-----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, L3ynBFVmHf6eaNF9bwGPMIoOTkq56RabhAna0FRhogy+Enb+omIUzy8DNww5M8zi 8nVBlgrsTWY2Zistx18oAw== 0001047469-99-035731.txt : 19990915 0001047469-99-035731.hdr.sgml : 19990915 ACCESSION NUMBER: 0001047469-99-035731 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19990914 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: 99711474 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: 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: 10008-0318 10-Q 1 FORM 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, 1999 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 August 31, 1999, 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, ----------------------------------- ----------------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- A. Condensed Statements of Income Revenues: Royalty income $1,118,114 $1,473,022 $1,562,045 $1,957,281 Interest income 8,378 8,218 20,407 23,410 ---------- ---------- ---------- ---------- $1,126,492 $1,481,240 $1,582,452 $1,980,691 Expenses 112,781 97,172 198,698 166,889 ---------- ---------- ---------- ---------- Net income $1,013,711 $1,384,068 $1,383,754 $1,813,802 ========== ========== ========== ========== Weighted average number of units outstanding 13,120,010 13,120,010 13,120,010 13,120,010 Net income per unit (Note 2) $0.077265 $0.105493 $0.105469 $0.138247 Distributions declared per unit $ 0.080 $ 0.110 $ 0.080 $ 0.110
See Notes to Financial Statements. 2 B. Condensed Balance Sheets
Assets: July 31, 1999 January 31, 1999 ------------- ---------------- Cash $ 192 $ 2,115,273 U.S. Government securities, at amortized cost (which approximates market) 1,660,361 534,914 Accrued income 470,391 134,991 Prepaid insurance 0 4,861 ------------- ------------- $ 2,130,944 $ 2,790,039 ------------- ------------- 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 ------------- ------------- $ 2,130,947 $ 2,790,042 ============= =============
Liabilities, Unallocated Reserve and Trust Corpus: Liabilities: Distribution payable $ 1,049,601 $ 2,033,602 Accrued expenses 34,238 43,485 ------------- ------------- $ 1,083,839 $ 2,077,087 Unallocated reserve (Note 3) 1,047,105 712,952 Trust Corpus 3 3 ------------- ------------- $ 2,130,947 $ 2,790,042 ============= =============
See Notes to Financial Statements. 3 C. Condensed Statements of Cash Flows
SIX MONTHS ENDED JULY 31, ------------------------------------------------- 1999 1998 ---- ---- Cash flows from operating activities: Royalties received $ 1,226,826 $ 1,651,461 Interest received 20,226 22,960 Expenses paid (203,084) (204,293) ------------- ------------- Net cash provided by operating activities $ 1,043,968 $ 1,470,128 ------------- ------------- Cash flows from investing activities: Maturities of U.S. Government securities $ 2,792,546 $ 4,364,263 Purchases of U.S. Government securities (3,917,993) (5,929,922) ------------- ------------- Net cash provided by (used in) investing activities $ (1,125,447) $ (1,565,659) ------------- ------------- Cash flows from financing activities: Net cash (used in) financing activities, distributions to Unitholders $ (2,033,602) $ (3,476,803) ------------- ------------- Net increase/(decrease) in cash $ (2,115,081) $ (3,572,334) Cash, beginning of year 2,115,273 3,607,221 ------------- ------------- Cash, end of quarter $ 192 $ 34,887 ============= ============= Reconciliation of net income to net cash provided by operating activities: Net income $ 1,383,754 $ 1,813,802 (Increase) in accrued income (335,400) (306,269) Decrease in prepaid insurance 4,861 3,820 (Decrease) in accrued expenses (9,247) (41,225) ------------- ------------- Net cash provided by operating activities $ 1,043,968 $ 1,470,128 ============= =============
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, 1999) 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, 1999 and 1998, (b) the financial positions at July 31, 1999 and January 31, 1999, and (c) the cash flows for the six months ended July 31, 1999 and 1998, 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, 1999, the Unallocated Reserve was represented by $576,714 in unallocated cash and U.S. Government securities, and $470,391 of accrued revenue primarily representing royalties not yet received by the Trust but anticipated to be received in October 1999 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 1999. 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 1999 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 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: - 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. - 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. - Minimum advance royalties, the third type of royalty, are discussed below. With respect to the volume component of royalty calculation, Northshore Mining Company ("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 $37.29 for calendar year 1997, was $38.21 for calendar year 1998 and is $38.22 for calendar year 1999. 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. 6 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 $621,606 for calendar year 1997, were $636,935 for calendar year 1998 and are $637,044 for calendar year 1999. 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. In its annual report for the fiscal year ended December 31, 1998 ("Report"), Cleveland Cliffs, Inc. ("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 annually produce 700,000 metric tons of premium grade pig iron. In the Report, it was stated that good progress has been made in a number of areas on the project, but that a decision relative to proceeding with this project has been delayed by uncertainty about market conditions and timing of state environmental permitting. In its most recently released quarterly report on Form 10-Q for the quarter ended June 30, 1999, CCI did not provide an update regarding its plans, if any, for a pig iron facility, but did state that prevailing market conditions have rendered "[i]mported pig iron . . . available at very low prices." 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. 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 iron ore products shipped by Northshore from Silver Bay, Minnesota. As noted above, the information regarding amounts and sales prices of shipped iron ore products is used to compute the royalties payable to Mesabi Trust by Northshore. Bankers Trust Company, the Corporate Trustee, also performs certain administrative functions for Mesabi Trust. 7 IMPORTANT FACTORS AFFECTING MESABI TRUST 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. 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: 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. In fact, CCI recently reported that it expects ore prices in 1999 to be 6% to 7% below last year's prices. CCI also announced that Northshore shut down its smallest pelletizing furnace on July 22, that this is expected to be closed through November 24, 1999 and that it tentatively plans to shut down the entire plant at Northshore from October 30 through November 24, 1999. Although it is not possible to know with certainty the extent or duration of such shutdowns of properties, it is reasonable to expect that Trust royalties will be lower than last year's royalties during comparable periods. 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. 8 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 99.3%, 98.3%, 98.4%, 90.6% and 88.3% in calendar years 1998, 1997, 1996, 1995 and 1994, respectively. COMPARISON OF THREE MONTHS ENDED JULY 31, 1999 AND JULY 31, 1998 Mesabi Trust's net income decreased to $1,013,711 for the fiscal quarter ended July 31, 1999, as compared to net income of $1,384,068 for the fiscal quarter ended July 31, 1998. Mesabi Trust's gross income for the fiscal quarter ended July 31, 1999 was $1,126,492 consisting of $0 in minimum advance royalty income, $1,041,130 in overriding royalty income, $76,984 in fee royalty income and $8,378 in interest income, as compared to gross income of $1,481,240 consisting of $0 in minimum advance royalty income, $1,385,157 in overriding royalty income, $87,865 in fee royalty income and $8,218 in interest income, for the fiscal quarter ended July 31, 1998. The decrease in royalty income was primarily due to decreased pellet shipments as compared to the comparable prior period. Mesabi Trust's expenses for the fiscal quarter ended July 31, 1999 were $112,781, compared to expenses of $97,172 for the fiscal quarter ended July 31, 1998. COMPARISON OF SIX MONTHS ENDED JULY 31, 1999 AND JULY 31, 1998 Mesabi Trust's net income decreased to $1,383,754 for the six months ended July 31, 1999, as compared to net income of $1,813,802 for the six months ended July 31, 1998. Mesabi Trust's gross income for the six months ended July 31, 1999 was $1,582,452, consisting of $0 in minimum advance royalty income, $1,395,597 in overriding royalty income, $166,448 in fee royalty income and $20,407 in interest income, as compared to gross income of $1,980,691 consisting of $0 in minimum advance royalty income, $1,780,711 in overriding royalty income, $176,570 in fee royalty income and $23,410 in interest income, for the six months ended July 31, 1998. The decrease in royalty income was primarily due to decreased pellet shipments as compared to the comparable prior period. Mesabi Trust's expenses for the six months ended July 31, 1999 were $198,698, compared to expenses of $166,889 for the six months ended July 31, 1998. Mesabi Trust's Unallocated Reserve aggregated $1,047,105 at July 31, 1999, as compared with an Unallocated Reserve of $1,090,400 at July 31, 1998. The decrease of $43,295 was due to the net effect of: (a) the decrease in net income of $430,048 during the six months ended July 31, 1999 as compared with the six months ended July 31, 1998 and (b) the January 31, 1999 unallocated reserve balance of $712,952 was $6,847 lower than the January 31, 1998 unallocated reserve balance of $719,799. 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, the amount and timing of distributions, uncertainty about future royalty income and the uncertainty of future expenses. 9 ROYALTY COMPARISONS The following chart summarizes Mesabi Trust's royalty income for the six months ended July 31, 1999 and July 31, 1998, respectively: Six months Ended July 31, 1999 1998 ---- ---- Base overriding royalties $1,395,597 $1,780,711 Bonus royalties 0 0 Minimum advance royalty paid (recouped) 0 0 Fee royalties 166,448 176,570 ---------- ---------- Total royalty income $1,562,045 $1,957,281 ========== ========== RECENT DEVELOPMENTS The Trustees of Mesabi Trust have learned through a public announcement by CCI, the corporate parent of Northshore, that CCI will implement cutbacks in production at Cliffs-managed mines in order to reduce iron ore pellet output for the year by approximately 2.7 million tons. This production cutback may include reductions of up to 600,000 tons at the Northshore plant which produces iron ore pellets from iron ore mined from the Mesabi Trust lands, representing an annual iron ore pellet reduction of approximately 14% compared to 1998. Northshore shut down its smallest pelletizing furnace on July 22 and it is expected to be closed through November 24. CCI previously announced tentative plans to shut down the entire plant at Northshore from October 30 to November 24. These production cutbacks and anticipated sales reductions indicate to the Mesabi Trustees that pellet shipments and pellet pricing will likely decrease during the current quarter and during the second half of the current year, which would accordingly result in lower distributions to Unitholders in comparison to similar periods in prior years. The volume of shipments of iron ore pellets by Northshore and pellet sales prices vary from quarter to quarter and year to year based on a number of factors including weather conditions on the Great Lakes, the requested delivery schedules of customers and general economic conditions in the iron ore industry. The resulting royalties to the Trust are dependent on the volume of shipments for the quarter and the year to date, the pricing of the iron ore product sales and the percentage of iron ore shipments which is from Mesabi Trust lands rather than other lands. Currently, unusually high levels of steel imports have significantly reduced demand for domestic steel production. The Trustees received a letter dated August 5, 1999 from the New York Stock Exchange, Inc. ("NYSE") indicating that under new rule changes that increase the NYSE's continued listing criteria, the Trust is considered below criteria by the NYSE because it has failed to maintain a total market capitalization of at least $50 million. As of September 10, 1999, the Company's current market capitalization (the closing sale price of one Unit of Beneficial Interest reported on the NYSE multiplied by the number of outstanding Units of Beneficial Interest) was approximately $33.6 million, based on the price per Unit of Beneficial Interest of $2.5625 on that date. The letter further explained that the Trust is subject to procedural rules governing suspension and delisting, but these rules are presently under review by the Securities and Exchange Commission. The Trustees have not been advised of any intentions on the part of the NYSE with respect to delisting the Units of Beneficial Interest. 10 IMPACT OF YEAR 2000 Computer programs have historically been written to abbreviate dates by using two digits instead of four digits to identify a particular year. The so-called "Year 2000 problem" is the inability of computer software or hardware to recognize or properly process dates ending in "00" and dates after the Year 2000. Significant attention is being focused as the Year 2000 approaches on updating or replacing such software and hardware in order to avoid system failures, miscalculations or business interruptions that might otherwise result. The Trustees of Mesabi Trust are taking steps we believe are necessary to insure that this potential problem does not adversely affect the Trust. We are continuing our as-yet incomplete assessment of the impact of the Year 2000 problem. Because it is a trust entity and has no operations of its own, Mesabi Trust believes that the costs and efforts it may incur to address the Year 2000 problem will not be material. The Year 2000 problem may, however, adversely impact Mesabi Trust indirectly by affecting the businesses and operations of parties with which the Trustees interact in the normal course of administering the Trust (which activities, as noted elsewhere in this report, are limited to collecting income, paying expenses and liabilities, distributing net income and protecting and conserving the assets held). There can be no assurance that Mesabi Trust will be able to effectively address Year 2000 issues in a cost-efficient manner and without interruption, or that Year 2000 problems encountered by parties with which the Trustees interact in the normal course of administering the Trust will not adversely affect the Trust. Mesabi Trust's state of readiness for the Year 2000, our estimated costs associated with Year 2000 issues, the risks we face associated with Year 2000 issues and our Year 2000 contingency plans are summarized below. STATE OF READINESS -- Mesabi Trust has no internal computer programs or systems. Externally, Mesabi Trust has implemented a three-phase process to assess Year 2000 compliance of systems used by parties with which the Trustees interact in the normal course of administering the Trust, and remediate any material non-compliance. The phases are (1) to identify the parties with which the Trustees interact in the course of operating the Trust and determine whether they are significant to the operation and performance of the Trust (so-called "core parties"); (2) to contact the core parties by, among other methods, sending them letters and questionnaires designed to solicit information relating to the Year 2000 problem; and (3) to evaluate the responses received from the core parties. We have completed the first two phases of this external process. We have received and evaluated responses to our inquiries from most of the core parties and do not believe such responding core parties face Year 2000 compliance problems that would have a material effect on the Trust. We have been following up, and plan to continue to follow up during 1999, with those core parties who have not yet responded to our inquiries as well as those who have indicated that their compliance efforts are not yet entirely complete. COSTS ASSOCIATED WITH YEAR 2000 ISSUES -- We estimate that the future costs associated with implementing all phases of our Year 2000 assessment and resolving any Year 2000 problems will be between $5,000 and $20,000. We believe that these costs, assuming this estimate is accurate, would not have a material effect on the Trust's performance. We estimate our costs to date associated with Year 2000 issues to be less than $5,000. We anticipate that cash flow from Trust income will be used to pay the costs to address Year 2000 issues. All Year 2000 costs are expensed as incurred. RISKS ASSOCIATED WITH YEAR 2000 ISSUES -- We are unaware of any material risk to Mesabi Trust associated with Year 2000 issues at the present time. We believe that the reasonably likely worst case Year 2000 scenario is a decrease in the efficiency with which the Trust collects income and pays 11 expenses and liabilities, and a decrease in the efficiency with which the Trust receives payments from Northshore. A decrease in efficiency would not necessarily result in a decrease in the performance of the Trust, however, because we believe that alternative collection methods could be arranged within a relatively short period of time. Any disruption, however, could result in delayed or lost revenue. CONTINGENCY PLANS -- The Trustees' contingency plan, if one or more of the core parties suffers a significant Year 2000 problem, is to identify alternative vendors and service providers where practicable in an effort to decrease the impact on Mesabi Trust. The Trustees have not yet identified such alternative vendors and service providers. Because there is no practical alternative to Northshore's role as lessee/operator of Mesabi Trust iron ore interests, the contingency plan if royalty payments by Northshore are adversely affected by a Year 2000 problem would likely include delays of distributions to Unit holders. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. Not applicable. PART II - OTHER INFORMATION ITEM 2. LEGAL PROCEEDINGS. None. ITEM 3. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. ITEM 4. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 6. OTHER INFORMATION. None. ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K. 27.1 Financial Data Schedule.........................Filed herewith. 12 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 14, 1999 By: /s/ Ednora Linares -------------------------------------- Name: Ednora Linares Title: Assistant Vice President * There are no directors or executive officers of the registrant. 13 EXHIBIT INDEX Item No. Description -------- ----------- 27.1 Financial Data Schedule..............Filed herewith. 14 EX-27.1 2 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS 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. 6-MOS JAN-31-2000 FEB-01-1999 JUL-31-1999 192 1,660,361 470,391 0 0 2,130,944 0 0 2,130,947 1,083,839 0 0 0 0 0 2,130,947 1,562,045 1,582,452 0 198,698 0 0 0 1,383,754 0 1,383,754 0 0 0 1,383,754 .105 .105
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