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 JUNE 30, 1996
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 June 30, 1996
- -------------------------------- ----------------------------
Common Stock, $.15625 par value 5,204,571
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOREADOR ROYALTY CORPORATION
CONSOLIDATED BALANCE SHEET
June 30, June 30, December 31,
1996 1995 1995
---------- ---------- ----------
(Unaudited) (Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $2,945,947 $3,217,593 $2,791,575
Marketable securities, at market value 158,270 635,040 661,501
Accounts receivable 178,919 151,631 168,746
Federal income tax receivable 54,899 68,014 87,450
Prepaid expenses and deposits 5,578 69,840 22,172
---------- ---------- ----------
Total current assets 3,343,613 4,142,118 3,731,444
---------- ---------- ----------
Properties and equipment, less accumulated
depreciation, depletion and amortization 3,260,379 2,917,886 3,201,283
Other assets 117,534 49,852 118,325
---------- ---------- ----------
Total assets $6,721,526 $7,109,856 $7,051,052
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 85,013 $ 104,881 $ 193,238
Federal income taxes payable 3,984 - -
---------- ---------- ----------
Total current liabilities 88,997 104,881 193,238
Deferred tax liabilities 70,143 209,885 47,329
---------- ---------- ----------
Total liabilities 159,140 314,766 240,567
---------- ---------- ----------
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 2,445,710 2,085,688 2,115,733
Net unrealized gain on marketable securities 84,114 330,312 353,268
---------- ---------- ----------
6,925,658 6,811,834 6,864,835
Less 144,500 shares (June 30, 1996),
20,500 shares (December 31, 1995) and
5,700 shares (June 30, 1995) of common
stock in treasury, at cost (363,272) (16,744) (54,350)
---------- ---------- ----------
Total stockholders' equity 6,562,386 6,795,090 6,810,485
---------- ---------- ----------
Total liabilities and stockholders' equity $6,721,526 $7,109,856 $7,051,052
========== ========== ==========
The Company uses the successful efforts method of accounting for its oil and
gas producing activities.
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TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------ -------------------------
1996 1995 1996 1995
---------- ---------- ----------- ----------
Revenues:
Oil and gas sales $ 523,642 $ 299,387 $ 987,155 $ 643,064
Interest and other income 55,577 66,116 106,176 159,723
---------- ---------- ---------- ----------
Total revenues 579,219 365,503 1,093,331 802,787
Costs and expenses:
Lease operating expense 127,710 92,471 218,466 161,934
Dry holes and abandonments 54,986 105,977 89,191 175,378
Depreciation, depletion and amortization 55,322 52,988 107,296 109,963
Geological and geophysical 47,522 62,552 114,720 112,080
General and administrative 216,721 492,712 443,789 683,908
---------- ---------- ---------- ----------
Total costs and expenses 502,260 806,700 973,462 1,243,263
---------- ---------- ---------- ----------
Income from operations 76,958 (441,197) 119,869 (440,476)
Other income:
Gain from sales of marketable securities 375,551 - 375,551 -
---------- ---------- ---------- ----------
Income before federal income taxes 452,509 (441,197) 495,420 (440,476)
Provision for federal income tax expense 150,015 - 165,450 -
---------- ---------- ---------- ----------
Net income $ 302,494 $ (441,197) $ 329,970 $ (440,476)
========== ========== ========== ==========
Income per share $ 0.06 $ (0.08) $ 0.06 $ (0.08)
========== ========== ========== ==========
Weighted average shares outstanding 5,251,359 5,343,371 5,251,359 5,343,371
========== ========== ========== ==========
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TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Cash flows from operating activities:
Net income (loss) $ 302,494 $ (441,197) $ 329,970 $ (440,476)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 54,986 52,988 107,296 109,963
Dry holes and abandonments 55,322 105,977 89,191 175,378
Gain on sale of marketable securities (375,551) - (375,551) -
Decrease (increase) in accounts receivable (30,518) 16,222 (10,173) 9,070
Decrease in federal income tax receivable - - 32,551 -
Pension funding in excess of expense 13,750 - 791 -
Decrease in prepaid expenses and deposits 34,250 36,872 16,594 -
Decrease in accounts payable and accrued liabilities (20,063) (47,539) (108,226) (59,882)
Increase in federal income taxes payable 3,984 - 3,984 -
Deferred tax expense 146,031 - 161,458 -
---------- ---------- ---------- ----------
Net cash provided (used) by operating activities 184,685 (276,677) 247,885 (205,947)
---------- ---------- ---------- ----------
Cash flows from investing activities:
Expenditures for oil and gas property and
equipment (175,357) (184,145) (255,175) (466,782)
Proceeds from the sale of marketable securities 470,984 - 470,984 -
Purchase of furniture and fixtures (400) (3,344) (400) (3,344)
---------- ---------- ---------- ----------
Net cash used by investing activities 295,227 (187,489) 215,409 (470,126)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Purchase of treasury stock (140,970) - (306,297) -
---------- ---------- ---------- ----------
Net cash provided (used) by
financing activities (140,970) - (306,297) -
---------- ---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents 338,942 (464,166) 156,997 (676,073)
Cash and cash equivalents, beginning of period 2,609,630 3,681,759 2,791,575 3,893,666
---------- ---------- ---------- ----------
Cash and cash equivalents, end of period $2,948,572 $3,217,593 $2,948,572 $3,217,593
========== ========== ========== ==========
Supplemental schedule of cash flow information:
Cash paid (received) during the period for:
Income taxes $ - $ - $ (32,551) $ -
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TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended June 30, 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. Certain previously reported financial information has been reclassified
to conform to the current period's presentation.
NOTE 2 - MARKETABLE SECURITIES
Marketable securities in the San Juan Basin Royalty Trust are comprised of
25,840 shares at June 30, 1996 and 105,840 shares at June 30, 1995. At June
30, 1996, the Company's cost in this royalty trust is $30,825. At June 30,
1996, the market value of these securities which are designated as available
for sale aggregated $158,270, resulting in a gross unrealized gain in the
amount of $127,445 and an unrealized gain, net of tax effect, of $84,114. At
June 30, 1995, the market value of these securities was $912,870, resulting in
a gross unrealized gain in the amount of $786,612 and an unrealized gain, net
of tax effect, of $511,297. 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.
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TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended June 30, 1996
NOTE 4 - INTEREST AND OTHER INCOME
Items in interest and other income consist of:
Three Months Ended
June 30,
------------------------------
1996 1995
--------- ----------
Interest - Certificates of Deposit and
U. S. Treasury Bills $ 31,253 $ 54,639
Distribution from Grantor Trust:
San Juan Basin Royalty Trust 4,750 11,477
Other income 19,574 -
--------- ---------
$ 55,577 $ 66,116
========= =========
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. The Company removed from registration the shares of common stock
that remained unsold pursuant to an amendment to the registration statement
declared effective May 28, 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.
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TOREADOR ROYALTY CORPORATION
For the three and six months ended June 30, 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
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TOREADOR ROYALTY CORPORATION
For the three and six months ended June 30, 1996
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 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.
Since December 4, 1995, the Company, as of June 30, 1996, has used
$346,528.12 of its cash reserves to purchase 138,800 shares of its Common
Stock. 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 and a second stock repurchase program on April 22, 1996,
of up to 150,000 shares of common stock. As of July 18, 1996, the Company has
purchased an aggregate of 51,200 shares at a purchase price of $135,850.00
under the second 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.
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TOREADOR ROYALTY CORPORATION
For the three and six months ended June 30, 1996
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 VS
THREE MONTHS ENDED JUNE 30, 1995
Revenues for the second quarter 1996 were $579,219 versus $365,503 for
the same period in 1995. Oil and gas sales were $523,642 on volumes of 16,314
BBLs and 90,606 MCF versus $299,387 on volumes of 12,856 BBLs and 65,659 MCF in
1995. The $224,255 increase in oil and gas sales resulted from oil and gas
volumes increasing 26.9% and 38.0%, respectively, and higher oil and gas
prices. Oil volumes increased primarily as a result of a successful
development well 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 16.2% to $20.56/BBL
in 1996 from $17.70/BBL in 1995. Gas prices increased 90.8% to $2.08/MCF in
1996 from $1.09/MCF in 1995. Interest and other income was $55,577 in 1996
versus $66,116 in 1995.
Costs and expenses were $502,260 in 1996 versus $806,700 in 1995.
Lease operating expenses increased 38.1% to $127,710 in 1996 from $92,471 in
1995 due to the acquisitions made in 1995. Reflecting the Company's plan to
accelerate its acquisition efforts and its election not to participate in
certain drilling ventures on its minerals, the Company reduced expenses for dry
holes and abandonments by $50,991 to $54,986 in 1996 compared to $105,977 in
1995. As a result of the acquisitions made in the second half of 1995,
depreciation, depletion and amortization increased slightly to $55,322 in 1996
from $52,988 in 1995. Geological and geophysical expenses decreased 24.0% to
$47,522 in 1996 from $62,552 in 1995. General and administrative expenses
decreased significantly, $275,991 or 56.0%, primarily as a result of the
Company not having to defend itself against a competing slate of directors as
it did in 1995.
The Company recognized net income of $302,494, or $0.06 per share, for
the second quarter of 1996 versus a net loss of $441,197, or $0.08 per share,
for the same period in 1995. Net income for the second quarter of 1996 includes
a $375,551 gain from the sale of marketable securities compared to none for the
same period in 1995. Net income from operations after federal income taxes,
excluding the gain from the sale of marketable securities was $50,792 or $0.01
per share.
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TOREADOR ROYALTY CORPORATION
For the three and six months ended June 30, 1996
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 VS
SIX MONTHS ENDED JUNE 30, 1995
Revenues for the six months ended June 30, 1996 increased 36.2% to
$1,093,331 compared to $802,787 for 1995. Oil and gas sales increased 53.5% to
$987,155 in 1996 from $643,064 in 1995, resulting from the 22.7% increase of
equivalent barrel production of 62,029 in 1996 from 50,540 in 1995. This
increase in oil and gas sales was also boosted by a 25.1% increase in price per
equivalent barrel of $15.91 in 1996 versus $12.72 in 1995. Interest and other
income decreased 33.5% to $106,176 in 1996 compared to $159,723 in 1995. The
Company's continuing plan to focus its efforts on the exploitation of the
Company's minerals as well as accelerate and enhance its acquistion efforts
reduced the investment balances available to be placed in interest-bearing
accounts.
Total costs and expenses decreased 21.7% to $973,462 in the first half
of 1996 compared to $1,243,263 for the first half of 1995. Lease operating
expenses increased $56,534 or 34.9% to $218,468 in 1996 compared to $161,934 in
1995. This increase is a result of adding the two successful development wells
on the mineral acreage and the acquisitions made in the second half of 1995.
Reflecting the Company's plan to accelerate its acquisition efforts and its
election not to participate in certain drilling ventures on its minerals, the
Company reduced expenses for dry holes and abandonments by $86,187 to $89,191
in 1996 compared to $175,378 in 1995. Depreciation, depletion and amortization
expenses and geological and geophysical expenses, individually and
collectively, remained essentially unchanged from a year ago. General and
administrative expenses decreased $240,119 or 35.1% to $443,789 in 1996
compared to $683,908 in 1995. This decrease is primarily attributed to the
Company not having to defend itself against a competing slate of directors as
it did in 1995.
The Company recognized net income of $329,970, or $0.06 per share in
1996 compared to a net loss of $440,476, or $0.08 per share for the same period
in 1995. Net income for the first of 1996 includes a $375,551 gain from the
sale of marketable securities compared to none for the same period in 1995.
Net income from operations after federal income taxes, excluding the gain from
the sale of marketable securities was $79,114 or $0.02 per share.
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TOREADOR ROYALTY CORPORATION
June 30, 1996
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of the Company was held at 10:00 a.m.,
local time, on Thursday, May 16, 1996.
(b) Proxies were solicited by the Board of Directors of the Company pursuant
to Regulation 14A under the Securities Exchange Act of 1934. There was
no solicitation in opposition to the Board of Directors' nominees as
listed in the proxy statement and all of such nominees were duly elected.
(c) Out of a total of 5,248,802 shares of common stock of the Company
outstanding and entitled to vote, 3,547,593 shares were present in person
or by proxy, representing approximately 68 percent. The only matter
voted on by the stockholders, as fully described in the definitive proxy
materials for the annual meeting, was the election of directors of the
Company. The results of the voting for the election of directors of the
Company were as follows:
Number of shares
----------------
WITHHOLDING
-----------
Number of Shares Voting AUTHORITY to Vote for
----------------------- ---------------------
Nominees FOR Election as Director Election as Director
-------- ------------------------ --------------------
Donald E. August 3,482,026 65,567
John V. Ballard 3,497,326 50,267
J. W. Bullion 3,482,026 65,567
Thomas P. Kellogg, Jr. 3,482,026 65,567
John Mark McLaughlin 3,497,326 50,267
Peter R. Vig 3,496,076 51,517
Jack L. Woods 3,497,326 50,267
There were no broker non-votes for the matter voted on by the stockholders at
the annual meeting.
(d) Inapplicable.
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TOREADOR ROYALTY CORPORATION
June 30, 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
August 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
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