<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended March 31, 1999
--------------
Commission File No. 1-10982
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CROSS TIMBERS ROYALTY TRUST
Texas I.R.S. No. 75-6415930
NationsBank, N.A.
(d/b/a Bank of America, N.A.)
P.O. Box 830650
Dallas, Texas 75283-0650
Telephone Number 877/228-5084
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 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 May 1, 1999: 6,000,000
---------
<PAGE>
CROSS TIMBERS ROYALTY TRUST
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
- -------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
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 March 31, 1999 and December 31, 1998..................... 6
Condensed Statements of Distributable Income
for the Three Months Ended March 31, 1999 and 1998.......... 7
Condensed Statements of Changes in Trust Corpus
for the Three Months Ended March 31, 1999 and 1998.......... 8
Notes to Condensed Financial Statements...................... 9
Item 2. Trustee's Discussion and Analysis............................ 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk... 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................. 17
Signatures................................................... 18
</TABLE>
2
<PAGE>
CROSS TIMBERS 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 gas)
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 Amount received by Cross Timbers Oil from sale of
production from the underlying properties, less
applicable costs.
royalty trust interests Defined net profits interests that were carved from the
underlying properties and entitle the trust to receive
for each of the following:
90% royalty trust interests - 90% of the net
proceeds from the underlying properties, which are
royalty and overriding royalty interests in Texas,
Oklahoma and New Mexico .
75% royalty trust interests - 75% of the net
proceeds from the underlying properties, which are
working interests in Texas and Oklahoma.
underlying properties Cross Timbers Oil's interest in certain oil and gas
properties from which the royalty trust interests were
carved. The underlying properties include royalty and
overriding royalty interests in producing and non-
producing properties in Texas, Oklahoma and New Mexico,
and working interests in producing properties located
in Texas and Oklahoma.
3
<PAGE>
CROSS TIMBERS ROYALTY TRUST
PART I - FINANCIAL STATEMENTS
- -----------------------------
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 financial statements and the
notes thereto included in the trust's latest 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 Cross Timbers Royalty Trust at March 31, 1999, and the
distributable income and changes in trust corpus for the three-month periods
ended March 31, 1999 and 1998, 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
NationsBank, N.A. (d/b/a Bank of America, N.A.), as Trustee
for the Cross Timbers Royalty Trust:
We have reviewed the accompanying condensed statement of assets, liabilities and
trust corpus of the Cross Timbers Royalty Trust as of March 31, 1999 and the
related condensed statements of distributable income and changes in trust corpus
for the three-month periods ended March 31, 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 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.
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 generally accepted accounting principles.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with the basis of accounting described in Note 1.
We have previously audited, in accordance with generally accepted auditing
standards, the statement of assets, liabilities and trust corpus of the Cross
Timbers Royalty Trust as of December 31, 1998 included in the trust's 1998
annual report on Form 10-K, and in our report dated March 16, 1999, 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, 1998 is fairly stated in all material respects in
relation to the statement of assets, liabilities and trust corpus included in
the trust's 1998 annual report on Form 10-K from which it has been derived.
ARTHUR ANDERSEN LLP
Fort Worth, Texas
May 10, 1999
5
<PAGE>
CROSS TIMBERS ROYALTY TRUST
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and short-term investments.............. $ 376,013 $ 528,758
Interest to be received...................... 528 781
Net profits interests in oil and gas
properties - net (Note 1).................. 35,570,963 36,024,941
------------ ------------
$ 35,947,504 $ 36,554,480
============ ============
LIABILITIES AND TRUST CORPUS
Distribution payable to unitholders.......... $ 376,541 $ 529,539
Trust corpus (6,000,000 units of beneficial
interest authorized and outstanding)....... 35,570,963 36,024,941
------------ ------------
$ 35,947,504 $ 36,554,480
============ ============
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
these statements.
6
<PAGE>
CROSS TIMBERS ROYALTY TRUST
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Royalty income....................................... $1,479,855 $2,335,418
Interest income...................................... 2,028 3,771
---------- ----------
Total income......................................... 1,481,883 2,339,189
Administration expense............................... 41,495 44,220
---------- ----------
Distributable income................................. $1,440,388 $2,294,969
========== ==========
Distributable income per unit (6,000,000 units) ..... $ 0.240065 $ 0.382494
========== ==========
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
these statements.
7
<PAGE>
CROSS TIMBERS ROYALTY TRUST
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Trust corpus, beginning of period................. $ 36,024,941 $ 38,104,367
Amortization of net profits interests............. (453,978) (680,671)
Distributable income.............................. 1,440,388 2,294,969
Distributions declared............................ (1,440,388) (2,294,969)
------------- -------------
Trust corpus, end of period....................... $ 35,570,963 $ 37,423,696
============= =============
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
these statements.
8
<PAGE>
CROSS TIMBERS ROYALTY TRUST
- --------------------------------------------------------------------------------
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF ACCOUNTING
The financial statements of Cross Timbers Royalty Trust are prepared on the
following basis:
- Royalty income recorded for a month is the amount computed and paid by
the interest owner, Cross Timbers Oil Company, to NationsBank, N.A.
(d/b/a/ Bank of America, N.A.) as trustee for the trust. Royalty
income consists of net proceeds received by Cross Timbers Oil from the
underlying properties in the prior month, multiplied by net profit
percentages of 90% for the 90% royalty trust interests, and 75% for
the 75% royalty trust interests.
Applicable costs deducted in the calculation of net proceeds for the
90% royalty trust interests generally include applicable taxes,
transportation, marketing and legal costs, and do not include other
production and development costs. For the 75% royalty trust interests,
such costs include production expenses, development costs, applicable
taxes, operating charges and other costs.
- Royalty income is computed separately for each of five conveyances
under which the royalty trust 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. See Note 3.
- Interest income, interest to be received and distribution payable to
unitholders include interest to be earned from the monthly record date
(last business date of the month) through the date of the next
distribution to unitholders.
- 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 financial statements of the trust differ from financial statements
prepared in accordance with generally accepted accounting principles
("GAAP") because revenues are not accrued in the month of production,
expenses are recognized when paid rather than when incurred, and certain
cash reserves may be established for contingencies which would not be
accrued under GAAP. The initial carrying value of the royalty trust
interests ($61,100,449) represents the net book value from the historical
accounting records (successful efforts method) of predecessors to Cross
Timbers Oil on February 12, 1991. Amortization of the royalty trust
interests is calculated on a unit-of-production basis and is charged
directly to trust corpus. Accumulated amortization as of March 31, 1999 and
December 31, 1998 is $25,529,486 and $25,075,508, respectively.
2. 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.
9
<PAGE>
The unitholders are considered, for federal income tax purposes, to own the
trust's income and principal as though no trust were in existence. The
income of the trust is deemed to have been 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 Oil has advised the trustee that the trust receives royalty
income from coal seam gas wells. Production from coal seam gas wells
drilled after December 31, 1979, and prior to January 1, 1993, qualifies
for the federal income tax credit for producing nonconventional fuels under
Section 29 of the Internal Revenue Code. This tax credit, which was
approximately $1.05 per MMBtu for 1998, is recalculated annually based on
each year's qualifying production through the year 2002. Such credit, based
on the unitholder's pro rata share of qualifying production, may not reduce
his regular tax liability (after the foreign tax credit and certain other
non-refundable credits) below his tentative minimum tax. Any part of the
Section 29 credit not allowed for the tax year solely because of this
limitation is subject to certain carryover provisions. Unitholders should
consult their tax advisors regarding trust tax compliance matters.
Based on 1999 qualifying sales volumes and the factors used in the
calculation of the 1998 coal seam tax credit, the credit for the quarter
ended March 31, 1999 is estimated to be $.043 per unit. The actual coal
seam credit for the quarter ended March 31, 1998 was $.036 per unit. The
increase in the first quarter coal seam tax credit from 1998 to 1999 is
primarily because of increased gas sales volumes related to timing of cash
receipts. Final 1999 coal seam tax credit data will be provided to
unitholders with year-end tax information.
3. EXCESS COSTS
Cross Timbers Oil has advised the trustee that, in the calculation of
royalty income for the first quarter 1999, costs exceeded revenues from the
underlying properties of the 75% royalty trust interests by $300,483
($225,362 net to the trust) and excess costs of $5,193 ($3,895 net to the
trust) were recovered. As of March 1999, cumulative excess costs and
accrued interest of $808,361 ($606,271 net to the trust) must be recovered
from future net proceeds of the Texas 75% royalty trust interests and
cumulative excess costs and accrued interest of $19,301 ($14,476 net to the
trust) must be recovered from net proceeds of the Oklahoma 75% royalty
trust interests. Such excess costs plus accrued interest must be recovered
from future net proceeds of the 75% royalty trust interests before these
conveyances can again contribute to trust royalty income. See Item 2,
"Trustee's Discussion and Analysis - Excess Costs."
4. CROSS TIMBERS OIL COMPANY
On June 16, 1998, the trust and Cross Timbers Oil filed a registration
statement with the Securities and Exchange Commission to sell 1,360,000
units (22.7% of outstanding units) held by Cross Timbers Oil. As Cross
Timbers Oil stated in a related news release, the filing was made in
anticipation of better commodity prices and any sale is dependent on an
improved market for oil and gas equities. The trust did not participate in
Cross Timbers Oil's decisions to acquire or sell units and will not receive
any of the proceeds in the event of such sale. As of May 14, 1999, Cross
Timbers Oil still owns 1,360,000 units.
10
<PAGE>
Item 2. Trustee's Discussion and Analysis.
Year 2000
- ---------
"Year 2000," or the ability of computer systems to process dates with years
beyond 1999, affects almost all companies and organizations. Computer systems
that are not Year 2000 compliant by January 1, 2000 may have material adverse
effects on companies and organizations that rely upon those systems.
The trust's timely receipt of royalty income and disbursement of distributable
income to unitholders is largely dependent upon performance by Cross Timbers
Oil, ChaseMellon Shareholder Services, L.L.C. and other third parties, including
property operators, oil and natural gas purchasers and significant service
providers such as electric utility companies and natural gas plant, pipeline and
gathering systems. Since the trust does not use the trustee's computer systems
in any significant capacity, the trustee's Year 2000 compliance will not affect
the trust.
Cross Timbers Oil is in the process of reviewing its computer systems and
computer-controlled field equipment and making the necessary modifications for
Year 2000 compliance. Cross Timbers Oil has completed modifications and testing
of its primary accounting and land computer programs. The remaining computer
systems have been inventoried and assessed. Remediation and testing of
significant remaining systems are expected to be complete by August 1999. Based
on its review, remediation efforts and the results of testing to date, Cross
Timbers Oil does not believe that timely modification of its computer systems
and computer-controlled equipment for Year 2000 compliance represents a material
risk to the trust. No costs of such modifications will be incurred by the trust.
With the exception of approximately 20 overriding royalty interests in the San
Juan Basin, Cross Timbers Oil does not operate any of the underlying properties,
nor does Cross Timbers Oil or any of its affiliates generally purchase
significant production from the underlying properties. Therefore, the trust's
Year 2000 exposure is primarily dependent upon compliance of ChaseMellon
Shareholder Services, L.L.C., property operators and product purchasers of
significant underlying properties, as well as vendors who supply critical goods
and services to these third parties. The trustee and Cross Timbers Oil have
identified significant third parties whose Year 2000 compliance could
significantly affect them, and are in the process of formally inquiring about
their Year 2000 status. However, despite their efforts to assure that such third
parties are Year 2000 compliant, the trustee and Cross Timbers Oil cannot
provide assurance that all significant third parties will achieve timely Year
2000 compliance. Such failure to achieve Year 2000 compliance could have a
material adverse impact on timely trust distributions to unitholders.
Cross Timbers Oil is currently identifying appropriate contingency plans in the
event of potential problems resulting from failure of its computer systems on
January 1, 2000. Contingency plans may include installing backup computer
systems or equipment and temporarily replacing systems or equipment with manual
processes. No contingency plans have been completed to date; Cross Timbers Oil
expects contingency plans to be complete by October 1999.
11
<PAGE>
Three Months Ended March 31, 1999 and 1998
- ------------------------------------------
For the quarter ended March 31, 1999, royalty income was $1,479,855, compared
with $2,335,418 for the first quarter of 1998. This 37% decrease in royalty
income is primarily the result of significantly lower product prices, partially
offset by increased gas sales volumes.
After considering interest income of $2,028 and administration expense of
$41,495, distributable income for first quarter 1999 was $1,440,388, or
$0.240065 per unit of beneficial interest. Distributions of $0.110752, $0.066556
and $0.062757 per unit were made to unitholders of record on January 29,
February 26 and March 31, 1999, respectively. Distributable income for first
quarter 1998 was $2,294,969, or $0.382494 per unit.
Royalty income is recorded when received by the trust, which is the month
following receipt by Cross Timbers Oil, and generally two months after oil
production and three months after 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.
Because properties underlying the 90% royalty trust interests are royalty and
overriding royalty interests, they generally bear no costs other than production
and property taxes, related legal costs, and marketing and transportation
charges. In addition to these costs, the 75% royalty trust interests are subject
to production and development costs, since the properties underlying the 75%
royalty trust interests are working interests.
Volumes
Gas sales volumes increased 10% from first quarter 1998 to 1999, primarily
because of timing of cash receipts and purchaser adjustments, partially offset
by natural decline. Oil sales volumes decreased 16% from first quarter 1998 to
1999 primarily as a result of mechanical complications and initial downtime of
workover and development projects on some of the underlying working interest
properties. Mechanical complications on one of the underlying Oklahoma working
interest properties caused first quarter oil sales volumes to decline 9,800
Bbls, or 35% from 1998 to 1999. Cross Timbers Oil has advised the trustee that
it expects production from this property to recover, but cannot predict when
recovery will occur.
Prices
The first quarter 1999 average gas price was $1.73 per Mcf, or 33% below the
first quarter 1998 price of $2.59. The significant decline in gas prices was
because of an abnormally warm winter throughout the United States. Particularly,
San Juan Basin gas prices have been lower because of an abundance of
hydroelectric energy in West Coast markets following a winter with unusually
high precipitation. Cooler spring weather and lower industry production levels,
however, have helped to strengthen prices in April.
The average oil price for first quarter 1999 was $10.44 per Bbl, a decrease of
35% from the first quarter 1998 average price of $16.15. The first quarter 1999
average oil price includes production months of November 1998 through January
1999. During December 1998, the average West Texas Intermediate posted crude oil
price fell to $8.00, the lowest level since 1978. In March 1999, oil prices
began to climb following news of further agreed production cuts by OPEC and
other oil producers. The average posted West Texas Intermediate oil price for
February through April 1999 (related to royalty income to be received by the
trust in second quarter 1999) was $12.00, a 10% decrease from the comparable
second quarter 1998 price of $13.26. The average posted West Texas Intermediate
oil price for April was $14.66.
12
<PAGE>
Costs
Before the reduction for excess costs (see "Excess Costs" below), costs deducted
in the calculation of first quarter 1999 royalty income decreased $38,826 or 3%
from first quarter 1998 to 1999. This decline was primarily the result of a 33%,
or $116,141, decrease in production and property taxes related to lower oil and
gas revenues, and a 19%, or $134,935, decrease in production expense. Changes in
production expense are generally related to the timing of maintenance projects
and related billings by operators of the underlying working interest properties.
These declines were partially offset by a 144%, or $212,250, increase in
development costs related to a carbon dioxide injection project on one of the
properties underlying the Texas 75% royalty trust interests.
Excess Costs
During first quarter 1999, costs exceeded revenues from the underlying
properties of the 75% royalty trust interests by $300,483 (or $225,362 net to
the trust) and excess costs of $5,193 ($3,895 net to the trust) were recovered.
Cumulative excess costs and accrued interest through March 31, 1999 were
$808,361 for the underlying Texas working interest properties and $19,301 for
the underlying Oklahoma working interest properties, or a total of $827,662
($620,747 net to the trust). Such excess costs are the result of low oil prices
and increased development costs, primarily related to the carbon dioxide
injection project on one of the underlying Texas working interest properties.
Excess costs from one conveyance cannot reduce royalty income computed under
another conveyance; therefore, cumulative excess costs plus accrued interest
must be recovered from the respective future net proceeds of the underlying
Texas and Oklahoma working interest properties before these properties can again
contribute to trust royalty income.
Cross Timbers Oil previously advised the trustee that, with continued improved
oil prices, the Oklahoma 75% royalty trust interests should recover excess costs
in the second quarter of 1999. However, because of the mechanical complications
on one of the underlying Oklahoma working interest properties, Cross Timbers Oil
has advised it now cannot predict when the Oklahoma 75% royalty trust interests
will again contribute to trust royalty income. During 1998, the Oklahoma 75%
royalty trust interests contributed $0.03 per unit to royalty income, or
approximately 3% of total trust distributions. During 1997, the Oklahoma 75%
royalty trust interests contributed $0.12 per unit, or approximately 7% of total
distributions.
Cross Timbers Oil has also advised that until oil prices further improve and the
carbon dioxide injection project is completed on one of the underlying Texas
working interest properties, it cannot predict when the Texas 75% royalty trust
interests will again contribute to trust royalty income. Because costs exceeded
revenues for all but the first quarter of 1998, the Texas 75% royalty trust
interests only contributed $0.02 per unit to 1998 royalty income, or 1% of total
1998 distributions, as compared with $0.18 per unit, or approximately 10% of
distributions in 1997.
Amortization
Amortization of royalty trust interests, which is directly charged to trust
corpus, decreased to $453,978 for first quarter 1999 from $680,671 for the prior
year quarter. Decreased amortization is the result of reduced oil sales volumes
allocated to the royalty trust interests because of lower oil prices.
13
<PAGE>
COMPARATIVE OIL AND GAS SALES
Oil and gas sales attributable to the underlying properties and the royalty
trust interests are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, (a)
--------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
OIL SALES (Bbls)................
Underlying properties (b).... 88,000 104,686
Average per day............ 957 1,138
Average price.............. $ 10.44 $ 16.15
Royalty trust interests (b).. 19,431 37,062
GAS SALES (Mcf).................
Underlying properties (b).... 918,825 835,901
Average per day............ 9,987 9,086
Average price.............. $ 1.73 $ 2.59
Royalty trust interests (b).. 793,697 725,665
</TABLE>
(a) Because of the interval between time of production and receipt of royalty
income by the Trust, oil and gas sales for the quarter ended March 31
generally represent oil production for the period November through January
and gas production for the period October through December.
(b) Oil and gas sales volumes are allocated to the royalty trust 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
royalty trust interests. Therefore, comparative discussion of oil and gas
sales is based on the underlying properties.
14
<PAGE>
CALCULATION OF ROYALTY INCOME
The following is the calculation of royalty income received by the trust for the
quarters ended March 31, 1999 and 1998. See Note 1 to the condensed financial
statements.
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------------
1999 1998
---------------------- ----------------------
90% 75% 90% 75%
Royalty Royalty Royalty Royalty
Trust Trust Trust Trust
Interests Interests Interests Interests
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES........................
Oil sales...................... $ 285,608 $ 633,552 $ 410,780 $1,279,730
Gas sales...................... 1,569,307 22,714 2,115,125 45,704
---------- --------- ---------- ----------
Total......................... 1,854,915 656,266 2,525,905 1,325,434
---------- --------- ---------- ----------
COSTS...........................
Production and property taxes.. 213,703 17,966 211,444 136,366
Production expenses (a) 294 570,312 - 705,541
Development costs.............. - 359,239 - 146,989
Net excess costs (b)........... - (295,290) - -
---------- --------- ---------- ----------
Total......................... 213,997 652,227 211,444 988,896
---------- --------- ---------- ----------
Net Proceeds.................... 1,640,918 4,039 2,314,461 336,538
Net Profits Percentage.......... 90% 75% 90% 75%
---------- --------- ---------- ----------
Royalty Income.................. $1,476,826 $ 3,029 $2,083,015 $ 252,403
========== ========= ========== ==========
TOTAL ROYALTY INCOME............ $1,479,855 $2,335,418
========== ==========
</TABLE>
(a) Production expenses for the 75% royalty trust interests include an overhead
fee that is deducted and retained by Cross Timbers Oil. This fee is
currently $21,440 per month, or $64,320 per quarter. This overhead fee is
subject to adjustment each May based on an oil and gas industry index.
(b) See Note 3 to the condensed financial statements.
15
<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 royalty trust interests and industry conditions, are
forward looking statements. Although the trustee and Cross Timbers Oil believe
that the expectations reflected in these forward looking statements are
reasonable, they can give no 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, 1998.
16
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Items 1 through 5. Not Applicable.
Item 6. (a) Exhibits.
Page
----
(4) (a) Cross Timbers Royalty Trust Indenture Amended and
Restated on January 13, 1992 by NationsBank of Texas,
N.A. (now NationsBank, N.A. (d/b/a/ Bank of America,
N.A.)), as trustee, heretofore filed as Exhibit 3.1
to the trust's Registration Statement No. 33-44385
filed with the Securities and Exchange Commission on
February 19, 1992, is incorporated herein by reference.
(b) Net Overriding Royalty Conveyance (Cross Timbers Royalty
Trust, 90%-Texas) from South Timbers Limited Partnership,
West Timbers Limited Partnership, North Timbers Limited
Partnership, East Timbers Limited Partnership, Hickory
Timbers Limited Partnership, and Cross Timbers Partners,
L.P. (predecessors of Cross Timbers Oil Company, L.P.
which subsequently merged into Cross Timbers Oil Company)
to NCNB Texas National Bank (now NationsBank, N.A. (d/b/a/
Bank of America, N.A.)), as trustee, dated February 12, 1991
(without Schedules A and B), heretofore filed as Exhibit
10.1 to the trust's Registration Statement No. 33-44385
filed with the Securities and Exchange Commission on
February 19, 1992, is incorporated herein by reference.
(c) Net Overriding Royalty Conveyance (Cross Timbers Royalty
Trust, 75%-Texas) from South Timbers Limited Partnership,
West Timbers Limited Partnership, North Timbers Limited
Partnership, East Timbers Limited Partnership, Hickory
Timbers Limited Partnership, and Cross Timbers Partners,
L.P. (predecessors of Cross Timbers Oil Company, L.P.
which subsequently merged into Cross Timbers Oil Company)
to NCNB Texas National Bank (now NationsBank, N.A. (d/b/a/
Bank of America, N.A.)), as trustee, dated February 12,
1991 (without Schedules A and B), heretofore filed as
Exhibit 10.5 to the trust's Registration Statement No.
33-44385 filed with the Securities and Exchange Commission
on February 19, 1992, is incorporated herein by reference.
(15) (a) 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.
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 there unto duly authorized.
CROSS TIMBERS ROYALTY TRUST
By NationsBank, N.A.
(d/b/a/ BANK OF AMERICA, N.A.), TRUSTEE
By RON E. HOOPER
-------------------------
Ron E. Hooper
Vice President
CROSS TIMBERS OIL COMPANY
Date: May 14, 1999 By BENNIE G. KNIFFEN
-------------------------
Bennie G. Kniffen
Senior Vice President and
Controller
18
<PAGE>
EXHIBIT 15
NationsBank, N.A. (d/b/a/ Bank of America, N.A.) as Trustee
for the Cross Timbers Royalty Trust:
We are aware Cross Timbers Oil Company and Cross Timbers Royalty Trust have
incorporated by reference in Registration Statement No. 333-56983 on Form S-3,
and that Cross Timbers Oil Company has incorporated by reference in its Post
Effective Amendment No. 1 to Registration Statement No. 33-55784 on Form S-8
Cross Timbers Royalty Trust's Form 10-Q for the quarter ended March 31, 1999,
which includes our report dated May 10, 1999, covering the unaudited interim
financial information contained therein. Pursuant to Regulation C of the
Securities Act of 1933, that report is not considered a part of the registration
statement prepared or certified by our firm or a report prepared or certified by
our firm within the meaning of Sections 7 and 11 of the Act.
ARTHUR ANDERSEN LLP
Fort Worth, Texas
May 14, 1999
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