-----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, WZgAoI5p/Am09rvuvBssyXC9Y7LJRnRPiBCz4qsF4y2nXO1v33f7lgH+FdXxD3kZ M5Gne5BYTA52OpfhexrW1Q== 0000914760-02-000086.txt : 20020515 0000914760-02-000086.hdr.sgml : 20020515 20020515152600 ACCESSION NUMBER: 0000914760-02-000086 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 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: 02651710 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 m32257q102.txt MARCH 31, 2002 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 Ending March 31, 2002 Commission File #0-5704 ------------------------------------ ------- MAYNARD OIL COMPANY - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 75-1362284 - -------------------------------------------------------------------------------- (State or other jurisdiction (IRS Employer 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 May 10, 2002 4,880,368 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 Consolidated Balance Sheets March 31, 2002 and December 31, 2001 3 Consolidated Statements of Operations Three Months ended March 31, 2002 and 2001 4 Consolidated Statement of Changes in Shareholders' Equity Three Months ended March 31, 2002 5 Consolidated Statements of Cash Flows Three Months ended March 31, 2002 and 2001 6 Notes to Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 -2- MAYNARD OIL COMPANY AND SUBSIDIARY Consolidated Balance Sheets (Unaudited) March 31, December 31, ------------- -------------- 2002 2001 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 14,917,147 $ 14,277,119 Accounts receivable, trade 5,282,342 6,457,897 Income taxes receivable 1,769,928 1,769,928 Other current assets 507,552 448,194 ------------- ------------- Total current assets 22,476,969 22,953,138 ------------- ------------- Property and equipment, at cost: Oil and gas properties, successful efforts method 188,812,782 188,246,168 Other property and equipment 493,090 491,699 ------------- ------------- 189,305,872 188,737,867 Less accumulated depreciation and amortization (107,604,408) (104,457,017) ------------- ------------- Net property and equipment 81,701,464 84,280,850 ------------- ------------- $ 104,178,433 $ 107,233,988 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of long-term debt $ 7,650,000 $ 7,650,000 Accounts payable 3,503,109 5,962,824 Accrued expenses 1,031,563 746,806 Income taxes payable 727,352 513,352 ------------- ------------- Total current liabilities 12,912,024 14,872,982 ------------- ------------- Deferred income taxes 3,248,000 3,110,000 Long-term debt 15,300,000 17,212,500 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; 4,880,368 shares issued and outstanding 488,037 488,037 Additional paid-in capital 18,831,138 18,831,138 Retained earnings 53,399,234 52,719,331 ------------- ------------- Total shareholders' equity 72,718,409 72,038,506 ------------- ------------- Contingencies and Commitments $ 104,178,433 $ 107,233,988 ============= ============= See accompanying Notes to Consolidated Financial Statements. -3- MAYNARD OIL COMPANY AND SUBSIDIARY Consolidated Statements of Operations (Unaudited) Three Months ended March 31, ---------------------------- 2002 2001 ---- ---- Revenues: Oil and gas sales and royalties $ 9,500,977 $17,259,059 Interest and other 68,848 247,151 Gain on disposition of assets 19,558 13,901 ----------- ----------- 9,589,383 17,520,111 ----------- ----------- Costs and expenses: Operating expenses 4,089,869 4,449,893 Exploration, dry holes and abandonments 580 8,956 General and administrative 1,050,681 770,980 Depreciation and amortization 3,213,549 3,116,905 Interest and other 202,801 603,107 ----------- ----------- 8,557,480 8,949,841 ----------- ----------- Income before income taxes 1,031,903 8,570,270 ----------- ----------- Income tax expense 352,000 2,897,057 ----------- ----------- Net income $ 679,903 $ 5,673,213 =========== =========== Weighted average number of common shares outstanding 4,880,368 4,880,463 =========== =========== Net income per common share $ 0.14 $ 1.16 (basic and diluted) =========== =========== See accompanying Notes to Consolidated Financial Statements -4- MAYNARD OIL COMPANY Consolidated Statement of Shareholders' Equity Three Months Ended March 31, 2002
Additional Common Comprehensive Retained Paid-in Common Stock Total Income Earnings Capital Stock Shares ----------------------------------------------------------------------------------------------------- Balance at December 31, 2001 $ 72,038,506 $ 52,719,331 $ 18,831,138 $488,037 4,880,368 Comprehensive Income: Net income 679,903 $ 679,903 679,903 --------------- ================= ---------------- ---------------- ------------- -------------- Balance at March 31, 2002 $ 72,718,409 $ 53,399,234 $ 18,831,138 $488,037 4,880,368 =============== ================ ================ ============= ============== See accompanying Notes to Consolidated Financial Statements
-5- MAYNARD OIL COMPANY Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, ----------------------------- 2002 2001 ---- ---- Cash flows from operating activities: Net income $ 679,903 $ 5,673,213 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,213,549 3,116,905 Deferred income taxes 138,000 841,000 Dry holes and abandonments (393) -- Current year costs of dry holes and abandonments 393 -- (Gain) loss on disposition of assets (19,558) (13,901) (Increase) decrease in current assets: Accounts receivable 1,175,555 231,553 Other current assets (59,358) 28,123 Increase (decrease) in current liabilities: Accounts payable (2,459,715) (2,866,828) Accrued expenses 284,757 864,943 Income taxes payable 214,000 1,847,000 ------------ ------------ Net cash provided by operating activities 3,167,133 9,722,008 ------------ ------------ Cash flows from investing activities: Proceeds from disposition of assets 20,065 14,859 Additions to property and equipment (634,670) (12,199,457) ------------ ------------ Net cash used by investing activities (614,605) (12,184,598) ------------ ------------ Cash flows from financing activities: Principal payments on long-term debt (1,912,500) (1,912,500) Purchase and retirement of common stock -- (2,140) ------------ ------------ Net cash used by financing activities (1,912,500) (1,914,640) ------------ ------------ Net increase (decrease) in cash and cash equivalents 640,028 (4,377,230) Cash and cash equivalents at beginning of year 14,277,119 21,228,040 Cash and cash equivalents at end of period $ 14,917,147 $ 16,850,810 ============ ============ See accompanying Notes to Consolidated Financial Statements
-6- MAYNARD OIL COMPANY AND SUBSIDIARY Notes to Consolidated Financial Statements March 31, 2002 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 principals, 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 March 31, 2002 and the results of operations and cash flows for the three months ended March 31, 2002. The December 31, 2001 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 2001 report on Form 10-K filed with the Securities and Exchange Commission. 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 March 31, 2002 and 2001, the Company had no potentially dilutive common shares, and therefore, basic and diluted earnings per common share were the same. Note 3 Potential Merger On April 25, 2002, the Company issued a press release announcing that it had signed a merger agreement with Plantation Petroleum Holdings, LLC. Pursuant to this agreement, Maynard Oil stockholders will receive $17.00 cash for each of the 4,880,368 shares outstanding. The boards of both companies have approved the transaction, which is subject to approval by a majority of Maynard stockholders. Stockholders owning approximately 56% of the Company's common shares outstanding have stated their intention to vote in favor of the merger. Currently, Maynard Oil stock is listed on NASDAQ. Since all of the Maynard stock outstanding immediately before the merger will be cancelled in exchange for the right to receive cash, Maynard Oil common stock will be delisted from NASDAQ, if the merger is completed. Additionally, Plantation intends to terminate the registration of Maynard Oil common stock under the Securities Exchange Act of 1934, meaning that the Company will no longer be required to file various reports, such as Forms 10-K and 10-Q with the SEC. -7- Note 4 Income Taxes The provision for income taxes consists of the following (thousands of dollars): Three Months Ended March 31 -------- 2002 2001 --------------------- Federal: Current $ 214 $2,056 Deferred 138 841 ------ ------ $ 352 $2,897 ====== ====== Note 5 Commitments and Contingencies In connection with the merger agreement referred to in Note 3, the Company had previously entered into contracts with its personnel, which provided incentive bonuses and retention arrangements that total approximately $5,000,000. The incentive bonuses require double triggering events, beginning with the consummation of a merger, at which time, one-half of the incentive bonus becomes payable. The balance due under these incentive bonus contracts, approximately $2,098,000, is to be paid out within one year after the merger. On April 1, 2002, the first of six monthly installments was paid to eight Company employees under the Management Retention Agreement. This payment, which totaled $134,167, will be included in the Company's April, 2002 general and administrative expense category. The following five equal monthly payments will be accounted for in the same manner. The six monthly payments total approximately $805,000, which is included in the $5,000,000 referred to in the above paragraph. 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 the best of management's knowledge, the Company is in substantial compliance with such laws and regulations. Note 6 Subsequent Events During May, 2002, the Company entered into a derivative financial instrument (collar) whereby the Company hedged 2,400 barrels of daily production from June 1, 2002 through May 31, 2003 with a ceiling price of $29.19 per barrel and a floor price of $20.00 per barrel. This agreement provides for monthly financial settlements between the two parties should either the floor or ceiling amounts be exceeded. - -------------------------------------------------------------------------------- -8- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS - -------------- Quarter Ended March 31, 2002 Compared to Quarter Ended March 31, 2001 - --------------------------------------------------------------------- For the first quarter of 2002, the Company earned 14 cents per share on revenues of $9,589,383 compared to $1.16 per share during the first quarter of 2001 on revenues of $17,520,111. Current quarter results were unfavorably impacted by reduced revenues from the sale of oil and gas, resulting from lower product pricing and decreased oil production volumes. Revenues - -------- Oil and gas revenues declined $7,758,082 between the two quarterly periods, or approximately 45%, due to pricing reductions and lower oil production volumes. Average oil and gas prices were $5.01 per barrel and $5.07 per thousand cubic feet of gas (mcf) lower than the same quarter a year ago. Oil volumes decreased approximately 5% while gas volumes rose over 4% over this same period. Interest income also fell between the two periods because of lower average cash balances available for investment during the 2002 period. Costs and Expenses - ------------------ On a net equivalent barrel basis (NEB), lease operating expenses were 51 cents per NEB lower during the current quarter than the first quarter of 2001, caused primarily by lower severance taxes, which relate proportionally to reduced oil and gas revenues. Decreases in expense workovers also lowered lease operating costs for the 2002 quarter. The general and administrative expense category reflects an increase of $279,701, or approximately 36%, primarily the result of costs incurred in connection with the potential merger referred to in Note 3 to the Financial Statements. -9- Per NEB, the current quarter's depreciation and amortization amount increased approximately 5% from $5.59 per NEB during the first quarter of 2001 to $5.87 per NEB during the 2002 quarter. Under the successful efforts method of accounting, costs of oil and gas properties are amortized on a unit of production method based upon estimated proved reserves. The Company calculates and applies this rate on a property by property basis. Fluctuations in depreciation and amortization expense can be caused by variations in the performance of the oil and gas property, the amount invested in the property and the hydrocarbon reserves ultimately recoverable from the property. As the oil and gas properties and their associated reserves age within a company, these rates become more predictable and have less variance. Interest expense decreased $400,309 between the two quarterly periods due to scheduled bank note payments and the resulting lower average outstanding principal balance, as well as lower interest rates during the current quarter. Liquidity and Capital Resources - ------------------------------- Cash and cash equivalents totaled $14.9 million and $14.3 million at March 31, 2002 and December 31, 2001, respectively. Working capital was $9.6 million at March 31, 2002 compared with $8.1 million at December 31, 2001. The following summary table reflects cash flows for the three months ended March 31, 2002 (in thousands): Net cash provided by operating activities: $3,167 Net cash used by investing activities: 615 Net cash used by financing activities: 1,913 The funds utilized for investing activities, approximately $635,000, was spent performing development work on various properties. -10- At March 31, 2002, the Company's long-term debt was $15,300,000. The Company believes it has sufficient cash being generated from operating activities plus cash currently in the bank, or additional borrowing capacity, to fund its planned drilling activities, to make additional property acquisitions, as well as make scheduled debt repayments. 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 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. Recent Accounting Pronouncements - -------------------------------- Statement of Financial Accounting Standards "SFAS" No. 143, "Accounting for Asset Retirement Obligations" addresses accounting and reporting for obligations associated with -11- the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 will be effective for the Company on January 1, 2003. This Statement will require the fair value of the obligation be recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made, and that the associated asset retirement costs be capitalized as part of the carrying amount of the asset. The Company is currently assessing the impact of this standard. 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 (WTI) traded on the New York Mercantile Exchange (NYMEX). Actual prices received vary from the benchmark depending on quality and location differentials. The markets for crude 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. -12- The Company has entered into a derivative instrument whereby the Company hedged 2,400 barrels of daily production from June 1, 2002 through May 31, 2003 with a ceiling price of $29.19 per barrel and a floor price of $20.00 per barrel. As long as the average selling price for crude falls between $20.00 and $29.19 per barrel, no cash will be exchanged. However, should the average selling price for crude oil exceed $29.19 per barrel, Maynard would owe the counterparty the product of the amount in excess of $29.19 multiplied by the number of barrels hedged. Conversely, should the average selling price for crude oil fall below $20.00 per barrel, the counterparty would owe the Company the product of the amount below $20.00 per barrel multiplied by the number of barrels hedged. While the use of these derivative instruments limits the downside risk of adverse price movements, they may also limit future revenues from favorable price movements. The use of derivatives also involves risk that the counterparties to such instruments will be unable to meet the financial terms of such contracts. PART II. OTHER INFORMATION ITEM 6: Exhibits and Reports on Form 8-K (a) Exhibits - None (b) On April 25, 2002, the Company filed a report on Form 8-K reporting that it had signed a merger agreement with Plantation Petroleum Holdings, LLC. -13- 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 Executive Vice President of Finance Dated: May 15, 2002 -14- -----END PRIVACY-ENHANCED MESSAGE-----