<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year
ended December 31, 1996 Commission file number 1-737
TEXAS PACIFIC LAND TRUST
(Exact name of registrant as specified in its charter)
Not Applicable 75-0279735
- - -------------- ----------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
80 Broad Street, Suite 2700, New York, New York 10004
-----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (212) 269-2266
Securities registered pursuant to Section 12(b) of the Act:
Name of Each
Title of Each Class Exchange on Which Registered
- - ------------------- ----------------------------
Sub-shares in Certificate of
Proprietary Interest New York Stock Exchange
(par value $.16-2/3 per share)
Securities Registered Pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
-------- -------
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<PAGE> 2
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229,405 of this chapter) is not contained
herein, and will not 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-K or any amendment to this Form 10-K. X
-------
As of January 31, 1997, the aggregate market value of the voting stock
held by non-affiliates of the registrant is approximately $80,110,926.
Documents Incorporated by Reference: None.
Item 1: Business.
(a) General Development of Business. The registrant (hereinafter
called "Texas Pacific" or the "Trust") was organized under a Declaration of
Trust dated February 1, 1888, to receive and hold title to extensive tracts of
land in the State of Texas, previously the property of the Texas and Pacific
Railway Company, and to issue transferrable Certificates of Proprietary
Interest pro rata to the holders of certain debt securities of the Texas and
Pacific Railway Company. The Trustees are empowered under the Declaration of
Trust to manage the lands with all the powers of an absolute owner, and to use
the lands and the proceeds of sale of the lands, either to pay dividends to the
Certificate holders or to buy in and cancel outstanding Certificates. The
Trust's income is derived primarily from land sales, oil and gas royalties,
grazing leases, and interest. This method of operation has continued through
the present. During the last five years there has not been any reorganization,
disposition of any material amount of assets not in the ordinary course of
business (although in the ordinary course of business Texas Pacific does sell
or lease large tracts of land owned by it), or any material change in the mode
of conducting business.
Texas Pacific's income from oil and gas royalties has been limited in
the past by the level of production authorized for prorated wells each year by
the regulations of the Railroad Commission of Texas. The monthly percentage of
allowable production has averaged 100% in recent years but because of the
limited capacity of older wells and other operating problems, the percentage
permitted by the Commission could not be produced by most operators.
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<PAGE> 3
(b) Financial Information about Industry Segments. Texas Pacific
does not have identifiable industry segments, although as shown in the
Statements of Income included in the financial statements land sales, oil and
gas royalties and interest income are the major contributors to the income of
Texas Pacific. See Statements of Income for additional sources of income for
the last three (3) years of Texas Pacific.
(c) Narrative Description of Business. (1) As previously indicated
the business done and intended to be done by Texas Pacific consists of sales
and leases of land owned by it, retaining oil and gas royalties, temporary cash
investments and the overall management of the land owned by it.
(i) During the last three fiscal years the following items have
accounted for more than fifteen percent (15%) of
consolidated revenues.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Land Sales 37% 32% 57%
Oil and Gas Royalties 40% 39% 23%
</TABLE>
(ii) Texas Pacific is not in the business of development of new
products.
(iii) Raw materials are not necessary to the business of Texas
Pacific.
(iv) Patents, trademarks, licenses, franchises or concessions
held are not material to any business of Texas Pacific.
(v) The business of Texas Pacific is not seasonal in nature.
(vi) The business of Texas Pacific does not require Texas Pacific
to maintain any particular amount or item of working
capital.
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<PAGE> 4
(vii) Texas Pacific Land Trust received $869,728 or 25.5 percent
of its oil and gas royalty income from 96 leases operated by
Texaco Inc.
(viii) Backlogs are not relevant to an understanding of Texas
Pacific's business.
(ix) No material portion of Texas Pacific business is subject to
renegotiation or termination at the election of the
Government.
(x) The Trust does not have competitors as such in that it
sells, leases and generally manages land owned by it and to
that extent any owner of property located in areas
comparable to the Trust is a potential competitor.
(xi) Research activities relating to the development of new
products or services or to the improvement of existing
products or services are not material to the Trust's
business.
(xii) Compliance with Federal, State and local provisions that
have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the
protection of the environment, have had no material effect
upon the capital expenditures, earnings and competitive
position of Texas Pacific. To date Texas Pacific has not
been called upon to expend any funds for these purposes.
(xiii) Texas Pacific has nine (9) full-time employees.
(d) Financial Information about Foreign and Domestic Operations and
Export Sales. Texas Pacific does not and has not during the preceding three
(3) fiscal years had any export sales or foreign operations and the only
geographic area in the United States in which land is sold or income derived is
Texas.
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<PAGE> 5
ITEM 2: PROPERTIES.
Texas Pacific Land Trust owns the surface estate in approximately
1,103,515 acres of land located in 21 counties in the western part of Texas.
Also, the Trust owns a 1/128 nonparticipating perpetual oil and gas royalty
interest under 85,413 acres of land and a 1/16 nonparticipating perpetual oil
and gas royalty interest under 386,988 acres of land in the western part of
Texas. At December 31, 1996, grazing leases were in effect on 97.5 percent or
approximately 1,075,494 acres of the Trust's land. Approximately 3,546 acres of
land were sold in 1996. The Trust leases office space in Dallas and El Paso,
Texas and New York, New York.
ITEM 3: LEGAL PROCEEDINGS.
Texas Pacific is not involved in any material pending legal proceedings.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
This item is not applicable to Texas Pacific.
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<PAGE> 6
ITEM 5: MARKET FOR SUB-SHARE CERTIFICATES AND RELATED SECURITY HOLDER MATTERS.
The range of reported sales for sub-shares on the New York Stock
Exchange for the past two years has been as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------- ----------------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1st Quarter $32 1/2 $25 5/8 $19 5/8 $17
2nd Quarter 31 28 1/4 26 7/8 19
3rd Quarter 29 5/8 27 28 3/4 24 7/8
4th Quarter 29 1/4 24 3/4 27 1/4 22 3/8
</TABLE>
Certificates of Proprietary Interest and sub-shares are interchangeable
in the ratio of one certificate for 600 sub-shares or 600 sub-shares for one
Certificate of Proprietary Interest. Texas Pacific has paid a dividend once a
year for the preceding 41 years. The dividend was $.40 per sub-share in 1996
and $.40 per sub-share in 1995. Texas Pacific is not a party to any agreement
that would limit its ability to pay dividends in the future, although any
future dividends are subject to sufficient earnings of the Trust being
accomplished.
The approximate number of holders of Certificates of Proprietary
Interest and sub-shares as of January 31, 1997 were:
<TABLE>
<S> <C>
Certificates of Proprietary Interest 1
Sub-shares in Certificates of Proprietary Interest 1,117
-----
TOTAL 1,118
=====
</TABLE>
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<PAGE> 7
ITEM 6: SELECTED FINANCIAL DATA.
SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Gross revenue $ 8,581,087 $ 6,440,285 $ 9,102,833 $ 5,262,762 $ 4,332,613
Expenses 2,442,527 1,688,567 1,792,839 1,681,745 1,591,693
----------- ----------- ----------- ----------- -----------
Income before
provision for
Federal taxes
on income 6,138,560 4,751,718 7,309,994 3,581,017 2,740,920
Provision for
Federal taxes
on income 1,874,287 1,422,817 2,336,325 1,894,131* 732,575
----------- ----------- ----------- ----------- -----------
Net income $ 4,264,273 $ 3,328,901 $ 4,973,669 $ 1,686,886 $ 2,008,345
=========== =========== =========== =========== ===========
Net income per
Sub-share $ 1.46 $ 1.09 $ 1.58 $ .52 $ .60
Dividends per
Sub-share $ .40 $ .40 $ .40 $ .40 $ .40
Average number
of Sub-shares
outstanding 2,913,913 3,038,847 3,149,609 3,248,709 3,348,784
=========== =========== =========== =========== ===========
Total assets,
exclusive of
property with
no assigned
value $13,710,234 $13,901,804 $14,971,994 $13,255,288 $14,165,216
=========== =========== =========== =========== ===========
</TABLE>
* Includes $812,030, $.25 per sub-share, cumulative effect of change in
accounting for income taxes in 1993.
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<PAGE> 8
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Land sales amounted to $3,164,000 in 1996 compared with $2,057,764 in
1995 and $5,230,430 in 1994. A total of 3,545.51 acres were sold in 1996 at
an average price of $892 per acre, compared with 27,604.37 acres in 1995 and
23,386.50 acres in 1994 at an average price per acre of $75 and $192,
respectively. In as much as land sales may vary from year to year, the dollar
volume and total number of acres sold in any one year should not be assumed to
be indicative of land sales in future years.
Oil and gas royalty revenue was $3,416,574 in 1996 compared with
$2,508,663 in 1995 and $2,064,324 in 1994. Oil royalty revenue was $2,427,618
and gas royalty revenue amounted to $988,956 in 1996. Crude oil production
from Trust royalty wells increased 12.3%. The average price per royalty barrel
was $20.16 in 1996, $16.54 in 1995 and $15.22 in 1994. Interest revenue was
$486,318 in 1996 compared with $609,895 in 1995 and $571,257 in 1994. Interest
on notes receivable amounted to $379,454 in 1996 compared with $480,073 in 1995
and $502,889 in 1994. Sundry interest amounted to $106,864 in 1996, $129,822
in 1995 and $68,368 in 1994.
Taxes, other than Federal taxes on income, were $588,369 in 1996
compared with $558,697 in 1995 and $510,635 in 1994. Oil and gas production
taxes were $187,484 in 1996 compared with $138,018 in 1995 and $112,990 in
1994. Ad valorem taxes were $368,541 in 1996, $390,122 in 1995 and $363,034 in
1994. Other expenses were $1,854,158 in 1996, $1,129,870 in 1995 and
$1,282,204 in 1994.
The Trust's oil and gas royalty revenue, lease rentals, and receipts of
interest and principal payments on notes receivable have generated more than
adequate amounts of cash to meet the Trust's needs and should continue to do so
in the predictable future.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Financial Statements attached hereto.
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<PAGE> 9
ITEM 9: CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
This item is not applicable to Texas Pacific.
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Directors:
<TABLE>
<CAPTION>
POSITION AND PERIOD DURING
OFFICES HELD WHICH PERSON
NAME AGE WITH REGISTRANT HAS SERVED IN OFFICE
- - ---- --- --------------- --------------------
<S> <C> <C> <C>
George C. Fraser III 74 Trustee and Chairman Trustee since 10/01/61
of the Trustees
Maurice Meyer III 61 Trustee and Member Trustee since 02/28/91
of Audit Committee
Joe R. Clark 69 Trustee and Member Trustee since 02/20/87
of Audit Committee
</TABLE>
The Trustees hold office until their death, resignation or
disqualification. No Trustee was selected to be a Trustee pursuant to any
arrangement or understanding between him and any other person or persons, other
than the Trustees acting solely in their capacity as such.
(b) Executive Officers.
<TABLE>
<CAPTION>
POSITION AND PERIOD DURING
OFFICES HELD WHICH PERSON
NAME AGE WITH REGISTRANT HAS SERVED IN OFFICE
- - ---- --- --------------- --------------------
<S> <C> <C> <C>
George C. Fraser III 74 Trustee and Chairman Chairman of Trustees
of the Trustees since 02/28/91
Roy Thomas 50 General Agent and General Agent of Texas
Secretary Pacific Land Trust
commencing 01/01/95 and
Secretary commencing
01/01/95; Assistant General
Agent from 12/01/92
through 12/31/94
</TABLE>
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<PAGE> 10
The Chairman of the Trustees holds office until his death, resignation
or disqualification. General Agent and Secretary holds office until his death,
resignation, discharge or retirement pursuant to Texas Pacific Land Trust
Employees' Pension Plan. No executive officer was selected to be an officer
pursuant to any arrangement or understanding between him and any other person
or persons other than the Trustees acting solely in their capacity as such.
(c) Certain Significant Employees. The Trust does not employ any
person who is not an executive officer who makes or is expected to make
significant contributions to the business of the Trust.
(d) Family Relations. There is no family relationship between any
Trustee and any other Trustee or any executive officer of the registrant.
(e) Business Experience.
<TABLE>
<CAPTION>
NAME OF TRUSTEE OR PRINCIPAL OCCUPATION OR EMPLOYMENT
EXECUTIVE OFFICER DURING THE PAST FIVE YEARS
- - ------------------ ---------------------------------
<S> <C>
George C. Fraser III Chairman of the Trustees of Texas Pacific Land
Trust; geologist Self-employed as independent oil
& gas producer and operator, Abilene, Texas
Maurice Meyer III Former Vice Chairman of Henderson Brothers
Joe R. Clark Personal investments. Former President of Texas
Pacific Oil Company, Inc.
Roy Thomas Assistant General Agent of Texas Pacific Land
Trust and General Agent of Texas Pacific Land
Trust
</TABLE>
(f) Involvement in Certain Legal Proceedings. During the past
five years, no Director or Executive Officer is or has been involved in any
event reportable under this caption.
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<PAGE> 11
ITEM 11: EXECUTIVE COMPENSATION.
REMUNERATION TABLE
<TABLE>
<CAPTION>
(A) (B) (C) (D)
CASH & CASH EQUIVALENT AGGREGATE OF
NAME OF CAPACITIES FORMS OF REMUNERATION CONTINGENT FORMS
INDIVIDUALS IN WHICH SERVED SERVED OF REMUNERATION
- - ----------- --------------- ---------------------- ----------------
<S> <C> <C> <C>
(C1) (C2)
Securities of
Salaries, Fees, Property, In-
Director's Fees, surance Benefits
Commissions and or Reimbursements;
Bonuses Personal Benefits
--------------- ------------------
Roy Thomas Secretary & $101,041.66 (1) (2)
General Agent
All Officers Trustees in- $109,041.66 (1) (2)
& Directors cluding Chairman;
as a Group General Agent
(four in
number)
</TABLE>
(1) During the year ending December 31, 1996, no Trustee or executive
officer of the registrant received any compensation for services to
the registrant in the form of securities or property, life or health
insurance, medical reimbursement, personal benefits or other
unreported compensation except for certain personal benefits such that
the extent to which they were personal rather than business cannot be
specifically or precisely ascertained without unreasonable effort or
expenses and which did not in any event exceed the minimum reportable
amount under this caption.
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<PAGE> 12
(2) The registrant maintains Texas Pacific Land Trust Employees' Pension
Plan, a non-contributory defined benefit pension plan qualified under
Section 401 of the Internal Revenue Code in which the employees,
excluding the Trustees, participate. The amount of the registrant's
contribution, payment or accrual in respect to Mr. Thomas is not and
cannot readily be separately or individually calculated by the regular
actuaries for the Plan. Based upon the Plan formula of 1-1/2% of each
covered year times the average salary of the last five years, Mr.
Thomas is estimated to have retirement benefits of $40,921.87 per year
upon retirement age of 65. Total compensation paid during 1996 to the
nine (9) employees covered by the Employees' Pension Plan was
$436,637.50. No contribution was made to the plan in 1996. The
remuneration covered by the plan is salary. The Trust does not
maintain any other pension or retirement plan annuity contract,
deferred compensation plan, incentive compensation plan or
arrangement, stock purchase plan, profit sharing or thrift plan, or
other similar arrangement.
(3) The Chairman of the Trustees receives the sum of four thousand dollars
per year as compensation for his services, and the other two trustees
receive the sum of two thousand dollars per year for their services.
(4) There is no compensation plan or arrangement with respect to any
individual named in the remuneration table that results, or will
result, from the resignation, retirement or any other termination of
such individual's employment or from a change in control of Texas
Pacific or in a change in the individual's responsibilities following
a change in control of Texas Pacific.
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<PAGE> 13
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) The following table sets forth information as to all persons
known to the Trust to be the beneficial owner of more than 5% of the Trust's
voting securities.
<TABLE>
<CAPTION>
Number of
Securities Type of Percent
Name and Address Beneficially Owned Securities of Class
- - ------------------ ------------------ ---------- --------
<S> <C> <C> <C>
Fund American Enterprises 183,600(1) Sub-share 6%
Holdings, Inc. certificates
80 South Main Street
Hanover, NH 03755
</TABLE>
- - --------------------
(1) Reflects holdings as of December 31, 1996.
(b) Security Ownership of Management: The following table gives
the information indicated as to equity securities (Certificates of Proprietary
Interest and Sub-Share Certificates) of Texas Pacific beneficially owned
directly or indirectly by all trustees, naming them, and by all trustees and
officers of the registrant, as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF OF OWNERSHIP PERCENT
TITLE AND CLASS (1) BENEFICIAL OWNER ON JANUARY 31, 1996 OF CLASS
- - ------------------- ---------------- ------------------- --------
<S> <C> <C> <C>
Sub-share certificates: George C. Fraser III 28,420 (2) 1.00%
Sub-share certificates: Maurice Meyer III 3,000 (3) .10%
Sub-share certificates: Joe R. Clark 500 .01%
Sub-share certificates: All Trustees and
Officers as a Group 32,420 1.11%
</TABLE>
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<PAGE> 14
(1) The sub-shares and the Certificates of Proprietary Interest
are freely interchangeable in the ratio of one Certificate of
Proprietary Interest for six hundred sub-shares or six hundred
sub-shares for one Certificate of Proprietary Interest, and
are deemed to constitute a single class. On December 31,
1996, no trustee or officer was the beneficial owner, directly
or indirectly, of any Certificates of Proprietary Interest.
(2) Does include 600 sub-shares owned by a trust of which Mr.
Fraser is a trustee and beneficiary.
(3) Does not include 2,300 sub-shares owned by the wife of Mr.
Maurice Meyer III in which Mr. Meyer disclaims any beneficial
ownership.
(c) Changes in Control. Texas Pacific has no knowledge of any
arrangement that may result in any change of the control of the Trust.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transaction with management and others. There are no
reportable transactions or currently proposed transactions between Texas
Pacific and any Trustee or executive officer of Texas Pacific or any nominee
for election as Trustee or any security holder of Texas Pacific or any member
of the immediate family of the foregoing persons.
(b) Certain business relationships. There are no relationships
existing or have ever existed concerning Trustees or nominees for Trustee that
are required to be disclosed under this paragraph.
(c) Indebtedness of Management. There are no persons indebted to
Texas Pacific in an amount in excess of $60,000.00 that are required to be
disclosed under this paragraph.
(d) Transactions with Promoters. Texas Pacific has not been
organized within the last five years and disclosure under this paragraph is not
applicable to Texas Pacific.
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<PAGE> 15
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORT ON FORM 8-K.
(a) Financial Statements.
1. All schedules have been omitted because the required
information is contained in the financial statements or
related notes, or is not applicable or immaterial.
2. Exhibits required by Item 7 Regulation S-K
a. Annual Report to Security Holders
b. Copy of Trust Indenture
c. Exhibit No. 27 Financial Data Schedule
(b) No reports on Form 8-K have been filed for the last quarter of the
period covered by this report.
(c) See (a)(2) above.
(d) See (a)(1) above.
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<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant) TEXAS PACIFIC LAND TRUST
By:
------------------------------
George C. Fraser III
Chief Executive Officer
Date:
------------------------------
By:
------------------------------
ROY THOMAS
Chief Financial and Chief
Accounting Officer
Date:
------------------------------
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<PAGE> 17
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By:
------------------------------
George C. Fraser III, Trustee
Date:
------------------------------
By:
------------------------------
Joe R. Clark, Trustee
Date:
------------------------------
By:
------------------------------
Maurice Meyer III, Trustee
Date:
------------------------------
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<PAGE> 18
TEXAS PACIFIC LAND TRUST
Index to Financial Statements
Independent Auditors' Report
Balance Sheets - December 31, 1996 and 1995
Statements of Income - Years ended December 31, 1996, 1995 and 1994
Statements of Net Proceeds from All Sources - Years ended December 31, 1996,
1995 and 1994
Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
Schedules - All schedules have been omitted because the required information is
contained in the financial statements or related notes, or is not
applicable.
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
The Trustees and Certificate Holders
Texas Pacific Land Trust:
We have audited the financial statements of Texas Pacific Land Trust as listed
in the accompanying index. These financial statements are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Texas Pacific Land Trust as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
January 31, 1997
<PAGE> 20
TEXAS PACIFIC LAND TRUST
Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
----------- -----------
<S> <C> <C>
Cash $ 144,898 $ 72,985
Temporary cash investments - at cost which approximates market 1,650,000 2,950,000
Notes receivable for land sales ($540,744 due in 1997 and
$749,740 due in 1996) (note 1) 5,067,778 3,509,008
Other assets 684,989 471,429
Real estate acquired through foreclosure (note 3) 6,034,969 6,844,336
Water wells, leasehold improvements, furniture and equipment -
at cost less accumulated depreciation 127,600 54,046
Property, no value assigned (note 1):
Land (surface rights) situated in twenty-one counties in Texas -
1,075,685.03 acres in 1996 and 1,078,934.61 acres in 1995 -- --
Town lots in Iatan, Loraine, and Morita, Texas - 628 lots -- --
1/16 nonparticipating perpetual royalty interest in
386,987.70 acres -- --
1/128 nonparticipating perpetual royalty interest in
85,413.60 acres -- --
----------- -----------
$13,710,234 $13,901,804
=========== ===========
Liabilities and Capital
Accounts payable and other liabilities $ 70,034 $ 55,046
Federal income taxes 99,824 240,412
Other taxes 26,338 17,401
Deferred taxes (note 5) 3,388,382 3,294,317
----------- -----------
Total liabilities 3,584,578 3,607,176
----------- -----------
Capital (notes 1 and 6):
Certificates of Proprietary Interest, par value $100 each;
outstanding 1 certificate -- --
Sub-share Certificates in Certificates of Proprietary Interest,
par value $.16-2/3 each; outstanding 2,848,105 Sub-shares
in 1996 and 2,962,405 Sub-shares in 1995 -- --
Net proceeds from all sources 10,125,656 10,294,628
----------- -----------
Total capital 10,125,656 10,294,628
----------- -----------
$13,710,234 $13,901,804
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 21
TEXAS PACIFIC LAND TRUST
Statements of Income
Years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Income
Oil and gas royalties $ 3,416,574 $ 2,508,663 $ 2,064,324
Grazing lease rentals 535,250 531,927 538,106
Land sales (note 7) 3,164,000 2,057,764 5,230,430
Interest 486,318 609,895 571,257
Easements and sundry income 978,945 732,036 698,716
----------- ----------- -----------
8,581,087 6,440,285 9,102,833
----------- ----------- -----------
Expenses:
Taxes, other than federal taxes on income 588,369 558,697 510,635
Salaries 446,637 413,800 508,200
General expense, supplies and travel 430,583 455,972 475,427
Basis in real estate sold 809,367 -- 34,886
Legal and professional fees 103,870 192,218 125,420
Commissions to local agents 39,975 30,233 100,424
Depreciation 15,726 11,314 9,847
Trustees' compensation 8,000 8,000 8,000
Other -- 18,333 20,000
----------- ----------- -----------
2,442,527 1,688,567 1,792,839
----------- ----------- -----------
Income before provision for
federal taxes on income 6,138,560 4,751,718 7,309,994
----------- ----------- -----------
Provision (benefit) for federal taxes on income
(note 5):
Current 1,780,222 1,894,946 1,611,105
Deferred 94,065 (472,129) 725,220
----------- ----------- -----------
1,874,287 1,422,817 2,336,325
----------- ----------- -----------
Net income $ 4,264,273 $ 3,328,901 $ 4,973,669
=========== =========== ===========
Net income per Sub-share Certificate $ 1.46 $ 1.09 $ 1.58
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 22
TEXAS PACIFIC LAND TRUST
Statements of Net Proceeds from All Sources
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $10,294,628 $10,869,181 $ 9,237,084
Add net income for year 4,264,273 3,328,901 4,973,669
----------- ----------- -----------
14,558,901 14,198,082 14,210,753
----------- ----------- -----------
Deduct:
Cost of Sub-share Certificates in Certificates
of Proprietary Interest purchased and
cancelled - 114,300 Sub-shares in 1996,
112,900 Sub-shares in 1995 and 103,900
Sub-shares in 1994 3,254,443 2,680,652 2,074,290
Dividends paid - per Certificate of
Proprietary Interest - $240.00 in 1996,
1995 and 1994; per Sub-share
Certificate - $.40 in 1996, 1995 and 1994 1,178,802 1,222,802 1,267,282
----------- ----------- -----------
4,433,245 3,903,454 3,341,572
----------- ----------- -----------
Balance at end of year $10,125,656 $10,294,628 $10,869,181
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 23
TEXAS PACIFIC LAND TRUST
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,264,273 $ 3,328,901 $ 4,973,669
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 15,726 11,314 9,847
Deferred taxes 94,065 (472,129) 725,220
Change in assets and liabilities:
Notes receivable (1,558,770) 1,838,939 (524,704)
Real estate acquired through foreclosure 809,367 -- (938,227)
Other assets (213,560) 29,473 (15,810)
Accounts payable and other liabilities 14,988 (49,529) (66,929)
Taxes payable (131,651) 26,021 172,056
Deferred revenue on land sales -- -- (745,738)
----------- ----------- -----------
Net cash provided by operating activities 3,294,438 4,712,990 3,589,384
----------- ----------- -----------
Cash flows from investing activities:
Additions to leasehold improvements, furniture
and equipment (108,653) (19,394) (11,976)
Retirements of leasehold improvements, furniture
and equipment 19,373 -- --
----------- ----------- -----------
Net cash used in investing activities (89,280) (19,394) (11,976)
----------- ----------- -----------
Cash flows from financing activities:
Purchase of Sub-share Certificates in
Certificates of Proprietary Interest (3,254,443) (2,680,652) (2,074,290)
Dividends (1,178,802) (1,222,802) (1,267,282)
----------- ----------- -----------
Net cash used in financing activities (4,433,245) (3,903,454) (3,341,572)
----------- ----------- -----------
Net increase (decrease) in cash and temporary
cash investments (1,228,087) 790,142 235,836
Cash and temporary cash investments
at beginning of year 3,022,985 2,232,843 1,997,007
----------- ----------- -----------
Cash and temporary cash investments at end of year $ 1,794,898 $ 3,022,985 $ 2,232,843
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 24
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
(a) General
The fair market value of the Texas Pacific Land Trust's (Trust)
land and royalty interests was not determined in 1888 when the
Trust was formed; therefore, no value is assigned to the land,
town lots, royalty interests, Certificates of Proprietary
Interest and Sub-share Certificates in Certificates of
Proprietary Interest in the accompanying balance sheets.
Consequently, in the statements of income, no allowance is made
for depletion and no cost is deducted from the proceeds of
original land sales. Even though the 1888 value of the real
properties cannot be precisely determined, the Trustees have
concluded that the effect of this matter can no longer be
significant to the Trust's financial position or results of
operations. For Federal income tax purposes, however, deductions
are made for depletion, computed on the statutory percentage
basis of income received from royalties.
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
(b) Revenue Recognition and Notes Receivable
The Trust generally receives cash payments on land sales of 25%
or more within the first year of such sales. Thereafter, annual
principal and interest payments are required by the Trust.
Accordingly, income is recognized on land sales during the
periods in which such sales are closed and sufficient amounts of
cash down payments are received. For Federal income tax purposes
such sales are recognized on the installment method. The
installment method is also used for sales not meeting the minimum
down payment requirements in Statement of Financial Accounting
Standards No. 66.
Notes receivable related to land sales bear interest rates
ranging from 9% to 11% and are secured by first lien deeds of
trust on the properties sold. The annual installments on notes
are generally payable over terms of 3 to 15 years. There is no
penalty for prepayment of principal, and prepayments in 1996,
1995 and 1994 were $146,230, $1,638,911 and $959,053,
respectively. The interest rates on notes receivable are
considered comparable with current rates on similar land sales
and, accordingly, the carrying value of such notes receivable
approximates fair value. There was no allowance for uncollectible
accounts at December 31, 1996 and 1995. One customer represented
approximately 16% and 14% and another represented approximately
14% and 10% of the Trust's notes receivable balance at December
31, 1996 and 1995, respectively.
(continued)
<PAGE> 25
2
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
Effective January 1, 1995, the Trust concurrently adopted
Statement of Financial Accounting Standards (SFAS) No. 114,
"Accounting by Creditors for Impairment of a Loan," and SFAS No.
118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures." SFAS No. 114 requires that impaired
loans be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or
the market price or fair value of the collateral if the loan is
collateral dependent. SFAS No. 118 amends SFAS No. 114 to allow a
creditor to use existing methods for recognizing interest income
on an impaired loan and amends certain disclosure requirements.
The adoption of SFAS No. 114 and No. 118 had no effect on the
Trust's financial statements.
(c) Net Income per Sub-share
The cost of Sub-share Certificates purchased and retired is
charged to net proceeds from all sources. Net income per
Sub-share Certificate is based on the weighted average number of
Sub-share Certificates in Certificates of Proprietary Interest
and equivalent Sub-share Certificates of Proprietary Interest
outstanding during each period (2,913,913 in 1996, 3,038,847 in
1995 and 3,149,609 in 1994).
(d) Cash Flows
Temporary cash investments at December 31, 1996 and 1995 consist
primarily of commercial paper. For purposes of the statements of
cash flows, the Trust considers all highly liquid debt
instruments with original maturities of three months or less to
be temporary cash investments. Cash disbursed for income taxes in
1996, 1995 and 1994 was $1,920,810, $1,873,242 and $1,438,373,
respectively.
(e) Depreciation
Provision for depreciation of depreciable assets is made by
charges to income at straight-line and accelerated rates
considered to be adequate to amortize the cost of such assets
over their useful lives.
(f) Income Taxes
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(continued)
<PAGE> 26
3
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
(2) Segment Information
The Trust's only significant activity is managing the land which was
conveyed to the Trust in 1888 and includes sales and leases of such
land, and the retention of oil and gas royalties.
(3) Real Estate Acquired through Foreclosure
Real estate acquired through foreclosure is carried at the lower of
cost or fair value less disposition costs at the date of foreclosure.
Cost is considered to be the aggregate of the outstanding principal
balance, accrued interest, past due ad valorem taxes and other fees
incurred relating to the foreclosure. Valuations are periodically
performed or obtained by management, and any further losses are
recorded by a charge to operations and a valuation allowance (none at
December 31, 1996 and 1995) if the carrying value of the property
exceeds its estimated fair value.
Real estate acquired through foreclosure included the following
activity for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------
Acres Book value Acres Book value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at January 1 28,140.75 $6,844,336 28,140.75 $6,844,336
Sales 310.56 809,367 -- --
---------- ---------- ---------- ----------
Balance at December 31 27,830.19 $6,034,969 28,140.75 $6,844,336
========== ========== ========== ==========
</TABLE>
(4) Retirement Plan
The Trust has a noncontributory pension plan (Plan) available to all
regular employees having one or more years of continuous service. The
Plan provides for normal retirement at age 65. Contributions to the
Plan reflect benefits attributed to employees' services to date, as
well as services expected in the future. Plan assets consist primarily
of investments in NationsBank of Texas, N.A. common trust funds.
Net pension cost (income) for the years ended December 31, 1996, 1995
and 1994 includes the following components:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost of the current period $ 36,641 $ 30,305 $ 39,487
Interest cost on projected benefit obligation 87,167 79,734 78,056
Actual return on assets (100,524) (88,963) (116,090)
Net amortization and deferral (18,238) (16,273) (18,238)
--------- --------- ---------
Net periodic pension cost (income) $ 5,046 $ 4,803 $ (16,785)
========= ========= =========
</TABLE>
(continued)
<PAGE> 27
4
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
The following is a reconciliation of the funding status of the Plan
for 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ 998,181 $ 943,268
Nonvested benefits 14,422 15,822
----------- -----------
Accumulated benefit obligation $ 1,012,603 $ 959,090
=========== ===========
Projected benefit obligation for services rendered to date (1,214,013) (1,114,906)
Plan assets at fair value 1,487,842 1,322,678
----------- -----------
Plan assets in excess of projected benefit obligation 273,829 207,772
Unrecognized net loss 73,926 163,024
Unrecognized net asset at transition (162,519) (185,737)
Unrecognized prior service cost 43,569 48,549
----------- -----------
Prepaid pension cost $ 228,805 $ 233,608
=========== ===========
</TABLE>
The actuarial present value of vested and nonvested accrued benefits
is based on an assumed discount rate of 7.5% in 1996 and 1995, and a
weighted-average expected long-term rate of return on Plan assets of
7.0%. The projected benefit obligations were calculated assuming
annual rates of salary increases ranging from 5.3% to 11.0% depending
upon the employee's age category.
(5) Federal Taxes on Income
The Trust is taxed as if it were a corporation. Total income tax
expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34% to pretax income from operations as a
result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Computed tax expense at the statutory rate $ 2,087,110 $ 1,615,584 $ 2,485,398
Reduction in income taxes resulting from:
Statutory depletion (203,688) (149,394) (128,005)
Other, net (9,135) (43,373) (21,068)
----------- ----------- -----------
$ 1,874,287 $ 1,422,817 $ 2,336,325
=========== =========== ===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities at December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Basis differences in real estate acquired
through foreclosure $1,775,826 $2,030,847
Deferred installment revenue on land sales
for tax purposes 1,612,556 1,263,470
---------- ----------
Total deferred tax liability $3,388,382 $3,294,317
========== ==========
</TABLE>
(continued)
<PAGE> 28
5
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
(6) Capital
Certificates of Proprietary Interest (Certificates) and Sub-share
Certificates in Certificates of Proprietary Interest (Sub-shares) are
exchangeable in the ratio of one Certificate to 600 Sub-shares.
No Certificates were exchanged for Sub-shares in 1996, 1995 or 1994.
The number of Certificates authorized for issuance at a given date is
the number then outstanding plus one/six-hundredth of the number of
Sub-shares then outstanding. The number of Sub-shares authorized for
issuance at a given date is the number then outstanding plus six
hundred times the number of Certificates then outstanding.
The Declaration of Trust was executed and delivered in New York. In
the opinion of counsel for the Trust, under the laws of the State of
New York the Certificate and Sub-share Certificate holders are not
subject to any personal liability for the acts or obligations of the
Trust.
The assets of the Trust are located in Texas. In the opinion of Texas
counsel, under the laws of the State of Texas, the Certificate and
Sub-share Certificate holders may be held personally liable with
respect to claims against the Trust, but only after the assets of the
Trust first have been exhausted.
(7) Deferred Revenue on Land Sales
In 1991, the Trust sold 362.15 acres of land for total consideration
of $1,035,749. The Trust received $129,470 in cash and an 11%, 15-year
note receivable for the remainder. This transaction was accounted for
under the installment method of accounting; accordingly, a portion of
the profit was deferred and recognized ratably into income as the note
amortized. During 1994, the balance of the note was collected and the
remaining deferred revenue of $745,738 was recognized.
(8) Oil and Gas Producing Activities (Unaudited)
The Trust's share of oil and gas produced, all of which is from
royalty interests, was as follows for the years ended December 31,
1996, 1995 and 1994, respectively: oil (in barrels) - 120,432, 107,203
and 97,066; and gas (in thousands of cubic feet) - 444,353, 504,177
and 362,827. Reserves related to the Trust's royalty interests are not
presented because the information is unavailable.
(continued)
<PAGE> 29
6
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
(9) Selected Quarterly Financial Data (Unaudited)
The following tables present unaudited financial data of the Trust for
each quarter of 1996 and 1995:
<TABLE>
<CAPTION>
Quarter ended
-----------------------------------------------------
December 31, September 30, June 30, March 31,
1996 1996 1996 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income $ 2,648,126 $ 1,780,079 $ 2,744,099 $ 1,408,783
=========== =========== =========== ===========
Income before provision
for federal taxes on
income $ 2,264,099 $ 1,383,602 $ 1,533,361 $ 957,498
=========== =========== =========== ===========
Net income $ 1,555,320 $ 969,489 $ 1,058,680 $ 680,784
=========== =========== =========== ===========
Net income per
Sub-share Certificate $ .54 $ .33 $ .36 $ .23
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Quarter ended
-----------------------------------------------------
December 31, September 30, June 30, March 31,
1995 1995 1995 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income $ 1,509,210 $ 1,073,625 $ 2,181,662 $ 1,675,788
=========== =========== =========== ===========
Income before provision
for federal taxes on
income $ 1,122,450 $ 694,766 $ 1,725,774 $ 1,208,728
=========== =========== =========== ===========
Net income $ 784,401 $ 492,057 $ 1,200,935 $ 851,508
=========== =========== =========== ===========
Net income per
Sub-share Certificate $ .26 $ .16 $ .39 $ .28
=========== =========== =========== ===========
</TABLE>
<PAGE> 30
INDEX TO EXHIBITS
Exhibit
No. Item
------ ----
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,794,898
<SECURITIES> 0
<RECEIVABLES> 5,707,027
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,479,887
<PP&E> 6,034,969
<DEPRECIATION> 15,726
<TOTAL-ASSETS> 13,710,234
<CURRENT-LIABILITIES> 196,196
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,710,234
<SALES> 0
<TOTAL-REVENUES> 8,581,087
<CGS> 0
<TOTAL-COSTS> 2,442,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,138,560
<INCOME-TAX> 1,874,287
<INCOME-CONTINUING> 4,264,273
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,264,273
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 0
</TABLE>
