EX-13 2 0002.txt 2000 ANNUAL REPORT TO CERTIFICATE HOLDERS Exhibit 13--Annual Report to Certificate Holders GREAT NORTHERN IRON ORE PROPERTIES ----------------- NINETY-FOURTH ANNUAL REPORT OF THE TRUSTEES TO CERTIFICATE HOLDERS FOR YEAR ENDED DECEMBER 31, 2000 GREAT NORTHERN IRON ORE PROPERTIES W-1290 First National Bank Building 332 Minnesota Street Saint Paul, Minnesota 55101-1361 (651) 224-2385 Fax (651) 224-2387 ---------------- TRUSTEES OFFICERS JOSEPH S. MICALLEF JOSEPH S. MICALLEF President of the Trustees Chief Executive Officer HARRY L. HOLTZ* THOMAS A. JANOCHOSKI President Vice President and Secretary Alliss Foundation Chief Financial Officer ROGER W. STAEHLE* ROGER P. JOHNSON Adjunct Professor Manager of Mines University of Minnesota Chief Engineer ROBERT A. STEIN* Executive Director American Bar Association *Audit Committee ---------------- SHAREHOLDER RELATIONS DEPARTMENT, TRANSFER OFFICE AND REGISTRAR Wells Fargo Shareowner Services P.O. Box 64854 Saint Paul, Minnesota 55164-0854 Toll-free: 1-800-468-9716 MESABI IRON RANGE OFFICE 801 East Howard Street Hibbing, Minnesota 55746-0429 (218) 262-3886 Fax (218) 262-4295 GREAT NORTHERN IRON ORE PROPERTIES SUMMARY OF OPERATIONS
YEAR ENDED DECEMBER 31 ------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- Shipments from our mines (tons) ................ 6,942,539 6,133,576 6,384,226 5,363,234 5,979,527 Royalty income ................................. $11,772,582 $10,427,611 $11,234,050 $ 9,416,979 $ 9,978,603 Other income ................................... 577,825 498,602 548,707 613,164 551,597 Net income ..................................... 10,790,588 9,353,593 10,152,100 8,488,075 8,988,486 Total assets ................................... 18,995,305 17,206,835 17,341,024 16,179,624 17,066,649 Average shares outstanding ..................... 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 Earnings per share, based on weighted-average shares outstanding during the year ............ $ 7.19 $ 6.24 $ 6.77 $ 5.66 $ 5.99 Declared distributions per share ............... $ 6.80(1) $ 6.10(2) $ 6.30(3) $ 6.00(4) $ 5.80(5)
---------------- (1) $1.10 pd 4/28/00; $1.50 pd 7/31/00; $1.80 pd 10/31/00; $2.40 pd 1/31/01 (2) $1.40 pd 4/30/99; $1.50 pd 7/30/99; $1.60 pd 10/29/99; $1.60 pd 1/31/00 (3) $1.20 pd 4/30/98; $1.50 pd 7/31/98; $1.80 pd 10/30/98; $1.80 pd 1/29/99 (4) $1.50 pd 4/30/97; $1.50 pd 7/31/97; $1.50 pd 10/31/97; $1.50 pd 1/30/98 (5) $1.35 pd 4/30/96; $1.15 pd 7/31/96; $1.60 pd 10/31/96; $1.70 pd 1/31/97 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations: "Royalty income" for 2000 was greater than that of 1999 primarily due to increased taconite production from Trust lands. "Royalty income" for 1999 was less than that of 1998 primarily due to a lower overall average royalty rate earned. "Other income" for 2000 was greater than that of 1999 mainly due to increased timber revenues received. "Other income" for 1999 was less than that of 1998 mainly due to a lower overall yield on investments. Please refer to Note A of the Financial Statements which provides general information about Great Northern Iron Ore Properties. Liquidity: In the interest of preservation of principal of Court-approved reserves and guided by the restrictive provisions of Section 646 of the Tax Reform Act of 1986, as amended, monies are invested primarily in U.S. Treasury securities with maturity dates not to exceed three years and, along with cash flows from operations, are deemed adequate to meet currently foreseeable liquidity needs. 2 To Certificate Holders: The Trustees of Great Northern Iron Ore Properties ("Trust") own fee title to certain mineral and nonmineral lands situated on the Mesabi Iron Range of Minnesota. Many of these properties are leased to companies that mine the ores. The Trust has no subsidiaries. During 2000, the major source of income to the Trust was royalty derived from taconite production and minimum royalties. Accumulated advance royalties received and taken into income on ore not yet mined amounted to $4,711,981 on December 31, 2000. These advance royalties collected involve no liabilities on the part of the Trust except to permit the mining of the ore from leases on which the advance royalties have been paid. Strong taconite production, particularly in the second half of 2000, resulted in another good year for the Trust. Most of the Trust's primary lessees continued to operate at or near their capacity throughout most of the year. A Summary of Shipments is tabulated on the last page of this report. The Trustees declared four quarterly distributions in 2000 totaling $6.80 per share. The first, in the amount of $1.10 per share, was paid on April 28, 2000, to certificate holders of record on March 31, 2000; the second, in the amount of $1.50 per share, was paid on July 31, 2000, to certificate holders of record on June 30, 2000; the third, in the amount of $1.80 per share, was paid on October 31, 2000, to certificate holders of record on September 29, 2000; and the fourth, in the amount of $2.40 per share, was paid on January 31, 2001, to certificate holders of record on December 29, 2000. The Trustees declared four quarterly distributions in 1999 totaling $6.10 per share. The first, in the amount of $1.40 per share, was paid on April 30, 1999, to certificate holders of record on March 31, 1999; the second, in the amount of $1.50 per share, was paid on July 30, 1999, to certificate holders of record on June 30, 1999; the third, in the amount of $1.60 per share, was paid on October 29, 1999, to certificate holders of record on September 30, 1999; and the fourth, in the amount of $1.60 per share, was paid on January 31, 2000, to certificate holders of record on December 31, 1999. The Trustees intend to continue quarterly distributions and set the record date as of the last business day of each quarter. The next distribution will be paid in late April 2001 to certificate holders of record on March 30, 2001. 3 Shares of beneficial interest in the Trust are traded on the New York Stock Exchange under the ticker symbol "GNI." There were 2,116 certificate holders of record on December 31, 2000. The high and low prices for the quarterly periods commencing January 1, 1999 through December 31, 2000 were as follows: 2000 1999 ---------------- ---------------- QUARTER HIGH LOW HIGH LOW ------- ---- --- ---- --- First ......................... $56 $49 1/2 $62 3/4 $55 1/4 Second ........................ 52 3/16 49 3/8 64 1/4 59 Third ......................... 55 49 61 7/8 58 3/4 Fourth ........................ 57 1/4 48 1/4 59 15/16 53 9/16 The following is a summary of quarterly results of operations (unaudited) for the years ended December 31, 2000 and 1999 (in thousands of dollars, except per share amounts): QUARTER ENDED ------------------------------------------------ MARCH 31 JUNE 30 SEPT. 30 DEC. 31 -------- ------- -------- ------- 2000 Royalty income ............... $ 994 $ 2,801 $ 4,524 $ 3,454 Interest and other income .... 147 130 135 166 ------ ------- ------- ------- Gross income ................. 1,141 2,931 4,659 3,620 Expenses ..................... 441 368 393 358 ------ ------- ------- ------- Net income ................... $ 700 $ 2,563 $ 4,266 $ 3,262 ====== ======= ======= ======= Earnings per share ........... $ .47 $ 1.71 $ 2.84 $ 2.17 ====== ======= ======= ======= 1999 Royalty income ............... $1,453 $ 3,065 $ 3,058 $ 2,852 Interest and other income .... 141 113 112 132 ------ ------- ------- ------- Gross income ................. 1,594 3,178 3,170 2,984 Expenses ..................... 426 366 384 396 ------ ------- ------- ------- Net income ................... $1,168 $ 2,812 $ 2,786 $ 2,588 ====== ======= ======= ======= Earnings per share ........... $ .78 $ 1.87 $ 1.86 $ 1.73 ====== ======= ======= ======= The terms of the Great Northern Iron Ore Properties Trust Agreement, created December 7, 1906, state that the Trust shall continue for twenty years after the death of the last surviving of eighteen named in the Trust Agreement. The last survivor of these eighteen named in the Trust Agreement died April 6, 1995. According to the terms of the Trust Agreement, the Trust now terminates twenty (20) years from April 6, 1995, that being April 6, 2015. The termination of the Trust on April 6, 2015 means that there will be no trading of the Trust's 1,500,000 certificates of beneficial interest (shares) on the New York Stock Exchange beyond that date. At the end of the Trust, all monies remaining in the hands of the Trustees (after paying and providing for all expenses and obligations of the Trust) shall be distributed ratably among the certificate holders (term beneficiaries), 4 while all property other than monies shall be conveyed and transferred to the reversionary beneficiary (formerly Lake Superior Company, Limited), or its successors or assigns (Glacier Park Company, a wholly owned subsidiary of Burlington Resources, Inc.). By the terms of a District Court Order dated November 29, 1982, the reversioner is required to pay to a Principal Charges account (as explained in Note D of the Financial Statements) the cost of acquiring homes and land parcels on the iron formation that are in the way of mining by U.S. Steel Corporation under its 1959 lease with the Trustees. This account balance, which may increase or decrease, will be added to the cash distributable to the then certificate holders at the termination of the Trust. As previously reported, Section 646 of the Tax Reform Act of 1986, as amended, provided a special elective provision under which the Trust was allowed to convert from taxation as a corporation to that of a grantor trust. Pursuant to an Order of the Ramsey County District Court, the Trustees filed the Section 646 election with the Internal Revenue Service on December 30, 1988. For years 1989 and thereafter, certificate holders are taxed on their allocable share of the Trust's income whether or not the income is distributed. A Tax Return Guide was mailed in January 2001 to all "record date" certificate holders shown on our stock transfer agent's records during 2000. This guide was intended to assist the investor in addressing many of the issues that arise in reporting the Trust operations for federal and state income tax purposes due to Section 646. We will, upon request, be happy to furnish certificate holders an Annual Report on Form 10-K and a Tax Return Guide for any recent year. Respectfully submitted, Joseph S. Micallef Harry L. Holtz Roger W. Staehle Robert A. Stein Saint Paul, Minnesota March 9, 2001 5 GREAT NORTHERN IRON ORE PROPERTIES STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31 ------------------------------------------------- 2000 1999 1998 ----------- ----------- ----------- INCOME Royalties ............................... $11,772,582 $10,427,611 $11,234,050 Interest earned ......................... 476,333 448,271 489,581 Rent and other .......................... 101,492 50,331 59,126 ----------- ----------- ----------- 12,350,407 10,926,213 11,782,757 EXPENSES Royalties ............................... 4,623 4,623 4,623 Real estate and payroll taxes ........... 122,290 120,875 126,484 Inspection and care of property ......... 390,439 370,955 369,338 Administrative and general .............. 809,224 859,309 928,707 Provision for depreciation and amortization ........................... 233,243 216,858 201,505 ----------- ----------- ----------- 1,559,819 1,572,620 l,630,657 ----------- ----------- ----------- NET INCOME ................................ $10,790,588 $ 9,353,593 $10,152,100 =========== =========== =========== EARNINGS PER SHARE ........................ $ 7.19 $ 6.24 $ 6.77 =========== =========== ===========
STATEMENTS OF BENEFICIARIES' EQUITY
YEAR ENDED DECEMBER 31 ------------------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Balance at beginning of year .............. $14,725,161 $14,521,568 $13,819,468 Net income for the year ................... 10,790,588 9,353,593 10,152,100 ----------- ----------- ----------- 25,515,749 23,875,161 23,971,568 Deduct declaration of distributions on shares of beneficial interest, per share: 2000 - $6.80; 1999 - $6.10; 1998 - $6.30 ............................. 10,200,000 9,150,000 9,450,000 ----------- ----------- ----------- Balance at end of year .................... $15,315,749 $14,725,161 $14,521,568 =========== =========== ===========
See accompanying notes. 6 GREAT NORTHERN IRON ORE PROPERTIES BALANCE SHEETS
ASSETS DECEMBER 31 --------------------------- 2000 1999 ----------- ----------- CURRENT ASSETS Cash and cash equivalents .............................. $ 475,841 $ 364,842 United States Treasury securities (NOTE B) ............. 5,530,749 4,416,704 Royalties receivable ................................... 3,157,655 2,569,023 Prepaid expenses ....................................... 2,760 2,760 ----------- ----------- TOTAL CURRENT ASSETS ..................................... 9,167,005 7,353,329 NONCURRENT ASSETS United States Treasury Notes (NOTE B) .................. 3,960,440 4,135,193 Prepaid pension expense (NOTE E) ....................... 583,852 433,397 ----------- ----------- 4,544,292 4,568,590 PROPERTIES Mineral lands (NOTES B AND C) .......................... 38,577,007 38,437,846 Less allowances for depletion and amortization ......... 33,457,165 33,258,721 ----------- ----------- 5,119,842 5,179,125 Building and equipment -- at cost, less allowances for accumulated depreciation (2000 - $184,130; 1999 - $175,251) .................... 164,166 105,791 ----------- ----------- 5,284,008 5,284,916 ----------- ----------- $18,995,305 $17,206,835 =========== =========== LIABILITIES AND BENEFICIARIES' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses .................. $ 79,556 $ 81,674 Distributions .......................................... 3,600,000 2,400,000 ----------- ----------- TOTAL CURRENT LIABILITIES 3,679,556 2,481,674 BENEFICIARIES' EQUITY, including certificate holders' equity, represented by 1,500,000 shares of beneficial interest authorized and outstanding, and reversionary interest (NOTES A AND D) ................... 15,315,749 14,725,161 ----------- ----------- $18,995,305 $17,206,835 =========== ===========
See accompanying notes. 7 GREAT NORTHERN IRON ORE PROPERTIES STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 ----------------------------------------- 2000 1999 1998 ----------- ----------- ----------- OPERATING ACTIVITIES Cash received from royalties and rents ......... $11,146,281 $10,202,717 $10,514,397 Cash paid to suppliers and employees ........... (1,479,149) (1,508,428) (1,465,617) Interest received .............................. 455,519 457,676 470,274 ----------- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES ........................ 10,122,651 9,151,965 9,519,054 INVESTING ACTIVITIES U.S. Treasury securities purchased ............. (5,268,478) (4,400,000) (3,400,000) U.S. Treasury securities matured ............... 4,350,000 4,149,297 3,350,000 Net expenditures for equipment ................. (93,174) (27,491) (24,430) ----------- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES ........................ (1,011,652) (278,194) (74,430) FINANCING ACTIVITIES Distributions paid ............................. (9,000,000) (9,450,000) (9,000,000) ----------- ----------- ----------- NET CASH USED IN FINANCING ACTIVITIES ........................ (9,000,000) (9,450,000) (9,000,000) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................... 110,999 (576,229) 444,624 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .......................... 364,842 941,071 496,447 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR ................................ $ 475,841 $ 364,842 $ 941,071 =========== =========== =========== RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Net income ..................................... $10,790,588 $ 9,353,593 $10,152,100 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................ 233,243 216,858 201,505 Net (increase) decrease in assets: Accrued interest ........................... (20,814) 9,405 (19,307) Royalties receivable ....................... (588,632) (83,690) (587,779) Prepaid expenses ........................... (150,455) (114,884) (45,765) Surface lands .............................. (139,161) (191,535) (191,000) Net (decrease) increase in liabilities: Accrued liabilities ........................ (2,118) (37,782) 9,300 ----------- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES ................... $10,122,651 $ 9,151,965 $ 9,519,054 =========== =========== ===========
See accompanying notes. 8 GREAT NORTHERN IRON ORE PROPERTIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 NOTE A - BUSINESS AND TERMINATION OF THE TRUST AND LEGAL PROCEEDINGS The Trust is presently involved solely with the leasing and maintenance of mineral lands owned by the Trust on the Mesabi Iron Range of Minnesota. Royalty income is derived from taconite production and minimums. Royalty income (which is not in direct ratio to tonnage shipped) from significant operating lessees was as follows: 2000 - $6,327,000 and $4,890,000; 1999 - $4,662,000 and $4,024,000; and 1998 - $5,426,000 and $4,821,000. The terms of the Great Northern Iron Ore Properties Trust Agreement, created December 7, 1906, state that the Trust shall continue for twenty years after the death of the last surviving of eighteen named in the Trust Agreement. The last survivor of these eighteen named in the Trust Agreement died April 6, 1995. According to the terms of the Trust Agreement, the Trust now terminates twenty (20) years from April 6, 1995, that being April 6, 2015. The termination of the Trust on April 6, 2015 means that there will be no trading of the Trust's 1,500,000 certificates of beneficial interest (shares) on the New York Stock Exchange beyond that date. At the end of the Trust, all monies remaining in the hands of the Trustees (after paying and providing for all expenses and obligations of the Trust) shall be distributed ratably among the certificate holders (term beneficiaries), while all property other than monies shall be conveyed and transferred to the reversionary beneficiary (formerly Lake Superior Company, Limited), or its successors or assigns (Glacier Park Company, a wholly owned subsidiary of Burlington Resources, Inc.). By the terms of a District Court Order dated November 29, 1982, the reversioner is required to pay to a Principal Charges account (see Note D) the cost of acquiring homes and land parcels on the iron formation that are in the way of mining by U.S. Steel Corporation under its 1959 lease with the Trustees. This account balance, which may increase or decrease, will be added to the cash distributable to the then certificate holders at the termination of the Trust. In proceedings commenced in 1972, the Minnesota Supreme Court determined that while by the terms of the Trust, the Trustees are given discretionary powers to convert Trust assets to cash and to distribute the proceeds to certificate holders, they are limited in their exercise of those powers by the legal duty imposed by well established law of trusts to serve the interests of both term beneficiaries and the reversionary beneficiary with impartiality. Thus, the Trustees have no duty to exercise the powers of sale and distribution unless required to do so to serve both term and reversionary interests; and, if the need arises, the Trustees may petition the District Court of Ramsey County, Minnesota, for further instructions defining 9 NOTE A - BUSINESS AND TERMINATION OF THE TRUST AND LEGAL PROCEEDINGS (CONTINUED) what is required in a particular case to balance the interests of certificate holders and reversioner. Also, the Court, in effect, held that the Trust is a conventional trust, rather than a business trust, and must operate within the framework of well established trust law. By a letter dated April 14, 2000, certificate holders of record as of March 1, 2000 and the reversioner were notified of a hearing on May 24, 2000 in Ramsey County Courthouse, Saint Paul, Minnesota, for the purpose of settling and allowing the Trust accounts for the year 1999. By Court Order signed and dated May 24, 2000, the 1999 accounts were settled and allowed in all respects. By previous Orders, the Court settled and allowed the accounts of the Trustees for preceding years of the Trust. As previously reported, Section 646 of the Tax Reform Act of 1986, as amended, provided a special elective provision under which the Trust was allowed to convert from taxation as a corporation to that of a grantor trust. Pursuant to an Order of the Ramsey County District Court, the Trustees filed the Section 646 election with the Internal Revenue Service on December 30, 1988. On January 1, 1989, the Trust became exempt from federal and Minnesota corporate income taxes. For years 1989 and thereafter, certificate holders are taxed on their allocable share of the Trust's income whether or not the income is distributed. For certificate holder tax purposes, the Trust's income is determined on an annual basis, one-fourth then being allocated to each quarterly record date. The Trustees provided annual income tax information in January 2001 to certificate holders of record with holdings on any of the four quarterly record dates during 2000. This information included a: SUBSTITUTE FORM 1099-MISC -- This form reported one's 2000 allocable share of income from the Trust, distributions declared and any taxes withheld. (Foreign certificate holders received a Form 1042S.) TRUST SUPPLEMENTAL STATEMENT -- This statement reported the number of units (shares) held on any of the four quarterly record dates in 2000. TAX RETURN GUIDE -- This guide instructed the certificate holders as to the preparation of their income tax returns with respect to income allocated from the Trust and various deductions allowable. 10 NOTE B - SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS: For purposes of the statements of cash flows, the Trust considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. SECURITIES: United States Treasury securities are classified as "held-to-maturity" securities and are carried at cost, adjusted for amortization of premium and accrued interest. Securities listed as noncurrent assets will mature in 2002. Following is an analysis of the securities as of December 31:
CURRENT NONCURRENT ------------------------ ------------------------ 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Aggregate fair value ...... $5,455,725 $4,346,625 $3,940,843 $4,039,789 Gross unrealized holding gains ............ (22,058) (149) (49,320) -- Gross unrealized holding losses ........... 3,421 22,384 -- 43,262 ---------- ---------- ---------- ---------- Amortized cost basis ...... 5,437,088 4,368,860 3,891,523 4,083,051 Accrued interest .......... 93,661 47,844 68,917 52,142 ---------- ---------- ---------- ---------- $5,530,749 $4,416,704 $3,960,440 $4,135,193 ========== ========== ========== ==========
MINERAL LANDS: Mineral lands, including surface lands, are carried at amounts which represent, principally, either cost at acquisition or values on March 1, 1913. The value of the merchantable ore deposits was established on March 1, 1913 for federal income tax purposes. No value has been estimated or recorded for taconite deposits held on March 1, 1913, since they were not then thought to be merchantable. The cost of surface lands acquired to facilitate mining operations was amortized (noncash expense) in the amounts of $198,444, $185,880 and $174,120 for the years 2000, 1999 and 1998, respectively (see Note C). ROYALTY INCOME: Royalties from mineral leases are taken into income as earned. Accumulated advance royalties received and taken into income on ore not yet mined amounted to $4,711,981 on December 31, 2000 and $3,480,383 on December 31, 1999. The advance royalties collected involve no liabilities on the part of the Trust except to permit the mining of the ore from leases on which the advance royalties have been paid. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from the estimates. EARNINGS PER SHARE: Earnings per share is determined by dividing net income for the period by the number of weighted-average shares of beneficial 11 NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) interest outstanding. Weighted-average shares outstanding were 1,500,000 as of December 31, 2000, 1999 and 1998. Basic and diluted earnings per share are the same. NOTE C - LAND ACQUISITION A mining agreement dated January 1, 1959 with United States Steel Corporation provides that one-half of annual earned royalty income, after satisfaction of minimum royalty payments, shall be applied to reimburse the lessee for its cost of acquisition of surface lands overlying the leased mineral deposits, which surface lands are then conveyed to the Trustees (see Note B). There are surface lands yet to be purchased, the costs of which are yet unknown and will not be known until the actual purchases are made. NOTE D - PRINCIPAL CHARGES ACCOUNT Pursuant to the Court Order of November 29, 1982, the Trustees were directed to create and maintain an account designated as "Principal Charges." This account constitutes a first and prior lien between the certificate holders and the reversioner, and reflects an allocation of beneficiaries' equity between the certificate holders and the reversioner. The balance in this account consists of attorneys' fees and expenses of counsel for adverse parties pursuant to Court Order in connection with litigation commenced in 1972 relating to the Trustees' powers and duties under the Trust Instrument and the cost of surface lands acquired in accordance with provisions of a lease with United States Steel Corporation, net of an allowance to amortize the cost of the land based on actual shipments of taconite and net of a credit for disposition of tangible assets. Following is an analysis of this account as of December 31: 2000 1999 ---------- ---------- Attorneys' fees and expenses ....................... $1,024,834 $1,024,834 Cost of surface lands .............................. 5,703,265 5,564,104 Shipment credits (cumulative) ...................... (837,068) (722,555) Asset disposition credits .......................... (20,106) (20,000) ---------- ---------- Principal Charges account .......................... $5,870,925 $5,846,383 ========== ========== Upon termination of the Trust, the Trustees shall either sell tangible assets or obtain a loan with tangible assets as security to provide monies for distribution to the certificate holders in the amount of the Principal Charges account balance. 12 NOTE E - PENSION PLAN The Trust has a noncontributory defined benefit plan which covers all employees. The Trustees are not eligible for pension benefits under the plan based on services as Trustees. A summary of the components of net periodic pension cost (benefit), a noncash item, for 2000, 1999 and 1998 is as follows: 2000 1999 1998 --------- --------- --------- Service cost ............................ $ 58,977 $ 68,011 $ 85,758 Interest cost ........................... 206,767 195,159 190,787 Expected return on assets ............... (350,238) (332,956) (290,575) Net amortization ........................ (65,961) (46,093) (32,918) --------- --------- --------- Net pension benefit ..................... $(150,455) $(115,879) $ (46,948) ========= ========= ========= Weighted-average assumptions used in the measurement of the benefit obligation as of December 31 were: 2000 1999 ---- ---- Discount rate ................................................ 7.50% 7.75% Rate of compensation increase ................................ 3.50% 3.50% Expected return on plan assets ............................... 8.00% 8.00% The following table sets forth the change in benefit obligation: 2000 1999 ---------- ---------- Obligation at January 1 ........................... $2,763,584 $2,987,349 Service cost ...................................... 58,977 68,011 Interest cost ..................................... 206,767 195,159 Actuarial gain .................................... (25,862) (282,944) Benefit payments .................................. (234,201) (203,991) ---------- ---------- Obligation at December 31 ......................... $2,769,265 $2,763,584 ========== ========== The following table sets forth the change in the fair value of plan assets: 2000 1999 ---------- ---------- Fair value of plan assets at January l ............ $4,473,590 $4,258,056 Actual return on plan assets ...................... 16,019 419,525 Benefit payments .................................. (234,201) (203,991) ---------- ---------- Fair value of plan assets at December 31 .......... $4,255,408 $4,473,590 ========== ========== 13 NOTE E - PENSION PLAN (CONTINUED) The following table sets forth the plan's funded status and amounts recognized in the balance sheets at December 31: 2000 1999 ---------- ----------- Benefit obligation ............................... $2,769,265 $ 2,763,584 Fair value of plan assets ........................ 4,255,408 4,473,590 ---------- ----------- Plan assets in excess of benefit obligation ...... 1,486,143 1,710,006 Unrecognized net gain ............................ (928,059) (1,283,759) Unrecognized prior service cost .................. 71,485 98,591 Unrecognized net transition asset ................ (45,717) (91,441) ---------- ----------- Prepaid pension expense .......................... $ 583,852 $ 433,397 ========== =========== NOTE F - INCOME TAXES The Trustees filed an election under Section 646 of the Tax Reform Act of 1986, as amended. As discussed in Note A, beginning in 1989 the Trust is no longer subject to federal or Minnesota corporate income taxes provided the requirements of Section 646 are met. The principal requirements are: The Trust must be exclusively engaged in the leasing of mineral properties and activities incidental thereto. The Trust must not acquire any additional property other than permissible acquisitions as provided by Section 646. If these requirements are violated, the Trust will be treated as a corporation for the taxable year in which the violation occurs and for all subsequent taxable years. Since the election of Section 646, the Trust has remained in compliance with these requirements. NOTE G - LEASE COMMITMENTS The Trust leases office facilities in Saint Paul, Minnesota. These leases include various renewal options and exclude any contingent rental provisions. Rental expense for these operating leases amounted to $60,771, $59,192 and $44,968 for the years 2000, 1999 and 1998, respectively. 14 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Trustees Great Northern Iron Ore Properties We have audited the accompanying balance sheets of Great Northern Iron Ore Properties as of December 31, 2000 and 1999, and the related statements of beneficiaries' equity, income and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Great Northern Iron Ore Properties at December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Minneapolis, Minnesota January 26, 2001 15 GREAT NORTHERN IRON ORE PROPERTIES SUMMARY OF SHIPMENTS
FULL TONS SHIPPED -------------------------------------------- TOTAL TO OWNERSHIP JANUARY 1, NO. MINE INTEREST 2000 1999 1998 2001 --- ------------------------------- --------- --------- --------- --------- ----------- 1. Mahoning .................... 100% 2,101,371 1,610,837 2,623,282 151,874,796 2. Ontario ..................... 100% -- -- 63,638 8,727,647 3. Ontario ..................... 50% 353,310 263,465 52,859 15,793,352 4. Section 18 .................. 100% 5,790 126 130 27,917,545 5. Russell Annex ............... 50% 477,678 811,726 656,034 3,412,701 6. Wentworth ................... 100% 34,721 432,872 154,752 6,505,859 7. Minntac ..................... 100% 3,969,669 3,014,550 2,833,531 34,461,306 --------- --------- --------- ----------- 6,942,539 6,133,576 6,384,226 248,693,206 Shipments from inactive mines and those exhausted, surrendered or sold prior to this year .......... -- -- -- 358,546,607 --------- --------- --------- ----------- TOTAL .............................. 6,942,539 6,133,576 6,384,226 607,239,813 ========= ========= ========= ===========
NO. OPERATING INTEREST --- ------------------------------------- 1-3 Hibbing Taconite Company 4-5 National Steel Corporation 6 LTV Steel Mining Company 7 United States Steel Corporation (USX)
16 GREAT NORTHERN IRON ORE PROPERTIES FIRST CLASS W-1290 FIRST NATIONAL BANK BUILDING U.S. POSTAGE 332 MINNESOTA STREET PAID SAINT PAUL, MINNESOTA 55101-1361 PERMIT #43 MINNEAPOLIS, MN FIRST CLASS MAIL