<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 March 31, 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
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 - 5,642,143 shares outstanding
$ -0- par value
Page One of Eleven pages.
Exhibit Index appears on Page 10.
<PAGE> 2
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
1996 December 31,
ASSETS: (Unaudited) 1995
- ----------------------------- --------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,076,000 $ 1,729,000
Receivables 20,764,000 13,991,000
Prepaid expenses and other 727,000 652,000
Deferred income taxes 185,000 185,000
Costs in excess of billings
on uncompleted wells 29,000 0
----------- -----------
TOTAL CURRENT ASSETS 22,781,000 16,557,000
----------- - ----------
PROPERTY - At Cost:
Proved natural gas and
oil properties 55,880,000 55,799,000
Pipeline systems and other 12,858,000 12,671,000
Land, building and improvements 2,438,000 2,437,000
Well and field equipment 3,252,000 3,207,000
Office equipment 2,164,000 2,125,000
----------- -----------
Total Property 76,592,000 76,239,000
Accumulated depreciation, depletion
and amortization 42,435,000 41,401,000
----------- -----------
PROPERTY - NET 34,157,000 34,838,000
---------- -----------
OTHER ASSETS 518,000 523,000
----------- -----------
TOTAL ASSETS $57,456,000 $51,918,000
=========== ===========
</TABLE>
Page 2 of 11 pages.
<PAGE> 3
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
1996 December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY: (Unaudited) 1995
- ------------------------------------- ----------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt:
Notes payable $ 140,000 $ 120,000
Mortgages payable 846,000 856,000
Accounts payable 16,236,000 11,707,000
Accrued liabilities and expenses 1,470,000 1,299,000
Receipts in excess of costs
on uncompleted wells 0 322,000
Accrued income taxes 66,000 566,000
----------- -----------
TOTAL CURRENT LIABILITIES 18,758,000 14,870,000
----------- -----------
LONG-TERM DEBT (Less current maturities):
Notes payable 14,754,000 13,234,000
Mortgages payable 140,000 144,000
----------- -----------
TOTAL LONG-TERM DEBT 14,894,000 13,378,000
----------- -----------
DEFERRED INCOME TAXES 316,000 390,000
----------- -----------
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 and 1995 - 6,175,000 shares 514,000 514,000
Additional paid-in capital 7,552,000 7,552,000
Retained earnings 16,613,000 16,405,000
----------- -----------
TOTAL 24,679,000 24,471,000
Less treasury stock of
533,000 shares, at cost (1,191,000) (1,191,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 23,488,000 23,280,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $57,456,000 $51,918,000
=========== ===========
</TABLE>
Page 3 of 11 pages.
<PAGE> 4
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
For the Quarters Ended March 31, 1996 and 1995 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarters Ended March 31,
1996 1995
---------- ----------
<S> <C> <C>
REVENUE:
Natural gas marketing $41,597,000 $15,187,000
Natural gas and oil sales 3,305,000 3,870,000
Well operating, transportation and other 627,000 814,000
Drilling 275,000 795,000
---------- ----------
TOTAL REVENUE 45,804,000 20,666,000
---------- ----------
COSTS AND EXPENSES:
Natural gas marketing 40,625,000 14,343,000
Natural gas and oil production:
Depreciation, depletion and amortization 839,000 1,200,000
Production costs 1,284,000 1,192,000
Other costs and expenses 1,327,000 1,432,000
Drilling 307,000 1,023,000
Selling, general and administrative expenses 932,000 720,000
---------- ----------
TOTAL COSTS AND EXPENSES 45,314,000 19,910,000
---------- ----------
OPERATING INCOME 490,000 756,000
OTHER INCOME (EXPENSE):
Interest expense (294,000) (370,000)
Interest, dividend, and other income 19,000 12,000
---------- ----------
INCOME BEFORE INCOME TAXES 215,000 398,000
INCOME TAXES 7,000 87,000
---------- ----------
NET INCOME $208,000 $311,000
========== ==========
NET INCOME PER COMMON SHARE $0.037 $0.055
========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,642,000 5,658,000
========== ==========
</TABLE>
Page 4 of 11 pages.
<PAGE> 5
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the Quarters Ended March 31, 1996 and 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended March 31,
OPERATING ACTIVITIES 1996 1995
- ------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Net income $208,000 $311,000
Adjustments to reconcile net income to cash (used in) provided by
operating activities:
Depreciation, depletion, and amortization 1,098,000 1,637,000
(Benefit) provision for deferred income taxes (74,000) 60,000
(Gain) loss from disposition of property and investments (1,000) 4,000
Change in operating assets and liabilities:
Receivables (6,773,000) 458,000
Prepaid expenses and other current assets (75,000) 194,000
Costs in excess of billings on uncompleted wells (29,000) 301,000
Accounts payable 4,799,000 (1,100,000)
Accrued liabilities and expenses 171,000 0
Receipts in excess of costs on uncompleted wells (322,000) 98,000
Accrued income taxes (500,000) 0
---------- ----------
Net cash (used in) provided by operating activities (1,498,000) 1,963,000
---------- ----------
INVESTING ACTIVITIES
- -------------------------------------------------------------------------
Purchase of property (668,000) (1,537,000)
Proceeds from sale of property 10,000 13,000
Changes in other assets (2,000) (14,000)
---------- ----------
Net cash (used in) investing activities (660,000) (1,538,000)
---------- ----------
FINANCING ACTIVITIES
- -------------------------------------------------------------------------
Proceeds from notes and mortgages payable 9,500,000 2,750,000
Principal payments on notes and mortgages payable (7,995,000) (2,805,000)
---------- ----------
Net cash provided by (used in) financing activities 1,505,000 (55,000)
---------- ----------
(Decrease) increase in cash and cash equivalents (653,000) 370,000
Cash and cash equivalents at beginning of year 1,729,000 1,169,000
---------- ----------
Cash and cash equivalents at end of period $1,076,000 $1,539,000
========== ==========
</TABLE>
Page 5 of 11 pages.
<PAGE> 6
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 : During the current year the
Company incurred capital lease and other obligations of $21,000 in connection
with agreements to purchase equipment. Included in accounts payable at
December 31, 1995 is an unpaid liability of $270,000 to purchase natural gas
and oil properties.
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>
Quarter ended
March 31, 1996 $294,000 $117,000
Quarter ended
March 31, 1995 $387,000 $215,000
</TABLE>
Income Taxes : The Company made income tax payments of $580,000 and $0,
respectively, for the quarters ended March 31, 1996 and March 31, 1995.
Page 6 of 11 pages.
<PAGE> 7
CLINTON GAS SYSTEMS, INC. AND SUBSIDIARIES
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 March 31, 1996, and the
results of its operations and changes in cash flow for the three months then
ended.
2.) The results of operations for the three months ended March 31, 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.
Page 7 of 11 pages.
<PAGE> 8
CLINTON GAS SYSTEMS, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
During 1996 the Company has participated in the successful completion of 8
exploratory wells. The future sale of natural gas and oil production from
these discoveries will provide future cash flow to improve the liquidity of the
Company.
The Company's cash flow from operations and bank credit facility are the
major sources of funds to meet its financing requirements. Net income plus
depreciation was $1,306,000 for the first quarter of 1996 compared to
$1,948,000 for the first quarter of 1995. At March 31, 1996 the Company had a
$15,000,000 credit arrangement with its two banks and $12,800,000 had been
borrowed. The amount owed to banks at May 10, 1996 was $10,500,000. The
credit line is reviewed by the banks semiannually and the amount of available
credit is based on the estimated net revenues from the Company's proved
developed natural gas and oil reserves. The credit agreement contains certain
restrictions and debt covenants. At March 31, 1996 the Company was in
compliance with all restrictions and debt covenants.
The Company's working capital increased to $4,023,000 at March 31, 1996
compared to $1,687,000 at December 31, 1995. Total current and long term debt
increased to $15,880,000 at March 31, 1996 from $14,354,000 at December 31,
1995.
Capital expenditures were $419,000 for the first quarter of 1996 compared to
$914,000 for the first quarter of 1995. In the current quarter approximately
$107,000 was expended for the drilling and equipping of exploratory wells and
$184,000 for expanding the Company's exploratory acreage position. The
remaining 1996 capital outlays of $128,000 were expended for transportation
systems and other expenditures.
RESULTS OF OPERATIONS
Net income was $208,000 or $.037 per share for the first quarter of 1996
compared to $311,000 or $.055 per share in 1995. The change was principally
due to reduced operating income from natural gas and oil production and greater
selling, general and administrative costs. These decreases were partially
offset by improved margins from gas marketing activities, reduced interest
expense and lower dry hole costs from exploratory wells.
Natural gas marketing revenues increased to $41,597,000 in 1996 from
$15,187,000 in 1995. The change was due to a 48% increase in sales volume
combined with increases in the average price of natural gas sold. Purchases of
natural gas also increased to $40,625,000 from $14,343,000 in 1995 as a result
of the increased volume and higher unit costs of supply. Overall, the
operating income from gas marketing activities improved by $128,000 to $972,000
in 1996 from $844,000 in 1995.
Page 8 of 11 pages.
<PAGE> 9
Revenues from the sale of natural gas and oil production decreased by
$565,000 to $3,305,000 in 1996 from $3,870,000 in 1995. The 1995 period
included revenues of $1,292,000 from the recognition of gas measurement
variances. The remaining change was due to increased production and improved
prices. Increased production and sales of oil and gas from exploratory wells
and acquisitions added $592,000 to revenues. Improvements in sales prices
increased revenues by $135,000. The weighted average sales price of natural
gas increased by 12% to $2.58 per MCF in 1996 compared to $2.31 in 1995. Oil
prices also improved by 7% to $17.91 per barrel in 1996 from $16.67 per barrel
in 1995. Depreciation depletion and amortization of natural gas and oil
properties decreased to $839,000 in 1996 from $1,200,000 in 1995. The change
was due to lower amortization on older wells. Production costs increased by 8%
to $1,284,000 in 1996 from $1,192,000 in 1995 due principally to expenses
associated with natural gas and oil reserve acquisitions. As a result of these
factors, the operating income from natural gas and oil production decreased to
$1,182,000 in 1996 from $1,478,000 in 1995.
Revenues from well operating, transportation and other decreased to $627,000
in 1996 from $814,000 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 plus lower income from real estate properties of $35,000 account
for most of the decrease in revenues from well operating, transportation and
other.
Other costs and expenses include expenses related to operating and managing
producing wells, real estate activities, maintenance of transportation systems,
and support costs for exploratory activities. Total costs decreased to
$1,327,000 in 1996 from $1,432,000 in 1995. Costs related to exploratory
activities rose by $121,000 due to increased costs of maintaining exploratory
acreage and staffing expenses. The remaining change was due to lower expenses
of real estate properties due to the sale of properties in 1995.
Revenues from drilling and completion decreased to $275,000 in 1996 from
$795,000 in 1995 due to a decrease in the number of completed wells sponsored
by the Company. Related drilling costs also decreased to $307,000 in 1996 from
$1,023,000 in 1995. The Company incurred operating losses of $32,000 in 1996
and $228,000 in 1995 as a result of dry hole costs incurred on exploratory
wells.
Selling, general and administrative expenses increased to $932,000 in 1996
from $720,000 in 1995. The principal cause of the increase was greater selling
and administrative costs for gas marketing activities.
Interest expense decreased by $76,000 to $294,000 in 1996 from $370,000 in
1995. The decrease was due to lower interest rates on the Company's credit
line combined with reduced debt levels. The weighted average interest rate
decreased to 8.2% in 1996 from 8.9% in 1995. The weighted average debt on the
Company's credit facility decreased to $10,723,000 for the first quarter of
1996 compared to $13,458,000 in the first quarter of 1995.
The federal income tax expense was $7,000 in 1996 compared to $87,000 in
1995. The amounts for both periods include the tax benefits of percentage
depletion that are earned by the Company during the year.
Page 9 of 11 pages.
<PAGE> 10
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 Securities and Exchange Commission.
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.
- ---------------------------------------------------------------
N/A
Item 5. Other Information.
- -----------------------------
N/A
Item 6. Exhibits and Reports on Form 8-K.
- --------------------------------------------
27.0 Financial Data Schedule
Page 10 of 11 pages.
<PAGE> 11
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: May 14, 1996 /s/ Jerry D. Jordan
----------------- --------------------------------------
Jerry D. Jordan, Chairman of the Board
Date: May 14, 1996 /s/ Donald A. Nay
----------------- --------------------------------------
Donald A. Nay, Vice President,
Treasurer, Chief Financial Officer
Page 11 of 11 pages.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,076,000
<SECURITIES> 0
<RECEIVABLES> 20,764,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,781,000
<PP&E> 76,592,000
<DEPRECIATION> 42,435,000
<TOTAL-ASSETS> 57,456,000
<CURRENT-LIABILITIES> 18,758,000
<BONDS> 0
<COMMON> 514,000
0
0
<OTHER-SE> 22,974,000
<TOTAL-LIABILITY-AND-EQUITY> 57,456,000
<SALES> 44,902,000
<TOTAL-REVENUES> 45,804,000
<CGS> 42,748,000
<TOTAL-COSTS> 45,314,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 294,000
<INCOME-PRETAX> 215,000
<INCOME-TAX> 7,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 208,000
<EPS-PRIMARY> .04
<EPS-DILUTED> 0
</TABLE>
