<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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: 1-8944
CLEVELAND-CLIFFS INC
(Exact name of registrant as specified in its charter)
Ohio 34-1464672
(State or other jurisdiction of (I.R.S. Employer
incorporation) Identification No.)
1100 Superior Avenue, Cleveland, Ohio 44114-2589
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 694-5700
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 July 31, 1998, there were 11,325,347 Common Shares (par value $1.00 per
share) outstanding.
================================================================================
<PAGE> 2
PART I - FINANCIAL INFORMATION
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
(In Millions, Except Per Share Amounts)
-------------------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
--------------------------- ---------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Product sales and services $ 143.2 $ 102.7 $ 170.4 $ 123.2
Royalties and management fees 12.9 12.4 21.3 20.7
---------- ---------- ---------- ----------
Total Operating Revenues 156.1 115.1 191.7 143.9
Investment income (securities) .8 1.2 2.2 3.4
Recovery of excess closedown provision - 4.3 - 4.3
Other income 1.0 1.5 1.8 1.8
---------- ---------- ---------- ----------
TOTAL REVENUES 157.9 122.1 195.7 153.4
COSTS AND EXPENSES
Cost of goods sold and operating expenses 127.2 96.1 157.3 117.1
Administrative, selling and general expenses 4.9 3.5 9.6 7.2
Interest expense .1 .8 .3 1.7
Other expenses 2.9 2.2 5.0 3.5
---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES 135.1 102.6 172.2 129.5
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 22.8 19.5 23.5 23.9
INCOME TAXES
Currently payable 3.4 2.7 3.5 3.3
Deferred 2.5 3.9 2.6 4.7
---------- ---------- ---------- ----------
TOTAL INCOME TAXES 5.9 6.6 6.1 8.0
---------- ---------- ---------- ----------
NET INCOME $ 16.9 $ 12.9 $ 17.4 $ 15.9
========== ========== ========== ==========
NET INCOME PER COMMON SHARE
Basic $ 1.49 $ 1.14 $ 1.53 $ 1.40
Diluted $ 1.48 $ 1.13 $ 1.52 $ 1.39
AVERAGE NUMBER OF SHARES (IN THOUSANDS)
Basic 11,326 11,371 11,325 11,373
Diluted 11,423 11,421 11,413 11,422
</TABLE>
See notes to financial statements
2
<PAGE> 3
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
<TABLE>
<CAPTION>
(In Millions)
-------------------------
June 30 December 31
ASSETS 1998 1997
------ ---------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 71.7 $115.9
Accounts receivable - net 73.2 73.4
Inventories
Finished products 72.6 45.7
Work in process 1.2 .6
Supplies 13.7 15.1
------ ------
87.5 61.4
Federal income taxes 10.7 7.5
Other 5.9 7.6
------ ------
TOTAL CURRENT ASSETS 249.0 265.8
PROPERTIES 192.8 272.3
Allowances for depreciation and depletion (58.2) (138.3)
------ ------
TOTAL PROPERTIES 134.6 134.0
INVESTMENTS IN ASSOCIATED COMPANIES 225.9 218.3
OTHER ASSETS
Prepaid pensions 41.4 40.4
Other 39.7 35.8
------ ------
TOTAL OTHER ASSETS 81.1 76.2
------ ------
TOTAL ASSETS $690.6 $694.3
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES $ 78.0 $ 91.8
LONG-TERM OBLIGATIONS 70.0 70.0
POSTEMPLOYMENT BENEFIT LIABILITIES 69.8 70.1
OTHER LIABILITIES 56.8 55.0
SHAREHOLDERS' EQUITY
Preferred Stock
Class A - no par value
Authorized - 500,000 shares; Issued - none - -
Class B - no par value
Authorized - 4,000,000 shares; Issued - none - -
Common Shares - par value $1 a share
Authorized - 28,000,000 shares;
Issued - 16,827,941 shares 16.8 16.8
Capital in excess of par value of shares 73.3 69.8
Retained income 481.5 472.1
Accumulated other comprehensive loss, net of tax (2.2) (2.0)
Cost of 5,505,894 Common Shares in treasury
(1997 - 5,519,027 shares) (147.7) (146.2)
Unearned compensation (5.7) (3.1)
------ ------
TOTAL SHAREHOLDERS' EQUITY 416.0 407.4
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $690.6 $694.3
====== ======
</TABLE>
See notes to financial statements
3
<PAGE> 4
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
(In Millions,
Brackets Indicate
Cash Decrease)
Six Months Ended
June 30
----------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 17.4 $ 15.9
Depreciation and amortization:
Consolidated 4.3 3.5
Share of associated companies 6.3 6.0
Decrease in Savage River closedown reserve - (16.1)
Provision for deferred income taxes 2.6 4.8
Other (2.3) .6
------ ------
Total before changes in operating assets and liabilities 28.3 14.7
Changes in operating assets and liabilities (42.7) (75.3)
------ ------
NET CASH (USED BY) OPERATING ACTIVITIES (14.4) (60.6)
INVESTING ACTIVITIES
Purchase of property, plant and equipment:
Consolidated (6.1) (5.0)
Share of associated companies (13.8) (19.2)
Purchase of Wabush interest - (15.0)
Other 1.3 4.8
------ ------
NET CASH (USED BY) INVESTING ACTIVITIES (18.6) (34.4)
FINANCING ACTIVITIES
Dividends (8.0) (7.4)
Repurchases of Common Shares (3.2) (1.7)
------ ------
NET CASH (USED BY) FINANCING ACTIVITIES (11.2) (9.1)
EFFECT OF EXCHANGE RATE CHANGES ON CASH - .2
------ ------
DECREASE IN CASH AND CASH EQUIVALENTS (44.2) (103.9)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 115.9 165.4
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 71.7 $ 61.5
====== ======
</TABLE>
See notes to financial statements
4
<PAGE> 5
CLEVELAND-CLIFFS INC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and should be read in conjunction
with the financial statement footnotes and other information in the Company's
1997 Annual Report on Form 10-K. In management's opinion, the quarterly
unaudited financial statements present fairly the Company's financial position
and results in accordance with generally accepted accounting principles.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
References to the "Company" mean Cleveland-Cliffs Inc and
consolidated subsidiaries, unless otherwise indicated. Quarterly results are not
representative of annual results due to seasonal and other factors. Certain
prior year amounts have been reclassified to conform to current year
classifications.
NOTE B - ACCOUNTING AND DISCLOSURE CHANGES
In June, 1997, the Financial Accounting Standards Board ("FASB")
issued Statement 131, "Disclosures About Segments of an Enterprise and Related
Information." This statement changes the way that segment information is defined
and reported in annual and interim financial statements. Statement 131 is
effective for fiscal years beginning after December 15, 1997, although segment
information is not required to be reported in interim financial statements in
1998. Management is evaluating the new standard and has not determined what
effect it may have on future disclosures.
In February, 1998, the FASB issued Statement 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," effective for
fiscal years beginning after December 15, 1997. The objective of this statement
is to improve and standardize disclosures about pensions and other
postretirement benefits and does not change the measurement or recognition of
pensions or other postretirement benefits.
In June, 1998, the FASB issued Statement 133, "Accounting for
Derivative Instruments and for Hedging Activities," effective for fiscal years
beginning after June 15, 1999. This statement will provide comprehensive and
consistent standards for the recognition and measurement of derivatives and
hedging activities. Management is
5
<PAGE> 6
evaluating the new standard, but does not expect it to have a material impact on
the Company's consolidated financial statements.
In March, 1998, the Accounting Standards Executive Committee
("AcSEC") of the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," effective for fiscal years
beginning after December 15, 1998. The statement is intended to eliminate the
diversity in practice in accounting for internal-use software costs and improve
financial reporting. The Company is evaluating the new standard, but does not
expect it to have a material impact on the Company's consolidated financial
statements.
In April, 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of
Start-up Activities," effective for fiscal years beginning after December 15,
1998, which requires such costs to be expensed as incurred. Management is
evaluating the new standard, but does not expect it to have a material impact on
the Company's consolidated financial statements.
NOTE C - ENVIRONMENTAL RESERVES
The Company has a formal code of environmental conduct which promotes
environmental protection and restoration. The Company's obligations for known
environmental problems at active mining operations, idle and closed mining
operations and other sites have been recognized based on estimates of the cost
of investigation and remediation at each site. If the cost can only be estimated
as a range of possible amounts with no specific amount being most likely, the
minimum of the range is accrued in accordance with generally accepted accounting
principles. Estimates may change as additional information becomes available.
Actual costs incurred may vary from the estimates due to the inherent
uncertainties involved. Any potential insurance recoveries have not been
reflected in the determination of the financial reserves.
At June 30, 1998, the Company had an environmental reserve, including
its share of the environmental obligations of associated companies, of $22.3
million, of which $1.7 million is a current liability. The reserve includes the
Company's obligations related to:
- Federal and State Superfund and Clean Water Act sites where the
Company is named as a potentially responsible party, including
Cliffs-Dow and Kipling sites in Michigan and the Rio Tinto mine
site in Nevada, all of which sites are independent of the
Company's iron mining operations. The reserves are based on
engineering studies prepared by outside consultants engaged by
the potentially responsible parties. The Company continues to
evaluate the recommendations of the studies and other means for
site clean-up. Significant site clean-up activities have taken
place at Rio Tinto and Cliffs-Dow. The City of Marquette,
Michigan has purchased the Cliffs-Dow plant site, on January 29,
1998, from the Company and has agreed to assume any future
environmental responsibilities with respect to that site.
6
<PAGE> 7
- Wholly-owned active and idle operations, and other sites,
including former operations, for which reserves are based on the
Company's estimated cost of investigation and remediation of
sites where expenditures may be incurred.
NOTE D - COMPREHENSIVE INCOME
Comprehensive Income includes Net Income and Other Comprehensive
Income, net of tax, consisting of unrealized gains (losses) on securities,
foreign currency translation adjustments and minimum pension liability.
Components of Comprehensive Income include:
<TABLE>
<CAPTION>
(In Millions)
------------------------------------------------------------------
Second Quarter First-Half
------------------------------- ------------------------------
1998 1997 1998 1997
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Net Income $16.9 $12.9 $17.4 $15.9
Other Comprehensive Income -
Unrealized Gain (Loss)
on Securities (1.9) .5 (.2) .9
Foreign Currency
Translation Adjustment -- .2 -- .2
----- ----- ----- -----
Comprehensive Income $15.0 $13.6 $17.2 $17.0
===== ===== ===== =====
</TABLE>
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
RESULTS OF OPERATIONS
---------------------
COMPARISON OF SECOND QUARTER AND FIRST SIX MONTHS - 1998 AND 1997
-----------------------------------------------------------------
Earnings for the second quarter of 1998 were $16.9 million, or $1.48
per diluted share (all per share earnings are "diluted earnings per share"
unless otherwise stated), and first-half earnings were $17.4 million, or $1.52
per share. Comparable earnings, before special items, in 1997 were $10.1
million, or $.88 per share, in the second quarter, and $13.1 million, or $1.14
per share, in the first-half. Net income for both 1997 periods included an
after-tax credit of $2.8 million resulting from the reversal of an excess
accrual for closedown obligations of the Savage River Mine in Australia which
were recorded prior to 1997.
Following is a summary of results:
<TABLE>
<CAPTION>
(In Millions, Except Per Share)
----------------------------------------------------
Second Quarter First-Half
------------------------ -------------------------
1998 1997 1998 1997
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Income Before Special Items:
Amount $16.9 $10.1 $17.4 $13.1
Per Share 1.48 .88 1.52 1.14
Special Items:
Amount -- 2.8 -- 2.8
Per Share -- .25 -- .25
Net Income:
Amount 16.9 12.9 17.4 15.9
Per Share 1.48 1.13 1.52 1.39
</TABLE>
The $6.8 million, or 67 percent, increase in second quarter earnings
before special items was mainly due to higher North American sales volume and
price realization, lower interest expense, and a lower effective tax rate,
partially offset by higher administrative and business development expenses,
including ferrous metallics and international development activities, and lower
investment income.
The $4.3 million increase in first-half earnings before special items
was principally due to higher North American sales volume and price realization,
lower interest expense, and a lower effective tax rate, partially offset by the
termination of Savage River operations, higher administrative and business
development expenses, including ferrous metallics and international development
activities, and lower investment income. Savage River, which produced its last
iron ore pellets in December, 1996, earned $2.4 million in the first half of
1997 on sales of its remaining inventory.
8
<PAGE> 9
The Company's North American iron ore pellet sales in the second
quarter of 1998 were a record 3.9 million tons, a 39 percent increase from the
2.8 million tons sold in the second quarter of 1997. First-half sales of 4.6
million tons were also a record and 48 percent higher than the 3.1 million tons
sold in the first half of 1997.
Administrative expenses increased by $1.4 million in the second quarter
of 1998 versus 1997 and $2.4 million in the first-half of 1998 versus 1997
principally due to the cost of Performance Share grants, a key component of
senior management compensation. Lower investment income in the second quarter
and first-half reflects lower average cash balances in 1998, while decreased
interest expense in both periods results from increased capitalization of
interest on the Company's share of construction costs on the Cliffs and
Associates Limited reduced iron project. Other expenses were up in both periods
due to increased costs of ferrous metallics and international development
activities.
The Company's managed mines produced 10.0 million tons in the second
quarter of 1998 compared with 9.6 million tons in 1997. First-half production
was 19.4 million tons, up from 19.2 million tons in 1997.
The Empire and Tilden Mines in Michigan have experienced some minor
electric power interruptions in the second quarter, and there is a risk of
further interruptions and production losses at these mines under interruptible
power contracts with Wisconsin Electric Power Company.
LIQUIDITY
- ---------
At June 30, 1998, the Company had cash and cash equivalents of $71.7
million. Since December 31, 1997, cash and cash equivalents have decreased $44.2
million, primarily due to increased working capital, $42.7 million, and project
investments and capital expenditures, $19.9 million (mainly Trinidad project,
$10.8 million), dividends, $8.0 million, and repurchases of common shares, $3.2
million, partially offset by cash flow from operations, $28.3 million.
For the year 1998 capital expenditures, principally for mining ventures
and including items classified as capital leases, are projected to total $139
million (Company's share - $61 million).
CAPITALIZATION
- --------------
Long-term debt of the Company consists of $70.0 million of senior
unsecured notes payable to an insurance company group. The notes bear a fixed
interest rate of 7.0 percent and are scheduled to be repaid with a single
principal payment in December, 2005. During the quarter, the Company extended
the maturity of the $100 million revolving credit agreement from March 1, 2002
to May 31, 2003. No borrowings are outstanding under this agreement. The Company
was in compliance with all financial covenants and restrictions of the
agreements.
9
<PAGE> 10
The fair value of the Company's long-term debt (which had a carrying
value of $70.0 million) at June 30, 1998, was estimated at $71.7 million based
on a discounted cash flow analysis and estimates of current borrowing rates.
Following is a summary of common shares outstanding:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- -------------
<S> <C> <C> <C>
March 31 11,344,605 11,377,322 11,832,767
June 30 11,322,047 11,374,448 11,614,517
September 30 11,379,357 11,367,717
December 31 11,308,914 11,369,717
</TABLE>
Under the Company's program to repurchase up to 1.5 million of its
Common Shares in the open market or in negotiated transactions, the Company has
repurchased 953,400 Common Shares through June 30, 1998, at a total cost of
$38.4 million, including 60,000 Common Shares repurchased in the first half of
1998, at a total cost of $3.2 million.
FERROUS METALLICS DEVELOPMENTS
- ------------------------------
While good progress is being made on construction of the Company's
hot-briquetted iron venture project in Trinidad and Tobago with LTV Corporation
and Lurgi AG, exceptionally rainy weather over the last few months and other
construction difficulties have caused delays. Construction of the Cliffs and
Associates Limited facilities is now projected to be completed late in 1998,
with commissioning and initial production to follow. Operations planning and
employee training activities are well advanced in preparation for the plant
commissioning. The project will operate on a planned start-up curve and is
expected to achieve its design capacity rate of 500,000 metric tons per year in
mid-1999. The Company's cumulative investment totals $67.2 million as of June
30, 1998. Market prices for ferrous metallics products are currently depressed
as a result of Asian imports. While it is difficult to project how long prices
will remain depressed, the project is expected to be profitable even at current
price levels. A decision by the owners of Cliffs and Associates Limited to
expand could be made by the end of 1999 depending on market factors.
An investment in a plant to produce 700,000 metric tons annually of a
premium grade pig iron at the Company's wholly-owned Northshore Mine in Silver
Bay, Minnesota is being evaluated. Uncertainties concerning environmental
permitting and other matters have delayed a decision on this project.
The Company continues to consider other investment alternatives, both
domestically and internationally, in the iron ore and ferrous metallics
business.
10
<PAGE> 11
TILDEN MINE KILN OUTAGE
- -----------------------
Welding repairs on one of the mine's two pelletizing kilns were
completed earlier than expected, and the kiln was put back in service on April
9. Production at the Tilden Mine for the full year is now expected to be 6.8
million tons. Expected production of 6.8 million tons is .8 million tons, or 13
percent, above 1997 production. The Company's share of the kiln repair costs,
$.6 million, was recorded in the first quarter.
COAL RETIREES
- -------------
Through June 30, 1998, payments covering over 300 beneficiaries have
been made to the UMWA Combined Benefit Fund as required by the Coal Industry
Retiree Health Benefit Act of 1992 ("Act"). Over 20 percent of these
beneficiaries are from former coal operations which ceased operations as
signatories to the UMWA contract prior to when coal wage agreements contained
any provisions that could be construed as promising or implying that health
benefits would be provided for life. Based on a recent U.S. Supreme Court
decision in EASTERN ENTERPRISES V. APFEL, premium payments on these
beneficiaries have been discontinued and a refund requested for previous
payments. Although the Act provides for substantial penalties for non-payment of
premiums, management believes that the Company's actions, in light of EASTERN
ENTERPRISES V. APFEL, would not subject the Company to such penalties.
OUTLOOK
- -------
Most steel industry analysts are projecting a continuation of
relatively high operating rates for steel producers in the United States and
Canada for the second half of 1998 and into 1999 despite increasing concerns
about Asian and other steel imports. For the full year 1998, the six mines are
expected to produce a record 40.5 million tons, with the Company's share being a
record 11.4 million tons. In 1997, the mines produced 39.6 million tons, with
the Company's share being 10.9 million tons. The increases in 1998 are mainly
due to higher scheduled production at the Tilden Mine. The Company's managed
mines are currently expected to operate at capacity levels in 1999, with pellet
production nearing 42 million tons. The Company's share of 1999 production at
capacity levels would be 11.8 million tons.
Ore sales for the full year 1998 are projected at 12.5 million tons,
2.1 million tons higher than 1997. Sales at the projected 12.5 million ton level
are possible by reducing inventories to a minimum level and by purchasing ore
for resale.
YEAR 2000 TECHNOLOGY
- --------------------
The Company continues its identification and assessment of various
areas of risk and implementation of strategies to resolve the year 2000
technology issue. A substantial portion of year 2000 information technology
compliance will be achieved as a result of the Company's Information Technology
Plan ("IT Plan"). Implementation of the IT Plan is estimated to cost
approximately $25 million for the Company and associated ventures, $17 million
of which is projected to be classified as capital
11
<PAGE> 12
expenditures and $8 million charged to operations (Company's share $6.9 million
total; $4.6 million capital, $2.3 million operating). Since implementation and
through June 30, 1998, $7.6 million (Company's share - $2.1 million) was
expended with $3.3 million (Company's share $.9 million) charged to operations
as incurred. Project completion is expected in the third quarter of 1999. The
Company is charging to operations current state assessment, process
re-engineering, and training costs associated with the IT Plan. In addition to
the IT Plan, a year 2000 compliance program has been initiated to identify,
assess and mitigate the impact of the date change on systems not covered by the
IT Plan. The incremental expense of achieving year 2000 compliance on systems
not covered by the IT Plan is estimated to be $2 million for the Company and its
ventures. Completion of this program is targeted for mid-1999. Year 2000
compliance is not expected to have a material adverse impact on the operations
of the Company.
FORWARD-LOOKING STATEMENTS
- --------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. In addition to historical information,
this report contains forward-looking statements that are subject to risks and
uncertainties that could cause future results to differ materially from expected
results. Such statements are based on management's beliefs and assumptions made
on information currently available to it.
The Company's primary business is the production and sale of iron ore
pellets, which is subject to the cyclical nature of the integrated steel
industry. Factors that could cause the Company's actual results to be materially
different from projected results include the following:
- Changes in the financial condition of integrated steel company
partners and customers. The potential financial failure and
shutdown of one or more significant customers or partners without
mitigation could represent a significant adverse development;
- Domestic or international economic and political conditions;
- Unanticipated geological conditions or ore processing changes;
- Substantial changes in imports of steel or iron ore;
- Development of alternative steel-making technologies;
- Displacement of integrated steel production by electric furnace
production;
- Displacement of steel by competitive materials;
- Energy costs and availability;
- Shortage of available process water due to drought;
12
<PAGE> 13
- Difficulties or delays in achieving Year 2000 compliance,
including the availability and cost of trained personnel, the
ability to locate and correct system codes, and similar
uncertainties;
- Major equipment failure, availability, and magnitude and duration
of repairs;
- Labor contract negotiations;
- Changes in tax laws directly affecting mineral exploration and
development;
- Changes in laws, regulations or enforcement practices governing
environmental site remediation requirements and the technology
available to complete required remediation. Additionally, the
impact of inflation, the identification and financial condition of
other responsible parties, as well as the number of sites and
quantity and type of material to be removed, may significantly
affect estimated environmental remediation liabilities;
- Changes in laws, regulations or enforcement practices governing
compliance with environmental and safety standards at operating
locations; and,
- Accounting principle or policy changes by the Financial Accounting
Standards Board or the Securities and Exchange Commission.
Additionally, the Company's projection of construction cost, start-up
date, production rate and profitability for the Trinidad reduced iron project
could change due to the following inherent uncertainties:
- Construction delays;
- Changes in product pricing and demand;
- Process difficulties; and
- Cost and availability of key components of production.
The Company is under no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
13
<PAGE> 14
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
- ---------------------------------------------------------
The Company's Annual Meeting of Shareholders was held on May 12, 1998.
At the meeting the Company's shareholders acted upon the election of Directors
and a proposal to ratify the appointment of the Company's independent public
accountants. In the election of Directors, all 12 nominees named in the
Company's Proxy Statement, dated March 23, 1998, were elected to hold office
until the next Annual Meeting of Shareholders and until their respective
successors are elected. Each nominee received the number of votes set opposite
his or her name:
<TABLE>
<CAPTION>
NOMINEES FOR WITHHELD
----------------------------------- ---------------- -----------------
<S> <C> <C>
John S. Brinzo 9,817,222 11,143
Ronald C. Cambre 9,816,472 11,893
Robert S. Colman 9,815,985 12,380
James D. Ireland III 9,815,705 12,660
G. Frank Joklik 9,815,467 12,898
Leslie L. Kanuk 9,815,344 13,021
Francis R. McAllister 9,816,722 11,643
M. Thomas Moore 9,815,999 12,366
John C. Morley 9,816,403 11,962
Stephen B. Oresman 9,815,639 12,726
Alan Schwartz 9,814,885 13,480
Alton W. Whitehouse 9,814,685 13,680
</TABLE>
Votes cast in person and by proxy at such meeting for and against the
adoption of the proposal to ratify the appointment of the firm of Ernst & Young
LLP, independent public accountants, to examine the books of account and other
records of the Company and its consolidated subsidiaries for the year 1998 were
as follows: 9,809,193 Common Shares were cast for the adoption of the proposal;
6,535 Common Shares were cast against the adoption of the proposal; and 12,637
Common Shares abstained from voting on the proposal.
There were no broker non-votes with respect to the election of
directors or the ratification of the independent public accountants.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) List of Exhibits - Refer to Exhibit Index on page 16.
(b) There were no reports on Form 8-K filed during the three months
ended June 30, 1998.
14
<PAGE> 15
SIGNATURE
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.
CLEVELAND-CLIFFS INC
Date August 12, 1998 By /s/ C. B. Bezik
----------------------------- ---------------------------------
C. B. Bezik
Senior Vice President-Finance and
Principal Financial Officer
15
<PAGE> 16
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- -------- ------------------------------------------------------- ---------
<S> <C> <C>
4(a) Amendment, dated as of June 1, 1998, to the Credit Filed
Agreement dated as of March 1, 1995, as amended, Herewith
among Cleveland-Cliffs Inc, the financial institutions
named therein, and The Chase Manhattan Bank,
as Agent.
27 Consolidated Financial Data Schedule submitted for
Securities and Exchange Commission information
only:
27.1 June 30, 1998 --
27.2 June 30, 1997 --
99(a) Cleveland-Cliffs Inc News Release published on Filed
July 22, 1998, with respect to 1998 second quarter Herewith
earnings and 1998 first-half earnings.
</TABLE>
16
<PAGE> 1
Exhibit 4 (a)
EXECUTION COPY
AMENDMENT dated as of June 1, 1998, to the
Credit Agreement dated as of March 1, 1995, as
previously amended (the "Agreement"), among
CLEVELAND-CLIFFS INC, an Ohio corporation (the
"Borrower"), the financial institutions party to such
Agreement (the "Banks") and THE CHASE MANHATTAN BANK,
a New York banking corporation, as agent for the
Banks (in such capacity, the "Agent").
The Borrower has requested that the Banks extend the maturity
of the credit facility provided for in the Agreement, and the Banks are willing
to extend their Commitments under the Agreement as provided herein. Accordingly,
in consideration of the mutual agreements herein contained and other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS. Capitalized terms used and not
otherwise defined herein shall have the meanings assigned to them in the
Agreement (the Agreement, as amended by and together with this Amendment, and as
hereafter amended, modified, extended or restated from time to time, being
called the "Amended Agreement").
SECTION 2. AMENDMENT. The definition of "Maturity Date" in
Section 1.01 of the Agreement is hereby amended, as of the Effective Date (as
defined in Section 4 herein), to read in its entirety as follows:
"MATURITY DATE" shall mean May 31, 2003.
SECTION 3. REPRESENTATIONS AND WARRANTIES. (a) The Borrower
hereby represents and warrants to each of the Banks, on and as of the date
hereof, and then again represents and warrants to each of the Banks on and as of
the Effective Date, that:
(i) This Amendment has been duly authorized, executed and
delivered by the Borrower, and each of this Amendment and the Amended
Agreement constitutes a legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms.
(ii) The representations and warranties set forth in Article
III of the Amended Agreement are true and correct in all material
respects with the same effect as if made on and as of the date hereof
and on and as
<PAGE> 2
2
of the Effective Date, after giving effect to this Amendment.
(iii) No Event of Default or event which upon notice or lapse
of time or both would constitute an Event of Default has occurred and
is continuing.
(b) If any representation or warranty made by the Borrower
pursuant to the preceding paragraph (a) shall prove to have been incorrect in
any material respect when made, then an Event of Default shall be deemed to have
occurred under item (a) of Article VII of the Amended Agreement.
SECTION 4. CONDITIONS TO EFFECTIVENESS. This Amendment shall
become effective only upon satisfaction in full, on or prior to June 1, 1998, of
the following conditions precedent (such date, in the event that each of such
conditions has been satisfied, being herein called the "Effective Date"):
(a) The Agent shall have received duly executed counterparts
of this Amendment which, when taken together, bear the authorized
signatures of the Borrower, each of the Banks and the Agent.
(b) The Agent shall have received a certificate dated the
Effective Date and signed by a Responsible Officer, confirming the
representations and warranties set forth in paragraph (a) of Section 2
above.
(c) The Agent shall have received such evidence of the
authority of the Borrower to execute, deliver and perform this
Amendment as the Agent or its counsel shall reasonably have requested.
SECTION 5. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. COUNTERPARTS. This Amendment may be executed in any
number of counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one agreement. Counterparts of
this Amendment may be delivered via telecopy transmission with the same effect
as the delivery of a manually executed counterpart.
SECTION 7. EXPENSES. The Borrower shall pay all reasonable
out-of-pocket expenses incurred by the Agent in connection with the preparation,
execution and delivery of
<PAGE> 3
3
this Amendment, including but not limited to the reasonable fees, charges and
disbursements of Cravath, Swaine & Moore, counsel for the Agent.
SECTION 8. AGREEMENT. Except as specifically amended or
modified hereby, the Agreement shall continue in full force and effect in
accordance with the provisions thereof. As used therein, the terms "Agreement",
"herein", "hereunder", "hereinafter", "hereto", "hereof" and words of similar
import shall, unless the context otherwise requires, refer to the Amended
Agreement. This Amendment shall not be construed to affect interest or fees
accrued prior to the Effective Date, and amendments herein affecting interest
rates and fees shall apply only to interest and fees accruing on and after the
Effective Date.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their duly authorized officers, all as of the
date first above written.
CLEVELAND-CLIFFS INC,
by /s/ C. B. Bezik
----------------------------------
Name: C. B. Bezik
Title: Senior Vice President - Finance
THE CHASE MANHATTAN BANK,
individually and as agent,
by /s/ James H. Ramage
----------------------------------
Name: James H. Ramage
Title: Vice President
HUNTINGTON NATIONAL BANK,
by /s/ Timothy M. Ward
----------------------------------
Name: Timothy M. Ward
Title: AVP
<PAGE> 4
4
NBD BANK,
by /s/ Winifred S. Pinet
----------------------------------
Name: Winifred S. Pinet
Title: First Vice President
NATIONAL CITY BANK,
by /s/ Terri L. Cable
----------------------------------
Name: Terri L. Cable
Title: Sr. Vice President
PNC BANK, N.A.,
by /s/ Mark W. Rutherford
----------------------------------
Name: Mark W. Rutherford
Title: Vice President
KEYBANK NATIONAL ASSOCIATION fka
SOCIETY NATIONAL BANK,
by /s/ Thomas A. Crandell
----------------------------------
Name: Thomas A. Crandell
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS
OF CONSOLIDATED INCOME, CONSOLIDATED FINANCIAL POSITION AND COMPUTATION OF
EARNINGS PER SHARE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000764065
<NAME> CLEVELAND-CLIFFS INC
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 72
<SECURITIES> 0
<RECEIVABLES> 73
<ALLOWANCES> 1
<INVENTORY> 87
<CURRENT-ASSETS> 249
<PP&E> 193
<DEPRECIATION> 58
<TOTAL-ASSETS> 691
<CURRENT-LIABILITIES> 78
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 399
<TOTAL-LIABILITY-AND-EQUITY> 691
<SALES> 170
<TOTAL-REVENUES> 195
<CGS> 157
<TOTAL-COSTS> 167
<OTHER-EXPENSES> 5
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 23
<INCOME-TAX> 6
<INCOME-CONTINUING> 17
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.52
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF CONSOLIDATED INCOME, CONSOLIDATED FINANCIAL POSITION AND
COMPUTATION OF EARNINGS PER SHARE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000764065
<NAME> CLEVELAND-CLIFFS INC
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 62
<SECURITIES> 0
<RECEIVABLES> 62
<ALLOWANCES> 1
<INVENTORY> 107
<CURRENT-ASSETS> 249
<PP&E> 272
<DEPRECIATION> 143
<TOTAL-ASSETS> 655
<CURRENT-LIABILITIES> 81
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 362
<TOTAL-LIABILITY-AND-EQUITY> 655
<SALES> 123
<TOTAL-REVENUES> 153
<CGS> 117
<TOTAL-COSTS> 124
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 24
<INCOME-TAX> 8
<INCOME-CONTINUING> 16
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.39
</TABLE>
<PAGE> 1
NEWS RELEASE Exhibit 99(a)
Cleveland-Cliffs Inc
1100 Superior Avenue
Cleveland, Ohio 44114-2589
- --------------------------------------------------------------------------------
CLEVELAND-CLIFFS REPORTS
------------------------
A 67 PERCENT INCREASE IN
------------------------
SECOND QUARTER EARNINGS
-----------------------
CLEVELAND, OH - July 22, 1998 - Cleveland-Cliffs Inc (NYSE:CLF)
today reported 1998 second quarter earnings of $16.9 million, or $1.48 per
diluted share, and 1998 first-half earnings of $17.4 million, or $1.52 per
diluted share. Comparable earnings, before special items, in 1997 were $10.1
million, or $.88 per diluted share, in the second quarter, and $13.1 million, or
$1.14 per diluted share, in the first-half. Net income for both 1997 periods
included an after-tax credit of $2.8 million resulting from the reversal of an
excess accrual for closedown obligations of the Savage River Mine in Australia
that were recorded prior to 1997.
Following is a summary of results:
<TABLE>
<CAPTION>
(In Millions, Except Per Share)
-------------------------------
Second Quarter First-Half
------------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income Before Special Items:
Amount $16.9 $10.1 $17.4 $13.1
Per Share (Basic) 1.49 .89 1.53 1.15
Per Share (Diluted) 1.48 .88 1.52 1.14
Special Items:
Amount -- 2.8 -- 2.8
Per Share (Basic) -- .25 -- .25
Per Share (Diluted) -- .25 -- .25
Net Income:
Amount 16.9 12.9 17.4 15.9
Per Share (Basic) 1.49 1.14 1.53 1.40
Per Share (Diluted) 1.48 1.13 1.52 1.39
</TABLE>
The $6.8 million, or 67 percent, increase in second quarter earnings
before special items was mainly due to higher North American sales volume and
price realization, lower interest expense, and a lower effective tax rate,
partially offset by higher administrative and reduced iron development expenses
and lower investment income.
The $4.3 million increase in first-half earnings before special items was
principally due to higher North American sales volume and price realization,
lower interest expense, and a lower effective tax rate, partially offset by the
termination of Savage River operations, higher administrative and reduced iron
development expenses and lower investment income. Savage River, which produced
its last iron ore pellets in December, 1996, earned $2.4 million in the first
half of 1997 on sales of its remaining inventory.
- --------------------------------------------------------------------------------
<PAGE> 2
Cliffs' North American iron ore pellet sales in the second quarter of
1998 were a record 3.9 million tons, a 39 percent increase from the 2.8 million
tons sold in the second quarter of 1997. First-half sales of 4.6 million tons
were also a record and 48 percent higher than the 3.1 million tons sold in the
first half of 1997.
John S. Brinzo, Cliffs' president and chief executive officer, said,
"While increasing Asian steel imports and the General Motors strike are
impacting our customers and partners to varying degrees, we expect steel
production in the United States and Canada to remain strong for the remainder of
1998. We expect our iron ore sales volume will approximate 12.5 million tons for
1998, an increase of 500,000 tons from our previous estimate and 1.0 million
tons higher than our projection at the beginning of the year. This would
establish a new record, 20 percent higher than 1997 and 1.5 million tons greater
than the previous record set in 1996. Sales at the 12.5 million ton level are
possible by reducing inventories to a minimum level and by purchasing ore for
resale."
Administrative expenses increased by $1.4 million in the second quarter
of 1998 versus 1997 and $2.4 million in the first-half of 1998 versus 1997
principally due to the cost of Performance Share grants, a key component of
senior management compensation. Lower investment income in the second quarter
and first-half reflects reduced cash balances in 1998, while lower interest
expense in both periods results from increased capitalization of interest on
Cliffs' share of construction costs on the Cliffs and Associates Limited reduced
iron project. Other expenses were up in both periods due to increased costs of
reduced iron and international development activities.
Cliffs-managed mines produced 10.0 million tons in the second quarter of
1998 compared with 9.6 million tons in 1997. First-half production was 19.4
million tons, up from 19.2 million tons in 1997. For the full year 1998, the six
mines are expected to produce a record 40.5 million tons, with Cliffs' share
being a record 11.4 million tons. In 1997, the mines produced 39.6 million tons,
with Cliffs' share being 10.9 million tons. The increases in 1998 are mainly due
to higher scheduled production at the Tilden Mine.
The Empire and Tilden Mines in Michigan have experienced some electric
power interruptions this summer, and there is a risk of further curtailments and
production losses at these mines under interruptible power contracts with
Wisconsin Electric Power Company. We are working closely with Wisconsin Electric
to minimize disruptions. The power situation at the other mines is also being
closely monitored. Cliffs' wholly-owned Northshore Mine and Cliffs-managed LTV
Steel Mining Company operate their own power facilities and sell excess power
capacity.
Ferrous Metallics Activities
* CLIFFS AND ASSOCIATES LIMITED ("CAL") - While good progress is being made
on construction of our hot-briquetted iron venture project in Trinidad
and Tobago with LTV Corporation and Lurgi AG, exceptionally rainy weather
over the last few months and other construction difficulties have caused
delays. We are now projecting that construction of the CAL facilities
will be completed late in 1998, with commissioning and initial production
to follow. Operations planning and employee training activities are well
advanced in preparation for the plant commissioning. CAL will operate on
a planned start-up curve and is expected to achieve its design capacity
rate of 500,000 metric tons per year in mid-1999. Project costs are
tracking the budget, with Cliffs' cumulative investment totaling $67.2
million as of June 30, 1998.
2
<PAGE> 3
CAL is expected to produce a premium quality briquetted product
and have a highly competitive cost position. Market prices for ferrous
metallics products are currently depressed as a result of Asian producers
marketing pig iron into the U.S. at very low prices. While it is
difficult to project how long prices will remain depressed, CAL is
expected to be profitable even at current price levels.
The project, which will be the first to use Lurgi's Circored(R)
technology to produce briquettes containing nearly 95 percent iron, has
significant expansion potential. The first expansion would likely be for
an additional 1.0 million tons, increasing total capacity to 1.5 million
tons, and would be project financed. A decision to expand could be made
by the end of 1999 depending on market factors.
* NORTHSHORE "REDSMELT" PIG IRON PROJECT - We continue to evaluate an
investment in a plant to produce 700,000 metric tons annually of a
premium grade pig iron at Cliffs' wholly-owned Northshore Mine in Silver
Bay, Minnesota. Although we had expected to make a decision on this
project early in the third quarter of 1998, uncertainties concerning
environmental permitting and other matters have delayed the decision. We
expect that we will resolve the remaining issues and make a decision on
whether or not to proceed by the end of 1998.
The plant would employ the "Redsmelt" process developed by
Mannesmann Demag that combines the technologies of a rotary reduction
furnace, using coal as the reductant fuel, and a submerged arc furnace.
The Northshore Mine, which is one of the low cost pellet producers in
North America, has excess concentrate capacity for feed to the pig iron
facility and would enjoy a highly competitive cost position.
Outlook
- -------
Commenting on Cliffs' outlook, Mr. Brinzo said, "We are cautiously
optimistic about the balance of 1998 and 1999 recognizing that increasing steel
imports could adversely impact our steel company partners and customers." Most
steel industry analysts are projecting a continuation of relatively high
operating rates for steel producers in the United States and Canada into 1999
despite increasing concerns about Asian steel imports. Based on the strength of
the steel outlook, Cliffs-managed mines are expected to operate at capacity
levels in 1999, with pellet production nearing 42 million tons. Production at
this level, which includes expansion of Tilden Mine capacity to 7.8 million
tons, would set a new record, surpassing the 40.5 million tons projected for
1998. Cliffs' share of 1999 production at capacity levels would be 11.8 million
tons.
Mr. Brinzo further commented, "Although we have some concerns about the
business outlook, we believe we are well positioned due to the fundamental
strength of our business, our strong financial condition, and the potential for
our ferrous metallics and international growth initiatives."
* * *
Cleveland-Cliffs is the largest supplier of iron ore products to the
North American steel industry and is developing a significant ferrous metallics
business. Subsidiaries of the Company manage six iron ore mines in North America
and hold equity interests in five of the mines. Cliffs has a major iron ore
reserve position in the United States, is a substantial iron ore merchant, and
is constructing a joint venture plant in Trinidad to produce high-quality iron
briquettes.
3
<PAGE> 4
This news release contains forward-looking statements regarding iron ore
production and sales volume which reflect forecasts of activity in the steel and
iron ore industries. Actual production and sales volume could differ
significantly from current expectations due to inherent risks such as lower
steel and iron ore demand, higher steel imports, production losses due to power
curtailments, or other factors. This news release also contains a projection of
the start-up, production rate, and profitability of the Cliffs and Associates
Limited project which could change due to inherent risks such as construction
delays, process difficulties, product pricing, or other factors. Although the
Company believes that the forward-looking statements are based on reasonable
assumptions, such statements are subject to risks and uncertainties which could
cause actual results to differ materially.
Contacts:
- --------
Media: David L. Gardner, (216) 694-5407
Financial Community: Fred B. Rice, (800) 214-0739 or (216) 694-5459
To obtain faxed copies of Cleveland-Cliffs Inc news releases dial
1-800-778-3888. News releases and other information on the Company are available
on the Internet at
http://www.businesswire.com/cnn/clf.htm
- ---------------------------------------
4
<PAGE> 5
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
------------------- -------------------
(In Millions Except Per Share Amounts) 1998 1997 1998 1997
- -------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Product sales and services $ 143.2 $ 102.7 $ 170.4 $ 123.2
Royalties and management fees 12.9 12.4 21.3 20.7
-------- -------- -------- --------
Total Operating Revenues 156.1 115.1 191.7 143.9
Investment income (securities) .8 1.2 2.2 3.4
Recovery of excess closedown provision - 4.3 - 4.3
Other income 1.0 1.5 1.8 1.8
-------- -------- -------- --------
TOTAL REVENUES 157.9 122.1 195.7 153.4
COSTS AND EXPENSES
Cost of goods sold and operating expenses 127.2 96.1 157.3 117.1
Administrative, selling and general expenses 4.9 3.5 9.6 7.2
Interest expense .1 .8 .3 1.7
Other expenses 2.9 2.2 5.0 3.5
-------- -------- -------- --------
TOTAL COSTS AND EXPENSES 135.1 102.6 172.2 129.5
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 22.8 19.5 23.5 23.9
INCOME TAXES
Currently payable 3.4 2.7 3.5 3.3
Deferred 2.5 3.9 2.6 4.7
-------- -------- -------- --------
TOTAL INCOME TAXES 5.9 6.6 6.1 8.0
-------- -------- -------- --------
NET INCOME $ 16.9 $ 12.9 $ 17.4 $ 15.9
======== ======== ======== ========
NET INCOME PER COMMON SHARE
Basic $ 1.49 $ 1.14 $ 1.53 $ 1.40
Diluted $ 1.48 $ 1.13 $ 1.52 $ 1.39
AVERAGE NUMBER OF SHARES
Basic 11.3 11.4 11.3 11.4
Diluted 11.4 11.4 11.4 11.4
</TABLE>
5
<PAGE> 6
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
-------------------- --------------------
(In Millions, Brackets Indicate Decrease in Cash) 1998 1997 1998 1997
----------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 16.9 $ 12.9 $ 17.4 $ 15.9
Depreciation and amortization:
Consolidated 2.2 1.8 4.3 3.5
Share of associated companies 3.2 3.2 6.3 6.0
Decrease in Savage River closedown reserve - (6.8) - (16.1)
Provision for deferred income taxes 2.5 4.0 2.6 4.8
Other 1.3 (1.4) (2.3) .6
-------- -------- -------- --------
Total Before Changes in Operating Assets and
Liabilities 26.1 13.7 28.3 14.7
Changes in operating assets and liabilities 3.7 (36.8) (42.7) (75.3)
-------- -------- -------- --------
NET CASH FROM (USED BY) OPERATING ACTIVITIES 29.8 (23.1) (14.4) (60.6)
INVESTING ACTIVITIES
Purchase of property, plant and equipment:
Consolidated (3.8) (1.9) (6.1) (5.0)
Share of associated companies (6.6) (8.9) (13.8) (19.2)
Purchase of Wabush interest - (15.0) - (15.0)
Other - 2.5 1.3 4.8
-------- -------- -------- --------
NET CASH (USED BY) INVESTING ACTIVITIES (10.4) (23.3) (18.6) (34.4)
FINANCING ACTIVITIES
Dividends (4.3) (3.7) (8.0) (7.4)
Repurchases of Common Shares (2.0) - (3.2) (1.7)
-------- -------- -------- --------
NET CASH (USED BY) FINANCING ACTIVITIES (6.3) (3.7) (11.2) (9.1)
EFFECT OF EXCHANGE RATE CHANGES ON CASH - .2 - .2
-------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
$ 13.1 $ (49.9) $ (44.2) $ (103.9)
======== ======== ======== ========
</TABLE>
6
<PAGE> 7
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
<TABLE>
<CAPTION>
(In Millions)
---------------------------------------------
June 30 Mar. 31 Dec. 31 June 30
ASSETS 1998 1998 1997 1997
----------- --------- --------- --------- ---------
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 71.7 $ 58.6 $ 115.9 $ 61.5
Accounts receivable - net 73.2 45.2 73.4 61.8
Inventories 87.5 118.7 61.4 107.3
Other 16.6 14.4 15.1 18.1
--------- --------- --------- ---------
TOTAL CURRENT ASSETS 249.0 236.9 265.8 248.7
PROPERTIES - NET 134.6 132.6 134.0 129.4
INVESTMENTS IN ASSOCIATED COMPANIES 225.9 222.3 218.3 196.4
OTHER ASSETS 81.1 82.8 76.2 80.2
--------- --------- --------- ---------
TOTAL ASSETS $ 690.6 $ 674.6 $ 694.3 $ 654.7
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES $ 78.0 $ 72.2 $ 91.8 $ 81.2
LONG-TERM OBLIGATIONS 70.0 70.0 70.0 70.0
POSTEMPLOYMENT BENEFIT LIABILITIES 69.8 69.9 70.1 70.5
OTHER LIABILITIES 56.8 56.6 55.0 54.4
SHAREHOLDERS' EQUITY 416.0 405.9 407.4 378.6
--------- --------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 690.6 $ 674.6 $ 694.3 $ 654.7
========= ========= ========= =========
</TABLE>
- --------------------------------------------------------------------------------
Unaudited Financial Statements
In management's opinion, the unaudited financial statements present fairly
the Company's financial position and results. All supplementary information
required by generally accepted accounting principles for complete financial
statements has not been included. For further information, please refer to the
Company's latest Annual Report.
7
