UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2005
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from to
Commission file number 0-9669
CKX LANDS., INC.
(Exact name of small business issuer as specified in its charter)
| Louisiana | 72-0144530 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
One Lakeside Plaza, Lake Charles, Louisiana 70601
(Address of principal executive offices)
337-310-0547
(Issuer’s telephone number)
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ¨
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 1,942,495
Transitional Small Business Disclosure Format (Check one): Yes ¨ No x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No x
CKX Lands, Inc.
Form 10-QSB
For the Quarter Ended September 30, 2005
| Page | ||||
| Part I. Financial Information |
||||
| Item 1. Financial Statements |
||||
| a. Balance Sheet as of September 30, 2005 | 1-2 | |||
| b. Income Statements for the nine months ended September, 2005 and 2004 | 3 | |||
| c. Cash Flow Statements for the nine months ended September 30, 2005 and 2004 | 4 | |||
| d. Stockholder’s Equity Statement for the nine months ended September 30, 2005 | 5 | |||
| e. Notes to Financial Statements | 6 | |||
| Item 2. Management’s Discussion and Analysis or Plan of Operations |
9 | |||
| 11 | ||||
| Part II. Other Information |
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| 12 | ||||
| Signatures | 12 | |||
| Certifications | ||||
Part I. Financial Information
Item1. Financial Statements
CKX Lands, Inc.
Assets
| September 30, 2005 | |||
| Current Assets |
|||
| Cash and cash equivalents |
$ | 1,109,414 | |
| Accounts receivables |
349,411 | ||
| Prepaid expense and income tax |
33,657 | ||
| Interest receivable |
6,953 | ||
| Total Current Assets |
1,499,435 | ||
| Securities Available for Sale |
2,782,147 | ||
| Property and Equipment (less accumulated depreciation of $69,221) |
8,100 | ||
| Timber (less accumulated depletion of $385,156) |
449,091 | ||
| Land |
3,892,845 | ||
| 4,350,036 | |||
| $ | 8,631,618 | ||
See accompanying notes
1
CKX Lands, Inc.
Balance Sheet
Liabilities & Stockholders’ Equity
| September 30, 2005 | |||
| Current Liabilities |
|||
| Trade payables and accrued expenses |
$ | 48,196 | |
| Dividend payable |
135,975 | ||
| Income taxes payable: |
|||
| Deferred |
49,886 | ||
| Total Current Liabilities |
234,057 | ||
| Stockholders’ Equity |
|||
| Common stock, no par value: 3,000,000 shares authorized; 2,100,000 shares issued |
$ | 72,256 | |
| Retained earnings |
8,675,592 | ||
| Accumulated other comprehensive income |
25,229 | ||
| 8,773,077 | |||
| Less cost of treasury stock (157,505 shares) |
375,516 | ||
| 8,397,561 | |||
| $ | 8,631,618 | ||
See accompanying notes
2
CKX Lands, Inc.
| Quarter Ended September 30, 2005 |
Quarter Ended September 30, 2004 |
Nine Months Ended September 30, 2005 |
Nine Months Ended September 30, 2004 | |||||||||
| Revenues: |
||||||||||||
| Oil and gas |
$ | 608,948 | $ | 567,147 | $ | 1,724,486 | $ | 1,561,571 | ||||
| Agriculture |
44,189 | 75,052 | 129,974 | 173,707 | ||||||||
| Timber |
5,108 | 167,912 | 51,836 | 217,655 | ||||||||
| 658,245 | 810,111 | 1,906,296 | 1,952,933 | |||||||||
| Costs and expenses: |
||||||||||||
| Oil and gas production |
39,569 | 34,197 | 106,154 | 101,618 | ||||||||
| Agriculture |
1,967 | 2,516 | 3,211 | 5,064 | ||||||||
| Timber |
42,011 | 12,350 | 57,121 | 20,963 | ||||||||
| General and administrative |
61,229 | 79,881 | 269,158 | 262,432 | ||||||||
| Depreciation and depletion |
1,750 | 10,178 | 8,535 | 15,774 | ||||||||
| 146,526 | 139,122 | 444,179 | 405,851 | |||||||||
| Income from operations |
511,719 | 670,989 | 1,462,117 | 1,547,082 | ||||||||
| Other income (expense): |
||||||||||||
| Gain-Sale of land |
1,426 | |||||||||||
| Interest income |
20,974 | 15,808 | 50,095 | 39,817 | ||||||||
| Dividends on stock |
7,195 | 5,395 | 20,066 | 18,714 | ||||||||
| Gain-Sale of Securities |
86,458 | |||||||||||
| 28,169 | 21,203 | 70,161 | 146,415 | |||||||||
| Income before income taxes |
539,888 | 692,192 | 1,532,278 | 1,693,497 | ||||||||
| Federal and state income taxes: |
||||||||||||
| Current |
170,704 | 224,976 | 486,032 | 539,143 | ||||||||
| Deferred |
||||||||||||
| 170,704 | 224,976 | 486,032 | 539,143 | |||||||||
| Net Income |
$ | 369,184 | $ | 467,216 | $ | 1,057,712 | $ | 1,154,354 | ||||
| Per common stock (2005; 1,942,495 shares; 2004; 1,942,495 shares) |
$ | .19 | $ | .24 | $ | .54 | $ | .59 | ||||
| Dividends per share |
$ | .07 | $ | .07 | $ | .31 | $ | .21 | ||||
See accompanying notes
3
CKX Lands, Inc.
Statement of Changes in Cash Flows
| Nine Months Ended September 30, 2005 |
Nine Months Ended September 30, 2004 |
|||||||
| Cash Flows From Operating Activities |
||||||||
| Net Income |
$ | 1,057,712 | $ | 1,154,354 | ||||
| Noncash (income) expenses included in net income: |
||||||||
| Depreciation and depletion |
8,535 | 15,774 | ||||||
| Timber loss |
28,666 | |||||||
| (Gain) on sale of assets |
(87,884 | ) | ||||||
| (Increase) decrease in current assets |
(39,320 | ) | (128,858 | ) | ||||
| Increase (decrease) in current liabilities |
35,824 | 4,038 | ||||||
| Net cash provided by operating activities |
1,091,417 | 957,424 | ||||||
| Cash Flows From Investing Activities |
||||||||
| Proceeds from sale of land |
5,454 | |||||||
| Purchase of available for sale securities |
(1,582,042 | ) | (2,060,625 | ) | ||||
| Sale of available for sale securities |
999,993 | 1,815,878 | ||||||
| Purchase of property, equipment and timber |
(11,736 | ) | (15,579 | ) | ||||
| Net cash provided by (used in) investing activities |
(593,785 | ) | (254,872 | ) | ||||
| Cash Flows From Financing Activities |
||||||||
| Dividends paid net of refunds |
(602,623 | ) | (395,812 | ) | ||||
| Net cash (used in) financing activities |
(602,623 | ) | (395,812 | ) | ||||
| Net increase (decrease) in cash and cash equivalents |
(104,991 | ) | 306,740 | |||||
| Cash and cash equivalents: |
||||||||
| Beginning |
1,214,405 | 527,219 | ||||||
| Ending |
$ | 1,109,414 | $ | 833,959 | ||||
See accompanying notes
4
CKX Lands, Inc.
Statement of Changes in Stockholders’ Equity
Nine Months Ended September 30, 2005
| Comprehensive Income |
Retained Earnings |
Accumulated Other Comprehensive Income |
Capital Stock Issued |
Treasury Stock |
|||||||||||||||
| Balance, December 2004 |
$ | 8,220,502 | $ | 50,781 | $ | 72,256 | ($ | 375,516 | ) | ||||||||||
| Comprehensive income: |
|||||||||||||||||||
| Net income |
$ | 1,057,712 | 1,057,712 | ||||||||||||||||
| Other comprehensive income: |
|||||||||||||||||||
| Unrealized holdings loss occurring during period net of taxes of $17,034 |
(25,552 | ) | (25,552 | ) | |||||||||||||||
| Total comprehensive income |
$ | 1,032,160 | |||||||||||||||||
| Dividends |
(602,622 | ) | |||||||||||||||||
| Balance, September 30, 2005 |
$ | 8,675,592 | $ | 25,229 | $ | 72,256 | ($ | 375,516 | ) | ||||||||||
See accompanying notes
5
CKX Lands, Inc.
September 30, 2005
(Unaudited)
Note 1. Basis of Presentation
In the opinion of management, the accompanying balance sheet and related interim statements of income, cash flows, and stockholders’ equity include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in accordance with generally accepted accounting principles of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-QSB should be read in conjunction with Management’s Discussion and Analysis and financial statements and notes thereto included in the CKX Lands, Inc. 2004 Form 10-KSB.
Note 2. Nature of Business and Significant Accounting Policies
Nature of business:
The Company’s business is the ownership and management of land. The primary activities consist of leasing its properties for minerals (oil and gas) and agriculture and raising timber.
Significant accounting polices:
Cash and equivalents:
For purposes of the statement of cash flows, cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities of three months or less.
Pervasiveness of estimates:
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 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.
6
CKX Lands, Inc.
Notes to Financial Statements—(Continued)
September 30, 2005
(Unaudited)
Investment securities:
The Company complies with the provisions of Financial Accounting Standards Board Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities. Under the provisions of this statement, management must make a determination at the time of acquisition whether certain investments in debt and equity securities are to be held as investments to maturity, held as available for sale, or held for trading. Management, under a policy adopted by the board of directors of the Company, made a determination that all debt and equity securities owned at that date and subject to the provisions of the statement would be classified as held available-for-sale.
Under the accounting policies provided for investments classified as held available-for-sale, all such debt securities and equity securities that have readily determinable fair value shall be measured at fair value in the balance sheet. Unrealized holding gains and losses for available-for-sale securities shall be excluded from earnings and reported as a net amount (net of income taxes) as a separate component of retained earnings until realized. Realized gains and losses on available-for-sale securities are included in income. The cost of securities sold is based on the specific identification method. Interest on debt securities is recognized in income as earned, and dividends on marketable equity securities are recognized in income when declared.
Declines in the fair value of available-for-sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
Property and equipment:
Property and equipment is stated at cost. Major additions are capitalized; maintenance and repairs are charged to income currently. Depreciation is computed on the straight-line and accelerated methods over the estimated useful lives of the assets.
Timber:
When timber land is purchased with standing timber, the cost is divided between land and timber based on timber cruises contracted by the Company. The costs of reforestation are capitalized. The timber asset is amortized when the timber is sold based on the percentage of the timber sold from a particular tract applied to the amount capitalized for timber for that tract.
7
CKX Lands, Inc.
Notes to Financial Statements—(Continued)
September 30, 2005
(Unaudited)
Oil and gas:
Oil and gas income is booked when the Company is notified by the well’s operators as to the Company’s share of the sales proceeds together with the withheld severance taxes. The Company has no capitalized costs relating to oil and gas producing activities and no costs for property acquisition, exploration and development activities.
Note 3. Earnings per share:
Earnings per share is based on the weighted average number of common shares outstanding during the year.
Note 4. 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.
Note 5. Contingencies:
There are no material contingencies known to management. The Company does not participate in off balance sheet arrangements.
8
Item 2. Management’s Discussion and Analysis or Plan of Operation
Results of Operations
Revenue
Revenue for the first nine months of 2005 was $1,906,296 a decrease 2.4% or $46,637 compared to the first nine months of 2004. Oil and gas revenue was up $162,915 while agriculture was down $43,733 and timber was down $165,819. The oil and gas revenues in the third quarter of 2005 were up 7.4% over the third quarter of 2004 while agriculture revenues were down 41.1% and timber revenues were down $162,804 or 97%.
Oil and gas revenues included $226,242 from seismic permits and mineral leases for the first nine months ended September 30, 2005, compared to $55,580 for the same period in 2004, an increase of $170,662. Oil and gas royalty revenues were down $7,747 in 2005 compared to 2004. Shown below are comparisons for the two periods of oil and gas production and income from the six largest interests owned by the Company.
9
| Nine Months Ended September 30, 2005 |
Nine Months Ended September 30, 2004 | |||||
| Oil income |
$ | 508,020 | $ | 716,507 | ||
| Barrels produced |
14,144 | 19,737 | ||||
| Average price per barrel |
$ | 50.08 | $ | 36.30 | ||
| Gas income |
$ | 653,010 | $ | 534,366 | ||
| MCF produced |
84,239 | 78,740 | ||||
| Average price per mcf |
$ | 7.75 | $ | 6.79 | ||
Our share of barrels of oil produced declined by 7,183 from the South Gordon Field; 2,147 from the Vinton Field; and 271 from the Castor Creek Field.
Our gas production increased by 20,801 mcf from the Castor Creek Field and decreased by 13,196 mcf from the South Gordon Field.
The decrease in agriculture income was due to right of way income in 2004 for transmission lines and lower hunting leases in 2005. The hunting lease income decrease was caused by Hurricane Rita.
The decrease in timber income was also caused by Hurricane Rita. Negotiations for timber sales that were in process were cancelled by the hurricane. It not only damaged tracts under negotiation it also decreased market prices since the local market was flooded by timber on the ground.
Operating Expenses
Total costs and expenses increased $38,328 in 2005 over 2004. Beginning in 2005 the Company began accruing estimated property taxes. This amounted to $37,230 as of September 30, 2005. The Company estimates a six percent loss to its timber inventory as a consequence of Hurricane Rita. This resulted in a timber expense of $28,666 in the quarter ended September 30, 2005.
Income
Net income before income taxes for the nine months ended September 30, 2005, was $161,219 less than the nine months ended September 30, 2004. Of this amount $86,458 was a gain on sale of securities in 2004 and the balance was a combination of lower revenues and higher costs and expenses. Net income after taxes was $98,032 lower in the third quarter of 2005 compared to the third quarter of 2004, and $96,642 less for the nine months ended September 30, 2005, compared to the nine months ended September 30, 2004.
Financial Condition
Current assets plus securities available for sale totaled $4,281,582 on September 30, 2005, compared with $3,807,789 on December 31, 2004, and $3,451,394 on September 30, 2004. Current liabilities, which were also total liabilities were $234,057 on September 30, 2005, compared to $215,267 on December 31, 2004, and $191,374 on September 30, 2004.
10
Management believes existing cash and short-term investments together with funds generated from operations should be sufficient to meet operating requirements and provide funds for strategic acquisitions.
The Company declared the normal seven cents per common share during the quarter ended September 30, 2005. It is anticipated that the Company will be able to continue paying a seven cents per common share dividend per quarter.
Issues and Uncertainties
This Quarterly Report contains statements that are forward-looking. 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 listed 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.
The Company is working to salvage as much downed timber as possible. Recoveries will have to be marketed immediately. It isn’t possible to estimate potential recoveries.
During October, 2005, an additional well was completed by Cox and Perkins in the South Gordon field. CKX Lands, Inc. has a 3.25% interest in the unit. Initial production is 1,000 barrels of oil and 1,500,000 cubic feet of gas per day.
There are three wells in progress on Walker Louisiana lands. CKX Lands interest will vary from production if successful from .625% to 2.50%. In addition Walker Louisiana has twenty mineral leases in force. CKX Lands, Inc. has five mineral leases in force.
Item 4. Controls and Procedures
Under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rule 13a -15(e) as of September 30, 2005. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.
11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
| 31.1 | Certification of Arthur Hollins, III, President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith. | |
| 31.2 | Certification of William D. Blake, Vice-President and Treasurer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith. | |
| 32 | Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
(B) Reports on Form 8-K
A Form 8-K was filed August 4, 2005, reporting the resignation of Troy Freund as a member of the Board of Directors due to personal reasons. Mr. Freund’s resignation did not involve a disagreement with the Corporation on any matter.
Items 1, 2, 3 and 5 are not applicable.
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.
| CKX Lands, Inc. | ||||
| Date: November 3, 2005 |
/s/ William D. Blake | |||
| William D. Blake Vice-President and Treasurer Chief Financial Officer | ||||
| /s/ Arthur Hollins, III | ||||
| Arthur Hollins, III President and Chief Executive Officer | ||||
12