Kiewit Royalty Trust (KIRY) 10-Q 2003 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2003

Commission File No. 0-10810

KIEWIT ROYALTY TRUST

(Exact name of Registrant as specified in its charter)

Nebraska	47-6131402
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Trust Division
U.S. Bank National Association
1700 Farnam Street
Omaha, Nebraska	68102
(Address of Principal Executive Offices)	(Zip Code)

(402) 348-6000
(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. Yesx      Noo

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yeso      Nox

     There were 12,633,432 Units of Beneficial Interest outstanding as of November 1, 2003.

KIEWIT ROYALTY TRUST

FORM 10-Q

For the Quarter Ended September 30, 2003

INDEX

Part I.     Financial Information
			Page
	Item 1.	Financial Statements	3
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	8
	Item 4.	Controls and Procedures	8
Part II.     Other Information
	Item 1.	Legal Proceedings	8
	Item 2.	Changes in Securities and Use of Proceeds	8
	Item 3.	Defaults Upon Senior Securities	8
	Item 4.	Submission of Matters to a Vote of Security Holders	8
	Item 5.	Other Information	9
	Item 6.	Exhibits and Reports on Form 8-K	9
Signature			10

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

KIEWIT ROYALTY TRUST
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
unaudited as of September 30, 2003 and audited as of December 31, 2002

ASSETS	September 30, 2003			December 31, 2002
	(unaudited)
Cash Equivalents	$	1,604,223		$	189,611
Trust reserves		783,317			783,317
Royalty and overriding royalty interests in coal leases		167,817			167,817
Less accumulated amortization		(138,791	)		(137,500	)
Net royalty and overriding royalty interests in coal leases		29,026			30,317
Total Assets	$	2,416,566		$	1,003,245
LIABILITIES AND TRUST CORPUS
Distributions payable to unit holders	$	1,604,223		$	189,611
Trust reserves payable		783,317			783,317
Trust corpus: 12,633,432 units of beneficial interest authorized and outstanding		29,026			30,317
Total Liabilities and Trust Corpus	$	2,416,566		$	1,003,245

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

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KIEWIT ROYALTY TRUST
STATEMENTS OF DISTRIBUTABLE INCOME
(unaudited)

	Three Months Ended September 30						Nine Months Ended September 30
	2003			2002			2003			2002
Royalty income	$	1,614,880		$	2,195,813		$	3,168,142		$	4,472,388
Interest income		4,183			8,499			11,964			22,804
Trust expenses		(14,840	)		(18,886	)		(85,722	)		(90,672	)
Distributable income	$	1,604,223		$	2,185,426		$	3,094,384		$	4,404,520
Distributable income per unit	$	0.1269824		$	0.1729875		$	0.2449361		$	0.3486400

STATEMENTS OF CHANGES IN TRUST CORPUS
(unaudited)

	Nine Months Ended September 30
	2003			2002
Trust corpus as of January 1	$	30,317		$	37,386
Amortization of royalty interests		(1,291	)		(3,568	)
Distributable income		3,094,384			4,404,520
Distributions to unit holders		(3,094,384	)		(4,404,520	)
Trust corpus as of September 30	$	29,026		$	33,818

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

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KIEWIT ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS
as of September 30, 2003 and December 31, 2002

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 accounting principles generally accepted in the United States of America for complete financial statements. In the Trustee’s opinion, 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, 2002.

Summary of Significant Accounting Policies

(a) Basis of Accounting:

     The accompanying unaudited financial statements have been prepared on the following basis:

     (1) Royalty income is recorded on a cash receipt basis.

     (2) Trust administration expenses are recorded in the month in which they are paid.

     (3) Amortization of the net royalty and overriding royalty interests, which is calculated on a units-of-production basis, is charged directly to            trust corpus since such amount does not affect distributable income.

     (4) Royalty reserves will be recognized upon settlement of litigation.

     The preparation of financial statements requires estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

     While these statements differ from financial statements prepared in accordance with accounting principles generally accepted in the United States of America, the cash basis of reporting revenues is considered to be the most meaningful because Distributions to Unit Holders are based on net cash receipts.

(b) Cash Equivalents:

     The Trust considers all highly liquid financial instruments with original maturities of 3 months or less when purchased to be cash equivalents.

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

     a. Material Changes in Financial Condition.

               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 (1) administering the income received from such coal leases and (2) distributing such income (together with interest earned thereon less payment of or provision for obligations) to the holders of the Units of Beneficial Interest.

     b. Material Changes in Results of Operations.

               During the three and nine months ended September 30, 2003, the Trust received a total of $1,614,880 and $3,168,142, respectively, of royalty and overriding royalty payments. The following schedule reflects the royalty and overriding royalty payments received by the Trust in respect of leases at the following mines:

	Three Months Ended September 30				Nine Months Ended September 30
Mine	2003		2002		2003		2002
Decker	$	1,003,493	$	1,394,848	$	2,506,755	$	3,621,423
Big Horn		—		—		—		—
Spring Creek		611,387		800,965		661,387		850,965
Totals:	$	1,614,880	$	2,195,813	$	3,168,142	$	4,472,388

     i. Decker Mine.

               Royalty and overriding royalty amounts received by the Trust from the Decker Mine decreased to $2,506,755 during the first nine months of 2003 as compared to $3,621,423 received during the same period in 2002. For the third quarter of 2003, the payments received from the Decker Mine decreased to $1,003,493 compared to $1,394,848 received during the same period in 2002. These changes in royalty and overriding royalty amounts received were due to changes in the relative amounts of coal mined under leases bearing high and low overriding royalty rates per ton, which are a normal result of the execution of a mining plan encompassing several coal leases bearing different royalty rates.

     ii. Big Horn Mine.

               No royalties were received from the Big Horn Mine during the first nine months of 2003 or 2002. The Big Horn Mine has reached the end of its production cycle and it is foreseen that the Trust will receive no further payments deriving from coal production from the Big Horn Mine.

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     iii. Spring Creek Mine.

               Royalty and overriding royalty amounts received by the Trust from the Spring Creek Mine decreased to $661,387 during the first nine months of 2003 as compared to $850,965 received during the same period in 2002. For the third quarter of 2003, the payments received by the Trust from the Spring Creek Mine decreased to $611,387 as compared to $800,965 received during the same quarter in 2002. These changes in royalty and overriding royalty amounts received were due to changes in the relative amounts of coal mined under leases bearing high and low overriding royalty rates per ton, which are a normal result of the execution of a mining plan encompassing several coal leases bearing different royalty rates. Although royalties with respect to this mine are typically paid by the mine operators on an annual basis during the second half of a calendar year, the Spring Creek Mine made a $50,000 payment immediately prior to the end of the second quarter of 2003 and 2002.

     iv. Trust Expenses.

               Trust expenses decreased to $85,722 in the first nine months of 2003, as compared to $90,672 for the same period in 2002. For the third quarter of 2003, trust expenses were $14,840, as compared to $18,886 for the same period in 2002. The decrease in the first nine months of 2003 was due principally to a decrease in audit and legal fees paid during the period. The decrease in the third quarter of 2003 is due to decreases in audit, legal, and administrative fees paid during the period.

     v. Trust Reserve.

               On June 29, 2001, the Trustee received notification from the operator of the Spring Creek Mine initially alleging overpayments aggregating approximately $476,000 related to the Trust’s overriding royalty interest that were remitted during the period from 1996 to 2000. Accordingly, the $783,317 royalty payment received from the Spring Creek Mine on July 31, 2001 is being held in reserve in connection with this matter. In April 2002, the Trust filed a complaint in federal district court seeking a declaratory judgment and accounting against Spring Creek Coal Company, the operator of the Spring Creek Mine, in connection with this matter. On October 28, 2002, the Spring Creek Coal Company filed an answer and a counterclaim to the Trust’s complaint alleging that the Trust does not own an overriding royalty interest in certain portions of lands encompassed by Lease M-069782 at Spring Creek Mine. The Spring Creek Coal Company seeks the return of $351,371 in allegedly mistaken payments made by it to the Trust under such lease. There can be no assurance as to the outcome of this litigation or whether it will have a material adverse effect on the Trust’s results of operations or financial condition. For a more detailed discussion of the legal action instituted by the Trust, see “Legal Proceedings.”

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     Not Applicable.

Item 4. Controls and Procedures.

     Not Applicable.

PART II — OTHER INFORMATION.

Item 1. Legal Proceedings.

     On June 29, 2001, the Trustee received notification from the operator of the Spring Creek Mine initially alleging overpayments aggregating approximately $476,000 related to the Trust’s overriding royalty interest that were remitted during the period from 1996 to 2000. Accordingly, the $783,317 royalty payment received from the Spring Creek Mine on July 31, 2001 is being held in reserve in connection with this matter. In April 2002, the Trust filed a complaint in Federal District Court for the District of Montana, Billings Division, seeking a declaratory judgment and accounting against Spring Creek Coal Company, the operator of the Spring Creek Mine. The suit seeks adjudication of a reimbursement request to the Trust from Spring Creek Coal Company and an accounting of all coal overriding royalties that Spring Creek Coal Company should have paid to the Trust under certain agreements between the parties. On October 28, 2002, the Spring Creek Coal Company filed an answer and a counterclaim to the Trust’s complaint alleging that the Trust does not own an overriding royalty interest in certain portions of land encompassed by Lease M-069782 at Spring Creek Mine. The Spring Creek Coal Company seeks the return of $351,371 in allegedly mistaken payments made by it to the Trust under such lease. This suit is in the discovery process, and a mandatory settlement conference between the parties will be scheduled in the future. There can be no assurance as to the outcome of the litigation or whether it will have a material adverse effect on the Trust’s results of operations or financial condition. There are no other pending material legal proceedings to which the Trust is a party or which any of its property is the subject.

Item 2. Changes in Securities and Use of Proceeds.

     Not Applicable.

Item 3. Defaults Upon Senior Securities.

     Not Applicable.

Item 4. Submission of Matters to a Vote of Security Holders.

     Not Applicable.

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Item 5. Other Information.

     Not Applicable.

Item 6. Exhibits and Reports on Form 8-K.

a. 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).
31.1	Certification Pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934
32.1	*Certification Pursuant to 18 U.S.C. 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	*Submitted herewith.
b.	Reports on Form 8-K.

No reports on Form 8-K were filed during the quarter for which this report is filed.

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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
    (Registrant)

By: U. S. Bank National Association
in its capacity as Trustee and not in its individual capacity
or otherwise

/s/ Ted L. Hall
Ted L. Hall
Vice President and Trust Officer

Dated: November 14, 2003

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