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, 2020
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. YesþNoo
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). YesþNoo
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 filero | Accelerated filero | Non-accelerated filerþ | Smaller reporting companyþ Emerging growth companyo |
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.o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YesoNoþ
KIEWIT ROYALTY TRUST
FORM 10-Q
For the Quarter Ended March 31, 2020
INDEX
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, 2019.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
KIEWIT ROYALTY TRUST
CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
March 31, 2020 and
December 31, 2019
(unaudited)
| | | March 31,
2020 | | | December 31,
2019 | |
| Assets | | | | | | | | |
| Cash and cash equivalents | | $ | 576,223 | | | $ | 396,526 | |
| | | | | | | | | |
| 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 | | $ | 576,223 | | | $ | 396,526 | |
| | | | | | | | | |
| Liabilities | | | | | | | | |
| Distributions payable to unit holders | | $ | - | | | $ | 396,526 | |
| Trust reserve | | | 576,223 | | | | - | |
| | | | | | | | | |
| Trust Corpus: 12,633,432 units of beneficial interest authorized, issued and outstanding | | | - | | | | - | |
| | | | | | | | | |
| Total liabilities and trust corpus | | $ | 576,223 | | | $ | 396,526 | |
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, 2020 and 2019
(unaudited)
| | | Three Months Ended March 31, | |
| | | 2020 | | | 2019 | |
| Royalty income | | $ | 600,737 | | | $ | 658,972 | |
| Interest income | | | 486 | | | | 1,302 | |
| Trust expenses | | | (25,000 | ) | | | (25,947 | ) |
| Trust reserve | | | (576,223 | ) | | | (634,327 | ) |
| | | | | | | | | |
| Distributable income | | $ | - | | | $ | - | |
| | | | | | | | | |
| Distributable income per unit | | $ | - | | | $ | - | |
CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS
For the three months ended March 31, 2020 and 2019
(unaudited)
| | | Three Months Ended March 31, | |
| | | 2020 | | | 2019 | |
| Trust corpus, beginning of year | | $ | - | | | $ | - | |
| Distributable income | | | 576,223 | | | | 634,327 | |
| Distributions payable to unit holders | | | - | | | | - | |
| Trust reserve | | | (576,223 | ) | | | (634,327 | ) |
| | | | | | | | | |
| 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, 2019.
Summary of Significant Accounting Policies
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.
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.
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 2020.
Other than the potential impact of COVID-19, 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.
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, 2020, the Trust received a total of $600,737 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, | |
| | | 2020 | | | 2019 | |
| Decker Mine | | $ | 600,737 | | | $ | 658,972 | |
| Spring Creek Mine | | | - | | | | - | |
| Total Royalty Income | | $ | 600,737 | | | $ | 658,972 | |
Decker Mine. Royalty and overriding royalty amounts received by the Trust from the Decker Mine during the first three months of 2020, decreased by $58,235 or 8.9% to $600,737 as compared to $658,972 received during the same period in 2019. A portion of the royalty amount received for the quarter ended March 31, 2019 included a one-time credit for state withholding taxes in the amount of $28,041, and without this credit, the royalty and overriding amounts received by the Trust during the first three months of 2002 decreased by approximately 5% as compared to the prior period. 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 quarter 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. The Mine operator indicated that the Decker Mine is ahead of schedule for Spring 2020 and expects to ship its budgeted tons of coal of 3.8 million for 2020.
Spring Creek Mine. No royalties were received from the Spring Creek Mine during the first three months of 2020 and 2019 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. The mine shut down briefly in October after the Navajo Nation declined to waive sovereign immunity for the benefit of Montana's Department of Environmental Quality ("MDEQ"). While the MDEQ and NTEC have resolved certain issues, the Spring Creek Mine currently is operating although NTEC has yet to secure mining permits and needs to obtain substantial financial assistance for reclamation. The Navajo Nation announced that it will not issue reclamation bonds for the benefit of this project. The long-term status of the mine operations is unknown, and the Trust intends to continue monitoring the new ownership by NTEC and related matters. At this time, the Trust does not expect that such restructuring will materially impact the results of operations or financial condition of the Trust.
Interest Income. During the three months ended March 31, 2020 and March 31, 2019, the Trust earned a nominal amount of interest.
Trust Expenses. Trust expenses remained consistent and were $25,000 in the first three months of 2020 as compared to $25,947 for the same period in 2019. Trust expenses generally include fees of the Trustee, accountants, attorneys, and other professionals that the Trustee employs in the administration of the Trust.
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 that the COVID-19 pandemic will materially impact the liquidity or capital resources of the Trust.
Trust Reserves. During the first quarter of 2020, the Trust's distributable income was $576,223, which amount was reserved to be paid within 10 days of June 30, which is the Trust's next distribution payment date. During the first quarter of 2019, the Trust's distributable income was $634,327 and was paid to Unit Holders in July 2019. The Trust currently pays biannual distributions within 10 days after June 30 and December 31 of each year to the extent funds are available.
Change in Trust Corpus. During the first three months of 2020, 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.
| 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, 2020 | |
| | |
| | | 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.)
