Quarterly report pursuant to Section 13 or 15(d)

Summary of Significant Accounting Policies

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Summary of Significant Accounting Policies
 6 Months Ended
Jun. 30, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

Interim Unaudited Financial Information

The results for the interim periods shown in this report are not necessarily indicative of future financial results. The accompanying condensed consolidated financial statements include all adjustments necessary to present fairly the financial position of the Trust as of June 30, 2018 and the results of its operations for the three and six month periods ended June 30, 2018 and 2017, respectively, and its cash flows for the six month periods ended June 30, 2018 and 2017, respectively. Such adjustments are of a normal recurring nature.

Principles of Consolidation and Basis of Presentation

The accompanying condensed consolidated financial statements include our accounts and the accounts of our wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements should be read in conjunction with the annual financial statements and notes thereto included in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on February 28, 2018. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted from this report.

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent asset and liabilities at the date of the financial statements and reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Recently Adopted Accounting Guidance

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue Recognition (Topic 606): Revenue from Contracts with Customers.” The ASU provides a five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU allows for a practical expedient for companies to exclude sales or similar taxes collected from customers from the transaction price. Additionally, the ASU requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.
The most significant impact of the new standard relates to our accounting for easement agreements and to a lesser extent oil and gas royalties. Specifically, we recognize revenue for term easements upon execution of the easement agreements, and as a result, we no longer defer revenue on our term easements. Historically, oil and gas royalties have been adjusted for production taxes paid by operators with a charge to taxes, other than income taxes and a corresponding increase to revenue. We elected the practical expedient allowed by the ASU and exclude production taxes from revenue. Revenue recognition related to our land sales and other sundry income remains substantially unchanged. Adoption of the standard resulted in (i) the acceleration of easement and sundry income as unearned revenue decreases, (ii) a reduction in oil and gas royalty revenue with a corresponding reduction in taxes, other than income taxes, and (iii) an increase in income tax expense for the three and six months ended June 30, 2017.
We adopted the new standard on January 1, 2018 applying the full retrospective method with optional practical expedients. Adoption of the standard using the full retrospective method required us to restate certain previously reported results as though the new standard had always been in effect.
Adoption of the standard related to revenue recognition impacted our previously reported results as follows (in thousands, except per share amounts):
 
 
 
As reported in prior year
 
Retrospective Adjustment
 
As reported in current year
Condensed Consolidated Statements of Income:
 
 
 
 
 
 
For the three months ended June 30, 2017
 
 
 
 
 
 
 
Revenue
 
$
27,349

 
$
4,944

 
$
32,293

 
Taxes, other than income taxes
 
762

 
(700
)
 
62

 
Income taxes
 
8,030

 
2,005

 
10,035

 
Net income
 
16,711

 
3,639

 
20,350

 
Net income per Sub-share Certificate
 
$
2.12

 
$
0.46

 
$
2.58

 
 
 
 
 
 
 
 
For the six months ended June 30, 2017
 
 
 
 
 
 
 
Revenue
 
$
51,577

 
$
11,123

 
$
62,700

 
Taxes, other than income taxes
 
1,422

 
(1,305
)
 
117

 
Income taxes
 
15,258

 
4,415

 
19,673

 
Net income
 
31,597

 
8,012

 
39,609

 
Net income per Sub-share Certificate
 
$
4.00

 
$
1.02

 
$
5.02

 
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheets:
 
 
 
 
 
 
As of December 31, 2017
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Accrued receivables
 
$
18,206

 
$
(433
)
 
$
17,773

 
Deferred tax asset (liability)
 
6,992

 
(7,106
)
 
(114
)
 
 
 
 
 
 
 
 
 
Liabilities and Capital:
 
 
 
 
 
 
 
Unearned revenue
 
$
41,375

 
$
(33,011
)
 
$
8,364

 
Other taxes payable
 
433

 
(433
)
 
—

 
Net proceeds from all sources
 
79,997

 
25,905

 
105,902

 
 
 
 
 
 
 
 

Presentation of Net Periodic Pension Cost

In March 2017, the FASB issued ASU No. 2017-07, “Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This ASU requires employers to disaggregate the service cost component from the other components of net benefit cost in the income statement, provides explicit guidance on the presentation of the service cost component and the other components of net benefit cost in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization. The service cost component is recorded within salaries and related employee benefits expense, and the other components of net benefit costs are recorded in other income.

We adopted the new standard on January 1, 2018 applying the retrospective method. Adoption of the standard using the retrospective method required us to restate certain previously reported results as though the new standard had always been in effect.

Effects on Operating Income and Other Income from Adoption of New Accounting Standards

Adoption of the standards related to revenue recognition and presentation of net periodic pension cost impacted our previously reported results for operating income and other income as follows (in thousands):
 
 
 
As reported in prior year
 
Retrospective Adjustment
 
As reported in current year
Condensed Consolidated Statements of Income:
 
 
 
 
 
 
For the three months ended June 30, 2017
 
 
 
 
 
 
 
Operating income (1)
 
$
24,732

 
$
5,647

 
$
30,379

 
Other income
 
10

 
(4
)
 
6

 
 
 
 
 
 
 
 
For the six months ended June 30, 2017
 
 
 
 
 
 
 
Operating income (1)
 
$
46,836

 
$
12,433

 
$
59,269

 
Other income
 
19

 
(6
)
 
13

 
 
 
 
 
 
 
 
 
(1)
The retrospective adjustment amount includes approximately $5.6 million and $12.4 million for the three and six months ended June 30, 2017, respectively, related to the adoption of the new revenue recognition guidance as discussed above. The retrospective adjustment amount related to the adoption of the presentation of net periodic pension cost had a minimal impact.

Impact of the 2017 Tax Cuts and Jobs Act on Certain Income Tax Effects

In March 2018, the FASB issued ASU 2018-05, “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.” The amendments in this update provide guidance on when to record and disclose provisional amounts for certain income tax effects of the 2017 Tax Cuts and Jobs Act ("Tax Reform Act"). The amendments also require any provisional amounts or subsequent adjustments to be included in net income from continuing operations. Additionally, this ASU discusses required disclosures that an entity must make with regard to the Tax Reform Act. This ASU is effective immediately as new information is available to adjust provisional amounts that were previously recorded. The Trust has adopted this standard and will continue to evaluate indicators that may give rise to a change in our tax provision as a result of the Tax Reform Act.