-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BgC0Nig3qNbpSBM2zouvgMvJI5ZsBtQK6rjFKjV9KG62qkVhViM25dHcOEF2M1c6 HYeuOFH9ONmEYcyzUGPSpw== 0000897101-03-000189.txt : 20030314 0000897101-03-000189.hdr.sgml : 20030314 20030314092014 ACCESSION NUMBER: 0000897101-03-000189 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREAT NORTHERN IRON ORE PROPERTIES CENTRAL INDEX KEY: 0000043410 STANDARD INDUSTRIAL CLASSIFICATION: MINERAL ROYALTY TRADERS [6795] IRS NUMBER: 410788355 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00701 FILM NUMBER: 03603149 BUSINESS ADDRESS: STREET 1: W 1290 FIRST NATIONAL BANK BLDG STREET 2: 332 MINNESOTA ST CITY: SAINT PAUL STATE: MN ZIP: 55101-1361 BUSINESS PHONE: 6122242385 MAIL ADDRESS: STREET 1: W 1290 FIRST NATIONAL BANK BLDG STREET 2: 332 MINNESOTA STREET CITY: ST PAUL STATE: MN ZIP: 55101-1361 10-K 1 grnorth030860_10k.txt GREAT NORTHERN IRON ORE PROPERTIES FORM 10K ANNUAL REPORT ON FORM 10-K GREAT NORTHERN IRON ORE PROPERTIES DECEMBER 31, 2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 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 No.) W-1290 First National Bank Building 332 Minnesota Street Saint Paul, Minnesota 55101-1361 ----------------------------------- ------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code 651 / 224-2385 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered ------------------- ------------------------ Trustees' Certificates of Beneficial Interest New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act--None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ 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 an accelerated filer (as defined in Rule 12b-2 of the Act). Yes _X_ No ___ The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and ask price of such common equity, as of the last business day of the Registrant's most recently completed second fiscal quarter, that being June 30, 2002, was $99,000,000. The number of shares of beneficial interest outstanding as of the close of the period covered by this report: Trustees' Certificates of Beneficial Interest--1,500,000 -------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Certificate Holders for the year ended December 31, 2002 are incorporated by reference into Part II. PART I Item 1. BUSINESS The Registrant ("Trust") owns interests in fee, mineral and nonmineral lands on the Mesabi Iron Range of Minnesota. The Registrant is a conventional trust organized under the laws of the State of Michigan pursuant to a Trust Instrument dated December 7, 1906. Income is derived through royalties on iron ore minerals (principally taconite) taken from these properties by lessees. The Registrant is presently involved solely with the leasing and care of these properties. There have been no significant changes in these functions since the beginning of the fiscal year. 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 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.). 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 (as explained in the footnotes of the Financial Statements) 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. 1 Item 1. BUSINESS--Continued The raw materials essential to the business of the Registrant are the minerals contained in properties owned and leased by the Registrant. Since the Registrant leases its properties to mining interests which control the amount of ore production, the Registrant itself has no direct control over the tonnage mined from its properties but is solely involved with administering the leases on the properties. Since operating companies insist on freedom to move from property to property as mining requirements dictate, such changes in production cannot be precisely reduced to financial forecasts. Registrant owns mineral interests in 12,033 acres on the Mesabi Iron Formation, including approximately 7,443 acres which are wholly owned, 1,080 acres in which Registrant is a tenant in common with a 91% interest, 3,350 acres in tenancy in common with a 50% interest and 160 acres in tenancy in common with other fractional interests. Of said total, 7,152 acres are under lease and 4,881 acres are unleased. Registrant cannot estimate at this time any tonnage for nonmagnetic taconite because of lack of drilling, testing and of any established large-scale commercial treatment method for Mesabi Iron Range nonmagnetic taconite. To give a better perspective on magnetic taconite, Registrant's engineers estimate that the magnetic taconite under lease as of January 1, 2003 was equivalent to approximately 371,122,000 tons of pellets. Present leases provide for minimum royalties aggregating approximately $3,110,000 for the year 2003 even if no taconite is mined. All of this amount is attributable to long-term taconite leases. None of the Registrant's leases provide for any right of renewal by the lessees upon expiration, even though unmined minerals might remain. Any extension of any such terminating lease would have to be negotiated in the same manner as unleased properties. All leases granted by the Registrant, except some covering remnants of natural ore, have provisions for escalation of royalty rates. Most of the taconite royalty rates are escalated on the basis of the price of pellets, the iron content, the Producers Price Index (PPI) (All Commodities), the PPI (Iron and Steel subgroup) or certain combinations of the above. 2 Item 1. BUSINESS--Continued There are other landowners on the Mesabi Iron Range, many of whom are private fees. Accordingly, firm data on competitive conditions in the iron ore industry is not available. Iron ore is also available from a number of other sources. The Registrant's non-taconite shipments have ceased as a source of income because the ore deposits have, for practical purposes, been exhausted. The mining of taconite by lessees is the most important part of the Registrant's business. Future development depends, to a large part, on the demand for taconite from the Registrant's properties by mining companies. The Registrant's royalty income is dependent on the number of tons of taconite shipped from its properties by the lessees, royalty rates, minimum royalties collected and liquidation of minimum royalties collected. Following is a summary of shipments by lessee during 2002, 2001 and 2000: TONS SHIPPED ------------------------------------- 2002 2001 2000 ------------------------------------- United States Steel LLC 3,791,949 4,252,383 3,969,669 Hibbing Taconite Company 3,210,144 1,287,831 2,454,681 National Steel Corporation 92,353 137,458 483,468 Cleveland Cliffs Erie LLC -- -- 34,721 ------------------------------------- 7,094,446 5,677,672 6,942,539 ===================================== At December 31, 2002, the Registrant employed 11 persons. The Registrant has been engaged in only one line of business, namely the leasing and maintenance of its mineral properties. The business of the Registrant is not seasonal, but income depends upon production by mining companies which lease its properties. The Registrant has no operations in foreign countries and has no customers or lessees in foreign countries. 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. 3 Item 1. BUSINESS--Continued The Trustees provided annual tax information in January 2003 to certificate holders of record with holdings on any of the four quarterly record dates during 2002. This information included a: Substitute Form 1099-MISC - This form reported one's 2002 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 2002. 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. The Registrant does not maintain a website and therefore the Registrant does not make available through a website the annual, quarterly and other reports that it files with the Securities and Exchange Commission (SEC). The Registrant will furnish to investors free of charge, upon request, a paper copy of the reports that it files with the SEC. 4 Item 1. BUSINESS--Continued The following is a listing of the Registrant's current leases:
LESSEE NUMBER OF LEASED GNIOP TERMINATION LEASE ACRES INTEREST COUNTY LOCATION TERM PROVISION ------------------------------------------------------------------------------------------------------------------------- Bennett Annex 237 100% St. Louis 1/1/1965 to 12/31/2039 1 year Carmi-Campbell 1,597 100 St. Louis 7/1/1959 to 12/31/2010 1 year Enterprise-Mississippi (incl. Miss. #3 mine) 776 100 St. Louis and Itasca 1/1/1961 to 12/31/2010 6 months Hanna Taconite #1 40 100 Itasca 4/1/1962 to 12/31/2010 6 months Gray Annex 40 50 St. Louis 1/1/1974 to 1/1/2049 1 year Ontario 50% 1,397 50 St. Louis and Itasca 7/1/1978 to 12/31/2016 1 year Ontario 100% 400 100 St. Louis and Itasca 7/1/1978 to 12/31/2016 1 year Ontario #3 80 25 St. Louis 1/2/1993 to 12/31/2016 1 year Mahoning 980 100 St. Louis and Itasca 1/1/1979 to 12/31/2026 1 year Russell Annex 120 50 Itasca 1/1/1966 to 12/31/2040 1 year South Stevenson 180 100 St. Louis 4/1/1966 to 4/1/2041 1 year Minntac 1,725 100 St. Louis 1/1/1959 to 12/31/2057 6 months Wentworth 160 100 St. Louis 7/1/1965 to 6/30/2040 1 year Atkins 160 91 St. Louis 8/1/1984 to 7/31/2009 6 months
5 Item 2. PROPERTIES The Registrant owns interests in fee, mineral and nonmineral lands on the Mesabi Iron Range of Minnesota, most of which are leased to mining companies which extract taconite. A list of the leased properties is shown in table format in Item 1 above. The leases provide the lessees exclusive mining rights during the term of such leases. Taconite deposits are substantial. The properties have a reversionary interest as explained in Item 1 above. Item 3. LEGAL PROCEEDINGS 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 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 1, 2002, certificate holders of record as of March 1, 2002 and the reversioner were notified of a Hearing on May 1, 2002 in Ramsey County Courthouse, Saint Paul, Minnesota for the purpose of settling and allowing the Trust accounts for the year 2001. By Court Order signed and dated May 1, 2002, the 2001 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. Item 4. SUBMISSION OF MATTERS TO A VOTE OF CERTIFICATE HOLDERS None. 6 PART II Item 5. MARKET FOR THE REGISTRANT'S SHARES OF BENEFICIAL INTEREST AND RELATED SECURITY HOLDER MATTERS Shares of Beneficial Interest, Market Prices and Distributions on page 3 of the Annual Report to Certificate Holders for the year ended December 31, 2002 are incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA Selected Financial Data on page 2 of the Annual Report to Certificate Holders for the year ended December 31, 2002 is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations on page 2 of the Annual Report to Certificate Holders for the year ended December 31, 2002 are incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements of the Registrant, included in the Annual Report to Certificate Holders for the year ended December 31, 2002, are incorporated herein by reference: Balance Sheets - December 31, 2002 and 2001. Statements of Income - Years ended December 31, 2002, 2001 and 2000. Statements of Beneficiaries' Equity - Years ended December 31, 2002, 2001 and 2000. Statements of Cash Flows - Years ended December 31, 2002, 2001 and 2000. Notes to Financial Statements - December 31, 2002. Quarterly Results of Operations on page 4 of the Annual Report to Certificate Holders for the year ended December 31, 2002 are incorporated herein by reference. Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 7 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Registrant, being a trust, has no directors as such. The management of the Trust is vested in the following Trustees and officers whose terms of office are not fixed for a specified time: YEARS OF NAME AND POSITION AGE SERVICE - ----------------------------------------------------------------------------- Joseph S. Micallef President of the Trustees 69 26 years Roger W. Staehle Trustee 69 21 Robert A. Stein Trustee 64 21 John H. Roe, III Trustee 63 1 Thomas A. Janochoski Vice President and Secretary 44 11 The principal occupations of the Trustees and officers during the last five years were as follows: JOSEPH S. MICALLEF President and Chief Executive Officer, Great Northern Iron Ore Properties; Consultant and Director, Fiduciary Counselling, Inc., St. Paul, Minnesota until December 31, 1998. ROGER W. STAEHLE Adjunct Professor, Institute of Technology, University of Minnesota; Industrial Consultant. ROBERT A. STEIN Executive Director and Chief Operating Officer, American Bar Association. JOHN H. ROE, III Chairman of the Board, Bemis Company, Inc., Minneapolis, Minnesota; Chief Executive Officer, Bemis Company, Inc., Minneapolis, Minnesota until May 4, 2000. THOMAS A. JANOCHOSKI Vice President and Secretary, Chief Financial Officer, Great Northern Iron Ore Properties. 8 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT--Continued Executive employees in addition to those listed above include Roger P. Johnson, Manager of Mines and Chief Engineer. There are no family relationships among any of the above persons. Item 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE
NAME AND ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION ------------------------------------------------------------------------------------------- CEO/President of the Trustees: Joseph S. Micallef 2002 $100,000 $35,000 $ -- 2001 100,000 35,000 -- 2000 90,000 35,000 -- CFO/Vice President and Secretary: Thomas A. Janochoski 2002 102,533 3,500 5,000 2001 91,633 3,500 3,100 2000 87,000 -- --
CHIEF EXECUTIVE OFFICER (CEO)/PRESIDENT OF THE TRUSTEES COMPENSATION The Trust Agreement (as modified by Court Orders, the last being effective January 1, 2001) provides for annual compensation to the CEO/President of the Trustees of $100,000 and, in addition, a sum equal to 1% of the excess of gross income of the Trust over $5,000,000 for that year until his compensation shall reach $135,000. By Court Orders previous to 2001, annual compensation to the CEO/President of the Trustees for the year 2000 was set at $90,000 and, in addition, a sum equal to 1% of the excess of gross income of the Trust over $5,000,000 for that year until his compensation shall reach $125,000. TRUSTEE COMPENSATION (OTHER THAN THE CEO/PRESIDENT OF THE TRUSTEES) The Trust Agreement (as modified by Court Orders, the last being effective January 1, 2001) provides for annual compensation to each Trustee (other than the CEO/President of the Trustees) of $50,000. By Court Orders previous to 2001, annual compensation to each Trustee (other than the CEO/President of the Trustees) for the year 2000 was set at $40,000. 9 Item 11. EXECUTIVE COMPENSATION--Continued Because the compensation of the Trustees and CEO/President of the Trustees is established by the Trust Agreement (as modified by Court Orders), there is no compensation committee for the Trustees and, accordingly, there is no Trustee compensation committee report pertaining to their compensation. There are no other arrangements pursuant to which any Trustee was compensated for any services provided as a Trustee, including that of committee participation or special assignment. There are no options, stock appreciation rights, long-term performance-based incentive plans or retirement benefits applicable to any of the Trustees (including the CEO/President of the Trustees) and, accordingly, disclosure tables with respect to such items have been omitted. EXECUTIVE OFFICER COMPENSATION OF THE CHIEF FINANCIAL OFFICER (CFO)/ VICE PRESIDENT AND SECRETARY The Board of Trustees, as a whole, determines compensation of executive officers (other than the CEO/President of the Trustees). No compensation committee report exists as the Trust Agreement empowers and grants the Trustees authority to establish salaries for all employees of the Trust. The Trustees base employee salary compensation on market data obtained from time to time, as deemed necessary. The CFO's Bonus compensation is based on 10% of the CEO/President's Bonus compensation. All Other Compensation of the CFO represents an accrual and interest earnings established in a deferred compensation plan. The following table shows the CFO's estimated annual pension benefit payable upon retirement at various years of vested service as indicated: PENSION PLAN TABLE
AVERAGE ANNUAL SALARY ESTIMATED ANNUAL PENSION BENEFIT PAYABLE FOR HIGHEST 60 MONTHS FOR YEARS OF VESTED SERVICE INDICATED OF CONSECUTIVE -------------------------------------------------------------------- SERVICE 10 15 20 25 ------------------------- -------------------------------------------------------------------- $ 85,000 $19,100 $28,700 $38,300 $63,800 90,000 20,300 30,400 40,500 67,500 95,000 21,400 32,100 42,800 71,300 100,000 22,500 33,800 45,000 75,000 105,000 23,600 35,400 47,300 78,800 110,000 24,800 37,100 49,500 82,500 115,000 25,900 38,800 51,800 86,300 120,000 27,000 40,500 54,000 90,000 125,000 28,100 42,200 56,300 93,800 130,000 29,300 43,900 58,500 97,500
10 Item 11. EXECUTIVE COMPENSATION--Continued The CFO's estimated annual pension benefit payable upon retirement from the Trust's defined Pension Plan is based on the highest 60 consecutive months average annual salary as disclosed in the Summary Compensation Table above, the years of vested service, a straight-life annuity and no offsets or deductions. The CFO is presently entitled to 13 years of vested service as of December 31, 2002. Upon the Trust termination on April 6, 2015, the CFO would be entitled to 25 years of vested service. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) The only authorized securities of the Registrant are Trustees' Certificates of Beneficial Interest. The holders of these securities do not have voting rights. There were no entities holding more than 5% of the Certificates of Beneficial Interest outstanding, of record and/or beneficially, as of December 31, 2002. (b) There were no securities owned by the Trustees or officers as of December 31, 2002. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. Item 14. CONTROLS AND PROCEDURES Based on their most recent review, which was completed within 90 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. 11 PART IV Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) - The response to this portion of Item 15 is submitted as a separate section of this report. (3) Listing of Exhibits: Exhibit 3 - Copy of Trust Agreement and Rules and Regulations for Management of the Trust (filed as Exhibit A to Form 11 of Great Northern Iron Ore Properties filed on May 6, 1935 as published under date of March 30, 1935 and incorporated by reference) Exhibit 4 - Specimen of Securities Registered Hereunder (filed as Exhibit E to Form 11 of Great Northern Iron Ore Properties filed on May 6, 1935 as published under date of March 30, 1935 and incorporated by reference) Exhibit 10 - Court Order on Trustee Compensation dated May 16, 2001 Exhibit 13 - Annual Report to Certificate Holders Exhibit 23 - Consent of Independent Auditors Exhibit 99(a) - Tax Return Guide Exhibit 99(b) - Audit Committee Charter Exhibit 99(c) - Report of Audit Committee (b) Reports on Form 8-K - None. (c) Exhibits - The response to this portion of Item 15 is submitted as a separate section of this report. (d) Financial Statement Schedules - The response to this portion of Item 15 is submitted as a separate section of this report. 12 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. GREAT NORTHERN IRON ORE PROPERTIES ---------------------------------- (Registrant) /s/ Joseph S. Micallef 2/14/03 ------------------------------------------- --------------- Joseph S. Micallef, Chief Executive Officer, Date Trustee and President of the Trustees Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Roger W. Staehle 2/14/03 ------------------------------------------- --------------- Roger W. Staehle, Trustee Date /s/ Robert A. Stein 2/14/03 ------------------------------------------- --------------- Robert A. Stein, Trustee Date /s/ John H. Roe, III 2/14/03 ------------------------------------------- --------------- John H. Roe, III, Trustee Date /s/ Thomas A. Janochoski 2/14/03 ------------------------------------------- --------------- Thomas A. Janochoski, Vice President and Date Secretary, Chief Financial Officer 13 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 Annual 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 Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant; 2. I have reviewed this Annual Report on Form 10-K of Great Northern Iron Ore Properties; 3. Based on my knowledge, this Annual 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 Annual Report; 4. Based on my knowledge, the financial statements, and other financial information included in this Annual 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 Annual 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 Annual 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 Annual Report ("Evaluation Date"); and c) presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 14 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 Annual 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: February 14, 2003 By: /s/ Joseph S. Micallef ----------------- --------------------------------------------- Joseph S. Micallef, President of the Trustees and Chief Executive Officer 15 CERTIFICATION PURSUANT TO THE SARBANES-OXLEY ACT OF 2002 - -------------------------------------------------------- I, Thomas A. Janochoski, Vice President and Secretary to the Trustees of Great Northern Iron Ore Properties and Chief Financial Officer, certify that: 1. This Annual 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 Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant; 2. I have reviewed this Annual Report on Form 10-K of Great Northern Iron Ore Properties; 3. Based on my knowledge, this Annual 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 Annual Report; 4. Based on my knowledge, the financial statements, and other financial information included in this Annual 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 Annual 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 Annual 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 Annual Report ("Evaluation Date"); and c) presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 16 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 Annual 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: February 14, 2003 By: /s/ Thomas A. Janochoski ----------------- --------------------------------------------- Thomas A. Janochoski, Vice President and Secretary, Chief Financial Officer 17 ANNUAL REPORT ON FORM 10-K ITEM 15(a)(1) and (2) and ITEM 15(d) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENT SCHEDULES YEAR ENDED DECEMBER 31, 2002 GREAT NORTHERN IRON ORE PROPERTIES W-1290 First National Bank Building 332 Minnesota Street Saint Paul, Minnesota 55101-1361 FORM 10-K--Item 15(a)(1) and (2) GREAT NORTHERN IRON ORE PROPERTIES LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following financial statements of Great Northern Iron Ore Properties, included in the Registrant's Annual Report to Certificate Holders for the year ended December 31, 2002, are incorporated by reference in Item 8: Balance Sheets - December 31, 2002 and 2001 Statements of Income - Years ended December 31, 2002, 2001 and 2000 Statements of Beneficiaries' Equity - Years ended December 31, 2002, 2001 and 2000 Statements of Cash Flows - Years ended December 31, 2002, 2001 and 2000 Notes to Financial Statements - December 31, 2002 All Item 15(d) schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. F-1 EX-10 4 grnorth030860_ex10.txt COURT ORDER EXHIBIT 10 Exhibit 10 - Court Order on Trustee Compensation dated May 16, 2001 STATE OF MINNESOTA DISTRICT COURT COUNTY OF RAMSEY SECOND JUDICIAL DISTRICT Court File No. C5-72-386008 =================================== In the Matter of the Trust known as Great Northern Iron Ore Properties ORDER =================================== This matter came on for hearing before the undersigned on May 16, 2001, upon the Petition for Allowance of Accounts and for Instructions filed by Joseph S. Micallef, Harry L. Holtz, Roger W. Staehle and Robert A. Stein, the Trustees of the Trust known as Great Northern Iron Ore Properties ("Trust"). Sue Ann Nelson of Oppenheimer Wolff & Donnelly LLP and Steven G. Mahon of Ryan Mahon & Brown P.A., appeared on behalf of the Trustees of the Trust ("Trustees"). The Court, having heard the arguments of counsel, and based upon the Petition, the affidavits filed in support of the Petition and the entire file and record herein, IT IS HEREBY ORDERED: 1. Due, published and mailed notice of this hearing was given pursuant to the Court's Order dated March 29, 2001, as more fully appears from the proof of publication and Affidavits of mailing contained in the file. 2. The accounts of the Trustees for the calendar year 2000 are approved, settled and allowed in all respects. Exhibit 10 - Court Order on Trustee Compensation dated May 16, 2001 (continued) 3. The requested increase in the compensation of the President of the Trust from $90,000 per annum to $100,000 per annum effective January 1, 2001 (plus the continuation of the additional sum equal to 1% of the excess of the gross income of the Trust over $5 million per annum up to a maximum additional sum of $35,000 as currently in effect) is granted. 4. The requested increase in the compensation of the Trustees other than the President from $40,000 per annum to $50,000 per annum, effective January 1, 2001, is granted. BY THE COURT Dated: May 16, 2001 /s/ Michael T. DeCourcy ------------ ----------------------- Michael T. DeCourcy Judge of District Court EX-13 5 grnorth030860_ex13.txt ANNUAL REPORT Exhibit 13 -- Annual Report to Certificate Holders GREAT NORTHERN IRON ORE PROPERTIES ------------------------ NINETY-SIXTH ANNUAL REPORT OF THE TRUSTEES TO CERTIFICATE HOLDERS FOR YEAR ENDED DECEMBER 31, 2002 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 ROGER W. STAEHLE* THOMAS A. JANOCHOSKI Adjunct Professor Vice President and Secretary University of Minnesota Chief Financial Officer ROBERT A. STEIN* ROGER P. JOHNSON Executive Director Manager of Mines American Bar Association Chief Engineer JOHN H. ROE, III* Chairman of the Board Bemis Company, Inc. *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 ----------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 ------------- ------------- ------------- ------------- ------------- Shipments from our mines (tons) ............. 7,094,446 5,677,672 6,942,539 6,133,576 6,384,226 Royalty income .............................. $ 9,141,886 $ 9,810,504 $11,772,582 $10,427,611 $11,234,050 Other income ................................ 443,763 590,286 577,825 498,602 548,707 Net income .................................. 7,661,762 8,646,878 10,790,588 9,353,593 10,152,100 Total assets ................................ 16,873,663 17,455,283 18,995,305 17,206,835 17,341,024 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 ......... $ 5.11 $ 5.76 $ 7.19 $ 6.24 $ 6.77 Declared distributions per share ............ $ 5.40(1) $ 6.00(2) $ 6.80(3) $ 6.10(4) $ 6.30(5)
---------------- (1) $1.10 pd 4/30/02; $1.40 pd 7/31/02; $1.40 pd 10/31/02; $1.50 pd 1/31/03 (2) $1.40 pd 4/30/01; $1.50 pd 7/31/01; $1.50 pd 10/31/01; $1.60 pd 1/31/02 (3) $1.10 pd 4/28/00; $1.50 pd 7/31/00; $1.80 pd 10/31/00; $2.40 pd 1/31/01 (4) $1.40 pd 4/30/99; $1.50 pd 7/30/99; $1.60 pd 10/29/99; $1.60 pd 1/31/00 (5) $1.20 pd 4/30/98; $1.50 pd 7/31/98; $1.80 pd 10/30/98; $1.80 pd 1/29/99 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations: "Royalty income" for 2002 was less than that of 2001 primarily due to credit for previously paid minimum royalties being applied to taconite production in 2002. "Royalty income" for 2001 was less than that of 2000 primarily due to decreased taconite production from Trust lands. "Other income" for 2002 was less than that of 2001 mainly due to a reduced yield on our funds held for investment. "Other income" for 2001 was slightly more than that of 2000 mainly due to improved investment income, offset in part by reduced timber revenues received. 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 United States 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 2002, the major source of income to the Trust was royalty derived from taconite production and minimum royalties. 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. Accumulated minimum royalties amounted to $5,508,228 on December 31, 2002. Although production from Trust lands increased over last year, credit for previously paid minimum royalties applied on current year taconite production caused a reduction in royalty income. A Summary of Shipments is tabulated on the last page of this report. The Trustees declared four quarterly distributions in 2002 totaling $5.40 per share. 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; the third, in the amount of $1.40 per share, was paid on October 31, 2002 to certificate holders of record on September 30, 2002; and the fourth, in the amount of $1.50 per share, was paid on January 31, 2003 to certificate holders of record on December 31, 2002. The Trustees declared four quarterly distributions in 2001 totaling $6.00 per share. 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; the third, in the amount of $1.50 per share, was paid on October 31, 2001 to certificate holders of record on September 28, 2001; and the fourth, in the amount of $1.60 per share, was paid on January 31, 2002 to certificate holders of record on December 31, 2001. 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 2003 to certificate holders of record on March 31, 2003. Shares of beneficial interest in the Trust are traded on the New York Stock Exchange under the ticker symbol "GNI." There were 1,867 certificate holders of record on December 31, 2002. The high and low prices for the quarterly periods commencing January 1, 2001 through December 31, 2002 were as follows: 2002 2001 ------------------------- ------------------------- QUARTER HIGH LOW HIGH LOW - ---------------- ----------- ----------- ----------- ----------- First .......... $ 75.10 $ 59.00 $ 68.65 $ 53.75 Second ......... 67.00 59.10 69.75 56.65 Third .......... 67.00 54.50 77.00 61.00 Fourth ......... 67.00 54.35 77.00 66.35 3 The following is a summary of quarterly results of operations (unaudited) for the years ended December 31, 2002 and 2001 (in thousands of dollars, except per share amounts):
QUARTER ENDED --------------------------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 ---------- ----------- ---------- ----------- 2002 Royalty income .................... $ 1,567 $ 2,691 $ 1,983 $ 2,901 Interest and other income ......... 153 101 95 95 ------- ------- ------- ------- Gross income ...................... 1,720 2,792 2,078 2,996 Expenses .......................... 490 457 471 506 ------- ------- ------- ------- Net income ........................ $ 1,230 $ 2,335 $ 1,607 $ 2,490 ======= ======= ======= ======= Earnings per share ................ $ .82 $ 1.56 $ 1.07 $ 1.66 ======= ======= ======= ======= 2001 Royalty income .................... $ 1,930 $ 3,177 $ 2,097 $ 2,607 Interest and other income ......... 157 144 145 144 ------- ------- ------- ------- Gross income ...................... 2,087 3,321 2,242 2,751 Expense ........................... 453 439 421 441 ------- ------- ------- ------- Net income ........................ $ 1,634 $ 2,882 $ 1,821 $ 2,310 ======= ======= ======= ======= Earnings per share ................ $ 1.09 $ 1.92 $ 1.21 $ 1.54 ======= ======= ======= =======
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 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.). 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 (as explained in Note D of the Financial Statements) 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. 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 4 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 2003 to all "record date" certificate holders shown on our stock transfer agent's records during 2002. 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 Roger W. Staehle Robert A. Stein John H. Roe, III Saint Paul, Minnesota March 14, 2003 5 GREAT NORTHERN IRON ORE PROPERTIES STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31 ---------------------------------------------- 2002 2001 2000 ----------- ----------- ----------- REVENUES Royalties ............................... $ 9,141,886 $ 9,810,504 $11,772,582 Interest earned ......................... 353,874 518,446 476,333 Rent and other .......................... 89,889 71,840 101,492 ----------- ----------- ----------- 9,585,649 10,400,790 12,350,407 EXPENSES Royalties ............................... 4,623 4,623 4,623 Real estate and payroll taxes ........... 124,899 136,828 122,290 Inspection and care of property ......... 466,323 411,483 390,439 Administrative and general .............. 1,083,429 956,948 809,224 Provision for depreciation and amortization ........................... 244,613 244,030 233,243 ----------- ----------- ----------- 1,923,887 1,753,912 1,559,819 ----------- ----------- ----------- NET INCOME ................................ $ 7,661,762 $ 8,646,878 $10,790,588 =========== =========== =========== EARNINGS PER SHARE ........................ $ 5.11 $ 5.76 $ 7.19 =========== =========== ===========
STATEMENTS OF BENEFICIARIES' EQUITY
YEAR ENDED DECEMBER 31 ----------------------------------------------- 2002 2001 2000 ------------ ----------- ----------- Balance at beginning of year .............. $14,962,627 $15,315,749 $14,725,161 Net income for the year ................... 7,661,762 8,646,878 10,790,588 ------------ ----------- ----------- 22,624,389 23,962,627 25,515,749 Deduct declaration of distributions on shares of beneficial interest, per share: 2002 -- $5.40; 2001 -- $6.00; 2000 -- $6.80 ............................ 8,100,000 9,000,000 10,200,000 ------------ ----------- ----------- Balance at end of year .................... $14,524,389 $14,962,627 $15,315,749 ============ =========== ===========
See accompanying notes. 6 GREAT NORTHERN IRON ORE PROPERTIES BALANCE SHEETS ASSETS
DECEMBER 31 ---------------------------- 2002 2001 ----------- ----------- CURRENT ASSETS Cash and cash equivalents .............................. $ 663,230 $ 759,281 United States Treasury securities (NOTE B) ............. 4,242,067 4,344,646 Royalties receivable ................................... 2,635,883 2,308,941 Prepaid expenses ....................................... 2,760 2,760 ----------- ----------- TOTAL CURRENT ASSETS ..................................... 7,543,940 7,415,628 NONCURRENT ASSETS United States Treasury securities (NOTE B) ............. 3,760,674 4,278,541 Prepaid pension expense (NOTE E) ....................... 708,207 701,473 ----------- ----------- 4,468,881 4,980,014 PROPERTIES Mineral lands (NOTES B AND C) .......................... 38,577,007 38,577,007 Less allowances for depletion and amortization ......... 33,873,565 33,665,365 ----------- ----------- 4,703,442 4,911,642 Building and equipment -- at cost, less allowances for accumulated depreciation (2002 -- $197,020; 2001 -- $190,784) .................. 157,400 147,999 ----------- ----------- 4,860,842 5,059,641 ----------- ----------- $16,873,663 $17,455,283 =========== =========== LIABILITIES AND BENEFICIARIES' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses .................. $ 85,574 $ 89,556 Distributions .......................................... 2,250,000 2,400,000 ----------- ----------- TOTAL CURRENT LIABILITIES ................................ 2,335,574 2,489,556 NONCURRENT LIABILITIES ................................... 13,700 3,100 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) ................... 14,524,389 14,962,627 ----------- ----------- $16,873,663 $17,455,283 =========== ===========
See accompanying notes. 7 GREAT NORTHERN IRON ORE PROPERTIES STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 --------------------------------------------- 2002 2001 2000 ------------ ------------- ------------ OPERATING ACTIVITIES Cash received from royalties and rents .............. $ 8,904,833 $ 10,731,058 $ 11,146,281 Cash paid to suppliers and employees ................ (1,679,390) (1,614,403) (1,479,149) Interest received ................................... 399,320 542,970 455,519 ------------ ------------- ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES ............................. 7,624,763 9,659,625 10,122,651 INVESTING ACTIVITIES United States Treasury securities purchased ......... (3,725,000) (5,384,625) (5,268,478) United States Treasury securities matured ........... 4,300,000 6,228,103 4,350,000 Net expenditures for equipment ...................... (45,814) (19,663) (93,174) ------------ ------------- ------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ............................. 529,186 823,815 (1,011,652) FINANCING ACTIVITIES Distributions paid .................................. (8,250,000) (10,200,000) (9,000,000) ------------ ------------- ------------ NET CASH USED IN FINANCING ACTIVITIES ............................. (8,250,000) (10,200,000) (9,000,000) ------------ ------------- ------------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ............................... (96,051) 283,440 110,999 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............................... 759,281 475,841 364,842 ------------ ------------- ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR ..................................... $ 663,230 $ 759,281 $ 475,841 ============ ============= ============ RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Net income .......................................... $ 7,661,762 $ 8,646,878 $ 10,790,588 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ..................... 244,613 244,030 233,243 Net decrease (increase) in assets: Accrued interest ................................ 45,446 24,524 (20,814) Royalties receivable ............................ (326,942) 848,714 (588,632) Prepaid expenses ................................ (6,734) (117,621) (150,455) Surface lands ................................... -- -- (139,161) Net increase (decrease) in liabilities: Accrued liabilities ............................. 6,618 13,100 (2,118) ------------ ------------- ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES ........................ $ 7,624,763 $ 9,659,625 $ 10,122,651 ============ ============= ============
See accompanying notes. 8 GREAT NORTHERN IRON ORE PROPERTIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE A - BUSINESS AND TERMINATION OF THE TRUST AND LEGAL PROCEEDINGS Great Northern Iron Ore Properties ("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 two significant operating lessees was as follows: 2002 -- $5,614,000 and $3,398,000; 2001 -- $6,422,000 and $3,157,000; and 2000 -- $6,327,000 and $4,890,000. 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 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.). 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 D) 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. 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 9 NOTE A - BUSINESS AND TERMINATION OF THE TRUST AND LEGAL PROCEEDINGS (CONTINUED) term and reversionary interests; and, if the need arises, the Trustees may petition the District Court of Ramsey County, Minnesota, for further instructions defining 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 1, 2002, certificate holders of record as of March 1, 2002 and the reversioner were notified of a Hearing on May 1, 2002 in Ramsey County Courthouse, Saint Paul, Minnesota, for the purpose of settling and allowing the Trust accounts for the year 2001. By Court Order signed and dated May 1, 2002, the 2001 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 2003 to certificate holders of record with holdings on any of the four quarterly record dates during 2002. This information included a: SUBSTITUTE FORM 1099-MISC -- This form reported one's 2002 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 2002. 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 accrued interest and amortization of premium or discount. Securities listed as noncurrent assets will mature in 2004. Following is an analysis of the securities as of December 31:
CURRENT NONCURRENT -------------------------- -------------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Aggregate fair value ......... $4,233,297 $4,394,750 $3,798,859 $4,286,086 Gross unrealized holding gains ....................... (41,928) (92,021) (57,196) (66,177) Gross unrealized holding losses ...................... -- -- -- 7,934 ---------- ---------- ---------- ---------- Amortized cost basis ......... 4,191,369 4,302,729 3,741,663 4,227,843 Accrued interest ............. 50,698 41,917 19,011 50,698 ---------- ---------- ---------- ---------- $4,242,067 $4,344,646 $3,760,674 $4,278,541 ========== ========== ========== ==========
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 $208,200, $208,200 and $198,444 for the years 2002, 2001 and 2000, respectively (see Note C). ROYALTY INCOME: Royalties from mineral leases (with cancellation terms varying from six months to one year) are taken into income as earned. 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. Accumulated minimum royalties amounted to $5,508,228 on December 31, 2002 and $6,116,215 on December 31, 2001. USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those 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, 2002, 2001 and 2000. 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 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 December 31: 2002 2001 ---------- ---------- Attorneys' fees and expenses .......... $1,024,834 $1,024,834 Cost of surface lands ................. 5,703,265 5,703,265 Cumulative shipment credits ........... (1,032,462) (940,354) Asset disposition credits ............. (20,106) (20,106) ---------- ---------- Principal Charges account ............. $5,675,531 $5,767,639 ========== ========== 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 2002, 2001 and 2000 is as follows:
2002 2001 2000 -------- --------- --------- Service cost. ...................... $ 68,225 $ 60,327 $ 58,977 Interest cost ...................... 200,623 199,131 206,767 Expected return on assets .......... (302,688) (331,298) (350,238) Net amortization ................... 27,106 (45,781) (65,961) -------- --------- --------- Net pension benefit ................ $ (6,734) $(117,621) $(150,455) ======== ========= =========
Weighted-average assumptions used in the measurement of the benefit obligation as of December 31 were:
2002 2001 ---------- ---------- Discount rate ........................... 6.50% 7.25% 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:
2002 2001 ---------- ---------- Obligation at January 1 ............ $2,885,049 $2,769,265 Service cost ....................... 68,225 60,327 Interest cost ...................... 200,623 199,131 Actuarial loss ..................... 499,972 101,831 Benefit payments ................... (245,984) (245,505) ---------- ---------- Obligation at December 31 .......... $3,407,885 $2,885,049 ========== ==========
The following table sets forth the change in the fair value of plan assets:
2002 2001 ---------- ---------- Fair value of plan assets at January l ............ $3,901,435 $4,255,408 Actual loss on plan assets ........................ (282,673) (108,468) Benefit payments .................................. (245,984) (245,505) ---------- ---------- Fair value of plan assets at December 31 .......... $3,372,778 $3,901,435 ========== ==========
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:
2002 2001 ---------- ---------- Benefit obligation ....................... $3,407,885 $2,885,049 Fair value of plan assets ................ 3,372,778 3,901,435 ---------- ---------- Plan assets (less than) in excess of benefit obligation ...................... (35,107) 1,016,386 Unrecognized net loss (gain) ............. 726,041 (359,292) Unrecognized prior service cost .......... 17,273 44,379 ---------- ---------- Prepaid pension expense. ................. $ 708,207 $ 701,473 ========== ==========
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 $61,823, $60,455 and $60,771 for the years 2002, 2001 and 2000, respectively. 14 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Trustees Great Northern Iron Ore Properties We have audited the accompanying balance sheets of Great Northern Iron Ore Properties as of December 31, 2002 and 2001, and the related statements of beneficiaries' equity, income and cash flows for each of the three years in the period ended December 31, 2002. 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, 2002 and 2001 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Minneapolis, Minnesota January 31, 2003 15 GREAT NORTHERN IRON ORE PROPERTIES SUMMARY OF SHIPMENTS
FULL TONS SHIPPED -------------------------------------------------- TOTAL TO OWNERSHIP JANUARY 1, NO. MINE INTEREST 2002 2001 2000 2003 - ------ ------------------------- ----------- ----------- ----------- ----------- -------------- 1. Mahoning ................ 100% 1,358,481 1,065,096 2,101,371 154,298,373 2. Ontario 100% ............ 100% 10,927 9,660 -- 8,748,234 3. Ontario 50% ............. 50% 1,840,736 213,075 353,310 17,847,163 4. Section 18 .............. 100% -- 302 5,790 27,917,849 5. Russell Annex ........... 50% 9,924 134,432 477,678 3,557,057 6. Mississippi #3 .......... 100% 82,429 2,724 -- 3,829,564 7. Wentworth ............... 100% -- -- 34,721 6,505,859 8. Minntac ................. 100% 3,791,949 4,252,383 3,969,669 42,505,636 --------- --------- --------- ----------- 7,094,446 5,677,672 6,942,539 265,209,735 Shipments from inactive mines and those exhausted, surrendered or sold prior to this year ............... -- -- -- 354,802,196 --------- --------- --------- ----------- TOTAL .................. 7,094,446 5,677,672 6,942,539 620,011,931 ========= ========= ========= ===========
NO. OPERATING INTEREST - ----- -------------------------------------------------------- 1-3 Hibbing Taconite Company 4-6 National Steel Corporation 7 Cleveland Cliffs Erie LLC 8 United States Steel LLC 16 GREAT NORTHERN IRON ORE PROPERTIES W-1290 FIRST NATIONAL BANK BUILDING 332 MINNESOTA STREET SAINT PAUL, MINNESOTA 55101-1361 FIRST CLASS U.S. POSTAGE PAID PERMIT #43 MINNEAPOLIS, MN FIRST CLASS MAIL EX-23 6 grnorth030860_ex23.txt CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 Exhibit 23 - Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Great Northern Iron Ore Properties of our report dated January 31, 2003, included in the 2002 Annual Report to Certificate Holders of Great Northern Iron Ore Properties. /s/ Ernst & Young LLP Minneapolis, Minnesota March 14, 2003 EX-99.A 7 grnorth030860_ex99a.txt TAX RETURN GUIDE EXHIBIT 99(a) Exhibit 99(a) - Tax Return Guide GREAT NORTHERN IRON ORE PROPERTIES W-1290 First National Bank Building 332 Minnesota Street Saint Paul, MN 55101-1361 (651) 224-2385 FAX (651) 224-2387 2002 TAX RETURN GUIDE Dear Unit Holder: This "Tax Return Guide" has been prepared to assist the certificate holder in reporting the taxable income from Great Northern Iron Ore Properties (the "Trust") as summarized on the Substitute Form 1099-MISC (or Form 1042S for foreign investors) and the Trust Supplemental Statement. This information is being mailed to all certificate holders shown on the record dates during 2002, as maintained by our transfer agent. If you use a professional tax advisor, it is essential that they have this Guide to prepare your income tax return. This Guide is merely 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. It is not intended to be all-inclusive or to render specific professional tax advice. If you are a foreign investor, we recommend you consult your tax advisor for proper income tax reporting due to the complexity of taxation of foreign investors. Should you have any questions about the information in this Guide or need further assistance in income tax return preparation, please consult your tax advisor. "Street name" holders may also use this Guide to calculate their allocable share of Trust income and deductions if they know the number of units (shares) held on the record dates during the year. Nominees and brokers should refer to the section in this Guide entitled "Nominee Reporting Requirements" which provides guidance as to the preparation of Trust income tax information for their clients. Please contact the Trust office if you need a bulk supply of these Guides. Finally, please note that this Guide provides information for both domestic and foreign investors. Certain sections in this Guide pertain only to a specific class of investors and are labeled as such. Please read this Guide thoroughly and complete the worksheets carefully. Sincerely yours and for the Trustees, /s/ JOSEPH S. MICALLEF - ---------------------- President January 2003 page 2 TAX RETURN GUIDE TABLE OF CONTENTS Page ---- Tax Matters Relating to Great Northern Iron Ore Properties General Information 3-4 Information for Foreign Investors 4-5 Trust Income and Allocation 5 Presentation of Tax Data 5 Classification of Trust Income 5 Depletion 6 Basis 6 Certificate Amortization 6 Alternative Minimum Tax 6 State Taxation and Adjustments 7 Instruction Outline 8-9 Worksheet A-Unit Holders with a constant interest throughout the year Schedule I Individual Taxpayers 10 Schedule II Corporate Taxpayers 10 Worksheet B-Unit Holders that purchased or sold units during the year Schedule I Individual Taxpayers 11-12 Schedule II Corporate Taxpayers 13-14 Worksheet C-Year End Basis and Certificate Amortization Computations 15 Nominee Reporting Requirements 16 Attachment for Income Tax Return to Reconcile Substitute Form 1099-MISC or Form 1042S for Certificate Holders of Record Schedule for Individual Foreign Investors-Form 1042S S-F Schedule for Individual Domestic Investors-Substitute Form 1099-MISC S-D page 3 TAX MATTERS RELATING TO GREAT NORTHERN IRON ORE PROPERTIES General Information - ------------------- Pursuant to an Election filed under Section 646 of the Tax Reform Act of 1986, as amended, the Trust is taxable as a grantor trust for the years after 1988. As an investor in a grantor trust, you are required to report your proportionate share of the Trust's taxable income on your federal and state income tax returns. If you utilize professional assistance in preparing your income tax return, it is essential that you provide your preparer with this Tax Return Guide, your Substitute Form 1099-MISC or Form 1042S (if applicable) and your Trust Supplemental Statement (if applicable). This Tax Return Guide is used to calculate the various components of Trust income and deductions allocable to you. For the benefit of "street name" holders, this Guide is universal in that if you know the number of shares (units) held on the record dates during the year, you can calculate the proper amount of Trust income and deductions allocable to you, regardless of whether or not you received a Form 1099-MISC or Form 1042S from your broker. This Guide is generally designed to instruct unit holders who utilize Individual Income Tax Return Form 1040 or Corporate Income Tax Return Form 1120, which represents a vast majority of our certificate holders. Foreign investors generally would utilize Nonresident Alien Income Tax Return Form 1040NR (Individuals) or Foreign Corporation Income Tax Return Form 1120F (Corporations). Please note that the tax return line instructions within this Guide do not apply to foreign investors. Because the reporting of income or deductions for foreign investors is dependent upon whether or not they are effectively connected with a United States trade or business, we strongly recommend foreign investors consult with their tax advisors for proper income tax return preparation. The Substitute Form 1099-MISC has been prepared only for domestic certificate holders of record during the year (not "street name" holders). It is used to report the income allocable to the domestic investor (as reported to the Internal Revenue Service and the Minnesota Department of Revenue), distributions declared (not necessarily received within the year) and any taxes withheld. It should be emphasized that Box 1 on Substitute Form 1099-MISC contains distributions declared during the calendar year, not necessarily those actually received during the year. The following table is provided to help clarify the timing differences: Distributions - -------------------------------------------------------------------------------- Declared: Paid: Included (if applicable) in Box 1 of: --------- ----- ------------------------------------- December 2001 January 2002 2001 Form 1099-MISC March 2002 April 2002 2002 Form 1099-MISC June 2002 July 2002 2002 Form 1099-MISC September 2002 October 2002 2002 Form 1099-MISC December 2002 January 2003 2002 Form 1099-MISC - -------------------------------------------------------------------------------- page 4 (General Information -- continued) Regardless of when distributions were declared or paid, taxable income is determined based upon your allocable share of the income of the Trust, not the distributions. Distributions need not normally be reported anywhere on your income tax return. If you are a "street name" holder and received a Form 1099-DIV from your broker, you should have the Form 1099-DIV voided and replaced with a Form 1099-MISC as prepared by the broker in accordance with the "Nominee Reporting Requirements" section of this Guide. Should your broker not void the Form 1099-DIV, it is suggested you list the distributions reported by your broker on Schedule B, Part II of Form 1040 (Individuals) and again as a negative amount (representing a nontaxable distribution) also on Schedule B, Part II of Form 1040 (Individuals), then report your proportionate share of the Trust's income on your income tax return as computed by this Guide. The Form 1042S has been prepared only for foreign certificate holders of record during the year (not "street name" holders). It is used to report the income allocable to the foreign investor (as reported to the Internal Revenue Service and the Minnesota Department of Revenue) and any taxes withheld. Regardless of when distributions were declared or paid, taxable income is determined based upon your allocable share of the income of the Trust, not the distributions. Distributions need not normally be reported anywhere on your income tax return. The Trust Supplemental Statement shows only the shares (units) held on the various record dates during the year. It accompanies the Substitute Form 1099-MISC or Form 1042S and may be helpful as a reference in completing this Guide. Information for Foreign Investors - --------------------------------- Nonresident alien individuals or foreign corporations are generally subject to federal income tax at the rate of 30% (or lower treaty rate) on certain items of gross income, including royalties, from sources within the United States. All of the income of the Trust for this year was from sources within the United States. The income reported on Form 1042S includes interest income, rental income and gain from the sale of domestic iron ore. The enclosed worksheets will assist you in the proper breakdown and reporting of the income. Because the taxation of foreign investors is a complex area, we recommend you consult your tax advisor. The income tax withheld from your distributions is also shown on Form 1042S. You must file a United States federal income tax return if the tax was underwithheld or to claim a refund for any overwithheld tax. If a nonresident alien individual or foreign corporation is engaged in a trade or business in the United States and the income from the Trust is effectively connected therewith, in general, the Trust income is taxable at the graduated tax rates applicable to individuals or corporations. Furthermore, a unit holder may elect to treat the income (which constitutes income from real property) as effectively connected with the conduct of a trade or business in the United States under Sections 871(d) or 882(d) of the Internal Revenue Code, or pursuant to any similar provisions of applicable treaties. A unit holder whose Trust income is effectively connected with a United States trade or business or who elects to treat it as such is entitled to claim a depletion deduction, to the extent allowed by law, and a certificate amortization deduction with respect to such income. A United States federal income tax return must be filed to claim these deductions. page 5 (Information for Foreign Investors -- continued) A unit holder whose Trust income is effectively connected with a United States trade or business, or who elects to treat it as such, is entitled to claim exemption from the 30% (or lower treaty rate) withholding tax. Such exemption is claimed for a calendar year by filing, in duplicate, with the Trust, Form W-8ECI, "Certificate of Foreign Person's Claim for Exemption From Withholding on Income Effectively Connected With the Conduct of a Trade or Business in the United States" (or a substitute statement containing the information under Income Tax Regulation Section 1.1441-4). The exemption statement must be received by the Trust sufficiently in advance of the distribution to which it is intended to apply. A separate Form W-8ECI (or substitute statement) must be filed with the Trust for each calendar year in order to claim an exemption from withholding for that year's income. Under the Foreign Investment in Real Property Tax Act (FIRPTA), the units are treated as United States real property interests. Thus, gain or loss from the sale or exchange of the units will be regarded as arising from the sale or exchange of property effectively connected with the conduct of a United States trade or business. Therefore, any sale of units during the year must be reported in the United States and the appropriate taxes paid, if any. The gain or loss on the sale of a unit is calculated by deducting the adjusted basis of the unit from the unit selling price. The format of Worksheet C may be used to calculate your adjusted basis. Include only those record dates before the sale date and ignore the certificate amortization deduction calculation. Trust Income and Allocation - --------------------------- The Trust determines and reports its taxable income on a calendar year basis utilizing the accrual method of accounting. Shareholders (unit holders) of record at the end of each quarter are allocated a share of the Trust's quarterly income. There were four equal income allocations during the year to holders of record as of the last business day of each calendar quarter. If you are an investor with a taxable year other than a calendar year, you should report your share of income for those record dates that coincide with your taxable year using Worksheet B. Presentation of Tax Data - ------------------------ Worksheets are provided to assist the investor in calculating their allocable share of Trust income and deductions. You should prepare either Worksheet A if you held the same number of units on each of the four quarterly record dates during the year OR Worksheet B if you purchased or sold any units during the year. If you own units in several blocks or the number of units which you own changed during the year, you need to reproduce the necessary copies of these worksheets and complete a separate worksheet for each block of units acquired on a different date, at a different price or held for a different time period in order to maintain your basis individually. Classification of Trust Income - ------------------------------ By a provision of the Internal Revenue Code, the iron ore royalty income earned by the Trust is treated as gain from the sale or exchange of assets used in a trade or business under Code Section 1231, thereby qualifying for capital gain treatment. With respect to the Tax Reform Act of 1986, the Trustees believe that the Trust income is portfolio income. Accordingly, such portfolio income may not be used to offset a unit holder's losses from other passive activities. page 6 Depletion - --------- There was no income derived from ore properties having a cost basis during the year. Consequently, a cost depletion deduction is not allowable. A percentage depletion deduction is only allowable under Section 631 for any tax year in which the capital gain tax rate equals or exceeds the maximum ordinary income tax rate. Accordingly, the percentage depletion deduction is not available for individuals since the maximum ordinary income tax rate exceeds the capital gain tax rate. The percentage depletion deduction continues to remain available to domestic corporate taxpayers. It also remains available to foreign corporate taxpayers if the income from the Trust is effectively connected with your trade or business in the United States or if you elect to treat the income as effectively connected. The corporate tax worksheets provide the factor to calculate the percentage depletion deduction that is already reduced 20% as provided by Section 291. Basis - ----- Basis is increased by your allocable share of Trust income and is reduced by distributions and certificate amortization (if any). Investors should use the format of Worksheet C to compute their year end basis annually. Basis should never be less than zero. To the extent that distributions exceed your basis, the excess distribution should be treated as capital gain. Certificate amortization would no longer be available. This computation worksheet is also included to assist the investor in computing gain or loss upon the sale of any portion of the investor's interest. If you sold some or all of your shares prior to the end of the year, you should use the format of Worksheet C to calculate your adjusted basis through the date of certificate disposition, ignoring the certificate amortization deduction calculation as it becomes irrelevant for the shares sold. Certificate Amortization - ------------------------ Certificate holders were previously informed that amortizing the cost of Trust certificates is allowable beginning October 2, 1978, or date of purchase, whichever is later. Certificate amortization is a deduction for income tax purposes for domestic investors. If you are a foreign investor and the income from the Trust is effectively connected with your trade or business in the United States or if you elect to treat the income as effectively connected, you are also entitled to a certificate amortization deduction. The rate of amortization is based on the remaining life of the Trust. A full year's certificate amortization deduction (despite purchase date) is calculated on one's basis (vs. a per unit amount) using the percentage provided in Basis Worksheet C. If you did not hold any units at the end of the year, ignore the certificate amortization deduction calculation. Alternative Minimum Tax - ----------------------- Alternative minimum tax (AMT) is only applicable to our corporate investors since the percentage depletion deduction is not available for individuals. The entire corporate percentage depletion deduction is considered a tax preference item and should be included on the AMT return form. Please follow the form's instructions to determine if an additional tax liability is generated. page 7 State Taxation and Adjustments - ------------------------------ Unit holders who meet Minnesota's minimum filing requirements will have to report their allocable share of the Trust's income to the State of Minnesota. A Minnesota resident's federal income will include their share of the Trust's income. Nonresident unit holders will have to file a Minnesota income tax return to report Minnesota source income if their total Minnesota source income, including their allocable share of the Trust's income, was at least $7,700 (minimum threshold for a single taxpayer under age 65). Individual taxpayers are allowed a subtraction for their allocable share of the Trust's U.S. interest income on their Minnesota income tax return. Use the worksheets to calculate this amount and include with any other subtractions on the Minnesota Individual Income Tax Return. Corporate taxpayers are not allowed a percentage depletion deduction for Minnesota. Therefore, the calculated percentage depletion deduction (if claimed on the federal return) must be shown as an addition to Minnesota income. If you are not required to file a Minnesota income tax return, you may ignore the "State of Minnesota Tax Return" line reference numbers in the worksheets. However, to the extent that other states have similar adjustments as explained above, the worksheets may be helpful in calculating these amounts. Many other states do allow for the subtraction of U.S. interest income and also allow their residents a credit for taxes paid to another state. page 8 INSTRUCTION OUTLINE - ------------------- Your Substitute Form 1099-MISC or Form 1042S (if applicable) provides your aggregate share of the Trust's taxable income before deductions for the calendar year. For tax reporting purposes, the income should be separated into its various components. If you are a "street name" holder and did not receive a Form 1099-MISC or Form 1042S, you should request such a form from your broker (not Great Northern Iron Ore Properties); however this Guide can be used to calculate your allocable share of income without having these forms if you know the number of shares held on the various record dates. The worksheets that follow will assist you in completing your income tax return with respect to the Trust's income and deductions. Please note that if you own units in several blocks or the number of units which you own changed during the year, you need to reproduce the necessary copies of these worksheets and complete a separate worksheet for each block of units acquired on a different date, at a different price or held for a different time period in order to maintain your basis individually. STEP 1 Before you begin, you will likely need a minimum of the following federal income tax return forms: Individual Domestic Investors ----------------------------- Form 1040-U.S. Individual Income Tax Return Schedule B (Form 1040)-Interest and Dividend Income Schedule D (Form 1040)-Capital Gains and Losses Schedule E (Form 1040)-Supplemental Income and Loss Form 4797-Sales of Business Property Corporate Domestic Investors ---------------------------- Form 1120-U.S. Corporate Income Tax Return Schedule D (Form 1120)-Capital Gains and Losses Form 4797-Sales of Business Property Form 4626-Alternative Minimum Tax-Corporations Individual Foreign Investors ---------------------------- Form 1040NR-Nonresident Alien Income Tax Return Corporate Foreign Investors --------------------------- Form 1120F-Foreign Corporation Income Tax Return Various state income tax return forms may also be required depending on the investor's tax status and domicile. STEP 2 Determine which worksheet to use. Investors who held a constant number of units throughout the year should use Worksheet A. All others should use Worksheet B. STEP 3 Complete Worksheet A or B (but not both). The Trust Supplemental Statement received (if applicable) will provide the shares (units) held on the various record dates during the year. The worksheet is designed to reconcile to your Substitute Form 1099-MISC or Form 1042S for calendar year taxpayers of record. page 9 (INSTRUCTION OUTLINE -- continued) STEP 4 If you held units of interest at the end of the year, complete Worksheet C. If you did not hold units of interest at the end of the year, you need not complete Worksheet C as your basis should be zero and the certificate amortization deduction calculation is irrelevant. However, you may wish to use the format of Worksheet C to calculate your basis through the date of certificate disposition. STEP 5 If you are a domestic investor, enter the amounts calculated on Worksheet A or Worksheet B onto the appropriate income tax return lines as indicated on the worksheets. If you are a foreign investor, reporting of the calculated amounts is dependent upon whether the income is effectively or not effectively connected with a United States trade or business. As this determination is dependent upon your specific activities in the United States, we recommend you consult your tax advisor for proper reporting before entering the amounts calculated on Worksheet A or Worksheet B onto your income tax return. STEP 6 Individual domestic investors of record should complete Schedule S-D with the amounts calculated from Worksheet A or Worksheet B (lines 1, 2 & 3). This schedule provides a reconciliation of the reported income to Substitute Form 1099-MISC (which was sent to the Internal Revenue Service and the Minnesota Department of Revenue). Individual foreign investors of record should complete Schedule S-F with the amounts calculated from Worksheet A or Worksheet B (lines 1, 2 & 3). This schedule provides a reconciliation of the reported income to Form 1042S (which was sent to the Internal Revenue Service and the Minnesota Department of Revenue). Foreign investors must also indicate where the income was listed on their income tax return as determined in Step 5 above. STEP 7 Certificate holders of record should attach either Schedule S-D or S-F, as appropriate, to your income tax return. STEP 8 Retain this Guide, Substitute Form 1099-MISC or Form 1042S (if applicable) and the Trust Supplemental Statement (if applicable) with your permanent records as it contains basis and other important information which may be needed in future years. page 10 WORKSHEET A CALCULATION OF TAXABLE INCOME FOR UNIT HOLDERS HOLDING A CONSTANT NUMBER OF UNITS THROUGHOUT THE YEAR *Please note that the income tax return lines referenced below pertain only to domestic investors. If you are a foreign investor, the reporting of this income is dependent upon whether the income is effectively or not effectively connected with a United States trade or business. As this determination is dependent upon your specific activities in the United States, we recommend you consult your tax advisor for the proper reporting of this income before entering the amounts calculated onto your income tax return Form 1040NR (Individuals) or Form 1120F (Corporations).
SCHEDULE I: INDIVIDUAL TAXPAYERS: YEAR: 2002 Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.235916 X = $ Schedule B, Part I, Line 1 ------------ ------------ 2) Rental Income 0.059924 X = $ Schedule E, Part I, Line 3 ------------ ------------ 3) Gain from Sale of Iron Form 4797, Part I, Line 2, Ore, Section 1231 4.830724 X = $ Column d ------------ ------------ Record Holders Proof Reconciliation: Sum of lines 1, 2 & 3 should equal Substitute Form 1099-MISC Box 2 or Form 1042S (if applicable): $ =========== 4) Certificate Amortization Deduction Schedule D, Part II, Line 8, as calculated from Worksheet C: $ Columns e & f (in brackets) ----------- STATE TAX ADJUSTMENT: Form M-1, (For filing a State of Subtract U.S. Interest 0.227224 X = $ ( ) Line 7 Minnesota Tax Return) ------------ ----------- SCHEDULE II: CORPORATE TAXPAYERS: Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.235916 X = $ Line 5 ------------ ------------ 2) Rental Income 0.059924 X = $ Line 6 ------------ ------------ 3) Gain from Sale of Iron Form 4797, Part I, Line 2, Ore, Section 1231 4.830724 X = $ Column d ------------ ------------ Record Holders Proof Reconciliation: Sum of lines 1, 2 & 3 should equal Substitute Form 1099-MISC Box 2 or Form 1042S (if applicable): $ ============ Form 4797, Part I, Line 2, 4) Percentage Depletion Deduction 0.731352 X = $ Column f ------------ ------------ 5) AMT Preference Item: Percentage Depletion 0.731352 X = $ Form 4626, Line 2(m) ------------ ------------ 6) Certificate Amortization Deduction Schedule D, Part II, Line 6, as calculated from Worksheet C: $ Columns e & f (in brackets) ------------ STATE TAX ADJUSTMENT: Form M4-I, (For filing a State of Add Percentage Depletion 0.731352 X = $ Line 2(h) Minnesota Tax Return) ------------ ------------
page 11 WORKSHEET B CALCULATION OF TAXABLE INCOME FOR UNIT HOLDERS THAT PURCHASED OR DISPOSED OF UNITS DURING THE YEAR *Please note that the income tax return lines referenced below pertain only to domestic investors. If you are a foreign investor, the reporting of this income is dependent upon whether the income is effectively or not effectively connected with a United States trade or business. As this determination is dependent upon your specific activities in the United States, we recommend you consult your tax advisor for the proper reporting of this income before entering the amounts calculated onto your income tax return Form 1040NR (Individuals) or Form 1120F (Corporations).
SCHEDULE I: INDIVIDUAL TAXPAYERS: YEAR: 2002 FIRST QUARTER - MARCH 28, 2002 Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.058979 X = $ ------------ ------------ 2) Rental Income 0.014981 X = $ ------------ ------------ 3) Gain from Sale of Iron NOTE: Ore, Section 1231 1.207681 X = $ SEE GRAND TOTAL ------------ ------------ RECONCILIATION STATE TAX ADJUSTMENT: NEXT PAGE Subtract U.S. Interest 0.056806 X = $ ( ) ------------ ------------ SECOND QUARTER - JUNE 28, 2002 Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.058979 X = $ ------------ ------------ 2) Rental Income 0.014981 X = $ ------------ ------------ 3) Gain from Sale of Iron NOTE: Ore, Section 1231 1.207681 X = $ SEE GRAND TOTAL ------------ ------------ RECONCILIATION STATE TAX ADJUSTMENT: NEXT PAGE Subtract U.S. Interest 0.056806 X = $ ( ) ------------ ------------
page 12 (Individual continued) THIRD QUARTER - SEPTEMBER 30, 2002
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.058979 X = $ ------------ ------------ 2) Rental Income 0.014981 X = $ ------------ ------------ 3) Gain from Sale of Iron NOTE: Ore, Section 1231 1.207681 X = $ SEE GRAND TOTAL ------------ ------------ RECONCILIATION STATE TAX ADJUSTMENT: BELOW Subtract U.S. Interest 0.056806 X = $ ( ) ------------ ------------ FOURTH QUARTER - DECEMBER 31, 2002 Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.058979 X = $ ------------ ------------ 2) Rental Income 0.014981 X = $ ------------ ------------ 3) Gain from Sale of Iron NOTE: Ore, Section 1231 1.207681 X = $ SEE GRAND TOTAL ------------ ------------ RECONCILIATION STATE TAX ADJUSTMENT: BELOW Subtract U.S. Interest 0.056806 X = $ ( ) ------------ ------------ GRAND TOTAL RECONCILIATION OF ABOVE RECORD DATES FOR WORKSHEET B (SUM OF RESPECTIVE TOTAL LINES ABOVE): Total Where to Report on Form 1040* ----- ----------------------------- 1) Interest Income $ Schedule B, Part I, Line 1 ------------ 2) Rental Income $ Schedule E, Part I, Line 3 ------------ 3) Gain from Sale of Iron Form 4797, Part I, Line 2, Ore, Section 1231 $ Column d ------------ Record Holders Proof Reconciliation: Sum of lines 1, 2 & 3 should equal Substitute Form 1099-MISC Box 2 or Form 1042S (if applicable) $ ============ 4) Certificate Amortization Deduction Schedule D, Part II, Line 8, as calculated from Worksheet C: $ Columns e & f (in brackets) ------------ STATE TAX ADJUSTMENT: Form M-1, (For filing a State of Subtract U.S. Interest $ ( ) Line 7 Minnesota Tax Return) ------------
page 13
SCHEDULE II: CORPORATE TAXPAYERS: YEAR: 2002 FIRST QUARTER - MARCH 28, 2002 Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.058979 X = $ ------------ ------------ 2) Rental Income 0.014981 X = $ ------------ ------------ 3) Gain from Sale of Iron NOTE: Ore, Section 1231 1.207681 X = $ SEE GRAND TOTAL ------------ ------------ RECONCILIATION 4) Percentage Depletion Deduction 0.182838 X = $ NEXT PAGE ------------ ------------ 5) AMT Preference Item: Percentage Depletion 0.182838 X = $ ------------ ------------ STATE TAX ADJUSTMENT: Add Percentage Depletion 0.182838 X = $ ------------ ------------ SECOND QUARTER - JUNE 28, 2002 Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.058979 X = $ ------------ ------------ 2) Rental Income 0.014981 X = $ ------------ ------------ 3) Gain from Sale of Iron NOTE: Ore, Section 1231 1.207681 X = $ SEE GRAND TOTAL ------------ ------------ RECONCILIATION 4) Percentage Depletion Deduction 0.182838 X = $ NEXT PAGE ------------ ------------ 5) AMT Preference Item: Percentage Depletion 0.182838 X = $ ------------ ------------ STATE TAX ADJUSTMENT: Add Percentage Depletion 0.182838 X = $ ------------ ------------
page 14 (Corporate continued)
THIRD QUARTER - SEPTEMBER 30, 2002 Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.058979 X = $ ------------ ------------ 2) Rental Income 0.014981 X = $ ------------ ------------ 3) Gain from Sale of Iron NOTE: Ore, Section 1231 1.207681 X = $ SEE GRAND TOTAL ------------ ------------ RECONCILIATION 4) Percentage Depletion Deduction 0.182838 X = $ BELOW ------------ ------------ 5) AMT Preference Item: Percentage Depletion 0.182838 X = $ ------------ ------------ STATE TAX ADJUSTMENT: Add Percentage Depletion 0.182838 X = $ ------------ ------------ FOURTH QUARTER - DECEMBER 31, 2002 Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.058979 X = $ ------------ ------------ 2) Rental Income 0.014981 X = $ ------------ ------------ 3) Gain from Sale of Iron NOTE: Ore, Section 1231 1.207681 X = $ SEE GRAND TOTAL ------------ ------------ RECONCILIATION 4) Percentage Depletion Deduction 0.182838 X = $ BELOW ------------ ------------ 5) AMT Preference Item: Percentage Depletion 0.182838 X = $ ------------ ------------ STATE TAX ADJUSTMENT: Add Percentage Depletion 0.182838 X = $ ------------ ------------ GRAND TOTAL RECONCILIATION OF ABOVE RECORD DATES FOR WORKSHEET B (SUM OF RESPECTIVE TOTAL LINES ABOVE): Total Where to Report on Form 1120* ----- ----------------------------- 1) Interest Income $ Line 5 ------------ 2) Rental Income $ Line 6 ------------ 3) Gain from Sale of Iron Form 4797, Part I, Line 2, Ore, Section 1231 $ Column d ------------ Record Holders Proof Reconciliation: Sum of lines 1, 2 & 3 should equal Substitute Form 1099-MISC Box 2 or Form 1042S (if applicable) $ ============ Form 4797, Part I, Line 2, 4) Percentage Depletion Deduction $ Column f ------------ 5) AMT Preference Item: Percentage Depletion $ Form 4626, Line 2(m) ------------ Schedule D, Part II, Line 6, 6) Certificate Amortization Deduction from Worksheet C $ Columns e & f (in brackets) ------------ STATE TAX ADJUSTMENT: Form M4-I, (For filing a State of Add Percentage Depletion $ Line 2(h) Minnesota Tax Return) ------------
page 15 WORKSHEET C YEAR END BASIS AND CERTIFICATE AMORTIZATION COMPUTATIONS
Cost or Other Basis Items Affecting Basis Per Unit No. of Units Total --------------------- ----------- ------------ ----- Basis: Beginning of the year or date $ X = $ purchase, as applicable ----------- ----------- ---------- (from Substitute Form 1099-MISC Box 2 or Form 1042S or Worksheet A or B as calculated) Plus: Income $ ----------- Less: Distributions received pertaining to - First Quarter - March 28, 2002 1.10 X = $ ( ) (if applicable) ----------- ---------- Second Quarter - June 28, 2002 1.40 X = $ ( ) (if applicable) ----------- ----------- Third Quarter - September 30, 2002 1.40 X = $ ( ) (if applicable) ----------- ----------- Fourth Quarter - December 31, 2002 1.50 X = $ ( ) (if applicable) ----------- ----------- Subtotal: (Beginning Basis plus Income less Distributions): $ ----------- Certificate Amortization % Rate: X 0.076923 (to Worksheet A or B, Certificate Amortization Deduction (Subtotal times Rate): = $ ( ) as appropriate) ---------- Adjusted Basis at year end (Subtotal less Certificate Amortization Deductions): $ (needed for next year) ========== Units (Shares) held at year end: 2002 (needed for next year) ---------- Adjusted Basis per Unit (Share) at year end (Adjusted Basis divided by Units): $ (needed for next year) ==========
page 16 NOMINEE REPORTING REQUIREMENTS: YEAR: 2002 If your federal ID number is shown on Form 1099-MISC or Form 1042S, and two or more recipients are shown or the form includes amounts belonging to another person, you are considered a nominee recipient. You must file Form 1099-MISC or Form 1042S, as appropriate, for each of the other owners showing the income allocable to each. File Form(s) 1099-MISC with Form 1096 (Annual Summary and Transmittal of U.S. Information Returns) at the Internal Revenue Service Center for your area. On Forms 1099-MISC and 1042S, you should be listed as the payer and the other owner(s) should be listed as the recipient. A husband or wife is not required to file a nominee return to show payments for the other. To prepare a Form 1099-MISC or Form 1042S for each recipient, you must know the number of units (shares) held by the recipient on each of the Trust's four record dates. The record dates and income factors needed to calculate income allocable to each recipient are listed below. You should multiply the units held on each record date times the applicable income factor, adding the results together and reporting the grand total on Form 1099-MISC Box 2 or Form 1042S to each recipient. When completed, all income in the Nominee's Form 1099-MISC or Form 1042S should be accounted for and each recipient should receive a Form 1099-MISC or Form 1042S, a copy of this Guide and a summary of the recipient's holdings on each of the record dates below. These same instructions apply to brokerage firms as to their preparation of a Form 1099-MISC or Form 1042S for their clients holding interests in the Trust in "street name." RECORD DATES: INCOME FACTORS: TAXPAYER ID NUMBER: - ------------- --------------- ------------------- First Quarter - March 28, 2002 1.281641 41-0788355 Second Quarter - June 28, 2002 1.281641 Third Quarter - September 30, 2002 1.281641 Fourth Quarter - December 31, 2002 1.281641 ---------- 5.126564 ========== S-F NAME SOCIAL SECURITY # --------------------------------------- ----------------- Attachment - Schedule Reconciling Form 1042S to Individual Income Tax Return for Certificate Holders of Record
Where found on Form 1040NR --------------------------- 1) Interest Income + $ on -------------------------- --------------------------- 2) Rental Income + on -------------------------- --------------------------- 3) Gain from Sale of Iron Ore, Section 1231 + on -------------------------- --------------------------- EQUALS: Form 1042S = $ ========================== GREAT NORTHERN IRON ORE PROPERTIES
S-D NAME SOCIAL SECURITY # --------------------------------------- ----------------- Attachment - Schedule Reconciling Substitute Form 1099-MISC to Individual Income Tax Return for Certificate Holders of Record
Where found on Form 1040NR --------------------------- 1) Interest Income + $ Schedule B, Part I, Line 1 -------------------------- 2) Rental Income + Schedule E, Part I, Line 3 -------------------------- 3) Gain from Sale of Iron Ore, Form 4797, Part I, Line 2, Section 1231 + Column d -------------------------- EQUALS: Substitute Form = $ 1099-MISC Box 2 ========================== GREAT NORTHERN IRON ORE PROPERTIES
EX-99.B 8 grnorth030860_ex99b.txt AUDIT COMMITTEE CHARTER EXHIBIT 99(b) Exhibit 99(b) - Audit Committee Charter GREAT NORTHERN IRON ORE PROPERTIES AUDIT COMMITTEE CHARTER ORGANIZATION This Charter governs the operations of the Audit Committee. The Audit Committee shall review and reassess the Charter at least annually and obtain the approval of the Board of Trustees. The Audit Committee shall be appointed by the Board of Trustees and shall comprise of at least three Trustees, each of whom are independent of management and the Trust. Members of the Audit Committee shall be considered independent as long as they do not accept any consulting, advisory or other compensatory fee from the Trust and are not an affiliated person of the Trust, and meet the independence requirements of the stock exchange listing standards. All Audit Committee members shall be financially literate and at least one member shall be a "financial expert," as defined by Securities and Exchange Commission (SEC) regulations. PURPOSE The Audit Committee shall provide assistance to the Board of Trustees in fulfilling their oversight responsibility to the certificate holders, potential certificate holders, the investment community and others relating to: the integrity of the Trust's financial statements; the financial reporting process; the systems of internal accounting and financial controls; the performance of the Trust's internal audit function and independent auditors; the independent auditor's qualifications and independence; and the Trust's compliance with ethics policies and legal and regulatory requirements. In so doing, it is the responsibility of the Audit Committee to maintain free and open communication between the Audit Committee, independent auditors, the internal audit function and management of the Trust. In discharging its oversight role, the Audit Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Trust and the authority to engage independent counsel or other advisors as it determines necessary to carry out its duties. DUTIES AND RESPONSIBILITIES The primary responsibility of the Audit Committee is to oversee the Trust's financial reporting process on behalf of the Board of Trustees and report the results of their activities to the Board of Trustees. Management is responsible for preparation, presentation and integrity of the Trust's financial statements and for the appropriateness of the accounting principles and reporting policies that are used by the Trust. The independent auditors are responsible for auditing the Trust's financial statements and for reviewing the Trust's unaudited interim financial statements. Exhibit 99(b) - Audit Committee Charter (continued) The Audit Committee, in carrying out its responsibilities, believes its policies and procedures should remain flexible in order to best react to changing conditions and circumstances. The Audit Committee should take the appropriate actions to set the overall corporate "tone" for quality financial reporting, sound business risk practices and ethical behavior. The following shall be the principal duties and responsibilities of the Audit Committee. These are set forth as a guide with the understanding that the Audit Committee may supplement them as appropriate. The Audit Committee shall be directly responsible for the appointment and termination, compensation and oversight of the work of the independent auditors, including resolution of disagreements between management and the auditor regarding financial reporting. The Audit Committee shall preapprove all audit and non-audit services provided by the independent auditors and shall not engage the independent auditors to perform the specific non-audit services proscribed by law or regulation. The Audit Committee may delegate preapproval authority to a member of the Audit Committee. The decisions of any Audit Committee member to whom preapproval authority is delegated must be presented to the full Audit Committee at its next scheduled meeting. At least annually, the Audit Committee shall obtain and review a report by the independent auditors describing: o The firm's internal quality control procedures. o Any material issues raised by the most recent internal quality control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm and any steps taken to deal with any such issues. o All relationships between the independent auditor and the Trust (to assess the auditor's independence). In addition, the Audit Committee shall set clear hiring policies for employees or former employees of the independent auditors that meet the SEC regulations and stock exchange listing standards. The Audit Committee shall discuss with the internal audit function and the independent auditors the overall scope and plans for their respective audits, including the adequacy of staffing and compensation. Also, the Audit Committee shall discuss with management, the internal audit function and the independent auditors the adequacy and effectiveness of the accounting and financial controls, including the Trust's policies and procedures to assess, monitor and manage business risk, and legal and ethical compliance programs (e.g., Trust's Code of Ethics). Exhibit 99(b) - Audit Committee Charter (continued) The Audit Committee shall meet separately periodically with management, the internal audit function and the independent auditors to discuss issues and concerns warranting Audit Committee attention. The Audit Committee shall provide sufficient opportunity for the internal audit function and the independent auditors to meet privately with the members of the Audit Committee. The Audit Committee shall review with the independent auditors any audit problems or difficulties and management's response. The Audit Committee shall receive regular reports from the independent auditors on the critical policies and practices of the Trust and all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management. The Audit Committee shall review the interim financial statements and disclosures under Management's Discussion and Analysis of Financial Condition and Results of Operations with management and the independent auditors prior to the filing of the Trust's Quarterly Report on Form 10-Q. Also, the Audit Committee shall discuss the results of the quarterly review and any other matters required to be communicated to the Audit Committee by the independent auditors under generally accepted auditing standards. The Audit Committee shall review and discuss earnings press releases. The chair of the Audit Committee may represent the entire Audit Committee for the purposes of this review. The Audit Committee shall review with management and the independent auditors the financial statements and disclosures under Management's Discussion and Analysis of Financial Condition and Results of Operations to be included in the Trust's Annual Report on Form 10-K (or the Annual Report to Certificate Holders if distributed prior to the filing of Form 10-K), including their judgment about the quality, not just the acceptability, of accounting principles, the reasonableness of significant judgments and the clarity of the disclosures in the financial statements. Also, the Audit Committee shall discuss the results of the annual audit and any other matters required to be communicated to the Audit Committee by the independent auditors under generally accepted auditing standards. The Audit Committee shall establish procedures for the receipt, retention and treatment of complaints received by the issuer regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters. The Audit Committee shall receive corporate attorneys' reports of evidence of a material violation of securities laws or breaches of fiduciary duty. Exhibit 99(b) - Audit Committee Charter (continued) The Audit Committee shall review management's assertions related to its assessment of the effectiveness of internal controls as of the end of the most recent fiscal year and the independent auditors' report on such assertions. The Audit Committee shall prepare its report to be included in the Trust's Annual Report on Form 10-K (as an exhibit), as required by SEC regulations. The Audit Committee shall perform an evaluation of its performance at least annually to determine whether it is functioning effectively. EX-99.C 9 grnorth030860_ex99c.txt REPORT OF AUDIT COMMITTEE EXHIBIT 99(c) Exhibit 99(c) - Report of Audit Committee GREAT NORTHERN IRON ORE PROPERTIES Report of Audit Committee Year ended December 31, 2002 The Audit Committee oversees the Trust's financial reporting process on behalf of the Board of Trustees. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited financial statements in the Annual Report to Certificate Holders with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The Audit Committee reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States, their judgments as to the quality, not just the acceptability, of the Trust's accounting principles and such other matters as are required to be discussed with the Audit Committee under auditing standards generally accepted in the United States. In addition, the Audit Committee has discussed with the independent auditors the auditors' independence from management and the Trust including the matters in the written disclosures required by the Independence Standards Board. The Audit Committee discussed with the Trust's independent auditors the overall scope and plans for their audit. The Audit Committee met with the independent auditors, with and without management present, to discuss the results of their examination, their evaluation of the Trust's internal controls and the overall quality of the Trust's financial reporting. The Board of Trustees accepted the Audit Committee's reappointment of Ernst & Young LLP as independent auditors to the financial statements of the Trust for the current fiscal year. Fees for the last annual audit were $40,500 and all other fees are estimated to be $3,310. In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Trustees that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2002 for filing with the Securities and Exchange Commission. Exhibit 99(c) - Report of Audit Committee (continued) Respectfully submitted, /s/ Robert A. Stein - ------------------------ Audit Committee Chairman /s/ Roger W. Staehle - ------------------------ Audit Committee Member /s/ John H. Roe, III - ------------------------ Audit Committee Member Dated: February 14, 2003 -----END PRIVACY-ENHANCED MESSAGE-----