Back to GetFilings.com
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ___________ to _________
Commission File Number 1-4673
WILSHIRE OIL COMPANY OF TEXAS
------------------------------------------------------
(exact name of registrant as specified in its charter)
DELAWARE 84-0513668
- ------------------------------- -------------------------------
(State or other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
921 BERGEN AVENUE
JERSEY CITY, NEW JERSEY 07306
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (201) 420-2796
--------------
Securities registered pursuant to Section 12(b) of the act:
Name of each exchange
(TITLE OF EACH CLASS) ON WHICH REGISTERED
- -------------------------- -----------------------
COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
- --------------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the shares of the voting stock held by
non-affiliates of the registrant was approximately $51,353,761 based upon the
closing sale price of the stock, which was $5.75 On March 16 1998.
The number of shares of the registrant's $1 par value common stock outstanding
as of March 16, 1998 was 9,394,096.
Documents Incorporated By Reference
The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the Annual Meeting of Stockholders.
================================================================================
WILSHIRE OIL COMPANY OF TEXAS
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1997
TABLE OF CONTENTS
PART I
PAGE
----
Item 1. Business ......................................... 1
Item 1a. Executive Officers of the Registrant ............. 7
Item 2. Properties ....................................... 8
Item 3. Legal Proceedings ................................ 15
Item 4. Submission of Matters to a Vote of Security
Holders ........................................ 15
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters ............... 16
Item 6. Selected Financial Data ......................... 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........... 20
Item 8. Financial Statements ............................ F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ........... 29
PART III
Item 10. Directors of the Registrant ...................... 29
Item 11. Executive Compensation ........................... 29
Item 12. Security Ownership of Certain Beneficial
Owners and Management .......................... 29
Item 13. Certain Relationships and Related Transactions ... 29
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K ............................ 30
PART I
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.
This Report on Form 10-K for the year ended December 31, 1997 contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected in such forward-looking statements. Certain factors which could
materially affect such results and the future performance of the Company are
described herein under Item 7., "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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 16, 1998, 13 people are employed by the Company. Nine employees
are directly engaged in the search for new oil and gas properties. In addition,
the Company also has consultants.
1
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 28 wells (5.40 net) in 1997
compared to 9 (.87 net) in 1996. The United States program in 1997 consisted of
the drilling of 8 development wells (.50 net). Two (.28 net) of these wells were
successfully completed as oil wells and 5(.13 net) were successfully completed
as gas wells. One well was drilled in the state of Texas and the remainder were
drilled in the state of Oklahoma. The Canadian drilling program in 1997
consisted of the drilling of 20 development wells (4.90 net), with 17 (4.45 net)
of these wells successfully completed as gas wells and 3 (.45 net) as oil wells.
Overall, the Company's drilling program had a success ratio of 96.5%.
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 no one purchaser that purchased in
excess of 10% of its 1997 consolidated oil and gas revenues.
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.
2
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.
3
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 1997
were not significant in relation to operating costs and the Company expects no
material changes in 1998. 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.
4
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.
INVESTMENT IN MARKETABLE SECURITIES
The Company holds investments in certain marketable securities. From time
to time, the Company buys and sells securities in the open market. The Company
over the years has decreased its holdings in marketable securities and focused
its resources in the oil & gas and real estate divisions.
Holdings of marketable securities, at market value, amounted to $17,947,000
at December 31, 1997 and $24,106,000 at December 31, 1996. The Company realized
gains from the sales of marketable securities of $9,595,000 in 1997, $8,462,000
in 1996, and $9,216,000 in 1995.
5
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 include the following:
| | 378 unit garden apartment complex
| | 340 unit garden apartment complex
| | 70 unit midrise apartment building
| | 53,000 sq. ft. multi-tenant two story office building
| | 65,000 sq. ft. retail/medical use complex
The Texas property is a 228 unit apartment complex.
The Company's operations in Florida consists of two office buildings having
a combined area of 28,000 square feet and apartment properties having 62 units.
The Georgia property is a 72 unit apartment complex.
The Company's properties in New Jersey consists of apartment properties
having 461 units, including the Company's fourth quarter 1997 acquistion of a
132 unit apartment complex. In addition, the Company holds 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.
6
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) 39 Chairman of the Board and
Chief Executive Officer
Allen C. Knight (b) 73 Senior Vice President - Canada
Steven A. Gelman (c) 41 Senior 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 was appointed Senior Vice President on November 24, 1997. He
served as a Vice President of the Company from April 26, 1993 through
November 24, 1997,
7
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 $2,370 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.
8
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.
9
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 1997, 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:
United States Canada
(000's Omitted) (000's Omitted)
------------------------------- -------------------------------
Proved Proved Proved Proved
Reserves Developed Reserves Reserves Developed Reserves
-------- ------------------ -------- ------------------
1998 $ 2,338 $ 2,338 $ 1,872 $ 2,119
1999 1,865 1,865 2,973 2,869
2000 1,505 1,505 3,458 2,956
Remainder $20,797 $ 7,264 $49,064 $40,785
10
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, 1995 and 1996 and 1997 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.
11
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:
United States Canada
---------------------- --------------------
Proved Proved
Proved Developed Proved Developed
------ --------- ------ ---------
(000's Omitted) (000's Omitted)
1997 Oil (Bbls) 1,405 423 1,194 834
Gas (Mcf) 6,731 6,731 33,629 31,387
Net present value @ 10% $17,921 $ 8,515 $24,119 $20,341
1996 Oil (Bbls) 1,545 607 1,201 867
Gas (Mcf) 6,798 6,798 26,000 25,364
Net present value @ 10% $24,001 $14,660 $22,194 $18,451
1995 Oil (Bbls) 1,803 855 1,296 915
Gas (Mcf) 6,778 6,778 26,212 24,819
Net present value @ 10% $20,592 $12,269 $21,074 $17,061
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 1997, 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, 1997:
Gas Oil Developed Acreage
--------------- --------------- -----------------
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
United States 597 72.2 233 71.3 50,368 20,841
Canada 220 54.7 89 10.1 164,460 26,415
12
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
------------- ------ ------------- ------
1997 101,000 60,000 1,047,000 813,000
1996 121,000 44,000 857,000 726,000
1995 169,000 45,000 1,011,000 933,000
Average sales price per unit of oil or gas produced:
Oil Gas
-------------------- ------------------------
U.S. Canada U.S. Canada
------ ------ ----- ------
1997 $19.10 $14.65 $2.01 $1.39
1996 $20.01 $17.98 $1.92 $1.22
1995 $16.06 $14.30 $1.48 $ .95
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:
1997 1996 1995
---- ---- -----
United States $6.32 $6.78 $6.19
Canada $2.78 $2.54 $2.16
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.
13
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:
1997 1996
Undeveloped Acres Undeveloped Acres
---------------------- --------------------
Gross Net Gross Net
------ ----- ------ -----
United States 10,530 4,598 6,367 3,320
Canada 21,128 3,592 21,128 3,592
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:
Exploratory Wells Development Wells
------------------------------------------------ ------------------------------------------------
Net Productive Net Dry Net Productive Net Dry
--------------------- -------------------- ------------------- ------------------
U.S. Canada U.S. Canada U.S. Canada U.S. Canada
----- ------ ----- ------ ----- ------ ----- ------
1997 - - - .1 - .4 4.9 - -
1996 - - - - - .9 - .1 -
1995 - - - - .3 1.0 - - -
1994 - - .7 - .2 1.4 .4 - -
1993 - - .2 - .1 1.9 .3 - -
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.
14
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
Florida Apartment Properties (62 units)
Georgia 72 Unit Apartment Complex
New Jersey Apartment Properties (461 units),
including a 4th quarter 1997
acquisition of a 132 unit
apartment complex
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. LEGAL PROCEEDINGS
At December 31, 1997, 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. 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, 1997.
15
PART II
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)
Quarter 1 Quarter 2 Quarter 3 Quarter 4
High - Low High - Low High - Low High - Low
---------- ---------- ---------- ----------
1997 6-1/8 - 5-1/4 5-5/8 - 5-1/8 7-1/16 - 5-1/4 7-1/16 - 5-1/4
1996 6 - 5-1/2 6-1/2 - 5-1/2 6-1/4 - 5-1/2 5-7/8 - 5-1/8
As of March 15, 1998 there were 9,202 common shareholders of record.
The Company declared a 3% stock dividend on December 22, 1997. This stock
dividend had a record date of January 16, 1998 and was paid on February 20,
1998. 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
had a record date of April 2, 1997 and was paid April 23, 1997.
16
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
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------- -------- --------
Oil/Gas Revenues $ 5,917 $ 5,720 $ 5,672 $ 7,926 $ 8,505
-------- ------- ------- -------- --------
Real Estate Revenues $ 9,730 $ 9,296 $ 8,600 $ 7,885 $ 6,526
-------- ------- ------- -------- --------
Total Revenues $15,647 $15,016 $14,272 $ 15,811 $ 15,031
------- ------- ------- -------- --------
Gross Profit
Oil/Gas (a) $ 1,316 $ 1,575 $ 747 $ 1,930 $ 1,740
-------- ------- ------- -------- --------
Gross Profit
Real Estate (b) $ 2,420 $ 2,600 $ 2,712 $ 2,415 $ 2,200
-------- ------- ------- -------- --------
Total Gross
Profit $ 3,736 $ 4,175 $ 3,459 $ 4,345 $ 3,940
-------- ------- ------- -------- --------
Net Income $ 5,536 $ 4,709 $ 4,300 $ 3,577 $ 4,573
-------- ------- ------- -------- --------
Net income
per share of
common stock(c) $ .58 $ .49 $ .44 $ .35 $ .44
-------- ------- ------- -------- --------
Total assets at
year-end $102,029 $98,378 $104,186 $103,198 $104,652
-------- ------- -------- -------- --------
Long-term
obligations $ 51,587 $46,299 $ 47,298 $ 50,160 $ 40,721
-------- ------- -------- -------- --------
Cash dividends
per share $ .00 $ .10 $ .07 $ .06 $ .05
-------- ------- -------- -------- --------
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.
17
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
(In thousands $ except per share amounts)
1997
---------------------------------------------------------------
1st 2nd 3rd 4th Year
------ ------ ------ ------ -------
Oil/Gas Revenues $1,420 $1,422 $1,552 $1,523 $ 5,917
------ ------ ------ ------ -------
Real Estate
Revenues $2,341 $2,450 $2,460 $2,479 $ 9,730
------ ------ ------ ------ -------
Total Revenues $3,761 $3,872 $4,012 $4,002 $15,647
------ ------ ------ ------ -------
Gross Profit
Oil/Gas (a) $ 347 $ (98) $ 389 $ 678 $ 1,316
Gross Profit
Real Estate (b) $ 664 $ 696 $ 652 $ 408 $ 2,420
------ ------ ------ ------ -------
Total Gross
Profit $1,011 $ 598 $1,041 $1,086 $ 3,736
------ ------ ------ ------ -------
Net Income $1,716 $1,766 $1,261 $ 793 $ 5,536
------ ------ ------ ------ -------
Net Income
Per Share(c) $ .18 $ .19 $ .13 $ .08 $ .58
------ ------ ------ ------ -------
Cash Dividends
Per Share $ -0- $ -0- $ -0- $ -0- $ -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.
18
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
(In thousands $ except per share amounts)
1996
-----------------------------------------------------------------
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 $ .17 $ .15 $ .11 $ .06 $ .49
------ ------ ------ ------ -------
Cash Dividends
Per Share $ -0- $ .10 $ -0- $ -0- $ .10
------ ------ ------ ------ -------
19
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 1997, the average price of oil that the Company
received was $17.42 compared to $19.47 for 1996, a price decrease of 10.5%.
Average gas prices received by the Company in 1997 were 8.8% higher than 1996
average gas prices. The average price of gas for 1997 was $1.74 compared to
$1.60 for 1996.
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:
Fiscal Year Ended December 31
-----------------------------------------
1997 1996 1995
Crude Oil and Natural Gas Production: --------- --------- ---------
Oil (Bbls) 161,000 165,000 214,000
Gas (Mcf) 1,860,000 1,583,000 1,944,000
Average sales prices:
Oil (per Bbl) $17.42 $19.47 $15.69
Gas(per MCF) $ 1.74 $ 1.60 $ 1.23
Average production costs per BOE $ 4.85 $ 5.15 $ 4.69
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.
20
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 ("1997") COMPARED WITH YEAR ENDED DECEMBER 31, 1996
("1996")
Net income for the year ended December 31 increased from $4,709,000 in 1996
to $5,536,000 in 1997, an increase of 18%.
Oil and gas revenues increased from $5,720,000 in 1996 to $5,917,000 in
1997. This increase is attributable to production from the Company's active
drilling program for natural gas.
Real estate revenues increased from $9,296,000 in 1996 to $9,730,000 in
1997. This increase was principally due to higher rents and the operations of
the properties acquired in 1997.
Oil and gas production expense was comparable in 1997 and 1996. Oil and gas
production expense amounted to $2,274,000 in 1997 and $2,209,000 in 1996.
Depreciation, depletion and amortization of oil and gas assets amounted to
$2,327,000 in 1997 compared to $1,936,000 in 1996. This increase is principally
attributable to a decrease in the estimated value of the Company's domestic oil
& gas pool in 1997 compared to 1996. Real estate depreciation was $1,404,000 in
1997 compared to $1,157,000 in 1996.
General and administrative expense amounted to $1,646,000 in 1997 compared
to $1,447,000 in 1996. This increase is principally attributable to amounts
related to the Company's non-qualified stock option plan.
The Company realized gains on sales of marketable securities of $9,595,000
in 1997 compared to $8,449,000 in 1996.
Interest expense decreased from $3,939,000 in 1996 to $3,331,000 in 1997.
This decrease is attributable to a reduction in long-term debt during 1997 and
lower interest rates during 1997.
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 and the dividend exclusion in
the United States.
21
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.
22
EFFECTS OF INFLATION
The effects of inflation on the Company's financial condition are not
considered to be material by management.
"YEAR 2000 ISSUE"
The Company continues to evaluate what effects, if any, Year 2000 issues
may have on its operations. At present, the Company does not believe such issues
will have any material adverse effect in its operations, liquidity or on its
consolidated financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements and requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 is required to be adopted for the Company's
fiscal year ending December 31, 1998. The adoption of this pronouncement is
expected to have no impact on the Company's financial position or results of
operations. SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in interim financial
reports issued to stockholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS no. 131 is required to be adopted for the Company's 1998 year-end financial
statements. The Company is currently evaluating the impact, if any, of the
adoption of this pronouncement on the Company's existing disclosures.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997 the Company had approximately $15 million in
marketable securities at cost, with a market value of approximately $18 million.
The current ratio at December 31, 1997 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 $17 million at December 31, 1997.
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.
23
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 year-ended 1997, the Company acquired six real estate properties
from The Trust Company of New Jersey ("The Trust Company") at an aggregate
purchase price of approximately $9.3 million. These transactions were financed
with first-mortgage loans from The Trust Company. 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
year. 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.
During the fourth quarter of 1997, the Company refinanced with Criimi Mae
and Citicorp the original 1992 mortgage loans on the Company's first two real
estate property acquisitions. These properties were acquired in 1992 at an
aggregate cost of approximately $11 million. Due to the significant appreciation
in the value of these properties, the Lender granted first-mortgage loans in the
aggregate amount of $17.5 million, which is $6.5 million in excess of the
Company's original cost of these properties. These funds were borrowed on a
long-term basis at favorable rates. The proceeds of these loans were used to pay
off the higher-rate original first-mortgage loans of $9 million, pay off $3.2
million of other higher-rate debt, and for investment and working capital
purposes.
Net cash provided by (used in) operating activities was $(268,000),
$(486,000), and $745,000 in 1997, 1996 and 1995, 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 $133,000,
$3,456,000 and $4,159,000 in 1997, 1996 and 1995, respectively. The variations
principally relate to purchases of real estate properties and transactions in
securities. Purchases of real estate properties amounted to $9,300,000 in 1997
and $3,000,000 1996. Proceeds from sales and redemptions of securities amounted
to $15,078,000 in 1997, $10,044,000 in 1996 and $10,501,000 in 1995. Included in
this amount for 1997 are redemptions of 22,500 shares, at par, aggregating
$2,250,000, of preferred stock of The Trust Company. Additionally, purchases of
marketable securities amounted to $2,428,000 in 1997, $294,000 in 1996, and
$3,130,000 in 1995.
Net cash provided by (used in) financing activities was $4,483,000,
($3,374,000) and ($4,215,000) in 1997, 1996 and 1995, respectively. The
variations principally relate to the issuance, renegotiation, and repayments of
long-term debt. Additionally, in 1996, the Company borrowed new monies and also
restructured its existing loans which were collateralized by securities. See
Footnote No. (4) to the consolidated financial statements for a schedule of
long-term debt.
24
The Company believes it has adequate capital resources to fund operations
for the foreseeable future.
FORWARD-LOOKING STATEMENTS
This Report on Form 10-K for the year ended December 31, 1997 contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements included herein other than
statements of historical fact are forward-looking statements. Although the
Company believes that the underlying assumptions and expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to be correct. The Company's business and prospects
are subject to a number of risks which could cause actual results to differ
materially from those reflected in such forward-looking statements, including
volatility of oil & gas prices, the need to develop and replace reserves, risks
involved in exploration and drilling, uncertainties about estimates of reserves,
environmental risks relating to the Company's oil & gas and real estate
properties, competition, the substantial capital expenditures required to fund
the Company's oil & gas and real estate operations, market and economic changes
in areas where the Company holds real estate properties, interest rate
fluctuations, government regulation, and the ability of the Company to implement
its business strategy.
25
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.
26
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)
Crude Oil, Condensate and Natural Gas Liquids
-----------------------------------------------------------------
United States Canada
----------------------------- -----------------------------
(Barrels)
1997 1996 1995 1997 1996 1995
----- ----- ----- ----- ----- -----
Proved Reserves-Beginning of Year 1,545 1,803 2,113 1,201 1,296 1,267
Revisions of previous estimates (52) (176) (381) (24) (51) 57
Sale of minerals in place -0- -0- -0- -0- -0- -0-
Extensions and discoveries 13 39 240 77 -0- 17
Production (101) (121) (169) (60) (44) (45)
----- ----- ----- ----- ----- -----
Proved Reserves-End of Year 1,405 1,545 1,803 1,194 1,201 1,296
----- ----- ----- ----- ----- -----
Proved Developed Reserves-
Beginning of Year 607 855 1,165 867 915 893
----- ----- ----- ----- ----- -----
End of Year 423 607 855 834 867 915
===== ===== ===== ===== ===== =====
Natural Gas
--------------------------------------------------------------------
United States Canada
------------------------------ --------------------------------
(MCF)
1997 1996 1995 1997 1996 1995
----- ----- ----- ------ ------ ------
Proved Reserves-Beginning of Year 6,798 6,778 7,050 26,000 26,212 25,002
Revisions of previous estimates 856 750 630 (1,968) 514 2,134
Sale of minerals in place -0- -0- -0- -0- -0- -0-
Extensions and discoveries 124 127 109 10,410 0 9
Production (1,047) (857) (1,011) (813) (726) (933)
------ ----- ------ ------ ------ ------
Proved Reserves-End of Year 6,731 6,798 6,778 33,629 26,000 26,212
------ ----- ------ ------ ------ ------
Proved Developed Reserves-
Beginning of Year 6,798 6,778 7,050 25,364 24,819 23,622
------ ----- ------ ------ ------ ------
End of Year 6,731 6,798 6,778 31,387 25,364 24,819
====== ===== ====== ====== ====== ======
27
Standardized Measure of Discounted Future Net Cash Flows
Related to Proved Oil and Gas Reserves
For The Years Ended December 31
(000's Omitted)
United States Canada
-------------------------- --------------------------
1997 1996 1997 1996
------- ------- ------- -------
Future cash flows $41,648 $54,839 $77,242 $73,141
------- ------- ------- -------
Future costs:
Production 13,540 15,699 18,053 16,533
Development, dismantlement
& abandonment 1,603 1,603 1,822 2,461
------- ------- ------- -------
Total Future Costs $15,143 $17,302 $19,875 $18,994
------- ------- ------- -------
Future net inflows-Before
income tax $26,505 $37,537 $57,367 $54,147
------- ------- ------- -------
Future income taxes $ 6,888 $ 9,966 $19,407 $18,400
------- ------- ------- -------
Future net cash flows $19,617 $27,571 $37,960 $35,747
------- ------- ------- -------
10% Discount factor 6,353 10,818 22,000 21,095
------- ------- ------- -------
Standardized measure of
discounted future net
cash flows $13,264 $16,753 $15,960 $14,652
------- ------- ------- -------
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
28
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, 1997, 1996 and 1995 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)
1997 1996 1995
------- ------- -------
Standardized Measure - $31,405 $29,095 $29,404
Beginning of Year
Sales and transfers - Net
of Production Costs (3,643) (3,490) (2,948)
Extensions and discoveries 4,421 690 3,304
Net change in sales price (4,554) 10,899 425
Revision of quantity estimates (1,184) (1,424) (2,126)
Proceeds from Sales of
Minerals in Place -0- -0- -0-
Accretion of discount 2,984 2,463 3,011
Net change in income taxes 1,639 (2,010) 818
Change in production rates-
Other (1,844) (4,818) (2,793)
------- ------- -------
Standardized measure -
End of year $29,224 $31,405 $29,095
------- ------- -------
29
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 F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-8
F-1
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,
1997 and 1996, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 23, 1998
F-2
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
------ ------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 5,534,000 $ 1,192,000
Accounts receivable 1,061,000 1,855,000
Marketable securities, available for sale, at fair value (Notes 3 and 4) 17,947,000 24,106,000
Prepaid expenses and other current assets 949,000 442,000
------------ -----------
Total current assets 25,491,000 27,595,000
------------ -----------
INVESTMENT IN PREFERRED STOCK OF
THE TRUST COMPANY OF NEW JERSEY (Notes 3, 4 and 8) 0 3,000,000
------------ -----------
PROPERTY AND EQUIPMENT (Notes 2, 4, 8 and 9):
Oil and gas properties, using the full cost method of accounting 133,509,000 131,655,000
Real estate properties 50,901,000 40,534,000
Other property and equipment 421,000 430,000
------------ -----------
184,831,000 172,619,000
Less- Accumulated depreciation, depletion and amortization 108,293,000 104,836,000
------------ -----------
76,538,000 67,783,000
------------ -----------
$102,029,000 $98,378,000
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
------------------------------------ ------------- -------------
CURRENT LIABILITIES
Current portion of long-term debt (Note 4) $ 3,324,000 $ 2,911,000
Accounts payable 1,856,000 2,197,000
Income taxes payable (Note 6) 1,517,000 1,245,000
Dividends payable (Note 5) 18,000 463,000
Accrued liabilities (Note 7) 1,575,000 1,224,000
------------ ------------
Total current liabilities 8,290,000 8,040,000
------------ ------------
LONG-TERM DEBT, less current portion (Note 4) 51,587,000 46,299,000
------------ ------------
DEFERRED INCOME TAXES AND OTHER LIABILITIES
(Notes 2, 5 and 6) 13,415,000 16,411,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY (Notes 2 and 7):
Preferred stock, $1 par value, 1,000,000 shares authorized; none
issued and outstanding in 1997 and 1996 0 0
Common stock, $1 par value, 15,000,000 shares authorized;
issued 10,013,544 shares in 1997 and 1996 10,014,000 10,014,000
Capital in excess of par value 9,522,000 9,700,000
Unrealized gain on marketable securities, available for sale, of
$2,943,000 and $9,047,000 in 1997 and 1996, respectively, net of
income taxes 1,619,000 4,976,000
Retained earnings 14,267,000 10,237,000
------------ ------------
35,422,000 34,927,000
Less-
Treasury stock, 888,724 and 765,169 shares in 1997 and
1996, respectively, at cost 3,857,000 4,851,000
Cumulative foreign currency translation adjustment 2,828,000 2,448,000
------------ ------------
28,737,000 27,628,000
------------ ------------
$102,029,000 $98,378,000
============ ===========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
F-3
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
---------- ---------- ----------
REVENUES (Notes 2, 8 and 9):
Oil and gas $5,917,000 $5,720,000 $5,672,000
Real estate 9,730,000 9,296,000 8,600,000
---------- ---------- ----------
Total revenues 15,647,000 15,016,000 14,272,000
---------- ---------- ----------
COSTS AND EXPENSES (Notes 5, 8 and 9):
Oil and gas production expenses 2,274,000 2,209,000 2,524,000
Real estate operating expenses 5,906,000 5,539,000 4,851,000
Depreciation, depletion and amortization 3,762,000 3,115,000 3,451,000
General and administrative 1,646,000 1,447,000 1,415,000
---------- ---------- ----------
Total costs and expenses 13,588,000 12,310,000 12,241,000
---------- ---------- ----------
Income from operations 2,059,000 2,706,000 2,031,000
GAIN ON SALES OF MARKETABLE
SECURITIES, AVAILABLE FOR SALE 9,595,000 8,462,000 9,216,000
OTHER INCOME, net (Note 3) 463,000 362,000 766,000
INTEREST EXPENSE (Note 4) (3,331,000) (3,939,000) (4,144,000)
---------- ---------- ----------
Income before provision for income taxes 8,786,000 7,591,000 7,869,000
PROVISION FOR INCOME TAXES (Note 6) 3,250,000 2,882,000 3,569,000
---------- ---------- ----------
Net income $5,536,000 $4,709,000 $4,300,000
========== ========== ==========
BASIC EARNINGS PER COMMON SHARE $0.58 $0.49 $0.44
========== ========== ==========
DILUTED EARNINGS PER COMMON SHARE $0.58 $0.49 $0.43
========== ========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Preferred Stock
---------------------------
Shares
Issued Amount
---------- -------------
BALANCE, December 31, 1994 0 $0
Add (deduct):
Net income 0 0
Amortization of deferred compensation in connection with nonqualified
stock option plans (Note 5) 0 0
Purchase of treasury stock 0 0
Payment of cash dividends, $.07 per common share 0 0
Net translation adjustment, current year 0 0
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 0
---- ------
BALANCE, December 31, 1995 0 0
Add (deduct):
Net income 0 0
Amortization of deferred compensation in connection with
nonqualified stock option plans (Note 5) 0 0
Exercise of stock options 0 0
Purchase of treasury stock 0 0
Payment of cash dividends, $.10 per common share 0 0
Net translation adjustment, current year 0 0
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 0
---- ------
BALANCE, December 31, 1996 0 0
Add (deduct):
Net income 0 0
Stock dividend (Notes 2 and 5) 0 0
Amortization of deferred compensation in connection with
nonqualified stock option plans (Note 5) 0 0
Exercise of stock options (Note 5) 0 0
Purchase of treasury stock 0 0
Net translation adjustment, current year 0 0
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 0
---- ------
BALANCE, December 31, 1997 0 $0
==== ======
Common Stock
-------------------------------------
Shares
Issued Amount
----------------- ----------------
BALANCE, December 31, 1994 10,013,544 $10,014,000
Add (deduct):
Net income 0 0
Amortization of deferred compensation in connection with nonqualified
stock option plans (Note 5) 0 0
Purchase of treasury stock 0 0
Payment of cash dividends, $.07 per common share 0 0
Net translation adjustment, current year 0 0
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 0
----------- -----------
BALANCE, December 31, 1995 10,013,544 10,014,000
Add (deduct):
Net income 0 0
Amortization of deferred compensation in connection with
nonqualified stock option plans (Note 5) 0 0
Exercise of stock options 0 0
Purchase of treasury stock 0 0
Payment of cash dividends, $.10 per common share 0 0
Net translation adjustment, current year 0 0
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 0
------------ -----------
BALANCE, December 31, 1996 10,013,544 10,014,000
Add (deduct):
Net income 0 0
Stock dividend (Notes 2 and 5) 0 0
Amortization of deferred compensation in connection with
nonqualified stock option plans (Note 5) 0 0
Exercise of stock options (Note 5) 0 0
Purchase of treasury stock 0 0
Net translation adjustment, current year 0 0
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 0
----------- ------------
BALANCE, December 31, 1997 10,013,544 $10,014,000
=========== ============
Unrealized Gain
Capital in on Marketable
Excess of Securities, Net of
Par Value Income Taxes
----------------- -----------------------
BALANCE, December 31, 1994 $10,399,000 $10,168,000
Add (deduct):
Net income 0 0
Amortization of deferred compensation in connection with nonqualified
stock option plans (Note 5) (474,000) 0
Purchase of treasury stock 0 0
Payment of cash dividends, $.07 per common share 0 0
Net translation adjustment, current year 0 0
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 (722,000)
----------- ----------
BALANCE, December 31, 1995 9,925,000 9,446,000
Add (deduct):
Net income 0 0
Amortization of deferred compensation in connection with
nonqualified stock option plans (Note 5) (237,000) 0
Exercise of stock options 12,000 0
Purchase of treasury stock 0 0
Payment of cash dividends, $.10 per common share 0 0
Net translation adjustment, current year 0 0
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 (4,470,000)
----------- -----------
BALANCE, December 31, 1996 9,700,000 4,976,000
Add (deduct):
Net income 0 0
Stock dividend (Notes 2 and 5) (206,000) 0
Amortization of deferred compensation in connection with
nonqualified stock option plans (Note 5) 82,000 0
Exercise of stock options (Note 5) (54,000) 0
Purchase of treasury stock 0 0
Net translation adjustment, current year 0 0
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 (3,357,000)
----------- -----------
BALANCE, December 31, 1997 $ 9,522,000 $ 1,619,000
============ ===========
Cumulative
Foreign
Currency
Retained Treasury Translation
Earnings Stock Adjustment
----------- ----------------- -----------------
BALANCE, December 31, 1994 $2,822,000 ($2,290,000) ($2,674,000)
Add (deduct):
Net income 4,300,000 0 0
Amortization of deferred compensation in connection with nonqualified
stock option plans (Note 5) 0 0 0
Purchase of treasury stock 0 (1,720,000) 0
Payment of cash dividends, $.07 per common share (663,000) 0 0
Net translation adjustment, current year 0 0 314,000
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 0 0
---------- ----------- -----------
BALANCE, December 31, 1995 6,459,000 (4,010,000) (2,360,000)
Add (deduct):
Net income 4,709,000 0 0
Amortization of deferred compensation in connection with
nonqualified stock option plans (Note 5) 0 0 0
Exercise of stock options 0 5,000 0
Purchase of treasury stock 0 (846,000) 0
Payment of cash dividends, $.10 per common share (931,000) 0 0
Net translation adjustment, current year 0 0 (88,000)
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 0 0
---------- ----------- ----------
BALANCE, December 31, 1996 10,237,000 (4,851,000) (2,448,000)
Add (deduct):
Net income 5,536,000 0 0
Stock dividend (Notes 2 and 5) (1,506,000) 1,694,000 0
Amortization of deferred compensation in connection with
nonqualified stock option plans (Note 5) 0 0 0
Exercise of stock options (Note 5) 0 163,000 0
Purchase of treasury stock 0 (863,000) 0
Net translation adjustment, current year 0 0 (380,000)
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 0 0
----------- ------------ -----------
BALANCE, December 31, 1997 $14,267,000 ($3,857,000) ($2,828,000)
=========== ============ ===========
The accompanying notes to consolidated financial statements are an integral part to these statements.
F-5
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $5,536,000 $4,709,000 $4,300,000
Adjustments to reconcile net income to net cash
(used in) provided by operating activities-
Depreciation, depletion and amortization 3,762,000 3,115,000 3,451,000
Deferred income tax provision (benefit) 740,000 1,168,000 (385,000)
Adjustment of deferred and unearned
compensation in connection with
nonqualified stock option plan, net (22,000) (119,000) (143,000)
Gain on sales of marketable securities,
available for sale (9,595,000) (8,462,000) (9,216,000)
Foreign currency transactions 0 (83,000) (13,000)
Changes in operating assets and liabilities-
Decrease (increase) in accounts receivable 794,000 (842,000) (73,000)
(Increase) decrease in prepaid expenses
and other current assets (507,000) (101,000) 59,000
(Decrease) increase in dividends payable (445,000) 463,000 0
(Decrease) increase in other liabilities (814,000) 814,000 0
Increase (decrease) in accounts payable,
accrued liabilities and taxes payable 283,000 (1,148,000) 2,765,000
---------- ---------- ----------
Net cash (used in) provided by
operating activities (268,000) (486,000) 745,000