SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the fiscal year ended December 31, 2011
For the transition period from to
COMMISSION FILE NUMBER: 000-10810
KIEWIT ROYALTY TRUST
(Exact name of registrant as specified in its charter)
U.S. Bank National Association
1700 Farnam Street
Omaha, Nebraska 68102
(Address of principal executive offices)
Registrants telephone number, including area code: (402) 536-5100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Units of Beneficial Interest
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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 ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files.) Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
There is no active trading market for the Units of Beneficial Interest. As a result, the aggregate market value of the Units of Beneficial Interest is not available.
This Form 10-K includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbor created thereby. All statements other than statements of historical fact included in this Form 10-K are forward-looking statements. Such statements include, without limitation, factors affecting the price of coal and certain statements regarding the Trusts financial position, industry conditions and other matters. Although the Trustee believes that the expectations reflected in such forward-looking statements are reasonable, such expectations are subject to numerous risks and uncertainties, and the Trustee can give no assurance that they will prove to be correct. There are many factors, none of which are within the Trustees control, that may cause such expectations not to be realized.
Purpose of the Trust. Kiewit Royalty Trust (the Trust) was organized by Peter Kiewit Sons, Inc. (now, known as Level 3 Communications, Inc.) (the Trustor) under the laws of the State of Nebraska on May 17, 1982 to provide an efficient, orderly and practical means of administrating the income received from three royalty interests and sixteen overriding royalty interests in leases of four coal mines located in the States of Montana and Wyoming (the Coal Royalties). The trustee of the Trust is U.S. Bank National Association, Omaha, Nebraska (the Trustee), which is a wholly-owned subsidiary of U.S. Bancorp, a bank holding company. The Coal Royalties are the interests retained in the four mine properties under the leases of the mineral rights to the mining companies who have developed, mined, and sold the coal from these mines. In general, the Coal Royalties entitle the Trust to a specified portion of the value of the total coal production from these mines, free of the expense of development and operation.
The Coal Royalties were conveyed by the Trustor to the Trust for the benefit of the holders of record of the Trustors Class B and Class C common stock as of June 10, 1982. Ownership of beneficial interests in the Trust is represented by 12,633,432 units of beneficial interest (hereinafter referred to as Units). The Trust is a purely ministerial trust which distributes the available revenues generated by the Coal Royalties, net of the Trusts expenses, to the holders of Units. Trust expenses include but are not limited to, fees of the Trustee, and compensation paid to geologists, engineers, accountants, attorneys, or other professionals that the Trustee may, in its discretion, employ in the administration of the Trust. With respect to any liability that is contingent or uncertain in amount or that otherwise is not currently due, the Trustee has the discretion to establish cash reserves for the payment thereof.
The Coal Royalties. The Coal Royalties provide for the payment of either a specified amount per ton of coal produced, or a fixed percentage of the value or price with respect to the coal produced under the leases relating to these interests. The remaining terms of the individual Coal Royalties vary considerably, as does the acreage covered by the underlying coal leases, the estimated total tons of coal within a legal description of property as evidenced by a lease (the Tons Under Lease) and the estimated total tons of coal under lease that can be economically extracted under existing market conditions (Current Economic Tons). In general, the Current Economic Tons will be less than the total Tons Under Lease because the cost of extracting a portion of the total Tons Under Lease will outweigh the price at which the coal could be sold. In addition, Current Economic Tons may be reduced by the refusal of a state and/or federal authority to grant a permit to mine portions of the coal reserves within a specific property. The inability to extract the total Tons Under Lease or the inability to sell any portion of the coal extracted will reduce the royalties payable to the Trust.
The following chart sets forth the actual total amount of coal production during the past two years at the Decker and Spring Creek mines:
Tons of Coal Produced
The following sets forth certain information about each of the mine properties in which the Trust continues to hold a Coal Royalty:
DECKER MINE. Decker Coal Company (Decker) operates this mine, which is located in Big Horn County, Montana, approximately 20 miles north of Sheridan, Wyoming. Decker is a joint venture between KCP Inc., a wholly-owned subsidiary of Level 3 Communications, Inc. and Rio Tinto Energy America. Each company owns a fifty percent (50%) interest in the joint venture. This mine is managed by the Kiewit Mining Group. The
Decker Mine in its entirety includes approximately 23,371 acres. The Trust owns overriding royalty interests in six leases at the Decker Mine. The terms of the Trusts overriding royalty interests of each lease as of December 31, 2011, are set forth in the table below, of which the accompanying notes are an integral part:
SPRING CREEK MINE. Spring Creek Coal Company (Spring Creek) operates this mine, which is located in Big Horn County, Montana, approximately 25 miles north of Sheridan, Wyoming. Spring Creek is a subsidiary of NERCO, Inc. The Spring Creek Mine in its entirety includes approximately 2,560 acres. The Trust owns an overriding royalty interest in one lease at the Spring Creek Mine. The terms of the overriding royalty interest of the lease as of December 31, 2011, are set forth in the table below, of which the accompanying note is an integral part:
In addition to its interests in the foregoing leases, the Trust has overriding royalty interests in other leases from which no production is currently contemplated and/or which are considered to be not mineable because of access, alluvial valley, or other problems.
Financial Information about Segments. The Trusts sole activity is the collection and distribution of the revenues generated by the Coal Royalties. Accordingly, the Trust operates in a single business segment.
Financial Information about Geographic Areas. All of the Trusts 2011 income was generated from royalty income received from sources located in the United States.
Available Information. The Trust does not have an Internet website. However, the Trust electronically files annual, quarterly and current reports with the SEC. The SEC maintains a web site at www.sec.gov that contains the Trusts SEC filings. The Trustee will provide any Unit Holder with a paper copy of the Trusts SEC filings free of charge upon request.
The Trust does not own any real property. Information on each of the mine properties in which the Trust continues to hold a Coal Royalty is set forth in the section titled, BUSINESS.
There are no pending material legal proceedings to which the Trust is a party.
Market Information. There is no established public trading market for the Units. The Units have not been registered under the Securities Act of 1933, nor have they been registered under the securities laws of any state. Accordingly, resales of the Units are subject to certain legal restrictions on transferability. Unit Holders should consult with their own counsel regarding their ability to sell their Units.
None of the Units are subject to outstanding options or warrants to purchase, and no securities are convertible into Units. Under the terms of the Trust Indenture, the Trust may not issue additional Units.
Holders. The Units are the only class of security issued by the Trust. As of March 16, 2012, there were approximately 854 record holders of Units.
Distributions to Unit Holders. All income of the Trust plus any amounts released from reserves, less amounts used to pay Trust expenses and amounts placed in reserves, is distributed pro rata on a quarterly basis to Unit Holders. The following table shows the aggregate distributions made to Unit Holders for each quarter during 2011 and 2010:
Securities Authorized for Issuance under Equity Compensation Plans.
Recent Sales of Unregistered Securities.
Issuer Purchases of Equity Securities.
Distributable income is the total amount of net royalty and overriding royalty payments received from the various mines increased by the amount of interest earned and any other amounts received by the Trust and decreased by the amount of trust expenses. During 2011, distributable income decreased by $431,098 to $2,493,035 from $2,924,133 in 2010. The 14.7% decrease was attributable to less coal production at the Decker and Spring Creek Mines
The following schedule reflects the royalty and overriding royalty payments received by the Trust in respect of leases at the following mines:
Decker Mine. The amount of royalties and overriding royalties received by the Trust with respect to the Decker Mine decreased to $923,625 in 2011 from $1,064,617 in 2010, a decrease of 13.2%. This change resulted from fewer tons of coal produced.
Spring Creek Mine. The amount of royalties and overriding royalties received by the Trust with respect to the Spring Creek Mine decreased to $1,717,193 in 2011 from $1,979,335 in 2010, a decrease of 13.2%. The amount of coal produced also decreased.
Trust Expenses. Trust expenses increased to $147,784 in 2011 from $119,819 in 2010. Trust expenses included fees of the Trustee, accountants, attorneys, and other professionals that the Trustee employs in the administration of the Trust. Trustee fees recorded in trust expenses were $80,000 and $36,667 in fiscal 2011 and 2010, respectively. The trust expenses for 2011 and 2010 did not include the Trustees fee of $20,000 for the fourth quarters of such years. The Trust did not pay the Trustees fees in these quarters due to insufficient royalty income. The fourth quarter fees were paid in the first quarter of 2012 and 2011, respectively, after the Trust had sufficient royalty income. Pursuant to the terms of the Indenture, the Trustee has the ability to increase its fees, in its sole discretion.
Liquidity and Capital Resources. The Trusts primary source of capital is the 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, are distributed to the Unit Holders on a quarterly basis. During 2011, the Trust did not establish any reserves.
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.
Critical Accounting Policies and Estimates. The Trusts 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.
Financial Statements. The following documents are filed as part of the Trusts financial statements for the years ended December 31, 2011 and 2010:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustee and Unit Holders of
Kiewit Royalty Trust
We have audited the accompanying statements of assets, liabilities and trust corpus of Kiewit Royalty Trust (the Trust) as of December 31, 2011 and 2010, and the related statements of distributable income and changes in trust corpus for each of the two years in the period ended December 31, 2011. These financial statements are the responsibility of the Trustee. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trusts internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1, the financial statements were prepared on the modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America.
In our opinion, such financial statements present fairly, in all material respects, the assets, liabilities and trust corpus of Kiewit Royalty Trust as of December 31, 2011 and 2010, and the distributable income and changes in trust corpus for each of the two years in the period ended December 31, 2011, on the basis of accounting described in Note 1.
/s/ Deloitte & Touche LLP
March 26, 2012
KIEWIT ROYALTY TRUST
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
December 31, 2011 and 2010
The accompanying notes are an integral part of the financial statements.
KIEWIT ROYALTY TRUST
STATEMENTS OF DISTRIBUTABLE INCOME
for the years ended December 31, 2011 and 2010
KIEWIT ROYALTY TRUST
STATEMENTS OF CHANGES IN TRUST CORPUS
for the years ended December 31, 2011 and 2010
The accompanying notes are an integral part of the financial statements.
KIEWIT ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
1. Summary of Significant Accounting Policies:
The financial statements of the Trust, as prepared on the modified cash basis, reflect the Trusts 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 statement of distributable income.
The financial statements of the Trust differ from financial statements prepared in conformity with U.S. generally accepted accounting principles because of the following:
These statements differ from financial statements prepared in accordance with United States generally accepted accounting principles (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 Trust considers all highly liquid financial instruments with original maturities of three months or less when purchased to be cash equivalents.
The Trust was organized to provide an efficient, orderly and practical means of administering the income received from royalty interests and is administered by U.S. Bank National Association, as the sole trustee (the Trustee). Pursuant to the terms of the Trust Indenture, the Trust pays the Trustee an annual fee, and the Trustee may adjust this fee annually in its sole discretion. From January 1, 2010 through July 31 2010, the Trust paid the Trustee an annualized amount of $40,000 per year. On May 12, 2010, the Trustee notified the Unit Holders that the Trustee adjusted the fee to $80,000 per year, effective August 1, 2010. Trustee fees recorded in trust expenses were $80,000 and $36,667 for fiscal 2011 and 2010, respectively. The Trust did not pay the Trustees fee of $20,000 for the fourth quarter of 2010 or the fourth quarter of 2011 due to insufficient royalty income. The fees were paid in the first quarter of 2011 and 2012, respectively, after the Trust had sufficient royalty income.
We have evaluated the Trust activity and have concluded that there are no material subsequent events requiring additional disclosure or recognition in these financial statements.
2. Trust Organization and Provisions:
The Trust was established on May 17, 1982. Units of beneficial interest (Units) in the Trust were distributed on June 23, 1982 to Class B and Class C shareholders of record of Peter Kiewit Sons, Inc. (now known as Level 3 Communications, Inc.) (the Trustor), as of June 10, 1982. These shareholders received one Unit in the Trust for each share of the Trustors stock held. On June 28, 1982, the Trustor conveyed to the Trust royalty and overriding royalty interests owned by the Trustors subsidiaries in certain coal properties in the States of Montana and Wyoming.
The terms of the trust indenture provide, among other things, that:
3. Royalty and Overriding Royalty Interests:
The cash received by the Trustee from the royalty interests will consist of a specified amount per ton or a specified fraction of the value of the total production of the property, free of the expense of development and operation. 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. Only one of the leases at the Decker
mine was amortized in 2010, which amortization reduced the Trust corpus by $9,603 to $0. As of September 30, 2010, the Decker mine lease had been fully amortized, and no other royalty interests are amortized. The initial carrying value of the royalty and overriding royalty interests in coal leases of $167,817 represents the Trustors historical net book value at the date of the transfer to the Trust.
4. Distributions to Unit Holders:
The amounts to be distributed to Unit Holders (Distribution Amount) are determined on a quarterly basis. The Quarterly Distribution Amount is the excess of (i) the cash received during the quarter which is attributable to royalties plus any decrease in cash reserves, plus any other cash receipts of the Trust during the quarter over (ii) the liabilities of the Trust paid during the quarter, plus any increase in cash reserves. The Distribution Amount is payable to Unit Holders of record as of the last business day of each calendar quarter. The cash distributions are made quarterly within the first 10 business days of January, April, July and October.
5. Income Taxes:
Provision for federal and state income taxes has not been made in the financial statements since the Trust has been recognized by the IRS as a grantor trust which is not a taxable entity.
6. Selected Quarterly Financial Data (Unaudited):
The following is a summary of the unaudited quarterly financial information:
Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this Form 10-K, officers of the Trustee conducted an evaluation of the Trusts disclosure controls and procedures (as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934). Based upon this evaluation, the officer of the Trustee concluded that the Trusts disclosure controls and procedures were effective in timely alerting them 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.
Trustees Report on Internal Control over Financial Reporting. The Trustee is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. The Trustee has assessed the effectiveness of the Trusts internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, the Trustee concluded that, as of December 31, 2011, the Trusts internal control over financial reporting was effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes on the modified cash basis, which is a comprehensive basis of accounting other than United States generally accepted accounting principles.
Changes in Internal Control Over Financial Reporting. There were no changes in the Trusts internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) that occurred during the Trusts most recently completed fiscal quarter that has materially affected, or are reasonably likely to materially affect, the Trusts internal control over financial reporting.
Limitations on Controls. The Trustee does not expect that the Trusts disclosure controls and procedures or the Trusts 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.
Executive Officers and Board of Directors. The Trust is administered by officers and employees of the Trustee and has no Board of Directors or any committees. While there are no specific persons employed by the Trustee having the full-time duty of administering the Trust, the following officer of the Trustee acts as the chief executive officer and chief financial officer of the Trust:
Luke H. Paladino, age 34, Trust Officer with US Bank NA since September 2007. Mr. Paladino has been the Trust Officer responsible for the Trust since January 2008. Mr. Paladino has been a Trust Officer with US Bank NA since September 2007 in the Private Client Group. From 2005 through 2007, he served as Principal of Paladino Legal Group P.C., a law firm located in Omaha, Nebraska. Mr. Paladino received his J.D. from Creighton University School of Law and his B.A. from Rockhurst University.
Section 16(a) Beneficial Ownership Reporting Compliance. The Trust does not have any officers, directors or any beneficial owners holding more than 10% of the outstanding Units. Accordingly, the Trust believes that it was in full compliance for the year ended December 31, 2011 with all filing requirements under Section 16(a) of the Exchange Act.
Code of Ethics. The Trust does not maintain its own Code of Ethics for its senior executive and financial officers as required by Section 406 of the Sarbanes-Oxley Act of 2002 because it does not have officers or employees. The Trustee maintains a Code of Conduct for all of its employees, including those who perform duties for the Trust. A copy of the Trustees Code of Conduct will be made available to Unit Holders without charge upon request.
The Trust does not have any officers or employees. Certain services are provided to the Trust by officers and employees of the Trustee. However, none of employees of the Trustee that perform the functions of the Trusts officers receive any compensation from the Trust and the Trustee does not receive reimbursement from the Trust for any portion of the compensation paid to such employees. The Trust pays the Trustee an administrative fee of $80,000 per year.
The Trustee believes the only holder of more than 5% of the outstanding Units as of March 16, 2012, is Walter Scott, Jr., who beneficially owns 800,000 Units representing 6.33% of the class outstanding. Mr. Scotts address is One Thousand Kiewit Plaza, Omaha, Nebraska 68131. These Units are held in trust by the Trustee for the benefit of Mr. Scott. No employee of the Trustee who performed the functions as an officer of the Trust owned any Units as of March 16, 2012. The Trust had no knowledge of any arrangements, the operation of which could, at a subsequent date, result in a change of control of the Trust. The Trust does not maintain any equity contribution plans as defined in Item 201(d) of Regulation S-K.
During 2011, there were no transactions of any nature between the Trust and any employee of the Trustee who performed the functions of an officer of the Trust or any persons known to the Trustee to be the beneficial owners of more than 5% of the Units.
The principal independent registered public accounting firm utilized by the Trust was Deloitte & Touche LLP.
Principal Accounting Fees and Services
The aggregate fees billed by Deloitte & Touche LLP for the fiscal years ended December 31, 2011 and 2010 are as follows:
Audit fees. Audit fees consist of fees billed for professional services rendered for the audit of the Trusts annual financial statements and review of the interim financial statements included in quarterly reports and services that are normally provided by the accountant in connection with statutory and regulatory filings. Except for the Audit Fees, no other fees were paid by the Trust to Deloitte & Touche LLP for the fiscal years ended December 31, 2011 and 2010.
As referenced in Item 10 above, the Trust has no audit committee and, as a result, has no audit committee pre-approval policy with respect to fees paid to Deloitte & Touche LLP.
1. The following statements are filed herewith:
Report of Independent Registered Public Accounting Firm
Statements of Assets, Liabilities and Trust Corpus as of December 31, 2011 and 2010
Statements of Distributable Income for the years ended December 31, 2011 and 2010
Statements of Changes in Trust Corpus for the years ended December 31, 2011 and 2010
Notes to Financial Statements
2. Financial Statement SchedulesNo financial statement schedules are filed herewith because either such schedules are not required or the information has been presented in the aforementioned financial statements.
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:
Pursuant to the requirements of Section 13 or 15(d) 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.
(The Registrant has no directors or executive officers.)