Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
Commission File No. 0-1392
CENTRAL NATURAL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
(Formerly Central Coal & Coke Corporation-name change
at December 31, 2000)
Delaware 44-0196290
__________________ __________________
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
127 West 10th Street, Suite 666, Kansas City, Missouri 64105
______________________________________________________ _____
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 816/842-2430
____________
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
___________________ ________________________
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common stock ($1 par value)
___________________________
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates
of the registrant (194,954 shares), as of March 19, 2001 was $3,119,264.
The number of shares outstanding of the issuer's only class of common stock
as of March 19, 2001, is as follows:
Common Stock ($1.00 Par Value) . . . . . . 503,924
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to security holders for fiscal year
ended December 31, 2000, captioned "Selected Consolidated Financial Data,"
"Management's Discussion & Analysis of Financial Condition & Results of
Operations" and range of bid and asked questions and dividends paid on
common stock. (Part II)
Definitive Proxy Statement furnished to security holders and the
Securities and Exchange Commission on March 20, 2001, relative to the
Annual Meeting of Stockholders to be held on April 19, 2001. (Part III)
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
-2-
PART I
ITEM 1. BUSINESS
(a) General Development of Business. The general development of
the registrant's current one business segment, the Energy Business Segment
is described in the narrative description of the business contained in
Section 1(c) hereafter. The registrant historically has been involved
in that business segment. The registrant operated in a second business
segment, the Retail Food Business Segment which was discontinued in 1998.
Since the beginning of the fiscal year, there have been
no bankruptcy, receivership or similar proceedings with respect to
the registrant; there has been no material reclassification, merger
or consolidation of the registrant; there has been no acquisition or
disposition of any material amount of assets otherwise than in the
ordinary course of business other than the acquisition of 97,231
shares of treasury stock (194,462 shares after giving effect to the
stock dividend described in Note 12 to the accompanying financial
statements) in connection with the settlement of disputes described
more fully in Item 3 hereof. There has been no material change in
the mode of conducting the business of the registrant, other than the
change of a majority of Directors in 1999 as described in Item 3.
-3-
(b) Financial Information about Industry Segments. During
the year 2000, the registrant had one reportable segment which
is identified as the Energy Business Segment. For the years
prior to 2000 there was a second reportable segment, the Retail
Food Business Segment, which was discontinued in 1998. See Note
8 to the accompanying financial statements for more detail as to
the discontinuance of the Retail Food Business Segment and financial
information with respect thereto. There were no separate segments
of the registrant prior to 1993.
(c) Narrative Description of Business. The one current business
activity of the registrant consists of the management of its
interests in real properties and as discussed above is now
identified as the Energy Business Segment. Such real property
nterests have been held and managed by registrant for lease to
others for exploration and the extraction of coal and oil and gas
and for surface use. From time to time sales of portions of such
properties have been made. In 1997 the registrant sold approximately
88.17 acres of surface land in Macon County, Missouri for a gain
of $37,309.50, and in 1998 sold approximately 196 acres of surface
land in that county for a gain of $85,421.31, and in 1999 sold
approximately 26 acres of surface land for a gain of $19,282.38,
and in 2000 sold approximately 4.67 acres of surface land for a gain
of $3,390.36. In 1998 the registrant sold approximately 41 acres
of surface land in Sebastian County, Arkansas, for a gain of $19,923,
in 1997 had sold 1.75 acres of surface land in that county for a gain
of $800, in 1996 had sold 7.25 acres of surface land in that county
for a gain of $6,050. Also sold in 1996 was 45 acres of real property
in Pittsburg County, Oklahoma for $31,500, and in 1999 the registrant
sold approximately 35 acres of surface land in that county for a gain
of $24,207. In addition, in 1997 the registrant sold a waiver of
surface rights on 7.21 acres of its Walker County, Texas property
for $2,500. The properties owned at the end of the fiscal year are
described in Item 2.
-4-
During 1993 the registrant commenced a voluntary program
of reforestation on reclaimed open pit coal mining property
located in Arkansas and Oklahoma. The program was not federally
or state mandated, but was undertaken to enhance the value of
its real property and in furtherance of its concept of social
responsibility. Some additional reforestation on its properties
in Arkansas took place in 1997 on which the registrant spent
approximately $1,100 during that year. There was no additional
reforestation expense in 1998, 1999 or 2000. The financial
impact upon the registrant, both in terms of short-term
expenditures and future income should not be material.
Another business activity of registrant consists of the
ownership and management of its investment portfolio of marketable
securities and United States government and agency obligations.
Other than as described above, the registrant produces no
products nor renders any services; however, oil, gas,
and coal are extracted by lessees from properties owned by
the registrant as more fully explained in Item 2.
Other than the fast food bagel and delicatessen business
as a part of the discontinued operation described above, there
have been no new products nor industry segments requiring the
investment of a material amount of assets of the registrant,
and there have been no public announcements nor has information
otherwise become public involving any such new products or
industry segments.
Raw materials are not essential to registrant's businesses.
-5-
There are no patents, trademarks, licenses, franchises and
concessions held by registrant.
No business of any industry activity of the registrant is or may
be seasonal.
The registrant has no significant practices relating to working
capital since it carries no significant amount of inventory and does
not provide extended payment terms to customers.
Bethlehem Steel Corporation was the lessee under a coal lease
from registrant for a term of 40 years commencing in June, 1969,
providing for minimum royalties of $50,000 annually for each of
the first three years and $90,000 annually for the next 36 years,
together with provisions for royalties of 22-1/2 cents per ton of
coal mined and shipped against which the minimum royalties are to
be applied. On October 1, 1984, this lease was amended to
increase the royalty to the greater of $1.00 per ton or 3% of
the F.O.B. mine selling price for all coal paid for by actual
royalty or minimum royalty after that date, and Bethlehem assigned
the lease to another. A portion of the leased property was
subsequently subleased to another party, but Bethlehem continues
to guarantee the total royalty payment. A small amount of mining
has been done on the lease. The loss of the revenues from this
lease would result in a material diminution in the income of registrant,
but the registrant has no reason to believe that the lessee has either
the legal right or intention to cease making the required payments
thereunder.
Royal Oil Company of Corpus Christi, Texas ("Royal Oil") is the
lessee of a number of oil and gas leases covering properties of
the registrant located in San Jacinto County, Texas. During 2000
Royal Oil paid to the registrant royalties on production under
those leases aggregating approximately $365,961 which exceeds
ten percent of the registrant's consolidated revenue.
-6-
SEECO, Inc. of Fayetteville, Arkansas is the lessee of a number
of oil and gas leases covering properties of the registrant located
in Sebastian County, Arkansas. During 2000 SEECO paid the registrant
royalties on production under those leases aggregating approximately
$155,611.
Except as discussed above, there are no customers to which sales
are made in an amount which equals ten percent or more of the
registrant's consolidated revenue.
Registrant's businesses do not have any backlog of unfilled orders.
No material portions of the businesses of registrant may be subject
to renegotiation of profits or termination of contracts or subcontracts
at the election of the Government.
There are no competitive conditions in the businesses in the
registrant's Energy Business Segment which have a material impact on
its operations.
Registrant spent no money during any of the last three fiscal
years on material company-sponsored research and development activities
as determined in accordance with generally accepted accounting
principles. In addition, registrant spent no money during such years
on material customer-sponsored research activities relating to the
development of new products, services or techniques or the improvement
of existing products, services or techniques.
Compliance with Federal, State and local provisions regulating
the discharge of materials into the environment, or otherwise relating
to the protection of the environment will have no material effect upon
the capital expenditures, earnings and competitive position of the
registrant. There are no material estimated capital expenditures for
environmental control facilities for the remainder of the current fiscal
year and the succeeding fiscal year or for any further periods which the
registrant deems material.
-7-
As to business intended to be done by the registrant, it
has, during the last five years, investigated several new
business opportunities, both in the Energy Business Segment
and in other reportable business segments. After review of
those new business opportunities, some were either rejected
as not suitable for the registrant at the present time or taken
off the market and others continue to be investigated by the
registrant for possible acquisition. Management of the
registrant continues to seek out and investigate such new
business opportunities or expansion of existing leasing
activities which could result in a more productive deployment
of the registrant's assets in an effort to increase earnings.
The total number of persons employed by the registrant
itself, as of the end of the fiscal year, was 3.
(d) Financial Information about Geographic Areas. The
registrant does not engage in operations in foreign countries,
nor are portions of sales or revenues derived from customers
in foreign countries.
ITEM 2. PROPERTIES
(a) The principal physical properties of the registrant
are whole or partial interests in approximately 64,000 acres of
real property located in Arkansas, Louisiana, Texas, Kansas,
Oklahoma and Missouri. Registrant's mineral reservation under
the Sam Houston National Forest in Texas on an additional 76,000
acres expired on January 1, 1985, but was extended for a five-year
period on about 6,280 acres with producing wells, which period
expired January 1, 1990. Another 640 of these acres were lost
on January 1, 1990, and an additional 1,623 of these acres were
lost on January 1, 1995, leaving the registrant's rights in 4,017
remaining acres, which were due to expire January 1, 2000, unless
extended. These properties were evaluated by the appropriate
United States government agency to determine what portion of the
acreage was in fact extended by production as of that date and what
portion did expire and it appears that no material portion of that
acreage failed to be extended by production. In later parts of this
Item 2 references are made to the ownership of "minerals." The
registrant is the owner of all or part of the subsurface minerals
on large portions of the properties involved, but the only minerals
of primary interest to the registrant are coal, oil and gas.
-8-
(1) REAL PROPERTY INTERESTS IN THE STATE OF ARKANSAS.
The registrant is the owner of approximately 1,658
acres in fee simple, of minerals underlying approximately
16,447 additional acres, and of a number of town lots in three
small towns, all in Sebastian County, Arkansas, having sold
approximately 7.25 acres in 1996, 1.75 acres in 1997, and 41
acres in 1998.
Mineral interests underlying approximately 13,600
acres are under a coal lease to the assignee of Bethlehem Steel
Corporation under the coal lease described in Item l(c).
An additional 30 acres of the registrant's Arkansas properties
are currently being leased under a coal lease. Another 586 acres
were leased in 1993 under two separate oil and gas leases (both
to the same lessee) for 5-year terms, one of which expired in
1998 without any production, but the other of which commenced
production during that year. In 1997 another 120 acres were
leased for a 3-year term. Production commenced on this lease
during 1999. In 1998 another 250 acres were leased under three
separate oil and gas leases, each for a 3 year term. Production
commenced on all three leases during 1999. In 2000, another 119
acres were leased for a 5-year term. As yet there is no production
under this lease.
-9-
Of the 13,600 acres currently under a coal lease to the
assignee of Bethlehem Steel Corporation as described in the preceding
paragraph, 10,537.23 acres were leased to C.D. Exploration, Inc. in
1995 under an Oil & Gas Lease for a term of five years, for which the
lessee paid a bonus of approximately $105,000. An additional 414 acres
were leased in 1994 under three separate oil and gas leases (two to the
same lessee), one for a three year term and the other two for five year
terms, one of which expired in 1997 with no production, one of which
expired in 1999 with no production, and one of which commenced production
in 1998. An additional 1,483.31 acres were leased in 1996 in one oil and
gas lease for a term of five years. As yet there is no production under
this lease. In addition, registrant has fractional royalty interests
in 13 small producing gas wells which are located on an approximately
7,040 acre tract of which registrant owns 2,192 acres.
(2) REAL PROPERTY INTERESTS IN THE STATE OF TEXAS.
The registrant was the owner of practically all of the mineral
interests in approximately 90,551 acres located in the Texas counties
of San Jacinto, Walker and Montgomery, of which approximately 82,674
acres were under a reservation (in a deed of December, 1935) which
covered all oil, gas, sulphur and other minerals on, in, under or
that may be produced from the lands for a period commencing with the
date of the deed and ending on January 1, 1985, and provided further
that if on said latter date minerals were being produced in paying
quantities then the reservation would be extended for a five-year
period as to an area of one square mile of which the well is the
center and for subsequent extensions for additional five-year periods
so long as paying operations are being conducted on the premises. The
right to prospect for and mine and remove minerals was further limited
by various requirements of the United States. As described in Item 2(a)
above, this reservation expired on January 1, 1985, and the wells then
producing on such properties permitted the registrant to retain until
January 1, 1990, about 6,280 acres in the Mercy Field, West Mercy Field
and Moroil Field and as of January 1, 1995, the registrant continued to
retain approximately 4,017 of such acres, while production continues.
The reservation was extended for an additional five-year term which
ended January 1, 2000. As discussed in Item 2(a) above,
-10-
the property was evaluated to determine what portion thereof the
registrant is entitled to retain by production, and what portion
thereof has expired, and it appears no material portion
thereof expired.
In addition to the wells still under production from the
earlier leases, in 1997 one additional lease was made on 241.73
acres of registrant's Walker County, Texas property, and a
producing well was drilled on this property during 1999. In
year 2000 10 acres were leased for a 3-year term. As yet there
is no production under this lease.
The registrant's mineral interests in its remaining acreages
of approximately 7,788.55 acres in Texas are reservations of
perpetual mineral rights. In the case of approximately 7,600
of those acres, one-thirty-second of the minerals are vested
in the owner of the surface of said properties but with the
right in the registrant to make all leases on the acreage and
to keep all bonuses and rentals received under such leases.
In January, 1995, the entire 7,788.55 acres of these mineral
interests were leased under one oil and gas lease for a term
of three years with one option to renew for an additional two
years, which the lessee has exercised in January 1998, upon
payment of approximately $194,000 to the registrant. The
lessee originally paid a bonus of approximately $311,000 in
connection with the initial term of this lease. There was no
production under this lease, and therefore it expired in
January, 2000, and this acreage is now open for lease.
-11-
(3) REAL PROPERTY INTERESTS IN THE STATE OF LOUISIANA.
In January, 1967, the registrant sold approximately 35,000
acres of Louisiana real property reserving mineral servitudes
thereon. Under Louisiana law the ownership of mineral servitudes
not exercised through production or drilling to a depth at which
production reasonably can be expected to be found expires by
liberative prescription after a period of such nonuser of ten
years. No production or drilling occurred on approximately
14,000 of the acres sold in 1967 within the ten-year period
and, hence, the registrant's ownership of the mineral
servitudes under such approximately 14,000 acres was extinguished
as of January 26, 1977. During 1978, the registrant's ownership
of the mineral servitudes under 1,243 additional acres was
extinguished because production had been exhausted for ten
years. Mineral servitudes under the remaining acres sold
in 1967 have been extended by drilling or production for
various periods expiring after January 26, 1977. The registrant's
rights to approximately 8,530 additional acres of these
servitudes expired during 1994.
In the Hurricane Creek Field, Beauregard Parish, Louisiana,
880 acres are held by production which commenced in 1947.
The leases of the registrant in the Hurricane Creek Field
provide for one-eighth gross royalties except as to 160
acres for which the gross royalty is one-fourth. In 1964,
a Unitization Agreement covering one producing sand was executed
by various interested parties in the Hurricane Creek Field so
as to permit a secondary recovery program, and a second
Unitization Agreement was executed in March, 1994.
In the Clear Creek Field, Beauregard Parish, Louisiana,
approximately 600 acres were held under oil and gas leases by
production which commenced in 1955 and were
-12-
terminated during 1991. The registrant's interest in this 600
acres will continue for 10
years from this date pursuant to the Louisiana law concerning
mineral servitudes as described above. In addition, approximately
400 additional acres in Beauregard Parish, Louisiana, are held
under production pursuant to a lease, the original term of which
expired many years ago but which continues by production.
The registrant leased approximately 9,339 acres of its real
property in Vernon Parish, Louisiana, for a term of four years,
pursuant to the exercise of a geo-option made in early 1991.
This lease was extended for an additional year in 1995, and one
well was drilled but it turned out to be a "dry hole," and there
was no production. This property is currently available for
lease and if there is no further attempted production by
December, 2006, the registrant's rights in this property
will expire.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
-13-
(4) REAL PROPERTY INTERESTS IN OKLAHOMA AND KANSAS.
The registrant is the owner of interests in real property
in three counties in eastern Oklahoma and three counties in southeast
Kansas, which ownership consists of approximately 1,350 acres in fee
simple (having sold approximately 35 acres of surface land located in
Pittsburg County, Oklahoma during 1999), and approximately 13,546
additional acres of underlying minerals. A substantial part of
such 13,546 acres of mineral ownership is described in the
conveyances or reservations giving rise to such ownership
as "coal" or "coal and asphaltic minerals."
In the year 2000, 710 acres were leased for a 3-year term.
As yet there is no production from this lease. The registrant in
the past has also rented the surface of portions of its lands in
Kansas and Oklahoma, largely for agricultural purposes, under leases
of not to exceed one year.
(5) REAL PROPERTY INTERESTS IN THE STATE OF MISSOURI.
In Randolph and Macon Counties, Missouri, the registrant is the
owner of approximately 44 acres in fee simple, (having sold 4 acres
of surface land in 1995, approximately 88 acres of surface land in 1997,
approximately 196 acres of surface land in 1998, and approximately 26
acres of surface land in 1999, and approximately 3 acres of surface
land in year 2000) and of the minerals underlying 6,147 acres.
Substantially all of the mineral ownership is described in the
conveyances from which it arose as "coal" or "coal and other minerals."
The properties involved were acquired by predecessor companies for the
principal purpose of mining coal therefrom, and extensive mining was
conducted thereon by the predecessors.
-14-
The registrant has previously rented the surface of
portions of its lands in Missouri, largely for agricultural purposes,
under leases of not to exceed one year, but no such leases are in
effect at this time.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
-15-
(6) RETAIL FOOD BUSINESS SEGMENT LEASES.
The operations of the fast food bagel and delicatessen
facilities constituting the Retail Food Business Segment had previously
been carried out from leased premises. This business segment was
discontinued in 1998 as described above and all leases were either
assigned to other unrelated parties or terminated.
(b) The registrant does not participate in any oil and gas operations.
However, the registrant is the owner of certain properties (fully
described above in this Item), part of which are leased to outside
interests for the production of oil and gas. The registrant receives
bonuses, rentals and royalties for the use of the land and mineral
interests leased by it.
ITEM 3. LEGAL PROCEEDINGS
(a) The 1999 annual meeting of Stockholders of the registrant
was held April 21, 1999 pursuant to notice duly sent to the
Stockholders as required by law. Management had solicited proxies
pursuant to Regulation 14A of the Securities Exchange Act of 1934
to elect a slate of the incumbent Directors consisting of Leonard
Noah, Gary J. Pennington, Beekman Winthrop, Phelps M. Wood, and
Ernest N. Yarnevich, Jr.
At the meeting Stockholders present in person and by proxy
elected an alternative slate of Directors consisting of Ray A.
Infantino, Patrick J. Moran, Phelps C. Wood, Phelps M. Wood, and
James R. Ukropina.
The shares voted for the alternative slate of Directors
totaled 171,270 shares, except for Phelps M. Wood who received
votes of 327,063 shares as he received votes cast in favor of the
-16-
incumbent slate nominated by management as well as the alternative
slate, while votes cast in favor of the incumbent slate nominated
by management were 155,792 shares for Messrs, Noah, Pennington and
Yarnevich and 155,793 shares for Mr. Winthrop. Cumulative voting
was not permitted. (All references to shares in this Item 3(a) are
NOT adjusted for the stock dividend of one share of common stock for
each common share outstanding distributed February 13, 2001 as described
in Note 12 to the accompanying financial statements.)
At the meeting of the newly elected Board of Directors
following the Stockholders meeting, the Bylaws of the registrant were
amended to increase the number of Directors to seven (7). By motion
unanimously adopted, Bruce L. Franke and Beekman Winthrop were offered
seats on the Board of Directors. Mr. Franke accepted and Mr. Winthrop
expressed his desire to consider the matter further and notify the Board
of his acceptance or rejection of the offer by the end of May.
On May 14, 1999, Beekman Winthrop, together with a few other
Stockholders, filed a lawsuit in state court in Delaware challenging
the results of the election of Directors. The action styled Winthrop,
et al v. Central Coal & Coke Corporation, et al, C.A. No. 17162, was
pending in the Court of Chancery for the State of Delaware in and for
New Castle County. The registrant and all newly elected Directors
were named as defendants, and the plaintiffs asked the court to
invalidate the election of the new Board. Subsequently, on May 28,
1999 Mr. Winthrop advised the registrant that he declined the
invitation to become a Director.
Discovery in the lawsuit proceeded, and a trial was scheduled
for August 3, 1999. On July 29, 1999 the record owners of 179,009
shares of common stock of the registrant (a majority of the outstanding
shares) executed written consents which were delivered to the registrant
on July 29, 1999.
-17-
Pursuant to the consents, Phelps M. Wood, Phelps C.
Wood, Bruce L. Franke, Ray A. Infantino, Patrick J. Moran and
James R. Ukropina were elected Directors of the registrant, confirming
the results of the election held at the Annual Meeting on April 21, 1999.
The action taken by the written consents was done pursuant to Section 228
of the Delaware General Corporation Law.
Subsequently, on August 5, 1999, the Court issued its Order of
Dismissal, dismissing the lawsuit with prejudice, but retaining
jurisdiction for purposes of entertaining any application for attorneys'
fees and/or court costs. Legal counsel for the defendants and the
plaintiffs commenced and continued settlement discussions involving the
possible purchase by the registrant of the stock in the registrant owned
by the plaintiffs and the resolution of all pending disputes. On or
about November 2, 1999 the plaintiffs filed a Motion for Costs and
Attorney Fees in the Action requesting the Court to grant their motion
in the amount of' $106,956.65 The registrant and the other defendants
contested the motion by filing briefs in opposition thereto.
The registrant was advised by its Delaware legal counsel in
early November, 1999 that another lawsuit had been filed. This new
lawsuit was filed in the United States District Court for the District
of Delaware by the same plaintiffs against the Directors of the
registrant individually and the registrant as a "Nominal Defendant."
This new lawsuit also sought the removal of the Directors of the
registrant and sought other relief against the individual Directors,
but did not otherwise appear to seek relief against the registrant
itself.
On November 23, 1999 Dudley Winthrop, one of the plaintiffs
and a Stockholder of the registrant, notified the registrant that he
intended to present a resolution for consideration at the
-18-
Annual Meeting of Stockholders to be held in April, 2000, and requesting
that it be included in the proxy materials for that meeting. The Board of
Directors of the registrantsubsequently determined to oppose the
resolution and recommend to the Stockholders that they vote against it.
On January 28, 2000 the Vice Chancellor in the Delaware state
court action denied the plaintiffs' Motion for Costs and Attorneys Fees.
Settlement discussions continued, and resulted in the execution
by all parties on February 29, 2000 of an Agreement of Settlement
and Release. According to the terms of this Agreement, the registrant
would purchase all shares of stock in the registrant owned by the
plaintiffs, totaling 97,231 shares for a purchase price of $33.50 per
share, or aggregate consideration of $3,257,238.50. The Board of
Directors of the registrant after careful consideration concluded
that $33.50 per share was a fair price under the circumstances based upon
a review of the registrant's financial statements and considering the
costs and risks of continued litigation. The plaintiffs agreed not to
pursue any other rights or remedies with respect to any of the pending
litigation. Additionally, the plaintiffs agreed to standstill provisions
whereby they would not directly or indirectly acquire any interest in the
registrant in the future or participate in any proxy solicitation or become
a member of a "group" within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934 with respect to the registrant.
Additionally, the plaintiffs agreed to withdraw the stockholder proposal
submitted November 23, 1999, described above, and to make no further
proposals.
The Settlement Agreement was consummated on March 6, 2000
including the closing of the purchase of the plaintiffs' shares on
the basis described herein.
-19-
As a result of the purchase of the plaintiffs' shares, as of March 7,
2000, there were 255,551 shares issued and outstanding (prior to the
stock dividend described above).
Other than as described above, there are no material pending
legal proceedings, other than ordinary routine litigation incidental
to the business, to which the registrant is a party or of which any of
its property is the subject, and there are no material proceedings to
which any director, officer of affiliate of the registrant, any owner
of record or beneficially of more than five percent of any class of
voting securities of the registrant, or any associate of any such director,
officer or security holder is a party adverse to the registrant or has a
material interest adverse to the registrant. Further, there are no
administrative or judicial proceedings involving the registrant arising
under any federal, state or local provisions which have been enacted or
adopted regulating the discharge of materials into the environment or
primarily for the purpose of protecting the environment.
(b) There were no such material legal proceedings which were
terminated during the fourth quarter of the fiscal year covered by this
report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Board of Directors of the registrant solicited written consents
of the Stockholders pursuant to a Consent Statement filed with the
Securities and Exchange Commission December 11, 2000 in accordance
with Schedule 14A promulgated under the Securities Exchange Act of 1934.
The record owners of 183,608 shares of common stock of the registrant-a
majority of the outstanding shares-executed written consents which were
delivered to the registrant on or before December 26, 2000. Pursuant to
the consents, the "Amended and Restated Certificate of Incorporation of
Central Coal & Coke Corporation" in the form attached hereto as
Exhibit 3(i)and
-20-
incorporated herein by this reference was approved.
The Amended and Restated Certificate of Incorporation was filed
with the Secretary of State of Delaware on December 26, 2000, and
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 of the registrant was changed from "Central Coal & Coke
Corporation" to "Central Natural Resources, Inc." and the authorized
number of shares have been 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.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The common stock of the registrant is traded over the counter.
The approximate number of stockholders as of March 19, 2001 was 400.
The range of bid and asked quotations and the dividends paid on such
securities for each quarterly period during the registrant's two most
recent fiscal years as required by Item 201 of Regulation S-K is set
forth on the inside back cover of the Annual Report as of
December 31, 2000, furnished to the stockholders of the registrant,
and attached as an exhibit hereto, which portion of the Annual Report
is incorporated herein by this reference.
The Board of Directors of the registrant has expressed its
current intention to continue paying a $0.25 per share quarterly
dividend if the operating results and financial condition of the
registrant continue to justify it.
-21-
There have been no sales of either registered or
unregistered securities by the registrant during the past
three years
(b) There have been no sales of either registered or
unregistered securities by the registrant during the past
three years.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is set forth under
the caption "SELECTED CONSOLIDATED FINANCIAL DATA" in the
Annual Report as of December 31, 2000, furnished to the stockholders
of the registrant, and attached as an exhibit hereto, which
portion of the Annual Report is incorporated herein by this
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is set forth under
the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS" in the Annual Report as of
December 31, 2000, furnished to the stockholders of the
registrant, and attached as an exhibit hereto, which portion
of the Annual Report is incorporated herein by this reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information concerning quantitative and qualitative
disclosures concerning market risk required by Item 305 of
Regulation S-K is contained in Management's Discussion and
Analysis of Financial Condition and Results of Operations set
forth in Item 7 above of this report which is incorporated herein
by this reference.
-22-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements required by this item are as
follows:
Consolidated Balance Sheets as of December 31, 2000 and 1999;
Consolidated Statements of Earnings - Years ended December 31, 2000,
1999 and 1998;
Consolidated Statements of Comprehensive Income - Years Ended
December 31, 2000, 1999 and 1998;
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 2000, 1999 and 1998.
Consolidated Statements of Cash Flows - Years ended
December 31, 2000, 1999 and 1998;
Notes to Consolidated Financial Statements
These financial statements are filed as a part of this report,
beginning on page 31 hereof, and areincorporated herein by
this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
(a) The only independent accountant who was engaged during the
registrant's two most recent fiscal years or any subsequent interim
period as the principal accountant to audit the registrant's financial
statements has not resigned (nor indicated it has declined to stand
for re-election after the completion of the current audit) nor was
dismissed.
-23-
(b) No new independent accountant has been engaged as the
principal accountant to audit the registrant's financial
statements during the registrant's two most recent fiscal
years or any subsequent interim period.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth on pages
1 through 6 of registrant's definitive proxy statement filed with
the Securities and Exchange Commission pursuant to Schedule 14A
promulgated under the Securities Exchange Act of 1934 on March
20, 2001, under the caption "ELECTION OF DIRECTORS", which portion
of said definitive proxy statement is incorporated herein by this
reference with the following corrections. The ages of both
Phelps M. Wood and Ray A. Infantino were incorrect. As of the
date of filing of this report, Mr. Wood is 65 and Mr. Infantino
is 64.
In response to Item 405 of Securities and Exchange
Commission Regulation S-K, and as is disclosed in registrant's
definitive proxy statement filed with the Securities and Exchange
Commission pursuant to Schedule 14A promulgated under the Securities
Exchange Act of 1934, under the sub-caption "Section 16(a) Beneficial
Ownership Reporting Compliance," which portion of said definitive
proxy statement is incorporated herein by this reference,
Mr. Phelps M. Wood as a result of an inquiry conducted by the
Securities and Exchange Commission (S.E.C.) discovered that he
had inadvertently made a number of filings late in prior years.
Mr. Wood, on April 20, 2001 consented to the entry of a Cease
and Desist Order (the "Order") entered by the S.E.C. on
April 12, 2000,
-24-
without admitting or denying the matters therein
in which it was acknowledged that he failed to timely file a
Form 3 reporting his holdings of the registrant for a period of
two weeks, failed to file timely for periods ranging from one week
to more than nineteen years and five months twenty-three Forms 4,
and failed to file timely for periods of eleven months and two
weeks and three years and eleven months two Forms 5. The Order
requires Mr. Wood to cease and desist from committing or causing
any violations of and committing or causing, any future violations
of, Section 13(d) and 16(a) of the Exchange Act and Rules 13d-1,
13d-2, 16a-2 and 16a-3 promulgated thereunder. The registrant,
at the time of filing of this FORM 10-K, has reviewed the
information necessary to ascertain, and has determined that,
other than as to Mr. Phelps M. Wood's late filings described above,
Item 405 disclosure is not expected to be contained in this
Part III of FORM 10-K or incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth on page 4
of registrant's definitive proxy statement filed with the Securities
and Exchange Commission pursuant to Schedule 14A promulgated under
the Securities Exchange Act of 1934 filed March 20, 2001, under the
caption "ELECTION OF DIRECTORS", which portion of said definitive
proxy statement is incorporated herein by this reference.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
-25-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is set forth on pages
1, 2 and 3 of registrant's definitive proxy statement filed with
the Securities and Exchange Commission pursuant to Schedule 14A
promulgated under the Securities Exchange Act of 1934, under the
captions "VOTING SECURITIES OUTSTANDING AND VOTING RIGHTS"
and "ELECTION OF DIRECTORS", which portions of said definitive
proxy statement are incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth on pages
1 through 5 of registrant's definitive proxy statement filed
with the Securities and Exchange Commission pursuant to Schedule
14A promulgated under the Securities Exchange Act of 1934, under
the caption "ELECTION OF DIRECTORS," which portion of said
definitive proxy statement is incorporated herein by this
reference.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
-26-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Independent Auditors' Report
2. Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Earnings - Years ended December 31,
2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Comprehensive Income - Years ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows - Years ended December
31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
3. Consolidated Financial Statement Schedules:
All schedules are omitted as none are currently required.
4. Exhibits:
(3) (i) Amended and Restated Certificate of Incorporation.
(3)(ii)Bylaws.
(10) Material Contracts:
-27-
(i) Agreement of Settlement and Release dated
February 29, 2000 is incorporated by reference to
Exhibit 10(i) to the Annual Report on Form 10-K
for the registrant for the fiscal year ended
December 31, 1999.
(iii)(A) Central Coal & Coke Corporation's Directors
Non-Qualified Stock Option Plan is incorporated
herein by reference to Exhibit (10)(iii)(A) to the
Annual Report on Form 10-K for the registrant for
the fiscal year ended December 31, 1994. This Plan
was approved by the registrant's stockholders
at the Annual Meeting held April 19, 1995, and is
discussed in the Definitive Proxy Statement for
that meeting previously filed with the Commission
and in the Definitive Proxy Statement for
the Annual Meeting of Stockholders to be held
April 19, 2001, previously filed with the Commission.
(iv) Central Natural Resources, Inc. 2001 Stock
Incentive Plan approved by the Board of Directors
February 7, 2001 and submitted to Stockholders for
approval at the Annual Meeting of Stockholders to be
held April 19, 2001. This Plan is discussed
in the Definitive Proxy Statement for that meeting
and was filed with the Commission with that Proxy
Statement and is incorporated herein by this
reference.
(13) Portions of the Annual Report to security
holders for year ended December 31, 2000 captioned
"Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial
Condition & Results of Operations" and range of bid
and asked quotations and dividends paid on common stock.
(21) Subsidiaries of the registrant
(b) No reports on Form 8-K were filed during the last quarter of the
period covered by this report, but a Form 8-K was filed January 3, 2001
with respect to the approval by the Stockholders of the Amended and Restated
Certificate of Incorporation described in Item 4 above of this report,
which Amended and Restated Certificate of Incorporation was filed with
the Secretary of State of Delaware effective December 31, 2000.
-28-
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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 COAL & COKE CORPORATION
_______________________________
Registrant
By /s/ Phelps M. Wood
________________________________
Phelps M. Wood, President
Date: March 29, 2001
-29-
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By /s/ Phelps M. Wood
________________________________
Phelps M. Wood, President
Principal Executive Officer
Date: March 29, 2001
/s/ Gary J. Pennington
________________________________
Gary J. Pennington
General Manager, Principal
Financial Officer, and
Date: March 29, 2001 Principal Accounting Officer
By /s/ Bruce L. Franke
________________________________
Bruce L Franke, Director
Date: March 29, 2001
By /s/ Ray A. Infantino
________________________________
Ray A. Infantino, Director
Date: March 29, 2001
By /s/ Patrick J. Moran
________________________________
Patrick J. Moran, Director
Date: March 29, 2001
By /s/ James R. Ukropina
________________________________
James R. Ukropina, Director
Date: March 29, 2001
By /s/ Phelps C.Wood
________________________________
Phelps C. Wood, Director
Date: March 29, 2001
By /s/ Phelps M. Wood
________________________________
Phelps M. Wood, Director
-30-
CENTRAL COAL & COKE CORPORATION AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Table of Contents
Page
Independent Auditors' Report 31
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2000 and 1999 32
Consolidated Statements of Earnings - years ended December 31, 2000,
1999 and 1998 34
Consolidated Statements of Stockholders' Equity - years ended December
31, 2000, 1999 and 1998 35
Consolidated Statements of Comprehensive Income - years ended December
31, 2000, 1999 and 1998 36
Consolidated Statements of Cash Flows - years ended December 31, 2000,
1999 and 1998 37
Notes to Consolidated Financial Statements 38
-31-
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Central Natural Resources, Inc. and Subsidiaries:
We have audited the consolidated financial statements of Central Natural
Resources, Inc. and subsidiaries, as listed in the accompanying table of
contents. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects,
the financial position of Central Natural Resources, Inc. and subsidiaries
as of December 31, 2000 and 1999 and the results of their operations and
their cash flows for each of the years in the three-year period ended
December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Kansas City, Missouri
January 19, 2001, except as to note 12,which is as of
February 13, 2001
-32-
CENTRAL NATURAL RESOURCES, INC. AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Consolidated Balance Sheets
December 31, 2000 and 1999
(amounts in unit dollars)
ASSETS 2000 1999
__________ __________
Current assets:
Cash and cash equivalents $ 1,748,510 1,894,021
Accounts receivable 22,500 42,000
Securities maturing within one year,
at amortized cost (note 2) 3,970,189 7,469,944
Notes receivable, current 16,720 15,402
Other 10,064 10,343
__________ __________
Total current assets 5,767,983 9,431,710
Equity securities, at fair value (note 2) 1,544,018 1,648,832
Notes receivable, noncurrent 83,287 100,007
Other investments 100,002 -
Coal deposits, real estate, equipment
and leasehold improvements (notes 3 and 4):
Coal deposits 1,602,882 1,602,882
Mineral rights 39,988 39,988
Surface land 25,581 25,620
Equipment and leasehold improvements 1,303 1,303
__________ __________
1,669,754 1,669,793
Less accumulated depletion, depreciation
and amortization 578,225 578,225
Net coal deposits, real estate, __________ __________
equipment and leasehold improvements 1,089,213 1,091,568
__________ __________
Total assets $ 8,584,503 12,272,117
-33-
CENTRAL NATURAL RESOURCES, INC. SUBSIDIARIES
KANSAS CITY, MISSOURI
Consolidated Balance Sheets
December 31, 2000 and 1999
(amounts in unit dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 10,946 26,062
Federal and state income taxes 62,525 42,011
__________ __________
Total current liabilities 73,471 68,073
Deferred income taxes (note 5) 149,993 408,445
Stockholders' equity:
Preferred stock of $1 par value; 100,000
shares authorized; no shares issued - -
Common stock of $1 par value; 2,500,000 shares
authorized; 503,924 and 753,376 shares
issued in 2000 and 1999, 503,924 753,376
Additional capital - 1,631,200
Retained earnings 7,639,660 9,423,243
Less cost of 47,810 shares in 1999
held in treasury - (716,166)
Accumulated other comprehensive income,
net of deferred taxes of $117,091 in 2000
and $379,049 in 1999 217,455 703,946
__________ __________
Total stockholders' equity 8,361,039 11,795,599
Commitments and contingencies (notes 3 and 6)
__________ __________
Total liabilities and stockholders' equity $ 8,584,503 12,272,117
See accompanying notes to consolidated financial statements.
-34-
CENTRAL NATURAL RESOURCES,INC. AND SUBSIDIARIES
KANSAS CITY, MISSOURI
Consolidated Statements of Earnings
Years ended December 31, 2000, 1999 and 1998
(amounts in unit dollars)
2000 1999 1998
_________ _________ _________
Operating revenue(note 8):
Coal royalties (note 3) $ 94,628 97,122 97,402
Oil and gas royalties 592,229 395,262 366,505
Oil and other mineral lease rentals
and bonuses 54,632 123,491 126,266
_________ _________ _________
Total operating revenue 741,489 615,875 590,173
General and administrative
expenses 522,082 572,096 284,797
Operating income 219,407 43,779 305,376
Nonoperating income:
Investment income (note 2) 1,063,379 826,885 476,529
Gain on sales of real estate 3,385 43,489 105,345
Other 5,700 3,166 482
_________ _________ _________
Total nonoperating income 1,072,464 873,540 582,356
Earnings from continuing operations
before income taxes 1,291,871 917,319 887,732
Income taxes (note 5) 435,290 266,309 298,759
Earnings from continuing operations 856,581 651,010 588,973
Discontinued operations, net of income
taxes (note 8)
Loss from operations of discontinued
food operations - - (84,420)
Gain on disposal of food operations - - 12,866
_________ _________ _________
- - (71,554)
Net earnings 856,581 651,010 517,419
Earnings per share from continuing
operations - basic and diluted $ 1.58 0.92 0.83
Loss per share from discontinued
operations - basic and diluted $ - - (0.10)
Earnings per share - basic and diluted $ 1.58 0.92 0.73
Weighted average number of shares of
common stock outstanding - basic
and diluted 543,528 709,470 713,160
See accompanying notes to consolidated financial statements.
-35-
CENTRAL NATURAL RESOURCES, INC.
KANSAS CITY, MISSOURI
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2000, 1999 and 1998
(amounts in unit dollars)
Accumulated
other
Common Additional Retained Treasury comprehensive
stock capital earnings stock income Total
_______ _________ _________ _________ ________ __________
Balance,
December
31, 1997 753,376 1,631,200 8,876,110 (599,032) 230,438 10,892,092
Net earnings 0 0 517,419 0 0 517,419
Cash dividends
($0.25 per
share) 0 0 (178,298) 0 0 (178,298)
Purchase of
1,200 shares
of common
stock for
treasury 0 0 0 (18,600) 0 (18,600)
Net unrealized
appreciation
on investments
available-for-
sale 0 0 0 0 58,378 58,378
Balance,
December
31, 1998 753,376 1,631,200 9,215,231 (617,632) 288,816 11,270,991
Net earnings 0 0 651,010 0 0 651,010
Cash dividends
($.63 per
share) 0 0 (442,998) 0 0 (442,998)
Purchase of
6,424 shares
of common
stock for
treasury 0 0 0 (98,534) 0 (98,534)
Net unrealized
appreciation
on investments
available-for-
sale 0 0 0 0 415,130 415,130
Balance,
December
31, 1999 753,376 1,631,200 9,423,243 (716,166) 703,946 11,795,599
Net earnings 0 0 856,581 0 0 856,581
Cash dividends
($0.88 per
share) 0 0 (442,753) 0 0 (442,753)
Purchase of
205,642 shares
of common
stock for
treasury 0 0 0 (3,422,087) 0 (3,422,085)
Proceeds from
option exercised
on 4000 shares 0 0 0 60,188 0 60,188
Net unrealized
appreciation
on investments
available-for-
sale 0 0 0 0 (486,491) (486,491)
Cancellation of
249,452 shares
of common
stock for
treasury (249,452)(1,631,200)(2,197,411)4,078,063 0 0
Balance,
December
31, 2000 503,924 0 7,639,660 0 217,455 8,361,039
See accompanying notes to consolidated financial statements.
-36-
CENTRAL NATURAL RESOURCES, INC.
KANSAS CITY, MISSOURI
Consolidated Statements of Comprehensive Income
Years ended December 31, 2000, 1999 and 1998
(amounts in unit dollars)
2000 1999 1998
___________ ___________ ___________
Net earnings $ 856,581 651,010 517,419
___________ ___________ ___________
Other comprehensive income:
Realized gains and unrealized
appreciation (depreciation)
on investments (76,857) 1,011,444 88,649
Income taxes 26,900 (354,006) (31,027)
Realized gains and
unrealized appreciation on
investments, net (49,957) 657,438 57,622
___________ ___________ ___________
Less:
Realized investment(gains)
losses included in net
earnings (671,590) (372,782) 1,164
Income taxes 235,056 130,474 (408)
____________ ___________ ___________
(436,534) (2425,308) 756
(486,491) 415,130 58,378
Comprehensive income $ 370,090 1,066,140 575,797
See accompanying notes to consolidated financial statements.
-37-
CENTRAL NATURAL RESOURCES, INV.
KANSAS CITY, MISSOURI
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
(amounts in unit dollars)
2000 1999 1998
___________ ___________ ___________
Cash flows from operating
activities:
Net earnings $ 856,581 651,010 517,419
Adjustments to reconcile net
earnings to net cash provided by
(used in)operating activities:
Depletion, depreciation
and amortization 2,316 2,339 2,343
Gain on disposal of food
Operations 0 0 (19,494)
Gain on sales of real estate (3,385) (43,489) (105,345)
Loss (gain) on sales of equity
securities (671,590) (372,782) 1,164
Amortization of premiums and
discounts of securities, net (277,727) (375,264) (404,007)
Deferred income taxes 0 (3,499) 87,497
Changes in assets and
liabilities:
Accounts receivables and
other assets 19,779 (25,625) (2,627)
Accounts payable and accrued
expenses (15,116) 95 9,005
Deferred oil lease bonus 0 (97,357) 97,357
Federal and state income
taxes 24,019 74,516 (59,025)
___________ ___________ ___________
Net cash provided by
(used in)operating
activities (65,123) (190,056) 124,287
Cash flows from investing
activities:
Proceeds from note receivable 15,402 12,465 7,126
Proceeds from matured/called
investment debt securities 26,972,217 30,500,000 30,000,000
Purchases of investment debt
securities (23,194,798) (30,120,627) (29,626,098)
Proceeds from sales of land 3,424 44,000 107,330
Purchases of equity securities (1,314,348) (188,578) (477,099)
Proceeds from sales of equity
securities 1,342,367 771,357 174,378
Purchases of other investments (100,002) 0 0
___________ ___________ ___________
Net cash provided by
investing activities 3,724,262 1,018,617 185,637
Cash flows from financing
Activities:
Dividends paid (442,753) (442,998) (178,298)
Purchase of common stock for
treasury (3,422,085) (98,534) (18,600)
Proceeds from exercised options 60,188 0 0
___________ ___________ ___________
Net cash used in financing
activities (3,804,650) (541,532) (196,898)
Net increase (decrease) in cash
and cash equivalents (145,511) 287,029 113,026
Cash and cash equivalents,
beginning of year $ 1,894,021 1,606,992 1,493,966
Cash and cash equivalents,
end of year $ 1,748,510 1,894,021 1,606,992
Income taxes paid during year $ 375,700 229,440 197,400
See accompanying notes to consolidated financial statements.
-38-
CENTRAL NATURAL RESOURCES, INC.
KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(1) Summary of Significant Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements include
the accounts of Central Natural Resources, Inc. (the Company)
and its two wholly owned subsidiaries. The Company's
subsidiaries were engaged in the ownership and operation of
a fast food bagel/delicatessen business, as described below.
All significant intercompany accounts and transactions have
been eliminated in consolidation. Effective December 31, 2000,
the corporate name was changed from Central Coal & Coke
Corporation to Central Natural Resources, Inc.
The Company's subsidiaries operated a fast food
bagel/delicatessen business with four separate locations. A
facility which previously had been operated in an area of San
Diego, California was closed in March 1997. On July 1, 1998,
the facility at State College, Pennsylvania was closed. As of
September 1, 1998, the assets of the remaining two facilities
located in Athens, Ohio and Columbus, Ohio were sold to an
unrelated third party. As a result, the Company is no longer
engaged in the food business and, accordingly, the accompanying
consolidated 1998 financial statements present the Company's
food operations as discontinued operations (see note 8).
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposit accounts
and a money market deposit account. For purposes of the
consolidated statements of cash flows, the Company considers
all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.
Investment Securities
Investments in debt and certain equity securities are
classified as either held-to-maturity securities, which are
carried at amortized 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.
Premiums and discounts are amortized or accreted over the life
of the related held-to-maturity security as an adjustment to
yield using the effective interest method. Dividend and
interest income are recognized when earned. Realized gains and
losses for securities classified as available-for-sale are
included in net earnings and are derived using the specific
identification method for determining the cost of securities
sold.
Coal Deposits, Real Estate, Equipment, and Leasehold Improvements
Coal deposits, mineral rights, surface land, and equipment are
stated at cost. Maintenance and repairs are charged to expense as
incurred. Renewals and betterments which extend the useful life of
the asset are capitalized.
-39-
CENTRAL NATURAL RESOURCES, INC.
KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
December 31, 2000, 1999, and 1998
Depreciation, Depletion, and Amortization
Equipment and leasehold improvements are depreciated/amortized using
the straight-line method over their estimated useful lives or lease
terms, which range from five to seven years.
Depletion of coal deposits is computed at the rate of $.025 per ton
of coal produced or purchased, which approximates depletion computed
on a wasting-asset basis.
Coal, Oil, and Gas Income
Coal royalties are based on a percentage of the production of land
leased from the Company or, in the case of no production, the
minimum annual royalty (see note 3). Oil and gas royalties are based
on a percentage of the production on land leased from the Company.
Oil and other mineral lease rentals and bonuses are derived from the
leasing of land and mineral rights prior to production.
Oil lease bonuses which relate to future periods are deferred and
recognized as income over the related future periods (generally one
year).
Income Taxes
The Company and its subsidiaries file a consolidated federal income
tax return.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
consolidated financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities for subsequent changes in tax
rates is recognized in income in the period that includes the tax
rate change.
Stock Option Plan
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations
in accounting for its fixed plan stock options. As such,
compensation expense would be recorded on the date of grant only if
the current market price of the underlying stock exceeded the
exercise price. Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation, established
accounting and disclosure requirements using a fair value-based
method of accounting for stock-based employee compensation plans. As
allowed by SFAS No. 123, the Company has elected to continue to
apply the intrinsic value-based method of accounting described
above, and has adopted the disclosure requirements of SFAS No. 123.
-40-
CENTRAL NATURAL RESOURCES, INC.
KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
December 31, 2000, 1999, and 1998
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of the asset
to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment recognized
is measured by the amount by which the carrying amount exceeds the
fair value. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Earnings and Dividends Per Share
Effective December 31, 2000, the authorized number of shares were
increased to a total of 2,600,000 shares, 2,500,000 shares of common
stock of $1.00 par value, and 100,000 shares of preferred stock of
$1.00 par value.
The preferred stock authorization does not explicitly dictate the
dividend amounts or preferences, liquidation preferences, voting
rights, participation features, or other characteristics typical of
preferred stock. This authorization is referred to as a blank check
preferred, which at a later date the Board of Directors can approve
the issuance of and, at that time, determine the specific characteristics
of the preferred stock.
Basic earnings per share are based on the weighted average number of
common shares outstanding. Dilutive earnings per share are based on
the weighted average number of common shares and dilutive common
equivalent shares outstanding during the year.
Stock options are the only common stock equivalents, however, their
effect was not dilutive in the calculation of earnings per share for
the years ended December 31, 2000, 1999, and 1998. Dividends per
share are based on the number of shares outstanding on the dividend
dates of record.
Comprehensive Income
Comprehensive income consists of net income and net unrealized gains
(losses) on available-for-sale securities and is presented in the
consolidated statements of stockholders' equity and comprehensive
income.
Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America.
Actual results could differ from those estimates.
-41-
CENTRAL NATURAL RESOURCES, INC.
KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
December 31, 2000, 1999, and 1998
(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
December 31, 2000 and 1999 are presented below. Substantially
all equity securities represent common stocks of domestic
corporations.
Gross Gross
unrealized unrealized
Amortized holding holding Fair
2000 cost gains losses value
__________________ __________ __________ __________ __________
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
1999
_________________
Held-to-maturity-
U. S. government
agency securities $ 7,469,944 0 (544) 7,469,400
Available-for-sale-
Equity securities $ 565,837 1,097,631 ( 14,636) 1,648,832
At December 31, 2000 and 1999, all U. S. government and government agency
securities mature within one year.
During the first quarter of 2000, the Company sold U. S. government agency
securities classified as held-to-maturity to fund the purchase of Company
stock (see note 10). The sales proceeds of $3,472,217 approximated the
securities amortized cost.
Investment income consists of the following for each of the years ended
December 31
2000 1999 1998
__________ __________ __________
Interest $ 375,156 442,978 467,573
Dividends 16,633 11,125 10,120
Gross gains on sales of equity
securities 773,868 399,578 50,214
Gross losses on sales of equity
securities (102,278) (26,796) (51,378)
__________ __________ __________
$1,063,379 826,885 476,529
-42-
CENTRAL NATURAL RESOURCES, INC,
KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
December 31, 2000, 1999, and 1998
(3) Coal Deposits
The rights to 14,000 acres of coal deposits totaling approximately
84,000,000 tons of coal in place (of which from 50% to 90% could be
expected to be recoverable) are leased under agreements which extend
for periods of one to nine years. The agreements provide for minimum
annual royalties of $90,000. Coal deposits aggregating approximately
92,000,000 tons in place with a net carrying value of approximately
$710,000 at December 31, 2000 are not presently leased or producing
coal in commercial quantities.
(4) Mineral Rights
At December 31, 2000, the Company owns approximately 64,000 acres of
mineral rights in Missouri, Kansas, Oklahoma, Arkansas, Louisiana,
and Texas.
(5) Income Taxes
Total income taxes for the years ended December 31, 2000, 1999,
and 1998 were allocated as follows:
2000 1999 1998
__________ __________ __________
Continuing operations $ 435,290 266,309 298,759
Discontinued operations 0 0 (42,551)
Stockholders' equity, for unrealized
appreciation on
equity securities (261,958) 223,531 31,435
__________ __________ __________
$ 173,332 489,840 287,643
The components of income tax expense from contiuning operations
are as follows:
2000 1999 1998
________ ________ ________
Federal $ 376,481 282,434 266,143
State 58,809 (16,125) 32,616
________ ________ ________
Total $ 435,290 266,309 298,759
Total income tax expense for 2000, 1999, and 1998 includes deferred
income tax expense (benefit) of $3,506, $(3,859), and $87,497,
respectively.
-43-
CENTRAL NATURAL RESOURCES, INC.
KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
December 31, 2000, 1999, and 1998
Income tax expense relating to continuing operations has been provided
at effective rates of 33.7%, 29.0%, and 33.7% for the years ended
December 31, 2000, 1999, and 1998, respectively. The reasons for the
difference between the effective tax rates and the corporate federal
income tax rate of 34.0% are as follows:
2000 1999 1998
_____ _____ _____
Expected statutory tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal
income tax effect 2.9 (1.2) 2.4
Depletion (2.5) (2.3) (2.3)
Other, net (0.7) (1.5) (0.4)
_____ _____ _____
Effective tax rate 33.7% 29.0% 33.7%
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred
tax liabilities at December 31, 2000 and 1999 are presented below:
Deferred tax assets: 2000 1999
________ ________
Writedown of coal deposits $ 45,095 45,095
Coal development costs 30,699 30,693
Land sales 12,919 12,946
Other 5,095 5,992
________ ________
93,808 94,726
Less valuation allowance (45,095) (45,095)
________ ________
Deferred tax assets 48,713 49,631
Deferred tax liabilities:
Depletion (81,615) (79,027)
Unrealized appreciation on available-
for-sale securities (117,091) (379,049)
________ ________
Deferred tax liabilities (198,706) (458,076)
Net deferred tax liability $ (149,993) (408,445)
-44-
CENTRAL NATURAL RESOURCES, INC.
KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
December 31, 2000, 1999, and 1998
(6) Operating Leases
For 1998, the Company had an operating lease on a month-to-month
basis for its administrative office in Kansas City, Missouri. In
the fourth quarter of 1998, the Company entered into a five-year
operating lease for that office space, which became effective
January 1, 1999. The lease agreement includes the option to
terminate the lease after three years and provides for annual rental
payments of approximately $13,200 through 2003. In addition, the
subsidiaries of the Company had operating leases for certain retail
facilities through September 1, 1998, the date when the last two of
the four facilities were disposed of. Rent expense amounted to
$13,182, $13,155, and $69,763 for the years ended December 31, 2000,
1999, and 1998, respectively.
(7) Disclosures About Fair Value of Financial Instruments
Cash, cash equivalents, trade receivables, and trade payables - The
carrying amount approximates fair value because of the short maturity
of these financial instruments.
Debt and equity securities - The fair values of debt and equity
securities are based on quoted market prices. The fair value of debt
and equity securities are disclosed in note 2.
(8) Segment/Discontinued Operations Information
The Company had operated in two segments-energy and food. On
September 1, 1998, the Company sold its remaining food operations for
$135,000 and recorded a gain of $12,866 (net of applicable income
taxes of $6,628). The food operations are presented as discontinued
operations for 1998. As a result, the Company operates in only one
segment. The energy segment consists of the leasing of real properties
and mineral interests in the midwestern and southern United States.
The Company has no foreign revenues. Coal royalties in 2000, 1999,
and 1998 were received from two customers, with 95%, 92%, and 92%
being received from the largest customer, respectively. Oil and
mineral lease bonuses and rentals were received from four, four, and
nine customers in 2000, 1999, and 1998, with 56%, 90%, and 76% being
recognized from the largest customer, respectively. Oil and gas
royalties were received from fourteen, twelve, and twelve customers
in 2000, 1999, and 1998, with 62%, 62%, and 92%, being received from
one customer, respectively.
-45-
CENTRAL NATURAL RESOURCES, INC.
KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
December 31, 2000, 1999, and 1998
The loss from the Company's discontinued food business is
comprised of the following for the years ended
December 31, 1998:
_________
Revenues $ 409,143
Cost of food sales 172,630
_________
Gross margin 236,513
_________
Food operations expense:
Salaries and wages 145,968
Occupancy expense 59,445
Depreciation and
amortization expense 39,140
Utility expense 22,630
Other expenses 102,569
_________
369,752
Loss from food operations
before income taxes (133,239)
Income tax benefit 48,819
Loss from food
Operations $ (84,420)
__________
(9) Stock Option Plan
In April 1995, the Company adopted a nonqualified stock option plan
(the Plan) pursuant to which the Company's Board of Directors may
grant stock options to directors in lieu of cash compensation. The
Plan authorizes grants of options to purchase up to 50,000 shares of
common stock. Stock options are granted with an exercise price equal
to the stock's fair market value at the date of grant. All stock
options have a term of ten years and vest and become fully
exercisable six months after the date of grant.
-46-
CENTRAL NATURAL RESOURCES, INC.
KANSAS CITY, MISSOURI
Notes to Consolidated Financial Statements
December 31, 2000, 1999, and 1998
A summary of incentive stock option activity during 2000, 1999, and
1998 is as follows:
Year Ended
2000 1999 1998
Weighted Weighted Weighted
average average average
exercise exercise exercise
Options price Options price Options price
Options outstanding,
beginning of period 4,000 $15.05 20,000 15.18 15,000 15.00
Granted 6,000 17.00 0 0 5,000 15.69
Exercised (4,000) 15.05 0 0 0 0
Forfeited 0 0 16,000 15.18 0 0
----- ----- -----
Options outstanding,
end of period 6,000 17.00 4,000 15.05 20,000 15.18
Options exercisable
end of period 6,000 17.00 4,000 15.05 20,000 15.18
Exercise prices for all options outstanding as of December 31, 2000 were
$17.00. The per share weighted average fair value of stock options
granted during 2000 and 1998 was $1.74 and $1.79, respectively, on the
date of grant using the Black Scholes option-pricing model with the
following weighted average assumptions: 2000-expected dividend yield
of 6.08%, expected volatility of 20.07%, risk-free interest rate
of 5.75%, and an expected life of five years; 1999- expected dividend
yield of 6.0%, expected volatility of 15.00%, risk-free interest rate
of 5.66%, and an expected life of five years; 1998-expected dividend
yield of 1.60%, expected volatility of 8.0%, risk-free interest rate
of 4.25%, and an expected life of five years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock
options in the accompanying consolidated financial statements. Had the
Company determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, the Company's net earnings
and earnings per share would have been reduced to the pro forma amounts
indicated below:
2000 1999 1998
__________ __________ __________
Net Earnings:
As reported $ 856,581 651,010 517,419
Pro forma 849,784 646,000 511,573
Earnings per share:
Basic and diluted
as reported 1.58 0.92 0.73
Pro forma $ 1.56 0.91 0.72
-47-
(10) Commitment and Contingencies
On March 6, 2000, the Company consummated the resolution of
litigation and other disputes with a former director and other
stockholders, which arose in connection with the election of
directors at the Company's 1999 Annual Meeting, pursuant to an
Agreement of Settlement and Release executed by all parties,
including the Company, on February 29, 2000. The terms of the
settlement included the purchase by the Company of all stock in the
Company owned by the plaintiffs, totaling 194,462 shares for a
purchase price of $16.75 per share, or aggregate consideration
of $3,257,238. The source of the funds used was available liquid
assets of the Company previously invested in U. S. government agency
obligations.
(11) Supplementary Quarterly Data (Unaudited)
2000
First Second Third Fourth
quarter quarter quarter quarter
_______ _______ _______ _______
Operating revenue $ 151,562 157,717 208,643 223,567
Investment Income 291,896 142,002 474,621 154,860
Net earnings 211,216 97,985 353,543 193,837
Earnings per share
basis and diluted 0.33 0.19 0.69 0.37
_______ _______ _______ _______
1999
First Second Third Fourth
quarter quarter quarter quarter
_______ _______ _______ _______
Operating revenue $ 96,201 127,402 175,575 216,697
Investment Income 112,876 107,464 197,564 408,981
Net earnings 14,715 80,686 139,566 416,043
Earnings per share
basis and diluted 0.02 0.12 0.20 0.58
_______ _______ _______ _______
(12) Subsequent Event
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 251,962 shares issued and
outstanding so that after the distribution of the stock dividend,
there will be 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.
-48-