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, 1997 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
-------------------------------------------------------------
(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, 1997
- ----- -------------------------------
Units of Beneficial Interest 8,696,412
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,
1997 and the related statements of income and expenses on a cash basis for the
three months ended January 31, 1997 and 1996, and the related statements of
changes in cash and cash equivalents and undistributed earnings for the three
months ended January 31, 1997 and 1996. These financial statements are the
responsibility of the Trust's management.
The statement of assets, liabilities and trust corpus as of October 31, 1996
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 1, 1996 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 7, 1997
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, 1997 AND 1996
-----------------------------------------------------
1997 1996
----------------- -----------------
(unaudited)
German gas, oil and sulfur
royalties received $ 3,832,201 $ 2,688,592
----------- -----------
Interest income 16,106 20,826
----------- -----------
Trust expenses ( 270,300) ( 243,157)
----------- -----------
Net income on a cash basis $ 3,578,007 $ 2,466,261
=========== ===========
Net income per unit on a cash basis $ .41 $ .30
====== ======
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 $ .42 $ .29
====== ======
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (NOTE 1)
-----------------------------------------------------------
JANUARY 31, 1997 AND OCTOBER 31, 1996
-------------------------------------
1997 1996
----------------- -----------------
(unaudited) (audited)
Current assets - - Cash and
cash equivalents (Note 1) $ 3,707,491 $ 2,477,515
Producing gas and oil royalty rights,
net of amortization (Notes 1 and 2) 1 1
----------- -----------
$ 3,707,492 $ 2,477,516
Current liabilities - - Cash distributions
payable to certificate holders $ 3,652,493 $ 2,348,031
Contingent liability (Note 3)
Trust corpus (Notes 1 and 2) 1 1
Undistributed earnings 54,998 129,484
----------- -----------
$ 3,707,492 $ 2,477,516
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, 1997 AND 1996
----------------------------------------------------
1997 1996
----------------- -----------------
(unaudited)
Sources of cash and cash equivalents:
German gas, oil and sulfur
royalties $ 3,832,201 $ 2,688,592
Interest income 16,106 20,826
----------- -----------
3,848,307 2,709,418
----------- -----------
Uses of cash and cash equivalents:
Payment of Trust expenses 270,300 243,157
Distributions and dividends paid
(Note 3) 2,348,031 2,935,279
----------- -----------
2,618,331 3,178,436
----------- -----------
Net increase(decrease) in cash and
cash equivalents during the period 1,229,976 ( 469,018)
Cash and cash equivalents,
beginning of period 2,477,515 2,951,227
----------- -----------
Cash and cash equivalents,
end of period $ 3,707,491 $ 2,482,209
=========== ===========
STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1)
---------------------------------------------
FOR THE THREE MONTHS ENDED JANUARY 31, 1997 AND 1996
----------------------------------------------------
1997 1996
----------------- -----------------
(unaudited)
Balance, beginning of period $ 129,484 $ 41,333
Net income on a cash basis 3,578,007 2,466,261
----------- -----------
3,707,491 2,507,594
----------- -----------
Less:
Dividends and distributions paid to
former unlocated shareholders (Note 3) 0 25,385
Current year distributions paid or
to be paid to certificate holders
(Note 3) 3,652,493 2,411,304
----------- -----------
3,652,493 2,436,689
----------- -----------
Balance, end of period $ 54,998 $ 70,905
=========== ===========
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 owners (those distributions approved by the Trustees for
the Trust). The Trust's distributable incomes represent 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 owners 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,
1997 and 1996, there were 8,696,412 and 8,314,842 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") and of
North European Oil Company, corporate predecessors of the Trust. From the
liquidation of the Company to October 31, 1996, 721,070 units were issued
in exchanges and dividends of $353,992 and distributions of $4,226,593
were paid to former unlocated Corporation and Company shareholders. For
the three-month period ended January 31, 1997, there were no units issued
in exchanges and no dividends and 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 the receipt of the
February, 1997 distribution, the maximum liability of the Escheator will
be $5,349,474.
Under the Trust Agreement as deemed amended by the February 26, 1996
Delaware Court Order, 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 January 31, 1997,
there remained a total of 494,178 units that could be issued to unlocated
or unknown Corporation and Company shareholders. Of this total, 380,280
units are subject to the settlement and remain to be issued to the
Escheator. If all shares, represented by the units already issued as well
as the units remaining to be issued, were presented for exchange, $487,132
in dividends and $26,687,787 in distributions would be payable. In the
opinion of the Trustees, based in part on the history of exchanges during
the last ten fiscal years, the maximum liability of the Escheator would be
adequate to cover the Escheator's share of any subsequent claims. In any
event, the Trust's contingent liability for all claims for arrearages will
be eliminated in 2005.
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, subsidiaries
of Mobil, Exxon and the Royal Dutch Group, 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.
For the quarter ended January 31, 1997, gross royalty income increased
42.5% to $3,832,201 compared to the prior year's equivalent quarter. Of all
the factors affecting royalty income, only the exchange rate declined when
compared to the prior year's period. For the three-month period, overall
Oldenburg gas sales increased by 20.5% to 58,429 MMcf (million cubic feet)
with gas sales from western Oldenburg increasing by 34.3% to 22,986 MMcf. Gas
prices for Oldenburg (both overall and western) increased as well by 25.7% and
12% respectively. Despite an 8.6% decline in the average value of the
Deutsche mark to 62.9 cents, gas prices for both overall and western Oldenburg
averaged $2.96 and $2.83 per Mcf respectively. Trust expenses increased by
11.2% primarily as a result of the acceleration of the payment of some
expenses normally paid in the second quarter and from a lump sum payment to a
retired employee.
The decline in interest income resulted from both the decline in funds
available for investment and reduced interest rates on T-bills.
The current Statement of Assets, Liabilities and Trust Corpus of the
Trust at January 31, 1997, compared to that at fiscal year end (October 31,
1996), shows an increase in assets due to higher 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 12, 1997.
(b) The following persons were re-elected Trustees of the Trust to serve
until the 1998 Annual Meeting of Unit Holders:
Robert P. Adelman (6,762,738 votes for; 31,676 withheld)
Robert J. Castle (6,762,938 votes for; 31,476 withheld)
Samuel M. Eisenstat (6,755,970 votes for; 38,444 withheld)
Willard B. Taylor (6,761,553 votes for; 32,861 withheld)
John H. Van Kirk (6,761,343 votes for; 33,071 withheld)
(c) The designation of the firm of Arthur Andersen & Co. as auditor for
the Trust for 1997 fiscal year was ratified with the following vote totals:
6,749,790 votes for; 10,261 votes against and 34,363 abstained.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
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 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Assets, Liabilities and Trust Corpus at January 31, 1997 and the
Statements of Income and Expenses on a Cash Basis for the Three Months Ended
January 31, 1997 and is qualified in its entirety by reference to such financial
statements and the accompanying notes.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 3,707,492
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,707,492
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,707,492
<CURRENT-LIABILITIES> 3,652,493
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 54,999
<TOTAL-LIABILITY-AND-EQUITY> 3,707,492
<SALES> 0
<TOTAL-REVENUES> 3,848,307
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 270,300
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 0
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<DISCONTINUED> 0
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<NET-INCOME> 3,578,007
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
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