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 JUNE 30, 1999
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 June 30, 1999: 1,500,000
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<PAGE>
PART I. FINANCIAL INFORMATION
GREAT NORTHERN IRON ORE PROPERTIES
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
----------- -----------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 197,585 $ 941,071
United States Treasury securities 4,519,152 4,227,268
Royalties receivable 2,790,744 2,485,333
Prepaid expenses 23,482 3,755
----------- -----------
TOTAL CURRENT ASSETS 7,530,963 7,657,427
NONCURRENT ASSETS
United States Treasury Notes 3,314,091 4,083,331
Prepaid pension expense 375,458 317,518
----------- -----------
3,689,549 4,400,849
PROPERTIES
Mineral lands 38,276,311 38,246,311
Less allowances for depletion and
amortization 33,165,781 33,072,841
----------- -----------
5,110,530 5,173,470
Building and equipment--at cost, less
allowances for accumulated depreciation
(6/30/99 - $166,738; 12/31/98 - $166,137) 114,220 109,278
----------- -----------
5,224,750 5,282,748
----------- -----------
$16,445,262 $17,341,024
=========== ===========
LIABILITIES AND BENEFICIARIES' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 43,254 $ 119,456
Distributions 2,250,000 2,700,000
----------- -----------
TOTAL CURRENT LIABILITIES 2,293,254 2,819,456
BENEFICIARIES' EQUITY, including certificate holders' equity,
represented by 1,500,000 shares of beneficial interest
authorized and outstanding, and reversionary interest 14,152,008 14,521,568
----------- -----------
$16,445,262 $17,341,024
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1998 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 Six Months Ended
------------------------ ------------------------
June 30 June 30
------------------------ ------------------------
1999 1998 1999 1998
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Income:
Royalties $3,065,743 $ 2,825,783 $4,518,591 $4,842,721
Interest and other income 113,046 136,462 253,940 285,880
---------- ----------- ---------- ----------
3,178,789 2,962,245 4,772,531 5,128,601
Costs and expenses 366,413 427,680 792,091 861,592
---------- ----------- ---------- ----------
NET INCOME $2,812,376 $ 2,534,565 $3,980,440 $4,267,009
========== =========== ========== ==========
Weighted-average shares outstanding 1,500,000 1,500,000 1,500,000 1,500,000
BASIC EARNINGS PER SHARE $ 1.87 $ 1.69 $ 2.65 $ 2.84
========== =========== ========== ==========
Distributions declared per share $ 1.50(1) $ 1.50(2) $ 2.90(3) $ 2.70(4)
Distributions paid per share $ 1.40(5) $ 1.20(6) $ 3.20(7) $ 2.70(8)
</TABLE>
(1) $1.50 declared 6/14/99
payable 7/30/99
(2) $1.50 declared 6/15/98
paid 7/31/98
(3) $1.40 declared 3/11/99 plus $1.50 declared 6/14/99
paid 4/30/99 payable 7/30/99
(4) $1.20 declared 3/16/98 plus $1.50 declared 6/15/98
paid 4/30/98 paid 7/31/98
(5) $1.40 declared 3/11/99
paid 4/30/99
(6) $1.20 declared 3/16/98
paid 4/30/98
(7) $1.80 declared 12/14/98 plus $1.40 declared 3/11/99
paid 1/29/99 paid 4/30/99
(8) $1.50 declared 12/15/97 plus $1.20 declared 3/16/98
paid 1/30/98 paid 4/30/98
See notes to condensed financial statements.
-3-
<PAGE>
GREAT NORTHERN IRON ORE PROPERTIES
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
-------------------------
June 30
-------------------------
1999 1998
----------- ----------
Cash flows from operating activities:
Cash received from royalties and rents $ 4,209,693 $4,034,938
Cash paid to suppliers and employees (837,472) (870,628)
Interest received 230,486 255,016
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,602,707 3,419,326
Cash flows from investing activities:
U.S. Treasury securities purchased (2,025,000) (1,000,000)
U.S. Treasury securities matured 2,499,297 1,350,000
Net expenditures for equipment (20,490) 0
----------- ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 453,807 350,000
Cash flows from financing activities:
Distributions paid (4,800,000) (4,050,000)
----------- ----------
NET CASH USED IN FINANCING ACTIVITIES (4,800,000) (4,050,000)
----------- ----------
Net decrease in cash and cash equivalents (743,486) (280,674)
Cash and cash equivalents at beginning of year 941,071 496,447
----------- ----------
CASH AND CASH EQUIVALENTS AT JUNE 30 $ 197,585 $ 215,773
=========== ==========
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 Six Months ended June 30, 1999 and June 30, 1998
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, 1998.
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 June 30, 1999:
Attorneys' fees and expenses . . . . . . . . . . . . . . . . . $ 1,024,834
Cost of surface lands . . . . . . . . . . . . . . . . . . . . 5,402,569
Shipment credits (cumulative) . . . . . . . . . . . . . . . . (664,192)
Asset disposition credits . . . . . . . . . . . . . . . . . . (20,000)
-----------
Principal Charges account . . . . . . . . . . . . . . . . . . $ 5,743,211
===========
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.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Periods of Three and Six Months ended June 30, 1999 and June 30, 1998
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:
Royalties decreased $324,130 during the first six months of 1999, as compared to
the same period in 1998, due mainly to reduced year to date taconite production
from our properties. Royalties increased $239,960 during the second quarter of
1999, as compared to the same period in 1998, due mainly to increased quarterly
taconite production from our properties.
Interest and other income decreased $31,940 and $23,416 during the first six
months and second quarter of 1999, respectively, as compared to the same periods
in 1998. These decreases are mainly due to reduced 1999 interest income
resulting from a lower overall yield on funds invested and also reduced 1999
revenues from timber removals.
Costs and expenses decreased $69,501 and $61,267 during the first six months and
second quarter of 1999, respectively, as compared to the same periods in 1998.
These decreases are mainly due to legal expenditures incurred in 1998 pertaining
to surface land acquisitions.
-6-
<PAGE>
At their meeting held on June 14, 1999, the Trustees declared a second quarter
distribution of $1.50 per share, amounting to $2,250,000 payable July 30, 1999
to certificate holders of record at the close of business on June 30, 1999. The
Trustees have now declared two quarterly distributions in 1999. The first, in
the amount of $1.40 per share, was paid on April 30, 1999 to certificate holders
of record on March 31, 1999; and the second, that being the current
distribution. The first and second quarter 1998 distributions were $1.20 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 October 1999 to certificate
holders of record on September 30, 1999.
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 1. Legal Proceedings
At a hearing held on May 12, 1999, in Ramsey County District Court,
Saint Paul, Minnesota, the accounts of the Trustees for the year 1998 were
approved.
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
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<PAGE>
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, 1999 By /s/ Joseph S. Micallef
--------------------------- -------------------------------------------
Joseph S. Micallef
President of the Trustees
Chief Executive Officer
Date July 20, 1999 By /s/ Thomas A. Janochoski
--------------------------- -------------------------------------------
Thomas A. Janochoski
Vice President and Secretary
Chief Financial Officer
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE GREAT
NORTHERN IRON ORE PROPERTIES BALANCE SHEET AS OF JUNE 30, 1999 AND INCOME
STATEMENT FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 197,585
<SECURITIES> 7,833,243
<RECEIVABLES> 2,790,744
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,530,963
<PP&E> 38,557,269
<DEPRECIATION> 33,332,519
<TOTAL-ASSETS> 16,445,262
<CURRENT-LIABILITIES> 2,293,254
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,152,008
<TOTAL-LIABILITY-AND-EQUITY> 16,445,262
<SALES> 4,518,591
<TOTAL-REVENUES> 4,772,531
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 792,091
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,980,440
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,980,440
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,980,440
<EPS-BASIC> 2.65
<EPS-DILUTED> 0
</TABLE>
