UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2016
or
o 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
(Exact name of registrant as specified in its charter)
New York |
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13-6022277 |
(State or other jurisdiction of |
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(I.R.S. Employer Identification No.) |
c/o Deutsche Bank Trust Company Americas |
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10005 |
(Address of principal executive offices) |
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(Zip code) |
(904) 271-2520
(Registrants 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 o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act:
Large accelerated filer o |
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Accelerated filer x |
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|
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Non-accelerated filer o |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of June 1, 2016, there were 13,120,010 Units of Beneficial Interest in Mesabi Trust outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. (Note 1)
Mesabi Trust
Condensed Statements of Operations
Three Months Ended April 30, 2016 and 2015
|
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Three Months Ended |
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April 30, |
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2016 |
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2015 |
| ||
|
|
(unaudited) |
|
(unaudited) |
| ||
A. Condensed Statements of Operations |
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|
|
|
| ||
|
|
|
|
|
| ||
Revenues |
|
|
|
|
| ||
Royalty income |
|
$ |
|
|
$ |
1,315,953 |
|
Interest income |
|
1,679 |
|
2,057 |
| ||
Total revenues |
|
1,679 |
|
1,318,010 |
| ||
|
|
|
|
|
| ||
Expenses |
|
431,931 |
|
377,744 |
| ||
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|
|
|
|
| ||
Net income (loss) |
|
$ |
(430,252 |
) |
$ |
940,266 |
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|
|
|
|
|
| ||
Number of units outstanding |
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13,120,010 |
|
13,120,010 |
| ||
|
|
|
|
|
| ||
Net income (loss) per unit (Note 2) |
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$ |
(0.0328 |
) |
$ |
0.0717 |
|
|
|
|
|
|
| ||
Distributions declared per unit (Note 3) |
|
$ |
0.2000 |
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$ |
|
|
See Notes to Condensed Financial Statements.
Mesabi Trust
Condensed Balance Sheets
April 30, 2016 and January 31, 2016
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April 30, 2016 |
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January 31, 2016 |
| ||
|
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(unaudited) |
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|
| ||
B. Condensed Balance Sheets |
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Assets |
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|
| ||
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Cash and cash equivalents |
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$ |
8,219,812 |
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$ |
2,587,165 |
|
|
|
|
|
|
| ||
U.S. Government securities, at amortized cost (which approximates market) |
|
238,047 |
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5,740,659 |
| ||
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|
|
|
|
| ||
Accrued income receivable |
|
1,295 |
|
978,146 |
| ||
Prepaid expenses |
|
60,423 |
|
54,930 |
| ||
Current assets |
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8,519,577 |
|
9,360,900 |
| ||
|
|
|
|
|
| ||
U.S. Government securities, at amortized cost (which approximates market) |
|
373,430 |
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456,058 |
| ||
|
|
|
|
|
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Fixed property, including intangibles, at nominal values |
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|
|
|
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|
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Amended Assignment of Peters Lease |
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1 |
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1 |
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|
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Assignment of Cloquet Lease |
|
1 |
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1 |
| ||
|
|
|
|
|
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Certificate of beneficial interest for 13,120,010 units of land trust |
|
1 |
|
1 |
| ||
Total other assets |
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3 |
|
3 |
| ||
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|
|
|
|
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Total assets |
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$ |
8,893,010 |
|
$ |
9,816,961 |
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Liabilities, Unallocated Reserve and Trust Corpus |
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Liabilities |
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Distribution payable |
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$ |
2,624,002 |
|
$ |
656,001 |
|
Accrued expenses |
|
77,031 |
|
171,793 |
| ||
Deferred royalty revenue (Note 4) |
|
257,064 |
|
|
| ||
Total liabilities |
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2,958,097 |
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827,794 |
| ||
|
|
|
|
|
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Unallocated Reserve (Note 5) |
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5,934,910 |
|
8,989,164 |
| ||
Trust Corpus |
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3 |
|
3 |
| ||
|
|
|
|
|
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Total liabilities, unallocated reserve and trust corpus |
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$ |
8,893,010 |
|
$ |
9,816,961 |
|
See Notes to Condensed Financial Statements.
Mesabi Trust
Condensed Statements of Cash Flows
Three Months Ended April 30, 2016 and 2015
|
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Three Months Ended |
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April 30, |
| ||||
|
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2016 |
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2015 |
| ||
|
|
(unaudited) |
|
(unaudited) |
| ||
C. Condensed Statements of Cash Flows |
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|
| ||
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Cash flows from operating activities |
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|
|
|
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Royalties received |
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$ |
1,172,787 |
|
$ |
853,153 |
|
Interest received |
|
1,574 |
|
19 |
| ||
Expenses paid |
|
(470,953 |
) |
(371,199 |
) | ||
|
|
|
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|
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Net cash provided by operating activities |
|
703,408 |
|
481,973 |
| ||
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|
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Cash flows from investing activities |
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|
|
|
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Maturities of U.S. Government Securities |
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5,585,240 |
|
82,320 |
| ||
Purchases of U.S. Government Securities |
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|
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(82,628 |
) | ||
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|
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Net cash provided by (used for) investing activities |
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5,585,240 |
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(308 |
) | ||
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|
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Cash flows used for financing activities |
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|
|
|
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Distributions to Unitholders |
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(656,001 |
) |
(8,396,806 |
) | ||
|
|
|
|
|
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Net change in cash and cash equivalents |
|
5,632,647 |
|
(7,915,141 |
) | ||
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|
|
|
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Cash and cash equivalents, beginning of year |
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2,587,165 |
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8,717,943 |
| ||
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Cash and cash equivalents, end of period |
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$ |
8,219,812 |
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$ |
802,802 |
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Reconciliation of net income to net cash provided by operating activities |
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|
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Net income (loss) |
|
$ |
(430,252 |
) |
$ |
940,266 |
|
Decrease (increase) in accrued income receivable |
|
976,851 |
|
(464,838 |
) | ||
Increase in prepaid expenses |
|
(5,493 |
) |
(917 |
) | ||
Increase (decrease) in accrued expenses |
|
(94,762 |
) |
7,462 |
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Increase in deferred royalty revenue |
|
257,064 |
|
|
| ||
|
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|
|
|
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Net cash provided by operating activities |
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$ |
703,408 |
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$ |
481,973 |
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See Notes to Condensed Financial Statements.
MESABI TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
April 30, 2016 (Unaudited)
Note 1. The financial statements included herein have been prepared without audit (except for the balance sheet at January 31, 2016) 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 accounting principles generally accepted in the United States of America 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 three months ended April 30, 2016 and 2015, (b) the financial position at April 30, 2016, and (c) the cash flows for the three months ended April 30, 2016 and 2015, have been made. For further information, refer to the financial statements and footnotes included in Mesabi Trusts Annual Report on Form 10-K for the year ended January 31, 2016.
Note 2. Net income (loss) per unit includes accrued income receivable. For the three months ended April 30, 2016, the Trust recorded $1,295 of accrued income receivable as reflected on the Condensed Balance Sheet as of April 30, 2016 (unaudited), which is comprised entirely of interest receivable on U.S. Government securities. Accrued income receivable also includes accruals for anticipated pricing adjustments, which can be positive or negative. As of April 30, 2016, anticipated pricing adjustments were negative and have been classified under deferred royalty revenue. See Note 4. Net income (loss) per unit is based on 13,120,010 units outstanding during the period.
Note 3. The Trust declares distributions (if any) each year in April, July, October and January. The Trusts financial statements are prepared on an accrual basis and present the Trusts results of operations based on each fiscal quarter which ends one month after the close of each calendar quarter. Because (i) distributions, if any, are declared by the Trustees based on, among other considerations, the amount of royalties actually paid to the Trust through the end of each calendar quarter prior to April, July, October and January of each year, the Trustees evaluation of known and projected Trust expenses in the current and future quarters, the then-current level of Unallocated Reserve and general economic conditions, and (ii) the Trusts Net Income (Loss) is calculated as of the end of each fiscal quarter, the distributions declared by the Trust are not equivalent to the Trusts Net Income (Loss) during the periods reported in this quarterly report on Form 10-Q.
Note 4. In April 2016, the Trust received its quarterly royalty payment from Northshore Mining Company (Northshore) of approximately $1,173,000. In accordance with the Trusts revenue recognition policy, the cash royalty payment received by the Trust exceeded the royalty revenue earned, and the Trust has recorded a liability for the excess cash received in the amount of $195,731 as of April 30, 2016. It is possible this deferred royalty revenue may offset future royalty payments to be received from NMC for any shipments that occur in future quarters of this fiscal year. In addition, the Trust has recorded a liability for the anticipated negative pricing adjustments on unconsumed iron ore pellets at January 31, 2016 in the amount of $61,333 for the quarter ending April 30, 2016. It is possible this deferred revenue may offset anticipated pricing adjustments in future quarters.
Note 5. Each quarter, as authorized by the Agreement of Trust, the Trustees evaluate all relevant factors including all costs, expenses, obligations, and present and future liabilities of the Trust (whether known or contingent) in determining the prudent level of unallocated reserve in light
of the unpredictable nature of the iron ore industry and current economic conditions. 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 expected that future distributions will be highly dependent upon royalty payments, if any, received in the prior quarter, and the level of Trust expenses that the Trustees anticipate will occur in subsequent quarters. Pursuant to the Agreement of Trust, the Trustees make decisions about cash distributions to Unitholders based on the royalty payments it receives from Northshore when received, rather than as royalty income is recorded in accordance with the Trusts revenue recognition policy. Refer to Note 3 for further information.
As of April 30, 2016 and January 31, 2016, the unallocated cash and U.S. Government securities portion of the Trusts Unallocated Reserve was comprised of the following components:
|
|
April 30, 2016 |
|
January 31, 2016 |
| ||
Cash and U.S. Government securities |
|
$ |
8,831,289 |
|
$ |
8,783,882 |
|
Distribution payable |
|
(2,624,002 |
) |
(656,001 |
) | ||
|
|
|
|
|
| ||
Unallocated cash and U.S. Government securities |
|
$ |
6,207,287 |
|
$ |
8,127,881 |
|
A reconciliation of the Trusts Unallocated Reserve from January 31, 2016 to April 30, 2016 is as follows:
Unallocated Reserve, January 31, 2016 |
|
$ |
8,989,164 |
|
|
|
|
| |
Net loss |
|
(430,252 |
) | |
Distributions declared |
|
(2,624,002 |
) | |
|
|
|
| |
Unallocated Reserve, April 30, 2016 |
|
$ |
5,934,910 |
|
Item 2. Trustees Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
Certain information included in this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. All such forward-looking statements, including those statements regarding estimation of iron ore pellet production, shipments or pricing, are based on information from the lessee/operator (and its parent corporation) of the mine located on the lands owned and held in trust for the benefit of the holders of units of beneficial interest of Mesabi Trust. These statements may be identified by the use of forward-looking words, such as may, will, could, project, predict, intend, believe, anticipate, expect, estimate, continue, potential, plan, should, assume, forecast and other similar words. Such forward-looking statements are inherently subject to known and unknown risks and uncertainties. Actual results and future developments could differ materially from the results or developments expressed in or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to,
volatility of iron ore and steel prices, market supply and demand, competition, environmental hazards, health and safety conditions, regulation or government action, litigation and uncertainties about estimates of reserves. Further, substantial portions of royalties earned by Mesabi Trust are based on estimated prices that are subject to interim and final adjustments which can be positive or negative and are dependent in part on multiple price and inflation index factors under agreements to which Mesabi Trust is not a party and that are not known until after the end of a contract year. It is possible that future negative price adjustments could partially or even completely offset royalties or royalty income that would otherwise be payable to the Trust in any particular quarter, or at year end, thereby potentially reducing cash available for distribution to the Trusts Unitholders in future quarters. For a discussion of the factors, including without limitation, those that could materially and adversely affect Mesabi Trusts actual results and performance, see Risk Factors set forth on pages 3 through 9 of Mesabi Trusts Annual Report on Form 10-K for the year-ended January 31, 2016. Mesabi Trust undertakes no obligation, other than that imposed by law, to make any revisions to the forward-looking statements contained in this filing or to update them to reflect circumstances occurring after the date of this filing.
This discussion should be read in conjunction with the condensed financial statements and notes presented in this Quarterly Report on Form 10-Q and the financial statements and notes in the last filed Annual Report on Form 10-K filed for the period ended January 31, 2016 for a full understanding of Mesabi Trusts financial position and results of operations for the three month period ended April 30, 2016.
Background
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 (MIC), including all right, title and interest in 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 together with the Amended Assignment of Peters Lease, the Amended Assignment Agreements), the beneficial interest in a trust organized on July 18, 1961 under the laws of the State of Minnesota to administer the Mesabi Fee Lands (as defined below) as the trust corpus in compliance with the laws of the State of Minnesota (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 (East Mesaba), Dunka River Iron Company (Dunka River) 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 Agreement of Trust specifically prohibits the Trustees from entering into or engaging in any business. This prohibition applies even to business activities the Trustees may deem necessary or proper for the preservation and protection of the Trust Estate. Accordingly, the Trustees activities in connection with the administration of the Trusts assets are limited to collecting income, paying expenses and liabilities of the Trust, distributing net income to the holders of Certificates of Beneficial Interest in Mesabi Trust (Unitholders) after the payment of, or provision for, such expenses and liabilities, and protecting and conserving the assets held by the Trust.
The Trustees do not intend to expand their responsibilities beyond those permitted or required by the Agreement of Trust, the Amendment to the Agreement of Trust dated October 25, 1982 (the Amendment), and those required under applicable law. Mesabi Trust has no employees, but it engages independent consultants to assist the Trustees in, among other things, monitoring the volume and sales prices of iron ore products shipped from Silver Bay, Minnesota, based on information supplied to the Trustees by Northshore, the lessee/operator of the lands leased under the Peters Lease and Cloquet Lease (the Peters Lease Lands and Cloquet Lease Lands, respectively) and the 20% fee interest of certain lands that are particularly described in, and subject to a mining lease under, the Peters Lease (the Mesabi
Fee Lands, and together with the Peters Lease Lands and Cloquet Lease Lands, the Mesabi Trust lands), and its parent company Cliffs Natural Resources Inc. (Cliffs). References to Northshore in this quarterly report, unless the context requires otherwise, are applicable to Cliffs as well.
Leasehold royalty income constitutes the principal source of the Trusts revenue. The income of the Trust is highly dependent upon the activities and operations of Northshore. Royalty rates and the resulting royalty payments received by the Trust are determined in accordance with the terms of the Trusts leases and assignments of leases.
Three types of royalties, as well as royalty bonuses, comprise the Trusts leasehold royalty income:
· Base overriding royalties. Base overriding royalties have historically constituted the majority of the Trusts royalty income. Base overriding royalties are determined by both the volume and selling price of iron ore products shipped. Northshore is obligated to pay the Trust base overriding royalties in varying amounts, based on the volume of iron ore products shipped. Base overriding royalties are calculated as a percentage of the gross proceeds of iron ore products produced at the 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. Base overriding royalties are impacted by, among other things, price adjustments under the Cliffs Pellet Agreements (defined below) and, as described elsewhere in this report, such adjustments may be positive or negative.
· Royalty bonuses. The Trust earns royalty bonuses when iron ore products shipped from Silver Bay are sold at prices above a threshold price per ton. The royalty bonuses are calculated based on 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 (but not below $30.00 per ton) on an annual basis for inflation and deflation (the Adjusted Threshold Price). The Adjusted Threshold Price was $53.01 per ton for calendar year 2015 and is $53.80 per ton for calendar year 2016. The royalty bonus percentage ranges from 1/2 of 1% of the gross proceeds (on all tonnage shipped for sale at prices between the Adjusted Threshold Price and $2.00 above the Adjusted Threshold Price) to 3% of the gross proceeds (on all tonnage shipped for sale at prices $10.00 or more above the Adjusted Threshold Price). Royalty bonuses are subject to price adjustments under the Cliffs Pellet Agreements and, as described elsewhere in this report, such adjustments may be positive or negative.
· Fee royalties. Fee royalties have historically constituted a smaller component of the Trusts total royalty income. Fee royalties are payable to the Mesabi Land Trust, a Minnesota land trust, which holds a 20% interest as fee owner in the Amended Assignment of Peters Lease. Mesabi Trust holds the entire beneficial interest in the Mesabi Land Trust for which U.S. Bank N.A. acts as the corporate trustee. Mesabi Trust receives the net income of the Mesabi Land Trust, which is generated from royalties on the amount of crude ore mined after the payment of expenses to U.S. Bank N.A. for its services as corporate trustee. Crude ore is the source of iron oxides used to make iron ore pellets and other products. The fee royalty on crude ore is based on an agreed price per ton, subject to certain indexing.
· Minimum advance royalties. Northshores obligation to pay base overriding royalties and royalty bonuses with respect to the sale of iron ore products generally accrues upon the shipment of those products from Silver Bay. However, regardless of whether any shipment has occurred, under the terms of the Amended Assignment Agreements, Northshore is obligated to pay to the Trust a minimum advance royalty. Each year, the
amount of the minimum advance royalty is adjusted (but not below $500,000 per annum) for inflation and deflation in accordance with the Amended Assignment Agreements. The minimum advance royalty was $883,875 for calendar year 2015 and is $897,008 for calendar year 2016. Until base 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 minimum advance royalties are essentially prepayments of base overriding royalties and royalty bonuses earned each year, any minimum advance royalties paid in a quarter are recouped by credits against base overriding royalties and royalty bonuses earned in later quarters during the year.
Under the relevant documents, Northshore may mine and ship iron ore products from lands other than Mesabi Trust lands. Northshore is obligated to make quarterly royalty payments to the Trust by the 30th day in January, April, July and October of each year based on shipments of iron ore products from Silver Bay, Minnesota during each calendar quarter. 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. Northshore alone determines whether to mine off Mesabi Trust lands and/or such other lands, based on its current mining and engineering plan. The Trustees do not exert any influence over Northshores mining operational decisions. To encourage the mining of iron ore products from Mesabi Trust lands, Mesabi Trust receives royalties, in part, based on the greater of the following two methods of calculating royalty payments: (i) the aggregate quantity of iron ore products shipped that were produced using iron ore mined from Mesabi Trust lands, and (ii) a portion of the aggregate quantity of all iron ore products shipped from Silver Bay that were mined from any lands, such portion being 90% of the first four million tons shipped from Silver Bay during the calendar year, 85% of the next two million tons shipped during the calendar year, and 25% of all tonnage shipped from Silver Bay during such year in excess of six million tons. 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 past each of the first four one-million ton volume thresholds. 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, as total shipments for the year exceed increasing levels of royalty percentages and pass each of the first four one-million ton volume thresholds.
During the course of the Trusts fiscal year, some portion of royalties expected to be paid to Mesabi Trust is based in part on estimated prices for iron ore products sold under term contracts between Northshore, Cliffs and certain of their customers (the Cliffs Pellet Agreements). The Cliffs Pellet Agreements use estimated prices which are subject to interim and final pricing adjustments, which can be positive or negative, and which adjustments are dependent in part on multiple price and inflation index factors that are not known until after the end of a contract year. Even though Mesabi Trust is not a party to the Cliffs Pellet Agreements, these adjustments can result in significant variations in royalties received by Mesabi Trust (and in turn the resulting amount available for distribution to Unitholders by the Trust) from quarter to quarter and on a comparative historical basis, and these variations, which can be positive or negative, cannot be predicted by Mesabi Trust. In either case, these price adjustments will impact future royalties received by the Trust that become available for distribution to Unitholders.
Deutsche Bank Trust Company Americas, the Corporate Trustee, performs certain administrative functions for Mesabi Trust. The Trust maintains a website at www.mesabi-trust.com. The Trust makes available (free of charge) its annual, quarterly and current reports (and any amendments thereto) filed with the Securities and Exchange Commission (the SEC) through its website as soon as reasonably practicable after electronically filing or furnishing such material with or to the SEC.
Results of Operations
Comparison of Iron Ore Pellet Production and Shipments for the Three Months Ended April 30, 2016 and April 30, 2015
As shown in the table below, production of iron ore pellets at Northshore from Mesabi Trust lands during the fiscal quarter ended April 30, 2016 totaled zero tons, and actual shipments over the same period totaled zero tons. By comparison, actual pellet production and actual shipments for the comparable prior period were 1,195,260 tons and 340,868 tons, respectively. The decrease in production at Northshore, as compared to the prior comparable period, is the result of a decrease in demand from Northshores customers. The decrease in shipments at Northshore is the result of a decrease in demand from Northshores customers during the current fiscal quarter, as compared to the prior comparable period.
Fiscal Quarter Ended |
|
Pellets Produced from |
|
Pellets Shipped from |
|
April 30, 2016 |
|
|
|
|
|
April 30, 2015 |
|
1,195,260 |
|
340,868 |
|
Comparison of Royalty Income for the Three Months Ended April 30, 2016 and April 30, 2015
Total royalty income for the fiscal quarter ended April 30, 2016 decreased $1,315,953 to $0, as compared to the three months ended April 30, 2015. The decrease in total royalty income is due to the decrease in production and shipments during the three months ended April 30, 2016, as compared to the three months ended April 30, 2015.
The table below shows that the base overriding royalties and the bonus royalties decreased $503,142 and $668,471, respectively, and the fee royalties decreased $144,340 for the three months ended April 30, 2016, as compared to the three months ended April 30, 2015. The decrease in the base overriding royalties and the bonus royalties are both attributable to the decrease in production and shipments during the three months ended April 30, 2016, as compared to the three months ended April 30, 2015. The decrease in the fee royalty amount is due to the decrease in production during the three months ended April 30, 2016, as compared to the three months ended April 30, 2015.
The table below summarizes the components of Mesabi Trusts royalty income for the three months ended April 30, 2016 and April 30, 2015, respectively:
|
|
Three Months Ended April 30, |
| ||||
|
|
2016 |
|
2015 |
| ||
Base overriding royalties |
|
$ |
|
|
$ |
503,142 |
|
Bonus royalties |
|
|
|
668,471 |
| ||
Minimum advance royalty paid (recouped) |
|
|
|
|
| ||
Fee royalties |
|
|
|
144,340 |
| ||
Total royalty income |
|
$ |
|
|
$ |
1,315,953 |
|
Comparison of Income, Expenses and Distributions for the Three Months Ended April 30, 2016 and April 30, 2015
Net loss for the three months ended April 30, 2016 was $430,252, a decrease of $1,370,518 compared to the net income for the three months ended April 30, 2015. The decrease from net income to
a net loss for the fiscal quarter ended April 30, 2016 is the result of a decrease in total shipments of iron ore pellets, as compared to the three months ended April 30, 2015. The Trusts expenses for the three months ended April 30, 2016 were $431,931; an increase of $54,187 compared to the Trusts expenses for the three-month period ended April 30, 2015. The increase in expenses for the fiscal quarter ended April 30, 2016 is the result of anticipated negative pricing adjustments on unconsumed iron ore pellets at January 31, 2016. The table below summarizes the Trusts income and expenses for the three months ended April 30, 2016 and April 30, 2015, respectively.
|
|
Three Months Ended April 30, |
| ||||
|
|
2016 |
|
2015 |
| ||
Total royalty income |
|
$ |
|
|
$ |
1,315,953 |
|
Interest income |
|
1,679 |
|
2,057 |
| ||
Gross income |
|
1,679 |
|
1,318,010 |
| ||
Expenses |
|
431,931 |
|
377,744 |
| ||
Net income (loss) |
|
$ |
(430,252 |
) |
$ |
940,266 |
|
As presented on the Trusts Condensed Statements of Income on page 2 of this quarterly report, the Trusts net income (loss) per unit decreased $0.1045 to $(0.0328) for the three months ended April 30, 2016, as compared to the three months ended April 30, 2015. The Trustees declared a distribution of twenty cents ($0.20) per Unit of Beneficial Interest for the three months ended April 30, 2016, compared to no distribution for the three months ended April 30, 2015. The Trustees determination of this distribution amount reflects their continuing effort to maintain an appropriate level of unallocated reserve in order for the Trust to be in a position to meet current and future expenses, and present and future liabilities (whether fixed or contingent) that may arise in connection with the current and ongoing challenges in the iron ore and steel industries generally.
Distributions, if any, are declared by the Trustees based on the Trustees evaluation of known and projected Trust expenses in the current and future quarters, the amount of royalties actually paid to the Trust through the end of each calendar quarter prior to April, July, October and January of each year, the then-current level of Unallocated Reserve and general economic conditions. Quarterly royalty payments as reported by Northshore and Cliffs to the Trust may include pricing adjustments with respect to shipments during prior periods. The Trust accounts for and reports accrued income receivable based on shipments during the last month of the Trusts fiscal quarter (April, July, October and January) and price adjustments under the Cliffs Pellet Agreements (which can be positive or negative and can result in significant variations in royalties received by Mesabi Trust and cash available for distribution to Unitholders). The Trust accounts for these amounts by using estimated prices and reports such amounts even though accrued income receivable is not available for distribution to Unitholders until it is received by the Trust. Accordingly, distributions declared by the Trust are not equivalent to the Trusts net income (loss) during the periods reported in this quarterly report on Form 10-Q.
Comparison of Unallocated Reserve as of April 30, 2016, April 30, 2015 and January 31, 2016
As set forth in the table below, Unallocated Reserve, which is comprised of accrued income receivable, unallocated cash and U.S. Government securities for potential fixed or contingent future liabilities, deferred royalty revenue, and prepaid expenses and accrued expenses, increased from $2,551,390 as of April 30, 2015 to $5,934,910 as of April 30, 2016. The increase in the Unallocated Reserve as of April 30, 2016, as compared to April 30, 2015, is primarily the result of the Trustees decision to add to the Trusts reserve for unexpected obligations, which is primarily attributable to the idling of iron ore pellet production at Northshore Mining Company in Silver Bay, Minnesota, as announced on November 17, 2015 and the Trustees determination that it is prudent, at this time, to maintain an appropriate level of unallocated reserve for the Trust in order to make adequate provision for current and future expenses. The accrued income receivable portion of the Unallocated Reserve
decreased from $1,023,223 as of April 30, 2015 to $1,295 as of April 30, 2016. The decrease in the accrued income receivable portion of the Unallocated Reserve is the result of the decrease in the amount of iron ore pellets shipped, as compared to the same period last year. The increase in the unallocated cash and U.S. Government securities is a result of the Trustees decision to add to the Trusts cash reserve for unexpected obligations, which is primarily attributable to the idling of iron ore pellet production at Northshore Mining Company in Silver Bay, Minnesota, as announced on November 17, 2015 and the Trustees determination that it is prudent, at this time, to maintain an appropriate level of unallocated reserve for the Trust in order to make adequate provision for current and future expenses. The increase in the deferred royalty revenue is a result of the receipt of advanced royalties received as of April 30, 2016 and the result of anticipated negative pricing adjustments on unconsumed iron ore pellets at January 31, 2016.
|
|
Three Months Ended April 30, |
| ||||
|
|
2016 |
|
2015 |
| ||
Accrued Income Receivable |
|
$ |
1,295 |
|
$ |
1,023,223 |
|
Unallocated Cash and U.S. Government Securities |
|
6,207,287 |
|
1,569,442 |
| ||
Prepaid Expenses and Accrued Expenses (net) |
|
(16,608 |
) |
(41,275 |
) | ||
Deferred Royalty Revenue |
|
(257,064 |
) |
|
| ||
Unallocated Reserve |
|
$ |
5,934,910 |
|
$ |
2,551,390 |
|
It is possible that future negative price adjustments could offset, or even eliminate, future royalties or royalty income that would otherwise be payable to the Trust in any particular quarter, or at year end, thereby potentially reducing cash available for distribution to the Trusts Unitholders in future quarters. See the discussion under the heading Risk Factors beginning on page 3 of the Trusts Annual Report on Form 10-K for the fiscal year ended January 31, 2016.
The Trusts Unallocated Reserve as of April 30, 2016 decreased $3,054,254, as compared to the fiscal year ended January 31, 2016. The decrease in the Unallocated Reserve is primarily due to the Trustees decision to make a cash distribution of twenty cents ($0.20) per Unit of Beneficial Interest in April based on the Trustees evaluation of known and projected Trust expenses in the current and future quarters and in light of the Trusts receipt of total royalty payments of $2,423,257 on January 29, 2016, which was payment for shipments of iron ore products by Northshore during the three months ended December 31, 2015, and also in recognition of Cliffs announcement in March 2016 that it plans to restart iron ore pellet production at Northshore by May 15, 2016. As of January 31, 2016, the Unallocated Reserve consisted of $8,127,881 in unallocated cash and U.S. Government securities and $978,146 of accrued income receivable, as compared to $6,207,287 of unallocated cash and U.S. Government securities and $1,295 of accrued income receivable as of April 30, 2016.
Each quarter, as authorized by the Agreement of Trust, the Trustees evaluate all relevant factors including all costs, expenses, obligations, and present and future liabilities of the Trust (whether known or contingent) in determining the prudent level of unallocated reserve in light of the unpredictable nature of the iron ore industry and current economic conditions. 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, if any, 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. 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 Trusts dependence on the actions of the lessee/operator, and the fact that the Trust essentially has no other liquid assets.
Recent Developments
Northshore Restarts Pellet Production
On March 14, 2016, Cliffs announced it will be restarting iron ore pellet production at its Northshore operation in Minnesota by May 15, 2016. Cliffs announced that it was taking such action based on its domestic customers demand for iron ore pellets and consistent with its previously announced production plans for the year. On the same day, the President and Chief Executive Officer of Cliffs was quoted as saying: In 2015, Cliffs developed at Northshore Mining a new product, the DR-grade pellets used as feedstock to DRI production. As we restart operations at Northshore in May, we will also resume the production of DR-grade pellets destined to EAF clients. Cliffs previously announced in November 2015 that it would maintain minimal staffing during the temporary idle for basic maintenance duties and for on-going work to support the DR-grade pellet trials. The Trustees have been informed that pellet production at Northshore has been restarted in May 2016.
Cliffs Announces Agreements with Minnesota Power
On May 24, 2016, Cliffs announced that through its subsidiaries, it has entered into multiple agreements with Minnesota Power, a utility division of ALLETE Inc. Cliffs has received $31 million dollars in cash as part of a long-term purchased power arrangement for its Northshore operation with Minnesota Power through 2031. The agreements, pending potential regulatory approval of the sale of utility assets, include certain non-core operations; transmission assets at United Taconite; certain land options at United Taconite and Northshore Mining Company; and transportation rights along the Cliffs Erie rail assets. Separately, Cliffs has extended its regulated power arrangements with Minnesota Power for 10 years at its United Taconite and Babbitt facilities.
Cliffs Announces New Long-Term Iron Ore Supply Agreement with ArcelorMittal
On May 31, 2016, Cliffs announced that it has entered into a new long-term commercial agreement with ArcelorMittal USA LLC to supply tailor-made iron ore pellets for the next ten years through 2026. The new agreement will replace two existing agreements expiring in December 2016 and January 2017 and fill the entirety of ArcelorMittals pellet purchase requirements from the previous contracts. The new commercial agreement includes ArcelorMittals total purchases of iron ore pellets from Cliffs up to 10 million long tons and preserves Cliffs current position as ArcelorMittal USAs sole outside supplier of pellets.
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 Trusts assets. Accordingly, the Trustees activities in connection with the administration of Trust assets are limited to collecting income, paying expenses and liabilities, distributing net income to Mesabi Trusts Unitholders after the payment of, or provision for, such expenses and liabilities, and protecting and conserving the assets held.
Neither Mesabi Trust nor the Trustees have any control over the operations and activities of Northshore, except within the framework of the Amended Assignment Agreements. Cliffs alone controls (i) historical operating data, including iron ore production volumes, marketing of iron ore products, operating and capital expenditures as they relate to Northshore, environmental and other liabilities and the effects of regulatory changes; (ii) plans for Northshores future operating and capital expenditures; (iii) geological data relating to ore reserves; (iv) projected production of iron ore products; (v) contracts between Cliffs and Northshore with their customers; and (vi) the decision to mine off Mesabi Trust and/or
state lands based on Cliffs current mining and engineering plan. The Trustees do not exert any influence over mining operational decisions at Northshore, nor do the Trustees provide any input regarding the ore reserve estimated at Northshore as reported by Cliffs. While the Trustees request material information for use in periodic reports as part of their evaluation of Mesabi Trusts disclosure controls and procedures, the Trustees do not control this information and they rely on the information in Cliffs periodic and current filings with the SEC to provide accurate and timely information in Mesabi Trusts reports filed with the SEC.
In accordance with the Agreement of Trust and the Amendment, the Trustees are entitled to, and in fact do, rely upon certain experts in good faith, including (i) the independent consultants with respect to monthly production and shipment reports, which include figures on crude ore production and iron ore pellet shipments, and discussions concerning the condition and accuracy of the scales and plans regarding the development of Mesabi Trusts mining property; and (ii) the accounting firm they have contracted with for non-audit services, including reviews of financial data related to shipping and sales reports provided by Northshore and a review of the schedule of leasehold royalties payable to Mesabi Trust. For a discussion of additional factors, including but not limited to those that could adversely affect Mesabi Trusts actual results and performance, see Risk Factors set forth on pages 3 through 9 of Mesabi Trusts Annual Report on Form 10-K for the year-ended January 31, 2016.
Iron Ore Pricing and Contract Adjustments
During the course of its fiscal year some portion of the royalties paid to Mesabi Trust are based on estimated prices for iron ore products sold under term contracts between Cliffs and its subsidiaries and certain of their customers (the Cliffs Pellet Agreements). Mesabi Trust is not a party to any of the Cliffs Pellet Agreements. These prices are subject to interim and final pricing adjustments, which can be positive or negative, and which adjustments are dependent in part on a variety of price and inflation index factors, including but not limited to the international benchmark pellet price, hot band steel prices and various producer price indexes. Although Northshore makes interim adjustments to the royalty payments on a quarterly basis, these price adjustments cannot be finalized until after the end of a contract year. This may result in significant and frequent variations in royalties received by Mesabi Trust (and in turn the resulting amount of funds available for distribution to Unitholders by the Trust) from quarter to quarter and on a comparative historical basis, and these variations, which can be positive or negative, cannot be predicted by Mesabi Trust. It is possible that future negative price adjustments could partially or completely offset royalties or royalty income that would otherwise be payable to the Trust in any particular quarter, or at year end, thereby potentially reducing cash available for distribution to the Trusts Unitholders in future quarters.
Effects of Securities Regulation
The Trust is a publicly-traded trust with Units of Beneficial Interest that are listed on the New York Stock Exchange (NYSE) and is therefore subject to extensive regulations under, among others, the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) and the rules and regulations of the NYSE, each as amended. Issuers failing to comply with such regulations risk serious consequences, including criminal as well as civil and administrative penalties. In most instances, these laws, rules and regulations do not specifically address their applicability to publicly-traded trusts such as Mesabi Trust. In particular, Sarbanes-Oxley and the Dodd-Frank Wall Street Reform and Consumer Protection Act have mandated the adoption by the Securities and Exchange Commission (the SEC) and, in some instances, the NYSE of certain rules and regulations that are impossible for the Trust to satisfy because of its nature as a pass-through trust that has no officers or employees. Pursuant to NYSE rules currently in effect the Trust is exempt from many of the corporate governance requirements that apply to publicly traded corporations listed on the NYSE. The Trust does not have, nor does the Agreement of Trust provide for, a board of directors, an audit committee, a corporate governance committee or a compensation committee. The Trustees intend to
closely monitor the SECs and the NYSEs rulemaking activity and will attempt to comply with such rules and regulations where applicable.
The Trusts website is located at www.mesabi-trust.com.
Critical Accounting Policies and Estimates
This Trustees Discussion and Analysis of Financial Condition and Results of Operations is based upon the Trusts financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Trustees to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Critical accounting policies are those that have meaningful impact on the reporting of the Trusts financial condition and results, and that require significant judgment and estimates. During the preparation of financial statements, the Trust makes estimates, assumptions and judgments that affect reported amounts. These estimates, assumptions and judgments include those related to revenue recognition and accrued expenses. The Trust bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. On a regular basis, the Trust reviews the accounting policies, assumptions, estimates and judgments to ensure that the financial statements are fairly presented in accordance with accounting principles generally accepted in the United States. However, because future events and their effects cannot be determined with certainty, actual results could differ from assumptions and estimates, and such differences could be material.
The Trust did not have any changes in critical accounting policies or in significant accounting estimates during the three months ended April 30, 2016. For a complete description of the Trusts significant accounting policies, please see Note 2 to the financial statements included in the Trusts Annual Report on Form 10-K for the year ended January 31, 2016.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. The Trustees maintain disclosure controls and procedures designed to ensure that information required to be disclosed by the Trust in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and regulations of the Securities and Exchange Commission. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Trust is accumulated and communicated by Northshore, and consultants to the Trustees as appropriate, to allow timely decisions regarding required disclosure.
As part of their evaluation of the Trusts disclosure controls and procedures, the Trustees rely on quarterly shipment and royalty calculations provided by Northshore. Because Northshore has declined to support this information with a written certification attesting to whether Northshore has established disclosure controls and procedures and internal controls sufficient to enable it to verify that the information furnished to the Trustees is accurate and complete, the Trustees also rely on (a) an annual certification from Northshore and Northshores parent, Cliffs, certifying as to the accuracy of the royalty calculations, and (b) the related due diligence review performed by the Trusts external accountants. In addition, the Trusts consultants review the schedule of leasehold royalties payable and shipping and sales reports provided by Northshore against production and shipment reports prepared by the Eveleth Fee Office, Inc., an independent consultant to the Trust (Eveleth Fee Office). The Eveleth Fee Office
gathers production and shipping information from Northshore and prepares monthly production and shipment reports for the Trustees. Furthermore, as part of its engagement by the Trust, the Eveleth Fee Office also attends Northshores calibration and testing of its crude ore scales and boat loader scales which are conducted on a periodic basis.
As of the end of the period covered by this report, the Trustees carried out an evaluation of the Trusts disclosure controls and procedures. The Trustees have concluded that such disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting. To the knowledge of the Trustees, there has been no change in the Trusts internal control over financial reporting that occurred during the Trusts last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Trusts internal control over financial reporting. The Trustees note for purposes of clarification that they have no authority over, and make no statement concerning, the internal control over financial reporting of Northshore or Cliffs.
PART II - OTHER INFORMATION
Item 1A. |
|
Risk Factors |
There have been no material changes in the Trusts risk factors as described in Risk Factors set forth on pages 3 through 9 of Mesabi Trusts Annual Report on Form 10-K for the fiscal year ended January 31, 2016.
Item 5. |
|
Other Information |
Mine Safety and Health Administration Safety Data. Pursuant to §1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Cliffs started reporting information related to certain mine safety results at Northshore. This information is available in Part II, Item 4 of Cliffs Form 10-Q filed April 28, 2016.
Item 6. |
|
Exhibits |
31 |
|
Certification of Corporate Trustee of Mesabi Trust pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32 |
|
Certification of Corporate Trustee of Mesabi Trust pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
99.1 |
|
Report of Baker Tilly Virchow Krause, LLP, dated June 6, 2016 regarding its review of the unaudited interim financial statements of Mesabi Trust as of and for the quarter ended April 30, 2016. |
|
|
|
101.INS |
|
XBRL Instance Document. |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema. |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase. |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase. |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase. |
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: |
DEUTSCHE BANK TRUST COMPANY AMERICAS | |
|
|
Corporate Trustee | |
|
Principal Administrative Officer and duly authorized signatory:* | ||
|
| ||
|
By: |
Deutsche Bank National Trust Company | |
|
|
| |
Date: June 6, 2016 |
|
By: |
/s/ Jeffrey Schoenfeld |
|
|
Name: |
Jeffrey Schoenfeld |
|
|
Title: |
Vice President |
* There are no principal executive officers or principal financial officers of the registrant.
Exhibit 31
CERTIFICATION
I, Jeffrey Schoenfeld, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mesabi Trust, for which Deutsche Bank Trust Company Americas acts as Corporate Trustee;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, distributable income and changes in trust corpus of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), or for causing such controls and procedures and internal control over financial reporting to be established and maintained, for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes;
c) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrants auditors:
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves persons who have a significant role in the registrants internal control over financial reporting.
In giving the foregoing certifications in paragraphs 4 and 5, I have relied to the extent I consider reasonable on information provided to me by Northshore Mining Company and Eveleth Fee Office, Inc.
Date: June 6, 2016 |
By: |
/s/ Jeffrey Schoenfeld |
|
Jeffrey Schoenfeld* | |
|
Vice President | |
|
Deutsche Bank National Trust Company | |
|
For Deutsche Bank Trust Company Americas |
* There are no principal executive officers or principal financial officers of the registrant.
Exhibit 32
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, the Corporate Trustee of Mesabi Trust, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, the Quarterly Report of Mesabi Trust on Form 10-Q for the quarter ended April 30, 2016 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Mesabi Trust.
/s/ Jeffrey Schoenfeld |
|
June 6, 2016 |
Jeffrey Schoenfeld * |
| |
Vice President |
| |
Deutsche Bank National Trust Company |
| |
for Deutsche Bank Trust Company Americas |
|
* There are no principal executive officers or principal financial officers of the registrant.
Exhibit 99.1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees
Mesabi Trust
New York, New York
We have reviewed the accompanying condensed balance sheet of as of April 30, 2016, and the related condensed statements of operations and cash flows for the three month periods ended April 30, 2016 and 2015. These condensed financial statements are the responsibility of the Trusts Trustees.
We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the balance sheet of as of January 31, 2016, and the related statements of operations, unallocated reserve and trust corpus, and cash flows for the year then ended (not presented herein); and in our report dated April 15, 2016, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed balance sheet as of January 31, 2016, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.
/s/ Baker Tilly Virchow Krause, LLP
Minneapolis, MN
June 6, 2016
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Apr. 30, 2016 |
Jun. 01, 2016 |
|
Document and Entity Information | ||
Entity Registrant Name | MESABI TRUST | |
Entity Central Index Key | 0000065172 | |
Document Type | 10-Q | |
Document Period End Date | Apr. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --01-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 13,120,010 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q1 |
Condensed Statements of Operations - USD ($) |
3 Months Ended | |
---|---|---|
Apr. 30, 2016 |
Apr. 30, 2015 |
|
Revenues | ||
Royalty income | $ 1,315,953 | |
Interest income | $ 1,679 | 2,057 |
Total revenues | 1,679 | 1,318,010 |
Expenses | 431,931 | 377,744 |
Net income (loss) | $ (430,252) | $ 940,266 |
Number of units outstanding | 13,120,010 | 13,120,010 |
Net income (loss) per unit (Note 2) | $ (0.0328) | $ 0.0717 |
Distributions declared per unit (Note 3) (in dollars per unit) | $ 0.2000 |
Condensed Balance Sheets - USD ($) |
Apr. 30, 2016 |
Jan. 31, 2016 |
---|---|---|
Assets | ||
Cash and cash equivalents | $ 8,219,812 | $ 2,587,165 |
U.S. Government securities, at amortized cost (which approximates market) | 238,047 | 5,740,659 |
Accrued income receivable | 1,295 | 978,146 |
Prepaid expenses | 60,423 | 54,930 |
Current assets | 8,519,577 | 9,360,900 |
U.S. Government securities, at amortized cost (which approximates market) | 373,430 | 456,058 |
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 |
Total other assets | 3 | 3 |
Total assets | 8,893,010 | 9,816,961 |
Liabilities | ||
Distribution payable | 2,624,002 | 656,001 |
Accrued expenses | 77,031 | 171,793 |
Deferred royalty revenue (Note 4) | 257,064 | |
Total liabilities | 2,958,097 | 827,794 |
Unallocated Reserve (Note 5) | 5,934,910 | 8,989,164 |
Trust Corpus | 3 | 3 |
Total liabilities, unallocated reserve and trust corpus | $ 8,893,010 | $ 9,816,961 |
Condensed Balance Sheets (Parenthetical) - shares |
Apr. 30, 2016 |
Jan. 31, 2016 |
---|---|---|
Condensed Balance Sheets | ||
Certificate of beneficial interest of land trust, units | 13,120,010 | 13,120,010 |
NATURE OF BUSINESS AND ORGANIZATION |
3 Months Ended |
---|---|
Apr. 30, 2016 | |
NATURE OF BUSINESS AND ORGANIZATION | |
NATURE OF BUSINESS AND ORGANIZATION | Note 1. The financial statements included herein have been prepared without audit (except for the balance sheet at January 31, 2016) 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 accounting principles generally accepted in the United States of America 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 three months ended April 30, 2016 and 2015, (b) the financial position at April 30, 2016, and (c) the cash flows for the three months ended April 30, 2016 and 2015, have been made. For further information, refer to the financial statements and footnotes included in Mesabi Trust’s Annual Report on Form 10-K for the year ended January 31, 2016.
|
NET INCOME (LOSS) PER UNIT |
3 Months Ended |
---|---|
Apr. 30, 2016 | |
NET INCOME (LOSS) PER UNIT | |
NET INCOME (LOSS) PER UNIT | Note 2. Net income (loss) per unit includes accrued income receivable. For the three months ended April 30, 2016, the Trust recorded $1,295 of accrued income receivable as reflected on the Condensed Balance Sheet as of April 30, 2016 (unaudited), which is comprised entirely of interest receivable on U.S. Government securities. Accrued income receivable also includes accruals for anticipated pricing adjustments, which can be positive or negative. As of April 30, 2016, anticipated pricing adjustments were negative and have been classified under deferred royalty revenue. See Note 4. Net income (loss) per unit is based on 13,120,010 units outstanding during the period.
|
DIVIDEND AND DISTRIBUTION |
3 Months Ended |
---|---|
Apr. 30, 2016 | |
DIVIDEND AND DISTRIBUTION | |
DIVIDEND AND DISTRIBUTION | Note 3. The Trust declares distributions (if any) each year in April, July, October and January. The Trust’s financial statements are prepared on an accrual basis and present the Trust’s results of operations based on each fiscal quarter which ends one month after the close of each calendar quarter. Because (i) distributions, if any, are declared by the Trustees based on, among other considerations, the amount of royalties actually paid to the Trust through the end of each calendar quarter prior to April, July, October and January of each year, the Trustees’ evaluation of known and projected Trust expenses in the current and future quarters, the then-current level of Unallocated Reserve and general economic conditions, and (ii) the Trust’s Net Income (Loss) is calculated as of the end of each fiscal quarter, the distributions declared by the Trust are not equivalent to the Trust’s Net Income (Loss) during the periods reported in this quarterly report on Form 10-Q.
|
ROYALTY AGREEMENT |
3 Months Ended |
---|---|
Apr. 30, 2016 | |
ROYALTY AGREEMENT | |
ROYALTY AGREEMENT | Note 4. In April 2016, the Trust received its quarterly royalty payment from Northshore Mining Company (“Northshore”) of approximately $1,173,000. In accordance with the Trust’s revenue recognition policy, the cash royalty payment received by the Trust exceeded the royalty revenue earned, and the Trust has recorded a liability for the excess cash received in the amount of $195,731 as of April 30, 2016. It is possible this deferred royalty revenue may offset future royalty payments to be received from NMC for any shipments that occur in future quarters of this fiscal year. In addition, the Trust has recorded a liability for the anticipated negative pricing adjustments on unconsumed iron ore pellets at January 31, 2016 in the amount of $61,333 for the quarter ending April 30, 2016. It is possible this deferred revenue may offset anticipated pricing adjustments in future quarters.
|
UNALLOCATED RESERVE AND DISTRIBUTIONS |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UNALLOCATED RESERVE AND DISTRIBUTIONS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UNALLOCATED RESERVE AND DISTRIBUTIONS | Note 5. Each quarter, as authorized by the Agreement of Trust, the Trustees evaluate all relevant factors including all costs, expenses, obligations, and present and future liabilities of the Trust (whether known or contingent) in determining the prudent level of unallocated reserve in light of the unpredictable nature of the iron ore industry and current economic conditions. 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 expected that future distributions will be highly dependent upon royalty payments, if any, received in the prior quarter, and the level of Trust expenses that the Trustees anticipate will occur in subsequent quarters. Pursuant to the Agreement of Trust, the Trustees make decisions about cash distributions to Unitholders based on the royalty payments it receives from Northshore when received, rather than as royalty income is recorded in accordance with the Trust’s revenue recognition policy. Refer to Note 3 for further information.
As of April 30, 2016 and January 31, 2016, the unallocated cash and U.S. Government securities portion of the Trust’s Unallocated Reserve was comprised of the following components:
A reconciliation of the Trust’s Unallocated Reserve from January 31, 2016 to April 30, 2016 is as follows:
|
UNALLOCATED RESERVE AND DISTRIBUTIONS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Apr. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UNALLOCATED RESERVE AND DISTRIBUTIONS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of unallocated cash and U.S. Government securities portion of the Trust's Unallocated Reserve |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of reconciliation of Trust's Unallocated Reserve |
|
NET INCOME (LOSS) PER UNIT (Details) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Apr. 30, 2016 |
Apr. 30, 2015 |
Jan. 31, 2016 |
|
NET INCOME (LOSS) PER UNIT | |||
Accrued income receivable | $ 1,295 | $ 978,146 | |
Number of units outstanding | 13,120,010 | 13,120,010 |
DIVIDEND AND DISTRIBUTION (Details) |
3 Months Ended |
---|---|
Apr. 30, 2016 | |
DIVIDEND AND DISTRIBUTION | |
Period after the close of each calendar quarter when the fiscal quarter ends | 1 month |
ROYALTY AGREEMENT (Details) - USD ($) |
1 Months Ended | 3 Months Ended | |
---|---|---|---|
Apr. 30, 2016 |
Apr. 30, 2016 |
Apr. 30, 2015 |
|
ROYALTY AGREEMENT | |||
Royalties received | $ 1,172,787 | $ 853,153 | |
Deferred royalty revenue | $ 257,064 | 257,064 | |
Northshore | |||
ROYALTY AGREEMENT | |||
Royalties received | 1,173,000 | ||
Deferred royalty revenue | 195,731 | 195,731 | |
Negative pricing adjustments liability | $ 61,333 | $ 61,333 |
UNALLOCATED RESERVE AND DISTRIBUTIONS (Details) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Apr. 30, 2016 |
Apr. 30, 2015 |
Jan. 31, 2016 |
|
UNALLOCATED RESERVE AND DISTRIBUTIONS | |||
Cash and U.S. Government securities | $ 8,831,289 | $ 8,783,882 | |
Distribution payable | (2,624,002) | (656,001) | |
Unallocated cash and U.S. Government securities | 6,207,287 | $ 8,127,881 | |
Reconciliation of Trust's Unallocated Reserve | |||
Unallocated Reserve at the beginning of the period | 8,989,164 | ||
Net loss | (430,252) | $ 940,266 | |
Distributions declared | (2,624,002) | ||
Unallocated Reserve at the end of the period | $ 5,934,910 |
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