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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q

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

 
For the quarterly period ended September 30, 2012

 
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

 

Commission File Number 1-31905

CKX Lands, Inc.
 
(Exact name of registrant as specified in its charter)


Louisiana
 
72-0144530
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
     
700 Pujo Street, Suite 200
   
Lake Charles, LA
 
70601
(Address of principal executive offices)
 
(Zip Code)
     
 
(337) 493-2399
 
 
(Registrant’s telephone number)
 




Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes xNo o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
  Large accelerated filer o Accelerated filer                    o  
  Non-accelerated filer   o Smaller reporting company  x  
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 
1,942,495
 
 
 

 
 
CKX Lands, Inc.
Form 10-Q
For the Quarter ended September 30, 2012
 
Table of Contents
      Page
Part I. Financial Information    
         
Item 1.  
Financial Statements
   
         
  a.
Balance Sheets as of September 30, 2012 and December 31, 2011 (Unaudited)
 
1
  b.
Statements of Income and Comprehensive Income for the quarter and nine months ended September 30, 2012 and 2011 (Unaudited)
 
2
  c.
Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2012 and 2011 (Unaudited)
 
3
  d.
Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (Unaudited)
 
4
  e.
Notes to Financial Statements (Unaudited)
 
5-6
         
Item 2.  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
7-8
         
Item 4.  
Controls and Procedures
 
8
         
Part II. Other Information    
         
Item 6.  
Exhibits
 
9
         
   
Signature
 
10

 
 
 

 

 

Part I – Financial Information

 
Item 1.   FINANCIAL STATEMENTS
 
CKX Lands, Inc.
Balance Sheets
September 30, 2012 and December 31, 2011
(Unaudited)

   
2012
    2011  
Assets
 
Current Assets:
           
Cash and cash equivalents
  $ 5,109,103     $ 4,124,908  
Certificates of deposit
    741,384       495,625  
Accounts receivable
    300,847       276,217  
Prepaid expense and other assets
    93,774       20,828  
Total current assets
    6,245,108       4,917,578  
Certificates of deposit
    --       480,000  
Property and equipment:
               
Building and equipment less accumulated depreciation of $75,833 and $70,818, respectively
    14,599       19,614  
Timber less accumulated depletion of $694,929 and $691,436, respectively
    1,241,425       1,146,743  
Land
    4,434,081       4,431,034  
Total property and equipment, net
    5,690,105       5,597,391  
Total assets
  $ 11,935,213     $ 10,994,969  
                 
Liabilities and Stockholders’ Equity
 
Current Liabilities:
               
Trade payables and accrued expenses
  $ 98,562     $ 58,662  
Income tax payable:
               
Current
    --       87,419  
Deferred
    5,153       5,153  
Total current liabilities
    103,715       151,234  
Deferred income tax payable
    181,818       181,818  
Total liabilities
    285,533       333,052  
Stockholders’ Equity:
               
Common stock, no par value: 3,000,000 shares authorized; 2,100,000 shares issued
    72,256       72,256  
Retained earnings
    11,952,940       10,965,177  
Accumulated other comprehensive income
    --       --  
Less cost of treasury stock (157,505 shares)
    (375,516 )     (375,516 )
Total stockholders’ equity
    11,649,680       10,661,917  
Total liabilities and stockholders’ equity
  $ 11,935,213     $ 10,994,969  
 
The accompanying notes are an integral part of these financial statements.
 
 
1

 
 
CKX Lands, Inc.
Statements of Income and Comprehensive Income
Quarter and Nine Months Ended September 30, 2012 and 2011
 (Unaudited)


   
Quarter Ended September 30,
    Nine Months Ended September 30,  
   
2012
   
2011
   
2012
   
2011
 
Revenues:
                       
Oil and gas
  $ 676,782     $ 565,573     $ 2,102,106     $ 1,200,186  
Agriculture
    17,379       22,124       327,422       46,588  
Timber
    32,499       83,193       37,504       86,632  
Total revenues
    726,660       670,890       2,467,032       1,333,406  
Costs and Expenses:
                               
Oil and gas production
    60,672       38,794       183,651       90,208  
Agriculture
    2,098       2,258       3,952       5,220  
Timber
    13,717       17,778       27,943       32,414  
General and administrative
    127,101       99,712       344,070       319,387  
Depreciation and depletion
    4,777       30,210       8,507       51,507  
Total cost and expenses
    208,365       188,752       568,123       498,736  
Income from operations
    518,295       482,138       1,898,909       834,670  
Other Income / (Expense):
                               
Interest income
    4,712       9,817       10,010       30,286  
Dividend income
    --       3,854       --       13,381  
Gain/(Loss) on securities available-for-sale
            10,688               10,688  
Gain on sale of land and other assets
    --       --       124,000       306  
Net other income / (expense)
    4,712       24,359       134,010       54,661  
Income before income taxes
    523,007       506,497       2,032,919       889,331  
Federal and state income taxes:
                               
Current
    162,848       160,247       648,173       259,779  
Deferred
    3,003       863       (2,828 )     (11,565 )
Total income taxes
    165,851       161,110       645,345       248,214  
Net Income
    357,156     $ 345,387       1,387,574       641,117  
Other Comprehensive Income, Net of Taxes:
                               
Change in unrealized net holding gains occurring during period, net of taxes of $6,042 and $3,721, respectively for 2011
    --       (9,062 )     --       (5,581 )
Other comprehensive income
    --       (9,062       --       (5,581 )
Comprehensive Income
  $ 357,156     $ 336,325     $ 1,387,574     $ 635,536  
                                 
Per Common Stock (1,942,495 shares):
                               
Net Income
  $ 0.18     $ 0.18     $ 0.71     $ 0.33  
Dividends
  $ 0.07     $ 0.07     $ 0.21     $ 0.21  
 
The accompanying notes are an integral part of these financial statements.
 
 
2

 
 
CKX Lands, Inc.
Statements of Changes in Stockholders’ Equity
Nine Months Ended September 30, 2012 and 2011
(Unaudited)
 
Nine Months Ended September 30, 2012:
   
Total
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income
   
Capital
Stock
Issued
   
Treasury
Stock
 
December 31, 2011 Balance
  $ 10,661,917     $ 10,965,177     $ --     $ 72,256     $ 375,516  
Net income
    1,387,574       1,387,574       --       --       --  
Other comprehensive income
    --       --       --       --       --  
Dividends
    (407,924 )     (407,924 )     --       --       --  
Dividend reversion
    8,113       8,113       --       --       --  
September 30, 2012 Balance
  $ 11,649,680     $ 11,952,940     $ --     $ 72,256     $ 375,516  
 
Nine Months Ended September 30, 2011:
   
Total
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income
   
Capital
Stock
Issued
   
Treasury
Stock
 
December 31, 2010 Balance
  $ 10,246,245     $ 10,543,924     $ 5,581     $ 72,256     $ 375,516  
Net income
    641,117       641,117       --       --       --  
Other comprehensive income
    (5,581 )     --       (5,581 )     --       --  
Dividends
    (407,924 )     (407,924 )     --       --       --  
Dividend reversion
    13,375       13,375       --       --       --  
                                         
September 30, 2011 Balance
  $ 10,487,232     $ 10,790,492     $ --     $ 72,256     $ 375,516  
 
The accompanying notes are an integral part of these financial statements.
 
 
3

 
 
CKX Lands, Inc.
Statements of Cash Flows
Nine Months Ended September 30, 2012 and 2011
(Unaudited)

   
2012
   
2011
 
Cash Flows From Operating Activities:
           
Net Income
  $ 1,387,574     $ 641,117  
Less non-cash (income) expenses included in net income:
               
Depreciation, depletion and amortization
    8,507       51,507  
Deferred income tax expense
    (2,828 )     (11,565 )
Less non-operating activities:
               
Gain from sale of land and other assets
    (124,000 )     (306 )
Change in operating assets and liabilities:
               
(Increase) decrease in current assets
    (94,748 )     7,724  
Increase (decrease) in current liabilities
    (47,519 )     11,551  
Net cash provided from operating activities
    1,126,986       700,028  
                 
Cash Flows From Investing Activities:
               
Certificates of deposit:
               
Maturity proceeds
    495,625       --  
Purchases
    (261,384 )     (725,625 )
Securities:
               
Sales proceeds
            787,841  
Purchases
    --       (12,560 )
Land, timber, equipment and other assets:
               
Sales proceeds
    159,000       167  
Purchases
    (136,221 )     (604,483 )
Proceeds held in 1031 trust account
    --       --  
Net cash provided from (used in) investing activities
    257,020       (554,660 )
                 
Cash Flows From Financing Activities:
               
Dividends paid, net of reversion
    (399,811 )     (394,549 )
Net cash used in financing activities
    (399,811 )     (394,549 )
Net increase (decrease) in cash and cash equivalents
    984,195       (249,181 )
                 
Cash and cash equivalents:
               
Beginning
    4,124,908       5,182,316  
Ending
  $ 5,109,103     $ 4,933,135  
                 
Supplemental disclosures of cash flow information:
               
Cash payments for:
               
Interest
  $ --     $ --  
Income taxes
  $ 781,641     $ 139,660  
                 
Supplemental schedule of non-cash investing and financing activities:
               
Net change in recognized and unrecognized unrealized gains (losses) on available-for-sale securities
  $ --     $ (9,302 )

The accompanying notes are an integral part of these financial statements.
 
 
4

 
 
CKX Lands, Inc.
Notes to Financial Statements
September 30, 2012
(Unaudited)

Note 1:       Basis of Presentation

The accompanying unaudited financial statements of CKX Lands, Inc. (“Company”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information.  They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements.  Except as described herein, there has been no material change in the information disclosed in the notes to the financial statements included in our financial statements as of and for the year ended December 31, 2011.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the accompanying financial statements.

Interim results are not necessarily indicative of results for a full year.  These financial statements and accompanying notes should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2011 and Form 10-Q for the quarter ended September 30, 2012.

Note 2:       Recently Adopted Accounting Pronouncements

In 2012, we adopted Accounting Standards Update (ASU) 2011-05 which requires the presentation of the components of net income and other comprehensive income and other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity.

Note 3:       Disclosures about Fair Value:

Securities available for sale and certificate of deposits (securities held to maturity) are valued at fair value.  The Company’s estimated fair values of securities are as follows.
 
   
September 30, 2012
 
   
Current
   
Non-Current
   
Total
 
   
Fair Value
   
Unrealized
Gain/(Loss)
   
Fair Value
   
Unrealized
Gain/(Loss)
   
Fair Value
   
Unrealized
Gain/(Loss)
 
                                     
Certificate of Deposits
  $ 741,384       --       --       --       741,384       --  
Mutual Funds
    --       --       --       --       --       --  
Equity Securities
    --       --       --       --       --       --  
 
                                               
Total
  $ 741,384       --        --       --       741,384       --  
 
 
   
September 30, 2012
 
   
Current
   
Non-Current
   
Total
 
   
Fair Value
   
Unrealized
Gain/(Loss)
   
Fair Value
   
Unrealized
Gain/(Loss)
   
Fair Value
   
Unrealized
Gain/(Loss)
 
                                                 
Certificate of Deposits
  $ 735,625       --       480,000       --       1,215,625       --  
Mutual Funds
    --       --       --       --       --       --  
Equity Securities
    --       --        --       --       --       --  
                                                 
Total
  $ 735,625       --       480,000        --       1,215,625       --  
 
 
5

 
 
CKX Lands, Inc.
Notes to Financial Statements
September 30, 2012
(Unaudited)
 
Fair value measurements disclosure for securities is as follows.
 
 
   
September 30, 2011
 
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other
Observable Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
                   
Certificate of Deposit
  $ 741,384       --       --  
                         
Mutual Funds
    --       --       --  
                         
Equity Securities
  $ --       --       --  
 
   
September 30, 2011
 
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other
Observable Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
                   
Certificate of Deposit
  $ 1,215,625       --       --  
                         
Mutual Funds
    --       --       --  
                         
Equity Securities
  $ --       --       --  

 
Note 4:       Income Taxes:

In accordance with generally accepted accounting principles, the Company has analyzed its filing positions in federal and state income tax returns for the tax years ending December 31, 2008 through 2011 that remain subject to examination.  The Company believes that all filing positions are highly certain and that all income tax filing positions and deductions would be sustained upon a taxing jurisdiction’s audit. Therefore, no reserve for uncertain tax positions is required.  No interest or penalties have been levied against the Company and none are anticipated.
 
 
Note 5:       Land Sale:

During the first quarter of 2012, the Company sold 80 acres of land for $160,000 and reported a gain of $124,000.  At March 31, 2012, this transaction was structured as a “deferred exchange using a qualified intermediary” pursuant to Paragraph 1031 of the Internal Revenue Code (1031 Exchange) for income tax purposes and as such the gain of $124,000 was deferred for income tax purposes.  During July, 2012, the Company determined that it would not be able to complete the 1031 Exchange and the $159,000 held by the intermediary was returned to the Company.  At June 30, 2012, the Company recorded the $124,000 gain as current for income tax purposes.
 
 
6

 
 
Item 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 

Results of Operations

Revenue

Revenues for the first nine months of 2012 increased by $1,133,626 from the revenues for the first nine months of 2011 to $2,467,032.

Oil and gas revenues increased by $901,920 to $2,102,106 in 2012.  Oil and gas revenues consists of royalty, lease rental and geophysical revenue.  Royalty revenue increased by $928,662 and lease rentals decreased by $63,330 from 2011.  Geophysical revenues increased by $36,588 from 2011.

Gas production increased by 11,834 MCF, and the average gas sales price per MCF decreased by 33.92% resulting in a decrease in gas revenue of $43,523. Revenue from oil production increased by $849,949, due to an increase of 2.95% in the average barrel sales price and an increase in production of approximately 7,795 barrels.  Revenues from plant products increased by $122,237 from 2011 revenues.

The following schedule summarizes barrels and MCF produced and average price per barrel and per MCF.

   
Nine Months
Ended
09/30/12
   
Nine Months
Ended
09/30/11
 
Net gas produced (MCF)
    60,205       48,372  
Average gas sales price (per MCF)(1)
  $ 3.34     $ 5.05  
                 
Net oil produced (Bbl)(2)
    15,074       7,279  
                 
Average oil sales price (per Bbl)(1,2)
  $ 106.20     $ 103.15  
 
 
Notes to above schedule:
 
(1) Before deduction of production and severance taxes.
(2) Excludes plant products.
 
Timber revenue decreased from $86,632 to $37,503 in 2012.  Generally, timber prices have been depressed for the last several years and the Company has elected to only harvest timber for internal maintenance programs for age class timber and storm protection measures.

Agriculture revenue increased from $46,588 to $327,422 in 2012, primarily due to a pipeline right of way fee.

Costs and Expenses

Oil and gas production costs, primarily severance taxes, increased by $93,443 in 2012 due to increased oil and gas revenues.

General and administrative expenses increased in 2012 primarily due to increased property management fees related to staffing changes at WLP.

Other costs and expenses incurred for the nine months ended September 30, 2012 were generally flat from 2011 reported amounts.
 
 
7

 
 
Financial Condition

Current assets totaled $6,245,107 and total liabilities equaled $285,531 at September 30, 2012.  Management believes available cash and investments together with funds generated from operations should be sufficient to meet operating requirements and provide funds for strategic acquisitions.

The Company declared and paid another seven cents per common share during the quarter ended September 30, 2012. It is anticipated that the Company will be able to continue paying a seven cents per common share dividend each quarter.  From time to time, the Company may elect to pay an extra dividend.  In determining if an extra dividend will be declared, the Board of Directors will take into consideration the Company’s current liquidity and capital resources and the availability of suitable timberland that has mineral potential.

Issues and Uncertainties

This Quarterly Report contains forward-looking statements.  These statements are based on current expectations and assumptions that are subject to risks and uncertainties.  Actual results could differ materially because of issues and uncertainties such as those discussed below, which, among others, should be considered in evaluating the Company’s financial outlook.

Revenues from oil and gas provide most of the Company’s income.  All of these revenues come from wells operated by other companies from property belonging to CKX Lands, Inc.  Consequently, these revenues fluctuate due to changes in oil and gas prices and changes in the operations of the other companies.

 
Item 3.   Not applicable.
 
Item 4.   CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures

The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the period covered by this report. Based on the evaluation, performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by the report.
 
Changes in Internal Control Over Financial Reporting

There were no significant changes with respect to the Company’s internal control over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter covered by this report.
 
 
8

 


Part II.  Other Information

 
Item 1 – 5.     Not Applicable
 
 
Item 6.   EXHIBITS
 

 
3.1
Restated/Articles of Incorporation of the Registrant are incorporated by reference to Exhibit (3)-1 to Form 10 filed April 29, 1981.

 
3.2
Amendment to Articles of Incorporation of the Registrant is incorporated by reference to Exhibit (3.2) to Form 10-K for year ended December 31, 2003.

 
3.3
By-Laws of the Registrant filed herewith

 
10
Contract to Purchase and Sell approximately 3,495 acres in Cameron Parish, Louisiana effective July 3, 2007 is incorporated by reference to Exhibit (10) to Form 10-QSB filed August 13, 2007.

 
31.1
Certification of Joseph K. Cooper, President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.
 
31.2
Certification of Brian R. Jones, Treasurer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.
 
 
32
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.
 
101.INS**   XBRL Instance
101.SCH**   XBRL Taxonomy Extension Schema
101.CAL**   XBRL Taxonomy Extension Calculation
101.DEF**   XBRL Taxonomy Extension Definition
101.LAB**    XBRL Taxonomy Extension Labels
101.PRE**    XBRL Taxonomy Extension Presentation
                   
** XBRL Information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
CKX Lands, Inc.
 
 
Date: November 8, 2012  
/s/ Joseph K. Cooper  
 
Joseph K. Cooper
 
 
President and Chief Executive Officer
 
 
 
Date: November 8, 2012  
/s/ Brian R. Jones  
 
Brian R. Jones
 
 
Treasurer and Chief Financial Officer
 

                                                                                                                     
 
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