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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________ TO ___________
COMMISSION FILE NUMBER 1-4673
WILSHIRE OIL COMPANY OF TEXAS
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 84-0513668
- ------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
921 BERGEN AVENUE
JERSEY CITY, NEW JERSEY 07306
- --------------------------------------- -------------
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 420-2796
-----------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
(Title of each class) on which registered
-------------------- -----------------------
COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
- ------------------------------------------------------------------------
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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE SHARES OF THE VOTING STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY $38,307,717 BASED UPON THE
CLOSING SALE PRICE OF THE STOCK, WHICH WAS $4.38 ON MARCH 16, 1999.
THE NUMBER OF SHARES OF THE REGISTRANT'S $1 PAR VALUE COMMON STOCK OUTSTANDING
AS OF MARCH 16, 1999 WAS 8,993,096.
DOCUMENTS INCORPORATED BY REFERENCE
THE INFORMATION CALLED FOR BY PART III IS INCORPORATED BY REFERENCE TO THE
DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS.
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<PAGE>
WILSHIRE OIL COMPANY OF TEXAS
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1998
TABLE OF CONTENTS
PART I
PAGE
-----
ITEM 1. BUSINESS .............................................. 1
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT .................. 7
ITEM 2. PROPERTIES ............................................ 8
ITEM 3. LEGAL PROCEEDINGS ..................................... 15
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS ........................... 15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS .................... 16
ITEM 6. SELECTED FINANCIAL DATA ............................... 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ................. 20
ITEM 8. FINANCIAL STATEMENTS .................................. F-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ................ 29
PART III
ITEM 10. DIRECTORS OF THE REGISTRANT ........................... 29
ITEM 11. EXECUTIVE COMPENSATION ................................ 29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT .............................. 29
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ........ 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K ................................ 30
<PAGE>
PART I
ITEM 1. BUSINESS
BACKGROUND
Wilshire Oil Company of Texas (the "Company", "Registrant" or "Wilshire")
was incorporated under the laws of the State of Delaware on December 7, 1951.
The Company's principal executive offices are located at 921 Bergen Avenue,
Jersey City, New Jersey 07306, (201) 420-2796.
The Company is engaged in the exploration and development of oil and gas,
both in its own name and through several wholly-owned subsidiaries in the United
States and Canada. The Company's real estate division owns investment real
estate properties in Arizona, Texas, Florida, Georgia and New Jersey. The
Company also holds investments in certain marketable securities.
This Report on Form 10-K for the year ended December 31, 1998 contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected in such forward-looking statements. Certain factors which could
materially affect such results and the future performance of the Company are
described herein under Item 7., "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
For financial segment information please see Note 8, "Segment Information"
of the "Notes to Consolidated Financial Statements", presented elsewhere herein.
The Company has no export sales or sales to affiliated customers.
DESCRIPTION OF BUSINESS
OIL AND GAS OPERATIONS
For a glossary of oil and gas terms, see "Properties - Oil and Gas
Properties - Glossary."
The Company conducts its oil and gas operations on the North American
continent. Oil and gas operations in the United States are located in Arkansas,
California, Kansas, Nebraska, New Mexico, Ohio, Oklahoma, Pennsylvania, Texas
and Wyoming. In Canada, the Company conducts oil and gas operations in the
Provinces of Alberta, British Columbia and Saskatchewan.
As of March 16, 1999, 14 people are employed by the Company. Nine employees
are directly engaged in the search for new oil and gas properties. In addition,
the Company also has consultants.
1
<PAGE>
Prospects for lease acquisitions are developed by staff geologists or
acquired from various co-venturers and/or consultants.
Once a property is acquired, the Company subcontracts for surveying and
drilling operations. Many of the Company's present producing oil and gas
properties are operated by independent contractors or under operating agreements
with other companies pursuant to which the Company pays a proportionate share of
operating expenses based upon its interests. The Company also acts as operator
of various properties, charging joint venture partners for their proportionate
share of expenses.
The Company does not engage in the refining of crude oil or the
distribution of petroleum products. Crude oil and natural gas productions are
sold to oil refineries and natural gas pipeline companies.
The Company participated in the drilling of 38 wells (8.1 net) in 1998
compared to 28 (5.40 net) in 1997. The United States program in 1998 consisted
of the drilling of 8 development wells (2.1 net). Two (.5 net) of these wells
were successfully completed as oil wells and 4 (.1 net) were successfully
completed as gas wells. The Canadian drilling program in 1998 consisted of the
drilling of 30 development wells (6.0 net), with all of these wells successfully
completed as gas wells. Overall, the Company's drilling program had a success
ratio of 94%.
The Company's crude oil and condensate production is sold at posted field
prices, primarily to major crude oil and condensate purchasers. For average
posted field prices, for both oil and gas, see "Properties - Oil and Gas
Properties - Production." The Company has no one purchaser that purchased in
excess of 10% of its 1998 consolidated oil and gas revenues.
The loss of any one customer in the domestic hydrocarbon market is not
considered material. The Company is not dependent on any patent, trademark or
license.
The Company's oil and gas business is subject to all of the operating risks
normally associated with the exploration for and production of oil and gas. In
accordance with customary industry practices, the Company maintains insurance
coverage limiting financial loss resulting from certain of these operating
hazards.
2
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COMPETITION
The oil and gas industry is intensely competitive and competes with other
industries in supplying the energy and fuel requirements of industrial,
commercial and individual customers.
The principal method of competition in the production of oil and gas is the
successful location and acquisition of properties which produce commercially
profitable quantities of oil and gas.
The Company competes with many other companies in the search for and
acquisition of oil and gas properties and leases for exploration and
development. Many of these companies have substantially greater financial,
technical and other resources than the Company. Competition among petroleum
companies for favorable oil and gas prospects can be expected to continue. The
Company is not a significant factor in the oil and gas industry.
The principal raw materials and resources necessary for the exploration
for, and the acquisition, development, production and sale of, crude oil and
natural gas are leasehold or freehold prospects under which oil and gas reserves
may be discovered, drilling rigs and related equipment to explore for and
develop such reserves, casing and other capital assets required for the
development and production of the reserves and knowledgeable personnel to
conduct all phases of oil and gas operations. The Company must compete for such
raw materials and resources with both major oil companies and independent
operators and also with other industries for certain personnel and materials.
Although the Company believes its current inventories of raw materials and
resources are adequate to preclude any significant disruption of operations in
the immediate future, the continued availability of such materials and resources
to the Company cannot be assured.
SEASONALITY
The oil business is generally not seasonal in nature. Gas demand and prices
paid for gas have become seasonal, showing a decrease during the summer and
fall.
3
<PAGE>
ENVIRONMENTAL MATTERS
The petroleum industry is subject to numerous federal, state and provincial
environmental statutes, regulations and other pollution controls in both the
United States and Canada. In general, the Company is and will continue to be
subject to present and future environmental statutes and regulations.
The Company's expenses relating to preserving the environment during 1998
were not significant in relation to operating costs and the Company expects no
material changes in 1999. Environmental regulations have had no materially
adverse effect on the Company's petroleum operations to date, but no assurance
can be given that environmental regulations will not, in the future, result in a
curtailment of production or otherwise have materially adverse effects on the
Company's operations or financial condition.
REGULATION - UNITED STATES OPERATIONS
The Company's operations are affected from time to time, in varying
degrees, by political developments, laws and regulations. In particular, oil and
gas production operations are affected by changes in taxes and other laws
relating to the petroleum industry and by constantly changing administrative
regulations. The long-term effects of all the federal enactments and programs,
whether beneficial or detrimental to the future operations and income of the
Company, cannot be predicted at this time.
Rates of production of oil and gas have for many years been subject to
conservation laws and regulations. State regulatory agencies set allowable rates
of production and limit the number of days a month a well can produce. The
petroleum industry has also been subject to tax laws dealing specifically with
it, such as the Crude Oil Windfall Profit Tax Act. In addition, oil and gas
operations are subject to extensive regulation or termination by government
authorities on account of ecological and other considerations. All of the
jurisdictions in which the Company operates have statutes and administrative
regulations governing the drilling and production of oil and gas.
REGULATION - CANADIAN OPERATIONS
The Company's Canadian subsidiary, Wilshire Oil of Canada, Ltd., operates
primarily in the Province of Alberta, with some activity in the Province of
British Columbia and Saskatchewan.
The petroleum and natural gas industry operates under federal and
provincial legislation and regulations which govern land tenure, royalties,
production rates, environmental protection, exports and other matters. Federal
legislation monitors the price of oil and gas in export trade and the quantities
of such products exportable from Canada. Provincial legislation has been enacted
for the purpose of regulating operations in the Provinces.
4
<PAGE>
OIL PRICES
Oil prices actually being paid by purchasers in the United States are
publicly announced throughout the country and vary depending on locality and
qualitative specifications of the crude oil. All prices are subject to future
modification by appropriate agency action.
INVESTMENT IN MARKETABLE SECURITIES
The Company holds investments in certain marketable securities. From time
to time, the Company buys and sells securities in the open market. The Company
over the years has decreased its holdings in marketable securities and focused
its resources in the oil & gas and real estate divisions.
Holdings of marketable securities, at market value, amounted to
$5,162,000 at December 31, 1998 and $17,947,000 at December 31, 1997. The
Company realized gains from the sales of marketable securities of $4,932,000 in
1998, $9,595,000 in 1997, and $8,462,000 in 1996.
5
<PAGE>
REAL ESTATE OPERATIONS
The Company's real estate operations are conducted, both in its own name
and through several wholly owned subsidiaries, in the states of Arizona, Texas,
Florida, Georgia and New Jersey. They are not seasonal in nature.
The Company's Arizona properties include the following:
|X| 378 unit garden apartment complex
|X| 340 unit garden apartment complex
|X| 70 unit midrise apartment building
|X| 53,000 sq. ft. multi-tenant two story office building
|X| 65,000 sq. ft. retail/medical use complex
The Texas property is a 228 unit apartment complex.
The Company's operations in Florida consists of two office buildings having
a combined area of 28,000 square feet and apartment properties having 62 units.
The Georgia property is a 72 unit apartment complex.
The Company's properties in New Jersey consists of apartment properties
having 482 units. In addition, the Company holds various commercial/retail
properties, including a 75,000 sq. ft. office building.
The Company utilizes property management companies to assist in the
management of its properties. Expenses incurred in operating the properties
include, among other things, administrative costs, utilities, repairs and
maintenance and property taxes.
During the twelve months ended December 31, 1998, the Company acquired five
real estate properties, four of which were acquired from The Trust Company of
New Jersey ("TCNJ") at an aggregate purchase price of approximately $5.6
million. These transactions were financed by first-mortgage loans from TCNJ.
The Company will explore other real estate acquisitions as they arise. The
timing of any such acquisition will depend on, among other things, economic
conditions and the favorable evaluation of specific opportunities presented to
the Company. The Company is currently planning further acquisitions of
investment properties during the next several months. Accordingly, while the
Company anticipates that it will actively explore these and other real estate
acquisition opportunities, no assurance can be given that any such acquisition
will occur.
The real estate industry is intensely competitive in nature. The Company
competes with many other real estate operators and is not a significant factor
in the market it operates in.
6
<PAGE>
The Company's real estate operations are subject to existing federal and
state laws regarding environmental quality and pollution control. Environmental
regulations had no materially adverse effect on the Company's real estate
operations during 1998, but no assurance can be given that environmental
regulations will not, in the future, have a materially adverse effect on the
Company's operations.
7
<PAGE>
ITEM 1a - EXECUTIVE OFFICERS OF THE REGISTRANT
The table below sets forth the names and ages of all executive officers of
the Registrant and the position(s) and offices with the Registrant presently
held by each and the periods during which each has served in such position(s)
and offices. There are no "family relationships" as defined in Item 401(d) of
Regulation S-K between any of these persons and any other executive officer or
director of the Company.
All executive officers have been elected or appointed to hold office until
their respective successors have been elected or appointed and qualified or
until their earlier resignation or removal.
Executive Officers of Registrant
Name Age Position with Registrant
- ----- --- ------------------------
S. Wilzig Izak (a) 40 Chairman of the Board and
Chief Executive Officer
- ----------
a) Ms. Izak was appointed Chairman of the Board on September 20, 1990. She
served as Executive Vice President of the Company from August 10, 1987
through September 20, 1990.
8
<PAGE>
ITEM 2. PROPERTIES
Offices
The executive and administrative office of the Company consists of
approximately 2,000 square feet, located at 921 Bergen Avenue, Jersey City, New
Jersey. This office is leased at a monthly rental of $2,683.
The Company maintains its principal office for the United States oil and
gas operations in Oklahoma City, Oklahoma, leasing 3,618 square feet, at a
monthly cost of $2,111. The Company also owns a storage yard of approximately
five acres, situated near Will Rogers Airport in Oklahoma City.
The Company's Canadian subsidiary maintains an exploration office in
Calgary, Alberta, Canada. The Company leases 1,583 square feet at a monthly
rental of $2,537 Canadian.
OIL AND GAS PROPERTIES
GLOSSARY
The terms defined in this section are used throughout this report.
BBL. One stock tank barrel, or 42 U.S. gallons liquid volume, usually used
herein in reference to crude oil or other liquid hydrocarbons.
BOE. Equivalent barrels of oil in reference to natural gas. Natural gas
equivalents are determined using the ratio of six Mcf of natural gas to one Bbl
of crude oil, condensate or natural gas liquids.
DEVELOPED ACREAGE. The number of acres which are allocated or assignable to
producing wells or wells capable of production.
DEVELOPMENT WELL. A well drilled as an additional well to the same
reservoir as other producing wells on a lease, or drilled on an offset Lease not
more than one location away from a well producing from the same reservoir.
EXPLORATORY WELL. A well drilled in search of a new undiscovered pool of
oil or gas, or to extend the known limits of a field under development.
GROSS ACRES OR WELLS. The total acres or wells, as the case may be, in
which an entity has an interest, either directly or through an affiliate.
LEASE. Full or partial interests in an oil and gas lease, oil and gas
mineral rights, fee rights or other rights, authorizing the owner thereof to
drill for, reduce to possession and produce oil and gas upon payment of rentals,
bonuses and/or royalties. Oil and gas leases are generally acquired from private
landowners and federal, provincial and state governments.
9
<PAGE>
MCF. One thousand cubic feet. Expressed, where gas sales contracts are in
effect, in terms of contractual temperature and pressure bases and, where
contracts are nonexistent, at 60 degrees Fahrenheit and 14.65 pounds per square
inch absolute.
MMCF. One million cubic feet. Expressed, where gas sales contracts are in
effect, in terms of contractual temperature and pressure bases and, where
contracts are nonexistent, at 60 degrees Fahrenheit and 14.65 pounds per square
inch absolute.
NET ACRES OR WELLS. A party's interest in acres or a well calculated by
multiplying the number of gross acres or gross wells in which such party has an
interest by the fractional interest of such party in such acres or wells.
PRODUCTION COSTS. The expenses of producing oil or gas from a formation,
consisting of the costs incurred to operate and maintain wells and related
equipment and facilities, including labor costs, repair and maintenance,
supplies, insurance, production, severance and other production excise taxes.
PRODUCING PROPERTY. A property (or interest therein) producing oil and gas
in commercial quantities or that is shut-in but capable of producing oil and gas
in commercial quantities, to which Producing Reserves have been assigned by an
independent petroleum engineer. Interests in a property may include working
interests, production payments, royalty interests and other nonworking
interests.
PRODUCING RESERVES. Proved Developed reserves expected to be produced from
existing completion intervals open for production in existing wells.
PROSPECT. An area in which a party owns or intends to acquire one or more
oil and gas interests, which is geographically defined on the basis of
geological data and which is reasonably anticipated to contain at least one
reservoir of oil, gas or other hydrocarbons.
PROVED DEVELOPED RESERVES. Proved Reserves which can be expected to be
recovered through existing wells with existing equipment and operating methods.
PROVED RESERVES. The estimated quantities of crude oil, natural gas and
other hydrocarbons which, based upon geological and engineering data, are
expected to be produced from known oil and gas reservoirs under existing
economic and operating conditions, and the estimated present value thereof based
upon the prices and costs on the date that the estimate is made and any price
changes provided for by existing conditions.
PROVED UNDEVELOPED RESERVES. Proved Reserves which can be expected to be
recovered from new wells on undeveloped acreage or from existing wells where a
relatively major expenditure is required for recompletion.
10
<PAGE>
UNDEVELOPED ACRES. Oil and gas acreage (including, in applicable instances,
rights in one or more horizons which may be penetrated by existing well bores,
but which have not been tested) to which proved reserves have not been assigned
by independent petroleum engineers.
WORKING INTEREST. The operating interest under a lease which gives the
owner the rights to drill, produce and conduct operating activities on the
property ;and a share of production, subject to all royalty interests and other
burdens and to all costs of exploration, development and operations and all
risks in connection therewith.
* * *
Following are certain tables and other statistical data concerning the
Company's reserves, production, acreage and other information with regard to the
Company's oil and gas properties and operations.
For information regarding costs incurred in 1998, please refer to the
"Segment Information" in Note 8 of the Notes to Consolidated Financial
Statements, presented elsewhere herein. For information regarding capitalized
costs relating to oil and gas producing activities, please refer to Note 9 of
the Notes to Consolidated Financial Statements, presented elsewhere herein.
Future revenues, net of development and production expenditures (Net
Revenues), from estimated production of proved and proved developed reserves,
based on existing economic conditions for each of the next three succeeding
years, are estimated as follows:
United States Canada
(000's Omitted) (000's Omitted)
--------------------------------------------------
Proved Proved Proved Proved
Reserves Developed Reserves Reserves Developed Reserves
-------- ------------------ -------- ------------------
1999 $ 2,719 $ 1,533 $ 2,350 $ 2,565
2000 2,182 1,230 3,425 3,409
2001 1,799 1,015 4,110 3,429
Remainder $10,184 $ 5,681 $55,934 $51,227
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RESERVES
The quantities of natural gas and crude oil Proved and Proved Developed
Reserves presented herein include only those amounts which the Company
reasonably expects to recover in the future from known oil and gas reservoirs
under existing economic and operating conditions. Therefore, Proved and Proved
Developed Reserves are limited to those quantities which are recoverable
commercially at current prices and costs, under existing technology.
Accordingly, any changes in the future oil and gas prices, operating and
development costs, regulations, technology and other factors could significantly
increase or decrease estimates of Proved and Proved Developed Reserves.
The Company's net Proved and Proved Developed Reserves of oil and gas and
the present values thereof at December 31, 1996 and 1997 and 1998 were estimated
by the independent professional engineering consultants referred to on page 28.
Such estimates were utilized in the preparation of the Company's consolidated
financial statements for the applicable fiscal years and for reporting purposes.
Set forth below are estimates of the Company's Proved and Proved Developed
Reserves and the present value of estimated future net revenues from such
reserves based upon the standardized measure of discounted future net cash flows
relating to proved oil and gas reserves in accordance with the provisions of
Statement of Financial Accounting Standards No. 69, "Disclosures about Oil and
Gas Producing Activities" (SFAS No. 69). The standardized measure of discounted
future net cash flows is determined by using estimated quantities of Proved
Reserves and the periods in which they are expected to be developed and produced
based on period-end economic conditions. The estimated future production is
priced at period-end prices, except where fixed and determinable price
escalations are provided by contract. The resulting estimated future cash
inflows are reduced further by estimated future costs to develop and produce
reserves based on period-end cost levels. No deduction has been made for
depletion, depreciation or income taxes or for indirect costs, such as general
corporate overhead. Present values were computed by discounting future net
revenues by 10 percent per annum.
12
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The following table sets forth summary information with respect to the
estimates of the Company's Proved and Proved Developed Reserves at December 31
of the years indicated:
United States Canada
-------------------- ------------------------
Proved Proved
Proved Developed Proved Developed
-------- --------- ------- ------------
(000's Omitted) (000's Omitted)
1998 Oil (Bbls) 1,412 430 1,153 755
Gas (Mcf) 6,315 6,315 39,029 32,799
Net present value @ 10% $10,516 $ 5,891 $28,300 $23,111
1997 Oil (Bbls) 1,405 423 1,194 834
Gas (Mcf) 6,731 6,731 33,629 31,387
Net present value @ 10% $17,921 $ 8,515 $24,119 $20,341
1996 Oil (Bbls) 1,545 607 1,201 867
Gas (Mcf) 6,798 6,798 26,000 25,364
Net present value @ 10% $24,001 $14,660 $22,194 $18,461
The determination of oil and gas reserves is a complex and interpretive
process which is subject to continued revisions as additional information
becomes available. Reserve estimates prepared by different engineers from the
same data can vary widely. Therefore, the reserve data presented herein should
not be construed as being exact. Any reserve estimate, especially when based
upon volummetric calculations, depends in part on the quality of available data,
engineering and geologic interpretation and judgement, and thus, represents only
an informed professional judgement. Subsequent reservoir performance may justify
upward or downward revision of the estimate.
No Proved or Proved Developed Reserve estimates for oil and gas were filed
with or included in reports to any other federal or foreign governmental
authority or agency since the beginning of fiscal 1998, other than with the
Securities and Exchange Commission.
PRODUCTION WELLS
The following tabulations indicate the number of productive wells (gross
and net) as of December 31, 1998:
Gas Oil Developed Acreage
----------------- -------------- -----------------
Gross Net Gross Net Gross Net
--------- ----- ------ ----- ------ ------
United States 563 68.7 235 71.8 50,048 20,446
Canada 235 56.9 90 10.2 164,820 20,460
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PRODUCTION
The following table shows the Company's net production in barrels ("Bbls")
of crude oil and in thousands of cubic feet ("Mcf") of natural gas (computed
after deducting all outstanding interests, including basic royalties and
overriding royalties) for the past three years (note - all $ dollar amounts
presented are in U.S. dollars).
Oil and Condensate (Bbls) Gas (Mcf)
----------------------------- --------------------------
United States Canada United States Canada
------------- ------- -------------- ---------
1998 88,000 53,000 1,039,000 1,021,000
1997 101,000 60,000 1,047,000 813,000
1996 121,000 44,000 857,000 726,000
Average sales price per unit of oil or gas produced:
Oil Gas
----------------------- --------------------------
U.S. Canada U.S. Canada
------- -------- --------- -----------
1998 $12.35 $10.27 $1.78 $1.23
1997 $19.10 $14.65 $2.01 $1.39
1996 $20.01 $17.98 $1.92 $1.22
Production as shown in the table, which is net after royalty interests due
others, is determined by multiplying the gross production volume of properties
in which the Company has an interest by the percentage of the leasehold or other
property interest owned by the Company.
The relative energy content of oil and gas (six Mcf of gas equals one
barrel of oil) was used to obtain a conversion factor to convert natural gas
production into equivalent barrels of oils.
There are no agreements with foreign governments.
Average Production Cost Per Equivalent Barrel
of Oil in the United States and Canada:
- ----------------------------------------------
1998 1997 1996
---- ---- ----
United States $6.34 $6.32 $6.78
Canada $2.87 $2.78 $2.54
Unit cost is computed on equivalent barrels of oil equating gas to oil
based on BTU content. This method is appropriate for the Registrant since
several properties produce both oil and gas and production costs are not
segregated.
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<PAGE>
The components of production costs may vary substantially among wells
depending on the methods of recovery employed and other factors, but generally
include severance taxes, administrative overhead, maintenance and repair, labor
and utilities.
OIL AND GAS LEASES
The following tabulation indicates the undeveloped acreage leased by the
Registrant as of December 31 of the years indicated:
1998 1997
---- ----
Undeveloped Acres Undeveloped Acres
--------------------- ---------------------
Gross Net Gross Net
------- ------ -------- --------
United States 23,804 8,622 10,530 4,598
Canada 21,128 3,592 21,128 3,592
A "gross" acre is an acre in which the Company owns a working interest. A
"net" acre is deemed to exist when the sum of the fractional working interests
owned by the Company in gross acres equals one.
DRILLING
The following table sets forth the results of the Registrant's drilling
programs for the years covered:
Exploratory Wells Development Wells
-------------------------------- ------------------------------------
Net Productive Net Dry Net Productive Net Dry
-------------- --------------- ------------------ -----------------
U.S. Canada U.S. Canada U.S. Canada U.S. Canada
--- -------- ----- -------- ------- -------- ------ --------
1998- -- -- -- -- .6 6.0 1.5 --
1997- -- -- .1 -- .4 4.9 -- --
1996- -- -- -- -- .9 -- .1 --
1995- -- -- -- .3 1.0 -- -- --
1994- -- .7 -- .2 1.4 .4 -- --
A dry hole is an exploratory or development well which is found to be
incapable of producing oil or gas in sufficient quantities to justify
completion. A productive well is an exploratory or development well that is
capable of commercial production. The number of wells drilled refers to the
number of wells completed during the fiscal year, regardless of when drilling
was initiated.
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<PAGE>
REAL ESTATE PROPERTIES
The following table sets forth the location and general character of the
principal physical properties owned by the Company as part of its real estate
operations. Most of the properties are subject to mortgages. For further
information with respect to these properties, see "Business - Real Estate
Operations."
Location General Character
-------- -----------------
Arizona 378 Unit Apartment Complex
Arizona 340 Unit Apartment Complex
Arizona 70 Unit Apartment Building
Arizona Office Building
Arizona Retail/Medical use Complex
Texas 228 Unit Apartment Complex
Florida Office Building
Florida Apartment Properties (62 units)
Georgia 72 Unit Apartment Complex
New Jersey Apartment Properties (482 units),
including a 132 unit apartment
complex
New Jersey Commercial/Retail Properties,
including a 75,000 sq. ft.
office building
The Company considers all of its properties both owned and leased, together
with the related furniture, fixtures and equipment contained therein, to be well
maintained, in good operating condition, and adequate for its present and
foreseeable future needs.
ITEM 3. LEGAL PROCEEDINGS
At December 31, 1998, the Company was not a party to any actions or
proceedings which management believes are reasonably likely to have a material
adverse effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted by the Company to a vote of its security holders
during the fourth quarter of the year ended December 31, 1998.
16
<PAGE>
PART II
ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange. The
following table indicates the high and low sales prices of the Company's common
stock for the quarters indicated during the past two years:
(All in ($) Dollars)
Quarter 1 Quarter 2 Quarter 3 Quarter 4
------------------ ------------------- --------------- ----------------
High - Low High - Low High - Low High - Low
------------------ ------------------- --------------- ----------------
1998 6 - 5-7/16 6-1/8 - 5-3/4 6-5/16 - 5 5-3/8 - 4-1/16
1997 6-1/8 - 5-1/4 5-5/8 - 5-1/8 7-1/16 - 5-1/4 7-1/16 - 5-1/4
As of March 15, 1999 there were 8,716 common shareholders of record.
The Company declared a 3% stock dividend on December 22, 1997. This stock
dividend had a record date of January 16, 1998 and was paid on February 20,
1998. The Company declared a $.10 per common share cash dividend on June 21,
1996, payable semi-annually. The first payment of $.05 to shareholders of record
on August 21, 1996 was paid on September 20, 1996. The second payment of $.05
had a record date of April 2, 1997 and was paid April 23, 1997.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(Not covered by Report of Independent Public Accountants)
(In thousands of dollars except per share amounts)
For the Year Ended December 31
-----------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Oil/Gas Revenues $ 4,759 $ 5,917 $ 5,720 $ 5,672 $ 7,926
-------- -------- -------- --------
Real Estate Revenues $ 11,546 $ 9,730 $ 9,296 $ 8,600 $ 7,885
-------- -------- -------- -------- --------
Total Revenues $ 16,305 $ 15,647 $ 15,016 $ 14,272 $ 15,811
-------- -------- -------- -------- --------
Gross Profit
Oil/Gas(a) $ (927) $ 1,316 $ 1,575 $ 747 $ 1,930
-------- -------- -------- -------- --------
Gross Profit
Real Estate(b) $ 2,684 $ 2,420 $ 2,600 $ 2,712 $ 2,415
-------- -------- -------- -------- --------
Total Gross
Profit $ 1,757 $ 3,736 $ 4,175 $ 3,459 $ 4,345
-------- -------- -------- -------- --------
Net Income $ 1,007 $ 5,536 $ 4,709 $ 4,300 $ 3,577
-------- -------- -------- -------- --------
Net income
per share of
common stock(c) $ .11 $ .58 $ .49 $ .44 $ .35
-------- -------- -------- -------- --------
Total assets at
year-end $ 94,601 $102,029 $ 98,378 $104,186 $103,198
-------- -------- -------- -------- --------
Long-term
obligations $ 47,764 $ 51,587 $ 46,299 $ 47,298 $ 50,160
-------- -------- -------- -------- --------
Cash dividends
per share $ .00 $ .00 $ .10 $ .07 $ .06
-------- -------- -------- -------- --------
- -------------
(a) Gross profit relating to oil and gas represents oil and gas revenues less
production costs and related depreciation, depletion and amortization.
(b) Gross profit relating to real estate represents total real estate revenues
less real estate operating costs and related depreciation.
(c) Restated to give effect to stock dividends.
18
<PAGE>
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
(In thousands $ except per share amounts)
1998
--------------------------------------------
1st 2nd 3rd 4th Year
------ ------ ------- ------- -------
Oil/Gas Revenues $1,326 $1,207 $1,275 $ 951 $ 4,759
Real Estate
Revenues $2,727 $2,895 $3,003 $2,921 $11,546
------ ------- ------ ------ -------
Total Revenues $4,053 $4,102 $4,278 $3,872 $16,305
------ ------- ------ ------ -------
Gross Profit
Oil/Gas(a) $ 233 $ (106) $ (88) $ (966) $ (927)
Gross Profit
Real Estate(b) $ 768 $ 702 $ 893 $ 321 $ 2,684
------ ------ ------ ------ -------
Total Gross
Profit $1,001 $ 596 $ 805 (645) $ 1,757
------ ------ ------ ------ -------
Net Income $ 780 $1,064 $ 163 (1,000) $ 1,007
------ ------ ------ ------ -------
Net Income
Per Share $ .08 $ .11 $ .02 (.10) $ .11
------ ------ ------ ------ -------
Cash Dividends
Per Share $ -0- $ -0- $ -0- $ -0- $ -0
------ ------ ------ ------ -------
19
<PAGE>
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
(In thousands $ except per share amounts)
1997
------------------------------------------------
1st 2nd 3rd 4th Year
------- ------- ------- ------- -------
Oil/Gas Revenues $ 1,420 $ 1,422 $ 1,552 $ 1,523 $ 5,917
Real Estate
Revenues $ 2,341 $ 2,450 $ 2,460 $ 2,479 $ 9,730
------- ------- ------- ------- -------
Total Revenues $ 3,761 $ 3,872 $ 4,012 $ 4,002 $15,647
------- ------- ------- ------- -------
Gross Profit
Oil/Gas(a) $ 347 $ (98) $ 389 $ 678 $ 1,316
Gross Profit
Real Estate(b) $ 664 $ 696 $ 652 $ 408 $ 2,420
------- ------- ------- ------- -------
Total Gross
Profit $ 1,011 $ 598 $ 1,041 $ 1,086 $ 3,736
------- ------- ------- ------- -------
Net Income $ 1,716 $ 1,766 $ 1,261 $ 793 $ 5,536
------- ------- ------- ------- -------
Net Income
Per Share(c) $ .18 $ .19 $ .13 $ .08 $ .58
------- ------- ------- ------- -------
Cash Dividends
Per Share $ -0- $ -0- $ -0- $ -0- $ -0-
------- ------- ------- ------- -------
- ----------
(a) Gross profit relating to oil and gas represents oil and gas revenues less
production costs and related depreciation, depletion and amortization.
(b) Gross profit relating to real estate represents total real estate revenues
less real estate operating costs and related depreciation.
(c) Restated to give effect to Stock dividends.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company is engaged in the exploration and development of oil and gas,
both in its own name and through several wholly-owned subsidiaries, on the North
American continent. The Company also conducts real estate operations throughout
the United States.
OIL AND GAS -
The Company conducts its oil and gas operations in the United States and
Canada. Oil and gas operations in the United States are located in Arkansas,
California, Kansas, Nebraska, New Mexico, Ohio, Oklahoma, Pennsylvania, Texas
and Wyoming. In Canada, the Company conducts oil and gas operations in the
Provinces of Alberta, British Columbia and Saskatchewan.
REAL ESTATE -
The Company's real estate operations are conducted in the states of
Arizona, Texas, Florida, Georgia and New Jersey. The Company's properties
consist of apartment complexes as well as commercial and retail properties.
CORPORATE -
The Company holds investments in certain marketable securities. From time
to time, the Company buys and sells securities in the open market. Over the
years, the Company has decreased its holdings in marketable securities and
focused its resources in its oil & gas and real estate divisions.
GENERAL - OIL AND GAS
The Company's oil and gas operating performance is influenced by several
factors. The most significant are the prices received for the sale of oil and
gas and the sales volume. For 1998, the average price of oil that the Company
received was $11.57 compared to $17.42 for 1997, a price decrease of 34%.
Average gas prices received by the Company in 1998 were 13% lower than 1997
average gas prices. The average price of gas for 1998 was $1.51 compared to
$1.74 for 1997.
21
<PAGE>
The following table reflects the average prices received by the Company for
oil and gas, the average production cost per BOE, and the amount of the
Company's oil and gas production for the fiscal years presented:
Fiscal Year Ended December 31
------------------------------------------
1998 1997 1996
Crude Oil and Natural ---- ----- ----
Gas Production:
Oil (Bbls) 141,000 161,000 165,000
Gas (Mcf) 2,060,000 1,860,000 1,583,000
Average sales prices:
Oil (per Bbl) $11.57 $17.42 $19.47
Gas(per MCF) $ 1.51 1.74 $ 1.60
Average production
costs per BOE $ 4.75 $ 4.85 $ 5.15
Sales prices received by the Company for oil and gas have fluctuated
significantly from period to period. The fluctuations in oil prices during these
periods primarily reflected market uncertainty regarding the inability of the
Organization of Petroleum Exporting Countries ("OPEC") to control the production
of its member countries, as well as concerns related to global supply and demand
for crude oil. Gas prices received by the Company fluctuate generally with
changes in the spot market price for gas. It is impossible to predict future
price movements with certainty.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 ("1998") COMPARED WITH YEAR ENDED DECEMBER 31,
1997("1997")
Net income for the year ended December 31 was $1,007,000 in 1998 as
compared to $5,536,000 in 1997.
Oil and gas revenues decreased from $5,917,000 in 1997 to $4,759,000 in
1998. This decrease was attributable to sharp declines in the price of crude oil
in 1998. Average crude oil prices in 1998 were approximately 34% lower in 1998
than 1997.
Real estate revenues increased from $9,730,000 in 1997 to $11,546,000 in
1998. This increase was principally due to higher rents and the operations of
the properties acquired in 1998 and during the fourth quarter of 1997.
Oil and gas production expense was comparable in 1998 and 1997. Oil and gas
production expense amounted to $2,297,000 in 1998 and $2,274,000 in 1997.
Depreciation, depletion and amortization of oil and gas assets amounted to
$2,367,000 in 1998 compared to $2,327,000 in 1997. Also , the Company
additionally provided a depreciation, depletion and amortization ceiling charge
of $1,022,000 in 1998 to reflect the substantial declines in the price of crude
oil. Real estate depreciation was $1,729,000 in 1998 compared to $1,404,000 in
1997.
22
<PAGE>
General and administrative expense was comparable in 1998 and 1997. General
and administrative expense amounted to $1,601,000 in 1998 compared to $1,646,000
in 1997.
The Company realized approximately $4.7 million less in securities gains in
1998 than in 1997. The Company realized gains on sales of marketable securities
of $4,932,000 in 1998 compared to $9,595,000 in 1997.
Interest expense increased from $3,331,000 in 1997 to $3,937,000 in 1998.
This increase is attributable to new first-mortgage indebteness on the Company's
recent real estate acquisitions.
The provision for income taxes includes Federal, state and Canadian taxes.
Differences between the effective tax rate and the statutory income tax rates
are due to foreign resource tax credits in Canada, additional provision to cover
the settlement of a tax examination, and the dividend exclusion in the United
States.
23
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 ("1997") COMPARED WITH YEAR ENDED DECEMBER 31, 1996
("1996")
Net income for the year ended December 31 increased from $4,709,000 in 1996
to $5,536,000 in 1997, an increase of 18%.
Oil and gas revenues increased from $5,720,000 in 1996 to $5,917,000 in
1997. This increase is attributable to production from the Company's active
drilling program for natural gas.
Real estate revenues increased from $9,296,000 in 1996 to $9,730,000 in
1997. This increase was principally due to higher rents and the operations of
the properties acquired in 1997.
Oil and gas production expense was comparable in 1997 and 1996. Oil and gas
production expense amounted to $2,274,000 in 1997 and $2,209,000 in 1996.
Depreciation, depletion and amortization of oil and gas assets amounted to
$2,327,000 in 1997 compared to $1,936,000 in 1996. This increase is principally
attributable to a decrease in the estimated value of the Company's domestic oil
& gas pool in 1997 compared to 1996. Real estate depreciation was $1,404,000 in
1997 compared to $1,157,000 in 1996.
General and administrative expense amounted to $1,646,000 in 1997 compared
to $1,447,000 in 1996. This increase is principally attributable to amounts
related to the Company's non-qualified stock option plan.
The Company realized gains on sales of marketable securities of $9,595,000
in 1997 compared to $8,462,000 in 1996.
Interest expense decreased from $3,939,000 in 1996 to $3,331,000 in 1997.
This decrease is attributable to a reduction in long-term debt during 1997 and
lower interest rates during 1997.
The provision for income taxes includes Federal, state, and Canadian taxes.
Differences between the effective tax rate and the statutory income tax rates
are due to foreign resource tax credits in Canada and the dividend exclusion in
the United States.
24
<PAGE>
EFFECTS OF INFLATION
The effects of inflation on the Company's financial condition are not
considered to be material by management.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." Both SFAS No. 130 and SFAS No. 131
have been adopted in the Company's 1998 financial statements.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998 the Company had approximately $5.0 million in
marketable securities at cost, with a market value of approximately $5.2
million. The current ratio at December 31, 1998 was 1.5 to 1 on a market basis,
which management considers adequate for the Company's current business. The
Company's working capital was approximately $5 million at December 31, 1998.
The Company anticipates that cash provided by operating activities and
investing activities will be sufficient to meet its capital requirements to
acquire oil and gas properties and to drill and evaluate these and other oil and
gas properties presently held by the Company. The level of oil and gas capital
expenditures will vary in future periods depending on market conditions,
including the price of oil and the demand for natural gas, and other related
factors. As the Company has no material long-term commitments with respect to
its oil and gas capital expenditure plans, the Company has a significant degree
of flexibility to adjust the level of its expenditures as circumstances warrant.
The Company plans to actively continue its exploration and production
activities as well as search for the acquisition of oil and gas producing
properties and of companies with desirable oil and gas producing properties.
There can be no assurance that the Company will in fact locate any such
acquisitions.
During the year ended December 31, 1998, the Company acquired five real
estate properties, four of which were acquired from The Trust Company of New
Jersey ("TCNJ") at an aggregate purchase price of approximately $5.6 million.
These transactions were financed with first-mortgage loans from TCNJ. The
Company will explore other real estate acquisitions as they arise. The timing of
any such acquisition will depend on, among other things, economic conditions and
the favorable evaluation of specific opportunities presented to the Company. The
Company is currently planning further acquisitions of investment properties
during the next year. Accordingly, while the Company anticipates that it will
actively explore these and other real estate acquisition opportunities, no
assurance can be given that any such acquisition will occur.
25
<PAGE>
During the year ended December 31, 1998, the Company refinanced with Criimi
Mae and Citicorp the original 1992 mortgage loans on the Company's Arizona
apartment building and Texas apartment complex. These funds were borrowed on a
long-term basis at favorable rates. The proceeds of these loans were used to pay
off the higher-rate original first-mortgage loans and for investment and working
capital purposes.
Net cash provided by (used in) operating activities was $(3,549,000),
$(268,000), and $(486,000) in 1998, 1997 and 1996, respectively. The variations
in the three years principally relate to changes in accounts receivable and
accounts payable and accrued liabilities.
Net cash provided by (used in) investing activities was $4,690,000,
$133,000 and $3,456,000 in 1998, 1997 and 1996, respectively. The variations
principally relate to purchases of real estate properties and transactions in
securities. Purchases of real estate properties amounted to $5,700,000 in 1998,
$9,300,000 in 1997 and $3,000,000 1996. Proceeds from sales and redemptions of
securities amounted to $18,186,000 in 1998, $15,078,000 in 1997 and $10,044,000
in 1996. Additionally, purchases of marketable securities amounted to $3,223,000
in 1998, $2,428,000 in 1997, and $294,000 in 1996.
Net cash provided by (used in) financing activities was $(2,100,000),
$4,483,000 and ($3,374,000) in 1998, 1997 and 1996, respectively. The variations
principally relate to the issuance, refinance, and repayments of long-term debt.
See Footnote No. (4) to the consolidated financial statements for a schedule of
long-term debt.
The Company believes it has adequate capital resources to fund operations
for the foreseeable future.
YEAR 2000 COMPLIANCE
Many businesses and government organizations use computers and other
electronic equipment that read and process dates. This equipment falls into two
categories-information technology ("IT"), such as ordinary computers and
"non-IT" equipment, such as process controllers and devices with embedded
microprocessors. Some IT and non-IT equipment currently in use cannot accurately
read and process certain dates, including several dates in the year 1999 and/or
all dates in the Year 2000 and afterwards (collectively, "Year 2000 Problem").
The Company has implemented a formal Year 2000 program (the "Year 2000
Program") to address its Year 2000 Problem and to investigate the Year 2000
Problem of third parties significant to the Company's business. The Company's
Year 2000 Program has three general components: (i) addressing Year 2000
Problems in the Company's IT and non-IT equipment; (ii) investigating the Year
2000 Problems of such significant third parties; and (iii) contingency planning.
The Company has evaluated its current systems with respect to oil and gas
operations and management feels that it is Year 2000 compliant. With respect to
real estate, management is in the process of evaluating its systems and also
believes the
26
<PAGE>
current systems are Year 2000 compliant. With respect to its non-IT equipment,
the Company and its consultants are presently inventorying, evaluating,
remediating and testing this equipment. The Company expects to complete its Year
2000 Program for IT and non-IT equipment by mid-1999.
The Company is also requesting information on the Year 2000 Problems of
third parties significant to the Company's business, including banks, major
suppliers and customers. The Company has received and is evaluating the
responses from many of these entities and is in the process of requesting more
information as appropriate. Based on these responses, the Company's obligations
to its customers, and the information gathered from its Year 2000 Program, the
Company is developing contingency plans to minimize the impact of Year 2000
Problems on its business should any such problems occur. The Company expects to
substantially complete its investigation of the Year 2000 Problems of its major
suppliers, third party service providers and customers and form contingency
plans by mid-1999, but also expects that these activities will continue through
1999 as more information becomes available to the Company. The Company has
incurred costs of approximately $27,000 in connection with evaluating Year 2000
compliance of its IT Systems.
The Company does not believe that the costs of its Year 2000 Program will
be material to its financial condition or results of operations. Costs incurred
in connection with evaluating Year 2000 compliance of its non-IT systems have
not been material to date. The Company does not believe that future costs, if
any, of addressing the Year 2000 Problems of its non-IT systems will have a
material effect on its financial condition or results of operations. The Company
also intends to continue to use its personnel in evaluating the Year 2000
Problems of those third parties who the Company believes are significant to the
Company's business, including its suppliers, third party service providers and
customers, and to formulate contingency plans. The Company expects that the
source of any funds that may be necessary to pay the costs of addressing its
Year 2000 Problems will be provided from cash balances or cash generated from
operations. The Company intends to charge such costs against earnings as the
costs are incurred.
Management believes that it has taken reasonable steps to address its Year
2000 Problems and to evaluate the Year 2000 compliance status of key third
parties with whom the Company does business. Notwithstanding these actions,
however, the Company cannot ensure that all of its Year 2000 Problems or those
of its key suppliers, service providers or customers will be resolved or
addressed satisfactorily before the Year 2000 commences. Management believes
that the "most reasonably likely worst case scenario" could involve the failure
of such third parties to address their Year 2000 Problems. If the Company's key
suppliers, service providers, customers and other third parties fail to address
their Year 2000 Problems, and there are no alternates available to the Company,
then the Company's usual channels of supply and distribution would be disrupted,
in which event the Company could experience a material adverse impact on its
business, results of operations or financial condition.
27
<PAGE>
FORWARD-LOOKING STATEMENTS
This Report on Form 10-K for the year ended December 31, 1998 contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements included herein other than
statements of historical fact are forward-looking statements. Although the
Company believes that the underlying assumptions and expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to be correct. The Company's business and prospects
are subject to a number of risks which could cause actual results to differ
materially from those reflected in such forward-looking statements, including
volatility of oil & gas prices, the need to develop and replace reserves, risks
involved in exploration and drilling, uncertainties about estimates of reserves,
environmental risks relating to the Company's oil & gas and real estate
properties, competition, the substantial capital expenditures required to fund
the Company's oil & gas and real estate operations, market and economic changes
in areas where the Company holds real estate properties, interest rate
fluctuations, government regulation, and the ability of the Company to implement
its business strategy.
28
<PAGE>
FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 69 DISCLOSURES
The following disclosures are those required to be made by publicly traded
enterprises under Financial Accounting Standards Board Statement No. 69,
Disclosures About Oil and Gas Producing Activities.
The SEC defines proved oil and gas reserves as those estimated quantities
of crude oil, natural gas and natural gas liquids 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 oil and gas reserves are those that can be
recovered through existing wells with existing equipment and operating methods.
29
<PAGE>
Estimated quantities of proved oil and gas reserves are as follows:
Disclosures of Oil and Gas Producing Activities as
Required by Financial Accounting Standards
Board Statement No. 69
(000's Omitted)
<TABLE>
<CAPTION>
Crude Oil, Condensate and Natural Gas Liquids
(Barrels)
----------------------------------------------------
United States Canada
---------------------- -------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Proved Reserves-Beginning of Year 1,405 1,545 1,803 1,194 1,201 1,296
Revisions of previous estimates 60 (52) (176) 12 (24) (51)
Sale of minerals in place -0- -0- -0- -0- -0- -0-
Extensions and discoveries 35 13 39 -- 77 -0-
Production (88) (101) (121) (53) (60) (44)
----- ----- ----- ----- ----- -----
Proved Reserves-End of Year 1,412 1,405 1,545 1,153 1,194 1,201
----- ----- ----- ----- ----- -----
Proved Developed Reserves-
Beginning of Year 423 607 855 834 867 915
----- ----- ----- ----- ----- -----
End of Year 430 423 607 755 834 867
===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Natural Gas
---------------------------------------------------------
(MCF)
---------------------------------------------------------
United States Canada
------------------------- --------------------------
1998 1997 1996 1998 1997 1996
---- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Proved Reserves-Beginning of Year 6,731 6,798 6,778 33,629 26,000 26,212
Revisions of previous estimates 610 856 750 (6,037) (1,968) 514
Sale of minerals in place -0- -0- -0- -0- -0- -0-
Extensions and discoveries 13 124 127 12,458 10,410 -0-
Production 1,039) 1,047) (857) (1,021) (813) (726)
------- ------- ------- ------- ------- -------
Proved Reserves-End of Year 6,315 6,731 6,798 39,029 33,629 26,000
------- ------- ------- ------- ------- -------
Proved Developed Reserves-
Beginning of Year 6,731 6,798 6,778 31,378 25,364 24,819
------- ------- ------- ------- ------- -------
End of Year 6,315 6,731 6,798 32,799 31,387 25,364
======= ======= ======= ======= ======= =======
</TABLE>
30
<PAGE>
Standardized Measure of Discounted Future Net Cash Flows
Related to Proved Oil and Gas Reserves
For The Years Ended December 31
(000's Omitted)
United States Canada
------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
Future cash flows 28,587 $41,648 $86,948 $77,242
------- ------- ------- -------
Future costs:
Production 10,100 13,540 19,056 18,053
Development, dismantlement
& abandonment 1,603 1,603 2,073 1,822
------- ------- ------- -------
Total Future Costs $11,703 $15,143 $21,129 $19,875
------- ------- ------- -------
Future net inflows-Before
income tax $16,884 $26,505 $65,819 $57,367
Future income taxes $ 4,282 $ 6,888 $22,352 $19,407
------- ------- ------- -------
Future net cash flows $12,602 $19,617 $43,467 $37,960
10% Discount factor 4,753 6,353 24,777 22,000
------- ------- ------- -------
Standardized measure of
discounted future net
cash flows $ 7,849 $13,264 $18,690 $15,960
======= ======= ======= =======
Estimated future cash inflows are computed by applying year-end prices of
oil and gas to year-end quantities of proved reserves. Future price changes are
considered only to the extent provided by contractual arrangements. Estimated
future development and production costs are determined by estimating the
expenditures to be incurred in developing and producing the proved oil and gas
reserves at the end of the year, based on year-end costs and assuming
continuation of existing economic conditions. Estimated future income tax
expenses are calculated by applying year-end statutory tax rates (adjusted for
permanent differences and tax credits) to estimated future pretax net cash flows
related to proved oil and gas reserves, less the tax basis of the properties
involved.
These estimates are furnished and calculated in accordance with
requirements of the Financial Accounting Standards Board and the SEC. Due to
unpredictable variances in expenses and capital forecasts, crude oil and natural
gas price changes and the fact that the basis for such estimates vary
significantly, management believes the usefulness of these projections is
limited. Estimates of future net cash flows do not represent management's
assessment of future profitability or future cash flow to the Company.
Management's investment and operating decisions are based upon reserve estimates
that include proved reserves prescribed by the SEC as well as probable reserves,
and upon different price and cost assumptions from those used here. It should be
recognized that applying current costs and prices at a 10 percent standard
discount rate allows for
31
<PAGE>
comparability but does not convey absolute value. The discounted amounts arrived
at are only one measure of financial quantification of proved reserves.
There were no oil and gas estimates filed with or included in reports to
any other federal or foreign governmental authority or agency within the last
twelve months.
Reserves in the United States were estimated by Ramsey Engineering Inc. and
the Company. Reserves in Canada were estimated by Citidal Engineering, Ltd.
"Total Costs Both Capitalized and Expensed, Incurred in Oil and Gas
Producing Activities" (including capitalized interest), "Cost Incurred in
Property Acquisition, Exploration and Development Activities" and "Results of
Operations from Oil and Gas Producing Activities" during the three years ended
December 31, 1998, 1997 and 1996 are included in Note 9 of the Notes to
Consolidated Financial Statements, presented elsewhere herein.
The standardized measure of discounted estimated future net cash flows and
changes therein related to proved oil and gas reserves is as follows:
Changes in Standardized Measure of
Discounted Future Net Cash Flow from Proved Reserve Quantities
(000's Omitted)
1998 1997 1996
---- ---- ----
Standardized Measure -
Beginning of Year $ 29,224 $ 31,405 $ 29,095
Sales and transfers - Net
of Production Costs (2,785) (3,643) (3,490)
Extensions and discoveries 6,116 4,421 690
Net change in sales price (3,917) (4,554) 10,899
Revision of quantity estimates (2,831) (1,184) (1,424)
Proceeds from Sales of
Minerals in Place -0- -0 -0-
Accretion of discount 2,730 2,984 2,463
Net change in income taxes (357) 1,639 (2,010)
Change in production rates-
Other (1,641) (1,844) (4,818)
-------- -------- --------
Standardized measure -
End of year $ 26,539 $ 29,224 $ 31,405
-------- -------- --------
32
<PAGE>
ITEM 8 -- FINANCIAL STATEMENTS
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-8
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and
Board of Directors of
Wilshire Oil Company of Texas:
We have audited the accompanying consolidated balance sheets of Wilshire Oil
Company of Texas (a Delaware corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. 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 financial position of Wilshire Oil Company of Texas
and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 26, 1999
F-2
<PAGE>
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
------ 1998 1997
------------ --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,444,000 $ 5,534,000
Marketable securities, available for sale, at fair value (Notes 2, 3 and 4) 5,162,000 17,947,000
Accounts receivable (Note 2) 2,515,000 1,061,000
Income taxes receivable (Note 6) 746,000 0
Prepaid expenses and other current assets 1,359,000 949,000
------------- -------------
Total current assets 14,226,000 25,491,000
------------- -------------
PROPERTY AND EQUIPMENT (Notes 2, 4, 8 and 9):
Oil and gas properties, using the full cost method of accounting 133,804,000 133,509,000
Real estate properties 58,773,000 50,901,000
Other property and equipment 446,000 421,000
------------- -------------
193,023,000 184,831,000
Less- Accumulated depreciation, depletion and amortization 112,648,000 108,293,000
------------- -------------
80,375,000 76,538,000
------------- -------------
$ 94,601,000 $ 102,029,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 4) $ 6,502,000 $ 3,324,000
Accounts payable 1,782,000 1,856,000
Income taxes payable (Note 6) 0 1,517,000
Dividends payable 0 18,000
Accrued liabilities (Note 7) 928,000 1,575,000
------------- -------------
Total current liabilities 9,212,000 8,290,000
------------- -------------
LONG-TERM DEBT, less current portion (Note 4) 47,764,000 51,587,000
------------- -------------
DEFERRED INCOME TAXES (Notes 2 and 6) 11,891,000 13,415,000
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY (Notes 2 and 7):
Preferred stock, $1 par value, 1,000,000 shares authorized; none
issued and outstanding in 1998 and 1997 0 0
Common stock, $1 par value, 15,000,000 shares authorized;
issued 10,013,544 shares in 1998 and 1997 10,014,000 10,014,000
Capital in excess of par value 9,146,000 9,522,000
Treasury stock, 878,348 and 618,147 shares in 1998 and
1997, respectively, at cost (5,303,000) (3,857,000)
Retained earnings 15,274,000 14,267,000
Accumulated other comprehensive loss (3,397,000) (1,209,000)
------------- -------------
25,734,000 28,737,000
------------- -------------
$ 94,601,000 $ 102,029,000
============= =============
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these balance sheets.
F-3
<PAGE>
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES (Notes 2, 8 and 9):
Oil and gas $ 4,759,000 $ 5,917,000 $ 5,720,000
Real estate 11,546,000 9,730,000 9,296,000
------------ ------------ ------------
Total revenues 16,305,000 15,647,000 15,016,000
------------ ------------ ------------
COSTS AND EXPENSES (Notes 5, 8 and 9):
Oil and gas production expenses 2,297,000 2,274,000 2,209,000
Real estate operating expenses 7,133,000 5,906,000 5,539,000
Depreciation and amortization 1,752,000 1,435,000 1,179,000
Depreciation, depletion and amortization of oil
and gas properties 2,367,000 2,327,000 1,936,000
Depreciation depletion and amortization ceiling
charge (Note 2) 1,022,000 0 0
General and administrative 1,601,000 1,646,000 1,447,000
------------ ------------ ------------
Total costs and expenses 16,172,000 13,588,000 12,310,000
------------ ------------ ------------
Income from operations 133,000 2,059,000 2,706,000
GAIN ON SALES OF MARKETABLE
SECURITIES 4,932,000 9,595,000 8,462,000
OTHER INCOME, net (Note 3) 636,000 463,000 362,000
INTEREST EXPENSE (Note 4) (3,937,000) (3,331,000) (3,939,000)
------------ ------------ ------------
Income before provision
for income taxes 1,764,000 8,786,000 7,591,000
PROVISION FOR INCOME TAXES (Note 6) 757,000 3,250,000 2,882,000
------------ ------------ ------------
Net income $ 1,007,000 $ 5,536,000 $ 4,709,000
============ ============ ============
BASIC AND DILUTED EARNINGS PER SHARE $ 0.11 $ 0.58 $ 0.49
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE>
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ----------------------- Capital in
Shares Shares Excess of Par
Issued Amount Issued Amount Value
------- ------- --------- ----------- ---------- -
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 0 $ 0 10,013,544 $10,014,000 $9,925,000
Comprehensive income, year ended December 31, 1996-
Net income 0 0 0 0 0
Other comprehensive income-
Net translation adjustment 0 0 0 0 0
Change in unrealized gain on marketable securities,
net of income taxes of $4,071,000 0 0 0 0 0
Comprehensive income
Amortization of deferred compensation (Note 5) 0 0 0 0 (237,000)
Exercise of stock options (Note 5) 0 0 0 0 12,000
Purchase of treasury stock 0 0 0 0 0
Payment of cash dividends, $.10 per common share 0 0 0 0 0
---- ---- ----------- ----------- ----------
BALANCE, December 31, 1996 0 0 10,013,544 10,014,000 9,700,000
Comprehensive income, year ended December 31, 1997-
Net income 0 0 0 0 0
Other comprehensive income-
Net translation adjustment, current year 0 0 0 0 0
Change in unrealized gain on marketable securities, net
of income taxes of $1,324,000 0 0 0 0 0
Comprehensive income
Stock dividend (Notes 2 and 5) 0 0 0 0 (206,000)
Amortization of deferred compensation (Note 5) 0 0 0 0 82,000
Exercise of stock options (Note 5) 0 0 0 0 (54,000)
Purchase of treasury stock 0 0 0 0 0
---- ---- ----------- ----------- ----------
BALANCE, December 31, 1997 0 0 10,013,544 10,014,000 9,522,000
Comprehensive loss, year ended December 31, 1998-
Net income 0 0 0 0 0
Other comprehensive income-
Net translation adjustment, current year 0 0 0 0 0
Change in unrealized gain on marketable securities, net
of income taxes of $97,000 0 0 0 0 0
Comprehensive loss
Amortization of deferred compensation (Note 5) 0 0 0 0 (366,000)
Exercise of stock options (Note 5) 0 0 0 0 (10,000)
Purchase of treasury stock 0 0 0 0 0
---- ---- ----------- ----------- ----------
BALANCE, December 31, 1998 0 $ 0 $10,013,544 $10,014,000 $9,146,000
==== ==== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Treasury Comprehensive Retained Comprehensive
Stock Income (Loss) Earnings Income (Loss)
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995 ($ 4,010,000) $ 7,086,000 $ 6,459,000
Comprehensive income, year ended December 31, 1996-
Net income 0 0 4,709,000 $ 4,709,000
-----------
Other comprehensive income-
Net translation adjustment 0 (88,000) 0 (88,000)
Change in unrealized gain on marketable securities,
net of income taxes of $4,071,000 0 (4,470,000) 0 (4,470,000)
Comprehensive income $ 151,000
===========
Amortization of deferred compensation (Note 5) 0 0 0
Exercise of stock options (Note 5) 5,000 0 0
Purchase of treasury stock (846,000) 0 0
Payment of cash dividends, $.10 per common share 0 0 (931,000)
------------ ------------ ------------ -----------
BALANCE, December 31, 1996 (4,851,000) 2,528,000 10,237,000
Comprehensive income, year ended December 31, 1997-
Net income 0 0 5,536,000 $ 5,536,000
-----------
Other comprehensive income-
Net translation adjustment, current year 0 (380,000) 0 (380,000)
Change in unrealized gain on marketable securities, net
of income taxes of $1,324,000 0 (3,357,000) 0 (3,357,000)
-----------
Comprehensive income $ 1,799,000
===========
Stock dividend (Notes 2 and 5) 1,694,000 0 (1,506,000)
Amortization of deferred compensation (Note 5) 0 0 0
Exercise of stock options (Note 5) 163,000 0 0
Purchase of treasury stock (863,000) 0 0
------------ ------------ ------------ -----------
BALANCE, December 31, 1997 (3,857,000) (1,209,000) 14,267,000
Comprehensive loss, year ended December 31, 1998-
Net income 0 0 1,007,000 $ 1,007,000
===========
Other comprehensive income-
Net translation adjustment, current year 0 (687,000) 0 (687,000)
Change in unrealized gain on marketable securities, net
of income taxes of $97,000 0 (1,501,000) 0 (1,501,000)
-----------
Comprehensive loss ($1,181,000)
===========
Amortization of deferred compensation (Note 5) 0 0 0
Exercise of stock options (Note 5) 17,000 0 0
Purchase of treasury stock (1,463,000) 0 0
------------ ------------ ------------
BALANCE, December 31, 1998 ($ 5,303,000) ($ 3,397,000) $ 15,274,000
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE>
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,007,000 $ 5,536,000 $ 4,709,000
Adjustments to reconcile net income to net cash
used in operating activities-
Depreciation, depletion and amortization 5,141,000 3,762,000 3,115,000
Deferred income tax (benefit) provision (204,000) 740,000 1,168,000
Adjustment of deferred and unearned
compensation in connection with
nonqualified stock option plan, net (105,000) (22,000) (119,000)
Gain on sales of marketable securities (4,932,000) (9,595,000) (8,462,000)
Foreign currency transactions 410,000 0 (83,000)
Changes in operating assets and liabilities-
Decrease (increase) in accounts receivable (1,454,000) 794,000 (842,000)
Increase income taxes receivable (746,000) 0 0
Increase in prepaid expenses
and other current assets (410,000) (507,000) (101,000)
(Decrease) increase in dividends payable (18,000) (445,000) 463,000
(Decrease) increase in other liabilities 0 (814,000) 814,000
(Decrease) increase in accounts payable,
accrued liabilities and taxes payable (2,238,000) 283,000 (1,148,000)
------------ ------------ ------------
Net cash used in operating activities (3,549,000) (268,000) (486,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (10,273,000) (12,517,000) (6,294,000)
Purchases of marketable securities (3,223,000) (2,428,000) (294,000)
Proceeds from sales and redemptions of
marketable securities 18,186,000 15,078,000 10,044,000
------------ ------------ ------------
Net cash (used in) provided by
investing activities 4,690,000 133,000 3,456,000
------------ ------------ ------------
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt $ 12,179,000 $ 36,790,000 $ 18,670,000
Principal payments of long-term debt (12,823,000) (31,090,000) (20,272,000)
Purchase of treasury stock (1,463,000) (863,000) (846,000)
Cash dividends 0 (463,000) (931,000)
Exercise of stock options 7,000 109,000 5,000
------------ ------------ ------------
Net cash provided by (used in)
financing activities (2,100,000) 4,483,000 (3,374,000)
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH (131,000) (6,000) (5,000)
------------ ------------ ------------
Net (decrease) increase in cash
and cash equivalents (1,090,000) 4,342,000 (409,000)
CASH AND CASH EQUIVALENTS,
beginning of year 5,534,000 1,192,000 1,601,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 4,444,000 $ 5,534,000 $ 1,192,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES TO THE
STATEMENTS OF CASH FLOWS:
Cash paid during the year for-
Interest $ 4,303,000 $ 3,623,000 $ 4,019,000
Income taxes, net 3,058,000 2,449,000 3,318,000
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-7
<PAGE>
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS:
Wilshire Oil Company of Texas (the Company) is a diversified corporation
engaged in oil and gas exploration and production and real estate
operations. The Company's oil and gas operations are conducted, both in its
own name and through several wholly-owned subsidiaries, in the United
States and Canada. Oil and gas operations in the United States are located
in Arkansas, California, Kansas, Nebraska, New Mexico, Ohio, Oklahoma,
Pennsylvania, Texas and Wyoming. In Canada, the Company conducts oil and
gas operations in the Provinces of Alberta, British Columbia and
Saskatchewan. Crude oil and natural gas production is sold to oil
refineries and natural gas pipeline companies. The Company's real estate
holdings are located in the states of Arizona, Florida, New Jersey, Georgia
and Texas. The Company also maintains investments in marketable securities,
which are available for sale.
(2) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Significant accounting policies followed by the Company and its
subsidiaries are as follows-
Basis of Presentation-
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. Significant intercompany
account balances and transactions among subsidiaries have been
eliminated.
Use of Estimates-
The preparation of these financial statements in conformity with
generally accepted accounting principals requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash And Cash Equivalents-
The Company considers cash and cash equivalents to include deposits
with banks having a maturity of three months or less from date of
purchase.
F-8
<PAGE>
Marketable Securities, Available for Sale-
As of December 31, 1998 and 1997, the marketable securities of the
Company consist primarily of equity securities, all of which are
classified as available for sale. These securities are carried at fair
value based upon quoted market prices. Differences between an
investment's cost and its fair value are charged (credited) directly
to shareholders' equity, net of related income taxes. The cost of
securities sold is determined on a specific identification basis.
As of December 31, 1998 and 1997, the unrealized holding gains, net of
any losses, of these securities were $215,000 and $2,943,000,
respectively. The net unrealized holding gains are included as a
credit to shareholders' equity, net of income taxes of $97,000 and
$1,324,000 for 1998 and 1997, respectively.
Included in accounts receivable at December 31, 1998 is approximately
$1.4 million due from broker, related to sales of marketable
securities in 1998 which settled in 1999.
Property And Equipment-
Oil And Gas Properties-
The Company follows the accounting policy, generally known in the oil
industry as "full cost accounting," of capitalizing all costs,
including interest costs, relating to the exploration for and
development of its mineral resources. Under this method, all costs
incurred in the United States and Canada are accumulated in separate
cost centers and are amortized using the gross revenue method based on
total future estimated recoverable oil and gas reserves.
Capitalized costs are subject to a "ceiling" test that limits such
costs to the aggregate of the estimated present value of the future
net revenues of proved reserves and the lower of cost or fair value of
unproved properties. Due to this limitation, during 1998 the Company
provided an additional charge for depreciation, depletion and
amortization of $1,022,000 to reflect substantial declines in the
prices received for oil and gas. This additional charge is included in
depreciation, depletion and amortization in the accompanying
consolidated statements of income. Management is of the opinion that,
based on reserve reports of petroleum engineers and geologists, the
fair value of the estimated recoverable oil and gas reserves, after
the additional charge discussed above, exceeds the unamortized cost of
oil and gas properties at December 31, 1998 and 1997.
Real Estate And Other Properties-
Real estate properties and other property and equipment are stated at
cost. Depreciation is provided on the straight-line method using an
estimated useful life of 30 to 35 years for real estate buildings and
at various rates based upon the estimated useful lives of the other
property and equipment.
As of December 31, 1998 and 1997, real estate properties consist of
land with an aggregate cost of $14,952,000 and $11,627,000, buildings
with an aggregate cost of $38,218,000 and $35,724,000 and furniture
and fixtures with an aggregate cost of $5,603,000 and $3,550,000,
respectively.
F-9
<PAGE>
Impairment of Property and Equipment-
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets" (SFAS 121) for their non oil and
gas producing assets. The adoption of this standard did not have an
impact on the Company's financial condition or results of operations.
In addition, as of December 31, 1998, the Company has determined that
no impairment has occurred in accordance with the measurement criteria
prescribed by SFAS 121.
Revenue Recognition-
Revenue from oil and gas properties is recognized at the time these
products are delivered to third party purchasers. Revenue from real
estate properties is recognized during the period in which the
premises are occupied and rent is due from the tenant. Because
revenues from both oil and gas and real estate operations are
collected in a relatively short period, no allowance is required for
uncollectible accounts.
Deferred Income Taxes-
Certain transactions are recorded on the books of the Company in a
period different from that in which these transactions are reported
for income tax purposes. These transactions, as well as other
temporary differences between the basis in assets and liabilities for
financial reporting and income tax purposes, result in deferred income
taxes. The principal transactions are those related to intangible
drilling costs, exploration costs, expired leases, depreciation and
nonproducing well costs (see Note 6).
Foreign Operations-
The assets and liabilities of the Company's Canadian subsidiary have
been translated at current exchange rates, and related revenues and
expenses have been translated at average annual exchange rates. The
aggregate effect of translation losses has been reflected as a
component of accumulated other comprehensive loss until the sale or
liquidation of the underlying foreign investment.
Unremitted earnings of the Canadian subsidiary are intended to be
permanently invested in Canada and are subject to foreign taxes
substantially equivalent to United States Federal income taxes. The
unremitted earnings on which the Company has not been required to
provide Federal income taxes amounted to approximately $15,139,000 at
December 31, 1998.
Accounting for Stock-Based Compensation-
The Company has adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). As of
December 31, 1998 and 1997, there are several stock option plans
subject to the provisions of SFAS 123. The adoption of this
pronouncement had no impact on the Company's financial condition or
results of operations, however, additional disclosures have been
included in the financial statements (see Note 5).
F-10
<PAGE>
Net Income Per Common Share-
On December 22, 1997, the Company declared a 3% stock dividend to
shareholders of record on January 16, 1998. The dividend was paid on
February 20, 1998.
The Company has adopted FASB Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (SFAS 128). SFAS 128 replaced
the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Basic earnings per share
excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share gives effect to all potentially
dilutive common shares that were outstanding during the period.
The following table sets forth the computation of basic and diluted
earnings per share-
1998 1997 1996
----------- ----------- -----------
Numerator-
Net income -
Basic and Diluted $1,007,000 $5,536,000 $4,709,000
========== ========== ==========
Denominator-
Weighted average common shares
outstanding - Basic 9,297,119 9,522,167 9,568,502
Incremental shares from assumed
conversions of stock options 47,628 89,182 89,695
---------- ---------- ----------
Weighted average common shares
outstanding - Diluted 9,344,747 9,611,349 9,658,197
========== ========== ==========
Basic earnings per share $ 0.11 $ 0.58 $ 0.49
Diluted earnings per share $ 0.11 $ 0.58 $ 0.49
Accumulated Other Comprehensive Income-
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," (SFAS 130) which
establishes standards for reporting comprehensive income and its
components in annual and interim financial statements. The Company
adopted SFAS 130 as of January 1, 1998. In the Company's case,
comprehensive income includes net income, unrealized gains on
available-for-sale securities and foreign currency transaction
adjustments. The Company has chosen to disclose Comprehensive Income
in the Consolidated Statement of Shareholders' Equity.
<PAGE>
Changes in the components of Accumulated Other Income (Loss) for the
years 1996, 1997 and 1998 are as follows-
<TABLE>
<CAPTION>
Unrealized Gains on Cumulative Accumulated Other
Available-for-Sale Foreign Currency Comprehensive Income
Securities Translation Adjustment (Loss)
------------------ ------------------------- ----------------------
<S> <C> <C> <C>
BALANCE, December 31, 1995 $ 9,446,000 ($2,360,000) $ 7,086,000
Change for the year 1996 (4,470,000) (88,000) (4,558,000)
----------- ----------- -----------
BALANCE, December 31, 1996 4,976,000 (2,448,000) 2,528,000
Change for the year 1997 (3,357,000) (380,000) (3,737,000)
----------- ----------- -----------
BALANCE, December 31, 1997 1,619,000 (2,828,000) (1,209,000
Change for the year 1998 (1,501,000) (687,000) (2,188,000)
----------- ----------- -----------
BALANCE, December 31, 1998 $ 118,000 ($3,515,000) ($3,397,000)
=========== =========== ===========
</TABLE>
Reclassifications-
Certain reclassifications have been made to the 1997 and 1996
financial information to conform to the 1998 presentation.
(3) INVESTMENT IN PREFERRED STOCK OF THE TRUST COMPANY OF NEW JERSEY:
At December 31, 1997, the Company owned 37,500 shares of The Trust Company
of New Jersey's (The Trust Company) 9-3/4% preferred stock, stated at its
original cost, which approximated market value. As of December 31, 1997,
37,500 shares, or $3,750,000 of preferred stock is included in marketable
securities, available for sale in the accompanying consolidated balance
sheet.
During 1997, The Trust Company redeemed 22,500 shares of preferred stock at
its stated value of $2,250,000. During 1998, the Trust Company redeemed the
remaining 37,500 shares of preferred stock at its stated value of
$3,750,000 and accordingly, no preferred stock is held by the Company at
December 31, 1998.
Annual dividends of approximately $201,000, $475,000 and $585,000 were
received on the preferred shares in 1998, 1997 and 1996, respectively, and
are included in other income.
(4) LONG-TERM DEBT:
Long-term debt as of December 31 consisted of the following-
1998 1997
----------- -----------
Mortgage notes payable (a) $25,094,000 $25,824,000
Mortgage notes payable (b) 23,098,000 17,527,000
Note payable (c) 3,074,000 8,560,000
Promissory note (d) 2,000,000 2,000,000
Revolving line of credit (e) 1,000,000 1,000,000
----------- -----------
54,266,000 54,911,000
Less - Current portion 6,502,000 3,324,000
----------- -----------
$47,764,000 $51,587,000
=========== ===========
F-12
<PAGE>
- ------------------
(a) At December 31, 1998, the Company had mortgage notes payable to The Trust
Company totaling $25,094,000 payable in installments, bearing interest at a
weighted average effective interest rate of 7.75%. These mortgage notes are
secured by a first mortgage interest in the Company's real estate
properties and mature at various dates through January 2009.
(b) The Company paid in full, prior to maturity, two mortgage notes in each
1998 and 1997 to The Trust Company, discussed in (a), and refinanced these
four loans with Criimi Mae/Citicorp Real Estate (Criimi Mae). The Criimi
Mae notes are payable in monthly installments, bear a weighted average
interest at a rate of 7.37% and mature between November 2007 and July 2008.
(c) The note payable to The Trust Company bears interest at the prime lending
rate (7.75% at December 31, 1998), matures in July 1999 and is secured by
certain marketable securities.
(d) The promissory note at December 31, 1998 bears interest at the bank's
certificate of deposit rate plus one percent (5.27% at December 31, 1998
and is payable in full in June 1999). The promissory note at December 31,
1997 was paid in full during 1998.
(e) During 1997, the Company obtained an unsecured $1,000,000 revolving line of
credit from The Trust Company. During 1998, the revolving line of credit
was increased to $2,000,000. This loan bears interest at the prime lending
rate and matures in June, 1999. At December 31, 1998 the unused portion of
the revolving line of credit was $1,000,000.
The aggregate maturities of the long-term debt in each of the five years
subsequent to 1998 and thereafter are-
1999 $ 6,502,000
2000 712,000
2001 2,630,000
2002 558,000
2003 3,309,000
Thereafter 40,555,000
-----------
$54,266,000
===========
(5) STOCK OPTIONS:
Under various stock option plans adopted prior to 1995, stock options to
purchase an aggregate of 338,877 shares of common stock were outstanding to
officers, key consultants and employees at December 31, 1998. No additional
options may be granted under these plans.
In June 1995, the Company adopted two new stock-based compensation plans
(1995 Stock Option and Incentive Plan "Incentive Plan"; and 1995
Non-employee Director Stock Option Plan "Director Plan") under which, up to
450,000 and 150,000 shares, respectively, are available for grant. During
1996 and 1998, the Company granted 35,000 and 5,000 options, respectively,
to purchase common stock under the Director Plan. No options were granted
under either plan during 1997. At December 31, 1998, 3,090 and 77,170
options were outstanding under the Incentive Plan and Director Plan,
respectively.
F-13
<PAGE>
The number and terms of the options granted under these plans are determined by
the Company's Stock Option Committee (the Committee) based on the fair market
value of the Company's common stock on the date of grant. The period during
which an option may be exercised varies, but no option may be exercised after
ten years from the date of grant.
The Company has adopted the provisions of SFAS 123, "Accounting For Stock-Based
Compensation." As permitted by the statement, the Company has chosen to continue
to account for stock-based compensation using the intrinsic value method.
Accordingly, no compensation expense has been recognized for its stock-based
compensation plans. Had the fair value method of accounting been applied to the
Company's stock option plans, which requires recognition of compensation cost
ratably over the vesting period of the underlying equity instruments, net income
would have been reduced by $52,000 with $.01 per share effect in 1998, $41,000
with no per share effect in 1997 and $96,000 with $.01 per share effect in 1996.
This pro forma impact only takes into account options granted since January 1,
1995 and is likely to increase in future years as additional options are granted
and amortized ratably over the vesting period. The average fair value of options
granted during 1998 and 1996 was $3.14 and $2.66. There were no options granted
during 1997.
The fair value was estimated using the Black-Scholes option-pricing model based
on the weighted average market price at grant date of $6.00 in 1998 and $6.31 in
1996 and the following weighted average assumptions; risk-free interest rate of
5.78% for 1998 and 6.87% for 1996, volatility of 26.07% for 1998 and 24.26% for
1996, and no dividend yield for 1998 and a dividend yield of 1.6% for 1996.
The following table summarizes stock option activity for 1998 and 1997-
<TABLE>
<CAPTION>
1998 1997
-------------------- ---------------------
Price Price
Shares Low-High Shares Low-High
-------- --------- -------- ----------
<S> <C> <C> <C> <C>
Options outstanding at
beginning of year 420,839 $1.00-6.71 440,188 $1.00-6.71
Options granted 5,000 6.31 0 --
Adjustment for stock dividend (b)
0 -- 12,239 --
Options exercised (2,798) 1.49-2.37 (25,725) 2.98-3.99
Options terminated and
expired (3,974) 3.87-4.31 (5,863) 3.49
-------- ---------- -------- ----------
Options outstanding at
end of year (a) 419,067 $1.00-6.71 420,839 $1.00-6.71
======== ========== ======== ==========
Options exercisable at
end of year (b) 376,781 $1.00-6.71 357,800 $1.00-6.71
======== ========== ======== ==========
</TABLE>
- ----------
(a) At December 31, 1998, options outstanding include 231,616 options ($1.00 to
$4.44 per share) granted to certain employees and key consultants whereby
the initial option price as determined by the Committee is subject to
reduction (to a minimum of $1.00) by an amount equal to the increase in
market value from the date of grant. Included in these options are 219,226
options with attached stock appreciation rights, pursuant to which the
Company may elect to grant cash, stock or a combination of cash and stock
in lieu of
F-14
<PAGE>
the stock appreciation value. Additional compensation attributable to these
options is charged to income or capitalized as exploration and development
costs over calculated periods of employment based on the duties performed
by the individuals awarded the options. During 1998, 1997 and 1996,
$105,000, $22,000 and $119,000, respectively, was credited to operations,
and $261,000, $60,000 and $118,000, respectively, was credited to oil and
gas properties relating to such options.
As of December 31, 1998 and 1997, included in accrued liabilities is
$814,000 payable to certain individuals for stock appreciation rights.
These amounts are currently payable under certain conditions.
(b) Option prices in 1997 have been adjusted to reflect the 3% stock dividend
declared in 1997.
(6) INCOME TAXES:
Income taxes consist of the following-
1998 1997 1996
----------- ----------- -----------
Federal-
Current $ 900,000 $ 2,234,000 $ 1,304,000
Deferred (377,000) 350,000 1,105,000
----------- ----------- -----------
523,000 2,584,000 2,409,000
----------- ----------- -----------
Foreign-
Current 42,000 $ 104,000 $ 110,000
Deferred 173,000 166,000 63,000
----------- ----------- -----------
215,000 270,000 173,000
----------- ----------- -----------
State 19,000 396,000 300,000
----------- ----------- -----------
Total $ 757,000 $ 3,250,000 $ 2,882,000
=========== =========== ===========
A reconciliation of the differences between the effective tax rate and the
statutory U. S. income tax rate is as follows-
1998 1997 1996
---------- ---------- ----------
Federal income tax provision
at statutory rate $ 600,000 $3,075,000 $2,657,000
State income tax provision, net of
Federal benefit 13,000 257,000 195,000
Impact of foreign operations (176,000) 80,000 17,000
Dividend exclusion (90,000) (162,000) (191,000)
Provision for Internal Revenue
Service review (Note 7) 410,000 0 204,000
---------- ---------- ----------
$ 757,000 $3,250,000 $2,882,000
========== ========== ==========
Effective tax rate 42.9% 37.0% 38.0%
========== ========== ==========
F-15
<PAGE>
Significant components of deferred tax liabilities as of December 31, 1998
and 1997 were as follows-
1998 1997
----------- -----------
Tax over book depreciation, depletion and
amortization-
Oil and gas and real estate properties -- U. S $ 7,840,000 $ 8,046,000
Oil and gas properties -- Canada 3,954,000 4,045,000
Unrealized gain on marketable securities 97,000 1,324,000
----------- -----------
Total deferred tax liabilities $11,891,000 $13,415,000
=========== ===========
(7) COMMITMENTS AND CONTINGENCIES:
During 1998, Federal income tax returns of the Company and its subsidiaries
for the years 1994 through 1996 were under review by the IRS. During 1998,
the Company received a notice of assessment from the IRS and completed full
settlement of this Federal tax liability of $430,000, including accrued
interest.
The Company's income tax returns for the State of Arizona are currently
under review by the IRS for the years 1993 through 1998. The Company
believes that final settlement of its state tax liability for those years
will not have a significant impact on its consolidated financial position
or results of operations.
In June 1996 the Company's Board of Directors adopted the Stockholder
Protection Rights Plan (the Rights Plan). The Rights Plan provides for
issuance of one Right for each share of common stock outstanding as of July
6, 1996. The Rights are separable from and exercisable upon the occurrence
of certain triggering events involving the acquisition of at least 15% (or,
in the case of certain existing stockholders, 25%) of the Company's common
stock by an individual or group, as defined in the Rights Plan (an
Acquiring Person) and may be redeemed by the Board of Directors at a
redemption price of $0.01 per Right at any time prior to the announcement
by the Company that a person or group has become an Acquiring Person.
As of December 31, 1998 and 1997, 9,248,375 Rights were outstanding. Each
Right entitles the holder to purchase, for an exercise price of $25, one
one-hundredth of a share of Series A Participating Preferred Stock. Each
one one-hundredth share of Series A Participating Preferred Stock is
designed to have economic terms similar to those of one share of common
stock but will have one one-hundredth of a vote. Because the Rights are
only exercisable under certain conditions, none of which are in effect as
of December 31, 1998 and 1997, the outstanding Rights are not considered in
the computation of net income per share.
The Company does not have significant lease commitments or post retirement
benefits.
<PAGE>
(8) SEGMENT INFORMATION:
The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
(SFAS 131), which establishes standards for companies to report information
about operating segments in annual financial statements, based on the
approach that management utilizes to organize the segments within the
Company for management reporting and decision making. Business segment and
geographic disclosures (see Note 9) for prior periods have been restated to
comply with SFAS 131.
The Company is engaged in the exploration and development of oil and gas,
both in its own name and through several wholly-owned subsidiaries, on the
North American continent. The Company also conducts real estate operations
throughout the United States.
Oil and Gas-
The Company conducts its oil and gas operations in the United States and
Canada. Oil and gas operations in the United States are located in
Arkansas, California, Kansas, Nebraska, New Mexico, Ohio, Oklahoma,
Pennsylvania, Texas and Wyoming. In Canada, the Company conducts oil and
gas operations in the Provinces of Alberta, British Columbia and
Saskatchewan.
Real Estate-
The Company's real estate operations are conducted in the states of
Arizona, Texas, Florida, Georgia and New Jersey. The Company's properties
consist of apartment complexes as well as commercial and retail properties.
Corporate-
The Company holds investments in certain marketable securities. From time
to time, the Company buys and sells securities in the open market. Over the
years, the Company has decreased its holding in marketable securities and
focused its resources in the oil and gas and real estate divisions.
The following segment data is presented based on the Company's internal
management reporting system-
1998 1997 1996
----------- ----------- -----------
Gross revenues-
Oil and gas-United States $ 2,964,000 $ 4,004,000 $ 4,086,000
Oil and gas-Canada 1,795,000 1,913,000 1,634,000
Real estate 11,546,000 9,730,000 9,296,000
----------- ----------- -----------
$16,305,000 $15,647,000 $15,016,000
=========== =========== ===========
Income (loss) from operations-
Oil and gas-United States (a) ($3,011,000) ($ 609,000) $ 75,000
Oil and gas-Canada (a) 707,000 853,000 546,000
Real estate (a) 2,684,000 2,420,000 2,600,000
Corporate (a) (247,000) (605,000) (515,000)
----------- ----------- -----------
$ 133,000 $ 2,059,000 $ 2,706,000
=========== =========== ===========
F-17
<PAGE>
1998 1997 1996
------------ ------------ ------------
Depreciation, depletion
and amortization-
Oil and gas-United States $ 3,062,000 $ 1,945,000 $ 1,481,000
Oil and gas-Canada 327,000 382,000 455,000
Real estate 1,729,000 1,404,000 1,157,000
Corporate 23,000 31,000 22,000
------------ ------------ ------------
$ 5,141,000 $ 3,762,000 $ 3,115,000
============ ============ ============
Identifiable assets-
Oil and gas-United States $ 16,920,000 $ 18,690,000 $ 18,761,000
Oil and gas-Canada 12,727,000 13,286,000 13,116,000
Real estate 54,354,000 48,580,000 37,403,000
Corporate 10,600,000 21,473,000 29,098,000
------------ ------------ ------------
$ 94,601,000 $102,029,000 $ 98,378,000
============ ============ ============
Capital expenditures-
Oil and gas-United States $ 1,510,000 $ 1,381,000 $ 2,108,000
Oil and gas-Canada 1,160,000 1,165,000 625,000
Real estate 7,809,000 10,367,000 3,998,000
Corporate 21,000 18,000 19,000
------------ ------------ ------------
$ 10,500,000 $ 12,931,000 $ 6,750,000
============ ============ ============
(a) Represents revenues less all operating costs, including depreciation,
depletion and amortization.
(9) GEOGRAPHIC INFORMATION:
The following is a description by geographic location-
1998 1997 1996
------------ ------------ ------------
Gross revenues-
United States $ 14,510,000 $ 13,734,000 $ 13,382,000
Canada 1,795,000 1,913,000 1,634,000
------------ ------------ ------------
$ 16,305,000 $ 15,647,000 $ 15,016,000
============ ============ ============
Income (loss) from operations-
United States ($ 574,000) $ 1,206,000 $ 2,160,000
Canada 707,000 853,000 546,000
------------ ------------ ------------
$ 133,000 $ 2,059,000 $ 2,706,000
============ ============ ============
Depreciation, depletion and
amortization-
United States $ 4,814,000 $ 3,380,000 $ 2,660,000
Canada 327,000 382,000 455,000
------------ ------------ ------------
$ 5,141,000 $ 3,762,000 $ 3,115,000
============ ============ ============
F-18
<PAGE>
1998 1997 1996
------------ ------------ ------------
Identifiable assets-
United States $ 81,874,000 $ 88,743,000 $ 85,262,000
Canada 12,727,000 13,286,000 13,116,000
------------ ------------ ------------
$ 94,601,000 $102,029,000 $ 98,378,000
============ ============ ============
Capital expenditures-
United States $ 9,340,000 $ 11,766,000 $ 6,125,000
Canada 1,160,000 1,165,000 625,000
------------ ------------ ------------
$ 10,500,000 $ 12,931,000 $ 6,750,000
============ ============ ============
(10) OIL AND GAS PRODUCING ACTIVITIES:
The following data represents the Company's oil and gas producing
activities for 1998 and 1997-
1998 1997
------------ ------------
Capitalized costs (all being amortized)-
Productive and nonproductive properties $128,522,000 $128,434,000
Unevaluated properties 5,282,000 5,075,000
------------ ------------
Total capitalized costs being amortized 133,804,000 133,509,000
----------- ------------
Less- Accumulated depreciation,
depletion and amortization 105,609,000 102,984,000
------------ ------------
Net capitalized costs $ 28,195,000 $ 30,525,000
============ ============
The following data summarizes the costs incurred in property acquisition,
exploration and development activities and the results of operations from
oil and gas producing activities-
<TABLE>
<CAPTION>
United States Canada
------------------------------------------------------- -------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Acquisition of unproved
properties $ 336,000 $ 72,000 $ 89,000 $ 93,000 $ 73,000 $ 75,000
Exploration 459,000 500,000 1,139,000 99,000 116,000 119,000
Development 736,000 809,000 880,000 565,000 976,000 431,000
----------- ----------- ----------- ----------- ----------- -----------
Total costs incurred $ 1,531,000 $ 1,381,000 $ 2,108,000 $ 757,000 $ 1,165,000 $ 625,000
=========== =========== =========== =========== =========== ===========
Revenues from oil and
gas producing activities $ 2,964,000 $ 4,004,000 $ 4,086,000 $ 1,795,000 $ 1,913,000 $ 1,634,000
----------- ----------- ----------- ----------- ----------- -----------
Production costs 1,656,000 1,822,000 1,790,000 641,000 452,000 419,000
Technical support
and other 1,257,000 846,000 740,000 120,000 226,000 214,000
Depreciation, depletion
and amortization 3,062,000 1,945,000 1,481,000 327,000 382,000 455,000
----------- ----------- ----------- ----------- ----------- -----------
Total expenses 5,975,000 4,613,000 4,011,000 1,088,000 1,060,000 1,088,000
----------- ----------- ----------- ----------- ----------- -----------
Pretax income (loss)
from oil and gas
producing activities (3,011,000) (609,000) 75,000 707,000 853,000 546,000
Income tax provision
(benefit) (1,053,000) (213,000) 26,000 92,000 111,000 72,000
----------- ----------- ----------- ----------- ----------- -----------
Results of oil and gas
producing activities ($1,958,000) ($ 396,000) $ 49,000 $ 615,000 $ 742,000 $ 474,000
=========== =========== =========== =========== =========== ===========
</TABLE>
F-19
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS OF THE REGISTRANT
Information required under this Item with respect to Directors is
incorporated by reference from the Company's Definitive Proxy Statement for the
1999 Annual Meeting of Shareholders.
Information regarding executive officers is found in Part I, Item 1 (a)
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item is incorporated by reference from the
Company's Definitive Proxy Statement for the 1999 Annual Meeting of
Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this Item is incorporated by reference from the
Company's Definitive Proxy Statement for the 1999 Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is incorporated by reference from the
Company's Definitive Proxy Statement for the 1999 Annual Meeting of
Shareholders.
33
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The Financial statements filed as part of this report are listed
on the Index to Consolidated Financial Statements on page F-1.
(a) 2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not required,
inapplicable or the information is otherwise shown in the
financial statements or notes thereto.
(a) 3. EXHIBITS
Exhibit
Number Description
3.1 Restated Certificate of Incorporation of Wilshire Oil
Company of Texas, as amended. (Incorporated by reference
to Exhibit 3.1 of Item 14 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992).
3.2 Amended By-Laws, as of June 11, 1998, of Wilshire Oil Company
of Texas (Incorporated by reference to Exhibit 3 of the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998).
4.1 Stockholder Protection Rights Agreement, dated as of June 21,
1996, between Wilshire Oil Company of Texas and Continental Stock
Transfer & Trust Company, as Rights Agent (incorporated by
reference to Exhibit 1 to the Company's current report on Form
8-K dated June 21, 1996).
4.2 Multifamily Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing between a subsidiary of Wilshire Oil
Company of Texas and Criimi Mae, Inc. dated October 28, 1997.
4.3 Multifamily Promissory Note given by a subsidiary of Wilshire Oil
Company of Texas to Criimi Mae, Inc. dated October 28, 1997.
4.4 Multifamily Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing between a subsidiary of Wilshire Oil
Company of Texas and Criimi Mae, Inc. dated October 28, 1997.
34
<PAGE>
4.5 Multifamily Promissory Note given by a subsidiary of Wilshire Oil
Company of Texas to Criimi Mae, Inc. dated October 28, 1997.
10.1 General Assignments and Assignments of Leases dated March 31,
1992 with respect to the purchase of income producing real estate
properties (incorporated by reference to Exhibit 1 and 2 of Form
8 dated December 9, 1992, filed with the Commission).
10.2 General Assignments, Assignments of Leases, and Escrow Agreements
and Early Possession Agreements with respect to the purchase of
four income producing real estate properties, (incorporated by
reference to Exhibits 1 (a) through 4(c) on the Company's Form
8-K dated December 31, 1992 filed with the Commission).
10.3 Wilshire Oil Company of Texas 1980 Stock Option Plan.
(Incorporated by reference to Exhibit 10.4 of Item 14 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992).
10.4 Wilshire Oil Company of Texas 1984 Stock Option Plan.
(Incorporated by reference to Exhibit 10.5 of Item 14 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992).
10.5 Wilshire Oil Company of Texas 1995 Stock Option and
Incentive Plan. (incorporated by reference to Exhibit A of the
Registrant's Definitive Proxy Statement for its 1995 Annual
Meeting of Stockholders).
10.6 Wilshire Oil Company of Texas 1995 Non-Employee Director Stock
Option Plan. ( incorporated by reference to Exhibit B of the
Registrant's Definitive Proxy Statement for its 1995 Annual
Meeting of Stockholders).
11. Computation of Earnings Per Share
21. List of significant subsidiaries of the Registrant
23. Consent of Arthur Andersen LLP
27. Financial Data Schedule
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused the report to be signed on
its behalf by the undersigned thereunto duly authorized.
WILSHIRE OIL COMPANY OF TEXAS
------------------------------------
(Registrant)
Directors:
By: /s/ S. WILZIG IZAK
----------------------------------
S. Wilzig Izak, Director
By: /s/ WILLIAM SCHWARTZ, M.D.
----------------------------------
William Schwartz, M.D., Director
By: /s/ MILTON DONNENBERG
---------------------------------
Milton Donnenberg, Director
By: /s/ ERNEST WACHTEL
----------------------------------
Ernest Wachtel, Director
Officers:
By: /s/ S. WILZIG IZAK
-----------------------------------
S. Wilzig Izak
Chairman of the Board and Chief
Executive Officer
(Duly Authorized Officer and
Chief Financial Officer)
Date: March 27, 1999
36
14(b) REPORTS ON FORM 8
There were no Form 8-K filings by the Company during the fourth
quarter of 1998.
Exhibit 11 - Statement re: Computation of Per Share Earnings:
Net Income Per Common Share:
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" which makes certain
changes to the manner in which earnings per share is reported. The Company has
adopted this standard for the year ended December 31, 1997.
1998 1997 1996
---------- ---------- ----------
Numerator-
Net income -
Basic & Diluted $1,007,000 $5,536,000 $4,709,000
Denominator -
Weighted average common shares
outstanding - Basic 9,297,119 9,522,167 9,568,502
Incremental shares from assumed
conversions of stock options 47,628 89,182 89,695
---------- ---------- ----------
Weighted average common shares
outstanding - Diluted 9,344,747 9,611,349 9,658,197
Basic earnings per share $ 0.11 $ 0.58 $ 0.49
Diluted earnings per share $ 0.11 $ 0.58 $ 0.49
37
Exhibit 22 - List of Subsidiaries
Jurisdiction of
Incorporation
-----------------
Wilshire Oil of Canada, Ltd. Alberta, Canada
Calgary, Alberta, Canada
Britalta Venezolano, Ltd. Alberta, Canada
Calgary, Alberta, Canada
Sunrise Ridge Holding, Inc. State of Delaware
Jersey City, NJ
Sunrise Ridge, L. L. C. State of Delaware
Jersey City, NJ
Biltmore Club Holding, Inc. State of Delaware
Jersey City, NJ
Biltmore Club Apartments, L. L. C. State of Delaware
Jersey City, NJ
350 Pleasant Valley Corp State of New Jersey
Jersey City, NJ
Global Equities Management Corp. State of Delaware
Jersey City, NJ
Wellington Apartments, L.L.C. State of Delaware
Jersey City, NJ
Van Buren, L.L.C. State of Delaware
Jersey City, NJ
38
EXHIBIT (23)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wilshire Oil Company of Texas:
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-40324.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
April 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,444,000
<SECURITIES> 5,162,000
<RECEIVABLES> 2,515,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,226,000
<PP&E> 193,023,000
<DEPRECIATION> 112,648,000
<TOTAL-ASSETS> 94,601,000
<CURRENT-LIABILITIES> 9,212,000
<BONDS> 0
<COMMON> 10,014,000
0
0
<OTHER-SE> 15,720,000
<TOTAL-LIABILITY-AND-EQUITY> 94,601,000
<SALES> 4,759,000
<TOTAL-REVENUES> 16,305,000
<CGS> 2,297,000
<TOTAL-COSTS> 16,172,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,937,000
<INCOME-PRETAX> 1,764,000
<INCOME-TAX> 757,000
<INCOME-CONTINUING> 1,007,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,007,000
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
