-----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, HR0tW0TSliTlF4RkxnUNh1N1oDWMrTiJlogtC0etcb9tgq6C8vz/jgYDpv4TX/ZW WHcYz88qH21JtyERDxP+tQ== 0000914760-01-500105.txt : 20010815 0000914760-01-500105.hdr.sgml : 20010815 ACCESSION NUMBER: 0000914760-01-500105 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAYNARD OIL CO CENTRAL INDEX KEY: 0000063528 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 751362284 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05704 FILM NUMBER: 1709054 BUSINESS ADDRESS: STREET 1: 8080 N CENTRAL EXPWY STE 660 CITY: DALLAS STATE: TX ZIP: 75206 BUSINESS PHONE: 2148918880 MAIL ADDRESS: STREET 1: 8080 N CENTRAL EXPWY STE 660 CITY: DALLAS STATE: TX ZIP: 75206 FORMER COMPANY: FORMER CONFORMED NAME: HOMA OIL & GAS CO DATE OF NAME CHANGE: 19710902 10-Q 1 m3225710q601.txt FORM 10-Q, JUNE 30, 2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 2001 Commission File #0-5704 ------------------- ------- MAYNARD OIL COMPANY - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 75-1362284 - -------------------------------------------------------------------------------- (State or other jurisdic- (IRS Employer tion of incorporation) Identification No.) 8080 N. Central Expressway, Suite 660, Dallas, Texas 75206 - -------------------------------------------------------------------------------- Registrant's telephone number, including area code: (214)891-8880 ------------- 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of August 8, 2001. 4,880,370 shares of common stock, par value $0.10 - -------------------------------------------------------------------------------- MAYNARD OIL COMPANY AND SUBSIDIARY Index to Consolidated Financial Statements and Schedules Page ---- Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets June 30, 2001 and December 31, 2000 3 Consolidated Statements of Operations Six Months and Three Months ended June 30, 2001 and 2000 4 Consolidated Statements of Shareholders' Equity Six Months ended June 30, 2001 5 Consolidated Statements of Cash Flows Six Months ended June 30, 2001 and 2000 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibit and Reports on Form 8-K 15 Signatures 16 -2- MAYNARD OIL COMPANY AND SUBSIDIARY Consolidated Balance Sheets (Unaudited)
June 30, December 31, --------- ------------ 2001 2000 ---- ---- ASSETS Current assets: Cash and cash equivalents $17,522,319 $21,228,040 Accounts receivable, trade 7,281,069 8,773,669 Income taxes receivable 1,437,587 1,437,587 Other current assets 350,855 441,027 ---------- ---------- Total current assets 26,591,830 31,880,323 ---------- ---------- Property and equipment, at cost: Oil and gas properties, successful efforts method 178,784,284 162,572,339 Other property and equipment 501,560 450,885 ----------- ----------- 179,285,844 163,023,224 Less accumulated depreciation and amortization ( 94,023,864) ( 87,045,360) ----------- ----------- Net property and equipment 85,261,980 75,977,864 $111,853,810 $107,858,187 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of long-term debt $ 7,650,000 $ 7,650,000 Accounts payable 5,889,352 8,350,643 Accrued expenses 1,368,141 927,828 Income taxes payable 429,799 800,799 ---------- ---------- Total current liabilities 15,337,292 17,729,270 ---------- ---------- Deferred income taxes 2,917,000 1,179,000 Long-term debt 21,037,500 24,862,500 Shareholders' equity: Preferred stock of $.50 par value. Authorized 1,000,000 shares; none issued -- -- Common stock of $.10 par value. Authorized 20,000,000 shares; 4,880,393 and 4,880,516 shares issued and outstanding 488,039 488,051 Additional paid-in capital 18,831,138 18,831,138 Retained earnings 53,242,841 44,768,228 ----------- ----------- Total shareholders' equity 72,562,018 64,087,417 ----------- ----------- Contingencies and commitments $111,853,810 $107,858,187 =========== =========== See accompanying Notes to Consolidated Financial Statements.
-3- MAYNARD OIL COMPANY AND SUBSIDIARY Consolidated Statements of Operations (Unaudited)
Six Months ended Three Months ended June 30, June 30, ---------------- ------------------ 2001 2000 2001 2000 ---- ---- ---- ---- Revenues: Oil and gas sales $31,264,724 $22,304,384 $14,005,665 $11,511,564 Interest and other 419,993 470,564 172,842 243,238 Gain (loss) on disposition of assets 26,382 (187,837) 12,481 (187,837) ---------- ---------- ---------- ---------- 31,711,099 22,587,111 14,190,988 11,566,965 ---------- ---------- ---------- ---------- Costs and expenses: Operating expenses 8,938,327 6,433,083 4,488,434 3,343,419 Exploration, dry holes and abandonments 156,169 4,541 147,213 (3,300) General and administrative, net 1,602,832 1,879,566 831,852 764,145 Depreciation and amortization 7,010,053 5,228,180 3,893,148 2,872,375 Interest and other 1,139,821 1,464,692 536,714 714,141 ---------- ---------- ---------- ---------- 18,847,202 15,010,062 9,897,361 7,690,780 ---------- ---------- ---------- ---------- Income before income taxes 12,863,897 7,577,049 4,293,627 3,876,185 Income tax expense 4,387,057 2,500,000 1,490,000 1,275,000 ---------- ---------- ---------- ---------- Net income $ 8,476,840 $ 5,077,049 $ 2,803,627 $ 2,601,185 ========== ========== ========== ========== Weighted average number of common shares outstanding 4,880,430 4,880,860 4,880,397 4,880,842 ========== ========== ========== ========== Net income per common share $1.74 $1.04 $.57 $.53 ==== ==== === === (basic and diluted) See accompanying Notes to Consolidated Financial Statements.
-4- MAYNARD OIL COMPANY Statement of Changes in Shareholders Equity Period Ended June 30, 2001
Accumulated Other Additional Common Comprehensive Retained Comprehensive Paid-in Common Stock Total Income Earnings Income Capital Stock Shares ----- ------ -------- ------ ------- ----- ------ Balance at December 31, 2000 $64,087,417 $44,768,228 $18,831,138 $488,051 4,880,516 Comprehensive Income: Net income 8,476,840 $8,476,840 8,476,840 Cumulative effect of adopting SFAS 133 86,757 88,757 $86,757 Reclassification adjustments for contract settlements (86,757) (86,757) (86,757) --------- Comprehensive Income $8,476,840 ========= Purchase and retirement of common stock (2,239) (2,227) _______ (12) (123) ---------- ---------- --------- ------- --------- Balance at June 30, 2001 $72,562,018 $53,242,841 $ -- $18,831,138 $488,039 4,880,393 ========== ========== ======= ========== ======= ========= See accompanying Notes to Consolidated Financial Statements
-5- MAYNARD OIL COMPANY AND SUBSIDIARY Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, ------------------------- 2001 2000 ---- ---- Cash flows from operating activities: Net income $8,476,840 $5,077,049 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,010,053 5,228,180 Deferred income taxes 1,738,000 150,000 Dry holes and abandonments 140,393 1,377 Current year costs of dry holes and abandonments (141,272) (1,377) (Gain) loss on disposition of assets (26,382) 187,837 (Increase) decrease in current assets: Accounts receivable 1,492,600 499,550 Prepaid expenses and other current assets 90,172 (8,455) Increase (decrease) in current liabilities: Accounts payable (2,461,291) 399,260 Accrued expenses 440,313 848,459 Income taxes payable (371,000) 515,000 ---------- ---------- Net cash provided by operating activities 16,388,426 12,896,880 ---------- ---------- Cash flows from investing activities: Proceeds from disposition of assets 27,340 559,907 Additions to property and equipment (16,294,248) (5,276,577) ----------- ---------- Net cash used by investing activities (16,266,908) (4,716,670) ----------- ---------- Cash flows from financing activities: Purchase and retirement of common stock (2,239) (2,763) Principal payments on long-term debt (3,825,000) (1,912,500) ---------- ---------- Net cash used by financing activities (3,827,239) (1,915,263) ---------- ---------- Net (decrease) increase in cash and cash equivalents (3,705,721) 6,264,947 Cash and cash equivalents at beginning of year 21,228,040 12,910,321 ---------- ---------- Cash and cash equivalents at end of period $17,522,319 $19,175,268 ========== ========== See Accompanying Notes to Consolidated Financial Statements.
-6- MAYNARD OIL COMPANY AND SUBSIDIARY Notes to Consolidated Financial Statements June 30, 2001 Note 1 Unaudited Financial Statements The accompanying consolidated financial statements of Maynard Oil Company (the "Company") have been prepared in accordance with generally accepted accounting principles, pursuant to the rules and regulations of the Securities and Exchange Commission included in the instructions to Form 10-Q and Article 10 of Regulation S-X. The financial information included herein is unaudited but, in the opinion of management, contains all adjustments, consisting of all recurring adjustments, necessary to present fairly the Company's financial position as of June 30, 2001, the results of operations for the six months and three months ended June 30, 2001 and 2000 and changes in cash and cash equivalents for the six months ended June 30, 2001 and 2000. The December 31, 2000 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The accounting policies followed by the Company are set forth in Note 1 to the Company's financial statements in the 2000 Annual Report to Shareholders. Note 2 Earnings Per Share Net income per common share is based on the weighted average number of shares outstanding in each period. As of June 30, 2001 and 2000, the Company had no potentially dilutive common shares, and therefore, basic and diluted earnings per common share were the same. Note 3 Risk Management Effective March 1, 2001, the Company entered into a derivative financial instrument whereby 2,000 barrels of daily production was hedged with a ceiling price of $28.18 per barrel and a floor price of $24.00 per barrel. This hedging arrangement was due to expire on February 28, 2002. However, the Company exercised its ability to terminate the contract during March, 2001 via payment of $803,000, which reduced oil and gas revenues for the first quarter of 2001. During 2000, the Company entered into a derivative financial instrument whereby the Company hedged 1,000 barrels of daily production from September 1, 2000 through February 28, 2001 with a ceiling price of $36.50/bbl and a floor price of $24.00/bbl. The contract called for a monthly settlement such that if the average WTI for the month was greater than $36.50/bbl, Maynard would remit to the counterparty the -7- excess multiplied by the number of barrels hedged during the month. Conversely, if the average WTI for the month was less than $24.00/bbl, the counterparty would pay Maynard for the difference multiplied by the number of barrels hedged during the month. If the average WTI for the month fell between $24.00/bbl and $36.50/bbl, no settlement would be made. As a result of this arrangement, no monies were exchanged. A second derivative instrument was entered into effective October 1, 2000 through March 31, 2001 which mirrored the first except the ceiling and floor amounts were $37.20 and $25.00 per barrel, respectively. Over the life of this contract, average WTI fell between $25.00 per barrel and $37.20 per barrel, so no cash was exchanged. Note 4 Income Taxes The provision for income taxes consists of the following (thousands of dollars):
Six Months Ended Three Months Ended June 30, June 30, ----------------- ------------------ 2001 2000 2001 2000 ---- ---- ---- ---- Federal: Current $2,649 $2,350 $ 593 $1,350 Deferred (benefit) 1,738 150 897 (75) ----- ----- ----- ----- $4,387 $2,500 $1,490 $1,275 ===== ===== ===== =====
Note 5 Commitments and Contingencies The Company is the defendant in certain non-environmental litigation arising from operations in the normal course of business. While it is not feasible to determine the outcome of these actions, it is the Company's opinion that the ultimate outcome of the litigation will not have a material adverse effect on the financial position or results of the operations of the Company. All of the Company's operations are generally subject to Federal, state and local environmental regulations. To management's knowledge, the Company is in substantial compliance with such laws and regulations. Note 6 Subsequent Events Effective July 9, 2001, the Company settled litigation involving payment of a net profits interest on certain properties for $900,000, one half of which is due back to Maynard from other working interest partners. The Company's share of this settlement, $450,000, is included in accounts payable at June 30, 2001. -8- On July 23, 2001, the Company issued a press release to report that it is exploring strategic alternatives including a potential merger or sale of the Company. Additionally, the Company said that it had retained William Blair & Company as its financial advisor and McDermott, Will & Emery as its legal counsel to assist the Board in evaluating the strategic alternatives. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATIONS - ------------- Quarter Ended June 30, 2001 Compared to Quarter Ended June 30, 2000 - ------------------------------------------------------------------- For the second quarter of 2001, the Company earned fifty-seven cents per share on revenues of $14,190,988 compared to earnings of fifty-three cents per share during the second quarter of 2000 on revenues of $11,566,965. Current quarter results were favorably impacted by higher revenues from the sale of oil and gas, which are the results of increased product pricing and additional production volumes derived from producing property acquisitions and development drilling on these acquired properties. Revenues - -------- Oil and gas revenues rose $2,494,101 between the two quarterly periods, or almost 22%, due to both pricing increases and higher production volumes. Oil and gas prices were 51 cents per barrel and 80 cents per thousand cubic feet of gas (mcf) higher than the same quarter a year ago. Oil volumes increased in excess of 4% and gas volumes rose approximately 27% over this same period. -9- Costs and Expenses - ------------------ On a net equivalent barrel basis (NEB), lease operating expenses were $1.28 per NEB higher than the second quarter of 2000 as a result of higher severance taxes, which relate proportionally to increased oil and gas revenues, and workover projects. The exploration, dry holes and abandonments category increased $150,513 between the 2000 and 2001 quarters as a result of the drilling costs from one exploratory well during the current quarter. General and administrative expenses reflect an increase of $67,707, primarily the result of additional staffing required to manage the Company's assets. Depreciation and amortization expense rose $1,020,773, or almost 36%, between the second quarters of 2000 and 2001. On a net equivalent barrel basis, this category of expense increased from $5.58 per NEB to $6.74. per NEB as a result of higher depletion rates on certain properties. Interest expense decreased $177,427 between the two quarterly periods because of reductions in the outstanding bank debt due to scheduled loan repayments. Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000 - ------------------------------------------------------------------------- The Company reported net income of $8,476,840, or one dollar and seventy-four cents per share, on revenues of $31,711,099 for the six months ended June 30, 2001 compared with net income of $5,077,049, or one dollar and four cents per share, on revenues of $22,587,111 for the same period a year ago. Earnings for the current period were favorably affected by operating results -10- derived from producing properties acquired last year as well as product pricing increases. Revenues - -------- Oil and gas revenues rose $8,960,340 between the two six month periods, or approximately 40%, primarily because of pricing increases. Oil volumes rose approximately 6%, and gas volumes were 25% higher than the prior period. Product price realizations also pushed revenues higher - oil averaged $24.65 per barrel for the first six months of 2001 compared with $24.22 during the prior year and gas averaged $5.44 per mcf compared with $2.91 per mcf in 2000. Costs and Expenses - -------- On a net equivalent barrel basis (NEB), operating expenses increased $1.52 per NEB, primarily due to workover activity levels and higher severance tax expense, which relates proportionally to higher oil and gas revenues. Because the Company follows the successful efforts method of accounting, results of operations may be adversely affected during any accounting period in which seismic costs, exploratory dry hole costs, and unproved property costs are expensed. During the current period, there was one exploratory well drilled and abandoned, which is reflected in this category. General and administrative (G&A) expenses decreased $276,734 to reflect lower phantom stock expense. During the first half of 2000, approximately $597,000 was accrued for 95,500 outstanding phantom units. In October, 2000, all but 11,000 phantom units were redeemed, which caused a reduction in this category during the current period. -11- Depreciation and amortization expense rose during the current six months from $5.16 per NEB for the 2000 period to $6.18 per NEB currently, and interest expense decreased $324,871 in the current period reflecting lower outstanding bank debt from scheduled loan repayments. Liquidity and Capital Resources - ------------------------------- Cash and cash equivalents totaled $17.5 million and $21.2 million at June 30, 2001, and December 31, 2000, respectively. Working capital was $11.3 million at June 30, 2001, compared with $14.2 million at December 31, 2000. The following summary table reflects cash flows for the six months ended June 30, 2001 (in thousands): Net cash provided by operating activities: $16,388 Net cash used by investing activities: 16,267 Net cash used by financing activities: 3,827 At June 30, 2001, the Company's total debt was $28.7 million. The Company believes sufficient cash is being generated from operating activities plus cash currently in the bank, or additional borrowing capacity, to fund its planned development and exploratory work or to make additional property acquisitions. Certain Factors that Could Affect Future Operations - --------------------------------------------------- Certain information contained in this report, as well as written and oral statements made or incorporated by reference from time to time by the Company and its representatives in other reports, filings with the Securities and Exchange Commission, press releases, conferences or otherwise, may be deemed to be 'forward-looking statements' within the meaning of Section 21E of the -12- Securities and Exchange Act of 1934 and are subject to the 'Safe Harbor' provisions of that section. Forward-looking statements include statements concerning the Company's and management's plans, objectives, goals, strategies and future operations and performance and the assumptions underlying such forward-looking statements. These statements are based on current expectations and involve a number of risks and uncertainties, including those described in the context of such forward-looking statements. Actual results and developments could differ materially from those expressed in or implied by such statements. Such factors include, among others, the volatility of oil and gas prices, the Company's drilling results, the Company's ability to compete in the acquisition of producing property, the Company's ability to replace reserves, the availability of capital resources, the reliance upon estimates of proved reserves, operating hazards, uninsured risks, competition, government regulation, and other factors referenced in this Form 10-Q. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------------------------------------------------------------------- Commodity Risk - -------------- The Company's primary commodity market risk exposure is to changes in the pricing applicable to its oil production, which is normally priced with reference to a defined benchmark, such as light, sweet crude oil traded on the New York Mercantile Exchange (WTI). Actual prices received vary from the benchmark depending on quality and location differentials. The markets for crude -13- oil historically have been volatile and are likely to continue to be volatile in the future. From time to time, the Company enters into financial market transactions, including collars, with creditworthy counterparties, primarily to reduce the risk associated with the pricing of a portion of the oil and natural gas that it sells. The policy is structured to underpin the Company's planned revenues and results of operations. During 2001, the Company entered into a derivative financial instrument whereby the Company hedged 2,000 barrels of daily production from March 1, 2001 through February 28, 2002 with a ceiling price of $28.18/bbl and a floor price of $24.00/bbl. The Company exercised its right to terminate this contract during March, 2001 via payment of $803,000 which reduced oil and gas revenues for the first quarter of 2001. The Company is not currently a party to any derivative instrument. PART II. OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Stockholders was held on May 16, 2001. (b) Not applicable. (c) 1. Set forth below is the tabulation of the votes on each nominee for election of a director: WITHHOLD NAME FOR AUTHORITY ---- --- --------- Ralph E. Graham 4,708,278 32,567 Robert B. McDermott 4,708,278 32,567 James G. Maynard 4,708,278 32,567 2. Not applicable. -14- ITEM 6. Exhibit and Reports on Form 8-K ------------------------------- (a) Exhibit: None (b) Report on Form 8-K: On July 23, 2001, the Company filed Form 8-K with the Securities and Exchange Commission to report that the Company is exploring strategic alternatives. The Company also reported the retention of William Blair & Company as its financial advisor and McDermott, Will & Emery as its legal counsel to assist the Board in evaluating the strategic alternatives. -15- 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. MAYNARD OIL COMPANY By: /s/ Glenn R. Moore ---------------------------- Glenn R. Moore President BY: /s/ Kenneth W. Hatcher ----------------------------- Kenneth W. Hatcher Vice President of Finance Dated: August 14, 2001 -16- -----END PRIVACY-ENHANCED MESSAGE-----