1
NEWS RELEASE Exhibit 99(a)
Cleveland-Cliffs Inc
1100 Superior Avenue
Cleveland, Ohio 44114-2589
- --------------------------------------------------------------------------------
CLEVELAND-CLIFFS REPORTS
------------------------
A 67 PERCENT INCREASE IN
------------------------
SECOND QUARTER EARNINGS
-----------------------
CLEVELAND, OH - July 22, 1998 - Cleveland-Cliffs Inc (NYSE:CLF)
today reported 1998 second quarter earnings of $16.9 million, or $1.48 per
diluted share, and 1998 first-half earnings of $17.4 million, or $1.52 per
diluted share. Comparable earnings, before special items, in 1997 were $10.1
million, or $.88 per diluted share, in the second quarter, and $13.1 million, or
$1.14 per diluted share, in the first-half. Net income for both 1997 periods
included an after-tax credit of $2.8 million resulting from the reversal of an
excess accrual for closedown obligations of the Savage River Mine in Australia
that were recorded prior to 1997.
Following is a summary of results:
(In Millions, Except Per Share)
-------------------------------
Second Quarter First-Half
------------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
Income Before Special Items:
Amount $16.9 $10.1 $17.4 $13.1
Per Share (Basic) 1.49 .89 1.53 1.15
Per Share (Diluted) 1.48 .88 1.52 1.14
Special Items:
Amount -- 2.8 -- 2.8
Per Share (Basic) -- .25 -- .25
Per Share (Diluted) -- .25 -- .25
Net Income:
Amount 16.9 12.9 17.4 15.9
Per Share (Basic) 1.49 1.14 1.53 1.40
Per Share (Diluted) 1.48 1.13 1.52 1.39
The $6.8 million, or 67 percent, increase in second quarter earnings
before special items was mainly due to higher North American sales volume and
price realization, lower interest expense, and a lower effective tax rate,
partially offset by higher administrative and reduced iron development expenses
and lower investment income.
The $4.3 million increase in first-half earnings before special items was
principally due to higher North American sales volume and price realization,
lower interest expense, and a lower effective tax rate, partially offset by the
termination of Savage River operations, higher administrative and reduced iron
development expenses and lower investment income. Savage River, which produced
its last iron ore pellets in December, 1996, earned $2.4 million in the first
half of 1997 on sales of its remaining inventory.
- --------------------------------------------------------------------------------
2
Cliffs' North American iron ore pellet sales in the second quarter of
1998 were a record 3.9 million tons, a 39 percent increase from the 2.8 million
tons sold in the second quarter of 1997. First-half sales of 4.6 million tons
were also a record and 48 percent higher than the 3.1 million tons sold in the
first half of 1997.
John S. Brinzo, Cliffs' president and chief executive officer, said,
"While increasing Asian steel imports and the General Motors strike are
impacting our customers and partners to varying degrees, we expect steel
production in the United States and Canada to remain strong for the remainder of
1998. We expect our iron ore sales volume will approximate 12.5 million tons for
1998, an increase of 500,000 tons from our previous estimate and 1.0 million
tons higher than our projection at the beginning of the year. This would
establish a new record, 20 percent higher than 1997 and 1.5 million tons greater
than the previous record set in 1996. Sales at the 12.5 million ton level are
possible by reducing inventories to a minimum level and by purchasing ore for
resale."
Administrative expenses increased by $1.4 million in the second quarter
of 1998 versus 1997 and $2.4 million in the first-half of 1998 versus 1997
principally due to the cost of Performance Share grants, a key component of
senior management compensation. Lower investment income in the second quarter
and first-half reflects reduced cash balances in 1998, while lower interest
expense in both periods results from increased capitalization of interest on
Cliffs' share of construction costs on the Cliffs and Associates Limited reduced
iron project. Other expenses were up in both periods due to increased costs of
reduced iron and international development activities.
Cliffs-managed mines produced 10.0 million tons in the second quarter of
1998 compared with 9.6 million tons in 1997. First-half production was 19.4
million tons, up from 19.2 million tons in 1997. For the full year 1998, the six
mines are expected to produce a record 40.5 million tons, with Cliffs' share
being a record 11.4 million tons. In 1997, the mines produced 39.6 million tons,
with Cliffs' share being 10.9 million tons. The increases in 1998 are mainly due
to higher scheduled production at the Tilden Mine.
The Empire and Tilden Mines in Michigan have experienced some electric
power interruptions this summer, and there is a risk of further curtailments and
production losses at these mines under interruptible power contracts with
Wisconsin Electric Power Company. We are working closely with Wisconsin Electric
to minimize disruptions. The power situation at the other mines is also being
closely monitored. Cliffs' wholly-owned Northshore Mine and Cliffs-managed LTV
Steel Mining Company operate their own power facilities and sell excess power
capacity.
Ferrous Metallics Activities
* CLIFFS AND ASSOCIATES LIMITED ("CAL") - While good progress is being made
on construction of our hot-briquetted iron venture project in Trinidad
and Tobago with LTV Corporation and Lurgi AG, exceptionally rainy weather
over the last few months and other construction difficulties have caused
delays. We are now projecting that construction of the CAL facilities
will be completed late in 1998, with commissioning and initial production
to follow. Operations planning and employee training activities are well
advanced in preparation for the plant commissioning. CAL will operate on
a planned start-up curve and is expected to achieve its design capacity
rate of 500,000 metric tons per year in mid-1999. Project costs are
tracking the budget, with Cliffs' cumulative investment totaling $67.2
million as of June 30, 1998.
2
3
CAL is expected to produce a premium quality briquetted product
and have a highly competitive cost position. Market prices for ferrous
metallics products are currently depressed as a result of Asian producers
marketing pig iron into the U.S. at very low prices. While it is
difficult to project how long prices will remain depressed, CAL is
expected to be profitable even at current price levels.
The project, which will be the first to use Lurgi's Circored(R)
technology to produce briquettes containing nearly 95 percent iron, has
significant expansion potential. The first expansion would likely be for
an additional 1.0 million tons, increasing total capacity to 1.5 million
tons, and would be project financed. A decision to expand could be made
by the end of 1999 depending on market factors.
* NORTHSHORE "REDSMELT" PIG IRON PROJECT - We continue to evaluate an
investment in a plant to produce 700,000 metric tons annually of a
premium grade pig iron at Cliffs' wholly-owned Northshore Mine in Silver
Bay, Minnesota. Although we had expected to make a decision on this
project early in the third quarter of 1998, uncertainties concerning
environmental permitting and other matters have delayed the decision. We
expect that we will resolve the remaining issues and make a decision on
whether or not to proceed by the end of 1998.
The plant would employ the "Redsmelt" process developed by
Mannesmann Demag that combines the technologies of a rotary reduction
furnace, using coal as the reductant fuel, and a submerged arc furnace.
The Northshore Mine, which is one of the low cost pellet producers in
North America, has excess concentrate capacity for feed to the pig iron
facility and would enjoy a highly competitive cost position.
Outlook
- -------
Commenting on Cliffs' outlook, Mr. Brinzo said, "We are cautiously
optimistic about the balance of 1998 and 1999 recognizing that increasing steel
imports could adversely impact our steel company partners and customers." Most
steel industry analysts are projecting a continuation of relatively high
operating rates for steel producers in the United States and Canada into 1999
despite increasing concerns about Asian steel imports. Based on the strength of
the steel outlook, Cliffs-managed mines are expected to operate at capacity
levels in 1999, with pellet production nearing 42 million tons. Production at
this level, which includes expansion of Tilden Mine capacity to 7.8 million
tons, would set a new record, surpassing the 40.5 million tons projected for
1998. Cliffs' share of 1999 production at capacity levels would be 11.8 million
tons.
Mr. Brinzo further commented, "Although we have some concerns about the
business outlook, we believe we are well positioned due to the fundamental
strength of our business, our strong financial condition, and the potential for
our ferrous metallics and international growth initiatives."
* * *
Cleveland-Cliffs is the largest supplier of iron ore products to the
North American steel industry and is developing a significant ferrous metallics
business. Subsidiaries of the Company manage six iron ore mines in North America
and hold equity interests in five of the mines. Cliffs has a major iron ore
reserve position in the United States, is a substantial iron ore merchant, and
is constructing a joint venture plant in Trinidad to produce high-quality iron
briquettes.
3
4
This news release contains forward-looking statements regarding iron ore
production and sales volume which reflect forecasts of activity in the steel and
iron ore industries. Actual production and sales volume could differ
significantly from current expectations due to inherent risks such as lower
steel and iron ore demand, higher steel imports, production losses due to power
curtailments, or other factors. This news release also contains a projection of
the start-up, production rate, and profitability of the Cliffs and Associates
Limited project which could change due to inherent risks such as construction
delays, process difficulties, product pricing, or other factors. Although the
Company believes that the forward-looking statements are based on reasonable
assumptions, such statements are subject to risks and uncertainties which could
cause actual results to differ materially.
Contacts:
- --------
Media: David L. Gardner, (216) 694-5407
Financial Community: Fred B. Rice, (800) 214-0739 or (216) 694-5459
To obtain faxed copies of Cleveland-Cliffs Inc news releases dial
1-800-778-3888. News releases and other information on the Company are available
on the Internet at
http://www.businesswire.com/cnn/clf.htm
- ---------------------------------------
4
5
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED INCOME
Three Months Six Months
Ended June 30 Ended June 30
------------------- -------------------
(In Millions Except Per Share Amounts) 1998 1997 1998 1997
- -------------------------------------- -------- -------- -------- --------
REVENUES
Product sales and services $ 143.2 $ 102.7 $ 170.4 $ 123.2
Royalties and management fees 12.9 12.4 21.3 20.7
-------- -------- -------- --------
Total Operating Revenues 156.1 115.1 191.7 143.9
Investment income (securities) .8 1.2 2.2 3.4
Recovery of excess closedown provision - 4.3 - 4.3
Other income 1.0 1.5 1.8 1.8
-------- -------- -------- --------
TOTAL REVENUES 157.9 122.1 195.7 153.4
COSTS AND EXPENSES
Cost of goods sold and operating expenses 127.2 96.1 157.3 117.1
Administrative, selling and general expenses 4.9 3.5 9.6 7.2
Interest expense .1 .8 .3 1.7
Other expenses 2.9 2.2 5.0 3.5
-------- -------- -------- --------
TOTAL COSTS AND EXPENSES 135.1 102.6 172.2 129.5
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 22.8 19.5 23.5 23.9
INCOME TAXES
Currently payable 3.4 2.7 3.5 3.3
Deferred 2.5 3.9 2.6 4.7
-------- -------- -------- --------
TOTAL INCOME TAXES 5.9 6.6 6.1 8.0
-------- -------- -------- --------
NET INCOME $ 16.9 $ 12.9 $ 17.4 $ 15.9
======== ======== ======== ========
NET INCOME PER COMMON SHARE
Basic $ 1.49 $ 1.14 $ 1.53 $ 1.40
Diluted $ 1.48 $ 1.13 $ 1.52 $ 1.39
AVERAGE NUMBER OF SHARES
Basic 11.3 11.4 11.3 11.4
Diluted 11.4 11.4 11.4 11.4
5
6
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED CASH FLOWS
Three Months Six Months
Ended June 30 Ended June 30
-------------------- --------------------
(In Millions, Brackets Indicate Decrease in Cash) 1998 1997 1998 1997
----------------------------------------------- -------- -------- -------- --------
OPERATING ACTIVITIES
Net income $ 16.9 $ 12.9 $ 17.4 $ 15.9
Depreciation and amortization:
Consolidated 2.2 1.8 4.3 3.5
Share of associated companies 3.2 3.2 6.3 6.0
Decrease in Savage River closedown reserve - (6.8) - (16.1)
Provision for deferred income taxes 2.5 4.0 2.6 4.8
Other 1.3 (1.4) (2.3) .6
-------- -------- -------- --------
Total Before Changes in Operating Assets and
Liabilities 26.1 13.7 28.3 14.7
Changes in operating assets and liabilities 3.7 (36.8) (42.7) (75.3)
-------- -------- -------- --------
NET CASH FROM (USED BY) OPERATING ACTIVITIES 29.8 (23.1) (14.4) (60.6)
INVESTING ACTIVITIES
Purchase of property, plant and equipment:
Consolidated (3.8) (1.9) (6.1) (5.0)
Share of associated companies (6.6) (8.9) (13.8) (19.2)
Purchase of Wabush interest - (15.0) - (15.0)
Other - 2.5 1.3 4.8
-------- -------- -------- --------
NET CASH (USED BY) INVESTING ACTIVITIES (10.4) (23.3) (18.6) (34.4)
FINANCING ACTIVITIES
Dividends (4.3) (3.7) (8.0) (7.4)
Repurchases of Common Shares (2.0) - (3.2) (1.7)
-------- -------- -------- --------
NET CASH (USED BY) FINANCING ACTIVITIES (6.3) (3.7) (11.2) (9.1)
EFFECT OF EXCHANGE RATE CHANGES ON CASH - .2 - .2
-------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
$ 13.1 $ (49.9) $ (44.2) $ (103.9)
======== ======== ======== ========
6
7
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(In Millions)
---------------------------------------------
June 30 Mar. 31 Dec. 31 June 30
ASSETS 1998 1998 1997 1997
----------- --------- --------- --------- ---------
CURRENT ASSETS
Cash and cash equivalents $ 71.7 $ 58.6 $ 115.9 $ 61.5
Accounts receivable - net 73.2 45.2 73.4 61.8
Inventories 87.5 118.7 61.4 107.3
Other 16.6 14.4 15.1 18.1
--------- --------- --------- ---------
TOTAL CURRENT ASSETS 249.0 236.9 265.8 248.7
PROPERTIES - NET 134.6 132.6 134.0 129.4
INVESTMENTS IN ASSOCIATED COMPANIES 225.9 222.3 218.3 196.4
OTHER ASSETS 81.1 82.8 76.2 80.2
--------- --------- --------- ---------
TOTAL ASSETS $ 690.6 $ 674.6 $ 694.3 $ 654.7
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES $ 78.0 $ 72.2 $ 91.8 $ 81.2
LONG-TERM OBLIGATIONS 70.0 70.0 70.0 70.0
POSTEMPLOYMENT BENEFIT LIABILITIES 69.8 69.9 70.1 70.5
OTHER LIABILITIES 56.8 56.6 55.0 54.4
SHAREHOLDERS' EQUITY 416.0 405.9 407.4 378.6
--------- --------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 690.6 $ 674.6 $ 694.3 $ 654.7
========= ========= ========= =========
- --------------------------------------------------------------------------------
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