<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, 1999
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 27, 1999, there were 11,217,651 Common Shares (par value $1.00 per
share) outstanding.
================================================================================
<PAGE> 2
PART I - FINANCIAL INFORMATION
CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
---------------------------------------
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
------------------ -------------------
1999 1998 1999 1998
-------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
- --------
PRODUCT SALES AND SERVICES $ 82.9 $ 143.2 $ 96.5 $ 170.4
ROYALTIES AND MANAGEMENT FEES 13.5 12.9 22.7 21.3
-------- -------- -------- -------
TOTAL OPERATING REVENUES 96.4 156.1 119.2 191.7
INTEREST INCOME .5 .8 1.9 2.2
OTHER INCOME 1.0 1.2 1.8 2.2
-------- -------- -------- -------
TOTAL REVENUES 97.9 158.1 122.9 196.1
COSTS AND EXPENSES
- ------------------
COST OF GOODS SOLD AND OPERATING EXPENSES 77.7 127.4 90.7 157.7
ADMINISTRATIVE, SELLING AND GENERAL EXPENSES 4.2 4.9 7.9 9.6
INTEREST EXPENSE 1.2 .1 1.2 .3
OTHER EXPENSES 4.2 2.9 8.8 5.0
-------- -------- -------- -------
TOTAL COSTS AND EXPENSES 87.3 135.3 108.6 172.6
-------- -------- -------- -------
INCOME BEFORE INCOME TAXES 10.6 22.8 14.3 23.5
INCOME TAXES (2.8) (5.9) (3.8) (6.1)
-------- -------- -------- -------
NET INCOME $ 7.8 $ 16.9 $ 10.5 $ 17.4
======== ======== ======== =======
NET INCOME PER COMMON SHARE
- ---------------------------
BASIC $ .70 $ 1.49 $ .94 $ 1.53
DILUTED $ .70 $ 1.48 $ .94 $ 1.52
AVERAGE NUMBER OF SHARES (IN THOUSANDS)
- ---------------------------------------
BASIC 11,202 11,326 11,184 11,325
DILUTED 11,251 11,423 11,233 11,413
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE> 3
CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
<TABLE>
<CAPTION>
(IN MILLIONS)
---------------------
JUNE 30 DECEMBER 31
1999 1998
-------- -----------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 23.7 $ 130.3
ACCOUNTS RECEIVABLE - NET 54.1 58.8
INVENTORIES
IRON ORE 145.1 43.4
SUPPLIES AND OTHER 13.5 16.2
-------- --------
158.6 59.6
DEFERRED INCOME TAXES 5.1 5.1
OTHER 6.5 6.1
-------- --------
TOTAL CURRENT ASSETS 248.0 259.9
PROPERTIES 220.8 210.9
ALLOWANCES FOR DEPRECIATION AND DEPLETION (65.3) (60.9)
-------- --------
TOTAL PROPERTIES 155.5 150.0
INVESTMENTS IN ASSOCIATED COMPANIES 231.3 235.4
OTHER ASSETS
PREPAID PENSIONS 40.3 40.0
MISCELLANEOUS 40.2 38.2
-------- --------
TOTAL OTHER ASSETS 80.5 78.2
-------- --------
TOTAL ASSETS $ 715.3 $ 723.5
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES $ 79.6 $ 89.2
LONG-TERM DEBT 70.0 70.0
POSTEMPLOYMENT BENEFIT LIABILITIES 68.2 70.5
OTHER LIABILITIES 57.8 56.2
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 69.1 70.9
RETAINED INCOME 515.3 513.2
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX (3.9) (4.3)
COST OF 5,616,565 COMMON SHARES IN TREASURY
(1998 - 5,677,287 SHARES) (154.5) (155.9)
UNEARNED COMPENSATION (3.1) (3.1)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 439.7 437.6
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 715.3 $ 723.5
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
(IN MILLIONS,
BRACKETS INDICATE
CASH DECREASE)
SIX MONTHS ENDED
JUNE 30
------------------
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
NET INCOME $ 10.5 $ 17.4
DEPRECIATION AND AMORTIZATION:
CONSOLIDATED 4.4 4.3
SHARE OF ASSOCIATED COMPANIES 6.5 6.3
OTHER 1.8 .3
TOTAL BEFORE CHANGES IN OPERATING ASSETS AND LIABILITIES 23.2 28.3
CHANGES IN OPERATING ASSETS AND LIABILITIES (104.0) (42.7)
-------- --------
NET CASH (USED BY) OPERATING ACTIVITIES (80.8) (14.4)
INVESTING ACTIVITIES
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT:
CONSOLIDATED (10.3) (6.1)
SHARE OF ASSOCIATED COMPANIES (2.0) (3.0)
INVESTMENT IN CLIFFS AND ASSOCIATES LIMITED (3.0) (10.8)
OTHER (2.1) 1.3
-------- --------
NET CASH (USED BY) INVESTING ACTIVITIES (17.4) (18.6)
FINANCING ACTIVITIES
DIVIDENDS (8.4) (8.0)
REPURCHASES OF COMMON SHARES (3.2)
-------- --------
NET CASH (USED BY) FINANCING ACTIVITIES (8.4) (11.2)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (106.6) (44.2)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 130.3 115.9
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23.7 $ 71.7
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated 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 1998 Annual Report on Form 10-K. In management's opinion, the
quarterly unaudited consolidated 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 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." Adoption of the SOP in the first quarter of 1999
did not have a material impact on the Company's consolidated financial
statements.
In April, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-up
Activities," which requires such costs to be expensed as incurred instead of
being capitalized and amortized. Adoption of the SOP in the first quarter of
1999 did not have a material impact on the Company's consolidated financial
statements.
5
<PAGE> 6
NOTE C - ENVIRONMENTAL RESERVES
At June 30, 1999, the Company had an environmental reserve, including
its share of ventures, of $21.2 million, of which $1.9 million was classified as
current. 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. Reserves are based on
Company estimates and 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. Also included in the reserve are wholly-owned active and closed
mining operations, and other sites, including former operations, for which
reserves are based on the Company's estimated cost of investigation and
remediation.
NOTE D - COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(In Millions)
-------------------------------------------------------------
Second Quarter First-Half
----------------------------- -----------------------------
1999 1998 1999 1998
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net Income $7.8 $16.9 $10.5 $17.4
Other Comprehensive Income -
Unrealized Gain (Loss) on Securities .6 (1.9) .4 (.2)
------ ------- -------- --------
Comprehensive Income $8.4 $15.0 $10.9 $17.2
====== ======= ======== ========
</TABLE>
NOTE E - SEGMENT REPORTING
The Company has two reportable segments offering different iron
products and services to the steel industry. Iron Ore is the Company's dominant
segment. The Ferrous Metallics segment is in the development stage, consisting
mainly of the hot briquetted iron venture project in Trinidad and Tobago.
"Other" includes non-reportable segments, and unallocated corporate
administrative and other income and expense.
<TABLE>
<CAPTION>
(In Millions)
----------------------------------------------------------------------------
Iron Ferrous Segments Consolidated
Ore Metallics Total Other Total
------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
SECOND QUARTER 1999
- -------------------
Sales and services to external $ 82.9 $ $ 82.9 $ $ 82.9
customers
Royalties and management fees 13.5 13.5 13.5
-------- -------- -------- --------- --------
Total operating revenues 96.4 96.4 96.4
======== ======== ======== ========= ========
Income (loss) before taxes 17.3 (2.9) 14.4 (3.8) 10.6
Equity (loss)* (2.3) (2.3) (2.3)
Investments in equity method investees 151.0 80.3 231.3 231.3
Other identifiable assets 462.7 3.3 466.0 18.0 484.0
-------- -------- -------- --------- --------
Total assets 613.7 83.6 697.3 18.0 715.3
======== ======== ======== ========= ========
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
(In Millions)
----------------------------------------------------------------------------
Iron Ferrous Segments Consolidated
Ore Metallics Total Other Total
------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
SECOND QUARTER 1998
- -------------------
Sales and services to external $143.2 $ $143.2 $ $143.2
customers
Royalties and management fees 12.9 12.9 12.9
-------- -------- -------- --------- --------
Total operating revenues 156.1 156.1 156.1
======== ======== ======= ========= =======
Income (loss) before taxes 28.4 (1.8) 26.6 (3.8) 22.4
Equity (loss)* (.7) (.7) (.7)
Investments in equity method investees 156.5 69.4 225.9 225.9
Other identifiable assets 446.8 .6 447.4 17.3 464.7
-------- -------- -------- --------- --------
Total assets 603.3 70.0 673.3 17.3 690.6
======== ======== ======= ========= =======
</TABLE>
<TABLE>
<CAPTION>
(In Millions)
----------------------------------------------------------------------------
Iron Ferrous Segments Consolidated
Ore Metallics Total Other Total
------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
FIRST SIX MONTHS 1999
- ---------------------
Sales and services to external $96.5 $ $96.5 $ $96.5
customers
Royalties and management fees 22.7 22.7 22.7
------ -------- ------ --------- ------
Total operating revenues 119.2 119.2 119.2
====== ======== ====== ========= ======
Income (loss) before taxes 26.3 (5.3) 21.0 (6.7) 14.3
Equity (loss)* (3.4) (3.4) (3.4)
</TABLE>
<TABLE>
<CAPTION>
(In Millions)
----------------------------------------------------------------------------
Iron Ferrous Segments Consolidated
Ore Metallics Total Other Total
------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
FIRST SIX MONTHS 1998
- ---------------------
Sales and services to external $170.4 $ $170.4 $ $170.4
customers
Royalties and management fees 21.3 21.3 21.3
-------- -------- -------- --------- --------
Total operating revenues 191.7 191.7 191.7
======== ======== ======== ========= ========
Income (loss) before taxes 32.9 (2.5) 30.4 (6.9) 23.5
Equity (loss)* (1.1) (1.1) (1.1)
</TABLE>
* Included in income (loss) before taxes.
NOTE F - STAFF REDUCTION
The Company, in the first quarter of 1999, completed a work process
review and implemented employee reductions, primarily at its corporate office.
As a result, 10 percent of the corporate office staff positions and certain
other positions in Michigan central services were eliminated, with a $1.1
million ($.8 million after-tax) charge primarily for wage continuation and
benefits recorded in the first quarter of 1999 and reflected in "Other
expenses."
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND
--------------------------
RESULTS OF OPERATIONS
---------------------
COMPARISON OF SECOND QUARTER AND FIRST SIX MONTHS - 1999 AND 1998
- -----------------------------------------------------------------
Earnings for 1999 were $7.8 million, or $.70 per share (all per share
earnings are "diluted earnings per share" unless stated otherwise) in the second
quarter, and $10.5 million, or $.94 per share in the first half. In 1998, second
quarter earnings were $16.9 million, or $1.48 per share, and first half earnings
were $17.4 million, or $1.52 per share.
The $9.1 million decrease in second quarter earnings and $6.9 million
decrease in first-half earnings were mainly due to lower sales volume and price
realization, increased costs of ferrous metallics activities, and higher
interest expense. Partially offsetting were higher royalties and management
fees, lower mine operating costs and lower administrative costs. Pellet sales in
the second quarter of 1999 were 2.4 million tons, compared to the record high
3.9 million tons sold in the second quarter of 1998. Pellet sales were 2.7
million tons in the first half, a 1.9 million ton decrease from 1998 first-half
sales of 4.6 million tons.
The pre-tax costs of ferrous metallics activities, which are included
in other expenses, were $2.9 million in the second quarter and $5.3 million in
the first half. Comparable costs in 1998 were $1.8 million in the second quarter
and $2.5 million in the first half. The 1999 costs include the Company's share
of the start-up expenses of the joint venture plant in Trinidad and Tobago of
$2.3 million in the second quarter and $3.4 million in the first half.
The decrease in mine operating costs during the first six months of the
year included:
- refunds of prior years' state taxes in 1999, primarily the first
quarter;
- the Tilden Mine kiln outage in the first quarter of 1998. First
quarter 1998 costs were adversely affected by the outage, while
1999 first quarter costs include an insurance recovery relating to
the outage;
- lower mine operating costs in the first six months of 1999.
Administrative expenses in both the second quarter and first half of
1999 were lower than 1998 mainly due to lower management incentive compensation
expense as a result of the business outlook and on-going cost reduction
initiatives, including the effect of the staff reductions discussed in Note F.
Interest expense increased in the second quarter and first half of 1999 versus
1998, reflecting the cessation of interest capitalization on April 7, 1999 upon
"mechanical completion" of the Trinidad construction project.
8
<PAGE> 9
CASH FLOW AND LIQUIDITY
- -----------------------
At June 30, 1999, the Company had cash and cash equivalents of $23.7
million compared to a cash balance of $130.3 million at December 31, 1998 and
$71.7 million at the same time last year. In the first six months of 1999, cash
and cash equivalents decreased $106.6 million, primarily due to increased
working capital, $104.0 million, capital and project expenditures, $17.4
million, and dividends, $8.4 million, partially offset by cash flow from
operations, $23.2 million. The $104.0 million increase in working capital was
primarily due to higher pellet inventory, $100.7 million, and lower payables and
accrued expenses, $9.3 million, partially offset by lower receivables, $4.7
million.
Pellet inventory, which was $144.1 million at June 30, 1999, is
expected to be reduced substantially in the balance of the year to a level
comparable to year-end 1998.
NORTH AMERICAN IRON ORE
- -----------------------
Iron ore consumption by United States and Canadian steelmakers
continues to trail the consumption levels posted in 1998 due to the outage of
several blast furnaces and imports of unfairly traded semi-finished steel slabs.
Absent work stoppages related to labor contracts in the iron and steel industry,
second half sales are expected to be about 6.3 million tons, a 1.2 million ton
decrease from the 7.5 million tons sold in the second half of 1998. Full year
1999 sales are expected to be about 9.0 million tons versus record sales of 12.1
million tons in 1998.
Rouge Industries, Inc., a major customer of the Company, incurred an
extended shutdown of its blast furnaces due to an explosion on February 1st at a
power generating facility that supplies Rouge. The Company is pursuing a
business interruption claim under its property insurance program, which would
partially mitigate the earnings impact of lost pellet sales to Rouge.
The Company's managed mines produced 10.5 million tons in the second
quarter of 1999 compared to 10.0 million tons in 1998. First half production was
20.1 million tons, up from 19.4 million tons in 1998. The Company's share of
1999 production was 2.9 million tons in the second quarter and 5.7 million tons
for the first six months, compared to the prior year's 2.7 million tons and 5.4
million tons in the second quarter and first six months, respectively.
Pellet inventory, at June 30, 1999, was 5.1 million tons, a 2.6 million
ton increase from the same period last year. As a result of the high inventory
level and the second half sales forecast, the Company intends to substantially
reduce its share of production in the second half of 1999. Although a final
determination has not been made as to how each of the mines might be affected by
the production curtailment, the Company has announced that Northshore will take
down its smallest pelletizing furnace between July 22 and November 24, and
tentatively plans to shut down the remainder of the operation from October 30
through November 24. Second half results will be adversely affected by the
significant production curtailments due to the relatively high fixed cost in the
iron mining business.
9
<PAGE> 10
Labor contract negotiations, covering the bargaining unit employees
represented by the United Steelworkers of America, are currently in process at
four of the Company-managed mines. Contracts at Empire, Hibbing, LTV Steel
Mining Company and Tilden expire on August 1. A new five-year contract covering
the bargaining unit employees of the Wabush Mine was ratified by the membership
in July, 1999.
Capital additions and replacements at the six Company-managed mines in
North America are expected to total approximately $66 million in 1999, with the
Company's share approximately $26 million. The Company's share of expenditures
in the second half of 1999 is expected to be approximately $14 million, which is
planned to be funded from current operations.
FERROUS METALLICS
- -----------------
Cliffs and Associates Limited continues to encounter delays in starting
up its hot briquetted iron (HBI) plant in Trinidad and Tobago. The delays are
typical for the start-up of a new facility, and have been primarily mechanical
in nature rather than process related. The current plan is to produce as much
tonnage as possible over the remainder of the year, which will likely be limited
to 150,000 - 175,000 metric tons, assuming sustained production beginning in the
third quarter.
The market for ferrous metallics, including CIRCAL(TM) briquettes, has
improved in recent months. Ferrous metallics prices have been rising, but are
still substantially below the level reached before the price collapse that
started in mid-1998. The Company continues to believe the long-term prospects
for ferrous metallics products are strong and is committed to the commercial
success of this project.
Project capital expenditures totaling $153 million (Company share - $71
million) do not include construction claims of approximately $22 million
(Company share - $10.2 million), which are being contested. The Company believes
the claims are largely without merit; any payments on these claims are expected
to be partially offset by recoveries from contractors and suppliers.
STRATEGIC INVESTMENTS
- ---------------------
The Company is seeking additional investment opportunities,
domestically and internationally to broaden its scope as a supplier of iron
units to the steel industry, including investments in iron ore mines or ferrous
metallics facilities. In the normal course of business, the Company examines
opportunities to increase profitability and strengthen its business position by
evaluating various investment opportunities consistent with its business
strategy. In the event of any future acquisitions or joint venture
opportunities, the Company may consider using available liquidity, incurring
additional indebtedness, project financing, or other sources of funding to make
investments.
10
<PAGE> 11
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 on December 15,
2005. In addition to the senior unsecured notes, the Company has a $100 million
revolving credit agreement. No borrowings are outstanding under this agreement,
which expires on May 31, 2003. The Company was in compliance with all financial
covenants and restrictions of the agreements.
The fair value of the Company's long-term debt (which had a carrying
value of $70.0 million) at June 30, 1999, was estimated at $67.5 million based
on a discounted cash flow analysis and estimates of current borrowing rates.
The Company may purchase up to 369,500 remaining shares under its
existing authorization to repurchase 1.5 million of its Common Shares in open
market or negotiated transactions.
Following is a summary of common shares outstanding:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
March 31 11,209,734 11,344,605 11,377,322
June 30 11,211,376 11,322,047 11,374,448
September 30 11,148,453 11,379,357
December 31 11,150,654 11,308,914
</TABLE>
YEAR 2000 TECHNOLOGY
- --------------------
Year 2000 compliance is a major business priority of the Company and is
being addressed at all operations. A Company-wide Year 2000 Compliance Program
("Compliance Program") is near completion by a dedicated team headed by a
Project Executive, with representation from Internal Control, Information
Technology, and Process Control, including functional project leaders from the
Company's ventures. Additionally, two outside engineering firms and one
information technology service firm have been engaged to support and assist in
process control compliance activities. The status of the Compliance Program
continues to be reported regularly to the Year 2000 Compliance Steering
Committee, consisting of the Chief Executive Officer and other Officers of the
Company, and to the Company's Board of Directors.
The Compliance Program has been divided into five phases: 1)
inventory, 2) assessment, 3) renovation, 4) unit testing, and 5) system
integration testing. The inventory, assessment, renovation and unit testing
phases were substantially completed in 1998. Renovation and unit testing on a
limited number of items are expected to be completed in the third quarter as
vendor technical resources, replacement equipment and software become available.
System integration testing is on target to be completed during the third
quarter.
11
<PAGE> 12
A substantial portion of Year 2000 information technology compliance
will be achieved as a result of the Company's Information Technology Plan ("IT
Plan"). The IT Plan, initiated in 1996, involves the implementation of a
purchased, mining-based, Year 2000 compliant, software suite to replace legacy
programs for operations and administrative mainframe systems servicing most
domestic locations. In addition to avoiding any potential Year 2000 problems,
the IT Plan is expected to result in improved system and operating
effectiveness. Implementation was achieved at the Michigan mines in the first
quarter of 1999, and at the Minnesota mines in the second quarter of 1999. The
corporate office and central service locations are being implemented 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. For legacy
programs and locations not included in the IT Plan, modifications and/or
replacement of existing programs are underway for achieving Year 2000 compliance
with an expected cost of $1.1 million.
In addition to addressing software legacy program issues, the Year 2000
Compliance Program is addressing the impact of the date change with respect to
the Company's mainframe computer system, technical infrastructure, end
user-computing, process control systems, environmental and safety monitoring,
and security and access systems. Emphasis has been placed on those systems which
affect production, quality or safety. Completion of this program is targeted for
the third quarter of 1999. The Company has completed internal audits at various
operations to verify that progress is on schedule toward timely completion of
the Compliance Program. The incremental expense of achieving Year 2000
compliance on systems not covered by the IT Plan and other software legacy
programs is estimated to be $4.2 million for the Company and its ventures.
Following is a summary of the Year 2000 total project compliance cost
and project cost incurred to date:
<TABLE>
<CAPTION>
(In Millions)
---------------------------------------------------------------------------------
Project to Date Total Project
--------------------------------------- ---------------------------------------
Company's Company's
Share Total Share Total
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
IT PLAN:
Capital $13.9 $ 14.9 $ 16.9* $ 18.0
Operating 1.6 5.7 2.0 7.0
----- ------ ------ ------
Total IT Plan 15.5 20.6 18.9 25.0
Other** 1.5 3.4 2.3 5.3
----- ------ ------ ------
Total $ 17.0 $ 24.0 $ 21.2 $ 30.3
====== ====== ====== ======
</TABLE>
* Includes amounts reimbursable by mining ventures of $14.3 million.
** Includes charges for legacy software not covered by the IT Plan,
hardware, process control systems, environmental and safety
monitoring, etc.
12
<PAGE> 13
The Company has sent 305 Year 2000 compliance questionnaires to its
major suppliers and customers as part of the Year 2000 readiness program. Of
these, 37 vendors have been identified as critical and targeted for on site
verification, 32 on site assessments have been performed with the remainder to
be done by the end of the third quarter, 1999. Of the 32 vendor assessments
completed, 22 have been classified as "low risk" and the remaining 10 vendors
were classified as "medium risk". Medium risk vendors are scheduled for
follow-up assessments in the third quarter.
Interruption of electrical power supplied to the Company's ventures has
been identified as having the greatest potential adverse impact. Failure of
electric power suppliers of the Company's mining ventures to become Year 2000
compliant could cause power interruptions resulting in significant production
losses and potential equipment damage. The Company's wholly-owned Northshore and
managed LTV Steel Mining Company mines are equipped with electric power
generation facilities capable of providing nearly all of their power
requirements.
The Company has developed specific contingency plans at each location
to mitigate Year 2000 compliance failures of the Company or any of its key
suppliers or customers. The contingency plans involve specific actions designed
to maintain employee safety, production and quality. The contingency plans
include a range of actions, including low technology or manual alternatives to
current automated processes. Alternatives for key suppliers have been
identified, and, where alternative suppliers do not exist, other actions (e.g.,
increased inventory) are being considered. While focused on continuing
production, by necessity the plans include procedures for reducing production or
orderly temporary suspension of operations, if required to protect employees,
property and the environment. Contingency plans will continue to be refined
throughout 1999, incorporating assessments of areas where risk is greatest.
The Company expects to be Year 2000 compliant; however, statements with
regard to such expectations are subject to various risk factors which may
materially affect the Company's Year 2000 compliance efforts. These risk factors
include the availability of trained personnel, the ability to detect, locate and
correct system codes, the evaluation of the wide variety of IT software and
hardware, failure of software vendors to deliver upgrades or make repairs as
promised, and failure of key vendors to become compliant. Although the Company
has taken actions that it believes are appropriate and reasonable to determine
the readiness of third parties, it must in part rely on third party
representations. The Company is attempting to reduce these risks and others by
utilizing an organized approach, conducting audits and extensive testing,
identifying alternative sources of supply, and other contingency plans.
FORWARD-LOOKING STATEMENTS
- --------------------------
The preceding discussion and analysis of the Company's operations,
financial performance and results, as well as material included elsewhere in
this report, includes statements not limited to historical facts. Such
statements are "forward-looking statements" (as defined in the Private
Securities Litigation Reform Act of 1995) 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. Factors that could cause the
13
<PAGE> 14
Company's actual results to be materially different from the Company's
expectations include the following:
- Changes in the financial condition of the Company's partners
and/or customers. The potential financial failure of one or more
significant customers or partners without mitigation could
represent a significant adverse development;
- Unanticipated changes in the market value of steel, iron ore or
ferrous metallics;
- Substantial changes in imports of steel, iron ore, or ferrous
metallic products;
- Development of alternative steel-making technologies;
- Displacement of steel by competing materials;
- Displacement of North American integrated steel production and/or
electric furnace production by imported semi-finished steel or pig
iron;
- Domestic or international economic and political conditions;
- Major equipment failure, availability, and magnitude and duration
of repairs;
- Unanticipated geological conditions or ore processing changes;
- Process difficulties, including the failure of new technology to
perform as anticipated;
- Availability and cost of the key components of production (e.g.,
labor, electric power, fuel, water);
- Labor contract negotiations;
- Weather conditions (e.g., extreme winter weather, availability of
process water due to drought);
- Timing and successful completion of construction projects;
- Failure or delay in achieving Year 2000 compliance by the Company
or any of its key suppliers or customers;
- Changes in tax laws (e.g., percentage depletion allowance);
- 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
14
<PAGE> 15
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.
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.
15
<PAGE> 16
22
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 11, 1999.
At the meeting the Company's shareholders acted upon the election of Directors,
a proposal to approve an Amendment to the Cleveland-Cliffs Inc 1992 Incentive
Equity Plan (As Amended and Restated as of May 13, 1997), and a proposal to
ratify the appointment of the Company's independent public accountants. In the
election of Directors, all 10 nominees named in the Company's Proxy Statement,
dated March 22, 1999, 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 10,035,315 17,028
Ronald C. Cambre 10,034,043 18,300
Robert S. Colman 10,034,695 17,648
James D. Ireland III 10,032,528 19,815
G. Frank Joklik 10,028,973 23,370
Leslie L. Kanuk 10,033,467 18,876
Francis R. McAllister 10,034,959 17,384
John C. Morley 10,033,314 19,029
Stephen B. Oresman 10,031,761 20,582
Alan Schwartz 10,033,904 18,439
</TABLE>
Votes cast in person and by proxy at such meeting for and against the
adoption of the proposal to approve an Amendment to the Cleveland-Cliffs Inc
1992 Incentive Equity Plan (As Amended and Restated as of May 13, 1997) were as
follows: 8,984,325 Common Shares were cast for the adoption of the proposal;
1,020,724 Common Shares were cast against the adoption of the proposal; and
47,294 Common Shares abstained from voting on the adoption of the proposal.
Votes cast in person and by proxy at such meeting for and against the
adoption of the proposal ratifying 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 1999 were
as follows: 10,037,408 Common Shares were cast for the adoption of the proposal;
5,794 Common Shares were cast against the adoption of the proposal; and 9,141
Common Shares abstained from voting on the adoption of the proposal.
There were no broker non-votes with respect to the election of
directors, the approval of the Amendment to the 1992 Incentive Equity Plan (As
Amended and Restated as of May 13, 1997), or the ratification of the independent
public accountants.
16
<PAGE> 17
ITEM 5. OTHER INFORMATION
On July 12, 1999, Mr. Ranko Cucuz, Chairman, President and Chief
Executive Officer of Hayes Lemmerz International Inc., and Mr. Anthony A.
Massaro, Chairman, President and Chief Executive Officer of Lincoln Electric
Holdings, Inc., were elected to the Board of Directors of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits - Refer to Exhibit Index on page 18.
(b) During the quarter for which this 10-Q Report is filed, the
Company filed a Current Report on Form 8-K, dated June 10, 1999,
covering information reported under ITEM 5. OTHER EVENTS. There
were no financial statements filed as part of the Current Report
on Form 8-K.
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 JULY 30, 1999 BY /s/ C. B. Bezik
--------------------------- -----------------------------------
C. B. Bezik
Senior Vice President-Finance and
Principal Financial Officer
17
<PAGE> 18
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ ------------------------------------------------------- ----------
<S> <C> <C>
27 Consolidated Financial Data Schedule submitted for -
Securities and Exchange Commission information
only
99(a) Cleveland-Cliffs Inc News Release published on Filed
July 13, 1999, with respect to the election of two Herewith
new Board members, Mr. Ranko Cucuz and
Mr. Anthony A. Massaro
99(b) Cleveland-Cliffs Inc News Release published on Filed
July 21, 1999, with respect to 1999 second quarter Herewith
earnings
</TABLE>
18
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 24
<SECURITIES> 0
<RECEIVABLES> 54
<ALLOWANCES> 2
<INVENTORY> 159
<CURRENT-ASSETS> 248
<PP&E> 221
<DEPRECIATION> 65
<TOTAL-ASSETS> 715
<CURRENT-LIABILITIES> 80
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 423
<TOTAL-LIABILITY-AND-EQUITY> 715
<SALES> 97
<TOTAL-REVENUES> 123
<CGS> 91
<TOTAL-COSTS> 100
<OTHER-EXPENSES> 9
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14
<INCOME-TAX> 4
<INCOME-CONTINUING> 10
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10
<EPS-BASIC> .94
<EPS-DILUTED> .94
</TABLE>
<PAGE> 1
Exhibit 99 (a)
NEWS RELEASE Cleveland-Cliffs Inc
1100 Superior Avenue
Cleveland, Ohio 44114-2589
CLEVELAND-CLIFFS ANNOUNCES
ELECTION OF TWO NEW DIRECTORS
CLEVELAND, OH --- July 13, 1999 --- Cleveland-Cliffs Inc announced today the
election of two new Board members, Ranko "Ron" Cucuz and Anthony A. Massaro.
The elections of Mr. Cucuz and Mr. Massaro increase Cliffs' Board membership to
12 persons. Mr. Cucuz is chairman, president and chief executive officer of
Hayes Lemmerz International, Inc., Northville, Michigan. Mr. Massaro is chairman
and chief executive officer of The Lincoln Electric Company, Cleveland, Ohio.
John S. Brinzo, Cliffs' president and chief executive officer, said, "We are
delighted with the additions of Ron Cucuz and Anthony Massaro to our Board.
Their broad international manufacturing experience, coupled with being consumers
of steel products, will be a strong asset for Cleveland-Cliffs as we confront
issues of global competition and focus on Company growth."
RANKO "RON" CUCUZ
In 1992, Mr. Cucuz was elected president and chief executive officer of Hayes
Wheels International, Inc. In 1997, under his leadership, Hayes Wheels acquired
Lemmerz Holding to create Hayes Lemmerz International, Inc., the world's number
one supplier of wheels to the auto industry, with Mr. Cucuz becoming chairman,
president and chief executive officer.
Before his position with Hayes Wheels, Mr. Cucuz spent one year as president of
the steel wheel business unit of Kelsey-Hayes Company following fifteen years in
various management positions at Acco Babcock Industries, including four years as
president and chief executive officer - automotive mechanical controls group. He
has also worked in research and development and manufacturing management in the
steel industry, with such companies as LaSalle Steel Company and U.S. Steel
Corp.
Mr. Cucuz also serves on the Board of National-Standard Company.
Mr. Cucuz earned a bachelor of science degree in mechanical engineering at
Purdue University in 1966 and received his master's degree in business
administration from Purdue in 1972.
ANTHONY A. MASSARO
Mr. Massaro became chief executive officer in 1996 and chairman in 1997 of The
Lincoln Electric Company, a world leader in the design and manufacture of arc
welding products. Prior to that he held positions of president and chief
operating officer, and executive vice president-international operations.
Massaros joined Lincoln Electric in 1993 as president and chief executive
officer - Lincoln Electric Europe, based in London, U.K.
Mr. Massaro began his career as an engineer with Westinghouse Electric
Corporation in 1967 and continued with Westinghouse for 26 years holding various
management positions, including that of president, environmental systems group.
<PAGE> 2
Mr. Massaro earned a bachelor of science degree in chemical engineering from the
University of Pittsburgh in 1967 and did post-graduate studies in nuclear
engineering. He also attended the Harvard Business School's Advanced Management
Program.
Cleveland-Cliffs Inc 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 beginning production of hot briquetted iron at a joint venture plant in
Trinidad and Tobago.
2
<PAGE> 1
Exhibit 99 (b)
NEWS RELEASE Cleveland-Cliffs Inc
1100 Superior Avenue
Cleveland, Ohio 44114-2589
CLEVELAND-CLIFFS REPORTS
SECOND QUARTER 1999 EARNINGS
Cleveland, OH, July 21, 1999 - Cleveland-Cliffs Inc (NYSE-CLF) today
reported 1999 second quarter earnings of $7.8 million, or $.70 per diluted
share, and 1999 first-half earnings of $10.5 million, or $.94 per diluted share.
Comparable earnings in 1998 were $16.9 million, or $1.48 per diluted share in
the second quarter, and $17.4 million, or $1.52 per diluted share in the first
half.
The $9.1 million decrease in second quarter earnings and $6.9 million
decrease in first-half earnings were mainly due to lower sales volume and price
realization, increased costs of ferrous metallics activities, and higher
interest expense. Partly offsetting were higher royalties and management fees,
lower mine operating costs and lower administrative costs. Cliffs' iron ore
pellet sales in the second quarter of 1999 were 2.4 million tons, compared to
the record high 3.9 million tons sold in the second quarter of 1998. Pellet
sales were 2.7 million tons in the first half, a 1.9 million ton decrease from
1998 first-half sales of 4.6 million tons.
John S. Brinzo, Cliffs' president and chief executive officer said, "We
currently expect pellet sales in the second half of 1999 to be about 6.3 million
tons, a 1.2 million ton decrease from the 7.5 million tons sold in the
second-half of 1998. This is lower than our previous forecast and will reduce
full year 1999 sales to about 9.0 million tons versus record sales of 12.1
million tons in 1998. Second-half results will be adversely affected by
significant production curtailments that are expected to take place over the
last five months of 1999. Although we are working aggressively to increase
volume and reduce costs in order to mitigate the effects of the shutdowns, we
anticipate second-half earnings to be below expectations."
With the high levels of steel pouring in from offshore, North American
steelmakers operated at a sluggish 80 percent of capacity in the first half of
1999. Iron ore consumption by integrated steel producers was significantly below
the first half of 1998 due to the outage of several blast furnaces. Rouge
Industries, a major customer of Cliffs, incurred an extended shutdown of its
blast furnaces due to an explosion on February 1st at the power generating
facility that supplies Rouge. Cliffs is pursuing a business interruption claim
under its property insurance program, which would partially mitigate the
earnings impact of losing pellet sales to Rouge. Cliffs' reduced sales
expectations in the second half of 1999 reflect the continuation of lower hot
metal production at the steel plants of certain customers primarily due to
unfairly traded semi-finished steel slab imports. Steelmakers using slabs in
their finishing operations are displacing raw steel production from blast
furnaces that consume iron ore pellets.
The pre-tax costs of ferrous metallics activities, which are included
in other expenses, were $2.9 million in the second quarter and $5.3 million in
the first half. Comparable costs in 1998 were $1.8 million in the second quarter
and $2.5 million in the first half. The 1999 costs include Cliffs' share of the
start-up expenses of the joint
<PAGE> 2
venture plant in Trinidad and Tobago of $2.3 million in the second quarter and
$3.4 million in the first half.
Administrative expenses were lower in both reporting periods mainly due
to lower management incentive compensation expense as a result of the business
outlook and on-going cost reduction initiatives. Interest expense increased in
the quarter and year-to-date because interest was being capitalized during
construction of the Trinidad project.
IRON ORE
Iron ore pellet production at Cliffs-managed mines increased to 10.5
million tons in the second quarter of 1999 from 10.0 million tons in the second
quarter of 1998. First-half production was 20.1 million tons, up from 19.4
million tons in 1998. The increases in 1999 are mainly due to higher production
at the Tilden Mine, which experienced an equipment outage in 1998. Following is
a summary of production tonnages for the first half of 1999 and 1998:
<TABLE>
<CAPTION>
(Tons in Millions)
------------------------------------------------------------------------
First Half First Half
1999 1998
---------------------------------- ---------------------------------
Total Cliffs' Share Total Cliffs' Share
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Empire 4.0 .9 4.0 .9
Hibbing 3.8 .6 3.8 .6
LTV Steel Mining 3.5 - 3.6 -
Northshore 2.2 2.2 2.2 2.2
Tilden 3.8 1.5 2.9 1.1
Wabush 2.8 .6 2.9 .6
--------------- --------------- --------------- --------------
Total 20.1 5.8 19.4 5.4
=============== =============== =============== ==============
</TABLE>
The increase in Cliffs' share of production, along with the 1.9 million
ton decrease in first-half sales, combined to push Cliffs' June 30, 1999 pellet
inventory to 5.1 million tons, a 2.6 million ton increase from the middle of
1998. Given the high inventory level and the sales forecast for the second half
of 1999, Cliffs intends to substantially reduce its share of production in the
second half of 1999. The exact schedule of production curtailments is dependent
on the outcome of labor contract negotiations underway at the United
Steelworkers Union represented mines. Cliffs' wholly-owned Northshore Mine will
take down its smallest pelletizing furnace between July 22 and November 24, and
tentatively plans to shut down the remainder of the operation from October 30
through November 24.
Labor contract negotiations are currently in progress at several steel
company partners and customers and at four of the mines managed by Cliffs. The
steel company contracts, and contracts at the Empire, Hibbing, LTV Steel
Company, and Tilden Mines, expire on August 1. Talks to date have been
constructive, and the Company is hopeful of a settlement prior to the contract
deadline. A new five-year
2
<PAGE> 3
contract covering the bargaining unit employees of the Wabush Mine was ratified
by the membership earlier this month.
FERROUS METALLICS
Cliffs and Associates Limited (CAL) continues to encounter delays in
starting up its hot briquetted iron plant in Trinidad and Tobago. The delays are
typical for the start-up of a new facility, and have been primarily mechanical
in nature rather than process related. The current plan is to produce as much
tonnage as possible over the remainder of the year, which will likely be limited
to 150,000-175,000 metric tons, assuming sustained production beginning in the
third quarter.
The market for ferrous metallics products, including CIRCALTM
briquettes, has improved in recent months. Ferrous metallics prices have been
rising, but are still substantially below the level reached before the price
collapse that started in mid-1998.
Cliffs continues to believe the long-term prospects for ferrous
metallics products are strong and is committed to the commercial success of this
joint venture with LTV Corporation and Lurgi AG. Expansion of the CAL operation
will be considered when market conditions permit. The Trinidad site can
accommodate an expansion to as much as 2.5 million tons.
OUTLOOK
John S. Brinzo said, "We expected 1999 to be a difficult year, but it
has proven to be even more challenging than originally thought. We are
encouraged by the improving steel fundamentals in North America and the
continuation of strong steel demand; however, the high import numbers in May
demonstrate that the steel crisis is far from over. While 1999's results will be
disappointing, we are working hard to minimize the adverse impact of reduced
sales and production volumes by ensuring that our managed mines are producing
the highest quality product at the lowest possible cost. We are taking
aggressive actions to reduce our mine and administrative costs, and our pellet
inventory in 1999 to ensure that we are well positioned for 2000. We also expect
a positive contribution from our joint venture in Trinidad and Tobago in 2000.
The difficult market conditions for iron ore pellets and other ferrous
metallics products in 1999 have not caused us to alter our business strategy. We
remain fully committed to the development of a significant ferrous metallics
business while we enhance our position as the largest supplier of iron ore
products to the North American steel industry and the world's largest producer
of iron ore pellets."
* * * *
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
3
<PAGE> 4
substantial iron ore merchant, and is beginning production of hot briquetted
iron at a joint venture plant in Trinidad and Tobago.
This news release contains forward-looking statements regarding iron
ore pellet sales and production volume, and ferrous metallics operations, which
could differ significantly from current expectations due to inherent risks such
as lower demand for steel, iron ore, and ferrous metallics products, higher
steel imports, labor contract negotiations, processing difficulties, or other
factors. Although the Company believes that its 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 (800)
778-3888. New releases and other information on the Company are available on the
Internet at http://www.cleveland-cliffs.com
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) 1999 1998 1999 1998
- -------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Product sales and services $ 82.9 $ 143.2 $ 96.5 $ 170.4
Royalties and management fees 13.5 12.9 22.7 21.3
---------- ---------- ---------- ----------
Total Operating Revenues 96.4 156.1 119.2 191.7
Interest income .5 .8 1.9 2.2
Other income 1.0 1.2 1.8 2.2
---------- ---------- ---------- ----------
TOTAL REVENUES 97.9 158.1 122.9 196.1
COSTS AND EXPENSES
Cost of goods sold and operating expenses 77.7 127.4 90.7 157.7
Administrative, selling and general expenses 4.2 4.9 7.9 9.6
Interest expense 1.2 .1 1.2 .3
Other expenses 4.2 2.9 8.8 5.0
---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES 87.3 135.3 108.6 172.6
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 10.6 22.8 14.3 23.5
INCOME TAXES (2.8) (5.9) (3.8) (6.1)
---------- ---------- ---------- ----------
NET INCOME $ 7.8 $ 16.9 $ 10.5 $ 17.4
========== ========== ========== ==========
NET INCOME PER COMMON SHARE
Basic $ .70 $ 1.49 $ .94 $ 1.53
Diluted $ .70 $ 1.48 $ .94 $ 1.52
AVERAGE NUMBER OF SHARES
Basic 11.2 11.3 11.2 11.3
Diluted 11.2 11.4 11.2 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) 1999 1998 1999 1998
- ------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 7.8 $ 16.9 $ 10.5 $ 17.4
Depreciation and amortization:
Consolidated 2.3 2.2 4.4 4.3
Share of associated companies 3.2 3.2 6.5 6.3
Other 4.2 3.8 1.8 .3
------- ------- ------- -------
Total before changes in operating assets and liabilities 17.5 26.1 23.2 28.3
Changes in operating assets and liabilities (47.9) 3.7 (104.0) (42.7)
------- ------- ------- -------
Net cash from (used by) operating activities (30.4) 29.8 (80.8) (14.4)
INVESTING ACTIVITIES
Purchase of property, plant and equipment:
Consolidated (4.8) (3.8) (10.3) (6.1)
Share of associated companies (1.7) (1.7) (2.0) (3.0)
Investment in Cliffs and Associates Limited (4.9) (3.0) (10.8)
Other (2.1) (2.1) 1.3
------- ------- ------- -------
Net cash (used by) investing activities (8.6) (10.4) (17.4) (18.6)
FINANCING ACTIVITIES
Dividends (4.2) (4.3) (8.4) (8.0)
Repurchases of Common Shares (2.0) (3.2)
------- ------- ------- -------
Net cash (used by) financing activities (4.2) (6.3) (8.4) (11.2)
------- ------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (43.2) $ 13.1 $(106.6) $ (44.2)
======= ======= ======= =======
</TABLE>
6
<PAGE> 7
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
<TABLE>
<CAPTION>
(In Millions)
------------------------------
June 30, Dec. 31, June 30,
1999 1998 1998
-------- -------- --------
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 23.7 $ 130.3 $ 71.7
Accounts receivable - net 54.1 58.8 73.2
Inventories 158.6 59.6 87.5
Other 11.6 11.2 16.6
-------- -------- --------
TOTAL CURRENT ASSETS 248.0 259.9 249.0
PROPERTIES - NET 155.5 150.0 134.6
INVESTMENTS IN ASSOCIATED COMPANIES 231.3 235.4 225.9
OTHER ASSETS 80.5 78.2 81.1
-------- -------- --------
TOTAL ASSETS $ 715.3 $ 723.5 $ 690.6
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES $ 79.6 $ 89.2 $ 78.0
LONG-TERM DEBT 70.0 70.0 70.0
POSTEMPLOYMENT BENEFIT LIABILITIES 68.2 70.5 69.8
OTHER LIABILITIES 57.8 56.2 56.8
SHAREHOLDERS' EQUITY 439.7 437.6 416.0
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 715.3 $ 723.5 $ 690.6
======== ======== ========
</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
