UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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FORM 10-Q

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(Mark One)

 

☒   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 - For the Quarterly Period Ended March 31, 2012

 

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

(Registrant’s telephone number, including area code)

 

Not Applicable

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

 

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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 ☒     No ☐

 

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 ☒     No ☐

 

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	☐	Accelerated filer	☒
	Non-accelerated filer	☐	Smaller reporting company	☐

 

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

 

Number of shares of beneficial interest outstanding on March 31, 2012:

1,500,000

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

GREAT NORTHERN IRON ORE PROPERTIES

 

CONDENSED BALANCE SHEETS

 

		March 31,				December 31,
		2012				2011
ASSETS		(Unaudited)				(Note)
CURRENT ASSETS
Cash and cash equivalents		$	589,334			$	750,947
United States Treasury securities			4,033,859				5,108,307
Royalties receivable			6,730,314				7,912,289
Prepaid expenses			72,641				2,110
TOTAL CURRENT ASSETS			11,426,148				13,773,653
NONCURRENT ASSETS
United States Treasury securities			4,862,481				4,759,072
PROPERTIES
Mineral and surface lands			39,479,708				39,479,708
Less: Allowances for accumulated depletion and amortization			-37,375,777				-37,201,777
			2,103,931				2,277,931
Building and equipment			316,816				316,816
Less: Allowances for accumulated depreciation			-221,020				-212,560
			95,796				104,256
TOTAL PROPERTIES			2,199,727				2,382,187
TOTAL ASSETS		$	18,488,356			$	20,914,912
LIABILITIES AND BENEFICIARIES’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	185,622			$	128,856
Distributions			3,375,000				8,625,000
TOTAL CURRENT LIABILITIES			3,560,622				8,753,856
NONCURRENT LIABILITIES
Deferred compensation			209,600				209,600
Liability for pension benefits			1,687,245				1,642,113
TOTAL NONCURRENT LIABILITIES			1,896,845				1,851,713
TOTAL LIABILITIES			5,457,467				10,605,569
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			15,346,421				12,752,340
Accumulated other comprehensive loss			-2,315,532				-2,442,997
TOTAL BENEFICIARIES’ EQUITY			13,030,889				10,309,343
TOTAL LIABILITIES AND BENEFICIARIES’ EQUITY		$	18,488,356			$	20,914,912

 

Note: The balance sheet at December 31, 2011, 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.

 

GREAT NORTHERN IRON ORE PROPERTIES

 

CONDENSED STATEMENTS OF INCOME

(Unaudited)

 

		Three Months Ended
		March 31
		2012				2011
REVENUES
Royalties		$	7,000,188			$	5,414,676
Interest and other income			30,357				34,218
			7,030,545				5,448,894
Costs and expenses			-1,061,464				-954,202
NET INCOME		$	5,969,081			$	4,494,692
Weighted-average shares outstanding			1,500,000				1,500,000
BASIC AND DILUTED EARNINGS PER SHARE		$	3.98			$	3.00
Distributions declared per share		$	2.25	(1)		$	2.25	(2)

 

(1)	$2.25	declared		3/9/2012
		payable		4/30/2012
(2)	$2.25	declared		3/10/2011
		paid		4/29/2011

 

See notes to condensed financial statements.

 

 

GREAT NORTHERN IRON ORE PROPERTIES

 

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

		Three Months Ended
		March 31
		2012				2011
NET INCOME		$	5,969,081			$	4,494,692
Other comprehensive income:
Defined benefit pension plan:
Amortization of prior service cost included in net periodic pension cost			4,367				4,367
Amortization of net loss included in net periodic pension cost			123,098				76,587
Total other comprehensive income			127,465				80,954
TOTAL COMPREHENSIVE INCOME		$	6,096,546			$	4,575,646

 

See notes to condensed financial statements.

 

GREAT NORTHERN IRON ORE PROPERTIES

 

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Three Months Ended
		March 31
		2012				2011
Cash flows from operating activities:
Cash received from royalties and rents		$	8,203,545			$	5,986,493
Cash paid to suppliers and employees			-720,172				-711,907
Interest and related premium/discount received (paid)			5,014				-4,028
NET CASH PROVIDED BY OPERATING ACTIVITIES			7,488,387				5,270,558
Cash flows from investing activities:
United States Treasury securities purchased			-1,625,000				-1,525,000
United States Treasury securities matured			2,600,000				1,750,000
NET CASH PROVIDED BY INVESTING ACTIVITIES			975,000				225,000
Cash flows from financing activities:
Distributions paid			-8,625,000				-5,625,000
NET CASH USED IN FINANCING ACTIVITIES			-8,625,000				-5,625,000
Net decrease in cash and cash equivalents			-161,613				-129,442
Cash and cash equivalents at beginning of year			750,947				668,310
CASH AND CASH EQUIVALENTS AT MARCH 31		$	589,334			$	538,868

 

See notes to condensed financial statements.

 

GREAT NORTHERN IRON ORE PROPERTIES

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

Periods of Three Months ended March 31, 2012 and March 31, 2011

 

Note 1 – 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, 2011.

 

Note 2 – 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 a summary of the securities as of the periods stated:

 

		Current								Noncurrent
		March 31, 2012				Dec. 31, 2011				March 31, 2012				Dec. 31, 2011
Aggregate fair value		$	4,026,724			$	5,094,703			$	4,850,535			$	4,755,809
Gross unrealized holding gains			-7,486				-4,929				-4,517				-12,995
Gross unrealized holding losses			32				857				5,950				1,192
Amortized cost basis			4,019,270				5,090,631				4,851,968				4,744,006
Accrued interest			14,589				17,676				10,513				15,066
Amounts shown on balance sheets		$	4,033,859			$	5,108,307			$	4,862,481			$	4,759,072

 

 

 

 

 

 

Note 3 – PENSION PLAN

 

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

 

		2012				2011
Service cost		$	76,700			$	69,912
Interest cost			80,549				79,965
Expected return on assets			–112,117				–108,398
Amortization of net loss			123,098				76,587
Amortization of prior service cost			4,367				4,367
Net periodic pension cost		$	172,597			$	122,433

 

The Trust had previously disclosed in its Annual Report as of December 31, 2011, that the next contribution to the plan for 2012 is estimated to approximate $570,000, 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 4 – 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 U. S. 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, 2012:

 

Attorneys’ fees and expenses		$	1,024,834
Costs of surface lands			6,606,815
Cumulative shipment credits			–2,320,314
Cumulative asset disposition credits			–372,124
Principal Charges account balance		$	4,939,211

 

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.

 

 

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

 

Periods of Three Months ended March 31, 2012 and March 31, 2011

 

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.

 

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, 2011, the net monies were approximately $7,927,000 and the Principal Charges account balance was approximately $4,962,000, resulting in a final distribution payable of approximately $12,889,000, or about $8.59 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 $1,585,512 during the three months ended March 31, 2012, as compared to the same period in 2011, 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 $3,861 during the three months ended March 31, 2012, as compared to the same period in 2011, due mainly to reduced yields on the Trust’s investments.

 

Costs and expenses increased $107,262 during the three months ended March 31, 2012, as compared to the same period in 2011, due mainly to higher pension expense pertaining to the defined benefit pension plan primarily caused by a reduction in the discount rate and additional amortization of surface lands that were acquired in prior years.

 

At their meeting held on March 9, 2012, the Trustees declared a distribution of $2.25 per share, amounting to $3,375,000 payable April 30, 2012, to certificate holders of record at the close of business on March 30, 2012. At their meeting held on March 10, 2011, the Trustees declared a distribution of $2.25 per share, amounting to $3,375,000 paid on April 29, 2011, to certificate holders of record at the close of business on March 31, 2011. 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 2012 to certificate holders of record on June 29, 2012.

 

A mining agreement dated January 1, 1959, with U. S. Steel Corporation provides that one-half of annual earned royalty income, after satisfaction of minimum royalty payments, shall be applied, in lieu of royalty payments, 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

- None

 

Item 1A. Risk Factors

There are no material changes from the risk factors previously disclosed in the Trust’s December 31, 2011 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. Mine Safety Disclosures

- Not applicable

 

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)

 

 

 

- 101.INS		XBRL Instance Document (Interactive Data File)
- 101.SCH		XBRL Taxonomy Extension Schema Document (Interactive Data File)
- 101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (Interactive Data File)
- 101.LAB		XBRL Taxonomy Extension Label Linkbase Document (Interactive Data File)
- 101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (Interactive Data File)

 

 

 

 

 

 

 

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 26, 2012		By	/s/  Joseph S. Micallef
				Joseph S. Micallef, President of the Trustees and Chief Executive Officer
Date	April 26, 2012		By	/s/  Thomas A. Janochoski
				Thomas A. Janochoski, Vice President & Secretary and Chief Financial Officer

 

 

 

 

 

 

 

 

QUARTERLY REPORT ON FORM 10-Q

 

EXHIBIT INDEX

 

QUARTER ENDED:     MARCH 31, 2012

 

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)
101.INS		XBRL Instance Document (Interactive Data File)
101.SCH		XBRL Taxonomy Extension Schema Document (Interactive Data File)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (Interactive Data File)
101.LAB		XBRL Taxonomy Extension Label Linkbase Document (Interactive Data File)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (Interactive Data File)