<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, 2000
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 17, 2000, there were 10,502,367 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
---------------------------- ----------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
--------
Product sales and services $ 116.6 $ 82.9 $ 140.4 $ 96.5
Royalties and management fees 15.4 13.5 24.6 22.7
------------- ------------- ------------- -------------
Total Operating Revenues 132.0 96.4 165.0 119.2
Insurance recovery 15.0 15.0
Interest income .9 .5 2.2 1.9
Other income 1.1 .9 2.1 1.6
------------- ------------- ------------- -------------
Total Revenues 149.0 97.8 184.3 122.7
COSTS AND EXPENSES
------------------
Cost of goods sold and operating expenses 112.4 77.7 142.2 90.6
Administrative, selling and general expenses 4.9 4.2 8.3 7.9
Unrealized loss on long-term investment 9.1 9.1
Equity loss in Cliffs and Associates Limited 3.9 2.3 7.1 3.4
Interest expense 1.3 1.2 2.5 1.2
Other expenses 1.4 1.8 3.8 5.3
------------- ------------- ------------- -------------
Total Costs and Expenses 133.0 87.2 173.0 108.4
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 16.0 10.6 11.3 14.3
INCOME TAXES (5.0) (2.8) (3.8) (3.8)
------------- ------------- ------------- -------------
NET INCOME $ 11.0 $ 7.8 $ 7.5 $ 10.5
============= ============= ============= =============
NET INCOME PER COMMON SHARE
---------------------------
Basic $ 1.04 $ .70 $ .71 $ .94
Diluted $ 1.04 $ .70 $ .71 $ .94
AVERAGE NUMBER OF SHARES (IN THOUSANDS)
---------------------------------------
Basic 10,545 11,202 10,574 11,184
Diluted 10,593 11,251 10,617 11,233
See notes to consolidated financial statements.
</TABLE>
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CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
<TABLE>
<CAPTION>
(In Millions)
------------------------------------------------
June 30 December 31
2000 1999
--------------------- -----------------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 23.5 $ 67.6
Accounts receivable - net 67.1 82.6
Inventories
Iron ore 91.3 36.6
Supplies and other 15.1 16.0
--------------------- -----------------------
106.4 52.6
Other 31.7 14.3
--------------------- -----------------------
TOTAL CURRENT ASSETS 228.7 217.1
PROPERTIES 226.4 224.0
Allowances for depreciation and depletion (76.4) (70.1)
--------------------- -----------------------
TOTAL PROPERTIES 150.0 153.9
INVESTMENTS IN ASSOCIATED COMPANIES 226.6 233.4
OTHER ASSETS
Prepaid pensions 40.4 40.8
Miscellaneous 38.0 34.5
--------------------- -----------------------
TOTAL OTHER ASSETS 78.4 75.3
--------------------- -----------------------
TOTAL ASSETS $ 683.7 $ 679.7
===================== =======================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES $ 79.9 $ 73.7
LONG-TERM DEBT 70.0 70.0
POSTEMPLOYMENT BENEFIT LIABILITIES 67.2 68.1
OTHER LIABILITIES 59.5 60.6
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 67.4 67.1
Retained income 500.8 501.3
Accumulated other comprehensive loss, net of tax (5.2)
Cost of 6,325,574 Common Shares in treasury
(1999 - 6,180,742 shares) (175.3) (171.5)
Unearned compensation (2.6) (1.2)
--------------------- -----------------------
TOTAL SHAREHOLDERS' EQUITY 407.1 407.3
--------------------- -----------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 683.7 $ 679.7
===================== =======================
See notes to consolidated financial statements.
</TABLE>
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<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
-------------------------------
2000 1999
-------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 7.5 $ 10.5
Depreciation and amortization:
Consolidated 6.3 4.4
Share of associated companies 6.2 6.5
Equity Loss in Cliffs and Associates Limited 7.1 3.4
Unrealized loss on long-term investment 9.1
Provision for deferred income taxes (3.2)
Other 1.8 (1.6)
-------------- --------------
Total before changes in operating assets and liabilities 34.8 23.2
Changes in operating assets and liabilities (52.8) (104.0)
-------------- --------------
Net cash used by operating activities (18.0) (80.8)
INVESTING ACTIVITIES
Purchase of property, plant and equipment:
Consolidated (2.7) (10.3)
Share of associated companies (2.4) (2.0)
Investment and advances in Cliffs and Associates Limited (7.5) (3.0)
Other (2.1)
-------------- --------------
Net cash used by investing activities (12.6) (17.4)
FINANCING ACTIVITIES
Dividends (8.0) (8.4)
Repurchases of Common Shares (5.5)
-------------- --------------
Net cash used by financing activities (13.5) (8.4)
-------------- --------------
DECREASE IN CASH AND CASH EQUIVALENTS (44.1) (106.6)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 67.6 130.3
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23.5 $ 23.7
============== ==============
See notes to consolidated financial statements.
</TABLE>
4
<PAGE> 5
CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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 1999 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 historically 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, 2000, the Financial Accounting Standards Board issued
Interpretation 44, "Accounting for Certain Transactions Involving Stock
Compensation." The Interpretation provides guidance on certain implementation
issues related to Accounting Principles Board Opinion 25 on accounting for stock
issued to employees. The Interpretation, which is effective July 1, 2000, is not
expected to have a material effect on the Company's consolidated financial
statements.
NOTE C - ENVIRONMENTAL RESERVES
At June 30, 2000, the Company had an environmental reserve, including
its share of ventures, of $20.2 million, of which $3.6 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, the Summitville site in Colorado 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
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means for site clean-up. Significant site clean-up activities have taken place
at Rio Tinto and Cliffs-Dow. Also provided for 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
----------------------------- -----------------------------
2000 1999 2000 1999
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net Income $11.5 $7.8 $ 8.0 $10.5
Other Comprehensive Income -
Unrealized Loss on Securities (.9) .6 (1.2) .4
Reclassification Adjustment for
Loss Included in Net Income 6.4 6.4
----- ---- ----- -----
Comprehensive Income $17.0 $8.4 $13.2 $10.9
===== ==== ===== =====
</TABLE>
In the second quarter, the Company recorded a $6.4 million after-tax
charge to earnings for an other than temporary decline in the value of its
long-term equity investment in a publicly-traded common stock. Changes in the
market value of the investment, which is classified as "available-for-sale", had
previously been charged to other comprehensive income and reflected in
shareholders' equity.
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 consists of the hot briquetted iron
("HBI") venture project in Trinidad and Tobago and other developmental
activities. "Other" includes non-reportable segments, the insurance claim
recovery, the long-term investment charge related to publicly-traded common
stock, 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 2000
-------------------
Sales and services to external
customers $ 116.6 $ $116.6 $ $ 116.6
Royalties and management fees 15.4 15.4 15.4
------- -------- ------- --------- --------
Total operating revenues 132.0 132.0 132.0
======= ======== ======= ========= ========
Income (loss) before taxes 19.4 (4.4) 15.0 1.0 16.0
Equity loss* (3.9) (3.9) (3.9)
Investments in associated companies 142.2 84.4 226.6 226.6
Other identifiable assets 433.3 1.5 434.8 22.3 457.1
------- -------- ------- --------- --------
Total assets 575.5 85.9 661.4 22.3 683.7
======= ======== ======= ========= ========
* Included in income (loss) before taxes.
</TABLE>
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<TABLE>
<CAPTION>
(In Millions)
----------------------------------------------------------------------------
Iron Ferrous Segments Consolidated
Ore Metallics Total Other Total
------------- ------------- -------------- -------------- -------------
Second Quarter 1999
-------------------
<S> <C> <C> <C> <C> <C>
Sales and services to external
customers $ 82.9 $ $ 82.9 $ $ 82.9
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 associated companies 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
======== ======== ======== ========= ========
First Six Months 2000
---------------------
Sales and services to external
customers $140.4 $ $140.4 $ $ 140.4
Royalties and management fees 24.6 24.6 24.6
-------- -------- -------- --------- --------
Total operating revenues 165.0 165.0 165.0
======== ======== ======== ========= ========
Income (loss) before taxes 22.4 (8.1) 14.3 (3.0) 11.3
Equity loss* (7.1) (7.1) (7.1)
First Six Months 1999
---------------------
Sales and services to external
customers $ 96.5 $ $ 96.5 $ $ 96.5
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)
* Included in income (loss) before taxes.
</TABLE>
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND
--------------------------
RESULTS OF OPERATIONS
---------------------
COMPARISON OF SECOND QUARTER AND FIRST SIX MONTHS 2000 AND 1999
---------------------------------------------------------------
Earnings for the second quarter of 2000 were $11.0 million, or $1.04
per diluted share (references to per share earnings are "diluted earnings per
share"), and first six months earnings were $7.5 million, or $.71 per share.
Earnings for both periods included a $9.8 million after-tax recovery on an
insurance claim related to lost 1999 sales, and a $6.4 million after-tax charge
to earnings to recognize the decrease in value of the Company's investment in
publicly-traded common stock. Excluding the two special items, second quarter
earnings were $7.6 million, or $.72 per share, and first half earnings were $4.1
million, or $.39 per share.
Net income in the second quarter of 1999 was $7.8 million, or $.70 per
share. First half 1999 earnings were $10.5 million, or $.94 per share, including
income from favorable after-tax adjustments of $2.8 million that mainly related
to refunds of prior years' state taxes.
Following is a summary of results:
<TABLE>
<CAPTION>
(In Millions, Except Per Share)
------------------------------------------------------------------
Second Quarter First Six Months
--------------------------------- --------------------------------
2000 1999 2000 1999
----------------- --------------- --------------------------------
<S> <C> <C> <C> <C>
Income Before Special Items:
Amount $7.6 $7.8 $4.1 $7.7
Per Share .72 .70 .39 .69
Special Items:
Amount 3.4 3.4 2.8
Per Share .32 .32 .25
Net Income:
Amount 11.0 7.8 7.5 10.5
Per Share 1.04 .70 .71 .94
</TABLE>
Second quarter 2000 earnings before special items were $.2 million
below 1999 reflecting higher pellet sales volume at lower margins and increased
equity losses from Cliffs and Associates Limited ("CAL"), largely offset by
increased royalties and management fees.
Excluding special items, earnings for the first six months of 2000
decreased $3.6 million from 1999, comprised of a $4.6 million decrease in pretax
earnings and $1.0 million of related lower income taxes. The decrease in pretax
earnings was primarily due to:
- Negative pellet sales margin of $1.8 million for the first six
months of 2000 compared to a margin of $1.6 million in the
comparable 1999 period, a margin decrease of $3.4 million
summarized as follows:
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<TABLE>
<CAPTION>
(In Millions)
----------------------------------------------
Increase (Decrease)
-------------------------------
2000 1999 Amount Percent
------------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Sales (Tons) 4.1 2.7 1.4 52%
========= ======= ======= =======
Revenue from product
Sales and services $140.4 $96.5 $43.9 45%
Cost of goods sold and
Operating expenses 142.2 94.9* 47.3 50%
------- ------ ------
Sales margin (loss) $ (1.8) $ 1.6 $ (3.4) N/M
======== ====== ====== ========
</TABLE>
*Excludes $4.3 million favorable adjustments mainly for prior
years' tax credits (special item).
Lower average price realization and higher cost of sales were
partly offset by increased sales volume. The lower average price
largely reflected the mix of sales under various contracts.
Operating costs were higher in 2000 primarily due to higher
natural gas and diesel fuel costs, a temporary outage of the
Empire Mine primary crushers in March, and a train derailment on
the railroad which serves the Wabush Mine in February.
- Higher equity losses from CAL in 2000 reflecting ongoing
difficulties in starting the hot briquetted iron ("HBI") plant in
Trinidad and the fact that the CAL facility was still in
construction through the first quarter of 1999. Equity losses from
CAL in the first half of 2000 were $7.1 million, an increase of
$3.7 million from 1999.
- Royalty and management fee revenue, including amounts paid by the
Company as a participant in the mining ventures, increased by $1.9
million reflecting the impact of increased pellet sales volume in
2000 versus 1999.
The Company lost more than one million tons of iron ore pellet sales to
Rouge Industries in 1999 as a result of the extended shutdown of two blast
furnaces following a tragic explosion at the power plant that supplies Rouge. As
a result, the Company has a business interruption insurance claim for $18.3
million. The Company has recorded a pre-tax recovery on the claim of $15.0
million ($9.8 million after-tax) in the second quarter based on negotiations
with the insurance adjuster. The Company will continue to pursue the balance of
the claim, but given the complexity of the insurance issues, any additional
amounts will not be recorded until outstanding issues are satisfactorily
resolved.
The Company owns 842,000 shares of LTV Corporation ("LTV") common stock,
which the Company received as a creditor in the 1993 reorganization of LTV. The
shares were originally valued at $11.5 million, or $13.65 per share, when
acquired. At June 30, 2000, the market value of the shares was $2.4 million, or
$2.88 per share. The Company recorded a $9.1 million pre-tax charge ($6.4
million after-tax) to earnings in the second quarter to recognize the reduction
in value. Previously, changes in the market value of the shares were charged
directly to shareholders' equity.
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CASH FLOW AND LIQUIDITY
-----------------------
At June 30, 2000, the Company had cash and cash equivalents of $23.5
million compared to $23.7 million at the same time last year. Since December 31,
1999, cash and cash equivalents decreased $44.1 million, primarily due to
increased operating assets and liabilities, $52.8 million, capital and project
expenditures, $12.6 million, dividends, $8.0 million, and repurchases of common
shares, $5.5 million, partially offset by cash flow from operations, $34.8
million. The $52.8 million increase in operating assets and liabilities was
primarily due to higher pellet inventory, $54.8 million, and the insurance
claim receivable, $15.0 million, partly offset by lower trade accounts
receivable, $19.4 million.
As a result of the Metropolitan Life Insurance Company ("MetLife")
conversion from a mutual life insurance company to a stock life insurance
company on April 7, 2000, the Company received approximately $5.3 million to be
allocated to the Company, and current and former managed operations. Due to the
complexities of the Company's policies with MetLife, including coverage for
employees of both current and former managed operations, the Company has engaged
an actuarial firm to independently develop an appropriate allocation method.
Allocation of the proceeds has not yet been determined, but it is expected that
the majority of the proceeds will be allocated to entities other than the
Company. No amounts have been included in earnings pending completion of the
allocation.
NORTH AMERICAN IRON ORE
-----------------------
Iron ore pellet production at the Company's managed mines in the second
quarter of 2000 was 10.8 million tons compared to 10.5 million tons in 1999.
First half production was 20.6 million tons, up from 20.1 million tons in 1999.
The Company's share of 2000 production of 3.0 million tons in the second quarter
and 5.8 million tons for the first six months of 2000 was equal to 1999. While
production plans are subject to change as the year progresses, the six mines are
scheduled to produce in excess of 42 million tons (Company share 11.8 million
tons) in 2000 as compared to 36.2 million tons (Company share 8.8 million tons)
in 1999.
Pellet sales in the second quarter of 2000 were 3.4 million tons
compared to 2.4 million tons in 1999. Pellet sales for the first six months of
2000 were 4.1 million tons, an increase of 1.4 million tons from the 2.7 million
tons sold in the first half of 1999. Iron ore pellet sales for the full year are
projected to be 11.5 million tons (8.9 million tons were sold in 1999), largely
due to improved markets and the return of customer blast furnace operations that
were out of operation for most of 1999.
In May, 2000, LTV announced its intention to close its wholly-owned LTV
Steel Mining Company ("LTVSMC") in mid year 2001. The Company is the manager of
LTVSMC. In a related announcement, the Company reported that it had signed a
long-term agreement to supply LTV with the majority of the iron ore it will need
to purchase as a result of the intended closing of LTVSMC. The sales agreement
will make the Company the principal supplier of iron ore pellets purchased by
LTV for a 10-year period beginning in 2000. Sales to LTV are expected to be
modest in 2000 and to increase to 1 million to 2 million tons in 2001. The
Company's sales to LTV will account
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for the majority of LTV's purchase requirements over the remainder of the
contract term. Sales over the 10-year contract term are expected to total more
than 50 million tons based on LTV's current requirements and should ensure that
the Company will fully operate its existing 11.8 million tons sales capacity
over the term of the contract. Additionally, the Company may increase its sales
capacity. LTV will continue to be a 25 percent owner of the Company's managed
Empire Mine in Michigan.
LTV has agreed not to put the LTVSMC assets up for sale until the
Company has the opportunity to investigate alternative uses for the property.
This investigation has commenced and could take up to the end of the year to
complete. The Company does not envision producing pellets, but will determine if
the facilities can have a role in either alternative iron or other mineral
production.
Capital expenditures at the six North American mining ventures and
supporting operations are expected to total $54 million in 2000, with the
Company's share of $23 million expected to be funded from current operations.
Capital additions and replacements, including leased equipment, are expected to
total $111 million in 2000 (Company share $35 million) for North American
operations.
In April, 2000, Northshore Mining Company ("Northshore"), an indirect
wholly-owned subsidiary of the Company, received a notice of violation with
respect to fly ash storage and disposal from the Minnesota Pollution Control
Agency ("MPCA") alleging violations of Northshore's 1996 National Pollutant
Discharge Elimination/State Disposal System Permit. While the outcome of the
alleged violations is uncertain, the Company does not expect compliance will
have a material impact on the Company's operations or consolidated financial
statements.
CLIFFS AND ASSOCIATES LIMITED
-----------------------------
On May 15, 2000, start-up activities at the CAL plant in Trinidad and
Tobago were temporarily suspended in order to evaluate plant reliability and
make modifications to portions of the plant. The entire plant was restarted on
July 1 to test the functionality and reliability of the initial modifications
and to gain additional operating experience. Results of the plant test have been
positive. Although commercial grade briquettes have been produced, replacing the
discharge system is necessary to improve material flow and obtain consistent
feed of hot reduced iron to the briquetting machines. The required work would
take the balance of the year to complete and allow briquette production to
re-commence early in 2001. Total projected additional cash requirements for CAL
to attain sustained production, including capital expenditures of $13 million to
$15 million, working capital, and start-up costs, are estimated at between $30
million and $40 million. The Company is continuing to assess its options with
regard to CAL, including a thorough evaluation of all alternatives.
CAPITALIZATION
--------------
Long-term debt of the Company consists of $70.0 million of senior
unsecured notes, which 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
11
<PAGE> 12
agreement, which expires on May 31, 2003. The Company was in compliance as of
June 30 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, 2000, was $66.2 million based on a
discounted cash flow analysis utilizing estimated current borrowing rates.
In July, 2000, the Company announced an expansion to its stock
repurchase program. The 1.0 million share increase in the program raises the
total authorization to 3.0 million shares. To date, the Company has purchased
1,920,975 shares (215,500 shares in 2000), at a total cost of $69.4 million
($5.5 million in 2000).
Following is a summary of common shares outstanding:
2000 1999 1998
------------------- ------------------- ---------------
March 31 10,714,796 11,209,734 11,344,605
June 30 10,502,367 11,211,376 11,322,047
September 30 11,053,349 11,148,453
December 31 10,647,199 11,150,654
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.
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:
- Displacement of iron production by North American integrated steel
producers due to electric furnace production or imports of
semi-finished steel or pig iron;
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<PAGE> 13
- Loss of major iron ore sales contracts;
- Changes in the financial condition of the Company's partners and/or
customers;
- Substantial changes in imports of steel, iron ore, or ferrous metallic
products;
- Displacement of steel by competing materials;
- Unanticipated changes in the market value of steel, iron ore or ferrous
metallics;
- 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);
- Weather conditions (e.g., extreme winter weather, availability of
process water due to drought);
- Changes in tax laws;
- Changes in laws, regulations or enforcement practices governing
remediation requirements at existing environmental sites, remediation
technology advancements, the impact of inflation, the identification
and financial condition of other responsible parties, and the number of
sites and the extent of remediation activity;
- Changes in laws, regulations or enforcement practices governing
compliance with safety, health and environmental 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 update publicly or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
13
<PAGE> 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-------------------------
In April, 2000, Northshore, an indirect wholly-owned subsidiary of the
Company, received a notice of violation from the MPCA alleging violations of
Northshore's 1996 National Pollutant Discharge Elimination System/State Disposal
System Permit concerning its disposal practices relating to ash and fines from
its power plant. Among other things, the Permit required that before March 31,
2000, Northshore (i) cease utilizing a temporary landfill at its Mile Post 7
Tailings Basin area for disposal of fly ash, bottom ash, and pyritic coal fines
from Northshore's power plant and (ii) remove all ash and fines (approximately
93,000 cubic yards) into a permitted industrial waste disposal facility. On
March 31, 2000, Northshore ceased using the temporary landfill for
currently-generated ash and fines. On July 10, 2000, Northshore received a solid
waste permit from the MPCA for a proposed industrial solid waste land disposal
facility to be constructed elsewhere on Northshore property. The MPCA has
provided Northshore a draft Stipulation Agreement incorporating the violations
relating to the fly ash and fines disposal and removal, together with other
non-material water violations, and referencing potential civil penalties in the
amount of approximately $370,000 and other non-monetary requirements regarding
such violations, which Agreement is presently under negotiation. While the
outcome of negotiations is uncertain, Northshore desires to settle these matters
and is endeavoring to achieve a reduction in the amount of the proposed fine.
Pending construction of the new industrial solid waste land disposal facility,
Northshore is sending currently-generated bottom ash and fines to an offsite
permitted industrial solid waste land disposal facility, storing
currently-generated fly ash in a holding facility for which a permit has been
received from the MPCA, and evaluating alternative courses of action.
Item 4. Submission of Matters to Vote of Security Holders
---------------------------------------------------------
The Company's Annual Meeting of Shareholders was held on May 9, 2000.
At the meeting the Company's shareholders acted upon the election of Directors,
and a proposal to ratify the appointment of the Company's independent public
accountants. In the election of Directors, all 11 nominees named in the
Company's Proxy Statement, dated March 20, 2000, 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:
NOMINEES FOR WITHHELD
------------------------------ ------------------------ -------------------
John S. Brinzo 9,165,326 180,715
Ronald C. Cambre 9,164,982 181,059
Ranko Cucuz 8,791,452 554,589
James D. Ireland III 9,164,450 181,591
G. Frank Joklik 7,620,620 1,725,421
Leslie L. Kanuk 9,161,946 184,095
Anthony A. Massaro 9,164,792 181,249
Francis R. McAllister 9,165,382 180,659
John C. Morley 9,165,186 180,855
Stephen B. Oresman 9,162,886 183,155
Alan Schwartz 9,162,279 183,762
14
<PAGE> 15
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 2000 were
as follows: 9,332,137 Common Shares were cast for the adoption of the proposal;
6,113 Common Shares were cast against the adoption of the proposal; and 7,791
Common Shares abstained from voting on the adoption of the proposal.
There were no broker non-votes with respect to the election of
directors, or the ratification of the independent public accountants.
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------
(a) List of Exhibits - Refer to Exhibit Index on page 16.
(b) During the quarter for which this 10-Q Report is filed, the
Company filed Current Reports on Form 8-K, dated May 9 and May
24, 2000, both covering information reported under ITEM 5. OTHER
EVENTS. The Company also filed a Current Report on Form 8-K,
dated July 11, 2000, covering information reported under ITEM 5.
OTHER EVENTS. There were no financial statements filed as part
of the Current Reports 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 27, 2000 By /s/ C. B. Bezik
---------------------------- --------------------------------
C. B. Bezik
Senior Vice President-Finance and
Principal Financial Officer
15
<PAGE> 16
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------ --------------------------------------------------------- --------
<S> <C> <C>
10(a) Cleveland-Cliffs Inc Voluntary Non-Qualified Deferred Filed
Compensation Plan (Amended and Restated as of Herewith
January 1, 2000)
10(b) * Pellet Sale and Purchase Agreement, dated as of Filed
May 15, 2000, by and between The Cleveland-Cliffs Herewith
Iron Company, Cliffs Mining Company, Northshore
Mining Company, and LTV Steel Company, Inc.
10(c) Cleveland-Cliffs Inc and Subsidiaries Management Filed
Performance Incentive Plan, effective January 1, 2000 Herewith
(Summary Description)
27 Consolidated Financial Data Schedule submitted for -
Securities and Exchange Commission information
only
99(a) Cleveland-Cliffs Inc News Release published on Filed
July 26, 2000, with respect to 2000 second quarter Herewith
earnings
</TABLE>
-------
* Confidential treatment requested as to certain portions, which portions have
been omitted and filed separately with the Securities and Exchange
Commission.
16
