-----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, JMBxvYAFVp9fkTZaRK9IEWjHrzahVayNYW8t3cqv+MQg6TWaA8JoG/rtGshVRx/W g/cF+oydGVM2kfBaHp5fQw== 0000950134-98-006710.txt : 19980813 0000950134-98-006710.hdr.sgml : 19980813 ACCESSION NUMBER: 0000950134-98-006710 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-09116 FILM NUMBER: 98683181 BUSINESS ADDRESS: STREET 1: 5400 NW GRAND BLVD STREET 2: GRAND CENTRE STE 210 CITY: OKLAHOMA CITY STATE: OK ZIP: 73112 BUSINESS PHONE: 4059481560 10QSB 1 FORM 10-QSB FOR QUARTER ENDED JUNE 30, 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 June 30, 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 August 6, 1998: 679,709 - ---------- 2 INDEX
Page Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets - June 30, 1998 (unaudited) and September 30, 1997 ............................................. 1 Condensed Consolidated Statements of Income - Three months and Nine months ended June 30, 1998 and 1997 (unaudited) ............................ 2 Condensed Consolidated Statements of Cash Flows Nine months ended June 30, 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 6. Exhibits and reports on Form 8-K ............................... 7
3 PART I. FINANCIAL INFORMATION PANHANDLE ROYALTY COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Information at June 30, 1998 is unaudited)
June 30, September 30, Assets 1998 1997 ----------- ----------- Current Assets: Cash and cash equivalents $ 803,268 872,797 Oil and gas sales and other receivables 720,928 893,779 Prepaid expenses 12,497 4,929 ----------- ----------- Total current assets 1,536,693 1,771,505 Properties and equipment, at cost, based on successful efforts accounting Producing Oil and Gas Properties 21,711,738 20,063,953 Nonproducing Oil and Gas Properties 5,477,835 5,068,467 Other 240,589 213,474 ----------- ----------- 27,430,162 25,345,894 Less accumulated depreciation, depletion and amortization 16,092,823 15,127,925 ----------- ----------- Net properties and equipment 11,337,339 10,217,969 Other assets 107,716 107,716 ----------- ----------- $12,981,748 $12,097,190 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, accrued liabilities and gas imbalance liability $ 588,759 $ 395,785 Dividends payable 31,256 29,856 Income taxes payable 100,690 112,336 Deferred income taxes 280,000 280,000 ----------- ----------- Total current liabilities 1,000,705 817,977 Deferred income taxes 1,247,000 1,247,000 Stockholders' equity Class A voting common stock, $.10 par value; 1,000,000 shares authorized, 679,709 issued and outstanding at June 30, 1998 and 679,820 at September 30, 1997 67,971 67,982 Capital in excess of par value 441,948 445,306 Retained earnings 10,224,124 9,518,925 ----------- ----------- Total stockholders' equity 10,734,043 10,032,213 ----------- ----------- $12,981,748 $12,097,190 =========== ===========
(See accompanying notes) ( 1 ) 4 PANHANDLE ROYALTY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended June 30, Nine Months Ended June 30, -------------------------- -------------------------- 1998 1997 1998 1997 ----------- ---------- ---------- ------------ Revenues: Oil and gas sales $1,148,478 $1,459,520 $4,280,797 $5,493,907 Lease bonuses and rentals 35,583 5,248 43,234 13,692 Interest 14,093 6,093 35,954 11,983 Other 1,585 4,912 2,357 25,046 ---------- ---------- ---------- ---------- 1,199,739 1,475,773 4,362,342 5,544,628 Costs and expenses: Lease operating expenses and production taxes 223,514 260,790 756,517 834,226 Exploration costs 95,384 80,929 360,948 342,767 Depreciation, depletion, amortization and impairment 310,418 278,180 923,862 918,083 General and administrative 228,452 205,027 856,228 781,854 Interest expense 778 2,139 2,337 29,172 ---------- ---------- ---------- ---------- 858,546 827,065 2,899,892 2,906,102 ---------- ---------- ---------- ---------- Income before provision for income taxes 341,193 648,708 1,462,450 2,638,526 Provision for income taxes 45,000 135,000 280,000 566,000 ---------- ---------- ---------- ---------- Net income $ 296,193 $ 513,708 $1,182,450 $2,072,526 ========== ========== ========== ========== Basic earnings per share (Note 3) $ .44 $ .76 $ 1.74 $ 3.06 ========== ========== ========== ========== Diluted earnings per share (Note 3) $ .43 $ .76 $ 1.73 $ 3.05 ========== ========== ========== ========== Dividends declared per share of common stock $ .20 $ .20 $ .70 $ .60 ========== ========== ========== ==========
(See accompanying notes) ( 2 ) 5 PANHANDLE ROYALTY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine months ended June 30, --------------------------- 1998 1997 ----------- ----------- Cash flows from operating activities: Net income $ 1,182,450 $ 2,072,526 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 923,862 918,083 Exploration costs 360,948 342,767 Cash provided (used) by changes in assets and liabilities: Oil and gas sales and other receivables 172,851 (144,073) Prepaid expenses and other assets (7,568) (8,688) Income taxes payable (11,646) 279,493 Accounts payable, accrued liabilities, gas imbalance liability and dividends payable 194,374 140,105 ----------- ----------- Total adjustments 1,632,821 1,527,687 ----------- ----------- Net cash provided by operating activities 2,815,271 3,600,213 Cash flows from investing activities: Purchase of and development of properties and equipment (2,404,180) (2,331,744) ----------- ----------- Net cash used in investing activities (2,404,180) (2,331,744) Cash flows from financing activities: Payment of loan principal -- (750,000) Acquisition of Company's common shares (3,369) (9,701) Payment of dividends (477,251) (407,423) ----------- ----------- Net cash provided (used) in financing activities (480,620) (1,167,124) ----------- ----------- Increase in cash and cash equivalents (69,529) 101,345 Cash and cash equivalents at beginning of period 872,797 399,423 ----------- ----------- Cash and cash equivalents at end of period $ 803,268 $ 500,768 =========== =========== Supplemental disclosure of cash flow information: Interest paid $ 2,337 $ 29,172 Income taxes paid 291,646 286,507 ----------- ----------- $ 293,983 $ 315,679 =========== ===========
(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 nine-month periods ended June 30, 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 June 30, Nine months ended June 30, ---------------------------- ---------------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Numerator for primary and diluted earnings per share: Net income $ 296,193 $ 513,708 $1,182,450 $2,072,526 ---------- ---------- ---------- ---------- Denominator: For basic earnings per share - Weighted average shares 679,715 677,424 679,772 677,698 Effect of potential diluted shares: Directors deferred compensation shares 3,862 2,767 3,862 2,767 ---------- ---------- ---------- ---------- Denominator for diluted earnings per share - adjusted weighted - average shares and potential shares 683,577 680,191 683,634 680,465 ========== ========== ---------- ---------- Basic earnings per share $ .44 $ .76 1.74 3.06 ========== ========== ========== ========== Diluted earnings per share $ .43 $ .76 1.73 3.05 ========== ========== ========== ==========
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 August 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 June 30, 1997 to conform to the financial statement presentation at June 30, 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 acquisition, 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 risk. 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 June 30, 1998 working capital was $535,988 as compared to $953,528 at September 30, 1997. Cash and cash equivalents were $803,268 at June 30, 1998. Cash flow provided by operating activities for the first nine months of 1998 was $2,813,871 as compared to $3,600,213 for the first nine months of 1997. This decrease in cash flow is directly attributable to the decrease in oil and gas sales revenues during the first nine months of 1998. The decrease is discussed in Results of Operations in this, Item 2. The Company has continued its operating strategy of actively pursuing the development of its oil and gas properties through 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 actually increased its expenditures for purchasing and development its oil and gas properties in the first nine months of fiscal 1998 as compared to the same period in fiscal 1997. These expenditures totaled $2,404,180 in the 1998 period as compared to $2,331,744 in the 1997 period. At June 30, 1998 the Company had remaining projected costs of $1,735,437 for its share of drilling and equipment costs on working interest 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. In addition, management has decided to suspend taking new drilling participations in third party working interest wells (those not on Company mineral acreage) until oil and gas sales prices increase from the current depressed levels. The Company will continue to aggressively participate in drilling on its mineral properties and will complete drilling on those third party wells and projects already committed. RESULTS OF OPERATIONS Revenues decreased for both the three-month and nine-month periods ended June 30, 1998, as compared to the same periods in fiscal 1997. The decreases were the result of oil and gas sales revenues decreasing 22% and 21% for the 1998 nine-month and three-month periods, respectively, as compared to the same periods in fiscal 1997. Oil and gas sales revenues decreased principally as a result of decreased oil sales volumes and decreased sales prices for crude oil. The chart below outlines the Company's production and average sales prices for oil and natural gas for the three-month and nine-month periods of fiscal 1998 and 1997:
BARRELS AVERAGE MCF AVERAGE SOLD PRICE SOLD PRICE --------- --------- --------- --------- Three months ended 06/30/98 24,652 $ 13.30 378,739 $ 2.17 Three months ended 06/30/97 40,669 $ 19.48 360,890 $ 1.85 Nine months ended 06/30/98 84,517 $ 15.87 1,253,993 $ 2.34 Nine months ended 06/30/97 111,140 $ 22.07 1,227,208 $ 2.47
As can be seen from the above chart, the decrease in oil sales volumes along with the decreased oil sales prices, both for the three-month and nine-month periods, were the major reason for the oil and gas revenue decrease. The oil sales price has continued to decline and the Company is currently receiving in the $11-$12 per barrel range. Gas sales prices were slightly lower in the fiscal 1998 nine months as compared to 1997, and are currently expected to be somewhat lower in the fourth quarter of fiscal 1998 than in the third quarter of 1998. ( 5 ) 8 Oil sales volumes were adversely affected by a continued production allowable situation in the Dagger Draw field of New Mexico (the Company's major oil producing field) during the first nine months of fiscal 1998. In addition, the majority operator of these wells recently decided to shut them in due to low crude oil sales prices, thus effectively reducing production to nil. The operator's current intentions are to keep the wells essentially shut-in until the price of oil recovers to the mid-teens. This will adversely affect the Company's oil and gas sales revenues until such time as that operator decides to return these wells to production. The slightly increased gas production for both the 1998 periods and the increased gas sales price in the 1998 three-month period did partially offset the oil revenue declines. Costs and expenses increased slightly in the 1998 three-month period as compared to the 1997 three-month period and decreased slightly in the 1998 nine-month period compared to the 1997 nine-month period. Lease operating expenses and production taxes decreased for both the 1998 periods as a result of production taxes decreasing. Production taxes are a fixed percentage of oil and gas sales revenues, thus taxes decreased along with the decrease in oil and gas sales revenues. Exploration costs increased in both the 1998 periods as a result of increased dry hole costs. These costs are the result of non-productive exploratory well drilling costs and will vary from period to period. There is no way to accurately predict these costs. Depreciation, depletion, amortization and impairment (DD&A) increased in both the 1998 periods. These moderate increases were the result of the amortization rates on several marginal wells being increased, offset, somewhat, by the reduced production volumes in the New Mexico oil wells, which reduced amortization on those wells. General and administrative costs increased moderately in both 1998 periods as a result of increased salaries and personnel in the 1998 periods; increased rent expense in the 1998 periods, due to additional office space being acquired; and for costs associated with Company presentations to investment professional meetings. The provision for income taxes is lower in both the 1998 periods as compared to the 1997 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 price and sales volume for crude oil. Management has no control over the market prices of oil and currently expects the depressed oil price to continue for the remainder of fiscal 1998. In addition, oil production volumes will decrease in the fourth quarter due to the factors discussed above. As a result, management expects earnings to remain below 1997 levels for the remainder of fiscal 1998. In addition, should any of the Company's current and projected exploratory drilling prospects result in non-productive wells, earnings would again be negatively impacted. YEAR 2000 ISSUES Much of the computer software in use today may not be able to accurately process data beyond the year 1999. The majority of computer systems process data using two digits for the year of transaction, rather than the full four digits. This may cause many systems to be unable to accurately process year 2000 transactions. The Company has replaced its computer system hardware with new hardware which has operating systems that are year 2000 compliant. The Company's software supplier is in the process of revising their software to be year 2000 compliant. This process is expected to be complete by the end of 1998, allowing one year to install and test the revisions. Management does not anticipate any inhouse software issues that could materially impact the Company's financial condition or operations. However, should any operators of the Company's oil and gas properties, any purchasers of the crude oil or natural gas from those properties or financial institutions dealing in check clearing, etc., experience year 2000 problems, there could be some temporary effect on the Company's financial position. ( 6 ) 9 PART II. OTHER INFORMATION 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 June 30, 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 August 11, 1998 /s/ H W Peace II - --------------------------- ---------------------------------- Date H W Peace II, President and Chief Executive Officer August 11, 1998 /s/ Michael C. Coffman - --------------------------- ---------------------------------- Date Michael C. Coffman, Vice President, Chief Financial Officer and Secretary and Treasurer ( 7 ) 10 INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION - ---------- ----------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS SEP-30-1998 OCT-01-1997 JUN-30-1998 803,268 0 720,928 0 0 1,536,693 27,430,162 16,092,823 12,981,748 1,000,705 0 0 0 67,971 10,666,072 12,981,748 4,280,797 4,362,342 756,517 2,141,038 0 0 2,337 1,462,450 280,000 1,182,450 0 0 0 1,182,450 1.74 1.73
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