<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
( X ) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the period ended June 30, 1995
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to _____________________
Commission File Number 0-9116
PANHANDLE ROYALTY COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1055775
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Grand Centre Suite 210, 5400 NW Grand Blvd., Okla. City, Oklahoma 73112
-----------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number including area code (405) 948-1560
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 (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
----- -----
Outstanding shares of Class A Common stock (voting) at August 4, 1995: 671,697
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INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1995 (unaudited) and
September 30, 1994.................................. 1
Condensed Consolidated Statements of Income -
Three months and nine months ended
June 30, 1995 and 1994 (unaudited).................. 2
Condensed Consolidated Statements of Cash Flows -
Nine months ended June 30, 1995 and 1994
(unaudited)......................................... 3
Notes to Condensed Consolidated Financial
Statements.......................................... 4
Item 2. Management's discussion and analysis of financial
condition and results of operations................. 4
Part II. Other Information
Item 6. Exhibits and reports on Form 8-K.................... 6
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information at June 30, 1995 is unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $ 481,813 $ 1,099,668
Oil and gas sales and other receivables 463,486 423,006
Prepaid expenses 5,664 3,463
------------- -------------
Total current assets 950,963 1,526,137
Properties and equipment, at cost, based
on successful efforts accounting 18,580,660 17,502,928
Less accumulated depreciation,
depletion and amortization 12,120,076 11,627,946
------------- -------------
Net properties and equipment 6,460,584 5,874,982
Other assets 107,716 62,163
------------- -------------
$ 7,519,263 $ 7,463,282
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued
liabilities $ 166,146 $ 123,568
Dividends payable 62,088 59,012
Income taxes payable -- 68,449
Deferred income taxes 149,000 149,000
------------- -------------
Total current liabilities 377,234 400,029
Deferred income taxes 625,000 625,000
Stockholders' equity:
Class A voting common stock, $.10 par
value; 1,000,000 shares authorized,
676,169 issued and outstanding at
June 30, 1995 and 678,136 at
September 30, 1994 67,617 67,814
Capital in excess of par value 341,623 370,904
Retained earnings 6,107,789 5,999,535
------------- -------------
Total stockholders' equity 6,517,029 6,438,253
------------- -------------
$ 7,519,263 $ 7,463,282
============= =============
</TABLE>
(See accompanying notes)
(1)
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PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
------------------------------ --------------------------------
1995 1994 1995 1994
----------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 830,546 $ 1,089,790 $ 2,194,188 $ 3,004,350
Lease bonuses and rentals 389 12,269 8,401 35,879
Interest 12,510 5,800 38,670 14,055
Other 306 81 7,387 3,905
----------- ------------- ------------- ------------
843,751 1,107,940 2,248,646 3,058,189
Costs and expenses:
Lease operating expenses,
production taxes and
seismic costs 184,037 200,360 489,487 563,277
Dry hole costs 54,615 19,785 247,146 74,214
Depreciation, depletion
and amortization 154,003 265,341 498,590 807,381
General & administrative 169,263 170,124 598,945 600,938
----------- ------------- ------------- ------------
561,918 655,610 1,834,168 2,045,810
----------- ------------- ------------- ------------
Income before provision
for income taxes and the
cumulative effect of
accounting change 281,833 452,330 414,478 1,012,379
Provision for income taxes -- 72,000 -- 106,187
----------- ------------- ------------- ------------
Income before the cumulative
effect of accounting change 281,833 380,330 414,478 906,192
Less cumulative effect on
prior years of change in
method of accounting for
income taxes -- -- -- 37,000
----------- ------------- ------------- ------------
Net Income $ 281,833 $ 380,330 $ 414,478 $ 869,192
=========== ============= ============= ============
Per share of
common stock:
Income before the
cumulative effect of
accounting change $ .42 $ .56 $ .61 $ 1.34
Less cumulative effect
of accounting change $ - $ -- $ -- $ .05
=========== ============= ============= ============
Net income per share $ .42 $ .56 $ .61 $ 1.29
=========== ============= ============= ============
Dividends declared per share
of common stock $ .15 $ .125 $ .45 $ .375
=========== ============= ============= ============
Weighted average
shares outstanding 676,196 674,614 677,164 674,678
=========== ============= ============= ============
</TABLE>
(See accompanying notes)
(2)
<PAGE> 5
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine-Months ended June 30,
--------------------------------
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 414,478 $ 869,192
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 498,590 807,381
Cash provided (used) by changes in assets
and liabilities:
Oil and gas sales and other receivables (40,480) (63,882)
Prepaid expenses and other assets (47,754) (19,655)
Income taxes payable (68,449) (108,906)
Accounts payable, accrued
liabilities and dividends payable 45,654 (8,703)
Cumulative effect on prior years
of change in method of
accounting for income taxes -- 37,000
---------- ------------
Total adjustments 387,561 643,235
---------- ------------
Net cash provided by operating activities 802,039 1,512,427
Cash flows from investing activities:
Purchases of and development of
properties and equipment (1,084,192) (794,320)
---------- ------------
Net cash used in investing
activities (1,084,192) (794,320)
Cash flows from financing activities:
Acquisition of the Company's common stock (29,478) (7,815)
Payment of dividends (306,224) (259,705)
---------- ------------
Net cash used in financing activities (335,702) (267,520)
---------- ------------
Increase (decrease) in cash and cash equivalents (617,855) 450,587
Cash and cash equivalents at beginning of period 1,099,668 550,830
---------- ------------
Cash and cash equivalents at end of period $ 481,813 $ 1,001,417
========== ============
</TABLE>
(See accompanying notes)
(3)
<PAGE> 6
PANHANDLE ROYALTY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated results presented for the three-month and nine-month
periods ended June 30, 1995 and 1994 are unaudited, but management of
Panhandle Royalty Company believes that all adjustments necessary for
a fair presentation of the consolidated results of operations for the
periods have been included. All such adjustments are of a normal
recurring nature. The consolidated results are not necessarily
indicative of those to be expected for the full year.
2. During the first quarter of fiscal 1994 the Company adopted FASB
Statement No. 109 "Accounting for Income Taxes". The effect of
adopting Statement 109 was to decrease first quarter 1994 earnings
by $37,000 and increase the deferred income tax liability. As
permitted under the new rules, prior years' financial statements
have not been restated. The Company continues to utilize tight gas
sands production tax credits to reduce its federal income tax
liability. These credits are scheduled to be available through the
year 2002.
3. Earnings per share of common stock are computed using the weighted
average number of shares outstanding during the period.
4. The Company has a revolving line of credit with Bank One, Texas, in
the amount of $2,500,000. The credit matures on January 3, 1998.
Currently, the Company has not borrowed funds under the facility.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCE
At June 30, 1995, working capital was $573,729 as compared to
$1,126,108 at September 30, 1994. Cash and cash equivalents were $481,813 as
compared to $1,099,668 at September 30, 1994. The decrease in working capital
and cash and cash equivalents is principally the result of two factors. One,
oil and gas revenues are substantially lower thus far in fiscal 1995 as
compared to fiscal 1994 and, two, expenditures for purchases and development of
oil and gas properties and equipment have substantially increased.
Cash flow from operating activities in fiscal 1995 was $802,039 for
the 1995 nine months as compared to $1,512,427 for the 1994 nine months. The
decreased cash flow is the result of decreased oil and gas sales revenues.
Expenditures for the purchase and/or development of oil and gas
properties amounted to $1,084,192 in the 1995 nine-month period as compared to
$794,320 in the 1994 nine-month period. This increase of $289,872 was
attributable to increased amounts spent on drilling and equipping new wells and
purchasing additional fee mineral acreage. In addition to the above amounts
$247,146 was spent drilling wells that were not economic producers in fiscal
1995 as compared to $74,214 in the 1994 period. All these expenditures were
funded from cash flow and existing cash reserves. Management anticipates
drilling costs will continue at approximately this same relative level in the
fourth quarter of fiscal 1995, however expenditures for mineral acreage
purchases are expected to be substantially reduced.
(4)
<PAGE> 7
Capital costs for the remainder of fiscal 1995, including drilling and
equipment costs for wells and fee mineral acreage purchases, if any, will be
funded from expected cash flow and available cash reserves. Should a large
mineral acquisition be consummated, the Company would access its $2,500,000
line of credit to fund the purchase. Commitments for proposed and ongoing well
drilling and equipment costs at June 30, 1995 were approximately $601,000. The
majority of these costs will be paid over the next three to six months. During
this same time period, additional drilling commitments are anticipated as new
wells are proposed.
Management expects natural gas prices to remain depressed for the
remainder of fiscal 1995 and into fiscal 1996. These low gas prices will
reduce cash flow. In addition some producing well operators have selectively
"shut in" gas production on certain wells due to the low gas prices. This
"shut in" gas will be sold when gas prices are higher, however cash flow will
be affected while the wells are "shut in". Thus, management expects cash flow
for the remainder of fiscal 1995 to remain depressed, however the Company has
adequate cash reserves should cash flow not be sufficient to fund anticipated
capital expenditures and operating costs.
RESULTS OF OPERATION
Total revenues decreased for both the three-month and nine-month
periods ended June 30, 1995 as compared to the same periods in 1994. Oil and
gas sales revenues decreased $810,162 or 27% for the nine-month period and
$259,244 or 24% for the three-month period. The decreases are mainly a result
of lower sales volumes and lower sales prices for natural gas in both 1995
periods, as compared to the same periods in fiscal 1994.
<TABLE>
<CAPTION>
PRODUCTION
-----------------------------------------------------
OIL GAS
---------------------- ---------------------
TOTAL AVERAGE TOTAL AVERAGE
BARRELS PRICE MCF PRICE
------- ------- ---------- -------
<S> <C> <C> <C> <C>
Nine months ended 06/30/95 53,719 $17.47 872,580 $1.44
Nine months ended 06/30/94 61,566 $15.80 1,032,859 $1.96
Three months ended 06/30/95 23,879 $18.25 281,211 $1.42
Three months ended 06/30/94 24,863 $16.92 352,598 $1.93
</TABLE>
The sales price and production volume decreases combined to reduce gas
sales revenues 37% for the 1995 nine- month period and 41% for the 1995
three-month period as compared to the 1994 periods. Oil sales revenues were
basically flat as the average sales price per barrel increase in the 1995
periods made up for the production decreases of the 1995 periods. The Company
expects oil and gas sales revenues to remain relatively flat for the remainder
of fiscal 1995 and to increase moderately as the winter heating season
increases gas sales prices and volumes.
Costs and expenses decreased for both the three-month and nine-month
periods ended June 30, 1995 as compared to the same 1994 periods. The
decreases amounted to $93,692 for the three-month period and $211,642 for the
nine-month period. Individual cost and expense items changing significantly
were dry hole costs and depreciation, depletion and amortization (DD&A). Dry
hole costs increased both in the three-month and nine-month periods of 1995 as
compared to the same periods in 1994.
(5)
<PAGE> 8
The Company has participated in the drilling of more exploratory wells in 1995,
and one well drilled in the second quarter of 1995 accounts for over $100,000
of the total dry hole costs for the nine-months. As the Company continues to
be more aggressive drilling exploratory wells the chances of incurring dry hole
costs have increased. There is no way to accurately predict dry hole costs,
however, as the Company will continue to aggressively participate in
exploratory wells, along with development wells, it is expected that dry hole
costs will continue at an increased level, as compared to recent years. DD&A
expense decreased in each 1995 period as compared to the corresponding 1994
periods. The company computes DD&A on the units of production method, thus the
lower production volumes in 1995 have reduced DD&A expense. In addition,
several marginal producing wells DD&A rates were increased in the 1994 periods
due to anticipated reserve volume reductions. Lease operating expenses,
production taxes and seismic costs were also lower in the 1995 periods as
compared to the 1994 periods. Production taxes are calculated as a percentage
of oil and gas sales revenues, and as discussed above oil and gas revenues are
lower in the 1995 periods, which reduced production taxes paid.
The provision for income taxes in 1995 continues to be favorably affected by
tax credits, available for the production of "tight gas sands" gas production.
These credits coupled with reduced earnings resulted in no provision for income
taxes for the first nine months of 1995. The company adopted FASB Statement
No. 109 "Accounting for Income Taxes" in the first quarter of 1994. The
implementation resulted in a one-time cumulative effect charge to current
earnings of $37,000.
Net income and net income per share both decreased for the three month and nine
month periods in 1995 as compared to the 1994 periods. As discussed above, the
decreases are the result of depressed oil and gas sales revenues somewhat
offset by lower costs and expenses. Management does not anticipate a dramatic
turnaround in natural gas sales prices during the remainder of fiscal 1995,
thus the negative impact on net income from reduced gas sales volumes and gas
sales prices is expected to continue through the remainder of fiscal 1995.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Exhibit 27 -- Financial Data Schedule
(b) There were no reports on FORM 8-K filed for the three
months ended June 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
PANHANDLE ROYALTY COMPANY
August 11, 1995 /s/ H W Peace II
- -------------------- -------------------------------
Date H. W. Peace II, President
August 11, 1995 /s/ Michael C. Coffman
- -------------------- -------------------------------
Date Michael C. Coffman, Vice President,
Secretary and Treasurer
</TABLE>
(6)
<PAGE> 9
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-1-1994
<PERIOD-END> JUN-30-1995
<CASH> 481,813
<SECURITIES> 0
<RECEIVABLES> 463,486
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 950,963
<PP&E> 18,580,660
<DEPRECIATION> 12,120,076
<TOTAL-ASSETS> 7,519,263
<CURRENT-LIABILITIES> 377,234
<BONDS> 0
<COMMON> 67,617
0
0
<OTHER-SE> 6,449,412
<TOTAL-LIABILITY-AND-EQUITY> 7,519,263
<SALES> 2,194,188
<TOTAL-REVENUES> 2,248,646
<CGS> 489,487
<TOTAL-COSTS> 1,834,168
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 414,478
<INCOME-TAX> 0
<INCOME-CONTINUING> 414,478
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 414,478
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
