10-Q 1 grnorthern014140_10q.txt GREAT NORTHERN IRON ORE PROPERTIES FORM 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 - For the Period Ended SEPTEMBER 30, 2001 ------------------ Or [ ] 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 1-701 ----- GREAT NORTHERN IRON ORE PROPERTIES -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Minnesota 41-0788355 ---------------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) W-1290 First National Bank Building 332 Minnesota Street Saint Paul, Minnesota 55101-1361 ---------------------------------------- ---------------------- (Address of principal executive office) (Zip Code) (651) 224-2385 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 periods 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 ___ Number of shares of beneficial interest outstanding on September 30, 2001: 1,500,000 --------- PART I. FINANCIAL INFORMATION GREAT NORTHERN IRON ORE PROPERTIES CONDENSED BALANCE SHEETS
September 30 December 31 2001 2000 ----------- ----------- (Unaudited) (Note) ASSETS CURRENT ASSETS Cash and cash equivalents $ 687,246 $ 475,841 United States Treasury securities 4,891,517 5,530,749 Royalties receivable 1,792,651 3,157,655 Prepaid expenses 17,693 2,760 ----------- ----------- TOTAL CURRENT ASSETS 7,389,107 9,167,005 NONCURRENT ASSETS United States Treasury Notes 4,211,729 3,960,440 Prepaid pension expense 672,068 583,852 ----------- ----------- 4,883,797 4,544,292 PROPERTIES Mineral lands 38,577,007 38,577,007 Less allowances for depletion and amortization 33,613,315 33,457,165 ----------- ----------- 4,963,692 5,119,842 Building and equipment--at cost, less allowances for accumulated depreciation (9/30/01 - $181,439; 12/31/00 - $184,130) 157,344 164,166 ----------- ----------- 5,121,036 5,284,008 ----------- ----------- $17,393,940 $18,995,305 =========== =========== LIABILITIES AND BENEFICIARIES' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 91,457 $ 79,556 Distributions 2,250,000 3,600,000 ----------- ----------- TOTAL CURRENT LIABILITIES 2,341,457 3,679,556 BENEFICIARIES' EQUITY, including certificate holders' equity, represented by 1,500,000 shares of beneficial interest authorized and outstanding, and reversionary interest 15,052,483 15,315,749 ----------- ----------- $17,393,940 $18,995,305 =========== ===========
Note: The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed financial statements. -2- GREAT NORTHERN IRON ORE PROPERTIES CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended ----------------------------- ----------------------------- September 30 September 30 ----------------------------- ----------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Income: Royalties $2,096,829 $4,524,070 $7,204,289 $8,319,000 Interest and other income 144,817 135,486 445,666 412,466 ---------- ---------- ---------- ---------- 2,241,646 4,659,556 7,649,955 8,731,466 Costs and expenses 421,061 392,926 1,313,221 1,202,186 ---------- ---------- ---------- ---------- NET INCOME $1,820,585 $4,266,630 $6,336,734 $7,529,280 ========== ========== ========== ========== Weighted-average shares outstanding 1,500,000 1,500,000 1,500,000 1,500,000 BASIC & DILUTED EARNINGS PER SHARE $ 1.21 $ 2.84 $ 4.22 $ 5.02 ========== ========== ========== ========== Distributions declared per share $ 1.50(1) $ 1.80(2) $ 4.40(3) $ 4.40(4) Distributions paid per share $ 1.50(5) $ 1.50(6) $ 5.30(7) $ 4.20(8) (1) $1.50 declared 9/10/01 payable 10/31/01 (2) $1.80 declared 9/14/00 paid 10/31/00 (3) $1.40 declared 3/15/01 plus $ 1.50 declared 6/18/01 plus $ 1.50 declared 9/10/01 paid 4/30/01 paid 7/31/01 payable 10/31/01 (4) $1.10 declared 3/20/00 plus $ 1.50 declared 6/15/00 plus $ 1.80 declared 9/14/00 paid 4/28/00 paid 7/31/00 paid 10/31/00 (5) $1.50 declared 6/18/01 paid 7/31/01 (6) $1.50 declared 6/15/00 paid 7/31/00 (7) $2.40 declared 12/14/00 plus $ 1.40 declared 3/15/01 plus $ 1.50 declared 6/18/01 paid 1/31/01 paid 4/30/01 paid 7/31/01 (8) $1.60 declared 12/16/99 plus $ 1.10 declared 3/20/00 plus $ 1.50 declared 6/15/00 paid 1/31/00 paid 4/28/00 paid 7/31/00
See notes to condensed financial statements. -3- GREAT NORTHERN IRON ORE PROPERTIES CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended -------------------------- September 30 -------------------------- 2001 2000 ---------- ---------- Cash flows from operating activities: Cash received from royalties and rents $8,614,554 $6,589,969 Cash paid to suppliers and employees -1,221,834 -1,132,781 Interest received 369,870 349,188 ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 7,762,590 5,806,376 Cash flows from investing activities: U.S. Treasury securities purchased -4,109,625 -2,092,250 U.S. Treasury securities matured 4,528,103 2,800,000 Net expenditures for equipment -19,663 -75,784 ---------- ---------- NET CASH PROVIDED BY INVESTING ACTIVITIES 398,815 631,966 Cash flows from financing activities: Distributions paid -7,950,000 -6,300,000 ---------- ---------- NET CASH USED IN FINANCING ACTIVITIES -7,950,000 -6,300,000 ---------- ---------- Net increase in cash and cash equivalents 211,405 138,342 Cash and cash equivalents at beginning of year 475,841 364,842 ---------- ---------- CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 687,246 $ 503,184 ========== ==========
See notes to condensed financial statements. -4- GREAT NORTHERN IRON ORE PROPERTIES NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) Periods of Three and Nine Months ended September 30, 2001 and September 30, 2000 Note A - BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the periods stated above are not necessarily indicative of the results that may be expected for each respective full year. For further information, refer to the financial statements and footnotes included in the Great Northern Iron Ore Properties ("Trust") Annual Report on Form 10-K for the year ended December 31, 2000. Note B - BENEFICIARIES' EQUITY 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 September 30, 2001: Attorneys' fees and expenses ...................................... $ 1,024,834 Cost of surface lands ............................................. 5,703,265 Shipment credits (cumulative) ..................................... -919,537 Asset disposition credits ......................................... -20,106 ----------- Principal Charges account ......................................... $ 5,788,456 =========== 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. -5- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Periods of Three and Nine Months ended September 30, 2001 and September 30, 2000 The Trust owns interest in 12,033 acres on the Mesabi Iron Range Formation in northern Minnesota, most of which are under lease to major iron ore producing companies. Due to the Trustees' election pursuant to Section 646 of the Tax Reform Act of 1986, as amended, commencing with year 1989 the Trust is not subject to federal and Minnesota corporate income taxes. The Trust is now a grantor trust. 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, while all property other than monies shall be conveyed and transferred to the reversioner. In addition, by the terms of a District Court Order dated November 29, 1982, the reversioner, in effect, is required to pay to a Principal Charges account (see Note B above) which primarily represents the costs of acquiring homes and land parcels on the iron formation that are necessary for the orderly mine development 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 certificate holders of record at the termination of the Trust. Results of Operations: Royalties decreased $1,114,711 and $2,427,241 during the first nine months and third quarter of 2001, respectively, as compared to the same periods in 2000. These decreases are mainly due to reduced tonnage mined from the Trust's properties. Interest and other income increased $33,200 and $9,331 during the first nine months and third quarter of 2001, respectively, as compared to the same periods in 2000. These increases are mainly due to an overall improved yield attained on a greater amount of funds invested offset by reduced timber revenues. Costs and expenses increased $111,035 and $28,135 during the first nine months and third quarter of 2001, respectively, as compared to the same periods in 2000. These increases are mainly due to higher legal expenditures and related costs associated with an annexation proceeding, the Trustees' fee increase hearing and various Trustee succession matters. -6- At their meeting held on September 10, 2001, the Trustees declared a third quarter distribution of $1.50 per share, amounting to $2,250,000 payable October 31, 2001 to certificate holders of record at the close of business on September 28, 2001. The Trustees have now declared three quarterly distributions in 2001. The first, in the amount of $1.40 per share, was paid on April 30, 2001 to certificate holders of record on March 30, 2001; the second, in the amount of $1.50 per share, was paid on July 31, 2001 to certificate holders of record on June 29, 2001; and the third, that being the current distribution. The first, second and third quarter 2000 distributions were $1.10, $1.50 and $1.80 per share, respectively. 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 January 2002 to certificate holders of record on December 31, 2001. 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. 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. 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. PART II. OTHER INFORMATION Item 1. Legal Proceedings At a proceeding held on August 24, 2001, in Ramsey County District Court, Saint Paul, Minnesota, the Judge of District Court confirmed the appointment of John H. Roe, III as a successor Trustee of Great Northern Iron Ore Properties, effective September 1, 2001, to fill the vacancy resulting from the April 1, 2001 death of Trustee Harry L. Holtz. Item 5. Other Information In a press release dated August 24, 2001, the Trustees of Great Northern Iron Ore Properties announced the appointment and Court confirmation (See Item 1 above) of John H. Roe, III to the Board of Trustees, effective September 1, 2001, to fill the vacancy created by the death of Trustee Harry L. Holtz on April 1, 2001. Mr. Roe is currently Chairman of the Board of Bemis Company, Inc. and had previously served as Chief Executive Officer of Bemis from May 1990 to May 2000. He holds a Bachelor of Arts degree from Williams College and a Master of Business Administration degree from Harvard Business School. He also continues to serve on a number of civic boards. In the Trustees' opinion, Mr. Roe's considerable business judgment and experience will be of great benefit to both the certificate holders and the reversioner. -7- Item 6. Exhibits and Reports on Form 8-K (a) Reports on Form 8-K - None SIGNATURES 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. GREAT NORTHERN IRON ORE PROPERTIES ------------------------------------- (Registrant) Date October 17, 2001 By /s/ Joseph S. Micallef ---------------------------------- ---------------------------------- Joseph S. Micallef President of the Trustees Chief Executive Officer Date October 17, 2001 By /s/ Thomas A. Janochoski ---------------------------------- ---------------------------------- Thomas A. Janochoski Vice President and Secretary Chief Financial Officer -8-