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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 June 30, 2016

 

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 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 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 and Six Months Ended June 30, 2016

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 to be 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, 2015.

 



Table of Contents

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

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

June 30, 2016 and

December 31, 2015

(unaudited)

 

 

 

June 30,
2016

 

December 31,
2015

 

Assets

 

 

 

 

 

Cash and cash equivalents

 

$

27,359

 

$

2,531

 

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

 

$

27,359

 

$

2,531

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Distributions payable to unit holders

 

$

 

$

 

Trust reserve

 

27,359

 

2,531

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Total liabilities and trust corpus

 

$

27,359

 

$

2,531

 

 

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 six months ended June 30, 2016 and 2015
(unaudited)

 

 

 

Three Months Ended June 30,

 

 

 

2016

 

2015

 

Royalty income

 

$

72,191

 

$

77,532

 

Interest income

 

 

 

Trust expenses

 

(44,832

)

(45,342

)

Trust reserve

 

$

(27,359

)

 

 

 

 

 

 

 

Distributable income

 

$

 

$

32,190

 

 

 

 

 

 

 

Distributable income per unit

 

$

 

$

0.0025480

 

 

 

 

Six Months Ended June 30,

 

 

 

2016

 

2015

 

Royalty income

 

$

476,860

 

$

579,290

 

Interest income

 

3

 

3

 

Trust expenses

 

(84,282

)

(88,106

)

Trust reserve

 

(24,828

)

 

 

 

 

 

 

 

Distributable income

 

$

367,753

 

$

491,187

 

 

 

 

 

 

 

Distributable income per unit

 

$

0.0291095

 

$

0.0388799

 

 

CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS
For the six months ended June 30, 2016 and 2015
(unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2016

 

2015

 

Trust corpus, beginning of year

 

$

 

$

 

Amortization of royalty interest

 

 

 

Distributable income

 

367,753

 

491,187

 

Distributions payable to unit holders

 

$

(367,553

)

$

(491,187

)

 

 

 

 

 

 

Trust corpus

 

$

 

$

 

 

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, 2015.

 

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 (GAAP) 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.

·                  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.

 

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(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 $80,000.  The Trustee may adjust this fee annually in its sole discretion.  The Trust pays a Trustee fee of $20,000 per quarter as long as the Trust has sufficient royalty income to make such payments.

 

On or about April 26, 2016, the Trust provided written notice to the unit holders that the annual trustee fee will be increasing to $100,000 annually, which will be paid at the rate of $25,000 per quarter.  The first $25,000 quarterly installment will be taken for the quarter ending September 30, 2016, and every quarter thereafter.

 

(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 six month period ended June 30, 2016, the Trust received a total of $72,191 and $476,860, respectively, of royalty and overriding royalty payments, net of production expenses. The following table reflects the royalty and overriding royalty payments, net of production expenses, received by the Trust at the following mines:

 

 

 

Three Months Ended June 30,

 

 

 

2016

 

2015

 

Decker Mine

 

$

22,191

 

$

27,532

 

Spring Creek Mine

 

50,000

 

50,000

 

Total Royalty Income

 

$

72,191

 

$

77,532

 

 

 

 

Six Months Ended June 30,

 

 

 

2016

 

2015

 

Decker Mine

 

$

426,860

 

$

529,290

 

Spring Creek Mine

 

50,000

 

50,000

 

Total Royalty Income

 

$

476,860

 

$

579,290

 

 

Decker Mine.  Royalty and overriding royalty amounts received by the Trust from the Decker Mine decreased to $22,191 during the second quarter of 2016, as compared to $27,532 received during the same period in 2015.  The Decker Mine includes West Decker and East Decker Mine leases. Of the Decker Mines, the primary producer currently is an East Decker Mine.  During the six month period ended June 30, 2016, the royalty amounts decreased by $102,430, or approximately 19%, as compared to the same period in 2015.  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.  A royalty payment of $50,000 was received by the Trust from the Spring Creek Mine during the first six months of 2016 and a payment in the same amount of $50,000 was also received  during the first six months of 2015.  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.

 

Interest Income.  The Trust generally earns interest on the royalty payments prior to the distribution to the Unit Holders.  During the six months ended June 30, 2016, and June 30, 2015, the Trust earned a nominal amount of interest, less than $1 in the recent quarter ended June 30, 2016.

 

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Trust Expenses.  Trust expenses decreased to $84,282 for the first six months of 2016, as compared to $88,106 for the same period in 2015.  Trust expenses included fees of the Trustee, accountants, attorneys, and other professionals that the Trustee employs in the administration of the Trust.

 

Trust expenses slightly decreased to $44,832 for the three month period ending June 30, 2016, as compared to $45,342 for the same period in 2015.

 

Liquidity and Capital Resources.  The Trust’s primary source of liquidity 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, is distributed to the Unit Holders on a quarterly basis as long as the Trust has sufficient income.

 

Trust Reserves.  The Trust established a trust reserve of $27,359 in the second quarter of 2016. Because of the small amount of distributable income during that period, the Trust elected not to make a second quarter distribution in 2016 and instead reserved the funds and intends to distribute them in October 2016 as part of the third quarter 2016 distribution. The Trust did not establish any trust reserves in the first six months of 2015.

 

Change in Trust Corpus.  During the first six months of 2016, 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 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(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 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.

 

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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, 2003, 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, 2003, and incorporated herein by reference).

 

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

 

32**                    Certification of Vice President 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: August 11, 2016

 

 

 

 

By:

/s/ Luke H. Paladino

 

 

 

Luke H. Paladino, Vice President

 

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

 

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