<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, 2000
( ) 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 N Grand Blvd., Oklahoma City, Oklahoma 73112
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(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 t(e 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 2, 2000: 2,053,618
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Consolidated Financial Statements Page
<S> <C>
Condensed Consolidated Balance Sheets -
June 30, 2000 (unaudited) and
September 30, 1999 .............................. 1
Condensed Consolidated Statements of Income -
Three months and nine months ended June 30,
2000 and 1999
(unaudited) ..................................... 2
Condensed Consolidated Statements of Cash
Flows - Nine months ended June 30, 2000 and
1999
(unaudited) ..................................... 3
Notes to Condensed Consolidated Financial
Statements (Unaudited) .......................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............. 5
Part II. Other Information
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 June 30, 2000 is unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
Assets 2000 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 351,401 $ 213,207
Oil and gas sales and other receivables 1,595,632 1,134,153
Prepaid expenses 12,157 4,132
----------- -----------
Total current assets 1,959,190 1,351,492
Properties and equipment, at cost, based on
successful efforts accounting
Producing oil and gas properties 26,331,183 24,074,383
Non producing oil and gas properties 6,103,041 5,804,543
Other 271,931 263,695
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32,706,155 30,142,621
Less accumulated depreciation,
depletion and amortization 19,622,231 18,337,952
----------- -----------
Net properties and equipment 13,083,924 11,804,669
Other assets 107,716 107,716
----------- -----------
$15,150,830 $13,263,877
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, accrued liabilities
and gas imbalance liability $ 471,638 $ 566,649
Dividends payable 7,743 33,296
Income taxes payable 77,327 46,328
Deferred income taxes
93,000 93,000
----------- -----------
Total current liabilities 649,708 739,273
Deferred income taxes 1,826,000 1,476,000
Long-term debt 100,000 --
Stockholders' equity
Class A voting Common Stock, $.0333 par value;
6,000,000 shares authorized,
2,053,618 issued and outstanding at
June 30,2000 and 2,056,990 at
September 30, 1999 68,454 68, 566
Capital in excess of par value 516,261 587,058
Retained earnings 11,990,407 10,392,980
----------- -----------
Total stockholders' equity 12,575,122 11,048,604
----------- -----------
$15,150,830 $13,263,877
=========== ===========
</TABLE>
(1)
<PAGE> 4
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $2,376,330 $1,529,696 $6,162,192 $3,498,511
Lease bonuses and rentals 8,996 621 70,195 7,473
Interest 4,322 1,776 8,892 7,038
Other 20,845 10,687 61,161 13,901
---------- ---------- ---------- ----------
2,410,493 1,542,780 6,302,440 3,526,923
Costs and expenses:
Lease operating expenses
and production taxes 391,407 292,076 1,014,938 701,713
Exploration costs 90,773 99,796 328,422 396,863
Depreciation, depletion,
amortization
and impairment 385,358 366,059 1,284,279 1,101,969
General and administrative 284,382 289,215 996,489 935,502
Interest expense 4,833 6,010 15,593 14,900
---------- ---------- ---------- ----------
1,156,753 1,053,156 3,639,721 3,150,947
---------- ---------- ---------- ----------
Income before provision
for income taxes 1,253,740 489,624 2,662,719 375,976
Provision for income taxes 310,000 81,000 632,000 37,000
---------- ---------- ---------- ----------
Net income $ 943,740 $ 408,624 $2,030,719 $ 338,976
========== ========== ========== ==========
Basic earnings per share (Note 3) $ .46 $ .20 $ .99 $ .17
========== ========== ========== ==========
Diluted earnings per share (Note 3) $ .46 $ .20 $ .98 $ .16
========== ========== ========== ==========
Dividends declared
per share of common stock $ .07 $ .07 $ .21 $ .20
========== ========== ========== ==========
</TABLE>
(2)
<PAGE> 5
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months Ended June 30,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,030,719 $ 338,976
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 1,284,279 1,101,969
Deferred income taxes 350,000 81,000
Exploration costs 328,422 396,863
Cash provided (used) by changes in assets
and liabilities:
Oil and gas sales and income tax receivable (461,479) (131,821)
Prepaid expenses and other assets (8,025) 17,235
Income taxes payable 30,999 68,508
Accounts payable, accrued liabilities,
gas imbalance liability and dividends payable (120,564) (73,314)
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Total adjustments 1,403,632 1,460,440
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Net cash provided by operating activities 3,434,351 1,799,416
Cash flows from investing activities:
Purchase of and development of
properties and equipment (2,891,956) (1,521,505)
----------- -----------
Net cash used in investing activities (2,891,956) (1,521,505)
Cash flows from financing activities:
Borrowings under line of credit 500,000 300,000
Payments of loan principal (400,000) (100,000)
Acquisition and cancellation of Company's common shares (70,909) (1,597)
Payment of dividends (433,292) (417,548)
----------- -----------
Net cash used by financing activities (404,201) (219,145)
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Increase in cash and cash equivalents 138,194 58,766
Cash and cash equivalents at beginning of period 213,207 320,210
----------- -----------
Cash and cash equivalents at end of period $ 351,401 $ 378,976
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 16,368 $ 14,900
Income taxes paid 251,001 180
----------- -----------
$ 267,369 $ 15,080
=========== ===========
</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, 2000 and 1999 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, if any. These credits are scheduled to be
available through the year 2002. The Company's provision for income taxes
is also reflective of excess percentage depletion, reducing the Company's
effective tax rate from the federal statutory rate.
3. The Company's diluted earnings per share calculation takes into account
certain shares that may be issued under the Non-Employee Director's
Deferred Compensation Plan. The following table sets forth the
computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator for primary and diluted earnings per share:
Net income $ 943,740 $ 408,624 $2,030,719 $ 338,976
---------- ---------- ---------- ----------
Denominator:
For basic earnings per share
Weighted average shares 2,053,662 2,047,394 2,056,068 2,047,516
Effect of potential diluted shares:
Directors deferred
compensation shares 20,797 16,538 18,766 15,038
---------- ---------- ---------- ----------
Denominator for diluted earnings
per share - adjusted weighted
average shares and potential
shares 2,074,459 2,063,932 2,074,834 2,062,554
========== ========== ========== ==========
Basic earnings per share $ .46 $ .20 $ .99 $ .17
========== ========== ========== ==========
Diluted earnings per share $ .46 $ .20 $ .98 $ .16
========== ========== ========== ==========
</TABLE>
4. The Company had a revolving line of credit with Bank One, Texas, in the
amount of $2,500,000. The credit facility's maturity was January 3, 2001.
At December 31, 1999, the Company had $200,000 outstanding under the Bank
One facility. On December 29, 1999, the Company instituted a $5,000,000
line of credit with BancFirst in Oklahoma City, OK. This facility matures
on December 31, 2002. On January 4, 2000, the Company paid off the
$200,000 due Bank One and canceled the line of credit. At June 30, 2000,
the Company had $100,000 outstanding under the BancFirst facility.
(4)
<PAGE> 7
5. On January 4, 2000, the Company closed on the acquisition of producing
and non-producing mineral properties at a cost of $444,617. The
acquisition was funded from cash on hand and $300,000 of borrowings under
the Company's new line of credit discussed in Note 4.
6. Approximately 80% of the Company's share of gas produced from the Potato
Hills Field is currently being sold under a fixed price swap contract
which was arranged by the operator of the wells. The contract price of
$2.68 per MBTU is fixed until October 31, 2000. For the three and nine
month periods ended June 30, 2000, this contract reduced oil and gas
revenues by approximately $100,000. Effective November 1, 2000 through
March 31, 2001, approximately 45% of the Potato Hills gas will be sold by
the operator, under a contract calling for a floor price of approximately
$3.93 and a ceiling of $4.75 per MBTU.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Forward-Looking Statements for 2000 and later periods are made in this
document. Such statements represent estimates of management based on the
Company's historical operating trends, its proved oil and gas reserves and other
information currently available to management. The Company cautions that the
forward-looking statements provided herein are subject to all the risks and
uncertainties incident to the acquisition, development and marketing of, and
exploration for oil and gas reserves. These risks include, but are not limited
to, oil and natural gas price risk, environmental risks, drilling risk, reserve
quantity risk and operations and production risk. For all the above reasons,
actual results may vary materially from the 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, 2000 working capital was $1,309,482 as compared to $612,219
at September 30, 1999. Cash flow from operating activities for the nine months
ended June 30, 2000 was $3,434,351 as compared to $1,799,416 for the 1999 nine
month period. This increase of $1,634,935 is principally attributable to
increased oil and gas sales revenues in the first nine months of fiscal 2000.
Increase in oil and gas sales revenues are discussed in detail in "Results of
Operations".
Capital expenditures for oil and gas activities for the nine months of
fiscal 2000, amounted to $2,891,956 as compared to $1,521,505 in the nine months
of fiscal 1999. This increased spending on oil and gas property development and
exploration is the result of increased oil and natural gas market prices causing
new wells to be drilled and Panhandle's acquisition of producing and non
producing mineral properties in the amount of $444,617 in the fiscal 2000
period. The Company does not operate any wells. As wells are proposed by
operators on the Company's mineral property holdings, or in some cases, on
leasehold from third parties, the Company agrees to participate in drilling
these wells. The Company, at June 30, 2000, had remaining projected costs of
$2,726,293 for its share of drilling and equipment costs on working interest
wells which have been proposed or were in the process of being drilled or
completed. The Company has historically funded drilling and other capital
expenditures, overhead costs and dividend payments from operating cash flow. As
mentioned above, the Company purchased, in January 2000, producing and non
producing mineral properties at a cost of $444,617. Part of this acquisition and
some drilling costs in December 1999, were funded by borrowings under the
Company's line-of-credit discussed in Note 4. of the notes to the Consolidated
Financial Statements included herein. The $100,000 outstanding on the
line-of-credit at June 30, 2000 was repaid on July 3, 2000.
Management expects there will be sufficient funds available from
projected cash flow and the line-of-credit to meet all expected costs and
capital obligations for the remainder of fiscal 2000 and beyond. Panhandle also
has equity available should a large acquisition of oil and gas properties, or a
company purchase, increase capital expenditures to a level above available cash
flow and bank financing.
(5)
<PAGE> 8
RESULTS OF OPERATIONS
Revenues increased significantly for the three month and nine month
periods ended June 30, 2000, as compared to the same periods in fiscal 1999.
This increase is a function of greater gas sales volumes and increased sales
prices for both oil and natural gas. The chart below outlines the Company's
production and average sales prices for crude oil and natural gas for the three
month and nine month periods of fiscal 2000 and fiscal 1999.
<TABLE>
<CAPTION>
BARRELS AVERAGE MCF AVERAGE
SOLD PRICE SOLD PRICE
<S> <C> <C> <C> <C>
Three months ended 6/30/00 20,795 $ 26.86 550,406 $ 3.30
Three months ended 6/30/99 23,225 $ 16.75 537,186 $ 2.11
Nine months ended 6/30/00 54 973 $ 26.05 1,751,628 $ 2.70
Nine months ended 6/30/99 57,693 $ 13.86 1,373,071 $ 1.97
</TABLE>
As shown in the above chart, gas sales volumes and sales prices
increased for both the three month and nine month periods of fiscal 2000. These
larger sales volumes are principally due to production from the Potato Hills
Field in eastern Oklahoma. Management currently expects gas production to remain
relatively steady to slightly increase over the remaining quarter of fiscal
2000, and for natural gas sales prices to remain firm for the remainder of
fiscal 2000. A large portion of the gas production from the Potato Hills Field
was hedged by the operator. The contract price of $2.68 per MBTU effectively
reduced the Company's average gas sales price $.18 per MCF for the quarter and
$.06 for the nine month period of 2000. Oil sales prices substantially increased
in both the fiscal 2000 periods, while sales volumes decreased slightly for both
the 2000 periods. The decrease in oil sales volumes in the 2000 periods are a
result of the Dagger Draw Field in New Mexico wells continuing to experience
production declines from 1999 pre-shut-in volumes. It is expected, this problem
will continue for at least the remainder of fiscal 2000, but production from
several new oil wells coming on line should offset some of the decline.
Currently, management expects oil prices to remain in the mid $20's for the
remainder of fiscal 2000, which should allow oil sales revenues to remain steady
for the remainder of fiscal 2000.
Costs and expenses increased 10% and 16% respectively, for the three
month and nine month periods ended June 30, 2000, as compared to the same
periods of fiscal 1999. These increases were principally the result of higher
production taxes on the increased oil and gas sales revenues and larger
depreciation, depletion, amortization, and impairment costs (DD&A) as a result
of higher production volumes causing DD&A to be higher on several newer wells.
Exploration costs were down in both year 2000 periods as fewer or less costly
dry holes were drilled in the 2000 fiscal year periods. General and
administrative expenses increased marginally in the 2000 nine month period
principally as a result of payroll and related costs.
The Company's tax provision increased in both 2000 periods as the
Company's income before taxes was substantially higher in both 2000 periods. The
provision for income taxes differs from the statutory rate due to benefits from
tight gas sands gas production tax credits and percentage depletion.
The Company's earnings benefited from the increase in oil and gas sales
revenues, explained above. It currently appears, earnings for the remainder of
fiscal 2000 will benefit from continuing higher sales prices for both oil and
gas, as compared to 1999 prices, and from greater gas sales volumes. However,
should additional exploratory drilling projects result in non productive wells,
increasing exploration costs, or the market price of oil and or natural gas
decline, expected earnings would be negatively impacted.
YEAR 2000 ISSUES
The Company has not experienced any year 2000 problems that have had a
material impact on its financial position or results of operations. To date,
there have been no material problems related to year 2000 with External Agents.
(6)
<PAGE> 9
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORT ON FORM 8-K
(a) EXHIBITS - Exhibit 27 -- Financial Data Schedule
(b) FORM 8-K - There were no reports on FORM 8-K filed for the
three months ended June 30, 2000.
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.
<TABLE>
<CAPTION>
PANHANDLE ROYALTY COMPANY
<S> <C>
August 8, 2000 /s/ H W Peace II
----------------- ----------------------------
Date H W Peace II, President
and Chief Executive Officer
August 8, 2000 /s/ Michael C. Coffman
----------------- ----------------------------
Date Michael C. Coffman,
Vice President,
Chief Financial Officer and
Secretary and Treasurer
</TABLE>
(7)
<PAGE> 10
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
