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, 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
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(Address of principal executive offices)
(732) 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, 1997
- ----- -------------------------------
Units of Beneficial Interest 8,696,430
ARTHUR ANDERSEN LLP
ACCOUNTANTS' 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, 1997
and the related statements of income and expenses on a cash basis for the
three- and six-month periods ended April 30, 1997 and 1996, and the related
statements of changes in cash and cash equivalents and undistributed earnings
for the six months ended April 30, 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
May 8, 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 APRIL 30, 1997 AND 1996
-----------------------------------------------------
1997 1996
----------------- -----------------
(unaudited)
German gas, oil and sulfur
royalties received $ 3,510,987 $ 2,671,845
----------- -----------
Interest income 25,246 19,752
----------- -----------
Trust expenses ( 135,633) ( 184,533)
----------- -----------
Net income on a cash basis $ 3,400,600 $ 2,507,064
=========== ===========
Net income per unit on a cash basis $ .39 $ .29
====== ======
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 $ .39 $ .29
====== ======
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (NOTE 1)
-----------------------------------------------------------
APRIL 30, 1997 AND OCTOBER 31, 1996
-------------------------------------
1997 1996
----------------- -----------------
(unaudited) (audited)
Current assets - - Cash and
cash equivalents (Note 1) $ 3,455,040 $ 2,477,515
Producing gas and oil royalty rights,
net of amortization (Notes 1 and 2) 1 1
----------- -----------
$ 3,455,041 $ 2,477,516
Current liabilities - - Cash distributions
payable to certificate holders $ 3,391,608 $ 2,348,031
Contingent liability (Note 3)
Trust corpus (Notes 1 and 2) 1 1
Undistributed earnings 63,432 129,484
----------- -----------
$ 3,455,041 $ 2,477,516
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, 1997 AND 1996
--------------------------------------------------
1997 1996
----------------- -----------------
(unaudited)
German gas, oil and sulfur
royalties received $ 7,343,188 $ 5,360,437
----------- -----------
Interest income 41,352 40,578
----------- -----------
Trust expenses ( 405,933) ( 427,690)
----------- -----------
Net income on a cash basis $ 6,978,607 $ 4,973,325
=========== ===========
Net income per unit on a cash basis $.80 $.57
==== ====
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 $.81 $.58
==== ====
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, 1997 AND 1996
----------------------------------------------------
1997 1996
----------------- -----------------
(unaudited)
Sources of cash and cash equivalents:
German gas, oil and sulfur
royalties $ 7,343,188 $ 5,360,437
Interest income 41,352 40,578
----------- -----------
7,384,540 5,401,015
----------- -----------
Uses of cash and cash equivalents:
Payment of Trust expenses 405,933 427,690
Distributions and dividends paid
(Note 3) 6,001,082 5,346,584
----------- -----------
6,407,015 5,774,274
----------- -----------
Net increase(decrease) in cash and
cash equivalents during the period 977,525 ( 373,259)
Cash and cash equivalents,
beginning of period 2,477,515 2,951,227
----------- -----------
Cash and cash equivalents,
end of period $ 3,455,040 $ 2,577,968
=========== ===========
STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1)
---------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, 1997 AND 1996
----------------------------------------------------
1997 1996
----------------- ----------------
(unaudited)
Balance, beginning of period $ 129,484 $ 41,333
Net income on a cash basis 6,978,607 4,973,325
----------- -----------
7,108,091 5,014,658
----------- -----------
Less:
Dividends and distributions paid to
former unlocated shareholders (Note 3) 558 25,385
Current year distributions paid or
to be paid to certificate holders
(Note 3) 7,044,101 4,932,890
----------- -----------
7,044,659 4,958,275
----------- -----------
Balance, end of period $ 63,432 $ 56,383
=========== ===========
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 owners (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
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 April 30,
1997 and 1996, there were 8,696,430 and 8,695,122 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, 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 six-month period ended April 30, 1997, 18
units were issued in exchanges and $0 in dividends and $558 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 representing the unexchanged shares of the Trust's
predecessor corporations. Out of this total, 760,560 units were
subject to the settlement. 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 May,
1997 distribution, the maximum liability of the Escheator is
$5,484,752.
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 April 30, 1997,
there remained a total of 494,160 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 $26,840,858 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 such claims 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 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 35.6% increase in net Trust income for the quarter ended April
30, 1997 from the prior year's equivalent quarter resulted from a combination
of an increase in gas sales under the higher royalty agreement covering
western Oldenburg and higher gas prices. As a likely result of the
comparatively warmer winter, overall gas sales from the Oldenburg concession
declined by 5.1%. However, despite the overall decline, sales from western
Oldenburg increased by 31.7%. Prices for gas under both the higher and
lower royalty agreements, equivalent to approximately $2.80 per Mcf.,
increased by 32.3% and 31.2% respectively. The average exchange rate
applicable to transfers of royalty payments declined by 12.3% and was equal to
58.8 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
decrease in Trust expenses is related to the absence of charges connected to
the biennial audit of the German operating companies and reduced legal fees
in general.
The current Statement of Assets, Liabilities and Trust Corpus of
the Trust at April 30, 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.
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
--------------------------------
(Registrant)
By: /S/ John R. Van Kirk
----------------------------
John R. Van Kirk
Managing Director
Dated: June 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statements of Assets, Liabilities and Trust Corpus at April 30, 1997 and the
Statements of Income and Expenses on a Cash Basis for the Six Months Ended April
30, 1997 and is qualified in its entirety by reference to such financial
statements and the accompanying notes.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> APR-30-1997
<CASH> 3,455,040
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,455,041
<CURRENT-LIABILITIES> 3,391,608
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 63,433
<TOTAL-LIABILITY-AND-EQUITY> 3,455,041
<SALES> 0
<TOTAL-REVENUES> 3,536,233
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 135,633
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,400,600
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,400,600
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
