Exhibit 99A
Cleveland-Cliffs Inc
1100 Superior Avenue
NEWS RELEASE Cleveland, Ohio 44114-2589
- --------------------------------------------------------------------------------
CLEVELAND-CLIFFS REPORTS
THIRD QUARTER 2002 RESULTS
Cleveland, OH - October 23, 2002 - Reflecting a significant non-cash
charge in the quarter, Cleveland-Cliffs Inc (NYSE:CLF) today reported a net loss
of $92.2 million, or $9.12 per share (all per share amounts are "diluted"), for
the third quarter, and a net loss of $104.4 million, or $10.32 per share, for
the first nine months. The net loss for both periods included the previously
announced $95.7 million charge to impair the Company's investment in Cliffs and
Associates Limited (CAL). Excluding the special charge, net income was $3.5
million, or $.34 per share, in the third quarter and the nine-month net loss was
$8.7 million, or $.86 per share.
In 2001, Cliffs recorded a net loss of $1.7 million, or $.16 per share,
in the third quarter and a net loss of $17.1 million, or $1.69 per share, for
the first nine months. Excluding the cumulative effect of an accounting change,
the nine-month loss was $26.4 million, or $2.61 per share. In 2001, the Company
changed its method of accounting for investment gains and losses on pension
assets for the calculation of pension expense.
Following is a summary of results:
(IN MILLIONS, EXCEPT PER SHARE)
---------------------------------------------------------------
THIRD QUARTER FIRST NINE MONTHS
------------------------------ -----------------------------
2002 2001 2002 2001
-------------- ------------ ----------- -------------
Income (Loss) Before Special
Item and Cumulative
Effect of Accounting Change:
Amount $ 3.5 $ (1.7) $ (8.7) $ (26.4)
Per Share .34 (.16) (.86) (2.61)
Special Item:
Amount (95.7) - (95.7) -
Per Share (9.46) - (9.46) -
-------------- ------------ ----------- -------------
(Loss) Before Cumulative
Effect of Accounting Change:
Amount (92.2) (1.7) (104.4) (26.4)
Per Share (9.12) (.16) (10.32) (2.61)
Cumulative Effect of
Accounting Change:
Amount -- -- -- 9.3
Per Share -- -- -- .92
-------------- ------------ ----------- -------------
Net (Loss):
Amount (92.2) (1.7) (104.4) (17.1)
Per Share (9.12) (.16) (10.32) (1.69)
The improvement in 2002 third quarter and nine-month results before the
special item and the cumulative effect of an accounting change was primarily due
to higher pellet sales and production volume, a decrease in the operating loss
from CAL, and insurance claim recoveries. Iron ore pellet sales volume was up by
72 percent in the third quarter and 79 percent in the first nine months. Cliffs'
share of pellet production at managed-mines was up 91 percent in the quarter and
54 percent for the first nine months. Partly offsetting were lower royalties and
management fees, and higher administrative costs in 2002.
Fixed costs related to production curtailments, which are included in
cost of goods sold and operating expenses, were approximately $4 million in the
third quarter of 2002, due to the idling of the Empire Mine in July, versus $10
million in 2001. Costs of production curtailments in nine-month results were $21
million in 2002 and $35 million in 2001.
Lower royalty and management fee income from partners was due mainly to
the extended shutdown of operations at the Empire Mine in 2002, and Cliffs'
increased ownership of the Tilden Mine in 2002. Higher administrative costs in
2002 are primarily due to increased pension and medical expenses and the impact
of Cliffs' stock price on certain incentive compensation plans.
SPECIAL ITEM - IMPAIRMENT OF INVESTMENT IN CAL
In September 2002, Cliffs impaired its investment in CAL's HBI plant in
Trinidad by $121.5 million, or $95.7 million net of the minority interest, after
concluding that projected future cash flows would no longer exceed Cliffs'
investment. The impairment was recognized by a writedown of the investment to
fair value. There was no tax benefit recorded as an offset to the charge. In the
third quarter, Cliffs established a $33.5 million valuation reserve for deferred
taxes related to the asset impairment charge for CAL. The deferred tax valuation
reserve will be re-evaluated in future periods, and a benefit will be recorded
upon realization of the deferred tax assets or the reversal of the valuation
reserve.
No decision has been made with respect to the future of the HBI plant,
and it will be well maintained in its idle condition until a decision is made.
Options under consideration include permanent closure, restart at a later date,
or potential sale, although any realized sale value would likely be minimal. If
the decision were made to permanently close the plant, there are supply
inventories and other current assets of approximately $10 million, that would be
written down to net realizable value. There could also be additional shutdown
costs, currently not expected to exceed $30 million. Cliffs and Lurgi
Metallurgie GmbH, owner of the other 18 percent of CAL, expect to resolve the
future of CAL in the next couple of months.
LIQUIDITY
At September 30, 2002, Cliffs had $186 million of cash and cash
equivalents. At the end of September, there was $100 million borrowed under an
unsecured revolving credit facility and $70 million outstanding under senior
unsecured notes due in
2
December 2005. Subsequently, Cliffs repaid the $100 million borrowed under the
revolving credit facility and terminated the agreement. Due to the sharp decline
in the market value of the Company's pension fund assets thus far in 2002, and
the projected decline of interest rates used in discounting benefit liabilities,
pension assets at the end of 2002 are expected to be significantly less than the
accumulated benefit obligation at year-end. When this situation exists, a
direct, non-cash charge against shareholders' equity is required to recognize
the underfunding. The non-cash charge does not run through the income statement,
and in concept, represents the current state of the plans as if they were frozen
in time. The charge does not affect pension funding requirements in the
near-term. Based on current asset values, the charge against equity at the end
of 2002 is expected to be between $100 and $125 million. This charge would cause
a violation of one of the financial covenants in Cliffs' senior unsecured note
agreement at year-end. The Company is seeking a satisfactory resolution of the
anticipated violation with the noteholders.
IRON ORE ACTIVITIES
Iron ore pellet sales in the third quarter of 2002 were 5.0 million
tons compared to 2.9 million tons in 2001. Nine-month sales were 10.2 million
tons in 2002 versus 5.7 million tons in 2001. A significant portion of the
increase in both periods was the sale of pellets to Algoma Steel under a new
sales arrangement which replaced Algoma's prior equity interest in the Tilden
Mine. The balance represented additional sales to other customers, including
sales under a new agreement with International Steel Group.
Iron ore pellet production at Cliffs-managed mines increased to 7.5
million tons in the third quarter of 2002 from 6.4 million tons in 2001. Cliffs'
share of third quarter production was 2.0 million tons above last year.
Following is a summary of production tonnage for the third quarter and the first
nine months, and the current forecast for the full year, comparative with 2001:
(TONS IN MILLIONS)
--------------------------------------------------------------------------------
3RD QUARTER NINE MONTHS FULL YEAR
----------------------- ------------------------ -------------------------
2002 2001 2002 2001 2002 E 2001
----------- -------- ----------- --------- ------------ ---------
Empire 1.0 1.3 2.1 4.6 3.7 5.7
Tilden 2.0 1.8 5.8 4.5 7.8 6.4
----------- -------- ----------- --------- ------------ ---------
Michigan Mines 3.0 3.1 7.9 9.1 11.5 12.1
Hibbing 2.1 1.2 5.5 4.0 7.5 6.1
Northshore 1.1 .9 2.9 2.6 4.2 2.8
Wabush 1.3 1.2 3.2 4.1 4.5 4.4
----------- -------- ----------- --------- ------------ ---------
Total 7.5 6.4 19.5 19.8 27.7 25.4
=========== ======== =========== ========= ============ =========
Cliffs' Share of Total 4.2 2.2 10.5 6.8 14.7 7.8
=========== ======== =========== ========= ============ =========
The Empire Mine was idle for the entire first quarter of 2002 and
resumed production in April. Empire was temporarily idled again in July for
planned maintenance and vacation scheduling. There were no other production
curtailments in the third quarter, and there are no curtailments scheduled for
the remainder of the year.
3
The significant increase in Cliffs' share of production is mainly due
to the Company's increased ownership of Tilden and the higher production level
at Tilden in 2002. Partly offsetting was a decrease in pellets from Empire. In
July, Cliffs acquired an additional 8 percent interest in the Hibbing Mine from
Bethlehem Steel Corporation for the assumption of on-going net mine liabilities
associated with the interest. This acquisition raised Cliffs' ownership from 15
percent to 23 percent, and increased Cliffs' share of Hibbing's annual
production capacity by 600,000 tons.
Cliffs is currently working on a number of mine planning studies to
determine the future of the Empire Mine. The mine has recently incurred higher
costs principally due to lower quality ore and higher employee benefit costs.
While these mine studies have not been completed, the life of the Empire Mine
could be shortened and may require an impairment charge for all or some portion
of Cliffs' investment in Empire. If Cliffs were to record an impairment charge
for its entire investment in the mine, the potential impact would be in the $40
million to $50 million range. This charge assumes the continuing operation of
the mine. Cliffs is currently in discussions with Ispat International N.V., the
other owner of the Empire Mine, regarding the operation of the mine beyond 2002.
There would be substantial additional costs associated with closure of the mine.
The Company does not expect closure to occur in the near-term.
FERROUS METALLICS ACTIVITIES
CAL remained idle during the first nine months of 2002 due to weak
market conditions. Cliffs' share of CAL pre-tax idle costs was $2.7 million in
the third quarter and $7.4 million in the first nine months. Depreciation
expense included in the third quarter and nine-month idle costs was $.5 million
and $1.6 million, respectively. The Company's share of CAL's pre-tax loss in
2001 was $4.7 million in the third quarter and $14.6 million in the first nine
months.
OUTLOOK
John S. Brinzo, Cliffs' Chairman and Chief Executive Officer, said,
"While we are confronting a number of significant challenges, our business
fundamentals are strong and improving. Our pellet sales forecast for 2002 is
about 15 million tons, which is a record for Cliffs and about 85 percent of our
current capacity. All of our mines have been operating at capacity since August
1st. We expect our year-end inventory will be essentially unchanged from the
beginning of the year; however, based on our new business model, most of this
tonnage will be sold in the first quarter of 2003. Our projected sales volume
for 2003 should allow us to operate at capacity levels next year, subject to a
mutually acceptable agreement with Ispat on the operation of the Empire Mine."
Brinzo added, "We have intensified our focus on cost reduction in every
phase of our business to improve profit margins and the competitive position of
all our mines. Our cost reduction initiatives, which are being managed through a
corporate wide program termed "ForCE 21", have produced results in a number of
areas, and we are committed to further improvements through this program."
* * * * * * * * * * * * * * * * * *
4
Cleveland-Cliffs is the largest supplier of iron ore products to the
North American steel industry. Subsidiaries of the Company manage and hold
equity interests in five iron ore mines in Michigan, Minnesota and Eastern
Canada. Cliffs has a major iron ore reserve position in the United States and is
a substantial iron ore merchant. References in this news release to "Cliffs" and
"Company" include subsidiaries and affiliates as appropriate in the context.
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. The Company is currently seeking to renegotiate its existing senior
notes. The ability to reach an agreement and the timing, terms and effect of any
renegotiation with the senior noteholders is uncertain. The Company will also
seek additional sources of financing, achievement of which is uncertain. If the
Company cannot reach agreement with its existing senior noteholders with respect
to a covenant amendment or waiver or secure alternative sources of liquidity to
replace the senior notes, the Company may be forced to seek protection under the
bankruptcy laws. Other risks and uncertainties include: the estimate concerning
the shut-down costs of the CAL facility may differ significantly from actual
results should the facility actually be closed because of the effects of timing
as well as of unforeseen costs; the ultimate impact of the impairment of the
Company's investment in CAL may be reduced in the event that the actual market
value of the investment is greater than zero; the Company's estimates related to
the additional minimum liability for the defined pension benefit plans may
differ significantly from the actual amounts due to actual returns on plan
assets, changes in interest rates, and other actuarial assumptions; the estimate
concerning the potential impairment charge relating to the Empire Mine depends
on a determination that impairment has occurred and may differ significantly
from the actual impairment charge because of timing, changes in economic
conditions, changes in the estimates of mine life, mine closure costs, an
acceptable operating arrangement with the other Empire partner, and other
factors; and the expectations for sales and mine operations this year and in
2003 may differ significantly from actual results because of 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 or other operation
and the carrying value of associated assets; and changes in domestic or
international economic and political conditions.
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 Annual Report for 2001 and Reports on Form 10-K and 10-Q
and previous
5
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 third quarter 2002 results
tomorrow, October 24, at 10:00 a.m. EDT. The call will be broadcast live on
Cliffs' website at http://www.cleveland-cliffs.com. A replay of the call will be
available on the website for 30 days. Cliffs will file its third quarter 10-Q
Report with the Securities and Exchange Commission on October 24. For a more
complete discussion of operations and financial position, please refer to the
10-Q Report.
Contacts:
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Media: Ralph S. Berge, (216) 694-4870
Financial Community: Fred B. Rice, (800) 214-0739 or (216) 694-5459
News releases and other information on the Company are available on the Internet
at http://www.cleveland-cliffs.com
6
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED OPERATIONS
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------- ------------------------
(In Millions Except Per Share Amounts) 2002 2001 2002 2001
- -------------------------------------- ---------- ---------- ----------- ----------
REVENUES
Product sales and services
Iron ore $ 170.8 $ 103.5 $ 354.6 $ 203.5
HBI 4.9 8.6
---------- ---------- ----------- ----------
Total 170.8 108.4 354.6 212.1
Freight and minority interest 26.3 5.6 50.1 9.6
---------- ---------- ----------- ----------
Total product sales and services 197.1 114.0 404.7 221.7
Royalties and management fees 3.4 7.7 8.0 22.5
---------- ---------- ----------- ----------
Total operating revenues 200.5 121.7 412.7 244.2
Interest income 1.4 .8 3.4 2.8
Other income 5.8 3.8 11.7 8.4
---------- ---------- ----------- ----------
TOTAL REVENUES 207.7 126.3 427.8 255.4
COSTS AND EXPENSES
Cost of goods sold and operating expenses
Iron ore 191.1 112.0 414.0 248.1
HBI 10.7 21.0
---------- ---------- ----------- ----------
Total 191.1 122.7 414.0 269.1
Impairment of investment in Cliffs and Associates Limited 121.5 121.5
Idle expense and pre-operating loss of
Cliffs and Associates Limited 3.4 9.4 5.8
Administrative, selling and general expenses 5.2 3.9 16.0 11.9
Interest expense 2.0 2.8 5.6 7.4
Other expenses 1.3 .9 4.5 4.8
---------- ---------- ----------- ----------
TOTAL COSTS AND EXPENSES 324.5 130.3 571.0 299.0
---------- ---------- ----------- ----------
LOSS BEFORE INCOME TAXES,
MINORITY INTEREST AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (116.8) (4.0) (143.2) (43.6)
INCOME TAXES (CREDIT) 1.9 (1.1) (11.0) (13.4)
---------- ---------- ----------- ----------
LOSS BEFORE MINORITY INTEREST
AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (118.7) (2.9) (132.2) (30.2)
MINORITY INTEREST 26.5 1.2 27.8 3.8
---------- ---------- ----------- ----------
LOSS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (92.2) (1.7) (104.4) (26.4)
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE - NET OF $5.0 TAX 9.3
---------- ---------- ----------- ----------
NET LOSS $ (92.2) $ (1.7) $ (104.4) $ (17.1)
========== ========== =========== ==========
NET LOSS PER COMMON SHARE
Basic and Diluted
Before cumulative effect of accounting change $ (9.12) $ (.16) $ (10.32) $ (2.61)
Cumulative effect of accounting change - net of tax .92
---------- ----------- ----------- ----------
Net loss $ (9.12) $ (.16) $ (10.32) $ (1.69)
========== =========== =========== ==========
AVERAGE NUMBER OF SHARES
Basic 10.1 10.1 10.1 10.1
Diluted 10.1 10.1 10.1 10.1
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED CASH FLOWS
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------------- -----------------------------
(In Millions, Brackets Indicate Decrease in Cash) 2002 2001 2002 2001
- ------------------------------------------------- ------------- ------------- -------------- -------------
OPERATING ACTIVITIES
Net loss $ (92.2) $ (1.7) $(104.4) $ (17.1)
Impairment of investment in
Cliffs and Associates Limited 121.5 121.5
Depreciation and amortization:
Consolidated 6.7 3.7 19.1 11.5
Share of associated iron ore ventures 2.2 2.7 6.2 8.2
Gain on sale of assets (1.3) (2.6) (5.1) (5.1)
Deferred income taxes 1.7 (.2) (1.7) (6.2)
Minority interest in Cliffs and Associates Limited (25.8) (1.2) (27.8) (3.8)
Cumulative effect of accounting change -
net of $5.0 tax (9.3)
Other .4 1.3 .1 2.6
------------- ------------- -------------- -------------
Total before changes in operating
assets and liabilities 13.2 2.0 7.9 (19.2)
Changes in operating assets and liabilities 45.2 37.8 28.5 (12.8)
------------- ------------- -------------- -------------
Net cash from (used by) operating activities 58.4 39.8 36.4 (32.0)
INVESTING ACTIVITIES
Purchase of property, plant and equipment:
Consolidated:
Cliffs and Associates Limited (.5) (6.0)
All other (1.8) .3 (7.1) (2.6)
Share of associated iron ore ventures (.7) (1.2) (1.7) (2.1)
Investment in steel companies equity and debt (14.4) (27.4)
Investment in power-related joint venture (6.0)
Proceeds from sale of assets 1.4 7.8 6.7 10.5
Other (.4)
------------- ------------- -------------- -------------
Net cash from (used by) investing activities (15.5) 6.4 (35.5) (.6)
FINANCING ACTIVITIES
Borrowings under revolving credit facility 100.0
Contributions by minority shareholders .1 .5 .8 7.0
Dividends (1.0) (3.1)
------------- ------------- -------------- -------------
Net cash from (used by) financing activities .1 (.5) .8 103.9
------------- ------------- -------------- -------------
INCREASE IN CASH AND CASH EQUIVALENTS $ 43.0 $ 45.7 $ 1.7 $ 71.3
============= ============= ============== =============
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(In Millions)
-------------------------------------
Sept. 30, Dec. 31, Sept. 30,
2002 2001 2001
---------- ----------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 185.5 $ 183.8 $ 101.2
Trade accounts receivable - net 22.0 19.9 28.3
Receivables from associated companies 9.4 12.1 14.1
Inventories
Product 99.1 84.8 127.8
Supplies and other 55.8 29.0 22.8
Deferred and refundable income taxes 4.4 20.9 21.9
Other 12.8 12.2 13.5
---------- ----------- ----------
TOTAL CURRENT ASSETS 389.0 362.7 329.6
PROPERTIES - NET 278.2 260.3 264.3
INVESTMENTS IN ASSOCIATED IRON ORE VENTURES 14.1 131.7 134.9
OTHER ASSETS 111.6 70.3 66.5
---------- ----------- ----------
TOTAL ASSETS $ 792.9 $ 825.0 $ 795.3
========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Borrowings under revolving credit facility $ 100.0 $ 100.0 $ 100.0
Accounts payable and accrued expenses 135.2 73.8 73.9
Payables to associated companies 10.8 16.0 19.4
---------- ----------- ----------
TOTAL CURRENT LIABILITIES 246.0 189.8 193.3
LONG-TERM DEBT 70.0 70.0 70.0
POSTEMPLOYMENT BENEFIT LIABILITIES 99.0 69.2 65.6
ENVIRONMENTAL AND CLOSURE OBLIGATIONS 57.5 59.2 16.9
OTHER LIABILITIES 22.5 36.7 40.5
---------- ----------- ----------
495.0 424.9 386.3
MINORITY INTEREST
Cliffs and Associates Limited 25.9 27.1
Tilden Mining Company L.C. 25.7
SHAREHOLDERS' EQUITY 272.2 374.2 381.9
---------- ----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 792.9 $ 825.0 $ 795.3
========== =========== ==========
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NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. On January 31, 2002, Cliffs acquired Algoma Steel's 45 percent interest in
the Tilden Mine, which increased Cliffs' ownership of Tilden from 40
percent to 85 percent. As a result of this transaction, Tilden became a
consolidated subsidiary of Cliffs. Stelco, Inc. remains the owner of the
other 15 percent of Tilden. In comparing the consolidated statement of
financial position at September 30, 2002 and December 31, 2001, there are
significant changes that are mainly due to the full consolidation of
Tilden versus accounting for Tilden by the equity method. Consolidation of
Tilden also increases sales revenues and cost of goods sold to account for
Tilden cost reimbursements from the minority owner.
2. Royalties and fees paid by Cliffs as a partner in the mines, which were
previously reported in both revenues and cost of goods sold and operating
expenses, have been eliminated. There was no impact on financial results.
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.