<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
---------
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
--------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM TO
---- ----
Commission file number 0-2517
TOREADOR ROYALTY CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-0991164
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
530 Preston Commons West
8117 Preston Road
Dallas, Texas 75225
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 369-0080
--------------
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 twelve 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 the latest practicable date.
Class Outstanding at March 31, 1998
- ------------------------------- -----------------------------
Common Stock, $.15625 par value 4,985,771
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOREADOR ROYALTY CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,961,261 $ 2,876,652
Accounts receivable 330,133 334,851
Federal income tax receivable 33,795 62,307
Deferred tax benefit -- 15,945
Other current assets 21,438 26,956
----------- -----------
Total current assets 3,346,627 3,316,711
----------- -----------
Properties, plant and equipment, less accumulated
depreciation, depletion and amortization 3,385,983 3,210,074
----------- -----------
Total assets $ 6,732,610 $ 6,526,785
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 213,963 $ 309,590
Federal income taxes payable -- --
----------- -----------
Total current liabilities 213,963 309,590
Deferred tax liabilities 48,785 --
----------- -----------
Total liabilities 262,748 309,590
----------- -----------
Stockholders' equity:
Preferred stock, $1.00 par value, 4,000,000
shares authorized; none issued -- --
Common stock, $.15625 par value, 10,000,000
shares authorized; 5,424,171 shares
and 5,367,571 shares issued 847,527 838,683
Capital in excess of par value 3,803,754 3,646,834
Retained earnings 2,973,270 2,791,117
----------- -----------
7,624,551 7,276,634
Treasury stock at cost: 438,400 shares
and 408,400 shares (1,154,689) (1,059,439)
----------- -----------
Total stockholders' equity 6,469,862 6,217,195
----------- -----------
Total liabilities and stockholders' equity $ 6,732,610 $ 6,526,785
=========== ===========
</TABLE>
The Company uses the successful efforts method of accounting for its oil and
gas producing activities. See accompanying notes to the consolidated
financial statements.
-2-
<PAGE> 3
TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Oil and gas sales $ 635,745 $ 677,835
Lease bonuses and rentals 168,664 109,938
Interest and other income 40,316 37,377
---------- ----------
Total revenues 844,725 825,150
Costs and expenses:
Lease operating expense 168,713 138,215
Dry holes and abandonments 71,176 53,455
Depreciation, depletion and amortization 92,775 57,588
Geological and geophysical 58,182 74,014
General and administrative 178,487 229,796
Settlement of benefit plans -- 29,171
---------- ----------
Total costs and expenses 569,333 582,239
---------- ----------
Income before federal income taxes 275,392 242,911
Provision for federal income taxes 93,242 77,959
---------- ----------
Net income $ 182,150 $ 164,952
========== ==========
Basic income per share $ 0.04 $ 0.03
========== ==========
Diluted income per share $ 0.04 $ 0.03
========== ==========
Weighted average shares outstanding:
Basic 4,989,060 5,140,960
Diluted 5,063,267 5,144,456
</TABLE>
See accompanying notes to the consolidated financial statements.
-3-
<PAGE> 4
TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 182,150 $ 164,952
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 92,775 57,588
Dry holes and abandonments 71,176 53,455
Decrease in accounts receivable 4,718 266,689
Decrease in federal income tax receivable 28,512 54,899
Increase in pension obligation -- (19,546)
Decrease in other current assets 5,518 5,800
Decrease in accounts payable and accrued liabilities (95,627) (227,070)
Decrease in federal income taxes payable -- (1,263)
Deferred tax expense 64,730 22,912
----------- -----------
Net cash provided by operating activities 353,952 378,416
----------- -----------
Cash flows from investing activities:
Expenditures for oil and gas property and equipment (340,860) (95,757)
Proceeds from lease bonuses and rentals -- 77,635
----------- -----------
Net cash used by investing activities (340,860) (18,122)
----------- -----------
Cash flows from financing activities:
Sale of stock 166,761 --
Purchase of treasury stock (95,250) (11,826)
----------- -----------
Net cash provided (used) by financing activities 71,511 (11,826)
----------- -----------
Net increase in cash and cash equivalents 84,603 348,468
Cash and cash equivalents, beginning of period 2,876,652 3,074,111
----------- -----------
Cash and cash equivalents, end of period $ 2,961,255 $ 3,422,579
=========== ===========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Income taxes $ -- $ 1,411
</TABLE>
See accompanying notes to the consolidated financial statements.
-4-
<PAGE> 5
TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements should be read in the context
of the consolidated financial statements and notes thereto filed with the
Securities and Exchange Commission in Toreador Royalty Corporation's (the
"Company") 1997 Annual Report on Form 10-K. In the opinion of the Company, the
information furnished herein reflects all adjustments consisting of only normal
recurring adjustments, necessary for a fair presentation of the results of the
interim periods reported herein. Operating results from the interim period may
not necessarily be indicative of the results for the year ended December 31,
1998. Certain previously reported financial information has been reclassified to
conform to the current period's presentation.
NOTE 2 - NON-PRODUCING MINERAL AND ROYALTY INTERESTS
Principal properties include mineral fee interests acquired by the
Company during 1951 and 1958. These interests totaled approximately 530,000 net
mineral acres underlying approximately 870,000 surface acres in the Texas
Panhandle and West Texas. It is recognized that the ultimate realization of the
investment in these properties is dependent upon future exploration and
development operations which are dependent upon satisfactory leasing and
drilling arrangements with others. Additionally, the Company owns working or
royalty interests in Texas, New Mexico, Oklahoma, Arkansas, Louisiana and
Colorado.
NOTE 3 - INTEREST AND OTHER INCOME
Items in interest and other income consist of:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Interest $37,226 $36,233
Other Income 3,090 1,144
------- -------
$40,316 $37,377
======= =======
</TABLE>
NOTE 4 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income." The adoption of
this Statement had no effect on the Company's financial statements for the
quarters ended March 31, 1998 and 1997 as it has no items, other than net
income, which are considered in the determination of comprehensive income.
-5-
<PAGE> 6
TOREADOR ROYALTY CORPORATION
For the three months ended March 31, 1998
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Disclosures Regarding Forward-Looking Statements
This report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this Form 10-Q, including,
without limitation, statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy, plans and objectives of
management of the Company for future operations, and industry conditions, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Any
forward-looking statements herein are subject to certain risks and uncertainties
inherent in petroleum exploration, development and production, including, but
not limited to the risk that no commercially productive oil and gas reservoirs
will be encountered; inconclusive results from 3-D seismic projects; delays or
cancellation of drilling operations as a result of a variety of factors;
volatility of oil and gas prices due to economic and other conditions; intense
competition in the oil and gas industry; operational risks (e.g., fires,
explosions, blowouts, cratering and loss of production); insurance coverage
limitations and requirements; and potential liability imposed by intense
governmental regulation of oil and gas production; all of which are beyond the
control of the Company. Any one or more of these factors could cause actual
results to differ materially from those expressed in any forward-looking
statement. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the cautionary statements disclosed in this
paragraph and otherwise in this report.
Liquidity and Capital Resources
Historically, most of the exploration activity on the Company's acreage
has been funded and conducted by other oil companies. Exploration activity
typically generates lease bonus and option income to the Company. If drilling is
successful, the Company receives royalty income from the oil or gas production
but bears none of the capital or operating costs. In order to accelerate the
evaluation of its acreage as well as increase its ownership in any reserves
discovered, the Company has increased and intends to further increase its level
of participation in exploring its acreage by acquiring working interests. The
extent to which the Company may acquire working interests will depend on the
availability of outside capital and cash flow from operations. Currently, the
primary sources of capital for the financing of the Company's operations are
cash flows from operations. In November 1997, the Company obtained a $10 million
credit facility from Compass Bank with an initial availability of $4 million
which it may use to fund acquisition
-6-
<PAGE> 7
TOREADOR ROYALTY CORPORATION
For the three months ended March 31, 1998
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
and development of oil and gas properties. The Company has not drawn any amounts
under the facility. In addition, the Company may reinvest proceeds from option
and lease bonuses by taking a working interest in 3-D seismic projects or in
wells. To the extent cash flow from operations does not significantly increase
and external sources of capital are limited or unavailable, the Company's
ability to make the capital investment to participate in 3-D seismic surveys and
increase its interest in projects on its acreage will be limited. Future funds
are expected to be provided through production from existing producing
properties and new producing properties that may be discovered through
exploration of the Company's acreage by third parties or by the Company itself.
Funds may also be provided through external financing in the form of debt or
equity. There can be no assurances as to the extent and availability of these
sources of funding.
In September 1997, the Company engaged Dain Rauscher Wessels (formerly
Rauscher Pierce Refsnes, Inc.) as its financial advisor in evaluating strategic
alternatives available to the Company, including a sale of the Company, a merger
with another company and other forms of business combinations. The consummation
of any such transaction could result in a material increase or decrease in the
Company's liquidity, depending on the structure of the transaction. As of the
date of this report, the Company is not aware of any demands, commitments or
events which will result in its liquidity increasing or decreasing in a material
way. The Company presently has no debt and maintains its excess cash funds in
interest-bearing deposits. From time to time, the Company may receive lease
bonuses that cannot be anticipated and, when funds are available, the Company
may elect to participate in exploratory ventures. The Company also may acquire
producing oil and gas assets which could require the use of debt.
Management believes that sufficient funds are available internally to
meet anticipated capital requirements for fiscal 1998.
The Company has used $1,137,946 of its cash reserves to purchase
432,700 shares of its Common Stock, as of March 31, 1998. These purchases were
made pursuant to stock repurchase programs authorized by the Board of Directors
on October 10, 1995, of up to 100,000 shares of Common Stock, a second stock
repurchase program on April 22, 1996, of up to 150,000 shares of common stock
and a third stock repurchase program on April 21, 1997, of up to 300,000 shares
of common stock. As of May 12, 1998, the Company had purchased an aggregate of
182,700 shares at a purchase price of $506,918 under the third repurchase
program. The repurchases of the Company's shares of Common Stock were made in
unsolicited open-market purchases, at market (not premium) prices, without fixed
terms and not contingent upon the tender of a fixed minimum number of shares or
in response to a third party bid and otherwise in accordance with Rule 10b-18
under the Securities Exchange Act of 1934, as amended.
-7-
<PAGE> 8
TOREADOR ROYALTY CORPORATION
For the three months ended March 31, 1998
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 VS.
THREE MONTHS ENDED MARCH 31, 1997
Revenues for the first quarter of 1998 were $844,725 versus $825,150
for the same period in 1997. Oil and gas sales were $635,745 on volumes of
19,977 Bbls of oil and 147,656 Mcf of natural gas as compared to $677,835 on
volumes of 17,859 Bbls and 79,323 Mcf in 1997. The decrease of $42,090 in oil
and gas sales reflects lower oil and gas prices outweighing higher oil and gas
volumes. Oil volumes increased 11.9% primarily reflecting the Company's
participation in the exploratory drilling programs that occurred on its minerals
in the fourth quarter of 1997 and, in part, the first quarter of 1998. Gas
volumes increased 86.1% reflecting the acquisition of some gas properties in
mid-1997 and production increases from some older properties. The average price
on oil sales decreased 32.7% to $15.33/Bbl in 1998 compared to $22.79/Bbl in
1997. Likewise, the average price for gas sales decreased 34.6% to $2.23/Mcf in
1998 from $3.41/Mcf in 1997. Lease bonuses and rentals increased to $168,664 in
1998 versus $109,938 in 1997. Interest and other income was $40,316 in 1998 up
from $37,377 in 1997.
Costs and expenses for the first quarter of 1998 were $569,333 in 1998
versus $582,239 for the same period in 1997. Lease operating expenses increased
to $168,713 in 1998 from $138,215 in 1997 due to the Company's increased level
of participation in the exploratory drilling programs on its minerals in the
fourth quarter of 1997 and an acquisition of producing oil and gas properties
made in 1997. Dry holes and abandonments increased to $71,176 in 1998 from
$53,455 in 1997. Depreciation, depletion and amortization increased 61.1% to
$92,775 in 1998 from $57,588 in 1997, reflecting the Company's continued level
of participation in the exploratory drilling programs on its minerals and a
downward revision to the proved developed reserves as of December 31, 1997,
created by a combination of some under-performing properties and lower oil and
gas prices. Geological and geophysical expenses decreased 21.4% to $58,182 in
1998 from $74,014 in 1997, reflecting a reduction in consulting engineering
expenses. Excluding the settlement of benefit plans, general and administrative
expenses decreased 22.3% to $178,487 from $229,796 a year ago, primarily
reflecting a reduction in salaries.
The Company recognized net income of $182,150, or $0.04 per share
(basic), for the first quarter of 1998 versus net income of $164,952, or $0.03
per share (basic), for the same period in 1997.
-8-
<PAGE> 9
TOREADOR ROYALTY CORPORATION
March 31, 1998
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On April 27, 1998, the Company announced that it is actively seeking
acquisition and merger partners through its financial advisor, Dain Rauscher
Wessels. Toreador plans to continue its ongoing business if no satisfactory
proposal emerges.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The information required by this Item 6(a) is set forth in the Index to
Exhibits accompanying this quarterly report and is incorporated herein by
reference.
(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.
TOREADOR ROYALTY CORPORATION,
Registrant
/S/ John Mark McLaughlin
---------------------------------------
John Mark McLaughlin,
Chairman and President
May 12, 1998
-9-
<PAGE> 10
TOREADOR ROYALTY CORPORATION
March 31, 1998
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibits
--------- -------------------------------------------------------------
<S> <C>
27 - Financial Data Schedule
99 - Press Release dated April 27, 1998
</TABLE>
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TOREADOR
ROYALTY CORPORATION UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q FOR THE
QUARTER ENDED MARCH 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,961,261
<SECURITIES> 0
<RECEIVABLES> 363,928
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,346,627
<PP&E> 5,587,333
<DEPRECIATION> 2,201,350
<TOTAL-ASSETS> 6,732,610
<CURRENT-LIABILITIES> 213,963
<BONDS> 0
0
0
<COMMON> 847,527
<OTHER-SE> 5,622,335
<TOTAL-LIABILITY-AND-EQUITY> 6,732,610
<SALES> 635,745
<TOTAL-REVENUES> 844,725
<CGS> 0
<TOTAL-COSTS> 569,333
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 275,392
<INCOME-TAX> 93,242
<INCOME-CONTINUING> 182,150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 182,150
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
<PAGE> 1
Page 1 EXHIBIT 99
FOR IMMEDIATE RELEASE
APRIL 27, 1998
TOREADOR ROYALTY EVALUATES STRATEGIC OPTIONS
DALLAS, APRIL 27 -- TOREADOR ROYALTY CORPORATION (NASDAQ-NMS: TRGL)
announced that it is actively seeking acquisition and merger partners through
its financial advisor, Dain Rauscher Wessels.
According to Mark McLaughlin, president of Toreador, "The last two years of
exploration have been among the most successful in Toreador's long history.
Since January 1, 1997, 18 wells have been drilled on the company's mineral
acreage, of which eight were successfully completed. The operators of all these
wells, including Louis Dreyfus Natural Gas Corp., Apache Corp. and Corlena Oil
Company, utilized 3-D seismic technology in siting the wells. This record of
success reflects Toreador's continuing intensive efforts to encourage 3-D
seismic exploration on the company's extensive mineral acreage.
"We believe that with our current momentum of exploratory success, now is the
optimum time to take aggressive action to create maximum value for all
shareholders in the company. Therefore, we are actively seeking proposals for
merger, acquisition, or other transactions that will generate shareholder value
and encourage further exploration of the company's properties."
Mr. McLaughlin added, "The company's board will be deliberate in its review of
strategic alternatives. If no satisfactory proposal emerges, Toreador will
continue its ongoing business of generating exploration activity on its mineral
acreage."
Except for historical information contained herein, the matters set forth in
this release are "forward looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, that are dependent on certain risks and
uncertainties inherent in petroleum exploration, development and production,
including, but not limited to, the risk that no commercially productive oil and
gas reservoirs will be encountered using any exploration technology, including
3-D seismic; the risk that drilling operations may be delayed or canceled; the
uncertainty of oil and gas prices; the uncertainty that results from intense
competition in the oil and gas industry; operational risks (e.g., fires,
explosions, blowouts, cratering and loss of production); insurance coverage
limitations and requirements; and potential liability imposed by intense
governmental regulation of oil and gas production; all of which are beyond the
control of the company. Further, there can be no assurance that a sale of merger
of the company or other business combination involving the company will be
consummated, and if so consummated, on terms that are favorable to the company
and its stockholders.
Contact: John Mark McLaughlin, chairman and president
214-369-0080
