UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________

FORM 10-Q

_____________________

(Mark One)

OR

 

Commission File Number: 1-737

Texas Pacific Land Trust

(Exact Name of Registrant as Specified in Its Charter)

 

 

(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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

 

 

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, 2006, 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

TEXAS PACIFIC LAND TRUST

BALANCE SHEETS

 

ASSETS			September 30, 2007			December 31, 2006
			(Unaudited)
Cash and cash equivalents			$	8,602,592		$	8,524,177
Accrued receivables				1,626,630			1,154,605
Other assets				9,217			92,169
Federal income taxes receivable				13,470			-
Notes receivable for land sales				20,135,589			20,802,132
Water wells, leasehold improvements, furniture and equipment       - at cost less accumulated depreciation				125,905			117,458
Real estate acquired:
(10,153 acres at September 30, 2007 and 10,565 acres at December 31, 2006)				1,083,552			1,777,007
Real estate and royalty interests assigned through the 1888    Declaration of Trust, no value assigned:
Land (surface rights) situated in twenty counties in          Texas - 954,700 acres in 2007 and 955,827 acres in 2006				-			-
Town lots in Iatan, Loraine and Morita - 628 lots in 2007 and 2006				-			-
1/16 nonparticipating perpetual royalty interest in 386,988 acres in 2007           and 2006				-			-
1/128 nonparticipating perpetual royalty interest in 85,414 acres in 2007           and 2006				-			-
			$	31,596,955		$	32,467,548
LIABILITIES AND CAPITAL
Accounts payable and accrued liabilities			$	873,018		$	653,733
Federal income taxes payable				-			213,780
Other taxes payable				162,309			57,800
Unearned revenues				428,980			415,060
Deferred taxes				5,984,210			6,408,682
Pension plan liability				343,512			279,091
Total liabilities				7,792,029			8,028,146
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:         10,513,075 Sub-shares in 2007 and 10,612,875         Sub-shares in 2006				-			-
Other comprehensive income				(321,430	)		(336,788	)
Net proceeds from all sources				24,126,356			24,776,190
Total capital				23,804,926			24,439,402
			$	31,596,955		$	32,467,548

 

See accompanying notes to financial statements.

 

 

 

TEXAS PACIFIC LAND TRUST

STATEMENTS OF INCOME

(Unaudited)

 

			Three Months Ended September 30,						Nine Months Ended September 30,
			2007			2006			2007			2006
Income:
Rentals, royalties and sundry income			$	2,785,644		$	3,408,609		$	8,385,051		$	10,291,694
Land sales				1,857,664			907,456			1,857,664			1,623,573
Interest income from notes receivable				365,460			319,567			1,105,006			994,820
				5,008,768			4,635,632			11,347,721			12,910,087
Expenses:
Taxes, other than Federal income taxes				159,356			161,451			500,794			516,489
Basis in real estate sold				693,454			-			693,454			61,318
General and administrative expenses				573,478			462,955			1,746,705			1,431,619
				1,426,288			624,406			2,940,953			2,009,426
Operating income				3,582,480			4,011,226			8,406,768			10,900,661
Interest income earned from investments				76,064			166,907			283,008			403,698
Income before Federal income taxes				3,658,544			4,178,133			8,689,776			11,304,359
Federal income taxes				1,123,409			1,320,431			2,611,077			3,534,719
Net income			$	2,535,135		$	2,857,702		$	6,078,699		$	7,769,640
Average number of sub-share certificates
and equivalent sub-share certificates
outstanding				10,530,958			10,700,875			10,559,717			10,732,653
Basic and dilutive earnings per sub-share certificate			$	.24		$	.27		$	.58		$	.72
Cash dividends per sub-share certificate			$	-		$	-		$	.16		$	.13

 

 

See accompanying notes to financial statements.

 

 

 

TEXAS PACIFIC LAND TRUST

STATEMENTS OF CASH FLOWS

(Unaudited)

 

			Nine Months Ended September 30,
			2007			2006
Cash flows from operating activities:
Net income			$	6,078,699		$	7,769,640
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred taxes				(424,472	)		(525,957	)
Depreciation and amortization				26,100			21,600
Changes in operating assets and liabilities:
Accrued receivables and other assets				(389,073	)		(18,083	)
Real estate acquired				693,455			61,318
Notes receivable for land sales				666,543			1,620,953
Accounts payable, accrued expenses               and other liabilities				417,493			252,014
Federal income taxes payable				(227,250	)		620,676
Net cash provided by operating activities				6,841,495			9,802,161
Cash flows from investing activities:
Purchase of fixed assets				(34,547	)		(55,611	)
Net cash used in investing activities				(34,547	)		(55,611	)
Cash flows from financing activities:
Purchase of Sub-share Certificates in Certificates of        Proprietary Interest				(5,031,753	)		(3,645,040	)
Dividends paid				(1,696,780	)		(1,400,994	)
Net cash used in financing activities				(6,728,533	)		(5,046,034	)
Net increase in cash and cash                                equivalents				78,415			4,700,516
Cash and cash equivalents at beginning of period				8,524,177			9,626,984
Cash and cash equivalents at end of period			$	8,602,592		$	14,327,500

 

See accompanying notes to financial statements.

 

 

 

 

 

TEXAS PACIFIC LAND TRUST

 

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

SEPTEMBER 30, 2007

Supplemental cash flow information for the nine month periods ended September 30, 2007 and 2006 is summarized as follows:

 

 

 

 

 

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.

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, 2006, (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 September 30, 2007 Compared to the Quarter Ended September 30, 2006

Earnings per sub-share certificate were $.24 for the third quarter of 2007 compared to $.27 for the third quarter of 2006. Total operating and investing revenues were $5,084,832 for the third quarter of 2007 compared to $4,802,539 for the third quarter of 2006, an increase of 5.9%. This increase in revenue was due primarily to an increase in land sales during the third quarter of 2007 compared to the third quarter of 2006 which more than offset a decline in rentals, royalties and sundry income.

In the third quarter of 2007, land sales totaled $1,857,664, representing the sale of 1,539 acres at an average price of approximately $1,207 per acre. In the comparable period of 2006, land sales totaled $907,456, representing the sale of 890 acres at an average price of approximately $1,020 per acre.

Rentals, royalties and sundry income were $2,785,644 for the third quarter of 2007 compared to $3,408,609 for the third quarter of 2006, a decrease of 18.3%. This decrease resulted primarily from a decrease in sundry income and, to a lesser extent, a decrease in gas royalty revenue, which more than offset a modest increase in oil royalty revenue. The decrease in sundry revenue was attributable to decreased seismic activity.

Oil and gas royalty revenue was $2,189,938 for the third quarter of 2007, compared to $2,141,586 for the third quarter of 2006, an increase of 2.3%. Oil royalty revenue was $1,622,151 for the third quarter of 2007, an increase of 3.7% from the third quarter of 2006. Crude oil production subject to the Trust’s royalty interest increased 8.9% in the third quarter of 2007, and this increase in the volume of production more than offset a 4.7% decrease in the average price per royalty barrel of crude oil in the 2007 third quarter compared to the 2006 third quarter. Gas royalty revenue was $567,787 for the third quarter of 2007, a decrease of 1.5% from the third quarter of 2006. This decrease resulted from a decrease of 17.7% in the volume of gas produced, which was only partially offset by a price increase of 19.6%.

Easement and sundry income was $487,661 for the third quarter of 2007, a decrease of 57.6% from the third quarter of 2006. The decrease in sundry income was primarily attributable to decreased seismic activity. This category of income is unpredictable and may vary significantly from quarter to quarter.

 

 

 

Interest revenue was $441,524 for the third quarter of 2007 compared to $486,474 for the third quarter of 2006, a decrease of 9.2%. Interest income is comprised of interest on notes receivable from land sales and sundry interest from short term investments of cash on hand. Interest on notes receivable was $365,460 for the third quarter of 2007 compared to $319,567 for the third quarter of 2006, an increase of 14.4%. As of September 30, 2007 notes receivable were $20,135,589 compared to $17,462,895 at September 30, 2006, an increase of 15.3%. Sundry interest was $76,064 for the third quarter of 2007 compared to $166,907 for the third quarter of 2006, a decrease of 54.4%. Sundry interest fluctuates based on cash on hand for investment and interest rates on short term investments.

Taxes, other than Federal income taxes decreased 1.3% for the third quarter of 2007 compared to the third quarter of 2006.

General and administrative expenses for the third quarter of 2007 were $573,478 compared to $462,955 during the third quarter of 2006, an increase of 23.9%. This was largely due to an increase in legal and professional fees.

Results of Operations for the Nine Months Ended September 30, 2007 Compared to the Nine Months Ended September  30, 2006

Earnings per sub-share certificate were $.58 for the first nine months of 2007 compared to $.72 for the first nine months of 2006. Total operating and investing revenues were $11,630,729 for the first nine months of 2007 compared to $13,313,785 for the first nine months of 2006, a decrease of 12.6%. This decrease in revenue and earnings was due primarily to a decrease in sundry income and, to a lesser extent, gas royalty revenue, which were only partially offset by increases in oil royalty revenue and revenue from land sales. The decrease in sundry income resulted primarily from the inclusion in the first nine months of 2006 of a one-time payment received by the Trust from an oil company in settlement of a claim by the Trust for damages to property leased by the Trust to the oil company which was not repeated in the comparable period of 2007.

In the first nine months of 2007, land sales totaled $1,857,664, representing the sale of 1,539 acres at an average price of approximately $1,207 per acre. In the comparable period of 2006, land sales totaled $1,623,573, representing the sale of 4,269 acres at an average price of approximately $380 per acre.

Rentals, royalties, and sundry income were $8,385,051 for the first nine months of 2007 compared to $10,291,694 for the first nine months of 2006, a decrease of 18.5%. This decrease resulted primarily from decreases in sundry income and gas royalty revenue which were only partially offset by an increase in oil royalty revenue. The decrease in sundry income resulted primarily from the inclusion in the first nine months of 2006 of a one-time payment received by the Trust from an oil company in settlement of a claim by the Trust for damages to property leased in the comparable period of 2007.

Oil and gas royalty revenue was $6,853,638 for the first nine months of 2007 compared to $6,696,246 for the first nine months of 2006, an increase of 2.4%. Oil royalty revenue was $5,016,121 for the first nine months of 2007, an increase of 11.6% from the first nine months of 2006. Crude oil production subject to the Trust’s royalty interest increased 18.3% in the first nine months of 2007, which more than offset a 5.7% decrease in the average price per royalty barrel of crude oil in the first nine months of 2007 compared to the first nine months of 2006. Gas royalty revenue was $1,837,517 for the first nine months of 2007, a decrease of 16.5% from the first nine months of 2006. This decrease in gas royalty revenue resulted from a decrease of 28.4% in the volume of gas produced during the first nine months of 2007 compared to the first nine months of 2006, which more than offset a 16.6% increase in the average price of gas sold in the 2007 period. The increase in oil and gas royalties during the first nine months of 2007 was also impacted by the inclusion in the first nine months of 2007 of $265,506 due to settlements with oil companies over royalties due.

 

 

 

Easement and sundry income was $1,159,092 for the first nine months of 2007 compared to $3,212,620 for the first nine months of 2006, a decrease of 63.9%. The decrease in sundry income resulted primarily from the inclusion in the first nine months of 2006 of a one-time payment in the amount of $1,308,000 received by the Trust from an oil company in settlement of a claim by the Trust for damages to property leased to the oil company by the Trust which was not repeated during the comparable period of 2007. This category of income is unpredictable and may vary significantly from period to period.

Interest revenue was $1,388,014 for the first nine months of 2007 compared to $1,398,518 for the first nine months of 2006, or essentially flat. Interest income is comprised of interest on notes receivable from land sales and sundry interest from short term investments of cash on hand. Interest on notes receivable for the first nine months of 2007 was $1,105,006, an increase of $110,186, or 11.1%, from the comparable period of 2006. As of September 30, 2007, notes receivable from land sales were $20,135,589 compared to $17,462,895 at September 30, 2006, an increase of 15.3%. Sundry interest was $283,008 for the first nine months of 2007, a decrease of 29.9% from the first nine months of 2006. Sundry interest income fluctuates based on cash on hand for investment and interest rates on short term investments.

Taxes, other than Federal income taxes, decreased 3.0% for the first nine months of 2007 compared to the first nine months of 2006. This decrease is attributable to decreases in ad valorem taxes and oil and gas production taxes.

General and administrative expenses increased 22.0% for the first nine months of 2007 compared to the first nine months of 2006, primarily due to increases in legal and professional fees and, to a lesser extent, 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.

On June 20, 2007, the Trustees of the Trust authorized a five-for-one split of its Sub-share certificates. The additional Sub-shares resulting from the split were distributed on July 12, 2007 to holders of record on July 2, 2007.

There have been no material changes in the information related to market risk of the Trust since December 31, 2006.

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, 2006.

 

 

* The Trust purchased and retired 44,300 Sub-shares in the open market.

Item 6. Exhibits

 

 

 

 

 

 

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.

 

 

 

 

 

 

 

 

INDEX TO EXHIBITS