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, 2002
Or
[ ] 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
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(Exact name of registrant as specified in its charter)
Minnesota 41-0788355
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(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
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(Address of principal executive office) (Zip Code)
(651) 224-2385
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(Registrant's telephone number, including area code)
Not Applicable
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(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 _____
Number of shares of beneficial interest outstanding on September 30, 2002:
1,500,000
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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GREAT NORTHERN IRON ORE PROPERTIES
CONDENSED BALANCE SHEETS
September 30 December 31
2002 2001
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(Unaudited) (Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 909,130 $ 759,281
United States Treasury securities 4,166,258 4,344,646
Royalties receivable 1,719,422 2,308,941
Prepaid expenses 18,359 2,760
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TOTAL CURRENT ASSETS 6,813,169 7,415,628
NONCURRENT ASSETS
United States Treasury securities 4,056,532 4,278,541
Prepaid pension expense 706,524 701,473
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4,763,056 4,980,014
PROPERTIES
Mineral lands 38,577,007 38,577,007
Less allowances for depletion and
amortization 33,821,515 33,665,365
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4,755,492 4,911,642
Building and equipment--at cost, less
allowances for accumulated depreciation
(9/30/02 - $213,024; 12/31/01 - $190,784) 144,047 147,999
------------ ------------
4,899,539 5,059,641
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$ 16,475,764 $ 17,455,283
============ ============
LIABILITIES AND BENEFICIARIES' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 87,736 $ 89,556
Distributions 2,100,000 2,400,000
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TOTAL CURRENT LIABILITIES 2,187,736 2,489,556
NONCURRENT LIABILITIES 3,100 3,100
BENEFICIARIES' EQUITY, including certificate
holders' equity, represented by 1,500,000
shares of beneficial interest authorized
and outstanding, and reversionary interest 14,284,928 14,962,627
------------ ------------
$ 16,475,764 $ 17,455,283
============ ============
Note: The balance sheet at December 31, 2001 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 Nine Months Ended
------------------------------ ------------------------------
September 30 September 30
------------------------------ ------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues:
Royalties $ 1,982,911 $ 2,096,829 $ 6,241,387 $ 7,204,289
Interest and other income 94,572 144,817 348,549 445,666
------------ ------------ ------------ ------------
2,077,483 2,241,646 6,589,936 7,649,955
Costs and expenses 470,750 421,061 1,417,635 1,313,221
------------ ------------ ------------ ------------
NET INCOME $ 1,606,733 $ 1,820,585 $ 5,172,301 $ 6,336,734
============ ============ ============ ============
Weighted-average shares outstanding 1,500,000 1,500,000 1,500,000 1,500,000
BASIC & DILUTED EARNINGS PER SHARE $ 1.07 $ 1.21 $ 3.45 $ 4.22
============ ============ ============ ============
Distributions declared per share $ 1.40(1) $ 1.50(2) $ 3.90(3) $ 4.40(4)
Distributions paid per share $ 1.40(5) $ 1.50(6) $ 4.10(7) $ 5.30(8)
(1) $1.40 declared 9/13/02
payable 10/31/02
(2) $1.50 declared 9/10/01
paid 10/31/01
(3) $1.10 declared 3/13/02 plus $1.40 declared 6/17/02 plus $1.40 declared 9/13/02
paid 4/30/02 paid 7/31/02 payable 10/31/02
(4) $1.40 declared 3/15/01 plus $1.50 declared 6/18/01 plus $1.50 declared 9/10/01
paid 4/30/01 paid 7/31/01 paid 10/31/01
(5) $1.40 declared 6/17/02
paid 7/31/02
(6) $1.50 declared 6/18/01
paid 7/31/01
(7) $1.60 declared 12/10/01 plus $1.10 declared 3/13/02 plus $1.40 declared 6/17/02
paid 1/31/02 paid 4/30/02 paid 7/31/02
(8) $2.40 declared 12/14/00 plus $1.40 declared 3/15/01 plus $1.50 declared 6/18/01
paid 1/31/01 paid 4/30/01 paid 7/31/01
See notes to condensed financial statements.
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GREAT NORTHERN IRON ORE PROPERTIES
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
----------------------------
September 30
----------------------------
2002 2001
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Cash flows from operating activities:
Cash received from royalties and rents $ 6,899,306 $ 8,614,554
Cash paid to suppliers and employees -1,255,227 -1,221,834
Interest received 305,546 369,870
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NET CASH PROVIDED BY OPERATING ACTIVITIES 5,949,625 7,762,590
Cash flows from investing activities:
U.S. Treasury securities purchased -2,725,000 -4,109,625
U.S. Treasury securities matured 3,100,000 4,528,103
Net expenditures for equipment -24,776 -19,663
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NET CASH PROVIDED BY INVESTING ACTIVITIES 350,224 398,815
Cash flows from financing activities:
Distributions paid -6,150,000 -7,950,000
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NET CASH USED IN FINANCING ACTIVITIES -6,150,000 -7,950,000
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Net increase in cash and cash equivalents 149,849 211,405
Cash and cash equivalents at beginning of year 759,281 475,841
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CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 909,130 $ 687,246
============ ============
See notes to condensed financial statements.
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GREAT NORTHERN IRON ORE PROPERTIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Periods of Three and Nine Months ended September 30, 2002 and September 30, 2001
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, 2001.
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 between the certificate holders and the
reversioner, and reflects an allocation of beneficiaries' equity between the
certificate holders and the reversioner. The balance in this account consists of
attorneys' fees and expenses of counsel for adverse parties pursuant to 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, 2002:
Attorneys' fees and expenses ............................... $ 1,024,834
Cost of surface lands ...................................... 5,703,265
Shipment credits (cumulative) .............................. -994,877
Asset disposition credits .................................. -20,106
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Principal Charges account .................................. $ 5,713,116
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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.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Periods of Three and Nine Months ended September 30, 2002 and September 30, 2001
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.
The terms of the Great Northern Iron Ore Properties Trust Agreement, created
December 7, 1906, state that the Trust shall continue for twenty years after the
death of the last surviving of eighteen named in the Trust Agreement. The last
survivor of these eighteen named in the Trust Agreement died April 6, 1995.
According to the terms of the Trust Agreement, the Trust now terminates twenty
(20) years from April 6, 1995, that being April 6, 2015. The termination of the
Trust on April 6, 2015 means that there will be no trading of the Trust's
1,500,000 certificates of beneficial interest (shares) on the New York Stock
Exchange beyond that date. At the end of the Trust, all monies remaining in the
hands of the Trustees (after paying and providing for all expenses and
obligations of the Trust) shall be distributed ratably among the certificate
holders, while all property other than monies shall be conveyed and transferred
to the reversioner. In addition, by the terms of a District Court Order dated
November 29, 1982, the reversioner, in effect, is required to pay the balance in
the Principal Charges account (see Note B above) which primarily represents the
costs of acquiring homes and land parcels on the iron formation that are
necessary for the orderly mine development by United States Steel Corporation
under its 1959 lease with the Trustees. This account balance, which may increase
or decrease, will be added to the cash distributable to the certificate holders
of record at the termination of the Trust.
Results of Operations:
----------------------
Royalties decreased $962,902 and $113,918 during the first nine months and third
quarter of 2002, respectively, as compared to the same periods in 2001. These
decreases are mainly due to credit for previously paid minimum royalties being
applied to current taconite production. Certain leases provide the mining
companies the ability to offset excess royalties due on future production, if
any and when mined, against minimum royalties paid in prior periods.
Interest and other income decreased $97,117 and $50,245 during the first nine
months and third quarter of 2002, respectively, as compared to the same periods
in 2001. These decreases are mainly due to reduced yields on our funds held for
investment.
Costs and expenses increased $104,414 and $49,689 during the first nine months
and third quarter of 2002, respectively, as compared to the same periods in
2001. These increases are mainly due to a higher pension cost caused, in part,
by a lower return on pension plan assets.
At their meeting held on September 13, 2002, the Trustees declared a third
quarter distribution of $1.40 per share, amounting to $2,100,000 payable October
31, 2002 to certificate holders of record at the close of business on September
30, 2002. The Trustees have now declared three quarterly distributions in 2002.
The first, in the amount of $1.10 per share, was paid on April 30, 2002 to
certificate holders of record on March 28, 2002; the second, in the amount of
$1.40 per share, was paid on July 31, 2002 to certificate holders of record on
June 28, 2002; and the third,
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that being the current distribution. The first, second and third quarter 2001
distributions were $1.40, $1.50 and $1.50 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 2003 to certificate holders of record on December 31, 2002.
A mining agreement dated January 1, 1959 with United States Steel Corporation
provides that one-half of annual earned royalty income, after satisfaction of
minimum royalty payments, shall be applied to reimburse the lessee for its cost
of acquisition of surface lands overlying the leased mineral deposits, which
surface lands are then conveyed to the Trustees. 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:
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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
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- None
Item 4. Controls and Procedures
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Based on their most recent review, which was completed within ninety days of the
filing of this report, the Trust's Chief Executive Officer and Chief Financial
Officer have concluded that the Trust's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Trust in
the reports it files or submits under the Securities Exchange Act of 1934, as
amended, is accumulated and communicated to the Trust's management, including
its Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure and are effective to ensure that
such information is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
There were no significant changes in the Trust's internal controls or in other
factors that could significantly affect those controls subsequent to the date of
their evaluation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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- None
Item 2. Changes in Securities and Use of Proceeds
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- None
Item 3. Defaults Upon Senior Securities
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- None
Item 4. Submission of Matters to a Vote of Certificate Holders
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- None
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Item 5. Other Information
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- None
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits - None
(b) Reports on Form 8-K - None
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 17, 2002 By /s/ Joseph S. Micallef
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Joseph S. Micallef, President of the Trustees
and Chief Executive Officer
Date October 17, 2002 By /s/ Thomas A. Janochoski
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Thomas A. Janochoski, Vice President &
Secretary and Chief Financial Officer
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Certification pursuant to the Sarbanes-Oxley Act of 2002
--------------------------------------------------------
I, Joseph S. Micallef, President of the Trustees of Great Northern Iron Ore
Properties and Chief Executive Officer, certify that:
1. This quarterly report fully complies with the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934 and that the information
contained in this quarterly report fairly presents, in all material respects,
the financial condition and results of operations of the registrant;
2. I have reviewed this quarterly report on Form 10-Q of Great Northern
Iron Ore Properties;
3. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
4. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
5. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report ("Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
6. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors [or persons performing the
equivalent function]:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
7. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date October 17, 2002 By /s/ Joseph S. Micallef
--------------------- ---------------------------------------------
Joseph S. Micallef, President of the Trustees
and Chief Executive Officer
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Certification pursuant to the Sarbanes-Oxley Act of 2002
--------------------------------------------------------
I, Thomas A. Janochoski, Vice President & Secretary to the Trustees of Great
Northern Iron Ore Properties and Chief Financial Officer, certify that:
1. This quarterly report fully complies with the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934 and that the information
contained in this quarterly report fairly presents, in all material respects,
the financial condition and results of operations of the registrant;
2. I have reviewed this quarterly report on Form 10-Q of Great Northern
Iron Ore Properties;
3. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
4. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
5. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report ("Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
6. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors [or persons performing the
equivalent function]:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
7. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date October 17, 2002 By /s/ Thomas A. Janochoski
--------------------- ---------------------------------------------
Thomas A. Janochoski, Vice President &
Secretary and Chief Financial Officer
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