<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended April 30, 1996 or
[ ] 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
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MESABI TRUST
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 13-6022277
- ------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
In care of Bankers Trust Company,
Corporate Trust & Agency Group
P.O. Box 318
Church Street Station
NEW YORK, NEW YORK 10015
- -------------------------------------- ----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 250-6519
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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
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At June 11, 1996, there were 13,120,010 Units of Beneficial Interest in Mesabi
Trust outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30
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1996 1995
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A. Condensed Statements of Income
<S> <C> <C>
Revenues:
Royalty income $ 374,463 $ 190,157
Interest income 10,079 10,004
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$ 384,542 $ 200,161
Expenses 74,032 72,991
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Net income $ 310,510 $ 127,170
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Weighted average number
of units outstanding 13,120,010 13,120,010
Net income per unit $ 0.023667 $ 0.009693
Distributions declared
per unit $ -- $ --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
2
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B. Condensed Balance Sheets
<TABLE>
<CAPTION>
APRIL 30, 1996 JANUARY 31, 1996
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<S> <C> <C>
Assets:
Cash $ 38,775 $ 9,183
U.S. Government securities,
at cost (which approximates
market) 726,244 2,145,588
Accrued income 210,340 127,419
Prepaid insurance 563 3,938
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$ 975,922 $2,286,128
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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
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$ 3 $ 3
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$ 975,925 $2,286,131
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Liabilities, Unallocated
Reserve and Trust Corpus:
Liabilities:
Distribution payable $ -- $1,574,401
Accrued expenses 33,132 55,979
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$ 33,132 $1,630,380
Deferred income 90,877 114,345
Unallocated reserve 851,913 541,403
Trust Corpus 3 3
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$ 975,925 $2,286,131
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
C. Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30
----------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating
activities:
Royalties received $ 257,895 $ 243,443
Interest received 20,258 5,040
Expenses paid (93,504) (87,791)
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Net cash provided by
operating activities $ 184,649 $ 160,692
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Cash flows from investing
activities:
Sales and redemptions of
U.S. Government
securities $ 2,161,958 $ 1,754,571
Purchases of U.S.
Government securities (742,614) (2,037,724)
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Net cash provided by
(used in) investing
activities $ 1,419,344 $ (283,153)
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Cash flows from financing
activities:
Net cash (used in) financing
activities, distributions
to Unitholders $(1,574,401) $(1,312,001)
----------- -----------
Net increase (decrease)
in cash $ 29,592 $(1,434,462)
Cash, beginning of quarter 9,183 1,442,627
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Cash, end of quarter $ 38,775 $ 8,165
----------- -----------
----------- -----------
Reconciliation of net income
to net cash provided by
operating activities:
Net income $ 310,510 $ 127,170
(Increase) decrease in accrued
income (82,921) 34,658
Decrease in prepaid insurance 3,375 3,375
(Decrease) in
accrued expenses (22,847) (18,175)
Increase (decrease) in
deferred income (23,468) 13,664
----------- -----------
Net cash provided by
operating activities $ 184,649 $ 160,692
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
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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, 1996) 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 three months ended
April 30, 1996 and April 30, 1995, (b) the financial position at April
30, 1996 and January 31, 1996, and (c) the cash flows for the three
months ended April 30, 1996 and April 30, 1995, have been made.
Note 2. Earnings per unit are based on weighted average number of units
outstanding during the period (13,120,010 units).
5
<PAGE>
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 1996 production or shipments.
All such forward-looking statements are based on input from the lessee/operator.
The Trust has no control over the operations and activities of the
lessee/operator except within the framework of current agreements. Actual
results could differ materially from those indicated in such statements. For
important factors that could cause actual results to differ materially, see
"Important Factors Affecting Mesabi Trust," below.
BACKGROUND
Leasehold royalty income constitutes the principal source of revenue to
Mesabi Trust. Royalty rates are determined by the terms of Mesabi Trust's
leases and assignments of leases. Overriding royalties are determined by both
the volume and selling price of iron ore products sold. Fee royalties payable
to Mesabi Land Trust, a Minnesota land trust of which Mesabi Trust is the sole
beneficiary ("Mesabi Land Trust"), are based on the amount of crude ore mined,
which crude ore is used to produce iron ore products.
Northshore Mining Corporation ("Northshore") is obligated as lessee to pay
Mesabi Trust base overriding royalties, in varying amounts constituting a
percentage of the gross proceeds of shipments from Silver Bay, Minnesota of
pellets produced from Mesabi Trust lands or, to a limited extent, other lands,
ranging from 2-1/2% of the gross proceeds for the first one million tons of
pellets so shipped annually to 6% of the gross proceeds for all pellets shipped
in excess of 4 million tons annually. In addition, Northshore is obligated to
pay to Mesabi Trust royalty bonuses constituting a percentage of the gross
proceeds of pellets shipped from Silver Bay, Minnesota for sale at prices above
a threshold price (which is adjusted on an annual basis for inflation and
deflation and is $36.62 for calendar year 1996), ranging 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.
Generally, the obligation of Northshore to pay base overriding royalties and
royalty bonuses with respect to the sale of pellets accrues upon the shipment of
those pellets from Silver Bay. Northshore also is obligated to pay to Mesabi
Trust a minimum advance royalty in equal quarterly installments, which is
credited against certain base overriding royalties and royalty bonuses. The
amount of advance royalties payable is subject to adjustment for inflation and
deflation and is $610,335 for calendar year 1996. 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 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.
Due to a combination of factors, shipments from quarter to quarter or from
year to year fluctuate greatly. These factors include the normal reduction of
Great Lakes shipping activity during the winter months, and reduced pellet sales
resulting from adverse economic conditions affecting the steel industry
generally.
IMPORTANT FACTORS AFFECTING MESABI TRUST
Under the Agreement of Trust, the activities of the Trust are limited to
the collection of income, the payment of expenses and liabilities, the
distribution of net income and the protection and conservation of the assets
held. The Trustees are specifically prohibited from entering into or engaging
in any business. This prohibition applies irrespective of whether the conduct
of business activities is deemed by the Trustees to be necessary or proper for
the preservation and protection of the Trust Estate.
Accordingly, the income of the Trust is highly dependent upon the
activities and operations of its assignee, 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 current 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
6
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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. If there is little or no shipping activity in the first
calendar quarter, the Trust only receives the minimum royalty for that
period.
2. OPERATIONS OF NORTHSHORE. Since the primary portion of the Trust's
revenues are from the shipments of iron ore product by Northshore,
Northshore's processing and shipping activities directly impact the
Trust's revenues in any quarter or year. Shipments by Northshore are
impacted by a myriad of factors, including 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) could be adversely impacted.
3. INCREASING ROYALTIES. As described elsewhere, the royalty percentage
paid to the Trust increases as the aggregate tonnage of iron ore
products shipped in any calendar year increases. Assuming a
consistent sales price per ton throughout a calendar year, shipments
of iron ore product later in the year generate a higher royalty to the
Trust.
4. PERCENTAGE OF MESABI TRUST ORE. As described elsewhere, Northshore
has the ability to process and ship iron ore product from lands other
than Mesabi Trust lands. In certain circumstances, the Trust may be
entitled to royalties on those other shipments, but not in all cases.
In general, the Trust will receive higher royalties (assuming all
other factors are equal) if a higher percentage of shipments are from
Mesabi Trust lands. For calendar year 1996, Northshore has advised
the Trustees that 98% or more of shipments will come from Mesabi Trust
lands. This compares to percentages of 90.6%, 88.3% and 87.8% in
calendar years 1995, 1994, and 1993, respectively.
COMPARISON OF THREE MONTHS ENDED APRIL 30, 1996 AND APRIL 30, 1995.
Mesabi Trust's net income increased to $310,510 for the fiscal quarter
ended April 30, 1996, as compared to net income of $127,170 for the fiscal
quarter ended April 30, 1995. Mesabi Trust's gross income for the fiscal
quarter ended April 30, 1996 was $384,542, consisting of $242,643 in minimum
advance royalty income, $44,431 in overriding royalty income, $87,389 in fee
royalty income and $10,079 in interest income, as compared to gross income of
$200,161, consisting of $110,343 in minimum advance royalty income, $27,225 in
overriding royalty income, $52,589 in fee royalty income and $10,004 in interest
income, for the fiscal quarter ended April 30, 1995. The increase in royalty
income was primarily due to increased pellet shipments, increased crude ore
production (increasing the amount of fee royalty income) and a decrease in the
deferred income amount, as compared to the comparable prior period. Mesabi
Trust's expenses for the fiscal quarter ended April 30, 1996 were $74,032,
compared to expenses of $72,991 for the fiscal quarter ended April 30, 1995.
7
<PAGE>
Mesabi Trust's Unallocated Reserve aggregated $851,913 at April 30, 1996,
as compared with an Unallocated Reserve of $602,528 at April 30, 1995. The
increase of $249,385 was due to: (a) the increase in net income of $183,340
during the fiscal quarter ended April 30, 1996 as compared with the fiscal
quarter ended April 30, 1995 and (b) the January 31, 1996 unallocated reserve
balance of $541,403 was $66,045 higher than the January 31, 1995 unallocated
reserve balance of $475,358.
The Trustees have been advised by Northshore that Northshore currently
estimates its calendar year 1996 shipments to be approximately 4.2 million tons,
an increase from 1995 shipments of approximately 3.6 million tons. The
increase, in large part, is due to the full year impact of an iron ore expansion
project (the reactivation of a previously idle pelletizing line) which was
completed in mid-June 1995. In addition, Northshore has advised that it
currently anticipates that a higher percentage of its calendar year 1996
shipments will be of iron ore products from Mesabi Trust lands than during the
past several years. See "Important Factors Affecting Mesabi Trust" above.
8
<PAGE>
Part II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES.
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
27.1 Financial Data Schedule................................Filed herewith.
9
<PAGE>
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: June 14, 1996 By: /s/ Matthew J. Seeley
----------------------------------------
Name: Matthew J. Seeley
Title: Vice President
* There are no directors
or executive officers of
the registrant.
10
<PAGE>
EXHIBIT INDEX
ITEM NO. DESCRIPTION
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27.1 Financial Data Schedule.................Filed herewith.
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED APRIL 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 39
<SECURITIES> 726
<RECEIVABLES> 210
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 976
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 976
<CURRENT-LIABILITIES> 33
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 943
<TOTAL-LIABILITY-AND-EQUITY> 976
<SALES> 374
<TOTAL-REVENUES> 384
<CGS> 0
<TOTAL-COSTS> 74
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 310
<INCOME-TAX> 0
<INCOME-CONTINUING> 310
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 310
<EPS-PRIMARY> .023
<EPS-DILUTED> .023
</TABLE>
