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, 1995 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)
(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 July 31, 1995
Units of Beneficial Interest 8,313,618
ACCOUNTANT'S REVIEW REPORT
To North European Oil Royalty Trust:
We have reviewed the accompanying statement of assets,
liabilities and trust corpus of North European Oil Royalty Trust
(the "Trust") as of July 31, 1995 and the related statements of
income and expenses on a cash basis for the three and nine months
ended July 31, 1995 and 1994, and the related statements of
changes in cash and cash equivalents and undistributed earnings
for the nine months July 31, 1995 and 1994. These financial
statements are the responsibility of the Trust's management.
The statement of assets, liabilities and trust corpus as of
October 31, 1994 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 4, 1994 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 preformed any
auditting 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 the 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).
2
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.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
August 8, 1995
3
NORTH EUROPEAN OIL ROYALTY TRUST
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, 1995 AND 1994
1995 1994
(unaudited)
------------ ------------
German gas, oil and sulfur
royalties received.................. $ 3,056,999 $ 1,843,579
------------ ------------
Interest income...................... 24,554 14,803
------------ ------------
Trust expenses....................... ( 129,496) ( 197,235)
------------ ------------
Net income on a cash basis...... $ 2,952,057 $ 1,661,147
============ ============
Net income per unit on a cash basis.. $ .35 $ .20
====== ======
Cash distributions paid
or to be paid:
Dividends and distributions per
unit paid to former unlocated
shareholders....................... .00 .03
Distributions per unit to be
paid to certificate holders........ $ .35 $ .16
====== ======
The accompanying accountants' review report and the
notes to financial statements should be read
in conjunction with these statements.
4
NORTH EUROPEAN OIL ROYALTY TRUST
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (NOTE 1)
JULY 31, 1995 AND OCTOBER 31, 1994
1995 1994
(unaudited) (audited)
------------ ------------
Current assets - - Cash and
cash equivalents (Note 1)........... $ 2,949,431 $ 1,848,273
Producing gas and oil royalty
rights, net of amortization
(Notes 1 and 2)..................... 1 1
------------ ------------
$ 2,949,432 $ 1,848,274
Current liabilities - -
Cash distributions payable
to payable tocertificate holders.... $ 2,909,766 $ 1,828,838
Contingent liability (Note 3)
Trust corpus (Notes 1 and 2)......... 1 1
Undistributed earnings............... 39,665 19,435
------------ ------------
$ 2,949,432 $ 1,848,274
============ ============
The accompanying accountants' review report and the
notes to financial statements should be read
in conjunction with these statements.
5
NORTH EUROPEAN OIL ROYALTY TRUST
STATEMENTS OF INCOME AND EXPENSES ON A CASH BASIS (NOTE 1)
FOR THE NINE MONTHS ENDED JULY 31, 1995 AND 1994
1995 1994
(unaudited) (audited)
------------ ------------
German gas, oil and sulfur
royalties received.................. $ 9,450,776 $ 7,537,793
------------ ------------
Interest income...................... 52,309 36,639
------------ ------------
Trust expenses....................... ( 483,867) ( 568,575)
------------ ------------
Net income on a cash basis...... $ 9,019,218 $ 7,005,857
============ ============
Net income per unit on a cash basis.. $1.08 $ .84
====== ======
Cash distributions paid
or to be paid:
Dividends and distributions per
unit paid to former unlocated
shareholders....................... .00 .05
Distributions per unit to be
paid to certificate holders........ $1.08 $ .79
====== ======
The accompanying accountants' review report and the
notes to financial statements should be read
in conjunction with these statements.
6
NORTH EUROPEAN OIL ROYALTY TRUST
STATEMENTS OF CHANGES IN CASH AND CASH EQUIVALENTS (NOTE 1)
FOR THE NINE MONTHS ENDED JULY 31, 1995 AND 1994
1995 1994
(unaudited)
------------ ------------
Sources of cash and
cash equivalents:
German gas, oil and
sulfur royalties................... $ 9,450,776 $ 7,537,793
Interest income.................... 52,309 36,639
----------- -----------
9,503,085 7,574,432
----------- -----------
Uses of cash and cash
equivalents:
Payment of Trust expenses.......... 483,867 568,575
Distributions and dividends
paid (Note 3)...................... 7,918,060 8,332,134
----------- -----------
8,401,927 8,900,700
----------- -----------
Net increase (decrease) in cash
and cash equivalents during
the period.......................... 1,101,158
(1,326,277)
Cash and cash equivalents,
beginning of period................. 1,848,273 2,733,048
----------- -----------
Cash and cash equivalents,
end of period....................... $ 2,949,431 $ 1,406,771
=========== ===========
The accompanying accountants' review report and the
notes to financial statements should be read
in conjunction with these statements.
7
NORTH EUROPEAN OIL ROYALTY TRUST
STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1)
FOR THE NINE MONTHS ENDED JULY 31, 1995 AND 1994
1995 1994
(unaudited)
------------ ------------
Balance, beginning of period......... $ 19,435 $ 43,897
Net income on a cash basis........... 9,019,218 7,005,857
----------- -----------
9,038,653 7,049,754
----------- -----------
Less:
Dividends and distributions
paid to former unlocated
shareholders (Note 3).............. 20,281 412,281
Current year distributions paid
or to be paid to certificate
holders (Note 3)................... 8,978,707 6,560,766
----------- -----------
8,998,988 6,973,047
----------- -----------
Balance, end of period............... $ 39,665 $ 76,707
=========== ===========
The accompanying accountants' review report and the
notes to financial statements should be read
in conjunction with these statements.
8
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 holders (those distributions approved by the
Trustees for the Trust). In the opinion of the Trustees, the use
of the cash basis provides a more meaningful presentation to unit
holders 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
July 31, 1995 and 1994, there were 8,313,618 and 8,312,898 units
of beneficial interest outstanding, respectively.
9
NORTH EUROPEAN OIL ROYALTY TRUST
(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") or of North European Oil Company, corporate
predecessors. As of July 31, 1995, there were 876,972 units that
could be issued to unlocated or unknown Corporation and Company
shareholders and $488,111 in dividends and $25,584,194 in
distributions would be payable if all such shares were exchanged.
The amount of such distributions will increase as further
distributions of the Trust are made and it is possible that
claims by such owners would require substantial payments to a
level where reduced or no funds would be available for some
period of time for regular distribution payments. On the basis
of their experience with such claims, the Trustees believe that
it is unlikely that payments for such claimants would be required
in substantial amounts in any one period of time.
From the liquidation of the Company to October 31, 1994, 717,836
units were issued in exchanges and dividends of $352,959 and
distributions of $4,130,993 were paid to former unlocated
Corporation and Company shareholders. For the nine-month period
ended July 31, 1995, 720 units were issued in exchanges and
dividends of $54 and distributions of $20,715 were paid to former
unlocated Corporation and Company shareholders.
On November 20, 1986, the Escheator for the State of Delaware
commenced an action in the Delaware Court of Chancery. The
proceeding, brought under the escheat laws of Delaware, sought
issuance of certificates for units of beneficial interest which
are issuable in exchange for certain unexchanged shares of
predecessor corporate entities as well as unpaid dividends and
distributions attributable thereto and interest thereon. On
October 25, 1988, the Court entered an Order granting the Trust's
motion to dismiss the Escheator's complaint to the extent that it
asserted a claim of a present entitlement under Delaware law to
such property on the basis that the statutory five-year period of
dormancy had not yet commenced. The Court did, however, permit
the Escheator to seek modification of the Court's prior orders
concerning the Trust in a manner that would make the property
subject to escheat after the period of dormancy. On February 15,
1990, the Delaware Escheator made such a motion, but no further
proceedings have taken place. In July, 1991, the Delaware
10
General Assembly adopted amendments to the Delaware escheat laws
which, if controlling, would result in the period of dormancy,
with respect to the property in issue, having expired. While
other provisions of the law may provide a basis for a court to
conclude again that the period of dormancy has not yet commenced,
there can be no assurance that such an interpretation would
prevail. If the Court were to conclude that the period of
dormancy has not begun, the Escheator may again seek modification
of the Court's prior orders, as discussed above and, following
briefing and argument before the Court, if such a motion were
granted, the five-year dormancy period would then commence.
On the basis of the proceedings which have taken place to date in
this matter, it cannot now be determined what the full extent of
the claim of the Escheator will be, whether the Escheator will
continue to pursue its motion to modify the Court's prior orders
or pursue other relief, or what financial impact any orders or
appeals will have on the Trust or on amounts available for
distribution to Trust beneficial owners. It is possible that at
some time in the future, funds otherwise available for
distribution to unit owners would be required for payments to the
Escheator. In such event, it is possible that substantial
payments would be required in amounts which result in reduced or
no funds being available for some period of time for regular
distribution payments. The Trustees believe, however, after
consultation with counsel, that there exist substantive defenses
to the claims asserted and questions relating to the extent of
property subject to escheat in Delaware and that, in any event,
an extended period of time would probably pass before any final
judgment would be rendered in the litigation. The Trustees
have determined, in response to a recent approach from counsel
for the Escheator, to investigate the feasibility of settling the
pending action. No prediction can be made as to the number of
units and/or the amount of cash and the schedule of issuance or
payment that might be required in connection with any such
settlement or whether any settlement can be reached on terms
acceptable to the Trustees.
No reserves are established or reflected in the financial
statements for the possibility that payments to the Escheator may
be required in the future.
11
<PAGE
NORTH EUROPEAN OIL ROYALTY TRUST
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 77.7% increase in net Trust income for the quarter ended
July 31, 1995 from the prior year's equivalent quarter resulted
primarily from the uninterrupted operation of the Grossenkneten
desulfurization plant throughout the quarter. In comparison to
the prior year's period, during which time the plant experienced
significant disruption due to a combination annual maintenance
and capital improvements, sales for overall Oldenburg increased
by 58.8%. Sales for the higher royalty area of western Oldenburg
showed an even greater improvement increasing 78.9% over the
prior year's period. The normal level of operations at the plant
permitted total sales of 44.3 billion cubic feet for the quarter.
Although gas prices remained relatively unchanged compared to the
prior year, when the exchange rate is taken into consideration,
gas sold for the equivalent of nearly $3.00 per Mcf.
The increase in interest income resulted from the increase in
funds available for investment and from the slowly improving
interest rates in the U.S. The decrease in Trust expenses was
related primarily to lower legal and professional expenses.
The current Statement of Assets, Liabilities and Trust Corpus
of the Trust at July 31, 1995, compared to that at fiscal year
end (October 31, 1994), shows a increase in assets due to
increased 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.
13
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
John R. Van Kirk
---------------------
John R. Van Kirk
Managing Director
Dated: August 29, 1995
14
NORTH EUROPEAN OIL ROYALTY TRUST
EXHIBIT INDEX
-------------
EXHIBIT
NO. DESCRIPTION
------- -----------
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed.
15
NORTH EUROPEAN OIL ROYALTY TRUST
[ARTICLE] 5
[LEGEND]
This schedule contains summary financial information
extracted from the Statements of Assets, Liabilities and Trust
Corpus at July 31, 1995 (Unaudited) and the Statements of Income
and Expenses on a Cash Basis for the Nine Months Ended July 31,
1995 (Unaudited) and is qualified in its entirety by reference to
such financial statements and the accompanying notes.
[/LEGEND]
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] OCT-31-1995
[PERIOD-START] NOV-01-1994
[PERIOD-END] JUL-31-1995
[CASH] 2,949,432
[CURRENT-ASSETS] 2,949,432
[TOTAL-ASSETS] 2,949,432
[CURRENT-LIABILITIES] 2,909,766
[OTHER-SE] 39,666
[TOTAL-LIABILITY-AND-EQUITY] 2,949,432
[TOTAL-REVENUES] 9,503,085
[OTHER-EXPENSES] 483,867
[NET-INCOME] 9,019,218
[EPS-PRIMARY] 1.08