CKX LANDS, INC. - Quarter Report: 2011 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
Commission File Number 1-31905
CKX Lands, Inc.
(Exact name of registrant as specified in its charter)
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Louisiana
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72-0144530
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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700 Pujo Street, Suite 200
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Lake Charles, LA
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70601
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(Address of principal executive offices)
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(Zip Code)
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(337) 493-2399
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(Registrant’s telephone number)
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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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
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 | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,942,495
CKX Lands, Inc.
Form 10-Q
For the Quarter ended March 31, 2011
Table of Contents
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Page
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Part I. Financial Information
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Item 1. Financial Statements
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a. Balance Sheets as of March 31, 2011 and December 31, 2010 (Unaudited)
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1
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b. Statements of Income for the three months ended March 31, 2011 and 2010 (Unaudited)
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2
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c. Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2011 and 2010 (Unaudited)
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3
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d. Statements of Cash Flows for the three months ended March 31, 2011 and 2010 (Unaudited)
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4
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e. Notes to Financial Statements (Unaudited)
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5-6
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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7
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Item 4. Controls and Procedures
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8
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Part II. Other Information
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Item 6. Exhibits
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9
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Signature
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10
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Part I – Financial Information
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Item 1.
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FINANCIAL STATEMENTS
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CKX Lands, Inc.
Balance Sheets
March 31, 2011 and December 31, 2010
(Unaudited)
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2011
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2010
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Assets
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Current Assets:
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Cash and cash equivalents
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$ | 4,777,794 | $ | 5,182,316 | ||||
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Certificates of deposit
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495,625 | 240,000 | ||||||
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Accounts receivable
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152,767 | 149,795 | ||||||
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Prepaid expense and other assets
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76,218 | 114,232 | ||||||
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Total Current Assets
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5,502,404 | 5,686,343 | ||||||
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Securities available-for-sale
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789,907 | 783,772 | ||||||
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Certificates of deposit
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-- | 250,000 | ||||||
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Property and Equipment:
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Building and equipment less accumulated depreciation of $74,415 and $72,794, respectively
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15,572 | 17,193 | ||||||
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Timber less accumulated depletion of $651,504 and $632,565, respectively
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800,399 | 557,253 | ||||||
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Land
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3,522,990 | 3,192,491 | ||||||
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Total Property and Equipment, net
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4,338,961 | 3,766,937 | ||||||
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Total Assets
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$ | 10,631,272 | $ | 10,487,052 | ||||
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Liabilities and Stockholders’ Equity
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Current Liabilities:
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Trade payables and accrued expenses
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$ | 55,788 | $ | 58,520 | ||||
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Dividends Payable
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135,975 | -- | ||||||
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Income tax payable:
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Current
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11,189 | 469 | ||||||
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Deferred
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3,667 | -- | ||||||
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Total Current Liabilities
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206,619 | 58,989 | ||||||
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Deferred income tax payable
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181,818 | 181,818 | ||||||
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Total Liabilities
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$ | 388,437 | $ | 240,807 | ||||
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Stockholders’ Equity:
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Common stock, no par value: 3,000,000 shares authorized; 2,100,000 shares issued
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72,256 | 72,256 | ||||||
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Retained earnings
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10,539,751 | 10,543,924 | ||||||
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Accumulated other comprehensive income
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6,344 | 5,581 | ||||||
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Less cost of treasury stock (157,505 shares)
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(375,516 | ) | (375,516 | ) | ||||
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Total stockholders’ equity
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10,242,835 | 10,246,245 | ||||||
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Total Liabilities and Stockholders’ Equity
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$ | 10,631,272 | $ | 10,487,052 | ||||
The accompanying notes are an integral part of these financial statements.
1
CKX Lands, Inc.
Statements of Income
Three Months Ended March 31, 2011 and 2010
(Unaudited)
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Three Months Ended March 31,
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2011
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2010
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Revenues:
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Oil and gas
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$ | 295,779 | $ | 336,571 | ||||
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Agriculture
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7,726 | 22,806 | ||||||
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Timber
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3,439 | 1,653 | ||||||
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Total revenues
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306,944 | 361,030 | ||||||
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Costs and Expenses:
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Oil and gas production
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22,988 | 27,802 | ||||||
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Agriculture
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507 | 719 | ||||||
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Timber
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9,651 | 577 | ||||||
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General and administrative
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91,656 | 91,537 | ||||||
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Depreciation and depletion
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20,560 | 3,189 | ||||||
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Total cost and expenses
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145,362 | 123,824 | ||||||
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Income from operations
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161,582 | 237,206 | ||||||
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Other Income / (Expense):
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Interest income
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10,193 | 9,688 | ||||||
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Dividend income
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4,863 | 12,208 | ||||||
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Change in unrealized losses on securities available-for-sale
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-- | -- | ||||||
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Gain/(Loss) on securities available-for-sale
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-- | -- | ||||||
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Gain on sale of land and other assets
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306 | 255 | ||||||
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Net other income / (expense)
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15,362 | 22,151 | ||||||
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Income before income taxes
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176,944 | 259,357 | ||||||
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Federal and state income taxes:
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Current
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44,994 | 73,397 | ||||||
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Deferred
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148 | 1,397 | ||||||
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Total income taxes
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45,142 | 74,794 | ||||||
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Net Income
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$ | 131,802 | $ | 184,563 | ||||
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Per Common Stock (1,942,495 shares):
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Net Income
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$ | 0.07 | $ | 0.10 | ||||
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Dividends
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$ | 0.07 | $ | 0.07 | ||||
The accompanying notes are an integral part of these financial statements.
2
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CKX Lands, Inc.
Statements of Changes in Stockholders’ Equity
Three Months Ended March 31, 2011 and 2010
(Unaudited)
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Three Months Ended March 31, 2011:
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Comprehensive
Income
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Retained
Earnings
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Accumulated
Other
Comprehensive
Income
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Capital
Stock
Issued
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Treasury
Stock
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December 31, 2010 Balance
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$ | 10,543,924 | $ | 5,581 | $ | 72,256 | $ | 375,516 | ||||||||||||
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Comprehensive income:
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Net income
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$ | 131,802 | 131,802 | -- | -- | -- | ||||||||||||||
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Other comprehensive income:
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Change in unrealized net holding gains occurring during period, net of taxes of $508
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763 | |||||||||||||||||||
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Other Comprehensive income, net of taxes
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763 | -- | 763 | -- | -- | |||||||||||||||
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Total comprehensive income
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$ | 132,565 | ||||||||||||||||||
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Dividends
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(135,975 | ) | -- | -- | -- | |||||||||||||||
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March 31, 2011 Balance
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$ | 10,539,751 | $ | 6,344 | $ | 72,256 | $ | 375,516 | ||||||||||||
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Three Months Ended March 31, 2010:
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Comprehensive
Income
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Retained
Earnings
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Accumulated
Other
Comprehensive
Income
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Capital
Stock
Issued
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Treasury
Stock
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December 31, 2009 Balance
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$ | 10,170,940 | $ | 33,352 | $ | 72,256 | $ | 375,516 | ||||||||||||
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Comprehensive income:
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Net income
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$ | 184,563 | 184,563 | -- | -- | -- | ||||||||||||||
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Other comprehensive income:
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Change in unrealized net holding gains occurring during period, net of taxes of $23,866
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35,798 | 35,798 | ||||||||||||||||||
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Change in recognized unrealized loss on securities available for sale, net of taxes
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-- | -- | -- | |||||||||||||||||
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Other Comprehensive income, net of taxes
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35,798 | -- | ||||||||||||||||||
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Total comprehensive income
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$ | 220,361 | ||||||||||||||||||
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Dividends
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(135,975 | ) | -- | -- | -- | |||||||||||||||
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March 31, 2010 Balance
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$ | 10,219,528 | $ | 69,150 | $ | 72,256 | $ | 375,516 | ||||||||||||
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The accompanying notes are an integral part of these financial statements.
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3
CKX Lands, Inc.
Statements of Cash Flows
Three Months Ended March 31, 2011 and 2010
(Unaudited)
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2011
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2010
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Cash Flows From Operating Activities:
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Net Income
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$ | 131,802 | $ | 184,563 | ||||
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Less non-cash (income) expenses included in net income:
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Depreciation, depletion and amortization
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20,560 | 3,190 | ||||||
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Deferred income tax expense
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148 | 1,397 | ||||||
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Less non-operating activities:
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Gain from sale of land and other assets
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(306 | ) | (255 | ) | ||||
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Change in operating assets and liabilities:
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(Increase) decrease in current assets
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(21,448 | ) | (54,071 | ) | ||||
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Increase (decrease) in current liabilities
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7,989 | 57,583 | ||||||
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Net cash provided from operating activities
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138,745 | 192,407 | ||||||
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Cash Flows From Investing Activities:
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Certificate of deposit
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Purchases
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(5,625 | ) | ||||||
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Securities:
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Sales proceeds
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(4,864 | ) | -- | |||||
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Purchases
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(378,936 | ) | ||||||
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Land, timber, equipment and other assets:
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Sales proceeds
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166 | 255 | ||||||
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Purchases
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(532,944 | ) | (1,135 | ) | ||||
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Net cash provided from (used in) investing activities
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(543,267 | ) | (379,816 | ) | ||||
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Cash Flows From Financing Activities:
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Dividends paid, net of refunds
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-- | -- | ||||||
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Net cash used in financing activities
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-- | |||||||
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Net increase (decrease) in cash and cash equivalents
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(404,522 | ) | (187,409 | ) | ||||
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Cash and cash equivalents:
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Beginning
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5,182,316 | 3,977,106 | ||||||
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Ending
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$ | 4,777,794 | $ | 3,789,697 | ||||
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Supplemental disclosures of cash flow information:
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Cash payments for:
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Interest
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$ | -- | $ | -- | ||||
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Income taxes
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$ | -- | $ | -- | ||||
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Supplemental schedule of non-cash investing and financing activities:
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Net change in recognized and unrecognized unrealized gains (losses) on available-for-sale securities
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$ | 1,271 | $ | 59,664 | ||||
The accompanying notes are an integral part of these financial statements.
4
CKX Lands, Inc.
Notes to Financial Statements
March 31, 2011
(Unaudited)
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Note 1.
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Basis of Presentation
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The accompanying unaudited financial statements of CKX Lands, Inc. (“Company”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information. They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. Except as described herein, there has been no material change in the information disclosed in the notes to the financial statements included in our financial statements as of and for the year ended December 31, 2010. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the accompanying financial statements.
Interim results are not necessarily indicative of results for a full year. These financial statements and accompanying notes included in this Form 10-Q should be read in conjunction with Company’s Form 10-K for the year ended December 31, 2010 and Form 10-Q for the quarterly period ended March 31, 2010.
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Note 2.
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Disclosures about Fair Value:
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Securities available-for-sale and Certificate of Deposits (securities held to maturity) are valued at fair value. The Company’s estimated fair value of securities is as follows.
| March 31, 2011 | ||||||||||||||||||||||||
| Current |
Non-Current
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Total
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Unrealized
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Unrealized
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Unrealized
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Fair Value
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Gain/(Loss)
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Fair Value
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Gain/(Loss)
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Fair Value
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Gain/(Loss)
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Certificate of Deposits
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$ | 495,625 | -- | -- | -- | 495,625 | -- | |||||||||||||||||
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Mutual Funds
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-- | -- | 789,907 | 8,547 | 789,907 | 8,547 | ||||||||||||||||||
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Equity Securities
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-- | -- | -- | -- | -- | -- | ||||||||||||||||||
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Total
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$ | 495,625 | -- | 789,907 | 8,547 | 1,285,532 | 8,547 | |||||||||||||||||
| March 31, 2010 | ||||||||||||||||||||||||
| Current |
Non-Current
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Total
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Unrealized
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Unrealized |
Unrealized
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Fair Value
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Gain/(Loss)
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Fair Value
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Gain/(Loss)
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Fair Value
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Gain/(Loss)
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Certificate of Deposits
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$ | 720,000 | -- | 490,000 | -- | 1,210,000 | -- | |||||||||||||||||
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Mutual Funds
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-- | -- | 766,656 | 9,024 | 766,656 | 9,024 | ||||||||||||||||||
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Equity Securities
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-- | -- | 1,215,810 | 104,201 | 1,215,810 | 104,201 | ||||||||||||||||||
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Total
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$ | 720,000 | -- | 2,472,466 | 113,225 | 3,192,466 | 113,225 | |||||||||||||||||
5
CKX Lands, Inc.
Notes to Financial Statements
March 31, 2011
(Unaudited)
Fair value measurements disclosure for securities follows:
| March 31, 2011 | ||||||||||||
| Quoted Prices in Active |
Significant Other
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Significant
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Markets for
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Observable
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Unobservable
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Identical Assets
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Inputs
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Inputs
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| (Level 1) |
(Level 2)
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(Level 3)
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Certificate of Deposit
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$ | 495,625 | -- | -- | ||||||||
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Mutual Funds
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789,907 | -- | -- | |||||||||
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Equity Securities
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$ | -- | -- | -- | ||||||||
| March 31, 2010 | ||||||||||||
| Quoted Prices in Active |
Significant Other
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Significant
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Markets for
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Observable |
Unobservable
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Identical Assets
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Inputs
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Inputs
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(Level 1)
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(Level 2)
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(Level 3)
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Certificate of Deposit
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$ | 1,210,000 | -- | -- | ||||||||
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Mutual Funds
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766,656 | -- | -- | |||||||||
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Equity Securities
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$ | 1,215,810 | -- | -- | ||||||||
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Note 3:
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Income taxes:
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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, 2008 through 2010 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.
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Note 4:
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Land and Timber Purchases:
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During the first quarter of 2011, the Company purchased 2 parcels of land with standing timber for $592,750. Approximately 320 acres were purchased for $330,665 and the standing timber was valued at $262,085 based on timber cruises.
6
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Item 2.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Results of Operations
Revenue
Revenues for the first three months of 2011 decreased by $54,086 to $306,944 from 2010.
Oil and gas revenues decreased by $40,792 to $295,779 in 2011. Oil and gas revenues consist of royalty, lease rental and geophysical revenue. Royalty revenue decreased by $68,102 and lease rentals increased by $20,213 from 2010. Geophysical revenues increased by $7,098 from 2010.
Gas production decreased by 2,477 MCF, and the average gas sales price per MCF decreased by 22.70% resulting in a decrease in gas revenue of $34,741. Revenue from oil production decreased by $29,040,
due to an increase of 21.46% in the average barrel sales price and a decrease in production of approximately 797 barrels.
The following schedule summarizes barrels and MCF produced and average price per barrel and per MCF.
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Three Months Ended 03/31/11
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Three Months Ended 03/31/10
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Net gas produced (MCF)
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17,746 | 20,223 | ||||||
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Average gas sales price (per MCF)(1)
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$ | 4.14 | $ | 5.35 | ||||
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Net oil produced (Bbl)(2)
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1,903 | 2,700 | ||||||
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Average oil sales price (per Bbl)(1,2)
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$ | 90.79 | $ | 74.75 | ||||
Notes to above schedule:
(1) Before deduction of production and severance taxes.
(2) Excludes plant products.
Agriculture revenue decreased from $22,806 to $7,726 in 2011, primarily due to the timing of lease rental payments.
Timber revenue increased to $3,439 in 2011 from $1,653 in 2010. The Company harvests timber for internal maintenance programs. Generally, timber prices have been depressed for the last several years and the Company has elected to only harvest timber for internal maintenance programs for age class timber and storm protection measures.
Costs and Expenses
Oil and gas production costs, primarily severance taxes, decreased by $4,814 in 2011. This decrease is directly related to lower oil and gas revenues.
Timber expenses increased by $9,074 in 2011 due to increased timber maintenance.
Depreciation and depletion increased by $17,370 in 2011, primarily due to timber depletion during the first quarter of 2011.
7
Financial Condition
Current assets, securities available for sale and non-current certificate of deposits totaled $6,292,311 and total liabilities equaled $388,437 at March 31, 2011. Management believes existing cash and investments together with funds generated from operations should be sufficient to meet operating requirements and provide funds for strategic acquisitions.
The Company declared another seven cents per common share during the quarter ended March 31, 2011, payable April 6, 2011. It is anticipated that the Company will be able to continue paying a seven cents per common share dividend each quarter. 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.
Issues and Uncertainties
This Quarterly Report contains forward-looking statements. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of issues and uncertainties such as those discussed below, which, among others, should be considered in evaluating the Company’s financial outlook.
Revenues from oil and gas provide most of the Company’s income. All of these revenues come from wells operated by other companies from property belonging to CKX Lands, Inc. Consequently, these revenues fluctuate due to changes in oil and gas prices and changes in the operations of the other companies.
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Item 3.
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Not applicable.
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Item 4.
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CONTROLS AND PROCEDURES
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Evaluation of Disclosure Controls and Procedures
The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the period covered by this report. Based on the evaluation, performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by the report.
Changes in Internal Control Over Financial Reporting
There were no significant changes with respect to the Company’s internal control over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter covered by this report.
8
Part II. Other Information
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Item 1 – 5.
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Not Applicable
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Item 6.
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EXHIBITS
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3.1
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Restated/Articles of Incorporation of the Registrant are incorporated by reference to Exhibit (3)-1 to Form 10 filed April 29, 1981.
|
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3.2
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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.
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3.3
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By-Laws of the Registrant are incorporated by reference to Exhibit (3.3) to Form 10-K for year ended December 31, 2003.
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10
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Contract to Purchase and Sell approximately 3,495 acres in Cameron Parish, Louisiana effective July 3, 2007 is incorporated by reference to Exhibit (10) to Form 10-QSB filed August 13, 2007.
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31.1
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Certification of Joseph K. Cooper, President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.
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31.2
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Certification of Brian R. Jones, Treasurer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.
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32
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Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.
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9
Signature
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.
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CKX Lands, Inc.
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|||
| Date: May 12, 2011 |
/s/ Joseph K. Cooper
Joseph K. Cooper
President and Chief Executive Officer
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||
| Date: May 12, 2011 |
/s/ Brian R. Jones
Brian R. Jones
Treasurer and Chief Financial Officer
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10