UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 - For the Quarterly Period Ended June 30, 2012

Or

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

Commission file number 1-701

GREAT NORTHERN IRON ORE PROPERTIES

(Exact name of registrant as specified in its charter)

Minnesota	41-0788355
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)
W-1290 First National Bank Building
332 Minnesota Street
Saint Paul, Minnesota	55101-1361
(Address of principal executive office)	(Zip Code)

(651) 224-2385

(Registrant’s telephone number, including area code)

Not Applicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter 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 ☒    No ☐

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 ☒    No ☐

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	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐

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

Number of shares of beneficial interest outstanding on June 30, 2012: 1,500,000

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

GREAT NORTHERN IRON ORE PROPERTIES

CONDENSED BALANCE SHEETS

	June 30, 2012		December 31, 2011
ASSETS	(Unaudited)		(Note)
CURRENT ASSETS
Cash and cash equivalents	$	628,170	$	750,947
United States Treasury securities		6,982,293		5,108,307
Royalties receivable		7,036,146		7,912,289
Prepaid expenses		51,174		2,110
TOTAL CURRENT ASSETS		14,697,783		13,773,653
NONCURRENT ASSETS
United States Treasury securities		4,842,162		4,759,072
PROPERTIES
Mineral and surface lands		39,479,708		39,479,708
Less: Allowances for accumulated depletion and amortization		-37,549,777		-37,201,777
		1,929,931		2,277,931
Building and equipment		316,816		316,816
Less: Allowances for accumulated depreciation		-229,480		-212,560
		87,336		104,256
TOTAL PROPERTIES		2,017,267		2,382,187
TOTAL ASSETS	$	21,557,212	$	20,914,912
LIABILITIES AND BENEFICIARIES’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	178,268	$	128,856
Distributions		4,500,000		8,625,000
TOTAL CURRENT LIABILITIES		4,678,268		8,753,856
NONCURRENT LIABILITIES
Deferred compensation		209,600		209,600
Liability for pension benefits		1,732,377		1,642,113
TOTAL NONCURRENT LIABILITIES		1,941,977		1,851,713
TOTAL LIABILITIES		6,620,245		10,605,569
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		17,125,034		12,752,340
Accumulated other comprehensive loss		-2,188,067		-2,442,997
TOTAL BENEFICIARIES’ EQUITY		14,936,967		10,309,343
TOTAL LIABILITIES AND BENEFICIARIES’ EQUITY	$	21,557,212	$	20,914,912

Note: The balance sheet at December 31, 2011, 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.

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GREAT NORTHERN IRON ORE PROPERTIES

CONDENSED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended June 30						Six Months Ended June 30
	2012			2011			2012			2011
REVENUES
Royalties	$	7,305,492		$	6,543,197		$	14,305,680		$	11,957,873
Interest and other income		23,354			28,640			53,711			62,858
		7,328,846			6,571,837			14,359,391			12,020,731
Costs and expenses		-1,050,233			-918,969			-2,111,697			-1,873,171
NET INCOME	$	6,278,613		$	5,652,868		$	12,247,694		$	10,147,560
Weighted-average shares outstanding		1,500,000			1,500,000			1,500,000			1,500,000
BASIC & DILUTED EARNINGS PER SHARE	$	4.19		$	3.77		$	8.17		$	6.77
Distributions declared per share	$	3.00	(1)	$	3.00	(2)	$	5.25	(3)	$	5.25	(4)

(1)	$3.00	declared	6/6/2012
		payable	7/31/2012
(2)	$3.00	declared	6/10/2011
		paid	7/29/2011
(3)	$2.25	declared	3/9/2012
		paid	4/30/2012
plus	$3.00	declared	6/6/2012
		payable	7/31/2012
(4)	$2.25	declared	3/10/2011
		paid	4/29/2011
plus	$3.00	declared	6/10/2011
		paid	7/29/2011

See notes to condensed financial statements.

GREAT NORTHERN IRON ORE PROPERTIES

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended June 30				Six Months Ended June 30
	2012		2011		2012		2011
NET INCOME	$	6,278,613	$	5,652,868	$	12,247,694	$	10,147,560
Other comprehensive income:
Defined benefit pension plan:
Amortization of prior service cost     included in net periodic pension cost		4,368		4,368		8,735		8,735
Amortization of net loss     included in net periodic pension cost		123,097		76,587		246,195		153,174
Total other comprehensive income		127,465		80,955		254,930		161,909
TOTAL COMPREHENSIVE INCOME	$	6,406,078	$	5,733,823	$	12,502,624	$	10,309,469

See notes to condensed financial statements.

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GREAT NORTHERN IRON ORE PROPERTIES

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30
	2012		2011
Cash flows from operating activities:
Cash received from royalties and rents	$	15,217,173	$	11,575,918
Cash paid to suppliers and employees		-1,401,235		-1,336,202
Interest and related premium/discount received (paid)		11,285		-2,987
NET CASH PROVIDED BY OPERATING ACTIVITIES		13,827,223		10,236,729
Cash flows from investing activities:
U.S. Treasury securities purchased		-5,000,000		-4,425,000
U.S. Treasury securities matured		3,050,000		3,325,000
NET CASH USED IN INVESTING ACTIVITIES		-1,950,000		-1,100,000
Cash flows from financing activities:
Distributions paid		-12,000,000		-9,000,000
NET CASH USED IN FINANCING ACTIVITIES		-12,000,000		-9,000,000
Net (decrease) increase in cash and cash equivalents		-122,777		136,729
Cash and cash equivalents at beginning of year		750,947		668,310
CASH AND CASH EQUIVALENTS AT JUNE 30	$	628,170	$	805,039

See notes to condensed financial statements.

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GREAT NORTHERN IRON ORE PROPERTIES

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Periods of Three and Six Months ended June 30, 2012 and June 30, 2011

Note 1 – 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, 2011.

Note 2 – 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
	June 30, 2012		Dec. 31, 2011		June 30, 2012		Dec. 31, 2011
Aggregate fair value	$	6,973,582	$	5,094,703	$	4,822,928	$	4,755,809
Gross unrealized holding gains		-7,440		-4,929		-1,299		-12,995
Gross unrealized holding losses		8		857		5,486		1,192
Amortized cost basis		6,966,150		5,090,631		4,827,115		4,744,006
Accrued interest		16,143		17,676		15,047		15,066
Amounts shown on balance sheets	$	6,982,293	$	5,108,307	$	4,842,162	$	4,759,072

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Note 3 – PENSION PLAN

A summary of the components of net periodic pension cost is as follows:

	Three Months Ended June 30				Six Months Ended June 30
	2012		2011		2012		2011
Service cost	$	76,700	$	69,912	$	153,400	$	139,824
Interest cost		80,550		79,965		161,099		159,930
Expected return on assets		-112,118		-108,398		-224,235		-216,796
Amortization of net loss		123,097		76,587		246,195		153,174
Amortization of prior service cost		4,368		4,368		8,735		8,735
Net periodic pension cost	$	172,597	$	122,434	$	345,194	$	244,867

The plan’s annual actuarial valuation was performed as of the plan’s fiscal year-end March 31. The actuarially recommended contribution to the pension plan for 2012 is $799,918, which contribution is scheduled to be made in August 2012.

Note 4 – 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 U.S. 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 June 30, 2012:

Attorneys’ fees and expenses	$	1,024,834
Costs of surface lands		6,606,815
Cumulative shipment credits		-2,347,600
Cumulative asset disposition credits		-372,124
Principal Charges account balance	$	4,911,925

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

Periods of Three and Six Months ended June 30, 2012 and June 30, 2011

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.

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, 2011, the net monies were approximately $7,927,000 and the Principal Charges account balance was approximately $4,962,000, resulting in a final distribution payable of approximately $12,889,000, or about $8.59 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.

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Results of Operations:

Royalties increased $2,347,807 and $762,295 during the six months and three months ended June 30, 2012, respectively, as compared to the same periods in 2011, due mainly to greater taconite production from Trust lands and a higher overall average earned royalty rate caused by escalation of producer price indices.

Interest and other income decreased $9,147 and $5,286 during the six months and three months ended June 30, 2012, respectively, as compared to the same periods in 2011, due mainly to reduced yields on the Trust’s investments.

Costs and expenses increased $238,526 and $131,264 during the six months and three months ended June 30, 2012, respectively, as compared to the same periods in 2011, due mainly to higher pension expense pertaining to the defined benefit pension plan primarily caused by a reduction in the discount rate and additional amortization of surface lands that were acquired in prior years.

At their meeting held on June 6, 2012, the Trustees declared a distribution of $3.00 per share, amounting to $4,500,000 payable July 31, 2012, to certificate holders of record at the close of business on June 29, 2012. The Trustees have now declared two quarterly distributions in 2012. The first, in the amount of $2.25 per share, was paid on April 30, 2012, to certificate holders of record on March 30, 2012; and the second, that being the current distribution. The first and second quarter 2011 distributions were $2.25 and $3.00 per share, respectively. The Trustees intend to continue quarterly distributions and set the record date as of the last business day of each quarter. The next distribution will be paid in late October 2012 to certificate holders of record on September 28, 2012.

A mining agreement dated January 1, 1959, with U.S. Steel Corporation provides that one-half of annual earned royalty income, after satisfaction of minimum royalty payments, shall be applied, in lieu of royalty payments, 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.

Liquidity:

In the interest of preservation of principal of Court-approved reserves and guided by the restrictive provisions of Section 646 of the Tax Reform Act of 1986, as amended, monies are invested primarily in U.S. Treasury securities with maturity dates not to exceed three years and, along with cash flows from operations, are deemed adequate to meet currently foreseeable liquidity needs.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

- None

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Item 4.    Controls and Procedures

As of the end of the period covered by this report, the Trust conducted an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the Trust’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Trust’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Trust in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. There was no change in the Trust’s internal control over financial reporting during the Trust’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Trust’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

On May 22, 2012, a Ramsey County District Court Judge presided over a hearing for the Trust of Great Northern Iron Ore Properties, the purpose of which was to review and approve the accounts of the Trustees for the calendar year 2011, and also for the purpose of considering requested fee increases in the compensation of the Trustees of Great Northern Iron Ore Properties. By Court Order dated May 22, 2012, the Court approved of the accounts of the Trustees for the calendar year 2011 and, further, granted the requested fee increases in Trustee compensation, all effective as of January 1, 2012. Said increases amounted to $20,000 per year to the President of the Trustees’ base salary, $20,000 per year to the potential bonus of the President (subject to the bonus formula calculation), $10,000 per year to each of the other Trustees other than the President and an additional $5,000 per year to the Trustee serving in the role of Audit Committee Chair.

Item 1A.  Risk Factors

There are no material changes from the risk factors previously disclosed in the Trust’s December 31, 2011 Annual Report on Form 10-K.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

- None

Item 3.    Defaults Upon Senior Securities

- None

Item 4.    Mine Safety Disclosures

- Not applicable

Item 5.    Other Information

- None

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Item 6.    Exhibits

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)
- 101.INS	XBRL Instance Document (Interactive Data File)
- 101.SCH	XBRL Taxonomy Extension Schema Document (Interactive Data File)
- 101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document (Interactive Data File)
- 101.DEF	XBRL Taxonomy Extension Definition Linkbase Document (Interactive Data File)
- 101.LAB	XBRL Taxonomy Extension Label Linkbase Document (Interactive Data File)
- 101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document (Interactive Data File)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			GREAT NORTHERN IRON ORE PROPERTIES
			(Registrant)
Date	July 20, 2012	By	/s/  Joseph S. Micallef
			Joseph S. Micallef, Chief Executive Officer, Trustee and President of the Trustees
			(principal executive officer)
Date	July 20, 2012	By	/s/  Thomas A. Janochoski
			Thomas A. Janochoski, Chief Financial Officer Vice President & Secretary
			(principal financial and accounting officer)

-10-

QUARTERLY REPORT ON FORM 10-Q

EXHIBIT INDEX

QUARTER ENDED:    JUNE 30, 2012

GREAT NORTHERN IRON ORE PROPERTIES

W-1290 First National Bank Building

332 Minnesota Street

Saint Paul, Minnesota 55101-1361

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)
101.INS	XBRL Instance Document (Interactive Data File)
101.SCH	XBRL Taxonomy Extension Schema Document (Interactive Data File)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document (Interactive Data File)
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document (Interactive Data File)
101.LAB	XBRL Taxonomy Extension Label Linkbase Document (Interactive Data File)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document (Interactive Data File)