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Great Northern Iron Ore Properties 10-Q 2005

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32
  5. Ex-32
Great Northern Iron Ore Properties Form 10-Q dated September 30, 2005

 
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


(Mark One)

x   Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 –

For the Period Ended September 30, 2005

Or

o Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 –

For the Transition Period From ______________ to ______________

Commission file number 1-701



GREAT NORTHERN
IRON ORE PROPERTIES
 
(Exact name of registrant as specified in its charter) 
 
Minnesota   41-0788355  
(State or other jurisdiction of  (I.R.S. Employer 
incorporation or organization)  Identification Number) 
 
W-1290 First National Bank Building  
332 Minnesota Street  
Saint Paul, Minnesota   55101-1361  
(Address of principal executive office)  (Zip Code) 
 
(651) 224-2385  
(Registrant’s telephone number, including area code)  
 
Not Applicable  
(Former name, former address and former fiscal year, if changed since last report)  


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

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

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

Number of shares of beneficial interest outstanding on September 30, 2005:       1,500,000    


 
 


 



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GREAT NORTHERN IRON ORE PROPERTIES

CONDENSED BALANCE SHEETS


September 30
2005
December 31
2004


(Unaudited) (Note)
ASSETS            
 
CURRENT ASSETS  
     Cash and cash equivalents   $ 875,296   $ 788,779  
     United States Treasury securities    6,146,588    4,788,363  
     Royalties receivable    3,869,319    2,834,944  
     Prepaid expenses    24,510    2,760  


                            TOTAL CURRENT ASSETS    10,915,713    8,414,846  
 
NONCURRENT ASSETS  
     United States Treasury securities    3,774,083    4,619,534  
     Prepaid pension expense    961,595    941,327  


     4,735,678    5,560,861  
 
PROPERTIES  
     Mineral and surface lands    38,691,707    38,587,307  
     Less allowances for depletion and amortization    34,446,880    34,289,965  


     4,244,827    4,297,342  
     Building and equipment—at cost, less allowances for accumulated depreciation  
          (9/30/05 - $217,071; 12/31/04 - $214,287)    131,852    134,950  


     4,376,679    4,432,292  


    $ 20,028,070   $ 18,407,999  


LIABILITIES AND BENEFICIARIES’ EQUITY  
 
CURRENT LIABILITIES  
     Accounts payable and accrued expenses   $ 121,456   $ 81,756  
     Distributions    4,200,000    3,600,000  


                            TOTAL CURRENT LIABILITIES    4,321,456    3,681,756  
 
NONCURRENT LIABILITIES    42,300    42,300  
 
BENEFICIARIES’ EQUITY, including certificate holders’ equity, represented by 1,500,000  
     shares of beneficial interest authorized and outstanding, and reversionary interest    15,664,314    14,683,943  


    $ 20,028,070   $ 18,407,999  



Note: The balance sheet at December 31, 2004, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

See notes to condensed financial statements.


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GREAT NORTHERN IRON ORE PROPERTIES

CONDENSED STATEMENTS OF INCOME
(Unaudited)


Three Months Ended
September 30
Nine Months Ended
September 30


2005 2004 2005 2004




Revenues:                    
     Royalties   $ 4,213,124   $ 3,525,075   $ 13,766,446   $ 10,977,491  
     Interest and other income    90,122    108,513    256,527    235,009  




     4,303,246    3,633,588    14,022,973    11,212,500  
Costs and expenses    621,939    526,232    1,942,602    1,680,536  




 
NET INCOME   $ 3,681,307   $ 3,107,356   $ 12,080,371   $ 9,531,964  




 
Weighted-average shares outstanding    1,500,000    1,500,000    1,500,000    1,500,000  
 
BASIC & DILUTED EARNINGS PER SHARE   $ 2.45   $ 2.07   $ 8.05   $ 6.35  




 
     Distributions declared per share   $ 2.80 (1) $ 2.10 (2) $ 7.40 (3) $ 5.80 (4)
     Distributions paid per share   $ 2.40 (5) $ 1.90 (6) $ 7.00 (7) $ 5.40 (8)

(1) $2.80 declared 9/9/2005                
    payable 10/31/2005                
 
(2) $2.10 declared 9/17/2004                
    paid 10/29/2004                
 
(3) $2.20 declared 3/18/2005 plus $2.40 declared 6/16/2005 plus $2.80 declared 9/9/2005
    paid 4/29/2005     paid 7/29/2005     payable 10/31/2005
 
(4) $1.80 declared 3/15/2004 plus $1.90 declared 6/14/2004 plus $2.10 declared 9/17/2004
    paid 4/30/2004     paid 7/30/2004     paid 10/29/2004
 
(5) $2.40 declared 6/16/2005                
    paid 7/29/2005                
 
(6) $1.90 declared 6/14/2004                
    paid 7/30/2004                
 
(7) $2.40 declared 12/20/2004 plus $2.20 declared 3/18/2005 plus $2.40 declared 6/16/2005
    paid 1/31/2005     paid 4/29/2005     paid 7/29/2005
 
(8) $1.70 declared 12/19/2003 plus $1.80 declared 3/15/2004 plus $1.90 declared 6/14/2004
    paid 1/30/2004     paid 4/30/2004     paid 7/30/2004

See notes to condensed financial statements.


-3-



GREAT NORTHERN IRON ORE PROPERTIES

CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)


Nine Months Ended
September 30

2005 2004


Cash flows from operating activities:            
     Cash received from royalties and rents   $ 12,707,793   $ 10,114,465  
     Cash paid to suppliers and employees    -1,764,098    -1,615,662  
     Interest received    157,577    140,011  


          NET CASH PROVIDED BY OPERATING ACTIVITIES    11,101,272    8,638,814  
 
Cash flows from investing activities:  
     U.S. Treasury securities purchased    -3,741,342    -2,700,000  
     U.S. Treasury securities matured    3,247,396    2,725,000  
     Net expenditures for equipment    -20,809    -11,629  


          NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES    -514,755    13,371  
 
Cash flows from financing activities:  
     Distributions paid    -10,500,000    -8,100,000  


          NET CASH USED IN FINANCING ACTIVITIES    -10,500,000    -8,100,000  


 
Net increase in cash and cash equivalents    86,517    552,185  
 
Cash and cash equivalents at beginning of year    788,779    856,399  


 
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30   $ 875,296   $ 1,408,584  


See notes to condensed financial statements.





-4-



GREAT NORTHERN IRON ORE PROPERTIES

NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

Periods of Three and Nine Months ended September 30, 2005 and September 30, 2004

Note A – BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the periods stated above are not necessarily indicative of the results that may be expected for each respective full year. For further information, refer to the financial statements and footnotes included in the Great Northern Iron Ore Properties (“Trust”) Annual Report on Form 10-K for the year ended December 31, 2004.

Note B – BENEFICIARIES’ EQUITY

Pursuant to the Court Order of November 29, 1982, the Trustees were directed to create and maintain an account designated as “Principal Charges.” This account constitutes a first and prior lien of certificate holders on any property transferable to the reversioner and reflects an allocation of beneficiaries’ equity between the certificate holders and the reversioner. This account is neither an asset nor a liability of the Trust. Rather, this account maintains and represents a balance which will be payable to the certificate holders from the reversioner at the end of the Trust. The balance in this account consists of attorneys’ fees and expenses of counsel for adverse parties pursuant to the Court Order in connection with litigation commenced in 1972 relating to the Trustees’ powers and duties under the Trust 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 September 30, 2005:

Attorneys’ fees and expenses     $ 1,024,834  
Cost of surface lands    5,817,965  
Cumulative shipment credits    -1,421,561  
Asset disposition credits    -57,950  

Principal Charges account   $ 5,363,288  

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.


-5-



Note C – PENSION PLAN

A summary of the components of net periodic pension cost, a noncash item, is as follows:

Three Months Ended
September 30
Nine Months Ended
September 30


2005 2004 2005 2004




Service cost     $ 59,174   $ 29,356   $ 154,952   $ 88,069  
Interest cost    75,919    52,599    206,810    157,797  
Expected return on assets    -75,479    -75,805    -225,207    -227,414  
Net amortization    46,643    1,441    100,883    4,323  




Net periodic pension cost   $ 106,257   $ 7,591   $ 237,438   $ 22,775  




The plan’s annual actuarial valuation was performed as of the plan’s fiscal year-end March 31. The recommended contribution to the plan for 2005 was $257,706, which contribution was made in August, 2005.

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

Periods of Three and Nine Months ended September 30, 2005 and September 30, 2004

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

The terms of the Great Northern Iron Ore Properties Trust Agreement, created December 7, 1906, state that the Trust shall continue for twenty years after the death of the last surviving of eighteen persons named in the Trust Agreement. The last survivor of these eighteen named in the Trust Agreement died April 6, 1995. Accordingly, the Trust terminates twenty years from April 6, 1995.

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





-6-



We have previously provided information in our various Securities & Exchange Commission filings, including our Annual Report, about the final distribution payable to the certificate holders upon the Trust’s termination. The exact final distribution, though not determinable at this time, will generally consist of the sum of the Trust’s net monies (essentially, total assets less liabilities and properties) and the balance in the Principal Charges account, less any and all expenses and obligations of the Trust upon termination. To offer a hypothetical example, without factoring in any expenses and obligations of the Trust upon its termination, and using the financial statement values as of December 31, 2004, the net monies were approximately $10.2 million and the Principal Charges account balance was approximately $5.4 million, resulting in a final distribution payable of approximately $15.6 million, or about $10.40 per share. After payment of this final distribution, the certificates of beneficial interest (shares) would be cancelled and will 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. We offer this example to further inform investors about the conceptual nature of the final distribution and do not imply or guarantee a specific known final distribution amount.

Results of Operations:

Royalties increased $2,788,955 and $688,049 during the nine months and three months ended September 30, 2005, respectively, as compared to the same periods in 2004, due mainly to an increase in minimum royalties and earned royalty rates because of escalation, offset in part by a decrease in tonnage mined from Trust lands.

Interest and other income increased $21,518 during the nine months ended September 30, 2005, as compared to the same period in 2004, due mainly to an improved yield on our funds held for investment, offset in part by reduced timber receipts. Interest and other income decreased $18,391 during the three months ended September 30, 2005, as compared to the same period last year, due mainly to reduced timber receipts, offset in part by an improved yield on our funds held for investment.

Costs and expenses increased $262,066 and $95,707 during the nine months and three months ended September 30, 2005, respectively, as compared to the same periods in 2004, due mainly to higher pension costs associated with funding the plan and expensing these costs by the Trust’s termination date.

At their meeting held on September 9, 2005, the Trustees declared a third quarter distribution of $2.80 per share, amounting to $4,200,000 payable October 31, 2005 to certificate holders of record at the close of business on September 30, 2005. The Trustees have now declared three quarterly distributions in 2005. The first, in the amount of $2.20 per share, was paid on April 29, 2005 to certificate holders of record on March 31, 2005; the second, in the amount of $2.40 per share, was paid on July 29, 2005 to certificate holders of record on June 30, 2005; and the third, that being the current distribution. The first, second and third quarter 2004 distributions were $1.80, $1.90 and $2.10 per share, respectively. The Trustees intend to continue quarterly distributions and set the record date as of the last business day of each quarter. The next distribution will be paid in late January 2006 to certificate holders of record on December 30, 2005.


-7-



A mining agreement dated January 1, 1959 with United States Steel Corporation provides that one-half of annual earned royalty income, after satisfaction of minimum royalty payments, shall be applied to reimburse the lessee for a portion of its cost of acquisition of surface lands overlying the leased mineral deposits, which surface lands are then conveyed to the Trustees. There are surface lands yet to be purchased, the costs of which are yet unknown and will not be known until the actual purchases are made.

Liquidity:

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

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

        – None

Item 4.   Controls and Procedures

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

PART II.   OTHER INFORMATION

Item 1.   Legal Proceedings

By a letter dated September 1, 2005, certificate holders of record as of June 30, 2005, and the reversioner were notified of a Hearing on October 19, 2005, in Ramsey County Courthouse, Saint Paul, Minnesota, for the purpose of requesting increases in Trustee compensation. By Court Order signed and dated October 20, 2005, the Court granted the requested fee increase of $10,000 per annum for each Trustee (including the President), effective July 1, 2005, and, further, granted the requested potential bonus increase of $10,000 per annum for the President of the Trustees, effective for the year 2005.

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

        – None


-8-



Item 3.   Defaults Upon Senior Securities

        – None

Item 4.   Submission of Matters to a Vote of Certificate Holders

        – None

Item 5.   Other Information

        – None

Item 6.   Exhibits

Exhibit 31.1 – Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002
Exhibit 31.2 – Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002
Exhibit 32 – Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (Furnished but not filed)


SIGNATURES

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

             
  GREAT NORTHERN IRON ORE PROPERTIES
 
  (Registrant)


Date
October 24, 2005 By     /s/   Joseph S. Micallef  

 
Joseph S. Micallef, President of the Trustees and
    Chief Executive Officer
 


Date
October 24, 2005 By     /s/   Thomas A. Janochoski 

 
Thomas A. Janochoski, Vice President &
    Secretary and Chief Financial Officer
 











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