Cleveland-Cliffs Annual Report 2000

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FY2000 Annual Report · Cleveland-Cliffs

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C l e v e l a n d - C l

f s

2 0 0 0 A n n u a l

R e p o r

CLEVELAND-CLIFFS INC

PRODUCING AN ESSENTIAL RAW MATERIAL FOR NORTH AMERICA’S CRITICAL INDUSTRIAL BASE

1100 SUPERIOR AVENUE

CLEVELAND, OH 44114-2589

www.cleveland-cliffs.com

CORE VALUES

In support of the

Company’s objective

to be the most admired

minerals company,

we are building on

a framework of strong

corporate values.

SAFE PRODUCTION - record production with: lack of injuries....good housekeeping and orderly work areas....

well-maintained equipment....proper training and procedures....looking out for and correcting

each other....safe conditions, safe behavior....Sentinel of Safety award winner.

CUSTOMER FOCUS - listening to the customer....being responsive and on time....meeting quality

expectations....helping the customer succeed.

CREATING ECONOMIC VALUE - doing the right things right the first time....elimination of waste and

inefficiency....breakthroughs in productivity and technology.

BIAS FOR ACTION - getting things done....reduced red tape....barrierless....call anybody you want....

management by fact....plan the work – work the plan.

TRUST, RESPECT AND OPEN COMMUNICATION - open access to information....constructive conflict....

delegation to the appropriate level....toleration of failure in pursuit of business success....

encouraging and accepting different views....feeling an obligation to explain your actions to

those it affects....gender and racial diversity.

GROUP AND INDIVIDUAL ACCOUNTABILITY - behaving in line with our core values....being responsible

for our actions....providing plans/standards/expectations....holding yourself and/or the group to

a high standard of performance....walk the talk.

INTEGRITY - doing what you say you’re going to do....no hidden agendas....doing the right thing....being

truthful....zero tolerance – not walking away from a situation....be credible.

TEAMWORK - actively involve others in decision making....know when to take a leadership role and

when to be an active member....recognize the value of teamwork and the synergy it creates.

RECOGNIZE AND REWARD ACHIEVEMENT - celebrating successes....stress training and

development....an effective appraisal of performance....giving a simple thank you.

T H E S E C O R E VA L U E S A R E I M P O R T A N T T O O U R F U T U R E .

E V E R Y O N E W I L L B E J U D G E D O N T H E I R S U P P O R T O F A N D

C O M M I T M E N T T O T H E M .

D I R E C TO R S

O R G A N I Z AT I O N C H A N G E S

At the Annual Meeting of Shareholders in May 2000, Robert S.
Coleman did not stand for re-election to the Board of Directors due
to the demands of his business. Mr. Coleman’s wise counsel over
the nine years he served on the Board is missed.

A. Stanley West, who was Senior Vice President-Sales and Commercial
Planning, retired after 33 years with Cliffs and a 41-year career in the
iron and steel industry. Mr. West’s in-depth knowledge of the steel
industry in the United States and Canada was instrumental
in Cliffs being the leading producer and merchant of iron ore in North
America.

George N. Chandler, II, Vice President-Reduced Iron, and Richard F.
Novak, Vice President-Labor Relations, retired after 38 and 31 years
of service, respectively. They made many contributions to Cliffs.

Richard L. Shultz, formerly Director of Iron Making Technology, was
named Vice President-Reduced Iron Sales and Business Development.

Randy L. Kummer joined Cliffs as Vice President-Human Resources.
Mr. Kummer was formerly Vice President-Human Resources,
Government and Public Affairs of Kennecott Energy Company.

Director
Since
1997

1996

John S. Brinzo (4,6,7)
Chairman and Chief Executive

Officer of the Company
Ronald C. Cambre (1,3,4,6)
Chairman of the Board
Newmont Mining Corporation

International mining company

1999

Ranko Cucuz (1,5,6)
Chairman and Chief Executive Officer
Hayes Lemmerz International, Inc.

International supplier of wheels to the auto industry

1986

James D. Ireland III (2,4,5,6,7)
Managing Director/Capital One Partners, Inc.

1994

1991

1999

1996

1995

1991

Private merchant banking firm

G. Frank Joklik (2,6)
Chairman and Chief Executive Officer
MK Gold Company

International mining company, and

Retired President and Chief Executive Officer
Kennecott Corporation

International mining company

Leslie L. Kanuk (2,4,5,6)
Professor Emeritus
Zicklin School of Business

Baruch College, City University of New York

Anthony A. Massaro (1,6,7)
Chairman and Chief Executive Officer
Lincoln Electric Holdings, Inc.

Global manufacturer of welding and
cutting products and consumables

Francis R. McAllister (3,4,5,6,7)
Chairman and Chief Executive Officer
Stillwater Mining Company

Palladium and platinum producer

John C. Morley (2,3,4,6,7)
President/Evergreen Ventures, Ltd.

Private investment firm, and

Retired President and Chief Executive Officer
Reliance Electric Company

Major industrial manufacturer
Stephen B. Oresman (3,5,6,7)
President/Saltash Ltd.

Management consultants

1991

Alan Schwartz (1,2,6)
Professor, Yale Law School

and Yale School of Management

COMMITTEES:
(1) Audit
(2) Board Affairs
(3) Compensation and Organization
(4) Executive
(5) Finance
(6) Long Range Planning
(7) Strategic Advisory

Recycled Paper

COMPARATIVE HIGHLIGHTS

Financial (In Millions Except Per Share Amounts)

For the Year:

Operating Revenues:

Product Sales and Services
Royalties and Management Fees

Total

Income Before Special Items:

Amount
Per Diluted Share

Net Income:
Amount
Per Diluted Share

At December 31:

Cash and Cash Equivalents
Long-Term Debt
Shareholders’ Equity
Book Value Per Common Share
Market Value Per Common Share

Iron Ore Production and Sales (Millions of Gross Tons)

Production At Mines Managed by Cliffs:

Total
Cliffs’ Share

Cliffs’ Sales

2000

1999

Increase
(Decrease)

$379.4
50.7
430.1

10.1
.97

18.1
1.73

29.9
70.0
402.0
39.73
21.56

41.0
11.8
10.4

$316.1
48.5
364.6

.4
.04

4.8
.43

67.9
70.0
407.3
38.27
31.13

36.2
8.8
8.9

$63.3
2.2
65.5

9.7
.93

13.3
1.30

(38.0)

(5.3)
1.46
(9.57)

4.8
3.0
1.5

COMPANY PROFILE

Cleveland-Cliffs Inc is the largest supplier of iron ore products to the North

American steel industry. Iron ore is the fundamental raw material for integrat-

ed steel companies that make steel in blast furnaces. Subsidiaries of the

Company manage and hold equity interests in five iron ore mines in Michigan,

Minnesota and Eastern Canada. Nearly all the integrated steel companies in

North America are partners or customers. Cliffs has a major iron ore reserve

postition in the United States and is a substantial iron ore merchant.

Cliffs is developing a significant ferrous metallics business to primarily

serve steel companies that make steel in electric arc furnaces. The Company’s

first project is the hot briquetted iron (HBI) plant in Trinidad and Tobago.

Cliffs is in its 154th year of service to the steel industry.

LETTER TO OUR SHAREHOLDERS

Dear Fellow Shareholder:

A year ago, we told you that we were glad to put

capacity levels. However, the large steel consumers

1999 behind us. That statement was, of course, a

also began to import increasingly large amounts of

reaction to the very difficult year our Company had in

steel. As the import volumes rose, North American

1999 when we had to cope with an unexpected dip

steel operating rates fell and prices collapsed. At the

in pellet sales. We also told you we were anticipating

same time, energy prices surged and the once strong

a significant improvement in year 2000 earnings that

economies in the United States and Canada began to

would be driven by higher sales volume and better

rapidly weaken.

sales margins due to higher production volumes and

By the fourth quarter of 2000, deteriorating

cost reduction. At that time, our biggest uncertainty

business conditions in the steel industry had reached

was the ramp-up of production at the Cliffs and

catastrophic dimensions, and most of our partners

Associates Limited (CAL) reduced iron plant in

and customers reported substantial losses for the

Trinidad.

quarter. A growing list of steel company bankruptcy

Unfortunately, the strength of the U.S. and

filings demonstrated the severity of the crisis. Two fil-

Canadian economies in the first half of 2000 proved

ings in the fourth quarter were of particular signifi-

to be a double-edged sword for the steel and iron ore

cance to Cliffs – the November 16th filing by

business. Accelerating demand from the automotive,

Wheeling-Pittsburgh Steel Corporation and the

appliance and construction industries pushed operat-

December 29th filing by LTV Corporation.

ing rates at North American steel plants to near

Despite the rapid deterioration of the North

to significant production curtailments in 1999 and

American steel business in the second half of 2000,

higher pellet sales volume in 2000. The margin on

Cliffs-managed mines operated at near-capacity lev-

pellet sales in 2000 was a major disappointment,

els and produced a record 41.0 million tons. Cliffs'

even as we operated at full production and eliminat-

share of production was 11.8 million tons versus 8.8

ed the high fixed cost penalties incurred in 1999

million tons in 1999. The Company sold 10.4 million

when we curtailed production by 3.0 million tons.

tons of iron ore pellets in 2000. This was a major

While we made progress in pursuing productivity and

improvement from the 8.9 million tons sold in 1999,

cost reduction objectives, our successes were over-

but less than our original sales expectation. While

whelmed by higher energy costs, notably natural gas

we planned to build inventory in 2000 to meet pro-

and diesel fuels, and cost inflation in other areas

jected demand in future years, a steep decline in

such as medical costs. Operating difficulties, partic-

fourth quarter shipments caused our year-end

ularly at the Empire and Wabush Mines, also con-

inventory to increase to 3.3 million tons, well

tributed to the poor cost performance.

beyond the planned level.

Disappointments in 2000 were not restricted

Net income was $18.1 million in 2000 versus

to our core iron ore business. After struggling with

$4.8 million in 1999. Excluding special items, net

the start-up of its plant in Trinidad for more than a

income was $10.1 million, a $9.7 million increase

year, CAL decided in mid-May to suspend start-up

from the $.4 million recorded in 1999, primarily due

Millions
40

TOTAL STEEL IMPORTS TO THE
UNITED STATES – NET TONS

'80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 2000

“Unfairly dumped steel imports, including steel slabs, totaled 38.0 million

tons in 2000, the second highest amount in history”

activities in order to evaluate plant reliability and

make modifications to portions of the plant. After

several key modifications were completed, the plant

was restarted and operated for a month to test the

modifications and gain additional operating experi-

ence. The results of this test were very positive.

Plant operations improved significantly, and we pro-

duced several thousand tons of high quality commer-

cial HBI, despite the known flaws in a portion of the

flowsheet.

At the end of July, the plant was shut down again

to evaluate on-going economics and decide whether or

not to complete the remaining modifications. In the

third quarter, LTV withdrew its financial support of

CAL, and Cliffs and Lurgi decided to complete the

plant modifications and acquire LTV's 46.5 percent

share of CAL for a nominal upfront payment. For the

balance of the year, the plant remained idle while mod-

ifications were undertaken. The decision to proceed

was based on the successful July test, a favorable

beginning in 2001, the LTV bankruptcy filing has

made this expectation more problematic. The

increase in our ownership of Empire has raised Cliffs'

total sales capacity from 11.8 million tons to 12.8

million tons.

The LTV bankruptcy filing resulted in a relatively

modest charge to fourth quarter results. However,

there are substantial contractual obligations and

management relationships between Cliffs and LTV,

and non-performance by LTV could have a significant

impact on Cliffs and/or the Empire Mine. The closure

of LTV's wholly-owned mine in Minnesota on January

5th is expected to make LTV a major iron ore cus-

tomer of Cliffs in 2001 and beyond, under a multi-year

sales contract executed in 2000. LTV is also a 25

percent partner in the Empire Mine.

Since its filing, LTV has continued to meet its

obligations as a partner of Empire, and we expect

LTV will purchase its iron ore pellet requirements

from Cliffs. However, LTV has neither affirmed nor

rejected its ownership in Empire or its ore purchase

contract with Cliffs. In addition, there is much uncer-

tainty relating to the level at which LTV's steelmak-

ing facilities will operate. Bill Calfee, Cliffs' executive

vice president-commercial, is chairman of the LTV

Unsecured Creditors Committee, and we are com-

mitted to achieving a satisfactory outcome.

The steel and iron ore business in North America

is going through a painful process of restructuring

whereby only the strongest facilities are likely to

survive. This will ultimately produce a stronger, more

financial arrangement on the buyout of the LTV inter-

est, and a comprehensive evaluation of the project

economics.

CLIFFS TODAY

Given the business outlook, the recent bank-

ruptcies of Wheeling-Pittsburgh and LTV and the

weak financial position of other partners and cus-

tomers, Cliffs has significant challenges ahead.

Prior to the Wheeling filing, which did not have a

significant adverse impact on Cliffs' results in 2000,

the Company exercised its right to acquire

Wheeling's 12.5 percent indirect interest in the

Empire Mine. No cash was paid to Wheeling for the

interest, only assumption of additional mine liabili-

ties. The acquisition of Wheeling's interest increased

Cliffs' ownership in Empire to 35 percent and raised

Cliffs' share of the mine's 8-million-ton-production

capacity from 1.8 million tons to 2.8 million tons.

While we expect to sell the additional tonnage to LTV

competitive industry, but the path in the near term is

fraught with difficulty and uncertainty. We are man-

aging our iron ore business with the expectation that

integrated steel and iron ore production capacity will

continue to shrink, and foreign competition will

remain intense.

We believe Cliffs can be a stronger factor in a

consolidating North American pellet market. Most of

our pellet capacity is competitive, on both a cost and

quality basis, but all of our mines can improve their

position. While we have always focused on cost and

quality, we need to make dramatic changes in the

way we operate to serve a "new" steel industry. Our

objective is to be the most admired minerals compa-

ny, and we are not going to let any barriers to improve-

ment get in our way.

Cost reduction is a key element of our corporate-

wide initiative called ForCE 21 (For Competitive

Excellence in the 21st Century). ForCE 21 is de-

Millions
10

SEMI-FINISHED STEEL IMPORTS TO
THE UNITED STATES – NET TONS

'80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 2000

“The steel import problem that is particularly troubling to Cliffs is the dump-

ing of semi-finished steel slabs, which totaled 8.6 million tons in 2000.”

signed to produce organizational and operational

larger volumes and longer-term contracts. We have

excellence through employee involvement and cultural

achieved significant cost savings utilizing the

change. It promotes accelerated change with a focus

"reverse auction" process available with our e-com-

on improvements in cost, quality and safety.

merce software platform and expect to realize addi-

Employee teams, including hourly employees at all

tional savings with this technology.

facilities, are challenging existing practices in a

• Labor contracts negotiated in 1999 resulted

search for better, more cost effective ways of improv-

in a strategic alliance with

the United

ing operating performance. On the inside front cover

Steelworkers' Union, which is providing a unique

of this report are Cliffs' core values that provide a

opportunity to cooperatively pursue objectives that

framework for ForCE 21. Although this initiative is

are focused on cost reduction, improved labor pro-

just beginning, we have achieved impressive results

ductivity and safety.

in a number of areas and are optimistic about its

• All operations are taking actions to minimize

potential.

energy costs. Energy costs represent almost 25 per-

We recognize that we must do more and are

cent of mine operating costs depending on the mine,

challenging all areas of our organization to ensure

so actions taken in this area are vitally important.

that we are being as cost efficient as possible:

The increase in energy costs from 1999 to 2000

• Productivity improvements will result in lower

penalized Cliffs' operating earnings in 2000 by about

employment levels at most locations, and the out-

$14 million. The adverse impact of high energy costs

sourcing of various support services is being imple-

is expected to continue in 2001.

mented. The cost savings of these actions when

While our business plans are not dependent on

complete will be significant.

reducing imports of steel and iron ore, Cliffs and its

• We are working with suppliers of purchased

materials and equipment to reduce prices. Over the

last two years, we have entered into alliance agree-

ments with a number of suppliers. These suppliers

have made major price reductions in exchange for

steel company partners and customers need a level

getting the U.S. Commerce Department to com-

playing field to deal with foreign trade. Unfairly

mence an investigation of whether imports of iron ore

dumped foreign steel imports are systematically

and steel slabs are jeopardizing the national security.

eliminating North American steel capacity, and

OUTLOOK

unfairly imported steel slabs are cutting into the iron

Business conditions in the iron and steel indus-

ore market. U.S. steel imports, including steel slabs,

try are as bad as they have been in many decades

totaled 38.0 million tons in 2000, the second high-

and are expected to remain difficult through at least

est amount in history.

the first half of 2001. Given the harsh environment

There is significant excess steelmaking capaci-

confronting our steel company partners and cus-

ty in the world, and the United States is a magnet for

tomers, there is significant uncertainty regarding

the surplus due to our weak enforcement of existing

Cliffs' pellet sales volume in 2001 and production lev-

trade laws and a strong dollar. Foreign steel compa-

els at managed mines. We expect the financial

nies are selling steel in the United States at prices

results of our core iron ore business will be severely

that are below what it costs to produce, and that is

impacted by production curtailments.

a violation of U.S. trade laws. We are hopeful that the

If the generally anticipated increase in the

Bush Administration and the 107th Congress will

international pellet prices occurs, we would expect

work together, on an urgent basis, to address our

to realize a modest increase in price realizations in

country's steel emergency. This is also a vital issue

2001 because the pricing formulas in our multi-year

in Canada, and the Canadian government has a steel

sales contracts allow us to realize about half of any

anti-dumping investigation in progress following com-

change in the international price. Prices in our

plaints by steel producers in Canada.

multi-year contracts increase or decrease over the

The import problem that is particularly troubling

contract term using a number of factors including

to Cliffs is the dumping of semi-finished steel slabs.

the international pellet price, energy costs, labor

Companies that import slabs in lieu of producing their

costs and steel prices.

hot metal requirements reduce or eliminate their iron

Losses from CAL are expected to be somewhat

ore requirements. When foreign producers dump

lower in 2001, but first half losses will be greater

slabs into this country, domestic steelmakers can

than first-half 2000. Modifications to the Trinidad

buy slabs at a cost that is lower than the cost to pro-

plant were completed on schedule and on budget,

duce raw steel in their primary steel operations. The

and the plant will begin briquette production in

unchecked availability of semi-finished steel imports

March. CIRCALTM briquettes were trial tested in two

could result in the premature closure of certain blast

U.S. electric furnaces in November and December

furnaces. Congressmen James Oberstar of Minnesota

and Bart Stupak of Michigan were instrumental in

2000 with positive results. We are receiving numer-

We cannot control the demand for iron ore and

ous inquiries regarding trial shipments and tests at

other ferrous metallics products, but we can mini-

other electric furnace operations and at some blast

mize the impact by producing the highest quality

furnace operations as soon as additional briquettes

products at the lowest possible cost. We also can

are available. The pricing for all metallics in the

be proactive in pursuing business opportunities that

United States is still very weak, but we expect some

are created by the adversities in our business. We

improvement as the year develops. In today's high-

intend to be relentless in pursuing the goals and

energy-cost environment that has forced the closure

objectives that will allow Cliffs to steer the uncertain

of all reduced iron plants located in the United

road that is ahead and restore Cliffs value. We appre-

States, CAL is exceptionally well positioned with low-

ciate your support.

cost, stable gas prices in Trinidad. We continue to

expect an increase in global electric-arc-furnace

steel production, and consequently an improving mar-

ket for our CIRCALTM briquettes.

On January 9th, your Board of Directors reduced

the quarterly dividend from 37.5 cents per share

to 10 cents per share. Based on the 10.1 million

shares currently outstanding, this action will reduce

the annual cash outlay for dividends by more than

$11 million. While the Board regretted the action,

we believe it was appropriate during this period

of extreme uncertainty in the North American

steel industry.

We are also making a significant reduction in our

capital spending in 2001. Excluding expenditures at

CAL, we spent over $23 million on capital in 2000,

which was slightly less than depreciation of $26 mil-

lion. We would expect comparable spending to be

only $14 million in 2001, again excluding CAL. We

will also be reducing our pellet inventory by at least

1.3 million tons during the year, which will generate

cash flow of $35 million.

We fully expect our cash flow in 2001 will allow

us to repay by year-end the $65 million borrowed in

January under our revolving credit facility. We believe

our strong balance sheet, and the actions we have

taken with respect to the dividend, capital spending

and cost reductions will provide the liquidity we need

to meet the challenges and take advantage of the

John S. Brinzo

Chairman and

Chief Executive Officer

Thomas J. O'Neil

President and

Chief Operating Officer

opportunities that are ahead of us in 2001.

February 28, 2001

MANAGEMENT’S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In 2000, Cleveland-Cliffs Inc (“Company”) had net
income of $18.1 million, or $1.73 per share (references to
per share earnings are “diluted earnings per share”) versus
net income for the year 1999 of $4.8 million, or $.43 per
share. Following is a summary of results for the years 2000,
1999 and 1998:

( I N M I L L I O N S E X C E P T
P E R S H A R E A M O U N T S )

2000

$10.1

$18.0

$18.1
$1.74
$1.73

1999

$57.4

$54.4

$54.8
$5.43
$5.43

1998

$53.9

$53.5

$57.4
$5.10
$5.06

10,393
10,439

11,076
11,124

11,248
11,336

Net income before special items

Special items

Net income
– Amount
– Per share (basic)
– Per share (diluted)

Average number of shares

(in thousands)
– Basic
– Diluted

2000 VERSUS 1999

Net income for the year 2000 of $18.1 million, or $1.73

per share, included three special items:

• a $9.9 million after-tax recovery on an insurance claim

related to lost 1999 sales;

• a $5.2 million tax credit reflecting a reassessment of
income tax obligations based on current audits of prior
years’ federal tax returns; and

• a $7.1 million after-tax charge to recognize the
decrease in value of the Company’s investment in LTV
common stock.
Year 1999 net income included favorable after-tax
income adjustments of $4.4 million that related primarily to
prior years’ state tax refunds. Excluding special items in both
years, net income in 2000 of $10.1 million was $9.7 million
higher than 1999 net income of $.4 million. The $9.7 million
improvement in 2000 net income before special items reflected
higher income before income taxes, $14.4 million, partially
offset by higher income taxes, $4.7 million. The increase in
pre-tax income before special items was primarily due to:

• An improvement of $19.2 million in pellet sales margin
from the 1999 negative margin of $20.0 million.

Following is a summary comparison of sales margin for
2000 and 1999:

( I N M I L L I O N S )

Increase (Decrease)

2000

1999

Amount Percent

Sales (Tons)

10.4

8.9

1.5

17%

Revenue from product sales

and services

$379.4

$316.1

$ 63.3

20%

Cost of goods sold and
operating expenses

380.2

336.1

44.1

Sales margin (loss)

$ (.8) $ (20.0) $ 19.2

13%

96%

Revenue from product sales and services increased
$63.3 million primarily due to the 1.5 million ton sales
volume increase along with a modest improvement in
average sales price realization. The increase in cost of
goods sold and operating expenses reflected the
increase in volume, production curtailments in 1999
and significant increases in energy rates, which added
almost $14 million to cost in 2000.

• Royalty and management fees, including amounts paid
by the Company as a participant in the mining ventures,
of $50.7 million in 2000 versus $48.5 million in 1999,
an increase of $2.2 million, primarily due to increased
production at Tilden Mine.

• Higher other income, $3.3 million, including insurance
company demutualization proceeds, favorable settle-
ment of a legal dispute, and gains from sales of non-
strategic lands.
Partially offsetting were:

• Higher Cliffs and Associates Limited (“CAL”) pre-
operating losses, $4.5 million, reflecting continuing
plant start-up difficulties, holding costs during plant
modifications, and the Company’s increased ownership
in the venture as of November 20, 2000. (See Ferrous
Metallics.)

• Increased administrative, selling and general expense,
$2.6 million, due to higher active and retiree medical
costs and pensions, and increased management incen-
tive compensation expense.

• Higher other expenses, $2.0 million, largely reflecting
the reserving of amounts related to administrative
services and management fees from LTV’s wholly-owned
LTV Steel Mining Company (“LTVSMC”) as a result of

A
&
D
M

the LTV filing for protection under Chapter 11 of the
U.S. Bankruptcy Code on December 29, 2000.

• Higher interest expense, $1.2 million, resulting from
the cessation of interest capitalization in April, 1999 on
the construction of CAL’s hot briquetted iron (“HBI”)
facility in Trinidad and Tobago.
The $4.7 million increase in income taxes before special

items was principally due to higher pre-tax income.

1999 VERSUS 1998

Net income for 1999 was $4.8 million, or $.43 per
share, compared to 1998 net income of $57.4 million, or
$5.06 per share. Year 1999 net income included favorable
after-tax income adjustments of $4.4 million that related
primarily to prior years’ state tax refunds (recorded as a
reduction to cost of goods sold). Year 1998 net income
included a $3.5 million favorable income tax adjustment
related to audits of prior years’ federal tax returns. Excluding
special items in both years, net income was $.4 million in
1999, a decrease of $53.5 million from 1998.

The $53.5 million decrease in net income before
special items reflected lower income before income taxes of
$73.9 million, partially offset by a $20.4 million decrease in
income taxes. The decrease in pre-tax income before special
items was primarily due to:

• Negative pellet sales margin of $20.0 million in 1999
compared to a margin of $46.1 million in 1998, a
decrease of $66.1 million summarized as follows:

( I N M I L L I O N S )

Increase (Decrease)

1999

1998

Amount Percent

Sales (Tons)

8.9

12.1

(3.2)

(26)%

Revenue from product sales

and services

$316.1

$465.7 $(149.6)

(32)%

Cost of goods sold and
operating expenses

336.1

419.6

(83.5)

(20)%

Sales margin (loss)

$ (20.0) $ 46.1 $ (66.1)

(143)%

Revenue from product sales and services decreased by
$149.6 million, primarily due to decreased sales volume
due to blast furnace outages, and lower average sales
price realization, reflecting lower pellet pricing and the
mix of contracts. The decrease in cost of goods sold
and operating expenses was not proportional to the
decrease in sales volume due to fixed costs incurred
during production curtailments to balance production
with the lower sales volume.

• Higher pre-operating losses from CAL, $6.8 million,
reflecting start-up and commissioning costs on CAL’s
HBI project in Trinidad and Tobago.

• Higher interest expense, $3.3 million, resulting from
the cessation of interest capitalization when construc-
tion of the HBI facility was completed in April, 1999.
• Lower interest income, $2.1 million, due to lower aver-

age cash balances throughout the year.

• Lower royalty and management fees in 1999, including
amounts paid by the Company as a participant in the
mining ventures, $1.2 million, mainly due to lower
production.

• Partially offsetting was lower administrative, selling
and general expense, $2.6 million, including lower man-
agement incentive compensation, cost reduction initia-
tives and a 10 percent reduction of corporate staff in
the first quarter of 1999.

• Other expenses also decreased $3.9 million, including
lower business development expenses and an increase
in the allowance for doubtful accounts recorded in
1998 related to the Acme bankruptcy.
The $20.4 million decrease in income taxes before
special items was primarily due to the decrease in pre-tax
income and the favorable impact of percentage depletion.

MANAGEMENT’S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

C ASH FLOW AND LIQUIDITY

At December 31, 2000, the Company had cash and
cash equivalents of $29.9 million. In addition, the full amount of
a $100 million unsecured revolving credit facility was available.
Following is a summary of 2000 cash flow activity:

( I N M I L L I O N S )

Cash flow from operations:

Before changes in operating assets and liabilities
Changes in operating assets and liabilities

Net cash from operations

Capital expenditures
Investment and advances in Cliffs and Associates Limited
Purchase of CAL interest from LTV
Dividends
Repurchases of common shares
Contributions to CAL of minority shareholder
Other

Decrease in cash and cash equivalents

$(76.9
(48.9)

28.0
(23.4)
(13.8)
(1.7)
(15.7)
(15.6)
4.2
.3

$(37.7)

The $48.9 million increase in operating assets and
liabilities primarily reflected higher iron ore inventories, $54.2
million.

Following is a summary of key liquidity measures:

AT D E C E M B E R 3 1 ( I N M I L L I O N S )

2000

1999

1998

Cash and cash equivalents

$129.9

$167.6

$130.3

Working capital

$145.8

$143.4

$176.1

Ratio of current assets to

current liabilities

2.4:1

3.0:1

3.1:1

In 2001, the Company expects to receive refunds of
approximately $14 million of current and prior years’ federal
tax payments associated with the Company’s adjustment of
its CAL tax basis of properties. Separately, an additional tax
and interest payment of approximately $5 million related to
the anticipated settlement of audit issues for tax years 1995
and 1996 is expected in 2001. A $5.2 million non-cash favor-
able adjustment of the Company’s tax obligations related to
the audit was recorded in 2000 results.

From time to time, in the normal course of business,
the Company enters into contracts to purchase iron ore to
meet customer quality specifications or fulfill anticipated or

forecasted shortfalls. The Company has committed to pur-
chase approximately $19 million of pellets in 2001.

The Company anticipates that its share of capital
expenditures related to the iron ore business, which were
$23.4 million in 2000, will be significantly reduced in
2001. The estimate for 2001 capital expenditures is highly
uncertain, and will depend on production levels at the
Company-managed mines and the financial position of
the mine owners. The Company expects to fund its share of
capital expenditures from current operations.

C APITALIZATION

Long-term debt of the Company consists of $70 million
of senior unsecured notes, with a fixed interest rate of 7.0
percent, which are scheduled to be repaid on December 15,
2005. In addition to the senior unsecured notes, the
Company, including its share of mining ventures, had capital
lease obligations at December 31, 2000 of $4.0 million,
which are largely non-recourse to the Company. The Company
has a $100 million revolving credit agreement, which expires
on May 31, 2003. On January 8, 2001, the Company bor-
rowed $65 million on the facility for general operating and
working capital requirements. The loan interest rate, based
on the LIBOR rate plus a premium, is fixed at 6.1 percent
through July 8, 2001. Loan repayment timing is subject to
future uncertainty, but the Company expects to repay the
loan by the end of 2001.

In 2000 and 1999, the Company purchased .7 million
and .6 million shares of its Common Shares at a cost of $15.6
million and $17.2 million, respectively. Through December
31, 2000, the Company has purchased 2.4 million shares at
a total cost of $79.5 million under its authorization to re-
purchase up to 3.0 million Common Shares. The shares will
initially be retained as Treasury Stock. On January 9, 2001,
the Company announced a reduction in its quarterly dividends
on Common Shares to $.10 per share from the previous
dividend rate of $.375 per share.

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IRON ORE

After a modest improvement in the first half of 2000,
North American steel industry fundamentals deteriorated
significantly in the second half of the year. Weak steel order
books and price decreases attributable to slowing economies
in the United States and Canada, high volumes of steel
imports, and soaring energy costs have caused crisis condi-
tions in the North American iron and steel industry. The
Company is supporting steel industry efforts to combat unfair
imports. LTV and Wheeling-Pittsburgh Steel Corporation
(“Wheeling-Pittsburgh”) filed for protection under Chapter 11
of the U.S. Bankruptcy Code in the fourth quarter of 2000,
and several of the Company’s other partners and customers
have curtailed raw steel production and experienced financial
difficulties in the fourth quarter. Given the current conditions
in the industry, significant uncertainty exists concerning the
Company’s sales and production at its mines in 2001.

The Company ended the year 2000 with 3.3 million
tons of iron ore pellet inventory, an increase of 1.9 million
tons from 1999. Increased pellet sales of 1.5 million tons in
2000 were more than offset by an increase in the Company’s
share of 2000 production.

The six mines managed by the Company produced 41.0
million tons of iron ore in 2000, compared to production of
36.2 million tons in 1999. The Company’s share of production
was 11.8 million tons in 2000 versus 8.8 million tons in
1999. The increase was mainly due to production curtail-
ments in 1999 which were undertaken to reduce inventory
levels because of lower sales volume. The Company expects
production at its five active mines in 2001 to be significantly
below the combined 34.1 million ton capacity.

The Company’s iron ore pellet sales were 10.4 million
tons in 2000 versus 8.9 million tons in 1999. The increase in
iron ore pellet sales in 2000 was mainly due to the return of
blast furnace operations at two customers that were out for
most of 1999. The Company’s sales volume is largely com-
mitted under multi-year sales contracts, which are subject to
changes in customer requirements. International iron ore
pellet price changes impact certain of the Company’s multi-
year sales contracts, which use international prices as price
adjustment factors. Other factors impacting the Company’s
average price realization under various sales contracts
include mine operating costs, energy costs, and steel prices.

A wholly-owned subsidiary of LTV is a 25 percent part-
ner in the Company-managed Empire Mine in Michigan. Since
the bankruptcy filing, LTV has remained current with its
Empire obligations.

At the time of the bankruptcy filing, LTV owed the
Company approximately $2.3 million related to the Company’s
management of LTVSMC in Minnesota, which amount the
Company has reserved. In May 2000, LTV announced its
intention to close LTVSMC in mid-2001 and later the intended
closing date was advanced to February 22, 2001. Subse-
quent to its bankruptcy filing, LTV ceased operations at
LTVSMC on January 5, 2001, more than a month ahead of
schedule, due to conditions in the steel market and cost
reduction efforts associated with the bankruptcy filing.

The Company signed a long-term agreement in May,
2000 to supply LTV with the majority of the iron ore it will
need to purchase as a result of the closing of LTVSMC. Sales
over the 10-year contract term could total more than 50 mil-
lion tons if LTV continues to produce at or near current levels
and performs under the contract terms. To date in the bank-
ruptcy proceeding, LTV has neither affirmed nor rejected this
agreement. Sales under the contract were less than .2 million
tons in 2000; expected sales in 2001 will be impacted by
the liquidation of LTVSMC’s remaining pellet inventory and
business conditions. The Company had no trade accounts
receivable exposure to LTV at the time of bankruptcy filing.

In May, 2000, LTV granted the Company an exclusive
option to purchase the LTVSMC assets in exchange for
assumption of environmental and reclamation obligations and
other consideration at LTVSMC. The Company has until
March 31, 2001 to exercise the option. The Company does
not believe iron ore pellets can be produced there economi-
cally, but is investigating whether alternative uses or the
disposition of the assets would be advantageous.

Prior to Wheeling-Pittsburgh’s filing for protection
under Chapter 11 of the U.S. Bankruptcy Code on November
16, 2000, the Company exercised its rights under existing
agreements to acquire Wheeling-Pittsburgh’s 12.4375 per-
cent indirect interest in Empire Mine. The acquisition of

MANAGEMENT’S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Wheeling-Pittsburgh’s interest in the Empire Mine increased
the Company’s ownership share to 35 percent and share of
production capacity from 1.8 million tons to 2.8 million tons.
Subsequent to its Chapter 11 filing, Wheeling-Pittsburgh has
requested an accounting for the acquisition transaction. At
the time of the filing, the Company did not have a term sales
contract with Wheeling-Pittsburgh and the Company’s trade
receivable exposure was negligible.

In 1998, Acme Metals Incorporated and its wholly-
owned subsidiar y Acme Steel Company (collectively
“Acme”), a partner in Wabush and an iron ore customer, peti-
tioned for protection under Chapter 11 of the U.S. Bankruptcy
Code. The Company had a $1.2 million pre-petition trade
receivable from Acme, which has been fully provided. Since
its filing, Acme has continued its relationship with Wabush and
the Company. Sales to Acme in 2000 represented 3 percent
of total sales volume.

The major business risk faced by the Company in iron
ore is lower customer or venture partner consumption of iron
ore from the Company’s managed mines which may result
from competition from other iron ore suppliers; use of iron ore
substitutes, including imported semi-finished steel; steel
industry consolidation, rationalization or financial failure; or
decreased North American steel production, resulting from
increased imports or lower steel consumption. Loss of sales
and/or royalty and management fee income on any such
unmitigated loss of business would have a significantly
greater impact on earnings than revenue, due to the high
level of fixed costs in the iron mining business.

In 1999, the Company lost more than one million tons
of iron ore pellet sales to Rouge Industries as a result of the
extended shutdown of two blast furnaces following an explo-
sion at the power plant that supplies Rouge. In 2000, the
Company recorded a pre-tax insurance recovery and received
proceeds on the claim of $15.3 million ($9.9 million after-
tax). The Company continues to pursue modest additional
recoveries, but given the complexity of the insurance issues,
any additional amounts will not be recorded until all out-
standing matters are resolved.

The Company held 842,000 shares of LTV common
stock, which were originally valued at $11.5 million, or $13.65
per share. As of June 30, 2000, the investment was reclassi-
fied to “trading” and accordingly changes in market value
were recognized in earnings as they occurred. The Company
has recognized a reduction to 2000 earnings of $10.9 million
pre-tax ($7.1 million after-tax) related to the investment. In
August 2000, the Company commenced a program to reduce
its investment in the LTV common stock and through
December 31, had sold 300,000 shares, with the remaining
shares sold in January, 2001.

Five-year labor agreements between the United
Steelworkers of America (“USWA”) and the Empire, Hibbing,
and Tilden mines were ratified in August 1999. The agree-
ments, which were patterned after agreements negotiated by
major steel companies, provide employees with improvements
in pensions, wages, and other benefits. The agreements also
commit the mines and the union jointly to seek operating
cost improvements. The Wabush Mine in Canada also settled
on a five-year contract in July, 1999.

FERROUS METALLICS

The Company’s strategy includes extending its busi-
ness scope to produce and supply ferrous metallic products
to an expanded customer base, including electric arc furnace
steelmakers.

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of briquette production could not be achieved, and in May,
2000, start-up activities were temporarily suspended in order
to evaluate plant reliability and make modifications to por-
tions of the plant. The plant was restarted on July 1, 2000 to
test the functionality and reliability of the initial modifications
and to gain additional operating experience. Results of this
five-week test were positive. Although a small quantity of
commercial grade briquettes was produced, replacing the dis-
charge system was necessary to improve material flow and
obtain consistent feed of HBI to the briquetting machines.
The modifications are targeted for completion in the first
quarter of 2001.

On November 20, 2000, a subsidiary of the Company
and Lurgi Metallurgie GmbH (“Lurgi”) completed the acqui-
sition of LTV’s 46.5 percent interest in CAL for $2 million
(Company share – $1.7 million) and additional future pay-
ments, that could total $30 million through 2020 dependent
on CAL’s production, sales volume and price realizations. LTV
announced its decision to withdraw its financial support for
CAL on July 28, 2000. Upon acquisition, the Company’s
ownership in CAL increased to 86.9 percent (previously 46.5
percent). The Company has consolidated CAL for financial
reporting purposes since the acquisition.

Subsequent to LTV’s withdrawal of financial support for
CAL, it was estimated that $45 million of additional invest-
ment (of which $16.6 million has been invested through
December 31, 2000) would be required for CAL to attain sus-
tained production and generate positive cash flow, consisting
of capital expenditures of $15 million, working capital of
$15 million and cash start-up costs of $15 million. Lurgi has
agreed to fund a disproportionate share of the capital
expenditures through in kind contribution of the new discharge
system, which increases its ownership. As a result, the
Company’s ownership in CAL at December 31, 2000 de-
creased to 84.4 percent. If the full $45 million is required, the
Company’s additional investment will be $33 million (of which

$11.6 million has been funded at December 31, 2000), and
the Company will own approximately 82.4 percent of CAL.

The primary business risk faced by the Company in fer-
rous metallics is the as yet undemonstrated capability of the
Trinidad facility to produce a sustained quantity of commer-
cial grade HBI at a cost level necessary to achieve profitable
operations given the market for HBI.

ACTUARIAL ASSUMPTIONS

As a result of a decrease in long-term interest rates,
the Company re-evaluated the rates used to calculate its pen-
sion and other postretirement benefit (“OPEB”) obligations.
The discount rate used to calculate the Company’s pension
and OPEB obligations was decreased to 7.75 percent at
December 31, 2000 from 8.0 percent at December 31, 1999.
The change in the discount rate assumption is projected to
increase pension and OPEB expense for 2001 by approxi-
mately $.3 million.

Additionally, as a result of recent experience, the
Company increased the medical trend rate assumption it
utilizes in determining its OPEB obligation. An annual rate of
increase in the per capita cost of covered healthcare benefits
of 8.0 percent was assumed for 2001 (6.5 percent in 2000)
decreasing to an annual rate of 5.0 percent in 2008 and
annually thereafter. The increase in the trend rate assumption
will increase the Company’s OPEB expense by $1.2 million
in 2001.

The Company makes contributions to the pension plans
within income tax deductibility restrictions in accordance
with statutory requirements. In 2000, the Company con-
tributed $1.7 million, including its share of ventures funding,
an increase of $.6 million from 1999.

MANAGEMENT’S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ENVIRONMENTAL COSTS

The Company has a formal code of environmental con-
duct which promotes environmental protection and restora-
tion. The Company’s obligations for known environmental
conditions at active and closed mining operations, and other
sites have been recognized based on estimates of the cost of
investigation and remediation at each site. If the cost can
only be estimated as a range of possible amounts with no
specific amount being most likely, the minimum of the range
is accrued in accordance with generally accepted accounting
principles. Estimates may change as additional information
becomes available. Actual costs incurred may vary from the
estimates due to the inherent uncer tainties involved.
Potential insurance recoveries have not been reflected in the
determination of the financial reserves.

At December 31, 2000, the Company had a reserve for
environmental obligations, including its share of the environ-
mental obligations of ventures, of $20.0 million ($20.6 mil-
lion at December 31, 1999), of which $4.5 million is current.
Payments in 2000 were $1.9 million (1999 – $1.0 million).

MARKET RISK

The Company is subject to a variety of market risks,
including those caused by changes in the foreign currency
fluctuations and changes in interest rates. The Company has
established policies and procedures to manage such risks;
however, certain risks are beyond the control of the Company.
The Company’s investment policy relating to its short-
term investments (classified as cash equivalents) is to preserve
principal and liquidity while maximizing the return through
investment of available funds. The carrying value of these
investments approximates fair value on the reporting dates.
A portion of the Company’s operating costs are subject
to change in the value of the Canadian dollar. Derivative finan-
cial instruments, in the form of forward currency exchange

contracts, have been utilized by the Company to manage
exchange rate fluctuations of the Canadian dollar on the
Company’s operating costs. The Company had no forward
currency exchange contracts as of December 31, 2000. The
Company does not engage in acquiring or issuing derivative
financial instruments for trading purposes. At December 31,
1999, the notional amounts of the outstanding forward cur-
rency exchange contracts was $22.5 million, with a fair value
of $.4 million, based on the December 31, 1999 forward rate.
As a result of significantly increasing natural gas prices
in 2000, the Company’s managed mines entered into forward
contracts as a hedge against continued expected price
increases. Such contracts, which are in quantities expected
to be delivered and used in the production process, are a
means to limit exposure to price fluctuations. At December
31, 2000, the notional amounts of the outstanding forward
contracts were $16.1 million (Company share – $5.4 million),
with an unrecognized fair value gain of $11.4 million (Company
share – $3.8 million) based on December 29, 2000 forward
rates. The contracts mature at various times through April,
2001. No such contracts were utilized in 1999. If the forward
rates were to change 10 percent from the year-end rate, the
value and potential cash flow effect on the contracts would
be approximately $2.8 million (Company share – $.9 million).
The Company has $70 million of long-term debt out-
standing at a fixed interest rate of 7 percent due in December,
2005. A hypothetical increase or decrease of 10 percent from
2000 year-end interest rates would change the fair value of
the debt by $1.4 million.

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FORWARD-LOOKING STATEMENTS

• Unanticipated geological conditions or ore processing

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 dif-
fer 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, but are not limited to
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;
• Loss of major iron ore sales contracts, or failure of cus-

tomers to perform under existing 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;

• Development of alternate steel-making technologies;
• 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;

changes;

• Process difficulties, including the failure of new tech-

nology to perform as anticipated;

• Availability and cost of the key components of produc-

tion (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 (e.g., percentage depletion

allowance);

• Changes in laws, regulations or enforcement practices
governing remediation requirements at existing envi-
ronmental sites, remediation technology advance-
ments, 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 environ-
mental standards at operating locations; and,

• Accounting principle or policy changes by the Financial
Accounting Standards Board or the Securities and
Exchange Commission.
The Company is under no obligation to publicly update
or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.

STATEMENT OF CONSOLIDATED INCOME
Cleveland-Cliffs Inc and Consolidated Subsidiaries

E
M
O
C
N

REVENUES

Product sales and services

Royalties and management fees

Total Operating Revenues

Insurance recovery

Interest income

Other income

Total Revenues

COSTS AND EXPENSES

Cost of goods sold and operating expenses

Administrative, selling and general expenses

Write-down of common stock investment

Pre-operating loss of Cliffs and Associates Limited

Interest expense

Other expenses

Total Costs and Expenses

INCOME BEFORE INCOME TAXES

INCOME TAXES (CREDIT)

NET INCOME

NET INCOME PER COMMON SHARE

Basic

Diluted

AVERAGE NUMBER OF SHARES

Basic

Diluted

See notes to consolidated financial statements.

( I N M I L L I O N S , E X C E P T P E R S H A R E A M O U N T S )

Ye a r E n d e d D e c e m b e r 3 1

2000

1999

1998

$379.4

$316.1

$465.7

50.7

430.1

15.3

2.9

6.7

48.5

364.6

3.0

3.4

49.7

515.4

5.4

4.7

455.0

371.0

525.5

380.2

18.7

10.9

13.3

4.9

10.4

329.3

16.1

8.8

3.7

8.4

438.4

366.3

16.6

(1.5)

4.7

(.1)

419.6

18.7

2.3

12.7

453.7

71.8

14.4

$ 18.1

$ 54.8

$ 57.4

$ 1.74

$ 1.73

$ 5.43

$ 5.10

$ 5.06

10.4

11.1

11.2

11.3

STATEMENT OF CONSOLIDATED CASH FLOWS
Cleveland-Cliffs Inc and Consolidated Subsidiaries

OPERATING ACTIVITIES

Net income
Adjustments to reconcile net income to net cash from operations:

Depreciation and amortization:

Consolidated
Share of associated companies

Pre-operating loss of Cliffs and Associates Limited
Deferred income taxes
Tax credit
Write-down of common stock investment
Other

Total before changes in operating assets and liabilities

Changes in operating assets and liabilities:

Inventories and prepaid expenses
Receivables

Payables and accrued expenses

Total changes in operating assets and liabilities

Net cash from operating activities

INVESTING ACTIVITIES

Purchase of property, plant and equipment:

Consolidated

Share of associated companies

Investment and advances in Cliffs and Associates Limited

Purchase of additional interest in Cliffs and Associates Limited

Other

Net cash used by investing activities

FINANCING ACTIVITIES

Dividends
Repurchases of Common Shares
Contributions to Cliffs and Associates Limited of minority shareholder

Net cash used by financing activities

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

CASH AND CASH EQUIVALENTS AT END OF YEAR

Taxes paid on income
Interest paid on debt obligations

See notes to consolidated financial statements.

( I N M I L L I O N S , B R A C K E T S I N D I C AT E C A S H D E C R E A S E )

Ye a r E n d e d D e c e m b e r 3 1

2000

1999

1998

$ 18.1

$ 54.8

$ 57.4

12.9
12.7
13.3
9.6
(5.2)
10.9
4.6

76.9

(60.3)
18.8

(7.4)

(48.9)

28.0

(17.8)

(5.6)

(13.8)

(1.7)

(38.6)

(15.7)
(15.6)
4.2

(27.1)

(37.7)

67.6

$ 29.9

$ 1.0
$ 4.9

10.5
12.0
8.8
(.2)

(.3)

35.6

6.4
(23.5)

(14.5)

(31.6)

4.0

(15.4)

(5.4)

(12.5)

(32.8)

(16.7)
(17.2)

(33.9)

(62.7)

130.3

$167.6

$116.9
$114.9

7.8
12.5
2.3
3.1
(3.5)

(4.5)

75.1

2.3
13.1

1.6

17.0

92.1

(24.5)

(7.2)

(19.7)

1.5

(49.9)

(16.3)
(11.5)

(27.8)

14.4

115.9

$130.3

$112.5
$114.9

W
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L
F
H
S
A
C

STATEMENT OF CONSOLIDATED FINANCIAL POSITION
Cleveland-Cliffs Inc and Consolidated Subsidiaries

ASSETS

CURRENT ASSETS

Cash and cash equivalents

Trade accounts receivable

Receivables from associated companies

Product inventories – iron ore

Supplies and other inventories

Deferred and refundable income taxes

Other

TOTAL CURRENT ASSETS

PROPERTIES

Plant and equipment

Minerals

Allowances for depreciation and depletion

TOTAL PROPERTIES

( I N M I L L I O N S )

D e c e m b e r 3 1

2000

1999

$ 29.9

$167.6

46.3

18.5

90.8

22.4

27.3

12.8

66.0

16.6

36.6

16.0

7.7

6.6

248.0

217.1

337.7

19.2

356.9

(84.2)

272.7

204.9

19.1

224.0

(70.1)

153.9

INVESTMENTS IN ASSOCIATED COMPANIES

138.4

233.4

OTHER ASSETS

Prepaid pensions

Miscellaneous

TOTAL OTHER ASSETS

38.1

30.6

68.7

40.8

34.5

75.3

TOTAL ASSETS

$727.8

$679.7

N
O
T
I
S
O
P

L
A
C
N
A
N
I
F

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES

Trade accounts payable

Payables to associated companies

Accrued expenses

Taxes payable

Other

TOTAL CURRENT LIABILITIES

LONG-TERM DEBT

POSTEMPLOYMENT BENEFIT LIABILITIES

OTHER LIABILITIES

MINORITY INTEREST IN CLIFFS AND ASSOCIATES LIMITED

SHAREHOLDERS’ EQUITY

Preferred Stock – no par value

Class A – 500,000 shares authorized and unissued

Class B – 4,000,000 shares authorized and unissued

Common Shares – par value $1 a share

Authorized – 28,000,000 shares;
Issued – 16,827,941 shares

Capital in excess of par value of shares

Retained income

Cost of 6,708,539 Common Shares in

Treasury (1999 – 6,180,742 shares)

Accumulated other comprehensive loss, net of tax

Unearned compensation

TOTAL SHAREHOLDERS’ EQUITY

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

See notes to consolidated financial statements.

( I N M I L L I O N S )

D e c e m b e r 3 1

2000

1999

$ 12.4

$ 19.5

22.7

44.1

16.1

6.9

102.2

70.0

71.7

58.0

23.9

19.6

30.3

9.8

4.5

73.7

70.0

68.1

60.6

16.8

67.3

503.7

16.8

67.1

501.3

(183.8)

(171.5)

(2.0)

(5.2)

(1.2)

402.0

407.3

$727.8

$679.7

STATEMENT OF CONSOLIDATED SHAREHOLDERS’ EQUITY
Cleveland-Cliffs Inc and Consolidated Subsidiaries

Y
T
U
Q
E

’
S
R
E
D
L
O
H
E
R
A
H
S

( I N M I L L I O N S )

C a p i t a l I n
E x c e s s o f
P a r Va l u e
O f S h a r e s

R e t a i n e d
I n c o m e

C o m m o n
S h a r e s

C o m m o n
S h a r e s I n C o m p r e h e n s i v e
Tr e a s u r y

I n c o m e

O t h e r

To t a l

January 1, 1998

Comprehensive income

Net income

Other comprehensive income

Unrealized losses on securities

Total comprehensive income

Cash dividends – $1.45 a share

Stock options and other incentive plans

Repurchases of Common Shares

Other

December 31, 1998

Comprehensive income

Net income

Other comprehensive income

Unrealized losses on securities

Total comprehensive income

Cash dividends – $1.50 a share

Stock options and other incentive plans

Repurchases of Common Shares

Other

December 31, 1999

Comprehensive income

Net income

Other comprehensive income

Unrealized losses on securities

Reclassification adjustment-loss

included in net income

Total comprehensive income

Cash dividends – $1.50 a share

Stock options and

other incentive plans

Repurchases of Common Shares

Other

$16.8

$69.8

$472.1

$(146.2)

$(2.0)

$(3.1)

$407.4

57.4

(16.3)

(2.3)

1.0

1.7

(11.5)

57.4

(2.3)

55.1

(16.3)

2.7

(11.5)

16.8

70.9

513.2

(155.9)

(4.3)

(3.1)

437.6

4.8

(16.7)

(.9)

(3.9)

1.7

(17.2)

(.1)

16.8

67.1

501.3

(171.5)

(5.2)

18.1

(15.7)

(1.2)

6.4

3.1

(15.6)

4.8

(.9)

3.9

(16.7)

(.2)

(17.2)

(.1)

407.3

18.1

(1.2)

6.4

23.3

(15.7)

2.4

(15.6)

2.0

(.1)

(1.2)

(.8)

December 31, 2000

$16.8

$67.3

$503.7

$(183.8)

$(5.2)

$(2.0)

$402.0

See notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cleveland-Cliffs Inc and Consolidated Subsidiaries

ACCOUNTING POLICIES

Basis of Consolidation: The consolidated financial
statements include the accounts of the Company and its
majority-owned subsidiaries (“Company”), including Cliffs
and Associates Limited (“CAL”) since November 20, 2000,
when the Company obtained majority control of CAL (see
note 2). Intercompany accounts are eliminated in consolida-
tion. “Investments in Associated Companies” are comprised
of partnerships and unconsolidated companies (“ventures”)
which the Company does not control. Such investments are
accounted by the equity method. The Company’s share of
earnings of mining ventures from which the Company pur-
chases iron ore is credited to “Cost of Goods Sold and
Operating Expenses” upon sale of the product. CAL results
prior to and after November 20, 2000 are reflected as “Pre-
Operating Loss of Cliffs and Associates Limited.”

Business: The Company’s dominant business is the pro-
duction and sale of iron ore pellets to integrated steel com-
panies. The Company manages and owns interests in mines;
sells iron ore; controls, develops, and leases reserves to mine
owners; and owns ancillary companies providing services to
the mines. Iron ore production activities are conducted in
North America. Iron ore is marketed in North America and
Europe. The three largest steel company customer and partner
contributions to the Company’s revenues were 17 percent, 14
percent and 13 percent in 2000; 19 percent, 19 percent and
10 percent in 1999; and 22 percent, 15 percent and 9
percent in 1998.

The Company is developing a ferrous metallics
business, with its initial entry being the investment in CAL,
located in Trinidad and Tobago, to produce and market hot
briquetted iron (“HBI”). See Note 2 – Ferrous Metallics.

Revenue Recognition: Revenue is recognized on sales
of products when title has transferred, and on services when
services have been performed. Revenue from product sales
includes reimbursement for freight charges ($15.5 million –
2000; $10.4 million – 1999; $21.6 million – 1998) paid on
behalf of customers. Royalty revenue from the Company’s
share of ventures’ production is recognized when the product
is sold. Royalty revenue from the ventures’ other participants
is recognized on production.

Business Risk: The major business risk faced by the
Company in iron ore is lower customer or venture partner

consumption of iron ore from the Company’s managed mines
which may result from competition from other iron ore sup-
pliers; use of iron ore substitutes, including imported semi-
finished steel; steel industry consolidation, rationalization or
financial failure; or decreased North American steel produc-
tion, resulting from increased imports or lower steel con-
sumption. Loss of sales and/or royalty and management fee
income on any such unmitigated loss of business would have
a greater impact on earnings than revenue, due to the high
level of fixed costs in the iron mining business.

The primary business risk faced by the Company in
ferrous metallics is the as yet undemonstrated capability of
the Trinidad facility to produce a sustained quantity of market-
quality HBI to achieve profitable operations.

Use of Estimates: The preparation of financial state-
ments, 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 estimates.

Cash Equivalents: The Company considers investments
in highly liquid debt instruments with an initial maturity of
three months or less to be cash equivalents.

Derivative Financial Instruments: Derivative financial
instruments, in the form of forward currency exchange con-
tracts, have been utilized to manage foreign exchange risks,
with gains and losses recognized in the same period as the
hedged transaction. The Company has not engaged in acquiring
or issuing derivative financial instruments for trading purposes.
The Company had no forward currency exchange contracts
as of December 31, 2000. In the normal course of business,
the Company may enter into forward contracts for the purchase
of commodities which are used in the operation, primarily
natural gas. Such contracts are in quantities expected to be
delivered and used in the production process and are not
intended for re-sale or speculative purposes.

Inventories: Product inventories are stated at the lower
of cost or market. Cost of iron ore inventories is determined
using the last-in, first-out (“LIFO”) method. The excess of
current cost over LIFO cost of iron ore inventories was $7.3
million and $5.9 million at December 31, 2000 and 1999,

S
E
T
O
N

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cleveland-Cliffs Inc and Consolidated Subsidiaries

S
E
T
O
N

respectively. Supplies and other inventories reflect the aver-
age cost method.

Repairs and Maintenance: The cost of power plant
major overhauls is amortized over the estimated useful life,
which is generally the period until the next scheduled over-
haul. All other planned and unplanned repairs and maintenance
costs are expensed during the year incurred.

Properties: Properties are stated at cost. Depreciation
of plant and equipment is computed principally by straight-
line methods based on estimated useful lives, not to exceed
the life of the operating unit. Depreciation is provided over
the following estimated useful lives:

Buildings . . . . . . . . . . . . . . . .45 Years
Mining Equipment . . . . . . . . . .10 to 20 Years
Processing Equipment . . . . . . .15 to 45 Years
Information Technology . . . . . .2 to 7 Years

In iron ore, depreciation is not reduced when operating
units are temporarily idled. At CAL, depreciation rates range
from 25 percent to 125 percent of straight line amounts
based on production.

Asset Impairment: The Company monitors conditions
that may affect the carrying value of its long-lived and intan-
gible assets when events and circumstances indicate that
the carrying value of the assets may be impaired. If projected
undiscounted cash flows are less than the carrying value of
the asset, the assets are adjusted to their fair value.

Environmental Remediation Costs: The Company has a
formal code of environmental protection and restoration. The
Company’s obligations for known environmental problems at
active and closed mining operations, and other sites have been
recognized based on estimates of the cost of investigation and
remediation at each site. If the cost can only be estimated as
a range of possible amounts with no specific amount being
most likely, the minimum of the range is accrued. Costs of
future expenditures are not discounted to their present value.
Potential insurance recoveries have not been reflected in the
determination of the liabilities.

Stock Compensation: In accordance with the provisions
of Financial Accounting Standard Board’s (“FASB”) Statement
123, “Accounting for Stock-Based Compensation,” the Company
has elected to continue applying the provisions of Accounting
Principles Board Opinion No. 25 (“APB 25”) and related inter-

pretations in accounting for its stock-based compensation
plans. Accordingly, the Company does not recognize compen-
sation expense for stock options when the stock option price
at the grant date is equal to or greater than the fair market
value of the stock at that date. The market value of restrict-
ed stock awards and performance shares is charged to
expense over the vesting period.

Exploration, Research and Development Costs:
Exploration, research and development costs are charged to
operations as incurred.

Income Per Common Share: Basic income per common
share is calculated on the average number of common shares
outstanding during each period. Diluted income per common
share is based on the average number of common shares
outstanding during each period, adjusted for the effect of out-
standing stock options, restricted stock and performance
shares.

Reclassifications: Certain prior year amounts have been

reclassified to conform to current year classifications.

N OT E 1 – ACCOUNTING AND
DISCLOSURE CHANGES

In December, 1999, the Securities and Exchange
Commission (“SEC”) issued Staff Accounting Bulletin
(“SAB”) No. 101, “Revenue Recognition,” which provides
guidance on the recognition, presentation, and disclosure of
revenue in financial statements filed with the SEC. Adoption
of SAB No. 101 in the fourth quarter 2000 did not have any
effect on the Company’s consolidated financial statements.
In July, 2000, the Emerging Issues Task Force of the
American Institute of Certified Public Accountants (“EITF”)
reached a consensus on Issue 00-10, “Accounting for Shipping
and Handling Fees and Costs” which requires all shipping and
handling billings to a customer in a sales transaction to be
classified as revenue in the income statement. The Company
applied the EITF consensus as of December 31, 2000 and
restated prior periods, as required. Application of the con-
sensus had no effect on net income; however revenues from
product sales and services and cost of goods and operating
expenses were increased by $15.5 million, $10.4 million and
$21.6 million in 2000, 1999 and 1998, respectively.

In March, 2000, the FASB issued Interpretation 44,
“Accounting for Cer tain Transactions Involving Stock
Compensation.” The Interpretation provides guidance on cer-
tain implementation issues related to APB 25 on accounting
for stock issued to employees and others. The Interpretation,
which was effective July 1, 2000, did not have a material
effect on the Company’s consolidated financial statements.
In June, 1998, the FASB issued Statement of Financial
Accounting Standards (“SFAS”) No. 133, “Accounting for
Derivatives Instruments and Hedging Activities,” as amended
in June, 2000 by SFAS No. 138, “Accounting for Certain
Derivative Instruments and Certain Hedging Activities – an
amendment of SFAS No. 133.” These statements provide the
accounting treatment for all derivatives activity and require
the recognition of all derivatives as either assets or liabilities
on the balance sheet and their measurement at fair value.
Adoption of SFAS No. 133 and SFAS No. 138 in the first quar-
ter 2001 is not expected to have a material effect on the
Company’s consolidated financial statements.

N OT E 2 – INVESTMENTS IN
ASSOCIATED COMPANIES

IRON ORE

The Company’s investments in mining ventures at
December 31 consist of its 40 percent interest in Tilden Mining
Company L.C. (“Tilden”), 35 percent (22.5625 percent in
1999 and 1998) interest in Empire Iron Mining Partnership
(“Empire”), 22.78 percent interest in Wabush Mines
(“Wabush”), and 15 percent interest in Hibbing Taconite
Company (“Hibbing”). The remaining interests in the ventures
are owned by U.S. and Canadian integrated steel companies.

Following is a summary of combined financial informa-

tion of the operating ventures:

( I N M I L L I O N S )

2000

1999

1998

Income

Gross revenue

$1,062.1

$922.3

$1,072.4

Income

$1,070.1

$165.8

$1,134.3

Financial Position
at December 31
Current assets
Properties – net
Other long-term assets
Current liabilities
Long-term liabilities

$1,174.5
636.1
33.5
(131.2)
(115.0)

$196.5
660.1
30.7
(145.7)
(106.5)

$1,187.0
691.4
30.0
(159.8)
(79.6)

Net assets

$1,597.9

$635.1

$1,669.0

Company’s equity in

underlying net assets

$1,193.3

$184.8

$1,194.3

Company’s investment

$1,138.4

$149.3

$1,156.0

The Company manages all of the ventures and leases or
subleases mineral rights to Empire and Tilden. In addition, the
Company is required to purchase its applicable current share,
as defined, of the ventures’ production. The Company purchased
$273.6 million in 2000 (1999 – $174.7 million; 1998 –
$253.9 million) of iron ore pellets from the ventures.

Following is a summary of royalties and management
fees earned by the Company and the Company’s share as a
participant in the ventures:

Other venture partners’ share
Company’s share as a participant

Total royalties and

management fees

( I N M I L L I O N S )

2000

$36.5
14.2

1999

$40.9
7.6

1998

$36.4
13.3

$50.7

$48.5

$49.7

Payments by the Company, as a participant in the ven-
tures, are reflected in royalties and management fees revenue
and cost of goods sold upon sale of the product.

Costs and expenses incurred by the Company, on behalf
of the ventures, are charged to the ventures in accordance
with management and operating agreements. The Company’s
equity in income of the ventures is credited to cost of goods
sold and includes amortization to income of the difference of
the Company’s equity in underlying net assets and its invest-
ment on the straight-line method based on the useful lives of

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cleveland-Cliffs Inc and Consolidated Subsidiaries

S
E
T
O
N

the underlying assets. The difference between the Company’s
equity in underlying net assets and recorded investment results
from the assumption of interests from former participants in
the ventures, acquisitions, and reorganizations. The Company’s
equity in the income of ventures was $19.3 million in 2000
(1999 – $4.0 million; 1998 – $29.3 million).

B ANKRUPTCIES OF MINE PARTNERS
AND CUSTOMERS

On December 29, 2000, The LTV Corporation (“LTV”)
filed for protection under Chapter 11 of the U.S. Bankruptcy
Code. A wholly-owned subsidiary of LTV is a 25 percent part-
ner in the Company-managed Empire Mine in Michigan. Since
the bankruptcy filing, LTV has remained current with its
Empire obligations.

At the time of the filing, LTV owed the Company approx-
imately $2.3 million related to the Company’s management
of LTV Steel Mining Company (“LTVSMC”) in Minnesota,
which amount the Company has reserved. In May, 2000, LTV
announced its intention to close LTVSMC in mid-2001, and
later the intended closing date was advanced to February 22,
2001. Subsequent to the bankruptcy filing, LTV ceased oper-
ations at LTVSMC on January 5, 2001, more than a month
ahead of schedule, due to conditions in the steel market and
cost reduction associated with the bankruptcy filing.

The Company signed a long-term agreement in May,
2000 to supply LTV with the majority of the iron ore it will
need to purchase as a result of closing of LTVSMC. Sales over
the 10-year contract term could total more than 50 million
tons if LTV continues to produce at or near current levels and
performs under the contract terms. To date in the bankruptcy
proceeding, LTV has neither affirmed nor rejected this agree-
ment. Sales under the contract were less than .2 million tons
in 2000; expected sales in 2001 will be impacted by the
liquidation of LTVSMC’s remaining pellet inventory and business
conditions. The Company had no trade receivable exposure to
LTV at the time of bankruptcy filing.

In May 2000, LTV granted the Company an exclusive
option to purchase the LTVSMC assets in exchange for
assumption of environmental and reclamation obligations and
other consideration at LTVSMC. The Company has until March
31, 2001 to exercise the option. The Company does not

believe iron ore pellets can be produced there economically,
but is investigating whether alternative uses or the disposition
of the assets would be advantageous.

Prior to Wheeling-Pittsburgh Steel Corporation’s
(“Wheeling-Pittsburgh”) filing for protection under Chapter
11 of the U.S. Bankruptcy Code on November 16, 2000, the
Company exercised its rights under agreements with
Wheeling-Pittsburgh to acquire Wheeling-Pittsburgh’s
12.4375 percent indirect interest in Empire. The acquisition
of Wheeling-Pittsburgh’s interest in Empire increased the
Company’s ownership share to 35 percent and its share of
production capacity from 1.8 million tons to 2.8 million tons.
Subsequent to the filing, Wheeling-Pittsburgh has requested
an accounting for the acquisition transaction. At the time of
the filing, the Company did not have a term sales contract
with Wheeling-Pittsburgh and the Company’s trade receivable
exposure was negligible.

Acme Metals Incorporated and its wholly-owned sub-
sidiary Acme Steel Company (collectively “Acme”), a partner
in Wabush and an iron ore customer, has continued its rela-
tionship with Wabush and the Company since its 1998
Chapter 11 bankruptcy filing. The Company had a $1.2 mil-
lion pre-petition trade receivable from Acme, which has been
fully provided. At December 31, 2000, the Company had an
additional allowance for doubtful accounts of $1.0 million.
Sales to Acme in 2000 represented 3 percent of the
Company’s total sales volume.

FERROUS METALLICS

CAL, a venture in Trinidad and Tobago, completed
construction in April, 1999 of a facility designed to produce
premium quality HBI to be marketed to the steel industry. The
HBI facility has produced sufficient reduced iron to demon-
strate that the Circored® process technology will yield a product
that meets the quality specifications that were expected,
including high metalization rates. However, sustained levels
of briquette production could not be achieved and, in May,
2000, start-up activities were temporarily suspended in order
to evaluate plant reliability and make modifications to portions
of the plant. The plant was restarted on July 1, 2000 to test
the functionality and reliability of the initial modifications and to
gain additional operating experience. Results of the five-week

Subsequent to LTV’s withdrawal of financial support for
CAL, it was estimated that $45 million of additional invest-
ment (of which $16.6 million has been invested through
December 31, 2000) would be required for CAL to attain sus-
tained production and generate positive cash flow, consisting
of capital expenditures of $15 million, working capital of $15
million and cash start-up costs of $15 million. Lurgi has agreed
to fund a disproportionate share of the capital expenditures
through in kind contribution of the new discharge system,
which increases its ownership. As a result, the Company’s
ownership in CAL at December 31, 2000 decreased to 84.4
percent. If the full $45 million is required, the Company’s addi-
tional investment will be $33 million (of which $11.6 million
has been funded at December 31, 2000), and the Company
will own approximately 82.4 percent of CAL.

N OT E 3 – 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 HBI project in Trinidad and Tobago
and other developmental activities. “Other” includes non-
reportable segments, the insurance claim recovery, the long-
term investment write-down of publicly traded common stock,
unallocated corporate administrative expense and other
income and expense.

test were positive. Although a small quantity of commercial
grade briquettes was produced, replacing the discharge
system was necessary to improve material flow and obtain
consistent feed of HBI to the briquetting machines. The
modifications are targeted for completion in the first quarter
of 2001.

On November 20, 2000, a subsidiary of the Company
and Lurgi Metallurgie GmbH (“Lurgi”) completed the acquisi-
tion of LTV’s 46.5 percent interest in CAL for $2 million
(Company share – $1.7 million) and additional future pay-
ments that could total $30 million through 2020 dependent
on CAL’s production, sales volume and price realizations. LTV
had announced its decision to withdraw its financial support
for CAL on July 28, 2000. At December 31, 1999, the
Company’s “Investment in Associated Companies” account
for its then 46.5 percent ownership totaled $84.1 million,
which included the Company’s capitalized interest. At the date
of acquisition, the Company’s ownership in CAL increased to
86.9 percent. The acquisition has been accounted for by the
purchase method of accounting and, accordingly, the balance
sheet of CAL has been consolidated on the basis of a prelim-
inary allocation of the purchase price with the Company’s
investment in CAL at November 20, 2000, $84.8 million, plus
the additional purchase price of $1.7 million allocated princi-
pally to property, plant and equipment. At December 31, 2000,
the Company’s consolidated financial statements included
the following amounts related to CAL:

Property, plant and equipment

(including capitalized interest)

Working capital deficit
Minority Interest

Total

( M I L L I O N S )

$119.1
(3.0)
(23.9)

$492.2

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cleveland-Cliffs Inc and Consolidated Subsidiaries

S
E
T
O
N

2000

Sales and services to external customers

Royalties and management fees(1)

Total operating revenues

Income (loss) before taxes

Depreciation and amortization(2)

Pre-operating loss of CAL(3)

Investments in associated companies

Other identifiable assets

Total assets

Property expenditures(2)

1999

Sales and services to external customers

Royalties and management fees(1)

Total operating revenues

Income (loss) before taxes

Depreciation and amortization(2)

Pre-operating loss of CAL(3)

Investments in associated companies

Other identifiable assets

Total assets

Property expenditures(2)

1998

Sales and services to external customers

Royalties and management fees(1)

Total operating revenues

Income (loss) before taxes

Depreciation and amortization(2)

Pre-operating loss of CAL(3)

Investments in associated companies

Other identifiable assets

Total assets

Property expenditures(2)

I r o n
O r e

F e r r o u s
M e t a l l i c s

S e g m e n t s
T o t a l

( I N M I L L I O N S )

$379.4

50.7

430.1

46.2

25.6

138.4

428.8

567.2

18.3

$316.1

48.5

364.6

31.7

22.5

149.3

423.3

572.6

20.8

$465.7

49.7

515.4

91.6

20.3

156.0

468.3

624.3

31.7

$00.0

(16.4)

(13.3)

128.3

5.1

$00.0

(11.7)

(8.8)

84.1

1.5

85.6

11.2

$00.0

(5.5)

(2.3)

79.4

80.2

16.7

$379.4

50.7

430.1

29.8

25.6

(13.3)

138.4

557.1

695.5

23.4

$316.1

48.5

364.6

20.0

22.5

(8.8)

233.4

424.8

658.2

32.0

$465.7

49.7

515.4

86.1

20.3

(2.3)

235.4

469.1

704.5

48.4

O t h e r

$00.0

(13.2)

32.3

$00.0

(15.3)

21.5

$00.0

(14.3)

19.3

C o n s o l i d a t e d
T o t a l

$379.4

50.7

430.1

16.6

25.6

(13.3)

138.4

589.4

727.8

23.4

$316.1

48.5

364.6

4.7

22.5

(8.8)

233.4

446.3

679.7

32.0

$465.7

49.7

515.4

71.8

20.3

(2.3)

235.4

488.4

723.8

48.4

(1) Includes revenue from the Company’s share of ventures’ production that is recognized when the product is sold.
(2) Includes Company’s share of associated companies.
(3) Includes equity losses from CAL through November 20, 2000 and consolidated losses, net of minority interest, thereafter. Included in income (loss) before taxes.

Included in the consolidated financial statements are

the following amounts relating to geographic locations:

Revenue(1)

United States
Canada
Other Countries

Long-Lived Assets(2)
United States
Canada
Trinidad and Tobago

( I N M I L L I O N S )

2000

1999

1998

$380.8
38.7
10.6

$321.0
36.4
7.2

$430.1

$364.6

$296.5
15.0
119.1

$295.9
16.0
76.8

$430.6

$388.7

$465.9
42.1
7.4

$515.4

$298.1
16.8
65.6

$380.5

(1) Revenue is attributed to countries based on the location of the customer.
(2) Net properties include Company’s share of associated companies.

N OT E 4 – ENVIRONMENTAL OBLIGATIONS

At December 31, 2000, the Company had an environ-
mental reserve, including its share of ventures, of $20.0 million
($20.6 million at December 31, 1999), of which $4.5 million
was classified as current. Payments in 2000 were $1.9 mil-
lion (1999 – $1.0 million and 1998 – $.9 million). 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 opera-
tions. Reserves are based on Company estimates and engi-
neering studies prepared by outside consultants engaged by
the potentially responsible parties. The Company continues
to evaluate the recommendations of the studies and other
means for site clean-up. Significant site clean-up activities
have taken place at Rio Tinto and Cliffs-Dow. Also included in
the reserve are wholly-owned active and closed mining opera-
tions, and other sites, including former operations, for which
reserves are based on the Company’s estimated cost of
investigation and remediation.

N OT E 5 – LONG-TERM DEBT

No borrowings were outstanding under this agreement at
December 31, 2000. On January 8, 2001, the Company
borrowed $65 million under the revolving credit agreement
for general operating and working capital requirements. The
loan interest rate, based on the LIBOR rate plus a premium,
is fixed at 6.1 percent through July 8, 2001. Loan repayment
timing is subject to future uncertainty, but the Company
expects to repay the loan by the end of 2001. The revolving
credit agreement expires on May 31, 2003. The note and
revolving credit agreements require the Company to meet
certain covenants related to net worth, leverage, and other
provisions. The Company exceeds the requirements by more
than $50 million at December 31, 2000 for the most restric-
tive covenant (net worth). The Company was in compliance
with the debt covenants at December 31, 2000. The Company
also has unsecured letters of credit outstanding of $15.4
million, including its share of ventures.

N OT E 6 – LEASE OBLIGATIONS

The Company and its ventures lease certain mining,
production, data processing and other equipment under oper-
ating leases. The Company’s operating lease expense, including
its share of ventures, was $12.9 million in 2000, $10.0 million
in 1999 and $9.1 million in 1998.

Assets acquired under capital leases by the Company,
including its share of ventures, were $10.5 million and $10.3
million, respectively, at December 31, 2000 and 1999. Corre-
sponding accumulated amortization of capital leases included
in respective allowances for depreciation was $5.9 million and
$5.2 million at December 31, 2000 and 1999, respectively.

Future minimum payments under capital leases and
noncancellable operating leases, including the Company’s
share of ventures, at December 31, 2000 were:

Year Ending
December 31

2001
2002
2003
2004
2005
2006 and thereafter

Long-term debt of the Company consists of $70 million
of senior unsecured notes due in December, 2005, with a fixed
interest rate of 7 percent. The Company has a $100 million
revolving credit agreement which expires on May 31, 2003.

Total minimum lease payments

Amounts representing interest

Present value of net minimum

lease payments

( I N M I L L I O N S )

Capital
Leases

Operating
Leases

$13.3
10.9
10.1
7.5
5.4
8.9

$56.1

$1.7
1.4
.8
.5
.2
.1

4.7

$4.0

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cleveland-Cliffs Inc and Consolidated Subsidiaries

S
E
T
O
N

The $60.8 million of total minimum lease payments
comprises the Company’s direct obligation of $4.8 million
and the Company’s share of ventures’ obligations of $56.0
million, which are largely non-recourse to the Company.

N OT E 7 – PENSIONS AND OTHER
POSTRETIREMENT BENEFITS

The Company and its ventures sponsor defined benefit
pension plans covering substantially all employees. The plans
are largely noncontributory, and benefits are generally based
on employees’ years of service and average earnings for a

defined period prior to retirement. In addition, the Company
and its ventures currently provide retirement health care and
life insurance benefits (“Other Benefits”) to most full-time
employees who meet certain length of service and age
requirements (a portion of which are pursuant to collective
bargaining agreements). Other Benefits are provided through
programs administered by insurance companies whose
charges are based on benefits paid. The following table pre-
sents a reconciliation of funded status of the Company’s plans,
including its proportionate share of plans of its ventures, at
December 31, 2000 and 1999:

Change in plan assets

Fair value of plan assets at beginning of year
Actual return on plan assets
Contributions
Effect of change in Empire ownership
Benefits paid

Fair value of plan assets at end of year

Change in benefit obligation

Benefit obligation at beginning of year
Service cost
Interest cost
Amendments
Actuarial losses (gains)
Effect of change in Empire ownership
Benefits paid

Benefit obligation at end of year

Funded status of the plan (underfunded)
Unrecognized prior service cost
Unrecognized net actuarial (gain) loss
Unrecognized net asset at date of adoption

( I N M I L L I O N S )

P e n s i o n B e n e f i t s

O t h e r B e n e f i t s

2000

1999

2000

1999

$335.9
17.3
1.7
18.0
(20.2)

352.7

249.3
5.9
22.6

25.0
20.9
(20.2)

303.5

49.2
28.4
(36.1)
(15.2)

$316.2
34.9
1.1

(16.3)

335.9

238.1
4.6
17.2
24.5
(18.8)

(16.3)

249.3

86.6
29.5
(65.7)
(17.1)

$(21.5
1.2
1.4
2.7
(2.3)

24.5

84.6
1.7
9.1
.2
47.1
7.1
(7.8)

142.0

(117.5)
1.5
37.8

$ 19.9
1.8
1.5

(1.7)

21.5

97.7
1.8
6.3

(15.2)

(6.0)

84.6

(63.1)
1.5
(13.4)

Prepaid (accrued) benefit cost – net

$126.3

$133.3

$(78.2)

$(75.0)

Assumptions as of December 31

Discount rate
Expected long-term return on plan assets
Rate of compensation increase – average

7.75%
9.00%
4.26%

8.00%
9.00%
4.26%

7.75%
8.26%

8.00%
7.62%

P e n s i o n B e n e f i t s

O t h e r B e n e f i t s

2000

1999

1998

2000

1999

1998

( I N M I L L I O N S )

$15.9
22.6
(29.0)
6.4

$15.9

$14.6
17.2
(24.9)
6.2

$13.1

$14.5
15.6
(22.5)
4.6

$12.2

$1.7
9.1
(2.1)
1.2

$9.9

$1.8
6.3
(1.5)
.1

$6.7

$1.6
6.3
(1.3)
.1

$6.7

Components of net periodic benefit cost

Service cost
Interest cost
Expected return on plan assets
Amortization and other

Net periodic benefit cost (credit)

Annual contributions to the pension plans are made
within income tax deductibility restrictions in accordance
with statutory regulations. In the event of termination, the
sponsors could be required to fund shutdown and early retire-
ment obligations which are not included in the pension bene-
fit obligations.

Assets for Other Benefits include deposits relating to
insurance contracts and Voluntar y Employee Benefit
Association (“VEBA”) Trusts for certain mining ventures that
are available to fund retired employees’ life insurance obliga-
tions and medical benefits. The Company’s estimated annual
contribution to the VEBAs will approximate $1.6 million based
on its share of tons produced.

As a result of recent experience, the Company
increased its medical trend rate assumption effective
December 31, 2000. An annual rate of increase in the per
capita cost of covered health care benefits of 8.0 percent
was assumed for 2001, (6.5 percent in 2000) decreasing .25
to .5 percent per year to an annual rate of 5.0 percent for
2008 and annually thereafter. A one percentage point change
in this assumption would have the following effects:

( I N M I L L I O N S )

Increase

Decrease

Effect on total service and

interest cost components in 2000

$11.3

$1(1.1)

Effect on Other Benefits obligation

as of December 31, 2000

15.5

(13.0)

Deferred tax assets:

Postretirement benefits other

than pensions

Capital loss carryforward
Other liabilities
Alternative minimum tax credit

carryforwards
Product inventories
Pre-operating loss of CAL
Other

Total deferred tax assets

Deferred tax liabilities:

CAL properties
Investment in ventures
Properties
Other

Total deferred tax liabilities

( I N M I L L I O N S )

2000

1999

$21.7
18.5
12.9

4.2
6.3

13.2

76.8

30.4
17.0
21.8
11.4

80.6

$21.4

13.2

8.9
2.5
4.5
12.2

62.7

20.7
20.2
8.4

49.3

Net deferred tax assets (liability)

$ (3.8)

$13.4

“Deferred and refundable income taxes” include a
refund of approximately $14 million of current and prior years’
federal tax payments associated with the Company’s adjust-
ment in its CAL tax basis of properties. Capital loss carryfor-
wards totaling $53 million are available to offset capital
gains through 2005.

The components of the Company’s provision for income

taxes are as follows:

N OT E 8 – INCOME TAXES

Significant components of the Company’s deferred tax
assets and liabilities as of December 31, 2000 and 1999 are
as follows:

Current
Deferred

( I N M I L L I O N S )

2000

$(5.9)
4.4

$(1.5)

1999

$(.1
(.2)

$(.1)

1998

$14.8
(.4)

$14.4

In the fourth quarter of 2000, a favorable tax adjust-
ment of $5.2 million was recorded reflecting the Company’s
continuing assessment of its tax obligations, relating to the
expected outcome of federal audit issues for tax years 1995
and 1996. Additional tax and interest payment of approxi-
mately $5 million related to the audit are expected to occur
in 2001.

In 1999, the Company made additional tax and interest
payments of $1.5 million related to final settlement of audit
issues for years 1993 and 1994. In 1998, a favorable tax adjust-
ment of $3.5 million was recorded which primarily reflected the
expected outcome of 1993 and 1994 audit issues.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cleveland-Cliffs Inc and Consolidated Subsidiaries

S
E
T
O
N

Reconciliation of the Company’s income tax to the tax

at the United States statutory rate follows:

( I N M I L L I O N S )

2000

1999

1998

which mature at various times through April, 2001, was esti-
mated to be $11.4 million (Company share – $3.8 million)
based on December 29, 2000 forward rates. No such con-
tracts were utilized in 1999.

$ 5.8

$1.7

$25.1

N OT E 1 0 – STOCK PLANS

Tax at statutory rate

of 35 percent

Increase (decrease) due to:
Percentage depletion

in excess of cost depletion

Effect of foreign taxes
Prior years’ tax adjustments
Other items – net

(2.6)
(.2)
(4.9)
.4

Income tax expense (credit)

$(1.5)

(1.8)
.2
(.3)
.1

$ (.1)

(5.9)

(4.7)
(.1)

$14.4

N OT E 9 – FAIR VALUE OF
FINANCIAL INSTRUMENTS

The carrying amount and fair value of the Company’s
financial instruments at December 31, 2000 and 1999 were
as follows:

( I N M I L L I O N S )

2000

1999

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

$29.9

$67.6

Cash and cash equivalents
Investments in LTV
common stock

Long-term debt

70.0

3.5
70.0

3.5
63.4

Investments in LTV common stock reflect the market
value at December 31, 2000 and 1999 on 542,000 shares and
842,000 shares, respectively. See note 13 – Non-Recurring
Special Items.

The fair value of the Company’s long-term debt was
determined based on a discounted cash flow analysis and
estimated current borrowing rates.

The Company had Canadian forward currency exchange
contracts in the notional amount of $22.5 million at December
31, 1999. The fair value of the contracts, which had varying
maturity dates of less than twelve months, was estimated to
be $.4 million, based on December 31, 1999 forward rates. At
December 31, 2000, the Company did not have any forward
currency exchange contracts.

At December 31, 2000, the Company’s managed mines
had in place forward contracts for the purchase of natural gas
in the notional amount of $16.1 million (Company share – $5.4
million). The unrecognized fair value gain on the contracts,

The 1992 Incentive Equity Plan as amended in 1999,
authorizes the Company to issue up to 1,700,000 Common
Shares upon the exercise of Options Rights, as Restricted
Shares, in payment of Performance Shares or Performance
Units that have been earned, as Deferred Shares, or in pay-
ment of dividend equivalents paid on awards made under the
Plan. Such shares may be shares of original issuance, treas-
ury shares, or a combination of both. Stock options may be
granted at a price not less than the fair market value of the
stock on the date the option is granted, generally are not sub-
ject to re-pricing, and must be exercisable not later than ten
years and one day after the date of grant. Stock appreciation
rights may be granted either at or after the time of a stock
option grant. Common Shares may be awarded or sold to cer-
tain employees with disposition restrictions over specified
periods. The 1996 Nonemployee Directors’ Compensation
Plan authorizes the Company to issue up to 50,000 Common
Shares to nonemployee Directors. The Plan was amended
effective in 1999 to provide for the grant of 2,000 Restricted
Shares to nonemployee Directors first elected on or after
January 1, 1999, and also provides that nonemployee
Directors must take at least 40 percent of their annual retain-
er in Common Shares. The Restricted Shares vest five years
from the date of award. The Company recorded expense of
$.9 million in 2000, a credit of $.3 million in 1999, and
expense of $2.5 million in 1998 relating to other stock-based
compensation, primarily the Performance Share program.

FASB Statement 123 requires pro forma disclosure of
net income and earnings per share as if the fair value method
for valuing stock options had been applied. The Company’s
pro forma information follows:

Net income (millions)
Earnings per share:

Basic
Diluted

2000

$17.3

$1.67
$1.66

1999

$3.1

$.28
$.28

1998

$57.2

$5.09
$5.05

The fair value of these options was estimated at the
date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 2000, 1999
and 1998:

Risk-free interest rate
Dividend yield
Volatility factor – market price
of Company’s common stock
Expected life of options – years
Weighted-average fair value of

2000

6.67%
4.04%

.241
4.31

1999

4.79%
3.42%

.223
6.15

1998

5.47%
3.15%

.224
4.31

options granted during the year

$5.93

$5.52

$8.65

Compensation costs included in the pro forma informa-
tion reflect fair values associated with options granted after
January 1, 1995. Pro forma information may not be indicative
of future pro forma information applicable to future outstand-
ing awards.

Stock option, restricted stock award, deferred stock
allocation, and performance share activities under the
Company’s Incentive Equity Plans, and the Nonemployee
Directors’ Compensation Plan are summarized as follows:

2000

1999

1998

Stock options:

Options outstanding at beginning of year
Granted during the year
Exercised
Expired
Cancelled

Options outstanding at end of year
Options exercisable at end of year

Restricted awards:

Awarded and restricted at beginning of year
Awarded during the year
Vested
Issued as performance shares

Awarded and restricted at end of year

Deferred stock awards:

Awarded at beginning of year
Issued as performance shares
Awarded during the year

Awarded at end of year

Performance shares:

Allocated at beginning of year
Allocated during the year
Issued
Forfeited/cancelled

Allocated at end of year

Required retainer and voluntary shares:

Awarded at beginning of year
Awarded during the year
Issued

Awarded at end of year

Reserved for future grants
or awards at end of year

W e i g h t e d -
A v e r a g e
E x e r c i s e
P r i c e

$39.00
44.56
34.96

44.26

41.04
36.22

W e i g h t e d -
A v e r a g e
E x e r c i s e
P r i c e

$41.04
58.88
21.98

43.98

51.59
39.90

W e i g h t e d -
A v e r a g e
E x e r c i s e
P r i c e

$51.59
29.56
20.12
20.12
44.14

48.81
43.69

S h a r e s

774,242
171,950
(28,375)
(5,400)
(39,720)

872,697
285,333

53,223

(19,287)
26,051

59,987

22,315
7,112

29,427

174,950
101,816
(48,366)

228,400

9,980
9,394
(9,980)

9,394

S h a r e s

346,742
454,150
(6,750)

(19,900)

774,242
221,126

52,296
4,000
(3,073)

53,223

176,050
69,472
(59,672)
(10,900)

174,950

6,649
10,255
(6,924)

9,980

S h a r e s

252,625
128,450
(18,616)

(15,717)

346,742
138,609

49,449
5,000
(2,153)

52,296

161,000
73,554
(58,504)

176,050

4,548
6,649
(4,548)

6,649

313,075

563,627

520,704

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cleveland-Cliffs Inc and Consolidated Subsidiaries

S
E
T
O
N

Exercise prices for options outstanding as of December
31, 2000 ranged from $29.56 to $75.80, with 80 percent of
options outstanding having exercise prices greater than
$43.00. The weighted-average remaining contractual life of
options outstanding is 8.6 years at December 31, 2000.

NOTE 11 – SHAREHOLDERS’ EQUITY

Under the Company’s share purchase rights (“Rights”)
plan, a Right is attached to each of the Company’s Common
Shares outstanding or subsequently issued, which entitles
the holder to buy from the Company one-hundredth of one
(.01) Common Share at an exercise price per whole share of
$160. The Rights expire on September 19, 2007 and are not
exercisable until the occurrence of certain triggering events,
which include the acquisition of, or tender or exchange offer
for, 20 percent or more of the Company’s Common Shares.
There are approximately 168,000 Common Shares reserved
for these Rights. The Company is entitled to redeem the
Rights at one cent per Right upon the occurrence of certain
events.

In 2000, the Company expanded its stock repurchase
program by 1.0 million shares, which raised the total author-
ization to 3.0 million shares. Through December 31, 2000,
the Company has purchased 2.4 million shares (.7 million
shares in 2000), at a total cost of $79.5 million ($15.6 million
in 2000).

NOTE 12 – EARNINGS PER SHARE

The following table summarizes the computation of

basic and diluted earnings per share.

( I N M I L L I O N S ,
E X C E P T P E R S H A R E )

Net income
Basic weighted-average shares
Effect of dilutive shares:

Stock options/

performance shares

2000

$18.1
10.4

1999

$14.8
11.1

Diluted weighted-average shares

10.4

Basic earnings per share

Diluted earnings per share

$1.74

$1.73

11.1

$1.43

1998

$57.4
11.2

11.3

$5.10

$5.06

NOTE 13 – NON-RECURRING SPECIAL ITEMS

The Company held 842,000 shares of LTV common
stock, which were originally valued at $11.5 million, or $13.65
per share. As of June 30, 2000, the investment was reclassi-
fied to “trading” and accordingly changes in market value are
recognized in earnings as they occurred. The Company rec-
ognized a reduction to 2000 earnings of $10.9 million pre-tax
($7.1 million after-tax) related to the investment. In August,
2000, the Company commenced a program to reduce its
investment in the LTV common stock and through December
31, had sold 300,000 shares, with the balance sold in
January, 2001.

NOTE 14 – COMMITMENTS AND
CONTINGENCIES

From time to time, in the normal course of business,
the Company enters into contracts to purchase iron ore to
meet customer quality specifications or fulfill anticipated or
forecasted shortfalls. The Company has committed to pur-
chase approximately $19 million of pellets in 2001.

The Company and its ventures are periodically involved
in litigation incidental to their operations. Management
believes that any pending litigation will not result in a material
liability in relation to the Company’s consolidated financial
statements.

REPORT OF ERNST & YOUNG LLP, Independent Auditors

SHAREHOLDERS AND BOARD OF DIRECTORS
C L E V E L A N D - C L I F F S I N C

We have audited the accompanying statement of con-
solidated financial position of Cleveland-Cliffs Inc and consol-
idated subsidiaries as of December 31, 2000 and 1999, and
the related statements of consolidated income, shareholders’
equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are
the responsibility of the Company’s management. Our respon-
sibility is to express an opinion on these financial statements
based on our audits.

We conducted our audits in accordance with auditing
standards generally accepted in the United States. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examin-
ing, on a test basis, evidence supporting the amounts and

disclosures in the financial statements. An audit also
includes assessing the accounting principles used and signif-
icant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Cleveland-Cliffs Inc and consolidated sub-
sidiaries at December 31, 2000 and 1999, and the consoli-
dated results of their operations and their cash flows for each
of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in
the United States.

Cleveland, Ohio
January 24, 2001

T
R
O
P
E
R

’
S
R
O
T
D
U
A

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
I N M I L L I O N S E X C E P T P E R S H A R E A M O U N T S

S
T
L
U
S
E
R
Y
L
R
E
T
R
A
U
Q

Total revenues
Gross profit
Net income (loss)

Amount
Per common share

Basic
Diluted

Average number of shares

Basic
Diluted

2000

Q u a r t e r s

F i r s t

$36.3
3.2

(3.5)

(.32)
(.32)

10.7
10.7

S e c o n d

$152.4
19.6

T h i r d

$152.5
16.8

F o u r t h

$113.8
10.3

Ye a r

$455.0
49.9

11.0

1.03
1.03

10.5
10.6

6.3

.60
.60

10.4
10.4

4.3

.43
.42

10.1
10.1

18.1

1.74
1.73

10.4
10.4

Annual results include the pre-tax effects of a $15.3
million ($15.0 million in the second quarter) recovery of an
insurance claim, a $5.2 million fourth quarter tax credit re-
flecting a reassessment of income tax obligations from audits

of prior years’ federal tax returns, and a $10.9 million pre-tax
($9.1 million in the second quar ter) charge to recognize
the decrease in value of the Company’s investment in LTV
common stock.

Total revenues
Gross profit (loss)
Net income (loss)

Amount
Per common share

Basic
Diluted

Average number of shares

Basic
Diluted

Q u a r t e r s

F i r s t

$25.1
9.9

2.7

.24
.24

11.2
11.2

S e c o n d

$101.7
18.7

7.8

.70
.70

11.2
11.2

1999

T h i r d

$94.2
(10.0)

(10.7)

(.96)
(.96)

11.1
11.1

F o u r t h

$150.0
16.7

Ye a r

$371.0
35.3

5.0

.45
.45

10.8
10.9

4.8

.43
.43

11.1
11.1

First and third quarter results included pre-tax favor-
able adjustments of $4 million and $2 million, respectively,
primarily relating to recoveries of prior years’ state taxes.

Third and fourth quarter results also included approximately
$25 million and $7 million, respectively, of pre-tax fixed costs
related to production curtailments.

C O M M O N S H A R E P R I C E P E R F O R M A N C E A N D D I V I D E N D S

P r i c e P e r f o r m a n c e

2000

1999

H i g h

L o w

H i g h

L o w

D i v i d e n d s

2000

1999

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Year

$31.38
26.25
27.25
23.19
31.38

$22.00
21.94
22.56
19.69
19.69

$43.56
41.44
34.50
31.94
43.56

$32.94
31.81
30.06
26.81
26.81

$1.375
.375
.375
.375

$1.50

$1.375
.375
.375
.375

$1.50

CLIFFS – MANAGED MINES

PRODUCTION (Gross Tons In Millions)

Marquette Range (Michigan)

Empire

Tilden

Mesabi Range (Minnesota)

Hibbing Taconite

LTV Steel Mining Company [b]

Northshore

Newfoundland/Quebec, Canada

Wabush

Total

Annual
Capacity

2000
Actual

Exhaustion
Year [a]

8.0

7.8

8.0

—

4.3

6.0

34.1

7.6

7.2

8.2

7.8

4.3

5.9

41.0

2019

2041

2029

—

2081

2042

OWNERSHIP PERCENTAGE

Owners [c]

Acme Metals Incorporated

Algoma Steel Inc.

Bethlehem Steel Corporation

Cleveland-Cliffs Inc

Dofasco Inc.

Ispat International N.V.

The LTV Corporation

Stelco Inc.

Empire

Tilden

Hibbing
Taconite

Northshore

Wabush

45.0

35.0

40.0

70.3

15.0

100.0

40.0

25.0

15.0

14.7

15.1

22.8

24.2

37.9

[a] Assumes production at annual capacity and the economic development of available ore reserves.
Actual production levels may differ from annual capacity. Capacity and mine life may be changed
by economic conditions or other factors.
[b] Mine permanently closed January 5, 2001.
[c] As of February 28, 2001. Ownership may be held through subsidiaries.

S
E
N
M
D
E
G
A
N
A
M

SUMMARY OF FINANCIAL AND OTHER STATISTICAL DATA
Cleveland-Cliffs Inc and Consolidated Subsidiaries

Y
R
A
M
M
U
S
R
A
E
Y
1
1

Financial Data ( I N M I L L I O N S , E X C E P T P E R S H A R E A M O U N T S )

For The Year
Operating Earnings (a)

Operating Revenues – Product Sales and Services
Operating Revenues – Royalties and Management Fees

Operating Revenues – Total
Cost of Goods Sold and Operating Expenses and AS&G Expenses

Operating Earnings
Net Income (Loss) (a)
Net Income (Loss) Per Common Share (a)

Basic
Diluted

Cash Flow from Operations Before Changes in Operating Assets and Liabilities
Distributions to Common Shareholders:
Regular Cash Dividends – Per Share
Regular Cash Dividends – Total
Special Dividends – Per Share
Special Dividends – Total

Repurchases of Common Shares

At Year-End
Cash and Marketable Securities
Total Assets
Long-Term Obligations Effectively Serviced (c)
Shareholders’ Equity
Book Value Per Common Share
Market Value Per Common Share

Iron Ore Production and Sales Statistics (Millions of Gross Tons)
Production From Mines Managed By Cliffs:

North America
Australia

Total
Cliffs’ Share

Cliffs’ Sales From:

North American Mines
Australian Mine

Total

Other Information
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) (d)
Earnings Before Interest and Taxes (EBIT) (d)
Common Shares Outstanding (Millions) – Average For Year
Common Shares Outstanding (Millions) – At Year-End
Common Shares Price Range – High
Common Shares Price Range – Low
Employees at Year-End (e)

2000

1999

1998

$379.4
50.7

430.1
398.9

31.2
18.1

1.74
1.73
76.9

1.50
15.7

15.6

29.9
727.8
74.0
402.0
39.73
21.56

41.0

41.0
11.8

10.4

$ 44.2
18.6
10.4
10.1
$31.38
19.69
5,645

$316.1
48.5

364.6
345.4

19.2
4.8

.43
.43
35.6

1.50
16.7

17.2

67.6
679.7
74.7
407.3
38.27
31.13

36.2

36.2
8.8

8.9

$ 27.9
5.4
11.1
10.6
$43.56
26.81
5,947

$465.7
49.7

515.4
438.3

77.1
57.4

5.10
5.06
75.1

1.45
16.3

11.5

130.3
723.8
75.4
437.6
39.25
40.31

40.3

40.3
11.4

12.1

$ 87.1
66.8
11.3
11.2
$57.69
36.06
6,029

(a) Results include an after-tax, $9.9 million, recovery of an insurance claim, $5.2 million federal income tax credit, and a $7.1 million charge relating
to a common stock investment (combined $.77 per share) in 2000; 1999 $4.4 million ($.39 per share) recovery relating primarily to prior years’ state
tax refunds; 1998 federal income tax credit $3.5 million ($.31 per share); 1997 after-tax credits of $8.8 million ($.77 per share); net contributions
from non-recurring items extraordinary charge of $2.4 million ($.20 per share) in 1995, recoveries on bankruptcy claims of $23.2 million ($1.92
per share) and $47.1 million ($4.00 per share) in 1993 and 1990, respectively, and a $38.7 million ($3.23 per share) after-tax charge for accounting
changes in 1992. Operating results reflect the acquisition of a majority interest of CAL in the fourth quarter of 2000, and the acquisition of Northshore
in the fourth quarter of 1994.

1997

1996

1995

1994

1993

1992

1991

1990

$406.1
47.5

453.6
386.7

66.9
54.9

4.83
4.80
74.3

1.30
14.8

$470.1
51.5

521.6
428.0

93.6
61.0

5.26
5.23
89.6

1.30
15.1

$424.8
49.5

474.3
385.1

89.2
57.8

4.84
4.82
84.7

1.30
15.5

4.9

19.5

10.8

115.9
694.3
7 4.9
407 .4
36.02
45.81

39.6

39.6
10.9

10.4
.3

10.7

$ 87.8
68.9
11.4
11.3
$47 .13
40.00
5,951

169.4
673.7
72.9
370.6
32.59
45.38

39.9
1.6

41.5
12.0

11.0
1.7

12.7

$108.2
90.6
11.6
11.4
$46.88
36.25
6,251

148.8
644.6
76.3
342.6
28.96
41.00

39.6
1.5

41.1
11.3

10.4
1.5

11.9

$ 85.6
68.8
11.9
11.8
$46.75
36.13
6,411

$348.5
44.7

393.2
329.5

63.7
42.8

3.54
3.53
54.5

1.23
14.8

141.4
608.6
84.2
311.4
25.74
37.00

35.2
1.5

36.7
8.3

8.2
1.5

9.7

$ 70.6
56.2
12.1
12.1
$45.50
34.00
6,504

$280.4
39.7

320.1
280.8

39.3
54.6

4.55
4.53
34.8

1.20
14.4
2.70 (b)
32.4 (b)

161.0
549.1
88.6
280.4
23.25
37.38

32.3
1.5

33.8
6.8

6.4
1.4

7.8

$ 86.7
73.2
12.0
12.1
$37.50
28.75
6,173

$288.9
43.8

332.7
297.5

35.2
(7.9)

(.66)
(.66)
49.7

1.18
14.1

128.6
537.2
92.1
269.5
22.47
35.63

32.9
1.5

34.4
7.3

6.0
1.3

7.3

$ 50.9
36.8
12.0
12.0
$40.38
29.50
6,594

$290.8
45.8

336.6
294.2

42.4
53.8

4.55
4.51
106.0

1.03
12.1
4.00
47.0

95.9
478.7
65.0
290.8
24.40
36.13

32.1
1.3

33.4
7.0

6.0
1.3

7.3

$ 81.3
65.3
11.8
11.9
$36.50
25.00
6,709

$299.5
37.7

337.2
307.0

30.2
73.8

6.31
6.26
32.1

.80
9.3

96.0
510.9
82.4
290.8
24.88
27.13

31.7
2.2

33.9
6.6

6.5
.3

6.8

$119.2
103.8
11.7
11.7
$35.00
19.63
6,900

(b) Includes securities at market value on distribution date.
(c) Includes the Company’s share of ventures and equipment acquired on capital leases.
(d) EBITDA and EBIT are not presented as substitute measures of operating results or cash flow from operations, but because they are widely accepted indicators

of a company’s ability to acquire and service debt.

(e) Includes employees of managed mining ventures, of which 1,141 (at December 31, 2000) were employees of LTV Steel Mining Company that ceased operations

on January 5, 2001.

At December 31, 2000, the Company had 2,579 shareholders of record.

CLEVELAND-CLIFFS INC

I N V E S TO R A N D C O R P O R AT E I N F O R M AT I O N

O F F I C E R S

Corporate Office
Cleveland-Cliffs Inc
1100 Superior Avenue
Cleveland, OH 44114-2589
Telephone: 216.694.5700
Fax: 216.694.4880

Stock Exchange Information
The principal market for Cleveland-
Cliffs Inc common shares (ticker
symbol CLF) is the New York Stock
Exchange. The shares are also list-
ed on the Chicago Stock
Exchange.

Transfer Agent and Registrar
First Chicago Trust Company of
New York is the transfer agent, reg-
istrar and dividend disbursing agent
for Cliffs. Questions and communi-
cations regarding transfer of stock,
replacement of lost certificates,
dividends and address changes
should be directed to:
First Chicago Trust Company, a
division of EquiServe
P.O. Box 2500
Jersey City, NJ 07303-2500
Telephone: 800.446.2617
Internet:
http://www.equiserve.com

Dividend Reinvestment Plan
Cliffs has a Dividend Reinvestment
Plan which offers registered share-
holders the opportunity to reinvest
their dividends and/or make sup-
plemental cash investments in
additional common shares. Cliffs
pays all service charges and bro-
kerage commissions in connection
with the purchase of stock. If you
would like to participate or receive
a brochure describing in more
detail the features of the Plan, you
can call First Chicago, administra-
tor of the Plan, at 800.446.2617.

Direct Deposit of Dividends
Electronic deposit of dividends is
available to shareholders who wish
to have their dividends directly
deposited into a checking, savings
or other account. To participate
call First Chicago at
800.870.2340.

Investor Relations
Questions and comments regarding
Cliffs or any information appearing
in this report or any other Company
publication are welcome and may
be directed to Fred Rice, Director-
Investor Relations at the corporate
office, or telephone 800.214.0739
or 216.696.5459. E-Mail address:
fbrice@cleveland-cliffs.com

News releases and other informa-
tion on the Company are available
on the Internet at:
http://www.cleveland-cliffs.com

Annual Meeting
Cliffs’ Annual Meeting of
Shareholders will be May 8, 2001
at 11:30 a.m. at The Forum
Conference Center, located in
One Cleveland Center,
1375 East 9th Street, Cleveland,
Ohio. Formal notice of the meeting
and the proxy statement will be
mailed to each shareholder.

10-K Report
A copy of Cliffs’ annual report on
Form 10-K filed with the Securities
and Exchange Commission is avail-
able to interested shareholders
upon request.

Years with
Company
31

Age

John S. Brinzo, 59
Chairman and Chief Executive Officer
Thomas J. O’Neil, 60
President and Chief Operating Officer
William R. Calfee, 54
Executive Vice President-Commercial
Cynthia B. Bezik, 48
Senior Vice President-Finance
Edward C. Dowling, Jr., 45
Senior Vice President-Operations
James A. Trethewey, 56
Senior Vice President-Operations Services
Robert Emmet, 55
Vice President-Financial Planning
and Treasurer
Donald J. Gallagher, 48
Vice President-Sales
Randy L. Kummer, 44
Vice President-Human Resources
Richard L. Shultz, 58
Vice President-Reduced Iron Sales
and Business Development
John E. Lenhard, 61
Secretary and Associate General Counsel
Robert J. Leroux, 50
Controller

O P E R AT I N G U N I T M A N AG E M E N T

John W. Sanders, 58
President, Wabush Mines
Robert C. Berglund, 54
General Manager, Northshore Mine
Steven A. Elmquist, 50
General Manager, Cliffs and Associates Limited
Paul A. Korpi, 46
General Manager, Empire Mine
Michael P. Mlinar, 47
General Manager, Tilden Mine
John N. Tuomi, 51
General Manager, Hibbing Taconite Mine

(Age and service at March 5, 2001)