<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, 1996
-------------------------------------------
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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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 May 6, 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 -
March 31, 1996 (unaudited) and
September 30, 1995.................................. 1
Condensed Consolidated Statements of Income -
Three months and Six Months ended
March 31, 1996 and 1995 (unaudited)................. 2
Condensed Consolidated Statements of Cash Flows -
Six Months ended March 31, 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 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, 1996 is unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 1996 1995
------ -------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 651,630 $ 443,862
Oil and gas sales and other receivables 774,535 587,911
Prepaid expenses 15,580 2,221
------------- -----------
Total current assets 1,441,745 1,033,994
Properties and equipment, at cost, based
on successful efforts accounting 21,761,666 18,944,202
Less accumulated depreciation,
depletion and amortization 12,892,345 12,328,527
------------- -----------
Net properties and equipment 8,869,321 6,615,675
Other assets 107,716 107,716
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$ 10,418,782 $ 7,757,385
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable, accrued liabilities
and gas imbalance liability $ 350,121 $ 147,421
Dividends payable 63,372 62,088
Income taxes payable 156,850 --
Deferred income taxes 203,000 203,000
------------- -----------
Total current liabilities 773,343 412,509
Long-term debt 1,650,000 --
Deferred income taxes 710,000 710,000
Stockholders' equity:
Class A voting common stock, $.10 par
value; 1,000,000 shares authorized,
679,449 issued and outstanding at
March 31, 1996 and 679,642 at
September 30, 1995 67,945 67,964
Capital in excess of par value 397,123 400,334
Retained earnings 6,820,371 6,166,578
------------- -----------
Total stockholders' equity 7,285,439 6,634,876
------------- -----------
$ 10,418,782 $ 7,757,385
============= ===========
</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
------------------------------------ ------------------------------
1996 1995 1996 1995
----------------- ---------------- --------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 1,519,977 $ 687,442 $ 2,698,787 $ 1,363,642
Lease bonuses and rentals 6,757 (2,327) 8,557 8,012
Interest 5,973 13,868 12,025 26,160
Other 300 6,698 1,087 7,081
----------------- ---------------- --------------- ------------
1,533,007 705,681 2,720,456 1,404,895
Costs and expenses:
Lease operating expenses,
production taxes 253,122 157,381 478,629 305,450
Dry hole costs 65,294 163,055 78,132 192,531
Depreciation, depletion
and amortization 317,593 184,519 563,818 344,587
General & administrative 221,693 184,523 484,751 429,682
Interest expense 39,624 -- 62,861 --
----------------- ---------------- --------------- ------------
897,326 689,478 1,668,191 1,272,250
----------------- ---------------- --------------- ------------
Income before provision
for income taxes 635,681 16,203 1,052,265 132,645
Provision for income taxes 130,000 -- 194,500 --
----------------- ---------------- --------------- ------------
Net Income $ 505,681 $ 16,203 $ 857,765 $ 132,645
================= ================ =============== ============
Net income per share
of common stock $ .74 $ .02 $ 1.26 $ .20
================= ================ =============== ============
Dividends declared per share
of common stock $ .15 $ .15 $ .30 $ .30
================= ================ =============== ============
Weighted average
shares outstanding 679,460 677,424 679,531 677,702
================= ================ =============== ============
</TABLE>
(See accompanying notes)
(2)
<PAGE> 5
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended March 31,
----------------------------
1996 1995
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 857,765 $ 132,645
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 563,818 344,587
Cash provided (used) by changes in assets
and liabilities:
Oil and gas sales and other receivables (186,624) 41,272
Prepaid expenses and other assets (13,359) (29,359)
Income taxes payable 156,850 (42,986)
Accounts payable, accrued liabilities
and dividends payable 203,984 46,355
---------- ----------
Total adjustments 724,669 359,869
---------- ----------
Net cash provided by operating activities 1,582,434 492,514
Cash flows from investing activities:
Purchases of and development of
properties and equipment (2,817,464) (611,607)
---------- ----------
Net cash used in investing
activities (2,817,464) (611,607)
Cash flows from financing activities:
Loan proceeds 2,100,000 --
Payment of loan principal (450,000) --
Acquisition of the
Company's common shares (3,230) (26,033)
Payment of dividends (203,972) (204,739)
---------- ----------
Net cash provided (used)
in financing activities 1,442,798 (230,772)
---------- ----------
Increase (decrease) in cash and cash equivalents 207,768 (349,865)
Cash and cash equivalents at beginning of period 443,862 1,099,668
---------- ----------
Cash and cash equivalents at end of period $ 651,630 $ 749,803
========== ==========
Supplemental disclosures of cash flow information:
Interest paid $ 62,861 $ 4,598
Income taxes paid 67,650 81,373
---------- ----------
$ 130,511 $ 85,971
========== ==========
</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, 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.
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 May 6,
1996, the Company had $1,550,000 outstanding under the facility.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, working capital was $668,402 as compared to $621,485 at
September 30, 1995. Cash and cash equivalent were $651,630 as compared to
$443,862 at September 30, 1995. Cash flow provided by operating activities for
the six-month period ended March 31, 1996 was $1,582,434 as compared to
$492,514 for the six-month period ended March 31, 1995. 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 six-month
period totaled $2,817,464 as compared to $611,607 in the comparable 1995
period. $2,115,000 of the 1996 expenditues 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 March 31, 1996 the Company had commitments for ongoing and proposed
drilling and equipment costs on new wells totaling $782,000. These costs, as
well as Company operating costs for the remaining six 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, principal payments could be scaled
back.
(4)
<PAGE> 7
RESULTS OF OPERATIONS
Revenues increased substantially for both the three-month and six-month
periods ended March 31, 1996 as compared to the comparable periods in 1995.
The increases were the result of oil and gas sales revenues increasing
$832,535, 121%, for the three-month period and $1,335,145, 98%, for the
six-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 six-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 03/31/96 36,637 $ 18.86 424,641 $ 1.99
Three months ended 03/31/95 15,649 $ 17.00 275,226 $ 1.54
Six months ended 03/31/96 73,448 $ 18.18 774,377 $ 1.79
Six months ended 03/31/95 29,840 $ 16.84 591,064 $ 1.46
</TABLE>
The increases in sales volumes and sales prices of natural gas are
principally due to the cold winter 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 several
additional wells will be completed and begin producing in the field during the
last half of fiscal 1996. 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 $207,848 in the 1996 quarter as compared to
the 1995 quarter and increased $395,941 in the 1996 six-month period as
compared to the 1995 six-month period. In both the three-month and six-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 the
severence taxes paid on the increased oil and gas sales revenues in each
period. In addition, workover costs in the 1996 periods on wells in Louisiana
and New Mexico 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 when 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 six-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 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, earnings would be
negatively impacted, as the drilling costs would be expensed as dry hole costs.
(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
23, 1996.
(b) Three 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
---------
H W Peace II 724 29
Robert A. Reece 725 28
Jerry L. Smith 724 29
Auditors
--------
Ernst & Young LLP 720 3 30
</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, 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
May 14, 1996 /s/ H W Peace II
- ----------------- -----------------------------------
Date H. W. Peace II, President
May 14, 1996 /s/ Michael C. Coffman
- ----------------- -----------------------------------
Date Michael C. Coffman, Vice President,
Chief Financial Officer and
Secretary and Treasurer
(7)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 651,630
<SECURITIES> 0
<RECEIVABLES> 774,535
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,441,745
<PP&E> 21,761,666
<DEPRECIATION> 12,892,345
<TOTAL-ASSETS> 10,418,782
<CURRENT-LIABILITIES> 773,343
<BONDS> 0
<COMMON> 67,945
0
0
<OTHER-SE> 7,217,494
<TOTAL-LIABILITY-AND-EQUITY> 10,418,782
<SALES> 2,698,787
<TOTAL-REVENUES> 2,720,456
<CGS> 478,629
<TOTAL-COSTS> 1,126,701
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,861
<INCOME-PRETAX> 1,052,265
<INCOME-TAX> 194,500
<INCOME-CONTINUING> 857,765
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 857,765
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.26
</TABLE>
