<Page>
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, 2002, 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)
c/o DEUTSCHE BANK TRUST COMPANY AMERICAS 10008-0318
CORPORATE TRUST & AGENCY SERVICES - GDS (Zip code)
P.O. BOX 318
CHURCH STREET STATION
NEW YORK, NEW YORK
(Address of principal executive offices)
(615) 835-2749
(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 May 31, 2002, there were 13,120,010 Units of Beneficial Interest in
Mesabi Trust outstanding.
<Page>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (NOTE 1)
<Table>
<Caption>
THREE MONTHS ENDED
APRIL 30,
------------------------
2002 2001
---- ----
A. Condensed Statements of Income
Revenues:
Royalty income $ 256,204 $ 476,092
Interest income 10,314 13,030
----------- -----------
$ 266,518 $ 489,122
Expenses 71,390 66,565
----------- -----------
Net income $ 195,128 $ 422,557
=========== ===========
Number of units outstanding 13,120,010 13,120,010
Net income per unit (Note 2) $ 0.0149 $ 0.0322
Distributions declared
per unit $ --- $ ---
</Table>
See Notes to Financial Statements.
2
<Page>
B. Condensed Balance Sheets
<Table>
<Caption>
Assets: April 30, 2002 January 31, 2002
-------------- ----------------
Cash $ 332,791 $ 1,223,246
U.S. Government securities,
at amortized cost (which
approximates market) 891,243 892,916
Accrued income 109,983 98,224
Prepaid insurance 2,004 4,347
----------- -----------
$ 1,336,021 $ 2,218,733
----------- -----------
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
----------- -----------
$ 1,336,024 $ 2,218,736
=========== ===========
Liabilities, Unallocated
Reserve and Trust Corpus:
Liabilities:
Distribution payable $ 0 $ 1,049,601
Accrued expenses 46,172 74,411
----------- -----------
$ 46,172 $ 1,124,012
Unallocated reserve
(Note 3) 1,289,849 1,094,721
Trust Corpus 3 3
----------- -----------
$ 1,336,024 $ 2,218,736
=========== ===========
</Table>
See Notes to Financial Statements.
3
<Page>
C. Condensed Statements of Cash Flows
<Table>
<Caption>
THREE MONTHS ENDED
APRIL 30,
------------------------
2002 2001
---- ----
Cash flows from operating
activities:
Royalties received $ 235,248 $ 246,041
Interest received 19,510 20,685
Expenses paid (97,285) (91,732)
----------- -----------
Net cash provided by
Operating activities $ 157,473 $ 174,994
----------- -----------
Cash flows from investing
activities:
Maturities of
U.S. Government
Securities $ 102,176 $ 1,947,486
Purchases of U.S.
Government securities (100,503) (2,119,971)
----------- -----------
Net cash (used for) provided by
investing activities $ 1,673 $ (172,485)
----------- -----------
Cash flows from financing
activities:
Net cash used in financing
activities, distributions
to Unitholders $(1,049,601) $(1,705,601)
----------- -----------
Net decrease in cash $ (890,455) $(1,703,092)
Cash, beginning of year 1,223,246 1,947,696
----------- -----------
Cash, end of quarter $ 332,791 $ 244,604
=========== ===========
Reconciliation of net income
to net cash provided by
operating activities:
Net income $ 195,128 $ 422,557
(Increase) in accrued income (11,759) (222,396)
Decrease in prepaid insurance 2,343 2,343
(Decrease) in accrued expenses (28,239) (27,510)
----------- -----------
Net cash provided by
operating activities $ 157,473 $ 174,994
=========== ===========
</Table>
See Notes to Financial Statements.
4
<Page>
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, 2002) 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, 2002 and 2001, (b) the financial positions at April 30,
2002 and January 31, 2002, and (c) the cash flows for the three
months ended April 30, 2002 and 2001, 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 have determined to maintain an Unallocated Reserve of at
least $1,000,000 in liquid assets. The amount of the Unallocated
Reserve has been increased over approximately the past twelve months
reflecting concern over the general decline and uncertainties in the
steel and iron ore industry. The actual amount of such Unallocated
Reserve may vary from quarter to quarter depending upon conditions in
the industry and the judgment of the Trustees. The Unallocated
Reserve consists of these liquid assets and accrued revenue
(primarily royalties not yet received). At April 30, 2002, the
Unallocated Reserve was represented by $1,191,391 in unallocated cash
and U.S. Government securities, and $98,458 of accrued revenue
primarily representing royalties not yet received by the Trust but
anticipated to be received in July 2002 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 2002.
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 calendar year 2002
production or shipments. All such forward-looking statements are based on
input from the lessee/operator. The Trust has no control over the operations
or 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 below under the heading "Important Factors
Affecting Mesabi Trust".
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 historically 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, which historically constitute 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 the 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 "Adjusted Threshold Price"). The Adjusted Threshold Price was
$38.82 per ton for calendar year 2000, $39.82 per ton for calendar year 2001,
and will be $40.61 per ton for calendar year 2002. 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. No
royalty bonus has been paid to the Trust for several years.
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.
6
<Page>
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 inflation and deflation
(but not below $500,000 per annum). Advance royalties payable were $647,282
for calendar year 2000, were $663,682 for calendar year 2001 and are $676,814
for calendar year 2002. 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, 90%
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.
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. Deutsche Bank Trust Company Americas, the Corporate Trustee, also
performs certain administrative functions for Mesabi Trust.
CURRENT DEVELOPMENTS
GENERAL. Northshore has advised the Trustees that total calendar
year 2002 production may beapproximately 3.5 to 4.0 million tons of iron ore
pellets. In its April 24, 2002 press release, Cleveland-Cliffs Inc (CCI), the
lessee/operator of the Mesabi Trust Lands, revised and increased this estimate
from the previously forecast amount of 3.0 million tons. CCI attributed this
increase to its recently consummated fifteen-year supply contract with
International Steel Group Inc. (ISG) to supply iron ore pellets commencing in
2002 from its CCI-managed mines in Michigan and Minnesota.
According to CCI's May 14, 2002 press release, pellet sales under the
supply contract to ISG in 2002 are expected to be at least 1.5 million tons,
and approximately 5 million tons annually over the life of the supply contract
for each year thereafter. The amount of such sales to be made to ISG from the
Northshore facility, however, is not stated. In the same press release, CCI
stated that sales to ISG at the forecast amounts should enable it to operate
its Michigan and Minnesota facilities at levels near to their production
capacities beginning in 2003. Although the Trustees are unable to predict the
level of pellet sales from Northshore in 2002, if this customer contract
enables Northshore to operate at its production capacity of 4.2 million tons
by fiscal year 2003, such production increases could generate additional
royalty income for the Trust and its Unitholders.
7
<Page>
Northshore has not provided the Trust with an estimate for total
calendar year 2002 shipments. (See description of the uncertainty of market
conditions in the iron ore and steel industry under "Important Factors
Affecting Mesabi Trust" below.) During calendar years 2001, 2000, 1999, 1998
and 1997, the percentage of shipments of iron ore products from Mesabi Trust
lands was approximately 99.2%, 99.8%, 98.9%, 99.3% and 98.3%, respectively, of
total shipments. Northshore has not advised the Trustees as to the percentage
of iron ore products it anticipates shipping from Mesabi Trust lands.
MESABI NUGGET PROJECT. On November 14, 2001, CCI announced that it
entered into a Memorandum of Understanding with Mesabi Nugget LLC and other
parties to participate in the Mesabi Nugget Project. The project's objective
is to develop a new iron making technology (Kobe Steel's Itmk3 process) for
converting iron ore into nearly pure iron nugget form. The project's initial
phase, Phase I, was recently completed. The Board of Directors of CCI has
approved CCI's involvement through Phase II of the Mesabi Nugget Project (and
according to an April 4, 2002 press release by CCI, IronUnits LLC, a
subsidiary of CCI, signed an agreement to commit itself through Phase II),
which involves construction of a test plant at Northshore to test the Kobe
Steel Itmk3 process and its ability to convert iron ore into nearly pure iron
nugget form. Furthermore, as reported by Skillings Mining Review on March 2,
2002, the Iron Range Resources and Rehabilitation Board (IRRRB) and the
Minnesota Department of Trade and Economic Development have each approved
loans of $8.0 million to assist in the funding of Phase II of the Mesabi
Nugget Project.
Construction of the pilot plant at the Northshore facility should
commence in July 2002. According to published reports of CCI, the pilot plant
at Northshore might be operational in the early part of 2003, and if
successful, construction of a commercial-sized plant could commence in 2004.
Although Mesabi Trust is not a direct party to this project and its
involvement in this project was not solicited, it appears that because the
plant will be located at the Northshore facility, the project will probably
involve the use of iron ore from the Mesabi Trust lands. CCI indicated that
iron nuggets from this new process would be used as an alternative or
supplement to pig iron in the steel making process. Because the Trust has not
received a sufficient amount of information as to the agreements, shipment
amounts and royalty payments that could result if the Mesabi Nugget Project
successfully achieves commercialization, the Trustees are unable to make any
projections as to any future royalties that might be payable to the Trust.
OTHER INFORMATION. On March 5, 2002, President Bush released a
three-year tariff schedule to be imposed on a significant number of imported
steel products. The tariffs, which range from eight to thirty percent, took
effect on March 20, 2002. Although these tariff measures may have a favorable
impact on the amount of the Trust's royalty income, it is nevertheless too
early to determine the extent to which these measures will positively or
negatively affect the Trust during fiscal year 2003. Furthermore, although
domestic steel prices already appear to be increasing, it is uncertain whether
these increases are a result of the President's tariffs on steel products.
Consequently, the Trustees are unable to determine at this time whether the
increases will continue and what impact, if any, they will have upon iron ore
pellet prices during fiscal year 2003.
CCI has not reported any update on its several years old announcement
that it was evaluating whether to build a facility at Northshore's Silver Bay
location to produce premium grade pig iron through a direct reduced iron
process.
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
8
<Page>
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 domestic and international 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.
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
products 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 from Mesabi Trust lands were 99.2%, 99.8%,
98.9%, 99.3% and 98.3% in calendar years 2001, 2000, 1999, 1998 and
1997, respectively.
5. UNCERTAINTY OF MARKET CONDITIONS IN THE STEEL AND IRON ORE INDUSTRY.
Steel industry fundamentals in the North American steel market
deteriorated in fiscal year 2001 after a weak second half in fiscal
year 2000. Weak steel demand, steel industry consolidation, price
decreases attributable to slowing economies in the United States and
Canada and high volumes of steel imports have caused some level of
uncertainty in the North American steel industry. As reported by CCI
in May 2002, however, the demand for iron ore has increased to a
level that has not been experienced in the past
9
<Page>
few years. It is nevertheless uncertain whether this increase in
demand for iron ore will continue and to what extent it will impact
royalties paid to the Trust in fiscal year 2002 and beyond.
COMPARISON OF THREE MONTHS ENDED APRIL 30, 2002 AND APRIL 30, 2001
Mesabi Trust's net income decreased to $195,128 for the three months
ended April 30, 2002, as compared to net income of $422,557 for the three
months ended April 30, 2001. Mesabi Trust's gross income for the three months
ended April 30, 2002 was $266,518, consisting of $112,802 in minimum advance
royalty income, $73,835 in overriding royalty income, $69,567 in fee royalty
income and $10,314 in interest income, as compared to gross income of
$489,122, consisting of $110,614 in minimum advance royalty income, $291,080
in overriding royalty income, $74,398 in fee royalty income and $13,030 in
interest income, for the three months ended April 30, 2001. 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 three months
ended April 30, 2002 were $49,365, compared to expenses of $66,565 for the
three months ended April 30, 2001.
Mesabi Trust's Unallocated Reserve aggregated $1,289,849 at April 30,
2002, as compared with an Unallocated Reserve of $1,218,475 at April 30, 2001.
The increase of $71,374 was due to the net effect of: (a) the decrease in net
income of $227,429 during the three months ended April 30, 2002 as compared
with the three months ended April 30, 2001, and (b) the January 31, 2002
unallocated reserve balance of $1,094,721 was $298,803 higher than the January
31, 2001 unallocated reserve balance of $795,918. 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
three months ended April 30, 2002 and April 30, 2001, respectively:
<Table>
<Caption>
Three months ended April 30,
2002 2001
---- ----
Base overriding royalties $ 73,835 $ 291,080
Bonus royalties 0 0
Minimum advance
royalty paid (recouped) 112,802 110,614
Fee royalties 69,567 74,398
--------- ---------
Total royalty income $ 256,204 $ 476,092
========= =========
</Table>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
10
<Page>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
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.
(a) EXHIBITS.
None.
(b) REPORTS ON FORM 8-K.
On April 30, 2002, Mesabi Trust filed a Current Report on Form
8-K regarding a related announcement by Cleveland-Cliffs Inc in
its Form 10-K for fiscal year 2001 concerning the level of the
iron ore production estimate for the Northshore facility in
fiscal year 2002. No financial statements were filed therewith.
11
<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: DEUTSCHE BANK TRUST COMPANY
AMERICAS
Corporate Trustee
Principal Administrative Officer and
duly authorized signatory:*
Date: June 14, 2002 By: /s/ Rodney Gaughan
-------------------------------------
Name: Rodney Gaughan
Title: Associate
* There are no directors
or executive officers of
the registrant.
12