<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Act of 1934 for the Quarterly Period ended
June 30, 1997.
Commission File Number: 0-22867
CONTINENTAL NATURAL GAS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Oklahoma 73-1198957
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1412 South Boston, Suite 500
Tulsa, Oklahoma 74119
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(918) 582-4700
----------------------------------------------------
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. As of August 1,
1997, 6,000,000 common shares, $.01 par value, were outstanding.
<PAGE> 2
CONTINENTAL NATURAL GAS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. Financial Information:
Item 1 -- Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets June 30, 1997 and
December 31, 1996....................................... 2
Consolidated Condensed Statements of Operations Three and
Six Months Ended June 30, 1997 and 1996................. 3
Consolidated Condensed Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996................. 4
Notes to Consolidated Condensed Financial Statements........ 5
Report of Review by Independent Accountants................. 6
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 7
PART II. Other Information:
Item 1 -- Legal Proceedings................................. 11
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................................................................ 12
</TABLE>
1
<PAGE> 3
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- ------------
1997 1996
----------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,601 $ 21,078
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$259.................................................. 24,988 44,931
Affiliates............................................. 4,773 5,969
Other.................................................. 1,113 1,150
Notes receivable -- affiliates............................ 18 18
Gas inventory............................................. 1,256 3,149
Prepaid expenses.......................................... 94 164
-------- --------
Total current assets...................................... 37,843 76,459
Investments................................................. 558 656
Property and equipment, net of accumulated depreciation
and amortization of $8,015 for 1997 and $6,183 for 1996... 65,477 61,045
Deferred tax asset.......................................... 6,539 7,075
Other assets................................................ 702 694
-------- --------
Total assets................................................ $111,119 $145,929
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 34,716 $ 56,708
Affiliate payables........................................ -- 464
Contract advances......................................... 3,909 24,788
Current portion of long-term debt......................... 3,117 867
Current portion of capital lease obligations.............. 1,342 1,165
-------- --------
Total current liabilities................................. 43,084 83,992
Long-term debt.............................................. 38,123 32,946
Capital lease obligations................................... 6,942 6,583
Deferred gain on sale-leaseback............................. 193 254
-------- --------
Total liabilities........................................... 88,342 123,775
Commitments and contingencies
Shareholders' equity
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued................................ -- --
Convertible preferred stock, $1 par value, $40,000
liquidation value, 200 shares authorized and 149 shares
issued and outstanding in 1996......................... -- --
Common stock, $.01 par value, 60,000,000 shares
authorized and 3,457,159 shares issued in 1995 and
3,919,156 issued in 1996 and 1997...................... 39 39
Additional paid-in capital................................ 12,376 12,376
Retained earnings......................................... 10,666 10,043
Treasury stock, at cost................................... (204) (204)
Receivable from stock sale................................ (100) (100)
-------- --------
Total shareholders' equity................................ 22,777 22,154
-------- --------
Total liabilities and shareholders' equity.................. $111,119 $145,929
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE> 4
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Natural gas sales............................ $ 51,705 $ 34,483 $ 124,661 $ 67,153
Natural gas sales -- related party........... 4,270 -- 10,102 --
Natural gas liquids sales.................... 9,097 6,813 17,978 13,007
Gathering fees............................... 1,266 536 2,109 536
Other........................................ (9) 234 6 690
---------- ---------- ---------- ----------
Total operating revenue...................... 66,329 42,066 154,856 81,386
---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of purchased gas...................... 61,176 38,383 142,593 72,876
Operating expenses......................... 1,518 1,473 3,077 2,855
General and administrative................. 1,756 1,101 3,598 2,411
Depreciation, depletion and amortization... 933 663 1,832 1,136
---------- ---------- ---------- ----------
Total operating costs and expenses......... 65,383 41,620 151,100 79,278
---------- ---------- ---------- ----------
Operating income............................. 946 446 3,756 2,108
---------- ---------- ---------- ----------
Other income (expense):
Interest income............................ 131 28 411 74
Equity in loss of investee................. (30) (24) (63) (52)
Interest expense........................... (1,315) (649) (2,781) (975)
Other, net................................. 42 41 90 84
---------- ---------- ---------- ----------
Total other income (expense)............... (1,172) (604) (2,343) (869)
---------- ---------- ---------- ----------
Income before income taxes................... (226) (158) 1,413 1,239
Income tax (expense) benefit................. 86 1 (566) (29)
---------- ---------- ---------- ----------
Net income (loss)............................ $ (140) $ (157) $ 847 $ 1,210
========== ========== ========== ==========
Net income (loss) per common share:
Primary.................................... $ (.07) $ (.08) $ .17 $ .26
========== ========== ========== ==========
Fully diluted.............................. $ (.07) $ (.08) $ .16 $ .25
========== ========== ========== ==========
Weighted average common shares outstanding:
Primary.................................... 3,613,153 3,613,153 3,613,153 3,459,155
Fully diluted.............................. 3,613,153 3,613,153 3,805,873 3,649,685
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 5
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
-------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cash Flows from operating activities:
Net income................................................ $ 847 $ 1,210
-------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization............... 1,833 1,136
Amortization of debt issuance costs.................... 76 120
Gain on disposition of assets.......................... (61) (61)
Equity in loss of investee............................. 63 51
Deferred income tax benefit............................ 536 --
Noncash compensation on stock issuance................. -- 46
Changes in operating assets and liabilities
Accounts receivable.................................. 21,177 (4,785)
Gas inventory........................................ 1,892 (1,385)
Prepaid expenses..................................... 70 24
Accounts payable..................................... (21,563) 8,162
Contract advance..................................... (20,879) --
-------- --------
Total Adjustments................................. (16,856) 3,308
-------- --------
Net cash provided by (used in) operating activities....... (16,009) 4,518
-------- --------
Cash flows from investing activities:
Capital expenditures...................................... (6,043) (24,846)
(Increase) decrease in investments........................ 34 --
-------- --------
Net cash used in investing activities..................... (6,009) (24,846)
-------- --------
Cash flows from financing activities:
Dividends paid............................................ (224) --
Principal payments on long--term debt..................... (434) (1,572)
Proceeds of long--term debt............................... 7,861 20,443
Debt issuance costs....................................... (83) (302)
Principal payments under capital lease obligations........ (579) (264)
-------- --------
Net cash provided by financing activities................. 6,541 18,305
-------- --------
Net decrease in cash and cash equivalents................. (15,477) (2,023)
Cash and cash equivalents at beginning of year............ 21,078 4,656
-------- --------
Cash and cash equivalents at end of year.................. $ 5,601 2,633
======== ========
Supplemental disclosure of cash flow information:
Interest paid.......................................... $ 1,881 $ 845
======== ========
Income taxes paid...................................... $ 460 $ 100
======== ========
</TABLE>
The accompanying notes are integral part of the consolidated financial
statements.
4
<PAGE> 6
CONTINENTAL NATURAL GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PREPARATIONS AND PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments necessary (all adjustments are of a
normal recurring nature) to present fairly the financial position of the Company
as of June 30, 1997 and the results of its operations for the three and six
month periods ended June 30, 1997, and 1996 and cash flows for the six months
ended June 30, 1997 and 1996. Results for the three and six months ended June
30, 1997 are not necessarily indicative of the results to be realized during the
full year. The year end consolidated balance sheet data was derived from the
audited financial statements (included in the Company's Registration Statement
on Form S-1) but does not include all disclosures required by generally accepted
accounting principles. These financial statements should be read in conjunction
with the Company's audited financials included in the Form S-1.
NOTE 2 -- INITIAL PUBLIC OFFERING
The Company completed an initial public offering of Common Stock on August
6, 1997, selling 2,115,000 shares for $11.25 per share, yielding net proceeds of
approximately $21.4 million. The proceeds have been used to pay $17.3 million on
the Company's term loan facility, to pay $0.6 million in accrued dividends on
its Convertible Preferred Stock and the remainder for other general purposes.
NOTE 3 -- NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("FAS 128"). FAS
128 will change the computation, presentation and disclosure requirements for
earnings per share. FAS 128 requires the presentation of "basic" and "diluted"
earnings per share, as defined, for all entities with complex capital
structures. FAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, and requires restatement of all prior period
earnings per share amounts. The Company has not yet determined the impact that
FAS 128 will have on its earnings per share when adopted.
5
<PAGE> 7
REPORT OF INDEPENDENT ACCOUNTANTS
We have reviewed the accompanying consolidated balance sheet of Continental
Natural Gas, Inc. and Subsidiaries as of June 30, 1997, and the related
consolidated statements of operations for the three and six months ended June
30, 1997 and 1996, and cash flows for the six months ended June 30, 1997 and
1996. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Continental Natural Gas Inc and
subsidiaries at December 31, 1996, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for the year then
ended (not presented herein); and our report dated March 21, 1997 expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet at
December 31, 1996, is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
August 13, 1997
6
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
SAFE HARBOR STATEMENT
From time to time, the Company may publish forward-looking statements
relating to certain matters including anticipated financial performance,
business prospects, anticipated capital expenditures and other similar matters.
All statements other than statements of historical fact contained in this Form
10-Q or in any other report of the Company are forward-looking statements. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of that safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements. In
addition, The Company disclaims any intent or obligation to update those
forward-looking statements.
RESULTS OF OPERATIONS
The Company's results of operations are determined primarily by the volume
of natural gas purchased, processed and resold in its natural gas gathering
systems and processing plants. The Company also purchases for resale natural
gas unrelated to its gathering or processing business ("off-system gas") which
contributes to its profitability. Acquisitions in the first half of 1996, of
approximately 800 miles of natural gas gathering lines located throughout the
Texas panhandle (the "Texas Gathering Assets"), have had a significant impact on
the Company's results of operations.
Fluctuations in the price levels of natural gas and natural gas liquids
("NGLs") also affect results of operations since the Company generally receives
a portion of the natural gas and NGLs revenue from natural gas throughput. Most
of the Company's operating expenses do not vary materially with changes in
natural gas throughput volume on existing systems; thus, increases or decreases
in volumes on existing systems generally have a direct effect on the Company's
profitability. Conversely, operating expenses such as compression rental and
compression maintenance expenses vary with volume changes as compressor units
are added or removed accordingly.
Second Quarter 1997 Compared to Second Quarter 1996
Revenues. Total operating revenue increased 58% to $66.3 million for the
second quarter of 1997 as compared to $42.1 million for the same period in 1996.
Total natural gas sales increased 62% to $56.0 million for the second quarter of
1997 from $34.5 million for the same period in 1996 primarily as a result of a
$19.8 million volume-related increase due to sales of 282.1 MMcf/d in 1997
compared to 179.2 MMcf/d in 1996. This increase in volume resulted mainly from
increases in off-system gas marketing sales.
NGL sales increased 34% to $9.1 million for the second quarter of 1997 as
compared to $6.8 million for the same period last year as a result of a $1.5
million price-related increase due to average NGL sales prices of $0.35 per
gallon in 1997 compared to $0.30 per gallon in 1996 and a $0.8 million
volume-related increase due to increased natural gas processing throughput.
Gathering fees earned increased to $1.3 million for the second quarter of
1997 as compared to $0.5 million for the same period in 1996 as a result of the
Texas Gathering Assets acquired during the second quarter of 1996.
Costs and Expenses. Total operating costs and expenses increased 57% to
$65.4 million for the second quarter of 1997 compared to $41.6 million for the
same period in 1996. Total natural gas costs increased 59% to $61.2 million in
1997 from $38.4 million in 1996 as a result of increases in price and volume.
The $3.4 million price-related increase (resulting from a change in average
purchase prices of $2.19 per Mcf in 1997 from $2.07 per Mcf in 1996) was
mitigated by approximately $0.6 million of avoided gathering fees caused by the
integration of the Texas Gathering Assets into the Company's processing
business. A $19.4 million volume-related increase resulted from purchases of
310.7 MMcf/d in 1997 compared to 206.5 MMcf/d in 1996. This increase in volume
resulted primarily from increases in off-system gas marketing purchases.
General and administrative expenses increased 59% to $1.8 million for the
second quarter of 1997 from $1.1 million in the same period last year. This
increase was due primarily to the addition of marketing personnel and
administrative support activities related to the Texas Gathering Assets.
Depreciation, depletion and amortization increased to $0.9 million for the
second quarter of 1997 from $0.7 million for the same period in 1996 principally
due to the acquisition of the Texas Gathering Assets and expansions at the
Company's Beaver processing plant.
Other Income (Expense). Interest income increased to $131,000 for the
second quarter of 1997 from $28,000 for the second quarter of 1996 due to
increased cash investments associated with contract advances received in the
fourth quarter of 1996. During these same time periods, interest expense
increased 102% to
7
<PAGE> 9
$1.3 million from $0.6 million due primarily to additional debt incurred to
finance the acquisition of the Texas Gathering Assets during the second quarter
of 1996.
Income Taxes. For 1997, the Company's effective income tax rate
approximates the sum of the federal and state statutory rates while in 1996, the
Company's effective tax rate was significantly impacted by its net operating
loss carryforwards.
Six months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues. Total operating revenue increased 90% to $154.9 million for the
six months ended June 30, 1997 as compared to $81.4 million for the same period
in 1996. Total natural gas sales increased 101% to $134.8 million for the six
months ended June 30, 1997 from $67.2 million for the same period in 1996 as a
result of a $21.2 million price-related increase due to average sales prices of
$2.65 per Mcf in 1997 compared to $2.23 per Mcf in 1996 and a $46.4 million
volume-related increase due to sales of 282.5 MMcf/d in 1997 compared to 167.1
MMcf/d in 1996. This increase in volume resulted primarily from increases in
off-system gas marketing sales.
NGL sales increased 38% to $18.0 million for the six months ended June 30,
1997 as compared to $13.0 million for the same period last year primarily as a
result of a $3.5 million price-related increase due to average NGL sales prices
of $0.36 per gallon in 1997 compared to $0.29 per gallon in 1996.
The Company earned gathering fees of $2.1 million for the six months ended
June 30, 1997 as compared to $0.5 million for the same period in 1996 as a
result of the acquisition of the Texas Gathering Assets.
Costs and Expenses. Total operating costs and expenses increased 91% to
$151.1 million for the six months ended June 30, 1997 as compared to $79.3
million for the same period in 1996. Total natural gas costs increased 96% to
$142.6 million in 1997 from $72.9 million in 1996 as a result of increases in
price and volume. The $25.3 million price-related increase (resulting from a
change in average purchase prices of $2.56 per Mcf in 1997 from $2.10 per Mcf in
1996) was mitigated by approximately $1.1 million of avoided gathering fees
caused by the integration of the Texas Gathering Assets into the Company's
processing business. A $44.5 million volume-related increase resulted from
purchases of 309.7 MMcf/d in 1997 compared to 192.4 MMcf/d in 1996. This
increase in volume resulted primarily from increases in off-system gas marketing
purchases.
Operating expense increased to $3.1 million for the six months ended June
30, 1997 from $2.9 million for the same period in 1996. This was due mainly to
operating activities from the acquisition of the Texas Gathering Assets.
General and administrative expenses increased 49% to $3.6 million for the
six months ended June 30, 1997 from $2.4 million in the same period last year.
This increase was due primarily to the addition of marketing personnel and
administrative support activities related to the Texas Gathering Assets.
Depreciation, depletion and amortization increased 61% to $1.8 million for
the six months ended June 30, 1997 from $1.1 million for the same period in 1996
principally due to the acquisition of the Texas Gathering Assets and expansions
at the Company's Beaver processing plant.
Other Income (Expense). Interest income increased to $0.4 million for the
three months ended March 31, 1997 from $.1 million for the six months ended June
30, 1996 due to increased cash investments associated with contact advances
received in the fourth quarter of 1996. During these same time periods, interest
expense increased 185% to $2.8 million from $1.0 million due primarily to
additional debt incurred to finance the acquisition of the Texas Gathering
Assets.
Income Taxes. Income tax expense increased to $0.6 million for the six
months ended June 30, 1997 from $29,000 for the same period in 1996. For
1997, the Company's tax rate approximates the sum of the federal and state
statutory rates while in 1996, the Company's effective tax rate was
significantly impacted by its net operating loss carryforwards.
8
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
General. The Company's primary sources of liquidity and capital resources
historically have been net cash provided by operating activities and bank
borrowings. The following summary table reflects comparative cash flows for the
Company for the years six months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1997 1996
------- -------
IN THOUSANDS
<S> <C> <C>
Net cash provided by (used in) operating activities......... (16,009) 4,518
Net cash provided by (used in) investing activities......... (6,009) (24,846)
Net cash provided by (used in) financing activities......... 6,541 18,305
</TABLE>
For the six months ended June 30, 1997, net cash provided by operating
activities decreased by approximately $20.5 million from the same period in
1996. This was mainly attributable to changes in working capital including the
repayment of contract advances totalling $20.9 million. Excluding net changes in
working capital components, the Company's operating activities generated $3.3
million for this period in 1997 and $2.5 million in 1996.
Cash used in investing activities for the six months ended June 30, 1997
was primarily for expansion projects on the Texas Gathering Assets. Cash used in
investing activities for the same period in 1996 was mainly for the acquisition
of the Texas Gathering Assets in the second quarter of 1996.
Cash provided by financing activities for the six months ended June 30,
1997 resulted from borrowing under the Company's revolving and term credit
facility used for working capital requirements and funding various capital
projects. Cash provided by financing activities for the same period in 1996
resulted mainly from long-term borrowing for the acquisition of the Texas
Gathering Assets.
Financing Facilities. The Company entered into a Credit Agreement with ING
Capital Corporation as of December 30, 1996. The Credit Agreement contains a
revolving facility and a term loan facility. The revolving facility has a
maximum borrowing base of $25.0 million which had outstanding borrowings of $7.0
million as of June 30, 1997. Under the term loan facility approximately $34.2
million was outstanding as of June 30, 1997, while an additional $4.0 million
was available for certain future acquisitions, including the acquisition of
interests in a natural gas processing plant located in Laverne, Oklahoma.
Interest rates under both the revolving facility and term facility are variable,
at the Company's election, at: (i) up to 3/4% (depending upon the Company's
financial performance) above the greater of (x) the arithmetic average of the
prime rates announced by Chase Manhattan Bank, Citibank, N.A. and Morgan
Guaranty Trust Company of New York or (y) the federal funds rate as published by
the Federal Reserve Bank of New York plus 1/2%; or (ii) 1.375% to 2.5%
(depending upon the Company's financial performance) above the London Interbank
Offered Rate (LIBOR). Current interest payments on the revolving facility and
repayments under the term facility began on January 31, 1997. The revolving
facility contains a sub-limit permitting the Company to issue Letters of Credit
amounting, in the aggregate, to $18.0 million. As of June 30, 1997, the
aggregate amount outstanding under the Letters of Credit was $7.0 million.
The Company has also entered into a Letter of Credit and Reimbursement
Agreement with Christiania Bank, New York, Branch. Under the Reimbursement
Agreement, Christiania Bank initially issued letters of credit in the aggregate
amount of approximately $21.0 million to secure the Company's obligation under
various contract advances. As of June 30, 1997, the aggregate amount outstanding
under these Letters of Credit was $5.0 million. The Company pays a fee of 1 1/2%
per annum for the amount of each Letter of Credit which is issued.
The Company completed an initial public offering of Common Stock on August
6, 1997, selling 2,115,000 shares for $11.25 per share, yielding net proceeds of
approximately $21.4 million. The proceeds have been used to pay $17.3 million on
the Company's term loan facility, to pay $0.6 million in accrued dividends on
its Convertible Preferred Stock and the remainder for other general corporate
purposes.
9
<PAGE> 11
SEASONALITY
The Company's results of operations fluctuate from quarter to quarter, due
to variations in the prices and sales volumes of NGLs and natural gas. The
Company's primary NGL product is propane, which is used for agricultural and
home heating in the Company's market areas. Demand and prices of propane usually
increase during the winter season and decrease during the summer season. The
Company's principal commodity, natural gas, is used primarily for heating fuel
for homes and industry, and for electric power generation. Demand and prices for
natural gas usually increase during the winter season. While the Company's gross
revenues typically increase or decrease seasonally, profitability from natural
gas processing operations is affected by the margins between the cost of natural
gas purchased and the sales prices of the NGLs extracted, which may not follow
seasonal patterns.
10
<PAGE> 12
PART II---OTHER INFORMATION
Item 1. Legal Proceedings.
This information is previously reported in the Registrant's
Registration Statement on Form S-1, File Number 333-25719, filed April 24,
1997, as amended.
Item 2. Changes in Securities.
This information is previously reported in the Registrant's
Registration Statement on Form S-1, File Number 333-25719, filed April 24,
1997, as amended.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Attached hereto are the following Exhibits:
Exhibit No. Description
----------- -----------
11 Statement regarding computation of per share earnings.
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed for the quarter for which this
report is filed.
11
<PAGE> 13
SIGNATURE
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.
CONTINENTAL NATURAL GAS, INC.
Date: August 14, 1997
By: /s/ GARRY D. SMITH
-----------------------------------
Garry D. Smith, Vice President,
Controller and Chief Financial and
Accounting Officer
12
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
11 Statement regarding computation of per share earnings.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 11
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1997 1996 1997 1996
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Net income.................................. $ (139,510) $ (157,374) $ 847,018 $1,210,237
Cumulative preferred dividends.............. (111,750) (150,000) (233,500) (300,000)
Adjusted net income......................... (251,260) (307,374) 623,518 910,237
---------- ---------- ---------- ----------
Reconciliation of weighted average number of
shares outstanding to amount used in
primary earnings per share computation:
Weighted average number of shares
outstanding............................ 3,613,153 3,613,153 3,613,153 3,459,155
Weighted average number of common and
common equivalent shares outstanding... 3,613,153 3,613,153 3,613,153 3,459,155
---------- ---------- ---------- ----------
Primary net income (loss) per common
share.................................. $(0.07) $(0.08) $0.17 $0.26
-------- -------- ----- -----
FULLY DILUTED EARNINGS PER SHARE
Net income.................................. (139,510) (157,374) 847,018 1,210,237
Cumulative preferred dividends.............. (111,750) (150,000) (223,500) (300,000)
Adjusted net income......................... (251,260) (307,374) 623,518 910,237
---------- ---------- ---------- ----------
Reconciliation of weighted average number of
shares outstanding to amount used in fully
diluted earnings per share computation:
Weighted average number of shares
outstanding............................ 3,613,153 3,613,153 3,613,153 3,459,155
Dilutive effect of assumed exercise of
options................................ N/A N/A 192,720 190,530
Dilutive effect of assumed exercise of
warrants...............................
Weighted average number of common and
common equivalent shares outstanding... 3,613,153 3,613,153 3,805,873 3,649,685
---------- ---------- ---------- ----------
Fully diluted net income (loss) per
common share.............................. $(0.07) $(0.08) $0.16 $0.25
-------- -------- ----- -----
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF CONTINENTAL NATURAL GAS, INC. AND
SUBSIDIARIES UNDER COVER OF FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,601
<SECURITIES> 0
<RECEIVABLES> 30,892<F1>
<ALLOWANCES> 0
<INVENTORY> 1,256
<CURRENT-ASSETS> 37,843
<PP&E> 73,492
<DEPRECIATION> 8,015
<TOTAL-ASSETS> 111,119
<CURRENT-LIABILITIES> 43,084
<BONDS> 0
0
0
<COMMON> 39
<OTHER-SE> 22,738
<TOTAL-LIABILITY-AND-EQUITY> 111,119
<SALES> 154,850
<TOTAL-REVENUES> 154,856
<CGS> 145,670
<TOTAL-COSTS> 151,100
<OTHER-EXPENSES> 438
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,781
<INCOME-PRETAX> 1,413
<INCOME-TAX> 566
<INCOME-CONTINUING> 847
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 847
<EPS-PRIMARY> .17
<EPS-DILUTED> .16
<FN>
<F1>ACCOUNTS RECEIVABLE IS PRESENTED NET IN THE CONSOLIDATED BALANCE SHEET.
</FN>
</TABLE>
