FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
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OR
[ ] 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
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TEXAS PACIFIC LAND TRUST
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(Exact name of registrant as specified in its charter)
NOT APPLICABLE 75-0279735
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1700 Pacific Avenue, Suite 1670, Dallas, Texas 75201
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(Address of principal executive offices)
(Zip Code)
214/969-5530
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(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
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Part I
FINANCIAL INFORMATION
TEXAS PACIFIC LAND TRUST
BALANCE SHEETS
SEPTEMBER 30, 2002 and DECEMBER 31, 2001
September 30, December 31,
2002 2001
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(Unaudited)
ASSETS
Cash $ 813,300 $ 85,065
Temporary cash investments at cost which approximates market 2,400,000 2,500,000
Accounts receivable 339,991 334,888
Accrued interest receivable 274,213 417,817
Prepaid expenses 6,114 61,138
Notes receivable for land sales 10,365,910 11,421,331
Real estate acquired through foreclosure:
(7,791.86 acres at September 30, 2002 and December 31, 2001) 2,450,886 2,450,886
Water wells, leasehold improvements, furniture and
equipment - at cost less accumulated depreciation 213,571 207,388
Prepaid Federal income taxes -- 149,668
Property, no value assigned:
Land (surface rights) situated in twenty-one counties in
Texas - 1,004,564.08 acres in 2002 and 1,013,792.00 acres in 2001 -- --
Town lots in Iatan, Loraine and Morita - 628 lots in 2002 and 2001 -- --
1/16 nonparticipating perpetual royalty interest in 386,987.70
acres in 2002 and 2001 -- --
1/128 nonparticipating perpetual royalty interest in 85,413.60
acres in 2002 and 2001 -- --
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$ 16,863,985 $ 17,628,181
============ ============
LIABILITIES AND CAPITAL
Federal income taxes payable $ 60,208 $ --
Other taxes 187,023 20,521
Other liabilities 47,377 2,537
Escrow deposits on land sales 100,000 5,000
Deferred taxes 4,072,381 4,402,481
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Total liabilities 4,466,989 4,430,539
Capital:
Certificates of Proprietary Interest, par value $100
each; outstanding no certificates in 2002 and 2001 -- --
Sub-share Certificates in Certificates of Proprietary
Interest, par value $.16 2/3 each; outstanding
2,334,587 sub-shares in 2002 and 2,398,393 sub-
shares in 2001 -- --
Net proceeds from all sources 12,396,996 13,197,642
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Total capital 12,396,996 13,197,642
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$ 16,863,985 $ 17,628,181
============ ============
See accompanying notes to financial statements.
(1)
TEXAS PACIFIC LAND TRUST
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2002 2001 2002 2001
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Income:
Rentals, royalties and sundry income $ 1,222,119 $ 1,809,596 $ 3,673,740 $ 4,850,922
Land sales 385,895 5,882,678 707,856 5,982,333
Interest 241,676 197,317 735,133 612,991
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1,849,690 7,889,591 5,116,729 11,446,246
------------ ------------ ------------ ------------
Expenses:
Taxes, other than Federal income taxes 114,768 136,172 337,041 437,250
Basis in real estate sold -- 1,525,595 -- 1,541,416
General and administrative expenses 306,940 257,284 1,037,063 965,476
------------ ------------ ------------ ------------
421,708 1,919,051 1,374,104 2,944,142
------------ ------------ ------------ ------------
Income before
Federal income taxes 1,427,982 5,970,540 3,742,625 8,502,104
Federal income taxes 429,747 1,967,913 1,118,776 2,687,497
------------ ------------ ------------ ------------
Net income $ 998,235 $ 4,002,627 $ 2,623,849 $ 5,814,607
============ ============ ============ ============
Average number of sub-share certificates
and equivalent sub-share certificates
outstanding 2,345,104 2,460,288 2,362,347 2,482,094
============ ============ ============ ============
Basic and dilutive earnings per sub-share certificate $ .43 $ 1.62 $ 1.11 $ 2.34
============ ============ ============ ============
Cash dividends per sub-share certificate -- -- $ .40 $ .40
============ ============ ============ ============
See accompanying notes to financial statements.
(2)
TEXAS PACIFIC LAND TRUST
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
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2002 2001
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Cash flows from operating activities:
Net income $ 2,623,849 $ 5,814,607
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 30,600 35,100
Deferred taxes (330,100) 573,082
(Increase) decrease in assets:
Accounts receivable (5,103) 363
New notes receivable from land sales (266,217) (4,357,519)
Payments received on notes receivable 1,321,638 1,295,821
Accrued interest receivable 143,604 (32,104)
Prepaid Federal income taxes 149,668 --
Prepaid expenses 55,024 39,413
Real estate acquired through foreclosure -- 1,541,416
Increase (decrease) in liabilities:
Federal income taxes payable 60,208 1,282,252
Other taxes payable 166,502 224,747
Escrow deposits on land sales 95,000 7,360
Other liabilities payable 44,840 (4,041)
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Total adjustments 1,465,664 605,890
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Net cash provided by operating activities 4,089,513 6,420,497
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Cash flows from investing activities-
Additions to water wells, leasehold improvements,
furniture and equipment (36,783) (132,461)
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Cash flows from financing activities:
Sub-shares purchased for retirement (2,467,500) (3,164,577)
Dividends paid (956,995) (1,003,522)
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Net cash used by financing activities (3,424,495) (4,168,099)
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Net increase in cash and cash equivalents 628,235 2,119,937
Cash and cash equivalents at beginning
of period 2,585,065 1,613,834
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Cash and cash equivalents at end
of period $ 3,213,300 $ 3,733,771
============ ============
See accompanying notes to financial statements.
(3)
TEXAS PACIFIC LAND TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(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 (Trust) as of September 30, 2002 and the results of
its operations for the three and nine months ended September 30, 2002
and 2001 and its cash flows for the nine months ended September 30,
2002 and 2001, respectively. These financial statements and footnotes
included herein should be read in conjunction with the Trust's annual
financial statements as of December 31, 2001 and 2000 and for each of
the years in the three year period ended December 31, 2001 included in
the Trust's Form 10-K.
(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 therefore, 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 and nine months ended September
30, 2002 are not necessarily indicative of the results to be expected
for the full year.
(6) Cash in excess of daily requirements is invested in money market
instruments with maturities of ninety days or less. Such investments
are deemed to be cash equivalents for purposes of the statements of
cash flows.
Supplemental cash flow information for the nine months ended September
30, 2002 and 2001 is summarized as follows:
2002 2001
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Federal income taxes paid $ 1,239,000 $ 832,163
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(4)
(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.
(8) Effective January 1, 2002, the Trust adopted SFAS No. 144, "Accounting
for the Impairment of Disposal of Long Lived Assets." SFAS No. 144
supersedes and amends SFAS No. 121 and the relevant portions of APB
Opinion No. 30. The adoption of SFAS No. 144 had no impact on the
financial position, results of operations or cash flows.
(9) On August 16, 2002, the Trust entered into a contract to sell 66.1
acres of land for approximately $2.3 million. This sale is expected to
close in December 2002 subject to final adjustments to price and
acreage based on the purchaser's survey of the land. However, there can
be no assurances that the sale will be consummated.
(5)
Management's Discussion and
Analysis of Financial Condition and
Results of Operations for the
Nine and Three Months Ended
September 30, 2002 and 2001
Words or phrases when used in this Form 10-Q or other filings with the
Securities and Exchange Commission, such as "does not believe" and "believes",
or similar expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Results of Operations for Quarter Ended September 30, 2002 Compared to Quarter
Ended September 30, 2001
Earnings per sub-share certificate for the third quarter of 2002 were $.43
compared to $1.62 in the third quarter of 2001. Total revenues were $1,849,690
compared to $7,889,591, a decrease of 76.6%. This decrease in revenue and
earnings is largely due to the third quarter 2001 land sales of $5,882,678 which
resulted in an increase in the third quarter 2001 earnings.
In the third quarter of 2002, land sales totaled $385,895 which was 3,840.90
acres at an average price of $100.47 per acre. In the comparable period of 2001,
2,975.92 acres were sold for $5,882,678, an average of $1,977.75 per acre.
Looking forward, the Trust has a land sale contract of $2.3 million expected to
close in December 2002, barring no unforeseen circumstances.
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; it 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 conditions 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 were $1,222,119 for the third quarter of
2002 compared to $1,809,596 for the third quarter of 2001, a decrease of 32.5%.
Oil and gas royalty revenue was $902,458 compared to $1,057,493 for the third
quarter of 2001, down 14.7%. Oil royalty revenue was $596,185, down 11.6% from
the third quarter of 2001. Oil royalty production subject to the Trust's royalty
interest was down 10.0% in the third quarter of 2002, while the average price
per royalty barrel of crude oil was down 1.8%. Gas royalty revenue for the third
quarter was $306,273, down 20.0% on a volume increase of 7.6% and price decrease
of 25.6%.
Easement and sundry income was $206,273 for the third quarter of 2002, down
67.3% from the third quarter of 2001. These categories of income are not
predictable and commonly have large swings in any given period.
Interest revenue was up 22.5% for the third quarter of 2002 compared to the
third quarter of 2001. Interest from notes receivable was $229,264, up 32.8% for
the 2002 period due to an increase in average note receivable balances for the
period. Notes receivable for land sold were $10,365,910 as of September 30,
2002, a decrease of 11.1% from the end of the third quarter of 2001. Sundry
interest was $12,412 for the third quarter of 2002, which was down 49.7% from
the third quarter of 2001.
Taxes, other than Federal income taxes, were down 15.7% for the third quarter of
2002 compared to the third quarter of 2001.
General and administrative expenses were up 19.3% over the third quarter of
2001. This is mainly due to an increase in professional fees and administrative
expenses.
(6)
Management's Discussion (cont'd)
Results of Operations for Nine Months Ended September 30, 2002 Compared to Nine
Months Ended September 30, 2001
Earnings per sub-share for the first nine months of 2002 were $1.11 compared to
$2.34 for the first nine months of 2001. Total revenues were $5,116,729 compared
to $11,446,246, a decrease of 55.3%.
The first nine months of 2002 had total land sales of 9,228.41 acres for
$707,856, an average of $76.70 per acre, compared to 4,136.77 acres for
$5,982,333, an average of $1,446.13 per acre in 2001.
Rentals, royalties, and sundry income were $3,673,740 for the first nine months
compared to $4,850,922 for the first nine months of 2001, a decrease of 24.3%.
Oil and gas royalty revenue for the first nine months was $2,510,139 compared to
$3,496,400 for the first nine months of 2001, down 28.2%. Oil royalty revenue
was $1,682,639, down 19.0% for the 2002 period. Crude oil production subject to
the Trust's royalty interest was down 1/2% for the first nine months of 2002,
while the average price per barrel of crude oil was down 18.6%. Gas royalty
revenue was $827,500 for the first nine months of 2002, down 52.8% on a volume
increase of 11.1%, and a price decrease of 41.7%.
Easement and sundry income was $780,361 for the first nine months of 2002, down
18.3% from the first nine months of 2001. These categories of income are not
predictable, and may have large increases or decreases in any given period or
year.
Interest revenue was up 19.9% for the first nine months of 2002 compared to the
first nine months of 2001. Interest from notes receivable was $694,132, up 26.4%
for the 2002 period and sundry interest was $41,001, down 35.6%.
Taxes, other than Federal income taxes were down 22.9% for the first nine months
of 2002 from the first nine months of 2001.
General and administrative expenses were up 7.4% for the first nine months of
2002 over the comparable 2001 period. This is mainly due to an increase in
professional fees and administrative expenses.
Liquidity and Capital Resources
The Trust's oil and gas royalty revenues, lease rentals and receipts of interest
and principal on notes receivable have generated more than adequate amounts of
cash to meet the Trust's needs and should continue to do so in the predictable
future.
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, 2001.
(7)
Item 4. Controls and Procedures
Within the 90 days prior to the date of this report, Texas Pacific Land Trust
carried out an evaluation, under the supervision and with the participation of
the Trust's management, including Roy Thomas, the Trust's Chief Executive
Officer and David Peterson, the Trust's Chief Financial Officer, of the
effectiveness of the design and operation of the Trust's disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based upon the evaluation, Mr.
Thomas and Mr. Peterson concluded that the Texas Pacific Land Trust's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Trust required to be included in Texas Pacific Land
Trust's periodic SEC Filings.
There were no significant changes made in the Trust's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. Interim report furnished to shareholders upon
request per sub-part Item 601 (19) Regulation S-K.
99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
(b) Reports on Form 8-K. The registrant has filed no reports on
Form 8-K during the quarter for which this report is filed.
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 11/13/02 By /s/ ROY THOMAS
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Roy Thomas, General Agent,
Authorized Signatory and Chief
Executive Officer
(8)
CERTIFICATIONS'
I, Roy Thomas, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Texas Pacific
Land Trust (the Registrant):
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 officer 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 officer 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 officer 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.
TEXAS PACIFIC LAND TRUST
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(Registrant)
Date 11/13/02 By /s/ ROY THOMAS
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Roy Thomas, General Agent,
Chief Executive Officer
CERTIFICATIONS'
I, David Peterson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Texas Pacific
Land Trust (the Registrant):
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 officer 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 officer 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 officer 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.
TEXAS PACIFIC LAND TRUST
--------------------------------------
(Registrant)
Date 11/13/02 By /s/ DAVID PETERSON
----------------------- -----------------------------------
David Peterson, Assistant General
Agent, Chief Financial Officer
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002