10-Q 1 greatnorthern024975_10q.txt GREAT NORTHERN IRON ORE PROPERTIES FORM 10-Q 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, 2002 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, 2002: 1,500,000 --------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements ---------------------------- GREAT NORTHERN IRON ORE PROPERTIES CONDENSED BALANCE SHEETS
September 30 December 31 2002 2001 ------------ ------------ (Unaudited) (Note) ASSETS CURRENT ASSETS Cash and cash equivalents $ 909,130 $ 759,281 United States Treasury securities 4,166,258 4,344,646 Royalties receivable 1,719,422 2,308,941 Prepaid expenses 18,359 2,760 ------------ ------------ TOTAL CURRENT ASSETS 6,813,169 7,415,628 NONCURRENT ASSETS United States Treasury securities 4,056,532 4,278,541 Prepaid pension expense 706,524 701,473 ------------ ------------ 4,763,056 4,980,014 PROPERTIES Mineral lands 38,577,007 38,577,007 Less allowances for depletion and amortization 33,821,515 33,665,365 ------------ ------------ 4,755,492 4,911,642 Building and equipment--at cost, less allowances for accumulated depreciation (9/30/02 - $213,024; 12/31/01 - $190,784) 144,047 147,999 ------------ ------------ 4,899,539 5,059,641 ------------ ------------ $ 16,475,764 $ 17,455,283 ============ ============ LIABILITIES AND BENEFICIARIES' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 87,736 $ 89,556 Distributions 2,100,000 2,400,000 ------------ ------------ TOTAL CURRENT LIABILITIES 2,187,736 2,489,556 NONCURRENT LIABILITIES 3,100 3,100 BENEFICIARIES' EQUITY, including certificate holders' equity, represented by 1,500,000 shares of beneficial interest authorized and outstanding, and reversionary interest 14,284,928 14,962,627 ------------ ------------ $ 16,475,764 $ 17,455,283 ============ ============
Note: The balance sheet at December 31, 2001 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 ------------------------------ ------------------------------ 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Revenues: Royalties $ 1,982,911 $ 2,096,829 $ 6,241,387 $ 7,204,289 Interest and other income 94,572 144,817 348,549 445,666 ------------ ------------ ------------ ------------ 2,077,483 2,241,646 6,589,936 7,649,955 Costs and expenses 470,750 421,061 1,417,635 1,313,221 ------------ ------------ ------------ ------------ NET INCOME $ 1,606,733 $ 1,820,585 $ 5,172,301 $ 6,336,734 ============ ============ ============ ============ Weighted-average shares outstanding 1,500,000 1,500,000 1,500,000 1,500,000 BASIC & DILUTED EARNINGS PER SHARE $ 1.07 $ 1.21 $ 3.45 $ 4.22 ============ ============ ============ ============ Distributions declared per share $ 1.40(1) $ 1.50(2) $ 3.90(3) $ 4.40(4) Distributions paid per share $ 1.40(5) $ 1.50(6) $ 4.10(7) $ 5.30(8) (1) $1.40 declared 9/13/02 payable 10/31/02 (2) $1.50 declared 9/10/01 paid 10/31/01 (3) $1.10 declared 3/13/02 plus $1.40 declared 6/17/02 plus $1.40 declared 9/13/02 paid 4/30/02 paid 7/31/02 payable 10/31/02 (4) $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 paid 10/31/01 (5) $1.40 declared 6/17/02 paid 7/31/02 (6) $1.50 declared 6/18/01 paid 7/31/01 (7) $1.60 declared 12/10/01 plus $1.10 declared 3/13/02 plus $1.40 declared 6/17/02 paid 1/31/02 paid 4/30/02 paid 7/31/02 (8) $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
See notes to condensed financial statements. -3- GREAT NORTHERN IRON ORE PROPERTIES CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended ---------------------------- September 30 ---------------------------- 2002 2001 ------------ ------------ Cash flows from operating activities: Cash received from royalties and rents $ 6,899,306 $ 8,614,554 Cash paid to suppliers and employees -1,255,227 -1,221,834 Interest received 305,546 369,870 ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 5,949,625 7,762,590 Cash flows from investing activities: U.S. Treasury securities purchased -2,725,000 -4,109,625 U.S. Treasury securities matured 3,100,000 4,528,103 Net expenditures for equipment -24,776 -19,663 ------------ ------------ NET CASH PROVIDED BY INVESTING ACTIVITIES 350,224 398,815 Cash flows from financing activities: Distributions paid -6,150,000 -7,950,000 ------------ ------------ NET CASH USED IN FINANCING ACTIVITIES -6,150,000 -7,950,000 ------------ ------------ Net increase in cash and cash equivalents 149,849 211,405 Cash and cash equivalents at beginning of year 759,281 475,841 ------------ ------------ CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 909,130 $ 687,246 ============ ============
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, 2002 and September 30, 2001 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, 2001. 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 the 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, 2002: Attorneys' fees and expenses ............................... $ 1,024,834 Cost of surface lands ...................................... 5,703,265 Shipment credits (cumulative) .............................. -994,877 Asset disposition credits .................................. -20,106 ----------- Principal Charges account .................................. $ 5,713,116 =========== 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- Item 2. Management's Discussion and Analysis of Financial Condition and Results ------------------------------------------------------------------------------- of Operations ------------- Periods of Three and Nine Months ended September 30, 2002 and September 30, 2001 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 the balance in the 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 United States 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 $962,902 and $113,918 during the first nine months and third quarter of 2002, respectively, as compared to the same periods in 2001. These decreases are mainly due to credit for previously paid minimum royalties being applied to current taconite production. Certain leases provide the mining companies the ability to offset excess royalties due on future production, if any and when mined, against minimum royalties paid in prior periods. Interest and other income decreased $97,117 and $50,245 during the first nine months and third quarter of 2002, respectively, as compared to the same periods in 2001. These decreases are mainly due to reduced yields on our funds held for investment. Costs and expenses increased $104,414 and $49,689 during the first nine months and third quarter of 2002, respectively, as compared to the same periods in 2001. These increases are mainly due to a higher pension cost caused, in part, by a lower return on pension plan assets. At their meeting held on September 13, 2002, the Trustees declared a third quarter distribution of $1.40 per share, amounting to $2,100,000 payable October 31, 2002 to certificate holders of record at the close of business on September 30, 2002. The Trustees have now declared three quarterly distributions in 2002. The first, in the amount of $1.10 per share, was paid on April 30, 2002 to certificate holders of record on March 28, 2002; the second, in the amount of $1.40 per share, was paid on July 31, 2002 to certificate holders of record on June 28, 2002; and the third, -6- that being the current distribution. The first, second and third quarter 2001 distributions were $1.40, $1.50 and $1.50 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 2003 to certificate holders of record on December 31, 2002. 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk ------------------------------------------------------------------ - None Item 4. Controls and Procedures ------------------------------- Based on their most recent review, which was completed within ninety days of the filing of this report, the Trust's Chief Executive Officer and Chief Financial Officer have concluded that the Trust's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Trust in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the Trust's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and are effective to ensure that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. There were no significant changes in the Trust's internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation. PART II. OTHER INFORMATION Item 1. Legal Proceedings ------------------------- - None Item 2. Changes in Securities and Use of Proceeds ------------------------------------------------- - None Item 3. Defaults Upon Senior Securities --------------------------------------- - None Item 4. Submission of Matters to a Vote of Certificate Holders -------------------------------------------------------------- - None -7- Item 5. Other Information ------------------------- - None Item 6. Exhibits and Reports on Form 8-K ---------------------------------------- (a) Exhibits - None (b) 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, 2002 By /s/ Joseph S. Micallef --------------------- --------------------------------------------- Joseph S. Micallef, President of the Trustees and Chief Executive Officer Date October 17, 2002 By /s/ Thomas A. Janochoski --------------------- --------------------------------------------- Thomas A. Janochoski, Vice President & Secretary and Chief Financial Officer -8- Certification pursuant to the Sarbanes-Oxley Act of 2002 -------------------------------------------------------- I, Joseph S. Micallef, President of the Trustees of Great Northern Iron Ore Properties and Chief Executive Officer, certify that: 1. This quarterly report fully complies with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this quarterly report fairly presents, in all material respects, the financial condition and results of operations of the registrant; 2. I have reviewed this quarterly report on Form 10-Q of Great Northern Iron Ore Properties; 3. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 4. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 5. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report ("Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 6. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors [or persons performing the equivalent function]: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 7. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date October 17, 2002 By /s/ Joseph S. Micallef --------------------- --------------------------------------------- Joseph S. Micallef, President of the Trustees and Chief Executive Officer -9- Certification pursuant to the Sarbanes-Oxley Act of 2002 -------------------------------------------------------- I, Thomas A. Janochoski, Vice President & Secretary to the Trustees of Great Northern Iron Ore Properties and Chief Financial Officer, certify that: 1. This quarterly report fully complies with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this quarterly report fairly presents, in all material respects, the financial condition and results of operations of the registrant; 2. I have reviewed this quarterly report on Form 10-Q of Great Northern Iron Ore Properties; 3. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 4. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 5. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report ("Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 6. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors [or persons performing the equivalent function]: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 7. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date October 17, 2002 By /s/ Thomas A. Janochoski --------------------- --------------------------------------------- Thomas A. Janochoski, Vice President & Secretary and Chief Financial Officer -10-