-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JX3deNxmHiH9qB3JUbKE3t/SUt3cy58g6KQSPaldUhTEb9f21EgbZCuBpZpIbiKc YGHEMaeVUyskfY6h642TSw== 0000930661-96-001567.txt : 19961115 0000930661-96-001567.hdr.sgml : 19961115 ACCESSION NUMBER: 0000930661-96-001567 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SABINE ROYALTY TRUST CENTRAL INDEX KEY: 0000710752 STANDARD INDUSTRIAL CLASSIFICATION: OIL ROYALTY TRADERS [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: 96660967 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1996 ------------------ OR [ ] 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 fication No.) organization) 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 November 12, 1996: 14,579,345 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. The condensed financial statements of the Trust presented herein are unaudited except for the balances as of December 31, 1995 and, therefore, are subject to year-end adjustments. 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, 1995 balance sheet is derived from the audited balance sheet of that date. In the opinion of the Trustee, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the assets, liabilities and trust corpus of the Trust as of September 30, 1996, the distributable income for the three-month and nine-month periods ended September 30, 1996 and 1995, and the changes in trust corpus for the nine-month period ended September 30, 1996 and 1995, have been included. The distributable income for such interim periods is not necessarily indicative of the distributable income for the full year. The condensed financial statements as of September 30, 1996 and for the three-month and nine-month periods ended September 30, 1996 and 1995, included herein, have been reviewed by Deloitte & Touche LLP, independent certified public accountants, as stated in their report appearing herein. 2 INDEPENDENT ACCOUNTANTS' REVIEW REPORT NationsBank of Texas, N.A., as Trustee of Sabine Royalty Trust: We have reviewed the accompanying condensed statement of assets, liabilities and trust corpus of Sabine Royalty Trust as of September 30, 1996, and the related condensed statements of distributable income for the three-month and nine-month periods ended September 30, 1996 and 1995 and changes in trust corpus for the nine-month periods ended September 30, 1996 and 1995. These condensed financial statements are the responsibility of the Trustee. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted 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 condensed financial statements, these condensed financial statements have been 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 such condensed financial statements 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 statement of assets, liabilities and trust corpus of Sabine Royalty Trust as of December 31, 1995, and the related statements of distributable income and changes in trust corpus for the year then ended (not presented herein); and in our report dated March 19, 1996, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed statement of assets, liabilities and trust corpus as of December 31, 1995, is fairly stated in all material respects in relation to the statement of assets, liabilities and trust corpus from which it has been derived. /s/ Deloitte & Touche LLP Dallas, Texas November 8, 1996 3 SABINE ROYALTY TRUST - -------------------- CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS - --------------------------------------------------------------------------------
SEPTEMBER 30, 1996 DECEMBER 31, ASSETS NOTES (UNAUDITED) 1995 - ------ ----- ------------- ------------ Cash and short-term investments $2,786,576 $2,508,295 Royalty interests in oil and gas properties (less accumulated amortization of $18,794,256 and $18,305,053 at September 30, 1996 and December 31, 1995) 1 3,600,929 4,090,132 ---------- ------------ TOTAL $6,387,505 $6,598,427 ========== ============ LIABILITIES AND TRUST CORPUS - ---------------------------- Trust expenses payable $ 90,412 $ 499,110 0ther payables 4 591,997 652,175 Trust corpus - 14,579,345 units of beneficial interest authorized, issued and outstanding 5,705,096 5,447,142 ---------- ------------ TOTAL $6,387,505 $6,598,427 ========== ============
The accompanying notes are an integral part of these condensed financial statements. - -------------------------------------------------------------------------------- 4 SABINE ROYALTY TRUST - -------------------- CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED) - --------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- ------------------------------- NOTES 1996 1995 1996 1995 ----- ---------- ---------- ---------- ---------- Royalty income $5,921,727 $4,253,119 $17,062,348 $13,091,798 Interest income 36,856 27,909 106,002 79,336 ---------- ---------- ----------- ----------- Total 5,958,583 4,281,028 17,168,350 13,171,134 General and administrative expenses (285,721) (290,953) (1,078,856) (1,027,182) ---------- ---------- ----------- ----------- Distributable income $5,672,862 $3,990,075 $16,089,494 $12,143,952 ========== ========== =========== =========== Distributable income per unit (14,579,345 units) 1,3,5 $ .39 $ .27 $ 1.10 $ .83 ========== ========== =========== ===========
The accompanying notes are an integral part of these condensed financial statements. - -------------------------------------------------------------------------------- 5 SABINE ROYALTY TRUST - -------------------- CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED) - --------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, --------------------------------- NOTE 1996 1995 ---- ------------ ----------- Trust corpus, beginning of period $ 5,447,142 $ 6,129,697 Amortization of royalty interests (489,203) (462,788) Distributable income 16,089,494 12,143,952 Distributions (15,342,337) (11,989,714) ------------ ----------- Trust corpus, end of period $ 5,705,096 $ 5,821,147 ============ =========== Distributions per unit (14,579,345 units) $ 1.05 $ .82 ============ ===========
The accompanying notes are an integral part of these condensed financial statements. 6 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). 7 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. Royalty income to the Trust is attributable to the sale of depleting assets. Accordingly, the proved reserves attributable to the Properties are expected to decline substantially during the term of the Trust and a portion of each cash distribution made by the Trust will, therefore, be analogous to a return of capital. Accordingly, cash yields attributable to the Units are expected to decline over the term of the Trust. 8 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. - - Reserves may be established for contingencies that would not be recorded under generally accepted accounting principles. 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. 9 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 September 30, 1996, the Trust declared the following distributions:
Monthly Record Payment Distribution Date Date per Unit --------------- ------- ------------ October 15 October 29 $.13109 November 15 November 29 $.10630
10 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 September 30, 1996 was $5,672,862 or $.39 per Unit. Royalty income amounted to $5,921,727 while interest income was $36,856. General and administrative expenses totaled $285,721. Distributions during the period were $.16629, $.14052 and $.11492 per Unit to Unit holders of record on July 15, August 15 and September 16, 1996, respectively. Royalty income for the quarter ended September 30, 1996 increased approximately $1,669,000 or 39% compared with the third quarter of 1995, due primarily to an increase in the price of oil and gas and to an increase in the production of oil and gas in the third quarter of 1996 compared to the same quarter a year ago. Compared to the preceding quarter ended June 30, 1996, royalty income decreased approximately $48,000. The decrease was due to a reduction in both oil and gas production partially offset by an increase in oil and gas prices in the third quarter of 1996. Royalty income for the nine-month period ended September 30, 1996 increased approximately $3,970,000 or 30% compared to the same period of 1995 due primarily to a substantial increase in oil and gas production and prices during the first three quarters of 1996 as compared to the same period in 1995. The following table illustrates average prices received for the periods discussed above and the related oil and gas production volumes: Quarter Ended -------------------------------------------------------- September 30, 1996 September 30, 1995 June 30, 1996 ------------------ ------------------ --------------- Production Oil (Bbls) 145,258 133,203 183,184 Gas (Mcfs) 1,681,993 1,572,464 1,831,117 Average Price Oil (per bbl) $18.03 $15.60 $17.08 Gas (per Mcf) $2.15 $1.48 $2.05 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 September 30, 1996 increased approximately $8,900 compared with the third quarter of 1995 due primarily to an increase in funds available for investment. Interest income for the nine-month period ended September 30, 1996 increased approximately $27,000 compared to the same period in 1995 due to an increase in funds available for investment. General and administrative expenses for the quarter ended September 30, 1996 decreased approximately $5,000 compared to the same quarter of 1995 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 June 30, 1996, general and administrative expenses decreased approximately $166,000, due to the timing of the payment of the aforementioned costs and the payment of funds as a result of a resolution of questions regarding ownership of certain properties. General and administrative expenses for the nine-month period ended September 30, 1996 increased approximately $52,000 for the same period in 1995 due to the above noted annual costs. 11 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. 12 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: NOVEMBER 12, 1996 (The Trust has no directors or executive officers.) 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 1 3-MOS DEC-31-1996 JUL-01-1996 SEP-30-1996 2,786,576 0 0 0 0 2,786,576 22,395,185 18,794,256 6,387,505 682,409 0 0 0 0 5,705,096 6,387,505 5,921,727 5,958,583 0 285,721 0 0 0 5,672,862 0 0 0 0 0 5,672,862 .39 0
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