<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, 1997
-------------------
( ) 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 5, 1997:
677,460
- ------------
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1997 (unaudited) and
September 30, 1996.................................. 1
Condensed Consolidated Statements of Income -
Three months and six months ended
March 31, 1997 and 1996 (unaudited).............. 2
Condensed Consolidated Statements of Cash Flows -
Six Months ended March 31, 1997 and 1996
(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, 1997 is unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 1997 1996
------ ----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 515,434 $ 399,423
Oil and gas sales and other receivables 1,204,825 817,258
Prepaid expenses 11,728 4,520
----------- -----------
Total current assets 1,731,987 1,221,201
Properties and equipment, at cost, based
on successful efforts accounting:
Producing Oil and Gas Properties 18,956,517 17,594,577
Nonproducing Oil and Gas Properties 5,063,239 5,112,785
Other 192,647 190,473
----------- -----------
24,212,403 22,897,835
Less accumulated depreciation,
depletion and amortization 14,334,661 13,700,007
----------- -----------
Net properties and equipment 9,877,742 9,197,828
Other assets 107,716 107,716
----------- -----------
$11,717,445 $10,526,745
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable, accrued liabilities
and gas imbalance liability $ 334,190 $ 210,280
Dividends payable 29,456 28,656
Income taxes payable 402,736 164,843
Deferred income taxes 250,000 250,000
----------- -----------
Total current liabilities 1,016,382 653,779
Long-term debt 300,000 750,000
Deferred income taxes 908,000 908,000
Stockholders' equity:
Class A voting common stock, $.10 par
value; 1,000,000 shares authorized,
677,460 issued and outstanding at
March 31, 1997 and 677,846 at
September 30, 1996 67,746 67,785
Capital in excess of par value 375,047 383,790
Retained earnings 9,050,270 7,763,391
----------- -----------
Total stockholders' equity 9,493,063 8,214,966
----------- -----------
$11,717,445 $10,526,745
=========== ===========
</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
--------------------------- -----------------------
1997 1996 1997 1996
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $2,491,004 $1,519,977 $4,034,387 $2,698,787
Lease bonuses and rentals 7,336 6,757 8,444 8,557
Interest 1,782 5,973 5,890 12,025
Other 11,193 300 20,134 1,087
---------- ---------- ---------- ----------
2,511,315 1,533,007 4,068,855 2,720,456
Costs and expenses:
Lease operating expenses,
production taxes 341,907 253,122 573,436 478,629
Dry hole costs 100,858 65,294 261,838 78,132
Depreciation, depletion
and amortization 413,039 317,593 639,903 563,818
General & administrative 235,507 221,693 576,827 484,751
Interest expense 12,288 39,624 27,033 62,861
---------- ---------- ---------- ----------
1,103,599 897,326 2,079,037 1,668,191
---------- ---------- ---------- ----------
Income before provision
for income taxes 1,407,716 635,681 1,989,818 1,052,265
Provision for income taxes 325,000 130,000 431,000 194,500
---------- ---------- ---------- ----------
Net income $1,082,716 $ 505,681 $1,558,818 $ 857,765
========== ========== ========== ==========
Net income per share
of common stock $ 1.60 $ .74 $ 2.30 $ 1.26
========== ========== ========== ==========
Dividends declared per share
of common stock $ .20 $ .15 $ .40 $ .30
========== ========== ========== ==========
Weighted average
shares outstanding 677,825 679,460 677,835 677,702
========== ========== ========== ==========
</TABLE>
(See accompanying notes)
(2)
<PAGE> 5
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months ended March 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,558,818 $ 857,765
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 639,903 563,818
Dry Hole Costs 261,838 78,132
Cash provided (used) by changes in assets
and liabilities:
Oil and gas sales and other receivables (387,567) (186,624)
Prepaid expenses and other assets (7,208) (13,359)
Income taxes payable 237,893 156,850
Accounts payable, accrued liabilities
and dividends payable 124,710 203,984
----------- -----------
Total adjustments 869,569 802,801
----------- -----------
Net cash provided by operating activities 2,428,387 1,660,566
Cash flows from investing activities:
Purchases of and development of
properties and equipment (1,581,655) (2,895,596)
----------- -----------
Net cash used in investing
activities (1,581,655) (2,895,596)
Cash flows from financing activities:
Loan proceeds -- 2,100,000
Payment of loan principal (450,000) (450,000)
Acquisition of the
Company's common shares (8,782) (3,230)
Payment of dividends (271,939) (203,972)
----------- -----------
Net cash provided (used)
in financing activities (730,721) 1,442,798
----------- -----------
Increase in cash and cash equivalents 116,011 207,768
Cash and cash equivalents at beginning of period 399,423 443,862
----------- -----------
Cash and cash equivalents at end of period $ 515,434 $ 651,630
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 27,033 $ 62,861
Income taxes paid 193,107 67,650
----------- -----------
$ 220,140 $ 130,511
=========== ===========
</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, 1997 and 1996 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. In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change
the method currently used to compute earnings per share. This change will
not effect the Company's prior periods and is not expected to have a
material effect on the Company's earnings per share calculations.
5. 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, 2001. At May 5,
1997, the Company had no balance outstanding under the facility.
6. Certain reclassifications have been made in the financial statements for
the period ended March 31, 1996 to conform to the financial statement
presentation at March 31, 1997.
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 acquisitions,
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 March 31, 1997, working capital was $715,605 as compared to $567,422 at
September 30, 1996. Cash flow provided by operating activities for the first
six months of 1997 was $2,428,387 as compared to $1,660,566 for the first six
months of 1996. The increase in cash flow is the result of significantly
increased oil and gas sales revenues in fiscal 1997, which were principally the
result of increased oil and natural gas sales prices.
The Company continues to increase its expenditures for the development of
its oil and gas properties. During the 1997 six-month period approximately
$1,582,000 was spent on oil and gas activities with the majority of those costs
(4)
<PAGE> 7
being to drill and equip new wells. This compares with approximately $700,000
spent to drill and equip wells in the 1996 period. Another $2,115,000 was
spent in the 1996 period to purchase mineral acreage. At March 31, 1997 the
Company had commitments for ongoing and proposed drilling and equipment costs
on wells totaling $882,000.
All of the fiscal 1997 expenditures to date have been funded from cash
flow and the remaining 1997 drilling commitments mentioned above, as well as
Company operating costs for the remainder of fiscal 1997, are expected to be
funded from cash flow and available working capital. The Company paid the
remaining $300,000 due on the Bank One line- of-credit in April 1997, thus the
entire $2,500,000 line-of-credit is available should the Company require
additional funds for a large asset acquisition or for unforeseen drilling
costs.
RESULTS OF OPERATIONS
Revenues increased substantially for both the three-month and six-month
periods ended March 31, 1997, as compared to the comparable periods in fiscal
1996. The increases were the result of oil and gas sales revenues increasing
50% and 64% for the 1997 six-month and three-month periods, respectively, as
compared to the same periods in fiscal 1996. Oil and gas revenues increased
principally as the result of increased oil and natural gas sales prices and
increased sales volumes of natural gas.
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
1996 and 1997.
<TABLE>
<CAPTION>
BARRELS AVERAGE MCF AVERAGE
SOLD PRICE SOLD PRICE
------ ------- ------- --------
<S> <C> <C> <C> <C>
Three months ended 3/31/97 39,544 $ 23.21 495,472 $ 3.18
Three months ended 3/31/96 36,637 $ 18.86 424,641 $ 1.99
Six months ended 3/31/97 70,471 $ 23.57 866,318 $ 2.74
Six months ended 3/31/96 73,448 $ 18.18 744,377 $ 1.79
</TABLE>
Natural gas sales prices and production volumes increased in the 1997
periods due to the early cold winter weather experienced in parts of the
Country and the resulting demand for natural gas for heating purposes. This
strong demand had the resulting effect of raising sales prices for the 1997
periods as compared to the 1996 periods. As the weather has turned warmer,
natural gas sales prices have decreased substantially and are currently in the
$1.90 per MCF range. Natural gas prices are anticipated to remain near the
$2.00 range for the remainder of fiscal 1997 and production volumes should
remain relatively flat during remainder of fiscal 1997. Oil sales prices were
also affected by the cold winter with the demand for heating oil increasing oil
sales prices. The decrease in oil sales volumes for the six-month period 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. However, the increase in oil
production for the three-month 1997 period was due to certain new oil wells
initial production in New Mexico. These new wells production should allow
overall oil production to remain relatively stable for the remainder of fiscal
1997, however, oil sales prices are anticipated to be in the $18 to $20 range
for last half of fiscal 1997.
Costs and expenses increased $206,273 in the 1997 second quarter as
compared to the 1996 second quarter and increased $410,846 in the 1997
six-month period as compared to the 1996 six-month period. Lease operating
expenses and production taxes are higher in each 1997 period due to the
increased severance taxes paid on the increased oil and gas sales revenues in
each period. Depreciation, depletion and amortization (DD&A) increased in each
1997 period due
(5)
<PAGE> 8
to the increased production volumes of natural gas, as the Company calculates
DD&A on the units of production method and, in addition, in the second quarter
of fiscal 1997 the Company fully impared the costs of certain oil and gas
leasehold costs on two prospects totaling $112,000. It currently appears that
additional wells may not be drilled on this leasehold.
Dry hole costs increased in both 1997 periods. These costs are the result
of the Company participating in the drilling of exploratory wells which are
nonproductive. There is no way to anticipate these costs from quarter to
quarter. The Company will continue drilling exploratory wells, thus future dry
hole costs are anticipated.
General and administrative costs increased $13,814 in the 1997 quarter and
$92,076 in the 1997 six-month period. The six-month increase is due to bonus
payments made to all employees in December 1996, the addition of one employee
to the payroll, costs related to the Company's seventieth anniversary and
increased health insurance costs. Interest expense declined in the 1997
periods as the bank line-of-credit principal amount has been substantially
reduced during fiscal 1997 compared to fiscal 1996.
The provision for income taxes is higher in the 1997 periods because of
substantially increased income before taxes (due to the factors discussed
above). 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 periods.
These increases are a result of the above discussed oil and gas sales revenue
increases, offset, somewhat, by higher costs and expenses in each period. As
sales prices for both oil and natural gas, on average, are expected to be lower
in the remaining six months of 1997, management anticipates earnings will be
lower in the last six months of fiscal 1997 as compared to the first six
months. In addition, should more of the Company's 1997 exploratory drilling
projects result in dry holes, earnings could be further impacted.
(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
28, 1997.
(b) Two directors were elected for three year terms 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
E. Chris Kauffman 835 20
Sam J. Cerny 834 22
Auditors
Ernst & Young LLP 837 6 13
</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, 1997.
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 13, 1997 /s/ H W Peace II
- ------------------- ----------------------------------
Date H. W. Peace II, President and Chief
Executive Officer
May 13, 1997 /s/ Michael C. Coffman
- ------------------- ----------------------------------
Date Michael C. Coffman, Vice President,
Chief Financial Officer and
Secretary and Treasurer
(7)
<PAGE> 10
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 515,434
<SECURITIES> 0
<RECEIVABLES> 1,204,825
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,731,987
<PP&E> 24,212,403
<DEPRECIATION> 14,334,661
<TOTAL-ASSETS> 11,717,445
<CURRENT-LIABILITIES> 1,016,382
<BONDS> 0
67,746
0
<COMMON> 0
<OTHER-SE> 9,425,317
<TOTAL-LIABILITY-AND-EQUITY> 11,717,445
<SALES> 4,034,387
<TOTAL-REVENUES> 4,068,855
<CGS> 573,436
<TOTAL-COSTS> 1,478,568
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,033
<INCOME-PRETAX> 1,989,818
<INCOME-TAX> 431,000
<INCOME-CONTINUING> 1,558,818
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,558,818
<EPS-PRIMARY> 2.30
<EPS-DILUTED> 2.30
</TABLE>
