<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 March 31, 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 May 4, 1995:
671,697
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1995 (unaudited) and
September 30, 1994.................................. 1
Condensed Consolidated Statements of Income -
Three months and six months ended
March 31, 1995 and 1994 (unaudited)................. 2
Condensed Consolidated Statements of Cash Flows -
Six months ended March 31, 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 4. Submission of matters to a vote of security
holders............................................. 7
Item 6. Exhibits and reports on Form 8-K.................... 7
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information at March 31, 1995 is unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 1995 1994
------ ------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 749,803 $ 1,099,668
Oil and gas sales and other receivables 381,734 423,006
Prepaid expenses 7,822 3,463
-------------- -----------
Total current assets 1,139,359 1,526,137
Properties and equipment, at cost, based
on successful efforts accounting 18,110,835 17,502,928
Less accumulated depreciation,
depletion and amortization 11,968,833 11,627,946
-------------- -----------
Net properties and equipment 6,142,002 5,874,982
Other assets 87,163 62,163
-------------- -----------
$ 7,368,524 $ 7,463,282
============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued
liabilities $ 167,339 $ 123,568
Dividends payable 61,596 59,012
Income taxes payable 25,463 68,449
Deferred income taxes 149,000 149,000
-------------- -----------
Total current liabilities 403,398 400,029
Deferred income taxes 625,000 625,000
Stockholders' equity
Class A voting common stock, $.10 par
value; 1,000,000 shares authorized,
676,399 issued and outstanding at
March 31,1995 and 678,136 at
September 30, 1994 67,640 67,814
Capital in excess of par value 345,045 370,904
Retained earnings 5,927,441 5,999,535
-------------- -----------
Total stockholders' equity 6,340,126 6,438,253
-------------- -----------
$ 7,368,524 $ 7,463,282
============== ===========
</TABLE>
(See accompanying notes)
(1)
<PAGE> 4
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Mar 31, Six Months Ended Mar 31,
--------------------------------- ------------------------------
1995 1994 1995 1994
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 687,442 $ 993,673 $ 1,363,642 $ 1,914,560
Lease bonuses and rentals (2,327) 9,847 8,012 23,609
Interest 13,868 3,789 26,160 8,255
Other 6,698 477 7,081 3,824
------------ ----------- ----------- -----------
705,681 1,007,786 1,404,895 1,950,248
Costs and expenses:
Lease operating expenses,
production taxes and
seismic costs 157,381 171,896 305,450 362,917
Dry hole costs 163,055 15,678 192,531 54,428
Depreciation, depletion
and amortization 184,519 311,710 344,587 542,040
General & administrative 184,523 184,465 429,682 430,814
------------ ----------- ----------- -----------
689,478 683,749 1,272,250 1,390,199
------------ ----------- ----------- -----------
Income before provision
for income taxes and the
cumulative effect of
accounting change 16,203 324,037 132,645 560,049
Provision for income taxes -- 24,987 -- 34,187
------------ ----------- ----------- -----------
Income before the cumulative
effect of accounting change 16,203 299,050 132,645 525,862
Less cumulative effect on
prior years of change in
method of accounting for
income taxes -- -- -- 37,000
------------ ----------- ----------- -----------
Net Income $ 16,203 $ 299,050 $ 132,645 $ 488,862
============ =========== =========== ===========
Per share of
common stock:
Income before the
cumulative effect of
accounting change $ .02 $ .44 $ .20 $ .78
Less cumulative effect
of accounting change $ -- $ -- $ -- $ .06
------------ ----------- ----------- -----------
Net income per share $ .02 $ .44 $ .20 $ .72
============ =========== =========== ===========
Dividends declared per share
of common stock $ .15 $ .125 $ .30 $ .25
============ =========== =========== ===========
Weighted average
shares outstanding 677,424 674,654 677,702 674,710
============ =========== =========== ===========
</TABLE>
(See accompanying notes)
(2)
<PAGE> 5
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six-Months ended March 31,
------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 132,645 $ 488,862
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 344,587 542,040
Cash provided (used) by changes in assets
and liabilities:
Oil and gas sales and other receivables 41,272 ( 65,099)
Prepaid expenses and other assets ( 29,359) ( 27,533)
Income taxes payable ( 42,986) ( 108,906)
Accounts payable, accrued
liabilities and dividends payable 46,355 ( 35,875)
Cumulative effect on prior years
of change in method of
accounting for income taxes -- 37,000
---------- -----------
Total adjustments 359,869 341,627
---------- -----------
Net cash provided by operating activities 492,514 830,489
Cash flows from investing activities:
Purchases of and development of
properties and equipment ( 611,607) ( 576,752)
---------- -----------
Net cash used in investing
activities ( 611,607) ( 576,752)
Cash flows from financing activities:
Acquisition of the Company's common stock ( 26,033) ( 7,815)
Payment of dividends ( 204,739) ( 168,676)
---------- -----------
Net cash used in financing activities ( 230,772) ( 176,491)
---------- -----------
Increase (decrease) in cash and cash equivalents ( 349,865) 77,246
Cash and cash equivalents at beginning of period 1,099,668 550,830
---------- -----------
Cash and cash equivalents at end of period $ 749,803 $ 628,076
========== ===========
</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 six-month
periods ended March 31, 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 or $.06 per
share, 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, 1997. 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 RESOURCES
At March 31, 1995, working capital was $735,961 as compared to $1,126,108
at September 30, 1994. Cash and cash equivalents were $749,803 at March 31,
1995 as compared to $1,099,668 at September 30, 1994. The Company continued to
invest its cash flow, and a portion of its cash reserves, in the development of
its oil and gas properties and in purchasing additional mineral acreage.
Cash provided by operating activities was $492,514 for the six months
ended March 31, 1995 as compared to $830,489 for the six months ended March 31,
1994. The decrease in cash provided by operating activities was due to
decreased oil and gas sales revenues and the resulting decrease in net income
for the 1995 six months as compared to the 1994 six months. Oil and gas
revenues decreased as a result of lower oil and gas sales volumes, and a
decreased sales price for natural gas.
Expenditures for the purchase and/or development of oil and gas properties
amounted to $611,607 in the 1995 six months as compared to $576,752 in the 1994
six months. The Company continued to be active in the drilling of wells and
purchasing of fee mineral acreage. Increased spending on oil and gas
activities was principally the result of an increased amount spent for fee
mineral acreage purchases, somewhat offset by decreased spending on drilling
and equipment costs of wells in the 1995 period as compared to the 1994 period.
Management anticipates drilling costs will slightly increase for the remainder
of 1995, as compared to the first six months, and that mineral acreage
purchases will decline.
(4)
<PAGE> 7
Expected capital costs for the remainder of fiscal 1995, including
drilling and equipment costs for wells and fee mineral acreage purchases, will
be funded from expected cash flow and available cash reserves. The Company
does not anticipate incurring debt for the above expenditures. Should a large
acquisition opportunity arise a $2,500,000 line of credit is available.
Commitments for proposed and ongoing well drilling and equipment costs at March
31, 1995 were approximately $616,000. The majority of these costs will be paid
in the next six to nine months. However, additional drilling commitments are
anticipated during the next six months as new wells are proposed.
Management expects natural gas prices to remain depressed for at least the
remainder of fiscal 1995. As a result of these low gas prices the Company and
well operators have periodically "shut in" gas production on certain of its
wells when gas sales prices for those specific wells are deemed inadequate. In
addition to the low prices the resulting reduced volumes of gas and condensate
(oil) production which normally accompanies the gas have impacted revenues and
cash flow. This "shut in" gas will be available for sale at a later date when
prices are deemed adequate. Low natural gas sales prices will continue to have
a negative impact on cash flow and cash available, however, the Company has
adequate cash reserves should cash flow not be sufficient to fund capital
expenditures and operating costs for the remainder of 1995.
RESULTS OF OPERATIONS
Total revenues decreased for both the three-month and six-month periods
ended March 31, 1995 as compared to the comparable periods in 1994. Oil and
gas sales revenues decreased $306,231 or 31% for the three-month period and
$550,918 or 29% for the six-month period. The decreases are the result of
lower sales volumes for both natural gas and oil, a lower average sales price
for natural gas and somewhat offset by an increased average sales price for
oil.
<TABLE>
<CAPTION>
BARRELS AVERAGE MCF AVG
SOLD PRICE SOLD PRICE
------- ------- ------ -----
<S> <C> <C> <C> <C>
Three months ended 03/31/95 15,649 $17.00 275,226 $1.54
Three months ended 03/31/94 22,570 $13.97 329,690 $2.01
Six months ended 03/31/95 29,840 $16.84 591,064 $1.46
Six months ended 03/31/94 36,703 $15.03 680,261 $1.98
</TABLE>
As can be seen from the chart the decrease in oil and gas revenues was
caused by both volume and price decreases. Gas volume decreases are
principally the result of the Company or well operators "shutting in" or not
producing certain gas wells due to low gas sales prices. Oil volume decreases
in the 1995 periods are the result of the 1994 periods experiencing initial
flush production volumes from several oil wells in New Mexico. These wells'
oil production volumes have now leveled off to lower, sustainable levels. As
the majority of the Company's revenues (63%) are derived from natural gas sales
and as gas prices are expected to remain depressed for the remainder of fiscal
1995, management expects fiscal 1995 revenues will be lower than 1994 levels.
Costs and expenses increased $5,729 in the 1995 quarter as compared to the
1994 quarter and decreased $117,949 in the 1995 six-month period as compared to
the 1994 six-month period. The only expenses changing significantly during
either the three-month or six-month periods were depreciation, depletion and
(5)
<PAGE> 8
amortization (DD&A) and dry hole costs. As the Company computes DD&A on the
units of production method, D&A was reduced by the lower production volumes
experienced in fiscal 1995. In addition, several marginal producing wells'
DD&A rates were increased in the 1994 periods, thus increasing 1994 DD&A
expense. 1995 three-month period dry hole costs were significantly increased,
as compared to the 1994 period, as the Company participated in the drilling of
more wells which resulted in dry holes. Two of these wells resulted in costs
of approximately $149,000 being charged to dry hole costs in the three-month
period ended March 31, 1995. Lease operating expenses, production taxes and
seismic costs were somewhat lower for both the three-month period and six-month
period of 1995 as compared to the 1994 periods. Production taxes are lower as
they 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. In addition, seismic costs were approximately
$32,000 less in the 1995 six-month period as compared to the 1994 six-month
period.
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 six 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
six-month periods in 1995 as compared to 1994. As discussed above, the
decreases are the result of decreased oil and gas sales revenues in each period
of 1995 as compared to 1994 and increased dry hole costs in the 1995
three-month period. These higher costs were somewhat offset by decreased DD&A
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.
(6)
<PAGE> 9
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of shareholders was held on February
24, 1995.
(b) Two directors were elected at the meeting. Also,
ratification of the selection of Ernst & Young LLP as
independent auditors for the Company was voted upon.
The directors elected and the results of voting were as
follows:
<TABLE>
<CAPTION>
VOTES
-------------------------------------------
For Against Withheld
----- ------- --------
<S> <C> <C> <C>
Directors
---------
Dean Brown 868 21
Michael A. Cawley 861 28
Auditors
--------
Ernst & Young LLP 862 6 21
</TABLE>
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 March 31, 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.
PANHANDLE ROYALTY COMPANY
May 12, 1995 /s/ H W Peace II
- ----------------- ----------------------------------
Date H. W. Peace II, President
May 12, 1995 /s/ Michael C. Coffman
- ----------------- ----------------------------------
Date Michael C. Coffman, Vice President,
Secretary and Treasurer
(7)
<PAGE> 10
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 749,803
<SECURITIES> 0
<RECEIVABLES> 381,734
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,139,359
<PP&E> 18,110,836
<DEPRECIATION> 11,968,833
<TOTAL-ASSETS> 7,368,524
<CURRENT-LIABILITIES> 403,398
<BONDS> 0
<COMMON> 67,640
0
0
<OTHER-SE> 6,272,486
<TOTAL-LIABILITY-AND-EQUITY> 7,368,524
<SALES> 1,363,642
<TOTAL-REVENUES> 1,404,895
<CGS> 305,450
<TOTAL-COSTS> 1,272,250
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 132,645
<INCOME-TAX> 0
<INCOME-CONTINUING> 132,645
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,645
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
