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, 2001 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 8, 2001.
4,880,370 shares of common stock, par value $0.10
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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, 2001 and December 31, 2000 3
Consolidated Statements of Operations
Six Months and Three Months ended
June 30, 2001 and 2000 4
Consolidated Statements of Shareholders' Equity
Six Months ended June 30, 2001
5
Consolidated Statements of Cash Flows
Six Months ended June 30, 2001 and 2000 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 13
Part II. Other Information
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 6. Exhibit and Reports on Form 8-K 15
Signatures 16
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MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
--------- ------------
2001 2000
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ASSETS
Current assets:
Cash and cash equivalents $17,522,319 $21,228,040
Accounts receivable, trade 7,281,069 8,773,669
Income taxes receivable 1,437,587 1,437,587
Other current assets 350,855 441,027
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Total current assets 26,591,830 31,880,323
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Property and equipment, at cost:
Oil and gas properties, successful
efforts method 178,784,284 162,572,339
Other property and equipment 501,560 450,885
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179,285,844 163,023,224
Less accumulated depreciation and
amortization ( 94,023,864) ( 87,045,360)
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Net property and equipment 85,261,980 75,977,864
$111,853,810 $107,858,187
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 7,650,000 $ 7,650,000
Accounts payable 5,889,352 8,350,643
Accrued expenses 1,368,141 927,828
Income taxes payable 429,799 800,799
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Total current liabilities 15,337,292 17,729,270
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Deferred income taxes 2,917,000 1,179,000
Long-term debt 21,037,500 24,862,500
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;
4,880,393 and 4,880,516 shares
issued and outstanding 488,039 488,051
Additional paid-in capital 18,831,138 18,831,138
Retained earnings 53,242,841 44,768,228
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Total shareholders' equity 72,562,018 64,087,417
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Contingencies and commitments
$111,853,810 $107,858,187
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
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MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Six Months ended Three Months ended
June 30, June 30,
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2001 2000 2001 2000
---- ---- ---- ----
Revenues:
Oil and gas sales $31,264,724 $22,304,384 $14,005,665 $11,511,564
Interest and other 419,993 470,564 172,842 243,238
Gain (loss) on disposition
of assets 26,382 (187,837) 12,481 (187,837)
---------- ---------- ---------- ----------
31,711,099 22,587,111 14,190,988 11,566,965
---------- ---------- ---------- ----------
Costs and expenses:
Operating expenses 8,938,327 6,433,083 4,488,434 3,343,419
Exploration, dry holes
and abandonments 156,169 4,541 147,213 (3,300)
General and administrative, net 1,602,832 1,879,566 831,852 764,145
Depreciation and amortization 7,010,053 5,228,180 3,893,148 2,872,375
Interest and other 1,139,821 1,464,692 536,714 714,141
---------- ---------- ---------- ----------
18,847,202 15,010,062 9,897,361 7,690,780
---------- ---------- ---------- ----------
Income before income taxes 12,863,897 7,577,049 4,293,627 3,876,185
Income tax expense 4,387,057 2,500,000 1,490,000 1,275,000
---------- ---------- ---------- ----------
Net income $ 8,476,840 $ 5,077,049 $ 2,803,627 $ 2,601,185
========== ========== ========== ==========
Weighted average number of common
shares outstanding 4,880,430 4,880,860 4,880,397 4,880,842
========== ========== ========== ==========
Net income per common share $1.74 $1.04 $.57 $.53
==== ==== === ===
(basic and diluted)
See accompanying Notes to Consolidated Financial Statements.
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MAYNARD OIL COMPANY
Statement of Changes in Shareholders Equity
Period Ended June 30, 2001
Accumulated
Other Additional Common
Comprehensive Retained Comprehensive Paid-in Common Stock
Total Income Earnings Income Capital Stock Shares
----- ------ -------- ------ ------- ----- ------
Balance at December 31, 2000 $64,087,417 $44,768,228 $18,831,138 $488,051 4,880,516
Comprehensive Income:
Net income 8,476,840 $8,476,840 8,476,840
Cumulative effect of adopting
SFAS 133 86,757 88,757 $86,757
Reclassification adjustments
for contract settlements (86,757) (86,757) (86,757)
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Comprehensive Income $8,476,840
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Purchase and retirement
of common stock (2,239) (2,227) _______ (12) (123)
---------- ---------- --------- ------- ---------
Balance at June 30, 2001 $72,562,018 $53,242,841 $ -- $18,831,138 $488,039 4,880,393
========== ========== ======= ========== ======= =========
See accompanying Notes to Consolidated Financial Statements
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MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
-------------------------
2001 2000
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Cash flows from operating activities:
Net income $8,476,840 $5,077,049
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,010,053 5,228,180
Deferred income taxes 1,738,000 150,000
Dry holes and abandonments 140,393 1,377
Current year costs of dry holes and
abandonments (141,272) (1,377)
(Gain) loss on disposition of assets (26,382) 187,837
(Increase) decrease in current assets:
Accounts receivable 1,492,600 499,550
Prepaid expenses and other current assets 90,172 (8,455)
Increase (decrease) in current liabilities:
Accounts payable (2,461,291) 399,260
Accrued expenses 440,313 848,459
Income taxes payable (371,000) 515,000
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Net cash provided by
operating activities 16,388,426 12,896,880
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Cash flows from investing activities:
Proceeds from disposition of assets 27,340 559,907
Additions to property and equipment (16,294,248) (5,276,577)
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Net cash used by investing activities (16,266,908) (4,716,670)
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Cash flows from financing activities:
Purchase and retirement of common stock (2,239) (2,763)
Principal payments on long-term debt (3,825,000) (1,912,500)
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Net cash used by financing activities (3,827,239) (1,915,263)
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Net (decrease) increase in cash and cash
equivalents (3,705,721) 6,264,947
Cash and cash equivalents at beginning of year 21,228,040 12,910,321
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Cash and cash equivalents at end of period $17,522,319 $19,175,268
========== ==========
See Accompanying Notes to Consolidated Financial Statements.
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MAYNARD OIL COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2001
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, 2001, the results of operations for the six
months and three months ended June 30, 2001 and 2000 and changes in
cash and cash equivalents for the six months ended June 30, 2001 and
2000. The December 31, 2000 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 2000 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. As of June 30, 2001 and 2000, the
Company had no potentially dilutive common shares, and therefore, basic
and diluted earnings per common share were the same.
Note 3 Risk Management
Effective March 1, 2001, the Company entered into a derivative
financial instrument whereby 2,000 barrels of daily production was
hedged with a ceiling price of $28.18 per barrel and a floor price of
$24.00 per barrel. This hedging arrangement was due to expire on
February 28, 2002. However, the Company exercised its ability to
terminate the contract during March, 2001 via payment of $803,000,
which reduced oil and gas revenues for the first quarter of 2001.
During 2000, the Company entered into a derivative financial instrument
whereby the Company hedged 1,000 barrels of daily production from
September 1, 2000 through February 28, 2001 with a ceiling price of
$36.50/bbl and a floor price of $24.00/bbl. The contract called for a
monthly settlement such that if the average WTI for the month was
greater than $36.50/bbl, Maynard would remit to the counterparty the
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excess multiplied by the number of barrels hedged during the month.
Conversely, if the average WTI for the month was less than $24.00/bbl,
the counterparty would pay Maynard for the difference multiplied by the
number of barrels hedged during the month. If the average WTI for the
month fell between $24.00/bbl and $36.50/bbl, no settlement would be
made. As a result of this arrangement, no monies were exchanged.
A second derivative instrument was entered into effective October 1,
2000 through March 31, 2001 which mirrored the first except the ceiling
and floor amounts were $37.20 and $25.00 per barrel, respectively. Over
the life of this contract, average WTI fell between $25.00 per barrel
and $37.20 per barrel, so no cash was exchanged.
Note 4 Income Taxes
The provision for income taxes consists of the following (thousands of
dollars):
Six Months Ended Three Months Ended
June 30, June 30,
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2001 2000 2001 2000
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Federal:
Current $2,649 $2,350 $ 593 $1,350
Deferred (benefit) 1,738 150 897 (75)
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$4,387 $2,500 $1,490 $1,275
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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 management's knowledge, the
Company is in substantial compliance with such laws and regulations.
Note 6 Subsequent Events
Effective July 9, 2001, the Company settled litigation involving
payment of a net profits interest on certain properties for $900,000,
one half of which is due back to Maynard from other working interest
partners. The Company's share of this settlement, $450,000, is included
in accounts payable at June 30, 2001.
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On July 23, 2001, the Company issued a press release to report that it
is exploring strategic alternatives including a potential merger or
sale of the Company. Additionally, the Company said that it had
retained William Blair & Company as its financial advisor and
McDermott, Will & Emery as its legal counsel to assist the Board in
evaluating the strategic alternatives.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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Quarter Ended June 30, 2001 Compared to Quarter Ended June 30, 2000
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For the second quarter of 2001, the Company earned fifty-seven cents
per share on revenues of $14,190,988 compared to earnings of fifty-three cents
per share during the second quarter of 2000 on revenues of $11,566,965. 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 producing property acquisitions and development
drilling on these acquired properties.
Revenues
- --------
Oil and gas revenues rose $2,494,101 between the two quarterly periods,
or almost 22%, due to both pricing increases and higher production volumes. Oil
and gas prices were 51 cents per barrel and 80 cents per thousand cubic feet of
gas (mcf) higher than the same quarter a year ago. Oil volumes increased in
excess of 4% and gas volumes rose approximately 27% over this same period.
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Costs and Expenses
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On a net equivalent barrel basis (NEB), lease operating expenses were
$1.28 per NEB higher than the second quarter of 2000 as a result of higher
severance taxes, which relate proportionally to increased oil and gas revenues,
and workover projects.
The exploration, dry holes and abandonments category increased $150,513
between the 2000 and 2001 quarters as a result of the drilling costs from one
exploratory well during the current quarter.
General and administrative expenses reflect an increase of $67,707,
primarily the result of additional staffing required to manage the Company's
assets.
Depreciation and amortization expense rose $1,020,773, or almost 36%,
between the second quarters of 2000 and 2001. On a net equivalent barrel basis,
this category of expense increased from $5.58 per NEB to $6.74. per NEB as a
result of higher depletion rates on certain properties.
Interest expense decreased $177,427 between the two quarterly periods
because of reductions in the outstanding bank debt due to scheduled loan
repayments.
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
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The Company reported net income of $8,476,840, or one dollar and
seventy-four cents per share, on revenues of $31,711,099 for the six months
ended June 30, 2001 compared with net income of $5,077,049, or one dollar and
four cents per share, on revenues of $22,587,111 for the same period a year ago.
Earnings for the current period were favorably affected by operating results
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derived from producing properties acquired last year as well as product pricing
increases.
Revenues
- --------
Oil and gas revenues rose $8,960,340 between the two six month periods,
or approximately 40%, primarily because of pricing increases. Oil volumes rose
approximately 6%, and gas volumes were 25% higher than the prior period. Product
price realizations also pushed revenues higher - oil averaged $24.65 per barrel
for the first six months of 2001 compared with $24.22 during the prior year and
gas averaged $5.44 per mcf compared with $2.91 per mcf in 2000. Costs and
Expenses
- --------
On a net equivalent barrel basis (NEB), operating expenses increased
$1.52 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, 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. During the current period, there was one
exploratory well drilled and abandoned, which is reflected in this category.
General and administrative (G&A) expenses decreased $276,734 to reflect
lower phantom stock expense. During the first half of 2000, approximately
$597,000 was accrued for 95,500 outstanding phantom units. In October, 2000, all
but 11,000 phantom units were redeemed, which caused a reduction in this
category during the current period.
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Depreciation and amortization expense rose during the current six months
from $5.16 per NEB for the 2000 period to $6.18 per NEB currently, and interest
expense decreased $324,871 in the current period reflecting lower outstanding
bank debt from scheduled loan repayments.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents totaled $17.5 million and $21.2 million at
June 30, 2001, and December 31, 2000, respectively. Working capital was $11.3
million at June 30, 2001, compared with $14.2 million at December 31, 2000.
The following summary table reflects cash flows for the six months
ended June 30, 2001 (in thousands):
Net cash provided by operating activities: $16,388
Net cash used by investing activities: 16,267
Net cash used by financing activities: 3,827
At June 30, 2001, the Company's total debt was $28.7 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
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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
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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.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Commodity Risk
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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
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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 2001, the Company entered into a derivative financial instrument
whereby the Company hedged 2,000 barrels of daily production from March 1, 2001
through February 28, 2002 with a ceiling price of $28.18/bbl and a floor price
of $24.00/bbl. The Company exercised its right to terminate this contract during
March, 2001 via payment of $803,000 which reduced oil and gas revenues for the
first quarter of 2001.
The Company is not currently a party to any derivative instrument.
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 16, 2001.
(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 4,708,278 32,567
Robert B. McDermott 4,708,278 32,567
James G. Maynard 4,708,278 32,567
2. Not applicable.
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ITEM 6. Exhibit and Reports on Form 8-K
-------------------------------
(a) Exhibit: None
(b) Report on Form 8-K:
On July 23, 2001, the Company filed Form 8-K with the
Securities and Exchange Commission to report that the
Company is exploring strategic alternatives. The
Company also reported the retention of William Blair
& Company as its financial advisor and McDermott,
Will & Emery as its legal counsel to assist the Board
in evaluating the strategic alternatives.
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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
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Glenn R. Moore
President
BY: /s/ Kenneth W. Hatcher
-----------------------------
Kenneth W. Hatcher
Vice President of Finance
Dated: August 14, 2001
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