<PAGE> 1
Washington, D.C. 20549
FORM 10-KSB
Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended September 30, 1995
Commission File Number: 0-9116
PANHANDLE ROYALTY COMPANY
(Exact name of small business registrant in its charter)
OKLAHOMA 73-1055775
(State or other jurisdiction of (I.R.S. Employer
incorporation or ogranization) Identification No.)
Grand Centre Suite 210, 5400 NW Grand Blvd., Okla. City, OK 73112
(Address of principal executive offices) (zip code)
Registrant's telephone number (405) 948-1560
Securities registered under Section 12(B) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
(Title of Class)
CLASS A COMMON STOCK (VOTING) .10 par value
(Title of Class)
CLASS B COMMON STOCK (NON-VOTING) $1.00 par value
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
X Yes No
- ----- -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation SB contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
Registrant's revenues for fiscal year-end September 30, 1995, were $3,218,439.
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by using the closing bid price of registrant's common
stock, at December 4, 1995, was $11,214,110. As of December 4, 1995, 675,219
class A common shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE ..... NONE
<PAGE> 2
T A B L E O F C O N T E N T S
<TABLE>
<CAPTION>
PART I PAGE
- ------ ----
<S> <C> <C>
Item 1. Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-4
Item 2. Description of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART II
- -------
Item 5. Market for Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-11
Item 6. Management's Discussion and Analysis
or Plan of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-14
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-29
Item 8. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
PART III
- --------
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . 30-32
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32-33
Item 11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-34
Item 12. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-35
Exhibit 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
( i )
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
Panhandle Royalty Company ("Panhandle" or the "Company") is an
Oklahoma Corporation, organized in 1926 as Panhandle Cooperative Royalty
Company. In 1979, Panhandle Cooperative Royalty Company was merged into
Panhandle Royalty Company. Panhandle's authorized and registered stock
consisted of 100,000 shares of $1.00 par value class A common stock. In 1982,
the Company split the stock on a 10-for-1 basis and reduced the par value to
$.10, resulting in 1,000,000 shares of authorized class A common stock. Since
its formation, the Company has been involved in the acquisition and management
of mineral interests and the exploration for, and development of, oil and gas
properties, principally involving wells located on the Company's mineral
interests. Panhandle's mineral properties and other oil and gas interests are
located primarily in Oklahoma, New Mexico and Texas. Properties are also
located in eight other states. The majority of the Company's oil and gas
production is from wells located in the Anadarko Basin of western Oklahoma and
the Dagger Draw Field in Eddy County, New Mexico. In 1988, the Company merged
with New Mexico Osage Royalty Company, thus acquiring most of its New Mexico
mineral interests. The Company's offices are located at Grand Centre Suite
210, 5400 N.W. Grand Blvd., Oklahoma City, OK 73112 (405)948-1560, FAX
(405)948-2038.
BUSINESS OF ISSUER
The majority of Panhandle's revenues are derived from the
production and sale of oil and natural gas. See "Item 7 - Financial
Statements". The Company's oil and gas holdings, including its mineral
interests and its interests in producing wells, both working interests and
royalty interests, are centered in Oklahoma with increasingly more activity, in
recent years, in New Mexico and Texas. See "Item 2 - Description of
Properties". Exploration and development of the Company's oil and gas
properties is conducted in association with operating oil and gas companies,
including major and independent companies. The Company does not operate any of
its oil and gas properties. Drilling operations have been active the last four
years with wells drilled on the Company's mineral properties and on third party
drilling prospects. A large percentage of the Company's recent drilling
participations have been on properties in which the Company has mineral
interests and in many cases already owns an interest in a producing well in the
unit. This "increased density" drilling has accounted for a majority of the
successful gas wells completed in the last four years and has added significant
gas reserves for the Company. The Company has also been actively acquiring
additional mineral interest properties the last four years. On November 17,
1995, subsequent to fiscal year-end, the Company acquired a 50% interest in
65,632 net mineral acres from Petrocorp, Incorporated. These mineral interests
are primarily located in Oklahoma and Texas and also in eleven other states,
and are primarily non-producing properties. Included however, were small
royalty interests in approximately 170 producing wells and working interests in
5 producing wells. See "Item 7 - Financial Statements,
(1)
<PAGE> 4
Note 7". Several of the mineral properties purchased the last four years have
been in areas where the Company had no mineral holdings, thus expanding the
Company's area of interest.
PRINCIPAL PRODUCTS AND MARKETS
The Company's principal products are crude oil and natural gas.
These products are sold to various purchasers, including pipeline companies,
which are generally located in and service the areas where the Company's
producing wells are located. The Company does not act as operator for any of
the properties in which it owns an interest, thus it relies on the operating
expertise of numerous companies that operate in the area where the Company owns
mineral interests. This expertise includes drilling operations and
completions, producing well operations and, in some cases, the marketing or
purchasing of the well's production. Natural gas sales are contracted by
either the Company or the well operator and are contracted for various terms
with third party gas marketers and pipeline companies. These contract prices
are generally adjustable on a monthly basis. Payment for gas sold is received
either from the contracted purchasers or the well operator. Crude oil sales
are generally handled by the well operator and payment for oil sold is received
from the well operator or from the crude oil purchaser.
COMPETITIVE BUSINESS CONDITIONS
The oil and gas industry is highly competitive, both in the
search for new oil and gas reserves and the marketing of the production from
wells. There are many factors affecting Panhandle's competitive position and
the market for its products which are beyond its control. Some of these
factors are quantity and price of foreign oil imports, changes in prices
received for its oil and gas production, business and consumer demand for
refined oil products and natural gas, and the effects of federal and state
regulation of oil and gas sales. Changes in existing economic conditions and
actions taken by OPEC and other oil-producing countries have dramatic influence
on the price Panhandle receives for its oil and, to some extent, gas
production. The Company relies heavily on companies with greater resources,
staff, equipment, research, and experience for operation of wells and the
development and drilling of subsurface prospects. The Company uses its strong
financial base and its mineral property ownership to then participate in
drilling operations with these larger companies. This method allows the
Company to effectively compete in drilling operations it could not undertake on
its own due to financial and personnel limits and to maintain low overhead
costs.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The existence of commercial oil and gas reserves is essential to
the ultimate realization of value from the Company's mineral properties and
these mineral properties may be considered a raw material to its business. The
production and sale of oil and natural gas from the Company's oil and gas
properties is essential to provide the cash flow necessary to sustain the
ongoing viability of the Company. The Company continues to reinvest a large
portion of its cash flow in the
(2)
<PAGE> 5
purchase of additional mineral properties to assure the continued availability
of acreage with which to participate in exploration, drilling, and development
operations and the production and sale of oil and gas. This participation in
exploration and production and the purchasing of additional mineral interests
will continue to supply the Company with the raw materials with which to
generate additional cash flow. The mineral purchases are made from the current
owners, and the Company does not rely on any particular companies or
individuals for these acquisitions.
MAJOR CUSTOMERS
The Company's oil and gas production is sold to many different
purchasers on a well-by-well basis. No one purchaser accounts for a
significant percentage of the Company's revenues. Generally, if one purchaser
declines to continue purchasing the Company's oil and/or natural gas, several
other purchasers are easily located. Pricing is usually reasonably consistent
from purchaser to purchaser.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND
ROYALTY AGREEMENTS
The Company does not own any patents, trademarks, licenses or
franchises. Royalty agreements on producing oil and gas wells stemming from
the Company's ownership of mineral interests generate a substantial portion of
the Company's revenues. These royalties are tied to the ownership of the
mineral interests and this ownership is perpetual, unless sold by the Company.
Royalties are due and payable to the Company whenever oil and/or gas is
produced from wells located on the Company's mineral properties.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
Under the Natural Gas Policy Act, the majority of the Company's
natural gas was decontrolled effective January 1, 1985. This had little or no
effect on the Company's income since the price being received for its gas was
less than the regulated ceiling price under the Act. The repeal of the
windfall profits tax had minor impact on the Company. Accordingly, any crude
oil produced by the Company may be sold at free market prices.
Oil and gas production is subject to other taxes, such as gross
production taxes and, in some cases, ad valorem taxes.
The State of Oklahoma and other states require permits for
drilling operations, drilling bonds and reports concerning operations and
impose other requirements relating to the exploration and production of oil and
gas. Such states also have regulations addressing conservation matters,
including provisions for the unitization or pooling of oil and gas properties,
the establishment of maximum rates of production from oil and gas wells and the
regulation of spacing, plugging and abandonment of such wells. These statutes
and regulations may also limit the rate at which oil and gas can be produced
from certain of the Company's properties.
(3)
<PAGE> 6
Federal tax law allows producers of "tight gas" to utilize an
approximate $.52/MMBTU tax credit for gas produced from approved wells. The
credit is a direct reduction of regular federal income tax. Panhandle began
receiving revenues from "tight gas" wells during fiscal 1992. This credit will
be available for all tight gas sold prior to January 1, 2003, and is expected
to substantially reduce the Company's cash outlay for income taxes.
As the Company is directly involved in the extraction and use of
natural resources, it is subject to various federal, state and local provisions
regarding environmental and ecological matters. Compliance with these laws may
necessitate significant capital outlays, however, to date the Company's cost of
compliance has been insignificant and the Company does not feel the existence
of these environmental laws will materially hinder or adversely affect the
Company's business operations. Since the Company does not operate any wells in
which it owns an interest, actual compliance with environmental laws is
controlled by others with Panhandle being responsible for its proportionate
share of those costs. Panhandle carries liability insurance and to the extent
available, at reasonable cost, pollution control coverage.
EMPLOYEES
Panhandle employs seven persons on a full-time basis and has no
part-time employees. Three of the employees are executive officers and one is
also a director of the Company.
ITEM 2. DESCRIPTION OF PROPERTIES
As of September 30, 1995, Panhandle's principal properties
consisted of perpetual ownership of 138,607 net mineral acres, held in tracts
in Arkansas, Colorado, Idaho, Kansas, Montana, Nebraska, New Mexico, North
Dakota, Oklahoma and Texas. The Company also held leases on 2,638 net acres of
minerals in Louisiana, Oklahoma and Texas. At September 30, 1995, Panhandle
held small royalty and/or working interests in 952 producing oil or gas wells,
17 successfully completed but not yet producing wells, and 14 wells in the
process of being drilled or completed.
Panhandle does not have current abstracts or title opinions on
all minerals owned and, therefore, cannot warrant that it has unencumbered
title to all of its minerals. In the period from 1927 through 1937, the
Company lost title to a significant number of its then owned mineral acres
through foreclosures and tax sales of the surface acreage overlying its
minerals. In recent years, few challenges have been made against the Company's
fee title to its minerals.
Panhandle pays ad valorem taxes on its minerals owned in
Arkansas, Colorado, Idaho, Kansas and Texas.
(4)
<PAGE> 7
ACREAGE
The following table of mineral interests owned reflects, as of
September 30, 1995, in each respective state, the number of net and gross
acres, net and gross producing acres, net and gross acres leased, and net and
gross acres open (unleased). The table also shows net mineral acres leased
from others, lease expiration dates, and net leased acres held by production.
MINERAL INTERESTS
<TABLE>
<CAPTION>
Net Gross Net Gross Net Gross
Acres Acres Acres Acres Acres Acres
Net Gross Prod'g Prod'g Leased Leased Open Open
St. Acres Acres (1) (1) (2) (2) (3) (3)
- --- ------- ------- ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AR 5,192 25,909 120 240 5,072 25,669
CO 7,615 35,502 7,615 35,502
OK 55,205 401,929 11,536 44,350 1,331 23,742 42,338 333,837
ID 30 880 30 880
KS 60 160 60 160
MT 221 5,580 221 5,580
NE 15 560 15 560
ND 142 2,476 37 320 105 2,156
NM 52,487 146,635 1,003 3,519 2,134 5,792 49,350 137,324
TX 17,640 156,450 931 32,902 199 1,434 16,510 122,114
------- ------- ------ ------ ------ ------ ------- -------
TOT: 138,607 776,081 13,470 80,771 3,821 31,528 121,316 663,782
------- ------- ------ ------ ------ ------ ------- -------
</TABLE>
(1) "Producing" represents the mineral acres in which Panhandle owns a royalty
or working interest in a producing well.
(2) "Leased" represents the mineral acres, owned by Panhandle, that are leased
to third parties but not producing.
(3) "Open" represents mineral acres owned by Panhandle that are not leased or
in production.
LEASES
<TABLE>
<CAPTION>
Net Acres Leases
Expiring Net Acres
Net -------------------- Held By
State Acres 1996 1997 1998 Production
----- ------- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
LA 158 158
OK 1,981 222 530 25 1,204
TX 499 36 406 20 37
------- ---- ---- ---- ----------
TOT: 2,638 258 936 45 1,399
------- ---- ---- ---- ----------
</TABLE>
PROVED RESERVES
The following table summarizes estimates of the proved reserves
of oil and gas held by Panhandle. All reserves are located within the United
States. Because the Company's nonproducing mineral and leasehold interests
consist of various small interests in numerous tracts located primarily in
Oklahoma, New Mexico and Texas and because the Company is a non-operator and
must rely on third parties to propose and drill wells, it is not feasible to
provide estimates of all proved undeveloped reserves and future net revenues.
Prior to fiscal 1995, the Company did not provide estimates of any proved
undeveloped reserves. For 1995 the Company has provided estimates of proved
undeveloped reserves for certain areas of western Oklahoma where a large amount
of increased density gas drilling has taken place the past three years. The
Company
(5)
<PAGE> 8
expects this drilling to continue for the next several years, and thus made the
decision to provide proved undeveloped reserve estimates for this area in
fiscal 1995. The reserve estimates were compiled by Campbell & Associates,
Inc., an independent petroleum engineering firm. The Company's reserve
estimates were not filed with any other federal agency.
<TABLE>
<CAPTION>
Proved Developed Reserves Barrels of Oil MCF of Gas
------------------------- -------------- --------------
<S> <C> <C>
September 30, 1991 138,103 6,165,791
September 30, 1992 183,968 7,068,028
September 30, 1993 227,342 7,300,317
September 30, 1994 251,246 7,442,524
September 30, 1995 454,577 7,618,673
Proved Undeveloped Reserves
---------------------------
September 30, 1995 10,339 1,570,440
Total Reserves
--------------
September 30, 1995 464,916 9,189,113
</TABLE>
Because the determination of reserves is a function of testing,
evaluating, developing oil and gas reservoirs and establishing a production
decline history, along with product price fluctuations, it would be expected
that estimates will change as future information concerning those reservoirs is
developed and as market conditions change. Estimated reserve quantities and
future net revenues are affected by changes in product prices, and these prices
have varied substantially in recent years. Proved developed reserves are those
expected to be recovered through existing well bores under existing economic
and operating conditions. Proved undeveloped reserves are reserves that may be
recovered from undrilled acreage, but are usually limited to those sites
directly offsetting established production units or have sufficient geological
data to indicate a reasonable expectation of commercial success.
ESTIMATED FUTURE NET CASH FLOWS
Set forth below are estimated future net cash flows with respect
to Panhandle's proved reserves (based on the estimated units set forth in the
immediately preceding table) as of year ends, and the present value of such
estimated future net cash flows, computed by applying a ten (10) percent
discount factor as required by the rules and regulations of the Securities and
Exchange Commission. Estimated future net cash flows have been computed by
applying current year-end prices to future production of proved reserves less
estimated future expenditures (based on costs as of year end) to be incurred
with respect to the development and production of such reserves. Such pricing
is based on SEC guidelines. No federal income taxes are included in estimated
costs. However, the amounts are net of production taxes levied by respective
states. Prices used for current year reserve calculations were $17.23 per
barrel of oil and $1.56 per MCF of gas. These future net cash flows should not
be construed as the fair market value of the Company's reserves. A market
value determination would need to include many additional factors, including
anticipated oil and gas price increases or decreases.
(6)
<PAGE> 9
Estimated Future Net Cash Flows
<TABLE>
<CAPTION>
9-30-95 9-30-94 9-30-93
----------- ----------- -----------
<S> <C> <C> <C>
Total Proved $17,497,815 $12,778,920 $15,425,940
Proved Undeveloped $ 1,442,460 NA NA
</TABLE>
10% Discounted Present Value of Estimated Future Net Cash Flows
<TABLE>
<CAPTION>
9-30-95 9-30-94 9-30-93
----------- ----------- -----------
<S> <C> <C> <C>
Total Proved $11,926,091 $ 8,690,835 $10,348,460
Proved Undeveloped $ 799,923 NA NA
</TABLE>
OIL AND GAS PRODUCTION
The following table sets forth the Company's net production of
oil and gas for the fiscal periods indicated.
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
9-30-95 9-30-94 9-30-93
----------- ----------- -----------
<S> <C> <C> <C>
Bbls - Oil 82,676 77,720 43,502
MCF - Gas 1,203,623 1,339,545 1,188,886
</TABLE>
Average Sales Prices and Production Costs
The following table sets forth unit price and cost data for the
fiscal periods indicated.
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Average Sales Price 9-30-95 9-30-94 9-30-93
------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Per Bbl. Oil $ 17.26 $ 16.13 $ 18.59
Per MCF Gas $ 1.39 $ 1.91 $ 1.94
Average Production
(Lifting Cost)
------------------
Per Equivalent
Bbl. Oil (1) $ 2.62 $ 2.46 $ 2.18
</TABLE>
(1) Gas production is converted to barrel equivalents at the rate of
6 MCF per barrel, representing the estimated relative energy
content of natural gas and oil.
Average production costs are influenced by the fact that the
Company bears no costs of production on many of its well interests, as a large
part of the Company's producing well interests are royalty interests, which
bear no share of the operating costs.
(7)
<PAGE> 10
GROSS AND NET PRODUCTIVE WELLS AND DEVELOPED ACRES
The following table sets forth Panhandle's gross and net
productive oil and gas wells as of September 30, 1995. Panhandle owns
fractional royalty interests or fractional working interests in these wells.
The Company does not operate any wells.
<TABLE>
<CAPTION>
Gross Wells Net Wells
----------- ---------
<S> <C> <C>
Oil 236 9.536443
Gas 716 12.883370
----------- ---------
TOTAL 952 22.419813
</TABLE>
Information on multiple completions is not available from
Panhandle's records, but the number of such is insignificant.
As of September 30, 1995, Panhandle owned 80,771 gross developed
mineral acres and 13,470 net developed mineral acres. Panhandle has also
leased from others 16,328 gross developed acres which contain 1,399 net
developed acres.
UNDEVELOPED ACREAGE
As of September 30, 1995, Panhandle owned 695,310 gross and
125,137 net undeveloped mineral acres, and leases on 10,201 gross and 1,239 net
acres.
(8)
<PAGE> 11
DRILLING ACTIVITY
The following net productive development and exploratory wells
and net dry development and exploratory wells, in which the Company had a
fractional royalty or working interest, were drilled and completed during the
fiscal years indicated. Also shown are the net wells purchased during these
periods.
<TABLE>
<CAPTION>
-------------- -------
- ----------------- Net Productive Net Dry
Development Wells Wells Wells
- ----------------- -------------- -------
<S> <C> <C>
Fiscal year ending
September 30, 1993 1.084337 .126790
Fiscal year ending
September 30, 1994 .948187 .267869
Fiscal year ending
September 30, 1995 1.184040 .524182
- -----------------
Exploratory Wells
- -----------------
Fiscal year ending .058789 .120324
September 30, 1993
Fiscal year ending .103746 .300875
September 30, 1994
Fiscal year ending
September 30, 1995 .255000 .322656
- ---------------
Purchased Wells
- ---------------
Fiscal year ending
September 30, 1993 .103269 0
Fiscal year ending
September 30, 1994 .078540 0
Fiscal year ending
September 30, 1995 .389869 0
</TABLE>
PRESENT ACTIVITIES
The following table sets forth the gross and net oil and gas
wells drilling as of September 30, 1995, in which Panhandle owns a royalty or
working interest.
<TABLE>
<CAPTION>
Gross Wells Net Wells
----------- ---------
<S> <C> <C>
Oil 5 .409545
Gas 9 .322054
</TABLE>
(9)
<PAGE> 12
The Company has very small interests in three waterflood
operations in Oklahoma and Texas which have neglible effect on the Company. No
additional purchases or start-ups of waterflood, pressure maintenance or other
related operations are currently planned.
ITEM 3. LEGAL PROCEEDINGS
There were no material legal proceedings involving Panhandle or
its subsidiary, PHC, Inc., as of the date of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Panhandle's security
holders during the fourth quarter of the fiscal year ended September 30, 1995.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the NASDAQ Small-Cap
Market (symbol PANRA). The following table sets forth the high and low bid
prices of the Company's common stock as reported by NASDAQ System Statistics
furnished by the NASD, during the periods indicated:
<TABLE>
<CAPTION>
Quarter Ended HIGH LOW
----------------- ------ ------
<S> <C> <C>
December 31, 1993 12-1/2 12
March 31, 1994 13 12
June 30, 1994 14 12-3/4
September 30, 1994 15 14
December 31, 1994 15-3/4 15
March 31, 1995 15-3/4 14-3/4
June 30, 1995 16-1/2 15-1/2
September 30, 1995 17 16
</TABLE>
As of November 30, 1995, the approximate number of holders of
record of each class of common shares of Panhandle were:
<TABLE>
<CAPTION>
Title of Class Number of Holders
--------------------------- -----------------
<S> <C>
Class A Common (Voting) . . . . . . . . . . . . . 2,300
</TABLE>
(10)
<PAGE> 13
During the past two years, cash dividends have been paid as
follows on the class A common stock:
<TABLE>
<CAPTION>
DATE RATE PER SHARE
-------------- --------------
<S> <C>
December 1993 $ .125
March 1994 $ .125
June 1994 $ .125
September 1994 $ .15
December 1994 $ .15
March 1995 $ .15
June 1995 $ .15
September 1995 $ .15
</TABLE>
The Company's line of credit loan agreement contains a provision
limiting the paying or declaring of a cash dividend to fifty percent of cash
flow, as defined, of the preceding twelve-month period. See Note 3 to the
consolidated financial statements contained herein at "Item 7 - Financial
Statements", for a further discussion of the loan agreement.
ITEM 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At year-end September 30, 1995, the Company had working capital
of $621,485, a decrease of $504,623 compared to year-end September 30, 1994.
Cash and cash equivalents were $443,862 at September 30, 1995 as compared to
$1,099,668 at September 30, 1994. Cash flow from operating activities was
$1,535,344 for fiscal 1995, as compared to $2,209,633 for fiscal 1994. The
decrease in cash and cash equivalents during fiscal 1995 is the result of two
major factors. First, the average sales price for natural gas in fiscal 1995
was $.52 per MCF less than in fiscal 1994 thus reducing cash flow for the year
and, second, the Company spent $422,000 more in fiscal 1995 than in fiscal 1994
purchasing and developing its oil and gas properties.
The Company spent $1,323,950 on exploration and developmental
drilling and equipment costs in fiscal 1995, as compared to $1,002,954 for
similar costs in fiscal 1994. These expenditures have resulted in substantial
additions to the Company's oil and gas reserve base and will translate into
increased cash flow in future years, assuming relatively stable oil and natural
gas sales prices. Property acquisitions also increased in fiscal 1995 to
$379,164 from $278,003 in fiscal 1994. These acquisitions were principally
non-producing mineral properties and did not provide meaningful immediate cash
flow. Rather, the acquired properties expanded the Company's mineral holdings,
and are expected to be developed in the future, which will increase oil and gas
reserves and increase cash flow as the reserves are produced. Consistent with
this strategy, and subsequent to year-end (thus not reflected in the September
30, 1995 financial statements) the Company purchased, for $2,115,115, a 50%
interest in 65,632 net mineral acres located primarily in Oklahoma and Texas
and in 11 other states. These properties are primarily non-producing, but did
produce approximately $210,000 of cash flow in calendar year 1994. The Company
accessed its pre-existing line
(11)
<PAGE> 14
of credit for $2,100,000 to fund this purchase. Management's intentions are to
actively pursue the development of these properties by participating in the
drilling of wells on these properties.
1995 cash flow was negatively impacted by the above-mentioned
reduction in the average sales price for natural gas. However, the Company was
able to fund all fiscal 1995 exploration and development costs, asset
purchases, overhead expenses and dividend payments of $403,910 from cash flow
and existing cash reserves. The Company did not reduce its 1995 capital
expenditures for the drilling and equipping of wells as a result of the reduced
cash flow.
At September 30, 1995 the Company had commitments of $576,000
for drilling and equipment costs on wells which had been proposed or were in
the process of being drilled or completed. These commitments and any
additional development costs are expected to be funded from cash flow and
existing working capital in fiscal 1996. As the Company made the large
purchase of mineral properties mentioned above in November 1995, there are no
plans to purchase a large amount of non-producing mineral properties during the
remainder of fiscal 1996. Approximately $1,600,000 is expected to be committed
in fiscal 1996 for drilling and equipping new wells.
The positive results of the last four years' drilling operations
have added to the Company's reserve base, thus translating into the expectation
of increased cash flow in fiscal 1996 and beyond. However, should natural gas
sales prices continue at the recent depressed levels or oil sales prices
decline, cash flow would be adversely affected. Management does not intend to
reduce its drilling expenditures should this happen, but would consider other
means of reducing cash outflows in order to maintain the Company's aggressive
drilling strategy. Currently, management does not anticipate a prolonged price
reduction and expects to have sufficient cash flow and cash reserves to fund
the Company's 1996 drilling operations. However, there is borrowing capacity
of $400,000 remaining under the Company's line of credit should a temporary
short fall in available cash arise.
RESULTS OF OPERATIONS
Oil and gas sales revenues were down $720,648 in fiscal 1995 as
compared to fiscal 1994 principally due to the reduction in the average sales
price per MCF of natural gas from $1.91 in 1994 to $1.39 in 1995. The gas
revenue decrease was offset somewhat by an increase of 4,956 barrels of oil
sold in fiscal 1995 as compared to fiscal 1994, and an increase of 8% in the
average sales price per barrel of oil. The chart below summarizes the
Company's production and average sales prices for oil and natural gas in fiscal
1995 and 1994.
<TABLE>
<CAPTION>
PRODUCTION
---------------------------------------------------------
OIL GAS
-------------------------- -----------------------
Total Average Total Average
Bbls. Price/Bbl MCF Price/MCF
------ --------- --------- ---------
<S> <C> <C> <C> <C>
Year ended 9/30/95 82,676 $ 17.26 1,203,623 $1.39
Year ended 9/30/94 77,720 $ 16.13 1,339,545 $1.91
</TABLE>
(12)
<PAGE> 15
The average sales price per MCF decrease and a production volume
decrease in natural gas production combined to reduce gas sales revenues
approximately $891,000 in fiscal 1995. The above-mentioned increases in the
sales volume of oil and the increased average sales price per barrel of oil in
1995 offset the gas revenue decrease by approximately $171,000. 54% of the
Company's 1995 oil and gas sales revenues were from gas sales, thus the price
of natural gas continues to be a major factor affecting the Company's results
of operations. The price of natural gas has been more volatile than the price
of oil over the last few years. Management currently expects some firming of
gas prices in fiscal 1996, as compared to 1995, while oil prices are expected
to remain relatively stable. Coupled with an expected moderate increase in
both oil and natural gas sales volumes in 1996, revenues should be on an upward
trend.
Lease operating expenses, production taxes and seismic costs
increased only $2,565 in fiscal 1995 as compared to fiscal 1994. Although the
net increase was minimal, lease operating expenses increased $48,787 in 1995
due to additional wells coming on line in New Mexico which have higher than
normal operating costs as a result of large salt water disposal costs. In
addition, there were several wells which required extensive work in 1995 to
either maintain or increase production volumes. Production taxes decreased
$41,622 in 1995 as the result of decreased sales revenues and gas compression
handling, and marketing fees charged to the Company decreased $11,344 in 1995
principally due to decreased gas sales volumes. Seismic costs decreased by
$26,852 in 1995 as the Company finalized seismic work on a west Texas project
in early 1995 which had started in 1994. Lease operating expenses also
included gas balancing settlements which increased $33,596 to $44,266 in fiscal
1995 as the Company accrued projected settlement costs on one overproduced well
in fiscal 1995. Lease operating costs, production taxes and gas compression,
handling and marketing fees are all expected to moderately increase in fiscal
1996. New working interest wells will be added, thus adding additional
operating costs. In addition, production volumes and sales prices are expected
to increase, thus increasing production taxes and related gas sales costs in
fiscal 1996.
Dry hole costs will vary from year to year and are dependent
upon the Company's participation in exploratory working interest wells drilled,
and the success of the ventures. The Company utilizes the successful efforts
method of accounting for oil and gas operations, thus dry hole costs are a
result of drilling unsuccessful exploratory wells. There is no way to
accurately estimate dry hole costs from year to year. The Company expects to
continue its exploratory drilling participations, thus future dry hole costs
are expected to remain at a level comparable to fiscal 1995 and 1994.
Depreciation, depletion and amortization (DD&A) expenses
decreased $223,194 in 1995 compared to 1994. As the Company utilizes the units
of production method of calculate DD&A, the lower gas production volumes
reduced DD&A somewhat. However, the reduction was primarily due to 1994's DD&A
expense including full amortization of the remaining costs of several wells as
they became uneconomical to continue producing. 1995 DD&A expense included
full amortization of only one
(13)
<PAGE> 16
such well. As production levels increase in 1996, it is expected that DD&A
expense will increase over the 1995 level.
General and administrative costs were down $13,517 or 2% in 1995
as compared to 1994. This minor reduction is principally due to somewhat lower
insurance costs and legal fees in 1995. The Company expects that 1996 general
and administrative expenses will be somewhat increased over the 1995 amounts.
Income tax expense increased in fiscal 1995 as compared to
fiscal 1994 due to the reduction of tight gas production tax credits generated
in 1995 and due to a decrease in the allowable depletion deduction in 1995,
which was limited due to lower revenues.
Net income was $574,029 or $.85 per share in 1995 as compared to
$1,021,194 or $1.51 per share in 1994. As discussed above, the decline in net
income is principally due to the $.52 per MCF decline in Panhandle's natural
gas sales price in 1995 which materially reduced revenues. Panhandle would
have had a year very comparable to fiscal 1994 had the average gas sales price
not declined as dramatically. The reduction in costs and expenses of $198,000
did offset, somewhat, the reduction in revenues.
Management intends to continue the proactive approach adopted
four years ago by the Company which includes an increased drilling budget in
fiscal 1996. Larger investments in drilling carry certain risks, principally
dry holes as discussed above, that can affect Company earnings. In addition,
the market prices for oil and gas can dramatically impact the Company's
earnings, either positively or negatively. Management currently anticipates
increased revenues in fiscal 1996 due to an expected moderate increase in
natural gas sales prices and moderately increased sales volumes of oil and gas.
These increased revenues should translate into improved financial results in
fiscal 1996 barring exploratory drilling ventures resulting in an unexpectedly
large number of dry holes.
ITEM 7. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Consolidated Balance Sheets
As of September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Consolidated Statements of Income For The
Years Ended September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . 17
Consolidated Statements of Stockholders' Equity For
The Years Ended September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . 18
Consolidated Statements of Cash Flows For
The Years Ended September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . 19
Notes To Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
(14)
<PAGE> 17
Report of Independent Auditors
Board of Directors and Stockholders
Panhandle Royalty Company
We have audited the accompanying consolidated balance sheets of Panhandle
Royalty Company as of September 30, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Panhandle Royalty
Company at September 30, 1995 and 1994, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
November 20, 1995
(15)
<PAGE> 18
Panhandle Royalty Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995 1994
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 443,862 $ 1,099,668
Oil and gas sales and other receivables 529,274 423,006
Income tax refund receivable 58,637 -
Prepaid expenses 2,221 3,463
------------------------------------
Total current assets 1,033,994 1,526,137
Property and equipment, at cost, based on successful efforts
accounting (Notes 3 and 6):
Producing oil and gas properties 15,285,738 14,184,179
Nonproducing oil and gas properties 3,480,998 3,150,063
Furniture and fixtures 177,466 168,686
------------------------------------
18,944,202 17,502,928
Less accumulated depreciation, depletion and amortization 12,328,527 11,627,946
------------------------------------
Net properties and equipment 6,615,675 5,874,982
Other assets 107,716 62,163
------------------------------------
$ 7,757,385 $ 7,463,282
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 103,041 $ 123,568
Gas imbalance liability 44,380 -
Dividends payable (Note 4) 62,088 59,012
Income taxes payable (Note 2) - 68,449
Deferred income taxes (Note 2) 203,000 149,000
------------------------------------
Total current liabilities 412,509 400,029
Deferred income taxes (Note 2) 710,000 625,000
Stockholders' equity (Notes 3 and 5):
Class A voting common stock, $.10 par value;
1,000,000 shares authorized, 679,642 issued
and outstanding (678,136 in 1994) 67,964 67,814
Capital in excess of par value 400,334 370,904
Retained earnings 6,166,578 5,999,535
------------------------------------
Total stockholders' equity 6,634,876 6,438,253
------------------------------------
$ 7,757,385 $ 7,463,282
====================================
</TABLE>
See accompanying notes.
(16)
<PAGE> 19
Panhandle Royalty Company
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994
------------------------------------
<S> <C> <C>
Revenues:
Oil and gas sales $3,100,288 $3,820,936
Lease bonuses and rentals 14,453 41,824
Interest 46,203 22,030
Other 57,495 4,873
------------------------------------
3,218,439 3,889,663
Costs and expenses:
Lease operating expenses, production taxes and seismic costs 741,840 739,275
Dry hole costs 264,052 227,965
Depreciation, depletion and amortization 707,149 930,343
General and administrative 785,369 798,886
------------------------------------
2,498,410 2,696,469
------------------------------------
Income before provision for income taxes and the cumulative effect of
accounting change 720,029 1,193,194
Provision for income taxes (Note 2) 146,000 135,000
------------------------------------
Income before the cumulative effect of accounting change 574,029 1,058,194
Less cumulative effect on prior years of change in method of accounting for
income taxes (Note 2) - 37,000
------------------------------------
Net income $ 574,029 $1,021,194
Per share of common stock:
Income before the cumulative effect of accounting change $.85 $1.57
Less cumulative effect of accounting change - .06
------------------------------------
Net income per share $.85 $1.51
====================================
Weighted average shares outstanding 676,914 674,662
====================================
</TABLE>
See accompanying notes.
(17)
<PAGE> 20
Panhandle Royalty Company
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
------------ EXCESS OF RETAINED
SHARES AMOUNT PAR VALUE EARNINGS
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at September 30, 1993 675,259 $67,526 $323,078 $5,339,539
Purchase and cancellation of common shares (646) (65) (7,750) -
Issuance of common shares to ESOP (Note 5) 3,523 353 55,576 -
Dividends declared ($.525 per share) - - - (361,198)
Net income - - - 1,021,194
----------------------------------------------------------------
Balances at September 30, 1994 678,136 67,814 370,904 5,999,535
Purchase and cancellation of common shares (1,988) (199) (29,594) -
Issuance of common shares to ESOP (Note 5) 3,494 349 59,024 -
Dividends declared ($.60 per
share) - - - (406,986)
Net income - - - 574,029
----------------------------------------------------------------
Balances at September 30, 1995 679,642 $67,964 $400,334 $6,166,578
================================================================
</TABLE>
See accompanying notes.
(18)
<PAGE> 21
Panhandle Royalty Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994
--------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 574,029 $1,021,194
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, depletion and amortization 707,149 930,343
Deferred income taxes 139,000 (97,000)
Dry hole costs 264,052 227,965
Common stock issued to Employee Stock Ownership Plan 59,373 55,929
Cumulative effect on prior years of change in method of accounting for
income taxes - 37,000
Cash provided (used) by changes in assets and liabilities:
Oil and gas sales and other receivables (106,268) 86,640
Income tax refund receivable (58,637) -
Prepaid expenses 1,242 339
Accounts payable and accrued liabilities (20,527) (12,320)
Gas imbalance liability 44,380 -
Income taxes payable (68,449) (40,457)
--------------------------------
Total adjustments 961,315 1,188,439
--------------------------------
Net cash provided by operating activities 1,535,344 2,209,633
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases, exploration and development of oil and gas properties (1,703,114) (1,280,987)
Purchases of furniture and fixtures (8,780) (8,096)
Purchases of other assets (45,553) (12,117)
--------------------------------
Net cash used in investing activities (1,757,447) (1,301,200)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase and cancellation of common shares (29,793) (7,815)
Payments of dividends (403,910) (351,780)
--------------------------------
Net cash used in financing activities (433,703) (359,595)
--------------------------------
Increase (decrease) in cash and cash equivalents (655,806) 548,838
Cash and cash equivalents at beginning of year 1,099,668 550,830
--------------------------------
Cash and cash equivalents at end of year $ 443,862 $1,099,668
================================
</TABLE>
See accompanying notes.
(19)
<PAGE> 22
Panhandle Royalty Company
Notes to Consolidated Financial Statements
September 30, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Panhandle Royalty
Company and its wholly-owned subsidiary, P.H.C., Inc. All material intercompany
transactions have been eliminated in the accompanying consolidated financial
statements.
CASH EQUIVALENTS
All highly liquid short-term investments with original maturities of three
months or less from the date of purchase by the Company are considered to be
cash equivalents. Cash equivalents at September 30, 1995 and 1994 include
certificates of deposit of $299,000 and $794,000, respectively, which are
valued at cost (approximates market) and had original maturities of 90 days or
less.
OIL AND GAS SALES RECEIVABLE
The Company sells oil and natural gas to various customers. Substantially all
of the Company's accounts receivable are due from purchasers of oil and natural
gas. Oil and natural gas sales are generally unsecured. The Company has not
experienced significant credit losses in prior years and is not aware of any
significant uncollectible accounts at September 30, 1995.
OIL AND GAS PRODUCING ACTIVITIES
The Company follows the successful efforts method of accounting for oil and gas
producing activities. Intangible drilling and other costs of successful wells
and development dry holes are capitalized and amortized. The costs of
exploratory wells are initially capitalized, but charged against income if and
when the well is determined to be nonproductive. Oil and gas mineral and
leasehold costs are capitalized when incurred. Impairment of unproved
properties is generally assessed on a property-by-property basis.
If the net capitalized costs of proved properties exceed the sum of
undiscounted estimated future net revenues from proved reserves, at current
prices, such excess is charged to expense in the period in which it occurs and
is not subsequently reinstated.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for
(20)
<PAGE> 23
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-Lived Assets to Be Disposed Of." This new standard requires impairment
losses to be recognized for long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows are not
sufficient to recover the assets' carrying amount. The impairment loss would be
measured by comparing the fair value of the asset to its carrying amount, and
would be reported in the year in which the statement is initially adopted. The
statement is required to be adopted by the Company by fiscal year 1997. The
Company believes that the primary application of this statement will relate to
its oil and gas properties and is in the preliminary stages of evaluating the
financial statement impact of adoption of this statement and, accordingly, such
impact has not been determined.
DEPRECIATION, DEPLETION AND AMORTIZATION
Depreciation, depletion and amortization of the costs of producing oil and gas
properties are computed using the units of production method primarily on a
separate-property basis using proved reserves as estimated annually by an
independent petroleum engineer.
The Company has significant royalty interests in wells for which the Company
does not share in the costs associated with the wells. Estimated costs of
future dismantlement, restoration and abandonment of wells in which the Company
owns a working interest are not expected to differ significantly from the
estimated salvage value of equipment from such wells and, accordingly, no
accrual of such costs is included in the accompanying consolidated financial
statements.
Nonproducing oil and gas properties include nonproducing minerals, which have a
net book value of $2,648,193 at September 30, 1995, consisting of perpetual
ownership of mineral interests in several states, including Oklahoma, Texas and
New Mexico. These costs are being amortized over a thirty-three year period
using the straight-line method. An ultimate determination of whether these
properties contain recoverable reserves in economical quantities can generally
be made within this time frame.
Depreciation of furniture and fixtures is computed using the straight-line
method over estimated productive lives of five to eight years.
PRODUCTION IMBALANCES
During the course of normal production operations, joint interest owners will,
from time to time, take more or less than their ownership share of natural gas
volumes from jointly-owned
(21)
<PAGE> 24
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reservoirs. These volumetric imbalances are monitored over the life of the
reservoir to achieve balancing, or to minimize imbalances, by the time reserves
are depleted, with final cash settlements made under a variety of arrangements
at that time. The Company follows the sales method of accounting for
imbalances. A liability is recorded only if takes of natural gas volumes from
jointly-owned reservoirs exceed the Company's interest in the reservoir's
remaining estimated natural gas reserves. At September 30, 1995, the Company's
net liability for production imbalances of approximately 28,000 mcf of natural
gas was $44,380.
EARNINGS PER SHARE OF COMMON STOCK
Earnings per share are computed using the weighted average number of shares
outstanding during the year.
2. INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE
The Company adopted Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes," in its financial statements effective October 1,
1993. The cumulative effect of adopting this statement as of October 1, 1993
was to decrease net income by $37,000.
The Company's provision for income taxes is detailed as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------------------
<S> <C> <C>
Current:
Federal $ - $181,000
State 7,000 51,000
-------------------------------------
7,000 232,000
Deferred:
Federal 126,000 (82,000)
State 13,000 (15,000)
-------------------------------------
139,000 (97,000)
-------------------------------------
$146,000 $135,000
=====================================
</TABLE>
(22)
<PAGE> 25
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
2. INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE (CONTINUED)
The difference between the provision for income taxes and the amount which
would result from the application of the federal statutory rate to income
before provision for income taxes and the cumulative effect of accounting
change is analyzed below:
<TABLE>
<CAPTION>
1995 1994
-------------------------------
<S> <C> <C>
Provision for income taxes at statutory rate $244,810 $417,618
Percentage depletion (97,708) (197,610)
Tight-sands gas credits (68,854) (136,010)
State income taxes, net of federal benefit 13,200 23,400
Reduction in alternative minimum tax credit carryforward 54,000 -
Increase in estimated effective tax rate applied to temporary
differences - 31,706
Other 552 (4,104)
-------------------------------
$146,000 $135,000
===============================
</TABLE>
Deferred tax assets and liabilities, resulting from differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities, consist of the following:
<TABLE>
<CAPTION>
1995 1994
---------------------------------
<S> <C> <C>
Deferred tax liabilities:
Capitalized costs and related depreciation, depletion
and amortization $ 952,000 $ 921,000
Cash basis of accounting for income taxes 203,000 149,000
---------------------------------
1,155,000 1,070,000
Deferred tax assets:
Alternative minimum tax credit carryforwards 242,000 296,000
Valuation allowance - -
---------------------------------
Net deferred tax liabilities $ 913,000 $ 774,000
=================================
</TABLE>
Cash payments for income taxes were $84,086 in 1995 and $272,457 in 1994.
(23)
<PAGE> 26
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
3. LOAN AGREEMENT
The Company has a revolving line of credit agreement with a bank, which extends
through January 3, 1998, for borrowings, which bear interest at the bank's base
rate plus .2%, of up to $2,500,000. Any amount outstanding at the end of the
term of the agreement will be payable in full. The Company is required to pay
an annual fee of .125% for the unused portion of the line of credit. No balance
was outstanding at September 30, 1995 under the line of credit; however, the
Company obtained a $2,100,000 advance in November 1995 (Note 7).
The agreement contains various restrictions which, among other things, require
the Company to maintain, at the end of each quarter, positive net income for
the preceding twelve-month period. Additionally, the Company is restricted from
incurring certain indebtedness, selling oil and gas properties for which the
proceeds received exceed $100,000, acquiring treasury stock in any one year in
excess of $150,000 and paying or declaring cash dividends exceeding fifty
percent of the cash flow from operations, as defined, of the preceding
twelve-month period.
4. DIVIDENDS PAYABLE
Dividends payable represent accrued dividends which are due and payable, but
have not been paid for various reasons, including estate problems of deceased
stockholders or questions of ownership of the underlying shares.
5. EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an employee stock ownership plan that covers substantially all
employees and is established to provide such employees with a retirement
benefit. These benefits become fully vested after three years of employment.
Contributions to the plan are at the discretion of the Board of Directors and
can be made in cash (none in 1995 or 1994) or the Company's common stock. For
contributions of common stock, the Company records as expense, the fair market
value of the stock at the time of contribution. The 16,981 shares of the
Company's common stock held by the plan are allocated to individual participant
accounts, are included in the weighted average shares outstanding for purposes
of earnings per share computations and receive dividends. Contributions to the
plan consisted of:
<TABLE>
<CAPTION>
YEAR SHARES AMOUNT
- ---------------------------------------------------------------------------
<S> <C> <C>
1995 3,494 $59,373
1994 3,523 55,929
</TABLE>
(24)
<PAGE> 27
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
6. INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
All oil and gas producing activities of the Company are conducted within the
United States and represent substantially all of the business activities of the
Company.
AGGREGATE CAPITALIZED COSTS
The aggregate amount of capitalized costs of oil and gas properties and related
accumulated depreciation, depletion and amortization is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995 1994
-----------------------------------
<S> <C> <C>
Producing properties $15,285,738 $14,184,177
Nonproducing properties 3,480,998 3,150,063
-----------------------------------
18,766,736 17,334,240
Accumulated depreciation, depletion and amortization (12,175,056) (11,490,360)
-----------------------------------
Net capitalized costs $ 6,591,680 $ 5,843,880
===================================
</TABLE>
COSTS INCURRED
During the reporting period, the Company incurred the following costs in oil
and gas producing activities:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995 1994
-----------------------------------
<S> <C> <C>
Property acquisition costs (principally nonproducing) $ 379,164 $ 278,033
Exploration costs 798,259 343,607
Development costs 525,691 659,347
-----------------------------------
$1,703,114 $1,280,987
===================================
</TABLE>
(25)
<PAGE> 28
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
7. SUBSEQUENT EVENT
In November 1995, the Company acquired a 50% interest in 65,632 net mineral
acres from Petrocorp, Incorporated for approximately $2,100,000. The purchase
was financed by drawing on the Company's pre-existing line of credit (Note 3).
The purchased minerals are located in 13 states, with primary concentrations in
Oklahoma and Texas, and are predominantly nonproducing properties.
8. SUPPLEMENTARY INFORMATION ON OIL AND GAS RESERVES (UNAUDITED)
The following unaudited information regarding the Company's oil and natural gas
reserves is presented pursuant to the disclosure requirements promulgated by
the Securities and Exchange Commission ("SEC") and SFAS No. 69, "Disclosures
About Oil and Gas Producing Activities."
Proved reserves are estimated quantities of crude oil and natural gas which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are those proved reserves that
can be expected to be recovered through existing wells with existing equipment
and operating methods. Because the Company's nonproducing mineral and leasehold
interests consist of various small interests in numerous tracts located
primarily in Oklahoma, New Mexico, Louisiana and Texas, it has not been
economically feasible for the Company to provide estimates of all proved
undeveloped reserves. In 1995, the Company directed its independent petroleum
engineering firm to include proved undeveloped reserves in certain areas of
Western Oklahoma in the scope of properties which they evaluate for the
Company. The following reserve information for 1995 is, therefore, based on
company-wide proved developed reserves and proved undeveloped reserves in
Western Oklahoma.
The Company's net proved developed (and Western Oklahoma undeveloped in 1995)
oil and gas reserves as of September 30, 1995 and 1994 have been estimated by
Campbell & Associates, Inc., an independent petroleum engineering firm. All
studies have been prepared in accordance with regulations prescribed by the
Securities and Exchange Commission. The reserve estimates were based on
economic and operating conditions existing at September 30, 1995 and 1994.
Since the determination and valuation of proved reserves is a function of
testing and estimation, the reserves presented should be expected to change as
future information becomes available.
(26)
<PAGE> 29
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
8. SUPPLEMENTARY INFORMATION ON OIL AND GAS RESERVES (UNAUDITED) (CONTINUED)
ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES
The following table presents the Company's estimate of net proved developed
(and Western Oklahoma undeveloped in 1995) oil and gas reserve quantities as of
September 30, 1995 and 1994, and the changes in reserves for the years then
ended:
<TABLE>
<CAPTION>
PROVED RESERVES OIL (BARRELS) GAS (MMCF)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
September 30, 1993 227,342 7,300
Revisions of previous estimates 26,439 111
Extensions and discoveries 75,185 1,370
Production (77,720) (1,339)
---------------------------------
September 30, 1994 251,246 7,442
Revisions of previous estimates:
Initial inclusion of Western Oklahoma proved undeveloped reserves 10,339 1,570
Other 54,127 (178)
Extensions and discoveries 231,880 1,558
Production (82,676) (1,203)
---------------------------------
September 30, 1995 464,916 9,189
=================================
Proved developed reserves:
September 30, 1993 227,342 7,300
=================================
September 30, 1994 251,246 7,442
=================================
September 30, 1995 454,577 7,619
=================================
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
Estimates of future cash flows from proved oil and gas reserves, based on
current prices and costs, are shown in the following table. Estimated income
taxes are calculated by (i) applying the appropriate year-end tax rates to the
estimated future pretax net cash flows less depreciation of
(27)
<PAGE> 30
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
8. SUPPLEMENTARY INFORMATION ON OIL AND GAS RESERVES (UNAUDITED) (CONTINUED)
the tax basis of properties and statutory depletion allowances and (ii)
reducing the amount in (i) for estimated tax credits to be realized in the
future for gas produced from "tight-sands."
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995 1994
-----------------------------------
<S> <C> <C>
Future cash inflows $22,316,615 $16,005,570
Future production costs 4,030,951 3,220,791
Future development costs 787,849 5,859
-----------------------------------
Future net cash inflows before future income tax expenses 17,497,815 12,778,920
Future income tax expense 4,667,898 3,204,084
-----------------------------------
Future net cash flows 12,829,917 9,574,836
10% annual discount 4,144,328 3,107,085
-----------------------------------
Standardized measure of discounted future net cash flows $ 8,685,589 $ 6,467,751
===================================
</TABLE>
Changes in the standardized measure of discounted future net cash flows are as
follows:
<TABLE>
<CAPTION>
1995 1994
-----------------------------------
<S> <C> <C>
Beginning of year $6,467,751 $7,596,203
Changes resulting from:
Sales of oil and gas, net of production costs (2,358,448) (3,081,661)
Net change in sales prices and production costs 486,028 (1,644,708)
Future development costs (3,453) 1,600
Extensions and discoveries 3,052,621 1,768,398
Revisions of quantity estimates:
Initial inclusion of Western Oklahoma proved undeveloped reserves 996,260 -
Other 154,356 261,829
Accretion of discount 869,094 1,034,772
Net change in income taxes (974,217) 529,173
Other, net (4,403) 2,145
-----------------------------------
End of year $8,685,589 $6,467,751
===================================
</TABLE>
(28)
<PAGE> 31
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
9. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the Company's unaudited quarterly results of
operations:
<TABLE>
<CAPTION>
FISCAL 1995
------------------------------------------------------------------
QUARTER ENDED
------------------------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $699,214 $705,681 $843,751 $969,793
Income before provision for
income taxes 116,442 16,203 281,833 305,551
Net income 116,442 16,203 281,833 159,551
Earnings per share $.17 $.02 $.42 $.24
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1994
------------------------------------------------------------------
QUARTER ENDED
------------------------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $942,462 $1,007,786 $1,107,940 $831,475
Income before provision for
income taxes and the
cumulative effect of
accounting change (A) 236,012 324,037 452,330 180,815
Income before cumulative effect of
accounting change 226,812 299,050 380,330 152,002
Net income (A) 189,812 299,050 380,330 152,002
Earnings per share (A):
Income before cumulative effect of
accounting change $.34 $.44 $.56 $.23
Net income $.28 $.44 $.56 $.23
</TABLE>
(A) Approximately $155,000 of dry hole costs were incurred on unsuccessful
wells in the fourth quarter of 1994.
Year-end adjustments to the Company's provision for income taxes caused the
effective rate for 1995 to be more than (less than in 1994) that estimated
during the previous three quarters. The effect of this difference is reflected
in the fourth quarter net income above.
(29)
<PAGE> 32
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
N O N E
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
OF THE EXCHANGE ACT
Listed below are the names, ages and positions, as of December
1, 1995, of the directors and executive officers of the Company. The Company's
bylaws provide for seven directors who are elected for staggered three-year
terms. Executive officers are appointed by the board of directors to serve in
their respective capacities until their successors are duly appointed by the
directors.
DIRECTORS
<TABLE>
<CAPTION>
A Served As
g Term Director
Name e Position & Offices Expires Since
- ----------------------- -- ------------------ ------- ---------
<S> <C> <C> <C>
Dean Brown (c) 68 Director, Chairman 1998 1983
of the Board
Michael A. Cawley (b) 48 Director 1998 1991
E. Chris Kauffman (b)(c) 55 Director 1997 1991
Sam J. Cerny (a) 63 Director 1997 1993
H W Peace II (b) 60 Director, Chief 1996 1991
Executive Officer,
President
Robert A. Reece (a)(c) 51 Director 1996 1986
Jerry L. Smith (a) 55 Director 1996 1987
</TABLE>
(a) Member of Audit Committee
(b) Member of Compensation Committee
(c) Member of Retirement Committee
(30)
<PAGE> 33
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Held Office
Name Age Position & Offices Since
- ------------------ --- -------------------- -----------
<S> <C> <C> <C>
Dean Brown 68 Chairman of the 1991
Board, Director
H W Peace II 60 Director, Chief 1991
Executive Officer,
President
Michael C. Coffman 42 Vice President, 1990
Secretary/Treasurer
Wanda C. Tucker 58 Vice President of 1990
Land
</TABLE>
BUSINESS EXPERIENCE
Dean Brown is an attorney and certified public accountant. He
has been engaged in the practice of law since 1957, and is a member of the law
firm of Green, Brown and Stark, in Oklahoma City.
Michael A. Cawley is an attorney and is the president and chief
executive officer of the Samuel Roberts Noble Foundation, Inc. Prior to
joining the Noble Foundation, he was engaged in the practice of law in Ardmore,
Oklahoma with the firm of Thompson & Cawley. He is also a director of Noble
Drilling Corporation and Noble Affiliates Inc.
Sam J. Cerny is a geological engineer and has been employed by
Shell Oil Company, Cleary Petroleum Corporation and its successor company,
Grace Petroleum Corporation, where he served as President/CEO from 1976 to
1991. He is a past president of the Oklahoma Independent Petroleum Association
and is active as a petroleum management consultant.
E. Chris Kauffman is a vice-president of Campbell-Kauffman,
Inc., an independent insurance agency in Oklahoma City. The agency was formed
in 1981. He is also advisory director of Memorial Bank of Oklahoma City and
trustee of the Central Oklahoma Transportation & Parking Authority.
Robert A. Reece is an attorney, of counsel with the firm of
Crowe & Dunlevy. He is active in the management of his family's investments.
H W Peace II holds bachelors and masters degrees in geology.
For 30 years he has been employed as a geologist, in management or as an
officer and/or director in the petroleum industry. He has been employed by
Union Oil Company of California, Cotton Petroleum and Hadson Petroleum
Corporation.
(31)
<PAGE> 34
Jerry L. Smith is owner of Smith Capital Corporation in Dallas.
This corporation is a private investment firm focusing on commercial real
estate and securities. Mr. Smith also serves as Treasurer and as a Director of
the Association of Graduates of the United States Air Force Academy.
Michael C. Coffman is a certified public accountant. Since
1975, he has worked in public accounting and as a financial officer of three
publicly owned companies involved in the oil and gas industry.
Wanda C. Tucker has been a full-time employee of the Company
since 1978, has served in various positions with the Company and is currently
vice president of land.
None of the organizations described in the business experiences
of company directors and officers are parents, subsidiaries or affiliates of
Panhandle Royalty Company.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Principal All Other
Position Year Salary Bonus Compensation
- ------------ ---- -------- ------- ------------
<S> <C> <C> <C> <C>
H W Peace II 1995 $103,750 $15,600 $17,880 (1)
President & 1994 $ 98,750 $15,500 $17,146 (1)
Chief Exec. 1993 $ 95,000 $10,500 $15,825 (1)
Officer
</TABLE>
(1) Represents the value of 1,052 shares for 1995, 1,079
shares for 1994 and 1,217 shares for 1993 of Company
stock contri-buted to the Panhandle Employee Stock
Ownership Plan (ESOP) on Mr. Peace's behalf. The
ESOP is a defined contribution plan, non-voluntary
and non- contributory and serves as the retirement
plan for the Company's employees. Contributions are
at the discretion of the board of directors and, to
date, all contributions have been made in shares of
Company stock. Contributions are allocated to all
participants in proportion to their salaries for the
plan year and 100% vesting occurs after three years'
of service.
(32)
<PAGE> 35
DIRECTORS FEES
Outside directors of the Company are paid $750 plus travel
expenses for attending each meeting of the board of directors and $200 for each
committee meeting of the board. Any director who travels in excess of 50 miles
to attend a meeting receives an additional $100 for each meeting. Effective
November 1, 1994 outside directors can elect to be included in the Panhandle
Royalty Company Deferred Compensation Plan For Non-Employee Directors (the
"Plan"). The Plan provides that each eligible director can individually elect
to receive shares of Company stock rather than cash for board meeting fees and
board committee meeting fees. These unissued shares are credited to each
director's deferred fee account at the fair market value of the shares on the
date of the meeting. Upon retirement, termination or death of the director, or
upon a change in control of the Company, the shares accrued under the Plan will
be either issued to the director or may be converted to cash, at the directors'
discretion, at the fair market value of the shares on the conversion date, as
defined.
In addition to the above, Dean Brown, chairman of the board of
directors, who is not an employee of the Company, is entitled to receive a $100
per hour fee for time spent, other than board or committee meetings, on Company
business. During fiscal 1995 and 1994, no payments were made to Mr. Brown
under this arrangement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of December 4, 1995, no person or "group" as that term is
used in Section 13(d)(3) of the Securities Exchange Act of 1934, was known to
Panhandle to be the beneficial owner of more than five percent of the
outstanding shares of Panhandle's class A common stock.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of September 30, 1995, all
shares of class A common stock held beneficially, directly or indirectly by
each director and by all directors and officers as a group.
<TABLE>
<CAPTION>
Amount And Nature Of Percent Of
Name Beneficial Ownership Class
- --------------------- ------------------------- ----------
<S> <C> <C>
Dean Brown (A) 1,250 shares, sole voting *
and investment powers
Michael A. Cawley (B) 100 shares, sole voting *
and investment powers
Sam J. Cerny (C) 100 shares, sole voting *
and investment powers
</TABLE>
(33)
<PAGE> 36
<TABLE>
<S> <C> <C>
E. Chris Kauffman (D) 3,100 shares, shared voting *
and investment powers
H W Peace II (E) 5,635 shares, shared voting *
and investment powers
Robert A. Reece (F) 5,848 shares, sole voting *
and investment powers
Jerry L. Smith (G) 7,024 shares, sole voting 1.0%
and investment powers
All directors and 7,656 shares, shared 1.1%
officers as a voting and investment
group (9 persons) powers
23,366 shares, sole voting 3.4%
and investment powers
31,022 shares total 4.6%
</TABLE>
* less than 1.0%
(A) 5550 N. Francis, Oklahoma City, OK 73118
(B) P.O. Box 2180, Ardmore, OK 73402
(C) 3330 Liberty Twr, 100 N. Broadway, Okla. City, OK 73102
(D) 701 N.W. 63rd Street - Suite #200, Okla. City, OK 73116
(E) 5400 N.W. Grand Blvd - Suite #210, Okla. City, OK 73112
(F) 6403 N. Grand Blvd. - Suite #204, Okla. City, OK 73116
(G) 5944 Luther Lane - Suite #401, Dallas, TX 75225
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
N O N E
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
( 3) Articles of Incorporation (Incorporated by reference
to Exhibit attached to Form 10 filed January 27,
1980, and to Forms 8-K dated June 1, 1982 and
December 3, 1982)
By-Laws as amended (Incorporated by reference to Form
8-K dated October 31, 1994)
( 4) Instruments defining the rights of security holders
(Incorporated by reference to Articles of
Incorporation and By-Laws listed above)
(34)
<PAGE> 37
(10) Agreement indemnifying directors and officers
(Incorporated by reference to Form 10-K dated
September 30, 1989)
(22) Subsidiaries of the Registrant
(27) Financial Data Schedule
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1995.
(35)
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Exchange Act, the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PANHANDLE ROYALTY COMPANY
By: /s/ H W Peace II
-----------------------------------
H W Peace II, Chief
Executive Officer,
President, Director
Date: December 15, 1995
---------------------------------
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/s/ Dean Brown /s/ E. Chris Kauffman
- ----------------------------- -----------------------------
Dean Brown, Chairman of Board E. Chris Kauffman, Director
Date December 15, 1995 Date December 15, 1995
------------------------ ------------------------
/s/ Robert A. Reece /s/ Jerry L. Smith
- ----------------------------- -----------------------------
Robert A. Reece, Director Jerry L. Smith, Director
Date December 15, 1995 Date December 15, 1995
------------------------ ------------------------
/s/ Sam J. Cerny /s/ Michael A. Cawley
- ----------------------------- -----------------------------
Sam J. Cerny, Director Michael A. Cawley, Director
Date December 15, 1995 Date December 15, 1995
------------------------ ------------------------
/s/ Michael C. Coffman
- -----------------------------------
Michael C. Coffman, Vice President
Treasurer and Secretary
(Principal Financial and Accounting
Officer)
Date December 15, 1995
------------------------------
(36)
<PAGE> 39
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
3 Articles of Incorporation (Incorporated by reference
to Exhibit attached to Form 10 filed January 27,
1980, and to Forms 8-K dated June 1, 1982 and
December 3, 1982)
By-Laws as amended (Incorporated by reference to Form
8-K dated October 31, 1994)
4 Instruments defining the rights of security holders
(Incorporated by reference to Articles of
Incorporation and By-Laws listed above)
10 Agreement indemnifying directors and officers
(Incorporated by reference to Form 10-K dated
September 30, 1989)
22 Subsidiaries of the Registrant
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 22
SUBSIDIARIES OF PANHANDLE ROYALTY COMPANY
AT SEPTEMBER 30, 1995
The following table sets forth certain information with respect
to Panhandle's subsidiary:
Corporation
PHC, Inc.
PHC, Inc. was incorporated in Oklahoma and is included in
Panhandle's consolidated financial statements. PHC, Inc. is inactive, and has
never done any business.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 443,862
<SECURITIES> 0
<RECEIVABLES> 529,274
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,033,994
<PP&E> 18,944,202
<DEPRECIATION> 12,328,527
<TOTAL-ASSETS> 7,757,385
<CURRENT-LIABILITIES> 412,509
<BONDS> 0
<COMMON> 67,964
0
0
<OTHER-SE> 6,566,912
<TOTAL-LIABILITY-AND-EQUITY> 7,757,385
<SALES> 3,100,288
<TOTAL-REVENUES> 3,218,439
<CGS> 741,840
<TOTAL-COSTS> 2,498,410
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 720,029
<INCOME-TAX> 146,000
<INCOME-CONTINUING> 574,029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 574,029
<EPS-PRIMARY> .85
<EPS-DILUTED> .85
</TABLE>
