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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 JUNE 30, 2003
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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
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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
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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 ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes _X_ No ___
Number of shares of beneficial interest outstanding on June 30, 2003: 1,500,000
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PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
----------------------------
GREAT NORTHERN IRON ORE PROPERTIES
CONDENSED BALANCE SHEETS
June 30 December 31
2003 2002
----------- -----------
(Unaudited) (Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 683,251 $ 663,230
United States Treasury securities 4,245,742 4,242,067
Royalties receivable 3,080,123 2,635,883
Prepaid expenses 34,029 2,760
----------- -----------
TOTAL CURRENT ASSETS 8,043,145 7,543,940
NONCURRENT ASSETS
United States Treasury securities 4,267,506 3,760,674
Prepaid pension expense 666,062 708,207
----------- -----------
4,933,568 4,468,881
PROPERTIES
Mineral lands 38,577,007 38,577,007
Less allowances for depletion and amortization 33,977,665 33,873,565
----------- -----------
4,599,342 4,703,442
Building and equipment--at cost, less allowances for
accumulated depreciation (6/30/03 - $215,974;
12/31/02 - $197,020) 166,673 157,400
----------- -----------
4,766,015 4,860,842
----------- -----------
$17,742,728 $16,873,663
=========== ===========
LIABILITIES AND BENEFICIARIES' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 61,756 $ 85,574
Distributions 2,400,000 2,250,000
----------- -----------
TOTAL CURRENT LIABILITIES 2,461,756 2,335,574
NONCURRENT LIABILITIES 13,700 13,700
BENEFICIARIES' EQUITY, including certificate holders' equity,
represented by 1,500,000 shares of beneficial interest
authorized and outstanding, and reversionary interest 15,267,272 14,524,389
----------- -----------
$17,742,728 $16,873,663
=========== ===========
Note: The balance sheet at December 31, 2002 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 Six Months Ended
------------------------------- -----------------------------
June 30 June 30
----------------------------- -----------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Revenues:
Royalties $3,386,968 $2,690,576 $6,295,262 $4,258,476
Interest and other income 147,044 101,230 226,345 253,977
---------- ---------- ---------- ----------
3,534,012 2,791,806 6,521,607 4,512,453
Costs and expenses 549,880 456,558 1,128,724 946,885
---------- ---------- ---------- ----------
NET INCOME $2,984,132 $2,335,248 $5,392,883 $3,565,568
========== ========== ========== ==========
Weighted-average shares outstanding 1,500,000 1,500,000 1,500,000 1,500,000
BASIC & DILUTED EARNINGS PER SHARE $ 1.99 $ 1.56 $ 3.60 $ 2.38
========== ========== ========== ==========
Distributions declared per share $ 1.60(1) $ 1.40(2) $ 3.10(3) $ 2.50(4)
Distributions paid per share $ 1.50(5) $ 1.10(6) $ 3.00(7) $ 2.70(8)
(1) $1.60 declared 6/9/2003
payable 7/31/2003
(2) $1.40 declared 6/17/2002
paid 7/31/2002
(3) $1.50 declared 3/14/2003 plus $1.60 declared 6/9/2003
paid 4/30/2003 payable 7/31/2003
(4) $1.10 declared 3/13/2002 plus $1.40 declared 6/17/2002
paid 4/30/2002 paid 7/31/2002
(5) $1.50 declared 3/14/2003
paid 4/30/2003
(6) $1.10 declared 3/13/2002
paid 4/30/2002
(7) $1.50 declared 12/20/2002 plus $1.50 declared 3/14/2003
paid 1/31/2003 paid 4/30/2003
(8) $1.60 declared 12/10/2001 plus $1.10 declared 3/13/2002
paid 1/31/2002 paid 4/30/2002
See notes to condensed financial statements.
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GREAT NORTHERN IRON ORE PROPERTIES
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
-----------------------------
June 30
-----------------------------
2003 2002
----------- -----------
Cash flows from operating activities:
Cash received from royalties and rents $ 5,962,411 $ 4,194,200
Cash paid to suppliers and employees (1,018,612) (894,576)
Interest received 154,449 155,183
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,098,248 3,454,807
Cash flows from investing activities:
U.S. Treasury securities purchased (2,650,000) (1,175,000)
U.S. Treasury securities matured 2,100,000 1,500,000
Net expenditures for equipment (28,227) (9,998)
----------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (578,227) 315,002
Cash flows from financing activities:
Distributions paid (4,500,000) (4,050,000)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (4,500,000) (4,050,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents 20,021 (280,191)
Cash and cash equivalents at beginning of year 663,230 759,281
----------- -----------
CASH AND CASH EQUIVALENTS AT JUNE 30 $ 683,251 $ 479,090
=========== ===========
See notes to condensed financial statements.
-4-
GREAT NORTHERN IRON ORE PROPERTIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Periods of Three and Six Months ended June 30, 2003 and June 30, 2002
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, 2002.
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. 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 June 30, 2003:
Attorneys' fees and expenses ................................. $ 1,024,834
Cost of surface lands .................................... 5,703,265
Cumulative shipment credits .................................. -1,112,536
Asset disposition credits ................................. -57,950
-----------
Principal Charges account .................................... $ 5,557,613
===========
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-
Item 2. Management's Discussion and Analysis of Financial Condition and
- -----------------------------------------------------------------------
Results of Operations
- ---------------------
Periods of Three and Six Months ended June 30, 2003 and June 30, 2002
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
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 increased $2,036,786 and $696,392 during the six months and three
months ended June 30, 2003, respectively, as compared to the same periods in
2002, due mainly to increased taconite production from Trust lands.
Interest and other income decreased $27,632 during the six months ended June 30,
2003, as compared to the same period in 2002, due mainly to a reduced yield on
our funds held for investment. Interest and other income increased $45,814
during the three months ended June 30, 2003, as compared to the same period in
2002, due mainly to higher timber revenues received.
Costs and expenses increased $181,839 and $93,322 during the six months and
three months ended June 30, 2003, respectively, as compared to the same periods
in 2002. These increases are mainly due to costs associated with the increase in
the compensation of the President as authorized by the Judge of District Court
(see Part II, Item 1. Legal Proceedings below), higher pension expense caused,
in part, by a lower return on pension plan assets and increased shareholder
relations expenditures resulting from additional corporate governance
requirements.
At their meeting held on June 9, 2003, the Trustees declared a second quarter
distribution of $1.60 per share, amounting to $2,400,000 payable July 31, 2003
to certificate holders of record at the close of business on June 30, 2003. The
Trustees have now declared two quarterly distributions in 2003. The first, in
the amount of $1.50 per share, was paid on April 30, 2003 to certificate holders
of record on March 31, 2003; and the second, that being the current
distribution. The first and second quarter 2002 distributions were $1.10 and
$1.40 per share,
-6-
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 October 2003 to certificate holders of record
on September 30, 2003.
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:
----------
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
- --------------------------------
Based on their most recent evaluation, that being the end of the period covered
by this quarterly 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
- -------------------------
At a hearing held on May 14, 2003, in Ramsey County District Court, Saint Paul,
Minnesota, the accounts of the Trustees for the year 2002 were approved. In
addition, the requested fee increase for the President of the Trustees was
granted effective January 1, 2003.
Item 2. Changes in Securities and Use of Proceeds
- -------------------------------------------------
- None
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
- None
Item 4. Submission of Matters to a Vote of Certificate Holders
- --------------------------------------------------------------
- None
Item 5. Other Information
- -------------------------
- None
-7-
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits: Exhibit 99(a) - Certifications pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
(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 July 17, 2003 By /s/ Joseph S. Micallef
------------------- -------------------------------------------------
Joseph S. Micallef, President of the Trustees and
Chief Executive Officer
Date July 17, 2003 By /s/ Thomas A. Janochoski
------------------- -------------------------------------------------
Thomas A. Janochoski, Vice President &
Secretary and Chief Financial Officer
-8-
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
-----------------------------------------------------------------------
I, Joseph S. Micallef, President of the Trustees and Chief Executive Officer of
Great Northern Iron Ore Properties, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Great Northern
Iron Ore Properties;
2. 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;
3. 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;
4. 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-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, 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;
and
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles; and
c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this quarterly report based on such evaluation; and
d) disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors [or persons performing the equivalent functions]:
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date July 17, 2003 By /s/ Joseph S. Micallef
------------------- -------------------------------------------------
Joseph S. Micallef, President of the Trustees and
Chief Executive Officer
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
-----------------------------------------------------------------------
I, Thomas A. Janochoski, Vice President & Secretary and Chief Financial Officer
of Great Northern Iron Ore Properties, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Great Northern
Iron Ore Properties;
2. 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;
3. 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;
4. 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-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, 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;
and
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles; and
c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this quarterly report based on such evaluation; and
d) disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors [or persons performing the equivalent functions]:
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date July 17, 2003 By /s/ Thomas A. Janochoski
------------------- -------------------------------------------------
Thomas A. Janochoski, Vice President &
Secretary and Chief Financial Officer
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