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, 1996
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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
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TOREADOR ROYALTY CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 75-099116
- ---------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
530 Preston Commons West
8117 Preston Road
Dallas, Texas 75225
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(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, 1996
- ------------------------------- -----------------------------
Common Stock, $.15625 par value 5,263,202
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOREADOR ROYALTY CORPORATION
CONSOLIDATED BALANCE SHEET
March 31, March 31, December 31,
1996 1995 1995
------------ ------------ ------------
(Unaudited) (Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 2,609,630 $ 3,681,759 $ 2,791,575
Marketable securities, at market value 674,731 727,650 661,501
Accounts receivable 148,401 167,853 168,746
Federal income tax receivable 54,899 68,014 87,450
Prepaid expenses and deposits 39,828 105,212 22,172
------------ ------------ ------------
Total current assets 3,527,489 4,750,488 3,731,444
------------ ------------ ------------
Properties and equipment, less accumulated
depreciation, depletion and amortization 3,194,931 2,889,362 3,201,283
Other assets 131,284 51,352 118,325
------------ ------------ ------------
Total assets $ 6,853,704 $ 7,691,202 $ 7,051,052
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 105,076 $ 152,420 $ 193,238
------------ ------------ ------------
Total current liabilities 105,076 152,420 193,238
Deferred tax liabilities 67,262 241,373 47,329
------------ ------------ ------------
Total liabilities 172,338 393,793 240,567
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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; 5,349,071 issued 835,792 835,792 835,792
Capital in excess of par value 3,560,042 3,560,042 3,560,042
Retained earnings 2,143,217 2,526,885 2,115,733
Net unrealized gain on marketable securities 361,992 391,434 353,268
------------ ------------ ------------
6,901,043 7,314,153 6,864,835
Less 103,225 shares (March 31, 1996),
20,500 shares (December 31, 1995) and
5,700 shares (March 31, 1995) of common
stock in treasury, at cost (219,677) (16,744) (54,350)
------------ ------------ ------------
Total stockholders' equity 6,681,366 7,297,409 6,810,485
------------ ------------ ------------
Total liabilites and stockholders' equity $ 6,853,704 $ 7,691,202 $ 7,051,052
============ ============ ============
The Company uses the successful efforts method of accounting for its oil and
gas producing activities.
See accompanying notes to the consolidated financial statements.
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TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
For the Three Months Ended
March 31,
--------------------------
1996 1995
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Revenues:
Oil and gas sales $ 463,513 $ 343,677
Lease bonuses and rentals 300 41,896
Interest and other income 50,298 51,711
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Total revenues 514,111 437,284
Costs and expenses:
Lease operating expense 90,756 69,463
Dry holes and abandonments 34,205 69,401
Depreciation, depletion and amortization 51,974 56,975
Geological and geophysical 67,198 49,528
General and administrative 227,067 191,196
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Total costs and expenses 471,200 436,563
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Income before federal income taxes 42,911 721
Provision for federal income tax expense 15,435 --
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Net income $ 27,476 $ 721
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Income per share $ 0.01 $ --
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Weighted average shares outstanding 5,264,843 5,352,225
========== ==========
See accompanying notes to the consolidated financial statements.
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TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended
March 31,
-----------------------------
1996 1995
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Cash flows from operating activities:
Net income (loss) $ 27,476 $ 721
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 51,974 56,975
Dry holes and abandonments 34,205 69,401
Decrease (increase) in accounts receivable 20,345 (7,152)
Decrease in federal income tax receivable 32,551 --
Pension funding in excess of expense (12,959) --
Increase in prepaid expenses and deposits (17,656) (36,872)
Decrease in accounts payable and accrued liabilities (88,163) (12,343)
Deferred tax expense 15,427 --
------------ ------------
Net cash provided (used) by operating activities 63,200 70,730
------------ ------------
Cash flows from investing activities:
Expenditures for oil and gas property and
equipment (79,818) (282,637)
------------ ------------
Net cash used by investing activities (79,818) (282,637)
------------ ------------
Cash flows from financing activities:
Purchase of treasury stock (165,327) --
------------ ------------
Net cash provided (used) by
financing activities (165,327) --
------------ ------------
Net increase (decrease) in cash and
cash equivalents (245,145) (211,907)
Cash and cash equivalents, beginning of period 2,791,575 3,893,666
------------ ------------
Cash and cash equivalents, end of period $ 2,546,430 $ 3,681,759
============ ============
Supplemental schedule of cash flow information:
Cash paid (received) during the period for:
Income taxes $ (32,551) $ --
See accompanying notes to the consolidated financial statements.
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TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 1996
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") 1995 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,
1996.
CAPITALIZATION POLICY FOR OIL AND GAS ACTIVITIES
The Company follows the successful efforts method of accounting for oil
and gas exploration and development expenditures. Under this method, costs of
successful exploratory wells and all development wells are capitalized. Costs
to drill exploratory wells which do not find proved reserves are expensed.
Acquisition costs of mineral interests in oil and gas properties remain
capitalized until they are impaired or a determination has been made to
discontinue exploration of the lease, at which time all related costs are
charged to expense. Impairment of unproved properties is assessed and recorded
on a property-by-property basis. Upon sale or abandonment of units of property
or the disposition of miscellaneous equipment, the cost is removed from the
asset account, the related reserves relieved of the accumulated depreciation or
depletion and the gain or loss is credited to or charged against operations.
Maintenance and repairs are charged to expense; betterments of property are
capitalized and depreciated.
EARNINGS PER SHARE
Earnings per common share is based on the weighted average number of
shares, including common share equivalents (except where inclusion of such
common share equivalents would have an antidilutive effect), outstanding.
FEDERAL INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes".
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TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 1996
NOTE 2 - MARKETABLE SECURITIES
Marketable securities are comprised of 105,840 shares in the San Juan
Basin Royalty Trust at March 31, 1996 and 1995. The Company's cost in this
royalty trust is $126,258. At March 31, 1996, the market value of these
securities which are designated as available for sale aggregated $674,731,
resulting in a gross unrealized gain in the amount of $548,473 and an
unrealized gain, net of tax effect, of $361,992. At March 31, 1995, the market
value of these securities was $727,650, resulting in a gross unrealized gain in
the amount of $601,392 and an unrealized gain, net of tax effect, of $391,434.
At December 31, 1995, the market value of these securities was $661,501,
resulting in a gross unrealized gain in the amount of $535,243, and an
unrealized gain, net of tax effect, of $353,268.
NOTE 3 - 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 4 - INTEREST AND OTHER INCOME
Items in interest and other income consist of:
Three Months Ended
March 31,
--------------------
1996 1995
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Interest - Certificates of Deposit and
U. S. Treasury Bills $ 33,724 $ 42,123
Distribution from Grantor Trust:
San Juan Basin Royalty Trust 7,225 9,588
Other income 9,349 --
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$ 50,298 $ 51,711
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TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 1996
NOTE 5 - CAPITAL
On May 23, 1994, the Company privately placed 809,071 shares of common
stock for an aggregate consideration of $2,831,749. In its private placement
agreement with the purchasers, the Company granted them registration rights,
pursuant to which a registration statement on Form S-3 covering all the shares
was filed on June 22, 1994. The registration statement was declared effective
July 11, 1994 and the Company is obligated to maintain such effectiveness until
May 23, 1996. In connection with the private placement, the Company's
placement agent received a five-year warrant to purchase 106,867 shares of
common stock at a price of $4.375 per share. The placement agent has rights to
participate in registered offerings of common stock by the Company.
The net proceeds to the Company from the private placement (after
deducting the placement agent's fee of $141,112 and expenses of approximately
$75,000) were approximately $2,616,000.
NOTE 6 - STOCKHOLDER RIGHTS PLAN
The Company adopted a stockholder rights plan on April 3, 1995 designed to
assure that the Company's stockholders receive fair and equal treatment in the
event of any proposed takeover of the Company and to guard against partial
tender offers and other abusive takeover tactics to gain control of the Company
without paying all stockholders a fair price. Under the rights plan, the
Company declared a dividend of one right ("Right") on each share of Toreador
common stock. Each Right will entitle the holder to purchase one one-hundredth
of a share of a new Series A Junior Participating Preferred Stock, par value
$1.00 per share, at an exercise price of $12.00. The Rights are not currently
exercisable and will become exercisable only in the event a person or group
acquires beneficial ownership of 20 percent or more of Toreador's outstanding
common stock or announces a tender offer or exchange offer to acquire such
ownership level. The Rights are subject to redemption by the Company for $.01
per Right at any time prior to the tenth day after the first public
announcement of the acquisition by any person or group of beneficial ownership
of 20 percent or more of Toreador common stock. The dividend distribution was
made on April 13, 1995 to stockholders of record at the close of business on
that date. The rights will expire on April 13, 2005.
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TOREADOR ROYALTY CORPORATION
For the three months ended March 31, 1996
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 and this activity
is expected to continue. 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 intends to 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 flow provided from revenues
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TOREADOR ROYALTY CORPORATION
For the three months ended March 31, 1996
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
generated by its proportionate share in oil and natural gas sales and existing
cash, including that from a private offering completed in 1994. 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 assurance as to the extent and availability of these sources of funding.
The Company has no debt and maintains its excess cash funds in
interest-bearing deposits and commercial paper. The Company is not aware of
any demands, commitments or events which will result in its liquidity
increasing or decreasing in a material way. 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 1996.
As of March 31, 1996, the Company used $220,032.81 of its cash
reserves to purchase 90,325 shares of its Common Stock. These purchases were
made pursuant to a stock repurchase program authorized by the Board of
Directors on October 10, 1995, of up to 100,000 shares of Common Stock. As of
April 22, 1996, the Company purchased the remaining 9,675 shares under the
repurchase program at a purchase price of $22,420.31. On April 22, 1996, the
Company announced the commencement of an additional repurchase program of up to
150,000 shares of its Common Stock. As of May 10, 1996, the Company has
purchased an aggregate of 14,900 shares at a purchase price of $41,168.75. 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.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 VS
THREE MONTHS ENDED MARCH 31, 1995
Revenues for the first quarter 1996 were $514,111 versus $437,284 for
the same period in 1995. Oil and gas sales were $463,513 on volumes of 16,275
BBLs and 86,031 MCF versus $343,677 on volumes of 14,061 BBLs and 76,077 MCF in
1995. The $119,836 increase in oil and gas sales resulted from the
aforementioned oil and gas volume increases and higher oil and gas prices. Oil
volumes increased primarily as a result of two successful development wells
drilled on the mineral acreage as well as acquisitions made in the second half
of 1995. Gas volumes increased primarily due to stronger market demand in 1996
as opposed to low demand in 1995 which resulted in curtailed or shut-in wells
in 1995. Oil prices increased 7.6% to $18.16/BBL in 1996 from $16.87/BBL in
1995. Gas prices increased 39.3% to $1.95/MCF in 1996 from $1.40/MCF in 1995.
Lease bonus and rental income decreased by $41,596 to $300 in 1996 from $41,896
in 1995. Interest and other income was $50,298 in 1996 versus $51,711 in 1995.
Costs and expenses were $471,200 in 1996 versus $436,563 in 1995.
Lease operating expenses increased 30.7% to $90,756 in 1996 from $69,463 in
1995 due to the acquisitions made in 1995. Dry holes and abandonments were
down $35,196 to $34,205 in 1996 compared to $69,401 in 1995. Depreciation ,
depletion and amortization decreased slightly to $51,974 in 1996 from $56,975
in 1995. Geological and geophysical expenses and general and administrative
expenses increased, collectively, $53,541 or 22.2% as a result of the Company's
continuing plan to focus its efforts on the exploitation of the Company's
minerals as well as accelerate and enhance its acquisition efforts.
The Company recognized net income of $27,476, or $0.01 per share, for
the first quarter of 1996 versus net income of $721, or a fractional cent per
share, for the same period in 1995.
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TOREADOR ROYALTY CORPORATION
March 31, 1996
PART II. OTHER INFORMATION
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/ PETER R. VIG
-----------------------------------
Peter R. Vig, Chairman;
the Principal Executive, Financial
and Accounting Officer
May 13, 1996
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TOREADOR ROYALTY CORPORATION
March 31, 1996
INDEX TO EXHIBITS
Exhibit
Number Exhibit
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27 Financial Data Schedule