Form 1O-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or
15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended March 31, 2004
Commission File No. 0-1392
Central Natural Resources, Inc.
Incorporated in State of Delaware IRS Number: 44-0195290
911 Main Street, Suite 1710
Kansas City, Missouri 64105
Phone: 816-842-2430
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12 6-2 of the Exchange Act).
Yes [ ] No [X]
Common Stock outstanding as of April 30, 2004
$1 par value 493,637 shares
CENTRAL NATURAL RESOURCES, INC.
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets - March 31, 2004 and
December 31, 2003
Consolidated Statements of Earnings and Retained Earnings
- Three months ended March 31, 2004 and 2003
Consolidated Statements of Comprehensive Income
- Three months ended March 31, 2004 and 2003
Consolidated Statements of Cash Flows - Three months
ended March 31, 2004 and 2003
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
Item 4. Controls and Procedures
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.
Consolidated Balance Sheets
March 31, 2004 and December 31, 2003
(Unaudited)
(amounts in unit dollars)
ASSETS 2004 2003
__________ __________
(Unaudited)
Current assets:
Cash and cash equivalents $ 510,136 629,719
Accounts receivable 177,160 127,570
Securities maturing within one year,
at amortized cost 2,997,076 2,999,314
Note receivable, current 20,318 21,651
Income tax receivable 78,511 110,289
Advance to operator 123,026 6,997
Other 18,687 16,633
__________ __________
Total current assets 3,924,914 3,912,173
Equity securities, at fair value 564,523 603,481
Other investments 262,720 262,720
Property, plant and equipment
Oil and gas producing properties
(successful efforts) 1,776,274 1,707,419
Mineral interest properties 1,668,137 1,668,137
__________ _________
3,444,411 3,375,556
__________ __________
Less accumulated depletion, depreciation
and amortization 662,051 630,550
__________ __________
Net property, plant and equipment 2,782,360 2,745,006
__________ __________
Total assets $ 7,534,517 7,523,380
CENTRAL NATURAL RESOURCES, INC.
Consolidated Balance Sheets
March 31, 2004 and December 31, 2003
(Unaudited)
(amounts in unit dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY 2004 2003
_________ _________
Current liabilities:
Accounts payable and accrued expenses 77,751 44,066
__________ __________
Total current liabilities 77,751 44,066
Deferred income taxes 124,153 137,788
Stockholders' equity:
Preferred stock of $1 par value; 100,000
shares authorized; no shares issued 0 0
Common stock of $1 par value. Authorized
2,500,000 shares; issued 506,924 shares
in 2004 and 503,924 in 2003 506,924 503,924
Additional paid in capital 33,750 0
Unearned restricted stock (33,750) 0
Treasury Stock-12,100 shares in
2004 and 2003 (161,775) (161,775)
Retained earnings 6,869,457 6,856,047
Accumulated other comprehensive income
net of deferred taxes of $63,540 in 2004
and $77,175 in 2003 118,007 143,330
__________ __________
Total stockholders' equity 7,332,613 7,341,526
__________ __________
Total liabilities and stockholders' equity $ 7,534,517 7,523,380
See accompanying notes to consolidated financial statements.
CENTRAL NATURAL RESOURCES, INC.
Consolidated Statements of Operations
Three months ended March 31, 2004 and 2003
(Unaudited)
(amounts in unit dollars)
2004 2003
__________ __________
Operating revenue:
Mineral royalties $ 127,470 146,064
Oil and gas production 243,248 93,475
__________ __________
Total operating revenue 370,718 239,539
Oil and gas operating expenses 54,273 49,456
Depreciation, depletion and amortization 31,501 15,426
Exploration expenses 963 0
General and administrative expenses 199,945 151,084
Gains on sales of real estate 0 (16,002)
__________ __________
Total expenses 286,682 199,964
__________ __________
Operating income 84,036 39,575
___________ __________
Nonoperating income (loss):
Investment income (loss) 10,616 (56,909)
Other 16 612
__________ __________
Total nonoperating income (loss) 10,632 (56,297)
__________ __________
Earnings (loss)
before income taxes 94,668 (16,722)
Income taxes (benefit) 31,777 (13,301)
__________ __________
Net earnings (loss) 62,891 (3,421)
Retained earnings at
beginning of period 6,856,047 6,941,699
Deduct cash dividends paid of $0.10 per
share in 2004 and$0.10 per share in 2003 (49,481) (49,892)
_________ _________
Retained earnings at end
of period $ 6,869,457 6,888,386
Loss per share - basic
and diluted $ 0.13 (0.01)
Weighted average number
of shares of common
stock outstanding
Basic & Diluted 493,637 498,924
See accompanying notes to consolidated financial statements.
CENTRAL NATURAL RESOURCES, INC.
Consolidated Statements of Comprehensive Income
Three months ended March 31, 2004 and 2003
(Unaudited)
(amounts in unit dollars)
2004 2003
___________ __________
Net earnings (loss) $ 62,891 (3,421)
___________ __________
Other comprehensive income (loss):
Realized gains and unrealized
appreciation (depreciation)
on investments (38,608) (2,640)
Income taxes 13,513 924
___________ __________
Realized gains and unrealized
appreciation (depreciation)
on investments, net (25,095) (1,716)
___________ __________
Less:
Realized investments (gains)
losses included in net
earnings (350) (13,660)
Income taxes 122 4,781
___________ __________
(228) (8,879)
___________ __________
(25,323) (10,595)
___________ __________
Comprehensive income
(loss) $ 37,568 (14,016)
See accompanying notes to consolidated financial statements.
CENTRAL NATURAL RESOURCES, INC.
Consolidated Statements of Cash Flows
Three months ended March 31, 2004 and 2003
(Unaudited)
(amounts in unit dollars)
2004 2003
__________ __________
Cash flows from operating activities:
Net earnings (loss) $ 62,891 (3,421)
Adjustments to reconcile net earnings loss
to net cash provided by (used in) operating
activities:
Depletion, depreciation and amortization 31,501 15,426
Amortization of premiums and discounts
Of securities, net (7,226) (8,775)
Impairment charge on other investments 0 87,282
Gain on sale of real estate 0 (16,002)
Gain on sales of equity securities (350) (13,660)
Changes in assets and liabilities:
Accounts receivable and other assets (51,644) (63,010)
Advance to operator (116,029) (6,997)
Deferred oil lease bonus 0 (11,250)
Accounts payable and accrued expenses 33,685 37,863
Federal and state income taxes 31,778 (18,289)
__________ ___________
Total adjustments (78,285) 2,588
__________ __________
Net cash used in
operating activities (15,394) (833)
__________ __________
Cash flows from investing activities:
Proceeds from note receivable 1,333 2,223
Proceeds from matured/called
investment debt securities 6,000,000 3,000,000
Purchases of investment debt securities (5,990,536) (2,994,050)
Proceeds from sales of land 0 16,298
Purchases of equity securities 0 (1,082)
Proceeds from sales of equity securities 350 55,835
Oil and Gas capital expenditures (68,855) (26,072)
Acquisition of oil and gas producing properties 0 (1,080,000)
Sale of restricted common stock 3,000 0
__________ __________
Net cash used in
investing activities (54,708) (1,026,848)
__________ __________
Cash flows from financing activities-
Dividends paid (49,481) (49,892)
__________ _________
Net cash used in
financing activities (49,481) (49,892)
__________ _________
Net decrease in cash and cash equivalents (119,583) (1,077,573)
Cash and cash equivalents, beginning of year 629,719 1,956,795
__________ __________
Cash and cash equivalents, end of period $ 510,136 879,222
__________ __________
See accompanying notes to consolidated financial statements.
CENTRAL NATURAL RESOURCES, INC.
Notes to Consolidated Financial Statements
March 31, 2004
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 March 31, 2004, and
the results of operations and cash flows for the periods ended March
31, 2004 and 2003.
The consolidated financial statements are presented in accordance
with the requirements of Form 10-Q and, consequently, do not include
all the disclosures required by accounting principles generally
accepted in the United States of America. For further information,
refer to the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2003.
The Company uses the Successful Efforts method of accounting for
revenue and expenses from oil and gas production that has been
detailed in the Company's 10-K and previous reports. Revenue and
expenses associated with oil and gas production is accrued in the
period the revenue or expenses are generated. Revenue and expenses
from oil and gas production in the period ended March 31, 2004 was
generated by working interests in oil and gas properties acquired in
February 2003 and working interests in unproved properties acquired
in July 2002.
Exploration and Production - Exploration expenses, including
geological and geophysical costs, rental and exploratory dry holes,
are charged against income as incurred. Costs of successful wells
and related production equipment and developmental dry holes are
capitalized and amortized by field using the unit-of-production
method as the oil and gas are produced.
Undeveloped acreage costs are capitalized and amortized at rates that
provide full amortization on abandonment of unproductive leases.
Costs of abandoned leases are charged to the accumulated amortization
accounts, and costs of productive leases are transferred to the
developed property accounts.
Other - Property, plant and equipment is stated at cost less reserves
for depreciation, depletion and amortization. Maintenance and
repairs are expensed as incurred, except that costs of replacements
or renewals that improve or extend the lives of existing properties
are capitalized.
Impairment of Long-Lived Assets - Proved oil and gas properties are
reviewed for impairment on a field-by-field basis when facts and
circumstances indicate that their carrying amounts may not be
recoverable. In performing this review, future cash flows are
estimated by applying estimated future oil and gas prices to
estimated future production, less estimated future expenditures to
develop and produce the reserves. If the sum of these estimated
future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the property, an impairment loss is
recognized for the excess of the carrying amount over the estimated
fair value of the property based on estimated future cash flows.
Results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Stock Based Compensation
In the first three months of 2004 the Company granted 3,000 shares of
restricted stock to an employee of the Company, vesting in equal
amounts over three years. The employee purchased the 3,000
restricted shares at $1 per share and the difference between the
purchase price and the then fair market value of the stock was
recorded in shareholders equity as unearned restricted stock.
The unearned restricted stock will be amortized ratably to expense
over the three year vesting period.
Also in the first three months of 2004, the Company granted 2,000
options, vesting in equal amounts over four years, to an employee of
the Company. 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 then 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. The following table illustrates the effect on net income
(loss) if the fair value based method had been applied to all
outstanding and unvested awards in each period:
Three months ended
March 31,
2004 2003
________ _______
Net earnings (loss)
as reported $ 62,891 (3,421)
Less stock options, net of taxes (2,148) (7,196)
Pro Forma net earnings (loss) 60,743 (10,617)
Earnings (loss) per share
(basic and diluted):
As Reported 0.13 (0.01)
Pro Forma 0.12 (0.02)
Options outstanding at March 31, 2004 and March 31, 2003 are not
considered dilutive as the exercise price was greater than the
market price at the close of each period under consideration.
However, if the market price were to increase in a future period
to be greater than the exercise price, these options could become
dilutive.
Note (2) Investment Securities:
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses, and fair value for held-to-maturity and
available-for-sale securities by major security type at March 31,
2004 and December 31, 2003 are as follows:
Gross Gross
unrealized unrealized
Amortized holding holding Fair
March 31, 2004 cost gains losses value
_________________ __________ __________ __________ __________
Held-to-maturity:
U. S. government
agency securities $ 2,997,076 - (36) 2,997,040
Available-for-sale:
Equity securities $ 382,975 181,548 - 564,523
Gross Gross
unrealized unrealized
Amortized holding holding Fair
December 31, 2003 cost gains losses value
_________________ __________ __________ __________ __________
Held-to-maturity:
U. S. government
agency securities $ 2,994,314 - (34) 2,994,280
Available-for-sale:
Equity securities $ 382,975 220,506 - 603,481
Investment income (loss) consists of the following for each of the
periods ended March 31:
Three months ended
March 31,
2004 2003
________ _______
Realized gains on sales
of equity securities $ 350 13,660
Impairment charge - (87,282)
Interest Income 8,971 14,642
Dividend Income 1,295 2,071
_______ _______
$ 10,616 (56,909)
Investments in debt securities are classified as held-to-maturity
securities, which are carried at amortized cost. Investments in
marketable equity securities are classified as 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 based 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 three months ended March 31, 2004, the Company
recognized no impairment charge for marketable equity securities.
Other investments represent an equity interest in non-marketable
securities for which the Company does not possess significant
influence. These investments are accounted for at cost. An
impairment charge was recognized in the amount of $87,282 to
reflect an impairment in these securities in the first quarter of
2003.
Note (3) Oil and Gas Activity
In the first quarter of 2004, a wholly owned subsidiary of the
Company had committed to participate in the drilling of four gas
wells, two of which are exploratory, in south and east Texas.
At March 31, 2004, two wells were in the process of being completed
while drilling activity had not yet begun on the remaining two wells.
Oil and gas property recorded on the balance sheet is comprised
of property that is both proved and unproved. At March 31,
2004 unproved properties amounted to $134,729.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The first quarter of 2004 shows the results of the Company's
efforts in previous quarters to increase oil and gas production
through exploration and development. Successful well completions
and workovers since the acquisition of producing properties in the
first quarter of 2003 resulted in the more than doubling of revenue
from oil and gas production during this time. Management plans
further exploration and development of its properties in 2004 and
will continue to evaluate potential additions to the Company's oil
and gas properties through acquisitions. While no assurance can be
given, assuming commodity prices remain strong, and subject to
other uncertainties set forth in the section captioned "Forward-
Looking Statements" below, management believes that earnings will
continue to grow as revenue from production increases during 2004.
The cost of maintaining a public, SEC filing company continues to
rise and is reflected in the Company's General and Administrative
expenses discussed below. While these costs are borne by companies
of all sizes, the burden from both an expense and a management time
standpoint is often disproportionate for smaller companies such as
Central. Further government requirements that mandate
additional disclosures or specific procedures may increase these
costs in the future as would the need to hire outside experts as
well as the need to hire additional internal financial personnel to
assist with the implementation of these regulations.
Management continues to position the Company to take advantage of
extractive mineral opportunities and expects further revenue,
expenses and capital expenditures to be generated in these
endeavors in 2004, as they were in the first quarter of 2004.
Results of Operations
Total operating revenue increased in the first three months of 2004
over the first three months of 2003 due mainly to increased revenue
from oil and gas production due to increased production, including
new production from wells completed in the fourth quarter of 2003
and the first quarter of 2004. Decreased revenue from mineral
royalties in the first three months of 2004 from 2003 were offset
by the increase in revenue from oil and gas production during the
same periods. The table below shows production volume and average
pricing for the periods under comparison:
Three months ended
March 31,
2004 2003
________ _______
Volume (MCF equiv.) 34,907 13,567
Avg. Price $ 6.97 6.89
Total Revenue 243,248 93,475
*Note-Rounding may cause calculated totals to be slightly
different than above.
General and administrative expenses increased in both the first
three months of 2004 from the same period in 2003 due primarily to
increases in auditing fees. Oil and gas operating
expenses, which include lease operating costs, increased only
marginally in the first quarter of 2004 from the prior year.
Depletion, depreciation and amortization increased in the 2004
period from the prior year due to the increased production in the
corresponding period.
There was positive non-operating income in the first quarter of
2004 compared to a non-operating loss in the first quarter of 2003.
In the first three months of 2003 the Company recognized an
impairment charge of $87,282 on the carrying value of an investment
in non-marketable securities held by the Company. There were no
impairments or writedowns taken in the first quarter of 2004.
The Company recorded an income tax expense in the first three
months of 2004 versus an income tax benefit for the same period in
2003 due to net earnings generated in 2004 versus a net loss in the
same period of 2003.
Financial Condition - Liquidity and Capital Resources
The financial condition of the Company continued to be strong
through the end of the first three months of 2004 as it was at the
end of the fiscal year in 2003, with substantial liquid assets, no
debt and positive net earnings. The Company continues to utilize
available liquidity to fund exploration and development of its
working interests in south Texas and east Texas through its wholly-
owned subsidiary, CNR Production L.L.C. (CNR). The liquidity of
the Company continues to be high as is evidenced by a continuing
favorable ratio of current assets to current liabilities of over
50:1, and the fact that a significant portion of the Company's
stock holders' equity continues to be represented by liquid
assets.
Although, liquidity of the Company continues to be favorable, it is
affected by cash flows. The Consolidated Statement of Cash Flows
in the accompanying Consolidated Financial Statements illustrates
that there was a net decrease in cash and cash equivalents during
the first three months of 2004 and in the same period in 2003,
although the decrease was much greater in 2003 than the current
period under comparison. Summary cash flows for the two periods
under comparison are shown on the table below:
Three months ended
March 31,
2004 2003
________ _______
Cash provided by (used in):
Operating activities $ (15,394) (833)
Investing activities (54,708) (1,026,848)
Financiang activities-
dividends paid (49,481) (49,892)
Contributing to the cash used in operating activities for both
periods was an increase in the amount of accounts
receivable and advances to operators. Accounts receivable is
increasing as gas production rates continue to increase. Advances
to operators have increased in conjunction with drilling
obligations. A significant use of cash from investing activities
in the 2003 periods under comparison was the acquisition of working
interests in oil and gas properties as well as differences in the
amount of proceeds from the sale of equity securities and purchase
of equity securities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
Contractual Obligations, Commitments and Off-Balance Sheet
Arrangements
The Company continues to have no bank debt or other lender
liability outstanding and no significant other liabilities. There
are no off balance sheet arrangements. In addition, since the
Company carries no inventory and has low amounts of accounts
receivable and accounts payable, its working capital needs are
minimal, and since it has significant liquid assets, and there are
no current known material demands, commitments or contractual
obligations, Management believes that liquidity should continue to
be favorable and the financial condition of the Company strong.
Regarding future capital expenditures, as reported in prior
filings, CNR is participating in an oil and gas exploration venture
in east Texas and continues to expand both developmental and
exploratory efforts on its south Texas properties. Through the
close of the first quarter of 2004, CNR had committed to
participate in a total of four wells as mentioned in Note 3, and
CNR believes that additional exploratory and developmental well
potential exists in these areas. CNR expects that in the near
term, these activities will require additional funds that are
uncertain in amount at the present time.
With regard to CNR's working interests in oil and gas properties
described above, it will be called upon, from time to time, to pay
its pro-rata share of expenses and capital expenditures associated
with the projects. Management believes that, based upon the CNR's
current liquidity level and the expected future revenue from these
ventures, sufficient financial resources will be available to meet
any and all funding requirements required by these projects. A
tabular presentation of Contractual Obligations is presented below:
Payments Due by Period
Contractual < 1 Year 1-3 3-5 > 5
Obligations Total Years Years Years
___________ _____ ______ _____ _____ _____
Long-Term 0 0 0 0 0
Debt
Obligations
Capital Lease 0 0 0 0 0
Obligations
Operating 6,686 6,686 0 0 0
Lease
Obligations
Purchase 172,990 172,990 0 0 0
Obligations*
Other Long- 0 0 0 0 0
Term
Liabilties
Total 179,676 179,676 0 0 0
*The entire amount shown in Purchase Obligations is for
Authorizations For Expenditures that were approved prior to
March 31, 2004.
Other than these projects, the Company has no specific commitment
for material 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, and in pursuit of that objective has
focused on the possible acquisition of additional mineral
properties or working interests in selected oil and gas operations.
In addition, Management continues to aggressively pursue
development of its currently owned oil and gas and coal properties
and to attempt to lease more of its mineral properties in order to
generate additional rental, bonus and royalty income. The only
continuing commercial commitment is the operating lease for general
office space of the Company and commitments with respect to the
Texas oil and gas projects referred to above.
Accounting Policies, Recent Accounting Pronouncements
and Other Matters
A summary of significant accounting policies was contained in Note
1 to the consolidated financial statements of the Company filed
with Form 10-K for the year ended December 31, 2003. One example
of a judgment made in applying a critical accounting policy is the
impairment charge made relative to the decline in market value of
certain securities that is deemed to be other than temporary as is
referred to above. The impairment of the value of securities is
analyzed quarterly on an individual security basis based on the
length of time (generally six months), and the extent to which
market value has been less than cost; the financial condition and
any specific events which affect the issuers; and the Company's
intent and ability to hold the security. There would be materially
different reported results if different assumptions or conditions
were to prevail. In the judgment of Management and the Board of
Directors, the indicated charges were appropriate, however, they
have taken note of the fact that the overall return of the
portfolio since inception is positive.
Another example of ajudgment made in applying a critical
accounting policy is theperiodic review of long-lived assets for
impairment whenever eventsor changes in circumstances indicate that
the carrying amount of anasset may not be recoverable. This
accounting policy has beenapplied in the past, for example, in
downward adjustments to thecarrying value of the Company's coal
properties. However, this accounting policy does not permit an
upward adjustment in suchcarrying values, when Management
believes the current fair marketvalue of an asset is greater than
the carrying value on the balancesheet and in fact Management
believes that this may be the case with respect to the carrying
value of certain assets on the balance sheet carried at their
historical cost.
Yet another example of judgment exercised in applying a critical
accounting policy is the election, approved by the Board of
Directors of the Company, to utilize the "Successful Efforts"
method of accounting with respect to the operation of the oil and
gas working interests described above. "Successful Efforts"
typically results in more of the costs of operations being deducted
as incurred rather than those expenditures being capitalized. The
Company uses the units-of-production method to amortize oil and gas
properties. This method requires the Company to amortize the
capitalized costs incurred in developing a property in proportion
to the amount of oil and gas produced as a percentage of the amount
of proved reserves contained in the property. Accordingly, any
changes in reserve estimates as described above will cause
corresponding changes in depletion expense recognized in periods
subsequent to the reserve estimate revision. Although every
reasonable effort is made to ensure that reserve estimates reported
represent the most accurate assessments possible, the subjective
decisions and variances in available data for various fields make
these estimates generally less precise than other estimates
included in the financial statement disclosures. Data for given
fields may change substantially over time as a result of numerous
factors including, but not limited to, additional development
activity, evolving production history and continual reassessment of
the viability of production under varying economic conditions. As a
result, material revisions to existing reserve estimates may occur
from time to time.
A cash dividend of $0.10 per share was paid in the first quarter of
2004, and a cash dividend of the same amount was paid in the first
quarter of 2003. After the close of the current quarter, the Board
declared a dividend of $0.10 to be paid in the second quarter.
FASB's Emerging Issues Task Force has issued new guidance on "Other-
Than-Temporary Impairment" that is effective for reporting periods
beginning after June 15, 2004 and requires disclosure for annual
reporting periods ending after June 15, 2004. The new guidance
creates a model for many judgements and additional evidence
gathering and applies to investments in debt and equity securities.
Management has a system in place to periodically review its
investments in debt and equity securities for such impairments and
does not foresee that the new requirements will materially impact
the Company in the near future although fluctuations in the market
values of securities may prove otherwise.
Forward-Looking Statements
This report contains forward-looking statements that are based on
current expectations, estimates, forecasts, and projections about
the business segment 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
assumptions and certain risks and uncertainties that are difficult
to predict, such as future changes in energy prices, including
fluctuations in prevailing prices for oil and gas, 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), results of drilling and other exploration and
development activities, uncertainties regarding future political,
economic, regulatory, fiscal, and tax policies and practices as
well as assumptions concerning a relatively stable national
economy, and the absence of a major disruption such as a domestic
act of terrorism and the uncertainties of even routine litigation
in which the Company is involved from time-to-time in the ordinary
course of its business operations. In addition, the company relies
on professional and management services provided by third parties
in certain of its operating activities. 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 mineral royalties and oil and gas production,
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.
ITEM 4 - CONTROLS AND PROCEDURES
As of March 31, 2004, the Company's management, including the
Chief Executive Officer and the Chief Financial Officer, evaluated
the effectiveness of the design and operation of Central Natural
Resources, Inc.'s disclosure controls and procedures as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934. Based on that evaluation, the Company's management,
including its Chief Executive Officer and its Chief Financial
Officer, concluded that its disclosure controls and procedures
were effective in timely alerting management, including the Chief
Executive Officer and the Chief Financial Officer, of material
information about the Company required to be included in periodic
Securities and Exchange Commission filings. However, in evaluating
the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and
operated can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. There have
been no changes in the Company's internal control over financial
reporting or other factors that occurred during the quarter ended
March 31, 2004 that have materially affected, or are reasonably
likely to materially affect, its internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - Attached
Item 5. Other Information - None
Item 6(a). Exhibits - Attached
31.1 Certification required by Rule 13a-14(a) or Rule
15d-14(a) for Chief Executive Officer
31.2 Certification required by Rule 13a-14(a) or Rule
15d-14(a) for Chief Financial Officer
32.1 Section 1350 Certification for Chief Executive Officer
32.2 Section 1350 Certification for Chief Financial Officer
Item 6(b). Reports on Form 8-K - None
PART II, ITEM 4. - SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
The following meeting of Stockholders was held after the close of the
quarter to which this report pertains, however, it was held prior to the
filing of this report so disclosure is made as hereinafter set forth.
(a) The Annual Meeting of Stockholders was held April 30, 2004.
(b) The meeting involved the election of Directors, and the
following are the Directors elected at that meeting:
Bruce L. Franke
Ray A. Infantino
Patrick J. Moran
James R. Ukropina
Phelps C. Wood
Phelps M. Wood
There were no other Directors whose term of office as a Director
continued after the meeting.
(c)(i) For the election of Directors, the votes received by all
nominees were as follows:
Bruce L. Franke 400,426
Ray A. Infantino 400,426
Patrick J. Moran 400,426
James R. Ukropina 400,426
Phelps C. Wood 400,426
Phelps M. Wood 400,426
Cumulative voting is not permitted.
(ii) At the same meeting, the Stockholders ratified the appointment
by the Audit Committee of the accounting firm KPMG LLP as independent
public accountants to examine the financial statements of the Company for
the year ending December 31, 2004 and to perform other appropriate
accounting services. The holders of 397,634 shares cast their votes
in favor of that appointment, the votes of 266 shares were cast against
it, and the holders of 3,384 shares abstained.
(d) There were no settlements between the Company and any
other participants terminating any solicitation subject to Rule 14a-11.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL NATURAL RESOURCES, INC
(Registrant)
Date: May 11, 2004
____________________________
By: /s/ Leonard L. Noah
____________________________
Leonard L. Noah,
Chief Financial Officer
Date: May 11, 2004
____________________________
By: /s/ Phelps C. Wood
____________________________
Phelps C. Wood,
President