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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended June 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ______ to ______
Commission File Number: 1-737
TEXAS PACIFIC LAND TRUST
(Exact Name of Registrant as Specified in Its Charter)
NOT APPLICABLE 75-0279735
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
1700 PACIFIC AVENUE, SUITE 1670, DALLAS, TEXAS 75201
(Address of Principal Executive Offices) (Zip Code)
(214) 969-5530
(Registrant's Telephone Number, Including Area Code)
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(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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
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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 2 "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEXAS PACIFIC LAND TRUST
BALANCE SHEETS
JUNE 30, DECEMBER 31,
ASSETS 2003 2002
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(UNAUDITED)
-----------
Cash $ 364,148 $ 147,746
Temporary cash investments at cost which approximates market 2,950,000 3,200,000
Accounts receivable 492,298 486,583
Accrued interest receivable 521,065 358,746
Prepaid expenses 17,938 44,844
Notes receivable for land sales 11,010,477 11,923,998
Real estate acquired through foreclosure:
(8,089.24 acres at June 30, 2003 and December 31, 2002) 2,470,908 2,470,908
Water wells, leasehold improvements, furniture and equipment
- at cost less accumulated depreciation 109,231 102,482
Prepaid Federal income taxes 10,308 --
Property, no value assigned:
Land (surface rights) situated in twenty counties in
Texas - 1,003,254.19 acres in 2003 and 1,004,496.01 acres in 2002 -- --
Town lots in Iatan, Loraine and Morita - 628 lots in 2003 and 2002 -- --
1/16 nonparticipating perpetual royalty interest in 386,987.70 acres in
2003 and 2002 -- --
1/128 nonparticipating perpetual royalty interest in 85,413.60 acres in
2003 and 2002 -- --
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$17,946,373 $ 18,735,307
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LIABILITIES AND CAPITAL
Federal income taxes payable $ -- $ 125,196
Other taxes 141,373 30,421
Other liabilities 113,786 10,120
Deferred taxes 4,291,210 4,586,451
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Total liabilities 4,546,369 4,752,188
Capital:
Certificate of Proprietary Interest, par value $100
each; no certificates outstanding in 2003 and 2002 -- --
Sub-share Certificates in Certificates of Proprietary
Interest, par value $.16 2/3 each; outstanding:
2,279,987 sub-shares in 2003 and 2,317,387 sub-shares in 2002 -- --
Net proceeds from all sources 13,400,004 13,983,119
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Total capital 13,400,004 13,983,119
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$17,946,373 $ 18,735,307
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See accompanying notes to financial statements.
2
TEXAS PACIFIC LAND TRUST
STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2003 2002 2003 2002
----------- ---------- ----------- ----------
Income:
Rentals, royalties and sundry income $ 1,696,422 $1,372,109 $ 3,196,948 $2,451,621
Land sales 650,000 128,205 711,685 321,961
Interest 237,695 244,081 490,681 493,457
----------- ---------- ----------- ----------
2,584,117 1,744,395 4,399,314 3,267,039
----------- ---------- ----------- ----------
Expenses:
Taxes, other than Federal income taxes 143,970 117,370 278,169 222,273
General and administrative expenses 399,451 325,064 843,566 730,123
----------- ---------- ----------- ----------
543,421 442,434 1,121,735 952,396
----------- ---------- ----------- ----------
Income before
Federal income taxes 2,040,696 1,301,961 3,277,579 2,314,643
Federal income taxes 621,558 387,437 982,021 689,029
----------- ---------- ----------- ----------
Net income $ 1,419,138 $ 914,524 $ 2,295,558 $1,625,614
=========== ========== =========== ==========
Average number of sub-share certificates
and equivalent sub-share certificates
outstanding 2,292,804 2,372,137 2,299,549 2,378,812
=========== ========== =========== ==========
Basic and dilutive earnings per sub-share
certificate $ .62 $ .38 $ 1.00 $ .68
=========== ========== =========== ==========
Cash dividends per sub-share certificate -- -- $ .40 $ .40
=========== ========== =========== ==========
See accompanying notes to financial statements.
3
TEXAS PACIFIC LAND TRUST
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS
ENDED JUNE 30,
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2003 2002
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Cash flow from operating activities:
Net income $ 2,295,558 $ 1,625,614
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 18,000 20,400
Deferred taxes (295,241) (271,821)
(Increase) decrease in assets:
Accounts receivable (5,715) (10,740)
New notes receivable from land sales (487,500) (145,000)
Payments received on notes receivable 1,401,021 1,031,350
Accrued interest receivable (162,319) (97,626)
Prepaid Federal income taxes (10,308) 149,668
Prepaid expenses 26,906 36,683
Increase (decrease) in liabilities:
Federal income taxes payable (125,196) 43,182
Other taxes payable 110,952 110,882
Escrow deposits on land sales -- (4,000)
Other liabilities payable 103,666 32,217
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Total adjustments 574,266 895,195
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Net cash provided by operating activities 2,869,824 2,520,809
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Cash flows from investing activities-
Additions to water wells, leasehold improvements,
furniture and equipment (24,749) (24,513)
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Cash flows from financing activities:
Sub-shares purchased for retirement (1,955,718) (1,371,072)
Dividends paid (922,955) (956,995)
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Net cash used by financing activities (2,878,673) (2,328,067)
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Net increase in cash and cash equivalents (33,598) 168,229
Cash and cash equivalents at beginning of period 3,347,746 2,585,065
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Cash and cash equivalents at end of period $ 3,314,148 $2,753,294
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See accompanying notes to financial statements.
4
TEXAS PACIFIC LAND TRUST
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2003
(1) 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, 2003 and the results of
its operations for the three month and six month periods ended June 30,
2003 and 2002, respectively, and its cash flows for the six month
periods ended June 30, 2003 and 2002, respectively. These financial
statements and footnotes included herein should be read in conjunction
with the Trust's annual financial statements as of December 31, 2002 and
2001 and for each of the years in the three year period ended December
31, 2002 included in the Trust's Annual Report on Form 10-K for the year
ended December 31, 2002.
(2) No value is assigned to the land, unless acquired through foreclosure;
consequently, no allowance for depletion is computed, and no charge to
income is made therefor, and no cost is deducted from the proceeds of
the land sales in computing gain or loss thereon.
(3) The Sub-shares and the Certificates of Proprietary Interest are freely
interchangeable in the ratio of one Certificate of Proprietary Interest
for 600 Sub-shares or 600 Sub-shares for one Certificate of Proprietary
Interest.
(4) 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.
(5) The results of operations for the three month and six month periods
ended June 30, 2003 are not necessarily indicative of the results to be
expected for the full year.
(6) Cash in excess of daily requirements is invested primarily in overnight
investments in loan participation instruments with maturities of ninety
days or less. Such investments are deemed to be highly liquid debt
instruments for purposes of the statements of cash flows.
Supplemental cash flow information for the six month periods ended June
30, 2003 and 2002 is summarized as follows:
2003 2002
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Federal income taxes paid $1,412,766 $ 768,000
(7) SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for the way public business
enterprises are to report information about operating segments. SFAS No.
131 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 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.
Trust 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.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read together with 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, 2003 COMPARED TO THE
QUARTER ENDED JUNE 30, 2002
Earnings per sub-share were $.62 for the second quarter of 2003 compared
to $.38 in the second quarter of 2002. Total revenues were $2,584,117 compared
to $1,744,395, an increase of 48.1%.
Land sales for the second quarter of 2003 were 8.12 acres at $80,049 per
acre for a total of $650,000. This compares to 2,406.65 acres at an average
price of approximately $53 per acre for a total of $128,205 in the second
quarter of 2002.
Land sales may vary widely from year to year and quarter to quarter. The
total dollar amount, the average price per acre, and the number of acres sold in
any one year or quarter should not be assumed to be indicative of land sales in
the future. The Trust is a passive seller of land and does not actively solicit
sales of land. The demand for, and the sales price of, any particular tract of
the Trust's land is influenced by many factors, including, the national and
local economies, the rate of residential and commercial development in nearby
areas, livestock carrying capacity, and the condition of the local agricultural
industry, which itself is influenced by range conditions and prices for
livestock and other agricultural products. Approximately 99% of the Trust's land
is classified as ranch land and intermingled with other ownerships to form
ranching units. Ranch land sales are, therefore, largely dependent on the
actions of the adjoining landowners.
Rentals, royalties and sundry income amounted to $1,696,422 for the
second quarter of 2003 compared to $1,372,109 for the second quarter of 2002, up
23.6%. This increase resulted from an increase in oil and gas royalty revenue,
which more than offset a decline in easement and other sundry income. The
increase in oil and gas royalty income was attributable to the significantly
higher market prices for oil and natural gas which prevailed during the second
quarter of 2003 compared to the second quarter of 2002.
Oil and gas royalty revenue was $1,330,605 for the second quarter of
2003, up 46.3% compared to the second quarter of 2002. Oil royalty revenue was
$809,160, up 32.1% for the 2003 period. Crude oil production subject to the
Trust's royalty interest was up 1.7% in the second quarter of 2003. The average
price of crude oil during the second quarter of 2003 increased 29.9% compared to
the market prices which prevailed during the second quarter of 2002. Gas royalty
revenue was $521,445 in the second quarter of 2003, up 75.7% on a volume
decrease of 20.5% which was more than offset by a price increase of 120.7%,
compared to the 2002 second quarter.
Easement and other sundry income was $188,785 for the second quarter of
2003, down 33.0% from the second quarter of 2002. This income is unpredictable
and may vary significantly from quarter to quarter.
6
Interest revenue was down 2.6% for the second quarter of 2003 compared
to the same period of 2002. Interest from notes receivable amounted to $225,353,
a 2.5% decrease from the comparable 2002 period. Notes receivable for land sold
were $11,010,477 as of June 30, 2003, up 4.5% from June 30, 2002. Sundry
interest was $12,342 for the second quarter of 2003, down 4.8% from the second
quarter of 2002. Sundry interest income fluctuates based on cash on hand for
investment and interest rates on short term investments.
Taxes, other than Federal income taxes, were up 22.7%. This increase is
attributable to an increase in oil and gas production taxes. The increase in oil
and gas production taxes, in turn, resulted from the increased oil and gas
royalty income occasioned by the higher oil and gas prices prevailing during the
2003 second quarter.
General and administrative expenses were up 22.9% for the second quarter
of 2003 compared with the same period of 2002.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 2002
Earnings per sub-share for the first six months of 2003 were $1.00
compared to $.68 for the first six months of 2002. Total revenues were
$4,399,314 compared to $3,267,039, an increase of 34.7%.
Land sales for the first six months of 2003 were 1,241.82 acres at an
average price of approximately $573 per acre for a total of $711,685. This
compares to 5,387.51 acres at an average price of approximately $60 per acre for
a total of $321,961 during the first six months of 2002.
Rentals, royalties, and sundry income amounted to $3,196,948 for the
first six months of 2003, compared to $2,451,621 for the first six months of
2002, an increase of 30.4%. This increase resulted from an increase in oil and
gas royalty revenue, which more than offset a decline in easement and other
sundry income. The increase in oil and gas royalty income was attributable to
the significantly higher market prices for oil and natural gas which prevailed
during the first six months of 2003 versus those which prevailed during the
comparable period of 2002.
Oil and gas royalty revenue for the first six months of 2003 was
$2,539,626, up 58.0% compared to the first six months of 2002. Oil royalty
revenue was $1,608,686, up 48.1% for the 2003 period. Crude oil production was
up just fractionally in the first six months of 2003, but the average price per
barrel was up 48.1%. Gas royalty revenue was $930,940 in the first six months of
2003, up 78.6% on a volume decrease of 9.5% which was more than offset by a
price increase of 97.5% compared to the first six months of 2002.
Easement and other sundry income was $393,037 in the first six months of
2003, down 31.5% from the first six months of 2002. This income is unpredictable
and may vary significantly from period to period.
Interest revenue was $490,681 for the first six months of 2003, down
0.5% from the 2002 period. Interest from notes receivable was $465,139, up
fractionally from the 2002 period. Sundry interest was $25,542 for the first six
months, down 10.7% from the 2002 period.
Taxes, other than Federal income taxes in the first six months of 2003
were up 25.1%. This increase is attributable to an increase in oil and gas
production taxes. The increase in oil and gas production taxes, in turn,
resulted from the increased oil and gas royalty income occasioned by the higher
oil and gas prices prevailing during the 2003 period.
7
General and administrative expenses for the first six months of 2003
were up 15.5% from the first six months of 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Trust's principal sources of liquidity are its revenues from oil and
gas royalties, lease rentals and receipts of interest and principal payments on
the notes receivable arising from its sales of land. In the past these 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, 2002.
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.
8
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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31.1 Certification of Chief Executive Officer under Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer under Section 302
of the Sarbanes-Oxley Act of 2002.
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.
(b) Reports on Form 8-K.
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The Trust filed a Current Report on Form 8-K on May 5, 2003. In
accordance with the interim guidance set forth in SEC Release No.
33-8216, the Trust reported under Item 9, and by reference Item
12, certain of its financial results for the quarter ended March
31, 2003 which were publicly announced in a press release on that
date.
9
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
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(Registrant)
Date: August 13, 2003 By: /s/ Roy Thomas
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Roy Thomas, General Agent,
Authorized Signatory and Chief Executive
Officer
Date: August 13, 2003 By: /s/ David M. Peterson
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David M. Peterson, Assistant General Agent,
and Chief Financial Officer
10
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
NUMBER
- ---------------- ---------------------------------------------------------------
31.1 Certification of Chief Executive Officer under Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer under Section 302 of
the Sarbanes-Oxley Act of 2002.
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.
11