gniop112046_10q.htm - Generated by SEC Publisher for SEC Filing

Attorneys’ fees and expenses

Costs of surface lands

Cumulative shipment credits

–2,120,610

Cumulative asset disposition credits

Principal Charges account balance

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 - For the Quarterly Period Ended March 31, 2011

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 - For the Transition Period From ______________ to ______________

Commission file number 1-701

GREAT NORTHERN IRON ORE PROPERTIES

(Exact name of registrant as specified in its charter)

Minnesota	41-0788355
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

W-1290 First National Bank Building 332 Minnesota Street Saint Paul, Minnesota	55101-1361
(Address of principal executive office)	(Zip Code)

(651) 224-2385

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted to its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Act).

Large accelerated filer	o	Accelerated filer	x
Non-accelerated filer	o	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

Number of shares of beneficial interest outstanding on March 31, 2011: 1,500,000

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GREAT NORTHERN IRON ORE PROPERTIES

CONDENSED BALANCE SHEETS

	March 31 2011		December 31 2010
	(Unaudited)		(Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	538,868	$	668,310
United States Treasury securities		3,763,792		5,013,272
Royalties receivable		5,379,160		6,041,224
Prepaid expenses		72,554		4,519
TOTAL CURRENT ASSETS		9,754,374		11,727,325

NONCURRENT ASSETS
United States Treasury securities		4,068,497		3,025,924

PROPERTIES
Mineral and surface lands		39,237,458		39,127,058
Less: Allowances for accumulated depletion and amortization		–36,761,677		–36,614,977
		2,475,781		2,512,081

Building and equipment		313,831		313,831
Less: Allowances for accumulated depreciation		–203,979		–196,069
		109,852		117,762
TOTAL PROPERTIES		2,585,633		2,629,843
TOTAL ASSETS	$	16,408,504	$	17,383,092

LIABILITIES AND BENEFICIARIES’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	144,843	$	111,556
Distributions		3,375,000		5,625,000
TOTAL CURRENT LIABILITIES		3,519,843		5,736,556

NONCURRENT LIABILITIES
Deferred compensation		181,500		181,500
Liability for pension benefits		1,390,793		1,349,314
TOTAL NONCURRENT LIABILITIES		1,572,293		1,530,814
TOTAL LIABILITIES		5,092,136		7,267,370

BENEFICIARIES’ EQUITY, including certificate holders’ equity, represented by 1,500,000 certificates (shares or units) of beneficial interest authorized and outstanding, and the reversionary interest		13,324,221		12,204,529
Accumulated other comprehensive loss		–2,007,853		–2,088,807
TOTAL BENEFICIARIES’ EQUITY		11,316,368		10,115,722
TOTAL LIABILITIES AND BENEFICIARIES’ EQUITY	$	16,408,504	$	17,383,092

Note: The balance sheet at December 31, 2010, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

See notes to condensed financial statements.

-1-

GREAT NORTHERN IRON ORE PROPERTIES

CONDENSED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended March 31
	2011			2010
REVENUES
Royalties	$	5,414,676		$	3,087,858
Interest and other income		34,218			82,322
		5,448,894			3,170,180
Costs and expenses		–954,202			–849,158

NET INCOME	$	4,494,692		$	2,321,022

Weighted-average shares outstanding		1,500,000			1,500,000

BASIC AND DILUTED EARNINGS PER SHARE	$	3.00		$	1.55

Distributions declared per share	$	2.25	(1)	$	2.00	(2)

(1)	$2.25	declared	3/10/2011
		payable	4/29/2011

(2)	$2.00	declared	3/22/2010
		paid	4/30/2010

See notes to condensed financial statements.

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GREAT NORTHERN IRON ORE PROPERTIES

CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

	Three Months Ended March 31
	2011		2010
Cash flows from operating activities:
Cash received from royalties and rents	$	5,986,493	$	3,636,471
Cash paid to suppliers and employees		–711,907		–607,242
Interest and related premium/discount (paid) received		–4,028		39,344
NET CASH PROVIDED BY OPERATING ACTIVITIES		5,270,558		3,068,573

Cash flows from investing activities:
United States Treasury securities purchased		–1,525,000		–500,000
United States Treasury securities matured		1,750,000		1,200,000
NET CASH PROVIDED BY INVESTING ACTIVITIES		225,000		700,000

Cash flows from financing activities:
Distributions paid		–5,625,000		–3,900,000
NET CASH USED IN FINANCING ACTIVITIES		–5,625,000		–3,900,000

Net decrease in cash and cash equivalents		–129,442		–131,427

Cash and cash equivalents at beginning of year		668,310		924,234

CASH AND CASH EQUIVALENTS AT MARCH 31	$	538,868	$	792,807

See notes to condensed financial statements.

-3-

GREAT NORTHERN IRON ORE PROPERTIES

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Periods of Three Months ended March 31, 2011 and March 31, 2010

Note A - BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the periods stated above are not necessarily indicative of the results that may be expected for each respective full year. For further information, refer to the financial statements and footnotes included in the Great Northern Iron Ore Properties (“Trust”) Annual Report on Form 10-K for the year ended December 31, 2010.

Note B – 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. The aggregate fair values listed in the table below are based on quoted prices in active markets for identical assets (Level 1). Securities recognized as current assets will mature within one year of the respective period ending date stated below. Securities recognized as noncurrent assets will mature one to three years from the respective period ending date stated below. Following is an analysis of the securities as of the periods stated:

	Current				Noncurrent
	March 31, 2011		Dec. 31, 2010		March 31, 2011		Dec. 31, 2010
Aggregate fair value	$	3,764,781	$	5,017,250	$	4,045,571	$	3,014,093
Gross unrealized holding gains		–10,178		–13,938		–704		–3,358
Gross unrealized holding losses		—		—		9,026		4,732
Amortized cost basis		3,754,603		5,003,312		4,053,893		3,015,467
Accrued interest		9,189		9,960		14,604		10,457
Amounts shown on balance sheets	$	3,763,792	$	5,013,272	$	4,068,497	$	3,025,924

-4-

Note C – PENSION PLAN

A summary of the components of net periodic pension cost for the three months ended March 31 is as follows:

	2011		2010
Service cost	$	69,912	$	61,606
Interest cost		79,965		79,667
Expected return on assets		–108,398		–96,746
Amortization of net loss		76,587		54,429
Amortization of prior service cost		4,367		4,367
Net periodic pension cost	$	122,433	$	103,323

The Trust had previously disclosed in its Annual Report as of December 31, 2010, that the next contribution to the plan for 2011 is estimated to approximate $600,000, subject to the plan’s annual actuarial valuation performed as of the plan’s fiscal year-end, March 31. No additional updated information is available at this time.

Note D – BENEFICIARIES’ EQUITY

Pursuant to the Court Order of November 29, 1982, the Trustees were directed to create and maintain an account designated as “Principal Charges.” This account constitutes a first and prior lien of certificate holders on any property transferable to the reversioner and reflects an allocation of beneficiaries’ equity between the certificate holders and the reversioner. This account is neither an asset nor a liability of the Trust. Rather, this account maintains and represents a balance which will be payable to the certificate holders of record from the reversioner at the end of the Trust. 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 Agreement and the costs of homes and 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 March 31, 2011:

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.

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Note E – COMPREHENSIVE INCOME

A summary of the components of comprehensive income for the three months ended March 31 is as follows:

	2011		2010
Net income	$	4,494,692	$	2,321,022
Other comprehensive income:
Defined benefit pension plan-
Amortization of net loss		76,587		54,429
Amortization of prior service cost		4,367		4,367
Total other comprehensive income		80,954		58,796
Total comprehensive income	$	4,575,646	$	2,379,818

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Periods of Three Months ended March 31, 2011 and March 31, 2010

The Trust owns interest in 12,033 acres on the Mesabi Iron Range Formation in northeastern Minnesota, most of which are under lease to major iron ore producing companies. Due to the Trustees’ election pursuant to Section 646 of the Tax Reform Act of 1986, as amended, commencing with year 1989 the Trust is not subject to federal and Minnesota corporate income taxes. The Trust is now a grantor trust. Shares of beneficial interest in the Trust are traded on the New York Stock Exchange under the ticker symbol “GNI” (CUSIP No. 391064102).

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 survivor of eighteen persons named in the Trust Agreement. The last survivor of these eighteen persons died on April 6, 1995. Accordingly, the Trust terminates twenty years from April 6, 1995, that being April 6, 2015.

At the end of the Trust on April 6, 2015, the certificates of beneficial interest (shares) in the Trust will cease to trade on the New York Stock Exchange and thereafter will represent only the right to receive certain distributions payable to the certificate holders of record at the time of the termination of the Trust. Upon termination, the Trust is obligated to distribute ratably to these certificate holders the net monies remaining in the hands of the Trustees (after paying and providing for all expenses and obligations of the Trust), plus the balance in the Principal Charges account (this account is explained in the Trust’s Annual Report sent to all certificate holders every year). All other Trust property (most notably the Trust’s mineral properties and the active leases) must be conveyed and transferred to the reversioner (currently Glacier Park Company, a wholly owned subsidiary of ConocoPhillips Company) under the terms of the Trust Agreement.

-6-

We have previously provided information in our various Securities and Exchange Commission filings, including our Annual Report, about the final distribution payable to the certificate holders upon the Trust’s termination. The exact final distribution, though not determinable at this time, will generally consist of the sum of the Trust’s net monies (essentially, total assets less liabilities and properties) and the balance in the Principal Charges account, less any and all expenses and obligations of the Trust upon termination. To offer a hypothetical example, without factoring in any expenses and obligations of the Trust upon its termination, and using the financial statement values as of December 31, 2010, the net monies were approximately $7,486,000 and the Principal Charges account balance was approximately $4,840,000, resulting in a final distribution payable of approximately $12,326,000, or about $8.22 per share. After payment of this final distribution, the certificates of beneficial interest (shares) would be cancelled and have no further value. It is important to note, however, that the actual net monies on hand and the Principal Charges account balance will most likely fluctuate during the ensuing years and will not be “final” until after the termination and wind-down of the Trust. The Trust offers this example to further inform investors about the conceptual nature of the final distribution and does not imply or guarantee a specific known final distribution amount.

Results of Operations:

Royalties increased $2,326,818 during the three months ended March 31, 2011, as compared to the same period in 2010, due mainly to greater taconite shipments from our Trust lands and a higher overall average earned royalty rate caused by escalation of producer price indices.

Interest and other income decreased $48,104 during the three months ended March 31, 2011, as compared to the same period in 2010, due mainly to less gravel revenues received and reduced yields on the Trust’s investments.

Costs and expenses increased $105,044 during the three months ended March 31, 2011, as compared to the same period in 2010, due mainly to increased legal expenditures associated with the execution of a new lease and additional pension expense pertaining to the defined benefit pension plan.

At their meeting held on March 10, 2011, the Trustees declared a distribution of $2.25 per share, amounting to $3,375,000 payable April 29, 2011, to certificate holders of record at the close of business on March 31, 2011. At their meeting held on March 22, 2010, the Trustees declared a distribution of $2.00 per share, amounting to $3,000,000 paid on April 30, 2010, to certificate holders of record at the close of business on March 31, 2010. 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 July 2011 to certificate holders of record on June 30, 2011.

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 a portion of its cost of acquisition of surface lands overlying the leased mineral deposits, which surface lands are then conveyed to the Trustees. There are surface lands yet to be purchased, the costs of which are yet unknown and will not be known until the actual purchases are made.

-7-

Exhibit No.		Document
- 31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002

- 31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002

- 32		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished but not filed)

			GREAT NORTHERN IRON ORE PROPERTIES
			(Registrant)

Date	April 28, 2011	By	/s/ Joseph S. Micallef
			Joseph S. Micallef, President of the Trustees and Chief Executive Officer


Date	April 28, 2011	By	/s/ Thomas A. Janochoski
			Thomas A. Janochoski, Vice President & Secretary and Chief Financial Officer

Exhibit No.		Document
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002

32		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished but not filed)