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, 2001 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.)
1700 Pacific Ave., Suite 1670, Dallas, Texas 75201
-----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (214) 969-5530
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 [ ].
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, 2002, the aggregate market value of the voting stock
held by non-affiliates of the registrant is approximately $85,154,662.
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.
2001 2000 1999
---- ---- ----
Interest -- -- 16%
Land Sales 50% 19% --
Oil and Gas Royalties 31% 54% 46%
(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 2001 $767,052 or 18
percent of its oil and gas royalty income from 68 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 eight (8) 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 1,021,584 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, 2001,
grazing leases were in effect on 99.3 percent or approximately 1,014,739 acres
of the Trust's land. Approximately 13,579 acres of land were sold in 2001. The
Trust leases office space in Dallas, Texas.
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:
2001 2000
---------------------- --------------------
HIGH LOW HIGH LOW
------ ------ ------ ------
1st Quarter $41.25 $35.63 $43.00 $35.50
2nd Quarter 40.50 34.07 44.00 34.38
3rd Quarter 39.90 35.00 46.00 37.69
4th Quarter 39.50 35.20 38.25 33.50
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 45 years. The dividend was $.40 per sub-share in 2001 and
$.40 per sub-share in 2000. 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, 2002 were:
Certificates of proprietary interest --
Sub-shares in certificates of proprietary interest 743
----
TOTAL 743
====
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ITEM 6: SELECTED FINANCIAL DATA.
SUMMARY OF SELECTED FINANCIAL DATA
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
Gross income $13,429,368 $ 7,798,999 $ 5,924,237 $10,479,670 $13,075,037
Expenses 3,385,347 2,456,242 1,724,815 1,638,132 3,243,920
----------- ----------- ----------- ----------- -----------
Income before
Federal income
taxes 10,044,021 5,342,757 4,199,422 8,841,538 9,831,117
Federal income
taxes 3,157,508 1,584,688 1,261,595 2,808,277 3,124,376
----------- ----------- ----------- ----------- -----------
Net income $ 6,886,513 $ 3,758,069 $ 2,937,827 $ 6,033,261 $ 6,706,741
=========== =========== =========== =========== ===========
Net income per
Sub-share $ 2.79 $ 1.47 $ 1.11 $ 2.22 $ 2.39
Dividends per
Sub-share $ .40 $ .40 $ .40 $ .40 $ .40
Average number
of Sub-shares
outstanding 2,464,162 2,555,062 2,642,626 2,717,872 2,809,313
=========== =========== =========== =========== ===========
Total assets,
exclusive of
property with
no assigned
value $17,628,181 $15,329,316 $15,876,606 $18,856,414 $16,673,289
=========== =========== =========== =========== ===========
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Earnings per sub-share certificate for 2001 were $2.79 compared to
$1.47 in 2000 and $1.11 in 1999. Total revenues in 2001 were $13,429,368, in
2000 $7,798,999, and in 1999 $5,924,237.
Land sales in 2001 were $6,708,863 compared to $1,443,173 in 2000, and
$516,525 in 1999. A total of 13,579 acres were sold in 2001 at an average price
of $494 per acre, compared to 19,592 acres in 2000 and 5,413 acres in 1999 at an
average price per acre of $74 and $95 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 $6,720,505 in 2001 compared to
$6,355,826 in 2000 and $5,407,712 in 1999.
Oil and gas royalty revenue in 2001 was $4,176,672 compared to
$4,230,775 in 2000 and $2,713,638 in 1999. Oil royalty revenue was $2,558,625
and gas royalty revenue was $1,618,047 in 2001. Crude oil production from Trust
royalty wells decreased 1.8% and the average price received for crude oil
decreased 8.3%. Total gas production decreased 5.4% and the average price for
gas increased 22.9%. The average price per royalty barrel of crude oil for 2001,
2000 and 1999 was $25.84, $28.17, and $15.90 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 $885,971 compared to $874,294 in 2000 and $960,492
in 1999. Interest on notes receivable amounted to $802,111 in 2001 compared to
$781,804 in 2000, and $841,136 in 1999. At year end 2001, notes receivable from
land sales were $11,421,331 compared to $8,591,998 in 2000 and $8,393,007 in
1999. Sundry interest amounted to $83,860 in 2001, $92,490 in 2000, and $119,356
in 1999. Total principal payments on notes receivable were $1,626,927 in 2001.
Easement and sundry income revenue in 2001 was $1,155,859 compared to
$743,368 in 2000 and $1,210,648 in 1999. The significant increase was due mainly
to increase in oil exploration damage and easement revenue.
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Taxes, other than Federal income taxes, were $517,086 in 2001 compared
to $554,339 in 2000 and $477,295 in 1999. Oil and gas production taxes were
$240,906 in 2001 compared to $236,918 in 2000 and $155,482 in 1999. Ad valorem
taxes were $236,831 in 2001 compared to $275,615 in 2000 and $282,004 in 1999.
Basis in real estate sold was $1,541,416 in 2001, $606,322 in 2000, and $55,827
in 1999. All other expenses were $1,326,845 in 2001, $1,295,581 in 2000, and
$1,191,693 in 1999.
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.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity 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 at the date of the financial statements. It is our opinion that we
fully disclose our significant accounting policies in the Notes to the Financial
Statements. Consistent with our disclosure policies we include the following
discussion related to what we believe to be our most critical accounting
policies that require our most difficult, subjective or complex judgment.
Valuation of Notes Receivable - Management of the Trust monitors delinquencies
to assess the propriety of the carrying value of its notes receivable. At the
point in time that notes receivable become delinquent, management reviews the
operations information of the debtor and the estimated fair value of the
collateral held as security to determine whether an allowance for losses is
required. Any required allowance for losses are recorded in the period of
determination. At December 31, 2001, and 2000, there were no significant
delinquencies, and as such, no allowance for losses have been recorded.
Valuation of Real Estate Acquired Through Foreclosure - The value of real estate
acquired through foreclosure is established 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 and interest, past due ad valorem taxes
and other fees associated with the foreclosure. Subsequent to the foreclosure
date, valuations are periodically performed or obtained by management when
events or changes in circumstances indicate that the full carrying amount may
not be recoverable. At such time a valuation allowance is established to reduce
the carrying value to the estimated fair value. Valuation of the real estate is
based on the estimates of management and is subject to judgment. At December 31,
2001, and 2000, no valuation allowances were recorded.
Gain Recognition on Land Sales - Accounting principles generally accepted in the
United States of America dictate the manner in which the gain or loss on the
sale of land is recorded. The Trust has established policies for the sale of
land, which result in the full accrual method of gain recognition. This policy
generally requires that the Trust receive a minimum cash down payment of 25% of
the sales price on each sale and that
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any related notes receivable require regular principal and interest payments,
payable over terms from 3 to 15 years.
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 values of its notes
receivable approximate the carrying amounts.
Year ending December 31 Maturity
----------------------- -----------
2002 $ 855,546
2003 909,578
2004 971,514
2005 817,991
2006 775,926
Thereafter 7,090,776
-----------
$11,421,331
The Trust's remaining financial instruments consist of cash, temporary cash
investments and accounts payable and other liabilities and the carrying amounts
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.
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 74 Trustee, Chairman Trustee since 02/20/87
of the Trustees and
Member of Audit
Committee
Maurice Meyer III 66 Trustee and Member Trustee since 02/28/91
of Audit Committee
John R. Norris III 48 Trustee and Member Trustee since 06/07/00
of Audit Committee
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(b) Executive Officers.
------------------
POSITION AND PERIOD DURING
OFFICES HELD WHICH PERSON
NAME AGE WITH REGISTRANT HAS SERVED IN OFFICE
---- --- --------------- --------------------
Joe R. Clark 74 Trustee, Chairman Chairman of Trustees
of the Trustees and since 06/07/00
Member of Audit
Committee
Roy Thomas 55 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.
(d) Family Relations. There is no family relationship between any
Trustee and any other Trustee or any executive officer of the
registrant.
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(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 & $145,750 (1) (2)
General Agent
All Officers Trustees in- $153,750 (1) (2)
& Directors cluding Chairman;
as a Group General Agent
(four in
number)
(1) During the year ended December 31, 2001, 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 $59,029 per year
upon retirement at age 65. Total compensation paid during 2001 to the
eight (8) employees covered by the
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Employees' Pension Plan was $558,588. 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 2001, the Trust contributed $33,515.
(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, 2001 OF CLASS
- ------------------- ---------------- ------------------- --------
Sub-share certificates: Joe R. Clark 500 .02%
Sub-share certificates: Maurice Meyer III 14,950 (2) .62%
Sub-share certificates: John R. Norris III 200 .008%
Sub-share certificates: Roy Thomas 100 .0042%
Sub-share certificates: All Trustees and
Officers as a Group 15,750 .65%
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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, 2001, 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 26, 2002
------------------------------
By: /s/ ROY THOMAS
------------------------------
ROY THOMAS
Chief Financial and Chief
Accounting Officer
Date: March 26, 2002
------------------------------
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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 26, 2002
------------------------------
By: /s/ MAURICE MEYER III
------------------------------
Maurice Meyer III, Trustee
Date: March 21, 2002
------------------------------
By: /s/ JOHN R. NORRIS III
------------------------------
John R. Norris III, Trustee
Date: March 26, 2002
------------------------------
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[KPMG LOGO]
TEXAS PACIFIC LAND TRUST
Financial Statements
December 31, 2001, 2000, and 1999
(With Independent Auditors' Report Thereon)
F-i
TEXAS PACIFIC LAND TRUST
TABLE OF CONTENTS
PAGE
Independent Auditors' Report F-1
Balance Sheets - December 31, 2001 and 2000 F-2
Statements of Income - Years Ended December 31, 2001, 2000, and 1999 F-3
Statements of Net Proceeds From All Sources - Years Ended
December 31, 2001, 2000, and 1999 F-4
Statements of Cash Flows - Years Ended December 31, 2001, 2000, and 1999 F-5
Notes to Financial Statements F-6
All schedules have been omitted because the required information is contained in
the financial statements of related notes, or is not applicable.
F-ii
[KPMG LOGO]
INDEPENDENT AUDITORS' REPORT
The Trustees and Certificate Holders
Texas Pacific Land Trust:
We have audited the accompanying balance sheets of Texas Pacific Land Trust (the
Trust) as of December 31, 2001 and 2000, 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, 2001. 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, 2001 and 2000, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
Dallas, Texas
February 8, 2002
F-1
TEXAS PACIFIC LAND TRUST
Balance Sheets
December 31, 2001 and 2000
ASSETS 2001 2000
----------- -----------
Cash $ 85,065 $ 263,834
Temporary cash investments - at cost which approximates market 2,500,000 1,350,000
Notes receivable for land sales ($855,546 due in 2002 and
$578,259 due in 2001) (note 1) 11,421,331 8,591,998
Prepaid insurance 61,138 43,792
Other assets 752,705 966,492
Prepaid Federal income taxes 149,668 --
Real estate acquired through foreclosure (note 3) 2,450,886 3,992,302
Water wells, leasehold improvements, furniture, and equipment -
at cost less accumulated depreciation 207,388 120,898
Property, no value assigned (note 1):
Land (surface rights) situated in twenty-one counties in Texas -
1,013,792 acres in 2001 and 1,025,894.27 acres in 2000 -- --
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 $17,628,181 $15,329,316
=========== ===========
Liabilities and Capital
Accounts payable and other liabilities $ 7,537 $ 51,711
Federal income taxes -- 67,290
Other taxes 20,521 36,330
Deferred taxes (note 5) 4,402,481 3,905,678
----------- -----------
Total liabilities 4,430,539 4,061,009
----------- -----------
Capital (notes 1 and 6):
Certificates of Proprietary Interest, par value $100 each.
Outstanding 0 certificates -- --
Sub-share Certificates in Certificates of Proprietary Interest,
par value $.16-2/3 each. Outstanding 2,398,393 Sub-shares
in 2001 and 2,504,205 Sub-shares in 2000 -- --
Net proceeds from all sources 13,197,642 11,268,307
----------- -----------
Total capital 13,197,642 11,268,307
----------- -----------
Total liabilities and capital $17,628,181 $15,329,316
=========== ===========
See accompanying notes to financial statements.
F-2
TEXAS PACIFIC LAND TRUST
Statements of Income
Years ended December 31, 2001, 2000, and 1999
2001 2000 1999
----------- ----------- -----------
Income:
Oil and gas royalties $ 4,176,672 $ 4,230,775 $ 2,713,638
Grazing lease rentals 502,003 507,389 522,934
Land sales 6,708,863 1,443,173 516,525
Interest 885,971 874,294 960,492
Easements and sundry income 1,155,859 743,368 1,210,648
----------- ----------- -----------
13,429,368 7,798,999 5,924,237
----------- ----------- -----------
Expenses:
Taxes, other than Federal income taxes 517,086 554,339 477,295
Salaries and related employee benefits 618,740 629,516 597,056
General expense, supplies, and travel 530,555 468,945 413,616
Basis in real estate sold 1,541,416 606,322 55,827
Legal and professional fees 116,511 143,538 117,659
Commissions to local agents 923 1,169 7,336
Depreciation 52,116 44,413 48,026
Trustees' compensation 8,000 8,000 8,000
----------- ----------- -----------
3,385,347 2,456,242 1,724,815
----------- ----------- -----------
Income before Federal income taxes 10,044,021 5,342,757 4,199,422
----------- ----------- -----------
Federal income taxes (note 5):
Current 2,660,705 1,700,813 2,080,272
Deferred 496,803 (116,125) (818,677)
----------- ----------- -----------
3,157,508 1,584,688 1,261,595
----------- ----------- -----------
Net income $ 6,886,513 $ 3,758,069 $ 2,937,827
=========== =========== ===========
Net income per Sub-share Certificate $ 2.79 $ 1.47 $ 1.11
=========== =========== ===========
See accompanying notes to financial statements.
F-3
TEXAS PACIFIC LAND TRUST
Statements of Net Proceeds From All Sources
Years ended December 31, 2001, 2000, and 1999
2001 2000 1999
----------- ----------- -----------
Balance at beginning of year $11,268,307 $11,746,770 $13,641,706
Add: Net income for year 6,886,513 3,758,069 2,937,827
----------- ----------- -----------
18,154,820 15,504,839 16,579,533
----------- ----------- -----------
Deduct:
Cost of Sub-share Certificates in Certificates
of Proprietary Interest purchased and
cancelled - 105,812 Sub-shares in 2001,
84,900 Sub-shares in 2000, and
81,300 Sub-shares in 1999 3,953,656 3,202,690 3,765,561
Dividends paid - per Certificate of
Proprietary Interest - $240 in 2001, 2000,
and 1999; per Sub-share Certificate - $0.40
in 2001, 2000, and 1999 1,003,522 1,033,842 1,067,202
----------- ----------- -----------
4,957,178 4,236,532 4,832,763
----------- ----------- -----------
Balance at end of year $13,197,642 $11,268,307 $11,746,770
=========== =========== ===========
See accompanying notes to financial statements.
F-4
TEXAS PACIFIC LAND TRUST
Statements of Cash Flows
Years ended December 31, 2001, 2000 and 1999
2001 2000 1999
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 6,886,513 $ 3,758,069 $ 2,937,827
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 52,116 44,413 48,026
Deferred taxes 496,803 (116,125) (818,677)
Changes in assets and liabilities:
New notes receivable from land sales (4,456,260) (731,226) (261,149)
Payments received on notes receivable 1,626,927 532,235 2,654,122
Real estate acquired through
foreclosure 1,541,416 606,322 53,645
Prepaid insurance and other assets 196,441 (159,351) (155,708)
Accounts payable and other liabilities (44,174) (28,939) 71,586
Federal income and other taxes payable (232,767) 117,760 (379,304)
----------- ----------- -----------
Net cash provided by operating
activities 6,067,015 4,023,158 4,150,368
----------- ----------- -----------
Cash flows from investing activities:
Additions to water wells, leasehold
improvements, furniture, and equipment (151,606) (61,005) (57,941)
Retirements of water wells, leasehold
improvements, furniture, and equipment 13,000 15,674 15,500
----------- ----------- -----------
Net cash used in investing activities (138,606) (45,331) (42,441)
----------- ----------- -----------
Cash flows from financing activities:
Purchase of Sub-share Certificates in
Certificates of Proprietary Interest (3,953,656) (3,202,690) (3,765,561)
Dividends (1,003,522) (1,033,842) (1,067,202)
----------- ----------- -----------
Net cash used in financing activities (4,957,178) (4,236,532) (4,832,763)
----------- ----------- -----------
Net increase (decrease) in cash
and temporary cash investments 971,231 (258,705) (724,836)
Cash and temporary cash investments
at beginning of year 1,613,834 1,872,539 2,597,375
----------- ----------- -----------
Cash and temporary cash investments
at end of year $ 2,585,065 $ 1,613,834 $ 1,872,539
=========== =========== ===========
Supplemental disclosure of noncash 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.
F-5
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
December 31, 2001, 2000, and 1999
(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% to 11% as of December 31, 2001 and are secured by first
lien deeds of trust on the properties sold. The weighted average
interest rate is 8.71% as of December 31, 2001. 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 2001, 2000, and 1999 were $1,054,801, $25,518, and
$1,766,015, 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, 2001, 2000, or 1999. One customer
represented approximately 37% and 0% and another represented
approximately 11% and 16% of the Trust's notes receivable balance
at December 31, 2001 and 2000, respectively.
F-6
(Continued)
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
December 31, 2001, 2000, and 1999
The maturities of notes receivable for each of the five years
subsequent to December 31, 2001 are:
Year ending December 31:
2002 $ 855,546
2003 909,578
2004 971,514
2005 817,991
2006 775,926
As of December 31, 2001, 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 (2,464,162 in 2001, 2,555,062 in
2000, and 2,642,626 in 1999).
(d) CASH FLOWS
Temporary cash investments at December 31, 2001 and 2000 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 2001, 2000,
and 1999 was $2,877,663, $1,592,000, and $2,470,106, 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.
(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.
F-7
(Continued)
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
December 31, 2001, 2000, and 1999
(2) SEGMENT INFORMATION
Segment information has been considered in accordance with Statement of
Financial Accounting Standards (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, 2001, 2000, or 1999) 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, 2001 and 2000:
2001 2000
-------------------------- --------------------------
ACRES BOOK VALUE ACRES BOOK VALUE
----------- ----------- ----------- -----------
Balance at January 1: 9,669.46 $ 3,992,302 25,027.51 $ 4,598,624
Additions -- -- -- --
Sales (1,877.60) (1,541,416) (15,358.05) (606,322)
----------- ----------- ----------- -----------
Balance at December 31 7,791.86 $ 2,450,886 9,669.46 $ 3,992,302
=========== =========== =========== ===========
(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.
F-8
(Continued)
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
December 31, 2001, 2000, and 1999
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, 2001 and 2000:
2001 2000
----------- -----------
Change in benefits obligation:
Benefit obligation at beginning of year $ 1,483,287 $ 1,265,474
Service cost 46,784 47,987
Interest cost 105,433 102,184
Actuarial loss 14,982 102,712
Benefits paid (248,338) (75,678)
Other -- 40,608
Termination benefits 160,238 --
----------- -----------
Benefit obligation at end of year $ 1,562,386 $ 1,483,287
=========== ===========
Change in plan assets:
Fair value of plan assets at beginning of year $ 1,885,884 $ 1,934,528
Actual return on plan assets (199,883) 27,034
Benefits paid (248,338) (75,678)
----------- -----------
Fair value of plan assets at end of year $ 1,437,663 $ 1,885,884
=========== ===========
Funded (unfunded) status $ (124,723) $ 402,597
Unrecognized net actuarial (gain) loss 74,607 (255,107)
Unrecognized prior service cost 92,745 106,211
Unrecognized portion of net asset existing at January 1, 1987 (23,211) (46,429)
----------- -----------
Prepaid benefit cost $ 19,418 $ 207,272
=========== ===========
Weighted average assumptions as of December 31:
Discount rate 7.25% 7.50%
Expected return on plan assets 7.00 7.00
Rate of compensation increase 7.79 7.79
F-9
(Continued)
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
December 31, 2001, 2000, and 1999
Net periodic benefit costs (benefits) for the years ended December 31,
2001, 2000, and 1999 include the following components:
2001 2000 1999
--------- --------- ---------
Components of net periodic benefit costs (benefits):
Service cost $ 46,784 $ 47,987 $ 57,540
Interest cost 105,433 102,184 93,497
Expected return on plan assets (113,016) (132,751) (124,422)
Amortization of the unrecognized
transition asset (23,218) (23,218) (23,218)
Amortization of unrecognized gains (1,833) (21,150) --
Amortization of prior service cost 13,466 13,466 10,440
Termination benefits 160,238 -- --
--------- --------- ---------
Net periodic benefit costs
(benefits) $ 187,854 $ (13,482) $ 13,837
========= ========= =========
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 $33,515, $35,633, and $33,456 in
2001, 2000, and 1999, 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:
2001 2000 1999
----------- ----------- -----------
Computed tax expense at the statutory rate $ 3,414,967 $ 1,816,537 $ 1,427,803
Reduction in income taxes resulting from:
Statutory depletion (235,479) (237,862) (163,234)
Other, net (21,980) 6,013 (2,974)
----------- ----------- -----------
$ 3,157,508 $ 1,584,688 $ 1,261,595
=========== =========== ===========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities at December 31, 2001 and 2000
are as follows:
2001 2000
---------- ----------
Basis differences in real estate acquired through foreclosure $ 722,733 $1,168,333
Deferred installment revenue on land sales for tax purposes 3,679,748 2,737,345
---------- ----------
Total deferred tax liability $4,402,481 $3,905,678
========== ==========
F-10
(Continued)
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
December 31, 2001, 2000, and 1999
(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. One
Certificate was exchanged for Sub-shares in 2001 and no Certificates were
exchanged for Sub-shares in 2000 or 1999.
The number of Certificates authorized for issuance at a given date is the
number then outstanding plus 1/600 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 600 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, 2001, 2000,
and 1999, respectively: oil (in barrels) - 99,000, 100,807, and 106,760,
and gas (in thousands of cubic feet) - 391,306, 413,817, and 442,983.
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 2001 and 2000:
QUARTER ENDED
-------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
2001 2001 2001 2001
------------- ------------- ------------- -------------
Income $ 1,983,122 $ 7,889,591 $ 1,908,926 $ 1,647,729
============= ============= ============= =============
Income before Federal income
taxes $ 1,541,917 $ 5,970,540 $ 1,445,004 $ 1,086,560
============= ============= ============= =============
Net income $ 1,071,906 $ 4,002,627 $ 1,025,249 $ 786,731
============= ============= ============= =============
Net income per Sub-share
Certificate $ 0.45 $ 1.62 $ 0.41 $ 0.31
============= ============= ============= =============
F-11
(Continued)
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
December 31, 2001, 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 $ 0.49 $ 0.39 $ 0.32 $ 0.27
============= ============= ============= =============
F-12