-----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, NbEXssk4nA4PBNtLgwdQVred6CeRCXdnELd29wbS30PvSAUfQi3kfHTCearkaJtw sZhRZGtgRShwFKAGgZTX7g== 0000897101-97-000272.txt : 19970317 0000897101-97-000272.hdr.sgml : 19970317 ACCESSION NUMBER: 0000897101-97-000272 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970314 SROS: NYSE 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-00701 FILM NUMBER: 97556531 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-K405 1 ANNUAL REPORT ON FORM 10-K GREAT NORTHERN IRON ORE PROPERTIES DECEMBER 31, 1996 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, 1996 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 612 / 224-2385 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Which Title of Each Class 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__ The aggregate market value of the voting stock held by non-affiliates of the Registrant as of January 31, 1997 - None 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, 1996 are incorporated by reference into Part II. PART I Item 1. BUSINESS The Registrant ("Trust") owns in fee, mineral and non-mineral lands on the Mesabi Iron Range of Minnesota. 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 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 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 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, 7,112 acres are under lease and 4,921 acres are unleased. Registrant cannot estimate at this time any tonnages for nonmagnetic taconite because of lack of drilling, testing and of any established 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, 1997 was equivalent to 403,300,000 tons of pellets. Present leases provide for minimum payments (advance royalties) aggregating approximately $1,688,000 for the year 1997 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. Firm data on competitive conditions in the iron ore industry are 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, advance royalties collected and liquidation of advance royalties collected. Following is a summary of shipments by lessee during 1996, 1995 and 1994: TONS SHIPPED ------------------------------------------- 1996 1995 1994 ------------------------------------------- United States Steel Corporation (USX) 2,739,614 1,637,165 1,118,136 Hibbing Taconite Company 1,890,509 3,381,057 2,953,027 National Steel Corporation 1,349,404 979,125 115,581 LTV Steel Mining Company - - 22,807 ------------------------------------------- 5,979,527 5,997,347 4,209,551 =========================================== At December 31, 1996, 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. The Trustees provided annual tax information in January 1997 to certificate holders of record with holdings on any of the four quarterly record dates during 1996. This information included a: Substitute Form 1099-MISC - This form reported one's 1996 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 1996. Tax Return Guide - This guide instructed the certificate holder as to the preparation of their income tax returns with respect to income allocated from the Trust and various deductions allowable. The following is a listing of the Registrant's current leases:
LESSEE NUMBER OF GNIOP TERMINATION LEASE LEASED 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. Stevenson, Sect. 18 mines) 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 1,397 50 St. Louis and Itasca 7/1/1978 to 12/31/2016 1 year Ontario 360 100 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
Item 2. PROPERTIES The Registrant owns in fee, mineral and nonmineral lands on the Mesabi Iron Range of Minnesota, most of which are leased to mining companies who extract taconite. Taconite deposits are substantial. 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 March 22, 1996, certificate holders of record as of March 6, 1996 and the reversioner were notified of a hearing on April 16, 1996 in Ramsey County Courthouse, Saint Paul, Minnesota, for the purpose of settling and allowing the Trust accounts for the year 1995. By Court Order signed and dated April 16, 1996, the said 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. 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 pages 3 and 4 of the annual report to certificate holders for the year ended December 31, 1996 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, 1996 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, 1996 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, 1996, are incorporated herein by reference: Balance Sheets--December 31, 1996 and 1995. Statements of Income--Years ended December 31, 1996, 1995 and 1994. Statements of Beneficiaries' Equity--Years ended December 31, 1996, 1995 and 1994. Statements of Cash Flows--Years ended December 31, 1996, 1995 and 1994. Notes to Financial Statements--December 31, 1996. Quarterly Results of Operations on page 4 of the annual report to certificate holders for the year ended December 31, 1996 are incorporated herein by reference. Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 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 ---------------------------------------------------------------------- Harry L. Holtz President of the Trustees 78 25 years Joseph S. Micallef Trustee 63 20 Roger W. Staehle Trustee 63 15 Robert A. Stein Trustee 58 15 Thomas A. Janochoski Vice President and Secretary 38 5 Principal occupations of Trustees and officers during the last five years: HARRY L. HOLTZ President and Chief Executive Officer, Great Northern Iron Ore Properties. JOSEPH S. MICALLEF Consultant and Director, Fiduciary Counselling, Inc., St. Paul, Minnesota; Advisory Director, First Trust National Association until February 27, 1996; President and Chief Executive Officer, Fiduciary Counselling, Inc., St. Paul, Minnesota until December 31, 1995. 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; Dean of the Law School, University of Minnesota until December 31, 1994. THOMAS A. JANOCHOSKI Vice President and Secretary, Chief Financial Officer, Great Northern Iron Ore Properties. 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 ANNUAL COMPENSATION ----------------------------- NAME AND PRINCIPAL POSITION YEAR SALARY BONUS -------------------------------------------------------------------- Harry L. Holtz, CEO and President of the Trustees 1996 $80,000 $35,000 1995 80,000 35,000 1994 80,000 25,746 The Trust Agreement (as modified by Court Orders) currently provides for annual compensation to the President of the Trustees of $80,000 and, in addition, a sum equal to one percent of the excess of the gross income of the Trust over $5,000,000 for that year until his annual compensation shall reach $115,000. No other executive's compensation exceeds $100,000. The Trustees, including the President, are not eligible to receive retirement benefits based on their services as Trustees. There are no options, SARs, long-term performance-based incentive plans or retirement benefits applicable to the CEO or the Trustees and, accordingly, disclosure tables with respect to such benefits have been omitted. COMPENSATION OF TRUSTEES The Trust Agreement (as modified by Court Orders) currently provides for annual compensation to each Trustee (other than the President) of $30,000, without any additional amounts payable for committee participation or special assignments. There are no other arrangements pursuant to which any Trustee was compensated for any services provided as a Trustee during the year. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Because the compensation of the Trustees and the Chief Executive Officer is established by the Trust Agreement (as modified by Court Orders), there is no compensation committee of the Trustees and there is no Trustee compensation committee report on executive compensation. The Board of Trustees, as a whole, determines the compensation of executive officers other than the President and Chief Executive Officer. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) The only authorized securities of the Registrant are Trustees' Certificates of Beneficial Interest and the holders of these securities do not have voting rights. Entities holding more than 5% of the Certificates of Beneficial Interest outstanding, of record and/or beneficially, include: NAME SECURITIES HELD % OF CLASS ------------------------------------------------------------- First Bank System, Inc. 77,816 5.19% (b) There were no securities owned by the Trustees or officers as of December 31, 1996. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2)--The response to this portion of Item 14 is submitted as a separate section of this report. (3) Listing of Exhibits: Exhibit 13--Annual Report to Certificate Holders Exhibit 23--Consent of Independent Auditors Exhibit 27--Financial Data Schedule (only filed electronically via EDGAR) Exhibit 99--Tax Return Guide (b) Report on Form 8-K--None. (c) Exhibits--The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules--The response to this portion of Item 14 is submitted as a separate section of this report. 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/ Harry L. Holtz February 17, 1997 ---------------------------------------- ----------------- Harry L. Holtz, 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/ Joseph S. Micallef February 17, 1997 ---------------------------------------- ----------------- Joseph S. Micallef, Trustee Date /s/ Roger W. Staehle February 17, 1997 ---------------------------------------- ----------------- Roger W. Staehle, Trustee Date /s/ Robert A. Stein February 17, 1997 ---------------------------------------- ----------------- Robert A. Stein, Trustee Date /s/ Thomas A. Janochoski February 17, 1997 ---------------------------------------- ----------------- Thomas A. Janochoski, Date Vice President and Secretary, Chief Financial Officer ANNUAL REPORT ON FORM 10-K ITEM 14(a)(1) and (2) and ITEM 14(d) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENT SCHEDULES YEAR ENDED DECEMBER 31, 1996 GREAT NORTHERN IRON ORE PROPERTIES W-1290 First National Bank Building 332 Minnesota Street Saint Paul, Minnesota 55101-1361 FORM 10-K--Item 14(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 annual report of the Registrant to its certificate holders for the year ended December 31, 1996, are incorporated by reference in Item 8: Balance Sheets--December 31, 1996 and 1995 Statements of Beneficiaries' Equity--Years ended December 31, 1996, 1995 and 1994 Statements of Income--Years ended December 31, 1996, 1995 and 1994 Statements of Cash Flows--Years ended December 31, 1996, l995 and l994 Notes to Financial Statements--December 31, l996 All Item 14(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. EX-13 2 ANNUAL REPORT TO SECURITY HOLDERS GREAT NORTHERN IRON ORE PROPERTIES NINETIETH ANNUAL REPORT OF THE TRUSTEES TO CERTIFICATE HOLDERS FOR YEAR ENDED DECEMBER 31, 1996 GREAT NORTHERN IRON ORE PROPERTIES W-1290 First National Bank Building 332 Minnesota Street Saint Paul, Minnesota 55101-1361 (612) 224-2385 Fax (612) 224-2387 TRUSTEES OFFICERS Harry L. Holtz Harry L. Holtz President of the Trustees Chief Executive Officer Joseph S. Micallef* Thomas A. Janochoski Consultant and Director Vice President and Secretary Fiduciary Counselling, Inc. Chief Financial Officer Roger W. Staehle* Roger P. Johnson Adjunct Professor Manager of Mines University of Minnesota Chief Engineer Robert A. Stein* Executive Director American Bar Association *Audit Committee SHAREHOLDER RELATIONS DEPARTMENT, TRANSFER OFFICE AND REGISTRAR Norwest 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 ---------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Shipments from our mines (tons) .............................. 5,979,527 5,997,347 4,209,551 4,140,260 5,721,426 Royalty income ............................................... $ 9,978,603 $ 9,160,966 $ 7,113,730 $ 6,467,389 $ 9,295,830 Other income ................................................. 551,597 495,338 460,891 398,810 530,143 Net income ................................................... 8,988,486 8,149,287 6,203,645 5,485,051 8,380,697 Total assets ................................................. 17,066,649 16,335,426 15,304,722 14,489,943 15,373,081 Average shares outstanding ................................... 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 Net income per share, based on average shares outstanding during year ................................................. $5.99 $5.43 $4.14 $3.66 $5.59 Declared distributions per share ............................. $5.80(1) $5.00(2) $4.00(3) $3.65(4) $5.75(5)
------------------------------ (1) $1.35 pd 4/30/96; $1.15 pd 7/31/96; $1.60 pd 10/31/96; $1.70 pd 1/31/97 (2) $1.15 pd 4/28/95; $1.15 pd 7/31/95; $1.30 pd 10/31/95; $1.40 pd 1/31/96 (3) $ .80 pd 4/29/94; $ .90 pd 7/29/94; $1.15 pd 10/31/94; $1.15 pd 1/31/95 (4) $1.10 pd 4/30/93; $1.10 pd 7/30/93; $ .70 pd 10/29/93; $ .75 pd 1/31/94 (5) $1.55 pd 4/30/92; $1.45 pd 7/31/92; $1.40 pd 10/30/92; $1.35 pd 1/29/93 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations: "Royalty income" for 1996 was greater than that of 1995 primarily due to a higher average earned royalty rate attained. "Royalty income" for 1995 was greater than that of 1994 primarily due to overall improved taconite production. "Other income" for 1996 exceeded that of 1995, which also exceeded that of 1994, due mainly to increased interest income resulting from continually improved yields on our funds available for investment. 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 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. 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 1996, the major source of income to the Trust was royalty derived from taconite production and minimum royalties. Accumulated advance royalties received and taken into income on ore not yet mined amounted to $918,962 on December 31, 1996. These advance royalties collected involve no liabilities on the part of the Trust except to permit the mining of the ore from leases on which the advance royalties have been paid. Continued good taconite production and an overall higher average earned royalty rate attained in 1996 resulted in another favorable year for the Trust. All of the Trust's primary lessees continued to operate at or near capacity during the year. A Summary of Shipments is tabulated on the last page of this report. The Trustees declared four quarterly distributions in 1996 totaling $5.80 per share. The first, in the amount of $1.35 per share, was paid on April 30, 1996, to certificate holders of record on March 29, 1996; the second, in the amount of $1.15 per share, was paid on July 31, 1996, to certificate holders of record on June 28, 1996; the third, in the amount of $1.60 per share, was paid on October 31, 1996, to certificate holders of record on September 30, 1996; and the fourth, in the amount of $1.70 per share, was paid on January 31, 1997, to certificate holders of record on December 31, 1996. The Trustees declared four quarterly distributions in 1995 totaling $5.00 per share. The first, in the amount of $1.15 per share, was paid on April 28, 1995, to certificate holders of record on March 31, 1995; the second, in the amount of $1.15 per share, was paid on July 31, 1995, to certificate holders of record on June 30, 1995; the third, in the amount of $1.30 per share, was paid on October 31, 1995, to certificate holders of record on September 29, 1995; and the fourth, in the amount of $1.40 per share, was paid on January 31, 1996, to certificate holders of record on December 29, 1995. Earnings exceeded distributions in 1995 due mainly to significant nondistributable surface land purchases required during the year. See Notes C and D. 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 1997 to certificate holders of record on March 31, 1997. 3 Shares of beneficial interest in the Trust are traded on the New York Stock Exchange under the ticker symbol "GNI." There were 2,842 certificate holders of record on December 31, 1996. The high and low prices for the quarterly periods commencing January 1, 1995 through December 31, 1996 were as follows: 1996 1995 ------------------ ------------------ QUARTER HIGH LOW HIGH LOW - ------- ------- ------- ------- ------- First $49-5/8 $44 $45-1/2 $41-1/2 Second 51 46-5/8 44-1/2 39-7/8 Third 51-1/2 46 49-1/4 42-1/4 Fourth 55-1/2 47 48-1/2 44-1/2 The following is a summary of quarterly results of operations (unaudited) for the years ended December 31, 1996 and 1995 (in thousands of dollars, except per share amounts): QUARTER ENDED ------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 -------- ------- -------- ------- 1996 Royalty income ............ $2,477 $1,543 $3,159 $2,800 Interest and other income . 135 144 133 139 ------ ------ ------ ------ Gross income .............. 2,612 1,687 3,292 2,939 Expenses .................. 438 360 374 370 ------ ------ ------ ------ Net income ................ $2,174 $1,327 $2,918 $2,569 ====== ====== ====== ====== Net income per share ...... $1.45 $ .88 $1.95 $1.71 ===== ===== ===== ===== 1995 Royalty income ............ $1,935 $2,264 $2,647 $2,315 Interest and other income . 132 111 122 130 ------ ------ ------ ------ Gross income .............. 2,067 2,375 2,769 2,445 Expenses .................. 384 384 362 377 ------ ------ ------ ------ Net income ................ $1,683 $1,991 $2,407 $2,068 ====== ====== ====== ====== Net income per share ...... $1.12 $1.33 $1.60 $1.38 ===== ===== ===== ===== The terms of the Great Northern Iron Ore Properties Trust Agreement, created December 7, 1906, state that the Trust shall continue for twenty years after the death of the last surviving of eighteen named in the Trust Agreement. The last survivor of these eighteen named in the Trust Agreement died April 6, 1995. According to the terms of the Trust Agreement, the Trust now terminates twenty (20) years from April 6, 1995. At that time, all monies remaining in the hands of the Trustees (after paying and providing for all expenses and obligations of the Trust) shall be distributed ratably among the certificate holders, while all property other than monies shall be conveyed and transferred to the reversioner. 4 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. 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 1997 to all "record date" certificate holders shown on our stock transfer agent's records during 1996. 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 for any recent year. Respectfully submitted, Harry L. Holtz Roger W. Staehle Joseph S. Micallef Robert A. Stein Saint Paul, Minnesota March 14, 1997 5 GREAT NORTHERN IRON ORE PROPERTIES STATEMENTS OF INCOME YEAR ENDED DECEMBER 31 ---------------------------------- 1996 1995 1994 ---- ---- ---- INCOME Royalties .................... $ 9,978,603 $ 9,160,966 $ 7,113,730 Interest earned .............. 527,456 455,939 383,967 Rent and other ............... 24,141 39,399 76,924 ----------- ----------- ----------- 10,530,200 9,656,304 7,574,621 EXPENSES Royalties .................... 4,623 4,623 4,623 Real estate and payroll taxes ....................... 129,977 135,363 127,482 Inspection and care of property .................... 384,362 387,140 355,043 Administrative and general ... 853,126 847,187 768,039 Provision for depreciation and amortization ................ 169,626 132,704 115,789 ----------- ----------- ----------- 1,541,714 1,507,017 1,370,976 ----------- ----------- ----------- NET INCOME ..................... $ 8,988,486 $ 8,149,287 $ 6,203,645 =========== =========== =========== NET INCOME PER SHARE ........... $ 5.99 $ 5.43 $ 4.14 =========== =========== =========== STATEMENTS OF BENEFICIARIES' EQUITY YEAR ENDED DECEMBER 31 ------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Balance at beginning of year ......... $14,042,907 $13,393,620 $13,189,975 Net income for the year .............. 8,988,486 8,149,287 6,203,645 ----------- ----------- ----------- 23,031,393 21,542,907 19,393,620 Deduct declaration of distributions on shares of beneficial interest, per share: 1996 - $5.80; 1995 - $5.00; 1994 - $4.00 ........................ 8,700,000 7,500,000 6,000,000 ----------- ----------- ----------- Balance at end of year ............... $14,331,393 $14,042,907 $13,393,620 =========== =========== =========== See accompanying notes. 6 GREAT NORTHERN IRON ORE PROPERTIES BALANCE SHEETS ASSETS DECEMBER 31 ------------------------ 1996 1995 ----------- ----------- CURRENT ASSETS Cash and cash equivalents ....................... $ 448,008 $ 262,525 United States Treasury securities (NOTE B) ...... 3,394,514 4,603,942 Royalties receivable ............................ 2,649,880 2,314,340 Prepaid expenses ................................ 3,180 4,394 ----------- ----------- TOTAL CURRENT ASSETS .............................. 6,495,582 7,185,201 NONCURRENT ASSETS United States Treasury Notes (NOTE B) ........... 5,124,451 3,773,396 Prepaid pension expense (NOTE E) ................ 254,726 255,317 ----------- ----------- 5,379,177 4,028,713 PROPERTIES Mineral lands (NOTES B AND C) ................... 37,838,536 37,625,536 Less allowances for depletion and amortization .. 32,737,201 32,587,321 ----------- ----------- 5,101,335 5,038,215 Building and equipment - at cost, less allowances for accumulated depreciation (1996 - $127,730; 1995 - $128,734) ............. 90,555 83,297 ----------- ----------- 5,191,890 5,121,512 ----------- ----------- $17,066,649 $16,335,426 =========== =========== LIABILITIES AND BENEFICIARIES' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses ........... $ 105,256 $ 112,519 Distributions ................................... 2,630,000 2,180,000 ----------- ----------- TOTAL CURRENT LIABILITIES ......................... 2,735,256 2,292,519 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) ........ 14,331,393 14,042,907 ----------- ----------- $17,066,649 $16,335,426 =========== =========== See accompanying notes. 7
GREAT NORTHERN IRON ORE PROPERTIES STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31 --------------------------------------- 1996 1995 1994 ----------- ----------- ----------- OPERATING ACTIVITIES Cash received from royalties and rents .. $ 9,454,204 $ 8,280,147 $ 6,574,142 Cash paid to suppliers and employees .... (1,377,546) (1,357,293) (1,270,552) Interest received ....................... 573,954 471,125 380,860 ----------- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES ................. 8,650,612 7,393,979 5,684,450 INVESTING ACTIVITIES U.S. Treasury securities purchased ...... (4,699,297) (3,025,000) (5,943,604) U.S. Treasury securities matured ........ 4,511,172 2,950,000 5,627,745 Net expenditures for building and equipment .......................... (27,004) (33,316) (41,736) ----------- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES . (215,129) (108,316) (357,595) FINANCING ACTIVITIES Distributions paid ...................... (8,250,000) (7,135,000) (5,407,000) ----------- ----------- ----------- NET CASH USED IN FINANCING ACTIVITIES . (8,250,000) (7,135,000) (5,407,000) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................... 185,483 150,663 (80,145) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ..................... 262,525 111,862 192,007 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR ........................... $ 448,008 $ 262,525 $ 111,862 =========== =========== =========== RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Net income .............................. $ 8,988,486 $ 8,149,287 $ 6,203,645 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ......... 169,626 132,704 115,789 Net (increase) decrease in assets: Accrued interest .................... 46,498 15,186 (3,107) Royalties receivable ................ (335,540) (361,718) (503,012) Prepaid expenses .................... 1,805 603 (33,499) Surface lands ....................... (213,000) (558,500) (113,500) Net increase (decrease) in liabilities: Accrued liabilities ................. (7,263) 16,417 18,134 ----------- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES .............. $ 8,650,612 $ 7,393,979 $ 5,684,450 =========== =========== ===========
See accompanying notes. 8 GREAT NORTHERN IRON ORE PROPERTIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE A - BUSINESS AND TERMINATION OF THE TRUST AND LEGAL PROCEEDINGS The 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 significant operating lessees was as follows: 1996 - $4,713,000, $3,454,000 and $1,759,000; 1995 - $5,279,000, $2,862,000 and $968,000; and 1994 - $4,949,000 and $1,840,000. The Trust Agreement, dated December 7, 1906, provides that upon expiration of twenty years next following the death of the last survivor of the persons by whose lives the term of the Trust is determined, unless sooner terminated, 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 Lake Superior Company, Limited (reversionary beneficiary), or its successors or assigns (Glacier Park Company, a wholly owned subsidiary of Burlington Resources, Inc.). The last survivor of the persons named in the Trust Agreement died April 6, 1995. According to the terms of the Trust Agreement, the Trust now terminates twenty (20) years from April 6, 1995. 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 March 22, 1996, certificate holders of record as of March 6, 1996 and the reversioner were notified of a hearing on April 16, 1996 in Ramsey County Courthouse, Saint Paul, Minnesota, for the purpose of settling and allowing the Trust accounts for the year 1995. By Court Order signed and dated April 16, 1996, the said accounts were settled and allowed in all respects. By 9 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 1997 to certificate holders of record with holdings on any of the four quarterly record dates during 1996. This information included a: SUBSTITUTE FORM 1099 - MISC - This form reported one's 1996 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 1996. TAX RETURN GUIDE - This guide instructed the certificate holder as to the preparation of their income tax returns with respect to income allocated from the Trust and various deductions allowable. 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 amortization of premium and accrued interest. Securities listed as noncurrent assets will mature in 1998 and 1999. Following is an analysis of the securities as of December 31: 10 CURRENT NONCURRENT ------------------------- ------------------------- 1996 1995 1996 1995 ----------- ----------- ----------- ----------- Aggregate fair value .......... $ 3,332,883 $ 4,548,742 $ 5,061,750 $ 3,755,554 Gross unrealized holding gains .. (2,628) (22,367) (11,123) (51,809) Gross unrealized holding losses.. 4,124 5,645 8,281 -- ----------- ----------- ----------- ----------- Amortized cost basis .......... 3,334,379 4,532,020 5,058,908 3,703,745 Accrued interest 60,135 71,922 65,543 69,651 ----------- ----------- ----------- ----------- $ 3,394,514 $ 4,603,942 $ 5,124,451 $ 3,773,396 =========== =========== =========== =========== 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 $149,880, $117,669 and $102,684 for the years 1996, 1995 and 1994, respectively (see Note C). ROYALTY INCOME: Royalties from mineral leases are taken into income as earned. Accumulated advance royalties received and taken into income on ore not yet mined amounted to $918,962 on December 31, 1996 and $600,027 on December 31, 1995. The advance royalties collected involve no liabilities on the part of the Trust except to permit the mining of the ore from leases on which the advance royalties have been paid. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from the estimates. NET INCOME PER SHARE: Net income per share is determined by dividing net income for the year by the 1,500,000 shares of beneficial interest outstanding. 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. 11 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 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: 1996 1995 ----------- ----------- Attorneys' fees and expenses $ 1,024,834 $ 1,024,834 Cost of surface lands ...... 4,964,794 4,751,794 Shipment credits (cumulative) .............. (470,811) (395,159) Asset disposition credits .. (18,500) (18,500) ----------- ----------- Principal Charges account .. $ 5,500,317 $ 5,362,969 =========== =========== 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. 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 pension benefit under the plan is based on an employee's years of service, compensation and the type of benefit payment option selected. Plan assets, as managed by the pension plan trustee, are comprised mostly of fixed income and common stock investments. The Trust's funding policy is to make annual contributions of not less than the minimum required by Internal Revenue Service regulations. 12 A summary of the components of net periodic pension cost (benefit), a noncash item, for 1996, 1995 and 1994 is as follows: 1996 1995 1994 --------- --------- --------- Service cost - benefits earned during the year ................. $ 63,717 $ 41,691 $ 47,488 Interest cost on projected benefit obligation ...................... 195,071 182,570 163,112 Actual return on plan assets ..... (350,351) (702,080) 38,791 Net amortization and deferral .... 92,154 484,929 (279,749) --------- --------- --------- Net pension cost (benefit) ....... $ 591 $ 7,110 $ (30,358) ========= ========= ========= Assumptions used in accounting for the defined benefit plan were: 1996 1995 ---- ---- Weighted average discount rate .. 7.50% 7.00% Rate of increase in compensation levels ......................... 3.50% 3.50% The expected long-term rate of return on assets was 8.00% in each of the three years presented. The following table sets forth the plan's funded status and amounts recognized in the balance sheets at December 31: 1996 1995 ----------- ----------- Actuarial present value of benefit obligations: Vested benefit obligation ................. $ 2,313,406 $ 2,646,090 Nonvested benefit obligation .............. 11,196 12,348 ----------- ----------- Accumulated benefit obligation ............ 2,324,602 2,658,438 Effect of estimated future salary increases 245,508 226,951 ----------- ----------- Projected benefit obligation .............. 2,570,110 2,885,389 Plan assets at fair value .................. 3,249,027 3,093,404 ----------- ----------- Plan assets in excess of projected benefit obligation ................................ 678,917 208,015 Unrecognized net (gain) loss ............... (375,487) 114,624 Prior service cost ......................... 179,909 207,015 Remaining net obligation at transition ..... (228,613) (274,337) ----------- ----------- Net pension asset in balance sheet ......... $ 254,726 $ 255,317 =========== =========== 13 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 $42,156, $52,962 and $51,416 for the years 1996, 1995 and 1994, respectively. 14 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Trustees Great Northern Iron Ore Properties We have audited the accompanying balance sheets of Great Northern Iron Ore Properties as of December 31, 1996 and 1995, and the related statements of income, beneficiaries' equity and cash flows for each of the three years in the period ended December 31, 1996. 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 generally accepted auditing standards. 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, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota January 31, 1997 15 GREAT NORTHERN IRON ORE PROPERTIES SUMMARY OF SHIPMENTS
FULL TONS SHIPPED --------------------------------------------- TOTAL TO OWNERSHIP JANUARY 1, NO. MINE INTEREST 1996 1995 1994 1997 --- ---- -------- ---- ---- ---- ---- 1 Mahoning .................... 100% 785,911 945,130 819,159 143,557,579 2 Ontario ..................... do. 757,554 809,320 925,832 8,242,758 3 Ontario ..................... 50% 347,044 1,626,607 1,208,036 14,919,364 4 Section 18 .................. 100% 492 40,073 -- 27,898,431 5 South Stevenson ............. do. 497,647 241,961 -- 5,317,268 6 Stevenson ................... do. 525,754 104,648 311 35,061,066 7 Russell Annex ............... 50% 325,511 592,443 115,270 1,160,985 8 Wentworth ................... 100% -- -- 22,807 5,854,394 9 Minntac ..................... do. 2,739,614 1,637,165 1,118,136 22,266,616 --------- --------- --------- ----------- 5,979,527 5,997,347 4,209,551 264,278,461 Shipments from inactive mines and those exhausted, surrendered or sold prior to this year -- -- -- 318,137,777 --------- --------- --------- ----------- TOTAL .................... 5,979,527 5,997,347 4,209,551 582,416,238 ========= ========= ========= ===========
NO. OPERATING INTEREST --- ------------------ 1-3 Hibbing Taconite Company 4-7 National Steel Corporation 8 LTV Steel Mining Company 9 United States Steel Corporation (USX) 16 GREAT NORTHERN IRON ORE PROPERTIES FIRST CLASS W-1290 FIRST NATIONAL BANK BUILDING U.S. POSTAGE 332 MINNESOTA STREET PAID SAINT PAUL, MINNESOTA 55101-1361 PERMIT #43 MINNEAPOLIS, MN FIRST CLASS MAIL EX-23 3 CONSENTS OF EXPERTS AND COUNSEL 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, 1997, included in the 1996 Annual Report to Certificate Holders of Great Northern Iron Ore Properties. /s/ Ernst & Young LLP Minneapolis, Minnesota January 31, 1997 EX-99 4 TAX RETURN GUIDE GREAT NORTHERN IRON ORE PROPERTIES W-1290 First National Bank Building 332 Minnesota Street Saint Paul, MN 55101-1361 (612) 224-2385 FAX (612) 224-2387 1996 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 1996, 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/ Harry L. Holtz - ------------------------------ President of the Trustees January 1997 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 Minnesota 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 Form 1099-MISC or Form 1042S Schedule for Individual Foreign Investors - Form 1042S S-F Schedule for Individual Domestic Investors - 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. 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 U.S. 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 Reported on (if applicable) -------- ---- --------------------------- 12/95 1/96 1995 Form 1099-MISC 3/96 4/96 1996 Form 1099-MISC 6/96 7/96 1996 Form 1099-MISC 9/96 10/96 1996 Form 1099-MISC 12/96 1/97 1996 Form 1099-MISC - -------------------------------------------------------------------------------- page 4 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 as nontaxable distributions on Schedule B, Part II of Form 1040 (Individuals) and 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. 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). 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 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 4224 "Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or Business in the United States" (or a substitute statement containing the information required by 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 4224 (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 calculation. Trust Income and Allocation The Trust determines and reports its taxable income on a calendar 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 which 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 which 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 to 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 expected life of the Trust. Certificate amortization 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 Minnesota 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. 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 $6,550 (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 "Minnesota Adjustment" lines 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. 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 which 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 Form 1099- MISC or Form 1042S for calendar year taxpayers. page 9 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 certificate amortization 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 U.S. trade or business. As this determination is dependent upon your specific activities in the U.S., 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 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 Form 1099-MISC (which was sent to the Internal Revenue Service and the Minnesota Department of Revenue). Individual foreign investors 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 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 U.S. trade or business. As this determination is dependent upon your specific activities in the U.S., 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: 1996 Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.342420 X = $ Schedule B, Part I, Line 1 ------------- ------------- 2) Rental Income 0.016092 X = $ Schedule E, Part I, Line 3 ------------- ------------- 3) Gain from Sale of Iron Form 4797, Part I, Line 2, Ore, Section 1231 5.644564 X = $ Column d ------------- ------------- Proof Reconciliation: Sum of lines 1, 2 & 3 should equal Form 1099-MISC Box 2 or Form 1042S (if applicable): $ ============= 4) Certificate Amortization Deduction Schedule D, Part II, Line 9, as calculated from Worksheet C: $ Columns e and f (negative) ------------- MINNESOTA ADJUSTMENT: (For filing a State of Subtract U.S. Interest 0.318416 X = $ ( )Line 6 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 0.342420 X = $ Line 5 ------------- ------------- 2) Rental Income 0.016092 X = $ Line 6 ------------- ------------- 3) Gain from Sale of Iron Form 4797, Part I, Line 2, Ore, Section 1231 5.644564 X = $ Column d ------------- ------------- Proof Reconciliation: Sum of lines 1, 2 & 3 should equal Form 1099-MISC Box 2 or Form 1042S (if applicable): $ ============= Form 4797, Part I, Line 2, 4) Percentage Depletion Deduction 0.798288 X = $ Column f ------------- ------------- 5) AMT Preference Item: Percentage Depletion 0.798288 X = $ Form 4626, Line 2(m) ------------- ------------- 6) Certificate Amortization Deduction Schedule D, Part II, Line 6 as calculated from Worksheet C: $ Columns e and f (negative) ------------- MINNESOTA ADJUSTMENT: (For filing a State of Add Percentage Depletion 0.798288 X = $ Line 2 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 U.S. trade or business. As this determination is dependent upon your specific activities in the U.S., 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: 1996 FIRST QUARTER - MARCH 29, 1996 Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.085605 X = $ ------------- ------------- 2) Rental Income 0.004023 X = $ ------------- ------------- 3) Gain from Sale of Iron NOTE: Ore, Section 1231 1.411141 X = $ SEE GRAND TOTAL ------------- ------------- RECONCILIATION NEXT PAGE MINNESOTA ADJUSTMENT: Subtract U.S. Interest 0.079604 X = $ ( ) ------------- ------------- SECOND QUARTER - JUNE 28, 1996 Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.085605 X = $ ------------- ------------- 2) Rental Income 0.004023 X = $ ------------- ------------- 3) Gain from Sale of Iron NOTE: Ore, Section 1231 1.411141 X = $ SEE GRAND TOTAL ------------- ------------- RECONCILIATION NEXT PAGE MINNESOTA ADJUSTMENT: Subtract U.S. Interest 0.079604 X = $ ( ) ------------- ------------- page 12 (Individual continued) THIRD QUARTER - SEPTEMBER 30, 1996 Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.085605 X = $ ------------- ------------- 2) Rental Income 0.004023 X = $ ------------- ------------- 3) Gain from Sale of Iron NOTE: Ore, Section 1231 1.411141 X = $ SEE GRAND TOTAL ------------- ------------- RECONCILIATION BELOW MINNESOTA ADJUSTMENT: Subtract U.S. Interest 0.079604 X = $ ( ) ------------- ------------- FOURTH QUARTER - DECEMBER 31, 1996 Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.085605 X = $ ------------- ------------- 2) Rental Income 0.004023 X = $ ------------- ------------- 3) Gain from Sale of Iron NOTE: Ore, Section 1231 1.411141 X = $ SEE GRAND TOTAL ------------- ------------- RECONCILIATION BELOW MINNESOTA ADJUSTMENT: Subtract U.S. Interest 0.079604 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 ------------ Proof Reconciliation: Sum of lines 1, 2 & 3 should equal Form 1099-MISC Box 2 or Form 1042S (if applicable) $ ============ 4) Certificate Amortization Deduction Schedule D, Part II, Line 9, as calculated from Worksheet C: $ Columns e and f (negative) ------------ MINNESOTA ADJUSTMENT: (For filing a State of Subtract U.S. Interest $ ( )Line 6 Minnesota Tax Return) ------------
page 13
SCHEDULE II: CORPORATE TAXPAYERS: YEAR: 1996 FIRST QUARTER - MARCH 29, 1996 Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.085605 X = $ ------------- ------------- 2) Rental Income 0.004023 X = $ ------------- ------------- 3) Gain from Sale of Iron NOTE: Ore, Section 1231 1.411141 X = $ SEE GRAND TOTAL ------------- ------------- RECONCILIATION 4) Percentage Depletion Deduction 0.199572 X = $ NEXT PAGE ------------- ------------- 5) AMT Preference Item: Percentage Depletion 0.199572 X = $ ------------- ------------- MINNESOTA ADJUSTMENT: Add Percentage Depletion 0.199572 X = $ ------------- ------------- SECOND QUARTER - JUNE 28, 1996 Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.085605 X = $ ------------- ------------- 2) Rental Income 0.004023 X = $ ------------- ------------- 3) Gain from Sale of Iron NOTE: Ore, Section 1231 1.411141 X = $ SEE GRAND TOTAL ------------- ------------- RECONCILIATION 4) Percentage Depletion Deduction 0.199572 X = $ NEXT PAGE ------------- ------------- 5) AMT Preference Item: Percentage Depletion 0.199572 X = $ ------------- ------------- MINNESOTA ADJUSTMENT: Add Percentage Depletion 0.199572 X = $ ------------- ------------- page 14 (Corporate continued) THIRD QUARTER - SEPTEMBER 30, 1996 Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.085605 X = $ ------------- ------------- 2) Rental Income 0.004023 X = $ ------------- ------------- 3) Gain from Sale of Iron NOTE: Ore, Section 1231 1.411141 X = $ SEE GRAND TOTAL ------------- ------------- RECONCILIATION 4) Percentage Depletion Deduction 0.199572 X = $ BELOW ------------- ------------- 5) AMT Preference Item: Percentage Depletion 0.199572 X = $ ------------- ------------- MINNESOTA ADJUSTMENT: Add Percentage Depletion 0.199572 X = $ ------------- ------------- FOURTH QUARTER - DECEMBER 31, 1996 Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120* ------------------- -------- ------------ ----- ----------------------------- 1) Interest Income 0.085605 X = $ ------------- ------------- 2) Rental Income 0.004023 X = $ ------------- ------------- 3) Gain from Sale of Iron NOTE: Ore, Section 1231 1.411141 X = $ SEE GRAND TOTAL ------------- ------------- RECONCILIATION 4) Percentage Depletion Deduction 0.199572 X = $ BELOW ------------- ------------- 5) AMT Preference Item: Percentage Depletion 0.199572 X = $ ------------- ------------- MINNESOTA ADJUSTMENT: Add Percentage Depletion 0.199572 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 ------------- Proof Reconciliation: Sum of lines 1, 2 & 3 should equal 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 and f (negative) ------------- MINNESOTA ADJUSTMENT: (For filing a State of Add Percentage Depletion $ Line 2 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 of $ X = $ purchase, as applicable ------------ ------------- ------------- (from Form 1099-MISC Box 2 or Form 1042S or Worksheet A or B Plus: Income $ as calculated) ------------- Less: Distributions received pertaining to - First Quarter - March 29, 1996 1.35 X = $ ( ) (if applicable) ------------- ------------- Second Quarter - June 28, 1996 1.15 X = $ ( ) (if applicable) ------------- ------------- Third Quarter - September 30, 1996 1.60 X = $ ( ) (if applicable) ------------- ------------- Fourth Quarter - December 31, 1996 1.70 X = $ ( ) (if applicable) ------------- ------------- Subtotal: (Beginning Basis plus Income less Distributions): $ ------------- Certificate Amortization % Rate: X 0.052632 (to Worksheet A or B, Certificate Amortization Deduction (Subtotal times Rate): = $ ( ) as appropriate) ------------- Adjusted Basis at year end (Subtotal less Certificate Amortization Deduction): $ (needed for next year) ============= Units (Shares) held at year end: 1996 (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: 1996 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 29, 1996 1.500769 41-0788355 Second Quarter - June 28, 1996 1.500769 Third Quarter - September 30, 1996 1.500769 Fourth Quarter - December 31, 1996 1.500769 ------------ 6.003076 ============ S-F NAME SOCIAL SECURITY # -------------------------------- ---------------------- Attachment - Schedule Reconciling Form 1042S to Individual Income Tax Return 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 Form 1099-MISC to Individual Income Tax Return Where found 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 Ore, Form 4797, Part I, Line 2, Section 1231 + Column d -------------- EQUALS: Form 1099-MISC = $ ============== Box 2 GREAT NORTHERN IRON ORE PROPERTIES EX-27 5 FDS FOR YEAR 1996 ANNUAL REPORT ON FORM 10-K405
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GREAT NORTHERN IRON ORE PROPERTIES' BALANCE SHEET AS OF DECEMBER 31, 1996 AND INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1996 DEC-31-1996 448,008 8,518,965 2,649,880 0 0 6,495,582 38,056,821 32,864,931 17,066,649 2,735,256 0 0 0 0 14,331,393 17,066,649 9,978,603 10,530,200 0 0 1,541,714 0 0 8,988,486 0 8,988,486 0 0 0 8,988,486 5.99 0
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