-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QKUktLpf4gfhgW5y39b0OlImVchK1JDXa30Mv1U4aPaCsx+wtCvNMZO8XPrxv4or +KNnMZvvAgi/Gp853Ga0Mw== 0000950134-98-004208.txt : 19980514 0000950134-98-004208.hdr.sgml : 19980514 ACCESSION NUMBER: 0000950134-98-004208 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PANHANDLE ROYALTY CO CENTRAL INDEX KEY: 0000315131 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 731055775 STATE OF INCORPORATION: OK FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-09116 FILM NUMBER: 98618287 BUSINESS ADDRESS: STREET 1: 5400 NW GRAND BLVD STREET 2: GRAND CENTRE STE 210 CITY: OKLAHOMA CITY STATE: OK ZIP: 73112 BUSINESS PHONE: 4059481560 10-Q 1 FORM 10-Q FOR QUARTER ENDED MARCH 31, 1998 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB ( X ) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended March 31, 1998 ----------------------- ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ------------ ------------ Commission File Number 0-9116 ----------------------------------------------------- PANHANDLE ROYALTY COMPANY ------------------------- (Exact name of registrant as specified in its charter) OKLAHOMA 73-1055775 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization ) Identification No.) Grand Centre Suite 210, 5400 N Grand Blvd., Oklahoma City, Oklahoma 73112 - ------------------------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number including area code (405) 948-1560 ------------------------ 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. x Yes No --- --- Outstanding shares of Class A Common stock (voting) at May 5, 1998: 679,709 ------- 2 INDEX
Page Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets - March 31, 1998 (unaudited) and September 30, 1997 ............................................. 1 Condensed Consolidated Statements of Income - Three months and Six months ended March 31, 1998 and 1997 (unaudited) ............................ 2 Condensed Consolidated Statements of Cash Flows Six months ended March 31, 1998 and 1997 (unaudited) .................................................... 3 Notes to Condensed Consolidated Financial Statements (unaudited) ......................................... 4 Item 2. Management's discussion and analysis of financial condition and results of operations ............................ 5 Part II. Other Information Item 4. Submission of matters to a vote of security holders ........................................... 7 Item 6. Exhibits and reports on Form 8-K ............................... 7
3 PART I. FINANCIAL INFORMATION PANHANDLE ROYALTY COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Information at March 31, 1998 is unaudited)
March 31, September 30, Assets 1998 1997 --------- ------------- Current Assets: Cash and cash equivalents $ 989,389 $ 872,797 Oil and gas sales and other receivables 794,667 893,779 Prepaid expenses 20,813 4,929 ----------- ----------- Total current assets 1,804,869 1,771,505 Properties and equipment, at cost, based on successful efforts accounting Producing Oil and Gas Properties 21,030,163 20,063,953 Nonproducing Oil and Gas Properties 5,190,436 5,068,467 Other 238,120 213,474 ----------- ----------- 26,458,719 25,345,894 Less accumulated depreciation, depletion and amortization 15,782,405 15,127,925 ----------- ----------- Net properties and equipment 10,676,314 10,217,969 Other assets 107,716 107,716 ----------- ----------- $12,588,899 $12,097,190 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, accrued liabilities and gas imbalance liability $ 321,736 $ 395,785 Dividends payable 30,856 29,856 Income taxes payable 134,470 112,336 Deferred income taxes 280,000 280,000 ----------- ----------- Total current liabilities 767,062 817,977 Deferred income taxes 1,247,000 1,247,000 Stockholders' equity Class A voting common stock, $.10 par value; 1,000,000 shares authorized, 679,729 issued and outstanding at March 31, 1998 and 679,820 at September 30, 1997 67,973 67,982 Capital in excess of par value 442,591 445,306 Retained earnings 10,064,273 9,518,925 ----------- ----------- Total stockholders' equity 10,574,837 10,032,213 ----------- ----------- $12,588,899 $12,097,190 =========== ===========
(See accompanying notes) ( 1 ) 4 PANHANDLE ROYALTY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, Six Months Ended March 31, ---------------------------- -------------------------- 1998 1997 1998 1997 ------------ ------------- ------------- ----------- Revenues: Oil and gas sales $1,322,550 $2,491,004 $3,132,319 $4,034,387 Lease bonuses and rentals 200 7,336 7,651 8,444 Interest 12,663 1,782 21,861 5,890 Other 251 11,193 772 20,134 ---------- ---------- ---------- ---------- 1,335,664 2,511,315 3,162,603 4,068,855 Costs and expenses: Lease operating expenses and production taxes 249,048 341,907 533,003 573,436 Exploration costs 206,175 100,858 265,564 261,838 Depreciation, depletion, amortization and impairment 244,383 413,039 613,444 639,903 General and administrative 264,783 235,507 627,776 576,827 Interest expense 1,559 12,288 1,559 27,033 ---------- ---------- ---------- ---------- 965,948 1,103,599 2,041,346 2,079,037 ---------- ---------- ---------- ---------- Income before provision for income taxes 369,716 1,407,716 1,121,257 1,989,818 Provision for income taxes 70,000 325,000 235,000 431,000 ---------- ---------- ---------- ---------- Net income $ 299,716 $1,082,716 $ 886,257 $1,558,818 ========== ========== ========== ========== Basic earnings per share (Note 3) $ .44 $ 1.60 $ 1.30 $ 2.30 ========== ========== ========== ========== Diluted earnings per share (Note 3) $ .44 $ 1.59 $ 1.30 $ 2.29 ========== ========== ========== ========== Dividends declared per share of common stock $ .30 $ .20 $ .50 $ .40 ========== ========== ========== ==========
(See accompanying notes) ( 2 ) 5 PANHANDLE ROYALTY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended March 31, -------------------------- 1998 1997 ---- ---- Cash flows from operating activities: Net income $ 886,257 $ 1,558,818 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 613,444 639,903 Exploration costs 265,564 261,838 Cash provided (used) by changes in assets and liabilities: Oil and gas sales and other receivables 99,112 (387,567) Prepaid expenses and other assets (15,884) (7,208) Income taxes payable 22,134 237,893 Accounts payable, accrued liabilities and dividends payable (73,049) 124,710 ----------- ----------- Total adjustments 911,321 869,569 ----------- ----------- Net cash provided by operating activities 1,797,578 2,428,387 Cash flows from investing activities: Purchase of and development of properties and equipment (1,337,353) (1,581,655) ----------- ----------- Net cash used in investing activities (1,337,353) (1,581,655) Cash flows from financing activities: Payment of loan principal -- (450,000) Acquisition of Company's common shares (2,724) (8,782) Payment of dividends (340,909) (271,939) ----------- ----------- Net cash used in financing activities (343,633) (730,721) ----------- ----------- Increase in cash and cash equivalents 116,592 116,011 Cash and cash equivalents at beginning of period 872,797 399,423 ----------- ----------- Cash and cash equivalents at end of period $ 989,389 $ 515,434 =========== =========== Supplemental disclosure of cash flow information: Interest paid $ 1,559 $ 27,033 Income taxes paid 212,866 193,107 ----------- ----------- $ 214,425 $ 220,140 =========== ===========
(See accompanying notes) ( 3 ) 6 PANHANDLE ROYALTY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The consolidated results presented for the three-month and six-month periods ended March 31, 1998 and 1997 are unaudited, but management of Panhandle Royalty Company believes that all adjustments necessary for a fair presentation of the consolidated results of operations for the periods have been included. All such adjustments are of a normal recurring nature. The consolidated results are not necessarily indicative of those to be expected for the full year. 2. The Company utilizes tight gas sands production tax credits to reduce its federal income tax liability. These credits are scheduled to be available through the year 2002. 3. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which was required to be adopted on December 31, 1997. Statement No. 128 required a change in the method used to compute earnings per share. The Company's diluted earnings per share calculation takes into account certain shares that may be issued under the Non-Employee Director's Deferred Compensation Plan. The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended March 31, Six Months Ended March 31, ---------------------------- -------------------------- 1998 1997 1998 1997 ------------ ------------- ------------- ----------- Numerator for primary and diluted earnings per share: Net income $ 299,716 $1,082,716 $ 886,257 $1,558,818 ---------- ---------- ---------- ---------- Denominator: For basic earnings per share - Weighted average shares 679,775 677,825 679,798 677,835 Effect of potential diluted shares: Directors deferred compensation shares 3,630 2,385 3,630 2,385 ---------- ---------- ---------- ---------- Denominator for diluted earnings per share - adjusted weighted - average shares and potential shares 683,405 680,210 683,428 680,220 ========== ========== ========== ========== Basic earnings per share $ .44 $ 1.60 1.30 2.30 ========== ========== ========== ========== Diluted earnings per share $ .44 $ 1.59 1.30 2.29 ========== ========== ========== ==========
4. The Company has a revolving line of credit with Bank One, Texas, in the amount of $2,500,000. The credit facility matures on January 3, 2001. At May 6, 1998, the Company had no balance outstanding under the facility. 5. Certain reclassifications have been made in the financial statements for the period ended March 31, 1997 to conform to the financial statement presentation at March 31, 1998. ( 4 ) 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS AND RISK FACTORS All statements concerning the Company other than purely historical information (collectively "Forward-Looking Statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended) provided herein are subject to all the risks and uncertainties incident to the acquisitions, development, and exploration for and production of oil and gas reserves. These risks include, but are not limited to, oil and natural gas price risk, drilling risk, reserve quantity risk and operations and production risks. For all the above reasons, actual results may vary materially from any forward- looking statements and there is no assurance that the assumptions used are necessarily the most likely to occur. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1998 working capital was $1,035,130 as compared to $953,528 at September 30, 1997. Cash and cash equivalents were $989,389 at March 31, 1998. Cash flow provided by operating activities for the first six months of 1998 was $1,797,578 as compared to $2,428,387 for the first six months of 1997. The decrease in cash flow is directly attributable to the decrease in oil and gas sales revenues during the first six months of 1998. The decrease is discussed in Results of Operations in this Item. The Company has continued its operating strategy of actively pursuing the development of its oil and gas properties through the participation with a working interest in the drilling of wells on its fee mineral properties and by participating in third party wells on leased properties. The Company spent $1,252,000 developing its oil and gas properties in the first six months of 1998. This is down from the approximately $1,582,000 spent in the first six months of 1997. At March 31, 1998 the Company had remaining projected costs of $1,490,543 for its share of drilling and equipment costs on wells which had been proposed or were in the process of being drilled or completed. These projected expenditures, overhead expenses, dividend payments and other operating costs are expected to be funded by cash flow from operating activities and existing working capital. Should the Company require additional funding for an asset purchase or other capital expenditures, it could access the $2,500,000 bank line of credit. RESULTS OF OPERATIONS Revenues decreased for both the three-month and six-month periods ended March 31, 1998, as compared to the same periods in fiscal 1997. The decreases were the result of oil and gas sales revenues decreasing 22% and 47% for the 1998 six-month and three-month periods, respectively, as compared to the same periods in fiscal 1997. Oil and gas sales revenues decreased due to decreased sales prices for oil and natural gas in the 1998 periods, as well as decreased oil sales volumes in the 1998 period. Natural gas sales volumes increased slightly in the 1998 six-month period, while decreasing 13% in the three-month period. The chart below outlines the Company's production and average sales prices for oil and natural gas for the three-month and six-month periods of fiscal 1998 and 1997:
BARRELS AVERAGE MCF AVERAGE SOLD PRICE SOLD PRICE ------- ------- ------- ------- Three months ended 03/31/98 28,253 $ 14.33 433,206 $ 2.12 Three months ended 03/31/97 39,544 $ 23.21 495,472 $ 3.18 Six months ended 03/31/98 59,865 $ 16.93 875,254 $ 2.42 Six months ended 03/31/97 70,471 $ 23.57 866,318 $ 2.74
The decrease in oil and natural gas sales prices was the largest factor affecting oil and gas sales revenues. The oil sales price has declined further and is currently around the $13.00 per barrel level. Gas prices have been relatively consistent and remain in the low $2.00 range. Management currently does not anticipate substantial movement in either the oil or gas price for the remainder of fiscal 1998. Oil sales volumes continue to be adversely affected by the production allowable situation in the Dagger Draw field of New Mexico and gas sales volumes and prices are suffering due to the mild early spring weather in the mid-west part of the nation, which reduced the demand for natural gas for heating purposes. ( 5 ) 8 Costs and expenses decreased in both the three-month and six-month periods of fiscal 1998 as compared to the same periods in fiscal 1997. The decrease was a result of lease operating expenses and production taxes (LOE), depreciation, depletion, amortization and impairment (DD&A) and interest expense all decreasing, offset somewhat by increases in exploration costs and general and administrative costs. LOE decreased in both the 1998 periods, as compared to the 1997 periods, principally due to decreased production taxes, which resulted from the decreased oil and gas sales revenues. DD&A were 41% lower in the three-month period of 1998 as a result of the Company fully impairing the costs of certain oil and gas leasehold costs on two prospects totaling $112,000 in the 1997 three-month period. In addition, the decreased sales volumes lowered DD&A costs in 1998 as DD&A is calculated on the units of production method. Interest expense decreased due to the Company's line of credit being paid off early in fiscal 1997. Exploration costs increased in the 1998 periods as a result of the Company participating in the drilling of several exploratory wells which were non-productive. These costs amounted to $206,175 in the 1998 three-month period. There is no way to anticipate these costs from period to period. The Company will continue drilling exploratory wells, thus future costs related to non-productive exploratory wells are anticipated. General and administrative costs increased 12% and 9% for the 1998 three and six-month periods, respectively, as compared to the same periods in fiscal 1997. These increases are due to increased salaries in the 1998 periods; increased rent expense in the 1998 periods, as a result of additional office space being acquired; and costs associated with Company presentations to investment professional meetings. The provision for income taxes is lower in the 1998 periods due to the decrease in income before taxes, which was a result of the above discussed factors. In addition, the provision continues to be favorably affected by tax credits available from the Company's production of "tight gas sands" natural gas and from excess percentage depletion. Net income decreased in both the 1998 periods as compared to the 1997 periods principally as a result of decreased sales prices for oil and natural gas in the periods and from reduced oil sales volumes. Management has no control over the market prices of oil and natural gas and currently expect the depressed oil price to continue for the remainder of fiscal 1998. In addition, oil production volumes are expected to remain lower than 1997 volumes because of the production allowable situation in the Dagger Draw field of New Mexico. As a result of the above, management currently anticipates earnings to remain below the record levels of fiscal 1997 for the remainder of fiscal 1998. Should additional exploratory drilling projects result in nonproductive wells, earnings would again be negatively impacted. ( 6 ) 9 PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The annual meeting of shareholders was held on February 27, 1998. (b) Two directors were elected for three year terms at the meeting. Also, ratification of the selection of Ernst & Young LLP as independent auditors for the Company was voted upon. The directors elected and the results of voting were as follows:
For Against Withheld --- ------- -------- Directors --------- Michael A. Cawley 851 25 Ray H. Potts 851 24 Auditors -------- Ernst & Young LLP 843 12 21
Item 6. EXHIBITS AND REPORT ON FORM 8-K (a) Exhibits - Exhibit 27 -- Financial Date Schedule (b) There were no reports on FORM 8-K filed for the three months ended March 31, 1998. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PANHANDLE ROYALTY COMPANY May 13, 1998 /s/ H W Peace II - --------------------------- ---------------------------- Date H W Peace II, President and Chief Executive Officer May 13, 1998 /s/ Michael C. Coffman - --------------------------- ---------------------------- Date Michael C. Coffman, Vice President, Chief Financial Officer and Secretary and Treasurer
( 7 ) 10 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT - ------- ------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS SEP-30-1998 OCT-01-1997 MAR-31-1998 989,389 0 794,667 0 0 1,804,869 26,458,719 15,782,405 12,588,899 767,062 0 67,973 0 0 10,506,864 12,588,899 3,132,319 3,162,603 533,003 1,506,784 0 0 1,559 1,121,257 235,000 886,257 0 0 0 886,257 1.30 1.30
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