SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended April 30, 1996 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 1-8245
NORTH EUROPEAN OIL ROYALTY TRUST
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(Exact name of registrant as specified in its charter)
Delaware 22-2084119
- ----------------------- ---------------------------
(State of organization) (I.R.S. Employer I.D. No.)
Suite 19A, 43 West Front Street, Red Bank, New Jersey 07701
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(Address of principal executive offices)
(908) 741-4008
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(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
Class Outstanding at April 30, 1996
- ----- -------------------------------
Units of Beneficial Interest 8,695,122
ARTHUR ANDERSEN LLP
ACCOUNTANT'S REVIEW REPORT
----------------------------
To North European Oil Royalty Trust:
We have reviewed the accompanying statements of assets, liabilities and trust
corpus of North European Oil Royalty Trust (the "Trust") as of April 30, 1996
and the related statements of income and expenses on a cash basis for the
three- and six-month periods ended April 30, 1996 and 1995, and the related
statements of changes in cash and cash equivalents and undistributed earnings
for the six months ended April 30, 1996 and 1995. These financial statements
are the responsibility of the Trust's management.
The statement of assets, liabilities and trust corpus as of October 31, 1995
of the Trust was maintained on the cash basis rather than the accrual basis of
accounting and was audited by us. Our report dated November 8, 1995 indicates
the statement did not purport to present, and in our opinion did not present,
financial position and results of operations in conformity with generally
accepted accounting principles which require the use of the accrual basis of
accounting. We have not performed any auditing procedures since that date.
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 accounts of the Trust are maintained on a cash basis of accounting under
which income is not recorded until collected instead of when earned, and
expenses are recorded when paid instead of when incurred. Thus, the
accompanying financial statements are not intended to present financial
position and results of operations in conformity with generally accepted
accounting principles which require the use of the accrual basis of accounting
(see Note 1).
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 cash basis of accounting.
As discussed in Note 3, the Trust has a contingent liability relating to
unclaimed units and distributions. No reserves are established or reflected
in the financial statements for the possibility that funds would be required
to satisfy such claims.
/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP
Roseland, New Jersey
May 7, 1996
PART I -- FINANCIAL INFORMATION
-------------------------------
Item 1. Financial Statements
----------------------------
STATEMENTS OF INCOME AND EXPENSES ON A CASH BASIS (NOTE 1)
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FOR THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995
-----------------------------------------------------
1996 1995
----------------- -----------------
(unaudited)
German gas, oil and sulfur
royalties received $ 2,671,845 $ 3,633,648
----------- -----------
Interest income 19,752 17,456
----------- -----------
Trust expenses ( 184,533) ( 174,670)
----------- -----------
Net income on a cash basis $ 2,507,064 $ 3,476,434
=========== ===========
Net income per unit on a cash basis $ .29 $ .42
====== ======
Cash distributions paid or to be paid:
Dividends and distributions per unit
paid to former unlocated shareholders .00 .00
Distributions per unit to be paid to
certificate holders $ .29 $ .42
====== ======
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (NOTE 1)
-----------------------------------------------------------
APRIL 30, 1996 AND OCTOBER 31, 1995
-------------------------------------
1996 1995
----------------- -----------------
(unaudited) (audited)
Current assets - - Cash and
cash equivalents (Note 1) $ 2,577,968 $ 2,951,227
Producing gas and oil royalty rights,
net of amortization (Notes 1 and 2) 1 1
----------- -----------
$ 2,577,969 $ 2,951,228
Current liabilities - - Cash distributions
payable to certificate holders $ 2,521,585 $ 2,909,894
Contingent liability (Note 3)
Trust corpus (Notes 1 and 2) 1 1
Undistributed earnings 56,383 41,333
----------- -----------
$ 2,577,969 $ 2,951,228
The accompanying accountants' review report and the notes to financial
statements should be read in conjunction with these statements.
STATEMENTS OF INCOME AND EXPENSES ON A CASH BASIS (NOTE 1)
------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995
--------------------------------------------------
1996 1995
----------------- -----------------
(unaudited)
German gas, oil and sulfur
royalties received $ 5,360,437 $ 6,393,778
----------- -----------
Interest income 40,578 27,754
----------- -----------
Trust expenses ( 427,690) ( 354,371)
----------- -----------
Net income on a cash basis $ 4,973,325 $ 6,067,161
=========== ===========
Net income per unit on a cash basis $.57 $.73
==== ====
Cash distributions paid or to be paid:
Dividends and distributions per unit
paid to former unlocated shareholders .00 .00
Distributions per unit to be paid
to certificate holders $.58 $.73
==== ====
The accompanying accountants' review report and the notes to financial
statements should be read in conjunction with these statements.
STATEMENTS OF CHANGES IN CASH AND CASH EQUIVALENTS (NOTE 1)
-----------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995
----------------------------------------------------
1996 1995
----------------- -----------------
(unaudited)
Sources of cash and cash equivalents:
German gas, oil and sulfur
royalties $ 5,360,437 $ 6,393,778
Interest income 40,578 27,754
----------- -----------
5,401,015 6,421,532
----------- -----------
Uses of cash and cash equivalents:
Payment of Trust expenses 427,690 354,371
Distributions and dividends paid
(Note 3) 5,346,584 4,405,836
----------- -----------
5,774,274 4,760,207
----------- -----------
Net increase(decrease) in cash and
cash equivalents during the period ( 373,259) 1,661,325
Cash and cash equivalents,
beginning of period 2,951,227 1,848,273
----------- -----------
Cash and cash equivalents,
end of period $ 2,577,968 $ 3,509,598
=========== ===========
STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1)
---------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995
----------------------------------------------------
1996 1995
----------------- -----------------
(unaudited)
Balance, beginning of period $ 41,333 $ 19,435
Net income on a cash basis 4,973,325 6,067,161
----------- -----------
5,014,658 6,086,596
----------- -----------
Less:
Dividends and distributions paid to
former unlocated shareholders (Note 3) 25,385 0
Current year distributions paid or
to be paid to certificate holders
(Note 3) 4,932,890 6,086,415
----------- -----------
4,958,275 6,068,415
----------- -----------
Balance, end of period $ 56,383 $ 18,181
=========== ===========
The accompanying accountants' review report and the notes to financial
statements should be read in conjunction with these statements.
NORTH EUROPEAN OIL ROYALTY TRUST
--------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Unaudited)
-----------
(1) Summary of significant
accounting policies:
----------------------
Basis of accounting -
-------------------
The accounts of North European Oil Royalty Trust (the "Trust") are
maintained on a cash basis of accounting with the exception of the
accrual for distributions to be paid to certificate holders (those
distributions approved by the Trustees for the Trust). The Trust's
distributable incomes represents royalty income received by the Trust
during the period plus interest income less any expenses incurred by
the Trust, all on a cash basis. In the opinion of the Trustees, the
use of the cash basis provides a more meaningful presentation to unit
holders of the results of operations of the Trust.
Producing gas and oil
royalty rights -
---------------------
The rights to certain gas and oil royalties in Germany were transferred
to the Trust at their net book value by North European Oil Company (the
"Company") (see Note 2). The net book value of the royalty rights has
been reduced to one dollar ($1) in view of the fact that the remaining
value of royalty rights is de minimis relative to annual royalties
received and distributed by the Trust and does not bear any meaningful
relationship to the fair value of such rights or the actual amount of
proved producing reserves.
Federal and state income taxes -
------------------------------
The Trust, as a grantor trust, is exempt from Federal and state income
taxes under a private letter ruling issued by the Internal Revenue
Service.
Cash and cash equivalents -
-------------------------
Included in cash and cash equivalents are amounts deposited in bank
accounts and amounts invested in certificates of deposit and U. S.
Treasury bills with maturities of three months or less.
Net income per unit
on the cash basis -
-------------------
Net income per unit on the cash basis is based upon the number of units
outstanding at the end of the period (see Note 3). As of April 30,
1996 and 1995, there were 8,695,122 and 8,312,898 units of beneficial
interest outstanding, respectively.
(2) Formation of the Trust:
-----------------------
The Trust was formed on September 10, 1975. As of September 30, 1975,
the Company was liquidated and the remaining assets and liabilities of
the Company, including its royalty rights, were transferred to the
Trust.
(3) Contingent liability:
---------------------
The Trust serves as fiduciary for certain unlocated or unknown
shareholders of the Trust's corporate predecessors, North European Oil
Corporation (the "Corporation") and North European Oil Company. From
the liquidation of the Company to October 31, 1995, 718,992 units were
issued in exchanges and dividends of $353,230 and distributions of
$4,162,423 were paid to former unlocated Corporation and Company
shareholders. For the six-month period ended April 30, 1996, 858
units, not including those described below, were issued in exchanges
and $54 in dividends and $25,331 in distributions were paid to former
unlocated Corporation and Company shareholders.
On February 26, 1996 the settlement of litigation between the Trust and
the Delaware State Escheator was approved by the Delaware Court of
Chancery. As of that date, there were a total of 875,748 authorized
but unissued units, of which 760,560 were subject to the settlement,
representing the unexchanged shares of the Trust's predecessor
corporations. Under the settlement, 380,280 units were issued to the
Escheator on April 17, 1996. Of the units remaining to be issued to
the Escheator, 50% would be issued to the Escheator by June 30, 2000
and the balance by June 30, 2005. Until June 30, 2000, claims by
unlocated or unknown shareholders of the Trust's corporate predecessors
for units and past dividends and distributions thereon ("subsequent
claims") will be paid by the Escheator and the Trust on a 50:50 basis.
From July 1, 2000 to June 30, 2005, subsequent claims will be paid by
the Escheator and the Trust on a 75:25 basis. Any subsequent claims
will reduce the number of units to be issued to the Escheator in 2000
or 2005. Following the final issuance of units to the Escheator in
2005, the Trust's contingent liability for past dividends and
distributions attributable to all unexchanged Corporation and Company
shares subject to the settlement will be completely eliminated. Under
the terms of the settlement, the maximum liability of the Escheator for
subsequent claims is limited to the value of the units received, plus
current distributions on units retained, less the Escheator's share of
subsequent claims. As of April 30, 1996, the maximum liability of the
Escheator is $4,943,640.
Under the settlement, the Trust is not required to make payments of
arrearages of Company dividends or Trust distributions with respect to
units issued or to be issued to the Escheator. As of April 30, 1996,
there remained a total of 495,468 units that could be issued to
unlocated or unknown Corporation and Company shareholders and $275,782
in dividends and $14,915,237 in distributions would be payable if all
such units were issued. Of these amounts, $212,328 in dividends and
$11,447,694 in distributions are represented by the 380,280 units that
are subject to the settlement and remain to be issued to the Escheator.
In the opinion of the Trustees, based on the history of exchanges
during the last ten years, the maximum liability of the Escheator would
be adequate to cover the Escheator's share of any subsequent claims
and, in any event, the Trust's contingent liability for such claims
will be eliminated in 2005.
This settlement also permits the Trust to seek to apply the same or
similar settlement procedures to the authorized but unissued units that
were not subject to the litigation (115,188 units as of April 30,
1996). Any additional issuances that occur in the course of subsequent
settlements with respect to these units would involve minimal dilution.
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations.
------------------------------------
The Trust is a passive investment trust which holds overriding royalty
rights and receives monthly income from the operating companies based on their
sales of gas, sulfur and oil. The Trust does not engage in any business
activities and has no need of funds beyond the funds available from monthly
royalties to cover operating expenses. Accordingly, neither liquidity nor
capital resources are pertinent factors in its activities or operations.
The 27.8% decline in net Trust income for the quarter ended April 30,
1996 from the prior year's equivalent quarter resulted from a combination of
factors. Although overall sales from the Oldenburg concession increased by
19.2%, this increase was concentrated in the lower royalty area of eastern
Oldenburg. Sales from the higher royalty area of western Oldenburg decreased
by 7.7%. Prices for gas in both the higher and lower royalty areas,
approximately $2.40 per Mcf., declined by 17.2% and 10% respectively. The
average exchange rate applicable to transfers of royalty payments declined by
5.6% and was equal to 67.1 cents. In addition, the first issuance of units in
settlement of the suit by the Delaware State Escheator took place in April
and, with the additional units outstanding, distributions were reduced by 1
cent per unit.
The increase in interest income resulted both from the increase in funds
available for investment and higher interest rates in the U.S. The increase
in Trust expenses is primarily related to the biennial audit of the German
operating companies.
The current Statement of Assets, Liabilities and Trust Corpus of the
Trust at April 30, 1996, compared to that at fiscal year end (October 31,
1995), shows a decrease in assets due to lower royalty receipts during the
quarter.
As mandated by the Trust Agreement, distributions of income are made on
a quarterly basis. These distributions, as determined by the Trustees,
constitute substantially all the funds on hand after provision is made for
Trust expenses then anticipated. As permitted by the Trust Agreement, no
provision is made for the retention of reserve funds of any kind. If funds
are required for payments to owners of units not previously presented for
issuance or currently in litigation, quarterly distributions would be reduced
to the extent required to provide funds for such payments.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
---------
None.
(b) Reports on Form 8-K
-------------------
A report on Form 8-K dated February 26, 1996 was filed
with the Securities and Exchange Commission reporting the
announcement of the signing of an Order Approving the Joint
Petition of the Settlement of Pending Litigation by Vice
Chancellor Jack B. Jacobs of the Delaware Court of Chancery.
The Form 8-K included as exhibits, the press release and the
Order Approving Settlement, both dated February 26, 1996.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTH EUROPEAN OIL ROYALTY TRUST
--------------------------------
(Registrant)
By: /S/ John R. Van Kirk
----------------------------
John R. Van Kirk
Managing Director
Dated: June 12, 1996
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<LEGEND>
This schedule contains summary financial information extracted from the
Statements of Assets, Liabilities and Trust Corpus at April 30, 1996 and the
Statements of Income and Expenseson a Cash Basis for the Six Months Ended April
30, 1996 and is qualified in its entirety by reference to such financial
statements and the accompanying notes.
</LEGEND>
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