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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:
| |
(In
Millions)
|
|
| |
|
|
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) |
$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 construction of the HBI facility
was completed in April, 1999.
- Lower interest income, $2.1
million, due to lower average 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 management incentive
compensation, cost reduction initiatives 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 pretax income and the favorable
impact of percentage depletion.
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