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CKX LANDS, INC. - Annual Report: 2009 (Form 10-K)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K

þ
 
Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2009

o
 
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 1-31905
CKX Lands, Inc.
(Exact name of registrant as specified in its Charter)

Louisiana
(State or other jurisdiction of
incorporation or organization)
 
72-0144530
(I.R.S. Employer Identification Number)

700 Pujo Street
Lake Charles, LA
(Address of principal executive offices)
 
70601
(Zip Code)
 
Registrant’s telephone number, including area code: (337) 493-2399
 
Securities registered pursuant to Section 12(b) of the Act:

Common Stock with no par value
 
NYSE Amex
Title of each class
 
Name of each exchange on which registered

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 þ      NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§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. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
o
Accelerated filer
o  
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
YES o      NO þ

The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant as of June 30, 2009 was $19,938,533 based on the last reported sales price of the Common Stock on June 30, 2009 on the NYSE Amex.

The number of shares of the registrant’s Common Stock outstanding as of March 18, 2010, was 1,942,495.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the Registrant’s definitive Proxy Statement prepared in connection with the 2010 Annual Meeting of Stockholders are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Annual Report on Form 10-K.
 
Transitional Small Business Disclosure Format                Yes ¨    No þ

 
 

 

PART I
 
Item 1.
BUSINESS
 
General Description
 
CKX Lands, Inc. is a Louisiana corporation organized in 1930 as Calcasieu Real Estate & Oil Co., Inc., to receive non-producing mineral royalties spun off by a Southwest Louisiana bank.  Over the years, as some of the royalties yielded oil and gas income, the Company used the proceeds to purchase land.  On May 17, 2005, the Company changed its name from Calcasieu Real Estate & Oil Co., Inc. to CKX Lands, Inc.  The primary reason for the change was to help make clear that the Company is not directly involved in oil and gas exploration or operations.  As used herein, the “Company” or “CKX” refers to CKX Lands, Inc.
 
The Company’s shares are listed on the NYSE Amex (previously known as American Stock Exchange), under the symbol CKX.  As of March 18, 2010, there were 1,942,495 shares outstanding.  The Company had a common equity public float of less than $75 million as of the last business day of the second fiscal quarter.   Consequently, the Company is a small reporting company under the Securities Exchange Commission regulations.
 
As a reporting company, CKX is subject to the informational requirements of the Securities Exchange Act of 1934 (the “Exchange Act”) and accordingly files its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information with the Securities and Exchange Commission (the “SEC”).  The public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, DC 20549.  Please call the SEC at (800) SEC-0330 for further information on the Public Reference Room.  As an electronic filer, CKX’s public filings are maintained on the SEC’s Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
 
The Company owns land and mineral interests, all of which are located in Southwest Louisiana.  The Company collects income from this land in the form of oil and gas royalties, agriculture rentals and timber sales.  The Company is not involved in the exploration or production of oil and gas nor does it actively farm its lands.  These activities are performed by others for royalties or rentals.  Parts of the Company’s land are owned in indivision with other owners.  The Company’s ownership share in most of this acreage is one-sixth.  For convenience the owners jointly operate an entity known as Walker Louisiana Properties (“WLP”) to manage this acreage.  Neither the Company nor Walker Louisiana Properties consider themselves to be in oil and gas producing activities inasmuch as:  (1) they do not search for crude oil or natural gas in their natural states; (2) they do not acquire property for the purpose of exploration or the removing of oil and gas; and (3) they are not involved in construction, drilling and/or production activities necessary to retrieve oil and gas.
 
Oil and gas royalties are paid by the operators who own the wells.  Timber income is paid by the highest bidder of the timber.  There are several mills in the immediate area that compete for timber.  All of the agriculture income comes from tenants who pay annual cash rents.  The prices paid for oil, gas and timber depend on national and international market conditions.  Oil and gas revenues were 89.5% of the Company’s total revenues in 2009 and 95.8% in 2008.
 
The source of all raw materials for the Company is the land itself.  Timber income and agriculture income are renewable resources.  All oil and gas income will eventually deplete, but we have no access to this data.
 
The Company does not spend any money on Research and Development.
 
The Company does not need government approval of its principal products or services except that the State of Louisiana must approve the size & location of all oil and gas producing units.
 
Employees
 
The Company has four employees, all of whom are part-time.  There are three officers, and one clerical person.  The Company is subject to no union contracts nor does the Company have any hospitalization, pension,
 
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profit sharing, option or deferred compensation programs.  WLP has five full-time employees, and two of these employees are part-time employees of the Company.  One employee of WLP is devoted full-time to agriculture, and one employee of WLP is devoted full-time to timber.
 
Customers
 
The Company’s customers are those who have mineral leases on the Company’s property or purchase the timber in competitive bids or execute farming leases.  The largest customers are the oil and gas operators under the mineral leases.  During 2009, the Company received approximately 30.7% of its total revenues from Swift Energy, 12.3% from Riceland Petroleum, 7.8% from Cox and Perkins, and 6.1% from Kaiser-Francis Oil.  Termination of cash receipts from any of these customers or underlying production would have a material adverse effect on the Company.
 
Environmental and Other Governmental Regulations
 
The operators of the wells are responsible for complying with environmental and other governmental regulations.  However, should an operator abandon a well located on Company land without following prescribed procedure, the land owners could possibly be held responsible.  The Company does not believe this would have a material effect on its financial condition.
 
Item 2.
PROPERTIES
 
The Company owns a total of 10,941 net acres in the Louisiana Parishes of Allen, Beauregard, Calcasieu, Cameron, Jefferson Davis, LaFourche, Sabine, St. Landry and Vermilion.  Most of the acreage is in Southwest Louisiana.  Much of this land is owned in indivision.  Ownership is as follows:
 
   
2009
     
100%
Ownership
4,152 acres
     
40%
Ownership of 1,620 acres with Walker Louisiana Properties
648 acres
     
50%
Ownership of 440 acres with Prairie Land Company
220 acres
     
16.667%
Ownership of 35,528 acres comprising Walker Louisiana Properties
5,921 acres

Of the total 10,941 net acres owned by CKX, timberland comprises 6,942 acres, 3,014 acres are agricultural land, 740 acres are marsh land and 245 acres are future subdivision land.
 
The table below shows, for the years ended December 31, 2009, and December 31, 2008, the Company’s net gas produced in thousands of cubic feet (MCF), net oil produced in barrels (Bbl), and average sales prices relating to oil and gas attributable to the royalty interests of the Company.
 
   
Year Ended
12/31/09
   
Year Ended
12/31/08
 
Net gas produced (MCF)
    98,489       113,150  
Average gas sales price (per MCF)(1)
  $ 5.06     $ 9.92  
                 
Net oil produced (Bbl)(2)
    15,429       17,114  
Average oil sales price (per Bbl)(1,2)
  $ 58.30     $ 105.20  

Notes to above schedule:
 
(1) Before deduction of production and severance taxes.
(2) Excludes plant products.

 
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Item 3.
LEGAL PROCEEDINGS
 
The Company was not involved in any legal proceedings as of December 31, 2009.
 
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
There were no matters submitted to a vote of security holders during the three months ended December 31, 2009.

PART II
 
Item 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
The Company’s Common Stock is traded on the NYSE Amex (previously known as American Stock Exchange) under the trading symbol CKX since its listing on December 8, 2003.  Prior to the listing there was no established public trading market for the Common Stock, and there had been only limited and sporadic trading in the Common Stock, principally among its shareholders.  On February 12, 2010, there were approximately 550 stockholders of record.  The Company believes that there are approximately 1,000 beneficial owners of its Common Stock.  There were no sales of unregistered securities of the Company and no purchases of equity securities of the Company during 2009 by the Company.  The following table sets forth the high and low sales prices as reported in the Wall Street Journal for the Common Stock by quarter during 2009 and 2008.
 
     
First
Quarter
   
Second
Quarter
   
Third
Quarter
   
Fourth
Quarter
 
                           
Common stock price per share 2009 
high
    $ 13.55       14.99       12.84       12.56  
 
low
  $ 10.95       11.25       11.22       11.25  
                                   
Common stock price per share 2008 
high
  $ 16.50       14.50       13.29       14.05  
 
low
  $ 12.63       12.90       10.58       10.76  

The Company has paid cash dividends since 1990.  The Company is currently paying a quarterly dividend of 7¢ per share and intends to maintain quarterly dividends.  From time to time, the Company may elect to pay an extra dividend.  In determining if an extra dividend will be declared, the Board of Directors will take into consideration the Company’s current liquidity and capital resources and the availability of suitable timberland that has mineral potential.  In 2009, the Company did not pay an extra dividend to shareholders.  In 2008, The Company paid an extra dividend of 50¢ per share to shareholders of record at December 15, 2008.  A summary of cash dividends is set forth in the table below.
 
   
First
Quarter
   
Second
Quarter
   
Third
Quarter
   
Fourth
Quarter
   
Year Total
 
                               
Cash Dividend per Share
                             
2009
  $ 0.07       0.07       0.07       0.07       0.28  
2008
  $ 0.07       0.07       0.07       0.57       0.78  
 
Pursuant to a dividend reversion clause in the Company’s Articles of Incorporation, dividends not claimed within one year after a dividend becomes payable will expire and revert in full ownership to the Company and the Company’s obligation to pay such dividend will cease.  During 2009 and 2008, the Company received $10,070 and none, respectively, in dividend reversions.

 
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Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Overview
 
CKX Lands, Inc. began operations in 1930 under the name Calcasieu Real Estate & Oil Co., Inc.  It was originally organized as a spin-off by a bank operating in Southwest Louisiana.  The purpose of the spin-off was to form an entity to hold non-producing minerals which regulatory authorities required the bank to charge off.  Over the years, as some of the mineral interests began producing, the Company used part of the proceeds to acquire land.  In 1990, the Company made its largest acquisition when it was one of four purchasers who bought American Airline’s fifty percent undivided interest in approximately 35,000 acres in Southwest Louisiana.
 
Today most of the Company’s income is derived from mineral production on the land acquired over the years.  CKX receives income from seismic permits, mineral leases and the landowner’s portion of any oil and gas production.  CKX also receives income from agriculture rents and timber sales.  The Company’s activities are passive in that it doesn’t explore for oil and gas, operate wells or farm land.  All timber activities, including planting and harvesting, are contracted.
 
The Company’s income fluctuates as new oil and gas production is discovered on Company land and as wells deplete.  Oil and gas activity has decreased from prior year due to lower prices and technology developments used in the Haynesville shale located in northwest Louisiana have pulled drilling resources from our area of operation.
 
CKX has small interests in 40 different oil and gas fields.  The size of the interest is determined by the Company’s net ownership in the acreage unit for the well.  CKX’s interests range from 0.0033% for the smallest to 4.167% for the largest.  As the Company does not own or operate the wells, it does not have access to any reserve information.
 
Eventually, the oil and gas under the Company’s current land holdings will be depleted.  The Company is constantly looking for additional land to be purchased in southwest Louisiana.  Preferably, we search for timberland that has mineral potential.
 
Results of Operations
 
Fiscal Year 2009 Compared to Fiscal Year 2008
 
Revenues for 2009 were $1,722,132, a decrease of 48.4% when compared with 2008 revenues of $3,335,874.
 
Oil and gas revenues decreased by $1,653,048, or 51.7%, to $1,541,359 in 2009.  Oil and gas revenues consist of royalty, lease rental and geophysical revenue.  Royalty revenue decreased by $1,578,493 or 52.4%, and lease rentals decreased by $70,925 or 40.4%, from 2008.  Geophysical revenues decreased by $3,630, or 46.4%, from 2008.
 
Gas production decreased by 14,671 MCF, and the average gas sales price per MCF decreased by 49.4% resulting in a decrease in gas revenue of $632,206.  Revenue from oil production decreased by $946,287, due to an decrease of 38.1% in the average barrel sales price and a decrease in production of approximately 4,824 barrels.

 
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The following eight fields produced 76.0% and 78.26% of the Company’s oil and gas revenues in 2009 and 2008, respectively.  This following schedule shows the number of barrels of oil (Bbl Oil) and MCF of gas (MCF Gas) produced in 2009 and 2008.
 
   
Bbl Oil
   
MCF Gas
 
Field
 
2009
   
2008
   
2009
   
2008
 
South Bear Head Creek
    6,577       4,318       15,432       11,456  
South Jennings
    1,612       1,162       26,452       26,502  
South Gordon
    2,241       4,285       2,745       5,623  
South Lake Charles
    983             9,511        
Vinton
    1,200       1,648              
Southeast Lunita
    98       298       8,119       14,935  
Bon Air
    390       1,692       2,425       14,471  
Castor Creek
    148       266       5,226       9,880  

From review of the limited information provided by the field operators, it appears field production increases was due to reworking or recompleting existing wells.  Field production decreases were due to expected depletion.
 
In 2009 the Company was a lessor in six new mineral leases covering a total of 608 gross acres.  The Company’s net acres leased in 2009 were 232 acres.  The new leased acres are located in four different Parishes.
 
During 2009, the Company continued to see a reduction in oil and gas leasing activity over prior years.  With the decrease in oil and gas prices and the increased focus on the Haynesville shale play in northwest Louisiana, this decrease is an expected current trend.
 
Timber income increased by $36,786 to $76,855, an increase of 91.8% from 2008.  This increase is attributable to our internal maintenance programs for age class timber and storm protection measures.  The timber market was depressed throughout 2009 due to the weak housing market.
 
Agriculture income increased by $2,521 or 2.5%.  There were no significant changes in our agriculture operations during 2009.
 
Outlook for Fiscal Year 2010
 
The Company continues to actively search for lands that meet our criteria of timberland with mineral potential.  In the last quarter of 2009, the Company noted an increase in the available timberland for sale at reasonable fair values.  We believe that the current national economy condition, primarily a slowdown in construction, has caused the increase and we look for 2010 to provide us with increased opportunities to purchase land.  Currently, the Company has under contract to purchase 191 net acres with standing timber and ½ minerals.  Management expects this purchase to consummate by the end of the first quarter in 2010.
 
Currently, there are 13 non-producing mineral leases covering 1,498.21 gross acres, or 512.17 net acres.  The Company believes that some of these leases will be drilled and production discovered as oil and gas prices are projected to increase as the national economy improves.
 
The Company expects timber prices to remain depressed in 2010 due to a continued weak housing market.  We do expect timber revenue to remain flat as we perform our maintenance programs during 2010.
 
We are unaware of any changing trends in our agriculture operations and expect agriculture income to remain flat in 2010.

 
5

 
 
Liquidity and Capital Resources
 
The Company’s current assets and securities available-for-sale totaled $6,689,553 and total liabilities equaled $244,321 at December 31, 2009.  Additional sources of liquidity include the Company’s certificates of deposits and an available bank line of credit for $1,000,000.

In the opinion of management, current cash flow from operations, cash and cash equivalents, investments and the available line of credit are adequate for projected operation, possible land purchases and continuation of the regular cash dividend.
 
Critical Accounting Policies
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.  The most significant accounting estimates inherent in the preparation of our financial statements include the following items:
 
Our accounts receivable consist of incomes received after year end for royalties produced prior to year end.  When there are royalties that have not been received at the time of the preparation of the financial statements for months in the prior year, we estimate the amount to be received based on the last month’s royalties that were received from that particular company.  We do not maintain an allowance for doubtful accounts because we can confirm virtually all receivables before they are booked as income.
 
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes (SFAS 109)” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities.
 
When land is purchased with standing timber, the cost is divided between land and timber based on timber cruises contracted by the Company.  Reforestation costs are capitalized and added to the timber asset account.  The timber asset is depleted when the timber is sold based on the percentage of the timber sold from a particular tract applied to the amount capitalized for timber for that tract.
 
Forward Looking Statements
 
Certain matters contained in this report are forward-looking statements including, without limitation, the information contained under the heading “Outlook for Fiscal Year 2010” in Item 6 of this report.  These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and difficult to predict.  Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements.  You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report.  Unless legally required, the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.  Additional information may be obtained by reviewing the information set forth below under “Significant Risk Factors” and information contained in the Company’s reports periodically with the SEC.

 
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Item 7A.
QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Significant Risk Factors
 
The Company’s business and operations are subject to certain risks and uncertainties, including:
 
Reliance upon Oil and Gas Discoveries
 
The Company’s most significant risk is its reliance upon others to perform exploration and development for oil and gas on its land.  Future income is dependent on others finding new production on the Company’s land to replace present production as it is depleted.  Oil and gas prices as well as new technology will affect the possibility of new discoveries.
 
Commodity Prices
 
All of the Company’s operating income comes from the sale of commodities produced from its real estate: oil and gas, forest products, and agriculture products.  Fluctuations in these commodity prices will directly impact net income.  In 2009, average gas prices paid to the Company were 49.4 % lower than the average in 2008, and average oil prices were also lower in 2009 than in 2008, by 38.1%.  If the average oil and gas prices in 2009 reverted to the 2008 averages, income before income tax would have increased by approximately 74.0%.
 
Interest Rate Risks
 
The Company has no direct exposure to changes in foreign currency exchange rates and minimal direct exposure to interest rates.  The Company has an unsecured line of credit with Chase at their prime rate, but the Company hasn’t utilized this line and has no current plans to do so.
 
Item 8.
FINANCIAL STATEMENTS
 
All financial statements required by this item are listed in the Table of Contents to Financial Statements appearing immediately after the signature page of this Form 10-K and are included herein by reference.
 
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.
 
Item 9A (T).
CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
 
As of December 31, 2009, an evaluation was performed under the supervision and with the participation of the Company’s management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures.  Based on that evaluation, the Company’s management, including the principal executive officer and principal financial officer, concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2009.

 
7

 
 
Management’s Annual Report on Internal Control Over Financial Reporting
 
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”) for the Company.  In assessing the Company’s ICFR, management follows the Committee of Sponsoring Organizations of the Treadway Commission’s (“COSO”) Internal Control over Financial Reporting – Guidance for Smaller Public Companies Integrated Framework (2006) in assessing the effectiveness of the Company’s ICFR.  Management shall determine ICFR ineffective if a material weakness exists in the controls.

Due to the Company’s management inability to assess Walker Louisiana Properties’ ICFR and lack of compensating controls, management has assessed the Company’s ICFR as ineffective as of December 31, 2009. The Company owns a one-sixth interest in WLP and WLP’s activities are material to the Company.  WLP prepares cash basis interim financial statements and audited GAAP basis financial statements at year end.  At report date, we have not identified a plan or process to remediate the ineffectiveness of the ICFR.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

During the quarter ending December 31, 2009, the Company’s Management followed the COSO Internal Control over Financial Reporting – Guidance for Smaller Public Companies Integrated Framework (2006) when assessing the ICFR.  During the quarter ending December 31, 2009, there have been no changes in the Company’s internal control over financial reporting that has materially affected or is reasonably likely to affect, the Company’s internal control over financial reporting.
 
Item 9B.
OTHER INFORMATION
 
None.

 
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PART III
 
Item 10.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
 
The information required by Item 10 as to directors, nominees for directors, reports under Section 16 of the Securities Exchange Act of 1934, the Registrant’s audit committee and an audit committee financial expert is included in the Registrant’s definitive proxy statement to be filed pursuant to Section 14(a) of the Securities Exchange Act of 1934 and is incorporated herein by reference.
 
Executive officers of Registrant are as follows:
 
Name
 
Age
 
Position with Registrant
         
Joseph K. Cooper
 
66
 
President, Chief Executive Officer and Director
         
Brian R. Jones, CPA
 
49
 
Treasurer, Chief Financial Officer and Director
         
Charles D. Viccellio
 
76
 
Vice President, Secretary and Director
 
The occupations of such executive officers during the last five years and other principal affiliations are:
 
Name
 
Occupations
     
Joseph K. Cooper
 
President and Chief Executive Officer of CKX Lands, Inc. since 2008 and 2009, respectively; Manager of Walker Louisiana Properties, Vice President and Operations Manager of Prairie Land Co.
     
Brian R. Jones, CPA
 
Treasurer and Chief Financial Officer of CKX Lands, Inc. since December 1, 2006; Managing member of BRJ Services, LLC.
     
Charles D. Viccellio
 
Vice-President and Secretary of the Company since 1997 and Director of the Company since 1996; Attorney in the law firm of Stockwell, Sievert, Viccellio, Clements & Shaddock, LLP.

There are no family relationships between any of our directors, except Mrs. Leach and Mrs. Werner are mother and daughter, and executive officers or any arrangement or understanding between any of our executive officers and any other person pursuant to which any executive officer was appointed to his office.
 
The Company has adopted a Code of Ethics that applies to officers, directors and employees.  A copy of the code of ethics will be provided by writing the President at P.O. Box 1864, Lake Charles, Louisiana 70602.

 
9

 
 
Item 11.
EXECUTIVE COMPENSATION
 
The information required by Item 11 is included in the Registrant’s definitive proxy statement to be filed pursuant to Section 14(a) of the Securities and Exchange Act of 1934 and is incorporated herein by reference.
 
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
The information required by Item 12 is included in the Registrant’s definitive proxy statement to be filed pursuant to Section 14(a) of the Securities Exchange Act of 1934 and is incorporated herein by reference.
 
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
The information required by Item 13 is included in the Registrant’s definitive proxy statement to be filed pursuant to Section 14(a) of the Securities and Exchange Act of 1934 and is incorporated herein by reference.
 
Item 14.
PRINCIPAL ACCOUNTANTS FEES AND SERVICES
 
The information required by Item 14 is included in the Registrant’s definitive proxy statement to be filed pursuant to Section 14(a) of the Securities and Exchange Act of 1934 and is incorporated herein by reference.

 
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PART IV
 
Item 15.
EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
 
 
(a)
Documents filed as part of this report:
 
(1)
Financial Statements.  The financial statements filed as part of this report are listed in the Table of Contents to Financial Statements appearing immediately after the signature page of this Form 10-K and are included herein by reference.
 
(2)
Financial Statement Schedules.  Financial Statement Schedules are not required.
 
(3)
Exhibits. See (b) below

 
(b)
Exhibits:

 
3.1
Restated/Articles of Incorporation of the Registrant are incorporated by reference to Exhibit (3)-1 to Form 10 filed April 29, 1981.
 
3.2
Amendment to Articles of Incorporation of the Registrant is incorporated by reference to Exhibit (3.2) to Form 10-K for year ended December 31, 2003.
 
3.3
By-Laws of the Registrant are incorporated by reference to Exhibit (3.3) to Form 10-K for year ended December 31, 2003.
 
23.1
Consent of McElroy, Quirk & Burch filed herewith.
 
31.1
Certification of Joseph K. Cooper, President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.
 
31.2
Certification of Brian R. Jones, CPA, Treasurer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.
 
32
Certification of Joseph K. Cooper, President and Chief Executive Officer and Brian R. Jones, CPA, Treasurer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.

 
11

 
 
SIGNATURES
 
Pursuant to the requirement 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 on March 18, 2010.
 
CKX LANDS, INC.
 
     
BY:
/s/ Brian R. Jones, CPA
 
Name:
Brian R. Jones, CPA
 
Title:
Treasurer and Chief Financial Officer
 
 
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons in the capacities indicated with regard to CKX Lands, Inc. on March 18, 2010.
 
/s/ Joseph K. Cooper
   
Joseph K. Cooper
 
President and Chief Executive Officer
   
(Principal Executive Officer and Director)
     
/s/ Brian R. Jones, CPA
   
Brian R. Jones, CPA
 
Treasurer and Chief Financial Officer
   
(Principal Financial Officer and Director)
     
/s/ Charles D. Viccellio
   
Charles D. Viccellio
 
Vice President & Secretary
   
 (Director)
     
/s/ Henry E. Blake
   
Henry E. Blake
 
Director
     
/s/ Elizabeth Hollins
   
Elizabeth Hollins
 
Director
     
/s/ Laura A. Leach
   
Laura A. Leach
 
Director
     
/s/ B. James Reaves, III
   
B. James Reaves, III
 
Director
     
/s/ Mary W. Savoy
   
Mary W. Savoy
 
Director
     
/s/ William Gray Stream
   
William Gray Stream
 
Director
     
/s/ Mary Leach Werner
   
Mary Leach Werner
 
Director

 
12

 

CKX LANDS, INC.

Table of Contents

 
Page
REPORT OF INDEPENDENT AUDITORS ON THE FINANCIAL STATEMENTS
14
   
FINANCIAL STATEMENTS
 
   
Balance Sheets
15
Statements of Income
16
Statements of Changes in Stockholders’ Equity
17
Statements of Cash Flows
18
Notes to Financial Statements
19-26

 
13

 

[MCELROY, QUIRK & BURCH LETTERHEAD]

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Stockholders of CKX Lands, Inc.
Lake Charles, Louisiana

We have audited the accompanying balance sheets of CKX Lands, Inc. as of December 31, 2009 and 2008, and the related statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the two year period ended December 31, 2009.  CKX Lands, Inc.’s management is responsible for these financial statements.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 CKX Lands, Inc. as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
 

/s/ McElroy, Quirk & Burch
Lake Charles, Louisiana
March 18, 2010

 
14

 
 
CKX Lands, Inc.

Balance Sheets
December 31, 2009 and 2008

   
2009
   
2008
 
Assets
           
Current Assets:
           
Cash and cash equivalents
  $ 3,977,106     $ 5,779,491  
Certificates of deposit
    720,000        
Accounts receivable
    162,356       226,268  
Prepaid expense and other assets
    36,225       97,636  
Total Current Assets
    4,895,687       6,103,395  
Securities Available-for-Sale
    1,793,866       522,102  
Certificates of Deposit
    240,000        
Property and Equipment:
               
Building and equipment less accumulated depreciation of $70,447 and $65,084, respectively
    13,609       11,216  
Timber less accumulated depletion of $575,057 and $530,951, respectively
    350,665       362,991  
Land
    2,851,526       2,821,300  
Total Property and Equipment, net
    3,215,800       3,195,507  
Total Assets
  $ 10,145,353     $ 9,821,004  
                 
Liabilities and Stockholders’ Equity
               
Current Liabilities:
               
Trade payables and accrued expenses
  $ 46,594     $ 43,961  
Income tax payable:
               
Current
           
Deferred
    15,909       32,344  
Total Current Liabilities
    62,503       76,305  
Noncurrent Liabilities:
               
Deferred income tax payable
    181,818       181,818  
Stockholders’ Equity:
               
Common stock, no par value; 3,000,000 shares authorized; 2,100,000 shares issued
    72,256       72,256  
Retained earnings
    10,170,940       9,857,876  
Accumulated other comprehensive income
    33,352       8,265  
Less cost of treasury stock (157,505 shares)
    (375,516 )     (375,516 )
Total Stockholders’ Equity
    9,901,032       9,562,881  
Total Liabilities and Stockholders’ Equity
  $ 10,145,353     $ 9,821,004  

The accompanying notes are an integral part of these financial statements.

 
15

 

CKX Lands, Inc.

Statements of Income
Years Ended December 31, 2009 and 2008

   
2009
   
2008
 
Revenues:
           
Oil and gas
  $ 1,541,359     $ 3,194,407  
Agriculture
    103,918       101,397  
Timber
    76,855       40,070  
Total revenues
    1,722,132       3,335,874  
Costs and Expenses:
               
Oil and gas production
    138,658       250,958  
Agriculture
    6,507       7,192  
Timber
    68,087       32,122  
General and administrative
    378,250       397,016  
Depreciation and depletion
    49,469       21,578  
Total cost and expenses
    640,971       708,866  
Income from operations
    1,081,161       2,627,008  
Other Income / (Expense):
               
Interest income
    23,479       123,599  
Dividend income
    29,936       30,383  
Change in unrealized losses on securities available-for-sale
    (23,920 )     (23,920 )
Gain / (loss) on sale of securities available-for-sale
          (116,730 )
Gain on sale of land and other assets
    43,884       86,741  
Net other income / (expense)
    73,379       100,073  
Income before income taxes
    1,154,540       2,727,081  
Federal and State Income Taxes:
               
Current
    340,808       766,340  
Deferred
    (33,160 )     (8,237 )
Total federal and state income taxes
    307,648       758,103  
Net income
  $ 846,892     $ 1,968,978  
                 
Per Common Stock (1,942,495 shares):
               
Net income
  $  0.44     $ 1.01  
Dividends paid
  $  0.28     $ 0.78  

The accompanying notes are an integral part of these financial statements.
 
16

 
CKX Lands, Inc.

Statements of Changes in Stockholders’ Equity
Years ended December 31, 2009 and 2008

   
Comprehensive
Income
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income
   
Capital
Stock
Issued
   
Treasury
Stock
 
December 31, 2007 Balance
        $ 9,404,044     $ 91,834     $ 72,256     $ 375,516  
                                       
Comprehensive income:
                                     
Net income
  $ 1,968,978       1,968,978                    
Other comprehensive income:
                                       
Change in unrealized net holdings gains occurring during period, net of taxes of $65,281
    (97,921 )                                
Change in recognized unrealized loss on securities available for sale, net of taxes of $9,568
    14,352                                  
Other Comprehensive income, net of taxes
    (83,569 )           (83,569 )            
Total comprehensive income
  $ 1,885,409                                  
Dividends
            (1,515,146 )                  
December 31, 2008 Balance
          $ 9,857,876     $ 8,265     $ 72,256     $ 375,516  
 
                                       
Comprehensive income:
                                       
Net income
  $ 846,892       846,892                    
Other comprehensive income:
                                       
Change in unrealized net holdings gains occurring during period, net of taxes of $7,157
    10,735                                  
Change in recognized unrealized loss on securities available for sale, net of taxes of $9,568
    14,352                                  
Other Comprehensive income, net of taxes
    25,087             25,087              
Total comprehensive income
  $ 871,979                            
Dividends Paid
            (543,898 )                  
Dividend Reversion
            10,070                    
                                         
December 31, 2009 Balance
          $ 10,170,940     $ 33,352     $ 72,256     $ 375,516  

The accompanying notes are an integral part of these financial statements.

 
17

 

CKX Lands, Inc.

Statements of Cash Flows
Years Ended December 31, 2009 and 2008
 
   
2009
   
2008
 
Cash Flows From Operating Activities:
           
Net Income
  $ 846,892     $ 1,968,978  
Less non-cash (income) expenses included in net income:
               
Depreciation and depletion
    49,469       21,578  
Deferred income tax expense
    (33,160 )     (8,237 )
Less non-operating activities:
               
Unrealized (Gain) loss on securities
    23,920       23,920  
(Gain) loss from sales of securities available-for-sale
          116,730  
Gain from sale of land and other assets
    (43,884 )     (64,426 )
Change in operating assets and liabilities:
               
(Increase) decrease in current assets
    125,323       109,423  
Increase (decrease) in current liabilities
    2,633       (738,541 )
Net cash provided from operating activities
    971,193       1,429,425  
                 
Cash Flows From Investing Activities:
               
Certificate of Deposits:
               
Proceeds
          1,052,270  
Purchase
    (960,000 )      
Available-for-sale securities:
               
Proceeds
          1,283,988  
Purchases
    (1,253,872 )      
Building, equipment and other assets:
               
Proceeds
    12,749       176,926  
Purchases
    (7,756 )     (121,946 )
Timber:
               
Proceeds
          23,126  
Purchases
    (31,780 )      
Land:
               
Proceeds
    34,286        
Purchases and improvements
    (33,377 )     (459,303 )
Proceeds held in 1031 trust account
          3,198,153  
Net cash provided from investing activities
    (2,239,750 )     5,153,214  
                 
Cash Flows From Financing Activities:
               
Dividends paid net of refunds
    (543,898 )     (2,428,118 )
Dividend Reversions
    10,070        
Net cash used in financing activities
    (533,828 )     (2,428,118 )
                 
Net increase in cash and cash equivalents
    (1,802,385 )     4,154,521  
Cash and cash equivalents:
               
Beginning
    5,779,491       1,624,970  
Ending
  $ 3,977,106     $ 5,779,491  
                 
Supplemental disclosures of cash flow information
               
Cash payments for:
               
Interest
  $     $  
Income taxes
  $ 279,437     $ 927,210  
                 
Supplemental schedule of noncash investing and financing activities
               
Net change in unrealized and realized gains on available-for-sale securities
  $ 25,087     $ (83,569 )

The accompanying notes are an integral part of these financial statements.
 
18

 
CKX Lands, Inc.
Notes to Financial Statements (continued)

Note 1.
Nature of Business and Significant Accounting Policies

Nature of business:

The Company’s business is the ownership and management of land.  The primary activities consist of leasing its properties for minerals (oil and gas) and agriculture and raising timber.

Significant accounting polices:

Accounting standards codification:

In the third quarter of 2009, we adopted changes issued by the Financial Accounting Standards Board (FASB) to the authoritative hierarchy of accounting principles generally accepted in the United States (GAAP). These changes establish the FASB Accounting Standards Codification (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. These changes and the Codification itself do not change GAAP. Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on our financial statements.

Pervasiveness of estimates:

The preparation of financial statements in conformity with GAAP 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 revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Cash equivalents:

Cash equivalents are highly liquid debt instruments with original maturities of three months or less when purchased.

Certificate of deposits:

Certificates of deposit have maturities greater than three months when purchased, in amounts not greater than $250,000 and no more than one certificate issued per financial institution.  All certificates of deposit are held until maturity and recorded at amortized cost which approximates fair value.  Certificates of deposit mature through 2011.

Investment securities:

In accordance with GAAP, management must make a determination at the time of acquisition whether certain investments in debt and equity securities are classified as trading, available-for-sale or held-to-maturity securities.  Under a policy adopted by the board of directors of the Company, Management intends to purchase available-for-sale securities and has determined that all securities held are available-for-sale.

For investments classified as available-for-sale, all such debt securities and equity securities that have readily determinable fair value shall be measured at fair value in the balance sheet.  Unrealized holding gains and losses for securities available-for-sale shall be excluded from earnings and reported as a net amount (net of income taxes) and as a separate component of retained earnings until realized.  Realized

 
19

 

CKX Lands, Inc.
Notes to Financial Statements (continued)

gains and losses on securities available-for-sale are included in income.  The cost of securities sold is based on the specific identification method.
 
Declines in the fair value of securities available-for-sale below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses.  In estimating other-than-temporary impairment losses, management considers (1) length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Interest on debt securities is recognized in income as earned.  Dividends on marketable equity securities are recognized in income when declared.

Property and equipment:

Property and equipment is stated at cost.  Major additions are capitalized; maintenance and repairs are charged to income currently.  Depreciation is computed on the straight-line and accelerated methods over the estimated useful lives of the assets.

Timber:

When timber land is purchased with standing timber, the cost is divided between land and timber based on timber cruises contracted by the Company.  Reforestation costs are capitalized.  The timber asset is depleted when the timber is sold based on the percentage of the timber sold from a particular tract applied to the amount capitalized for timber for that tract.

Oil and gas:

Oil and gas income is booked when the Company is notified by the well’s operator as to the Company’s share of the revenue proceeds together with the withheld severance taxes.  The Company has no capitalized costs relating to oil and gas producing activities and no costs for property acquisition, exploration and development activities.

Net Income and Dividends Paid per common stock:

Net income and dividends paid per common stock are based on the weighted average number of common stock shares outstanding during the period.

Dividends

Pursuant to a dividend reversion clause in the Company’s Articles of Incorporation, dividends not claimed within one year after the dividend became payable will expire and revert in full ownership to the Company and the Company’s obligation to pay such dividend will cease.

 
20

 

CKX Lands, Inc.
Notes to Financial Statements (continued)

Income taxes:

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method.  Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

In accordance with generally accepted accounting principles, the Company has analyzed its filing positions in federal and state income tax returns for the tax years ending December 31, 2006 through 2008 that remain subject to examination.  The Company believes that all filing positions are highly certain and that all income tax filing positions and deductions would be sustained upon a taxing jurisdiction’s audit. Therefore, no reserve for uncertain tax positions is required.  No interest or penalties have been levied against the Company and none are anticipated.

Subsequent Events

In the second quarter of 2009, the Company adopted authoritative guidance issued by the FASB on subsequent events.  The guidance provides general standards of accounting for and disclosures of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued.  The guidance requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date.  The Company has evaluated subsequent events through March 18, 2010, the issue date of these financial statements.

Note 2.
Securities Available-for-Sale

Debt and equity securities have been classified in the balance sheet according to management’s intent in the noncurrent asset sections under the heading “securities available-for-sale”.  The carrying amount of securities and their approximate fair values at December 31, 2009 and 2008 follow:

   
Gross
Amortized
Cost
   
Unrealized
Gains
   
Unrealized
Losses
   
Fair Value
 
At December 31, 2009
                       
Equity securities
  $ 986,776       116,050       64,566       1,038,260  
Mutual Funds
    753,529       2,084       7       755,606  
    $ 1,740,305       118,134       64,573       1,793,866  
                                 
At December 31, 2008
                               
Equity securities
  $ 510,353       107,358       95,609       522,102  
Mutual Funds
                       
    $ 510,353       107,358       95,609       522,102  

Gross realized gains and gross realized losses on sales of securities available-for-sale for the year ended December 31, 2009 and 2008 are presented below.

   
Realized
Gains
   
Realized
Losses
 
December 31, 2009
           
Equity securities
  $        
                 
December 31, 2008
               
Equity securities
  $       (116,730 )

 
21

 

CKX Lands, Inc.
Notes to Financial Statements (continued)

Information pertaining to available-for-sale securities with gross unrealized losses at December 31, 2009 and 2008 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

   
Less Than 12 Months
   
12 Months or More
 
   
Fair Value
   
Gross
Unrealized
Loss
   
Fair Value
   
Gross
Unrealized
Loss
 
December 31, 2009
                       
Equity securities
  $ 372,211       2,947       85,414       61,619  
Mutual Funds
    252,182       7              
 
  $ 624,393       2,954       85,414       61,619  
                                 
December 31, 2008
                               
Equity securities
  $             173,120       95,609  

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.  Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

The Company has the intent and ability to retain its investments for a period of time sufficient to allow for anticipated recovery of fair value.

Note 3.
Oil and Gas Leases

Results of oil and gas leasing activities for the year ending December 31, 2009 and 2008 are as follows:

   
2009
   
2008
 
Gross revenues
           
Royalty interests
  $ 1,430,157     $ 3,004,077  
Working interests
    2,354       6,927  
Seismic and Lease Fees
    108,848       183,403  
      1,541,359       3,194,407  
Production costs
    138,658       250,958  
Results before income tax expense
    1,402,701       2,943,449  
Estimated income tax expense
    561,080       923,885  
Results of operations from  producing activities excluding corporate overhead
  $ 841,621     $ 2,019,564  

There were no major costs, with the exception of severance taxes, incurred in connection with the Company's oil and gas operations, which are conducted entirely within the United States, during the year ending December 31, 2009 or 2008.

Reserve quantities (unaudited):

Reserve information relating to estimated quantities of the Company's interest in proved reserves of natural gas and crude including condensate and natural gas liquids is not available.  Such reserves are located entirely within the United States.  A schedule indicating such reserve quantities is, therefore, not presented.  All oil and gas royalties come from Company owned properties that were developed and produced by producers under lease agreements.

 
22

 

CKX Lands, Inc.
Notes to Financial Statements (continued)

Company’s royalty and working interests share of oil and gas, exclusive of plant products, produced from leased properties:

   
2009
   
2008
 
             
Net gas produced (MCF)
    98,489       113,150  
Net oil produced (Bbl)
    15,429       17,114  

Note 4.
Income Taxes

The Company files federal and state income tax returns on a calendar year basis.

The net deferred tax liability in the accompanying balance sheets includes the following components at December 31, 2009 and 2008:

   
2009
   
2008
 
   
Current
   
Non-Current
   
Current
   
Non-Current
 
                         
Deferred tax assets
  $ 19,382     $     $ 5,252     $  
Deferred tax liabilities
    (35,291 )     (181,818 )     (37,596 )     (181,818 )
    $ (15,909 )   $ (181,818 )   $ (32,344 )   $ (181,818 )

Reconciliations between the United States Federal statutory income tax provision, using the statutory rate of 34%, and the Company’s provision for income taxes at December 31, 2009 and 2008 are as follows:

   
2009
   
2008
 
Tax at statutory rates
  $ 392,544     $ 927,208  
Tax effect of the following:
               
Statutory depletion
    (73,058 )     (153,561 )
Dividend exclusion
    (7,125 )     (7,231 )
State income tax
    25,973       102,613  
Unrealized losses on securities available-for-sale
    8,133       8,133  
Other
    (5,659 )     (110,822 )
    $ 340,808     $ 766,340  

Deferred income taxes result from timing differences in the recognition of revenue and expenses for tax and financial statement purposes.  The effect of these timing differences at December 31, 2009 and 2008 is as follows:

   
2009
   
2008
 
   
Current
   
Non-Current
   
Current
   
Non-Current
 
Conversion of investment from tax cash basis to accrual basis for financial reporting
  $ (13,621 )         $ (37,211 )      
Unrealized net loss (gain) on marketable securities
    (2,288 )           4,867        
Casualty loss
          (121,239 )           (121,239 )
Deferred gain
          (60,579 )           (60,579 )
    $ (15,909 )     (181,818 )   $ (32,344 )     (181,818 )

 
23

 

CKX Lands, Inc.
Notes to Financial Statements (continued)

Note 5.
Company Operations

The Company’s operations are classified into three principal operating segments that are all located in the United States: oil and gas, agricultural and timber.  The Company’s reportable business segments are strategic business units that offer income from different products.  They are managed separately due to the unique aspects of each area.

Following is a summary of segmented operations information for 2009 and 2008:

   
2009
   
2008
 
Revenues
           
Oil and Gas
  $ 1,541,359     $ 3,194,407  
Agricultural
    103,918       101,397  
Timber
    76,855       40,070  
Total
    1,722,132       3,335,874  
Cost and Expenses
               
Oil and Gas
    138,657       250,958  
Agricultural
    8,818       7,192  
Timber
    108,190       46,108  
Total
    255,666       304,258  
Income from Operations
               
Oil and Gas
    1,402,701       2,943,449  
Agricultural
    95,100       94,205  
Timber
    (31,335 )     (6,038 )
Total
    1,466,466       3,031,616  
Other Income (Expense) before Income Taxes
    (311,926 )     (304,535 )
Income before Income Taxes
    1,154,540       2,727,081  
                 
Identifiable Assets, net of accumulated depreciation and depletion
               
Oil and Gas
           
Agricultural
           
Timber
    350,665       362,991  
General Corporate Assets
    9,794,688       9,458,013  
Total
    10,145,353       9,821,004  
                 
Capital Expenditures
               
Oil and Gas
           
Agricultural
           
Timber
    31,780       4,683  
General Corporate Assets
    41,133       459,302  
Total
    72,913       463,985  
                 
Depreciation and Depletion
               
Oil and Gas
           
Agricultural
    2,311        
Timber
    40,103       13,986  
General Corporate Assets
    7,055       7,592  
Total
  $ 49,469     $  21,578  
 
There are no intersegment sales reported in the accompanying income statements.  The accounting policies of the segments are the same as those described in the summary of significant accounting policies.  The Company evaluates performance based on income or loss from operations before income
 
 
24

 

CKX Lands, Inc.
Notes to Financial Statements (continued)
 
taxes excluding nonrecurring gains and losses on securities held available-for-sale.  Income before income tax represents net revenues less costs and expenses less other income and expenses of a general corporate nature.  Identifiable assets by segment are those assets used solely in the Company's operations within that segment.

Revenue from two customers of the Company’s oil and gas segment represented approximately $529,000 and $211,000, respectively, of the Company’s 2009 total revenue.  In 2008, four oil and gas segment customers represented approximately $586,000, $524,000, $445,000 and $318,000, respectively, of the Company’s total revenue.

Note 6.
Line of Credit

The Company has available an unsecured line of credit in the amount of $1,000,000.  The balance on this line of credit was $-0- at December 31, 2009 and 2008.

Note 7.
Supplementary Income Statement Information

Taxes, other than income taxes, of $204,463 and $306,716, were charged to expense during 2009 and 2008, respectively.

Note 8.
Contingencies:

There are no material contingencies known to management.  The Company does not participate in off balance sheet arrangements.

Note 9.
Concentration of Credit Risk

The Company maintains its cash balances in one financial institution.  The amount on deposit in the financial institution is insured by the Federal Deposit Insurance Corporation up to $250,000.

Note 10.
Subsequent Events

On March 18, 2010, the Company’s Board of Directors declared a dividend of seven cents ($0.07) per common share to shareholders of record March 31, 2010 and payment date of April 14, 2010.

Note 11.
Disclosures About Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it was practical to estimate that value:

Class
 
Methods and/or Assumptions
     
Cash and cash equivalents:
 
Carrying value approximates fair value due to its readily convertible characteristic.
     
Certificate of Deposit:
 
Held until maturity and recorded at amortized cost.
     
Securities available-for-sale
  
Valued at fair value which equals quoted market price.

 
25

 

CKX Lands, Inc.
Notes to Financial Statements (continued)

The estimated fair value of the Company's financial instruments at December 31, 2009 and 2008 are as follows.

(Presented in thousands)
 
2009
   
2008
 
   
Carrying
Value
   
Fair Value
   
Carrying
Value
   
Fair Value
 
Financial Assets:
                       
Cash and cash equivalents
  $ 3,977     $ 3,977     $ 5,779     $ 5,779  
Certificate of deposit – short term
    720       720              
Securities available-for-sale
    1,794       1,794       522       522  
Certificate of deposit – Long term
    240       240              
    $ 6,731     $ 6,731     $ 6,301     $ 6,301  

Fair value measurements disclosure for securities available for sale follows:

         
Fair Value Measurements at Reporting Date Using
 
Description
 
Balance
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
                         
2009
                       
Securities available-for-sale
  $ 1,793,866     $ 1,793,866       -       -  
                                 
2008
                               
Securities available-for-Sale
  $ 522,102     $ 522,102       -       -  

 
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