UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For
the quarterly period ended March 31, 1997
Commission file number 0-19767
THE HOME-STAKE ROYALTY CORPORATION
(Exact name of small business issuer as specified in its charter)
Oklahoma 73-0288040
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 East 5th Street, Suite 2800
Tulsa, Oklahoma 74103
(Address of principal executive offices)
(918) 583-0178
Registrant's telephone number
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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. Yes |X| No | |
The number of shares outstanding of the Registrants's common stock, all of
which comprise a single class with $40 par value, as of April 30, 1997, the
latest practicable date, was 69,808.
- 1 -
<PAGE>
THE HOME-STAKE ROYALTY CORPORATION
FORM 10-QSB
MARCH 31, 1997
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets ................... 4
Consolidated Condensed Statements of Income and Retained
Earnings for the Three Months ended March 31, 1997 .... 5
Consolidated Condensed Statements of Cash Flow .......... 6
Notes to Consolidated Condensed Financial Statements .... 7
Item 2. Management's Discussion and Analysis .................... 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ....................................... 9
Item 2. Changes in Securities ................................... 9
Item 3. Defaults upon Senior Securities ......................... 9
Item 4. Submission of Matters to a Vote of Security Holders ..... 9
Item 5. Other Information ....................................... 9
Item 6. Exhibits and Reports on Form 8-K ........................ 9
SIGNATURES ........................................................ 11
- 2 -
<PAGE>
PART I - FINANCIAL INFORMATION
- 3 -
<PAGE>
THE HOME-STAKE ROYALTY CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
March 31, December 31,
1997 1996
---- ----
Current assets:
Cash...................................... $ 708,927 $ 626,864
Accounts receivable....................... 927,544 1,469,877
Receivable from affiliate................. 94,035 66,213
Prepaid expenses.......................... 107,802 255,957
-------------- --------------
Total current assets............... 1,838,308 2,418,911
Investments (Note 2)........................ 3,673,538 3,592,495
Property and equipment, at cost:............ 24,171,888 25,235,245
Less accumulated depreciation,
depletion and amortization............. 15,483,637 16,437,277
-------------- --------------
Net property and equipment......... 8,688,251 8,797,968
Other assets................................ 24,120 24,119
-------------- --------------
$ 14,224,217 $ 14,833,493
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.. $ 886,656 $ 1,514,282
Dividends declared........................ 62,827 62,827
Income taxes payable...................... 179,543 75,198
Bonus Payable............................. 14,850 20,253
Current notes payable (Note 3)............ 401,775 964,260
-------------- --------------
Total current liabilities.......... 1,545,651 2,636,820
Long-term notes payable (Note 3)............ - 401,775
Deferred income taxes....................... 952,226 773,200
Contingencies (Note 4)
Stockholders' equity:
Preferred stock, $1 par value -
200,000 shares authorized; none issued
Common stock, $40 par value -
100,000 shares authorized and issued.... 4,000,000 4,000,000
Additional paid-in capital................ 6,000,000 6,000,000
Retained earnings......................... 5,090,504 4,385,862
-------------- --------------
15,090,504 14,385,862
Less treasury stock,
at cost - 30,192 shares................ 3,364,164 3,364,164
------------- --------------
Total stockholders' equity......... 11,726,340 11,021,698
------------- --------------
$ 14,224,217 $ 14,833,493
============= ==============
See accompanying notes.
- 4 -
<PAGE>
THE HOME-STAKE ROYALTY CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
AND RETAINED EARNINGS
Three months ended March 31, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Revenues:
Oil sales................................. $ 1,302,333 $ 1,046,288
Gas sales................................. 935,686 571,557
Lease bonuses and rentals................. 20,826 2,760
Interest and dividends.................... 9,530 8,583
Gain on sales of assets................... 99,708 (96)
Income from equity affiliates............. 190,300 68,323
Other..................................... 51,406 37,721
------------ --------------
2,609,789 1,735,136
Costs and expenses:
Lease operating expenses.................. 450,969 505,172
Production taxes.......................... 184,977 133,045
Depreciation, depletion and amortization.. 338,083 351,393
Dry hole costs............................ 188,102 2,331
Condemned and abandoned properties........ 27,198 (6,943)
General and administrative expense........ 258,744 248,806
Interest expense.......................... 26,733 69,888
Property, franchise and other taxes....... 32,443 28,705
------------ --------------
1,507,249 1,332,397
Income before provision for income taxes.... 1,102,540 402,739
Provision for income taxes:
Current................................... 156,045 56,350
Deferred.................................. 179,026 31,259
------------ --------------
335,071 87,609
------------ --------------
Net income.................................. 767,469 315,130
Retained earnings at beginning of period.... 4,385,862 2,855,837
Cash dividends ($ .90 per share - 1997;
$1.35 per share - 1996).............. (62,827) (94,241)
------------ --------------
Retained earnings at end of period........ $ 5,090,504 $ 3,076,726
============ ==============
Weighted average number of common
shares outstanding................... 69,808 69,808
====== ======
Net income per common share............... $10.99 $4.51
====== =====
See accompanying notes.
- 5 -
<PAGE>
THE HOME-STAKE ROYALTY CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Operating activities:
Oil and gas sales, net of
production taxes....................... $ 2,106,683 $ 1,437,520
Lease bonuses and rentals................. 20,826 2,760
Interest and dividends.................... 9,530 8,583
Other..................................... 51,406 37,721
-------------- --------------
2,188,445 1,486,584
Cash paid to suppliers and employees...... 725,131 983,135
Interest expense.......................... 26,733 69,888
Property, franchise and other taxes....... 32,443 28,705
Income taxes paid......................... 51,700 5,735
-------------- --------------
836,007 1,087,463
-------------- --------------
Net cash provided by operating
activities............................. 1,352,438 399,121
Investing activities:
Proceeds from sales of property and
equipment.............................. 228,488 3,082
Acquisition of property and equipment..... (486,972) (107,600)
Distributions from equity affiliate....... 15,169 21,307
-------------- --------------
Net cash used in investing activities... (243,315) (83,211)
Financing activities:
Note payments............................. (964,260) (241,065)
Cash dividends paid....................... (62,800) (93,444)
-------------- --------------
Net cash used in financing activities... (1,027,060) (334,509)
-------------- --------------
Net increase (decrease) in cash............. 82,063 (18,599)
Cash at beginning of period................. 626,867 564,875
-------------- --------------
Cash at end of period....................... $ 708,930 $ 546,276
============== ==============
See accompanying notes.
- 6 -
<PAGE>
THE HOME-STAKE ROYALTY CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - General
The unaudited financial information provided in this report includes all normal
recurring adjustments which are, in the opinion of management, necessary to
fairly present the financial position, result of operations and cash flows of
the Company. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted or condensed. The Company believes that the
disclosures herein are adequate to make the information presented not
misleading; however, these financial statements should be read in conjunction
with the audited financial statements and related notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996.
The results for interim periods are not necessarily indicative of trends or of
results to be expected for the full year.
Note 2 - Summarized financial information of equity investees
Summarized income statement information for the three months ended March 31,
1997 and 1996 for The Home-Stake Oil & Gas Company ("HSOG") and Alden Pipeline
Company is presented below:
1997 1996
---- ----
Income statement data:
Revenues...................... $ 2,425,317 $ 1,739,069
Income before income taxes.... 963,054 397,414
Net income (1)................ 656,334 309,802
(1)Includes $119,123 and $70,507 in 1997 and 1996, respectively,
attributable to the equity earnings of the Company recorded by HSOG.
During the first quarter of 1997, the Company sold its interest in the N.E.
Alden Field, including Alden Pipeline Company. This sale was effective January
1, 1997. Accordingly, 1997 information presented above does not include amounts
attributable to the operations of Alden Pipeline Company; amounts included for
1996 operations are not material to the totals shown.
Note 3 - Notes payable
Notes payable at March 31, 1997, represents the amounts due under the Company's
financing agreement which is due May 1, 1998 and provides for monthly maturities
of $80,355, plus interest at bank prime. In addition, the Company has a line of
credit in the amount of $700,000 available until May 1, 1997 which provides for
monthly payments of interest on the outstanding borrowings at bank prime.
The notes payable and the line of credit described above are collateralized by
certain of the Company's producing properties.
Note 4 - Contingencies
The Company is involved in various legal actions arising in the normal course of
business. In the opinion of management, the Company's liabilities, if any, in
these matters will not have a material effect on the Company's financial
position or the results of operations.
- 7 -
<PAGE>
Item 2. Management's discussion and Analysis.
Results of Operations - First quarter 1997 compared with first quarter 1996
Net income for the first quarter increased $452,339 from $315,130 in 1996 to
$767,469 in 1997. The principal reasons for this increase are as follows:
Oil sales increased $256,045 (24%) due to an increase in the average oil price
from $17.64 per barrel to $21.45 per barrel, coupled with a small increase in
production from 59,321 barrels to 60,729 barrels.
Gas sales increased 64% ($364,129) due to an increase in the average gas price
from $1.88 in 1996 to $3.12 in 1997, partially offset by a small decrease in gas
production from 303,759 Mcf to 299,888 Mcf.
Gain on sales of assets increased $99,804 in 1997 following the Company's sale
of their interest in the N.E. Alden Field. There were no comparable sales in
1996.
Income from equity affiliates increased $121,977 in 1997. The Company's
principal equity investee, The Home-Stake Oil & Gas Company, reported net income
of $656,334 in the first quarter of 1997 and $246,634 in the same period of
1996. In addition, the Company's ownership in The Home-Stake Oil & Gas Company
increased from 31.7% to 33.9% in November, 1996.
Lease operating expenses decreased $54,203 (11%) due primarily to environmental
remediation expenses incurred in 1996 associated a property in which the Company
has a 9% working interest.
Dry hole costs increased $185,771 in 1997 resulting from the higher incidence of
dry holes, coupled with the Company's higher ownership interests.
Condemned and abandoned property expense increased $34,141 in 1997. 1997 expense
included the non-recurring abandonment of acreage costs associated with the dry
holes described above. 1996 results included a net credit of $6,943 which was
primarily the result of salvage credits of $12,488 received on a property
abandoned during the quarter.
Interest expense decreased $43,155 in 1997 reflecting the Company's lower
average borrowings.
Financial Condition and Liquidity
The Company's operating activities have traditionally been self-financed through
internally generated cash flows. The principal use of cash flows has generally
been to fund the Company's exploration and production activities and for the
payment of dividends to stockholders. The use of borrowed funds has generally
been limited to the acquisition of producing oil and gas properties where future
revenues from such purchases are expected to fund the debt.
The Company has an exploration and development budget for 1997 of $1.7 million.
During the first quarter the Company spent approximately $500,000 and has
current commitments of $600,000 for the remainder of the year. The Company is
also actively pursuing opportunities for the acquisition of producing properties
whenever possible.
Product prices have decreased 20% to 25% since the first of the year. Despite
these decreases, the Company expects to finance its budgeted 1997 operations and
drilling through internally generated cash flows. In addition, the Company's
line of credit is expected to be extended into 1998.
Statement of Financial Accounting Standards No. 128, Earning Per Share will
become effective for periods ending after December 15, 1997. Adoption of this
statement will not have a material effect on the Company's result of operations.
- 8 -
<PAGE>
Forward-looking Statements
This Management's Discussion and Analysis of Results of Operations and Financial
Condition contains certain statements which are not historical in nature and are
considered "forward looking statements", including statements concerning the
Company's anticipated capital expenditures, cash flows, financial condition and
liquidity. These forward looking statements are based on current expectations,
estimates and assumptions of management and are subject to certain risks and
uncertainties. Actual results and developments man differ materially from what
is expressed in the forward looking statements as a result of changes in the
prices of oil or gas, operating expenses, federal and state regulations and
other factors beyond the control of the Company.
- 9 -
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings.
There is a complete discussion of legal proceedings included in the
Company's Annual Report on Form 10-KSB for the year ended December
31, 1996. Since the date of that report there have been no material
changes in the status of such matters.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March
31, 1997.
- 10 -
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
The Home-Stake Royalty Corporation
(Registrant)
Date: May 15, 1997 By: /s/ Robert C. Simpson
-------------------------
Robert C. Simpson
Chairman of the Board, C.E.O.,
President and Treasurer
Date: May 15, 1997 By: /s/ Chris K. Corcoran
-------------------------
Chris K. Corcoran
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
- 11 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 708,927
<SECURITIES> 0
<RECEIVABLES> 927,544
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,838,308
<PP&E> 24,171,888
<DEPRECIATION> 15,483,637
<TOTAL-ASSETS> 14,224,217
<CURRENT-LIABILITIES> 1,545,651
<BONDS> 0
0
0
<COMMON> 4,000,000
<OTHER-SE> 6,000,000
<TOTAL-LIABILITY-AND-EQUITY> 14,224,217
<SALES> 2,258,845
<TOTAL-REVENUES> 2,609,789
<CGS> 0
<TOTAL-COSTS> 635,946
<OTHER-EXPENSES> 215,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,733
<INCOME-PRETAX> 1,102,540
<INCOME-TAX> 335,071
<INCOME-CONTINUING> 767,469
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 767,469
<EPS-PRIMARY> 10.99
<EPS-DILUTED> 10.99
</TABLE>
