ÐÇ¿Õ´«Ã½ Inc | ||
1100 Superior Avenue | ||
Cleveland, Ohio 44114-2589 |
(In Millions Except Per Share) | ||||||||||||||||
Second Quarter | First Half | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Income From Continuing Operations: |
||||||||||||||||
Amount |
$ | 99.6 | $ | 32.8 | $ | 120.0 | $ | 32.8 | ||||||||
Per Diluted Share |
3.58 | 1.21 | 4.33 | 1.21 | ||||||||||||
Income From Discontinued Operation: |
||||||||||||||||
Amount |
.1 | .7 | ||||||||||||||
Per Diluted Share |
.01 | .03 | ||||||||||||||
Cumulative Effect of Accounting Change: |
||||||||||||||||
Amount |
4.2 | |||||||||||||||
Per Diluted Share |
.15 | |||||||||||||||
Net Income: |
||||||||||||||||
Amount |
$ | 99.7 | $ | 32.8 | $ | 124.9 | $ | 32.8 | ||||||||
Per Diluted Share |
$ | 3.59 | $ | 1.21 | $ | 4.51 | $ | 1.21 | ||||||||
1
§ | Sales revenues (excluding freight, venture partners cost reimbursements and Portmans contribution) increased $99.2 million in the quarter and $154.5 million in the first half. For the quarter, 95 percent of the increase was due to higher sales prices, with the remaining five percent resulting from higher volume. All of the increase in the six-month period was attributable to higher pricing, slightly offset by lower volume. The more than 36 percent increase in sales prices reflected the effect on Cliffs long-term sales contract price adjustment factors of an approximate 86 percent increase in international pellet pricing, higher steel pricing, higher PPIall commodities and other contractual increases, including base price increases and lag-year adjustments. Included in first-half 2005 revenues was approximately .9 million tons of 2005 sales at 2004 contract prices and $2.2 million of price adjustments on 2004 sales. Second-quarter 2005 revenue was favorably impacted by modest spot sales tonnage and higher estimated PPIall commodities escalation. Sales volume in the second quarter of 2005 was 6.0 million tons, which represented a .1 million ton increase from the second quarter of 2004. First-half 2005 sales of 10.0 million tons were .2 million tons lower than the first half of 2004. Cliffs forecast of total-year 2005 North American sales is now estimated to be approximately 22.5 million tons. |
§ | Cost of goods sold and operating expenses (excluding freight, venture partners cost reimbursements and Portmans contribution) increased $21.2 million in the second quarter and $39.4 million in the first half. The increases primarily reflected higher unit production costs of $17.1 million in the second quarter and $45.2 million in the first half. Higher sales volume in the second quarter accounted for additional costs of $4.1 million while lower first-half sales volume reduced costs $5.8 million. The increases in unit production costs included higher energy and supply pricing, $12.7 million in the second quarter and $24.0 million in the first half, increased maintenance spending, $3.5 million in the second quarter and $16.1 million in the first half, and higher royalty rates, $4.1 million in the second quarter and $8.1 million in the first half due to increased pellet sales pricing. Considering these factors, total-year 2005 North American unit production costs are expected to increase approximately nine percent from the 2004 cost of goods sold and operating expenses (excluding freight and venture partners cost reimbursements) of $37.56 per ton. |
2
§ | Sales margins of $20.9 million on 1.5 million tonnes of Portman sales included in the second quarter and first half of 2005, reflecting results since the March 31, 2005 acquisition. The Companys consolidated financial statements reflect the inclusion of its approximate 80 percent interest in Portman based on a preliminary allocation of the $433.8 million acquisition cost. | |
§ | A business interruption insurance recovery of $10.6 million in the second quarter of 2005, related to a five-week production curtailment at the Empire and Tilden mines in 2003 due to the loss of electric power as a result of flooding in the Upper Peninsula of Michigan. Future recoveries may be forthcoming from claims for lost tax benefits and reimbursement of insurance deductibles through subrogation. | |
§ | Higher administrative, selling and general expense of $6.3 million in the second quarter and $8.6 million in the first half principally reflecting higher stock-based compensation and the inclusion of $2.0 million of Portmans second-quarter 2005 expense. | |
§ | Lower impairment of mining asset charges, $.8 million in the second quarter and $1.8 million in the first half. The decrease was attributable to the capitalization of expenditures at Empire commencing January 1, 2005 based on a current cash flow analysis, which incorporated significant pellet pricing increases. | |
§ | Higher miscellaneousnet expense of $2.3 million in the second quarter and first half, which incorporates higher development expenses related to the Mesabi Nugget project and higher state and local taxes on pellet inventory. The second quarter and first half of 2005 include $.9 million of Portmans expense. | |
§ | Higher othernet expense of $11.2 million in the first half primarily reflects $9.8 million of currency hedging costs associated with the Portman acquisition. |
3
(Tons in Millions) | ||||||||||||||||||||||||||
Second Quarter | First Half | Full Year | ||||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005* | 2004 | |||||||||||||||||||||
Empire |
1.2 | 1.1 | 2.4 | 2.5 | 5.1 | 5.4 | ||||||||||||||||||||
Tilden |
2.4 | 2.1 | 3.8 | 3.5 | 8.2 | 7.8 | ||||||||||||||||||||
Michigan Mines |
3.6 | 3.2 | 6.2 | 6.0 | 13.3 | 13.2 | ||||||||||||||||||||
Hibbing |
2.1 | 2.0 | 4.0 | 4.0 | 8.3 | 8.3 | ||||||||||||||||||||
Northshore |
1.2 | 1.3 | 2.4 | 2.5 | 4.9 | 5.0 | ||||||||||||||||||||
United Taconite |
1.2 | 1.0 | 2.3 | 2.0 | 5.2 | 4.1 | ||||||||||||||||||||
Wabush |
1.3 | 1.4 | 2.4 | 2.7 | 5.5 | 3.8 | ||||||||||||||||||||
Total |
9.4 | 8.9 | 17.3 | 17.2 | 37.2 | 34.4 | ||||||||||||||||||||
Cliffs Share of Total |
5.9 | 5.6 | 10.7 | 10.1 | 22.9 | 21.7 | ||||||||||||||||||||
* | Estimate |
4
5
Three Months Ended | Six Months Ended | |||||||||||||||
June 30 | June 30 | |||||||||||||||
(In Millions, Except Per Share Amounts) | 2005 | 2004 | 2005 | 2004 | ||||||||||||
REVENUES FROM PRODUCT SALES AND SERVICES |
||||||||||||||||
Iron ore |
$ | 424.5 | $ | 257.5 | $ | 643.7 | $ | 421.4 | ||||||||
Freight and venture partners cost reimbursements |
60.8 | 41.0 | 113.2 | 110.8 | ||||||||||||
485.3 | 298.5 | 756.9 | 532.2 | |||||||||||||
COST OF GOODS SOLD AND OPERATING EXPENSES |
(349.1 | ) | (261.2 | ) | (577.7 | ) | (489.0 | ) | ||||||||
SALES MARGIN |
136.2 | 37.3 | 179.2 | 43.2 | ||||||||||||
OTHER OPERATING INCOME (EXPENSE) |
||||||||||||||||
Casualty insurance recoveries |
10.6 | 10.6 | ||||||||||||||
Royalties and management fee revenue |
3.5 | 2.9 | 6.2 | 5.8 | ||||||||||||
Administrative, selling and general expenses |
(10.3 | ) | (4.0 | ) | (21.6 | ) | (13.0 | ) | ||||||||
Impairment of mining assets |
(.8 | ) | (1.8 | ) | ||||||||||||
Provision for customer bankruptcy exposures |
(1.6 | ) | ||||||||||||||
Miscellaneous net |
(1.8 | ) | (2.8 | ) | (.5 | ) | ||||||||||
2.0 | (1.9 | ) | (7.6 | ) | (11.1 | ) | ||||||||||
OPERATING INCOME |
138.2 | 35.4 | 171.6 | 32.1 | ||||||||||||
OTHER INCOME (EXPENSE) |
||||||||||||||||
Interest income |
3.1 | 2.6 | 7.0 | 5.2 | ||||||||||||
Interest expense |
(1.7 | ) | (.2 | ) | (1.9 | ) | (.5 | ) | ||||||||
Other net |
.4 | .9 | (9.3 | ) | 1.9 | |||||||||||
1.8 | 3.3 | (4.2 | ) | 6.6 | ||||||||||||
INCOME FROM CONTINUING OPERATIONS |
||||||||||||||||
BEFORE INCOME TAXES AND MINORITY INTEREST |
140.0 | 38.7 | 167.4 | 38.7 | ||||||||||||
INCOME TAX EXPENSE |
(36.5 | ) | (5.9 | ) | (43.5 | ) | (5.9 | ) | ||||||||
MINORITY INTEREST (net of tax $1.6) |
(3.9 | ) | (3.9 | ) | ||||||||||||
INCOME FROM CONTINUING OPERATIONS |
99.6 | 32.8 | 120.0 | 32.8 | ||||||||||||
INCOME FROM DISCONTINUED OPERATION (net of tax $.1 and $.4) |
.1 | .7 | ||||||||||||||
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE |
99.7 | 32.8 | 120.7 | 32.8 | ||||||||||||
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (net of tax $2.2) |
4.2 | |||||||||||||||
NET INCOME |
99.7 | 32.8 | 124.9 | 32.8 | ||||||||||||
PREFERRED STOCK DIVIDENDS |
(1.4 | ) | (1.4 | ) | (2.8 | ) | (2.5 | ) | ||||||||
INCOME APPLICABLE TO COMMON SHARES |
$ | 98.3 | $ | 31.4 | $ | 122.1 | $ | 30.3 | ||||||||
EARNINGS PER COMMON SHARE BASIC |
||||||||||||||||
Continuing operations |
$ | 4.52 | $ | 1.49 | $ | 5.42 | $ | 1.43 | ||||||||
Discontinued operation |
.01 | .03 | ||||||||||||||
Cumulative effect of accounting change |
.19 | |||||||||||||||
EARNINGS PER COMMON SHARE BASIC |
$ | 4.53 | $ | 1.49 | $ | 5.64 | $ | 1.43 | ||||||||
EARNINGS PER COMMON SHARE DILUTED |
||||||||||||||||
Continuing operations |
$ | 3.58 | $ | 1.21 | $ | 4.33 | $ | 1.21 | ||||||||
Discontinued operation |
.01 | .03 | ||||||||||||||
Cumulative effect of accounting change |
.15 | |||||||||||||||
EARNINGS PER COMMON SHARE DILUTED |
$ | 3.59 | $ | 1.21 | $ | 4.51 | $ | 1.21 | ||||||||
AVERAGE NUMBER OF SHARES |
||||||||||||||||
Basic |
21.7 | 21.3 | 21.7 | 21.2 | ||||||||||||
Diluted |
27.8 | 27.2 | 27.7 | 27.2 |
Three Months Ended | Six Months Ended | ||||||||||||||||
June 30 | June 30 | ||||||||||||||||
(In Millions, Brackets Indicate Decrease in Cash) | 2005 | 2004 | 2005 | 2004 | |||||||||||||
CASH FLOW FROM CONTINUING OPERATIONS |
|||||||||||||||||
OPERATING ACTIVITIES |
|||||||||||||||||
Net income |
$ | 99.7 | $ | 32.8 | $ | 124.9 | $ | 32.8 | |||||||||
Cumulative effect of accounting change |
(4.2 | ) | |||||||||||||||
Income from discontinued operation |
(.1 | ) | (.7 | ) | |||||||||||||
Income from continuing operations |
99.6 | 32.8 | 120.0 | 32.8 | |||||||||||||
Depreciation and amortization: |
|||||||||||||||||
Consolidated |
15.7 | 6.9 | 22.0 | 13.4 | |||||||||||||
Share of associated companies |
1.1 | 1.3 | 2.1 | 2.1 | |||||||||||||
Loss on currency hedges |
9.8 | ||||||||||||||||
Pensions and other post-retirement benefits |
3.7 | 6.6 | 8.3 | (11.0 | ) | ||||||||||||
Deferred income taxes |
5.6 | 7.6 | |||||||||||||||
Accretion of asset retirement obligation |
1.1 | 2.3 | 2.2 | 2.3 | |||||||||||||
Gain on sale of assets |
(.3 | ) | (.9 | ) | (.4 | ) | (1.9 | ) | |||||||||
Provision for customer bankruptcy exposures |
1.6 | ||||||||||||||||
Impairment of mining assets |
.8 | 1.8 | |||||||||||||||
Other |
(6.0 | ) | (4.4 | ) | (3.2 | ) | |||||||||||
Total before changes in operating assets and liabilities |
120.5 | 45.4 | 171.6 | 37.9 | |||||||||||||
Changes in operating assets and liabilities: |
|||||||||||||||||
Marketable securities |
182.7 | ||||||||||||||||
Other |
8.2 | (24.7 | ) | (31.2 | ) | (53.3 | ) | ||||||||||
Total changes in operating assets and liabilities |
8.2 | (24.7 | ) | 151.5 | (53.3 | ) | |||||||||||
Net cash from (used by) operating activities |
128.7 | 20.7 | 323.1 | (15.4 | ) | ||||||||||||
INVESTING ACTIVITIES |
|||||||||||||||||
Purchase of property, plant and equipment: |
|||||||||||||||||
Consolidated |
(29.5 | ) | (8.0 | ) | (46.1 | ) | (19.3 | ) | |||||||||
Share of associated companies |
(2.1 | ) | (.2 | ) | (4.6 | ) | (1.5 | ) | |||||||||
Investment in Portman Limited |
(62.1 | ) | (409.7 | ) | |||||||||||||
Payment of currency hedges |
(9.8 | ) | |||||||||||||||
Proceeds from sale of assets |
.3 | 1.0 | .5 | 2.0 | |||||||||||||
Proceeds from steel company debt |
10.0 | ||||||||||||||||
Proceeds from sale of ISG common stock |
3.8 | 3.8 | |||||||||||||||
Net cash used by investing activities |
(93.4 | ) | (3.4 | ) | (469.7 | ) | (5.0 | ) | |||||||||
FINANCING ACTIVITIES |
|||||||||||||||||
Borrowing (repayment) under Revolving Credit facility |
(25.0 | ) | 50.0 | ||||||||||||||
Proceeds from stock options exercised |
.6 | 3.5 | 7.6 | ||||||||||||||
Contributions by minority interest |
.5 | 1.5 | 1.1 | 2.9 | |||||||||||||
Common Stock dividends |
(2.1 | ) | (4.3 | ) | |||||||||||||
Preferred Stock dividends |
(1.4 | ) | (1.1 | ) | (2.8 | ) | (1.1 | ) | |||||||||
Issuance costs of Revolving Credit |
(1.9 | ) | |||||||||||||||
Proceeds from Convertible Preferred Stock |
172.5 | ||||||||||||||||
Repayment of long-term debt |
(25.0 | ) | |||||||||||||||
Issuance cost Convertible Preferred Stock |
(.1 | ) | (6.4 | ) | |||||||||||||
Net cash from (used by) financing activities |
(28.0 | ) | .9 | 45.6 | 150.5 | ||||||||||||
CASH FROM (USED BY) CONTINUING OPERATIONS |
7.3 | 18.2 | (101.0 | ) | 130.1 | ||||||||||||
CASH FROM
DISCONTINUED OPERATION
OPERATING ACTIVITIES |
.2 | .1 | |||||||||||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
$ | 7.5 | $ | 18.2 | $ | (100.9 | ) | $ | 130.1 | ||||||||
(In Millions) | ||||||||||||
June 30 | December 31 | June 30 | ||||||||||
2005 | 2004 | 2004 | ||||||||||
ASSETS |
||||||||||||
CURRENT ASSETS |
||||||||||||
Cash and cash equivalents |
$ | 116.0 | $ | 216.9 | $ | 197.9 | ||||||
Marketable securities |
182.7 | |||||||||||
Trade accounts receivable net |
65.8 | 54.1 | 43.5 | |||||||||
Receivables from associated companies |
29.6 | 3.5 | 8.8 | |||||||||
Product inventories |
159.6 | 108.2 | 130.8 | |||||||||
Work in process inventories |
35.7 | 15.8 | 23.4 | |||||||||
Supplies and other inventories |
58.8 | 59.6 | 53.6 | |||||||||
Deferred and refundable income taxes |
39.0 | 41.5 | 1.2 | |||||||||
Other |
73.2 | 51.5 | 33.3 | |||||||||
TOTAL CURRENT ASSETS |
577.7 | 733.8 | 492.5 | |||||||||
PROPERTIES NET |
854.0 | 283.9 | 260.7 | |||||||||
LONG-TERM RECEIVABLES |
50.9 | 52.1 | 54.2 | |||||||||
DEFERRED INCOME TAXES |
34.3 | 44.2 | ||||||||||
MARKETABLE SECURITIES |
.8 | .5 | 150.9 | |||||||||
OTHER ASSETS |
74.6 | 46.6 | 46.9 | |||||||||
TOTAL ASSETS |
$ | 1,592.3 | $ | 1,161.1 | $ | 1,005.2 | ||||||
LIABILITIES
AND SHAREHOLDERS EQUITY |
||||||||||||
CURRENT LIABILITIES |
||||||||||||
Accounts payable and accrued expenses |
$ | 284.5 | $ | 252.5 | $ | 183.7 | ||||||
Revolving credit facility |
50.0 | |||||||||||
Payables to associated companies |
.7 | 4.6 | .7 | |||||||||
TOTAL CURRENT LIABILITIES |
335.2 | 257.1 | 184.4 | |||||||||
PENSIONS, INCLUDING MINIMUM PENSION LIABILITY |
51.3 | 42.7 | 116.1 | |||||||||
OTHER
POSTRETIREMENT BENEFITS |
102.4 | 102.7 | 123.7 | |||||||||
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS |
86.7 | 82.4 | 78.0 | |||||||||
DEFERRED INCOME TAXES |
142.7 | 25.0 | ||||||||||
OTHER LIABILITIES |
77.5 | 49.7 | 58.3 | |||||||||
TOTAL LIABILITIES |
795.8 | 534.6 | 585.5 | |||||||||
MINORITY INTEREST |
87.8 | 30.0 | 23.7 | |||||||||
3.25% REDEEMABLE CUMULATIVE CONVERTIBLE
PERPETUAL PREFERRED STOCK |
172.5 | 172.5 | 172.5 | |||||||||
SHAREHOLDERS EQUITY |
536.2 | 424.0 | 223.5 | |||||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
$ | 1,592.3 | $ | 1,161.1 | $ | 1,005.2 | ||||||
1. | On March 31, 2005, Cliffs acquired a 68.7 percent interest in Portman Limited. As a result of this transaction, Portman Limited became a consolidated subsidiary of Cliffs. In April, Cliffs increased its ownership in Portman to approximately 80 percent. The Condensed Consolidated Financial Statements as presented, reflect a preliminary allocation of the $433.8 million acquisition cost. In comparing the condensed consolidated statement of financial position at June 30, 2005, to December 31, 2004 and June 30, 2004, there are significant changes that are mainly due to this acquisition. | |
2. | In the first quarter of 2005, Cliffs recorded a cumulative effect adjustment related to the early adoption of Emerging Issues Task Force (EITF) Consensus No. 04-6, Accounting for Stripping Costs Incurred during Production in the Mining Industry. The EITF reached a consensus that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the costs of the inventory produced during the period that the stripping costs were incurred. Adoption of the consensus resulted in Cliffs increasing the value of its January 1, 2005 product inventory by $6.4 million, resulting in an after-tax cumulative effect increase in the first half earnings of $4.2 million. Previously, stripping costs were expensed as period costs during the period incurred. At its June 29, 2005 meeting, the Financial Accounting Standards Board ratified a modification to Issue No. 04-6 to clarify that the term inventory produced means inventory extracted. We expect to complete our analysis of the impact of this modification in the third quarter. | |
3. | In managements opinion, the unaudited financial statements present fairly the Companys financial position and results. All financial information and footnote disclosures required by generally accepted accounting principles for complete financial statements have not been included. For further information, please refer to the Companys latest Annual Report. |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30 | June 30 | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
NORTH AMERICA |
||||||||||||||||
Iron Ore Sales (Tons) In Thousands |
5,993 | 5,884 | 10,016 | 10,170 | ||||||||||||
Sales Margin In Millions |
||||||||||||||||
Revenues from iron ore sales and services* |
$ | 356.7 | $ | 257.5 | $ | 575.9 | $ | 421.4 | ||||||||
Cost of goods sold and operating expenses* |
241.4 | 220.2 | 417.6 | 378.2 | ||||||||||||
Sales margin |
$ | 115.3 | $ | 37.3 | $ | 158.3 | $ | 43.2 | ||||||||
Sales Margin Per Ton |
||||||||||||||||
Revenues from iron ore sales and services* |
$ | 59.52 | $ | 43.76 | $ | 57.50 | $ | 41.44 | ||||||||
Cost of goods sold and operating expenses* |
40.28 | 37.42 | 41.69 | 37.19 | ||||||||||||
Sales margin |
$ | 19.24 | $ | 6.34 | $ | 15.81 | $ | 4.25 | ||||||||
* Excludes revenues and expenses related to freight and venture partners cost reimbursements
which are offsetting and have no impact on operating results. |
||||||||||||||||
AUSTRALIA |
||||||||||||||||
Iron Ore Sales (Tonnes) In Thousands |
1,528 | 1,528 | ||||||||||||||
Sales Margin In Millions |
||||||||||||||||
Revenues from iron ore sales and services |
$ | 67.8 | $ | 67.8 | ||||||||||||
Cost of goods sold and operating expenses |
46.9 | 46.9 | ||||||||||||||
Sales margin |
$ | 20.9 | $ | 20.9 | ||||||||||||
Sales Margin Per Ton |
||||||||||||||||
Revenues from iron ore sales and services |
$ | 44.37 | $ | 44.37 | ||||||||||||
Cost of goods sold and operating expenses |
30.69 | 30.69 | ||||||||||||||
Sales margin |
$ | 13.68 | $ | 13.68 | ||||||||||||