Great Northern Iron Ore Properties 10-K 2008
Documents found in this filing:
Annual Report on Form 10-K
Great Northern Iron Ore Properties
December 31, 2007
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
GREAT NORTHERN IRON ORE PROPERTIES
(Exact name of registrant as specified in its charter)
Registrants Telephone Number, Including Area Code 651 / 224-2385
Securities registered pursuant to Section 12(b) of the Exchange Act:
Securities registered pursuant to Section 12(g) of the Exchange ActNone
Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act). Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No x
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 o
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 registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Act).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of the last business day of the registrants most recently completed second fiscal quarter, that being June 29, 2007, the aggregate market value of the registrants certificates (shares) of beneficial interest held by non-affiliates of the registrant was $174,000,000 based on the closing sale price as reported on the New York Stock Exchange Euronext Composite Inter-Market Trading System.
The number of certificates (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, 2007, attached hereto as Exhibit 13, are incorporated by reference into Part II.
The Registrant (Trust or we or our or GNIOP) owns interests in fee, both mineral and nonmineral lands, on the Mesabi Iron Range in northeastern Minnesota. The Registrant is a conventional trust organized under the laws of the State of Michigan pursuant to a Trust Agreement dated December 7, 1906. Because the Trust properties and offices are all located in Minnesota, the Trust and matters affecting the Trust are under the jurisdiction of the Ramsey County District Court in Saint Paul, Minnesota. Income is primarily derived from royalties on iron ore minerals (taconite) mined by our lessees from these properties and minimum royalties. The Registrant is presently involved solely with the leasing and care of these properties. There have been no significant changes in these functions since the beginning of the fiscal year.
The terms of the Great Northern Iron Ore Properties Trust Agreement, created December 7, 1906, state that the Trust shall continue for twenty years after the death of the last 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 Trusts Annual Report sent to all certificate holders every year). All other Trust property (most notably the Trusts mineral properties and the active leases) must be conveyed and transferred to the reversioner (currently Glacier Park Company, a wholly owned subsidiary of ConocoPhillips) under the terms of the Trust Agreement.
The Trust has previously provided information in its various Securities and Exchange Commission filings, including its Annual Report, about the final distribution payable to the certificate holders upon the Trusts termination. The exact final distribution, though not determinable at this time, will generally consist of the sum of the Trusts 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, 2007, the net monies were approximately $8,134,000 and the Principal Charges account balance was approximately $5,037,000, resulting in a final distribution payable of approximately $13,171,000, or about $8.78 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.
The raw materials essential to the business of the Registrant are the minerals contained in properties owned and leased by the Registrant. Because we lease our properties to mining interests that control the amount of ore production, we do not have direct control over the tonnage mined from our properties; we are solely involved with administering the leases on the properties. Since operating companies insist on freedom to move from property to property as mining requirements dictate, such changes in production cannot be precisely reduced to financial forecasts.
Although the Registrant owns in excess of 67,000 acres in varied fee (surface and/or mineral) and ownership percentage interests in northeastern Minnesota, our mineral interests on the Mesabi Iron Range formation represent 12,033 acres, including approximately 7,443 acres which are wholly owned, 1,080 acres in which the 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 mineral interest total, 9,215 acres are under lease and 2,818 acres are unleased.
None of the Registrants 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.
The Registrant cannot estimate at this time any tonnage for nonmagnetic taconite because of lack of drilling, testing and any established large-scale commercial treatment method for Mesabi Iron Range nonmagnetic taconite. To give a better perspective on magnetic taconite, our engineers estimate that the proven and probable ore reserves of magnetic taconite under lease as of December 31, 2007, were equivalent to approximately 366,222,000 tons of pellets. These ore reserves are developed from exploration drilling (diamond drilling) analyses performed by our lessees (steel and mining companies), with our interaction and assistance, though they have never been audited by any external party as this is not a customary practice. Although the ore reserves generally are adjusted downward each year for taconite pellet shipments, they also may increase due to new leases entered into and/or amendments to existing leases. In addition, reserve adjustments (positive or negative) are made from time to time when additional diamond drilling results in adjustments to the estimates. (See table of current leases within this Item 1. Business section for additional reserve information.)
Present leases provide for minimum royalties aggregating approximately $3,916,000 for the year 2008 even if no taconite is mined. This entire amount is attributable to long-term taconite leases.
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.
There are other landowners on the Mesabi Iron Range, including mining companies and numerous other private fee owners. Accordingly, firm data on competitive conditions in the iron ore industry is not available. Iron ore is also available from a number of other sources. However, the generally close proximity of our lands to the mining facilities tends to provide a competitive advantage to the Trust. In addition, other typical competitive factors include royalty rates, quality and geological characteristics of the ore bodies available, production guarantees granted to the fee owners, minimum royalty provisions and other matters. The Registrants non-taconite shipments have presently ceased as a source of income. The mining of taconite by lessees is the most important part of our present business. Future development depends, to a large part, on the demand for taconite from our properties by steel and mining companies.
The Registrants royalty income is dependent on the number of tons of taconite shipped from its properties by the lessees, royalty rates, minimum royalties collected and liquidation of minimum royalties collected. Following is a summary of shipments by lessee (operating facility) during 2007, 2006 and 2005:
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 Trusts income whether or not the income is distributed. For certificate holder tax purposes, the Trusts 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 2008 to certificate holders of record with holdings on any of the four quarterly record dates during 2007. This information included the following:
At December 31, 2007, the Registrant employed ten persons. We have been engaged in only one line of business, namely the leasing and maintenance of our mineral properties. Our business is not seasonal, but income primarily depends upon production by the steel and mining companies which lease our properties. We have no operations in foreign countries. Our customers (or lessees) taconite facilities are all located in northeastern Minnesota, though the ownership interests and/or corporate headquarters are elsewhere, as explained in the footnotes to the table below.
The Registrant maintains a website, which can be found at www.gniop.com. Information about the Registrant posted on the website includes: General Trust information, Securities and Exchange Commission filings (Form 10-Ks, Form 10-Qs, Form 8-Ks), Annual Reports, Tax Return Guides, Quarterly Distribution Releases, Quarterly Earnings Releases, Court Hearings, Audit Committee Charter, Code of Ethics, Contact and other information. We will, upon request, be pleased to furnish to any certificate holder or investor, free of charge, a paper copy of any of the above documents for any recent year.
The table on the following page is a listing of the Registrants current leases, all associated with taconite mining facilities located on the Mesabi Iron Range in northeastern Minnesota near the cities of Hibbing and Virginia. The following footnotes pertain to said table:
Table of Registrants current leases:
Certain expectations and projections regarding future performance of the Registrant referenced in this report are forward-looking statements. These expectations and projections are based on currently available industry and financial data and may be subject to certain events and uncertainties beyond our control. We caution readers that in addition to factors described elsewhere in this report, the following factors and comments, among others, could cause our operations and financial results to differ materially from the expectations and projections contained in the forward-looking statements.
The Registrant is dependent on a limited number of customers.
Our lessees (customers) primarily include Minntac and Keetac, owned and operated by U.S. Steel Corporation; Hibtac, owned by Arcelor-Mittal, Cleveland Cliffs Inc. and U.S. Steel Corporation, and operated by Cliffs Mining Company; and MSI, owned by Essar Steel Holdings Ltd., a wholly owned subsidiary of Essar Global Ltd., with a new taconite mining and steelmaking facility anticipated to be constructed by MSI over the next few years, subject to the completion of financing. Because our revenues are primarily dependent upon a limited number of customers, any significant adverse event at any of our primary lessees, or the loss of any of our primary lessees, could materially adversely affect our future financial results.
The Registrant is subject to market forces beyond its control.
A decline in market demand for steel, and correspondingly taconite, could adversely affect our financial results. However, other related and sometimes compensating factors include our lessees operating levels, minimum royalties, ore body quality, metallurgical and geological characteristics, and proximity of our lands. Also sometimes affecting taconite production from our lands are extreme weather conditions and labor contracts at the mines. Though we are not a party to the labor contracts, all pertinent labor contracts affecting production from our lands run through August 31, 2008. Should the steelworker labor contract negotiations not be favorably and timely resolved, it could result in a work stoppage that would likely adversely affect taconite production from our lands and reduce our royalties. Additionally, over the past few years, the domestic steel and taconite industries have also been influenced by the global markets. As a result, the future demand for domestic steel and taconite, which is now part of the global markets, is uncertain.
The Registrants royalty rates are typically tied to producer price indices.
Royalty rates can fluctuate due to the escalation and de-escalation of producer price indices as a result of provisions present in many of our leases. To the extent these indices decline (All Commodities or the Iron and Steel subgroup), royalty rates, and correspondingly royalty income, could be adversely affected. Conversely, higher producer price indices may increase royalty rates and royalty income.
The loss of grantor trust status would have adverse tax consequences.
Compliance with Section 646 of the Internal Revenue Code is integral to the level of distributions paid to the certificate holders. Should it be determined that we have violated the requirements of Section 646, the Trust would be taxed as a corporation versus a grantor trust. This would mean our income would be taxable upon our receipt and again upon receipt by the certificate holders. It is the Trustees opinion that, based on independent tax firm reviews, the Trust has remained in compliance with the provisions of Section 646 since its election in 1988.
The Registrant owns interests in fee, both mineral and nonmineral lands, on the Mesabi Iron Range in northeastern Minnesota, many of which are leased to the steel and mining companies that mine the mineral lands for taconite ore. A list of the leased properties is shown in table format in Item 1. Business above. The leases provide the lessees exclusive mining rights during the term of such leases. Taconite deposits are substantial, and our ore reserves are deemed proven and probable. The properties have a reversionary interest as explained in Item 1. Business above.
In proceedings commenced in 1972, the Minnesota Supreme Court determined that while by the terms of the Trust, the Trustees are given discretionary powers to convert Trust assets to cash and to distribute the proceeds to certificate holders, they are limited in their exercise of those powers by the legal duty imposed by well-established law of trusts to serve the interests of both term beneficiaries and the reversionary beneficiary with impartiality. Thus, the Trustees have no duty to exercise the powers of sale and distribution unless required to do so to serve both term and reversionary interests; and, if the need arises, the Trustees may petition the District Court of Ramsey County, Minnesota, for further instructions defining what is required in a particular case to balance the interests of certificate holders and reversioner. Also, the Court, in effect, held that the Trust is a conventional trust, rather than a business trust, and must operate within the framework of well-established trust law.
By a letter dated April 4, 2007, certificate holders of record as of December 29, 2006, and the reversioner were notified of a hearing on May 9, 2007, in Ramsey County Courthouse, Saint Paul, Minnesota, for the purpose of settling and allowing the Trust accounts for the year 2006, and also for the purpose of petitioning the Court for instructions regarding the New York Stock Exchange
(NYSE) mandated participation in a Direct Registration System (DRS), which requires book entry registration (by default) of all certificates of beneficial interest. By Court Order signed and dated May 9, 2007, the 2006 accounts were settled and allowed in all respects; and in addition, the Court ordered that the Trustees compliance with the NYSEs DRS mandate will not be in violation of any of the Trust Agreements provisions. By previous Orders, the Court settled and allowed the accounts of the Trustees for preceding years of the Trust.
Shares of Beneficial Interest, Market Prices and Distributions on page 5 of the Annual Report to Certificate Holders for the year ended December 31, 2007, attached hereto as Exhibit 13, are incorporated herein by reference. There are no issuer purchases of equity securities. No performance graph is required, as the Registrant is a nonvoting trust and the Trustees are not elected by the certificate holders; therefore, the performance graph has been omitted.
Selected Financial Data (Summary of Operations) on page 2 of the Annual Report to Certificate Holders for the year ended December 31, 2007, attached hereto as Exhibit 13, is incorporated herein by reference.
Trustees & Managements Discussion and Analysis of Financial Condition and Results of Operations on pages 3 through 8, inclusive, of the Annual Report to Certificate Holders for the year ended December 31, 2007, attached hereto as Exhibit 13, are incorporated herein by reference.
The following financial statements of the Registrant are included in the Annual Report to Certificate Holders for the year ended December 31, 2007, attached hereto as Exhibit 13, and are incorporated herein by reference:
Balance Sheets December 31, 2007 and 2006.
Statements of Beneficiaries Equity Years ended December 31, 2007, 2006 and 2005.
Statements of Income Years ended December 31, 2007, 2006 and 2005.
Statements of Cash Flows Years ended December 31, 2007, 2006 and 2005.
Notes to Financial Statements December 31, 2007.
Quarterly Results of Operations (unaudited), as shown in Note H of the Notes to the Financial Statements contained in the Annual Report to Certificate Holders for the year ended December 31, 2007, attached hereto as Exhibit 13, are incorporated herein by reference.
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 Trusts disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Trusts 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 Securities and Exchange Commission rules and forms.
Managements Report On Internal Control Over Financial Reporting on page 9 of the Annual Report to Certificate Holders for the year ended December 31, 2007, attached hereto as Exhibit 13, is incorporated herein by reference.
The Report Of Ernst & Young LLP, Independent Registered Public Accounting Firm, On Internal Control Over Financial Reporting on pages 24 and 25 of the Annual Report to Certificate Holders for the year ended December 31, 2007, attached hereto as Exhibit 13, is incorporated herein by reference.
There was no change in the Trusts internal control over financial reporting during the Trusts most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Trusts internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
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:
The Board of Trustees meets quarterly throughout the year. The principal occupations of the Trustees and officers during the last five years are as follows:
JOSEPH S. MICALLEF
President of the Trustees and Chief Executive Officer, Great Northern Iron Ore Properties.
ROGER W. STAEHLE
Adjunct Professor, Institute of Technology, University of Minnesota;
ROBERT A. STEIN
Everett Fraser Professor of Law, University of Minnesota as of September 1, 2006;
Executive Director and Chief Operating Officer, American Bar Association, until October 15, 2006.
JOHN H. ROE, III
Retired Chairman of the Board, Bemis Company, Inc., Minneapolis, Minnesota, as of May 5, 2005.
THOMAS A. JANOCHOSKI
Vice President & 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.
Summary Compensation Table(a)
Notes: (a) There are no Stock Awards, Option Awards, Non-equity Incentive Plan Compensation or All Other Compensation, and accordingly, such columns in the table and any corresponding supplemental tables have been omitted. (b) Pension Values represent Change in Pension Value and Nonqualified Deferred Compensation Earnings, if applicable.
Compensation Discussion and Analysis
The Trust has only two executive officers, the Chief Executive Officer and President of the Trustees (CEO) and the Chief Financial Officer and Vice President & Secretary (CFO), as shown above. No other Trust personnel receive compensation in excess of these named executives. The compensation for the Trusts other directors (Trustees other than the CEO) is discussed and shown below under a separate table.
The compensation of the Trustees and CEO is established by the Trust Agreement (as modified by Court Orders). In addition, the Board of Trustees, as a whole, approves all compensation of all officers and other employees of the Trust, except that the CEO does not participate in setting his own compensation.
Compensation Committee Report & Interlocks and Insider Participation
The Board of Trustees, as a whole, has reviewed and discussed this Compensation Discussion and Analysis (CD&A) with management and, based on such review and discussion, has recommended that the CD&A be included in the Registrants annual report. The Board of Trustees has not designated a separate compensation committee, and the Trustees take all actions with respect to compensation themselves due to their trustee fiduciary obligations pursuant to the Trust Agreement. This report is respectfully submitted by Joseph S. Micallef, Roger W. Staehle, Robert A. Stein and John H. Roe, III, collectively as the Board of Trustees of Great Northern Iron Ore Properties.
Chief Executive Officer/President of the Trustees (CEO) Compensation
The Trust Agreement (as modified by Court Orders, the last being effective July 1, 2005) provides for current annual compensation (salary) to the CEO of $160,000. The Trust Agreement (as modified by Court Orders, the last being effective July 1, 2005) also provides for current additional compensation (bonus) to the CEO equal to one percent (1%) of the excess of annual gross income of the Trust over $5,000,000, with a maximum bonus of $60,000.
The original 1906 Trust Agreement provided for compensation to the CEO of $25,000, plus a maximum bonus equal to one percent (1%) of the excess of annual gross income of the Trust over $5,000,000, with a maximum bonus of $25,000. Between 1906 and 1982, the compensation of the CEO had never been adjusted. Because of the time-consuming court proceedings that occurred in the 1970s and 1980s, and the fact that there had not been an increase in compensation since the inception of the Trust, the Trustees petitioned the Court for an increase in compensation to reflect, in part, their increased time commitments and inflation over the years. By Court Order effective January 1, 1983, the CEOs compensation was adjusted to $40,000, and the maximum bonus was adjusted to $35,000. Thereafter, because of increased duties under todays regulatory environment and further inflation, the Trustees have, from time to time, petitioned the Court for additional compensation increases, essentially based on the increases in the Consumer Price Index since 1983. This petition process includes notification to all certificate holders of record and the reversioner, followed by a formal Court hearing and opportunity by certificate holders and reversioner to comment. The Court, taking into consideration any and all testimony and other materials filed, has approved of increases to the CEOs compensation on five different occasions since 1906, the last being July 1, 2005.
Because the compensation of the CEO is set forth by the Trust Agreement (as modified by Court Orders), there are no stock awards, option awards, non-equity incentive plan compensation, change in pension value and nonqualified deferred compensation earnings or all other compensation. Accordingly, such columns in the table and the corresponding supplemental tables have been omitted.
Chief Financial Officer/Vice President & Secretary (CFO) Compensation
The Board of Trustees, as a whole, determines the compensation of all employees of the Trust, including that of the CFO. The objective for determining the compensation of the CFO is to provide a competitive salary based on market data obtained from time to time, as deemed necessary, representative of other chief financial officers responsibilities and pay scales within other similar-sized companies. To determine reasonable and competitive salary ranges for all employees of the Trust, including the CFO, the Trustees retained independent market research firms to obtain market data reflective of each specific position. Studies were performed and obtained in 1990 and updated again in 2001. With respect to the CFOs base salary, the market salary averages and ranges obtained in the 2001 study reflected compensation paid to various chief financial officers in 47 different, similar-sized organizations. Since 2001, the Trustees have extrapolated the historical salary percentage increase that occurred between 1990 and 2001 forward to current year dollars. The CFO base salary in the Summary Compensation Table falls within the range of this 2001 study, as extrapolated to current year dollars.
In addition to the CFOs base salary, the Summary Compensation Table includes $6,900 and $5,100 under the column heading Salary for nonqualified deferred compensation plan contributions accrued by the Trust for the benefit of the CFO for the years 2007 and 2006, respectively (as discussed and shown below under a separate table).
The CFOs bonus compensation was established in 2001 to reward the CFO for any productive year by the Trust that effectively results in gross revenues in excess of $5,000,000, the same threshold used for the bonus calculation of the CEO. The CFOs bonus compensation is equal to ten percent (10%) of the CEOs bonus compensation, resulting in a current maximum annual bonus of $6,000.
The increase in the actuarial present value of accumulated benefits under the column heading Pension Values for the CFO within the Trusts defined benefit pension plan (as discussed and shown below under a separate table) amounted to $29,231 and $70,775 for the years 2007 and 2006, respectively. The CFO participates in the pension plan, along with all other employees, on a nondiscriminatory basis.
In addition to the CFOs compensation attributed to the increase in the actuarial present value of accumulated benefits as stated above, the column heading Pension Values also includes $1,761 and $0 of above-market returns pertaining to nonqualified deferred compensation earnings accrued by the Trust for the benefit of the CFO for the years 2007 and 2006, respectively, under the nonqualified deferred compensation plan (as discussed and shown below under a separate table).
The CFO does not receive any stock awards, option awards or non-equity incentive plan compensation. Accordingly, such columns in the table and the corresponding supplemental tables have been omitted. In addition, the CFO did not receive any other compensation that would require disclosure under the column heading All Other Compensation.
Pension Benefits Table
Only employees of the Trust (not Trustees) are eligible to participate in the Trusts pension plan, and as such, post-employment compensation disclosure is not applicable for the CEO or the other Trustees. The CFO, as an employee and officer of the Trust, does participate in the Trusts defined benefit pension plan on a nondiscriminatory basis with the other employees of the Trust.
The Number of Years Credited Service reflects the years of credited service currently vested as of December 31, 2007. The normal retirement benefit is a straight life annuity as of the end of the Trust and is based on the highest sixty (60) consecutive months average salary (annualized), the years of credited service and three percent (3%) per year of credited service, as defined in the pension plan. The pension plan also provides for a $500/month supplemental bridge payment (a nondiscriminatory benefit) that begins as of the end of the Trust (due to an involuntary early retirement resulting from Trust termination) and continues until the earlier of the participants death or attainment of age 65. The early retirement age, as defined in the pension plan, is the earliest date that the participant could elect early retirement based on the participants years of credited service and the participants age, the sum of which must equal or exceed 65. The CFO is currently eligible to elect an early retirement benefit. The early retirement benefit is calculated similar to the normal retirement benefit, except the percentage used for years of credited service equals two and one-quarter percent (2 1/4%), and the benefit is reduced by 1/15 for each of the first five years preceding age 65 and by 1/30 for each year before that until the early retirement age is reached, and the $500/month supplemental bridge payment is not applicable. However, if an employee is eligible for early retirement as of the end of the Trust, the employees benefit will be unreduced, similar to the calculation of the normal retirement benefit. Actuarial equivalent (reduced) annuity options are also available to all participants in the pension plan in lieu of a straight life annuity.
Nonqualified Deferred Compensation Table
The Trustees established a nonqualified deferred compensation plan for the CFO in 2001. The Registrants contributions to the deferred compensation plan for the CFO represent the difference between (i) what the CFO is limited to contributing to his account within a 401(k) Supplemental Retirement Plan (a plan provided on a nondiscriminatory basis to all employees, without company match or profit sharing) because of his highly compensated employee status as defined by IRS regulations, and (ii) the maximum amount other employees, subject to IRS thresholds, are permitted to contribute to their accounts.
Aggregate Earnings represent interest earned on the Aggregate Balance within the deferred compensation plan. The interest percentage used to determine interest earned is the greater of five percent or the actual one-year current return achieved within the Trusts defined benefit pension plan. The Aggregate Balance is distributable at the earliest of (i) the CFOs termination of employment, (ii) the termination of the Trust (expected to be April 6, 2015), (iii) the CFOs termination of employment due to disability, or (iv) the CFOs death.
Of the total $6,900 in Registrant Contributions and total $4,500 in Aggregate Earnings listed in the table above, $6,900 (deferred compensation) and $1,761 (above-market earnings) were included in the Summary Compensation Table under the respective column headings Salary and Pension Values for the year 2007. In addition, of the total $47,500 Aggregate Balance listed in the table above, $5,100 (deferred compensation) and $0 (above-market earnings) were included in the Summary Compensation Table under the respective column headings Salary and Pension Values for the year 2006.
Compensation of Directors/Trustees (Other Than the CEO)
Directors Compensation Table
The Trust Agreement (as modified by Court Orders, the last being effective July 1, 2005) provides for current annual compensation (fees) to each Trustee (other than the CEO) of $60,000.
The original 1906 Trust Agreement provided for compensation of $10,000 to each of the other Trustees (other than the CEO). Between 1906 and 1982, the compensation of the Trustees (other than the CEO) had never been adjusted. Because of the time-consuming court proceedings that occurred in the 1970s and 1980s, and the fact that there had not been an increase in compensation since the inception of the Trust, the Trustees petitioned the Court for an increase in compensation to reflect, in part, their increased time commitments and inflation over the years. By Court Order effective January 1, 1983, the Trustees (other than the CEO) compensation was adjusted to $20,000. Thereafter, because of increased duties under todays regulatory environment and further inflation, the Trustees have, from time to time, petitioned the Court for additional compensation increases, essentially based on the increases in the Consumer Price Index since 1983.
This petition process includes notification to all certificate holders of record and the reversioner, followed by a formal Court hearing and opportunity by certificate holders and reversioner to comment. The Court, taking into consideration any and all testimony and other materials filed, has approved of increases to the Trustees (other than the CEO) on four different occasions since 1906, the last being July 1, 2005.
Because the compensation of the Trustees (other than the CEO) is set forth by the Trust Agreement (as modified by Court Orders), there are no stock awards, option awards, non-equity incentive plan compensation, change in pension value and nonqualified deferred compensation earnings or all other compensation. Accordingly, such columns in the table and the corresponding supplemental tables have been omitted.
There are no certain relationships or related transactions requiring disclosure under this section. Director independence is set forth in Item 10. Directors, Executive Officers and Corporate Governance of this report.
All audit and non-audit services (printing and reproduction services) were preapproved by the Audit Committee. Estimated fees in 2007 for the annual audit services are $73,700, for audited-related services are $1,300, for tax services are $0 and for all other services are $3,000. Fees paid in 2006 for the annual audit services were $75,750, for audit-related services were $1,300, for tax services were $0 and for all other services were $2,750.
Balance Sheets December 31, 2007 and 2006.
Statements of Beneficiaries Equity Years ended December 31, 2007, 2006 and 2005.
Statements of Income Years ended December 31, 2007, 2006 and 2005.
Statements of Cash Flows Years ended December 31, 2007, 2006 and 2005.
Notes to Financial Statements December 31, 2007.
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.
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.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2007
GREAT NORTHERN IRON ORE PROPERTIES
W-1290 First National Bank Building
332 Minnesota Street
Saint Paul, Minnesota 55101-1361
Exhibit 3 Copy of Trust Agreement and Rules and Regulations for Management of the Trust (filed as Exhibit A to Form 11 of Great Northern Iron Ore Properties filed on May 6, 1935, as published under date of March 30, 1935, and incorporated by reference)
Exhibit 4 Specimen of Securities Registered Hereunder (filed as Exhibit E to Form 11 of Great Northern Iron Ore Properties filed on May 6, 1935, as published under date of March 30, 1935, and incorporated by reference)
Exhibit 10 Court Order on Trustee Compensation dated October 20, 2005, but effective July 1, 2005 (filed as Exhibit 10 to Form 10-K of Great Northern Iron Ore Properties filed on February 25, 2006, and incorporated by reference)
Exhibit 13 Annual Report to Certificate Holders
Exhibit 23 Consent of Independent Registered Public Accounting Firm
Exhibit 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished but not filed)
Exhibit 99 Report of Audit Committee