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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended March 31, 2003 Commission file
------------------------------
number 1-467
WILSHIRE OIL COMPANY OF TEXAS
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-0513668
- -------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
921 Bergen Avenue - Jersey City, New Jersey 07306-4204
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(201) 420-2796
- -------------------------------------------------------------------------------
NO CHANGE
- -------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since
last report.
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of May 13, 2003.
Common Stock $1 Par Value -----7,809,834
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act)
Yes No x
--- ---
WILSHIRE OIL COMPANY OF TEXAS
INDEX
Page No.
--------
Part I 1. Financial Information
Financial Information: 1
Condensed Consolidated Balance Sheets -
March 31, 2003 (Unaudited) and December 31, 2002
Unaudited Condensed Consolidated Statements of Income - 2
Three months ended March 31, 2003 and 2002
Unaudited Condensed Consolidated Statement of Cash Flows - 3
Three months ended March 31, 2003 and 2002
Notes to Unaudited Condensed Consolidated Financial Statements 4
2. Management's Discussion and Analysis 9
of Financial Condition and Results of Operations
3. Quantitative and Qualitative Disclosure
About Market Risk
4. Controls and Procedures
Part II Other Information 15
6. Exhibits and Reports on Form 8-K
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2003 2002
(Unaudited)
------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,541,000 $ 4,164,000
Marketable securities, available-for-sale, at fair value 9,696,000 9,860,000
Accounts receivable net of allowance of $59,000 and $77,000 in 2003
and 2002, respectively 1,985,000 1,094,000
Income taxes receivable 1,703,000 626,000
Prepaid expenses and other current assets 2,485,000 1,677,000
------------- -------------
Total current assets 18,410,000 17,421,000
------------- -------------
NONCURRENT ASSETS
Mortgage notes receivable 2,884,000 3,035,000
Other noncurrent 375,000 375,000
PROPERTY AND EQUIPMENT
Oil and gas properties, using the full cost method of accounting 144,876,000 141,243,000
Real estate properties 72,001,000 71,355,000
Other property and equipment 366,000 366,000
------------- -------------
217,243,000 212,964,000
Less-Accumulated depreciation, depletion and amortization 127,964,000 125,875,000
------------- -------------
89,279,000 87,089,000
------------- -------------
TOTAL ASSETS $ 110,948,000 $ 107,920,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 10,311,000 $ 7,314,000
Loan payable to shareholder 500,000 500,000
Accounts payable 2,012,000 3,033,000
Income taxes payable - 35,000
Deferred income taxes 695,000 535,000
Accrued liabilities 178,000 119,000
------------- -------------
Total current liabilities 13,696,000 11,536,000
NONCURRENT LIABILITIES
Long-term debt, less current portion 56,498,000 58,392,000
Deferred income taxes 13,362,000 12,051,000
Deferred income 1,397,000 1,627,000
Other Long-term liabilities - 75,000
------------- -------------
Total liabilities 84,953,000 83,681,000
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value, 1,000,000 shares authorized; none issued and
outstanding in 2003 and 2002
- -
Common stock, $1 par value, 15,000,000 shares authorized; issued
10,013,544 shares in 2003 and 2002 10,014,000 10,014,000
Capital in excess of par value 9,029,000 9,029,000
Treasury stock, 2,203,710 shares at March 31, 2003 and
December 31,2002 respectively, at cost (10,355,000) (10,355,000)
Retained earnings 19,762,000 18,640,000
Accumulated other comprehensive loss (2,455,000) (3,089,000)
------------- -------------
Total shareholders' equity 25,995,000 24,239,000
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 110,948,000 $ 107,920,000
============= =============
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
1
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 2003, and 2002
March 31, March 31,
2003 2002
----------- -----------
REVENUES
Oil and gas $ 2,513,000 $ 1,248,000
Real estate 3,637,000 3,769,000
----------- -----------
Total revenues 6,150,000 5,017,000
----------- -----------
COST AND EXPENSES
Oil and gas production expenses 687,000 457,000
Real estate operating expenses 2,286,000 2,107,000
Depreciation and amortization 899,000 562,000
Depreciation, depletion and amortization of oil and gas properties 645,000 424,000
General and administrative 561,000 461,000
----------- -----------
Total costs and expenses 5,078,000 4,011,000
----------- -----------
INCOME FROM OPERATIONS 1,072,000 1,006,000
OTHER INCOME
Dividend and interest income 245,000 166,000
Gain on sale of securities 261,000 615,000
Insurance proceeds 1,000,000 -
Other Income 126,000 -
INTEREST EXPENSE (1,627,000) (1,135,000)
----------- -----------
Income before provision for income taxes 1,077,000 652,000
PROVISION FOR INCOME TAXES (BENEFIT) (45,000) 202,000
----------- -----------
NET INCOME $ 1,122,000 $ 450,000
=========== ===========
Basic earnings per share $ 0.14 $ 0.06
=========== ===========
Diluted earnings per share $ 0.14 $ 0.06
=========== ===========
Net income for the first quarter in 2002 as previously reported has been
adjusted to record the corrected book loss on the sale of a marketable security.
This correction resulted in an adjustment to net income for the first quarter
from $290,000 as originally reported, to $450,000, as reflected above. Such
change adjusted net income per share from $0.04 to $0.06.
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
2
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
------------------------------
March 31, March 31,
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,122,000 $ 450,000
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation, depletion and amortization 1,544,000 986,000
Deferred income tax (benefits) provision 1,311,000 1,429,000
Deferred income (230,000) -
Gain on sales of marketable securities (261,000)
(615,000)
Changes in operating assets and liabilities -
Increase in accounts receivable (891,000) (1,703,000)
Increase in income taxes receivable (1,077,000) -
Increase (decrease) in prepaid expenses and other
current assets (410,000) 933,000
Increase in other liabilities 470,000
Decrease in accounts payable, accrued
liabilities and taxes payable (997,000) (930,000)
------------ ------------
Net cash provided by operating activities 581,000 550,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,279,000) (675,000)
Purchases of marketable securities - (537,000)
Proceeds from sales and redemptions of marketable securities 781,000 1,453,000
Proceeds on mortgage notes receivable 151,000 1,396,000
------------ ------------
Net cash provided by (used in) investing
activities (3,347,000) 1,637,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 35,471,000 4,080,000
Principal payments of long-term debt (34,368,000) (7,896,000)
Purchase of treasury stock - (19,000)
Loan payable to shareholder - (50,000)
Financing Costs (398,000) -
------------ ------------
Net cash provided by (used in) financing
activities 705,000 (3,885,000)
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 438,000 (71,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents (1,623,000)
(1,769,000)
CASH AND CASH EQUIVALENTS, beginning of year 4,164,000 4,984,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 2,541,000 $ 3,215,000
============ ============
SUPPLEMENTAL DISCLOSURES TO THE STATEMENTS
OF CASH FLOWS:
Cash paid during the year for -
Interest $ 1,744,000 $ 1,135,000
============ ============
Income taxes, net $ 160,000 $ 62,000
============ ============
The accompanying notes to consolidated financial statements are an integral
part of these financial statements
3
WILSHIRE OIL COMPANY OF TEXAS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
1. FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements included
herein have been prepared by the Registrant, without audit, pursuant
to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
accounting principles generally accepted in the United States have
been condensed or omitted pursuant to such rules and regulations,
although the Registrant believes that the disclosures are adequate
to make the information presented not misleading. It is suggested
that these unaudited condensed consolidated financial statements be
read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on Form 10-K.
This condensed financial information reflects, in the opinion of
management, all adjustments necessary to present fairly the results
for the interim periods. In connection with the preparation of the
interim financial statements, the Company estimates oil and gas
operations for the month of March based on prior months actual
results and specific significant transactions which may have
occurred during the month. In the opinion of management these
estimated results approximate actual. The results of operations for
such interim periods are not necessarily indicative of the results
for the full year.
Net income for the first quarter in 2002 as previously reported has
been adjusted to record the corrected book loss on the sale of a
marketable security. This correction, which was made on Form 10-K
when filed for 2002, resulted in an adjustment to net income for the
first quarter from $290,000 as originally reported, to $450,000, as
reflected above. Such change adjusted net income per share from
$0.04 to $0.06.
Recently Issued Pronouncements
In May 2002, the FASB issued SFAS No. 145, "Reporting Gains and
Losses from Extinguishment of Debt", which rescinded SFAS No. 4, No.
44 and No. 64 and amended SFAS No. 13. The new standard addresses
the income statement classification of gains or losses from the
extinguishments of debt and criteria for classification as
extraordinary items. The adoption of this pronouncement did not have
a material impact on the Company's results of operations or
financial position.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (effective January 1,
2003). SFAS No. 146 replaces current accounting literature and
requires the recognition of costs associated with exit or disposal
activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. The adoption of this
statement did not have any impact on our results of operations or
financial position.
In November of 2002, the FASB issued Interpretation No. 45,
"Guarantors' Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." The
Interpretation elaborates on the disclosures to be made by a
guarantor in its financial statements about its obligations under
certain guarantees that it has issued. It also clarifies that a
guarantor is required to recognize, at the inception of a guarantee,
a liability for the fair value of the obligation undertaken in
issuing the guarantee. This Interpretation does not prescribe a
specific approach for subsequently measuring the guarantor's
recognized liability over the term of the related guarantee.
4
The disclosure provisions of this Interpretation were effective for
the Company's December 31, 2002 financial statements. The initial
recognition and initial measurement provisions of this
Interpretation are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The adoption of this
statement did not have any impact on our results of operations or
financial position.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation Transition and Disclosure," which provides
guidance on how to transition from the intrinsic method of
accounting for stock-based employee compensation under APB No. 25 to
SFAS No. 123 for the fair value method of accounting, if a company
so elects. The Company does not plan to adopt the fair-value method
of Accounting for stock based employee compensation.
In January of 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities. This Interpretation
clarifies the application of existing accounting pronouncements to
certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other
parties. The provisions of the Interpretation will be immediately
effective for all variable interests in variable interest entities
created after January 31, 2003, and we will need to apply its
provisions to any existing variable interests in variable interest
entities by no later than September 30, 2003. We do not believe that
this Interpretation will have a significant impact on our financial
statements.
2. SEGMENT INFORMATION
The Company is engaged in the exploration and development of oil and
gas, both in its own name and through several wholly-owned
subsidiaries, on the North American continent. The Company also
conducts real estate operations throughout the United States.
Oil and Gas
The Company conducts its oil and gas operations 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.
Real Estate
The Company's real estate operations are conducted in the states of
Arizona, Texas, Florida, Georgia and New Jersey. The Company's
properties consist of apartment complexes as well as commercial and
retail properties.
Corporate
The Company holds investments in certain marketable securities,
which are classified as held for sale. From time to time, the
Company buys and sells securities in the open market. Over the
years, the Company has decreased its holding in marketable
securities and focused its resources in the oil and gas and real
estate divisions.
5
The following segment data is presented based on the Company's internal
management reporting system-
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
2003 2002
(Unaudited) (Unaudited)
------------- ---------------
Revenues
Oil and gas - United States $ 1,253,000 $ 728,000
Oil and gas - Canada 1,260,000 520,000
Real estate 3,637,000 3,769,000
------------- -------------
$ 6,150,000 $ 5,017,000
------------- -------------
Income (loss) from operations and reconciliation
to income before provision for income taxes
Oil and gas - United States (a) $ 139,000 $ (413,000)
Oil and gas - Canada (a) 555,000 317,000
Real estate (a) 452,000 1,100,000
Corporate (74,000) 2,000
------------- -------------
Income from operations 1,072,000 1,006,000
Other income 1,632,000 781,000
Interest expense (1,627,000) (1,135,000)
------------- -------------
Income from operations before provision for income taxes $ 1,077,000 $ 652,000
------------- -------------
Identifiable assets
Oil and gas - United States $ 14,418,000 $ 14,110,000
Oil and gas - Canada 20,041,000 13,529,000
Real estate 59,482,000 58,671,000
Corporate 17,007,000 20,721,000
------------- -------------
$ 110,948,000 $ 107,031,000
------------- -------------
(a) Represents revenues less all operating costs, including depreciation,
depletion and amortization.
6
3. COMPREHENSIVE INCOME
Comprehensive income for the three months ended March 31, 2003 and 2002
is as follows:
2003 2002
(Unaudited) (Unaudited)
---------- ----------
Net income $1,122,000 $ 450,000
---------- ----------
Other comprehensive income (loss), net of taxes
Foreign currency translation adjustments 438,000 (242,000)
Change in unrealized (loss) gain on marketable securities 196,000 216,000
---------- ----------
Other comprehensive (loss) income 634,000 (26,000)
---------- ----------
Comprehensive income $1,756,000 $ 424,000
========== ==========
Changes in the components of Accumulated Other Comprehensive Income
(Loss) for the year 2002 and for the Three months ended March 31, 2003
are as follows-
Unrealized Gains Cumulative Accumulated
(Losses) on Foreign Currency Other
Available-for Sale Translation Comprehensive
Securities Adjustment Income (Loss)
-------------------- ----------------- -----------------
BALANCE, December 31, 2001 $ 1,095,000) $(3,830,000) $(2,735,000)
Change for the year 2002 (442,000) 88,000 (354,000)
----------- ----------- -----------
BALANCE, December 31, 2002 653,000 (3,742,000) (3,089,000)
Change for the three months 196,000 438,000 634,000
----------- ----------- -----------
BALANCE, March 31, 2003 (unaudited) $ 849,000 $(3,304,000) $(2,455,000)
=========== =========== ===========
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share-
Three Months Ended March 31
-----------------------------
2003 2002
(Unaudited) (Unaudited)
---------- -----------
Numerator-
Net income $1,122,000 $ 450,000
========== ==========
Denominator-
Weighted average common shares
outstanding - Basic 7,809,834 7,875,888
Incremental shares from assumed
conversions of stock options 37,461 -
---------- ----------
Weighted average common shares
outstanding - Diluted 7,847,295 7,875,888
========== ==========
Basic earnings per share $ 0.14 $ 0.06
Diluted earnings per share $ 0.14 $ 0.06
5 OTHER INCOME
Other income for 2003 includes $1,000,000 received as the beneficiary
of life insurance policies on the life of the Company's former Chairman
and President who had been serving as its Senior Consultant up to his
death on January 7, 2003. The receipt of these funds are nontaxable to
the Company.
7
6. INTEREST EXPENSE
Interest expense increased to $1,627,000 in 2003 from $1,135,000 in
2002. As of March 1, 2003 the Company was able to refinance and modify
the majority of its mortgage notes payable reducing its overall
effective interest rate from 7.36% to 6.22% and extending its maturity
and terms. During the next ten years, the Company's interest expense
related to its current debt should decrease approximately $600,000
annually.
The current period's interest expense includes a one time prepayment
penalty of $492,000 to secure the new financing arrangements.
7. COMMITMENTS AND CONTINGENCIES
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.
On and after the tenth day following such triggering events, each Right
would entitle the holder (other than the Acquiring Person) to purchase
$50 in market value of the Company's Common Stock for $25. In addition,
if there is a business combination between the Company and an Acquiring
Person, or in certain other circumstances, each Right (if not
previously exercised) would entitle the holder (other than the
Acquiring Person) to purchase $50 in market value of the common stock
of the Acquiring Person for $25.
As of March 31, 2003 and 2002, 7,809,834 and 7,880,888, respectively,
of 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 were in effect as of March 31, 2003
and 2002, the outstanding Rights are not considered in the computation
of basic and diluted earnings per share.
The Company does not have significant lease commitments or post
retirement benefits.
8. INCOME TAXES
The Company received a benefit as a result of receiving $1,000,000 in
life insurance proceeds in the first quarter of 2003 that is not
taxable income.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net income for the three months ended March 31, 2003 was $1,122,000
compared to $450,000 for the same period in 2002. Income from operations
increased to $1,072,000 in 2003 from $1,006,000 in 2002. The improvement in
operating income is a result of an increase in the average price of gas and oil
and gas production offset by a slight decrease in real estate revenue and an
increase in real estate operating expenses and amortization expense mainly due
to one-time charge resulting from our successful refinancing efforts.
For the quarter ended March 31, oil and gas revenues increased from
$1,248,000 in 2002 to $2,513,000 in 2003. This increase is attributable in part
to an increase in the average prices received for oil and gas produced as well
as a substantial increase in gas production. Average prices received for a
barrel of oil increased to $29.72 for the quarter ended in 2003 as compared to
$16.94 for the same period in 2002. Average prices received for gas increased to
$4.07 per MCF in 2003 as compared to $1.88 per MCF in 2002. The balance of the
increase in oil and gas revenue is attributable to the favorable production
results from the Company's investment in late 2002 in Medicine Hat Field in
Alberta Canada. The additional 211 development wells were operational for the
full quarter and resulted in the Company's Canadian production increasing from
164,000 MCFs in 2002 to 272,000 MCFs in 2003.
Oil and gas production expense increased in the first quarter of 2003
to $687,000 from $457,000 due to increased production. Depreciation, depletion
and amortization also increased as a result of increased production to $645,000
in 2003 from $424,000 in 2002.
General and administrative expenses increased in the first quarter of
2003 compared to 2002 from $461,000 to $561,000 due to higher legal, accounting,
salary and liability insurance expenses.
Real estate revenue declined slightly in the first quarter from
$3,769,000 in 2002 to $3,637,000 in 2003.
Real estate operating expenses increased to $2,286,000 in the first
quarter of 2003 from $2,107,000 in 2002, mainly due to increases in heating
costs attributed to more severe weather this year plus increases in property
insurance and repairs and maintenance.
Other income for 2003 includes $1,000,000 received as the beneficiary
of life insurance policies on the life of the Company's former Chairman and
President who had been serving as its Senior Consultant up to his death on
January 7, 2003. The receipt of these funds are nontaxable to the Company.
Interest expense increased to $1,627,000 in 2003 from $1,135,000 in
2002. As of March 1, 2003 the Company was able to refinance and modify the
majority of its mortgage notes payable reducing its overall effective interest
rate from 7.36% to 6.22% and extending its maturity and terms. During the next
ten years, the Company's interest expense related to its current debt should
decrease approximately $600,000 annually.
The current period's interest expense includes a one time prepayment
penalty of $492,000 to secure the new financing arrangements.
9
Liquidity and Capital Resources
At March 31, 2003 the Company had approximately $9,696,000 in
marketable securities at market value. The current ratio at March 31, 2003 was
1.3 to 1, which management considers adequate at this time. The Company's
working capital was approximately $4,714,000 at March 31, 2003.
On May 6, 2003 the Company announced that it plans to pursue the sale
of its oil and gas business and to either reinvest the net proceeds in its
ongoing real estate business or otherwise utilize in a manner designed to
maximize shareholder value. As previously noted in the 2001 Annual Report letter
To Our Shareholders, the Board of Directors will analyze and determine which of
the numerous attractive alternatives will reap the greatest rewards for Wilshire
shareholders. The decision the Company is now embarking on will help to
determine in fact whether shareholder value is best served in Wilshire stock,
stock of a potential acquirer or cash for Wilshire shareholders to invest
elsewhere.
In the meantime, the Company continues to explore 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 negotiating the sale of
certain real estate investment properties and intends to replace those
properties during the year. However, 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 operating activities was $581,000 in 2003 and
$550,000 in 2002. The change is mainly due to net income increasing $672,000 in
2003 providing cash offset by an increase in income tax receivable of $1,077,000
and prepaid expenses of $410,000. Depreciation, depletion and amortization
provided cash of $1,544,000, deferred income taxes provided cash of $1,311,000,
while accounts payable decreased by $997,000 reflecting a use of cash in the
period.
Net cash (used in) provided by investing activities was ($3,347,000) in
2003 and $1,637,000 in 2002. The variations principally relate to property and
equipment additions in the Medicine Hat drilling program in Canada. The
redemption of mortgage notes receivable and the sale of marketable securities in
2003 also provided cash in the first quarter of both periods.
Net cash provided by (used in) financing activities was $705,000 in
2003 and $(3,885,000) in 2002. The variation principally relates to the issuance
of long-term debt and the related costs associated with the overall refinancing
during the first quarter of 2003.
The Company believes it has adequate capital resources to fund
operations for the foreseeable future. Capital resources are principally
provided by net income, marketable securities, income taxes receivable and other
assets of the Company.
Critical Accounting Policies
Wilshire's discussion and analysis of its financial condition and
results of operations are based upon Wilshire's unaudited consolidated financial
statements prepared in conformity with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires Wilshire to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses. Wilshire bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
10
Oil and Gas Properties
The Company follows the accounting policy, generally known in the oil
and gas industry as "full cost accounting". Under full cost accounting, the
Company capitalizes all costs, including interest costs, relating to the
exploration for and development of its mineral resources. Under this 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.
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 used herein should not be
construed as being exact. Any reserve estimate, especially when based upon
volume-metric calculations, depends in part on the quality of available data,
engineering and geologic interpretation and judgment, and thus, represents only
an informed professional judgment. Subsequent reservoir performance may justify
upward or downward revision of the estimate.
Capitalized costs are subject to a "ceiling" test that limits such
costs to the aggregate of the estimated present value, using a discount rate of
10% 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 March 31, 2003 and 2002.
Impairment of Property and Equipment
In October 2001, the FASB issued Statement of Financial Accounting
Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", which addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. This standard harmonizes the accounting for
impaired assets and resolves some of the implementation issues as originally
described in SFAS 121. SFAS 144, among other things, will require the Company to
classify the operations and cash flow of properties to be disposed of as
discontinued operations. The Company adopted this pronouncement on January 1,
2002. This adoption had no impact on the Company's results of operations or
financial position.
On a periodic basis, management assesses whether there are any
indicators that the value of the real estate properties may be impaired. A
property's value is considered impaired if management's estimate of the
aggregate future cash flows (undiscounted and without interest charges) to be
generated by the property are less than the carrying value of the property. To
the extent impairment has occurred, the loss shall be measured as the excess of
the carrying amount of the property over the fair value of the property.
Management does not believe at March 31, 2003 and 2002 that the value of any of
its rental properties is impaired.
Revenue Recognition
Revenue from oil and gas properties is recognized at the time these
products are delivered to third party purchasers. Revenue from real estate
properties is recognized during the period in which the premises are occupied
and rent is due from tenant. Rental revenue is recognized on a straight-line
basis over the term of the lease. The excess of rents recognized over amounts
contractually due pursuant to the underlying leases are included in accounts
receivable. An allowance for uncollectible accounts is maintained based on the
Company's estimate of the inability of its joint interest partners in the oil
and gas division and its tenants in the real estate division to make required
payments.
11
Foreign Operations
The assets and liabilities of the Company's Canadian subsidiary have
been translated at year-end exchange rates. The related revenues and expenses
have been translated at average annual exchange rates. The aggregate effect of
translation losses are reflected as a component of accumulated other
comprehensive income (loss) 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 $8,576,000 and $8,187,000 at March 31, 2003, and December 31,
2002, respectively.
Accounting for Stock-Based Compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123).
12
Forward-Looking Statements
This Report on Form 10-Q for the quarter ended March 31, 2003 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
uncertainties inherent in any attempt to sell a portion of the business at an
acceptable price, 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.
Item 3 - Qualitative and Quantative Disclosure About Market Risk
The Company has investments in domestic equity securities for which the
Company has exposure to the risk of market loss.
The Company is exposed to changes in interest rates from its floating
rate debt arrangements. At March 31, 2003, the Company had $66,809,000 of debt
outstanding of which $57,185,000 bears interest at fixed rates. The interest
rate on the Company's revolving credit lines, under which $9,624,000 was
outstanding at March 31, 2003, is at prime for US borrowings and prime plus .25%
for its Canadian revolving demand loan. A hypothetical 100 basis point adverse
move (increase) on short-term interest rates on the floating rate debt
outstanding at March 31, 2003 would adversely affect the Company's annual
interest cost by approximately $96,000 assuming borrowed amounts under the
revolving credit lines remained at $9,624,000.
SUMMARY OF INDEBTNESS
Long-term debt as of March 31, 2003 and December 31, 2002 consists of
the following -
2003 2002
(Unaudited)
------------ ------------
Mortgage notes payable $57,185,000 $55,236,000
Note payable 1,975,000 5,475,000
Revolving line of credit 3,600,000 4,100,000
Revolving demand loan 4,049,000 895,000
----------- -----------
Total 66,809,000 65,706,000
Less-Current portion 10,311,000 7,314,000
----------- -----------
Long term portion $56,498,000 $58,392,000
=========== ===========
The aggregate maturities of the long-term debt in each of the five
years subsequent to March 31, 2003 and thereafter are -
2003 $ 6,690,000
2004 5,841,000
2005 849,000
2006 903,000
2007 961,000
Thereafter 51,565,000
-----------
$66,809,000
===========
13
Item 4- Controls and Procedures
Within the 90 days prior to the date of this report, the Corporation carried out
an evaluation, under the supervision and with the participation of the
Corporation's management, including the Corporation's Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
the Corporation's disclosure controls and procedures pursuant to Securities
Exchange Act Rule 13a-14. Based upon that evaluation, the Corporation's Chief
Executive Officer and Chief Financial Officer concluded that the Corporation's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Corporation (including its consolidated
subsidiaries) required to be included in the Corporation's periodic SEC filings.
There have been no significant changes in the Corporation's internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
14
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
- --------------------------------------------------
The Company has filed the following Form 8-K's for the quarter ended
March 31, 2003.
Date of Report
(Date of Earliest Event) Filing Dates Subject
- ------------------------ ------------ -------
February 13, 2002 February 13, 2003 Item 5 - Beneficial Ownership of
Estate of Siggi B. Wilzig
March 31, 2003 April 1, 2003 Item 9 - 2002 Financial Results
May 6, 2003 May 6, 2003 Item 9 - Plans to Pursue Sale of
Oil and Gas Business
15
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILSHIRE OIL COMPANY OF TEXAS
-----------------------------------------
(Registrant)
Date: May 14, 2003 /s/ S. Wilzig Izak
----------------- -----------------------------------------
By: S. Wilzig Izak
Chairman of the Board and Chief Executive
Officer
/s/ Philip G. Kupperman
-----------------------------------------
By: Philip G. Kupperman
President and Chief Financial Officer
I, S. Wilzig Izak, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wilshire Oil Company of
Texas;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ S. Wilzig Izak
- -----------------------
S. Wilzig Izak
Chief Executive Officer
I, Philip Kupperman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wilshire Oil Company of
Texas;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Philip G. Kupperman
- -----------------------
Philip Kupperman
Chief Financial Officer