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 SEPTEMBER 30, 1998
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
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(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
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(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 [ ]
Number of shares of beneficial interest outstanding on September 30, 1998:
1,500,000
<PAGE>
PART I. FINANCIAL INFORMATION
GREAT NORTHERN IRON ORE PROPERTIES
CONDENSED BALANCE SHEETS
September 30 December 31
1998 1997
------------ -----------
(Unaudited) (Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 172,160 $ 496,447
United States Treasury securities 4,159,806 3,378,688
Royalties receivable 3,605,995 1,897,554
Prepaid expenses 16,682 4,938
----------- -----------
TOTAL CURRENT ASSETS 7,954,643 5,777,627
NONCURRENT ASSETS
United States Treasury Notes 4,140,913 4,862,604
Prepaid pension expense 305,781 270,570
----------- -----------
4,446,694 5,133,174
PROPERTIES
Mineral lands 38,126,311 38,055,311
Less allowances for depletion and
amortization 33,029,311 32,898,721
----------- -----------
5,097,000 5,156,590
Building and equipment--at cost, less
allowances for accumulated depreciation
(9/30/98 - $158,931; 12/31/97 - $147,299) 110,983 112,233
----------- -----------
5,207,983 5,268,823
----------- -----------
$17,609,320 $16,179,624
=========== ===========
LIABILITIES AND BENEFICIARIES' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 96,645 $ 110,156
Distributions 2,700,000 2,250,000
----------- -----------
TOTAL CURRENT LIABILITIES 2,796,645 2,360,156
BENEFICIARIES' EQUITY, including certificate
holders' equity, represented by 1,500,000
shares of beneficial interest authorized
and outstanding, and reversionary interest 14,812,675 13,819,468
----------- -----------
$17,609,320 $16,179,624
=========== ===========
Note: The balance sheet at December 31, 1997 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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<PAGE>
GREAT NORTHERN IRON ORE PROPERTIES
CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- ---------------------------
September 30 September 30
-------------------------- ---------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income:
Royalties $3,755,995 $2,806,135 $8,598,716 $7,369,425
Interest and other income 131,136 130,789 417,016 453,765
---------- ---------- ---------- ----------
3,887,131 2,936,924 9,015,732 7,823,190
Costs and expenses 410,933 385,091 1,272,525 1,165,170
---------- ---------- ---------- ----------
NET INCOME $3,476,198 $2,551,833 $7,743,207 $6,658,020
========== ========== ========== ==========
Weighted average shares
outstanding 1,500,000 1,500,000 1,500,000 1,500,000
BASIC EARNINGS PER SHARE $ 2.32 $ 1.70 $ 5.16 $ 4.44
========== ========== ========== ==========
Distributions declared per share $ 1.80(1) $ 1.50(2) $ 4.50(3) $ 4.50(4)
Distributions paid per share $ 1.50(5) $ 1.50(6) $ 4.20(7) $ 4.70(8)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
(1) $1.80 declared 9/18/98
payable 10/30/98
(2) $1.50 declared 9/15/97
paid 10/31/97
(3) $1.20 declared 3/16/98 plus $1.50 declared 6/15/98 plus $1.80 declared 9/18/98
paid 4/30/98 paid 7/31/98 payable 10/30/98
(4) $1.50 declared 3/17/97 plus $1.50 declared 6/16/97 plus $1.50 declared 9/15/97
paid 4/30/97 paid 7/31/97 paid 10/31/97
(5) $1.50 declared 6/15/98
paid 7/31/98
(6) $1.50 declared 6/16/97
paid 7/31/97
(7) $1.50 declared 12/15/97 plus $1.20 declared 3/16/98 plus $1.50 declared 6/15/98
paid 1/30/98 paid 4/30/98 paid 7/31/98
(8) $1.70 declared 12/16/96 plus $1.50 declared 3/17/97 plus $1.50 declared 6/16/97
paid 1/31/97 paid 4/30/97 paid 7/31/97
</TABLE>
See notes to condensed financial statements.
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<PAGE>
GREAT NORTHERN IRON ORE PROPERTIES
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------
September 30
------------------------
1998 1997
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from royalties and rents $ 6,868,711 $7,285,200
Cash paid to suppliers and employees -1,182,221 -1,069,203
Interest received 358,153 392,529
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,044,643 6,608,526
Cash flows from investing activities:
U.S. Treasury securities purchased -2,200,000 -1,950,000
U.S. Treasury securities matured 2,150,000 2,400,000
Net expenditures for equipment -18,930 -37,590
----------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES -68,930 412,410
Cash flows from financing activities:
Distributions paid -6,300,000 -7,050,000
----------- ----------
NET CASH USED IN FINANCING ACTIVITIES -6,300,000 -7,050,000
----------- ----------
Net decrease in cash and cash equivalents -324,287 -29,064
Cash and cash equivalents at beginning of year 496,447 448,008
----------- ----------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 172,160 $ 418,944
=========== ==========
</TABLE>
See notes to condensed financial statements.
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<PAGE>
GREAT NORTHERN IRON ORE PROPERTIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Periods of Three and Nine Months ended September 30, 1998 and September 30, 1997
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, 1997.
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. The balance in this account consists of
attorneys' fees and expenses of counsel for adverse parties pursuant to 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 September 30, 1998:
Attorneys' fees and expenses ............................. $1,024,834
Cost of surface lands ................................. 5,252,569
Shipment credits (cumulative) .......................... -597,480
Asset disposition credits .............................. -20,000
----------
Principal Charges account .............................. $5,659,923
==========
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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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Periods of Three and Nine Months ended September 30, 1998 and September 30, 1997
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
(20) 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. By the terms of a District Court Order dated November 29,
1982, the reversioner is required to pay to a Principal Charges account (as
explained in the Trust's Annual Report which is sent to all certificate holders
every year) the cost of acquiring homes and land parcels on the iron formation
that are in the way of mining by U.S. Steel Corporation under its 1959 lease
with the Trustees. This account balance, which currently approximates $5.7
million and which may increase or decrease, will be added to the cash
distributable to the then certificate holders at the termination of the Trust.
Results of Operations:
Royalty income increased $1,229,291 and $949,860 during the first nine months
and third quarter of 1998, respectively, as compared to the same periods in
1997. These increases are mainly due to improved taconite production from Trust
lands.
Interest and other income decreased $36,749 during the first nine months of 1998
as compared to the same period in 1997. This decrease is primarily due to the
sale of stockpile material in 1997.
Costs and expenses increased $107,355 and $25,842 during the first nine months
and third quarter of 1998, respectively, compared to the same periods in 1997.
These increases are mainly due to legal expenditures incurred pertaining to
surface land acquisitions.
At their meeting held on September 18, 1998, the Trustees declared a third
quarter distribution of $1.80 per share, amounting to $2,700,000 payable October
30, 1998 to certificate holders of record at the close of business on September
30, 1998. The Trustees have now declared three quarterly distributions in 1998.
The first, in the amount of $1.20 per share, was paid on April 30, 1998 to
certificate holders of record on March 31, 1998;
-6-
<PAGE>
the second, in the amount of $1.50 per share, was paid July 31, 1998 to
certificate holders of record at the close of business of June 30, 1998; and the
third, that being the current distribution. The first, second and third quarter
1997 distributions were $1.50, $1.50 and $1.50 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 January 1999 to certificate holders of record on December 31, 1998.
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.
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - (27) Financial Data Schedule (only filed electronically
via EDGAR)
(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 October 20, 1998 By /s/ Harry L. Holtz
--------------------- ---------------------------------
Harry L. Holtz
President of the Trustees
Chief Executive Officer
Date October 20, 1998 By /s/ Thomas A. Janochoski
--------------------- ----------------------------------
Thomas A. Janochoski
Vice President and Secretary
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GREAT
NORTHERN IRON ORE PROPERTIES BALANCE SHEET AS OF SEPTEMBER 30, 1998 AND INCOME
STATEMENT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 172,160
<SECURITIES> 8,300,719
<RECEIVABLES> 3,605,995
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,954,643
<PP&E> 38,396,225
<DEPRECIATION> 33,188,242
<TOTAL-ASSETS> 17,609,320
<CURRENT-LIABILITIES> 2,796,645
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,812,675
<TOTAL-LIABILITY-AND-EQUITY> 17,609,320
<SALES> 8,598,716
<TOTAL-REVENUES> 9,015,732
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,272,525
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,743,207
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,743,207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,743,207
<EPS-PRIMARY> 5.16
<EPS-DILUTED> 0.00
</TABLE>