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, 2000 Commission file number 1-737
TEXAS PACIFIC LAND TRUST
------------------------
(Exact name of registrant as specified in its charter)
Not Applicable 75-0279735
- -------------- ----------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
80 Broad Street, Suite 2700, New York, New York 10004
-----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (212) 269-2266
Securities registered pursuant to Section 12(b) of the Act:
Name of Each
Title of Each Class Exchange on Which Registered
- ------------------- ----------------------------
Sub-shares in Certificate of
Proprietary Interest New York Stock Exchange
(par value $.16-2/3 per share)
Securities Registered Pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
---- ----
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 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. X
---
As of January 31, 2001, the aggregate market value of the voting stock
held by non-affiliates of the registrant is approximately $98,448,041.
Documents Incorporated by Reference: None.
ITEM 1: BUSINESS.
(a) General Development of Business. The registrant (hereinafter called
"Texas Pacific" or the "Trust") was organized under a Declaration of Trust dated
February 1, 1888, to receive and hold title to extensive tracts of land in the
State of Texas, previously the property of the Texas and Pacific Railway
Company, and to issue transferrable Certificates of Proprietary Interest pro
rata to the holders of certain debt securities of the Texas and Pacific Railway
Company. The Trustees are empowered under the Declaration of Trust to manage the
lands with all the powers of an absolute owner, and to use the lands and the
proceeds of sale of the lands, either to pay dividends to the Certificate
holders or to buy in and cancel outstanding Certificates. The Trust's income is
derived primarily from land sales, oil and gas royalties, grazing leases, and
interest. This method of operation has continued through the present. During the
last five years there has not been any reorganization, disposition of any
material amount of assets not in the ordinary course of business (although in
the ordinary course of business Texas Pacific does sell or lease large tracts of
land owned by it), or any material change in the mode of conducting business.
Texas Pacific's income from oil and gas royalties has been limited in
the past by the level of production authorized for prorated wells each year by
the regulations of the Railroad Commission of Texas. The monthly percentage of
allowable production has averaged 100% in recent years but because of the
limited capacity of older wells and other operating problems, the percentage
permitted by the Commission could not be produced by most operators.
(b) Financial Information about Industry Segments. Texas Pacific does
not have identifiable industry segments, although as shown in the Statements of
Income included in the financial statements, land sales, oil and gas royalties
and interest income are the major contributors to the income of Texas Pacific.
The Trust's management views its operations as one segment and believes the only
significant activity is managing the land which was conveyed to the Trust in
1888. Managing the land includes sales
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and leases of such land, and the retention of oil and gas royalties. See
Statements of Income for additional sources of income for the last three (3)
years of Texas Pacific.
(c) Narrative Description of Business. As previously indicated the
business done and intended to be done by Texas Pacific consists of sales and
leases of land owned by it, retaining oil and gas royalties, temporary cash
investments and the overall management of the land owned by it.
(i) During the last three fiscal years the following items have
accounted for more than fifteen percent (15%) of consolidated
revenues.
2000 1999 1998
---- ---- ----
Interest -- 16% --
Land Sales 19% -- 48%
Oil and Gas Royalties 54% 46% 24%
(ii) Texas Pacific is not in the business of development of new
products.
(iii) Raw materials are not necessary to the business of Texas
Pacific.
(iv) Patents, trademarks, licenses, franchises or concessions held
are not material to any business of Texas Pacific.
(v) The business of Texas Pacific is not seasonal in nature.
(vi) The business of Texas Pacific does not require Texas Pacific
to maintain any particular amount or item of working capital.
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(vii) Texas Pacific Land Trust received in 2000 $831,428 or 20
percent of its oil and gas royalty income from 80 leases
operated by Texaco, Inc.
(viii) Backlogs are not relevant to an understanding of Texas
Pacific's business.
(ix) No material portion of Texas Pacific business is subject to
renegotiation or termination at the election of the
Government.
(x) The Trust does not have competitors as such in that it sells,
leases and generally manages land owned by it and to that
extent any owner of property located in areas comparable to
the Trust is a potential competitor.
(xi) Research activities relating to the development of new
products or services or to the improvement of existing
products or services are not material to the Trust's business.
(xii) Compliance with Federal, State and local provisions that have
been enacted or adopted regulating the discharge of materials
into the environment, or otherwise relating to the protection
of the environment, have had no material effect upon the
capital expenditures, earnings and competitive position of
Texas Pacific. To date Texas Pacific has not been called upon
to expend any funds for these purposes.
(xiii) Texas Pacific has nine (9) full-time employees.
(d) Financial Information about Foreign and Domestic Operations and
Export Sales. Texas Pacific does not and has not during the preceding three (3)
fiscal years had any export sales or foreign operations and the only geographic
area in the United States in which land is sold or income derived is Texas.
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ITEM 2: PROPERTIES.
Texas Pacific Land Trust owns the surface estate in approximately
1,035,563.73 acres of land located in 21 counties in the western part of Texas.
Also, the Trust owns a 1/128 nonparticipating perpetual oil and gas royalty
interest under 85,413 acres of land and a 1/16 nonparticipating perpetual oil
and gas royalty interest under 386,988 acres of land in the western part of
Texas. At December 31, 2000, grazing leases were in effect on 99.1 percent or
approximately 1,026,351.6 acres of the Trust's land. Approximately 19,592.35
acres of land were sold in 2000. The Trust leases office space in Dallas, Texas
and New York, New York.
ITEM 3: LEGAL PROCEEDINGS.
Texas Pacific is not involved in any material pending legal
proceedings.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
This item is not applicable to Texas Pacific.
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ITEM 5: MARKET FOR SUB-SHARE CERTIFICATES AND RELATED SECURITY HOLDER MATTERS.
The range of reported sales for sub-shares on the New York Stock
Exchange for the past two years has been as follows:
2000 1999
------------------ ------------------
HIGH LOW HIGH LOW
------ ------ ------ ------
1st Quarter $43.00 $35.50 $59.50 $48.25
2nd Quarter 44.00 34.38 50.06 44.50
3rd Quarter 46.00 37.69 55.13 44.06
4th Quarter 38.25 33.50 46.38 37.75
Certificates of Proprietary Interest and sub-shares are interchangeable
in the ratio of one certificate for 600 sub-shares or 600 sub-shares for one
Certificate of Proprietary Interest. Texas Pacific has paid a dividend once a
year for the preceding 44 years. The dividend was $.40 per sub-share in 2000 and
$.40 per sub-share in 1999. Texas Pacific is not a party to any agreement that
would limit its ability to pay dividends in the future, although any future
dividends are subject to sufficient earnings of the Trust being accomplished.
The approximate number of holders of certificates of proprietary
interest and sub-shares as of January 31, 2001 were:
Certificates of proprietary interest 1
Sub-shares in certificates of proprietary interest 800
---
TOTAL 801
===
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ITEM 6: SELECTED FINANCIAL DATA.
SUMMARY OF SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
Gross income $ 7,798,999 $ 5,924,237 $10,479,670 $13,075,037 $ 8,581,087
Expenses 2,456,242 1,724,815 1,638,132 3,243,920 2,442,527
----------- ----------- ----------- ----------- -----------
Income before
Federal income
taxes 5,342,757 4,199,422 8,841,538 9,831,117 6,138,560
Federal income
taxes 1,584,688 1,261,595 2,808,277 3,124,376 1,874,287
----------- ----------- ----------- ----------- -----------
Net income $ 3,758,069 $ 2,937,827 $ 6,033,261 $ 6,706,741 $ 4,264,273
=========== =========== =========== =========== ===========
Net income per
Sub-share $ 1.47 $ 1.11 $ 2.22 $ 2.39 $ 1.46
Dividends per
Sub-share $ .40 $ .40 $ .40 $ .40 $ .40
Average number
of Sub-shares
outstanding 2,555,062 2,642,626 2,717,872 2,809,313 2,913,913
=========== =========== =========== =========== ===========
Total assets,
exclusive of
property with
no assigned
value $15,329,316 $15,876,606 $18,856,414 $16,673,289 $13,710,234
=========== =========== =========== =========== ===========
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Earnings per sub-share certificate for 2000 were $1.47 compared to
$1.11 in 1999 and $2.22 in 1998. Total revenues in 2000 were $7,798,999, and in
1999 $5,924,237, and in 1998 $10,479,670.
Land sales in 2000 were $1,443,173 compared to $516,525 in 1999, and
$5,020,462 in 1998. A total of 19,592 acres were sold in 2000 at an average
price of $74 per acre, compared to 5,413 acres in 1999 and 31,962 acres in 1998
at an average price per acre of $95 and $157 respectively.
Land Sales may vary widely from year to year and quarter to quarter.
The total dollar amount, the average price per acre, and the number of acres
sold in any one year or quarter should not be assumed to be indicative of land
sales in the future. The Trust is a passive seller of land; it does not actively
solicit sales of land. The demand for and the sales price of any particular
tract of the Trust's land is influenced by many factors including the national
and local economies, the rate of residential and commercial development in
nearby areas, livestock carrying capacity, and the conditions of the local
agricultural industry which itself is influenced by range conditions and prices
for livestock and other agricultural products. Approximately 99% of the Trust's
land is classified as ranch land and intermingled with other ownerships to form
ranching units. Ranch land sales are, therefore, largely dependent on the
actions of the adjoining landowners.
Rentals, royalties and other income were $6,355,826 in 2000 compared to
$5,407,712 in 1999 and $5,459,208 in 1998.
Oil and gas royalty revenue in 2000 was $4,230,775 compared to
$2,713,638 in 1999 and $2,488,439 in 1998. Oil royalty revenue was $2,839,984
and gas royalty revenue was $1,390,791 in 2000. Crude oil production from Trust
royalty wells decreased 5.6% and the average price received for crude oil
increased 77.2%. Total gas production decreased 6.6% and the average price for
gas increased 46.7%. The average price per royalty barrel of crude oil for 2000,
1999, and 1998 was $28.17, $15.90 and $13.51 respectively. The Trust's oil and
gas royalty income is from perpetual non participating royalty interests. The
Trust has no control over changes in production or prices of oil and gas.
Interest revenue was $874,294 compared to $960,492 in 1999 and
$1,004,124 in 1998. Interest on notes receivable amounted to $781,804 in 2000,
compared to $841,136 in 1999, and $905,451 in 1998. At year end 2000, notes
receivable from land sales were $8,591,998 compared to $8,393,007 in 1999 and
$11,006,307 in 1998. Sundry interest amounted to $92,490 in 2000, $119,356 in
1999, and $98,673 in 1998. Total principal payments on notes receivable were
$532,235.
Easement and sundry income revenue in 2000 was $743,368 compared to
$1,210,648 in 1999, and $1,436,316 in 1998. The significant decrease was due
mainly to decrease in seismic and easement revenue.
Taxes, other than Federal income taxes, were $554,339 compared to
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$477,295 in 1999 and $459,168 in 1998. Oil and gas production taxes were
$236,918 in 2000 compared to $155,482 in 1999 and $140,588 in 1998. Ad valorem
taxes were $275,515 in 2000 compared to $282,004 in 1999 and $281,264 in 1998.
Basis in real estate sold was $606,322 in 2000, $55,827 in 1999, and $44,817 in
1998. All other expenses were $1,295,581 in 2000, $1,191,693 in 1999, and
$1,134,147 in 1998.
The Trust's oil and gas royalty revenue, lease rentals, and receipts of
interest and principal payments on notes receivable have generated more than
adequate amounts of cash to meet the Trust's needs and should continue to do so
in the foreseeable future.
A special meeting of certificate and sub-share certificate holders was
held on June 7, 2000 to elect a Trustee to succeed Mr. George C. Fraser III who
resigned effective June 7, 2000. John R. Norris III was elected a Trustee. Mr.
Norris, age 47, is an attorney and partner in the law firm of Calloway, Norris &
Burdette in Dallas, Texas. Mr. Norris' current firm and its predecessors have
been the Trust's Texas counsel for more than fifty years.
Following the special meeting of certificate holders, the Trustees
elected Mr. Joe R. Clark and Mr. Maurice Meyer III as Chairman and
Vice-Chairman, respectively.
The Trustees appreciate very much the many years that Mr. George C.
Fraser III served in the capacity of Trustee and Chairman. Mr. Fraser's tenure
as Trustee since October 1961 was just four months less than 39 years, the
longest service as Trustee in the history of the Trust.
ITEM 7.a: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Trust's primary market risk exposure relates to changes in interest
rates related to its notes receivable. To limit the impact of interest rate
changes, the Trust enters into fixed rate notes receivable that approximate the
current interest rate for land sales at the time. As a result, the Trust's only
interest rate risk is the opportunity loss should interest rates increase. The
following table summarizes expected maturities of the Trust's notes receivable.
As the interest rates represent rates which management believes are current
rates on similar land sales, the Trust believes the fair value of its notes
receivable approximate the carrying amounts.
Year ending December 31 Maturity
----------------------- -----------
2001 $ 578,259
2002 631,318
2003 667,031
2004 709,259
2005 643,906
Thereafter 5,362,225
-----------
$ 8,591,998
The Trust's remaining financial instruments consist of cash, temporary
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cash investments and accounts payable and other liabilities and the carrying
amount of these instruments approximate fair value due to the short-term nature
of these instruments.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Financial Statements attached hereto included under Item
14 and incorporated herein by reference.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
This item is not applicable to Texas Pacific.
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ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Directors:
POSITION AND PERIOD DURING
OFFICES HELD WHICH PERSON
NAME AGE WITH REGISTRANT HAS SERVED IN OFFICE
---- --- --------------- --------------------
Joe R. Clark 73 Trustee, Chairman Trustee since 02/20/87
of the Trustees and
Member of Audit
Committee
Maurice Meyer III 65 Trustee and Member Trustee since 02/28/91
of Audit Committee
John R. Norris III 47 Trustee and Member Trustee since 06/07/00
Of Audit Committee
(b) Executive Officers.
POSITION AND PERIOD DURING
OFFICES HELD WHICH PERSON
NAME AGE WITH REGISTRANT HAS SERVED IN OFFICE
---- --- --------------- --------------------
Joe R. Clark 73 Trustee, Chairman Chairman of Trustees
of the Trustees and since 06/07/00
Member of Audit
Committee
Roy Thomas 54 General Agent and General Agent of Texas
Secretary Pacific Land Trust
commencing 01/01/95
and Secretary
commencing 01/01/95;
Assistant General
Agent from 12/01/92
through 12/31/94
The Chairman of the Trustees holds office until his death, resignation
or disqualification. General Agent and Secretary holds office until his death,
resignation, discharge or retirement pursuant to Texas Pacific Land Trust
Employees' Pension Plan. No executive officer was selected to be an officer
pursuant to any arrangement or understanding between him and any other person or
persons other than the Trustees acting solely in their capacity as such.
(c) Certain Significant Employees. The Trust does not employ any person
who is not an executive officer who makes or is expected to make significant
contributions to the business of the Trust.
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(d) Family Relations. There is no family relationship between any
Trustee and any other Trustee or any executive officer of the registrant.
(e) Business Experience.
NAME OF TRUSTEE OR PRINCIPAL OCCUPATION OR EMPLOYMENT
EXECUTIVE OFFICER DURING THE PAST FIVE YEARS
- ------------------ ----------------------------------
Maurice Meyer III Former Vice Chairman of Henderson
Brothers; personal investments
Joe R. Clark Former President of Texas Pacific
Oil Company, Inc.; personal
investments
John R. Norris III Attorney; Calloway, Norris &
Burdette, Dallas, Texas
Roy Thomas General Agent and Secretary
of Texas Pacific Land Trust
(f) Involvement in Certain Legal Proceedings. During the past five
years, no Director or Executive Officer is or has been involved in any event
reportable under this caption.
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ITEM 11: EXECUTIVE COMPENSATION.
REMUNERATION TABLE
(A) (B) (C) (D)
CASH & CASH EQUIVALENT AGGREGATE OF
NAME OF CAPACITIES FORMS OF REMUNERATION CONTINGENT FORMS
INDIVIDUALS IN WHICH SERVED SERVED OF REMUNERATION
- ----------- --------------- ---------------------- ----------------
(C1) (C2)
Securities of
Salaries, Fees, Property, In-
Director's Fees, surance Benefits
Commissions and or Reimbursements;
Bonuses Personal Benefits
---------------- ------------------
Roy Thomas Secretary & $136,475 (1) (2)
General Agent
All Officers Trustees in- $144,475 (1) (2)
& Directors cluding Chairman;
as a Group General Agent
(four in
number)
(1) During the year ended December 31, 2000, no Trustee or executive
officer of the registrant received any compensation for services to
the registrant in the form of securities or property, life or health
insurance, medical reimbursement, personal benefits or other
unreported compensation except for certain personal benefits such that
the extent to which they were personal rather than business cannot be
specifically or precisely ascertained without unreasonable effort or
expenses and which did not in any event exceed the minimum reportable
amount under this caption.
(2) The registrant maintains Texas Pacific Land Trust Employees' Pension
Plan, a non-contributory defined benefit pension plan qualified under
Section 401 of the Internal Revenue Code in which the employees,
excluding the Trustees, participate. The amount of the registrant's
contribution, payment or accrual in respect to Mr. Thomas is not and
cannot readily be separately or individually calculated by the regular
actuaries for the Plan. Based upon the Plan formula of 1-1/2% of each
covered year times the average salary of the last five years, Mr.
Thomas is estimated to have retirement benefits of $55,272.38 per year
upon retirement at age 65. Total compensation paid during 2000 to the
nine (9) employees covered by the
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Employees' Pension Plan was $593,883. No contribution was made to
the plan in 2000. The remuneration covered by the plan is salary.
Effective January 1, 1998, the Trust implemented a defined
contribution plan available to all regular employees having one or
more years of continuous service. Contributions are at the discretion
of the Trustees of the Trust. During 2000, the Trust contributed
$35,633.
(3) The Chairman of the Trustees receives the sum of four thousand dollars
per year as compensation for his services, and the other two trustees
receive the sum of two thousand dollars per year for their services.
(4) There is no compensation plan or arrangement with respect to any
individual named in the remuneration table that results, or will
result, from the resignation, retirement or any other termination of
such individual's employment or from a change in control of Texas
Pacific or in a change in the individual's responsibilities following
a change in control of Texas Pacific.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
(a) Security Ownership of Certain Beneficial Owners. No person or group
owns of record, or is known by Texas Pacific to own beneficially, more than 5%
of any class of voting certificates of Texas Pacific, treating the
interchangeable Certificates of Proprietary Interest and Sub-Share Certificates
as a single class for this purpose.
(b) Security Ownership of Management: The following table gives the
information indicated as to equity securities (Certificates of Proprietary
Interest and Sub-Share Certificates) of Texas Pacific beneficially owned
directly or indirectly by all trustees, naming them, and by all trustees and
officers of the registrant, as a group:
AMOUNT AND NATURE
NAME OF OF OWNERSHIP PERCENT
TITLE AND CLASS (1) BENEFICIAL OWNER ON JANUARY 31, 2000 OF CLASS
- ------------------- ---------------- ------------------- --------
Sub-share certificates: Joe R. Clark 500 .02%
Sub-share certificates: Maurice Meyer III 14,950(2) .59%
Sub-share certificates: John R. Norris III 200 .007%
Sub-share certificates: Roy Thomas 100 .0035%
Sub-share certificates: All Trustees and
Officers as a Group 15,750 .62%
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(1) The sub-shares and the Certificates of Proprietary Interest are freely
interchangeable in the ratio of one Certificate of Proprietary
Interest for six hundred sub- shares or six hundred sub-shares for one
Certificate of Proprietary Interest, and are deemed to constitute a
single class. On December 31, 2000, no trustee or officer was the
beneficial owner, directly or indirectly, of any Certificates of
Proprietary Interest.
(2) Does not include 2,300 sub-shares owned by the wife of Mr. Maurice
Meyer III in which Mr. Meyer disclaims any beneficial ownership.
(c) Changes in Control. Texas Pacific has no knowledge of any arrangement
that may result in any change of the control of the Trust.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transaction with management and others. There are no reportable
transactions or currently proposed transactions between Texas Pacific and any
Trustee or executive officer of Texas Pacific or any nominee for election as
Trustee or any security holder of Texas Pacific or any member of the immediate
family of the foregoing persons.
(b) Certain business relationships. There are no relationships existing or
have ever existed concerning Trustees or nominees for Trustee that are required
to be disclosed under this paragraph.
(c) Indebtedness of Management. There are no persons indebted to Texas
Pacific in an amount in excess of $60,000 that are required to be disclosed
under this paragraph.
(d) Transactions with Promoters. Texas Pacific has not been organized
within the last five years and disclosure under this paragraph is not applicable
to Texas Pacific.
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ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements.
1. All schedules have been omitted because the required
information is contained in the financial statements or
related notes, or is not applicable or immaterial.
2. Exhibits required by Item 7 Regulation S-K
a. Annual Report to Security Holders
b. Copy of Trust Indenture
(b) No reports on Form 8-K have been filed for the last quarter of the
period covered by this report.
(c) See (a)(2) above.
(d) See (a)(1) above.
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SIGNATURES
Pursuant to the requirements 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.
(Registrant) TEXAS PACIFIC LAND TRUST
By: /s/ JOE R. CLARK
------------------------------
Joe R. Clark
Chief Executive Officer
Date: March 21, 2001
----------------------------
By: /s/ ROY THOMAS
------------------------------
ROY THOMAS
Chief Financial and Chief
Accounting Officer
Date: March 21, 2001
----------------------------
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Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ JOE R. CLARK
------------------------------
Joe R. Clark, Trustee
Date: March 21, 2001
----------------------------
By: /s/ MAURICE MEYER III
------------------------------
Maurice Meyer III, Trustee
Date: March 22, 2001
----------------------------
By: /s/ JOHN R. NORRIS III
------------------------------
John R. Norris III, Trustee
Date: March 21, 2001
----------------------------
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TEXAS PACIFIC LAND TRUST
Financial Statements
December 31, 2000, 1999 and 1998
(With Independent Auditors' Report Thereon)
TEXAS PACIFIC LAND TRUST
TABLE OF CONTENTS
PAGE
Independent Auditors' Report 1
Balance Sheets - December 31, 2000 and 1999 2
Statements of Income - Years ended December 31, 2000, 1999 and 1998 3
Statements of Net Proceeds from All Sources - Years ended
December 31, 2000, 1999 and 1998 4
Statements of Cash Flows - Years ended December 31, 2000, 1999 and 1998 5
Notes to Financial Statements 6
All schedules have been omitted because the required information is contained in
the financial statements of related notes, or is not applicable.
INDEPENDENT AUDITORS' REPORT
The Trustees and Certificate Holders
Texas Pacific Land Trust:
We have audited the accompanying balance sheets of Texas Pacific Land Trust as
of December 31, 2000 and 1999, and the related statements of income, net
proceeds from all sources, and cash flows for each of the years in the
three-year period ended December 31, 2000. These financial statements are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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 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 Texas Pacific Land Trust as of
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ KPMG LLP
Dallas, Texas
January 25, 2001
TEXAS PACIFIC LAND TRUST
Balance Sheets
December 31, 2000 and 1999
ASSETS 2000 1999
----------- -----------
Cash $ 263,834 $ 222,539
Temporary cash investments - at cost which approximates market 1,350,000 1,650,000
Notes receivable for land sales ($578,259 due in 2001 and
$504,634 due in 2000) (note 1) 8,591,998 8,393,007
Prepaid insurance 43,792 40,162
Other assets 966,492 810,771
Prepaid Federal income taxes -- 41,523
Real estate acquired through foreclosure (note 3) 3,992,302 4,598,624
Water wells, leasehold improvements, furniture and equipment -
at cost less accumulated depreciation 120,898 119,980
Property, no value assigned (note 1):
Land (surface rights) situated in twenty-one counties in Texas -
1,025,894.27 acres in 2000 and 1,030,388.67 acres in 1999 -- --
Town lots in Iatan, Loraine and Morita, Texas - 628 lots -- --
1/16 nonparticipating perpetual royalty interest in
386,987.70 acres -- --
1/128 nonparticipating perpetual royalty interest in
85,413.60 acres -- --
----------- -----------
Total assets $15,329,316 $15,876,606
=========== ===========
LIABILITIES AND CAPITAL
Accounts payable and other liabilities $ 51,711 $ 80,650
Federal income taxes 67,290 --
Other taxes 36,330 27,383
Deferred taxes (note 5) 3,905,678 4,021,803
----------- -----------
Total liabilities 4,061,009 4,129,836
----------- -----------
Capital (notes 1 and 6):
Certificates of Proprietary Interest, par value $100 each;
outstanding 1 certificate -- --
Sub-share Certificates in Certificates of Proprietary Interest,
par value $.16-2/3 each; outstanding 2,504,205 Sub-shares
in 2000 and 2,588,505 Sub-shares in 1999 -- --
Net proceeds from all sources 11,268,307 11,746,770
----------- -----------
Total capital 11,268,307 11,746,770
----------- -----------
Total liabilities and capital $15,329,316 $15,876,606
=========== ===========
See accompanying notes to financial statements.
2
TEXAS PACIFIC LAND TRUST
Statements of Income
Years ended December 31, 2000, 1999 and 1998
2000 1999 1998
------------ ------------ ------------
Income:
Oil and gas royalties $ 4,230,775 $ 2,713,638 $ 2,488,439
Grazing lease rentals 507,389 522,934 530,329
Land sales 1,443,173 516,525 5,020,462
Interest 874,294 960,492 1,004,124
Easements and sundry income 743,368 1,210,648 1,436,316
------------ ------------ ------------
7,798,999 5,924,237 10,479,670
------------ ------------ ------------
Expenses:
Taxes, other than Federal income taxes 554,339 477,295 459,168
Salaries and related employee benefits 629,516 597,056 556,143
General expense, supplies and travel 468,945 413,616 398,692
Basis in real estate sold 606,322 55,827 44,817
Legal and professional fees 143,538 117,659 109,615
Commissions to local agents 1,169 7,336 1,376
Depreciation 44,413 48,026 60,321
Trustees' compensation 8,000 8,000 8,000
------------ ------------ ------------
2,456,242 1,724,815 1,638,132
------------ ------------ ------------
Income before Federal income taxes 5,342,757 4,199,422 8,841,538
------------ ------------ ------------
Federal income taxes (note 5):
Current 1,700,813 2,080,272 2,259,654
Deferred (116,125) (818,677) 548,623
------------ ------------ ------------
1,584,688 1,261,595 2,808,277
------------ ------------ ------------
Net income $ 3,758,069 $ 2,937,827 $ 6,033,261
============ ============ ============
Net income per Sub-share Certificate $ 1.47 $ 1.11 $ 2.22
============ ============ ============
See accompanying notes to financial statements.
3
TEXAS PACIFIC LAND TRUST
Statements of Net Proceeds from All Sources
Years ended December 31, 2000, 1999 and 1998
2000 1999 1998
----------- ----------- -----------
Balance at beginning of year $11,746,770 $13,641,706 $12,221,206
Add: Net income for year 3,758,069 2,937,827 6,033,261
----------- ----------- -----------
15,504,839 16,579,533 18,254,467
----------- ----------- -----------
Deduct:
Cost of Sub-share Certificates in Certificates
of Proprietary Interest purchased and
cancelled - 84,900 sub-shares in 2000,
81,300 Sub-shares in 1999 and
83,400 Sub-shares in 1998 3,202,690 3,765,561 3,509,959
Dividends paid - per Certificate of
Proprietary Interest - $240 in 2000, 1999 and 1998;
per Sub-share Certificate - $.40 in 2000,
1999 and 1998 1,033,842 1,067,202 1,102,802
----------- ----------- -----------
4,236,532 4,832,763 4,612,761
----------- ----------- -----------
Balance at end of year $11,268,307 $11,746,770 $13,641,706
=========== =========== ===========
See accompanying notes to financial statements.
4
TEXAS PACIFIC LAND TRUST
Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
2000 1999 1998
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 3,758,069 $ 2,937,827 $ 6,033,261
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 44,413 48,026 60,321
Deferred taxes (116,125) (818,677) 548,623
Changes in assets and liabilities:
New notes receivable from land sales (731,226) (261,149) (3,053,978)
Payments received on notes receivable 532,235 2,654,122 1,354,889
Real estate acquired through foreclosure 606,322 53,645 44,817
Prepaid insurance and other assets (159,351) (155,708) 138,866
Accounts payable and other liabilities (28,939) 71,586 (84,008)
Federal income and other taxes payable 117,760 (379,304) 298,010
----------- ----------- -----------
Net cash provided by operating activities 4,023,158 4,150,368 5,340,801
----------- ----------- -----------
Cash flows from investing activities:
Additions to water wells, leasehold improvements,
furniture and equipment (61,005) (57,941) (56,243)
Retirements of water wells, leasehold improvements,
furniture and equipment 15,674 15,500 12,987
----------- ----------- -----------
Net cash used in investing activities (45,331) (42,441) (43,256)
----------- ----------- -----------
Cash flows from financing activities:
Purchase of Sub-share Certificates in
certificates of Proprietary Interest (3,202,690) (3,765,561) (3,509,959)
Dividends (1,033,842) (1,067,202) (1,102,802)
----------- ----------- -----------
Net cash used in financing activities (4,236,532) (4,832,763) (4,612,761)
----------- ----------- -----------
Net increase (decrease) in cash and temporary
cash investments (258,705) (724,836) 684,784
Cash and temporary cash investments
at beginning of year 1,872,539 2,597,375 1,912,591
----------- ----------- -----------
Cash and temporary cash investments at end of year $ 1,613,834 $ 1,872,539 $ 2,597,375
=========== =========== ===========
Supplemental disclosure of non-cash transactions:
Conversion of notes receivable and accrued interest
receivable to real estate acquired through
foreclosure (note 3) -- $ 232,373 --
=========== =========== ===========
See accompanying notes to financial statements.
5
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
December 31, 2000, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL
The fair market value of the Texas Pacific Land Trust's (Trust)
land and royalty interests was not determined in 1888 when the
Trust was formed; therefore, no value is assigned to the land,
town lots, royalty interests, Certificates of Proprietary Interest
and Sub-share Certificates in Certificates of Proprietary Interest
in the accompanying balance sheets. Consequently, in the
statements of income, no allowance is made for depletion and no
cost is deducted from the proceeds of original land sales. Even
though the 1888 value of the real properties cannot be precisely
determined, the Trustees have concluded that the effect of this
matter can no longer be significant to the Trust's financial
position or results of operations. For Federal income tax
purposes, however, deductions are made for depletion, computed on
the statutory percentage basis of income received from royalties.
The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of
America 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 income and
expenses during the reporting period. Actual results could differ
from those estimates.
(b) REVENUE RECOGNITION AND NOTES RECEIVABLE
The Trust generally receives cash payments on land sales of 25% or
more within the first year of such sales. Thereafter, annual
principal and interest payments are required by the Trust.
Accordingly, income is recognized on land sales during the periods
in which such sales are closed and sufficient amounts of cash down
payments are received. For Federal income tax purposes, such sales
are recognized on the installment method. The installment method
is also used for sales not meeting the minimum down payment
requirements.
Notes receivable related to land sales bear interest rates ranging
from 8.75% to 11% as of December 31, 2000 and are secured by first
lien deeds of trust on the properties sold. The weighted average
interest rate is 9.10% as of December 31, 2000. The annual
installments on notes are generally payable over terms of 3 to 15
years. There is no penalty for prepayment of principal, and
prepayments in 2000, 1999 and 1998 were $25,518, $1,766,015 and
$575,428, respectively. The interest rates on notes receivable are
considered comparable with current rates on similar land sales
and, accordingly, the carrying value of such notes receivable
approximates fair value. There was no allowance for uncollectible
accounts at December 31, 2000, 1999 or 1998. One customer
represented approximately 18% and 16% and another represented
approximately 19% and 15% of the Trust's notes receivable balance
at December 31, 2000 and 1999, respectively.
6 (Continued)
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
December 31, 2000, 1999 and 1998
The maturities of notes receivable for each of the five years
subsequent to December 31, 2000 are:
YEAR ENDING
DECEMBER 31,
------------
2001 $ 578,259
2002 631,318
2003 667,031
2004 709,259
2005 643,906
As of December 31, 2000, there were no significant delinquencies
in the Trust's notes receivable. The Trust reviews its aging,
financial operations information on its debtors and estimated fair
value of collateral held as security to determine an appropriate
allowance for delinquencies, if any.
The Trust's oil and gas royalty interest, grazing and lease
rentals and easement and sundry income are recorded on a cash
basis, which approximates the accrual method.
(c) NET INCOME PER SUB-SHARE
The cost of Sub-share Certificates purchased and retired is
charged to net proceeds from all sources. Net income per Sub-share
Certificate is based on the weighted average number of Sub-share
Certificates in Certificates of Proprietary Interest and
equivalent Sub-share Certificates of Proprietary Interest
outstanding during each period (2,555,062 in 2000, 2,642,626 in
1999 and 2,717,872 in 1998).
(d) CASH FLOWS
Temporary cash investments at December 31, 2000 and 1999 consist
primarily of commercial paper. For purposes of the statements of
cash flows, the Trust considers all highly liquid debt instruments
with original maturities of three months or less to be temporary
cash investments. Cash disbursed for income taxes in 2000, 1999
and 1998 was $1,592,000, $2,470,106 and $1,954,126, respectively.
(e) DEPRECIATION
Provision for depreciation of depreciable assets is made by
charges to income at straight-line and accelerated rates
considered to be adequate to amortize the cost of such assets over
their useful lives.
7 (Continued)
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
December 31, 2000, 1999 and 1998
(f) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
(2) SEGMENT INFORMATION
Segment information has been considered in accordance with SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS
No. 131 establishes standards for the way public business enterprises are
to report information about operating segments. SFAS No. 131 utilizes the
management approach as a basis for identifying reportable segments. The
management approach is based on the way that management organizes the
segments within the enterprise for making operating decisions and
assessing performance. The Trust's management views its operations as one
segment and believes the only significant activity is managing the land
which was conveyed to the Trust in 1888. Managing the land includes sales
and leases of such land, and the retention of oil and gas royalties.
(3) REAL ESTATE ACQUIRED THROUGH FORECLOSURE
Real estate acquired through foreclosure is carried at the lower of cost
or fair value less disposition costs at the date of foreclosure. Cost is
considered to be the aggregate of the outstanding principal balance,
accrued interest, past due ad valorem taxes and other fees incurred
relating to the foreclosure. Valuations are periodically performed or
obtained by management whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable, and any further
losses are recorded by a charge to operations and a valuation allowance
(none at December 31, 2000, 1999 or 1998) if the carrying value of the
property exceeds its estimated fair value.
Real estate acquired through foreclosure included the following activity
for the years ended December 31, 2000 and 1999:
2000 1999
------------------------- --------------------------
ACRES BOOK VALUE ACRES BOOK VALUE
----------- ----------- ----------- -----------
Balance at January 1 25,027.51 $ 4,598,624 26,450.63 $ 4,422,078
Additions -- -- 2.46 232,373
Sales (15,358.05) (606,322) (1,425.58) (55,827)
----------- ----------- ----------- -----------
Balance at December 31 9,669.46 $ 3,992,302 25,027.51 $ 4,598,624
=========== =========== =========== ===========
8 (Continued)
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
December 31, 2000, 1999 and 1998
(4) EMPLOYEE BENEFIT PLANS
The Trust has a noncontributory pension plan (Plan) available to all
regular employees having one or more years of continuous service. The
Plan provides for normal retirement at age 65. Contributions to the Plan
reflect benefits attributed to employees' services to date, as well as
services expected in the future. Plan assets consist primarily of
investments in Banc of America Common Trust Fund.
The following table sets forth the Plan's changes in benefit obligation,
fair value of plan assets, funded status and weighted average assumptions
as of December 31, 2000 and 1999:
2000 1999
----------- -----------
Change in benefits obligation:
Benefit obligation at beginning of year $ 1,265,474 $ 1,408,231
Service cost 47,987 57,540
Interest cost 102,184 93,497
Actuarial (gain) loss 102,712 (222,005)
Benefits paid (75,678) (71,789)
Other 40,608 --
----------- -----------
Benefit obligation at end of year $ 1,483,287 $ 1,265,474
=========== ===========
Change in plan assets:
Fair value of plan assets at beginning
of year $ 1,934,528 $ 1,813,235
Actual return on plan assets 27,034 193,082
Benefits paid (75,678) (71,789)
----------- -----------
Fair value of plan assets at end of year $ 1,885,884 $ 1,934,528
=========== ===========
Funded status $ 402,597 $ 669,054
Unrecognized net actuarial gain (255,107) (484,686)
Unrecognized prior service cost 106,211 79,069
Unrecognized portion of net asset existing
at January 1, 1987 (46,429) (69,647)
----------- -----------
Prepaid benefit cost $ 207,272 $ 193,790
=========== ===========
Weighted average assumptions as of December 31:
Discount rate 7.50% 8.00%
Expected return on plan assets 7.00 7.00
Rate of compensation increase 7.79 7.79
9 (Continued)
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
December 31, 2000, 1999 and 1998
Net periodic benefit costs (benefits) for the years ended December 31,
2000, 1999 and 1998 include the following components:
2000 1999 1998
--------- --------- ---------
Components of net periodic benefit costs (benefits):
Service cost $ 47,987 $ 57,540 $ 47,470
Interest cost 102,184 93,497 88,021
Expected return on plan assets (132,751) (124,422) (116,751)
Amortization of the unrecognized
transition asset (23,218) (23,218) (23,218)
Amortization of unrecognized gains (21,150) -- (3,980)
Amortization of prior service cost 13,466 10,440 10,440
--------- --------- ---------
Net periodic benefit costs (benefits) $ (13,482) $ 13,837 $ 1,982
========= ========= =========
Effective January 1, 1998, the Trust implemented a defined contribution
plan available to all regular employees having one or more years of
continuous service. Contributions are at the discretion of the Trustees
of the Trust. The Trust contributed $35,633, $33,456 and $28,409 in 2000,
1999 and 1998, respectively.
(5) FEDERAL TAXES ON INCOME
The Trust is taxed as if it were a corporation. Total income tax expense
differed from the amounts computed by applying the U.S. federal income
tax rate of 34% to pretax income before federal income taxes as a result
of the following:
2000 1999 1998
----------- ----------- -----------
Computed tax expense at the statutory rate $ 1,816,537 $ 1,427,803 $ 3,006,123
Reduction in income taxes resulting from:
Statutory depletion (237,862) (163,234) (150,526)
Other, net 6,013 (2,974) (47,320)
----------- ----------- -----------
$ 1,584,688 $ 1,261,595 $ 2,808,277
=========== =========== ===========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities at December 31, 2000 and 1999
are as follows:
2000 1999
---------- ----------
Basis differences in real estate acquired
through foreclosure $1,168,333 $1,323,941
Deferred installment revenue on land sales
for tax purposes 2,737,345 2,697,862
---------- ----------
Total deferred tax liability $3,905,678 $4,021,803
========== ==========
10 (Continued)
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
December 31, 2000, 1999 and 1998
(6) CAPITAL
Certificates of Proprietary Interest (Certificates) and Sub-share
Certificates in Certificates of Proprietary Interest (Sub-shares) are
exchangeable in the ratio of one Certificate to 600 Sub-shares. No
Certificates were exchanged for Sub-shares in 2000, 1999 or 1998.
The number of Certificates authorized for issuance at a given date is the
number then outstanding plus one/six-hundredth of the number of
Sub-shares then outstanding. The number of Sub-shares authorized for
issuance at a given date is the number then outstanding plus six hundred
times the number of Certificates then outstanding.
The Declaration of Trust was executed and delivered in New York. In the
opinion of counsel for the Trust, under the laws of the State of New
York, the Certificate and Sub-share Certificate holders are not subject
to any personal liability for the acts or obligations of the Trust.
The assets of the Trust are located in Texas. In the opinion of Texas
counsel, under the laws of the State of Texas, the Certificate and
Sub-share Certificate holders may be held personally liable with respect
to claims against the Trust, but only after the assets of the Trust first
have been exhausted.
(7) OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
The Trust's share of oil and gas produced, all of which is from royalty
interests, was as follows for the years ended December 31, 2000, 1999 and
1998, respectively: oil (in barrels) - 100,807, 106,760 and 120,334, and
gas (in thousands of cubic feet) - 413,817, 442,983 and 389,698. Reserves
related to the Trust's royalty interests are not presented because the
information is unavailable.
(8) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present unaudited financial data of the Trust for
each quarter of 2000 and 1999:
QUARTER ENDED
------------------------------- --------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
2000 2000 2000 2000
--------------- --------------- --------------- ---------------
Income $ 2,254,050 $ 1,898,689 $ 1,571,735 $ 2,074,525
=============== =============== =============== ===============
Income before Federal
income taxes $ 1,789,538 $ 1,408,996 $ 1,150,569 $ 993,654
=============== =============== =============== ===============
Net income $ 1,256,177 $ 994,417 $ 810,801 $ 696,674
=============== =============== =============== ===============
Net income per
Sub-share Certificate $ .49 $ .39 $ .32 $ .27
=============== =============== =============== ===============
11 (Continued)
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
December 31, 2000, 1999 and 1998
QUARTER ENDED
------------------------------- --------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1999 1999 1999 1999
--------------- --------------- --------------- ---------------
Income $ 1,779,418 $ 1,222,169 $ 1,427,961 $ 1,494,689
=============== =============== =============== ===============
Income before Federal
income taxes $ 1,297,317 $ 821,588 $ 1,041,912 $ 1,038,605
=============== =============== =============== ===============
Net income $ 916,619 $ 580,658 $ 724,365 $ 716,185
=============== =============== =============== ===============
Net income per
Sub-share Certificate $ .35 $ .22 $ .27 $ .27
=============== =============== =============== ===============
12