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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

OR

¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             .

Commission File Number: 1-8944

CLEVELAND-CLIFFS INC

(Exact Name of Registrant as Specified in Its Charter)

Registrant’s Telephone Number, Including Area Code:  (216) 694-5700

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES    X   NO       

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. (See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act).

Large accelerated filer   X   Accelerated filer        Non-accelerated filer       

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES        NO   X  

As of July 31, 2007, there were 41,018,451 Common Shares (par value $.25 per share) outstanding.

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Definitions

The following abbreviations or acronyms are used in the text. References in this report to the “Company”, “we”, “us”, “our” and “Cliffs” are to Cleveland-Cliffs Inc and subsidiaries, collectively. References to “A$” refer to Australian currency, “C$” to Canadian currency and “$” to United States currency.

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PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED OPERATIONS

See notes to unaudited condensed consolidated financial statements.

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CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CONDENSED CONSOLIDATED FINANCIAL POSITION

See notes to unaudited condensed consolidated financial statements.

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See notes to unaudited condensed consolidated financial statements.

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CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED CASH FLOWS

See notes to unaudited condensed consolidated financial statements.

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CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

NOTE 1 – BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly, the financial position, results of operations and cash flows for the periods presented. The interim results are not necessarily indicative of results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in Cleveland-Cliffs’ Annual Report on Form 10-K for the year ended December 31, 2006.

The condensed consolidated financial statements include our accounts and the accounts of our majority-owned subsidiaries, including:

Intercompany accounts are eliminated in consolidation.

Investments in ventures on the Statements of Condensed Consolidated Financial Position include our 30 percent equity interest in Amapa, a Limitada located in Brazil, our 26.83 percent equity interest in Wabush, an unincorporated joint venture located in Canada, our 45 percent effective interest in Sonoma, a joint venture located in Australia, and related entities that we do not control, which are carried at the lower of cost or market. Our 23 percent equity interest in Hibbing, an unincorporated joint venture in Minnesota, is recorded as a net liability and accordingly is classified as Other liabilities. Portman’s 50 percent non-controlling interest in Cockatoo Island, which is also recorded as a net liability, is classified as Other current liabilities.

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Investments in joint ventures in which our ownership is 50 percent or less, or in which we do not have control but have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method. Our share of equity income (if any) is eliminated against consolidated product inventory upon production, and against cost of goods sold and operating expenses when sold. This effectively reduces our cost for our share of the mining venture’s production to its cost, reflecting the cost-based nature of our participation in unconsolidated ventures.

The following table presents the detail of our Investments in ventures on the Statements of Condensed Consolidated Financial Position.

On June 6, 2007, we entered into an agreement providing for the sale of our interest in Wabush. Under the agreement, Consolidated Thompson Iron Mines Ltd. (traded on the TSX—Venture Exchange under the symbol CLM) would acquire the 71.4 percent of Wabush owned directly or indirectly by the Company (26.8 percent) and Stelco (44.6 percent) for cash plus warrants for the purchase of CLM common shares and the assumption by CLM of employee and asset retirement obligations. Our share of the proceeds would be $24.1 million in cash and approximately 1.1 million warrants, entitling us to purchase CLM shares at C$5.10 per share for a two-year period.

As part of the transaction, we would enter into an agreement whereby CLM would sell approximately .7 million tons of pellets to us annually from 4.8 million tons of expected annual Wabush production from the date of the closing through December 31, 2009. In 2006, Wabush produced 4.1 million tons of pellets with our share totaling 1.1 million tons.

Dofasco, a subsidiary of ArcelorMittal, holds the remaining 28.6 percent of Wabush. The notification to Dofasco of the acceptance of CLM’s offer by the Company and Stelco on June 8, 2007, triggered a 90-day right of first refusal option by Dofasco under terms of the Wabush joint venture agreement.

Completion of the transaction is subject to a number of other conditions, including receipt of requisite regulatory approval and the execution of definitive agreements. Closing would occur shortly after a Dofasco waiver is executed or expiration of its 90-day purchase option.

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NOTE 2 – ACCOUNTING POLICIES

Revenue Recognition

Revenue is recognized on the sale of products when title to the product has transferred to the customer in accordance with the specified provisions of each term supply agreement and all applicable criteria for revenue recognition have been satisfied. Most of our North American term supply agreements provide that title transfers to the customer when payment is received. Under some term supply agreements, we ship the product to ports on the lower Great Lakes and/or to the customer’s facilities prior to the transfer of title. Certain supply agreements with one customer include provisions for supplemental revenue or refunds based on the customer’s annual steel pricing at the time the product is consumed in the customer’s blast furnaces. We account for this provision as a derivative instrument at the time of sale and record this provision at fair value until the product is consumed and the amounts are settled as an adjustment to revenue. Revenue in the second quarter and first six months of 2007 included $.4 million and $1.7 million, respectively, of unfavorable mark-to-fair value adjustments on derivative instruments related to 2006 sales. Revenue in the second quarter and first six months of 2006 included $9.0 million and $14.3 million, respectively, of favorable mark-to-fair value adjustments on derivative instruments related to 2005 sales. Revenue from product sales in the second quarter included reimbursement for freight charges ($21.1 million in 2007 and $19.6 million in 2006) paid on behalf of customers and cost reimbursements ($51.9 million in 2007 and $46.4 million in 2006) from venture partners for their share of North American mine costs. Revenue from product sales in the first six months included reimbursement for freight charges ($33.3 million in 2007 and $37.1 million in 2006) paid on behalf of customers and cost reimbursements ($99.0 million in 2007 and $90.8 million in 2006) from venture partners for their share of the first half North American mine costs.

Deferred Revenue

Two of our North American customers purchased and paid for 1.2 million tons of pellets in December 2006 under terms of take-or-pay contracts. The inventory was stored at our facilities in upper lakes stockpiles as a result of the customers’ limited on-site storage availability. At the request of the customers, the ore was not delivered until 2007. During the first half of 2007, the 1.2 million tons of stockpiled ore was delivered to the customers, resulting in the recognition of $62.6 million as Revenues from product sales and services on the Statements of Condensed Consolidated Operations.

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Additionally, the terms of one of our North American pellet supply agreements require bi-monthly installments equaling 1/24th of the estimated total purchase value of the calendar-year nomination. Revenue from this supply agreement is recognized when title has transferred upon shipment of pellets. Installment amounts received in excess of shipments at June 30, 2007 totaled $36.6 million, which was recorded as Deferred revenue on the Statements of Condensed Consolidated Financial Position.

Derivative Financial Instruments

Portman receives funds in United States currency for its iron ore sales. Portman uses forward exchange contracts, call options, collar options and convertible collar options, designated as cash flow hedges, to hedge its foreign currency exposure for a portion of its sales receipts. United States currency is converted to Australian dollars at the currency exchange rate in effect at the time of the transaction. At June 30, 2007, Portman had $228.5 million of outstanding exchange rate contracts in the form of call options, collar options, convertible collars and forward exchange contracts with varying maturity dates ranging from July 2007 to September 2009, and a fair value gain of $20.9 million based on the June 30, 2007 exchange rate. We had $14.9 million and $6.3 million of hedge contracts recorded as Derivative assets on the June 30, 2007 and December 31, 2006 Statements of Condensed Consolidated Financial Position, respectively. We also had $6.0 million and $3.6 million of hedge contracts recorded as long-term assets as Deposits and miscellaneous on the Statements of Condensed Consolidated Financial Position at June 30, 2007 and December 31, 2006, respectively. Changes in fair value for highly effective hedges are recorded as a component of Accumulated other comprehensive loss on the Statements of Condensed Consolidated Financial Position. In the first six months of 2007 and 2006, ineffectiveness resulted in a loss of $2.3 million and a gain of $.4 million, respectively, which were recorded in Miscellaneous-net on the Statements of Condensed Consolidated Operations.

Certain supply agreements with one customer provide for supplemental revenue or refunds based on the customer’s average annual steel pricing at the time the product is consumed in the customer’s blast furnace. The supplemental pricing is characterized as an embedded derivative instrument and is required to be accounted for separately from the base contract price. The supplemental revenue is recognized at the point of

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sale on an estimated basis. The derivative instrument, which is finalized based on a future price, is marked to fair value as a revenue adjustment each reporting period until the pellets are consumed and the amounts are settled. We recognized $20.0 million and $32.9 million in the second quarter of 2007 and 2006, respectively, and $29.6 million and $48.9 million in the first six months of 2007 and 2006, respectively, as Iron Ore revenues in the Statements of Condensed Consolidated Operations related to the supplemental payments. Derivative assets, representing the fair value of the pricing provision, were $33.3 million and $26.6 million, respectively, on the June 30, 2007 and December 31, 2006 Statements of Condensed Consolidated Financial Position.

Share-Based Compensation

On March 13, 2007, the Compensation and Organization Committee of the Board of Directors of the Company approved a grant of performance shares and retention units under our 2007 ICE Plan to key management employees including the named executive officers for the performance period 2007-2009. The 2007 ICE Plan was approved by the shareholders at our 2007 Annual Meeting on July 27, 2007.

Recent Accounting Pronouncements

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Liabilities Including an Amendment of FASB Statement No. 115, (SFAS 159). This Statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different

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measurement attributes for similar types of assets and liabilities. The Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted. We are evaluating the impact, if any, of the adoption of this Statement on our consolidated financial statements.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that we recognize the impact of a tax position in our financial statements, if that position will more likely than not be sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The application of this Interpretation reduced our retained earnings on January 1, 2007 by $7.7 million to increase reserves for uncertain tax positions.

In September 2006, the FASB issued FSP No. AUG AIR-1, Accounting for Planned Major Maintenance Activities, which prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim periods. This FSP is effective for fiscal years beginning after December 15, 2006. Retrospective application is required unless it is impracticable. Adoption of this standard did not have a material impact on our consolidated financial statements.

NOTE 3 – DEBT AND REVOLVING CREDIT FACILITY

In June 2006, we entered into a five-year unsecured credit facility with a syndicate of 16 financial institutions. The facility provides $500 million in borrowing capacity under a revolving credit line, with no specific maturities; borrowings are drawn with a choice of interest rates and maturities, subject to the term of the agreement. The facility has financial covenants based on earnings, debt and fixed cost coverage. Interest rates are either, (1) a range from LIBOR plus .75 percent to LIBOR plus 1.50 percent based on debt and earnings or (2) the prime rate. Borrowings outstanding under the facility totaled $125 million as of June 30, 2007. As of June 30, 2007, we were in compliance with the covenants in the credit agreement.

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On July 26, 2007, we entered into an unsecured, 364-day credit agreement to fund a portion of the purchase price for our acquisition of 100 percent of PinnOak. The facility provides $150 million in borrowing capacity under a revolving credit line with no specific maturities; borrowings are drawn with a choice of interest rates and maturities, subject to the terms of the agreement.

Portman is party to a A$40 million multi-option credit facility, which was finalized in April 2007. The facility has two covenants: (1) debt to earnings ratio and (2) interest coverage ratio. The floating interest rate is 20 basis points over the 90-day bank bill swap rate in Australia. At June 30, 2007, the outstanding commitments were A$12.4 million. As of June 30, 2007, Portman was in compliance with the covenants in the credit facility.

NOTE 4 – INVESTMENTS AND ACQUISITIONS

Amapa

On March 5, 2007, we acquired a 30 percent interest in Amapa, a Brazilian company developing an iron ore project (Amapa Project), through the acquisition of 100 percent of the shares of Centennial Amapa. The remaining 70 percent of the Amapa Project is owned by MMX, which is providing corporate and institutional support, while we will supply technical support for construction and operations. The purchase price for our 30 percent interest was $133.3 million, paid with cash on hand. Total capital expenditures are estimated to be $357 million, with approximately $268 million to be funded with project debt, which we guarantee our 30 percent share until the project meets certain performance criteria. Capital contributions of $89.3 million were paid by Cliffs and MMX in April 2007 to fund the project; Cliffs’ 30 percent share was $26.8 million. We will be responsible for 30 percent of any future capital contributions.

The Amapa Project consists of a significant iron ore deposit, a 192-kilometer railway connecting the mine location to an existing port facility and 71 hectares of real estate on the banks of the Amazon River, reserved for a loading terminal. The Amapa Project is currently under construction and is expected to produce 6.5 million tonnes of iron ore concentrate and sinter feed annually once fully operational. Iron ore concentrate and sinter feed are expected to be sold by Amapa, pursuant to long-term supply agreements, to an owner-operator

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of an iron oxide pelletizing plant in the Kingdom of Bahrain and MMX. Production is expected to begin in late 2007.

Sonoma

On April 18, 2007, we executed agreements to participate in Sonoma, a coking and thermal coal joint venture located in Queensland, Australia. As of June 30, 2007, we invested $56.7 million to acquire and develop mining tenements and related infrastructure including the construction of a washplant, which will produce coal to meet the growing Asian demand. Our total investment in Sonoma is estimated to be $109 million, of which $96 million is expected to occur in 2007. Pursuant to a combination of interrelated agreements, our non-controlling participation will result in a 45 percent economic interest in the collective operations of Sonoma.

Sonoma is expected to commence production of marketable coal in late-2007. Production from Sonoma will include an approximately equal mix of hard coking coal and thermal coal. Current plans call for Sonoma to produce 2.5 million tonnes in 2008 and to reach an ultimate annual production rate of between three million and four million tonnes. Sonoma has a current resource estimate of 107 million tonnes.

PinnOak

On July 31, 2007, we acquired 100 percent of PinnOak, a privately-owned United States producer of high-quality, low-volatile metallurgical coal. The acquisition furthers our growth strategy and expands our diversification of products for the integrated steel industry. Due to the acquisition date, the operating results of PinnOak after the acquisition will be included in the third quarter 2007 Statements of Condensed Consolidated Operations. The purchase price of PinnOak and its subsidiary operating companies was $450 million in cash, of which $108.4 million is deferred until December 31, 2009, plus the assumption of $160 million in debt, which was repaid at closing. The purchase agreement also includes a contingent earn-out, which ranges from $0 to approximately $300 million dependent upon PinnOak’s performance in 2008 and 2009. The earn-out, if any, would be payable in 2010 and treated as additional purchase price. The assets acquired consist primarily of coal mining rights and mining equipment.

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PinnOak’s operations include two complexes comprising three underground mines – the Pinnacle and Green Ridge mines in southern West Virginia and the Oak Grove mine near Birmingham, Alabama. Combined, the mines have the capacity to produce in excess of seven million tons of premium-quality metallurgical coal annually.

NOTE 5 – SEGMENT REPORTING

We are organized into operating and reporting segments based upon geographic location: North America, Asia-Pacific and Latin America. The North America segment, which provides iron ore to the integrated steel industry, represented approximately 79 percent and 81 percent of our consolidated revenues for the second quarter of 2007 and 2006 respectively, and approximately 75 percent and 81 percent of our consolidated revenues for the six-month periods ended June 30, 2007 and June 30, 2006 respectively. The Asia-Pacific segment, comprised of Portman in Western Australia and the Sonoma Coal Project in Queensland, Australia, represented approximately 21 percent and 19 percent of our consolidated revenues for the respective quarter and approximately 25 percent and 19 percent of our consolidated revenues for the respective six month periods. The Latin America segment is comprised of our 30 percent Amapa interest in Brazil, which is in the development stage. There are no intersegment revenues.

We primarily evaluate performance based on segment operating income, defined as revenues less expenses identifiable to each segment. We have classified certain administrative expenses as unallocated corporate expenses.

The following table presents a summary of our segments for the three-month and six-month periods ended June 30, 2007 and 2006 based on the current reporting structure.

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*  There were $2.0 and $12.2 million of Australian non-cash capital additions at June 30, 2007 and 2006, respectively.

A summary of assets by segment is as follows:

NOTE 6 – COMPREHENSIVE INCOME

Following are the components of comprehensive income for the three-month and six-month periods ended June 30, 2007 and 2006:

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NOTE 7 – PENSIONS AND OTHER POSTRETIREMENT BENEFITS

The components of defined benefit pension and OPEB expense for the three-month and six-month periods ended June 30, 2007 and 2006 were as follows:

Defined Benefit Pension Expense

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OPEB_Expense

NOTE 8 – ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS

We had environmental and mine closure liabilities of $106.5 million and $103.9 million at June 30, 2007 and December 31, 2006, respectively, of which $7.8 million and $8.8 million was classified as current. Payments in the first six months of 2007 were $2.6 million (2006—$7.9 million). Following is a summary of the obligations:

Environmental

Our mining and exploration activities are subject to various laws and regulations governing the protection of the environment. We conduct our operations so as to protect the public health and environment and believe our operations are in compliance with applicable laws and regulations in all material respects. Our environmental liabilities of $12.5 million and $13.0 million at June 30, 2007 and December 31, 2006, respectively, including obligations for known environmental remediation exposures at active and closed mining operations and other sites, have been recognized based on the estimated cost of investigation and remediation at each site. If the cost can only be

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estimated as a range of possible amounts with no specific amount being most likely, the minimum of the range is accrued in accordance with SFAS No. 5, Accounting for Contingencies. Future expenditures are not discounted unless the amount and timing of the cash disbursements are readily known. Potential insurance recoveries have not been reflected. Additional environmental obligations could be incurred, the extent of which cannot be assessed.

The environmental liability includes our obligations related to four sites that are independent of our iron mining operations, two former iron ore-related sites, two leased land sites where we are lessor and miscellaneous remediation obligations at our operating units. Three of these sites are Federal and State sites where we are named as a PRP: the Rio Tinto mine site in Nevada and the Kipling and Deer Lake sites in Michigan.

Rio Tinto

The Rio Tinto Mine site is a historic underground copper mine located near Mountain City, Nevada, where tailings were placed in Mill Creek, a tributary to the Owyhee River. Site investigation and remediation work is being conducted in accordance with a Consent Order between the NDEP and the RTWG composed of Cliffs, Atlantic Richfield Company, Teck Cominco American Incorporated, and E. I. du Pont de Nemours and Company.

During 2006, the focus of the RTWG was on development of alternatives for remediation of the mine site. A draft of an alternatives study was reviewed with NDEP, EPA and the Rio Tinto Trustees and as of December 31, 2006, the alternatives have essentially been reduced to two: (1) tailings stabilization and long-term water treatment; or (2) removal of the tailings. The estimated costs range from approximately $10 million to $27 million. In recognition of the potential for an NRD claim, the parties are actively pursuing a global settlement that would encompass both the remedial action and the NRD issues and thereby avoid the lengthy litigation typically associated with NRD and any settlement would include the EPA. Additional groundwater sampling is scheduled for the second half of 2007, and remedial covering of the hillside tailings and heap leach pad is planned. The mediation process to determine an equitable allocation of costs between the RTWG has been deferred until 2008.

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Carl’s Tire Retreading Superfund Site

In July 2006 we received a Request for Information pursuant to Section 104(e) of CERCLA relating to contamination of the Carl’s Tire Retreading Superfund Site in Grawn, Grand Traverse County, Michigan resulting from a fire that began at the site in December 1995. The site was a tire recycling business to which the Tilden and Empire Mines shipped tires before the fire. In November 2006 we received a letter from the U.S. Department of Justice notifying us that the EPA is seeking about $3.1 million in response costs associated with releases of hazardous substances from the fire. EPA brought suit against PRPs that have not entered into tolling agreements with the EPA.

On November 13, 2006, The Cleveland-Cliffs Iron Company signed a tolling agreement with the EPA on behalf of itself and its corporate affiliates. On April 18, 2007, we, along with 25 other PRPs, received a group settlement demand for approximately $2.3 million. We, along with some of the other PRPs, are currently in the process of negotiating a settlement with the U.S. Department of Justice. If the matter does not settle, we (along with the other non-settling parties) would face joint and several liability if the EPA is successful in the lawsuit, meaning that we could be held responsible to the U.S. for the entire amount of any judgment.

Portman

On May 14, 2007, the AEPA published a study in which they recommended the establishment of “A class reserves” for the protection of certain allegedly environmentally sensitive areas of Western Australia. Some of the proposed A class reserves overlap with mining tenements granted to Portman (the “Overlapping Areas”). The AEPA study has been submitted to the Minister for the Environment and Heritage.

Portman originally received governmental approval to mine in the Overlapping Areas in June 2003. Since that time, Portman has met all applicable environmental requirements. Although we are currently reviewing the study and the effects of the designation of the Overlapping Areas as A class reserves, such categorization would be likely to have a material effect on Portman’s operations. It is unknown at this time whether the Minister for the Environment and Heritage will accept the recommendations of the AEPA. If the recommendations of the AEPA are accepted, Portman will challenge any such decision.

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Mine Closure

The mine closure obligation of $94.0 million and $90.9 million includes the accrued obligations at June 30, 2007 and December 31, 2006, respectively, for a closed operation formerly known as LTVSMC, for our four consolidated North American operating mines and for Portman. The LTVSMC closure obligation results from an October 2001 transaction where subsidiaries of the Company received a net payment of $50 million and certain other assets and assumed environmental and certain facility closure obligations of $50 million, which obligations have declined to $27.2 million at June 30, 2007.

The accrued closure obligation for our active mining operations of $66.8 million and $62.7 million at June 30, 2007 and December 31, 2006, respectively, provides for contractual and legal obligations associated with the eventual closure of the mining operations. The following summarizes our asset retirement obligation liability:

NOTE 9 – INCOME TAXES

Our total tax provision from continuing operations for the first six months of 2007 of $39.3 million is comprised of $25.6 million related to our North American operations, primarily the United States, and $13.7 million related to our Asia-Pacific operations. Our expected effective tax rate for 2007 reflects United States benefits from deductions for percentage depletion in excess of cost depletion.

At June 30, 2007, cumulative undistributed earnings of our Australian subsidiaries included in consolidated retained earnings continue to be indefinitely reinvested in international operations. Accordingly, no provision has been made for deferred taxes related to a future repatriation of these earnings, nor is it practicable to determine the amount of this liability.

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On January 1, 2007, we adopted the provisions of FIN 48. FIN 48 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken (or expected to be taken in a tax return). This interpretation also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.

The effects of applying this interpretation resulted in a decrease of $7.7 million to retained earnings as of January 1, 2007. At January 1, 2007, we had $15.6 million of unrecognized tax benefits recorded in Other Liabilities on the Statements of Condensed Consolidated Financial Position, of which $15.5 million, if recognized, would impact the effective tax rate. We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of January 1, 2007, we had $7.2 million of accrued interest relating to the unrecognized tax benefits. During the six months ended June 30, 2007, there were no significant changes in unrecognized tax benefits, nor do we anticipate any significant changes within the next twelve months.

Tax years that remain subject to examination are years 2003 and forward for the United States, 1993 and forward for Canada and 1994 and forward for Australia.

In July 2007, the new Michigan Business Tax (MBT), which provides a comprehensive restructuring of Michigan’s principal business tax regime, was signed into law. The MBT replaces the Michigan Single Business Tax that is scheduled to expire at the end of 2007. We are currently evaluating the impact of the MBT on our consolidated financial statements.

NOTE 10 – EARNINGS PER SHARE

A summary of the calculation of earnings per common share on a basic and diluted basis follows:

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NOTE 11 – LEASE OBLIGATIONS

We lease certain mining, production and other equipment under operating and capital leases. The leases are for varying lengths, generally at market interest rates and contain purchase and/or renewal options at the end of the terms. Future minimum payments under capital leases and non-cancellable operating leases at June 30, 2007, are expected to be: