<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, 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
- --------------------------------------------------------------------------------
(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 May 2, 2000: 2,053,699
------------
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Consolidated Financial Statements Page
<S> <C>
Condensed Consolidated Balance Sheets -
March 31, 2000 (unaudited) and
September 30, 1999 ................................................... 1
Condensed Consolidated Statements of Income -
Three months and six months ended March 31, 2000 and 1999
(unaudited) .......................................................... 2
Condensed Consolidated Statements of Cash Flows -
Six months ended March 31, 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 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, 2000 is unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
Assets 2000 1999
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 87,646 $ 213,207
Oil and gas sales and other receivables 1,323,320 1,134,153
Prepaid expenses 19,845 4,132
------------- -------------
Total current assets 1,430,811 1,351,492
Properties and equipment, at cost, based on
successful efforts accounting
Producing oil and gas properties 25,840,279 24,074,383
Non producing oil and gas properties 6,031,081 5,804,543
Other 268,168 263,695
------------- -------------
32,139,528 30,142,621
Less accumulated depreciation,
depletion and amortization 19,236,873 18,337,952
------------- -------------
Net properties and equipment 12,902,655 11,804,669
Other assets 107,716 107,716
------------- -------------
$ 14,441,182 $ 13,263,877
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, accrued liabilities
and gas imbalance liability $ 571,257 $ 566,649
Dividends payable 7,742 33,296
Income taxes payable 217,327 46,328
Deferred income taxes 93,000 93,000
------------- -------------
Total current liabilities 889,326 739,273
Deferred income taxes 1,476,000 1,476,000
Long-term debt 300,000 --
Stockholders' equity
Class A voting Common Stock, $.0333 par value;
6,000,000 shares authorized,
2,053,714 issued and outstanding at
March 31,2000 and 2,056,990 at
September 30, 1999 68,457 68, 566
Capital in excess of par value 516,972 587,058
Retained earnings 11,190,427 10,392,980
------------- -------------
Total stockholders' equity 11,775,856 11,048,604
------------- -------------
$ 14,441,182 $ 13,263,877
============= =============
</TABLE>
(1)
<PAGE> 4
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
2000 1999 2000 1999
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 2,158,123 $ 937,682 $ 3,785,862 $ 1,968,815
Lease bonuses and rentals 60,759 2,381 61,199 6,852
Interest 3,157 1,479 4,570 5,262
Other 18,947 128 40,316 3,214
----------- ----------- ----------- -----------
2,240,986 941,670 3,891,947 1,984,143
Costs and expenses:
Lease operating expenses
and production taxes 351,873 205,682 623,531 409,637
Exploration costs 151,898 208,984 237,649 297,067
Depreciation, depletion,
amortization
and impairment 419,044 363,167 898,921 735,910
General and administrative 306,274 275,478 712,107 646,287
Interest expense 9,177 8,104 10,760 8,890
----------- ----------- ----------- -----------
1,238,266 1,061,415 2,482,968 2,097,791
----------- ----------- ----------- -----------
Income (loss) before provision
for income taxes 1,002,720 (119,745) 1,408,979 (113,648)
Provision (benefit) for income taxes 280,000 (44,000) 322,000 (44,000)
----------- ----------- ----------- -----------
Net income (loss) $ 722,720 $ (75,745) $ 1,086,979 $ (69,648)
=========== =========== =========== ===========
Basic earnings (loss) per share (Note 4) $ .35 $ (.04) $ .53 $ (.03)
=========== =========== =========== ===========
Diluted earnings (loss) per share (Note 4) $ .35 $ (.04) $ .52 $ (.03)
=========== =========== =========== ===========
Dividends declared
per share of common stock $ .07 $ .07 $ .14 $ .13
=========== =========== =========== ===========
</TABLE>
(2)
<PAGE> 5
PANHANDLE ROYALTY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended March,31
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,086,979 $ (69,648)
Adjustments to reconcile net income(loss) to net
cash provided by operating activities:
Depreciation, depletion and amortization 898,921 735,910
Deferred income taxes -- 81,000
Exploration costs 237,649 297,067
Cash provided (used) by changes in assets
and liabilities:
Oil and gas sales and income tax receivable (189,167) (43,116)
Prepaid expenses and other assets (15,713) 17,235
Income taxes payable 170,999 --
Accounts payable, accrued liabilities,
gas imbalance liability and dividends payable (20,946) (205,566)
------------- -------------
Total adjustments 1,051,743 882,530
------------- -------------
Net cash provided by operating activities 2,168,722 812,882
Cash flows from investing activities:
Purchase of and development of
properties and equipment (2,234,556) (1,067,185)
------------- -------------
Net cash used in investing activities (2,234,556) (1,067,185)
Cash flows from financing activities:
Borrowings under line of credit 500,000 300,000
Payments of loan principal (200,000) --
Acquisition and cancellation of Company's common shares (70,195) (447)
Payment of dividends (289,532) (273,811)
------------- -------------
Net cash provided (used) by
financing activities (59,727) 25,742
------------- -------------
Decrease in cash and cash equivalents (125,561) (228,561)
Cash and cash equivalents at beginning of period 213,207 320,210
------------- -------------
Cash and cash equivalents at end of period $ 87,646 $ 91,649
============= =============
Supplemental disclosure of cash flow information:
Interest paid $ 9,985 $ 8,890
Income taxes paid 151,001 180
------------- -------------
$ 160,986 $ 9,070
============= =============
</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, 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.
3. All references to number of shares, per share, and authorized share
information in the accompanying condensed consolidated financial statements
have been adjusted to reflect the three-for-one stock split and increase in
authorized shares approved on May 7, 1999, at a Special Meeting of the
Shareholders of the Company. All agreements concerning Common Stock of the
Company, including the Company's Employee Stock Ownership Plan and the
Company's commitment under the Deferred Compensation Plan for Non-Employee
Directors, provide for the issuance or commitment, respectively of
additional shares of the Company's stock due to the declaration of the
stock split.
4. 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 March 31, Six months ended March 31,
2000 1999 2000 1999
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator for primary
and diluted earnings
per share:
Net income (loss) $ 722,720 $ (75,745) $ 1,086,979 $ (69,648)
------------ ------------ ------------ ------------
Denominator:
For basic earnings per share
Weighted average shares 2,057,546 2,047,557 2,057,265 2,047,578
Effect of potential diluted shares:
Directors deferred
compensation shares 19,918 15,038 18,603 14,919
------------ ------------ ------------ ------------
Denominator for diluted earnings
per share - adjusted weighted
average shares and potential
shares 2,077,464 2,062,595 2,075,868 2,062,497
============ ============ ============ ============
Basic earnings (loss) per share $ .35 $ (.04) $ .53 $ (.03)
============ ============ ============ ============
Diluted earnings (loss) per share $ .35 $ (.04) $ .52 $ (.03)
============ ============ ============ ============
</TABLE>
(4)
<PAGE> 7
5. 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 May 2, 2000, the Company
had $300,000 outstanding under the BancFirst facility.
6. 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 5.
7. On May 5, 2000, the Company made an offer to purchase a small, privately
owned oil and gas exploration company for $2,068,000. The Company would
acquire only producing oil and gas properties, and related leasehold, and
no other assets or assume any liabilities.
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 March 31, 2000 working capital was $571,485 as compared to $612,219
at September 30, 1999. Cash flow from operating activities for the six months
ended March 31, 2000 was $2,168,722 as compared to $812,882 for the 1999 six
month period. This increase of $1,355,840 is principally attributable to
increased oil and gas sales revenues in the first six months of fiscal 2000.
This increase in oil and gas sales revenues is discussed in detail in "Results
of Operations".
Capital expenditures for oil and gas activities for the first six months
of fiscal 2000, amounted to $2,234,556 as compared to $1,067,185 in the first
six 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. As 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 March 31, 2000, had remaining projected
costs of $2,278,957 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 5. of Item 1. Consolidated Financial
Statements included herein.
The Company on May 5, 2000, made an offer to purchase a small privately
owned oil and gas exploration company for $2,068,000. The company owns working
interests in numerous producing oil and gas wells. Panhandle will not acquire
any other assets of the company. Should the offer or a subsequent counter offer
be accepted, Panhandle would utilize funds under the line-of-credit to finance
the purchase. 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 six month
periods ended March 31, 2000, as compared to the same periods in fiscal 1999.
This increase is a function of increased 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 six 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 3/31/00 18,857 $ 26.94 675,822 $ 2.44
Three months ended 3/31/99 15,185 $ 11.49 456,219 $ 1.68
Six months ended 3/31/00 34,178 $ 25.56 1,201,222 $ 2.42
Six months ended 3/31/99 34,169 $ 11.90 835,885 $ 1.87
</TABLE>
As shown in the above chart, gas sales volumes increased for both the
three month and six month periods of fiscal 2000. These increased 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 half of fiscal 2000, and for
natural gas sales prices to remain firm for the remainder of fiscal 2000. Oil
sales prices more than doubled in both the fiscal 2000 periods, while sales
volumes increased 24% for the 2000 three month period and were flat for the 2000
six month period. The increase in oil sales volumes for the three months ended
March 31, 2000, over the same 1999 period, is a result of the Dagger Draw Field
in New Mexico being back on production in fiscal 2000, verses being essentially
shut-in in the 1999 period. Certain of these wells continue to experience
production declines from 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 to low $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 17% and 18% respectively, for the three
month and six month periods ended March 31, 2000, as compared to the same
periods of fiscal 1999. These increases were principally the result of increased
production taxes on the increased oil and gas sales revenues and increased
depreciation, depletion, amortization, and impairment costs (DD&A). Increased
DD&A costs were the 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 each 2000
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 went from a loss to substantial income. 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 increased sales prices for both oil and
gas, as compared to 1999 prices, and from increased 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 completed its assessment of both its computer ("IT
systems") and operational equipment ("non-IT systems"). The Company replaced its
computer system hardware with new hardware which has operating systems which are
year 2000 compliant and the Company's software has been replaced with software
which is year 2000 compliant. The system software currently being used, is the
year 2000 software. It has been used to process all business for fiscal 2000 to
the date of this statement and no material problems have developed . The Company
has no non-IT systems which are expected to be impacted in any material manner
by year 2000.
The cost of replacement of the Company's IT systems noted above was
less than $30,000. Any additional costs to assess the year 2000 matter or become
compliant therewith are not expected to be significant.
(6)
<PAGE> 9
Management currently felt the most likely worst case scenario of a Year
2000 effect on the Company would be the operators of the oil & gas properties in
which the Company has an interest, purchasers who buy oil and gas from the
Company's properties or financial institutions ("External Agents") used by the
Company not properly addressing the year 2000 matter, thus, causing a delay in
the Company receiving payment for the sale of its oil and gas. Should this have
occurred, the Company would have been required to borrow additional amounts on
its available line of credit to fund normal operating and capital costs,
incurring additional interest expense over that otherwise anticipated. However,
the Company has not experienced any year 2000 problems that have had a material
impact on its financial position or results of operations. The Company has no
systems which directly interface with External Agents. To date, there have been
no material problems related to year 2000 with External Agents.
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 25, 2000.
(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>
Shareholders
-------------------------------------------
For Against Withheld
--------- ------- --------
<S> <C> <C> <C>
Directors
Sam J. Cerny 1,446,190 27,543
E. Chris Kauffman 1,445,467 28,209
Auditors
Ernst & Young LLP 1,446,472 405 25,608
</TABLE>
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 March 31, 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.
PANHANDLE ROYALTY COMPANY
May 11, 2000 /s/ H W Peace II
------------------------- --------------------------------
Date H W Peace II, President
and Chief Executive Officer
May 11, 2000 /s/ Michael C. Coffman
------------------------- --------------------------------
Date Michael C. Coffman,
Vice President,
Chief Financial Officer and
Secretary and Treasurer
(7)
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 -- Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 87,646
<SECURITIES> 0
<RECEIVABLES> 1,323,320
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,430,811
<PP&E> 32,139,528
<DEPRECIATION> 19,236,873
<TOTAL-ASSETS> 14,441,182
<CURRENT-LIABILITIES> 889,326
<BONDS> 0
68,457
0
<COMMON> 0
<OTHER-SE> 11,707,399
<TOTAL-LIABILITY-AND-EQUITY> 14,441,182
<SALES> 3,785,862
<TOTAL-REVENUES> 3,891,947
<CGS> 623,531
<TOTAL-COSTS> 1,848,677
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,760
<INCOME-PRETAX> 1,408,979
<INCOME-TAX> 322,000
<INCOME-CONTINUING> 1,086,979
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,086,979
<EPS-BASIC> .53
<EPS-DILUTED> .52
</TABLE>
