SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ending September 30, 1998 Commission File #0-5704
MAYNARD OIL COMPANY
(Exact name of registrant as specified in its charter)
Delaware 75-1362284
(State or other jurisdic- (IRS Employer
tion of incorporation) Identification No.)
8080 N. Central Expressway, Suite 660, Dallas, Texas 75206
Registrant's telephone number, including area code: (214) 891-8880
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of November 6, 1998.
4,886,168 shares of common stock, par value $0.10
MAYNARD OIL COMPANY AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedules
Page
Part I. Financial Information
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
Consolidated Statements of Operations
Nine Months and Three Months ended
September 30, 1998 and 1997
Consolidated Statements of Shareholders' Equity
Nine Months ended September 30, 1998
Consolidated Statements of Cash Flows
Nine Months ended September 30, 1998 and 1997
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
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MAYNARD OIL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
September 30 December 31,
1998 1997
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,849,003 $ 24,584,288
Accounts receivable, trade 3,121,210 3,267,255
Other current assets 611,986 546,238
Total current assets 27,582,199 28,397,781
Property and equipment, at cost:
Oil and gas properties, successful
efforts method 105,197,747 104,031,352
Other property and equipment 547,789 548,668
105,745,536 104,580,020
Less accumulated depreciation and
amortization (59,878,121) (54,692,225)
Net property and equipment 45,867,415 49,887,795
$ 73,449,614 $ 78,285,576
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 5,000,000 $ 5,000,000
Accounts payable 2,533,216 4,271,662
Accrued expenses 1,785,742 1,402,021
Income taxes payable 40,799 220,798
Total current liabilities 9,359,757 10,894,481
Deferred income taxes 2,832,000 2,632,000
Long-term debt 7,500,000 11,250,000
Shareholders' equity:
Preferred stock of $.50 par value.
Authorized 1,000,000 shares; none
issued -- --
Common stock of $.10 par value.
Authorized 20,000,000 shares;
4,886,772 and 4,889,450 shares
issued and outstanding 488,677 488,945
Additional paid-in capital 18,831,138 18,831,138
Retained earnings 34,438,042 34,189,012
Total shareholders' equity 53,757,857 53,509,095
Commitments $ 73,449,614 $ 78,285,576
See accompanying Notes to Consolidated Financial Statements.
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MAYNARD OIL COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
<CAPTION>
Nine Months ended Three Months ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $12,694,374 $19,971,221 $ 3,871,029 $ 5,994,485
Interest and other 1,038,331 892,693 361,019 305,769
Gain (loss) on disposition
of assets 6,390 204,524 (3,405) 147,232
13,739,095 21,068,438 4,228,643 6,447,486
Costs and expenses:
Operating expenses 6,462,956 7,530,286 2,031,659 2,578,098
Exploration, dry holes and
abandonments 56,554 447,821 11,244 57,061
General and administrative 700,135 824,936 161,452 163,530
Depreciation and amortization 5,391,277 5,268,165 1,775,015 1,775,900
Interest and other 766,498 1,008,656 230,800 324,533
13,377,420 15,079,864 4,210,170 4,899,122
Income before income taxes 361,675 5,988,574 18,473 1,548,364
Income tax expense (benefit) 85,000 1,587,500 (30,000) 117,500
Net income $ 276,675 $ 4,401,074 $ 48,473 $1,430,864
Weighted average number of common
shares outstanding 4,888,652 4,889,450 4,887,274 4,889,450
Net income per common share $ .06 $ .90 $ .01 $ .29
See accompanying Notes to Consolidated Financial Statements.
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MAYNARD OIL COMPANY AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Nine Months Ended September 30, 1998
(Unaudited)
<CAPTION>
Additional
Common Stock Paid-in
Capital Retained
Shares Amount Amount Earnings Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 4,889,450 $488,945 $18,831,138 $34,189,012 $53,509,095
Net income -- -- -- 276,675 276,675
Purchase and retirement
of common stock (2,678) (268) -- (27,645) (27,913)
Balance at September 30, 1998 4,886,772 $488,677 $18,831,138 $34,438,042 $53,757,857
See accompanying Notes to Consolidated Financial Statements.
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<TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<CAPTION>
Nine Months Ended September 30,
1998 1997
<S> <S> <S>
Cash flows from operating activities:
Net income $ 276,675 $4,401,074
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,391,277 5,268,165
Deferred income taxes 200,000 305,000
Dry holes and abandonments 13,305 447,821
Current year costs of dry holes
and abandonments (13,305) (447,821)
(Gain) on disposition of assets (6,390) (204,524)
(Increase) decrease in current assets:
Accounts receivable 146,015 943,772
Other current assets (65,748) (389,390)
Increase (decrease) in current liabilities:
Accounts payable (1,738,446) (615,245)
Accrued expenses 383,721 795,100
Income taxes payable (179,999) (2,891,242)
Net cash provided by operating
activities 4,407,105 7,612,710
Cash flows from investing activities:
Proceeds from disposition of assets 28,337 276,089
Additions to property and equipment (1,392,814) (2,562,775)
Net cash provided (used) by
investing activities (1,364,477) (2,286,686)
Cash flows from financing activities:
Principal payments on long-term debt (3,750,000) (3,750,000)
Purchase of common stock (27,913) --
Net cash provided (used) by
financing activities (3,777,913) (3,750,000)
Net increase (decrease) in cash and
cash equivalents (735,285) 1,576,024
Cash and cash equivalents at beginning
of year 24,584,288 21,817,447
Cash and cash equivalents at end of period $23,849,003 $23,393,471
See Accompanying Notes to Consolidated Financial Statements.
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MAYNARD OIL COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting of all
recurring adjustments, necessary to present fairly the Company's
financial position as of September 30, 1998 and December 31, 1997,
the results of operations for the nine months ended September 30,
1998 and 1997 and changes in cash and cash equivalents for the nine
months ended September 30, 1998 and 1997.
The accounting policies followed by the Company are set forth in Note
1 to the Company's financial statements in the 1997 Annual Report to
Shareholders.
2. Net income for the nine months ended September 30, 1998 is not
necessarily indicative of the results of the operations of Maynard
Oil Company and Subsidiaries for the year ending December 31, 1998,
and is subject to audit adjustments at year-end.
3. Net income per common share is based on the weighted average number
of shares outstanding in each period, which was 4,888,652 and
4,889,450 shares at September 30, 1998 and 1997, respectively.
4. The provision for income taxes consists of the following (thousands
of dollars):
Nine Months Ended Three Months Ended
September 30, September 30,
1998 1997 1998 1997
Current $ (115) $1,283 $(180) $ 68
Deferred 200 305 150 50
$ 85 $1,588 $ (30) $ 118
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
At December 31,1997, the weighted average product prices of $15.72
per barrel for crude oil and $2.05 per thousand cubic feet (mcf) for
natural gas were applied to the estimates of recoverable hydrocarbon
reserves to arrive at future net revenues that the Company might
ultimately receive. At that time, the Company recognized an impairment
loss on certain properties whose investment would not be recoverable under
the above pricing scenarios in accordance with Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), Accounting for the Impairment
of Long Lived Assets and for Long-Lived Assets to be Disposed of. During
the first nine months of 1998, the Company's hydrocarbon sales averaged
$12.93 per barrel for crude oil and $2.17 per mcf for natural gas. NYMEX
crude oil pricing estimates for December, 1998 contracts vary between
$13.84 and $14.20 per barrel, and Henry Hub estimates for December, 1998
natural gas contracts vary between $2.44 and $2.57 per mcf. The Company
believes it has made adequate provision for depreciation and amortization
expense in its September 30, 1998 financial statements, but should crude
oil prices remain at current levels, an additional impairment loss could
be recognized in the fourth quarter.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
The Company reported net income of $246,675, or six cents per share,
on revenues of $13,739,095 for the nine months ended September 30, 1998
compared with net income of $4,401,074, or ninety cents per share, on
revenues of $21,068,438 for the same period a year ago. Earnings for the
1998 period were adversely affected by the sharp reduction in oil prices,
and to a lesser extent, by production declines in the volumes of oil and
gas sold. Gas volumes dropped almost 16% from a year ago, while oil
volumes declined almost 7% over the same period. Crude oil prices plunged
$6.71 per barrel between the two nine month periods, and gas prices
declined thirty-three cents per mcf. Thus, oil and gas revenues were
$7,276,847 less than nine months a year ago, a 36% reduction.
Operating expenses reflected a decrease of $1,067,330, primarily
attributable to lower severance taxes.
Exploration costs, which include dry holes and abandonments, dropped
$391,267 between the two nine month periods. During the 1997 nine months,
the Company participated in two seismic shoots and drilled an exploratory
dry hole, but during the current period the exploratory costs incurred
were to complete earlier projects.
General and administrative expense declined $124,801, almost 15%, due
to increased overhead billings on Company operated properties, which are
recorded as reductions to general and administrative expense.
Interest expense decreased over 24% between the prior period and the
current nine months due to scheduled debt payments.
Quarter Ended September 30, 1998 Compared with Quarter Ended September 30,
1997
For the quarter ended September 30, 1998, the Company earned $48,473,
or one cent per share, compared with net income of $1,430,864, or twenty-
nine cents per share, for the same quarter a year ago. Results for the
current quarter were, once again, driven by lower oil and gas prices.
Revenues from sales were $2,123,456 below the same quarter a year ago.
Liquidity and Capital Resources
At September 30, 1998, the Company s primary source of liquidity was
$23,849,003 in cash and marketable securities. Historically, the cash
generated by operating activities and proceeds from bank borrowings have
been utilized to finance the growth of the Company. The Company
anticipates utilizing the same strategy to finance future property
acquisitions and planned development and exploratory work.
Year 2000 Issues
The "Year 2000 Issue" is the result of computer programs that were
written using two digits rather than four to define the applicable year.
Any systems developed with this methodology could fail to operate or fail
to produce correct results if "00" is interpreted to mean 1900, rather
than 2000.
In response to the potential impact of the Year 2000 issue on the
Company's business and operations, certain Company executives have been
appointed to serve on its Year 2000 Readiness Team. This group will
inventory and assess the readiness for Year 2000 compliance by the Company
and its vendors, suppliers, customers and other significant business
relationships.
In 1990, as part of a business modernization program intended to
reduce cycle time and improve profitability, the Company purchased a new
accounting package which runs on PC and LAN platforms. The software
vendor has provided written assurance that dating changes have been
throughly tested and were found to be functioning correctly. The Company
will conduct further testing of this system, along with other ancillary
financial systems, during the second quarter of 1999 and anticipates
completion by September 30, 1999. The costs of these efforts have been
funded by cash flow from operations.
The Company is in the data gathering phase with regard to non-
financial software and embedded chip technology. Further activity in this
area involves implementing software upgrades to selected equipment and
verifying Year 2000 compliance. The Company anticipates completion of
these activities by the end of the third quarter of 1999.
Additionally, the Company is in the process of identifying and
contacting critical suppliers, vendors, and customers to determine the
extent to which the Company's interface systems are vulnerable to those
third parties' failure to remedy their own Year 2000 issues. It is
expected that full identification will be completed by June 30, 1999. To
the extent that responses regarding Year 2000 readiness are
unsatisfactory, the Company intends to change external business
relationships to those who have demonstrated Year 2000 readiness.
Given the complexity of the Year 2000 issue, there can be no
assurance that the Company will be able to address these problems without
costs and uncertainties that might affect future financial results or
cause reported financial information not to necessarily be indicative of
future operating results or future financial condition.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
MAYNARD OIL COMPANY
By: /s/ Glenn R. Moore
Glenn R. Moore
President
By: /s/ Kenneth W. Hatcher
Kenneth W. Hatcher
Vice President of Finance
Dated: November 13, 1998
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