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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, 2012

 

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)

 

Nebraska
(State or other jurisdiction of
incorporation or organization)

 

47-6131402
(I.R.S. Employer Identification No.)

 

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 and posted on its Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-K during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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, 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):

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer o
(Do not check if a  smaller reporting company)

 

Smaller reporting company x

 

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

 

 

 



Table of Contents

 

KIEWIT ROYALTY TRUST

 

FORM 10-Q

 

For the Quarter Ended September 30, 2012

 

INDEX

 

 

 

Page

 

 

 

Part I. FINANCIAL INFORMATION

 

1

 

 

 

Item 1. Financial Statements

 

1

 

 

 

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

 

5

 

 

 

Item 4. Controls and Procedures

 

6

 

 

 

Part II. OTHER INFORMATION

 

7

 

 

 

Item 1. Legal Proceedings

 

7

 

 

 

Item 6. Exhibits

 

7

 

Forward-Looking Statements

 

This Form 10-Q, including specifically the section entitled “Trustee’s Discussion and Analysis of Financial Condition and Results of Operations,” 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-Q are forward-looking statements. Such statements include, without limitation, certain statements regarding the Trust’s financial position, industry conditions and other matters contained in this Form 10-Q. 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 correct. There are many factors, none of which is within the Trustee’s control, that may cause such expectations not to be realized, including, among other things, factors identified in the Trust’s Form 10-K for the year ended December 31, 2011.

 



Table of Contents

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

KIEWIT ROYALTY TRUST
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS

September 30, 2012 and

December 31, 2011

(unaudited)

 

 

 

September 30,
2012

 

December 31,
2011

 

Assets

 

 

 

 

 

Cash and cash equivalents

 

$

1,831,576

 

$

15,465

 

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

 

$

1,831,576

 

$

15,465

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Distributions payable to unit holders

 

$

1,831,576

 

$

15,465

 

 

 

 

 

 

 

Trust Corpus: 12,633,432 units of beneficial interest authorized, issued and outstanding

 

 

 

 

 

 

 

 

 

Total liabilities and trust corpus

 

$

1,831,576

 

$

15,465

 

 

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

 

1



Table of Contents

 

KIEWIT ROYALTY TRUST
STATEMENTS OF DISTRIBUTABLE INCOME
For the three and nine months ended September 30, 2012 and 2011
(unaudited)

 

 

 

Three Months Ended September 30,

 

 

 

2012

 

2011

 

Royalty income

 

$

1,870,062

 

$

2,120,502

 

Interest income

 

49

 

 

Trust expenses

 

(38,535

)

(60,200

)

Distributable income

 

$

1,831,576

 

$

2,060,302

 

Distributable income per unit

 

$

0.1449785

 

$

0.1630833

 

 

 

 

Nine Months Ended September 30,

 

 

 

2012

 

2011

 

Royalty income

 

$

2,490,885

 

$

2,597,687

 

Interest income

 

60

 

 

Trust expenses

 

(129,669

)

(120,117

)

Distributable income

 

$

2,361,276

 

$

2,477,570

 

Distributable income per unit

 

$

0.1869069

 

$

0.1961121

 

 

STATEMENTS OF CHANGES IN TRUST CORPUS
For the nine months ended September 30, 2012 and 2011
(unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2012

 

2011

 

Trust corpus, beginning of year

 

$

 

$

 

Distributable income

 

2,361,276

 

2,477,570

 

Distributions payable to unit holders

 

(2,361,276

)

(2,477,570

)

Trust corpus

 

$

 

$

 

 

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

 

2



Table of Contents

 

KIEWIT ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS
(unaudited)

 

Basis of Presentation

 

The accompanying 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 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, 2011.

 

Summary of Significant Accounting Policies

 

(a)                                 Basis of Accounting:

 

The 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 statement of distributable income.

 

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

 

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

 

·                  Expenses generally are not accrued.

 

·                  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.

 

These 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

 

3



Table of Contents

 

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.

 

(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 $80,000 per year.  The Trustee may readjust this fee annually in its sole discretion.  From time to time, the Trust does not have sufficient income to pay the Trustee fees.  In the first quarter of fiscal year 2011, the Trust paid the fourth quarter 2010 Trustee fees of $20,000 and the first quarter 2011 Trustee fees of $20,000.  In the first quarter of fiscal year 2012, the Trust paid the fourth quarter 2011 Trustee fees of $20,000 and the first quarter 2012 Trustee fees of $20,000.  In the second quarter of 2012, the Trust paid the second quarter Trustee fees of $20,000.  The Trust paid the Trustee fees of $20,000 for the second quarter of 2011 in the third quarter of 2011 due to insufficient royalty income.

 

(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 financial statements.

 

4



Table of Contents

 

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, 2012, the Trust received a total of $1,870,062 and $2,490,885, 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,

 

 

 

2012

 

2011

 

Decker Mine

 

$

374,485

 

$

403,307

 

Spring Creek Mine

 

1,495,577

 

1,717,195

 

Total Royalty Income

 

$

1,870,062

 

$

2,120,502

 

 

 

 

Nine Months Ended September 30,

 

 

 

2012

 

2011

 

Decker Mine

 

$

945,308

 

$

880,492

 

Spring Creek Mine

 

1,545,577

 

1,717,195

 

Total Royalty Income

 

$

2,490,885

 

$

2,597,687

 

 

Decker Mine.  Royalty and overriding royalty amounts received by the Trust from the Decker Mine decreased to $374,485 during the third quarter of 2012, as compared to $403,307 received during the same period in 2011.  For the nine months ended September 30, 2012, royalty and overriding royalty amounts increased by $64,816 or 7.4% to $945,308.  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 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 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.

 

Spring Creek Mine.  The Trust received a payment of $50,000 at the end of the second quarter of 2012 from the Spring Creek Mine.  No royalties were received from the Spring Creek Mine during the first six months of 2011.  The first $50,000 royalty payment from this mine is paid at the end of June or beginning of July each year, and the remaining royalties with respect to this mine are typically paid by the mine operators on an annual basis during the second half of the calendar year.  Royalty and overriding royalty amounts received by the Trust from the Spring Creek Mine decreased to $1,495,577 during the third quarter of 2012, as compared to $1,717,195 received during the same period in 2011. The decrease resulted from a reduction in the tons of coal produced under the Spring Creek Mine leases.

 

5



Table of Contents

 

Interest Income.  Historically, the Trust earned interest on the royalty payments prior to the distribution to the Unit Holders.  However, the Trust did not earn any interest during the nine months ended September 30, 2011, because of the significant cuts in interest rates by the Federal Reserve.  Recently interest rates have slightly increased, and during the nine months ended September 30, 2012, the Trust earned a nominal amount of interest.

 

Trust Expenses.  Trust expenses increased to $129,669 for the first nine months of 2012, as compared to $120,117 for the same period in 2011.  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, 2012, trust expenses decreased to $38,535 from $60,200 during the same three month period in 2011.  During the third quarter of 2011, the trust expenses included the Trustee’s fees for the second quarter of 2011 of $20,000 and third quarter of 2011 of $20,000.  The second quarter fee generally is paid in the second quarter; however, the Trustee had insufficient royalty income, and the fee was not paid until the Trust had sufficient royalty income.  In the third quarter of 2012, the Trust had sufficient income to pay the Trustee’s fees for such quarter.

 

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 on a quarterly basis.  During the quarter ended September 30, 2012, the Trust did not establish any reserves.

 

Change in Trust Corpus.  During the first nine months of 2012, 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.

 

Critical Accounting Policies and Estimates.  The Trust’s 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(e) 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 him 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 of the Trust’s internal control over financial reporting will prevent or detect all error and fraud.  Any

 

6



Table of Contents

 

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 filed 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).

 

31*                           Certification of Trust Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.

 

32**                    Certification of Trust Officer 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

 


*                                         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

 

7



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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.

 

8



Table of Contents

 

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 13, 2012

 

 

 

 

 

 

By:

/s/ Luke H. Paladino

 

 

 

 

Luke H. Paladino, Trust Officer

 

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

 

9