UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
_____________________
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(Mark One)
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[X]
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2011
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OR
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ______ to ______
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Commission File Number: 1-737
Texas Pacific Land Trust
(Exact Name of Registrant as Specified in Its Charter)
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NOT APPLICABLE
(State or Other Jurisdiction of Incorporation
or Organization)
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75-0279735
(I.R.S. Employer
Identification No.)
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1700 Pacific Avenue, Suite 2770, Dallas, Texas
(Address of Principal Executive Offices)
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75201
(Zip Code)
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(214) 969-5530
(Registrant’s Telephone Number, Including Area Code)
__________________________________________________________________
(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 T No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large Accelerated Filer
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¨
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Accelerated Filer
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T
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Non-Accelerated Filer
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¨
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Smaller reporting company
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¨
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No T
Cautionary Statement Regarding Forward-Looking Statements
Statements in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding management’s expectations, hopes, intentions or strategies regarding the future. Forward-looking statements include statements regarding the Trust’s future operations and prospects, the markets for real estate in the areas in which the Trust owns real estate, applicable zoning regulations, the markets for oil and gas, production limits on prorated oil and gas wells authorized by the Railroad Commission of Texas, expected competition, management’s intent, beliefs or current expectations with respect to the Trust’s future financial performance and other matters. All forward-looking statements in this Report are based on information available to us as of the date this Report is filed with the Securities and Exchange Commission, and we assume no responsibility to update any such forward-looking statements, except as required by law. All forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, the factors discussed in Item 1A “Risk Factors” of Part I of our Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 2010, and in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TEXAS PACIFIC LAND TRUST
BALANCE SHEETS
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June 30,
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December 31,
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2011
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2010
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(Unaudited)
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| Assets |
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Cash and cash equivalents
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$ |
8,091,223 |
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$ |
7,149,552 |
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Accrued receivables
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2,417,385 |
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2,164,842 |
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Other assets
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29,304 |
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73,259 |
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Prepaid income taxes
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– |
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57,893 |
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Notes receivable for land sales
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12,534,550 |
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14,342,898 |
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Water wells, leasehold improvements, furniture and equipment
– at cost less accumulated depreciation
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50,065 |
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39,412 |
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Real estate acquired:
(10,793 acres at June 30, 2011 and December 31, 2010)
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1,161,504 |
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1,161,504 |
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Real estate and royalty interests assigned through the 1888
Declaration of Trust, no value assigned:
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Land (surface rights) situated in twenty counties in Texas – 942,679 acres in 2011 and 949,423 acres in 2010
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– |
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– |
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Town lots in Loraine – 318 lots in 2011 and 2010
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– |
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– |
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1/16 nonparticipating perpetual royalty interest in 386,988 acres in 2011 and 2010
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– |
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– |
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1/128 nonparticipating perpetual royalty interest in 85,414 acres in 2011 and 2010
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– |
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– |
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$ |
24,284,031 |
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$ |
24,989,360 |
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Liabilities and Capital
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Accounts payable and accrued expenses
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$ |
987,175 |
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$ |
976,202 |
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Income taxes payable
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540,297 |
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149,233 |
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| Other taxes payable |
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170,881 |
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87,424 |
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| Unearned revenues |
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755,199 |
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755,199 |
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Deferred taxes
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3,677,058 |
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4,282,733 |
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Pension plan liability
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492,625 |
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436,343 |
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Total liabilities
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6,623,235 |
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6,687,134 |
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Capital:
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Certificates of Proprietary Interest, par value $100 each; outstanding 0 certificates
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– |
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– |
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Sub-share Certificates in Certificates of Proprietary Interest, par value $.03 1/3 each;
outstanding: 9,381,801 Sub-shares in 2011 and 9,548,444 Sub-shares in 2010
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– |
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– |
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Other comprehensive loss
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(496,234 |
) |
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(515,724 |
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Net proceeds from all sources
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18,157,030 |
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18,817,950 |
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Total capital
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17,660,796 |
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18,302,226 |
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$ |
24,284,031 |
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$ |
24,989,360 |
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See accompanying notes to financial statements.
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TEXAS PACIFIC LAND TRUST
STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended
June 30,
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Six Months Ended
June 30,
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2011
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2010
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2011
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2010
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Income:
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Rentals, royalties and sundry income
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$ |
4,885,782 |
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$ |
4,632,532 |
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$ |
9,841,038 |
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$ |
8,232,447 |
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Land sales
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3,680,500 |
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1,567,750 |
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4,192,000 |
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1,935,070 |
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Interest income from notes receivable
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228,314 |
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274,234 |
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477,326 |
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552,181 |
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8,794,596 |
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6,474,516 |
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14,510,364 |
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10,719,698 |
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Expenses:
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Taxes, other than income taxes
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234,468 |
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188,581 |
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463,926 |
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393,035 |
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General and administrative expenses
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551,968 |
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697,983 |
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1,157,125 |
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1,251,766 |
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786,436 |
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886,564 |
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1,621,051 |
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1,644,801 |
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Operating income
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8,008,160 |
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5,587,952 |
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12,889,313 |
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9,074,897 |
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Interest income earned from investments
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4,391 |
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6,075 |
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8,731 |
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12,291 |
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Income before income taxes
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8,012,551 |
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5,594,027 |
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12,898,044 |
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9,087,188 |
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Income taxes
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2,596,622 |
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1,788,493 |
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4,122,546 |
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2,839,187 |
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Net income
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$ |
5,415,929 |
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$ |
3,805,534 |
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$ |
8,775,498 |
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$ |
6,248,001 |
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Average number of sub-share certificates and equivalent sub-share certificates outstanding
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9,432,205 |
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9,767,077 |
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9,460,805 |
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9,797,930 |
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Basic and dilutive earnings per sub-share certificate
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$ |
.58 |
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$ |
.39 |
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$ |
.93 |
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$ |
.64 |
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Cash dividends per sub-share certificate
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$ |
– |
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$ |
– |
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$ |
.21 |
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$ |
.20 |
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See accompanying notes to financial statements.
TEXAS PACIFIC LAND TRUST
STATEMENTS OF CASH FLOWS
(Unaudited)
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Six Months
Ended June 30,
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2011
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2010
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Cash flows from operating activities:
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Net income
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$ |
8,775,498 |
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$ |
6,248,001 |
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Adjustments to reconcile net income to net
cash provided by operating activities:
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Deferred taxes
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(605,675 |
) |
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(194,900 |
) |
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Depreciation and amortization
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6,240 |
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6,462 |
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Loss on disposal of fixed assets
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– |
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2,884 |
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Changes in operating assets and liabilities:
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Accrued receivables and other assets
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(208,588 |
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(186,094 |
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| Prepaid income taxes |
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57,893 |
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- |
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Notes receivable for land sales
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1,808,348 |
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615,078 |
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Accounts payable, accrued expenses
and other liabilities
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170,202 |
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21,365 |
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Income taxes payable
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391,064 |
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449,162 |
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Net cash provided by operating activities
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10,394,982 |
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6,961,958 |
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Cash flows from investing activities:
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Proceeds from sale of fixed assets
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– |
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12,500 |
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Purchase of fixed assets
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(16,893 |
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(27,670 |
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Net cash used in investing activities
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(16,893 |
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(15,170 |
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Cash flows from financing activities:
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Purchase of Sub-share Certificates in Certificates of Proprietary Interest
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(7,436,185 |
) |
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(4,872,350 |
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Dividends paid
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(2,000,233 |
) |
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(1,968,061 |
) |
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Net cash used in financing activities
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(9,436,418 |
) |
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(6,840,411 |
) |
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Net increase in cash and cash equivalents
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941,671 |
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106,377 |
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Cash and cash equivalents, beginning of period
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7,149,552 |
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8,151,209 |
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Cash and cash equivalents, end of period
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$ |
8,091,223 |
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$ |
8,257,586 |
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See accompanying notes to financial statements.
TEXAS PACIFIC LAND TRUST
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2011
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(1)
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In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of Texas Pacific Land Trust (the “Trust”) as of June 30, 2011 and the results of its operations for the three month and six month periods ended June 30, 2011 and 2010, respectively, and its cash flows for the six month periods ended June 30, 2011 and 2010, respectively. The financial statements and footnotes included herein should be read in conjunction with the Trust’s annual financial statements as of December 31, 2010 and 2009 and for each of the years in the three year period ended December 31, 2010 included in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2010.
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(2)
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We evaluate events that occur after the balance sheet date but before financial statements are, or are available to be, issued to determine if a material event requires our amending the financial statements or disclosing the event. We evaluated subsequent events through August 5, 2011, the date we issued these financial statements.
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(3)
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No value has been assigned to the land held by the Trust other than parcels which have been acquired through foreclosure and a limited number of parcels which have been acquired because they were offered for sale and were contiguous to parcels already owned by the Trust. Consequently, no allowance for depletion is computed, and no charge to income is made, with respect thereto, and no cost is deducted from the proceeds of the land sales in computing gain or loss thereon.
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(4)
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The Sub-shares and the Certificates of Proprietary Interest are freely interchangeable in the ratio of one Certificate of Proprietary Interest for 3,000 Sub-shares or 3,000 Sub-shares for one Certificate of Proprietary Interest.
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(5)
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The Trust’s effective Federal income tax rate is less than the 34% statutory rate because taxable income is reduced by statutory percentage depletion allowed on mineral royalty income.
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(6)
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The results of operations for the three month and six month periods ended June 30, 2011 are not necessarily indicative of the results to be expected for the full year.
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(7)
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The Trust invests cash in excess of daily requirements primarily in bank deposits, savings accounts and certificates of deposit with maturities of ninety days or less. Such investments are deemed to be highly liquid debt instruments and classified as cash equivalents for purposes of the statements of cash flows.
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Supplemental cash flow information for the six month periods ended June 30, 2011 and 2010 is summarized as follows:
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2011
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2010
|
| |
|
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Income taxes paid
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$4,289,759
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$2,598,902
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(8)
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ASC 280, “Segment Reporting,” establishes standards for the way public business enterprises are to report information about operating segments. In accordance with ASC 280, the Trust utilizes the management approach as a basis for identifying reportable segments. The management approach is based on the way that management organizes the segments within the enterprise for
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making operating decisions and assessing performance. The Trust’s management views its operations as one segment and believes the only significant activity is managing the land which was conveyed to the Trust in 1888. The Trust’s management makes decisions about resource allocation and performance assessment based on the same financial information presented in these financial statements. Managing the land includes sales and leases of such land, and the retention of oil and gas royalties.
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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The following discussion and analysis should be read together with (i) the factors discussed in Item 1A “Risk Factors” of Part I of our Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 2010, (ii) the factors discussed in Part II, Item 1A “Risk Factors,” if any, of this Quarterly Report on Form 10-Q and (iii) the Financial Statements, including the Notes thereto, and the other financial information appearing elsewhere in this Report. Period-to-period comparisons of financial data are not necessarily indicative, and therefore should not be relied upon as indicators, of the Trust’s future performance. Words or phrases such as “does not believe” and “believes”, or similar expressions, when used in this Form 10-Q or other filings with the Securities and Exchange Commission, are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
Results of Operations for the Quarter Ended June 30, 2011 Compared to the Quarter Ended June 30, 2010
Earnings per Sub-share certificate were $.58 for the second quarter of 2011, compared to $.39 for the second quarter of 2010. Total operating and investing revenues were $8,798,987 for the second quarter of 2011 compared to $6,480,591 for the second quarter of 2010, an increase of 35.8%. This increase in revenue and earnings was due primarily to increases in land sales and oil and gas royalty revenue, which were partially offset by a decrease in easement and sundry and interest income.
In the second quarter of 2011 the Trust sold approximately 6,682 acres for a total of $3,680,500, or approximately $551 per acre. In the second quarter of 2010 the Trust sold approximately 314 acres for a total of $1,567,750, or approximately $4,993 per acre.
Rentals, royalties and sundry income were $4,885,782 during the second quarter of 2011, compared to $4,632,532 for the second quarter of 2010, an increase of 5.5%. This increase resulted primarily from an increase in oil and gas royalty revenue, partially offset by a decrease in easement and sundry and interest income.
Oil and gas royalty revenue was $3,591,193 for the second quarter of 2011, compared to $2,702,939 for the second quarter of 2010, an increase of 32.9%. Oil royalty revenue was $2,862,705 for the second quarter of 2011, an increase of 40.6% from the second quarter of 2010. This increase was due to increases in both price and volume. The average price per royalty barrel of crude oil during the second quarter of 2011 was 24.9% higher than the average price prevailing during the second quarter of 2010. In addition, crude oil production subject to the Trust’s royalty interest increased 12.6% in the second quarter of 2011 compared to the second quarter of 2010. Gas royalty revenue was $728,488 for the second quarter of 2011, an increase of 9.2% from the second quarter of 2010 when gas royalty revenue was $667,353. This increase in gas royalty revenue resulted from an 11.3% increase in the volume of gas produced, which more than offset a 2.0% decrease in the average price of gas sold.
Easement and sundry income was $1,110,719 for the second quarter of 2011, a decrease of 36.1% compared to the second quarter of 2010 when easement and sundry income was $1,739,201. Sundry income in the second quarter of 2010 included $999,558 from the proceeds of a one-time sale of pipe from an abandoned pipeline easement on Trust acreage which did not recur in the comparable 2011 period. This category of income is unpredictable and may vary significantly from quarter to quarter.
Interest income, including interest on investments, was $232,705 for the second quarter of 2011 compared to $280,309 for the second quarter of 2010, a decrease of 17.0%. Interest on notes receivable for the second quarter of 2011 was $228,314, a decrease of 16.7% compared to the second quarter of 2010. As of June 30, 2011, notes receivable for land sales were $12,534,550 compared to $15,113,847 at June 30, 2010, a decrease of 17.1%. Sundry interest was $4,391 for the second quarter of 2011, a decrease of 27.7% from the second quarter of 2010. Sundry interest is affected by such variables as cash on hand for investment and the rate of interest on short-term investments.
Taxes, other than income taxes, increased 24.3% for the second quarter of 2011 compared to the second quarter of 2010. This increase is mainly attributable to an increase in oil and gas production taxes which resulted from the increase in oil and gas revenue discussed above.
General and administrative expenses for the second quarter of 2011 were down 20.9%, compared to the second quarter of 2010. This was primarily due to a decrease in legal expenses.
Results of Operations for the Six Months Ended June 30, 2011 Compared to the Six Months Ended June 30, 2010
Earnings per Sub-share certificate were $.93 for the first six months of 2011, compared to $.64 for the first six months of 2010. Total operating and investing revenues were $14,519,095 for the first six months of 2011 compared to $10,731,989 for the first six months of 2010, an increase of 35.3%. This increase in revenue and earnings was primarily due to increases in land sales, oil and gas royalty revenue and easement and sundry income, which were partially offset by a decrease in interest income.
During the first six months of 2011 the Trust sold approximately 6,750 acres for a total of $4,192,000, or approximately $621 per acre. In the first six months of 2010 the Trust sold approximately 1,694 acres and 223 town lots (approximately 42 acres) for a total of $1,935,070, or approximately $1,115 per acre.
Rentals, royalties, and sundry income were $9,841,038 for the first six months of 2011 compared to $8,232,447 for the first six months of 2010, an increase of 19.5%. This increase resulted primarily from an increase in oil royalty revenue and, to a lesser extent, an increase in easement and sundry income, partially offset by decreases in interest income and gas royalty revenue.
Oil and gas royalty revenue was $7,067,415 for the first six months of 2011 compared to $5,649,477 for the first six months of 2010, an increase of 25.1%. Oil royalty revenue was $5,578,871 for the first six months of 2011, an increase of 35.4% from the first six months of 2010. This increase was due to increases in both price and volume. The average price per royalty barrel of crude oil during the first six months of 2011 was 19.9% higher than the average price prevailing during the first six months of 2010. In addition, crude oil production subject to the Trust’s royalty interest increased 12.9% in the first six months of 2011 compared to the first six months of 2010. Gas royalty revenue was $1,488,544 for the first six months of 2011, a decrease of 2.6% from the first six months of 2010 when gas royalty income was $1,528,487. This decrease in gas royalty revenue resulted from a decrease of 2.7% in the volume of gas produced while gas prices were relatively flat.
Easement and sundry income was $2,494,235 for the first six months of 2011 compared to $2,298,938 for the first six months of 2010, an increase of 8.5%. This increase is primarily due to increases in easement income and sundry lease rental income, partially offset by a decrease in sundry income. Sundry income in the first six months of 2010 included $999,558 from the proceeds of a one-time sale of pipe from an abandoned pipeline easement on Trust acreage which did not recur in the comparable 2011 period. This category of income is unpredictable and may vary significantly from quarter to quarter.
Interest income, including interest on investments, was $486,057 for the first six months of 2011 compared to $564,472 for the first six months of 2010, a decrease of 13.9%. Interest on notes receivable for the first six months of 2011 was $477,326, a decrease of 13.6% from the comparable period of 2010. As of June 30, 2011, notes receivable for land sales were $12,534,550 compared to $15,113,847 at June 30, 2010, a decrease of 17.1%. Sundry interest was $8,731 for the first six months of 2011, a decrease of 29.0% from the 2010 period. Sundry interest is affected by such variables as cash on hand for investment and the rate of interest on short-term investments.
Taxes, other than income taxes increased 18.0% for the first six months of 2011 compared to the first six months of 2010. This increase is mainly attributable to an increase in oil production taxes which resulted from the increase in oil revenue discussed above.
General and administrative expenses for the first six months of 2011 were down 7.6% compared to the first six months of 2010. This decrease was primarily due to a decrease in legal fees, partially offset by an increase in professional and audit fees.
Liquidity and Capital Resources
The Trust’s principal sources of liquidity are revenues from oil and gas royalties, lease rentals and receipts of interest and principal payments on the notes receivable arising from land sales. In the past, those sources have generated more than adequate amounts of cash to meet the Trust’s needs and, in the opinion of management, should continue to do so in the foreseeable future.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the information related to market risk of the Trust since December 31, 2010.
Item 4. Controls and Procedures
Pursuant to Rule 13a-15, management of the Trust under the supervision and with the participation of Roy Thomas, the Trust’s Chief Executive Officer, and David M. Peterson, the Trust’s Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Trust’s disclosure controls and procedures as of the end of the Trust’s fiscal quarter covered by this Report on Form 10-Q. Based upon that evaluation, Mr. Thomas and Mr. Peterson concluded that the Trust’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Trust required to be included in the Trust’s periodic SEC filings.
There have been no changes in the Trust’s internal control over financial reporting during the Trust’s most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1A. Risk Factors
There have been no material changes in the risk factors previously disclosed in response to Item 1A “Risk Factors” of Part I of the Trust’s Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
(c)
|
During the second quarter of 2011, the Trust repurchased Sub-share certificates as follows:
|
|
|
|
Total Number of
Sub-shares
Purchased
|
|
|
Average Price
Paid per Sub-
|
|
|
Total
Number of Sub-
shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
|
|
|
Maximum
Number (or
Approximate
Dollar Value) of
Sub-shares that
May Yet Be
Purchased Under
the Plans or
Programs
|
|
|
April 1, through
April 30, 2011
|
|
|
23,331 |
|
|
$ |
47.60 |
|
|
|
– |
|
|
|
– |
|
|
May 1, through
May 31, 2011
|
|
|
33,887 |
|
|
$ |
46.90 |
|
|
|
– |
|
|
|
– |
|
|
June 1, through
June 30, 2011
|
|
|
29,572 |
|
|
$ |
45.78 |
|
|
|
– |
|
|
|
– |
|
|
Total
|
|
|
86,790 |
|
|
$ |
46.71 |
|
|
|
– |
|
|
|
– |
|
* The Trust purchased and retired 86,790 Sub-shares in the open market.
Item 6. Exhibits
|
|
31.1
|
Rule 13a-14(a) Certification of Chief Executive Officer.
|
|
|
31.2
|
Rule 13a-14(a) Certification of Chief Financial Officer.
|
|
|
32.1
|
Certification of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.2
|
Certification of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
| |
101.SCH
|
XBRL Taxonomy Extension Schema
|
| |
101.CAL
|
XBRL Taxonomy Extension Calculation
|
| |
101.DEF
|
XBRL Taxonomy Extension Definition
|
| |
101.LAB
|
XBRL Taxonomy Extension Labels
|
| |
101.PRE
|
XBRL Taxonomy Extension Presentation
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
|
TEXAS PACIFIC LAND TRUST
|
| |
|
(Registrant)
|
|
Date: August 5, 2011
|
|
By:
|
/s/ Roy Thomas |
| |
|
|
Roy Thomas, General Agent,
Authorized Signatory and Chief Executive
Officer
|
| |
|
|
|
Date: August 5, 2011
|
|
By:
|
/s/ David M. Peterson |
| |
|
|
David M. Peterson, Assistant General Agent,
and Chief Financial Officer
|
INDEX TO EXHIBITS
|
EXHIBIT
NUMBER
|
|
DESCRIPTION
|