<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 8, 1999
CROSS TIMBERS OIL COMPANY
(Exact name of registrant as specified in its charter)
Delaware 1-10662 75-2347769
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
810 Houston Street, Suite 2000, Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)
(817) 870-2800
(Registrant's telephone number, including area code)
<PAGE>
Item 2. Disposition of Assets.
In December 1998, Cross Timbers Oil Company ("the Company") formed the
Hugoton Royalty Trust ("the Trust") by conveying 80% net profits interests in
properties located in the Hugoton area of Kansas and Oklahoma, the Anadarko
Basin of Oklahoma and the Green River Basin of Wyoming. These net profits
interests represent approximately 30% of the Company's existing reserve base and
were conveyed to the Trust in exchange for 40,000,000 units of beneficial
interest. On April 8, 1999, the Company sold 15,000,000 units, or 37.5% of the
Trust units, in an initial public offering at a price of $9.50 per unit.
Estimated net proceeds of approximately $131.5 million from the sale were used
to reduce bank debt. The Company also granted an overallotment option to the
underwriters to sell an additional 2,250,000 units which must be exercised
within 30 days.
<TABLE>
<CAPTION>
Item 7. Financial Statements and Exhibits. Page
----
(a) Pro forma financial information.
Cross Timbers Oil Company:
<S> <C>
Pro Forma Consolidated Financial Statements (Unaudited).......................... 3
Pro Forma Consolidated Balance Sheet at December 31, 1998........................ 4
Pro Forma Consolidated Statement of Operations
for the Year Ended December 31, 1998............................................ 5
Notes to Pro Forma Consolidated Financial Statements............................. 6-8
</TABLE>
(c) Exhibits.
Exhibit Number
and Description
---------------
1.1 Form of Underwriting Agreement (incorporated by reference to Exhibit
1.1 to Amendment No. 1 to the Trust's and the Company's Registration
Statement on Form S-1, File No. 333-68441, filed on January 25, 1999)
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CROSS TIMBERS OIL COMPANY
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The accompanying Pro Forma Consolidated Financial Statements have been
prepared by recording pro forma adjustments to the historical consolidated
financial statements of Cross Timbers Oil Company ("the Company"). The Pro
Forma Consolidated Balance Sheet as of December 31, 1998 has been prepared as if
the Trust Offering (as described in Note 3) was consummated on December 31,
1998. The Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1998 has been prepared as if the EEX Acquisition and certain other
1998 acquisition transactions ("Other 1998 Acquisitions") and the Trust Offering
were consummated immediately prior to January 1, 1998.
The Pro Forma Consolidated Financial Statements are not necessarily
indicative of the financial position or results of operations which would have
occurred had the transactions occurred on the assumed dates. Additionally,
future results may vary significantly from the results reflected in the Pro
Forma Consolidated Statement of Operations due to normal production declines,
changes in prices, future transactions and other factors. These statements
should be read in conjunction with the Company's audited consolidated financial
statements and the related notes for the year ended December 31, 1998 included
in the Company's 1998 Form 10-K.
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CROSS TIMBERS OIL COMPANY
Pro Forma Consolidated Balance Sheet (Unaudited)
December 31, 1998
<TABLE>
<CAPTION>
Pro Forma
Adjustments-
(Note 4)
--------------
Historical Trust Offering(a) Pro Forma
-------------- --------------- -------------
ASSETS (in thousands)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............................. $ 12,333 $ - $ 12,333
Other current assets.................................. 125,245 - 125,245
---------- ---------- -----------
Total Current Assets................................ 137,578 - 137,578
---------- ---------- -----------
Property and Equipment, at cost........................ 1,370,518 (128,107) 1,242,411
Accumulated depreciation, depletion and amortization
and impairment....................................... (319,507) 35,457 (284,050)
---------- ---------- -----------
Net Property and Equipment......................... 1,051,011 (92,650) 958,361
---------- ---------- -----------
Other Assets........................................... 19,005 - 19,005
---------- ---------- -----------
TOTAL ASSETS........................................... $1,207,594 $ (92,650) $1,114,944
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities.............. $ 93,583 $ - $ 93,583
Other current liabilities............................. 6,005 - 6,005
---------- ---------- ----------
Total Current Liabilities......................... 99,588 - 99,588
---------- ---------- ----------
Long-term Debt......................................... 921,000 (131,475) 789,525
---------- ---------- ----------
Deferred Income Taxes Payable.......................... 6,892 13,200 20,092
---------- ---------- ----------
Other Long-term Liabilities............................ 2,663 - 2,663
---------- ---------- ----------
Stockholders' Equity:
Preferred stock....................................... 28,468 - 28,468
Common stock.......................................... 541 - 541
Additional paid-in capital............................ 338,503 - 338,503
Treasury stock........................................ (118,555) - (118,555)
Retained earnings (deficit)........................... (71,506) 25,625 (45,881)
---------- --------- ---------
Total Stockholders' Equity.......................... 177,451 25,625 203,076
---------- --------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............. $1,207,594 $ (92,650) $1,114,944
========== ========== ==========
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Financial Statements.
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<PAGE>
CROSS TIMBERS OIL COMPANY
Pro Forma Consolidated Statement of Operations (Unaudited)
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Pro Forma Adjustments (Note 4)
---------------------------------------------------------------------
EEX Other 1998 Trust
Acquisition Acquisitions Offering Total
Historical (b) (c) Other (d) Pro Forma
------------ ------------ ------------- -------- -------- ---------
REVENUES (in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Oil and condensate...................... $ 56,164 $ 1,224 $12,422 $ - $ (1,949) $ 67,861
Gas and natural gas
liquids................................ 182,587 21,985 8,083 - (22,068) 190,587
Gas gathering, processing.
and marketing......................... 9,438 - - - - 9,438
Other................................... 1,297 - - - - 1,297
--------- ---------- ---------- --------- --------- ----------
Total Revenues....................... 249,486 23,209 20,505 - (24,017) 269,183
--------- ---------- ---------- --------- --------- ----------
EXPENSES
Production.............................. 63,148 2,512 6,404 1,931 (e) (5,724) 68,271
Exploration............................. 8,034 - - - - 8,034
Taxes, transportation and
other.................................. 29,105 2,362 1,423 - (2,721) 30,169
Depreciation, depletion
and amortization...................... 83,560 - - 18,980 (f) (7,486) 95,054
Impairment.............................. 2,040 - - - - 2,040
General and administrative 13,479 - - (1,330) (e) - 12,149
Gas gathering and
processing............................. 8,360 - - - - 8,360
Trust development costs................. 1,498 - - - - 1,498
--------- ---------- ---------- --------- --------- ----------
Total Expenses....................... 209,224 4,874 7,827 19,581 (15,931) 225,575
--------- ---------- ---------- --------- --------- ----------
OPERATING INCOME......................... 40,262 18,335 12,678 (19,581) (8,086) 43,608
--------- ---------- ---------- --------- --------- ----------
OTHER INCOME (EXPENSE)
Gain (loss) on investment
in equity securities.................. (93,719) - - - - (93,719)
Interest expense, net................... (52,113) - - (3,334) (g) 9,089 (46,358)
--------- ---------- ---------- --------- ---------- ----------
Total Other Income
(Expense)........................... (145,832) - - (3,334) 9,089 (140,077)
--------- ---------- ---------- --------- --------- ----------
INCOME (LOSS)
BEFORE INCOME TAX....................... (105,570) 18,335 12,678 (22,915) 1,003 (96,469)
Income Tax Expense
(Benefit)............................... (35,851) - - 2,754 (h) 341 (32,756)
--------- ---------- ---------- --------- --------- ----------
NET INCOME (LOSS)........................ (69,719) 18,335 12,678 (25,669) 662 (63,713)
Preferred Stock Dividends................ 1,779 - - - - 1,779
--------- ---------- ---------- --------- --------- ----------
EARNINGS (LOSS) AVAILABLE
TO COMMON STOCK......................... $ (71,498) $18,335 $12,678 $(25,669) $ 662 $(65,492)
========= ========= ========== ========== ========= ==========
EARNINGS (LOSS) PER COMMON
SHARE
Basic................................... $(1.65) $ (1.39)
========= =========
Diluted................................. $(1.65) $ (1.39)
========= =========
Weighted Average
Common Shares Outstanding............... 43,396 3,598 (i) 46,994
========= ========== =========
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Financial Statements.
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CROSS TIMBERS OIL COMPANY
Notes to Pro Forma Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying Pro Forma Consolidated Balance Sheet at December 31, 1998
has been prepared assuming the Company consummated the sale of 15,000,000, or
37.5%, of the Hugoton Royalty Trust units to the public ("Trust Offering") on
December 31, 1998 (Note 3). The Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1998 has been prepared assuming the Company
consummated the Trust Offering, EEX Acquisition and other 1998 Acquisitions
(Note 2) immediately prior to January 1, 1998. The Pro Forma Consolidated
Statement of Operations is not necessarily indicative of the results of
operations had the above described transactions occurred on the assumed dates.
2. Acquisitions
EEX Acquisition
On April 24, 1998, the Company acquired producing properties in the East
Texas Basin from EEX Corporation ("EEX Acquisition") for $265 million. After
purchase price adjustments primarily resulting from net revenues from the
January 1, 1998 effective date through April 24, 1998, the properties were
purchased for an estimated price of $245 million. In connection with the
acquisition, the Company sold a production payment to EEX Corporation for $30
million. The cost of the EEX Acquisition (net of the production payment sold) of
$215 million was funded by bank borrowings which were partially repaid by
proceeds from the sale of 7,203,450 shares of the Company's common stock on
April 27, 1998. Purchase price revisions may result from post-closing
adjustments.
Other 1998 Acquisitions
The acquisitions described in the following paragraphs are collectively
referred to as the "Other 1998 Acquisitions."
On September 30, 1998, the Company acquired oil-producing properties in the
Middle Ground Shoal Field of Alaska's Cook Inlet ("Cook Inlet Acquisition") from
various Shell Oil Company affiliates ("Shell"). The acquired interests include
a 100% working interest in two State of Alaska leases, two offshore production
platforms and a 50% interest in certain operated production pipelines and
onshore processing facilities. The acquisition had an effective date of July 1,
1998, and is subject to customary post-closing adjustments. The Company acquired
the properties in exchange for 1,921,850 shares of the Company's common stock
that are subject to a contractual $20 price guarantee. The Company also
executed a non-interest bearing promissory note to Shell for $6 million. The
total estimated purchase price of the Cook Inlet Acquisition of $44.4 million is
subject to post-closing adjustments.
On November 20, 1998, the Company acquired primarily gas-producing
properties in northwest Oklahoma and the San Juan Basin of New Mexico for $33.4
million from Seagull Energy Corp. After purchase price adjustments primarily
resulting from net revenues from the October 1, 1998 effective date through
November 20, 1998, the properties were purchased for an estimated price of $29.2
million. Additional purchase price revisions may result from post-closing
adjustments. The Company funded the acquisition with bank debt.
3. Hugoton Royalty Trust Offering
In December 1998, the Company formed the Hugoton Royalty Trust by conveying
80% net profits interests in properties principally located in the Hugoton area
of Kansas and Oklahoma, the Anadarko Basin of Oklahoma and the Green River Basin
of Wyoming. The Company sold 15,000,000, or 37.5%, of the Hugoton Royalty Trust
units to the public on April 8, 1999. An additional 15%, or 2,250,000 units, may
be sold pursuant to exercise of the underwriters' overallotment option. The
offering price to the public was $9.50 per Trust unit.
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<PAGE>
4. Pro Forma Adjustments
Pro forma adjustments necessary to adjust the Consolidated Balance Sheet
and Statement of Operations are as follows:
(a) To record net proceeds of $131,475,000 received by the Company upon
consummation of the Trust Offering, reflecting the sale of 15,000,000
Hugoton Royalty Trust Units by the Company to the public at a price of
$9.50 per unit, less underwriters' discount and estimated expenses,
resulting in an estimated $25,625,000 gain on sale (net of federal
income tax of $13,200,000 at a corporate rate of 34%) and increase in
retained earnings.
(b) To record revenue and direct operating expenses of the EEX Acquisition
for the period from January 1, 1998 through the date of acquisition.
Revenue and direct operating expenses subsequent to the date of
acquisition are included in the historical results of operations.
(c) To record revenue and direct operating expenses of the Other 1998
Acquisitions for the period from January 1, 1998 through the date of
acquisition. Revenue and direct operating expenses subsequent to the
date of acquisition are included in the historical results of
operations.
(d) To record reduction of revenue and expenses related to the sale of
37.5% of Hugoton Royalty Trust units, assuming the underwriters'
overallotment option is not exercised (Note 3), reduction in interest
expense attributable to decreased long-term debt upon application of
net proceeds of $131,475,000 from the Trust Offering (Note 4(a)) and
related increase in federal income tax at a corporate rate of 34%.
Interest expense was determined using the weighted average interest
rate incurred by the Company under its revolving credit facilities.
(e) To record the estimated increase in general and administrative expense
($690,000), an allocation from general and administrative expense to
production expense ($2,020,000, less billing to joint owners of
$89,000) attributable to the EEX Acquisition and the Other 1998
Acquisitions for the period from January 1, 1998 through the date of
acquisition.
(f) To record estimated depreciation and depletion expense attributable to
the EEX Acquisition and the Other 1998 Acquisitions using the unit-of-
production method applied to the cost of the properties acquired for
the period from January 1, 1998 through the date of acquisition.
(g) To record the increase in interest expense attributable to increased
long-term debt to finance the purchase of the EEX Acquisition and the
Other 1998 Acquisitions, to the extent financed by long-term debt, for
the period from January 1, 1998 through the date of acquisition.
Interest expense was determined using the weighted average interest
rate incurred by the Company under its revolving credit facilities.
(h) To record federal income tax at a corporate rate of 34% related to net
pro forma adjustments.
(i) To record increase in weighted average common shares outstanding for
the period from January 1, 1998 through the date of acquisition
resulting from the sale of 7,203,450 common shares in April 1998, the
proceeds from which partially funded the EEX Acquisition, and from the
issuance of 1,921,850 common shares to Shell to fund the Cook Inlet
Acquisition.
5. Pro Forma Supplemental Oil and Gas Reserve Information
Estimated Quantities of Pro Forma Proved Oil and Gas Reserves
Pro forma reserve estimates at December 31, 1998 have been propared by
subtracting proved reserves applicable to 37.5% of the properties underlying the
Trust from proved reserves of the Company. Proved reserve estimates of the
Company and of properties underlying the Trust are based on reports prepared by
independent petroleum engineers, using December 31, 1998 prices and costs.
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<PAGE>
Proved reserves are estimated quantities of crude oil, natural gas and
natural gas liquids which, based on geologic and engineering data, are estimated
to be reasonably recoverable in future years from known reservoirs under
existing economic and operating conditions. Proved developed reserves are those
which are expected to be recovered through existing wells with existing
equipment and operating methods. Because of inherent uncertainties and the
limited nature of reservoir data, such estimates are subject to change as
additional information becomes available.
Pro Forma Proved Oil and Gas Reserves at December 31, 1998
<TABLE>
<CAPTION>
Natural Gas
Oil (Bbls) Gas (Mcf) Liquids (Bbls)
------------ ---------- --------------
(in thousands)
<S> <C> <C> <C>
Proved reserves............ 53,301 1,054,702 17,174
========= ========= =========
Proved developed reserves.. 41,865 837,896 14,000
========= ========= =========
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows Relating to Pro Forma
Proved Oil and Gas Reserves
The standardized measure of discounted future net cash flows ("Standardized
Measure") is prepared using assumptions required by the Financial Accounting
Standards Board. Such assumptions include the use of year-end prices for oil
and gas and year-end costs for estimated future development and production
expenditures to produce year-end estimated proved reserves. Discounted future
net cash flows are calculated using a 10% rate.
The Standardized Measure does not represent the Company's estimate of
future net cash flows or the value of proved oil and gas reserves. Probable and
possible reserves, which may become proved in the future, are excluded from the
calculations. Furthermore, year-end prices, used to determine the standardized
measure of discounted cash flows, are influenced by seasonal demand and other
factors and may not be the most representative in estimating future revenues or
reserve data.
Pro Forma Standardized Measure of Discounted Future Net Cash Flows at
December 31, 1998
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Future cash inflows....................................... $ 2,715,478
Future costs:
Production............................................ (1,026,311)
Development.......................................... (214,097)
-----------
Future net cash inflows before income tax.............. 1,475,070
Future income tax...................................... (210,898)
-----------
Future net cash flows.................................. 1,264,172
10% annual discount.................................... (559,130)
-----------
Standardized measure of discounted future net
cash flows............................................. $ 705,042
===========
</TABLE>
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<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 hereunto duly authorized.
CROSS TIMBERS OIL COMPANY
Date: April 23, 1999 By: BENNIE G. KNIFFEN
---------------------------------
Bennie G. Kniffen
Senior Vice President and Controller
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