As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

11/12/19  Kiewit Royalty Trust              10-Q        9/30/19   21:524K                                   Toppan Merrill/FA

Document/Exhibit                   Description                      Pages   Size 

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13: R1          Document and Entity Information                     HTML     36K 
20: R2          Condensed Statements of Assets, Liabilities and     HTML     32K 
                Trust Corpus                                                     
17: R3          Condensed Statements of Assets, Liabilities and     HTML     16K 
                Trust Corpus (Parenthetical)                                     
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21: R6          Basis of Presentation                               HTML     13K 
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                (Policies)                                                       
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Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File No. 000-10810

 

KIEWIT ROYALTY TRUST

(Exact name of registrant as specified in its charter)

 

 

Trust Division
U.S. Bank National Association
1700 Farnam Street
Omaha, Nebraska 68102
(Address of principal executive offices and zip code)

 

(402) 536-5100
(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 o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

Smaller reporting company x Emerging growth company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Table of Contents

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

KIEWIT ROYALTY TRUST
CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS

 

September 30, 2019 and

December 31, 2018

(unaudited)

 

		September 30, 2019			December 31, 2018
Assets
Cash and cash equivalents		$	415,666		$	735,748
Royalty and overriding royalty interests in coal leases		167,817			167,817
Less accumulated amortization		(167,817		)	(167,817		)
Net royalty and overriding royalty interests in coal leases		—			—
Total assets		$	415,666		$	735,748
Liabilities
Distributions payable to unit holders		$	—		$	735,748
Trust reserve		415,666			—
Trust Corpus: 12,633,432 units of beneficial interest authorized, issued and outstanding		—			—
Total liabilities and trust corpus		$	415,666		$	735,748

 

The accompanying notes are an integral part of the condensed financial statements.

 

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KIEWIT ROYALTY TRUST

CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME

For the three and nine months ended September 30, 2019 and 2018

(unaudited)

 

		Three Months Ended September 30,
		2019			2018
Royalty income		$	457,911		$	771,106
Interest income		1,502			1,825
Trust expenses		(43,747		)	(52,398		)
Trust reserve		(415,666		)	(720,533		)
Distributable income		$	—		$	—
Distributable income per unit		$	—		$	—

 

		Nine Months Ended September 30,
		2019			2018
Royalty income		$	1,142,923		$	1,400,409
Interest income		5,999			4,119
Trust expenses		(126,867		)	(157,027		)
Trust reserve		(415,666		)	(720,533		)
Distributable income		$	606,389		$	526,968
Distributable income per unit		$	0.0479987		$	0.0417122

 

The accompanying notes are an integral part of the condensed financial statements.

 

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CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS
For the three and nine months ended September 30, 2019 and 2018
(unaudited)

 

		Nine Months Ended September 30,
		2019			2018
Trust corpus at January 1		$	—		$	—
Distributable income		634,327			499,688
Distributions payable to unit holders		—			—
Trust reserve		(634,327		)	(499,688		)
Trust corpus at March 31		—			—
Distributable income		(27,938		)	27,280
Distributions payable to unit holders		(606,389		)	(526,968		)
Trust reserve		634,327			499,688
Trust corpus at June 30		$	—		$	—
Distributable income		415,666			526,968
Distributions payable to unit holders		—			—
Trust reserve		(415,666		)	(526,968		)
Trust corpus at September 30		$	—		$	—

 

The accompanying notes are an integral part of the condensed financial statements.

 

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KIEWIT ROYALTY TRUST

NOTES TO CONDENSED FINANCIAL STATEMENTS

(unaudited)

 

Basis of Presentation

 

The accompanying condensed financial statements have been prepared in accordance with the instructions for Form 10-Q and do not necessarily include all of the information and footnotes required by U.S. generally accepted accounting principles (GAAP) for complete financial statements.  In the opinion of U.S. Bank National Association, as sole trustee of the Trust (the “Trustee”), all adjustments necessary for a fair presentation have been included.  For further information, refer to the financial statements and footnotes included in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2018.

 

Summary of Significant Accounting Policies

 

(a)                                 Basis of Accounting:

 

The condensed financial statements of the Trust, as prepared on the modified cash basis, reflect the Trust’s assets, liabilities, trust corpus, and distributable income as follows:

 

1.                                      Royalty income and interest income are recognized in the month in which amounts are received by the Trust.

 

2.                                      Trust expenses, consisting principally of routine general and administrative costs, include payments made during the accounting period.

 

3.                                      Reserves for liabilities that are contingent or uncertain in amount may also be established if considered necessary.

 

4.                                      Net royalty and overriding royalty interests that are producing properties are amortized using the unit-of-production method.  This amortization is shown as a reduction of Trust corpus.

 

5.                                      Distributions to Unit Holders are recognized when declared by the Trustee.

 

6.                                      Production withholding taxes withheld from Unit Holder distributions and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from royalty income in the condensed statement of distributable income.

 

These condensed statements differ from financial statements prepared in accordance with GAAP and were prepared on the modified cash basis of reporting, which is considered to be the most meaningful because Distributions to Unit Holders are based on net cash receipts.  This comprehensive basis of accounting, other than GAAP, corresponds to the accounting permitted for royalty trusts by the U.S. Securities and Exchange Commission as specified by Staff Accounting Bulletin Topic 12E, Financial Statements of Royalty Trusts.

 

The condensed financial statements of the Trust differ from financial statements prepared in conformity with United States generally accepted accounting principles because of the following:

 

·                  Royalty income and interest income are recognized in the month received rather than in the month of production.

 

·                  Expenses generally are not accrued.

 

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·                  Amortization of the net royalty and overriding royalty interests is shown as a reduction to Trust corpus and not as a charge to operating results.

 

·                  Reserves may be established for contingencies that would not be recorded under GAAP.

 

(b)                                 Cash and Cash Equivalents:

 

The Trust considers all highly liquid financial instruments with original maturities of three months or less when purchased to be cash equivalents.

 

(c)                                  Related Party:

 

The Trust was organized to provide an efficient, orderly and practical means of administering the income received from royalty interests and is administered by the Trustee.  Pursuant to the terms of the Trust Indenture, the Trust pays the Trustee an annual fee of $100,000.  The Trustee may adjust this fee annually in its sole discretion.  The Trust pays a Trustee fee of $25,000 per quarter as long as the Trust has sufficient royalty income to make such payments.

 

(d)                                 Subsequent Events:

 

We have evaluated the Trust activity and have concluded that there are no material subsequent events requiring additional disclosure or recognition in these condensed financial statements.

 

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Item 2.  Trustee’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Overview.

 

Kiewit Royalty Trust (the “Trust”) is a royalty trust with royalty and overriding royalty interests in certain coal leases.  The Trust was formed for the purposes of administering the income received from such coal leases and distributing such income (together with interest earned thereon, if any, less payment of or provision for obligations) to the holders of the units of beneficial interest.

 

During the three-month and nine-month periods ended September 30, 2019, the Trust received a total of $457,911 and $1,142,923, respectively, of royalty and overriding royalty payments, net of production expenses.  The following tables reflect the royalty and overriding royalty payments, net of production expenses, received by the Trust at the following mines:

 

		Three Months Ended September 30,
		2019			2018
Decker Mine		$	457,911		$	659,149
Spring Creek Mine		—			111,957
Total Royalty Income		$	457,911		$	771,106

 

		Nine Months Ended September 30,
		2019			2018
Decker Mine		$	1,142,923		$	1,238,452
Spring Creek Mine		—			161,957
Total Royalty Income		$	1,142,923		$	1,400,409

 

Decker Mine.  Royalty and overriding royalty amounts received by the Trust from the Decker Mine decreased by $201,238 to $457,911 during the third quarter of 2019 as compared to $659,149 received during the same period in 2018  For the nine months ended September 30, 2019 royalty and overriding royalty amounts decreased by $95,529 or 8% to $1,142,923.  The Decker Mine includes West Decker and East Decker Mine leases.  Of the Decker Mines, the primary producer currently is an East Decker Mine.  The changes during the nine month period were the net result of changes in the relative amounts of coal mined, which was a normal result of the execution of a mining plan encompassing several coal leases.  Seasonal fluctuations also occur in the relative amounts of coal mined under the leases with a majority of the royalty payments being received during the first and third calendar quarters of the year.  Although the mine operator has indicated that it does not expect to mine this lease indefinitely, the amount of coal mined is difficult to predict from period to period.

 

Spring Creek Mine.  The Trust did not receive any royalty payments from the Spring Creek Mine during the first nine months of 2019 compared to $161,957 for the first nine months of 2018.  Royalties with respect to this mine are typically paid during the second half of each calendar year but the timing of the first payment varies, and it can be received at the end of the second quarter or beginning of the third quarter.  However, the Trust is uncertain whether additional royalty payments will be received by the Trust in future periods because of financial and operational issues of Cloud Peak Energy, the former owner and operator of the Spring Creek Mine, as well as the depletion of the underlying mine.

 

On May 10, 2019, Cloud Peak Energy Inc. and its subsidiaries (collectively, the “Debtors”) filed voluntary petitions under Chapter 11 of Title 11 of the U.S. Code in the United States Bankruptcy Court

 

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for the District of Delaware (the “Bankruptcy Court”).  Each Debtor intends to continue operating its business as a “debtor in possession” under the jurisdiction of the Bankruptcy Court.  On October 24, 2019, the Debtors announced the sale of substantially all of their operating assets, including the Spring Creek mine, to Navajo Transitional Energy Company, LLC (“Navajo”).  Following the closing of the sale, the Debtors will continue to seek confirmation of their Chapter 11 Plan of Cloud Peak Energy Inc.(as amended and supplemented, the “Plan”) and anticipate seeking confirmation of the Plan at a hearing to be held with the Bankruptcy Court on December 5, 2019.   In connection with the sale, Navajo assumed certain coal production-related pre- and post-petition tax liabilities and coal royalty payments.  The extent of the impact on the Trust of the Debtor’s bankruptcy and recent sale of assets to Navajo currently is unknown, but could have a material adverse effect and negatively impact the Trust’s royalty income.   For the fiscal years ended December 31, 2018, 2017, and 2016, the Trust received $161,957, $211,824, and $78,160 in royalty income, respectively.   These amounts represented 11%, 17%, and 9%, respectively, of the Trust’s total royalty income for those years.

 

Despite the bankruptcy filing and recent sale, the former operator (Cloud Peak Energy) anticipated low production volumes, if any, for this mine for the remainder of 2019 and for calendar years 2020 — 2022 because of the current market conditions and general depletion of the mine.  Production for the Trust was anticipated to be 240,000 tons for fiscal year 2019, and then less than 100,000 tons annually thereafter.

 

Interest Income.  The Trust earns interest on the royalty payments prior to the distribution to the Unit Holders.  During the nine months ended September 30, 2019 and 2018, the Trust earned $5,999 of interest compared to $4,119.  The increase in interest income resulted from additional funds being held in the trust reserve account and from rising interest rates.

 

Trust Expenses.  Trust expenses decreased to $126,867 for the first nine months of 2019, as compared to $157,027 for the same period in 2018.  Trust expenses included fees of the Trustee, accountants, attorneys, and other professionals that the Trustee employs in the administration of the Trust.  During the three month period ended September 30, 2019, trust expenses were $43,747 compared to $52,398, during the same three month period in 2018.

 

Liquidity and Capital Resources.  The Trust’s primary source of liquidity is the receipt of royalty payments.  In accordance with the provisions of the Trust Indenture, generally all income received by the Trust, net of Trust expenses and any amounts placed in reserves, is distributed to the Unit Holders twice per year within ten days after June 30 and December 31 as long as the Trust has sufficient income.

 

Trust Reserves.  During the quarter ended September 30, 2019 the Trust established a reserve in the amount of $415,666.  Accordingly, the Trust did not pay a distribution for the third quarter of 2019 and instead reserved the amount for distribution at the time of the next distribution, which the Trust anticipates will be in January 2020.  During the quarter ended September 30, 2018, the Trust established a reserve in the amount of $720,533, and the Trust did not pay a distribution for the third quarter of 2018 and instead reserved the amount for distribution in January 2019.

 

Change in Trust Corpus.  During the first nine months of 2019 and 2018, the trust corpus remained unchanged.

 

Off-Balance Sheet Arrangements.  As required by the Trust Indenture, the Trust is intended to be passive in nature and the Trustee does not have any control over or any responsibility relating to the operation of the mines under which the Trust has any royalty interests and overriding royalty interests.  The Trustee has powers to collect and distribute proceeds received by the Trust and pay Trust liabilities and expenses and its actions have been limited to those activities.  As a result, the Trust has not engaged in any off-balance sheet arrangements.

 

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Critical Accounting Policies and Estimates.  The Trust’s condensed financial statements are prepared on a modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America, and as such there are no critical accounting policies or estimates.

 

Item 4.  Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures.  As of the end of the period covered by this Form 10-Q, the officer of the Trustee conducted an evaluation of the Trust’s disclosure controls and procedures (as defined in Rules 13a-15(f) of the Securities Exchange Act of 1934).  Based upon this evaluation, the officer of the Trustee concluded that the Trust’s disclosure controls and procedures were effective in timely alerting her of any material information relating to the Trust that is required to be disclosed by the Trust in the reports it files or submits under the Securities Exchange Act of 1934.

 

Changes in Internal Control Over Financial Reporting.  There were no changes in the Trust’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) that occurred during the Trust’s most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting.

 

Limitations on Controls.  The Trustee does not expect that the Trust’s disclosure controls and procedures or the Trust’s internal control over financial reporting will prevent or detect all error and fraud.  Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met.  Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Trust have been detected.

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

There are no material legal proceedings to which the Trust is a party.

 

Item 6. Exhibits.

 

4.1	Kiewit Royalty Trust Indenture dated May 17, 1982, as amended June 9, 1982 and June 23, 1982 (filed as Exhibit 4.1 to the Trust’s Form 10-K with the Securities and Exchange Commission on March 28, 2002, and incorporated herein by reference).
4.2	Order dated September 23, 1994, of the County Court of Douglas County, Nebraska (filed as Exhibit 4.2 to the Trust’s Form 10-K filed with the Securities and Exchange Commission on March 28, 2002, and incorporated herein by reference).
4.3	Order dated August 16, 2016, of the County Court of Douglas County, Nebraska (filed as Exhibit 4.3 to the Trust’s Form 10-Q filed with the Securities and Exchange Commission on November 14, 2016 and incorporated herein by reference).
31*	Certification of Wealth Management Trust Advisor pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.

 

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32**	Certification of Wealth Management Trust Advisor pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS***                              XBRL Instance Document

 

101.SCH***                         XBRL Taxonomy Extension Schema Document

 

101.CAL***                         XBRL Taxonomy Extension Calculation Linkbase Document

 

101.LAB***                         XBRL Taxonomy Extension Label Linkbase Document

 

101.PRE***                           XBRL Taxonomy Extension Presentation Linkbase Document

 

101.DEF***                           XBRL Taxonomy Extension Definition Linkbase Document

 

*                                         Filed herewith

 

**                                  Furnished herewith

 

***                           Furnished herewith.  Pursuant to applicable federal securities rules and regulations, the Trust has complied with the reporting obligation relating to the submission of interactive data files in such exhibits.  Therefore, the Trust is not subject to liability under any anti-fraud provisions of the federal securities laws if the Trust (i) makes a good faith attempt to comply with the interactive data file submission and posting requirements and (ii) upon becoming aware that any such data file fails to comply with such requirements, promptly amends any noncompliant data file.  The Trust is also not subject to the liability and anti-fraud provisions of the federal securities laws if an error or omission in an electronic filing results solely from electronic transmission errors beyond the filer’s control and, upon becoming aware of such error or omission, the filer corrects the error or omission by filing an electronic amendment as soon as reasonably practicable.  Users of this data are advised that the interactive data files are furnished and not filed, are not part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Exchange Act, as amended, and otherwise are not subject to liability under those sections.

 

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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 thereunto duly authorized.

 

	KIEWIT ROYALTY TRUST
	By:	U.S. Bank National Association in its
		capacity as Trustee and not in its
		individual capacity or otherwise
Dated: November 12, 2019
	By:	/s/ Amy M. Chesnut
		Amy M. Chesnut, Wealth Management
		Trust Advisor

 

(The Trust does not have a principal financial or chief accounting officer or any other officers.)

 

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