<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, 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
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, 1997:
677,846
<PAGE> 2
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1996 (unaudited) and
September 30, 1996.................................. 1
Condensed Consolidated Statements of Income -
Three months ended
December 31, 1996 and 1995 (unaudited).............. 2
Condensed Consolidated Statements of Cash Flows -
Three Months ended December 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 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, 1996 is unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1996 1996
------ ------------------ -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 137,441 $ 399,423
Oil and gas sales and other receivables 981,795 817,258
Prepaid expenses 19,684 4,520
------------------ -------------
Total current assets 1,138,920 1,221,201
Properties and equipment, at cost, based
on successful efforts accounting:
Producing Oil and Gas Properties 18,077,045 17,594,577
Nonproducing Oil and Gas Properties 5,167,107 5,112,785
Other 192,647 190,473
------------------ -------------
23,436,799 22,897,835
Less accumulated depreciation,
depletion and amortization 13,921,622 13,700,007
------------------ -------------
Net properties and equipment 9,515,177 9,197,828
Other assets 107,716 107,716
------------------ -------------
$ 10,761,813 $ 10,526,745
================== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable, accrued liabilities
and gas imbalance liability $ 210,253 $ 210,280
Dividends payable 29,056 28,656
Income taxes payable 209,406 164,843
Deferred income taxes 250,000 250,000
------------------ -------------
Total current liabilities 698,715 653,779
Long-term debt 600,000 750,000
Deferred income taxes 908,000 908,000
Stockholders' equity:
Class A voting common stock, $.10 par
value; 1,000,000 shares authorized,
677,846 issued and outstanding at
December 31, 1996 and 677,846 at
September 30, 1996 67,785 67,785
Capital in excess of par value 383,790 383,790
Retained earnings 8,103,523 7,763,391
------------------ -------------
Total stockholders' equity 8,555,098 8,214,966
------------------ -------------
$ 10,761,813 $ 10,526,745
================== =============
</TABLE>
(See accompanying notes)
(1)
<PAGE> 4
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Dec. 31,
-----------------------------------
1996 1995
---------------- --------------
<S> <C> <C>
Revenues:
Oil and gas sales $ 1,543,383 $ 1,178,810
Lease bonuses and rentals 1,108 1,800
Interest 4,108 6,052
Other 8,940 787
---------------- --------------
1,557,539 1,187,449
Costs and expenses:
Lease operating expenses,
production taxes 231,528 225,507
Dry hole costs 160,980 12,838
Depreciation, depletion
and amortization 226,864 246,225
General & administrative 341,320 263,058
Interest Expense 14,745 23,237
---------------- --------------
975,437 770,865
Income before provision
for income taxes 582,102 416,584
Provision for income taxes 106,000 64,500
---------------- --------------
Net Income $ 476,102 $ 352,084
================ ==============
Net income per share
of common stock $ .70 $ .52
================ ==============
Dividends declared per share
of common stock $ .20 $ .15
================ ==============
Weighted average
shares outstanding 677,846 679,628
================ ==============
</TABLE>
(See accompanying notes)
(2)
<PAGE> 5
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Dec. 31,
------------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 476,102 $ 352,084
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 226,864 246,225
Dry Hole Costs 160,980 12,838
Cash provided (used) by changes in assets
and liabilities:
Oil and gas sales and other receivables ( 164,537) ( 76,889)
Prepaid expenses and other assets ( 15,164) ( 13,358)
Income taxes payable 44,563 61,850
Accounts payable, accrued liabilities
and dividends payable 373 225,401
---------------- ----------------
Total adjustments 253,079 456,067
---------------- ----------------
Net cash provided by operating activities 729,181 808,151
Cash flows from investing activities:
Purchases of and development of
properties and equipment ( 705,193) (2,511,432)
---------------- ----------------
Net cash used in investing
activities ( 705,193) (2,511,432)
Cash flows from financing activities:
Loan proceeds -- 2,100,000
Payment of loan principal ( 150,000) ( 100,000)
Acquisition of the
Company's common shares -- ( 943)
Payment of dividends ( 135,970) ( 101,879)
---------------- ----------------
Net cash provided (used)
in financing activities ( 285,970) 1,897,178
---------------- ----------------
Increase (decrease) in cash and cash equivalents ( 261,982) 193,897
Cash and cash equivalents at beginning of period 399,423 443,862
---------------- ----------------
Cash and cash equivalents at end of period $ 137,441 $ 637,759
================ ================
Supplemental disclosures of cash flow information:
Interest paid $ 14,745 $ 23,237
Income taxes paid $ 57,742 $ 2,650
---------------- ----------------
$ 72,487 $ 25,887
================ ================
</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, 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 February
5, 1997, the Company had $600,000 outstanding under the facility.
5. Certain reclassifications have been made in the financial statements for
the quarter ended December 31, 1995 to conform to the financial statement
presentation at December 31, 1996.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
All statements concerning the Company other than purely historical
information (collectively "Forward-Looking Statements") provided herein are
subject to all the risks and uncertainties incident to the acquisition,
development, and exploration for oil and gas reserves. These risks include,
but are not limited to, oil and natural gas price risk, drilling risk, reserve
quantity risk and operations and production risks. For all the above reasons,
actual results may vary materially from any forward-looking statements and
there is no assurance that the assumptions used are necessarily the most likely
to occur.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, working capital was $440,205 as compared to $567,422
at September 30, 1996. Cash and cash equivalents were $137,441 at December 31,
1996. Cash flow provided by operating activities for the first quarter of 1997
was $729,181 as compared to $808,151 for the first quarter of 1996. The
reduction in cash flow is principally the result of timing of payment on the
Company's accounts payable and of receipts of its oil and gas sales revenues.
The Company continues the trend of increasing expenditures on the
development of its oil and gas properties. During the 1997 first quarter,
approximately $700,000 was spent for oil and gas exploration and production
activities as compared to approximately $400,000 spent for that purpose during
the 1996 first quarter. However, during the 1996 first quarter, the Company
also spent $2,115,000 to purchase a 50% interest in 65,632 net mineral acres
located principally in Oklahoma and Texas. The purchase was funded by
accessing the Company's line-of-credit for $2,100,000. First quarter 1997
expenditures were funded from cash flow and cash reserves.
(4)
<PAGE> 7
At December 31, 1996 the Company had commitments for ongoing and proposed
drilling and equipment costs on new wells totaling $760,000. These costs, as
well as Company operating costs for the remainder of fiscal 1997 are expected
to be funded from cash flow and available working capital. In addition, the
Company anticipates having sufficient cash available to make principal payments
on the bank line-of-credit and to make dividend payments to the Company's
shareholders. However, should cash flow be lower than expectations, or should
the Company require additional funds for increased drilling or asset
acquisitions, principal payments could be scaled back and/or additional funds
could be borrowed under the line-of-credit.
RESULTS OF OPERATIONS
Revenues increased in the fiscal 1997 three-month period ended December 31,
1996 by $370,090, or 31%, as compared to the same period in fiscal 1996. This
growth in revenues was a result of increased oil and gas sales revenues; which
were the result of higher sales prices for both oil and natural gas and
increased sales volumes of natural gas, partially offset by a decrease in the
sales volume of oil. The chart below outlines the Company's production and
average sales prices for oil and natural gas for the first quarter of fiscal
1997 and 1996.
<TABLE>
<CAPTION>
BARRELS AVERAGE MCF AVERAGE
SOLD PRICE SOLD PRICE
------- --------- ------- -----------
<S> <C> <C> <C> <C>
Quarter ended 12/31/96 30,927 $ 23.61 370,846 $ 2.16
Quarter ended 12/31/95 36,811 $ 17.36 349,739 $ 1.50
</TABLE>
The decrease in oil sales volume is the result of production allowable
limitations on certain wells in the Dagger Draw field of New Mexico. These
limitations will reduce those wells oil production for the remainder of fiscal
1997, but new wells coming on line during the second quarter of fiscal 1997
should marginally increase oil production for the remaining three quarters of
1997 as compared to the first quarter. Oil prices have increased compared to
the 1996 quarter and management anticipates prices in the low $20.00 range, on
average, during fiscal 1997. Gas production volumes were slightly increased in
the 1997 quarter as compared to the 1996 quarter due to the early cold winter
weather and the resulting demand for natural gas for heating purposes. This
demand had the natural effect of raising sales prices for the 1997 quarter as
compared to the 1996 quarter. Management feels demand for natural gas will
remain relatively strong through the second quarter and then decline somewhat
during the third and fourth quarters. Natural gas sales prices are anticipated
to be in the $2.00 per MCF area by summer 1997.
Costs and expenses increased $204,572 in the 1997 quarter as compared to
the 1996 quarter. The increase was the result of higher dry hole costs and
additional general and administrative expenses. These increases were offset
slightly by decreased depreciation, depletion and amortization (DD&A) expense,
which was due to lower oil production volumes, and decreased interest expense.
Dry hole costs increased $148,142 in the 1997 period as compared to the
1996 period. Dry hole costs are the result of the Company participating in the
drilling of exploratory wells which are nonproductive. There is no way to
predict these costs from quarter to quarter. The Company will continue
drilling exploratory wells, thus future dry holes are anticipated.
General and administrative costs increased $78,262 in the 1997 quarter, as
compared to the 1996 quarter, due to bonus payments made to all employees in
December, 1996, the addition of one employee to the payroll, and costs related
to the Company's seventieth anniversary. DD&A costs were slightly lower in
1997 as several marginally producing wells amortization rates were increased in
the 1996 period, thus increasing DD&A for the 1996 quarter. In addition,
interest expense declined in the 1997 period as the bank line-of-credit
principal amount had been substantially reduced during the 1997 quarter as
compared to the 1996 quarter.
(5)
<PAGE> 8
The provision for income taxes is higher in the 1997 period due to the
increase in income before taxes; however, the provision continues to be
favorably affected by tax credits available from the Company's production of
"tight gas sands" natural gas and from excess percentage depletion.
Net income and net income per share both increased for the 1997 quarter as
compared to the 1996 quarter. This increase is a function of the above
discussed oil and gas sales revenues increase offset, somewhat, by higher costs
and expenses in the 1997 quarter. As sales prices of both oil and natural gas
are expected to remain somewhat higher than the average fiscal 1996 levels and
production volumes should be roughly equivalent to fiscal 1996 levels,
management expects fiscal 1997 financial results will be comparable to those of
fiscal 1996. However, should several of the Company's 1997 exploratory
drilling projects result in dry holes, 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 December 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
February 12, 1997 /s/ H W Peace II
- ----------------------- ----------------------------------
Date H. W. Peace II, President
February 12, 1997 /s/ Michael C. Coffman
- ------------------- ----------------------------------
Date Michael C. Coffman, Vice President,
Chief Financial Officer and
Secretary and Treasurer
(6)
<PAGE> 9
EXHIBIT INDEX
EXHIBIT-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 137,441
<SECURITIES> 0
<RECEIVABLES> 981,795
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,138,920
<PP&E> 23,436,799
<DEPRECIATION> 13,921,622
<TOTAL-ASSETS> 10,761,813
<CURRENT-LIABILITIES> 698,715
<BONDS> 0
0
0
<COMMON> 67,785
<OTHER-SE> 8,487,313
<TOTAL-LIABILITY-AND-EQUITY> 10,761,813
<SALES> 1,543,383
<TOTAL-REVENUES> 1,557,539
<CGS> 231,528
<TOTAL-COSTS> 729,164
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,745
<INCOME-PRETAX> 582,102
<INCOME-TAX> 106,000
<INCOME-CONTINUING> 476,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 476,102
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
</TABLE>
