<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1995
Commission File Number 0-10833
-------
CLINTON GAS SYSTEMS, INC.
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-0813959
-------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4770 Indianola Avenue Columbus, Ohio 43214
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(Address of principal executive offices) (Zip Code)
(614) 888-9588
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(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 issuer's classes of
common stock, as of the close of the period covered by this report.
Common Stock - 5,657,626 shares outstanding
$ -0- par value
Page One of THIRTEEN pages.
Exhibit Index appears on Page 12.
<PAGE> 2
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30,
1995 December 31,
ASSETS: (Unaudited) 1994
------- ----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 946,000 $ 1,169,000
Receivables 10,832,000 10,140,000
Prepaid expenses and other 738,000 1,141,000
Deferred income taxes 486,000 486,000
Costs in excess of billings on uncompleted wells 0 301,000
----------- -----------
TOTAL CURRENT ASSETS 13,002,000 13,237,000
----------- -----------
PROPERTY - At Cost:
Proved natural gas and oil properties 53,815,000 53,000,000
Pipeline systems and other 12,586,000 12,330,000
Land, building and improvements 2,129,000 2,097,000
Well and field equipment 2,911,000 2,722,000
Office equipment 1,850,000 1,850,000
----------- -----------
Total Property 73,291,000 71,999,000
Accumulated depreciation, depletion
and amortization 39,442,000 37,207,000
----------- -----------
PROPERTY - NET 33,849,000 34,792,000
----------- -----------
INVESTMENTS IN REAL ESTATE 1,262,000 1,590,000
----------- -----------
OTHER ASSETS 577,000 564,000
----------- -----------
TOTAL ASSETS $48,690,000 $50,183,000
=========== ===========
</TABLE>
Page 2 of 13 pages.
<PAGE> 3
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30,
1995 December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY: (Unaudited) 1994
------------------------------------- ----------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt:
Notes payable $1,632,000 $276,000
Mortgages payable 434,000 106,000
Accounts payable 8,582,000 10,210,000
Accrued liabilities and expenses 1,082,000 1,089,000
Receipts in excess of costs on uncompleted wells 70,000 0
----------- -----------
TOTAL CURRENT LIABILITIES 11,800,000 11,681,000
----------- -----------
LONG-TERM DEBT (Less current maturities):
Notes payable 14,160,000 15,773,000
Mortgages payable 961,000 1,333,000
----------- -----------
TOTAL LONG-TERM DEBT 15,121,000 17,106,000
----------- -----------
DEFERRED INCOME TAXES 502,000 506,000
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; Authorized -
2,000,000 shares; Issued and oustanding - none.
Common stock, $.0833 stated value; Authorized -
15,000,000 shares; Issued 1995 and 1994 -
6,175,000 shares 514,000 514,000
Additional paid-in capital 7,552,000 7,552,000
Retained earnings 14,326,000 13,949,000
----------- -----------
TOTAL 22,392,000 22,015,000
Less treasury stock of 517,000 shares, at cost (1,125,000) (1,125,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 21,267,000 20,890,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $48,690,000 $50,183,000
=========== ===========
</TABLE>
Page 3 of 13 pages.
<PAGE> 4
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
For the Quarters Ended June 30, 1995 and 1994 (Unaudited)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarters Ended June 30,
1995 1994
----------- -----------
<S> <C> <C>
REVENUE:
Natural gas marketing $15,085,000 $21,988,000
Natural gas and oil sales 2,994,000 2,898,000
Well operating, transportation and other 915,000 902,000
Drilling 597,000 968,000
----------- -----------
TOTAL REVENUE 19,591,000 26,756,000
----------- -----------
COSTS AND EXPENSES:
Natural gas marketing 14,547,000 21,388,000
Natural gas and oil production:
Depreciation, depletion and amortization 908,000 814,000
Production costs 1,153,000 988,000
Other costs and expenses 969,000 1,078,000
Drilling 797,000 969,000
Selling, general and administrative expenses 827,000 962,000
----------- -----------
TOTAL COSTS AND EXPENSES 19,201,000 26,199,000
----------- -----------
OPERATING INCOME 390,000 557,000
OTHER INCOME (EXPENSE):
Interest expense (375,000) (301,000)
Interest, dividend, and other income 13,000 3,000
----------- -----------
INCOME BEFORE INCOME TAXES 28,000 259,000
INCOME TAXES (BENEFIT) (38,000) 38,000
----------- -----------
NET INCOME $66,000 $221,000
=========== ===========
NET INCOME PER COMMON SHARE $0.012 $0.039
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,658,000 5,658,000
=========== ===========
</TABLE>
Page 4 of 13 pages.
<PAGE> 5
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
For the Six Months Ended June 30, 1995 and 1994 (Unaudited)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
1995 1994
----------- -----------
<S> <C> <C>
REVENUE:
Natural gas marketing $30,272,000 $48,690,000
Natural gas and oil sales 6,864,000 5,451,000
Well operating, transportation and other 1,729,000 1,814,000
Drilling 1,392,000 968,000
----------- -----------
TOTAL REVENUE 40,257,000 56,923,000
----------- -----------
COSTS AND EXPENSES:
Natural gas marketing 28,890,000 47,539,000
Natural gas and oil production:
Depreciation, depletion and amortization 2,108,000 1,605,000
Production costs 2,345,000 2,023,000
Other costs and expenses 2,401,000 2,222,000
Drilling 1,820,000 975,000
Selling, general and administrative expenses 1,547,000 2,057,000
----------- -----------
TOTAL COSTS AND EXPENSES 39,111,000 56,421,000
----------- -----------
OPERATING INCOME 1,146,000 502,000
OTHER INCOME (EXPENSE):
Interest expense (745,000) (573,000)
Interest, dividend, and other income 25,000 13,000
----------- -----------
INCOME(LOSS) BEFORE INCOME TAXES 426,000 (58,000)
INCOME TAXES (BENEFIT) 49,000 (115,000)
----------- -----------
NET INCOME $377,000 $57,000
=========== ===========
NET INCOME PER COMMON SHARE $0.067 $0.010
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,658,000 5,658,000
=========== ===========
</TABLE>
Page 5 of 13 pages.
<PAGE> 6
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1995 and 1994 (Unaudited)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
OPERATING ACTIVITIES 1995 1994
----------------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Net income $377,000 $57,000
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation, depletion, and amortization 2,802,000 2,092,000
(Benefit) for deferred income taxes (4,000) (160,000)
Loss from disposition of property and investments 19,000 7,000
Change in operating assets and liabilities:
(Increase) decrease in receivables (692,000) 2,102,000
Decrease (increase) in prepaid expenses and other current assets 403,000 (466,000)
Decrease in costs in excess of billings on uncompleted wells 301,000 0
(Decrease) in accounts payable (1,005,000) (2,380,000)
(Decrease) increase in accrued liabilities and expenses (7,000) 111,000
Increase (decrease) in receipts in excess of costs on uncompleted wells 70,000 (170,000)
(Decrease) in accrued and deferred income taxes 0 (27,000)
Increase in deferred income 0 13,000
---------- -----------
Net cash provided by operating activities 2,264,000 1,179,000
---------- -----------
INVESTING ACTIVITIES
-----------------------------------------------------------------------------
Purchase of property (2,266,000) (1,302,000)
Proceeds from sale of property 183,000 99,000
Changes in other assets (30,000) (19,000)
---------- -----------
Net cash (used in) investing activities (2,113,000) (1,222,000)
---------- -----------
FINANCING ACTIVITIES
-----------------------------------------------------------------------------
Proceeds from notes and mortgages payable 6,250,000 11,800,000
Principal payments on notes and mortgages payable (6,624,000) (12,153,000)
---------- -----------
Net cash (used in) financing activities (374,000) (353,000)
---------- -----------
(Decrease) in cash and cash equivalents (223,000) (396,000)
Cash and cash equivalents at beginning of year 1,169,000 1,103,000
---------- -----------
Cash and cash equivalents at end of period $946,000 $707,000
========== ===========
</TABLE>
Page 6 of 13 pages.
<PAGE> 7
CLINTON GAS SYSTEMS, INC. AND SUBSIDIARIES
------------------------------------------
SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------------------------
ACCOUNTING POLICIES: The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be "cash equivalents."
NON-CASH INVESTING AND FINANCING ACTIVITIES: The Company incurred capital
lease and other obligations of $74,000 and $85,000, respectively, for the six
months ended June 30, 1995 and 1994 in connection with agreements to purchase
equipment. Included in accounts payable at December 31, 1994 is an unpaid
liability of $623,000 to purchase natural gas and oil properties. Included in
accounts payable at June 30, 1994 is an unpaid liability of $600,000 for the
purchase of natural gas and oil properties and other equipment.
INTEREST EXPENSE: The Company incurred interest expense and made interest
payments as follows:
<TABLE>
<CAPTION>
Total Interest Total Interest
Period Expense Incurred Payments Made
------ ---------------- -------------
<S> <C> <C>
Six months ended
June 30, 1995 $763,000 $717,000
Six months ended
June 30, 1994 $584,000 $517,000
</TABLE>
INCOME TAXES: The Company made income tax payments of $0 and $115,000,
respectively, for the six months ended June 30, 1995 and 1994.
Page 7 of 13 pages.
<PAGE> 8
CLINTON GAS SYSTEMS, INC. AND SUBSIDIARIES
------------------------------------------
Notes to Interim Financial Statements
1.) In the opinion of management, the accompanying unaudited
consolidated condensed financial statements contain all adjustments
necessary to present fairly Clinton Gas Systems, Inc.'s financial position
as of June 30, 1995, and the results of its operations and changes in cash
flow for the six months then ended.
2.) The results of operations for the six months ended June 30, 1995
are not necessarily indicative of the results to be expected for the full
year.
Page 8 of 13 pages.
<PAGE> 9
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
-------------------------------
Effective April 1, 1995 the Company acquired all of the working
interest in 17 producing natural gas and oil development wells from an
independent producer. The wells are located in Muskingum County, Ohio. The
purchase price was $180,000 and included leasehold interests. During the first
half of 1995 the Company also participated in the successful completion of 17
exploratory wells. The reserves from the acquisition combined with the
exploratory wells will provide future liquidity to the Company.
The Company's credit facility and cash flow from operations are the
major sources of funds to meet its financing requirements. The net cash
provided by operating activities was $2,264,000 for the six months ended June
30, 1995 compared to $1,179,000 for the 1994 period. At June 30, 1995 the
Company had a $15,000,000 credit arrangement with its two banks and $13,500,000
had been borrowed. The amount owed to banks at August 10, 1995 was
$12,600,000. The credit line is reviewed semiannually and the credit is based
on estimated net revenues from the Company's proved developed natural gas and
oil reserves. The credit agreement contains restrictive and other covenants
that relate to the operation of the Company. The Company was in compliance
with all restrictions and debt covenants at June 30, 1995.
The Company's working capital was $1,202,000 at June 30, 1995 compared
to $1,556,000 at December 31, 1994. Total current and long term debt decreased
slightly to $17,187,000 from $17,488,000 at December 31, 1994. During the
third quarter of 1995 the Company sold a real estate property and retired the
related mortgage debt of $362,000. The net proceeds from the sale were
$580,000, which approximated its book value.
Capital expenditures were $1,717,000 for the first half of 1995
compared to $1,987,000 for the first half of 1994. In the 1995 period
approximately $749,000 was expended for the drilling and equipping of
exploratory wells and $213,000 for the acquisition of reserves. The remaining
1995 capital outlays consisted of $755,000 for transportation systems and other
expenditures.
The Company announced at its Annual Shareholders Meeting in June 1995
that it had reached an agreement with Columbia Gas Transmission Corp. to settle
its bankruptcy claim against Columbia. The Company estimates that it will
realize approximately $5,000,000 of income before tax from the claim, with
additional funds to be allocated among certain programs sponsored by the
Company. The Bankruptcy Court has authorized Columbia to distribute a
reorganization plan ("Plan") to creditors for voting. If the Plan is approved
by creditors and confirmed by the Bankruptcy Court, the distribution of claim
proceeds could occur as early as late December 1995. However, there may be
delays in the approval and claims distribution process.
Page 9 of 13 pages.
<PAGE> 10
Results of Operations
---------------------
Net income for the first half of 1995 improved to $377,000 or $.067 per
share compared to $57,000 or $.010 per share in 1994. In the second quarter,
net income was $66,000 compared to $221,000 in 1994. Operating income for the
six months increased by $644,000 to $1,146,000 in 1995 from $502,000 in 1994.
In the current quarter, operating income decreased to $390,000 from $557,000 in
the prior year.
Natural gas marketing revenues for the six months decreased to
$30,272,000 in 1995 from $48,690,000 in 1994. Second quarter revenues
decreased to $15,085,000 from $21,988,000 in the prior year. The change in
both periods was primarily due to a 22% decrease in volumes sold. Purchases of
natural gas also declined to $28,890,000 in 1995 from $47,539,000 in 1994.
Costs decreased to $14,547,000 in the second quarter from $21,388,000 in 1994.
These decreases were primarily a result of the lower volumes sold. As a result
of these changes, the year-to-date operating income from gas marketing
activities improved by $231,000 to $1,382,000 in 1995 from $1,151,000 in 1994.
Operating income decreased to $538,000 in the current quarter from $600,000 in
1994. The 1995 second quarter includes operating income of $85,000 from the
write off of certain dated accounts payable.
Revenues from the sale of natural gas and oil production for the first
half increased by 26% to $6,864,000 in 1995 from $5,451,000 in 1994. The
improvement was due to increased production offset, in part, by lower sales
prices. Revenues increased by $1,628,000 as a result of greater production and
net decreases in average prices reduced revenues by about $215,000. The
weighted average sales price of natural gas decreased to $2.28 per MCF in 1995
from $2.63 in 1994 while the weighted average price of oil improved to $17.23
per barrel in 1995 from $14.96 in 1994. Depreciation, depletion and
amortization increased to $2,108,000 for the first half of 1995 compared to
$1,605,000 in 1994. Second quarter expense rose to $908,000 from $814,000 in
1994. The increase was due to greater depreciation on exploratory wells
combined with higher amortization for older wells. Year-to-date production
costs rose to $2,345,000 in 1995 from $2,023,000 in 1994. In the current
quarter costs increased to $1,153,000 from $988,000 in 1994. The change in
both periods was due to expenses associated with the Company's participation in
a greater number of wells. These changes caused year-to-date operating income
from natural gas and oil sales to increase by $588,000 to $2,411,000 in 1995
from $1,823,000 in 1994. In the second quarter, operating income decreased to
$933,000 from $1,096,000 in 1994.
Well operating, transportation and other revenue includes well
operating and servicing activities, transportation systems and real estate
operations. Year-to-date revenues decreased by $85,000 to $1,729,000 in 1995
from $1,814,000 in 1994. The decrease was primarily due to lower
transportation income from pipeline systems from reduced usage.
Other costs include expenses related to operating and managing
producing wells, maintenance of transportation systems, real estate operations
and support costs for exploratory activities. Costs increased for the first
half of 1995 to $2,401,000 from $2,222,000 in 1994. The higher costs were
incurred in providing expanded field services to maintain a greater number of
wells. Second quarter costs decreased to $969,000 from $1,078,000 in 1994.
Exploratory costs decreased by $200,000 primarily due to gains recognized from
the sale of interests in prospects, partially offset by higher costs to provide
field services to a greater number of wells.
Revenues from drilling and completion activities for the first half of
1995 increased to $1,392,000 in 1995 from $968,000 in 1994. The related
drilling costs increased to $1,820,000 from
Page 10 of 13 pages.
<PAGE> 11
$975,000 in 1994. The increase in revenues and costs was due to a greater
number of exploratory wells completed in the current year. The Company
incurred operating losses of $428,000 in 1995 and $7,000 in 1994 as a result of
dry hole costs on exploratory wells. In the current quarter, the operating
losses from exploratory dry holes were $200,000 for 1995 and $1,000 for 1994.
Selling, general, and administrative expenses for the six months
decreased by $510,000 to $1,547,000 in 1995 from $2,057,000 in 1994. The 1994
period included a loss provision of $332,000 for an uncollectible account from
an industrial natural gas customer. The remaining change was primarily due to
$107,000 of lower administrative costs for gas marketing activities and $71,000
of lower expenses in other general and administrative areas. Costs in the
current quarter also decreased to $827,000 in 1995 from $962,000 in 1994.
Approximately $62,000 of the decrease was due to reduced costs for gas
marketing activities, $13,000 in lower professional fees and $60,000 in reduced
expenses for other administrative areas.
Interest expense for the first half of 1995 increased to $745,000 from
$573,000 in 1994 due to higher interest rates and greater debt levels. The
weighted average interest rate on the Company's credit facility increased to
9.06% in 1995 from 6.57% in 1994. The weighted average debt level also
increased to $13,004,000 in 1995 from $12,511,000 in 1994.
The Company's year-to-date federal income tax expense was $49,000 in
1995 compared to a benefit of $115,000 in 1994. The amounts for both periods
include the tax benefit of percentage depletion that is earned by the Company
during the year.
Page 11 of 13 pages.
<PAGE> 12
PART II OTHER INFORMATION
-------------------------
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Item 1. Legal Proceedings.
N/A
Item 2. Changes in Securities.
N/A
Item 3. Defaults Upon Senior Securities.
N/A
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Shareholders of the Company
(the "Annual Meeting") was held on June 20, 1995. At the
close of business on the record date, 5,657,626 common
shares were outstanding and entitled to vote at the Annual
Meeting. At the Annual Meeting 5,045,824 common shares or
89.19% of the outstanding common shares entitled to vote
were represented in person or by proxy.
(b) Directors elected at the Annual Meeting:
<TABLE>
<CAPTION>
Broker
For Withheld Abstain Non-Vote
--- -------- ------- --------
<S> <C> <C> <C> <C>
Hal W. Field 5,040,796 3,098 0 0
Michael S. Guy 5,040,796 3,098 0 0
Jerry D. Jordan 5,039,403 4,491 0 0
Donald A. Nay 5,038,866 5,028 0 0
R. L. Richards 5,040,796 3,098 0 0
F. Daniel Ryan 5,039,539 4,355 0 0
Duke W. Thomas 5,040,796 3,098 0 0
R. David Thomas 5,040,235 3,659 0 0
</TABLE>
(c), (d) Not Applicable.
Item 5. Other Information.
No response required.
Item 6. Exhibits and Reports on Form 8-K.
(a), (b) Not Applicable.
Page 12 of 13 pages.
<PAGE> 13
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
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.
CLINTON GAS SYSTEMS, INC.
-------------------------
(Registrant)
Date: August 14, 1995 /s/Jerry D. Jordan
---------------- -------------------------------
Jerry D. Jordan, Chairman of the Board
Date: August 14, 1995 /s/Donald A. Nay
---------------- -------------------------------
Donald A. Nay, Vice President,
Treasurer, Chief Financial Officer
Page 13 of 13 pages.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 946,000
<SECURITIES> 0
<RECEIVABLES> 10,832,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,002,000
<PP&E> 73,291,000
<DEPRECIATION> 39,442,000
<TOTAL-ASSETS> 48,690,000
<CURRENT-LIABILITIES> 11,800,000
<BONDS> 0
<COMMON> 514,000
0
0
<OTHER-SE> 20,753,000
<TOTAL-LIABILITY-AND-EQUITY> 21,267,000
<SALES> 37,136,000
<TOTAL-REVENUES> 40,257,000
<CGS> 33,343,000
<TOTAL-COSTS> 39,111,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 745,000
<INCOME-PRETAX> 426,000
<INCOME-TAX> 49,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 377,000
<EPS-PRIMARY> .067
<EPS-DILUTED> 0
</TABLE>
