<PAGE>
================================================================================
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 June 30, 2000
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-10476
-------
Hugoton Royalty Trust
(Exact name of registrant as specified in its charter)
Texas 58-6379215
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Bank of America, N.A., P.O. Box 830650, Dallas, Texas 75283-0650
----------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(877) 228-5083
----------------------------------------------------
(Registrant's telephone number, including area code)
NONE
----------------------------------------------
(Former name, former address and former fiscal
year, if change since last report)
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 the number of units of beneficial interest outstanding, as of the
latest practicable date:
Outstanding as of July 3, 2000
--------------------------------
40,000,000
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<PAGE>
HUGOTON ROYALTY TRUST
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
------------------------------------------------------
INDEX
Page
----
GLOSSARY OF TERMS................................................. 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.............................................. 4
Report of Independent Public Accountants.......................... 5
Condensed Statements of Assets, Liabilities and Trust Corpus
at June 30, 2000 and December 31, 1999........................... 6
Condensed Statements of Distributable Income
for the Three and Six Months Ended June 30, 2000 and 1999........ 7
Condensed Statements of Changes in Trust Corpus
for the Three and Six Months Ended June 30, 2000 and 1999........ 8
Notes to Condensed Financial Statements........................... 9
Item 2. Trustee's Discussion and Analysis................................. 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk........ 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 16
Item 6. Exhibits and Reports on Form 8-K.................................. 16
Signatures........................................................ 18
2
<PAGE>
HUGOTON ROYALTY TRUST
GLOSSARY OF TERMS
-----------------
The following are definitions of significant terms used in this Form 10-Q:
Bbl Barrel (of oil)
Mcf Thousand cubic feet (of natural gas)
MMBtu One million British Thermal Units, a common energy
measurement
net profits interest An interest in an oil and gas property measured by net
profits from the sale of production, rather than a
specific portion of production
net proceeds Gross proceeds received by Cross Timbers Oil Company
from sale of production from the underlying properties,
less applicable costs
royalty income Net proceeds, multiplied by the net profits percentage
of 80%, that is paid to the trust
underlying properties Cross Timbers' interest in certain oil and gas
properties from which the net profits interests were
conveyed. The underlying properties include working
interests in predominantly gas-producing properties
located in Kansas, Oklahoma and Wyoming .
working interest An operating interest in an oil and gas property that
provides the owner a specified share of production that
is subject to all production and development costs
3
<PAGE>
HUGOTON ROYALTY TRUST
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
The condensed financial statements included herein are presented, without audit,
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. These condensed financial
statements should be read in conjunction with the trust's financial statements
and the notes thereto included in the trust's annual report on Form 10-K. 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 Hugoton Royalty Trust at June 30, 2000, and the distributable
income and changes in trust corpus for the three- and six-month periods ended
June 30, 2000 and 1999, have been included. Distributable income for such
interim periods is not necessarily indicative of the distributable income for
the full year.
4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Bank of America, N.A., as Trustee
for the Hugoton Royalty Trust:
We have reviewed the accompanying condensed statement of assets, liabilities
and trust corpus of the Hugoton Royalty Trust as of June 30, 2000 and the
related condensed statements of distributable income and changes in trust corpus
for the three- and six-month periods ended June 30, 2000 and 1999. 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 making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States, 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.
The accompanying condensed financial statements are prepared on a modified cash
basis as described in Note 1 which is a comprehensive basis of accounting other
than accounting principles generally accepted in the United States.
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 1.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the statement of assets, liabilities and trust
corpus of the Hugoton Royalty Trust as of December 31, 1999 included in the
trust's annual report on Form 10-K, and in our report dated March 1, 2000, we
expressed an unqualified opinion on that statement. In our opinion, the
information set forth in the accompanying condensed statement of assets,
liabilities and trust corpus as of December 31, 1999 is fairly stated in all
material respects in relation to the statement of assets, liabilities and trust
corpus included in the trust's financial statements from which they have been
derived.
ARTHUR ANDERSEN LLP
Fort Worth, Texas
July 5, 2000
5
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HUGOTON ROYALTY TRUST
-------------------------------------------------------------------------------
Condensed Statements of Assets, Liabilities and Trust Corpus
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
ASSETS
Cash and short-term investments............... $ 3,940,840 $ 4,551,840
Net profits interests in oil and gas
properties - net........................... 226,089,846 233,428,609
------------ ------------
$230,030,686 $237,980,449
============ ============
LIABILITIES AND TRUST CORPUS
Distribution payable to unitholders........... $ 3,940,840 $ 4,551,840
Trust corpus (40,000,000 units of beneficial
interest authorized and outstanding)........ 226,089,846 233,428,609
------------ ------------
$230,030,686 $237,980,449
============ ============
The accompanying notes to condensed financial statements are an integral part of
these statements.
6
<PAGE>
HUGOTON ROYALTY TRUST
--------------------------------------------------------------------------------
Condensed Statements of Distributable Income (Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
----------------------- ------------------------
2000 1999 2000 1999
----------- ---------- ----------- -----------
Royalty income............... $11,288,646 $8,854,991 $22,270,326 $12,420,066
Interest income.............. 23,521 8,536 45,427 8,536
----------- ---------- ----------- -----------
Total income................. 11,312,167 8,863,527 22,315,753 12,428,602
Administration expense....... 47,687 30,073 111,993 33,073
----------- ---------- ----------- -----------
Distributable income......... $11,264,480 $8,833,454 $22,203,760 $12,395,529
=========== ========== =========== ===========
Distributable income per unit
(40,000,000 units)......... $ 0.281612 $ 0.220838 $ 0.555094 $ 0.309890
=========== ========== =========== ===========
The accompanying notes to condensed financial statements are an integral part of
these statements.
7
<PAGE>
HUGOTON ROYALTY TRUST
--------------------------------------------------------------------------------
Condensed Statements of Changes in Trust Corpus (Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Trust corpus,
beginning of period.... $229,616,953 $245,471,651 $233,428,609 $247,067,951
Amortization of net
profits interests...... (3,527,107) (3,930,587) (7,338,763) (5,526,887)
Return of initial
contribution to
grantor................ - (1,000) - (1,000)
Distributable income.... 11,264,480 8,833,454 22,203,760 12,395,529
Distributions declared.. (11,264,480) (8,833,454) (22,203,760) (12,395,529)
------------ ------------ ------------ ------------
Trust corpus, end of
period................. $226,089,846 $241,540,064 $226,089,846 $241,540,064
============ ============ ============ ============
The accompanying notes to condensed financial statements are an integral part of
these statements.
8
<PAGE>
HUGOTON ROYALTY TRUST
--------------------------------------------------------------------------------
Notes to Condensed Financial Statements (Unaudited)
1. 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 ("GAAP"):
- Royalty income recorded for a month is the amount computed and paid by
the interest owner, Cross Timbers Oil Company, to Bank of America,
N.A., as trustee for the trust. Royalty income consists of net proceeds
received by Cross Timbers from the underlying properties in the prior
month, multiplied by a net profits percentage of 80%.
Costs deducted in the calculation of net proceeds for the 80% net
profits interests generally include applicable taxes, transportation,
marketing and legal costs, production expenses, development costs,
operating charges and other costs. Development costs may include
amounts budgeted under operating agreements or authorizations for
expenditure.
- Royalty income is computed separately for each of three conveyances
under which the net profits interests were conveyed to the trust. If
monthly costs exceed revenues for any conveyance, such excess costs
cannot reduce royalty income from other conveyances, but are carried
forward with accrued interest to be recovered from future net proceeds
of that conveyance.
- Trust expenses are recorded based on liabilities paid and cash reserves
established by the trustee for liabilities and contingencies.
- Distributions to unitholders are recorded when declared by the trustee.
The trust's financial statements differ from those prepared in conformity with
GAAP because revenues are recognized when received rather than accrued in the
month of production, expenses are recognized when paid rather than when
incurred and certain cash reserves may be established by the trustee for
certain contingencies which would not be recorded under GAAP.
The initial carrying value of the net profits interests of $247,066,951
represents Cross Timbers' net book value for the interests on December 1,
1998, the date of the transfer to the trust. Amortization of the net profits
interests is calculated on a unit-of-production basis and charged directly to
trust corpus. Accumulated amortization was $20,977,105 as of June 30, 2000 and
$13,638,342 as of December 31, 1999.
9
<PAGE>
2. Distributions to Unitholders
The trustee determines the amount to be distributed to unitholders each
month by totaling royalty income, interest income and other cash receipts,
and subtracting liabilities paid and adjustments in cash reserves
established by the trustee. The resulting amount is distributed to
unitholders of record generally within ten business days after the monthly
record date, the last business day of the month.
Royalty income received by the trustee is equal to the net proceeds received
in the prior month by Cross Timbers from the underlying properties,
multiplied by 80%. Net proceeds are the gross proceeds received from the
sale of production from the underlying properties, less applicable costs.
Such costs generally include applicable taxes, transportation, legal and
marketing charges, production expenses, development and drilling costs, and
overhead.
For monthly trust distributions declared through March 2000, the related
royalty income was based on gross proceeds equal to the greater of:
- the actual amount received from sales of production, or
- the imputed amount that would be received from sales of production at
a gas price of $2.00 per Mcf.
Subsequent to March 2000, trust royalty income is based on the actual gross
proceeds received from sale of production.
3. Federal Income Taxes
Tax counsel has advised the trust that, under current tax laws, the trust
will be classified as a grantor trust for federal income tax purposes and
therefore is not subject to taxation at the trust level. However, the
opinion of tax counsel is not binding on the Internal Revenue Service.
For federal income tax purposes, unitholders are considered to own the
trust's income and principal as though no trust were in existence. The
income of the trust is deemed to be received or accrued by the unitholders
at the time such income is received or accrued by the trust, rather than
when distributed by the trust.
Cross Timbers has advised the trustee that the trust receives royalty income
from tight sands gas wells. Certain tight sands gas produced and sold
through 2002 qualifies for the federal income tax credit for producing
nonconventional fuels under Section 29 of the Internal Revenue Code. This
tax credit is recalculated annually based on each year's qualifying
production. The 1999 tight sands tax credit was $0.016 per unit. Tight sands
tax credit data for 2000 will be provided to unitholders with year-end tax
information. Unitholders should consult their tax advisors regarding use of
this credit and other trust tax compliance matters.
4. Litigation
Cross Timbers is a defendant in three separate lawsuits that could, if
adversely determined, decrease future trust distributable income. Damages
relating to production prior to the formation of the trust will be borne by
Cross Timbers.
10
<PAGE>
On April 3, 1998, a class action lawsuit, Booth, et al. v. Cross Timbers Oil
Company, was filed in the District Court of Dewey County, Oklahoma by
royalty owners of natural gas wells in Oklahoma. The plaintiffs allege that
since 1991 Cross Timbers has underpaid royalty owners as a result of
reducing royalties for improper charges for production, marketing,
gathering, processing and transportation costs and selling natural gas
through affiliated companies at prices less favorable than those paid by
third parties. Cross Timbers believes that it has strong defenses to this
lawsuit and intends to vigorously defend its position. However, if Cross
Timbers ultimately makes any settlement payments, the trust will bear its
80% share of such settlement related to production from the underlying
properties for periods since December 1, 1998. Additionally, if a judgment
or settlement increases the amount of future payments to royalty owners, the
trust would bear its proportionate share of the increased payments through
reduced net proceeds. The amount of any reduction in net proceeds is not
presently determinable, but, in Cross Timbers management's opinion, is not
currently expected to be material to the trust's annual distributable
income, financial position or liquidity.
A second lawsuit, United States of America ex rel. Grynberg v. Cross Timbers
Oil Company, et al., was filed in the United States District Court for the
Western District of Oklahoma. This action alleges that Cross Timbers
underpaid royalties on natural gas produced from federal leases and lands
owned by Native Americans by at least 20% during the past 10 years as a
result of mismeasuring the volume of natural gas and wrongfully analyzing
its heating content. The suit, which was brought under the qui tam
provisions of the U.S. False Claims Act, seeks treble damages for the unpaid
royalties (with interest), civil penalties between $5,000 and $10,000 for
each violation of the U.S. False Claims Act, and an order for Cross Timbers
to cease the allegedly improper measuring practices. Cross Timbers and other
defendants have filed a motion to dismiss the lawsuit. Cross Timbers
believes that the allegations of this lawsuit are without merit and intends
to vigorously defend the action. However, an order to change measuring
practices or a related settlement could adversely affect the trust by
reducing net proceeds in the future by an amount that is presently not
determinable, but, in Cross Timbers management's opinion, is not expected to
be material to the trust's annual distributable income, financial position
or liquidity.
A third lawsuit, Bishop, et al. v. Amoco Production Co., et al., was filed
in May 2000 in the Third Judicial District Court in Lincoln County, Wyoming
by owners of royalty and overriding royalty interests in wells located in
Wyoming. The plaintiffs allege that Cross Timbers and the other producer
defendants have deducted impermissible costs of production from royalty
payments that have been made to the plaintiffs and other similarly situated
persons and have failed to properly inform the plaintiffs and others of the
deductions taken. The action is being brought as a class action on behalf of
all persons who own an interest in wells located in Wyoming as to which the
defendants pay royalties and overriding royalties. The plaintiffs seek a
declaratory judgment that the deductions made are impermissible and seek
damages in the amount of the deductions made together with interest and
attorneys' fees. Cross Timbers believes that the plaintiffs' interpretation
of the Wyoming statute that governs this issue, based upon a 1999 court
decision, is erroneous, and that any deductions made from royalties by Cross
Timbers are permitted by the statute. Cross Timbers intends to vigorously
defend this action. If Cross Timbers does not prevail, however, the trust
will bear its 80% share of any judgment related to production from the
underlying properties for periods since December 1, 1998. Additionally, if
an adverse judgment increases the amount of future payments to royalty
owners, the trust would bear its proportionate share of the increased
payments through reduced net proceeds. Cross Timbers' management believes
that any reduction in future distributions will not be material to the
trust's annual distributable income, financial position, or liquidity.
11
<PAGE>
Item 2. Trustee's Discussion and Analysis.
The following discussion should be read in conjunction with the trustee's
discussion and analysis contained in the trust's 1999 annual report, as well as
the condensed financial statements and notes thereto included in this quarterly
report on Form 10-Q.
Distributable Income
Quarter
For the quarter ended June 30, 2000 royalty income was $11,288,646, as compared
to $8,854,991 for second quarter 1999. This 27% increase in royalty income is
primarily the result of higher oil and gas prices. See "Royalty Income" below.
After adding interest income of $23,521 and deducting administration expense of
$47,687, distributable income for the quarter ended June 30, 2000 was
$11,264,480, or $0.281612 per unit of beneficial interest. For the quarter ended
June 30, 1999, distributable income was $8,833,454, or $0.220838 per unit.
Distributions to unitholders for the quarter ended June 30, 2000 were:
<TABLE>
<CAPTION>
Distribution
Record Date Payment Date per Unit
---------------- ------------- ------------
<S> <C> <C>
April 28, 2000 May 12, 2000 $ 0.087379
May 31, 2000 June 14, 2000 0.095712
June 30, 2000 July 17, 2000 0.098521
------------
$ 0.281612
============
</TABLE>
Six Months
For the six months ended June 30, 2000 royalty income was $22,270,326, compared
with $12,420,066 for the same 1999 period. Higher oil and gas prices in 2000
and the lag effect on cash receipts in the trust's initial accounting period in
1999 are the primary reasons for this 79% increase in royalty income.
After considering interest income of $45,427 and administration expense of
$111,993, distributable income for the six months ended June 30, 2000 was
$22,203,760 or $0.555094 per unit of beneficial interest. For the six months
ended June 30, 1999, distributable income was $12,395,529, or $0.309890 per
unit.
Royalty Income
Royalty income is recorded when received by the trust, which is the month
following receipt by Cross Timbers, and generally two months after oil and gas
production. Royalty income is generally affected by three major factors:
- oil and gas sales volumes,
- oil and gas sales prices, and
- costs deducted in the calculation of royalty income.
12
<PAGE>
The following is a summary of the calculation of royalty income received by the
trust:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 (a) Ended June 30 (a)
------------------------- Increase ------------------------ Increase
2000 1999 (Decrease) 2000 1999 (Decrease)
----------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sales Volumes
Gas (Mcf) (b)
Underlying properties.......... 8,636,974 9,572,424 (10%) 18,346,608 15,087,211 22%
Average per day............... 95,966 107,555 (11%) 100,806 99,915 1%
Net profits interests.......... 4,350,412 4,491,137 (3%) 9,051,801 6,315,141 43%
Oil (Bbls) (b)
Underlying properties.......... 104,525 115,384 (9%) 204,730 180,908 13%
Average per day............... 1,161 1,296 (10%) 1,125 1,198 (6%)
Net profits interests.......... 52,065 57,084 (9%) 101,670 82,636 23%
Average Sales Prices
Gas (per Mcf) (c).............. $ 2.54 $ 2.00 27% $ 2.42 $ 2.00 21%
Oil (per Bbl).................. $27.63 $13.64 103% $26.43 $12.64 109%
Revenues
Gas sales...................... $21,898,246 $19,144,848 14% $44,399,737 $30,174,422 47%
Oil sales...................... 2,887,909 1,574,132 83% 5,411,956 2,286,000 137%
----------- ----------- ----------- -----------
Total Revenues................. 24,786,155 20,718,980 20% 49,811,693 32,460,422 53%
----------- ----------- ----------- -----------
Costs
Taxes, transportation
and other................... 2,414,202 2,137,938 13% 4,829,788 3,522,886 37%
Production expense.............. 3,236,119 2,944,690 10% 6,522,422 5,258,915 24%
Development costs............... 3,254,298 2,842,806 14% 7,120,405 4,803,107 48%
Overhead........................ 1,770,729 1,724,807 3% 3,501,171 3,350,431 4%
----------- ----------- ----------- -----------
Total Costs................... 10,675,348 9,650,241 11% 21,973,786 16,935,339 30%
----------- ----------- ----------- -----------
Net Proceeds..................... 14,110,807 11,068,739 27% 27,837,907 15,525,083 79%
Net Profits Percentage........... 80% 80% 80% 80%
----------- ----------- ---------- -----------
Royalty Income................... $11,288,646 $ 8,854,991 27% $22,270,326 $12,420,066 79%
=========== =========== =========== ===========
</TABLE>
-------------------------
(a) Because of the two-month interval between time of production and receipt of
royalty income by the trust, (1) oil and gas sales for the quarter ended
June 30 generally represent production for the period February through April
and (2) oil and gas sales for the six months ended June 30, 2000 generally
represent production for the period November 1999 through April 2000. Oil
and gas sales for the six months ended June 30, 1999 represent production
for the period December 1998 (the trust's initial month) through April 1999.
(b) Oil and gas sales volumes are allocated to the net profits interests based
upon a formula that considers oil and gas prices and the total amount of
production expenses and development costs. Changes in any of these factors
may result in disproportionate fluctuations in volumes allocated to the net
profits interests. Therefore, comparative discussion of oil and gas sales
volumes is based on the underlying properties.
(c) See Note 2 to condensed financial statements.
13
<PAGE>
The following are explanations of significant variances from second quarter 1999
to 2000 and from the first six months of 1999 to the comparable period in 2000:
Sales Volumes
Gas
Second quarter gas sales volumes declined 10% primarily because of timing of
cash receipts. Natural production decline is estimated to be 4%. Gas sales
volumes were 22% higher for the six-month period, primarily because of the lag
effect on cash receipts in the trust's initial accounting period, which resulted
in less than five full months of production in the first half of 1999.
Oil
Second quarter oil sales declined 9% primarily because of natural production
decline. Oil sales volumes were 13% higher for the six-month period, primarily
because of the lag effect on cash receipts in the trust's initial accounting
period.
Sales Prices
Gas
The second quarter 1999 and six-month 1999 average gas price of $2.00 per Mcf
was the minimum price contractually provided to unitholders for distributions
declared through March 2000. As of April 2000, there are no longer any minimum
price provisions. See Note 2 to the condensed financial statements. The 1999
actual average gas price of $1.57 per Mcf for the quarter and $1.66 per Mcf for
the six-month period reflect lower prices caused by high levels of gas in
storage remaining from the abnormally warm winter of 1998-1999. Gas prices
began to increase in May 1999 and, after declining briefly at year end, have
continued to strengthen in 2000, as gas storage remains lower than prior year
levels. At July 5, 2000, the average NYMEX price for the following twelve
months was $3.82 per MMBtu. Over the last six months, the trust's average price
has been approximately $0.20 per MMBtu lower than the NYMEX price.
Oil
Average prices during 1999 reflect abnormally low prices resulting from excess
global supply. After OPEC members and other oil producers agreed to production
cuts in March 1999, oil prices climbed through the remainder of 1999 and first
quarter 2000. Increased demand in 2000 has more than offset OPEC production
increases in March and June, sustaining higher prices through June 2000. The
average West Texas Intermediate posted price for June 2000 was $28.79 per Bbl.
Recently, Saudi Arabia proposed additional production increases to reduce prices
closer to its target price of $25.00 per barrel.
Costs
Total costs deducted in the calculation of royalty income for the first half of
the year increased 30% primarily because of the lag effect on cash disbursements
in the trust's initial accounting period. Increased costs for the quarter and
six-month periods are because of higher development costs related to projects in
Oklahoma and Wyoming, increased production taxes resulting from higher oil and
gas prices, and increased production expense related to the timing of
maintenance projects.
14
<PAGE>
Forward Looking Statements
This report on Form 10-Q includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical fact included in this Form 10-Q, including,
without limitation, statements contained in this "Trustee's Discussion and
Analysis" regarding the net profits interests and industry conditions, are
forward-looking statements. Although Cross Timbers Oil believes that the
expectations reflected in such forward-looking statements are reasonable,
neither Cross Timbers Oil nor the trustee can give any assurance that such
expectations will prove to be correct.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in the trust's market risks, as disclosed in
the trust's Form 10-K for the year ended December 31, 1999.
15
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings.
A class action lawsuit, Bishop, et al. v. Amoco Production Co., et al., was
filed in May 2000 in the Third Judicial District Court in Lincoln County,
Wyoming by owners of royalty and overriding royalty interests in wells located
in Wyoming. The plaintiffs allege that Cross Timbers and the other producer
defendants have deducted impermissible costs of production from royalty payments
that have been made to the plaintiffs and other similarly situated persons and
have failed to properly inform the plaintiffs and others of the deductions
taken. The action is being brought as a class action on behalf of all persons
who own an interest in wells located in Wyoming as to which the defendants pay
royalties and overriding royalties. The plaintiffs seek a declaratory judgment
that the deductions made are impermissible and seek damages in the amount of the
deductions made together with interest and attorneys' fees. Cross Timbers
believes that the plaintiffs' interpretation of the Wyoming statute that governs
this issue, based upon a 1999 court decision, is erroneous, and that any
deductions made from royalties by Cross Timbers are permitted by the statute.
Cross Timbers intends to vigorously defend this action. If Cross Timbers does
not prevail, however, the trust will bear its 80% share of any judgment related
to production from the underlying properties for periods since December 1, 1998.
Additionally, if an adverse judgment increases the amount of future payments to
royalty owners, the trust would bear its proportionate share of the increased
payments through reduced net proceeds.
Items 2 through 5. Not applicable.
Item 6. (a) Exhibits.
<TABLE>
<CAPTION>
Exhibit Number
and Description Page
--------------- ----
<S> <C> <C>
(4) (a) Hugoton Royalty Trust Indenture by and between NationsBank, N.A.
(now Bank of America, N.A.), as trustee and Cross Timbers Oil Company
heretofore filed as Exhibit 4.1 to the trust's Registration Statement No.
333-68441 on Form S-1 filed with the Securities and Exchange Commission on
December 4, 1998, is incorporated herein by reference.
(b) Net Overriding Royalty Conveyance (Hugoton Royalty Trust, 80% -
Kansas) as amended and restated from Cross Timbers Oil Company to
NationsBank, N.A. (now Bank of America, N.A.), as trustee, dated December 1,
1998 heretofore filed as Exhibit 10.1.1 to Amendment No. 2 to the
trust's Registration Statement No. 333-68441 on Form S-1 filed with the
Securities and Exchange Commission on March 16, 1999, is incorporated
herein by reference.
(c) Net Overriding Royalty Conveyance (Hugoton Royalty Trust, 80% -
Oklahoma) as amended and restated from Cross Timbers Oil Company to
NationsBank, N.A. (now Bank of America, N.A.), as trustee, dated December 1,
1998, heretofore filed as Exhibit 10.2.1 to Amendment No. 2 to the
trust's Registration Statement No. 333-68441 on Form S-1 filed with
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
the Securities and Exchange Commission on March 16, 1999, is incorporated
herein by reference.
(d) Net Overriding Royalty Conveyance (Hugoton Royalty Trust, 80% -
Wyoming) as amended and restated from Cross Timbers Oil Company to
NationsBank, N.A. (now Bank of America, N.A.), as trustee, dated December
1, 1998, heretofore filed as Exhibit 10.3.1 to Amendment No. 2 to the
trust's Registration Statement No. 333-68441 on Form S-1 filed with the
Securities and Exchange Commission on March 16, 1999, is incorporated
herein by reference.
(15) Awareness letter of Arthur Andersen LLP 19
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter for which this report is filed.
</TABLE>
17
<PAGE>
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.
HUGOTON ROYALTY TRUST
By BANK OF AMERICA, N.A., TRUSTEE
By /s/ RON E. HOOPER
-----------------------------------------
Ron E. Hooper
Vice President
CROSS TIMBERS OIL COMPANY
Date: July 10, 2000 By /s/ LOUIS G. BALDWIN
----------------------------------------
Louis G. Baldwin
Executive Vice President and
Chief Financial Officer
18
