-----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, Qd6LMvG7jh0H1Qfv9IQ0k20X18v/Heenx6Qhm2uAkGMofgcGl0+OAKdNZUu5P23f VuE+fnICtqD6TLwVpJBWMQ== 0001047469-98-034496.txt : 19980915 0001047469-98-034496.hdr.sgml : 19980915 ACCESSION NUMBER: 0001047469-98-034496 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980731 FILED AS OF DATE: 19980914 SROS: NYSE 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-Q SEC ACT: SEC FILE NUMBER: 001-04488 FILM NUMBER: 98709101 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: 10015 BUSINESS PHONE: 2122506696 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: 10015 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended July 31, 1998 or / / TRANSITION REPORT UNDER 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 (Exact name of registrant as specified in its charter) NEW YORK 13-6022277 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) IN CARE OF BANKERS TRUST COMPANY, CORPORATE TRUST & AGENCY GROUP P.O. BOX 318 CHURCH STREET STATION NEW YORK, NEW YORK 10008-0318 (Address of principal executive offices) (212) 250-6519 (Registrant's telephone number, including area code) 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 / / As of September 9, 1998, there were 13,120,010 Units of Beneficial Interest in Mesabi Trust outstanding. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (NOTE 1)
THREE MONTHS ENDED SIX MONTHS ENDED JULY 31, JULY 31, ------------------------- ------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- A. Condensed Statements of Income Revenues: Royalty income $1,473,022 $1,253,519 $1,957,281 $1,492,369 Interest income 8,218 6,033 23,410 16,928 ---------- ---------- ---------- ---------- $1,481,240 $1,259,552 $1,980,691 $1,509,297 Expenses 97,172 80,811 166,889 146,509 ---------- ---------- ---------- ---------- Net income $1,384,068 $1,178,741 $1,813,802 $1,362,788 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Weighted average number of units outstanding 13,120,010 13,120,010 13,120,010 13,120,010 Net income per unit (Note 2) $0.105493 $0.089843 0.138247 $0.103871 Distributions declared per unit $0.110 $0.065 0.110 $0.065
See Notes to Financial Statements. 2 B. Condensed Balance Sheets
Assets: July 31, 1998 January 31, 1998 ------------- ---------------- Cash $ 34,887 $ 3,607,221 U.S. Government securities, at amortized cost (which approximates market) 2,064,732 499,073 Accrued income 482,910 176,641 Prepaid insurance --- 3,820 ------------- ---------------- $ 2,582,529 $ 4,286,755 ------------- ---------------- Fixed property, including intangibles, at nominal values: 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 ------------- ---------------- $ 2,582,532 $ 4,286,758 ------------- ---------------- ------------- ---------------- Liabilities, Unallocated Reserve and Trust Corpus: Liabilities: Distribution payable $ 1,443,201 $ 3,476,803 Accrued expenses 48,928 90,153 ------------- ---------------- $ 1,492,129 $ 3,566,956 Unallocated reserve (Note 3) 1,090,400 719,799 Trust Corpus 3 3 ------------- ---------------- $ 2,582,532 $ 4,286,758 ------------- ---------------- ------------- ----------------
See Notes to Financial Statements. 3
C. Condensed Statements of Cash Flows SIX MONTHS ENDED JULY 31, --------------------------------- 1998 1997 ---- ---- Cash flows from operating activities: Royalties received $ 1,651,461 $ 1,043,744 Interest received 22,960 19,706 Expenses paid (204,293) (170,775) ------------- ---------------- Net cash provided by operating activities $ 1,470,128 $ 892,675 ------------- ---------------- Cash flows from investing activities: Maturities of U.S. Government securities $ 4,364,263 $ 2,829,304 Purchases of U.S. Government securities (5,929,922) (1,027,782) ------------- ---------------- Net cash provided by (used in) investing activities $ (1,565,659) $ 1,801,522 ------------- ---------------- Cash flows from financing activities: Net cash (used in) financing activities, distributions to Unitholders $ (3,476,803) $ (1,902,401) ------------- ---------------- Net increase/(decrease) in cash $ (3,572,334) $ 791,796 Cash, beginning of year 3,607,221 918 ------------- ---------------- Cash, end of quarter $ 34,887 $ 792,714 ------------- ---------------- ------------- ---------------- Reconciliation of net income to net cash provided by operating activities: Net income $ 1,813,802 $ 1,362,788 (Increase)/decrease in accrued income (306,269) (445,847) (Increase)/Decrease in prepaid insurance 3,820 (4,851) (Decrease) in accrued expenses (41,225) (19,415) ------------- ---------------- Net cash provided by operating activities $ 1,470,128 $ 892,675 ------------- ---------------- ------------- ----------------
See Notes to Financial Statements. 4 MESABI TRUST NOTES TO FINANCIAL STATEMENTS Note 1. The financial statements included herein have been prepared without audit (except for the balance sheet at January 31, 1998) in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Trustees, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of (a) the results of operations for the six months ended July 31, 1998 and 1997, (b) the financial positions at July 31, 1998 and January 31, 1998, and (c) the cash flows for the six months ended July 31, 1998 and 1997, have been made. Note 2. Earnings per unit are based on weighted average number of units outstanding during the period (13,120,010 units). Note 3. The Trustees attempt to maintain $500,000 of liquid assets as part of an Unallocated Reserve. The Unallocated Reserve consists of these liquid assets and accrued revenue (primarily royalties not yet received). At July 31, 1998, the Unallocated Reserve was represented by $607,490 in unallocated cash and U.S. Government securities, and $482,910 of accrued revenue primarily representing royalties not yet received by the Trust but anticipated to be received in October 1998 from Northshore as part of the royalty due with respect to the third fiscal quarter, based upon reported lessee shipping activity for the month of July 1998. 5 ITEM 2. TRUSTEES' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FORWARD-LOOKING INFORMATION Certain statements contained in this document are forward-looking, including specifically those statements estimating calendar year 1998 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. Important factors that could cause actual results to differ materially include those listed in "Important Factors Affecting Mesabi Trust" below. BACKGROUND Leasehold royalty income constitutes the principal source of revenue to Mesabi Trust. Royalty rates are determined in accordance with the terms of Mesabi Trust's leases and assignments of leases. Overriding royalties are determined by both the volume and selling price of iron ore products shipped. 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. Currently, 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. Northshore Mining Corporation ("Northshore") is obligated as lessee to pay Mesabi Trust base overriding royalties in varying amounts. The volume royalties constitute 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 royalty 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 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 $36.62 for calendar year 1996, was $37.29 for calendar year 1997 and is $38.21 for calendar year 1998. 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 ever been payable. 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, Northshore also is obligated to pay to Mesabi Trust a minimum advance royalty in equal quarterly installments. Royalty advances are credited against certain base overriding royalties and royalty bonuses. The amount of advance royalties payable is subject to adjustment for inflation and deflation (but not below $500,000 per annum). Advance royalties payable were $610,335 for calendar year 1996, were $621,606 for calendar year 1997 and are $636,935 for calendar year 1998. 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. 6 Due to a combination of factors, shipments from quarter to quarter and from year to year fluctuate greatly. These factors include the normal reduction of Great Lakes shipping activity during the winter months, price fluctuations and reduced pellet sales resulting from adverse economic conditions affecting the steel industry generally. In its most recently released quarterly report on Form 10-Q for the quarter ended June 30, 1998, which report was filed on August 12, 1998, Cleveland-Cliffs, Inc. ("CCI"), parent company of Northshore, the lessee/operator of Mesabi Trust iron ore interests, stated that it is continuing to evaluate whether to build a plant at the Northshore Mine to produce pig iron. The same report stated that CCI has initiated the environmental review and permitting process and that uncertainties concerning environmental permitting and other matters have delayed a decision on this project. CCI's report gave no indication regarding when a decision would be made with respect to the plant. 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. 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. IMPORTANT FACTORS AFFECTING MESABI TRUST The Agreement of Trust governing Mesabi 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. Accordingly, the income of the Trust is highly dependent upon the activities and operations of Northshore, and the terms and conditions of its leases and assignments of leases. The Trust and the Trustees have no control over the operations and activities of Northshore, except within the framework of these leases and assignment of leases. 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 the following: 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 7 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 98.3%, 98.4%, 90.6% and 88.3% in calendar years 1997, 1996, 1995 and 1994, respectively. COMPARISON OF THREE MONTHS ENDED JULY 31, 1998 AND JULY 31, 1997 Mesabi Trust's net income increased to $1,384,068 for the fiscal quarter ended July 31, 1998, as compared to net income of $1,178,741 for the fiscal quarter ended July 31, 1997. Mesabi Trust's gross income for the fiscal quarter ended July 31, 1998 was $1,481,240, consisting of $1,385,157 in minimum advance royalty income, $87,865 in fee royalty income and $8,218 in interest income, as compared to gross income of $1,259,552 consisting of $414,326 in minimum advance royalty income, $839,193 in fee royalty income and $6,033 in interest income, for the fiscal quarter ended July 31, 1997. The increase in royalty income was primarily due to increased pellet shipments as compared to the comparable prior period. Mesabi Trust's expenses for the fiscal quarter ended July 31, 1998 were $97,172, compared to expenses of $80,811 for the fiscal quarter ended July 31, 1997. COMPARISON OF SIX MONTHS ENDED JULY 31, 1998 AND JULY 31, 1997 Mesabi Trust's gross income for the six months ended July 31, 1998 was $1,980,691, an increase of $471,394 from the gross income of $1,509,297 for the six months ended July 31, 1997. The increase in royalty income was primarily due to increased pellet shipments and increased crude ore production (increasing the amount of fee royalty income). Interest income was slightly higher in the 1998 period. Expenses of $166,889 for the six months ended July 31, 1998 increased $20,380 from expenses of $146,509 for the six months ended July 31, 1997. The increased income and increased expenses resulted in net income of $1,813,802 for the six months ended July 31, 1998 as compared to net income of $1,362,788 for the six months ended July 31, 1997. Mesabi Trust's Unallocated Reserve aggregated $1,090,400 at July 31, 1998, as compared with an Unallocated Reserve of $1,160,595 at July 31, 1997. The decrease of $70,195 was due to the net effect of: (a) the increase in net income of $451,014 during the six months ended July 31, 1998 as compared with the six months ended July 31, 1997 and (b) the January 31, 1998 unallocated reserve balance of $719,799 was $69,191 higher than the January 31, 1997 unallocated reserve balance of $650,608. The Trustees anticipate that the amount of Unallocated Reserve will fluctuate from time to time, depending upon a number of factors, including but not limited to the income for a particular period, 8 the amount and timing of distributions, uncertainty about future royalty income and the uncertainty of future expenses. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. Not applicable. 9 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 27.1 Financial Data Schedule .......................Filed herewith. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MESABI TRUST -------------------------------------- (Registrant) By: BANKERS TRUST COMPANY Corporate Trustee Principal Administrative Officer and duly authorized signatory:* Date: September 11, 1998 By: /s/ Robert Caporale ------------------------------------- Name: Robert Caporale Title: Vice President * There are no directors or executive officers of the registrant. 11 EXHIBIT INDEX
Item No. Description -------- ----------- 27.1 Financial Data Schedule......................Filed herewith.
12 EX-27.1 2 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENTS OF EARNINGS AND THE CONSOLIDATED BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS JAN-31-1998 FEB-01-1998 JUL-31-1998 34 2,064 483 0 0 2,582 0 0 2,582 1,492 0 0 0 0 0 2,582 1,957 1,981 0 167 0 0 0 1,813 0 1,813 0 0 0 1,813 .14 .14
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