UNITED STATES SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2021
	OR
¨	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)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

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 þ No ¨

 

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 þ No ¨

 

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.

 

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer þ

Smaller reporting company þ   Emerging growth company ¨

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. ¨

 

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

 

 

 

KIEWIT ROYALTY TRUST

 

FORM 10-Q

 

For the Quarter Ended March 31, 2021

 

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		7
Part II. OTHER INFORMATION		8
Item 1. Legal Proceedings		8
Item 6. Exhibits		8

 

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, 2020.

 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

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

 

March 31, 2021 and

December 31, 2020

(unaudited)

 

		March 31, 2021				December 31, 2020
Assets
Cash and cash equivalents		$	54,816			$	288,282
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		$	54,816			$	288,282
Liabilities
Distributions payable to unit holders		$	-			$	288,282
Trust reserve			54,816				-
Trust Corpus:  12,633,432 units of beneficial interest authorized, issued and outstanding			-				-
Total liabilities and trust corpus		$	54,816			$	288,282

 

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

 

 

 

KIEWIT ROYALTY TRUST

CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME

For the three months ended March 31, 2021 and 2020

(unaudited)

 

		Three Months Ended March 31,
		2021				2020
Royalty income		$	97,261			$	600,737
Interest income			1				486
Trust expenses			(42,446	)			(25,000	)
Trust reserve			(54,816	)			(576,223	)
Distributable income		$	-			$	-
Distributable income per unit		$	-			$	-

 

CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS

For the three months ended March 31, 2021 and 2020

(unaudited)

 

		Three Months Ended March 31,
		2021				2020
Trust corpus, beginning of year		$	-			$	-
Distributable income			54,816				576,223
Distributions payable to unit holders			-				-
Trust reserve			(54,816	)			(576,223	)
Trust corpus		$	-			$	-

 

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

 

 

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, 2020.

 

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.

 

 

(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)       Impact of COVID-19:

 

On March 11, 2020 the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. The Trust cannot reasonably estimate the length or severity of this pandemic, and the Trust currently cannot anticipate the impact on its financial results or results of operations for fiscal 2021. Further, the pandemic has had a significant impact on the coal industry and the Trust is heavily reliant on revenue from coal mines.

 

(e)       Subsequent Events:

 

In April 2021, the Trust received a payment from the Decker mine in the amount of $44,874. This royalty payment was anticipated to be paid to the Trust in the first quarter; however, due to the pending bankruptcy of the mine’s owner, there was a delay in the payment as such payment was required to be approved by the bankruptcy court. In addition, the Trust does not anticipate receiving any additional royalty payments from the Decker mine in the near future.

 

(e)       Going Concern

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  While the Trust reported income for the periods presented, the Trust receives substantially all of its royalty payments from the Decker Mine, which filed for bankruptcy in December 2020. Decker curtailed mining operations subsequent to the bankruptcy and ceased its mining operations in March 2021. Other than the royalty payments from the mines, the Trust does not have any other established source of revenues sufficient to cover its operating costs. As a result, the Trust projects that it will not have sufficient cash on hand to meet its obligations as they become due within one year of the date that the financial statements are issued. These conditions, among others, raise substantial doubt about the Trust’s ability to continue as a going concern. To alleviate the identified conditions, the Trust intends to implement certain plans, including filing a proof of claim in the bankruptcy court for the royalty income from Decker Mine, establishing a reserve for cash received to cover future expenses, and exploring options to monetize the royalty interests. However, these plans are subject to legal approvals and market conditions, and there is no assurance that the Trust’s plans are probable of being implemented. As a result, the Trust has concluded that management’s plans do not alleviate substantial doubt regarding the Trust’s ability to continue as a going concern. The Trust’s financial statements currently do not include any adjustments that might result from the outcome of any uncertainly as to the Trust’s ability to continue as a going concern.

 

 

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 period ended March 31, 2021, the Trust received a total of $97,261 of royalty and overriding royalty payments from the Decker Mines. 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 March 31,
		2021				2020
Decker Mine		$	97,261			$	600,737
Spring Creek Mine			-				-
Total Royalty Income		$	97,261			$	600,737

 

Decker Mine. Royalty and overriding royalty amounts received by the Trust from the Decker Mine during the first three months of 2021, decreased significantly by $503,476, or 84%, to $97,261 as compared to $600,737 received during the same period in 2020. The Decker Mine includes West Decker and East Decker Mine leases. Until 2021, when the Decker Mine announced cessation of mining activities, the primary producer currently was an East Decker Mine, which in recent years was the only lease actively producing. The changes this quarter resulted from fewer tons of coal produced due to the cession of mine operations.

 

In December 2020, Lighthouse Resources, Inc., the owner of the Decker Mine, filed for Chapter 11 bankruptcy, in the United States Bankruptcy Court for the District of Delaware (Case No. 20-13056(JTD)). Lighthouse initially reduced operations at the Decker Mine, and in February 2021, the Decker Mine ceased operations. The Trust is actively monitoring the bankruptcy filings, and is an unsecured creditor in the bankruptcy case. In light of the pending bankruptcy, the Trust is currently uncertain whether it will receive additional royalty payments from the Decker Mine or the status of its interest in the royalty leases. At this time, no additional royalty payments are anticipated in the near future.

 

Spring Creek Mine. No royalties were received from the Spring Creek Mine during the first three months of 2021 and 2020 because historically, royalties with respect to this mine typically were paid by the mine operators on an annual basis during the second half of the calendar year. However, it is unknown whether the Trust will receive additional royalties from this mine in the future due to various factors, including the financial struggles of the coal operator, the lack of mining activities in the applicable mines, and the general depletion of coal. In 2019, the Spring Creek Mine was sold to Navajo Transitional Energy Company (“NTEC”), which is wholly owned by the Navajo Nation, and is currently operating the mine as a contract operator. Since the transition to NTEC, the Mine shut down briefly and has continued to have operational issues which are unrelated to the COVID-19 pandemic. These operational issues, together with general economic issues impacting coal mines, are challenging and make it difficult for the Trust to predict the long-term status of the operations of this mine. The Trust intends to continue monitoring the new ownership by NTEC.

 

 

It is unknown whether the Trust will receive additional royalties from this mine in the future due to various factors, including the financial struggles of the coal operator, the lack of mining activities in the applicable mines, and the general depletion of coal.

 

Other Mines. In addition to the Decker Mine and Spring Creek Mine, the Trust also owns rights in lease number 027475 in the Black Butte Mine in Sweetwater County, Wyoming. Such mine is not producing but is active and continues to be part of future mining plans.

 

Interest Income. During the three months ended March 31, 2021 and March 31, 2020, the Trust earned a nominal amount of interest.

 

Trust Expenses. Trust expenses increased and were $42,446 in the first three months of 2021 as compared to $25,000 for the same period in 2020. Trust expenses generally include fees of the Trustee, accountants, attorneys, and other professionals that the Trustee employs in the administration of the Trust. The increase in expenses resulted from the timing of when invoices were received and paid as well as additional legal expenses to address the Decker Mine bankruptcy filing.

 

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 biannual basis. At this time, the Trust does not expect to make any distributions in the near future due to the Trust’s liquidity issues. The Trust has suspended future distribution payments in light of the substantial reduction in royalty income.

 

Trust Reserves. During the first quarter of 2021, the Trust's distributable income was $54,816. Historically, this amount would have been reserved to be paid within 10 days of June 30, which is the Trust's next distribution payment date. However, such amount will be held as a reserve. Because of the uncertainty of the Decker Mine, the Trust intends to temporarily suspend all distribution payments and instead reserve such amounts to cover future expenses. Due to the uncertainty with respect to timing or amount of future royalty payments, the Trust believes such suspension is in its best interests.

 

During the first quarter of 2020, the Trust's distributable income was $576,223 and was paid to Unit Holders in July 2020. The Trust currently pays biannual distributions within 10 days after June 30 and December 31 of each year to the extent funds are available.

 

In April 2021, the Trust received a payment from the Decker mine in the amount of $44,874. The Trust intends to reserve this amount as well as any additional royalty payments received to cover future expenses.

 

Going Concern. The Trust may not have sufficient funding in order to continue to operate. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Trust’s continuation as a going concern is dependent upon continued mining activities and receipt of timely royalty payments form the mines, especially the Decker Mine. Because of the Trust’s limited source of revenues, the recent bankruptcy of the Decker Mine raises substantial doubt about the Trust’s ability to continue as a going concern. The Trust’s financial statements currently do not include any adjustments that might result from the outcome of any uncertainly as to the Trust’s ability to continue as a going concern.

 

 

Change in Trust Corpus. During the first three months of 2021, 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 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 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).

 

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 Vice President and Trust Advisor pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.

 

32**

Certification of Vice President and 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.

 

 

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: May 12, 2021

 

	By:	/s/ G. Rosanna Moore
		G. Rosanna Moore, Vice President and Trust Advisor

 

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