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Kiewit Royalty Trust
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2018-12-21 Officers
8-K 2018-03-12 Officers
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KIRY 2018-12-31
Part I
Item 1. Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Mine Safety Disclosures.
Part II
Item 5. Market for Registrant's Common Equity, Related Unit Holder Matters and Issuer Purchases of Equity Securities.
Item 7. Trustee's Discussion and Analysis of Financial Condition and Results of Operations.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Part III
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Unit Holder Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accounting Fees and Services.
Part IV
Item 15. Exhibits, Financial Statement Schedules.
Item 16. Form 10-K Summary
EX-31 a19-30074_1ex31.htm
EX-32 a19-30074_1ex32.htm

Kiewit Royalty Trust Earnings 2018-12-31

KIRY 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 a19-30074_110k.htm 10-K

Table of Contents

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

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

 

For the fiscal year ended December 31, 2018

 

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

 

For the transition period from                      to

 

COMMISSION FILE NUMBER: 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 Number)

 

Trust Division
U.S. Bank National Association
1700 Farnam Street
Omaha, Nebraska 68102
(Address of principal executive offices)

 

Registrant’s telephone number, including area code: (402) 536-5100

 

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

 

Securities registered pursuant to Section 12(g) of the Act:

 

Title of each class
Units of Beneficial Interest

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

 

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 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 x No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or 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. (Check one):

 

Large accelerated filer o

 

Accelerated filer o

 

Non-accelerated filer x

 

Smaller reporting company x

 

Emerging growth company o

 

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). Yes o No x

 

There is no active trading market for the Units of Beneficial Interest. As a result, the aggregate market value of the Units of Beneficial Interest is not available.

 

 

 


Table of Contents

 

TABLE OF CONTENTS

 

 

 

Page

PART I

 

 

Item 1.

Business

1

Item 1A.

Risk Factors

3

Item 1B.

Unresolved Staff Comments

3

Item 2.

Properties

3

Item 3.

Legal Proceedings

3

Item 4.

Mine Safety Disclosures

3

PART II

 

 

Item 5.

Market for Registrant’s Common Equity, Related Unit Holder Matters and Issuer Purchases of Equity Securities

3

Item 7.

Trustee’s Discussion and Analysis of Financial Condition and Results of Operations

4

Item 8.

Financial Statements and Supplementary Data

6

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

13

Item 9A.

Controls and Procedures

13

Item 9B.

Other Information

13

PART III

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

13

Item 11.

Executive Compensation

14

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Unit Holders Matters

14

Item 13.

Certain Relationships and Related Transactions, and Director Independence

14

Item 14.

Principal Accounting Fees and Services

14

PART IV

 

 

Item 15.

Exhibits, Financial Statement Schedules

15

Item 16.

Form 10-K Summary

16

 

Forward-Looking Statements

 

This Form 10-K 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-K are forward-looking statements. Such statements include, without limitation, factors affecting the price of coal and certain statements regarding the Trust’s financial position, industry conditions and other matters. 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 are within the Trustee’s control, that may cause such expectations not to be realized.

 


Table of Contents

 

PART I

 

ITEM 1. BUSINESS.

 

Purpose of the Trust. Kiewit Royalty Trust (the “Trust”) was organized by Peter Kiewit Sons’, Inc. (now, known as Level 3 Communications, Inc.) (the “Trustor”) under the laws of the State of Nebraska on May 17, 1982 to provide an efficient, orderly and practical means of administrating the income received from three royalty interests and sixteen overriding royalty interests in leases of four coal mines located in the States of Montana and Wyoming (the “Coal Royalties”). The trustee of the Trust is U.S. Bank National Association, Omaha, Nebraska (the “Trustee”), which is a wholly-owned subsidiary of U.S. Bancorp, a bank holding company.  The Coal Royalties are the interests retained in the four mine properties under the leases of the mineral rights to the mining companies who have developed, mined, and sold the coal from these mines. In general, the Coal Royalties entitle the Trust to a specified portion of the value of the total coal production from these mines, free of the expense of development and operation.

 

The Coal Royalties were conveyed by the Trustor to the Trust for the benefit of the holders of record of the Trustor’s Class B and Class C common stock as of June 10, 1982. Ownership of beneficial interests in the Trust is represented by 12,633,432 units of beneficial interest (hereinafter referred to as “Units”). The Trust is a purely ministerial trust which generally distributes the available revenues generated by the Coal Royalties, net of the Trust’s expenses, to the holders of Units. Trust expenses include but are not limited to, fees of the Trustee, and compensation paid to geologists, engineers, accountants, attorneys, or other professionals that the Trustee may, in its discretion, employ in the administration of the Trust. With respect to any liability that is contingent or uncertain in amount or that otherwise is not currently due, the Trustee has the discretion to establish cash reserves for the payment thereof.

 

The Coal Royalties. The Coal Royalties provide for the payment of either a specified amount per ton of coal produced, or a fixed percentage of the value or price with respect to the coal produced under the leases relating to these interests. The remaining terms of the individual Coal Royalties vary considerably, as does the acreage covered by the underlying coal leases, the estimated total tons of coal within a legal description of property as evidenced by a lease (the “Tons Under Lease”) and the estimated total tons of coal under lease that can be economically extracted under existing market conditions (“Current Economic Tons”). In general, the Current Economic Tons will be less than the total Tons Under Lease because the cost of extracting a portion of the total Tons Under Lease will outweigh the price at which the coal could be sold. In addition, Current Economic Tons may be reduced by the refusal of a state and/or federal authority to grant a permit to mine portions of the coal reserves within a specific property. The inability to extract the total Tons Under Lease or the inability to sell any portion of the coal extracted will reduce the royalties payable to the Trust.

 

The following chart sets forth the actual total amount of coal production for which royalties were earned during the past two years at the Decker and Spring Creek mines:

 

Tons of Coal Produced

 

 

 

2018

 

2017

 

 

 

 

 

 

 

Decker Mine

 

5,536,029

 

4,128,543

 

Spring Creek Mine

 

952,283

 

1,229,618

 

Total

 

6,488,312

 

5,358,161

 

 

The following sets forth certain information about each of the mine properties in which the Trust continues to hold a Coal Royalty:

 

DECKER MINE. The Decker coal mine is in the northwest of the Powder River Basin, which is located in Big Horn County, Montana, approximately 20 miles north of Sheridan, Wyoming.  The Decker Mine is solely owned and operated by Lighthouse Resources Inc. (formerly known as Ambre Energy North America, Inc.) and has been since 2014.  Also in 2014, signaling its focus on projects in the United States, Ambre Energy North America,

 

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Inc. separated from its Australian parent company, Ambre Energy Limited, when longtime investor Resource Capital Funds became the majority owner of Ambre Energy North America, Inc.  Lighthouse Resources Inc. is privately held and headquartered in Salt Lake City, Utah.  The Decker Mine in its entirety includes approximately 23,371 acres. The Trust owns overriding royalty interests in six leases at the Decker Mine. The terms of the Trust’s overriding royalty interests of each lease as of December 31, 2018 and 2017, are set forth in the table below, of which the accompanying notes are an integral part:

 

Lease Number

 

Lessor

 

Terms of Overriding
Royalties(1)

 

Tons of Coal
Produced
In 2018

 

Tons of Coal 
Produced
In 2017

 

 

 

 

 

 

 

 

 

 

 

M-073093(2)

 

United States

 

5 cents per ton

 

5,190,316

 

4,074,208

 

M-061685(2)

 

United States

 

10 cents per ton

 

 

 

M-057934(2)

 

United States

 

10 cents per ton

 

64,921

 

24,130

 

C-1085-93(3)

 

Montana

 

10 cents per ton

 

 

 

C-1087-95(3)

 

Montana

 

10 cents per ton

 

280,792

 

30,205

 

C-1095-97(3)

 

Montana

 

5 cents per ton

 

 

 

 


(1) The Trust has an undivided one-half interest in a second overriding royalty pertaining to each of these leases.  By the terms of the assignment by which it was created, this second overriding royalty, when added to all other royalties pertaining to each of these leases, may not exceed fifty percent (50%) of the royalty paid to the lessor under each of these leases.

(2) The operator of this lease has indicated that it expects mining to continue.

(3) The operator of this lease expects little or no mining activity in the future.

 

SPRING CREEK MINE. Spring Creek Coal Company (“Spring Creek”) operates this mine, which is located in Big Horn County, Montana, approximately 25 miles north of Sheridan, Wyoming and owned by Cloud Peak Energy.  The Spring Creek Mine in its entirety includes approximately 2,560 acres. The Trust owns an overriding royalty interest in one lease at the Spring Creek Mine. The terms of the overriding royalty interest of the lease as of December 31, 2018 and 2017, are set forth in the table below, of which the accompanying notes are an integral part:

 

Lease Number

 

Lessor

 

Terms of Overriding
Royalties(5)

 

Tons of Coal Produced
In 2018

 

Tons of Coal Produced
In 2017

 

 

 

 

 

 

 

 

 

 

 

M-069782(4)

 

United States

 

10.75

%

952,283

 

1,229,618

 

 


(4) The operator of this lease has indicated that it expects mining to continue but that the mine is being depleted.  Production for this mine is expected to be lower in 2019.

(5) Under the terms of the lease, the Trust receives a royalty payment equivalent to 10.75% of the applicable production royalties paid to the United States.  The royalties paid to the United States are based on sales and fluctuate based on the value of coal.

 

In addition to its interests in the foregoing leases, the Trust has overriding royalty interests in other leases from which no production is currently contemplated and/or which are considered to be not mineable because of access, alluvial valley, or other problems.

 

Financial Information about Segments. The Trust’s sole activity is the collection and distribution of the revenues generated by the Coal Royalties. Accordingly, the Trust operates in a single business segment.

 

Financial Information about Geographic Areas. All of the Trust’s 2018 income was generated from royalty income received from sources located in the United States.

 

Available Information. The Trust does not have an Internet website. However, the Trust electronically files annual, quarterly and current reports with the SEC. The SEC maintains a web site at www.sec.gov that contains

 

2


Table of Contents

 

the Trust’s SEC filings. The Trustee will provide any Unit Holder with a paper copy of the Trust’s SEC filings free of charge upon request.

 

ITEM 1A. RISK FACTORS.

 

Not applicable.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

 

Not applicable.

 

ITEM 2. PROPERTIES.

 

The Trust does not own any real property.  Information on each of the mine properties in which the Trust continues to hold a Coal Royalty is set forth in the section titled, “BUSINESS.”

 

ITEM 3. LEGAL PROCEEDINGS.

 

There are no pending material legal proceedings to which the Trust is a party.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED UNIT HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Market Information. There is no established public trading market for the Units. The Units have not been registered under the Securities Act of 1933, nor have they been registered under the securities laws of any state. Accordingly, resales of the Units are subject to certain legal restrictions on transferability. Unit Holders should consult with their own counsel regarding their ability to sell their Units.  None of the Units are subject to outstanding options or warrants to purchase, and no securities are convertible into Units. Under the terms of the Trust Indenture, the Trust may not issue additional Units.

 

Holders. The Units are the only class of security issued by the Trust. As of March 1, 2019, there were approximately 1,068 separate holders of Units.

 

Distributions to Unit Holders.  All income of the Trust plus any amounts released from reserves, less amounts used to pay Trust expenses and amounts placed in reserves, is distributed to Unit Holders.  Historically, the Trust paid quarterly distributions to the extent funds were available.  However, on August 16, 2016, the County Court in and for Douglas County, Nebraska (the “Court”) entered an order approving the modification of the Trust’s Trust Indenture dated May 17, 1982, and restated on June 10, 1982 (together, the “Trust Indenture”).  The Court approved modifications to the Trust Indenture, which included permitting biannual distributions within ten days after June 30 and December 31 of each year to the extent funds are available.  Because of these modifications to the Trust Indenture, the Trust did not pay distributions for the third quarter of 2016 or the first or third quarters of 2017 or 2018. The following table shows the aggregate distributions made to Unit Holders for each quarter during 2018 and 2017:

 

2018

 

 

 

 

Distribution Amounts

 

Quarter Ended

 

Date Distributed

 

In Total

 

Per Unit

 

 

 

 

 

 

 

 

 

March 31, 2018(1)

 

Not applicable

 

$

 

$

 

June 30, 2018

 

July 11, 2018

 

526,968

 

0.041712

 

September 30, 2018(1)

 

Not applicable

 

 

 

December 31, 2018

 

January 4, 2019

 

735,748

 

0.058238

 

 

 

 

 

$

1,262,716

 

$

0.099950

 

 

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2017

 

 

 

 

Distribution Amounts

 

Quarter Ended

 

Date Distributed

 

In Total

 

Per Unit

 

 

 

 

 

 

 

 

 

March 31, 2017(2)

 

Not applicable

 

$

 

$

 

June 30, 2017

 

July 6, 2017

 

416,349

 

0.032956

 

September 30, 2017(2)

 

Not applicable

 

 

 

December 31, 2017

 

January 4, 2018

 

651,510

 

0.051570

 

 

 

 

 

$

1,067,859

 

$

0.084526

 

 


(1) The Trust reserved $499,688 in the first quarter and distributed these funds in July 2018 and reserved $720,533 in the third quarter and distributed these funds in January 2019.

(2) The Trust reserved $374,712 in the first quarter and distributed these funds in July 2017 and reserved $632,514 in the third quarter and distributed these funds in January 2018.

 

Securities Authorized for Issuance under Equity Compensation Plans.

 

Not applicable.

 

Recent Sales of Unregistered Securities.

 

None.

 

Issuer Purchases of Equity Securities.

 

None.

 

ITEM 7. TRUSTEE’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Distributable income is the total amount of net royalty and overriding royalty payments received from the various mines increased by the amount of interest earned and any other amounts received by the Trust and decreased by the amount of trust expenses.  During 2018, royalty income increased by $223,071 to $1,464,943 from $1,241,872 in 2017, and distributable income also increased by $194,857 to $1,262,716 from $1,067,859 in 2017.  These increases were attributable to increased coal production at certain Decker Mines, offset by a decrease at the Spring Creek Mine due to a reduction in mining activity.

 

The following schedule reflects the royalty and overriding royalty payments received by the Trust in respect of leases at the following mines:

 

 

 

2018

 

2017

 

 

 

 

 

 

 

Decker Mine

 

$

1,302,986

 

$

1,030,048

 

Spring Creek Mine

 

161,957

 

211,824

 

Total

 

$

1,464,943

 

$

1,241,872

 

 

Decker Mine. The amount of royalties and overriding royalties received by the Trust with respect to the Decker Mine increased to $1,302,986 in 2018 from $1,030,048 in 2017, an increase of $272,938, or approximately 26%.  This change resulted from additional tons of coal produced as well as fluctuations in coal price.  From May to September 2018, additional mining took place in lease C-1087-95 which contributed to the increase in 2018 as compared to 2017.  Going forward, mining in this lease is, however, expected to be less than prior years.  The overall Decker mining plan for 2019 is to increase tonnage up to 5.2 million from 4.7 million as budgeted for 2018.

 

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Spring Creek Mine. The amount of royalties and overriding royalties received by the Trust with respect to the Spring Creek Mine decreased to $161,957 in 2018 from $211,824 in 2017, a decrease of $49,867.   In 2018, the amount of coal produced at the Spring Creek Mine decreased by approximately 24% as compared to 2017.  For the past several years, a general decrease in the amount of coal produced at the Spring Creek Mine has impacted the amount of royalties paid to the Trust.  The Trust anticipates that the amount of coal will continue to decrease as the mine operator notified the Trust that this mine is being depleted, and that the operator is moving into other areas of the mine, which are not subject to the terms of the Spring Creek Mine lease with the Trust.  Cloud Peak believes production from the applicable Spring Creek mines will be about 240,000 tons in 2019, which would be a substantial decrease from 2018.  Cloud Peak expects relatively low production volumes in the future, generally less than 100,000 tons annually, for the next 2-3 years after 2019.  Further, Cloud Peak has recently announced that it is actively engaged in discussions with certain of its creditor groups’ financial and legal advisors regarding potential alternatives, including asset sales, a private debt restructuring, or a court-supervised reorganization under Chapter 11 of the U.S. Bankruptcy Code, and related financing needs.  The Trust intends to monitor Cloud Peak’s restructuring and at this time, does not expect that such restructuring will materially impact the results of operations or financial condition of the Trust.

 

Interest Income.  The Trust earns interest on the royalty payments prior to the distribution to the Unit Holders.  During the years ended December 31, 2018 and 2017, the Trust earned a nominal amount of interest although the amount of interest has increased in recent years because of the timing of the distribution payments and the increase in interest rates.

 

Trust Expenses.  Trust expenses increased by $33,571 to $209,789 in 2018 and from $176,218 in 2017.  Trust expenses included fees of the Trustee, accountants, attorneys, and other professionals that the Trustee employs in the administration of the Trust.  The Trust pays a Trustee fee of $25,000 per quarter as long as the Trust has sufficient royalty income to make such payments.  In fiscal years 2018 and 2017, the Trust paid an aggregate of $100,000 in Trustee fees per year.  Pursuant to the terms of the Trust Indenture, the Trustee has the ability to increase its fees, in its sole discretion, after providing notice to the Unit Holders.

 

Liquidity and Capital Resources.  The Trust’s primary source of capital 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, are distributed to the Unit Holders on a biannual basis.

 

Trust Reserves.  The Trust pays biannual distributions within ten days after June 30 and December 31 of each year to the extent funds are available.  Consistent with the modifications to the Trust Indenture, the Trust established reserves in the first and third quarters of 2018 in the amount of $499,688 and $720,533, respectively, and distributed such amounts within 10 days of the second and fourth quarters of 2018.  The Trust also established reserves in the first and third quarters of 2017 in the amount of $374,712 and $632,514, respectively, and distributed such amounts within 10 days of the second and fourth quarters of 2017.

 

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.

 

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

Financial Statements.  The following documents are filed as part of the Trust’s financial statements for the years ended December 31, 2018 and 2017:

 

(1)                                 Report of Independent Registered Public Accounting Firm

 

(2)                                 Statements of Assets, Liabilities and Trust Corpus as of December 31, 2018 and 2017

 

(3)                                 Statements of Distributable Income for the years ended December 31, 2018 and 2017

 

(4)                                 Statements of Changes in Trust Corpus for the years ended December 31, 2018 and 2017

 

(5)                                 Notes to Financial Statements

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Trustee and Unit Holders of

Kiewit Royalty Trust

Omaha, Nebraska

 

Opinion on the Financial Statements

 

We have audited the accompanying statements of assets, liabilities and trust corpus of Kiewit Royalty Trust (the “Trust”) as of December 31, 2018 and 2017, the related statements of distributable income and changes in trust corpus for years then ended.  In our opinion, the financial statements present fairly, in all material respects, the financial position of the Trust as of December 31, 2018 and 2017, and the results of its operations and changes in trust corpus for each of the two years in the period ended December 31, 2018, on the basis of accounting described in Note 1.

 

Basis for Opinion

 

These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Trust’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Basis of Accounting

 

As described in Note 1, the financial statements were prepared on the modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America.

 

/s/ Deloitte & Touche LLP

 

Omaha, Nebraska

March 28, 2019

 

We have served as the Trust’s auditor since 2008.

 

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Table of Contents

 

KIEWIT ROYALTY TRUST
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
December 31, 2018 and 2017

 

 

 

2018

 

2017

 

Assets

 

 

 

 

 

Cash and cash equivalents

 

$

735,748

 

$

651,510

 

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

 

$

735,748

 

$

651,510

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Distributions payable to unit holders

 

$

735,748

 

$

651,510

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Total liabilities and trust corpus

 

$

735,748

 

$

651,510

 

 

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

 

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KIEWIT ROYALTY TRUST
STATEMENTS OF DISTRIBUTABLE INCOME
for the years ended December 31, 2018 and 2017

 

 

 

2018

 

2017

 

 

 

 

 

 

 

Royalty income

 

$

1,464,943

 

$

1,241,872

 

Interest income

 

7,562

 

2,205

 

Trust expenses

 

(209,789

)

(176,218

)

 

 

 

 

 

 

Distributable income

 

$

1,262,716

 

$

1,067,859

 

 

 

 

 

 

 

Distributable income per unit

 

$

0.099950

 

$

0.084526

 

 

KIEWIT ROYALTY TRUST
STATEMENTS OF CHANGES IN TRUST CORPUS
for the years ended December 31, 2018
and 2017

 

 

 

2018

 

2017

 

 

 

 

 

 

 

Trust corpus, beginning of year

 

$

 

$

 

Distributable income

 

1,262,716

 

1,067,859

 

Distributions payable to unit holders

 

(1,262,716

)

(1,067,859

)

 

 

 

 

 

 

Trust corpus, end of year

 

$

 

$

 

 

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

 

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KIEWIT ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

 

1.                                      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.

 

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 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 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.

 

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(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 U.S. Bank National Association, as the sole trustee (the “Trustee”).  Pursuant to the terms of the Trust Indenture, the Trust paid the Trustee an annual fee of $100,000 for fiscal years 2018 and 2017, payable each quarter in the amount of $25,000.  The Trustee may adjust this fee annually in its sole discretion.  The Trust pays a Trustee fee each quarter as long as the Trust has sufficient royalty income to make such payments.

 

(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.

 

2.                                      Trust Organization and Provisions:

 

The Trust was established on May 17, 1982.  Units of beneficial interest (“Units”) in the Trust were distributed on June 23, 1982 to Class B and Class C shareholders of record of Peter Kiewit Sons’, Inc. (now known as Level 3 Communications, Inc.) (the “Trustor”), as of June 10, 1982.  These shareholders received one Unit in the Trust for each share of the Trustor’s stock held.  On June 28, 1982, the Trustor conveyed to the Trust royalty and overriding royalty interests owned by the Trustor’s subsidiaries in certain coal properties in the States of Montana and Wyoming.

 

The terms of the Trust Indenture provide, among other things, that:

 

(a)                                 the Trust shall not engage in any business or investment activity of any kind or acquire any assets other than those initially conveyed to the Trust;

 

(b)                                 the Trustee may not sell all or any part of the royalty interests unless approved by a majority of Unit Holders outstanding, in which case the sale must be for cash and the proceeds promptly distributed;

 

(c)                                  the Trustee may establish a cash reserve for the payment of any liability which is contingent or uncertain in amount;

 

(d)                                 the Trustee will make cash distributions to the Unit Holders in January, April, July and October of each year as discussed in Note 4; and

 

(e)                                  in September 1994, the Trust Indenture was amended to authorize the Trustee to invest funds in government obligations, government-secured obligations and funds registered pursuant to the Investment Company Act of 1940.

 

Pursuant to the terms of the Trust Indenture, the Trust shall terminate upon the first to occur of the following events:  (i) at such time that the Trust’s net revenues  for each of the three successive years are less than $1 million per year, (ii) the Unit Holders vote in favor of termination at a meeting, or (iii) the expiration of twenty-one years after the death of the last survivor  of the issue in being on May 17,1982 of any member of the Board of Directors of Peter Kiewit Sons’, Inc. on May 17, 1982.  As of the date of this report, none of these termination provisions has been triggered.

 

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3.                                      Royalty and Overriding Royalty Interests:

 

The cash received by the Trustee from the royalty interests will consist of a specified amount per ton or a specified fraction of the value of the total production of the property, free of the expense of development and operation.  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.  The royalty interests are fully amortized.  The initial carrying value of the royalty and overriding royalty interests in coal leases of $167,817 represents the Trustor’s historical net book value at the date of the transfer to the Trust.

 

4.                                      Distributions to Unit Holders:

 

The Trust determines distributions after the second and fourth quarters.  The distribution amount is the excess of (i) the cash received during the applicable period which is attributable to royalties plus any decrease in cash reserves, plus any other cash receipts of the Trust during the period over (ii) the liabilities of the Trust paid during the period, plus any increase in cash reserves.  The distribution amount is payable to Unit Holders of record as of the last business day of each period.  If paid, the cash distributions are made biannually within the first ten days of January and July.

 

Historically, the Trust made quarterly distributions to the extent funds were available.  On August 16, 2016, the Court approved modifications to the Trust Indenture, which included permitting biannual distributions within ten days after June 30 and December 31 of each year to the extent funds are available.  Commencing with the third quarter of 2016, the Trust ceased making quarterly distributions and now makes biannual distributions within 10 days after the quarters ending June 30 and December 31.

 

5.                                      Income Taxes:

 

Provision for federal and state income taxes has not been made in the financial statements since the Trust has been recognized by the IRS as a “grantor trust” which is not a taxable entity.

 

6.                                      Selected Quarterly Financial Data (Unaudited):

 

The following is a summary of the unaudited quarterly financial information:

 

 

 

Royalty Income

 

Distributable
Income

 

Distributable
Income Per Unit

 

For the year ended December 31, 2018:

 

 

 

 

 

 

 

March 31, 2018

 

$

542,042

 

$

 

$

 

June 30, 2018

 

87,261

 

526,968

 

0.041712

 

September 30, 2018

 

771,106

 

 

 

December 31, 2018

 

64,534

 

735,748

 

0.058238

 

 

 

$

1,464,943

 

$

1,262,716

 

$

0.099950

 

 

 

 

Royalty Income

 

Distributable
Income

 

Distributable
Income Per Unit

 

For the year ended December 31, 2017:

 

 

 

 

 

 

 

March 31, 2017

 

$

404,607

 

$

 

$

 

June 30, 2017

 

98,285

 

416,349

 

0.032956

 

September 30, 2017

 

684,737

 

 

 

December 31, 2017

 

54,243

 

651,510

 

0.051570

 

 

 

$

1,241,872

 

$

1,067,859

 

$

0.084526

 

 

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this Form 10-K, officers 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.

 

Trustee’s Report on Internal Control over Financial Reporting. The Trustee is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. The Trustee has assessed the effectiveness of the Trust’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, the Trustee concluded that, as of December 31, 2018 the Trust’s internal control over financial reporting was effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes on the modified cash basis, which is a comprehensive basis of accounting other than United States generally accepted accounting principles.

 

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 has 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.

 

ITEM 9B. OTHER INFORMATION.

 

None.

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

Executive Officers and Board of Directors. The Trust is administered by officers and employees of the Trustee and has no Board of Directors or any committees.  While there are no specific persons employed by the Trustee having the full-time duty of administering the Trust, the Trust names an officer of the Trustee to act as the chief executive officer and chief financial officer of the Trust:

 

From December 12, 2016 — March 12, 2018, Luke H. Paladino, age 40, served as a Vice President with U.S. Bank  N.A. and was named as the chief executive officer and chief financial officer of the Trust.  He also previously served in that position from March 2014 through November 2016.  Prior to that position, Mr. Paladino was an Assistant Vice President and Trust Officer from September 2007 — March 2014 in the Wealth Management Group (formerly known as the Private Client Group). Mr. Paladino was the Trust Officer responsible for the Trust from January 2008 through November 2016 and then again from December 2016 through March 12, 2018.  Mr. Paladino resigned from his position with the Trustee and no longer is providing any services to the Trust.  Mr. Paladino received his J.D. from Creighton University School of Law and his B.A. from Rockhurst University.

 

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After the departure of Mr. Paladino, Wood A. Hull, age 63, was appointed to act as the chief executive officer and chief financial officer of the Trust.   Mr. Hull was designated to perform the necessary functions of the Trust on behalf of the Trustee effective March 12, 2018 through December 21, 2018.  Until his retirement on January 4, 2019, Mr. Hull served as the Senior Managing Director of the Wealth Management Group at the Trustee and served in this position since 2006.  Prior to that, Mr. Hull served as a Trust Officer and Relationship Manager at the Trustee from 1986 - 2006.  Mr. Hull holds a Bachelor of Arts degree in psychology and Juris Doctorate degree in law from Creighton University in Omaha, Nebraska.

 

In light of Mr. Hull’s anticipated retirement in early 2019, the Trustee appointed Amy M. Chesnut, age 33, to act as Mr. Hull’s successor to perform the necessary functions of the Trust on behalf of the Trustee on December 21, 2018.  Ms. Chesnut currently is a Wealth Management Trust Advisor with U.S. Bank N.A. and has served in that position since 2012.  Prior her current position, Ms. Chesnut was a Personal Trust Associate at U.S. Bank from 2007 to 2012.  Ms. Chesnut received her Bachelor of Science degree in sports management from Nebraska Wesleyan University, Lincoln, Nebraska.

 

Section 16(a) Beneficial Ownership Reporting Compliance.  The Trust does not have any officers, directors or any beneficial owners holding more than 10% of the outstanding Units.  Accordingly, the Trust believes that it was in full compliance for the year ended December 31, 2018, with all filing requirements under Section 16(a) of the Exchange Act.

 

Code of Ethics. The Trust does not maintain its own Code of Ethics for its senior executive and financial officers as required by Section 406 of the Sarbanes-Oxley Act of 2002 because it does not have officers or employees. The Trustee maintains a Code of Conduct for all of its employees, including those who perform duties for the Trust. A copy of the Trustee’s Code of Conduct will be made available to Unit Holders without charge upon request.

 

ITEM 11. EXECUTIVE COMPENSATION.

 

The Trust does not have any officers or employees. Certain services are provided to the Trust by officers and employees of the Trustee. However, none of employees of the Trustee that perform the functions of the Trust’s officers receive any compensation from the Trust and the Trustee does not receive reimbursement from the Trust for any portion of the compensation paid to such employees.  The Trust pays the Trustee an administrative fee of $100,000 per year.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNIT HOLDER MATTERS.

 

The Trustee believes the only holder of more than 5% of the outstanding Units as of March 1, 2019, is Walter Scott, Jr., who beneficially owns 800,000 Units representing 6.33% of the class outstanding. Mr. Scott’s address is One Thousand Kiewit Plaza, Omaha, Nebraska 68131. These Units are held in trust by the Trustee for the benefit of Mr. Scott. No employee of the Trustee who performed the functions as an officer of the Trust owned any Units as of March 1, 2019. The Trust had no knowledge of any arrangements, the operation of which could, at a subsequent date, result in a change of control of the Trust. The Trust does not maintain any equity contribution plans as defined in Item 201(d) of Regulation S-K.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

During 2018, there were no transactions of any nature between the Trust and any employee of the Trustee who performed the functions of an officer of the Trust or any persons known to the Trustee to be the beneficial owners of more than 5% of the Units.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

 

The principal independent registered public accounting firm utilized by the Trust was Deloitte & Touche LLP.

 

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Principal Accounting Fees and Services

 

The aggregate fees billed by Deloitte & Touche LLP for the fiscal years ended December 31, 2018 and 2017 are as follows:

 

 

 

Fiscal 2018

 

Fiscal 2017

 

Audit fees

 

$

63,052

 

$

27,100

 

All other fees

 

 

 

Total:

 

$

63,052

 

$

27,100

 

 

Audit fees. Audit fees consist of fees billed for professional services rendered for the audit of the Trust’s annual financial statements and review of the interim financial statements included in quarterly reports and services that are normally provided by the accountant in connection with statutory and regulatory filings.  Except for the Audit Fees, no other fees were paid by the Trust to Deloitte & Touche LLP for the fiscal years ended December 31, 2018 and 2017.

 

As referenced in Item 10 above, the Trust has no audit committee and, as a result, has no audit committee pre-approval policy with respect to fees paid to Deloitte & Touche LLP.

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

1.                                      The following statements are filed herewith:

 

Report of Independent Registered Public Accounting Firm

 

Statements of Assets, Liabilities and Trust Corpus as of December 31, 2018 and 2017

 

Statements of Distributable Income for the years ended December 31, 2018 and 2017

 

Statements of Changes in Trust Corpus for the years ended December 31, 2018 and 2017

 

Notes to Financial Statements

 

2.                                      Financial Statement Schedules - No financial statement schedules are filed herewith because either such schedules are not required or the information has been presented in the aforementioned financial statements.

 

3.                                      Exhibits

 

The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:

 

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 4.2 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 Wealth Management Trust Advisor pursuant to Rule 13a-14 of the Securities Exchange Act of 1934

 

 

 

32**

 

Certification of Wealth Management Trust Advisor pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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Table of Contents

 

99.1

 

Location Map of Coal Properties (incorporated herein by reference to Exhibit 2 to the Trust’s Form 10-K filed with the Securities and Exchange Commission on March 31, 1985, and incorporated herein by reference).

 


*                                         Filed herewith

**                                  Furnished herewith

 

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

 


***                           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.

 

ITEM 16. FORM 10-K SUMMARY

 

None

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

March 28, 2019

KIEWIT ROYALTY TRUST

 

 

 

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

 

 

 

 

 

By:

/s/ Amy M. Chesnut

 

 

Amy M. Chesnut, Wealth Management Trust Advisor

 

(The Registrant has no directors or executive officers.)

 

17