CKX Lands, Inc. — Form 10-Q Summary
Business Context and Reporting Period
CKX Lands, Inc. is a Louisiana-based landowner with revenues primarily from oil and gas royalties, lease rentals, and geophysical activities, plus timber and agricultural operations. This unaudited filing covers the quarter and nine months ended September 30, 2011, with comparisons to the corresponding 2010 periods. The company is a smaller reporting company and reported 1,942,495 shares outstanding.
Financial Performance and Position
| Metric | Q3 2011 | Q3 2010 | 9M 2011 | 9M 2010 |
|---|---|---|---|---|
| Total revenue | $670,890 | $332,992 | $1,333,406 | $1,231,446 |
| Income from operations | $482,138 | $178,453 | $834,670 | $733,906 |
| Net income | $345,387 | $126,692 | $641,117 | $579,399 |
| Net income per share | $0.18 | $0.07 | $0.33 | $0.30 |
- Calculated net profit margins were approximately 51.5% for Q3 2011 and 48.1% for the first nine months of 2011. Calculated operating margins were approximately 71.9% and 62.6%, respectively.
- Oil and gas revenue was $565,573 in Q3 and $1,200,186 for the first nine months. Timber revenue was $86,632 and agriculture revenue was $46,588 for the nine-month period.
- Net cash provided by operating activities was $700,028 for the first nine months, compared with $676,406 in 2010.
- Net cash used in investing activities was $554,660, primarily reflecting certificate-of-deposit purchases and $604,483 of land, timber, equipment, and other asset purchases.
- Net cash used in financing activities was $394,549, consisting primarily of dividends paid. Cash and cash equivalents declined by $249,181 to $4,933,135.
- At September 30, 2011, current assets were $6,029,325 and total assets were $10,823,877. Cash, current certificates of deposit, and noncurrent certificates of deposit totaled approximately $6.51 million.
- Total liabilities were $336,645, consisting principally of trade payables, accrued expenses, current income taxes, and $181,818 of deferred income tax payable. The filing does not disclose interest-bearing debt.
- Stockholders’ equity was $10,487,232. The company declared and paid a $0.07-per-share quarterly dividend.
Material Changes Versus the Prior Comparable Period
- First-nine-month revenue increased $101,960, or approximately 8.3%, primarily because oil and gas revenue increased $171,557. Q3 revenue increased approximately 101.5% year over year.
- Oil revenue increased $167,664 for the nine months, driven by a 53.14% increase in the average oil price to $103.15 per barrel, despite production declining to 7,279 barrels from 8,657.
- Gas revenue declined by $30,952 as production decreased to 48,372 MCF from 49,430 MCF and the average gas price declined 9.28% to $5.05 per MCF.
- Timber revenue declined to $86,632 from $132,842, while agriculture revenue declined to $46,588 from $69,975. Management limited timber harvesting because of depressed timber prices.
- Total costs and expenses were $498,736 for the nine months, essentially unchanged from $497,540. Timber expenses increased due to a timber cruise mapping project and maintenance, and general and administrative expense included a one-time $17,500 public-company compliance expense.
- Other income included a $10,688 gain on securities available for sale for the nine months, compared with a $13,814 loss in 2010. Securities available for sale had been reduced to zero at September 30, 2011, while certificates of deposit totaled $1,215,625.
Guidance, Outlook, Risks, and Unusual Items
- Management stated that existing cash and investments, together with operating cash flow, should be sufficient for operating requirements and strategic acquisitions.
- Management anticipated that the company could continue paying a $0.07-per-share quarterly dividend, while noting that additional dividends may be considered based on liquidity, capital resources, and suitable timberland opportunities.
- On October 7, 2011, after the reporting date, the company paid approximately $1.28 million in cash for eight Beauregard Parish, Louisiana tracts totaling approximately 800 acres. Management estimated standing timber at approximately $382,000 and allocated approximately $898,000 to land.
- Oil and gas revenues represent most of the company’s income and are generated from wells operated by other companies. Results are therefore exposed to changes in oil and gas prices, production volumes, and third-party operating decisions.
- The interim financial statements are unaudited and do not include all disclosures required for complete annual financial statements. Management reported effective disclosure controls and no significant changes in internal control over financial reporting.
Important Facts for Investors to Verify
- Verify the sustainability of oil-driven revenue growth, given higher oil prices but lower oil and gas production volumes.
- Assess the impact of the October 2011 $1.28 million land and timber acquisition on cash, liquidity, and future operating results.
- Confirm the company’s ability to maintain the $0.07 quarterly dividend and evaluate the likelihood of any additional dividend.
- Review exposure to oil and gas price volatility and reliance on wells operated by third parties.
- Reconcile certificates of deposit, cash balances, and the absence of disclosed interest-bearing debt with the company’s acquisition and dividend plans.
- Consider the limited interim disclosures and the effect of unusual items, including the securities gain and one-time compliance expense, on period-over-period comparisons.