-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IvLhg4jPvhz5BRPaqufe2SfHOs8w+HXMRbv9Er9wrCnmFKqUY6FmpDUI0vZV7FyQ 3xi61F46l6GBYY6m/NmpbA== 0000912057-01-510439.txt : 20010426 0000912057-01-510439.hdr.sgml : 20010426 ACCESSION NUMBER: 0000912057-01-510439 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010131 FILED AS OF DATE: 20010425 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MESABI TRUST CENTRAL INDEX KEY: 0000065172 STANDARD INDUSTRIAL CLASSIFICATION: MINERAL ROYALTY TRADERS [6795] IRS NUMBER: 136022277 STATE OF INCORPORATION: NY FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-04488 FILM NUMBER: 1610810 BUSINESS ADDRESS: STREET 1: P O BOX 318 CHURCH ST STATION STREET 2: C/O BANKERS TRUST CO CORP TRUST CITY: NEW YORK STATE: NY ZIP: 10008-0318 BUSINESS PHONE: 2122506519 MAIL ADDRESS: STREET 1: C/O BANKERS TRUST COMPANY, CORPORATE STREET 2: P.O. BOX 318 CHURCH STREET STATION CITY: NEW YORK STATE: NY ZIP: 10008-0318 10-K405 1 a2046399z10-k405.txt 10-K405 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM 10-K (Mark one) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 2001 / / 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 1-4488 -------------------- MESABI TRUST (Name of Small Business Issuer in its Charter) NEW YORK 13-6022277 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) C/O BANKERS TRUST COMPANY CORPORATE TRUST AND AGENCY GROUP P.O. BOX 318 CHURCH STREET STATION 10008-0318 NEW YORK, NEW YORK (Zip Code) (Address of Principal Executive Offices) (615) 835-2749 (Issuer's telephone number, including area code) Securities registered under Section 12(b) of the Exchange Act: UNITS OF BENEFICIAL INTEREST IN MESABI TRUST Securities registered under Section 12(g) of the Exchange Act: NONE 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 /X/ NO / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ As of April 19, 2001, the aggregate market value of the Units of Beneficial Interest held by non-affiliates of the registrant, based on the closing price as reported on the New York Stock Exchange, aggregated approximately $38,954,647*. As of April 19, 2001, 13,120,010 Units of Beneficial Interest were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Certain items in Parts I and II incorporate information by reference from the Annual Report of the Trustees of Mesabi Trust to the Holders of Certificates of Beneficial Interest for the fiscal year ended January 31, 2001, which is annexed hereto and filed herewith as Exhibit 13.1. - ------------------------------------------- * Includes approximately $75,049 representing the market value, as of April 19, 2001, of 25,100 Units of Beneficial Interest the beneficial ownership of which is disclaimed by affiliates (see Item 12 herein). PART I ITEM 1. BUSINESS. (a) GENERAL DEVELOPMENT OF BUSINESS. The information under the headings "Mesabi Trust," "The Trust Estate," "Leasehold Royalties" and "Land Trust and Fee Royalties" set forth on pages 9 through 13 of the Annual Report of the Trustees of Mesabi Trust for the fiscal year ended January 31, 2001 (the "Annual Report") is incorporated herein by reference. Certain capitalized terms used below in this Part I are defined in the Annual Report. Mesabi Trust ("Mesabi Trust" or the "Trust"), formed pursuant to an Agreement of Trust dated July 18, 1961 (the "Agreement of Trust"), is a trust organized under the laws of the State of New York. Mesabi Trust holds all of the interests formerly owned by Mesabi Iron Company, including all right, title and interest in the Amended Assignment of Peters Lease, the Amended Assignment of Cloquet Lease, the beneficial interest in the Mesabi Land Trust and all other assets and property identified in the Agreement of Trust. The Amended Assignment of Peters Lease relates to an Indenture made as of April 30, 1915 among East Mesaba Iron Company, Dunka River Iron Company and Claude W. Peters (the "Peters Lease") and the Amended Assignment of Cloquet Lease relates to an Indenture made May 1, 1916 between Cloquet Lumber Company and Claude W. Peters (the "Cloquet Lease"). The Trust will terminate twenty-one (21) years after the death of the survivor of twenty-five (25) persons named in an exhibit to the Agreement of Trust. The youngest person on this exhibit is now 40 years old. (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. Substantially all of the Trust's revenue, operating profits and assets relate to one business segment--iron ore mining. (c) NARRATIVE DESCRIPTION OF BUSINESS. The Agreement of Trust specifically prohibits the Trustees from entering into or engaging in any business. This prohibition applies even to business activities the Trustees deem necessary or proper for the conservation and protection of the Trust Estate. Accordingly, the Trustees' activities in connection with the administration of Trust assets are limited to collecting income, paying expenses and liabilities, distributing net income and protecting and conserving the assets held. Pursuant to a ruling from the Internal Revenue Service, which ruling was based on the terms of the Agreement of Trust including the prohibition against entering into any business, the Trust is not taxable as a corporation for Federal income tax purposes. Instead, the holders of the Units of Beneficial Interest (the "Unitholders") are considered as "owners" of the Trust and the Trust's income is taxable directly to the Unitholders. Leasehold royalty income constitutes the principal source of the Trust's revenue. Royalty rates are determined in accordance with the terms of Mesabi Trust's leases and assignments of leases. Until August 17, 1989, the overriding royalty was based on the quantity and iron content of pellets shipped by Reserve Mining Company ("Reserve") from Mesabi Trust lands, although Mesabi Trust did not receive any royalty income from May 1986 until July 1990 because Reserve filed a Chapter 11 bankruptcy petition and suspended its operations. On August 17, 1989, Cyprus Northshore Mining Corporation ("Cyprus NMC") purchased substantially all of Reserve's assets, including Reserve's interest in the Mesabi Trust lands. At the same time, Mesabi Trust entered into certain agreements with Reserve's 2 Chapter 11 Trustee and Cyprus NMC (the "Amended Assignment Agreements"). The Amended Assignment Agreements modified the method of calculating overriding royalties payable to Mesabi Trust and transferred Reserve's interest in the Mesabi Trust lands to Cyprus NMC. Pursuant to the Amended Assignment Agreements, overriding royalties are determined by both the volume and selling price of iron ore products shipped. In 1994, Cyprus NMC was sold by its parent corporation to Cleveland-Cliffs Inc. ("CCI") and renamed Northshore Mining Corporation ("Northshore"). CCI now operates Northshore as a wholly-owned subsidiary. In its Annual Report for the year ended December 31, 1999 ("CCI's Annual Report"), CCI, parent company of Northshore, the lessee/operator of Mesabi Trust iron ore interests, stated that it was continuing to evaluate whether to build a facility to produce pig iron at CCI's Northshore Mine in Minnesota that would produce premium grade pig iron. CCI's Annual Report stated that while progress has been made in a number of areas on the project, a decision relative to proceeding with this project has been delayed by uncertainty about market conditions and timing of state environmental permitting. Except for its May 2000 announcement regarding environmental permitting for the facility (see below), CCI has made no public disclosure regarding the pig iron facility project since CCI's Annual Report. (CCI made no reference to the project in its Annual Report for the year ended December 31, 2000.) Because of the preliminary nature of this information, the Mesabi Trustees are unable to determine at this time how the addition of a pig iron facility (if the project proceeds) would impact overall revenues of Mesabi Trust. As indicated elsewhere in this report, the Trust's revenues are currently derived almost entirely from iron ore pellet production and sales. Following LTV Steel's decision to close the LTV Steel Mining Company's plant at Hoyt Lakes, Minnesota this year, CCI announced in May 2000 that it has asked the Minnesota Pollution Control Agency to delay a decision on environmental permitting for the possible pig iron facility at CCI's Northshore Mine in order to evaluate whether its iron ore pellet production should be increased to meet CCI's future sales requirements. CCI stated that the requested delay should not be interpreted to mean that CCI has abandoned plans for a possible pig iron facility. CCI reported that it will be supplying LTV with a majority of its iron ore pellets over the next 10 years with most of the pellets expected to come from Minnesota sources that are owned or managed by CCI. Besides potential expansion at CCI's Northshore Mine, CCI announced that it is reviewing ways to increase production levels at other CCI-managed mines. Additionally, in a press release dated January 9, 2001, CCI announced that it intends to reduce iron ore pellet production at the Northshore Mine by approximately 700,000 tons in 2001. CCI stated that one of the pellet production furnaces at the Northshore Mine would be shut down for an estimated nine month period beginning in January. CCI cited the impact on its customers of perceived unfairly traded imports and the general deterioration in overall steel demand in North America as reasons for the production cutback. No forecast of the volume of shipments of iron ore pellets for 2001 was provided. Mesabi Trust has no employees, but it engages independent consultants to assist the Trustees in monitoring, among other things, the amount and sales prices of minerals shipped by Northshore from Silver Bay, Minnesota. As noted above, the information regarding amounts and sales prices of shipped minerals is used to compute the royalties payable to Mesabi Trust by Northshore. Bankers Trust Company, one of the Trustees, also performs certain administrative functions for Mesabi Trust. ITEM 2. PROPERTIES. The information under the heading "The Trust Estate" set forth on page 9 of the Annual Report of the Trustees of Mesabi Trust for the fiscal year ended January 31, 2001 is incorporated herein by reference. 3 The Peters Lease provides that each leasehold estate will continue until the reserves of iron ore, taconite and other minerals or materials on the land subject to the Peters Lease are exhausted. The Mesabi Lease terminates when the Peters Lease terminates. The Cloquet Lease, executed in 1916, terminates in the year 2040. If Northshore decides to terminate or surrender one or more of these leases, it must first give Mesabi Trust at least six months' notice of its intention to do so and, at Mesabi Trust's request, reassign all of such leases to Mesabi Trust. If any such reassignment occurs, Northshore must transfer the lease interests to Mesabi Trust free and clear of liens, except public highways. In return, Mesabi Trust must assume Northshore's future obligations as lessee under the reassigned leases. The Trustees have neither made nor caused to be made any surveys or test drillings to ascertain the iron ore reserves on any land subject to the Peters Lease or the Cloquet Lease. However, initial surveys and test drillings made by Mesabi Iron Company many years ago indicated that these lands contained accessible reserves of at least 1-1/2 billion tons of mineable raw material, capable of yielding approximately 500 million tons of concentrated product. In CCI's 2000 Annual Report, CCI estimated that there currently remains enough ore reserve in the Peters and Cloquet Lease Lands to produce concentrated product for 81 years of mining at the then current extraction rates. Little or no commercial ore deposits exist in the Mesabi Lease Lands. ITEM 3. LEGAL PROCEEDINGS. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The information set forth in the section titled "Certificates of Beneficial Interest" on page 14 of the Annual Report of the Trustees of Mesabi Trust for the fiscal year ended January 31, 2001 is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. The information set forth in the sections titled "Selected Financial Data" and "Reserves and Distributions" on pages 2 and 14, respectively, of the Annual Report of the Trustees of Mesabi Trust for the fiscal year ended January 31, 2001 is incorporated herein by reference. ITEM 7. TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The information set forth in the sections titled "Trustees' Discussion and Analysis of Financial Condition and Results of Operations," "Income and Expense" and "Reserves and Distributions" on pages 2, 13 and 14, respectively, of the Annual Report of the Trustees of Mesabi Trust for the fiscal year ended January 31, 2001 is incorporated herein by reference. 4 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements, including the independent auditor's report thereon, filed as a part of this report, are presented on pages F-3 through F-6 and are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. The information required by Item 304 of Regulation S-K regarding the change in Mesabi Trust's accountants was previously filed as part of Mesabi Trust's Current Report on Form 8-K filed on August 1, 2000. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. There are no directors or executive officers of the registrant. The Agreement of Trust provides for a Corporate Trustee and four Individual Trustees (collectively, the "Trustees"). Generally, Trustees continue in office until their resignation or removal. Any Trustee may be removed at any time, with or without cause, by the holders of two-thirds in interest of the Trust Certificates then outstanding. In the case of an Individual Trustee, a successor is also appointed if the Individual Trustee dies, becomes incapable of acting or is adjudged bankrupt or insolvent. In the case of the Corporate Trustee, a successor is also appointed if a receiver of the Corporate Trustee or of its property is appointed, or if any public officer takes charge or control of the Corporate Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation. The present Trustees of Mesabi Trust and their respective ages, terms in office as Trustees, and business experience during the past five years are set forth in the following table:
Trustee Business Experience Name Age Since During Past Five Years - ---- --- ----- ---------------------- Bankers Trust Company N/A 1961 Trust Company David J. Hoffman 65 1977 Mining geologist; Until January 1988, President of Towne Mines Exploration Company, Inc., a privately-held mining corporation. Richard G. Lareau 72 1990 Partner in the law firm of Oppenheimer Wolff & Donnelly LLP; Director of Nash Finch Company and Northern Technologies International Corporation. 5 Ira A. Marshall, Jr. 78 1976 Private investor and self-employed petroleum engineer; Until February 1986, Director and Vice President of New American Fund, Inc., a closed-end investment trust. Norman F. Sprague III 53 1981 Private investor; Orthopedic surgeon.
ITEM 11. TRUSTEES' COMPENSATION. The Agreement of Trust was amended October 25, 1982 (the "Amendment"). Pursuant to the Amendment, each Individual Trustee receives at least $20,000 in annual compensation for services as Trustee. Each year, annual Trustee compensation is adjusted up or down (but not below $20,000) in accordance with changes from the November 1981 level of 295.5 (the "1981 Escalation Level") in the All Commodities Producer Price Index (with 1967 = 100 as a base). The All Commodities Producer Price Index is published by the U.S. Department of Labor. The adjustment is made at the end of each fiscal year and is calculated on the basis of the proportion between (a) the level of such index for the November preceding the end of such fiscal year and (b) the 1981 Escalation Level. Also pursuant to the Amendment, Bankers Trust Company, as the Corporate Trustee, receives annual compensation in an amount equal to the greater of (i) $20,000, or such other amount determined in accordance with the adjustments described in the preceding paragraph, or (ii) one quarter of one percent (1/4 of 1%) of the Trust Moneys, exclusive of proceeds of sale of any part of the Trust Estate (as such terms are defined in the Trust Agreement), received by the Trustees and distributed to Trust Certificate Holders. Additionally, each year the Corporate Trustee receives $62,500 (or more, if unanimously approved by the Individual Trustees) to cover clerical and administrative services to Mesabi Trust other than services customarily performed by a registrar or transfer agent. The following table sets forth the cash compensation paid to the Trustees through January 31, 2001, for services in all capacities as Trustees to Mesabi Trust during the fiscal year ended January 31, 2001. CASH COMPENSATION TABLE
Name Capacity in Which Served Cash Compensation - ---- ------------------------ ----------------- Bankers Trust Company Corporate Trustee $ 89,765* David J. Hoffman Individual Trustee $ 27,265 Richard G. Lareau Individual Trustee $ 27,265 Ira A. Marshall, Jr. Individual Trustee $ 27,265 Norman F. Sprague III Individual Trustee $ 27,265
* Does not include $27,333 of fees and disbursements paid to Bankers Trust Company as registrar and transfer agent of the Units. 6 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND TRUSTEES. The following table sets forth information concerning each person known to Mesabi Trust to own beneficially more than 5% of the Trust's Units outstanding as of April 2, 2001. Such information has been obtained from Mesabi Trust's records and a review of statements filed with Mesabi Trust pursuant to Section 13(d)-102 of the Securities Exchange Act of 1934 through April 2, 2001.
Name and Address Amount of Beneficial Percent of Of Beneficial Owner(s) Ownership of Units Class - ---------------------- ------------------ ----- Appaloosa Management L.P., a Delaware Limited Partnership and David A. Tepper 26 Main Street 655,500 (1) 4.99% Chatham, New Jersey 07928
- ------------------------ (1) According to a Schedule 13G dated May 4, 1998, filed by such persons, which indicates that each of such persons has sole voting power and sole dispositive power with respect to such units. Appaloosa Management L.P. is general partner of Appaloosa Investment Limited Partnership I. The general partner of Appaloosa Management L.P. is Appaloosa Partners, Inc., of which David Tepper is the sole shareholder and President. Appaloosa Management L.P. acts as an investment advisor to Palomino Fund Ltd. ("PLF"). Of the 655,500 Units reported, 327,750 are owned by Appaloosa Investment Limited Partnership I and 327,750 are owned by PLF. The table below sets forth information as to the Units of Beneficial Interest in Mesabi Trust beneficially owned as of March 15, 2001 by the Trustees individually and as a group.
Amount of Beneficial Percent of Name Ownership of Units Class - ---- ------------------ ----- Bankers Trust Company (1) 3,000 Less than 1% David J. Hoffman (2) 38,100 Less than 1% Richard G. Lareau (3) 27,000 Less than 1% Ira A. Marshall, Jr. (4) 51,000 Less than 1% Norman F. Sprague III 12,700 Less than 1% All Trustees as a group 116,800 Less than 1%
- ------------------- (1) In addition to the Units indicated above, Bankers Trust Company holds, on behalf of various customers, Units in its Fiduciary Department in so-called "directed" accounts. Bankers Trust Company has no voting or investment power over, and thus no beneficial interest in, such Units. (2) Includes 15,100 Units owned by Mr. Hoffman's wife, over which Mr. Hoffman does not have any investment or voting power and as to which Mr. Hoffman disclaims any beneficial ownership. 7 (3) Includes 10,000 Units owned by Mr. Lareau's wife, over which Mr. Lareau does not have any investment or voting power and as to which Mr. Lareau disclaims any beneficial ownership. (4) These Units consist of (a) 50,000 Units owned indirectly by Mr. Marshall through a family trust of which Mr. Marshall is the sole trustee and (b) 1,000 Units over which Mr. Marshall has joint voting and investment power. ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS. Mr. Richard G. Lareau, who became a Trustee on March 7, 1990, is a senior partner in the law firm of Oppenheimer Wolff & Donnelly LLP, of Minneapolis, Minnesota. That firm has been retained by Mesabi Trust since 1961 to act with respect to matters of Minnesota law, and was retained in 1991 by the Trustees other than Mr. Lareau to act as general counsel. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)1. FINANCIAL STATEMENTS: The following Financial Statements are incorporated in this reporting reference from the pages noted in our Annual Agreement of Trustees for the Year Ended January 31, 2001: Independent Auditor's Reports - pages F-1 through F-2 Balance Sheets as of January 31, 2001 and 2000 - page F-3 Statements of Income for the years ended January 31, 2001, 2000 and 1999 - page F-4 Statements of Unallocated Reserve and Trust Corpus for the years ended January 31, 2001, 2000 and 1999 - page F-5 Statements of Cash Flows for the years ended January 31, 2001, 2000 and 1999 - page F-6 Notes to Financial Statements - pages F-7 through F-11 3. EXHIBITS:
Item No. Item Filing Method ------- ---- ------------- 3 Agreement of Trust dated as of July 18, 1961...................................... Incorporated by reference from Exhibit 3 to Mesabi Trust's Annual Report on Form 10-K for the fiscal year ended January 31, 1987. 8 3(a) Amendment to the Agreement of Trust dated as of October 25, 1982.................... Incorporated by reference from Exhibit 3(a) to Mesabi Trust's Annual Report on Form 10-K for the fiscal year ended January 31, 1988. 4 Instruments defining the rights of Trust Certificate Holders....................... Incorporated by reference from Exhibit 4 to Mesabi Trust's Annual Report on Form 10-K for the fiscal year ended January 31, 1987. 10(a) Peters Lease.............................. Incorporated by reference from Exhibits 10(a) - 10(d) to Mesabi Trust's Annual Report on Form 10-K for the fiscal year ended January 31, 1987. 10(b) Amendment Assignment of Peters Lease...... Incorporated by reference from Exhibits 10(a) - 10(d) to Mesabi Trust's Annual Report on Form 10-K for the fiscal year ended January 31, 1987. 10(c) Cloquet Lease............................. Incorporated by reference from Exhibits 10(a) - 10(d) to Mesabi Trust's Annual Report on Form 10-K for the fiscal year ended January 31, 1987. 10(d) Assignment of Cloquet Lease............... Incorporated by reference from Exhibits 10(a) - 10(d) to Mesabi Trust's Annual Report on Form 10-K for the fiscal year ended January 31, 1987. 10(e) Modification of Lease and Consent to Assignment dated as of October 22, 1982... Incorporated by reference from Exhibit 10(e) to Mesabi Trust's Annual Report on Form 10-K for the fiscal year ended January 31, 1988. 10(f) Amendment of Assignment, Assumption and Further Assignment of Peters Lease........ Incorporated by reference from Exhibit A to Mesabi Trust's Report on Form 8-K dated August 17, 1989. 9 10(g) Amendment of Assignment, Assumption and Further Assignments of Cloquet Lease...... Incorporated by reference from Exhibit B to Mesabi Trust's Report on Form 8-K dated August 17, 1989. 13.1 Annual Report of the Trustees of Mesabi Trust for the fiscal year ended January 31, 2001.................................. Filed herewith. 99 Letter to Mesabi Trust Unitholders regarding uncertainty of market conditions in the steel and iron ore industry and the decrease in iron ore pellet production at Northshore........... Filed herewith.
(b) REPORTS ON FORM 8-K FILED IN THE FOURTH QUARTER: A Form 8-K was filed on January 9, 2001 that reported that CCI intends to reduce iron ore pellet production at Northshore by approximately 700,000 tons in 2001. 10 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: April 19, 2001 MESABI TRUST By: Bankers Trust Company Corporate Trustee By: /s/ Daniel M. Chipko ----------------------------------- Daniel M. Chipko Associate Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Daniel M. Chipko April 19, 2001 - ------------------------------- Daniel M. Chipko Associate Bankers Trust Company - ------------------------------- David J. Hoffman Individual Trustee /s/ Richard G. Lareau April 19, 2001 - ------------------------------- Richard G. Lareau Individual Trustee /s/ Ira A. Marshall, Jr. April 19, 2001 - ------------------------------- Ira A. Marshall, Jr. Individual Trustee /s/ Norman F. Sprague III April 19, 2001 - ------------------------------- Norman F. Sprague III Individual Trustee 11 EX-13.1 2 a2046399zex-13_1.txt EX-13.1 ANNUAL REPORT OF THE TRUSTEES OF MESABI TRUST For the Year Ended January 31, 2001 ADDRESS Mesabi Trust c/o Bankers Trust Company Corporate Trust and Agency Group P.O. Box 318 Church Street Station New York, NY 10008-0318 Telephone - (615) 835-2749 COUNSEL Oppenheimer Wolff & Donnelly LLP, General Counsel TRANSFER AGENT Bankers Trust Company REGISTRAR Bankers Trust Company Mesabi Trust will provide, upon the written request of any certificate holder addressed to the Trustees at the above address and without charge to such certificate holder, a copy of Mesabi Trust's Annual Report on Form 10-K for the fiscal year ended January 31, 2001 as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. FORWARD-LOOKING INFORMATION Certain statements contained in this document are forward-looking, including specifically those statements estimating 2001 production or shipments. All such forward-looking statements are based on input from the lessee/operator. The Trust has no control over the operations and activities of the lessee/operator except within the framework of current agreements. Actual results could differ materially from those indicated in such statements. For important factors that could cause actual results to differ materially, see "Important Factors Affecting Mesabi Trust," below. 1 SELECTED FINANCIAL DATA
Years ended January 31 2001 2000 1999 1998 1997 - ---------------------- ---- ---- ---- ---- ---- Royalty and interest income $5,753,650 $5,359,893 $5,988,143 $6,860,369 $6,001,143 Trust expenses 407,505 389,465 353,386 362,373 381,534 ---------- ---------- ---------- ---------- ---------- Net income(a) $5,346,145 $4,970,428 $5,634,757 $6,497,996 $5,619,609 ========== ========== ========== ========== ========== Net income per Unit(b) $ .41 .38 $ .43 $ .50 $ .43 ========== ========== ========== ========== ========== Distributions declared per unit(b)(c) $ .41 $ .38 $ .43 $ .49 $ .42 ========== ========== ========== ========== ========== At January 31 - ---------------------- Total Assets $2,556,754 $3,179,863 $2,790,042 $4,286,758 $2,603,167 ========== ========== ========== ========== ==========
- ------------------ (a) The Trust, as a grantor trust, is exempt from federal and state income taxes. (b) Based on 13,120,010 Units of Beneficial Interest outstanding during all years. (c) During the fiscal year ended January 31, 2001, the Trustees distributed $.455 per Unit (including $.18 per Unit declared in fiscal 2000 and distributed in February 2000) and declared an additional distribution of $.13 per Unit, payable in February 2001. During the fiscal year ended January 31, 2000, the Trustees distributed $.35 per Unit (including $.155 per Unit declared in fiscal 1999 and distributed in February 1999) and declared an additional distribution of $.18 per Unit, payable in February 2000. During the fiscal year ended January 31, 1999, the Trustees distributed $.54 per Unit (including $.265 per Unit declared in fiscal 1998 and distributed in February 1998) and declared an additional distribution of $.155 per Unit, payable in February 1999. During the fiscal year ended January 31, 1998, the Trustees distributed $.37 per Unit (including $.145 per Unit declared in fiscal 1997 and distributed in February 1997) and declared an additional distribution of $.265 per Unit, payable in February 1998. See "Reserves and Distributions" on page 14 of this Annual Report. TRUSTEES' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Mesabi Trust ("Mesabi Trust" or the "Trust"), formed pursuant to an Agreement of Trust dated July 18, 1961 (the "Agreement of Trust"), is a trust organized under the laws of the State of New York. Mesabi Trust holds all of the interests formerly owned by Mesabi Iron Company, including all right, title and interest in the Amended Assignment of Peters Lease, the Amended Assignment of Cloquet Lease, the beneficial interest in the Mesabi Land Trust and all other assets and property identified in the Agreement of Trust. The Amended Assignment of Peters Lease relates to an Indenture made as of April 30, 1915 among East Mesaba Iron Company, Dunka River Iron Company and Claude W. Peters (the "Peters Lease") and the Amended Assignment of Cloquet Lease relates to an Indenture made May 1, 1916 between Cloquet Lumber Company and Claude W. Peters (the "Cloquet Lease"). The Trust will terminate twenty-one (21) years after the death of the survivor of twenty-five (25) persons named in an exhibit to the Agreement of Trust. The youngest person on this exhibit is now 40 years old. 2 The Agreement of Trust specifically prohibits the Trustees from entering into or engaging in any business. This prohibition applies even to business activities the Trustees deem necessary or proper for the preservation and protection of the Trust Estate. Accordingly, the Trustees' activities in connection with the administration of Trust assets are limited to collecting income, paying expenses and liabilities, distributing net income and protecting and conserving the assets held. Pursuant to a ruling from the Internal Revenue Service, which ruling was based on the terms of the Agreement of Trust including the prohibition against entering into any business, the Trust is not taxable as a corporation for Federal income tax purposes. Instead, the holders of the Units of Beneficial Interest (the "Unitholders") are considered as "owners" of the Trust and the Trust's income is taxable directly to the Unitholders. Leasehold royalty income constitutes the principal source of the Trust's revenue. Royalty rates are determined in accordance with the terms of Mesabi Trust's leases and assignments of leases. Three types of royalties comprise the Trust's leasehold royalty income: o Overriding royalties, which constitute the majority of Mesabi Trust's royalty income, are determined by both the volume and selling price of iron ore products shipped. o Fee royalties, historically a smaller component of the Trust's royalty income, are payable to Mesabi Land Trust, a Minnesota land trust of which Mesabi Trust is the sole beneficiary ("Mesabi Land Trust"), and are based on the amount of crude ore mined. Currently, the fee royalty on crude ore is based on an agreed price per ton, subject to certain indexing. Crude ore is used to produce iron ore pellets and other products. o Minimum advance royalties, the third type of royalty, are discussed below. Until August 17, 1989, the overriding royalty was based on the quantity and iron content of pellets shipped by Reserve Mining Company ("Reserve") from Mesabi Trust lands, although Mesabi Trust did not receive any royalty income from May 1986 until July 1990 because Reserve filed a Chapter 11 bankruptcy petition suspended its operations. On August 17, 1989, Cyprus Northshore Mining Corporation ("Cyprus NMC") purchased substantially all of Reserve's assets, including Reserve's interest in the Mesabi Trust lands. In connection with the purchase, Mesabi Trust, Reserve's Chapter 11 trustee and Cyprus NMC entered into the Amendment of Assignment, Assumption and Further Assignment of Peters Lease (the "Amended Assignment of Peters Lease"), the Amendment of Assignment, Assumption and Further Assignment of Cloquet Lease (the "Amended Assignment of Cloquet Lease") and the Assumption and Assignment of Mesabi Lease (together with the Amended Assignment of Peters Lease and the Amended Assignment of Cloquet Lease Assignment, the "Amended Assignment Agreements"). The Amended Assignment Agreements modified the method of calculating overriding royalties payable to Mesabi Trust and transferred Reserve's interest in the Mesabi Trust lands to Cyprus NMC. In 1994, Cyprus NMC was sold by its parent corporation to Cleveland-Cliffs Inc. ("CCI") and renamed Northshore Mining Corporation ("Northshore"). CCI operates Northshore as a wholly-owned subsidiary. Fee royalties payable to Mesabi Land Trust, a Minnesota land trust of which Mesabi Trust is the sole beneficiary ("Mesabi Land Trust"), are based on the amount of crude ore mined. Crude ore is used to produce iron ore pellets and other products. Under the Amended Assignment Agreements, overriding royalties are determined by both the volume and selling price of iron ore products sold. 3 With respect to the volume component of royalty calculation, Northshore is obligated to pay Mesabi Trust base overriding royalties in varying amounts. The volume component of overriding royalties constitutes a percentage of the gross proceeds of iron ore products produced at Mesabi Trust lands (and to a limited extent other lands) and shipped from Silver Bay, Minnesota. The percentage ranges from 2-1/2% of the gross proceeds (for the first one million tons of iron ore products so shipped annually) to 6% of the gross proceeds (for all iron ore products in excess of 4 million tons so shipped annually). With respect to the selling price component of overriding royalty calculation, Northshore is obligated to pay to Mesabi Trust royalty bonuses. The royalty bonus is a percentage of the gross proceeds of product shipped from Silver Bay, and sold at prices above a threshold price. The threshold price is adjusted on an annual basis for inflation and deflation (but not below $30). The threshold price was $38.22 for calendar year 1999, was $38.22 for calendar year 2000, and is $39.82 for calendar year 2001. The royalty bonus percentage ranges from 1/2 of 1% of the gross proceeds (on all tonnage shipped for sale at prices between the threshold price and $2.00 above the threshold price) to 3% of the gross proceeds (on all tonnage shipped for sale at prices $10.00 or more above the threshold price). No royalty bonus has been paid to date. Generally, Northshore's obligation to pay base overriding royalties and royalty bonuses with respect to the sale of iron ore products accrues upon the shipment of those products from Silver Bay. However, regardless of whether any shipment has occurred, Northshore is obligated to pay to Mesabi Trust a minimum advance royalty. Each year, the amount of the minimum advance royalty is adjusted for inflation and deflation (but not below $500,000 per annum). Advance royalties payable were $637,044 for calendar year 1999, were $647,282 for calendar year 2000 and are $663,682 for calendar year 2001. Until overriding royalties (and royalty bonuses, if any) for a particular year equal or exceed the minimum advance royalty for the year, Northshore must make quarterly payments of up to 25% of the minimum advance royalty for the year. Because advance minimum royalties are essentially prepayments of base overriding and bonus royalties earned EACH year, any advance minimum royalties paid in a fiscal quarter are recouped by credits against base overriding and bonus royalties earned in later fiscal quarters during the year. Historically, advance minimum royalties have been paid in the first fiscal quarter and recouped in the second fiscal quarter. Northshore is obligated to make quarterly royalty payments in January, April, July and October of each year. In the case of base overriding royalties and royalty bonuses, these quarterly royalty payments are to be made whether or not the related proceeds of sale have been received by Northshore by the time such payments become due. Under the relevant documents, Northshore may mine and ship iron ore products from lands other than Mesabi Trust lands. To encourage the use of iron ore products from Mesabi Trust lands, Mesabi Trust receives royalties on stated percentages of iron ore shipped from Silver Bay, whether or not the iron ore products are from Mesabi Trust lands. Mesabi Trust receives royalties at the greater of (i) the aggregate quantity of iron ore products shipped that were from Mesabi Trust lands, and (ii) a portion of the aggregate quantity of all iron ore products shipped that were from any lands, such portion being 90% of the first four million tons shipped during such year, 85% of the next two million tons shipped during such year, and 25% of all tonnage shipped during such year in excess of six million tons. Northshore has advised the trustees that total calendar year 2001 production may be approximately 3.6 million tons. Northshore has not provided the Trust with an estimate for total calendar year 2001 shipments because of uncertain market conditions in the iron ore and steel industry. (See description of the uncertainty of market conditions in the iron ore and steel industry under "Important Factors Affecting Mesabi Trust" below.) During calendar years 2000, 1999, 1998, 1997 and 1996, the percentage of shipments of iron ore products from Mesabi Trust lands was approximately 4 99.8%, 98.9%, 99.3%, 98.3% and 98.4%, respectively, of total shipments. Northshore has not advised the Trust what the percentage of iron ore products it anticipates shipping from Mesabi Trust lands. In its Annual Report for the year ended December 31, 1999 ("CCI's Annual Report"), CCI, parent company of Northshore, the lessee/operator of Mesabi Trust iron ore interests, stated that it was continuing to evaluate whether to build a facility to produce pig iron at CCI's Northshore Mine in Minnesota that would produce premium grade pig iron. CCI's Annual Report stated that while progress has been made in a number of areas on the project, a decision relative to proceeding with this project has been delayed by uncertainty about market conditions and timing of state environmental permitting. Except for its May 2000 announcement regarding environmental permitting for the facility (see below), CCI has made no public disclosure regarding the pig iron facility project since CCI's Annual Report (CCI made no reference to the project in its Annual Report for the year ended December 31, 2000.) Because of the preliminary nature of this information, the Mesabi Trustees are unable to determine at this time how the addition of a pig iron facility (if the project proceeds) would impact overall revenues of Mesabi Trust. As indicated elsewhere in this report, the Trust's revenues are currently derived almost entirely from iron ore pellet production and sales. Following LTV Steel's decision to close the LTV Steel Mining Company's plant at Hoyt Lakes, Minnesota this year, CCI announced in May 2000 that it has asked the Minnesota Pollution Control Agency to delay a decision on environmental permitting for the possible pig iron facility at CCI's Northshore Mine in order to evaluate whether its iron ore pellet production should be increased to meet CCI's future sales requirements. CCI stated that the requested delay should not be interpreted to mean that CCI has abandoned plans for a possible pig iron facility. CCI reported that it will be supplying LTV with a majority of its iron ore pellets over the next 10 years with most of the pellets expected to come from Minnesota sources that are owned or managed by CCI. Besides potential expansion at CCI's Northshore Mine, CCI announced that it is reviewing ways to increase production levels at other CCI-managed mines. Additionally, in a press release dated January 9, 2001, CCI announced that it intends to reduce iron ore pellet production at the Northshore Mine by approximately 700,000 tons in 2001. CCI stated that one of the pellet production furnaces at the Northshore Mine would be shut down for an estimated nine month period beginning in January. CCI cited the impact on its customers of perceived unfairly traded imports and the general deterioration in overall steel demand in North America as reasons for the production cutback. No forecast of the volume of shipments of iron ore pellets for 2001 was provided. IMPORTANT FACTORS AFFECTING MESABI TRUST The Agreement of Trust specifically prohibits the Trustees from entering into or engaging in any business. This prohibition seemingly applies even to business activities the Trustees deem necessary or proper for the preservation and protection of the Trust Estate. Accordingly, the Trustees' activities in connection with the administration of Trust assets are limited to collecting income, paying expenses and liabilities, distributing net income and protecting and conserving the assets held. Accordingly, the income of the Trust is highly dependent upon the activities and operations of Northshore, and the terms and conditions of the Amended Assignment Agreements. The Trust and the Trustees have no control over the operations and activities of Northshore, except within the framework of the Amended Assignment Agreements. Due to winter weather, and the increasing royalty percentages based on tonnage shipped in a calendar year, results for a particular calendar quarter are typically not indicative of results for future quarters or the year as a whole. Factors which can impact the results of the Trust in any quarter or year include: 5 1. SHIPPING CONDITIONS IN THE GREAT LAKES. Shipping activity by Northshore is dependent upon when the Great Lakes shipping lanes freeze for the winter months (typically in January) and when they re-open in the spring (typically late-March or April). Base overriding royalties to Mesabi Trust are based on shipments made in a calendar quarter. Because there typically is little or no shipping activity in the first calendar quarter, the Trust typically receives only the minimum royalty for that period. 2. OPERATIONS OF NORTHSHORE. Because the primary portion of the Trust's revenues derive from iron ore product shipped by Northshore from Silver Bay, Northshore's processing and shipping activities directly impact the Trust's revenues in each quarter and for each year. In turn, a myriad of factors affect Northshore shipment volume. These factors include economic conditions in the iron ore industry, pricing by competitors, long-term customer contracts or arrangements by Northshore or its competitors, availability of ore boats, production at Northshore's mining operations, and production at the pelletizing/processing facility. If any pelletizing line becomes idle for any reason, production and shipments (and, consequently, Trust income) could be adversely impacted. 3. INCREASING ROYALTIES. As described elsewhere in this Report, the royalty percentage paid to the Trust increases as the aggregate tonnage of iron ore products shipped, attributable to the Trust, in any calendar year increases. Assuming a consistent sales price per ton throughout a calendar year, shipments of iron ore product attributable to the Trust later in the year generate a higher royalty to the Trust. 4. PERCENTAGE OF MESABI TRUST ORE. As described elsewhere in this Report, Northshore has the ability to process and ship iron ore product from lands other than Mesabi Trust lands. In certain circumstances, the Trust may be entitled to royalties on those other shipments, but not in all cases. In general, the Trust will receive higher royalties (assuming all other factors are equal) if a higher percentage of shipments are from Mesabi Trust lands. The percentages of shipments that came from Mesabi Trust lands were 99.8%, 98.9%, 99.3%, 98.3% and 98.4% in calendar years 2000, 1999, 1998, 1997 and 1996, respectively. 5. UNCERTAINTY OF MARKET CONDITIONS IN THE STEEL AND IRON ORE INDUSTRY. After a modest improvement in the first half of 2000, North American steel industry fundamentals deteriorated significantly in the second half of the year. Weak steel demand, steel industry consolidation and price decreases attributable to slowing economies in the United States and Canada, high volumes of steel imports, and significantly rising energy costs have caused crisis conditions and uncertainty in the North American steel and iron ore industry. Such current conditions in the steel and iron ore industry could have an adverse impact on the royalties that will be paid to the Trust during 2001. COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 2001 AND JANUARY 31, 2000 Mesabi Trust's gross income for the fiscal year ended January 31, 2001 was $5,753,650, an increase of $393,757 (or approximately 7.3% ) from the gross income of $5,359,893 for the fiscal year ended January 31, 2000. The increase in gross income primarily was due to increased pellet shipments plus a higher average sales price per ton. Mesabi Trust's expenses of $407,505 for the fiscal year ended January 31, 2001 increased $18,040 (or approximately 4.6%) from expenses of $389,465 for the fiscal year ended January 31, 2000. Total expenses, by category, for each of the last three fiscal years is set forth under "Income and Expense" on page 13 of this report. Increased income and expenses resulted in net income of $5,346,145 for the fiscal year ended January 31, 2001, an increase of $375,717 from the net income of $4,970,428 for the fiscal year ended January 31, 2000. 6 Mesabi Trust's Unallocated Reserve aggregated $795,918 at January 31, 2001, as compared with an Unallocated Reserve of $763,377 at January 31, 2000. During the fiscal year ended January 31, 2001, the Trustees distributed $.455 per Unit of Beneficial Interest. These distributions to Unitholders totaled $5,969,605. The following chart summarizes Mesabi Trust's royalty income for the fiscal years ended January 31, 2001 and January 31, 2000, respectively:
Fiscal Years Ended January 31, 2001 2000 ---- ---- Base overriding royalties $5,376,626 $5,005,190 Bonus royalties -- -- Minimum advance Royalty paid (recouped) -- -- Fee royalties 330,139 311,016 ------- ------- Total royalty income $5,706,765 $5,316,206 ========== ==========
COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 2000 AND JANUARY 31, 1999 Mesabi Trust's gross income for the fiscal year ended January 31, 2000 was $5,359,893, a decrease of $628,250 (or approximately 10.5% ) from the gross income of $5,988,143 for the fiscal year ended January 31, 1999. The decrease in gross income primarily was due to decreased pellet shipments plus a lower average sales price per ton. Mesabi Trust's expenses of $389,465 for the fiscal year ended January 31, 2000 increased $36,079 (or approximately 10.2%) from expenses of $353,386 for the fiscal year ended January 31, 1999. Total expenses, by category, for each of the last three fiscal years is set forth under "Income and Expense" on page 13 of this report. Decreased income and increased expenses resulted in net income of $4,970,428 for the fiscal year ended January 31, 2000, a decrease of $664,329 from the net income of $5,634,757 for the fiscal year ended January 31, 1999. Mesabi Trust's Unallocated Reserve aggregated $763,377 at January 31, 2000, as compared with an Unallocated Reserve of $712,952 at January 31, 1999. During the fiscal year ended January 31, 2000, the Trustees distributed $.35 per Unit of Beneficial Interest. These distributions to Unitholders totaled $4,592,003. The following chart summarizes Mesabi Trust's royalty income for the fiscal years ended January 31, 2000 and January 31, 1999, respectively:
Fiscal Years Ended January 31, 2000 1999 ---- ---- Base overriding royalties $5,005,190 $5,607,420 Bonus royalties -- -- Minimum advance -- -- royalty paid (recouped) Fee royalties 311,016 331,826 ---------- ---------- Total royalty income $5,316,206 $5,939,246 ========== ----------
7 TO THE HOLDERS OF CERTIFICATES OF BENEFICIAL INTEREST IN MESABI TRUST MESABI TRUST Mesabi Trust was created in 1961 upon the liquidation of Mesabi Iron Company. The sole purpose of the Trust, as set forth in the Agreement of Trust dated as of July 18, 1961 (the "Agreement of Trust"), is to conserve and protect the Trust Estate and to collect and distribute the income and proceeds therefrom to the Trust's Certificate Holders after the payment of, or provision for, expenses and liabilities. The Agreement of Trust prohibits the Trust from engaging in any business. THE TRUST ESTATE The principal assets of Mesabi Trust consist of two different interests in certain properties in the Mesabi Iron Range: (i) Mesabi Trust's interest as assignor in the Amended Assignment of Peters and the Amended Assignment of Cloquet Lease, which together cover properties aggregating approximately 9,750 contiguous acres in St. Louis County, Minnesota (the "Peters Lease Lands" and the "Cloquet Lease Lands," respectively, and collectively, the "Peters and Cloquet Lease Lands"), and (ii) Mesabi Trust's ownership of the entire beneficial interest in Mesabi Land Trust, which has a 20% interest as fee owner in the Peters Lease Lands and a 100% fee ownership in certain non-mineral-bearing lands adjacent to the Peters and Cloquet Lease Lands (the "Mesabi Lease Lands"). The Peters and Cloquet Lease Lands are located at the eastern end of the Mesabi Iron Range and contain low-grade iron ore known as taconite, approximately three tons of which must be beneficiated to produce one ton of high-grade pellets. The Trustees have not had any surveys or test drillings performed to ascertain the iron ore reserves on the Peters and Cloquet Lease Lands. However, initial surveys and test drillings made by Mesabi Iron Company many years ago indicated that these lands contained accessible taconite reserves capable of yielding approximately 500 million tons of high grade iron ore pellets. In CCI's 2000 Annual Report, CCI estimated that there currently remains enough ore reserve in the Peters and Cloquet Lease Lands to produce concentrated product for 81 year of mining at current extraction rates. The Mesabi Lease Lands provide an area for location of service roads, supporting plants and equipment and dump sites for overburden. Under the Amended Assignment Agreements, Northshore produces iron ore from the Peters and Cloquet Lease Lands for the manufacture of pellets to be sold to various users, and Mesabi Trust receives royalties on the crude ore extracted from such Lands and the pellets produced from such crude ore. LEASEHOLD ROYALTIES Northshore is obligated to pay to Mesabi Trust base overriding royalties and royalty bonuses on all pellets (and other iron ore products) produced from the Peters and Cloquet Lease Lands ("Mesabi Ore") and shipped from Silver Bay, Minnesota in each calendar year. The royalties are based on prices per unit of product, volumes of product shipped and where on the escalating scale of royalties -- 2% on the first million tons to 6% on shipments above four million tons per year -- each shipment falls. 8 Base overriding royalties are calculated on the basis of an escalating scale of percentages of gross sales proceeds of iron ore shipped. The applicable percentage is determined by reference to the tonnage of pellets previously shipped in the then current calendar year, as follows:
Applicable royalty (expressed as a percentage Tons of iron ore products of gross sales proceeds shipped in calendar year within each tranche) ------------------------- ------------------------- one million or less 2-1/2% more than one but not more than two million 3-1/2% more than two but not more than three million 5% more than three but not more than four million 5-1/2% more than four million 6%
For example, assume that no shipments of iron ore products were made during the first calendar quarter of 2001 and further assume that pellets were shipped from Silver Bay, Minnesota in the second and third calendar quarters of 2001 in the following tonnage quantities and rendering the following gross proceeds:
Tonnage Gross Proceeds ------- -------------- 2nd Quarter: 500,000 $14,000,000 3rd Quarter: 500,000 $14,000,000 1,000,000 $27,000,000 1,000,000 $26,000,000 1,000,000 $25,000,000 1,500,000 $37,500,000
In this example, the base overriding royalties payable in respect of the second and third calendar quarters of 2001 would be as follows: 2nd Quarter: $14,000,000 x 2-1/2% ($ 350,000) 3rd Quarter: $14,000,000 x 2-1/2% ($ 350,000) $27,000,000 x 3-1/2% ($ 945,000) $26,000,000 x 5% ($1,300,000) $25,000,000 x 5-1/2% ($1,375,000) $37,500,000 x 6% ($2,250,000)
Based on the same example, the percentage applicable for all iron ore products shipped in the fourth calendar quarter of 2001 would be 6%, because more than four million tons were shipped during the first three quarters. The above figures are provided only to illustrate the method for calculating base overriding royalties and do NOT indicate the amount of base overriding royalties the Trustees expect Mesabi Trust to earn calendar 2001 or any other calendar or fiscal year. Accordingly, the foregoing example illustrating the calculation of base overriding royalties should not be considered a prediction of the amount of base overriding royalties Mesabi Trust will receive. Royalty bonuses are payable on all iron ore products sold at prices above a threshold price (the "Adjusted Threshold Price"). The Adjusted Threshold Price was $38.22 per ton for calendar year 1999, $38.22 per ton for calendar year 2000, and will be $39.82 per ton for calendar 2001. The Adjusted 9 Threshold Price is subject to adjustment (but not below $30 per ton) for inflation and deflation and is determined each year on the basis of the change in a broad based index of inflation and deflation published quarterly by the U.S. Department of Commerce. The amount of royalty bonuses payable for any period is calculated on the basis of an escalating scale of percentages of the gross sales proceeds to Northshore of pellets sold at prices above the Adjusted Threshold Price. The applicable percentage is determined by reference to the amount by which the sales prices for a particular quantity of pellets exceeds the Adjusted Threshold Price, as follows:
Amount by which sales price per ton exceeds Adjusted Applicable Threshold Price Percentage --------------- ---------- $2 or less 1/2 of 1% more than $2 but not more than $4 1% more than $4 but not more than $6 1-1/2% more than $6 but not more than $8 2% more than $8 but not more than $10 2-1/2% more than $10 3%
For example, assume an Adjusted Threshold Price of $39.82 is assumed for calendar year 2001 and that two million tons of iron ore products were shipped in the second calendar quarter of 2001 at the following prices: 1,000,000 tons @ $29.00/ton 300,000 tons @ $31.00/ton 300,000 tons @ $34.00/ton 100,000 tons @ $36.00/ton 100,000 tons @ $38.00/ton 100,000 tons @ $40.00/ton 50,000 tons @ $42.00/ton 50,000 tons @ $46.00/ton In this example, the following royalty bonuses would be payable on shipments of iron ore products on the second calendar quarter of 2001 as follows: 1,000,000 tons @ $29.00/ton No bonus 300,000 tons @ $31.00/ton No bonus 300,000 tons @ $34.00/ton No bonus 100,000 tons @ $36.00/ton No bonus 100,000 tons @ $38.00/ton No bonus 100,000 tons @ $40.00/ton 1/2% 50,000 tons @ $42.00/ton 1% 50,000 tons @ $46.00/ton 2% The above figures are provided only to illustrate the method for calculating royalty bonuses and do NOT indicate the amount of royalty bonuses, if any, the Trustees expect Mesabi Trust to earn in calendar 2001 or any other calendar or fiscal year. Accordingly, the foregoing example illustrating the calculation of royalty bonuses should not be considered a prediction of the amount, if any, of royalty bonuses Mesabi Trust will receive. In fact, no royalty bonus has been paid to the Trust for several years. 10 Northshore also must pay base overriding royalties and royalty bonuses on pellets produced from lands other than Mesabi Lease Lands ("Other Ore") to the extent necessary to assure payment of base overriding royalties and royalty bonuses on at least 90% of the first four million tons of pellets shipped from Silver Bay in each calendar year, at least 85% of the next two million tons of pellets shipped therefrom in each calendar year, and at least 25% of all tonnage of pellets shipped therefrom in each calendar year in excess of six million tons. Base overriding royalties and royalty bonuses payable on Other Ore can be recouped by Northshore out of base overriding royalties and royalty bonuses paid on Mesabi Ore. The amount of Other Ore royalties and Other Ore royalty bonuses which can be recouped on any payment date cannot, however, exceed 20% of the amount of Mesabi Ore royalties and royalty bonuses which are otherwise payable on that payment date. Northshore is obligated to pay to Mesabi Trust advance royalties in equal quarterly installments. The advance royalty was $637,044 for the calendar year 1999, $647,282 for the calendar year 2000 and is $663,682 for the calendar year 2001. The amount of advance royalties payable is subject to adjustment (but not below $500,000 per annum) for inflation and deflation and is determined each year in the same manner as the Adjusted Threshold Price. All payments of advance royalties are credited against payments of base overriding royalties and royalty bonuses payable on Mesabi Ore until fully recouped. The amount of advance royalties payable in respect of each calendar quarter constitutes the minimum overriding royalty amount payable by Northshore in respect of that calendar quarter. Base overriding royalties and royalty bonuses are payable quarterly and accrue upon shipment, whether or not the actual sales proceeds for any shipment are received by Northshore. The amount of base overriding royalties and royalty bonuses payable with respect to the first three quarters in any calendar year are determined on the basis of tonnage shipped during each such calendar quarter and the actual sales proceeds of such shipments, with an adjustment made to the royalties payable with respect to the last quarter in any calendar year to account for errors, adjustments and returns. In addition, in the event that Northshore commences mining and production of quarry stone for shipment, Northshore must pay base overriding royalties on all quarry stone so shipped on the basis of the same scale of percentages used in calculating base overriding royalties payable on pellets and other iron ore product. Northshore has not informed Mesabi Trust of any present intention to commence mining and production of quarry stone. LAND TRUST AND FEE ROYALTIES Mesabi Land Trust holds a 20% interest as fee owner in the Peters Lease Lands and a 100% interest as fee owner in the Mesabi Lease Lands as lessor of the Mesabi Lease. Mesabi Trust holds the entire beneficial interest in Mesabi Land Trust and is entitled to receive the net income of Mesabi Land Trust after payment of expenses. Northshore is not obligated to pay royalties or rental to Mesabi Land Trust as fee owner of the non-mineral bearing Mesabi Lease Lands, a consideration having been paid in that respect at the inception of the Mesabi Lease. Northshore is required to pay a base royalty to the fee owners in an amount which, at its option, is either (a) 11-2/3(cents) per gross ton of crude ore it mines from the Peters Lease Lands or (b) $.0056 for each 1% of metallic iron ore natural contained in each gross ton of pellets it produces from the Peters Lease Lands and ships. The base fee royalty rate is adjusted up or down each quarter (but not below the base royalty specified above) by addition or subtraction of an amount to be determined by reference to changes in Lower Lake Mesabi Range pellet prices and the All Commodities Producer Price Index. The adjustment factor is computed by multiplying the base fee royalty rate specified above by a percentage that is the sum of (a) one-half of the percentage change, if any, by which the then prevailing price per iron unit of Mesabi Range taconite pellets delivered by rail or vessel at Lower Lake Erie ports exceeds 80.5(cents) (the price per iron unit in effect in January 1982) plus (b) one-half of the percentage change, if any, by 11 which the All Commodities Producer Price Index exceeds 295.8 (the level of the Index for December 1981). Fee royalties aggregating $330,139 with respect to crude ore mined by Northshore were earned by Mesabi Land Trust during the fiscal year ended January 31, 2001. INCOME AND EXPENSE Total income for Mesabi Trust for the fiscal year ended January 31, 2001 was $5,753,650, consisting of $46,885 in interest earned on the investment of the Unallocated Reserve, $330,139 in fee income, $0 in minimum advance royalty income, and $5,376,626 in overriding royalty income compared with $5,359,893 in total income for the previous fiscal year. Total expenses for the fiscal year were $407,505, compared with $389,465 in total expenses for the previous fiscal year. There were distributions paid per Unit of Beneficial Interest totaling $.455 for the fiscal year ended January 31, 2001, compared with distributions paid for the fiscal year ended January 31, 2000 of $.35 per Unit. Total expenses by categories were as follows:
Fiscal Years ended January 31, ---------------------------------------------- 2001 2000 1999 ---- ---- ---- Compensation of Trustees $136,325 $130,046 $125,083 Fees and Disbursements Administrative 62,500 65,983 62,500 Accounting 33,230 34,629 36,302 Inspection trips, travel and other expenses of Trustees 41,664 31,138 38,677 Legal 53,038 42,038 19,707 Mining consultant and field Representatives 14,480 16,194 16,548 Printing of annual and quarterly reports, and letters to certificate holders 35,004 31,168 22,421 Securities and Exchange Commission --- --- --- Transfer Agent and Registrar 21,335 23,537 22,689 Transfer Agent miscellaneous Disbursements 9,929 10,586 9,458 Other miscellaneous expenses --- 4,146 1 -------- -------- -------- $407,505 $389,465 $353,386 ======== ======== ========
Pursuant to an Amendment to the Agreement of Trust (the "Amendment") dated October 25, 1982, each Individual Trustee receives annual compensation for services as Trustee of $20,000, adjusted up or down (but not below $20,000) in accordance with changes from the November 1981 level of 295.5 (the "1981 Escalation Level") in the All Commodities Producer Price Index (with 1967 = 100 as a base), which is published by the U.S. Department of Labor. The adjustment is made at the end of each fiscal year and is calculated on the basis of the proportion between (a) the level of such index for the November preceding the end of such fiscal year and (b) the 1981 Escalation Level. 12 RESERVES AND DISTRIBUTIONS Mesabi Trust's Unallocated Reserve aggregated $795,918 at January 31, 2001, compared with an Unallocated Reserve of $763,377 at January 31, 2000. The Trustees have determined that the Unallocated Reserve should be maintained at a prudent level. Accordingly, although the actual amount of the Unallocated Reserve will fluctuate from time to time, and may increase or decrease from its current level, it is currently intended that future distributions will be highly dependent upon royalty income as it is received and the level of Trust expenses. The amount of future royalty income available for distribution will be subject to the volume of iron ore product shipments and the dollar level of sales by Northshore. Shipping activity is greatly reduced during the winter months and economic conditions, particularly those affecting the steel industry, may adversely affect the amount and timing of such future shipments and sales. The Trustees will continue to monitor the economic circumstances of the Trust to strike a responsible balance between distributions to Unitholders and the need to maintain adequate reserves at a prudent level, given the unpredictable nature of the iron ore industry, the Trust's dependence on the actions of the lessee/operator, and the fact the Trust essentially has no other liquid assets. Payments to Unitholders during the fiscal year ended January 31, 2000 totaled $4,592,003 and payments to Unitholders during the fiscal year ended January 31, 2001 totaled $5,969,605. CERTIFICATES OF BENEFICIAL INTEREST The Certificates of Beneficial Interest are traded on the New York Stock Exchange. During the past two fiscal years, the market ranges of the certificates for each quarterly period and the distributions declared for such quarterly periods were as follows:
Amount Fiscal Quarter Ended High Low Declared Per Unit - -------------------- ---- --- -------- -------- April 30, 1999 3 7/16 2 13/16 $ -- $ -- July 31, 1999 3 6/16 2 15/16 1,049,600 0.080 October 31, 1999 3 1/16 2 7/16 1,508,801 0.115 January 31, 2000 3 1/4 2 3/16 2,361,602 0.180 ----------- ---------- $4,920,003 $ 0.375 ========== ========== Amount Fiscal Quarter Ended High Low Declared Per Unit - -------------------- ---- --- -------- -------- April 30, 2000 3 2 5/8 $ -- $ -- July 31, 2000 3 5/8 2 13/16 1,312,001 0.100 October 31, 2000 4 3 5/16 2,296,002 0.175 January 31, 2001 3 1/2 2 3/4 1,705,601 0.130 ----------- ---------- $4,313,604 $ 0.405 ========== ==========
As of the close of business on April 19, 2001, the beneficial interest in Mesabi Trust was represented by 13,120,010 Units registered in the names of approximately 2,591 individuals holding of record approximately 1,653,664 Units, and in the names of approximately 526 brokers, nominees, or fiduciaries holding of record approximately 11,466,346 Units. 13 THE TRUSTEES The name and address of each Trustee and the principal occupation of each individual Trustee are as follows: Name and Address of Trustee Principal Occupation - --------------------------- -------------------- Bankers Trust Company Trust Company Corporate Trustee Four Albany Street New York, New York 10015 David J. Hoffman Mining geologist Individual Trustee P.O. Box 10444 Sedona, Arizona 86339 Richard G. Lareau Partner in the law firm of Individual Trustee Oppenheimer Wolff & Donnelly LLP Oppenheimer Wolff & Donnelly LLP 3400 Plaza VII 45 South Seventh Street Minneapolis, Minnesota 55402 Ira A. Marshall, Jr. Private investor; Self-employed Individual Trustee petroleum engineer 12 Fincher Way Rancho Mirage, California Norman F. Sprague III Private investor; Orthopedic surgeon Individual Trustee 11600 Wilshire Boulevard Los Angeles, California 90025 Respectfully submitted, BANKERS TRUST COMPANY DAVID J. HOFFMAN New York, New York RICHARD G. LAREAU April 19, 2001 IRA A. MARSHALL, JR. NORMAN F. SPRAGUE III 14 INDEPENDENT AUDITOR'S REPORT To the Trustees Mesabi Trust New York, New York We have audited the accompanying balance sheet of Mesabi Trust as of January 31, 2001, and the related statements of income, unallocated reserve and trust corpus and cash flows for the year ended January 31, 2001. These financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Mesabi Trust, as of January 31, 2000 and 1999, were audited by other auditors whose report dated March 8, 2000, expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mesabi Trust as of January 31, 2001, and the results of its income and its cash flows for the year ended January 31, 2001, in conformity with generally accepted accounting principles. EIDE BAILLY LLP Fargo, North Dakota March 14, 2001 /s/ Eide Bailly LLP F-1 INDEPENDENT AUDITOR'S REPORT To the Trustees Mesabi Trust New York, New York We have audited the accompanying balance sheet of Mesabi Trust as of January 31, 2000 and 1999, and the related statements of income, unallocated reserve and trust corpus and cash flows for each of the three years in the period ended January 31, 2000. These financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mesabi Trust as of January 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2000, in conformity with generally accepted accounting principles. MCGLADRY & PULLEN LLP New York, New York April 19, 2001 /s/ McGladry & Pullen, LLP F-2 MESABI TRUST BALANCE SHEETS
January 31, ------------------------------ 2001 2000 ---- ---- ASSETS Cash $ 1,947,696 $ 51,082 U.S. Government securities, at amortized cost (which approximates market) 505,815 2,888,947 Accrued income 98,893 235,056 Prepaid insurance 4,347 4,775 ------------- ------------- 2,556,751 3,179,860 ------------- Fixed property, including intangibles, at nominal values: Assignments of leased property: Amended Assignment of Peters Lease 1 1 Assignment of Cloquet Lease 1 1 Certificate of beneficial Interest for 13,120,010 units of Land Trust 1 1 ------------- ------------- 3 3 ------------- ------------- $ 2,556,754 $ 3,179,863 ============= ============= LIABILITIES, UNALLOCATED RESERVE AND TRUST CORPUS Liabilities: Distribution payable $ 1,705,601 $ 2,361,602 Accrued expenses 55,232 54,881 ------------- ------------- 1,760,833 2,416,483 Unallocated reserve 795,918 763,377 Trust Corpus 3 3 ------------- ------------- $ 2,556,754 $ 3,179,863 ============= =============
See Notes to Financial Statements. F-3 MESABI TRUST STATEMENTS OF INCOME
Years ended January 31, ------------------------------------------------------------ 2001 2000 1999 ---- ---- ---- REVENUE Royalties under amended lease agreements $ 5,376,626 $ 5,005,190 $ 5,607,420 Royalties under Peters Lease fee 330,139 311,016 331,826 Interest 46,885 43,687 48,897 ------------ ------------ ------------ Total revenue 5,753,650 5,359,893 5,988,143 ------------ ------------ ------------ EXPENSES Compensation of Trustees 136,325 130,046 125,083 Corporate Trustee's administrative fees 62,500 65,983 62,500 Professional fees and expenses: Legal and accounting 86,268 76,667 56,009 Mining consultant and field representatives 14,480 16,194 16,548 Transfer agent's and registrar's fees 21,335 23,537 22,689 Other Trust expenses 86,597 77,038 70,557 ------------ ------------ ------------ Total expenses 407,505 389,465 353,386 ------------ ------------ ------------ Net income $ 5,346,145 $ 4,970,428 $ 5,634,757 ============ ============ ============ Weighted average number 13,120,010 13,120,010 13,120,010 of units outstanding Net income per unit $ .41 $ .38 $ .43 ============ ============ ============
See Notes to Financial Statements. F-4 MESABI TRUST STATEMENTS OF UNALLOCATED RESERVE AND TRUST CORPUS YEARS ENDED JANUARY 31, 2001, 2000 AND 1999
Unallocated Reserve ------------------- Number of Trust Units Amount Corpus ----- ------ ------ Balance, January 31, 1998 13,120,010 $ 719,799 $ 3 ------------- ------------- ------------- Net income --- 5,634,757 --- Distribution paid August 20, 1998, $.11 per unit --- (1,443,201) --- Distribution paid November 20, 1998, $.165 per unit --- (2,164,801) --- Distribution declared January 16, 1999, paid February 20, 1999, $.155 per unit --- (2,033,602) --- ------------- ------------- ------------- Balance, January 31, 1999 13,120,010 712,952 3 ------------- ------------- ------------- Net income --- 4,970,428 --- Distribution paid August 20, 1999, $.08 per unit --- (1,049,600) --- Distribution paid November 20, 1999, $.115 per unit --- (1,508,801) --- Distribution declared January 20, 2000, paid February 20, 2000, $.18 per unit --- (2,361,602) --- ------------- ------------- ------------- Balance, January 31, 2000 13,120,010 763,377 3 ------------- ------------- ------------- Net income --- 5,346,145 --- Distribution paid August 20, 2000, $.10 per unit --- (1,312,001) --- Distribution paid November 20, 2000, $.175 per unit --- (2,296,002) --- Distribution declared January 18, 2001, paid February 20, 2001, $.13 per unit --- (1,705,601) --- ------------- ------------- ------------- Balance, January 31, 2001 13,120,010 $ 795,918 $ 3 ============= ============= =============
See Notes to Financial Statements. F-5 MESABI TRUST STATEMENTS OF CASH FLOWS
Years ended January 31, ----------------------------------------------------------- 2001 2000 1999 ---- ---- ---- Cash flows from operating activities: Royalties received $ 5,843,339 $ 5,216,513 $ 5,967,132 Interest received 46,473 43,315 48,241 Expenses paid (406,725) (377,983) (386,675) -------------- -------------- ------------- Net cash provided by operating activities 5,483,087 4,881,845 5,628,698 ------------- -------------- ------------- Cash flows from investing activities: Maturities of U.S. Government securities 6,975,801 6,191,645 9,009,983 Purchases of U.S. Government securities (4,592,669) (8,545,678) (9,045,824) -------------- -------------- ------------- Net cash (used in) provided by investing activities 2,383,132 (2,354,033) (35,841) ------------- -------------- ------------- Cash flows from financing activities: Net cash (used in) financing activities, distributions to unitholders (5,969,605) (4,592,003) (7,084,805) -------------- -------------- ------------- Net increase (decrease) in cash 1,896,614 (2,064,191) (1,491,948) Cash, beginning of year 51,082 2,115,273 3,607,221 ------------- -------------- ------------- Cash, end of year $ 1,947,696 $ 51,082 $ 2,115,273 ============= ============== ============= Reconciliation of net income to net cash provided by operating activities: Net income $ 5,346,145 $ 4,970,428 $ 5,634,757 Decrease (increase) in accrued income 136,163 (100,065) 41,650 Decrease (increase) in prepaid insurance 428 86 (1,041) (Decrease) increase in accrued expenses 351 11,396 (46,668) ------------- -------------- -------------- Net cash provided by operating activities $ 5,483,087 $ 4,881,845 $ 5,628,698 ------------- ============== =============
See Notes to Financial Statements. F-6 MESABI TRUST NOTES TO FINANCIAL STATEMENTS JANUARY 31, 2001, 2000 AND 1999 Note 1. Nature of Business, Organization and Significant Accounting Policies Nature of business: Mesabi Trust was created in 1961 upon the liquidation of Mesabi Iron Company. The sole purpose of the Trust, as set forth in the Agreement of Trust dated as of July 18, 1961, is to conserve and protect the Trust Estate and to collect and distribute the income and proceeds therefrom to the Trust's certificate holders after the payment of, or provision for, expenses and liabilities. The Agreement of Trust prohibits the Trust from engaging in any business. The lessee/operator of Mesabi Trust's mineral interests is Northshore Mining Corporation (NMC), a subsidiary of Cleveland-Cliffs Inc. (CCI). CCI is among the world's largest producers of iron ore products. Prior to September 30, 1994, the lessee/operator had been a subsidiary of Cyprus Amax Minerals Company and was named Cyprus Northshore Mining Corporation (Cyprus NMC). Organization: The beneficial interest in Mesabi Trust is represented by 13,120,010 transferable units distributed on July 27, 1961 to shareholders of Mesabi Iron Company. The Trust's status as a grantor trust was confirmed by letter ruling addressed to Mesabi Iron Company from the Internal Revenue Service in 1961. As a grantor trust, Mesabi is exempt from Federal income taxes and its income is taxable directly to the Unitholders. A summary of Mesabi Trust's significant accounting policies follows: Investments: The Trust invests solely in U.S. Government securities. Management determines the appropriate classifications of the securities at the time they are acquired and evaluates the appropriateness of such classifications as of each balance sheet date. The U.S. government securities are classified as held-to-maturity securities as the Trust has the positive intent and ability to hold to maturity and are stated at amortized cost. Revenue recognition: Royalty income under the amended lease agreements with NMC (Cyprus NMC through September 30, 1994) is recognized as it is earned. Under such F-7 agreements, royalties are earned upon shipment, regardless of whether the actual sales proceeds for any shipment are received by NMC. Royalty income under the Peters Lease fee agreement also is recognized as it is earned. Under such agreement, however, royalties are earned (at the option of NMC (Cyprus NMC through September 30, 1994)) either upon mining of crude ore from Peters Lease lands or upon shipment of iron ore product produced from Peters Lease lands. Fixed property, including intangibles: The Trust's fixed property, including intangibles, is recorded at nominal values and includes the following: (1) The entire beneficial interest as assignor in the Amended Peters Lease Assignment and the Amended Cloquet Lease Assignment covering taconite properties in Minnesota which are leased to NMC (Cyprus NMC through September 30, 1994). (2) The entire beneficial interest in Mesabi Land Trust which owns a 20% fee interest in the lands subject to the Peters Lease and the entire fee interest in other properties in Minnesota. Accounting estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair value of financial instruments: The carrying amounts of financial instruments including cash, U.S. government securities, distributions payable and accrued expenses approximated fair value as of January 31, 2001 and 2000 because of the relative short maturity of these instruments. F-8 Note 2. U.S. Government Securities The amortized cost approximates market value as of January 31, 2001 and 2000. The securities are classified as held-to-maturity and mature as follows:
January 31, 2001 January 31, 2000 ---------------- ---------------- Due within one year $ 97,782 $2,487,132 Due after one year through four years 408,033 401,815 --------- ---------- $ 505,815 $2,888,947 ========= ==========
Note 3. Unallocated Reserve Leasehold royalty income constitutes the principal source of revenue to Mesabi Trust. Prior to August 17, 1989, royalties were based on the quantity and iron content of pellets shipped by the then lessee, Reserve Mining Company ("Reserve"), from Mesabi Trust properties. From May 1986 until July 1990, however, Mesabi Trust did not have any royalty income, due principally to the filing of a Chapter 11 bankruptcy petition by Reserve and the suspension of Reserve's operations in 1986. On August 17, 1989, Cyprus NMC purchased substantially all of Reserve's assets, including Reserve's interest in the Mesabi Trust lands, and Mesabi Trust entered into agreements with Reserve's Chapter 11 Trustee and Cyprus NMC, which modified the method of calculating royalties payable to Mesabi Trust and transferred the interest of Reserve in the Mesabi Trust lands to Cyprus NMC. Royalties are now determined by both the volume and selling price of iron ore pellets and other products sold. F-9 On September 30, 1994, Cyprus Amax Minerals Company sold its iron ore operations, including Cyprus NMC, to Cleveland-Cliffs Inc. (CCI). CCI renamed the operation Northshore Mining Corporation (NMC). CCI is among the world's largest producers of iron ore products. Pursuant to the amended assignment agreements, NMC (Cyprus NMC through September 30, 1994) is obligated to pay Mesabi Trust base overriding royalties, in varying amounts constituting a percentage of the gross proceeds of shipments, from Silver Bay, Minnesota, of iron ore product produced from Mesabi Trust lands or, to a limited extent, other lands. NMC (Cyprus NMC through September 30, 1994) is obligated to make payments of overriding royalties on product shipments within 30 days following the calendar quarter in which such shipments occur. NMC (Cyprus NMC through September 30, 1994) resumed mining operations and shipping product from Silver Bay in the second calendar quarter of 1990, and the first payment of overriding royalties was made in July 1990. NMC (Cyprus NMC through September 30, 1994) also is obligated to pay to Mesabi Trust a minimum advance royalty of $500,000 per annum, subject to adjustment for inflation and deflation (but not below $500,000), which is credited against base overriding royalties and royalty bonuses. NMC (Cyprus NMC through September 30, 1994) is obligated to make quarterly payments of the minimum advance royalty in January, April, July and October of each year. For the calendar year ending December 31, 2001, the minimum advance royalty is $663,862. The minimum annual advance royalty was $647,282, $637,044, and $636,935 for the calendar years ended December 31, 2000; 1999; and 1998; respectively. The unallocated reserve aggregated $795,918 (of $.06 per Unit), at January 31, 2001, as compared with an unallocated reserve of $763,377 and $712,952 at January 31, 2000 and 1999, respectively. During the fiscal years ended January 31, 2001, 2000 and 1999 the Trustees distributed cash payments totaling $5,969,605 (of $.455 per Unit), $4,592,003 (of $.35 per Unit), and $7,084,805 (of $.54 per Unit), respectively, of beneficial interest in Mesabi Trust. In addition, in January 2001 the Trustees declared a distribution of $.13 per unit of beneficial interest which was paid in February 2001. F-10 Note 4. Summary of Quarterly Earnings (Unaudited) The quarterly results of operations for the years ended January 31, 2001 and 2000 are presented below:
Year ended January 31, 2001 ----------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter ----------- ------------- -------------- -------------- Revenue $443,827 $1,554,610 $2,577,808 $1,177,405 Expenses 91,618 89,358 80,682 145,848 ----------- ------------- -------------- -------------- Net income $352,209 $1,465,252 $2,497,126 $1,031,557 =========== ============= ============== ============== Net income per unit $ 0.03 $ 0.11 $ 0.19 $ 0.08 =========== ============= ============== ============== Year ended January 31, 2000 ----------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter ----------- ------------- -------------- -------------- Revenue $455,960 $1,126,492 $1,711,061 $2,066,380 Expenses 85,917 112,781 79,273 111,494 ----------- ------------- -------------- -------------- Net income $370,043 $1,013,711 $1,631,788 $1,954,886 =========== ============= ============== ============== Net income per unit $ 0.03 $ 0.08 $ 0.12 $ 0.15 =========== ============= ============== ==============
F-11 EX-99 3 a2046399zex-99.txt EX-99 April 20, 2001 To the Mesabi Trust Unitholders, We have enclosed with this letter Mesabi Trust's Annual Report on Form 10-K for the fiscal year ended January 31, 2001. As you will see by reviewing the Section in the Form 10-K entitled "Important Factors Affecting Mesabi Trust - Uncertainty of Market Conditions in the Steel and Iron Ore Industry" on page 6, there currently is a great deal of uncertainty regarding market conditions in the steel and iron ore industry. After modestly improving in the first half of 2000, North America steel industry fundamentals deteriorated significantly in the second half of the year. This is reflected by comparing the net income earned by the Trust in the fourth quarter ended January 31, 2001, which was $1,031,551 (or net income per Unit of $0.08) with the net income earned in the fourth quarter ended January 31, 2000, which was $1,954,886 (or net income per Unit of $0.15). As reported in the Trust's press release dated January 18, 2001, Cleveland-Cliffs, Inc., the corporate parent of Northshore Mining Company, announced earlier this year a reduction in its quarterly dividend from $0.375 per common share to $0.10 per share, and its intention to reduce iron ore pellet production at Northshore by approximately 700,000 tons in 2001. As reasons for the production cutback, Cleveland-Cliffs cited the impact on its customers of perceived unfairly traded imports, the general deterioration in overall steel demand in North America, steel industry consolidation and slowing economies in the United States and Canada. No forecast of the volume of shipments of iron ore pellets for the coming year was provided. These current conditions in the steel and iron ore industry could have an adverse impact on the royalties that will be paid to the Trust during 2001. Mesabi Trust's press release dated April 20, 2001, advises that, as in past years, no quarterly distribution is being made with respect to this past quarter. Closure of the Great Lakes due to ice again resulted in minimal shipments of iron ore pellets during the quarter. In addition, the Trustees decided to modestly increase the unallocated reserve to address the uncertainty in the steel and iron ore industry as discussed above. This news release contains certain forward-looking statements with respect to iron ore production at Northshore in 2001, which statements are intended to be made under the safe harbor protections of the private Securities Litigation Reform Act of 1995. Actual production and shipments of iron ore pellets could differ materially from current expectations due to inherent risks such as lower demand for steel, iron ore, higher steel imports, processing difficulties or other factors. Although the Mesabi Trustees believe that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties, which could cause actual results to differ materially. Respectfully, Trustees of Mesabi Trust -----END PRIVACY-ENHANCED MESSAGE-----