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, 2001 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
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(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
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Class Outstanding at January 31, 2001
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Units of Beneficial Interest 8,886,804
ARTHUR ANDERSEN
ACCOUNTANTS' REVIEW REPORT
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To the Unit Owners and Trustees of
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, 2001 and the related statements of income and expenses on a
cash basis for the three months ended January 31, 2001 and 2000, and the
related statements of changes in cash and cash equivalents and
undistributed earnings for the three months ended January 31, 2001 and
2000. These financial statements are the responsibility of the Trust's
management.
The statement of assets, liabilities and trust corpus as of
October 31, 2000 of the Trust was maintained on a cash basis rather than
the accrual basis of accounting and was audited by us. Our report dated
November 9, 2000 indicates the statement did not purport to present, and in
our opinion did not present, financial position and results of operations
in conformity with accounting principles generally accepted in the United
States 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 accounting principles
generally accepted in the United States 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
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ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 7, 2001
PART I -- FINANCIAL INFORMATION
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Item 1. Financial Statements
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STATEMENTS OF INCOME AND EXPENSES ON A CASH BASIS (NOTE 1)
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FOR THE THREE MONTHS ENDED JANUARY 31, 2001 AND 2000
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2001 2000
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(unaudited)
German gas, oil and sulfur
royalties received $ 6,441,960 $ 3,499,675
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Interest income 30,310 15,072
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Trust expenses ( 149,409) ( 148,741)
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Net income on a cash basis $ 6,322,861 $ 3,366,006
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Net income per unit on a cash basis $ .71 $ .39
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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 $ .71 $ .39
====== ======
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (NOTE 1)
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JANUARY 31, 2001 AND OCTOBER 31, 2000
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2001 2000
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(unaudited) (audited)
Current assets - - Cash and
cash equivalents (Note 1) $ 6,336,812 $ 2,946,596
Producing gas and oil royalty rights,
net of amortization (Notes 1 and 2) 1 1
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Total Assets $ 6,336,813 $ 2,946,597
=========== ===========
Current liabilities - - Cash distributions
payable to unit owners $ 6,309,631 $ 2,932,645
Contingent liability (Note 3)
Trust corpus (Notes 1 and 2) 1 1
Undistributed earnings 27,181 13,951
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Total Liabilities and Trust Corpus $ 6,336,813 $ 2,946,597
=========== ===========
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)
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FOR THE THREE MONTHS ENDED JANUARY 31, 2001 AND 2000
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2001 2000
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(unaudited)
Sources of cash and cash equivalents:
German gas, oil and sulfur royalties $ 6,441,960 $ 3,499,675
Interest income 30,310 15,072
Reimbursement for prior payment
of past dividends and distributions 0 0
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$ 6,472,270 $ 3,514,747
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Uses of cash and cash equivalents:
Payment of Trust expenses 149,409 148,741
Distributions and dividends paid (Note 3) 2,932,645 2,262,171
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3,082,054 2,410,912
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Net increase(decrease) in cash and
cash equivalents during the period 3,390,216 1,103,835
Cash and cash equivalents,
beginning of period 2,946,596 2,319,172
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Cash and cash equivalents,
end of period $ 6,336,812 $ 3,423,007
=========== ===========
STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1)
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FOR THE THREE MONTHS ENDED JANUARY 31, 2001 AND 2000
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2001 2000
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(unaudited)
Balance, beginning of period $ 13,951 $ 58,044
Reimbursement for prior payment
of past dividends and distributions 0 0
Net income on a cash basis 6,322,861 3,366,006
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6,336,812 3,424,050
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Less:
Dividends and distributions paid to
former unlocated shareholders (Note 3) 0 1,043
Current year distributions paid or
to be paid to unit owners (Note 3) 6,309,631 3,391,704
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6,309,631 3,392,747
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Balance, end of period $ 27,181 $ 31,303
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The accompanying accountants' review report and the notes to financial
statements should be read in conjunction with these statements.
NORTH EUROPEAN OIL ROYALTY TRUST
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NOTES TO FINANCIAL STATEMENTS
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(Unaudited)
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(1) Summary of significant accounting policies:
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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.
Use of Estimates -
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements. Actual results may differ from
those estimates.
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, 2001 and 2000, there were 8,886,804 and 8,696,676 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. The Trust on behalf of the owners of
beneficial interest in the Trust holds overriding royalty rights
covering gas and oil production in certain concessions or leases in
the Federal Republic of Germany. These rights are held under contracts
with local German exploration and development subsidiaries of Exxon
Mobil Corp. and the Royal Dutch Group. Under these contracts, the
Trust receives various percentage royalties on the proceeds of the
sales of certain products from the areas involved. At the present
time, royalties are received for sales of gas well gas, oil well gas,
crude oil, distillate and sulfur.
(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, 2000, 721,364 Trust
units were issued in exchange for Corporate or Company shares and
dividends of $354,101 and distributions of $4,236,544 were paid to
former unlocated Corporation and Company shareholders. For the three-
month period ended January 31, 2001, there were no units issued in
exchanges and no dividends and no 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 Trust units remaining to be issued
to the Escheator, approximately 50% (190,128 units)have been issued to
the Escheator as of June 30, 2000 and the remaining balance will be
issued by June 30, 2005. Through 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")were
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 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, 2001 distribution, the maximum liability of the Escheator will
be $10,731,827.
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, 2001,
there remained a total of 303,786 units that could be issued to
unlocated or unknown Corporation and Company shareholders. Of this
total, 190,122 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, $487,096 in dividends and $29,358,084 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 fixed investment trust which holds overriding
royalty rights, receives income under those rights from certain operating
companies, pays its expenses and distributes the remaining net funds to its
unit owners. The Trust does not engage in any business or extractive
operations of any kind in the areas over which it holds royalty rights and
is precluded from any such involvement by the Trust Agreement. There are no
requirements, therefore, for capital resources with which to make capital
expenditures or investments in order to continue the receipt of royalty
revenues by the Trust.
The operating companies, subsidiaries of Exxon Mobil Corp. and the Royal
Dutch Group, pay monthly royalties to the Trust based on their sales of
natural gas, sulfur and oil. The Oldenburg concession is the primary area
from which these products are extracted and provides nearly 100% of all the
royalties received by the Trust. Of these three products, natural gas
provides approximately 98% of the total royalties.
For the quarter ended January 31, 2001, gross royalty income increased
84% to $6,441,960 compared to the prior year's equivalent quarter. Net
income, reflecting both the higher interest income and the slight increase
in the level of Trust expenses, increased 87.8% to $6,322,861. Of all the
factors affecting royalty income, the substantial increase in gas prices had
the most significant impact on Trust royalties. Indeed, gas prices have
increased almost consistently quarter over quarter since the second quarter
of calendar 1999 reflecting the significant increase in world oil prices.
Compared to the prior year's equivalent quarter the average price of gas sold
during the quarter just ended under both the higher and lower royalty rate
agreements increased by 89.1% to 1.5603 Ecents per Kwh and by 100.2% to
1.5956 Ecents per Kwh, respectively. The average dollar value of the Euro
improved during this most recent quarter compared to the immediately
preceding quarter but still declined by 10.2% to 0.9020 for the prior year's
equivalent quarter. When we use the average value of the Euro and convert
prices into more familiar terms, gas prices under the higher and lower
royalty rate agreements were $4.05 per Mcf and $4.09 per Mcf, respectively.
Although overall gross gas sales declined by 5.5% from the prior year's
equivalent quarter to 66.45 billion cubic feet ("Bcf"), gas sales from the
higher royalty rate area of western Oldenburg increased by 9.5% to 26.7 Bcf.
With an effective royalty rate approximately seven times greater in western
Oldenburg this shift in gas sales more than compensated for the overall
decline in gas sales.
Trust expenses of $149,409 were virtually unchanged from last year.
Interest income more than doubled from $15,072 to $30,310 reflecting the
increased funds available for investment and the higher interest rates on
those funds.
The current Statement of Assets, Liabilities and Trust Corpus of the
Trust at January 31, 2001, compared to that at fiscal year end
(October 31, 2000), 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, 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.
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(a) The Annual Meeting of Unit Owners was held February 14, 2001.
(b) The following persons were re-elected Trustees of the Trust to
serve until the 2002 Annual Meeting of Unit Owners:
Robert P. Adelman (7,520,132 votes for; 33,723 withheld)
Samuel M. Eisenstat (7,529,327 votes for; 24,528 withheld)
Willard B. Taylor (7,530,999 votes for; 22,856 withheld)
John H. Van Kirk (7,530,009 votes for; 23,846 withheld)
(c) The designation of the firm of Arthur Andersen LLP as auditor for
the Trust for 2001 fiscal year was ratified with the following vote totals:
6,993,105 votes for; 20,343 votes against and 540,407 abstained.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
SIGNATURE
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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, 2001