MANAGEMENT'S DISCUSSION AND ANALYSIS Exhibit 13(a)
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In 1994, Cleveland-Cliffs earned $42.8 million, or $3.54 a share. Earnings for
the year 1993 were $31.4 million, or $2.62 per share, excluding a $23.2 million
gain on the settlement of the Company's bankruptcy claim against LTV Steel
Company, Inc. (an integrated steel company subsidiary of The LTV Corporation,
or collectively "LTV"). Including the bankruptcy gain, 1993 earnings were $54.6
million, or $4.55 per share.
Following is a summary of results for the years 1994, 1993, and 1992:
(In Millions, Except Per Share)
----------------------------------------
1994 1993 1992
--------------------------------------------------------------------------------------------------
Net Income Before Cumulative
Effect of Accounting Changes
- Amount................................... $ 42.8 $ 54.6 $ 30.8
- Per Share................................ 3.54 4.55 2.57
Cumulative Effect of Accounting Changes,
Net of Income Taxes
Other Post Employment Benefits............ (42.5)
Income Taxes.............................. 3.8
------- ------- -------
Total Cumulative Effect............... (38.7)
------- ------- -------
Net Income (Loss)
- Amount................................ $ 42.8 $ 54.6 $( 7.9)
======= ======= =======
- Per Share............................. $ 3.54 $ 4.55 $( .66)
======= ======= =======
1994 VERSUS 1993
----------------
Revenues were $388.9 million in 1994, an increase of $33.0 million from 1993.
Revenues in 1993 included a $35.7 million pre-tax recovery on the LTV
bankruptcy claim. Without this item, revenues in 1994 were $68.7 million higher
than 1993. Revenues from product sales and services in 1994 totaled $334.8
million, an increase of $66.7 million from 1993, mainly due to higher North
American sales volume and prices and increased Australian sales volume. North
American iron ore sales were 8.2 million tons in 1994 compared to 6.4 million
tons in 1993. Royalties and management fee revenue in 1994 totaled $44.7
million, an increase of $5.0 million due primarily to increased production in
1994 over strike-depressed 1993.
Net income for the year 1994 was $42.8 million, an increase of $11.4 million
from 1993, excluding the $23.2 million gain on the LTV settlement. The
increase was due to higher sales volume and prices in North America, increased
royalties and management fees, higher Australian earnings, and the $5.4 million
after-tax cost of the labor strike in 1993. These gains were partly offset by
higher operating costs, certain non-recurring costs, lower investment income,
and a favorable income tax adjustment in 1993.
32
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
1993 VERSUS 1992
----------------
Revenues were $355.9 million in 1993, an increase of $28.9 million from 1992.
Revenues included a $35.7 million pre-tax recovery on the LTV bankruptcy claim
in 1993 and a $2.4 million residual recovery of a bankruptcy claim against
Wheeling-Pittsburgh Steel Corporation ("Wheeling") in 1992. Without these
items, revenues in 1993 were $320.2 million, down $4.4 million from 1992.
Revenues from product sales and services in 1993 totaled $268.1 million, up
$1.2 million from 1992, mainly due to higher sales volume, partially offset by
lower coal revenues related to the Company's exit from the coal business in
1993 and lower average iron ore sales price. North American pellet sales were
6.4 million tons in 1993 compared with 6.0 million tons in 1992. Royalty and
management fee revenues in 1993 totaled $39.7 million, a decrease of $4.1
million from 1992 due primarily to decreased production as a result of a
six-week labor strike in the third quarter of 1993 at the Empire, Hibbing and
Tilden mines, and higher payments to mineral owners.
Net income for the year 1993, excluding a $23.2 million gain on the LTV
bankruptcy settlement, was $31.4 million, an increase of $2.2 million from the
comparable 1992 period, before a $38.7 million after-tax charge in 1992 for the
cumulative effect of adopting two new accounting standards and a $1.6 million
after-tax residual Wheeling bankruptcy recovery in 1992.
The earnings improvement of $2.2 million reflected a $13.0 million after-tax
provision for doubtful accounts receivable in 1992, higher sales volume,
inventory reduction, and higher Australian earnings, partially offset by an
estimated $5.4 million after-tax cost of the six-week strike, lower sales
margin, a non-recurring state tax credit in 1992, and lower royalties.
In 1993, the Company recorded a $23.2 million, or $1.93 per share, after-tax
gain on the receipt of securities in settlement of its bankruptcy claim against
LTV. In January, 1992, the Company recorded a $38.7 million, or $3.23 per
share, charge for the cumulative effect of adopting new accounting standards
covering retiree medical costs and income taxes. In 1992, the Company received
a $2.4 million supplemental recovery on a prior year settlement of its
bankruptcy claim against Wheeling, which resulted in an after-tax gain of $1.6
million, or 13 cents per share.
Including the special items, year 1993 net income was $54.6 million, versus a
net loss of $7.9 million in 1992.
33
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
NORTHSHORE ACQUISITION
----------------------
On September 30, 1994, Cliffs Minnesota Minerals Company, a subsidiary of the
Company, completed the acquisition of Cyprus Amax Minerals Company's ("Cyprus
Amax") iron ore operations and power plant (renamed Northshore Mining Company
or "Northshore") in Minnesota for $66 million plus net working capital of $28
million. The principal Northshore assets acquired were 4.0 million annual tons
of active capacity for production of standard pellets (equivalent to 3.5
million tons of flux pellet capacity), supported by 6.0 million tons of active
concentrate capacity, a 115 megawatt power generation plant, and an estimated
1.2 billion tons of magnetite crude iron ore reserves, leased mainly from the
Mesabi Trust. Additional payments to Cyprus Amax would be required under
certain expansion conditions. Any such payments would occur over a period of
years under conditions expected to be favorable to the Company and are not
expected to be material in any year.
In January, 1995, the Company announced a $6 million expansion of Northshore.
The expansion, which involves the re-activation of one idle pelletizing line,
is expected to be completed by June, 1995, and increase the mine's annual
production capacity by approximately 25 percent, or .9 million tons. Production
in 1995, originally scheduled to be 3.6 million tons of iron ore is now
scheduled to be 4.1 million tons.
CASH FLOW AND LIQUIDITY
-----------------------
At December 31, 1994, the Company had cash and marketable securities totaling
$141.4 million. In addition, the full amount of a $75.0 million unsecured
revolving credit facility was available.
Since December 31, 1993, cash and marketable securities decreased by $19.6
million. The acquisition of Northshore for $97.3 million ($94 million plus
acquisition costs) was largely offset by cash flow from operating activities
(before changes in operating assets and liabilities), $50.9 million, Weirton
Steel Corporation's ("Weirton") redemption of its preferred stock held by the
Company, $25.0 million, and decreased working capital, $24.7 million. Capital
expenditures were $10.9 million in 1994 versus $5.0 million in 1993. Dividends
in 1994 were $14.8 million. In the fourth quarter of 1994, the Company
increased its quarterly dividend to $.325 per share, raising the annual payout
to $15.7 million.
The working capital decrease was primarily due to a reduction in product
inventories, $16.1 million, and increased payables and accrued expenses, $14.8
million, partially offset by increased trade accounts receivable, $9.3 million,
reflecting higher sales in December, 1994.
North American pellet inventories at December 31, 1994 were .7 million tons or
$16.9 million, a decrease of .1 million tons, or $2.5 million, from December
31, 1993. The decrease occurred despite .7 million tons of pellet purchases and
.5 million tons of inventory acquired in the Northshore purchase.
34
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
FOLLOWING IS A SUMMARY OF 1994 CASH FLOW:
(In Millions)
-------------
Cash Flow from Operations
Before Changes in Operating Assets and Liabilities............. $ 50.9
Changes in Operating Assets and Liabilities:
Marketable Securities Decrease.............................. 92.3
Other ...................................................... 24.7
------
Net Cash From Operations................................. 167.9
Northshore Acquisition............................................ (97.3)
Dividends......................................................... (14.8)
Capital Expenditures.............................................. (10.9)
Debt Payments..................................................... (4.3)
Weirton Preferred Stock Redemption................................ 25.0
Sale of Long-Term Investments..................................... 5.3
Other (net)....................................................... 1.8
------
Net Increase in Cash and Cash Equivalents...................... 72.7
Decrease in Short-term Marketable Securities...................... (92.3)
------
Net Decrease in Cash and Marketable Securities................. $(19.6)
======
FOLLOWING IS A SUMMARY OF KEY LIQUIDITY MEASURES:
At December 31
(In Millions)
--------------------------------------
1994 1993 1992
-------- -------- --------
Cash and Temporary Investments
Cash and Cash Equivalents ................ $140.6 $ 67.9 $128.6
Marketable Securities..................... .8 93.1 --
------ ------ ------
Total................................. $141.4 $161.0 $128.6
====== ====== ======
Working Capital.............................. $169.5 $186.0 $188.9
====== ====== ======
Ratio of Current Assets to Current
Liabilities................................ 2.7:1 3.7:1 4.1:1
Additionally, at December 31, 1994, the Company had long-term investments as
follows:
- LTV Common Stock, .8 million shares with a market value of $13.5 million.
- Long-term government and corporate bonds (denominated primarily in
Australian currency), $13.6 million, largely dedicated to fund the
shutdown of the Savage River Mine in Australia.
35
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
In October, 1991, the Company invested $25 million in a special nonmarketable
redeemable preferred stock of Weirton with mandatory redemption at par in 2003.
On September 30, 1994, Weirton exercised its right to redeem the preferred
stock for $25 million plus accrued dividends. The redemption of this investment
(previously classified as a held-to-maturity security) did not result in a gain
or loss. The stock paid quarterly dividends totaling $3.1 million per year. In
conjunction with the preferred stock redemption, the Company's iron ore sales
contract with Weirton was extended by two years through 2005. The contract
calls for the Company to supply Weirton with approximately 1.0 million tons of
pellets annually.
NORTH AMERICAN IRON ORE
-----------------------
The North American steel industry experienced high operating rates and improved
financial results in 1993 and 1994 which are expected to continue in 1995. The
Company's steel company partners and customers have generally improved their
financial condition as a result of higher earnings and increased equity
capital.
The improvement in most steel companies' financial positions has significantly
reduced the major near-term business risk previously faced by the Company,
i.e., the potential financial failure and shutdown of one or more of its
significant customers or partners, with the resulting loss of ore sales or
royalty and management fee income. However, if any such shutdown were to occur
without mitigation through replacement sales or cost reduction, it would
represent a significant adverse financial development to the Company. The iron
mining business has high operating leverage because "fixed" costs are a large
portion of the cost structure. Therefore, loss of sales or other income due to
failure of a customer or partner would have an adverse income effect
proportionately greater than the revenue effect.
McLouth Steel Products Company ("McLouth"), a significant customer, continues
to be substantially undercapitalized. The Company has periodically extended
financial support to McLouth in the form of deferred payment terms and other
considerations. Sales to McLouth were 1.5 million tons in 1994 which
represented 18 percent of the Company's sales volume and a higher percentage
contribution to income before fixed cost absorption. Included in the Company's
December 31, 1994 inventory was .2 million tons consigned to McLouth in
accordance with long-standing practice. The Company has no earnings exposure
to consigned inventory and accounts receivable from McLouth as of December 31,
1994.
Sharon Steel Corporation ("Sharon"), which was a significant customer,
suspended its blast furnace operations in September, 1992, and filed for
protection from its creditors under Chapter 11 of the U. S. Bankruptcy Code on
November 30, 1992. No shipments of iron ore were made to Sharon since the
third quarter of 1992. The Company was able to replace the lost Sharon sales in
1993 and 1994. In November, 1994, Sharon liquidated substantially all of its
assets through an approved Bankruptcy Court sale. The Company had filed a
substantial claim against Sharon in the Bankruptcy Court for amounts owed and
contractual damages; however, the Company does not expect to receive any
material proceeds from asset liquidation. All amounts due from Sharon were
previously reserved.
36
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
In February, 1994, the Company reached general agreement with Algoma Steel Inc.
("Algoma") and Stelco Inc. to restructure and simplify the Tilden Mine
operating agreement effective January 1, 1994. The principal terms of the new
agreement are (1) the participants' tonnage entitlements and cost-sharing are
based on a 6.0 million ton target normal production level instead of the
previous 4.0 million ton base production level, (2) the Company's interest in
the Tilden Magnetite Partnership has increased from 33.33% to 40.0% with an
associated increase in the Company's obligation for its share of mine costs,
(3) the Company is receiving a higher royalty, (4) the Company has the right to
supply any additional iron ore pellet requirements of Algoma from Tilden or the
Company, and (5) any partner may take additional production with payment of
certain fees to the Partnership. The parties implemented the general agreement
effective January 1, 1994 and are negotiating the detailed provisions of the
definitive agreement. The agreement has not had a material financial effect on
the Company's consolidated financial statements.
On June 28, 1993, LTV, a significant partner of the Company, emerged from
Chapter 11 bankruptcy. In final settlement of its allowed claim, the Company
received 2.3 million shares of LTV Common Stock and 4.4 million Contingent
Value Rights. The settlement, reflected in the Company's year 1993 operating
results, totaled $35.7 million before tax and $23.2 million after-tax. On July
13, 1993, the Company distributed to its shareholders a special dividend
consisting of 1.5 million shares of LTV Common Stock and $12.0 million ($1.00
per share) cash.
Six-year, no strike agreements between the United Steelworkers of America and
three U.S. iron ore mining operations managed by subsidiaries of the Company
were ratified by the union members after a six-week strike that began August 1,
1993. The agreements cover the Empire and Tilden Mines in Michigan and the
Hibbing Mine in Minnesota. The Wabush Mines' contract expired on February 28,
1993; however, the employees continued to work under the terms of the previous
agreement until a new agreement was reached in March, 1994. The new Wabush
agreement expires on February 29, 1996.
North American steel shipments increased from 104 million tons in 1993 to 110
million tons in 1994, the highest level since 1979. Reflecting the continued
high level of steel demand, the six North American mines operated by the
Company have initially scheduled 39.5 million tons of pellet production for
1995 which is approximately 100 percent of active capacity. The Company's share
of scheduled production is 10 million tons. In 1994, total production at the
Company's managed mines was 35.2 million tons and the Company's share was 6.8
million tons. Production schedules are subject to change throughout the year.
The Company expects improved financial results in 1995 due to the full year
contribution of the Northshore acquisition and an improved pricing environment
created by higher worldwide demand for iron ore. North American sales are
expected to approximate 10 million tons, including 8 million tons under
multi-year contracts.
37
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
AUSTRALIA
---------
Savage River Mines in Tasmania, Australia operated at its capacity of 1.5
million tons in 1994 and 1993 with continued satisfactory financial results.
Decreased cost and higher sales volume were partially offset by lower
international pellet prices in 1994 and unfavorable currency exchange effects.
Australian sales are projected to be about 1.5 million tons in 1995. The
international pellet price has increased in 1995.
In October, 1994, the Company announced that Savage River operations would
terminate as scheduled in the first quarter of 1997, the exhaustion date of the
economically recoverable iron ore from surface mining. This is two years beyond
the original exhaustion schedule established when the Company acquired sole
ownership in 1990. A mine life extension study was conducted to evaluate
underground mining of additional ore; however, the projected financial results
did not justify the mining risks and substantial investment. Mine closure costs
have previously been provided in the Capacity Rationalization Reserve and have
been funded.
COAL
----
Sale of the Turner Elkhorn Mining Company and the termination of management and
administrative support of the Chisholm Mine in early 1993 completed the
Company's exit from the coal business.
Pursuant to the Coal Industry Retiree Health Benefit Act of 1992 ("Act"), the
Trustees of the UMWA Combined Benefit Fund have assigned responsibility to the
Company for premium payments with respect to retirees, dependents, and
"orphans" (unassigned beneficiaries), representing less than one-half of one
percent of all "assigned beneficiaries." The Company is making premium payments
under protest and is contesting the assignments that it believes were
incorrect. Premium payments by the Company in 1994 were $1.3 million ($.3
million in 1993). At December 31, 1994, the Company continues to pay premiums
on 338 assigned retirees and dependents and 116 "orphans." Additionally, in
December, 1993, a complaint was filed by the Trustees of the United Mine
Workers of America 1992 Benefit Plan against the Company demanding the payment
of premiums on an additional 79 beneficiaries related to two formerly operated
joint venture coal mines. The Company is actively contesting the complaint.
Monthly premiums are being paid into an escrow account (80% by a former joint
venture participant and 20% by the Company) by joint agreement with the
Trustee, pending outcome of the litigation. Company payments in 1994 were
approximately $.1 million. At December 31, 1994, the Company's coal retiree
reserve was $11 million, of which $.9 million is current. The reserve is
reflected at present value, using a discount rate of 8.5%. The Company's
liability has been adequately covered in its capacity rationalization costs.
Constitutional and other legal challenges to various provisions of the Act by
other former coal producers are pending in the Federal Courts.
38
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
ACTUARIAL ASSUMPTIONS
---------------------
As a result of increases in long-term interest rates, the Company has
re-evaluated the interest rates used to calculate its pension and other
postemployment benefit ("OPEB") obligations. Financial accounting standards
require that the discount rate used to calculate the actuarial present value of
such benefits reflect the rate of interest on high-quality fixed income
securities. The discount rate used to calculate the Company's pension and OPEB
obligations was increased to 8.50% at December 31, 1994 from 7.25% at December
31, 1993. The Company also increased its assumed long-term rate of return on
pension assets from 8% at December 31, 1993 to 8.5% at December 31, 1994.
The increase in interest rates did not affect year 1994 financial results;
however, in 1995 and subsequent years, the Company will realize a non-cash
increase in pension credits and a non-cash decrease in OPEB expense. The
increase in annual net income resulting from the higher discount rate and
increased long-term rate of return assumptions is estimated to approximate $1.5
million.
ENVIRONMENTAL COSTS
-------------------
The Company's policy is to conduct business in a manner that promotes
environmental quality. The Company's obligations for any environmental problems
at wholly-owned active mining operations and idle and closed mining and other
sites have been recognized based on specific estimates for known conditions and
required investigations. Environmental costs of associated companies for active
operations are included in current operating and capital costs. Any potential
insurance recoveries have not been reflected in the determination of the
financial reserve.
At December 31, 1994, the Company has an environmental reserve of $12.0
million, of which $3.6 million is current. At December 31, 1993, the
environmental reserve was $10.3 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 potential responsible party, including the
Cliffs-Dow and Kipling sites in Michigan, the Arrowhead Refinery
site in Minnesota, the Summitville mine site in Colorado, and the
Rio Tinto mine site in Nevada, all of which sites are independent
of the Company's iron mining operations. The reserves are based on
engineering studies prepared by outside consultants engaged by the
potential 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 Cliffs-Dow
in 1993 and 1994. An agreement in principle has been reached among
the federal and state governments and approximately 237 individuals
and companies whereby clean-up at the Arrowhead site will begin in
1995 with significant funding provided by the federal and state
governments. The agreement is expected to be filed with the U.S.
District Court early in 1995. The Company's share of Arrowhead costs
is expected to be approximately $145,000 which includes $31,000 of
funded remediation costs and $114,000 of incurred legal and other
costs.
39
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
- Wholly-owned active and idle operations, including the recently
acquired Northshore mine and Silver Bay power plant in Minnesota and
the idled Republic mine and processing facilities in Michigan. The
Northshore reserve is based on an environmental investigation
conducted by the Company and an outside consultant in connection
with the acquisition and reflects expected future Company
expenditures, primarily for asbestos abatement and power plant fly
ash disposal. The Republic Mine reserve primarily reflects the cost
of underground fuel oil storage tank removal and related soil
remediation.
- Reserves for other sites, including former operations, are based on
the Company's estimated cost of investigation and remediation of
sites where expenditures may be incurred.
Environmental expenditures under current laws and regulations are not expected
to materially impact the Company's consolidated financial statements.
CAPITAL INVESTMENT
------------------
NORTH AMERICAN IRON ORE
-----------------------
The Company and its North American mine partners are substantially increasing
capital expenditures in 1995 to satisfy orebody development requirements and
reduce operating costs. Capital equipment additions, including equipment
acquired through lease, are expected to total approximately $113 million in
1995 at the six Company-managed mines in North America, of which $55 million
will be classified as capital expenditures. The Company's share of the capital
expenditures is expected to approximate $24 million, including the $6 million
Northshore expansion capital. Excluding years of major capacity additions, the
1995 program represents record total capital spending at Company-managed mines.
CORPORATE STRATEGY
------------------
The Company's strategy is to grow its basic iron ore business and to extend its
business scope to produce and supply reduced iron ore feed for steel and iron
production. Reduced iron products contain approximately 90% iron versus 65% for
traditional iron ore pellets and contain less undesirable chemical elements
than most scrap steel feed. The market for reduced iron is presently small, but
is projected to increase at a greater rate than other iron ore products.
The Company continues to explore various technologies and markets for reduced
iron products, including the investigation of domestic and international site
alternatives. Commercial plants are estimated to require capital expenditures
of $75 to $100 million, depending on location and process. Commercial decisions
are expected in 1995 on one or more projects. The Company's total 1995
expenditures are not expected to exceed $25 million.
40
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
CAPITALIZATION
--------------
In 1992, the Company completed a private placement of $75 million of medium
term, unsecured senior notes pursuant to agreements with an insurance company
group. One-third of the notes have an interest rate of 8.5 percent, and
two-thirds have an interest rate of 8.8 percent. The notes require annual
repayments of principal beginning in 1995 and 1996, respectively, with final
maturities of 1999 and 2002, respectively. The aggregate maturities for the
five years succeeding December 31, 1994 are $5 million for 1995 and $12.1
million each for 1996 through 1999.
Following is a summary of long-term obligations:
LONG-TERM OBLIGATIONS AT DECEMBER 31
(In Millions)
-------------------------------------------------------------------------------------
Effectively Serviced Obligations
Share of
Associated Guaranteed Total
Consolidated Companies Total Obligations Obligations
------------ ---------- ----- ----------- -----------
1994 $ 75.0 $ 9.2 $ 84.2 $ 13.7 $ 97.9
1993 75.0 13.6 88.6 20.8 109.4
1992 75.1 17.0 92.1 27.9 120.0
Effective March 1, 1995, the Company terminated its existing $75 million
three-year revolving credit agreement, originally due to expire on April 30,
1995, and entered into a five-year, $100 million agreement. No borrowings are
outstanding under the revolving credit facilities.
At December 31, 1994, guaranteed obligations principally represented the Empire
Mine debt obligations of LTV and Wheeling. The Empire Mine long-term debt is
scheduled to be fully extinguished in December, 1996 (the Company's share of
Empire long-term debt principal payments is $4.3 million in 1994 and 1995 and
$3.9 million in 1996).
The ratio of effectively serviced long-term obligations to shareholders' equity
was .3:1 at December 31, 1994, 1993, and 1992.
In January, 1995, the Company announced a program to periodically repurchase up
to 600,000 shares of its Common Stock in the open market or in negotiated
transactions. The program represents approximately 5% of outstanding shares.
The stock will initially be retained as Treasury Stock.
(The "Management's Discussion and Analysis of Financial Condition and Results of
Operations" contains two graphs, one entitled, "Cumulative Earnings &
Dividends" and the other entitled "Components of Invested Capital". For a
description of the graph of "Cumulative Earnings & Dividends" see Graph A in
Appendix A to this exhibit, and for a description of the graph of "Components of
Invested Capital" see Graph B in Appendix A to this exhibit.)
41
APPENDIX A - IMAGE AND GRAPHIC MATERIAL
---------------------------------------
Item 7 - Management's Discussion and Analysis of Financial Condition and
------------------------------------------------------------------------
Results of Operations (Graphs)
------------------------------
GRAPH A
-------
This graph is captioned "Cumulative Earnings & Dividends". The graph contains
two lines depicting cumulative earnings and cumulative dividends over the
five-year period 1990-1994. Cumulative earnings were $73.8 million, $127.6
million, $158.4 million, $213.0 million and $255.8 million, respectively, for
the years 1990-1994. Cumulative dividends were $9.3 million, $68.4 million,
$82.5 million, $108.9 million, and $123.7 million, respectively, for the years
1990-1994. The graph also indicates that the cumulative payout ratio of
dividends to earnings was 13%, 54%, 52%, 51%, and 48%, respectively, for the
years 1990-1994.
Graph B
-------
This graph is captioned "Components of Invested Capital". The graph contains
five bars depicting the components of invested capital at December 31, 1990,
1991, 1992, 1993, and 1994, each bar reflecting Effectively Serviced Debt and
Shareholders' Equity, as follows:
Amount in (Millions) Percent
---------------------------------------------- --------------------------------------------
Effectively Effectively
Serviced Shareholders' Serviced Shareholders'
December 31 Debt Equity Total Debt Equity Total
----------- ----------- ------------- ------ ----------- ------------- -----
1990 $82.4 $290.8 $373.2 22% 78% 100%
1991 65.0 290.8 355.8 18 82 100
1992 92.1 269.6 361.7 26 74 100
1993 88.6 280.7 369.3 24 76 100
1994 84.2 311.4 395.6 21 79 100
41-A