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Great Northern Iron Ore Properties 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32
  5. Ex-32
gniop112046_10q.htm - Generated by SEC Publisher for SEC Filing

 



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 Quarterly Period Ended March 31, 2011

 

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 incorporation or organization)

(I.R.S. Employer Identification Number)

 

 

W-1290 First National Bank Building
332 Minnesota Street
Saint Paul, Minnesota

55101-1361

(Address of principal executive office)

(Zip Code)

 

(651) 224-2385

(Registrant’s telephone number, including area code)

 

Not Applicable

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


 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted to its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o    No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Act).

 

Large accelerated filer 

o

Accelerated filer

x

Non-accelerated filer

o

Smaller reporting company 

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 March 31, 2011:    1,500,000

 

 




 

 

PART I. FINANCIAL INFORMATION

 

Item 1.   Financial Statements

 

GREAT NORTHERN IRON ORE PROPERTIES

 

CONDENSED BALANCE SHEETS

 

 

 

March 31
2011

 

December 31
2010

 

 

 

(Unaudited)

 

(Note)

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS

      

 

 

      

 

 

   

Cash and cash equivalents

 

$

538,868

 

$

668,310

 

United States Treasury securities

 

 

3,763,792

 

 

5,013,272

 

Royalties receivable

 

 

5,379,160

 

 

6,041,224

 

Prepaid expenses

 

 

72,554

 

 

4,519

 

TOTAL CURRENT ASSETS

 

 

9,754,374

 

 

11,727,325

 

 

 

 

 

 

 

 

 

NONCURRENT ASSETS

 

 

 

 

 

 

 

United States Treasury securities

 

 

4,068,497

 

 

3,025,924

 

 

 

 

 

 

 

 

 

PROPERTIES

 

 

 

 

 

 

 

Mineral and surface lands

 

 

39,237,458

 

 

39,127,058

 

Less: Allowances for accumulated depletion and amortization

 

 

–36,761,677

 

 

–36,614,977

 

 

 

 

2,475,781

 

 

2,512,081

 

 

 

 

 

 

 

 

 

Building and equipment

 

 

313,831

 

 

313,831

 

Less: Allowances for accumulated depreciation

 

 

–203,979

 

 

–196,069

 

 

 

 

109,852

 

 

117,762

 

TOTAL PROPERTIES

 

 

2,585,633

 

 

2,629,843

 

TOTAL ASSETS

 

$

16,408,504

 

$

17,383,092

 

 

 

 

 

 

 

 

 

LIABILITIES AND BENEFICIARIES’ EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

144,843

 

$

111,556

 

Distributions

 

 

3,375,000

 

 

5,625,000

 

TOTAL CURRENT LIABILITIES

 

 

3,519,843

 

 

5,736,556

 

 

 

 

 

 

 

 

 

NONCURRENT LIABILITIES

 

 

 

 

 

 

 

Deferred compensation

 

 

181,500

 

 

181,500

 

Liability for pension benefits

 

 

1,390,793

 

 

1,349,314

 

TOTAL NONCURRENT LIABILITIES

 

 

1,572,293

 

 

1,530,814

 

TOTAL LIABILITIES

 

 

5,092,136

 

 

7,267,370

 

 

 

 

 

 

 

 

 

BENEFICIARIES’ EQUITY, including certificate holders’ equity, represented by 1,500,000 certificates (shares or units) of beneficial interest authorized and outstanding, and the reversionary interest

 

 

13,324,221

 

 

12,204,529

 

Accumulated other comprehensive loss

 

 

–2,007,853

 

 

–2,088,807

 

TOTAL BENEFICIARIES’ EQUITY

 

 

11,316,368

 

 

10,115,722

 

TOTAL LIABILITIES AND BENEFICIARIES’ EQUITY

 

$

16,408,504

 

$

17,383,092

 

 

Note:  The balance sheet at December 31, 2010, 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.

 

 

-1-

 


 

 

GREAT NORTHERN IRON ORE PROPERTIES

 

CONDENSED STATEMENTS OF INCOME

(Unaudited)

 

 

 

Three Months Ended
March 31

 

 

 

2011

 

2010

 

REVENUES

      

 

 

 

 

 

 

Royalties

 

$

5,414,676

 

$

3,087,858

 

Interest and other income

 

 

34,218

 

 

82,322

 

 

 

 

5,448,894

 

 

3,170,180

 

Costs and expenses

 

 

–954,202

 

 

–849,158

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

4,494,692

 

$

2,321,022

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding

 

 

1,500,000

 

 

1,500,000

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED EARNINGS PER SHARE

 

$

3.00

 

$

1.55

 

 

 

 

 

 

 

 

 

Distributions declared per share

 

$

2.25

 (1)   

$

2.00

 (2)

 

(1)      

$2.25

declared      

3/10/2011

 

 

payable

4/29/2011

 

 

 

 

(2)

$2.00

declared

3/22/2010

 

 

paid

4/30/2010

 

 

See notes to condensed financial statements.

 

-2-

 


 

 

GREAT NORTHERN IRON ORE PROPERTIES

 

CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

 

 

 

Three Months Ended
March 31

 

 

 

2011

 

2010

 

Cash flows from operating activities:

      

 

 

      

 

 

   

Cash received from royalties and rents

 

$

5,986,493

 

$

3,636,471

 

Cash paid to suppliers and employees

 

 

–711,907

 

 

–607,242

 

Interest and related premium/discount (paid) received

 

 

–4,028

 

 

39,344

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

5,270,558

 

 

3,068,573

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

United States Treasury securities purchased

 

 

–1,525,000

 

 

–500,000

 

United States Treasury securities matured

 

 

1,750,000

 

 

1,200,000

 

NET CASH PROVIDED BY INVESTING ACTIVITIES

 

 

225,000

 

 

700,000

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Distributions paid

 

 

–5,625,000

 

 

–3,900,000

 

NET CASH USED IN FINANCING ACTIVITIES

 

 

–5,625,000

 

 

–3,900,000

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

–129,442

 

 

–131,427

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of year

 

 

668,310

 

 

924,234

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT MARCH 31

 

$

538,868

 

$

792,807

 

 

 

See notes to condensed financial statements.

 

 

-3-

 


 

 

GREAT NORTHERN IRON ORE PROPERTIES

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

Periods of Three Months ended March 31, 2011 and March 31, 2010

 

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, 2010. 

 

Note B – SECURITIES

 

United States Treasury securities are classified as “held-to-maturity” securities and are carried at cost, adjusted for accrued interest and amortization of premium or discount.  The aggregate fair values listed in the table below are based on quoted prices in active markets for identical assets (Level 1).  Securities recognized as current assets will mature within one year of the respective period ending date stated below.  Securities recognized as noncurrent assets will mature one to three years from the respective period ending date stated below.  Following is an analysis of the securities as of the periods stated:

 

 

 

Current

 

Noncurrent

 

 

 

March 31, 2011

 

Dec. 31, 2010

 

March 31, 2011

 

Dec. 31, 2010

 

Aggregate fair value

 

$

3,764,781

 

$

5,017,250

 

$

4,045,571

 

$

3,014,093

 

Gross unrealized holding gains

 

 

–10,178

 

 

–13,938

 

 

–704

 

 

–3,358

 

Gross unrealized holding losses

 

 

 

 

 

 

9,026

 

 

4,732

 

Amortized cost basis

 

 

3,754,603

 

 

5,003,312

 

 

4,053,893

 

 

3,015,467

 

Accrued interest

 

 

9,189

 

 

9,960

 

 

14,604

 

 

10,457

 

Amounts shown on balance sheets

 

$

3,763,792

 

$

5,013,272

 

$

4,068,497

 

$

3,025,924

 

 

 

-4-

 


 

 

Note C – PENSION PLAN

 

A summary of the components of net periodic pension cost for the three months ended March 31 is as follows:

 

 

 

2011

 

2010

Service cost

 

$

69,912

 

$

61,606

Interest cost

 

 

79,965

 

 

79,667

Expected return on assets

 

 

–108,398

 

 

–96,746

Amortization of net loss

 

 

76,587

 

 

54,429

Amortization of prior service cost

 

 

4,367

 

 

4,367

Net periodic pension cost

 

$

122,433

 

$

103,323

 

The Trust had previously disclosed in its Annual Report as of December 31, 2010, that the next contribution to the plan for 2011 is estimated to approximate $600,000, subject to the plan’s annual actuarial valuation performed as of the plan’s fiscal year-end, March 31.  No additional updated information is available at this time. 

 

Note D – BENEFICIARIES’ EQUITY

 

Pursuant to the Court Order of November 29, 1982, the Trustees were directed to create and maintain an account designated as “Principal Charges.”  This account constitutes a first and prior lien of certificate holders on any property transferable to the reversioner and reflects an allocation of beneficiaries’ equity between the certificate holders and the reversioner.  This account is neither an asset nor a liability of the Trust.  Rather, this account maintains and represents a balance which will be payable to the certificate holders of record from the reversioner at the end of the Trust.  The balance in this account consists of attorneys’ fees and expenses of counsel for adverse parties pursuant to the Court Order in connection with litigation commenced in 1972 relating to the Trustees’ powers and duties under the Trust Agreement and the costs of homes and surface lands acquired in accordance with provisions of a lease with 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 March 31, 2011:

 

Attorneys’ fees and expenses

 

 

 

 

$

1,024,834

Costs of surface lands

 

 

 

 

 

6,364,565

Cumulative shipment credits

 

 

 

 

 

–2,120,610

Cumulative asset disposition credits

 

 

 

 

 

–372,124

 

 

 

 

 

 

 

Principal Charges account balance

 

 

 

 

$

4,896,665

 

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 E – COMPREHENSIVE INCOME

 

A summary of the components of comprehensive income for the three months ended March 31 is as follows:

 

 

 

2011

 

2010

Net income

 

$

4,494,692

 

$

2,321,022

Other comprehensive income:

 

 

 

 

 

 

Defined benefit pension plan-

 

 

 

 

 

 

Amortization of net loss

 

 

76,587

 

 

54,429

Amortization of prior service cost

 

 

4,367

 

 

4,367

Total other comprehensive income

 

 

80,954

 

 

58,796

Total comprehensive income

 

$

4,575,646

 

$

2,379,818

 

 

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

Periods of Three Months ended March 31, 2011 and March 31, 2010

 

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

 

The terms of the Great Northern Iron Ore Properties Trust Agreement, created December 7, 1906, state that the Trust shall continue for twenty years after the death of the last survivor of eighteen persons named in the Trust Agreement.  The last survivor of these eighteen persons died on April 6, 1995.  Accordingly, the Trust terminates twenty years from April 6, 1995, that being April 6, 2015.

 

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

 

 

-6-

 


 

 

We have previously provided information in our various Securities and Exchange Commission filings, including our Annual Report, about the final distribution payable to the certificate holders upon the Trust’s termination.  The exact final distribution, though not determinable at this time, will generally consist of the sum of the Trust’s net monies (essentially, total assets less liabilities and properties) and the balance in the Principal Charges account, less any and all expenses and obligations of the Trust upon termination.  To offer a hypothetical example, without factoring in any expenses and obligations of the Trust upon its termination, and using the financial statement values as of December 31, 2010, the net monies were approximately $7,486,000 and the Principal Charges account balance was approximately $4,840,000, resulting in a final distribution payable of approximately $12,326,000, or about $8.22 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.

 

Results of Operations:

 

Royalties increased $2,326,818 during the three months ended March 31, 2011, as compared to the same period in 2010, due mainly to greater taconite shipments from our Trust lands and a higher overall average earned royalty rate caused by escalation of producer price indices.

 

Interest and other income decreased $48,104 during the three months ended March 31, 2011, as compared to the same period in 2010, due mainly to less gravel revenues received and reduced yields on the Trust’s investments.

 

Costs and expenses increased $105,044 during the three months ended March 31, 2011, as compared to the same period in 2010, due mainly to increased legal expenditures associated with the execution of a new lease and additional pension expense pertaining to the defined benefit pension plan.

 

At their meeting held on March 10, 2011, the Trustees declared a distribution of $2.25 per share, amounting to $3,375,000 payable April 29, 2011, to certificate holders of record at the close of business on March 31, 2011.  At their meeting held on March 22, 2010, the Trustees declared a distribution of $2.00 per share, amounting to $3,000,000 paid on April 30, 2010, to certificate holders of record at the close of business on March 31, 2010.  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 July 2011 to certificate holders of record on June 30, 2011.

 

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.

 

 

-7-

 


 

 

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

- None

 

 

Item 1A.   Risk Factors

There are no material changes from the risk factors previously disclosed in the Trust’s December 31, 2010 Annual Report on Form 10-K.

 

 

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

- None

 

 

Item 3.   Defaults Upon Senior Securities

- None

 

 

Item 4.   (Removed and Reserved)

- Not applicable

 

-8-

 


 

 

Item 5.   Other Information

- None

 

 

Item 6.   Exhibits

Exhibit No.

 

Document

- 31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

- 31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

- 32

 

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished but not filed)

 

 

 

 

 

 

 

 

-9-

 


 

 

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

April 28, 2011

 

By

 /s/  Joseph S. Micallef

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

Date

April 28, 2011

 

By

 /s/  Thomas A. Janochoski

 

 

 

 

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

 

 

 

-10-

 


 

 

 

QUARTERLY REPORT ON FORM 10-Q

 

EXHIBIT INDEX

 

QUARTER ENDED:           MARCH 31, 2011

 

GREAT NORTHERN IRON ORE PROPERTIES

 

W-1290 First National Bank Building
332 Minnesota Street
Saint Paul, Minnesota 55101-1361

 

 

Exhibit No.

 

Document

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

32

 

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished but not filed)

 

 

 

 

 

 


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