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, 1998 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 January 31, 1998
- ----- -------------------------------
Units of Beneficial Interest 8,696,430
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,
1998 and the related statements of income and expenses on a cash basis for
the
three months ended January 31, 1998 and 1997, and the related statements of
changes in cash and cash equivalents and undistributed earnings for the three
months ended January 31, 1998 and 1997. These financial statements are the
responsibility of the Trust's management.
The statement of assets, liabilities and trust corpus as of October 31, 1997
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, 1997
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 10, 1998
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, 1998 AND 1997
-----------------------------------------------------
1998
1997 ----------------
- ----------------
(unaudited)
German gas, oil and sulfur
royalties received $ 3,788,273 $ 3,832,201
----------- -----------
Interest income 22,047 16,106
----------- -----------
Trust expenses ( 144,990) ( 270,300)
----------- -----------
Net income on a cash basis $ 3,665,330 $ 3,578,007
=========== ===========
Net income per unit on a cash basis $ .42 $ .41
====== ======
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
Unit owners $ .42 $ .42
====== ======
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (NOTE 1)
-----------------------------------------------------------
JANUARY 31, 1998 AND OCTOBER 31, 1997
-------------------------------------
1998 1997
----------------
- ----------------
(unaudited) (audited)
Current assets - - Cash and
cash equivalents (Note 1) $ 3,732,861 $ 3,024,317
Producing gas and oil royalty rights,
net of amortization (Notes 1 and 2) 1 1
----------- -----------
$ 3,732,862 $ 3,024,318
Current liabilities - - Cash distributions
payable to unit owners $ 3,652,501 $ 2,956,786
Contingent liability (Note 3)
Trust corpus (Notes 1 and 2) 1 1
Undistributed earnings 80,360 67,531
----------- -----------
$ 3,732,862 $ 3,024,318
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, 1998 AND 1997
----------------------------------------------------
1998
1997 ----------------
- ----------------
(unaudited)
Sources of cash and cash equivalents:
German gas, oil and sulfur
royalties $ 3,788,273 $ 3,832,201
Interest income 22,047 16,106
----------- -----------
3,810,320 3,848,307
----------- -----------
Uses of cash and cash equivalents:
Payment of Trust expenses 144,990 270,300
Distributions and dividends paid
(Note 3) 2,956,786 2,348,031
----------- -----------
3,101,776 2,618,331
----------- -----------
Net increase(decrease) in cash and
cash equivalents during the period 708,544 1,229,976
Cash and cash equivalents,
beginning of period 3,024,317 2,477,515
----------- -----------
Cash and cash equivalents,
end of period $ 3,732,861 $ 3,707,491
=========== ===========
STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1)
---------------------------------------------
FOR THE THREE MONTHS ENDED JANUARY 31, 1998 AND 1997
----------------------------------------------------
1998 1997
---------------- ----------------
(unaudited)
Balance, beginning of period $ 67,531 $ 129,484
Net income on a cash basis 3,665,330 3,578,007
----------- -----------
3,732,861 3,707,491
----------- -----------
Less:
Dividends and distributions paid to
former unlocated shareholders (Note 3) 0 0
Current year distributions paid or
to be paid to unit owners (Note 3) 3,652,501 3,652,493
----------- -----------
3,652,501 3,652,493
----------- -----------
Balance, end of period $ 80,360 $ 54,998
=========== ===========
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 unit 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, 1998 and 1997, there were 8,696,430 and 8,696,412 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, 1997, 721,088 Trust
units were issued in exchange and dividends of $353,992 and
distributions of $4,227,151 were paid to former unlocated Corporation
and Company shareholders. For the three-month period ended
January 31, 1998, there were no units issued in exchanges and no
dividends or 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, 1998 distribution,
the maximum liability of the Escheator will be $5,887,277.
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, 1998,
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 $27,394,317 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, 1998, gross royalty income
declined 1.1% to $3,788,273 compared to the prior year's equivalent
quarter. Net income, reflecting both the higher interest income and the
lower level of Trust expenses, increased 2.4% to $3,665,330. 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 4.3% to 60,959 MMcf (million cubic feet)
with gas sales from the higher royalty area of western Oldenburg
increasing by 1.5% to 23,339 MMcf. Gas prices for Oldenburg (both
overall and western) increased as well by 2.6% and 10.6% respectively.
The average exchange rate applied to transfers from overall and western
Oldenburg declined 10.2% and 12.3% to dollar equivalents of $0.5595 and
$0.5664 respectively. Applying these average exchange rates we are able
to convert the German gas prices, normally calculated in pfennigs per
Kwh, to more familiar terms of $2.75 and $2.78 per Mcf for the
respective areas of Oldenburg.
The increase in interest income resulted from the greater amount
of funds available for investment. Trust expenses declined by 46.4%
from the prior year's period reflecting reduced Trust and legal
and professional expenses.
The current Statement of Assets, Liabilities and Trust Corpus of
the Trust at January 31, 1998, compared to that at fiscal year end
(October 31, 1997), 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 anticipated Trust expenses. 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 Owners was held February 11, 1998.
(b) The following persons were re-elected Trustees of the Trust to
serve
until the 1999 Annual Meeting of Unit Owners:
Robert P. Adelman (7,036,064 votes for; 26,939 withheld)
Robert J. Castle (7,036,664 votes for; 26,339 withheld)
Samuel M. Eisenstat (7,035,364 votes for; 27,639 withheld)
Willard B. Taylor (7,036,664 votes for; 26,339 withheld)
John H. Van Kirk (7,034,364 votes for; 28,639 withheld)
(c) The designation of the firm of Arthur Andersen LLP as auditor for
the Trust for 1998 fiscal year was ratified with the following vote totals:
7,021,568 votes for; 10,593 votes against and 30,842 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 12, 1998
<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, 1998 and the
Statements of Income and Expenses on a Cash Basis for the three months ended
January 31, 1998 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-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 3,732,861
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,732,862
<CURRENT-LIABILITIES> 3,652,501
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 80,361
<TOTAL-LIABILITY-AND-EQUITY> 3,732,862
<SALES> 0
<TOTAL-REVENUES> 3,810,320
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 144,990
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,665,330
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,665,330
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,665,330
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
