UNITED STATES 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, 1996
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 Identification No.)
incorporation or organization)
4770 Indianola Avenue, Columbus, Ohio 43214
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(614) 888-9588
-----------------------------------------
(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 - 5,681,517 shares outstanding
$ -0- par value
Page 1 of 12 pages.
<PAGE>
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
June 30,
1996 December 31,
ASSETS: (Unaudited) 1995
- ------------------------------------ ----------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,496,000 $ 1,729,000
Receivables 14,212,000 13,991,000
Prepaid expenses and other 791,000 652,000
Deferred income taxes 201,000 185,000
----------- -----------
TOTAL CURRENT ASSETS 16,700,000 16,557,000
----------- -----------
PROPERTY - At Cost:
Proved natural gas and oil properties 55,954,000 55,799,000
Pipeline systems and other 12,953,000 12,671,000
Land, building and improvements 2,438,000 2,437,000
Well and field equipment 3,249,000 3,207,000
Office equipment 2,207,000 2,125,000
----------- -----------
Total Property 76,801,000 76,239,000
Accumulated depreciation, depletion and
amortization 43,259,000 41,401,000
----------- -----------
PROPERTY - NET 33,542,000 34,838,000
----------- -----------
OTHER ASSETS 520,000 523,000
----------- -----------
TOTAL ASSETS $50,762,000 $51,918,000
=========== ===========
Page 2 of 12 pages.
<PAGE>
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
June 30,
1996 December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY: (Unaudited) 1995
- ------------------------------------- ----------- --------
CURRENT LIABILITIES:
Current maturities of long-term debt:
Notes payable $ 136,000 $ 120,000
Mortgages payable 834,000 856,000
Accounts payable 10,784,000 11,707,000
Accrued liabilities and expenses 1,198,000 1,299,000
Receipts in excess of costs on
uncompleted wells 229,000 322,000
Accrued income taxes 0 566,000
------------ ------------
TOTAL CURRENT LIABILITIES 13,181,000 14,870,000
------------ ------------
LONG-TERM DEBT (Less current maturities):
Notes payable 14,124,000 13,234,000
Mortgages payable 136,000 144,000
------------ ------------
TOTAL LONG-TERM DEBT 14,260,000 13,378,000
------------ ------------
DEFERRED INCOME TAXES 0 390,000
------------ ------------
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 1996-6,215,000 and
1995-6,175,000 shares 518,000 514,000
Additional paid-in capital 7,678,000 7,552,000
Retained earnings 16,320,000 16,405,000
------------ ------------
TOTAL 24,516,000 24,471,000
Less treasury stock of 533,000 shares, at cost (1,195,000) (1,191,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 23,321,000 23,280,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 50,762,000 $ 51,918,000
============ ============
Page 3 of 12 pages.
<PAGE>
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
For the Quarters Ended June 30, 1996 and 1995 (Unaudited)
- --------------------------------------------------------------------------------
Quarters Ended June 30,
1996 1995
---------- ----------
REVENUE:
Natural gas marketing $ 24,797,000 $ 15,085,000
Natural gas and oil sales 3,469,000 2,994,000
Well operating, transportation and other 611,000 915,000
Drilling 616,000 597,000
------------ ------------
TOTAL REVENUE 29,493,000 19,591,000
------------ ------------
COSTS AND EXPENSES:
Natural gas marketing 24,384,000 14,547,000
Natural gas and oil production:
Depreciation, depletion and amortization 795,000 908,000
Production costs 1,330,000 1,153,000
Other costs and expenses 1,278,000 969,000
Drilling 796,000 797,000
Selling, general and administrative expenses 957,000 827,000
Merger expenses 241,000 0
------------ ------------
TOTAL COSTS AND EXPENSES 29,781,000 19,201,000
------------ ------------
OPERATING (LOSS)INCOME (288,000) 390,000
OTHER INCOME (EXPENSE):
Interest expense (279,000) (375,000)
Interest, dividend, and other income 23,000 13,000
------------ ------------
(LOSS)INCOME BEFORE INCOME TAXES (544,000) 28,000
INCOME TAXES (BENEFIT) (251,000) (38,000)
------------ ------------
NET (LOSS)INCOME ($ 293,000) $ 66,000
============ ============
NET (LOSS)INCOME PER COMMON SHARE ($ 0.052) $ 0.012
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,662,000 5,658,000
============ ============
Page 4 of 12 pages.
<PAGE>
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
For the Six Months Ended June 30, 1996 and 1995 (Unaudited)
- --------------------------------------------------------------------------------
Six Months Ended June 30,
1996 1995
-------- --------
REVENUE:
Natural gas marketing $ 66,394,000 $ 30,272,000
Natural gas and oil sales 6,774,000 6,864,000
Well operating, transportation and other 1,238,000 1,729,000
Drilling 891,000 1,392,000
------------ ------------
TOTAL REVENUE 75,297,000 40,257,000
------------ ------------
COSTS AND EXPENSES:
Natural gas marketing 65,009,000 28,890,000
Natural gas and oil production:
Depreciation, depletion and amortization 1,634,000 2,108,000
Production costs 2,614,000 2,345,000
Other costs and expenses 2,605,000 2,401,000
Drilling 1,103,000 1,820,000
Selling, general and administrative expenses 1,889,000 1,547,000
Merger expenses 241,000 0
------------ ------------
TOTAL COSTS AND EXPENSES 75,095,000 39,111,000
------------ ------------
OPERATING INCOME 202,000 1,146,000
OTHER INCOME (EXPENSE):
Interest expense (573,000) (745,000)
Interest, dividend, and other income 42,000 25,000
------------ ------------
(LOSS)INCOME BEFORE INCOME TAXES (329,000) 426,000
INCOME TAXES (BENEFIT) (244,000) 49,000
------------ ------------
NET (LOSS)INCOME ($ 85,000) $ 377,000
============ ============
NET (LOSS)INCOME PER COMMON SHARE ($ 0.015) $ 0.067
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,652,000 5,658,000
============ ============
Page 5 of 12 pages.
<PAGE>
<TABLE>
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1996 and 1995 (Unaudited)
- --------------------------------------------------------------------------------
Six Months Ended June 30,
OPERATING ACTIVITIES 1996 1995
-------- --------
<S> <C> <C>
Net (loss)income ($ 85,000) $ 377,000
Adjustments to reconcile net(loss) income to cash
(used in) provided by operating activities:
Depreciation, depletion, and amortization 2,150,000 2,802,000
(Benefit) provision for deferred income taxes (406,000) (4,000)
(Gain) loss from disposition of property
and investments (13,000) 19,000
Change in operating assets and liabilities:
Receivables (221,000) (692,000)
Prepaid expenses and other current assets (139,000) 403,000
Costs in excess of billings on uncompleted wells 0 301,000
Accounts payable (653,000) (1,005,000)
Accrued liabilities and expenses (101,000) (7,000)
Receipts in excess of costs on uncompleted wells (93,000) 70,000
Accrued income taxes (566,000) 0
----------- ---------
Net cash (used in) provided by operating activities (127,000) 2,264,000
----------- ---------
INVESTING ACTIVITIES
Purchase of property (1,126,000) (2,266,000)
Proceeds from sale of property 51,000 183,000
Changes in other assets (12,000) (30,000)
----------- ---------
Net cash (used in) investing activities (1,087,000) (2,113,000)
----------- ---------
FINANCING ACTIVITIES
Proceeds from notes payable 17,500,000 6,250,000
Proceeds from issuance of common stock 130,000 0
Principal payments on notes and mortgages payable (16,645,000) (6,624,000)
Purchase of Treasury Stock (4,000) 0
----------- ---------
Net cash provided by (used in) financing activities 981,000 (374,000)
----------- ---------
(Decrease) in cash and cash equivalents (233,000) (223,000)
Cash and cash equivalents at beginning of year 1,729,000 1,169,000
----------- ---------
Cash and cash equivalents at end of period $ 1,496,000 $ 946,000
=========== =========
</TABLE>
Page 6 of 12 pages.
<PAGE>
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 $21,000 and $74,000 respectively, for the six
months ended June 30, 1996 and 1995 in connection with agreements to purchase
equipment. Included in accounts payable at December 31, 1995, and December 31,
1994, are unpaid liabilities of $270,000 and $623,000, respectively, for the
purchase of natural gas and oil properties.
Interest Expense: The Company incurred interest expense and made interest
payments as follows:
Total Interest Total Interest
Period Expense Incurred Payments Made
- ------------------------ ------------------ ------------------
Six months ended June 30, 1996 $594,000 $594,000
Six months ended June 30, 1995 $763,000 $717,000
Income Taxes: The Company made income tax payments of $780,000 and $0,
respectively, for the six months ended June 30, 1996 and June 30, 1995.
NOTES TO INTERIM FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
Clinton Gas Systems, Inc.'s financial position as of June 30, 1996, 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, 1996 are not
necessarily indicative of the results to be expected for the full year.
3. The Financial Accounting Standards Board issued Statement No. 121
"Accounting for the Impairment of Long- Lived Assets and for Long-Lived
Assets to Be Disposed Of" which was effective January 1, 1996. The
Registrant adopted the requirements of this statement in 1996 and it did
not have a significant effect on the financial condition or results of
operations.
4. On May 24, 1996 the Company entered into an Agreement and Plan of Merger
("Merger Agreement") with Joint Energy Development Investments Limited
Partnership ("JEDI"), an affiliate of Enron Capital & Trade Resources
Corp., and Jenco Acquisition, Inc. ("Purchaser"), a newly formed Ohio
corporation and a subsidiary of JEDI. The Merger Agreement provides for
the merger of Purchaser and the Company with the Company surviving the
merger. At the effective time of the merger all then-outstanding shares
of the Company's common stock will be converted into the right to
receive, in cash, $6.75 per share, without interest. The merger is
subject to a vote of its shareholders at a meeting to be held on August
22, 1996.
Page 7 of 12 pages.
<PAGE>
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
In 1996 the Company has participated in the successful completion of 17
exploratory wells. The sale of production from these discoveries will provide
future cash flow to improve the liquidity of the Company.
The Company's credit facility and cash flow from operations are the major
sources of funds to meet its financing requirements. At June 30, 1996 the
Company had a $15,000,000 credit arrangement with two banks and $12,200,000
had been borrowed. The amount owed to banks on August 8, 1996 was $11,700,000.
The credit line is reviewed semiannually and the credit is based on estimated
net revenues from the Company's proved 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, 1996.
The Company's working capital increased to $3,519,000 at June 30, 1996
from $1,687,000 at December 31, 1995. The increase was primarily due to lower
accounts payable and accrued income taxes. Total current and long term debt
increased to $15,230,000 at June 30, 1996 from $14,354,000 at December 31,
1995.
Capital expenditures were $877,000 for the first half of 1996 compared to
$1,717,000 for the first half of 1995. In 1996 approximately $350,000 was
expended for the drilling and equipping of exploratory wells and $288,000 for
expanding the Company's oil and gas lease position. The remaining 1996 capital
outlays consisted of $239,000 for transportation systems and other
expenditures.
Results of Operations
The net loss for the first half of 1996 was $85,000 or $.015 per share
compared to net income of $377,000 or $.067 per share in 1995. In the second
quarter the net loss was $293,000 compared to net income of $66,000 in the
prior year.
Revenues from natural gas marketing for the six months increased to
$66,394,000 in 1996 from $30,272,000 in 1995. The change was due to a 35%
increase in volumes combined with increases in the average price of natural
gas sold. Second quarter revenues also increased to $24,797,000 from
$15,085,000 in the prior year as a result of a 21% increase in volumes
combined with greater prices. Purchases of natural gas increased to
$65,009,000 in 1996 from $28,890,000 in 1995. Costs also increased to
$24,384,000 in the second quarter from $14,547,000 in 1995. The increases in
both periods were a result of the greater volumes sold and higher unit costs
of supply. As a result of these factors, the year-to-date operating income
from gas marketing activities remained relatively constant at $1,385,000 in
1996 compared to $1,382,000 in 1995. In the current quarter, operating income
decreased to $413,000 in 1996 from $538,000 in 1995. The 1995 period included
operating income of $85,000 from the write-off of certain dated accounts
payable.
Revenues from the sale of natural gas and oil production decreased by
$90,000 to $6,774,000 in 1996 from $6,864,000 in 1995. The 1995 period
included revenues of $1,594,000 from the recognition of gas measurement
variances. The remaining change in 1996 is due to increased production and
improved prices. Increased production from sales of oil and natural gas from
exploratory wells and acquisitions added $1,095,000 to revenues. Improvements
in sales prices increased revenues by $409,000. The weighted average sales
price of natural gas increased by 14% to $2.59 per MCF in 1996 from $2.28 in
the prior year. Oil prices also improved by 10% to
Page 8 of 12 pages.
<PAGE>
$19.03 per barrel in 1996 from $17.23 in 1995. In the second quarter revenues
increased by $475,000 to $3,469,000 from $2,994,000 in 1995. The 1995 period
included revenues of $302,000 from the recognition of gas measurement
variances. The remaining change in 1996 revenues is due to increased
production from wells of $352,000 and higher prices of $425,000. Depreciation,
depletion and amortization of natural gas and oil properties decreased to
$1,634,000 for the first half of 1996 compared to $2,108,000 in 1995. For the
second quarter, costs decreased to $795,000 from $908,000 in 1995. The change
in these periods was due to reduced amortization on older wells. Year-to-date
production costs rose to $2,614,000 in 1996 from $2,345,000 in 1995. In the
current quarter costs rose to $1,330,000 from $1,153,000 in 1995. These
increases were due to the Company's greater participation in wells from
natural gas and oil reserve acquisitions. As a result of these changes, the
year-to-date operating income from natural gas and oil sales increased by
$115,000 to $2,526,000 in 1996 from $2,411,000 in 1995. For the second
quarter, operating income improved by $411,000 to $1,344,000 from $933,000 in
1995.
Well operating, transportation and other revenue includes well operating
and servicing activities, transportation systems and real estate operations.
Year-to-date revenues decreased by $491,000 to $1,238,000 in 1996 from
$1,729,000 in 1995. In the current quarter revenues also decreased to $611,000
from $915,000 in 1995. In the fourth quarter of 1995 the Company purchased
most of the remaining investor interest in the assets of 150 limited
partnerships and co-ownership projects for which the Company is the general
partner or project manager. As a result, the revenues from operation of the
wells attributable to investor interests in the programs decreased in 1996.
This change accounts for most of the decrease in revenues from well operating,
transportation, and other revenues.
Other costs include expenses related to operating and managing producing
wells, real estate activities, maintenance of transportation systems and
support costs for exploratory activities. Year-to-date costs increased to
$2,605,000 in 1996 from $2,401,000 in 1995. Second quarter costs also rose to
$1,278,000 in 1996 from $969,000 in 1995. Costs related to exploratory
activities increased by $755,000 for the first half of 1996. In the current
quarter exploratory costs increased by $634,000 over the 1995 quarter. The
increase in both periods was due to higher expenses of improving and
maintaining the Company's oil and gas lease position. Costs of maintaining
real estate properties decreased by $242,000 on a year-to-date basis and by
$14,000 for the current quarter due to the sale of real estate properties in
1995. The remaining change in other costs was due to lower costs of servicing
wells.
Revenues from drilling and completion activities for the first half of
1996 decreased to $891,000 in 1996 from $1,392,000 in 1995. The related
drilling costs were $1,103,000 in 1996 from $1,820,000 in 1995. The decrease
in revenues and costs was due to fewer exploratory wells completed in the
current year. The Company incurred operating losses of $212,000 in 1996 and
$428,000 in 1995 as a result of dry hole costs on exploratory wells. In the
current quarter, the operating losses for exploratory wells were $180,000 for
1996 and $200,000 for 1995.
Selling, general and administrative expenses increased by $342,000 to
$1,889,000 in 1996 from $1,547,000 in 1995. In the current quarter costs rose
to $957,000 in 1996 from $827,000 in 1995. The change was primarily due to
greater selling and administrative costs for expanded gas marketing
activities.
In 1996 the Company incurred merger expenses of $241,000 from the
proposed merger with Jenco Acquisition, Inc., a wholly owned subsidiary of
Joint Energy Development Investments Limited Partnership and an affiliate of
Enron Corp. A special meeting of shareholders is to be held on August 22, 1996
to vote on the merger as described in the Proxy Statement dated July 25, 1996.
Interest expense for the first half of 1996 decreased to $573,000 in 1996
from $745,000 in 1995 due to lower rates and reduced debt levels. The weighted
average interest rate on the Company's credit facility decreased to 8.21% in
1996 from 9.06% in 1995. The weighted average debt level also decreased to
$10,846,000 in 1996 from $13,004,000 in 1995.
Page 9 of 12 pages.
<PAGE>
The Company's year-to-date federal income tax benefit was $244,000
compared to an expense of $49,000 in 1995. The amounts for both periods
include the tax benefit of percentage depletion that is earned by the Company
during the year.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements which involve risks
and uncertainties, including but not limited to economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices, and other factors discussed in the
Company's filings with the Securities and Exchange Commission.
Page 10 of 12 pages.
<PAGE>
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.
No matter was submitted to a vote of shareholders during the period
covered by this report. However, on July 24, 1996, the registrant
filed with the SEC definitive proxy materials which announced a
special meeting of shareholders to be held on August 22, 1996 to
vote on the proposed merger of the Registrant with Jenco
Acquisition, Inc., a wholly owned subsidiary of Joint Energy
Development Investments Limited Partnership and an affiliate of
Enron Capital & Trade Resources Corp.
Item 5. Other Information.
N/A
Item 6. Exhibits and Reports on Form 8-K.
(a) 27.0 Financial Data Schedule
(b) Form 8-K
Report on Form 8-K filed June 3, 1996 which indicated that the
Registrant had entered into a merger agreement with Joint Energy
Development Investments Limited Partnership and Jenco Acquisition,
Inc.
Page 11 of 12 pages.
<PAGE>
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, 1996 /s/ Jerry D. Jordan
--------------------------------------
Jerry D. Jordan, Chairman of the Board
Date: August 14, 1996 /s/ Donald A. Nay
--------------------------------------
Donald A. Nay, Vice President,
Treasurer, Chief Financial Officer
Page 12 of 12 pages.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,496,000
<SECURITIES> 0
<RECEIVABLES> 14,212,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,700,000
<PP&E> 76,801,000
<DEPRECIATION> 43,259,000
<TOTAL-ASSETS> 50,762,000
<CURRENT-LIABILITIES> 13,181,000
<BONDS> 0
0
0
<COMMON> 518,000
<OTHER-SE> 22,803,000
<TOTAL-LIABILITY-AND-EQUITY> 50,762,000
<SALES> 73,168,000
<TOTAL-REVENUES> 75,297,000
<CGS> 69,257,000
<TOTAL-COSTS> 75,095,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 573,000
<INCOME-PRETAX> (329,000)
<INCOME-TAX> (244,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (85,000)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
