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 Ended June 30, 1999 Commission File #0-5704
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MAYNARD OIL COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 75-1362284
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(State or other jurisdic- (IRS Employer
tion of incorporation) Identification No.)
8080 N. Central Expressway, Suite 660, Dallas, Texas 75206
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Registrant's telephone number, including area code: (214)891-8880
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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 August 6, 1999.
4,883,473 shares of common stock, par value $0.10
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<PAGE>
MAYNARD OIL COMPANY AND SUBSIDIARY
Index to Consolidated Financial Statements and Schedules
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations
Six Months and Three Months ended
June 30, 1999 and 1998 4
Consolidated Statements of Shareholders' Equity
Six Months ended June 30, 1999 5
Consolidated Statements of Cash Flows
Six Months ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
Part II. Other Information
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of
Security Holders 15
Item 6. Exhibit and Reports on Form 8-K 15
Signatures 16
<PAGE>
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
June 30, December 31,
-------- ------------
1999 1998
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 21,905,232 $ 20,889,742
Accounts receivable, trade 2,638,456 2,568,807
Income taxes receivable 977,587 977,587
Other current assets 410,642 478,680
------------- -------------
Total current assets 25,931,917 24,914,816
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Property and equipment, at cost:
Oil and gas properties, successful
efforts method 108,031,841 107,292,314
Other property and equipment 460,475 460,475
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108,492,316 107,752,789
Less accumulated depreciation and
amortization (75,855,398) (72,985,138)
------------- -------------
Net property and equipment 32,636,918 34,767,651
Deferred income taxes 681,000 681,000
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$ 59,249,835 $ 60,363,467
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 5,000,000 $ 5,000,000
Accounts payable 2,315,182 2,583,357
Accrued expenses 1,407,373 842,368
Income taxes payable 177,799 40,799
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Total current liabilities 8,900,354 8,466,524
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Deferred income taxes 130,000 --
Long-term debt 3,750,000 6,250,000
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;
4,883,473 and 4,884,597 shares
issued and outstanding 488,347 488,460
Additional paid-in capital 18,831,138 18,831,138
Retained earnings 27,149,996 26,327,345
------------- -------------
Total shareholders' equity 46,469,481 45,646,943
------------- -------------
Contingencies and commitments
$ 59,249,835 $ 60,363,467
============= =============
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Six Months ended Three Months ended
June 30, June 30,
---------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $7,995,443 $8,823,345 $4,560,295 $4,133,471
Interest and other 493,831 677,312 246,863 339,346
Gain on disposition of assets 402,781 9,795 402,781 7,375
---------- ---------- ---------- ----------
8,892,055 9,510,452 5,209,939 4,480,192
---------- ---------- ---------- ----------
Costs and expenses:
Operating expenses 3,695,242 4,431,297 1,902,869 2,114,413
Exploration, dry holes
and abandonments 106,177 45,310 97,999 29,359
General and administrative, net 658,657 538,683 368,725 218,770
Depreciation and amortization 2,976,279 3,616,262 1,438,364 1,824,304
Interest and other 323,353 535,698 152,073 262,979
---------- ---------- ---------- ----------
7,759,708 9,167,250 3,960,030 4,449,825
---------- ---------- ---------- ----------
Income before income taxes 1,132,347 343,202 1,249,909 30,367
Income tax expense 300,000 115,000 340,000 10,000
---------- ---------- ---------- ----------
Net income $ 832,347 $ 228,202 $ 909,909 $ 20,367
========== ========== ========== ==========
Weighted average number of common
shares outstanding 4,883,784 4,889,352 4,883,488 4,889,262
========== ========== ========== ==========
Net income per common share $ .17 $ .047 $ .19 $ .004
========== ========== ========== ==========
(basic and diluted)
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Six Months Ended June 30, 1999
(Unaudited)
<CAPTION>
Additional
Common Stock Paid-in
------------ Capital Retained
Shares Amount Amount Earnings Total
------ ------ ------ -------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 4,884,597 $488,460 $18,831,138 $26,327,345 $45,646,943
Net income -- -- -- 832,347 832,347
Purchase of common stock (1,124) (113) -- (9,696) (9,809)
--------- ------- ---------- ---------- ----------
Balance at June 30, 1999 4,883,473 $488,347 $18,831,138 $27,149,996 $46,469,481
========= ======= ========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended June 30,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 832,347 $ 228,202
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,976,279 3,616,262
Deferred income taxes 130,000 50,000
Dry holes and abandonments 101,279 8,554
Current year costs of dry holes and
abandonments (8,063) (8,554)
(Gain) on disposition of assets (402,781) (9,795)
(Increase) decrease in current assets:
Accounts receivable (69,649) 357,018
Prepaid expenses and other current assets 68,038 58,115
Increase (decrease) in current liabilities:
Accounts payable (268,175) (1,149,081)
Accrued expenses 565,005 161,145
Income taxes payable 137,000 (179,999)
---------- ----------
Net cash provided by
operating activities 4,061,280 3,131,867
---------- ----------
Cash flows from investing activities:
Proceeds from disposition of assets 539,066 19,334
Additions to property and equipment (1,075,047) (676,161)
---------- ----------
Net cash used by investing activities (535,981) (656,827)
---------- ----------
Cash flows from financing activities:
Purchase of common stock (9,809) (8,777)
Principal payments on long-term debt (2,500,000) (2,500,000)
---------- ----------
Net cash used by financing activities (2,509,809) (2,508,777)
---------- ----------
Net increase (decrease) in cash and cash
equivalents 1,015,490 (33,737)
Cash and cash equivalents at beginning of year 20,889,742 24,584,288
---------- ----------
Cash and cash equivalents at end of period $21,905,232 $24,550,551
========== ==========
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
MAYNARD OIL COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1999
Note 1 Unaudited Financial Statements
The accompanying consolidated financial statements of Maynard Oil
Company (the 'Company') have been prepared in accordance with generally
accepted accounting principles, pursuant to the rules and regulations
of the Securities and Exchange Commission included in the instructions
to Form 10-Q and Article 10 of Regulation S-X. The financial
information included herein is unaudited but, in the opinion of
management, contains all adjustments, consisting of all recurring
adjustments, necessary to present fairly the Company's financial
position as of June 30, 1999 and December 31, 1998, the results of
operations for the six months ended June 30, 1999 and 1998 and changes
in cash and cash equivalents for the six months ended June 30, 1999 and
1998. The December 31, 1998 consolidated balance sheet data was derived
from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
The accounting policies followed by the Company are set forth in Note 1
to the Company's financial statements in the 1998 Annual Report to
Shareholders.
Note 2 Earnings Per Share
Net income per common share is based on the weighted average number of
shares outstanding in each period, which was 4,883,784 and 4,889,352
shares at June 30, 1999 and 1998, respectively. As of June 30, 1999 and
1998, the Company had no potentially dilutive common shares, and
therefore, basic and diluted earnings per common share were the same.
Note 3 Income Taxes
The provision for income taxes consists of the following (thousands of
dollars):
Six Months Ended Three Months Ended
June 30, June 30,
-------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
Federal:
Current (benefit) $ 170 $ 65 $ 180 $ (15)
Deferred 130 50 160 25
---- ----- ---- ----
$ 300 $ 115 $ 340 $ 10
==== ==== ==== ===
<PAGE>
Note 4 Asset Dispositions
During the second quarter of 1999, the Company sold certain producing
properties for approximately $540,000, resulting in a gain of
approximately $400,000.
Note 5 Commitments and Contingencies
The Company is the defendant in certain non-environmental litigation
arising from operations in the normal course of business. While it is
not feasible to determine the outcome of these actions, it is the
Company's opinion that the ultimate outcome of the litigation will not
have a material adverse effect on the financial position or results of
the operations of the Company.
All of the Company's operations are generally subject to Federal, state
and local environmental regulations. To the best of management's
knowledge, the Company is in substantial compliance with such laws and
regulations.
Note 6 Subsequent Event
Effective August 1, 1999, the Company purchased interests in 15
producing wells in Hardeman, Webb, and Duval counties, Texas from
Phillips Petroleum Company for $10.4 million. These funds were provided
from the Company's cash resources.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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Recent Activities
The Company has mentioned in its communications with shareholders that
its strategy to build oil and gas reserves and shareholder value is to acquire
producing properties. On July 21, 1999, the Company was successful in purchasing
interests in fifteen producing wells located in three counties in Texas
(Hardeman, Webb and Duval Counties) for cash consideration of $10,400,000. The
Company assumed ownership effective August 1, 1999, and estimates that this
acquisition will add 215 net barrels of oil and 4,000 net mcf of gas to
Maynard's daily production.
Results of Operations
Quarter Ended June 30, 1999 Compared with Quarter Ended June 30, 1998
- ---------------------------------------------------------------------
For the quarter ended June 30, 1999, the Company earned $909,909, or
nineteen cents per share, on revenues of $5,209,939, compared with net income of
$20,367, or less than one-half cent per share, on revenues of $4,480,192, for
the same quarter a year ago. The current quarter's results were favorably
affected by increased revenues and lower costs and expenses.
Revenues
Oil and gas sales for the second quarter of 1999 totaled $4,560,295, a
10% increase from the second quarter of 1998, due to higher quarterly oil prices
($16.00/bbl during the second quarter of 1999 compared to $12.32/bbl during the
second quarter of 1998). This increase in prices was partially offset by a
<PAGE>
decrease in production for the quarter from approximately 330,000 net equivalent
barrels (NEB) in the second quarter of 1998 to approximately 300,000 net
equivalent barrels (NEB) in the second quarter of 1999. In addition, second
quarter of 1999 revenues were bolstered by a $402,781 gain from non-recurring
property sales
Costs and Expenses
Also contributing to the current quarter's increase in earnings were
lower lease operating expenses which were 10% lower than the same quarter a year
ago due to cost saving measures implemented in field operations and reduced
depreciation and amortization expense, which declined to $4.79 per NEB during
the current quarter from $5.53 per NEB during the previous year because of
normal production volume declines.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
- -------------------------------------------------------------------------
The Company reported net income of $832,347, or seventeen cents per
share, on revenues of $8,892,055 for the six months ended June 30, 1999 compared
with net income of $228,202, or five cents per share, on revenues of $9,510,452
for the same period a year ago. Earnings for the 1999 period were favorably
affected by a fifteen percent reduction in costs and expenses which offset a
seven percent decline in revenues.
<PAGE>
Revenues
Oil and gas revenues fell $827,902 between the two six month periods,
or slightly over 9%, primarily because of volume declines from normal depletion;
oil volumes were down approximately 10% and gas volumes 4%. Interest income also
dropped $183,481 due to the utilization of cash for capital expenditures and
normal debt repayments. However, revenue levels were aided during the current
six month period by non-recurring property sales which resulted in a gain in
excess of $400,000.
Costs and Expenses
Operating expenses reflected the largest expense category decrease of
$736,055, or a reduction of 16% due primarily to cost reduction measures
implemented by the Company, and to a lesser extent, lower severance taxes
resulting from declines in oil and gas sales. On a net equivalent barrel basis
(NEB), operating expenses declined from $6.71 per NEB during the prior six
months to $6.15 per NEB in the current six months.
Exploration costs rose $60,867 between the two six month periods due
primarily to an exploratory dry hole being drilled. Because the Company follows
the successful efforts method of accounting, the Company's results of operations
may be adversely affected during any accounting period in which seismic costs,
exploratory dry hole costs, and unproved property costs are expensed.
General and administrative (G&A) expenses increased $119,974, or
slightly in excess of 22% to reflect higher phantom stock expense (which relates
to fluctuations in the Company's common stock price). This rise in G&A expense
<PAGE>
was offset by increased overhead billings on Company operated properties, which
are recorded as reductions to G&A expenses.
Additionally, depreciation and amortization expense declined almost 10%
during the current six months (from $5.48 per NEB for the 1998 period to $4.96
per NEB currently) and interest expense decreased $212,345 in the 1999 period
reflecting lower outstanding bank debt due to scheduled loan repayments.
Liquidity and Capital Resources
Cash and cash equivalents totaled $21.9 million and $20.9 million at
June 30, 1999, and December 31, 1998, respectively. Working capital was $17
million at June 30, 1999, compared with $16.4 million at December 31, 1998.
The following summary table reflects cash flows for the Company for
the six months ended June 30, 1999 (in thousands):
Net cash provided by operating activities $4,061
Net cash used by investing activities $ 536
Net cash used by financing activities $2,510
At June 30, 1999, the Company's total debt was $8,750,000. The Company
believes that it has sufficient cash being generated from operating activities
plus cash currently in the bank, or additional borrowing capacity, to fund its
planned development and exploratory work or to make additional property
acquisitions.
Year 2000 Issues
The Company's Year 2000 Readiness Team is continuing to monitor and
evaluate information obtained from vendors, suppliers, customers, and other
significant business relationships with regard to the potential impact of the
century change on the Company's operations. To date, the Company has not
<PAGE>
received information suggesting the Company is vulnerable to potential Year 2000
failures by these parties. Testing of the Company's financial systems are
continuing and should be completed by September 30, 1999. The costs associated
with assessing Year 2000 readiness and related systems upgrades have been funded
from cash flow from operations and have not been material.
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.
Certain Factors that Could Affect Future Operations
Certain information contained in this report, as well as written and
oral statements made or incorporated by reference from time to time by the
Company and its representatives in other reports, filings with the Securities
and Exchange Commission, press releases, conferences or otherwise, may be deemed
to be 'forward-looking statements' within the meaning of Section 21E of the
Securities and Exchange Act of 1934 and are subject to the 'Safe Harbor'
provisions of that section. Forward-looking statements include statements
concerning the Company's and management's plans, objectives, goals, strategies
and future operations and performance and the assumptions underlying such
forward-looking statements. These statements are based on current expectations
and involve a number of risks and uncertainties, including those described in
the context of such forward-looking statements. Actual results and developments
<PAGE>
could differ materially from those expressed in or implied by such statements.
Such factors include, among others, the volatility of oil and gas prices, the
Company's drilling results, the Company's ability to compete in the acquisition
of producing property, the Company's ability to replace reserves, the
availability of capital resources, the reliance upon estimates of proved
reserves, operating hazards, uninsured risks, competition, government
regulation, and other factors referenced in this Form 10-Q.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS
- --------------------------------------------------------------------
Oil and gas sold by the Company is normally priced with reference to a
defined benchmark. Actual prices received vary from the benchmark depending on
quality and location differentials.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
-----------------
See discussion of legal proceeding in Note 5 Commitments and
Contingencies.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The Annual Meeting of Stockholders was held on May 20, 1999.
(b) Not applicable.
(c) 1. Set forth below is the tabulation of the votes on each nominee
for election of a director:
WITHHOLD
NAME FOR AUTHORITY
---- --- ---------
Ralph E. Graham 4,148,750 2,879
Robert B. McDermott 4,148,750 2,879
James G. Maynard 4,148,750 2,879
2. Not applicable.
ITEM 6. Exhibit and Reports on Form 8-K
-------------------------------
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
On August 4, 1999, the Registrant filed its Current Report on Form
8-K with the Securities and Exchange Commission reporting the
acquisition of certain producing oil and gas properties on July 21,
1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
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: August 13, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 21,905
<SECURITIES> 0
<RECEIVABLES> 2,691
<ALLOWANCES> 53
<INVENTORY> 205
<CURRENT-ASSETS> 25,932
<PP&E> 108,492
<DEPRECIATION> 75,855
<TOTAL-ASSETS> 59,250
<CURRENT-LIABILITIES> 8,900
<BONDS> 0
0
0
<COMMON> 488
<OTHER-SE> 45,981
<TOTAL-LIABILITY-AND-EQUITY> 59,250
<SALES> 7,995
<TOTAL-REVENUES> 8,892
<CGS> 3,695
<TOTAL-COSTS> 7,760
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 323
<INCOME-PRETAX> 1,132
<INCOME-TAX> 300
<INCOME-CONTINUING> 832
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 832
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.17
</TABLE>
