<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
-----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------- -------------------------
Commission file number 1-737
-------------------------------------------------------
TEXAS PACIFIC LAND TRUST
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NOT APPLICABLE 75-0279735
- ------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
80 Broad Street, Suite 2700, New York, New York 10004
- ------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
212/269-2266
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
<PAGE> 2
Part I
FINANCIAL INFORMATION
TEXAS PACIFIC LAND TRUST
BALANCE SHEETS
SEPTEMBER 30, 1998 and DECEMBER 31, 1997
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Cash $ 303,695 $ 112,591
Temporary cash investments, at cost which approximates market 1,050,000 1,800,000
Accounts receivable 386,971 386,781
Accrued interest receivable 380,997 411,674
Prepaid expenses 4,550 45,500
Federal income taxes receivable 196,093 --
Notes receivable for land sales 9,987,211 9,307,218
Real estate acquired through foreclosure:
(26,510.63 acres at September 30, 1998 and 27,585.95 acres at
December 31, 1997) 4,424,445 4,466,895
Water wells, leasehold improvements, furniture and
equipment - at cost less accumulated depreciation 95,167 142,630
Property, no value assigned:
Land (surface rights) situated in twenty-one counties in
Texas - 1,039,604.95 acres in 1998 and 1,065,481.33 acres in 1997. -- --
Town lots in Iatan, Loraine and Morita - 628 lots in 1998 and 1997. -- --
1/16 nonparticipating perpetual royalty interest in 386,987.70 acres
in 1998 and 1997. -- --
1/128 nonparticipating perpetual royalty interest in 85,413.60 acres
in 1998 and 1997. -- --
----------- -----------
$16,829,129 $16,673,289
=========== ===========
LIABILITIES AND CAPITAL
Federal income taxes payable $ -- 42,783
Other taxes payable 242,630 24,372
Other liabilities 12,617 93,072
Escrow deposits on land sales 8,500 --
Deferred taxes 4,493,819 4,291,856
Total liabilities --------- ---------
4,757,566 4,452,083
Capital
Certificates of Proprietary Interest, par value $100
each; outstanding one certificate in 1998 and 1997 -- --
Sub-share Certificates in Certificates of Proprietary Interest, par value
$.16 2/3 each; outstanding 2,685,505 sub-shares in 1998 and
2,753,205 sub-shares in 1997 -- --
Net proceeds from all sources 12,071,563 12,221,206
Total capital ----------- -----------
12,071,563 12,221,206
----------- -----------
$16,829,129 $16,673,289
=========== ===========
</TABLE>
See accompanying notes to financial statements.
(1)
<PAGE> 3
TEXAS PACIFIC LAND TRUST
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income:
Rentals, royalties and sundry income $ 919,344 $ 1,419,762 $ 3,618,405 $ 3,851,289
Land sales 240,400 2,439,678 2,411,227 6,972,000
Interest 249,211 209,410 750,765 559,126
----------- ----------- ----------- -----------
1,408,955 4,068,850 6,780,397 11,382,415
----------- ----------- ----------- -----------
Expenses:
Taxes, other than Federal income taxes 115,042 133,822 360,982 424,157
General and administrative expenses 271,873 251,311 913,986 899,748
Basis in real estate sold 42,450 -- 42,450 1,568,074
----------- ----------- ----------- -----------
429,365 385,133 1,317,418 2,891,979
----------- ----------- ----------- -----------
Income before provision for
Federal income taxes 979,590 3,683,717 5,462,979 8,490,436
Provision for Federal income taxes 296,312 1,201,241 1,692,213 2,717,818
----------- ----------- ----------- -----------
Net income $ 683,278 $ 2,482,476 $ 3,770,766 $ 5,772,618
=========== =========== =========== ===========
Average number of sub-share certificates
and equivalent sub-share certificates
outstanding 2,703,188 2,792,472 2,729,749 2,818,650
=========== =========== =========== ===========
Basic earnings per sub-share certificate $ .25 $ .89 $ 1.38 $ 2.05
=========== =========== =========== ===========
Cash dividend per sub-share certificate -- -- $ .40 $ .40
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
(2)
<PAGE> 4
TEXAS PACIFIC LAND TRUST
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,770,766 $ 5,772,618
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 85,500 30,150
Deferred taxes 201,963 898,392
(Increase) decrease in assets:
Accounts receivable (190) (2,713)
New notes receivable from land sales (1,623,650) (4,797,816)
Payments received on notes receivable 943,657 565,607
Accrued interest receivable 30,677 (149,037)
Federal income taxes receivable (196,093) --
Prepaid expenses 40,950 41,166
Real estate acquired through foreclosure 42,450 1,568,074
Increase (decrease) in liabilities:
Federal income taxes (42,783) 51,483
Other taxes payable 218,258 255,185
Escrow deposits on land sales 8,500 (50,000)
Other liabilities (80,455) 76,314
----------- -----------
Total adjustments (371,216) (1,513,195)
----------- -----------
Net cash provided by operating activities 3,399,550 4,259,423
----------- -----------
Cash flows from investing activities-
Additions to water wells, leasehold improvements,
furniture and equipment (38,037) (55,138)
----------- -----------
Cash flows from financing activities:
Sub-shares purchased for retirement (2,817,607) (2,577,068)
Dividends paid (1,102,802) (1,134,882)
----------- -----------
Net cash used by financing activities (3,920,409) (3,711,950)
Net (decrease) increase in cash and cash equivalents (558,896) 492,335
Cash and cash equivalents at beginning
of period 1,912,591 1,794,898
----------- -----------
Cash and cash equivalents at end
of period $ 1,353,695 $ 2,287,233
=========== ===========
</TABLE>
See accompanying notes to financial statements.
(3)
<PAGE> 5
TEXAS PACIFIC LAND TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(1) In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of Texas
Pacific Land Trust (Trust) as of September 30, 1998 and the results of
its operations and its cash flows for the three and nine months ended
September 30, 1998 and September 30, 1997, respectively. These
financial statements and footnotes included herein should be read in
conjunction with the Trust's annual financial statements as of December
31, 1997 and 1996 and for each of the years in the three year period
ended December 31, 1997 included in the Trust's Form 10-K.
(2) No value is assigned to the land, unless acquired through foreclosure;
consequently, no allowance for depletion is computed, and no charge to
income is made therefor, and no cost is deducted from the proceeds of
the land sales in computing gain or loss thereon.
(3) The Sub-shares and the Certificates of Proprietary Interest are freely
interchangeable in the ratio of one Certificate of Proprietary Interest
for 600 Sub-shares or 600 Sub-shares for one Certificate of Proprietary
Interest.
(4) The Trust's effective Federal income tax rate is less than the 34%
statutory rate because taxable income is reduced by statutory
percentage depletion allowed on mineral royalty income.
(5) The results of operations for the nine months ended September 30, 1998
are not necessarily indicative of the results to be expected for the
full year.
(6) Cash in excess of daily requirements is invested in money market
instruments with maturities of ninety days or less. Such investments
are deemed to be cash equivalents for purposes of the statements of
cash flows.
Supplemental cash flow information for the nine months ended September
30, 1998 and 1997 is summarized as follows:
1998 1997
---- ----
Federal income taxes paid $1,729,126 $1,767,943
========== ==========
There were no non-cash investing and financing activities during the
nine months ended September 30, 1998 and 1997.
(4)
<PAGE> 6
Management's Discussion and
Analysis of Financial Condition and
Results of Operations for the
Nine and Three Months Ended
September 30, 1998 and 1997
Results of Operations for Quarter Ended September 30, 1998 Compared to Quarter
Ended September 30, 1997
Earnings per sub-share certificate for the third quarter of 1998 were $.25
compared to $.89 in the third quarter of 1997. Total revenues were $1,408,955
compared to $4,068,850, a decrease of 65.4%.
In the third quarter of 1998, land sales totaled $240,400 which was 1,521.27
acres at an average price of $158 per acre. In the comparable period of 1997,
2,940.93 acres were sold for $2,439,678, an average price of $830 per acre.
Land sales may vary widely from year to year and quarter to quarter. The total
dollar amount, the average price per acre, and the number of acres sold in any
one year or quarter should not be assumed to be indicative of land sales in
the future. The Trust is a passive seller of land; it does not actively
solicit sales of land. The demand for and the sales price of any particular
tract of the Trust's land is influenced by many factors including the national
and local economies, the rate of residential and commercial development in
nearby areas, livestock carrying capacity, and the conditions of the local
agricultural industry which itself is influenced by range conditions and prices
for livestock and other agricultural products. Approximately 99% of the
Trust's land is classified as ranch land and intermingled with other ownerships
to form ranching units. Ranch land sales are, therefore, largely dependent on
the actions of the adjoining landowners.
Rentals, royalties and sundry income were $919,344 for the third quarter of
1998, compared to $1,419,762 for the third quarter of 1997, a decrease of
35.2%.
Oil and gas royalty revenue was $599,585 for the third quarter of 1998,
compared to $764,948 for the third quarter of 1997, down 21.6%. Oil royalty
revenue was $374,670, down 32.1% from the third quarter of 1997. Crude oil
production subject to the Trust's royalty interest was up 1.9% in the third
quarter of 1998, and the average price per barrel was down 33.4%. Gas royalty
revenue for the third quarter was $224,915, up 5.7% on a volume increase of
4.8%, and price increase of just under 1%.
Easement and Sundry income was $191,076 for the third quarter of 1998 down
63.3% from the third quarter of 1997. These categories of income are not
predictable and commonly have large swings in any given period.
Interest revenue was up 19.0% for the third quarter compared to the third
quarter of 1997. Interest from notes receivable was $229,122 up 25.6% for the
1998 period due to increase note receivable balances over prior year. Notes
receivable for land sold were $9,987,211 as of September 30, 1998, an increase
of 7.4% over the third quarter of 1997. Sundry interest was $20,089 for the
third quarter of 1998 which was down 25.5% compared to the third quarter of
1997.
Taxes, other than Federal income taxes were down 14.0% for the third quarter of
1998 compared to the third quarter of 1997 due to the decrease in land
inventory and decrease in royalty income.
General and administrative expenses were up 8.2% for the third quarter of 1998
over the third quarter of 1997.
(5)
<PAGE> 7
Management's Discussion (cont'd)
Results of Operations for Nine-Months Ended September 30, 1998 Compared to Nine-
Months Ended September 30, 1997
Earnings per sub-share for the first nine-months of 1998 were $1.38 compared to
$2.05 for the first nine-months of 1997. Total revenues were $6,780,397
compared to $11,382,415, a decrease of 40.4%.
The first nine-months of 1998 had total land sales of 26,745.61 acres for
$2,411,227, an average of $90 per acre, compared to 9,662.02 acres for
$6,972,000, an average of $722 per acre in 1997.
Rentals, royalties and sundry income were $3,618,405 for the first nine-months
compared to $3,851,289 for the first nine-months of 1997, a decrease of 6.0%.
Oil and gas royalty revenue for the first nine-months was $2,040,201 compared
to $2,633,054 for the first nine-months of 1997, down 22.5%. Oil royalty
revenue was $1,332,298, down 28.6% for the 1998 period. Crude oil production
subject to the Trust's royalty interest was up 5.3% in the first nine-months of
1998, and the average price per barrel was down 32.2%. Gas royalty revenue was
$707,903 in the first nine-months of 1998, down 7.7% on a volume increase of
4.5%, and price decrease of 11.5%.
Easement and Sundry income was $1,165,765 for the first nine-months of 1998, up
44.5% over the first nine-months of 1997. These categories of income are not
predictable, and may have large increases or decreases in any given period or
year.
Interest revenue was up 34.3% for the first nine-months of 1998 compared to the
first nine-months of 1997 due to increased average notes receivable balances.
Interest from notes receivable amounted to $671,278 up 40.7% for the 1998
period. Sundry interest was $79,487, down 3.1% for the first nine-months of 1998
from the first nine months of 1997.
Taxes, other than Federal income taxes were down 14.9% for the first
nine-months of 1998 from the first nine-months of 1997 due to the decrease in
land inventory and decrease in royalty income.
General and administrative expenses were up 1.6% for the first nine-months of
1998 over the first nine-months of 1997.
Liquidity and Capital Resources
The Trust's oil and gas royalty revenues, lease rentals and receipts of
interest and principal on notes receivable has generated more than adequate
amounts of cash to meet the Trust's needs and should continue to do so in the
predictable future.
New Accounting Pronouncement
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS 131 establishes standards for
reporting information about operating segments in interim and annual financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Although the
implementation of SFAS 131 is not expected to have a significant impact on the
Trust's financial statements, the disclosures required by SFAS 131 will be
reflected in the Trust's 1998 annual financial statements.
(6)
<PAGE> 8
MANAGEMENT'S DISCUSSION (CONT'D)
YEAR 2000 ISSUE
The Trust recognized that the arrival of the Year 2000 poses a unique
challenge to the ability of an entity's information technology system and
non-information technology systems to recognize the date change from December
31, 1999 to January 1, 2000. The Trust is continuing to assess and has made
certain changes to provide for continued functionality of its systems. An
assessment of the readiness of the Trust's external entities, such as vendors,
customers, payment systems and others is ongoing. Due to the nature and extent
of the Trust's operations that are effected by Year 2000 issues, the Trust does
not believe that Year 2000 issues will have a material adverse effect on the
business operation or the financial performance of the Trust. There can be no
assurance, however, that Year 2000 issues will not adversely effect the Trust or
its business. The Trust believes that the cost to make appropriate changes to
its internal and external systems will not be significant and that such costs
will be funded completely through operations.
Words or phrases when used in this Form 10-Q or other filings with the
Securities and Exchange Commission, such as "does not believe" and
"believes", or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995.
(7)
<PAGE> 9
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. Interim report furnished to shareholders upon request
per sub-part Item 601 (19) Regulation S-K.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K. The registrant has filed no reports on Form
8-K during the quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
TEXAS PACIFIC LAND TRUST
-------------------------
(Registrant)
Date November 13, 1998 By /s/ ROY THOMAS
------------------- -----------------------------------
Roy Thomas, General Agent,
Authorized Signatory and Principal
Financial Officer
(8)
<PAGE> 10
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,353,695
<SECURITIES> 0
<RECEIVABLES> 10,755,179
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,322,306
<PP&E> 4,519,612
<DEPRECIATION> 85,500
<TOTAL-ASSETS> 16,829,129
<CURRENT-LIABILITIES> 263,747
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,829,129
<SALES> 0
<TOTAL-REVENUES> 6,780,397
<CGS> 0
<TOTAL-COSTS> 1,317,418
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,462,979
<INCOME-TAX> 1,692,213
<INCOME-CONTINUING> 3,770,766
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,770,766
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.38
</TABLE>
