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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

 

For the quarterly period ended June 30, 2014

 

 

☐    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)

 

 

Louisiana

 

72-0144530

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

     
     

1508 Hodges Street

   

Lake Charles, LA

 

70601

(Address of principal executive offices)

 

(Zip Code)

     
 

(337) 493-2399

 
 

(Registrant’s telephone number)

 

 

 

 

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 Web site, if any, everyInteractive 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  ☒     No  ☐

 

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 Exchange Act).     Yes ☐     No  ☒

 

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 June 30, 2014

 

Table of Contents

 

 

 

Page

Part I. Financial Information

  

  

  

  

  

 

Item 1.

Financial Statements

 

  

  

  

  

  

a.

Balance Sheets as of June 30, 2014 and December 31, 2013 (Unaudited)

1

  

b.

Statements of Income for the quarter and six months ended June 30, 2014 and 2013 (Unaudited)

2

  

c.

Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2014 and 2013 (Unaudited)

3

  

d.

Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (Unaudited)

4

  

e.

Notes to Financial Statements as of June 30, 2014 (Unaudited)

5

  

  

  

  

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

6-7

  

  

  

  

 

Item 4.

Controls and Procedures

8

  

  

  

  

Part II. Other Information

  

  

  

  

  

 

Item 6.

Exhibits

9

  

  

  

  

 

 

Signature

9

 

 

 
 

 

 

Part I – Financial Information

 

 

Item 1.

FINANCIAL STATEMENTS

 

CKX Lands, Inc.

Balance Sheets

June 30, 2014 and December 31, 2013

(Unaudited)

 

    2014     2013  
Assets    

Current Assets:

               

Cash and cash equivalents

  $ 4,350,756     $ 4,529,051  

Certificates of deposit

    2,390,000       2,421,000  

Accounts receivable

    171,639       228,014  

Prepaid expense and other assets

    129,832       29,482  

Total current assets

    7,042,227       7,207,547  

Property and equipment:

               

Building and equipment less accumulated depreciation of $87,533 and $84,191, respectively

    2,898       6,241  

Timber less accumulated depletion of $754,390 and $742,248, respectively

    1,499,100       1,301,639  

Land

    4,738,857       4,531,179  

Total property and equipment, net

    6,240,855       5,839,059  

Total assets

  $ 13,283,082     $ 13,046,606  
                 
Liabilities and Stockholders’ Equity  

Current Liabilities:

               

Trade payables and accrued expenses

  $ 62,745     $ 76,188  

Total current liabilities

    62,745       76,188  

Deferred income tax payable

    181,818       181,818  

Total liabilities

    244,563       258,006  

Stockholders’ Equity:

               

Common stock, no par value: 3,000,000 shares authorized; 2,100,000 shares issued

    72,256       72,256  

Retained earnings

    13,341,779       13,091,860  

Less cost of treasury stock (157,505 shares)

    (375,516 )     (375,516 )

Total stockholders’ equity

    13,038,519       12,788,600  

Total liabilities and stockholders’ equity

  $ 13,283,082     $ 13,046,606  

 

 

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

 

 

 
1

 

 

CKX Lands, Inc.

Statements of Income

Quarter and Six Months Ended June 30, 2014 and 2013

(Unaudited)

 

 

   

Quarter Ended June 30,

   

Six Months Ended June 30,

 
   

2014

   

2013

   

2014

   

2013

 

Revenues:

                               

Oil and gas

  $ 437,865     $ 358,013     $ 857,437     $ 847,004  

Timber

    15,089       41,382       15,089       55,141  

Surface

    16,779       56,612       215,519       89,427  

Total revenues

    469,733       456,007       1,088,045       991,572  

Costs and Expenses:

                               

Oil and gas production

    25,197       16,620       50,101       52,517  

Timber

    870       3,572       870       15,949  

Surface

    781       695       794       822  

General and administrative

    148,341       117,991       267,948       255,413  

Depreciation and depletion

    13,813       6,875       15,484       14,834  

Total cost and expenses

    189,002       145,753       335,197       339,535  

Income from operations

    280,731       310,254       752,848       652,037  

Other Income / (Expense):

                               

Interest income

    3,762       2,581       7,833       8,014  

Net other income / (expense)

    3,762       2,581       7,833       8,014  

Income before income taxes

    284,493       312,835       760,681       660,051  

Federal and state income taxes:

                               

Current

    83,784       96,384       238,813       200,059  

Total income taxes

    83,784       96,384       238,813       200,059  

Net Income

  $ 200,709     $ 216,451     $ 521,868     $ 459,992  
                                 

Per Common Stock (1,942,495 shares):

                               

Net Income

  $ 0.10     $ 0.11     $ 0.27     $ 0.24  

Dividends

  $ 0.07     $ 0.07     $ 0.14     $ 0.14  

 

 

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

 

 

 
2

 

 

 

CKX Lands, Inc.

Statements of Changes in Stockholders’ Equity

Six Months Ended June 30, 2014 and 2013

(Unaudited)

 

Six Months Ended June 30, 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

    521,868       521,868       --       --  

Dividends

    (271,949 )     (271,949 )     --       --  

June 30, 2014 Balance

  $ 13,038,519     $ 13,341,779     $ 72,256     $ 375,516  

 

 

Six Months Ended June 30, 2013:                        
   

Total

   

Retained
Earnings

   

Capital
Stock
Issued

   

Treasury
Stock

 

December 31, 2012 Balance

  $ 12,362,728     $ 12,665,988     $ 72,256     $ 375,516  

Net income

    459,992       459,992       --       --  

Dividends

    (271,949 )     (271,949 )     --       --  

June 30, 2013 Balance

  $ 12,550,771     $ 12,854,031     $ 72,256     $ 375,516  

 

 

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

 

 

 
3

 

 

CKX Lands, Inc.

Statements of Cash Flows

Six Months Ended June 30, 2014 and 2013

(Unaudited)

 

   

2014

   

2013

 

Cash Flows From Operating Activities:

               

Net Income

  $ 521,868     $ 459,992  

Less non-cash (income) expenses included in net income:

               

Depreciation, depletion and amortization

    15,484       14,834  

Change in operating assets and liabilities:

               

Decrease (increase) in current assets

    (43,975 )     46,485  

Increase (decrease) in current liabilities

    (13,443 )     17,741  

Net cash provided from operating activities

    479,934       539,052  
                 

Cash Flows From Investing Activities:

               

Certificates of deposit:

               

Maturity proceeds

    1,941,000       501,384  

Purchases

    (1,910,000 )     (1,501,000 )

Land, timber, equipment and other assets:

               

Purchases

    (417,280 )     (2,499 )

Net cash used in investing activities

    (386,280 )     (1,002,115 )
                 

Cash Flows From Financing Activities:

               

Dividends paid, net of reversion

    (271,949 )     (271,949 )

Net cash used in financing activities

    (271,949 )     (271,949 )

Net increase (decrease) in cash and cash equivalents

    (178,295 )     (735,012 )
                 

Cash and cash equivalents:

               

Beginning

    4,529,051       5,832,167  

Ending

  $ 4,350,756     $ 5,097,155  
                 

Supplemental disclosures of cash flow information:

               

Cash payments for:

               

Interest

  $ --     $ --  

Income taxes

  $ 276,000     $ 208,545  
                 

Supplemental schedule of non-cash investing and financing activities:

               

Net change in recognized and unrecognized unrealized gains (losses) on available-for-sale securities

  $ --     $ --  

 

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

 

 

 
4

 

 

CKX Lands, Inc.

Notes to Financial Statements

June 30, 2014

(Unaudited)

 

 

Note 1:       Basis of Presentation

 

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, 2013. 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 should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2013and Form 10-Q for the quarter period ended June 30, 2013.

 

Note 2:       Income Taxes:

 

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 that remain subject to examination, generally three 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.

 

 

 
5

 

 

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

 

Results of Operations

 

Revenue

 

Comparison of Revenues for the six months ended June 30, 2014 and 2013 follows:

 

   

2014

   

2013

   

$ Change

   

% Change

 

Oil and Gas

    857,437       847,004       10,433       1.23 %

Timber

    15,089       55,141       (40,052 )     (72.64 )%

Surface

    215,519       89,427       126,092       141.00 %

 

Oil and Gas

 

CKX leases its property to oil and gas operators and collects income through its land ownership in the form of oil and gas royalties and lease rentals and geophysical revenues. A breakdown of oil and gas revenues follows:

 

   

2014

   

2013

   

$ Change

   

% Change

 

Oil

    669,971       680,181       (10,210 )     (1.50 )%

Gas

    101,035       91,295       9,740       10.67 %

Lease and Geophysical

    86,431       75,528       10,903       14.44 %
                                 

Total

    857,437       847,004       10,433       1.23 %

 

 

CKX received oil and gas revenues from 106 and 96 wells during the quarter ended June, 2014 and 2013, respectively. The following schedule summarizes barrels and MCF produced and average price per barrel and per MCF.

 

   

2014

   

2013

 

Net oil produced (Bbl)(2)

    6,048       5,753  

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

  $ 100.48     $ 104.15  
                 

Net gas produced (MCF)

    19,387       21,655  

Average gas sales price (per MCF)(1)

  $ 5.21     $ 4.22  

 

Notes to above schedule:

 

(1) Before deduction of production and severance taxes.

(2) Excludes plant products.

 

 

Lease and geophysical increased $10,903 from the 2013 amounts. These revenues are not predictable and can vary significantly from year to year.

 

Management believes that current oil and gas activity is driven by the current and forecasted commodity prices and demand for oil and gas. Management believes that oil and gas activity which includes oil and gas production as well as lease rentals and geophysical will continue to be strong for the next six months.

 

 

 
6

 

 

Timber prices have improved since the comparative prior year quarter, and the Company has negotiated a stumpage agreement on acceptable terms and conditions and these timber revenues will begin to be reported in the third quarter of 2014.

 

Surface revenue increased by $126,092 from 2013 revenue. This increase is primarily attributable to one right of way agreement, $173,177 in revenue, for a large pipeline to service the expanding petrochemical industry in Southwest Louisiana. The Company is currently negotiating another pipeline agreement of similar scope. Pipeline and other right of ways are not unusual to the Company; however agreements of this scope are unusual. These revenues are not predictable and can vary significantly from year to year.

 

 

Costs and Expenses

 

Oil and gas production costs, primarily severance taxes, decreased by $2,416 in 2014. Although oil and gas revenues increases, the decrease in most likely due to certain Louisiana tax incentives for new well activities.

 

General and administrative expenses increased by $12,535 primarily due to increases in officer incentive pay, director pay , the timing of our annual meeting expenses, and professional services related to investigation of potential land acquisitions and legal services. These increases were offset by a non-recurring property management expense related to personnel changes at one of our managers in the prior year.

 

Other costs and expenses incurred for the six months ended June 30, 2014 were generally consistent with 2013 reported amounts.

 

Financial Condition

 

Current assets totaled $7,042,227 and total liabilities equaled $244,563 at June 30, 2014. Management believes available cash and certificates of deposit together with funds generated from operations should be sufficient to meet operating requirements and provide funds for strategic acquisitions. Additional sources of liquidity include an available bank line of credit of $5,000,000.

 

The Company declared and paid a seven cents per common share during the quarter ended June 30, 2014. 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 a significant portion of the Company’s net income and cash flows. These revenues come from wells operated by other companies on property owned by CKX Lands, Inc. Consequently, these revenues fluctuate due to changes in oil and gas prices and changes in the operations of these other companies.

 

 

 
7

 

 

 

Item 3.

Not applicable.

 

Item 4.

CONTROLS AND PROCEDURES

 

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 President, 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

 

 

Item 1 – 5.

Not Applicable

 

Item 6.

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 quarter 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 President and Treasurer 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.

 

 

************************************

 

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.

 

 

CKX Lands, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

Date: August 7, 2014

/s/ Brian R. Jones

 

  Brian R. Jones  
  President and Treasurer  

 

 

 9