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 March 31, 2000 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 May 10, 2000.
4,880,859 shares of common stock, par value $0.10
- --------------------------------------------------------------------------------
<PAGE>
MAYNARD OIL COMPANY AND SUBSIDIARY
Index to Consolidated Financial Statements and Schedules
Page
----
Part I. Financial Information
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Operations
Three Months ended March 31, 2000 and 1999 4
Consolidated Statement of Shareholders' Equity
Three Months ended March 31, 2000 5
Consolidated Statements of Cash Flows
Three Months ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
<PAGE>
<TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
March 31, December 31,
--------- ------------
2000 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,122,857 $ 12,910,321
Accounts receivable, trade 6,334,309 6,029,188
Income taxes receivable 750,000 750,000
Other current assets 896,376 836,554
----------- -----------
Total current assets 24,103,542 20,526,063
----------- -----------
Property and equipment, at cost:
Oil and gas properties, successful
efforts method 154,986,054 151,655,045
Other property and equipment 448,691 337,546
----------- -----------
155,434,745 151,992,591
Less accumulated depreciation and
amortization (80,249,249) (78,158,395)
----------- -----------
Net property and equipment 75,185,496 73,834,196
----------- -----------
Deferred income taxes 123,000 348,000
----------- -----------
$ 99,412,038 $ 94,708,259
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 7,650,000 $ 5,737,500
Accounts payable 4,955,940 4,249,724
Accrued expenses 2,396,668 1,257,618
Income taxes payable 1,343,212 960,212
---------- -----------
Total current liabilities 16,345,820 12,205,054
---------- -----------
Long-term debt 30,600,000 32,512,500
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;
4,880,859 and 4,880,887 shares
issued and outstanding 488,086 488,089
Additional paid-in capital 18,831,138 18,831,138
Retained earnings 33,146,994 30,671,478
----------- -----------
Total shareholders' equity 52,466,218 49,990,705
----------- -----------
Contingencies and Commitments
$ 99,412,038 $ 94,708,259
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months ended March 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Revenues:
Oil and gas sales and royalties $10,792,820 $3,435,148
Interest and other 227,326 246,968
---------- ----------
11,020,146 3,682,116
---------- ----------
Costs and expenses:
Operating expenses 3,089,664 1,511,147
Exploration, dry holes
and abandonments 7,841 8,178
General and administrative 1,115,421 571,158
Depreciation and amortization 2,355,805 1,537,915
Interest and other 750,551 171,280
---------- ----------
7,319,282 3,799,678
---------- ----------
Income (loss) before income taxes 3,700,864 (117,562)
---------- ----------
Income tax expense (benefit) 1,225,000 (40,000)
---------- ----------
Net income (loss) $2,475,864 $ (77,562)
========== ==========
Weighted average number of common shares
outstanding 4,880,879 4,884,082
========== ==========
Net income (loss) per common share $ .51 $ (.02)
========== ==========
(basic and diluted)
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
4
<PAGE>
<TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Statement of Shareholders' Equity
Three Months Ended March 31, 2000
(Unaudited)
<CAPTION>
Additional
Common Stock Paid-in
------------ Capital Retained
Shares Amount Amount Earnings Total
------ ------ ------ -------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31,1999 4,880,887 $488,089 $18,831,138 $30,671,478 $49,990,705
Net income --- --- --- 2,475,864 2,475,864
Purchase and retirement
of common stock (28) (3) -- (348) (351)
--------- ------- ---------- ---------- ----------
Balance at March 31, 2000 4,880,859 $488,086 $18 831,138 $33,146,994 $52,466,218
========= ======= ========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
5
<PAGE>
<TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,475,864 $ (77,562)
Adjustments to reconcile net income (loss)to
net cash provided by operating activities:
Depreciation and amortization 2,355,805 1,537,915
Deferred income taxes 225,000 (30,000)
Exploration, dry holes and abandonments 6,777 4,905
Current year costs of dry holes and
abandonments (1,275) (1,900)
(Increase) decrease in current assets:
Accounts receivable (305,121) 184,988
Income taxes receivable -- (10,000)
Other current assets (59,822) (13,788)
Increase (decrease) in current liabilities:
Accounts payable 706,216 (767,387)
Accrued expenses 1,139,050 345,688
Income taxes payable 383,000 --
------------ ------------
Net cash provided by operating
activities 6,925,494 1,172,859
------------ ------------
Cash flows from investing activities:
Additions to property and equipment (3,712,607) (100,313)
------------ ------------
Net cash used by investing
activities (3,712,607) (100,313)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt -- (1,250,000)
Purchase of common stock (351) (9,551)
------------ ------------
Net cash used by financing
activities (351) (1,259,551)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 3,212,536 (187,005)
Cash and cash equivalents at beginning of year 12,910,321 20,889,742
------------ ------------
Cash and cash equivalents at end of period $ 16,122,857 $ 20,702,737
============ ============
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
6
<PAGE>
MAYNARD OIL COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2000
Note l Unaudited Financial Statements
The accompanying consolidated financial statements of Maynard Oil
Company (the "Company") have been prepared in accordance with generally
accepted accounting principals, 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 March 31, 2000 and the results of operations and cash
flows for the three months ended March 31, 2000. The December 31, 1999
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 1999 Annual Report to
Shareholders.
Certain reclassifications of prior period statements have been made to
conform with the 2000 presentation.
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 4,880,879 and 4,884,082
shares at March 31, 2000 and 1999, respectively. As of March 31, 2000
and 1999, the Company had no potentially dilutive common shares, and
therefore, basic and diluted earnings per common share were the same.
Note 3 Risk Management
During 1999, the Company entered into a derivative financial instrument
whereby the Company has hedged 2,500 barrels of daily production from
November 1, 1999 through June 30, 2000 with a ceiling price of
$23.90/bbl and a floor price of $14.00/bbl. The contracts call for a
monthly settlement such that if the average WTI for the month is
greater than $23.90/bbl, Maynard remits to the counterparty the excess
times the number of barrels hedged during the month. Conversely, if the
average WTI for the month is less than $14.00/bbl, the counterparty
pays Maynard for the difference times the number of barrels hedged
during the month. If the average WTI for the month falls between
$14.00/bbl and $23.90/bbl, no
7
<PAGE>
settlement is made. As a result of this arrangement, the Company's oil
and gas revenues were reduced by approximately $1,100,000 during the
quarter ended March 31, 2000.
A second derivative instrument was entered into effective March 1, 2000
through June 30, 2000 which mirrored the first except the ceiling and
floor amounts were $28.30 and $25.00 per barrel, respectively. This
second instrument was cancelled by the Company effective April 1, 2000.
As a result of this arrangement, the Company's first quarter 2000 oil
and gas revenues were reduced by approximately $146,000.
Note 4 Income Taxes
The provision for income taxes consists of the following (thousands of
dollars):
Three Months Ended
March 31
---------------------------------
2000 1999
---- ----
Federal:
Current (benefit) $1,000 $ (10)
Deferred 225 (30)
----- ----
$1,225 $ (40)
===== ====
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 Events
Effective April 1, 2000, the Company purchased interests in 8 producing
wells in Garza, Dawson, and Ector counties, Texas at auction for $3.8
million. The Company's existing cash resources were utilized to fund
this acquisition.
During the second quarter of 2000, the Company sold certain producing
properties (which had originally been acquired in the Questar purchase
effective November 1, 1999) at auction for approximately $596,000
resulting in a loss of approximately $150,000.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
- -------------
Quarter Ended March 31, 2000 Compared to Quarter Ended March 31, 1999
- ---------------------------------------------------------------------
For the first quarter of 2000, the Company earned fifty-one cents per
share on revenues of $11,020,146 compared to a loss of two cents per share
during the first quarter of 1999 on revenues of $3,682,116. The first quarter
loss in 1999 was primarily related to lower oil and gas pricing, which did not
begin to make a recovery until the second quarter of 1999. However, this pricing
recovery continued through the balance of 1999 and the first three months of
2000. Thus, product pricing improvement, coupled with the operating results
derived from producing properties acquired last year, form the basis for the
current quarter earnings.
Revenues
- --------
Oil and gas revenues rose $7,357,672 between the two quarterly periods,
or over 200%, due to both pricing increases and higher volumes resulting from
1999's property acquisitions. Oil and gas prices were $12.56 per barrel and
eighty-three cents per thousand cubic feet of gas (mcf) higher than the same
quarter a year ago. Oil volumes increased in excess of 47% and gas volumes rose
approximately 131% over this same period.
Costs and Expenses
- ------------------
On a net equivalent barrel basis (NEB), lease operating expenses were
$1.18 per NEB higher than the first quarter of 1999 resulting from additional
workover expenses and higher severance taxes which relate proportionally to
increased oil and gas revenues.
9
<PAGE>
The general and administrative expense category reflects an increase of
$544,263, primarily the result of phantom stock adjustments. During the current
quarter, phantom stock expense was charged $525,250 compared with $107,438
during the previous year's quarter, an increase of $417,812. Phantom stock
charges and credits arise as a result of stock price fluctuations. Closing stock
prices at March 31, 2000 and December 31, 1999 were $15.25 and $9.75 per share,
respectively. At March 31, 1999 and December 31, 1998, closing stock prices were
$8.625 and $7.50 per share. The balance of the G&A category increase is the
result of additional staffing to properly manage the properties purchased in
1999.
Depreciation and amortization expense rose $817,980, or 53%, between
the first quarters of 2000 and 1999 due to the acquisition of producing
properties last year.
Interest expense also increased $579,482 between the two quarterly
periods because of additional bank debt incurred in connection with the
properties acquired from Questar Exploration and Production Company in
November, 1999.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents totaled $16.1 million and $12.9 million at
March 31, 2000 and December 31, 1999, respectively. Working capital was $7.8
million at March 31, 2000 compared with $8.3 million at December 31, 1999.
10
<PAGE>
The following summary table reflects cash flows for the three months
ended March 31, 2000 (in thousands):
Net cash provided by operating activities: $6,925
Net cash used by investing activities: 3,713
Net cash used by financing activities: --
At March 31, 2000, the Company's total debt was $38,250,000. The
Company believes it has sufficient cash being generated from operating
activities plus cash currently in the bank, or additional borrowing
capacity, to fund its planned drilling activities and to make additional
property acquisitions.
Recent Accounting Pronouncements
- --------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires enterprises to
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The requisite accounting for
changes in the fair value of a derivative will depend on the intended use of the
derivative and the resulting designation. The Company must adopt SFAS 133
effective January 1, 2001. Based on the Company's outstanding derivative
contracts, the Company believes that the impact of adopting this standard would
not have a material adverse affect on the Company's operations or consolidated
financial condition. However, no assurances can be given with regard to
11
<PAGE>
the level of the Company's derivative activities at the time SFAS 133 is
adopted or the resulting effect on the Company's operations or
consolidated 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
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.
12
<PAGE>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Risk
- --------------
The Company's primary commodity market risk exposure is to changes in
the pricing applicable to its oil production, which is normally priced with
reference to a defined benchmark, such as light, sweet crude oil traded on the
New York Mercantile Exchange (WTI). Actual prices received vary from the
benchmark depending on quality and location differentials. The markets for crude
oil historically have been volatile and are likely to continue to be volatile in
the future.
From time to time, the Company enters into financial market
transactions, including collars, with creditworthy counterparties, primarily to
reduce the risk associated with the pricing of a portion of the oil and natural
gas that it sells. The policy is structured to underpin the Company's planned
revenues and results of operations.
During 1999, the Company entered into a derivative financial instrument
whereby the Company has hedged 2,500 barrels of daily production from November
1, 1999 through June 30, 2000 with a ceiling price of $23.90/bbl and a floor
price of $14.00/bbl. The contracts call for a monthly settlement such that if
the average WTI for the month is greater than $23.90/bbl, the Company remits to
the counterparty the excess times the number of barrels hedged during the month.
Conversely, if the average WTI for the month is less than $14.00/bbl, the
counterparty pays the Company for the difference times the number of barrels
hedged during the month. If the average WTI for the month falls between
$14.00/bbl and $23.90/bbl, no settlement is made. As a result of this
arrangement, the
13
<PAGE>
Company's oil and gas revenues were reduced by approximately $1,100,000 during
the quarter ended March 31, 2000.
A second derivative instrument was entered into effective March 1, 2000
through June 30, 2000 which mirrored the first, except the ceiling and floor
amounts were $28.30 and $25.00 per barrel, respectively. This second instrument
was cancelled by the Company effective April 1, 2000. As a result of this
arrangement, the Company's first quarter 2000 oil and gas revenues were reduced
approximately $146,000.
PART II. OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter.
14
<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: May 12, 2000
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 16,123
<SECURITIES> 0
<RECEIVABLES> 6,387
<ALLOWANCES> 53
<INVENTORY> 587
<CURRENT-ASSETS> 24,104
<PP&E> 155,435
<DEPRECIATION> 80,249
<TOTAL-ASSETS> 99,412
<CURRENT-LIABILITIES> 16,346
<BONDS> 0
0
0
<COMMON> 488
<OTHER-SE> 51,978
<TOTAL-LIABILITY-AND-EQUITY> 99,412
<SALES> 10,793
<TOTAL-REVENUES> 11,020
<CGS> 3,089
<TOTAL-COSTS> 7,319
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 751
<INCOME-PRETAX> 3,701
<INCOME-TAX> 1,225
<INCOME-CONTINUING> 2,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,476
<EPS-BASIC> 0.51
<EPS-DILUTED> 0.51
</TABLE>
