<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, 1996
-------------------------------------------
( ) 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
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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 2, 1996: 675,020
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<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1996 (unaudited) and
September 30, 1995.................................. 1
Condensed Consolidated Statements of Income -
Three months and Nine Months ended
June 30, 1996 and 1995 (unaudited).................. 2
Condensed Consolidated Statements of Cash Flows -
Nine Months ended June 30, 1996 and 1995
(unaudited)......................................... 3
Notes to Condensed Consolidated Financial
Statements (unaudited) ............................. 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, 1996 is unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
ASSETS 1996 1995
------ ------------------ --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 690,352 $ 443,862
Oil and gas sales and other receivables 773,303 587,911
Prepaid expenses 12,662 2,221
------------------ --------------
Total current assets 1,476,317 1,033,994
Properties and equipment, at cost, based
on successful efforts accounting:
Producing Oil and Gas Properties 4,906,703 3,480,998
Nonproducing Oil and Gas Properties 17,102,384 15,285,738
Other 183,959 177,466
Less accumulated depreciation,
depletion and amortization 13,311,070 12,328,527
------------------ --------------
Net properties and equipment 8,881,976 6,615,675
Other assets 107,716 107,716
------------------ --------------
$ 10,466,009 $ 7,757,385
================== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable, accrued liabilities
and gas imbalance liability $ 296,890 $ 147,421
Dividends payable 28,306 62,088
Income taxes payable 50,000 --
Deferred income taxes 203,000 203,000
------------------ --------------
Total current liabilities 578,196 412,509
Long-term debt 1,250,000 --
Deferred income taxes 996,700 710,000
Stockholders' equity:
Class A voting common stock, $.10 par
value; 1,000,000 shares authorized,
675,020 issued and outstanding at
June 30, 1996 and 679,642 at
September 30, 1995 67,502 67,964
Capital in excess of par value 324,592 400,334
Retained earnings 7,249,019 6,166,578
------------------ --------------
Total stockholders' equity 7,641,113 6,634,876
------------------ --------------
$ 10,466,009 $ 7,757,385
================== ==============
</TABLE>
(See accompanying notes)
(1)
<PAGE> 4
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
---------------------------------------- ----------------------------------
1996 1995 1996 1995
----------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 1,644,659 $ 830,546 $ 4,343,446 $ 2,194,188
Lease bonuses and rentals 5,806 389 14,363 8,401
Interest 6,209 12,510 18,234 38,670
Other 7,275 306 8,363 7,387
----------------- ----------------- --------------- --------------
1,663,949 843,751 4,384,406 2,248,646
Costs and expenses:
Lease operating expenses,
production taxes 265,244 184,037 743,873 489,487
Dry hole costs 17,580 54,615 95,712 247,146
Depreciation, depletion
and amortization 418,725 154,003 982,543 498,590
General & administrative 179,706 168,484 664,457 595,135
Interest Expense 32,493 779 95,354 3,810
----------------- ----------------- --------------- --------------
913,748 561,918 2,581,939 1,834,168
Income before provision
for income taxes 750,201 281,833 1,802,467 414,478
Provision for income taxes 220,000 -- 414,500 --
----------------- ----------------- --------------- --------------
Net Income $ 530,201 $ 281,833 $ 1,387,967 $ 414,478
================= ================= =============== ==============
Net income per share
of common stock $ .78 $ .42 $ 2.05 $ .61
================= ================= =============== ==============
Dividends declared per share
of common stock $ .15 $ .15 $ .45 $ .45
================= ================= =============== ==============
Weighted average
shares outstanding 676,283 676,196 678,453 677,164
================= ================= =============== ==============
</TABLE>
(See accompanying notes)
(2)
<PAGE> 5
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended June 30,
------------------------------------------
1996 1995
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,387,967 $ 414,478
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 982,543 498,590
Cash provided (used) by changes in assets
and liabilities:
Oil and gas sales and other receivables ( 185,392) ( 40,480)
Prepaid expenses and other assets ( 10,441) ( 47,754)
Income taxes payable 50,000 ( 68,449)
Deferred income taxes 286,700 --
Accounts payable, accrued liabilities
and dividends payable 115,687 45,654
-------------- ----------------
Total adjustments 1,239,097 387,561
-------------- ----------------
Net cash provided by operating activities 2,627,064 802,039
Cash flows from investing activities:
Purchases of and development of
properties and equipment (3,248,844) (1,084,192)
-------------- ----------------
Net cash used in investing
activities (3,248,844) (1,084,192)
Cash flows from financing activities:
Loan proceeds 2,100,000 --
Payment of loan principal ( 850,000) --
Acquisition of the
Company's common shares ( 76,204) ( 29,478)
Payment of dividends ( 305,526) ( 306,224)
-------------- ----------------
Net cash provided (used)
in financing activities 868,270 ( 335,702)
-------------- ----------------
Increase (decrease) in cash and cash equivalents 246,490 ( 617,855)
Cash and cash equivalents at beginning of period 443,862 1,099,668
-------------- ----------------
Cash and cash equivalents at end of period $ 690,352 $ 481,813
============== ================
Supplemental disclosures of cash flow information:
Interest paid $ 95,354 $ 3,810
Income taxes paid $ 77,800 $ 79,703
-------------- ----------------
$ 173,154 $ 83,513
============== ================
</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, 1996 and 1995 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. The Company utilizes 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. The Company purchased and
retired 4,393 shares of stock during the third quarter. These were
unclaimed shares resulting from the merger of New Mexico Osage Royalty
Company into Panhandle in 1988.
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. At August
5, 1996, the Company had $1,050,000 outstanding under the facility.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, working capital was $898,121 as compared to $621,485 at
September 30, 1995. Cash and cash equivalents were $690,352 as compared to
$443,862 at September 30, 1995. Cash flow provided by operating activities for
the nine-month period ended June 30, 1996 was $2,627,064 as compared to
$802,039 for the nine-month period ended June 30, 1996. The increase in cash
flow is the result of increased oil and gas sales revenues in the 1996 period
as compared to the 1995 period.
The Company continues to increase its expenditures for the purchase of and
development of its oil and gas properties. Expenditures for the 1996
nine-month period totaled $3,248,844 as compared to $1,084,192 in the
comparable 1995 period. $2,115,000 of the 1996 expenditures were used to
purchase a 50% interest in 65,632 net mineral acres located principally in
Oklahoma and Texas. This purchase was funded by accessing the Company's
line-of-credit for $2,100,000. The properties are principally non-producing,
however they should add approximately $150,000 to cash flow during fiscal 1996,
before consideration of interest expense on the loan. The Company intends to
actively pursue development of these properties by participating in drilling of
additional wells on the properties.
At June 30, 1996 the Company had commitments for ongoing and proposed
drilling and equipment costs on new wells totaling $871,000. These costs, as
well as Company operating costs for the remaining three months of fiscal 1996
are expected to be funded from cash flow and available working capital. In
addition, the Company anticipates having sufficient cash available to make
substantial principal payments on the bank line-of-credit. However, as the
principal amount of the line-of-credit is not due and payable until 1998,
should cash flow be lower than expectations or should the Company make another
large asset purchase, principal payments could be scaled back and/or the line
of credit could be accessed. The Company feels the line of credit can be
substantially increased over $2,500,000, if necessary.
(4)
<PAGE> 7
RESULTS OF OPERATIONS
Revenues increased substantially for both the three-month and nine-month
periods ended June 30, 1996 as compared to the comparable periods in 1995. The
increases were the result of oil and gas sales revenues increasing $814,113,
98%, for the three-month period and $2,149,258, 98%, for the nine-month period.
The increases are the result of increased sales volumes and sales prices for
both natural gas and oil.
The chart below outlines the Company's production and average sales prices
for oil and natural gas for the three- month and nine-month periods of fiscal
1995 and 1996.
<TABLE>
<CAPTION>
BARRELS AVERAGE MCF AVG
SOLD PRICE SOLD PRICE
------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Three months ended 06/30/96 38,706 $ 21.61 404,169 $ 2.00
Three months ended 06/30/95 23,879 $ 18.25 281,211 $ 1.42
Nine months ended 06/30/96 112,154 $ 19.36 1,178,546 $ 1.86
Nine months ended 06/30/95 53,719 $ 17.47 872,580 $ 1.44
</TABLE>
The increases in sales volumes and sales prices of natural gas are
principally due to a cold winter in 1995-1996 and the resulting increased
demand for natural gas. The increase in oil sales volume continues to be in
large part the result of new wells coming on line in the Daggar Draw Field of
New Mexico. This field is the Company's largest oil producing field, and there
continues to be development drilling in the field. The Company anticipates
additional wells will be completed and begin producing in the field during the
next two years. Also adding somewhat to this oil volume increase were
increases in West Texas reef and Louisiana Wilcox sand production. Management
expects oil production volumes and gas production volumes to remain relatively
stable for the remainder of fiscal 1996.
Costs and expenses increased $351,830 in the 1996 quarter as compared to
the 1995 quarter and increased $747,771 in the 1996 nine-month period as
compared to the 1995 nine-month period. In both the three-month and nine-month
periods of 1996 lease operating expenses and production taxes, depreciation,
depletion and amortization (DD&A), general and administrative costs and
interest expense all increased, while dry hole costs decreased.
Lease operating expenses and production taxes were higher due to
severence taxes paid on the increased oil and gas sales revenues in the 1996
periods. Workover costs in the 1996 periods on wells in Louisiana and New
Mexico and the continuing increase in the number of working interest wells
further increased lease operating costs. DD&A increased in the 1996 period as
the Company computes DD&A on the units of production method, which caused
increased DD&A costs as production levels increased in 1996. In addition,
several wells were deemed marginal producers in 1996 and DD&A rates were
increased on those wells.
General and administrative costs increased due to increased salary
levels, increased legal costs and higher insurance costs. Interest expense was
increased in the 1996 periods as the Company borrowed $2,100,000 in the first
quarter of fiscal 1996 to make the property acquisition discussed above. Until
that time, the Company had no debt. Management expects costs and expenses will
remain higher than 1995 levels for the remainder of fiscal 1996.
Dry hole costs were the only costs lower in fiscal 1996 than 1995.
These costs will vary from quarter to quarter. The Company will continue
drilling exploratory wells, which, if nonproductive result in dry hole costs.
(5)
<PAGE> 8
The provision for income taxes in the 1996 periods were substantially
higher due to the significant increase in income before taxes. However, the
provision for taxes continues to be favorably affected by tax credits available
from the production of "tight gas sands" natural gas.
Net income and net income per share were both substantially increased
for the three-month and nine-month periods of 1996, as compared to the 1995
periods. The increases are a result of increased oil and gas sales volumes and
sales prices, somewhat offset by increased costs and expenses. Sales volumes
are expected to remain at an increased level for both natural gas and oil and
sales prices for gas and oil are expected to remain relatively stable for the
remainder of fiscal 1996. Thus, management expects financial results to
continue to show improvement over 1995 levels. However, should any of the
Company's exploratory drilling projects result in dry holes or should gas
and/or oil prices drop dramatically, earnings would be negatively impacted.
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, 1996.
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
August 12, 1996 /s/ H W Peace II
- ----------------- ------------------------------------
Date H. W. Peace II, President
August 12, 1996 /s/ Michael C. Coffman
- ----------------- ------------------------------------
Date Michael C. Coffman, Vice President,
Chief Financial Officer and
Secretary and Treasurer
(6)
<PAGE> 9
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
EX-27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 690,352
<SECURITIES> 0
<RECEIVABLES> 773,303
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,476,317
<PP&E> 22,193,046
<DEPRECIATION> 13,311,070
<TOTAL-ASSETS> 10,466,009
<CURRENT-LIABILITIES> 578,196
<BONDS> 0
<COMMON> 67,502
0
0
<OTHER-SE> 7,573,611
<TOTAL-LIABILITY-AND-EQUITY> 10,466,009
<SALES> 4,343,446
<TOTAL-REVENUES> 4,384,406
<CGS> 743,873
<TOTAL-COSTS> 1,742,712
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95,354
<INCOME-PRETAX> 1,802,467
<INCOME-TAX> 414,500
<INCOME-CONTINUING> 1,387,967
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,387,967
<EPS-PRIMARY> 2.05
<EPS-DILUTED> 2.05
</TABLE>
