EXHIBIT 99(a)
NEWS RELEASE Cleveland-Cliffs Inc
1100 Superior Avenue
Cleveland, Ohio 44114-2589
CLEVELAND-CLIFFS REPORTS RESULTS FOR 2003
-----------------------------------------
Cleveland, OH - February 4, 2004 - Cleveland-Cliffs Inc (NYSE:CLF)
today reported a fourth quarter net loss of $8.9 million, or $.86 per share (all
per share amounts are "diluted"). Fourth quarter results include $17.2 million
in charges for the following previously disclosed items: A $6.0 million loss
related to the kiln shutdown at Tilden; a $2.5 million restructuring charge for
the salaried employee reduction program; a $3.8 million charge related to the
acquisition and startup cost of the United Taconite Mine; and a $4.9 million
accrual for stock-based compensation. The fourth quarter results also included
an extraordinary gain of $2.2 million related to the acquisition of the Eveleth
Mine assets by United Taconite. For the full year 2003, Cliffs reported a net
loss of $32.7 million, or $3.19 per share. Excluding the extraordinary gain, the
2003 loss from continuing operations was $11.1 million, or $1.07 per share in
the fourth quarter and $34.9 million, or $3.40 per share for the year.
In 2002, Cliffs recorded a net loss of $70.8 million, or $7.01 per
share, in the fourth quarter, and $188.3 million, or $18.62 per share, for the
full year. The net loss of $188.3 million in 2002 included a loss of $108.5
million from a discontinued operation, and a $13.4 million charge related to a
cumulative effect of accounting change. Excluding these charges, the loss from
continuing operations in 2002 was $66.4 million, or $6.58 per share. Fourth
quarter and full-year results in 2002 included a $52.7 million asset impairment
charge to write off the long-lived assets of the Empire Mine. In the fourth
quarter 2003, an additional impairment charge of $2.6 million was recorded for
current year Empire fixed asset additions.
Following is a summary of results for 2003 and 2002.
(IN MILLIONS EXCEPT PER SHARE)
------------------------------------------------------
FOURTH QUARTER YEAR
-------------------------- --------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Loss From Continuing Operations:
Amount $ (11.1) $ (65.6) $ (34.9) $ (66.4)
Per Share (1.07) (6.49) (3.40) (6.58)
Loss From Discontinued Operation:
Amount -- (5.2) -- (108.5)
Per Share -- (.52) -- (10.72)
Cumulative Effect of Accounting Change:
Amount -- -- -- (13.4)
Per Share -- -- -- (1.32)
Extraordinary Gain:
Amount 2.2 -- 2.2 --
Per Share .21 -- .21 --
------------ ------------ ------------ ------------
Net Loss:
Amount $ (8.9) $ (70.8) $ (32.7) $ (188.3)
Per Share (.86) (7.01) (3.19) (18.62)
============ ============ ============ ============
1
A new sales record was established in 2003. Iron ore pellet sales
volume was up 25 percent in the fourth quarter and 31 percent for the full year.
Iron ore pellet sales in the fourth quarter of 2003 were 5.6 million tons
compared to 4.5 million tons in 2002. Full year sales were 19.2 million tons in
2003 versus 14.7 million tons in 2002.
Royalties and management fees from partners were $10.6 million in 2003,
a decrease of $1.6 million from 2002. The decrease was principally due to the
whole year effect of the Company's increased mine ownership in 2002, partially
offset by increased production.
Administrative expenses in 2003 were $25.1 million, an increase of $1.3
million from 2002. The increase primarily reflects higher professional fees
related to financing and business development activities and higher stock-based
compensation partially offset by lower employment costs and incentive
compensation. The increase in stock-based compensation of $4.3 million
principally reflected the approximate 157 percent increase in the Company's
common stock price during 2003.
Interest income of $10.6 million in 2003 was $5.8 million above 2002
income of $4.8 million. The increase primarily reflected interest on the
long-term receivables from Ispat Inland and Rouge Industries Inc. Interest
expense was $4.6 million in 2003, a decrease of $2.0 million from 2002 interest
expense of $6.6 million. The decrease principally reflected lower average
borrowing due to the repayment and cancellation of the Company's $100 million
revolving credit facility in October 2002 and repayment of a portion of the
senior unsecured notes. The Company made senior note repayments totaling $30
million in 2003, and paid off the balance early in 2004.
Other income of $11.4 million in 2003 was $2.3 million less than 2002.
The decrease reflected two insurance recoveries in 2002 totaling $3.5 million
partially offset by higher sales of non-strategic assets in 2003. Other expenses
were $9.4 million in 2003, an increase of $1.5 million from 2002 expenses of
$7.9 million. The increase primarily reflects coal retiree expense of $2.0
million and increased state and local taxes of $.4 million, partially offset by
lower debt restructuring fees.
Cliffs' share of iron ore pellet production in the fourth quarter was
4.8 million tons versus 4.2 million tons in 2002, and full year production was
18.1 million tons versus 14.7 million tons in 2002. At the end of December,
Cliffs had 4.1 million tons of pellets in inventory compared to 3.9 million tons
at December 31, 2002. A significant percentage of the pellets in inventory at
year-end are located in the lower great lakes region and will be sold early in
2004.
2
Following is a summary of production tonnages by mine for the years
2003 and 2002:
(TONS IN MILLIONS)
------------------------------------------------------------
TOTAL CLIFFS' SHARE
-------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ------------ -----------
Empire 5.2 3.6 4.0 1.1
Tilden 7.0 7.9 6.0 6.7
----------- ----------- ------------ -----------
Michigan Mines 12.2 11.5 10.0 7.8
Hibbing 8.0 7.7 1.8 1.5
Northshore 4.8 4.2 4.8 4.2
United .1 .1
Wabush 5.2 4.5 1.4 1.2
----------- ----------- ------------ -----------
Total 30.3 27.9 18.1 14.7
=========== =========== ============ ===========
In November, the Tilden facility experienced a crack in a kiln riding
ring requiring the shutdown of its Unit #2 kiln in the pelletizing plant.
Scheduled maintenance was accelerated to coincide with the kiln ring repair. The
repair is expected to be complete by mid-February 2004. The resulting 2003
production loss was approximately .3 million tons. Fourth quarter sales were not
impacted by the outage; however, fourth quarter results were adversely affected
by $6 million due to the cost of the repair, cost of accelerated maintenance,
and the effect of lost production on fixed costs.
In the fourth quarter 2003, the Company recorded an additional
restructuring charge of $2.5 million related to the Company's previously
disclosed salaried employee reduction program, resulting in a total reduction of
20 percent in salaried workforce, or 133 employees, at Cliffs' U.S. operations.
Cliffs initiated the salaried employee reduction in the third quarter of 2003.
The Company had previously recorded a restructuring charge of $6.2 million in
the third quarter 2003.
In December 2003, United Taconite LLC (70% owned by Cliffs and 30%
owned by Laiwu Steel Group) acquired the mine assets of Eveleth Mine LLC in
Minnesota for $3 million and the assumption of certain liabilities, primarily
mine closure related environmental obligations. The mine resumed operations in
late December and produced 80,000 tons of pellets for the year. Cliffs recorded
a charge of $3.8 million in December related to the acquisition and start up of
the mine. The company also recorded an extraordinary gain of $2.2 million as a
result of this transaction, based on the values assigned to assets acquired and
liabilities assumed.
In December, after International Steel Group Inc. completed a public
offering of its common shares, Cliffs' investment value in ISG increased to
$196.7 million from its original cost of $17.4 million. The "marked to market"
gain of $179.3 million resulted in an after-tax credit to "Other comprehensive
income" of $144.9 million. Cliffs is restricted from selling its shares until
June 9, 2004.
On October 23, 2003, Rouge Industries, Inc., a significant pellet
customer of Cliffs, filed for Chapter 11 bankruptcy protection and on January
30, 2004 sold substantially all of its assets to Severstal North America, Inc.,
a U.S. affiliate of OAO Severstal, Russia's second largest steel producer. The
Company's sales contract with Rouge, which provided that it would be the sole
supplier of pellets to Rouge through 2012, was assumed by Severstal with minor
modifications.
3
On January 29, 2004, Stelco Inc. obtained an order for protection under
the Companies' Creditors Arrangement Act in Ontario, Canada. Stelco is a 44.6
percent participant in Wabush Mines and U.S. subsidiaries of Stelco (which we
understand have not filed for creditor protection) own 14.7 percent of Hibbing
Taconite Company-Joint Venture and 15 percent of Tilden Mining Company LC. At
the time of the filing, the Company had no trade receivable exposure to Stelco.
Additionally, Stelco has met its cash call requirements at the mining ventures
to date. The Company currently expects Stelco to continue its participation in
the mining ventures.
LIQUIDITY
- ---------
At December 31, 2003, Cliffs had $67.8 million of cash and cash
equivalents and $25 million of debt.
In January 2004, the Company completed a private offering of $172.5
million of redeemable cumulative convertible perpetual preferred stock. The
preferred stock will pay cash dividends at a rate of 3.25 percent per annum. The
Company expects the net proceeds to be approximately $166 million after offering
expenses. A portion of the proceeds was utilized to repay the remaining $25
million of the Company's senior unsecured notes early in 2004. The Company has
also used approximately $23 million to fund its underfunded salaried pension
plan and intends to use some additional amounts for other pension funding
obligations in 2004.
OUTLOOK
- -------
The North American iron ore and steel markets are currently very strong
and global demand for iron ore is at extremely high levels. With solid steel
demand and improved pricing, most integrated steel producers are operating their
mills at high utilization rates. We anticipate the demand for iron ore will
remain high and all of our operations are currently scheduled to run at or near
capacity. Given the current market conditions, we expect that we will be able to
sell all of our production this year.
John Brinzo, Chairman & Chief Executive Officer, said, "We are starting
2004 with a substantially improved balance sheet and a full order book, thus our
prospects for this year are solid. We still must work to increase profit margins
and improve the competitive position of our mines. Our 2004 sales volume is
projected to be a record 22 million tons, a 15 percent increase from 2003."
Following is a summary of expected production by mine for 2004:
(TONS IN MILLIONS)
-------------------------
TOTAL CLIFFS'
MINE SHARE
----------- ----------
Empire 5.5 4.3
Tilden 7.8 6.7
----------- ----------
Michigan Mines 13.3 11.0
Hibbing 8.1 1.9
Northshore 4.9 4.9
United 4.3 3.0
Wabush 6.0 1.6
----------- ----------
Total 36.6 22.4
=========== ==========
4
Brinzo concluded, "We are excited about 2004. After three years of
dealing with virtually the complete restructuring of our customer base, and
remaking our company into a merchant mining company, we are at a point where our
actions and a much stronger steel industry are expected to improve profitability
for Cliffs."
* * * * * * * * * * * * * * * * * *
Cleveland-Cliffs Inc, headquartered in Cleveland, Ohio, is the largest
producer of iron ore pellets in North America and sells the majority of its
pellets to integrated steel companies in the United States and Canada. The
Company operates six iron ore mines located in Michigan, Minnesota and Eastern
Canada.
The results of operations reported in this release are subject to
change pending completion of the Company's external audit.
This news release contains predictive statements that are intended to
be made as "forward-looking" within the safe harbor protections of the Private
Securities Litigation Reform Act of 1995. Although the Company believes that its
forward-looking statements are based on reasonable assumptions, such statements
are subject to risks and uncertainties.
Actual results may differ materially from such statements for a variety
of factors; such as: the expectations for pellet sales and mine operations and
the projected liquidity requirements in 2004 may differ significantly from
actual results because of changes in demand for iron ore pellets by North
American integrated steel producers due to changes in steel utilization rates,
operational factors, electric furnace production or imports of semi-finished
steel or pig iron; changes in the financial condition of the Company's partners
and/or customers; rejection of major contracts and/or venture agreements by
customers and/or participants under provisions of the U. S. Bankruptcy Code or
similar statutes in other countries; events or circumstances that could impair
or adversely impact the viability of a mine and the carrying value of associated
assets; problems with productivity, labor disputes, weather conditions,
fluctuations in ore grade, tons mined, changes in cost factors including energy
costs, and employee benefit costs; and the effect of these various risks on the
Company's liquidity and financial position.
Reference is made to the detailed explanation of the many factors and
risks that may cause such predictive statements to turn out differently, as set
forth in the Company's most recent Annual Report and Reports on Form 10-K, 10-Q,
and the Form 8-K filed January 14, 2004 and previous news releases filed with
the Securities and Exchange Commission, which are available publicly on Cliffs'
website. The information contained in this document speaks as of the date of
this news release and may be superceded by subsequent events.
Cliffs will host a conference call on 2003 results tomorrow, February
5, at 10:00 a.m. EST. The call will be broadcast live on Cliffs' website at
www.cleveland-cliffs.com. A replay of the call will be available on the website
for 30 days. Cliffs plans to file its 2003 annual 10-K Report with the
Securities and Exchange Commission later this month. For a more complete
discussion of operations and financial position, please refer to the 10-K
Report.
5
Contacts:
- ---------
Media: (216) 694-4870
Financial Community: (800) 214-0739 or (216) 694-5459
News releases and other information on the Company are available on the Internet
at www.cleveland-cliffs.com
6
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED OPERATIONS
Fourth Quarter Year
-------------------- -----------------------
(In Millions Except Per Share Amounts) 2003 2002 2003 2002
- -------------------------------------- -------- -------- -------- --------
REVENUES
Product sales and services
Iron ore products $ 202.0 $ 156.2 $ 686.8 $ 510.8
Freight and minority interest 38.9 25.5 138.3 75.6
-------- -------- -------- --------
Total product sales and services 240.9 181.7 825.1 586.4
Royalties and management fees 2.9 4.2 10.6 12.2
Interest income 2.7 1.4 10.6 4.8
Other income 1.8 2.0 11.4 13.7
-------- -------- -------- --------
TOTAL REVENUES 248.3 189.3 857.7 617.1
COSTS AND EXPENSES
Cost of goods sold and operating expenses 240.3 169.0 835.0 582.7
Administrative, selling and general expenses 9.6 7.8 25.1 23.8
Restructuring charge 2.5 .1 8.7 .7
Provision for bankruptcy exposures 7.5
Interest expense .9 1.2 4.6 6.6
Impairment of mining assets 2.6 52.7 2.6 52.7
Other expenses 4.3 4.0 9.4 7.9
-------- -------- -------- --------
TOTAL COSTS AND EXPENSES 260.2 234.8 892.9 674.4
-------- -------- -------- --------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (11.9) (45.5) (35.2) (57.3)
INCOME TAXES (CREDIT) (.8) 20.1 (.3) 9.1
-------- -------- -------- --------
LOSS FROM CONTINUING OPERATIONS (11.1) (65.6) (34.9) (66.4)
LOSS FROM DISCONTINUED OPERATION (5.2) (108.5)
EXTRAORDINARY GAIN (Net of : tax $.5;
minority interest $1.2) 2.2 2.2
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (13.4)
-------- -------- -------- --------
NET LOSS $ (8.9) $ (70.8) $ (32.7) $ (188.3)
======== ======== ======== ========
NET LOSS PER COMMON SHARE
Basic and Diluted
Continuing operations $ (1.07) $ (6.49) $ (3.40) $ (6.58)
Discontinued operation (.52) (10.72)
Extraordinary gain .21 .21
Cumulative effect of accounting change (1.32)
-------- -------- -------- --------
Net loss $ (0.86) $ (7.01) $ (3.19) $ (18.62)
======== ======== ======== ========
AVERAGE NUMBER OF SHARES
Basic 10.3 10.1 10.3 10.1
Diluted 10.3 10.1 10.3 10.1
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED CASH FLOWS
Fourth Quarter Year
--------------------- ---------------------
(In Millions, Brackets Indicate Decrease in Cash) 2003 2002 2003 2002
- -------------------------------------------------------- ------- ------- ------- -------
OPERATING ACTIVITIES
Loss from continuing operations $ (11.1) $ (65.6) $ (34.9) $ (66.4)
Depreciation and amortization:
Consolidated 5.5 8.0 26.7 25.5
Share of associated iron ore ventures (.5) 2.2 2.3 8.4
Pensions and other post-retirement benefits 14.9 2.7 42.1 10.8
Provision for bankruptcy exposures 7.5
Accretion of asset retirement obligation .9 1.9 3.6 1.9
Impairment of mining assets 2.6 52.7 2.6 52.7
Deferred income taxes .5 15.6 .5 13.9
Gain on sale of assets (.4) (1.1) (7.1) (6.2)
Other 22.4 (2.9) 4.7 (12.6)
------- ------- ------- -------
Total before changes in operating
assets and liabilities 34.8 13.5 48.0 28.0
Changes in operating assets and liabilities (9.7) (19.5) (5.3) 12.9
------- ------- ------- -------
Net cash from (used by) operating activities 25.1 (6.0) 42.7 40.9
INVESTING ACTIVITIES
Purchase of property, plant and equipment:
Consolidated (4.8) (1.5) (20.1) (8.6)
Share of associated iron ore ventures (.5) (.3) (1.5) (2.0)
Purchase of EVTAC assets (2.0) (2.0)
Proceeds from sale of assets .5 1.5 8.9 8.2
Investment in steel companies equity and debt (27.4)
Investment in power-related joint venture (6.0)
------- ------- ------- -------
Net cash from (used by) investing activities (6.8) (.3) (14.7) (35.8)
FINANCING ACTIVITIES
Repayment of long-term debt (25.0) (15.0) (30.0) (15.0)
Proceeds from stock options exercised 6.0 6.0
Contributions by minority shareholders .9 .1 2.0 .3
Repayment of revolving credit facility (100.0) (100.0)
------- ------- ------- -------
Net cash from (used by) financing activities (18.1) (114.9) (22.0) (114.7)
------- ------- ------- -------
CASH FROM (USED BY) CONTINUING
OPERATIONS .2 (121.2) 6.0 (109.6)
CASH USED BY DISCONTINUED OPERATION (2.5) (12.4)
------- ------- ------- -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ .2 $(123.7) $ 6.0 $(122.0)
======= ======= ======= =======
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(In Millions)
---------------------------------
Dec. 31, Sept. 30, Dec. 31,
2003 2003 2002
----------- --------- ---------
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 67.8 $ 67.6 $ 61.8
Trade accounts receivable - net 9.5 8.8 14.1
Receivables from associated companies 5.9 9.0 9.0
Product Inventories 116.4 126.0 111.2
Supplies and other 86.4 66.9 73.2
Other 27.3 26.1 31.2
----------- --------- ---------
TOTAL CURRENT ASSETS 313.3 304.4 300.5
PROPERTIES - NET 270.5 271.4 278.9
MARKETABLE SECURITIES 196.7 17.4 17.4
LONG-TERM RECEIVABLES 63.8 63.1 63.9
OTHER ASSETS 50.9 66.8 69.4
----------- --------- ---------
TOTAL ASSETS $ 895.2 $ 723.1 $ 730.1
=========== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 25.0 $ 15.0 $ 20.0
Accounts payable 64.7 55.4 54.8
Accrued employment costs 61.4 62.6 60.1
Accrued expenses 18.0 29.7 17.6
Payables to associated companies 16.1 12.9 14.1
State and local taxes 12.6 10.3 13.2
Environmental and mine closure obligations 10.2 10.8 9.8
Other 17.9 17.8 15.2
----------- --------- ---------
TOTAL CURRENT LIABILITIES 225.9 214.5 204.8
LONG-TERM DEBT 35.0 35.0
PENSIONS, INCLUDING MINIMUM PENSION LIABILITY 135.2 163.7 151.3
OTHER POST-RETIREMENT BENEFITS 124.2 114.9 109.1
ENVIRONMENTAL AND CLOSURE OBLIGATIONS 86.6 81.4 84.7
DEFERRED INCOME TAXES 34.5
OTHER LIABILITIES 40.5 37.5 46.0
----------- --------- ---------
646.9 647.0 630.9
MINORITY INTEREST 20.2 17.7 19.9
SHAREHOLDERS' EQUITY 228.1 58.4 79.3
----------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 895.2 $ 723.1 $ 730.1
========== ========= =========
- -------------------------------------------------------------------------------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. On December 1, 2003, Cliffs and Laiwu Steel Group acquired the assets of
Eveleth Mines LLC. Eveleth's iron ore mining and pelletizing assets were
acquired by United Taconite LLC, which is owned 70 percent by Cliffs and
30 percent by Laiwu.
2. The increase in Shareholders' Equity at December 31, 2003 versus December
31, 2002 included credits to Other Comprehensive Income totaling $167.1
million in 2003, comprised of $144.9 million related to the after-tax
"marked-to-market" unrealized gain on the Company's investment in ISG
common stock and $22.2 million related to the decrease in minimum pension
liability.
3. 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.
CLEVELAND-CLIFFS INC
SUPPLEMENTAL FINANCIAL INFORMATION
Three Months Ended Year Ended
December 31 December 31
----------------------------------- ----------------------------------
2003 2002 2003 2002
---------------- ---------------- ---------------- ----------------
IRON ORE SALES (TONS) - IN THOUSANDS 5,607 4,501 19,215 14,710
================ ================ ================ ================
SALES MARGIN (LOSS) - IN MILLIONS
- ---------------------------------
Revenues from iron ore sales and services* $ 202.0 $ 156.2 $ 686.8 $ 510.8
Cost of goods sold and operating expenses*:
Total 201.4 143.5 696.7 507.1
Costs of production curtailments 11.1 20.6
---------------- ---------------- ---------------- ----------------
Excluding costs of production curtailments 201.4 143.5 685.6 486.5
---------------- ---------------- ---------------- ----------------
Sales margin (loss):
Total .6 12.7 (9.9) 3.7
Excluding costs of production curtailments .6 12.7 1.2 24.3
================ ================ ================ ================
SALES MARGIN (LOSS) - PER TON
- -----------------------------
Revenues from iron ore sales and services* $ 36.03 $ 34.70 $ 35.74 $ 34.72
Cost of goods sold and operating expenses*:
Total 35.92 31.88 36.27 34.47
Costs of production curtailments .75 1.40
---------------- ---------------- ---------------- ----------------
Excluding costs of production curtailments 35.92 31.88 35.52 33.07
---------------- ---------------- ---------------- ----------------
Sales margin (loss):
Total .11 2.82 (.53) .25
Excluding costs of production curtailments .11 2.82 .22 1.65
================ ================ ================ ================
EBIT AND EBITDA - IN MILLIONS
- -----------------------------
Loss from continuing operations $ (11.1) $ (65.6) $ (34.9) $ (66.4)
Impairment of mining assets 2.6 52.7 2.6 52.7
Interest income (2.7) (1.4) (10.6) (4.8)
Interest expense .9 1.2 4.6 6.6
Income taxes (credit) (.8) 20.1 (.3) 9.1
---------------- ---------------- ---------------- ----------------
EBIT ** (11.1) 7.0 (38.6) (2.8)
Depreciation and amortization 5.0 10.2 29.0 33.9
---------------- ---------------- ---------------- ----------------
EBITDA ** (6.1) 17.2 (9.6) 31.1
================ ================ ================ ================
* Excludes revenues and expenses related to freight and minority interest
which are offsetting and have no impact on operating results.
** EBIT and EBITDA are non-GAAP financial measures used by management to
measure liquidity and operating performance.