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.
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.