Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Periods of Three and Six Months ended June 30, 2013
and June 30, 2012
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, 2012, the net monies were approximately $7,719,000 and the Principal Charges account balance was approximately
$4,871,000, resulting in a final distribution payable of approximately $12,590,000, or about $8.39 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 decreased $2,296,134 and $4,588,455 during
the three and six month periods ended June 30, 2013, respectively, as compared to the same periods in 2012, due mainly to reduced
taconite shipments from our Trust lands and a lower overall average earned royalty rate caused by lower producer price indices.
Interest and other income decreased $3,801 and $7,845
during the three and six month periods ended June 30, 2013, respectively, as compared to the same periods in 2012, due mainly to
reduced yields on the Trust’s investments.
Costs and expenses decreased $39,033 and $57,163 during
the three and six month periods ended June 30, 2013, respectively, as compared to the same periods in 2012, due mainly to legal
expenses incurred in the prior year pertaining to lease administration, which were not required in the current year.
At their meeting held on June 17, 2013, the Trustees
declared a distribution of $2.50 per share, amounting to $3,750,000 payable July 31, 2013, to certificate holders of record at
the close of business on June 28, 2013. The Trustees have now declared two quarterly distributions in 2013. The first, in the amount
of $2.25 per share, was paid on April 30, 2013, to certificate holders of record on March 28, 2013; and the second, that being
the current distribution. The first and second quarter 2012 distributions were $2.25 and $3.00 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 October 31, 2013 to certificate holders of record on September 30, 2013.
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.