ITEM 1. BUSINESS
BACKGROUND
Wilshire Oil Company of Texas (the "Company", "Registrant" or "Wilshire") was incorporated under the laws of the State of Delaware on December 7, 1951. The Company's principal executive offices are located at 921 Bergen Avenue, Jersey City, New Jersey 07306, (201) 420-2796.
The Company is engaged in the exploration and development of oil and gas, both in its own name and through several wholly-owned subsidiaries in the United States and Canada. The Company's real estate division owns investment real estate properties in Arizona, Texas, Florida, Georgia and New Jersey. The Company also holds investments in certain marketable securities.
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
For financial segment information please see Note 8, "Segment Information" of the "Notes to Consolidated Financial Statements", presented elsewhere herein. The Company has no export sales or sales to affiliated customers.
DESCRIPTION OF BUSINESS
OIL AND GAS OPERATIONS
For a glossary of oil and gas terms, see "Properties - Oil and Gas Properties - Glossary."
The Company conducts its oil and gas operations on the North American continent. Oil and gas operations in the United States are located in Arkansas, California, Kansas, Nebraska, New Mexico, Ohio, Oklahoma, Pennsylvania, Texas and Wyoming. In Canada, the Company conducts oil and gas operations in the Provinces of Alberta, British Columbia and Saskatchewan.
As of March 15, 1997, 15 people are employed by the Company. Eleven employees are directly engaged in the search for new oil and gas properties. In addition, the Company also has consultants.
Prospects for lease acquisitions are developed by staff geologists or acquired from various co-venturers and/or consultants.
Once a property is acquired, the Company subcontracts for surveying and drilling operations. Many of the Company's present producing oil and gas properties are operated by independent contractors or under operating agreements with other companies pursuant to which the Company pays a proportionate share of operating expenses based upon its interests. The Company also acts as operator of various properties, charging joint venture partners for their proportionate share of expenses.
The Company does not engage in the refining of crude oil or the distribution of petroleum products. Crude oil and natural gas productions are sold to oil refineries and natural gas pipeline companies.
The Company participated in the drilling of 9 wells (.87 net) in 1996 compared to 11 (1.3 net) in 1995. The United States program in 1996 consisted of the drilling of 8 development wells (.86 net). Three (.66 net) of these wells were successfully completed as oil wells and four (.10 net) were successfully completed as gas wells. The three oil wells were drilled in the state of Texas and four gas wells were drilled in the state of Oklahoma. The Canadian drilling program in 1996 consisted of the drilling of one development well (.01 net). This well was successfully completed as an oil well. Overall, the Company's drilling program had a success ratio of 89%.
The Company's crude oil and condensate production is sold at posted field prices, primarily to major crude oil and condensate purchasers. For average posted field prices, for both oil and gas, see "Properties - Oil and Gas Properties - Production." The Company has one purchaser, Sinclair Oil Corporation that purchased in excess of 10% of its 1996 consolidated oil and gas revenues. Sinclair purchased 11.1%. Sinclair is located in the United States.
The loss of any one customer in the domestic hydrocarbon market is not considered material. The Company is not dependent on any patent, trademark or license.
The Company's oil and gas business is subject to all of the operating risks normally associated with the exploration for and production of oil and gas. In accordance with customary industry practices, the Company maintains insurance coverage limiting financial loss resulting from certain of these operating hazards.
COMPETITION
The oil and gas industry is intensely competitive and competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual customers.
The principal method of competition in the production of oil and gas is the successful location and acquisition of properties which produce commercially profitable quantities of oil and gas.
The Company competes with many other companies in the search for and acquisition of oil and gas properties and leases for exploration and development. Many of these companies have substantially greater financial, technical and other resources than the Company. Competition among petroleum companies for favorable oil and gas prospects can be expected to continue. The Company is not a significant factor in the oil and gas industry.
The principal raw materials and resources necessary for the exploration for, and the acquisition, development, production and sale of, crude oil and natural gas are leasehold or freehold prospects under which oil and gas reserves may be discovered, drilling rigs and related equipment to explore for and develop such reserves, casing and other capital assets required for the development and production of the reserves and knowledgeable personnel to conduct all phases of oil and gas operations. The Company must compete for such raw materials and resources with both major oil companies and independent operators and also with other industries for certain personnel and materials. Although the Company believes its current inventories of raw materials and resources are adequate to preclude any significant disruption of operations in the immediate future, the continued availability of such materials and resources to the Company cannot be assured.
SEASONALITY
The oil business is generally not seasonal in nature. Gas demand and prices paid for gas have become seasonal, showing a decrease during the summer and fall.
ENVIRONMENTAL MATTERS
The petroleum industry is subject to numerous federal, state and provincial environmental statutes, regulations and other pollution controls in both the United States and Canada. In general, the Company is and will continue to be subject to present and future environmental statutes and regulations.
The Company's expenses relating to preserving the environment during 1996 were not significant in relation to operating costs and the Company expects no material changes in 1997. Environmental regulations have had no materially adverse effect on the Company's petroleum operations to date, but no assurance can be given that environmental regulations will not, in the future, result in a curtailment of production or otherwise have materially adverse effects on the Company's operations or financial condition.
REGULATION - UNITED STATES OPERATIONS
The Company's operations are affected from time to time, in varying degrees, by political developments, laws and regulations. In particular, oil and gas production operations are affected by changes in taxes and other laws relating to the petroleum industry and by constantly changing administrative regulations. The long-term effects of all the federal enactments and programs, whether beneficial or detrimental to the future operations and income of the Company, cannot be predicted at this time.
Rates of production of oil and gas have for many years been subject to conservation laws and regulations. State regulatory agencies set allowable rates of production and limit the number of days a month a well can produce. The petroleum industry has also been subject to tax laws dealing specifically with it, such as the Crude Oil Windfall Profit Tax Act. In addition, oil and gas operations are subject to extensive regulation or termination by government authorities on account of ecological and other considerations. All of the jurisdictions in which the Company operates have statutes and administrative regulations governing the drilling and production of oil and gas.
REGULATION - CANADIAN OPERATIONS
The Company's Canadian subsidiary, Wilshire Oil of Canada, Ltd., operates primarily in the Province of Alberta, with some activity in the Province of British Columbia and Saskatchewan.
The petroleum and natural gas industry operates under federal and provincial legislation and regulations which govern land tenure, royalties, production rates, environmental protection, exports and other matters. Federal legislation monitors the price of oil and gas in export trade and the quantities of such products exportable from Canada. Provincial legislation has been enacted for the purpose of regulating operations in the Provinces.
OIL PRICES
Oil prices actually being paid by purchasers in the United States are publicly announced throughout the country and vary depending on locality and qualitative specifications of the crude oil. All prices are subject to future modification by appropriate agency action.
JACOBS ENGINEERING INVESTMENT
Wilshire made a significant investment in Jacobs Engineering Group, Inc. ("Jacobs") initially during 1986 by purchasing 278,300 shares of common stock at an average price of $7.25 per share. Subsequently, the Company purchased additional shares, the stock split, stock dividends were received and the Company sold certain shares. The Company realized gains on sales of common shares of Jacobs of $8,449,000 in 1996 compared to $9,182,000 in 1995. On December 31, 1996, Wilshire held 679,760 shares at an average cost of $10.83 per share.
Jacobs, headquartered in Pasadena, California, is listed on the New York Stock Exchange. It is a world-wide leader in engineering design, construction management and operation of industrial facilities, plants and governmental projects.
Jacobs reported record results for its fiscal year ended September 30, 1996. From 1995 to 1996, revenues increased from $1.7 billion to $1.8 billion, net income increased from $32 million to $40 million, and net income per share increased from $1.27 to $1.56.
The closing price of Jacobs' common stock on the New York Stock Exchange on December 31, 1996 was 2.2 times more than Wilshire's average cost of the shares it currently holds. Wilshire's cost as of December 31, 1996 was $7,363,000. The aggregate market value of the Jacobs common stock held by Wilshire on December 31, 1996 (based on the closing price on that date) was $16,059,000, or $8,696,000 in excess of Wilshire's cost basis.
The stock of Jacobs held by Wilshire continues to be important to Wilshire as it broadens the Company's base and adds substantially to the value of the Company's assets.
REAL ESTATE OPERATIONS
The Company's real estate operations are conducted in the states of Arizona, Texas, Florida, Georgia and New Jersey. They are not seasonal in nature.
The Company's Arizona properties includes the following:
o 378 unit garden apartment complex o 340 unit garden apartment complex o 70 unit midrise apartment building o 53,000 sq. ft. multi-tenant two story office building o 65,000 sq. ft. retail/medical use complex
The Texas property is a 228 unit apartment complex.
The Florida property consists of two office buildings having a combined area of 28,000 square feet.
The Georgia property is a 72 unit apartment complex.
The Company's properties in New Jersey include apartment properties having 307 units as well as various commercial/retail properties.
The Company utilizes property management companies to assist in the management of its properties. Expenses incurred in operating the properties include, among other things, administrative costs, utilities, repairs and maintenance and property taxes.
The Company will explore other real estate acquisitions as they arise. The timing of any such acquisition will depend on, among other things, economic conditions and the favorable evaluation of specific opportunities presented to the Company. The Company is currently planning further acquisitions of investment properties during the next several months. Accordingly, while the Company anticipates that it will actively explore these and other real estate acquisition opportunities, no assurance can be given that any such acquisition will occur.
The real estate industry is intensely competitive in nature. The Company competes with many other real estate operators and is not a significant factor in the market it operates in.
The Company's real estate operations are subject to existing federal and state laws regarding environmental quality and pollution control. Environmental regulations had no materially adverse effect on the Company's real estate operations during 1996, but no assurance can be given that environmental regulations will not, in the future, have a materially adverse effect on the Company's operations.
ITEM 1A
ITEM 1A - EXECUTIVE OFFICERS OF THE REGISTRANT
The table below sets forth the names and ages of all executive officers of the Registrant and the position(s) and offices with the Registrant presently held by each and the periods during which each has served in such position(s) and offices. There are no "family relationships" as defined in Item 401 (d) of Regulation S-K between any of these persons and any other executive officer or director of the Company.
All executive officers have been elected or appointed to hold office until their respective successors have been elected or appointed and qualified or until their earlier resignation or removal.
Executive Officers of Registrant
Name Age Position with Registrant - ---- --- ------------------------
S. Wilzig Izak (a) 38 Chairman of the Board and Chief Executive Officer
Allen C. Knight (b) 72 Senior Vice President - Canada
Steven A. Gelman (c) 40 Vice President and Controller
a) Ms. Izak was appointed Chairman of the Board on September 20, 1990. She served as Executive Vice President of the Company from August 10, 1987 through September 20, 1990.
b) Mr. Knight was appointed Senior Vice President on May 2, 1985.
c) Mr. Gelman joined the Company April 26, 1993.
ITEM 2.
ITEM 2. PROPERTIES
Offices
The executive and administrative office of the Company consists of approximately 2,000 square feet, located at 921 Bergen Avenue, Jersey City, New Jersey. This office is leased at a monthly rental of $2,257.
The Company maintains its principal office for the United States oil and gas operations in Oklahoma City, Oklahoma, leasing 3,618 square feet, at a monthly cost of $2,111. The Company also owns a storage yard of approximately five acres, situated near Will Rogers Airport in Oklahoma City.
The Company's Canadian subsidiary maintains an exploration office in Calgary, Alberta, Canada. The Company leases 1,583 square feet at a monthly rental of $1,424 Canadian.
OIL AND GAS PROPERTIES
GLOSSARY
The terms defined in this section are used throughout this report.
BBL. One stock tank barrel, or 42 U.S. gallons liquid volume, usually used herein in reference to crude oil or other liquid hydrocarbons.
BOE. Equivalent barrels of oil in reference to natural gas. Natural gas equivalents are determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
DEVELOPED ACREAGE. The number of acres which are allocated or assignable to producing wells or wells capable of production.
DEVELOPMENT WELL. A well drilled as an additional well to the same reservoir as other producing wells on a lease, or drilled on an offset Lease not more than one location away from a well producing from the same reservoir.
EXPLORATORY WELL. A well drilled in search of a new undiscovered pool of oil or gas, or to extend the known limits of a field under development.
GROSS ACRES OR WELLS. The total acres or wells, as the case may be, in which an entity has an interest, either directly or through an affiliate.
LEASE. Full or partial interests in an oil and gas lease, oil and gas mineral rights, fee rights or other rights, authorizing the owner thereof to drill for, reduce to possession and produce oil and gas upon payment of rentals, bonuses and/or royalties. Oil and gas leases are generally acquired from private landowners and federal, provincial and state governments.
MCF. One thousand cubic feet. Expressed, where gas sales contracts are in effect, in terms of contractual temperature and pressure bases and, where contracts are nonexistent, at 60 degrees Fahrenheit and 14.65 pounds per square inch absolute.
MMCF. One million cubic feet. Expressed, where gas sales contracts are in effect, in terms of contractual temperature and pressure bases and, where contracts are nonexistent, at 60 degrees Fahrenheit and 14.65 pounds per square inch absolute.
NET ACRES OR WELLS. A party's interest in acres or a well calculated by multiplying the number of gross acres or gross wells in which such party has an interest by the fractional interest of such party in such acres or wells.
PRODUCTION COSTS. The expenses of producing oil or gas from a formation, consisting of the costs incurred to operate and maintain wells and related equipment and facilities, including labor costs, repair and maintenance, supplies, insurance, production, severance and other production excise taxes.
PRODUCING PROPERTY. A property (or interest therein) producing oil and gas in commercial quantities or that is shut-in but capable of producing oil and gas in commercial quantities, to which Producing Reserves have been assigned by an independent petroleum engineer. Interests in a property may include working interests, production payments, royalty interests and other nonworking interests.
PRODUCING RESERVES. Proved Developed reserves expected to be produced from existing completion intervals open for production in existing wells.
PROSPECT. An area in which a party owns or intends to acquire one or more oil and gas interests, which is geographically defined on the basis of geological data and which is reasonably anticipated to contain at least one reservoir of oil, gas or other hydrocarbons.
PROVED DEVELOPED RESERVES. Proved Reserves which can be expected to be recovered through existing wells with existing equipment and operating methods.
PROVED RESERVES. The estimated quantities of crude oil, natural gas and other hydrocarbons which, based upon geological and engineering data, are expected to be produced from known oil and gas reservoirs under existing economic and operating conditions, and the estimated present value thereof based upon the prices and costs on the date that the estimate is made and any price changes provided for by existing conditions.
PROVED UNDEVELOPED RESERVES. Proved Reserves which can be expected to be recovered from new wells on undeveloped acreage or from existing wells where a relatively major expenditure is required for recompletion.
UNDEVELOPED ACRES. Oil and gas acreage (including, in applicable instances, rights in one or more horizons which may be penetrated by existing well bores, but which have not been tested) to which proved reserves have not been assigned by independent petroleum engineers.
WORKING INTEREST. The operating interest under a lease which gives the owner the rights to drill, produce and conduct operating activities on the property ;and a share of production, subject to all royalty interests and other burdens and to all costs of exploration, development and operations and all risks in connection therewith.
* * *
Following are certain tables and other statistical data concerning the Company's reserves, production, acreage and other information with regard to the Company's oil and gas properties and operations.
For information regarding costs incurred in 1996, please refer to the "Segment Information" in Note 8 of the Notes to Consolidated Financial Statements, presented elsewhere herein. For information regarding capitalized costs relating to oil and gas producing activities, please refer to Note 9 of the Notes to Consolidated Financial Statements, presented elsewhere herein.
Future revenues, net of development and production expenditures (Net Revenues), from estimated production of proved and proved developed reserves, based on existing economic conditions for each of the next three succeeding years, are estimated as follows:
RESERVES
The quantities of natural gas and crude oil Proved and Proved Developed Reserves presented herein include only those amounts which the Company reasonably expects to recover in the future from known oil and gas reservoirs under existing economic and operating conditions. Therefore, Proved and Proved Developed Reserves are limited to those quantities which are recoverable commercially at current prices and costs, under existing technology. Accordingly, any changes in the future oil and gas prices, operating and development costs, regulations, technology and other factors could significantly increase or decrease estimates of Proved and Proved Developed Reserves.
The Company's net Proved and Proved Developed Reserves of oil and gas and the present values thereof at December 31, 1994 and 1995 and 1996 were estimated by the independent professional engineering consultants referred to on page 28. Such estimates were utilized in the preparation of the Company's consolidated financial statements for the applicable fiscal years and for reporting purposes.
Set forth below are estimates of the Company's Proved and Proved Developed Reserves and the present value of estimated future net revenues from such reserves based upon the standardized measure of discounted future net cash flows relating to proved oil and gas reserves in accordance with the provisions of Statement of Financial Accounting Standards No. 69, "Disclosures about Oil and Gas Producing Activities" (SFAS No. 69). The standardized measure of discounted future net cash flows is determined by using estimated quantities of Proved Reserves and the periods in which they are expected to be developed and produced based on period-end economic conditions. The estimated future production is priced at period-end prices, except where fixed and determinable price escalations are provided by contract. The resulting estimated future cash inflows are reduced further by estimated future costs to develop and produce reserves based on period-end cost levels. No deduction has been made for depletion, depreciation or income taxes or for indirect costs, such as general corporate overhead. Present values were computed by discounting future net revenues by 10 percent per annum.
The following table sets forth summary information with respect to the estimates of the Company's Proved and Proved Developed Reserves at December 31 of the years indicated:
The determination of oil and gas reserves is a complex and interpretive process which is subject to continued revisions as additional information becomes available. Reserve estimates prepared by different engineers from the same data can vary widely. Therefore, the reserve data presented herein should not be construed as being exact. Any reserve estimate, especially when based upon volummetric calculations, depends in part on the quality of available data, engineering and geologic interpretation and judgement, and thus, represents only an informed professional judgement. Subsequent reservoir performance may justify upward or downward revision of the estimate.
No Proved or Proved Developed Reserve estimates for oil and gas were filed with or included in reports to any other federal or foreign governmental authority or agency since the beginning of fiscal 1996, other than with the Securities and Exchange Commission.
PRODUCTION WELLS
The following tabulations indicate the number of productive wells (gross and net) as of December 31, 1996:
Gas Oil Developed Acreage ---------------- ---------------- -------------------- Gross Net Gross Net Gross Net ----- ---- ----- ---- ------- ------ United States 627 78.5 377 74.7 53,021 21,826
Canada 205 49.2 67 6.5 163,980 26,308
PRODUCTION
The following table shows the Company's net production in barrels ("Bbls") of crude oil and in thousands of cubic feet ("Mcf") of natural gas (computed after deducting all outstanding interests, including basic royalties and overriding royalties) for the past three years (note - all $ dollar amounts presented are in U.S. dollars).
Oil and Condensate (Bbls) Gas (Mcf) --------------------------- ---------------------------- United States Canada United States Canada ------------- ------ ------------- ------- 1996 121,000 44,000 857,000 726,000 1995 169,000 45,000 1,011,000 933,000 1994 277,000 46,000 1,238,000 822,000
Average sales price per unit of oil or gas produced:
Oil Gas ----------------- ---------------- U.S. Canada U.S. Canada ------ ------ ----- ------ 1996 $20.01 $17.98 $1.92 $1.22 1995 $16.06 $14.30 $1.48 $ .95 1994 $15.17 $12.79 $1.74 $1.36
Production as shown in the table, which is net after royalty interests due others, is determined by multiplying the gross production volume of properties in which the Company has an interest by the percentage of the leasehold or other property interest owned by the Company.
The relative energy content of oil and gas (six Mcf of gas equals one barrel of oil) was used to obtain a conversion factor to convert natural gas production into equivalent barrels of oils.
There are no agreements with foreign governments.
Average Production Cost Per Equivalent Barrel of Oil in the United States and Canada: - ----------------------------------------------
1996 1995 1994 ---- ---- ----
United States $6.78 $6.19 $4.99 Canada $2.54 $2.16 $2.38
Unit cost is computed on equivalent barrels of oil equating gas to oil based on BTU content. This method is appropriate for the Registrant since several properties produce both oil and gas and production costs are not segregated.
The components of production costs may vary substantially among wells depending on the methods of recovery employed and other factors, but generally include severance taxes, administrative overhead, maintenance and repair, labor and utilities.
OIL AND GAS LEASES
The following tabulation indicates the undeveloped acreage leased by the Registrant as of December 31 of the years indicated:
1996 1995 ---- ---- Undeveloped Acres Undeveloped Acres --------------------- --------------------- Gross Net Gross Net ------ ----- ------ ----- United States 6,367 3,320 7,138 3,487
Canada 21,128 3,592 23,368 3,920
A "gross" acre is an acre in which the Company owns a working interest. A "net" acre is deemed to exist when the sum of the fractional working interests owned by the Company in gross acres equals one.
DRILLING
The following table sets forth the results of the Registrant's drilling programs for the years covered:
A dry hole is an exploratory or development well which is found to be incapable of producing oil or gas in sufficient quantities to justify completion. A productive well is an exploratory or development well that is capable of commercial production. The number of wells drilled refers to the number of wells completed during the fiscal year, regardless of when drilling was initiated.
REAL ESTATE PROPERTIES
The following table sets forth the location and general character of the principal physical properties owned by the Company as part of its real estate operations. Most of the properties are subject to mortgages. For further information with respect to these properties, see "Business - Real Estate Operations."
Location General Character -------- -----------------
Arizona 378 Unit Apartment Complex Arizona 340 Unit Apartment Complex Arizona 70 Unit Apartment Building Arizona Office Building Arizona Retail/Medical use Complex Texas 228 Unit Apartment Complex Florida Office Building Georgia 72 Unit Apartment Complex New Jersey Apartment Properties (307 units) New Jersey Commercial/Retail Properties
The Company considers all of its properties both owned and leased, together with the related furniture, fixtures and equipment contained therein, to be well maintained, in good operating condition, and adequate for its present and foreseeable future needs.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
At December 31, 1996, the Company was not a party to any actions or proceedings which management believes are reasonably likely to have a material adverse effect upon the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted by the Company to a vote of its security holders during the fourth quarter of the year ended December 31, 1996.
PART II
ITEM 5.
ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange. The following table indicates the high and low sales prices of the Company's common stock for the quarters indicated during the past two years:
(All in ($) Dollars)
As of March 15, 1997 there were 9,601 common shareholders of record.
The Company declared a $.10 per common share cash dividend on June 21, 1996, payable semi-annually. The first payment of $.05 to shareholders of record on August 21, 1996 was paid on September 20, 1996. The second payment of $.05 has a record date of April 2, 1997 and is payable April 23, 1997. The Company declared a $.07 per common share cash dividend on June 29, 1995 to shareholders of record on July 28, 1995. This dividend was paid on August 18, 1995.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
(Not covered by Report of Independent Public Accountants)
(In thousands of dollars except per share amounts)
For the Year Ended December 31 ------------------------------------------------------ 1996 1995 1994 1993 1992 ------- -------- -------- -------- -------
Oil/Gas Revenues $ 5,720 $ 5,672 $ 7,926 $ 8,505 $ 8,803 ------- -------- -------- -------- ------- Real Estate Revenues $ 9,296 $ 8,600 $ 7,885 $ 6,526 $ 2,604 ------- -------- -------- -------- ------- Total Revenues $15,016 $ 14,272 $ 15,811 $ 15,031 $11,407 ------- -------- -------- -------- ------- Gross Profit Oil/Gas (a) $ 1,575 $ 747 $ 1,930 $ 1,740 $ 443 ------- -------- -------- -------- ------- Gross Profit Real Estate (b) $ 2,600 $ 2,712 $ 2,415 $ 2,200 $ 832 ------- -------- -------- -------- ------- Total Gross Profit $ 4,175 $ 3,459 $ 4,345 $ 3,940 $ 1,275 ------- -------- -------- -------- ------- Net Income $ 4,709 $ 4,300 $ 3,577 $ 4,573 $ 3,523 ------- -------- -------- -------- ------- Net income per share of common stock(c) $ .51 $ .45 $ .36 $ .45 $ .35 ------- -------- -------- -------- ------- Total assets at year-end (d) $98,378 $104,186 $103,198 $104,652 $68,527 ------- -------- -------- -------- ------- Long-term obligations $46,299 $ 47,298 $ 50,160 $ 40,721 $39,634 ------- -------- -------- -------- ------- Cash dividends per share $ .10 $ .07 $ .06 $ .05 $ - 0 - ------- -------- -------- -------- -------
a- Gross profit relating to oil and gas represents oil and gas revenues less production costs and related depreciation, depletion and amortization.
b- Gross profit relating to real estate represents total real estate revenues less real estate operating costs and related depreciation.
c- Restated to give effect to stock dividends.
d- Total assets at December 31, 1996, 1995, 1994 and 1993 reflect investments in equity securities stated at market value. See Note 1 to the consolidated financial statements regarding this change in accounting.
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
(In thousands $ except per share amounts)
----
1st 2nd 3rd 4th Year --------------------------------------------------- Oil/Gas Revenues $1,349 $1,381 $1,507 $1,483 $ 5,720 Real Estate Revenues $2,191 $2,395 $2,337 $2,373 $ 9,296 --------------------------------------------------- Total Revenues $3,540 $3,776 $3,844 $3,856 $15,016 --------------------------------------------------- Gross Profit Oil/Gas (a) $ 140 $ 13 $ 44 $1,378 $ 1,575 Gross Profit Real Estate (b) $ 653 $ 750 $ 742 $ 455 $ 2,600 --------------------------------------------------- Total Gross Profit $ 793 $ 763 $ 786 $1,833 $ 4,175 --------------------------------------------------- Net Income $1,652 $1,403 $1,026 $ 628 $ 4,709 --------------------------------------------------- Net Income Per Share $ .18 $ .15 $ .11 $ .07 $ .51 --------------------------------------------------- Cash Dividends Per Share $ -0- $ .10 $ -0- $ -0- $ .10 ---------------------------------------------------
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
(In thousands $ except per share amounts)
1st 2nd 3rd 4th Year ----------------------------------------------------- Oil/Gas Revenues $1,635 $1,378 $1,415 $1,244 $ 5,672 Real Estate Revenues $2,084 $2,155 $2,164 $2,197 $ 8,600 ----------------------------------------------------- Total Revenues $3,719 $3,533 $3,579 $3,441 $14,272 ----------------------------------------------------- Gross Profit Oil/Gas (a) $ 244 $ (122) $ (227) $ 852 $ 747 Gross Profit Real Estate (b) $ 626 $ 693 $ 575 $ 818 $ 2,712 ----------------------------------------------------- Total Gross Profit $ 870 $ 571 $ 348 $1,670 $ 3,459 ----------------------------------------------------- Net Income $1,330 $1,304 $ 217 $1,449 $ 4,300 ----------------------------------------------------- Net Income Per Share $ .14 $ .14 $ .02 $ .15 $ .45 ----------------------------------------------------- Cash Dividends Per Share $ -0- $ .07 $ -0- $ -0- $ .07 -----------------------------------------------------
a - Gross profit relating to oil and gas represents oil and gas revenues less production costs and related depreciation, depletion and amortization.
b - Gross profit relating to real estate represents total real estate revenues less real estate operating costs and related depreciation.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's oil and gas operating performance is influenced by several factors. The most significant are the prices received for the sale of oil and gas and the sales volume. For 1996, the average price of oil that the Company received was $19.47 compared to $15.69 for 1995, a price increase of 24%. Average gas prices received by the Company in 1996 were 30% higher than 1995 average gas prices. The average price of gas for 1996 was $1.60 compared to $1.23 for 1995.
The following table reflects the average prices received by the Company for oil and gas, the average production cost per BOE, and the amount of the Company's oil and gas production for the fiscal years presented:
Sales prices received by the Company for oil and gas have fluctuated significantly from period to period. The fluctuations in oil prices during these periods primarily reflected market uncertainty regarding the inability of the Organization of Petroleum Exporting Countries ("OPEC") to control the production of its member countries, as well as concerns related to global supply and demand for crude oil. Gas prices received by the Company fluctuate generally with changes in the spot market price for gas. It is impossible to predict future price movements with certainty.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 ("1996") COMPARED WITH YEAR ENDED DECEMBER 31, 1995 ("1995")
Net income for the year ended December 31 increased from $4,300,000 in 1995 to $4,709,000 in 1996.
Oil and gas revenues increased from $5,672,000 in 1995 to $5,720,000 in 1996. This increase was attributable to higher oil & gas prices in 1996.
Real estate revenues increased from $8,600,000 in 1995 to $9,296,000 in 1996. This increase was principally due to higher rents and the operations of the five real estate properties acquired during the first quarter of 1996.
Oil and gas production expense decreased in 1996. Oil and gas production expense decreased from $2,524,000 in 1995 to $2,209,000 in 1996. Production expense decreased due to, among other things, less oil and gas activities in 1996.
Depreciation, depletion and amortization of oil and gas assets amounted to $1,936,000 in 1996 compared to $2,401,000 in 1995. This decrease is principally attributable to an increase in the estimated value of the Company's oil & gas reserves. Real estate depreciation was $1,157,000 in 1996 compared to $1,037,000 in 1995.
General and administrative expense was relatively stable, amounting to $1,447,000 in 1996 compared to $1,415,000 in 1995.
The Company realized gains on sales of common shares of Jacobs Engineering Group, Inc.("Jacobs") of $8,449,000 in 1996 compared to $9,182,000 in 1995. As of December 31, 1996, the Company held 679,760 shares of Jacobs.
Interest expense decreased from $4,144,000 in 1995 to $3,939,000 in 1996. This decrease is attributable to a reduction in long-term debt and lower interest rates during 1996.
The provision for income taxes includes Federal, state and Canadian taxes. Differences between the effective tax rate and the statutory income tax rates are due to foreign resource tax credits in Canada, additional provision to cover the settlement of a tax examination, and the dividend exclusion in the United States.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 ("1995") COMPARED WITH YEAR ENDED DECEMBER 31, 1994 ("1994")
Net income for the year ended December 31 increased from $3,577,000 in 1994 to $4,300,000 in 1995.
Oil and gas revenues were $5,672,000 in 1995 compared to $7,926,000 in 1994. This decrease was attributable to production declines from year to year. Much of this decrease in production is typical of the natural decline experienced in a "horizontal well" drilling program.
Real estate revenues increased from $7,885,000 in 1994 to $8,600,000 in 1995, an increase of $715,000. This increase was principally due to higher rents and increased occupancy.
Oil and gas production expense decreased in 1995. Oil and gas production expense decreased from $2,846,000 in 1994 to $2,524,000 in 1995. Production expense decreased due to, among other things, lower production in 1995.
Depreciation, depletion and amortization of oil and gas assets amounted to $2,401,000 in 1995 compared to $3,150,000 in 1994. This decrease is principally attributable to a lower depletable pool and lower oil and gas revenues in 1995. Real estate depreciation was $1,037,000 in 1995 compared to $870,000 in 1994.
General and administrative expense was relatively stable, amounting to $1,415,000 in 1995 compared to $1,386,000 in 1994.
The Company realized gains on sales of common shares of Jacobs Engineering Group, Inc.("Jacobs") of $9,182,000 in 1995 compared to $5,457,000 in 1994. As of December 31, 1995, the Company held 1,059,660 shares of Jacobs.
Interest expense increased from $3,638,000 in 1994 to $4,144,000 in 1995 due to higher interest rates in general in 1995.
The provision for income taxes includes Federal and Canadian taxes. Differences between the effective tax rate and the statutory income tax rates are due to foreign resource tax credits in Canada, additional provision to cover the settlement of a tax examination, and the dividend exclusion in the United States.
EFFECTS OF INFLATION
The effects of inflation on the Company's financial condition are not considered to be material by management.
ACCOUNTING FOR INCOME TAXES
Statement of Finanancial Accounting Standard No. 109- "Accounting for Income Taxes" became effective for the Company beginning in the first quarter of 1993. SFAS 109 requires, among other things, an asset and liability approach to accounting for income taxes. SFAS 109 did not have a material impact on the Company's consolidated financial statements.
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
On December 31, 1993 the Company adopted Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). The investments of the Company are principally equity securities, held for indefinite periods of time. These securities are carried at fair value and the difference between cost and fair value is charged/credited directly to shareholders' equity, net of income taxes. As of December 31, 1996, the net unrealized gain on marketable securities was $9,047,000. This amount, net of related deferred income taxes of $4,071,000, is included as a credit to shareholders' equity in the Company's 1996 consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996 the Company had approximately $15 million in marketable securities at cost, with a market value of approximately $24 million. The current ratio at December 31, 1996 was 3 to 1 on a market basis, which management considers adequate for the Company's current business. The Company's working capital was approximately $19 million at December 31, 1996.
The Company anticipates that cash provided by operating activities and investing activities will be sufficient to meet its capital requirements to acquire oil and gas properties and to drill and evaluate these and other oil and gas properties presently held by the Company. The level of oil and gas capital expenditures will vary in future periods depending on market conditions, including the price of oil and the demand for natural gas, and other related factors. As the Company has no material long-term commitments with respect to its oil and gas capital expenditure plans, the Company has a significant degree of flexibility to adjust the level of its expenditures as circumstances warrant.
The Company plans to actively continue its exploration and production activities as well as search for the acquisition of oil and gas producing properties and of companies with desirable oil and gas producing properties. There can be no assurance that the Company will in fact locate any such acquisitions.
During the first quarter of 1996, the Company acquired real estate properties from The Trust Company of New Jersey at an aggregate purchase price of approximately $3 million. The Company will explore other real estate acquisitions as they arise. The timing of any such acquisition will depend on, among other things, economic conditions and the favorable evaluation of specific opportunities presented to the Company. The Company is currently planning further acquisitions of investment properties during the next several months. Accordingly, while the Company anticipates that it will actively explore these and other real estate acquisition opportunities, no assurance can be given that any such acquisition will occur.
Net cash provided by(used in) operating activities was $(486,000), $745,000, and $4,446,000 in 1996, 1995 and 1994, respectively. The variations in the three years principally relate to changes in accounts receivable and accounts payable and accrued liabilities.
Net cash provided by (used in) investing activities was $3,456,000, $4,159,000 and $(12,266,000) in 1996, 1995 and 1994, respectively. The variations principally relate to purchases of real estate properties and transactions in securities. Purchases of real estate properties amounted to $3 million in 1996 and $10.2 million in 1994. Proceeds from sales of marketable securities amounted to $10,044,000 in 1996, $10,501,000 in 1995 and $6,710,000 in 1994. The Company acquired $3,000,000 of preferred stock of The Trust Company of New Jersey in 1994. Additionally, purchases of marketable securities amounted to $294,000 in 1996, $3,130,000 in 1995, and $5,204,000 in 1994.
Net cash provided by (used in) financing activities was ($3,374,000), ($4,215,000) and $7,167,000 in 1996, 1995 and 1994, respectively. The variations principally relate to the issuance, renegotiation, and repayments of long-term debt. Long-term mortgage loans incurred in connection with the Company's 1994 real estate acquisitions amounted to $8,704,000. Additionally, in 1996, the Company borrowed new monies and also restructured its existing loans which are collateralized by securities. See Footnote No. (4) to the consolidated financial statements for a schedule of long-term debt.
The Company believes it has adequate capital resources to fund operations for the foreseeable future.
Financial Accounting Standards Board Statement No. 69 Disclosures
The following disclosures are those required to be made by publicly traded enterprises under Financial Accounting Standards Board Statement No. 69, Disclosures About Oil and Gas Producing Activities.
The SEC defines proved oil and gas reserves as those estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed oil and gas reserves are those that can be recovered through existing wells with existing equipment and operating methods.
Estimated quantities of proved oil and gas reserves are as follows:
Disclosures of Oil and Gas Producing Activities as Required by Financial Accounting Standards Board Statement No. 69 (000's Omitted)
Standardized Measure of Discounted Future Net Cash Flows
Related to Proved Oil and Gas Reserves
For The Years Ended December 31, 1996 and 1995 (000's Omitted)
United States Canada ------------------- ------------------- 1996 1995 1996 1995 ------- ------- ------- ------- Future cash flows $54,839 $44,955 $73,141 $67,510 ------- ------- ------- ------- Future costs: Production 15,699 13,542 16,533 16,401 Development, dismantlement & abandonment 1,603 1,526 2,461 2,159 ------- ------- ------- ------- Total Future Costs $17,302 $15,068 $18,994 $18,560 ------- ------- ------- ------- Future net inflows-Before income tax $37,537 $29,887 $54,147 $48,950 Future income taxes $ 9,966 $ 7,869 $18,400 $16,605 ------- ------- ------- ------- Future net cash flows $27,571 $22,018 $35,747 $32,345 10% Discount factor 10,818 6,848 21,095 18,420 ------- ------- ------- ------- Standardized measure of discounted future net cash flows $16,753 $15,170 $14,652 $13,925 ------- ------- ------- -------
Estimated future cash inflows are computed by applying year-end prices of oil and gas to year-end quantities of proved reserves. Future price changes are considered only to the extent provided by contractual arrangements. Estimated future development and production costs are determined by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves at the end of the year, based on year-end costs and assuming continuation of existing economic conditions. Estimated future income tax expenses are calculated by applying year-end statutory tax rates (adjusted for permanent differences and tax credits) to estimated future pretax net cash flows related to proved oil and gas reserves, less the tax basis of the properties involved.
These estimates are furnished and calculated in accordance with requirements of the Financial Accounting Standards Board and the SEC. Due to unpredictable variances in expenses and capital forecasts, crude oil and natural gas price changes and the fact that the basis for such estimates vary significantly, management believes the usefulness of these projections is limited. Estimates of future net cash flows do not represent management's assessment of future profitability or future cash flow to the Company. Management's investment and operating decisions are based upon reserve estimates that include proved reserves prescribed by the SEC as well as probable reserves, and upon different price and cost assumptions from those used here. It should be recognized that applying current costs and prices at a 10 percent standard discount rate allows for
comparability but does not convey absolute value. The discounted amounts arrived at are only one measure of financial quantification of proved reserves.
There were no oil and gas estimates filed with or included in reports to any other federal or foreign governmental authority or agency within the last twelve months.
Reserves in the United States were estimated by Ramsey Engineering Inc. and the Company. Reserves in Canada were estimated by Citidal Engineering, Ltd.
"Total Costs Both Capitalized and Expensed, Incurred in Oil and Gas Producing Activities" (including capitalized interest), "Cost Incurred in Property Acquisition, Exploration and Development Activities" and "Results of Operations from Oil and Gas Producing Activities" during the three years ended December 31, 1996, 1995 and 1994 are included in Note 9 of the Notes to Consolidated Financial Statements, presented elsewhere herein.
The standardized measure of discounted estimated future net cash flows and changes therein related to proved oil and gas reserves is as follows:
Changes in Standardized Measure of
Discounted Future Net Cash Flow from Proved Reserve Quantities
(000's Omitted)
1996 1995 1994 ------- ------- ------- Standardized Measure - Beginning of Year $29,095 $29,404 $24,015 Sales and transfers - Net of Production Costs (3,490) (2,948) (5,556) Extensions and discoveries 690 3,304 2,517 Net change in sales price 10,899 425 1,199 Revision of quantity estimates (1,424) (2,126) 7,956 Proceeds from Sales of Minerals in Place -0- -0 -0- Accretion of discount 2,463 3,011 2,794 Net change in income taxes (2,010) 818 2,193 Change in production rates- Other (4,818) (2,793) (5,714) ------- ------- ------- Standardized measure - End of year $31,405 $29,095 $29,404 ------- ------- -------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS OF THE REGISTRANT
Information required under this Item with respect to Directors is incorporated by reference from the Company's Definitive Proxy Statement for the 1997 Annual Meeting of Shareholders.
Information regarding executive officers is found in Part I, Item 1 (a)
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item is incorporated by reference from the Company's Definitive Proxy Statement for the 1997 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this Item is incorporated by reference from the Company's Definitive Proxy Statement for the 1997 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is incorporated by reference from the Company's Definitive Proxy Statement for the 1997 Annual Meeting of Shareholders.
ITEM 8
ITEM 8 -- FINANCIAL STATEMENTS
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ----
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Wilshire Oil Company of Texas:
We have audited the accompanying consolidated balance sheets of Wilshire Oil Company of Texas (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wilshire Oil Company of Texas and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey March 26, 1997
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The accompanying notes to consolidated financial statements are an integral part of these statements.
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The accompanying notes to consolidated financial statements are an integral part of these statements.
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The accompanying notes to consolidated financial statements are an integral part of these statements.
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS:
Wilshire Oil Company of Texas ("the Company") is a diversified corporation engaged in oil and gas exploration and production and real estate operations. The Company's oil and gas operations are conducted both in its own name and through several wholly-owned subsidiaries in the United States and Canada. Oil and gas operations in the United States are located in Arkansas, California, Kansas, Nebraska, New Mexico, Ohio, Oklahoma, Pennsylvania, Texas and Wyoming. In Canada, the Company conducts oil and gas operations in the Provinces of Alberta, British Columbia and Saskatchewan. Crude oil and natural gas productions are sold to oil refineries and natural gas pipeline companies. The Company's real estate holdings are located in the states of Arizona, Florida, New Jersey, Georgia and Texas. The Company also maintains investments in marketable securities.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Significant accounting policies followed by the Company and its subsidiaries are as follows-
Basis of Presentation-
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany account balances and transactions among subsidiaries have been eliminated.
The preparation of these financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.
Cash And Cash Equivalents-
The Company considers cash and cash equivalents to include deposits with banks having a maturity of three months or less.
Marketable Securities-
The Company has adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). As of December 31, 1996 and 1995, the marketable securities of the Company subject to the provisions of SFAS 115 consist primarily of equity securities. These securities are held for indefinite periods of time and are thus carried at fair value in accordance with the standard. Differences between an investment's cost and its fair value are charged (credited) directly to shareholders' equity, net of related deferred income taxes. The cost of securities sold is determined on a specific identification basis.
As of December 31, 1996 and 1995, the net unrealized holding gains were $9,047,000 and $17,174,000, respectively. The net unrealized holding gains are included as a credit to shareholders' equity, net of deferred income taxes of $4,071,000 and $7,728,000 for 1996 and 1995, respectively.
Property And Equipment-
Oil And Gas Properties-
The Company follows the accounting policy, generally known in the oil industry as "full cost accounting," of capitalizing all costs, including interest costs, relating to the exploration for and development of its mineral resources. Under the Company's method, all costs incurred in the United States and Canada are accumulated in separate cost centers and are amortized using the gross revenue method based on total future estimated recoverable oil and gas reserves.
Capitalized costs are subject to a "ceiling" test that limits such costs to the aggregate of the estimated present value of the future net revenues of proved reserves and the lower of cost or fair value of unproved properties. Management is of the opinion that, based on reserve reports of petroleum engineers and geologists, the fair value of the estimated recoverable oil and gas reserves exceeds the unamortized cost of oil and gas properties at December 31, 1996 and 1995.
Real Estate And Other Properties-
Real estate properties and other property and equipment are stated at cost. Depreciation is provided on the straight-line method using an estimated useful life of 30 to 35 years for real estate buildings and at various rates based upon the estimated useful lives of the other property and equipment.
As of December 31, 1996 and 1995, real estate properties consist of land with an aggregate cost of $8,323,000 and $7,928,000, buildings with an aggregate cost of $29,672,000 and $26,644,000 and furniture and fixtures with an aggregate cost of $2,539,000 and $1,963,000, respectively.
Impairment of Property and Equipment-
Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets" (SFAS 121). The adoption of this standard did not have an impact on the Company's financial condition or results of operations. In addition, as of December 31, 1996, the Company has determined that no impairment had occurred in accordance with the measurement criteria prescribed by SFAS 121.
Deferred Income Taxes-
Certain transactions are recorded in the accounts in a period different from that in which these transactions are reported for income tax purposes. These transactions, as well as other temporary differences between the basis in assets and liabilities for financial reporting and income tax purposes, result in deferred income taxes. The principal transactions are those related to intangible drilling costs, exploration costs, expired leases, depreciation and nonproducing well costs (see Note 6).
Foreign Operations-
The assets and liabilities of the Canadian subsidiary have been translated at current exchange rates, and related revenues and expenses have been translated at average annual exchange rates. The aggregate effect of translation losses have been deferred as a separate component of shareholders' equity until the sale or liquidation of the underlying foreign investment.
Unremitted earnings of the Canadian subsidiary are intended to be permanently invested in Canada and are subject to foreign taxes substantially equivalent to United States Federal income taxes. The unremitted earnings on which the Company has not been required to provide Federal income taxes amounted to approximately $15,089,000 at December 31, 1996.
Accounting for Stock-Based Compensation-
The Company has adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). As of December 31, 1996, there are several stock option plans subject to the provisions of SFAS 123. The adoption of this pronouncement had no impact on the Company's financial condition or results of operations, however, additional disclosures have been included in the financial statements (see Note 5).
Net Income Per Common Share-
Net income per common share is based upon the weighted average number of shares outstanding during the year, after deduction of treasury stock, as well as the dilutive effect of stock options, if material.
In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" which makes certain changes to the manner in which earnings per share is reported. The Company is required to adopt this standard for the year ended December 31, 1997. The adoption of this standard will require restatement of prior years' earnings per share if the impact is material.
If the Company had adopted the new standard in 1996, reported net income per common share would not have been affected.
Reclassifications-
Certain reclassifications have been made to the 1995 amounts in order to conform with the 1996 presentation.
(3) INVESTMENT IN PREFERRED STOCK OF THE TRUST COMPANY OF NEW JERSEY:
The Company owns 60,000 shares of The Trust Company of New Jersey's (The Trust Company) 9-3/4% preferred stock, which is stated at its original cost. Annual dividends of $585,000, $585,000 and $439,000 were received on the preferred shares in 1996, 1995 and 1994, respectively and are included in other income. In accordance with the agreements, the preferred shares are callable in whole or in part at the option of The Trust Company and there are certain restrictions on the payment and accumulation of dividends. In addition, the Company has agreed to waive its voting rights with respect to these shares. Subsequent to year-end, The Trust Company expressed its intent to call 30,000 shares of the preferred stock for $3,000,000, the original cost of these shares. Accordingly, the value of these shares is included in marketable securities as of December 31, 1996.
(4) LONG-TERM DEBT:
Long-term debt as of December 31 consisted of the following-
1996 1995 ----------- ----------- Mortgage notes payable (a) $28,240,000 $27,782,000 Note payable (b) 0 16,400,000 Note payable (c) 12,420,000 0 Revolving loan (d) 3,950,000 0 Term loan payable (e) 3,100,000 3,500,000 Promissory note (f) 1,500,000 650,000 Loan payable (g) 0 2,480,000 ----------- ----------- 49,210,000 50,812,000 Less- Current portion 2,911,000 3,514,000 ----------- ----------- $46,299,000 $47,298,000 =========== ===========
(a) At December 31, 1996, the Company had mortgage notes payable to The Trust Company totaling $28,240,000 payable in installments, bearing interest at a weighted average effective interest rate of 7.0%. These mortgage notes are secured by a first mortgage interest in the Company's real estate properties and mature at various dates through October, 2004.
(b) At December 31, 1995, the Company had a note payable to a lending institution totaling $16,400,000 which bore interest at the prime lending rate. The note was paid in full during 1996, prior to its maturity date of September 1999.
(c) The note payable to The Trust Company bears interest at the prime lending rate (8.25% at December 31, 1996) and matures on July 1, 1999. The note is secured by marketable securities with a market value of approximately $16,567,000 at December 31, 1996.
(d) During 1996, the Company issued a promissory note for a revolving loan to a lending institution. The revolving loan is automatically convertible to a term loan and bears interest at a fixed rate of 8.875%. The note is payable in quarterly installments, matures on April 1, 2001 and is collateralized by marketable securities with a market value of approximately $2,508,000 at December 31, 1996 and $3,000,000 of a preferred stock issue, for a total collateral value of $5,508,000.
(e) The term loan payable bears interest at the prime lending rate. The loan agreement provides for repayment of principal in quarterly installments with the balance due in April, 1999. The loan agreement also limits the amount of new debt without the bank's approval. The loan is secured by substantially all of the domestic oil and gas producing properties as well as marketable securities with a market value of approximately $1,893,000 at December 31, 1996.
(f) The promissory note bears interest at the bank's certificate of deposit rate plus one percent (4.94% at December 31, 1996). The note is payable in full on June 2, 1997.
(g) At December 31, 1995, the Company had a loan payable to The Trust Company totaling $2,480,000 and payable in quarterly installments which bore interest at the prime lending rate. The loan was paid in full during 1996 prior to its maturity date of August 1997.
The aggregate maturities of the long-term debt in each of the five years subsequent to 1996 are-
1997 $ 2,911,000 1998 2,478,000 1999 15,991,000 2000 1,261,000 2001 451,000 Thereafter 26,118,000 ----------- $49,210,000 ===========
(5) STOCK OPTIONS:
Under various stock option plans adopted prior to 1995, stock options to purchase an aggregate of 367,188 shares of common stock were outstanding to officers, key consultants and employees at December 31, 1996. No additional options may be granted under these plans.
In June 1995, the Company adopted two new stock-based compensation plans (1995 Stock Option and Incentive Plan "Incentive Plan"; and 1995 Non-employee Director Stock Option Plan "Director Plan") under which, up to 450,000 and 150,000 shares, respectively, are available for grant. During 1995, the Company granted 3,000 and 35,000 options to purchase shares of common stock under the Incentive Plan and Director Plan, respectively and during 1996, the Company granted 35,000 options to purchase common stock under the Director Plan.
The number and terms of the options granted under these plans are determined by the Company's Stock Option Committee (the Committee) based on the fair market value of the Company's common stock on the date of grant. The period during which an option may be exercised varies, but no option may be exercised after ten years from the date of grant.
Effective January 1, 1996, the Company adopted the provisions of SFAS 123, "Accounting For Stock-Based Compensation". As permitted by the statement, the Company has chosen to continue to account for stock-based compensation using the intrinsic value method. Accordingly, no compensation expense has been recognized for its stock-based compensation plans. Had the fair value method of accounting been applied to the Company's stock option plans, which requires recognition of compensation cost ratably over the vesting period of the underlying equity instruments, net income would have been reduced by $96,000 with $.01 per share effect in 1996 and $32,000, or no per share effect in 1995. This pro forma impact only takes into account options granted since January 1, 1995 and is likely to increase in future years as additional options are granted and amortized ratably over the vesting period. The average fair value of options granted during 1996 and 1995 was $2.66 and $2.61, respectively.
The fair value was estimated using the Black-Scholes option-pricing model based on the weighted average market price at grant date of $6.31 in 1996 and $6.18 in 1995 and the following weighted average assumptions; risk-free interest rate of and 6.87% in 1996 and 6.44% for 1995, volatility of 24.26% for 1996 and 26.86% for 1995, and dividend yield of 1.6% for 1996 and 1995.
The following table summarizes stock option activity for 1996 and 1995-
(a) At December 31, 1996, options outstanding include 236,667 options ($1.00 to $4.44 per share) granted to certain employees or key consultants whereby the initial option price as determined by the Committee is subject to reduction (to a minimum of $1) by an amount equal to the increase in market value from the date of grant. Included in these options are 212,841 options with attached stock appreciation rights, pursuant to which the Company may elect to grant cash, stock or a combination of cash and stock in lieu of the stock appreciation value. Additional compensation attributable to these options is charged to income or capitalized as exploration and development costs over calculated periods of employment based on the duties performed by the individuals awarded the options. During 1996, 1995 and 1994, $119,000, $143,000 and $49,000, respectively, was credited to operations, and $118,000, $331,000 and $113,000, respectively, was credited to oil and gas properties relating to such options.
As of December 31, 1996 and 1995, included in other long-term liabilities is $814,000 payable to certain individuals for stock appreciation rights. These amounts are payable under certain conditions after January 15, 1998.
(6) INCOME TAXES:
Income taxes consist of the following-
1996 1995 1994 ---------- ---------- ---------- Federal Current $1,304,000 $3,479,000 $ 333,000 Deferred 1,105,000 (463,000) 1,076,000 ---------- ---------- ---------- 2,409,000 3,016,000 1,409,000 ---------- ---------- ---------- Foreign Current 110,000 0 72,000 Deferred 63,000 78,000 80,000 ---------- ---------- ---------- 173,000 78,000 152,000 ---------- ---------- ---------- State 300,000 475,000 0 ---------- ---------- ---------- Total $2,882,000 $3,569,000 $1,561,000 ========== ========== ==========
Prior to 1995, no provision for state income taxes was necessary since the Company had net operating loss carryforwards which were available to offset taxable income.
A reconciliation of the differences between the effective tax rate and the statutory U. S. income tax rate is as follows-
1996 1995 1994 ---------- ---------- ----------
Federal income tax provision at statutory rate $2,657,000 $2,754,000 $1,798,000
State income tax provision, net of Federal benefit 195,000 309,000 0
Foreign resource tax credits, net (124,000) (129,000) (112,000)
Dividend exclusion (191,000) (185,000) (139,000)
Provision for Internal Revenue Service review (Note 7) 204,000 785,000 0
Other (141,000) 35,000 14,000 ---------- ---------- ---------- $2,882,000 $3,569,000 $1,561,000 ========== ========== ========== Effective tax rate 38.0% 45.4% 30.4% ========== ========== ==========
Significant components of deferred tax assets and liabilities as of December 31, 1996 and 1995 were as follows-
1996 1995 ----------- ----------- Deferred tax assets- Tax credit carryforwards $ 89,000 $ 259,000 =========== =========== Deferred tax liabilities- Tax over book depreciation, depletion and amortization- Oil and gas and real estate properties -- U. S. $ 7,561,000 $ 5,081,000 Oil and gas properties -- Canada 4,055,000 5,138,000 Unrealized gain on marketable securities 4,071,000 7,728,000 ----------- ----------- 15,687,000 17,947,000 ----------- ----------- Total deferred tax liabilities, net $15,598,000 $17,688,000 =========== ===========
Current income taxes payable included in the accompanying balance sheets represents amounts payable for current operations exclusive of provisions for the Internal Revenue Service review (Note 7).
(7) COMMITMENTS AND CONTINGENCIES:
Through 1995, Federal income tax returns of the Company and its subsidiaries for the years 1975 through 1983 were under review by the Internal Revenue Service. During 1995, the Company received a notice of assessment from the Internal Revenue Service. During 1996 and the first quarter of 1997 the Company completed final settlement of this Federal tax liability, including accrued interest. Included in accrued liabilities at December 31, 1996 and 1995 is $433,000 and $3,129,000, respectively, to cover the final settlement of this matter.
In June 1996 the Company's Board of Directors adopted the Stockholder Protection Rights Plan (the Rights Plan). The Rights Plan provides for issuance of one Right for each share of common stock outstanding as of July 6, 1996. The Rights are separable from and exercisable upon the occurrence of certain triggering events involving the acquisition of at least 15% (or, in the case of certain existing stockholders, 25%) of the Company's common stock by an individual or group, as defined in the Rights Plan (an "Acquiring Person") and may be redeemed by the Board of Directors at a redemption price of $0.01 per Right at any time prior to the announcement by the Company that a person or group has become an Acquiring Person.
As of December 31, 1996, 9,248,375 Rights were outstanding. Each Right entitles the holder to purchase, for an exercise price of $25, one one-hundredth of a share of Series A Participating Preferred Stock. Each one one-hundredth share of Series A Participating Preferred Stock is designed to have economic terms similar to those of one share of common stock but will have one one-hundredth of a vote.
Because the Rights are only exercisable under certain conditions, none of which are in effect as of December 31, 1996, the outstanding Rights are not considered in the computation of net income per share.
The Company does not have significant lease commitments or post retirement benefits.
(8) SEGMENT INFORMATION:
Segment information by industry and geographic area is as follows-
1996 1995 1994 ----------- ------------ ------------ Identifiable assets- Oil and gas-United States $18,761,000 $ 18,238,000 $ 18,559,000 Oil and gas-Canada 13,116,000 13,333,000 13,164,000 Real estate 37,403,000 34,185,000 34,159,000 Corporate 29,098,000 38,430,000 37,316,000 ----------- ------------ ------------ $98,378,000 $104,186,000 $103,198,000 =========== ============ ============ Gross revenues- Oil and gas-United States $ 4,086,000 $ 4,216,000 $ 6,148,000 Oil and gas-Canada 1,634,000 1,456,000 1,778,000 Real estate 9,296,000 8,600,000 7,885,000 ----------- ------------ ------------ $15,016,000 $ 14,272,000 $ 15,811,000 =========== ============ ============ Depreciation, depletion and amortization- Oil and gas-United States $ 1,481,000 $ 1,930,000 $ 2,754,000 Oil and gas-Canada 455,000 471,000 396,000 Real estate 1,157,000 1,037,000 870,000 Corporate 22,000 13,000 21,000 ----------- ------------ ------------ $ 3,115,000 $ 3,451,000 $ 4,041,000 =========== ============ ============ Capital expenditures- Oil and gas-United States $ 2,108,000 $ 1,787,000 $ 2,822,000 Oil and gas-Canada 625,000 396,000 1,055,000 Real estate 3,998,000 1,012,000 11,162,000 Corporate 19,000 17,000 18,000 ----------- ------------ ------------ $ 6,750,000 $ 3,212,000 $ 15,057,000 =========== ============ ============ Income (loss) from operations- Oil and gas-United States ($ 326,000) ($ 578,000) $334,000 Oil and gas-Canada 546,000 221,000 692,000 Real estate 2,600,000 2,712,000 2,415,000 Corporate (114,000) (324,000) (503,000) ----------- ------------ ------------ $ 2,706,000 $ 2,031,000 $ 2,938,000 =========== ============ ============
All of the Company's investments in marketable securities and preferred stock are held by the United States segment and are included as corporate assets.
(9) OIL AND GAS PRODUCING ACTIVITIES:
The following data represents the Company's oil and gas producing activity for 1996 and 1995-
1996 1995 ------------ ------------ Capitalized costs (all being amortized)- Productive and nonproductive properties $126,255,000 $125,240,000 Unevaluated properties 5,400,000 5,040,000 ------------ ------------ Total capitalized costs being amortized 131,655,000 130,280,000 ------------ ------------ Less- Accumulated depreciation, depletion and amortization 100,611,000 99,460,000 ------------ ------------ Net capitalized costs $ 31,044,000 $ 30,820,000 ============ ============
The following data summarizes the costs incurred in property acquisition, exploration and development activities and the results of operations from oil and gas producing activities-
(10) GAIN ON SALES OF MARKETABLE SECURITIES:
The Company realized gains from the sales of common shares of Jacobs Engineering Group, Inc. (Jacobs) of $8,449,0000 in 1996, $9,182,000 in 1995 and $5,457,000 in 1994 which are reflected in the accompanying statements of operations. As of December 31, 1996 and 1995, the Company continued to hold 679,760 and 1,059,660 shares of Jacobs stock at an aggregate cost of $7,363,000 and $8,756,000 and an aggregate market value of $16,059,000 and $26,492,000, respectively.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The Financial statements filed as part of this report are listed on the Index to Consolidated Financial Statements on page.
(a) 2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not required, inapplicable or the information is otherwise shown in the financial statements or notes thereto.
(a) 3. EXHIBITS
Exhibit
Number Description ------ -----------
3.1 Restated Certificate of Incorporation of Wilshire Oil Company of Texas, as amended. (Incorporated by reference to Exhibit 3.1 of Item 14 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992).
3.2 Amended By-Laws of Wilshire Oil Company of Texas (Incorporated by refrence to Exhibit (3)(ii) of Item 7 of the Registrant's Current Report on Form 8-K dated February 13, 1996).
4.1 Oil and Gas Loan between Wilshire Oil Company of Texas and Midlantic National Bank dated March 24,1994 (Incorporated by reference to Exhibit 4.2 of Item 14 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994).
4.2 Stockholder Protection Rights Agreement, dated as of June 21, 1996, between Wilshire Oil Company of Texas and Continental Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 1 to the Company's current report on Form 8-K dated June 21, 1996).
10.1 General Assignments and Assignments of Leases dated March 31, 1992 with respect to the purchase of income producing real estate properties (incorporated by reference to Exhibit 1 and 2 of Form 8 dated December 9, 1992, filed with the Commission).
Number Description ------ -----------
10.2 General Assignments, Assignments of Leases, and Escrow Agreements and Early Possession Agreements with respect to the purchase of four income producing real estate properties, (incorporated by reference to Exhibits 1 (a) through 4(c) on the Company's Form 8-K dated December 31, 1992 filed with the Commission).
10.3 Wilshire Oil Company of Texas 1980 Stock Option Plan. (Incorporated by reference to Exhibit 10.4 of Item 14 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992).
10.4 Wilshire Oil Company of Texas 1984 Stock Option Plan. (Incorporated by reference to Exhibit 10.5 of Item 14 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992).
10.5 Wilshire Oil Company of Texas 1995 Stock Option and Incentive Plan. (incorporated by reference to Exhibit A of the Registrant's Definitive Proxy Statement for its 1995 Annual Meeting of Stockholders).
10.6 Wilshire Oil Company of Texas 1995 Non-Employee Director Stock Option Plan. ( incorporated by reference to Exhibit B of the Registrant's Definitive Proxy Statement for its 1995 Annual Meeting of Stockholders).
11. Computation of Earnings Per Share
21. List of significant subsidiaries of the Registrant
23. Consent of Arthur Andersen LLP
27. Financial Data Schedule
14(b) REPORTS ON FORM 8
There were no Form 8-K filings by the Company during the fourth quarter of 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused the report to be signed on its behalf by the undersigned thereunto duly authorized.
WILSHIRE OIL COMPANY OF TEXAS ----------------------------- (Registrant)
Directors: By: /s/ S. WILZIG IZAK ---------------------------------- S. Wilzig Izak, Director
By: /s/ WILLIAM SCHWARTZ, M.D. ---------------------------------- William Schwartz, M.D., Director
By: /s/ JOSEPH K. SCHWARTZ ---------------------------------- Joseph K. Schwartz, Director
By: /s/ MILTON DONNENBERG ---------------------------------- Milton Donnenberg, Director
By: /s/ ERNST WACHTEL ---------------------------------- Ernst Wachtel, Director
Officers: By: /s/ S. WILZIG IZAK ---------------------------------- S. Wilzig Izak Chairman of the Board and Chief Executive Officer (Duly Authorized Officer and Chief Financial Officer)
Date: March 27, 1997
EXHIBIT INDEX
Exhibit No. Description ----------- -----------
11. Computation of Earnings Per Share
21. List of significant subsidiaries of the Registrant
23. Consent of Arthur Andersen LLP
27. Financial Data Schedule
ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The Financial statements filed as part of this report are listed on the Index to Consolidated Financial Statements on page.
(a) 2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not required, inapplicable or the information is otherwise shown in the financial statements or notes thereto.
(a) 3. EXHIBITS
Exhibit
Number Description ------ -----------
3.1 Restated Certificate of Incorporation of Wilshire Oil Company of Texas, as amended. (Incorporated by reference to Exhibit 3.1 of Item 14 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992).
3.2 Amended By-Laws of Wilshire Oil Company of Texas (Incorporated by refrence to Exhibit (3)(ii) of Item 7 of the Registrant's Current Report on Form 8-K dated February 13, 1996).
4.1 Oil and Gas Loan between Wilshire Oil Company of Texas and Midlantic National Bank dated March 24,1994 (Incorporated by reference to Exhibit 4.2 of Item 14 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994).
4.2 Stockholder Protection Rights Agreement, dated as of June 21, 1996, between Wilshire Oil Company of Texas and Continental Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 1 to the Company's current report on Form 8-K dated June 21, 1996).
10.1 General Assignments and Assignments of Leases dated March 31, 1992 with respect to the purchase of income producing real estate properties (incorporated by reference to Exhibit 1 and 2 of Form 8 dated December 9, 1992, filed with the Commission).
Number Description ------ -----------
10.2 General Assignments, Assignments of Leases, and Escrow Agreements and Early Possession Agreements with respect to the purchase of four income producing real estate properties, (incorporated by reference to Exhibits 1 (a) through 4(c) on the Company's Form 8-K dated December 31, 1992 filed with the Commission).
10.3 Wilshire Oil Company of Texas 1980 Stock Option Plan. (Incorporated by reference to Exhibit 10.4 of Item 14 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992).
10.4 Wilshire Oil Company of Texas 1984 Stock Option Plan. (Incorporated by reference to Exhibit 10.5 of Item 14 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992).
10.5 Wilshire Oil Company of Texas 1995 Stock Option and Incentive Plan. (incorporated by reference to Exhibit A of the Registrant's Definitive Proxy Statement for its 1995 Annual Meeting of Stockholders).
10.6 Wilshire Oil Company of Texas 1995 Non-Employee Director Stock Option Plan. ( incorporated by reference to Exhibit B of the Registrant's Definitive Proxy Statement for its 1995 Annual Meeting of Stockholders).
11. Computation of Earnings Per Share
21. List of significant subsidiaries of the Registrant
23. Consent of Arthur Andersen LLP
27. Financial Data Schedule
14(b) REPORTS ON FORM 8
There were no Form 8-K filings by the Company during the fourth quarter of 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused the report to be signed on its behalf by the undersigned thereunto duly authorized.
WILSHIRE OIL COMPANY OF TEXAS ----------------------------- (Registrant)
Directors: By: /s/ S. WILZIG IZAK ---------------------------------- S. Wilzig Izak, Director
By: /s/ WILLIAM SCHWARTZ, M.D. ---------------------------------- William Schwartz, M.D., Director
By: /s/ JOSEPH K. SCHWARTZ ---------------------------------- Joseph K. Schwartz, Director
By: /s/ MILTON DONNENBERG ---------------------------------- Milton Donnenberg, Director
By: /s/ ERNST WACHTEL ---------------------------------- Ernst Wachtel, Director
Officers: By: /s/ S. WILZIG IZAK ---------------------------------- S. Wilzig Izak Chairman of the Board and Chief Executive Officer (Duly Authorized Officer and Chief Financial Officer)
Date: March 27, 1997
EXHIBIT INDEX
Exhibit No. Description ----------- -----------
11. Computation of Earnings Per Share
21. List of significant subsidiaries of the Registrant
23. Consent of Arthur Andersen LLP
27. Financial Data Schedule