2006UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For
Fiscal Year Endedthe fiscal year ended December 31,20022007
¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT Commission
File Number 0-9669 CALCASIEU REAL ESTATE AND OIL CO.,file number 1-31905CKX LANDS, INC.
(Exact(Name of
registrant as specifiedsmall business issuer in its charter)Louisiana 72-0144530 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Lakeside Plaza 70601 Lake Charles, Louisiana (Zip Code) (Address of principal executive offices) Registrant's
Louisiana 72-0144530 (State of other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 751 Bayou Pines East, Lake Charles, Louisiana 70601 (Address of principal executive offices) (Zip Code) Issuer’s telephone number
including area code:(337)494-4256310-0547Securities registered
pursuant tounder Section 12(b) of the Exchange Act:Title of each Class Name of each exchange on which registered None Not Applicable Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value (Title of Class) Indicate by check mark
Title of each class
Name of each exchange on which registered
Common Stock with no par value American Stock Exchange Check whether the
registrantissuer (1)hasfiled all reports required to be filed by Section 13ofor 15(d) of theSecuritiesExchange Actof 1934during theprecedingpast 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]þ No[_]¨Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will 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
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. (Check one):
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company þ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
State issuer’s revenues for its most recent fiscal year. $3,258,124
State the aggregate market value of
thevotingstockand non-voting common equity held by non-affiliates computed by reference to price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of theregistrant. Trading inExchange Act.). $18,102,129 (based on an $11.93 closing price on theCompany's common stock is limitedAmerican Stock Exchange on January 31, 2008).(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and
sporadic and its common stock has no readily established market value. Indicatereports required by Section 12, 13 or 15(d) of the Exchange Act after distribution of securities under a plan confirmed by a court. Yes ¨ No ¨(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the
registrant'sissuer’s classes of commonstockequity, as of the latest practicable date.Common Stock, No Par Value,
1,955,0441,942,495 shares outstanding atFebruary 18, 2003. AsMarch 5, 2008.DOCUMENTS INCORPORATED BY REFERENCE
Portions of
June 30, 2002thetotal market value of all outstanding stock was $10,009,825. Documents Incorporated by Reference Document Part of Form 10K -------- ---------------- DefinitiveRegistrant’s definitive Proxy StatementParts Iprepared in connection with the 2008 Annual Meeting of Stockholders are incorporated by reference into Part III, Items 9, 10, 11, 12 andIII14 of this Annual Report on Form 10-K. Transitional Small Business Disclosure Format Yes ¨ No þ
PART I
Item 1.
Item 1. BUSINESS General Description
CKX Lands, Inc. is a Louisiana corporation organized in 1930 as Calcasieu Real Estate & Oil Co., Inc.,
a Louisiana corporation incorporated in 1930 and headquartered in Lake Charles, Louisiana, is a company which manages real estate holdings involved in oil and gas royalty holdings, timber management and agriculture. Originally formedto receive non-producing mineral royalties spun off by abank to its shareholders,Southwest Louisiana bank. Over the years as some of the royalties yielded oil and gas income the Company used the proceeds to purchase land. On May 17, 2005, the Company changed its name from Calcasieu Real Estate & Oil Co., Inc. to CKX Lands, Inc. The primary reason for the change was to help make clear that the Company is not directly involved in oil and gas exploration or operations. As used herein, The “Company” or “CKX” refers to CKX Lands, Inc.The Company’s shares are listed on the American Stock Exchange, under the symbol CKX. As of March 5, 2008, there were 1,942,495 shares outstanding. The Company has
pursuedrevenues less than $25,000,000 and its public float in 2007 was less than $25,000,000, consequently the Company is agoalsmall business issuer under the Securities Exchange Commission regulations.As a reporting company, CKX is subject to the informational requirements of
acquiring land-holdingsthe Securities Exchange Act of 1934 (the “Exchange Act”) and accordingly files its annual report on Form 10-K, quarterly reports on 10-QSB, current reports on Form 8-K, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). The public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street NW, Washington, DC 20549. Please call the SEC at (800) SEC-0330 for further information on the Public Reference Room. As an electronic filer, CKX’s public filings are maintained on the SEC’s Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is http://www.sec.gov.The Company owns land and mineral interests, all of which are located in Southwest Louisiana.
OperationsTheCompany'sCompany collects incomeis derivedfrom this land in theacreage and mineral interests it owns. The largest sourceform ofincome is fromoil and gasproduction from these properties. The next largest sources are fromroyalties, agriculture rentals and timbergrown on the Company's land.sales. The Company is not involved in the exploration or production of oil andproduction.gas nor does it actively farm its lands. These activities are performed by others for royalties or rentals. Parts of the Company’s lands are owned in indivision with other owners. The Company’s ownership share in most of this acreage is one-sixth. For convenience the owners jointly operate an entity known as Walker Louisiana Properties to manage this acreage. Neither the Companyhas small working interestsnor Walker Louisiana Properties consider themselves to be infour wells, which occurred as a back-in underoil and gas producing activities inasmuch as: (1) they do not search for crude oil or natural gas in their natural states; (2) they do not acquire property for theoriginal mineral leases.purpose of exploration or the removing of oil and gas; and (3) they are not involved in construction, drilling and/or production activities necessary to retrieve oil and gas.Oil and gas royalties are paid by the operators who own the wells. Timber income is paid by the highest bidder of the timber. There are several mills in the immediate area that compete for timber. All of the agriculture income comes from tenants who pay annual cash rents. The prices paid for oil, gas and timber depend on national and international market conditions. Oil and gas operations produced 90.0% of the Company’s revenues in 2007 and 82.2% in 2006.
The source of all raw materials for the Company is the land itself. Timber income and agriculture income are renewable resources. All oil and gas income will eventually deplete but we have no access to this data.
The Company does not
anticipate taking a working interest in future production. Industry Segments In addition to anspend any money on Research and Development.The Company does not need government approval of its principal products or services except that the State of Louisiana must approve all oil and gas
segment, theproducing units as to size and location.Employees
The Company has
also created "Agriculture Properties"five employees, all of whom are part-time. There are four officers, and"Timber Properties". Included in oil and gas properties revenues are mineral lease payments and payments for seismic work. Note 6 to the Financial Statements on page 25 sets forth information on the business segments. Employees The Company currently employs a total of five persons in a part-time capacity.one clerical person. The Company is subject to no union contracts nor does the Company have any hospitalization, pension,profit sharing, option or deferred compensation
plans.programs. Walker Louisiana Propertiesemploys its own staff, nonehas five full-time employees and the Company pays one-sixth ofwhomtheir payroll costs. One employee of Walker is devoted full-time to agriculture and one employee of Walker is devoted full-time to timber.Customers
The Company’s customers are
Company officersthose who have mineral leases on the Company’s property ordirectors. Customerspurchase the timber in competitive bids or execute farming leases. TheCompany had twolargest customers are thesales to which equal or exceed 10% of the Company's totaloil and gasrevenues, exclusiveoperators under the mineral leases. The Company received 28.5% of revenuespaid Walker Louisiana Properties. In 2002, sales tofrom Mayne and Mertz, 9.8% from Cox&and Perkins,accounted for 71.1% of revenues and sales to6.8% from Riceland Petroleum,accounted6.8% from Unit Petroleum and 6.8% from Swift Energy. Termination of production from any of these fields would have a material adverse effect on the Company.Environmental and Other Governmental Regulations
The operators of the wells are responsible for
14.3% of oilcomplying with environmental andgas revenues. Item 2. PROPERTIESother governmental regulations. However, should an operator abandon a well located on Company land, without following prescribed procedure, the land owners could possibly be held responsible. The Company does not believe this would have a material effect on its financial condition.
Item 2. PROPERTIES The Company owns a total of
13,67210,375 net acresin feein the Parishes of Allen, Beauregard, Calcasieu, Cameron, Jefferson Davis, LaFourche, Sabine, St. Landry and Vermilion in Louisiana. Most of the acreage is in Southwest Louisiana within 65 miles of the City of Lake Charles. Much of this land is owned in indivision. Ownership is as follows:
100% Ownership
3,589 acres 40% Ownership of 1,748 acres with Walker Louisiana Properties
648 acres 50% Ownership of 440 acres with Prairie Land Company
220 acres 16.667% Ownership of 35,521 acres comprising
Walker Louisiana Properties
5,918 acres In addition the Company owns mineral and royalty interests in net 471 acres of 5,955 gross acres of land owned by others. Under Louisiana law these minerals will prescribe if ten years pass without mineral activity. Of
this 1these acres there are 122 net acres currently producing. Of the total
5,766net 10,375 acres owned by CKX, timberland comprises 6,371 acres, 3,014 acres are agricultural land, 741 acres are marsh land and 249 acres represents theCompany'sCompany’s one-sixthownershipinterest in34,596 acresproperty contiguous to the city limits of Lake Charles which ismanaged by an entity called Walker Louisiana Properties for the benefit of the six owners. Also managed by Walker Louisiana Properties is an additional 40% interest in 1,577 acres of this same property. The remainder of the Company's acreage is managed by the Company's officers. All amounts on the financial statements included herein reflect the combined totals of the two operations.future subdivision land.The table below shows, for the years ended December 31,
2002, December 31, 2001,2007, and December 31,2000,2006, the Company’s net gas produced in thousands of cubic feet (MCF) and net oil(including condensate and natural gas liquids)produced in barrels (Bbl),and average sales pricesand average production costs,relating to oil and gas attributable to the royalty interestsand working interest held byof the Company.
Year Ended Year Ended Year Ended 12/31/00 12/31/01 12/31/02 -------------------- --------------------- --------------------Net gas produced (MCF) 338,352 130,662 102,802 Average gas sales price (Per MCF)(1) $3.56 $5.75 $3.02 Net Oil Produced (Bbl) 10,258 9,732 27,451 Average Oil Sales price (Per Bbl)(1) $27.55 $25.26 $26.36 Average sales price of oil and gas per MCF $3.72 $5.68 $3.87 equivalent (1)(2) Average production cost of oil and gas per MCF equivalent (2) Royalty Interests .16 .22 .35 Working Interests .81 1.58 2.27(1)
Year Ended
12/31/07Year Ended
12/31/06Net gas produced (MCF)
151,637 111,839 Average gas sales price (per MCF) (1)
$ 7.94 $ 8.56 Net oil produced (Bbl) (2)
22,291 15,291 Average oil sales price (per Bbl) (1,2)
$ 66.98 $ 64.51 Notes to above schedule:
1. Before deduction of production and severance taxes.
(2) Oil production is converted to MCF equivalents at the rate of 6 MCF's per barrel, representing the approximate relative energy content of oil and natural gas. Walker Louisiana Properties Net income before income taxes from Walker2. Excludes plant products.
Item 3. LEGAL PROCEEDINGS The Company owns a 5.56% undivided interest in
2002 was $394,789 a decrease of 23% from 2001. This was due to a decrease104 acres inthe Company's share of oil and gas income of $89,324Calcasieu Parish and adecrease of $28,272 in agriculture income. The Company's share of Walker's general and administrative expenses including property taxes was $83,470. 2Calcasieu Acreage Net income before income taxes fromco-owner has sued for partition. This action is beneficial to theCalcasieu acreage in 2002 was $679,679 a decrease of 11.9% from 2001. Oil and gas income increased $40,674 in 2002 over 2001, while timber income decreased $109,930. Item 3. LEGAL PROCEEDINGS The Company is a co-defendant in a lawsuit filed by owners of eighty acres, which the defendants owned half the minerals. The landowners are asserting that the mineral interest prescribed. A settlement has been reached wherebyCompany. With this exception the Companywill receive all moneys heldwas not involved inescrow for their one-half for past production. Production ceased over one year ago. The Company is forfeiting one-halfany legal proceedings as ofits ownership of the minerals on the 80 acres to the plaintiff, and the plaintiffs are ratifying the company's remaining ownership. The Company has been notified by the National Pollution Funds Center that the Company, as well as the other various owners of the land managed by Walker Louisiana Properties, together with certain past owners, are jointly and severally liable for $588,843, the cost of an environmental clean-up. The Company is contesting the claim since the damage occurred prior to the Company's ownership and the Company is an innocent landowner. The Company also contends the damage did not come under the National Pollution Funds purview. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSDecember 31, 2007.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the
fourth quarter.three months ended December 31, 2007.PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS As of February 18, 2003,
Item 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES The Company’s Common Stock is traded on the
common stock of Calcasieu Real EstateAmerican Stock Exchange under the trading symbol CKX since its listing on December 8, 2003. Prior to the listing there was no established public trading market for the Common Stock andOil Co., Inc. was owned by 685 stockholders. During the three years preceding the date hereof,therehashad been only limited and sporadic trading in theCompany'sCommon Stock, principally among its shareholders.InOn February 17, 2008, there were approximately 625 stockholders of record. The Company believes that there are approximately 1,050 beneficial owners of its Common Stock. There were no sales of unregistered securities of theyear ended December 31, 2002, 37,500 shares were traded withCompany and no purchases of equity securities of the Company during 2007 by the Company. The following table sets forth the high and low sales prices reported on the American Stock Exchange for the Common Stock by quarter during 2007 and 2006.
First
QuarterSecond
QuarterThird
QuarterFourth
QuarterCommon stock price per share 2007 high $ 15.10 $ 14.80 $ 14.25 $ 13.29 low $ 12.50 $ 12.85 $ 12.90 $ 11.25 Common stock price per share 2006 high $ 13.23 $ 15.50 $ 13.00 $ 14.75 low $ 9.55 $ 11.50 $ 11.65 $ 10.75 The Company has paid cash dividends since 1990. The Company is currently paying a
highquarterly dividend of6.50 and a low of 4.80. The last trade during this period was on December 31, 2002, for 4000 shares at a price of 5.20. Below is the trading range. Volume High Low ------ ---- ---- 01/01/02 - 03/31/02 12,000 6.50 6.20 04/01/02 - 06/30/02 4,500 6.25 5.12 07/01/02 - 09/30/02 5,900 6.25 4.60 10/01/02 - 12/31/02 15,100 6.00 4.80 3Dividends were paid7¢ per shareon Common Stock as follows byand intends to maintain quarterly dividends. 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. The Company paid an extra dividend of 40¢ per share to shareholders of recorddate: March 29, 2000, $.05; June 30, 2000, $.05; Septemberat December 27,2000, $.05; December 29, 2000, $.05 regular2007 and$.05 extra; March 30, 2001, $.05; June 28, 2001, $.05; September 24, 2001, $.05;declared an extra dividend of $1.00 per share to shareholders of record at December 28,2001, $.05 regular and $.05 extra; April 3, 2002, $.05; June 25, 2002 $.05; September 26, 2002, $.05; and December2006. A summary of cash dividends is set forth in the table on page 272002, $.05 regular and $.05 extra. There are no restrictions on the payingofdividends. Item 6. SELECTED FINANCIAL DATA
Ended Ended Ended Ended Ended 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 -------- -------- -------- -------- --------Revenues $897,027 $2,646,491 $2,497,118 $1,618,587 $1,462,205 Income before income taxes 585,182 2,279,814 2,144,821 1,284,106 1,074,468 Earnings per common share (1) .20 .78 .73 .45 .38 Total assets $4,759,327 $5,212,540 $6,035,717 $6,407,663 $6,623,665 Cash Dividends declared per common stock .09 .08 .25 .25 .25(1) Earnings per common share presented are based on the weighted average outstanding shares of 1,955,044 in 2002, 1,955,044 in 2001, 1,956,000 in 2000, 1,979,000 in 1999 and 1,995,000 in 1998. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Business You should read the following discussion and analysis of our financial condition and results of operations together with "Selected Financial Data" and our financial statements and related notes appearing elsewhere inthis Annual Report on Form10-K. This discussion10-K
Item 6. MANAGEMENT’S DISCUSSION AND ANALYSIS Overview
CKX Lands, Inc. began operations in 1930 under the name Calcasieu Real Estate & Oil Co., Inc. It was originally organized as a spin-off by a bank operating in Southwest Louisiana. The purpose of the spin-off was to form an entity to hold non-producing minerals which regulatory authorities required the bank to charge off. Over the years as some of the mineral interests began producing the Company used part of the proceeds to acquire land. In 1990 the Company made its largest acquisition when it was one of four purchasers who bought American Airline’s fifty percent undivided interest in approximately 35,000 acres in Southwest Louisiana.
Today most of the Company’s income is derived from mineral production on the land acquired over the years. CKX receives income from seismic permits, mineral leases and
analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Overview Income fromthe landowner’s portion of any oil and gasproperties decreased 6.3%production. CKX also receives income from agriculture rents and timber sales. The Company’s activities are passive in that it doesn’t explore for oil and gas, operate wells or farm land. All timber activities are contracted. The Company doesn’t plant or harvest trees, except through contractors.The Company’s income fluctuates as new oil and gas production is discovered on Company land and as the wells deplete. Oil and gas activity has increased considerably over prior years due to
a combination of factors. Income from wells on Walker Louisiana Properties decreasedhigher prices but also due todepletiontechnology developments, particularly 3-D seismic. With new technology, companies are able to find much smaller pockets of oil andlowergasprices. On Calcasieu'sas well as drill with a much higher success rate. Most of these discoveries are small, however, and have a limited life.CKX has small interests in 37 different oil and gas fields. The size of the interest is determined by the Company’s net ownership in the acreage unit for the well. CKX’s interests range from .0033% for the smallest to 3.567% for the largest. As the Company does not own or operate the wells
at North English Bayou whichit does not haveproduced most ofaccess to any reserve information.Eventually, the oil and gas under the Company’s current land holdings will be depleted. The Company is constantly looking for additional land to be purchased in our immediate area. We are primarily looking for timberland that has mineral potential.
Results of Operations
Fiscal Year 2007 Compared to Fiscal Year 2006
Revenues for 2007 were $3,258,124, an increase of 21.1% compared with revenues of $2,691,117 reported for 2006.
Oil and gas revenues increased $718,420 or 32.5% to $2,930,807 in 2007. Oil and gas revenues consist of royalty, lease rental and geophysical revenue. Royalty revenue increased $771,521 or 38.4% and lease rentals decreased by $42,044 or 22.8% from 2006. Geophysical revenues decreased by $14,056 or 87.5% from 2006.
Gas production increased 39,798 MCF and the average gas sales price per MCF decreased by 7.3% resulting in an increase in gas revenue of $245,997. While revenue from oil production increased by $506,732 due to an increase of 3.8% in the average oil sales price and an increase in production of approximately 7,000 barrels.
The following six fields produced 82% and 78% of the Company’s oil and gas revenues in 2007 and 2006, respectively. This following schedule shows the number of barrels of oil (Bbl Oil) and MCF of gas (MCF Gas) produced in 2007 and 2006.
Bbl Oil MCF Gas Field
2007 2006 2007 2006 Bon Air
6,626 235 52,670 3,918 Castor Creek
391 808 21,691 43,511 South Bear Head Creek
2,365 n/a 6,340 n/a South Gordon
4,073 5,659 5,439 8,755 South Jennings
1,279 1,405 17,571 17,364 Southeast Lunita
546 n/a 14,505 n/a Vinton
1,718 3,967 none none All of the decreases were due to depletion. The increase at Bon Air, South Bear Head Creek and South Lunita was due to new wells.
In 2007 the Company was a lessor in eleven new mineral leases covering a total of 1,504.52 gross acres. The Company’s net acres leased in 2007 were 244.11 acres. These new leased acres are located in three different Parishes.
During 2007, the Company continued to see a reduction in oil and gas leasing activity than in prior years. This is an expected operating result as drilling activity began on a number of leases thus eliminating lease payments.
Agriculture income
forremained flat during 2007 as compared to 2006.Timber decreased by $151,142 to $118,506, a decrease of 56.1% from 2006. This decrease is primarily attributable to wetter third and fourth quarter when harvesting occurs.
On April 30, 2007, Walker Louisiana Properties completed the
past three years, depleted and were plugged and abandoned.sale of 100 subdivision acres in CalcasieuhasParish, Louisiana with a13% royaltycontract sales price of $1,912,050. The Company owns a one-sixth interest in this land and reported anew oil well at North Gordon.gain from this sale of $312,561. Thiswell paid Calcasieu $400,000 after severancetransaction 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. Due to the 1031 exchange, a gain of $38,962 is deferred for income tax purposes.On October 24, 2007, the Company completed the sale of approximately 3,495 agricultural acres and certain equipment assets in
2002. An injection wellCameron Parish, Louisiana for approximately $3,146,000. 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. The entire sales proceeds were deposited with a qualified intermediary and the gain was deferred during the 1031 Exchange period. In late February 2008, the Company determined that consummation of identified 1031 Exchange properties was not possible and current recognition of the approximate gain of $1,448,900 from this sale was the result.Outlook for Fiscal Year 2008
The Company continues to actively search for lands that meet our criteria of timberland that has
been completed which could extendmineral potential. At this time, thelife of this well for three to four years. Lease and seismic incomeCompany hasdecreased steadily over the last four years. Thereno prospects.Currently, there are
two28 mineral leaseson Walker land which have the potential for being drilled. 4Agriculture income decreased 16.7% in 2002 from 2001.covering 3,443 gross acres or 607 net acres and 3 active seismic options to lease covering 1,082 gross acres or 180 net acres. Themain crop on company landCompany believes that there isrice. Pricesa good chance that some of these leases will be drilled andgovernment support payments for rice were at their lowest in years in 2002. Under new regulationsproduction discovered. However, the Companywill no longer be able to qualify for government support payments. As a consequence we are being forced to go to cash rentals on all farm properties insteadis not aware ofcrop-sharing.any current drilling or testing activity.In October, 2007, the Company sold approximately 3,495 acres of agriculture land that had produced income of approximately $45,000 per year. We expect agriculture income to
decrease another 25%be approximately $45,000 less in2003. Timber income decreased $108,894. This was due to a combination of reduced sales, lower prices and increased expenses.2008.The Company expects timber revenues to remain stable in 2008.
Calcasieu Parish has begun
a programconstruction on an east – west access road across 1200 acres the Company co-owns on the South boundary ofreforesting all vacant pastureLake Charles with an expected completion date of one year. The Company owns an undivided one-sixth interest in this property. We believe that it is probable that this landand cut-over land. Comparison of 2002 and 2001 Revenues decreased 9.7% in 2002 from 2001 due to decrease in income in each of the Company's segments. Income from operations decreased 14.8% in 2002 from 2001 as costs and expenses increased in each segment. The biggestwill increase inexpenses was in severance taxes. Net income after income taxes was down $136,038 in 2002 from 2001 or 15.6%desirability and value once east-west access is provided.Liquidity and Capital Resources
The Company has no long-term liabilities, contingencies or off balance sheet liabilities. The only material current liability at December 31, 2006, was the dividends on our common stock declared in December and paid in January. Additional sources of liquidity are the Company’s securities available-for-sale and a
strong liquid position.bank line of credit for $1,000,000.There are no current plans for capital expenditures. However, the Company is always looking to purchase additional land provided it meets the Company’s criteria.
In the opinion of management, cash flow from operations, investments and the line of credit are adequate for projected operation, possible land purchases and continuation of the regular cash dividend.
Critical Accounting Policies
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The most significant accounting estimates inherent in the preparation of our financial statements include the following items:
Our accounts receivable consist of incomes received after year end for royalties produced prior to year end. When there are royalties that have not been received at the time of the preparation of the financial statements for months in the prior year, we estimate the amount to be received based on the last month’s royalties that were received from that particular company. We do not maintain an allowance for doubtful accounts because we can confirm virtually all of our receivables before they are booked as income.
The Company
maintains a strong liquid positionaccounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes (SFAS 109)” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities.Reforestation expenses are added to
help maintainthedividendtimber asset account andprovidedepleted over seven years. As timber is sold the original cost is amortized based on the volume as compared to the original cost. When we purchase land that portion that represents the timber value is set up as an asset labeled timber.Forward Looking Statements
Certain matters contained in this report are forward-looking statements including, without limitation, the information contained under the heading “Outlook for Fiscal Year 2008” in Item 6 of this report. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Unless legally required, the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Additional information may be obtained by reviewing the information set forth below under “Significant Risk Factors” and information contained in the Company’s reports filed from time to time with the
resourcesSEC.
Item 6A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Significant Risk Factors
The Company’s business and operations are subject to
be ablecertain risks and uncertainties, including:Reliance upon Oil and Gas Discoveries
The Company’s most significant risk is its reliance upon others to
purchase real estate that comesperform exploration and development for oil and gas on its land. Future income is dependent on others finding new production on themarketCompany’s land to replace present production as it is depleted. Oil and gas prices as well as new technology will affect the possibility of new discoveries.Commodity Prices
All of the Company’s operating income comes from the sale of commodities produced from its real estate; oil and gas, forest products, agriculture products. Fluctuations in these commodity prices will directly impact net income. In 2007, average gas prices paid to the Company were 7.3% lower than the average in 2006 and average oil prices were 3.84% higher in 2007 than in 2006. Should average oil and gas prices in 2007 revert to the 2006 averages, income before income tax would decline approximately 1%.
Interest Rate Risks
The Company has no direct exposure to changes in foreign currency exchange rates and minimal direct exposure to interest rates. The Company has an unsecured line of credit with Chase at
an attractive price. Management believes thattheir prime rate, but theCompany's liquidityCompany hasn’t utilized this line andrevenues will be sufficienthas no current plans tomeet its existing capital needs and the needs of its anticipated future operations. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAdo so.
Item 7. FINANCIAL STATEMENTS All
Financialfinancial statements required by Item 310(a) of RegulationS-XS-B are listed in the Table of Contents to Financial Statements and Supplemental Schedules appearing immediately after the signature page of this Form10K10-K and are included herein by reference.See Item 14. Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE None.
Item 8A (T). CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designated to ensure that information required to be disclosed in the Company’s Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”) for the Company. In assessing the Company’s ICFR, management followed the Committee of Sponsoring Organizations of the Treadway Commission’s (“COSO”) Internal Control over Financial Reporting – Guidance for Smaller Public Companies Integrated Framework (2006) in assessing the effectiveness of the Company’s ICFR. Management shall determine ICFR ineffective if a material weakness exists in ICFR.
Due to the Company’s management inability to assess Walker Louisiana Properties’ (“WLP”) ICFR and lack of compensating controls, management has assessed the Company’s ICFR as ineffective. The Company owns a one-sixth interest in WLP and WLP’s activities are material to the Company. WLP prepares cash basis interim financial statement and audited GAAP basis financial statements at year end. At report date, we have not identified a plan or process to remediate the ineffectiveness of the ICFR.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
During the quarter ending December 31, 2007, the Company’s Management followed the COSO Internal Control over Financial Reporting – Guidance for Smaller Public Companies Integrated Framework (2006) when assessing the ICFR. During the quarter ending December 31, 2007, there have been no changes in the Company’s internal control over financial reporting that has materially affected or is reasonably likely to affect, the Company’s internal control over financial reporting.
Item 8B. OTHER INFORMATION None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The information required by Item
109 as to directors, nominees for directors, reports under Section 16 of the Securities Exchange Act of 1934, the Registrant’s audit committee and an audit committee financial expert is included in theRegistrant'sRegistrant’s definitive proxy statement to be filed pursuant to Section 14(a) of the Securities Exchange Act of 1934 and isincludedincorporated herein by reference.5Executive
officerofficers of Registrantas of February, 2002,are as follows:Name Age Position with Registrant ---- --- ------------------------ Arthur Hollins, III 72 President & Director William D. Blake 70 Vice President, Treasurer and Director Charles D. Viccellio 69 Vice President, Secretary and Director
Name
Age Position with Registrant
Arthur Hollins, III 77 President, Chief Executive Officer and Director Brian R. Jones 47 Treasurer and Chief Financial Officer Charles D. Viccellio 74 Vice President, Secretary and Director Joseph K. Cooper 64 Vice President The occupations of such executive officers during the last five years and other principal affiliations are:
Name Arthur Hollins, III
Name
Arthur Hollins, III
Director of the Company since 1975; President of the Company since 1979; Mr. Hollins was engaged in various banking positions with First Commerce Corporation prior to 1999. Brian R. Jones
Treasurer and Chief Financial Officer of CKX Lands, Inc. since December 1, 2006, manager of BRJ Services, LLC since May 2002. Charles D. Viccellio
Vice-President and Secretary of the Company since 1997 and Director of the Company since 1996; attorney in the law firm of Stockwell, Sievert, Viccellio, Clements & Shaddock, LLP. Joseph K. Cooper
Vice President of CKX Lands, Inc. Manager of Walker Louisiana Properties, Vice President and Operations Manager of Prairie Land Co. There are no family relationships between any of our directors (except Mrs. Leach and Mrs. Werner are mother and daughter) and executive officers or any arrangement or understanding between any of our executive officers and any other person pursuant to which any executive officer was appointed to his office.
The Company has adopted a Code of Ethics that applies to officers, directors and employees. A copy of the
Company since 1975;code of ethics will be provided by writing the Presidentof the Company since 1979; Chairman of the Boardatthe First National Bank ofP.O. Box 1864, Lake Charles,from 1968 to 1998; President of Bank One, SouthwestLouisianafrom 1998 to April, 1999. William D. Blake Director of the Company since 1966; Secretary-Treasurer of the Company from 1966-1979; Vice-President and Treasurer of the Company since 1979; President of Lacassane Co., Inc. and Howell Industries, Inc. Charles D. Viccellio Vice-President and Secretary of the Company since 1997 and Director of the Company since 1996. Partner in the law firm of Stockwell, Sievert, Viccellio, Clements & Shaddock, LLP. Item 11. EXECUTIVE COMPENSATION70602.
Item 10. EXECUTIVE COMPENSATION The information required by Item
1110 is included in theRegistrant'sRegistrant’s definitive proxy statement to be filed pursuant to Section 14(a) of the Securities and Exchange Act of 1934 and isincludedincorporated herein by reference.Item 12.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by Item
1211 is included in theRegistrant'sRegistrant’s definitive proxy statement to be filed pursuant to Section 14(a) of the Securities Exchange Act of 1934 and isincludedincorporated herein by reference.PART IV
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item
13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are12 is included in the Registrant’s definitive proxy statement to be filedas partpursuant to Section 14(a) of thereport: 1. All Financial Statements. See TableSecurities and Exchange Act ofContents to Financial Statements1934 andschedule on page 9. 2. Financial Statement Schedules. See Table of Contents to Financial Statements and Schedules on page 9. 3.is incorporated herein by reference.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K List of Exhibits
- None (b)
3.1 Restated/Articles of Incorporation of the Registrant are incorporated by reference to Exhibit (3)-1 to Form 10 filed April 29, 1981. 3.2 Amendment to Articles of Incorporation of the Registrant is incorporated by reference to Exhibit (3.2) to Form 10-K for year ended December 31, 2003. 3.3 By-Laws of the Registrant are incorporated by reference to Exhibit (3.3) to Form 10-K for year ended December 31, 2003. 23.1 Consent of McElroy, Quirk & Burch filed herewith. 31.1 Certification of Arthur Hollins, III, 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 Certification of Arthur Hollins, III, President and Chief Executive Officer and Brian R. Jones, Treasurer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith. Reports on Form 8-K
- None 6None.
Item 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES The information required by Item 14 is included in the Registrant’s definitive proxy statement to be filed pursuant to Section 14(a) of the Securities and Exchange Act of 1934 and is incorporated herein by reference.
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
registration statementreport to be signed on its behalf by the undersigned, thereunto dulyauthorized. CALCASIEU REAL ESTATE AND OIL CO., INC. BY: /s/ Arthur Hollins, III --------------------------------------------- Arthur Hollins, III, President Datedauthorized on March 5,20032008.
CKX LANDS, INC. BY: /s/ Brian R. Jones Name: Brian R. Jones Title: Treasurer and Chief Financial Officer Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons in the capacities indicated with regard to
Calcasieu Real Estate and Oil Co.,CKX Lands, Inc.andonthe date indicated: Arthur Hollins, III President - ----------------------------------- (Chief Executive Officer and Director) William D. Blake Vice President & Treasurer - ----------------------------------- (Principal Financial Officer and Director) Charles D. Viccellio Vice President & Secretary, (Director) - ----------------------------------- Henry C. Alexander Director - ----------------------------------- Troy A. Freund Director - ----------------------------------- Laura A. Leach Director - ----------------------------------- Frank O. Pruitt Director - ----------------------------------- B. James Reaves, III Director - ----------------------------------- Mary W. Savoy Director - ----------------------------------- Dated:March 5,2003 7CALCASIEU REAL ESTATE & OIL CO.,2008.
/s/ Arthur Hollins, III
Arthur Hollins, III
President and Chief Executive Officer
(Principal Executive Officer and Director)
/s/ Brian R. Jones
Brian R. Jones
Treasurer and Chief Financial Officer
(Principal Financial Officer)
/s/ Charles D. Viccellio
Charles D. Viccellio
Vice President & Secretary
(Director)
/s/ Henry E. Blake
Henry E. Blake
Director /s/ Laura A. Leach
Laura A. Leach
Director /s/ Frank O. Pruitt
Frank O. Pruitt
Director /s/ B. James Reaves, III
B. James Reaves, III
Director /s/ Mary W. Savoy
Mary W. Savoy
Director /s/ William Gray Stream
William Gray Stream
Director /s/ Mary Leach Werner
Mary Leach Werner
Director CKX LANDS, INC.
Lake Charles, Louisiana C O N T E N T S Page REPORT OF MANAGEMENT 9 REPORT OF INDEPENDENT AUDITORS ON THE FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION 10 FINANCIAL STATEMENTS Balance sheets 11 StatementsTable of
income 12 Statements of changes in stockholders' equity 13-14 Statements of cash flows 15-16 Notes to financial statements 17-28 SUPPLEMENTARY INFORMATION Property, plant and equipment 29 Accumulated depreciation, depletion and amortization 30Contents
Page REPORT OF INDEPENDENT AUDITORS ON THE FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
12 FINANCIAL STATEMENTS
13 14 15 16 17-25 SUPPLEMENTARY INFORMATION
26 26 27 SCHEDULE OMITTED
Schedules, other than those listed above, have been omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements or notes thereto.
8REPORT OF MANAGEMENT CALCASIEU REAL ESTATE & OIL CO., INC. Management of Calcasieu Real Estate & Oil Co., Inc. is responsible for the preparation, fairness and integrity of the Company's financial statements and other information included in this Form 10-K. The financial statements have been prepared in accordance with generally accepted accounting principles applied on a materially consistent basis. Where necessary, management has made informed judgments and estimates as to the outcome of events and transactions, with due consideration given to materiality. Management believes that the Company's policies, procedures and internal control systems provide reasonable assurance that assets are safeguarded and transactions are properly recorded and executed in accordance with its authorization. The Company engages independent public accountants who are responsible for performing an independent audit of the financial statements. Their report, immediately following, states their opinion on the fairness of the Company's financial statements. The Audit Committee of the Board of Directors meets regularly with the independent accountants, and management to assure that each is meeting its responsibilities. /s/ Arthur Hollins III - ------------------------------- Arthur Hollins III President /s/ William D. Blake - ------------------------------- William D. Blake Vice-President & Treasurer 9[LETTERHEAD OF[MCELROY, QUIRK &
BURCH]BURCH LETTERHEAD]REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Calcasieu Real Estate & Oil Co.,CKX Lands, Inc.
Lake Charles, Louisiana
We have audited the accompanying balance sheets of
Calcasieu Real Estate & Oil Co.,CKX Lands, Inc. as of December 31,2002 and 2001,2007, and the related statements of income, changes instockholders'stockholders’ equity, and cash flows for the years ended December 31,2002, 20012007 and2000.2006. These financial statements are the responsibility of theCompany'sCompany’s management. Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with
auditingthe standardsgenerally accepted inof theUnited States of America.Public Company Accounting Oversight Board (United States). 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
Calcasieu Real Estate & Oil Co.,CKX Lands, Inc. as of December 31,2002 and 2001,2007, and the results of its operations and its cash flows for the years ended December 31,2002, 20012007 and2000,2006, in conformity with accounting principles generally accepted in the United States of America.Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information
on pages 29 and 30is presented for the purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole./s//s/ McElroy, Quirk & Burch
Lake Charles, Louisiana
March 5,
2003 10CALCASIEU REAL ESTATE & OIL CO., INC. BALANCE SHEETS2008Balance Sheet
December 31,
2002 and 2001 ASSETS 2002 2001 ---------- --------- CURRENT ASSETS Cash and cash equivalents $ 583,327 $1,419,084 Accounts receivable 152,373 93,748 Inventory-harvested crops 10,125 11,042 Prepaid income taxes 61,113 171,143 Prepaid expense and other 3,680 3,309 ---------- --------- Total current assets 810,618 1,698,326 ---------- --------- SECURITIES AVAILABLE-FOR-SALE 1,361,123 377,732 ---------- --------- PROPERTY AND EQUIPMENT (less accumulated depreciation, depletion and amortization of $448,521 in 2002 and $449,534 in 2001) 91,949 94,043 Timber (less accumulated depletion of $314,659 in 2002 and $281,343 in 2001) 484,161 498,569 Land 3,904,851 3,738,993 ---------- ---------- 4,480,961 4,331,605 ---------- ---------- $6,652,702 $6,407,663 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade payables and accrued expenses $ 8,863 $ 5,968 Dividends payable 195,742 195,737 Income taxes payable: Current - - Deferred, net 23,370 26,893 ---------- ---------- Total current liabilities 227,975 228,598 ---------- ---------- COMMITMENTS AND CONTINGENT LIABILITIES (Note 12) STOCKHOLDERS' EQUITY Common stock, no par value; 3,000,000 shares authorized; 2,100,000 shares issued 72,256 72,256 Retained earnings 6,642,737 6,387,579 Accumulated other comprehensive income 16,563 26,059 ---------- ---------- 6,731,556 6,485,894 Less cost of treasury stock (2002 144,956 shares and 2001 144,956 shares) 306,829 306,829 ---------- ---------- 6,424,727 6,179,065 ---------- ---------- $6,652,702 $6,407,663 ========== ==========2007
ASSETS Current Assets:
Cash and cash equivalents
$ 1,624,970 1031 trust account - Restricted
3,198,153 Certificate of deposit
1,052,270 Accounts receivable
333,921 Prepaid expense and other assets
14,469 Total Current Assets
6,223,783 Securities Available for Sale
2,030,309 Property and Equipment:
Building and equipment less accumulated depreciation of $67,348
9,362 Timber less accumulated depletion of $454,529
400,102 Land
2,361,998 Total Property and Equipment, net
2,771,462 Total Assets
$ 11,025,554 Liabilities and Stockholders’ Equity Current Liabilities:
Trade payables and accrued expenses
$ 51,469 Dividends payable
912,973 Income tax payable:
Current
590,384 Deferred
96,292 Total Current Liabilities
1,651,118 Noncurrent Liabilities:
Deferred income tax payable
181,818 Stockholders’ Equity:
Common stock, no par value: 3,000,000 shares authorized; 2,100,000 shares issued
72,256 Retained earnings
9,404,044 Accumulated other comprehensive income
91,834 Less cost of treasury stock (157,505 shares)
(375,516 ) Total stockholders’ equity
9,192,618 Total Liabilities and Stockholders’ Equity
$ 11,025,554 See Accompanying Notes to Financial Statements.
11CALCASIEU REAL ESTATE & OIL CO., INC. STATEMENTS OF INCOMEStatements of Income
Years Ended December 31,
2002, 20012007 and2000 2002 2001 2000 ---- ---- ---- Revenues $1,454,498 $1,618,587 $2,497,118 ---------- ---------- ---------- Costs and expenses: Oil and gas production 102,654 62,636 78,176 Agricultural 10,515 8,176 10,601 Timber 40,741 32,910 61,359 Depreciation, depletion and amortization 38,886 28,566 38,490 ---------- ---------- ---------- 192,796 132,288 188,626 ---------- ---------- ---------- Income from operations 1,261,702 1,486,299 2,308,492 ---------- ---------- ---------- Other income (expense): Interest income 23,760 28,243 38,907 Dividends on stock 27,595 27,617 11,402 Realized gain on sale of investments in available-for-sale securities - 27,654 - Gain on sale of assets 2,167 4,991 414 General and administrative (245,786) (290,698) (214,394) ---------- --------- ---------- (192,264) (202,193) (163,671) ---------- --------- ---------- Income before income taxes 1,069,438 1,284,106 2,144,821 ---------- --------- ---------- Federal and state income taxes: Current 330,063 415,864 706,592 Deferred 2,807 (4,364) 2,200 ---------- --------- ---------- 332,870 411,500 708,792 ---------- --------- ---------- Net income (per common share)- 2002 $.38; 2001 $.45; 2000 $.73 $ 736,568 $ 872,606 $1,436,029 ========== ========= ==========2006
2007 2006 Revenues:
Oil and gas
$ 2,930,807 $ 2,212,387 Agriculture
208,811 209,082 Timber
118,506 269,648 Total revenues
3,258,124 2,691,117 Costs and Expenses:
Oil and gas production
239,586 156,863 Agriculture
38,406 6,213 Timber
46,502 46,471 General and administrative
442,691 355,989 Depreciation and depletion
58,542 69,113 Total cost and expenses
825,727 634,649 Income from operations
2,432,397 2,056,468 Other Income / (Expense):
Interest income
140,181 144,648 Dividend income
35,257 30,275 Gain / (loss) on sale of securities available for sale
(3,446 ) 10,351 Gain on sale of land
1,757,045 1,334 Net other income / (expense)
1,929,037 186,608 Income before income taxes
4,361,434 2,243,076 Federal and state income taxes:
Current
1,519,441 719,025 Deferred
12,058 (8,854 ) Total income taxes
1,531,499 710,171 Net Income
$ 2,829,935 $ 1,532,905 Per Common Stock (1,942,495 shares):
Net Income
$ 1.46 $ 0.79 Dividends
$ 0.68 $ 1.38 See Accompanying Notes to Financial Statements.
12CALCASIEU REAL ESTATE & OIL CO., INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITYStatements of Changes in Stockholders’ Equity
Years Ended December 31,
2002, 20012007 and2000
Accumulated Other Capital Comprehensive Retained Comprehensive Stock Treasury Income Earnings Income Issued Stock ---------- ----------- ----------- ----------- -----------Balance, January 1, 2000 $ - $ 5,059,619 $ 12,086 $ 72,256 $ 212,957 Comprehensive income: Net income 1,436,029 1,436,029 - - - Other comprehensive income: Unrealized gains on securities available for sale: Unrealized holding gains occurring during period net of taxes of $8,240 12,362 - - - - ----------- Other comprehensive income, net of tax 12,362 - 12,362 - - ----------- Total comprehensive income $ 1,448,391 - - - - =========== Purchase of treasury stock - - - 93,872 Refund of prior year unclaimed dividends and other 1,542 - - - Dividends (492,548) - - - ----------- ----------- ----------- ----------- Balance, December 31, 2000 6,004,642 24,448 72,256 306,829 Other comprehensive income: Unrealized gains on securities available for sale: Unrealized holding gains occurring during period net of taxes of $3,212 5,464 - - - - Less reclassification adjustments for gains included in net income, net of taxes of $2,569 (3,853) - - - - ----------- Other comprehensive income, net of tax 1,611 - 1,611 - - ----------- Total comprehensive income $ 874,217 - - - - =========== (continued on next page)13CALCASIEU REAL ESTATE & OIL CO., INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY2006
Comprehensive
IncomeRetained
EarningsAccumulated
Other
Comprehensive
IncomeCapital
Stock
IssuedTreasury
StockBalance at December 31, 2005
$ 9,042,971 31,503 72,256 375,516 Comprehensive income:
Net income
$ 1,532,905 1,532,905 — — — Other comprehensive income:
Unrealized net holdings gains occurring during period net of taxes of $66,367
101,768 — — — — Less: reclassification adjustment for gains included in net income, net of taxes of $718
1,078 — — — — Other Comprehensive income, net of taxes
100,690 — 100,690 — — Total comprehensive income
$ 1,633,595 Dividends
(2,680,869 ) — — — Balance at December 31, 2006
$ 7,895,007 $ 132,193 $ 72,256 $ 375,516 Comprehensive income:
Net income
$ 2,829,935 2,829,935 — — — Other comprehensive income:
Unrealized net holdings losses occurring during period net of taxes of $28,285
(42,427 ) — — — — Less: reclassification adjustment for gains included in net income, net of taxes of $1,379
2,068 Other Comprehensive income, net of taxes
(40,359 ) — (40,359 ) — — Total comprehensive income
$ 2,789,576 Dividends
(1,320,898 ) Balance at December 31, 2007
$ 9,404,044 $ 91,834 $ 72,256 $ 375,516 See Accompanying Notes to Financial Statements.
Statements of Cash Flows
Years Ended December 31,
2002, 20012007 and2000 (Continued)2006
Accumulated Other Capital Comprehensive Retained Comprehensive Stock Treasury Income Earnings Income Issued Stock ---------- ----------- ----------- ----------- -----------Dividends (489,669) - - - ----------- ----------- --------- ----------- Balance, December 31, 2001 6,387,579 26,059 72,256 306,829 Comprehensive income: Net income 736,568 736,568 - - - Other comprehensive income: Unrealized gains on securities available for sale: Unrealized holding gains occurring during period net of taxes of $6,330 (9,496) - - - - --------- Other comprehensive income, net of tax (9,496) - (9,496) - - --------- Total comprehensive income $ 727,072 ========= Dividends (481,410) - - - ----------- ----------- --------- ----------- Balance, December 31, 2002 $ 6,642,737 $ 16,563 $ 72,256 $ 306,829 =========== =========== ========= ===========
2007 2006 Cash Flows From Operating Activities:
Net Income
$ 2,829,934 $ 1,532,905 Less non-cash (income) expenses included in net income:
Depreciation, depletion and amortization
58,542 69,113 Deferred income tax expense
12,058 (6,093 ) Less non-operating activities:
(Gain) loss from sales of securities available for sale
3,446 (10,351 ) Gain from sale of land
(1,757,045 ) (1,334 ) Change in operating assets and liabilities:
(Increase) decrease in current assets
65,228 99,089 Increase (decrease) in current liabilities
608,877 1,727 Net cash provided from operating activities
1,821,040 1,685,056 Cash Flows From Investing Activities:
Proceeds from certificate of deposits maturities
2,536,917 `— Purchase of certificate of deposit
(2,077,474 ) (1,511,713 ) Available for sale securities:
Proceeds
1,982,553 850,000 Purchases
(1,468,488 ) — Proceeds from sale of land
3,511,589 — Proceeds held in 1031 trust account
(3,198,153 ) — Purchase and improvements to land
(41,431 ) — Proceeds from the sale of equipment
— 1,998 Purchase of equipment and seedlings
(40,181 ) (122,463 ) Net cash provided from investing activities
1,205,332 (782,178 ) Cash Flows From Financing Activities
Dividends paid net of refunds
(2,486,395 ) (738,374 ) Net cash used in financing activities
(2,486,395 ) (738,374 ) Net increase in cash and cash equivalents
539,977 164,504 Cash and cash equivalents:
Beginning
1,084,993 920,489 Ending
$ 1,624,970 $ 1,084,993 Supplemental disclosures of cash flow information
Cash payments for:
Interest
$ — $ — Income taxes
$ 826,510 $ 666,059 Supplemental schedule of noncash investing and financing activities Net change in unrealized and realized gains on available-for-sale securities
$ (40,359 ) $ 100,690 See Accompanying Notes to Financial
Statements. 14CALCASIEU REAL ESTATE & OIL CO., INC. STATEMENTS OF CASH FLOWS Years Ended December 31, 2002, 2001 and 2000
2002 2001 2000 ----------- ----------- -----------CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 736,568 $ 872,606 $ 1,436,029 Noncash (income) expenses included in net income: Depreciation, depletion and amortization 38,886 29,566 39,282 Realized (gains) on sale of available-for-sale securities - (27,654) - Gain on sale of assets (2,572) (4,991) (414) Loss on asset retirement 375 - 883 Deferred income tax 2,807 (4,365) 2,200 Change in assets and liabilities: (Increase) decrease in trade accounts and other receivables (58,625) 35,471 323,735 (Increase) decrease in inventory 917 (6,616) 5,855 (Increase) decrease in prepaid income taxes 110,030 (96,265) (74,878) (Increase) in prepaid expenses (371) - (2,635) Increase (decrease) in trade payables 2,895 (8,879) 3,938 (Decrease) in other liabilities - - (151,282) ----------- ----------- ----------- Net cash provided by operating activities 830,910 788,873 1,582,713 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from rights of way - 500 500 Proceeds from sale of timber and land 4,655 22,041 54,917 Available-for-sale securities: Purchases (1,692,887) (590,114) (961,489) Sales 700,000 1,300,000 - Purchase of land, property and equipment (197,025) (250,610) (22,087) ----------- ----------- ----------- Net cash provided by (used in) investing activities (1,185,257) 481,817 (928,159) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid, net of refunds (481,410) (489,669) (394,440) Payments to acquire treasury stock - - (93,872) ----------- ----------- ----------- Net cash (used in) financing activities (481,410) (489,669) (488,312) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (835,757) 781,021 166,242 Cash and cash equivalents: Beginning 1,419,084 638,063 471,821 ----------- ----------- ----------- Ending $ 583,327 $ 1,419,084 $ 638,063 =========== =========== =========== (continued on next page)15CALCASIEU REAL ESTATE & OIL CO., INC. STATEMENTS OF CASH FLOWS Years Ended December 31, 2002, 2001 and 2000 (Continued) 2002 2001 2000 ------- ------- ------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash payments for: Interest $ - $ - $ - Income taxes 238,120 522,640 932,752 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Net change in unrealized and realized gains on available-for-sale securities (9,496) 1,611 12,362 SeeStatementsNotes to Financial
Statements. 16CALCASIEU REAL ESTATE & OIL CO., INC. NOTES TO FINANCIAL STATEMENTSStatementsNote 1. Nature of Business and Significant Accounting Policies
Nature of business:
The
Company'sCompany’s business is the ownership and management of land. The primary activities consist of leasing its properties formineralminerals (oil and gas) and agriculture and raising timber.Significant accounting
policies:polices:Cash and
cashequivalents:For purposes of the statement of cash flows, cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities of three months or less.
Inventory: Inventory consists of harvested crops valued at estimated selling price at the date of the balance sheet.Pervasiveness of estimates:
The preparation of financial statements in conformity with generally accepted accounting principles 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
Agricultural revenue: Most agricultural income is derived under U.S. Government subsidy programs. Under these programs, loans are made against crops as harvested. However, delivery of the crops fulfills any further obligation under the loan agreement, and thus revenues are recognized as the harvested crops are delivered. Differences in the price at ultimate sale of the products could result from quantity, grade, and price, and additional revenues are derived at that time. 17NOTES TO FINANCIAL STATEMENTSInvestment securities:
The Company complies with the provisions of Financial Accounting Standards Board Statement No. 115,Accounting for Certain Investments in Debt and Equity
Securities.Securities. Under the provisions of this statement, management must make a determination at the time of acquisition whether certain investments in debt and equity securities are to be held as investments to maturity, held as available for sale, or held for trading. Management, under a policy adopted by the board of directors of the Company, made a determination that all debt and equity securities owned at that date and subject to the provisions of the statement would be classified as held available-for-sale.Under the accounting policies provided for investments classified as held
available-for-sale,available for sale, all such debt securities and equity securities that have readily determinable fair value shall be measured at fair value in the balance sheet. Unrealized holding gains and losses for available-for-sale securities shall be excluded from earnings and reported as a net amount (net of income taxes) as a separate component of retained earnings until realized. Realized gains and lossesand declines in value judged to be other than temporaryon available-for-sale securities are included in income. The cost of securities sold is based on the specific identification method. Interest on debt securities is recognized in income as earned, and dividends on marketable equity securities are recognized in income when declared.Declines in the fair value of available-for-sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
CKX Lands, Inc.
Notes to Financial Statements (continued)
Property and equipment:
Property and equipment is stated at cost. Major additions are capitalized; maintenance and repairs are charged to income currently. Depreciation is computed on the straight-line and accelerated methods over the estimated useful lives of the assets.
Successful efforts accounting method:Timber:
When timber land is purchased with standing timber, the cost is divided between land and timber based on timber cruises contracted by the Company. The costs of reforestation are capitalized. The timber asset is amortized when the timber is sold based on the percentage of the timber sold from a particular tract applied to the amount capitalized for timber for that tract.
Oil and gas:
Oil and gas income is booked when the Company is notified by the well’s operators as to the Company’s share of the sales proceeds together with the withheld severance taxes. The Company
uses the successful efforts method of accounting for itshas no capitalized costs relating to oil and gasoperations. Under the successful efforts method, theproducing activities and no costsof acquiring mineral interest, drillingfor property acquisition, exploration andequipping successful exploratory wells,development activities.Net Income and
all development wellsDividends per common stock:Net Income and
related facilitiesDividends per common stock arecapitalized. All other exploration costs, including geological and geophysical costs, lease rentals and the cost of drilling unsuccessful exploratory wells are charged to expense. Due to the Company's small percentage ownership (in relation to the total) of oil 18NOTES TO FINANCIAL STATEMENTS and gas properties, reserve information is not available to the Company for mineral interests acquired. Depletion of these interests is computed on the straight-line and accelerated methods over an estimated life of five to seven years. Acquisition costs of proved mineral interests for which reserve information is available are depleted using the unit-of-production method based on production and estimated proved reserves. Related tangible and intangible costs are depreciated and amortized using the unit-of-production method based on production and estimated proved developed reserves. Earnings per share: Earnings per share isbased on the weighted average number of common stock shares outstanding during theyears.period.Income taxes:
Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.
Comprehensive income: Accounting principles generally requireIn July 2006, the FASB issued FIN 48 “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” to create a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies that a tax position must be more likely than not of being sustained before being recognized
revenue, expenses, gains and losses be includedinnet income. Although certain changes in assets and liabilities, suchthe financial statements. As required, we adopted the provisions of FIN 48 asunrealized gains and lossesof January 1, 2007. The adoption of FIN 48 did not have a material impact onavailable-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income. 19NOTES TO FINANCIAL STATEMENTSour financial statements.CKX Lands, Inc.
Notes to Financial Statements (continued)
Note 2. Securities
Available-for-SaleAvailable for SaleDebt and equity securities have been classified in the balance sheet according to
management'smanagement’s intent in the noncurrent asset sections under theheadings securities available-for-sale.heading “securities available for sale”. The carrying amount of securities and their approximate fair values at December 31,20022007 and20012006 follow:
Gross Gross Amortized Unrealized Unrealized December 31, 2002 Cost Gains Losses Fair Value --------- ---------- ----------- ----------Available-for-sale securities: Equity securities $ 155,861 $ 22,446 $ 17,778 $ 160,529 Preferred equity securities 378,186 41,423 21,229 398,380 Corporate bonds (maturing within one year) 100,896 1,661 - 102,557 US government securities (maturing within one year) 699,657 - - 699,657 ----------- ---------- ---------- ----------- $ 1,334,600 $ 65,530 $ 39,007 $ 1,361,123 =========== ========== ========== =========== December 31, 2001 Available-for-sale securities: Equity securities $ 56,123 $ 7,189 $ - $ 63,312 Preferred equity securities 279,257 35,163 - 314,420 ----------- ---------- ---------- ----------- $ 335,380 $ 42,352 $ - $ 377,732 =========== ========== ========== ===========
Gross
Amortized
CostUnrealized
GainsUnrealized
LossesFair Value At December 31, 2007
Equity securities
$ 698,659 $ 239,611 $ 97,739 $ 840,531 Corporate bonds
200,003 — 3,405 196,598 US Government securities
980,618 12,562 — 993,180 $ 1,879,280 $ 252,173 $ 101,144 $ 2,030,309 At December 31, 2006
Equity securities
$ 698,659 $ 241,044 $ 17,689 $ 922,014 Corporate bonds
200,003 — 137 199,866 US Government securities
1,496,102 1,732 4,629 1,493,205 $ 2,394,764 $ 242,776 $ 22,455 $ 2,615,085 Gross realized gains and gross realized losses on sales of
available-for-salesecuritiesduring 2001available for sale for the year ended December 31, 2007 and 2006 are presented below.There were no gross realized gains and gross realized losses on sales of
Realized
GainsRealized
LossesDecember 31, 2007
US Government securities
$ 1,548 $ 4,994 December 31, 2006
US Government securities
$ 10,351 $ — Information pertaining to available-for-sale securities
during 2002with gross unrealized losses at December 31, 2007 and2000. 2001 Gains Losses ---- ----- ------ Gross realized gains: U.S. government2006 aggregated by investment category andagencylength of time that individual securities$ 27,654 $ - =========== ======== 20NOTES TO FINANCIAL STATEMENTShave been in a continuous loss position, follows:
Less Than 12 Months 12 Months or More Fair Value Gross
Unrealized
LossFair Value Gross
Unrealized
LossDecember 31, 2007
Equity securities
$ 105,951 $ 67,370 $ 90,920 $ 30,369 Corporate bonds
— — 200,003 3,405 US Government securities
— $ 105,951 $ 67,370 $ 290,923 $ 33,774 CKX Lands, Inc.
Notes to Financial Statements (continued)
Less Than 12 Months 12 Months or More Fair Value Gross
Unrealized
LossFair Value Gross
Unrealized
LossDecember 31, 2006
Equity securities
$ — $ — $ 103,600 $ 17,689 Corporate bonds
199,866 137 — — US Government securities
996,720 4,629 $ 199,866 $ 137 $ 1,100,320 $ 22,318 Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issues, and (3) the intent and ability of the Company to retain its investment in the issues for a period of time sufficient to allow for any anticipated recovery in fair value.
The Company has the intent and ability to retain its investments for a period of time sufficient to allow for anticipated recovery of fair value.
The following table shows scheduled maturities of securities (other than equity securities) available-for-sale at December 31, 2007:
Fair Value 2008
$ 993,180 2009
— 2010
— 2011
200,003 2012
— Thereafter
— $ 1,193,183 Note 3. Oil and Gas Properties
Results of operations for oil and gas producing activities at December 31,
2002, 20012007 and2000 is2006 are as follows:2002 2001 2000 ---------- ---------- ---------- Gross revenues: Royalty interests $1,096,175 $1,106,226 $1,555,838 Working interests 22,573 40,396 63,851 ---------- ---------- ---------- 1,118,748 1,146,622 1,619,689 Less: Production costs 102,654 62,636 78,176 ---------- ---------- ---------- Results before income tax expenses 1,016,094 1,083,986 1,541,513 Income tax expenses 316,266 347,370 509,419 ---------- ---------- ---------- Results of operations from producing activities (excluding corporate overhead) $ 699,828 $ 736,616 $1,032,094 ========== ========== ========== Costs incurred in oil and gas activities:
2007 2006 Gross revenues
Royalty interests
$ 2,776,504 $ 2,007,679 Working interests
7,190 4,173 Seismic and Lease Fees
147,113 200,535 2,930,807 2,212,387 Production costs
239,586 156,863 Results before income tax expense
2,691,221 2,055,524 Estimated income tax expense
880,193 650,791 Results of operations from producing activities excluding corporate overhead
$ 1,811,028 $ 1,404,733 CKX Lands, Inc.
Notes to Financial Statements (continued)
There were no major costs, with the exception of severance taxes, incurred in connection with the
Company'sCompany’s oil and gas operations,(whichwhich are conducted entirely within the UnitedStates) atStates, during the year ending December 31,2002, 2001 and 2000.2007 or 2006.Reserve quantities (unaudited):
Reserve information relating to estimated quantities of the
Company'sCompany’s interest in proved reserves of natural gas and crude(includingincluding condensate and natural gasliquids)liquids is not available. Such reserves are located entirely within the United States. A schedule indicating such reserve quantities is, therefore, not presented.The wells remain in production at December 31, 2002, including royalty interests and working interests obtained through back-in provisions of royalty agreements. Production from such royalty interests and working interests comprises 100% of the Company'sAll oil and gasrevenues in 2002, 2001royalties come from Company owned properties that were developed and2000. 21NOTES TO FINANCIAL STATEMENTS Actual production has exceeded original estimatesproduced by producers under lease agreements.Company’s share of
reserves,oil andremaining reserves have not been revised. Therefore, the Company is not able to complete the computations of discounted future cash flowsgas produced from royalty andreconciliation thereof.working interests:
2007 2006 Net gas produced (MCF)
150,266 111,839 Net oil produced (Bbl)
22,290 15,291 Note 4. Income Taxes
The Company files federal and state income tax returns on a calendar year basis.
The net deferred tax liability in the accompanying balance
sheetsheets includes the following components at December 31,20022007 and2001: 2002 2001 ---------- ---------- Deferred tax assets $ 1,181 $ 341 Deferred tax liabilities (13,939) (10,293) Deferred tax liabilities on unrealized appreciation of securities available for sale (10,612) (16,941) ---------- ---------- Net deferred tax liability $ (23,370) $ (26,893) ========== ========== A reconciliation2006:
2007 2006 Current Non-Current Current Non-Current Deferred tax assets
$ 1,215 — $ 971 — Deferred tax liabilities
(37,096 ) (181,818 ) (39,778 ) (166,833 ) Deferred tax liabilities on unrealized appreciation of securities available for sale
(60,411 ) — (89,342 ) — $ (96,292 ) $ (181,818 ) $ (128,149 ) $ (166,833 ) CKX Lands, Inc.
Notes to Financial Statements (continued)
Reconciliation between federal income taxes, computed by applying statutory tax rates to income before income taxes and income taxes provided at December 31,
2002, 20012007 and20002006 is as follows:2002 2001 2000 ---------- ---------- ---------- Tax at statutory rates $ 363,609 $ 436,596 $ 729,239 Tax effect of the following: Statutory depletion (52,480) (52,305) (82,145) Dividend exclusion (6,567) (6,573) (2,714) State income tax 26,756 34,465 60,375 Investment tax credit (1,000) (167) - Other 2,552 (516) 4,037 ---------- ---------- ---------- $ 332,870 $ 411,500 $ 708,792 ========== ========== ========== 22NOTES TO FINANCIAL STATEMENTS
2007 2006 Tax at statutory rates
$ 1,482,888 $ 762,646 Tax effect of the following:
Statutory depletion
(141,952 ) (104,244 ) Dividend exclusion
(8,391 ) (7,198 ) State income tax
200,144 59,892 Other
(13,248 ) (925 ) $ 1,519,441 $ 710,171 Deferred income taxes result from timing differences in the recognition of revenue and expenses for tax and financial statement purposes. The effect of these timing differences at December 31,
20022007 and20012006 is as follows:2002 2001 ---------- ---------- Conversion of investment from tax cash basis to accrual basis for financial reporting $ (12,546) $ (9,940) Excess of depreciation and depletion expensed for tax purposes (under) amount expensed for financial statement purposes (212) (12) Unrealized gain on marketable securities (10,612) (16,941) ---------- ---------- $ (23,370) $ (26,893) ========== ==========
2007 2006 Current Non-Current Current Non-Current Conversion of investment from tax cash basis to accrual basis for financial reporting
$ (35,881 ) $ — $ (38,807 ) $ — Excess of depreciation and depletion expensed for tax purposes (under) amount expensed for financial statement purposes
— — — (600 ) Casualty loss
— (121,239 ) — (121,239 ) Deferred gain
— (60,579 ) — (44,994 ) Unrealized gain on marketable securities
(60,411 ) — (89,342 ) — $ (96,292 ) $ (181,818 ) $ (128,149 ) $ (166,833 ) Note 5. Line of Credit
As of December 31, 2002, theThe Company
hadhas available an unsecured line of credit in the amount of$750,000.$1,000,000. The balance on this line of credit was $-0- at December 31,20022007 and2001.2006.Note 6. Company Operations
The
Company'sCompany’s operations are classified into three principal operating segmentswhichthat are all located in the United States: oil and gas,properties,agriculturalproperties,andtimber properties.timber. TheCompany'sCompany’s reportable business segments are strategic business units that offer income from different products. They are managed separately due to the unique aspects of each area.CKX Lands, Inc.
Notes to Financial Statements (continued)
Following is a summary of segmented operations information for
2002, 20012007 and2000: 2002 2001 2000 ----------- ----------- ----------- REVENUES Oil and gas properties $ 1,118,748 $ 1,146,622 $ 1,772,148 Agricultural properties 150,626 176,387 178,897 Timber properties 160,468 249,591 460,963 All other segments 24,656 45,987 85,110 ----------- ----------- ----------- $ 1,454,498 $ 1,618,587 $ 2,497,118 =========== =========== =========== 23NOTES TO FINANCIAL STATEMENTS 2002 2001 2000 ----------- ----------- ----------- COSTS AND EXPENSES Oil and gas properties $ 102,654 $ 62,636 $ 78,176 Agricultural properties 14,697 13,288 15,126 Timber properties 74,057 54,286 93,962 All other segments 1,388 2,078 1,362 ----------- ----------- ----------- $ 192,796 $ 132,288 $ 188,626 =========== =========== =========== INCOME FROM OPERATIONS Oil and gas properties $ 1,016,094 $ 1,083,986 $ 1,693,972 Agricultural properties 135,929 163,099 163,771 Timber properties 86,411 195,305 367,000 All other segments 23,268 43,909 83,749 ----------- ----------- ----------- 1,261,702 1,486,299 2,308,492 OTHER INCOME (EXPENSE) (192,264) (202,193) (163,671) ----------- ----------- ----------- INCOME BEFORE INCOME TAXES $ 1,069,438 $ 1,284,106 $ 2,144,821 =========== =========== =========== IDENTIFIABLE ASSETS Oil and gas properties $ 667,148 $ 642,952 $ 683,952 Agricultural properties 2,635,398 2,525,291 2,522,280 Timber properties 1,174,812 1,210,651 964,852 All other segments 141,963 90,677 90,024 ----------- ----------- ----------- 4,619,321 4,469,571 4,261,108 GENERAL AND CORPORATE ASSETS 2,033,381 1,761,672 1,699,731 ----------- ----------- ----------- TOTAL ASSETS $ 6,652,702 $ 6,231,243 $ 5,960,839 =========== =========== =========== CAPITAL EXPENDITURES Oil and gas properties $ - $ - $ 633 Agricultural properties 165,859 4,022 10,479 Timber properties 18,908 245,798 19,294 All other segments 6,999 653 5,443 ----------- ----------- ----------- $ 191,766 $ 250,473 $ 35,849 =========== =========== =========== 24NOTES TO FINANCIAL STATEMENTS 2002 2001 2000 ------- ------- ------- DEPRECIATION, DEPLETION AND AMORTIZATION Agricultural properties $ 4,182 $ 5,113 $ 4,525 Timber properties 33,316 21,375 32,604 All other segments 1,388 3,078 2,153 ------- ------- ------- $38,886 $29,566 $39,282 ======= ======= =======2006:
2007 2006 Revenues
Oil and Gas
$ 2,930,807 $ 2,212,387 Agricultural
208,811 209,082 Timber
118,506 269,648 Total
3,258,124 2,691,117 Cost and Expenses
Oil and Gas
239,586 156,863 Agricultural
38,406 23,861 Timber
90,066 97,936 Total
368,058 278,660 Income from Operations
Oil and Gas
2,691,221 2,055,524 Agricultural
170,405 185,221 Timber
28,440 171,712 Total
2,890,066 2,412,457 Other Income (Expense) before Income Taxes
1,471,368 (169,381 ) Income before Income Taxes
$ 4,361,434 $ 2,243,076 Identifiable Assets
Oil and Gas
$ — $ — Agricultural
— 94,489 Timber
400,102 403,484 General Corporate Assets
10,625,452 99,630,372 Total
$ 11,025,554 $ 10,128,345 Capital Expenditures
Oil and Gas
$ $ Agricultural
— 107,849 Timber
40,181 8,206 General Corporate Assets
41,431 6,408 Total
$ 81,612 $ 122,463 Depreciation, Depletion and Amortization
Oil and Gas
$ — $ Agricultural
13,232 16,415 Timber
43,563 51,465 General Corporate Assets
1,747 1,233 Total
$ 58,542 $ 69,113 There are no intersegment sales reported in the accompanying income statements. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on profit or loss from operations before income taxes excluding nonrecurring gains and losses on securities held available for sale. Income before income tax represents net sales less operating expenses and other income and expenses of a general
CKX Lands, Inc.
Notes to Financial Statements (continued)
corporate nature. Identifiable assets by segment are those assets
that areused solely in theCompany'sCompany’s operations within thatindustry. General corporate assets consist principally of cash and cash items, accounts receivable, and marketable equity and debt securities.segment.The following summarizes major customer information at December 31,
2002, 20012007 and20002006 from oil and gas revenues:Sales to Purchaser as a Percentage of Total Revenues ---------------------------- Purchaser 2002 2001 2000 --------- -------- -------- -------- Cox and Perkins 71% 2% 0% Riceland Petroleum Company 13% 27% 4% Neumin Production 2% 30% 65% Woodlawn 6% 15% 6%
Sales to Purchaser as a
Percentage of Total
Revenues2007 2006 Mayne and Mertz
29 % 4 % Cox and Perkins
10 % 18 % Riceland Petroleum
7 % 8 % Swift Energy
7 % n/a Unit Petroleum
7 % 19 % Note 7. Related Party Transactions
During 2002, 2001 and 2000, some board members entered into leases with the Company for water fowl hunting. Lease income from these leases amounted to $1,600 for the year 2002, $1,200 for the year 2001, and $3,200 for the year ended December 31, 2000. 25NOTES TO FINANCIAL STATEMENTSIn 1990, the Company purchased interests in properties managed by Walker Louisiana Properties (WLP), such properties being subject to a management agreement.
Note 8. Walker Louisiana Properties Land Sale
On April 30, 2007, Walker Louisiana Properties completed the sale of 100 subdivision acres in Calcasieu Parish, Louisiana with a contract sales price of $1,912,050. The Company owns a one-sixth interest in this land and reported a gain from this sale of $312,561. 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. Due to the 1031 exchange, a gain of $38,962 is deferred for income tax purposes.
Note 9. Land Sale
On October 24, 2007, the Company completed the sale of approximately 3,495 agricultural acres and certain equipment assets in Cameron Parish, Louisiana for approximately $3,146,000. 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. The entire sales proceeds were deposit with a qualified intermediary, (“1031 trust account – restricted use”) and the gain was deferred during the 1031 Exchange period. In late February 2008, the Company determined that consummation of identified 1031 Exchange properties was not possible and current recognition of the approximate gain of $1,448,900 from this sale was the result.
Note 10. Supplementary Income Statement Information
Taxes, other than income taxes, of
$138,451, $98,116$309,456 and$109,569,$239,715, were charged to expense during2002, 20012007 and2000,2006, respectively.CKX Lands, Inc.
Notes to Financial Statements (continued)
Note
9. Operating Leases11. Contingencies:There are no material contingencies known to management. The Company
leases agricultural land to a third party. This agreement, with an original expiration date of September 30, 2002, was extended during year 2000 to September 30, 2004. The annual lease rental is $40,000. The lease requires payment of normal maintenance and insurance. The lease also requires the lessee to construct specific improvements to the property at an expenditure of at least $60,000 as additional consideration during the original term of the contract. In the event the lessee fails to spend $60,000 on the above mentioned improvements prior to September 30, 2002, the amounts unspent will be due and payable to the Company on September 30, 2002. As a condition of extending the lease contract for an additional two year period, the lessee is required to spend $40,000 each year for additional improvements to the properties,does not participate inaddition to the annual lease payments. Total future minimum rental income under operating leases as of December 31, 2002 for the next five years is as follows: Years Ending December 31, ------------------------- 2003 $ 40,000 2004 40,000 2005 - 2006 - 2007 -off balance sheet arrangements.Note
10.12. Concentration of Credit RiskThe Company maintains its cash balances in one financial institution. The amount on deposit in the financial institution is insured by the Federal Deposit Insurance Corporation up to $100,000.
26NOTES TO FINANCIAL STATEMENTSNote
11.13. Disclosures About Fair Value of Financial InstrumentsThe following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it was practical to estimate that value:
Cash and cash equivalents:
For these short-term instruments, the carrying amount is a reasonable estimate of fair value.
Securities available-for-sale:
Debt and equity securities were valued at fair value, which equals quoted market price.
The estimated fair value of the
Company'sCompany’s financial instruments at December 31,20022007 and20012006 are as follows.Amounts are presented in thousands. 2002 2001 ---------------------- --------------------- Carrying Fair Carrying Fair Financial Assets Value Value Value Value --------- --------- --------- --------- Cash and cash equivalents $ 583 $ 583 $ 1,419 $ 1,419 Securities available for sale 1,361 1,361 378 378 --------- --------- --------- --------- $ 1,944 $ 1,944 $ 1,797 $ 1,797 ========= ========= ========= ========= Note 12. Commitments and Contingencies The Company is a co-defendant in a lawsuit filed by previous owners of property that is now partially owned by the Company. In this suit, the Plaintiffs assert that the sale of a strip of property in 1914 created two servitudes, one of which, the co-defendants claim ownership, expired by liberative prescription in 1940. The Company has indicated that it will defend the suit vigorously, and it is anticipated that a motion for summary judgment in favor of the defendants will be filed in the near future. 27NOTES TO FINANCIAL STATEMENTS The Company has been notified by the National Pollution Funds Center that the Company, as well as the other various owners of the land managed by Walker Louisiana Properties, together with certain past owners, are jointly and severally liable for $588,843, the cost of an environmental clean-up. The Company is contesting the claim since the damage occurred prior to the Company's ownership and the Company is an innocent land owner. 28CALCASIEU REAL ESTATE & OIL CO., INC.
2007 2006 (Presented in thousands)
Carrying
ValueFair Value Carrying
ValueFair Value Financial Assets:
Cash and cash equivalents
$ 1,625 $ 1,625 $ 1,085 $ 1,085 1031 Trust Account
3,198 3,198 — — Certificate of deposit
1,052 1,052 1,512 1,512 Securities available for sale
2,031 2,031 2,615 2,615 $ 7,906 $ 7,906 $ 5,212 $ 5,212 SUPPLEMENTARY INFORMATION
Years Ended December 31,
2002, 20012007 and1999 Balance, Adjustments Balance, Beginning and End of 2002 of Period Additions Retirements Period ---- ----------- ---------- ----------- ----------- Oil and gas properties-proved $ 456,751 $ - $ - $ 456,751 Other property: Buildings and equipment 86,825 6,999 10,106 83,718 Timber 779,912 18,908 - 798,820 Land 3,738,992 165,859 - 3,904,851 ----------- ---------- ----------- ----------- $ 5,062,480 $ 191,766 $ 10,106 $ 5,244,140 =========== ========== =========== =========== 2001 ---- Oil and gas properties-proved $ 456,751 $ - $ - $ 456,751 Other property: Buildings and equipment 89,776 4,675 7,626 86,825 Timber 673,426 122,206 15,720 779,912 Land 3,615,900 123,592 500 3,738,992 ----------- ---------- ----------- ----------- $ 4,835,853 $ 250,473 $ 23,846 $ 5,062,480 =========== ========== =========== =========== 2000 ---- Oil and gas properties-proved $ 458,185 $ - $ 1,435 $ 456,751 Other property: Buildings and equipment 90,885 15,922 17,031 89,776 Timber 715,064 19,295 60,933 673,426 Land 3,615,791 632 522 3,615,900 ----------- ---------- ----------- ----------- $ 4,879,925 $ 35,849 $ 79,921 $ 4,835,853 =========== ========== =========== =========== 29CALCASIEU REAL ESTATE & OIL CO., INC.2006
Beginning
BalanceAdditions Adjustments
and
RetirementsEnding
Balance2007 Property and Equipment
Buildings and equipment
$ 177,856 $ — $ 101,146 $ 76,710 Timber
847,348 40,181 32,898 854,631 Land
4,004,963 41,431 1,684,396 2,361,998 $ 5,030,167 $ 81,612 $ 1,818,440 $ 3,293,339 2006 Property and Equipment
Buildings and equipment
$ 77,204 $ 107,849 $ 7,188 $ 177,856 Timber
845,722 8,206 6,580 847,348 Land
3,998,555 6,408 — 4,004,963 $ 4,921,481 $ 122,463 $ 13,768 $ 5,030,167 SUPPLEMENTARY INFORMATION
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
Years Ended December 31,
2002, 20012007 and2000 Balance, Adjustments Balance, Beginning and End of 2002 of Period Additions Retirements Period ---- ----------- ---------- ----------- ----------- Oil and gas properties-proved $ 379,535 $ - $ - $ 379,535 Other property: Buildings and equipment 69,999 5,570 6,584 68,985 Timber 281,343 33,316 - 314,659 ----------- ---------- ----------- ----------- $ 730,877 $ 38,886 $ 6,584 $ 763,179 =========== ========== =========== =========== 2001 ---- Oil and gas properties-proved $ 379,535 $ - $ - $ 379,535 Other property: Buildings and equipment 69,889 7,191 7,081 69,999 Timber 258,968 22,375 - 281,343 ----------- ---------- ----------- ----------- $ 708,392 $ 29,566 $ 7,081 $ 730,877 =========== ========== =========== =========== 2000 ---- Oil and gas properties-proved $ 377,039 $ 2,496 $ - $ 379,535 Other property: Buildings and equipment 73,468 4,525 8,104 69,889 Timber 228,876 32,261 2,169 258,968 ----------- ---------- ----------- ----------- $ 679,383 $ 39,282 $ 10,273 $ 708,392 =========== ========== =========== =========== 30CERTIFICATIONS Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Arthur Hollins, III, certify that: 1. I have received this transition report on Form 10-K of Calcasieu Real Estate & Oil Co., Inc.; 2. Based on my knowledge, this transition report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this transition report; 3. Based on my knowledge, the financial statements, and other financial information included in this transition report, fairly present all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this transition report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure the material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this transition report is be prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this transition report (the "Evaluation Date"); and c. presented in this transition report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this transition report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: March 5, 2003 /s/ ARTHUR HOLLINS, III ----------------------- Arthur Hollins, III President and Chief Executive OfficerCertification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, William D. Blake, certify that: 1. I have received this transition report on Form 10-K of Calcasieu Real Estate & Oil Co., Inc.; 2. Based on my knowledge, this transition report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this transition report; 3. Based on my knowledge, the financial statements, and other financial information included in this transition report, fairly present all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this transition report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure the material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this transition report is be prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this transition report (the "Evaluation Date"); and c. presented in this transition report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date: 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this transition report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: March 5, 2003 /S/ WILLIAM D. BLAKE ---------------------------- William D. Blake Vice President and Treasurer
| Beginning Balance | Additions | Adjustments and Retirements | Ending Balance | |||||||||
| 2007 | ||||||||||||
Property and Equipment | ||||||||||||
Buildings and equipment | $ | 83,376 | $ | 14,979 | $ | 31,007 | $ | 67,348 | ||||
Timber | 443,864 | 43,563 | 32,898 | 454,529 | ||||||||
| $ | 527,240 | $ | 58,542 | $ | 63,905 | $ | 521,877 | |||||
| 2006 | ||||||||||||
Property and Equipment | ||||||||||||
Buildings and equipment | $ | 69,757 | $ | 17,648 | $ | 4,029 | $ | 83,376 | ||||
Timber | 401,474 | 51,465 | 9,075 | 443,864 | ||||||||
| $ | 471,231 | $ | 69,113 | $ | 13,104 | $ | 527,240 | |||||
SUPPLEMENTARY INFORMATION
(UNAUDITED)
Presented in thousands | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Year Total | ||||||||||
Total Revenue: | |||||||||||||||
2007 | $ | 704 | $ | 802 | $ | 1,038 | $ | 714 | $ | 3,258 | |||||
2006 | 655 | 706 | 623 | 707 | 2,691 | ||||||||||
Operating Income: | |||||||||||||||
2007 | 511 | 610 | 752 | 559 | 2,432 | ||||||||||
2006 | 491 | 585 | 502 | 478 | 2,056 | ||||||||||
Net Income: | |||||||||||||||
2007 | 373 | 625 | 544 | 1,288 | 2,830 | ||||||||||
2006 | 371 | 445 | 348 | 369 | 1,533 | ||||||||||
Net Income per Share: | |||||||||||||||
2007 | 0.19 | 0.32 | 0.28 | 0.67 | 1.46 | ||||||||||
2006 | 0.19 | 0.23 | 0.18 | 0.19 | 0.79 | ||||||||||
Cash Dividend per Share | |||||||||||||||
2007 | 0.07 | 0.07 | 0.07 | 0.47 | 0.68 | ||||||||||
2006 | 0.17 | 0.07 | 0.07 | 1.07 | 1.38 | ||||||||||
Shares Outstanding: | |||||||||||||||
2007 | 1,942 | 1,942 | 1,942 | 1,942 | 1,942 | ||||||||||
2006 | 1,942 | 1,942 | 1,942 | 1,942 | 1,942 | ||||||||||
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