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 January 31, 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
------------------------------------------------------
(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
-------------------------------------------------------------
(Address of principal executive offices)
(908) 741-4008
----------------------------------------------------
(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 January 31, 1996
- ----- -------------------------------
Units of Beneficial Interest 8,314,842
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 January 31,
1996 and the related statements of income and expenses on a cash basis for the
three months ended January 31, 1996 and 1995, and the related statements of
changes in cash and cash equivalents and undistributed earnings for the three
months January 31, 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
February 8, 1996
PART I -- FINANCIAL INFORMATION
-------------------------------
Item 1. Financial Statements
----------------------------
STATEMENTS OF INCOME AND EXPENSES ON A CASH BASIS (NOTE 1)
-----------------------------------------------------------
FOR THE THREE MONTHS ENDED JANUARY 31, 1996 AND 1995
-----------------------------------------------------
1996 1995
----------------- -----------------
(unaudited)
German gas, oil and sulfur
royalties received $ 2,688,592 $ 2,760,129
----------- -----------
Interest income 20,826 10,298
----------- -----------
Trust expenses ( 243,157) ( 179,701)
----------- -----------
Net income on a cash basis $ 2,466,261 $ 2,590,726
=========== ===========
Net income per unit on a cash basis $ .30 $ .31
====== ======
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 $ .31
====== ======
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (NOTE 1)
-----------------------------------------------------------
JANUARY 31, 1996 AND OCTOBER 31, 1995
-------------------------------------
1996 1995
----------------- -----------------
(unaudited) (audited)
Current assets - - Cash and
cash equivalents (Note 1) $ 2,482,209 $ 2,951,227
Producing gas and oil royalty rights,
net of amortization (Notes 1 and 2) 1 1
----------- -----------
$ 2,482,210 $ 2,951,228
Current liabilities - - Cash distributions
payable to certificate holders $ 2,411,304 $ 2,909,894
Contingent liability (Note 3)
Trust corpus (Notes 1 and 2) 1 1
Undistributed earnings 70,905 41,333
----------- -----------
$ 2,482,210 $ 2,951,228
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 THREE MONTHS ENDED JANUARY 31, 1996 AND 1995
----------------------------------------------------
1996 1995
----------------- -----------------
(unaudited)
Sources of cash and cash equivalents:
German gas, oil and sulfur
royalties $ 2,688,592 $ 2,760,129
Interest income 20,826 10,298
----------- -----------
2,709,418 2,770,427
----------- -----------
Uses of cash and cash equivalents:
Payment of Trust expenses 243,157 179,701
Distributions and dividends paid
(Note 3) 2,935,279 1,828,838
----------- -----------
3,178,436 2,008,539
----------- -----------
Net increase(decrease) in cash and
cash equivalents during the period ( 469,018) 761,888
Cash and cash equivalents,
beginning of period 2,951,227 1,848,273
----------- -----------
Cash and cash equivalents,
end of period $ 2,482,209 $ 2,610,161
=========== ===========
STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1)
---------------------------------------------
FOR THE THREE MONTHS ENDED JANUARY 31, 1996 AND 1995
----------------------------------------------------
1996 1995
----------------- -----------------
(unaudited)
Balance, beginning of period $ 41,333 $ 19,435
Net income on a cash basis 2,466,261 2,590,726
----------- -----------
2,507,594 2,610,161
----------- -----------
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) 2,411,304 2,576,998
----------- -----------
2,436,689 2,576,998
----------- -----------
Balance, end of period $ 70,905 $ 33,163
=========== ===========
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 except for distributions to be paid to
certificate holders (those distributions approved by the Trustees for
the Trust). 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 January 31,
1996 and 1995, there were 8,314,842 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 North European Oil Corporation (the "Corporation") or of
North European Oil Company, corporate predecessors. 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 three-
month period ended January 31, 1996, 858 units were issued in exchanges
and $54 in dividends and $25,331 in distributions were paid to former
unlocated Corporation and Company shareholders.
As of January 31, 1996, there were 875,748 units that could be issued to
unlocated or unknown Corporation and Company shareholders and $488,111 in
dividends and $26,108,964 in distributions would be payable if all such
shares were exchanged. The amount of such distributions will increase as
further distributions of the Trust are made and it is possible that claims
by such owners would require substantial payments to a level where reduced
or no funds would be available for some period of time for regular
distribution payments. On the basis of their experience with such claims,
the Trustees believe that it is unlikely that payments for such claimants
would be required in substantial amounts in any one period of time.
On November 20, 1986, the Escheator for the State of Delaware commenced an
action in the Delaware Court of Chancery seeking issuance, under Delaware
escheat statutes, of certificates for units of beneficial interest which
are issuable in exchange for certain unexchanged Corporate or Company
shares as well as unpaid dividends and distributions. Following partial
resolution of the suit in 1988, discussions for possible settlement of the
proceeding were suggested by representatives for the Escheator. On
December 7, 1995, as a result of these discussions, attorneys for the
Trust and the Delaware Attorney General representing the Escheator filed a
joint petition in the Delaware Chancery Court seeking approval for a
settlement of the litigation on negotiated terms. The settlement requires
approval of the Court after opportunity for public hearing. The Court has
appointed a Solicitor ad litem to represent the interests of the unlocated
shareholders.
As of January 31, 1996 there were a total of 875,748 authorized but
unissued units reflecting the unexchanged shares of the Trust's
predecessor corporations. If the proposed settlement is approved, 760,560
units will be issued to the Escheator in three installments as follows:
within thirty (30) days after the Court's order approving the settlement
becomes final and non-appealable, one-half of these units (380,280) will
be issued to the Escheator; subject to reductions for subsequent
exchanges, an additional 50% of the remaining units will be issued in the
year 2000; and the remainder in the year 2005. As these units are issued
and become outstanding, they will be entitled to receive the ordinary
distributions of the Trust.
Under the terms of the settlement, the Trust would not be required to make
payments of arrearages of Company dividends or Trust distributions to the
Escheator with respect to the units issued. Claims for the issuance of
units and the payment of prior dividends and distributions received before
the year 2005 from previously unlocated shareholders would be paid jointly
by the Escheator and the Trust under a formula provided in the settlement,
with claimant owners entitled to receive both units and arrears payments.
Until the final issuance of units in 2005, the Escheator's liability will
be limited to the total value of units and distributions it has received.
Any claims in excess of this amount will be paid by the Trust. After the
final issuance of units in the year 2005, no further payments of
arrearages of Company dividends or Trust distributions would be required
to be paid to shareholders subject to this settlement and the contingent
liability for such possibility described above would no longer be
applicable.
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 January 31,
1996). Any additional issuances that occur as in the course of subsequent
settlements with respect to these units would involve some additional
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 4.8% decline in net Trust income for the quarter ended January 31,
1996 from the prior year's equivalent quarter resulted primarily from two
factors. These two factors were a 20% decline in gas sales from the western
portion of the Oldenburg concession and an increase in expenses related to the
preparation and filing of the joint petition for settlement with the Delaware
Court of Chancery and the biennial audit of the operating companies in
Germany. Although the impact of the drop in gas sales was mitigated by
increases in average prices and exchange rates, the net negative impact on the
distribution was equivalent to nearly a 1 cent per unit. Likewise, the
increase in expenses was equivalent to over a 3/4 cent decline in income per
unit. After rounding, these two factors accounted for the majority of the 2
cent decline in distributions per unit. Despite the large decline in gas
sales from western Oldenburg, overall gas sales declined by only 4.4% to 48.5
billion cubic feet for the quarter with gas prices averaging $2.55 per Mcf.
For the quarter the average value of the Deutsche mark was equal to 68.9
cents.
The increase in interest income resulted both from the increase in funds
available for investment and higher interest rates in the U.S.
The current Statement of Assets, Liabilities and Trust Corpus of the
Trust at January 31, 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.
Part II -- OTHER INFORMATION
----------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
(a) The annual meeting of Unit Holders was held February 13, 1996.
(b) The following persons were re-elected Trustees of the Trust to serve
until the 1997 Annual Meeting of Unit Holders:
Robert P. Adelman (6,703,308 votes for; 33,301 withheld)
Robert J. Castle (6,707,458 votes for; 29,151 withheld)
Willard B. Taylor (6,705,268 votes for; 31,341 withheld)
John H. Van Kirk (6,707,748 votes for; 28,861 withheld)
(c) The designation of the firm of Arthur Andersen & Co. as auditor for
the Trust for 1996 fiscal year was ratified with the following vote totals:
6,702,078 votes for; 6,511 votes against and 28,020 abstained.
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 December 11, 1995 was filed with the
Securities and Exchange Commission reporting the distribution of a press
release dated December 7, 1995 and the mailing of a Form of Notice to Owners
submitted to the Delaware Court of Chancery on December 7, 1995 for approval
and subsequent distribution to owners. The Notice contains the complete text
of the Joint Petition for Approval of Settlement of Pending Litigation between
the Escheator for the State of Delaware and the Trustees of North European Oil
Royalty Trust.
A report on Form 8-K dated January 13, 1996 was filed with the
Securities and Exchange Commission reporting the mailing of an advisory
letter, dated January 8, 1996, to certificate holders concerning cost
depletion computations to be made by holders for their personal income tax
returns under the Internal Revenue Code. The Form 8-K included as exhibits,
the advisory letter and a letter report, dated December 21, 1995, prepared by
Ralph E. Davis Associates, Inc. located at 3555 Timmons Lane, Suite #1105 in
Houston, Texas, 77027. The Davis report detailed the computations used to
derive the cost depletion percentage contained in the advisory letter.
A report on Form 8-K dated March 4, 1996 was filed with the
Securities and Exchange Commission reporting the distribution of a press
release dated February 26, 1996 and the announcement on the same date of the
signing by Vice Chancellor Jack B. Jacobs of the Delaware Court of Chancery of
the Order Approving the Joint Petition of the Settlement of Pending Litigation
between the Escheator for the State of Delaware and the Trustees of North
European Oil Royalty Trust.
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
/s/ John R. Van Kirk
---------------------------------
John R. Van Kirk
Managing Director
Dated: March 11, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statements of Assets, Liabilities and Trust Corpus at January 31, 1996 and the
Statements of Income and Expenses on a Cash Basis for the Three Months Ended
January 31, 1996 and is qualified in its entirety by reference to such financial
statements and the accompanying notes.
</LEGEND>
<CIK> 0000072633
<NAME> NORTH EUROPEAN OIL ROYALTY TRUST
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 2,482,210
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,482,210
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,482,210
<CURRENT-LIABILITIES> 2,411,304
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 70,906
<TOTAL-LIABILITY-AND-EQUITY> 2,482,210
<SALES> 0
<TOTAL-REVENUES> 2,709,418
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 243,157
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<CHANGES> 0
<NET-INCOME> 2,466,261
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
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