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Part I – Financial Information

 

Item 1.

FINANCIAL STATEMENTS

 

CKX Lands, Inc.

Balance Sheets

September 30, 2010 and December 31, 2009

(Unaudited)

		2010				2009
Assets
Current Assets:
Cash and cash equivalents		$	3,761,643			$	3,977,106
Certificates of deposit			240,000				720,000
Accounts receivable			157,575				162,356
Prepaid expense and other assets			53,886				36,225
Total current assets			4,213,104				4,895,687
Securities available for sale			1,989,698				1,793,866
Certificates of deposit			490,000				240,000
Property and equipment:
Building and equipment less accumulated depreciation of $74,994 and $70,447, respectively			9,062				13,609
Timber less accumulated depletion of $664,802 and $575,057, respectively			521,034				350,665
Land			3,192,491				2,851,526
Total property and equipment, net			3,722,587				3,215,800
Total assets		$	10,415,389			$	10,145,353
Liabilities and Stockholders’ Equity
Current Liabilities:
Trade payables and accrued expenses		$	64,325			$	46,594
Income tax payable:
Current			1,358				—
Deferred			37,466				15,909
Total current liabilities			103,149				62,503
Noncurrent Liabilities:
Deferred income tax payable			181,818				181,818
Total liabilities			284,967				244,321
Stockholders’ Equity:
Common stock, no par value: 3,000,000 shares authorized; 2,100,000 shares issued			72,256				72,256
Retained earnings			10,342,415				10,170,940
Accumulated other comprehensive income			91,267				33,352
Less cost of treasury stock (157,505 shares)			(375,516	)			(375,516	)
Total stockholders’ equity			10,130,422				9,901,032
Total liabilities and stockholders’ equity		$	10,415,389			$	10,145,353

The accompanying notes are an integral part of these financial statements.

 

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CKX Lands, Inc.

Statements of Income

Quarter and Nine Months Ended September 30, 2010 and 2009

(Unaudited)

		Quarter Ended September 30,								Nine Months Ended September 30,
		2010				2009				2010				2009
Revenues:
Oil and gas		$	287,867			$	446,288			$	1,028,629			$	1,183,837
Agriculture			26,408				33,014				69,975				81,986
Timber			18,717				9,468				132,842				27,971
Total revenues			332,992				488,770				1,231,446				1,293,794
Costs and Expenses:
Oil and gas production			25,807				37,210				81,541				104,703
Agriculture			3,374				1,986				6,323				4,563
Timber			1,542				33,159				14,067				52,636
General and administrative			98,769				102,838				301,318				288,179
Depreciation and depletion			25,047				2,048				94,292				5,926
Total cost and expenses			154,539				177,241				497,540				456,007
Income from operations			178,453				311,529				733,906				837,787
Other Income / (Expense):
Interest income			9,797				6,629				28,190				15,370
Dividend income			10,403				4,863				35,700				16,565
Change in unrealized losses on securities available-for-sale			—				—				—				(23,920	)
Gain/(Loss) on securities available-for-sale			(42,341	)			—				(13,814	)			—
Gain on sale of land and other assets			—				—				255				40,719
Net other income / (expense)			(22,141	)			11,492				50,331				48,734
Income before income taxes			156,312				323,021				784,237				886,521
Federal and state income taxes:
Current			32,199				97,246				222,747				271,068
Deferred			(2,579	)			(763	)			(17,909	)			(38,592	)
Total income taxes			29,620				96,483				204,838				232,476
Net Income		$	126,692			$	226,538			$	579,399			$	654,045
Per Common Stock (1,942,495 shares):
Net Income		$	0.07			$	0.12			$	0.30			$	0.34
Dividends		$	0.07			$	0.07			$	0.21			$	0.21

The accompanying notes are an integral part of these financial statements.

 

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CKX Lands, Inc.

Statements of Changes in Stockholders’ Equity

Nine Months Ended September 30, 2010 and 2009

(Unaudited)

Nine Months Ended September 30, 2010:

		Comprehensive Income				Retained Earnings				Accumulated Other Comprehensive Income				Capital Stock Issued				Treasury Stock
December 31, 2009 Balance						$	10,170,940				33,352				72,256				375,516
Comprehensive Income:
Net income		$	579,399				579,399				—				—				—
Other comprehensive income:
Change in unrealized net holding gains occurring during period, net of taxes of $38,610			57,915								57,915
Total comprehensive income		$	637,314
Dividends							(407,924	)			—				—				—
September 30, 2010 Balance						$	10,342,415				91,267				72,256				375,516

Nine Months Ended September 30, 2009:

		Comprehensive Income				Retained Earnings				Accumulated Other Comprehensive Income				Capital Stock Issued				Treasury Stock
December 31, 2008 Balance						$	9,857,876				8,265				72,256				375,516
Comprehensive Income:
Net income		$	654,045				654,045				—				—				—
Other comprehensive income:
Change in unrealized net holding gains occurring during period, net of taxes of $279			(1,919	)
Change in recognized unrealized loss on securities available for sale, net of taxes of $9,568			14,352
Other Comprehensive income, net of taxes			12,433				—				12,433				—				—
Total comprehensive income		$	666,478
Dividends							(407,924	)			—				—				—
September 30, 2009 Balance						$	10,103,997				20,698				72,256				375,516

The accompanying notes are an integral part of these financial statements.

 

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CKX Lands, Inc.

Statements of Cash Flows

Nine Months Ended September 30, 2010 and 2009

(Unaudited)

		2010				2009
Cash Flows From Operating Activities:
Net Income		$	579,399			$	654,045
Less non-cash (income) expenses included in net income:
Depreciation, depletion and amortization			94,292				5,926
Deferred income tax expense			(17,909	)			(38,592	)
Less non-operating activities:
Unrealized (gain) loss on securities			—				23,920
(Gain) loss from securities sales			13,814				—
Gain from sale of land and other assets			(255	)			(40,719	)
Change in operating assets and liabilities:
(Increase) decrease in current assets			(12,880	)			73,093
Increase (decrease) in current liabilities			19,945				16,395
Net cash provided from operating activities			676,406				694,068
Cash Flows From Investing Activities:
Certificates of Deposit:
Maturity proceeds			480,000				—
Purchases			(250,000	)			—
Securities:
Sales proceeds			199,053				10,000
Purchases			(312,174	)			(1,335,000	)
Proceeds from dissolution of partnership			255
Land, timber, equipment and other assets:
Sales proceeds			—				29,330
Purchases			(601,079	)			(13,182	)
Net cash provided from (used in) investing activities			(483,945	)			(1,308,852	)
Cash Flows From Financing Activities:
Dividends paid, net of refunds			(407,924	)			(407,924	)
Net cash used in financing activities			(407,924	)			(407,924	)
Net increase (decrease) in cash and cash equivalents			(215,463	)			(1,022,708	)
Cash and cash equivalents:
Beginning			3,977,106				5,779,491
Ending		$	3,761,643			$	4,756,783
Supplemental disclosures of cash flow information:
Cash payments for:
Interest		$	—			$	—
Income taxes		$	212,500			$	226,937
Supplemental schedule of non-cash investing and financing activities:
Net change in recognized and unrecognized unrealized gains (losses) on available-for-sale securities		$	96,525			$	20,722

The accompanying notes are an integral part of these financial statements.

 

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CKX Lands, Inc.

Notes to Financial Statements

September 30, 2010

(Unaudited)

Note 1.

Basis of Presentation

The accompanying unaudited financial statements of CKX Lands, Inc. (“Company”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information.  They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements.  Except as described herein, there has been no material change in the information disclosed in the notes to the financial statements included in our financial statements as of and for the year ended December 31, 2009.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the accompanying financial statements.

Interim results are not necessarily indicative of results for a full year.  These financial statements and accompanying notes included in this Form 10-Q should be read in conjunction with Company’s Form 10-K for the year ended December 31, 2009 and Form 10-Q for the quarterly period ended September 30, 2009.

Note 2.

Disclosures about Fair Value:

 

Securities available-for-sale and Certificate of Deposits (securities held to maturity) are valued at fair value.  The Company’s estimated fair value of securities are as follows.

		September 30, 2010
		Current								Non-Current								Total
						Unrealized								Unrealized								Unrealized
		Fair Value				Gain/(Loss)				Fair Value				Gain/(Loss)				Fair Value				Gain/(Loss)
Certificate of Deposits		$	240,000				—				490,000				—				730,000				—
Mutual Funds			—				—				785,429				19,654				785,429				19,654
Equity Securities			—				—				1,204,269				130,432				1,204,269				130,432
Total		$	240,000				—				2,479,698				150,086				2,719,698				150,086

		September 30, 2009
		Current								Non-Current								Total
						Unrealized								Unrealized								Unrealized
		Fair Value				Gain/(Loss)				Fair Value				Gain/(Loss)				Fair Value				Gain/(Loss)
Mutual Funds			375,000				—				—				—				375,000				—
Common Stock			518,904				32,471				—				—				518,904				32,471
Total		$	893,904				32,471				—				—				893,904				32,471

 

 

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CKX Lands, Inc.

Notes to Financial Statements

September 30, 2010

(Unaudited)

Fair value measurements disclosure for securities follows:

		September 30, 2010
		Quoted Prices in				Significant				Significant
		Active Markets for				Other				Unobservable
		Identical Assets				Observable Inputs				Inputs
		(Level 1)				(Level 2)				(Level 3)
Certificate of Deposit		$	730,000				—				—
Mutual Funds			785,429				—				—
Equity Securities		$	1,204,269				—				—

 

September 30, 2009

Quoted Prices in

Significant

Significant

Active Markets for

Other

Unobservable

Identical Assets

Observable Inputs

Inputs

(Level 1)

(Level 2)

(Level 3)

Mutual Funds

$

375,000

—

—

Equity Securities

$

518,904

—

—

Note 3:

Income taxes:

In accordance with generally accepted accounting principles, the Company has analyzed its filing positions in federal and state income tax returns for the tax years ending December 31, 2007 through 2009 that remain subject to examination.  The Company believes that all filing positions are highly certain and that all income tax filing positions and deductions would be sustained upon a taxing jurisdiction’s audit. Therefore, no reserve for uncertain tax positions is required.  No interest or penalties have been levied against the Company and none are anticipated.

 

Note 4:

Land and Timber Purchases:

During the second quarter of 2010, the Company purchased 4 parcels of land with standing timber for $599,944.  Approximately 359 acres were purchased for $340,965 and the standing timber was valued at $258,979 based on timber cruises.

 

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Results of Operations

Revenue

Revenues for the first nine months of 2010 decreased by $62,348 to $1,231,446 from 2009.  Royalty revenue from oil and gas revenues declined by $155,208 from 2009.  However, oil and gas lease bonuses and rentals increased by $43,328 from 2009.  The following schedule summarizes barrels and MCF reported from producers and presents an average price per barrel and per MCF for 2010 and 2009. The following schedule summarizes barrels and MCF produced and average price per barrel and per MCF for 2010 and 2009.

 

		2010				2009
Oil Royalty Revenue		$	613,938			$	702,455
Barrels produced			10,748				12,710
Average price per barrel		$	57.12			$	55.27
Gas Royalty Revenue		$	275,382			$	385,401
MCF produced			49,430				69,693
Average price per MCF		$	5.57			$	5.53

 

The decrease in oil royalty revenue is a net effect of a decrease in barrels produced and an increase in the average price per barrel.  Resulting gas royalty revenue is the result of a decrease in MCF produced and an increase in the average price per MCF.

Agriculture revenue decreased from $81,986 to $69,975 in 2010, primarily due to non-renewal of one sugarcane related lease.

Timber revenue increased to $132,842 in 2010 from $27,971 in 2009.  The Company harvested timber for internal maintenance programs which was not performed in 2009. Generally, timber prices have been depressed for the last several years and the Company has elected to only harvest timber for internal maintenance programs for age class timber and storm protection measures.

Costs and Expenses

Oil and gas production costs, primarily severance taxes, decreased by $23,162 in 2010. This decrease is directly related to lower oil and gas revenues.

Timber expenses decreased by $38,569 in 2010 due to a 2009 expense for a timber cruise mapping project.

General and administrative expenses increased by $13,139 primarily due to an increase in office rental expense and public company compliance expense as well as the timing of recording auditing and employee training expenses.

 

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Financial Condition

Current assets, securities available for sale and non-current certificate of deposits totaled $6,692,802 and total liabilities equaled $284,967 at September 30, 2010.  Management believes existing cash and investments together with funds generated from operations should be sufficient to meet operating requirements and provide funds for strategic acquisitions.

The Company declared and paid another seven cents per common share during the quarter ended September 30, 2010. It is anticipated that the Company will be able to continue paying a seven cents per common share dividend each quarter.  From time to time, the Company may elect to pay an extra dividend.  In determining if an extra dividend will be declared, the Board of Directors will take into consideration the Company’s current liquidity and capital resources and the availability of suitable timberland that has mineral potential.

Issues and Uncertainties

This Quarterly Report contains forward-looking statements.  These statements are based on current expectations and assumptions that are subject to risks and uncertainties.  Actual results could differ materially because of issues and uncertainties such as those discussed below, which, among others, should be considered in evaluating the Company’s financial outlook.

Revenues from oil and gas provide most of the Company’s income.  All of these revenues come from wells operated by other companies from property belonging to CKX Lands, Inc.  Consequently, these revenues fluctuate due to changes in oil and gas prices and changes in the operations of the other companies.

 

Item 3.

Not applicable.

 

 

Item 4.

CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the period covered by this report. Based on the evaluation, performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by the report.

 

Changes in Internal Control Over Financial Reporting

There were no significant changes with respect to the Company’s internal control over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter covered by this report.

 

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Part II.  Other Information

 

Item 1 – 5.

Not Applicable

 

 

Item 6.

EXHIBITS

 

3.1

Restated/Articles of Incorporation of the Registrant are incorporated by reference to Exhibit (3)-1 to Form 10 filed April 29, 1981.

3.2

Amendment to Articles of Incorporation of the Registrant is incorporated by reference to Exhibit (3.2) to Form 10-K for year ended December 31, 2003.

3.3

By-Laws of the Registrant are incorporated by reference to Exhibit (3.3) to Form 10-K for year ended December 31, 2003.

10

Contract to Purchase and Sell approximately 3,495 acres in Cameron Parish, Louisiana effective July 3, 2007 is incorporated by reference to Exhibit (10) to Form 10-QSB filed August 13, 2007.

31.1

Certification of Joseph K. Cooper, President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.

31.2

Certification of Brian R. Jones, Treasurer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.

32

Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.

 

 

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Signature

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.

	CKX Lands, Inc.
Date: November 4, 2010	/s/ Joseph K. Cooper
	Joseph K. Cooper
	President and Chief Executive Officer
Date: November 4, 2010	/s/ Brian R. Jones
	Brian R. Jones
	Treasurer and Chief Financial Officer

 

 

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