-----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, HzDtEhTUfU4R8VqEju75LXmGHADCnFAm6ecDnTmkUFlcIFtNyKMmGdnpw2mUTF0s ypP1ho7gjKm0+vmHyvCNMw== 0000950134-99-011322.txt : 19991222 0000950134-99-011322.hdr.sgml : 19991222 ACCESSION NUMBER: 0000950134-99-011322 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991221 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: 10KSB40 SEC ACT: SEC FILE NUMBER: 000-09116 FILM NUMBER: 99778262 BUSINESS ADDRESS: STREET 1: 5400 NW GRAND BLVD STREET 2: GRAND CENTRE STE 210 CITY: OKLAHOMA CITY STATE: OK ZIP: 73112 BUSINESS PHONE: 4059481560 10KSB40 1 FORM 10KSB FOR FISCAL YEAR END SEPTEMBER 30, 1999 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended September 30, 1999 Commission File Number: 0-9116 PANHANDLE ROYALTY COMPANY (Exact name of small business registrant 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., Okla. City, OK 73112 (Address of principal executive offices) (Zip code) Registrant's telephone number (405) 948-1560 Securities registered under Section 12(B) of the Exchange Act: NONE Securities registered under Section 12(g) of the Exchange Act: (Title of Class) CLASS A COMMON STOCK (VOTING) .0333 par value (Title of Class) CLASS B COMMON STOCK (NON-VOTING) $1.00 par value Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation SB contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] Registrant's revenues for fiscal year-end September 30, 1999, were $5,117,475. The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by using the closing price of registrant's common stock, at November 30,1999, was $14,555,940. As of November 30,1999, 2,056,986 class A common shares were outstanding. Documents Incorporated By Reference ..... NONE 2 TABLE OF CONTENTS
PART I PAGE ---- Item 1. Description of Business ....................................... 1-4 Item 2. Description of Properties ..................................... 4-10 Item 3. Legal Proceedings ............................................. 10 Item 4. Submission of Matters to a Vote of Security Holders ........................................... 10 PART II Item 5. Market for Common Equity and Related Stockholder Matters ................................ 10-11 Item 6. Management's Discussion and Analysis or Plan of Operations ...................................... 11-14 Item 7. Financial Statements .......................................... 14-32 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ....................................... 33 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act .......................... 33-35 Item 10. Executive Compensation ....................................... 35-36 Item 11. Security Ownership of Certain Beneficial Owners and Management ...................................... 36-37 Item 12. Certain Relationships and Related Transactions ............................................... 37 Item 13. Exhibits and Reports on Form 8-K ............................. 37-38 Exhibit 21 ............................................................ 38 Signature Page ........................................................ 39
(I) 3 PART I ITEM 1. DESCRIPTION OF BUSINESS FORWARD-LOOKING STATEMENTS Forward-looking statements for 2000 and later periods are made throughout this document. Such statements represent estimates of management based on the Company's historical operating trends, its proved oil and gas reserves and other information currently available to management. The Company cautions that the forward-looking statements provided herein are subject to all the risks and uncertainties incident to the acquisition, development and marketing of, and exploration for oil and gas reserves. These risks include, but are not limited to oil and natural gas price risk, environmental risk, drilling risk, reserve quantity risk and operations and production risks. For all the above reasons, actual results may vary materially from the forward-looking statements and there is no assurance that the assumptions used are necessarily the most likely to occur. BUSINESS DEVELOPMENT Panhandle Royalty Company ("Panhandle" or the "Company") is an Oklahoma Corporation, organized in 1926 as Panhandle Cooperative Royalty Company. In 1979, Panhandle Cooperative Royalty Company was merged into Panhandle Royalty Company. Panhandle's authorized and registered stock consisted of 100,000 shares of $1.00 par value class A common stock. In 1982, the Company split the stock on a 10-for-1 basis and reduced the par value to $.10, resulting in 1,000,000 shares of authorized class A common stock. In May 1999, the Company's shareholders voted to increase the authorized Class A Common shares of the Company to 6,000,000 and to split the shares on a three-for-one basis. In addition, voting rights for the shares were changed from one vote per shareholder to one vote per share. Since its formation, the Company has been involved in the acquisition and management of mineral interests and the exploration for, and development of, oil and gas properties, principally involving wells located on the Company's mineral interests. Panhandle's mineral properties and other oil and gas interests are located primarily in Oklahoma, New Mexico and Texas. Properties are also located in twelve other states. The majority of the Company's oil and gas production is from wells located in the Anadarko Basin of western Oklahoma and the Dagger Draw Field in Eddy County, New Mexico. In 1988, the Company merged with New Mexico Osage Royalty Company, thus acquiring most of its New Mexico mineral interests. The Company's offices are located at Grand Centre Suite 210, 5400 N. Grand Blvd., Oklahoma City, OK 73112 (405)948-1560, FAX (405)948-2038. BUSINESS OF ISSUER The majority of Panhandle's revenues are derived from the production and sale of oil and natural gas. See "Item 7 - Financial Statements". The Company's oil and gas holdings, including its mineral interests and its interests in producing wells, both working interests and royalty interests, are centered in Oklahoma with activity, in recent years, in New Mexico and Texas. See "Item 2 - Description of Properties". Exploration and development of the Company's oil and gas properties is conducted in association with operating oil and gas companies, including major and independent companies. The (1) 4 Company does not operate any of its oil and gas properties. The Company has been an active participant for several years in wells drilled on the Company's mineral properties and in third party drilling prospects. A large percentage of the Company's recent drilling participations have been on properties in which the Company has mineral interests and in many cases already owns an interest in a producing well in the unit. This "increased density" drilling has accounted for a majority of the successful oil and gas wells completed during these years and has added significant reserves for the Company. The Company continues to acquire additional mineral interest properties, both producing and non-producing. Several of the mineral properties purchased have been in areas where the Company had no mineral holdings, thus expanding the Company's area of interest. PRINCIPAL PRODUCTS AND MARKETS The Company's principal products are crude oil and natural gas. These products are sold to various purchasers, including pipeline companies, which are generally located in and service the areas where the Company's producing wells are located. The Company does not act as operator for any of the properties in which it owns an interest, thus it relies on the operating expertise of numerous companies that operate in the area where the Company owns mineral interests. This expertise includes drilling operations and completions, producing well operations and, in some cases, the marketing or purchasing of the well's production. Natural gas sales are contracted by either the Company or the well operator and are contracted principally on a monthly basis with third party gas marketers and pipeline companies. Payment for gas sold is received either from the contracted purchasers or the well operator. Crude oil sales are generally handled by the well operator and payment for oil sold is received from the well operator or from the crude oil purchaser. COMPETITIVE BUSINESS CONDITIONS The oil and gas industry is highly competitive, particularly in the search for new oil and gas reserves, and to some extent, in the marketing of the production from wells. There are many factors affecting Panhandle's competitive position and the market for its products which are beyond its control. Some of these factors are quantity and price of foreign oil imports, changes in prices received for its oil and gas production, business and consumer demand for refined oil products and natural gas, and the effects of federal and state regulation of the exploration, production and sales of oil and natural gas. Changes in existing economic conditions, weather patterns and actions taken by OPEC and other oil- producing countries have dramatic influence on the price Panhandle receives for its oil and gas production. The Company relies heavily on companies with greater resources, staff, equipment, research, and experience for operation of wells and the development and drilling of subsurface prospects. The Company uses its strong financial base and its mineral property ownership, coupled with it's own geologic and economic evaluation to participate in drilling operations with these larger companies. This method allows the Company to effectively compete in drilling operations it could not undertake on its own due to financial and personnel limits and allows it to maintain low overhead costs. (2) 5 SOURCES AND AVAILABILITY OF RAW MATERIALS The existence of commercial oil and gas reserves is essential to the ultimate realization of value from the Company's mineral properties and these mineral properties may be considered a raw material to its business. The production and sale of oil and natural gas from the Company's oil and gas properties is essential to provide the cash flow necessary to sustain the ongoing viability of the Company. The Company continues to reinvest a portion of its cash flow in the purchase of additional mineral properties to assure the continued availability of acreage with which to participate in exploration, drilling, and development operations and subsequently the production and sale of oil and gas. This participation in exploration and production and the purchasing of additional mineral interests will continue to supply the Company with the raw materials with which to generate additional cash flow. Mineral purchases are made from varied owners, and the Company does not rely on any particular companies or individuals for these acquisitions. MAJOR CUSTOMERS The Company's oil and gas production is sold by the well operators, in most cases, to many different purchasers on a well-by-well basis. No one purchaser accounts for a major percentage of the Company's revenues. Generally, if one purchaser declines to continue purchasing the Company's oil and/or natural gas, several other purchasers can be located. Pricing is usually reasonably consistent from purchaser to purchaser. PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND ROYALTY AGREEMENTS The Company does not own any patents, trademarks, licenses or franchises. Royalty agreements on producing oil and gas wells stemming from the Company's ownership of mineral interests generate a substantial portion of the Company's revenues. These royalties are tied to the ownership of the mineral interests and this ownership is perpetual, unless sold by the Company. Royalties are due and payable to the Company whenever oil and/or gas is produced from wells located on the Company's mineral properties. GOVERNMENTAL REGULATION Oil and gas production is subject to various taxes, such as gross production taxes and, in some cases, ad valorem taxes. The State of Oklahoma and other states require permits for drilling operations, drilling bonds and reports concerning operations and impose other requirements relating to the exploration and production of oil and gas. Such states also have regulations addressing conservation matters, including provisions for the unitization or pooling of oil and gas properties, the establishment of maximum rates of production from oil and gas wells and the regulation of spacing, plugging and abandonment of such wells. These statutes and regulations currently limit the rate at which oil and gas can be produced from certain of the Company's properties. As previously discussed, the well operators are relied upon by Panhandle to comply with governmental regulations. (3) 6 Federal tax law allows producers of "tight gas" to utilize an approximate $.52/MMBTU tax credit for gas produced from approved wells. The credit is a direct reduction of regular federal income tax. Panhandle began receiving revenues from "tight gas" wells during fiscal 1992. This credit will be available for all tight gas sold prior to January 1, 2003, and is expected to reduce the Company's cash outlay for income taxes. ENVIRONMENTAL MATTERS As the Company is directly involved in the extraction and use of natural resources, it is subject to various federal, state and local provisions regarding environmental and ecological matters. Compliance with these laws may necessitate significant capital outlays, however, to date the Company's cost of compliance has been insignificant. The Company does not feel the existence of these environmental laws will materially hinder or adversely affect the Company's business operations; however, there can be no assurances of future events. Since the Company does not operate any wells where it owns an interest, actual compliance with environmental laws is controlled by others, with Panhandle being responsible for its proportionate share of the costs involved. Panhandle carries liability insurance and to the extent available at reasonable cost, pollution control coverage. However, all risks are not insured due to insurance availability and/or cost thereof. EMPLOYEES At September 30, 1999, Panhandle employed ten persons on a full-time basis and has no part-time employees. Three of the employees are executive officers and one is also a director of the Company. ITEM 2. DESCRIPTION OF PROPERTIES As of September 30, 1999, Panhandle's principal properties consisted of perpetual ownership of 183,177 net mineral acres, held in tracts in Alabama, Arkansas, Colorado, Idaho, Kansas, Illinois, Indiana, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, Tennessee and Texas. The Company also held leases on 6,340 net acres of minerals in Louisiana, Oklahoma and Texas. At September 30, 1999, Panhandle held royalty and/or working interests in 1,528 producing oil or gas wells, 54 successfully completed but not yet producing wells, and 18 wells in the process of being drilled or completed. (4) 7 Panhandle does not have current abstracts or title opinions on all mineral properties owned and, therefore, cannot warrant that it has unencumbered title to all of its properties. In the period from 1927 through 1937, the Company lost title to a number of its then owned mineral acres through foreclosures and tax sales of the surface acreage overlying its minerals. In recent years, few challenges have been made against the Company's fee title to its properties. Panhandle pays ad valorem taxes on its minerals owned in Arkansas, Colorado, Idaho, Indiana, Illinois, Kansas, Tennessee and Texas. ACREAGE The following table of mineral interests owned reflects, as of September 30, 1999, in each respective state, the number of net and gross acres, net and gross producing acres, net and gross acres leased, and net and gross acres open (unleased). MINERAL INTERESTS
Net Gross Net Gross Net Gross Acres Acres Acres Acres Acres Acres Net Gross Prod'g Prod'g Leased Leased Open Open St. Acres Acres (1) (1) (2) (2) (3) (3) - --- ------- --------- ------ ------- ------ ------ ------- ------- AL 5 479 5 479 AR 7,546 38,579 64 220 119 400 7,363 37,959 CO 8,176 38,600 8,176 38,600 ID 30 880 30 880 IL 1,018 4,393 1,018 4,393 IN 27 262 27 262 KS 620 5,360 60 480 560 4,880 MT 422 7,960 422 7,960 NE 439 5,960 439 5,960 ND 292 5,036 37 320 255 4,716 NM 53,324 153,073 1,150 4,949 2,042 5,542 50,132 142,582 OK 86,960 663,104 16,517 87,545 1,846 21,551 68,597 554,008 TN 1,543 3,087 1,543 3,087 TX 22,775 213,021 1,096 34,391 256 3,081 21,423 175,549 ------- --------- ------ ------- ------ ------ ------- ------- TOT: 183,177 1,139,794 18,887 127,585 4,300 30,894 159,990 981,315
(1) "Producing" represents the mineral acres in which Panhandle owns a royalty or working interest in a producing well. (2) "Leased" represents the mineral acres, owned by Panhandle, that are leased to third parties but not producing. (3) "Open" represents mineral acres owned by Panhandle that are not leased or in production. This table reflects net mineral acres leased from others, lease expiration dates, and net leased acres held by production. LEASES
Net Acres Leases Expiring Net Acres Net ---------------------------------- Held By State Acres 2000 2001 2002 2003 Production ----- ----- ------ ---- ----- ----- ---------- LA 271 271 OK 6,007 2,387 718 602 71 2,229 TX 62 20 42 ----- ------ ---- ----- ----- ----- TOT: 6,340 2,407 718 602 71 2,542
(5) 8 PROVED RESERVES The following table summarizes estimates of the proved reserves of oil and gas held by Panhandle. All reserves are located within the United States. Because the Company's nonproducing mineral and leasehold interests consist of various small interests in numerous tracts located primarily in Oklahoma, New Mexico and Texas and because the Company is a non-operator and must rely on third parties to propose and drill wells, it is not feasible to provide estimates of all proved undeveloped reserves and associated future net revenues. Prior to fiscal 1995, the Company did not provide estimates of any proved undeveloped reserves. Since 1995 the Company has provided estimates of proved undeveloped reserves for certain areas of western Oklahoma where a large amount of increased density gas drilling has taken place during the prior few years. In 1996 estimates of certain proved undeveloped reserves in the Dagger Draw field in southeastern New Mexico were added. Production in this field has grown rapidly over the last five years and numerous undrilled well locations are situated on minerals owned by Panhandle. Due to field production allowable rules in Dagger Draw, only those proved undeveloped reserves which the Company felt could be drilled, under existing allowable rules, have been included. Should the allowable rules be amended and/or production volumes change significantly, additional proved undeveloped reserves may be added in the future. The Company, in both cases, expects drilling to continue for the next several years, and thus made the decision to provide proved undeveloped reserve estimates for these areas. All reserve quantity estimates were prepared by Campbell & Associates, Inc., an independent petroleum engineering firm. The Company's reserve estimates were not filed with any other federal agency.
Proved Developed Reserves Barrels of Oil MCF of Gas ------------------------- -------------- ---------- September 30, 1996 641,213 8,200,957 September 30, 1997 625,370 9,707,242 September 30, 1998 497,263 10,103,355 September 30, 1999 433,263 11,519,071 Proved Undeveloped Reserves September 30, 1996 297,582 1,638,104 September 30, 1997 278,438 1,559,860 September 30, 1998 279,824 1,557,965 September 30, 1999 287,940 1,596,149 Total Proved Reserves September 30, 1996 938,795 9,839,061 September 30, 1997 903,808 11,267,102 September 30, 1998 777,087 11,661,320 September 30, 1999 721,203 13,115,220
Because the determination of reserves is a function of testing, evaluating, developing oil and gas reservoirs and establishing a production decline history, along with product price fluctuations, it would be expected that estimates will change as future information concerning those reservoirs is developed and as market conditions change. Estimated reserve quantities and future net revenues are affected by changes in product prices, and (6) 9 these prices have varied substantially in recent years. Proved developed reserves are those expected to be recovered through existing well bores under existing economic and operating conditions. Proved undeveloped reserves are reserves that may be recovered from undrilled acreage, but are usually limited to those sites directly offsetting established production units and have sufficient geological data to indicate a reasonable expectation of commercial success. ESTIMATED FUTURE NET CASH FLOWS Set forth below are estimated future net cash flows with respect to Panhandle's proved reserves (based on the estimated units set forth in the immediately preceding table) as of year ends, and the present value of such estimated future net cash flows, computed by applying a ten (10) percent discount factor as required by the rules and regulations of the Securities and Exchange Commission. Estimated future net cash flows have been computed by applying current year-end prices to future production of proved reserves less estimated future expenditures (based on costs as of year end) to be incurred with respect to the development and production of such reserves. Such pricing is based on SEC guidelines. No federal income taxes are included in estimated costs. However, the amounts are net of production taxes levied by respective states. Prices used for determining future cash flows from oil and natural gas for the periods ended September 30, 1999, 1998 and 1997 were as follows: 1999 - $23.29, $2.70; 1998 - $14.45, $1.63; 1997 - $19.12, $2.48. These future net cash flows should not be construed as the fair market value of the Company's reserves. A market value determination would need to include many additional factors, including anticipated oil and gas price increases or decreases. Estimated Future Net Cash Flows
9-30-99 9-30-98 9-30-97 ----------- ----------- ----------- Proved Developed $33,049,035 $18,256,510 $29,186,367 Proved Undeveloped $ 8,942,345 $ 4,868,946 $ 7,188,163 Total Proved (1) $41,991,380 $23,125,456 $36,374,530
10% Discounted Present Value of Estimated Future Net Cash Flows
9-30-99 9-30-98 9-30-97 ----------- ----------- ----------- Proved Developed $22,066,753 $12,469,019 $19,890,600 Proved Undeveloped $ 5,566,777 $ 2,929,190 $ 4,430,870 Total Proved (1) $27,633,530 $15,398,209 $24,321,470
(1) The decrease in value from September 30, 1997 to September 30, 1998 was attributable to the lower oil and gas prices used in the 1998 reserve report versus the prices used in the 1997 reserve report. A major portion of the increase from September 30, 1998, to September 30, 1999, is attributable to the increased oil and gas prices used in the 1999 reserve report versus the prices used in the 1998 reserve report. (7) 10 OIL AND GAS PRODUCTION The following table sets forth the Company's net production of oil and gas for the fiscal periods indicated.
Year Year Year Ended Ended Ended 9-30-99 9-30-98 9-30-97 --------- --------- --------- Bbls - Oil 75,891 103,989 147,734 MCF - Gas 1,888,890 1,710,264 1,600,247
Average Sales Prices and Production Costs The following table sets forth unit price and cost data for the fiscal periods indicated.
Year Year Year Ended Ended Ended Average Sales Price 9-30-99 9-30-98 9-30-97 - ------------------- --------- --------- --------- Per Bbl. Oil $15.53 $15.16 $21.21 Per MCF Gas $ 2.06 $ 2.20 $ 2.39 Average Production (Lifting Cost) Per Equivalent Bbl. Oil(1)(2) $ 2.47 $ 2.47 $ 2.54
(1) Gas production is converted to barrel equivalents at the rate of 6 MCF per barrel, representing the estimated relative energy content of natural gas and oil. (2) Includes well operating costs and production taxes. Average production costs are influenced by the fact that the Company bears no cost of production on many of its well interests, as a large part of the Company's producing well interests are royalty interests, which bear no share of the operating costs. GROSS AND NET PRODUCTIVE WELLS AND DEVELOPED ACRES The following table sets forth Panhandle's gross and net productive oil and gas wells as of September 30, 1999. Panhandle owns fractional royalty interests or fractional working interests in these wells. The Company does not operate any wells.
Gross Wells Net Wells ----------- --------- Oil 435 14.834550 Gas 1,093 20.210819 ----- --------- TOTAL 1,528 35.045369
Information on multiple completions is not available from Panhandle's records, but the number of such is insignificant. (8) 11 As of September 30, 1999, Panhandle owned 127,585 gross developed mineral acres and 18,887 net developed mineral acres. Panhandle has also leased from others 48,782 gross developed acres which contain 2,542 net developed acres. UNDEVELOPED ACREAGE As of September 30, 1999, Panhandle owned 1,012,209 gross and 164,290 net undeveloped mineral acres, and leases on 19,911 gross and 3,798 net acres. DRILLING ACTIVITY The following net productive development and exploratory wells and net dry development and exploratory wells, in which the Company had a fractional royalty or working interest, were drilled and completed during the fiscal years indicated. Also shown are the net wells purchased during these periods.
Net Productive Net Dry Development Wells Wells Wells - ----------------- -------------- ------- Fiscal year ending September 30, 1997 2.630851 .659734 Fiscal year ending September 30, 1998 1.548498 .608732 Fiscal year ending September 30, 1999 1.813871 .582417 Exploratory Wells Fiscal year ending September 30, 1997 .627670 .477731 Fiscal year ending September 30, 1998 .953696 .566764 Fiscal year ending September 30, 1999 .497868 .270698 Purchased Wells Fiscal year ending September 30, 1997 .798765 0 Fiscal year ending September 30, 1998 .174667 0 Fiscal year ending September 30, 1999 .178395 0
(9) 12 PRESENT ACTIVITIES The following table sets forth the gross and net oil and gas wells drilling or testing as of September 30, 1999, in which Panhandle owns a royalty or working interest.
Gross Wells Net Wells ----------- --------- Oil 5 .3531864 Gas 13 .569591
The Company has very small interests in three waterflood operations in Oklahoma and Texas which have neglible revenues and expenses to the Company. No additional purchases or start-ups of waterflood, pressure maintenance or other related operations are currently planned. ITEM 3. LEGAL PROCEEDINGS There were no material legal proceedings involving Panhandle or its subsidiary, PHC, Inc., as of the date of this report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of Panhandle's security holders during the fourth quarter of the fiscal year ended September 30, 1999. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is listed on the NASDAQ Small-Cap Market (symbol PANRA). The following table sets forth the high and low trade prices of the Company's common stock during the periods indicated: (all share or per share amounts, are adjusted for the effect of the 3-for-1 stock split effective May 7, 1999).
Quarter Ended HIGH LOW ------------- ---- --- December 31, 1997 14-3/16 9-5/16 March 31, 1998 11-3/16 8-11/16 June 30, 1998 11-3/8 9-5/16 September 30, 1998 9-11/16 8-9/16 December 31, 1998 8-3/4 5-5/16 March 31, 1999 8-5/8 6-5/8 June 30, 1999 10-11/16 7-5/16 September 30, 1999 9-1/2 7-5/8
As of November 30, 1999, the approximate number of holders of shares of Panhandle stock were:
Title of Class Number of Holders -------------- ----------------- Class A Common (Voting).............. 2,520
(10) 13 During the past two years, cash dividends have been paid as follows on the class A common stock:
DATE RATE PER SHARE ---- -------------- December 1997 $ .07 March 1998 $ .10 June 1998 $ .07 September 1998 $ .07 December 1998 $ .06 March 1999 $ .07 June 1999 $ .07 September 1999 $ .07
The Company's line of credit loan agreement contains a provision limiting the paying or declaring of a cash dividend to fifty percent of cash flow, as defined, of the preceding twelve-month period. See Note 3 to the consolidated financial statements contained herein at "Item 7 - Financial Statements", for a further discussion of the loan agreement. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES At September 30, 1999, the Company had positive working capital of $612,219, an increase of $159,949, compared to year end September 30, 1998. However, cash flow from operating activities in fiscal 1999, decreased $621,738, to $2,836,783, from the fiscal 1998 amount. This decrease was principally a result of a decline in oil and gas sales revenues during fiscal 1999. The decrease in revenues is discussed in detail in "Results of Operations." Capital expenditures on oil and gas activities in fiscal 1999 amounted to $2,360,168, a decrease of $1,007,684, as compared to the 1998 amount. This reduction was principally a result of the low market price of crude oil in the first two quarters of fiscal 1999. Several wells projected to be drilled during this period were postponed due to the low oil price. Crude oil and natural gas market prices began increasing and continued to increase during the third and fourth fiscal quarters of 1999. As the prices increased late in the fiscal year the pace of drilling picked up with expenditures for drilling in September and October being at extremely high levels. The Company has historically funded drilling and other capital expenditures as well as overhead costs and dividend payments from operating cash flow. However, in December 1998, the Company borrowed $300,000 under it's bank line of credit to help fund these costs. As of August 10, 1999, the Company had repaid the $300,000. The Company expects to continue its business strategy of aggressive drilling participation through fiscal 2000, and well into the future. At September 30, 1999, the Company had projected costs of $1,501,949, for its share of drilling and equipment costs on working interest wells which have been proposed or were in the process of being drilled or (11) 14 completed. Management currently expects to spend a total of approximately $3,000,000, for exploration and development well costs in fiscal 2000. In addition , the Company is aggressively seeking acquisitions of producing, and to a lessor extent non-producing, mineral properties, or working interests in wells. These capital costs along with overhead expenses and dividend payments are expected to be funded by cash flow and from borrowings, if needed, under the Company's bank line-of-credit. In addition, the Company has available approximately 4,000,000 shares of authorized but unissued common stock, which could be used in an asset purchase. The line-of-credit and expected cash flows are more than sufficient to meet all expected capital obligations. Capital expenditures amounts can vary due to many factors, including drilling results, oil and gas prices, industry conditions and acquisition opportunities among others. A significant acquisition of producing properties would increase capital expenditures and would need to be financed by additional debt or possibly debt and equity. RESULTS OF OPERATIONS Revenues decreased $322,707 or 6% in fiscal 1999 as compared to fiscal 1998. The reduction in revenues was mainly attributable to a $260,592 reduction in oil and gas sales revenue. The oil and gas sales revenue decline was a result of a decreased average sales price for natural gas, decreased sales volumes of oil, and were partially offset by an increase in sales volumes of natural gas. The chart below summarizes the Company's sales volumes and average sales prices for oil and natural gas in fiscal 1999 and 1998. OIL AND GAS SALES
OIL GAS ----------------------- ----------------------- Total Average Total Average BBLS Price/BBL MCF Price/MCF ------- --------- --------- --------- Year Ended 9/30/99 75,891 $ 15.53 1,888,890 $ 2.06 Year Ended 9/30/98 103,989 $ 15.16 1,710,264 $ 2.20
The 27% decrease in sales volumes of oil was a result of one operator in the Company's principal oil producing filed, Dagger Draw, New Mexico, shutting in production for approximately 60% of the year, as a result of low market prices for crude oil. As oil prices increased in the last months of the year these wells began the process of going back on line, but several of the wells experienced mechanical difficulties, delaying their start up. When these wells did start producing, late in the fiscal year, production volumes were significantly reduced as compared to pre-shut-in volumes. This condition is expected to continue for some time in fiscal 2000, and will adversely affect oil production volumes again in fiscal 2000. The gas sales volume increase in fiscal 1999 was principally due to new gas produced in the Potato Hills field in southeast Oklahoma. The Company has an interest in several new wells in this prolific gas production area with expectations of additional wells to be drilled in fiscal 2000. In addition, several new gas wells in western Oklahoma began production in fiscal 1999. The new gas production from these areas is expected to increase year 2000 gas production volumes over 1999 levels. (12) 15 These increased gas production volumes and the current high prices being received for gas and oil should increase 2000 oil and gas revenues over 1999 levels. However, should product prices drop dramatically in fiscal 2000, oil and gas sales revenues would still be adversely affected. Costs and Expenses increased $435,029 or 11% as compared to fiscal 1998. The increase was principally due to a $300,040 increase in depreciation, depletion, amortization and impairment costs (DD&A) along with minor increases in exploration costs and general and administrative costs. The increase in depletion, amortization and impairment costs (DD&A) was the result of the Company recognizing a SFAS No.121 impairment provision (see Note 1, Summary of Significant Accounting Policies, to the Financial Statements contained herein at Item 7.) of $357,891 in fiscal 1999, an increase of $208,040 over the amount recognized in fiscal 1998. In addition, several newer wells had large DD&A rates in 1999, as either reserves were lower than the previous year, or initial production volumes were large compared to total expected reserves volumes. Exploration costs increased $54,187 or 11% as compared to fiscal 1998. These costs are primarily dry hole costs and seismic costs and vary from year to year, principally as a result of dry hole costs. The Company utilizes the successful effort's method of accounting for oil and gas operations, thus, dry holes are a result of drilling unsuccessful exploratory wells. There is no way to accurately estimate exploration costs, and as the Company will continue exploratory well participations, future exploration costs can be expected. General and administrative costs increased $65,109 in fiscal 1999, primarily as a result of the addition of one new employee in fiscal 1999, and the costs associated with a special shareholders meeting held in May 7, 1999, to vote on changes to the Company's Articles of Incorporation. The benefit for income taxes in fiscal 1999 is a result of a lower income before taxes than in 1998 and the Company continuing to be able to utilize tax credits from production of "tight gas sands" natural gas and from excess percentage depletion on it's oil and gas properties. As discussed above, the decline in net income is principally attributable to decreased oil and gas sales revenues, and increased DD&A expense. Management currently expects fiscal 2000 financial results to improve as a result of oil and natural gas sales prices improving over fiscal 1999 and gas sales volumes continuing to increase. However, management has no control over market prices of oil and natural gas and substantial price reductions could drastically affect year 2000 results. Also, continued investments in exploratory drilling carries certain risk, principally dry hole costs discussed above, which could adversely affect 2000 earnings. (13) 16 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 completed its replacement of both its computer ("IT systems") and operational equipment ("non-IT systems") as of September 30, 1999. The Company has replaced its computer system hardware with new hardware which has operating systems which are represented as being year 2000 compliant and the Company's software has been replaced with software represented to be year 2000 compliant. The system software currently being used is the year 2000 compliant software. It has been used to process all business for fiscal 2000 to date and no material problems have developed. Tests have been successfully run on post dated year 2000 data. The Company has no non-IT systems which are expected to be impacted in any material manner by year 2000. The cost of replacement of the Company's IT systems noted above was less than $30,000. Any additional costs to assess the year 2000 matter or become compliant therewith are not expected to be significant. Management currently feels the most likely worst case scenario of a year 2000 effect on the Company would be that the operators of the oil and gas properties in which the Company has an interest, purchasers who buy oil and gas from the Company's properties or financial institutions ("External Agents") used by the Company have not properly addressed the year 2000 matter, there could be some delay in the Company receiving payment for the sale of oil and gas. Should this occur, the Company may be required to borrow additional amounts on its available line of credit, thus incurring additional interest expense over that otherwise anticipated. However, the Company does not expect the year 2000 will have a material impact on its financial position or results of operations. The Company has no systems which directly interface with External Agents. ITEM 7. FINANCIAL STATEMENTS Report of Independent Auditors .......................... 15 Consolidated Balance Sheets As of September 30, 1999 and 1998 .................... 16 Consolidated Statements of Income For The Years Ended September 30, 1999 and 1998 .............. 17 Consolidated Statements of Stockholders' Equity For The Years Ended September 30, 1999 and 1998 .......... 18 Consolidated Statements of Cash Flows For The Years Ended September 30, 1999 and 1998 .......... 19 Notes To Consolidated Financial Statements .............. 20-32
(14) 17 Report of Independent Auditors Board of Directors and Stockholders Panhandle Royalty Company We have audited the accompanying consolidated balance sheets of Panhandle Royalty Company as of September 30, 1999 and 1998, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Panhandle Royalty Company at September 30, 1999 and 1998, and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Oklahoma City, Oklahoma November 24, 1999 (15) 18 Panhandle Royalty Company Consolidated Balance Sheets
SEPTEMBER 30, 1999 1998 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 213,207 $ 320,210 Oil and gas sales receivable 1,134,153 716,648 Income taxes receivable -- 152,090 Prepaid expenses 4,132 27,391 ----------- ----------- Total current assets 1,351,492 1,216,339 Property and equipment, at cost, based on successful efforts accounting: Producing oil and gas properties 24,074,383 22,360,790 Nonproducing oil and gas properties 5,804,543 5,693,399 Furniture and fixtures 263,695 241,567 ----------- ----------- 30,142,621 28,295,756 Less accumulated depreciation, depletion and amortization 18,337,952 16,600,499 ----------- ----------- Net properties and equipment 11,804,669 11,695,257 Other assets 107,716 107,716 ----------- ----------- $13,263,877 $13,019,312 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities (Note 8) $ 522,269 $ 576,033 Gas imbalance liability 44,380 44,380 Dividends payable 33,296 31,656 Income taxes payable 46,328 -- Deferred income taxes 93,000 112,000 ----------- ----------- Total current liabilities 739,273 764,069 Deferred income taxes 1,476,000 1,451,000 Stockholders' equity: Class A voting common stock, $.0333 par value; 6,000,000 shares authorized, 2,056,990 issued and outstanding (2,047,602 in 1998) 68,566 68,254 Capital in excess of par value 587,058 515,823 Retained earnings 10,392,980 10,220,166 ----------- ----------- Total stockholders' equity 11,048,604 10,804,243 ----------- ----------- $13,263,877 $13,019,312 =========== ===========
See accompanying notes. (16) 19 Panhandle Royalty Company Consolidated Statements of Income
YEAR ENDED SEPTEMBER 30, 1999 1998 ----------- ----------- Revenues: Oil and gas sales $ 5,077,240 $ 5,337,832 Lease bonuses and rentals 10,773 44,269 Interest 10,253 45,929 Other 19,209 12,152 ----------- ----------- 5,117,475 5,440,182 Costs and expenses: Lease operating expenses and production taxes 963,804 961,929 Exploration costs 535,431 481,244 Depreciation, depletion, amortization and impairment 1,737,453 1,437,413 General and administrative 1,164,745 1,099,636 Interest expense 16,943 3,125 ----------- ----------- 4,418,376 3,983,347 ----------- ----------- Income before provision (benefit) for income taxes 699,099 1,456,835 Provision (benefit) for income taxes (35,000) 142,000 ----------- ----------- Net income $ 734,099 $ 1,314,835 =========== =========== Basic and diluted earnings per share $ .36 $ .64 =========== ===========
See accompanying notes. (17) 20 Panhandle Royalty Company Consolidated Statements of Stockholders' Equity
COMMON STOCK CAPITAL IN ------------------------- EXCESS OF RETAINED SHARES AMOUNT PAR VALUE EARNINGS TOTAL --------- ------------ ------------ ------------ ------------ Balances at September 30, 1997 2,039,460 $ 67,982 $ 445,306 $ 9,518,925 $ 10,032,213 Purchase and cancellation of common shares (333) (11) (3,358) -- (3,369) Issuance of common shares to ESOP 8,475 283 73,875 -- 74,158 Dividends declared ($.30 per share) -- -- -- (613,594) (613,594) Net income -- -- -- 1,314,835 1,314,835 --------- ------------ ------------ ------------ ------------ Balances at September 30, 1998 2,047,602 68,254 515,823 10,220,166 10,804,243 Purchase and cancellation of common shares (237) (9) (1,835) -- (1,844) Issuance of common shares to ESOP 9,625 321 73,070 -- 73,391 Dividends declared ($.27 per share) -- -- -- (561,285) (561,285) Net income -- -- -- 734,099 734,099 --------- ------------ ------------ ------------ ------------ Balances at September 30, 1999 2,056,990 $ 68,566 $ 587,058 $ 10,392,980 $ 11,048,604 ========= ============ ============ ============ ============
See accompanying notes. (18) 21 Panhandle Royalty Company Consolidated Statements of Cash Flows
YEAR ENDED SEPTEMBER 30, 1999 1998 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 734,099 $ 1,314,835 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, amortization, and impairment 1,737,454 1,437,413 Deferred income taxes, net of transfer in 1999 of $105,000 6,000 36,000 Exploration costs 535,431 481,244 Common stock issued to Employee Stock Ownership Plan 73,391 74,158 Cash provided (used) by changes in assets and liabilities: Oil and gas sales and other receivables (417,505) 177,131 Income taxes receivable 152,090 (152,090) Prepaid expenses 23,259 (22,462) Accounts payable and accrued liabilities (53,764) 224,628 Income taxes payable 46,328 (112,336) ----------- ----------- Total adjustments 2,102,684 2,143,686 ----------- ----------- Net cash provided by operating activities 2,836,783 3,458,521 CASH FLOWS FROM INVESTING ACTIVITIES OF PROPERTY AND EQUIPMENT Capital expenditures, including dry hole costs (2,382,296) (3,395,945) ----------- ----------- Net cash used in investing activities (2,382,296) (3,395,945) CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under line of credit 300,000 -- Payments of loan principal (300,000) -- Purchase and cancellation of common shares (1,844) (3,369) Payments of dividends (559,646) (611,794) ----------- ----------- Net cash used in financing activities (561,490) (615,163) ----------- ----------- Decrease in cash and cash equivalents (107,003) (552,587) Cash and cash equivalents at beginning of year 320,210 872,797 ----------- ----------- Cash and cash equivalents at end of year $ 213,207 $ 320,210 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid $ 16,943 $ 3,125 Income taxes paid (received), net of refunds (239,418) 370,426
See accompanying notes. (19) 22 Panhandle Royalty Company Notes to Consolidated Financial Statements September 30, 1999 and 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Panhandle Royalty Company and its wholly-owned subsidiary, P.H.C., Inc. All material intercompany transactions have been eliminated in the accompanying consolidated financial statements. CASH EQUIVALENTS All highly liquid short-term investments with original maturities of three months or less at the date of purchase by the Company are considered to be cash equivalents. OIL AND GAS SALES RECEIVABLE The Company sells oil and natural gas to various customers. Substantially all of the Company's accounts receivable are due from purchasers of oil and natural gas. Oil and natural gas sales are generally unsecured. The Company has not experienced significant credit losses in prior years and is not aware of any significant uncollectible accounts at September 30, 1999. OIL AND GAS PRODUCING ACTIVITIES The Company follows the successful efforts method of accounting for oil and gas producing activities. Intangible drilling and other costs of successful wells and development dry holes are capitalized and amortized. The costs of exploratory wells are initially capitalized, but charged against income if and when the well is determined to be nonproductive. Oil and gas mineral and leasehold costs are capitalized when incurred. Impairment of unproved properties is generally assessed on a property-by-property basis. DEPRECIATION, DEPLETION, AMORTIZATION AND IMPAIRMENT Depreciation, depletion and amortization of the costs of producing oil and gas properties are computed using the units of production method primarily on a separate-property basis using proved reserves as estimated annually by an independent petroleum engineer. Depreciation of furniture and fixtures is computed using the straight-line method over estimated productive lives of five to eight years. (20) 23 Panhandle Royalty Company Notes to Consolidated Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Company has significant royalty interests in wells for which the Company does not share in the costs associated with the wells. Estimated costs of future dismantlement, restoration and abandonment of wells in which the Company owns a working interest are not expected to differ significantly from the estimated salvage value of equipment from such wells and, accordingly, no accrual of such costs is included in the accompanying consolidated financial statements. Nonproducing oil and gas properties include nonproducing minerals, which have a net book value of $4,158,013 at September 30, 1999, consisting of perpetual ownership of mineral interests in several states, including Oklahoma, Texas and New Mexico. These costs are being amortized over a thirty-three year period using the straight-line method. An ultimate determination of whether these properties contain recoverable reserves in economical quantities is expected to be made within this time frame. Impairment of nonproducing oil and gas properties is recognized based on experience and management judgment. In accordance with the provisions of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company recognizes impairment losses for long-lived assets when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. Fair values are based on discounted future cash flows. The Company's oil and gas properties were reviewed for indicators of impairment on a field-by-field basis, resulting in the recognition of impairment provisions of $357,891 and $149,851, respectively, for 1999 and 1998, which are included in depreciation, depletion, amortization and impairment expense. ENVIRONMENTAL COSTS Environmental liabilities, which historically have not been material, are recognized when it is probable that a loss has been incurred and the amount of that loss is reasonably estimable. Environmental liabilities, when accrued, are based upon estimates of expected future costs. At September 30, 1999, there were no such costs accrued. In December 1998, the Company was notified by an operator of a claim on a producing property in which the Company owns a 4.7% working interest. The operator has indicated the claim to be without merit. While the Company believes this claim will not have a material impact on the Company's financial position or results of operations, the ultimate outcome cannot presently be determined. (21) 24 Panhandle Royalty Company Notes to Consolidated Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. PRODUCTION IMBALANCES During the course of normal production operations, joint interest owners will, from time to time, take more or less than their ownership share of natural gas volumes from jointly-owned wells. These volumetric imbalances are monitored over the life of the well to achieve balancing, or to minimize imbalances, by the time reserves are depleted, with final cash settlements made under a variety of arrangements at that time. The Company follows the sales method of accounting for imbalances. A liability is recorded only if takes of natural gas volumes from jointly-owned wells exceed the Company's interest in the well's remaining estimated natural gas reserves. At September 30, 1999 and 1998, the Company's net liability for production imbalances of approximately 28,500 mcf of natural gas was $44,380. EARNINGS PER SHARE OF COMMON STOCK Basic earnings per share ("EPS") is calculated using income available to common stockholders divided by the weighted average of common shares outstanding during the year. Diluted EPS is similar to Basic EPS except that the weighted average of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares, such as options, had been issued. The treasury stock method is used to calculate dilutive shares which reduces the gross number of dilutive shares by the number of shares purchasable from the proceeds of the options assumed to be exercised (Note 6). FAIR VALUES OF FINANCIAL INSTRUMENTS The following information is provided regarding the estimated fair value of the Company's financial instruments at September 30, 1999 and 1998: Cash and cash equivalents, receivables, prepaid expenses, accounts payable and accrued liabilities are each estimated to have a fair value approximating the carrying amount due to the short maturity of those instruments. (22) 25 Panhandle Royalty Company Notes to Consolidated Financial Statements (continued) 2. INCOME TAXES The Company's provision (benefit) for income taxes is detailed as follows:
1999 1998 ---------------------------------------- Current: Federal $ 59,000 $ 91,000 State 5,000 15,000 ---------------------------------------- 64,000 106,000 Deferred: Federal (87,000) 46,000 State (12,000) (10,000) ---------------------------------------- (99,000) 36,000 ---------------------------------------- $ (35,000) $ 142,000 ========================================
The difference between the provision (benefit) for income taxes and the amount which would result from the application of the federal statutory rate to income before provision (benefit) for income taxes is analyzed below:
1999 1998 ---------------------------------------- Provision for income taxes at statutory rate $ 244,685 $ 509,892 Percentage depletion (196,401) (298,167) Tight-sands gas credits (69,959) (63,838) State income taxes, net of federal benefit (4,550) 2,948 Other (8,775) (8,835) ---------------------------------------- $ (35,000) $ 142,000 ========================================
(23) 26 Panhandle Royalty Company Notes to Consolidated Financial Statements (continued) 2.INCOME TAXES (CONTINUED) Deferred tax assets and liabilities, resulting from differences between the financial statement carrying amounts and the tax bases of assets and liabilities, consist of the following:
1999 1998 ---------------------------------------- Deferred tax liabilities: Capitalized costs and related depreciation, depletion, amortization and impairment $ 1,505,000 $ 1,509,000 Cash basis of accounting for income tax purposes 93,000 112,000 ---------------------------------------- 1,598,000 1,621,000 Deferred tax assets: Percentage depletion carryforward 17,000 58,000 Alternative minimum tax credit carryforwards 12,000 - ---------------------------------------- 29,000 58,000 ---------------------------------------- Net deferred tax liabilities $ 1,569,000 $ 1,563,000 ========================================
3. LONG-TERM DEBT The Company has a revolving line of credit agreement with a bank, which extends through January 3, 2001, for borrowings, which bear interest at the bank's base rate plus .2% (8.45% at September 30, 1999), of up to $2,500,000. Any outstanding borrowings are unsecured but subject to a negative pledge on all of the Company's oil and gas properties and are payable in full, with accrued and unpaid interest, January 3, 2001. The Company is required to pay an annual fee of .125% for the unused portion of the line of credit. There was no balance outstanding at September 30, 1999 and 1998. The agreement contains various restrictions which, among other things, require the Company to maintain, at the end of each quarter, positive net income for the preceding twelve-month period. Additionally, the Company is restricted from incurring certain indebtedness, selling oil and gas properties for which the proceeds received exceed $100,000, acquiring treasury stock in any one year in excess of $150,000 and paying or declaring cash dividends exceeding fifty percent of the cash flow from operations, as defined, of the preceding twelve-month period. (24) 27 Panhandle Royalty Company Notes to Consolidated Financial Statements (continued) 4. DIVIDENDS PAYABLE Dividends payable represent accrued dividends which are due and payable, but have not been paid for various reasons, including questions concerning estates of deceased stockholders, unlocatable shareholders or questions of ownership of the underlying shares. 5. STOCKHOLDERS' EQUITY On February 26, 1999, the Company's Board of Directors approved a proposal to (1) amend the Company's duration from fifty years to perpetuity; (2) amend the Company's Articles of Incorporation to increase the number of authorized shares of Class A Common Stock from 1,000,000 shares to 6,000,000 shares; (3) effect a 3-for-1 stock split of the outstanding Class A Common Stock and a corresponding reduction of the par value per share from $.10 to $.03-1/3; (4) adopt amendments to the Articles of Incorporation to change voting rights from one vote per stockholder to one vote per share; and (5) amend the Articles of Incorporation to provide that generally any merger, consolidation, liquidation or dissolution of the Company or sale of substantially all of the assets of the Company require the affirmative vote of the holders of 66-2/3% or more of the Company's outstanding Class A Common Stock. On May 7, 1999, these proposals were put forth to a vote of the stockholders, for which a majority of the stockholders voted in favor of each proposal, causing these proposals to become effective on such date. The Class A Common Stock split was effected in the form of a stock dividend, distributed on June 1, 1999, to stockholders of record on May 7, 1999. All agreements concerning Common Stock of the Company, including the Company's Employee Stock Ownership Plan and the Company's commitment under the Deferred Compensation Plan for Non-Employee Directors, provide for the issuance or commitment, respectively, of additional shares of the Company's stock due to the declaration of the stock split. All references to number of shares, per share, and authorized share information in the accompanying consolidated financial statements have been adjusted to reflect the stock split and increase in authorized shares approved on May 7, 1999, at the Special Meeting of the Stockholders of the Company. 6. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share. The Company's diluted earnings per share calculation takes into account certain shares that may be issued under the Non-Employee Directors' Deferred Compensation Plan (Note 8). The weighted (25) 28 Panhandle Royalty Company Notes to Consolidated Financial Statements (continued) 6. EARNINGS PER SHARE (CONTINUED) average shares outstanding, potentially dilutive shares, and earnings per share for 1998 have been restated to affect the 3-for-1 stock split discussed in Note 5.
YEAR ENDED SEPTEMBER 30, 1999 1998 ---------------- ------------------- Numerator for primary and diluted earnings per share: Net income $ 734,099 $1,314,835 ============= ========== Denominator: For basic earnings per share--weighted average shares 2,047,507 2,039,292 Effect of potential diluted shares: Directors' deferred compensation shares 16,399 13,074 ------------- ---------- Denominator for diluted earnings per share--adjusted weighted average shares and potential shares 2,063,906 2,052,366 ============= ========== Basic earnings per share $ .36 $ .64 ============= ========== Diluted earnings per share $ .36 $ .64 ============= ==========
7. EMPLOYEE STOCK OWNERSHIP PLAN The Company has an employee stock ownership plan that covers substantially all employees and is established to provide such employees with a retirement benefit. These benefits become fully vested after three years of employment. Contributions to the plan are at the discretion of the Board of Directors and can be made in cash (none in 1999 or 1998) or the Company's common stock. For contributions of common stock, the Company records as expense, the fair market value of the stock at the time of contribution. The 101,625 shares of the Company's common stock held by the plan as of September 30, 1999, are allocated to individual participant accounts, are included in the weighted average shares outstanding for purposes of earnings per share computations and receive dividends. Contributions to the plan consisted of:
YEAR SHARES AMOUNT --------------------------------------------------------------------------------- 1999 9,625 $ 73,391 1998 8,475 $ 74,158
(26) 29 Panhandle Royalty Company Notes to Consolidated Financial Statements (continued) 8. DEFERRED COMPENSATION PLAN FOR DIRECTORS Effective November 1, 1994, the Company formed the Panhandle Royalty Company Deferred Compensation Plan for Non-Employee Directors (the "Plan"). The Plan provides that each eligible director can individually elect to receive shares of Company stock rather than cash for board meeting fees and board committee meeting fees. These shares are unissued and vest at the date of grant. The shares are credited to each director's deferred fee account at the fair market value of the stock at the date of grant and are adjusted for changes in market value subsequent thereto. Upon retirement, termination or death of the director, or upon change in control of the Company, the shares accrued under the Plan will be either issued to the director or may be converted to cash, at the director's discretion, for the fair market value of the shares on the conversion date as defined by the Plan. As of September 30, 1999, 16,399 shares (13,074 shares at September 30, 1998) are included in the Plan. The Company has accrued $132,727 at September 30, 1999 ($123,655 at September 30, 1998) in connection with the Plan which is included in accrued liabilities in the accompanying consolidated balance sheet. 9. INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES All oil and gas producing activities of the Company are conducted within the United States (principally Oklahoma and New Mexico) and represent substantially all of the business activities of the Company. AGGREGATE CAPITALIZED COSTS The aggregate amount of capitalized costs of oil and gas properties and related accumulated depreciation, depletion and amortization is as follows:
SEPTEMBER 30, 1999 1998 ---------------------------------------- Producing properties $ 24,074,385 $22,360,790 Nonproducing properties 5,804,543 5,693,399 ---------------------------------------- 29,878,928 28,054,189 Accumulated depreciation, depletion and amortization (18,133,674) (16,416,872) ---------------------------------------- Net capitalized costs $ 11,745,254 $11,637,317 ========================================
(27) 30 Panhandle Royalty Company Notes to Consolidated Financial Statements (continued) 9. INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (CONTINUED) COSTS INCURRED During the reporting period, the Company incurred the following costs in oil and gas producing activities:
1999 1998 ---------------------------------------- Property acquisition costs $ 445,827 $ 739,164 Exploration costs 514,546 1,181,110 Development costs 1,399,795 1,447,578 ---------------------------------------- $ 2,360,168 $ 3,367,852 ========================================
10. SUPPLEMENTARY INFORMATION ON OIL AND GAS RESERVES (UNAUDITED) The following unaudited information regarding the Company's oil and natural gas reserves is presented pursuant to the disclosure requirements promulgated by the Securities and Exchange Commission (OSECO) and SFAS No. 69, "Disclosures About Oil and Gas Producing Activities." Proved reserves are estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Because the Company's nonproducing mineral and leasehold interests consist of various small interests in numerous tracts located primarily in Oklahoma, New Mexico, Louisiana and Texas, it is not economically feasible for the Company to provide estimates of all proved undeveloped reserves. However, in 1995 the Company directed its independent petroleum engineering firm to include proved undeveloped reserves in certain areas of Western Oklahoma in the scope of properties which they evaluate for the Company and, in 1996, the Company included certain proved undeveloped reserves in areas of New Mexico within the scope of evaluated properties. Due to field production allowable rules in the Dagger Draw field of New Mexico only those proved undeveloped reserves which the Company felt could be drilled, under existing allowable rules, have been included. Should the allowable rules be amended and/or production volumes change significantly, additional proved undeveloped reserves in the Dagger Draw field of New Mexico may be added in the future. (28) 31 Panhandle Royalty Company Notes to Consolidated Financial Statements (continued) 10. SUPPLEMENTARY INFORMATION ON OIL AND GAS RESERVES (UNAUDITED) (CONTINUED) The Company's net proved (including certain undeveloped reserves described above) oil and gas reserves as of September 30, 1999 and 1998 have been estimated by Campbell & Associates, Inc., an independent petroleum engineering firm. All studies have been prepared in accordance with regulations prescribed by the Securities and Exchange Commission. The reserve estimates were based on economic and operating conditions existing at September 30, 1999 and 1998. Since the determination and valuation of proved reserves is a function of testing and estimation, the reserves presented should be expected to change as future information becomes available. ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES The following table presents the Company's net proved (including certain undeveloped reserves described above) oil and gas reserve quantities as estimated by Campbell & Associates, Inc., an independent petroleum engineering firm, as of September 30, 1999 and 1998, and the changes in reserves for the years then ended:
PROVED RESERVES -------------------------------------- OIL GAS (MBARRELS) (MMCF) -------------------------------------- September 30, 1997 904 11,267 Revisions of previous estimates (1) (102) (746) Purchases of reserves in place 13 33 Extensions and discoveries 66 2,817 Production (104) (1,710) -------------------------------------- September 30, 1998 777 11,661 Revisions of previous estimates (2) (32) 709 Purchases of reserves in place 11 181 Extensions and discoveries 41 2,453 Production (76) (1,889) -------------------------------------- September 30, 1999 721 13,115 ======================================
(1) Oil and gas revisions are primarily related to those reserves which were economically recoverable at the higher prices which existed at September 30, 1997 which are not economically recoverable at prices existing at September 30, 1998. (29) 32 Panhandle Royalty Company Notes to Consolidated Financial Statements (continued) 10. SUPPLEMENTARY INFORMATION ON OIL AND GAS RESERVES (UNAUDITED) (CONTINUED) (2) Oil and gas revisions are primarily related to those reserves which were economically recoverable at the higher prices which existed at September 30, 1999 which were not economically recoverable at prices existing at September 30, 1998. In 1999, oil reserves were also revised downward from 1998 due to a decline in production of certain New Mexico properties after being shut-in for several months in 1999 due to depressed oil prices.
PROVED DEVELOPED RESERVES PROVED UNDEVELOPED RESERVES OIL GAS OIL GAS (MBARRELS) (MMCF) (MBARRELS) (MMCF) - --------------------------------------------------------------------------------------------------------------------- September 30, 1997 625 9,707 279 1,560 =============================================================================== September 30, 1998 498 10,103 279 1,558 =============================================================================== September 30, 1999 433 11,519 288 1,596 ===============================================================================
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS Estimates of future cash flows from proved oil and gas reserves, based on current prices and costs, are shown in the following table. Estimated income taxes are calculated by (i) applying the appropriate year-end tax rates to the estimated future pretax net cash flows less depreciation of the tax basis of properties and statutory depletion allowances and (ii) reducing the amount in (i) for estimated tax credits to be realized in the future for gas produced from "tight-sands."
SEPTEMBER 30, 1999 1998 ---------------------------------------- Future cash inflows $ 52,222,440 $ 30,120,490 Future production costs 9,047,782 5,815,190 Future development costs 1,183,278 1,179,844 ---------------------------------------- Future net cash inflows before future income tax expenses 41,991,380 23,125,456 Future income tax expense 11,570,726 5,945,839 ---------------------------------------- Future net cash flows 30,420,654 17,179,617 10% annual discount 10,348,756 5,846,105 ---------------------------------------- Standardized measure of discounted future net cash flows $ 20,071,898 $ 11,333,512 ========================================
(30) 33 Panhandle Royalty Company Notes to Consolidated Financial Statements (continued) 10. SUPPLEMENTARY INFORMATION ON OIL AND GAS RESERVES (UNAUDITED) (CONTINUED) Changes in the standardized measure of discounted future net cash flows are as follows:
1999 1998 ---------------------------------------- Beginning of year $ 11,333,512 $ 18,742,363 Changes resulting from: Sales of oil and gas, net of production costs (4,113,436) (4,375,903) Net change in sales prices and production costs 9,872,435 (8,305,058) Net change in future development costs (2,287) (13,875) Extensions and discoveries 4,447,477 3,186,652 Revisions of quantity estimates 797,470 (1,451,226) Purchases of minerals-in-place 406,875 111,795 Accretion of discount 1,133,351 1,874,236 Net change in income taxes (3,806,471) 2,281,936 Change in timing and other, net 2,972 (717,408) ---------------------------------------- End of year $ 20,071,898 $ 11,333,512 ========================================
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the Company's unaudited quarterly results of operations. The fiscal 1998 earnings per share amounts have been restated for the effect of the 3-for-1 stock split as discussed in Note 5.
FISCAL 1999 ------------------------------------------------------------------------- QUARTER ENDED ------------------------------------------------------------------------- DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 ------------------------------------------------------------------------- Revenues $1,042,473 $ 941,670 $1,542,780 $1,590,552 Income (loss) before provision (benefit) for income taxes (A) 6,097 (119,745) 489,624 323,123 Net income (B) 6,097 (75,745) 408,624 395,123 Basic earnings (loss) per share $- $ (.04) $ .20 $ .20 Diluted earnings (loss) per share $- $ (.04) $ .20 $ .20
(31) 34 Panhandle Royalty Company Notes to Consolidated Financial Statements (continued) 11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
FISCAL 1998 ------------------------------------------------------------------ QUARTER ENDED ------------------------------------------------------------------ DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 ------------------------------------------------------------------ Revenues $ 1,826,939 $ 1,335,664 $ 1,199,739 $ 1,077,840 Income (loss) before provision for income taxes (A) 751,541 369,716 341,193 (5,615) Net income (B) 586,541 299,716 296,193 132,385 Basic earnings per share $ .29 $ .15 $ .14 $ .06 Diluted earnings per share $ .29 $ .15 $ .14 $ .06
(A) Fourth quarter income before provision for income taxes includes an SFAS 121 charge of $267,891 and $59,851 for 1999 and 1998, respectively. (B) Year-end adjustments to the Company's provision for income taxes caused the effective rate for 1999 and 1998 to be less than that estimated during the previous three quarters. The effect of this difference is reflected in the fourth quarter net income above. (32) 35 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NONE PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Listed below are the names, ages and positions, as of December 1, 1999, of the directors and executive officers of the Company. The Company's bylaws provide for seven directors who are elected for staggered three-year terms. Executive officers are appointed by the board of directors to serve in their respective capacities until their successors are duly appointed by the directors. DIRECTORS
Served As Term Director Name Age Position & Offices Expires Since - ---- --- ------------------ ------- --------- Michael A. Cawley(b) 52 Director 2001 1991 Sam J. Cerny(a) 67 Director 2000 1993 E. Chris Kauffman(b)(c) 59 Director 2000 1991 H W Peace II(b) 64 Director, Chief 2002 1991 Executive Officer, President Ray H. Potts(c) 67 Director 2001 1997 Robert A. Reece(a)(c) 55 Director 2002 1986 Jerry L. Smith(a) 59 Director, Chairman 2002 1987 of the Board
(a) Member of Audit Committee (b) Member of Compensation Committee (c) Member of Retirement Committee (33) 36 EXECUTIVE OFFICERS
Held Office Name Age Position & Offices Since - ---- --- ------------------ ----------- Jerry L. Smith 59 Chairman of the 1997 Board, Director H W Peace II 64 Director, Chief 1991 Executive Officer, President Michael C. Coffman 46 Vice President, 1990 Chief Financial Officer, Secretary/Treasurer Wanda C. Tucker 62 Vice President of 1990 Land
BUSINESS EXPERIENCE Michael A. Cawley is an attorney and is the president and chief executive officer of the Samuel Roberts Noble Foundation, Inc. He has been employed by the Noble Foundation for the last seven years. Prior to joining the Noble Foundation, he was engaged in the practice of law in Ardmore, Oklahoma with the firm of Thompson & Cawley. He is also a director of Noble Drilling Corporation and Noble Affiliates Inc. Sam J. Cerny is a geological engineer and has been employed by Shell Oil Company, Cleary Petroleum Corporation and its successor company, Grace Petroleum Corporation, where he served as President/CEO from 1976 to 1991. He is a past president of the Oklahoma Independent Petroleum Association and for the last five years has been active as a petroleum management consultant. E. Chris Kauffman is a vice-president of Campbell-Kauffman, Inc., an independent insurance agency in Oklahoma City. He has been involved with the agency since it was formed in 1981. In addition, he is the chief financial officer and treasurer of The Insurance Center Agency, Inc. He is also a director of First State Bank in Oklahoma City and a trustee of the Central Oklahoma Transportation & Parking Authority. Robert A. Reece is an attorney, and for the last five years has been of counsel with the firm of Crowe & Dunlevy. He is active in the management of his family's investments. He is also a director of National Bank of Commerce. H W Peace II holds bachelors and masters degrees in geology. For thirty-five years he has been employed as a geologist, in management or as an officer and/or director in the petroleum industry. He has been employed by Union Oil Company of California, Cotton Petroleum and Hadson Petroleum Corporation. He has been president of the Company since 1991. (34) 37 Ray H. Potts holds a master's degree in geology from the University of Missouri. He was employed for six years as an exploration geologist for the Pure Oil Company and in 1967 formed Potts- Stephenson Exploration Company, later changed to PSEC, Inc. In 1997 PSEC, Inc. was sold to ONEOK Resources Company. Mr. Potts is currently active in the oil and gas industry and has been involved in several national and state trade associations, geological societies and numerous civic activities. Jerry L. Smith for the last nine years has been the owner of Smith Capital Corporation in Dallas. This corporation is a private investment firm focusing on commercial real estate and securities. Mr. Smith also is immediate past Treasurer and Director of the Association of Graduates of the United States Air Force Academy. Michael C. Coffman is a certified public accountant. Since 1975, he has worked in public accounting and as a financial officer of three publicly owned companies involved in the oil and gas industry. He has been employed by the Company since 1990. Wanda C. Tucker has been a full-time employee of the Company since 1978, has served in various positions with the Company and is currently vice president of land. None of the organizations described in the business experiences of company directors and officers are parents, subsidiaries or affiliates of Panhandle Royalty Company. ITEM 10. EXECUTIVE COMPENSATION Summary Compensation Table
Name and Annual Compensation Principal ---------------------------------------- Position Year Salary Bonus All Other - -------- ---- -------- ------- ---------- H W Peace II 1999 $125,000 $13,100 $20,715(1) President & 1998 $122,500 $25,600 $22,215(1) Chief Exec. 1997 $113,750 $25,600 $20,903(1) Officer
(1) Represents the value of 2,717 shares for 1999, 2,538 shares for 1998, and 2,106 shares for 1997, of Company stock contributed to the Panhandle Employee Stock Ownership Plan (ESOP) on Mr. Peace's behalf. The ESOP is a defined contribution plan, non-voluntary and non-contributory and serves as the retirement plan for the Company's employees. Contributions are at the discretion of the board of directors and, to date, all contributions have been made in shares of Company stock. Contributions are allocated to all participants in proportion to their salaries for the plan year and 100% vesting occurs after three years' of service. (35) 38 DIRECTORS FEES Outside directors of the Company are paid $1,000 plus travel expenses for attending each meeting of the board of directors and $200 for attending each committee meeting of the board. Any director who travels in excess of 50 miles to attend a meeting receives an additional $100 for each meeting. Outside directors can elect to be included in the Panhandle Royalty Company Deferred Compensation Plan For Non-Employee Directors (the "Plan"). The Plan provides that each eligible director can individually elect to receive shares of Company stock rather than cash for board meeting fees and board committee meeting fees. These unissued shares are credited to each director's deferred fee account at the fair market value of the shares on the date of the meeting. Upon retirement, termination or death of the director, or upon a change in control of the Company, the shares accrued under the Plan will be either issued to the director or may be converted to cash, at the directors' discretion, at the fair market value of the shares on the conversion date, as defined. All outside directors are participating in this Plan. In addition to the above, Jerry Smith, chairman of the board of directors, who is not an employee of the Company, is entitled to receive a $100 per hour fee for time spent, other than board or committee meetings, on Company business. During fiscal 1999 and 1998, no payments were made to Mr. Smith under this arrangement. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS As of December 1, 1999, no person or "group" as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, was known to Panhandle to be the beneficial owner of more than five percent of the outstanding shares of Panhandle's class A common stock. SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth, as of September 30, 1999, all shares of class A common stock held beneficially, directly or indirectly by each director and by all directors and officers as a group.
Amount And Nature Of Percent Of Name Beneficial Ownership Class ---- -------------------- ---------- Michael A. Cawley(A) 300 shares, sole voting * and investment powers Sam J. Cerny(B) 5,100 shares, sole voting * and investment powers E. Chris Kauffman(C) 9,300 shares, shared voting * and investment powers
(36) 39 H W Peace II(D) 27,702 shares, shared voting 1.3% and investment powers Ray H. Potts(E) 480 shares, sole voting * and investment powers Robert A. Reece(F) 17,544 shares, sole voting * and investment powers Jerry L. Smith(G) 21,072 shares, sole voting 1.0% and investment powers All directors and 32,665 shares, shared 1.6% officers as a voting and investment group (9 persons) powers 83,529 shares, sole voting 4.0% and investment powers 116,194 shares total 5.6% * less than 1.0%
(A) P.O. Box 2180, Ardmore, OK 73402 (B) 3330 Liberty Twr, 100 N. Broadway, Okla. City, OK 73102 (C) 9705 North Broadway Ext. - Suite #200, Okla. City, OK 73114 (D) 5400 N.W. Grand Blvd - Suite #210, Okla. City, OK 73112 (E) 100 N. Broadway - Suite #3200, Okla. City, OK 73102 (F) 6403 N. Grand Blvd. - Suite #204, Okla. City, OK 73116 (G) 5944 Luther Lane - Suite #401, Dallas, TX 75225 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS NONE ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (3) Articles of Incorporation (Incorporated by reference to Exhibit attached to Form 10 filed January 27, 1980, and to Forms 8-K dated June 1, 1982 and December 3, 1982) By-Laws as amended (Incorporated by reference to Form 8-K dated October 31, 1994) (4) Instruments defining the rights of security holders (Incorporated by reference to Articles of Incorporation and By-Laws listed above) (37) 40 (10) Agreement indemnifying directors and officers (Incorporated by reference to Form 10-K dated September 30, 1989) (21) Subsidiaries of the Registrant (27) Financial Data Schedule REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended September 30, 1999. EXHIBIT 21 SUBSIDIARIES OF PANHANDLE ROYALTY COMPANY AT SEPTEMBER 30, 1999 The following table sets forth certain information with respect to Panhandle's subsidiary: CORPORATION PHC, INC. PHC, Inc. was incorporated in Oklahoma and is included in Panhandle's consolidated financial statements. PHC, Inc. is inactive, and has never done any business. (38) 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PANHANDLE ROYALTY COMPANY By: /s/ H W Peace II ------------------------------------- H W Peace II, Chief Executive Officer, President, Director Date: December 14, 1999 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Jerry L. Smith /s/ E. Chris Kauffman - ------------------------------------ ---------------------------- Jerry L. Smith, Chairman of Board E. Chris Kauffman, Director Date December 14, 1999 Date December 14, 1999 ------------------------------- ----------------------- /s/ Robert A. Reece /s/ Ray H. Potts - ------------------------------------ --------------------------- Robert A. Reece, Director Ray H. Potts, Director Date December 14 1999 Date December 14, 1999 ------------------------------- ----------------------- /s/ Sam J. Cerny /s/ Michael A. Cawley - ------------------------------------ --------------------------- Sam J. Cerny, Director Michael A. Cawley, Director Date December 14, 1999 Date December 14, 1999 ------------------------------- ----------------------- /s/ Michael C. Coffman - ----------------------------------- Michael C. Coffman, Vice President Treasurer and Secretary (Principal Financial and Accounting Officer) Date December 14, 1999 ---------------------------- (39) 42 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------ ----------- (3) Articles of Incorporation (Incorporated by reference to Exhibit attached to Form 10 filed January 27, 1980, and to Forms 8-K dated June 1, 1982 and December 3, 1982) By-Laws as amended (Incorporated by reference to Form 8-K dated October 31, 1994) (4) Instruments defining the rights of security holders (Incorporated by reference to Articles of Incorporation and By-Laws listed above) (10) Agreement indemnifying directors and officers (Incorporated by reference to Form 10-K dated September 30, 1989) (21) Subsidiaries of the Registrant (Included in Item 13) (27) Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 YEAR SEP-30-1999 OCT-01-1998 SEP-30-1999 213,207 0 1,134,153 0 0 1,351,492 30,142,621 18,337,952 13,263,877 739,273 0 68,566 0 0 10,980,038 13,263,877 5,077,240 5,117,475 963,804 4,401,433 0 0 16,943 699,099 (35,000) 734,099 0 0 0 734,099 .36 .36
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