UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(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, 2014

 

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
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 ☒    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, 2014:              1,500,000

 

 

 

 
 

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

GREAT NORTHERN IRON ORE PROPERTIES

 

CONDENSED BALANCE SHEETS

 

 

    March 31,
2014 		    December 31,
2013
ASSETS   (Unaudited)   (Note)
CURRENT ASSETS                
Cash and cash equivalents   $ 1,084,596     $ 712,197  
United States Treasury securities     8,243,190       5,468,675  
Royalties receivable     4,032,700       4,448,907  
Prepaid expenses     78,111       2,110  
TOTAL CURRENT ASSETS     13,438,597       10,631,889  
                 
NONCURRENT ASSETS                
United States Treasury securities     —       2,883,251  
Prepaid pension costs     475,389       587,159  
      475,389       3,470,410  
                 
PROPERTIES                
Mineral and surface lands     39,479,708       39,479,708  
Accumulated depletion and amortization     (38,766,577 )     (38,592,577 )
      713,131       887,131  
                 
Building and equipment     335,767       335,767  
Accumulated depreciation     (277,727 )     (263,965 )
      58,040       71,802  
TOTAL PROPERTIES     771,171       958,933  
TOTAL ASSETS   $ 14,685,157     $ 15,061,232  
                 
LIABILITIES AND BENEFICIARIES’ EQUITY                
CURRENT LIABILITIES                
Accounts payable and accrued expenses   $ 115,156     $ 92,356  
Distributions     3,375,000       3,975,000  
TOTAL CURRENT LIABILITIES     3,490,156       4,067,356  
                 
NONCURRENT LIABILITIES                
Deferred compensation     244,300       244,300  
TOTAL LIABILITIES     3,734,456       4,311,656  
                 
BENEFICIARIES’ EQUITY                
Certificate holders’ equity, represented by 1,500,000
     certificates (shares or units) of beneficial interest
     authorized and outstanding, and the reversionary interest 		    11,808,245       11,611,487  
Accumulated other comprehensive loss     (857,544 )     (861,911 )
TOTAL BENEFICIARIES’ EQUITY     10,950,701       10,749,576  
TOTAL LIABILITIES AND BENEFICIARIES’ EQUITY   $ 14,685,157     $ 15,061,232  

 

  Note: The balance sheet at December 31, 2013 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
    2014     2013
REVENUES                
Royalties   $ 4,305,323     $ 4,707,867  
Interest and other income     281,821       26,313  
      4,587,144       4,734,180  
Costs and expenses     (1,015,386 )     (1,043,334 )
NET INCOME   $ 3,571,758     $ 3,690,846  
                 
Weighted-average shares outstanding     1,500,000       1,500,000  
                 
BASIC & DILUTED EARNINGS PER SHARE   $ 2.38     $ 2.46  
                 
Distributions declared per share   $ 2.25 (1)   $ 2.25 (2)

 

 

 

 

 

(1) $  2.25 declared 3/14/2014
      payable 4/30/2014
         
(2) $  2.25 declared 3/8/2013
      paid 4/30/2013

 

See notes to condensed financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 2 -
 

GREAT NORTHERN IRON ORE PROPERTIES

 

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

    Three Months Ended
March 31
    2014     2013
NET INCOME   $ 3,571,758     $ 3,690,846  
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 		    —       165,884  
Total other comprehensive income     4,367       170,251  
TOTAL COMPREHENSIVE INCOME   $ 3,576,125     $ 3,861,097  

 

See notes to condensed financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 3 -
 

GREAT NORTHERN IRON ORE PROPERTIES

 

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

  Three Months Ended
March 3 1
    2014     2013
Cash flows from operating activities:                
Cash received from royalties and rents   $ 4,999,630     $ 4,363,142  
Cash paid to suppliers and employees     (764,688 )     (712,325 )
Interest received     12,457       28,176  
NET CASH PROVIDED BY OPERATING ACTIVITIES     4,247,399       3,678,993  
                 
Cash flows from investing activities:                
United States Treasury securities purchased     (2,725,000 )     (675,000 )
United States Treasury securities matured     2,825,000       5,225,000  
NET CASH PROVIDED BY INVESTING ACTIVITIES     100,000       4,550,000  
                 
Cash flows from financing activities:                
Distributions paid     (3,975,000 )     (7,875,000 )
NET CASH USED IN FINANCING ACTIVITIES     (3,975,000 )     (7,875,000 )
                 
Net increase in cash and cash equivalents     372,399       353,993  
                 
Cash and cash equivalents at beginning of year     712,197       643,431  
                 
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 1,084,596     $ 997,424  

 

See notes to condensed financial statements.

 

 

 

 

 

 

 

 

- 4 -
 

GREAT NORTHERN IRON ORE PROPERTIES

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

Periods of Three Months ended March 31, 2014 and March 31, 2013

 

Note 1 – BASIS OF PRESENTATION

 

The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. 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 U.S. 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 (the “Trust”) Annual Report on Form 10-K for the year ended December 31, 2013.

 

 

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 classified as current assets will mature within one year of the respective period ending date stated below. Securities classified 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, 2014     Dec. 31, 2013     March 31, 2014     Dec. 31, 2013
Aggregate fair value   $ 8,237,423     $ 5,457,842     $ —     $ 2,880,219  
Gross unrealized holding gains     (2,641 )     (1,279 )     —       (442 )
Gross unrealized holding losses     154       26       —       294  
Amortized cost basis     8,234,936       5,456,589       —       2,880,071  
Accrued interest     8,254       12,086       —       3,180  
Amounts shown on balance sheets   $ 8,243,190     $ 5,468,675     $ —     $ 2,883,251  

 

 

 

Note 3 – PENSION PLAN

 

A summary of the components of net periodic pension cost is as follows:

 

 

    Three Months Ended March 31
    2014     2013
Service cost   $ 77,584     $ 81,423  
Interest cost     90,640       76,968  
Expected return on assets     (56,454 )     (134,481 )
Amortization of net loss     —       165,884  
Amortization of prior service cost     4,367       4,367  
Net periodic pension cost   $ 116,137     $ 194,161  

 

The Trust had previously disclosed in its Annual Report as of December 31, 2013, that the next contribution to the pension plan for the year 2014 is estimated to approximate $1,400,000, subject to the plan’s annual actuarial valuation performed as of the plan’s fiscal year end, March 31. No additional information is available at this time.

 

 

 

- 5 -
 

 

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 for the period ended as of:

 

 

    March 31, 2014
Attorneys’ fees and expenses   $ 1,024,834  
Costs of surface lands     6,606,815  
Cumulative shipment credits     (2,487,466 )
Cumulative asset disposition credits     (372,124 )
Principal Charges account balance   $ 4,772,059  

 

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.

 

 

Note 5 – ACCUMULATED OTHER COMPREHENSIVE LOSS

 

A summary of the component items (all affecting the “Costs and expenses” line item within the Condensed Statements of Income) showing the reclassifications out of “Accumulated other comprehensive loss” (“AOCL”) is as follows:

 

 

    Amounts reclassified from AOCL
Three Months Ended March 31
Component item   2014     2013
Amortization of defined benefit pension items:        
Prior service cost   $ 4,367     $ 4,367  
Net loss     —       165,884  
Total   $ 4,367     $ 170,251  

 

 

 

 

 

 

- 6 -
 

 

 

Note 5 – ACCUMULATED OTHER COMPREHENSIVE LOSS (Continued)

 

A summary of the changes in AOCL by component item is as follows:

 

 

    Three Months Ended March 31, 2014
Defined benefit pension items:   Prior Service Cost     Net Loss     Total
Balance at beginning of period   $ (17,467 )   $ (844,444 )   $ (861,911 )
Amounts reclassified from AOCL     4,367       —       4,367  
Balance at end of period   $ (13,100 )   $ (844,444 )   $ (857,544 )

 

    Three Months Ended March 31, 2013
Defined benefit pension items:   Prior Service Cost     Net Loss     Total
Balance at beginning of period   $ (34,936 )   $ (2,387,173 )   $ (2,422,109 )
Amounts reclassified from AOCL     4,367       165,884       170,251  
Balance at end of period   $ (30,569 )   $ (2,221,289 )   $ (2,251,858 )

 

 

 

 

 

 

 

 

 

 

 

 

- 7 -
 

 

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

Periods of Three Months ended March 31, 2014 and March 31, 2013

 

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. With the properties and offices all located in Minnesota, the Trust and matters affecting the Trust are under the jurisdiction of the Ramsey County District Court (the “Court”) in Saint Paul, Minnesota. 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.

 

Upon the termination date 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 Trust termination and after the wind-down process is completed, 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 incurred through the Trust’s termination and wind-down process), 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 of which are subject to the final accounting and approval of the Ramsey County District Court. 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), without further payment or remuneration to the certificate holders, under the terms of the Trust Agreement. The wind-down process of the Trust is anticipated to extend into the calendar year following its termination date in order to complete the various year-end audits, court and regulatory filings, tax returns, conveyances of non-cash properties to the reversioner, etc., relative thereto. Subject to the guidance and approval of the Ramsey County District Court and assuming the wind-down process with the reversioner proceeds efficiently and that no other complications arise during this time period, we anticipate the wind-down process, final distribution and dissolution of the Trust will be completed by the end of 2016.

 

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 less properties) and the balance in the Principal Charges account, less any and all expenses and obligations incurred through the Trust’s termination and wind-down process. To offer a hypothetical example, without factoring in any expenses and obligations incurred through the Trust’s termination and wind-down process, and using the financial statement values as of December 31, 2013, the net monies were approximately $9,790,000 and the Principal Charges account balance was approximately $4,789,000, resulting in a final distribution payable of approximately $14,579,000, or about $9.72 per share. Upon the termination of the Trust, the certificates of beneficial interest (shares) would be cancelled and have no further value with the exception of the final distribution. 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 process of the Trust is completed. 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 decreased $402,544 during the three months ended March 31, 2014, as compared to the same period in 2013, due mainly to a lower overall average earned royalty rate caused by our lessees mining more taconite from our partial fee interest lands resulting in royalties representative of our ownership interest, offset in part by overall increased taconite shipments from Trust lands and increased tailings revenues.

 

Interest and other income increased $255,508 during the three months ended March 31, 2014, as compared to the same period in 2013, due mainly to the higher aggregate (mineral rock) sales.

 

Costs and expenses decreased $27,948 during the three months ended March 31, 2014, as compared to the same period in 2013, due mainly to less net periodic pension cost associated with the Trust’s defined benefit pension plan, offset in part by increased legal expenditures related to Trust termination matters.

 

 

- 8 -
 

 

At their meeting held on March 14, 2014, the Trustees declared a distribution of $2.25 per share, amounting to $3,375,000 payable April 30, 2014, to certificate holders of record at the close of business on March 31, 2014. Following payment of this quarterly distribution, there will be four (4) more regular quarterly distributions declared (three in 2014 and one in 2015) before the termination date of the Trust on April 6, 2015. While there will be some income allocated to the second quarter of 2015 (representing six days of business), it is expected that this amount will be nominal and will likely be included with the final distribution to certificate holders. The final distribution to certificate holders of record as of April 6, 2015 will be made subsequent to the termination date and upon completion of the wind-down process. At their meeting held on March 8, 2013, the Trustees declared a distribution of $2.25 per share, amounting to $3,375,000 paid on April 30, 2013, to certificate holders of record at the close of business on March 28, 2013. 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 July 31, 2014 to certificate holders of record on June 30, 2014.

 

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 United States 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 Annual Report on Form 10-K for the year ended December 31, 2013.

 

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

 

 

- 9 -
 

 

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.DEF   XBRL Taxonomy Extension Definition 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 29, 2014   By:   /s/  Joseph S. Micallef  
      Joseph S. Micallef, Chief Executive Officer,  
      Trustee and President of the Trustees  
      (principal executive officer)  

 

 

Date:  April 29, 2014   By:   /s/  Thomas A. Janochoski  
      Thomas A. Janochoski, Chief Financial Officer,  
      Vice President & Secretary  
      (principal financial and accounting officer)  

 

 

 

 

 

 

- 10 -
 

 

QUARTERLY REPORT ON FORM 10-Q

 

EXHIBIT INDEX

 

QUARTER ENDED: MARCH 31, 2014

 

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.DEF   XBRL Taxonomy Extension Definition 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)