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EX-32.1 - EX-32.1 - DOMINION RESOURCES BLACK WARRIOR TRUST | d85540exv32w1.htm |
EX-31.1 - EX-31.1 - DOMINION RESOURCES BLACK WARRIOR TRUST | d85540exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2011
or
o | 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 (State or other jurisdiction of incorporation or organization) |
75-6461716 (I.R.S. Employer Identification No.) |
U.S. Trust, Bank of America Private Wealth Management
901 Main Street
17th Floor
Dallas, Texas 75202
(Address of principal executive offices)
(Zip code)
901 Main Street
17th Floor
Dallas, Texas 75202
(Address of principal executive offices)
(Zip code)
(214) 209-2400
(Registrants telephone number, including area code)
(Registrants 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ
Number
of units of beneficial interest outstanding at November 8, 2011: 7,850,000.
TABLE OF CONTENTS
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
The condensed financial statements included herein have been prepared by Bank of America,
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 (the SEC). 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,
2010, and, therefore, are subject to year-end adjustments. It is suggested that these condensed
financial statements and notes thereto be read in conjunction with the financial statements and
notes thereto in the Trusts Report on Form 10-K for the year ended December 31, 2010. The
December 31, 2010 condensed statement of assets, liabilities, and trust corpus is derived from the
audited statement of assets, liabilities, and trust corpus 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, 2011, the distributable
income for the three-month and the nine-month periods ended September 30, 2011 and 2010 and the
changes in trust corpus for the nine-month periods ended September 30, 2011 and 2010, have been
included. The distributable income for such interim periods is not necessarily indicative of the
distributable income for the full year.
The condensed financial statements as of September 30, 2011, and for the three-month and the
nine-month periods ended September 30, 2011 and 2010 included herein have been reviewed by Deloitte
& Touche LLP, an independent registered public accounting firm, as stated in their report appearing
herein.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Unit Holders of Dominion Resources Black Warrior Trust and
Bank of America, N.A., Trustee
Dallas, Texas
Bank of America, N.A., Trustee
Dallas, Texas
We have reviewed the accompanying condensed statement of assets, liabilities and trust corpus of
Dominion Resources Black Warrior Trust (the Trust) as of September 30, 2011, and the related
condensed statements of distributable income for the three-month and nine-month periods ended
September 30, 2011 and 2010 and changes in trust corpus for the nine-month periods ended September
30, 2011 and 2010. These interim financial statements are the responsibility of the Trustee.
We conducted our reviews in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in accordance with
the standards of the Public Company Accounting Oversight Board (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.
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 accounting principles generally accepted in the United States of America.
Based on our reviews, we are not aware of any material modifications that should be made to such
condensed interim financial statements for them to be in conformity with the basis of accounting
described in Note 2.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the statement of assets, liabilities and trust corpus of Dominion
Resources Black Warrior Trust as of December 31, 2010, 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 11, 2011, 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, 2010, 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
Austin, Texas
November 8, 2011
November 8, 2011
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DOMINION RESOURCES BLACK WARRIOR TRUST
CONDENSED STATEMENTS OF ASSETS,
LIABILITIES AND TRUST CORPUS
LIABILITIES AND TRUST CORPUS
September 30, | ||||||||||||
2011 | December 31, | |||||||||||
Note | (unaudited) | 2010 | ||||||||||
ASSETS |
||||||||||||
Cash and cash equivalents |
$ | 13,996 | $ | 60,357 | ||||||||
Royalty interests in gas properties
(less accumulated amortization of
$140,934,210 and $139,065,207,
respectively) |
14,883,290 | 16,752,293 | ||||||||||
TOTAL ASSETS |
$ | 14,897,286 | $ | 16,812,650 | ||||||||
LIABILITIES AND TRUST CORPUS |
||||||||||||
Trust administration expenses payable |
155,215 | $ | 159,120 | |||||||||
Contingencies |
6 | | | |||||||||
Trust corpus 7,850,000 units of
beneficial interest authorized,
issued and outstanding |
14,742,071 | 16,653,530 | ||||||||||
TOTAL LIABILITIES AND TRUST CORPUS |
$ | 14,897,286 | $ | 16,812,650 | ||||||||
The accompanying notes are an integral part of these condensed financial statements.
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DOMINION RESOURCES BLACK WARRIOR TRUST
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
For | For | |||||||||||
the Three | the Three | |||||||||||
Months Ended | Months Ended | |||||||||||
Note | September 30, 2011 | September 30, 2010 | ||||||||||
Royalty income |
$ | 2,120,249 | $ | 2,393,118 | ||||||||
Interest income |
124 | 251 | ||||||||||
2,120,373 | 2,393,369 | |||||||||||
General and
administrative
expenses |
(203,334 | ) | (189,266 | ) | ||||||||
Distributable income |
1,5 | $ | 1,917,039 | $ | 2,204,103 | |||||||
Distributable income
per unit (7,850,000
units) |
$ | .24 | $ | .28 | ||||||||
The accompanying notes are an integral part of these condensed financial statements.
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DOMINION RESOURCES BLACK WARRIOR TRUST
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
For the Nine | For the Nine | |||||||||||
Months Ended | Months Ended | |||||||||||
Note | September 30, 2011 | September 30, 2010 | ||||||||||
Royalty income |
$ | 6,285,238 | $ | 7,735,240 | ||||||||
Interest income |
549 | 601 | ||||||||||
6,285,787 | 7,735,841 | |||||||||||
General and administrative
expenses |
(763,197 | ) | (764,943 | ) | ||||||||
Distributable income |
1,5 | $ | 5,522,590 | $ | 6,970,898 | |||||||
Distributable income
per unit (7,850,000 units) |
$ | .70 | $ | .89 | ||||||||
The accompanying notes are an integral part of these condensed financial statements.
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DOMINION RESOURCES BLACK WARRIOR TRUST
CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)
For the Nine | For the Nine | |||||||||||
Months Ended | Months Ended | |||||||||||
Note | September 30, 2011 | September 30, 2010 | ||||||||||
Trust corpus, beginning of period |
$ | 16,653,530 | $ | 19,345,951 | ||||||||
Amortization of royalty interests |
(1,869,003 | ) | (2,241,353 | ) | ||||||||
Distributable income |
5,522,590 | 6,970,898 | ||||||||||
Distributions to unitholders |
5 | (5,565,046 | ) | (6,839,964 | ) | |||||||
Trust corpus, end of period |
$ | 14,742,071 | $ | 17,235,532 | ||||||||
Distributions per unit (7,850,000 units) |
5 | $ | .71 | $ | .87 | |||||||
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 Walter Black Warrior
Basin LLC, formerly known as HighMount Black Warrior Basin LLC, a Delaware limited liability
company, as successor to Dominion Black Warrior Basin, Inc., an Alabama corporation (the
Company), as grantor, Dominion Resources, Inc., a Virginia corporation (Dominion Resources),
and Bank of America, 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. In 2007 the Bank of America private wealth
management group officially became known as U.S. Trust, Bank of America Private Wealth
Management. The legal entity that serves as Trustee of the Trust did not change, and references
in this Form 10-Q to U.S. Trust, Bank of America Private Wealth Management shall describe the legal
entity Bank of America, N.A.
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. 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.
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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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 Companys 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 holders of units of beneficial interest in the Trust (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 Companys interest in
the Underlying Properties. The Royalty Interests generally entitle the Trust to receive 65 percent
of the Companys 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
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, as amended.
On July 31, 2007, subsidiaries of HighMount Exploration & Production LLC (HighMount)
purchased certain assets from subsidiaries of Dominion Resources, including all of the equity
interests in the Company which owns the interests in the Underlying Properties that are burdened by
the Trusts Royalty Interests. The Trust continued to have ownership in the Royalty Interests
burdening the Underlying Properties and such sale did not affect that ownership. In connection
with the sale, Dominion Resources assigned its rights and obligations under the Trust Agreement
governing the Trust and the Administrative Services Agreement, dated as of June 28, 1994, between
Dominion Resources and the Trust, to HighMount Exploration & Production Alabama LLC (HighMount
Alabama), a Delaware limited liability company, which was a subsidiary of HighMount.
On May 28, 2010, Walter Natural Gas, LLC, a wholly owned subsidiary of Walter Energy, LLC,
acquired the Alabama natural gas interests of HighMount, effective March 1, 2010. The acquisition
included the Companys Alabama coal bed methane operations, including the 532 existing conventional
gas wells in which the Trust has a net profits interest. The transaction was structured as an
acquisition of the membership interests in HighMount Alabama, following which, HighMount Alabamas
name was changed to Walter Exploration &
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Production LLC. Walter Exploration & Production will continue to be party to the
Administrative Services Agreement and Trust Agreement. Walter Exploration & Production will
continue to own all the interests in the Company, and the Company, which has changed its name to
Walter Black Warrior Basin LLC, will continue to own the Underlying Properties. The Trust
continues to have ownership in the Royalty Interests burdening the Underlying Properties and such
sale did not affect that ownership. The Trust anticipates no change in operations or reporting as
a result of the transaction that will significantly impact the Trust or its future revenue stream.
2. BASIS OF ACCOUNTING
The financial statements of the Trust are prepared on a modified cash basis and are not
intended to present financial positions and results of operations in conformity with accounting
principles generally accepted in the United States of America. Preparation of the Trusts
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 5). |
The financial statements of the Trust differ from financial statements prepared in accordance
with accounting principles generally accepted in the United States of America 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. This comprehensive
basis of accounting other than accounting principles generally accepted in the United States of
America corresponds to the accounting permitted for royalty trusts by the U.S. Securities and
Exchange Commission (the SEC), as specified by Staff Accounting Bulletin Topic 12:E, Financial
Statements of Royalty Trusts.
Impairment
The Trustee routinely reviews the Trusts royalty interests in gas properties for impairment
whenever events or circumstances indicate that the carrying amount of an asset may not be
recoverable. If an impairment event occurs and it is determined that the carrying value of the
Trusts royalty interests may not be recoverable, an impairment will be recognized as measured by
the amount by which the carrying amount of the royalty interests exceeds the fair value of these
assets, which would likely be measured by discounting projected cash flows. As of September 30,
2011, no impairment is required.
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Use of Estimates
The preparation of financial statements in conformity with the basis of accounting described
above requires the Trustee to make estimates and assumptions that affect the reported amounts of
certain assets, liabilities, revenues and expenses as of and for the reporting period. Actual
results may differ from such estimates.
3. FEDERAL INCOME TAXES
For federal income tax purposes, the Trust constitutes a fixed investment trust which is taxed
as a grantor trust. A grantor trust is not subject to tax at the trust level. The Unitholders are
considered to own the Trusts income and principal as though no trust were in existence. The
income of the Trust is deemed to have been received or accrued by each Unitholder at the time such
income is received or accrued by the Trust and not when distributed by the Trust.
The Royalty Interests constitute economic interests in oil and gas properties for federal
income tax purposes. Unitholders must report their share of the revenues from the Royalty
Interests as ordinary income from oil and gas royalties and are entitled to claim depletion with
respect to such income.
The classification of the Trusts income for purposes of the passive loss rules may be
important to a Unitholder. Royalty income generally is treated as portfolio income and does not
offset passive losses.
Some Trust Units are held by middlemen, as such term is broadly defined in U.S. Treasury
Regulations (and includes custodians, nominees, certain joint owners, and brokers holding an
interest for a customer in street name, collectively referred to herein as middlemen).
Therefore, the Trustee considers the Trust to be a non-mortgage widely held fixed investment trust
(WHFIT) for U.S. federal income tax purposes. U.S. Trust, Bank of America Private Wealth
Management, EIN: 56-0906609, 901 Main Street, 17th Floor, Dallas, Texas 75202, telephone number
(214) 209-2400, is the representative of the Trust that will provide tax information in accordance
with applicable U.S. Treasury Regulations governing the information reporting requirements of the
Trust as a WHFIT. Tax information is also posted by the Trustee at
www.dom-dominionblackwarriortrust.com. Notwithstanding the foregoing, the middlemen holding Trust
Units on behalf of Unitholders, and not the Trustee of the Trust, are solely responsible for
complying with the information reporting requirements under the U.S. Treasury Regulations with
respect to such Trust Units, including the issuance of IRS Forms 1099 and certain written tax
statements. Unitholders whose Trust Units are held by middlemen should consult with such middlemen
regarding the information that will be reported to them by the middlemen with respect to the Trust
Units.
Unitholders should consult their tax advisors regarding Trust tax compliance matters.
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4. STATE TAX CONSIDERATIONS
The Trust holds properties located in Alabama. Unitholders should consult the Trusts latest
annual report on Form 10-K for a summary of Alabama state tax matters.
5. 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 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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6. CONTINGENCIES
Contingencies related to the Underlying Properties that are unfavorably resolved would
generally be reflected by the Trust as reductions to future royalty income payments to the Trust
with corresponding reductions to cash distributions to Unitholders. The Trustee is aware of no
such items as of September 30, 2011, other than as stated below.
The Trust is named as a defendant in an action, styled Southwest Royalties, Inc. v. Dominion
Black Warrior Basin, Inc., et al., filed in the Circuit Court of Fayette County Alabama on October
5, 2007 regarding the quieting of title in certain oil and gas rights related to property in
Fayette and Tuscaloosa Counties in Alabama. The plaintiff alleges that defendants are knowingly
producing gas in violation of the deeds in question. The plaintiff is also alleging conversion of
gas, continuing trespass by defendants on plaintiffs property and suppression of material facts by
defendants, and plaintiff is requesting an accounting, injunctive relief and compensatory and
punitive damages, plus court costs and attorneys fees. The Trustee does not believe this
litigation will have a material effect on the Trusts financial statements.
* * * * *
Item 2. Trustees Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity and Capital Resources
The Trust makes quarterly cash distributions to 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 the Royalty Interests burdening the Underlying Properties. The
Royalty Interests owned by the Trust burden the interest in the Underlying Properties that is owned
by the Company, an indirect wholly-owned subsidiary of Walter Energy, LLC.
Distributable income of the Trust consists of the excess of royalty income plus interest
income over the administrative expenses of the Trust. Upon receipt by the Trust, royalty income is
invested in short-term investments in accordance with 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 5 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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Results of Operations
Three and Nine Month Periods Ended September 30, 2011 Compared to the Three and Nine Month
Periods Ended September 30, 2010
The Trusts Royalty Interests consist of overriding royalty interests burdening the Companys
interest in the Underlying Properties. The Royalty Interests generally entitle the Trust to
receive 65 percent of the Companys 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.
The Trust received royalty income amounting to $2,120,249 during the third quarter of 2011
compared to $2,393,118 during the third quarter of 2010. This revenue was derived from the receipt
of cash on production of 522,163 mcf at an average price received of $4.06 per mcf after deducting
production taxes of $131,226 compared to 606,000 mcf at an average price received of $3.95 per mcf
after deducting production taxes of $127,260 in the third quarter of 2010. The Trust received
royalty income amounting to $6,285,238 during the nine months ended September 30, 2011 compared to
$7,735,240 during the nine months ended September 30, 2010. This revenue was derived from the
receipt of cash on production of 1.639 MmcF at an average price received of $3.83 per mcf after
deducting production taxes of $392,518 compared to 1,810 Mmcf at an average price received of $4.27
per mcf after deducting production taxes of $634,497 in the nine months ended September 30, 2010.
For the three and nine-month periods ended September 30, 2011, the Trust was negatively impacted by
the decrease in natural gas prices and production, as compared with the three and nine-month
periods ended September 30, 2010. Natural gas 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 volumes is attributed to declining production. 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 2011 amounted to $124 compared to $251 for the
same period in 2010. Interest income during the nine months ended September 30, 2011 amounted to
$549 compared to $601 for the nine months ended September 30, 2010. This decrease is a result of
less funds available in 2011 than in 2010.
General and administrative expenses during the third quarter of 2011 amounted to $203,334
compared to $189,266 in the third quarter of 2010. General and administrative expenses during the
nine months ended September 30, 2011 amounted to $763,197 compared to $764,943 for the nine months
ended September 30, 2010. For this period, these expenses were primarily related to general and
administrative services provided by Walter Exploration & Production, the Trustee and American Stock
Transfer & Trust Company, the transfer agent, and the preparation of periodic reports for
submission to the SEC and to Unitholders during the period. The increase in general and
administrative expenses in the third quarter of 2011 as compared to the third quarter of 2010 is
primarily due to timing of payment of expenses. The
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decrease in general and administrative expenses in the nine months ended September 30, 2011 as
compared to the nine months ended September 30, 2010 was marginal.
Distributable income for the third quarter of 2011 was $1,917,039, or $.24 per Unit, compared
to distributable income for the third quarter of 2010 of $2,204,103, or $.28 per Unit.
Distributable income for the nine months ended September 30, 2011 was $5,522,590 or $.70 per Unit,
compared to $6,970,898, or $.89 per Unit for the nine months ended September 30, 2010. The Trust
made a distribution on September 8, 2011 of $0.251488 per Unit compared to a distribution of
$0.277926 per Unit made during the third quarter of 2010.
Critical Accounting Policies and Estimates
The Trusts financial statements reflect the selection and application of accounting policies
that require the Trust to make significant estimates and assumptions. The following are some of
the more critical judgment areas in the application of accounting policies that currently affect
the Trusts financial condition and results of operations.
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 accounting
principles generally accepted in the United States of America. Preparation of the Trusts
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 5). |
The financial statements of the Trust differ from financial statements prepared in accordance
with accounting principles generally accepted in the United States of America 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. This comprehensive
basis of accounting other than accounting principles generally accepted in the United States of
America corresponds to the accounting permitted for royalty trusts by the SEC, as specified by
Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts.
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Impairment
The net amount of royalty interests in gas properties is limited to the fair value of these
assets, which would likely be measured by discounting projected cash flows. 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. As of September 30, 2011, no impairment is required.
Revenue Recognition
Revenues from Royalty Interests are recognized in the period in which amounts are received by
the Trust. Royalty income received by the Trust in a given calendar year will generally reflect
the proceeds, on an entitlements basis, from natural gas produced and sold for the twelve-month
period ended September 30th in that calendar year. Royalty income received by the Trust in the
third quarter of 2011 generally reflects the proceeds, on an entitlements basis, from natural gas
produced and sold in the second quarter of 2011.
Reserve Disclosure
Independent petroleum engineers estimate the net proved reserves attributable to the Royalty
Interests. In accordance with FASB guidance, estimates of future net revenues from proved reserves
have been prepared using the average market gas prices over the prior 12-month period or applicable
contract price as of December 31, as appropriate, and related costs. Numerous uncertainties are
inherent in estimating volumes and the value of proved reserves and in projecting future production
rates and the timing of development of non-producing reserves. Such reserve estimates are subject
to change as additional information becomes available. The reserves actually recovered and the
timing of production may be substantially different from the reserve estimates.
Contingencies
Contingencies related to the Underlying Properties that are unfavorably resolved would
generally be reflected by the Trust as reductions to future royalty income payments to the Trust
with corresponding reductions to cash distributions to Unitholders. The Trustee is aware of no
such items as of September 30, 2011, other than as stated below.
The Trust is named as a defendant in an action, styled Southwest Royalties, Inc. v. Dominion
Black Warrior Basin, Inc., et al., filed in the Circuit Court of Fayette County Alabama on October
5, 2007 regarding the quieting of title in certain oil and gas rights related to property in
Fayette and Tuscaloosa Counties in Alabama. The plaintiff alleges that defendants are knowingly
producing gas in violation of the deeds in question. The plaintiff is also alleging conversion of
gas, continuing trespass by defendants on plaintiffs property, and suppression of material facts
by defendants, and plaintiff is requesting an accounting, injunctive relief and compensatory and
punitive damages, plus court costs and attorneys fees. The Trustee does not believe this
litigation will have a material effect on the Trusts financial statements.
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Use of Estimates
The preparation of financial statements in conformity with the basis of accounting described
above requires management to make estimates and assumptions that affect the reported amounts of
certain assets, liabilities, revenues and expenses as of and for the reporting period. Actual
results may differ from such estimates.
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 (the Exchange Act). All statements other than statements of historical fact
included in this Form 10-Q, including, without limitation, statements contained in this Trustees
Discussion and Analysis of Financial Condition and Results of Operations regarding the Trusts
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Trust invests in no derivative financial instruments and has no foreign operations or
long-term debt instruments. Other than the Trusts ability to periodically borrow money as
necessary to pay expenses, liabilities and obligations of the Trust that cannot be paid out of cash
held by the Trust, the Trust is prohibited from engaging in borrowing transactions. The amount of
any such borrowings is unlikely to be material to the Trust.
The Trust periodically holds short-term investments acquired with funds held by the Trust
pending distribution to Unitholders and funds held in reserve for the payment of Trust expenses and
liabilities. Because of the short-term nature of these borrowings and investments and certain
limitations upon the types of such investments which may be held by the Trust, the Trustee believes
that the Trust is not subject to any material interest rate risk. Funds held by the Trust pending
distribution to Unitholders and in reserve for the payment of Trust expenses and liabilities are
invested in Bank of America, N.A. money market accounts, which are backed by the good faith and
credit of Bank of America, N.A., but are not insured by the Federal Deposit Insurance Corporation.
Each Unitholder should independently assess the creditworthiness of Bank of America, N.A. For more
information about the credit rating of Bank of America, N.A., please refer to its periodic filings
with the SEC. Additionally, the Trusts future royalty income may be subject to risks relating to
the creditworthiness of the operators of the Underlying Properties and other purchasers of crude
oil and natural gas produced from the Underlying Properties, as well as risks associated with
fluctuations in the price of crude oil and natural gas. See Item 1A Risk Factors Cash held by
the Trustee is not insured by the Federal Deposit Insurance Corporation, and future royalty income
may be subject to risks relating to the creditworthiness of third parties in the Trusts Annual
Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 11, 2011,
which is accessible on the SECs website at www.sec.gov. The Trust does not engage in transactions
in foreign currencies which could expose the Trust or Unitholders to any foreign currency related
market risk. Information contained in Bank of America, N.A.s periodic filings with the SEC is not
incorporated by
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reference into this quarterly report on Form 10-Q and should not be considered part of this
report or any other filing that the Trust makes with the SEC.
Item 4. Controls and Procedures.
As of the end of the period covered by this report, the Trustee carried out an evaluation of
the effectiveness of the design and operation of the Trusts disclosure controls and procedures
pursuant to Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, the Trustee
concluded that the Trusts disclosure controls and procedures are effective in timely recording,
processing, summarizing and reporting, on a timely basis, information required to be disclosed by
the Trust in the reports that it files or submits under the Exchange Act and are effective in
ensuring that information required to be disclosed by the Trust in the reports that it files or
submits under the Exchange Act is accumulated and communicated to the Trustee to allow timely
decisions regarding required disclosure. In its evaluation of disclosure controls and procedures,
the Trustee has relied, to the extent considered reasonable, on information provided by the
Company. There has not been any change in the Trusts internal control over financial reporting
during the period covered by this report that has materially affected, or is reasonably likely to
materially affect, the Trusts internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings.
For a discussion of legal proceedings, see the information under the heading Item 3. Legal
Proceedings in the Trusts Annual Report on Form 10-K for the year ended December 31, 2010 filed
with the SEC on March 11, 2011, which is accessible on the SECs website at www.sec.gov. There
have been no material developments in the legal proceedings disclosed in the Trusts Annual Report
on Form 10-K for the year ended December 31, 2010.
Items 1A through 5. Not applicable.
Item 6. Exhibits.
3.1
|
Trust Agreement of Dominion Resources Black Warrior Trust dated as of May 31, 1994, by and among Dominion Black Warrior Basin, Inc., Dominion Resources, Inc., Mellon Bank (DE) National Association and NationsBank, N.A. (as successor to NationsBank of Texas, N.A.) (filed as Exhibit 3.1 to Dominion Resources, Inc.s Registration Statement on Form S-3 (No. 33-53513), and incorporated herein by reference). | |
3.2
|
First Amendment of Trust Agreement of Dominion Resources Black Warrior Trust dated as of June 27, 1994, by and among Dominion Black Warrior Basin, Inc., Dominion Resources, Inc., Mellon Bank (DE) National Association and NationsBank, N.A. (as successor to NationsBank of Texas, N.A.) (filed as Exhibit 3.2 to the Registrants Form 10-Q for the quarter ended June 30, 1994 and incorporated herein by reference). | |
31.1
|
Certification required by Rule 13a-14(a) or Rule 15d-14(a). | |
32.1
|
Certification required by Rule 13a-14(a) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002. |
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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: BANK OF AMERICA, N.A., TRUSTEE |
||||
By: | /s/ RON E. HOOPER | |||
Ron E. Hooper | ||||
Senior Vice President and Administrator | ||||
Date:
November 8, 2011
(The Trust has no directors or executive officers.)
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Index to Exhibits
Exhibit | ||||
Number | Exhibit | |||
3.1
|
| Trust Agreement of Dominion Resources Black Warrior Trust dated as of May 31, 1994, by and among Dominion Black Warrior Basin, Inc., Dominion Resources, Inc., Mellon Bank (DE) National Association and NationsBank, N.A. (as successor to NationsBank of Texas, N.A.) (filed as Exhibit 3.1 to Dominion Resources, Inc.s Registration Statement* on Form S-3 (No. 33-53513), and incorporated herein by reference). | ||
3.2
|
| First Amendment of Trust Agreement of Dominion Resources Black Warrior Trust dated as of June 27, 1994, by and among Dominion Black Warrior Basin, Inc., Dominion Resources, Inc., Mellon Bank (DE) National Association and NationsBank, N.A. (as successor to NationsBank of Texas, N.A.) (filed as Exhibit 3.2 to the Registrants Form 10-Q for the quarter ended June 30, 1994 and incorporated herein by reference). | ||
31.1
|
| Certification required by Rule 13a-14(a) or Rule 15d-14(a). | ||
32.1
|
| Certification required by Rule 13a-14(a) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002. |
* | On its own behalf and as sponsor of the Dominion Resources Black Warrior Trust |
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