0000930661-95-000275.txt : 19950821
0000930661-95-000275.hdr.sgml : 19950821
ACCESSION NUMBER: 0000930661-95-000275
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 19950630
FILED AS OF DATE: 19950814
SROS: NYSE
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: SABINE ROYALTY TRUST
CENTRAL INDEX KEY: 0000710752
STANDARD INDUSTRIAL CLASSIFICATION: 6792
IRS NUMBER: 756297143
STATE OF INCORPORATION: TX
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-08424
FILM NUMBER: 95562562
BUSINESS ADDRESS:
STREET 1: PO BOX 830650
CITY: DALLAS
STATE: TX
ZIP: 75283-0650
BUSINESS PHONE: 2145082400
MAIL ADDRESS:
STREET 1: PO BOX 830650
CITY: DALLAS
STATE: TX
ZIP: 75283-0650
10-Q
1
FORM 10-Q (6-30-95)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
OR
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1995
-------------
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
------- --------
Commission File Number: 1-8424
SABINE ROYALTY TRUST
(Exact name of registrant as specified in its charter)
Texas 75-6297143
(State or other jurisdiction (I.R.S. Employer Identi-
of incorporation or organization) fication No.)
Trust Division
NationsBank of Texas, N.A.
NationsBank Plaza
901 Main Street
12th Floor
Dallas, Texas 75202
(Address of principal executive offices)
(Zip Code)
(214) 508-2400
(Registrant's telephone number, including area code)
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
--- ---
Number of units of beneficial interest outstanding at July 17, 1995: 14,579,345
Page 1 of 15 Pages
SABINE ROYALTY TRUST
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
The condensed financial statements included herein have been prepared by
NationsBank of Texas, N.A., as Trustee (the "Trustee") of Sabine Royalty Trust
(the "Trust"), pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in annual financial statements have been condensed or omitted pursuant
to such rules and regulations, although the Trustee believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these condensed financial statements be read in conjunction with
the financial statements and notes thereto included in the Trust's latest annual
report on Form 10-K. The December 31, 1994 balance sheet is derived from the
audited balance sheet of that date. In the opinion of the Trustee, all
adjustments necessary to present fairly the assets, liabilities and trust corpus
of the Trust as of June 30, 1995, the distributable income for the three-month
and six-month periods ended June 30, 1995 and 1994, and the changes in trust
corpus for the six-month periods ended June 30, 1995 and 1994, have been
included. The distributable income for such interim periods is not necessarily
indicative of the distributable income for the full year.
Deloitte & Touche LLP, independent public accountants, have made a review
of the condensed financial statements as of June 30, 1995 and for the three-
month and six-month periods ended June 30, 1995 and 1994 included herein.
2
NationsBank of Texas, N.A., as Trustee
of Sabine Royalty Trust:
We have made a review of the statement of assets, liabilities and trust corpus
of Sabine Royalty Trust as of June 30, 1995, and the related statements of
distributable income for the three-month and six-month periods ended June 30,
1995 and 1994, and statements of changes in trust corpus for the six-month
periods ended June 30, 1995 and 1994, in accordance with standards established
by the American Institute of Certified Public Accountants. These financial
statements are the responsibility of the Trustee.
A review of interim financial information consists principally of obtaining an
understanding of the system for the preparation of interim financial
information, applying analytical review procedures to financial data, and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
As described in Note 2 to the financial statements, these statements were
prepared on a modified cash basis of accounting, which is a comprehensive basis
of accounting other than generally accepted accounting principles.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with the basis of accounting described in Note 2.
We have previously audited, in accordance with generally accepted auditing
standards, the financial statements of Sabine Royalty Trust as of December 31,
1994, and for the year then ended (not presented herein); and in our report
dated March 17, 1995, we expressed an unqualified opinion on those financial
statements. In our opinion, the accompanying financial information as of
December 31, 1994, is fairly stated in all material respects in relation to the
financial statements from which it has been derived.
/s/ Deloitte & Touche LLP
August 9, 1995
Dallas, Texas
3
SABINE ROYALTY TRUST
--------------------
STATEMENTS OF ASSETS,
LIABILITIES AND TRUST CORPUS
--------------------------------------------------------------------------------
JUNE 30,
1995 DECEMBER 31,
ASSETS NOTES (UNAUDITED) 1994
------ ----- ----------- ------------
Cash and short-term $2,128,958 $2,546,349
investments
Royalty interests in oil
and gas properties
(less accumulated
amortization of
$18,073,613 and
$17,768,889 at
June 30, 1995 and
December 31, 1994) 1 4,321,572 4,626,296
---------- ----------
TOTAL $6,450,530 $7,172,645
========== ==========
LIABILITIES AND TRUST CORPUS
----------------------------
Trust expenses payable $ 159,563 $ 563,736
0ther payables 4 387,443 479,212
Trust corpus - 14,579,345
units of beneficial
interest authorized
and outstanding 5,903,524 6,129,697
---------- ----------
TOTAL $6,450,530 $7,172,645
========== ==========
The accompanying notes are an integral part of these financial statements.
-------------------------------------------------------------------------------
4
SABINE ROYALTY TRUST
--------------------
STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
----------------------------------------------
THREE MONTHS ENDED JUNE 30,
---------------------------
NOTES 1995 1994
----- ---------- ----------
Royalty income $4,541,456 $4,723,726
Interest income 25,980 18,064
---------- ----------
Total 4,567,436 4,741,790
General and administrative
expenses 380,722 333,491
---------- ----------
Distributable income $4,186,714 $4,408,299
========== ==========
Distributable income
per unit
(14,579,345 units) 1,3,5 $ .29 $ .30
========== ==========
The accompanying notes are an integral part of these financial statements.
-------------------------------------------------------------------------------
5
SABINE ROYALTY TRUST
--------------------
STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
-----------------------------------------------
SIX MONTHS ENDED JUNE 30,
-------------------------
NOTES 1995 1994
----- ---------- ----------
Royalty income $8,838,678 $9,355,367
Interest income 51,427 32,445
---------- ----------
Total 8,890,105 9,387,812
General and administrative
expenses 736,229 683,435
---------- ----------
Distributable income $8,153,876 $8,704,377
========== ==========
Distributable income
per unit
(14,579,345 units) 1,3,5 $ .56 $ .60
========== ===========
The accompanying notes are an integral part of these financial statements.
-------------------------------------------------------------------------------
6
SABINE ROYALTY TRUST
--------------------
STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)
--------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
-------------------------
NOTES 1995 1994
----- ----------- -----------
Trust corpus, beginning $ 6,129,697 $ 6,801,613
of period
Amortization of royalty
interests (304,724) (361,463)
Distributable income 8,153,876 8,704,377
Distributions 3 (8,075,325) (8,755,187)
----------- -----------
Trust corpus, end
of period $ 5,903,524 $ 6,389,340
=========== ===========
Distributions per unit
(14,579,345 units) $ .55 $ .60
=========== ===========
The accompanying notes are an integral part of these financial statements.
-------------------------------------------------------------------------------
7
SABINE ROYALTY TRUST
--------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------------------
1. TRUST ORGANIZATION AND PROVISIONS
Sabine Royalty Trust (the "Trust") was established by the Sabine
Corporation Royalty Trust Agreement (the "Trust Agreement"), made and entered
into effective as of December 31, 1982, to receive a distribution from Sabine
Corporation ("Sabine") of royalty and mineral interests, including landowner's
royalties, overriding royalty interests, minerals (other than executive rights,
bonuses and delay rentals), production payments and any other similar,
nonparticipatory interest, in certain producing and proved undeveloped oil and
gas properties located in Florida, Louisiana, Mississippi, New Mexico, Oklahoma
and Texas (the "Royalties").
Certificates evidencing units of beneficial interest (the "Units") in the
Trust were mailed on December 31, 1982 to Sabine's shareholders of record on
December 23, 1982, on the basis of one Unit for each share of Sabine's
outstanding common stock. In May 1988, Sabine was acquired by Pacific
Enterprises ("Pacific"), a California corporation. Through a series of mergers,
Sabine was merged into Pacific Enterprises Oil Company (USA) ("Pacific (USA)"),
a California corporation and a wholly owned subsidiary of Pacific, effective
January 1, 1990. This acquisition and the subsequent mergers had no effect on
the Units. Pacific (USA), as successor to Sabine, has assumed by operation of
law all of Sabine's rights and obligations with respect to the Trust. The Units
are listed and traded on the New York Stock Exchange.
NationsBank of Texas, N.A., as trustee (the "Trustee"), acts as trustee
of the Trust. The terms of the Trust Agreement provide, among other things,
that:
- The Trust shall not engage in any business or commercial activity of any kind
or acquire assets other than those initially transferred to the Trust.
- The Trustee may not sell all or any part of its assets unless approved by the
holders of a majority of the outstanding Units in which case the sale must be
for cash and the proceeds, after satisfying all existing liabilities,
promptly distributed to Unit holders.
- The Trustee may establish a cash reserve for the payment of any liability
that is contingent or uncertain in amount or that otherwise is not currently
due or payable.
- The Trustee will use reasonable efforts to cause the Trust and the Unit
holders to recognize income and expenses on monthly record dates.
- The Trustee is authorized to borrow funds to pay liabilities of the Trust
provided that such borrowings are repaid in full before any further
distributions are made to Unit holders.
- The Trustee will make monthly cash distributions to Unit holders of record on
the monthly record date (see Note 3).
8
Because of the passive nature of the Trust and the restrictions and
limitations on the powers and activities of the Trustee contained in the Trust
Agreement, the Trustee does not consider any of the officers and employees of
the Trustee to be "officers" or "executive officers" of the Trust as such terms
are defined under applicable rules and regulations adopted under the Securities
Exchange Act of 1934.
The proceeds of production from the Royalties are receivable from hundreds
of separate payors. In order to facilitate creation of the Trust and to avoid
the administrative expense and inconvenience of daily reporting to Unit holders,
the conveyances by Sabine of the Royalties located in five of the six states
provided for the execution of an escrow agreement by Sabine and the initial
trustee of the Trust, in its capacities as trustee of the Trust and as escrow
agent. The conveyances by Sabine of the Royalties located in Louisiana provided
for the execution of a substantially identical escrow agreement by Sabine and a
Louisiana bank in the capacities of escrow agent and of trustee under Sabine
Louisiana Royalty Trust. Sabine Louisiana Royalty Trust, the sole beneficiary of
which is the Trust, was established in order to avoid uncertainty under
Louisiana law as to the legality of the Trustee's holding record title to the
Royalties located in Louisiana.
Pursuant to the terms of the escrow agreements and the conveyances of the
properties by Sabine, the proceeds of production from the Royalties for each
calendar month, and interest thereon, are collected by the escrow agents and are
paid to and received by the Trust only on the next monthly record date. The
escrow agents have agreed to endeavor to assure that they incur and pay expenses
and fees for each calendar month only on the next monthly record date. The Trust
Agreement also provides that the Trustee is to endeavor to assure that income of
the Trust will be accrued and received and expenses of the Trust will be
incurred and paid only on each monthly record date. Assuming that the escrow
arrangement is recognized for Federal income tax purposes and that the Trustee
and escrow agents are able to control the timing of income and expenses, as
stated above, cash and accrual basis Unit holders should be treated as realizing
income only on each monthly record date. The Trustee is treating the escrow
arrangement as effective for tax purposes. However, for financial reporting
purposes, royalty and interest income are recorded in the calendar month in
which the amounts are received by either the escrow agents or the Trust.
Distributable income as determined for financial reporting purposes for a
given quarter will not usually equal the sum of distributions made during that
quarter. Distributable income for a given quarter will approximate the sum of
the distributions made during the last two months of such quarter and the first
month of the next quarter.
9
2. ACCOUNTING POLICIES
Basis of Accounting
-------------------
The financial statements of the Trust are prepared on the following basis
and are not intended to present financial position and results of operations in
conformity with generally accepted accounting principles:
- Royalty income, net of severance and ad valorem tax, and interest income are
recognized in the month in which amounts are received by the Trust (see Note
1).
- Trust expenses, consisting principally of routine general and administrative
costs, include payments made during the accounting period. Expenses are
accrued to the extent of amounts that become payable on the next monthly
record date following the end of an accounting period. Reserves for
liabilities that are contingent or uncertain in amount may also be
established if considered necessary.
- Royalties that are producing properties are amortized using the unit-of-
production method. This amortization is shown as a reduction of trust corpus.
- Distributions to Unit holders are recognized when declared by the Trustee
(see Note 3).
The financial statements of the Trust differ from financial statements
prepared in conformity with generally accepted accounting principles because of
the following:
- Royalty income is recognized in the month received rather than in the month
of production.
- Expenses other than those expected to be paid on the following monthly record
date are not accrued.
- Amortization of the Royalties is shown as a reduction to trust corpus and not
as a charge to operating results.
Federal Income Taxes
--------------------
The Internal Revenue Service has ruled that the Trust would be classified
as a grantor trust for Federal income tax purposes and therefore is not subject
to taxation at the trust level. The Unit holders are considered, for Federal
income tax purposes, to own the Trust's income and principal as though no trust
were in existence. Accordingly, no provision for Federal income tax expense has
been made in these financial statements. The income of the Trust will be deemed
to have been received or accrued by each Unit holder at the time such income is
received or accrued by the Trust.
10
3. DISTRIBUTION TO UNIT HOLDERS
The amount to be distributed to Unit holders ("Monthly Income Amount") is
determined on a monthly basis. The Monthly Income Amount is an amount equal to
the sum of cash received by the Trust during a monthly period (the period
commencing on the day after a monthly record date and continuing through and
including the next succeeding monthly record date) attributable to the
Royalties, any reduction in cash reserves and any other cash receipts of the
Trust, including interest, reduced by the sum of liabilities paid and any
increase in cash reserves. Unit holders of record on the monthly record date
(the 15th day of each calendar month except in limited circumstances) are
entitled to have distributed to them the calculated Monthly Income Amount for
such month on or before 10 business days after the monthly record date. The
Monthly Income Amount per Unit is declared by the Trust no later than 10 days
prior to the monthly record date.
The cash received by the Trust from purchasers of the Trust's oil and gas
production consists of gross sales of production less applicable severance
taxes.
4. OTHER PAYABLES
Other payables consist primarily of royalty receipts suspended pending
verification of ownership interest or title.
The Trustee believes that these other payables represent an ordinary
operating condition of the Trust and that such payables will be paid or released
in the normal course of business.
5. SUBSEQUENT EVENTS
Subsequent to June 30, 1995, the Trust declared the following
distributions:
Monthly
Record Payment Distribution
Date Date per Unit
------ --------- ------------
July 17 July 31 $.07766
August 15 August 29 $.06546
11
Item 2. Trustee's Discussion and Analysis of Financial Condition
and Results of Operations.
Sabine Royalty Trust (the "Trust") makes monthly distributions to the
holders of units of beneficial interest in the Trust ("Units") of the excess of
the preceding month's revenues received over expenses incurred. Upon receipt,
royalty income is invested in short-term investments until its subsequent
distribution. In accordance with the Trust Agreement, the Trust's only long-
term assets consist of royalty interests in producing and proved undeveloped oil
and gas properties. Although the Trust is permitted to borrow funds if
necessary to continue its operations, borrowings are not anticipated in the
foreseeable future.
Distributable income consists of royalty income plus interest income plus
any decrease in cash reserves established by the Trustee less general and
administrative expenses of the Trust less any increase in cash reserves
established by the Trustee. Distributable income for the three months ended
June 30, 1995 was $4,186,714 or $.29 per Unit. Royalty income amounted to
$4,541,456 while interest income was $25,980. General and administrative
expenses totaled $380,722.
Distributions during the period were $.10223, $.06978 and $.11068 per Unit
to Unit holders of record on April 17, May 15 and June 15, 1995, respectively.
Royalty income for the quarter ended June 30, 1995 decreased approximately
$182,000 or 4% compared with the second quarter of 1994. This was due primarily
to a decrease in the price of oil and to a decrease in the production of oil in
the second quarter of 1995 compared to the second quarter of 1994. Compared to
the preceding quarter ended March 31, 1995, royalty income increased
approximately $244,000 or 6% due primarily to a posting of previously suspended
revenues in the second quarter of 1995. Royalty income for the six-month period
ended June 30, 1995 decreased by approximately $517,000 or 6% compared to the
same period of 1994 due primarily to the fact that oil and gas prices were lower
for the first six months of 1995 as compared to those for the same period in
1994.
It continues to be difficult to estimate accurately future prices of oil
and gas, and any assumptions concerning future prices may prove to be incorrect.
Interest income for the quarter ended June 30, 1995 increased approximately
$8,000 compared with the second quarter of 1994 due primarily to an increase in
interest rates. Interest income for the six-month period ended June 30, 1995
increased by approximately $18,000 as compared to the same period in 1994 due
primarily to an increase in interest rates.
12
General and administrative expenses for the quarter ended June 30, 1995
increased approximately $47,000 compared to the same quarter of 1994 due
primarily to the timing of the payment of costs related to the preparation and
distribution of annual year-end information to Unit holders. Compared to the
preceding quarter ended March 31, 1995, general and administrative expenses
increased approximately $25,000 due primarily to the timing of payment of the
aforementioned costs. General and administrative expenses for the six-month
period ended June 30, 1995 increased by approximately $53,000 from the same
period in 1994 due primarily to increased legal expenses associated with the
negotiation of a settlement of certain litigation.
13
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27 - Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter for
which this report is filed.
14
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SABINE ROYALTY TRUST
By: NationsBank of Texas, N.A.
(as successor), Trustee
By: /s/ Ron E. Hooper
--------------------------------------
Ron E. Hooper
Vice President and
Trust Administrator
Date: August 11, 1995
(The Trust has no directors or executive officers.)
15
EX-27
2
FINANCIAL DATA SCHEDULE
5
1
3-MOS
DEC-31-1995
APR-01-1995
JUN-30-1995
2,128,958
0
0
0
0
2,128,958
22,395,185
18,073,613
6,450,530
547,006
0
0
0
0
5,903,524
6,450,530
4,567,436
4,567,436
0
380,722
0
0
0
4,186,714
0
0
0
0
0
4,186,714
.29
0