Mesabi Trust (MSB) 10-Q 7 Jun 19 2020 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Apr. 30, 2019	Jun. 05, 2019
Document and Entity Information
Entity Registrant Name	MESABI TRUST
Entity Central Index Key	0000065172
Document Type	10-Q
Document Period End Date	Apr. 30, 2019
Amendment Flag	false
Current Fiscal Year End Date	--01-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Common Stock, Shares Outstanding		13,120,010
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1

Statements of Income

Statements of Income - USD ($)	3 Months Ended
	Apr. 30, 2019	Apr. 30, 2018
REVENUES
Royalty income	$ 5,361,790	$ 6,646,670
Interest	105,083	37,377
Total revenues	5,466,873	6,684,047
EXPENSES
Expenses	556,585	368,199
Net income	$ 4,910,288	$ 6,315,848
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING	13,120,010	13,120,010
Net income per unit (Note 2) (in dollars per unit)	$ 0.3743	$ 0.4814
Distribution declared per unit (Note 3) (in dollars per unit)	$ 0.8900	$ 0.4500

Balance Sheets

Balance Sheets - USD ($)	Apr. 30, 2019	Jan. 31, 2019
ASSETS
Cash and cash equivalents	$ 450,421	$ 881,810
U.S. Government securities, at amortized cost (which approximates fair value)	16,689,201	32,122,312
Accrued income receivable	3,377,580	2,339,060
Contract asset	1,294,804	56,357
Prepaid expenses	71,085	54,472
Current assets	21,883,091	35,454,011
Assignments of leased property
Amended assignment of Peters Lease	1	1
Assignment of Cloquet Leases	1	1
Certificate of beneficial interest for 13,120,010 units of Land Trust	1	1
Total fixed property	3	3
Total assets	21,883,094	35,454,014
LIABILITIES, UNALLOCATED RESERVE AND TRUST CORPUS
Distribution payable	11,676,809	18,236,814
Accrued expenses	167,114	411,508
Total liabilities	11,843,923	18,648,322
Unallocated reserve	10,039,168	16,805,689
Trust corpus	3	3
Total liabilities, unallocated reserve and trust corpus	$ 21,883,094	$ 35,454,014

Balance Sheets (Parenthetical)

Balance Sheets (Parenthetical) - shares	Apr. 30, 2019	Jan. 31, 2019
Balance Sheets
Certificate of beneficial interest of Land Trust, units	13,120,010	13,120,010

Statements of Cash Flows

Statements of Cash Flows - USD ($)	3 Months Ended
	Apr. 30, 2019	Apr. 30, 2018
Operating activities
Royalties received	$ 3,149,582	$ 2,997,561
Interest received	40,324	16,755
Expenses paid	(817,592)	(299,716)
Net cash from operating activities	2,372,314	2,714,600
Investing activities
Maturities of U.S. Government securities	18,236,603	15,853,108
Purchases of U.S. Government securities	(2,803,492)	(371,452)
Net cash used for investing activities	15,433,111	15,481,656
Financing activity
Distributions to unitholders	(18,236,814)	(15,481,612)
Net change in cash and cash equivalents	(431,389)	2,714,644
Cash and cash equivalents, beginning of period	881,810	314,835
Cash and cash equivalents, end of period	450,421	3,029,479
Reconciliation of net income to net cash from operating activities
Net income	4,910,288	6,315,848
Increase in accrued income receivable	(1,038,520)	(2,338,568)
Increase in contract asset	(1,238,447)	(1,331,163)
Increase in prepaid expense	(16,613)	(14,511)
Increase (decrease) in accrued expenses	(244,394)	82,994
Net cash from operating activities	2,372,314	2,714,600
Non cash financing activity
Distributions declared and payable	$ 11,676,809	$ 5,904,005

NATURE OF BUSINESS AND ORGANIZA

NATURE OF BUSINESS AND ORGANIZATION	3 Months Ended
	Apr. 30, 2019
NATURE OF BUSINESS AND ORGANIZATION
NATURE OF BUSINESS AND ORGANIZATION	Note 1. The financial statements and notes to financial statements included herein have been prepared without audit (except for the balance sheet at January 31, 2019) in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States 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, 2019 and 2018, (b) the financial position at April 30, 2019 and (c) the cash flows for the three months ended April 30, 2019 and 2018, 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, 2019. gg

SUMMARY OF SIGNIFICANT ACCOUNTI

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	3 Months Ended
	Apr. 30, 2019
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	Note 2. Net income per unit is based on 13,120,010 units outstanding during the period. The Trust accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers . All revenue is recognized as the performance obligations are satisfied. Disaggregation of Revenues The following table represents a disaggregation of revenue for the three months ended April 30: Three Months Ended April 30, 2019 2018 Base overriding royalties $ 3,068,019 $ 3,857,485 Bonus royalties 2,106,957 2,634,231 Fee royalties 186,814 154,954 Total royalty income $ 5,361,790 $ 6,646,670 Base overriding royalties The performance obligation for the base overriding royalty consists of providing Northshore Mining Company (“Northshore”) access to the Peters Lands, Cloquet Lands, and Mesabi Lands and the right to mine on these lands. The consideration to be received from this access relates to the volume of iron ore shipped by Northshore. Mesabi Trust receives royalties at the greater of (i) the aggregate quantity of iron ore products shipped that were 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 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. 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. The base overriding royalties contain variable consideration, as the transaction price is based on a percentage that varies based on the total cumulative tons of iron ore shipped for the calendar year. The Trust estimates the variable consideration it expects to be entitled to receive over the contractual period associated with the royalty agreement. Under the royalty agreement, measuring the total cumulative volumes of iron ore shipped, and the applicable royalty percentages, are reset at the beginning of each calendar year. The Trust evaluates the estimate of the variable consideration to determine whether the estimate needs to be constrained; therefore, the Trust includes the variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. For the base overriding royalties, the Trust estimates the base overriding royalty percentage using the expected value method, which calculates the estimate based off the historical, current, and forecasted shipments. The Trust recognizes base overriding royalties on a quarterly basis based on the actual shipments for the fiscal quarter at the estimated royalty percentage as described above and based on the estimated prices for iron ore products sold under the Cliffs Pellet Agreements. Bonus royalties The performance obligation for the bonus royalties consists of providing Northshore access to the Peters Lands, Cloquet Lands, and Mesabi Lands and the right to mine on these lands and the consideration to be received from this access relates to the volume of iron ore shipped by Northshore. The Trust recognizes bonus royalties on a quarterly basis based on the actual shipments of the fiscal quarter at the actual royalty percentage for those shipments and based on the anticipated prices for iron ore products sold under the Cliffs Pellet Agreements. Fee royalties The performance obligation for the fee royalties consists of the volume of crude ore mined on a quarterly basis. The Trust recognizes fee royalties on a quarterly basis based on the actual crude ore mined during the fiscal quarter. Accrued income receivable The accrued income receivable is included in net income per unit. The Trust recorded $3,377,580 of accrued income receivable as reflected on the Condensed Balance Sheet as of April 30, 2019 (unaudited). As of January 31, 2019, the Trust recorded accrued income receivable of $2,339,060. Accrued income receivable is accounted for and reported for the Trust’s fiscal quarter based on shipments during the month of April at estimated prices for iron ore products sold under the Cliffs Pellet Agreements, even though such accrued income receivable is not available for distribution to the holders of Certificates of Beneficial Interest in Mesabi Trust (“Unitholders”) until the applicable royalties are actually received by the Trust. Accrued income receivable also includes accruals for anticipated pricing adjustments, which can be positive or negative. Contract asset A contract asset in the amount of $1,294,804 is reflected on the Condensed Balance Sheet as of April 30, 2019 (unaudited). As of January 31, 2019 the Trust recorded a contract asset of $56,357. The contract asset is based on the revenue recognized on the base overriding royalties, at the estimated prices for iron ore products sold under the Cliffs Pellet Agreements, that will be collected in subsequent quarters as the uncertainty associated with the variable consideration is resolved. The contract asset is not available for distribution to the Unitholders until the applicable royalties are actually received by the Trust. The Trust includes estimated future royalty rates on current contracted volumes within contract asset.

DIVIDEND AND DISTRIBUTION

DIVIDEND AND DISTRIBUTION	3 Months Ended
	Apr. 30, 2019
DIVIDEND AND DISTRIBUTION
DIVIDEND AND DISTRIBUTION	Note 3. The Trustees determine whether to declare a distribution 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 of the Trust’s fiscal quarters, which end 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 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 during the periods reported in this quarterly report on Form 10-Q.

ROYALTY AGREEMENT, UNALLOCATED

ROYALTY AGREEMENT, UNALLOCATED RESERVE AND DISTRIBUTIONS	3 Months Ended
	Apr. 30, 2019
UNALLOCATED RESERVE AND DISTRIBUTIONS
ROYALTY AGREEMENT, UNALLOCATED RESERVE AND DISTRIBUTIONS	Note 4. On April 29, 2019, the Trustees received the quarterly royalty report of iron ore product shipments from Silver Bay, Minnesota during the calendar quarter ended March 31, 2019 from Cleveland-Cliffs Inc., formerly known as Cliffs Natural Resources Inc. (“Cliffs”), the parent company of Northshore. On April 12, 2019, the Trustees declared a distribution of $0.89 per Unit of Beneficial Interest payable on May 20, 2019 to Mesabi Trust Unitholders of record at the close of business on April 30, 2019. 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 fixed 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. 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, 2019 and January 31, 2019, the unallocated cash and U.S. Government securities portion of the Trust’s Unallocated Reserve was comprised of the following components: April 30, 2019 (unaudited) January 31, 2019 Cash and U.S. Government securities $ 17,139,622 $ 33,004,122 Distribution payable (11,676,809) (18,236,814) Unallocated cash and U.S. Government securities $ 5,462,813 $ 14,767,308 A reconciliation of the Trust’s Unallocated Reserve and Trust Corpus for the three months ended April 30, 2019 and April 30, 2018 is as follows: Unallocated Trust Reserve Corpus Total Balances at January 31, 2019 $ 16,805,689 $ 3 $ 16,805,692 Net income 4,910,288 — 4,910,288 Distributions declared - $0.8900 per share (11,676,809) — (11,676,809) Balances at April 30, 2019 $ 10,039,168 $ 3 $ 10,039,171 Unallocated Trust Reserve Corpus Total Balances at January 31, 2018 $ 10,606,675 $ 3 $ 10,606,678 Net income 6,315,848 — 6,315,848 Distributions declared - $0.4500 per share (5,904,005) — (5,904,005) Balances at April 30, 2018 $ 11,018,518 $ 3 $ 11,018,521

SUMMARY OF SIGNIFICANT ACCOUN_2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)	3 Months Ended
	Apr. 30, 2019
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition	The Trust accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers . All revenue is recognized as the performance obligations are satisfied.

SUMMARY OF SIGNIFICANT ACCOUN_3

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)	3 Months Ended
	Apr. 30, 2019
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Schedule of disaggregation of revenue	Three Months Ended April 30, 2019 2018 Base overriding royalties $ 3,068,019 $ 3,857,485 Bonus royalties 2,106,957 2,634,231 Fee royalties 186,814 154,954 Total royalty income $ 5,361,790 $ 6,646,670

UNALLOCATED RESERVE AND DISTRIB

UNALLOCATED RESERVE AND DISTRIBUTIONS (Tables)	3 Months Ended
	Apr. 30, 2019
UNALLOCATED RESERVE AND DISTRIBUTIONS
Schedule of unallocated cash and U.S. Government securities portion of the Trust's Unallocated Reserve	April 30, 2019 (unaudited) January 31, 2019 Cash and U.S. Government securities $ 17,139,622 $ 33,004,122 Distribution payable (11,676,809) (18,236,814) Unallocated cash and U.S. Government securities $ 5,462,813 $ 14,767,308
Schedule of reconciliation of Trust's Unallocated Reserve	Unallocated Trust Reserve Corpus Total Balances at January 31, 2019 $ 16,805,689 $ 3 $ 16,805,692 Net income 4,910,288 — 4,910,288 Distributions declared - $0.8900 per share (11,676,809) — (11,676,809) Balances at April 30, 2019 $ 10,039,168 $ 3 $ 10,039,171 Unallocated Trust Reserve Corpus Total Balances at January 31, 2018 $ 10,606,675 $ 3 $ 10,606,678 Net income 6,315,848 — 6,315,848 Distributions declared - $0.4500 per share (5,904,005) — (5,904,005) Balances at April 30, 2018 $ 11,018,518 $ 3 $ 11,018,521

SUMMARY OF SIGNIFICANT ACCOUN_4

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - shares	3 Months Ended
	Apr. 30, 2019	Apr. 30, 2018
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Number of units outstanding	13,120,010	13,120,010

SUMMARY OF SIGNIFICANT ACCOUN_5

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Revenue, fixed assets (Details)	3 Months Ended
	Apr. 30, 2019USD ($)itemMT	Apr. 30, 2018USD ($)	Jan. 31, 2019USD ($)
Revenue from Contract with Customer [Abstract]
Royalty Revenue	$ 5,361,790	$ 6,646,670
Base overriding royalties, first tier portion percentage	90.00%
Base overriding royalties, first tier shipment ceiling (in million tons) | MT	4
Base overriding royalties, second tier portion percentage	85.00%
Base overriding royalties, second tier shipment ceiling (in million tons) | MT	2
Base overriding royalties, third tier portion percentage	25.00%
Base overriding royalties, third tier shipment threshold (in million tons) | MT	6
Base overriding royalties, number of volume thresholds for transaction price | item	4
Base overriding royalties, volume threshold for transaction price | MT	1
Accrued income receivable	$ 3,377,580		$ 2,339,060
Contract asset	1,294,804		$ 56,357
Base Overriding Royalties
Revenue from Contract with Customer [Abstract]
Royalty Revenue	3,068,019	3,857,485
Bonus Royalties
Revenue from Contract with Customer [Abstract]
Royalty Revenue	2,106,957	2,634,231
Fee Royalties
Revenue from Contract with Customer [Abstract]
Royalty Revenue	$ 186,814	$ 154,954

DIVIDEND AND DISTRIBUTION (Deta

DIVIDEND AND DISTRIBUTION (Details)	3 Months Ended
	Apr. 30, 2019
DIVIDEND AND DISTRIBUTION
Period after the close of each calendar quarter when the fiscal quarter ends	1 month

ROYALTY AGREEMENT, UNALLOCATE_2

ROYALTY AGREEMENT, UNALLOCATED RESERVE AND DISTRIBUTIONS (Details) - USD ($)	Apr. 12, 2019	Apr. 30, 2019	Apr. 30, 2018	Jan. 31, 2019
UNALLOCATED RESERVE AND DISTRIBUTIONS
Distribution declared per unit (Note 3) (in dollars per unit)	$ 0.89	$ 0.8900	$ 0.4500
Unallocated Cash and Securities portion of Unallocated Reserve
Cash and U.S. Government securities		$ 17,139,622		$ 33,004,122
Distribution payable		(11,676,809)		(18,236,814)
Unallocated cash and U.S. Government securities		5,462,813		$ 14,767,308
Reconciliation of Trust's Unallocated Reserve
Beginning Balance		16,805,692	$ 10,606,678
Net income		4,910,288	6,315,848
Distributions declared		(11,676,809)	(5,904,005)
Ending Balance		$ 10,039,171	$ 11,018,521
Distribution declared per unit		$ 0.8900	$ 0.4500
Unallocated Reserve
Reconciliation of Trust's Unallocated Reserve
Beginning Balance		$ 16,805,689	$ 10,606,675
Net income		4,910,288	6,315,848
Distributions declared		(11,676,809)	(5,904,005)
Ending Balance		10,039,168	11,018,518
Trust Corpus
Reconciliation of Trust's Unallocated Reserve
Beginning Balance		3	3
Ending Balance		$ 3	$ 3