase of other investments (250,000) (100,002)
__________ __________
Net cash provided by (used in)
investing activities (238,279) 3,364,900
Cash flows from financing activities:
Dividends paid (125,982) 0
Purchase of common stock for treasury 0 (3,257,269)
__________ __________
Net cash used in financing activities (125,982) (3,257,269)
Net increase (decrease)in cash and
cash equivalents (295,635) 195,946
Cash and cash equivalents, beginning of year 1,748,510 1,894,021
Cash and cash equivalents, end of year $ 1,452,875 2,089,967
<FN>
See accompanying notes to consolidated financial statements.
CENTRAL NATURAL RESOURCES, INC. AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
March 31, 2001
Note (1) Basis of Presentation:
In the opinion of Central Coal & Coke Corporation (the Company),
the accompanying unaudited consolidated financial statements
contain all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position as of March 31, 2001,
and the results of operations and cash flows for the three months ended
March 31, 2001, and 2000.
Oil Lease Bonuses
Oil lease bonuses which relate to future periods are deferred and
recognized as income over the related future periods (generally one
year).
Note (2) Investment Securities:
The amortized cost, gross unrealized holding gains, gross
unrealized holding losses and fair value for held-to-maturity and
available-for-sale securities by major security type at March 31, 2001
and December 31, 2000 are as follows:
March 31, 2001
______________________________________________
Gross Gross
unrealized unrealized
Amortized holding holding Fair
cost gains losses value
__________ __________ __________ __________
Held-to-maturity:
U. S. government
securities $ 3,993,629 0 (296) 3,993,333
Available-for-sale:
Equity securities $ 1,238,292 369,856 (275,189) 1,332,959
December 31, 2000
______________________________________________
Held-to-maturity:
U. S. government
agency securities $ 3,970,189 0 (1,439) 3,968,750
Available-for-sale:
Equity securities $ 1,209,470 579,000 (244,452) 1,544,018
CENTRAL NATURAL RESOURCES, INC. AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
Investment income consists of the following for each of the periods
ended March 31:
Three months ended
March 31,
2001 2000
________ _______
Realized gains on sales
of equity securities $ 2,960 177,288
Interest Income 73,314 111,243
Dividend Income 2,772 3,365
________ _______
$ 79,046 291,896
Note (3) Dividends
During the quarter ending March 31, 2001, the Company's Board of
Directors declared a $.25 dividend per share which was paid February 28, 2001.
Note (4) Stock Dividends
On January 19, 2001, the Board of Directors declared a stock dividend of one
share of common Stock for each issued and outstanding share of common stock
held by stockholders of record as of January 29, 2001. The stock dividend
was distributed on February 13, 2001 to stockholders of record as of
January 29, 2001. As of January 19, 2001, there were 25l,962 shares issued
and outstanding so that after the distribution of the stock dividend, there
were 503,924 shares of common stock issued and outstanding. All per share
and share data in the financial statements and related notes have been
restated to reflect the stock dividend for all periods presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The financial condition of the Company continued very strong through
the first quarter of 2001, as it was at the end of fiscal year 2000.
The liquidity of the Company continues to be high, as is evidenced by
a favorable ratio of current assets to current liabilities, and the
fact that a significant portion of the Company's net worth is represented
by liquid assets.
Total operating revenue was up approximately 34% in the first quarter of
2001 over the first quarter of 2000, due primarily to increased revenues
from oil and gas royalties. The increase in the current period was due
to material increases in the price of oil and gas during the current
period over the prior period, coupled with increased production.
Non operating income was down significantly in the first quarter of
2001 from the first quarter of 2000, due primarily to decreased investment
income. This resulted from less capital gain being realized on the sale
of equity securities during the current period, coupled with somewhat lower
rates of return on temporary fixed income investments during the current
period, and the reduced size of the portfolio of fixed income investments
during the current period.
General and administrative expenses were up in the first quarter of 2001
over the first quarter of 2000, primarily due to increased fees paid to
outside service providers and somewhat increased compensation paid to
Officers and Directors. Income taxes were lower in the first quarter of
2001 from the first quarter of 2000 as a result of reduced earnings before
income taxes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
There was a net decrease in cash and cash equivalents in the first
quarter of 2001 and an increase in cash and cash equivalents in the
first quarter of 2000. The most significant component of the changes
between the periods under comparison was the difference in cash
provided by investment activities, specifically differences in the
amount of proceeds from sale of equity securities and purchases of
equity securities during each such period, differences in the amount
of proceeds from matured/called investment debt securities which were
reinvested, and the purchase of a greater amount of other investments
during the current period. Also contributing to the difference was
reduced net earnings in the first quarter of 2001 compared to the first
quarter of 2000, partially offset by reduced income tax expense in the
current quarter and a cash dividend paid to Stockholders in the first
quarter of 2001, which was not paid in the first quarter of 2000. There
was also a sizeable cash expenditure in the first quarter of 2000 with
respect to a substantial treasury stock purchase.
The Board of Directors of the Company on January 19, 2001 declared a
one share for one share stock dividend which was distributed on
February 13, 2001 to Stockholders of record on January 29, 2001.
All per share and share data in the consolidated financial statements
accompanying this report for the prior period have been restated to reflect
the stock dividend for the periods presented. In addition, as discussed
above, a cash dividend of $0.25 per share was paid February 28, 2001 on
the shares of common stock outstanding after giving effect to the stock
dividend. The Board of Directors expressed the present intention to continue
paying a $0.25 per share quarterly dividend if the operating results and
financial condition of the Company continue to justify it.
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities, was issued by the
Financial Accounting Standards Board in June 1998. SFAS No. 133
standardizes the accounting for derivative instruments. Under that
statement, entities are required to carry all derivative instruments in
the statement of financial condition at fair value. The Company was
required to adopt SFAS No. 133 as amended on January 1, 2001.
The adoption of SFAS No. 133 did not impact the
financial position or results of operation of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
The Company has no specific commitment for material capital expenditures
at the present time. Management does, however, continue to actively
pursue other business opportunities which may result in a more
productive deployment of its assets and ultimately increase earnings.
During the last year, the Company reviewed three possible business
acquisition opportunities in depth. One potential acquisition was declined
as not suitable at the present time, and the other two opportunities continue
to be investigated, but no firm decision on these acquisitions has as yet
been made. Management also continues to aggressively pursue development of
its oil and gas properties and to attempt to lease more of its mineral
properties in order to generate more rental, bonus, and royalty income.
This Management's Discussion and Analysis of Financial Condition
and Results of Operations, and other sections of this report, contain
forward-looking statements that are based on current expectations,
estimates, forecasts, and projections about the business segments
in which the Company operates, management's beliefs, and assumptions
made by management. These and other written or oral statements that
constitute forward-looking statements may be made by or on behalf of
the Company. These statements are not guarantees of future performance
and involve certain risks, uncertainties, and assumptions that are
difficult to predict. Therefore, actual outcomes and results may
differ materially from what is expressed or forecast in such
forward-looking statements. The Company does not, by including
this statement, assume any obligation to review or revise any
particular forward-looking statement referenced herein in light of
future events.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risk exposures of the Company relate to
changes in interest rates, changes in equity security prices,
and changes in certain commodity prices.
The Company's exposure to market risk for changes in
interest rates relates solely to its fixed income portfolio
which consists of U. S. government agency securities. All such
securities are held-to-maturity and have original maturities
of less than one year. The Company does not use derivative
financial instruments to hedge interest rates on its fixed
income investment securities.
The Company's exposure to market risk for changes
in equity security prices relates solely to its marketable
equity investment portfolio which consists primarily of
common stocks of domestic, publicly held enterprises.
The Company's exposure to market risk for changes in
commodity prices relates to changes in the prices of coal,
oil, and natural gas, and the effect thereof on its royalties
and rentals relating to coal deposits and mineral rights,
as is discussed in more detail in Management's Discussion
and Analysis of Financial Condition and Results of Operations
set forth in Part 1, Item 2 of this report. The Company
does not use derivative commodity instruments to hedge its
commodity risk exposures.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - Attached
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - Attached
PART II, ITEM 4. - SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
The following meeting of Stockholders was held after the close of the
quarter to which this report pertains, however, it was held prior to the
filing of this report so disclosure is made as hereinafter set forth.
(a) The Annual Meeting of Stockholders was held April 19, 2001.
(b) The meeting involved the election of Directors, and the
following are the Directors elected at that meeting:
Bruce L. Franke
Ray A. Infantino
Patrick J. Moran
James R. Ukropina
Phelps C. Wood
Phelps M. Wood
There were no other Directors whose term of office as a Director
continued after the meeting.
(c)(i) For the election of Directors, the votes received by all
nominees were as follows:
Bruce L. Franke 440,926
Ray A. Infantino 440,926
Patrick J. Moran 440,926
James R. Ukropina 440,926
Phelps C. Wood 440,926
Phelps M. Wood 440,926
Cumulative voting is not permitted.
(ii) At the same meeting, the Stockholders approved the
appointment of the accounting firm KPMG LLP as independent public
accountants to examine the financial statements of the Company for
the year ending December 31, 2001 and to perform other appropriate
accounting services. The holders of 441,066 shares cast their votes
in favor of that appointment, the votes of 442 shares were cast against
it, and the holders of 316 shares abstained.
(iii) At the same meeting, the Stockholders approved the "Central
Natural Resources, Inc. 2001 Stock Incentive Plan" in the form
previously approved by the Board of Directors and described in the
Proxy Statement distributed to Stockholders on March 20, 2001, and
filed with the Securities and Exchange Commission pursuant to
Regulation 14A of the Securities Exchange Act of 1934. The holders
of 411,630 shares cast their votes in favor of the approval of that
plan, the votes of 27,660 shares were cast against it, and the holders
of 2,534 shares abstained.
(d) There were no settlements between the Company and any
other participants terminating any solicitation subject to Rule 14a-11.
PART II, ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(b)(i) A Form 8-K, dated January 3, 2001 was
filed with respect to the approval and filing of the Amended
and Restated Certificate of Incorporation as filed with the
Secretary of State of Delaware on December 26, 2000, and which
became effective as of December 31, 2000. Among other changes
effected by the filing of the Amended and Restated Certificate
of Incorporation with the Secretary of State of Delaware,
the corporate name was changed from "Central Coal & Coke
Corporation" to "Central Natural Resources, Inc." and the
authorized number of shares were increased to a total of
2,600,000; 2,500,000 shares of common stock of $1.00 par
value and 100,000 shares of preferred stock of $1.00 par value.
(ii) A Form 8-K, dated January 19, 2001, was filed disclosing
the declaration of a stock dividend of one share of common stock
for each issued and outstanding share of common stock held by
Stockholders of record as of January 29, 2001. The stock dividend
was distributed on February 13, 2001 to Stockholders of record as
of January 29, 2001. As of January 19, 2001 there were 251,962
shares issued and outstanding so that after the distribution of
the stock dividend there were 503,924 shares of common stock
issued and outstanding. Also, that Form 8-K, disclosed the
declaration of a cash dividend in the amount of $0.25 per share
payable to Stockholders of record on February 20, 2001 to be paid
on February 28, 2001.
(iii) A Form 8-K, dated January 29, 2001, was filed
disclosing a letter mailed to all Stockholders of record on
January 29, 2001 describing the stock dividend and cash dividend
declared and paid as described above.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL NATURAL RESOURCES, INC.
(Registrant)
Date: May 15, 2001
____________________________
By: /s/ Gary J. Pennington
____________________________
Gary J. Pennington,
Assistant Treasurer-
General Manager, Principal
Financial and Accounting Officer
Date: May 15, 2001
____________________________
By: /s/ Phelps M. Wood
____________________________
Phelps M. Wood,
President