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, 2000 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 4, 2000.
4,880,722 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, 2000 and December 31, 1999 3
Consolidated Statements of Operations
Six Months and Three Months ended
June 30, 2000 and 1999 4
Consolidated Statements of Shareholders' Equity
Six Months ended June 30, 2000 5
Consolidated Statements of Cash Flows
Six Months ended June 30, 2000 and 1999 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 4. Submission of Matters to a Vote of
Security Holders 16
Item 6. Exhibit and Reports on Form 8-K 16
Signatures 17
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<TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
June 30, December 31,
--------- ------------
2000 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $19,175,268 $12,910,321
Accounts receivable, trade 5,529,638 6,029,188
Income taxes receivable 750,000 750,000
Other current assets 845,009 836,554
---------- ----------
Total current assets 26,299,915 20,526,063
---------- ----------
Property and equipment, at cost:
Oil and gas properties, successful
efforts method 155,758,632 151,655,045
Other property and equipment 473,291 337,546
----------- -----------
156,231,923 151,992,591
Less accumulated depreciation and
amortization (83,097,074) (78,158,395)
---------- ----------
Net property and equipment 73,134,849 73,834,196
Deferred income taxes 198,000 348,000
---------- ----------
$99,632,764 $94,708,259
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 7,650,000 $ 5,737,500
Accounts payable 4,648,984 4,249,724
Accrued expenses 2,106,077 1,257,618
Income taxes payable 1,475,212 960,212
---------- ----------
Total current liabilities 15,880,273 12,205,054
---------- ----------
Long-term debt 28,687,500 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;
4,880,722 and 4,880,887 shares
issued and outstanding 488,073 488,089
Additional paid-in capital 18,831,138 18,831,138
Retained earnings 35,745,780 30,671,478
---------- ----------
Total shareholders' equity 55,064,991 49,990,705
---------- ----------
Contingencies and commitments
$99,632,764 $94,708,259
========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Six Months ended Three Months ended
June 30, June 30,
---------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $22,304,384 $ 7,995,443 $11,511,564 $ 4,560,295
Interest and other 470,564 493,831 243,238 246,863
Gain (loss) on disposition
of assets (187,837) 402,781 (187,837) 402,781
---------- ---------- ---------- ----------
22,587,111 8,892,055 11,566,965 5,209,939
---------- ---------- ---------- ----------
Costs and expenses:
Operating expenses 6,433,083 3,119,528 3,343,419 1,608,381
Exploration, dry holes
and abandonments 4,541 106,177 (3,300) 97,999
General and administrative, net 1,879,566 1,234,371 764,145 663,213
Depreciation and amortization 5,228,180 2,976,279 2,872,375 1,438,364
Interest and other 1,464,692 323,353 714,141 152,073
---------- ---------- ---------- ----------
15,010,062 7,759,708 7,690,780 3,960,030
---------- ---------- ---------- ----------
Income before income taxes 7,577,049 1,132,347 3,876,185 1,249,909
Income tax expense 2,500,000 300,000 1,275,000 340,000
---------- ---------- ---------- ----------
Net income $ 5,077,049 $ 832,347 $ 2,601,185 $ 909,909
========== ========== ========== ==========
Weighted average number of common
shares outstanding 4,880,860 4,883,784 4,880,842 4,883,488
========== ========== ========== ==========
Net income per common share $1.04 $.17 $.53 $.19
(basic and diluted) ==== === === ===
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Six Months Ended June 30, 2000
(Unaudited)
<CAPTION>
Common Stock Additional
------------ 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 -- -- -- 5,077,049 5,077,049
Purchase of common stock (165) (16) -- (2,747) (2,763)
--------- ------- ---------- ---------- ----------
Balance at June 30, 2000 4,880,722 $488,073 $18,831,138 $35,745,780 $55,064,991
========= ======= ========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $5,077,049 $ 832,347
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,228,180 2,976,279
Deferred income taxes 150,000 130,000
Dry holes and abandonments 1,377 101,279
Current year costs of dry holes and
abandonments (1,377) (8,063)
(Gain) loss on disposition of assets 187,837 (402,781)
(Increase) decrease in current assets:
Accounts receivable 499,550 (69,649)
Prepaid expenses and other current assets (8,455) 68,038
Increase (decrease) in current liabilities:
Accounts payable 399,260 (268,175)
Accrued expenses 848,459 565,005
Income taxes payable 515,000 137,000
---------- ----------
Net cash provided by
operating activities 12,896,880 4,061,280
---------- ----------
Cash flows from investing activities:
Proceeds from disposition of assets 559,907 539,066
Additions to property and equipment (5,276,577) (1,075,047)
---------- ----------
Net cash used by investing activities (4,716,670) (535,981)
---------- ---------
Cash flows from financing activities:
Purchase of common stock (2,763) (9,809)
Principal payments on long-term debt (1,912,500) (2,500,000)
---------- ----------
Net cash used by financing activities (1,915,263) (2,509,809)
---------- ----------
Net increase in cash and cash equivalents 6,264,947 1,015,490
Cash and cash equivalents at beginning of year 12,910,321 20,889,742
---------- ----------
Cash and cash equivalents at end of period $19,175,268 $21,905,232
========== ==========
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
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<PAGE>
MAYNARD OIL COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2000
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, 2000 and December 31, 1999, the results of
operations for the six months and three months ended June 30, 2000 and
1999 and changes in cash and cash equivalents for the six months ended
June 30, 2000 and 1999. 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. As of June 30, 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 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
price 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
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<PAGE>
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 Company's
oil and gas revenues were reduced by approximately $2,173,000 and
$1,075,000 during the six months and quarter ended June 30, 2000,
respectively.
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):
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
----------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Federal:
Current $2,350 $ 170 $1,350 $ 180
Deferred (benefit) 150 130 (75) 160
----- ---- ----- ----
$2,500 $ 300 $1,275 $ 340
===== ==== ===== ====
</TABLE>
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 July 1, 2000, the Company sold certain producing properties
for approximately $195,000 resulting in a gain of approximately
$125,000.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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Quarter Ended June 30, 2000 Compared to Quarter Ended June 30, 1999
-------------------------------------------------------------------
For the second quarter of 2000, the Company earned fifty-three cents
per share on revenues of $11,566,965 compared to earnings of nineteen cents per
share during the second quarter of 1999 on revenues of $5,209,939. Current
quarter results were favorably impacted by higher revenues from the sale of oil
and gas, which are the results of increased product pricing and additional
production volumes derived from 1999 producing property acquisitions. These
higher oil and gas revenues were partially offset by the current quarter loss of
$187,837 resulting from the disposition of certain producing properties that had
been acquired from Questar in November, 1999.
Revenues
--------
Oil and gas revenues rose $6,951,269 between the two quarterly periods,
or over 150%, due to both pricing increases and higher volumes resulting from
1999's property acquisitions. Oil and gas prices were $8.45 per barrel and
ninety-seven cents per thousand cubic feet of gas (mcf) higher than the same
quarter a year ago. Oil volumes increased in excess of 46% and gas volumes rose
approximately 155% over this same period.
Costs and Expenses
------------------
On a net equivalent barrel basis (NEB), lease operating expenses were
$1.13 per NEB higher than the second quarter of 1999 as a result of
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additional workover expenses and higher severance taxes, which relate
proportionally to increased oil and gas revenues.
The exploration, dry holes and abandonments category declined $101,299
between the 1999 and 2000 quarters as a result of reduced exploratory drilling
activity.
General and administrative expenses reflect an increase of $100,932,
primarily the result of additional staffing required to manage the properties
purchased in 1999.
Depreciation and amortization expense rose $1,434,011, or 100%, between
the second quarters of 1999 and 2000 due to the acquisition of producing
properties last year. On a net equivalent barrel basis, this category of expense
increased from $4.79 per NEB to $5.58 per NEB as a result of higher depletion
rates on certain properties.
Interest expense also increased $562,068 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.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
-------------------------------------------------------------------------
The Company reported net income of $5,077,049, or one dollar and four
cents per share, on revenues of $22,587,111 for the six months ended June 30,
2000 compared with net income of $832,347, or seventeen cents per share, on
revenues of $8,892,055 for the same period a year ago. Earnings for the current
period were favorably affected by operating results derived from producing
properties acquired last year as well as product pricing increases.
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<PAGE>
Revenues
--------
Oil and gas revenues rose $14,308,941 between the two six month
periods, or approximately 179%, primarily because of volume increases from last
year's property acquisition. Oil volumes rose almost 47% and gas volumes were
144% higher than the prior period. Significant price realizations also pushed
revenues higher - oil averaged $24.22 per barrel for the first six months of
2000 compared with $13.70 during the prior year and gas averaged $2.91 per mcf
compared with $2.00 per mcf in 1999. During the current period, revenues were
reduced by $187,837 due to a loss from property sales. The prior year's period
included a gain of $402,781 from property dispositions.
Costs and Expenses
------------------
On a net equivalent barrel basis (NEB), operating expenses increased
$1.16 per NEB, primarily due to workover activity levels and higher severance
tax expense, which relates proportionally to higher oil and gas revenues.
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. However, during the current period, there
was no exploratory drilling, and consequently, this category declined $101,636.
General and administrative (G&A) expenses increased $645,195, or 52% to
reflect higher phantom stock expense (which relates to fluctuations in
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<PAGE>
the Company's common stock price) and staffing additions during the current
period to manage last year's property acquisitions.
Additionally, depreciation and amortization expense rose almost 4%
during the current six months (from $4.96 per NEB for the 1999 period to $5.16
per NEB currently), and interest expense increased $1,141,339 in the current
period reflecting higher outstanding bank debt due to last year's property
acquisitions.
Liquidity and Capital Resources
-------------------------------
Cash and cash equivalents totaled $19.1 million and $12.9 million at
June 30, 2000, and December 31, 1999, respectively. Working capital was $10.4
million at June 30, 2000, compared with $8.3 million at December 31, 1999.
The following summary table reflects cash flows for the six months
ended June 30, 2000 (in thousands):
Net cash provided by operating activities: $12,897
Net cash used by investing activities: 4,717
Net cash used by financing activities: 1,915
At June 30, 2000, the Company's total debt was $36.3 million. The
Company believes sufficient cash is 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.
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
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<PAGE>
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.
Recent Accounting Pronouncements
--------------------------------
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities." This statement, as amended in June 2000 by SFAS No.
138, establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires enterprises to
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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 and
138 effective January 1, 2001. Based on the Company's outstanding derivative
contracts, the Company believes that the impact of adopting those standards
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 the level of the Company's derivative activities at the time of
adoption or the resulting effect on the Company's operations or consolidated
financial condition.
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
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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 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 price 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 Company's oil and gas revenues were reduced by approximately
$2,173,000 and $1,075,000 during the six months and quarter ended June 30, 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.
After June 30, 2000, the Company is not a party to any derivative
instrument.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The Annual Meeting of Stockholders was held on
May 17, 2000.
(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 4,704,933 1,842
Robert B. McDermott 4,704,933 1,842
James G. Maynard 4,704,933 1,842
2. Not applicable.
ITEM 6. Exhibit and Reports on Form 8-K
-------------------------------
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter.
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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 14, 2000
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