<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 December 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
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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 February 5, 1996:
675,064
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<PAGE> 2
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1995 (unaudited) and
September 30, 1995.................................. 1
Condensed Consolidated Statements of Income -
Three months ended
December 31, 1995 and 1994 (unaudited).............. 2
Condensed Consolidated Statements of Cash Flows -
Three months ended December 31, 1995 and 1994
(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
<PAGE> 3
PART I. FINANCIAL INFORMATION
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information at December 31, 1995 is unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1995 1995
------ -------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 637,759 $ 443,862
Oil and gas sales and other receivables 664,800 587,911
Prepaid expenses 15,579 2,221
-------------- --------------
Total current assets 1,318,138 1,033,994
Properties and equipment, at cost, based
on successful efforts accounting 21,442,796 18,944,202
Less accumulated depreciation,
depletion and amortization 12,574,752 12,328,527
-------------- -------------
Net properties and equipment 8,868,044 6,615,675
Other assets 107,716 107,716
-------------- -------------
$ 10,293,898 $ 7,757,385
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable, accrued liabilities
and gas imbalance liability $ 372,226 $ 147,421
Dividends payable 62,684 62,088
Income taxes payable 61,850 --
Deferred income taxes 203,000 203,000
------------- ------------
Total current liabilities 699,760 412,509
Long-term debt 2,000,000 --
Deferred income taxes 710,000 710,000
Stockholders' equity:
Class A voting common stock, $.10 par
value; 1,000,000 shares authorized,
679,586 issued and outstanding at
December 31, 1995 and 679,642 at
September 30, 1995 67,959 67,964
Capital in excess of par value 399,396 400,334
Retained earnings 6,416,783 6,166,578
-------------- ------------
Total stockholders' equity 6,884,138 6,634,876
-------------- -------------
$ 10,293,898 $ 7,757,385
============== =============
</TABLE>
(See accompanying notes)
(1)
<PAGE> 4
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Dec. 31,
---------------------------------
1995 1994
----------- ------------
<S> <C> <C>
Revenues:
Oil and gas sales $ 1,178,810 $ 676,200
Lease bonuses and rentals 1,800 10,339
Interest 6,052 12,292
Other 787 383
----------- -----------
1,187,449 699,214
Costs and expenses:
Lease operating expenses,
production taxes 225,507 148,069
Dry hole costs 12,838 29,476
Depreciation, depletion
and amortization 246,225 160,068
General & administrative 263,058 245,159
Interest expense 23,237 --
----------- -----------
770,865 582,772
----------- -----------
Income before provision
for income taxes 416,584 116,442
Provision for income taxes 64,500 --
----------- -----------
Net Income $ 352,084 $ 116,442
=========== ===========
Net income per share
of common stock $ .52 $ .17
=========== ===========
Dividends declared per share
of common stock $ .15 $ .15
=========== ===========
Weighted average
shares outstanding 679,628 678,000
=========== ===========
</TABLE>
(See accompanying notes)
(2)
<PAGE> 5
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Dec. 31,
--------------------------------
1995 1994
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 352,084 $ 116,442
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 246,225 160,068
Cash provided (used) by changes in assets
and liabilities:
Oil and gas sales and other receivables ( 76,889) ( 1,245)
Prepaid expenses and other assets ( 13,358) --
Income taxes payable 61,850 ( 11,327)
Accounts payable, accrued liabilities
and dividends payable 225,401 ( 13,776)
---------- ----------
Total adjustments 443,229 133,720
---------- ----------
Net cash provided by operating activities 795,313 250,162
Cash flows from investing activities:
Purchases of and development of
properties and equipment (2,498,594) ( 367,433)
---------- ----------
Net cash used in investing
activities (2,498,594) ( 367,433)
Cash flows from financing activities:
Loan proceeds 2,100,000 --
Payment of loan principal ( 100,000) --
Acquisition of the
Company's common shares ( 943) ( 2,189)
Payment of dividends ( 101,879) ( 101,996)
--------- ----------
Net cash provided (used)
in financing activities 1,897,178 ( 104,185)
---------- ----------
Increase (decrease) in cash and cash equivalents 193,897 ( 221,456)
Cash and cash equivalents at beginning of period 443,862 1,099,668
---------- ----------
Cash and cash equivalents at end of period $ 637,759 $ 878,212
========== ==========
</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 periods ended
December 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. 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 February
14, 1996, the Company had $1,850,000 outstanding under the facility.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, working capital was $618,378 as compared to $621,485
at September 30, 1995. Cash and cash equivalents were $637,758 at December 31,
1995 as compared to $443,862 at September 30, 1995. Cash flow provided by
operating activities for the quarter ended December 31, 1995 was $795,312 as
compared to $250,162 for the quarter ended December 31, 1994. The increase in
cash and cash flow provided by operating activities is the result of
substantially increased oil and gas sales revenues in the fiscal 1996 quarter
as compared to the 1995 quarter.
The Company continued to increase its expenditures for the purchase of and
development of its oil and gas properties. Expenditures for the first quarter
of fiscal 1996 amounted to $2,498,594 as compared to $367,433 for the first
quarter of fiscal 1995. $2,100,000 of the 1996 expenditures were funded by
accessing the Company's line-of-credit with its bank. The remaining $398,594
was funded by internally generated cash flow. The majority of the funds
expended were to purchase a 50% interest in 65,632 net mineral acres located
mainly in Oklahoma and Texas. These properties were purchased at a cost of
$2,115,115 and are principally non-producing, but will 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 the drilling of wells on the properties,
which should generate additional cash flow from oil and gas sales.
At December 31, 1995 the Company had commitments for ongoing and proposed
drilling and equipment costs on new wells totaling $798,000. These costs, as
well as Company operating costs for the remaining three quarters of fiscal
1996, are expected to be paid 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 January
1998, should cash flow be lower than expectations, principal payments could be
scaled back.
(4)
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Recent winter weather has increased natural gas sales prices and created an
increased demand for natural gas. The increased gas prices and gas production
is expected to last into the spring months, and coupled with continuing
increases in oil production, should translate into increased cash flow in fiscal
1996 over 1995 levels.
RESULTS OF OPERATIONS
Oil and gas sales revenues increased $502,610 to $1,178,810 for the
quarter ended December 31, 1995 as compared to $676,200 for the quarter ended
December 31, 1994. This increase is principally the result of significantly
increased oil sales volumes along with increased gas sales volumes and a higher
average gas sales price. The chart below outlines the Company's production and
average sales prices for oil and natural gas in the first quarters of fiscal
1996 and 1995.
<TABLE>
<CAPTION>
PRODUCTION
----------------------------------------
OIL GAS
------------------ -------------------
Total Average Total Average
Bbls Price/Bbl MCF Price/MCF
------ --------- ------- ---------
<S> <C> <C> <C> <C>
Quarter ended 12/31/95 36,811 $ 17.36 349,736 $ 1.50
Quarter ended 12/32/94 14,191 $ 16.68 315,838 $ 1.39
</TABLE>
The 22,620 barrel increase in oil production for the first fiscal 1996
quarter over the first fiscal 1995 quarter is the direct result of new wells
coming on line in the Dagger Draw field of New Mexico. This field is the
Company's largest oil producing field, and there continues to be further
drilling in the field. Oil production for the remainder of fiscal 1996 should
be increased over fiscal 1995 levels as production from this field continues to
increase. Additional wells are currently being drilled in the field.
Increased gas sales volumes and gas sales prices are the result of the winter
weather experienced thus far in fiscal 1996 and, as discussed earlier, these
increases are expected to continue at least into the second and third quarters
of fiscal 1996.
Costs and expenses increased $188,093 in the 1996 quarter to $770,865 as
compared to $582,772 in the 1995 quarter. Lease operating expenses, production
taxes and seismic costs increased $77,438 in the 1996 period as compared to the
1995 period. This increase was attributable to increased gross production
taxes paid on the increased oil and gas sales revenues, and in addition, lease
operating expenses increased as a result of expenses incurred on certain well
workovers during the period. As the Company continues to participate in the
drilling of additional working interest wells, lease operating expense will
increase as new wells go on-line.
The Company computes depreciation, depletion and amortization costs (DD&A)
using the units of production method, thus DD&A, in the 1996 quarter, was
higher as production volumes were substantially larger than in the 1995
quarter. Interest expense was $23,237 in the 1996 quarter as compared to $0 in
the 1995 quarter. The Company paid interest on the $2,100,000 borrowed in
November 1995 but had no debt in the first quarter of fiscal 1995.
The provision for income taxes in fiscal 1996 continues to be favorably
affected by tax credits available for the production of "tight gas sands"
natural gas. The Company's first quarter 1996 income before the provision for
income taxes was substantially increased over the 1995 amount, thus the
provision for income taxes was increased. The above-mentioned tax credits
will not offset the entire expected provision for income taxes during fiscal
1996.
(5)
<PAGE> 8
Net earnings in the 1996 first quarter were $ .52 per share as compared to
$ .17 per share for the 1995 quarter. The increase was a function of
increased oil and gas sales revenues, as discussed earlier, offset somewhat by
increased costs and expenses. As natural gas prices are expected to remain
somewhat higher than fiscal 1995 levels and oil production volumes are expected
to remain at an increased level for fiscal 1996, management expects 1996
financial results to continue to outpace those recorded in fiscal 1995.
However, should several of the Company's exploratory drilling projects result
in dry holes, earnings would be negatively impacted, but cash flow would not be
substantially affected.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Exhibit 27 -- Financial Data Schedule
(b) FORM 8-K was filed on November 29, 1995 reporting the
Company had acquired a 50% interest in 65,632 net
mineral acres at a cost of $2,115,115.
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
February 14, 1996 /s/ H W Peace II
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Date H. W. Peace II, President
February 14, 1996 /s/ Michael C. Coffman
- ----------------- -----------------------------------
Date Michael C. Coffman, Vice President,
Secretary and Treasurer
(6)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 637,759
<SECURITIES> 0
<RECEIVABLES> 664,800
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,318,138
<PP&E> 21,442,796
<DEPRECIATION> 12,574,752
<TOTAL-ASSETS> 10,293,898
<CURRENT-LIABILITIES> 699,760
<BONDS> 0
<COMMON> 67,959
0
0
<OTHER-SE> 6,816,179
<TOTAL-LIABILITY-AND-EQUITY> 10,293,898
<SALES> 1,178,810
<TOTAL-REVENUES> 1,187,449
<CGS> 225,507
<TOTAL-COSTS> 747,628
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,237
<INCOME-PRETAX> 416,584
<INCOME-TAX> 64,500
<INCOME-CONTINUING> 352,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 352,084
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
