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 July 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
------------------------------------------------------
(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)
(732) 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 July 31, 1997
- ----- -------------------------------
Units of Beneficial Interest 8,696,430
<PAGE>
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 July 31, 1997
and the related statements of income and expenses on a cash basis for the
three and nine months ended July 31, 1997 and 1996, and the related
statements of changes in cash and cash equivalents and undistributed earnings
for the nine months ended July 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
Princeton, New Jersey
September 3, 1997
<PAGE>
PART I -- FINANCIAL INFORMATION
-------------------------------
Item 1. Financial Statements
----------------------------
STATEMENTS OF INCOME AND EXPENSES ON A CASH BASIS (NOTE 1)
-----------------------------------------------------------
FOR THE THREE MONTHS ENDED July 31, 1997 AND 1996
-----------------------------------------------------
1997 1996
----------------- -----------------
(unaudited)
German gas, oil and sulfur
royalties received $ 3,170,930 $ 1,796,511
----------- -----------
Interest income 26,257 16,918
----------- -----------
Trust expenses ( 126,261) ( 139,102)
----------- -----------
Net income on a cash basis $ 3,070,926 $ 1,674,327
=========== ===========
Net income per unit on a cash basis $ .35 $ .19
====== ======
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 $ .36 $ .19
====== ======
The accompanying accountants' review report and the notes to financial
statements should be read in conjunction with these statements.
<PAGE>
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (NOTE 1)
-----------------------------------------------------------
July 31, 1997 AND OCTOBER 31, 1996
-------------------------------------
1997 1996
----------------- -----------------
(unaudited) (audited)
Current assets - - Cash and
cash equivalents (Note 1) $ 3,134,358 $ 2,477,515
Producing gas and oil royalty rights,
net of amortization (Notes 1 and 2) 1 1
----------- -----------
$ 3,134,359 $ 2,477,516
Current liabilities - - Cash distributions
payable to certificate holders $ 3,130,715 $ 2,348,031
Contingent liability (Note 3)
Trust corpus (Notes 1 and 2) 1 1
Undistributed earnings 3,643 129,484
----------- -----------
$ 3,134,359 $ 2,477,516
The accompanying accountants' review report and the notes to financial
statements should be read in conjunction with these statements.
<PAGE>
STATEMENTS OF INCOME AND EXPENSES ON A CASH BASIS (NOTE 1)
------------------------------------------------------------
FOR THE NINE MONTHS ENDED July 31, 1997 AND 1996
--------------------------------------------------
1997 1996
----------------- -----------------
(unaudited)
German gas, oil and sulfur
royalties received $10,514,118 $ 7,156,948
----------- -----------
Interest income 67,609 57,497
----------- -----------
Trust expenses ( 532,194) ( 566,792)
----------- -----------
Net income on a cash basis $10,049,533 $ 6,647,653
=========== ===========
Net income per unit on a cash basis $1.15 $0.76
===== ======
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 $1.17 $0.77
===== ======
The accompanying accountants' review report and the notes to financial
statements should be read in conjunction with these statements.
<PAGE>
STATEMENTS OF CHANGES IN CASH AND CASH EQUIVALENTS (NOTE 1)
-----------------------------------------------------------
FOR THE NINE MONTHS ENDED July 31, 1997 AND 1996
----------------------------------------------------
1997 1996
----------------- -----------------
(unaudited)
Sources of cash and cash equivalents:
German gas, oil and sulfur
royalties $10,514,118 $ 7,156,948
Interest income 67,609 57,496
----------- -----------
10,581,727 7,214,444
----------- -----------
Uses of cash and cash equivalents:
Payment of Trust expenses 532,194 566,792
Distributions and dividends paid
(Note 3) 9,392,690 7,906,807
----------- -----------
9,924,884 8,473,599
----------- -----------
Net increase(decrease) in cash and
cash equivalents during the period 656,843 (1,259,155)
Cash and cash equivalents,
beginning of period 2,477,515 2,951,227
----------- -----------
Cash and cash equivalents,
end of period $ 3,134,358 $ 1,692,072
=========== ===========
The accompanying accountants' review report and the notes to financial
statements should be read in conjunction with these statements.
<PAGE>
STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1)
---------------------------------------------
FOR THE NINE MONTHS ENDED July 31, 1997 AND 1996
----------------------------------------------------
1997 1996
----------------- -----------------
(unaudited)
Balance, beginning of period $ 129,484 $ 41,333
Net income on a cash basis 10,049,533 6,647,652
----------- -----------
10,179,017 6,688,985
----------- -----------
Less:
Dividends and distributions paid to
former unlocated shareholders (Note 3) 558 63,292
Current year distributions paid or
to be paid to certificate holders
(Note 3) 10,174,816 6,585,934
----------- -----------
10,175,374 6,649,226
----------- -----------
Balance, end of period $ 3,643 $ 39,759
=========== ===========
The accompanying accountants' review report and the notes to financial
statements should be read in conjunction with these statements.
<PAGE>
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 income 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.
<PAGE>
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 July 31,
1997 and 1996, there were 8,696,430 and 8,696,382 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 nine-month period ended July 31, 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. Under the terms of the
settlement, any claims by unlocated or unknown shareholders of the
Trust's corporate predecessors for units subject to the settlement
and past dividends and distributions thereon ("subsequent claims") will
be paid by the Escheator and the Trust on a proportionate basis. For
the period until June 30, 2000, subsequent claims will be paid by the
Escheator and the Trust on a 50:50 basis. For the period 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
<PAGE> subsequent claims. As of the receipt of the August, 1997 distribution,
the maximum liability of the Escheator will be $5,609,624.
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 July 31, 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 $27,018,729 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.
<PAGE>
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 royalties from the operating companies,
subsidiaries of Mobil, Exxon and the Royal Dutch Group, based on their sales
of gas, sulfur and oil. These royalties are paid in Deutsche marks and are
converted into U.S. dollars at the time of their transfer. 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. All percentage comparisons in the
following discussion and analysis refer to the prior year's comparable
period.
Net Trust income increased by 83.4% to $3,070,926, permitting a
distribution of 36 cents per unit, an increase of 89.5% from the distribution
of 19 cents in the prior year's period. Although the large percentage
increase in net Trust income for the quarter resulted at least in part from
comparison with a quarter marred by production interruptions, several
positive factors contributed to higher royalty receipts. These factors
included increased overall Oldenburg gas sales, increased percentage of gas
sales subject to the additional and higher royalty agreement covering
western Oldenburg and higher gas prices.
Overall Oldenburg gas sales, subject to a royalty rate of .6667%, were
38.1 billion cubic feet ("Bcf") during the quarter compared to 32.6 Bcf for
the prior year, an increase of 16.9%. The increase in the level of gas sales
was limited by a reduction of approximately one third in the processing
capacity at the Grossenkneten desulfurization plant during June. Normal
annual maintenance, which began in June, along with unanticipated levels of
corrosion in the tail-gas units at Grossenkneten necessitated this reduction
in plant capacity.
Gas sales from western Oldenburg, subject to an additional royalty rate
of 4% for a combined total of 4.6667%, were 19.6 Bcf, up from 10.9 Bcf in
last year's quarter, and accounted for 51.3% of overall Oldenburg gas sales.
This increase in the percentage of western gas sales heightened the impact of
the higher royalty rate. Gas sold from western Oldenburg accounted for 88.5%
of all royalties received by the Trust in the quarter just ended.
Overall Oldenburg gas prices increased 36.8% to an average of 1.95
pfennigs per Kwh (Pf/Kwh) for the quarter. Gas prices under the higher
royalty agreement in western Oldenburg increased by 34.3% to an average of
1.94 Pf/Kwh. When converted into more familiar terms using the respective
average exchange rates, gas prices were equivalent to $3.15 and $3.19 per
Mcf, under the lower and higher royalty agreement respectively.
<PAGE>
Other than the temporary reduction in the processing capacity at
Grossenkneten, the only factor that negatively affected Trust royalties
during the quarter just ended was the exchange rate. The Deutsche mark fell
to its lowest value since the third quarter of fiscal 1991. The average
value for the Deutsche mark for the quarter just ended was 57.25 cents
compared to 65.45 cents for the prior year's period, a decline of 12.5%.
The increase in interest income during the quarter resulted primarily
from increased funds available for investment. The absence of charges
connected to the settlement with the State of Delaware biennial audit of the
German operating companies and reduced legal fees in general decreased the
Trust's expenses.
The current Statement of Assets, Liabilities and Trust Corpus of the
Trust at July 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.
For the nine month fiscal period, net Trust income was $10,049,533, an
increase of 51.2% from the prior year's parallel period. Cumulative
distributions for the nine month period are $1.17 per unit compared to $0.77
paid during the same period last year, an increase of 51.9%.
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
were to be required for payments to owners of units not previously presented
for issuance, quarterly distributions would be reduced to the extent required
to provide funds for such payments.
<PAGE>
<PAGE>
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: September 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statements of Assets, Liabilities and Trust Corpus at July 31, 1997 and the
Statements of Income and Expenses on a Cash Basis for the Three Months Ended
July 31, 1997 and is qualified in its entirety by reference to such financial
statements and the accompanying notes.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 3,134,358
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,134,358
<PP&E> 1
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,134,359
<CURRENT-LIABILITIES> 3,130,715
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,644
<TOTAL-LIABILITY-AND-EQUITY> 3,134,359
<SALES> 0
<TOTAL-REVENUES> 3,197,187
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 126,261
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,070,926
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,070,926
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
