<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended September 30, 2000
Commission File Number: 0-9116
PANHANDLE ROYALTY COMPANY
(Exact name of small business registrant 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., Okla. City, OK 73112
(Address of principal executive offices) (Zip code)
Registrant's telephone number (405) 948-1560
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
(Title of Class)
CLASS A COMMON STOCK (VOTING) .0333 par value
(Title of Class)
CLASS B COMMON STOCK (NON-VOTING) $1.00 par value
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation SB contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Registrant's revenues for fiscal year-end September 30, 2000, were $9,277,974.
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by using the closing price of registrant's common stock, at
November 30,2000, was $24,786,102. As of November 30, 2000, 2,060,202 class A
common shares were outstanding.
Documents Incorporated By Reference ..... NONE
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PART I PAGE
------ ----
<S> <C> <C>
Item 1. Description of Business ........................... 1-4
Item 2. Description of Properties ......................... 4-10
Item 3. Legal Proceedings ................................. 10
Item 4. Submission of Matters to a Vote of
Security Holders ................................ 10
PART II
-------
Item 5. Market for Common Equity and
Related Stockholder Matters ..................... 10-11
Item 6. Management's Discussion and Analysis
or Plan of Operations ........................... 11-13
Item 7. Financial Statements .............................. 14-33
Item 8. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure ............................ 34
PART III
--------
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act ............... 34-36
Item 10. Executive Compensation ............................ 36-37
Item 11. Security Ownership of Certain Beneficial
Owners and Management ........................... 37-38
Item 12. Certain Relationships and Related
Transactions .................................... 38
Item 13. Exhibits and Reports on Form 8-K .................. 39
Exhibit 21 ................................................. 39
Signature Page ............................................. 40
</TABLE>
(I)
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
FORWARD-LOOKING STATEMENTS
Forward-looking statements for 2001 and later periods are made
throughout 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 risk, drilling
risk, reserve quantity risk and operations and production risks. 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.
BUSINESS DEVELOPMENT
Panhandle Royalty Company ("Panhandle" or the "Company") is an Oklahoma
Corporation, organized in 1926 as Panhandle Cooperative Royalty Company. In
1979, Panhandle Cooperative Royalty Company was merged into Panhandle Royalty
Company. Panhandle's authorized and registered stock consisted of 100,000 shares
of $1.00 par value class A common stock. In 1982, the Company split the stock on
a 10-for-1 basis and reduced the par value to $.10, resulting in 1,000,000
shares of authorized class A common stock. In May 1999, the Company's
shareholders voted to increase the authorized Class A Common shares of the
Company to 6,000,000 and to split the shares on a three-for-one basis. In
addition, voting rights for the shares were changed from one vote per
shareholder to one vote per share. Since its formation, the Company has been
involved in the acquisition and management of mineral interests and the
exploration for, and development of, oil and gas properties, principally
involving wells located on the Company's mineral interests. Panhandle's mineral
properties and other oil and gas interests are located primarily in Oklahoma,
New Mexico and Texas. Properties are also located in twelve other states. The
majority of the Company's oil and gas production is from wells located in
Oklahoma and the Dagger Draw Field in Eddy County, New Mexico. In 1988, the
Company merged with New Mexico Osage Royalty Company, thus acquiring most of its
New Mexico mineral interests. The Company's offices are located at Grand Centre
Suite 210, 5400 N. Grand Blvd., Oklahoma City, OK 73112 (405)948-1560, FAX
(405)948-2038.
BUSINESS OF ISSUER
The majority of Panhandle's revenues are derived from the production
and sale of oil and natural gas. See "Item 7 - Financial Statements". The
Company's oil and gas holdings, including its mineral interests and its
interests in producing wells, both working interests and royalty interests, are
centered in Oklahoma with activity, in recent years, in New Mexico and Texas.
See "Item 2 - Description of Properties". Exploration and development of the
Company's oil and gas properties is conducted in association with operating oil
and gas companies, including major and independent companies. The
(1)
<PAGE> 4
Company does not operate any of its oil and gas properties. The Company has been
an active participant for several years in wells drilled on the Company's
mineral properties and in third party drilling prospects. A large percentage of
the Company's recent drilling participations have been on properties in which
the Company has mineral interests and in many cases already owns an interest in
a producing well in the unit. This "increased density" drilling has accounted
for a majority of the successful oil and gas wells completed during these years
and has added significant reserves for the Company. The Company continues to
acquire additional mineral interest properties, both producing and
non-producing. Several of the mineral properties purchased have been in areas
where the Company had no mineral holdings, thus expanding the Company's area of
interest.
PRINCIPAL PRODUCTS AND MARKETS
The Company's principal products are crude oil and natural gas. These
products are sold to various purchasers, including pipeline companies, which are
generally located in and service the areas where the Company's producing wells
are located. The Company does not act as operator for any of the properties in
which it owns an interest, thus it relies on the operating expertise of numerous
companies that operate in the area where the Company owns mineral interests.
This expertise includes drilling operations and completions, producing well
operations and, in some cases, the marketing or purchasing of the well's
production. Natural gas sales are principally handled by the well operator and
are normally contracted on a monthly basis with third party gas marketers and
pipeline companies. Payment for gas sold is received either from the contracted
purchasers or the well operator. Crude oil sales are generally handled by the
well operator and payment for oil sold is received from the well operator or
from the crude oil purchaser.
COMPETITIVE BUSINESS CONDITIONS
The oil and gas industry is highly competitive, particularly in the
search for new oil and gas reserves. There are many factors affecting
Panhandle's competitive position and the market for its products which are
beyond its control. Some of these factors are quantity and price of foreign oil
imports, changes in prices received for its oil and gas production, business and
consumer demand for refined oil products and natural gas, and the effects of
federal and state regulation of the exploration, production and sales of oil and
natural gas. Changes in existing economic conditions, weather patterns and
actions taken by OPEC and other oil-producing countries have dramatic influence
on the price Panhandle receives for its oil and gas production. The Company
relies heavily on companies with greater resources, staff, equipment, research,
and experience for operation of wells and the development and drilling of
subsurface prospects. The Company uses its strong financial base and its mineral
property ownership, coupled with it's own geologic and economic evaluaton to
participate in drilling operations with these larger companies. This method
allows the Company to effectively compete in drilling operations it could not
undertake on its own due to financial and personnel limits and allows it to
maintain low overhead costs.
(2)
<PAGE> 5
SOURCES AND AVAILABILITY OF RAW MATERIALS
The existence of commercial oil and gas reserves is essential to the
ultimate realization of value from the Company's mineral properties and these
mineral properties may be considered a raw material to its business. The
production and sale of oil and natural gas from the Company's oil and gas
properties is essential to provide the cash flow necessary to sustain the
ongoing viability of the Company. The Company continues to reinvest a portion of
its cash flow in the purchase of additional mineral properties to assure the
continued availability of acreage with which to participate in exploration,
drilling, and development operations and subsequently the production and sale of
oil and gas. This participation in exploration and production and the purchasing
of additional mineral interests will continue to supply the Company with the raw
materials with which to generate additional cash flow. Mineral purchases are
made from varied owners, and the Company does not rely on any particular
companies or individuals for these acquisitions.
MAJOR CUSTOMERS
The Company's oil and gas production is sold by the well operators, in
most cases, to many different purchasers on a well-by-well basis. Currently, one
purchaser, through the well operator, purchases approximately 26% of the
Company's monthly gas production. Generally, if one purchaser declines to
continue purchasing the Company's oil and/or natural gas, several other
purchasers can be located, especially in the current market environment for
natural gas. Pricing is usually reasonably consistent from purchaser to
purchaser.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND ROYALTY AGREEMENTS
The Company does not own any patents, trademarks, licenses or
franchises. Royalty agreements on producing oil and gas wells stemming from the
Company's ownership of mineral interests generate a substantial portion of the
Company's revenues. These royalties are tied to the ownership of the mineral
interests and this ownership is perpetual, unless sold by the Company. Royalties
are due and payable to the Company whenever oil and/or gas is produced from
wells located on the Company's mineral properties.
GOVERNMENTAL REGULATION
Oil and gas production is subject to various taxes, such as gross
production taxes and, in some cases, ad valorem taxes.
The State of Oklahoma and other states require permits for drilling
operations, drilling bonds and reports concerning operations and impose other
requirements relating to the exploration and production of oil and gas. Such
states also have regulations addressing conservation matters, including
provisions for the unitization or pooling of oil and gas properties, the
establishment of maximum rates of production from oil and gas wells and the
regulation of spacing, plugging and abandonment of such wells. These statutes
and regulations currently limit the rate at which oil and gas can be produced
from certain of the
(3)
<PAGE> 6
Company's properties. As previously discussed, the well operators are relied
upon by Panhandle to comply with governmental regulations.
Federal tax law allows producers of "tight gas" to utilize an
approximate $.52/MMBTU tax credit for gas produced from approved wells. The
credit is a direct reduction of regular federal income tax. Panhandle began
receiving revenues from "tight gas" wells during fiscal 1992. This credit will
be available for all tight gas sold prior to January 1, 2003, and is expected to
reduce the Company's cash outlay for income taxes.
ENVIRONMENTAL MATTERS
As the Company is directly involved in the extraction and use of
natural resources, it is subject to various federal, state and local provisions
regarding environmental and ecological matters. Compliance with these laws may
necessitate significant capital outlays, however, to date the Company's cost of
compliance has been insignificant. The Company does not feel the existence of
these environmental laws will materially hinder or adversely affect the
Company's business operations; however, there can be no assurances of future
events. Since the Company does not operate any wells where it owns an interest,
actual compliance with environmental laws is controlled by others, with
Panhandle being responsible for its proportionate share of the costs involved.
Panhandle carries liability insurance and to the extent available at reasonable
cost, pollution control coverage. However, all risks are not insured due to
insurance availability and/or cost thereof.
EMPLOYEES
At September 30, 2000, Panhandle employed ten persons on a full-time
basis and has no part-time employees. Three of the employees are executive
officers and one is also a director of the Company.
ITEM 2. DESCRIPTION OF PROPERTIES
As of September 30, 2000, Panhandle's principal properties consisted of
perpetual ownership of 189,463 net mineral acres, held in tracts in Alabama,
Arkansas, Colorado, Idaho, Kansas, Illinois, Indiana, Montana, Nebraska, New
Mexico, North Dakota, Oklahoma, Tennessee and Texas. The Company also held
leases on 5,332 net acres of minerals in Louisiana, Oklahoma and Texas. At
September 30, 2000, Panhandle held royalty and/or working interests in 2,213
producing oil or gas wells, 40 successfully completed but not yet producing
wells, and 19 wells in the process of being drilled or completed.
(4)
<PAGE> 7
Panhandle does not have current abstracts or title opinions on all
mineral properties owned and, therefore, cannot warrant that it has unencumbered
title to all of its properties. In the period from 1927 through 1937, the
Company lost title to a number of its then owned mineral acres through
foreclosures and tax sales of the surface acreage overlying its minerals. In
recent years, few challenges have been made against the Company's fee title to
its properties.
Panhandle pays ad valorem taxes on its minerals owned in Arkansas,
Colorado, Idaho, Indiana, Illinois, Kansas, Tennessee and Texas.
ACREAGE
The following table of mineral interests owned reflects, as of
September 30, 2000, in each respective state, the number of net and gross acres,
net and gross producing acres, net and gross acres leased, and net and gross
acres open (unleased).
MINERAL INTERESTS
<TABLE>
<CAPTION>
Net Gross Net Gross Net Gross
Acres Acres Acres Acres Acres Acres
Net Gross Prod'g Prod'g Leased Leased Open Open
St. Acres Acres (1) (1) (2) (2) (3) (3)
---- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AL 5 479 5 479
AR 7,546 38,579 64 220 119 400 7,363 37,959
CO 8,217 39,080 8,217 39,080
ID 30 880 30 880
IL 1,018 4,393 1,018 4,393
IN 27 262 27 262
KS 637 6,024 62 720 575 5,304
MT 422 7,960 422 7,960
NE 442 6,120 7 160 435 5,960
ND 292 5,036 37 320 255 4,716
NM 53,324 153,073 1,150 4,949 2,041 5,542 50,133 142,582
OK 92,731 839,107 18,336 155,638 2,495 26,387 71,900 657,082
TN 1,543 3,087 1,543 3,087
TX 23,228 220,335 1,123 35,032 256 3,081 21,849 182,222
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOT: 189,463 1,324,416 20,734 196,559 4,954 35,891 163,775 1,091,966
</TABLE>
(1) "Producing" represents the mineral acres in which Panhandle owns a
royalty or working interest in a producing well.
(2) "Leased" represents the mineral acres, owned by Panhandle, that are
leased to third parties but not producing.
(3) "Open" represents mineral acres owned by Panhandle that are not leased
or in production.
This table reflects net mineral acres leased from others, lease
expiration dates, and net leased acres held by production.
LEASES
<TABLE>
<CAPTION>
Net Acres
Net Net Acres Leases Held By
State Acres Expiring Production
----- --------------- ------------------------------------------------------- ---------------
2001 2002 2003
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
LA 271 271
OK 5,008 600 1,044 356 3,008
TX 53 53
--------------- --------------- --------------- --------------- ---------------
TOT: 5,332 600 1,044 356 3,332
</TABLE>
(5)
<PAGE> 8
PROVED RESERVES
The following table summarizes estimates of the proved reserves of oil
and gas held by Panhandle. All reserves are located within the United States.
Because the Company's non-producing mineral and leasehold interests consist of
various small interests in numerous tracts located primarily in Oklahoma, New
Mexico and Texas and because the Company is a non-operator and must rely on
third parties to propose and drill wells, it is not feasible to provide
estimates of all proved undeveloped reserves and associated future net revenues.
Prior to fiscal 1995, the Company did not provide estimates of any proved
undeveloped reserves. The Company directs its independent petroleum engineering
firm to include proved undeveloped reserves in certain areas of western and
eastern Oklahoma and New Mexico in the scope of properties evaluated for the
Company. Due to field production allowable rules in Dagger Draw, only those
proved undeveloped reserves which the Company felt could be drilled, under
existing allowable rules, have been included. Should the allowable rules be
amended and/or production volumes change significantly, additional proved
undeveloped reserves may be added in the future. The Company, in both cases,
expects drilling to continue for the next several years, and thus made the
decision to provide proved undeveloped reserve estimates for these areas. All
reserve quantity estimates were prepared by Campbell & Associates, Inc., an
independent petroleum engineering firm. The Company's reserve estimates were not
filed with any other federal agency.
<TABLE>
<CAPTION>
Proved Developed Reserves Barrels of Oil MCF of Gas
--------------------------- -------------- -----------
<S> <C> <C>
September 30, 1998 497,263 10,103,355
September 30, 1999 433,263 11,519,071
September 30, 2000 408,732 11,585,331
Proved Undeveloped Reserves
September 30, 1998 279,824 1,557,965
September 30, 1999 287,940 1,596,149
September 30, 2000 251,508 2,803,789
Total Proved Reserves
September 30, 1998 777,087 11,661,320
September 30, 1999 721,203 13,115,220
September 30, 2000 660,240 14,389,120
</TABLE>
Because the determination of reserves is a function of testing,
evaluating, developing oil and gas reservoirs and establishing a production
decline history, along with product price fluctuations, it would be expected
that estimates will change as future information concerning those reservoirs is
developed and as market conditions change. Estimated reserve quantities and
future net revenues are affected by changes in product prices, and these prices
have varied substantially in recent years. Proved developed reserves are those
expected to be recovered through existing well bores under existing economic and
operating conditions. Proved undeveloped reserves are reserves that may be
recovered from undrilled acreage, but are usually limited to those sites
directly offsetting established production units and have sufficient geological
data to indicate a reasonable expectation of commercial success.
(6)
<PAGE> 9
ESTIMATED FUTURE NET CASH FLOWS
Set forth below are estimated future net cash flows with respect to
Panhandle's proved reserves (based on the estimated units set forth in the
immediately preceding table) as of year ends, and the present value of such
estimated future net cash flows, computed by applying a ten (10) percent
discount factor as required by the rules and regulations of the Securities and
Exchange Commission. Estimated future net cash flows have been computed by
applying current year-end prices to future production of proved reserves less
estimated future expenditures (based on costs as of year end) to be incurred
with respect to the development and production of such reserves. Such pricing is
based on SEC guidelines. No federal income taxes are included in estimated
costs. However, the amounts are net of production taxes levied by respective
states. Prices used for determining future cash flows from oil and natural gas
for the periods ended September 30, 2000, 1999, and 1998 were as follows: 2000 -
$32.84, $3.96; 1999 - $23.29, $2.70; 1998 - $14.45, $1.63. These future net cash
flows should not be construed as the fair market value of the Company's
reserves. A market value determination would need to include many additional
factors, including anticipated oil and gas price increases or decreases.
Estimated Future Net Cash Flows
<TABLE>
<CAPTION>
9-30-00 9-30-99 9-30-98
----------- ----------- ------------
<S> <C> <C> <C>
Proved Developed $48,481,740 $33,049,035 $18,256,510
Proved Undeveloped $16,604,661 $ 8,942,345 $ 4,868,946
----------- ----------- ------------
Total Proved (1) $65,086,401 $41,991,380 $23,125,456
</TABLE>
10% Discounted Present Value of Estimated Future Net Cash Flows
<TABLE>
<CAPTION>
9-30-00 9-30-99 9-30-98
----------- ----------- -----------
<S> <C> <C> <C>
Proved Developed $32,122,191 $22,066,753 $12,469,019
Proved Undeveloped $11,417,769 $ 5,566,777 $ 2,929,190
----------- ----------- -----------
Total Proved (1) $43,539,960 $27,633,530 $15,398,209
</TABLE>
(1) The major portion of the increase from September 30, 1998, to
September 30, 1999, and from September 30, 1999 to September
30, 2000, is attributable to the increased oil and gas prices
used in the 1999 and 2000 reserve report versus the prices
used in the 1998 and 1999 reserve reports, respectively.
(7)
<PAGE> 10
OIL AND GAS PRODUCTION
The following table sets forth the Company's net production of oil and
gas for the fiscal periods indicated.
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
9-30-00 9-30-99 9-30-98
--------- --------- ---------
<S> <C> <C> <C>
Bbls - Oil 66,609 75,891 103,989
MCF - Gas 2,454,844 1,888,890 1,710,264
</TABLE>
Average Sales Prices and Production Costs
The following table sets forth unit price and cost data for the fiscal
periods indicated.
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Average Sales Price 9-30-00 9-30-99 9-30-98
------------------- ----------- ----------- ---------
<S> <C> <C> <C>
Per Bbl. Oil $ 27.13 $ 15.53 $ 15.16
Per MCF Gas $ 3.03 $ 2.06 $ 2.20
Average Production (Lifting Cost)
Per Equivalent
Bbl. Oil (1)(2) $ 1.04 $ 1.22 $ 1.20
(3) $ 2.03 $ 1.25 $ 1.27
</TABLE>
(1) Gas production is converted to barrel equivalents at the rate of 6 MCF
per barrel, representing the estimated relative energy content of
natural gas and oil.
(2) Includes actual well operating costs only.
(3) Includes production taxes, compression, handling and marketing fees
paid on natural gas sales, and other minor expenses associated with
well operations.
Average well operating costs are influenced by the fact that the
Company bears no cost of production on many of its well interests, as a large
part of the Company's producing well interests are royalty interests, which bear
no share of the operating costs.
GROSS AND NET PRODUCTIVE WELLS AND DEVELOPED ACRES
The following table sets forth Panhandle's gross and net productive oil
and gas wells as of September 30, 2000. Panhandle owns fractional royalty
interests or fractional working interests in these wells. The Company does not
operate any wells.
<TABLE>
<CAPTION>
Gross Wells Net Wells
----------- ----------
<S> <C> <C>
Oil 454 15.436797
Gas 1,759 22.404828
--------- ----------
TOTAL 2,213 37.841625
</TABLE>
Information on multiple completions is not available from Panhandle's
records, but the number of such is insignificant.
(8)
<PAGE> 11
As of September 30, 2000, Panhandle owned 196,559 gross developed
mineral acres and 20,734 net developed mineral acres. Panhandle has also leased
from others 55,159 gross developed acres which contain 3,332 net developed
acres.
UNDEVELOPED ACREAGE
As of September 30, 2000, Panhandle owned 1,127,857 gross and 168,729
net undeveloped mineral acres, and leases on 11,906 gross and 2,000 net acres.
DRILLING ACTIVITY
The following net productive development and exploratory wells and net
dry development and exploratory wells, in which the Company had a fractional
royalty or working interest, were drilled and completed during the fiscal years
indicated. Also shown are the net wells purchased during these periods.
<TABLE>
<CAPTION>
Net Productive Net Dry
Development Wells Wells Wells
------------------------ -------------- ---------
<S> <C> <C>
Fiscal year ending
September 30, 1998 1.548498 .608732
Fiscal year ending
September 30, 1999 1.813871 .582417
Fiscal year ending
September 30, 2000 2.356519 .277873
Exploratory Wells
------------------------
Fiscal year ending
September 30, 1998 .953696 .566764
Fiscal year ending
September 30, 1999 .497868 .270698
Fiscal year ending
September 30, 2000 .810099 .400511
Purchased Wells
------------------------
Fiscal year ending
September 30, 1998 .174667 0
Fiscal year ending
September 30, 1999 .178395 0
Fiscal year ending
September 30, 2000 .007321 0
</TABLE>
(9)
<PAGE> 12
PRESENT ACTIVITIES
The following table sets forth the gross and net oil and gas wells
drilling or testing as of September 30, 2000, in which Panhandle owns a royalty
or working interest.
<TABLE>
<CAPTION>
Gross Wells Net Wells
----------- ----------
<S> <C> <C>
Oil 16 .263407
Gas 43 1.597584
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
There were no material legal proceedings involving Panhandle or its
subsidiary, PHC, Inc., as of the date of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Panhandle's security holders
during the fourth quarter of the fiscal year ended September 30, 2000.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the NASDAQ Small-Cap Market
(symbol PANRA). The following table sets forth the high and low trade prices of
the Company's common stock during the periods indicated: (all share or per share
amounts, are adjusted for the effect of the 3-for-1 stock split effective May 7,
1999).
<TABLE>
<CAPTION>
Quarter Ended HIGH LOW
---------------------- --------- ---------
<S> <C> <C>
December 31, 1998 $ 8.750 $ 5.3125
March 31, 1999 $ 8.625 $ 6.625
June 30, 1999 $ 10.6875 $ 7.3125
September 30, 1999 $ 9.500 $ 7.625
December 31, 1999 $ 9.000 $ 6.500
March 31, 2000 $ 8.250 $ 7.000
June 30, 2000 $ 9.500 $ 7.375
September 30, 2000 $ 17.000 $ 8.750
</TABLE>
As of November 30, 2000, the approximate number of holders of shares of
Panhandle stock were:
Title of Class Number of Holders
----------------------- -----------------
Class A Common (Voting) . . . . . . .. . . . . . . . . . . . 2,600
(10)
<PAGE> 13
During the past two years, cash dividends have been paid as follows on
the class A common stock:
DATE RATE PER SHARE
----------------- --------------
December 1998 $ .06
March 1999 $ .07
June 1999 $ .07
September 1999 $ .07
December 1999 $ .07
March 2000 $ .07
June 2000 $ .07
September 2000 $ .07
The Company's line of credit loan agreement contains a provision
limiting the paying or declaring of a cash dividend to fifty percent of cash
flow, as defined, of the preceding twelve-month period. See Note 3 to the
consolidated financial statements contained herein at "Item 7 - Financial
Statements", for a further discussion of the loan agreement.
ITEM 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had positive working capital of
$1,712,806, an increase of $1,100,587, compared to year-end September 30, 1999.
Cash flow from operating activities increased 89% to $5,366,066 for fiscal 2000,
as compared to fiscal 1999. This increase was a result of increased oil and gas
sales revenues during fiscal 2000, which are discussed in detail in "Results of
Operations."
Capital expenditures on oil and gas activities in fiscal 2000 amounted
to $4,089,851, a 72% increase from the $2,382,296 expended in fiscal 1999. This
increased spending was principally the result of increased market prices for
natural gas and crude oil stimulating new wells to be drilled. As the market
prices increased during the year, and have continued to increase into fiscal
2001, well proposals submitted to the Company for drilling participations
increased allowing the Company to participate in a record number of wells in
fiscal 2000. The Company currently expects fiscal 2001 to be the busiest
drilling year in Company history.
Historically, the Company has funded drilling costs and other capital
expenditures, as well as overhead costs and dividend payments, from operating
cash flow. However, in fiscal 2000, the Company borrowed $500,000 under it's
bank line-of-credit to help fund the above costs and to finance a small
acquisition of mineral properties. As of September 30, 2000, the Company had
repaid the $500,000 and had no-debt outstanding.
The Company expects to continue its business strategy of aggressive
drilling participation in fiscal 2001, and well into the future. At September
30, 2000, the Company had projected costs of $2,499,116, 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
(11)
<PAGE> 14
completed. Management currently anticipates spending approximately $5,500,000,
for exploration and development costs on its oil and gas properties in fiscal
2001. In addition , the Company will continue to seek acquisitions of producing,
and to a lessor extent non-producing mineral properties and working interests in
producing wells. These capital costs along with overhead expenses and dividend
payments are expected to be funded by cash flow and from borrowings, if needed,
under the Company's bank line-of-credit. In addition, the Company has available,
approximately 4,000,000 shares of authorized but unissued common stock, which
could be used for an asset purchase. Anticipated cash flows are more than
sufficient to meet all currently expected capital obligations. As capital
expenditure amounts can vary due to many factors, including drilling results,
oil and gas prices, industry conditions and acquisition opportunities, the exact
amount of future capital expenditures is not known. Thus, the Company has
provided the sources of capital, discussed above, to supplement cash flow from
operations, if needed.
RESULTS OF OPERATIONS
Revenues increased $4,160,499 or 81% in fiscal 2000, as compared to
fiscal 1999. The increased revenues were attributable to a $4,014,680 increase
in oil and gas sales revenues. Oil and gas sales revenues increased due to large
increases in the average sales price for natural gas and crude oil in fiscal
2000, as compared to fiscal 1999 sales prices. In addition, natural gas sales
volumes increased 30%. The chart below summarizes the Company's sales volumes
and average sales prices for oil and natural gas in fiscal 2000 and 1999.
OIL AND GAS SALES
<TABLE>
<CAPTION>
OIL GAS
------------------- ------------------------
Total Average Total Average
----- --------- ----- ---------
BBLS Price/BBL MCF Price/MCF
<S> <C> <C> <C> <C>
Year-Ended 9/30/00 66,609 $ 27.13 2,454,844 $ 3.03
Year-Ended 9/30/99 75,891 $ 15.53 1,888,890 $ 2.06
</TABLE>
The increase in gas sales volume was principally due to increased sales
volume of natural gas from the Potato Hills field in southeast Oklahoma and from
new wells coming on line in western Oklahoma. The Potato Hills field continues
to be developed and several wells are expected to be drilled in fiscal 2001. As
the price of natural gas increased throughout 2000, the pace of drilling for
natural gas increased and the Company continues to have increased opportunities
for drilling. Gas production and gas prices are currently expected to increase
well into fiscal 2001. A normal winter weather pattern could lead to some
natural gas shortages in the upcoming winter months, causing natural gas
production and market prices to reach record levels in 2001. The 12% decline in
oil production volume from fiscal 1999 to fiscal 2000, is the continuing result
of decreased production volume in the Dagger Draw field in New Mexico. This
decreased production volume is a continuing result of the wells being shut-in
due to low oil prices in late 1998 and early 1999. The well drainage patterns
were apparently altered by the shutting-in process. Additional drilling is
planned by the two operators in the area. Panhandle will have an interest in
several wells expected to be drilled in the Dagger Draw field in fiscal 2001.
(12)
<PAGE> 15
Costs and Expenses increased $1,073,671 or 24% in fiscal 2000, as
compared to fiscal 1999. The increase was principally due to increased
production taxes on the increased oil and gas sales revenues of fiscal 2000,
increased non-cash depreciation, depletion, amortization and impairment costs
(DD&A) and increased general and administrative costs.
Increased DD&A costs in fiscal 2000, were principally the result of
increased production volume during the year, several new wells having initial
high production volumes compared to total expected reserve volumes and, in some
cases, reserves which were substantially lower than the previous year's
estimates. This increase was offset by a reduction in impairment of proved oil
and gas properties of approximately $95,000. Impairment results primarily from
single well fields which are not expected to produce sufficient future net cash
flow to recover the Company's carrying cost based on currently forecast market
prices.
Gross production taxes are paid as a percentage of oil and gas sales
revenues. Thus, increased revenues in fiscal 2000 increased gross production
taxes paid in fiscal 2000 approximately $314,000, as compared to fiscal 1999.
Lease operating expenses continue to increase each year, $181,000 higher in 2000
as compared to 1999, as the Company adds additional working interest wells each
year. A component of lease operating expenses, the costs associated with selling
natural gas, compression, handling and marketing fees, increases each year as
the Company produces more natural gas.
General and administrative costs increased $285,496, or 25% in fiscal
2000,as compared to fiscal 1999. Approximately $175,000 of this increase, was
related to the Non-Employee Director's Deferred Compensation Plan (The
Director's Plan). During fiscal 2000, Panhandle's share price increased from a
September 30, 1999, price of $7.625 per share to end fiscal 2000 at $14.00 per
share. This increase in share price caused recognition of a current year expense
based on shares that could currently be issued under the terms of The Director's
Plan. The Non-Employee Directors have taken these potential shares, rather than
a cash payment, for their Director's fees. In addition, personnel related
expenses, including salaries, insurance costs, payroll taxes and ESOP expenses
increased during fiscal 2000.
The provision for income taxes increased in fiscal 2000, due to a much
larger income before taxes (as discussed above). The Company continues to be
able to utilize tax credits from production of "tight gas sands" natural gas and
excess percentage depletion on it's oil and gas properties to reduce its tax
liability, resulting in an effective tax rate of 24% in 2000.
As discussed above, the increase in net income is attributable to
increased oil and gas sales revenues, partially offset by increased expenses.
Management currently expects natural gas sales price to increase over fiscal
2000 average levels during fiscal 2001. In addition, recent well completions
should keep natural gas and crude oil production at equal to or slightly higher
than fiscal 2000 levels. The above factors, should allow the Company in fiscal
2001, to continue reporting strong earnings. However, as management has no
control over market prices of natural gas or crude oil, substantial price
reductions, could affect year 2001 results. Also, unexpected production declines
from large volume wells or investments in exploratory well drilling resulting in
dry hole costs, could adversely affect 2001 earnings.
(13)
<PAGE> 16
ITEM 7. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors ............................. 15
Consolidated Balance Sheets
As of September 30, 2000 and 1999 ........................ 16
Consolidated Statements of Income For The
Years Ended September 30, 2000 and 1999 .................. 17
Consolidated Statements of Stockholders' Equity For
The Years Ended September 30, 2000 and 1999 .............. 18
Consolidated Statements of Cash Flows For
The Years Ended September 30, 2000 and 1999 .............. 19
Notes To Consolidated Financial Statements ................. 20-33
</TABLE>
(14)
<PAGE> 17
Report of Independent Auditors
Board of Directors and Stockholders
Panhandle Royalty Company
We have audited the accompanying consolidated balance sheets of Panhandle
Royalty Company as of September 30, 2000 and 1999, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Panhandle Royalty
Company at September 30, 2000 and 1999, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
November 27, 2000
(15)
<PAGE> 18
Panhandle Royalty Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 815,912 $ 213,207
Oil and gas sales receivable 1,955,590 1,134,153
Prepaid expenses 3,817 4,132
------------- -------------
Total current assets 2,775,319 1,351,492
Property and equipment, at cost, based on successful
efforts accounting:
Producing oil and gas properties 27,282,697 24,074,383
Nonproducing oil and gas properties 6,154,159 5,804,543
Furniture and fixtures 280,877 263,695
------------- -------------
33,717,733 30,142,621
Less accumulated depreciation, depletion and amortization
20,390,441 18,337,952
------------- -------------
Net properties and equipment 13,327,292 11,804,669
Other assets 107,716 107,716
------------- -------------
$ 16,210,327 $ 13,263,877
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities (Note 8) $ 703,917 $ 522,269
Gas imbalance liability 55,527 44,380
Dividends payable 7,742 33,296
Income taxes payable 249,327 46,328
Deferred income taxes 46,000 93,000
------------- -------------
Total current liabilities 1,062,513 739,273
Deferred income taxes 1,794,000 1,476,000
Stockholders' equity:
Class A voting common stock, $.0333 par value;
6,000,000 shares authorized, 2,060,206 issued and
outstanding (2,056,990 in 1999)
68,673 68,566
Capital in excess of par value 608,280 587,058
Retained earnings 12,676,861 10,392,980
------------- -------------
Total stockholders' equity 13,353,814 11,048,604
------------- -------------
$ 16,210,327 $ 13,263,877
============= =============
</TABLE>
See accompanying notes
(16)
<PAGE> 19
Panhandle Royalty Company
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
2000 1999
--------------- ---------------
<S> <C> <C>
Revenues:
Oil and gas sales $ 9,091,920 $ 5,077,240
Lease bonuses and rentals 82,030 10,773
Interest 17,689 10,253
Other 86,335 19,209
--------------- ---------------
9,277,974 5,117,475
Costs and expenses:
Lease operating expenses and production taxes 1,458,935 963,804
Exploration costs 514,739 535,431
Depreciation, depletion, amortization and impairment 2,052,489 1,737,453
General and administrative 1,450,241 1,164,745
Interest expense 15,643 16,943
--------------- ---------------
5,492,047 4,418,376
--------------- ---------------
Income before provision (benefit) for income taxes 3,785,927 699,099
Provision (benefit) for income taxes 925,000 (35,000)
--------------- ---------------
Net income $ 2,860,927 $ 734,099
=============== ===============
Basic earnings per share $ 1.39 $ .36
=============== ===============
Diluted earnings per share $ 1.38 $ .36
=============== ===============
</TABLE>
See accompanying notes.
(17)
<PAGE> 20
Panhandle Royalty Company
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
------------------------------ EXCESS OF RETAINED
SHARES AMOUNT PAR VALUE EARNINGS TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances at September 30, 1998 2,047,602 $ 68,254 $ 515,823 $ 10,220,166 $ 10,804,243
Purchase and cancellation of common
shares (237) (9) (1,835) -- (1,844)
Issuance of common shares to ESOP 9,625 321 73,070 -- 73,391
Dividends declared ($.27 per share) -- -- -- (561,285) (561,285)
Net income -- -- -- 734,099 734,099
------------ ------------ ------------ ------------ ------------
Balances at September 30, 1999 2,056,990 68,566 587,058 10,392,980 11,048,604
Purchase and cancellation of common
shares (3,368) (112) (70,798) -- (70,910)
Issuance of common shares to ESOP 6,584 219 92,020 -- 92,239
Dividends declared ($.28 per share) -- -- -- (577,046) (577,046)
Net income -- -- -- 2,860,927 2,860,927
------------ ------------ ------------ ------------ ------------
Balances at September 30, 2000 2,060,206 $ 68,673 $ 608,280 $ 12,676,861 $ 13,353,814
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
(18)
<PAGE> 21
Panhandle Royalty Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
2000 1999
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,860,927 $ 734,099
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, depletion, amortization, and impairment 2,052,489 1,737,454
Deferred income taxes, net of transfer in 1999 of
$105,000 (none in 2000) 271,000 6,000
Exploration costs 514,739 535,431
Common stock issued to Employee Stock Ownership Plan
92,239 73,391
Cash provided (used) by changes in assets and liabilities:
Oil and gas sales and other receivables (821,437) (417,505)
Income taxes receivable -- 152,090
Prepaid expenses 315 23,259
Accounts payable and accrued liabilities 192,795 (53,764)
Income taxes payable 202,999 46,328
--------------- ---------------
Total adjustments 2,505,139 2,102,684
--------------- ---------------
Net cash provided by operating activities 5,366,066 2,836,783
CASH FLOWS FROM INVESTING ACTIVITIES OF PROPERTY AND EQUIPMENT
Capital expenditures, including dry hole costs (4,089,851) (2,382,296)
--------------- ---------------
Net cash used in investing activities (4,089,851) (2,382,296)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line of credit 500,000 300,000
Payments of loan principal (500,000) (300,000)
Purchase and cancellation of common shares (70,910) (1,844)
Payments of dividends (602,600) (559,646)
--------------- ---------------
Net cash used in financing activities (673,510) (561,490)
--------------- ---------------
Increase (decrease) in cash and cash equivalents 602,705 (107,003)
Cash and cash equivalents at beginning of year 213,207 320,210
--------------- ---------------
Cash and cash equivalents at end of year $ 815,912 $ 213,207
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 15,643 $ 16,943
Income taxes paid (received), net of refunds 451,167 (239,418)
</TABLE>
See accompanying notes
(19)
<PAGE> 22
Panhandle Royalty Company
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Panhandle Royalty
Company and its wholly-owned subsidiary, P.H.C., Inc. All material intercompany
transactions have been eliminated in the accompanying consolidated financial
statements.
CASH EQUIVALENTS
All highly liquid short-term investments with original maturities of three
months or less at the date of purchase by the Company are considered to be cash
equivalents.
OIL AND GAS SALES
The Company sells oil and natural gas to various customers, recognizing revenues
as oil and gas is produced and sold. Substantially all of the Company's accounts
receivable are due from purchasers of oil and natural gas or operators of the
oil and gas properties. Oil and natural gas sales are generally unsecured. The
Company has not experienced significant credit losses in prior years and is not
aware of any significant uncollectible accounts at September 30, 2000.
OIL AND GAS PRODUCING ACTIVITIES
The Company follows the successful efforts method of accounting for oil and gas
producing activities. Intangible drilling and other costs of successful wells
and development dry holes are capitalized and amortized. The costs of
exploratory wells are initially capitalized, but charged against income if and
when the well is determined to be nonproductive. Oil and gas mineral and
leasehold costs are capitalized when incurred.
DEPRECIATION, DEPLETION, AMORTIZATION AND IMPAIRMENT
Depreciation, depletion and amortization of the costs of producing oil and gas
properties are generally computed using the units of production method primarily
on a separate-property basis using proved reserves as estimated annually by an
independent petroleum engineer. Depreciation of furniture and fixtures is
computed using the straight-line method over estimated productive lives of five
to eight years.
The Company has significant royalty interests in wells for which the Company
does not share in the costs associated with the wells. Estimated costs of future
dismantlement, restoration and abandonment of wells in which the Company owns a
working interest are
(20)
<PAGE> 23
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
not expected to differ significantly from the estimated salvage value of
equipment from such wells and, accordingly, no accrual of such costs is included
in the accompanying consolidated financial statements.
Nonproducing oil and gas properties include nonproducing minerals, which have a
net book value of $4,110,879 at September 30, 2000, consisting of perpetual
ownership of mineral interests in several states, including Oklahoma, Texas and
New Mexico. These costs are being amortized over a thirty-three year period
using the straight-line method. An ultimate determination of whether these
properties contain recoverable reserves in economical quantities is expected to
be made within this time frame. Impairment of nonproducing oil and gas
properties is recognized based on experience and management judgment.
In accordance with the provisions of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," the Company recognizes impairment losses for
long-lived assets when indicators of impairment are present and the undiscounted
cash flows are not sufficient to recover the assets' carrying amount. The
impairment loss is measured by comparing the fair value of the asset to its
carrying amount. Fair values are based on discounted future cash flows. The
Company's oil and gas properties were reviewed for indicators of impairment on a
field-by-field basis, resulting in the recognition of impairment provisions of
$262,998 and $357,891, respectively, for 2000 and 1999, which are included in
depreciation, depletion, amortization and impairment expense. The majority of
the impairment recognized in 2000 and 1999 relates to single well fields on
which the Company does not expect sufficient future net cash flow to recover
its carrying cost.
ENVIRONMENTAL COSTS
Environmental liabilities, which historically have not been material, are
recognized when it is probable that a loss has been incurred and the amount of
that loss is reasonably estimable. Environmental liabilities, when accrued, are
based upon estimates of expected future costs. At September 30, 2000, there were
no such costs accrued.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
(21)
<PAGE> 24
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRODUCTION IMBALANCES
During the course of normal production operations, joint interest owners will,
from time to time, take more or less than their ownership share of natural gas
volumes from jointly-owned wells. These volumetric imbalances are monitored over
the life of the well to achieve balancing, or to minimize imbalances, by the
time reserves are depleted, with final cash settlements made under a variety of
arrangements at that time. The Company follows the sales method of accounting
for imbalances. A liability is recorded only if takes of natural gas volumes
from jointly-owned wells exceed the Company's interest in the well's remaining
estimated natural gas reserves. At September 30, 2000 and 1999, the Company's
net liability for natural gas production imbalances of approximately 31,671 mcf
and 28,500 mcf amounted to $55,527 and $44,380, respectively.
EARNINGS PER SHARE OF COMMON STOCK
Basic earnings per share ("EPS") is calculated using net income divided by the
weighted average of common shares outstanding during the year. Diluted EPS is
similar to Basic EPS except that the weighted average of common shares
outstanding is increased to include the number of additional common shares that
would have been outstanding if the dilutive potential common shares had been
issued. The treasury stock method is used to calculate dilutive shares, which
reduces the gross number of dilutive shares (Note 6).
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following information is provided regarding the estimated fair value of the
Company's financial instruments at September 30, 2000 and 1999:
Cash and cash equivalents, receivables, prepaid expenses, accounts
payable and accrued liabilities are each estimated to have a fair value
approximating the carrying amount due to the short maturity of those
instruments.
(22)
<PAGE> 25
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
2. INCOME TAXES
The Company's provision (benefit) for income taxes is detailed as follows:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Current:
Federal $ 647,000 $ 59,000
State 7,000 5,000
---------- ----------
654,000 64,000
Deferred:
Federal 244,000 (87,000)
State 27,000 (12,000)
---------- ----------
271,000 (99,000)
---------- ----------
$ 925,000 $ (35,000)
========== ==========
</TABLE>
The difference between the provision (benefit) for income taxes and the amount
which would result from the application of the federal statutory rate to income
before provision (benefit) for income taxes is analyzed below:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Provision for income taxes at statutory rate $1,325,074 $ 244,685
Percentage depletion (368,687) (196,401)
Tight-sands gas credits (59,359) (69,959)
State income taxes, net of federal benefit 22,125 (4,550)
Other 5,847 (8,775)
---------- ----------
$ 925,000 $ (35,000)
========== ==========
</TABLE>
(23)
<PAGE> 26
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
2. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities, resulting from differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities, consist of the following:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Capitalized costs and related depreciation, depletion,
amortization and impairment $1,794,000 $1,505,000
Cash basis of accounting for income tax purposes 46,000 93,000
---------- ----------
1,840,000 1,598,000
Deferred tax assets:
Percentage depletion carryforward -- 17,000
Alternative minimum tax credit carryforwards -- 12,000
---------- ----------
-- 29,000
---------- ----------
Net deferred tax liabilities $1,840,000 $1,569,000
========== ==========
</TABLE>
3. LONG-TERM DEBT
The Company has a revolving line of credit agreement with a bank, which extends
through December 31, 2002, for borrowings up to $5,000,000, which bear interest
at the bank's base rate minus .25% (9.25% at September 30, 2000). Any
outstanding borrowings are unsecured but subject to a negative pledge on all of
the Company's oil and gas properties and are payable in full, with accrued and
unpaid interest, December 31, 2002. The Company is required to pay an annual fee
of .06% for the unused portion of the line of credit. There was no balance
outstanding at September 30, 2000 and 1999.
The agreement contains various restrictions which, among other things, require
the Company to maintain, at the end of each quarter, positive net income for the
preceding twelve-month period. Additionally, the Company is restricted from
incurring certain indebtedness, selling oil and gas properties for which the
proceeds received exceed $250,000, acquiring treasury stock in any one year in
excess of $250,000 and paying or declaring cash dividends exceeding fifty
percent of the cash flow from operations, as defined, of the preceding
twelve-month period.
(24)
<PAGE> 27
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
4. DIVIDENDS PAYABLE
Dividends payable represent accrued dividends which are due and payable, but
have not been paid for various reasons, including questions concerning estates
of deceased stockholders, unlocatable shareholders or questions of ownership of
the underlying shares.
5. STOCKHOLDERS' EQUITY
On February 26, 1999, the Company's Board of Directors approved a proposal to
(1) amend the Company's duration from fifty years to perpetuity; (2) amend the
Company's Articles of Incorporation to increase the number of authorized shares
of Class A Common Stock from 1,000,000 shares to 6,000,000 shares; (3) effect a
3-for-1 stock split of the outstanding Class A Common Stock and a corresponding
reduction of the par value per share from $.10 to $.0333; (4) adopt amendments
to the Articles of Incorporation to change voting rights from one vote per
stockholder to one vote per share; and (5) amend the Articles of Incorporation
to provide that generally any merger, consolidation, liquidation or dissolution
of the Company or sale of substantially all of the assets of the Company
requires the affirmative vote of the holders of 66-2/3% or more of the Company's
outstanding Class A Common Stock. On May 7, 1999, these proposals were put forth
to a vote of the stockholders, for which a majority of the stockholders voted in
favor of each proposal, causing these proposals to become effective on such
date. The Class A Common Stock split was effected in the form of a stock
dividend, distributed on June 1, 1999, to stockholders of record on May 7, 1999.
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. All references to number of shares, per share,
and authorized share information in the accompanying consolidated financial
statements have been adjusted to reflect the stock split and increase in
authorized shares approved on May 7, 1999, at the special meeting of the
stockholders of the Company.
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted 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 (Note 8).
(25)
<PAGE> 28
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
6. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
2000 1999
---------- ----------
<S> <C> <C>
Numerator for primary and diluted earnings per share:
Net income $2,860,927 $ 734,099
========== ==========
Denominator:
For basic earnings per share--weighted average shares
2,055,470 2,047,507
Effect of potential diluted shares:
Directors' deferred compensation shares 21,960 16,399
---------- ----------
Denominator for diluted earnings per share--adjusted weighted
average shares and potential shares 2,077,430 2,063,906
========== ==========
Basic earnings per share $ 1.39 $ .36
========== ==========
Diluted earnings per share $ 1.38 $ .36
========== ==========
</TABLE>
7. EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an employee stock ownership plan that covers substantially all
employees and is established to provide such employees with a retirement
benefit. These benefits become fully vested after three years of employment.
Contributions to the plan are at the discretion of the Board of Directors and
can be made in cash (none in 2000 or 1999) or the Company's common stock. For
contributions of common stock, the Company records as expense, the fair market
value of the stock at the time of contribution. The 108,209 shares of the
Company's common stock held by the plan as of September 30, 2000, are allocated
to individual participant accounts, are included in the weighted average shares
outstanding for purposes of earnings per share computations and receive
dividends. Contributions to the plan consisted of:
<TABLE>
<CAPTION>
YEAR SHARES AMOUNT
---- ------ -------
<S> <C> <C>
2000 6,584 $92,239
1999 9,625 $73,391
</TABLE>
(26)
<PAGE> 29
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
8. DEFERRED COMPENSATION PLAN FOR DIRECTORS
Effective November 1, 1994, the Company formed the Panhandle Royalty Company
Deferred Compensation Plan for Non-Employee Directors (the "Plan"). The Plan
provides that each eligible director can individually elect to receive shares of
Company stock rather than cash for board meeting fees and board committee
meeting fees. These shares are unissued and vest at the date of grant. The
shares are credited to each director's deferred fee account at the fair market
value of the stock at the date of grant and are adjusted for changes in market
value subsequent thereto. Upon retirement, termination or death of the director,
or upon change in control of the Company, the shares accrued under the Plan will
be either issued to the director or may be converted to cash, at the director's
discretion, for the fair market value of the shares on the conversion date as
defined by the Plan. As of September 30, 2000, 21,960 shares (16,399 shares at
September 30, 1999) are included in the Plan. The Company has accrued $307,444
at September 30, 2000 ($132,727 at September 30, 1999) in connection with the
Plan which is included in accrued liabilities in the accompanying consolidated
balance sheet ($174,717 and $9,072 was charged to the results of operations for
the years ended September 30, 2000 and 1999, respectively, and is included in
general and administrative expense in the accompanying income statement).
9. INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
All oil and gas producing activities of the Company are conducted within the
United States (principally Oklahoma and New Mexico) and represent substantially
all of the business activities of the Company.
The Company has interests in a field of properties, the production on which was
sold to one purchaser, which accounted for approximately 26% of the Company's
gas revenues in fiscal 2000. The operator of the wells in this field has entered
into contracts to sell and deliver a substantial quantity of the gas volumes
produced from this field at a weighted average minimum price of $4.47 and a
weighted average maximum price of $5.41 per MMbtu. The contracts relate to
volumes produced from November 1, 2000 through March 31, 2001.
(27)
<PAGE> 30
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
9. INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
AGGREGATE CAPITALIZED COSTS
The aggregate amount of capitalized costs of oil and gas properties and related
accumulated depreciation, depletion and amortization is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 1999
------------ ------------
<S> <C> <C>
Producing properties $ 27,282,697 $ 24,074,385
Nonproducing properties 6,154,159 5,804,543
------------ ------------
33,436,856 29,878,928
Accumulated depreciation, depletion and amortization (20,164,045) (18,133,674)
------------ ------------
Net capitalized costs $ 13,272,811 $ 11,745,254
============ ============
</TABLE>
COSTS INCURRED
During the reporting period, the Company incurred the following costs in oil and
gas producing activities:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Property acquisition costs $ 528,691 $ 445,827
Exploration costs 1,776,773 514,546
Development costs 1,765,401 1,399,795
---------- ----------
$4,070,865 $2,360,168
========== ==========
</TABLE>
10. SUPPLEMENTARY INFORMATION ON OIL AND GAS RESERVES (UNAUDITED)
The following unaudited information regarding the Company's oil and natural gas
reserves is presented pursuant to the disclosure requirements promulgated by the
Securities and Exchange Commission ("SEC") and SFAS No. 69, "Disclosures About
Oil and Gas Producing Activities."
Proved reserves are estimated quantities of crude oil and natural gas which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are those proved reserves that
can be expected to be recovered through
(28)
<PAGE> 31
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
10. SUPPLEMENTARY INFORMATION ON OIL AND GAS RESERVES (UNAUDITED) (CONTINUED)
existing wells with existing equipment and operating methods. Because the
Company's nonproducing mineral and leasehold interests consist of various small
interests in numerous tracts located primarily in Oklahoma, New Mexico, and
Texas, it is not economically feasible for the Company to provide estimates of
all proved undeveloped reserves. The Company directs its independent petroleum
engineering firm to include proved undeveloped reserves in certain areas of
western and eastern Oklahoma and New Mexico in the scope of properties which are
evaluated for the Company. Due to field production allowable rules in the Dagger
Draw field of New Mexico only those proved undeveloped reserves which the
Company felt could be drilled, under existing allowable rules, have been
included. Should the allowable rules be amended and/or production volumes change
significantly, additional proved undeveloped reserves in the Dagger Draw field
of New Mexico may be added in the future.
The Company's net proved (including certain undeveloped reserves described
above) oil and gas reserves as of September 30, 2000 and 1999, have been
estimated by Campbell & Associates, Inc., an independent petroleum engineering
firm. All studies have been prepared in accordance with regulations prescribed
by the Securities and Exchange Commission. The reserve estimates were based on
economic and operating conditions existing at September 30, 2000 and 1999. Since
the determination and valuation of proved reserves is a function of testing and
estimation, the reserves presented should be expected to change as future
information becomes available.
(29)
<PAGE> 32
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
10. SUPPLEMENTARY INFORMATION ON OIL AND GAS RESERVES (UNAUDITED) (CONTINUED)
ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES
The following table presents the Company's net proved (including certain
undeveloped reserves described above) oil and gas reserve quantities as
estimated by Campbell & Associates, Inc., an independent petroleum engineering
firm, as of September 30, 2000 and 1999, and the changes in reserves for the
years then ended:
<TABLE>
<CAPTION>
PROVED RESERVES
----------------------
OIL GAS
(Mbarrels) (Mmcf)
---------- --------
<S> <C> <C>
September 30, 1998 777 11,661
Revisions of previous estimates (1)(2) (32) 709
Purchases of reserves in place 11 181
Extensions and discoveries 41 2,453
Production (76) (1,889)
---------- --------
September 30, 1999 721 13,115
Revisions of previous estimates (2) (81) 396
Purchases of reserves in place 6 147
Extensions and discoveries 81 3,186
Production (67) (2,455)
---------- --------
September 30, 2000 660 14,389
========== ========
</TABLE>
(1) Oil and gas revisions are primarily related to those reserves which
were economically recoverable at the higher prices which existed at
September 30, 1998, which are not economically recoverable at prices
existing at September 30, 1999.
(2) Gas revisions are primarily related to those reserves which were
economically recoverable at the higher prices which existed at
September 30, 2000, which were not economically recoverable at prices
existing at September 30, 1999. In 2000 and 1999, oil reserves were
also revised downward from 1998 due to a decline in production of
certain New Mexico properties after being shut-in for several months in
1999 due to depressed oil prices.
(30)
<PAGE> 33
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
10. SUPPLEMENTARY INFORMATION ON OIL AND GAS RESERVES (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
PROVED DEVELOPED RESERVES PROVED UNDEVELOPED RESERVES
-------------------------- ----------------------------
OIL GAS OIL GAS
(Mbarrels) (Mmcf) (Mbarrels) (Mmcf)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
September 30, 1998 498 10,103 279 1,558
========== ========== ========== ==========
September 30, 1999 433 11,519 288 1,596
========== ========== ========== ==========
September 30, 2000 409 11,585 251 2,804
========== ========== ========== ==========
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
Estimates of future cash flows from proved oil and gas reserves, based on
current prices and costs, are shown in the following table. Estimated income
taxes are calculated by (i) applying the appropriate year-end tax rates to the
estimated future pretax net cash flows less depreciation of the tax basis of
properties and statutory depletion allowances and (ii) reducing the amount in
(i) for estimated tax credits to be realized in the future for gas produced from
"tight-sands."
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 1999
------------ ------------
<S> <C> <C>
Future cash inflows $ 78,668,350 $ 52,222,440
Future production costs 12,308,320 9,047,782
Future development costs 1,273,629 1,183,278
------------ ------------
Future net cash inflows before future income tax expenses 65,086,401 41,991,380
Future income tax expense 18,332,743 11,570,726
------------ ------------
Future net cash flows 46,753,658 30,420,654
10% annual discount 15,892,344 10,348,756
------------ ------------
Standardized measure of discounted future net cash flows $ 30,861,314 $ 20,071,898
============ ============
</TABLE>
(31)
<PAGE> 34
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
10. SUPPLEMENTARY INFORMATION ON OIL AND GAS RESERVES (UNAUDITED) (CONTINUED)
Changes in the standardized measure of discounted future net cash flows are as
follows:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Beginning of year $ 20,071,898 $ 11,333,512
Changes resulting from:
Sales of oil and gas, net of production costs (7,632,985) (4,113,436)
Net change in sales prices and production costs 11,642,854 9,872,435
Net change in future development costs (60,124) (2,287)
Extensions and discoveries 8,886,844 4,447,477
Revisions of quantity estimates (221,761) 797,470
Purchases of minerals-in-place 438,663 406,875
Accretion of discount 2,007,190 1,133,351
Net change in income taxes (4,807,558) (3,806,471)
Change in timing and other, net 536,293 2,972
------------ ------------
End of year $ 30,861,314 $ 20,071,898
============ ============
</TABLE>
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the Company's unaudited quarterly results of
operations.
<TABLE>
FISCAL 2000
----------------------------------------------------
QUARTER ENDED
----------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Revenues $ 1,650,961 $2,240,986 $2,410,493 $ 2,975,534
Income before provision for income
taxes (A) 406,258 1,002,720 1,253,740 1,123,209
Net income (B) 364,258 722,720 943,740 830,209
Basic earnings per share $ .18 $ .35 $ .46 $ .40
Diluted earnings per share $ .18 $ .35 $ .46 $ .39
</TABLE>
(32)
<PAGE> 35
Panhandle Royalty Company
Notes to Consolidated Financial Statements (continued)
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
<TABLE>
FISCAL 1999
----------------------------------------------------
QUARTER ENDED
----------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Revenues $ 1,042,473 $ 941,670 $1,542,780 $ 1,590,552
Income (loss) before provision
for income taxes (A) 6,097 (119,745) 489,624 323,123
Net income (B) 6,097 (75,745) 408,624 395,123
Basic earnings per share $ -- $ (.04) $ .20 $ .20
Diluted earnings per share $ -- $ (.04) $ .20 $ .20
</TABLE>
(A) Fourth quarter income before provision for income taxes includes an
SFAS 121 charge of $112,998 and $267,891 for 2000 and 1999,
respectively.
(B) Year-end adjustments to the Company's provision for income taxes caused
the effective rate for 2000 and 1999 to be less than that estimated
during the previous three quarters. The effect of this difference is
reflected in the fourth quarter net income above.
(33)
<PAGE> 36
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT
Listed below are the names, ages and positions, as of November
30, 2000, of the directors and executive officers of the Company. The Company's
bylaws provide for seven directors who are elected for staggered three-year
terms. Executive officers are appointed by the board of directors to serve in
their respective capacities until their successors are duly appointed by the
directors.
DIRECTORS
<TABLE>
<CAPTION>
Served As
Term Director
Name Age Position & Offices Expires Since
---- --- ------------------ ------- --------
<S> <C> <C> <C> <C>
Michael A. Cawley (b) 53 Director 2001 1991
Sam J. Cerny (a)(d) 68 Director 2003 1993
E. Chris Kauffman (b)(c) 60 Director 2003 1991
H W Peace II (b) 65 Director, Chief 2002 1991
Executive Officer,
President
Ray H. Potts ( c) 68 Director 2001 1997
Robert A. Reece (a)(c) 56 Director 2002 1986
Jerry L. Smith (a) 60 Director, Chairman 2002 1987
of the Board
</TABLE>
----------
(a) Member of Audit Committee
(b) Member of Compensation Committee
(c) Member of Retirement Committee
(d) The sale of 500 shares on June 27, 2000 and 4,300 shares on June
29, 2000 of Panhandle Royalty Company class A common stock, were
not reported by Mr. Cerny on FORM 4, until August 8, 2000.
(34)
<PAGE> 37
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Held Office
Name Age Position & Offices Since
---- --- ------------------ -----------
<S> <C> <C> <C>
Jerry L. Smith 60 Chairman of the 1997
Board, Director
H W Peace II 65 Director, Chief 1991
Executive Officer,
President
Michael C. Coffman 47 Vice President, 1990
Chief Financial Officer,
Secretary/Treasurer
Wanda C. Tucker 63 Vice President of 1990
Land
</TABLE>
BUSINESS EXPERIENCE
Michael A. Cawley is an attorney and is the president and chief
executive officer of the Samuel Roberts Noble Foundation, Inc. He has been
employed by the Noble Foundation for the last seven years. Prior to joining the
Noble Foundation, he was engaged in the practice of law in Ardmore, Oklahoma
with the firm of Thompson & Cawley. He is also a director of Noble Drilling
Corporation and Noble Affiliates Inc.
Sam J. Cerny is a geological engineer and has been employed by
Shell Oil Company, Cleary Petroleum Corporation and its successor company, Grace
Petroleum Corporation, where he served as President/CEO from 1976 to 1991. He is
a past president of the Oklahoma Independent Petroleum Association and for the
last five years has been active as a petroleum management consultant.
E. Chris Kauffman is a vice-president of Campbell-Kauffman,
Inc., an independent insurance agency in Oklahoma City. He has been involved
with the agency since it was formed in 1981. He is also Chairman of the Central
Oklahoma Transportation & Parking Authority Trust.
Robert A. Reece is an attorney, and for the last five years has
been of counsel with the firm of Crowe & Dunlevy. He is active in the management
of his family's investments. He is also a director of National Bank of Commerce.
H W Peace II holds bachelors and masters degrees in geology. For
thirty-six years he has been employed as a geologist, in management or as an
officer and/or director in the petroleum industry. He has been employed by Union
Oil Company of California, Cotton Petroleum and Hadson Petroleum Corporation. He
has been president of the Company since 1991.
Ray H. Potts holds a master's degree in geology from the
University of Missouri. He was employed for six years as an exploration
geologist for the Pure Oil Company and in
(35)
<PAGE> 38
1967 formed Potts-Stephenson Exploration Company, later changed to PSEC, Inc. In
1997 PSEC, Inc. was sold to ONEOK Resources Company. Mr. Potts is currently
active in the oil and gas industry and has been involved in several national and
state trade associations, geological societies and numerous civic activities.
Jerry L. Smith for the last ten years has been the owner of
Smith Capital Corporation in Dallas. This corporation is a private investment
firm focusing on commercial real estate and securities. Mr. Smith also is a past
Treasurer and Director of the Association of Graduates of the United States Air
Force Academy.
Michael C. Coffman is a certified public accountant. Since 1975,
he has worked in public accounting and as a financial officer of three publicly
owned companies involved in the oil and gas industry. He has been employed by
the Company since 1990.
Wanda C. Tucker has been a full-time employee of the Company
since 1978, has served in various positions with the Company and is currently
vice president of land.
None of the organizations described in the business experiences
of company directors and officers are parents, subsidiaries or affiliates of
Panhandle Royalty Company.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
Name and ---------------------------------------
Principal
Position Year Salary Bonus All Other
-------- ---- -------- ------- -----------
<S> <C> <C> <C> <C>
H W Peace II 2000 $128,000 $18,100 $21,915 (1)
President & 1999 $125,000 $13,100 $20,715 (1)
Chief Exec. 1998 $122,500 $25,600 $22,215 (1)
Officer
</TABLE>
----------
(1) Represents the value of 1,565 shares for 2000, and 2,538
shares for 1998, and 2,106 shares for 1997, of Company stock
contributed to the Panhandle Employee Stock Ownership Plan
(ESOP) on Mr. Peace's behalf. The ESOP is a defined
contribution plan, non-voluntary and non-contributory and
serves as the retirement plan for the Company's employees.
Contributions are at the discretion of the board of directors
and, to date, all contributions have been made in shares of
Company stock. Contributions are allocated to all participants
in proportion to their salaries for the plan year and 100%
vesting occurs after three year's of service.
(36)
<PAGE> 39
DIRECTORS FEES
Outside directors of the Company are paid $1,000 plus travel
expenses for attending each meeting of the board of directors and $200 for
attending each committee meeting of the board. Any director who travels in
excess of 50 miles to attend a meeting receives an additional $100 for each
meeting. Outside directors can elect to be included in the Panhandle Royalty
Company Deferred Compensation Plan For Non-Employee Directors (the "Plan"). The
Plan provides that each eligible director can individually elect to receive
shares of Company stock rather than cash for board meeting fees and board
committee meeting fees. These unissued shares are credited to each director's
deferred fee account at the fair market value of the shares on the date of the
meeting. Upon retirement, termination or death of the director, or upon a change
in control of the Company, the shares accrued under the Plan will be either
issued to the director or may be converted to cash, at the directors'
discretion, at the fair market value of the shares on the conversion date, as
defined. All outside directors are participating in this Plan.
In addition to the above, Jerry Smith, chairman of the board of
directors, who is not an employee of the Company, is entitled to receive a $100
per hour fee for time spent, other than board or committee meetings, on Company
business. During fiscal 2000 and 1999, no payments were made to Mr. Smith under
this arrangement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of November 30, 2000, the following person or "group" as that
term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, was
known to Panhandle to be the only beneficial owner of more than five percent of
the outstanding shares of Panhandle's class A common stock.
<TABLE>
<CAPTION>
Amount And Nature Of Percent Of
Name Beneficial Ownership Class
------------------ --------------------- ----------
<S> <C> <C>
Robert Robotti 103,104 shares, shared voting 5.0%
c/o Robotti & Company and investment powers
Incorporated,
52 Vanderbilt Avenue,
New York, NY 10017
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of September 30, 2000, all
shares of class A common stock held beneficially, directly or indirectly by each
director and by all directors and officers as a group (excluding certain shares
that may be issued under the Non-Employee Directors' Deferred Compensation Plan
(see Item 10. EXECUTIVE COMPENSATION and Item 7. FINANCIAL STATEMENTS, Note B)).
(37)
<PAGE> 40
<TABLE>
<CAPTION>
Amount And Nature Of Percent Of
Name Beneficial Ownership Class
------------------ --------------------- ----------
<S> <C> <C>
Michael A. Cawley (A) 300 shares, sole voting *
and investment powers
Sam J. Cerny (B) 300 shares, sole voting *
and investment powers
E. Chris Kauffman (C) 9,300 shares, shared voting *
and investment powers
H W Peace II (D) 29,267 shares, shared voting 1.3%
and investment powers
Ray H. Potts (E) 1,480 shares, sole voting *
and investment powers
Robert A. Reece (F) 16,044 shares, sole voting *
and investment powers
Jerry L. Smith (G) 21,072 shares, sole voting 1.0%
and investment powers
All directors and 38,567 shares, shared 1.9%
officers as a voting and investment
group (9 persons) powers
78,286 shares, sole voting 3.8%
and investment powers
116,853 shares total 5.7%
</TABLE>
----------
* less than 1.0%
(A) P.O. Box 2180, Ardmore, OK 73402
(B) 3330 Liberty Twr, 100 N. Broadway, Okla. City, OK 73102
(C) 9705 North Broadway Ext. - Suite #200, Okla. City, OK 73114
(D) 5400 N.W. Grand Blvd - Suite #210, Okla. City, OK 73112
(E) 100 N. Broadway - Suite #3200, Okla. City, OK 73102
(F) 6403 N. Grand Blvd. - Suite #204, Okla. City, OK 73116
(G) 5944 Luther Lane - Suite #401, Dallas, TX 75225
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
N O N E
(38)
<PAGE> 41
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(3) Articles of Incorporation (Incorporated by reference to
Exhibit attached to Form 10 filed January 27, 1980, and to
Forms 8-K dated June 1, 1982 and December 3, 1982)
By-Laws as amended (Incorporated by reference to Form 8-K
dated October 31, 1994)
(4) Instruments defining the rights of security holders
(Incorporated by reference to Articles of Incorporation and
By-Laws listed above)
(10) Agreement indemnifying directors and officers (Incorporated by
reference to Form 10-K dated September 30, 1989)
(21) Subsidiaries of the Registrant
(27) Financial Data Schedule
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 2000.
(39)
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Exchange Act, the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PANHANDLE ROYALTY COMPANY
By: /s/ H W PEACE II
----------------------------
H W Peace II, Chief
Executive Officer,
President, Director
Date: December 19, 2000
------------------
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
/s/ JERRY L. SMITH /s/ E. CHRIS KAUFFMAN
-------------------------- -----------------------------
Jerry L. Smith, Chairman of Board E. Chris Kauffman, Director
Date December 19, 2000 Date December 19, 2000
--------------------- --------------------
/s/ ROBERT A. REECE /s/ RAY H. POTTS
-------------------------- -----------------------------
Robert A. Reece, Director Ray H. Potts, Director
Date December 19, 2000 Date December 19, 2000
--------------------- --------------------
/s/ SAM J. CERNY /s/ MICHAEL A. CAWLEY
-------------------------- -----------------------------
Sam J. Cerny, Director Michael A. Cawley, Director
Date December 19, 2000 Date December 19, 2000
--------------------- --------------------
/s/ MICHAEL C. COFFMAN
--------------------------
Michael C. Coffman, Vice President
Treasurer and Secretary
(Principal Financial and Accounting
Officer)
Date December 19, 2000
----------------------
(40)
<PAGE> 43
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
21 SUBSIDIARIES OF PANHANDLE ROYALTY COMPANY AT SEPTEMBER 30, 2000
27 Financial Data Schedule
</TABLE>
