- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
----------------------
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF
1934 FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2002
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
---------------- ----------------
COMMISSION FILE NO. 1-737
----------------------
TEXAS PACIFIC LAND TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Not Applicable 75-0279735
STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NUMBER)
----------------------
1700 Pacific Avenue, Suite 1670
Dallas, Texas 75201
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 969-5530
----------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Sub-shares in Certificate of Proprietary Interest New York Stock Exchange
(par value $.16-2/3 per share)
----------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
----------------------
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes |X| No |_|
The aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of the last business day of the registrant's most recently completed second
fiscal quarter (June 28, 2002) was approximately $93,943,885.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
- --------------------------------------------------------------------------------
<page>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Annual Report on Form 10-K that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding management's expectations, hopes,
intentions or strategies regarding the future. Forward-looking statements
include statements regarding the Trust's future operations and prospects, the
markets for real estate in the areas in which the Trust owns real estate,
applicable zoning regulations, the markets for oil and gas, production limits on
prorated oil and gas wells authorized by the Railroad Commission of Texas,
expected competition, management's intent, beliefs or current expectations with
respect to the Trust's future financial performance and other matters. All
forward-looking statements in this Report are based on information available to
us as of the date of this Report is filed with the Securities and Exchange
Commission, and we assume no responsibility to update any such forward-looking
statements, except as required by law. All forward-looking statements are
subject to a number of risks, uncertainties and other factors that could cause
our actual results, performance, prospects or opportunities to differ materially
from those expressed in, or implied by, these forward-looking statements. These
risks, uncertainties and other factors include, but are not limited to, the
factors discussed in Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<page>
PART I
ITEM 1. BUSINESS
(a) General Development of Business. The registrant (hereinafter called
"Texas Pacific" or the "Trust") was organized under a Declaration of Trust dated
February 1, 1888, to receive and hold title to extensive tracts of land in the
State of Texas, previously the property of the Texas and Pacific Railway
Company, and to issue transferable Certificates of Proprietary Interest pro rata
to the holders of certain debt securities of the Texas and Pacific Railway
Company. The Trustees are empowered under the Declaration of Trust to manage the
lands with all the powers of an absolute owner, and to use the lands and the
proceeds of sale of the lands, either to pay dividends to the Certificate
holders or to buy in and cancel outstanding Certificates. The Trust's income is
derived primarily from land sales, oil and gas royalties, grazing leases, and
interest on investments. This method of operation has continued through the
present. During the last five years there has not been any reorganization,
disposition of any material amount of assets not in the ordinary course of
business (although in the ordinary course of business Texas Pacific does sell or
lease large tracts of land owned by it), or any material change in the mode of
conducting business.
Texas Pacific's income from oil and gas royalties has been limited in
the past by the level of production authorized for prorated wells each year by
the regulations of the Railroad Commission of Texas. The monthly percentage of
allowable production has averaged 100% in recent years, but, because of the
limited capacity of older wells and other operating problems, the percentage
permitted by the Commission could not be produced by most operators.
(b) Financial Information about Industry Segments. Texas Pacific does
not have identifiable industry segments, although, as shown in the Statements of
Income included in the financial statements incorporated by reference in Item 8
of this Report on Form 10-K, land sales, oil and gas royalties and interest
income are the major contributors to the income of Texas Pacific. The Trust's
management views its operations as one segment and believes the only significant
activity is managing the land which was conveyed to the Trust in 1888. Managing
the land includes sales and leases of such land, and the retention of oil and
gas royalties. See the Statements of Income for additional sources of income for
the last three (3) years of Texas Pacific.
(c) Narrative Description of Business. As previously indicated the
business done and intended to be done by Texas Pacific consists of sales and
leases of land owned by it, retaining oil and gas royalties, temporary cash
investments and the overall management of the land owned by it.
(i) During the last three fiscal years the following
items have accounted for more than fifteen percent
(15%) of consolidated revenues.
2002 2001 2000
------ ------ ------
Land Sales 33% 50% 19%
Oil and Gas Royalties 41% 31% 54%
<page>
(ii) Texas Pacific is not in the business of development
of new products.
(iii) Raw materials are not necessary to the business of
Texas Pacific.
(iv) Patents, trademarks, licenses, franchises or
concessions held are not material to any business of
Texas Pacific.
(v) The business of Texas Pacific is not seasonal in
nature, as that term is generally understood,
although land sales may vary widely from year to year
and quarter to quarter.
(vi) The business of Texas Pacific does not require Texas
Pacific to maintain any particular amount or item of
working capital.
(vii) During 2002, Texas Pacific Land Trust received
$638,958, or 17 percent, of its oil and gas royalty
income from 48 leases operated by Chevron U.S.A.,
Inc.
(viii) Backlogs are not relevant to an understanding of
Texas Pacific's business.
(ix) No material portion of Texas Pacific's business is
subject to renegotiation or termination at the
election of the Government.
(x) The Trust does not have competitors, as such, in that
it sells, leases and generally manages land owned by
it and, to that extent, any owner of property located
in areas comparable to the Trust is a potential
competitor.
(xi) Research activities relating to the development of
new products or services or to the improvement of
existing products or services are not material to the
Trust's business.
(xii) Compliance with Federal, State and local provisions
that have been enacted or adopted regulating the
discharge of materials into the environment, or
otherwise relating to the protection of the
environment, have had no material effect upon the
capital expenditures, earnings and competitive
position of Texas Pacific. To date Texas Pacific has
not been called upon to expend any funds for these
purposes.
(xiii) As of February 28, 2003, Texas Pacific had eight (8)
full-time employees.
(d) Financial Information about Foreign and Domestic Operations and
Export Sales. Texas Pacific does not have any foreign operations. For each of
its last three fiscal years, all of
2
<page>
the Trust's revenues have been derived from, and all of its long-lived assets
have been located in the United States.
(e) Available Information. The Trust does not maintain an Internet
website. Accordingly, it does not make its annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports available free of charge on or through an Internet website as soon
as reasonably practicable after they are electronically filed with, or furnished
to, the Securities and Exchange Commission (the "SEC"). However, the Trust will
voluntarily provide electronic or paper copies free of charge upon written
request addressed to: Texas Pacific Land Trust, 1700 Pacific Avenue, Suite 1670,
Dallas, Texas 75201, Attention: General Agent.
ITEM 2: PROPERTIES.
Texas Pacific Land Trust owns the surface estate in 1,012,585 acres of
land located in 21 counties in the western part of Texas. The Trust also owns a
1/128 nonparticipating perpetual oil and gas royalty interest under 85,414 acres
of land and a 1/16 nonparticipating perpetual oil and gas royalty interest under
386,988 acres of land in the western part of Texas. At December 31, 2002,
grazing leases were in effect on 99.3 percent or approximately 1,005,878 acres
of the Trust's land. Approximately 9,295 acres of land were sold in 2002. The
Trust leases office space in Dallas, Texas.
ITEM 3: LEGAL PROCEEDINGS.
Texas Pacific is not involved in any material pending legal
proceedings.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of 2002.
PART II
ITEM 5: MARKET FOR SUB-SHARE CERTIFICATES AND RELATED SECURITY HOLDER MATTERS.
The principal United States market on which sub-shares in the Trust's
Certificates of Proprietary Interest are traded is the New York Stock Exchange.
The range of reported sales prices for sub-shares on the New York Stock Exchange
for each quarterly period during the past two fiscal years was as follows:
2002 2001
------------------------------- ----------------------------
High Low High Low
-------------- ------------- ------------ ------------
1st Quarter $38.45 $34.45 $41.25 $35.63
2nd Quarter 42.75 37.52 40.50 34.07
3rd Quarter 41.00 36.25 39.90 35.00
4th Quarter 42.75 38.60 39.50 35.20
3
<page>
Certificates of Proprietary Interest and Sub-shares are interchangeable
in the ratio of one Certificate for 600 Sub-shares or 600 Sub-shares for one
Certificate of Proprietary Interest. Texas Pacific has paid a dividend once a
year for the preceding 46 years. The dividend was $.40 per Sub-share in 2002 and
$.40 per Sub-share in 2001. Texas Pacific is not a party to any agreement that
would limit its ability to pay dividends in the future, although any future
dividends are subject to the discretion of the Board of Trustees and will depend
upon the Trust's earnings, capital requirements and financial position,
applicable requirements of law, general economic conditions and other factors
considered relevant by the Board of Trustees.
The approximate numbers of holders of Certificates of Proprietary
Interest and Sub-shares, respectively, as of January 31, 2003, were as follows:
Certificates of Proprietary Interest.................. -
Sub-shares in Certificates of Proprietary Interest.... 695
---
TOTAL................... 695
===
The Trust does not maintain any compensation plans (or individual
compensation arrangements) under which equity securities are authorized for
issuance.
The Trust did not sell any equity securities during the year ended
December 31, 2002.
ITEM 6: SELECTED FINANCIAL DATA.
The selected financial data set forth below for the years ended
December 31, 2002, 2001, 2000, 1999 and 1998, were derived from our audited
financial statements. The data presented below should be read in conjunction
with Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Financial Statements and Notes thereto
incorporated by reference in Item 8 "Financial Statements and Supplementary
Data."
<table>
<caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
---------------- ---------------- ---------------- ---------------- ----------------
<s> <c> <c> <c> <c> <c>
Gross income............. $ 9,122,098 $ 13,429,368 $ 7,798,999 $ 5,924,237 $ 10,479,670
Expenses................. 2,028,478 3,385,347 2,456,242 1,724,815 1,638,132
-------------- ---------------- -------------- -------------- ----------------
Income before Federal
income taxes............. 7,093,620 10,044,021 5,342,757 4,199,422 8,841,538
Federal income taxes..... 2,192,834 3,157,508 1,584,688 1,261,595 2,808,277
-------------- ---------------- -------------- -------------- ----------------
Net income............... $ 4,900,786 $ 6,886,513 $ 3,758,069 $ 2,937,827 $ 6,033,261
============== ================ ============== ============== ================
Net income per Sub-share. $ 2.09 $ 2.79 $ 1.47 $ 1.11 $ 2.22
Dividends per Sub-share.. $ .40 $ .40 $ .40 $ .40 $ .40
Average number of
Sub-shares outstanding... 2,347,467 2,464,162 2,555,062 2,642,626 2,717,872
-------------- ---------------- -------------- -------------- ----------------
</table>
<table>
<caption>
AS OF DECEMBER 31,
---------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
---------------- ---------------- ---------------- ---------------- ----------------
<s> <c> <c> <c> <c> <c>
Total assets, exclusive of
property with no assigned
value.................... $ 18,735,307 $ 17,628,181 $ 15,329,316 $ 15,876,606 $ 18,856,414
=============== =============== =============== =============== ===============
</table>
4
<page>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read together with the
Financial Statements, including the Notes thereto, and the other financial
information appearing elsewhere in this Report. Period-to-period comparisons of
financial data are not necessarily indicative, and thereby should not be relied
upon as indicators, of the Trust's future performance. The discussion may
include forward-looking statements.
RESULTS OF OPERATIONS
Earnings per sub-share certificate for 2002 were $2.09 compared to
$2.79 in 2001 and $1.47 in 2000. Total revenues in 2002 were $9,122,098, in 2001
$13,429,368, and in 2000 $7,798,999.
Land sales in 2002 were $3,050,784 compared to $6,708,863 in 2001, and
$1,443,173 in 2000. A total of 9,295 acres were sold in 2002 at an average price
of $328 per acre, compared to 13,579 acres in 2001 and 19,592 acres in 2000 at
an average price per acre of $494 and $74, respectively.
Land sales vary widely from year to year and quarter to quarter. The
total dollar amount, the average price per acre, and the number of acres sold in
any one year or quarter should not be assumed to be indicative of land sales in
the future. The Trust is a passive seller of land and does not actively solicit
sales of land. The demand for, and the sales price of, any particular tract of
the Trust's land is influenced by many factors, including, the national and
local economies, the rate of residential and commercial development in nearby
areas, livestock carrying capacity, and the condition of the local agricultural
industry, which itself is influenced by range conditions and prices for
livestock and other agricultural products. Approximately 99% of the Trust's land
is classified as ranch land and intermingled with other ownerships to form
ranching units. Ranch land sales are, therefore, largely dependent on the
actions of the adjoining landowners.
Rentals, royalties and other income were $6,071,314 in 2002 compared to
$6,720,505 in 2001 and $6,355,826 in 2000.
Oil and gas royalty revenue in 2002 was $3,710,409 compared to
$4,176,672 in 2001 and $4,230,775 in 2000. Oil royalty revenue was $2,403,124
and gas royalty revenue was $1,307,285 in 2002. Although crude oil production
from Trust royalty wells increased 4.3% in 2002, this was offset by a 9.9%
decrease in the average price received for crude oil. Total gas production
increased 22.3%, but the average price for gas decreased 33.9%. The average
price per royalty barrel of crude oil for 2002, 2001 and 2000 was $23.28, $25.84
and $28.17, respectively. The Trust's oil and gas royalty income is from
perpetual non participating royalty interests. The Trust has no control over
changes in production or prices of oil and gas.
Interest revenue was $979,948 in 2002, compared to $885,971 in 2001 and
$874,294 in 2000. Interest on notes receivable amounted to $925,453 in 2002,
compared to $802,111 in 2001, and $781,804 in 2000. At year end 2002, notes
receivable from land sales were $11,923,998 compared to $11,421,331 in 2001 and
$8,591,998 in 2000. Sundry interest
5
<page>
amounted to $54,495 in 2002, $83,860 in 2001, and $92,490 in 2000. Total
principal cash payments on notes receivable were $1,500,724 in 2002.
Easement and sundry income revenue in 2002 was $895,175 compared to
$1,155,859 in 2001 and $743,368 in 2000. The significant decrease was due mainly
to the decrease in oil exploration damage payments and easement revenue.
Taxes, other than Federal income taxes, were $480,575 in 2002 compared
to $517,086 in 2001 and $554,339 in 2000. Oil and gas production taxes were
$208,413 in 2002 compared to $240,906 in 2001 and $236,918 in 2000. Ad valorem
taxes were $232,689 in 2002 compared to $236,831 in 2001 and $275,615 in 2000.
Basis in real estate sold was $98,165 in 2002, $1,541,416 in 2001, and $606,322
in 2000. All other expenses were $1,449,738 in 2002, $1,326,845 in 2001, and
$1,295,581 in 2000.
LIQUIDITY
The Trust's principal sources of liquidity are its revenues from oil
and gas royalties, lease rentals and receipts of interest and principal payments
on the notes receivable arising from its sales of land. In the past these
sources have generated more than adequate amounts of cash to meet the Trust's
needs and, in the opinion of management, should continue to do so in the
foreseeable future.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements. It is our
opinion that we fully disclose our significant accounting policies in the Notes
to the Financial Statements. Consistent with our disclosure policies we include
the following discussion related to what we believe to be our most critical
accounting policies that require our most difficult, subjective or complex
judgment.
Valuation of Notes Receivable - Management of the Trust monitors
delinquencies to assess the propriety of the carrying value of its notes
receivable. At the point in time that notes receivable become delinquent,
management reviews the operations information of the debtor and the estimated
fair value of the collateral held as security to determine whether an allowance
for losses is required. Any required allowance for losses is recorded in the
period of determination. At December 31, 2002, and 2001, there were no
significant delinquencies, and as such, no allowance for losses have been
recorded.
Valuation of Real Estate Acquired Through Foreclosure - The value of
real estate acquired through foreclosure is established at the lower of cost or
fair value less disposition costs at the date of foreclosure. Cost is considered
to be the aggregate of the outstanding principal and interest, past due ad
valorem taxes and other fees associated with the foreclosure. Subsequent to the
foreclosure date, valuations are periodically performed or obtained by
management when events or changes in circumstances indicate that the full
carrying amount may not be recoverable. At such time, a valuation allowance is
established to reduce the carrying value to the estimated fair value. Valuation
of the real estate is based on the estimates of management
6
<page>
and is subject to judgment. At December 31, 2002, and 2001, no valuation
allowances were recorded.
Gain Recognition on Land Sales - Accounting principles generally
accepted in the United States of America dictate the manner in which the gain or
loss on the sale of land is recorded. The Trust has established policies for the
sale of land, which result in the full accrual method of gain recognition. This
policy generally requires that the Trust receive a minimum cash down payment of
25% of the sales price on each sale and that any related notes receivable
require regular principal and interest payments, payable over terms from 3 to 15
years.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Trust's primary market risk exposure relates to changes in interest
rates related to its notes receivable. To limit the impact of interest rate
changes, the Trust enters into fixed rate notes receivable that approximate the
current interest rate for land sales at the time. As a result, the Trust's only
interest rate risk is the opportunity loss should interest rates increase. The
following table summarizes expected maturities of the Trust's notes receivable.
As the interest rates represent rates which management believes are current
rates on similar land sales, the Trust believes the fair values of its notes
receivable approximate the carrying amounts.
Year Ending December 31 Maturity
----------------------- --------
2003......................... $ 722,091
2004......................... 799,243
2005......................... 802,317
2006......................... 872,400
2007......................... 900,157
Thereafter..................... 7,827,790
----------------
$ 11,923,998
================
The Trust's remaining financial instruments consist of cash, temporary cash
investments and accounts payable and other liabilities and the carrying amounts
of these instruments approximate fair value due to the short-term nature of
these instruments.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Index to Financial Statements included in Item 15. The
Financial Statements listed therein are incorporated herein by reference to
pages F-1 through F-12 of this Report on Form 10-K.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
7
<page>
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Trustees:
--------
<table>
<caption>
POSITION AND OFFICES HELD PERIOD DURING WHICH PERSON
NAME AGE WITH REGISTRANT HAS SERVED IN OFFICE
---- --- ------------------------- --------------------------
<s> <c> <c> <c>
Joe R. Clark 75 Trustee, Chairman of the Trustee since February 20, 1987;
Trustees and Member of Audit Chairman of the Trustees since
Committee June 7, 2000
Maurice Meyer III 67 Trustee and Member of Audit Trustee since February 28, 1991
Committee
John R. Norris III 49 Trustee and Member of Audit Trustee since June 7, 2000
Committee
</table>
(b) Executive Officers:
------------------
<table>
<caption>
POSITION AND OFFICES HELD PERIOD DURING WHICH PERSON
NAME AGE WITH REGISTRANT HAS SERVED IN OFFICE
---- --- ------------------------- --------------------------
<s> <c> <c> <c>
Roy Thomas 56 General Agent, Chief Executive General Agent and Secretary of
Officer and Secretary the Trust since January 1, 1995
and Chief Executive Officer since
November 12, 2002. Mr. Thomas
had previously served as
Assistant General Agent from
December 1, 1992 through December
31, 1994.
David M. Peterson 37 Assistant General Agent and Assistant General Agent since
Chief Financial Officer January 1, 1997 and Chief
Financial Officer since November
12, 2002.
</table>
The Trustees hold office until their death, resignation or
disqualification. The General Agent, Chief Executive Officer and Secretary and
the Assistant General Agent and Chief Financial Officer hold office until their
death, resignation, discharge or retirement pursuant to the Texas Pacific Land
Trust Employees' Pension Plan. No executive officer was selected to be an
officer pursuant to any arrangement or understanding between him and any other
person or persons other than the Trustees acting solely in their capacity as
such.
8
<page>
(c) Certain Significant Employees. The Trust does not employ any
person who is not an executive officer who makes or is expected to make
significant contributions to the business of the Trust.
(d) Family Relations. There are no family relationships among any
of the Trustees and executive officers of the registrant.
(e) Business Experience.
-------------------
<table>
<caption>
NAME OF TRUSTEE OR PRINCIPAL OCCUPATION OR EMPLOYMENT
EXECUTIVE OFFICER DURING THE PAST FIVE YEARS
- ------------------------------------------------------- -----------------------------------------------------------
<s>
Maurice Meyer III Former Vice Chairman of Henderson Brothers; personal
investments
Joe R. Clark Former President of Texas Pacific Oil Company, Inc.;
personal investments
John R. Norris III Attorney; Calloway, Norris & Burdette, Dallas, Texas
Roy Thomas General Agent, Chief Executive Officer and Secretary of
Texas Pacific Land Trust
David M. Peterson Assistant General Agent and Chief Financial Officer of
Texas Pacific Land Trust
</table>
(f) Involvement in Certain Legal Proceedings. During the past five
years, no Trustee or executive officer is or has been involved in any event
reportable under this caption.
9
<page>
ITEM 11: EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by, or paid to the Trust's Chief
Executive Officer and its other most highly compensated executive officers
(collectively, the "Named Executive Officers"):
<table>
<caption>
ANNUAL COMPENSATION
---------------------------------------
OTHER ANNUAL
COMPENSATION ALL OTHER
NAME AND POSITION YEAR SALARY ($) BONUS ($) ($)(1) COMPENSATION(2)
- ----------------- ---- ---------- --------- ------------- ---------------
<s> <c> <c> <c> <c> <c>
Roy Thomas......................... 2002 $154,500 - - $9,270
General Agent, Chief Executive 2001 $145,750 - - $8,745
Officer and Secretary 2000 $136,475 - - $8,189
David M. Peterson.................. 2002 $87,283 - - $5,237
Assistant General Agent and 2001 $81,958 - - $4,918
Chief Financial Officer 2000 $76,733 - - $4,604
</table>
- ---------------------------
(1) The aggregate value of the perquisites and other personal benefits, if
any, received by the Named Executive Officers for all years presented
have not been reflected in this table because the amount was below the
Securities and Exchange Commission's threshold for disclosure (i.e.,
the lesser of $50,000 or 10% of the total of annual salary and bonus
for the Named Executive Officer for the year).
(2) Represents contributions by the Trust to the account of the Named
Executive Officer under the Trust's defined contribution retirement
plan.
RETIREMENT PLANS
The registrant maintains the Texas Pacific Land Trust Employees'
Pension Plan, a non-contributory defined benefit pension plan qualified under
Section 401 of the Internal Revenue Code in which the employees, excluding the
Trustees, participate. The amount of the registrant's contributions, payments or
accruals with respect to Mr. Thomas and Mr. Peterson are not and cannot readily
be separately or individually calculated by the regular actuaries for the Plan.
Based upon the Plan formula of 1-1/2% of each covered year times the average
salary of the last five years, Mr. Thomas is estimated to have retirement
benefits of $55,605.82 per year upon retirement at age 65, and Mr. Peterson is
estimated to have retirement benefits of $42,106.00 per year upon retirement at
age 65. Total compensation paid during 2002 to the eight (8) employees covered
by the Employees' Pension Plan was $565,062. The remuneration covered by the
plan is salary.
Effective January 1, 1998, the Trust implemented a defined contribution
plan available to all regular employees having one or more years of continuous
service. Contributions are at the discretion of the Trustees of the Trust. The
amounts contributed to this Plan on behalf of Messrs. Thomas and Peterson are
included in the Summary Compensation Table. During 2002, the Trust
10
<page>
contributed an aggregate of $33,904 on behalf of all employees, including
Messrs. Thomas and Peterson.
TRUSTEE COMPENSATION
The Chairman of the Trustees receives the sum of $4,000 per year as
compensation for his services, and each of the other two Trustees receives the
sum of $2,000 per year for their services.
EMPLOYMENT AGREEMENTS
The Trust is not a party to any employment agreements with any of its
Named Executive Officers. There is no compensation plan or arrangement with
respect to any individual named in the Summary Compensation Table that results,
or will result, from the resignation, retirement or any other termination of
such individual's employment or from a change in control of Texas Pacific or
from a change in the individual's responsibilities following a change in control
of Texas Pacific.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SECURITY HOLDER MATTERS.
(a) Security Ownership of Certain Beneficial Owners. No person or group
owns of record, or is known by Texas Pacific to own beneficially, more than 5%
of any class of voting Certificates of Texas Pacific, treating the
interchangeable Certificates of Proprietary Interest and Sub-share Certificates
as a single class for this purpose.
(b) Security Ownership of Management: The following table gives the
information indicated as to equity securities (Certificates of Proprietary
Interest and Sub-share Certificates) of Texas Pacific beneficially owned
directly or indirectly by all Trustees, naming them, and by all Trustees and
executive officers of the registrant, as a group:
<table>
<caption>
AMOUNT AND NATURE
NAME OF OF OWNERSHIP PERCENT
TITLE AND CLASS (1) BENEFICIAL OWNER ON JANUARY 31, 2003 OF CLASS
- ------------------- ---------------- ------------------- --------
<s> <c> <c> <c>
Sub-share certificates: Joe R. Clark 500 *
Sub-share certificates: Maurice Meyer III 14,950(2) *
Sub-share certificates: John R. Norris III 200 *
Sub-share certificates: Roy Thomas 100 *
Sub-share certificates: David M. Peterson -- --
Sub-share certificates: All Trustees and Officers as a 15,750 .65%
Group
- -----------------------
*Indicates ownership of less than 1% of the class.
</table>
11
<page>
(1) The Sub-shares and the Certificates of Proprietary Interest are freely
interchangeable in the ratio of one Certificate of Proprietary Interest for
six hundred Sub-shares or six hundred Sub-shares for one Certificate of
Proprietary Interest, and are deemed to constitute a single class. On
January 31, 2003, no trustee or officer was the beneficial owner, directly
or indirectly, of any Certificates of Proprietary Interest.
(2) Does not include 2,300 Sub-shares owned by the wife of Mr. Meyer in which
Mr. Meyer disclaims any beneficial ownership.
(c) Changes in Control. Texas Pacific has no knowledge of any
arrangement that may result in any change of control of the Trust.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transaction with management and others. There are no reportable
transactions or currently proposed transactions between Texas Pacific and any
Trustee or executive officer of Texas Pacific or any security holder of Texas
Pacific or any member of the immediate family of the foregoing persons.
(b) Certain business relationships. No relationships exist with any
Trustee that are required to be disclosed under this paragraph.
(c) Indebtedness of Management. There are no persons indebted to
Texas Pacific in an amount in excess of $60,000 that are required to be
disclosed under this paragraph.
(d) Transactions with Promoters. Not applicable.
ITEM 14: CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures. Within 90 days
prior to the date of this report, Texas Pacific Land Trust carried out an
evaluation, under the supervision and with the participation of the Trust's
management, including Roy Thomas, the Trust's Chief Executive Officer and David
Peterson, the Trust's Chief Financial Officer, of the effectiveness of the
design and operation of the Trust's disclosure controls and procedures pursuant
to Exchange Act Rule 13a-14. Based upon that evaluation, Mr. Thomas and Mr.
Peterson concluded that the Texas Pacific Land Trust's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Trust required to be included in Texas Pacific Land Trust's
periodic SEC filings.
(b) Changes in internal controls. There were no significant changes
made in the Trust's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
12
<page>
PART IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements.
--------------------
The following financial statements are filed as a part of this Report
on Form 10-K and appear on pages F-1 through F-12 hereof:
Independent Auditors' Report
Balance Sheets - December 31, 2002 and 2001
Statements of Income - Years Ended December 31, 2002, 2001 and 2000
Statements of Net Proceeds from All Sources - Years Ended December 31,
2002, 2001 and 2000
Statements of Cash Flows - Years Ended December 31, 2002, 2001 and 2000
Notes to Financial Statements
All schedules have been omitted because the required information is
contained in the financial statements or related notes, or is not applicable or
immaterial.
(b) Reports on Form 8-K.
-------------------
No Current Reports on Form 8-K were filed during the fourth quarter of
2002.
(c) Exhibits.
--------
The exhibits listed in the accompanying index to exhibits are filed or
incorporated by reference as part of this Report on Form 10-K.
(d) Not applicable.
13
<page>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 21st day of
March, 2003.
TEXAS PACIFIC LAND TRUST
By: /s/ Roy Thomas
-----------------------------------
ROY THOMAS
General Agent, Chief Executive Officer
and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 21st day of March, 2003.
<table>
<caption>
SIGNATURE TITLE(S)
<s> <c>
/s/ Roy Thomas General Agent, Chief Executive Officer
- -------------------------------------------- and Secretary (Principal Executive Officer)
Roy Thomas
/s/ David M. Peterson Assistant General Agent and Chief
- -------------------------------------------- Financial Officer (Principal Financial
David M. Peterson Officer and Principal Accounting Officer)
/s/ Joe R. Clark Chairman of the Trustees
- --------------------------------------------
Joe R. Clark
/s/ Maurice Meyer III Trustee
- --------------------------------------------
Maurice Meyer III
/s/ John R. Norris III Trustee
- --------------------------------------------
John R. Norris III
</table>
14
<page>
CERTIFICATIONS
I, ROY THOMAS, General Agent and Chief Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Texas Pacific Land
Trust;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers 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
have:
a. Designed such disclosure controls and procedures to
ensure that 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 annual
report is being 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
annual report (the "Evaluation Date"); and
c. Presented in this annual 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 officers 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;
15
<page>
6. The registrant's other certifying officers and I have indicated in this
annual report whether 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.
Date: March 27, 2003
-------------------------------
By: /s/ Roy Thomas
---------------------------------
ROY THOMAS
General Agent, Chief Executive Officer
and Secretary
16
<page>
I, DAVID M. PETERSON, Assistant General Agent and Chief Financial Officer,
certify that:
1. I have reviewed this annual report on Form 10-K of Texas Pacific Land
Trust;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers 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
have:
a. Designed such disclosure controls and procedures to
ensure that 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 annual
report is being 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
annual report (the "Evaluation Date"); and
c. Presented in this annual 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 officers 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;
6. The registrant's other certifying officers and I have indicated in this
annual report whether 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,
17
<page>
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 27, 2003
----------------------------------------
By: /s/ David M. Peterson
----------------------------------------
DAVID M. PETERSON
Assistant General Agent and Chief
Financial Officer
18
<page>
ITEM 15(A): FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
Independent Auditors' Report F-1
Balance Sheets - December 31, 2002 and 2001 F-2
Statements of Income - Years Ended December 31, 2002, 2001 and 2000 F-3
Statements of Net Proceeds From All Sources - Years Ended
December 31, 2002, 2001 and 2000 F-4
Statements of Cash Flows - Years Ended December 31, 2002, 2001 and 2000 F-5
Notes to Financial Statements F-6
All schedules have been omitted because the required information is contained in
the financial statements or related notes, or is not applicable.
19
<page>
INDEPENDENT AUDITORS' REPORT
The Trustees and Certificate Holders
Texas Pacific Land Trust:
We have audited the accompanying balance sheets of Texas Pacific Land Trust (the
Trust) as of December 31, 2002 and 2001, and the related statements of income,
net proceeds from all sources, and cash flows for each of the years in the
three-year period ended December 31, 2002. These financial statements are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Texas Pacific Land Trust as of
December 31, 2002 and 2001, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ KPMG LLP
January 27, 2003
F-1
<page>
TEXAS PACIFIC LAND TRUST
Balance Sheets
December 31, 2002 and 2001
<table>
<caption>
ASSETS 2002 2001
------------------ ------------------
<s> <c> <c>
Cash $ 147,746 $ 85,065
Temporary cash investments - at cost which approximates market 3,200,000 2,500,000
Notes receivable for land sales ($722,091 due in 2003 and
$855,546 due in 2002) (note 1) 11,923,998 11,421,331
Prepaid insurance 44,844 61,138
Other assets 845,329 752,705
Prepaid Federal income taxes -- 149,668
Real estate acquired through foreclosure (note 3) 2,470,908 2,450,886
Water wells, leasehold improvements, furniture, and equipment -
at cost less accumulated depreciation 102,482 207,388
Property, no value assigned (note 1):
Land (surface rights) situated in 21 counties in Texas -
1,004,496 acres in 2002 and 1,013,792 acres in 2001 -- --
Town lots in Iatan, Loraine, and Morita, Texas - 628 lots -- --
1/16 nonparticipating perpetual royalty interest in
386,987.70 acres -- --
1/128 nonparticipating perpetual royalty interest in
85,413.60 acres -- --
------------------ ------------------
Total assets $ 18,735,307 $ 17,628,181
================== ==================
LIABILITIES AND CAPITAL
Accounts payable and other liabilities $ 10,120 $ 7,537
Federal income taxes 125,196 --
Other taxes 30,421 20,521
Deferred taxes (note 5) 4,586,451 4,402,481
------------------ ------------------
Total liabilities 4,752,188 4,430,539
------------------ ------------------
Capital (notes 1 and 6):
Certificates of Proprietary Interest, par value $100 each.
Outstanding 0 Certificates -- --
Sub-share Certificates in Certificates of Proprietary Interest,
par value $.16-2/3 each. Outstanding 2,317,387 Sub-shares
in 2002 and 2,398,393 Sub-shares in 2001 -- --
Net proceeds from all sources 13,983,119 13,197,642
------------------ ------------------
Total capital 13,983,119 13,197,642
------------------ ------------------
Total liabilities and capital $ 18,735,307 $ 17,628,181
================== ==================
See accompanying notes to financial statements.
</table>
F-2
<page>
TEXAS PACIFIC LAND TRUST
Statements of Income
Years ended December 31, 2002, 2001, and 2000
<table>
<caption>
2002 2001 2000
------------------- ------------------- -------------------
<s> <c> <c> <c>
Income:
Oil and gas royalties $ 3,710,409 $ 4,176,672 $ 4,230,775
Grazing lease rentals 485,782 502,003 507,389
Land sales 3,050,784 6,708,863 1,443,173
Interest 979,948 885,971 874,294
Easements and sundry income 895,175 1,155,859 743,368
------------------- ------------------- -------------------
9,122,098 13,429,368 7,798,999
------------------- ------------------- -------------------
Expenses:
Taxes, other than Federal income taxes 480,575 517,086 554,339
Salaries and related employee benefits 680,889 618,740 629,516
General expense, supplies, and travel 445,148 457,674 468,945
Basis in real estate sold 98,165 1,541,416 606,322
Legal and professional fees 265,048 189,392 143,538
Commissions to local agents 688 923 1,169
Depreciation 49,965 52,116 44,413
Trustees' compensation 8,000 8,000 8,000
------------------- ------------------- -------------------
2,028,478 3,385,347 2,456,242
------------------- ------------------- -------------------
Income before Federal income taxes 7,093,620 10,044,021 5,342,757
------------------- ------------------- -------------------
Federal income taxes (note 5):
Current 2,008,864 2,660,705 1,700,813
Deferred 183,970 496,803 (116,125)
------------------- ------------------- -------------------
2,192,834 3,157,508 1,584,688
------------------- ------------------- -------------------
Net income $ 4,900,786 $ 6,886,513 $ 3,758,069
=================== =================== ===================
Net income per Sub-share Certificate $ 2.09 $ 2.79 $ 1.47
=================== =================== ===================
See accompanying notes to financial statements.
</table>
F-3
<page>
TEXAS PACIFIC LAND TRUST
Statements of Net Proceeds From All Sources
Years ended December 31, 2002, 2001, and 2000
<table>
<caption>
2002 2001 2000
------------------- ------------------ ------------------
<s> <c> <c> <c>
Balance at beginning of year $ 13,197,642 $ 11,268,307 $ 11,746,770
Add: Net income for year 4,900,786 6,886,513 3,758,069
------------------- ------------------ ------------------
18,098,428 18,154,820 15,504,839
------------------- ------------------ ------------------
Deduct:
Cost of Sub-share Certificates in Certificates of
Proprietary Interest purchased and cancelled -
81,006 Sub-shares in 2002, 105,812 Sub-shares
in 2001, and 84,900 Sub-shares in 2000 3,158,314 3,953,656 3,202,690
Dividends paid - per Certificate of
Proprietary Interest - $0 in 2002, $240 in
2001 and 2000; per Sub-share Certificate -
$0.40 in 2002, 2001, and 2000 956,995 1,003,522 1,033,842
------------------- ------------------ ------------------
4,115,309 4,957,178 4,236,532
------------------- ------------------ ------------------
Balance at end of year $ 13,983,119 $ 13,197,642 $ 11,268,307
=================== ================== ==================
See accompanying notes to financial statements.
</table>
F-4
<page>
TEXAS PACIFIC LAND TRUST
Statements of Cash Flows
Years ended December 31, 2002, 2001, and 2000
<table>
<caption>
2002 2001 2000
------------------ ------------------ ------------------
<s> <c> <c> <c>
Cash flows from operating activities:
Net income $ 4,900,786 $ 6,886,513 $ 3,758,069
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 49,965 52,116 44,413
Deferred taxes 183,970 496,803 (116,125)
Basis in real estate sold 98,165 1,541,416 606,322
Changes in assets and liabilities:
New notes receivable from land sales (2,023,413) (4,456,260) (731,226)
Payments received on notes receivable 1,500,724 1,626,927 532,235
Prepaid insurance and other assets (76,330) 196,441 (159,351)
Accounts payable and other liabilities 2,583 (44,174) (28,939)
Federal income and other taxes payable 284,764 (232,767) 117,760
------------------ ------------------ ------------------
Net cash provided by operating
activities 4,921,214 6,067,015 4,023,158
------------------ ------------------ ------------------
Cash flows from investing activities:
Additions to water wells, leasehold
improvements, furniture, and equipment (55,224) (151,606) (61,005)
Retirements of furniture and equipment 12,000 13,000 15,674
------------------ ------------------ ------------------
Net cash used in investing activities (43,224) (138,606) (45,331)
Cash flows from financing activities:
Purchase of Sub-share Certificates in
Certificates of Proprietary Interest (3,158,314) (3,953,656) (3,202,690)
Dividends (956,995) (1,003,522) (1,033,842)
------------------ ------------------ ------------------
Net cash used in financing activities (4,115,309) (4,957,178) (4,236,532)
------------------ ------------------ ------------------
Net increase (decrease) in cash
and temporary cash investments 762,681 971,231 (258,705)
Cash and temporary cash investments
at beginning of year 2,585,065 1,613,834 1,872,539
------------------ ------------------ ------------------
Cash and temporary cash investments
at end of year $ 3,347,746 $ 2,585,065 $ 1,613,834
================== ================== ==================
Supplemental disclosure of noncash transactions:
Conversion of notes receivable and accrued
interest receivable to real estate acquired
through foreclosure (note 3) $ 20,022 -- --
See accompanying notes to financial statements.
</table>
F-5
<page>
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements
December 31, 2002, 2001, and 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) GENERAL
The fair market value of the Texas Pacific Land Trust's (Trust)
land and royalty interests was not determined in 1888 when the
Trust was formed; therefore, no value is assigned to the land,
town lots, royalty interests, Certificates of Proprietary
Interest, and Sub-share Certificates in Certificates of
Proprietary Interest in the accompanying balance sheets.
Consequently, in the statements of income, no allowance is made
for depletion and no cost is deducted from the proceeds of
original land sales. Even though the 1888 value of the real
properties cannot be precisely determined, the Trustees have
concluded that the effect of this matter can no longer be
significant to the Trust's financial position or results of
operations. For Federal income tax purposes, however, deductions
are made for depletion, computed on the statutory percentage basis
of income received from royalties.
The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ
from those estimates.
(B) REVENUE RECOGNITION AND NOTES RECEIVABLE
The Trust generally receives cash payments on land sales of 25% or
more within the first year of such sales. Thereafter, annual
principal and interest payments are required by the Trust.
Accordingly, income is recognized on land sales during the periods
in which such sales are closed and sufficient amounts of cash down
payments are received. For Federal income tax purposes, such sales
are recognized on the installment method. The installment method
is also used for sales not meeting the minimum down payment
requirements.
Notes receivable related to land sales bear interest rates ranging
from 7.5% to 11% as of December 31, 2002 and are secured by first
lien deeds of trust on the properties sold. The weighted average
interest rate is 8.53% as of December 31, 2002. The annual
installments on notes are generally payable over terms of 3 to 15
years. There is no penalty for prepayment of principal, and
prepayments in 2002, 2001, and 2000 were $651,178, $1,054,801, and
$25,518, respectively. The interest rates on notes receivable are
considered comparable with current rates on similar land sales
and, accordingly, the carrying value of such notes receivable
approximates fair value. There was no allowance for uncollectible
accounts at December 31, 2002, 2001, or 2000. One customer
represented approximately 34% and 37% and another represented
approximately 15% and 11% of the Trust's notes receivable balance
at December 31, 2002 and 2001, respectively.
F-6
<page>
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements (continued)
December 31, 2002, 2001, and 2000
The maturities of notes receivable for each of the five years
subsequent to December 31, 2002 are:
Year ending December 31:
2003 $ 722,091
2004 799,243
2005 802,317
2006 872,400
2007 900,157
As of December 31, 2002, there were no significant delinquencies
in the Trust's notes receivable. The Trust reviews its aging,
financial operations information on its debtors, and estimated
fair value of collateral held as security to determine an
appropriate allowance for delinquencies, if any.
The Trust's oil and gas royalty interest, grazing and lease
rentals, and easement and sundry income are recorded on a cash
basis, which approximates the accrual method.
(C) NET INCOME PER SUB-SHARE
The cost of Sub-share Certificates purchased and retired is
charged to net proceeds from all sources. Net income per Sub-share
Certificate is based on the weighted average number of Sub-share
Certificates in Certificates of Proprietary Interest and
equivalent Sub-share Certificates of Proprietary Interest
outstanding during each period (2,347,467 in 2002, 2,464,162 in
2001, and 2,555,062 in 2000).
(D) CASH FLOWS
Temporary cash investments at December 31, 2002 and 2001 consist
primarily of overnight investments in loan participations. For
purposes of the statements of cash flows, the Trust considers all
highly liquid debt instruments with original maturities of three
months or less to be temporary cash investments. Cash disbursed
for income taxes in 2002, 2001, and 2000 was $1,734,000,
$2,877,663, and $1,592,000, respectively.
(E) DEPRECIATION
Provision for depreciation of depreciable assets is made by
charges to income at straight-line and accelerated rates
considered to be adequate to amortize the cost of such assets over
their useful lives.
(F) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
F-7
<page>
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements (continued)
December 31, 2002, 2001, and 2000
(2) SEGMENT INFORMATION
Segment information has been considered in accordance with Statement of
Financial Accounting Standards (SFAS) No. 131, Disclosures About Segments
of an Enterprise and Related Information. SFAS No. 131 establishes
standards for the way public business enterprises are to report
information about operating segments. SFAS No. 131 utilizes the
management approach as a basis for identifying reportable segments. The
management approach is based on the way that management organizes the
segments within the enterprise for making operating decisions and
assessing performance. The Trust's management views its operations as one
segment and believes the only significant activity is managing the land,
which was conveyed to the Trust in 1888. Managing the land includes sales
and leases of such land, and the retention of oil and gas royalties.
(3) REAL ESTATE ACQUIRED THROUGH FORECLOSURE
Real estate acquired through foreclosure is carried at the lower of cost
or fair value less disposition costs at the date of foreclosure. Cost is
considered to be the aggregate of the outstanding principal balance,
accrued interest, past due ad valorem taxes, and other fees incurred
relating to the foreclosure. Valuations are periodically performed or
obtained by management whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable, and any further
losses are recorded by a charge to operations and a valuation allowance
(none at December 31, 2002, 2001, or 2000) if the carrying value of the
property exceeds its estimated fair value.
Real estate acquired through foreclosure included the following activity
for the years ended December 31, 2002 and 2001:
<table>
<caption>
2002 2001
------------------------------------------ ------------------------------------------
ACRES BOOK VALUE ACRES BOOK VALUE
-------------------- ------------------- ------------------- -------------------
<s> <c> <c> <c> <c>
Balance at January 1: 7,791.86 $ 2,450,886 9,669.46 $ 3,992,302
Additions 297.38 20,022 -- --
Sales -- -- (1,877.60) (1,541,416)
-------------------- ------------------- ------------------- -------------------
Balance at December 31 8,089.24 $ 2,470,908 7,791.86 $ 2,450,886
==================== =================== =================== ===================
</table>
(4) EMPLOYEE BENEFIT PLANS
The Trust has a noncontributory pension plan (Plan) available to all
regular employees having one or more years of continuous service. The
Plan provides for normal retirement at age 65. Contributions to the Plan
reflect benefits attributed to employees' services to date, as well as
services expected in the future. Plan assets consist primarily of
investments in Banc of America Common Trust Fund.
F-8
<page>
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements (continued)
December 31, 2002, 2001, and 2000
The following table sets forth the Plan's changes in benefit obligation,
fair value of plan assets, funded status, and weighted average
assumptions as of December 31, 2002 and 2001:
<table>
<caption>
2002 2001
-------------------- --------------------
<s> <c> <c>
Change in benefits obligation:
Benefit obligation at beginning of year $ 1,562,386 $ 1,483,287
Service cost 53,232 46,784
Interest cost 111,516 105,433
Actuarial loss 152,336 14,982
Benefits paid (90,430) (248,338)
Termination benefits -- 160,238
-------------------- --------------------
Benefit obligation at end of year $ 1,789,040 $ 1,562,386
==================== ====================
Change in plan assets:
Fair value of plan assets at beginning of year $ 1,437,663 $ 1,885,884
Actual return on plan assets (64,070) (199,883)
Contributions by employer 108,560 --
Benefits paid (90,430) (248,338)
-------------------- --------------------
Fair value of plan assets at end of year $ 1,391,723 $ 1,437,663
==================== ====================
Funded (unfunded) status $ (397,317) $ (124,723)
Unrecognized net actuarial loss 398,934 74,607
Unrecognized prior service cost 79,279 92,745
Unrecognized portion of net asset existing at January 1, 1987 -- (23,211)
-------------------- --------------------
Prepaid benefit cost $ 80,896 $ 19,418
==================== ====================
Weighted average assumptions as of December 31:
Discount rate 6.50% 7.25%
Expected return on plan assets 7.00 7.00
Rate of compensation increase 7.79 7.79
</table>
F-9
<page>
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements (continued)
December 31, 2002, 2001, and 2000
Net periodic benefit costs (benefits) for the years ended December 31,
2002, 2001, and 2000 include the following components:
<table>
<caption>
2002 2001 2000
------------------- -------------------- --------------------
<s> <c> <c> <c>
Components of net periodic benefit costs (benefits):
Service cost $ 53,232 $ 46,784 $ 47,987
Interest cost 111,516 105,433 102,184
Expected return on plan assets (107,921) (113,016) (132,751)
Amortization of the unrecognized
transition asset (23,211) (23,218) (23,218)
Amortization of unrecognized gains -- (1,833) (21,150)
Amortization of prior service cost 13,466 13,466 13,466
Termination benefits -- 160,238 --
------------------- -------------------- --------------------
Net periodic benefit costs
(benefits) $ 47,082 $ 187,854 $ (13,482)
=================== ==================== ====================
</table>
The Trust has a defined contribution plan available to all regular
employees having one or more years of continuous service. Contributions
are at the discretion of the Trustees of the Trust. The Trust contributed
$33,904, $33,515, and $35,633 in 2002, 2001, and 2000, respectively.
(5) FEDERAL TAXES ON INCOME
The Trust is taxed as if it were a corporation. Total income tax expense
differed from the amounts computed by applying the U.S. Federal income
tax rate of 34% to income before Federal income taxes as a result of the
following:
<table>
<caption>
2002 2001 2000
------------------- -------------------- --------------------
<s> <c> <c> <c>
Computed tax expense at the statutory rate $ 2,411,831 $ 3,414,967 $ 1,816,537
Reduction in income taxes resulting from:
Statutory depletion (208,540) (235,479) (237,862)
Other, net (10,457) (21,980) 6,013
------------------- -------------------- --------------------
$ 2,192,834 $ 3,157,508 $ 1,584,688
=================== ==================== ====================
</table>
F-10
<page>
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements (continued)
December 31, 2002, 2001, and 2000
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities at December 31, 2002 and 2001
are as follows:
2002 2001
----------- -----------
Basis differences in real
estate acquired through foreclosure $ 729,759 $ 722,733
Deferred installment revenue on land
sales for tax purposes 3,856,692 3,679,748
----------- -----------
Total deferred tax liability $ 4,586,451 $4,402,481
=========== ===========
(6) CAPITAL
Certificates of Proprietary Interest (Certificates) and Sub-share
Certificates in Certificates of Proprietary Interest (Sub-shares) are
exchangeable in the ratio of one Certificate to 600 Sub-shares. No
Certificates were exchanged for Sub-shares in 2002. One Certificate was
exchanged for Sub-shares in 2001, and no Certificates were exchanged for
Sub-shares in 2000.
The number of Certificates authorized for issuance at a given date is the
number then outstanding plus 1/600 of the number of Sub-shares then
outstanding. The number of Sub-shares authorized for issuance at a given
date is the number then outstanding plus 600 times the number of
Certificates then outstanding.
The Declaration of Trust was executed and delivered in New York. In the
opinion of counsel for the Trust, under the laws of the State of New
York, the Certificate and Sub-share Certificate holders are not subject
to any personal liability for the acts or obligations of the Trust.
The assets of the Trust are located in Texas. In the opinion of Texas
counsel, under the laws of the State of Texas, the Certificate and
Sub-share Certificate holders may be held personally liable with respect
to claims against the Trust, but only after the assets of the Trust first
have been exhausted.
(7) OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
The Trust's share of oil and gas produced, all of which is from royalty
interests, was as follows for the years ended December 31, 2002, 2001,
and 2000, respectively: oil (in barrels) - 103,221, 99,000, and 100,807,
and gas (in thousands of cubic feet) - 478,708, 391,306, and 413,817.
Reserves related to the Trust's royalty interests are not presented
because the information is unavailable.
F-11
<page>
TEXAS PACIFIC LAND TRUST
Notes to Financial Statements (continued)
December 31, 2002, 2001, and 2000
(8) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present unaudited financial data of the Trust for
each quarter of 2002 and 2001:
<table>
<caption>
QUARTER ENDED
----------------------------------------------------------------------------------------
DECEMBER 31, 2002 SEPTEMBER 30, 2002 JUNE 30, 2002 MARCH 31, 2002
-------------------- ------------------- ------------------- -------------------
<s> <c> <c> <c> <c>
Income $ 4,005,369 $ 1,849,690 $ 1,744,395 $ 1,522,644
==================== =================== =================== ===================
Income before Federal income
taxes $ 3,350,995 $ 1,427,982 $ 1,301,961 $ 1,012,682
==================== =================== =================== ===================
Net income $ 2,276,937 $ 998,235 $ 914,524 $ 711,090
==================== =================== =================== ===================
Net income per Sub-share
Certificate $ 0.98 $ 0.43 $ 0.38 $ 0.30
==================== =================== =================== ===================
</table>
<table>
<caption>
QUARTER ENDED
----------------------------------------------------------------------------------------
DECEMBER 31, 2001 SEPTEMBER 30, 2001 JUNE 30, 2001 MARCH 31, 2001
-------------------- ------------------- ------------------- -------------------
<s> <c> <c> <c> <c>
Income $ 1,983,122 $ 7,889,591 $ 1,908,926 $ 1,647,729
==================== =================== =================== ===================
Income before Federal income
taxes $ 1,541,917 $ 5,970,540 $ 1,445,004 $ 1,086,560
==================== =================== =================== ===================
Net income $ 1,071,906 $ 4,002,627 $ 1,025,249 $ 786,731
==================== =================== =================== ===================
Net income per Sub-share
Certificate $ 0.45 $ 1.62 $ 0.41 $ 0.31
==================== =================== =================== ===================
</table>
F-12
INDEX OF EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
3.1 Texas Pacific Land Trust, Declaration of Trust, dated February 1,
1888, by Charles J. Canda, Simeon J. Drake, and William Strauss,
Trustees.
99.1 Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002