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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 April 30, 2000 or
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number: 1-4488
MESABI TRUST
(Exact name of registrant as specified in its charter)
NEW YORK 13-6022277
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
IN CARE OF BANKERS TRUST COMPANY,
CORPORATE TRUST & AGENCY GROUP
P.O. BOX 318
CHURCH STREET STATION
NEW YORK, NEW YORK 10008-0318
(Address of principal executive offices)
(212) 250-6519
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
As of June 9, 2000, 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 (NOTE 1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
-----------------------------------
2000 1999
---- ----
A. Condensed Statements of Income
<S> <C> <C>
Revenues:
Royalty income $ 433,471 $ 443,931
Interest income 10,358 12,029
------------ ------------
$ 443,829 $ 455,960
Expenses 91,619 85,917
------------ ------------
Net income $ 352,210 $ 370,043
============ ============
Weighted average number
of units outstanding 13,120,010 13,120,010
Net income per unit (Note 2) $ 0.0268 $ 0.028204
Distributions declared
per unit $ --- $ ---
</TABLE>
See Notes to Financial Statements.
2
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B. Condensed Balance Sheets
<TABLE>
<CAPTION>
Assets: APRIL 30, 2000 JANUARY 31, 2000
-------------- ----------------
<S> <C> <C>
Cash $ 249,837 $ 51,082
U.S. Government securities,
at amortized cost (which approximates
market) 505,815 2,888,947
Accrued income 412,591 235,056
Prepaid insurance 2,187 4,775
------------ ------------
$ 1,170,430 $ 3,179,860
------------ ------------
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
------------ ------------
$ 1,170,433 $ 3,179,863
============ ============
Liabilities, Unallocated
Reserve and Trust Corpus:
Liabilities:
Distribution payable $ --- $ 2,361,602
Accrued expenses 54,843 54,881
------------ ------------
$ 54,843 $ 2,416,483
Unallocated reserve (Note 3) 1,115,587 763,377
Trust Corpus 3 3
------------ ------------
$ 1,170,433 $ 3,179,863
============ ============
</TABLE>
See Notes to Financial Statements.
3
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C. Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
------------------------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Royalties received $ 248,229 $ 248,176
Interest received 18,063 19,365
Expenses paid (89,067) (102,054)
--------------- --------------
Net cash provided by
operating activities $ 177,225 $ 165,487
--------------- --------------
Cash flows from investing activities:
Maturities of
U.S. Government
securities $ 2,538,836 $ 2,475,407
Purchases of U.S.
Government securities (155,704) (2,692,476)
--------------- --------------
Net cash provided by (used in)
investing activities $ 2,383,132 $ (217,069)
--------------- --------------
Cash flows from financing activities:
Net cash (used in) financing
activities, distributions
to Unitholders $ (2,361,602) $ (2,033,602)
--------------- --------------
Net increase/(decrease) in cash $ 198,755 $ (2,085,184)
Cash, beginning of year 51,082 2,115,273
--------------- --------------
Cash, end of quarter $ 249,837 $ 30,089
=============== ==============
Reconciliation of net income
to net cash provided by
operating activities:
Net income $ 352,210 $ 370,043
(Increase)/decrease in accrued income (177,535) (188,419)
Increase/(decrease) in prepaid insurance 2,588 2,560
(Decrease) in accrued expenses (38) (18,697)
---------------- ---------------
Net cash provided by
operating activities $ 177,225 $ 165,487
=============== ==============
</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, 2000) 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, 2000 and 1999, (b) the financial
positions at April 30, 2000 and January 31, 2000, and (c) the cash
flows for the three months ended April 30, 2000 and 1999, have been
made.
Note 2. Earnings per unit are based on weighted average number of units
outstanding during the period (13,120,010 units).
Note 3. The Trustees attempt to maintain $500,000 of liquid assets as part
of an Unallocated Reserve. The Unallocated Reserve consists of
these liquid assets and accrued revenue (primarily royalties not
yet received). At April 30, 2000, the Unallocated Reserve was
represented by $702,996 in unallocated cash and U.S. Government
securities, and $412,591 of accrued revenue primarily representing
royalties not yet received by the Trust but anticipated to be
received in July 2000 from Northshore as part of the royalty due
with respect to the first fiscal quarter, based upon reported
lessee shipping activity for the month of April 2000.
5
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ITEM 2. TRUSTEES' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FORWARD-LOOKING INFORMATION
Certain statements contained in this document are forward-looking,
including specifically those statements estimating calendar year 2000 production
or shipments. All such forward-looking statements are based on input from the
lessee/operator. The Trust has no control over the operations and activities of
the lessee/operator except within the framework of current agreements. Actual
results could differ materially from those indicated in such statements.
Important factors that could cause actual results to differ materially include
those listed in "Important Factors Affecting Mesabi Trust" below.
BACKGROUND
Leasehold royalty income constitutes the principal source of the
Trust's revenue. Royalty rates are determined in accordance with the terms of
Mesabi Trust's leases and assignments of leases. Three types of royalties
comprise the Trust's leasehold royalty income:
- Overriding royalties, which constitute the majority of Mesabi
Trust's royalty income, are determined by both the volume and
selling price of iron ore products shipped.
- Fee royalties, historically a smaller component of the Trust's
royalty income, are payable to Mesabi Land Trust, a Minnesota
land trust of which Mesabi Trust is the sole beneficiary
("Mesabi Land Trust"), and are based on the amount of crude
ore mined. Currently, the fee royalty on crude ore is based on
an agreed price per ton, subject to certain indexing. Crude
ore is used to produce iron ore pellets and other products.
- Minimum advance royalties, the third type of royalty, are
discussed below.
With respect to the volume component of royalty calculation,
Northshore Mining Company ("Northshore") is obligated to pay Mesabi Trust base
overriding royalties in varying amounts. The volume component of overriding
royalties constitutes a percentage of the gross proceeds of iron ore products
produced at Mesabi Trust lands (and to a limited extent other lands) and shipped
from Silver Bay, Minnesota. The percentage ranges from 2-1/2% of the gross
proceeds for the first one million tons of iron ore products so shipped annually
to 6% of the gross proceeds for all iron ore products in excess of 4 million
tons so shipped annually.
With respect to the selling price component of overriding royalty
calculation, Northshore is obligated to pay to Mesabi Trust royalty bonuses. The
royalty bonus is a percentage of the gross proceeds of product shipped from
Silver Bay and sold at prices above a threshold price. The threshold price is
adjusted on an annual basis for inflation and deflation (but not below $30). The
threshold price was $37.29 for calendar year 1997, was $38.21 for calendar year
1998, was $38.22 for calendar year 1999 and is $38.82 for calendar year 2000.
The royalty bonus percentage ranges from 1/2 of 1% of the gross proceeds (on all
tonnage shipped for sale at prices between the threshold price and $2.00 above
the threshold price) to 3% of the gross proceeds on all tonnage shipped for sale
at prices $10.00 or more above the threshold price. No royalty bonus has been
paid to date.
Generally, Northshore's obligation to pay base overriding royalties
and royalty bonuses with respect to the sale of iron ore products accrues upon
the shipment of those products from Silver Bay. However, regardless of whether
any shipment has occurred, Northshore is obligated to pay to Mesabi Trust a
minimum advance royalty. Each year, the amount of the minimum advance royalty is
adjusted for
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inflation and deflation (but not below $500,000 per annum). Advance royalties
payable were $621,606 for calendar year 1997, were $636,935 for calendar year
1998, were $637,044 for calendar year 1999 and are $647,282 for calendar year
2000. Until overriding royalties (and royalty bonuses, if any) for a particular
year equal or exceed the minimum advance royalty for the year, Northshore must
make quarterly payments of up to 25% of the minimum advance royalty for the
year. Because advance minimum royalties are essentially prepayments of base
overriding and bonus royalties earned each year, any advance minimum royalties
paid in a fiscal quarter are recouped by credits against base overriding and
bonus royalties earned in later fiscal quarters during the year. Historically,
advance minimum royalties have been paid in the first fiscal quarter and
recouped in the second fiscal quarter.
Northshore is obligated to make quarterly royalty payments in
January, April, July and October of each year. In the case of base overriding
royalties and royalty bonuses, these quarterly royalty payments are to be made
whether or not the related proceeds of sale have been received by Northshore by
the time such payments become due.
Under the relevant documents, Northshore may mine and ship iron ore
products from lands other than Mesabi Trust lands. To encourage the use of iron
ore products from Mesabi Trust lands, Mesabi Trust receives royalties on stated
percentages of iron ore shipped from Silver Bay, whether or not the iron ore
products are from Mesabi Trust lands. Mesabi Trust receives royalties at the
greater of (i) the aggregate quantity of iron ore products shipped that were
from Mesabi Trust lands, and (ii) a portion of the aggregate quantity of all
iron ore products shipped that were from any lands, such portion being 90% of
the first four million tons shipped during such year, 85% of the next two
million tons shipped during such year, and 25% of all tonnage shipped during
such year in excess of six million tons.
In its Annual Report for the year ended December 31, 1999 ("CCI's
Annual Report"), CCI, parent company of Northshore, the lessee/operator of
Mesabi Trust iron ore interests, stated that it was continuing to evaluate
whether to build a facility to produce pig iron at CCI's Northshore Mine in
Minnesota that would produce premium grade pig iron. CCI stated in the Report
that while progress has been made in a number of areas on the project, a
decision relative to proceeding with this project has been delayed by
uncertainty about market conditions and timing of state environmental
permitting. Such statements were previously included in CCI's Annual Report for
the year ended December 31, 1998. Because of the preliminary nature of this
information, the Mesabi Trustees are unable to determine at this time how the
addition of a pig iron facility (if the project proceeds) would impact overall
revenues of Mesabi Trust. As indicated elsewhere in this report, the Trust's
revenues are currently derived almost entirely from iron ore pellet production
and sales.
Following LTV Steel's recently announced decision to close the LTV
Steel Mining Company's plant at Hoyt Lakes, Minnesota next year, CCI recently
announced that it has asked the Minnesota Pollution Control Agency to delay a
decision on environmental permitting for the possible pig iron facility at CCI's
Northshore Mine in order to evaluate whether its iron ore pellet production
should be increased to meet CCI's future sales requirements. CCI stated that the
requested delay should not be interpreted to mean that CCI has abandoned plans
for a possible pig iron facility. CCI reported that it will be supplying LTV
with a majority of its iron ore pellets over the next 10 years with most of the
pellets expected to come from Minnesota sources that are owned or managed by
CCI. Besides potential expansion at CCI's Northshore Mine, CCI announced that it
is reviewing ways to increase production levels at other CCI-managed mines.
Mesabi Trust has no employees, but it engages independent consultants
to assist the Trustees in monitoring, among other things, the amount and sales
prices of iron ore products shipped by Northshore from Silver Bay, Minnesota. As
noted above, the information regarding amounts and sales prices of shipped iron
ore products is used to compute the royalties payable to Mesabi Trust by
Northshore.
7
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Bankers Trust Company, the Corporate Trustee, also performs certain
administrative functions for Mesabi Trust.
IMPORTANT FACTORS AFFECTING MESABI TRUST
The Agreement of Trust specifically prohibits the Trustees from
entering into or engaging in any business. This prohibition applies even to
business activities the Trustees deem necessary or proper for the preservation
and protection of the Trust Estate. Accordingly, the Trustees' activities in
connection with the administration of Trust assets are limited to collecting
income, paying expenses and liabilities, distributing net income and protecting
and conserving the assets held.
Accordingly, the income of the Trust is highly dependent upon the
activities and operations of Northshore, and the terms and conditions of the
Amended Assignment Agreements. The Trust and the Trustees have no control over
the operations and activities of Northshore, except within the framework of the
Amended Assignment Agreements.
Due to winter weather, and the increasing royalty percentages based
on tonnage shipped in a calendar year, results for a particular calendar quarter
are typically not indicative of results for future quarters or the year as a
whole. Factors which can impact the results of the Trust in any quarter or year
include:
1. SHIPPING CONDITIONS IN THE GREAT LAKES. Shipping activity by Northshore
is dependent upon when the Great Lakes shipping lanes freeze for the
winter months (typically in January) and when they re-open in the spring
(typically late-March or April). Base overriding royalties to Mesabi
Trust are based on shipments made in a calendar quarter. Because there
typically is little or no shipping activity in the first calendar
quarter, the Trust typically receives only the minimum royalty for that
period.
2. OPERATIONS OF NORTHSHORE. Because the primary portion of the Trust's
revenues derive from iron ore product shipped by Northshore from Silver
Bay, Northshore's processing and shipping activities directly impact the
Trust's revenues in each quarter and for each year. In turn, a myriad of
factors affect Northshore shipment volume. These factors include
economic conditions in the iron ore industry, pricing by competitors,
long-term customer contracts or arrangements by Northshore or its
competitors, availability of ore boats, production at Northshore's
mining operations, and production at the pelletizing/processing
facility. If any pelletizing line becomes idle for any reason,
production and shipments (and, consequently, Trust income) could be
adversely impacted. For further information regarding operations of
Northshore, see "Recent Developments" on page 9.
3. INCREASING ROYALTIES. As described elsewhere in this Report, the royalty
percentage paid to the Trust increases as the aggregate tonnage of iron
ore products shipped, attributable to the Trust, in any calendar year
increases. Assuming a consistent sales price per ton throughout a
calendar year, shipments of iron ore product attributable to the Trust
later in the year generate a higher royalty to the Trust.
4. PERCENTAGE OF MESABI TRUST ORE. As described elsewhere in this Report,
Northshore has the ability to process and ship iron ore product from
lands other than Mesabi Trust lands. In certain circumstances, the Trust
may be entitled to royalties on those other shipments, but not in all
cases. In general, the Trust will receive higher royalties (assuming all
other factors are equal) if a higher percentage of shipments are from
Mesabi Trust lands. The percentages of shipments that came
8
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from Mesabi Trust lands were 98.9%, 99.3%, 98.3%, 98.4% and 90.6% in
calendar years 1999, 1998, 1997, 1996 and 1995, respectively.
COMPARISON OF THREE MONTHS ENDED APRIL 30, 2000 AND APRIL 30, 1999
Mesabi Trust's net income decreased to $352,210 for the fiscal
quarter ended April 30, 2000, as compared to net income of $370,043 for the
fiscal quarter ended April 30, 1999. Mesabi Trust's gross income for the fiscal
quarter ended April 30, 2000 was $443,829, consisting of $352,649 in minimum
advance royalty income, $0 in overriding royalty income, $80,822 in fee royalty
income and $10,358 in interest income, as compared to gross income of $455,960
consisting of $354,467 in minimum advance royalty income, $0 in overriding
royalty income, $89,464 in fee royalty income and $12,029 in interest income,
for the fiscal quarter ended April 30, 1999. The decrease in royalty income was
primarily due to decreased pellet shipments as compared to the comparable prior
period. Mesabi Trust's expenses for the fiscal quarter ended April 30, 2000 were
$91,619, compared to expenses of $85,917 for the fiscal quarter ended April 30,
1999.
Mesabi Trust's Unallocated Reserve aggregated $1,115,587 at April 30,
2000, as compared with an Unallocated Reserve of $1,082,995 at April 30, 1999.
The increase of $32,592 was due to the net effect of: (a) the decrease in net
income of $17,833 during the three months ended April 30, 2000 as compared with
the three months ended April 30, 1999 and (b) the January 31, 2000 unallocated
reserve balance of $763,377 was $50,425 higher than the January 31, 1999
unallocated reserve balance of $712,952. The Trustees anticipate that the amount
of Unallocated Reserve will fluctuate from time to time, depending upon a number
of factors, including but not limited to the income for a particular period, the
amount and timing of distributions, uncertainty about future royalty income and
the uncertainty of future expenses.
ROYALTY COMPARISONS
The following chart summarizes Mesabi Trust's royalty income for the
quarters ended April 30, 2000 and April 30, 1999, respectively:
<TABLE>
<CAPTION>
Three Months Ended April 30,
2000 1999
---- ----
<S> <C> <C>
Base overriding royalties $352,649 $354,467
Bonus Royalties 0 0
Minimum advance
royalty paid (recouped) 0 0
-------- --------
$352,649 $354,467
-------- --------
Fee royalties 80,822 89,464
Total royalty income $433,471 $443,931
======== ========
</TABLE>
RECENT DEVELOPMENTS
The Trustees of Mesabi Trust have learned through a public
announcement by CCI, the corporate parent of Northshore, that CCI has asked the
Minnesota Pollution Control Agency to delay a decision on environmental
permitting for the possible pig iron facility at CCI's Northshore Mine. CCI
announced that it made this request in order to evaluate whether its iron ore
pellet production should be increased to meet CCI's future sales requirements
following LTV Steel's decision announced in May 2000 to close the LTV Steel
Mining Company's plant at Hoyt Lakes, Minnesota next year. CCI reported
9
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that it will be supplying LTV with a majority of its iron ore pellets over the
next 10 years with most of the pellets expected to come from Minnesota sources
that are owned or managed by CCI. Besides potential expansion at CCI's
Northshore Mine, CCI announced that it is reviewing ways to increase production
levels at other CCI-managed mines and that the requested delay in environmental
permitting should not be interpreted to mean that CCI has abandoned plans for a
possible pig iron facility. Increasing production levels at the Northshore
plant, however, would presumably require additional capital investment to
increase plant capacity, about which the Trustees have no information. Based on
this public announcement by CCI, the Mesabi Trustees anticipate that if this
potential plant expansion is achieved, production levels of iron ore pellets
could, over time, increase at the Northshore plant. If such an increase in iron
ore pellet production levels results in increased shipments of iron ore pellets,
overall revenues of Mesabi Trust would be positively impacted.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
10
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PART II - OTHER INFORMATION
ITEM 2. LEGAL PROCEEDINGS.
None.
ITEM 3. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 4. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 6. OTHER INFORMATION.
None.
ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K.
27.1 Financial Data Schedule........................Filed herewith.
11
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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: June 12, 2000 By: /s/ Daniel M. Chipko
---------------------------------
Name: Daniel M. Chipko
Title: Associate
* There are no directors
or executive officers of
the registrant.
12
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EXHIBIT INDEX
Item No. Description
-------- -----------
27.1 Financial Data Schedule...............Filed herewith.
13
