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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-11994
CORNERSTONE NATURAL GAS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-1952257
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8080 N.CENTRAL EXPRESSWAY 75206
SUITE 1200 (Zip Code)
DALLAS, TEXAS
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 691-5536
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
filings requirements for the past 90 days. Yes X No
----- -----
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT.
YES X NO
----- -----
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
SHARES OUTSTANDING AT
CLASS OF COMMON STOCK MAY 13, 1994
--------------------- ------------
$.10 PAR VALUE 12,515,959
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<PAGE>
CORNERSTONE NATURAL GAS, INC.
INDEX TO QUARTERLY REPORT FORM 10-Q
Page(s)
-------
PART I. Financial Information
ITEM 1. Financial Statements
Consolidated Statements of Operations for the three
months ended March 31, 1994, and 1993. . . . . . . . . . 3
Consolidated Balance Sheets as of March 31, 1994,
and December 31, 1993. . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1994, and 1993. . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . 7-9
PART II. Other Information
ITEM 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 10
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 10
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Month Period
Ended March 31,
---------------------------
1994 1993
------------ ------------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,066,000 $ 65,372,000
Expenses:
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . 27,548,000 60,005,000
Operating expenses . . . . . . . . . . . . . . . . . . . . . . 2,177,000 3,560,000
Depreciation and amortization . . . . . . . . . . . . . . . . 658,000 1,858,000
General and administrative . . . . . . . . . . . . . . . . . . 1,268,000 1,484,000
------------ ------------
31,651,000 66,907,000
------------ ------------
Operating earnings (loss) . . . . . . . . . . . . . . . . . . . 415,000 (1,535,000)
------------ ------------
Other income (expense):
Interest income. . . . . . . . . . . . . . . . . . . . . . . . 5,000 47,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . (320,000) (1,274,000)
Equity in net earnings (losses) of unconsolidated
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . (16,000) 9,000
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 (2,000)
Gain (loss) on sale of assets, net . . . . . . . . . . . . . . -- 611,000
------------ ------------
(327,000) (609,000)
------------ ------------
Earnings (loss) before reorganization
items and income taxes . . . . . . . . . . . . . . . . . . . . 88,000 (2,144,000)
Reorganization items . . . . . . . . . . . . . . . . . . . . . . -- 517,000
------------ ------------
Earnings (loss) before income taxes. . . . . . . . . . . . . . . 88,000 (2,661,000)
Provision for current income taxes . . . . . . . . . . . . . . . 4,000 50,000
------------ ------------
Net Earnings (loss). . . . . . . . . . . . . . . . . . . . . . . 84,000 (2,711,000)
Preferred stock requirements . . . . . . . . . . . . . . . . . . -- (475,000)
------------ ------------
Net Earnings (loss) applicable to common stock . . . . . . . . . $ 84,000 $ (3,186,000)
------------ ------------
------------ ------------
Earnings (loss) per common and common share
equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.01 $ (0.40)
------------ ------------
------------ ------------
Weighted average common and common equivalent
shares outstanding . . . . . . . . . . . . . . . . . . . . . . 12,516,000 7,935,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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<PAGE>
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 1,215,000 $ 2,416,000
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . 9,811,000 15,101,000
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,918,000 1,711,000
Other current assets . . . . . . . . . . . . . . . . . . . . . 181,000 655,000
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . 13,125,000 19,883,000
Property, plant and equipment, at cost . . . . . . . . . . . . . 55,907,000 54,457,000
Less: accumulated depreciation . . . . . . . . . . . . . . . . (32,434,000) (31,805,000)
------------ ------------
Net property, plant and equipment. . . . . . . . . . . . . 23,473,000 22,652,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,664,000 3,793,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 273,000 118,000
------------ ------------
$ 40,535,000 $ 46,446,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt . . . . . . . . . . . . $ 3,107,000 $ 2,501,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 16,187,000 22,097,000
Accrued interest payable . . . . . . . . . . . . . . . . . . . 43,000 45,000
Income taxes payable . . . . . . . . . . . . . . . . . . . . . 189,000 185,000
Other current liabilities. . . . . . . . . . . . . . . . . . . -- 206,000
------------ ------------
Total current liabilities. . . . . . . . . . . . . . . . . . 19,526,000 25,034,000
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 7,347,000 7,768,000
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . 2,025,000 2,090,000
Stockholders' equity:
Common stock, $.10 par value; 25,000,000
shares authorized; 12,515,959 shares
issued and outstanding . . . . . . . . . . . . . . . . . . . 1,252,000 1,252,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . 51,298,000 51,298,000
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . (40,913,000) (40,996,000)
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . 11,637,000 11,554,000
------------ ------------
$ 40,535,000 $ 46,446,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE>
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Month Period
Ended March 31,
---------------------------
1994 1993
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net Earnings (loss). . . . . . . . . . . . . . . . . . . . . . $ 84,000 $ (2,711,000)
Net Non-cash items included in earnings (loss)
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 658,000 1,858,000
Interest compromised . . . . . . . . . . . . . . . . . . . . . -- 573,000
Equity in earnings (loss) of unconsolidated
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 16,000 (9,000)
Gain on sale of assets, net . . . . . . . . . . . . . . . . . -- (611,000)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 16,000
Reorganization items . . . . . . . . . . . . . . . . . . . . . -- 517,000
------------ ------------
Working capital provided (used) by operations before
reorganization items . . . . . . . . . . . . . . . . . . . . . 765,000 (367,000)
Changes in operating assets or liabilities which provided
(used) cash during the period:
Decrease in accounts receivable. . . . . . . . . . . . . . . . 5,290,000 1,271,000
Increase in inventory. . . . . . . . . . . . . . . . . . . . . (206,000) (743,000)
(Increase) decrease in other current assets. . . . . . . . . . 473,000 (1,113,000)
Increase in other assets . . . . . . . . . . . . . . . . . . . (17,000) --
Decrease in accounts payable . . . . . . . . . . . . . . . . . (5,669,000) (2,320,000)
Increase (decrease) in accrued interest payable. . . . . . . . (2,000) 310,000
Decrease in other current liabilities. . . . . . . . . . . . . (202,000) (309,000)
Decrease in other liabilities. . . . . . . . . . . . . . . . . (2,000) --
------------ ------------
Cash provided (used) by operations before
reorganization items . . . . . . . . . . . . . . . . . . . . . 430,000 (3,271,000)
Cash used by reorganization items - professional fees. . . . . . (305,000) (517,000)
------------ ------------
Cash provided (used) by operating activities . . . . . . . . . . 125,000 (3,788,000)
Cash flows from investing activities:
Proceeds from sale of assets . . . . . . . . . . . . . . . . . -- 851,000
Additions to property, plant and equipment . . . . . . . . . . (1,450,000) (1,626,000)
Increase in investment in
unconsolidated subsidiaries. . . . . . . . . . . . . . . . . . (62,000) (14,000)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 31,000
------------ ------------
Cash used by investing activities. . . . . . . . . . . . . . . . (1,512,000) (758,000)
Cash flows from financing activities:
Borrowings of revolving debt . . . . . . . . . . . . . . . . . 700,000 235,000
Reduction of long-term debt. . . . . . . . . . . . . . . . . . (514,000) (436,000)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 28,000
------------ ------------
Cash provided (used) by financing activities . . . . . . . . . . 186,000 (173,000)
------------ ------------
Decrease in cash and cash equivalents. . . . . . . . . . . . . . (1,201,000) (4,719,000)
Cash and cash equivalents:
Beginning of period. . . . . . . . . . . . . . . . . . . . . . 2,416,000 6,882,000
------------ ------------
End of period. . . . . . . . . . . . . . . . . . . . . . . . . $ 1,215,000 $ 2,163,000
------------ ------------
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Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 244,000 $ 363,000
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 1,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE>
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared
in accordance with Rule 10-01 of Regulation S-X, "Interim Financial Statements",
and accordingly do not include all information and footnotes required under
generally accepted accounting principles for complete financial statements. The
financial statements have been prepared in conformity with the accounting
principles and practices as disclosed in the Company's Annual Report on Form
10-K for the year ended December 31, 1993. In the opinion of management, these
interim financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the Company's
financial position as of March 31, 1994, the results of its operations for the
three months ended March 31, 1994, and the Company's cash flows for the three
months ended March 31, 1994. Results of operations for the periods presented
herein are not necessarily indicative of the results that may be expected for
the year ending December 31, 1994. Certain reclassifications of prior period
financial information have been made to conform to the 1994 presentation.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was $125,000 in the first quarter of 1994 compared
to cash used by operations of $3.8 million in 1993. The improvement in
performance comes in the first full quarter of operations since the Company
completed its plan of reorganization. For a more detailed discussion of the plan
of reorganization, see the Company's Annual Report on Form 10-K for the
year ended December 31, 1993. Working capital provided by operations before
reorganization items was $765,000 for the first three months of 1994 compared
to working capital used by operations before reorganization items of $367,000
in the same period last year.
The Company had a working capital deficit of $6.4 million at March 31, 1994.
The Company expects to maintain a working capital deficit in order to
effectively manage cash. Management expects that cash provided by operations
combined with amounts available under its $6.0 million line of credit will be
sufficient to meet its cash requirements in 1994.
Cash used for investing activities was $1.5 million in the first quarter of
1994. Approximately $1.4 million was used to substantially complete the
installation of two cryogenic plants in Lincoln Parish, Louisiana. These plants
became operational on March 31, 1994 and were a major part of the Company's plan
of reorganization. The Company will experience additional start-up costs in the
second quarter but expects these plants to be operating near full capacity and
efficiency by the third quarter of 1994.
The Company's Senior Loan requires lender approval to finance major projects.
The Company's capital budget for 1994 is limited under the Senior Loan to
$500,000 (excluding the installation of the two cryogenic plants). However, the
Company continues to pursue projects that would require long-term borrowing.
These funds and the approvals necessary under existing loan agreements will be
secured prior to committing to any new projects. The Company believes that its
current relationships with existing lenders will allow borrowing capacity for
future requirements. There can be no assurance regarding the Company's ability
to obtain additional capital when needed on acceptable terms or that all
necessary consents or waivers will be obtained from its lenders.
Cash provided by financing activities was $186,000 in the first quarter of 1994.
The Company repaid $441,000 on its Senior Note and $73,000 on project debt. In
the first quarter of 1994, the Company borrowed $700,000 under its revolving
credit agreement and the financial institution had issued, for the Company's
benefit, approximately $1.5 million in standby letters of credit for natural gas
purchases. The revolving credit agreement, which allows for up to an aggregate
of $6.0 million in letters of credit or working capital loans, is subject to
certain borrowing base requirements. At March 31, 1994, the Company's borrowing
base requirements limited this line of credit to $4.7 million.
The Company also maintains a line of credit which may be used for buying crude
oil and condensate needed in its refining operations. The current line of
credit covers the Company's refining requirements through May 1994 business.
The Company will extend or replace this line in May 1994 or reduce its purchases
of crude oil for June business. The Company is also evaluating the disposition
of its refining operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1994 COMPARED
TO THREE MONTHS ENDED MARCH 31, 1993
GENERAL. The Company recorded net earnings applicable to common stock of
$84,000 ($.01 per share) in the first quarter of 1994 compared to a net loss of
$3.2 million ($.40 per share). The Company's operating earnings were $415,000
in the first quarter of 1994 compared to operating
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<PAGE>
losses of $1.5 million in 1993. The improvement in performance comes in the
first full quarter of operations since the Company completed its plan of
reorganization. Also as a result of the reorganization the Company reduced its
interest expense and preferred dividend requirements by $1.4 million.
NATURAL GAS PROCESSING OPERATIONS. The following table provides pertinent
information relating to the Company's gas processing operations.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Increase
1994 1993 (Decrease)
---------- ---------- ----------
<S> <C> <C> <C>
(In thousands)
Gross margin $ 3,396 $ 2,942 $ 454
Earnings (loss) from operations before
depreciation 1,066 (4) 1,070
(Million cubic feet per day)
Natural gas inlet volumes
North Louisiana 58 65 (7)
Other 26 61 (35)
(Barrels per day)
Liquid sales volumes - North Louisiana 12,048 17,695 (5,647)
</TABLE>
The Company's earnings from operations before depreciation increased $1.1
million in the first quarter of 1994. This was primarily at the Company's North
Louisiana facilities. The Company ceased operations at one of its two
refineries in July 1993. The Company has since worked to consolidate its
operations in North Louisiana. With only one refinery operating, sales volumes
have decreased; however, the Company has recognized some efficiencies which has
resulted in a reduction of operating expenses. The Company's margin per barrel
on its North Louisiana operations increased to $2.92 from $.95 in the prior
year.
The Company completed installation of two cryogenic plants at its North
Louisiana facilities on March 31, 1994. The Company is working to increase the
operational efficiencies of these two plants. Although there will be additional
start up expenses during the second quarter of 1994, the Company expects these
plants to provide additional cash flows beginning on the second half of the
year.
NATURAL GAS PIPELINE OPERATIONS. The following table sets forth pertinent
information relating to the Company's natural gas pipeline operations.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Increase
1994 1993 (Decrease)
---------- ---------- ----------
<S> <C> <C> <C>
(In thousands)
Gross margin $ 1,122 $ 2,423 $(1,301)
Earnings from operations before depreciation 662 1,050 (388)
(Million cubic feet per day)
Natural gas sales 80 267 (187)
</TABLE>
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<PAGE>
Earnings from the Company's natural gas pipeline operations decreased $388,000
in the first quarter of 1994. This was primarily from the transfer of certain
assets to the Company's former noteholders as part of the Company's
reorganization. The transferred assets contributed $928,000 to earnings from
operations in 1993. This decrease was partially offset by increased earnings
from the Company's Mountain Creek system, the addition of the Company's Port
Hudson system and increased margins on offsystem sales. Although throughput
volumes declined 70%, earnings were only decreased 37%.
GENERAL AND ADMINISTRATIVE. General and administrative expense decreased
$216,000 (15%) in the first quarter of 1994. This reduction reflects specific
management effort to reduce overhead costs as part of the reorganization.
OTHER. Interest expense was reduced by $954,000 as a result of the new
financing under the Company's reorganization. Additionally, the Company retired
all its outstanding preferred stock as part of the reorganization which
eliminated the preferred dividend requirement of $475,000 per quarter. The
Company recorded reorganization expenses in the first quarter of 1993 of
$517,000. The Company also recorded a gain on the sale of its interest in the
Three Rivers Partnership of $611,000 in the first quarter of 1993.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. It is the opinion of Management (based on advice
of legal counsel) that such litigation and claims will be resolved without
material effect on the Company's financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None.
(b) REPORTS ON FORM 8-K
None.
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<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, thereto duly authorized.
CORNERSTONE NATURAL GAS, INC.
(Registrant)
Date: May 13, 1994 By: /s/Robert L. Cavnar
------------ ----------------------------------------------
Robert L. Cavnar
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: May 13, 1994 By: /s/Richard W. Piacenti
------------ ----------------------------------------------
Richard W. Piacenti
Vice President and Controller
(Principal Accounting Officer)
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