<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 March 31, 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 April 30, 1999, there were 11,209,734 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
Ended March 31
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
REVENUES
- --------
Product sales and services $ 13.6 $ 27.2
Royalties and management fees 9.2 8.4
---------- ----------
Total Operating Revenues 22.8 35.6
Interest income 1.4 1.4
Other income .8 1.0
---------- ----------
Total Revenues 25.0 38.0
COSTS AND EXPENSES
- ------------------
Cost of goods sold and operating expenses 13.0 30.3
Administrative, selling and general expenses 3.7 4.7
Interest expense .2
Other expenses 4.6 2.1
---------- ----------
Total Costs and Expenses 21.3 37.3
---------- ----------
INCOME BEFORE INCOME TAXES 3.7 .7
INCOME TAXES
Current 1.0 .1
Deferred .1
---------- ----------
Total Income Taxes 1.0 .2
---------- ----------
NET INCOME $ 2.7 $ .5
========== ==========
NET INCOME PER COMMON SHARE
- ---------------------------
Basic $ .24 $ .04
Diluted $ .24 $ .04
AVERAGE NUMBER OF SHARES (IN THOUSANDS)
- ---------------------------------------
Basic 11,166 11,323
Diluted 11,216 11,403
</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)
------------------------
March 31 December 31
1999 1998
---------- ----------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 66.9 $ 130.3
Accounts receivable - net 21.0 58.8
Inventories
Iron ore 126.9 43.4
Supplies and other 14.7 16.2
---------- ----------
141.6 59.6
Deferred income taxes 5.1 5.1
Other 7.4 6.1
---------- ----------
TOTAL CURRENT ASSETS 242.0 259.9
PROPERTIES 216.4 210.9
Allowances for depreciation and depletion (63.0) (60.9)
---------- ----------
TOTAL PROPERTIES 153.4 150.0
INVESTMENTS IN ASSOCIATED COMPANIES 235.3 235.4
OTHER ASSETS
Prepaid pensions 39.5 40.0
Miscellaneous 37.0 38.2
---------- ----------
TOTAL OTHER ASSETS 76.5 78.2
---------- ----------
TOTAL ASSETS $ 707.2 $ 723.5
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES $ 76.6 $ 89.2
LONG-TERM DEBT 70.0 70.0
POSTEMPLOYMENT BENEFIT LIABILITIES 68.2 70.5
OTHER LIABILITIES 57.2 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 69.5 70.9
Retained income 511.7 513.2
Accumulated other comprehensive loss, net of tax (4.5) (4.3)
Cost of 5,618,207 Common Shares in treasury
(1998 - 5,677,287 shares) (154.6) (155.9)
Unearned compensation (3.7) (3.1)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 435.2 437.6
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 707.2 $ 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)
Three Months Ended
March 31
------------------------
1999 1998
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2.7 $ .5
Depreciation and amortization:
Consolidated 2.1 2.1
Share of associated companies 3.3 3.1
Other (2.4) (3.5)
---------- ----------
Total before changes in operating assets and liabilities 5.7 2.2
Changes in operating assets and liabilities (56.1) (46.4)
---------- ----------
Net cash (used by) operating activities (50.4) (44.2)
INVESTING ACTIVITIES
Purchase of property, plant and equipment:
Consolidated (5.5) (2.3)
Share of associated companies (.3) (1.3)
Investment in Cliffs and Associates Limited (3.0) (5.9)
Other 1.3
---------- ----------
Net cash (used by) investing activities (8.8) (8.2)
FINANCING ACTIVITIES
Dividends (4.2) (3.7)
Repurchases of Common Shares (1.2)
---------- ----------
Net cash (used by) financing activities (4.2) (4.9)
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (63.4) (57.3)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 130.3 115.9
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 66.9 $ 58.6
========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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, 1998, 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 March 31, 1999, the Company had an environmental reserve,
including its share of ventures, of $21.4 million, of which $2.0 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. 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. 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)
March 31
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net Income $ 2.7 $ .5
Other Comprehensive Income -
Unrealized Gain (Loss) on Securities (.2) 1.7
---------- ----------
Comprehensive Income $ 2.5 $ 2.2
========== ==========
</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
HBI 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>
March 31, 1999
- --------------
Sales and services to external customers $ 13.6 $ $ 13.6 $ $ 13.6
Royalties and management fees 9.2 9.2 9.2
---------- ---------- ---------- ---------- ----------
Total operating revenues 22.8 22.8 22.8
========== ========== ========== ========== ==========
Income (loss) before taxes 9.0 (2.4) 6.6 (2.9) 3.7
Equity (loss) (1.1) (1.1) (1.1)
Investments in equity method investees 152.8 82.5 235.3 235.3
Other identifiable assets 452.6 .9 453.5 18.4 471.9
---------- ---------- ---------- ---------- ----------
Total assets 605.4 83.4 688.8 18.4 707.2
========== ========== ========== ========== ==========
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
(In Millions)
------------------------------------------------------------------
Iron Ferrous Segments Consolidated
Ore Metallics Total Other Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
March 31, 1998
- --------------
Sales and services to external customers $ 27.2 $ $ 27.2 $ $ 27.2
Royalties and management fees 8.4 8.4 8.4
---------- ---------- ---------- ---------- ----------
Total operating revenues 35.6 35.6 35.6
========== ========== ========== ========== ==========
Income (loss) before taxes 4.5 (.7) 3.8 (3.1) .7
Equity (loss) (.4) (.4) (.4)
Investments in equity method investees 158.3 64.0 222.3 222.3
Other identifiable assets 435.7 .6 436.3 16.0 452.3
---------- ---------- ---------- ---------- ----------
Total assets 594.0 64.6 658.6 16.0 674.6
========== ========== ========== ========== ==========
</TABLE>
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 FIRST QUARTER - 1999 AND 1998
- -------------------------------------------
Earnings for the first quarter of 1999 were $2.7 million, or $.24 per
share (all per share earnings are "diluted earnings per share" unless stated
otherwise). In the first quarter of 1998, earnings were $.5 million, or $.04 per
share. First quarter results are not representative of annual results due to
seasonally low shipments of iron ore pellets on the Great Lakes.
Pellet sales in the first quarter were .3 million tons, roughly half of
1998 first quarter sales. The higher volume in 1998 was largely attributable to
non-recurring rail shipments. First quarter 1999 revenues from product sales and
services declined proportionately with the lower sales volume; however, the
decrease in cost of goods sold and operating expenses was larger due to:
- refunds of prior years' state taxes in 1999.
- 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 1999.
Administrative expenses in 1999 were $1.0 million below 1998 mainly due
to a decrease in the cost of the Performance Share Program, a key component of
senior management compensation, and cost reduction initiatives.
Other expenses in 1999 were $2.5 million higher than 1998 principally
due to increased costs of ferrous metallics activities and a $1.1 million
pre-tax charge attributable to a reduction of administrative staff. Pre-tax
costs of ferrous metallics activities were $2.4 million in 1999 versus $.7
million in 1998. The 1999 costs include $1.1 million of start-up costs from the
Company's joint venture in Trinidad and Tobago.
CASH FLOW AND LIQUIDITY
- -----------------------
At March 31, 1999, the Company had cash and cash equivalents of
$66.9 million compared to a cash balance of $58.6 million at the same time last
year. Since December 31, 1998, cash and cash equivalents decreased $63.4
million, primarily due to increased working capital, $56.1 million, capital and
project expenditures, $8.8 million, and dividends, $4.2 million. The $56.1
million increase in working capital reflected normal seasonal patterns including
higher pellet inventory, $83.5 million, and lower payables and accrued expenses,
$10.6 million, partially offset by lower receivables, $37.8 million.
8
<PAGE> 9
NORTH AMERICAN IRON ORE
- -----------------------
Iron ore pellet production at the Company's-managed mines increased to
9.6 million tons in the first quarter of 1999, from 9.4 million tons in 1998,
reflecting higher production at the Tilden Mine. The Company's share of the
production was 2.8 million tons in 1999 versus 2.7 million tons in 1998.
The six mines are currently scheduled to produce 41.1 million tons
(Company share 11.7 millions tons) for the full year 1999. The current
production schedule incorporates a one-month shut down of Wabush this summer,
reflecting lower requirements of the mine owners. There could be additional
changes to the production schedule depending on steel operating rates and the
Company's sales.
The Company's iron ore pellet sales were .3 million tons in the first
quarter of 1999 versus .7 million tons in the first three months of 1998. Due to
seasonal variations and other factors, quarterly shipments by iron ore producers
to the North American steel industry are not indicative of annual results.
Although the Company is encouraged by the improving fundamentals of the North
American steel industry, it is expected that 1999 iron ore pellet sales volume
will be lower than the record sales volume of 12.1 million tons in 1998.
Additionally, the 13 to 14 percent decline in the international iron ore price
will impact the escalation formula used in determining prices of certain of the
Company's multi-year sales contracts.
Labor contract negotiations, covering the bargaining unit employees
represented by the United Steelworkers of America, will occur this year at five
of the Company-managed mines. Contracts at Empire, Hibbing, LTV Steel Mining
Company and Tilden will expire on August 1, 1999, while the Wabush contract
expired on March 1, 1999. The Wabush employees have continued to work while a
new contract is being negotiated.
Capital additions and replacements at the six Company-managed mines in
North America are expected to total approximately $64 million in 1999. The
Company's share of such 1999 expenditures is expected to approximate $24
million.
FERROUS METALLICS
- -----------------
The Company will achieve a major milestone in its strategy to build a
significant ferrous metallics business when Cliffs and Associates Limited (CAL)
commences production of CIRCAL(TM) hot briquetted iron (HBI) at its plant in
Trinidad and Tobago early in May, 1999. The plant, which is designed to produce
500,000 metric tons of HBI annually, will operate on a planned start-up curve
with full year production volume in 1999 dependent on market demand.
Project capital expenditures through March 31, 1999 were $150 million
(Company share - $70 million) with estimated cost to complete of $3 million
(Company share - $1.4 million). Project capital expenditures do not include
construction claims of approximately $22 million (Company share - $10.2
million), which are being contested.
9
<PAGE> 10
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.
While the market for ferrous metallics has improved since reaching a
low point in December, 1998, it continues to be soft. Imported pig iron, which
is not covered under the trade actions that have been taken to curtail unfairly
traded steel imports, is available at very low prices. Low priced pig iron has
eliminated much of the market for HBI and other reduced iron products and has
caused many plants producing these products to shut down or curtail operation.
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 March 31, 1999, was estimated at $70.9 million based
on a discounted cash flow analysis and estimates of current borrowing rates.
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 11,322,047 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 underway with 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 is 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.
10
<PAGE> 11
The Compliance Program has been divided into five phases: 1) inventory,
2) assessment, 3) renovation, 4) unit testing, and 5) system integration
testing. The Company had substantially completed the inventory, assessment,
renovation and unit testing phases in 1998. Renovation and unit testing on a
limited number of items have been delayed and are expected to be completed by
the third quarter of 1999 as vendor technical resources, replacement equipment
and software become available. System integration testing is on target to be
completed during the third quarter of 1999.
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 is expected to be installed in Minnesota, and in the
corporate office and central services locations in the second and third quarter
of 1999, respectively.
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 $1.0 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.
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, 48 vendors have been identified as critical and targeted for on site
verification, 14 on site assessments have been performed with the remainder to
be done by the end of the second quarter, 1999. 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 incremental expense of achieving Year 2000 compliance on systems
not covered by the IT Plan and other software legacy programs is estimated to be
$4.0 million for the Company and its ventures. Completion of this program is
targeted
11
<PAGE> 12
for mid-1999. The Company has completed internal audits at various operations to
verify that progress is on schedule toward timely completion of the Compliance
Program.
Following is a summary of the Year 2000 compliance cost estimate:
<TABLE>
<CAPTION>
(In Millions)
---------------------------------------------------
Company's
Share Total
------------------------ ------------------------
<S> <C> <C>
IT Plan:
Capital $16.1* $17.3
Operating 2.1 7.7
------- -------
Total IT Plan 18.2 25.0
Other** 2.4 5.0
------- -------
Total $20.6 $30.0
======= =======
</TABLE>
* Includes amounts reimbursable by mining ventures of $13.6 million.
** Includes charges for legacy software not covered by the IT Plan,
hardware, process control systems, environmental and safety
monitoring, etc.
The Company is developing 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 are being
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. Initial contingency plans have been completed at
all sites in the first quarter of 1999. 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.
12
<PAGE> 13
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 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;
13
<PAGE> 14
- 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 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.
14
<PAGE> 15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) List of Exhibits - Refer to Exhibit Index on page 16.
(b) During the quarter for which this 10-Q Report is filed, the
Company filed a Current Report on Form 8-K, dated February 10,
1999, covering information reported under ITEM 7. FINANCIAL
STATEMENTS AND EXHIBITS. 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 May 5, 1999 By /s/C. B. Bezik
----------------------------- -----------------------------
C. B. Bezik
Senior Vice President-Finance and
Principal Financial Officer
15
<PAGE> 16
EXHIBIT INDEX
-------------
Exhibit
Number Exhibit
- -------- -------------------------------------------------- ---------
27 Consolidated Financial Data Schedule submitted for -
Securities and Exchange Commission information
only
99(a) Cleveland-Cliffs Inc News Release published on Filed
April 21, 1999, with respect to 1999 first quarter Herewith
earnings
16
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 67
<SECURITIES> 0
<RECEIVABLES> 21
<ALLOWANCES> 2
<INVENTORY> 142
<CURRENT-ASSETS> 242
<PP&E> 216
<DEPRECIATION> 63
<TOTAL-ASSETS> 707
<CURRENT-LIABILITIES> 77
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0
0
<COMMON> 17
<OTHER-SE> 418
<TOTAL-LIABILITY-AND-EQUITY> 707
<SALES> 14
<TOTAL-REVENUES> 25
<CGS> 13
<TOTAL-COSTS> 16
<OTHER-EXPENSES> 5
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4
<INCOME-TAX> 1
<INCOME-CONTINUING> 3
<DISCONTINUED> 0
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<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
<PAGE> 1
Exhibit 99(a)
NEWS RELEASE
Cleveland-Cliffs Inc
1100 Superior Avenue
Cleveland, Ohio 44114-2589
- --------------------------------------------------------------------------------
CLEVELAND-CLIFFS REPORTS
------------------------
First Quarter 1999 Earnings
---------------------------
Cleveland, OH, April 21, 1999 - Cleveland-Cliffs Inc (NYSE-CLF) today
reported earnings of $2.7 million, or $.24 per diluted share, for the first
quarter of 1999. In the first quarter of 1998, earnings were $.5 million, or
$.04 per diluted share. The Company emphasized that first quarter results are
not representative of annual results due to seasonally low shipments of iron ore
pellets on the Great Lakes.
Pellet sales in the first quarter were .3 million tons, roughly half of
1998 first quarter sales. The higher volume in 1998 was largely attributable to
non-recurring rail shipments. First quarter 1999 revenues from product sales and
services declined proportionately with the lower sales volume; however, the
decrease in cost of goods sold and operating expenses was larger due to:
- refunds of prior years' state taxes in 1999.
- 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 1999.
Administrative expenses in 1999 were $1.0 million below 1998 mainly due
to a decrease in the cost of the Performance Share Program, a key component of
senior management compensation, and cost reduction initiatives.
Other expenses in 1999 were $2.5 million higher than 1998 principally
due to increased costs of ferrous metallics activities and a $1.1 million
pre-tax charge attributable to a reduction of corporate staff. Pre-tax costs of
ferrous metallics activities were $2.4 million in 1999 versus $.7 million in
1998. The 1999 costs include $1.1 million of start-up costs from Cliffs' joint
venture in Trinidad and Tobago.
- --------------------------------------------------------------------------------
<PAGE> 2
IRON ORE
--------
Iron ore pellet production at Cliffs-managed mines increased to 9.6
million tons in the first quarter of 1999, from 9.4 million tons in 1998,
reflecting higher production at the Tilden Mine. Cliffs' share of the production
was 2.8 million tons in 1999 versus 2.7 million tons in 1998. Following is a
summary of production tonnages for the first quarter of 1999 and 1998:
<TABLE>
<CAPTION>
(Tons in Millions)
--------------------------------------------------------------------
First Quarter First Quarter
1999 1998
-------------------------------- --------------------------------
Cliffs' Cliffs'
Total Share Total Share
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Empire 2.1 .5 2.0 .5
Hibbing 1.9 .3 1.9 .3
LTV Steel Mining 1.7 - 1.8 -
Northshore 1.1 1.1 1.1 1.1
Tilden 1.6 .6 1.2 .5
Wabush 1.2 .3 1.4 .3
-------------- -------------- -------------- ------------
Total 9.6 2.8 9.4 2.7
============== ============== ============== ============
</TABLE>
The six mines are currently scheduled to produce 41.1 million tons for
the full year 1999. The current production schedule incorporates a one-month
shut down of Wabush this summer, reflecting lower requirements of the mine
owners. There could be additional changes to the production schedule depending
on steel operating rates and Cliffs' sales.
COST REDUCTION
- --------------
The 1998 Annual Report to Shareholders noted that each of the six mines
managed by Cliffs is implementing comprehensive three-year cost reduction plans.
Cost reduction actions initiated under these plans are building momentum. As an
example, notable successes with significant benefits have recently been achieved
by leveraging the buying power of the six mines. In March, an agreement was
executed with a production truck supplier that makes the selected supplier the
sole source of trucks and related parts for all six mines for the next five
years. The new agreement will provide substantial savings to the mines over the
five-year term of the contract.
2
<PAGE> 3
Other cost reduction initiatives are focused on improvements in
maintenance management systems and work practices. The implementation of a new
company-wide information management system offers a unique opportunity to make
improvements at this time. In February, the corporate staff was reduced by 10
percent and additional reductions were made in the central services' staff in
Michigan.
FERROUS METALLICS
- -----------------
Cliffs will achieve a major milestone in its strategy to build a
significant ferrous metallics business when Cliffs and Associates Limited (CAL)
commences production of CIRCAL(TM) hot-briquetted iron (HBI) at its plant in
Trinidad and Tobago later this month. The plant, which is designed to produce
500,000 metric tons of HBI annually, will operate on a planned start-up curve
with full year production volume in 1999 dependent on market demand.
While the market for ferrous metallics has improved since reaching a
low point in December 1998, it continues to be very soft. Imported pig iron,
which is not covered under the trade actions that have been taken to curtail
unfairly traded steel imports, is available at very low prices. Low priced pig
iron has eliminated much of the market for HBI and other reduced iron products
and has caused many plants producing these products to shut down or curtail
operations.
OUTLOOK
- -------
John S. Brinzo, Cliffs' president and chief executive officer, said,
"We are encouraged by the steadily improving fundamentals of the North American
steel business. Nevertheless, 1999 will be a challenging year for Cliffs. We
have re-energized and accelerated the pace of our cost reduction and quality
improvement actions to increase the competitiveness of the North American mines
we manage. We remain focussed on building a company that through business cycles
delivers superior performance and sustainable growth, recognizing that our
success will be judged by our ability to deliver enhanced shareholder value over
the long-term."
* * * * *
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 starting-up a joint venture plant in Trinidad and Tobago to produce
high-quality iron briquettes.
This news release contains forward-looking statements regarding
production and sales volume and prices for iron ore and ferrous metallics which
reflect forecasts of
3
<PAGE> 4
activity in the steel and iron ore industries. Actual production and sales
volume for iron ore could differ significantly from current expectations due to
inherent risks such as lower steel and iron ore demand, higher steel imports,
1999 labor contract negotiations, or other factors. This news release also
contains statements regarding the operation of the Cliffs and Associates Limited
facilities, which could change due to process difficulties, or market 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
(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
Ended March 31
-----------------------
(In Millions Except Per Share Amounts) 1999 1998
- -------------------------------------- ---------- ----------
<S> <C> <C>
REVENUES
Product sales and services $ 13.6 $ 27.2
Royalties and management fees 9.2 8.4
---------- ----------
Total Operating Revenues 22.8 35.6
Interest income 1.4 1.4
Other income .8 1.0
---------- ----------
TOTAL REVENUES 25.0 38.0
COSTS AND EXPENSES
Cost of goods sold and operating expenses 13.0 30.3
Administrative, selling and general expenses 3.7 4.7
Interest expense .2
Other expenses 4.6 2.1
---------- ----------
TOTAL COSTS AND EXPENSES 21.3 37.3
---------- ----------
INCOME BEFORE INCOME TAXES 3.7 .7
INCOME TAXES 1.0 .2
---------- ----------
NET INCOME $ 2.7 $ .5
========== ==========
NET INCOME PER COMMON SHARE
Basic $ .24 $ .04
Diluted $ .24 $ .04
AVERAGE NUMBER OF SHARES
Basic 11.2 11.3
Diluted 11.2 11.4
</TABLE>
<PAGE> 6
CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------
(In Millions, Brackets Indicate Decrease in Cash) 1999 1998
- ------------------------------------------------- ---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2.7 $ .5
Depreciation and amortization:
Consolidated 2.1 2.1
Share of associated companies 3.3 3.1
Other (2.4) (3.5)
---------- ----------
Total before changes in operating assets and liabilities 5.7 2.2
Changes in operating assets and liabilities (56.1) (46.4)
---------- ----------
Net cash (used by) operating activities (50.4) (44.2)
INVESTING ACTIVITIES
Purchase of property, plant and equipment:
Consolidated (5.5) (2.3)
Share of associated companies (.3) (1.3)
Investment in Cliffs and Associates Limited (3.0) (5.9)
Other 1.3
---------- ----------
Net cash (used by) investing activities (8.8) (8.2)
FINANCING ACTIVITIES
Dividends (4.2) (3.7)
Repurchases of Common Shares (1.2)
---------- ----------
Net cash (used by) financing activities (4.2) (4.9)
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS $ (63.4) $ (57.3)
========== ==========
</TABLE>
<PAGE> 7
CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
<TABLE>
<CAPTION>
(In Millions)
--------------------------------------
Mar. 31 Dec. 31 Mar. 31
1999 1998 1998
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 66.9 $ 130.3 $ 58.6
Accounts receivable - net 21.0 58.8 45.2
Inventories 141.6 59.6 118.7
Other 12.5 11.2 14.4
---------- ---------- ----------
TOTAL CURRENT ASSETS 242.0 259.9 236.9
PROPERTIES - NET 153.4 150.0 132.6
INVESTMENTS IN ASSOCIATED COMPANIES 235.3 235.4 222.3
OTHER ASSETS 76.5 78.2 82.8
---------- ---------- ----------
TOTAL ASSETS $ 707.2 $ 723.5 $ 674.6
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES $ 76.6 $ 89.2 $ 72.2
LONG-TERM DEBT 70.0 70.0 70.0
POSTEMPLOYMENT BENEFIT LIABILITIES 68.2 70.5 69.9
OTHER LIABILITIES 57.2 56.2 56.6
SHAREHOLDERS' EQUITY 435.2 437.6 405.9
---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 707.2 $ 723.5 $ 674.6
========== ========== ==========
</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.
