10-Q 1 r10q-331.txt 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)

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)

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)

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)

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:

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:

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

CENTRAL NATURAL RESOURCES INC 10-Q