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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For The Quarterly Period Ended July 31, 1996
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________________ to _________________
Commission File Number: 1-4488
MESABI TRUST
(Exact name of registrant as specified in its charter)
NEW YORK 13-6022277
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
IN CARE OF BANKERS TRUST COMPANY,
CORPORATE TRUST & AGENCY GROUP
P.O. BOX 318
CHURCH STREET STATION
NEW YORK, NEW YORK 10015
(Address of principal executive offices)
(212) 250-6519
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
As of September 12, 1996, there were 13,120,010 Units of Beneficial Interest in
Mesabi Trust outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
A. Condensed Statements of Income
Revenues:
Royalty income $1,593,234 $1,198,664 $1,967,697 $1,388,821
Interest income 7,236 7,791 17,315 17,795
---------- ---------- ---------- ----------
$1,600,470 $1,206,455 $1,985,012 $1,406,616
Expenses 98,606 112,195 172,638 185,186
---------- ---------- ---------- ----------
Net income $1,501,864 $1,094,260 $1,812,374 $1,221,430
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number 13,120,010 13,120,010 13,120,010 13,120,010
of units outstanding
Net income per unit $0.114471 $0.083404 $0.138138 $0.093097
Distributions declared
per unit $0.085 $0.065 $0.085 $0.065
SEE NOTES TO FINANCIAL STATEMENTS.
2
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B Condensed Balance Sheets
Assets: JULY 31, 1996 JANUARY 31, 1996
------------- ----------------
Cash $ 12,523 $ 9,183
U.S. Government securities,
at cost (which approximates
market) 1,674,821 2,145,588
Accrued income 687,476 127,419
Prepaid insurance 9,896 3,938
------------ ------------
$ 2,384,716 $ 2,286,128
------------ ------------
Fixed property, including
intangibles, at nominal values:
Amended Assignment of
Peters Lease $ 1 $ 1
Assignment of Cloquet Lease 1 1
Certificate of beneficial
interest for 13,120,010
units of Land Trust 1 1
------------ ------------
$ 3 $ 3
------------ ------------
$ 2,384,719 $ 2,286,131
------------ ------------
------------ ------------
Liabilities, Unallocated
Reserve and Trust Corpus:
Liabilities:
Distribution payable $ 1,115,201 $ 1,574,401
Accrued expenses 30,939 55,979
------------ ------------
$ 1,146,140 $ 1,630,380
Deferred income -- 114,345
Unallocated reserve 1,238,576 541,403
Trust Corpus 3 3
------------ ------------
$ 2,384,719 $ 2,286,131
------------ ------------
------------ ------------
SEE NOTES TO FINANCIAL STATEMENTS.
3
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C Condensed Statements of Cash Flows
SIX MONTHS ENDED
JULY 31,
------------------------
1996 1995
---- ----
Cash flows from operating
activities:
Royalties received $ 1,288,847 $ 1,102,291
Interest received 21,764 5,998
Expenses paid (203,637) (212,596)
------------ ------------
Net cash provided by
operating activities $ 1,106,974 $ 895,693
------------ ------------
Cash flows from investing
activities:
Sales and redemptions of
U.S. Government
securities $ 2,451,452 $ 2,194,614
Purchases of U.S.
Government securities (1,980,685) (3,220,660)
------------ ------------
Net cash provided by
(used in) investing
activities $ 470,767 $(1,026,046)
------------ ------------
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 $ 3,340 $(1,442,354)
Cash, beginning of year 9,183 1,442,627
------------ ------------
Cash, end of quarter $ 12,523 $ 273
------------ ------------
------------ ------------
Reconciliation of net income
to net cash provided by
operating activities:
Net income $ 1,812,374 $ 1,221,430
(Increase) in accrued
income (560,057) (278,822)
(Increase) in prepaid insurance (5,958) (6,750)
(Decrease) in
accrued expenses (25,040) (20,660)
(Decrease) in deferred income (114,345) (19,505)
------------ ------------
Net cash provided by
operating activities $ 1,106,974 $ 895,693
------------ ------------
------------ ------------
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 and six
months ended July 31, 1996 and 1995, (b) the financial position at
July 31, 1996 and January 31, 1996, and (c) the cash flows for the six
months ended July 31, 1996 and 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
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ITEM 1. TRUSTEES' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING INFORMATION
Certain statements contained in this document are forward-looking,
including specifically those statements estimating calendar year 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
6
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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 quarter are
typically not indicative of results for future quarters or the year as a whole.
Factors which can impact the results of the Trust in any quarter or year
include:
1. SHIPPING CONDITIONS IN THE GREAT LAKES. Shipping activity by
Northshore is dependent upon when the Great Lakes shipping lanes
freeze for the winter months (typically in January) and when they re-
open in the spring (typically late-March or April). Base overriding
royalties to Mesabi Trust are based on shipments made in a calendar
quarter. 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 JULY 31, 1996 AND JULY 31, 1995
Mesabi Trust's net income increased to $1,501,864 for the fiscal
quarter ended July 31, 1996, as compared to net income of $1,094,260 for the
fiscal quarter ended July 31, 1995. The increase
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in royalty income was primarily due to increased pellet shipments and at a
higher average price, increased crude ore production (increasing the amount of
fee royalty income) and a decrease in the deferred income amount as compared to
the comparable period. Mesabi Trust's gross income for the fiscal quarter ended
July 31, 1996 was $1,600,470, consisting of $316,831 in minimum advance royalty
income, $1,195,635 in overriding royalty income, $80,768 in fee royalty income
and $7,236 in interest income, as compared to gross income of $1,206,455 for the
fiscal quarter ended July 31, 1995. Mesabi Trust's expenses for the fiscal
quarter ended July 31, 1996 were $98,606, compared to expenses of $112,195 for
the fiscal quarter ended July 31, 1995.
COMPARISON OF SIX MONTHS ENDED JULY 31, 1996 AND JULY 31, 1995
Mesabi Trust's gross income for the six months ended July 31, 1996 was
$1,985,012, an increase of $578,396 from the gross income of $1,406,616 for the
six months ended July 31, 1995. The increase in royalty income was primarily
due to increased pellet shipments and at a higher average price, increased crude
ore production (increasing the amount of fee royalty income) and a decrease in
the deferred income amount as compared to the comparable period. Interest
income was slightly higher in the 1995 period. Expenses of $172,638 for the six
months ended July 31, 1996 decreased $12,548 from expenses of $185,186 for the
six months ended July 31, 1995. The increased income and decreased expenses
resulted in net income of $1,812,374 for the six months ended July 31, 1996, as
compared to net income of $1,221,430 for the six months ended July 31, 1995.
Mesabi Trust's Unallocated Reserve aggregated $1,238,576 at July 31,
1996, as compared with an Unallocated Reserve of $843,987 at July 31, 1995.
The Unallocated Reserve fluctuates from time to time, depending upon a number of
factors, including but not limited to the amount of income for a particular
period, timing differences between the accrual of income and the actual receipt
of funds for distribution, and the amount and timing of distributions.
The Trustees have been advised by Northshore that Northshore currently
estimates its calendar year 1996 shipments to be approximately 4.2 million tons,
or an increase of about 600,000 tons more than 1995 shipments of 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
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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
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MESABI TRUST
----------------------------------------
(Registrant)
By BANKERS TRUST COMPANY
Corporate Trustee
Principal Administrative Officer and
duly authorized signatory:*
Date: September 13, 1996 By: /s/ Matthew J. Seeley
-------------------------------------
Name: Matthew J. Seeley
Title: Vice President
* There are no directors
or executive officers of
the registrant.
10
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EXHIBIT INDEX
Item No. Description
- -------- -----------
27.1 Financial Data Schedule.................Filed herewith.
11
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<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statements of Earnings and the Consolidated Balance Sheet and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 6-MOS
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<PERIOD-START> FEB-01-1996
<PERIOD-END> JUL-31-1996
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<SECURITIES> 1,675
<RECEIVABLES> 687
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<CURRENT-ASSETS> 2,385
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0
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