<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, 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 N Grand Blvd., Oklahoma 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 6, 1998: 679,820
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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 -
December 31, 1997 (unaudited) and
September 30, 1997 ............................................. 1
Condensed Consolidated Statements of Income Three
months ended December 31, 1997 and 1996
(unaudited) .................................................... 2
Condensed Consolidated Statements of Cash Flows -
Three Months ended December 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 6. Exhibits and reports on Form 8-K .............................. 6
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information at December 31, 1997 is unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
Assets 1997 1997
------ ------------ -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,117,938 $ 872,797
Oil and gas sales and other receivables 1,101,084 893,779
Prepaid expenses 11,738 4,929
----------- -----------
Total current assets 2,230,760 1,771,505
Properties and equipment, at cost, based on successful efforts accounting:
Producing Oil and Gas Properties 20,480,512 20,063,953
Nonproducing Oil and Gas Properties 5,122,609 5,068,467
Furniture and fixtures 229,171 213,474
----------- -----------
25,832,292 25,345,894
Less accumulated depreciation,
depletion and amortization 15,538,023 15,127,925
----------- -----------
Net properties and equipment 10,294,269 10,217,969
Other assets 107,716 107,716
----------- -----------
$12,632,745 $12,097,190
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable, accrued liabilities $ 276,555 $ 351,405
Gas imbalance liability 44,380 44,380
Dividends payable 30,256 29,856
Income taxes payable 272,162 112,336
Deferred income taxes 280,000 280,000
----------- -----------
Total current liabilities 903,353 817,977
Deferred income taxes 1,247,000 1,247,000
Long-term debt -- --
Stockholders' equity:
Class A voting common stock, $.10 par value; 1,000,000 shares
authorized, 679,820 issued and outstanding at
December 31 and September 30, 1997 67,982 67,982
Capital in excess of par value 445,306 445,306
Retained earnings 9,969,104 9,518,925
----------- -----------
Total stockholders' equity 10,482,392 10,032,213
----------- -----------
$12,632,745 $12,097,190
=========== ===========
</TABLE>
(See accompanying notes)
( 1 )
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PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Dec. 31
--------------------------
1997 1996
---- ----
<S> <C> <C>
Revenues:
Oil and gas sales $1,809,769 $1,543,383
Lease bonuses and rentals 7,451 1,108
Interest 9,198 4,108
Other 521 8,940
---------- ----------
1,826,939 1,557,539
Costs and expenses:
Lease operating expenses and production taxes 283,955 231,528
Exploration costs 59,389 160,980
Depreciation, depletion, amortization
and impairment 369,061 226,864
General and administrative 362,993 341,320
Interest expense -- 14,745
---------- ----------
1,075,398 975,437
Income before provision
for income taxes 751,541 582,102
Provision for income taxes 165,000 106,000
---------- ----------
Net income $ 586,541 $ 476,102
========== ==========
Basic and diluted earnings per share (Note 3) $ .86 $ .70
========== ==========
Dividends declared per share of common stock $ .20 $ .20
========== ==========
</TABLE>
(See accompanying notes)
( 2 )
<PAGE> 5
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Dec. 31
--------------------------------
1977 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 586,541 $ 476,102
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 369,061 226,864
Exploration costs 59,389 160,980
Cash provided (used) by changes in assets and liabilities:
Oil and gas sales and other receivables (207,305) (164,537)
Prepaid expenses and other assets (6,809) (15,164)
Income taxes payable 159,826 44,563
Accounts payable, accrued liabilities
and dividends payable (74,449) 373
----------- -----------
Total adjustments 299,714 253,079
----------- -----------
Net cash provided by operating activities 886,254 729,181
Cash flows from investing activities:
Purchase of and development of
properties and equipment (504,749) (705,193)
----------- -----------
Net cash used in investing activities (504,749) (705,193)
Cash flows from financing activities:
Payment of loan principal -- (150,000)
Payment of dividends (136,364) (135,970)
----------- -----------
Net cash used in financing activities (136,364) (285,970)
----------- -----------
Increase (Decrease) in cash and cash equivalents 245,141 (261,982)
Cash and cash equivalents at beginning of period 872,797 399,423
----------- -----------
Cash and cash equivalents at end of period $ 1,117,938 $ 137,441
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 796 $ 14,745
Income taxes paid 5,174 57,742
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$ 5,970 $ 72,487
=========== ===========
</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 period ended
December 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. In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which was required to be adopted
on December 31, 1997. Statement No. 128 required a change in the method
used to compute earnings per share. The Company's diluted earnings per
share calculation takes into account certain shares that may be issued
under the Non-Employee Directors Deferred Compensation Plan. The
following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three months ended Dec. 31
--------------------------
1997 1996
-------- --------
<S> <C> <C>
Numerator for primary
and diluted earnings
per share:
Net income $586,541 $476,102
-------- --------
Denominator:
For basic earnings per share -
Weighted average shares 679,820 677,846
Effect of potential dilutive shares:
Directors deferred compensation shares 3,162 2,209
-------- --------
Denominator for diluted earnings per share -
adjusted weighted - average shares and
potential shares 682,982 680,055
======== ========
Basic earnings per share $ .86 $ .70
======== ========
Diluted earnings per share $ .86 $ .70
======== ========
</TABLE>
4. The Company has a revolving line of credit with Bank One, Texas, in the
amount of $2,500,000. The credit facility matures on January 3, 2001. At
February 6, 1998, the Company had no balance outstanding under the
facility.
5. Certain reclassifications have been made in the financial statements for
the period ended December 31, 1996 to conform to the financial statement
presentation at December 31, 1997.
( 4 )
<PAGE> 7
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 December 31, 1997, working capital was $1,327,407 as compared to
$953,528 at September 30, 1997. Cash and cash equivalents were $1,117,938 at
December 31, 1997. Cash flow provided by operating activities for the first
quarter of 1998 was $886,256 as compared to $729,181 for the first quarter of
1997. The increase in cash flow and working capital is primarily attributable to
increased oil and gas sales revenues in the 1998 first quarter.
The Company continues its operating strategy of pursuing the development
of its oil and gas properties through participations in the drilling of wells on
its properties and by participating in third party wells on leased properties.
However, due to the timing of the actual drilling operations of wells, the
Company spent $504,752 on the development of its oil and gas properties during
the 1998 first quarter as compared to $705,193 in the 1997 first quarter. At
December 31, 1997 the Company had commitments of $1,480,985 for drilling and
equipment costs for wells which had been proposed or were in the process of
being drilled or completed. These expenditures, overhead expenses, dividend
payments and other possible expenditures are expected to be funded by cash flow
from operating activities and existing working capital. Should the Company
require further funding for an assets purchase or other capital expenditures, it
could access the $2,500,000 line of credit.
RESULTS OF OPERATIONS
Revenues increased in the fiscal 1997 three-month period ended December
31, 1997 by $269,400, or 17%, as compared to the same period in fiscal 1997.
This growth in revenues was a result of increased oil and gas sales revenues,
which were the result of a higher average sales price for natural gas and larger
sales volumes of natural gas and oil, partially offset by a decrease in the
average sales price 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
1998 and 1997.
<TABLE>
<CAPTION>
BARRELS AVERAGE MCF AVERAGE
SOLD PRICE SOLD PRICE
---- ----- ---- -----
<S> <C> <C> <C> <C>
Quarter ended 12/31/97 31,612 $ 19.26 442,048 $ 2.72
Quarter ended 12/31/96 30,927 $ 23.61 370,846 $ 2.16
</TABLE>
The increase in gas sales volumes in the 1998 quarter is the result of
wells drilled in late fiscal 1997 being placed on production and adding
additional production volumes in the 1998 quarter. The average gas sales price
increase was the result of the early winter weather in the northeast part of the
United States creating early demand for natural gas. Oil production volumes were
stable but the average oil sales price decreased $4.35 per barrel, principally
as a result of the unstable worldwide oil markets. Management currently expects
both natural gas prices and oil prices to be somewhat lower for the remainder of
fiscal 1998, as compared to the first quarter of 1998. Production volumes for
the remainder of 1998 for oil are expected to be slightly lower and gas volumes
should be moderately increased.
Costs and expenses increased $99,961, or 10% in the 1998 period as
compared to the 1997 period. The increase was principally attributable to
increased lease operating expenses and production taxes (LOE), increased
depreciation, depletion, amortization and impairment (DD&A)
( 5 )
<PAGE> 8
offset by decreased exploration costs. LOE expenses increased due to increased
production taxes on the increased oil and gas sales revenues and the increasing
number of working interest wells in which the Company owns an interest, thus
shares in the operating costs. DD&A expenses increased due to the increased
production volumes increasing units of production amortization, three wells
depleting and their remaining costs being fully amortized and the recognizing of
$30,000 of asset impairment costs in the 1998 quarter as compared to none in the
1997 quarter. Exploration costs decreased $101,591 in the 1998 quarter to
somewhat offset the above increases. Exploration costs are principally dry hole
costs associated with the drilling of non-productive exploratory wells. There is
no way to predict these costs from quarter to quarter. The Company will continue
exploratory wells, thus future dry holes are anticipated.
Interest expense decreased in the 1998 period as all line-of-credit
borrowings were paid off in fiscal 1997.
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 increased in the 1998 quarter as compared to the 1997 quarter.
This increase resulted from the above discussed oil and gas sales revenues
increase, offset, somewhat, by higher costs and expenses in the 1998 quarter. As
both natural gas and oil sales prices are expected to decrease during the
remainder of fiscal 1998 and production volumes are expected to be flat to
somewhat decreased for oil and moderately increased for gas, the remainder of
fiscal 1998 is expected to yield comparable, to the first quarter, financial
results. However, should several of the Company's 1998 exploratory drilling
projects result in dry holes, earnings would be negatively impacted.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits - Exhibit 27 -- Financial Date Schedule
(b) There were no reports on FORM 8-K filed for the three months
ended December 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
February 13, 1998 /s/ H W Peace II
- --------------------------- ------------------------------------
Date H W Peace II, President
and Chief Executive Officer
February 13, 1998 /s/ Michael C. Coffman
- --------------------------- ------------------------------------
Date Michael C. Coffman, Vice President,
Chief Financial Officer and
Secretary and Treasurer
( 6 )
<PAGE> 9
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,117,938
<SECURITIES> 0
<RECEIVABLES> 1,101,084
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,230,760
<PP&E> 25,832,292
<DEPRECIATION> 15,538,023
<TOTAL-ASSETS> 12,632,745
<CURRENT-LIABILITIES> 903,353
<BONDS> 0
0
0
<COMMON> 67,982
<OTHER-SE> 10,414,410
<TOTAL-LIABILITY-AND-EQUITY> 12,632,745
<SALES> 1,809,769
<TOTAL-REVENUES> 1,826,939
<CGS> 283,955
<TOTAL-COSTS> 791,443
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 751,541
<INCOME-TAX> 165,000
<INCOME-CONTINUING> 586,541
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 586,541
<EPS-PRIMARY> .86
<EPS-DILUTED> .86
</TABLE>
