-----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, TIRowtQz6Y+fQl/n7WGBSMDIh6Bm7l2vdfDMAm2IL+rdRhwFlQcFVw6jXEoi+UVp GrjFSORu50UJpJkYHwQvNQ== 0000950134-99-009890.txt : 19991115 0000950134-99-009890.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950134-99-009890 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: SEC FILE NUMBER: 001-08424 FILM NUMBER: 99748851 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 FOR THE PERIOD ENDED SEPTEMBER 30, 1999 1 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, 1999 ------------------ 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 Bank of America, N.A. Bank of America Plaza 901 Main Street 17th Floor Dallas, Texas 75202 (Address of principal executive offices) (Zip Code) (214) 209-2400 (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 1, 1999: 14,579,345 Page 1 of 14 Pages 2 SABINE ROYALTY TRUST PART I - FINANCIAL INFORMATION Item 1. Financial Statements. The condensed financial statements included herein have been prepared by Bank of America, N.A. (as successor to 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, 1998 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 September 30, 1999, the distributable income for the three-month and nine-month periods ended September 30, 1999 and 1998 and the changes in trust corpus for the nine-month periods ended September 30, 1999 and 1998, 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, 1999 and for the three-month and nine-month periods ended September 30, 1999 and 1998, included herein, have been reviewed by Deloitte & Touche LLP, independent public accountants, as stated in their report appearing herein. 2 3 INDEPENDENT ACCOUNTANTS' REPORT Bank of America, 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, 1999, and the related condensed statements of distributable income for the three-month and nine-month periods ended September 30, 1999 and 1998 and changes in trust corpus for the nine-month periods ended September 30, 1999 and 1998. These 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, 1998, 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 29, 1999, 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, 1998, 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, 1999 3 4 SABINE ROYALTY TRUST CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
September 30, DECEMBER 31, 1999 1998 ASSETS NOTES (UNAUDITED) - ------ ----- ------------- ------------- Cash and short-term investments $2,296,511 $ 2,132,011 Royalty interests in oil and gas properties (less accumulated amortization of $20,086,341 and $19,761,080 at September 30, 1999 and December 31, 1998) 1 2,308,844 2,634,105 ---------- ----------- TOTAL $4,605,355 $ 4,766,116 ========== =========== LIABILITIES AND TRUST CORPUS - ---------------------------- Trust expenses payable $ 122,140 $ 140,756 Other payables 4 101,974 299,215 Trust corpus - 14,579,345 units of beneficial interest authorized, issued and outstanding 4,381,241 4,326,145 ---------- ----------- TOTAL $4,605,355 $ 4,766,116 ========== ===========
The accompanying notes are an integral part of these condensed financial statements. 4 5 SABINE ROYALTY TRUST CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
THREE MONTHS ENDED September 30, -------------------------------- NOTES 1999 1998 ----- ---------- ---------- Royalty income $6,252,819 $5,919,091 Interest income 34,339 36,929 ---------- ---------- Total 6,287,158 5,956,020 General and administrative expenses (304,926) (276,627) ---------- ---------- Distributable income $5,982,232 $5,679,393 ========== ========== Distributable income per unit (basic and assuming dilution) (14,579,345 units) 1,3,5 $ .41 $ .39 ========== ==========
The accompanying notes are an integral part of these condensed financial statements. 5 6 SABINE ROYALTY TRUST CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- NOTES 1999 1998 ----- ------------ ------------ Royalty income $ 16,494,057 $ 19,372,591 Interest income 88,071 128,060 ------------ ------------ Total 16,582,128 19,500,651 General and administrative expenses (1,023,671) (990,778) ------------ ------------ Distributable income $ 15,558,457 $ 18,509,873 ============ ============ Distributable income per unit (basic and assuming dilution) (14,579,345 units) 1,3,5 $ 1.07 $ 1.27 ============ ============
The accompanying notes are an integral part of these condensed financial statements. 6 7 SABINE ROYALTY TRUST CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- NOTE 1999 1998 ---- ----------- ------------ Trust corpus, beginning of period $ 4,326,145 $ 5,940,107 Amortization of royalty interests (325,261) (398,305) Distributable income 15,558,457 18,509,873 Distributions 3 (15,178,100) (19,502,757) ------------ ------------ Trust corpus, end of period $ 4,381,241 $ 4,548,918 ============ ============ Distributions per unit (14,579,345 units) 3 $ 1.04 $ 1.34 ============ ============
The accompanying notes are an integral part of these condensed financial statements. 7 8 SABINE ROYALTY TRUST NOTES TO CONDENSED 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. Bank of America, N.A. (as successor to 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 9 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 10 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. Use of Estimates The preparation of financial statements in conformity with the basis of accounting described above requires management to make estimates and assumptions that affect reported amounts of certain assets, liabilities, revenues and expenses as of and for the reporting periods. Actual results may differ from such estimates. Impairment Trust management routinely reviews its royalty interests in oil and gas properties for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If an impairment event occurs and it is determined that the carrying value of the Trust's royalty interests may not be recoverable, an impairment will be recognized as measured by the amount by which the carrying amount of the royalty interests exceeds the fair value of these assets, which would likely be measured by discounting projected cash flows. 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 11 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, 1999, the Trust declared the following distributions:
Monthly Record Payment Distribution Date Date per Unit ---------- ------- ------------ October 15 October 29 $.14200 November 15 November 29 $.12950
11 12 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, 1999 was $5,982,232, or $.41 per Unit. Royalty income amounted to $6,252,819 while interest income was $34,339. General and administrative expenses totaled $304,926. Distributions during the period were $.14887, $.12545 and $.14249 per Unit to Unit holders of record on July 15, August 16 and September 15, 1999, respectively. Royalty income for the quarter ended September 30, 1999 increased approximately $334,000, or 6%, compared with the third quarter of 1998 due to an increase in gas production, slightly offset by a decrease in gas prices. An increase in oil prices was somewhat offset by a decrease in oil production. Compared to the preceding quarter ended June 30, 1999, royalty income increased approximately $1,174,000, or 23%, due to an increase in gas production and increases in oil and gas prices. These increases were tempered by a decrease in oil production. Royalty income for the nine-month period ended September 30, 1999 decreased approximately $2,900,000, or 15%, compared to the nine-month period ended September 30, 1998 due to decreases in gas prices and decreases in production for both gas and oil. An increase in the average price for oil slightly offset the effect of the lower gas prices and lower production. The following table illustrates average prices received for the periods discussed above and the related oil and gas production volumes:
Three-Months Ended ------------------------------------------------------------- September 30, 1999 September 30, 1998 June 30, 1999 Production Oil (Bbls) 141,668 151,209 151,196 Gas (Mcfs) 2,123,317 2,093,695 1,864,173 Average Price Oil (per Bbl) $ 17.86 $ 11.87 $ 13.75 Gas (per Mcf) $ 1.99 $ 2.14 $ 1.73
Nine-Months Ended ----------------------------------------- September 30, 1999 September 30, 1998 Production Oil (Bbls) 434,533 457,645 Gas (Mcfs) 6,126,126 6,465,936 Average Price Oil (per Bbl) $ 13.93 $ 13.37 Gas (per Mcf) $ 1.88 $ 2.13
It is difficult to accurately estimate 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, 1999 decreased approximately $2,590 compared with the third quarter of 1998. Compared to the quarter ended June 30, 1999, interest income increased approximately $4,500 due to an increase in funds available for investment. Interest income for the nine-month period ended September 30, 1999 decreased by approximately $40,000 as compared to the same period in 1998 due to a decrease in funds available for investment and a decrease in interest rates. General and administrative expenses for the quarter ended September 30, 1999 increased by $28,300 compared to the same quarter of 1998 due to timing of expenses related to printing. Compared to the preceding quarter ended June 30, 1999, general and administrative expenses decreased approximately $38,900. The decreases were due primarily to the payment of certain costs related to the preparation and distribution of annual year-end information to Unitholders and an increased floor space allocation charge by the Trustee during the second quarter that were not incurred in the third quarter. General and administrative expenses increased approximately $32,900 for the nine months ended September 30, 1999 compared to the same period in 1998 due to the net effect of normal fluctuations in trust expenses. YEAR 2000 Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the Year 2000. The Year 2000 issue affects virtually all companies and organizations. If a company or organization does not successfully address its Year 2000 issues, it may face material adverse consequences. The Trustee has identified the General Ledger/Accounts Payable System as the primary system that is vulnerable to the Year 2000 issue. The current system is Year 2000 compliant. The Trust selected a system that has been warranted to be Year 2000 compliant and completed the installation of the new system at the beginning of 1998. The cost of the system was approximately $6,000. To date the Trustee has incurred very little other costs in connection with its efforts to identify, assess, remediate and test the Trust's systems for Year 2000 compliance. The Trustee has identified and assessed other information technology ("IT") systems used in connection with the Trust as well as other systems, including Trust Mineral Management Systems (TMMS), for Year 2000 compliance. Non-IT systems are generally more difficult to assess because they often contain embedded technology that may be subject to Year 2000 problems. The total cost of the Trustee's Year 2000 efforts is expected to be approximately $10,000 (including the $6,000 referred to above), all of which was incurred and paid by the third quarter of 1999. Of this amount, the Trustee paid $2,000 for assessment of affected systems. The Trustee has additionally identified those vendors it believes could have an impact on its day-to-day operations if their operations were interrupted as a result of Year 2000 problems. The Trustee has developed a questionnaire regarding the vendor's Year 2000 status. These vendors, consisting primarily of energy companies, were contacted to determine their Year 2000 status and substantially all have responded to have addressed and resolved the issue within their companies. The Trustee has no reason to believe that its vendors will not be Year 2000 compliant. In the event the Trustee learns that a vendor's systems will not be Year 2000 compliant, the Trustee will assess the potential risk and develop contingency plans at that time. The Trust is a passive entity with no business operations, and the IT systems employed by the Trustee in connection with its duties on behalf of the Trust are less extensive than the systems employed by many business entities. The Trust has no formal IT budget, and the Trustee does not anticipate making any other significant expenditures relating to the Trustee's IT systems used in connection with the Trust during 1999. Thus, the expenditures made in connection with the Year 2000 efforts described above represent substantially all of the Trustee's IT-related expenditures on behalf of the Trust during 1999. These expenditures have been treated as Trust expenses on the financial statements of the Trust. Because the royalty interests held by the Trust are fixed, the Trustee is dependent upon the third parties (primarily energy companies) that hold operating and/or working interests with respect thereto for the receipt of royalty income. Thus, if any such third party failed to deliver royalty income, the Trustee would have available no alternative source for such income. The Trustee believes that the worst case scenario would be the failure by the Trustee and one or more third parties who pay royalties to the Trust to identify or remediate Year 2000 problems on a timely basis, which could cause the Trustee to be unable to make any distributions to Unit holders. Such inability could result in the incurrence by the Trust of interest charges or other liabilities to Unit holders. The Trustee believes that in the event of a failure of any of its internal systems it would be able to replace such systems in a relatively short period of time, relying on internal resources of Bank of America, N.A. which serves as the Trustee, although there can be no assurance that such replacement would not be costly or that it would be completed without resulting in a significant delay in the distributions to Unit holders. With respect to a failure by a third party to deliver royalty income on a timely basis, the Trustee believes that it would have no control over the efforts of such third party to correct the problems, and significant delays in the receipt of royalty income could result. The Trust will utilize both internal and external resources to achieve Year 2000 compliance. The Trustee estimates that its identification, assessment and remediation activities are substantially complete. All of its Year 2000 efforts related to the Trust's internal systems have been completed by the end of the third quarter of 1999. However, there can be no guarantee that the Trustee will be able to identify all potential Year 2000 problems or to fully remediate all Year 2000 problems identified on a timely basis. There also can be no assurance that the systems of third party vendors on which the Trust relies will be timely remediated. The failure by the Trustee or any such third party to fully remediate its Year 2000 problems on a timely basis could have a material adverse effect on the Trustee's ability to account for and make timely distribution of the Trust's distributable income. Certain of the statements made above regarding the Trustee's Year 2000 program are forward-looking statements, and there can be no assurance that the Trustee will be able to achieve Year 2000 compliance in the manner and by the dates indicated. Forward Looking Statements This Report includes "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbor created thereby. All statements other than statements of historical fact included in this Report are forward-looking statements. Although the Trustee believes that the expectations reflected in such forward- looking statements are reasonable, such expectations are subject to numerous risks and uncertainties and the Trustee can give no assurance that they will prove correct. There are many factors, none of which is within the Trustee's control, that may cause such expectations not to be realized, including, among other things, factors identified in the Trust's most recent Annual Report on Form 10-K affecting oil and gas prices and the recoverability of reserves, general economic conditions, actions and policies of petroleum-producing nations and other changes in the domestic and international energy markets. 12 13 PART II - OTHER INFORMATION Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Trust invests in no derivative financial instruments, and has no foreign operations or long-term debt instruments. The Trust is a passive entity and other than the Trust's ability to periodically borrow money as necessary to pay expenses, liabilities and obligations of the Trust that cannot be paid out of cash held by the Trust, the Trust is prohibited from engaging in borrowing transactions. The amount of any such borrowings is unlikely to be material to the Trust. The Trust periodically holds short term investments acquired with funds held by the Trust pending distribution to Unitholders and funds held in reserve for the payment of Trust expenses and liabilities. Because of the short-term nature of these borrowings and investments and certain limitations upon the types of such investments which may be held by the Trust, the Trustee believes that the Trust is not subject to any material interest rate risk. The Trust does not engage in transactions in foreign currencies which could expose the Trust or Unitholders to any foreign currency related market risk 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. 13 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: Bank of America, N.A. Trustee By: /s/ Ron E. Hooper -------------------------------------- Ron E. Hooper Vice President and Trust Administrator Date: November 12, 1999 (The Trust has no directors or executive officers.) 14 15 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT - ------- ------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 2,296,511 0 0 0 0 2,296,511 22,395,185 20,086,341 4,605,355 224,114 0 0 0 0 4,381,241 4,605,355 16,494,057 16,582,128 0 1,023,671 0 0 0 15,558,457 0 0 0 0 0 15,558,457 1.07 1.07
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