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CKX LANDS, INC. - Annual Report: 2015 (Form 10-K)

ckx20151231_10k.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

  

  

  

  

Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2015

  

  

  

  

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)

  

  

  

1508 Hodges 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 MKT

Title of each class

  

Name of each exchange on which registered

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes ☐     No ☑

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes ☐     No ☑

 

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 ☑     No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 such shorter period that the registrant was required to submit and post such files). Yes ☑     No ☐

 

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. ☑

 

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  ☐

Accelerated filer  ☐  

Non-accelerated filer 

Smaller reporting company

 

 
 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

YES ☐     NO ☑

 

The aggregate market value of the voting common equity held by non-affiliates of the registrant as of June 30, 2015 based on the closing price on that date of $14.53 was $19,773,862.

 

The number of shares of the registrant’s Common Stock outstanding as of March 29, 2016, was 1,942,495.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the Registrant’s definitive Proxy Statement prepared in connection with the 2016 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.

 

 
 

 

 

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 clarify 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 MKT (previously known as NYSE AMEX), under the symbol CKX. As of March 24, 2016, 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 will provide to stockholders without charge upon their written request a copy of the registrant's annual report on Form 10-K, including the financial statements and the financial statement schedules, required to be filed with the Securities and Exchange Commission for the registrant's most recent fiscal year.  Requests should be sent to Brian Jones, President, CKX Lands, Inc., 1508 Hodges Street, Lake Charles, LA 70601.

 

The Company owns land, timber, and mineral interests and collects income through its ownership in the form of oil and gas royalties, timber sales, and surface leases for farming, right of way and other uses. The Company is not involved in the exploration or production of oil and gas nor does it actively farm its lands.

 

CKX owns a 100% interest in 6,389 acres and undivided interests ranging from 0.260% to 88.889% in 38,080 acres, including a 16.667% interest in 33,715 acres and a 50.000% interest in 1,775, resulting in an ownership of approximately 13,195 net acres.

 

CKX does not perform or cause to have performed oil and gas producing activities inasmuch as: (1) we do not search for crude oil or natural gas in their natural states; (2) we do not acquire property for the purpose of exploration or the removing of oil and gas; and (3) we 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 for the timber. There are several mills in the immediate area that compete for timber. Surface income is received for farming, right of way or other surface land uses. The prices paid for oil, gas and timber depend on national and international market conditions. Prices paid for surface leases depend on regional and local market conditions. Oil and gas revenues were 74.023% of the Company’s total revenues in 2015 and 56.660% in 2014.

 

The source of all raw materials for the Company is the land itself. All oil and gas income will eventually deplete, but we have no access to this depletion information. Timber income and agriculture income are renewable resources.

 

 
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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 three employees, all of whom are part-time. There are two officers, and one clerical person. The Company is subject to no union contracts nor does the Company have any hospitalization, pension, profit sharing, option or deferred compensation programs.

 

Customers

 

The Company’s customers are those who have mineral leases on Company lands, purchase timber in competitive bids or execute surface leases for farm or other purposes. During 2015, the Company received approximately 72.210% of its total revenues from the following customers:

 

Customer

 

Revenue Type

 

% of Total Revenue

EOG Resources, Inc.

 

Oil & Gas

 

15.73%

Riceland Petroleum Company

 

Oil & Gas

 

10.80%

Pintail Oil & Gas LLC

 

Oil & Gas

 

10.60%

Midstates Petroleum Company

 

Oil & Gas

 

8.83%

Swift Energy Operating, LLC

 

Oil & Gas

 

7.71%

Arcadia Operating, LLC

 

Oil & Gas

 

7.15%

Cameron Interstate Pipeline, LLC

 

Surface

 

6.02%

Kaiser-Frances Oil Company

 

Oil & Gas

 

5.37%

 

Loss of cash receipts from any of these customers or revenue streams 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 procedures, 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 approximately 13,195 net acres all located in Louisiana. The approximate gross and net acres located in each Louisiana parish are presented below.

 

Parish

 

Gross
Acres

   

Net
Acres

 
                 

Calcasieu

    16,661       4,169  

Jefferson Davis

    9,890       2,293  

Allen

    9,188       2,657  

Beauregard

    6,277       3,374  

Cameron

    1,703       350  

LaFourche

    240       40  

Natchitoches

    200       200  

Vermilion

    180       30  

St. Landry

    80       32  

Sabine

    50       50  

Total

    44,469       13,195  

  

 
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Included in the 13,195 net acres presented above, are approximately 6,389 acres owned 100% by the Company. The approximate acres located in each Louisiana parish of these 100% owned parcels are presented below.

 

Parish

 

Acres

 
         

Beauregard

    2,714  

Calcasieu

    1,498  

Allen

    1,121  

Jefferson Davis

    644  

Natchitoches

    200  

Cameron

    162  

Sabine

    50  

Total

    6,389  

 

Of the total 13,195 net acres owned by CKX, timber land comprises 9,833 acres, 2,225 acres are agricultural land, 943 acres are marsh land and 194 acres are future subdivision land.

 

The table below shows, for the years ended December 31, 2015 and December 31, 2014, 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 as reported by the various producers.

 

   

Year Ended

12/31/15

   

Year Ended

12/31/14

 

Net gas produced (MCF)

    55,910       46,457  

Average gas sales price (per MCF)(1)

  $ 3.33     $ 5.05  
                 

Net oil produced (Bbl)(2)

    10,590       10,593  

Average oil sales price (per Bbl)(1,2)

  $ 51.67     $ 98.03  

 

Notes to above schedule:

 

(1) Before deduction of severance taxes and other charges.

(2) Excludes plant products.

 

Item 3.

LEGAL PROCEEDINGS

 

The Company was not involved in any legal proceedings as of December 31, 2015.

 

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, 2015.

 

 
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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 MKT (previously known as NYSE AMEX) 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 March 24, 2016, there were approximately 477 stockholders of record. There were no sales of unregistered securities of the Company and no purchases or sales of CKX equity securities during 2015 by the Company. The closing price for the Common Stock was $10.35 on March 28, 2016. The following table sets forth the high and low sales prices for the Common Stock by quarter during 2015 and 2014.

 

   

First

Quarter

   

Second

Quarter

   

Third

Quarter

   

Fourth

Quarter

 
                                 

Common stock price per share 2015                 high

    16.60       16.75       14.10       12.30  

                                                                               Low
    14.16       14.02       10.60       9.42  

Common stock price per share 2014                 high

    16.20       16.80       17.05       16.30  

                                                                                low
    14.26       14.58       15.42       15.40  

 

The Company has changed the manner in which it determines whether a dividend will be declared.  The Company will no longer have a “regular” or “extra” dividend as have been defined in prior filings.  In determining whether a dividend will be declared, the Board of Directors will take into account the Company’s prior fiscal year’s cash flows from operations and the current economic conditions among other information deemed relevant.

  

   

First Quarter

   

Second Quarter

   

Third Quarter

   

Fourth Quarter

   

Year Total

 
                                         

Cash Dividend per Share

                                       

2015

  $ 0.07       0.03       0.00       0.00       0.10  

2014

  $ 0.07       0.07       0.07       0.07       0.28  

 

 

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 2015 and 2014, the Company received $0 and $11,414, 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 a fifty percent undivided interest in approximately 35,575 acres in Southwest Louisiana.

 

Today most of the Company’s income is derived from mineral royalties and timber sales from the Company lands. CKX receives income from royalty interest and mineral leases related to oil and gas production, timber sales, and surface rents. Although CKX is active in the management of its land and planting and harvesting its timber, CKX is passive in the production of income from oil and gas production in that CKX does not explore for oil and gas, or operate wells. These oil and gas activities are performed by unrelated third parties.

 

The Company’s oil and gas income fluctuates as new oil and gas production is discovered on Company land and then ultimately depletes or becomes commercially uneconomical to produce.

 

CKX has small royalty interests in 38 different producing oil and gas fields. The size of each royalty interest is determined by the Company’s net ownership in the acreage unit for the well. CKX’s royalty interests range from 0.0034% for the smallest to 7.62% 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, the Company searches for timberland that has mineral potential.

 

Results of Operations

 

Fiscal Year 2015 Compared to Fiscal Year 2014

 

Total revenues for 2015 were $1,062,101, a decrease of 59.44% when compared with 2014 revenues of $2,618,741. Total revenue consists of oil and gas, timber, and surface revenues.

 

Oil and gas revenues were 74.02% and 56.66% of total revenues for 2015 and 2014, respectively. Oil and gas revenues consist of royalty revenue and lease rental revenue. Oil and gas revenues changed between 2015 and 2014 as follows:

 

   

2015

   

2014

   

$ Change

   

% Change

 

Royalty

  $ 772,212     $ 1,366,281     $ (594,069 )     (43.48 )%

Lease Rental

    13,992       117,499       (103,507 )     (88.09 )%

Total

  $ 786,204     $ 1,483,780     $ (697,576 )     (47.01 )%

**

 

During 2015, gas production increased by approximately 9,403 MCF, and the average gas sales price per MCF decreased by approximately $1.72 resulting in a decrease in gas revenue of $48,455. Revenue from oil production, including plants, decreased by $545,614. This decrease was due to the net effect of a decrease in the average barrel sales price of $46.36, not including plants, and a decrease in production of approximately 14 barrels, not including plants, and a decrease in plants revenue of $53,260.

 

 

 
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The following 6 fields produced 89.04% of the Company’s oil and gas revenues in 2015. The following table shows the number of barrels of oil (Bbl Oil) and MCF of gas (MCF Gas) produced from these fields.

 

Field

 

Bbl Oil

   

MCF Gas

 

South Bear Head Creek

    3,337       2,948  

Gonzales County

    3,136       1,553  

South Jennings

    768       20,807  

South Gordon

    886       17,013  

Cowards Gully

    1,312       3,382  

South Lake Charles

    696       6,771  

 

Notes to above schedule:

 

(1)

Before deduction of severance taxes and other charges.

 

(2)

Excludes plant products.

 

In 2014, the following four fields produced 77.82% of the Company’s oil and gas revenues. The following table shows the number of barrels of oil (Bbl Oil) and MCF of gas (MCF Gas) produced from these fields.

 

Field

 

Bbl Oil

   

MCF Gas

 

South Bear Head Creek

    5,149       3,948  

Cowards Gully

    2,061       4,602  

South Lake Charles

    744       7,935  

South Gordon

    672       4,035  

 

Notes to above schedule:

 

(1)

Before deduction of severance taxes and other charges.

 

(2)

Excludes plant products.

 

From review of the limited information provided by the field operators, it appears that 2 new wells went into production during 2015.

 

In 2015, the Company was a lessor in 2 new mineral leases covering a total of 100.00 gross acres or 16.67 net acres. The new leased acres are located in 2 different parishes.

 

Timber income decreased by $646,745 from 2014. The Company actively marketed its timber during 2015, however the market supply was greater than demand and the company did not close any stumpage agreements. Timber revenue in 2015 was earned under a 2014 stumpage agreement which expires in June, 2016 internal maintenance programs for age class timber and storm protection measures.

 

Surface income decreased by $212,319 from 2014. Surface income includes income from farm leases, right of way grants, hunting leases and other surface leases. This decrease was primarily due to two right of way agreements executed during 2014 which are not recurring revenue.

 

Outlook for Fiscal Year 2016

 

The Company continues to actively search for lands that meet our criteria of timberland with mineral potential. During 2015, the Company purchased 200 acres of timberland and reviewed over 6,000 acres for potential acquisition. With the significant drop in oil and gas prices, the Company anticipates that finding acceptable land at reasonable fair values during 2016 is likely. The Company may consider land purchases outside of southwest Louisiana.

 

 

 
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The average price per Bbl and MCF has dropped significantly during 2015 and the prices in the last quarter of 2015 were the lowest for the year. The Company expects oil and gas revenues to continue to be depressed during 2016. Due to these low average prices, the Company anticipates producers will decrease their exploration and production expenditures in 2016. The Company anticipates 2016 oil and gas revenues to be equal to or less than 2015 revenues.

 

The Company is actively marketing it timber and believes that it will be successful in executing stumpage agreement(s) during 2016. The Company anticipates higher timber revenues in 2016.

 

The Company believes the potential for increased surface revenue in 2016 is likely due to the economic activity in southwest Louisiana. However, at this time the Company is not able to quantify the increased revenue potential.

 

Liquidity and Capital Resources

 

The Company’s current assets totaled $6,201,002 and total liabilities equaled $347,169 at December 31, 2015. Additional sources of liquidity include the Company’s available bank line of credit for $5,000,000.

 

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 and possible land purchases.

 

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 other than the accrual for earned but not received royalties, we have no accounts receivable.

 

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes, 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. Reforestation costs are capitalized and added to the timber asset account. The timber asset is depleted when the timber is harvested based on the relationship between the carrying value of the timber and the total timber volume estimated to be harvested over the harvest cycle.

 

 
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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 2016” in Item 7 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 forecast 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.

 

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

 

The majority of the Company’s operating income comes from the sale of commodities produced from its lands: oil and gas, and timber. Fluctuations in these commodity prices will directly impact net income. In 2015, average gas prices paid to the Company were 33.98% lower than the average in 2014, and average oil prices, excluding plants, were lower in 2015 than in 2014, by 47.29%. If the average oil and gas prices in 2015 reverted to the 2014 averages, income before income tax would have increased by approximately 79.21%.

 

Natural Disasters

 

The Company has approximately 9,833 net acres of timberland (pine and hardwood) in various stages of growth. A typical timber stand will be harvested after 30 to 35 years of growth with some thinning occurring during this time. A natural disaster can have a material adverse effect on timber growth, reducing its value. Natural disasters could include a hurricane, tornado, high winds, heavy rains and/or fire cause by lightning.

 

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 Whitney National Bank with no outstanding balance. The Company has no current plans to draw against this line.

 

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.

 

 
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Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

Item 9A.

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, 2015, an evaluation was performed under the supervision and with the participation of the Company’s management, including the principal executive and 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 and financial officer, concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2015.

 

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 - Integrated Framework (2013) in assessing the effectiveness of the Company’s ICFR. Management shall determine ICFR ineffective if a material weakness exists in the controls.

 

Management has assessed the Company’s ICFR as effective as of December 31, 2015.

 

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 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, 2015, the Company’s Management followed the COSO Internal Control - Integrated Framework (2013) when assessing the ICFR. During the quarter ending December 31, 2015, 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

           

Brian R. Jones

  55  

President, Treasurer and Director

           

Charles D. Viccellio

  82  

Secretary and Director

 

 

The occupations of such executive officers during the last five years and other principal affiliations are:

 

Name

Occupations

   

Brian R. Jones

President since April 25, 2013, Treasurer and Director since December 1, 2006; Managing member of Brian R. Jones CPA, LLC.

   

Charles D. Viccellio

Secretary since 1997 and Director since 1996. Retired attorney from 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.

 

 
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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.

 

 
11

 

 

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-Q for the quarterly period ended March 31, 2013.

 

10

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.

 

 

31

Certification of Brian R. Jones, President and Treasurer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.

 

32

Certification of Brian R. Jones, President and Treasurer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.

 

  101.INS**        XBRL Instance
  101.SCH**        XBRL Taxonomy Extension Schema
  101.CAL**     XBRL Taxonomy Extension Calculation
  101.DEF**     XBRL Taxonomy Extension Definition
  101.LAB**     XBRL Taxonomy Extension Labels
  101.PRE**        XBRL Taxonomy Extension Presentation

 

**XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 

 
12

 

 

 

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 29, 2016.

 

 

CKX LANDS, INC.

BY:     /s/Brian R. Jones                       

Name:     Brian R. Jones

Title:      President and Treasurer

 

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 24, 2016.

 

/s/Brian R. Jones  

Brian R. Jones

President, Treasurer and Director

(Principal Executive and Financial Officer)

   
/s/Charles D. Viccellio  

Charles D. Viccellio

Secretary and 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

   
/s/Michael B. White  

Michael B. White

Director

 

 
13

 

 

CKX LANDS, INC.

 

Table of Contents

 

 

  Page

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

15-16

   

FINANCIAL STATEMENTS

 
   

Balance Sheets

17

Statements of Income

18

Statements of Changes in Stockholders’ Equity

19

Statements of Cash Flows

20

Notes to Financial Statements

21-28

 

 
14

 

  

Report of Independent Registered Public Accounting Firm

 

 

Board of Directors and Stockholders

CKX Lands, Inc.

Lake Charles, Louisiana

 

We have audited the accompanying balance sheet of CKX Lands, Inc. as of December 31, 2015, and the related statements of income, stockholders’ equity, and cash flows for the year ended December 31, 2015. These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit 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, 2015, and the results of its operations and its cash flows for the year ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ MaloneBailey, LLP

www.malonebailey.com

Houston, Texas

March 29, 2016

 

 
15

 

 

[MCELROY, QUIRK & BURCH LETTERHEAD]

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To:

The Board of Directors, and

Stockholders of CKX Lands, Inc.

Lake Charles, Louisiana

 

 

We have audited the accompanying balance sheets of CKX Lands, Inc. as of December 31, 2014 and 2013, and the related statements of income, stockholders' equity, and cash flows for each of the years in the two year period ended December 31, 2014. 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, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.

 

 

 

/s/McElroy, Quirk & Burch

Lake Charles, Louisiana

March 23, 2015

 

 
16

 

 

CKX Lands, Inc.

 

Balance Sheets

December 31, 2015 and 2014

 

 

   

2015

   

2014

 

Assets

 

Current Assets:

               

Cash and cash equivalents

  $ 2,767,424     $ 5,225,594  

Certificates of deposit

    3,324,000       1,680,000  

Accounts receivable

    64,752       146,413  

Prepaid expense and other assets

    44,826       50,085  

Total current assets

    6,201,002       7,102,092  

Non-current Assets

               

Certificates of deposit

    1,200,000       240,000  

Property and equipment:

               

Land

    5,209,846       4,957,135  

Timber

    1,546,088       1,527,425  

Building and equipment less accumulated depreciation of $84,156 and $90,432, respectively

    --       --  

Total property and equipment, net

    6,755,934       6,484,560  

Total assets

  $ 14,156,936     $ 13,826,652  
                 

Liabilities and Stockholders’ Equity

 

Current Liabilities:

               

Trade payables and accrued expenses

  $ 54,402     $ 61,237  

Total current liabilities

    54,402       61,237  

Non-current Liabilities:

               

Deferred income tax payable

    292,767       224,426  

Total liabilities

    347,169       285,663  

Stockholders’ Equity:

               

Common stock, no par value: 3,000,000 shares authorized; 1,942,495 and 2,100,000 shares issued, respectively

    59,335       72,256  

Retained earnings

    13,750,432       13,844,249  

Less cost of treasury stock (0 and 157,505 shares, respectively)

    --       (375,516 )

Total stockholders’ equity

    13,809,767       13,540,989  

Total liabilities and stockholders’ equity

  $ 14,156,936     $ 13,826,652  

 

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

 

 
17

 

 

CKX Lands, Inc.

 

Statements of Income

Years Ended December 31, 2015 and 2014

 

 

   

2015

   

2014

 

Revenues:

               

Oil and gas

  $ 786,204     $ 1,483,780  

Timber

    52,028       698,773  

Surface

    223,869       436,188  

Total revenues

    1,062,101       2,618,741  

Costs, Expenses and (Gains):

               

Oil and gas

    70,240       97,702  

Timber

    8,026       84,183  

Surface

    4,330       1,325  

General and administrative

    501,159       526,781  

Gain on sale of land

    (172,352 )     (350 )

Total cost, expenses and (gains)

    411,403       709,641  

Income from operations

    650,698       1,909,100  

Other Income:

               

Interest income

    23,108       16,907  

Other income

    23,108       16,907  

Income before income taxes

    673,806       1,926,007  

Federal and State Income Taxes:

               

Current

    142,437       598,524  

Deferred

    68,341       42,609  

Total federal and state income taxes

    210,778       641,133  

Net income

  $ 463,028     $ 1,284,874  
                 

Per Common Stock , basic and diluted

               

Net income

  $ 0.24     $ 0.66  

Dividends

  $ 0.10     $ 0.28  
                 

Weighted Average Common Shares Outstanding, basic and diluted

    1,942,495       1,942,495  

 

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

 

 
18

 

 

CKX Lands, Inc.

 

Statements of Changes in Stockholders’ Equity

Years ended December 31, 2015 and 2014

 

   

Total

   

Retained
Earnings

   

Capital
Stock
Issued

   

Treasury
Stock

 

December 31, 2013 Balance

  $ 12,788,600     $ 13,091,860     $ 72,256     $ (375,516 )

Net income

    1,284,874       1,284,874       --       --  

Dividends paid

    (543,899 )     (543,899 )     --       --  

Dividends reversion

    11,414       11,414       --       --  

December 31, 2014 Balance

  $ 13,540,989     $ 13,844,249     $ 72,256     $ (375,516 )

Net income

    463,028       463,028       --       --  

Dividends paid

    (194,250 )     (194,250 )     --       --  

Reclassification of treasury stock under the LBCA

    --       (362,595 )     (12,921 )     375,516  

December 31, 2015 Balance

  $ 13,809,767     $ 13,750,432     $ 59,335     $ --  

 

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

 

 
19

 

 

CKX Lands, Inc.

 

Statements of Cash Flows

Years Ended December 31, 2015 and 2014

 

   

2015

   

2014

 

Cash Flows from Operating Activities:

               

Net income

  $ 463,028     $ 1,284,874  

Adjustments to reconcile net income to net cash used in operating activities:

               

Gain from sale of land

    (172,352 )     (350 )

Timber depletion

    2,872       60,941  

Depreciation

    --       6,241  

Deferred income tax expense

    68,341       42,608  

Change in operating assets and liabilities:

               

Decrease in current assets

    86,920       60,998  

Decrease in current liabilities

    (6,835 )     (14,951 )

Net cash provided from operating activities

    441,974       1,440,361  

Cash Flows from Investing Activities:

               

Certificate of deposits:

               

Maturity proceeds

    3,084,000       3,131,000  

Purchase

    (5,688,000 )     (2,630,000 )

Timber:

               

Purchases

    (21,535 )     (286,727 )

Land:

               

Proceeds

    185,623       350  

Purchases and improvements

    (265,982 )     (425,956 )

Net cash provided used in investing activities

    (2,705,894 )     (211,333 )

Cash Flows from Financing Activities:

               

Dividends paid

    (194,250 )     (543,899 )

Dividend reversions

    --       11,414  

Net cash used in financing activities

    (194,250 )     (532,485 )

Net increase (decrease) in cash and cash equivalents

    (2,458,170 )     696,543  

Cash and Cash Equivalents:

               

Beginning

    5,225,594       4,529,051  

Ending

  $ 2,767,424     $ 5,225,594  
                 

Supplemental Disclosures of Cash Flow Information

               

Cash payments for:

               

Interest

  $ --     $ --  

Income taxes

  $ 134,576     $ 612,000  
                 

Noncash investing and financing activities:

               

Reclassification of treasury stock under the LBCA.

  $ 375,516     $ --  

 

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

 

 
20

 

 

CKX Lands, Inc.

Notes to Financial Statements

 

Note 1.           Nature of Business and Significant Accounting Policies

 

Nature of business:

 

The Company was incorporated in the State of Louisiana on June 27, 1930. The Company’s business is the ownership and management of land. The primary activities consist of leasing its properties for minerals (oil and gas), raising and harvesting timber, and surface use (agriculture, right of ways, hunting).

 

Significant accounting policies:

 

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. All certificates of deposit are held until maturity and recorded at cost which approximates fair value. Certificates of deposit mature through 2017.

 

Property and equipment:

 

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

 

Timber:

 

Reforestation costs and other costs associated with the planting and growth of timber, such as site preparation, purchases of seedlings, planting, fertilization, and herbicide application, are capitalized. Timber carrying costs such as insect, wildlife and wildfire control and forest management services are expensed as incurred.

 

Costs attributable to timber harvested or depleted are charged against revenue as trees are harvested. Depletion rates are determined based on the relationship between the carrying value of the timber and the total timber volume estimated to be harvested over the harvest cycle. Upon the clear-cut harvest of a timber tract, the net timber asset value is expensed.

 

Revenue from timber is recognized upon either the thinning or clear-cut harvesting of our timber and is recorded at such time of such activity. The Company does not enter into timber deed contracts.

 

 
21

 

 

CKX Lands, Inc.

Notes to Financial Statements (continued)

 

Impairment of long-lived assets:

 

Long-lived assets, such as land, timber and buildings and equipment, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If events or circumstances arise that require a long-lived asset to be tested for potential impairment, the Company first compares undiscounted cash flows expected to be generated by the asset to its carrying value. If the carrying amount of the long-lived asset is not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent that the carrying value exceeds the fair value. Fair value maybe determined through various valuation techniques including quoted market prices, third-party independent appraisals and discounted cash flow models. The Company recorded no impairment charges during 2015 and 2014.

 

Oil and gas:

 

Oil and gas revenue is recorded 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 or net revenue.

 

In addition, the Company does accrue estimated oil and gas net revenue earned but not received from these well operators as of the balance sheet date and records this accrued amount as accounts receivable. The accounts receivable balance consists solely of these accrued net revenues.

 

The Company does not have the ability to know the actual production volume or the oil and gas price paid for the production until the actual payment is received from the well’s operator. In estimating the accrued net receivable and its collectability, the Company reviews the prior months of activity by well, available subsequent net revenue receipts by well and any other pertinent information that is available to the Company to estimate the net revenue at the balance sheet date. As of December 31, 2015 and 2014, no allowance for doubtful accounts was recorded.

 

Surface:

 

Surface revenue is earned through annual leases for agricultural and hunting activities and the Company records revenues from these activities at the time of a fully executed lease agreement and receipt of annual lease payment. Surface revenues from these sources are recurring on an annual basis.

 

Surface revenue is also earned through right of way and related temporary work space leases, both of which are not unusual in occurrence and are not recurring sources of revenue. Generally, a right of way lease relates to either a utility or pipeline right of way that is a permanent servitude or for fixed periods of time greater than thirty years. The Company retains ownership of the surface or land and is limited to the use of the surface. Revenue is recorded at the time of the agreement’s execution date. For income tax purposes, these types of agreements are treated as sales of business assets.

 

Other sources of surface revenue can be commercial activities leases and surface mineral sales, such as dirt. At this time, the Company does not have any active agreements related to these “other” sources

 

 
22

 

 

CKX Lands, Inc.

Notes to Financial Statements (continued)

 

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. Any dividend reversions are recorded in equity upon receipt.

 

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 returns that remain subject

to examination, generally 3 years after filing. 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.

 

Treasury Stock - Louisiana Business Corporation Act:

 

Effective January 1, 2015, companies incorporated under Louisiana law became subject to the Louisiana Business Corporation Act (which replaced the Louisiana Business Corporation Law). Provisions of the Louisiana Business Corporation Act (“LBCA”) eliminate the concept of treasury stock and provide that shares reacquired by a company are to be treated as authorized but unissued shares. As a result of this change in law, shares previously classified as treasury stock are presented as a reduction to issued shares of common stock, reducing the stated value of common stock and the excess is charged to retained earnings.

 

Recent Accounting Pronouncements:

 

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2014-09, “Revenue from Contracts with Customers”. This update supersedes most of the existing revenue recognition requirements in GAAP and requires (i) an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services and (ii) requires expanded disclosures regarding the nature, amount, timing, and certainty of revenue and cash flows from contracts with customers. The standard will be effective for annual and interim reporting periods beginning after December 15, 2017, with early application not permitted. The standard allows for either full retrospective adoption, meaning the standard is applied to all periods presented in the financial statements, or modified retrospective adoption, meaning the standard is applied only to the most current period presented. The Company does not believe this change will have an impact on its financial position, results of operations and liquidity.

 

 
23

 

 

CKX Lands, Inc.

Notes to Financial Statements (continued)

 

Recent Accounting Pronouncements (continued):

 

In November 2015, FASB issued changes to the balance sheet classification of deferred taxes, which the Company immediately adopted. These changes simplify the presentation of deferred income taxes by requiring all deferred income tax assets and liabilities to be classified as noncurrent in a classified balance sheet. The current requirement that deferred tax assets and liabilities of a tax-paying component of an entity be offset and presented as a single amount is not affected by these changes. As such, all deferred income tax assets and liabilities were classified in the Deferred income on the December 31, 2015 Balance Sheet. Additionally, no change to the December 31, 2014 Balance Sheet for these changes was necessary.

 

Note 2.     Oil and Gas Leases

 

Results of oil and gas leasing activities for the year ending December 31, 2015 and 2014 are as follows:

 

   

2015

   

2014

 

Gross revenues

               

Royalty interests

  $ 772,212     $ 1,366,281  

Lease Fees

    13,992       117,499  
      786,204       1,483,780  

Production costs

    70,240       97,702  

Results before income tax expense

    715,964       1,386,078  

Estimated income tax expense (40%)

    286,386       554,431  

Results of operations from producing activities excluding corporate overhead

  $ 429,578     $ 831,647  

 

There were no major costs, with the exception of severance taxes, incurred in connection the Company's oil and gas leasing activities, which are located entirely within the United States, during the years ended December 31, 2015 and 2014.

 

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, unrelated to Company, under oil and gas mineral lease agreements.

 

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

   

2015

   

2014

 
                 

Net gas produced (MCF)

    50,304       46,457  

Net oil produced (Bbl)

    11,145       10,593  

  

 
24

 

 

CKX Lands, Inc.

Notes to Financial Statements (continued)

 

Note 3.     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, 2015 and 2014:

 

   

2015

   

2014

 
   

Current

   

Non-Current

   

Current

   

Non-Current

 
                                 

Deferred tax assets

  $ --     $ --     $ --     $ --  

Deferred tax liabilities

    --       (292,767 )     --       (224,426 )
    $ --     $ (292,767 )   $ --     $ (224,426 )

 

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, 2015 and 2014 are as follows:

 

   

2015

   

2014

 

Income tax on income before extraordinary item:

               

Tax at statutory rates

  $ 229,094     $ 654,842  

Tax effect of the following:

               

Statutory depletion

    (39,383 )     (69,680 )

Section 1033 deferred gain

    (58,090 )     (36,217 )

State income tax

    10,481       49,519  

Other

    335       60  

Income tax on income

  $ 142,437     $ 598,524  

 

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, 2015 and 2014 is as follows:

 

   

2015

   

2014

 

Casualty loss

  $ (121,239 )   $ (121,239 )

Deferred gain

    (171,528 )     (103,187 )
    $ (292,767 )   (224,426 )

 

Note 4.     1031 and 1033 Tax Exchanges:

 

During the third quarter of 2015, the Company purchased approximately 200 acres of land. The purchase included fifty percent of the mineral rights and no merchantable timber value was recorded. The 1031 exchange proceeds of $187,500, discussed below, were applied to this transaction.

 

During the second quarter of 2015, the Company sold its 1/6th interest in approximately 155 acres of land located in Jefferson Davis Parish for $187,500 and reported a gain of $172,352. This transaction was structured as a “deferred exchange using a qualified intermediary” pursuant to Paragraph 1031 of the Internal Revenue Code (1031 Exchange) for income tax purposes. Due to the 1031 exchange, the gain of $172,352 is deferred for income tax purposes. The 1031 exchange has been completed and $187,500 in proceeds was used for the purchase of the 200 acres in Natchitoches Parish discussed above.

 

During the third quarter of 2014, the Company sold a right of way to a utility company under threat of expropriation for $106,521 and the gain was $106,521. This transaction was structured as a “deferred exchange” pursuant to Paragraph 1033 of the Internal Revenue Code (1033 Exchange) for income tax purposes and as such the gain of $106,521 was deferred for income tax purposes. During September, 2014, the Company purchased 180 acres of timberland located in Jefferson Davis Parish, Louisiana for $279,828 of which $63,000 was the value of timber on the land. The land valued at $216,828 was used as replacement property for the 1033 Exchange deferred gain above. The Company recognized a deferred income tax of $42,609 on this transaction

 

 
25

 

 

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, surface 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 2015 and 2014:

 

   

2015

   

2014

 

Revenues

               

Oil and Gas

  $ 786,204     $ 1, 483,780  

Timber

    52,028       698,773  

Surface

    223,869       436,188  

Total

    1,062,101       2, 618,741  

Cost and Expenses

               

Oil and Gas

    70,240       97,702  

Timber

    8,026       84,183  

Surface

    4,330       1,325  

Total

    82,596       183,210  

Income from Operations

               

Oil and Gas

    715,964       1, 386,078  

Timber

    44,002       614,590  

Surface

    219,539       434,863  

Total

    979,505       2,435,531  

Other Income (Expense) before Income Taxes

    (305,699 )     (509,524 )

Income before Income Taxes

    673,806       1,926,007  
                 

Identifiable Assets, net of accumulated depreciation and depletion

               

Oil and Gas

    --       --  

Timber

    1,546,088       1,527,425  

Surface

    --       --  

General Corporate Assets

    12,610,848       12,299,227  

Total

    14,156,936       13,826,652  
                 

Capital Expenditures

               

Oil and Gas

    --       --  

Timber

    21,535       286,727  

Surface

    --       --  

General Corporate Assets

    265,982       425,956  

Total

    287,517       712,683  
                 

Depreciation and Depletion

               

Oil and Gas

    --       --  

Timber

    2,872       60,941  

Surface

    --       --  

General Corporate Assets

    --       6,241  

Total

  $ 2,872     $ 67,182  

 

 
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CKX Lands, Inc.

Notes to Financial Statements (continued)

Note 5.     Company Operations (continued)

 

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 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 customers representing 5% or more of total revenue was:

 

Count

   

2015

   

2014

 
1       $167,000       680,000  
2       115,000       624,000  
3       113,000       173,000  
4       94,000       173,000  
5       82,000       160,000  
6       76,000       138,000  
7       64,000       --  
8       57,000       116,000  

 

Note 6.     Line of Credit

 

The Company has available an unsecured line of credit in the amount of $5,000,000. The balance on this line of credit was $-0- at December 31, 2015 and 2014. The line of credit matures on May 15, 2016 and borrowings under the line will bear interest at 2.75% plus the ICE LIBOR rate per annum.

 

Note 7.     Supplementary Income Statement Information

 

Taxes, other than income taxes, of $159,464 and $186,161, were charged to expense during 2015 and 2014, 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 two financial institutions. The amount on deposit in the financial institution is insured by the Federal Deposit Insurance Corporation up to $250,000.

 

Note 10.     Related Party Transactions

 

Office rent of $4,800 and $4,800, was paid to a company owned by the President in 2015 and 2014, respectively.

 

During 2015 and 2014, $792 and $4,517, respectively, was paid to the President’s spouse’s law firm.

 

 
27

 

 

CKX Lands, Inc.

Notes to Financial Statements (continued)

 

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 which approximates fair value.

 

The estimated fair value of the Company's financial instruments at December 31, 2015 and 2014 are as follows.

 

(Presented in thousands)

         

2015

    2014  
   

Level

   

Carrying
Value

   

Fair

Value

   

Carrying
Value

   

Fair

Value

 

Financial Assets:

                                       

Cash and cash equivalents

    1     $ 2,767     $ 2,767     $ 5,226     $ 5,226  

Certificate of deposit – short term

    1       3,324       3,324       1,680       1,680  

Certificate of deposit – long term

    1       1,200       1,200       240       240  
            $ 7,291     $ 7,291     $ 7,146     $ 7,146  

 

 

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