UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 2004 |
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 | |||
(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 | |||
(Registrants 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
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, 2004: 1,500,000
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GREAT NORTHERN IRON ORE PROPERTIES
CONDENSED BALANCE SHEETS
June 30 2004 | December 31 2003 | |||||||
---|---|---|---|---|---|---|---|---|
(Unaudited) | (Note) | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 728,737 | $ | 856,399 | ||||
United States Treasury securities | 4,265,793 | 3,746,640 | ||||||
Royalties receivable | 3,669,523 | 2,243,423 | ||||||
Prepaid expenses | 38,461 | 4,679 | ||||||
TOTAL CURRENT ASSETS | 8,702,514 | 6,851,141 | ||||||
NONCURRENT ASSETS | ||||||||
United States Treasury securities | 4,542,403 | 5,097,676 | ||||||
Prepaid pension expense | 794,999 | 810,183 | ||||||
5,337,402 | 5,907,859 | |||||||
PROPERTIES | ||||||||
Mineral lands | 38,577,007 | 38,577,007 | ||||||
Less allowances for depletion and | ||||||||
amortization | 34,185,865 | 34,081,765 | ||||||
4,391,142 | 4,495,242 | |||||||
Building and equipment at cost, less | ||||||||
allowances for accumulated depreciation | ||||||||
(6/30/04 $210,563; 12/31/03 $193,279) | 141,778 | 159,347 | ||||||
4,532,920 | 4,654,589 | |||||||
$ | 18,572,836 | $ | 17,413,589 | |||||
LIABILITIES AND BENEFICIARIES EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable and accrued expenses | $ | 79,295 | $ | 94,656 | ||||
Distributions | 2,850,000 | 2,550,000 | ||||||
TOTAL CURRENT LIABILITIES | 2,929,295 | 2,644,656 | ||||||
NONCURRENT LIABILITIES | 27,000 | 27,000 | ||||||
BENEFICIARIES EQUITY, including certificate | ||||||||
holders equity, represented by 1,500,000 | ||||||||
shares of beneficial interest authorized | ||||||||
and outstanding, and reversionary interest | 15,616,541 | 14,741,933 | ||||||
$ | 18,572,836 | $ | 17,413,589 | |||||
Note: The balance sheet at December 31, 2003 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 | |||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||
Revenues: | ||||||||||||||
Royalties | $ | 3,985,278 | $ | 3,386,968 | $ | 7,452,416 | $ | 6,295,262 | ||||||
Interest and other income | 49,653 | 147,044 | 126,496 | 226,345 | ||||||||||
4,034,931 | 3,534,012 | 7,578,912 | 6,521,607 | |||||||||||
Costs and expenses | 526,651 | 549,880 | 1,154,304 | 1,128,724 | ||||||||||
NET INCOME | $ | 3,508,280 | $ | 2,984,132 | $ | 6,424,608 | $ | 5,392,883 | ||||||
Weighted-average shares outstanding | 1,500,000 | 1,500,000 | 1,500,000 | 1,500,000 | ||||||||||
BASIC & DILUTED EARNINGS PER SHARE | $ | 2.34 | $ | 1.99 | $ | 4.28 | $ | 3.60 | ||||||
Distributions declared per share | $ | 1.90 | (1) | $ | 1.60 | (2) | $ | 3.70 | (3) | $ | 3.10 | (4) | ||
Distributions paid per share | $ | 1.80 | (5) | $ | 1.50 | (6) | $ | 3.50 | (7) | $ | 3.00 | (8) |
(1) | $ | 1.90 | declared | 6/14/2004 | |||||||||||||||||||
payable | 7/30/2004 | ||||||||||||||||||||||
(2) | $ | 1.60 | declared | 6/9/2003 | |||||||||||||||||||
paid | 7/31/2003 | ||||||||||||||||||||||
(3) | $ | 1.80 | declared | 3/15/2004 | plus | $ | 1.90 | declared | 6/14/2004 | ||||||||||||||
paid | 4/30/2004 | payable | 7/30/2004 | ||||||||||||||||||||
(4) | $ | 1.50 | declared | 3/14/2003 | plus | $ | 1.60 | declared | 6/9/2003 | ||||||||||||||
paid | 4/30/2003 | paid | 7/31/2003 | ||||||||||||||||||||
(5) | $ | 1.80 | declared | 3/15/2004 | |||||||||||||||||||
paid | 4/30/2004 | ||||||||||||||||||||||
(6) | $ | 1.50 | declared | 3/14/2003 | |||||||||||||||||||
paid | 4/30/2003 | ||||||||||||||||||||||
(7) | $ | 1.70 | declared | 12/19/2003 | plus | $ | 1.80 | declared | 3/15/2004 | ||||||||||||||
paid | 1/30/2004 | paid | 4/30/2004 | ||||||||||||||||||||
(8) | $ | 1.50 | declared | 12/20/2002 | plus | $ | 1.50 | declared | 3/14/2003 | ||||||||||||||
paid | 1/31/2003 | paid | 4/30/2003 |
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 | ||||||||
2004 | 2003 | |||||||
Cash flows from operating activities: | ||||||||
Cash received from royalties and rents | $ | 6,064,162 | $ | 5,962,411 | ||||
Cash paid to suppliers and employees | -1,065,899 | -1,018,612 | ||||||
Interest received | 99,770 | 154,449 | ||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 5,098,033 | 5,098,248 | ||||||
Cash flows from investing activities: | ||||||||
U.S. Treasury securities purchased | -2,100,000 | -2,650,000 | ||||||
U.S. Treasury securities matured | 2,125,000 | 2,100,000 | ||||||
Net expenditures for equipment | -695 | -28,227 | ||||||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | 24,305 | -578,227 | ||||||
Cash flows from financing activities: | ||||||||
Distributions paid | -5,250,000 | -4,500,000 | ||||||
NET CASH USED IN FINANCING ACTIVITIES | -5,250,000 | -4,500,000 | ||||||
Net (decrease) increase in cash and cash equivalents | -127,662 | 20,021 | ||||||
Cash and cash equivalents at beginning of year | 856,399 | 663,230 | ||||||
CASH AND CASH EQUIVALENTS AT JUNE 30 | $ | 728,737 | $ | 683,251 | ||||
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 Six Months ended June 30, 2004 and June 30, 2003
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, 2003.
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 June 30, 2004:
Attorneys fees and expenses | $ | 1,024,834 | |||
Cost of surface lands | 5,703,265 | ||||
Cumulative shipment credits | -1,255,516 | ||||
Asset disposition credits | -57,950 | ||||
Principal Charges account | $ | 5,414,633 | |||
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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Note C PENSION PLAN
A summary of the components of net periodic pension cost, a noncash item, is as follows:
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | 2004 | 2003 | |||||||||||
Service cost | $ | 29,356 | $ | 23,055 | $ | 58,713 | $ | 46,110 | ||||||
Interest cost | 52,599 | 53,502 | 105,198 | 107,003 | ||||||||||
Expected return on assets | -75,804 | -65,146 | -151,609 | -130,292 | ||||||||||
Net amortization | 1,441 | 9,662 | 2,882 | 19,324 | ||||||||||
Net periodic pension cost | $ | 7,592 | $ | 21,073 | $ | 15,184 | $ | 42,145 | ||||||
The plans annual actuarial valuation was performed as of the plans fiscal year-end March 31. The recommended contribution to the plan is $161,511, which contribution is scheduled to be made in August, 2004.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Periods of Three and Six Months ended June 30, 2004 and June 30, 2003
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. Accordingly, 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 Trusts 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 (term beneficiaries), while all property other than monies shall be conveyed and transferred to the reversionary beneficiary (formerly Lake Superior Company, Limited) or its successors or assigns (currently Glacier Park Company, a wholly owned subsidiary of Burlington Resources, Inc.). 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 surface lands 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.
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Results of Operations:
Royalties increased $1,157,154 and $598,310 during the six months and three months ended June 30, 2004, respectively, as compared to the same periods in 2003, due mainly to improved royalty rates on greater tonnage mined from Trust lands.
Interest and other income decreased $99,849 and $97,391 during the six months and three months ended June 30, 2004, respectively, as compared to the same periods in 2003, due mainly to reduced yields on our funds held for investment and reduced timber receipts.
At their meeting held on June 14, 2004, the Trustees declared a second quarter distribution of $1.90 per share, amounting to $2,850,000 payable July 30, 2004 to certificate holders of record at the close of business on June 30, 2004. The Trustees have now declared two quarterly distributions in 2004. The first, in the amount of $1.80 per share, was paid on April 30, 2004 to certificate holders of record on March 31, 2004; and the second, that being the current distribution. The first and second quarter 2003 distributions were $1.50 and $1.60 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 October 2004 to certificate holders of record on September 30, 2004.
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 Trusts 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)).
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Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Trusts 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 Trusts internal control over financial reporting during the Trusts most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Trusts internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
At a hearing held on May 26, 2004, in Ramsey County District Court, Saint Paul, Minnesota, the accounts of the Trustees for the year 2003 were approved.
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
Item 6. Exhibits and Reports on Form 8-K
(a) 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) |
(b) Reports on Form 8-K None |
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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 20, 2004 | By | /s/ Joseph S. Micallef | ||||
Joseph S. Micallef, President of the Trustees and Chief Executive Officer | |||||||
Date |
July 20, 2004 | By | /s/ Thomas A. Janochoski | ||||
Thomas A. Janochoski, Vice President & Secretary and Chief Financial Officer |
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