Cleveland-Cliffs Inc. reported net income of $32.8 million on total revenues of 305.6 million in the second quarter and net income of $32.8 million on total revenues of 546.4 million for the first six months of 2004.

Second Quarter 2004—Record net income of $32.8 million ($2.90 per diluted share) compares to a net loss of $21.2 million ($2.07 per share) for the second quarter 2003.

First Half Results—Net income of $32.8 million ($2.81 per share) compares to a net loss of $19.0 million ($1.86 per share) in the first half of 2003.

Earnings increases of $54.0 million in the quarter and $51.8 million in the first six months were principally due to higher pre-tax sales margins. Sales margins increased $54.4 million in the second quarter and $59.2 million in the first half primarily due to higher sales price realizations and record sales volumes. The increase in sales prices primarily reflected the favorable effect on Cliffs' term sales contract escalators of higher steel prices and an approximate 20% increase in international pellet prices. Pellet sales in the second quarter and first half of 5.9 million tons and 10.2 million tons, respectively, both represent new sales records.

Unit production costs in 2004 were slightly lower in the second quarter and about equal to first half 2003 costs. First half and second quarter 2003 operating costs included an $11.0 million fixed cost impact of a five week production curtailment at the Empire and Tilden mines relating to loss of electric power due to flooding in the Upper Peninsula in Michigan. Increased energy pricing adversely affected unit production costs by approximately $2.8 million in the second quarter and $4.8 million in the first half of 2004. Production costs for 2004 were also impacted by continued low ore throughput at Empire, slower than anticipated ramp-up to design production levels at United Taconite and Wabush and a $2.1 million exchange rate effect in the first half due to the impact of a weaker U. S. dollar on the company's share of Wabush production costs.

Pre-tax earnings were also improved by:

• Lower interest expense of $1.1 million in the second quarter and $2.0 million in the first half, reflecting repayment of senior unsecured notes in January 2004.
• Lower ‘other expense’ of $1.9 million in both the second quarter and first half reflecting decreased coal retiree expense and lower expense relating to debt refinancing activities.
• Lower customer bankruptcy expense of $2.6 million in the second quarter and $1.0 million in the first half. The company recorded bankruptcy expense relating to the Weirton Steel Corp. bankruptcy of $1.6 million in the first quarter of 2004 as a result of the final settlement versus $2.6 million in the second quarter of 2003 at the time of the initial filing.
• Higher royalty and management fee income of $.6 million in the second quarter and $1.2 million in the first half due to higher production at the Michigan mines and management fees from United Taconite.

Partially offsetting were:

• Lower ‘other income’ of $.4 million in the second quarter and $4.2 million in the first half primarily relating to non-strategic asset sales in 2003.
• Administrative, selling and general expenses were $.5 million lower in the second quarter and $3.6 million higher in the first half principally due to the impact of changes in Cliffs' common stock price on stock-based compensation.

At June 30, 2004, Cliffs had 4.1 million tons of pellets in inventory, unchanged from December 31, 2003, and 4.3 million tons at June 30, 2003. Cliffs' 2004 production of 5.6 million tons in the second quarter and 10.1 million tons in the first half both represented 1.7 million ton increases from the comparable periods in 2003.

Outlook—The North American steel business remains robust. Steel producers continue to operate at capacity, with steel pricing at record levels. Cliffs' iron ore pellet sales for 2004 continue to be projected at 22 million tons, which is equal to all of the company's capacity. Projected sales for the year could be impacted if the work stoppage at Wabush is prolonged.

John Brinzo, Cliffs' Chairman and CEO, said "The year 2004 will be an excellent year for Cliffs, with record sales volume and significantly improved sales margins. We are pleased that tentative settlements have been reached on labor agreements covering employees at our U.S. mines. These were difficult negotiations, but together we have reached labor agreements that are fair to our employees, while allowing the company to maintain a competitive position within our industry. We remain committed to creating shareholder value as evidenced by the Board's recent action to implement a stock repurchase program."

Headquartered in Cleveland, Ohio, Cleveland-Cliffs Inc is the largest producer of iron ore pellets in North America and sells the majority of its pellets to integrated steel companies in the United States and Canada. The company operates six iron ore mines located in Michigan, Minnesota and Eastern Canada.