form10-q_264952.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, 2009
 
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, 2008, 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
  
2009
    
2008
  
   
(Unaudited)
        
             
Cash and cash equivalents
   $ 7,457,091     $ 9,654,379  
Accrued receivables
     976,175       1,172,281  
Other assets
     55,990       79,986  
Prepaid income taxes
     558,633       982,350  
Notes receivable for land sales
     17,428,226       17,656,227  
Water wells, leasehold improvements, furniture, and equipment
                
- at cost less accumulated depreciation
     92,793       78,307  
Real estate acquired:
                
      (10,793 acres at March 31, 2009 and December 31, 2008)
     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 – 952,455 acres in 2009 and 2008
     –       –  
                 
Town lots in Loraine and Morita – 541 lots in 2009 and 2008
     –       –  
                 
1/16 nonparticipating perpetual royalty interest in 386,988 acres in 2009
    and 2008
     –       –  
                 
1/128 nonparticipating perpetual royalty interest in 85,414 acres in 2009
    and 2008
     –       –  
    $ 27,730,412     $ 30,785,034  
                 
Liabilities and Capital
                
                 
Accounts payable and accrued expenses
   $ 700,698     $ 786,848  
Other taxes payable
     217,062       201,863  
Unearned revenues
     438,374       438,374  
Deferred taxes
     5,176,369       5,141,275  
Pension plan liability
     712,381       692,002  
Total liabilities
     7,244,884       7,260,362  
                 
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:
                
10,124,346 Sub-shares in 2009 and 10,206,146 Sub-shares in 2008
     –       –  
Other comprehensive income (loss)
     (615,590 )     (629,075 )
Net proceeds from all sources
     21,101,118       24,153,747  
Total capital
     20,485,528       23,524,672  
    $ 27,730,412     $ 30,785,034  
                 
See accompanying notes to financial statements.

 
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TEXAS PACIFIC LAND TRUST
STATEMENTS OF INCOME
(Unaudited)

   
Three Months Ended
March 31,
  
   
2009
    
2008
  
Income:
            
Rentals, royalties and sundry income
   $ 1,536,559     $ 4,155,899  
        Land sales
     --       447,040  
Interest income from notes receivable
     312,419       351,999  
      1,848,978       4,954,938  
Expenses:
                
Taxes, other than income taxes
     109,618       216,790  
General and administrative expenses
     542,929       639,777  
      652,547       856,567  
               Operating income
     1,196,431       4,098,371  
Interest income earned from investments
     17,099       80,589  
                 
               Income before income taxes
     1,213,530       4,178,960  
Income taxes
     451,378       1,248,203  
 Net income
   $ 762,152     $ 2,930,757  
                 
Average number of sub-share certificates
                
and equivalent sub-share certificates
                
outstanding
     10,177,844       10,476,308  
                 
Basic and dilutive earnings per sub-share certificate
   $ .07     $ .28  
                 
Cash dividends per sub-share certificate
   $ .19     $ .18  


See accompanying notes to financial statements.


 
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TEXAS PACIFIC LAND TRUST
STATEMENTS OF CASH FLOWS
(Unaudited)

   
Three Months
Ended March 31,
  
   
2009
    
2008
  
Cash flows from operating activities:
            
Net income
   $ 762,152     $ 2,930,757  
       Adjustments to reconcile net income to net
                
    cash provided by operating activities:
                
Deferred taxes
     35,094       17,503  
Depreciation and amortization
     6,000       7,800  
Changes in operating assets and liabilities:
                
    Accrued receivables and other assets
     220,102       (485,089 )
    Real estate acquired
     –       (77,952 )
    Notes receivable for land sales
     228,001       (46,911 )
    Accounts payable, accrued expenses
                
                       and other liabilities
     (37,087 )     98,817  
    Prepaid income taxes
     423,717       1,232,515  
Net cash provided by operating activities
     1,637,979       3,677,440  
                 
Cash flows from investing activities:
                
Purchase of fixed assets
     (20,485 )     (17,133 )
                             Net cash used in investing activities
     (20,485 )     (17,133 )
                 
Cash flows from financing activities:
                
Purchase of Sub-share Certificates in Certificates of
                
           Proprietary Interest
     (1,884,338 )     (1,103,181 )
Dividends paid
     (1,930,444 )     (1,884,668 )
                Net cash used in financing activities
     (3,814,782 )     (2,987,849 )
                 
                Net increase (decrease) in cash and cash
                
                  equivalents
     (2,197,288 )     672,458  
                 
Cash and cash equivalents, beginning of period
     9,654,379       10,153,202  
                 
Cash and cash equivalents, end of period
   $ 7,457,091     $ 10,825,660  
                 

See accompanying notes to financial statements.

 
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TEXAS PACIFIC LAND TRUST
 
 
Notes To Unaudited Financial Statements
 
 
March 31, 2009
 
(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, 2009 and the results of its operations for the three month periods ended March 31, 2009 and 2008, respectively, and its cash flows for the three month periods ended March 31, 2009 and 2008, respectively.  The financial statements and footnotes included herein should be read in conjunction with the Trust’s annual financial statements as of December 31, 2008 and 2007 and for each of the years in the three year period ended December 31, 2008 included in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2008.
 
(2)
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.
 
(3)
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.
 
(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 period ended March 31, 2009 are not necessarily indicative of the results to be expected for the full year.
 
(6)
The Trust invests cash in excess of daily requirements primarily in bank deposit and savings accounts, certificates of deposit and U. S. Treasury bills 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, 2009 and 2008 is summarized as follows:

   
2009
    
2008
  
             
Income taxes paid
   $
–
     $
–
  
 
(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.  The Trust’s management makes decisions about resource allocation and performance assessment based on the same
 

 
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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, 2008, (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, 2009 Compared to the Quarter Ended March 31, 2008
 
Earnings per sub-share were $.07 for the first quarter of 2009 compared to $.28 for the first quarter of 2008.  Total operating and investing revenues for the first quarter of 2009 were $1,866,077 compared to $5,035,527 for the first quarter of 2008, a decrease of 62.9%.  This significant decrease in revenue and earnings was due primarily to decreases in oil and gas royalty revenue and, to a much lesser extent, to decreases in land sales and easement and sundry income.
 
In the first quarter of 2009 the Trust had no land sales compared to land sales of $447,040 in the first quarter of 2008.
 
Rentals, royalties and sundry income were $1,536,559 during the first quarter of 2009, compared to $4,155,899 during the first quarter of 2008, a decrease of 63.0%.  This decrease resulted primarily from decreases in oil and gas royalty income and, to a much lesser extent, decreases in easement and sundry income.
 
Oil and gas royalty revenue was $1,192,739 for the first quarter of 2009, compared to $3,270,839 for the first quarter of 2008, a decrease of 63.5%.  Oil royalty revenue was $811,951 for the first quarter of 2009, a decrease of 65.9% from the first quarter of 2008.  This decrease was due to declines in both price and volume.  The average price per royalty barrel of crude oil during the first quarter of 2009 was 57.5% lower than the average price prevailing during the first quarter of 2008.  In addition, crude oil production subject to the Trust’s royalty interest decreased 19.6% in first quarter of 2009 compared to the first quarter of 2008.  Gas royalty revenue was $380,788 for the first quarter of 2009, a decrease of 57.3% from the first quarter of 2008 when gas royalty income was $892,120.  This decrease in gas royalty income is attributable to a volume decrease of 28.1% and a price decrease of 40.6% in the 2009 first quarter compared to the first quarter of 2008.
 
Easement and sundry income was $254,331 for the first quarter of 2009, a decrease of 68.0% compared to the first quarter of 2008.  This decrease is primarily due to decreases in easement and damage revenue.  This category of income is unpredictable and may vary significantly from quarter to quarter.
 
Interest income, including interest on investments, was $329,518 for the first quarter of 2009, a decrease of 23.8% from the first quarter of 2008.  Interest on notes receivable was $312,419 for the first quarter of 2009, a decrease of 11.2% compared to the first quarter of 2008.  As of March 31, 2009 notes receivable for land sales were $17,428,226 compared to $19,672,533 at March 31, 2008.  Sundry interest was $17,099 for the first quarter of 2009 compared to $80,589 for the first quarter of 2008, a decrease of

 
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78.8%.  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, decreased 49.4% for the first quarter of 2009 compared to the first quarter of 2008.  The decrease is primarily due to the decrease in oil and gas production taxes which resulted from the decrease in oil and gas royalty revenue discussed above.
 
General and administrative expenses for the first quarter of 2009 were down 15.1% compared to the first quarter of 2008.  This decrease was primarily due to a decrease 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, 2008.
 
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, 2008.
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

(c)
During the first quarter of 2009, 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, 2009
    
16,039  
     
$26.35
      
–
      
–
  
February 1, through February 28, 2009
    
29,873  
     
$23.63
      
–
 
    
–
  
March 1, through March 31, 2009
    
35,888  
     
$21.06
      
–
      
–
  
Total
    
81,800*
      
$23.04
      
–
      
–
  

 
*  The Trust purchased and retired 81,800 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 7, 2009
  
By:
  /s/ Roy Thomas 
     
Roy Thomas, General Agent,
Authorized Signatory and Chief Executive Officer
     
     
Date:  May 7, 2009
  
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.
     


 
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