<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, 1997
----------------------------
( ) 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 August 6, 1997:
677,420
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INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1997 (unaudited) and
September 30, 1996........................................ 1
Condensed Consolidated Statements of Income -
Three months and nine months ended
June 30, 1997 and 1996 (unaudited)........................ 2
Condensed Consolidated Statements of Cash Flows -
Nine Months ended June 30, 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 6. Exhibits and reports on Form 8-K.......................... 6
<PAGE> 3
PART I. FINANCIAL INFORMATION
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information at June 30, 1997 is unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 500,768 $ 399,423
Oil and gas sales and other receivables 961,331 817,258
Prepaid expenses 13,208 4,520
----------- -----------
Total current assets 1,475,307 1,221,201
Properties and equipment, at cost, based on successful efforts accounting:
Producing Oil and Gas Properties 19,574,338 17,594,577
Nonproducing Oil and Gas Properties 5,114,578 5,112,785
Other 192,647 190,473
----------- -----------
24,881,563 22,897,835
Less accumulated depreciation,
depletion and amortization 14,612,841 13,700,007
----------- -----------
Net properties and equipment 10,268,722 9,197,828
Other assets 107,716 107,716
----------- -----------
$11,851,745 $10,526,745
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued liabilities
and gas imbalance liability $ 349,585 $ 210,280
Dividends payable 29,456 28,656
Income taxes payable 444,336 164,843
Deferred income taxes 250,000 250,000
----------- -----------
Total current liabilities 1,073,377 653,779
Long-term debt 0 750,000
Deferred income taxes 908,000 908,000
Stockholders' equity:
Class A voting common stock, $.10 par value; 1,000,000 shares
authorized, 677,420 issued and outstanding at June 30, 1997
and 677,846 at
September 30, 1996 67,742 67,785
Capital in excess of par value 374,132 383,790
Retained earnings 9,428,494 7,763,391
----------- -----------
Total stockholders' equity 9,870,368 8,214,966
----------- -----------
$11,851,745 $10,526,745
=========== ===========
</TABLE>
(See accompanying notes)
(1)
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PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30
----------------------------- -----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 1,459,520 $ 1,644,659 $ 5,493,907 $ 4,343,446
Lease bonuses and rentals 5,248 5,806 13,692 14,363
Interest 6,093 6,209 11,983 18,234
Other 4,912 7,275 25,046 8,363
------------- ------------- ------------- -------------
1,475,773 1,663,949 5,544,628 4,384,406
Costs and expenses:
Lease operating expenses,
production taxes 260,790 265,244 834,226 743,873
Dry hole costs 80,929 17,580 342,767 95,712
Depreciation, depletion
and amortization 278,180 418,725 918,083 982,543
General & administrative 205,027 179,706 781,854 664,457
Interest expense 2,139 32,493 29,172 95,354
------------- ------------- ------------- -------------
827,065 913,748 2,906,102 2,581,939
Income before provision
for income taxes 648,708 750,201 2,638,526 1,802,467
Provision for income taxes 135,000 220,000 566,000 414,500
------------- ------------- ------------- -------------
Net income $ 513,708 $ 530,201 $ 2,072,526 $ 1,387,967
============= ============= ============= =============
Net income per share
of common stock $ .76 $ .78 $ 3.06 $ 2.05
============= ============= ============= =============
Dividends declared per share
of common stock $ .20 $ .15 $ .60 $ .45
============= ============= ============= =============
Weighted average
shares outstanding 677,424 676,283 677,698 678,453
============= ============= ============= =============
</TABLE>
(See accompanying notes)
(2)
<PAGE> 5
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended June 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,072,526 $ 1,387,967
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 918,083 982,543
Dry Hole Costs 342,767 95,712
Cash provided (used) by changes in assets and liabilities:
Oil and gas sales and other receivables (144,073) (185,392)
Prepaid expenses and other assets (8,688) (10,441)
Deferred income taxes -- 286,700
Income taxes payable 279,493 50,000
Accounts payable, accrued liabilities
and dividends payable 140,105 115,687
----------- -----------
Total adjustments 1,527,687 1,334,809
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Net cash provided by operating activities 3,600,213 2,722,776
Cash flows from investing activities:
Purchases of and development of
properties and equipment (2,331,744) (3,344,556)
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Net cash used in investing
activities (2,331,744) (3,344,556)
Cash flows from financing activities:
Loan proceeds 0 2,100,000
Payment of loan principal (750,000) (850,000)
Acquisition of the
Company's common shares (9,701) (76,204)
Payment of dividends (407,423) (305,526)
----------- -----------
Net cash provided (used)
in financing activities (1,167,124) 868,270
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Increase in cash and cash equivalents 101,345 246,490
Cash and cash equivalents at beginning of period 399,423 443,862
----------- -----------
Cash and cash equivalents at end of period $ 500,768 $ 690,352
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 29,172 $ 95,354
Income taxes paid 286,507 77,800
----------- -----------
$ 315,679 $ 173,154
=========== ===========
</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, 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 August 6,
1997, the Company had no balance outstanding under the facility.
6. Certain reclassifications have been made in the financial statements for
the period ended June 30, 1996 to conform to the financial statement
presentation at June 30, 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 June 30, 1997 working capital was $401,930 as compared to $567,422 at
September 30, 1996. Cash flow provided by operating activities for the first
nine months of 1997 was $3,600,213 as compared to $2,722,776 for the first nine
months of 1997. The increased cash flow is the result of significantly
increased oil and gas sales revenues through the first nine months of fiscal
1997 and was principally the result of increased oil and natural gas sales
prices and a slight increase in natural gas sales volumes.
The Company continues to increase its expenditures for the development of
its oil and gas properties. During the 1997 nine-month period approximately
$2,332,000 was spent on oil and gas activities with the majority of those costs
being to drill and equip new wells. This compares with approximately $1,230,000
(4)
<PAGE> 7
spent to drill and equip wells in the 1996 nine-month period. Another
$2,115,000 was spent in the 1996 period to purchase mineral acreage. At June
30, 1997 the Company had commitments for ongoing and proposed drilling and
equipment costs totaling $773,000.
All of the fiscal 1997 capital expenditures and debt payments 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 has a $2,500,000 bank line-of-credit available should additional
funds be required for a large asset acquisition, unforeseen drilling costs or
operating expenses.
RESULTS OF OPERATIONS
Revenues increased for the nine-month period ended June 30, 1997, but
decreased for the three-month period ended June 30, 1997 as compared to the
same periods in fiscal 1996. The revenue increase for the nine-month period was
a result of substantially increased oil and gas sales revenues in the first
six months of fiscal 1997, followed by lower oil and gas sales revenues in the
third fiscal quarter of 1997. The nine-month increase in oil and gas sales
revenues in fiscal 1997 is a result of natural gas sales volumes increasing
from 1,178,546 MCF in the 1996 nine-month period to 1,227,208 in the 1997
period, and the average sales price of natural gas increasing from $1.86 in the
1996 period to $2.47 in the 1997 period. Oil sales volumes were relatively flat
in the two periods while the average oil price increased $2.71 per barrel in
the 1997 period to $22.07. Conversely for the three-month period ended June 30,
1997 gas sales volumes decreased 11% to 360,890 MCF and the average sales price
decreased 7% to $1.85 per MCF. Again oil sales volumes were relatively stable
for the three-month period of 1997 as compared to the 1996 period while the
average oil sales price decreased $2.13 per barrel to $19.48.
The increased gas sales volumes during the first six months of 1997 were
due principally to the cold winter in 1995-1996 and the resulting demand for
natural gas. The third quarter brought mild spring weather and the demand for
natural gas dropped as did the sales price. During the third quarter of fiscal
1996 natural gas storage facilities were being filled but this demand has not
been there in fiscal 1997. Thus gas sales volumes will probably remain flat
through the fourth quarter of fiscal 1997, but management anticipates gas sales
prices to moderately increase in the fourth quarter of fiscal 1997. Oil sales
volumes are remaining flat due to field production limitations on certain wells
in the Dagger Draw field of New Mexico. These limitations will affect oil
production for the remainder of fiscal 1997, however new oil wells beginning
production may allow oil production to slightly increase in the fourth quarter.
Costs and expenses increased $324,163 in the 1997 nine-month period as
compared to the 1996 nine-month period and decreased $86,683 in the 1997 third
quarter as compared to the 1996 third quarter. Lease operating expenses and
production taxes were higher for the 1997 nine-month period due to increased
severance taxes paid on the increased oil and gas sales revenues in fiscal
1997. Conversely, these expenses were lower in the 1997 three-month period due
to the lower oil and gas sales revenues in the 1997 third quarter as compared
to the 1996 third quarter.
Dry hole costs were substantially greater in both 1997 periods as
compared to the same periods in 1996. These increased costs are a result of the
Company's increased drilling of exploratory prospects. If these exploratory
wells are nonproductive, dry hole costs result, but there is no way to
anticipate these costs from quarter to quarter. As the Company continues to
expand its drilling activity, more exploratory wells may be drilled and the
potential for additional dry hole costs thus increases.
Depreciation, depletion and amortization (DD&A) decreased in each 1997
period as compared to the 1996 periods due to the Company substantially
increasing
(5)
<PAGE> 8
amortization rates on several properties which were deemed marginal producers
in the 1996 periods. Thus a large portion of the remaining value of these
properties was amortized in the 1996 periods.
General and administrative costs (G&A) increased both in the three-month
and nine-month periods of 1997 as compared to the 1996 periods. The increases
were due primarily to increased payroll costs and increased health insurance
costs. The Company recently changed health insurance plans, thus insurance
costs will decrease in future periods. Interest expense declined in the 1997
periods as the bank line-of-credit was fully paid off in April 1997.
The provision for income taxes is higher in the 1997 nine-month period
due to increased income before taxes. However, the Company's provision for
income taxes 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 was affected in the third quarter of 1997 by declining sales
prices for natural gas and oil during the warm summer months along with
relatively flat oil production and lower natural gas sales volumes. Gas prices
are expected to increase somewhat in the fourth quarter of fiscal 1997, but
both oil and natural gas production volumes should be relatively flat. Thus,
fourth quarter 1997 results are expected to be modestly improved but results
could be negatively impacted should more of the Company's 1997 exploratory
drilling projects result in dry holes.
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, 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
August 11, 1997 /s/ H W Peace II
- -------------------------- ------------------------------------
Date H. W. Peace II, President
and Chief Executive Officer
August 11, 1997 /s/ Michael C. Coffman
- -------------------------- ------------------------------------
Date Michael C. Coffman, Vice President,
Chief Financial Officer and
Secretary and Treasurer
(6)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 500,768
<SECURITIES> 0
<RECEIVABLES> 961,331
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,475,307
<PP&E> 24,881,563
<DEPRECIATION> 14,612,841
<TOTAL-ASSETS> 11,851,745
<CURRENT-LIABILITIES> 1,073,377
<BONDS> 0
0
0
<COMMON> 67,742
<OTHER-SE> 9,802,626
<TOTAL-LIABILITY-AND-EQUITY> 11,851,745
<SALES> 5,493,907
<TOTAL-REVENUES> 5,544,628
<CGS> 834,226
<TOTAL-COSTS> 2,876,930
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,172
<INCOME-PRETAX> 2,638,526
<INCOME-TAX> 566,000
<INCOME-CONTINUING> 2,072,526
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,072,526
<EPS-PRIMARY> 3.06
<EPS-DILUTED> 3.06
</TABLE>
