<PAGE> 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, 1998
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: 001-11335
DOMINION RESOURCES BLACK WARRIOR TRUST
(Exact name of registrant as specified in its charter)
Delaware 75-6461716
(State or other jurisdiction (I.R.S. Employer
or incorporation or Identification No.)
organization)
NationsBank, N.A.
901 Main Street
17th Floor
Dallas, Texas 75202
(Address of principal executive offices)
(Zip code)
(214) 508-2400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Number of units of beneficial interest outstanding at October 31, 1998:
7,850,000
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The condensed financial statements included herein have been prepared by
NationsBank, N.A. (as successor to NationsBank of Texas, N.A.), as Trustee (the
"Trustee") of Dominion Resources Black Warrior Trust (the "Trust"), pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in annual financial
statements have been condensed or omitted pursuant to such rules and
regulations, although the Trustee believes that the disclosures are adequate to
make the information presented not misleading. The condensed financial
statements of the Trust presented herein are unaudited except for the balances
as of December 31, 1997, and, therefore, are subject to year-end adjustments. It
is suggested that these condensed financial statements be read in conjunction
with the financial statements and notes thereto in the Trust's Report on Form
10-K for the year ended December 31, 1997. The December 31, 1997 balance sheet
is derived from the audited balance sheet as of that date. In the opinion of the
Trustee, all adjustments consisting of normal recurring adjustments necessary to
present fairly the assets, liabilities and trust corpus of the Trust as of
September 30, 1998, the distributable income for the three-month and nine-month
periods ended September 30, 1998 and 1997 and the changes in trust corpus for
the nine-month periods ended September 30, 1998 and 1997, have been included.
The distributable income for such interim periods are not necessarily indicative
of the distributable income for the full year.
The condensed financial statements as of September 30, 1998 and for the
three-month and nine-month periods ended September 30, 1998 and 1997 included
herein have been reviewed by Deloitte & Touche LLP, independent certified public
accountants, as stated in their report appearing herein.
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INDEPENDENT ACCOUNTANTS' REPORT
NationsBank, N.A.,
as Trustee of Dominion Resources
Black Warrior Trust
We have reviewed the accompanying condensed statement of assets, liabilities and
trust corpus of Dominion Resources Black Warrior Trust as of September 30, 1998,
and the related condensed statements of distributable income for the three-month
and nine-month periods ended September 30, 1998 and 1997, and changes in trust
corpus for the nine-month periods ended September 30, 1998 and 1997. These
condensed financial statements are the responsibility of the Trustee.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
As described in Note 2 to the condensed financial statements, these condensed
financial statements have been prepared on a modified cash basis of accounting,
which is a comprehensive basis of accounting other than generally accepted
accounting principles.
Based on our review, we are not aware of any material modifications that should
be made to such condensed financial statements for them to be in conformity with
the basis of accounting described in Note 2.
We have previously audited, in accordance with generally accepted auditing
standards, the statement of assets, liabilities and trust corpus of Dominion
Resources Black Warrior Trust as of December 31, 1997, 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 4, 1998, 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, 1997, 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 6, 1998
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DOMINION RESOURCES BLACK WARRIOR TRUST
CONDENSED STATEMENTS OF ASSETS,
LIABILITIES AND TRUST CORPUS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
-------------------- --------------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 50,706 $ 54,431
Royalty interests in
gas properties (less accumulated
amortization of $66,392,733
at September 30, 1998 and $58,097,578 at
December 31, 1997) 89,424,767 97,719,922
-------------------- --------------------
TOTAL ASSETS $ 89,475,473 $ 97,774,353
==================== ====================
LIABILITIES AND TRUST CORPUS
Trust administration expenses payable $ 101,205 $ 103,652
Trust corpus -
7,850,000 units of
beneficial interest
authorized, issued and
outstanding 89,374,268 97,670,701
-------------------- --------------------
TOTAL LIABILITIES
AND TRUST CORPUS $ 89,475,473 $ 97,774,353
==================== ====================
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
- --------------------------------------------------------------------------------
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<PAGE> 5
DOMINION RESOURCES BLACK WARRIOR TRUST
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For For
the Three the Three
Months Ended Months Ended
September 30, 1998 September 30,1997
-------------------- --------------------
<S> <C> <C>
Royalty income $ 5,451,742 $ 5,596,655
Interest income 18,799 17,811
-------------------- --------------------
5,470,541 5,614,466
General and administrative
expenses (126,774) (145,082)
-------------------- --------------------
Distributable income $ 5,343,767 $ 5,469,384
==================== ====================
Distributable income
per unit (7,850,000 units) $ .68 $ .70
==================== ====================
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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<PAGE> 6
DOMINION RESOURCES BLACK WARRIOR TRUST
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For For
the Nine the Nine
Months Ended Months Ended
September 30, 1998 September 30, 1997
-------------------- --------------------
<S> <C> <C>
Royalty income $ 17,893,038 $ 18,930,249
Interest income 59,860 56,762
-------------------- --------------------
17,952,898 18,987,011
General and administrative
expenses (548,963) (588,648)
-------------------- --------------------
Distributable income $ 17,403,935 $ 18,398,363
==================== ====================
Distributable income
per unit (7,850,000 units) $ 2.22 $ 2.34
==================== ====================
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
- --------------------------------------------------------------------------------
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<PAGE> 7
DOMINION RESOURCES BLACK WARRIOR TRUST
CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For For
the Nine the Nine
Months Ended Months Ended
September 30, 1998 September 30, 1997
-------------------- --------------------
<S> <C> <C>
Trust corpus, beginning of period $ 97,670,701 $ 109,562,077
Amortization of royalty interests (8,295,155) (11,562,154)
Distributable income 17,403,935 18,398,363
Distributions to unitholders (17,405,213) (18,405,196)
-------------------- --------------------
Trust corpus, end of period $ 89,374,268 $ 97,993,090
==================== ====================
Distributions per unit (7,850,000 units) $ 2.22 $ 2.34
==================== ====================
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
- --------------------------------------------------------------------------------
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DOMINION RESOURCES BLACK WARRIOR TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. TRUST ORGANIZATION AND PROVISIONS
Dominion Resources Black Warrior Trust (the "Trust") was formed as a
Delaware business trust pursuant to the terms of the Trust Agreement of Dominion
Resources Black Warrior Trust (as amended, the "Trust Agreement") entered into
effective as of May 31, 1994, by and among Dominion Black Warrior Basin, Inc.,
an Alabama corporation (the "Company"), as trustor, Dominion Resources, Inc., a
Virginia corporation ("Dominion Resources"), and NationsBank, N.A. (as successor
to NationsBank of Texas, N.A.), a national banking association (the "Trustee"),
and Mellon Bank (DE) National Association, a national banking association (the
"Delaware Trustee"), as trustees. The trustees are independent financial
institutions.
The Trust is a grantor trust formed to acquire and hold certain
overriding royalty interests (the "Royalty Interests") burdening proved natural
gas properties located in the Pottsville coal formation of the Black Warrior
Basin, Tuscaloosa County, Alabama (the "Underlying Properties") owned by the
Company. The Trust was initially created by the filing of its Certificate of
Trust with the Delaware Secretary of State on May 31, 1994. In accordance with
the Trust Agreement, the Company contributed $1,000 as the initial corpus of the
Trust. On June 28, 1994, the Royalty Interests were conveyed to the Trust by the
Company pursuant to the Overriding Royalty Conveyance (the "Conveyance") dated
effective as of June 1, 1994, from the Company to the Trust, in consideration
for all the 7,850,000 authorized units of beneficial interest ("Units") in the
Trust. The Company transferred its Units to its parent, Dominion Energy, Inc., a
Virginia corporation, which in turn transferred such Units to its parent,
Dominion Resources, which sold 6,850,000 of such Units to the public through
various underwriters (the "Underwriters") in June 1994 and an additional 54,000
Units through the Underwriters in August 1994 (collectively, the "Public
Offering"). The remaining 946,000 Units held by Dominion Resources were sold to
the public through certain of the Underwriters in June 1995 pursuant to
Post-Effective Amendment No. 1 to the Form S-3 Registration Statement relating
to the Units (the "Post-Effective Amendment"). All of the production
attributable to the Underlying Properties is from the Pottsville coal formation
and currently constitutes coal seam gas that entitles the owners of such
production, provided certain requirements are met, to tax credits pursuant to
Section 29 of the Internal Revenue Code of 1986, as amended, upon the production
and sale of such gas.
Royalty income to the Trust is attributable to the sale of depleting
assets. All of the Underlying Properties consist of producing properties.
Accordingly, the proved reserves attributable to the Underlying Properties are
expected to decline substantially during the term of the Trust and a portion of
each cash distribution made by the Trust will, therefore, be analogous to a
return of capital. Accordingly, cash yields attributable to the Units are
expected to decline over the term of the Trust.
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<PAGE> 9
The Trustee has all powers to collect and distribute proceeds received
by the Trust and to pay Trust liabilities and expenses. The Delaware Trustee has
only such powers as are set forth in the Trust Agreement or are required by law
and is not empowered to otherwise manage or take part in the management of the
Trust. The Royalty Interests are passive in nature and neither the Delaware
Trustee nor the Trustee has any control over, or any responsibility relating to,
the operation of the Underlying Properties or the Company's interest therein.
The Trust is subject to termination under certain circumstances
described in the Trust Agreement. Upon the termination of the Trust, all Trust
assets will be sold and the net proceeds therefrom distributed to Unitholders.
The only assets of the Trust, other than cash and temporary investments
being held for the payment of expenses and liabilities and for distribution to
Unitholders, are the Royalty Interests. The Royalty Interests consist of
overriding royalty interests burdening the Company's interest in the Underlying
Properties. The Royalty Interests generally entitle the Trust to receive 65
percent of the Company's Gross Proceeds (as defined below). The Royalty
Interests are non-operating interests and bear only expenses related to
property, production and related taxes (including severance taxes). "Gross
Proceeds" consist generally of the aggregate amounts received by the Company
attributable to the interests of the Company in the Underlying Properties from
the sale of coal seam gas at the central delivery points in the gathering system
for the Underlying Properties. The definitions, formulas and accounting
procedures and other terms governing the computation of the Royalty Interests
are set forth in the Conveyance.
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.
2. BASIS OF ACCOUNTING
The financial statements of the Trust are prepared on a modified cash
basis and are not intended to present financial position and results of
operations in conformity with generally accepted accounting principles ("GAAP").
Preparation of the Trust's financial statements on such basis includes the
following:
- - Royalty income and interest income are recorded in the period in which
amounts are received by the Trust rather than in the period of
production and accrual, respectively.
- - General and administrative expenses recorded are based on liabilities
paid and cash reserves established out of cash received.
- - Amortization of the Royalty Interests is calculated on a
unit-of-production basis and charged directly to trust corpus when
revenues are received.
- - Distributions to Unitholders are recorded when declared by the Trustee
(see Note 4).
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<PAGE> 10
The financial statements of the Trust differ from financial statements
prepared in accordance with GAAP because royalty income is not accrued in the
period of production, general and administrative expenses recorded are based on
liabilities paid and cash reserves established rather than on an accrual basis,
and amortization of the Royalty Interests is not charged against operating
results.
The net amount of royalty interests in gas properties is limited to the
sum of the future net cash flows attributable to the Trust's gas reserves at
year end using unescalated product prices plus the estimated future Section 29
credits for federal income tax purposes. If the net cost of royalty interests
in gas properties exceeds the aggregate of these amounts, an impairment
provision is recorded and charged to the trust corpus.
3. FEDERAL INCOME TAXES
The Trust is a grantor trust for Federal income tax purposes. As a
grantor trust, the Trust is not required to pay Federal or state income taxes.
Accordingly, no provision for income taxes has been made in these financial
statements.
Because the Trust is treated as a grantor trust, and because a
Unitholder is treated as directly owning an interest in the Royalty Interests,
each Unitholder will be taxed directly on his per Unit share of income
attributable to the Royalty Interests consistent with the Unitholder's method of
accounting and without regard to the taxable year or accounting method employed
by the Trust.
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 is calculated annually based on each year's qualified production
through the year 2002. Such credit, based on a 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
alternative 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. Each Unitholder should consult his tax advisor regarding Trust tax
compliance matters.
4. DISTRIBUTIONS TO UNITHOLDERS
The Trustee determines for each calendar quarter the amount of cash
available for distribution to Unitholders. Such amount (the "Quarterly
Distribution Amount") is an amount equal to the excess, if any, of the cash
received by the Trust attributable to production from the Royalty Interests
during such quarter, provided that such cash is received by the Trust on or
before the last business day prior to the 45th day following the end of such
calendar quarter, plus the amount of interest expected by the Trustee to be
earned on such cash proceeds during the period between the date of receipt by
the Trust of such cash proceeds and the date of payment to the Unitholders of
such Quarterly Distribution Amount, plus all other cash receipts of the Trust
during such quarter (to the
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<PAGE> 11
extent not distributed or held for future distribution as a Special Distribution
Amount (as defined below) or included in the previous Quarterly Distribution
Amount) (which might include sales proceeds not sufficient in amount to qualify
for a special distribution as described in the next paragraph and interest),
over the liabilities of the Trust paid during such quarter and not taken into
account in determining a prior Quarterly Distribution Amount, subject to
adjustments for changes made by the Trustee during such quarter in any cash
reserves established for the payment of contingent or future obligations of the
Trust. An amount which is not included in the Quarterly Distribution Amount for
a calendar quarter because such amount is received by the Trust after the last
business day prior to the 45th day following the end of such calendar quarter
will be included in the Quarterly Distribution Amount for the next calendar
quarter. The Quarterly Distribution Amount for each quarter will be payable to
Unitholders of record on the 60th day following the end of such calendar quarter
unless such day is not a business day in which case the record date is the next
business day thereafter. The Trustee will distribute the Quarterly Distribution
Amount for each calendar quarter on or prior to 70 days after the end of such
calendar quarter to each person who was a Unitholder of record on the record
date for such calendar quarter.
The Royalty Interests may be sold under certain circumstances and will
be sold following termination of the Trust. A special distribution will be made
of undistributed net sales proceeds and other amounts received by the Trust
aggregating in excess of $10 million (a "Special Distribution Amount"). The
record date for a Special Distribution Amount will be the 15th day following the
receipt by the Trust of amounts aggregating a Special Distribution Amount
(unless such day is not a business day, in which case the record date will be
the next business day thereafter) unless such day is within 10 days or less
prior to the record date for a Quarterly Distribution Amount, in which case the
record date will be the date that is established for the next Quarterly
Distribution Amount. Distribution to Unitholders of a Special Distribution
Amount will be made no later than 15 days after the Special Distribution Amount
record date.
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<PAGE> 12
Item 2. Trustee's Discussion and Analysis of Financial Condition and
Results of Operations.
The Trust makes quarterly cash distributions to holders of units of
beneficial interest ("Units") in the Trust ("Unitholders"). The only assets of
the Trust, other than cash and cash equivalents being held for the payment of
expenses and liabilities and for distribution to Unitholders, are certain
overriding royalty interests (the "Royalty Interests") burdening certain proved
natural gas properties located in the Pottsville coal formation of the Black
Warrior Basin, Tuscaloosa County, Alabama (the "Underlying Properties"). The
Royalty Interests owned by the Trust burden the interest in the Underlying
Properties that is owned by Dominion Black Warrior Basin, Inc. (the "Company"),
an indirect wholly owned subsidiary of Dominion Resources, Inc. ("Dominion
Resources").
The Trust's Royalty Interests consist of overriding royalty interests
burdening the Company's interest in the Underlying Properties. The Royalty
Interests generally entitle the Trust to receive 65 percent of the Company's
Gross Proceeds (as defined below) during the preceding calendar quarter. The
Royalty Interests are non-operating interests and bear only expenses related to
property, production and related taxes (including severance taxes). "Gross
Proceeds" consist generally of the aggregate amounts received by the Company
attributable to the interests of the Company in the Underlying Properties from
the sale of coal seam gas at the central delivery points in the gathering system
for the Underlying Properties. The definitions, formulas and accounting
procedures and other terms governing the computation of the Royalty Interests
are set forth in the Overriding Royalty Conveyance from the Company to the
Trust.
Distributable income of the Trust consists of the excess of royalty
income plus interest income over the organizational and administrative expenses
of the Trust. Upon receipt by the Trust, royalty income is invested in
short-term investments in accordance with the Trust Agreement of Dominion
Resources Black Warrior Trust (as amended, the "Trust Agreement") until its
subsequent distribution to Unitholders.
The amount of distributable income of the Trust for any quarter may
differ from the amount of cash available for distribution to Unitholders in such
quarter due to differences in the treatment of the expenses of the Trust in the
determination of those amounts. The financial statements of the Trust are
prepared on a modified cash basis pursuant to which the expenses of the Trust
are recognized when they are paid or reserves are established for them.
Consequently, the reported distributable income of the Trust for any quarter is
determined by deducting from the income received by the Trust the amount of
expenses paid by the Trust during such quarter. The amount of cash available for
distribution to Unitholders is determined as adjusted for changes in reserves
for unpaid liabilities in accordance with the provisions of the Trust Agreement.
(See Note 4 to the financial statements of the Trust appearing elsewhere in this
Form 10-Q for additional information regarding the determination of the amount
of cash available for distribution to Unitholders.)
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<PAGE> 13
Three and Nine Month Periods Ended September 30, 1998 Compared to Three and Nine
Months Ended September 30, 1997
The Trust received royalty income amounting to $5,451,742 during the
third quarter of 1998 compared to $5,596,655 during the third quarter of 1997.
This revenue was derived from the receipt of cash on production of 2,608 Mmcf at
an average price received of $2.21 per mcf after deducting production taxes of
$317,610 compared to 2,850 Mmcf with an average price of $2.08 per mcf after
deducting production taxes of $336,694 in the third quarter of 1997. For the
nine months ended September 30, 1998, the Trust received royalty income
amounting to $17,893,038 compared to $18,930,249 during the same period in 1997.
This revenue was derived from the receipt of cash on production of 8,018 Mmcf at
an average price received of $2.36 per mcf after deducting production taxes of
$1,063,909 compared to 8,690 Mmcf at an average price of $2.12 per mcf after
deducting production taxes of $1,104,820 for the nine months ended September 30,
1997. For the three-month and nine-month periods ended September 30, 1998, the
Trust was negatively impacted by a decrease in production. Such decrease was
partially offset by an increase in natural gas prices. These prices are
influenced by many factors such as seasonal temperatures, domestic demand and
other factors that are beyond the control of the Trustee. The decrease in
production is attributed to normal depletion of existing available resources.
Production taxes are based on revenues rather than production volumes.
Accordingly, production taxes did not fluctuate proportionately to the decrease
in volumes.
Interest income during the third quarter of 1998 amounted to $18,799 as
compared to $17,811 for the comparable period in 1997. Interest income during
the nine months ended September 30, 1998 amounted to $59,860 as compared to
$56,762 for the comparable period in 1997.
Administrative expenses during the third quarter of 1998 amounted to
$126,774 compared to $145,082 in the comparable period in 1997. Administrative
expenses for the nine months ended September 30, 1998 amounted to $548,963
compared to $588,648 for the same period in 1997. This decrease in
administrative expenses was caused by a reduction in printing costs and
Unitholder information services. For each of these periods, these expenses were
primarily related to administrative services provided by Dominion Resources, and
the Trustee and Mellon Bank (DE) National Association, a national banking
association, during the period.
Distributable income for the third quarter 1998 was $5,343,767 or $.68
per Unit compared to distributable income for the third quarter of 1997 of
$5,469,384 or $.70 per Unit. Distributable income for the nine months ended
September 30, 1998 was $17,403,935 or $2.22 per Unit compared to $18,398,363 or
$2.34 per Unit for the same period in 1997. The Trust made a distribution on
September 8, 1998 of $.672017 per Unit compared to a distribution of $.692395
per Unit made during the third quarter of 1997.
Year 2000 Issue
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 its primary system that is vulnerable to the Year 2000 issue: its
General Ledger/Accounts Payable System. 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 no other costs in connection with its efforts to identify, assess,
remediate and test the Trust's systems for Year 2000 compliance.
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<PAGE> 14
The Trustee is in the process of identifying and assessing other
information technology ("IT") systems used in connection with the Trust as well
as other systems 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 will be incurred and paid during the last quarter of 1998
and the first quarter of 1999. Of this amount, the Trustee expects to pay $4,000
for identification and 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, will be contacted before January 1, 1999 to determine their
Year 2000 status.
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 system 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 Trust during 1998 or 1999. Thus, the expenditures expected to be
made in connection with the Year 2000 efforts described above will represent
substantially all of the Trustee's IT-related expenditures on behalf of the
Trust during 1998 and 1999. These expenditures will be 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 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
required distributions to Unitholders. Such inability could result in the
incurrence by the Trust of interest charges or other liabilities to Unitholders.
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 NationsBank, 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 Unitholders. 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 and
assessment activities are approximately 80% complete. It expects that all of its
Year 2000 efforts related to the Trust's internal systems will be completed by
the end of the first 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 affect 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 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 of Financial Condition and Results of Operations" regarding the Trust's
financial position and industry conditions, are forward-looking statements.
Although the Trustee believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct.
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<PAGE> 15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
-15-
<PAGE> 16
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.
DOMINION RESOURCES BLACK WARRIOR
TRUST
By: NATIONSBANK, N.A., Trustee
By: /s/ Ron E. Hooper
---------------------------
Ron E. Hooper
Vice President
Date: November 13, 1998
(The Trust has no directors or executive officers.)
-16-
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<S> <C>
EXHIBIT 27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 50,706
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 50,706
<PP&E> 155,817,500
<DEPRECIATION> 66,392,733
<TOTAL-ASSETS> 89,475,473
<CURRENT-LIABILITIES> 101,205
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 89,374,268
<TOTAL-LIABILITY-AND-EQUITY> 89,475,473
<SALES> 17,893,038
<TOTAL-REVENUES> 17,952,898
<CGS> 0
<TOTAL-COSTS> 548,963
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,403,935
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,403,935
<EPS-PRIMARY> 2.22
<EPS-DILUTED> 2.22
</TABLE>
