10-Q 1 s10q-930013.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 September 30, 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 September 30, 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 - September 30, 2001 and December 31, 2000 Consolidated Statements of Earnings and Retained Earnings - Nine and three months ended September 30, 2001 and 2000 Consolidated Statements of Comprehensive Income - Nine and three months ended September 30, 2001 and 2000 Consolidated Statements of Cash Flows - Nine months ended September 30, 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 September 30, 2001 and December 31, 2000 (amounts in unit dollars)

ASSETS 2001 2000 __________ __________ (Unaudited) Current assets: Cash and cash equivalents $ 1,~~379~~332,~~339~~954 1,748,510 Accounts receivable 0- 22,500 Securities maturing within one year, at amortized cost (note 2) 3,~~987~~985,~~203~~072 3,970,189 Notes receivable, current 17,380 16,720 Federal and state income taxes 11,831 - Other 2416,~~183~~989 10,064 __________ __________ Total current assets 5,~~408~~364,~~105~~226 5,767,983 Equity securities, at fair value (note 2) 1866,~~266,541~~681 1,544,018 Notes receivable, noncurrent 70,419 83,287 Other ~~investments~~Investments 350,002 100,002 Deferred income taxes 125,258 - 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~~562 25,581 Equipment and leasehold improvements 1,303 1,303 __________ __________ 1,669,~~754~~735 1,669,754 Less accumulated depletion, depreciation, and amortization (581,~~114)~~676 (580,541) __________ __________ Net coal deposits, real estate, equipment, and leasehold improvements 1,088,~~640~~059 1,089,213 __________ __________ Total assets $ 87,~~183~~864,~~707~~645 8,584,503

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 1319,~~083~~079 10,946 Deferred oil lease bonus 71,030 - Federal and state income taxes ~~24,060~~- 62,525 __________ __________ Total current liabilities 3790,~~143~~109 73,471 Deferred income taxes ~~26,089~~- 149,993 Stockholders' equity: Preferred stock of $1 par value; 100,000 ~~Shares~~shares authorized; no shares issued - - Common stock of $1 par value; 2,500,000 ~~Shares~~shares authorized;, 503,924 shares issued 503,924 503,924 Retained earnings 7,~~599~~491,~~245~~211 7,639,660 Accumulated other comprehensive income (loss), net of deferred taxes of $9(118,~~318~~784) in 2001 and $117,~~091~~901 in 2000 17(220,~~306~~599) 217,455 __________ __________ Total stockholders' equity 87,~~120~~774,~~475~~536 8,361,039 __________ __________ Total liabilities and stockholders,' equity $ 87,~~183~~864,~~707~~645 8,584,503 See accompanying notes to consolidated financial statements.

CENTRAL NATURAL RESOURCES, INC. AND SUBSIDIARIES KANSAS CITY, MISSOURI Consolidated Statements of Earnings and Retained Earnings Nine months ended September 30, 2001 and 2000 and three months ended September 30, 2001 and 2000 (Unaudited) (amounts in unit dollars)

~~Six~~Nine months ended Three months ended ~~June~~September 30, ~~June~~September 30, 2001 2000 2001 2000 _________ _________ _________ _________ Operating revenue: Coal royalties $ 2345,~~300~~800 2549,~~443~~127 22,500 2423,~~328~~684 Oil and gas royalties ~~421~~550,~~197~~762 ~~271~~425,~~666~~013 ~~222~~129,~~494~~565 ~~126~~153,~~244~~347 Oil and other mineral lease rentals and bonuses 428,~~025~~181 1243,~~170~~782 024,156 731,~~145~~612 _________ _________ _________ _________ Total operating revenue ~~448~~624,~~522~~743 ~~309~~517,~~279~~922 ~~244~~176,~~994~~221 ~~157~~208,~~717~~643 General and administrative expenses ~~286~~385,~~675~~443 ~~277~~398,~~189~~219 ~~121~~98,~~713~~768 ~~160~~121,~~314~~030 Operating income ~~(loss) 161~~239,~~847~~300 32119,~~090~~703 ~~123~~77,~~281~~453 (287,~~597)~~613 Nonoperating income (loss): Investment income ~~139~~(loss)(note 2) 74,~~112~~881 ~~433~~908,~~898~~519 60(64,~~066~~231) ~~142~~474,~~002~~621 Gain on ~~sale~~sales of real estate 01,106 3,385 01,106 0- Other 165,048 ~~557~~601 05,032 4844 _________ _________ _________ _________ Total nonoperating income(loss) ~~139~~81,~~128~~035 ~~437~~912,~~840~~505 60(58,~~066~~093) ~~142~~474,~~050~~665 Earnings before income taxes ~~300~~320,~~975~~335 ~~469~~1,~~930~~032,208 ~~183~~19,~~347~~360 ~~139~~562,~~453~~278 Income taxes 8990,~~427~~841 ~~160~~369,~~729~~464 571,~~476~~414 41208,~~468~~735 _________ _________ _________ _________ Net earnings ~~211~~229,~~548~~494 ~~309~~662,~~201~~744 ~~125~~17,~~871~~946 97353,~~985~~543 Retained earnings at beginning of period 7,639,~~659~~660 9,799,931 7,599,~~355~~246 9,~~883~~981,~~371~~356 Deduct cash dividends paid of $.5075 per share in 2001 and $.25 ~~per share~~ in 2000 (~~251~~377,~~962~~943) (127,776) (125,981) 0- _________ _________ _________ _________ Retained earnings at end of period $ 7,~~599~~491,~~245~~211 910,~~981~~334,~~356~~899 7,~~599~~491,~~245~~211 910,~~981~~334,~~356~~899 Earnings per share- basic $and ~~0.42 0.53 0.25 0.19 Weighted average number of shares of common stock outstanding-basic 503,924 580,120 503,924 510,236 Earnings per share-~~ diluted $ 0.4246 01.5319 0.2504 0.1969 Weighted average number of shares of common stock outstanding~~-diluted~~ 503,~~998~~924 ~~580~~556,~~120~~682 503,924 510,~~236~~314 See accompanying notes to consolidated financial statements.

CENTRAL NATURAL RESOURCES, INC. AND SUBSIDIARIES KANSAS CITY, MISSOURI Consolidated Statements of Comprehensive Income Nine months ended September 30, 2001 and 2000 three months ended September 30, 2001 and 2000 (Unaudited) (amounts in unit dollars)

~~Six~~Nine months ended Three months ended ~~June~~September 30, ~~June~~September 30, 2001 2000 2001 2000 _________ _________ _________ _________ Net earnings $ ~~211~~229,~~548~~494 ~~309~~662,~~201~~744 ~~125~~17,~~871~~946 97343,~~985~~543 _________ _________ _________ _________ Other comprehensive income: Realized gains (losses) and unrealized appreciation (depreciation) on investments, net (~~260~~671,~~194~~216)1,~~525~~238,~~584~~193 (23411,~~277~~022) ~~891~~(288,~~902~~391) Income taxes 91234,~~069~~925 (~~533~~433,~~954~~367) 8143,~~148~~856 ~~(312~~100,~~165)~~397 _________ _________ _________ _________ Realized gains (losses)and unrealized appreciation (depreciation) on investments, net (~~169~~436,~~125~~291) ~~991~~804,~~630~~826 (15267,~~129~~166) ~~579~~(187,~~737~~994) Less: Realized investment ~~gains~~losses (Gains) included in net earnings (472,~~729~~713) (~~230~~613,~~278~~328) ~~(44~~45,~~769)~~016 (52383,~~990~~050) Income taxes ~~16,705~~950 80214,~~597~~665 (15,~~669~~755) 18134,~~546~~067 _________ _________ _________ _________ (311,~~024~~763) (~~149~~398,~~681~~663) (29,~~100)~~261 (34248,~~444~~983) _________ ________ _________ _________ (~~200~~438,~~149~~054) ~~841~~406,~~949~~163 (44237,~~229~~905) ~~545~~(436,~~293~~977) _________ ________ _________ _________ Comprehensive income(loss) $ 11(208,~~399~~ 560)1,~~151~~068,~~150~~907 81(219,~~642~~959) ~~643~~(83,~~278~~434) See accompanying notes to consolidated financial statements.

CENTRAL NATURAL RESOURCES, INC. AND SUBSIDIARIES KANSAS CITY, MISSOURI Consolidated Statements of Cash Flows Nine months ended September 30, 2001 and 2000 (Unaudited) (amounts in unit dollars)

2001 2000 _________ _________ Cash flows from operating activities: Net earnings $ ~~211~~229,~~548~~494 ~~309~~662,~~201~~744 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depletion, depreciation, and amortization ~~573~~1,135 ~~599~~1,177 Amortization of premiums and discounts of securities, net (137,953) (213,364) Gain on sales of real estate 0(1,106) (3,385) Gain on sales of equity securities (472,~~729~~713) (~~230~~613,~~278~~328) Impairment charge on equity securities 46112,~~088~~502 0- ~~Amortization of premiums and discounts of Securities, net (101,819) (148,894)~~ Changes in assets and liabilities: Accounts receivable and other assets 815,~~381~~575 2835,~~739~~994 Deferred oil lease bonus 71,030 - Accounts payable and accrued expenses 28,~~137~~133 (152,~~239~~781) Federal and state income taxes ~~payable~~ (54113,~~595~~732) 7133,~~361~~144 ~~_________~~__________ _________ Total adjustments (47,129) (662,543) Net cash provided by ~~(used in)~~ operating activities ~~(64~~182,~~584)~~365 ~~(51,896)~~201 Cash flows from investing activities: Proceeds from note receivable 12,208 11,558 Proceeds from matured/called investment debt securities 1216,000,000 1422,972,217 Purchases of investment debt securities (1115,~~915~~876,~~195~~930) (1119,~~335~~235,~~425~~702) Proceeds from sales of land 01,125 3,424 Purchases of equity securities (~~285~~419,~~698~~274) (~~671~~921,~~792~~058) Proceeds from sales of equity securities ~~256~~312,~~892~~893 ~~373~~890,~~053~~246 Purchase of other investments (250,000) (100,002) _________ _________ Net cash provided by (used in) investing activities (~~181~~219,~~793~~978) 3,~~253~~620,~~033~~683 _________ _________ Cash flows from financing activities: ~~Dividend~~Purchase ~~paid~~of ~~(251,962)~~treasury stock - (~~127~~3,~~776~~311,729) ~~Purchase~~Payment of ~~common~~dividends ~~stock~~(377,943) ~~for treasury 0~~ (3127,~~277,669~~776) _________ ~~________~~_________ Net cash used in financing activities (~~251~~377,~~962~~943) (3,~~405~~439,~~445~~505) _________ _________ Net (decrease) increase in cash and cash equivalents (~~369~~415,~~171~~556) ~~(204~~181,~~308)~~379 Cash and cash equivalents, beginning of year 1,748,510 1,894,021 _________ _________ Cash and cash equivalents, end of ~~year~~period $ 1,~~379~~332,~~339~~954 12,~~689~~075,~~713~~400 See accompanying notes to consolidated financial statements.

CENTRAL NATURAL RESOURCES, INC. AND SUBSIDIARIES KANSAS CITY, MISSOURI Notes to Consolidated Financial Statements September 30, 2001 Note (1) Basis of Presentation In the opinion of Central Natural Resources, Inc. (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 September 30, 2001, and the results of operations and cash flows for the periods ended September 30, 2001 and 2000. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year. 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 September 30, 2001 and December 31, 2000 are as follows:

Gross Gross unrealized unrealized Amortized holding holding Fair ~~June~~September 30, 2001 cost gains losses value __________________ __________ __________ __________ __________ Held-to-maturity: U. S. government securities $ 3,~~987~~985,~~203~~072 03,961 ~~(769)~~- 3,~~986~~989,~~434~~033 Available-for-sale: Equity securities $ 1,~~239~~206,~~918~~062 ~~240~~119,~~722~~740 (~~214~~459,~~099~~121) 1866,~~266,541~~681

December 31, 2000 _________________ Held-to-maturity: U. S. government 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~~

CENTRAL NATURAL RESOURCES, INC. AND SUBSIDIARIES KANSAS CITY, MISSOURI Notes to Consolidated Financial Statements September 30, 2001 Investment income (loss) consists of the following for each of the periods ended September 30:

~~Six~~Nine months ended Three months ended ~~June~~September 30, ~~June~~September 30, 2001 2000 2001 2000 ________ _______ _______ _______ Realized gains (loses)on sales of equity securities $ 472,~~729~~713 ~~230~~613,~~278~~328 44(45,~~769~~016) 52383,~~990~~050 ~~Interest~~Impairment ~~Income~~charge ~~132~~(112,~~082~~502) ~~195,685~~- 58(66,~~768~~414) ~~84,442~~- ~~Dividend~~Interest Income 5177,~~389~~943) 7282,~~935~~512 245,~~617~~861 486,~~570~~827 ~~Impairment~~Dividend ~~charge~~Income ~~(46~~6,~~088)~~727 012,679 ~~(46~~1,~~088)~~338 04,744 ________ _______ _______ _______ $ ~~139~~74,~~112~~881 ~~433~~908,~~898~~519 60(64,~~066~~231) ~~142~~474,~~002~~621

Investments in debt and certain equity securities are classified as either held-to-maturity securities, which are carried at amoritized cost, or available-for-sale securities, which are carried at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed to be other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. Other than temporary impairment is analyzed quarterly on an individual security basis on the length of time and the extent to which market value has been less than cost; the financial condition and any specific events which effect the issuer; and the Company's intent and ability to hold the security. During the nine months and three months ended September 30, 2001, the Company recognized an impairment chargefor declines in market values of equity securities consideredto be other than temporary of $112,502 and 66,414, respectively. (3) Dividends Paid During the quarter ended September 30, 2001, the Company's Board of Directors declared a $.25 dividend per share which was paid on August 31, 2001. (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 consolidated 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 end of the first nine months 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 over 20% in the first nine months of 2001 over the first nine months of 2000, although it was down somewhat in the third quarter of 2001 from the third quarter of 2000. The decrease in total operating revenue in the current quarter was primarily due to reduced revenue from oil and gas royalties which, in turn, was due to lower prices of oil and gas during the current quarter. However, higher prices and greater production during the earlier quarters of 2001 accounted for an increase in revenue from oil and gas royalties in the nine month period of 2001 over the nine month period in 2000, and thus accounted for greater total operating revenue in the current nine month period. As reported last quarter, a lessee has commenced drilling operations exploring for coal bed methane gas in certain of the Company's coal properties located in Sebastian County, Arkansas. A pipeline has been laid to the drilling sites and production is scheduled to commence in the fourth quarter of 2001. Although results of test drilling have appeared to be promising, the level of commercial production is uncertain at this time, and should positive results be achieved in the commercial production of coal bed methane gas under this lease, it may very well be some time, perhaps even a number of years, before the Company realizes material royalty revenue from this source. Revenue from oil and other mineral lease rentals and bonuses was down in the first three quarters of 2001 from the same period in 2000 because there were fewer new leases made in the current period with income recognizable in that period. Non-operating income was down significantly in the first nine months of 2001 from the first nine months of 2000, and also down in the third quarter of 2001 from the third quarter of 2000. The decreases resulted from lower capital gain income being realized on the sale of equity securities during the current periods under comparison, somewhat lower rates of return on temporary fixed income investments during the current periods, and the reduced size of the portfolio of fixed income investments during the current periods under comparison. Additionally, as described in note (2) to the accompanying consolidated financial statements, the Company recognized an impairment charge in the second and third quarters of 2001 reflecting a write-down in the carrying value of certain securities because decreases in current market values have been deemed other than temporary. There is a deferred tax benefit relative to such write-down which will be realized for income tax purposes upon future sale or disposition of the securities. General and administrative expenses were down materially in the third quarter of 2001 from the third quarter of 2000, and also down in the first nine months of 2001 from the first nine months of 2000. The decreases in both cases reflect reduced fees paid to outside service providers during the current periods, somewhat offset by increased compensation. Income taxes were lower for the first nine months of 2001 than for the first nine months of 2000 principally as a result of reduced earnings before income taxes. There was a net decrease in cash and cash equivalents in the first nine months of 2001, and a net increase in cash and cash equivalents in the first nine months of 2000. The most significant component of the changes between the periods under comparison was the difference in cash provided by or used in investment activities; specifically, differences in the amount of proceeds from the 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 differences was reduced net earnings in the first nine months of 2001 compared to the first nine months of 2000, partially offset by reduced income tax expense in the current period, and increased deferred oil lease bonuses received in the current period. The lower net earnings in 2001 include an impairment charge on equity securities which reduced earnings but did not reduce cash. Also, there were greater cash dividends paid to stockholders during the first nine months of 2001 than in the first nine months of 2000. There was also a sizeable expenditure in the first nine months 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 periods prior to the current fiscal year have been restated to reflect the stock dividend for the periods presented. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERAATIONS, continued A cash dividend of $0.25 per share was paid in each of the first three quarters of 2001. While the Board of Directors had previously expressed the intention to continue paying the $0.25 per share quarterly dividend if the operating results and financial condition of the Company continued to justify it, as reported last quarter, at a Board meeting held July 20, 2001, the Board expressed a consensus that in the next quarter, the Board might reevaluate the quarterly dividend policy in light of possible needs to retain liquidity for potential acquisitions under consideration and for other possible areas of internal growth. At a subsequent Board meeting held after the close of the third quarter, the Board declared a dividend for the fourth quarter of $0.125 per share and explained that since total year-to-date net earnings for this year are somewhat below total net earnings for the same period last year, due in substantial part to a material decrease in energy prices, and in furtherance of the objective to retain liquidity for potential acquisitions under consideration and for other possible areas of internal growth, it would be advisable to reduce the fourth quarter quarterly dividend payment. Statement of Financial Accounting Standards SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, was issued by the Financial Accounting Standards Board (FASB) 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. In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, as well as all purchase method business combinations completed after June 30, 2001. SFAS No. 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled work force may not be accounted for separately. SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment. The Company is required to adopt SFAS No. 142 effective January 1, 2002. The Company currently has no goodwill or significant other intangible assets. On October 3, 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addressees financial accounting and reporting for the impairment or disposal of long-lived assets. While this statement supersedes SFAS No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, it retains many of the fundamental provisions of that Statement. This statement also supersedes the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However , it retains the requirement in Opinion No. 30 to report separately discontinued operations and extends that reporting to a component of a entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. This statement is effective for fiscal years beginning after December 15, 2001, except in certain circumstances. The Company is required to adopt SFAS No. 144 on January 1, 2002. The Company is currently reviewing what impact the provisions of this statement will have if any, on its financial position and results of operations. 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. The Board also continues to review numerous possible acquisition opportunities of operating businesses. Three potential acquisitions were reviewed and declined in the past year as not suitable at the present time from a stockholder perspective and other opportunities continue to be investigated, but no firm decision on these acquisition prospects have 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, and may consider acquiring working interests in selected oil and gas operations. 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, including by way of example, assumptions concerning energy prices, the Company's ability to participate in or co-venture successful exploration or production of natural resources (such as oil, gas, coal, and other minerals, and assumptions concerning a relatively stable national economy. Therefore, actual outcomes and results may differ materially from what is expressed, implied, 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 - None Item 5. Other Information - None Item 6. Exhibits and Reports on Form 8-K - None 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. AND SUBSIDIARIES (Registrant) Date: November 14, 2001 ____________________________ By: /s/ Gary J. Pennington ____________________________ Gary J. Pennington, Assistant Treasurer- General Manager, Principal Financial and Accounting Officer Date: November 14, 2001 ____________________________ By: /s/ Phelps M. Wood ____________________________ Phelps M. Wood President

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