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Great Northern Iron Ore Properties 10-K 2015
Annual Report on Form 10-K
Great Northern Iron Ore Properties
December 31, 2014
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
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act). Yes 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 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 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____
Indicate by check
mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X
As of the last business day of the registrant’s most recently completed second fiscal quarter, that being June 30, 2014, the aggregate market value of the registrant’s certificates (shares) of beneficial interest held by non-affiliates of the registrant was $29,760,000 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, 2014, attached hereto as Exhibit 13, are incorporated by reference into Part II.
PART I
Table of Registrant’s 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 ArcelorMittal, Cliffs Natural Resources Inc. and U.S. Steel Corporation, and operated by Cliffs Mining Company; and ESM, owned by Essar Steel Holdings Ltd., a subsidiary of Essar Global Ltd., which includes a new taconite mining plant currently being constructed by ESM. 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 location 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, 2015. 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. While any cut in production by any of our lessees can adversely affect the Trust, continued receipt of minimum royalties do mitigate this effect, in part.
The Registrant’s royalty rates are generally 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 (the “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 the Trust has remained in compliance with the provisions of Section 646 since its election in 1988.
The Trust terminates April 6, 2015. As previously reported, the termination date of the Trust is April 6, 2015. Accordingly, we remind certificate holders that there is remaining only one more regular quarterly distribution, which will be declared in the first quarter of 2015. While there will be some income allocated to the second quarter of 2015 (representing six days of business through April 6, 2015), it is expected that this amount will be nominal and will likely be included with the final distribution to certificate holders of record as of the termination date of the Trust, which will be made subsequent to the Trust’s termination date and upon completion of the wind-down process and final accounting. The final distribution will generally consist of the sum of the Trust’s net monies (essentially, total assets less liabilities and less properties) remaining in the hands of the Trustees (after paying and providing for all expenses and obligations incurred through the Trust’s termination and wind-down process), and the balance in the Principal Charges account, all of which are subject to the final accounting and approval of the Ramsey County District Court. Upon Trust termination, the shares will be cancelled and thereafter represent only the right to receive the final distribution. All other Trust properties will be conveyed to the reversioner upon the completion of the wind-down process without further payment or remuneration to the certificate holders.
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 the 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 Ramsey County District Court, Saint Paul, Minnesota, for further instructions defining what is required in a particular case to balance the interests of certificate holders and reversioner. Also, the Minnesota Supreme 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.
PART II
PART III
The Board of Trustees meets quarterly throughout the year. There are no family relationships between any of the Trustees, officers or employees. The principal occupations and directorships of the Great Northern Iron Ore Properties Trustees and officers during the last five years are as follows:
- Director, William Mitchell College of Law, Saint Paul, Minnesota.
ROGER W. STAEHLE, Trustee. - Adjunct Professor, Institute of Technology, University of Minnesota, until 2012; - Industrial Consultant in the field of Metallurgy. Dr. Staehle has been a Trustee since 1982. He was the Dean of the Institute of Technology at the University of Minnesota from 1979 to 1983 as well as Professor of Chemical Engineering and Materials Science from 1979 to 1987. He was an Adjunct Professor in that department until 2012. Prior to the University of Minnesota, he was Professor of Metallurgical Engineering at Ohio State University from 1965 to 1979. His specialty is in the degradation and prediction of materials especially in nuclear energy applications. He was elected to the National Academy of Engineering in 1978 and is a Fellow of three technical societies. In addition, he was the International Nickel Professor of Corrosion Science and Engineering at Ohio State University. He is also an editor of over 20 books in his field. At Ohio State University an academic chair has been created in his honor. Dr. Staehle is recognized as a worldwide consultant to governments and industries on the safe and reliable performance of nuclear reactors. He is expert in metallurgy and minerals. His metallurgical and mineral background provides the Trust with a practical and operational viewpoint.
- Everett Fraser Professor of Law, University of Minnesota; - Attorney of Counsel, Gray Plant Mooty Law Firm, Minneapolis, Minnesota. Mr. Stein has been a Trustee since 1982. He was the Dean of the Law School of the University of Minnesota from 1979 to 1994, though he has been affiliated with the Law School since 1964. Beginning in 1994 and until October 2006, he also served as Executive Director and Chief Operating Officer of the American Bar Association. He now holds the Everett Fraser Professor of Law position with the Law School at the University of Minnesota. His legal career has concentrated on estates, trusts, property law, estate planning and fiduciary obligations. Mr. Stein is recognized as an authority on trusts and trust law and has authored numerous publications on these topics. He also serves as the Trust’s Audit Committee Chairman. His trust law expertise provides the Trust with valuable and pertinent knowledge, and will be increasingly important as the Trust winds down upon dissolution.
JAMES E. SWEARINGEN, Trustee. - Director, PolyMet Mining Corporation until July 2010. Mr. Swearingen has been a Trustee since 2009. Mr. Swearingen formerly managed the largest mining operation in North America, which is U.S. Steel’s Minntac taconite facility in northeastern Minnesota on the Mesabi Iron Range, serving as General Manager of its Minnesota Ore Operations. He has also previously served as the co-chair on the Governor’s Committee on Minnesota’s Mining Future, as a director of the Iron Mining Association of Minnesota, as a director of the American Iron Ore Association, as a director of PolyMet Mining Corporation, and as a consultant in the mining industry. He is currently an advisor to the University of Minnesota’s Natural Resource Research Institute. Mr. Swearingen is recognized for his considerable experience in the taconite mining industry. His mining management background provides the Trust with useful insight regarding mining operations, mining leases and overall mining and steel industry perspectives.
- Director and President, Iron Ore Lessors Association, Inc., Saint Paul, Minnesota.
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. The Pension Values increase in 2014 for the CFO was primarily caused by another year of credited service in the pension plan, the utilization of new mortality tables (as released in 2014 by the Society of Actuaries), and a reduced discount rate.
Compensation Discussion and Analysis
The Trust has only two executive officers, the President of the Trustees and Chief Executive Officer (“CEO”) and the Vice President & Secretary and Chief Financial Officer (“CFO”), as shown above in the Summary Compensation Table. No other Trust personnel receive compensation in excess of these named executives. The compensation for the Trust’s 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). That is, the CEO does not participate in setting his own compensation. In addition, the Board of Trustees, as a whole, establishes and approves all compensation for all employees of the Trust (including that of the CFO) based on market data obtained from time to time, as deemed necessary.
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 Registrant’s annual report. The Board of Trustees has not designated a separate compensation committee, and the Trustees take all actions with respect to risk oversight and 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 James E. Swearingen, collectively, as the Board of Trustees of Great Northern Iron Ore Properties.
President of the Trustees/Chief Executive Officer (CEO) Compensation
The Trust Agreement (as modified by Court Orders, the last being effective January 1, 2012) provides for current annual compensation (salary) to the CEO of $200,000. The Trust Agreement (as modified by Court Orders, the last being effective January 1, 2012) 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 $100,000.
The original 1906 Trust Agreement provided for compensation to the CEO of $25,000, plus additional compensation (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 legal 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 CEO’s compensation was adjusted to $40,000, and the maximum bonus was adjusted to $35,000. Thereafter, because of increased duties under today’s 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 CEO’s compensation a total of eight different times since 1906, the last being effective January 1, 2012.
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.
Vice President & Secretary/Chief Financial Officer (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 CFO’s 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 (representing the lower twenty-five percent quartile of all companies sampled).
Since 2001, the Trustees have extrapolated the historical salary percentage increase that occurred between 1990 and 2001 forward to current year dollars or, if greater, adjusted the salary ranges based on the change in the Consumer Price Index since 2001. The Trustees intend to target the CFO’s base salary to fall within the range of this 2001 study, as extrapolated to current year dollars. The CFO’s base salary for 2014 falls within that range.
In addition to the CFO’s base salary, the Summary Compensation Table includes $0, $0 and $1,900 under the column heading “Salary” for nonqualified deferred compensation plan contributions accrued by the Trust for the benefit of the CFO for the years 2014, 2013 and 2012, respectively (as discussed and shown below under a separate table).
The CFO’s 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 CFO’s bonus compensation is equal to ten percent (10%) of the CEO’s bonus compensation, resulting in a current maximum annual bonus of $10,000.
The increase in the actuarial present value of accumulated benefits under the column heading “Pension Values” for the CFO within the Trust’s defined benefit pension plan (as discussed and shown below under a separate table) amounted to $597,867, $27,637 and $193,938 for the years 2014, 2013 and 2012, respectively. The Pension Values increase in 2014 was primarily caused by another year of credited service in the pension plan, the utilization of new mortality tables (as released in 2014 by the Society of Actuaries), and a reduced discount rate. The CFO participates in the pension plan, along with all other employees, on a nondiscriminatory basis.
In addition to the CFO’s compensation attributed to the increase in the actuarial present value of accumulated benefits as stated above, the column heading “Pension Values” also includes $6,482, $2,536 and $2,839 of above-market returns pertaining to nonqualified deferred compensation earnings accrued by the Trust for the benefit of the CFO for the years 2014, 2013 and 2012, 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.”
Post-Employment Compensation
Pension Benefits Table
Only employees of the Trust (not Trustees) are eligible to participate in the Trust’s pension plan and, as such, post-employment compensation disclosure is not applicable for the CEO or the other Trustees. The CFO, as an employee of the Trust, does participate in the Trust’s 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, 2014. 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 participant’s 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 participant’s years of credited service and the participant’s age, the sum of which must equal or exceed 62. 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 the normal retirement age of 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 employee’s benefit will be unreduced, similar to the calculation of the normal retirement benefit. Actuarial equivalent 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 Registrant’s 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 in the Last Fiscal Year represent interest earned on the Aggregate Balance at Last Fiscal Year-End within the deferred compensation plan. The interest percentage used to determine interest earned is the greater of five percent (5%) or the actual one-year current return achieved within the Trust’s defined benefit pension plan. The Aggregate Balance at Last Fiscal Year-End is distributable at the earliest of (i) the CFO’s termination of employment, (ii) the termination of the Trust (April 6, 2015), (iii) the CFO’s termination of employment due to disability, or (iv) the CFO’s death.
Of the total $0 in Registrant Contributions in the Last Fiscal Year and total $10,500 in Aggregate Earnings in the Last Fiscal Year listed in the table above, $0 (deferred compensation) and $6,482 (above-market earnings), respectively, are included in the Summary Compensation Table under the respective column headings “Salary” and “Pension Values” for the year 2014. In addition, of the total $118,800 Aggregate Balance at Last Fiscal Year-End listed in the table above, $0 and $1,900 (deferred compensation) are included in the Summary Compensation Table under the column heading “Salary” for the years 2013 and 2012, respectively; and $2,536 and $2,839 (above-market earnings) are included in the Summary Compensation Table under the column heading “Pension Values” for the years 2013 and 2012, respectively.
Compensation of Directors/Trustees (Other Than the CEO)
Directors Compensation Table
The Trust Agreement (as modified by Court Orders, the last being effective January 1, 2012) provides for current annual compensation (fees) to each Trustee (other than the CEO) of $80,000. In addition and also pursuant to Court Order, the Trustee serving in the role of Audit Committee Chair receives an additional amount of $5,000 per year.
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 legal 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 today’s 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) a total of seven different times since 1906, the last being effective January 1, 2012.
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.
PART IV
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)
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.
Each person whose signature appears below constitutes Joseph S. Micallef and Thomas A. Janochoski as his true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.
ANNUAL REPORT ON FORM 10-K
EXHIBIT INDEX
YEAR ENDED DECEMBER 31, 2014
GREAT NORTHERN IRON ORE PROPERTIES
W-1290 First National Bank Building 332 Minnesota Street Saint Paul, Minnesota 55101-1361
EXHIBIT INDEX – continued
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