form10-q_279972.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C.  20549
 
_____________________
 
FORM 10-Q
 
_____________________
 
(Mark One)
[X]           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended March 31, 2011
 
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
(State or Other Jurisdiction of Incorporation
or Organization)
 
75-0279735
(I.R.S. Employer
Identification No.)

1700 Pacific Avenue, Suite 2770, Dallas, Texas
(Address of Principal Executive Offices)
 
75201
(Zip Code)

(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 Date 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):
 
Large Accelerated Filer
¨
 
Accelerated Filer
T
Non-Accelerated Filer
¨
 
Smaller reporting company
¨
 
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

   
March 31,
   
December 31,
 
Assets
 
2011
   
2010
 
   
(Unaudited)
       
             
Cash and cash equivalents
  $ 8,126,107     $ 7,149,552  
Accrued receivables
    2,382,896       2,164,842  
Other assets
    51,281       73,259  
Prepaid income taxes
          57,893  
Notes receivable for land sales
    12,913,933       14,342,898  
Water wells, leasehold improvements, furniture, and equipment
               
- at cost less accumulated depreciation
    36,292       39,412  
Real estate acquired:
               
      (10,793 acres at March 31, 2011 and December 31, 2010)
    1,161,504       1,161,504  
Real estate and royalty interests assigned through the 1888
   Declaration of Trust, no value assigned:
               
                 
Land (surface rights) situated in twenty counties in
               
Texas – 949,355 acres in 2011 and 949,423 acres in 2010
           
                 
Town lots in Loraine – 318 lots in 2011 and in 2010
           
                 
1/16 nonparticipating perpetual royalty interest in 386,988 acres in 2011
     and 2010
           
                 
1/128 nonparticipating perpetual royalty interest in 85,414 acres in 2011
     and 2010
           
    $ 24,672,013     $ 24,989,360  
                 
Liabilities and Capital
               
                 
Accounts payable and accrued expenses
  $ 1,126,308     $ 976,202  
Income taxes payable
    2,109,812       149,233  
Other taxes payable
    131,952       87,424  
Unearned revenues
    755,199       755,199  
Deferred taxes
    3,795,432       4,282,733  
Pension plan liability
    464,484       436,343  
Total liabilities
    8,383,187       6,687,134  
                 
Capital:
               
Certificates of Proprietary Interest, par value $100
               
each; outstanding 0 Certificates
          –   
Sub-share Certificates in Certificates of Proprietary
               
Interest, par value $.03 1/3 each; outstanding:
               
9,468,591 Sub-shares in 2011 and 9,548,444 Sub-shares in 2010
           
Other comprehensive income (loss)
    (505,979 )     (515,724 )
Net proceeds from all sources
    16,794,805       18,817,950  
Total capital
    16,288,826       18,302,226  
    $ 24,672,013     $ 24,989,360  
                 
See accompanying notes to financial statements.

 
1

 

TEXAS PACIFIC LAND TRUST
STATEMENTS OF INCOME
(Unaudited)

   
Three Months Ended
March 31,
 
   
2011
   
2010
 
Income:
           
Rentals, royalties and sundry income
  $ 4,955,256     $ 3,599,915  
        Land sales
    511,500       367,320  
Interest income from notes receivable
    249,012       277,947  
      5,715,768       4,245,182  
Expenses:
               
Taxes, other than income taxes
    229,458       204,454  
General and administrative expenses
    605,157       553,783  
      834,615       758,237  
               Operating income
    4,881,153       3,486,945  
Interest income earned from investments
    4,340       6,216  
                 
               Income before income taxes
    4,885,493       3,493,161  
Income taxes
    1,525,924       1,050,694  
 Net income
  $ 3,359,569     $ 2,442,467  
                 
Average number of sub-share certificates
               
and equivalent sub-share certificates
               
outstanding
    9,518,001       9,860,238  
                 
Basic and dilutive earnings per sub-share certificate
  $ .35     $ .25  
                 
Cash dividends per sub-share certificate
  $ .21     $ .20  


See accompanying notes to financial statements.


 
2

 

TEXAS PACIFIC LAND TRUST
STATEMENTS OF CASH FLOWS
(Unaudited)

   
Three Months
Ended March 31,
 
   
2011
   
2010
 
Cash flows from operating activities:
           
Net income
  $ 3,359,569     $ 2,442,467  
       Adjustments to reconcile net income to net
               
    cash provided by operating activities:
               
Deferred taxes
    (487,301 )     (76,543 )
Depreciation and amortization
    3,120       3,462  
               Loss on disposal of fixed assets
          2,884  
              Changes in operating assets and liabilities:
               
    Accrued receivables and other assets
    (196,076 )     (262,598 )
    Notes receivable for land sales
    1,428,965       243,000  
                  Accounts payable, accrued expenses
               
                       and other liabilities
    232,520       109,397  
    Income taxes payable
    2,018,472       1,074,226  
Net cash provided by operating activities
    6,359,269       3,536,295  
                 
Cash flows from investing activities:
               
       Proceeds from sale of fixed assets
          12,500  
Purchase of fixed assets
          (27,670 )
                             Net cash used in investing activities
          (15,170 )
                 
Cash flows from financing activities:
               
Purchase of Sub-share Certificates in Certificates of
               
           Proprietary Interest
    (3,382,481 )     (2,448,092 )
Dividends paid
    (2,000,233 )     (1,968,061 )
                                           Net cash used in financing activities
    (5,382,714 )     (4,416,153 )
                 
                                           Net increase (decrease) in cash and cash
               
                                               equivalents
    976,555       (895,028 )
                 
Cash and cash equivalents, beginning of period
    7,149,552       8,151,209  
                 
Cash and cash equivalents, end of period
  $ 8,126,107     $ 7,256,181  
                 

See accompanying notes to financial statements.

 
3

 


 
 
TEXAS PACIFIC LAND TRUST
 
 
Notes To Unaudited Financial Statements
 
 
March 31, 2011
 
(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 March 31, 2011 and the results of its operations for the three month periods ended March 31, 2011 and 2010, respectively, and its cash flows for the three month periods ended March 31, 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.
 
(2)
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 May 5, 2011, the date we issued these financial statements.
 
(3)
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.
 
(4)
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.
 
(5)
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.
 
(6)
The results of operations for the three month period ended March 31, 2011 are not necessarily indicative of the results to be expected for the full year.
 
(7)
The Trust invests cash in excess of daily requirements primarily in bank deposit and 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.
 
Supplemental cash flow information for the three month periods ended March 31, 2011 and 2010 is summarized as follows:

 
2011
 
2010
       
          Income taxes paid
$        
 
$60,000
 


 
4

 

 
(8)
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 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.
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
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 March 31, 2011 Compared to the Quarter Ended March 31, 2010
 
Earnings per Sub-share certificate were $.35 for the first quarter of 2011 compared to $.25 for the first quarter of 2010.  Total operating and investing revenues for the first quarter of 2011 were $5,720,108 compared to $4,251,398 for the first quarter of 2010, an increase of 34.5%.  This increase in revenue and earnings was due primarily to increases in easement and sundry income, oil royalty revenue and land sales, which were partially offset by decreases in gas royalty revenue and interest income.
 
In the first quarter of 2011 the Trust sold approximately 68 acres for a total of $511,500, or approximately $7,500 per acre. In the first quarter of 2010 the Trust sold approximately 1,381 acres and 223 town lots (approximately 42 acres) for a total of $367,320, or approximately $258 per acre.
 
Rentals, royalties and sundry income were $4,955,256 during the first quarter of 2011 compared to $3,599,915 during the first quarter of 2010, an increase of 37.6%.  This increase resulted primarily from increases in easement and sundry income and oil royalty income.
 
Oil and gas royalty revenue was $3,476,221 for the first quarter of 2011, compared to $2,946,538 for the first quarter of 2010, an increase of 18.0%.  Oil royalty revenue was $2,716,166 for the first quarter of 2011, an increase of 30.2% from the first 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 first quarter of 2011 was 14.9% higher than the average price prevailing during the first quarter of 2010.  In addition, crude oil production subject to the Trust’s royalty interest increased 13.4% in first quarter of 2011 compared to the first quarter of 2010.  Gas royalty revenue was $760,055 for the first quarter of 2011, a decrease of 11.7% from the first quarter of 2010 when gas royalty income was $861,134.  This decrease in gas royalty income is attributable to a volume decrease of 2.4% and a price decrease of 9.5% in the 2011 first quarter compared to the first quarter of 2010.
 

 
5

 

Easement and sundry income was $1,383,516 for the first quarter of 2011, an increase of 147.2% compared to the first quarter of 2010.  This increase is primarily due to increases in sundry income, sundry lease rental income and pipeline easement income.  This category of income is unpredictable and may vary significantly from quarter to quarter.
 
Interest income, including interest on investments, was $253,352 for the first quarter of 2011, a decrease of 10.8% from the first quarter of 2010.  Interest on notes receivable was $249,012 for the first quarter of 2011, a decrease of 10.4% compared to the first quarter of 2010.  As of March 31, 2011 notes receivable for land sales were $12,913,933 compared to $15,485,925 at March 31, 2010.  Sundry interest was $4,340 for the first quarter of 2011 compared to $6,216 for the first quarter of 2010 a decrease of 30.2%.  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 12.2% for the first quarter of 2011 compared to the first quarter of 2010.  The increase is primarily due to the increase in oil production taxes which resulted from the increase in oil royalty revenue discussed above.
 
General and administrative expenses for the first quarter of 2011 were up 9.3% compared to the first quarter of 2010.  This increase was primarily due to increases in listing, registrar and transfer agent, and audit fees, which were partially offset by a decline in legal expenses.
 
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.
 

 
6

 

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 first quarter of 2011, the Trust repurchased Sub-share certificates as follows:
 

Period
Total
Number of
Sub-shares
Purchased
Average
Price Paid
per
Sub-share
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
January 1, through January 31, 2011
23,524
$36.76
February 1, through February 28, 2011
21,679
$43.82
March 1, through March 31, 2011
34,650
$45.25
Total
79,853*
$42.36

 
*  The Trust purchased and retired 79,853 Sub-shares in the open market.
 

 
7

 

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.
 

 

 
8

 

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:  May 5, 2011
 
By:
  /s/ Roy Thomas
     
Roy Thomas, General Agent,
Authorized Signatory and Chief Executive Officer
     
     
Date:  May 5, 2011
 
By:
  /s/ David M. Peterson
     
David M. Peterson, Assistant General Agent,
and Chief Financial Officer
     


 
9

 

INDEX TO EXHIBITS


EXHIBIT
NUMBER
 
DESCRIPTION
     
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.
     

 
10