U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
(Mark One)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended October 31, 1995
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 0-1394
SEVEN J STOCK FARM, INC.
------------------------
(Name of small business issuer as specified in its charter)
Texas 74-1110910
----- ----------
(State of incorporation) (I.R.S. Employer Identification No.)
808 Travis Street, Suite 1453, Houston, TX 77002
- - ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (713) 228-8900
Securities registered under Section 12(b) of the Exchange Act:
None
----
(Title of Class)
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $1.00 a share
-------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 ( )
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. (X)
Issuer's revenues for the fiscal year ended October 31, 1995 were $686,000.
The aggregate market value of common stock held by non-affiliates on
January 4, 1996 was $1,382,000.
As of January 4, 1996 there were outstanding 1,451,000 shares of Seven J Stock
Farm, Inc. common stock $1.00 par value.
DOCUMENTS INCORPORATED BY REFERENCE - Portions of the annual information
statement for the fiscal year ended October 31, 1995 are incorporated by
reference into Part III.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Introduction
- - ------------
Seven J Stock Farm, Inc. was incorporated in Texas in 1948. The principal
operations of Seven J Stock Farm, Inc. and Subsidiary (the "Company") consist
of producing and selling field crops, leasing pastures, and gathering and
transportation of natural gas through pipelines. In addition, the Company
receives oil and gas royalties for minerals underlying the land owned in fee.
As disclosed in the following discussion, the Company receives a material
amount of its income from transactions with major customers, including related
parties.
Agricultural and Ranch Leases
- - -----------------------------
The Company's leased land is as follows:
PERCENT OF
TOTAL COMPANY
LAND LEASED TO AREA LEASED LAND
----------------------- ------------- -------------
Unrelated parties:
Agricultural leases 2,612 acres 23.4 %
Ranch lease 1,200 acres 10.8
Related party:
Ranch lease - Estate
of J. R. Parten (a
shareholder of the
Company) 6,972 acres 62.6 %
In accordance with the terms of the agricultural leases, the Company is
entitled to 25% of the cotton production and 30% of the milo or corn
production from the leased lands. The Company is also liable for its
respective share of certain costs of crop production.
In accordance with the ranch leases encompassing 8,172 acres or 73% of
Company land, the annual rent, payable monthly, is $16 per net acre (7,442
aggregate net acres). The Company is liable for payment of property taxes,
repairs to water wells, and a portion of maintenance expense of the levee
system. The ranch lease with an unrelated party is for a term of five years
ending July 31, 1998 with an option to renew for an additional five year term.
The ranch lease with the Estate of J. R. Parten, a related party, was renewed
on October 31, 1994 for an additional five years, subject to earlier
termination by either party by giving three calendar months notice to the other
party.
For the two fiscal years ended October 31, 1995 and 1994, revenue
generated from the leasing activities represented 56% and 51%, respectively,
of the Company's total revenue.
Pipeline Operations
- - -------------------
In 1977, Madison Pipe Line Co., a gas gathering system and wholly-owned
subsidiary, commenced operating its natural gas pipelines. For both fiscal
years ended October 31, 1995 and 1994, pipeline income represented 29% of the
Company's total revenue. The principal service rendered by the subsidiary is
to maintain and operate gas gathering systems which deliver natural gas to
various gas purchasers' pipelines. Currently, the subsidiary is servicing six
wells which are operated by Parten Operating, Inc. which is owned by the Estate
of J. R. Parten.
Oil and Gas Royalties
- - ---------------------
The Company receives oil and gas royalties attributable to fourteen
producing oil and gas wells. The royalties are received from various oil and
gas companies, including related parties. The income is of a passive nature as
the Company does not explore for oil and gas and does not participate in the
drilling of oil and gas wells. For the fiscal years ended October 31, 1995 and
1994, net royalty income represented 16% and 21%, respectively, of the
Company's total revenue. Substantially all Company property is leased for oil
and gas exploration. Lessees are related parties.
Major Customers
- - ---------------
Customers comprising 10% or greater of the Company's revenues for the
fiscal years ended October 31, 1995 and 1994 are summarized as follows:
FISCAL YEAR ENDED
OCTOBER 31,
-----------------------
1995 1994
---------- ----------
(in thousands)
Ranch lease - Estate of J. R. Parten -
related party $ 100 $ 102
Agricultural leases - Caney Valley Cotton Co. 257 107
Pipeline operations - Gathering income
attributable to gas wells partially
owned by Estate of J. R. Parten -
related party 150 153
--------- ---------
Total revenues - major customers $ 507 $ 362
========= =========
Percentage to total revenues - all
customers 74% 60%
========= =========
Employees
- - ---------
The Company presently employs two full time ranch employees and eight
part-time individuals through a labor sharing arrangement with related
parties. None of these individuals are represented by a union and management
considers its relations with these individuals to be satisfactory. The Company
has not experienced serious difficulty in engaging qualified employees.
General
- - -------
The Company does not hold any patents, trademarks, licenses, franchises
or concessions which might be deemed important to the Company or to any of its
segments. The Company does not have backlog orders or contractual
commitments. The Company has not expended a material amount of funds in
research activities. The Company anticipates no material effects on its
business concerning compliance with federal, state and local provisions which
have been enacted or adopted concerning environmental matters.
The Company operates in the United States and does not have foreign
operations or export sales.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company owns in fee approximately 11,140 acres of land in Houston
County, Texas, adjoining the Trinity River and located about 100 miles north
of Houston, Texas. Of this land, approximately 35% is native pasture,
approximately 36% is improved pasture consisting of coastal bermuda and bahia
grasses, approximately 23% is cropland cultivated in cotton, milo and corn, and
approximately 6% is wooded pasture or wasteland. Improvements include
approximately twenty miles of roads, approximately eighty four miles of
perimeter and cross fencing, nine water wells, a levee approximately ten miles
long with pumping units, five single family residences, three buildings, seven
barns or warehouses, two sheds, four corrals, and one stable/tack room. Oil
and gas royalties are received from oil and gas companies. Fourteen oil and
gas wells are producing on the Company's land and eight wells are shut-in.
The lessees of the minerals underlying Company land are related parties.
Madison Pipe Line Co. property consists of three pipelines currently
servicing six gas wells located adjacent to Seven J Stock Farm, Inc.
properties.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock, not listed in any established public trading
market, is traded over-the-counter. The quoted bid prices of the common shares
for the fiscal years ended October 31, 1995 and 1994 are as follows:
QUOTED BID
PRICE
-------------------------
QUARTER 1995 1994
------- -------- --------
First $ 3.50 $ 3.00
Second 3.50 3.25
Third 3.50 3.50
Fourth 3.50 3.50
The above quoted bid prices were compiled from sporadic market quotations
which may not necessarily represent actual transactions.
As of January 4, 1996, the Company had approximately 866 shareholders.
The Company has paid no cash dividends on its common stock since
inception. Any payment of cash dividends in the future will depend upon the
Company's earnings, financial condition, capital requirements, and other
factors deemed relevant by the Board of Directors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
The following table summarizes for the period indicated the percentage
increase (decrease) of revenues and costs and expenses as compared to the
indicated prior period:
PERIOD-TO-PERIOD INCREASE
(DECREASE) FOR FISCAL YEARS
---------------------------
1995 1994
COMPARED COMPARED
TO 1994 TO 1993
---------- ----------
REVENUES:
Pipeline operations 13.9 % .6 %
Net oil and gas royalties (13.7) (15.1)
Farm produce sales 44.5 75.0
Ranch lease rentals (1.7) (2.4)
Total revenues 14.3 9.9
PERIOD-TO-PERIOD INCREASE
(DECREASE) FOR FISCAL YEARS
---------------------------
1995 1994
COMPARED COMPARED
TO 1994 TO 1993
---------- ----------
COSTS AND EXPENSES:
Operating expenses 33.3 2.7
General and administrative expenses 3.9 18.3
Depreciation and amortization 6.5 26.5
Interest expense - (100.0)
Other (income) expense - net (20.0) 100.0
Taxes - other than income taxes 15.5 4.7
Total costs and expenses 19.2 7.5
INCOME BEFORE PROVISION FOR INCOME TAXES 5.6 14.4
Provision for income taxes 91.2 % (12.8)%
The following is a discussion of material changes in the results of
operations of the Company.
COMPARISON OF FISCAL YEARS 1995 AND 1994
----------------------------------------
REVENUES
- - --------
Pipeline Operations - Pipeline gathering revenue for fiscal year 1995
increased 13.9% when compared to fiscal year 1994. Gathering fees are adjusted
for differences between quantities of natural gas gathered and quantities of
natural gas sold. For 1995, the gathering fees increased by $52,000 because of
these differences. The above increase was partially offset by a 17% decrease
in quantities (million british thermal units - mmbtu) of natural gas volumes
gathered and transmitted (1995 - 801,000 mmbtu; 1994 - 970,000 mmbtu).
Net Oil and Gas Royalties - Net oil and gas royalties for fiscal year 1995
declined 13.7% as compared to fiscal year 1994. A decrease of 21.5% in natural
gas prices (average price per thousand cubic feet "MCF": 1995 - $1.75;
1994 - $2.23) was partially offset by a 17% increase in natural gas production
(1995 - 15,679 MCF; 1994 - 13,414 MCF). An increase of 10% in oil and
condensate prices (average price per barrel ("bbl"): 1995 - $16.81; 1994 -
$15.31) was more than offset by a decrease of 24% in oil and condensate
production (1995 - 5,007 bbls; 1994 - 6,585 bbls). The Company's undiscounted
future revenues in proved developed oil and gas reserves is estimated to be
approximately $551,000 at October 31, 1995.
Farm Produce Sales - Farm produce sales for fiscal year 1995 increased
substantially as compared to fiscal year 1994. Cotton production increased
89% over the prior year (1995 - 360,000 lbs.; 1994 - 190,000 lbs.). Cotton
prices increased 22% over the prior year (1995 - $.72 per lb.; 1994 - $.59
per lb.). There was no milo or corn production in 1995. Amounts for 1994,
were 702,000 lbs. and 286,000 lbs., respectively.
During fiscal year 1994, the Company planted 2,500 pecan trees. The
Company anticipates that it will take five to seven years before the pecan
grove is commercially productive. Estimated target yield is approximately
300,000 lbs. per year. During fiscal year 1995, there was no income from
the pecan grove. Any income from the pecan grove before it becomes
commercially productive will be used to reduce the basis of the pecan grove.
In accordance with an agreement with a pecan picking company, the Company
receives 30% of harvested pecans from approximately 100 mature pecan trees
located on Company land. Pecan sales for the fiscal year 1995 of $5,000
increased 40% as compared to fiscal year 1994. A decrease in pecan production
yield of 30% (1995 - 6,900 lbs.; 1994 - 9,000 lbs.) was offset by a price
increase of 59% (1995 - $.70 per lb.; 1994 - $.44 per lb.).
Ranch Lease Rentals - Ranch lease rentals slightly decreased for fiscal
year 1995 as compared to fiscal year 1994. The area leased to the Estate of
J. R. Parten was reduced by the area of land used for the pecan grove.
Costs and Expenses
- - ------------------
Operating Expenses - Operating expenses increased 33.3% for fiscal year
1995 as compared to fiscal year 1994. Ranch lease expenses increased due
to the hiring of two full time employees to maintain the ranch lands.
Operating expenses of the agricultural leases for the fiscal year 1995
increased over fiscal year 1994 because of increased use of herbicides and
fertilizer in connection with the cotton crop.
General and Administrative Expenses - General and administrative expenses
for the fiscal year 1995 increased 3.9% as compared to fiscal year 1994 due to
increases in insurance and salaries.
Depreciation and Amortization - Depreciation and amortization for fiscal
year 1995 increased 6.5% as compared to fiscal year 1994. The increase is
attributable to depreciation on additions.
Other (Income) Expense - Net - Other (income) expense - net decreased
slightly in fiscal year 1995 as compared to fiscal year 1994.
Taxes - Other Than Income Taxes - Taxes - other than income taxes for
fiscal year 1995 increased as compared to fiscal year 1994. Payroll taxes
increased in fiscal 1995 due to the hiring of two new employees.
Provision for Income Taxes - Provision for income taxes for fiscal year
1995 increased as compared to fiscal year 1994. The increase in due to an
increase in state income taxes and the reduction in the tax effect of the
alternative minimum tax credit.
COMPARISON OF FISCAL YEARS 1994 AND 1993
Revenues
- - --------
Pipeline Operations - Pipeline gathering revenues for fiscal year 1994
increased slightly when compared to fiscal year 1993. Quantities of natural
gas volumes gathered increased 18% (1994 - 970,000 mmbtu; 1993 - 824,000
mmbtu); however, this increase was offset by a decrease in transportation
income and a decrease in the effective rate of gathering fees earned. The
Company no longer earns fees for transporting quantities of natural gas
(1994 - 0 MCF; 1993 - 145,000 MCF). Beginning in fiscal year 1994, gathering
fees are adjusted for differences between quantities of natural gas gathered
and quantities sold (1994 revenue reduction of $15,000).
Net Oil and Gas Royalties - Net oil and gas royalties for fiscal year 1994
decreased 15% as compared to fiscal year 1993. Net gas royalties for fiscal
year 1994 increased 13% as compared to fiscal year 1993. An increase of 30%
in natural gas production (1994 - 13,000 MCF; 1993 - 10,000 MCF) was partially
offset by a 15% decline in natural gas prices (average price per MCF: 1994 -
$2.23; 1993 - $2.61). Oil and condensate royalties decreased 21% as compared
to fiscal year 1993. A decrease of 22% in oil and condensate prices (average
price per barrel: 1994 - $15.31; 1993 - $19.69) was partially offset by an
increase of 2% in oil and condensate production (1994 - 6,585 bbls;
1993 - 6,469 bbls). The Company's undiscounted future revenues in proved
developed oil and gas reserves are estimated to be approximately $535,000 at
October 31, 1994.
Farm Produce Sales - Farm produce sales for fiscal year 1994 increased
substantially as compared to fiscal year 1993. As a result of a June, 1993
flood followed by 123 days of drought, the fiscal year 1993 cotton and milo
crops were destroyed. Milo production yield for the fiscal year 1994
substantially increased (1994 - 702,000 lbs.; 1993 - 180,000 lbs.). In
addition, beginning in fiscal year 1994, the Company produced 286,000 lbs. of
corn as an experimental alternative crop for cotton. Cotton production yield
substantially increased (1994 - 371 bales; 1993 - 44 bales). The losses in
production for fiscal year 1993 were partially mitigated by deficiency and
disaster payments received from the U.S. Department of Agriculture under
government subsidy payments.
During fiscal year 1994, the Company planted 2,500 pecan trees. The
Company anticipates that it will take six to eight years before the pecan grove
is commercially productive. Estimated target yield is approximately 300,000
lbs. per year.
In accordance with an agreement with a pecan picking company, the Company
receives 30% of harvested pecans from approximately 100 mature pecan trees
located on Company land. Pecan sales for the fiscal year 1994 decreased 33% as
compared to fiscal year 1993. An increase in pecan production yield of 80%
(1994 - 9,000 lbs.; 1993 - 5,000 lbs.) was offset by a price decline of 64%
(1994 - $.44 per lb.; 1993 - $1.21 per lb.).
Ranch Lease Rentals - Ranch lease rentals decreased for fiscal year 1994
as compared to fiscal year 1993. The area leased to the Estate of J. R. Parten
was reduced by the area of land used for the pecan grove. Projected revenues
for fiscal year 1995 should decrease 1% as compared to fiscal year 1994.
Costs and Expenses
- - ------------------
Operating Expenses - Total operating expenses increased 3% for fiscal year
1994 as compared to fiscal year 1993. Farm operating expenses increased
substantially and were offset by decreased pipeline operating expenses. Farm
operating expenses increased because weather conditions for 1994 were favorable
for producing crops, whereas, in fiscal year 1993, operations were subject to
adverse conditions. Pipeline operating expenses decreased because a contract
for services was cancelled. Administrative services were previously included
in the contract described above. For fiscal year 1994, the administrative
costs attributable to pipeline operations were performed by Company personnel
and are classified as general and administrative expenses.
General and Administrative Expenses - General and administrative expenses
for the fiscal year 1994 increased 18% as compared to fiscal year 1993
primarily as a result of increased administrative costs attributable to
pipeline operations. Salaries increased as a result of increased use of office
personnel to perform the gas revenue accounting functions of the pipeline
operations. The costs increased because services previously received under a
pipeline operating contract, previously classified as operating expenses, are
now performed by personnel of the Company. For the fiscal year 1994, these
expenses are classified as general and administrative expenses.
Depreciation and Amortization - Depreciation and amortization for fiscal
year 1994 increased 27% as compared to fiscal year 1993. The increase is
attributable to additions to ranch properties.
Other (Income) Expense - Net - Other (income) expense - net for the fiscal
year 1994 increased as compared to fiscal year 1993 due to a fiscal year 1994
gain on sale of equipment.
Taxes - Other Than Income Taxes - Taxes - other than income taxes for
fiscal year 1994 increased slightly as compared to fiscal year 1993. Increases
in payroll and state franchise taxes were partially offset by a decrease in
property taxes.
Provision for Income Taxes - Provision for income taxes for fiscal year
1994 decreased as compared to fiscal year 1993. An increase in the provision
for income taxes attributable to increased income was offset by adjustments due
to alternative minimum tax.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company generated $299,000 of net cash flow from operating activities
for the fiscal year 1995. The Company expended $27,000 for construction of
ranch fences and water wells, $23,000 for acquisition or ranch equipment and
$137,000 to complete the installation of an irrigation system. Cash required
for expenditures for property and equipment will be provided in part by
redemption of short-term certificates of deposit. The Company anticipates that
adequate working capital will be provided by operations.
ITEM 7. FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Shareholders and Board of Directors
of Seven J Stock Farm, Inc.
We have audited the accompanying consolidated balance sheets of Seven J
Stock Farm, Inc. and Subsidiary as of October 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity, and cash flows
for the fiscal years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Seven J
Stock Farm, Inc. and Subsidiary as of October 31, 1995 and 1994 and the results
of its operations and its cash flows for the fiscal years then ended in
conformity with generally accepted accounting principles.
MATTISON AND RIQUELMY
January 5, 1996
Houston, Texas
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1995 AND 1994
(in thousands except for share and per share data)
===============================================================================
OCTOBER 31,
-------------------
1995 1994
-------- --------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 487 $ 301
Certificates of deposit - 75
Accounts receivable - trade 71 50
Accounts receivable - related parties (Note 7) 39 26
Accounts receivable - other 1 4
Inventories (Notes 1 and 4) 5 41
Refundable income taxes - 20
Deferred income taxes (Note 8) 19 7
Other current assets 9 1
------- -------
Total current assets $ 631 $ 525
PROPERTY AND EQUIPMENT - at cost, less accumulated
depreciation of $1,696 in 1995 and $1,632 in 1994
(Notes 1 and 2) 1,168 1,046
OTHER ASSETS 8 8
------- -------
TOTAL $ 1,807 $ 1,579
======= =======
(CONTINUED)
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1995 AND 1994
(in thousands except for share and per share data)
===============================================================================
(CONTINUED) OCTOBER 31,
-------------------
1995 1994
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable - trade $ 78 $ 26
Accounts payable - related parties (Note 7) 25 52
Accrued taxes - other than income taxes 27 27
Accrued expenses - other 32 27
Accrued income taxes payable 14 -
------- -------
Total current liabilities $ 176 $ 132
------- -------
OTHER LIABILITIES AND CREDITS:
Deferred income taxes (Note 8) $ 81 $ 59
Unearned lease income (Note 3) 9 9
------- -------
Total other liabilities and credits $ 90 $ 68
------- -------
SHAREHOLDERS' EQUITY:
Common stock, par value - $1 per share; authorized
1,500,000 shares; issued and outstanding 1,451,000
shares $ 1,451 $ 1,451
Retained earnings (deficit) 90 (72)
------- -------
Total shareholders' equity $ 1,541 $ 1,379
------- -------
TOTAL $ 1,807 $ 1,579
======= =======
The accompanying notes to consolidated financial statements
are an integral part of these statements.
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
---------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1995 AND 1994
(in thousands except for share and per share data)
===============================================================================
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1995 1994
-------- --------
REVENUES:
Pipeline operations $ 21 $ 9
Pipeline operations - related parties (Note 7) 176 164
Net oil and gas royalties (Note 9) 80 112
Net oil and gas royalties - related party
(Notes 7 and 9) 27 12
Farm produce sales (Note 4) 263 182
Ranch lease rentals (Note 3) 19 19
Ranch lease rentals - related party (Notes 3 and 7) 100 102
------- -------
Total revenues $ 686 $ 600
------- -------
COSTS AND EXPENSES:
Operating expenses $ 191 $ 138
Operating expenses - related party (Note 7) 13 15
General and administrative expenses 84 95
General and administrative expenses - related party
(Note 7) 77 60
Depreciation and amortization 66 62
Other (income) expense - net (8) (8)
Other (income) expense - net - related parties (Note 7) (16) (22)
Taxes - other than income taxes 48 41
Taxes - other than income taxes - related parties
(Note 7) 4 4
------- -------
Total costs and expenses $ 459 $ 385
------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES $ 227 $ 215
Provision for income taxes (Note 8) 65 34
------- -------
NET INCOME $ 162 $ 181
======= =======
NET INCOME PER SHARE (1,451,000 weighted -
average shares outstanding) $ .11 $ .12
======= =======
The accompanying notes to consolidated financial statements
are an integral part of these statements.
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
---------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1995 AND 1994
(in thousands)
===============================================================================
COMMON STOCK RETAINED TOTAL
--------------------- EARNINGS SHAREHOLDERS'
SHARES AMOUNT (DEFICIT) EQUITY
--------- --------- --------- -------------
Balance at
October 31, 1993 1,451 $ 1,451 $ (253) $ 1,198
Net income - - 181 181
-------- -------- -------- ------------
Balance at
October 31, 1994 1,451 $ 1,451 $ (72) $ 1,379
Net income - - 162 162
-------- -------- -------- ------------
Balance at
October 31, 1995 1,451 $ 1,451 $ 90 $ 1,541
======== ======== ======== ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
---------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1995 AND 1994
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(in thousands)
===============================================================================
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1995 1994
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 162 $ 181
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 66 62
Deferred income taxes 10 (7)
Gain on sale of equipment - (11)
Unearned lease income - (53)
Changes in assets and liabilities:
(Increase) decrease in assets:
Inventories 36 (34)
Accounts receivable (34) 33
Refundable income taxes 20 (20)
Other assets (5) 6
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 30 21
Accrued income taxes payable 14 (20)
------- -------
Net cash provided by operating activities $ 299 $ 158
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (188) $ (257)
Proceeds from sale of equipment - 13
Net redemptions of certificates of deposit 75 301
------- -------
Net cash provided by (used in) investing
activities $ (113) $ 57
------- -------
(CONTINUED)
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
---------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1995 AND 1994
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(in thousands)
===============================================================================
(CONTINUED) FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1995 1994
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 186 $ 215
CASH AND CASH EQUIVALENTS - beginning of year 301 86
------- -------
CASH AND CASH EQUIVALENTS - end of year $ 487 $ 301
======= =======
SUPPLEMENTAL CASH FLOW DATA:
Income taxes paid $ 28 $ 81
======= =======
The accompanying notes to consolidated financial statements
are an integral part of these statements.
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
---------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The financial statements reflect, on a
consolidated basis, the accounts of Seven J Stock Farm, Inc. and Subsidiary
(the "Company"). The wholly-owned subsidiary is Madison Pipe Line Co. All
significant intercompany accounts and transactions have been eliminated.
Revenue and Expense Recognition - Revenue is reflected in operations when
earned and expenses when incurred utilizing the accrual method of accounting.
Revenue from pipeline operations is recognized based on dates natural gas
is gathered.
Revenue from net oil and gas royalties is recognized based on dates of
production.
Revenue from farm produce sales is recognized when field crops are
harvested.
Revenue from ranch lease rentals is recognized based on lease periods.
Inventories - Inventories of harvested cotton, corn, milo, and pecans are
stated at current sales price less cost of disposal. Growing crops are stated
at the lower of cost or net realizable value.
Property and Equipment - Property and equipment is recorded at cost. The
straight-line method of computing depreciation is used for financial reporting
purposes. Maintenance and repairs are included in expenses when incurred.
Renewals and betterments which extend the useful life of the equipment are
capitalized. At the time properties are retired or otherwise disposed of, the
cost of the property and accumulated depreciation are removed from the
accounts. The difference between the net book value and the amount received
by sale or salvage is included in income.
The cost of planting the pecan grove and yearly maintenance and
development costs are capitalized until the grove is ready for commercial
production. Net proceeds from sale of pecans before commercial production are
recorded as a reduction to capitalized costs. Normal losses of trees to
disease and other conditions during the development stage are not treated as a
reduction to the capitalized cost; however, abnormal losses are charged to
current operations. The capitalized cost is depreciated over its estimated
economic life, beginning in the first year of commercial production.
Cash and Cash Equivalents - All highly liquid investment purchases with a
original maturity of three months or less are cash equivalents.
Deferred Income Taxes - In accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", the Company
utilizes the asset and liability approach in computing deferred income taxes.
Under the asset and liability approach to accounting for income taxes, a
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
deferred income tax liability, calculated using projected tax rates, is
recognized on temporary differences which will result in projected future net
taxable amounts. In addition, a deferred income tax asset, calculated using
projected tax rates, is recognized on temporary differences which will result
in projected future net deductible amounts. The deferred income tax asset is
reduced by a valuation allowance based on management's estimate of the amount
that will ultimately be realized or deducted in future years.
Reclassifications - Certain items and amounts attributable to fiscal year
ended October 31, 1994 have been reclassified. The reclassifications have no
effect on net income.
2. PROPERTY AND EQUIPMENT AND ACCUMULATED DEPRECIATION
Property and equipment consists of:
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1995 1994
-------- --------
(in thousands)
Buildings and building improvements $ 521 $ 520
Levee, drainage, irrigation, roads, and
flood control facilities 507 492
Farm implements, trucks, and tractors 50 27
Fences, corrals, and other equipment 512 500
Pipelines 700 700
Pecan grove and irrigation system
(not commercially productive) 271 134
------- -------
$ 2,561 $ 2,373
Less accumulated depreciation 1,696 1,632
------- -------
$ 865 $ 741
Land 303 305
------- -------
Property and equipment - net $ 1,168 $ 1,046
======= =======
Depreciation of property and equipment is based on the estimated useful
lives. Annual lives for depreciation are as follows:
YEARS
--------
Buildings and building improvements 5 - 40
Levee, drainage, irrigation, roads, and
flood control facilities 7 - 50
Farm implements, trucks, and tractors 5 - 10
Fences, corrals, and other equipment 5 - 20
Pipelines 10 - 20
Pecan grove and irrigation system 20
3. RANCH LEASES
Company property is subject to two separate ranch leases at an annual
rental of $16 per net acre. One lease agreement, expiring July 31, 1998, with
an unrelated party, covers 1,182 net acres. The lessee has an option to renew
for an additional five years subject to possible escalation. The other lease
for 6,260 net acres with the Estate of J. R. Parten, a related party, expires
on October 31, 1998. The lease is subject to earlier termination by either
party by giving three months notice to the other party.
Unearned lease income of $9,000 at October 31, 1995 and 1994 represents
prepaid rent on the unrelated party lease agreement.
4. AGRICULTURAL LEASES
Approximately 2,612 acres or 23% of the Company land is leased to
unrelated parties under two lease agreements. The Company is entitled to 25%
of the cotton production and 30% of the milo and corn production from the
leased lands. The Company pays for its respective share of certain costs of
crop production.
Both lease agreements expire on the harvest date of the 1995 cotton,
milo and corn crops; however, lessees have the option to renew the leases on an
annual basis for an additional two years.
5. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited selected quarterly financial data for the fiscal years ended
October 31, 1995 and 1994 are as follows:
1995 QUARTER ENDED
-------------------------------------
JANUARY APRIL JULY OCTOBER
31 30 31 31
------- ------- ------- -------
(in thousands except per share amount)
Revenues $ 109 $ 100 $ 101 $ 376
====== ====== ====== ======
Net income $ 24 $ 19 $ 26 $ 93
====== ====== ====== ======
Net income per share $ .02 $ .01 $ .02 $ .06
====== ====== ====== ======
The 1995 fourth quarter revenues include seasonal sales of harvested
cotton.
5. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
1994 QUARTER ENDED
-------------------------------------
JANUARY APRIL JULY OCTOBER
31 30 31 31
------- ------- ------- -------
(in thousands except per share amount)
Revenues $ 108 $ 111 $ 114 $ 267
====== ====== ====== ======
Net income $ 39 $ 32 $ 36 $ 74
====== ====== ====== ======
Net income per share $ .03 $ .02 $ .02 $ .05
====== ====== ====== ======
The 1994 fourth quarter revenues include seasonal sales of harvested
cotton and milo.
6. BUSINESS SEGMENTS
The Company operates in two principal industries, agriculture and oil and
gas. The Company's agricultural industry segments consist of the producing and
selling of field crops and the leasing of ranch land not used in farming
operations. The Company's oil and gas industry segments consist of oil and gas
royalty interests in minerals underlying the land owned in fee and gathering
and transportation of natural gas through pipelines.
Financial information concerning the Company's business segments for the
fiscal years ended October 31, 1995 and 1994 is as follows. There were no
material intersegment sales or transfers. Income before provision for income
taxes represents revenues less operating expenses for each segment and excludes
general corporate expenses and other income and expenses of a general corporate
nature. Identifiable assets, by segment, are those assets that are used in the
Company's operations within that industry. Corporate assets are those assets
maintained for general purposes, principally cash and cash equivalents and
certificates of deposit.
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1995 1994
-------- --------
(in thousands)
REVENUES:
Agriculture:
Farm produce $ 263 $ 182
Ranch leases 119 121
------- -------
$ 382 $ 303
------- -------
6. BUSINESS SEGMENTS (CONTINUED)
Oil and gas:
Net oil and gas royalties $ 107 $ 124
Pipeline operations 197 173
------- -------
$ 304 $ 297
------- -------
Total revenues $ 686 $ 600
======= =======
OPERATING PROFIT:
Agriculture:
Farm produce $ 151 $ 95
Ranch leases (13) 28
------- -------
$ 138 $ 123
------- -------
Oil and gas:
Net oil and gas royalties $ 102 $ 117
Pipeline operations 138 112
------- -------
$ 240 $ 229
------- -------
Total operating profit $ 378 $ 352
Other income (expense) - net 24 30
General corporate expenses (175) (167)
------- -------
Income before provision for income taxes $ 227 $ 215
======= =======
IDENTIFIABLE ASSETS:
Agriculture $ 970 $ 829
Oil and gas 341 373
Corporate assets 496 377
------- -------
Total assets $ 1,807 $ 1,579
======= =======
TOTAL CAPITAL EXPENDITURES:
Agriculture $ 188 $ 253
Oil and gas - 4
------- -------
Total capital expenditures $ 188 $ 257
======= =======
DEPRECIATION AND AMORTIZATION:
Agriculture $ 31 $ 26
Oil and gas 35 36
------- -------
Total depreciation and amortization $ 66 $ 62
======= =======
6. BUSINESS SEGMENTS (CONTINUED)
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1995 1994
-------- --------
(in thousands)
MAJOR CUSTOMERS:
Customers comprising 10% or greater of the
Company's net sales are summarized as follows
by business segments:
Ranch lease - Estate of J. R. Parten -
related party $ 100 $ 102
Agricultural leases - Caney Valley Cotton Co. 257 107
Pipeline operations - Gathering income
attributable to gas wells partially
owned by Estate of J. R. Parten -
related party 150 153
------- -------
Total revenues - major customers $ 507 $ 362
======= =======
Percentage to total revenues - all customers 75% 60%
======= =======
7. RELATED PARTY TRANSACTIONS
The relationship of the Estate of J. R. Parten to the Company is that of
a shareholder. Mr. John R. Parten and Mr. Robert F. Pratka, officers of the
Company, are Co-Executors of the Estate of J. R. Parten.
Information concerning ranch lease to a related party is also disclosed in
Note 4 of the notes to consolidated financial statements.
The following is a description of significant related party transactions
for the fiscal years ended October 31, 1995 and 1994:
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1995 1994
-------- --------
(in thousands)
DESCRIPTION OF RELATED PARTY TRANSACTIONS:
Gathering income attributable to production
from gas wells owned by certain shareholders
of the Company $ 176 $ 164
7. RELATED PARTY TRANSACTIONS (CONTINUED)
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1995 1994
-------- --------
(in thousands)
Oil and gas royalties received from a company
owned by the Estate of J. R. Parten 27 12
Ranch lease rentals received from the Estate
of J. R. Parten 100 102
Allocated salaries, payroll taxes and other
expenses of two part-time employees by a
company owned by the Estate of J. R. Parten 35 30
Allocated office salaries, payroll taxes, office
rent and other office expenses by:
Estate of J. R. Parten 59 39
Company owned by the Estate of J. R. Parten
and certain directors, officers or other
shareholders of the Company - 10
Ranch labor income received from a company owned
by Estate of J. R. Parten 4 -
Gain on sale of equipment to company owned
by the Estate of J. R. Parten - 11
Rental income received from:
Pipeline company owned by certain directors,
officers or shareholders of the Company 3 3
Company owned by Estate of J. R. Parten 9 6
Company owned by Estate of J. R. Parten and
certain directors, officers or other
shareholders of the Company - 2
Capital expenditures - equipment and labor
charges for construction of pecan grove
irrigation system 39 -
8. FEDERAL INCOME TAXES
The components of the provision for income taxes for the fiscal years
ended October 31, 1995 and 1994 are as follows:
8. FEDERAL INCOME TAXES (CONTINUED)
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1995 1994
-------- --------
(in thousands)
Current $ 55 $ 41
Deferred 10 (7)
------- -------
$ 65 $ 34
======= =======
Federal taxable income is reported by Seven J Stock Farm, Inc. on the cash
basis and by its subsidiary on the accrual basis.
At October 31, 1995, the Company has a credit for prior year alternative
minimum tax carryover for income tax purposes of $16,000.
The total deferred income tax liabilities and deferred income tax benefits
with related valuation allowances as of October 31, 1995 and 1994 are as
follows:
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1995 1994
-------- --------
(in thousands)
Deferred income tax liabilities - excess
tax depreciation $ 100 $ 102
------- -------
Deferred income tax benefits - net of related
valuation allowances:
Use of cash basis method of accounting $ 22 $ 10
Credit for prior years alternative minimum
tax carryover 16 49
Valuation allowance - (9)
------- -------
$ 38 $ 50
------- -------
Net deferred income tax liability $ 62 $ 52
======= =======
A reconciliation of the Company's income tax provision and the amount
computed by applying the statutory Federal income tax rates to earnings before
income taxes for the fiscal years ended October 31, 1995 and 1994 is as
follows:
8. FEDERAL INCOME TAXES (CONTINUED)
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1995 1994
-------- --------
(in thousands)
Computed Federal income tax at statutory rate of 34% $ 77 $ 73
Tax benefit of graduated Federal income tax rates (4) (6)
Tax benefit of credit for prior year alternative
minimum tax (9) (26)
Percentage depletion attributable to oil and gas
royalties (6) (7)
State income tax differential 7 -
------- --------
Provision for income taxes $ 65 $ 34
======= =======
Effective Federal income tax rate 28.6% 15.8%
======= =======
9. NET OIL AND GAS ROYALTIES
The Company receives oil and gas royalties based on oil and gas well
production from various oil and gas companies. Lessees are related parties
underlying the lands owned in fee.
Oil and gas royalties net of production taxes for the fiscal years ended
October 31, 1995 and 1994 are as follows:
FISCAL YEAR ENDED
OCTOBER 31,
-------------------
1995 1994
-------- --------
(in thousands)
Gross oil and gas royalties $ 112 $ 131
Production taxes (5) (7)
------- -------
Net oil and gas royalties $ 107 $ 124
======= =======
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Incorporated herein by reference to portions of the Company's information
statement filed pursuant to regulations 14A with the Securities and Exchange
Commission not later than 120 days after the end of the Company's fiscal year.
ITEM 9A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
NAME AGE POSITION
- - ----------------------- ----- --------------------------------------
John R. Parten 46 Chairman of the Board and President;
President of Madison Pipe Line Co.
R. F. Pratka 73 Vice-President and Treasurer;
Vice-President, Secretary, and
Treasurer of Madison Pipe Line Co.
Valerie Coulter 53 Secretary
On November 18, 1992, John R. Parten was elected President of the Company.
He served the Company as Vice-President from 1987 to November 18, 1992. He
has served as President of Madison Pipe Line Co. since 1987.
R. F. Pratka has served the Company as Vice-President and Treasurer since
1970 and he has served as Vice-President, Secretary, and Treasurer of Madison
Pipe Line Co. since 1987.
Valerie Coulter was elected Secretary on March 15, 1994.
ITEM 10. EXECUTIVE COMPENSATION, and
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, and
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by Part III (Items 10, 11, and 12) is
incorporated by reference from the Company's information statement filed
pursuant to regulations 14A with the Securities and Exchange Commission not
later than 120 days after the end of the Company's fiscal year.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT INDEX
No. Description
- - --- ------------
(2) Articles of Incorporation and Bylaws (1)
(10) Material Contract - Ranch Lease - Estate of J. R.
Parten dated March 4, 1993 (2)
(22) Subsidiary of the Registrant
(27) Financial data schedule
- - -------------------------------------------------------------------------------
(1) EXHIBIT D to Registration Statement, Form 10, filed with the Securities
and Exchange Commission on June 3, 1965, is incorporated by reference.
(2) Incorporated by reference, Form 10-KSB for the fiscal year ended
October 31, 1994 filed with the Securities and Exchange Commission
on January 30, 1995.
REPORTS ON FORM 8-K
No reports on Form 8-K have been filed for the quarter ended October 31, 1995.
EXHIBIT 22
SUBSIDIARY OF REGISTRANT
At October 31, 1995, the Company has one wholly-owned subsidiary, Madison
Pipe Line Co. The subsidiary was organized under the laws of the State of
Texas and the financial statements of this subsidiary are included in the
Company's consolidated financial statements.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SEVEN J STOCK FARM, INC.
January 25, 1996 By s/ R. F. Pratka
------------------------------------
R. F. Pratka, Vice-President and
Treasurer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
January 25, 1996 s/ John R. Parten
------------------------------------
John R. Parten, President and
Director (Chief Executive Officer)
January 25, 1996 s/ R. F. Pratka
------------------------------------
R. F. Pratka, Vice-President,
Treasurer and Director (Chief
Financial and Accounting Officer)
January 25, 1996 s/ W. A. Anderson, Jr.
------------------------------------
W. A. Anderson, Jr., Director
January 23, 1996 s/ Charles L. Kuehn, Jr.
------------------------------------
Charles L. Kuehn, Jr., Director
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEVEN J
STOCK FARM, INC. CONSOLIDATED BALANCE SHEET AT OCTOBER 31, 1995 AND
CONSOLIDATED STATEMENT OF INCOME FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<PERIOD-END> OCT-31-1995
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<PP&E> 2864
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<TOTAL-REVENUES> 686
<CGS> 105
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