2 0 1 3
A N N U A L
R E P O R T
CLIFFS NATURAL RESOURCES INC.
GAINING TRACTION
CLIFFS NATURAL RESOURCES INC. is an international mining
and natural resources company. The Company is a major global IRON ORE
producer and a significant producer of high-and low-volatile metallurgical COAL.
Cliffs’ STRATEGY is to continually achieve greater scale and diversification in the
mining industry through a FOCUS on serving the world’s largest and fastest growing
STEEL markets. Driven by the core values of social, environmental and capital stewardship,
Cliffs associates across the globe endeavor to provide all stakeholders operating and
financial TRANSPARENCY.
The Company is organized through a GLOBAL commercial group responsible for sales
and delivery of Cliffs’ products and a global OPERATIONS group responsible for
the PRODUCTION of the minerals the Company markets. Cliffs operates six iron
ore mines and three coal complexes in North America and an iron ore mining complex in
Western Australia.
C L I F F S l 2 0 1 3 A N N U A L R E P O R T
Gary B. Halverson
President and
Chief Executive Officer
LETTER FROM THE CEO
This resilient Company has managed through several commodity cycles over the last 167 years
and we are confident we will successfully navigate through this one as well. We believe our
significant cost and capital spending reductions, coupled with our improved financial flexibility,
will ensure we are well positioned to capture the upside when the commodity pricing cycle
inevitably improves.
Dear Cliffs’ Shareholder:
Since joining Cliffs in November 2013,
environment, Cliffs’ financial performance
on improving our cost profile, enhancing
we have taken on many challenges and
in 2013 was solid. The steady demand
our competitive advantages, and extracting
made some tough decisions. In every
for our products was driven by robust
maximum value from our current portfolio
instance, my focus has been to make
growth in China, modest growth in the U.S.
of assets. In short, like every other mining
decisions and take action that will drive
market and some early signs of economic
company operating in today’s market
long-term value creation for all of our
recovery in Europe. In 2013, we reported
environment, we need to live within our
shareholders. For over 167 years Cliffs has
consolidated revenues of $5.7 billion and
means, steward our capital wisely and
been resilient in navigating many previous
more than doubled our year-over-year cash
prudently invest in growth options when the
commodity cycles – and we will do the
generated from operations to $1.1 billion.
time is right.
same through this one. Let me tell you
We also lowered our long-term debt by
why I am optimistic about the future of your
nearly $1 billion and exited the year with no
Company.
Before I joined Cliffs, your Board of
Directors had already begun implementing
several changes across the Company to
enhance long-term shareholder value. With
lower operating costs, a sharper focus on
capital allocation and a strong pricing
borrowings on our revolving credit facility.
Despite these successes, 2013 appears
to have marked the end of the so-called
“commodity super cycle” that the world
experienced over the last decade. With
this new reality, we needed to pivot from
a growth agenda to a more constrained
operating agenda that is acutely focused
In 2013, in addition to separating the
Chairman and Chief Executive Officer
roles, the Board welcomed a new
Chairman and four new members who
collectively bring a wealth of knowledge
from multiple industries including: mining,
equipment manufacturing, accounting,
finance, and engineering. Throughout
2013, the Board recognized that the volatile
C L I F F S l 2 0 1 3 A N N U A L R E P O R T
commodity pricing environment we were experiencing was likely going to continue, and,
as a result, the Board took significant actions to improve the Company’s balance sheet
and overall cost profile. Over the course of 2013, those actions enabled us to gain
traction both financially and operationally in what is clearly proving to be a challenging
pricing environment as we move well into 2014.
In appointing a new Chief Executive Officer, the Board was searching for a candidate that
could not only implement further change and restore financial discipline, but someone
who also had deep mining expertise. After an extensive and exhaustive search, the Board
provided me with the opportunity to lead this great Company. With over 30 years of
experience in managing assets from the initial project development stage to end-of-mine
life, through many previous commodity cycles and in multiple geographies, I am excited
and confident that I can make a positive difference for all of Cliffs’ stakeholders.
Upon joining Cliffs, I visited all of the sites, met with our employees and long-term
customers, as well as many other key stakeholders. Initially, I was pleasantly surprised
by the dedication of our people and quality of our assets; however, I was – and continue
to be – extremely enthusiastic about the opportunities that lay ahead of us, both on the
growth and cost reduction fronts. With a new senior leadership team, we quickly and
collaboratively aligned around the mantra of “getting back to basics.” This mantra
included several key objectives, one of which was to stop spending on assets that were
not providing sufficient returns for shareholders.
Within my first three months at Cliffs, we indefinitely suspended our chromite project in
Northern Ontario, idled our Wabush mine in the province of Newfoundland Labrador,
indefinitely suspended Bloom Lake’s Phase II expansion work, extended a commercial
agreement with a valuable long-term customer, and reduced full-year 2014 capital
spending by over 50%. During this time we also conducted a review of our organizational
structure, which subsequently resulted in the removal of multiple layers of management
positions. We have significantly reduced our corporate and shared services headcount
and eliminated over 30% of our executive officer group. We have also reduced our
contractor spending and closed multiple offices around the world. These were tough
REVENUES
CASH
FROM PRODUCT SALES AND SERVICES
(in millions)
$6,564
AND CASH EQUIVALENTS
(in millions)
$5,873
$5,691
$4,484
$1,567
$2,197
$503
$522
$336
$195
‘09
‘10
‘11
‘12
‘13
‘09
‘10
‘11
‘12
‘13
C L I F F S l 2 0 1 3 A N N U A L R E P O R T
Coal
High-Vol Metallurgical
Low-Vol Metallurgical
Thermal
Iron Ore
Concentrate
Fines
Lump
Pellets
decisions to make, but the changes have
among other things, preserving our value-
enabled us to lower our expected SG&A
generating options and not overreacting
and exploration expenses by an additional
by “fire-selling” assets at the low point
$90 million1, or 31%, in 2014 which is on
of the commodity cycle. We believe our
top of a $134 million, or 32%, reduction
significant cost and capital spending
reductions, coupled with our improved
financial flexibility, will ensure we are well
positioned to capture the upside when
the commodity pricing cycle inevitably
improves. This resilient Company has
managed through several commodity
cycles over the last 167 years and we are
confident we will successfully navigate
through this one as well. On behalf of the
Board and our thousands of employees,
we appreciate your trust in us and
continued support in our Company.
Sincerely,
Gary B. Halverson
President & Chief Executive Officer
in 2013.
After experiencing a challenging first
quarter in 2014 due to the severe weather
across North America and a weaker
year-over-year pricing environment that
has extended through the second quarter,
we identified additional opportunities
to further reduce our full-year capital
spending by an additional $100 million.
With this additional reduction, we expect
to lower our full-year 2014 capital
spending by over $560 million, or 65%,
from 2013’s full-year capital spending.
Also during the second quarter of 2014,
we received unanimous support from
our bank lending group to amend our
existing revolving credit facility. We
engaged in this proactive measure to
manage our debt and liquidity profile in
order to further strengthen our balance
sheet in this persistent volatile pricing
environment. The newly amended
terms received unanimous support from
the lending group, despite requiring
COMPARATIVE HIGHLIGHTS
only a greater than 50% approval. We
(in millions, except per-share amounts)
believe this reflects the exceptional
relationships we have with our banks
FINANCIAL
2013
2012
and their endorsement of the underlying
fundamentals of our long-term strategy.
Over the last several years, our strategy
has been to grow through mineral and
geographic diversification. This strategy
enabled us to expand our asset base
and has provided us with opportunities
for future growth. However, you can
be sure that, before we pursue any of
these longer-term opportunities, we must
first and foremost navigate the current
volatile pricing environment. This means,
Revenue From Product Sales and Services
Sales Margin
Operating Income (Loss)
Net Income (Loss)
$5,691
1,149
671
362
$5,873
1,172
(309)
(1,127)
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS COMMON SHAREHOLDERS
(899.40)
Amount
Per Diluted Share, Continuing Operations
Cash Dividends Declared Per Common Share
AT DECEMBER 31
Cash and Cash Equivalents
Long-Term Debt Obligations
Total Assets
Cliffs’ Shareholders’ Equity
365
2.36
0.60
336
3,190
13,122
6,070
(899)
(6.57)
2.16
195
4,196
13,575
4,633
Source: Cliffs Natural Resources Inc. Form 10-K period ending 12/31/13
1 Excludes severance and proxy-contest-related expenses.
C L I F F S l 2 0 1 3 A N N U A L R E P O R T
VISION & MISSION
Cliffs Natural Resources is an independent, owner-operator mining company supplying the global
steelmaking industry.
• Operational Excellence Is Our Foundation
We have deep technical expertise and focus on safety, responsible stewardship and continuous improvement.
• Customer Excellence Is Fundamental
We succeed together with our customers.
• Financial Discipline Enables Our Success
We achieve superior economic performance.
• People Are Our Strength
Attracting and developing industry-leading talent are vital differentiators in achieving our goals.
We are a mining company that customers seek to establish a long-term partnership, communities
value us as a neighbor, and a place where employees want to work.
CORE VALUES
Safe Production
Group and Individual Accountability
Environmental Stewardship
Trust, Respect and Open Communication
Ethical Behavior
Customer Focus
Bias for Action
Teamwork
Creating Economic Value
Recognize and Reward Achievement
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
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
CLIFFS NATURAL RESOURCES INC.
(Exact Name of Registrant as Specified in Its Charter)
Ohio
(State or Other Jurisdiction of
Incorporation or Organization)
200 Public Square, Cleveland, Ohio
(Address of Principal Executive Offices)
34-1464672
(I.R.S. Employer
Identification No.)
44114-2315
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (216) 694-5700
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Shares, par value $0.125 per share
New York Stock Exchange and Professional Segment of
NYSE Euronext Paris
Depositary Shares, each representing a 1/40th ownership interest
in a share of 7.00% Series A Mandatory Convertible Preferred
Stock, Class A
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES
NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES
NO
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
NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). YES
NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES
NO
As of June 28, 2013, the aggregate market value of the voting and non-voting common shares held by non-affiliates of the registrant, based on the closing
price of $16.25 per share as reported on the New York Stock Exchange — Composite Index, was $2,577,942,533 (excluded from this figure is the voting
stock beneficially owned by the registrant’s officers and directors).
The number of shares outstanding of the registrant’s common shares, par value $0.125 per share, was 153,087,255 as of February 10, 2014.
Portions of the registrant’s proxy statement for its annual meeting of shareholders scheduled to be held on May 13, 2014 are incorporated by reference
into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Page Number
DEFINITIONS
PART I
Item 1.
Business
Executive Officers of the Registrant
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
SIGNATURES
1
4
18
18
28
29
42
44
44
47
49
85
86
159
159
160
161
161
161
161
161
162
163
The following abbreviations or acronyms are used in the text. References in this report to the “Company,” “we,” “us,” “our” and
“Cliffs” are to Cliffs Natural Resources Inc. and subsidiaries, collectively. References to “A$” or “AUD” refer to Australian currency,
“C$” to Canadian currency and “$” to United States currency.
DEFINITIONS
Abbreviation or acronym
Term
Algoma
Amapá
AG
Anglo
APBO
ArcelorMittal
ArcelorMittal USA
ASC
Barrick
BART
Bloom Lake
BNSF
Essar Steel Algoma Inc.
Anglo Ferrous Amapá Mineração Ltda. and Anglo Ferrous Logística Amapá Ltda.
Autogenous Grinding
Anglo American plc
Accumulated Postretirement Benefit Obligation
ArcelorMittal (as the parent company of ArcelorMittal Mines Canada, ArcelorMittal USA and ArcelorMittal
Dofasco, as well as, many other subsidiaries)
ArcelorMittal USA LLC (including many of its North American affiliates, subsidiaries and representatives.
References to ArcelorMittal USA comprise all such relationships unless a specific ArcelorMittal USA entity is
referenced)
Accounting Standards Codification
Barrick Gold Corporation Inc.
Best Available Retrofit Technology
The Bloom Lake Iron Ore Mine Limited Partnership
Burlington Northern Santa Fe, LLC
Chromite Project
Cliffs Chromite Ontario Inc.
CIRB
CLCC
Canadian Industrial Relations Board
Cliffs Logan County Coal LLC
Clean Water Act
Federal Water Pollution Control Act
Cliffs Chromite Far North Inc.
Entity previously known as Spider Resources Inc.
Cliffs Chromite Ontario Inc.
Entity previously known as Freewest Resources Canada Inc.
CN
Canadian National Railway Company
Cockatoo Island
Cockatoo Island Joint Venture
Compensation Committee
Compensation and Organization Committee
Consent Order
Administrative Order by Consent
Consolidated Thompson
Consolidated Thompson Iron Mining Limited (now known as Cliffs Quebec Iron Mining Limited)
CQIM
Cr2O3
CSAPR
DD&A
DEP
Directors’ Plan
Dodd-Frank Act
Dofasco
EBITDA
Empire
EPA
EPS
EPSL
ERM
Cliffs Quebec Iron Mining Limited
Chromium Oxide
Cross-State Air Pollution Rule
Depreciation, depletion and amortization
U.S. Department of Environment Protection
Nonemployee Directors’ Compensation Plan, as amended and restated 12/31/2008
Dodd-Frank Wall Street Reform and Consumer Protection Act
ArcelorMittal Dofasco Inc.
Earnings before interest, taxes, depreciation and amortization
Empire Iron Mining Partnership
U.S. Environmental Protection Agency
Earnings per share
Esperance Port Sea and Land
Enterprise Risk Management
Exchange Act
Securities Exchange Act of 1934, as amended
FASB
Fe
Financial Accounting Standards Board
Iron
(Fe,Mg) (Cr,Al,Fe)2O4
Mineral Chromite
FeT
FIP
FMSH Act
Freewest
GAAP
GHG
Hibbing
Total Iron
Federal Implementation Plan
U.S. Federal Mine Safety and Health Act 1977, as amended
Freewest Resources Canada Inc. (now known as Cliffs Chromite Ontario Inc.)
Accounting principles generally accepted in the United States
Greenhouse gas
Hibbing Taconite Company
1
Abbreviation or acronym
Term
ICE Plan
INR
IRS
Ispat
Amended and Restated Cliffs 2007 Incentive Equity Plan, as amended
INR Energy, LLC
U.S. Internal Revenue Service
Ispat Inland Steel Company
Koolyanobbing
Collective term for the operating deposits at Koolyanobbing, Mount Jackson and Windarling
LCM
LIBOR
LIFO
LTVSMC
MDEQ
MMBtu
Moody's
MPCA
MPI
MPUC
MRRT
MSHA
n/m
NAAQS
NBCWA
NDEP
Ni
NO2
NOx
Northshore
NPDES
NRD
NYSE
Oak Grove
OCI
OPEB
OPEB cap
P&P
PBO
Pinnacle
Lower of cost or market
London Interbank Offered Rate
Last-in, first-out
LTV Steel Mining Company
Michigan Department of Environmental Quality
Million British Thermal Units
Moody's Investors Service, Inc., a subsidiary of Moody's Corporation, and its successors
Minnesota Pollution Control Agency
Management Performance Incentive Plan
Minnesota Public Utilities Commission
Minerals Resource Rent Tax (Australia)
U.S. Mine Safety and Health Administration
Not meaningful
National Ambient Air Quality Standards
National Bituminous Coal Wage Agreement
Nevada Department of Environmental Protection
Nickel
Nitrogen dioxide
Nitrogen oxide
Northshore Mining Company
National Pollutant Discharge Elimination System, authorized by the U.S. Clean Water Act
Natural Resource Damages
New York Stock Exchange
Oak Grove Resources, LLC
Other comprehensive income (loss)
Other postretirement benefits
Medical premium maximums
Proven and Probable
Projected benefit obligation
Pinnacle Mining Company, LLC
Pluton Resources
Pluton Resources Limited
Portman
Portman Limited (now known as Cliffs Asia Pacific Iron Ore Holdings Pty Ltd)
Reconciliation Act
Health Care and Education Reconciliation Act
Ring of Fire properties
Black Thor, Black Label and Big Daddy chromite deposits in Ontario, Canada
RTWG
S&P
SARs
SEC
Severstal
Rio Tinto Working Group
Standard & Poor's Rating Services, a division of Standard & Poor's Financial Services LLC, a subsidiary of The
McGraw-Hill Companies, Inc., and its successors
Stock Appreciation Rights
U.S. Securities and Exchange Commission
Severstal Dearborn, LLC
Silver Bay Power
Silver Bay Power Company
SIP
SMCRA
SO2
Sonoma
Spider
STRIPS
State Implementation Plan
Surface Mining Control and Reclamation Act
Sulfur dioxide
Sonoma Coal Project
Spider Resources Inc. (now known as Cliffs Chromite Far North Inc.)
Separate Trading of Registered Interest and Principal of Securities
2
Abbreviation or acronym
Term
Substitute Rating Agency
A "nationally recognized statistical rating organization" within the meaning of Section 3 (a)(62) of the Exchange
Act, selected by us (as certified by a certificate of officers confirming the decision of our Board of Directors) as
a replacement agency of Moody's or S&P, or both of them, as the case may be
Tilden
TMDL
TRIR
TSR
U/G
UMWA
Tilden Mining Company
Total Maximum Daily Load
Total Reportable Incident Rate
Total Shareholder Return
Underground
United Mineworkers of America
United Taconite
United Taconite LLC
UP 1994
U.S.
1994 Uninsured Pensioner Mortality Table
United States of America
U.S. Steel Canada
United States Steel Corporation
USW
Vale
VEBA
United Steelworkers
Companhia Vale do Rio Doce
Voluntary Employee Benefit Association trusts
VNQDC Plan
2005 Voluntary NonQualified Deferred Compensation Plan, as amended
VWAP
Wabush
Weirton
WISCO
Zamin
Volume Weighted Average Price
Wabush Mines Joint Venture
ArcelorMittal Weirton Inc.
Wugang Canada Resources Investment Limited, a subsidiary of Wuhan Iron and Steel (Group) Corporation
Zamin Ferrous Ltd
2012 Equity Plan
Cliffs Natural Resources Inc. 2012 Incentive Equity Plan
3
PART I
Item 1.
Business
Introduction
Cliffs Natural Resources Inc. traces its corporate history back to 1847. Today, we are an international mining and natural resources
company. A member of the S&P 500 Index, we are a major global iron ore producer and a significant producer of high- and low-volatile
metallurgical coal. Driven by the core values of safety, social, environmental and capital stewardship, our associates across the globe
endeavor to provide all stakeholders with operating and financial transparency. We are organized through a global commercial group
responsible for sales and delivery of our products and a global operations group responsible for the production of the minerals that
we market. Our operations are organized according to product category and geographic location: U.S. Iron Ore, Eastern Canadian
Iron Ore, Asia Pacific Iron Ore, North American Coal, Ferroalloys and our Global Exploration Group.
In the U.S., we currently operate five iron ore mines in Michigan and Minnesota, four metallurgical coal operations located in West
Virginia and Alabama, and one thermal coal mine located in West Virginia. We also operate two iron ore mines in Eastern Canada.
Our Asia Pacific operations consist solely of our Koolyanobbing iron ore mining complex in Western Australia. We also have other
non-producing operations and investments around the world that provide us with optionality to diversify and expand our portfolio of
assets in the future.
Industry Overview
The key driver of our business is global demand for steelmaking raw materials in both emerging and developed economies, with China
and the U.S. representing the two largest markets for our Company. In 2013, China produced approximately 779 million metric tons
of crude steel, or approximately 49 percent of total global crude steel production, whereas the U.S. produced approximately 87 million
metric tons of crude steel, or about 5 percent of total crude steel production. These figures represent an approximate 8 percent
increase and a 2 percent decrease, respectively, in crude steel production when compared to 2012.
Average global capacity utilization was about 78 percent in 2013, an approximate 2 percent increase from 2012; U.S. capacity utilization
was approximately 77 percent in 2013, or about a 2 percent increase over the 2012 rate. These figures indicate that broader activity
in the steel industry has increased year-over-year. Global crude steel production in 2013 grew about 4 percent compared to 2012,
supported by generally improved macroeconomic fundamentals and continued, albeit tame, recovery in developed markets, including
the U.S. and the Eurozone, as well as by the more rapid growth of emerging markets such as China. Broader growth in the U.S. was
driven by increased personal consumption expenditures, private investment and exports, which were partly offset by decreased federal
government spending and increased imports. Despite the U.S. experiencing a year-over-year decline in total crude steel production,
both the automobile and oil and gas industries served as sources of healthy demand for steel in 2013. In China, investment in
infrastructure remained the dominant driver of domestic steel demand and production, as its commodity-intensive growth continued.
The global price of iron ore is influenced significantly by Chinese demand and worldwide supply of iron ore. While the supply of iron
ore continues to increase, the increase in 2013’s average spot market prices reflected slowing but continued economic growth expansion
in China. The world market price that is utilized most commonly in our sales contracts is the Platts 62 percent Fe fines price. The
Platts 62 percent Fe fines spot price increased 10.0 percent to an average price of $135 per ton for the three months ended December
31, 2013 compared to the respective quarter of 2012. In comparison, the year-to-date Platts pricing has increased 3.9 percent to an
average price of $135 per metric ton during the full-year ended December 31, 2013. The spot price volatility impacts our realized
revenue rates, particularly in our Eastern Canadian Iron Ore and Asia Pacific Iron Ore business segments because their contracts
correlate heavily to world market spot pricing. However, the impact of this volatility on our U.S. Iron Ore revenues is muted and/or
deferred partially because the pricing in our long-term contracts mostly is structured to be based on 12-month averages, including
some contracts with established annual price collars. Additionally, contracts often are priced partially or completely on other indices
instead of world market spot prices.
The metallurgical coal market continues to be in an oversupplied position due to increased supply from Australian producers.
Additionally, low demand by European, Japanese and South American coking coal consumers has kept pricing low. Also, there has
been recent closure of coke capacity in the U.S. impacting domestic markets.
Consistent with the above, the quarterly benchmark price for premium low-volatile hard coking coal between Australian metallurgical
coal suppliers and Japanese/Korean consumers decreased to a full-year average of $159 per metric ton in 2013 from $210 per metric
ton in 2012. The decline in market pricing has impacted negatively realized revenue rates for our North American Coal business
segment.
In 2014, we expect economic growth in the U.S. to accelerate, in part due to continued improvement in building construction, motor
vehicle production, the labor market, and due to a further reduction in fiscal drag, ultimately supporting domestic steel production and
thus the demand for steelmaking raw materials. We expect China’s economy will continue to expand rapidly, primarily driven by fixed
asset investment while, correspondingly, increased Chinese domestic steel production will continue to require imported steelmaking
raw materials to satisfy demand. However, we do expect China’s GDP growth to slow from 2013 that, when coupled with increased
supply, environmental concerns and credit-tightening, could result in a weaker pricing environment for steelmaking raw materials.
Nevertheless, growth in both the U.S. and China should provide a continued source of demand for our products in 2014.
4
Strategy
Through a number of acquisitions executed over recent years, we have increased our portfolio of assets, enhancing our production
profile and project pipeline. In recent years, we have shifted from a merger and acquisition-based strategy to one that primarily focuses
on organic growth and productivity initiatives. We believe our ability to gain scale and diversify our geographic footprint will increase
our profitability, mitigate risk and ultimately enhance long-term shareholder value.
We believe our ability to execute our strategy is dependent on our financial position, balance sheet strength and financial flexibility to
manage through the inevitable volatility in commodity prices. Throughout 2013, we took a number of deliberate steps to improve our
financial position for the near and longer term. Looking ahead, we will continue to execute initiatives that improve our cost profile and
increase long-term profitability. The cash generated from our operations in excess of that used for sustaining and license-to-operate
capital spending and dividends will be evaluated and allocated towards initiatives that enhance shareholder value.
Recent Developments
Throughout 2013, there have been a number of changes to our Board of Directors and senior management team. Although three
members of our Board of Directors departed, we welcomed four new directors in 2013. Consistent with our ongoing commitment to
best practices in corporate governance, the Board separated the roles of chairman and chief executive officer and appointed an
independent director as Chairman of the Board in July 2013. Our former Chairman, President and Chief Executive Officer, Joseph
A. Carrabba, retired in November 2013, and the Board selected a new President and Chief Operating Officer, Gary B. Halverson. On
February 13, 2014, the Board promoted Mr. Halverson to Chief Executive Officer. Prior to joining Cliffs, Mr. Halverson served as the
interim chief operating officer for Barrick since September 2013 and also as its president – North America since December 2011.
Previously, he served as Barrick’s president – Australia Pacific from December 2008 until December 2011 and as its director of
operations – Australia Pacific from August 2006 to December 2008. James F. Kirsch assumed the role of Chairman of the Board in
July 2013, and later was appointed, on an interim basis, as an executive officer with the title "Chairman", effective January 1, 2014.
Also during the second half of 2013, three other executive officers left the Company. With the exception of the role filled by Mr.
Halverson, these respective positions were assumed by current executive officers.
On November 20, 2013, we indefinitely suspended our Chromite Project in Northern Ontario. Given the uncertain timeline and risks
associated with the development of necessary infrastructure to bring this project online, we do not expect to allocate any significant
additional capital to the project. Earlier in 2013, we suspended the environmental assessment activities because of pending issues
impeding the progress of the project. We will continue to work with the Government of Ontario, First Nation communities and other
interested parties to explore potential solutions related to the critical infrastructure issues for the Ring of Fire properties.
On February 11, 2014, we announced that we are exploring various strategic alternatives for our Bloom Lake mine. In the short term,
we will continue to operate Bloom Lake mine Phase I operations on a reduced tailings and water management capital plan. We will
continue to evaluate and will idle temporarily the operations if the pricing and operating costs justify such an alternative action. As a
result, the Phase II expansion project remains on hold. We additionally announced our plan to idle our Wabush mine in Newfoundland
and Labrador by the end of the first quarter of 2014. The idle is being driven by the unsustainable high cost structure, which results
in operations that are not economically viable to run over time.
Business Segments
Our Company’s primary operations are organized and managed according to product category and geographic location: U.S. Iron
Ore, Eastern Canadian Iron Ore, Asia Pacific Iron Ore, North American Coal, Ferroalloys and our Global Exploration Group. Ferroalloys
and our Global Exploration Group operating segments do not meet the criteria for reportable segments. Amapá, which was sold in
the fourth quarter of 2013, previously was reported through our Latin American Iron Ore operating segment, which did not meet the
criteria for a reportable segment. Additionally, Sonoma, which was sold in the fourth quarter of 2012, previously was reported through
our Asia Pacific Coal operating segment, which did not meet the criteria for a reportable segment.
The U.S. Iron Ore and North American Coal business segments are headquartered in Cleveland, Ohio. The Eastern Canadian Iron
Ore business segment has headquarters in Montreal, Quebec, Canada. Our Asia Pacific headquarters is located in Perth, Australia.
In addition, the Ferroalloys and Global Exploration Group operating segments currently are managed from our Cleveland, Ohio location.
Segment information reflects our strategic business units, which are organized to meet customer requirements and global competition.
We evaluate segment performance based on sales margin, which is defined as revenues less cost of goods sold and operating
expenses identifiable to each segment. This measure of operating performance is an effective measurement as we focus on reducing
production costs. Financial information about our segments, including financial information about geographic areas, is included in
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and NOTE 2 - SEGMENT REPORTING
included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
U.S. Iron Ore
We are a major global iron ore producer, primarily selling production from U.S. Iron Ore to integrated steel companies in the U.S. and
Canada. We manage and operate five iron ore mines located in Michigan and Minnesota. The U.S.-based mines currently have an
annual rated capacity of 32.9 million tons of iron ore pellet production, representing 59 percent of total U.S. pellet production capacity.
Based on our equity ownership in these mines, our share of the annual rated production capacity is currently 25.5 million tons,
representing 46 percent of total U.S. annual pellet capacity.
5
The following chart summarizes the estimated annual pellet production capacity and percentage of total U.S. pellet production capacity
for each of the respective iron ore producers as of December 31, 2013:
U.S. Iron Ore Pellet
Annual Rated Capacity Tonnage
Current Estimated Capacity
(Tons in Millions)1
Percent of Total
U.S. Capacity
All Cliffs’ managed mines
Other U.S. mines
U.S. Steel’s Minnesota ore operations
Minnesota Taconite
Keewatin Taconite
Total U.S. Steel
ArcelorMittal USA Minorca mine
Total other U.S. mines
Total U.S. mines
1 Tons are long tons (2,240 pounds)
32.9
14.3
5.4
19.7
2.8
22.5
55.4
59.4%
25.8
9.7
35.5
5.1
40.6
100.0%
Our U.S. iron ore production generally is sold pursuant to long-term supply agreements with various price adjustment provisions. For
the year ended December 31, 2013, we produced a total of 27.2 million tons of iron ore pellets, including 20.3 million tons for our
account and 6.9 million tons on behalf of steel company partners of the mines.
We produce various grades of iron ore pellets, including standard and fluxed, for use in our customers’ blast furnaces as part of the
steelmaking process. The variation in grades results from the specific chemical and metallurgical properties of the ores at each mine
and whether or not fluxstone is added in the process. Although the grade or grades of pellets currently delivered to each customer
are based on that customer’s preferences, which depend in part on the characteristics of the customer’s blast furnace operation, in
many cases our iron ore pellets can be used interchangeably. Industry demand for the various grades of iron ore pellets depends on
each customer’s preferences and changes from time to time. In the event that a given mine is operating at full capacity, the terms of
most of our pellet supply agreements allow some flexibility in providing our customers iron ore pellets from different mines.
Standard pellets require less processing, are generally the least costly pellets to produce and are called “standard” because no ground
fluxstone, such as limestone or dolomite, is added to the iron ore concentrate before turning the concentrate into pellets. In the case
of fluxed pellets, fluxstone is added to the concentrate, which produces pellets that can perform at higher productivity levels in the
customer’s specific blast furnace and will minimize the amount of fluxstone the customer may be required to add to the blast furnace.
Each of our U.S. Iron Ore mines is located near the Great Lakes. The majority of our iron ore pellets are transported via railroads to
loading ports for shipment via vessel to steelmakers in North America or into the international seaborne market via the St. Lawrence
Seaway.
Our U.S. Iron Ore sales are influenced by seasonal factors in the first quarter of the year as shipments and sales are restricted by the
Army Corp of Engineers due to closure of the Soo Locks and the Welland Canal on the Great Lakes. During the first quarter, we
continue to produce our products, but we cannot ship those products via lake vessel until the conditions on the Great Lakes are
navigable, which causes our first quarter inventory levels to rise. Our limited practice of shipping product to ports on the lower Great
Lakes or to customers’ facilities prior to the transfer of title has somewhat mitigated the seasonal effect on first quarter inventories
and sales, as shipment from this point to the customers’ operations is not limited by weather-related shipping constraints. At
December 31, 2013 and 2012, we had approximately 1.2 million and 1.3 million tons of pellets, respectively, in inventory at lower lakes
or customers’ facilities.
6
U.S. Iron Ore Customers
Our U.S. Iron Ore revenues primarily are derived from sales of iron ore pellets to the North American integrated steel industry, consisting
of five major customers. Generally, we have multi-year supply agreements with our customers. Sales volume under these agreements
largely is dependent on customer requirements, and in many cases, we are the sole supplier of iron ore to the customer. Historically,
each agreement has contained a base price that is adjusted annually using one or more adjustment factors. Factors that could result
in a price adjustment include international iron ore prices, measures of general industrial inflation and steel prices. Additionally, certain
of our supply agreements have a provision that limits the amount of price increase or decrease in any given year. In 2010, the world’s
largest iron ore producers moved away from the annual international benchmark pricing mechanism referenced in certain of our
customer supply agreements, resulting in a shift in the industry toward shorter-term pricing arrangements linked to the spot market.
These changes caused us to assess the impact a change to the historical annual pricing mechanism would have on certain of our
larger existing U.S. Iron Ore customer supply agreements and resulted in modifications to certain of these agreements for the 2011
contract year. We reached final pricing settlements, which determine the calculation for our customers' prices, with all of U.S. Iron
Ore customers by the end of the 2012 contract year.
During 2013, 2012 and 2011, we sold 21.3 million, 21.6 million and 24.2 million tons of iron ore pellets, respectively, from our share
of the production from our U.S. Iron Ore mines. The segment’s five largest customers together accounted for a total of 85 percent,
88 percent and 83 percent of U.S. Iron Ore product revenues for the years 2013, 2012 and 2011, respectively. Refer to Concentration
of Customers below for additional information regarding our major customers.
Eastern Canadian Iron Ore
Production from our two iron ore mines located in Eastern Canada primarily is sold into the seaborne market to Asian steel producers.
During the second quarter of 2013, due to high production costs and lower pellet premium pricing, we idled production at our Pointe
Noire iron ore pellet plant and transitioned to producing an iron ore concentrate product from our Wabush Scully Mine. As such, the
Canadian-based mines currently have an annual rated capacity of 12.8 million metric tons of iron ore concentrate production.
The following chart summarizes the estimated annual concentrate production capacity and percentage of total Eastern Canadian
concentrate production capacity for each of the respective iron ore producers as of December 31, 2013:
Eastern Canadian Iron Ore Concentrate
Annual Rated Capacity Tonnage
Current Estimated Capacity
(Metric Tons in Millions)
Percent of Total Eastern
Canadian Capacity
All Cliffs’ managed mines
Other Eastern Canadian mines
Iron Ore Company of Canada
ArcelorMittal Mines Canada
Other1
Total other Eastern Canadian mines
Total Eastern Canadian mines
1 Includes direct-shipped ore products
12.8
18.0
24.0
4.0
46.0
58.8
21.8%
30.6
40.8
6.8
78.2
100.0%
On February 11, 2014, we announced our plan to idle our Wabush mine in Newfoundland and Labrador by the end of the first quarter
of 2014, which will reduce our current estimated capacity to 7.2 million metric tons or 13.5 percent of the total Eastern Canadian
capacity.
We produce a concentrate product at our Bloom Lake operation and, starting in the second half of 2013 through the idle in the first
quarter of 2014, we are producing a concentrate product at our Wabush operation in Eastern Canada. The concentrate products are
marketed toward steel producers, predominately based in Asia, that have sintering capabilities at their steel-making operations. The
Bloom Lake concentrate is blended with other sinter fines and materials at high temperatures, creating a direct charge product used
in blast furnace operations.
“High manganese” pellets, both in standard and fluxed grades, were the pellets produced through June 2013 at our Wabush operation
in Eastern Canada, where there is more natural manganese in the crude ore than is found at our other operations. The manganese
contained in the iron ore mined at Wabush cannot be removed entirely during the concentrating process.
Our Eastern Canadian iron ore production is sold pursuant to a mix of short-term pricing arrangements that are linked to the spot
market. For the year ended December 31, 2013, we produced a total of 8.7 million metric tons of iron ore pellets and concentrate.
Both Eastern Canadian Iron Ore mines are located near the St. Lawrence Seaway. Our iron ore products are transported via railroads
to loading ports for shipment via vessel to steelmakers in North America or into the international seaborne market.
7
Eastern Canadian Iron Ore Customers
Our Eastern Canadian Iron Ore revenues are derived from sales of iron ore concentrate and pellets to customers in Asia, Europe and
North America. Due to the idled production of the Pointe Noire pellet plant in June 2013, sales will be derived from iron ore concentrate
once all stockpiles of remaining pellets are sold. Sales volume under the agreements is dependent on customer requirements. We
have various customers for iron ore concentrate and pellets, of which our partner in the Bloom Lake mine is considered a major
customer for iron ore concentrate. ArcelorMittal is a customer of our Eastern Canadian Iron Ore operations and is an individually
significant customer for Cliffs, but is not a material customer for the segment. Pricing for our Eastern Canadian Iron Ore customers
consists primarily of short-term pricing arrangements that are linked to the spot market.
During 2013, 2012 and 2011, we sold 8.6 million, 8.9 million and 7.4 million metric tons of iron ore pellets and concentrate, respectively,
from our Eastern Canadian Iron Ore mines, with the segment’s five largest customers together accounting for a total of 70 percent,
62 percent and 59 percent of Eastern Canadian Iron Ore product revenues, respectively. Refer to Concentration of Customers below
for additional information regarding our major customers.
Asia Pacific Iron Ore
Our Asia Pacific Iron Ore operations are located in Western Australia and, as of December 31, 2013, consist solely of our wholly
owned Koolyanobbing complex. Our 50 percent equity interest in Cockatoo Island also was included in these operations through
September 2012, at which time we sold our interest.
The Koolyanobbing operations serve the Asian iron ore markets with direct-shipped fines and lump ore. The lump products are fed
directly to blast furnaces, while the fines products are used as sinter feed. The variation in the two export product grades reflects the
inherent chemical and physical characteristics of the ore bodies mined as well as the supply requirements of our customers. In
September 2010, our Board of Directors approved a capital project at our Koolyanobbing operation, which was completed in the
second quarter of 2012, and increased production capacity at Koolyanobbing to approximately 11.0 million metric tons annually.
Production in 2013 was 11.1 million metric tons, compared with 10.7 million metric tons in 2012 and 8.2 million metric tons in 2011.
Koolyanobbing is a collective term for the operating deposits at Koolyanobbing, Mount Jackson and Windarling. There are
approximately 70 miles separating the three mining areas. Banded iron formations host the mineralization, which is predominately
hematite and goethite. Each deposit is characterized with different chemical and physical attributes and, in order to achieve customer
product quality, ore in varying quantities from each deposit must be blended together.
Crushing and blending are undertaken at Koolyanobbing, where the crushing and screening plant is located. Once the blended ore
has been crushed and screened into a direct lump and fines shipping product, it is transported by rail approximately 360 miles south
to the Port of Esperance, via Kalgoorlie, for shipment to our customers in Asia.
Cockatoo Island is located off the Kimberley coast of Western Australia, approximately 1,200 miles north of Perth and is only accessible
by sea and air. Cockatoo Island produced a single high-grade iron ore product known as Cockatoo Island Premium Fines, which was
almost pure hematite and contained very few contaminants. Ore was mined below the sea level on the southern edge of the island,
which was facilitated by a sea wall. Ore was crushed and screened on-site to the final product sizing and the premium fines product
was loaded directly to the vessels berthed at the island. Our production at Cockatoo Island continued until the completion of Stage
3 mining in September 2012. Our portion of Cockatoo's annual production of iron ore premium fines totaled 0.6 million metric tons
and 0.7 million metric tons in 2012 and 2011, respectively. We had no production at Cockatoo Island in 2013 due to the sale of our
interest in Cockatoo Island during the third quarter of 2012, as discussed below.
On July 31, 2012, we entered into a definitive asset sale agreement with our joint venture partner, HWE Cockatoo Pty Ltd., to sell our
beneficial interest in the mining tenements and certain infrastructure of Cockatoo Island to Pluton Resources, which agreement was
amended on August 31, 2012. On September 7, 2012, the closing date, Pluton Resources paid a nominal sum of AUD $4.00 and
assumed ownership of the assets and responsibility for the environmental rehabilitation obligations and other assumed liabilities not
inherently attached to the tenements acquired. The rehabilitation obligations and assumed liabilities that inherently are attached to
the tenements were transferred to Pluton Resources upon registration by the Department of Mining and Petroleum denoting Pluton
Resources as the tenement holder. Upon final settlement of the sale, which was completed during the second quarter of 2013, we
extinguished approximately $18.6 million related to the estimated cost of the rehabilitation. As of December 31, 2013, we have no
remaining rehabilitation obligations related to Cockatoo Island.
Asia Pacific Iron Ore Customers
Asia Pacific Iron Ore’s production is under contract with steel companies primarily in China and Japan. Generally, we have three-year
term supply agreements with steel producers in China and two-year supply agreements in Japan. Pricing for our Asia Pacific Iron
Ore customers consists of shorter-term pricing mechanisms of various durations up to one month based on the average of daily spot
prices, that are generally associated with either the time of loading or unloading each shipment. The existing contracts are due to
expire at various dates until March 2015 for our Chinese and Japanese customers.
During 2013, 2012 and 2011, we sold 11.0 million, 11.7 million and 8.6 million metric tons of iron ore, respectively, from our Western
Australia mines. No Asia Pacific Iron Ore customer comprised more than 10 percent of Cliffs consolidated sales in 2013, 2012 or
2011. Asia Pacific Iron Ore’s five largest customers accounted for approximately 42 percent of the segment’s sales in 2013, 44 percent
in 2012 and 50 percent in 2011.
8
North American Coal
We own and operate four metallurgical coal operations located in West Virginia and Alabama and one thermal coal mine located in
West Virginia that currently have a rated capacity of 9.4 million tons of production annually. In 2013, we sold a total of 7.3 million tons,
compared with 6.5 million tons in 2012 and 4.2 million tons in 2011.
Metallurgical coal generally is sold at a premium over the more prevalently mined thermal coal, which generally is utilized to generate
electricity. Metallurgical coal receives this premium because of its coking characteristics, which include contraction and expansion
when heated, and volatility, which refers to the loss in mass when coal is heated in the absence of air. Coals with lower volatility are
valued more highly than coals with a higher volatility.
Each of our North American coal mines are positioned near rail or barge lines providing access to international shipping ports, which
allows for export of our coal production.
North American Coal Customers
North American Coal’s metallurgical coal production is sold to global integrated steel and coke producers in Europe, North America,
China, India and South America and its thermal coal production is sold to energy companies and distributors in North America and
Europe. Approximately 70 percent of our 2013 and 2012 production was committed under contracts of at least one year. Approximately
50 percent of our projected 2014 production has been committed and priced. North American contract negotiations are largely
completed, and international contract negotiations recently have begun. The remaining tonnage primarily is pending price negotiations
with our international customers, which typically is dependent on settlements of Australian pricing for metallurgical coal. International
customer contracts typically are negotiated on a fiscal year basis extending from April 1 through March 31, whereas customer contracts
in North America typically are negotiated on a calendar year basis extending from January 1 through December 31.
International and North American sales represented 61 percent and 39 percent, respectively, of our North American Coal sales in
2013. This compares with 66 percent and 34 percent, respectively, in 2012 and 54 percent and 46 percent, respectively, in 2011. The
segment’s five largest customers together accounted for a total of 57 percent, 50 percent and 58 percent of North American Coal
product revenues for the years 2013, 2012 and 2011, respectively. Refer to Concentration of Customers below for additional information
regarding our major customers.
Investments
Amapá
On December 27, 2012, our Board of Directors authorized the sale of our 30 percent interest in Amapá. Per this original agreement,
together with Anglo, we were to sell our respective interest in a 100 percent sale transaction to Zamin.
On March 28, 2013, an unknown event caused the Santana port shiploader to collapse into the Amazon River, preventing further ship
loading by the mine operator, Anglo. In light of the March 28, 2013 collapse of the Santana port shiploader and subsequent evaluation
of the effect that this event had on the carrying value of our investment in Amapá as of June 30, 2013, we recorded an impairment
charge of $67.6 million in the second quarter of 2013.
On August 28, 2013, we entered into additional agreements to sell our 30 percent interest in Amapá to Anglo for nominal cash
consideration, plus the right to certain contingent deferred consideration upon the two-year anniversary of the closing. The closing
was conditional on obtaining certain regulatory approvals and the additional agreement provided Anglo with an option to request that
we transfer our interest in Amapá directly to Zamin. Anglo exercised this option and the transfer to Zamin closed in the fourth quarter
of 2013. Our interest in Amapá previously was reported as our Latin American iron ore operating segment.
Sonoma
On July 10, 2012, we entered into a definitive share and asset sale agreement to sell our 45 percent economic interest in the Sonoma
joint venture coal mine located in Queensland, Australia. Upon completion of the transaction on November 12, 2012, we collected
approximately AUD $141.0 million in net cash proceeds. The assets sold included our interests in the Sonoma mine along with our
ownership of the affiliated wash plant, which were previously reported as our Asia Pacific Coal operating segment. Production and
sales totaled approximately 2.8 million and 2.9 million metric tons of coal, respectively, through the same completion date. This
compares with production and sales of approximately 3.5 million and 3.1 million metric tons in 2011, respectively.
Applied Technology, Research and Development
We have been a leader in iron ore mining and process technology for more than 160 years. We operated some of the first mines on
Michigan’s Marquette Iron Range and pioneered early open-pit and underground mining methods. From the first application of electrical
power in Michigan’s underground mines to the use of today’s sophisticated computers and global positioning satellite systems, we
have been a leader in the application of new technology to the centuries-old business of mineral extraction. Today, our engineering
and technical staffs are engaged in full-time technical support of our operations and improvement of existing products.
We continue to leverage our advanced technical expertise to develop and execute projects that concentrate and process low grade
ores into high-quality products for international markets. With state-of-the-art equipment and experienced technical professionals,
we remain on the forefront of mining technology. We have an unsurpassed reputation for our pelletizing technology, delivering a world-
9
class quality product to a broad range of sophisticated end users. We are a pioneer in the development of emerging reduction
technologies, a leader in the extraction of value from challenging resources and a frontrunner in the implementation of safe and
sustainable technology. Our technical experts are dedicated to excellence and deliver superior technical solutions tailored to our
expanding global customer base.
Exploration
We have several projects and potential opportunities to diversify our products, expand our production volumes and develop large-
scale ore bodies through early involvement in exploration activities. We achieve this by partnering with junior mining companies,
which provide us low-cost entry points for potentially significant reserve additions. Our global exploration group is led by professional
geologists who have the knowledge and experience to identify new projects for future development or projects that add significant
value to existing operations. We spent approximately $10.8 million, $73.3 million and $48.4 million on exploration activities in 2013,
2012, and 2011, respectively. In alignment with our capital allocation strategy, we anticipate significantly decreased levels of exploration
spending in 2014.
Concentration of Customers
We had one customer, ArcelorMittal, that individually accounted for more than 10 percent of our consolidated product revenue in each
period during 2013, 2012 and 2011. Product revenue from ArcelorMittal represented approximately $1.0 billion, $0.9 billion, and $1.4
billion of our total consolidated product revenue in 2013, 2012 and 2011, respectively, and is attributable to our U.S. Iron Ore, Eastern
Canadian Iron Ore and North American Coal business segments. The following represents sales revenue from ArcelorMittal as a
percentage of our total consolidated product revenue, as well as the portion of product sales for U.S. Iron Ore, Eastern Canadian Iron
Ore and North American Coal that is attributable to ArcelorMittal in 2013, 2012 and 2011, respectively:
Customer2
ArcelorMittal
Percentage of Total
Product Revenue1
2013
2012
2011
19 %
17 %
21 %
1 Excluding freight and venture partners’ cost reimbursements.
2 Includes subsidiaries.
Customer2
ArcelorMittal
Percentage of
U.S. Iron Ore
Product Revenue1
Percentage of
Eastern Canadian
Iron Ore Product
Revenue1
Percentage of
North American
Coal Product
Revenue1
2013
2012
2011
2013
2012
2011
2013
2012
2011
36 %
32 %
38 %
10 %
9 %
10 %
7%
5%
7%
1 Excluding freight and venture partners’ cost reimbursements.
2 Includes subsidiaries.
On April 8, 2011, we entered into an Omnibus Agreement with ArcelorMittal USA in order to settle pending arbitrations. The Omnibus
Agreement, among other things, amends the Pellet Sale and Purchase Agreement dated December 31, 2002 (the “Supply Agreement”)
covering the Indiana Harbor East facility. Under the terms of the settlement, the parties established specific pricing levels for 2009
and 2010 pellet sales and revised the pricing calculation for the remainder of the term of the Supply Agreement. It was also agreed
that a world market-based pricing mechanism would be used beginning in 2011 and through the remainder of the contract term covering
the Supply Agreement. As a result of this new pricing, both parties agreed to forego future price re-openers.
Our pellet supply agreements with ArcelorMittal USA are the basis for supplying pellets to ArcelorMittal USA, which is based on
customer requirements, except for the Indiana Harbor East facility, which is based on customer excess requirements. As discussed
above, the Omnibus Agreement amended the Supply Agreement covering the Indiana Harbor East facility in April 2011. The following
table outlines the expiration dates for each of the respective agreements:
Facility
Cleveland Works and Indiana Harbor West facilities
Indiana Harbor East facility
Agreement
Expiration
2016
2015
We also have an agreement with ArcelorMittal's Weirton facility, expiring in 2018; however, it is a non-operational facility.
10
ArcelorMittal USA is a 62.3 percent equity participant in Hibbing and a 21.0 percent equity partner in Empire with limited rights and
obligations.
In 2013, 2012 and 2011, our U.S. Iron Ore pellet sales to ArcelorMittal were 9.5 million, 8.6 million and 8.7 million tons, respectively,
and our Eastern Canadian Iron Ore pellet and concentrate sales to ArcelorMittal were 0.9 million, 0.7 million and 0.7 million metric
tons, respectively.
Our current North American Coal supply agreements with ArcelorMittal run through December 31, 2014 and are based on an annual
tonnage commitment for the 12-month fiscal period. Contracts are renewed annually and priced on a quarterly basis, with pricing
generally in line with Australian pricing for metallurgical coal. In 2013, 2012 and 2011, our North American Coal sales to ArcelorMittal
were 0.5 million, 0.3 million and 0.2 million tons, respectively.
Competition
Throughout the world, we compete with major and junior mining companies, as well as metals companies, both of which produce
steelmaking raw materials, including iron ore and metallurgical coal.
North America
In our U.S. Iron Ore business segment, we primarily sell our product to steel producers with operations in North America. In our
Eastern Canadian Iron Ore business segment, we primarily provide our product to the seaborne market for Asian steel producers.
We compete directly with steel companies that own interests in iron ore mines, including ArcelorMittal and U.S. Steel, and with major
iron ore exporters from Australia and Brazil.
In the coal industry, our North American Coal business segment competes with many metallurgical coal producers of various sizes,
including Alpha Natural Resources, Inc., Patriot Coal Corporation, CONSOL Energy Inc., Arch Coal, Inc., Walter Energy, Inc., Peabody
Energy Corp. and other producers located in North America and globally.
A number of factors beyond our control affect the markets in which we sell our iron ore and coal. Continued demand for our iron ore
and metallurgical coal and the prices obtained by us primarily depend on the consumption patterns of the steel industry in China, the
U.S. and elsewhere around the world, as well as the availability, location, cost of transportation and competing prices. Coal consumption
patterns primarily are affected by demand, environmental and other governmental regulations and technological developments. The
most important factors on which we compete are delivered price, coal quality characteristics such as heat value, sulfur, ash, volatile
matter and moisture content and reliability of supply. Metallurgical coal, which primarily is used to make coke, a key component in
the steelmaking process, generally sells at a premium over thermal coal due to its higher quality and value in the steelmaking process.
Asia Pacific
In our Asia Pacific Iron Ore business segment, we export iron ore products to the Asia Pacific markets, including China, Japan and
Taiwan. In the Asia Pacific marketplace, we compete with major iron ore exporters from Australia, Brazil, South Africa and India.
These include Anglo, BHP Billiton, Fortescue Metals Group Ltd., Rio Tinto plc and Vale, among others.
Competition in steelmaking raw materials is predicated upon the usual competitive factors of price, availability of supply, product
quality and performance, service and transportation cost to the consumer of the raw materials.
Environment
Our mining and exploration activities are subject to various laws and regulations governing the protection of the environment. We
conduct our operations in a manner that is protective of public health and the environment and believe our operations are in compliance
with applicable laws and regulations in all material respects.
Environmental issues and their management continued to be an important focus at each of our operations throughout 2013. In the
construction of our facilities and in their operation, substantial costs have been incurred and will continue to be incurred to avoid undue
effect on the environment. Our capital expenditures relating to environmental matters totaled approximately $32 million, $31 million
and $36 million, in 2013, 2012 and 2011, respectively. It is estimated that capital expenditures for environmental improvements will
total approximately $42 million in 2014. Estimated expenditures in 2014 are comprised of approximately $25 million for projects at
our Eastern Canadian Iron Ore operations, $13 million for projects in our U.S. Iron Ore operations and $4 million in our North American
Coal operations for various water treatment, air quality, (dust) control, selenium management, tailings management and other
miscellaneous environmental projects.
Regulatory Developments
Various governmental bodies continually are promulgating new or amended laws and regulations that affect our Company, our
customers and our suppliers in many areas, including waste discharge and disposal, the classification of materials and products, air
and water discharges and many other environmental, health and safety matters. Although we believe that our environmental policies
and practices are sound and do not expect that the application of any current laws or regulations reasonably would be expected to
result in a material adverse effect on our business or financial condition, we cannot predict the collective adverse impact of the
expanding body of laws and regulations.
11
Specifically, there are several notable proposed or potential rulemakings or activities that could potentially have a material adverse
impact on our facilities in the future depending on their ultimate outcome: Climate Change and GHG Regulation, Regional Haze, NO2
and SO2 National Ambient Air Quality Standards, Cross State Air Pollution Rule, increased administrative and legislative initiatives
related to coal mining activities, Mercury TMDL and Minnesota Taconite Mercury Reduction Strategy, and Selenium Discharge
Regulation.
Climate Change and GHG Regulation
With the complexities and uncertainties associated with the U.S. and global navigation of the climate change issue as a whole, one
of our significant risks for the future is mandatory carbon legislation. Policymakers are in the design process of carbon regulation at
the state, regional, national and international levels. The current regulatory patchwork of carbon compliance schemes presents a
challenge for multi-facility entities to identify their near-term risks. Amplifying the uncertainty, the dynamic forward outlook for carbon
regulation presents a challenge to large industrial companies to assess the long-term net impacts of carbon compliance costs on their
operations. Our exposure on this issue includes both the direct and indirect financial risks associated with the regulation of GHG
emissions, as well as potential physical risks associated with climate change. We are continuing to review the physical risks related
to climate change utilizing a formal risk management process.
Internationally, mechanisms to reduce emissions are being implemented in various countries, with differing designs and stringency,
according to resources, economic structure and politics. We expect that momentum to extend carbon regulation following the expiration
in 2012 of the first commitment period under the Kyoto Protocol will continue. Australia and Canada are signatories to the Kyoto
Protocol. As such, our facilities in each of these countries are impacted by the Kyoto Protocol, but in varying degrees according to
the mechanisms each country establishes for compliance and each country’s commitment to reducing emissions. Australia and
Canada are considered Annex 1 countries, meaning that they are obligated to reduce their emissions under the Protocol. The impact
of the Kyoto Protocol on our Canadian operations recently has been brought into question by the December 2011 announcement by
the Canadian Environment Minister that Canada would withdraw from the Kyoto Protocol and, furthermore, that Canada would repeal
its Kyoto Protocol Implementation Act.
In Australia, legislation for a carbon tax took effect in July 2012. The direct impact of the carbon tax on our Asia Pacific operations
primarily occurs through increased fuel costs. The tax is estimated to result in an increase in direct costs of approximately A$3.5
million per year. However, recent developments are likely to lead to changes to the carbon legislation. In September 2013, a new
government was elected and announced its intention to repeal the carbon legislation. Hence it remains uncertain whether repeal
legislation will be passed.
On December 15, 2011, Quebec issued final GHG cap-and-trade regulation based on the Western Climate Initiative guidelines that
became effective January 1, 2013. Phase 1 of the Quebec GHG emission reduction objective is to reduce GHG emissions by 20
percent below 1990 levels by 2020. The mining and utility sectors, among others, are sectors included in the cap-and-trade program.
The Quebec framework has provisions for “free” allocations for our sector, which will minimize the impact to our business. According
to Phase 1 of the GHG cap-and-trade program, the estimated direct impact to our Eastern Canadian Iron Ore operations begins at
$1 million per year in 2015 and escalates to an estimated $3 million per year in 2020. Additional indirect “pass-through” financial
impacts related to energy rates and transportation fuel consumption are estimated to increase our exposure; however, the overall
impact is not anticipated to have a material impact on our business.
In the U.S., federal carbon regulation potentially presents a significantly greater impact to our operations. To date, the U.S. has not
legislated carbon constraints. In the absence of comprehensive federal carbon legislation, numerous state and regional regulatory
initiatives are under development or are becoming effective, thereby creating a disjointed approach to carbon control. On June 25,
2013, President Obama issued a memorandum directing the EPA to develop carbon emission standards for both new and existing
power plants under the Clean Air Act's New Source Performance Standards (NSPS). On January 8, 2014, the EPA proposed NSPS
regulating carbon dioxide emissions from new fossil fuel-fired power plants and the EPA is expected to propose standards for modified
power plants and for existing plants under the Clean Air Act by June 1, 2014 in separate actions.
As an energy-intensive business, our GHG emissions inventory captures a broad range of emissions sources, such as iron ore furnaces
and kilns, coal thermal driers, diesel mining equipment and a wholly owned power generation plant, among others. As such, our most
significant regulatory risks are: (1) the costs associated with on-site emissions levels, and (2) the costs passed through to us from
power generators and distillate fuel suppliers.
We believe our exposure can be reduced substantially by numerous factors, including currently contemplated regulatory flexibility
mechanisms, such as allowance allocations, fixed process emissions exemptions, offsets and international provisions; emissions
reduction opportunities, including energy efficiency, biofuels, fuel flexibility, emerging shale gas, and coal mine methane offset reduction;
and business opportunities associated with new products and technology.
We have worked proactively to develop a comprehensive, enterprise-wide GHG management strategy aimed at considering all
significant aspects associated with GHG initiatives to plan effectively for and manage climate change issues, including risks and
opportunities as they relate to the environment, stakeholders, including shareholders and the public, legislative and regulatory
developments, operations, products and markets.
12
Regional Haze
In June 2005, the EPA finalized amendments to its regional haze rules. The rules require states establish goals and emission reduction
strategies for improving visibility in all Class I national parks and wilderness areas. Among the states with Class I areas are Michigan,
Minnesota, Alabama and West Virginia in which we currently own and manage mining operations. The first phase of the regional
haze rule (2008-2018) requires analysis and installation of BART on eligible emission sources and incorporation of BART and associated
emission limits into SIPs.
Minnesota submitted a regional haze SIP to the EPA on December 30, 2009, and a supplement to the SIP on May 8, 2012. Michigan
submitted its regional haze SIP to the EPA on November 5, 2010. During the second quarter of 2012, the EPA also sent information
requests to all taconite facilities requesting information on SO2 and NOx emissions and control technology assessments. On June
12, 2012, the EPA approved revisions to the Minnesota SIP addressing regional haze, but also announced it was deferring action on
emission limitations that Minnesota intended to represent BART for taconite facilities. On August 15, 2012, the EPA proposed to deny
the Michigan and Minnesota taconite SIP BART determinations and simultaneously proposed a separate FIP for taconite facilities.
During the comment period for the proposed FIP rule, the taconite industry and other stakeholders developed detailed comments and
shared information to address furnace specific case-by-case circumstances. On January 15, 2013, the EPA signed the final FIP for
taconite facilities. The final FIP reflects progress toward a more technically and economically feasible regional haze implementation
plan and eliminates the need for investing in additional SO2 emission control equipment. However, we remain concerned about the
technical and economic feasibility of EPA's BART determination for NOx emissions and are conducting detailed engineering analysis
to determine the impact of the regulations on each unique iron ore indurating furnace affected by this rule. The results of this analysis
will guide further dialogue with the EPA regarding our implementation of the regional haze FIP requirements.
NO2 and SO2 National Ambient Air Quality Standards
During the first half of 2010, the EPA promulgated rules that require states to use a combination of air quality monitoring and computer
modeling to determine areas of each state that are in attainment with new NO2 and SO2 standards (attainment areas) and those areas
that are not in attainment with such standards (nonattainment areas). During the third quarter of 2011, the EPA issued guidance to
the regulated community on conducting refined air quality dispersion modeling and implementing the new NO2 and SO2 standards.
The NO2 and SO2 standards have been challenged by various large industry groups. Accordingly, at this time, we are unable to predict
the final impact of these standards. During June 2011, our Minnesota iron ore mining operations received a request from the MPCA
to develop modeling and compliance plans and timelines by which each facility would demonstrate compliance with present and
proposed NAAQS as well as regional haze requirements outlined in the SIP. Compliance must be achieved by June 30, 2017 according
to the initial state orders, although the EPA has indicated that the SO2 attainment designation timelines have been extended out to
2020. We continue to assess options by which to achieve compliance and seek alignment between the state and federal expectations.
Cross State Air Pollution Rule
On July 6, 2011, the EPA promulgated the CSAPR, which was intended to be an emissions trading rule for SO2 and NOx. Northshore's
Silver Bay Power Plant would have been subject to this rule, however Minnesota elected to follow EPA guidance allowing CSAPR to
stand as BART. CSAPR was vacated by the D.C. Circuit Court during the third quarter of 2012. Although the CSAPR requirements
were vacated, this would likely result in Silver Bay Power Plant Unit 2 again being subject to a site-specific BART determination under
the regional haze rule that, in 2008, included application of control equipment to reduce SO2 and NOx. Minnesota has yet to re-
evaluate BART determinations for Minnesota facilities that would have been subject to CSAPR, but emission reductions of some form
are likely. We presently are re-evaluating compliance options in light of this rule change.
Increased Administrative and Legislative Initiatives Related to Coal Mining Activities
Although the focus of significantly increased government activity related to coal mining in the U.S. is generally targeted at eliminating
or minimizing the adverse environmental impacts of mountaintop coal mining practices, these initiatives have the potential to impact
all types of coal operations, including subsurface longwall mining typically deployed for recovering metallurgical coal. Specifically, the
coordinated efforts by various federal agencies to further regulate mountaintop mining have slowed issuance of the permits required
by many mining projects in Appalachia. Due to the developing nature of these initiatives and their potential to disrupt even routine
mining and water permit practices in the coal industry, we are unable to predict whether these initiatives could have a material effect
on our coal operations in the future. We are working closely with our trade associations to monitor the various rulemaking developments
in an effort to enable us to develop viable strategies to minimize the financial impact to the business.
Mercury TMDL and Minnesota Taconite Mercury Reduction Strategy
TMDL regulations are contained in the Clean Water Act. As a part of Minnesota's Mercury TMDL Implementation Plan, in cooperation
with the MPCA, the taconite industry developed a Taconite Mercury Reduction Strategy and signed a voluntary agreement to effectuate
its terms. The strategy includes a 75 percent target reduction of mercury air emissions from Minnesota pellet plants collectively by
2025. It recognizes that mercury emission control technology currently does not exist and will be pursued through a research effort.
Any developed technology must be economically feasible, must not impact pellet quality, and must not cause excessive corrosion in
pellet furnaces, associated duct work and existing wet scrubbers on the furnaces.
According to the voluntary agreement, the mines proceeded with medium- and long-term testing of possible technologies. Initial
testing will be completed on one straight-grate and one grate-kiln furnace among the mines. If technically and economically feasible,
developed mercury emission control technology must then be installed on taconite furnaces by 2025. For Cliffs, the requirements in
13
the voluntary agreement will apply to the United Taconite and Hibbing facilities. At this time, we are unable to predict the potential
impacts of the Taconite Mercury Reduction Strategy. However, a number of research projects were conducted between 2011 and
2013 as the industry continues to assess options for reduction. While injection of powdered activated carbon into furnace off-gasses
for mercury capture in the wet scrubbers showed positive initial results, further testing during 2013 yielded lower overall potential.
Alternate technologies are presently being assessed for potential further pilot testing.
Late in 2013, Minnesota also published a draft mercury control rule for the state that would require annual mercury emissions reporting
and could require installation of mercury emission control equipment on all Cliffs’ Minnesota facilities. Installation of emission control
equipment may be required on Northshore’s Silver Bay Power Plant by January 1, 2018 to achieve a 70% reduction of mercury
emissions. The rule as proposed would formalize elements of the aforementioned voluntary agreement.
Selenium Discharge Regulation
Our North American Coal operations have numerous NPDES permits with either selenium discharge limits, selenium compliance
schedules with effective dates in the future, or draft permits with selenium limits. We have achieved, or have projects underway that
will achieve compliance at all discharges. As such, we do not believe this issue will likely have a material impact to our North American
Coal operations.
In Michigan, the MDEQ issued renewed NPDES permits for our Empire mine in December 2011 and for our Tilden mine in 2012. Our
Michigan operations at Empire and Tilden are developing compliance strategies to meet new selenium process water limits according
to the permit conditions. Empire and Tilden submitted the Selenium Storm Water Management Plan to the MDEQ in December 2011.
The Selenium Storm Water Management Plan outlines the activities that will be undertaken to address selenium in storm water
discharges from our Michigan operations. The activities include the evaluation of structural controls, non-structural controls, site
specific standards, and evaluation of potential impacts to groundwater. Preliminary selenium treatability results from studies in 2013
were positive for the utilization of passive treatment systems. A pilot treatment system was installed during the third quarter of 2012
with good initial results, but evaluation work continues with the installation of an additional system in 2013. An initial estimate for full
scale implementation of storm water treatment systems and structural selenium controls at both facilities is approximately $63 million.
The results from the evaluation of existing pilot and demonstration scale work will determine if these structural controls are utilized,
or if alternatives must be applied.
Tilden's NPDES permit renewal became effective on November 1, 2012. The permit contains a compliance schedule for selenium
with a limit of five µg/l that will be effective as of November 1, 2017 at Tilden's Gribben Tailings Basin outfall. Preliminary engineering
for end-of-pipe solutions indicates capital costs could range from $96 million to $146 million with annual operating and maintenance
costs ranging from $2 million to $30 million. Tilden has initiated a prudent and feasible alternatives analysis to further define solutions
and cost estimates with the requirement of completing pilot testing by May 1, 2015.
Other Developments
Clean Water Act Section 404
In the U.S., Section 404 of the Clean Water Act requires permits from the U.S. Army Corps of Engineers to construct mines and
associated projects, such as freshwater impoundments, tailings impoundments and refuse disposal fills, in areas that affect jurisdictional
waters. Any coal mining activity requiring both a Section 404 permit and a SMCRA permit in the Appalachian region currently undergoes
an enhanced review from the U.S. Army Corps of Engineers, the EPA and the Office of Surface Mining. With the acquisition of the
CLCC properties during the third quarter of 2010, we obtained a development surface coal mine project, the Toney Fork No. 3, which
is subject to the enhanced review process adopted by federal agencies in 2009 for Section 404 permitting. There currently are two
proposed valley fills in the Toney Fork No. 3 plan; therefore, an extensive review process can be expected. We expect on-going
negotiations with the EPA will conclude with the issuance of the required Section 404 permit well before construction of the mine is
scheduled. The other development surface mine project acquired through the acquisition of CLCC, Toney Fork West, does not require
Section 404 permitting. The renewal date for the existing Toney Fork No. 2 permit is May 28, 2015.
For additional information on our environmental matters, refer to Item 3. Legal Proceedings and NOTE 12 - ENVIRONMENTAL AND
MINE CLOSURE OBLIGATIONS in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
Energy
Electricity
The state of Michigan is a deregulated electricity state, which affords our mines the ability to purchase electrical energy supply from
various suppliers while continuing to purchase distribution service from the incumbent utility. As of September 1, 2013, our Tilden
and Empire mines in Michigan exercised the right to purchase electrical supply from Integrys Energy Services while continuing to
purchase distribution service from Wisconsin Electric Power Company. The pricing of electricity in the deregulated market is based
on the Midwestern Independent System Operator Day-Ahead price.
Electric power for the Hibbing and United Taconite mines is supplied by Minnesota Power. On September 16, 2008, the mines finalized
agreements with terms from November 1, 2008 through December 31, 2015. The agreements were approved by the MPUC in 2009.
14
Silver Bay Power Company, a wholly owned subsidiary of ours, with a 115 megawatt power plant, provides the majority of Northshore’s
electrical energy requirements. Silver Bay Power has an interconnection agreement with Minnesota Power for backup power when
excess generation is necessary.
Wabush has a 20-year agreement with Newfoundland Power, which continues until December 31, 2014. This agreement allows for
an exchange of water rights in return for the power needs for Wabush’s mining operations. The Wabush pelletizing operation and the
Bloom Lake operation in Quebec are served by Quebec Hydro, which provides power under non-negotiated rates that are set on an
annual basis.
The Oak Grove mine and Concord Preparation Plant are supplied electrical power by Alabama Power under a five-year contract that
continues in effect until terminated by either party providing written notice to the other in accordance with applicable rules, regulations
and rate schedules. Rates of the contract are subject to change during the term of the contract as regulated by the Alabama Public
Services Commission.
Electrical power to the Pinnacle Complex and CLCC is supplied by the Appalachian Power Company under two regulated electrical
supply contracts. Both contracts specify the applicable rate schedule, minimum monthly charge and power capacity furnished. Rates,
terms and conditions of the contracts are subject to the approval of the Public Service Commission of West Virginia.
Koolyanobbing and its associated satellite mines draw power from independent diesel-fueled power stations and generators. Diesel
power generation capacity has been installed at the Koolyanobbing operations.
Process Fuel
We have a long-term contract providing for the transport of natural gas on the Northern Natural Gas Pipeline for our U.S. Iron Ore
operations. Our Pinnacle and Oak Grove coal operations also use natural gas, but purchase it through their local regulated utility,
Mountaineer Gas and Alabama Gas Co., respectively. At U.S. Iron Ore, the Empire and Tilden mines have the capability of burning
natural gas, coal or, to a lesser extent, oil. The Hibbing and Northshore mines have the capability to burn natural gas and oil. The
United Taconite mine has the ability to burn coal, natural gas and petroleum coke. Although all of the U.S. Iron Ore mines have the
capability of burning natural gas, the pelletizing operations for the U.S. Iron Ore mines utilize alternate fuels where practical. At Eastern
Canadian Iron Ore, the Wabush mine has the capability to burn bunker fuel, stove and furnace oils and coke breeze and the Bloom
Lake mine has the ability to burn stove and furnace oils. Our Eastern Canadian Iron Ore process fuel is primarily supplied by Imperial
Oil, a subsidiary of Exxon Mobil, through long-term contracts.
Employees
As of December 31, 2013, we had a total of 7,138 employees.
U.S.
Iron Ore 1
Eastern
Canadian
Iron Ore 3
North
American
Coal
Asia
Pacific
Iron Ore 3
Corporate&
Support
Services
Other 2
Total
Salaried
Hourly
Total
700
2,825
3,525
407
973
1,380
379
1,207
1,586
177
—
177
442
—
442
28
—
28
2,133
5,005
7,138
1 Includes our employees and the employees of the U.S. Iron Ore joint ventures.
2 Includes the employees in our Ferroalloys operating segment and our Global Exploration Group with the exception of contracted
mining employees.
3 Excludes contracted mining employees.
As of December 31, 2013, approximately 84.2 percent of our U.S. Iron Ore hourly employees, approximately 99.0 percent of our
Eastern Canadian Iron Ore hourly employees and approximately 66.3 percent of our North American Coal hourly employees were
covered by collective bargaining agreements.
Hourly employees at our Michigan and Minnesota iron ore mining operations, excluding Northshore, are represented by the USW.
We entered into a 37-month labor contract, effective September 1, 2012 through September 30, 2015, that covers approximately
2,400 USW-represented workers at our Empire and Tilden mines in Michigan, and our United Taconite and Hibbing mines in Minnesota.
Employees at our Northshore operations are not represented by a union and are not, therefore, covered by a collective bargaining
agreement.
Hourly employees at our Eastern Canadian Iron Ore operations also are represented by the USW. The five-year labor agreement for
our Wabush mine, effective March 1, 2009 through February 28, 2014, provides for a 15 percent increase in labor costs over the term
of the agreement, inclusive of benefits.
In August 2013, we entered into a new labor agreement with the USW covering our represented employees at Bloom Lake. It has a
three-year term that runs from September 1, 2013 through August 31, 2016. The new agreement provides us with workforce flexibility.
15
In November 2013, we entered into a new labor agreement with the USW covering our represented employees at our Pointe Noire
facility, which is part of our Wabush operations. It has a six-year term and runs from March 1, 2014 to February 28, 2020. It provides
for a 26 percent increase in the cost of employment over the life of the contract. We also obtained the USW’s consent to an application
we made to the Canadian Industrial Relations Board to have this workforce governed by Canadian federal labor law. Following
entrance of this agreement, the CIRB granted our application, providing us with significantly more flexibility to manage potential future
labor disruptions.
Hourly employees at our Lake Superior and Ishpeming railroads are represented by seven unions covering approximately 120
employees. We have current labor agreements with all seven railway labor unions. These employees negotiate under the Railway
Labor Act and there is currently a moratorium on bargaining. That moratorium will expire on December 31, 2014. Bargaining with
these unions will commence after the moratorium expires and normally continues long after the moratorium has expired. Work
stoppages cannot occur until the parties have mediated under the Railway Labor Act.
Hourly production and maintenance employees at our Pinnacle Complex and Oak Grove mines are represented by the UMWA. We
entered into collective bargaining agreements with the UMWA effective July 1, 2011 that expire on December 31, 2016. Those collective
bargaining agreements are identical in all material respects to the NBCWA of 2011 between the UMWA and the Bituminous Coal
Operators’ Association. Employees at our CLCC operations are not represented by a union and are not, therefore, covered by a
collective bargaining agreement.
Employees at our Asia Pacific Iron Ore, Corporate & Support Services, Ferroalloys operations and our Global Exploration Group are
not represented by a union and are not, therefore, covered by collective bargaining agreements.
Safety
Safety is our primary core value as we continue towards a zero incident culture at our operating facilities. We continuously monitor,
track and measure our safety performance and make changes where necessary. Best practices are shared globally to ensure each
mine site can embed our policies, procedures and learnings for enhanced workplace safety.
We measure progress toward achieving our objective against regularly established benchmarks, including measuring company-wide
TRIR. During 2013, our TRIR (including contractors) was 3.05 per 200,000 man-hours worked.
Refer to Exhibit 95 Mine Safety Disclosures (filed herewith) for mine safety information required in accordance with Section 1503(a)
of the Dodd-Frank Act.
16
Available Information
Our headquarters are located at 200 Public Square, Cleveland, Ohio 44114-2315, and our telephone number is (216) 694-5700. We
are subject to the reporting requirements of the Exchange Act and its rules and regulations. The Exchange Act requires us to file
reports, proxy statements and other information with the SEC. Copies of these reports and other information can be read and copied
at:
SEC Public Reference Room
100 F Street N.E.
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
The SEC maintains a website that contains reports, proxy statements and other information regarding issuers that file electronically
with the SEC. These materials may be obtained electronically by accessing the SEC’s home page at www.sec.gov.
We use our website, www.cliffsnaturalresources.com, as a channel for routine distribution of important information, including news
releases, investor presentations and financial information. We also make available, free of charge on our website, our Annual Report
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file these documents
with, or furnish them to, the SEC. In addition, our website allows investors and other interested persons to sign up to receive automatic
email alerts when we post news releases and financial information on our website.
We also make available, free of charge on our website, the charters of the Audit Committee, Governance and Nominating Committee,
Compensation and Organization Committee and Strategy and Sustainability Committee as well as the Corporate Governance
Guidelines and the Code of Business Conduct & Ethics adopted by our Board of Directors. These documents are available through
our investor relations page on our website at ir.cliffsnaturalresources.com. The SEC filings are available by selecting “Financial
Information” and then “SEC Filings,” material and corporate governance is available by selecting “Corporate Governance” for the
Board Committee Charters, operational governance guidelines and the Code of Business Conduct and Ethics.
References to our website or the SEC’s website do not constitute incorporation by reference of the information contained on such
websites, and such information is not part of this Form 10-K.
Copies of the above-referenced information are also available, free of charge, by calling (216) 694-5700 or upon written request to:
Cliffs Natural Resources Inc.
Investor Relations
200 Public Square
Cleveland, OH 44114-2315
17
Following are the names, ages and positions of the executive officers of the Company as of February 14, 2014. Unless otherwise
noted, all positions indicated are or were held with Cliffs Natural Resources Inc.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name
Age
Position(s) Held
James F. Kirsch
Gary B. Halverson
William C. Boor
Terry G. Fedor
Terrance M. Paradie
Clifford T. Smith
P. Kelly Tompkins
David L. Webb
Carolyn E. Cheverine
56 Chairman of the Board and interim executive officer of Cliffs (Jan. 2014-present); non-executive
Chairman of the Board (July 2013-Dec. 2013); Director (March 2010-present); and Chairman
(Dec. 2006-Nov. 2012); President and Chief Executive Officer (Nov. 2005-Nov. 2012) of Ferro
Corporation, a global supplier of technology-based materials
55 Director, President and Chief Executive Officer (Feb. 2014-present); Chief Operating Officer
(Nov. 2013-Feb. 2014); Interim Chief Operating Officer (Sept. 2013-Nov. 2013), President-North
America (Dec. 2011-Nov. 2013), and President-Australia Pacific (Dec. 2008-Dec. 2011) for
Barrick Gold Corporation Inc., an international gold mining company
47 Executive Vice President, Corporate Development & Chief Strategy Officer (Feb. 2014-present);
Senior Vice President, Strategy & Business Development (July 2013-Feb. 2014);Senior Vice
President, Global Ferroalloys (Jan. 2011-July 2013); President - Ferroalloys (May 2010-Jan.
2011); and Senior Vice President, Business Development (May 2007-May 2010)
49 Executive Vice President, United States Iron Ore (Jan. 2014-present); Vice President (Feb. 2011
- Jan. 2014); Vice President and General Manager (March 2005 - Feb. 2011) of ArcelorMittal
Cleveland, a fully integrated steelmaking facility, which included oversight for Weirton, Warren,
Monessen and Lackawanna
45 Executive Vice President (March 2013-present); Chief Financial Officer (Oct. 2012-present);
Senior Vice President (Jan. 2011-March 2013); Assistant General Manager-Michigan Operations
(March 2012-Sept. 2012); Corporate Controller (Oct. 2007-March 2012); Chief Accounting Officer
(July 2009-March 2012); and Vice President (Oct. 2007-Jan. 2011)
54 Executive Vice President, Seaborne Iron Ore (Jan. 2014-present); Executive Vice President,
Global Operations (July 2013-Jan. 2014); Executive Vice President, Global Business
Development (March 2013-July 2013); Senior Vice President, Global Business Development
(Jan. 2011-March 2013); Vice President, Latin American Operations (Sept. 2009-Jan. 2011);
and General Manager-Business Development (Oct. 2006-Sept. 2009)
57 Executive Vice President, External Affairs & President, Global Commercial (Nov. 2013-present);
Chief Administrative Officer (July 2013-Nov. 2013); Executive Vice President, Legal, Government
Affairs and Sustainability (May 2010-July 2013); Chief Legal Officer (Jan. 2011-Jan. 2013);
President, Cliffs China (Oct. 2012-Nov. 2013); and Executive Vice President and Chief Financial
Officer (June 2008-May 2010) of RPM International Inc., a specialty coatings and sealants
manufacturer
56 Executive Vice President (Jan. 2014-present); Senior Vice President, Global Coal (July 2011-
Jan. 2014); and Vice President and General Manager of Mid-West Operations for Patriot Coal
Corp., a producer of thermal and metallurgical coal (2007-June 2011)
51 Vice President and General Counsel (Jan. 2013-present); Secretary (Oct. 2011-present);
General Counsel-Corporate Affairs (Oct. 2011-Jan. 2013); and Senior Counsel (May 2002-Oct.
2011) of The Lubrizol Corporation, a lubricant additives and specialty chemicals manufacturer
Timothy K. Flanagan
36 Vice President, Corporate Controller & Chief Accounting Officer (March 2012-present); Assistant
Controller (Feb. 2010-March 2012); and Director, Internal Audit (April 2008-Feb. 2010)
All executive officers serve at the pleasure of the Board. There are no arrangements or understandings between any executive officer
and any other person pursuant to which an executive officer was selected to be an officer of the Company. There is no family relationship
between any of our executive officers, or between any of our executive officers and any of our directors.
Item 1A.
Risk Factors
An investment in our common shares or other securities is subject to risk inherent to our business and our industry. Described below
are certain risks and uncertainties, the occurrences of which could have a material adverse effect on us. Before making an investment
decision, you should consider carefully all of the risks described below together with the other information included in this report. The
risks and uncertainties described below are not the only ones we face. Although we have significant risk management policies,
practices and procedures aimed to mitigate these risks, uncertainties may nevertheless impair our business operation. This report is
qualified in its entirety by these factors.
Our ERM function provides a framework for management's consideration of risk when making strategic, financial, operational and/or
project decisions. The framework is based on ISO 31000, an internationally recognized risk management standard. Management
uses a consistent methodology to identify and assess risks, determine and implement risk mitigation actions, and monitor and
communicate information about the Company's key risks. Through these processes, we have identified six categories of risk that we
are subject to: (I) economic and market, (II) regulatory, (III) financial, (IV) operational, (V) development and sustainability and (VI)
human capital. The following risk factors are presented according to these key risk categories.
18
I. ECONOMIC AND MARKET RISKS
The volatility of commodity prices, namely iron ore and coal, affects our ability to generate revenue, maintain stable cash
flow and to fund our operations, including growth and expansion projects.
As a mining company, our profitability is dependent upon the price of the commodities that we sell to our customers, namely iron ore
and coal. The prices of iron ore and coal have fluctuated historically and are affected by factors beyond our control, including: steel
inventories; international demand for raw materials used in steel production; rates of global economic growth, especially construction
and infrastructure activity that requires significant amounts of steel; recession or reduced economic activity in the U.S., China, India,
Europe and other industrialized or developing countries; uncertainties or weaknesses in global economic conditions such as the
sovereign debt crisis in Europe and the U.S. debt ceiling; changes in production capacity of other iron ore and metallurgical coal
suppliers, especially as additional supplies come online; weather-related disruptions or natural disasters that may impact the global
supply of iron ore and metallurgical coal; and the proximity, capacity and cost of infrastructure and transportation.
Our earnings, therefore, may fluctuate with the prices of the commodities we sell. To the extent that the prices of these commodities
significantly decline for an extended period of time, we may have to revise our operating plans, including curtailing production, reducing
operating costs and capital expenditures and discontinuing certain exploration and development programs. We also may have to
take impairments on our assets, inventory and/or goodwill. Sustained lower prices also could cause us to reduce existing reserves
if certain reserves no longer can be economically mined or processed at prevailing prices. We may be unable to decrease our costs
in an amount sufficient to offset reductions in revenues and may incur losses. These events could have a material adverse effect on
us.
Uncertainty or weaknesses in global economic conditions and reduced economic growth in China could affect adversely
our business.
The world prices of iron ore and coal are influenced strongly by international demand and global economic conditions. Uncertainties
or weaknesses in global economic conditions, including the ongoing sovereign debt crisis in Europe and the U.S. debt ceiling, could
affect adversely our business and negatively impact our financial results. In addition, the current level of international demand for raw
materials used in steel production is driven largely by industrial growth in China. If the economic growth rate in China slows for an
extended period of time, or if another global economic downturn were to occur, we would likely see decreased demand for our products
and decreased prices, resulting in lower revenue levels and decreasing margins. We are not able to predict whether the global
economic conditions will continue or worsen and the impact it may have on our operations and the industry in general going forward.
Capacity expansions within the mining industry could lead to lower global iron ore and coal prices, impacting our profitability.
Continued global growth of iron ore and coal demand, particularly from China, resulted in iron ore and metallurgical coal suppliers
expanding their production capacity. The supply of both iron ore and metallurgical coal has increased due to these expansions. In
the current iron ore and coal markets, an increase in our competitors' capacity could result in excess supply of these commodities,
resulting in downward pressure on prices. This decrease in pricing would adversely impact our sales, margins and profitability.
If steelmakers use methods other than blast furnace production to produce steel or if their blast furnaces shut down or
otherwise reduce production, the demand for our iron ore and coal products may decrease.
Demand for our iron ore and coal products is determined by the operating rates for the blast furnaces of steel companies. However,
not all finished steel is produced by blast furnaces; finished steel also may be produced by other methods that use scrap steel, pig
iron, hot briquetted iron and direct reduced iron. North American steel producers also can produce steel using imported iron ore or
semi-finished steel products, which eliminates the need for domestic iron ore. Environmental restrictions on the use of blast furnaces
also may reduce our customers' use of their blast furnaces. Maintenance of blast furnaces may require substantial capital expenditures.
Our customers may choose not to maintain, or may not have the resources necessary to maintain, their blast furnaces. If our customers
use methods to produce steel that do not use iron ore and coal products, demand for our iron ore and coal products will decrease,
which would affect adversely our sales, margins and profitability.
Due to economic conditions and volatility in commodity prices, our customers could approach us about their supply
agreements. Modifications to our sales agreements potentially could be made due to such volatility, which could impact
adversely our sales, margins, profitability and cash flows.
Although we have contractual commitments for sales in our U.S. Iron Ore and Eastern Canadian Iron Ore business for 2014 and
beyond, the uncertainty in global economic conditions may adversely impact the ability of our customers to meet their obligations. As
a result of such market volatility, our customers could approach us about modifying their supply agreements. Any modifications to
our sales agreements could adversely impact our sales, margins, profitability and cash flows. These discussions or potential actions
by our customers could also result in contractual disputes, which could ultimately require arbitration or litigation, either of which could
be time consuming and costly. Any such disputes could impact adversely our sales, margins, profitability and cash flows.
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II. REGULATORY RISKS
We are subject to extensive governmental regulation, which imposes, and will continue to impose, potential significant costs
and liabilities on us. Future laws and regulation or the manner in which they are interpreted and enforced could increase
these costs and liabilities or limit our ability to produce iron ore and coal products.
New laws or regulations, or changes in existing laws or regulations, or the manner of their interpretation or enforcement, could increase
our cost of doing business and restrict our ability to operate our business or execute our strategies. This includes, among other things,
the possible taxation under U.S. law of certain income from foreign operations, compliance costs and enforcement under the Dodd-
Frank Act, and costs associated with complying with the Patient Protection and Affordable Care Act and the Healthcare and Education
Reconciliation Act of 2010 and the regulations promulgated thereunder. In addition, we are subject to various federal, provincial, state
and local laws and regulations in each jurisdiction in which we have operations for employee health and safety, air quality, water
pollution, plant and wildlife protection, reclamation and restoration of mining properties, the discharge of materials into the environment,
the effects that mining has on groundwater quality and availability, and related matters. Numerous governmental permits and approvals
are required for our operations. We cannot be certain that we have been or will be at all times in complete compliance with such laws,
regulations and permits. If we violate or fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned
by regulators. Compliance with the complex and extensive laws and regulations that we are subject to imposes substantial costs,
which we expect will continue to increase over time because of increased regulatory oversight, adoption of increasingly stringent
environmental standards, and increased demand for remediation services leading to shortages of equipment, supplies and labor, as
well as other factors.
Specifically, there are several notable proposed or recently enacted rulemakings or activities to which we would be subject or that
would further regulate and/or tax our customers, namely the North American integrated steel producer customers that may also require
us or our customers to reduce or otherwise change operations significantly or incur additional costs, depending on their ultimate
outcome. These emerging or recently enacted rules and regulations include: numerous air regulations, such as Climate Change and
GHG Regulation, Regional Haze, NO2 and SO2 National Ambient Air Quality Standards, Cross State Air Pollution Rule; increased
administrative and legislative initiatives related to coal mining activities; Mercury TMDL and Minnesota Taconite Mercury Reduction
Strategy; Selenium Discharge Regulation; expansion of federal jurisdictional authority to regulate groundwater, and various other
water quality regulations. Such new legislation, regulations, interpretations or orders, when enacted, could have a material adverse
effect on our business, results of operations, financial condition or profitability.
Although the numerous regulations, operating permits and our management systems mitigate potential impacts to the
environment, our operations may inadvertently impact the environment or cause exposure to hazardous substances, which
could result in material liabilities to us.
Our operations currently use and have used in the past, hazardous materials, and, from time to time, we have generated limited
quantities of hazardous waste. We may be subject to claims under federal, provincial, state and local laws and regulations for toxic
torts, natural resource damages and other damages as well as for the investigation and clean up of soil, surface water, sediments,
groundwater and other natural resources. Such claims for damages and reclamation may arise out of current or former conditions at
sites that we own or operate currently, as well as sites that we or our acquired companies have owned or operated, and at contaminated
sites that have always been owned or operated by our joint-venture parties. Our liability for such claims may be joint and several, so
that we may be held responsible for more than our share of the contamination or other damages, or even for the entire share. We
are subject to a variety of potential liability exposures arising at certain sites where we currently do not conduct operations. These
include sites where we formerly conducted iron ore and/or coal mining or processing or other operations, inactive sites that we currently
own, predecessor sites, acquired sites, leased land sites and third-party waste disposal sites. We may be named as a responsible
party at other sites in the future and we cannot be certain that the costs associated with these additional sites will not be material.
We also could be held liable for any and all consequences arising out of human exposure to hazardous substances used, released,
or disposed of by us. In particular, we and certain of our subsidiaries are involved in various claims relating to the exposure of asbestos
and silica to seamen who sailed until the mid-1980s on the Great Lakes vessels formerly owned and operated by certain of our
subsidiaries. The full impact of these claims continues to be unknown. Uncertainty also remains as to whether insurance coverage
will be sufficient and whether other defendants named in these claims will be able to fund any costs arising out of these claims.
Environmental impacts as a result of our operations, including exposures to hazardous substances or wastes associated with our
operations, could result in costs and liabilities that could materially and adversely affect our margins, cash flow or profitability.
We may be unable to obtain and renew permits necessary for our operations, which could reduce our production, cash flows
and profitability. We also could face significant permit and approval requirements that could delay our commencement or
continuation of exploration and production operations, which, in turn, could affect materially our cash flows and profitability.
Prior to commencement of mining, we must submit to and obtain approval from the appropriate regulatory authority of plans showing
where and how mining and reclamation operations are to occur. These plans must include information such as the location of mining
areas, stockpiles, surface waters, haul roads, tailings basins and drainage from mining operations. All requirements imposed by any
such authority may be costly and time-consuming and may delay commencement or continuation of exploration or production
operations.
Mining companies must obtain numerous permits that impose strict conditions on various environmental and safety matters in
connection with coal and iron ore mining. These include permits issued by various federal and state agencies and regulatory bodies.
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The permitting rules are complex and may change over time, making our ability to comply with the applicable requirements more
difficult or impractical and costly, possibly precluding the continuance of ongoing operations or the development of future mining
operations. The public, including special interest groups and individuals, have certain rights under various statutes to comment upon,
submit objections to, and otherwise engage in the permitting process, including bringing citizens' lawsuits to challenge such permits
or mining activities. Accordingly, required permits may not be issued or renewed in a timely fashion (or at all), or permits issued or
renewed may be conditioned in a manner that may restrict our ability to efficiently conduct our mining activities. Such inefficiencies
could reduce our production, cash flows and profitability.
Our North American coal operations are subject to increasing levels of regulatory oversight making it more difficult to obtain
and maintain necessary operating permits.
The current political and regulatory environment in the U.S. is disposed negatively toward coal mining, with particular focus on certain
categories of mining such as mountaintop removal techniques. Therefore, our coal mining operations in North America are subject
to increasing levels of scrutiny. Emerging U.S. regulatory efforts targeted at eliminating or minimizing the adverse environmental
impacts of mountaintop coal mining practices have impacted all types of coal operations. These regulatory initiatives could cause
material impacts, delays, or disruptions to our coal operations due to our inability to obtain new or renewed permits or modifications
to existing permits.
Underground mining is subject to increased safety regulation and may require us to incur additional compliance costs.
Recent mine disasters have led to the enactment and consideration of significant new federal and state laws and regulations relating
to safety in underground coal mines. These laws and regulations include requirements for constructing and maintaining caches for
the storage of additional self-contained self-rescuers throughout underground mines; installing rescue chambers in underground
mines; continuous tracking of and communication with personnel in the mines; installing cable lifelines from the mine portal to all
sections of the mine to assist in emergency escape; submission and approval of emergency response plans; and new and additional
safety training. Additionally, new requirements for the prompt reporting of accidents and increased fines and penalties for violations
of these and existing regulations have been implemented. These new laws and regulations may cause us to incur substantial additional
costs, which may impact adversely our results of operations, financial condition or profitability.
III. FINANCIAL RISKS
A substantial majority of our sales are made under term supply agreements to a limited number of customers that contain
price-adjustment clauses that could affect adversely the stability and profitability of our operations.
In 2013, a majority of our U.S. Iron Ore and Eastern Canadian Iron Ore sales, the majority of our North American Coal sales, and
almost all of our Asia Pacific Iron Ore sales were made under term supply agreements to a limited number of customers. In 2013,
five customers together accounted for approximately 60 percent of our U.S. Iron Ore, Eastern Canadian Iron Ore, and North American
Coal product sales revenues (representing more than 46 percent of our consolidated revenues). For North American Coal, prices
typically are agreed upon for a 12-month period and typically are adjusted each year. Our Asia Pacific Iron Ore contracts are due to
expire at various dates until March 2015 for our Chinese and Japanese customers. Our U.S. Iron Ore contracts have an average
remaining duration of six years. We have one major customer contract for the life of the mine with the remaining contracts set to
expire no later than 2016 for our Eastern Canadian Iron Ore contracts. We cannot be certain that we will be able to renew or replace
existing term supply agreements at the same volume levels, prices or with similar profit margins when they expire. A loss of sales to
our existing customers could have a substantial negative impact on our sales, margins and profitability.
Our U.S. Iron Ore term supply agreements contain a number of price adjustment provisions, or price escalators, including adjustments
based on general industrial inflation rates, the price of steel and the international price of iron ore pellets, among other factors, that
are out of our control and that may adjust the prices under those agreements generally on an annual basis. Several of our Eastern
Canadian Iron Ore customers have multi-year pricing arrangements that contain pricing adjustments that reference certain published
market prices for iron ore. During the first quarter of 2010, the world's largest iron ore producers moved away from the annual
international benchmark pricing mechanism in favor of a shorter-term, more flexible pricing system. The change in the international
pricing system prompted modification of our sales contracts to take into account the new international pricing methodology. We
finalized shorter-term pricing arrangements with our customers by the end of 2012.
Changes in credit ratings issued by nationally recognized statistical rating organizations could affect adversely our cost of
financing and the market price of our securities.
Credit rating agencies could downgrade our ratings (which currently are deemed “investment grade” levels) either due to our capital
structure, factors specific to our business, changes in our geographical footprint, a prolonged cyclical downturn in the mining industry,
or macroeconomic trends (such as global or regional recessions) and trends in credit and capital markets more generally. There can
be no assurance that we will maintain our current ratings. Any decline in our credit ratings, including a loss of investment-grade status,
could result in an increase in our cost of funds, limit our access to the capital markets, trigger additional collateral or funding requirements,
decrease the number of investors and counterparties that are willing to lend to us, significantly harm our financial condition and results
of operations, hinder our ability to refinance existing indebtedness on acceptable terms and have an adverse effect on the market
price of our securities.
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We rely on our joint venture partners in our mines to meet their payment obligations and we are subject to risks involving
the acts or omissions of our joint venture partners when we are not the manager of the joint venture.
We co-own and manage three of our five U.S. Iron Ore mines and one of our two Eastern Canadian Iron Ore mines with various joint
venture partners that are integrated steel producers or their subsidiaries, including ArcelorMittal, U.S. Steel Canada Inc., and WISCO.
We rely on our joint venture partners to make their required capital contributions and to pay for their share of the iron ore that each
joint venture produces. Our U.S. Iron Ore and Eastern Canadian Iron Ore joint venture partners are also our customers. If one or
more of our joint venture partners fail to perform their obligations, the remaining joint venture partners, including ourselves, may be
required to assume additional material obligations, including significant capital contribution, pension and postretirement health and
life insurance benefit obligations. The premature closure of a mine due to the failure of a joint venture partner to perform its obligations
could result in significant fixed mine-closure costs, including severance, employment legacy costs and other employment costs;
reclamation and other environmental costs; and the costs of terminating long-term obligations, including energy and transportation
contracts and equipment leases.
We cannot control the actions of our joint venture partners, especially when we have a minority interest in a joint venture. Further, in
spite of performing customary due diligence prior to entering into a joint venture, we cannot guarantee full disclosure of prior acts or
omissions of the sellers or those with whom we enter into joint ventures. Such risks could have a material adverse effect on the
business, results of operations or financial condition of our joint venture interests.
We may not be able to recover the carrying value when divesting assets or businesses.
When we divest assets or businesses, we may not be able to recover the carrying value of these assets, which potentially could have
a material adverse impact on our results of operations, shareholders' equity and capital structure. Also, if we were to sell a percentage
of a business, there are inherent risks of a joint venture relationship as noted in the risk factor above.
Our ability to collect payments from our customers depends on their creditworthiness.
Our ability to receive payment for products sold and delivered to our customers depends on the creditworthiness of our customers.
With respect to our Asia Pacific and Eastern Canadian Iron Ore business units, payment typically is received as the products are
shipped and much of the product is secured by bank letters of credit. By contrast, in our U.S. Iron Ore business unit, generally, we
deliver iron ore products to our customers' facilities in advance of payment for those products. Under this practice for our U.S.
customers, title and risk of loss with respect to U.S. Iron Ore products does not pass to the customer until payment for the pellets is
received; however, there is typically a period of time in which pellets, for which we have reserved title, are within our customers' control.
Where we have identified credit risk with certain customers, we have put in place alternate payment terms from time to time.
Consolidations in some of the industries in which our customers operate have created larger customers. These factors have caused
some customers to be less profitable and increased our exposure to credit risk. Customers in other countries may be subject to other
pressures and uncertainties that may affect their ability to pay, including trade barriers, exchange controls, and local, economic and
political conditions. Downturns in the economy and disruptions in the global financial markets in recent years have affected the
creditworthiness of our customers from time to time. The extreme market disruption in 2008, among other things, severely limited
liquidity and credit availability. Some of our customers are highly leveraged. If economic conditions worsen or prolonged global,
national or regional economic recession conditions return, it is likely to impact significantly the creditworthiness of our customers and
could, in turn, increase the risk we bear on payment default for the credit we provide to our customers and could limit our ability to
collect receivables. Failure to receive payment from our customers for products that we have delivered could affect adversely our
results of operations, financial condition and liquidity.
Our operating expenses could increase significantly if the price of electrical power, fuel or other energy sources increases.
Our mining operations and development projects require significant use of energy. Operating expenses at all of our mining locations
are sensitive to changes in electricity prices and fuel prices, including diesel fuel and natural gas prices. These items make up
approximately 20 to 25 percent in the aggregate of our operating costs in our U.S. Iron Ore locations, for example. Prices for electricity,
natural gas and fuel oils can fluctuate widely with availability and demand levels from other users. During periods of peak usage,
supplies of energy may be curtailed and we may not be able to purchase them at historical rates. A disruption in the transmission of
energy, inadequate energy transmission infrastructure, or the termination of any of our energy supply contracts could interrupt our
energy supply and affect adversely our operations. While we have some long-term contracts with electrical suppliers, we are exposed
to fluctuations in energy costs that can affect our production costs. As an example, our mines in Minnesota are subject to changes
in Minnesota Power's rates, such as rate changes that are reviewed and approved by the state public utilities commission in response
to an application filed by Minnesota Power. We also enter into market-based pricing supply contracts for electricity, natural gas and
diesel fuel for use in our operations. Those contracts expose us to price increases in energy costs, which could cause our profitability
to decrease significantly.
In addition, U.S. public utilities are expected to pass through additional capital and operating cost increases related to new, pending
U.S. environmental regulations that are expected to require significant capital investment and use of cleaner fuels over the next 10
years and may impact U.S. coal-fired generation capacity. We are estimating that power rates for our electricity-intensive operations
could increase above 2013 levels by up to 8 percent by 2016, representing an annual power spend increase of approximately $21
million by 2016 for our U.S. operations.
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The availability of capital for exploration, acquisitions and mine development may be limited.
In order to grow our business or sustain current development, we may need to access the capital markets to finance exploration,
acquisitions and continued development of existing mining properties. During the global economic crisis, access to capital to finance
new projects and acquisitions was extremely limited. We cannot predict the general availability or accessibility of capital to finance
such projects in the future.
We are subject to a variety of financial market risks.
Financial market risks include those caused by changes in the value of investments, changes in commodity prices, interest rates and
foreign currency exchange rates. We have established policies and procedures to manage such risks; however, certain risks are
beyond our control and our efforts to mitigate such risks may not be effective. These factors could have a material adverse effect on
our results of operations.
We may not pay dividends on our common shares.
Holders of our common shares are entitled to receive only such dividends as our Board of Directors may declare out of funds legally
available for such payments. We are incorporated in Ohio and governed by the Ohio General Corporation Law, which allows a
corporation to pay dividends, in general, in an amount that cannot exceed its surplus, as determined under Ohio law. Furthermore,
holders of our common shares may be subject to prior dividend rights of holders of our preferred stock or depositary shares representing
such preferred stock then outstanding. Our ability to pay dividends will be subject to our future earnings, capital requirements and
financial condition, as well as our compliance with covenants and financial ratios related to existing or future indebtedness. Although
we historically have declared cash dividends on our common shares, we are not required to declare cash dividends on our common
shares and our Board of Directors may reduce, defer or eliminate our common share dividend in the future.
IV. OPERATIONAL RISKS
Mine closures entail substantial costs. If we close one or more of our mines, our results of operations and financial condition
would likely be affected adversely.
If we close any of our mines, our revenues would be reduced unless we were able to increase production at our other mines, which
may not be possible. The closure of a mining operation involves significant fixed closure costs, including accelerated employment
legacy costs, severance-related obligations, reclamation and other environmental costs, and the costs of terminating long-term
obligations, including customer, energy and transportation contracts and equipment leases. We base our assumptions regarding the
life of our mines on detailed studies we perform from time to time, but those studies and assumptions are subject to uncertainties and
estimates that may not be accurate. We recognize the costs of reclaiming open pits and shafts, stockpiles, tailings ponds, roads and
other mining support areas based on the estimated mining life of our property. If we were to significantly reduce the estimated life of
any of our mines, the mine-closure costs would be applied to a shorter period of production, which would increase production costs
per ton produced and could significantly and adversely affect our results of operations and financial condition.
A North American mine permanent closure could increase significantly and accelerate employment legacy costs, including our expense
and funding costs for pension and other postretirement benefit obligations. A number of employees would be eligible for immediate
retirement under special eligibility rules that apply upon a mine closure. All employees eligible for immediate retirement under the
pension plans at the time of the permanent mine closure also could be eligible for postretirement health and life insurance benefits,
thereby accelerating our obligation to provide these benefits. Certain mine closures would precipitate a pension closure liability
significantly greater than an ongoing operation liability. Finally, a permanent mine closure could trigger severance-related obligations,
which can equal up to sixteen weeks of pay per employee in some jurisdictions, depending on length of service. As a result, the
closure of one or more of our mines could adversely affect our financial condition and results of operations.
Our sales and competitive position depend on the ability to transport our products to our customers at competitive rates
and in a timely manner.
In our U.S. Iron Ore operations, disruption of the lake and ocean-going vessels and rail transportation services because of weather-
related problems, including ice and winter weather conditions on the Great Lakes or St. Lawrence Seaway, strikes, lock-outs, or other
events and lack of alternative transportation sources, could impair our ability to supply iron ore to our customers at competitive rates
or in a timely manner and, thus, could adversely affect our sales, margins and profitability. Similarly, our North American Coal operations
depend on international vessels and rail transportation services, as well as the availability of dock capacity, and any disruptions to
those services or the lack of dock capacity could impair our ability to supply coal to our customers at competitive rates or in a timely
manner and, thus, could adversely affect our sales and profitability. Further, reduced dredging and environmental changes, particularly
at Great Lakes ports, could impact negatively our ability to move our iron ore and coal products because lower water levels restrict
the tonnage that vessels can haul, resulting in higher freight rates.
Our Asia Pacific Iron Ore and Eastern Canadian Iron Ore operations also are dependent upon rail and port capacity. Disruptions in
rail service or availability of dock capacity could similarly impair our ability to supply iron ore to our customers, thereby adversely
affecting our sales and profitability. In addition, our Asia Pacific Iron Ore operations are also in direct competition with the major world
seaborne exporters of iron ore and our customers face higher transportation costs than most other Australian producers to ship our
products to the Asian markets because of the location of our major shipping port on the south coast of Australia. Further, increases
in transportation costs, including volatile fuel rates, decreased availability of ocean vessels or changes in such costs relative to
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transportation costs incurred by our competitors could make our products less competitive, restrict our access to certain markets and
have an adverse effect on our sales, margins and profitability.
Natural disasters, weather conditions, disruption of energy, unanticipated geological conditions, equipment failures, and
other unexpected events may lead our customers, our suppliers or our facilities to curtail production or shut down operations.
Operating levels within the mining industry are subject to unexpected conditions and events that are beyond the industry's control.
Those events could cause industry members or their suppliers to curtail production or shut down a portion or all of their operations,
which could reduce the demand for our iron ore and coal products, and could affect adversely our sales, margins and profitability.
Interruptions in production capabilities inevitably will increase our production costs and reduce our profitability. We do not have
meaningful excess capacity for current production needs, and we are not able to quickly increase production at one mine to offset an
interruption in production at another mine.
A portion of our production costs are fixed regardless of current operating levels. As noted, our operating levels are subject to conditions
beyond our control that can delay deliveries or increase the cost of mining at particular mines for varying lengths of time. These
include weather conditions (for example, extreme winter weather, tornadoes, floods, and the lack of availability of process water due
to drought) and natural disasters, pit wall failures, unanticipated geological conditions, including variations in the amount of rock and
soil overlying the deposits of iron ore and coal, variations in rock and other natural materials and variations in geologic conditions and
ore processing changes.
The manufacturing processes that take place in our mining operations, as well as in our processing facilities, depend on critical pieces
of equipment. This equipment may, on occasion, be out of service because of unanticipated failures. In addition, many of our mines
and processing facilities have been in operation for several decades, and the equipment is aged. In the future, we may experience
additional material plant shutdowns or periods of reduced production because of equipment failures. Further, remediation of any
interruption in production capability may require us to make large capital expenditures that could have a negative effect on our
profitability and cash flows. Our business interruption insurance would not cover all of the lost revenues associated with equipment
failures. Longer-term business disruptions could result in a loss of customers, which adversely could affect our future sales levels
and, therefore, our profitability.
Regarding the impact of unexpected events happening to our suppliers, many of our mines are dependent on one source for electric
power and for natural gas. A significant interruption in service from our energy suppliers due to terrorism, weather conditions, natural
disasters, or any other cause can result in substantial losses that may not be fully recoverable, either from our business interruption
insurance or responsible third parties.
We are subject to risks involving operations and sales in multiple countries.
We supply raw materials to the global integrated steel industry with substantial assets located outside of the U.S. We conduct
operations in the U.S., Canada and Australia. As such, we are subject to additional risks beyond those relating to our U.S. operations,
such as fluctuations in currency exchange rates; potentially adverse tax consequences due to overlapping or differing tax structures;
burdens to comply with multiple and potentially conflicting foreign laws and regulations, including export requirements, tariffs and other
barriers, environmental health and safety requirements, and unexpected changes in any of these laws and regulations; the imposition
of duties, tariffs, import and export controls and other trade barriers impacting the seaborne iron ore and coal markets; difficulties in
staffing and managing multi-national operations; political and economic instability and disruptions, including terrorist attacks;
disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the Foreign
Corrupt Practices Act; and uncertainties in the enforcement of legal rights and remedies in multiple jurisdictions. If we are unable to
manage successfully the risks associated with expanding our global business, these risks could have a material adverse effect on
our business, results of operations or financial condition.
Our profitability could be affected adversely by the failure of outside contractors to perform.
Asia Pacific Iron Ore and Eastern Canadian Iron Ore use contractors to handle many of the operational phases of their mining and
processing operations and, therefore, we are subject to the performance of outside companies on key production areas. A failure of
any of these contractors to perform in a significant way would result in additional costs for us, which also could affect adversely our
production rates and results of operations.
Coal mining is complex due to geological characteristics of the region.
The geological characteristics of coal reserves, such as depth of overburden and coal seam thickness, make them complex and costly
to mine. As mines become depleted, replacement reserves may not be available when required or, if available, may not be capable
of being mined at costs comparable to those characteristic of the depleting mines, and, therefore, decisions to defer mine development
activities may adversely impact our ability to substantially increase future coal production. These factors could materially adversely
affect our mining operations and cost structures, which could affect adversely our sales, profitability and cash flows.
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V. DEVELOPMENT AND SUSTAINABILITY RISKS
The cost and time to implement a strategic capital project may prove to be greater than originally anticipated.
We undertake strategic capital projects in order to enhance, expand or upgrade our mines and production capabilities. Our ability to
achieve the anticipated increased volumes, revenues or otherwise realize acceptable returns on strategic capital projects that we may
undertake is subject to a number of risks, many of which are beyond our control, including a variety of market (such as a volatile
pricing environment for iron ore), operational, permitting and labor-related factors. Further, the cost to implement any given strategic
capital project ultimately may prove to be greater and may take more time than originally anticipated. For example, we have invested
in the Bloom Lake mine, our large-scale seaborne iron ore project in Eastern Canada. Maximizing the Bloom Lake mine's production
capabilities through the Phase II expansion project has the potential to increase sales volumes and reduce unit operating costs.
Nonetheless, due to the higher than anticipated costs and changes in the pricing environment, we have put on hold the Phase II
expansion, including completion of the concentrator and load-out facility, while we explore various strategic alternatives. Further, we
will continue to operate Bloom Lake mine Phase I operations but on a reduced tailings capital plan as long as the pricing environment
is constructive. Inability to achieve the anticipated results from the implementation of this expansion or any of our strategic capital
projects, or the incurring of unanticipated implementation costs, penalties or inability to meet contractual obligations could affect
adversely our results of operations and future earnings and cash flow generation.
We may be unable to successfully identify, acquire and integrate strategic acquisition candidates.
Our ability to grow successfully through acquisitions depends upon our ability to identify, negotiate, complete and integrate suitable
acquisitions and to obtain necessary financing. We cannot provide assurance that we will be able to identify successfully strategic
candidates or acquire any such businesses. In addition, the costs of acquiring other businesses could increase if competition for
acquisition candidates increases. Additionally, the success of an acquisition is subject to other risks and uncertainties, including our
ability to realize operating efficiencies and various assumptions expected from an acquisition; the size or quality of the mineral potential;
delays in realizing the benefits of an acquisition; difficulties in retaining key employees, customers or suppliers of the acquired
businesses; difficulties in maintaining uniform controls, procedures, standards and policies throughout acquired companies; the risks
associated with the assumption of contingent or undisclosed liabilities of acquisition targets; the impact of changes to our allocation
of purchase price; and the ability to generate future cash flows or the availability of financing.
Moreover, any acquisition opportunities we pursue could affect materially our liquidity and capital resources and may require us to
incur indebtedness, seek equity capital or both. Future acquisitions could also result in us assuming more long-term liabilities relative
to the value of the acquired assets than we have assumed in our previous acquisitions.
We continually must replace reserves depleted by production. Our exploration activities may not result in additional
discoveries.
Our ability to replenish our ore reserves is important to our long-term viability. Depleted ore reserves must be replaced by further
delineation of existing ore bodies or by locating new deposits in order to maintain production levels over the long term. Resource
exploration and development are highly speculative in nature. Our exploration projects involve many risks, require substantial
expenditures and may not result in the discovery of sufficient additional mineral deposits that can be mined profitably. Once a site
with mineralization is discovered, it may take several years from the initial phases of drilling until production is possible, during which
time the economic feasibility of production may change. Substantial expenditures are required to establish recoverable proven and
probable reserves and to construct mining and processing facilities. As a result, there is no assurance that current or future exploration
programs will be successful and there is a risk that depletion of reserves will not be offset by discoveries or acquisitions.
We rely on estimates of our recoverable reserves, which is complex due to geological characteristics of the properties and
the number of assumptions made.
We regularly evaluate our U.S. iron ore, Eastern Canadian iron ore, and coal reserves based on revenues and costs and update them
as required in accordance with SEC Industry Guide 7 and Canada's National Instrument 43-101. In addition, our Asia Pacific Iron
Ore business segment has published reserves that follow the Joint Ore Reserve Code in Australia, with certain changes to our Western
Australian reserve values to make them comply with SEC requirements. There are numerous uncertainties inherent in estimating
quantities of reserves of our mines, including many factors beyond our control.
Estimates of reserves and future net cash flows necessarily depend upon a number of variable factors and assumptions, such as
production capacity, effects of regulations by governmental agencies, future prices for iron ore and coal, future industry conditions
and operating costs, severance and excise taxes, development costs and costs of extraction and reclamation, all of which may vary
considerably from actual results. Estimating the quantity and grade of reserves requires us to determine the size, shape and depth
of our mineral bodies by analyzing geological data, such as samplings of drill holes, tunnels and other underground workings. In
addition to the geology assumptions of our mines, assumptions are also required to determine the economic feasibility of mining these
reserves, including estimates of future commodity prices and demand, the mining methods we use, and the related costs incurred to
develop and mine our reserves. For these reasons, estimates of the economically recoverable quantities of mineralized deposits
attributable to any particular group of properties, classifications of such reserves based on risk of recovery and estimates of future
net cash flows prepared by different engineers or by the same engineers at different times may vary substantially as the criteria change.
Estimated ore and coal reserves could be affected by future industry conditions, geological conditions and ongoing mine planning.
Actual volume and grade of reserves recovered, production rates, revenues and expenditures with respect to our reserves will likely
vary from estimates, and if such variances are material, our sales and profitability could be affected adversely.
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Any defects in title of leasehold interests in our properties could limit our ability to mine these properties or could result in
significant unanticipated costs.
We conduct a significant part of our mining operations on properties that we lease. These leases were entered into over a period of
many years by some of our predecessors, and title to our leased properties and mineral rights may not be thoroughly verified until a
permit to mine the property is obtained. Our right to mine some of our proven and probable reserves, for iron ore or coal, may be
materially adversely affected if there were defects in title or boundaries. In order to obtain leases or mining contracts to conduct our
mining operations on property where these defects exist, we may in the future have to incur unanticipated costs, which could affect
adversely our profitability.
In order to continue to foster growth in our business and maintain stability of our earnings, we must maintain our social
license to operate with our stakeholders.
As a mining company, maintaining a strong reputation and consistent operational and safety history is vital in order to continue to
foster growth and maintain stability in our earnings. As sustainability expectations increase and regulatory requirements continue to
evolve, maintaining our social license to operate becomes increasingly important. We strive to incorporate social license expectations
in our ERM program. Our ability to maintain our reputation and strong operating history could be threatened, including by circumstances
outside of our control. If we are not able to respond effectively to these and other challenges to our social license to operate, our
reputation could be damaged significantly. Damage to our reputation could affect adversely our operations and ability to foster growth
in our Company.
Estimates and timelines relating to new development and expansion projects are uncertain and we may incur higher costs
and lower economic returns than estimated.
Mine development projects typically require a number of years and significant expenditures during the development phase before
production is possible. Such projects could experience unexpected problems and delays during development, construction and mine
start-up. For example, our Chromite project, which was moved into the feasibility study stage of development in May 2012, was
suspended in November 2013 because of an uncertain timeline and risks associated with the development of necessary infrastructure
critical to the project's economic viability.
Our decision to develop a project typically is based on the results of feasibility studies, which estimate the anticipated economic returns
of a project. The actual project profitability or economic feasibility may differ from such estimates as a result of any of the following
factors, among others:
•
•
•
•
•
•
•
•
•
•
•
•
•
changes in tonnage, grades and metallurgical characteristics of ore to be mined and processed;
estimated future prices of the relevant ore;
changes in customer demand;
higher construction and infrastructure costs;
the quality of the data on which engineering assumptions were made;
higher production costs;
adverse geotechnical conditions;
availability of adequate labor force;
availability and cost of water and power;
availability and cost of transportation;
fluctuations in inflation and currency exchange rates;
availability and terms of financing;
delays in obtaining environmental or other government permits or changes in the laws and regulations related to those
permits;
• weather or severe climate impacts; and
•
potential delays relating to social and community issues.
Our future development activities may not result in the expansion or replacement of current production with new production, or one
or more of these new production sites or facilities may be less profitable than currently anticipated, or may not be profitable at all, any
of which could have a material adverse effect on our sales, margins and cash flows.
26
VI. HUMAN CAPITAL RISKS
Our profitability could be affected adversely if we fail to maintain satisfactory labor relations.
Production in our mines is dependent upon the efforts of our employees. We are party to labor agreements with various labor unions
that represent employees at our operations. Such labor agreements are negotiated periodically, and, therefore, we are subject to the
risk that these agreements may not be able to be renewed on reasonably satisfactory terms. It is difficult to predict what issues may
arise as part of the collective bargaining process, and whether negotiations concerning these issues will be successful. Due to union
activities or other employee actions, we could experience labor disputes, work stoppages, or other disruptions in our production of
coal and iron ore that could affect us adversely. The USW represents all hourly employees at our U.S. Iron Ore and Eastern Canadian
Iron Ore operations owned and/or managed by Cliffs or its subsidiary companies except for Northshore.
Effective September 1, 2012, our Empire and Tilden mines in Michigan, and United Taconite and Hibbing mines in Minnesota, entered
into 37-month labor agreements with the USW that cover approximately 2,400 USW-represented employees at those mines. Those
agreements terminate on September 30, 2015. Effective March 1, 2009, Wabush entered into a five-year labor agreement with the
USW that covers approximately 700 hourly employees, which is effective through February 28, 2014. In August 2013, our Bloom
Lake operation in Quebec entered into a new labor agreement with the USW covering approximately 370 hourly employees. It has
a three-year term that runs from September 1, 2013 through August 31, 2016. In November 2014, our Pointe Noire operation in
Quebec entered into a new labor agreement with the USW that covers approximately 180 hourly employees. It has a six-year term
and runs from March 1, 2014 through February 28, 2020. The UMWA represents approximately 800 hourly employees at our Pinnacle
location in West Virginia and our Oak Grove location in Alabama. A new five and one-half year labor agreement with respect to those
mines was entered into with the UMWA, effective July 1, 2011 through December 31, 2016. Approximately 120 hourly employees at
the railroads we own that transport products among our facilities are represented by seven separate rail unions. We have current
labor agreements with all seven of those unions. The moratorium for bargaining as to each of those unions under the Railway Labor
Act will expire on December 31, 2014. If we enter into a new labor agreement with any union that significantly increases our labor
costs relative to our competitors or fail to come to an agreement upon expiry, our ability to compete may be materially and adversely
affected.
We may encounter labor shortages for critical operational positions, which could affect adversely our ability to produce our
products.
We are predicting a long-term shortage of skilled workers for the mining industry and competition for the available workers limits our
ability to attract and retain employees. The mining industry is experiencing a skills shortage in Australia and Canada and other
countries in which we do not have operations currently. Additionally, at our mining locations, many of our mining operational employees
are approaching retirement age. As these experienced employees retire, we may have difficulty replacing them at competitive wages.
Our expenditures for post-retirement benefit and pension obligations could be materially higher than we have predicted if
our underlying assumptions differ from actual outcomes, there are mine closures, or our joint venture partners fail to perform
their obligations that relate to employee pension plans.
We provide defined benefit pension plans and OPEB to certain eligible union and non-union employees in North America, including
our share of expense and funding obligations with respect to unconsolidated ventures. Our pension expense and our required
contributions to our pension plans are affected directly by the value of plan assets, the projected and actual rate of return on plan
assets, and the actuarial assumptions we use to measure our defined benefit pension plan obligations, including the rate at which
future obligations are discounted.
We cannot predict whether changing market or economic conditions, regulatory changes or other factors will increase our pension
expenses or our funding obligations, diverting funds we would otherwise apply to other uses.
Signatories to labor agreements with the UMWA have participated for decades in the UMWA 1974 Pension Plan (the "1974 PP"). The
1974 PP has been underfunded for a number of years and has a current total underfunded liability in excess of $5 billion. Our Pinnacle
and Oak Grove mines are signatories to labor agreements with the UMWA, making them participants in the 1974 PP. As of the most
recent estimate, Pinnacle and Oak Grove's combined share of this underfunded liability was estimated to be approximately $342
million. If Pinnacle or Oak Grove were to withdraw from the 1974 PP or if a mass withdrawal were to occur, we would become obligated
to pay this amount to the 1974 PP.
We have calculated our unfunded pension and OPEB obligations based on a number of assumptions. If our assumptions do not
materialize as expected, cash expenditures and costs that we incur could be materially higher. Moreover, we cannot be certain that
regulatory changes will not increase our obligations to provide these or additional benefits. These obligations also may increase
substantially in the event of adverse medical cost trends or unexpected rates of early retirement, particularly for bargaining unit retirees.
At our U.S. iron ore mines where the hourly employees are represented by the USW, the new labor agreement includes a retiree
medical cap effective for those hourly employees who retire after January 1, 2015. Early retirement rates likely would increase
substantially in the event of a mine closure.
27
We depend on our senior management team and other key employees, and the loss of these employees could adversely
affect our business.
Our success depends in part on our ability to attract and motivate our senior management and key employees. Achieving this objective
may be difficult due to a variety of factors, including fluctuations in the global economic and industry conditions, competitors' hiring
practices, cost reduction activities, and the effectiveness of our compensation programs. Competition for qualified personnel can be
intense. We must continue to recruit, retain, and motivate our senior management and key personnel in order to maintain our business
and support our projects. A loss of senior management and key personnel could prevent us from capitalizing on business opportunities,
and our operating results could be adversely affected.
Item 1B.
Unresolved Staff Comments
We have no unresolved comments from the SEC.
28
Item 2.
Properties
The following map shows the locations of our operations and offices as of December 31, 2013:
General Information about the Mines
All of our iron ore mining operations are open-pit mines that are in production. Additional pit development is underway as required
by long-range mine plans. At our U.S. Iron Ore, Eastern Canadian Iron Ore and Asia Pacific Iron Ore mines, drilling programs are
conducted periodically for the purpose of refining guidance related to ongoing operations.
Our North American Coal operations consist of both underground and surface mines. Drilling programs are conducted periodically
for the purpose of refining guidance related to ongoing operations.
Geologic models are developed for all mines to define the major ore and waste rock types. Computerized block models for iron ore
and stratigraphic models for coal are constructed that include all relevant geologic and metallurgical data. These are used to generate
grade and tonnage estimates, followed by detailed mine design and life of mine operating schedules.
U.S. Iron Ore
The following map shows the locations of our U.S. Iron Ore operations as of December 31, 2013:
We directly or indirectly own and operate interests in five U.S. Iron Ore mines located in Michigan and Minnesota from which we
produced 20.3 million, 22.0 million and 23.7 million tons of iron ore pellets in 2013, 2012 and 2011, respectively, for our account. We
produced 6.9 million, 7.5 million and 7.3 million tons, respectively, on behalf of the steel company partners of the mines.
29
Our U.S. Iron Ore mines produce from deposits located within the Biwabik and Negaunee Iron Formation, which are classified as
Lake Superior type iron formations that formed under similar sedimentary conditions in shallow marine basins approximately two
billion years ago. Magnetite and hematite are the predominant iron oxide ore minerals present, with lesser amounts of goethite and
limonite. Quartz is the predominant waste mineral present, with lesser amounts of other chiefly iron bearing silicate and carbonate
minerals. The ore minerals liberate from the waste minerals upon fine grinding.
Mine
Empire
Cliffs
Ownership
79%
Tilden
85%
Hibbing
23%
Northshore
100%
United
Taconite
100%
Mine,
Concentrator,
Pelletizer
Mine,
Concentrator,
Pelletizer,
Railroad
Mine,
Concentrator,
Pelletizer
Mine,
Concentrator,
Pelletizer,
Railroad
Mine,
Concentrator,
Pelletizer
Infrastructure Mineralization
Magnetite
Hematite &
Magnetite
Operating
Since
1963
Current
Annual
Capacity1,2
5.5
2013
Production2,3
3.0
Mineral
Owned
53%
Rights
Leased
47%
1974
8.0
7.5
100%
—%
Magnetite
1976
Magnetite
1990
8.0
6.0
7.7
3.9
3%
97%
—%
100%
Magnetite
1965
5.4
5.2
—%
100%
1 Annual capacity is reported on a wet basis in millions of long tons, equivalent to 2,240 pounds.
2 Figures reported on 100% basis.
3 2013 Production from Empire includes 1.7 million long tons tolled to Tilden.
Empire Mine
The Empire mine is located on the Marquette Iron Range in Michigan’s Upper Peninsula approximately 15 miles southwest of Marquette,
Michigan. The Empire mine has produced between 3.0 million and 4.9 million tons of iron ore pellets annually over the past five years,
of which between 0.7 million and 1.9 million long annually over the past five years were tolled to Tilden mine.
We own 79 percent of Empire and a subsidiary of ArcelorMittal USA has retained the remaining 21 percent ownership in Empire with
limited rights and obligations, which it has a unilateral right to put to us at any time. This right has not been exercised. Each partner
takes its share of production pro rata; however, provisions in the partnership agreement allow additional or reduced production to be
delivered under certain circumstances. We own directly approximately one-half of the remaining ore reserves at the Empire mine
and lease them to Empire. A subsidiary of ours leases the balance of the Empire reserves from other owners of such reserves and
subleases them to Empire. Operations consist of an open pit truck and shovel mine, a concentrator that utilizes single stage crushing,
AG mills, magnetic separation and floatation to produce a magnetite concentrate that is then supplied to the on-site pellet plant.
Tilden Mine
The Tilden mine is located on the Marquette Iron Range in Michigan’s Upper Peninsula approximately five miles south of Ishpeming,
Michigan. Over the past five years, the Tilden mine has produced between 4.9 million and 7.8 million tons of iron ore pellets annually.
We own 85 percent of Tilden, with the remaining minority interest owned by a subsidiary of U.S. Steel Canada Inc. Each partner takes
its share of production pro rata; however, provisions in the partnership agreement allow additional or reduced production to be delivered
under certain circumstances. We own all of the ore reserves at the Tilden mine and lease them to Tilden. Operations consist of an
open pit truck and shovel mine, a concentrator that utilizes single stage crushing, AG mills, magnetite separation and floatation to
produce hematite and magnetic concentrates that are then supplied to the on-site pellet plant.
The Empire and Tilden mines are located adjacent to each other. The logistical benefits include a consolidated transportation system,
more efficient employee and equipment operating schedules, reduction in redundant facilities and workforce and best practices sharing.
Two railroads, one of which is wholly owned by us, link the Empire and Tilden mines with Lake Michigan at the loading port of Escanaba,
Michigan and with the Lake Superior loading port of Marquette, Michigan.
30
Hibbing Mine
The Hibbing mine is located in the center of Minnesota’s Mesabi Iron Range and is approximately ten miles north of Hibbing, Minnesota
and five miles west of Chisholm, Minnesota. Over the past five years, the Hibbing mine has produced between 1.7 million and 8.1
million tons of iron ore pellets annually. We own 23 percent of Hibbing, a subsidiary of ArcelorMittal has a 62.3 percent interest and
a subsidiary of U.S. Steel has a 14.7 percent interest. Each partner takes its share of production pro rata; however, provisions in the
joint venture agreement allow additional or reduced production to be delivered under certain circumstances. Mining is conducted on
multiple mineral leases having varying expiration dates. Mining leases routinely are renegotiated and renewed as they approach their
respective expiration dates. Hibbing operations consist of an open pit truck and shovel mine, a concentrator that utilizes single stage
crushing, AG mills and magnetic separation to produce a magnetite concentrate, which is then delivered to an on-site pellet plant.
From the site, pellets are transported by BNSF rail to a ship loading port at Superior, Wisconsin operated by BNSF.
Northshore Mine
The Northshore mine is located in northeastern Minnesota, approximately two miles south of Babbitt, Minnesota on the northeastern
end of the Mesabi Iron Range. Northshore’s processing facilities are located in Silver Bay, Minnesota, near Lake Superior. Crude
ore is shipped by a wholly owned railroad from the mine to the processing and dock facilities at Silver Bay. Over the past five years,
the Northshore mine has produced between 3.2 million and 5.8 million tons of iron ore pellets annually. As previously announced,
two of the four production lines at Northshore were idled beginning January 5, 2013. The idled lines are expected to reopen during
the first quarter of 2014. The Northshore mine began production under our management and ownership on October 1, 1994. We
own 100 percent of the mine. Mining is conducted on multiple mineral leases having varying expiration dates. Mining leases routinely
are renegotiated and renewed as they approach their respective expiration dates. Northshore operations consist of an open pit truck
and shovel mine where two stages of crushing occur before the ore is transported along a wholly owned 47-mile rail line to the plant
site in Silver Bay. At the plant site, two additional stages of crushing occur before the ore is sent to the concentrator. The concentrator
utilizes rod mills and magnetic separation to produce a magnetite concentrate, which is delivered to the pellet plant located on-site.
The plant site has its own ship loading port located on Lake Superior.
United Taconite Mine
The United Taconite mine is located on Minnesota’s Mesabi Iron Range in and around the city of Eveleth, Minnesota. The United
Taconite concentrator and pelletizing facilities are located ten miles south of the mine, near the town of Forbes, Minnesota. Over the
past five years, the United Taconite mine has produced between 3.8 million and 5.4 million tons of iron ore pellets annually. We own
100 percent of the mine. Mining is conducted on multiple mineral leases having varying expiration dates. Mining leases routinely are
renegotiated and renewed as they approach their respective expiration dates. United Taconite operations consist of an open pit truck
and shovel mine where two stages of crushing occur before the ore is transported by rail to the plant site located ten miles to the
south. At the plant site an additional stage of crushing occurs before the ore is sent to the concentrator. The concentrator utilizes rod
mills and magnetic separation to produce a magnetite concentrate, which is delivered to the pellet plant. From the site, pellets are
transported by CN rail to a ship loading port at Duluth, Minnesota operated by CN.
31
Eastern Canadian Iron Ore
The following map shows the locations of our Eastern Canadian Iron Ore operations as of December 31, 2013:
We own and operate interests in two iron ore mines in the Canadian Provinces of Quebec and Newfoundland and Labrador from
which we produce iron ore concentrate and produced iron ore pellets through June 2013. We produced 8.7 million, 8.5 million and
6.9 million metric tons of iron ore product in 2013, 2012 and 2011, respectively, from these two mines. In May 2011, we acquired
Consolidated Thompson along with its 75 percent interest in the Bloom Lake property. In the fourth quarter of 2013, our interest
increased by an aggregate of 7.8 percent, bringing our interest to 82.8 percent in the Bloom Lake property.
Our Eastern Canadian mines produce from deposits located within the area known as the Labrador Trough and are composed of iron
formations, which are classified as Lake Superior type. Lake Superior type iron formations consist of banded sedimentary rocks that
formed under similar conditions in shallow marine basins approximately two billion years ago. The Labrador Trough region experienced
considerable metamorphism and folding of the original iron deposits. Magnetite and hematite are the predominant iron oxide ore
minerals present, with lesser amounts of goethite and limonite. Quartz is the predominant waste mineral present, with lesser amounts
of other chiefly iron bearing silicate minerals. The ore minerals liberate from the waste minerals upon fine grinding.
Infrastructure Mineralization
Hematite
Operating
Since
1965
Current Annual
Capacity1, 2
5.6
2013
Production2
2.8
Mineral
Owned
—%
Rights
Leased
100%
Mine
Wabush
Cliffs
Ownership
100%
Bloom
Lake
82.8%
Mine,
Concentrator,
Pelletizer,
Railroad
Mine,
Concentrator,
Railroad
Hematite
2010
7.2
5.9
100%
—%
1 Annual capacity is reported on a wet basis in millions of metric tons, equivalent to 2,205 pounds.
2 Figures reported on 100% basis.
Wabush Mine
The Wabush mine has been in operation since 1965. Over the past five years, the Wabush mine has produced between 2.7 million
and 3.9 million metric tons of iron ore pellets and concentrate annually. Mining is conducted on several mineral leases having varying
expiration dates. Mining leases are routinely renegotiated and renewed as they approach their respective expiration dates. The
Wabush mine and concentrator are located in Wabush, Newfoundland and Labrador, and the pelletizing operations and dock facility
are located in Pointe Noire, Quebec. At the mine, operations consist of an open pit truck and shovel mine, a concentrator that utilizes
single stage crushing, AG mills and gravity separation to produce an iron concentrate. Concentrates are shipped by rail 300 miles to
Pointe Noire where they were pelletized for shipment via vessel within Canada, to the U.S. and other international destinations.
Concentrates are shipped directly from Pointe Noire for sinter feed.
On February 11, 2014, we announced our plan to idle our Wabush mine in Newfoundland and Labrador by the end of the first quarter
of 2014. The idle is being driven by the unsustainable high cost structure, which results in operations that are not economically viable
to run over time. Additionally, during the second quarter of 2013, the pellet plant operations were idled at Pointe Noire.
32
Bloom Lake Mine
The Bloom Lake mine and concentrator are located approximately nine miles southwest of Fermont, Quebec. As previously mentioned,
our acquisition of Consolidated Thompson in May 2011 included a 75 percent majority ownership in the Bloom Lake operation. During
the fourth quarter of 2013, CQIM's interest in the property increased by an aggregate of 7.8 percent to 82.8 percent after CQIM paid
both its own and WISCO’s proportionate shares of the cash call for the first half of 2013. As a result, WISCO's interest was diluted
to 17.2 percent. Since the acquisition in May 2011, the Bloom Lake mine has produced between 3.5 million and 5.9 million metric
tons of iron ore concentrate annually. Phase I of the Bloom Lake mine was commissioned in March 2010, and it consists of an open
pit truck and shovel mine, a concentrator that utilizes single stage crushing, an AG mill and gravity separation to produce an iron
concentrate. From the site, concentrate is transported 320 miles by rail to a ship loading port in Pointe Noire, Quebec.
On February 11, 2014, we announced that we are exploring various strategic alternatives for our Bloom Lake mine. In the short term,
we will continue to operate Bloom Lake mine Phase I operations on a reduced tailings and water management capital plan. We will
continue to evaluate and will idle temporarily the operations if the pricing and operating costs justify such an alternative action. As a
result, the Phase II expansion project remains on hold.
Asia Pacific Iron Ore
The following map shows the location of our Asia Pacific Iron Ore operation as of December 31, 2013:
In Australia, we own and operate the Koolyanobbing operations and owned and operated a 50 percent interest in the Cockatoo
Island iron ore mine until we sold it in September 2012. We produced 11.1 million metric tons, 11.3 million metric tons and 8.9
million metric tons in 2013, 2012 and 2011, respectively. The 2012 and 2011 production tons include tons produced at the
Koolyanobbing operations and the Cockatoo Island iron ore mine.
The mineralization at the Koolyanobbing operations is predominantly hematite and goethite replacements in greenstone-hosted banded
iron formations. Individual deposits tend to be small with complex ore-waste contact relationships. The reserves at the Koolyanobbing
operations are derived from 14 separate mineral deposits distributed over a 70 mile operating radius.
Mine
Koolyanobbing
Cliffs
Ownership Infrastructure Mineralization
100%
Mine, Road
Haulage,
Crushing-
Screening
Plant
Hematite &
Goethite
Operating
Since
1994
Current
Annual
Capacity1
11.0
2013
Production
11.1
Mineral
Owned
—%
Rights
Leased
100%
1 Annual capacity is reported on a wet basis in millions of metric tons, equivalent to 2,205 pounds.
Koolyanobbing
The Koolyanobbing operations are located 250 miles east of Perth and approximately 30 miles northeast of the town of Southern
Cross. Koolyanobbing produces lump and fines iron ore. Mining is conducted on multiple mineral leases having varying expiration
dates. Mining leases routinely are renewed as they approach their respective expiration dates. Ongoing exploration programs targeting
extensions to the iron ore mineralization, including regional exploration targets in the Yilgarn Mineral Field, were active in 2013. In
2011, a significant permitting milestone was achieved with the granting of regulatory approvals necessary to develop above the water
table at Windarling's W1 deposit. In 2013, environmental approvals were obtained for deepening of the Windarling W1 pit and
deepening of the Koolyanobbing A/B/C pits. Final environmental approvals also were received in 2013 for the Deception project.
33
Over the past five years, the Koolyanobbing operation has produced between 8.2 million and 11.1 million metric tons annually. The
expansion project at Koolyanobbing increasing annual capacity to 11 million metric tons was completed in 2012. Ore material is
sourced from nine separate open pit mines and delivered by typical production trucks or road trains to a crushing and screening facility
located at Koolyanobbing. All of the ore from the Koolyanobbing operations is transported by rail to the Port of Esperance, 360 miles
to the south, for shipment to Asian customers.
North American Coal
The following map shows the locations of our North American Coal operations as of December 31, 2013:
We directly own and operate three North American coal mining complexes from which we produced a total of 7.2 million, 6.4 million
and 5.0 million tons of coal in 2013, 2012 and 2011, respectively. Our coal production at each mine is shipped within the U.S. by rail
or barge. Coal for international customers is shipped through the ports of Mobile, Alabama; Newport News, Virginia; and New Orleans,
Louisiana.
Coal seams mined at all of our North American Coal operations are Pennsylvanian Age and derived from the Pocahontas 3 and 4
seams at the Pinnacle Complex and the Blue Creek Seam at Oak Grove, which produce high quality, low ash metallurgical products,
while multiple seams are mined at the CLCC underground and surface mines producing both metallurgical and thermal products.
Mine
Pinnacle
Complex
Cliffs
Ownership
100%
Oak Grove
100%
Cliffs Logan
County Coal
100%
Infrastructure
U/G Mine,
Preparation
Plant, Load-out
U/G Mine,
Preparation
Plant, Load-out
U/G Mine,
Preparation
Plant, Load-out
Primary
Coal Type
Low-Vol
Metallurgical
Low-Vol
Metallurgical
High-Vol
Metallurgical
Operating
Since
1969
Current
Annual
Capacity1
4.0
2013
Production
2.8
Mineral
Owned
—%
Rights
Leased
100%
1972
2008
2.5
1.7
2.3
1.5
0.6
—%
100%
—%
100%
—%
100%
Cliffs Logan
County Coal
1 Annual capacity is on a wet basis in millions of short tons, equivalent to 2,000 pounds.
Surface Mine
Thermal
100%
2005
1.2
Pinnacle Complex
The Pinnacle Complex includes the Pinnacle and Green Ridge mines and is located approximately 30 miles southwest of Beckley,
West Virginia. The Pinnacle mine has been in operation since 1969. Over the past five years, the Pinnacle mine has produced
between 0.7 million and 2.8 million tons of coal annually. The Green Ridge mines have been in operation since 2004 and have ranged
from no production to 0.2 million tons of coal annually. In February 2010, the Green Ridge No. 1 mine was closed permanently due
to exhaustion of the economic reserves at the mine. In addition, the Green Ridge No. 2 mine was idled in January 2012. Pinnacle
utilizes continuous miners and a longwall plow system; Green Ridge utilizes only continuous miners. Both facilities share preparation,
processing and load-out facilities.
34
Oak Grove
The Oak Grove mine is located approximately 25 miles southwest of Birmingham, Alabama. The mine has been in operation since
1972. Over the past five years, the Oak Grove mine has produced between 0.9 million and 2.3 million tons of coal annually. In 2011,
a new shaft and support facilities were commissioned in order to reduce the transport time for supplies and personnel to the working
face. The previous shaft still is utilized in a support role. Oak Grove utilizes a long wall shearer with continuous miners. Preparation,
processing and rail load-out facilities are located on-site. The preparation plant at Oak Grove incurred significant tornado damage
during 2011. The plant rebuild included new equipment and improvements to the process design that enhanced the performance of
the plant, which returned to normal operating capacity in January 2012.
Cliffs Logan County Coal
Cliffs Logan County Coal property is located within Boone, Logan and Wyoming counties in southern West Virginia. CLCC currently
produces metallurgical and thermal coal from surface and underground mines that are served by a preparation plant and unit-train
load out facility on the CSX Transportation. Two underground mines, the Powellton No. 1 and Lower War Eagle, produce high-volatile
metallurgical coal using room and pillar retreat mining methods using continuous miner equipment. The Toney Fork No. 2 surface
mine produces thermal coal with a combination of contour strip area mining and point removal methods.
The Powellton and Dingess-Chilton mines have been in operation since 2008. The Lower War Eagle mine was in development in
2011 and became fully operational in November 2012. Over the past five years, the Powellton mine has produced between 0.3 million
and 0.8 million tons of coal annually and the Dingess-Chilton mine production has ranged from 0.1 million tons to 0.6 million tons of
coal annually. In March 2013, the Dingess-Chilton mine was closed permanently due to exhaustion of economic reserves. Lower
War Eagle produced 0.6 million tons in 2013 and 0.1 million tons in 2012 after moving out of the development phase. The Toney Fork
No. 2 mine has been in operation since 2005. Over the past five years, the Toney Fork No. 2 mine has produced between 0.6 million
and 1.2 million tons of coal annually.
Advanced Exploration and Development Properties
The following map shows the locations of our advanced exploration and development properties as of December 31, 2013:
We have several advanced exploration projects located in the Canadian provinces of British Columbia, Ontario and Québec in different
stages of evaluation at this time. Work completed on these properties includes geological mapping, drilling and sampling programs,
and initial and advance stage engineering studies.
Chromite Project
Cliffs Chromite Ontario's primary assets are situated in the Ring of Fire area, James Bay lowlands, of northern Ontario. These chromite
properties are located approximately 155 miles north of the town of Nakina (on the CN railroad mainline) and about 50 miles east of
the First Nations community of Webequie. We have a controlling position in three chromite deposits that occur in close proximity to
each other: a 100 percent interest in each of the Black Label and Black Thor chromite deposits and a 70 percent interest in the Big
Daddy chromite deposit. KWG Resources Inc. owns the remaining 30 percent. We have completed a prefeasibility study on the
Black Thor deposit, the largest of the three deposits. On November 20, 2013, we indefinitely suspended our Chromite Project in
Northern Ontario. Given the uncertain timeline and risks associated with the development of necessary infrastructure to bring this
project online, we do not expect to allocate any significant additional capital to the project. Earlier in 2013, we suspended the
environmental assessment activities because of pending issues impeding the progress of the project. We will continue to work with
the Government of Ontario, First Nation communities and other interested parties to explore potential solutions related to the critical
infrastructure issues for the Ring of Fire properties.
These chromite deposits are orthomagmatic stratiform deposits of unusual thickness and size. Mineralization consists of chromite
crystals [(Fe,Mg) (Cr,Al,Fe)2O4] ranging from massive chromite bands to interbedded and disseminated chromite.
35
Decar Property
The Decar Property is located 56 miles northwest of Fort St. James, British Columbia, Canada and consists of 60 mineral claims
covering 95 square miles. We own a 60 percent interest in the Decar Property and First Point Minerals Corp. owns the remaining 40
percent. In 2012, 2011 and 2010, we performed exploration activities on the property and in 2013 completed a scoping study to further
evaluate the potential economics and viability of an operation producing a high-grade nickel concentrate that could be marketable to
various end users. In 2013 our interest in the property increased from 51 percent to 60 percent as a result of completing the scoping
study in accordance with the 2009 option agreement between Cliffs and First Point Minerals.
The mineralization consists of the nickel-iron alloy awaruite (Ni2-3Fe). Awaruite is disseminated in serpentinized peridotite; it occurs
as relatively coarse grains between 50 to 400 µm in size. Awaruite has been observed throughout the entire extent of the peridotite
but four zones of stronger mineralization have been identified. The four zones are the Baptiste, Sidney, Target B and Van targets.
Exploration programs, resource definition drilling and engineering studies associated with the scoping study have focused on the
Baptiste prospect.
Labrador Trough South
The Labrador Trough South property is located approximately 150 miles north of Sept-Iles, Québec and 30 miles southwest of the
town of Fermont, Québec. Provincial highway 389 crosses the south and east sides of the property and provides year-round access.
The property consists of a total of 636 non-contiguous claims covering roughly 130 square miles. Several areas containing iron
mineralization have been further defined utilizing aerial geophysics, outcrop mapping and diamond drilling. These areas are known
as: Lamêlée, Peppler Lake, Hobdad, Lac Jean and Faber. To date, most of the exploration efforts have focused on the first three
areas. Cliffs acquired 100 percent ownership of the claims as part of the Consolidated Thompson acquisition in 2011.
The Labrador Trough South property is situated in the Knob Lake Group of sedimentary rocks including Lake Superior-type banded
iron formations. Here, the Labrador Trough is crossed by the Grenville Front. Trough rocks in the Grenville Province are highly
metamorphosed, complexly folded and structurally dislocated. The high-grade metamorphism of the Grenville Province is responsible
for recrystallization of both iron oxides and silica producing coarse-grained sugary quartz, magnetite, specular hematite schists and
gneisses that are of improved quality for concentrating and processing. Potentially recoverable minerals in the project are predominantly
magnetite and subordinate hematite.
Mineral Policy
We have a corporate policy relating to internal control and procedures with respect to auditing and estimating of minerals. In 2012,
we revised our policy regarding the estimation and reporting of mineralized materials and mineral reserves to better align with
international best practices. The procedures contained in the policy include the calculation of mineral estimates at each property by
our engineers, geologists and accountants, as well as third-party consultants. Management compiles and reviews the calculations,
and once finalized, such information is used to prepare the disclosures for our annual and quarterly reports. The disclosures are
reviewed and approved by management, including our president and chief financial officer. Additionally, the long-range mine planning
and mineral estimates are reviewed annually by our Audit Committee. Furthermore, all changes to mineral estimates, other than
those due to production, are adequately documented and submitted to senior operations officers for review and approval. Finally,
periodic reviews of long-range mine plans and mineral reserve estimates are conducted at mine staff meetings, senior management
meetings and by independent experts.
Mineral Reserves
Reserves are defined by SEC Industry Standard Guide 7 as that part of a mineral deposit that could be economically and legally
extracted and produced at the time of the reserve determination. All reserves are classified as proven or probable and are supported
by life-of-mine plans.
Reserve estimates are based on pricing that does not exceed the three-year trailing average of benchmark prices for iron ore and
coal adjusted to our realized price. For the three-year period 2010 to 2012, the average international benchmark price of 62 percent
Fe CFR China was $149 per dry metric ton. For the same period, the benchmark coal prices FOB U.S. East Coast were $238 per
metric ton for low-vol, $194 per metric ton for high-vol, and $63 per short ton for thermal.
36
We evaluate and analyze mineral reserve estimates in accordance with our mineral policy and SEC requirements. The table below
identifies the year in which the latest reserve estimate was completed.
Property
Date of Latest Economic
Reserve Analysis
U.S. Iron Ore
Empire
Tilden
Hibbing
Northshore
United Taconite
Eastern Canadian Iron Ore
Bloom Lake
Asia Pacific Iron Ore
Koolyanobbing
North American Coal
Pinnacle Complex
Oak Grove
CLCC
2009
2011
2012
2012
2013
2011
2013
2013
2012
2011
Iron Ore Reserves
Ore reserve estimates for our iron ore mines as of December 31, 2013 were estimated from fully designed open pits developed using
three-dimensional modeling techniques. These fully designed pits incorporate design slopes, practical mining shapes and access
ramps to assure the accuracy of our reserve estimates. New estimates were completed in 2013 for the following operations: United
Taconite and Koolyanobbing. With the expiration of our partnership agreement and anticipated closure of Empire at the end of 2014,
we are only reporting the amount of reserves at Empire that are planned to be extracted during the year. In the second quarter of
2013, we made the decision to idle the pellet plant at Pointe Noire and only produce an iron ore concentrate from our Wabush facility.
Subsequently, in the first quarter of 2014, we made the decision to idle all production at our Wabush mine by the end of the quarter.
As a result, the reserves previously reported for Wabush are now included in our Mineralized Material estimates. All of our remaining
operations reserves have been adjusted net of 2013 production.
37
Property
Empire
Tilden
Hematite1
Tilden
Magnetite
Total Tilden
Hibbing
Cliffs
Share
79%
85%
85%
23%
U.S. Iron Ore
All tonnages reported for our U.S. Iron Ore operating segment are in long tons of 2,240 pounds, have been rounded to the nearest
100,000 and are reported on a 100 percent basis.
U.S. Iron Ore Mineral Reserves
as of December 31, 2013
(In Millions of Long Tons)
Proven
Probable
Proven & Probable
Saleable Product 2,3
Previous Year
Tonnage % Grade
Tonnage % Grade
Tonnage
4.7
—
—
4.7
21.7
35.7
85%
474.6
130.0
36.1
604.6
35.8
34%
207.2
625.2
214.3
%
Grade5
21.7
Process
Recovery4 Tonnage
1.4
30%
P&P
Crude
Ore
Saleable
Product
22.4
6.2
72.9
29.0
11.7
29.2
84.6
29.0
547.5
266.8
141.7
20.7
18.9
689.2
287.5
712.6
24.8
1,051.4
19.0
25.0
19.0
25.5
38%
35%
26%
34%
31.9
89.0
33.5
239.1
75.4
714.2
247.8
316.1
82.8
356.9
1,063.1
360.7
Northshore
100%
338.8
United
Taconite
Totals
100%
423.5
23.1
65.9
22.9
489.4
23.1
34%
164.1
386.7
125.8
1,581.3
940.9
2,522.2
836.9
2,502.5
823.3
1 Tilden hematite reported grade is percent FeT; all other properties are percent magnetic iron
2 Saleable product is a standard pellet containing 60 to 66 percent Fe calculated from both proven and probable mineral reserves
3 Saleable product is reported on a dry basis; shipped products typically contain 1 to 4 percent moisture
4 Process recovery includes all factors for converting crude ore tonnage to saleable product
5 Cutoff grades are 15 percent magnetic iron for Hibbing and Empire, 17 percent for United Taconite, 19 percent for
Northshore and 20 percent for Tilden. Cutoff for Tilden hematite is 25 percent FeT.
New economic reserve analyses were completed for United Taconite in 2013. Based on the analysis, saleable product reserves
increased by 43.4 million tons at United Taconite as a result of updated life-of-mine operating plans and production schedules, partially
offset by 2013 production of 5.1 million tons.
Eastern Canadian Iron Ore
All tonnages reported for our Eastern Canadian Iron Ore operating segment are in metric tons of 2,205 pounds, have been rounded
to the nearest 100,000 and are reported on a 100 percent basis.
Eastern Canadian Iron Ore Mineral Reserves
as of December 31, 2013
(In Millions of Metric Tons)
Proven
Probable
Proven & Probable
Saleable Product1,2
Previous Year
Property
Bloom Lake
Cliffs
Share
Tonnage % Fe
Tonnage % Fe
Tonnage % Fe4
Process
Recovery3 Tonnage
P&P
Crude
Ore
Saleable
Product
82.8% 249.8
29.2
765.3
28.3
1,015.1
28.5
34%
350.1
1,034.5
355.8
1 Bloom Lake product is an iron concentrate containing 66 percent Fe calculated from both proven and probable mineral reserves.
2 Saleable product is reported on a dry basis, shipped products contain 3 percent moisture
3 Process recovery includes all factors for converting crude ore tonnage to saleable product
4 Cutoff grade is 20 percent FeT
In the second quarter of 2013, we idled the pellet plant at Pointe Noire and decided to produce only an iron ore concentrate from our
Wabush facility. Subsequently, on February 11, 2014, we announced that we made the decision to idle all production at our Wabush
mine by the end of the first quarter of 2014. As a result, the reserves previously reported for Wabush now are included in our Mineralized
Material estimates.
38
Asia Pacific Iron Ore
All tonnages reported for our Asia Pacific Iron Ore operating segment are in metric tons of 2,205 pounds, have been rounded to the
nearest 100,000 and are reported on a 100 percent basis.
Asia Pacific Iron Ore Mineral Reserves
as of December 31, 2013
(In Millions of Metric Tons)1
Proven
Probable
Proven & Probable
Previous Year Total
Property
Koolyanobbing
Cliffs
Share
100%
Tonnage % Fe
Tonnage % Fe
Tonnage % Fe2
3.8
58.0
60.7
60.4
64.5
60.3
Tonnage
78.1
1 Tonnages reported are saleable product reported on a dry basis; shipped products contain 3 percent moisture
2 Cutoff grade is 54 percent FeT
New economic reserve analyses were completed for Koolyanobbing in 2013. Based on the analysis, saleable product reserves
decreased by 2.1 million metric tons as a result of updated life-of-mine operating plans and production schedules.
Coal Reserves
Coal reserves estimates for our North American underground and surface mines as of December 31, 2013 were estimated using
three-dimensional modeling techniques, coupled with scheduled mine plans. The CLCC operations and Oak Grove operations reserves
have not changed net of 2013 mine production.
39
North American Coal
All tonnages reported for our North American Coal operating segment are in short tons of 2,000 pounds, have been rounded to the
nearest 100,000 and are reported on a 100 percent basis.
Recoverable Coal Reserves
as of December 31, 2013
(In Millions of Short Tons)1
Category2
Coal Type
Mine
Type
Proven
Probable
Total
P&P
%
Sulfur
As
Received
Btu/lb
Total
P&P
Reserve Classification
Quality
Previous
Year
Assigned
Metallurgical
U/G
31.7
Unassigned Metallurgical
U/G
2.8
9.9
0.5
41.6
0.92
14,000
45.8
3.3
0.51
14,000
3.3
Assigned
Metallurgical
U/G
31.0
4.0
35.0
0.57
14,000
37.3
Assigned
Metallurgical
U/G
32.9
19.0
51.9
1.00
15,500
53.4
Assigned
Metallurgical
Surface
5.2
1.0
6.2
0.90
15,300
6.2
Assigned
Thermal3
Surface
42.3
145.9
7.4
41.8
49.7
187.7
0.89
13,300
50.4
196.4
Cliffs
Share
100%
100%
Property/Seam
Pinnacle Complex
Pocahontas
No 3
Pocahontas
No 4
Oak Grove
Blue Creek
Seam
100%
Cliffs Logan
County Coal
Multi-Seam
Underground
Multi-Seam
Surface
Multi-Seam
Surface
100%
100%
100%
Totals
1 Recoverable coal is reported on a wet basis containing 6 percent moisture
2 Assigned reserves represent coal that can be mined without a significant capital expenditure, whereas unassigned reserves will
require significant capital expenditures before production could be realized
3 CLCC thermal reserves do not meet U.S. compliance standards as defined by Phase II of the Clean Air Act as coal having a
sulfur dioxide content of 1.2 pounds or less per million BTU
New economic reserve analyses were completed for Pinnacle operations in 2013. Total recoverable coal reserves decreased 1.4
million tons at Pinnacle, net of 2013 production.
Mineralized Material
“Mineralized material” is a concentration or occurrence of natural, solid, inorganic or fossilized organic material in or on the Earth's
crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. Mineralized
material has been delineated by appropriate sampling to establish continuity and support an estimate of tonnage with an average
grade of the selected metals, minerals or quality. We have various properties in either advanced exploration, development or operational
stages that contain considerable amounts of mineralized material that could eventually be converted into reserves given favorable
operating and market conditions. Future production from mineralized material would require additional economic and engineering
studies, permitting and significant capital expenditures before any potential value could be realized. A deposit of mineralized material
does not qualify as a reserve until a comprehensive evaluation, based upon unit costs, grade, recoveries and other material factors,
concludes both economic and legal feasibility. Further, for new projects a “final” or “bankable” feasibility study is required prior to the
reporting of mineral reserves.
Readers are cautioned not to assume that any of these mineralized materials will ever be converted into mineral reserves. Our
mineralized material estimates contain only material classified as measured or indicated. Materials classified as inferred have a
greater amount of uncertainty as to their future ability to be upgraded and are not included in the estimates reported.
All tonnages are reported in metric tons of 2,205 pounds, have been rounded to the nearest 100,000 and are reported on a 100 percent
basis.
40
Wabush
As described above, the reserves for Wabush have been reclassified as mineralized material because all production at our Wabush
mine will be idled by the end of the first quarter of 2014. Mineralized material reported is based on the 2012 reported reserves net of
2013 production.
Mineralized Material Not in Reserves
as of December 31, 2013
(In Millions of Metric Tons)
Deposit
Wabush
Cliffs Share
Tonnage1,2
100%
200.4
%Fe
35.1
1 Includes only materials classified as measured and indicated
2 Cutoff grade is 25 percent weight recovery (16.5 percent Fe)
Chromite Project
We hold mineral interests in three currently defined chromite deposits that contain mineralized materials. In 2013, a new mineralized
material estimate was completed based on the latest exploration drilling and geological model for our Black Thor and Black Label
deposits. Reportable mineralized material increased 25.7 million and 1.1 million metric tons at the Black Thor and Black Label deposits,
respectively. The mineralized material estimate for Big Daddy remains unchanged from the 2012 estimate.
Mineralized Material Not in Reserves
as of December 31, 2013
(In Millions of Metric Tons)
Deposit
Cliffs Share
Tonnage1,2
%Cr2O3
Black Thor
Black Label
Big Daddy
Totals
100%
100%
70%
137.7
5.4
29.1
172.2
31.5
25.3
31.7
31.3
1 Includes only materials classified as measured and indicated
2 Cutoff grade is 20 percent Cr2O3 for all deposits
Decar Property
The Decar property is a nickel exploration project that is currently at the prefeasibility stage. Exploration and early stage studies have
defined mineralized material estimates for the Baptiste deposit located on the Decar property. The latest mineralized material estimate
for Decar was completed in 2012; there were no changes to this estimate in 2013.
Mineralized Material Not in Reserves
as of December 31, 2013
(In Millions of Metric Tons)
Deposit
Baptiste
Cliffs Share
Tonnage1,2
60%
1,159.5
%Ni
0.12
1 Includes only materials classified as measured and indicated
2 Cutoff grade is 0.06 percent Davis Tube Recoverable Nickel
41
Labrador Trough South
As previously mentioned, Labrador Trough South is a collection of iron deposits acquired in the purchase of Consolidated Thompson.
In 2012, we conducted exploration activities and updated the mineralized material estimates for several of the deposits. In 2013,
there were no changes to the mineralized material estimates.
Mineralized Material Not in Reserves
as of December 31, 2013
(In Millions of Metric Tons)
Deposit
Lamêlée
Peppler Lake
Totals
Cliffs Share
Tonnage1,2
100%
100%
271.7
326.8
598.5
%FeT
29.4
28.0
28.6
1 Includes only materials classified as measured and indicated
2 Cutoff grade is 18 percent FeT
Item 3.
Legal Proceedings
Alabama Dust Litigation. There are currently three cases in the Alabama state court system that comprise the Alabama Dust Litigation.
Generally, these claims are brought by nearby homeowners who allege that dust emanating from the Concord Preparation Plant
causes damage to their properties. All three of these cases are active and settlement discussions are proceeding. It is possible that
these types of complaints may continue to be filed in the future, but the overall impact of these cases is not anticipated currently to
have a material financial impact on our business.
Bloom Lake Investigation. CQIM, Bloom Lake General Partner Limited and Bloom Lake currently are being investigated by Environment
Canada in relation to alleged violations of Section 36(3) of the Fisheries Act that prohibits the deposit of a deleterious substance in
water frequented by fish or in any place where the deleterious substance may enter any such water and Section 40(3) of the Fisheries
Act in relation to an alleged failure to comply with a direction of an inspector. Based on current information, the investigation covers
several alleged incidents that occurred between April 2011 and October 2012. Bloom Lake has been informed that the Quebec Ministry
of Sustainable Development, Environment, Wildlife and Parks has commenced an investigation into alleged violations of the
Environment Quality Act related to incidents involving alleged releases of suspended solids to the environment in early August 2012
and in September 2012. At this stage, we are cooperating with Environment Canada and the Quebec Ministry and, although the
possible outcome of the investigations and the risk of loss cannot be determined, we do not believe they will have a material financial
impact to the Company.
EPSL Arbitration. On December 20, 2012, Esperance Port Authority (trading as Esperance Port Sea and Land) and Cliffs Asia Pacific
Iron Ore Pty Ltd nominated an arbitrator to determine disputes that have arisen between the parties in relation to the proper construction
and operation of certain clauses in the operating agreement that was first made between the parties on September 25, 2000 (as
varied). Among several other issues, we are in dispute with EPSL over the "maximum tonnage" that EPSL is obligated to handle and,
in particular, whether EPSL legally is obligated to handle 11.5 million tonnes per annum of ore. The operating agreement does not
expressly include a maximum or minimum annual tonnage provision, but has a clause setting forth the minimum take-or-pay obligations.
We assert that the maximum tonnage for which EPSL is obliged to provide the services is the capacity of the port at any given time
to handle iron ore. On October 18, 2013, the parties entered into a partial settlement agreement that adjourns the November 2013
hearing date to April 2014 in order to allow the parties time to negotiate a full and final settlement, provides, in the event that the parties
are able to reach a full and final settlement, for a conditional settlement of matters in dispute up to December 31, 2013 and also sets
an interim charging rate beginning in 2014.
Maritime Asbestos Litigation. The Cleveland-Cliffs Iron Company and/or The Cleveland-Cliffs Steamship Company have been named
defendants in 489 actions brought from 1986 to date by former seamen claiming damages for various illnesses allegedly suffered as
the result of exposure to airborne asbestos fibers while serving as crew members aboard the vessels previously owned or managed
by our entities until the mid-1980s. All of these actions have been consolidated into multidistrict proceedings in the Eastern District
of Pennsylvania, along with approximately 30,000 other cases from various jurisdictions that were filed against other defendants.
Through a series of court orders, the docket has been reduced to approximately 3,500 active cases. We are a named defendant in
approximately 50 cases. These cases are in the discovery phase. The court has dismissed the remainder of the cases without
prejudice. Those dismissed cases could be reinstated upon application by plaintiffs’ counsel. The claims against our entities are
insured in amounts that vary by policy year; however, the manner in which coverage will be applied remains uncertain. Our entities
continue to vigorously contest these claims and have made no settlements on them.
Pinnacle Mine Environmental Litigation. On June 22, 2010, the West Virginia DEP filed a lawsuit in the Wyoming County Circuit Court
against the Pinnacle mine alleging past non-compliance with its NPDES discharge permit. The complaint seeks injunctive relief and
42
penalties. An initial penalty proposal of $1.0 million was offered by the West Virginia DEP in March 2012; however, Pinnacle disagrees
with the alleged violations and has met with the DEP to present facts supporting a review and reduction of the proposed penalty.
Pointe Noire Investigation. Wabush Mines currently is being investigated by Environment Canada in relation to alleged violations of
(i) Section 36(3) of the Fisheries Act, which prohibits the deposit of a deleterious substance in water frequented by fish or in any place
where the deleterious substance may enter any such water, and (ii) Section 5.1 of the Migratory Bird Convention Act, 1994. The
Quebec Ministry of Sustainable Development, Environment, Wildlife and Parks also has commenced an investigation into alleged
violations of Section 8 of the Hazardous Material Regulation, which prohibits the discharge of a hazardous material to the environment.
Based on current information, the investigations cover events surrounding and leading up to the alleged release of approximately
1,320 gallons of fuel oil into the Bay of Sept Iles on September 1, 2013. Our response actions were able to successfully contain and
capture a substantial amount of oil. We are cooperating with the investigators and agency response officials. The possible outcome
of the investigations and the risk of loss cannot be determined at this time.
The Rio Tinto Mine Site. The Rio Tinto Mine Site is an 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 dated September 14, 2001 between the NDEP and the RTWG composed of the Company, Atlantic
Richfield Company, Teck Cominco American Incorporated and E. I. duPont de Nemours and Company. The Consent Order provides
for technical review by the U.S. Department of the Interior Bureau of Indian Affairs, the U.S. Fish and Wildlife Service, U.S. Department
of Agriculture Forest Service, the NDEP and the Shoshone-Paiute Tribe of the Duck Valley Reservation (collectively, "Rio Tinto
Trustees"). In recognition of the potential for an NRD claim, the parties actively pursued a global settlement that would include the
EPA and encompass both the remedial action and the NRD issues.
The NDEP published a Record of Decision for the Rio Tinto Mine, which was signed on February 14, 2012 by the NDEP and the EPA.
On September 27, 2012, the agencies subsequently issued a proposed Consent Decree, which was lodged with the U.S. District
Court for the District of Nevada and opened for 30-day public comment on October 4, 2012. The Consent Decree subsequently was
finalized on May 20, 2013. Under the terms of the Consent Decree, the RTWG has agreed to pay over $29 million in cleanup costs
and natural resource damages to the site and surrounding area. The Company's share of the total settlement cost, which includes
remedial action, insurance and other oversight costs, is approximately $12 million.
Under the terms of the Consent Decree, the RTWG will be responsible for removing mine tailings from Mill Creek, improving the creek
to support redband trout and improving water quality in Mill Creek and the East Fork Owyhee River. Previous cleanup projects included
filling in old mine shafts, grading and covering leach pads and tailings, and building diversion ditches. NDEP will oversee the cleanup,
with input from EPA and monitoring from the nearby Shoshone-Paiute Tribes of Duck Valley.
Severstal Pricing Arbitration. Severstal filed a demand for arbitration against Cliffs Sales Company, The Cleveland-Cliffs Iron Company
and Cliffs Mining Company in May 2013 over the pricing calculation for pellets beginning in 2013. Severstal filed the arbitration claim
pursuant to the dispute resolution provisions of the Amended and Restated Pellet Sale and Purchase Agreement, dated January 1,
2006, and as amended to date, referred to as the sales agreement. The parties amended the sales agreement in 2008 to revise the
calculation of the base price for pellets, beginning in 2013, to include a pricing calculation utilizing current market price indices.
Severstal has been paying “under protest” the invoices for the pellets pursuant to our calculation. We have countered the arbitral
demand of Severstal by seeking a declaration that our calculation of the 2013 base price is the correct calculation under the sales
agreement.
Worldlink Arbitration. Our wholly owned subsidiary, CQIM, along with the Bloom Lake General Partner Limited and Bloom Lake,
instituted an arbitral claim against Bloom Lake’s former customer, Worldlink Resources Limited (“Worldlink”), in October 2011 for
material and/or fundamental breaches of the parties’ 2007 offtake agreement for the purchase and sale of iron concentrate produced
at the Bloom Lake mine. We filed the arbitration claim with the International Court of Arbitration of the International Chamber of
Commerce pursuant to the dispute resolution provisions of the offtake agreement. Bloom Lake terminated the offtake agreement with
Worldlink in August 2011 due to Worldlink’s failure to fulfill its obligations under the agreement and Worldlink’s demand to renegotiate
the price of the iron ore concentrate in spite of being party to a long-term offtake agreement. Our damages for the breach of the
offtake agreement are in excess of $75 million and Worldlink has counterclaimed for damages in excess of $100 million. We strongly
disagree with Worldlink’s defenses and counterclaims and intend to vigorously pursue our claim. The main hearing is scheduled to
take place in May 2014 and a decision is expected later in 2014.
43
Item 4.
Mine Safety Disclosures
We are committed to protecting the occupational health and well-being of each of our employees. Safety is one of our core values,
and we strive to ensure that safe production is the first priority for all employees. Our internal objective is to achieve zero injuries and
incidents across the Company by focusing on proactively identifying needed prevention activities, establishing standards and evaluating
performance to mitigate any potential loss to people, equipment, production and the environment. We have implemented intensive
employee training that is geared toward maintaining a high level of awareness and knowledge of safety and health issues in the work
environment through the development and coordination of requisite information, skills and attitudes. We believe that through these
policies, we have developed an effective safety management system.
Under the Dodd-Frank Act, each operator of a coal or other mine is required to include certain mine safety results within its periodic
reports filed with the SEC. As required by the reporting requirements included in §1503(a) of the Dodd-Frank Act and Item 104 of
Regulation S-K, the required mine safety results regarding certain mining safety and health matters for each of our mine locations
that are covered under the scope of the Dodd-Frank Act are included in Exhibit 95 of Item 15. Exhibits and Financial Statement
Schedules of this Annual Report on Form 10-K.
PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Stock Exchange Information
Our common shares (ticker symbol CLF) are listed on the NYSE and the Professional Segment of NYSE Euronext Paris.
Common Share Price Performance and Dividends
The following table sets forth, for the periods indicated, the high and low sales prices per common share as reported on the NYSE
and the dividends declared per common share:
First Quarter
$
Second Quarter
Third Quarter
Fourth Quarter
Year
$
High
40.40
23.75
25.95
28.98
40.40
2013
Low
17.95
15.50
15.41
19.88
15.41
$
$
Dividends
High
2012
Low
Dividends
$
0.15
0.15
0.15
0.15
0.60
$
78.85
71.60
50.89
46.50
78.85
59.40
44.40
32.25
28.05
28.05
$
$
0.28
0.625
0.625
0.625
2.155
At February 10, 2014, we had 1,375 shareholders of record.
44
Shareholder Return Performance
The following graph shows changes over the past five-year period in the value of $100 invested in: (1) Cliffs' common shares; (2) S&P
500 Stock Index; (3) S&P 500 Steel Group Index; and (4) S&P Midcap 400 Index. The values of each investment are based on price
change plus reinvestment of all dividends reported to shareholders.
2008
2009
2010
2011
2012
2013
Cliffs Natural Resources Inc.
Return %
81.92
70.69
-19.24
-34.74
-30.37
Cum $
100.00
181.92
310.52
250.79
163.68
113.97
S&P 500 Index - Total Returns
Return %
26.47
15.07
2.11
16.00
32.39
Cum $
100.00
126.47
145.53
148.60
172.38
228.21
S&P 500 Steel Index
Return %
28.88
33.86
-23.01
-11.84
13.86
S&P Midcap 400 Index
Return %
37.37
26.64
-1.74
17.86
33.50
Cum $
100.00
137.37
173.96
170.93
201.46
268.95
Cum $
100.00
128.88
172.52
132.83
117.10
133.33
45
Issuer Purchases of Equity Securities
The following table presents information with respect to repurchases by the Company of our common shares during the periods
indicated.
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of
Shares
(or Units)
Purchased1
Average Price
Paid per Share
(or Unit)
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet be
Purchased Under the
Plans or Programs
107
186
1,430
1,723
$
$
$
$
21.03
25.01
26.21
25.76
—
—
—
—
—
—
—
—
Period
October 1 - 31, 2013
November 1 - 30, 2013
December 1 - 31, 2013
Total
1
These shares were delivered to us by employees to satisfy tax withholding obligations due upon the vesting or payment of
stock awards or scheduled distributions from our VNQDC Plan.
46
Item 6.
Selected Financial Data
Summary of Financial and Other Statistical Data
Cliffs Natural Resources Inc. and Subsidiaries
Financial data (in millions, except per share amounts) *
2013 (f)
2012 (d)
2011 (c)
2010 (b)
2009
Revenue from product sales and services
$
5,691.4
$
5,872.7
$
6,563.9
$ 4,483.8
$ 2,197.4
(3,953.0)
(3,025.1)
(1,907.3)
Cost of goods sold and operating expenses
Other operating expense
Operating income (loss)
Income (loss) from continuing operations
Income and gain on sale from discontinued operations, net of tax
Net income (loss)
Loss (income) attributable to noncontrolling interest
Net income (loss) attributable to Cliffs shareholders
Preferred stock dividends
Income (loss) attributable to Cliffs common shareholders
Earnings (loss) per common share attributable to
Cliffs shareholders - basic
Continuing operations
Discontinued operations
Earnings (loss) per common share attributable to
Cliffs shareholders - basic
Earnings (loss) per common share attributable to
Cliffs shareholders - diluted
Continuing operations
Discontinued operations
Earnings (loss) per common share attributable to
Cliffs shareholders - diluted
Total assets
Long-term debt obligations (including capital leases)
Net cash from operating activities
Distributions to preferred shareholders cash dividends (e)
- Per depositary share
- Total
Distributions to common shareholders cash dividends (a)
- Per share
- Total
Repurchases of common shares
Common shares outstanding - basic (millions)
- Average for year
- At year-end
Iron ore and coal production and sales statistics
(4,542.1)
(478.3)
671.0
359.8
2.0
361.8
51.7
413.5
(48.7)
364.8
2.39
0.01
2.40
2.36
0.01
2.37
(4,700.6)
(1,480.9)
(308.8)
(1,162.5)
35.9
(1,126.6)
227.2
(899.4)
—
(314.1)
2,296.8
1,792.5
20.1
1,812.6
(193.5)
1,619.1
—
(225.9)
1,232.8
997.4
22.5
1,019.9
—
1,019.9
—
(899.4)
1,619.1
1,019.9
(6.57)
0.25
(6.32)
(6.57)
0.25
(6.32)
11.41
0.14
11.55
11.34
0.14
11.48
7.37
0.17
7.54
7.32
0.17
7.49
13,121.9
13,574.9
14,541.7
3,189.5
1,145.9
4,196.3
514.5
3,821.5
2,288.8
7,778.2
1,881.3
1,320.0
4,639.3
644.3
185.7
1.66
48.7
0.60
91.9
—
151.7
153.1
—
—
2.16
307.2
—
142.4
142.5
—
—
0.84
118.9
289.8
140.2
142.0
—
—
0.51
68.9
—
135.3
135.5
(tons in millions - U.S. Iron Ore and North American Coal; metric tons in millions - Asia Pacific Iron Ore and Eastern Canadian Iron Ore)
Production tonnage - U.S. Iron Ore
- Eastern Canadian Iron Ore
- Asia Pacific Iron Ore
- North American Coal
Production tonnage - (Cliffs' share)
- U.S. Iron Ore
- Eastern Canadian Iron Ore
Sales tonnage - U.S. Iron Ore
- Eastern Canadian Iron Ore
- Asia Pacific Iron Ore
- North American Coal
27.2
8.7
11.1
7.2
20.3
8.7
21.3
8.6
11.0
7.3
47
29.5
8.5
11.3
6.4
22.0
8.5
21.6
8.9
11.7
6.5
31.0
6.9
8.9
5.0
23.7
6.9
24.2
7.4
8.6
4.2
28.1
3.9
9.3
3.2
21.5
3.9
23.0
3.3
9.3
3.3
(70.9)
219.2
198.3
6.8
205.1
—
205.1
—
205.1
1.51
0.05
1.56
1.58
0.05
1.63
—
—
0.26
31.9
—
125.0
131.0
16.9
2.7
8.3
1.7
15.0
2.1
13.7
2.7
8.5
1.9
* On July 10, 2012, we entered into a definitive share and asset sale agreement to sell our 45 percent economic interest in the Sonoma joint venture
coal mine located in Queensland, Australia. Additionally, on September 27, 2011, we announced our plans to cease and dispose of the operations
at the renewaFUEL biomass production facility in Michigan. On January 4, 2012, we entered into an agreement to sell the renewaFUEL assets
to RNFL Acquisition LLC. The results of operations of the Sonoma joint venture and renewaFUEL operations are reflected as discontinued
operations in the accompanying consolidated financial statements for all periods presented.
(a) On May 12, 2009, our Board of Directors enacted a 55 percent reduction in our quarterly common share dividend to $0.04 from $0.0875 for the
second and third quarters of 2009 in order to enhance financial flexibility. The $0.04 common share dividends were paid on June 1, 2009 and
September 1, 2009 to shareholders of record as of May 22, 2009 and August 14, 2009, respectively. In the fourth quarter of 2009, the dividend
was reinstated to its previous level. On May 11, 2010, our Board of Directors increased our quarterly common share dividend from $0.0875 to
$0.14 per share. The increased cash dividend was paid on June 1, 2010, September 1, 2010 and December 1, 2010 to shareholders on record
as of May 14, 2010, August 13, 2010 and November 19, 2010, respectively. In addition, the increased cash dividend was paid on March 1, 2011
and June 1, 2011 to shareholders on record as of February 15, 2011 and April 29, 2011, respectively. On July 12, 2011, our Board of Directors
increased the quarterly common share dividend by 100 percent to $0.28 per share. The increased cash dividend was paid on September 1,
2011, December 1, 2011 and March 1, 2012 to our shareholders on record as of the close of business on August 15, 2011, November 18, 2011
and February 15, 2012, respectively. On March 13, 2012, our Board of Directors increased the quarterly common share dividend by 123 percent
to $0.625 per share. The increased cash dividend was paid on June 1, 2012, August 31, 2012 and December 3, 2012 to our shareholders on
record as of April 27, 2012, August 15, 2012 and November 23, 2012, respectively. On February 11, 2013, our Board of Directors approved a
reduction to our quarterly cash dividend rate by 76 percent to $0.15 per share. The decreased dividend of $0.15 per share was paid on March 1,
2013, June 3, 2013, September 3, 2013 and December 2, 2013 to our common shareholders of record as the close of business on February 22,
2013, May 17, 2013, August 15, 2013 and November 22, 2013, respectively.
(b) On January 27, 2010, we acquired all of the remaining outstanding shares of Freewest, including its interest in the Ring of Fire properties in
Northern Ontario Canada. On February 1, 2010, we acquired entities from our former partners that held their respective interests in Wabush,
thereby increasing our ownership interest from 26.8 percent to 100 percent. On July 30, 2010, we acquired all of the coal operations of privately
owned INR, and since that date, the operations acquired from INR have been conducted through our wholly owned subsidiary known as CLCC.
Results for 2010 include Freewest's, Wabush's and CLCC's results since the respective acquisition dates. As a result of acquiring the remaining
ownership interest in Freewest and Wabush, our 2010 results were impacted by realized gains of $38.6 million primarily related to the increase
in fair value of our previous ownership interest in each investment held prior to the business acquisition.
In December 2010, we completed a legal entity restructuring that resulted in a change to deferred tax liabilities of $78.0 million on certain foreign
investments to a deferred tax asset of $9.4 million for tax basis in excess of book basis on foreign investments as of December 31, 2010. A
valuation allowance of $9.4 million was recorded against this asset due to the uncertainty of realization. The deferred tax changes were recognized
as a reduction to our income tax provision in 2010.
(c) On May 12, 2011, we completed our acquisition of Consolidated Thompson by acquiring all of the outstanding common shares of Consolidated
Thompson for C$17.25 per share in an all-cash transaction including net debt. Results for 2011 include the results for Consolidated Thompson
since the acquisition date.
In 2011, during our annual goodwill impairment test in the fourth quarter, a goodwill impairment charge of $27.8 million was recorded for our
CLCC reporting unit, within the North American Coal operating segment, impacting Other operating expense.
(d) Upon performing our annual goodwill impairment test in the fourth quarter of 2012, goodwill impairment charges of $997.3 million and $2.7 million
were recorded for our CQIM and Wabush reporting units, respectively, both within the Eastern Canadian Iron Ore operating segment. We also
recorded an impairment charge of $49.9 million related to our Eastern Canadian Iron Ore operations to reduce those assets to their estimated
fair value as of December 31, 2012 due to the idling of the pelletizing facility at Pointe Noire. All of these charges impacted Other operating
expense.
As a result of the approval for the sale of our 30 percent interest in Amapá, an impairment charge of $365.4 million was recorded through Equity
income (loss) from ventures for the year ended December 31, 2012.
(e) On March 20, 2013, our Board of Directors declared a cash dividend of $13.6111 per preferred share, which is equivalent to approximately $0.34
per depositary share. The cash dividend was paid on May 1, 2013 to our preferred shareholders of record as of the close of business on April 15,
2013. On May 7, 2013, and September 9, 2013, our Board of Directors declared a quarterly cash dividend of $17.50 per preferred share, which
is equivalent to approximately $0.44 per depositary share. The cash dividends were paid on August 1, 2013, and November 1, 2013 to our
preferred shareholders of record as of the close of business on July 15, 2013, and October 15, 2013, respectively. On November 11, 2013, our
Board of Directors declared a quarterly cash dividend of $17.50 per preferred share, which is equivalent to approximately $0.44 per depositary
share. The cash dividend of $12.8 million will be paid on February 3, 2014 to our preferred shareholders of record as of the close of business
on January 15, 2014.
(f) Upon performing our annual goodwill impairment test in the fourth quarter of 2013, a goodwill impairment charge of $80.9 million was recorded
for our Cliffs Chromite Ontario and Cliffs Chromite Far North reporting units within our Ferroalloys operating segment. We also recorded other
long-lived asset impairment charges of $169.9 million, of which $154.6 million relates to our Wabush reporting unit within our Eastern Canadian
Iron Ore operating segment to reduce those assets to their estimated fair value as of December 31, 2013. All of these charges impacted Other
operating expense.
48
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide a reader
of our financial statements with a narrative from the perspective of management on our financial condition, results of operations,
liquidity and other factors that may affect our future results.
Overview
Cliffs Natural Resources Inc. traces its corporate history back to 1847. Today, we are an international mining and natural resources
company. A member of the S&P 500 Index, we are a major global iron ore producer and a significant producer of high- and low-volatile
metallurgical coal. Driven by the core values of safety, social, environmental and capital stewardship, our associates across the globe
endeavor to provide all stakeholders with operating and financial transparency. We are organized through a global commercial group
responsible for sales and delivery of our products and a global operations group responsible for the production of the minerals that
we market. Our operations are organized according to product category and geographic location: U.S. Iron Ore, Eastern Canadian
Iron Ore, Asia Pacific Iron Ore, North American Coal, Ferroalloys and our Global Exploration Group.
In the U.S., we currently operate five iron ore mines in Michigan and Minnesota, four metallurgical coal operations located in West
Virginia and Alabama, and one thermal coal mine located in West Virginia. We also operate two iron ore mines in Eastern Canada.
Our Asia Pacific operations consist solely of our Koolyanobbing iron ore mining complex in Western Australia. We also have other
non-producing operations and investments around the world that provide us with optionality to diversify and expand our portfolio of
assets in the future.
The key driver of our business is global demand for steelmaking raw materials in both emerging and developed economies, with China
and the U.S. representing the two largest markets for our Company. In 2013, China produced approximately 779 million metric tons
of crude steel, or approximately 49 percent of total global crude steel production, whereas the U.S. produced approximately 87 million
metric tons of crude steel, or about 5 percent of total crude steel production. These figures represent an approximate 8 percent
increase and a 2 percent decrease, respectively, in crude steel production when compared to 2012.
Average global capacity utilization was about 78 percent in 2013, an approximate 2 percent increase from 2012; U.S. capacity utilization
was approximately 77 percent in 2013, or about a 2 percent increase over the 2012 rate. These figures indicate that broader activity
in the steel industry has increased year-over-year. Global crude steel production in 2013 grew about 4 percent compared to 2012,
supported by generally improved macroeconomic fundamentals and continued, albeit tame, recovery in developed markets, including
the U.S. and the Eurozone, as well as by the more rapid growth of emerging markets such as China. Broader growth in the U.S. was
driven by increased personal consumption expenditures, private investment and exports, which were offset partly by decreased federal
government spending and increased imports. Despite the U.S. experiencing a year-over-year decline in total crude steel production,
both the automobile and oil and gas industries served as sources of healthy demand for steel in 2013. In China, investment in
infrastructure remained the dominant driver of domestic steel demand and production, as its commodity-intensive growth continued.
The global price of iron ore is influenced significantly by Chinese demand and worldwide supply of iron ore. While the supply of iron
ore continues to increase, the increase in 2013’s average spot market prices reflected slowing but continued economic growth expansion
in China. The world market price that is utilized most commonly in our sales contracts is the Platts 62 percent Fe fines price. The
Platts 62 percent Fe fines spot price increased 10.0 percent to an average price of $135 per metric ton for the three months ended
December 31, 2013 compared to the respective quarter of 2012. In comparison, the year-to-date Platts pricing has increased 3.9
percent to an average price of $135 per metric ton during the full-year ended December 31, 2013. The spot price volatility impacts
our realized revenue rates, particularly in our Eastern Canadian Iron Ore and Asia Pacific Iron Ore business segments because their
contracts correlate heavily to world market spot pricing. However, the impact of this volatility on our U.S. Iron Ore revenues is muted
and/or deferred partially because the pricing in our long-term contracts is mostly structured to be based on 12-month averages,
including some contracts with established annual price collars. Additionally, contracts often are priced partially or completely on other
indices instead of world market spot prices.
The metallurgical coal market continues to be in an oversupplied position due to increased supply from Australian producers.
Additionally, low demand by European, Japanese and South American coking coal consumers has kept pricing low. Also, there has
been recent closure of coke capacity in the U.S. impacting domestic markets.
Consistent with the above, the quarterly benchmark price for premium low-volatile hard coking coal between Australian metallurgical
coal suppliers and Japanese/Korean consumers decreased to a full-year average of $159 per metric ton in 2013 from $210 per metric
ton in 2012. The decline in market pricing has impacted negatively realized revenue rates for our North American Coal business
segment.
In 2014, we expect economic growth in the U.S. to accelerate, in part due to continued improvement in building construction, motor
vehicle production, the labor market and due to a further reduction in fiscal drag, ultimately supporting domestic steel production and
thus the demand for steelmaking raw materials. We expect China’s economy will continue to expand rapidly, primarily driven by fixed
asset investment while, correspondingly, increased Chinese domestic steel production will continue to require imported steelmaking
raw materials to satisfy demand. However, we do expect China’s GDP growth to slow from 2013 that, when coupled with increased
supply, environmental concerns and credit-tightening, could result in a weaker pricing environment for steelmaking raw materials.
Nevertheless, growth in both the U.S. and China should provide a continued source of demand for our products in 2014.
49
Our consolidated revenues for the years ended December 31, 2013 and 2012 were $5.7 billion and $5.9 billion, respectively, with net
income from continuing operations per diluted share of $2.36 and net loss from continuing operations per diluted share of $6.57,
respectively. Net income in 2013 was impacted negatively by $154.6 million of other long-lived asset impairment charges related to
our Wabush operations within our Eastern Canadian Iron Ore operating segment, an $80.9 million goodwill impairment charge related
to our Cliffs Chromite Ontario and Cliffs Chromite Far North reporting units within our Ferroalloys operating segment and a $67.6
million asset impairment charge related to our investment in Amapá. This was offset by lower exploration spending in 2013, primarily
related to the Chromite project. Earnings in 2012 were impacted adversely by impairment charges including impairment of goodwill
and other long-lived assets of $1,049.9 million within our Eastern Canadian Iron Ore operating segment and a $365.4 million impairment
charge related to our investment in Amapá. Additional items that adversely impacted earnings in 2012 included the establishment of
valuation allowances against certain deferred tax assets and higher spending, which partially were offset by total increased iron ore
and coal sales volumes at most of our operations around the world.
Strategy
Through a number of acquisitions executed over recent years, we have increased our portfolio of assets, enhancing our production
profile and project pipeline. In recent years, we have shifted from a merger and acquisition-based strategy to one that primarily focuses
on organic growth and productivity initiatives. We believe our ability to gain scale and diversify our geographic footprint will increase
our profitability, mitigate risk, and ultimately enhance long-term shareholder value.
We believe our ability to execute our strategy is dependent on our financial position, balance sheet strength and financial flexibility to
manage through the inevitable volatility in commodity prices. Throughout 2013, we took a number of deliberate steps to improve our
financial position for the near and longer term. Looking ahead, we will continue to execute initiatives that improve our cost profile and
increase long-term profitability. The cash generated from our operations in excess of that used for sustaining and license-to-operate
capital spending and dividends will be evaluated and allocated towards initiatives that enhance shareholder value.
Recent Developments
Throughout 2013, there have been a number of changes to our Board of Directors and senior management team. Although three
members of our Board of Directors departed, we welcomed four new directors in 2013. Consistent with our ongoing commitment to
best practices in corporate governance, the Board separated the roles of chairman and chief executive officer and appointed an
independent director as Chairman of the Board in July 2013. Our former Chairman, President and Chief Executive Officer, Joseph
A. Carrabba, retired in November 2013, and the Board selected a new President and Chief Operating Officer, Gary B. Halverson. On
February 13, 2014, the Board promoted Mr. Halverson to Chief Executive Officer. Prior to joining Cliffs, Mr. Halverson served as the
interim chief operating officer for Barrick since September 2013 and also as its president – North America since December 2011.
Previously, he served as Barrick’s president – Australia Pacific from December 2008 until December 2011 and as its director of
operations – Australia Pacific from August 2006 to December 2008. James F. Kirsch assumed the role of Chairman of the Board in
July 2013, and later was appointed, on an interim basis, as an executive officer with the title "Chairman", effective January 1, 2014.
Also during the second half of 2013, three other executive officers left the Company. With the exception of the role filled by Mr.
Halverson, these respective positions were assumed by current executive officers.
On November 20, 2013, we indefinitely suspended our Chromite Project in Northern Ontario. Given the uncertain timeline and risks
associated with the development of necessary infrastructure to bring this project online, we do not expect to allocate any significant
additional capital to the project. Earlier in 2013, we suspended the environmental assessment activities because of pending issues
impeding the progress of the project. We will continue to work with the Government of Ontario, First Nation communities and other
interested parties to explore potential solutions related to the critical infrastructure issues for the Ring of Fire properties.
On February 11, 2014, we announced that we are exploring various strategic alternatives for our Bloom Lake mine. In the short term,
we will continue to operate Bloom Lake mine Phase I operations on a reduced tailings and water management capital plan. We will
continue to evaluate and will idle temporarily the operations if the pricing and operating costs justify such an alternative action. As a
result, the Phase II expansion project remains on hold. We additionally announced our plan to idle our Wabush mine in Newfoundland
and Labrador by the end of the first quarter of 2014. The idle is being driven by the unsustainable high cost structure, which results
in operations that are not economically viable to run over time.
Business Segments
Our Company’s primary operations are organized and managed according to product category and geographic location: U.S. Iron
Ore, Eastern Canadian Iron Ore, Asia Pacific Iron Ore, North American Coal, Ferroalloys and our Global Exploration Group. The
Ferroalloys and Global Exploration Group operating segments do not meet the criteria for reportable segments.
50
Results of Operations – Consolidated
2013 Compared to 2012
The following is a summary of our consolidated results of operations for the years ended December 31, 2013 and 2012:
Revenues from product sales and services
Cost of goods sold and operating expenses
Sales margin
Sales margin %
Revenues from Product Sales and Services
(In Millions)
2013
2012
$
5,691.4
$
5,872.7
(4,542.1)
(4,700.6)
$
1,149.3
$
1,172.1
$
$
20.2%
20.0%
Variance
Favorable/
(Unfavorable)
(181.3)
158.5
(22.8)
0.2%
Sales revenue for the year ended December 31, 2013 decreased $181.3 million, or 3.1 percent, from 2012.
The decrease in sales revenue during 2013 compared to 2012 primarily was attributable to lower worldwide iron ore sales volumes
of 1.4 million metric tons, or $174.7 million, and lower realized revenue rates for coal products of 15.5 percent year-over-year, which
has resulted in a decrease of $135.1 million. These decreases were offset partially by higher North American Coal sales volumes of
762 thousand tons, or $91.1 million.
Refer to “Results of Operations – Segment Information" for additional information regarding the specific factors that impacted revenue
during the period.
Cost of Goods Sold and Operating Expenses
Cost of goods sold and operating expenses for the years ended December 31, 2013 and 2012 were $4,542.1 million and $4,700.6
million, respectively, a decrease of $158.5 million, or 3.4 percent year-over-year.
Cost of goods sold and operating expenses for the year ended December 31, 2013 decreased primarily as a result of cost rate
decreases of $143.7 million and a favorable foreign exchange rate impact of $70.9 million. Cost rate decreases of $122.1 million at
our North American Coal operations were driven primarily by favorable fixed-cost leverage as a result of increased production period-
over-period. These cost decreases were offset partially by additional costs of $72.5 million related to supply and product inventory
write-downs predominately at our Wabush mine within our Eastern Canadian Iron Ore operations during the year ended December 31,
2013.
Refer to “Results of Operations – Segment Information” for additional information regarding the specific factors that impacted our
operating results during the period.
Other Operating Income (Expense)
The following is a summary of other operating income (expense) for the years ended December 31, 2013 and 2012:
(In Millions)
2013
2012
Variance
Favorable/
(Unfavorable)
Selling, general and administrative expenses
$
(231.6) $
(282.5) $
Exploration costs
Impairment of goodwill and other long-lived assets
Miscellaneous - net
(59.0)
(142.8)
(250.8)
(1,049.9)
63.1
(5.7)
50.9
83.8
799.1
68.8
$
(478.3) $ (1,480.9) $
1,002.6
Selling, general and administrative expenses during the year ended December 31, 2013 decreased $50.9 million over 2012. The year
ended December 31, 2013 was impacted positively by reductions in outside service spending, general travel and employee-related
expenses and technology spending of $42.7 million, $20.5 million and $7.1 million, respectively. These decreases were offset partially
by $16.4 million in severance costs related to the voluntary and involuntary terminations as a result of cost savings actions for the
year ended December 31, 2013 compared to 2012.
51
Exploration costs decreased by $83.8 million during the year ended December 31, 2013 from 2012, primarily due to decreases in
costs at our Ferroalloys and Global Exploration Group operating segments. Our Global Exploration Group had cost decreases of
$48.6 million in 2013 over 2012, due to lower drilling and professional services spend for certain projects. Our Ferroalloys operating
segment had cost decreases of $28.8 million in 2013 over 2012. During 2012, there were increased engineering and drilling costs
for external resources utilized to support the Chromite Project feasibility study. In alignment with our capital allocation strategy, we
anticipate significantly decreased levels of exploration spending in 2014.
During the fourth quarter of 2013, we continued to experience higher than expected production costs and operational inefficiencies
at our Wabush operations within our Eastern Canadian Iron Ore operating segment that have resulted in continued declines in our
profitability of that business, which represents an asset group for purposes of testing our long-lived assets for recoverability. Driven
by the unsustainable high cost structure, which was not economically viable to continue running the operations, we announced on
February 11, 2014, we will be idling the production of our Wabush mine by the end of the first quarter. Upon completion of an impairment
analysis, it was determined the fair value was less than the carrying value of the asset group, which resulted in an impairment of other
long-lived assets of $154.6 million at December 31, 2013.
Additionally during the fourth quarter of 2013, a goodwill impairment charge of $80.9 million was recorded for our Cliffs Chromite
Ontario and Cliffs Chromite Far North reporting units within our Ferroalloys operating segment. The goodwill impairment charge was
primarily a result of the decision to indefinitely suspend the Chromite Project and to not allocate additional capital for the project given
the uncertain timeline and risks associated with the development of necessary infrastructure to bring the project online.
During the fourth quarter of 2012, upon performing our 2012 annual goodwill impairment assessments, a goodwill impairment charge
of $997.3 million was recorded for our CQIM reporting unit within the Eastern Canadian Iron Ore operating segment. The impairment
charge for our CQIM reporting unit was driven by the project’s lower than anticipated long-term profitability coupled with delays in
achieving full operational capacity and higher capital and operating costs. Additionally, a goodwill impairment charge of $2.7 million
was recorded for our Wabush reporting unit. This charge was primarily a result of downward adjustments to our long-term pricing
estimates and higher operating costs due to lower production.
Miscellaneous – net was favorable by $68.8 million during the year ended December 31, 2013 from 2012. The year ended December 31,
2013 was impacted positively as a result of incremental gains of $67.3 million due to foreign exchange re-measurement on short-term
intercompany notes, Australian bank accounts that are denominated in U.S. dollars and certain monetary financial assets and liabilities,
which are denominated in something other than the functional currency of the entity. Additionally, there was an increase of $31.6
million and $24.3 million, respectively, in net insurance recoveries related to North American Coal mines and various legal settlements
period-over-period. These incremental increases were offset partially by the incurred casualty losses in 2013 of $19.1 million related
to the Pointe Noire oil spill as well as minimum contractual rail shipment tonnage not being met due to the delay in the Bloom Lake II
expansion, which resulted in incurred penalties of $37.3 million.
Failure to meet minimum monthly rail shipment requirements as a result of the continued delay in the Bloom Lake Phase II expansion
is expected to result in penalties of approximately $16 million for each quarter until the Bloom Lake Phase II expansion is completed.
As of a result of our decision to idle the Wabush operations by the end of the first quarter, we estimate the impact of the idling to be
approximately $100 million in 2014. These costs include idling costs, employment-related expenditures and contract costs.
Other Income (Expense)
The following is a summary of other income (expense) for the years ended December 31, 2013 and 2012:
(In Millions)
2013
2012
Variance
Favorable/
(Unfavorable)
Changes in fair value of foreign currency contracts, net $
(3.5) $
(0.1) $
Interest expense, net
Other non-operating income (expense)
(179.1)
0.9
(195.6)
2.7
$
(181.7) $
(193.0) $
(3.4)
16.5
(1.8)
11.3
The decrease in interest expense in 2013 compared to 2012 was attributable primarily due to reduced interest expense of $35.7 million
related to the repurchase of the $325.0 million private placement senior notes. This decrease was offset partially by additional interest
expense of $20.3 million related to the $500 million 3.95 percent senior notes issued in December 2012. Refer to NOTE 10 - DEBT
AND CREDIT FACILITIES for further information.
52
Income Taxes
Our tax rate is affected by permanent items, such as depletion and the relative amount of income we earn in various foreign jurisdictions
with tax rates that differ from the U.S. statutory rate. It also is affected by discrete items that may occur in any given period, but are
not consistent from period to period. The following represents a summary of our tax provision and corresponding effective rates for
the years ended December 31, 2013 and 2012:
Income tax expense
Effective tax rate
(In Millions)
2013
2012
Variance
$
(55.1)
$
(255.9)
$
200.8
11.3%
(51.0)%
62.3%
A reconciliation of our income tax attributable to continuing operations computed at the U.S. federal statutory rate for the years ended
December 31, 2013 and 2012 is as follows:
Tax at U.S. statutory rate of 35 percent
Increases/(Decreases) due to:
Foreign exchange remeasurement
Non-taxable loss (income) related to noncontrolling interests
Impact of tax law change
Percentage depletion in excess of cost depletion
Impact of foreign operations
Income not subject to tax
Goodwill impairment
State taxes, net
Manufacturer's deduction
Valuation allowance
Tax uncertainties
Prior year adjustments made in current year
Other items - net
Income tax expense
(In Millions)
2013
2012
$
171.3
35.0% $
(175.6)
35.0 %
(2.6)
(1.5)
—
(97.6)
(10.2)
(106.6)
20.5
5.6
(7.9)
73.0
19.6
(11.4)
2.9
55.1
$
(0.5)
(0.3)
—
(19.9)
(2.1)
(21.8)
4.2
1.1
(1.6)
14.9
5.3
(3.6)
0.6
62.3
61.0
(357.1)
(109.1)
65.2
(108.0)
202.2
7.3
(4.7)
(12.4)
(12.0)
71.2
21.7
(13.0)
21.5
(40.3)
(1.5)
0.9
634.5
(126.5)
(14.8)
(5.7)
(1.6)
2.9
1.1
0.4
11.3% $
255.9
(51.0)%
In 2013, our income tax expense decreased by $200.8 million compared to 2012. The decrease in income tax expense year over year
relates primarily to various items recorded in 2012 including the placement of a full valuation allowance on the asset related to the
Alternative Minimum Tax credit, the effect of currency elections on remeasurement, and the goodwill impairment related to Bloom
Lake. Additionally, we recorded approximately $11.4 million of tax benefit in 2013 related primarily to adjustments to prior-year current
and deferred tax balances.
See NOTE 15 - INCOME TAXES for further information.
Equity Loss from Ventures
Equity loss from ventures for the year ended December 31, 2013 of $74.4 million compares to equity loss from ventures for the year
ended December 31, 2012 of $404.8 million. The equity loss from ventures for the year ended December 31, 2013 primarily is
comprised of the impairment charge of $67.6 million related to our 30 percent ownership interest in Amapá, the sale of which was
approved by the Board of Directors in December 2012. The sale closed in the fourth quarter of 2013. The equity loss from ventures
for 2012 was comprised primarily of an impairment charge of $365.4 million related to the sale of our ownership interest in Amapá.
Additionally, our equity loss consisted of our share of operating losses of $4.9 million for the year ended December 31, 2013, compared
with operating losses of $31.4 million for 2012. Amapá’s equity loss from operations in 2012 was attributable primarily to our share
of a settlement charge taken in the third quarter of 2012 for the termination of a transportation agreement that resulted in a $10.2
million loss and a $5.5 million adjustment related to tax credits that we determined would not be realizable.
53
Income and Gain on Sale from Discontinued Operations, net of tax
Income and Gain on Sale from Discontinued Operations, net of tax was comprised primarily of the gain on the sale of Sonoma and
the loss on the operations of the 45 percent economic interest in the Sonoma joint venture coal mine for the year ended December 31,
2012. The sale of Sonoma resulted in a net gain of $38.0 million that was recorded upon the completion of the sale on November
12, 2012. The Sonoma joint venture operations resulted in a net loss of $2.1 million for the year ended December 31, 2012. Income
from discontinued operations, net of tax in the current period relates to additional income tax benefit resulting from the actual tax gain
from the sale of Sonoma included on the 2012 tax return, which was filed during the three months ended September 30, 2013.
Noncontrolling Interest
Noncontrolling interest primarily is comprised of our consolidated, but less-than-wholly owned subsidiaries at the Bloom Lake and
Empire mining operations. The net loss attributable to the noncontrolling interest related to Bloom Lake was $66.5 million and $252.0
million for the years ended December 31, 2013 and 2012, respectively. The net loss in 2012 was driven by an impairment of goodwill
of $997.3 million, of which $249.3 million was allocated to the noncontrolling interest.
The net income attributable to the noncontrolling interest related to the Empire mining venture was $20.7 million and $25.9 million for
the years ended December 31, 2013 and 2012, respectively.
Results of Operations – Consolidated
2012 Compared to 2011
The following is a summary of our consolidated results of operations for the years ended December 31, 2012 and 2011:
Revenues from product sales and services
Cost of goods sold and operating expenses
Sales margin
Sales margin %
Revenues from Product Sales and Services
(In Millions)
2012
2011
$
$
5,872.7
(4,700.6)
1,172.1
$
$
6,563.9
(3,953.0)
2,610.9
$
$
Variance
Favorable/
(Unfavorable)
(691.2)
(747.6)
(1,438.8)
20.0%
39.8%
(19.8)%
Sales revenue for the year ended December 31, 2012 decreased $691.2 million, or 10.5 percent, from 2011. The decrease in sales
revenue resulted primarily from lower market pricing for our products and the recording of negotiated favorable settlements with certain
customers in 2011 that did not recur in 2012. The decrease in revenue was offset partially by higher sales volumes for the majority
of our operating segments.
World benchmark pricing heavily influences our revenues each year. The Platts 62 percent Fe fines spot price for iron ore decreased
23.1 percent to an average price of $130 in 2012, which resulted in a decrease of $1,250.7 million of consolidated iron ore revenue
in 2012 compared to the prior year. Our realized sales price for our U.S. Iron Ore operations was 15.7 percent lower per ton in 2012
compared to 2011, or a 10.7 percent decrease per ton excluding the impact of 2011 arbitration settlements. The realized sales price
for our Eastern Canadian Iron Ore operations was on average 29.0 percent lower per metric ton, compared to the prior year. Our
realized sales price for our Asia Pacific Iron Ore operating segment was on average 32.6 percent and 27.8 percent lower for lump
and fines, respectively, over the prior year.
The decrease in revenue due to pricing was offset partially by higher sales volumes resulting in increased consolidated revenues of
$601.2 million. Our North American Coal operating segment sales volumes increased 56.7 percent. The increase was primarily a
result of increased inventory availability in 2012 compared to 2011 as we experienced operational issues at Pinnacle mine and had
extensive tornado damage at Oak Grove mine. Our Asia Pacific Iron Ore operating segment sales volumes increased 36.0 percent
as a result of the completion of the Koolyanobbing expansion project, which provided additional ore processing and rail and port
capabilities. Additionally, our Eastern Canadian Iron Ore sales volumes increased 20.7 percent as a result of incremental tonnage
available as a result of our acquisition of Consolidated Thompson in May 2011. Offsetting the aforementioned volume increases was
our U.S. Iron Ore operating segment, which had decreased sales volume of 10.8 percent as a result of lower year-over-year domestic
demand.
In 2011, an additional $159.2 million of revenue was recognized at our U.S. Iron Ore operating segment resulting from the negotiated
settlement we reached with ArcelorMittal USA. During 2011, we finalized the pricing on sales for Algoma’s 2010 pellet nomination,
which resulted in an additional $23.4 million of revenues.
Refer to “Results of Operations – Segment Information” for additional information regarding the specific factors that impacted revenue
during the period.
54
Cost of Goods Sold and Operating Expenses
Cost of goods sold and operating expenses for the year ended December 31, 2012 was $4,700.6 million, an increase of $747.6 million,
or 18.9 percent, from 2011. Higher costs as a result of increased sales volumes resulted in increases of $239.3 million and $270.2
million at our Asia Pacific Iron Ore and North American Coal segments, respectively. The increase in the sales volumes at our Eastern
Canadian Iron Ore operations as a result of the acquisition of Consolidated Thompson in May 2011 resulted in $168.6 million of
additional incremental costs in 2012.
Refer to “Results of Operations – Segment Information” for additional information regarding the specific factors that impacted our
operating results during the period.
Other Operating Income (Expense)
Following is a summary of other operating income (expense) for the years ended December 31, 2012 and 2011:
(In Millions)
2012
2011
Variance
Favorable/
(Unfavorable)
Selling, general and administrative expenses
$
(282.5) $
(248.3) $
Exploration costs
Impairment of goodwill and other long-lived assets
Consolidated Thompson acquisition costs
Miscellaneous - net
(142.8)
(1,049.9)
—
(5.7)
(80.5)
(27.8)
(25.4)
67.9
(34.2)
(62.3)
(1,022.1)
25.4
(73.6)
$
(1,480.9) $
(314.1) $
(1,166.8)
Selling, general and administrative expenses during the year ended December 31, 2012 increased $34.2 million, from 2011. The
increase was due primarily to $12.7 million of additional cost associated with legal matters, $11.4 million of higher outside consulting
and advisory services costs and $7.9 million of higher information technology and office-related costs.
Exploration costs increased by $62.3 million during the year ended December 31, 2012 from 2011, primarily due to increases in costs
at our Global Exploration Group and our Ferroalloys operating segment. Our Global Exploration Group had cost increases of $18.0
million in 2012 over 2011, due to higher spending levels for certain projects that advanced in the stage of exploration activity. The
spending for 2012 was comprised mainly of drilling and professional services expenditures. The increase of $33.7 million in 2012 at
our Ferroalloys operating segment was comprised primarily of higher environmental and engineering costs and other feasibility study
costs related to the Chromite Project as we advanced the project from the prefeasibility stage of development in 2011 to feasibility in
2012.
During the fourth quarter of 2012, we performed our annual goodwill impairment assessments, and a goodwill impairment charge of
$997.3 million was recorded for our CQIM reporting unit within the Eastern Canadian Iron Ore operating segment. The impairment
charge for our CQIM reporting unit was driven by the project’s lower than anticipated long-term profitability coupled with delays in
achieving full operational capacity and higher capital and operating costs. Additionally, a goodwill impairment charge of $2.7 million
was recorded for our Wabush reporting unit. This charge was primarily a result of downward adjustments to our long-term pricing
estimates and higher operating costs due to lower production. In comparison, during 2011, upon performing our annual goodwill
impairment test, a goodwill impairment charge of $27.8 million was recorded for our CLCC reporting unit within the North American
Coal operating segment. The impairment charge for the CLCC reporting unit was driven by our overall outlook on coal pricing in light
of economic conditions, increases in our anticipated costs to bring the Lower War Eagle mine into production and increases in our
anticipated sustaining capital cost for the lives of the CLCC mines that currently are operating.
During 2011, we incurred acquisition costs related to our acquisition of Consolidated Thompson of $25.4 million, which were comprised
primarily of investment banker fees and legal fees incurred throughout the negotiation and completion of the acquisition.
Miscellaneous – net decreased by $73.6 million during the year ended December 31, 2012 from 2011. A decrease of $23.2 million
was due to the change in foreign exchange re-measurement on short-term intercompany notes, Australian bank accounts that are
denominated in U.S. dollars and certain monetary financial assets and liabilities, which are denominated in something other than the
functional currency of the entity. Various other contractual issues in our Eastern Canadian Iron Ore operating segment resulted in
approximately $29.0 million of additional expense in 2012. Additionally, driven by the disposal of assets, we also recognized lower
year-over-year gains of $17.9 million.
55
Other Income (Expense)
Following is a summary of other income (expense) for the years ended December 31, 2012 and 2011:
Changes in fair value of foreign currency
contracts, net
Interest expense, net
Other non-operating income (expense)
(In Millions)
2012
2011
Variance
Favorable/
(Unfavorable)
$
$
(0.1) $
101.9
$
(195.6)
2.7
(206.2)
(2.0)
(193.0) $
(106.3) $
(102.0)
10.6
4.7
(86.7)
The favorable changes in the fair value of our foreign currency exchange contracts held as economic hedges during 2011 in the
Statements of Consolidated Operations primarily were a result of hedging a portion of the purchase price for the acquisition of
Consolidated Thompson by entering into Canadian dollar foreign currency exchange forward contracts and an option contract. The
favorable changes in fair value of these Canadian dollar foreign currency exchange forward contracts and an option contract for the
year ended December 31, 2011 resulted in net realized gains of $93.1 million, realized upon the maturity of the related contracts.
The decrease in interest expense in 2012 compared to 2011 was attributable mainly to $38.3 million related to the termination of the
bridge credit facility during the year ended December 31, 2011. The decrease was offset partially by make-whole payments during
2012 when we repurchased $15.1 million five-year and seven-year private placement notes and a full year of interest expense on our
$1.0 billion public offering of senior notes completed in two tranches in March and April 2011, resulting in an incremental increase of
$12.5 million. Additionally, we capitalized interest of $15.4 million during the year ended December 31, 2012 compared to $1.7 million
in 2011. See NOTE 10 - DEBT AND CREDIT FACILITIES for further information.
Income Taxes
Our tax rate was affected by permanent items, such as depletion and the relative amount of income we earn in various foreign
jurisdictions with tax rates that differ from the U.S. statutory rate. It also was affected by discrete items that may occur in any given
year, but were not consistent from year to year. The following represents a summary of our tax provision and corresponding effective
rates for the years ended December 31, 2012 and 2011:
Income tax expense
Effective tax rate
(In Millions)
2012
2011
Variance
$
(255.9)
$
(407.7)
$
151.8
(51.0)%
18.6%
(69.6)%
56
Reconciliation of our income tax attributable to continuing operations computed at the U.S. federal statutory rate is as follows:
Tax at U.S. statutory rate of 35 percent
Increases/(Decreases) due to:
Foreign exchange remeasurement
Non-taxable loss (income) related to noncontrolling interests
Impact of tax law change
Percentage depletion in excess of cost depletion
Impact of foreign operations
Income not subject to tax
Goodwill impairment
Non-taxable hedging income
State taxes, net
Manufacturer's deduction
Valuation allowance
Tax uncertainties
Other items - net
Income tax expense
(In Millions)
2012
2011
$
(175.6)
35.0 % $
766.7
35.0%
62.3
61.0
(357.1)
(109.1)
65.2
(108.0)
202.2
—
7.3
(4.7)
(12.4)
(12.0)
71.2
21.7
(13.0)
21.5
(40.3)
—
(1.5)
0.9
634.5
(126.5)
(14.8)
(7.3)
2.9
1.5
(62.6)
(63.6)
—
(153.4)
(44.0)
(67.5)
—
(32.4)
7.5
(11.9)
49.5
17.7
1.7
(2.9)
(2.9)
—
(7.0)
(2.0)
(3.1)
—
(1.5)
0.3
(0.5)
2.3
0.8
0.1
$
255.9
(51.0)% $
407.7
18.6%
In 2012, our income tax expense decreased by $151.8 million compared to 2011. The reduction in income tax was due primarily to
a significant decrease in our global pre-tax book income combined with the impact of consistent permanent book tax differences, such
as percentage depletion, on decreased global pre-tax book income as compared to the prior year. This reduction was offset, however,
by other significant items that occurred throughout the year. We concluded that it was not more likely than not that the deferred tax
asset related to the Alternative Minimum Tax Credit would be utilized and a full valuation allowance in the amount of $226.4 million
was recorded in the fourth quarter. Annually in the fourth quarter, we evaluate our long range income forecasts; as this long range
forecast was a critical data point, the Company updated its evaluation of its Alternative Minimum Tax Credit carryforward, concluding
a full valuation allowance was required to state the credit at its net realizable value.
Additionally, currency elections made during 2012 impacted the remeasurement of deferred tax assets and liabilities resulting in a net
tax expense of $60.5 million. Finally, the book goodwill impairment related to the Bloom Lake reporting unit in the amount of $997.3
million was non-deductible for tax purposes and as a result no tax benefit was recorded for this charge.
The MRRT legislation was passed by the Australian Senate on March 19, 2012 and received Royal Assent on March 29, 2012, thereby
enacting the law. The MRRT commenced on July 1, 2012 and broadly aims to tax existing and future iron ore and coal projects at an
effective tax rate of 22.5 percent. As a result of the legislation, based on valuations and modeling carried out on our Australian projects,
the starting base deferred tax asset was determined to be $357.1 million. We determined that this deferred tax asset was not realizable
based upon updated long-range income forecasts and, as a result, a full valuation allowance was established. The net impact of
MRRT to the results of operations for the full year 2012 was nominal. Additionally, based on current estimations of the MRRT, we
expect that this tax will have no effect on our income tax expense for the life of our current Australian mining operations.
See NOTE 15 - INCOME TAXES for further information.
Equity Income (Loss) from Ventures
Equity loss from ventures for the year ended December 31, 2012 of $404.8 million compares to equity income from ventures for the
year ended December 31, 2011 of $9.7 million. The equity loss from ventures for 2012 was comprised primarily of an impairment
charge of $365.4 million related to our 30 percent ownership interest in Amapá, the sale of which the Board approved in December
2012. The sale closed during the fourth quarter of 2013. Additionally, our equity loss consisted of our share of operating losses of
$31.4 million for the year ended December 31, 2012, compared with operating income of $32.4 million for the same period in 2011.
Amapá’s equity loss from operations in 2012 was attributable primarily to our share of a settlement charge taken in the third quarter
of 2012 for the termination of a transportation agreement that resulted in a $10.2 million loss and a $5.5 million adjustment related to
tax credits that we determined would not be realizable. Additionally, although sales volumes exceeded the prior year, sales margin
was lower primarily as a result of decreases in market pricing and sales mix. The equity income from Amapá for the year ended
December 31, 2011 was offset partially by the impairment of $19.1 million recorded on our investment in AusQuest Limited in which,
at December 31, 2011, we had a 30 percent ownership interest.
57
Income and Gain on Sale from Discontinued Operations, net of tax
Income and Gain on Sale from Discontinued Operations, net of tax was comprised of the gain on the sale of Sonoma, the loss on the
operations of the 45 percent economic interest in Sonoma through the sale on November 12, 2012, and the loss on the operations
at the renewaFUEL biomass production facility. The sale of Sonoma resulted in a net gain of $38.0 million that was recorded upon
the completion of the sale on November 12, 2012. The Sonoma joint venture operations resulted in a net loss of $2.1 million and net
income of $38.6 million for the years ended December 31, 2012 and 2011, respectively. The change in operations year-over-year
mainly was attributed to unfavorable sales price and mix.
The renewaFUEL operations resulted in a loss of $0.1 million for the year ended December 31, 2012, compared to a loss of $18.5
million, net of $9.2 million in tax benefits for the year ended December 31, 2011, which included a $16.0 million impairment charge,
taken to write down the renewaFUEL assets to fair value.
Noncontrolling Interest
Noncontrolling interest primarily was comprised of our consolidated, but less-than-wholly owned subsidiaries at Bloom Lake and the
Empire mining operations. Bloom Lake experienced a net loss of $1,147.9 million, of which $252.0 million was attributable to the
noncontrolling interest in 2012 compared to net income during 2011 of $186.8 million, of which $56.9 million was attributable to the
noncontrolling interest. This net loss in 2012 was driven by an impairment of goodwill of $997.3 million, of which $249.3 million was
allocated to the noncontrolling interest. This did not impact earnings comparably in 2011.
The Empire mining venture had net income of $116.9 million, of which $25.9 million was attributable to the noncontrolling interest in
2012. This compares to net income of $501.8 million during 2011, of which $136.6 million was attributable to the noncontrolling
interest. The reduction was driven by the 2012 curtailed production and decreased year-over-year pricing.
Results of Operations – Segment Information
We are organized and managed according to product category and geographic location. Segment information reflects our strategic
business units, which are organized to meet customer requirements and global competition. We evaluate segment performance
based on sales margin, defined as revenues less cost of goods sold and operating expenses identifiable to each segment. This
measure of operating performance is an effective measurement as we focus on reducing production costs.
58
2013 Compared to 2012
U.S. Iron Ore
The following is a summary of U.S. Iron Ore results for the years ended December 31, 2013 and 2012:
(In Millions)
Changes due to:
Year Ended
December 31,
2013
2012
Revenue
and cost
rate
Sales
volume
Idle cost/
production
volume
variance
Freight and
reimburse-
ment
Total
change
$ 2,667.9
$
2,723.3
$
(24.5) $
(39.6)
$
— $
8.7
$
(55.4)
Revenues from product sales
and services
Cost of goods sold and
operating expenses
Sales margin
$
901.9
$
976.2
$
(12.8) $
(29.2)
$
(32.3) $
— $
(1,766.0)
(1,747.1)
11.7
10.4
(32.3)
(8.7)
(18.9)
(74.3)
Per Ton Information
Realized product revenue rate1
Cost of goods sold and
operating expense rate1
(excluding DDA)
Depreciation, depletion &
amortization
Total cost of goods sold and
operating expense rate
Year Ended
December 31,
2013
2012
Difference
Percent
change
$
113.08
$
114.29
$
(1.21)
(1.1)%
65.08
64.50
5.65
4.66
70.73
69.16
0.58
0.99
1.57
(2.78)
0.9 %
21.2 %
2.3 %
(6.2)%
Sales margin
$
42.35
$
45.13
$
Sales tons2 (In thousands)
Production tons2 (In thousands)
Total
Cliffs’ share of total
21,299
21,633
27,234
20,271
29,526
21,992
1 Excludes revenues and expenses related to domestic freight, which are offsetting and have no impact on sales margin.
Revenues also exclude venture partner cost reimbursements.
2 Tons are long tons (2,240 pounds).
Sales margin for U.S. Iron Ore was $901.9 million for the year ended December 31, 2013, compared with the sales margin of $976.2
million for the year ended December 31, 2012. The decline compared to the prior year is attributable to a decrease in revenue of
$55.4 million as well as an increase in cost of goods sold and operating expenses of $18.9 million. Sales margin per ton decreased
6.2 percent to $42.35 during the year ended December 31, 2013 compared to 2012.
Revenue decreased by $64.1 million, excluding the increase of $8.7 million of freight and reimbursements, from the prior year,
predominantly due to:
•
Lower sales volumes of 334 thousand tons or $39.6 million:
Primarily driven by the expiration of one contract with a continuing customer, a lower full-year nomination
by a customer, reduced tonnage with a customer due to their force majeure and the bankruptcy of one
customer in 2012; and
Partially offset by the placement of an additional 1.2 million export tons primarily due to pellet contracts
transferred from Wabush as well as trial and spot cargoes in Europe during 2013 when compared to the
prior year. We additionally benefited from additional customer demand, specifically additional spot contracts
with a major customer in the Great Lakes region.
59
•
A decline in the average revenue rate, which resulted in a decrease of $24.5 million also was a contributing factor
to the decrease in year-over-year revenues. The average year-to-date realized product revenue rate declined by
$1.21 per ton or 1.1 percent to $113.08 per ton in 2013. This decline is a result of:
Unfavorable customer mix impacted the realized revenue rates by $3 per ton primarily due to higher sales
tonnage to overseas customers, which have lower realized revenue rates driven by additional transportation
costs to move inventory from the U.S. Iron Ore mine locations to the international port locations in Quebec,
which reduces our realized revenue rate per ton;
Realized revenue rates were impacted negatively by $1 per ton as a result of discounts given during 2013
as a part of recently extended contracts; and
Partially offset by one customer contract that increased the average rate by $3 per ton due to the reset of
their contract base rate.
Cost of goods sold and operating expenses in 2013 increased $10.2 million, excluding the increase of $8.7 million of freight and
reimbursements compared to the prior year, predominantly as a result of:
• Higher idle costs of $32.3 million due to the previously announced temporary idling of production at the Empire mine
and the idle of two of the four production lines at our Northshore mine, offset by;
•
•
•
Lower sales volumes decreased costs by $10.4 million compared to the comparable prior-year period;
Lower costs of $12.0 million attributable to timing of tolling cost distribution to Empire mine partner ArcelorMittal
when compared to the prior year; and
Lower costs of $11.6 million due to a reduction in electrical energy rates at Empire and Tilden mines as a result of
switching energy suppliers, reduced contractor spend of $29.4 million and optimized maintenance spend of $21.1
million and partially offset by increased costs of $16.6 million due to higher rates for natural gas and supplies as
well as increased costs of $17.5 million related to deeper pit hauls as compared to 2012.
Production
Cliffs' share of production in our U.S. Iron Ore segment decreased by 7.8 percent during the year ended December 31, 2013 when
compared to 2012. As previously announced, beginning on January 5, 2013, we idled two of the four furnaces at the Northshore
mine, resulting in decreased production of 1.4 million tons when compared to the year ended December 31, 2012. During the first
quarter of 2014, we plan to restart the two idled furnaces, which we expect will increase production by 1.3 million tons in 2014.
60
Eastern Canadian Iron Ore
The following is a summary of Eastern Canadian Iron Ore results for the years ended December 31, 2013 and 2012:
(In Millions)
Year Ended
December 31,
2013
2012
Revenue
and cost
rate
Sales
volume
Change due to:
Idle cost/
Production
volume
variance
Inventory
write-
down
Exchange
rate
Total
change
Revenues from product sales
and services
Cost of goods sold and
operating expenses
Sales margin
$ 978.7
$ 1,008.9
$
27.7
$ (57.9)
$
— $
— $
— $ (30.2)
(1,082.0)
(1,130.3)
$ (103.3) $ (121.4) $
32.1
59.8
53.4
$ (4.5)
$
26.3
26.3
(72.5)
$
(72.5) $
9.0
9.0
$
48.3
18.1
Year Ended
December 31,
Per Ton Information
2013
2012
Difference
Percent
change
Realized product revenue rate
$ 114.45
$ 112.93
$
1.52
1.3 %
Cost of goods sold and
operating expense rate
(excluding DDA)
Depreciation, depletion &
amortization
Total cost of goods sold and
operating expense rate
Sales margin
105.66
108.59
(2.93)
(2.7)%
20.87
17.93
2.94
16.4 %
126.53
126.52
$ (12.08) $ (13.59) $
0.01
1.51
— %
n/m
Sales tons1 (In thousands)
Production tons1 (In
thousands)
1 Tons are metric tons (2,205 pounds).
8,551
8,655
8,934
8,515
We reported a sales margin loss for our Eastern Canadian Iron Ore segment of $103.3 million for the year ended December 31, 2013,
compared with a sales margin loss of $121.4 million for the year ended December 31, 2012. Sales margin per metric ton improved
to a loss of $12.08 per metric ton for the year ended December 31, 2013 compared to a sales margin loss of $13.59 per metric ton
for 2012.
Revenue decreased by $30.2 million for the year ended December 31, 2013 when compared to prior year, primarily due to:
•
•
Lower sales volumes of 383 thousand metric tons. The reduction in tons sold resulted in a decrease to revenue of
$57.9 million, which is related primarily to the transition and idling of pellet production at the Wabush Scully mine
as pellet sales decreased by 1.7 million metric tons period-over-period, offset partially by the sale of 1.4 million more
metric tons of Wabush Scully mine sinter feed in 2013 compared with 2012; and
Partially offset by the increase to the average revenue rate, which resulted in an increase of $27.7 million, driven
by changes in spot market pricing offset by lower pellet premiums due to a shift in product mix, primarily as a result
of:
An increase to the Platts 62 percent Fe spot rate to an average of $135 per metric ton from $130 per metric
ton in the prior year resulted in an increase of $5 per metric ton.
An increase due to favorable provisional pricing adjustments related to prior-year sales and higher
premiums for iron content in comparison to the prior year, increasing the average revenue rate by $2 per
metric ton and $1 per metric ton, respectively;
Offset by a change in product mix as our Eastern Canadian Iron Ore segment ceased pellet production at
our Wabush facility in June 2013 and is only producing sinter feed. Pellet sales will continue to decrease
as a percentage of the product mix in the future. During 2013, 17 percent of products sold were pellets,
compared to 36 percent in the prior year, which resulted in the realized revenue rate decreasing by $4 per
metric ton due to lower average pellet premiums; and
61
Further offset by timing impacts of a negative $2 per metric ton period over period, primarily due to
approximately 300 thousand metric tons of carryover pellets that were in sold in 2012 and based on 2011
contract pricing, which was substantially higher due to 2011 full-year market pricing.
Cost of goods sold and operating expenses during the year ended December 31, 2013 decreased from 2012 by $48.3 million primarily
due to:
•
•
•
•
Production
Lower sales volumes at the Wabush and Bloom Lake facilities resulting in decreased costs of $50.3 million and
$3.1 million, respectively, compared to the prior year;
Incremental idle production costs at our Wabush operations of $26.3 million in 2012 that did not recur;
Favorable foreign exchange rate variances of $9.0 million; and
Partially offset by inventory write-downs primarily at our Wabush mine of $68.0 million related to a supplies inventory
write-down of $29.7 million, lower-of-cost-or-market charges of $19.8 million and unsaleable inventory impairment
charges of $18.5 million recorded during 2013.
The Bloom Lake facility produced 5.9 million and 5.4 million metric tons of iron ore concentrate during the years ended December 31,
2013 and 2012, respectively. During the first quarter of 2014, we announced that we are exploring various strategic alternatives for
our Bloom Lake mine. In the short term, we will continue to operate Bloom Lake mine Phase I operations on a reduced tailings and
water management capital plan. We will continue to evaluate and will idle temporarily the operations if the pricing and operating costs
justify such an alternative action. As a result, the Phase II expansion project remains on hold.
Production at the Wabush facility was 2.8 million and 3.1 million metric tons during the years ended December 31, 2013 and 2012,
respectively. Due to high production costs and lower pellet premium pricing, we idled production at our Pointe Noire iron ore pellet
plant and transitioned to producing an iron ore concentrate product from our Wabush Scully mine during June 2013. During the first
quarter of 2014, we announced our plan to idle our Wabush mine in Newfoundland and Labrador by the end of the first quarter of
2014. The idle is being driven by the unsustainable high cost structure, which results in operations that are not economically viable
to run over time.
62
Asia Pacific Iron Ore
The following is a summary of Asia Pacific Iron Ore results for the years ended December 31, 2013 and 2012:
(In Millions)
Change due to:
Year Ended
December 31,
2013
2012
Revenue
and cost
rate
Sales
volume
Completion
of Cockatoo
Mining
Stage 3
Exchange
rate
Total
change
$ 1,224.3
$ 1,259.3
$
39.5
$
(0.2)
$
(77.0) $
2.7
$
(35.0)
Revenues from product sales
and services
Cost of goods sold and
operating expenses
Sales margin
$
367.1
$
311.0
$
17.3
$
(857.2)
(948.3)
(22.2)
0.2
—
51.2
$
(25.8) $
61.9
64.6
$
91.1
56.1
Year Ended
December 31,
Per Ton Information
2013
2012
Difference
Percent
change
Realized product revenue rate
$ 110.87
$ 107.81
$
3.06
2.8 %
Cost of goods sold and
operating expense rate
(excluding DDA)
Depreciation, depletion &
amortization
Total cost of goods sold and
operating expense rate
63.71
68.18
(4.47)
(6.6)%
13.92
13.00
0.92
7.1 %
Sales margin
$
33.24
$
26.63
$
6.61
77.63
81.18
(3.55)
(4.4)%
24.8 %
Sales tons1 (In thousands)
Production tons1 (In thousands)
1 Metric tons (2,205 pounds). Cockatoo Island production and sales are reflected at our 50 percent share during the first half
of 2012.
11,260
11,681
11,109
11,043
Sales margin for our Asia Pacific Iron Ore segment increased to $367.1 million during the year ended December 31, 2013 compared
with $311.0 million for the same period in 2012. Sales margin per metric ton increased 24.8 percent to $33.24 per metric ton in 2013
compared to 2012.
Revenue decreased by $35.0 million during the year ended December 31, 2013 over the prior year primarily as a result of:
•
•
The completion of the mining of Stage 3 at Cockatoo and the sale of our interest at the end of the third quarter of
2012, resulting in a revenue decrease of $77.0 million or 636 thousand metric tons compared to the prior year; and
These decreases were offset partially by an increase in our realized product revenue rate for the year ended
December 31, 2013 that resulted in an increase of $39.5 million or 2.8 percent on a per-ton basis. This increase is
driven mainly by:
The Platts 62 percent Fe index increased to an average of $135 per metric ton from $130 per metric ton
during the prior year, which positively impacted the revenue rate resulting in an increase of $56.6 million
or $5 per metric ton to our realized revenue rate;
The low-grade iron ore sales campaign in 2012 that did not recur in 2013, which positively impacted the
revenue rate variance resulting in an increase of $40.6 million or $4 per metric ton; and
Offset by a reduction to our realized revenue rate due to:
Unfavorable change in foreign exchange contract hedging impacts of $26.7 million or $2 per
metric ton period over period; and
Lower iron ore content on standard product in 2013 resulting in a reduction of realized product
revenue rate of $22.7 million or $2 per metric ton.
63
Cost of goods sold and operating expenses in the year ended December 31, 2013 decreased $91.1 million compared to 2012 primarily
as a result of:
•
•
•
Production
The completion of the mining of Stage 3 at Cockatoo and the sale of our interest at the end of the third quarter of
2012, resulting in a decrease in costs of $51.2 million in 2013 compared to the prior year;
Favorable foreign exchange rate variances of $61.9 million or $6 per metric ton; and
Partially offset by higher logistics costs of $29.6 million mainly attributable to higher railed tons and higher ship-
loading handling charges in 2013 slightly mitigated by lower mining and crushing costs of $6.6 million due to improved
efficiencies.
Production at our Asia Pacific Iron Ore segment decreased 151 thousand metric tons or 1.3 percent during the year ended December 31,
2013 when compared to 2012. We completed the mining of Stage 3 at Cockatoo and sold our interest during the third quarter of 2012,
resulting in a decrease of 590 thousand metric tons in total production during the year 2013 compared to 2012. The decrease was
offset partially by the increased production of 439 thousand metric tons at Koolyanobbing in 2013 resulting from the completion of the
Koolyanobbing expansion project during mid-2012, which provided additional ore processing and rail and port capabilities that drove
performance increases at this mine.
North American Coal
The following is a summary of North American Coal results for the years ended December 31, 2013 and 2012:
(In Millions)
Change due to:
Year Ended
December 31,
2013
2012
Revenue
and cost
rate
Sales
volume
Freight and
reimburse
ment
Total
change
Revenues from product sales
and services
Cost of goods sold and
operating expenses
Sales margin
$
$
821.9
$
881.1
$
(135.1) $
91.1
(836.4)
(882.9)
122.1
(90.8)
(14.5) $
(1.8) $
(13.0) $
0.3
$
$
(15.2) $
(59.2)
15.2
— $
46.5
(12.7)
Per Ton Information
Realized product revenue rate1
Cost of goods sold and
operating expense rate1
(excluding DDA)
Depreciation, depletion &
amortization
Total cost of goods sold and
operating expense rate
Sales margin
Year Ended
December 31,
2013
2012
Difference
Percent
change
$
101.20
$
119.79
$
(18.59)
(15.5)%
85.47
104.99
(19.52)
(18.6)%
17.72
15.08
2.64
17.5 %
103.19
120.07
$
(1.99) $
(0.28) $
(16.88)
(1.71)
(14.1)%
n/m
Sales tons2 (In thousands)
Production tons2 (In thousands)
6,394
1 Excludes revenues and expenses related to domestic freight, which are offsetting and have no impact on sales
margin.
2 Tons are short tons (2,000 pounds).
6,512
7,221
7,274
Sales margin for the North American Coal segment decreased to a loss of $14.5 million during the year ended December 31, 2013,
compared to a sales margin loss of $1.8 million during the year ended December 31, 2012. Sales margin per ton decreased to a loss
of $1.99 per ton in 2013 compared to a sales margin loss of $0.28 per ton in the prior year.
64
Revenues from product sales and services were $821.9 million, which is a decrease of $44.0 million over the prior-year period,
excluding the decrease of $15.2 million of freight and reimbursements, predominantly due to:
•
A decrease in our realized product revenue rate of $135.1 million or 15.5 percent on a per-ton basis for the year
ended December 31, 2013. This decline is a result of:
The downward trend in market pricing period over period, including a 24 percent decrease in the quarterly
benchmark price, partially mitigated by annually priced contracts, carryover contracts and product mix from
our high-volatile metallurgical coal; and
Slightly offset by a shift in product sales mix. The sales mix for low-volatile metallurgical, high-volatile
metallurgical and thermal coal was 69.6 percent, 21.6 percent and 8.8 percent, respectively, in 2013
compared to 68.1 percent, 19.9 percent and 12.0 percent, respectively, for 2012. The total mix impact
was favorable by $1 per ton based on the higher price of low-volatile coal and lower rates for thermal coal.
•
Partially offset by a sales volume increase of 762 thousand tons or 11.7 percent during the year ended December 31,
2013 in comparison to the prior year resulted in an increase in revenue of $91.1 million, primarily due to:
Increases in low-volatile and high-volatile metallurgical coal sales of 907 thousand tons in 2013 due to
increased production volumes when compared to the prior year and the force majeure related to the April
2011 tornado that extended into April 2012; and
Partially offset by a reduction in thermal coal sales of 145 thousand tons due to reduced market demand.
Cost of goods sold and operating expenses in 2013 decreased $31.3 million, excluding the decrease of $15.2 million of freight and
reimbursements from the comparable period in the prior year, predominantly as a result of:
• Decreased costs related to labor of approximately $40.0 million and maintenance and external services of
approximately $75.0 million at our mines with full operating production in 2012 and 2013 due to reduced headcount,
cost savings measures and more effective operating efficiency;
•
•
•
Favorable variance in the lower-of-cost-or-market inventory charge of $13.3 million in comparison to the prior-year
period as the lower-of-cost-or-market inventory charges at December 31, 2013 and 2012 were $11.1 million and
$24.4 million, respectively; and
Partially offset by higher sales volume attributable to additional low-volatile and high-volatile metallurgical coal sales,
as discussed above, resulted in an additional $90.8 million of costs; and
The accelerated closure of the Dingess-Chilton mine during the first quarter of 2013 and Lower War Eagle mine
moving into the production stage of mining in November 2012 resulted in the recording of $18.0 million or $2 per
ton of additional depreciation and depletion during 2013.
Production
Production of low- and high-volatile metallurgical coal increased 18.2 percent in 2013 compared to 2012. Low-volatile production
increased 803 thousand tons over the prior year due to improved operating efficiency. High-volatile metallurgical coal production
levels in 2013 increased 212 thousand tons or 16.3 percent as a result of the Lower War Eagle mine moving into production during
the fourth quarter of 2012, offset partially by the closure of Dingess-Chilton during the first quarter of 2013. Beginning in the second
quarter of 2012 and continuing through 2013, we experienced a decline in demand for thermal coal. Accordingly, over this time period,
we reduced production at our thermal mine to one shift to align production with customer demands. This resulted in reduced production
of 188 thousand tons in 2013 compared to 2012. Due to increased thermal coal demand in 2014, we will increase production at our
thermal coal mine to two shifts beginning in the first quarter of 2014 to align production with 2014 customer demand.
65
2012 Compared to 2011
U.S. Iron Ore
Following is a summary of U.S. Iron Ore results for the years ended December 31, 2012 and 2011:
(In Millions)
Change due to
Year Ended
December 31,
2012
2011
ArcelorMittal
Settlement
Sales Price
and Rate
Sales
Volume
Idle cost/
Production
volume
variance
Freight and
reimburse-
ment
Total
change
$ 2,723.3
$ 3,509.9
$
(159.2) $ (299.3)
$ (354.7) $
— $
26.6
$ (786.6)
(1,747.1)
(1,830.6)
—
(41.6)
175.1
(23.4)
(26.6)
83.5
Revenues from product
sales and services
Cost of goods sold and
operating expenses
Sales margin
$ 976.2
$ 1,679.3
$
(159.2) $ (340.9)
$ (179.6) $
(23.4) $
— $ (703.1)
Year Ended
December 31,
Per Ton Information
2012
2011
Difference
Percent
change
Realized product
revenue rate1
Cost of goods sold and
operating expenses
rate1 (excluding DDA)
Depreciation, depletion
& amortization
Total cost of goods sold
and operating expenses
rate
$ 114.29
$ 135.53
$
(21.24)
(15.7)%
64.50
62.70
4.66
3.56
1.80
1.10
2.9 %
30.9 %
69.16
66.26
2.90
4.4 %
Sales margin
$ 45.13
$
69.27
$
(24.14)
(34.8)%
Sales tons 2
Production tons 2:
Total
Cliffs’ share of total
21,633
24,243
29,527
21,992
30,966
23,681
1 Excludes revenues and expenses related to domestic freight, which are offsetting and have no impact on sales
margin. Revenues also exclude venture partner cost reimbursements.
2 Tons are long tons (2,240 pounds).
Sales margin for U.S. Iron Ore was $976.2 million for the year ended December 31, 2012, compared with a sales margin of $1,679.3
million for the year ended December 31, 2011. The decline compared to the prior year was attributable to a decrease in revenue of
$786.6 million, offset by a slight decrease in cost of goods sold and operating expenses of $83.5 million. A decrease in revenue of
$299.3 million for the year ended December 31, 2012 was a result of a decreased sales price due to changes in the market, as
previously discussed, compared to the prior year. The decrease in revenue also was impacted by the ArcelorMittal USA price re-
opener settlement, which caused revenue to increase $159.2 million in 2011. Additionally, the Algoma 2010 nomination sales price
“true-up” arbitration agreement resulted in an additional $23.4 million of revenue in 2011. Our realized sales price during the year
ended December 31, 2012 was an average decrease per ton of 15.7 percent over 2011, or an average decrease per ton of 10.7
percent, excluding the impact of the arbitration settlements.
Sales volumes decreased by $354.7 million in 2012 over 2011 primarily due to lower year-over-year domestic demand, the majority
of the decline resulting from specific customer financial difficulties. We had not delivered this tonnage in the export market, due to
reductions in market pricing.
Cost of goods sold and operating expenses in 2012 decreased $110.1 million, excluding the increase of $26.6 million of freight and
reimbursements from the prior year, predominantly as a result of:
•
Lower sales volumes that resulted in decreased costs of $175.1 million compared to the prior year; and
66
•
Partially offset by increased costs of $41.6 million in our pellet operation primarily caused by increased production
costs which was mainly triggered by higher labor costs of $28.1 million driven by pension, OPEB and profit sharing
rate increases and an increase of $24.8 million related to mine development at our Michigan operations. The
increased costs were offset partially by the sale of fines at our Michigan operations.
Production
Four of the five U.S. Iron Ore mines primarily operated at full capacity during the year ended December 31, 2012 to ensure that we
were positioned to meet customer demand. We curtailed production at the Empire mine near the end of the second quarter of 2012
as a result of decreased demand by one of our customers that resulted in a decrease in Empire's production of 57.6 percent during
the year ended December 31, 2012 as compared to the year ended December 31, 2011. Production at Empire resumed late in the
third quarter of 2012.
During the year ended December 31, 2012, our Northshore mine production was impacted negatively by unforeseen power outages
as well as infrastructure failures due to storms that resulted in a decrease in Northshore’s production of 8.5 percent during the year
ended December 31, 2012 as compared to the year ended December 31, 2011.
Eastern Canadian Iron Ore
Following is a summary of Eastern Canadian Iron Ore results for the years ended December 31, 2012 and 2011:
(In Millions)
Change due to
Year Ended
December 31,
2012
2011 1
Sales
Price and
Rate
Sales
Volume
Idle cost /
Production
volume
variance
Exchange
Rate
Total
change
Revenues from product sales
and services
Cost of goods sold and
operating expenses
$ 1,008.9
$ 1,178.1
$
(387.4) $ 218.2
(1,130.3)
(887.2)
(130.8)
(136.5)
Sales margin
$
(121.4) $
290.9
$
(518.2) $
81.7
$
$
— $
— $
(169.2)
13.8
13.8
$
10.4
10.4
(243.1)
$
(412.3)
Year Ended
December 31,
Per Ton Information
2012
2011
Difference
Percent
change
Realized product revenue rate
$
112.93
$
159.12
$
(46.19)
(29.0)%
Cost of goods sold and
operating expenses rate
(excluding DDA)
Inventory step-up
Depreciation, depletion &
amortization
Total cost of goods sold and
operating expenses rate
108.59
—
94.92
8.08
17.93
16.83
126.52
119.83
13.67
(8.08)
1.10
6.69
14.4 %
n/m
6.5 %
5.6 %
Sales margin
$
(13.59) $
39.29
$
(52.88)
(134.6)%
Sales metric tons 2
Production metric tons 2
6,909
1 Consolidated Thompson was acquired on May 12, 2011.
2 Metric tons (2,205 pounds).
7,404
8,515
8,934
We reported sales margin loss for Eastern Canadian Iron Ore of $121.4 million for the year ended December 31, 2012, compared
with a sales margin of $290.9 million for the year ended December 31, 2011. The reduction, compared with the prior year, was
attributable to lower realized sales price while experiencing increased costs. Eastern Canadian Iron Ore sold 8.9 million metric tons
during the year ended December 31, 2012 compared with 7.4 million metric tons in 2011. This increase in sales volume was attributable
directly to 1.8 million metric tons of incremental sales in 2012 due to the acquisition of Consolidated Thompson in May 2011, resulting
in $267.7 million of additional sales volume revenue for the year ended December 31, 2012. The increased sales volumes provided
through the acquisition were offset partially by lower sales volumes at Wabush due to reduced customer nominations and production
shortfalls associated with equipment failure downtime during the year ended December 31, 2012. This resulted in a reduction of
67
revenue of $49.5 million compared to the year ended December 31, 2011. In addition, sales price decreased by $387.4 million when
compared to 2011. The Eastern Canadian Iron Ore realized sales price was, on average, a 29.0 percent decrease per metric ton,
primarily due to a decrease in the Platts benchmark pricing, as previously discussed, compared to the same period in 2011. Although
sales price had the most significant impact on our revenues, we also sold a higher mix of concentrate product, which generally realizes
a lower sales price than iron ore pellets.
Higher cost of goods sold and operating expenses during the year ended December 31, 2012 increased from 2011 by $243.1 million
primarily due to:
•
•
•
•
Significant increase in sales volume as a result of the acquisition of Consolidated Thompson in May 2011, resulting
in $168.6 million of additional cost for the year ended December 31, 2012, partially offset by lower Wabush pellet
sales volumes, which resulted in lower costs of $32.1 million compared to 2011;
Increased costs of $112.2 million in our concentrate operation primarily caused by increased production costs, which
were mainly triggered by higher spending of $79.7 million on contractors and repairs and maintenance, an increase
of $16.0 million caused by higher mine development and $5.7 million of increased rail transportation charges;
Increased costs of $78.3 million in our pellet operation primarily caused by increased production costs, which were
mainly triggered by higher spending of $38.6 million on contractors and repairs and maintenance, an increase of
$20.9 million caused by lower concentrator throughput and $10.7 million of increased energy costs; and
The year-over-year cost increase was offset partially by the non-recurring adjustment recorded in 2011 in which we
amortized an additional $59.8 million of stepped-up value of inventory that resulted from the purchase accounting
for the acquisition of Consolidated Thompson.
Production
The increase in production levels over the prior year was the result of the incremental tonnage available from the Bloom Lake operations
from our acquisition of Consolidated Thompson in May 2011 offset by decreased production at the Wabush Scully mine. The Bloom
Lake facility produced 5.4 million metric tons of iron ore concentrate during the year ended December 31, 2012 compared to 3.5 million
metric tons in our ownership period in 2011. Production at the Wabush facility declined to 3.1 million metric tons of iron ore pellets in
2012 compared to 3.4 million metric tons during 2011 as a result of lower throughput due to challenging ore characterization and
operational issues that resulted in downtime for maintenance and repairs during the year ended December 31, 2012 as compared to
2011.
68
Asia Pacific Iron Ore
Following is a summary of Asia Pacific Iron Ore results for the years ended December 31, 2012 and 2011:
Year Ended
December 31,
2012
2011
(In Millions)
Change due to
Sales Price
and Rate
Sales
Volume
Exchange
Rate
Total
change
Revenues from product sales
and services
Cost of goods sold and
operating expenses
$ 1,259.3
$
1,363.5
$
(564.0) $ 457.7
(948.3)
(664.0)
(41.7)
(239.3)
Sales margin
$
311.0
$
699.5
$
(605.7) $ 218.4
$
$
2.1
$
(104.2)
(3.3)
(284.3)
(1.2) $
(388.5)
Year Ended
December 31,
Per Ton Information
2012
2011
Difference
Percent
change
Realized product revenue rate
$
107.81
$
158.77
$
(50.96)
(32.1)%
Cost of goods sold and
operating expenses rate
(excluding DDA)
Depreciation, depletion &
amortization
Total cost of goods sold and
operating expenses rate
68.18
65.57
13.00
11.75
81.18
77.32
2.61
1.25
3.86
4.0 %
10.6 %
5.0 %
Sales margin
$
26.63
$
81.45
$
(54.82)
(67.3)%
Sales metric tons 1
Production metric tons 1
1 Metric tons (2,205 pounds). Cockatoo Island production and sales reflects our 50 percent share.
11,681
11,260
8,588
8,922
Sales margin for Asia Pacific Iron Ore decreased to $311.0 million during the year ended December 31, 2012 compared with $699.5
million for 2011. Revenue decreased in 2012 primarily as a result of a decrease in the Platts market benchmark pricing for iron ore
in comparison to 2011 and was offset partially by higher sales volume. The change in our realized price for the year ended December
31, 2012 compared to 2011 was on average a 32.6 percent and 27.8 percent decrease per metric ton for our standard lump and fines,
respectively. Additionally, due to limited standard grade ore product availability during 2012, we processed and shipped low-grade
iron ore product. During the year ended December 31, 2012, we shipped approximately 1.3 million metric tons of low-grade iron ore.
The average realized price for the low-grade iron ore was approximately 29.9 percent lower than the sales price of our standard iron
ore sold during the year ended December 31, 2012.
Sales volume during the year ended December 31, 2012 increased to 11.7 million metric tons compared with 8.6 million metric tons
in 2011, resulting in an increase in revenue of $457.7 million. Increased port and rail capacity made available through the completion
of our Koolyanobbing expansion project allowed more tonnage to be shipped. These shipments included an additional 1.8 million
metric tons of standard lump and fines and 1.3 million metric tons of low-grade iron ore product in 2012 over the prior year.
Cost of goods sold and operating expenses in 2012 increased $284.3 million compared to 2011 primarily as a result of:
• Higher sales volumes resulting in higher costs of $239.3 million compared to prior year;
• Higher mining costs of $53.0 million mainly attributable to increased volume and stripping costs and higher logistic
costs of $24.6 million due to higher haulage and railed tons compared to the prior year;
• Higher depreciation costs of $22.9 million mainly attributable to increased fixed assets related to the Koolyanobbing
expansion project; and
•
Partially offset by lower royalties of $35.3 million and lower Cockatoo Island mining costs in 2012 of $24.5 million
due to the winding down of Stage 3 mining.
69
Production
Production at Asia Pacific Iron Ore increased by 26.2 percent in 2012 when compared to 2011. The completion of the Koolyanobbing
expansion project provided additional ore processing and rail and port capabilities that drove this performance increase. Koolyanobbing
production increased 29.6 percent which included approximately 1.3 million metric tons of low-grade iron ore during the year ended
December 31, 2012. We completed the mining of Stage III and sold our interest in Cockatoo Island at the end of the third quarter of
2012 which resulted in a decrease of 14.6 percent in total production during 2012 compared to 2011.
North American Coal
Following is a summary of North American Coal results for the years ended December 31, 2012 and 2011:
Year Ended
December 31,
2012
2011
Sales
Price and
Rate
(In Millions)
Change Due to
Idle cost /
Production
volume
variance
Sales
Volume
Freight and
reimbursement
Total
change
Revenues from product sales and
services
Cost of goods sold and operating
expenses
$
881.1
$
512.1
$
6.3
$ 280.0
(882.9)
(570.5)
(17.5)
(270.2)
Sales margin
$
(1.8) $
(58.4) $
(11.2) $
9.8
$
$
— $
82.7
$ 369.0
58.0
58.0
$
(82.7)
(312.4)
— $
56.6
Per Ton Information
Realized product revenue rate1
Cost of goods sold and operating
expenses rate1 (excluding DDA)
Depreciation, depletion &
amortization
Total cost of goods sold and
operating expenses rate
Year Ended
December 31,
2012
2011
Difference
Percent
change
$ 119.79
$ 118.82
$
0.97
0.8 %
104.99
112.05
(7.06)
(6.3)%
15.08
20.81
(5.73)
(27.5)%
120.07
132.86
(12.79)
(9.6)%
Sales margin
$
(0.28) $ (14.04) $
13.76
(98.0)%
Sales tons 2
Production tons 2
1 Excludes revenues and expenses related to domestic freight, which are offsetting and have no impact on sales margin.
2 Tons are short tons (2,000 pounds).
5,035
4,156
6,512
6,394
Sales margin for North American Coal increased to a loss of $1.8 million during the year ended December 31, 2012, compared to the
loss of $58.4 million in 2011. Revenue during the year ended December 31, 2012 increased 72.1 percent over the prior year period
to $881.1 million primarily due to higher sales volumes during 2012. North American Coal sold 6.5 million tons during the year ended
December 31, 2012 compared with 4.2 million tons in 2011, resulting in an increase in revenue of $280.0 million. Increased inventory
availability and sales volume in 2012 was a result of the 2011 operational issues at Pinnacle mine and tornado damage at Oak Grove
mine, plus strong production performance in 2012 compared to the prior year. Our realized price for the year ended December 31,
2012 at our North American Coal operating segment remained flat in comparison to 2011. Product sales mix for low-volatile, high-
volatile and thermal coal were 68.1 percent, 19.9 percent and 12.0 percent, respectively, in 2012 compared to 38.6 percent, 31.4
percent and 30.0 percent for the comparable period in 2011. The realized sales price per ton was, on average, a 13.8 percent decrease,
4.1 percent decrease and 5.5 percent increase for low-volatile, high-volatile and thermal coal, respectively, over the prior year.
Cost of goods sold and operating expenses in 2012 increased $229.7 million, excluding the increase of $82.7 million of freight and
reimbursements from the prior year, predominantly as a result of:
• Higher sales volume attributable to additional low-volatile metallurgical coal sales, as discussed above, resulting in
a cost increase of $270.2 million;
•
Increase in costs due to a $24.4 million LCM inventory write-down primarily driven by a softening market in both
low- and high-volatility metallurgical coal; and
70
• During the year ended December 31, 2011, fixed costs of $58.0 million being recorded as idle costs as there were
operational issues caused by carbon monoxide at the Pinnacle mine and the effects of the April 2011 tornado at
Oak Grove mine, which both resulted in temporary production curtailments. These fixed costs would have been
included in the rate during 2012 as we did not experience similar temporary production curtailments.
Production
Increased low-volatile metallurgical coal production levels in 2012 were achieved at the Pinnacle and Oak Grove mines. Pinnacle
mine’s increased production of 81.1 percent compared to the prior year was a result of positive longwall production performance
during 2012 and depressed production in the prior year due to elevated carbon monoxide levels. Oak Grove mine’s production levels
for the year ended December 31, 2012 increased by 57.2 percent due mainly to the installation of a new longwall shearer during 2012.
Additionally, Oak Grove mine’s preparation plant was impacted negatively by the effects of the April 2011 tornado. The production
levels at the Oak Grove preparation plant resumed operating at partial capacity in January 2012 and reached normal operating levels
during April 2012. High-volatile metallurgical coal production levels at CLCC in 2012 remained consistent in comparison to 2011.
During 2012, we experienced a decline in the demand for thermal coal used in power generation. Accordingly, on June 15, 2012, we
reduced production at our thermal mine to one shift to align production with customer requirements and existing supply agreements.
Liquidity, Cash Flows and Capital Resources
Our primary sources of liquidity are cash generated from our operating and financing activities. Our capital allocation process is
focused on prioritizing all potential uses of future cash flows to maximize shareholder returns. We continue to focus on maximizing
shareholder return and cash generation in our business operations as well as reductions of any discretionary expenditures in order
to ensure we are positioned to face the challenges and uncertainties of the volatile pricing markets for our products.
Based on current mine plans and subject to future iron ore and coal prices and demand, we expect estimated operating cash flows
to slightly exceed our budgeted capital expenditures, dividends and other cash requirements. We maintain adequate liquidity via
financing arrangements to fund our normal business operations and strategic initiatives. Based on current market conditions, we
expect to be able to fund these requirements for at least the next 12 months through operations and our existing credit facility.
Refer to “Outlook” for additional guidance regarding expected future results, including projections on pricing, sales volume and
production for our various businesses.
The following discussion summarizes the significant activities impacting our cash flows during 2013 as well as those expected to
impact our future cash flows over the next 12 months. Refer to the Statements of Consolidated Cash Flows for additional information.
Operating Activities
Net cash provided by operating activities improved to $1,145.9 million for the year ended December 31, 2013, compared to cash
provided by operating activities of $514.5 million for 2012. The increase in operating cash flow in 2013 primarily was due to the timing
of payments related to 2011 income taxes in early 2012, other changes in working capital and reduced exploration and selling, general
and administrative costs.
Our long-term outlook remains stable, although we have and plan to continue to respond to the uncertain near-term outlook by adjusting
our operating strategy as market conditions change. Throughout 2013, capacity utilization among steelmaking facilities in North
America remained steady. We expect modest growth from the U.S. economy, sustaining a healthy business in the U.S.. Crude steel
production and iron ore imports in Asia continue to generate demand for our products in the seaborne market. We are monitoring
continually the economic environment in which we operate in order to react to fluctuations in pricing due to global economic growth
or contraction, change in demand for steel or changes in availability of supply.
On February 11, 2014, the Company announced its plan to idle its Wabush mine in Newfoundland and Labrador by the end of the
first quarter of 2014. Estimated impact of the idling is expected to include idling costs, employment-related expenditures and contract
costs of approximately $100 million in 2014.
Our U.S. operations and our financing arrangements provide sufficient liquidity and, consequently, we do not need to repatriate earnings
from our foreign operations; however, if we repatriated these earnings, we would be subject to income tax. Our U.S. cash and cash
equivalents balance at December 31, 2013 was $151.0 million, or approximately 45.0 percent of our consolidated total cash and cash
equivalents balance of $335.5 million. As of December 31, 2013, we had full availability on our borrowing capacity of our $1.75 billion
U.S.-based revolving credit facility. This compares to available borrowing capacity of $504.9 million under this revolving credit facility
due to covenant restrictions at December 31, 2012. Additionally, historically we have been able to raise additional capital through
private financings and public debt and equity offerings, the bulk of which, to date, have been U.S.-based. If the demand from the U.S.
and Asian economies weakened and pricing deteriorated for a prolonged period, we have the financial and operational flexibility to
reduce production, delay capital expenditures, sell assets and reduce overhead costs to provide liquidity in the absence of cash flow
from operations.
Investing Activities
Net cash used by investing activities was $811.3 million for the year ended December 31, 2013, compared with $961.8 million for the
comparable period in 2012.
71
We had capital expenditures of $861.6 million and $1,127.5 million for the years ended December 31, 2013 and 2012, respectively.
Our main capital investment focus has been on the construction of the Bloom Lake mine's operations. On the ramp-up and expansion
projects at Bloom Lake mine, we have spent approximately $426 million and approximately $475 million during the years ended
December 31, 2013 and 2012, respectively. In addition, the expenditures for the Bloom Lake tailings and water management system
totaled $191 million and $99 million in 2013 and 2012, respectively. On February 11, 2014, we announced that we are indefinitely
suspending Phase II expansion at our Bloom Lake mine. In the short term, we will continue to operate Bloom Lake mine Phase I
operations on a reduced tailings and water management capital plan. We also announced that we would idle the Phase I operations
if pricing significantly decreases for an extended period of time.
Additionally, we spent approximately $203 million and $329 million globally on expenditures related to sustaining capital excluding
Bloom Lake tailings and water management in 2013 and 2012, respectively. Sustaining capital spend includes infrastructure, mobile
equipment, environmental, safety, fixed equipment, product quality and health.
In alignment with our strategy to focus on allocating capital in a prudent balance among key priorities related to liquidity management,
business investment and increasing long-term shareholder value, we anticipate total cash used for capital expenditures in 2014 to be
approximately $375 million to $425 million. This includes approximately $64 million in cash carryover capital, with the remainder
comprised of sustaining and permission to operate capital. This significantly lower year-over-year capital expenditure budget will
position the Company to generate meaningfully more free cash flow versus prior years.
Financing Activities
Net cash used by financing activities during 2013 was $171.9 million, compared to net cash provided by financing activities of $119.6
million for 2012. We completed a public offering of 10.35 million of our common shares in February 2013. The net proceeds from
the offering were approximately $285.3 million at a sales price to the public of $29 per share. We also issued 29.25 million depositary
shares for total net proceeds of approximately $709.4 million, after underwriting fees and discounts. A portion of the net proceeds
from the share offerings were used to repay the $847.1 million outstanding under the term loan.
Additionally, cash provided by financing activities during 2013 included proceeds from equipment loans of $164.8 million, offset by
net borrowings and repayments under the credit facility of $325.0 million and dividend distributions of $127.6 million. During the first
quarter of 2013, the Board of Directors approved a reduction to the quarterly dividend to $0.15 per share. Quarterly dividends at the
new rate were payable on March 1, 2013, June 3, 2013, September 3, 2013 and December 2, 2013. Additionally, we have dividends
payable on our preferred shares, which are represented by our depositary shares, at an annual rate of 7.00 percent on the liquidation
preference of $1,000 per preferred share (or the equivalent of $25 per depositary share). The declared quarterly cash dividends were
payable on May 1, 2013, August 1, 2013 and November 1, 2013.
72
The following represents our future cash commitments and contractual obligations as of December 31, 2013:
Payments Due by Period 1 (In Millions)
Contractual Obligations
Total
1 Year
Less than
1 - 3
Year
3 - 5
Year
More Than
5 Years
Long-term debt
Interest on debt 2
Operating lease obligations
Capital lease obligations
Purchase obligations:
Bloom Lake expansion project
Open purchase orders
Minimum royalty payments
Minimum "take or pay"
purchase commitments 3
Total purchase obligations
Other long-term liabilities:
Pension funding minimums
OPEB claim payments
Environmental and mine closure obligations
Personal injury
Total other long-term liabilities
$
3,061.7
$
20.9
$
44.5
$
548.2
$
2,448.1
2,039.7
69.9
263.9
40.0
211.9
187.8
7,128.4
7,568.1
309.0
647.7
321.0
14.3
1,292.0
157.6
20.0
64.2
40.0
205.6
82.9
502.9
831.4
68.3
7.9
11.3
3.7
91.2
312.6
21.2
120.5
—
6.3
65.6
846.6
918.5
111.7
15.1
19.7
4.4
150.9
299.0
14.0
47.0
—
—
25.6
566.0
591.6
68.3
15.1
35.9
0.4
119.7
1,270.5
14.7
32.2
—
—
13.7
5,212.9
5,226.6
60.7
609.6
254.1
5.8
930.2
Total
$
14,295.3
$
1,185.3
$
1,568.2
$
1,619.5
$
9,922.3
1 Includes our consolidated obligations.
2 For the $500 million senior notes, interest is calculated using a fixed rate of 3.95 percent from 2014 to maturity in January 2018.
For the $400 million senior notes, interest is calculated using a fixed rate of 5.90 percent from 2014 to maturity in March 2020.
For the $1.3 billion senior notes, interest is calculated for the $500 million 10-year notes using a fixed rate of 4.80 percent from
2014 to maturity in October 2020, and the $800 million 30-year notes using a fixed rate of 6.25 percent from 2014 to maturity
in October 2040. For the $700 million senior notes, interest is calculated using a fixed rate of 4.88 percent from 2014 to maturity
in April 2021. For the $161.7 million of equipment loans, interest is calculated using the fixed rate associated with each of the
equipment loans from 2014 to maturity in 2020.
3 Includes minimum railroad transportation obligations, minimum electric power demand charges, minimum coal, diesel and
natural gas obligations and minimum port facility obligations.
The above table does not reflect $74.4 million of unrecognized tax benefits, which we have recorded for uncertain tax positions as
we are unable to determine a reasonable and reliable estimate of the timing of future payments.
Refer to NOTE 20 - COMMITMENTS AND CONTINGENCIES of the Consolidated Financial Statements for additional information
regarding our future commitments and obligations.
73
Capital Resources
We expect to fund our business obligations from available cash, current and future operations and existing borrowing arrangements.
We also may pursue other funding strategies in the capital markets to strengthen our liquidity. The following represents a summary
of key liquidity measures as of December 31, 2013 and December 31, 2012:
Cash and cash equivalents
Available revolving credit facility
Revolving loans drawn
Senior notes
Senior notes drawn
Term loan
Term loan drawn
Letter of credit obligations and other commitments
Borrowing capacity available
(In Millions)
December 31, 2013
December 31, 2012
$
$
$
$
$
335.5
1,750.0
—
2,900.0
(2,900.0)
—
—
(8.4)
1,741.6
$
195.2
857.6
(325.0)
2,900.0
(2,900.0)
847.1
(847.1)
(27.7)
504.9
Our primary source of funding is a $1.75 billion revolving credit facility, which matures on October 16, 2017. We also have cash
generated by the business and cash on hand, which totaled $335.5 million as of December 31, 2013. The combination of cash and
availability under the credit facility gave us $2.1 billion in liquidity entering the first quarter of 2014, which is expected to be used to
fund operations, capital expenditures and finance strategic initiatives.
On February 8, 2013, we amended both the amended revolving credit agreement and the term loan to effect the following:
•
Suspend the current Funded Debt to EBITDA ratio requirement for all quarterly measurement periods in 2013, after which
point it will revert back to the debt to earnings ratio for the period ending March 31, 2014 until maturity.
• Require a Minimum Tangible Net Worth of approximately $4.6 billion as of each of the three-month periods ended March 31,
2013, June 30, 2013, September 30, 2013 and December 31, 2013. Minimum Tangible Net Worth, in accordance with the
amended revolving credit agreement and term loan, is defined as total equity less goodwill and intangible assets.
• Maintain a Maximum Total Funded Debt to Capitalization of 52.5 percent from the amendments' effective date through the
period ended December 31, 2013.
•
The amended agreements retain the Minimum Interest Coverage Ratio requirement of 2.5 to 1.0.
Through the use of the proceeds from the February 2013 public equity offerings, we repaid the total amount outstanding under the
term loan of $847.1 million. Upon the repayment of the term loan, the financial covenants associated with the term loan were no
longer applicable.
Pursuant to the terms of the amended revolving credit agreement, we are subject to higher borrowing costs. The applicable interest
rate is determined by reference to the former Funded Debt to EBITDA ratio; however, as discussed above, this is not a financial
covenant of the amended agreements until March 31, 2014. Based on the amended terms, borrowing costs could increase as much
as 0.5 percent relative to the outstanding borrowings, as well as 0.1 percent on unborrowed amounts. Furthermore, the amended
revolving credit agreement places certain restrictions upon our declaration and payment of dividends, our ability to consummate
acquisitions and the debt levels of our subsidiaries.
The above liquidity as of December 31, 2012 reflected the availability of our revolving credit facility to the extent it would not have
resulted in a violation of our Funded Debt to EBITDA maximum ratio of 3.5 to 1.0. As of February 8, 2013 and as a result of the
execution of the amendments to the amended revolving credit agreement and term loan in consideration of the temporary financial
covenants in place, our availability under the $1.75 billion revolving credit facility is no longer restricted. Once the Funded Debt to
EBITDA ratio returns to a level of 3.5 to 1 effective March 31, 2014, available liquidity under our revolving credit facility will be predicated
on compliance with this covenant.
We are subject to certain financial covenants contained in the amended revolving credit agreement and were subject to certain financial
covenants related to the term loan until its payoff during February 2013. As of December 31, 2013 and December 31, 2012, we were
in compliance with all applicable financial covenants and expect to be in compliance with all applicable covenants for the next 12
months.
At December 31, 2012, the amended revolving credit agreement and term loan had two financial covenants based on: (1) debt to
earnings ratio (Total Funded Debt to EBITDA, as those terms are defined in the amended revolving credit agreement), as of the last
day of each fiscal quarter cannot exceed 3.5 to 1.0 and (2) interest coverage ratio (Consolidated EBITDA to Interest Expense, as
74
those terms are defined in the amended revolving credit agreement), for the preceding four quarters must not be less than 2.5 to 1.0
on the last day of any fiscal quarter.
We believe that the amended revolving credit agreement provides us sufficient liquidity to support our operating and investing activities.
We continue to focus on achieving a capital structure that achieves the optimal mix of debt, equity and other off-balance sheet financing
arrangements.
Several credit markets may provide additional capacity should that become necessary. The bank market may provide funding through
a term loan, bridge loan, credit facility or through exercising the $250 million accordion in our current revolving credit facility. The risk
associated with the bank market is significant increases in borrowing costs as a result of limited capacity. As in all debt markets,
capacity is a global issue that impacts the bond market. Our issuance of a $500 million public offering of five-year senior notes in
December 2012 provides evidence that capacity in the bond markets has improved and remains stable for investment-grade companies
compared to conditions impacting such markets in previous years. This transaction represents the successful execution of our strategy
to increase liquidity and extend debt maturities to align with longer-term capital structure needs.
Off-Balance Sheet Arrangements
In the normal course of business, we are a party to certain arrangements that are not reflected on our Statements of Consolidated
Financial Position. These arrangements include minimum "take or pay" purchase commitments, such as minimum electric power
demand charges, minimum coal, diesel and natural gas purchase commitments, minimum railroad transportation commitments and
minimum port facility usage commitments; financial instruments with off-balance sheet risk, such as bank letters of credit and bank
guarantees; and operating leases, which primarily relate to equipment and office space.
Market Risks
We are subject to a variety of risks, including those caused by changes in commodity prices, foreign currency exchange rates and
interest rates. We have established policies and procedures to manage such risks; however, certain risks are beyond our control.
Pricing Risks
Commodity Price Risk
Our consolidated revenues include the sale of iron ore pellets, iron ore concentrate, iron ore lump, low-volatile metallurgical coal, high-
volatile metallurgical coal and thermal coal. Our financial results can vary significantly as a result of fluctuations in the market prices
of iron ore and coal. World market prices for these commodities have fluctuated historically and are affected by numerous factors
beyond our control. The world market price that most commonly is utilized in our iron ore sales contracts is the Platts 62 percent Fe
fines pricing, which can fluctuate widely due to numerous factors, such as global economic growth or contraction, change in demand
for steel or changes in availability of supply.
Provisional Pricing Arrangements
Certain of our U.S. Iron Ore, Eastern Canadian Iron Ore and Asia Pacific Iron Ore customer supply agreements specify provisional
price calculations, where the pricing mechanisms generally are based on market pricing, with the final revenue rate to be based on
market inputs at a specified point in time in the future, per the terms of the supply agreements. The difference between the provisionally
agreed-upon price and the estimated final revenue rate is characterized as a derivative and is required to be accounted for separately
once the revenue has been recognized. The derivative instrument is adjusted to fair value through Product revenues each reporting
period based upon current market data and forward-looking estimates provided by management until the final revenue rate is
determined.
At December 31, 2013, we have recorded $3.1 million as Other current assets and $10.3 million as derivative liabilities included in
Other current liabilities in the Statements of Consolidated Financial Position related to our estimate of final sales rate with our U.S.
Iron Ore, Eastern Canadian Iron Ore and Asia Pacific Iron Ore customers. These amounts represent the difference between the
provisional price agreed upon with our customers based on the supply agreement terms and our estimate of the final sales rate based
on the price calculations established in the supply agreements. As a result, we recognized a net $7.2 million decrease, respectively,
in Product revenues in the Statements of Consolidated Operations for the year ended December 31, 2013 related to these
arrangements.
Customer Supply Agreements
Certain supply agreements with one U.S. Iron Ore 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 a freestanding derivative, which is finalized based on a future price, and is adjusted to fair value as a revenue
adjustment each reporting period until the pellets are consumed and the amounts are settled. The fair value of the instrument is
determined using an income approach based on an estimate of the annual realized price of hot-rolled steel at the steelmaker’s facilities.
At December 31, 2013, we had a derivative asset of $55.8 million, representing the fair value of the pricing factors, based upon the
amount of unconsumed tons and an estimated average hot-band steel price related to the period in which the tons are expected to
be consumed in the customer’s blast furnace at each respective steelmaking facility, subject to final pricing at a future date. This
compares with a derivative asset of $58.9 million as of December 31, 2012. We estimate that a $75 change in the average hot-band
75
steel price realized from the December 31, 2013 estimated price recorded would cause the fair value of the derivative instrument to
increase or decrease by approximately $58.7 million, thereby impacting our consolidated revenues by the same amount.
We have not entered into any hedging programs to mitigate the risk of adverse price fluctuations; however, certain of our term supply
agreements contained price collars, which typically limit the percentage increase or decrease in prices for our products during any
given year.
Volatile Energy and Fuel Costs
The volatile cost of energy is an important issue affecting our production costs, primarily in relation to our iron ore operations. Our
consolidated U.S. Iron Ore mining ventures consumed approximately 17.6 million MMBtu’s of natural gas at an average delivered
price of $4.34 per MMBtu and 28.7 million gallons of diesel fuel at an average delivered price of $3.23 per gallon during 2013. Our
consolidated Eastern Canadian Iron Ore mining ventures consumed approximately 7.7 million gallons of diesel fuel at an average
delivered price of $4.16 per gallon during 2013. Our CLCC operations consumed approximately 2.5 million gallons of diesel fuel at
an average delivered price of $3.40 per gallon during 2013. Consumption of diesel fuel by our Asia Pacific operations was approximately
14.8 million gallons at an average delivered price of $3.33 per gallon for the same period.
In the ordinary course of business, there also will be likely increases in prices relative to electrical costs at our U.S. mine sites related
specifically to our Tilden and Empire mines in Michigan because we exercised our right to purchase electrical supply in the deregulated
market during 2013, which is based on the Midwestern Independent System Operator Day-Ahead price. Additionally, as the cost of
producing electricity increases, energy companies regularly seek to reclaim those costs from the mine sites, which often results in
tariff disputes.
Our strategy to address increasing energy rates includes improving efficiency in energy usage, identifying alternative providers and
utilizing the lowest cost alternative fuels. At the present time, we have no specific plans to enter into hedging activity and do not plan
to enter into any new forward contracts for natural gas or diesel fuel in the near term. We will continue to monitor relevant energy
markets for risk mitigation opportunities and may make additional forward purchases or employ other hedging instruments in the future
as warranted and deemed appropriate by management. Assuming we do not enter into further hedging activity in the near term, a
10 percent change in electrical, natural gas and diesel fuel prices would result in a change of approximately $30.4 million in our annual
fuel and energy cost based on expected consumption for 2014.
Valuation of Goodwill and Other Long-Lived Assets
We assign goodwill arising from acquired businesses to the reporting units that are expected to benefit from the synergies of the
acquisition. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment)
on an annual basis as of October 1st and between annual tests if an event occurs or circumstances change that would more likely
than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant
change in the business climate, legal factors, operating performance indicators, curtailment of project development activities,
competition or sale or disposition of a significant portion of a reporting unit.
Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and
liabilities to reporting units, assignment of goodwill to reporting units and determination of the fair value of each reporting unit. The
fair value of each reporting unit is estimated using a discounted cash flow methodology, which considers forecasted cash flows
discounted at an estimated weighted average cost of capital. Assessing the recoverability of our goodwill requires significant
assumptions regarding the estimated future cash flows and other factors to determine the fair value of a reporting unit including, among
other things, estimates related to long-term price expectations, expected results of anticipated exploration activities, foreign currency
exchange rates, expected capital expenditures and working capital requirements expected at commencement of production, which
are based upon our long-range plan and life of mine estimates. The assumptions used to calculate the fair value of a reporting unit
may change from year to year based on operating results, current market conditions or changes to expectations of market trends and
other factors. Changes in these assumptions could materially affect the determination of fair value for each reporting unit.
Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances that would indicate that
the carrying value of the assets may not be recoverable. Such indicators may include, among others: a significant decline in expected
future cash flows; a sustained, significant decline in market pricing; a significant adverse change in legal or environmental factors or
in the business climate; changes in estimates of our recoverable reserves; unanticipated competition; and slower growth or production
rates. Any adverse change in these factors could have a significant impact on the recoverability of our long-lived assets and could
have a material impact on our consolidated statements of operations and statement of financial position.
A comparison of each asset group's carrying value to the estimated undiscounted future cash flows expected to result from the use
of the assets, including cost of disposition, is used to determine if an asset is recoverable. Projected future cash flows reflect
management's best estimates of economic and market conditions over the projected period, including growth rates in revenues and
costs, estimates of future expected changes in operating margins and capital expenditures. If the carrying value of the asset group
is higher than its undiscounted future cash flows, the asset group is measured at fair value and the difference is recorded as a reduction
to the long-lived assets. We estimate fair value using a market approach, an income approach or a cost approach.
The assessments for goodwill and long-lived asset impairment are sensitive to changes in key assumptions. These key assumptions
include, but are not limited to, forecasted long-term pricing, production costs, capital expenditures and a variety of economic
assumptions (e.g., discount rate, inflation rates, exchange rates and tax rates).
76
Foreign Currency Exchange Rate Risk
We are subject to changes in foreign currency exchange rates primarily as a result of our operations in Australia and Canada, which
could impact our financial condition. With respect to Australia, foreign exchange risk arises from our exposure to fluctuations in foreign
currency exchange rates because our reporting currency is the U.S. dollar, but the functional currency of our Asia Pacific operations
is the Australian dollar. Our Asia Pacific operations receive funds in U.S. currency for their iron ore sales and incur costs in Australian
currency. For our Canadian operations, the functional currency is the U.S. dollar; however, the production costs for these operations
primarily are incurred in the Canadian dollar. We began hedging our exposure to the Canadian dollar in January 2012. The primary
objective for the use of these instruments is to reduce exposure to changes in Australian and U.S. currency exchange rates and
Canadian and U.S. currency exchange rates, respectively, and to protect against undue adverse movement in these exchange rates.
At December 31, 2013, we had outstanding Australian and Canadian foreign exchange rate contracts with notional amounts of $323.0
million and $285.9 million, respectively, with varying maturity dates ranging from January 2014 to December 2014 for which we elected
hedge accounting. To evaluate the effectiveness of our hedges, we conduct sensitivity analysis. A 10 percent increase in the value
of the Australian dollar from the month-end rate would increase the fair value of these contracts to approximately $8.6 million, and a
10 percent decrease would reduce the fair value to approximately negative $51.6 million. A 10 percent increase in the value of the
Canadian dollar from the month-end rate would increase the fair value of these contracts to approximately $27.3 million, and a 10
percent decrease would decrease the fair value to approximately negative $29.5 million. We may enter into additional hedging
instruments in the near future as needed in order to further hedge our exposure to changes in foreign currency exchange rates.
The following table represents our foreign currency exchange contract position for contracts held as cash flow hedges as of
December 31, 2013:
Contract Maturity
Contract Portfolio 1 :
AUD Contracts expiring in the next 12 months
CAD Contracts expiring in the next 12 months
Total Hedge Contract Portfolio
1 Includes collar options and forward contracts.
($ in Millions)
Weighted
Average
Exchange
Rate
Spot Rate
Fair Value
0.95
1.05
0.8917
$
1.0623
$
(21.5)
(4.0)
(25.5)
Notional
Amount
$
$
323.0
285.9
608.9
Refer to NOTE 3 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for further information.
Interest Rate Risk
Interest payable on our senior notes is at fixed rates. Interest payable under our revolving credit facility is at a variable rate based
upon the base rate or the LIBOR rate plus a margin depending on a leverage ratio. As of December 31, 2013, we had no amounts
drawn on the revolving credit facility.
The interest rate payable on the $500.0 million senior notes due in 2018 may be subject to adjustments from time to time if either
Moody's or S&P or, in either case, any substitute rating agency thereof downgrades (or subsequently upgrades) the debt rating
assigned to the notes. In no event shall (1) the interest rate for the notes be reduced to below the interest rate payable on the notes
on the date of the initial issuance of notes or (2) the total increase in the interest rate on the notes exceed 2.00 percent above the
interest rate payable on the notes on the date of the initial issuance of notes. The maximum rate increase of 2.00 percent for the
interest rate payable on the notes would result in an additional interest expense of $10.0 million per annum.
Supply Concentration Risks
Many of our mines are dependent on one source each of electric power and natural gas. A significant interruption or change in service
or rates from our energy suppliers could impact materially our production costs, margins and profitability.
Outlook
In 2014, we expect accelerating economic growth in the United States to support domestic steel production and thus demand for
steelmaking raw materials. We expect China's economy will expand at a pace near the official government target rate, primarily
driven by fixed asset investment. As a result, increased steel production will continue to require both domestic and imported
steelmaking raw materials to satisfy demand. Growth in these key markets is anticipated to provide continued demand for our
products.
Due to the commodity pricing volatility for the products we sell and for the purpose of providing a full-year outlook, we will utilize the
year-to-date average 62% Fe seaborne iron ore spot price as of January 31, 2014, which was $128 per ton (C.F.R. China), as a
base price assumption for providing our full-year 2014 revenues-per-ton sensitivities for our iron ore business segments. With $128
77
per ton as a base price assumption for full-year 2014, included in the table below is the expected revenues-per-ton range for our
iron ore business segments and the per-ton sensitivity for each $10 per ton variance from the base price assumption.
Revenues Per Ton
Sensitivity Per Ton (+/- $10)
2014 Full-Year Realized Revenue Sensitivity Summary (1)
U.S.
Iron Ore (2)
$105 - $110
+/- $2
Eastern Canadian
Iron Ore (3)
$95 - $100
+/- $9
Asia Pacific
Iron Ore (4)
$100 - $105
+/- $9
(1) Based on the average year-to-date 62% Fe seaborne iron ore fines price (C.F.R. China) of $128 per ton as of January
31, 2014.
(2) U.S. Iron Ore tons are reported in long tons.
(3) Eastern Canadian lron Ore tons are reported in metric tons, F.O.B. Eastern Canada.
(4) Asia Pacific Iron Ore tons are reported in metric tons, F.O.B. the port.
The revenues-per-ton sensitivities consider various contract provisions and lag-year adjustments contained in certain supply
agreements. Actual realized revenues per ton for the full year will depend on iron ore price changes, customer mix, freight rates,
production input costs and/or steel prices (all factors contained in certain of our supply agreements).
U.S. Iron Ore Outlook (Long Tons)
For 2014, we are maintaining our full-year sales and production volume expectation of 22 - 23 million tons for our U.S. Iron Ore
business.
The U.S. Iron Ore revenues-per-ton sensitivity included within the 2014 revenue sensitivity summary table above also includes the
following assumptions:
•
•
2014 average hot-rolled steel pricing of approximately $640 per ton
25 - 30% of the expected 2014 sales volume is linked to seaborne iron ore pricing
Our full-year 2014 U.S. Iron Ore cash-cost-per-ton expectation is $65 - $70. This expectation includes the year-over-year fixed cost
leverage from higher sales volumes; however, this is more than offset by increased planned maintenance activity. Depreciation,
depletion and amortization for full-year 2014 is expected to be approximately $7 per ton.
Eastern Canadian Iron Ore Outlook (Metric Tons, F.O.B. Eastern Canada)
Our full-year 2014 Eastern Canadian Iron Ore expected sales and production volumes are 6 - 7 million tons, comprised of virtually
all iron ore concentrate. This includes 500,000 tons from Wabush Mine and the remainder from Bloom Lake Mine.
The Eastern Canadian Iron Ore revenues-per-ton sensitivity is included within the 2014 revenues-per-ton sensitivity table above.
Full-year 2014 cash cost per ton in Eastern Canadian Iron Ore is expected to be $85 - $90. Depreciation, depletion and amortization
is expected to be approximately $25 per ton for full-year 2014.
Asia Pacific Iron Ore Outlook (Metric Tons, F.O.B. the port)
Our full-year 2014 Asia Pacific Iron Ore expected sales and production volumes are 10 - 11 million tons. The product mix is expected
to be approximately half lump and half fines iron ore.
The Asia Pacific Iron Ore revenues-per-ton sensitivity is included within the 2014 revenues-per-ton sensitivity table above. Full-year
2014 Asia Pacific Iron Ore cash cost per ton is expected to be approximately $60 - $65, lower than the previous year's cash costs
primarily due to favorable foreign exchange rate assumptions. We anticipate depreciation, depletion and amortization to be
approximately $14 per ton for full-year 2014.
North American Coal Outlook (Short Tons, F.O.B. the mine)
For 2014, we are increasing our North American Coal expected sales and production volumes to 7 - 8 million tons, driven by higher
thermal coal production. The sales volume mix is anticipated to be approximately 67% low-volatile metallurgical coal and 21% high-
volatile metallurgical coal, with thermal coal making up the remainder.
Our full-year 2014 North American Coal revenues-per-ton outlook is $85 - $90. We have approximately 50% of our expected 2014
sales volume committed and priced at approximately $87 per short ton at the mine. The revenue-per-ton expectation includes all
anticipated thermal coal sales volume for 2014, which realizes a lower price than our metallurgical coal products. Cash cost per ton
is anticipated to be $85 - $90. Full-year 2014 depreciation, depletion and amortization is expected to be approximately $15 per ton.
78
The following table provides a summary of our 2014 guidance for our four business segments:
Sales volume (million tons)
Production volume (million tons)
Cash cost per ton
DD&A per ton
2014 Outlook Summary
U.S.
Iron Ore (1)
22 - 23
22 - 23
$65 - $70
$7
Eastern Canadian
Iron Ore (2)
6 - 7
6 - 7
$85 - $90
$25
Asia Pacific
Iron Ore (3)
10 - 11
10 - 11
$60 - $65
$14
North American
Coal (4)
7 - 8
7 - 8
$85 - $90
$15
(1) U.S. Iron Ore tons are reported in long tons.
(2) Eastern Canadian lron Ore tons are reported in metric tons, F.O.B. Eastern Canada.
(3) Asia Pacific Iron Ore tons are reported in metric tons, F.O.B. the port.
(4) North American Coal tons are reported in short tons, F.O.B. the mine.
SG&A Expenses and Other Expectations
We are reducing our year-over-year SG&A and exploration expenses by approximately $90 million. Full-year 2014 SG&A expenses
are expected to be approximately $185 million. The decrease is primarily driven by expected reductions in employee-related expenses,
outside services and legal settlements. Our full-year cash outflow expectation for exploration and chromite-related spending is
approximately $15 million.
Also, as previously disclosed, we expect to incur approximately $100 million in costs related to the Wabush Mine idle. We also
expect our full-year 2014 depreciation, depletion and amortization to be approximately $600 million.
Capital Budget Update
We expect our full-year 2014 capital expenditures budget to be $375 - $425 million. This includes approximately $100 million in
cash carryover capital, with the remainder primarily comprised of sustaining and license-to-operate capital.
Recently Issued Accounting Pronouncements
Refer to NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES of the consolidated financial statements
for a description of recent accounting pronouncements, including the respective dates of adoption and effects on results of operations
and financial condition.
Critical Accounting Estimates
Management's discussion and analysis of financial condition and results of operations is based on our consolidated financial
statements, which have been prepared in accordance with GAAP. Preparation of financial statements requires management to make
assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and the
related disclosures of contingencies. Management bases its estimates on various assumptions and historical experience, which are
believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed
conditions or assumptions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments
to ensure that our financial statements are fairly presented in accordance with GAAP. However, because future events and their
effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences
could be material. Management believes that the following critical accounting estimates and judgments have a significant impact
on our financial statements.
Revenue Recognition
U.S., Eastern Canadian and Asia Pacific Iron Ore Provisional Pricing Arrangements
Most of our U.S. Iron Ore long-term supply agreements are comprised of a base price with annual price adjustment factors, some
of which are subject to annual price collars in order to limit the percentage increase or decrease in prices for our iron ore pellets
during any given year. The base price is the primary component of the purchase price for each contract. The inflation-indexed price
adjustment factors are integral to the iron ore supply contracts and vary based on the agreement, but typically include adjustments
based upon changes in benchmark and international pellet prices and changes in specified Producers Price Indices, including those
for all commodities, industrial commodities, energy and steel. The pricing adjustments generally operate in the same manner, with
each factor typically comprising a portion of the price adjustment, although the weighting of each factor varies based upon the specific
terms of each agreement. In most cases, these adjustment factors have not been finalized at the time our product is sold. In these
cases, we historically have estimated the adjustment factors at each reporting period based upon the best third-party information
available. The estimates are then adjusted to actual when the information has been finalized.
The Producer Price Indices remain an estimated component of the sales price throughout the contract year and are estimated each
quarter using publicly available forecasts of such indices. The final indices referenced in certain of the U.S. Iron Ore supply contracts
79
typically are not published by the U.S. Department of Labor until the second quarter of the subsequent year. As a result, we record
an adjustment for the difference between the fourth quarter estimate and the final price in the following year.
Throughout the year, certain of our Eastern Canadian and Asia Pacific Iron Ore customers have contract arrangements in which
pricing settlements are based upon an average benchmark pricing for future periods. Most of the future periods are settled within
three months. To the extent the particular pricing settlement period is subsequent to the reporting period, we estimate the final pricing
settlement based upon information available. Similar to U.S. Iron Ore, the estimates are then adjusted to actual when the price
settlement period elapses.
Historically, provisional pricing arrangement adjustments have not been material as they have represented less than half of one
percent of U.S., Eastern Canadian and Asia Pacific Iron Ore's respective revenues for each of the three preceding fiscal years ended
December 31, 2013, 2012 and 2011.
U.S. Iron Ore Customer Supply Agreements
In addition, certain supply agreements with one U.S. Iron Ore customer include provisions for supplemental revenue or refunds
based on the customer's average annual steel pricing for the year that the product is consumed in the customer's blast furnaces.
The supplemental pricing is characterized as a freestanding derivative and is required to be accounted for separately once the
product is shipped. 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. The fair value of the instrument is
determined using a market approach based on an estimate of the annual realized price of hot rolled steel at the steelmaker's facilities,
and takes into consideration current market conditions and nonperformance risk. At December 31, 2013, we had a derivative asset
of $55.8 million, representing the fair value of the pricing factors, based upon the amount of unconsumed tons and an estimated
average hot band steel price related to the period in which the tons are expected to be consumed in the customer's blast furnace at
each respective steelmaking facility, subject to final pricing at a future date. This compares with a derivative asset of $58.9 million
as of December 31, 2012, based upon the amount of unconsumed tons and the related estimated average hot band steel price.
The customer's average annual price is not known at the time of sale and the actual price is received on a delayed basis at the end
of the year, once the average annual price has been finalized. As a result, we estimate the average price and adjust the estimate
to actual in the fourth quarter when the information is provided by the customer at the end of each year. Information used in developing
the estimate includes such factors as production and pricing information from the customer, current spot prices, third-party analyst
forecasts, publications and other industry information. The accuracy of our estimates typically increases as the year progresses
based on additional information in the market becoming available and the customer's ability to more accurately determine the average
price it will realize for the year. The following represents the historical accuracy of our pricing estimates related to the derivative as
well as the impact on revenue resulting from the difference between the estimated price and the actual price for each quarter during
2013, 2012 and 2011 prior to receiving final information from the customer for tons consumed during each year:
2013
Estimated
Price
$630
614
633
622
Final
Price
$622
622
622
622
Impact on
Revenue
(in millions)
($1.2)
3.0
(2.1)
—
Final
Price
$650
650
650
650
2012
Estimated
Price
Impact on
Revenue
(in millions)
$698
678
663
650
($9.8)
(7.9)
(3.3)
—
Final
Price
$700
700
700
700
2011
Estimated
Price
Impact on
Revenue
(in millions)
$715
731
716
700
($0.7)
(5.8)
(4.3)
—
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
We estimate that a $75 change in the average hot band steel price realized from the December 31, 2013 estimated price recorded
for the unconsumed tons remaining at year end would cause the fair value of the derivative instrument to increase or decrease by
approximately $58.7 million, thereby impacting our consolidated revenues by the same amount.
Mineral Reserves
We regularly evaluate our economic mineral reserves and update them as required in accordance with SEC Industry Guide 7. The
estimated mineral reserves could be affected by future industry conditions, geological conditions and ongoing mine planning.
Maintenance of effective production capacity of the mineral reserve could require increases in capital and development expenditures.
Generally, as mining operations progress, haul lengths and lifts increase. Alternatively, changes in economic conditions or the
expected quality of mineral reserves could decrease capacity or mineral reserves. Technological progress could alleviate such
factors or increase capacity of mineral reserves.
We use our mineral reserve estimates, combined with our estimated annual production levels, to determine the mine closure dates
utilized in recording the fair value liability for asset retirement obligations. Refer to NOTE 12 - ENVIRONMENTAL AND MINE
CLOSURE OBLIGATIONS, for further information. Since the liability represents the present value of the expected future obligation,
a significant change in mineral reserves or mine lives would have a substantial effect on the recorded obligation. We also utilize
economic mineral reserves for evaluating potential impairments of mine assets and in determining maximum useful lives utilized to
80
calculate depreciation and amortization of long-lived mine assets. Increases or decreases in mineral reserves or mine lives could
significantly affect these items.
Asset Retirement Obligations and Environmental Remediation Costs
The accrued mine closure obligations for our active mining operations provide for contractual and legal obligations associated with
the eventual closure of the mining operations. Our obligations are determined based on detailed estimates adjusted for factors that
a market participant would consider (i.e., inflation, overhead and profit), which are escalated at an assumed rate of inflation to the
estimated closure dates, and then discounted using the current credit-adjusted risk-free interest rate. The estimate also incorporates
incremental increases in the closure cost estimates and changes in estimates of mine lives. The closure date for each location is
determined based on the exhaustion date of the remaining iron ore reserves, which is dependent on our estimate of the economically
recoverable mineral reserves. The estimated obligations are particularly sensitive to the impact of changes in mine lives given the
difference between the inflation and discount rates. Changes in the base estimates of legal and contractual closure costs due to
changes in legal or contractual requirements, available technology, inflation, overhead or profit rates also would have a significant
impact on the recorded obligations.
We have a formal policy for environmental protection and restoration. Our obligations for known environmental matters at active
and closed mining operations and other sites have been recognized based on estimates of the cost of investigation and remediation
at each site. If the obligation can only be estimated as a range of possible amounts, with no specific amount being more likely, the
minimum of the range is accrued. Management reviews its environmental remediation sites quarterly to determine if additional cost
adjustments or disclosures are required. The characteristics of environmental remediation obligations, where information concerning
the nature and extent of clean-up activities is not immediately available and which are subject to changes in regulatory requirements,
result in a significant risk of increase to the obligations as they mature. Expected future expenditures are not discounted to present
value unless the amount and timing of the cash disbursements can be reasonably estimated. Potential insurance recoveries are
not recognized until realized. Refer to NOTE 12 - ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS, for further information.
Income Taxes
Our income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management's best
assessment of estimated future taxes to be paid. We are subject to income taxes in both the U.S. and numerous foreign jurisdictions.
Significant judgments and estimates are required in determining the consolidated income tax expense.
Deferred income taxes arise from temporary differences between tax and financial statement recognition of revenue and expense.
In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including
scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations.
In projecting future taxable income, we begin with historical results adjusted for the results of discontinued operations and changes
in accounting policies and incorporate assumptions including the amount of future state, federal and foreign pretax operating income,
the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions
require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are
using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three
years of cumulative operating income (loss).
At December 31, 2013 and 2012, we had a valuation allowance of $864.1 million and $858.4 million, respectively, against our deferred
tax assets. Our losses in certain locations in recent periods represented sufficient negative evidence to require a full valuation
allowance against certain deferred tax assets. Additionally, significant Alternative Minimum tax credits have been generated in recent
years. Sufficient negative evidence suggests that the credits will not be realized in the foreseeable future, and a full valuation
allowance has been recorded on the deferred tax asset. We intend to maintain a valuation allowance against the deferred tax assets
related to these operating losses, credits and allowances until sufficient positive evidence exists to support the realization of such
assets.
Changes in tax laws and rates also could affect recorded deferred tax assets and liabilities in the future. Management is not aware
of any such changes that would have a material effect on the Company's results of operations, cash flows or financial position.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a
multitude of jurisdictions across our global operations.
Accounting for uncertainty in income taxes recognized in the financial statements requires that a tax benefit from an uncertain tax
position be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of
any related appeals or litigation processes, based on technical merits.
We recognize tax liabilities in accordance with ASC 740, and we adjust these liabilities when our judgment changes as a result of
evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution
may result in payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected
as increases or decreases to income tax expense in the period in which they are determined.
81
Valuation of Goodwill
Goodwill represents the excess purchase price paid over the fair value of the net assets of acquired companies. We assign goodwill
arising from acquired companies to the reporting units that are expected to benefit from the synergies of the acquisition. Our reporting
units are either at the operating segment level or a component one level below our operating segments that constitutes a business
for which management generally reviews production and financial results of that component. Decisions are often made as to capital
expenditures, investments and production plans at the component level as part of the ongoing management of the related operating
segment. We have determined that our Asia Pacific Iron Ore and Ferroalloys operating segments constitute separate reporting units,
that CQIM and our Wabush mine within our Eastern Canadian Iron Ore operating segment constitute reporting units, that CLCC
within our North American Coal operating segment constitutes a reporting unit and that our Northshore mine within our U.S. Iron Ore
operating segment constitutes a reporting unit. Goodwill is allocated among and evaluated for impairment at the reporting unit level
in the fourth quarter of each year or as circumstances occur that potentially indicate that the carrying amount of these assets may
not be recoverable.
We use a two-step process to test goodwill for impairment. In the first step, we generally use a discounted cash flow analysis to
determine the fair value of each reporting unit, which considers forecasted cash flows discounted at an estimated weighted average
cost of capital. In assessing the valuation of our goodwill, significant assumptions regarding the estimated future cash flows and
other factors to determine the fair value of a reporting unit must be made, including among other things, estimates related to long-
term price expectations, foreign currency exchange rates, expected capital expenditures and working capital requirements, which
are based upon our long-range plan and life of mine estimates. If the discounted cash flow analysis yields a fair value estimate less
than the reporting unit's carrying value, we would proceed to step two of the impairment test. In the second step, the implied fair
value of the reporting unit's goodwill is determined by allocating the reporting unit's fair value to the assets and liabilities other than
goodwill in a manner similar to a purchase price allocation. In performing this allocation of fair value to the assets and liabilities of
the reporting unit, we typically utilize third-party valuation firms to support the fair values allocated. The resulting implied fair value
of the goodwill that results from the application of this second step is then compared to the carrying amount of the goodwill and, if
the carrying amount exceeds the implied fair value, an impairment charge is recorded for the difference. If these estimates were to
change in the future as a result of changes in strategy or market conditions, we may be required to record impairment charges for
these assets in the period such determination was made.
During the fourth quarter of 2013, a goodwill impairment charge of $80.9 million was recorded for our Cliffs Chromite Ontario and
Cliffs Chromite Far North reporting units within our Ferroalloys operating segment. The impairment charge was primarily a result of
the decision to indefinitely suspend the Chromite Project and to not allocate significant additional capital for the project given the
uncertain timeline and risks associated with the development of necessary infrastructure to bring the project online.
After performing our annual goodwill impairment test in the fourth quarter of 2012, we determined that $997.3 million and $2.7 million,
respectively, of goodwill associated with our CQIM and Wabush reporting units, which are both included in the Eastern Canadian
Iron Ore segment, was impaired as the carrying value of these reporting units exceeded their fair value. Additionally, during our
annual goodwill impairment test in the fourth quarter of 2011, we determined that $27.8 million of goodwill associated with our CLCC
reporting unit included in the North American Coal segment was impaired as the carrying value with this reporting unit exceeded its
fair value.
As of December 31, 2013, the remaining value of goodwill associated with our Asia Pacific Iron Ore and U.S. Iron Ore segments
totaled $72.5 million and $2.0 million, respectively. No goodwill remained within our Eastern Canadian Iron Ore, Ferroalloys or North
American Coal segments as of December 31, 2013.
No impairment charges were identified in connection with our annual goodwill impairment test with respect to any of our other identified
reporting units. The fair values for our Asia Pacific Iron Ore segment and Northshore reporting unit were substantially in excess of
our carrying values.
Refer to NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, for further information regarding our
policy on goodwill impairment.
Valuation of Long-Lived Assets
In assessing the recoverability of our long-lived assets, significant assumptions regarding the estimated future cash flows and other
factors to determine the fair value of the respective assets must be made, as well as the related estimated useful lives. If these
estimates or their related assumptions change in the future as a result of changes in strategy or market conditions, we may be
required to record impairment charges for these assets in the period such determination was made.
We monitor conditions that indicate that the carrying value of an asset or asset group may be impaired. In order to determine if
assets have been impaired, assets are grouped and tested at the lowest level for which identifiable, independent cash flows are
available. An impairment loss exists when projected undiscounted cash flows are less than the carrying value of the assets. The
measurement of the impairment loss to be recognized is based on the difference between the fair value and the carrying value of
the assets. Fair value can be determined using a market approach, income approach or cost approach. The impairment analysis
and fair value determination can result in substantially different outcomes based on critical assumptions and estimates including the
quantity and quality of remaining economic ore reserves, future iron ore prices and production costs.
82
During the fourth quarter of 2013, we continued to experience higher than expected production costs and operational inefficiencies
at our Wabush operations within our Eastern Canadian Iron Ore operating segment that have resulted in continued declines in our
profitability of that business, which represents an asset group for purposes of testing our long-lived assets for recoverability. Upon
completion of an impairment analysis, it was determined the fair value was less than the carrying value of the asset group, which
resulted in an impairment of other long-lived assets of $154.6 million at December 31, 2013.
Due to lower than previously expected profits as a result of decreased iron ore pricing expectations and higher than anticipated
production costs, we determined that indicators of impairment with respect to certain of our long-lived assets groups existed at
December 31, 2012. Our asset groups generally consist of the assets and liabilities of one or more mines, preparation plants and
associated reserves for which the lowest level of identifiable cash flows largely are independent of cash flows of other mines,
preparation plants and associated reserves. As a result of this assessment, we determined that the cash flows associated with our
Eastern Canadian pelletizing operations were not sufficient to support the recoverability of the carrying value of these productive
assets. Accordingly, an asset impairment charge of $49.9 million was recorded related to the Wabush mine property, plant and
equipment that were reported in our Eastern Canadian Iron Ore operating segment during the fourth quarter of 2012. No impairment
charges were identified in connection with our other long-lived asset groups as of December 31, 2012.
For the purpose of testing the recoverability of our long-lived assets, we consider the Bloom Lake iron ore operation to be an asset
group. During 2013, we have experienced higher than expected production costs in the current operation of the Bloom Lake iron
ore mine. Additionally, capital expenditure expectations to complete the Phase II expansion and required tailings and water
management systems have surpassed original expectations. Both conditions have a negative impact on the profitability and cash
flows of that business. Continuation of such trends, changes in forecasted long-term pricing and/or other economic assumptions
(e.g., discount rate, inflation rates, exchange rates and tax rates) could impact our ability to recover the carrying value of our long-
lived asset group, which was approximately $4.9 billion at December 31, 2013.
Refer to NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, for further information regarding our
policy on asset impairment.
Employee Retirement Benefit Obligations
We offer defined benefit pension plans, defined contribution pension plans and other postretirement benefit plans, primarily consisting
of retiree healthcare benefits, to most employees in North America as part of a total compensation and benefits program. We do
not have employee retirement benefit obligations at our Asia Pacific Iron Ore operations. The defined benefit pension plans largely
are noncontributory and benefits generally are based on employees' years of service and average earnings for a defined period prior
to retirement or a minimum formula.
Following is a summary of our defined benefit pension and OPEB funding and expense for the years 2011 through 2014:
2011
2012
2013
2014 (Estimated)
Pension
OPEB
Funding
Expense
Funding
Expense
$
$
70.1
67.7
53.7
68.2
$
37.8
55.2
52.1
28.0
$
37.4
39.0
25.5
7.9
26.8
28.1
17.4
8.3
Assumptions used in determining the benefit obligations and the value of plan assets for defined benefit pension plans and
postretirement benefit plans (primarily retiree healthcare benefits) that we offer are evaluated periodically by management. Critical
assumptions, such as the discount rate used to measure the benefit obligations, the expected long-term rate of return on plan assets,
the medical care cost trend, and the rate of compensation increase are reviewed annually.
83
As of December 31, 2013 and 2012, we used the following assumptions:
U.S. plan discount rate
Canadian pension plan discount rate
Canadian OPEB plan discount rate
Rate of compensation increase - Salaried
Rate of compensation increase - Hourly (Ultimate)
U.S. pension plan expected return on plan assets
U.S. OPEB plan expected return on plan assets
Canadian expected return on plan assets
Pension and Other
Benefits
2013
2012
4.57 %
3.70 %
4.50
4.75
4.00
3.00
8.25
7.00
7.25
3.75
4.00
4.00
4.00
8.25
8.25
7.25
The increase in the discount rates in 2013 was driven by the change in bond yields, which were up approximately 75 basis points
compared to the prior year.
Additionally, on December 31, 2013, we adopted the IRS 2014 prescribed mortality tables (separate pre-retirement and
postretirement) to determine the expected life of our plan participants, replacing the IRS 2013 prescribed mortality tables for our U.S.
plans. The assumed mortality remained the same as the previous year for our Canadian plans, UP 1994 with full projection.
Following are sensitivities of potential further changes in these key assumptions on the estimated 2014 pension and OPEB expense
and the pension and OPEB benefit obligations as of December 31, 2013:
Decrease discount rate .25 percent
$
Decrease return on assets 1 percent
Increase medical trend rate 1 percent
Increase in Expense
(In Millions)
Increase in Benefit
Obligation
(In Millions)
Pension
OPEB
Pension
OPEB
$
2.5
9.0
N/A
0.8
2.4
6.1
$
32.6
$
N/A
N/A
10.7
N/A
38.2
Changes in actuarial assumptions, including discount rates, employee retirement rates, mortality, compensation levels, plan asset
investment performance and healthcare costs, are determined based on analyses of actual and expected factors. Changes in
actuarial assumptions and/or investment performance of plan assets may have a significant impact on our financial condition due
to the magnitude of our retirement obligations. Refer to NOTE 13 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS in
Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for further information.
Forward-Looking Statements
This report contains statements that constitute "forward-looking statements" within the meaning of the federal securities laws. As a
general matter, forward-looking statements relate to anticipated trends and expectations rather than historical matters. Forward-
looking statements are subject to uncertainties and factors relating to Cliffs’ operations and business environment that are difficult to
predict and may be beyond our control. Such uncertainties and factors may cause actual results to differ materially from those
expressed or implied by the forward-looking statements. These statements speak only as of the date of this report, and we undertake
no ongoing obligation, other than that imposed by law, to update these statements. Uncertainties and risk factors that could affect
Cliffs’ future performance and cause results to differ from the forward-looking statements in this report include, but are not limited to:
•
•
•
•
•
trends affecting our financial condition, results of operations or future prospects, particularly the continued volatility
of iron ore and coal prices;
uncertainty or weaknesses in global economic conditions, including downward pressure on prices, reduced market
demand, increases in supply and any slowing of the economic growth rate in China;
our ability to successfully identify and consummate any strategic investments or capital projects and complete
planned divestitures;
our ability to successfully integrate acquired companies into our operations and achieve post-acquisition synergies,
including without limitation, Cliffs Quebec Iron Mining Limited (formerly Consolidated Thompson Iron Mining Limited);
our ability to cost effectively achieve planned production rates or levels;
84
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
changes in sales volume or mix;
the outcome of any contractual disputes with our customers, joint venture partners or significant energy, material
or service providers or any other litigation or arbitration;
the impact of price-adjustment factors on our sales contracts;
the ability of our customers and joint venture partners to meet their obligations to us on a timely basis or at all;
our ability to reach agreement with our iron ore customers regarding modifications to sales contract pricing escalation
provisions to reflect a shorter-term or spot-based pricing mechanism;
our actual economic iron ore and coal reserves or reductions in current mineral estimates, including whether any
mineralized material qualifies as a reserve;
the impact of our customers using other methods to produce steel or reducing their steel production;
events or circumstances that could impair or adversely impact the viability of a mine and the carrying value of
associated assets, as well as any resulting impairment charges;
the results of prefeasibility and feasibility studies in relation to development projects;
impacts of existing and increasing governmental regulation and related costs and liabilities, including failure to
receive or maintain required operating and environmental permits, approvals, modifications or other authorization
of, or from, any governmental or regulatory entity and costs related to implementing improvements to ensure
compliance with regulatory changes;
uncertainties associated with natural disasters, weather conditions, unanticipated geological conditions, supply or
price of energy, equipment failures and other unexpected events;
adverse changes in currency values, currency exchange rates, interest rates and tax laws;
availability of capital and our ability to maintain adequate liquidity and successfully implement our financing plans;
our ability to maintain appropriate relations with unions and employees and enter into or renew collective bargaining
agreements on satisfactory terms;
risks related to international operations;
the potential existence of significant deficiencies or material weakness in our internal controls over financial reporting;
and
problems or uncertainties with leasehold interests, productivity, tons mined, transportation, mine-closure obligations,
environmental liabilities, employee-benefit costs and other risks of the mining industry.
For additional factors affecting the business of Cliffs, refer to Part I – Item 1A. Risk Factors. You are urged to carefully consider these
risk factors.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Information regarding our Market Risk is presented under the caption Market Risks, which is included in Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations and is incorporated by reference and made a part hereof.
85
Item 8.
Financial Statements and Supplementary Data
Statements of Consolidated Financial Position
Cliffs Natural Resources Inc. and Subsidiaries
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable, net
Inventories
Supplies and other inventories
Deferred and refundable income taxes
Other current assets
TOTAL CURRENT ASSETS
PROPERTY, PLANT AND EQUIPMENT, NET
OTHER ASSETS
Other non-current assets
TOTAL OTHER ASSETS
TOTAL ASSETS
(In Millions)
December 31,
2013
2012
$
335.5
$
270.0
391.4
216.0
110.7
236.4
1,560.0
11,153.4
408.5
408.5
$
13,121.9
$
195.2
329.0
436.5
289.1
105.4
294.8
1,650.0
11,207.3
717.6
717.6
13,574.9
(continued)
The accompanying notes are an integral part of these consolidated financial statements.
86
Statements of Consolidated Financial Position
Cliffs Natural Resources Inc. and Subsidiaries - (Continued)
LIABILITIES
CURRENT LIABILITIES
Accounts payable
Accrued employment costs
Income taxes payable
State and local taxes payable
Current portion of debt
Accrued expenses
Accrued royalties
Other current liabilities
TOTAL CURRENT LIABILITIES
POSTEMPLOYMENT BENEFIT LIABILITIES
Pensions
Other postretirement benefits
TOTAL POSTEMPLOYMENT BENEFIT LIABILITIES
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
DEFERRED INCOME TAXES
LONG-TERM DEBT
OTHER LIABILITIES
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES (SEE NOTE 20)
EQUITY
CLIFFS SHAREHOLDERS' EQUITY
Preferred Stock - no par value
Class A - 3,000,000 shares authorized
(In Millions)
December 31,
2013
2012
$
345.5
$
129.0
61.7
61.7
20.9
206.4
57.3
203.0
555.5
135.6
28.3
65.9
94.1
258.9
48.1
195.1
1,085.5
1,381.5
197.5
96.5
294.0
309.7
1,146.5
3,022.6
379.3
6,237.6
403.8
214.5
618.3
252.8
1,108.1
3,960.7
492.6
7,814.0
7% Series A Mandatory Convertible, Class A, no par value and $1,000 per share
liquidation preference (See Note 16)
Issued and Outstanding - 731,250 shares (2012 - none)
731.3
—
Class B - 4,000,000 shares authorized
Common Shares - par value $0.125 per share
Authorized - 400,000,000 shares (2012 - 400,000,000 shares);
Issued - 159,546,224 shares (2012 - 149,195,469 shares);
Outstanding - 153,126,291 shares (2012 - 142,495,902 shares)
Capital in excess of par value of shares
Retained earnings
Cost of 6,419,933 common shares in treasury (2012 - 6,699,567 shares)
Accumulated other comprehensive loss
TOTAL CLIFFS SHAREHOLDERS' EQUITY
NONCONTROLLING INTEREST
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
19.8
2,329.5
3,407.3
(305.5)
(112.9)
6,069.5
814.8
6,884.3
18.5
1,774.7
3,217.7
(322.6)
(55.6)
4,632.7
1,128.2
5,760.9
$
13,121.9
$
13,574.9
The accompanying notes are an integral part of these consolidated financial statements.
87
Statements of Consolidated Operations
Cliffs Natural Resources Inc. and Subsidiaries
REVENUES FROM PRODUCT SALES AND SERVICES
Product
Freight and venture partners' cost reimbursements
COST OF GOODS SOLD AND OPERATING EXPENSES
SALES MARGIN
OTHER OPERATING INCOME (EXPENSE)
Selling, general and administrative expenses
Exploration costs
Impairment of goodwill and other long-lived assets
Consolidated Thompson acquisition costs
Miscellaneous - net
OPERATING INCOME (LOSS)
OTHER INCOME (EXPENSE)
Changes in fair value of foreign currency contracts, net
Interest expense, net
Other non-operating income (expense)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND EQUITY INCOME (LOSS) FROM VENTURES
INCOME TAX EXPENSE
EQUITY INCOME (LOSS) FROM VENTURES, net of tax
INCOME (LOSS) FROM CONTINUING OPERATIONS
INCOME and GAIN ON SALE FROM DISCONTINUED OPERATIONS, net of
tax
NET INCOME (LOSS)
LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTEREST
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
PREFERRED STOCK DIVIDENDS
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS COMMON
SHAREHOLDERS
EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CLIFFS
SHAREHOLDERS - BASIC
Continuing operations
Discontinued operations
EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CLIFFS
SHAREHOLDERS - DILUTED
Continuing operations
Discontinued operations
AVERAGE NUMBER OF SHARES (IN THOUSANDS)
Basic
Diluted
CASH DIVIDENDS DECLARED PER DEPOSITARY SHARE
CASH DIVIDENDS DECLARED PER COMMON SHARE
$
$
$
$
$
$
$
$
(In Millions, Except Per Share Amounts)
Year Ended December 31,
2012
2011
2013
$
$
5,346.6
344.8
5,691.4
(4,542.1)
1,149.3
$
6,321.3
242.6
6,563.9
(3,953.0)
2,610.9
5,520.9
351.8
5,872.7
(4,700.6)
1,172.1
(282.5)
(142.8)
(1,049.9)
—
(5.7)
(1,480.9)
(308.8)
(0.1)
(195.6)
2.7
(193.0)
(501.8)
(255.9)
(404.8)
(1,162.5)
(231.6)
(59.0)
(250.8)
—
63.1
(478.3)
671.0
(3.5)
(179.1)
0.9
(181.7)
489.3
(55.1)
(74.4)
359.8
2.0
361.8
51.7
413.5
(48.7)
(248.3)
(80.5)
(27.8)
(25.4)
67.9
(314.1)
2,296.8
101.9
(206.2)
(2.0)
(106.3)
2,190.5
(407.7)
9.7
1,792.5
20.1
1,812.6
(193.5)
1,619.1
—
35.9
(1,126.6)
227.2
(899.4) $
—
$
364.8
$
(899.4)
1,619.1
2.39
0.01
2.40
2.36
0.01
2.37
151,726
174,323
1.66
0.60
$
$
$
$
$
$
(6.57) $
0.25
(6.32) $
(6.57) $
0.25
(6.32) $
11.41
0.14
11.55
11.34
0.14
11.48
142,351
142,351
— $
$
2.16
140,234
141,012
—
0.84
The accompanying notes are an integral part of these consolidated financial statements.
88
Statements of Consolidated Comprehensive Income (Loss)
Cliffs Natural Resources Inc. and Subsidiaries
(In Millions)
Year Ended December 31,
2013
2012
2011
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$
413.5
$
(899.4) $
1,619.1
OTHER COMPREHENSIVE INCOME (LOSS)
Pension and OPEB liability, net of tax
Unrealized net gain (loss) on marketable securities, net of tax
Unrealized net gain (loss) on foreign currency translation
Unrealized net gain (loss) on derivative financial instruments, net of tax
OTHER COMPREHENSIVE INCOME (LOSS)
OTHER COMPREHENSIVE LOSS (INCOME) ATTRIBUTABLE TO THE
NONCONTROLLING INTEREST
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CLIFFS
SHAREHOLDERS
208.3
3.1
(208.6)
(29.6)
(26.8)
33.8
(0.5)
3.8
7.5
44.6
(121.4)
(31.0)
(2.2)
(1.5)
(156.1)
(30.5)
(7.6)
17.6
$
356.2
$
(862.4) $
1,480.6
The accompanying notes are an integral part of these consolidated financial statements.
89
Statements of Consolidated Cash Flows
Cliffs Natural Resources Inc. and Subsidiaries
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Depreciation, depletion and amortization
Impairment of goodwill and other long-lived assets
Derivatives and currency hedges
Equity (income) loss in ventures (net of tax)
Deferred income taxes
Changes in deferred revenue and below-market sales contracts
Other
Changes in operating assets and liabilities:
Receivables and other assets
Product inventories
Payables and accrued expenses
Net cash provided by operating activities
INVESTING ACTIVITIES
Acquisition of Consolidated Thompson, net of cash acquired
Net settlements in Canadian dollar foreign exchange contracts
Investment in Consolidated Thompson senior secured notes
Purchase of property, plant and equipment
Proceeds from sale of Sonoma
Other investing activities
Net cash used by investing activities
FINANCING ACTIVITIES
Net proceeds from issuance of Series A, Mandatory Convertible Preferred
Stock, Class A
Net proceeds from issuance of common shares
Net proceeds from issuance of senior notes
Borrowings on term loan
Repayment of term loan
Borrowings under credit facilities
Repayment under credit facilities
Proceeds from equipment loans
Debt issuance costs
Repayment of Consolidated Thompson convertible debentures
Repayment of senior notes
Payments under share buyback program
Contributions by joint ventures, net
Common stock dividends
Preferred stock dividends
Other financing activities
Net cash (used in) provided by financing activities
EFFECT OF EXCHANGE RATE CHANGES ON CASH
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS AT END OF PERIOD
(In Millions)
Year Ended December 31,
2012
2011
2013
$
361.8
$
(1,126.6) $
1,812.6
593.3
250.8
3.6
74.4
(138.1)
(52.8)
(6.9)
138.8
30.8
(109.8)
1,145.9
—
—
—
(861.6)
—
50.3
(811.3)
709.4
285.3
—
—
(847.1)
670.5
(995.5)
164.8
—
—
—
—
23.3
(91.9)
(35.7)
(55.0)
(171.9)
(22.4)
140.3
195.2
335.5
$
525.8
1,049.9
4.1
404.8
127.0
(24.5)
(45.0)
(74.8)
39.9
(366.1)
514.5
—
—
—
(1,127.5)
152.6
13.1
(961.8)
—
—
497.0
—
(124.8)
1,012.0
(687.0)
—
(4.3)
—
(325.0)
—
95.4
(307.2)
—
(36.5)
119.6
1.3
(326.4)
521.6
195.2
$
426.9
27.8
(69.0)
(9.7)
(66.6)
(146.0)
(18.7)
81.4
(74.5)
324.6
2,288.8
(4,423.5)
93.1
(125.0)
(880.7)
—
31.7
(5,304.4)
—
853.7
998.1
1,250.0
(278.0)
1,000.0
(1,000.0)
—
(54.8)
(337.2)
—
(289.8)
—
(118.9)
—
(48.0)
1,975.1
(4.6)
(1,045.1)
1,566.7
521.6
$
The accompanying notes are an integral part of these consolidated financial statements.
See NOTE 21 - CASH FLOW INFORMATION.
90
Statements of Consolidated Changes in Equity
Cliffs Natural Resources Inc. and Subsidiaries
(In Millions)
Cliffs Shareholders
Number
of
Common
Shares
Common
Shares
Capital in
Excess of
Par Value
of Shares
Common
Shares
in
Treasury
Retained
Earnings
Accumulated
Other
Compre-
hensive
Income
(Loss)
Non-
Controlling
Interest
Total
135.5
$
17.3
$
896.3
$ 2,924.1
$
(37.7) $
45.9
$
(7.2)
3,838.7
—
—
—
—
—
—
(4.0)
10.3
—
—
—
0.2
—
—
—
—
—
—
—
—
1.2
—
—
—
—
—
—
—
—
—
—
—
—
852.5
—
0.2
—
21.8
1,619.1
—
—
—
—
—
—
—
—
—
—
—
—
(118.9)
—
—
—
—
—
—
(289.8)
—
—
—
—
(8.5)
—
—
193.5
1,812.6
(103.8)
(17.6)
(121.4)
(31.0)
(2.2)
(3.3)
1.8
—
—
—
—
—
—
—
—
—
—
—
(31.0)
(2.2)
(3.3)
1.8
175.9
1,656.5
—
—
4.5
6.1
(289.8)
853.7
4.5
6.3
1,075.4
1,075.4
—
—
13.3
(118.9)
142.0
18.5
1,770.8
4,424.3
(336.0)
(92.6)
1,254.7
7,039.7
—
—
—
—
—
—
—
—
—
—
—
0.5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1.6
—
2.3
—
(899.4)
—
—
—
—
—
—
—
—
—
—
—
(307.2)
—
—
—
—
—
—
—
—
—
—
—
13.4
—
—
(227.2)
(1,126.6)
26.2
(0.5)
(14.4)
18.2
(18.1)
25.6
—
—
—
—
—
—
7.6
33.8
—
—
—
—
—
(0.5)
(14.4)
18.2
(18.1)
25.6
(219.6)
(1,082.0)
(2.1)
(2.1)
0.4
0.4
102.8
(8.0)
—
—
104.4
(8.0)
15.7
(307.2)
January 1, 2011
Comprehensive income
Net income
Other comprehensive income (loss)
Pension and OPEB liability, net of tax
Unrealized net loss on marketable
securities, net of tax
Unrealized net loss on foreign
currency translation
Reclassification of net gains on
derivative financial instruments
into net income, net of tax
Unrealized gain on derivative
instruments, net of tax
Total comprehensive income (loss)
Share buyback
Equity offering
Purchase of subsidiary shares from
noncontrolling interest
Capital contribution by noncontrolling
interest to subsidiary
Acquisition of controlling interest
Stock and other incentive plans
Common stock dividends ($0.84 per
share)
December 31, 2011
Comprehensive income
Net income
Other comprehensive income (loss)
Pension and OPEB liability, net of tax
Unrealized net loss on marketable
securities, net of tax
Reclassification of net gain on foreign
currency translation
Unrealized net gain on foreign
currency translation
Reclassification of net gains on derivative
financial instruments into net income,
net of tax
Unrealized gain on derivative
financial instruments, net of tax
Total comprehensive income (loss)
Purchase of subsidiary shares from
noncontrolling interest
Undistributed losses to noncontrolling interest
to subsidiary
Capital contribution by noncontrolling
interest to subsidiary
Acquisition of controlling interest
Stock and other incentive plans
Common stock dividends ($2.16 per
share)
December 31, 2012
142.5
18.5
1,774.7
3,217.7
(322.6)
(55.6)
1,128.2
5,760.9
(continued)
91
Statements of Consolidated Changes in Equity
Cliffs Natural Resources Inc. and Subsidiaries — (Continued)
(In Millions)
Cliffs Shareholders
Number
of
Depositary
Shares
Depositary
Shares
Number
of
Common
Shares
Common
Shares
Capital in
Excess of
Par Value
of Shares
Comprehensive income
Net income
Other comprehensive income (loss)
Pension and OPEB liability, net of tax
Unrealized net loss on marketable
securities, net of tax
Reclassification of net gain on foreign
currency translation
Unrealized net loss on foreign
currency translation
Reclassification of net losses on
derivative financial instruments into
net income, net of tax
Unrealized net loss on derivative
financial instruments, net of tax
Total comprehensive income (loss)
Equity offering
Capital contribution by noncontrolling
interest to subsidiary
Acquisition of noncontrolling interest
Undistributed losses to noncontrolling
interest
Stock and other incentive plans
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Depositary Shares
29.3
731.3
Common stock dividends ($0.60 per
share)
Preferred stock dividends ($1.66 per
depositary share)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10.4
1.3
284.0
Retained
Earnings
413.5
—
—
—
—
—
—
—
—
—
—
0.3
—
—
—
—
—
—
—
—
—
—
0.2
295.4
—
(2.9)
(21.9)
(0.6)
(82.7)
—
—
—
—
—
(91.9)
(48.7)
Common
Shares
in
Treasury
Accumulated
Other
Compre-
hensive
Income
(Loss)
Non-
Controlling
Interest
Total
—
—
—
—
—
—
—
—
—
—
—
17.1
—
—
—
—
(51.7)
361.8
177.8
30.5
208.3
3.1
(29.4)
(179.2)
22.1
(51.7)
—
—
—
—
—
—
—
—
—
—
—
—
—
(21.2)
—
5.6
3.1
(29.4)
(179.2)
22.1
(51.7)
335.0
285.3
5.2
(314.8)
(102.1)
17.0
—
—
—
—
17.0
14.2
709.4
(91.9)
(48.7)
December 31, 2013
29.3
731.3
153.2
$
19.8
$ 2,329.5
$3,407.3
$ (305.5) $
(112.9) $
814.8
$6,884.3
The accompanying notes are an integral part of these consolidated financial statements.
92
Cliffs Natural Resources Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business Summary
We are an international mining and natural resources company, a major global iron ore producer and a significant producer of high
and low-volatile metallurgical coal. In the U.S., we operate five iron ore mines in Michigan and Minnesota, four metallurgical coal
operations located in West Virginia and Alabama and one thermal coal mine located in West Virginia. We also operate two iron ore
mines in Eastern Canada. As of December 31, 2013, our Asia Pacific operations consist solely of our Koolyanobbing iron ore mining
complex in Western Australia. We also have other non-producing operations and investments around the world that provide us with
optionality to diversify and expand our portfolio of assets in the future. Our operations are organized according to product category
and geographic location: U.S. Iron Ore, Eastern Canadian Iron Ore, Asia Pacific Iron Ore, North American Coal, Ferroalloys and our
Global Exploration Group.
Significant Accounting Policies
We consider the following policies to be beneficial in understanding the judgments that are involved in the preparation of our consolidated
financial statements and the uncertainties that could impact our financial condition, results of operations and cash flows.
Use of Estimates
The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring
the use of management estimates and assumptions related to mineral reserves future realizable cash flow; environmental, reclamation
and closure obligations; valuation of goodwill, long-lived assets and investments; valuation of inventory; valuation of post-employment,
post-retirement and other employee benefit liabilities; valuation of deferred tax assets; reserves for contingencies and litigation; and
the fair value of derivative instruments. Actual results could differ from estimates. On an ongoing basis, management reviews
estimates. Changes in facts and circumstances may alter such estimates and affect results of operations and financial position in
future periods.
Basis of Consolidation
The consolidated financial statements include our accounts and the accounts of our wholly owned and majority-owned subsidiaries,
including the following operations at December 31, 2013:
Name
Northshore
United Taconite
Wabush
Bloom Lake
Tilden
Empire
Location
Minnesota
Minnesota
Newfoundland and Labrador/ Quebec,
Canada
Quebec, Canada
Michigan
Michigan
Koolyanobbing
Western Australia
Pinnacle
Oak Grove
CLCC
West Virginia
Alabama
West Virginia
Ownership Interest
Operation
100.0%
100.0%
100.0%
82.8%
85.0%
79.0%
100.0%
100.0%
100.0%
100.0%
Iron Ore
Iron Ore
Iron Ore
Iron Ore
Iron Ore
Iron Ore
Iron Ore
Coal
Coal
Coal
Intercompany transactions and balances are eliminated upon consolidation.
On May 12, 2011, we acquired all of the outstanding common shares of Consolidated Thompson for C$17.25 per share in an all-cash
transaction, including net debt. The consolidated financial statements as of and for the year ended December 31, 2011 reflect our
100 percent interest in Consolidated Thompson since that date. Refer to NOTE 6 - ACQUISITIONS AND OTHER INVESTMENTS
for further information.
Also included in our consolidated results are Cliffs Chromite Ontario Inc. and Cliffs Chromite Far North Inc. Cliffs Chromite Ontario
Inc. holds a 100 percent interest in each of the Black Label and Black Thor chromite deposits and, together with Cliffs Chromite Far
North Inc., a 70 percent interest in the Big Daddy chromite deposit, all located in northern Ontario, Canada.
93
Noncontrolling Interests
During the fourth quarter of 2013, CQIM’s interest in Bloom Lake increased by an aggregate of 7.8 percent after CQIM paid both its
own and WISCO’s proportionate shares of the cash call for the first half of 2013. As a result of our cash call payments, CQIM was
issued a total of 457,556 new Bloom Lake units, increasing our interest to 82.8 percent in Bloom Lake and diluting WISCO’s interest
to 17.2 percent. The new unit issuance decreased equity attributable to WISCO by $314.8 million for the year ended December 31,
2013 by decreasing WISCO’s interest in Bloom Lake’s accumulated deficit. We accounted for the increase in ownership as an equity
transaction, which resulted in a 314.8 million increase to equity attributable to Cliffs’ shareholders.
Immaterial Error
In connection with our acquisition of Consolidated Thompson in May 2011, the Company acquired a 75 percent controlling interest in
Bloom Lake. For financial reporting purposes, the Company fully consolidates Bloom Lake in the accompanying financial statements
and allocates a portion of its consolidated results of operations and shareholders’ equity, which is reported as Loss (income) attributable
to noncontrolling interest in the Statements of Consolidated Operations and Noncontrolling interest in the Statements of Consolidated
Financial Position.
As a result of the application of ASC 805, Business Combinations, we allocated the purchase price to the assets, liabilities and
noncontrolling interest at the acquisition date of May 11, 2011 based on their fair values. These fair value adjustments were recorded
in the opening balance sheet and consolidated results of operations; however, subsequent effects of the amortization of these fair
value adjustments were not allocated to the noncontrolling interest.
In accordance with U.S. GAAP, management has quantitatively and qualitatively evaluated the materiality of the error and has
determined that the misstatement was immaterial to the interim and annual financial statements previously filed from June 30, 2011
through December 31, 2013. Accordingly, the adjustment was recorded prospectively in the Statements of Consolidated Operations
for the period ended December 31, 2013 and in the Statements of Consolidated Financial Position as of December 31, 2013. The
adjustment to noncontrolling interest related to Bloom Lake was approximately $45.1 million and resulted in an increase to Net Income
(Loss) Attributable to Cliffs Shareholders and a reduction of Loss (income) attributable to noncontrolling interest and corresponding
decrease to Noncontrolling interest in the Statements of Consolidated Financial Position for the year end and as of December 31,
2013. The adjustments also resulted in an increase to basic and diluted earnings per common share of $0.30 and $0.26, respectively,
for the year ended December 31, 2013. No other financial statement line items were impacted by this adjustment. The prior period
amounts included within the accompanying Consolidated Financial Statements have not been retrospectively adjusted for this impact
due to management's materiality assessment as discussed above. The impact of the prospective adjustments in the Statements of
Consolidated Operations would have resulted in an increase to basic and diluted earnings per common share of $0.25 and $0.07 for
the years ended December 31, 2012 and 2011, respectively.
Cash Equivalents
Cash and cash equivalents include cash on hand and on deposit as well as all short-term securities held for the primary purpose of
general liquidity. We consider investments in highly liquid debt instruments with an original maturity of three months or less from the
date of acquisition to be cash equivalents. We routinely monitor and evaluate counterparty credit risk related to the financial institutions
by which our short-term investment securities are held.
Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our
best estimate of the amount of probable credit losses in Cliffs' existing accounts receivable. We establish provisions for losses on
accounts receivable when it is probable that all or part of the outstanding balance will not be collected. We regularly review our
accounts receivable balances and establish or adjust the allowance as necessary using the specific identification method. The
allowance for doubtful accounts was $8.1 million at December 31, 2013 and December 31, 2012. There was no bad debt expense
for the year ended December 31, 2013. Bad debt expense was $9.0 million and $5.9 million for the years ended December 31, 2012
and 2011, respectively.
Inventories
U.S. Iron Ore
U.S. Iron Ore product inventories are stated at the lower of cost or market. Cost of iron ore inventories is determined using the LIFO
method.
We had approximately 1.2 million tons and 1.3 million tons of finished goods stored at ports and customer facilities on the lower Great
Lakes to service customers at December 31, 2013 and 2012, respectively. We maintain ownership of the inventories until title has
transferred to the customer, usually when payment is received. Maintaining ownership of the iron ore products at ports on the lower
Great Lakes reduces risk of non-payment by customers.
Eastern Canadian Iron Ore
Iron ore pellet inventories are stated at the lower of cost or market. Cost is determined using the LIFO method. We maintain ownership
of the inventories until title has transferred to the customer, which is generally when the product is loaded into the vessel.
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Iron ore concentrate inventories are stated at the lower of cost or market. The cost of iron ore concentrate inventories is determined
using weighted average cost. We maintain ownership of the inventories until title has transferred to the customer, which generally is
when the product is loaded into the vessel.
Asia Pacific Iron Ore
Asia Pacific Iron Ore product inventories are stated at the lower of cost or market. Costs of inventories are being valued on a weighted
average cost basis. We maintain ownership of the inventories until title has transferred to the customer, which generally is when the
product is loaded into the vessel.
North American Coal
North American Coal product inventories are stated at the lower of cost or market. Cost of coal inventories is calculated using the
weighted average cost. We maintain ownership until coal is loaded into rail cars at the mine for domestic sales and until loaded in
the vessels at the terminal for export sales.
Supplies and Other Inventories
Supply inventories include replacement parts, fuel, chemicals and other general supplies, which are expected to be used or consumed
in normal operations. Supply inventories also include critical spares. Critical spares are replacement parts for equipment that is
critical for the continued operation of the mine or processing facilities.
Supply inventories are stated at the lower of cost or market using average cost, less an allowance for obsolete and surplus items.
The allowance for obsolete and surplus items was $63.4 million and $29.8 million at December 31, 2013 and 2012, respectively.
Derivative Financial Instruments and Hedging Activities
We are exposed to certain risks related to the ongoing operations of our business, including those caused by changes in commodity
prices, interest rates and foreign currency exchange rates. We have established policies and procedures, including the use of certain
derivative instruments, to manage such risks.
Derivative financial instruments are recognized as either assets or liabilities in the Statements of Consolidated Financial Position and
measured at fair value. On the date a derivative instrument is entered into, we generally designate a qualifying derivative instrument
as a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability or forecasted transaction
(cash flow hedge). We formally document all relationships between hedging instruments and hedged items, as well as its risk-
management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are
designated as cash flow hedges to specific firm commitments or forecasted transactions. We also formally assess both at the hedge's
inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting
changes in cash flows of the related hedged items. When it is determined that a derivative is not highly effective as a hedge or that
it has ceased to be a highly effective hedge, we discontinue hedge accounting prospectively and record all future changes in fair value
in the period of the instrument's earnings or losses. The policy allows for not more than 75 percent, but not less than 40 percent for
up to 12 months and not less than 10 percent for up to 15 months, of forecasted net currency exposures that are probable to occur.
For derivative instruments that have been designated as cash flow hedges, the effective portion of the changes in fair value are
recorded in accumulated other comprehensive income (loss) and any portion that is ineffective is recorded in current period earnings
or losses. Amounts recorded in accumulated other comprehensive income (loss) are reclassified to earnings or losses in the period
the underlying hedged transaction affects earnings or when the underlying hedged transaction is no longer reasonably possible of
occurring.
For derivative instruments that have not been designated as cash flow hedges, changes in fair value are recorded in the period of the
instrument's earnings or losses.
Refer to NOTE 3 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for further information.
95
Property, Plant and Equipment
U.S. Iron Ore and Eastern Canadian Iron Ore
U.S. Iron Ore and Eastern Canadian Iron Ore properties are stated at the lower of cost less accumulated depreciation or fair value.
Depreciation of plant and equipment is computed principally by the straight-line method based on estimated useful lives, not to exceed
the mine lives. The Northshore, United Taconite, Empire, Tilden and Wabush operations use the double-declining balance method
of depreciation for certain mining equipment. Depreciation is provided over the following estimated useful lives:
Asset Class
Buildings
Mining equipment
Processing equipment
Information technology
Basis
Straight line
Straight line/Double declining
balance
Straight line
Straight line
Life
45 Years
10 to 20 Years
15 to 45 Years
2 to 7 Years
Depreciation continues to be recognized when operations temporarily are idled.
Asia Pacific Iron Ore
Our Asia Pacific Iron Ore properties are stated at cost. Depreciation is calculated by the straight-line method or production output
basis, not to exceed the mine life, provided over the following estimated useful lives:
Asset Class
Plant and equipment - non-mining assets
Plant and equipment - mining assets
Motor vehicles, furniture & equipment
Basis
Straight line
Production output
Straight line
Life
5 to 10 Years
6 Years
3 to 5 Years
The costs capitalized and classified as Land rights and mineral rights represent lands where we own the surface and/or mineral rights.
Our Asia Pacific Iron Ore, Bloom Lake, Wabush, and United Taconite operations' interests in iron ore reserves and mineralized materials
were valued when acquired using a discounted cash flow method. The fair value was estimated based upon the present value of the
expected future cash flows from iron ore operations over the economic lives of the respective mines. Refer to NOTE 5 - PROPERTY,
PLANT AND EQUIPMENT for further information.
North American Coal
North American Coal properties are stated at cost. Depreciation is provided over the estimated useful lives, not to exceed the mine
lives and is calculated by the straight-line method. Depreciation is provided over the following estimated useful lives:
Asset Class
Buildings
Mining equipment
Processing equipment
Information technology
Basis
Straight line
Straight line
Straight line
Straight line
Life
30 Years
2 to 22 Years
2 to 30 Years
2 to 3 Years
Our North American Coal operation leases coal mining rights from third parties through lease agreements. The lease agreements
are for varying terms and extend through the earlier of their lease termination date or until all merchantable and mineable coal has
been extracted. Our interest in coal reserves and non-reserve coal was valued when acquired using a discounted cash flow method.
The fair value was estimated based upon the present value of the expected future cash flows from coal operations over the life of the
reserves acquired.
Refer to NOTE 5 - PROPERTY, PLANT AND EQUIPMENT for further information.
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Capitalized Stripping Costs
During the development phase, stripping costs are capitalized as a part of the depreciable cost of building, developing and constructing
a mine. These capitalized costs are amortized over the productive life of the mine using the units of production method. The production
phase does not commence until the removal of more than a de minimis amount of saleable mineral material occurs in conjunction
with the removal of overburden or waste material for purposes of obtaining access to an ore body. The stripping costs incurred in the
production phase of a mine are variable production costs included in the costs of the inventory produced (extracted) during the period
that the stripping costs are incurred.
Stripping costs related to expansion of a mining asset of proven and probable reserves are variable production costs that are included
in the costs of the inventory produced during the period that the stripping costs are incurred.
Equity Method Investments
Investments in unconsolidated ventures that we have the ability to exercise significant influence over, but not control, are accounted
for under the equity method. The following table presents the detail of our investments in unconsolidated ventures and where those
investments are classified in the Statements of Consolidated Financial Position as of December 31, 2013 and December 31, 2012.
Parentheses indicate a net liability.
Investment
Classification
Accounting
Method
Ownership
Interest
December 31,
2013
December 31,
2012
(In Millions)
Amapá
Cockatoo
Hibbing
Other
Investments in ventures 2
Other liabilities1
Other liabilities
Equity Method
Equity Method
—
—
Equity Method
23%
Investments in ventures
Equity Method
Various
N/A $
N/A
(3.9)
34.7
30.8
$
101.9
(25.3)
(2.1)
33.9
108.4
$
$
1 At December 31, 2012, our ownership interest percentage for Cockatoo was 50 percent.
2 At December 31, 2012, our ownership interest percentage for Amapá was 30 percent.
Amapá
On December 27, 2012, our Board of Directors authorized the sale of our 30 percent interest in Amapá. Per this original agreement,
together with Anglo, we were to sell our respective interest in a 100 percent sale transaction to Zamin. The carrying value of our
investment was in excess of the net proceeds expected from the sale, which approximated fair value, resulting in a $365.4 million
impairment charge, which was recorded through Equity income (loss) from ventures, net of tax in the Statements of Consolidated
Operations for the year ended December 31, 2012.
On March 28, 2013, an unknown event caused the Santana port shiploader to collapse into the Amazon River, preventing further ship
loading by the mine operator, Anglo. In light of the March 28, 2013 collapse of the Santana port shiploader and subsequent evaluation
of the effect that this event had on the carrying value of our investment in Amapá as of June 30, 2013, we recorded an impairment
charge of $67.6 million in the second quarter of 2013.
On August 28, 2013, we entered into additional agreements to sell our 30 percent interest in Amapá to Anglo for nominal cash
consideration, plus the right to certain contingent deferred consideration upon the two-year anniversary of the closing. The closing
was conditional on obtaining certain regulatory approvals and the additional agreement provided Anglo with an option to request that
we transfer our interest in Amapá directly to Zamin. Anglo exercised this option and the transfer to Zamin was completed in the fourth
quarter of 2013.
Cockatoo Island
On July 31, 2012, we entered into a definitive asset sale agreement with our joint venture partner, HWE Cockatoo Pty Ltd., to sell our
beneficial interest in the mining tenements and certain infrastructure of Cockatoo Island to Pluton Resources, which was amended
on August 31, 2012. On September 7, 2012, the closing date, Pluton Resources paid a nominal sum of AUD $4.00 and assumed
ownership of the assets and responsibility for the environmental rehabilitation obligations and other assumed liabilities not inherently
attached to the tenements acquired. The rehabilitation obligations and assumed liabilities that are inherently attached to the tenements
were transferred to Pluton Resources upon registration by the Department of Mining and Petroleum denoting Pluton Resources as
the tenement holder. Upon final settlement of the sale, which was completed during the second quarter of 2013, we extinguished
approximately $18.6 million related to the estimated cost of the rehabilitation.
97
Hibbing
Our share of equity income (loss) 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 ventures' production cost,
reflecting the cost-based nature of our participation in unconsolidated ventures.
Goodwill
Goodwill represents the excess purchase price paid over the fair value of the net assets of acquired companies. We had goodwill of
$74.5 million and $167.4 million recorded in the Statements of Consolidated Financial Position at December 31, 2013 and 2012,
respectively. In accordance with the provisions of ASC 350, we compare the fair value of the respective reporting unit to its carrying
value on an annual basis (or more frequently if necessary as discussed below) to determine if there is potential goodwill impairment.
If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied value
of the goodwill within the reporting unit is less than the carrying value of its goodwill.
After performing our annual goodwill impairment test in the fourth quarter of 2013, we determined that $80.9 million of goodwill
associated with our Ferroalloys operating segment was impaired. The impairment charge was primarily a result of the decision made
in the fourth quarter of 2013 to indefinitely suspend the Chromite Project and to not allocate additional capital for the project given the
uncertain timeline and risks associated with the development of necessary infrastructure to bring the project online.
During the fourth quarter of 2012, upon performing our annual goodwill impairment test, a goodwill impairment charge of $997.3 million
was recorded for our CQIM reporting unit within the Eastern Canadian Iron Ore operating segment. The impairment charge for our
CQIM reporting unit was driven by the project’s lower than anticipated long-term profitability coupled with delays in achieving full
operational capacity and higher capital and operating costs. Additionally, the announced delay of the Phase II expansion of the Bloom
Lake mine also contributed to the impairment.
Refer to NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES and NOTE 9 - FAIR VALUE OF FINANCIAL
INSTRUMENTS for further information.
Other Intangible Assets and Liabilities
Other intangible assets are subject to periodic amortization on a straight-line basis over their estimated useful lives as follows:
Intangible Assets
Basis
Useful Life (years)
Permits - Asia Pacific Iron Ore
Units of production
Life of mine
Permits - All Other
Utility contracts
Straight line
Straight line
Leases - North American Coal
Units of production
Leases - All Other
Straight line
15 - 40
5
Life of mine
4.5 - 17.5
Asset Impairment
Long-Lived Tangible and Intangible Assets
We monitor conditions that may affect the carrying value of our long-lived tangible and intangible assets when events and circumstances
indicate that the carrying value of the asset groups may not be recoverable. In order to determine if assets have been impaired,
assets are grouped and tested at the lowest level for which identifiable, independent cash flows are available ("asset group"). An
impairment loss exists when projected undiscounted cash flows are less than the carrying value of the asset group. The measurement
of the impairment loss to be recognized is based on the difference between the fair value and the carrying value of the asset group.
Fair value can be determined using a market approach, income approach or cost approach.
We determined there were long-lived tangible and intangible asset impairments related to the Wabush operations within our Eastern
Canadian Iron Ore operating segment as of December 31, 2013 that resulted in impairment charges of $145.1 million and $9.5 million,
respectively. At December 31, 2012, we determined there was a long-lived asset impairment related to the Wabush mine's pelletizing
operations that resulted in an impairment charge of $49.9 million.
Refer to NOTE 5 - PROPERTY, PLANT AND EQUIPMENT and NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS for further
information.
98
Fair Value Measurements
Valuation Hierarchy
ASC 820 establishes a three-level valuation hierarchy for classification of fair value measurements. The valuation hierarchy is based
upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the
assumptions that market participants would use in pricing an asset or liability. Inputs may be observable or unobservable. Observable
inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market
data obtained from independent sources. Unobservable inputs are inputs that reflect our own assumptions about the assumptions
market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The three-tier hierarchy of inputs is summarized below:
•
•
•
Level 1 — Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 — Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are
observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 — Valuation is based upon other unobservable inputs that are significant to the fair value measurement.
The classification of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the
fair value measurement in its entirety. Valuation methodologies used for assets and liabilities measured at fair value are as follows:
Cash Equivalents
Where quoted prices are available in an active market, cash equivalents are classified within Level 1 of the valuation hierarchy. Cash
equivalents classified in Level 1 at December 31, 2013 and 2012 include money market funds. Valuation of these instruments is
determined using a market approach and is based upon unadjusted quoted prices for identical assets in active markets.
Marketable Securities
Where quoted prices are available in an active market, marketable securities are classified within Level 1 of the valuation hierarchy.
Marketable securities classified in Level 1 at December 31, 2013 and 2012 include available-for-sale securities. The valuation of
these instruments is determined using a market approach and is based upon unadjusted quoted prices for identical assets in active
markets.
Derivative Financial Instruments
Derivative financial instruments valued using financial models that use as their basis readily observable market parameters are
classified within Level 2 of the valuation hierarchy. Such derivative financial instruments include substantially all of our foreign currency
exchange contracts and derivative financial instruments that are valued based upon published pricing settlements realized by other
companies in the industry. Derivative financial instruments that are valued based upon models with significant unobservable market
parameters and are normally traded less actively, are classified within Level 3 of the valuation hierarchy.
Refer to NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS and NOTE 13 - PENSIONS AND OTHER POSTRETIREMENT
BENEFITS for further information.
Pensions and Other Postretirement Benefits
We offer defined benefit pension plans, defined contribution pension plans and other postretirement benefit plans, primarily consisting
of retiree healthcare benefits, to most employees in North America as part of a total compensation and benefits program. We do not
have employee pension or post-retirement benefit obligations at our Asia Pacific Iron Ore operations.
We recognize the funded or unfunded status of our postretirement benefit obligations on our December 31, 2013 and 2012 Statements
of Consolidated Financial Position based on the difference between the market value of plan assets and the actuarial present value
of our retirement obligations on that date, on a plan-by-plan basis. If the plan assets exceed the retirement obligations, the amount
of the surplus is recorded as an asset; if the retirement obligations exceed the plan assets, the amount of the underfunded obligations
are recorded as a liability. Year-end balance sheet adjustments to postretirement assets and obligations are recorded as Accumulated
other comprehensive loss.
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The actuarial estimates of the PBO and APBO retirement obligations incorporate various assumptions including the discount rates,
the rates of increases in compensation, healthcare cost trend rates, mortality, retirement timing and employee turnover. For the U.S.
and Canadian plans, the discount rate is determined based on the prevailing year-end rates for high-grade corporate bonds with a
duration matching the expected cash flow timing of the benefit payments from the various plans. The remaining assumptions are
based on our estimates of future events by incorporating historical trends and future expectations. The amount of net periodic cost
that is recorded in the Statements of Consolidated Operations consists of several components including service cost, interest cost,
expected return on plan assets, and amortization of previously unrecognized amounts. Service cost represents the value of the
benefits earned in the current year by the participants. Interest cost represents the cost associated with the passage of time. Certain
items, such as plan amendments, gains and/or losses resulting from differences between actual and assumed results for demographic
and economic factors affecting the obligations and assets of the plans, and changes in other assumptions are subject to deferred
recognition for income and expense purposes. The expected return on plan assets is determined utilizing the weighted average of
expected returns for plan asset investments in various asset categories based on historical performance, adjusted for current trends.
See NOTE 13 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS for further information.
Asset Retirement Obligations
Asset retirement obligations are recognized when incurred and recorded as liabilities at fair value. The fair value of the liability is
determined as the discounted value of the expected future cash flow. The asset retirement obligation is accreted over time through
periodic charges to earnings. In addition, the asset retirement cost is capitalized as part of the asset’s carrying value and amortized
over the life of the related asset. Reclamation costs are adjusted periodically to reflect changes in the estimated present value resulting
from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. We review, on an
annual basis, unless otherwise deemed necessary, the asset retirement obligation at each mine site in accordance with the provisions
of ASC 410. We perform an in-depth evaluation of the liability every three years in addition to routine annual assessments, most
recently performed in 2011, except for Asia Pacific Iron Ore operations which were performed in 2012.
Future remediation costs for inactive mines are accrued based on management’s best estimate at the end of each period of the costs
expected to be incurred at a site. Such cost estimates include, where applicable, ongoing maintenance and monitoring costs. Changes
in estimates at inactive mines are reflected in earnings in the period an estimate is revised. See NOTE 12 - ENVIRONMENTAL AND
MINE CLOSURE OBLIGATIONS for further information.
Environmental Remediation Costs
We have a formal policy for environmental protection and restoration. Our mining and exploration activities are subject to various
laws and regulations governing protection of the environment. We conduct our operations 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,
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 only can be estimated as a
range of possible amounts with no point in the range being more likely, the minimum of the range is accrued. Future expenditures
are not discounted unless the amount and timing of the cash disbursements reasonably can be estimated. It is possible that additional
environmental obligations could be incurred, the extent of which cannot be assessed. Potential insurance recoveries have not been
reflected in the determination of the liabilities. See NOTE 12 - ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS for further
information.
Revenue Recognition
U.S. Iron Ore, Eastern Canadian Iron Ore and Asia Pacific Iron Ore
We sell our products pursuant to comprehensive supply agreements negotiated and executed with our customers. Revenue is
recognized from a sale when persuasive evidence of an arrangement exists, the price is fixed or determinable, the product is delivered
in accordance with F.O.B. terms, title and risk of loss have transferred to the customer in accordance with the specified provisions of
each supply agreement and collection of the sales price reasonably is assured. Our U.S. Iron Ore, Eastern Canadian Iron Ore and
Asia Pacific Iron Ore supply agreements provide that title and risk of loss transfer to the customer either upon loading of the vessel,
shipment or, as is the case with some of our U.S. Iron Ore supply agreements, when payment is received. Under certain term supply
agreements, we ship the product to ports on the lower Great Lakes or to the customers’ facilities prior to the transfer of title. Our
rationale for shipping iron ore products to certain customers and retaining title until payment is received for these products is to minimize
credit risk exposure.
Iron ore sales are recorded at a sales price specified in the relevant supply agreements resulting in revenue and a receivable at the
time of sale. Upon revenue recognition for provisionally priced sales, a freestanding derivative is created for the difference between
the sales price used and expected future settlement price. The derivative, which does not qualify for hedge accounting, is adjusted
to fair value through Product revenues as a revenue adjustment each reporting period based upon current market data and forward-
looking estimates determined by management until the final sales price is determined. The principal risks associated with recognition
of sales on a provisional basis include iron ore price fluctuations between the date initially recorded and the date of final settlement.
For revenue recognition, we estimate the future settlement rate; however, if significant changes in iron ore prices occur between the
provisional pricing date and the final settlement date, we might be required to either return a portion of the sales proceeds received
or bill for the additional sales proceeds due based on the provisional sales price. Refer to NOTE 3 - DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES for further information.
100
In addition, certain supply agreements with one customer include provisions for supplemental revenue or refunds based on the
customer’s annual steel pricing for the year 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 year the product is consumed and the
amounts are settled as an adjustment to revenue. Refer to NOTE 3 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for
further information.
Revenue from product sales also includes reimbursement for freight charges paid on behalf of customers and freight costs to move
product from the Upper Great Lakes to ports in Quebec to use for exports in Freight and venture partners' cost reimbursements
separate from Product revenues. Revenue is recognized for the expected reimbursement of services when the services are performed.
North American Coal
We sell our products pursuant to supply agreements negotiated and executed with our customers. Revenue is recognized when
persuasive evidence of an arrangement exists, the price is fixed or determinable, the product is delivered in accordance with F.O.B.
terms, title and risk of loss have transferred to the customer in accordance with the specified provisions of each supply agreement
and collection of the sales price reasonably is assured. Delivery on our coal sales is determined to be complete for revenue recognition
purposes when title and risk of loss has passed to the customer in accordance with stated contractual terms and there are no other
future obligations related to the shipment. For domestic shipments, title and risk of loss generally passes as the coal is loaded into
transport carriers for delivery to the customer. For international shipments, title generally passes at the time coal is loaded onto the
shipping vessel. Revenue from product sales in 2013, 2012 and 2011 included reimbursement for freight charges paid to move coal
from the mine to port locations of $85.8 million, $101.0 million and $18.3 million, respectively, and is recorded in Freight and venture
partners' cost reimbursements on the Statements of Consolidated Operations.
Deferred Revenue
The terms of one of our U.S. Iron Ore pellet supply agreements required supplemental payments to be paid by the customer during
the period 2009 through 2012, with the option to defer a portion of the 2009 monthly amount in exchange for interest payments until
the deferred amount was repaid in 2013. Installment amounts received under this arrangement in excess of sales are classified as
deferred revenue in the Statements of Consolidated Financial Position upon receipt of payment. Revenue is recognized over the life
of the supply agreement, which extends until 2022, in equal annual installments. As of December 31, 2013 and 2012, installment
amounts received in excess of sales totaled $115.6 million and $128.4 million, respectively. As of December 31, 2013, deferred
revenue of $12.8 million was recorded in Other current liabilities and $102.8 million was recorded as long term in Other liabilities in
the Statements of Consolidated Financial Position. As of December 31, 2012, deferred revenue of $12.8 million was recorded in
Other current liabilities and $115.6 million was recorded as long term in Other liabilities in the Statements of Consolidated Financial
Position.
In 2013, due to the payment terms and the timing of cash receipts near year-end, the Company ended up with cash receipts in excess
of shipments on one customer contract. The shipments were completed in early 2014. In 2012, customer purchases were made in
order to secure the 2012 pricing on shipments to occur in early 2013 and at the request of the customers the ore was not shipped,
therefore the inventory remained at our facilities. We considered whether revenue should be recognized on these sales under the
“bill and hold” guidance provided by the SEC Staff; however, based upon the assessment performed, revenue recognition on these
transactions totaling $13.5 million and $17.1 million, respectively, was deferred on the December 31, 2013 and December 31, 2012
Statements of Consolidated Financial Position.
Cost of Goods Sold
U.S. Iron Ore, Eastern Canadian Iron Ore and Asia Pacific Iron Ore
Cost of goods sold and operating expenses represents all direct and indirect costs and expenses applicable to the sales and revenues
of our mining operations. Operating expenses primarily represent the portion of the Tilden mining venture costs for which we do not
own; that is, the costs attributable to the share of the mine’s production owned by the other joint venture partner in the Tilden mine.
The mining venture functions as a captive cost company; it supplies product only to its owners effectively for the cost of production.
Accordingly, the noncontrolling interests’ revenue amounts are stated at cost of production and are offset by an equal amount included
in Cost of goods sold and operating expenses resulting in no sales margin reflected for the noncontrolling partner participant. As we
are responsible for product fulfillment, we act as a principal in the transaction and, accordingly, record revenue under these
arrangements on a gross basis.
101
The following table is a summary of reimbursements in our U.S. Iron Ore operations for the years ended December 31, 2013, 2012
and 2011:
Reimbursements for:
Freight
Venture partners’ cost
Total reimbursements
(In Millions)
Year Ended December 31,
2013
2012
2011
$
$
177.3
$
82.2
259.5
$
142.0
$
108.8
250.8
$
128.4
95.9
224.3
Where we have joint ownership of a mine, our contracts entitle us to receive royalties and/or management fees, which we earn as
the pellets are produced.
North American Coal
Cost of goods sold and operating expenses represent all direct and indirect costs and expenses applicable to the sales and revenues
of our mining operations.
Repairs and Maintenance
Repairs, maintenance and replacement of components are expensed as incurred. The cost of major equipment overhauls is capitalized
and depreciated over the estimated useful life, which is the period until the next scheduled overhaul, generally five years. All other
planned and unplanned repairs and maintenance costs are expensed when incurred.
Share-Based Compensation
The fair value of each grant is estimated on the date of grant using a Monte Carlo simulation to forecast relative TSR performance.
Consistent with the guidelines of ASC 718, a correlation matrix of historic and projected stock prices was developed for both the
Company and its predetermined peer group of mining and metals companies. The fair value assumes that performance goals will be
achieved.
The expected term of the grant represents the time from the grant date to the end of the service period for each of the three plan-year
agreements. We estimated the volatility of our common shares and that of the peer group of mining and metals companies using
daily price intervals for all companies. The risk-free interest rate is the rate at the grant date on zero-coupon government bonds, with
a term commensurate with the remaining life of the performance plans.
Refer to NOTE 14 - STOCK COMPENSATION PLANS for additional information.
Income Taxes
Income taxes are based on income for financial reporting purposes, calculated using tax rates by jurisdiction, and reflect a current tax
liability or asset for the estimated taxes payable or recoverable on the current year tax return and expected annual changes in deferred
taxes. Any interest or penalties on income tax are recognized as a component of income tax expense.
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred
tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such
determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities,
projected future taxable income, tax planning strategies and recent financial results of operations.
Accounting for uncertainty in income taxes recognized in the financial statements requires that a tax benefit from an uncertain tax
position be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of
any related appeals or litigation processes, based on technical merits.
See NOTE 15 - INCOME TAXES for further information.
102
Discontinued Operations
On July 10, 2012, we entered into a definitive share and asset sale agreement to sell our 45 percent economic interest in the Sonoma
joint venture coal mine located in Queensland, Australia. Upon completion of the transaction on November 12, 2012, we collected
approximately AUD $141.0 million in net cash proceeds. The assets sold included our interests in the Sonoma mine along with our
ownership of the affiliated washplant. The Sonoma operations previously were included in Other within our reportable segments.
On September 27, 2011, we announced our plans to cease and dispose of the operations at the renewaFUEL biomass production
facility in Michigan. On January 4, 2012, we entered into an agreement to sell the renewaFUEL assets to RNFL Acquisition, LLC and
the sale was completed in the first quarter of 2013. The results of operations of the renewaFUEL operations are reflected as discontinued
operations in the accompanying consolidated financial statements for all periods presented. We recorded a loss of $0.1 million as
Income and Gain on Sale from Discontinued Operations, net of tax in the Statements of Consolidated Operations for the year ended
December 31, 2012. This compares to losses of $18.5 million, net of $9.2 million in tax benefits for the year ended December 31,
2011. The loss recorded for the year ended December 31, 2011, included a $16.0 million impairment charge, taken to write the
renewaFUEL assets down to fair value.
The impairment charge taken in the third quarter of 2011 was based on an internal assessment around the recovery of the renewaFUEL
assets, primarily property, plant and equipment. The assessment considered several factors including the unique industry, the highly
customized nature of the related property, plant and equipment and the fact that the plant had not performed up to design capacity.
Given these points of consideration, it was determined that the expected recovery values on the renewaFUEL assets were low. The
renewaFUEL total assets were recorded at fair value in the Statements of Consolidated Financial Position as of December 31, 2011,
and primarily are comprised of property, plant and equipment. The renewaFUEL operations were previously included in Other within
our reportable segments.
Foreign Currency
Our financial statements are prepared with the U.S. dollar as the reporting currency. The functional currency of the Company’s
Australian subsidiaries is the Australian Dollar. The functional currency of all other international subsidiaries is the U.S. dollar. The
financial statements of international subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date
for assets and liabilities and a weighted average exchange rate for each period for revenues, expenses, gains and losses. Where
the local currency is the functional currency, translation adjustments are recorded as Accumulated other comprehensive loss. Where
the U.S. dollar is the functional currency, translation adjustments are recorded in the Statements of Consolidated Operations. Income
taxes generally are not provided for foreign currency translation adjustments.
Earnings Per Share
We present both basic and diluted earnings per share amounts. Basic earnings per share amounts are calculated by dividing Net
Income (Loss) Attributable to Cliffs Shareholders less any paid or declared but unpaid dividends on our depositary shares by the
weighted average number of common shares outstanding during the period presented. Diluted earnings per share amounts are
calculated by dividing Net Income (Loss) Attributable to Cliffs Shareholders by the weighted average number of common shares,
common share equivalents under stock plans using the treasury stock method and the number of common shares that would be
issued under an assumed conversion of our outstanding depositary shares, each representing a 1/40th interest in a share of our
Series A Mandatory Convertible Preferred Stock, Class A, under the if-converted method. Our outstanding depositary shares are
convertible into common shares based on the volume weighted average of closing prices of our common shares over the 20 consecutive
trading day period ending on the third day immediately preceding the end of the reporting period. Common share equivalents are
excluded from EPS computations in the periods in which they have an anti-dilutive effect. See NOTE 19 - EARNINGS PER SHARE
for further information.
Recent Accounting Pronouncements
On July 18, 2013, the FASB issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When
a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (ASU 2013-11). ASU 2013-11 requires
the netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of
the uncertain tax positions except where the deferred tax asset or other carryforward are not available for use. The adoption of the
pronouncement does not have an impact in the presentation of our financial statement.
In February 2013, the FASB amended the guidance on the presentation of comprehensive income in order to improve the reporting
of reclassifications out of accumulated other comprehensive income. The amendment does not change the current requirements for
reporting net income or other comprehensive income in financial statements. Rather, it requires the entity to present, either on the
face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other
comprehensive income by the respective line items of net income but only if the amount being reclassified is required under GAAP
to be reclassified in its entirety to net income in the same reporting period. For other amounts that are not required under GAAP to
be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that
provide additional detail about those amounts. The new guidance was applied prospectively for reporting periods beginning after
December 15, 2012. We adopted the provisions of guidance required for the period beginning January 1, 2013. Refer to NOTE 17
- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) for further information.
103
NOTE 2 - SEGMENT REPORTING
Our Company’s primary operations are organized and managed according to product category and geographic location: U.S. Iron
Ore, Eastern Canadian Iron Ore, Asia Pacific Iron Ore, North American Coal, Ferroalloys and our Global Exploration Group. The
U.S. Iron Ore segment is comprised of our interests in five U.S. mines that provide iron ore to the integrated steel industry. The Eastern
Canadian Iron Ore segment is comprised of two Eastern Canadian mines that primarily provide iron ore to the seaborne market for
Asian steel producers. The Asia Pacific Iron Ore segment is located in Western Australia and provides iron ore to the seaborne market
for Asian steel producers. The North American Coal segment is comprised of our four metallurgical coal operations and one thermal
coal mine that provide metallurgical coal primarily to the integrated steel industry and thermal coal primarily to the energy industry.
Inter-segment revenues have been eliminated in consolidation.
The Ferroalloys operating segment is comprised of our interests in chromite deposits held in Northern Ontario, Canada and the Global
Exploration Group is focused on early involvement in exploration activities to identify new projects for future development or projects
that add significant value to existing operations. The Ferroalloys and Global Exploration Group operating segments do not meet
reportable segment disclosure requirements and, therefore, are not reported separately.
We evaluate segment performance based on sales margin, defined as revenues less cost of goods sold and operating expenses
identifiable to each segment. This measure of operating performance is an effective measurement as we focus on reducing production
costs throughout the Company.
104
The following table presents a summary of our reportable segments for the years ended December 31, 2013, 2012, and 2011 including
a reconciliation of segment sales margin to Income (Loss) from Continuing Operations Before Income Taxes and Equity Income (Loss)
from Ventures:
Revenues from product sales and services:
U.S. Iron Ore
Eastern Canadian Iron Ore
Asia Pacific Iron Ore
North American Coal
Other (including inter-segment revenue eliminations)
2013
(In Millions)
2012
2011
$ 2,667.9
47 % $ 2,723.3
46% $ 3,509.9
978.7
17 % 1,008.9
1,224.3
22 % 1,259.3
821.9
14 %
(1.4) — %
881.1
0.1
17%
22%
15%
—%
1,178.1
1,363.5
512.1
0.3
53%
18%
21%
8%
—%
Total revenues from product sales and services
$ 5,691.4
100 % $ 5,872.7
100% $ 6,563.9
100%
Sales margin:
U.S. Iron Ore
Eastern Canadian Iron Ore
Asia Pacific Iron Ore
North American Coal
Other (including inter-segment sales margin eliminations)
Sales margin
Other operating income (expense)
Other income (expense)
$
901.9
$
976.2
$ 1,679.3
(103.3)
367.1
(14.5)
(1.9)
1,149.3
(478.3)
(181.7)
(121.4)
311.0
(1.8)
8.1
1,172.1
(1,480.9)
(193.0)
290.9
699.5
(58.4)
(0.4)
2,610.9
(314.1)
(106.3)
Income (loss) from continuing operations before income taxes
and equity income (loss) from ventures
$
489.3
$ (501.8)
$ 2,190.5
Depreciation, depletion and amortization:
U.S. Iron Ore
Eastern Canadian Iron Ore
Asia Pacific Iron Ore
North American Coal
Other
$
120.3
$
100.9
$
86.2
178.5
153.7
128.9
11.9
160.2
151.9
98.2
14.6
124.6
100.9
86.5
28.7
Total depreciation, depletion and amortization
$
593.3
$
525.8
$
426.9
Capital additions (1):
U.S. Iron Ore
Eastern Canadian Iron Ore
Asia Pacific Iron Ore
North American Coal
Other
Total capital additions
$
53.3
$
168.8
$
191.4
625.5
13.0
55.0
5.5
865.2
87.7
144.1
69.5
303.1
262.0
181.0
23.4
$
752.3
$ 1,335.3
$
960.9
(1)
Includes capital lease additions and non-cash accruals. Refer to NOTE 21 - CASH FLOW INFORMATION.
105
A summary of assets by segment is as follows:
Assets:
U.S. Iron Ore
Eastern Canadian Iron Ore
Asia Pacific Iron Ore
North American Coal
Other
Total segment assets
Corporate
Total assets
December 31,
2013
(In Millions)
December 31,
2012
December 31,
2011
$
1,671.6
$
1,735.1
$
7,915.5
1,078.4
1,841.8
455.6
12,962.9
159.0
7,605.1
1,506.3
1,877.8
570.9
13,295.2
279.7
1,691.8
7,973.1
1,511.2
1,814.4
1,017.6
14,008.1
533.6
$
13,121.9
$
13,574.9
$
14,541.7
Included in the consolidated financial statements are the following amounts relating to geographic location:
Revenue
United States
China
Canada
Other countries
Total revenue
Property, Plant and Equipment, Net
United States
Australia
Canada
Total Property, Plant and Equipment, Net
Concentrations in Revenue
(In Millions)
2013
2012
2011
$
1,857.6
$
2,108.5
$
1,909.4
871.2
1,053.2
2,008.2
728.1
1,027.9
2,774.1
2,114.5
914.3
761.0
$
$
$
5,691.4
$
5,872.7
$
6,563.9
2,721.6
$
2,795.3
$
751.0
7,680.8
1,042.4
7,369.6
2,684.9
1,017.8
6,701.4
11,153.4
$
11,207.3
$
10,404.1
In 2013, one customer individually accounted for more than 10 percent of our consolidated product revenue. In 2012 and 2011, one
customer in each year individually accounted for more than 10 percent of our consolidated product revenue. Total revenue from this
customer accounted for more than 10 percent of our consolidated product revenues and represents approximately $1.0 billion, $923.7
million and $1.4 billion of our total consolidated product revenue in 2013, 2012 and 2011, respectively, and is attributable to our U.S.
Iron Ore, Eastern Canadian Iron Ore and North American Coal business segments.
The following table represents the percentage of our total revenue contributed by each category of products and services in 2013,
2012, and 2011:
Revenue Category
Iron ore
Coal
Freight and venture partners’ cost reimbursements
Total revenue
2013
2012
2011
80%
13%
7%
81%
13%
6%
88%
8%
4%
100%
100%
100%
106
NOTE 3 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The following table presents the fair value of our derivative instruments and the classification of each in the Statements of Consolidated
Financial Position as of December 31, 2013 and December 31, 2012:
Derivative Assets
Derivative Liabilities
December 31, 2013
December 31, 2012
December 31, 2013
December 31, 2012
(In Millions)
Balance
Sheet
Location
Fair
Value
Balance
Sheet
Location
Fair
Value
Balance
Sheet
Location
Fair
Value
Balance
Sheet
Location
Fair
Value
$
—
$
—
Other
current
assets
Other
current
assets
0.3
16.2
Other
current
liabilities
Other
current
liabilities
$
2.1
$
—
Other
current
liabilities
25.8
1.9
$
0.3
$
16.2
$
27.9
$
1.9
$
—
$
—
Other
current
liabilities
$
1.1
$
—
Other
current
assets
Other
current
assets
Other
current
assets
Other
current
assets
55.8
3.1
58.9
3.5
Other
current
liabilities
—
10.3
Other
current
liabilities
—
11.3
$
$
58.9
59.2
$
$
62.4
78.6
$
$
11.4
39.3
$
$
11.3
13.2
Derivative
Instrument
Derivatives designated as hedging
instruments under ASC 815:
Interest-Rate Swaps
Foreign Exchange Contracts
Total derivatives designated as
hedging instruments under ASC
815
Derivatives not designated as
hedging instruments under ASC
815:
Foreign Exchange Contracts
Customer Supply Agreements
Provisional Pricing Arrangements
Total derivatives not designated as
hedging instruments under ASC
815
Total derivatives
Derivatives Designated as Hedging Instruments
Cash Flow Hedges
Australian and Canadian Dollar Foreign Exchange Contracts
We are subject to changes in foreign currency exchange rates as a result of our operations in Australia and Canada. With respect to
Australia, foreign exchange risk arises from our exposure to fluctuations in foreign currency exchange rates because the functional
currency of our Asia Pacific operations is the Australian dollar. Our Asia Pacific operations receive funds in U.S. currency for their
iron ore sales. The functional currency of our Canadian operations is the U.S. dollar; however, the production costs for these operations
primarily are incurred in the Canadian dollar.
We use foreign currency exchange contracts to hedge our foreign currency exposure for a portion of our U.S. dollar sales receipts in
our Australian functional currency entities and our entities with Canadian dollar operating costs. For our Australian operations, U.S.
dollars are converted to Australian dollars at the currency exchange rate in effect during the period the transaction occurred. For our
Canadian operations, U.S. dollars are converted to Canadian dollars at the exchange rate in effect for the period the operating costs
are incurred. The primary objective for the use of these instruments is to reduce exposure to changes in Australian and U.S. currency
exchange rates and U.S. and Canadian currency exchange rates, respectively, and to protect against undue adverse movement in
these exchange rates. These instruments qualify for hedge accounting treatment, and are tested for effectiveness at inception and
at least once each reporting period. If and when any of our hedge contracts are determined not to be highly effective as hedges, the
underlying hedged transaction is no longer likely to occur, or the derivative is terminated, hedge accounting is discontinued.
As of December 31, 2013, we had outstanding Australian and Canadian foreign currency exchange contracts with notional amounts
of $323.0 million and $285.9 million, respectively, in the form of forward contracts with varying maturity dates ranging from January
2014 to December 2014. This compares with outstanding Australian and Canadian foreign currency exchange contracts with a notional
amount of $400.0 million and $630.4 million, respectively, as of December 31, 2012.
107
Changes in fair value of highly effective hedges are recorded as a component of Accumulated other comprehensive loss in the
Statements of Consolidated Financial Position. Any ineffectiveness is recognized immediately in income. As of December 31, 2013
and 2012, there was no material ineffectiveness recorded for foreign exchange contracts that were classified as cash flow hedges.
However, certain Canadian hedge contracts were deemed ineffective during the fourth quarter of 2013 and no longer qualified for
hedge accounting treatment. The de-designated hedges are discussed within the Derivatives Not Designated as Hedging Instruments
section of this footnote. Amounts recorded as a component of Accumulated other comprehensive loss are reclassified into earnings
in the same period the forecasted transactions affect earnings. Of the amounts remaining in Accumulated other comprehensive loss
related to Australian hedge contracts and Canadian hedge contracts, we estimate that losses of $15.0 million and losses of $2.9 million
(net of tax), respectively, will be reclassified into earnings within the next 12 months.
Interest Rate Risk Management
Interest rate risk is managed using a portfolio of variable-rate and fixed-rate debt composed of short-term and long-term instruments,
such as U.S. treasury lock agreements and variable-to-fixed interest rate swaps. From time to time, these instruments, which are
derivative instruments, are entered into to facilitate the maintenance of the desired ratio of variable-rate to fixed-rate debt.
In the second quarter of 2012, we entered into U.S. treasury lock agreements with a notional value of $200.0 million to hedge the
exposure to the possible rise in the interest rate prior to the issuance of the five-year senior notes due 2018 discussed in NOTE 10 -
DEBT AND CREDIT FACILITIES. These derivative instruments were designated and qualified as cash flow hedges. The U.S. treasury
locks were settled in the fourth quarter of 2012 upon the issuance of $500.0 million principal amount of the senior notes due 2018 for
a cumulative after-tax loss of $1.3 million, which was recorded in Accumulated other comprehensive loss and is being amortized to
Changes in fair value of foreign currency contracts, net over the life of the senior notes due 2018. Approximately $0.1 million net of
tax was recognized in earnings in 2013 and approximately $0.1 million net of tax is expected to be recognized in earnings in 2014.
The following summarizes the effect of our derivatives designated as cash flow hedging instruments, net of tax in Accumulated other
comprehensive loss in the Statements of Consolidated Operations for the years ended December 31, 2013, 2012 and 2011:
Amount of Gain (Loss)
Recognized in OCI on
Derivative
(Effective Portion)
Year Ended
December 31,
(In Millions)
Location of Gain (Loss)
Reclassified
from Accumulated OCI
into Earnings
(Effective Portion)
Amount of Gain (Loss)
Reclassified
from Accumulated
OCI into Earnings
(Effective Portion)
Year Ended
December 31,
2013
2012
2011
2013
2012
2011
$ (34.7) $ 20.2
$
1.8
Product revenues
$ (11.9) $
14.8
$
2.6
(12.9)
6.7
—
(4.1)
—
—
—
(1.3)
$ (51.7) $ 25.6
$
—
—
—
—
1.8
Cost of goods sold and
operating expenses
(8.2)
3.3
—
Product revenues
—
Cost of goods sold and
operating expenses
Changes in fair value of
foreign currency
contracts, net
(1.9)
(0.1)
—
—
—
$ (22.1) $
18.1
$
0.7
—
—
3.3
Derivatives in Cash Flow
Hedging Relationships
Australian Dollar Foreign
Exchange Contracts
(hedge designation)
Canadian Dollar Foreign Exchange
Contracts
(hedge designation)
Australian Dollar Foreign
Exchange Contracts
(prior to de-designation)
Canadian Dollar Foreign
Exchange Contracts
(prior to de-designation)
Treasury Locks
Total
Fair Value Hedges
Interest Rate Hedges
Our fixed-to-variable interest rate swap derivative instruments, with a notional amount of $250.0 million, are designated and qualify
as fair value hedges as of December 31, 2013. The objective of the hedges are to hedge changes in the debt's fair value associated
with fluctuations in the benchmark LIBOR interest rate as part of our risk management strategy.
For derivative instruments that are designated and qualify as fair-value hedges, the gain or loss on the hedge instrument as well as
the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current net income. We include the
gain or loss on the derivative instrument and the offsetting loss or gain on the hedged item in Other non-operating income (expense).
The net gain recognized in Other non-operating income (expense) for the year ended December 31, 2013 was $0.1 million. There
were no derivative instruments that were designated and qualifying as fair-value hedges for the year ended December 31, 2012.
108
Derivatives Not Designated as Hedging Instruments
Foreign Exchange Contracts
During the fourth quarter of 2013, we discontinued hedge accounting for Canadian foreign currency exchange contracts for all
outstanding contracts associated with Wabush and Ferroalloys operations as projected future cash flows were no longer considered
probable, but we continue to hold these instruments as economic hedges to manage currency risk. Subsequent to de-designation,
no further foreign currency exchange contracts were entered into for Wabush or Ferroalloys operations. As of December 31, 2013,
the de-designated outstanding foreign currency exchange rate contracts had a notional amount of $74.8 million in the form of forward
contracts with varying maturity dates ranging from January 2014 to June 2014.
As a result of discontinued hedge accounting, the instruments are prospectively marked to fair value each reporting period through
Cost of goods sold and operating expenses on the Statements of Consolidated Operations. For the year ended December 31, 2013,
the change in fair value of our de-designated foreign currency exchange contracts resulted in net losses of $0.6 million. The amounts
that were previously recorded as a component of Accumulated other comprehensive loss prior to de-designation are reclassified to
earnings and a corresponding realized gain or loss will be recognized when the forecasted cash flow occurs. For the year ended
December 31, 2013, we reclassified losses of $1.9 million from Accumulated other comprehensive loss related to contracts that
matured during the year, and recorded the amounts as Cost of goods sold and operating expenses on the Statements of Consolidated
Operations. As of December 31, 2013, approximately $0.5 million of losses remains in Accumulated other comprehensive loss related
to the effective cash flow hedge contracts prior to de-designation. We estimate the remaining $0.5 million of losses will be reclassified
to Cost of goods sold and operating expenses in the next 12 months upon the maturity of the related contracts.
Customer Supply Agreements
Most of our U.S. Iron Ore long-term supply agreements are comprised of a base price with annual price adjustment factors, some of
which are subject to annual price collars in order to limit the percentage increase or decrease in prices for our iron ore pellets during
any given year. The base price is the primary component of the purchase price for each contract. The inflation-indexed price adjustment
factors are integral to the iron ore supply contracts and vary based on the agreement, but typically include adjustments based upon
changes in the Platts 62 percent Fe market rate and/or international pellet prices and changes in specified Producers Price Indices,
including those for all commodities, industrial commodities, energy and steel. The pricing adjustments generally operate in the same
manner, with each factor typically comprising a portion of the price adjustment, although the weighting of each factor varies based
upon the specific terms of each agreement. In most cases, these adjustment factors have not been finalized at the time our product
is sold. In these cases, we historically have estimated the adjustment factors at each reporting period based upon the best third-party
information available. The estimates are then adjusted to actual when the information has been finalized. The price adjustment factors
have been evaluated to determine if they contain embedded derivatives. The price adjustment factors share the same economic
characteristics and risks as the host contract and are integral to the host contract as inflation adjustments; accordingly, they have not
been separately valued as derivative instruments.
Certain supply agreements with one U.S. Iron Ore customer provide for supplemental revenue or refunds to the customer 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 a freestanding derivative and is required to be accounted for separately once the product is shipped. The
derivative instrument, which is finalized based on a future price, is adjusted to fair value as a revenue adjustment each reporting period
until the pellets are consumed and the amounts are settled.
We recognized $149.2 million, $171.4 million and $178.0 million as Product revenues in the Statements of Consolidated Operations
for the years ended December 31, 2013, 2012 and 2011, respectively, related to the supplemental payments. Other current assets,
representing the fair value of the pricing factors, were $55.8 million and $58.9 million in the December 31, 2013 and December 31,
2012 Statements of Consolidated Financial Position, respectively.
Provisional Pricing Arrangements
Certain of our U.S. Iron Ore, Eastern Canadian Iron Ore and Asia Pacific Iron Ore customer supply agreements specify provisional
price calculations, where the pricing mechanisms generally are based on market pricing, with the final revenue rate to be based on
market inputs at a specified point in time in the future, per the terms of the supply agreements. The difference between the provisionally
agreed-upon price and the estimated final revenue rate is characterized as a freestanding derivative and is required to be accounted
for separately once the provisional revenue has been recognized. The derivative instrument is adjusted to fair value through Product
revenues each reporting period based upon current market data and forward-looking estimates provided by management until the
final revenue rate is determined. At December 31, 2013 and December 31, 2012, we recorded $3.1 million and $3.5 million, respectively,
as Other current assets and $10.3 million and $11.3 million, respectively, as Other current liabilities in the Statements of Consolidated
Financial Position related to our estimate of final revenue rate with our U.S. Iron Ore, Eastern Canadian Iron Ore and Asia Pacific Iron
Ore customers at December 31, 2013 and related to our U.S. Iron Ore and Eastern Canadian Iron Ore customers at December 31,
2012. These amounts represent the difference between the provisional price agreed upon with our customers based on the supply
agreement terms and our estimate of the final revenue rate based on the price calculations established in the supply agreements. As
a result, we recognized a net $7.2 million decrease in Product revenues in the Statements of Consolidated Operations for the year
ended December 31, 2013 related to these arrangements. This compares with a net $7.8 million decrease in Product revenues for
the comparable period in 2012. At December 31, 2011, we did not have any derivative assets or liabilities recorded due to these
arrangements.
109
In instances when we were still working to revise components of the pricing calculations referenced within our supply agreements to
incorporate new market inputs to the pricing mechanisms, we recorded certain shipments made to customers based on an agreed-
upon provisional price. The shipments were recorded based on the provisional price until settlement of the market inputs to the pricing
mechanisms are finalized. The lack of agreed-upon market inputs results in these provisional prices being characterized as derivatives.
The derivative instrument, which is settled and billed or credited once the determinations of the market inputs to the pricing mechanisms
are finalized, is adjusted to fair value through Product revenues each reporting period based upon current market data and forward-
looking estimates determined by management. During 2013 and 2012, we reached final pricing settlements on the customer supply
agreements in which components of the pricing calculation were still being revised, prior to each year end. As such, at December 31,
2013 and December 31, 2012, no shipments were recorded based upon contracts where the market inputs to the pricing mechanisms
were still being finalized, as all outstanding were settled during the corresponding year. We recognized $809.1 million as an increase
in Product revenues in the Statements of Consolidated Operations for the year ended December 31, 2011 under the pricing provisions
for certain shipments to U.S. Iron Ore and Eastern Canadian Iron Ore customers as we were still in the process of revising the terms
of the related customer supply agreements. For the year ended December 31, 2011, $309.4 million of the revenues were realized
due to the pricing settlements that primarily occurred with our U.S. Iron Ore customers during 2011.
At December 31, 2011, we recorded $1.2 million Other current assets, $19.5 million Other current liabilities and $83.8 million Accounts
receivable, net in the Statements of Consolidated Financial Position related to these types of provisional pricing arrangements with
various U.S. Iron Ore and Eastern Canadian Iron Ore customers.
The following summarizes the effect of our derivatives that are not designated as hedging instruments in the Statements of Consolidated
Operations for the years ended December 31, 2013, 2012 and 2011:
Derivatives Not Designated as
Hedging Instruments
(In Millions)
Location of Gain (Loss)
Recognized in
Income on Derivative
Amount of Gain/(Loss) Recognized in
Income on Derivative
Year Ended
December 31,
2013
2012
2011
Foreign Exchange Contracts
Product revenues
$
— $
— $
1.0
Foreign Exchange Contracts
Foreign Exchange Contracts
Foreign Exchange Contracts
Treasury Locks
Cost of goods sold and operating
expenses
Other income (expense)
Income and Gain on Sale from
Discontinued Operations, net of tax
Changes in fair value of foreign
currency contracts, net
Customer Supply Agreements
Product revenues
Provisional Pricing Arrangements
Product revenues
(0.6)
—
—
—
149.2
(7.2)
—
0.3
(0.3)
(0.4)
171.4
(7.8)
—
101.9
—
—
178.0
809.1
Total
$
141.4
$
163.2
$ 1,090.0
Refer to NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS for additional information.
NOTE 4 - INVENTORIES
The following table presents the detail of our Inventories in the Statements of Consolidated Financial Position as of December 31,
2013 and 2012:
Segment
U.S. Iron Ore
Eastern Canadian Iron Ore
Asia Pacific Iron Ore
North American Coal
(In Millions)
December 31, 2013
December 31, 2012
Finished
Goods
Work-in
Process
Total
Inventory
Finished
Goods
Work-in
Process
Total
Inventory
$
92.1
$
13.0
$
105.1
$
147.2
$
22.9
$
65.3
39.7
59.4
48.1
50.6
23.2
113.4
90.3
82.6
62.6
36.7
36.7
44.2
37.2
49.0
170.1
106.8
73.9
85.7
Total
$
256.5
$
134.9
$
391.4
$
283.2
$
153.3
$
436.5
110
U.S. Iron Ore
The excess of current cost over LIFO cost of iron ore inventories was $115.3 million and $122.2 million at December 31, 2013 and
2012, respectively. As of December 31, 2013, the product inventory balance for U.S. Iron Ore declined, resulting in liquidation of a
LIFO layer in 2013. The effect of the inventory reduction was a decrease in Cost of goods sold and operating expenses of $7.4 million
in the Statements of Consolidated Operations for the year ended December 31, 2013. As of December 31, 2012, the product inventory
balance for U.S. Iron Ore increased, resulting in a LIFO increment in 2012. The effect of the inventory build was an increase in
Inventories of $47.5 million in the Statements of Consolidated Financial Position for the year ended December 31, 2012.
Eastern Canadian Iron Ore
Our pellet inventories carried on a LIFO cost were immaterial at December 31, 2013 due to our transition to only producing concentrate
inventory, which is carried at weighted-average cost. The excess of current cost over LIFO cost of iron ore inventories was $27.7
million at December 31, 2012. As of December 31, 2012, the product inventory balance for Eastern Canadian Iron Ore pellet inventory
declined, resulting in liquidation of LIFO layers during the year. The effect of the inventory reduction was a decrease in Cost of goods
sold and operating expenses of $7.0 million in the Statements of Consolidated Operations.
For the year ended December 31, 2013, the LCM concentrate and pellet inventory charges recorded were $13.2 million and $11.1
million, respectively, which were recorded in Cost of goods sold and operating expenses in the Statements of Consolidated Operations
for our Eastern Canadian Iron Ore operations.
Additionally, we recorded unsaleable inventory impairment charges of $10.6 million and $7.9 million, respectively, relating to Wabush
pellets and concentrate inventory. Both of these charges were recorded in Cost of goods sold and operating expenses during 2013
and included in the Statements of Consolidated Operations for the year ended December 31, 2013 for our Eastern Canadian Iron Ore
operations.
No LCM inventory adjustments were recorded for the year ended December 31, 2012 within the Eastern Canadian Iron Ore operating
segment results.
North American Coal
We recorded LCM inventory charges of $11.1 million, $24.4 million and $6.6 million in Cost of goods sold and operating expenses in
the Statements of Consolidated Operations for the years ended December 31, 2013, 2012 and 2011, respectively, for our North
American Coal operations. These charges were a result of market declines and costs associated with operational and geological
issues.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
The following table indicates the value of each of the major classes of our consolidated depreciable assets as of December 31, 2013
and 2012:
Land rights and mineral rights
Office and information technology
Buildings
Mining equipment
Processing equipment
Railroad equipment
Electric power facilities
Port facilities
Interest capitalized during construction
Land improvements
Other
Construction in-progress
Allowance for depreciation and depletion
(In Millions)
December 31,
2013
2012
$
7,819.6
$
125.7
255.2
1,600.3
2,148.6
219.0
114.3
99.4
23.8
69.3
104.4
991.3
13,570.9
(2,417.5)
$
11,153.4
$
7,920.8
92.4
162.0
1,290.7
1,937.4
240.8
58.7
114.3
20.8
43.9
39.0
1,123.9
13,044.7
(1,837.4)
11,207.3
We recorded depreciation expense of $366.9 million, $293.5 million and $237.8 million in the Statements of Consolidated Operations
for the years ended December 31, 2013, 2012 and 2011, respectively.
111
The accumulated amount of capitalized interest included within construction in-progress at December 31, 2013 is $31.4 million, of
which $17.4 million was capitalized during 2013. At December 31, 2012, $17.1 million of capitalized interest was included within
construction in-progress, of which $15.4 million was capitalized during 2012.
During the years ended December 31, 2013 and 2012, due to lower than previously expected profits as a result of decreased iron ore
pricing expectations and increased costs, we determined that indicators of impairment with respect to certain of our long-lived assets
or asset groups existed. Our asset groups generally consist of the assets and liabilities of one or more mines, preparation plants and
associated reserves for which the lowest level of identifiable cash flows largely are independent of cash flows of other mines, preparation
plants and associated reserves.
During the fourth quarter of 2013, we continued to experience higher than expected production costs and operational inefficiencies
at our Wabush operations within our Eastern Canadian Iron Ore operation segment that have resulted in continued declines in our
profitability of that business, which represents an asset group for purposes of testing our long-lived assets for recoverability. Upon
completion of an impairment analysis, it was determined the fair value was less than the carrying value of the asset group, which
resulted in an other long-lived asset impairment charge of tangible property, plant and equipment of $140.1 million as Impairment of
goodwill and other long-lived assets in the Statements of Consolidated Operations for the year ended December 31, 2013. The fair
value estimate was calculated using a market approach.
As a result of the assessment in the fourth quarter of 2012, we determined that the projected future cash flows associated with our
Eastern Canadian pelletizing operations were not sufficient to support the recoverability of the carrying value of these productive
assets. Accordingly, during the fourth quarter of 2012, an asset impairment charge of $49.9 million was recorded as Impairment of
goodwill and other long-lived assets in the Statements of Consolidated Operations for the year ended December 31, 2012 related to
the Wabush mine pelletizing operations reported in our Eastern Canadian Iron Ore operating segment. The fair value estimate was
calculated using a market approach. There was no impairment of the dock facilities or the mine and concentrator long-lived assets
that are part of the Wabush mine in 2012.
The net book value of the land rights and mineral rights as of December 31, 2013 and 2012 is as follows:
Land rights
Mineral rights:
Cost
Less depletion
Net mineral rights
(In Millions)
December 31,
2013
2012
46.3
$
46.4
7,773.3
$
942.6
6,830.7
$
7,874.4
727.0
7,147.4
$
$
$
Accumulated depletion relating to mineral rights, which was recorded using the unit-of-production method, is included in Cost of goods
sold and operating expenses. We recorded depletion expense of $206.5 million, $209.8 million and $159.7 million in the Statements
of Consolidated Operations for the years ended December 31, 2013, 2012 and 2011, respectively.
NOTE 6 - ACQUISITIONS AND OTHER INVESTMENTS
Acquisitions
We allocate the cost of acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. Any excess
of cost over the fair value of the net assets acquired is recorded as goodwill.
Consolidated Thompson
On May 12, 2011, we completed our acquisition of Consolidated Thompson by acquiring all of the outstanding common shares of
Consolidated Thompson for C$17.25 per share in an all-cash transaction, including net debt, pursuant to the terms of an arrangement
agreement dated as of January 11, 2011. Upon the acquisition: (a) each outstanding Consolidated Thompson common share was
acquired for a cash payment of C$17.25; (b) each outstanding option and warrant that was “in the money” was acquired for cancellation
for a cash payment of C$17.25 less the exercise price per underlying Consolidated Thompson common share; (c) each outstanding
performance share unit was acquired for cancellation for a cash payment of C$17.25; (d) all outstanding Quinto Mining Corporation
rights to acquire common shares of Consolidated Thompson were acquired for cancellation for a cash payment of C$17.25 per
underlying Consolidated Thompson common share; and (e) certain Consolidated Thompson management contracts were eliminated
that contained certain change of control provisions for contingent payments upon termination. The acquisition date fair value of the
consideration transferred totaled $4.6 billion. Our full ownership of Consolidated Thompson has been included in the consolidated
financial statements since the acquisition date and the subsidiary CQIM is reported as a component of our Eastern Canadian Iron
Ore segment.
112
The acquisition of Consolidated Thompson reflected our strategy to build scale by owning expandable and exportable steelmaking
raw material assets serving international markets. Through our acquisition of Consolidated Thompson, we now own and operate an
iron ore mine and processing facility near Bloom Lake in Quebec, Canada that produces iron ore concentrate of high quality. WISCO
was a 25 percent partner in the Bloom Lake mine at the time of acquisition, but as of November 19, 2013, WISCO owns 17.2 percent
in the Bloom Lake mine. We also own additional development properties known as Labrador Trough South located in Quebec. All
of these properties are in proximity to our existing Canadian operations and will allow us to leverage our port facilities and supply this
iron ore to the seaborne market.
The following table summarizes the consideration paid for Consolidated Thompson and the estimated fair values of the assets acquired
and liabilities assumed at the acquisition date. We finalized the purchase price allocation for the acquisition of Consolidated Thompson
during the second quarter of 2012.
Consideration
Cash
Fair value of total consideration transferred
Recognized amounts of identifiable assets acquired and
liabilities assumed
ASSETS:
Cash
Accounts receivable
Product inventories
Other current assets
Mineral rights
Property, plant and equipment
Intangible assets
Total identifiable assets acquired
LIABILITIES:
Accounts payable
Accrued liabilities
Convertible debentures
Other current liabilities
Long-term deferred tax liabilities
Senior secured notes
Capital lease obligations
Other long-term liabilities
Total identifiable liabilities assumed
Total identifiable net assets acquired
Noncontrolling interest in Bloom Lake
Goodwill
Total net assets acquired
$
$
$
Initial
Allocation
(In Millions)
Final
Allocation
Change
4,554.0
4,554.0
$
$
4,554.0
4,554.0
$
$
—
—
130.6
$
130.6
$
102.8
134.2
35.1
4,450.0
1,193.4
2.1
6,048.2
(13.6)
(130.0)
(335.7)
(41.8)
(831.5)
(125.0)
(70.7)
(25.1)
(1,573.4)
4,474.8
(947.6)
1,026.8
102.4
134.2
35.1
4,825.6
1,193.4
2.1
6,423.4
(13.6)
(123.8)
(335.7)
(47.9)
(1,041.8)
(125.0)
(70.7)
(32.8)
(1,791.3)
4,632.1
(1,075.4)
997.3
$
4,554.0
$
4,554.0
$
—
(0.4)
—
—
375.6
—
—
375.2
—
6.2
—
(6.1)
(210.3)
—
—
(7.7)
(217.9)
157.3
(127.8)
(29.5)
—
Included in the changes to the initial purchase price allocation for Consolidated Thompson, which was performed during the second
quarter of 2011, are changes recorded in the first quarter of 2012, when we further refined the fair value of the assets acquired and
liabilities assumed. The acquisition date fair value was adjusted to record a $16.4 million increase related to pre-acquisition date
Quebec mining duties tax. We recorded $6.1 million and $10.3 million as increases to current and long-term liabilities, respectively.
This resulted in a reduction of our calculated minimum distribution payable to the minority partner by $2.6 million. These adjustments
resulted in a net $13.8 million increase to our goodwill during the period. As our fair value estimates remained materially unchanged
from December 31, 2011, the immaterial adjustments made to the initial purchase price allocation during the first quarter of 2012 were
recorded in that period. All other changes to the initial allocation were recorded retrospectively to the acquisition date. During the
second quarter of 2012, no further adjustments were recorded when the allocation was finalized.
113
During 2011, subsequent to the initial purchase price allocation for Consolidated Thompson, we adjusted the fair values of the assets
acquired and liabilities assumed. Based on this process, the acquisition date fair value of the Consolidated Thompson mineral rights,
deferred tax liability and noncontrolling interest in Bloom Lake were adjusted to $4,825.6 million, $1,041.8 million and $1,075.4 million,
respectively, in the revised purchase price allocation during the fourth quarter of 2011. The change in mineral rights was caused by
further refinements to the valuation model, most specifically as it related to potential tax structures that have value from a market
participant standpoint and the risk premium used in determining the discount rate. The change in the deferred tax liability primarily
was a result of the movement in the mineral rights value and obtaining additional detail of the acquired tax basis in the acquired assets
and liabilities. Finally, the change in the noncontrolling interest in Bloom Lake was due to the change in mineral rights and a downward
adjustment to the discount for lack of control being used in the valuation. A complete comparison of the initial and final purchase price
allocation has been provided in the table above.
The fair value of the noncontrolling interest in the assets acquired and liabilities assumed in Bloom Lake has been allocated
proportionately, based upon WISCO’s 25 percent interest in Bloom Lake at the time of acquisition. We then reduced the allocated
fair value of WISCO’s ownership interest in Bloom Lake to reflect the noncontrolling interest discount.
The $997.3 million of goodwill resulting from the acquisition was assigned to our Eastern Canadian Iron Ore business segment through
the CQIM reporting unit. The goodwill recognized primarily is attributable to the proximity to our existing Canadian operations and
potential for future expansion in Eastern Canada, which would allow us to leverage our port facilities and supply iron ore to the seaborne
market. None of the goodwill will be deductible for income tax purposes. After performing our annual goodwill impairment test in the
fourth quarter of 2012, we determined that the goodwill resulting from the acquisition was impaired as the carrying value exceeded
its fair value. The impairment charge was recorded as Impairment of goodwill and other long-lived assets in the Statements of
Consolidated Operations for the year ended December 31, 2012. Refer to NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS
AND LIABILITIES for further information.
Acquisition-related costs in the amount of $25.4 million were charged directly to operations and are included within Consolidated
Thompson acquisition costs in the Statements of Consolidated Operations for the year ended December 31, 2011. In addition, we
recognized $15.7 million of deferred debt issuance costs, net of accumulated amortization of $1.9 million, associated with issuing and
registering the debt required to fund the acquisition as of December 31, 2011. Of these costs, $1.7 million and $14.0 million, respectively,
have been recorded in Other current assets and Other non-current assets in the Statements of Consolidated Financial Position at
December 31, 2011. Upon the termination of the bridge credit facility that we entered into to provide a portion of the financing for
Consolidated Thompson, $38.3 million of related debt issuance costs were recognized in Interest expense, net in the Statements of
Consolidated Operations for the year ended December 31, 2011.
The Statements of Consolidated Operations for the year ended December 31, 2011 include incremental revenue of $571.0 million
and income of $143.7 million related to the acquisition of Consolidated Thompson since the date of acquisition. Income during the
period includes the impact of expensing an additional $59.8 million of costs due to stepping up the value of inventory in purchase
accounting through Cost of goods sold and operating expenses for the year ended December 31, 2011.
The following unaudited consolidated pro forma information summarizes the results of operations for the years ended December 31,
2011 and 2010, as if the Consolidated Thompson acquisition and the related financing had been completed as of January 1, 2010.
The pro forma information gives effect to actual operating results prior to the acquisition. The unaudited consolidated pro forma
information does not purport to be indicative of the results that actually would have been obtained if the acquisition of Consolidated
Thompson had occurred as of the beginning of the periods presented or that may be obtained in the future.
REVENUES FROM PRODUCT SALES AND SERVICES
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS COMMON SHAREHOLDERS
EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CLIFFS
SHAREHOLDERS - BASIC
EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CLIFFS
SHAREHOLDERS - DILUTED
(In Millions, Except
Per Common Share)
2011
2010
$
$
$
$
6,772.3
1,612.3
11.50
11.43
$
$
$
$
4,784.6
912.5
6.74
6.70
The 2011 pro forma Net Income (Loss) Attributable to Cliffs Common Shareholders was adjusted to exclude $69.6 million of Cliffs
and Consolidated Thompson acquisition-related costs and $59.8 million of non-recurring inventory purchase accounting adjustments
incurred during the year ended December 31, 2011. The 2010 pro forma Net Income (Loss) Attributable to Cliffs Common Shareholders
was adjusted to include the $59.8 million of non-recurring inventory purchase accounting adjustments.
114
NOTE 7 - DISCONTINUED OPERATIONS
The table below sets forth selected financial information related to operating results of our business classified as discontinued
operations. While the reclassification of revenues and expenses related to discontinued operations for prior periods has no impact
upon previously reported net income, the Statements of Consolidated Operations present the revenues and expenses that were
reclassified from the specified line items to discontinued operations. During the fourth quarter of 2012, we sold our 45 percent economic
interest in Sonoma. The Sonoma operations previously were included in Other within our reportable segments.
The following table presents detail of our operations related to our Sonoma operations in the Statements of Consolidated Operations:
(In Millions)
Year Ended December 31,
2013
2012
2011
REVENUES FROM PRODUCT SALES AND SERVICES
Product
$
— $
151.6
$
230.4
GAIN ON SALE FROM DISCONTINUED OPERATIONS, net of tax
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax
INCOME and GAIN ON SALE FROM DISCONTINUED OPERATIONS, net of tax
$
—
2.0
2.0
38.0
(2.1)
$
35.9
$
—
38.6
38.6
Income and Gain on Sale from Discontinued Operations, net of tax during the year ended December 31, 2013 relates to additional
income tax benefit resulting from the actual tax gain from the sale of Sonoma as included on the 2012 tax return, which was filed
during the year ended December 31, 2013.
We recorded a gain of $38.0 million, net of $8.1 million in tax expense in Income and Gain on Sale from Discontinued Operations,
net of tax in the Statements of Consolidated Operations for the year ended December 31, 2012 related to our sale of the Sonoma
operations, which was completed as of November 12, 2012. We recorded a loss from discontinued operations in 2012 of $2.1 million,
net of $2.4 million in tax expense. This compares to income from discontinued operations of $38.6 million, net of $12.4 million in tax
expense for the year ended December 31, 2011.
NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES
Goodwill
Goodwill represents the excess purchase price paid over the fair value of the net assets of acquired companies and is not subject to
amortization. We assign goodwill arising from acquired companies to the reporting units that are expected to benefit from the synergies
of the acquisition. Our reporting units are either at the operating segment level or a component one level below our operating segments
that constitutes a business for which management generally reviews production and financial results of that component. Decisions
often are made as to capital expenditures, investments and production plans at the component level as part of the ongoing management
of the related operating segment. We have determined that our Asia Pacific Iron Ore and Ferroalloys operating segments constitute
separate reporting units, that CQIM and Wabush within our Eastern Canadian Iron Ore operating segment constitute reporting units,
that CLCC within our North American Coal operating segment constitutes a reporting unit and that Northshore within our U.S. Iron
Ore operating segment constitutes a reporting unit. Goodwill is allocated among and evaluated for impairment at the reporting unit
level in the fourth quarter of each year or as circumstances occur that potentially indicate that the carrying amount of these assets
may exceed their fair value.
During the fourth quarter of 2013, a goodwill impairment charge of $80.9 million was recorded for our Cliffs Chromite Ontario and
Cliffs Chromite Far North reporting units within our Ferroalloys operating segment. The impairment charge was primarily a result of
the decision made in the fourth quarter of 2013 to indefinitely suspend the Chromite Project and to not allocate additional capital for
the project given the uncertain timeline and risks associated with the development of necessary infrastructure to bring the project
online.
During the fourth quarter of 2012, upon performing our annual goodwill impairment test, a goodwill impairment charge of $997.3 million
was recorded for our CQIM reporting unit within the Eastern Canadian Iron Ore operating segment. The impairment charge for our
CQIM reporting unit was driven by the project’s lower than anticipated long-term profitability coupled with delays in achieving full
operational capacity and higher capital and operating costs. Additionally, the announced delay of the Phase II expansion of the Bloom
Lake mine also contributed to the impairment.
Additionally, during the fourth quarter of 2012, a goodwill impairment charge of $2.7 million was recorded for our Wabush reporting
unit. This charge was primarily a result of downward long-term pricing estimates and increased costs.
Refer to NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS for further information.
115
The following table summarizes changes in the carrying amount of goodwill allocated by operating segment for the years ended
December 31, 2013 and December 31, 2012:
December 31, 2013
December 31, 2012
(In Millions)
U.S.
Iron
Ore
Eastern
Canadian
Iron Ore
Asia
Pacific
Iron Ore
North
American
Coal
Other
Total
U.S.
Iron
Ore
Eastern
Canadian
Iron Ore
Asia
Pacific
Iron Ore
North
American
Coal
Other
Total
$ 2.0
$
— $
84.5
$
— $ 80.9
$
167.4
$ 2.0
$
986.2
$
83.0
$
— $ 80.9
$ 1,152.1
—
—
—
—
—
—
—
—
(12.0)
—
—
—
—
—
(80.9)
(80.9)
—
—
13.8
(1,000.0)
—
—
—
(12.0)
—
—
1.5
—
—
—
—
—
—
13.8
(1,000.0)
1.5
Beginning
Balance
Arising in
business
combinations
Impairment
Impact of foreign
currency
translation
Ending Balance
$ 2.0
$
— $
72.5
$
— $ — $
74.5
$ 2.0
$
— $
84.5
$
— $ 80.9
$
167.4
Accumulated
Goodwill
Impairment Loss
$ — $ (1,000.0) $
— $
(27.8) $ (80.9) $ (1,108.7) $ — $ (1,000.0) $
— $
(27.8) $ — $ (1,027.8)
Other Intangible Assets and Liabilities
Following is a summary of intangible assets and liabilities as of December 31, 2013 and December 31, 2012:
December 31, 2013
December 31, 2012
(In Millions)
Classification
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Definite-lived intangible
assets:
Permits
Intangible assets, net
Utility contracts
Intangible assets, net
Leases
Intangible assets, net
Other current liabilities
Total intangible assets
Below-market sales
contracts
Below-market sales
contracts
Total below-market
sales contracts
$
$
$
127.4
$
(35.9) $
91.5
$
136.1
$
(31.7) $
104.4
54.7
2.4
(53.1)
(0.1)
1.6
2.3
54.7
5.7
(32.4)
(3.4)
22.3
2.3
184.5
$
(89.1) $
95.4
$
196.5
$
(67.5) $
129.0
(23.0) $
— $
(23.0) $
(46.0) $
— $
(46.0)
Other liabilities
(205.9)
159.7
(46.2)
(250.7)
181.6
(69.1)
$
(228.9) $
159.7
$
(69.2) $
(296.7) $
181.6
$
(115.1)
Amortization expense relating to intangible assets was $19.9 million, $22.5 million and $17.7 million for the years ended December 31,
2013, 2012 and 2011, and is recognized in Cost of goods sold and operating expenses in the Statements of Consolidated Operations.
Additionally, an impairment charge of $9.5 million was recorded related to the utility contracts intangible asset and is recognized in
Impairment of goodwill and other long-lived assets in the Statements of Consolidated Operations. The estimated amortization expense
relating to intangible assets for each of the five succeeding years is as follows:
(In Millions)
Amount
9.3
7.7
7.2
6.5
7.5
38.2
Year Ending December 31
2014
2015
2016
2017
2018
Total
$
$
116
The below-market sales contract is classified as a liability and recognized over the term of the underlying contract, which has a
remaining life of approximately three years. For the years ended December 31, 2013, 2012 and 2011, we recognized $45.9 million,
$46.3 million and $57.0 million, respectively, in Product revenues related to below-market sales contracts. The following amounts are
estimated to be recognized in Product revenues for each of the five succeeding fiscal years:
Year Ending December 31
(In Millions)
Amount
2014
2015
2016
2017
2018
Total
$
$
$
23.0
23.0
23.0
0.2
—
69.2
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following represents the assets and liabilities of the Company measured at fair value at December 31, 2013 and 2012:
(In Millions)
December 31, 2013
Quoted Prices in
Active
Markets for
Identical Assets/
Liabilities
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
85.0
$
— $
— $
58.9
—
—
—
—
0.3
0.3
$
58.9
$
2.1
$
26.9
29.0
$
10.3
$
—
10.3
$
85.0
58.9
21.4
0.3
165.6
12.4
26.9
39.3
Description
Assets:
Cash equivalents
Derivative assets
Available-for sale marketable securities
Foreign exchange contracts
Total
Liabilities:
Derivative liabilities
Foreign exchange contracts
Total
$
$
$
$
—
21.4
—
106.4
$
— $
—
— $
117
(In Millions)
December 31, 2012
Quoted Prices in
Active
Markets for
Identical
Assets/Liabilities
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
$
$
100.0
$
— $
—
27.0
—
127.0
$
— $
—
— $
—
—
16.2
16.2
$
— $
1.9
1.9
$
— $
62.4
—
—
62.4
$
11.3
$
—
11.3
$
100.0
62.4
27.0
16.2
205.6
11.3
1.9
13.2
Description
Assets:
Cash equivalents
Derivative assets
Available-for sale marketable securities
Foreign exchange contracts
Total
Liabilities:
Derivative liabilities
Foreign exchange contracts
Total
Financial assets classified in Level 1 at December 31, 2013 and 2012 include money market funds and available-for-sale marketable
securities. The valuation of these instruments is based upon unadjusted quoted prices for identical assets in active markets.
The valuation of financial assets and liabilities classified in Level 2 is determined using a market approach based upon quoted prices
for similar assets and liabilities in active markets, or other inputs that are observable. Level 2 securities primarily include derivative
financial instruments valued using financial models that use as their basis readily observable market parameters. At December 31,
2013, such derivative financial instruments included our existing foreign currency exchange contracts and interest rate swaps. At
December 31, 2012, such derivative financial instruments included our existing foreign currency exchange contracts. The fair value
of the foreign currency exchange contracts is based on forward market prices and represents the estimated amount we would receive
or pay to terminate these agreements at the reporting date, taking into account creditworthiness, nonperformance risk and liquidity
risks associated with current market conditions.
The derivative financial assets classified within Level 3 at December 31, 2013 and December 31, 2012 included a freestanding
derivative instrument related to certain supply agreements with one of our U.S. Iron Ore customers. The agreements 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 adjust this provision
to fair value as an adjustment to Product revenues each reporting period until the product is consumed and the amounts are settled.
The fair value of the instrument is determined using a market approach based on an estimate of the annual realized price of hot-
rolled steel at the steelmaker’s facilities, and takes into consideration current market conditions and nonperformance risk.
The Level 3 derivative assets and liabilities at December 31, 2013 and December 31, 2012, also consisted of derivatives related to
certain provisional pricing arrangements with our U.S. Iron Ore, Eastern Canadian Iron Ore and Asia Pacific Iron Ore customers at
December 31, 2013 and our U.S. Iron Ore and Eastern Canadian Iron Ore customers at December 31, 2012. These provisional
pricing arrangements specify provisional price calculations, where the pricing mechanisms generally are based on market pricing,
with the final revenue rate to be based on market inputs at a specified point in time in the future, per the terms of the supply agreements.
The difference between the provisionally agreed-upon price and the estimated final revenue rate is characterized as a derivative
and is required to be accounted for separately once the revenue has been recognized. The derivative instrument is adjusted to fair
value through Product revenues each reporting period based upon current market data and forward-looking estimates provided by
management until the final revenue rate is determined.
118
The following table illustrates information about quantitative inputs and assumptions for the derivative assets and derivative liabilities
categorized in Level 3 of the fair value hierarchy:
Qualitative/Quantitative Information About Level 3 Fair Value Measurements
($ in millions)
Provisional Pricing
Arrangements
Customer Supply
Agreement
Fair Value at
12/31/2013
$
$
$
3.1
10.3
55.8
Balance Sheet
Location
Other current
assets
Valuation
Technique
Market
Approach
Unobservable
Input
Management's
Estimate of 62% Fe
Range or Point
Estimate
(Weighted
Average)
$135
Other current
liabilities
Other current
assets
Market
Approach
Hot-Rolled Steel
Estimate
$605 - $655 ($640)
The significant unobservable input used in the fair value measurement of the reporting entity’s provisional pricing arrangements is
management’s estimate of 62 percent Fe price based upon current market data, including historical seasonality and forward-looking
estimates determined by management. Significant increases or decreases in this input would result in a significantly higher or lower
fair value measurement, respectively.
The significant unobservable input used in the fair value measurement of the reporting entity’s customer supply agreements is the
future hot-rolled steel price that is estimated based on current market data, analysts' projections, projections provided by the customer
and forward-looking estimates determined by management. Significant increases or decreases in this input would result in a
significantly higher or lower fair value measurement, respectively.
We recognize any transfers between levels as of the beginning of the reporting period, including both transfers into and out of levels.
There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the years ended December 31, 2013 and
2012. The following tables represent a reconciliation of the changes in fair value of financial instruments measured at fair value on
a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2013 and 2012.
(In Millions)
Derivative Assets
(Level 3)
Derivative Liabilities
(Level 3)
Year Ended
December 31,
Year Ended
December 31,
2013
2012
2013
2012
Beginning balance - January 1
$
62.4
$ 157.9
$
(11.3) $
(19.5)
Total gains (losses)
Included in earnings
Settlements
Transfers into Level 3
Transfers out of Level 3
Ending balance - December 31
Total gains (losses) for the period included in earnings
attributable to the change in unrealized gains (losses) on
assets still held at the reporting date
$
$
152.3
174.9
(155.8)
(270.4)
—
—
—
—
(10.3)
11.3
—
—
(11.3)
19.5
—
—
58.9
$
62.4
$
(10.3) $
(11.3)
152.3
$ 174.9
$
(10.3) $
(11.3)
Gains and losses included in earnings are reported in Product revenues in the Statements of Consolidated Operations for the years
ended December 31, 2013 and 2012.
119
The carrying amount for certain financial instruments (e.g. Accounts receivable, net, Accounts payable and Accrued expenses)
approximate fair value and, therefore, have been excluded from the table below. A summary of the carrying amount and fair value
of other financial instruments at December 31, 2013 and 2012 were as follows:
Other receivables:
Customer supplemental payments
ArcelorMittal USA—Receivable
Other
Total receivables
Long-term debt:
Term loan—$1.25 billion
Senior notes—$700 million
Senior notes—$1.3 billion
Senior notes—$400 million
Senior notes—$500 million
Revolving loan
Equipment Loan Facilities
Fair Value Adjustment to Interest Rate
Hedge
(In Millions)
December 31, 2013
December 31, 2012
Classification
Carrying
Value
Fair Value
Carrying
Value
Fair Value
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
$
$
$
— $
— $
22.3
$
11.3
9.4
11.9
9.4
19.3
10.9
20.7
$
21.3
$
52.5
$
— $
— $
753.0
$
699.4
1,289.6
398.4
496.5
—
140.8
718.2
1,404.9
432.1
523.8
—
140.8
(2.1)
(2.1)
699.4
1,289.4
398.2
495.7
325.0
—
—
21.3
21.3
10.9
53.5
753.0
759.4
1,524.7
464.3
528.4
325.0
—
—
Total long-term debt
$
3,022.6
$
3,217.7
$
3,960.7
$
4,354.8
The fair value of the receivables and debt are based on the fair market yield curves for the remainder of the term expected to be
outstanding.
The terms of one of our U.S. Iron Ore pellet supply agreements required supplemental payments to be paid by the customer during
the period 2009 through 2012, with the option to defer a portion of the 2009 monthly amount up to $22.3 million in exchange for
interest payments until the deferred amount was repaid in 2013. Interest was payable by the customer quarterly and began in
September 2009 at the higher of 9 percent or the prime rate plus 350 basis points. During the first half of 2013, payments totaling
$22.3 million on the outstanding amount due were made by the customer and the receivable was fully repaid by the end of June
2013. As of December 31, 2012, the receivable of $22.3 million was classified as current and recorded in Other current assets in
the Statements of Consolidated Financial Position as all supplemental payments to be paid by the customer were due by the end
of 2013. The fair value of the receivable of $21.3 million at December 31, 2012 is based on a discount rate of 2.81 percent, which
represented the estimated credit-adjusted risk-free interest rate for the period the receivable was outstanding.
In 2002, we entered into an agreement with Ispat that restructured the ownership of the Empire mine and increased our ownership
from 46.7 percent to 79.0 percent in exchange for the assumption of all mine liabilities. Under the terms of the agreement, we
indemnified Ispat from obligations of Empire in exchange for certain future payments to Empire and to us by Ispat of $120.0 million,
recorded at a present value of $11.3 million and $19.3 million at December 31, 2013 and December 31, 2012, respectively. At
December 31, 2013, the remaining balance of $11.3 million was recorded in Other current assets and at December 31, 2012, $10.0
million of the remaining balance was recorded in Other current assets. The fair value of the receivable of $11.9 million and $21.3
million at December 31, 2013 and December 31, 2012, respectively, is based on a discount rate of 1.28 percent and 2.85 percent,
respectively, which represents the estimated credit-adjusted risk-free interest rate for the period the receivable is outstanding.
The fair value of long-term debt was determined using quoted market prices or discounted cash flows based upon current borrowing
rates. The term loan and revolving loan are variable rate interest and approximate fair value. See NOTE 10 - DEBT AND CREDIT
FACILITIES for further information.
120
Items Measured at Fair Value on a Non-Recurring Basis
The following tables present information about the impairment charges on both financial and nonfinancial assets that were measured
on a fair value basis at December 31, 2013 and December 31, 2012. The table also indicates the fair value hierarchy of the valuation
techniques used to determine such fair value.
(In Millions)
December 31, 2013
Quoted
Prices in
Active
Markets for
Identical
Assets/
Liabilities
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Total
Losses
$
— $
— $
— $
— $
80.9
—
—
—
—
—
—
46.3
46.3
155.4
1.6
—
1.6
—
14.5
67.6
$
— $
— $
47.9
$
47.9
$ 318.4
Description
Assets:
Goodwill impairment -
Ferroalloys reporting unit
Other long-lived assets -
Property, plant and equipment
Other long-lived assets -
Intangibles and long-term
deposits
Investment in ventures impairment -
Amapá
Total
Financial Assets
In light of the March 28, 2013 collapse of the Santana port shiploader and subsequent evaluation of the effect that this event had on
the carrying value of our investment in Amapá as of June 30, 2013, we recorded an impairment charge of $67.6 million in the second
quarter of 2013. The sale of Amapá was completed in the fourth quarter of 2013.
Non-Financial Assets
During the fourth quarter of 2013, a goodwill impairment charge of $80.9 million was recorded for our Cliffs Chromite Ontario and
Cliffs Chromite Far North reporting units within our Ferroalloys operating segment. The impairment charge was primarily a result
of the decision to indefinitely suspend the Chromite Project and to not allocate additional capital for the project given the uncertain
timeline and risks associated with the development of necessary infrastructure to bring the project online. Based on our review of
the fair value hierarchy, the inputs used in these fair value measurements were considered Level 3 inputs.
We also recorded an impairment charges to property, plant and equipment during 2013 related to our Wabush operation within our
Eastern Canadian Iron Ore operating segment, our Cliffs Chromite Ontario and Cliffs Chromite Far North reporting units within our
Other reportable segments and certain mineral lands at our Asia Pacific Iron Ore operating segment to reduce the related assets to
their estimated fair value as we determined that the cash flows associated with these operations were not sufficient to support the
recoverability of the carrying value of these assets. Fair value was determined based on management's estimate of liquidation value,
which is considered a Level 3 input, and resulted in a charge of $155.4 million.
121
(In Millions)
December 31, 2012
Quoted Prices in
Active
Markets for
Identical Assets/
Liabilities
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Total
Losses
$
$
— $
— $
— $
— $
997.3
—
—
—
—
—
—
— $
— $
—
—
—
—
2.7
49.9
72.5
72.5
$
72.5
72.5
365.4
$
1,415.3
Description
Assets:
Goodwill impairment -
CQIM reporting unit
Goodwill impairment -
Wabush reporting unit
Other long-lived assets -
Property, plant and equipment
Investment in ventures impairment -
Amapá
Total
Financial Assets
On December 27, 2012, the Board of Directors approved the sale of our 30 percent investment in Amapá, which is recorded as an
equity method investment in the Statements of Consolidated Operations. The carrying value of the investment was reduced to fair
value of $72.5 million as of December 31, 2012, resulting in an impairment charge of $365.4 million, which was recorded in the fourth
quarter of 2012. We believed the sum of the sale proceeds approximated fair value. The fair value of the proceeds (and therefore
the portion of the equity method investment measured at fair value) was determined using a probability-weighted cash flow approach.
Non-Financial Assets
During 2012, we recorded an impairment charge of $997.3 million within our Eastern Canadian Iron Ore segment to reduce the
carrying value of the CQIM reporting unit's goodwill to zero. This impairment charge was determined by our analysis of the fair value
of the CQIM reporting unit using the estimated expected present value of future cash flows, as well as reference to observable market
transactions in determining the value of the pre-production resources. The present value of the reporting unit's future cash flows
was calculated using an after-tax weighted average cost of capital. The value of the reporting unit's pre-production resources was
determined with reference to implied valuations per ton of market transactions and applied to our estimated pre-production resource
base. Based on our review of the fair value hierarchy, the inputs used in these fair value measurements were considered Level 3
inputs.
We reported an additional impairment charge during 2012 of $2.7 million within our Eastern Canadian Iron Ore segment to reduce
the carrying value of the Wabush reporting unit's goodwill to zero. The estimate of the fair value of goodwill was determined based
on the estimated expected present value of the future cash flows, discounted using an after-tax weighted average cost of capital.
Based on our review of the fair value hierarchy, the inputs used in these fair value measurements were considered Level 3 inputs.
We also recorded an impairment charge during 2012 related to our Eastern Canadian pelletizing operations to reduce those assets
to their estimated fair value as we determined that the cash flows associated with our Eastern Canadian pelletizing operations were
not sufficient to support the recoverability of the carrying value of these productive assets. Fair value was determined based on
management's estimate of liquidation value, which is considered a Level 3 input, and resulted in a charge of $49.9 million.
122
NOTE 10 - DEBT AND CREDIT FACILITIES
The following represents a summary of our long-term debt as of December 31, 2013 and 2012:
Debt Instrument
$700 Million 4.875% 2021 Senior Notes
$500 Million 4.80% 2020 Senior Notes
$800 Million 6.25% 2040 Senior Notes
$400 Million 5.90% 2020 Senior Notes
$500 Million 3.95% 2018 Senior Notes
$1.75 Billion Credit Facility:
Revolving Loan
Equipment Loans
Fair Value Adjustment to Interest Rate Hedge
Total debt
Less current portion
Long-term debt
Debt Instrument
$1.25 Billion Term Loan
$700 Million 4.875% 2021 Senior Notes
$500 Million 4.80% 2020 Senior Notes
$800 Million 6.25% 2040 Senior Notes
$400 Million 5.90% 2020 Senior Notes
$500 Million 3.95% 2018 Senior Notes
$1.75 Billion Credit Facility:
Revolving Loan
Total debt
Less current portion
Long-term debt
($ in Millions)
December 31, 2013
Annual
Effective
Interest
Rate
4.88%
4.83%
6.34%
5.98%
4.14%
Type
Fixed
Fixed
Fixed
Fixed
Fixed
Variable
1.64%
Fixed
Various
($ in Millions)
December 31, 2012
Annual
Effective
Interest
Rate
1.83%
4.88%
4.80%
6.25%
5.90%
4.14%
Type
Variable
Fixed
Fixed
Fixed
Fixed
Fixed
Final
Maturity
Total Face
Amount
2021
2020
2040
2020
2018
2017
2020
$
700.0
500.0
800.0
400.0
500.0
1,750.0
164.8
$
4,814.8
Total Debt
$
699.4 (2)
499.2 (3)
790.4 (4)
398.4 (5)
496.5 (6)
— (7)
161.7
(2.1)
3,043.5
20.9
3,022.6
$
$
Final
Maturity
Total Face
Amount
Total Debt
2016
2021
2020
2040
2020
2018
$
847.1 (1) $
847.1 (1)
700.0
500.0
800.0
400.0
500.0
699.4 (2)
499.2 (3)
790.2 (4)
398.2 (5)
495.7 (6)
Variable
2.02%
2017
1,750.0
325.0 (7)
$
5,497.1
$
$
4,054.8
94.1
3,960.7
(1)
(2)
(3)
During the first quarter of 2013, the term loan was repaid in full through repayments totaling $847.1 million. As of December 31,
2012, $402.8 million had been paid on the original $1.25 billion term loan and, of the amount remaining under the term loan,
$94.1 million was classified as Current portion of debt. The current classification was based upon the principal payment
terms of the arrangement requiring principal payments on each three-month anniversary following the funding of the term
loan.
As of December 31, 2013 and December 31, 2012, the $700 million 4.875 percent senior notes were recorded at a par value
of $700 million less unamortized discounts of $0.6 million for each period, based on an imputed interest rate of 4.88 percent.
As of December 31, 2013 and December 31, 2012, the $500 million 4.80 percent senior notes were recorded at a par value
of $500 million less unamortized discounts of $0.8 million for each period, based on an imputed interest rate of 4.83 percent.
123
(4)
(5)
(6)
(7)
As of December 31, 2013 and December 31, 2012, the $800 million 6.25 percent senior notes were recorded at par value
of $800 million less unamortized discounts of $9.6 million and $9.8 million, respectively, based on an imputed interest rate
of 6.34 percent.
As of December 31, 2013 and December 31, 2012, the $400 million 5.90 percent senior notes were recorded at a par value
of $400 million less unamortized discounts of $1.6 million and $1.8 million, respectively, based on an imputed interest rate
of 5.98 percent.
As of December 31, 2013 and December 31, 2012, the $500 million 3.95 percent senior notes were recorded at a par value
of $500 million less unamortized discounts of $3.5 million and $4.3 million, respectively, based on an imputed interest rate
of 4.14 percent.
As of December 31, 2013, no revolving loans were drawn under the credit facility. As of December 31, 2012, $325.0 million
of revolving loans were drawn under the credit facility. As of December 31, 2013 and December 31, 2012, the principal
amount of letter of credit obligations totaled $8.4 million and $27.7 million, respectively, thereby reducing available borrowing
capacity to $1.7 billion and $1.4 billion for each period, respectively.
Credit Facility and Term Loan
On February 8, 2013, we amended the Term Loan Agreement among Cliffs Natural Resources Inc. and various lenders dated March
4, 2011, as amended, or term loan, and the Amended and Restated Multicurrency Credit Agreement among Cliffs Natural Resources
Inc. and various lenders dated August 11, 2011 (as further amended by Amendment No. 1 as of October 16, 2012), or amended
revolving credit agreement, to effect the following:
•
Suspend the current Funded Debt to EBITDA ratio requirement for all quarterly measurement periods in 2013, after which
point it will revert back to the period ending March 31, 2014 until maturity.
• Require a Minimum Tangible Net Worth of approximately $4.6 billion as of each of the three-month periods ended March 31,
2013, June 30, 2013, September 30, 2013 and December 31, 2013. Minimum Tangible Net Worth, in accordance with the
amended revolving credit agreement and term loan, is defined as total equity less goodwill and intangible assets.
• Maintain a Maximum Total Funded Debt to Capitalization of 52.5 percent from the amendments' effective date through the
period ended December 31, 2013.
•
The amended agreements retain the Minimum Interest Coverage Ratio requirement of 2.5 to 1.0.
During February 2013, we repaid the $847.1 million outstanding balance under the term loan through the use of proceeds from the
2013 public equity offerings. Additionally, as a result of the term loan repayment, the remaining deferred financing costs associated
with the issuance of the term loan of $7.1 million were expensed. Upon the repayment of the term loan, the financial covenants
associated with the term loan no longer were applicable.
Per the terms of the amended revolving credit agreement, we are subject to higher borrowing costs. The applicable interest rate is
determined by reference to the former Funded Debt to EBITDA ratio. Based on the amended terms, borrowing costs could increase
as much as 0.5 percent relative to the outstanding borrowings, as well as 0.1 percent on unborrowed amounts. Furthermore, the
amended revolving credit agreement places certain restrictions upon our declaration and payment of dividends, our ability to
consummate acquisitions and the debt levels of our subsidiaries.
As of December 31, 2013, we were in compliance with all applicable financial covenants related to the amended revolving credit
agreement.
At December 31, 2012, prior to the amendments made on February 8, 2013 that are discussed above, the terms of the term loan and
amended revolving credit agreement each contained customary covenants that require compliance with certain financial covenants
based on: (1) debt to earnings ratio (Total Funded Debt to EBITDA, as those terms are defined in the amended revolving credit
agreement), as of the last day of each fiscal quarter cannot exceed (i) 3.5 to 1.0, if none of the $270.0 million private placement senior
notes due 2013 remain outstanding, or otherwise (ii) the then applicable maximum multiple under the $270.0 million private placement
senior notes due 2013 and (2) interest coverage ratio (Consolidated EBITDA to Interest Expense, as those terms are defined in the
amended revolving credit agreement), for the preceding four quarters must not be less than 2.5 to 1.0 on the last day of any fiscal
quarter. Because the $270.0 million private placement senior notes due 2013 were repaid on December 28, 2012 with the net proceeds
from the 2012 public debt offering, the financial covenant relating to the outstanding private placement senior notes no longer was
applicable. As of December 31, 2012, we were in compliance with the financial covenants related to both the term loan and the
amended revolving credit agreement.
124
$500 Million Senior Notes — 2012 Offering
On December 6, 2012, we completed a $500 million public offering of senior notes at 3.95 percent due January 15, 2018. Interest is
fixed and is payable on January 15 and July 15 of each year, beginning on July 15, 2013 until maturity. The senior notes are unsecured
obligations and rank equally in right of payment with all our other existing and future unsecured and unsubordinated indebtedness.
There are no subsidiary guarantees of the interest and principal amounts. A portion of the net proceeds from the senior notes offering
were used on December 28, 2012 to repay $270.0 million and $55.0 million outstanding private placement senior notes in the aggregate
and also for the repayment of a portion of the borrowings outstanding under the term loan and the revolving credit facility.
The senior notes may be redeemed any time at our option not less than 30 days nor more than 60 days after prior notice is sent to
the holders of the applicable series of notes. The senior notes are redeemable at a redemption price equal to the greater of (1) 100
percent of the principal amount of the notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments
of principal and interest on the notes to be redeemed, discounted to the redemption date on a semi-annual basis at the treasury rate
plus 50 basis points with respect to the 2018 senior notes, plus, in each case, accrued and unpaid interest to the date of redemption.
In addition, if a change of control triggering event occurs with respect to the senior notes, as defined in the agreement, we will be
required to offer to purchase the notes of the applicable series at a purchase price equal to 101 percent of the principal amount, plus
accrued and unpaid interest, if any, to the date of purchase.
The terms of the senior notes contain certain customary covenants; however, there are no financial covenants.
Interest Rate Adjustment Based on Rating Events
The interest rate payable on the senior notes may be subject to adjustments from time to time if either Moody's or S&P or, in either
case, any Substitute Rating Agency thereof downgrades (or subsequently upgrades) the debt rating assigned to the senior notes. In
no event shall (1) the interest rate for the senior notes be reduced to below the interest rate payable on the senior notes on the date
of the initial issuance of senior notes or (2) the total increase in the interest rate on the senior notes exceed 2.00% above the interest
rate payable on the senior notes on the date of the initial issuance of senior notes.
$1 Billion Senior Notes — 2011 Offering
On March 23, 2011 and April 1, 2011, respectively, we completed a $1 billion public offering of senior notes consisting of two tranches:
a 10-year tranche of $700 million aggregate principal amount at 4.88 percent senior notes due April 1, 2021, and a 30-year tranche
of $300 million aggregate principal amount at 6.25 percent senior notes due October 1, 2040, of which $500 million aggregate principal
amount previously was issued during September 2010. Interest is fixed and is payable on April 1 and October 1 of each year, beginning
on October 1, 2011, for both series of senior notes until maturity. The senior notes are unsecured obligations and rank equally in right
of payment with all our other existing and future unsecured and unsubordinated indebtedness. There are no subsidiary guarantees
of the interest and principal amounts. The net proceeds from the senior notes offering were used to fund a portion of the acquisition
of Consolidated Thompson and to pay the related fees and expenses.
The senior notes may be redeemed any time at our option not less than 30 days nor more than 60 days after prior notice is sent to
the holders of the applicable series of notes. The senior notes are redeemable at a redemption price equal to the greater of (1) 100
percent of the principal amount of the notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments
of principal and interest on the notes to be redeemed, discounted to the redemption date on a semi-annual basis at the treasury rate
plus 25 basis points with respect to the 2021 senior notes and 40 basis points with respect to the 2040 senior notes, plus, in each
case, accrued and unpaid interest to the date of redemption. However, if the 2021 senior notes are redeemed on or after the date
that is three months prior to their maturity date, the 2021 senior notes will be redeemed at a redemption price equal to 100 percent
of the principal amount of the notes to be redeemed plus accrued and unpaid interest to the date of redemption.
In addition, if a change of control triggering event occurs with respect to the senior notes, as defined in the agreement, we will be
required to offer to purchase the notes of the applicable series at a purchase price equal to 101 percent of the principal amount, plus
accrued and unpaid interest, if any, to the date of purchase.
The terms of the senior notes contain certain customary covenants; however, there are no financial covenants.
$1 Billion Senior Notes — 2010 Offering
On September 20, 2010, we completed a $1 billion public offering of senior notes consisting of two tranches: a 10-year tranche of
$500 million aggregate principal amount at 4.80 percent due October 1, 2020, and a 30-year tranche of $500 million aggregate principal
amount at 6.25 percent due October 1, 2040. Interest is fixed and is payable on April 1 and October 1 of each year, beginning on
April 1, 2011, for both series of senior notes until maturity. The senior notes are unsecured obligations and rank equally in right of
payment with all of our other existing and future senior unsecured and unsubordinated indebtedness. There are no subsidiary
guarantees of the interest and principal amounts.
A portion of the net proceeds from the senior notes offering was used on September 22, 2010 to repay $350 million outstanding under
our credit facility. A portion of the net proceeds was also used for general corporate purposes, including funding of capital expenditures
and were used to fund a portion of the acquisition of Consolidated Thompson and related expenses.
125
The senior notes may be redeemed any time at our option not less than 30 days nor more than 60 days after prior notice is sent to
the holders of the applicable series of notes. The senior notes are redeemable at a redemption price equal to the greater of (1) 100
percent of the principal amount of the notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments
of principal and interest on the notes to be redeemed, discounted to the redemption date on a semi-annual basis at the treasury rate
plus 35 basis points with respect to the 2020 senior notes and 40 basis points with respect to the 2040 senior notes, plus, in each
case, accrued and unpaid interest to the date of redemption. In addition, if a change of control triggering event occurs with respect
to the notes, we will be required to offer to purchase the notes at a purchase price equal to 101 percent of the principal amount, plus
accrued and unpaid interest to the date of purchase.
The terms of the senior notes contain certain customary covenants; however, there are no financial covenants.
$400 Million Senior Notes Offering
On March 17, 2010, we completed a $400 million public offering of senior notes due March 15, 2020. Interest at a fixed rate of 5.90
percent is payable on March 15 and September 15 of each year, beginning on September 15, 2010, until maturity on March 15, 2020.
The senior notes are unsecured obligations and rank equally in right of payment with all of our other existing and future senior unsecured
and unsubordinated indebtedness. There are no subsidiary guarantees of the interest and principal amounts.
A portion of the net proceeds from the senior notes offering was used on March 31, 2010 to repay our $200 million term loan under
our credit facility, as well as to repay on May 27, 2010 our share of Amapá’s remaining debt outstanding of $100.8 million. In addition,
we used the remainder of the net proceeds to help fund the acquisitions of Spider and CLCC during the third quarter of 2010.
The senior notes may be redeemed any time at our option not less than 30 days nor more than 60 days after prior notice is sent to
the holders of the applicable series of notes. The senior notes are redeemable at a redemption price equal to the greater of (1) 100
percent of the principal amount of the notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments
of principal and interest on the notes to be redeemed, discounted to the redemption date on a semi-annual basis, plus accrued and
unpaid interest to the date of redemption. In addition, if a change of control triggering event occurs, we will be required to offer to
purchase the notes at a purchase price equal to 101 percent of the principal amount, plus accrued and unpaid interest to the date of
purchase.
The terms of the senior notes contain certain customary covenants; however, there are no financial covenants.
$325 Million Private Placement Senior Notes
On June 25, 2008, we entered into a $325 million private placement consisting of $270 million of 6.31 percent five-year senior notes
due June 15, 2013, and $55 million of 6.59 percent seven-year senior notes due June 15, 2015. Through the use of the net proceeds
from the 2012 public offering of senior notes due on January 15, 2018, we repaid the $325 million private placement senior notes,
including all accrued and unpaid interest and a make-whole amount on December 28, 2012. Interest was paid on the notes for both
tranches on June 15 and December 15 until the payoff date. The notes were unsecured obligations with interest and principal amounts
guaranteed by certain of our domestic subsidiaries. The notes and guarantees were not required to be registered under the Securities
Act of 1933, as amended, and were placed with qualified institutional investors.
Equipment Loans
During the second half of 2013, we entered into $164.8 million of seven-year installment equipment loans with various interest rates.
The loans are secured by equipment from our Eastern Canadian Iron Ore operations. Proceeds from the borrowings were used for
general corporate purposes.
Short-Term Facilities
Asia Pacific Iron Ore maintains a bank contingent instrument and cash advance facility. The facility, which is renewable annually at
the bank’s discretion, provides A$30.0 million ($26.8 million) at December 31, 2013 in credit for contingent instruments, such as
performance bonds, and the ability to request a cash advance facility to be provided at the discretion of the bank. The facility limit was
reduced from A$40.0 million to A$30.0 million during the third quarter of 2013. At December 31, 2012, the facility provided A$40.0
million ($41.6 million) in credit for contingent instruments. As of December 31, 2013, the outstanding bank guarantees under the
facility totaled A$23.0 million ($20.5 million), thereby reducing borrowing capacity to A$7.0 million ($6.3 million). As of December 31,
2012, the outstanding bank guarantees under the facility totaled A$25.0 million ($26.0 million), thereby reducing borrowing capacity
to A$15.0 million ($15.6 million). We have provided a guarantee of the facility, along with certain of our Australian subsidiaries. The
terms of the short-term facility contain certain customary covenants; however, there are no financial covenants.
Letters of Credit
We issued standby letters of credit with certain financial institutions in order to support Bloom Lake’s general business obligations.
As of December 31, 2013 and December 31, 2012, these letter of credit obligations totaled $48.0 million and $96.9 million, respectively.
All of these standby letters of credit are in addition to the letters of credit provided for under the amended revolving credit agreement.
126
Debt Maturities
The following represents a summary of our maturities of debt instruments, excluding borrowings on the amended revolving credit
agreement, based on the principal amounts outstanding at December 31, 2013:
2014
2015
2016
2017
2018
2019 and thereafter
Total maturities of debt
(In Millions)
Maturities of Debt
$
$
20.9
21.8
22.7
23.6
524.6
2,448.1
3,061.7
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. Our operating lease expense
was $29.5 million, $25.8 million and $26.3 million for the years ended December 31, 2013, 2012 and 2011, respectively. Capital lease
assets were $404.0 million and $471.7 million at December 31, 2013 and 2012, respectively. Corresponding accumulated amortization
of capital leases included in respective allowances for depreciation were $198.5 million and $184.5 million at December 31, 2013 and
2012, respectively.
Future minimum payments under capital leases and non-cancellable operating leases at December 31, 2013 are as follows:
2014
2015
2016
2017
2018
2019 and thereafter
Total minimum lease payments
Amounts representing interest
Present value of net minimum lease payments
(In Millions)
Capital Leases
Operating Leases
$
$
$
$
$
64.2
85.7
34.8
27.4
19.6
32.2
263.9
48.0
215.9 (1)
20.0
13.1
8.1
7.3
6.7
14.7
69.9
(1)
The total is comprised of $49.0 million and $166.9 million classified as Other current liabilities and Other liabilities, respectively,
in the Statements of Unaudited Condensed Consolidated Financial Position at December 31, 2013.
127
NOTE 12 - ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
We had environmental and mine closure liabilities of $321.0 million and $265.1 million at December 31, 2013 and 2012, respectively.
Payments in 2013 and 2012 were $8.2 million and $2.4 million, respectively. The following is a summary of the obligations as of
December 31, 2013 and 2012:
Environmental
Mine closure
LTVSMC
Operating mines:
U.S. Iron Ore
Eastern Canadian Iron Ore
Asia Pacific Iron Ore
North American Coal
Total mine closure
Total environmental and mine closure obligations
Less current portion
(In Millions)
December 31,
2013
2012
$
8.4
$
22.0
152.2
78.2
25.5
34.7
312.6
321.0
11.3
Long-term environmental and mine closure obligations
$
309.7
$
Environmental
15.7
18.3
81.2
88.9
22.4
38.6
249.4
265.1
12.3
252.8
Our mining and exploration activities are subject to various laws and regulations governing the protection of the environment. We
conduct our operations 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 $8.4 million and $15.7 million at December 31, 2013 and
2012, respectively, including obligations for known environmental remediation exposures at various 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 only can
be estimated as a range of possible amounts with no specific amount being more likely, the minimum of the range is accrued. Future
expenditures are not discounted unless the amount and timing of the cash disbursements readily are known. Potential insurance
recoveries have not been reflected. Additional environmental obligations could be incurred, the extent of which cannot be assessed.
As discussed in further detail below, the environmental liability recorded at December 31, 2013 and 2012 primarily is comprised of
remediation obligations related to the Rio Tinto mine site in Nevada where we are named as a potentially responsible party.
The Rio Tinto Mine Site
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 dated September 14, 2001 between the NDEP and the Rio Tinto Working Group composed of the Company, Atlantic Richfield
Company, Teck Cominco American Incorporated and E. I. duPont de Nemours and Company. The Consent Order provides for technical
review by the U.S. Department of the Interior Bureau of Indian Affairs, the U.S. Fish and Wildlife Service, U.S. Department of Agriculture
Forest Service, the NDEP and the Shoshone-Paiute Tribe of the Duck Valley Reservation (collectively, "Rio Tinto Trustees"). In
recognition of the potential for an NRD claim, the parties actively pursued a global settlement that would include the EPA and encompass
both the remedial action and the NRD issues.
The NDEP published a Record of Decision for the Rio Tinto Mine, which was signed on February 14, 2012 by the NDEP and the EPA.
On September 27, 2012, the agencies subsequently issued a proposed Consent Decree, which was lodged with the U.S. District
Court for the District of Nevada and opened for 30-day public comment on October 4, 2012. The Consent Decree was subsequently
finalized on May 20, 2013. Under the terms of the Consent Decree, the Rio Tinto Working Group has agreed to pay over $29.0 million
in cleanup costs and natural resource damages to the site and surrounding area. The Company's share of the total settlement cost,
which includes remedial action, insurance and other oversight costs is $12.2 million, of which we have a remaining environmental
liability of $5.3 million and $11.5 million in the Statements of Consolidated Financial Position as of December 31, 2013 and 2012,
respectively, related to this issue.
Under the terms of the Consent Decree, the Rio Tinto Working Group will be responsible for removing mine tailings from Mill Creek,
improving the creek to support redband trout and improving water quality in Mill Creek and the East Fork Owyhee River. Previous
cleanup projects included filling in old mine shafts, grading and covering leach pads and tailings, and building diversion ditches. NDEP
will oversee the cleanup, with input from EPA and monitoring from the nearby Shoshone-Paiute Tribes of Duck Valley.
128
Mine Closure
Our mine closure obligations of $312.6 million and $249.4 million at December 31, 2013 and 2012, respectively, includes our five
consolidated U.S. operating iron ore mines, our two Eastern Canadian operating iron ore mines, our Asia Pacific operating iron ore
mine, our four operating North American coal mines and a closed operation formerly operating as LTVSMC.
Management periodically performs an assessment of the obligation to determine the adequacy of the liability in relation to the closure
activities still required at the LTVSMC site. The LTVSMC closure liability was $22.0 million and $18.3 million at December 31, 2013
and 2012, respectively. MPCA is presently working on an NPDES permit reissuance for this facility that could modify the closure
liability, but the scale of that change will not be understood until the permit has been drafted and issued.
The accrued closure obligation for our active mining operations provides for contractual and legal obligations associated with the
eventual closure of the mining operations. We performed a detailed assessment of our asset retirement obligations related to our
active mining locations most recently in 2011, except for Asia Pacific Iron Ore, in accordance with our accounting policy, which requires
us to perform an in-depth evaluation of the liability every three years in addition to routine annual assessments. Due to new legislation
in Australia, the assessment for Asia Pacific Iron Ore was performed in 2012. For the assessments performed, we determined the
obligations based on detailed estimates adjusted for factors that a market participant would consider (i.e., inflation, overhead and
profit) and then discounted the obligation using the current credit-adjusted risk-free interest rate based on the corresponding life of
mine. The estimate also incorporates incremental increases in the closure cost estimates and changes in estimates of mine lives.
The closure date for each location was determined based on the exhaustion date of the remaining iron ore reserves. The accretion
of the liability and amortization of the related asset is recognized over the estimated mine lives for each location.
The following represents a roll forward of our asset retirement obligation liability related to our active mining locations for the years
ended December 31, 2013 and 2012:
Asset retirement obligation at beginning of period
Accretion expense
Exchange rate changes
Revision in estimated cash flows
Payments
Asset retirement obligation at end of period
(In Millions)
December 31,
2013
2012
$
$
231.1
$
18.1
(3.4)
44.8
—
290.6
$
194.9
17.6
0.3
18.2
0.1
231.1
The revisions in estimated cash flows recorded during the year ended December 31, 2013 primarily include estimated asset retirement
costs for one of our U.S. Iron Ore mines associated with required storm water management systems expected to be implemented
subsequent to the closure of the mine.
NOTE 13 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS
We offer defined benefit pension plans, defined contribution pension plans and other postretirement benefit plans, primarily consisting
of retiree healthcare benefits, to most employees in North America as part of a total compensation and benefits program. We do
not have employee retirement benefit obligations at our Asia Pacific Iron Ore operations. The defined benefit pension plans largely
are noncontributory and benefits generally are based on employees’ years of service and average earnings for a defined period prior
to retirement or a minimum formula.
On November 9, 2012, the USW ratified 37 month labor contracts, which replaced the labor agreements that expired on September
1, 2012. The agreements cover approximately 2,400 USW-represented employees at our Empire and Tilden mines in Michigan and
our United Taconite and Hibbing mines in Minnesota, or 32.0 percent of our total workforce. The new agreement set temporary
monthly postretirement OPEB caps for participants who retire prior to January 1, 2015. These premium maximums will expire at the
end of the contract period and revert to increasing premiums based on the terms of the 2004 bargaining agreement. Also agreed
to was an OPEB cap that will limit the amount of contributions that we have to make toward medical insurance coverage for each
retiree and spouse of a retiree per calendar year after it goes into effect. The amount of the annual OPEB cap will be based upon
the costs we incur in 2014. The OPEB cap will apply to employees who retire on or after January 1, 2015 and will not apply to surviving
spouses. In addition, the bargaining agreement renewed the lump sum special payments for certain employees retiring in the near
future. The changes also included renewal of and an increase in payments to surviving spouses of certain retirees, as well as, an
increase in the temporary supplemental benefit amount paid to certain retirees. The agreements also provide that we and our partners
fund an estimated $65.7 million into the bargaining unit VEBA plans during the term of the agreements unless funding obligations
have been reached. These agreements are effective through September 30, 2015.
In August 2013, we entered into a new labor agreement with the USW covering our represented employees at Bloom Lake. It has
a three-year term that runs from September 1, 2013 through August 31, 2016. The new agreement provides us with significant
workforce flexibility.
129
In November 2013, we entered into a new labor agreement the USW covering our represented employees at our Pointe Noire facility,
which is part of our Wabush operations. It has a six-year term and runs from March 1, 2014 to February 28, 2020. It provides for a
26.0 percent increase in the cost of employment over the life of the contract. We also obtained the USW’s consent to an application
we had made to the Canadian Industrial Relations Board to have this workforce governed by Canadian federal labor law. Following
entrance of this agreement, the CIRB granted our application, providing us with significantly more flexibility to manage any future
labor disruptions.
In addition, we currently provide various levels of retirement health care and OPEB to most full-time employees who meet certain
length of service and age requirements (a portion of which is pursuant to collective bargaining agreements). Most plans require
retiree contributions and have deductibles, co-pay requirements and benefit limits. Most bargaining unit plans require retiree
contributions and co-pays for major medical and prescription drug coverage. There is an annual limit on our cost for medical coverage
under the U.S. salaried plans. The annual limit applies to each covered participant and equals $7,000 for coverage prior to age 65
and $3,000 for coverage after age 65, with the retiree’s participation adjusted based on the age at which the retiree’s benefits
commence. For participants at our Northshore operation, the annual limit ranges from $4,020 to $4,500 for coverage prior to age
65, and equals $2,000 for coverage after age 65. Covered participants pay an amount for coverage equal to the excess of (i) the
average cost of coverage for all covered participants, over (ii) the participant’s individual limit, but in no event will the participant’s
cost be less than 15.0 percent of the average cost of coverage for all covered participants. For Northshore participants, the minimum
participant cost is a fixed dollar amount. We do not provide OPEB for most U.S. salaried employees hired after January 1, 1993.
Retiree healthcare coverage is provided through programs administered by insurance companies whose charges are based on
benefits paid.
Our North American Coal segment is required under an agreement with the UMWA to pay amounts into the UMWA pension trusts
based principally on hours worked by UMWA-represented employees. This agreement covers approximately 800 UMWA-represented
employees at our Pinnacle Complex in West Virginia and our Oak Grove mine in Alabama, or 11.0 percent of our total workforce.
These multi-employer pension trusts provide benefits to eligible retirees through a defined benefit plan. The UMWA 1993 Benefit
Plan is a defined contribution plan that was created as the result of negotiations for the NBCWA of 1993. The plan provides healthcare
insurance to orphan UMWA retirees who are not eligible to participate in the UMWA Combined Benefit Fund or the 1992 Benefit
Fund or whose last employer signed the 1993 or later NBCWA and who subsequently goes out of business. Contributions to the
trust were at a rate of $8.10 per hour worked in both 2013 and 2012 and $6.50 per hour worked in 2011. These amounted to $14.9
million in both 2013 and 2012 and $9.5 million in 2011, respectively. Our Pinnacle and Oak Grove mines are signatories to labor
agreements with the UMWA, making them participants in the UMWA 1974 Pension Plan (the "1974 PP"). As of the most recent
estimate, Pinnacle and Oak Grove's combined share of this underfunded liability was estimated to be approximately $342 million.
If Pinnacle or Oak Grove were to withdraw from the 1974 PP or if a mass withdrawal were to occur, we would become obligated to
pay this amount to the 1974 PP.
In December 2003, The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 was enacted. This act introduced
a prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree healthcare benefit plans that
provide a benefit that at least actuarially is equivalent to Medicare Part D. Our measures of the accumulated postretirement benefit
obligation and net periodic postretirement benefit cost as of December 31, 2004 and for periods thereafter reflect amounts associated
with the subsidy. We elected to adopt the retroactive transition method for recognizing the cost reduction in 2004. The following
table summarizes the annual expense recognized related to the retirement plans for 2013, 2012 and 2011:
Defined benefit pension plans
Defined contribution pension plans
Other postretirement benefits
Total
2013
(In Millions)
2012
2011
52.1
$
55.2
$
6.8
17.4
76.3
$
6.7
28.1
90.0
$
37.8
5.7
26.8
70.3
$
$
130
The following tables and information provide additional disclosures for our consolidated plans.
Obligations and Funded Status
The following tables and information provide additional disclosures for the December 31, 2013 and 2012:
(In Millions)
Change in benefit obligations:
Benefit obligations — beginning of year
Service cost (excluding expenses)
Interest cost
Plan amendments
Actuarial (gain) loss
Benefits paid
Participant contributions
Federal subsidy on benefits paid
Exchange rate (gain) loss
Benefit obligations — end of year
Change in plan assets:
Fair value of plan assets — beginning of year
Actual return on plan assets
Participant contributions
Employer contributions
Benefits paid
Exchange rate gain (loss)
Fair value of plan assets — end of year
Funded status at December 31:
Fair value of plan assets
Benefit obligations
Funded status (plan assets less benefit obligations)
Amount recognized at December 31
Amounts recognized in Statements of Financial Position:
Current liabilities
Noncurrent liabilities
Net amount recognized
Amounts recognized in accumulated other comprehensive income:
Net actuarial loss
Prior service cost
Transition asset
Net amount recognized
The estimated amounts that will be amortized from accumulated
other comprehensive income into net periodic benefit cost in 2014:
Net actuarial loss
Prior service cost
Net amount recognized
131
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Pension Benefits
2012
2013
1,141.4
1,244.3
32.0
38.9
48.4
45.9
2.8
0.8
84.3
(121.8)
(71.0)
(72.9)
—
—
—
—
6.4
(17.2)
1,244.3
1,118.0
$
838.7
109.5
—
53.7
(72.9)
(13.7)
915.3
915.3
(1,118.0)
$
$
$
744.1
92.5
—
67.7
(71.0)
5.4
838.7
838.7
(1,244.3)
$
$
$
$
$
(202.7) $
(202.7) $
(405.6) $
(405.6) $
Other Benefits
2013
2012
459.8
12.3
17.3
—
(103.3)
(28.0)
5.6
0.5
(8.0)
356.2
237.0
11.0
1.8
20.7
(18.7)
—
251.8
$
$
$
$
488.4
14.7
20.6
(58.3)
11.3
(26.9)
4.6
0.8
4.6
459.8
193.5
26.1
1.7
23.3
(7.6)
—
237.0
$
251.8
(356.2)
(104.4) $
(104.4) $
237.0
(459.8)
(222.8)
(222.8)
(5.2) $
(1.8) $
(7.9) $
(197.5)
(202.7) $
(403.8)
(405.6) $
(96.5)
(104.4) $
(8.3)
(214.5)
(222.8)
230.6
14.9
—
245.5
$
$
429.2
17.2
—
446.4
14.2
2.7
16.9
$
$
$
$
67.0
(45.4)
—
21.6
$
$
176.8
(48.8)
—
128.0
4.6
(3.6)
1.0
(In Millions)
2013
Pension Plans
Other Benefits
Salaried
Hourly
Mining
SERP
Total
Salaried
Hourly
Total
Fair value of plan assets
$
357.4
$
552.7
$
5.2
$
— $
915.3
$
— $
251.8
$
251.8
Benefit obligation
Funded status
(427.2)
(674.8)
(6.8)
(9.2)
(1,118.0)
(53.6)
(302.6)
(356.2)
$
(69.8) $ (122.1) $
(1.6) $
(9.2) $
(202.7) $
(53.6) $
(50.8) $
(104.4)
Pension Plans
Other Benefits
Salaried
Hourly
Mining
SERP
Total
Salaried
Hourly
Total
2012
Fair value of plan assets
$
328.2
$
506.4
$
4.1
$
— $
838.7
$
— $
237.0
$
237.0
Benefit obligation
Funded status
(464.4)
(764.8)
(6.4)
(8.7)
(1,244.3)
(72.6)
(387.2)
(459.8)
$ (136.2) $ (258.4) $
(2.3) $
(8.7) $
(405.6) $
(72.6) $ (150.2) $
(222.8)
The accumulated benefit obligation for all defined benefit pension plans was $1,091.4 million and $1,204.7 million at December 31,
2013 and 2012, respectively. The decrease in the accumulated benefit obligation primarily is a result of an increase in the discount
rates.
Components of Net Periodic Benefit Cost
(In Millions)
Pension Benefits
2012
2013
2011
2013
Other Benefits
2012
2011
$
38.9
45.9
$
32.0
48.4
$
23.6
51.4
$
12.3
17.3
$
14.7
20.6
11.1
22.3
(65.6)
(59.5)
(61.2)
(20.1)
(17.7)
(16.1)
$
$
Service cost
Interest cost
Expected return on plan assets
Amortization:
Net asset
Prior service costs (credits)
Net actuarial gains
Net periodic benefit cost
Acquired through business combinations
Current year actuarial (gain)/loss
Amortization of net loss
Current year prior service cost
Amortization of prior service (cost) credit
Amortization of transition asset
$
—
3.0
29.9
52.1
—
(168.8)
(29.9)
0.8
(3.0)
—
—
3.9
30.4
55.2
—
53.1
(30.4)
2.8
(3.9)
—
Total recognized in other comprehensive income
$ (200.9) $
21.6
Total recognized in net periodic cost and other
comprehensive income
$ (148.8) $
76.8
Additional Information
$
$
$
$
—
4.4
19.6
37.8
—
165.3
(19.6)
—
(4.4)
—
$
—
(3.6)
11.5
17.4
—
(95.2)
(11.5)
—
3.6
—
(3.0)
1.9
11.6
28.1
—
3.2
(11.6)
(58.3)
(1.9)
3.0
141.3
$ (103.1) $
(65.6) $
(3.0)
3.7
8.8
$
26.8
—
46.8
(8.8)
—
(3.7)
3.0
37.3
179.1
$
(85.7) $
(37.5) $
64.1
(In Millions)
Effect of change in mine ownership & noncontrolling interest
Pension Benefits
2012
$ 54.8
2011
$ 53.3
2013
$ 46.5
Other Benefits
2012
2013
$
4.8
$
8.6
2011
$ 12.5
Actual return on plan assets
109.5
92.5
10.8
11.0
26.1
1.9
132
Assumptions
For our U.S. pension and other postretirement benefit plans, we used a discount rate as of December 31, 2013 of 4.57 percent,
compared with a discount rate of 3.70 percent as of December 31, 2012. The U.S. discount rates are determined by matching the
projected cash flows used to determine the PBO and APBO to a projected yield curve of 494 Aa graded bonds in the 10th to 90th
percentiles. These bonds are either noncallable or callable with make-whole provisions. The duration matching produced rates
ranging from 4.36 percent to 4.66 percent for our plans. Based upon these results, we selected a December 31, 2013 discount rate
of 4.57 percent for our plans. This methodology is consistent with the calculation of the prior-year discount rate.
For our Canadian plans, we used a discount rate as of December 31, 2013 of 4.50 percent for the pension plans and 4.75 percent
for the other postretirement benefit plans. Similar to the U.S. plans, the Canadian discount rates are determined by matching the
projected cash flows used to determine the PBO and APBO to a projected yield curve of 334 corporate bonds in the 10th to 90th
percentiles. The corporate bonds are either Aa graded, or (for maturities of 10 or more years) A or Aaa graded with an appropriate
credit spread adjustment. These bonds are either noncallable or callable with make whole provisions. This methodology is consistent
with the calculation of the prior-year discount rate.
Weighted-average assumptions used to determine benefit obligations at December 31 were:
U.S. plan discount rate
Canadian plan discount rate
Salaried rate of compensation increase
Hourly rate of compensation increase (ultimate)
U.S. expected return on plan assets
Canadian expected return on plan assets
Pension Benefits
Other Benefits
2013
4.57%
4.50
4.00
3.00
8.25
7.25
2012
3.70%
3.75
4.00
4.00
8.25
7.25
2013
4.57%
4.75
4.00
N/A
7.00
N/A
2012
3.70%
4.00
4.00
N/A
8.25
N/A
Weighted-average assumptions used to determine net benefit cost for the years 2013, 2012 and 2011 were:
U.S. plan discount rate
Canadian plan discount rate
U.S. expected return on plan assets
Canadian expected return on plan assets
Salaried rate of compensation increase
Hourly rate of compensation increase
Pension Benefits
Other Benefits
2013
2012
2011
2013
2012
2011
3.70 %
4.28 %
5.11 %
3.70 % 4.28/3.51 % 1
5.11 %
3.75
8.25
7.25
4.00
4.00
4.00
8.25
7.25
4.00
4.00
5.00
8.50
7.50
4.00
4.00
4.00
8.25
N/A
4.00
N/A
4.25
8.25
N/A
4.00
N/A
5.00
8.50
7.50
4.00
N/A
1
4.28 percent for the Salaried Plan. For the Hourly Plan, 4.28 percent from January 1, 2012 through October 31, 2012, and 3.51 percent
from November 1, 2012 through December 31, 2012.
Assumed health care cost trend rates at December 31 were:
U.S. plan health care cost trend rate assumed for next year
Canadian plan health care cost trend rate assumed for next year
Ultimate health care cost trend rate
U.S. plan year that the ultimate rate is reached
Canadian plan year that the ultimate rate is reached
2013
2012
7.25 %
7.50 %
4.00
5.00
2023
2018
7.50
5.00
2023
2018
133
The Canadian plan health care cost trend rate assumed for next year decreased as we have experienced lower than expected
Canadian plan health care costs in recent years.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A change of one
percentage point in assumed health care cost trend rates would have the following effects:
Effect on total of service and interest cost
Effect on postretirement benefit obligation
Plan Assets
(In Millions)
Increase
Decrease
$
5.4
$
38.2
(4.1)
(31.3)
Our financial objectives with respect to our pension and VEBA plan assets are to fully fund the actuarial accrued liability for each of
the plans, to maximize investment returns within reasonable and prudent levels of risk, and to maintain sufficient liquidity to meet
benefit obligations on a timely basis.
Our investment objective is to outperform the expected Return on Asset (“ROA”) assumption used in the plans’ actuarial reports over
a full market cycle, which is considered a period during which the U.S. economy experiences the effects of both an upturn and a
downturn in the level of economic activity. In general, these periods tend to last between three and five years. The expected ROA
takes into account historical returns and estimated future long-term returns based on capital market assumptions applied to the asset
allocation strategy.
The asset allocation strategy is determined through a detailed analysis of assets and liabilities by plan, which defines the overall risk
that is acceptable with regard to the expected level and variability of portfolio returns, surplus (assets compared to liabilities),
contributions and pension expense.
The asset allocation review process involves simulating the effect of financial market performance for various asset allocation
scenarios and factoring in the current funded status and likely future funded status levels by taking into account expected growth or
decline in the contributions over time. The modeling is then adjusted by simulating unexpected changes in inflation and interest
rates. The process also includes quantifying the effect of investment performance and simulated changes to future levels of
contributions, determining the appropriate asset mix with the highest likelihood of meeting financial objectives and regularly reviewing
our asset allocation strategy.
The asset allocation strategy varies by plan. The following table reflects the actual asset allocations for pension and VEBA plan
assets as of December 31, 2013 and 2012, as well as the 2014 weighted average target asset allocations as of December 31, 2013.
Equity investments include securities in large-cap, mid-cap and small-cap companies located in the U.S. and worldwide. Fixed
income investments primarily include corporate bonds and government debt securities. Alternative investments include hedge funds,
private equity, structured credit and real estate.
Asset Category
Equity securities
Fixed income
Hedge funds
Private equity
Structured credit
Real estate
Cash
Total
Pension Assets
VEBA Assets
2014
Target
Allocation
Percentage of
Plan Assets at
December 31,
2013
2012
2014
Target
Allocation
Percentage of
Plan Assets at
December 31,
2013
2012
46.9%
28.4%
6.5%
5.8%
6.2%
6.2%
—%
51.5%
26.7%
6.3%
3.2%
6.7%
4.5%
1.1%
45.9%
29.5%
10.2%
3.5%
6.7%
3.5%
0.7%
10.9%
69.4%
8.0%
2.7%
4.0%
5.0%
—%
10.4%
66.6%
9.8%
2.4%
5.4%
5.3%
0.1%
42.6%
32.9%
9.8%
2.6%
5.3%
6.7%
0.1%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
134
Pension
The fair values of our pension plan assets at December 31, 2013 and 2012 by asset category are as follows:
Asset Category
Equity securities:
U.S. large-cap
U.S. small/mid-cap
International
Fixed income
Hedge funds
Private equity
Structured credit
Real estate
Cash
Total
Asset Category
Equity securities:
U.S. large-cap
U.S. small/mid-cap
International
Fixed income
Hedge funds
Private equity
Structured credit
Real estate
Cash
Total
Quoted Prices in Active
Markets for Identical
Assets/Liabilities
(Level 1)
(In Millions)
December 31, 2013
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
261.5
$
— $
— $
261.5
60.8
149.3
214.8
—
—
—
—
10.2
696.6
$
—
—
30.1
—
—
—
—
—
—
—
—
57.6
29.1
61.0
40.9
—
60.8
149.3
244.9
57.6
29.1
61.0
40.9
10.2
30.1
$
188.6
$
915.3
Quoted Prices in Active
Markets for Identical
Assets/Liabilities
(Level 1)
(In Millions)
December 31, 2012
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
231.1
$
— $
— $
231.1
39.2
114.5
209.1
—
—
—
—
5.9
—
—
38.4
—
—
—
—
—
—
—
—
85.6
29.3
56.2
29.4
—
39.2
114.5
247.5
85.6
29.3
56.2
29.4
5.9
599.8
$
38.4
$
200.5
$
838.7
$
$
$
$
Following is a description of the inputs and valuation methodologies used to measure the fair value of our plan assets.
Equity Securities
Equity securities classified as Level 1 investments include U.S. large-, small- and mid-cap investments and international equity.
These investments are comprised of securities listed on an exchange, market or automated quotation system for which quotations
are readily available. The valuation of these securities is determined using a market approach, and is based upon unadjusted quoted
prices for identical assets in active markets.
135
Fixed Income
Fixed income securities classified as Level 1 investments include bonds and government debt securities. These investments are
comprised of securities listed on an exchange, market or automated quotation system for which quotations are readily available.
The valuation of these securities is determined using a market approach, and is based upon unadjusted quoted prices for identical
assets in active markets. Also included in Fixed Income is a portfolio of U.S. Treasury STRIPS, which are zero-coupon bearing fixed
income securities backed by the full faith and credit of the U.S. government. The securities sell at a discount to par because there
are no incremental coupon payments. STRIPS are not issued directly by the Treasury, but rather are created by a financial institution,
government securities broker or government securities dealer. Liquidity on the issue varies depending on various market conditions;
however, in general the STRIPS market is slightly less liquid than that of the U.S. Treasury Bond market. The STRIPS are priced
daily through a bond pricing vendor and are classified as Level 2.
Hedge Funds
Hedge funds are alternative investments comprised of direct or indirect investment in offshore hedge funds of funds with an investment
objective to achieve an attractive risk-adjusted return with moderate volatility and moderate directional market exposure over a full
market cycle. The valuation techniques used to measure fair value attempt to maximize the use of observable inputs and minimize
the use of unobservable inputs. Considerable judgment is required to interpret the factors used to develop estimates of fair value.
Valuations of the underlying investment funds are obtained and reviewed. The securities that are valued by the funds are interests
in the investment funds and not the underlying holdings of such investment funds. Thus, the inputs used to value the investments
in each of the underlying funds may differ from the inputs used to value the underlying holdings of such funds.
In determining the fair value of a security, the fund managers may consider any information that is deemed relevant, which may
include one or more of the following factors regarding the portfolio security, if appropriate: type of security or asset; cost at the date
of purchase; size of holding; last trade price; most recent valuation; fundamental analytical data relating to the investment in the
security; nature and duration of any restriction on the disposition of the security; evaluation of the factors that influence the market
in which the security is purchased or sold; financial statements of the issuer; discount from market value of unrestricted securities
of the same class at the time of purchase; special reports prepared by analysts; information as to any transactions or offers with
respect to the security; existence of merger proposals or tender offers affecting the security; price and extent of public trading in
similar securities of the issuer or compatible companies and other relevant matters; changes in interest rates; observations from
financial institutions; domestic or foreign government actions or pronouncements; other recent events; existence of shelf registration
for restricted securities; existence of any undertaking to register the security; and other acceptable methods of valuing portfolio
securities.
Hedge fund investments in the SEI Special Situations Fund are valued quarterly and recorded on a one-month lag. For alternative
investment values reported on a lag, current market information is reviewed for any material changes in values at the reporting date.
Share repurchases for the SEI Special Situations Fund are considered semi-annually subject to notice of 95 days.
Private Equity Funds
Private equity funds are alternative investments that represent direct or indirect investments in partnerships, venture funds or a
diversified pool of private investment vehicles (fund of funds).
Investment commitments are made in private equity funds of funds based on an asset allocation strategy, and capital calls are made
over the life of the funds to fund the commitments. As of December 31, 2013, remaining commitments total $8.7 million for both our
pension and other benefits. Committed amounts are funded from plan assets when capital calls are made. Investment commitments
are not pre-funded in reserve accounts. Refer to the valuation methodologies for equity securities above for further information.
The valuation of investments in private equity funds of funds initially is performed by the underlying fund managers. In determining
the fair value, the fund managers may consider any information that is deemed relevant, which may include: type of security or asset;
cost at the date of purchase; size of holding; last trade price; most recent valuation; fundamental analytical data relating to the
investment in the security; nature and duration of any restriction on the disposition of the security; evaluation of the factors that
influence the market in which the security is purchased or sold; financial statements of the issuer; discount from market value of
unrestricted securities of the same class at the time of purchase; special reports prepared by analysts; information as to any
transactions or offers with respect to the security; existence of merger proposals or tender offers affecting the security; price and
extent of public trading in similar securities of the issuer or compatible companies and other relevant matters; changes in interest
rates; observations from financial institutions; domestic or foreign government actions or pronouncements; other recent events;
existence of shelf registration for restricted securities; existence of any undertaking to register the security; and other acceptable
methods of valuing portfolio securities.
The valuations are obtained from the underlying fund managers, and the valuation methodology and process is reviewed for consistent
application and adherence to policies. Considerable judgment is required to interpret the factors used to develop estimates of fair
value.
Private equity investments are valued quarterly and recorded on a one-quarter lag. For alternative investment values reported on
a lag, current market information is reviewed for any material changes in values at the reporting date. Capital distributions for the
funds do not occur on a regular frequency. Liquidation of these investments would require sale of the partnership interest.
136
Structured Credit
Structured credit investments are alternative investments comprised of collateralized debt obligations and other structured credit
investments that are priced based on valuations provided by independent, third-party pricing agents, if available. Such values
generally reflect the last reported sales price if the security is actively traded. The third-party pricing agents may also value structured
credit investments at an evaluated bid price by employing methodologies that utilize actual market transactions, broker-supplied
valuations, or other methodologies designed to identify the market value of such securities. Such methodologies generally consider
such factors as security prices, yields, maturities, call features, ratings and developments relating to specific securities in arriving at
valuations. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily
available are valued at the last quoted sale price on the primary exchange or market on which they are traded. Debt obligations with
remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value.
Structured credit investments are valued monthly and recorded on a one-month lag. For alternative investment values reported on
a lag, current market information is reviewed for any material changes in values at the reporting date. Redemption requests are
considered quarterly subject to notice of 90 days.
Real Estate
The real estate portfolio for the pension plans is an alternative investment comprised of three funds with strategic categories of real
estate investments. All real estate holdings are appraised externally at least annually, and appraisals are conducted by reputable,
independent appraisal firms that are members of the Appraisal Institute. All external appraisals are performed in accordance with
the Uniform Standards of Professional Appraisal Practices. The property valuations and assumptions of each property are reviewed
quarterly by the investment advisor and values are adjusted if there has been a significant change in circumstances relating to the
property since the last external appraisal. The valuation methodology utilized in determining the fair value is consistent with the best
practices prevailing within the real estate appraisal and real estate investment management industries, including the Real Estate
Information Standards, and standards promulgated by the National Council of Real Estate Investment Fiduciaries, the National
Association of Real Estate Investment Fiduciaries, and the National Association of Real Estate Managers. In addition, the investment
advisor may cause additional appraisals to be performed. Two of the funds’ fair values are updated monthly, and there is no lag in
reported values. Redemption requests for these two funds are considered on a quarterly basis, subject to notice of 45 days.
Effective October 1, 2009, one of the real estate funds began an orderly wind-down over a three to four year period. The decision
to wind down the fund primarily was driven by real estate market factors that adversely affected the availability of new investor capital.
Third-party appraisals of this fund’s assets were eliminated; however, internal valuation updates for all assets and liabilities of the
fund are prepared quarterly. The fund’s asset values are recorded on a one-quarter lag, and current market information is reviewed
for any material changes in values at the reporting date. Distributions from sales of properties will be made on a pro-rata basis.
Repurchase requests will not be honored during the wind-down period.
During 2011, a new real estate fund of funds investment was added for the Empire, Tilden, Hibbing and United Taconite VEBA plans
as a result of the asset allocation review process. This fund invests in pooled investment vehicles that in turn invest in commercial
real estate properties. Valuations are performed quarterly and financial statements are prepared on a semi-annual basis, with annual
audited statements. Asset values for this fund are reported with a one-quarter lag and current market information is reviewed for
any material changes in values at the reporting date. In most cases, values are based on valuations reported by underlying fund
managers or other independent third-party sources, but the fund has discretion to use other valuation methods, subject to compliance
with ERISA. Valuations are typically estimates only and subject to upward or downward revision based on each underlying fund’s
annual audit. Withdrawals are permitted on the last business day of each quarter subject to a 65-day prior written notice.
The following represents the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan
assets for the years ended December 31, 2013 and 2012:
Beginning balance — January 1, 2013
$
85.6
$
29.3
$
56.2
$
29.4
$
200.5
(In Millions)
Year Ended December 31, 2013
Hedge Funds
Private Equity
Funds
Structured
Credit Fund
Real
Estate
Total
Actual return on plan assets:
Relating to assets still held at
the reporting date
Relating to assets sold during
the period
Purchases
Sales
4.5
(1.2)
66.0
(97.3)
(2.1)
5.2
14.7
(18.0)
33.5
(28.7)
27.5
(27.5)
5.1
41.0
(0.4)
36.8
(25.1)
145.0
(30.0)
(172.8)
Ending balance — December 31, 2013
$
57.6
$
29.1
$
61.0
$
40.9
$
188.6
137
Beginning balance — January 1, 2012
$
100.7
$
30.1
$
44.9
$
16.5
$
192.2
Hedge Funds
Private Equity
Funds
Structured
Credit Fund
Real
Estate
Total
(In Millions)
Year Ended December 31, 2012
Actual return on plan assets:
Relating to assets still held at
the reporting date
Relating to assets sold during
the period
Purchases
Sales
4.2
(0.3)
—
(19.0)
1.4
—
2.2
(4.4)
11.3
4.9
21.8
—
—
—
(0.5)
12.2
(3.7)
(0.8)
14.4
(27.1)
Ending balance — December 31, 2012
$
85.6
$
29.3
$
56.2
$
29.4
$
200.5
The expected return on plan assets takes into account historical returns and the weighted average of estimated future long-term
returns based on capital market assumptions for each asset category. The expected return is net of investment expenses paid by
the plans.
VEBA
Assets for other benefits include VEBA trusts pursuant to bargaining agreements that are available to fund retired employees’ life
insurance obligations and medical benefits. The fair values of our other benefit plan assets at December 31, 2013 and 2012 by
asset category are as follows:
(In Millions)
December 31, 2013
Quoted Prices in Active
Markets for Identical
Assets/Liabilities
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Asset Category
Equity securities:
U.S. large-cap
$
15.7
$
— $
— $
U.S. small/mid-cap
International
Fixed income
Hedge funds
Private equity
Structured credit
Real estate
Cash
Total
2.7
7.8
134.4
—
—
—
—
0.2
—
—
33.7
—
—
—
—
—
—
—
—
24.6
6.0
13.5
13.2
—
15.7
2.7
7.8
168.1
24.6
6.0
13.5
13.2
0.2
$
160.8
$
33.7
$
57.3
$
251.8
138
(In Millions)
December 31, 2012
Quoted Prices in Active
Markets for Identical
Assets/Liabilities
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Asset Category
Equity securities:
U.S. large-cap
$
58.2
$
— $
— $
U.S. small/mid-cap
International
Fixed income
Hedge funds
Private equity
Structured Credit
Real estate
Cash
Total
10.3
32.3
78.1
—
—
—
—
0.3
—
—
—
—
—
—
—
—
—
—
—
23.2
6.2
12.5
15.9
—
58.2
10.3
32.3
78.1
23.2
6.2
12.5
15.9
0.3
$
179.2
$
— $
57.8
$
237.0
Refer to the pension asset discussion above for further information regarding the inputs and valuation methodologies used to measure
the fair value of each respective category of plan assets.
The following represents the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan
assets for the year ended December 31, 2013 and 2012:
Beginning balance — January 1
Actual return on plan assets:
Relating to assets still held at the reporting date
Relating to assets sold during the period
Purchases
Sales
(In Millions)
Year Ended December 31, 2013
Hedge
Funds
Private
Equity
Funds
Structured
Credit Fund
Real
Estate
Total
$
23.2
$
6.2
$
12.5
$
15.9
$
57.8
2.1
(0.7)
22.5
(22.5)
0.2
0.4
0.3
(1.1)
2.4
(1.4)
11.0
(11.0)
2.8
(0.7)
14.2
(19.0)
7.5
(2.4)
48.0
(53.6)
Ending balance — December 31
$
24.6
$
6.0
$
13.5
$
13.2
$
57.3
Beginning balance — January 1
Actual return on plan assets:
Relating to assets still held at the reporting date
Purchases
Sales
(In Millions)
Year Ended December 31, 2012
Hedge
Funds
Private
Equity
Funds
Structured
Credit Fund
Real
Estate
Total
$
28.3
$
6.8
$
— $
10.2
$
45.3
0.9
—
0.3
0.2
(6.0)
(1.1)
1.5
11.0
—
1.3
4.4
—
4.0
15.6
(7.1)
Ending balance — December 31
$
23.2
$
6.2
$
12.5
$
15.9
$
57.8
The expected return on plan assets takes into account historical returns and the weighted average of estimated future long-term
returns based on capital market assumptions for each asset category. The expected return is net of investment expenses paid by
the plans.
139
Contributions
Annual contributions to the pension plans are made within income tax deductibility restrictions in accordance with statutory regulations.
In the event of plan termination, the plan sponsors could be required to fund additional shutdown and early retirement obligations
that are not included in the pension obligations. The Company currently has no intention to shutdown, terminate or withdraw from
any of its employee benefit plans.
Company Contributions
2012
2013
2014 (Expected)*
(In Millions)
Pension
Benefits
VEBA
Other Benefits
Direct
Payments
Total
$
67.7
$
17.4
$
21.6
$
53.7
68.2
14.6
—
10.9
7.9
39.0
25.5
7.9
*
Pursuant to the bargaining agreement, benefits can be paid from VEBA trusts that are at least 70 percent funded (all VEBA
trusts are 70 percent funded at December 31, 2013). Funding obligations are suspended when Hibbing's, UTAC's, Tilden's
and Empire's share of the value of their respective trust assets reaches 90 percent of their obligation.
VEBA plans are not subject to minimum regulatory funding requirements. Amounts contributed are pursuant to bargaining
agreements.
Contributions by participants to the other benefit plans were $5.6 million for the year ended December 31, 2013 and $4.6 million
for the year ended December 31, 2012.
Estimated Cost for 2014
For 2014, we estimate net periodic benefit cost as follows:
Defined benefit pension plans
Other postretirement benefits
Total
Estimated Future Benefit Payments
(In Millions)
28.0
8.3
36.3
$
$
2014
2015
2016
2017
2018
2019-2023
(In Millions)
Other Benefits
Pension
Benefits
Gross
Company
Benefits
Less
Medicare
Subsidy
Net
Company
Payments
$
$
81.7
77.9
78.6
79.6
81.6
414.6
$
23.7
24.9
24.8
25.0
25.0
119.6
$
1.0
1.1
1.2
1.4
1.5
9.4
22.7
23.8
23.6
23.6
23.5
110.2
140
Other Potential Benefit Obligations
While the foregoing reflects our obligation, our total exposure in the event of non-performance is potentially greater. Following is a
summary comparison of the total obligation:
Fair value of plan assets
Benefit obligation
Underfunded status of plan
Additional shutdown and early retirement benefits
NOTE 14 - STOCK COMPENSATION PLANS
(In Millions)
December 31, 2013
Defined
Benefit
Pensions
Other
Benefits
$
$
$
915.3
$
251.8
(1,118.0)
(356.2)
(202.7) $
(104.4)
(15.4) $
(53.6)
At December 31, 2013, we have two share-based compensation plans, which are described below. The compensation cost that has
been charged against income for those plans was $21.1 million, $20.6 million and $15.9 million in 2013, 2012 and 2011, respectively,
which primarily was recorded in Selling, general and administrative expenses in the Statements of Consolidated Operations. The
total income tax benefit recognized in the Statements of Consolidated Operations for share-based compensation arrangements was
$7.4 million, $7.2 million and $5.6 million for 2013, 2012 and 2011, respectively.
Employees’ Plans
On May 11, 2010, our shareholders approved and adopted an amendment and restatement of the ICE Plan to increase the authorized
number of shares available for issuance under the plan and to provide an annual limitation on the number of shares available to
grant to any one participant in any fiscal year of 500,000 common shares. As of December 31, 2011, our ICE Plan authorized up to
11.0 million of our common shares to be issued as stock options, SARs, restricted shares, restricted share units, retention units,
deferred shares and performance shares or performance units. Any of the foregoing awards may be made subject to attainment of
performance goals over a performance period of one or more years. Each stock option and SAR will reduce the common shares
available under the ICE Plan by one common share. Each other award will reduce the common shares available under the ICE Plan
by two common shares. The performance shares and performance share units are intended to meet the requirements of section
162(m) of the Internal Revenue Code for deduction.
The ICE Plan was terminated on May 8, 2012 and no additional grants will be issued from the ICE Plan after this date; however, all
awards previously granted under the ICE Plan continue in full force and effect in accordance with the terms of the award.
The 2012 Equity Plan was approved by our Board of Directors on March 13, 2012 and our shareholders approved it on May 8, 2012,
effective as of March 13, 2012. The 2012 Equity Plan replaced the ICE Plan. The maximum number of shares that may be issued
under the 2012 Equity Plan is 6.0 million common shares. On March 11, 2013, the Compensation and Organization Committee of
the Board of Directors approved a grant under our shareholder-approved 2012 Equity Plan for the 2013 to 2015 performance period.
A total of 1.0 million shares were granted under the award, consisting of 0.8 million performance shares and 0.2 million restricted
share units. In addition, 0.1 million restricted share units related to retention or employees newly hired were granted during 2013.
Dividend equivalents are accrued on unvested performance shares and restricted share units and payable in cash upon vesting.
For the outstanding ICE Plan and Equity Plan awards, each performance share, if earned, entitles the holder to receive common
shares or cash for participants in China within a range between a threshold and maximum number of our common shares, with the
actual number of common shares earned dependent upon whether the Company achieves certain objectives and performance goals
as established by the Committee. The performance share or unit grants vest over a period of three years and are intended to be
paid out in common shares or cash in certain circumstances. Performance for the 2011 to 2013 performance period is measured
on the basis of two factors: 1) relative TSR for the period and 2) three-year cumulative free cash flow. The relative TSR for the 2011
to 2013 performance period is measured against the constituents of the S&P Metals and Mining ETF Index on the last day of trading
of the performance period. Performance for the 2012 to 2014 and for the 2013 to 2015 performance periods are measured only on
the basis of relative TSR for the period and measured against the constituents of the S&P Metals and Mining ETF Index on the last
day of trading of the performance period. The final payouts for the 2011 to 2013 performance period, the 2012 to 2014 performance
period and the 2013 to 2015 performance period will vary from zero to 200 percent of the original grant. The restricted share units
are subject to continued employment, are retention based, will vest at the end of the respective performance period, and are payable
in common shares or cash in certain circumstances at a time determined by the Committee at its discretion.
141
Upon the occurrence of a change in control, all performance shares, restricted share units, restricted stock, performance units and
retention units granted to a participant prior to October 2013 will vest and become nonforfeitable and will be paid out in cash for
awards currently outstanding. For any future equity grants after September 2013, if we experience a change in control, then the
vesting of all such grants only will accelerate following a termination associated with the change in control and if the common shares
are not substituted.
Following is a summary of our Performance Share Award Agreements currently outstanding:
Performance
Share
Plan Year
2013
2012
2011
2011
2011
2010
2009
Performance
Shares
Outstanding
574,941
239,072
156,178
1,717
1,290
12,480
44,673
(2)
(2)
Forfeitures (1)
Grant Date
Performance Period
177,279
70,768
32,112
373
—
—
—
March 11, 2013
1/1/2013 - 12/31/2015
March 12, 2012
1/1/2012 - 12/31/2014
March 8, 2011
April 14, 2011
1/1/2011 - 12/31/2013
1/1/2011 - 12/31/2013
May 2, 2011
1/1/2011 - 12/31/2013
March 8, 2010
12/31/2009 - 12/31/2013
December 17, 2009
12/31/2009 - 12/31/2013
(1)
(2)
The 2013 and 2012 awards are based on assumed forfeitures. The 2011 awards reflect actual forfeitures.
Represents the target payout as of December 31, 2013 related to the 44,673 shares awarded on December 17, 2009 and
the 12,480 shares awarded on March 8, 2010 based upon the Compensation Committee’s ability to exercise negative
discretion.
The performance shares awarded under the ICE Plan to the Company’s retired Chief Executive Officer on December 17, 2009 and
March 8, 2010 of 67,009 shares and 18,720 shares met the aggregate value-added performance objective under the award terms
as of December 31, 2010. The number of shares paid out under these particular awards at the end of each incentive period will be
determined by the Compensation Committee based upon the achievement of certain other performance factors evaluated solely at
the Compensation Committee’s discretion and may be reduced from the 67,009 shares and 18,720 shares granted. Based on the
Compensation Committee’s ability to exercise negative discretion, the targeted payout for the award was 44,673 shares and 12,480
shares, respectively, as of December 31, 2013. These other performance factors are in addition to the aggregate value-added
performance objective. Pursuant to the terms of the retired Chief Executive Officer's severance agreement and release, he will
receive at least the target number of shares under the December 17, 2009 and March 8, 2010 awards.
Nonemployee Directors
The Directors’ Plan authorizes us to issue up to 800,000 common shares to nonemployee Directors. Under the Share Ownership
Guidelines in effect for 2013 ("Guidelines"), a Director is required by the end of five years from date of election or September 1, 2010,
whichever is later, to hold common shares with a market value of at least $250,000. If, as of December 1 annually, the nonemployee
Director does not meet the Guidelines, the nonemployee Director must take a portion of the annual retainer fee in common shares
with a market value of $24,000 (“Required Retainer”) until such time as the nonemployee Director reaches the ownership required
by the Guidelines. Once the nonemployee Director meets the Guidelines, the nonemployee Director may elect to receive the Required
Retainer in cash. Since April 1, 2011, nonemployee Directors have received an annual retainer fee of $60,000.
The Directors’ Plan also provides for an Annual Equity Grant ("Equity Grant"). The Equity Grant is awarded at our annual meeting
each year to all nonemployee Directors elected or re-elected by the shareholders and a pro-rata amount is awarded to new directors
upon their appointment. The value of the Equity Grant is payable in restricted shares with a three-year vesting period from the date
of grant. The closing market price of our common shares on our annual meeting date is divided into the Equity Grant to determine
the number of restricted shares awarded. In 2011, nonemployee Directors each received Equity Grants of $80,000 and that amount
was increased effective May 8, 2012 to $85,000. The Directors’ Plan offers the nonemployee Director the opportunity to defer all or
a portion of the Directors’ annual retainer fee, committee chair retainers, meeting fees and the Equity Grant into the Directors’ Plan.
A nonemployee Director who is 69 or older at the Equity Grant date will receive common shares with no restrictions.
For the last three years, Equity Grant shares have been awarded to elected or re-elected nonemployee Directors as follows:
Year of Grant
Unrestricted Equity
Grant Shares
Restricted Equity
Grant Shares
Deferred Equity
Grant Shares
2011
2012
2013
1,850
1,498
3,985
142
6,475
8,988
31,506
1,850
2,996
7,970
Other Information
The following table summarizes the share-based compensation expense that we recorded for continuing operations in 2013, 2012
and 2011:
Cost of goods sold and operating expenses
Selling, general and administrative expenses
Reduction of operating income from continuing operations before income
taxes and equity income (loss) from ventures
Income tax benefit
Reduction of net income attributable to Cliffs shareholders
Reduction of earnings per share attributable to Cliffs shareholders:
Basic
Diluted
Determination of Fair Value
(In Millions, except per
share amounts)
2013
2012
2011
$
6.3
$
4.0
$
14.8
16.6
21.1
(7.4)
20.6
(7.2)
2.7
13.2
15.9
(5.6)
$
$
$
13.7
$
13.4
$
10.3
0.09
0.08
$
$
0.09
0.09
$
$
0.07
0.07
The fair value of each grant is estimated on the date of grant using a Monte Carlo simulation to forecast relative TSR performance.
A correlation matrix of historic and projected stock prices was developed for both the Company and our predetermined peer group
of mining and metals companies. The fair value assumes that performance goals will be achieved.
The expected term of the grant represents the time from the grant date to the end of the service period for each of the three plan-
year agreements. We estimate the volatility of our common shares and that of the peer group of mining and metals companies using
daily price intervals for all companies. The risk-free interest rate is the rate at the grant date on zero-coupon government bonds,
with a term commensurate with the remaining life of the performance plans.
The following assumptions were utilized to estimate the fair value for the 2013 performance share grants:
Grant Date
Market
Price
Average
Expected
Term
(Years)
Grant Date
Expected
Volatility
Risk-Free
Interest
Rate
Dividend
Yield
Fair Value
Fair Value
(Percent of
Grant Date
Market
Price)
March 11, 2013
$
23.83
2.81
52.9%
0.40%
2.52%
$
17.01
71.38%
The fair value of the restricted share units is determined based on the closing price of the Company’s common shares on the grant
date. The restricted share units granted under either the ICE Plan or 2012 Equity Plan vest over a period of three years.
143
Restricted share units, restricted stock awards, deferred stock allocation and performance share activity under our long-term equity
plans and Directors’ Plans are as follows:
2013
Shares
2012
Shares
2011
Shares
Restricted awards:
Outstanding and restricted at beginning of year
Granted during the year
Vested
Canceled
Outstanding and restricted at end of year
Performance shares:
Outstanding at beginning of year
Granted during the year 1
Issued 2
Forfeited/canceled
Outstanding at end of year
Vested or expected to vest as of
December 31, 2013
Directors’ retainer and voluntary shares:
Outstanding at beginning of year
Granted during the year
Canceled
Vested
Outstanding at end of year
Reserved for future grants or awards at end
of year:
Employee plans
Directors’ plans
Total
393,787
396,844
425,166
151,869
(118,973)
(161,741)
(85,574)
586,084
(21,507)
393,787
371,712
125,059
(61,330)
(10,275)
425,166
843,238
263,816
877,435
501,346
(574,518)
(215,870)
(31,779)
772,484
(13,749)
877,435
2,611
1,823
—
(1,554)
2,880
2,509
1,815
—
(1,713)
2,611
772,484
806,271
(289,054)
(249,248)
1,040,453
1,030,351
2,880
8,136
(1,521)
(2,166)
7,329
2,988,310
40,932
3,029,242
1
2
The shares granted during the year include 54,051 shares, 191,506 shares and 71,956 shares for each year presented,
respectively, related to the 23%, 50% and 50% payout associated with the prior-year pool as actual payout exceeded target.
For each year presented, the shares vested on December 31, 2012, December 31, 2011 and December 31, 2010,
respectively, and were valued on February 21, 2013, February 13, 2012 and February 14, 2011, respectively.
A summary of our outstanding share-based awards as of December 31, 2013 is shown below:
Outstanding, beginning of year
Granted
Vested
Forfeited/expired
Outstanding, end of year
Shares
1,169,151
1,211,251
(410,193)
(336,343)
1,633,866
Weighted
Average
Grant Date
Fair Value
$61.81
$19.84
$51.24
$36.42
$40.20
The total compensation cost related to outstanding awards not yet recognized is $18.2 million at December 31, 2013. The weighted
average remaining period for the awards outstanding at December 31, 2013 is approximately 1.9 years.
144
NOTE 15 - INCOME TAXES
Income (Loss) from Continuing Operations Before Income Taxes and Equity Income (Loss) from Ventures includes the following
components:
United States
Foreign
(In Millions)
2013
2012
2011
$
$
837.7
$
(348.4)
489.3
$
838.6
$
(1,340.4)
(501.8) $
1,506.5
684.0
2,190.5
The components of the provision (benefit) for income taxes on continuing operations consist of the following:
Current provision (benefit):
United States federal
United States state & local
Foreign
Deferred provision (benefit):
United States federal
United States state & local
Foreign
(In Millions)
2013
2012
2011
$
101.3
$
71.1
$
4.0
87.9
193.2
23.3
3.0
(164.4)
(138.1)
7.6
50.2
128.9
221.2
1.4
(95.6)
127.0
246.8
2.8
224.7
474.3
23.8
4.7
(95.1)
(66.6)
Total provision on income (loss) from continuing
operations
$
55.1
$
255.9
$
407.7
Reconciliation of our income tax attributable to continuing operations computed at the U.S. federal statutory rate is as follows:
Tax at U.S. statutory rate of 35 percent
$
171.3
35.0% $
(175.6)
35.0 % $
766.7
35.0%
2013
(In Millions)
2012
2011
Increase (decrease) due to:
Foreign exchange remeasurement
(2.6)
(0.5)
Non-taxable income related to noncontrolling
interests
Impact of tax law change
Percentage depletion in excess of cost
depletion
Impact of foreign operations
Income not subject to tax
Goodwill impairment
Non-taxable hedging income
State taxes, net
Manufacturer’s deduction
Valuation allowance
Tax uncertainties
Prior year adjustment in current year
Other items — net
Income tax expense
$
(1.5)
—
(97.6)
(10.2)
(106.6)
20.5
—
5.6
(7.9)
73.0
19.6
(11.4)
2.9
55.1
145
(0.3)
—
(19.9)
(2.1)
(21.8)
4.2
—
1.1
(1.6)
14.9
5.3
(3.6)
0.6
62.3
61.0
(357.1)
(109.1)
65.2
(108.0)
202.2
—
7.3
(4.7)
634.5
(14.8)
(5.7)
(1.6)
(12.4)
(62.6)
(2.9)
(12.0)
71.2
21.7
(13.0)
21.5
(40.3)
—
(1.5)
0.9
(126.5)
2.9
1.1
0.4
(63.6)
—
(153.4)
(44.0)
(67.5)
—
(32.4)
7.5
(11.9)
49.5
17.7
(18.0)
19.7
(2.9)
—
(7.0)
(2.0)
(3.1)
—
(1.5)
0.3
(0.5)
2.3
0.8
(0.8)
0.9
11.3% $
255.9
(51.0)% $
407.7
18.6%
The components of income taxes for other than continuing operations consisted of the following:
Other comprehensive (income) loss:
Pension/OPEB liability
Mark-to-market adjustments
Other
Total
Paid in capital — acquisition of noncontrolling interest
Paid in capital — stock based compensation
Discontinued Operations
(In Millions)
2013
2012
2011
$
$
$
$
$
100.0
$
13.8
$
2.0
(12.4)
1.7
2.6
89.6
$
18.1
$
102.1
3.5
$
$
(2.0) $
— $
(12.8) $
10.4
$
(60.2)
(17.7)
—
(77.9)
—
(4.6)
3.2
Significant components of our deferred tax assets and liabilities as of December 31, 2013 and 2012 are as follows:
(In Millions)
2013
2012
$
88.4
$
300.3
58.0
299.2
—
61.7
524.4
16.4
56.0
31.9
138.3
1,574.6
864.1
710.5
1,400.8
196.4
33.5
48.5
—
12.8
93.0
1,785.0
$
(1,074.5) $
161.2
357.1
87.7
274.9
14.1
48.2
396.4
45.4
49.2
31.0
140.9
1,606.1
858.4
747.7
1,350.5
207.6
24.6
48.5
1.6
19.6
101.9
1,754.3
(1,006.6)
Deferred tax assets:
Pensions
MRRT starting base allowance
Postretirement benefits other than pensions
Alternative minimum tax credit carryforwards
Investment in ventures
Asset retirement obligations
Operating loss carryforwards
Product inventories
Property, plant and equipment and mineral rights
Lease liabilities
Other liabilities
Total deferred tax assets before valuation allowance
Deferred tax asset valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Property, plant and equipment and mineral rights
Investment in ventures
Intangible assets
Income tax uncertainties
Financial derivatives
Product inventories
Other assets
Total deferred tax liabilities
Net deferred tax (liabilities) assets
146
The deferred tax amounts are classified in the Statements of Consolidated Financial Position as current or long-term consistently with
the underlying asset or liability that generates the basis difference between financial reporting and tax. Following is a summary:
Deferred tax assets:
United States
Foreign
Current
Long-term
Total deferred tax assets
Deferred tax liabilities:
United States
Foreign
Current
Long-term
Total deferred tax liabilities
Net deferred tax (liabilities)
(In Millions)
2013
2012
$
7.2
$
29.4
41.5
78.1
175.3
6.1
971.2
1,152.6
$
(1,074.5) $
5.2
3.8
151.5
160.5
58.4
—
1,108.7
1,167.1
(1,006.6)
At December 31, 2013 and 2012, we had $299.2 million and $274.9 million, respectively, of gross deferred tax assets related to U.S.
alternative minimum tax credits that can be carried forward indefinitely.
We had gross state and foreign net operating loss carryforwards of $157.9 million, and $3.5 billion, respectively, at December 31,
2013. We had gross state and foreign net operating loss carryforwards at December 31, 2012 of, $185.0 million and $2.1 billion,
respectively. State net operating losses will begin to expire in 2022, and the foreign net operating losses will begin to expire in 2015.
We had foreign tax credit carryforwards of $5.8 million at December 31, 2013 and December 31, 2012. The foreign tax credit
carryforwards will begin to expire in 2020.
We recorded a $102.1 million net increase to the deferred tax liabilities related to the acquisition of noncontrolling interest in Bloom
Lake.
We recorded a $5.7 million net increase in the valuation allowance of certain deferred tax assets where management believes that
realization of the related deferred tax assets is not more likely than not. Of this amount, a $40.9 million increase relates to ordinary
losses of certain foreign and state operations for which future utilization is currently uncertain, a $6.9 million increase relates to certain
foreign assets where tax basis exceeds book basis, a $13.5 million decrease relates to the reversal of our valuation allowance on
MRRT tax credits which are expected to be realized based on future projected taxable income, and a $24.4 million increase relates
to management's conclusion that it was more likely than not that the deferred tax asset related to the Alternative Minimum Tax credit
would not be utilized. The Australian valuation allowance decreased by $65.5 million as a result of the change in foreign exchange
rates. A $14.5 million increase relates to Canadian deferred tax assets that management has determined it is more likely than not
that the assets will not be realized.
At December 31, 2013 and 2012, cumulative undistributed earnings of foreign subsidiaries included in consolidated retained earnings
amounted to $1.2 billion and $0.8 billion, respectively. These earnings are indefinitely reinvested in international operations.
Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings, nor is it practical to
estimate the amount of income taxes that would have to be provided if we were to conclude that such earnings will be remitted in the
foreseeable future.
147
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Unrecognized tax benefits balance as of January 1
$
Increases for tax positions in prior years
Increases for tax positions in current year
Increase due to foreign exchange
Settlements
Lapses in statutes of limitations
Other
(In Millions)
2013
2012
2011
55.5
13.6
5.3
—
—
—
—
$
102.1
$
2.7
11.1
—
(60.4)
—
—
Unrecognized tax benefits balance as of December 31
$
74.4
$
55.5
$
79.8
42.1
29.5
—
(3.5)
(45.8)
—
102.1
At December 31, 2013 and 2012, we had $74.4 million and $55.5 million, respectively, of unrecognized tax benefits recorded. Of this
amount, $25.9 million and $7.0 million were recorded in Other liabilities and $48.5 million was recorded as Other non-current assets
in the Statements of Consolidated Financial Position for both years. If the $74.4 million were recognized, the full amount would impact
the effective tax rate. We do not expect that the amount of unrecognized tax benefits will change significantly within the next twelve
months. At December 31, 2013 and 2012, we had $1.2 million and $0.8 million, respectively, of accrued interest and penalties related
to the unrecognized tax benefits recorded in Other liabilities in the Statements of Consolidated Financial Position.
On July 18, 2013, the FASB issued Accounting Standards Update No. 2013-11. Presentation of an Unrecognized Tax Benefit When
a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (ASU 2013-11). ASU 2013-11 requires
the netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of
the uncertain tax positions except where the deferred tax asset or other carryforward are not available for use. The adoption of the
pronouncement does not have an impact in the presentation of our financial statement.
Tax years that remain subject to examination are years 2009 and forward for the U.S., 2006 and forward for Canada, and 2007 and
forward for Australia.
NOTE 16 - CAPITAL STOCK
Depositary Shares
On February 21, 2013, we issued 29.25 million depositary shares, representing an aggregate of 731,250 preferred shares, comprised
of the 27.0 million depositary share offering and the exercise of an underwriters' over-allotment option to purchase an additional 2.25
million depositary shares. Each depositary share represents a 1/40th interest in a share of our 7.00 percent Series A Mandatory
Convertible Preferred Stock, Class A, without par value ("Preferred Share") at a price of $25 per depositary share for total net proceeds
of approximately $709.4 million, after underwriter fees and discounts. Each Preferred Share has an initial liquidation preference of
$1,000 per share (equivalent to a $25 liquidation preference per depositary share). When and if declared by our Board of Directors,
we will pay cumulative dividends on each Preferred Share at an annual rate of 7.00 percent on the liquidation preference. We will
pay declared dividends in cash on February 1, May 1, August 1 and November 1 of each year, commencing on May 1, 2013 and to,
and including February 1, 2016. Holders of the depositary shares are entitled to a proportional fractional interest in the rights and
preferences of the Preferred Shares, including conversion, dividend, liquidation and voting rights, subject to the provisions of the
deposit agreement.
The Preferred Shares may be converted, at the option of the holder, at the minimum conversion rate of 28.1480 of our common shares
(equivalent to 0.7037 of our common shares per depositary share) at any time prior to February 1, 2016 or other than during a
fundamental change conversion period, subject to anti-dilution adjustments. If not converted prior to that time, each Preferred Share
will convert automatically on February 1, 2016 into between 28.1480 and 34.4840 common shares, par value $0.125 per share, subject
to anti-dilution adjustments. The number of common shares issuable on conversion will be determined based on the average VWAP
per share of our common shares during the 20 trading day period beginning on, and including, the 23rd scheduled trading day prior
to February 1, 2016, subject to customary anti-dilution adjustments. Upon conversion, a minimum of 20.6 million common shares
and a maximum of 25.2 million common shares will be issued.
If certain fundamental changes involving the Company occur, holders of the Preferred Shares may convert their shares into a number
of common shares at the conversion rate that will be adjusted under certain circumstances, and such holders also will be entitled to
a fundamental change dividend make-whole amount. The Preferred Shares are not redeemable.
Common Share Public Offering
On February 21, 2013, we issued 10.35 million common shares, comprised of the 9.0 million common share offering and the exercise
of an underwriters' option to purchase an additional 1.35 million common shares. We received net proceeds of approximately $285.3
million at a closing price of $29.00 per common share.
148
Dividends
On March 20, 2013, our Board of Directors declared a cash dividend of $13.6111 per Preferred Share, which is equivalent to
approximately $0.34 per depositary share. The cash dividend was paid on May 1, 2013 to our shareholders of record as of the close
of business on April 15, 2013. On May 7, 2013 and September 9, 2013, our Board of Directors declared a quarterly cash dividend
of $17.50 per Preferred Share, which is equivalent to approximately $0.44 per depositary share. The cash dividend was paid on
August 1, 2013 and November 1, 2013 to our shareholders of record as of the close of business on July 15, 2013 and October 15,
2013, respectively. On November 11, 2013, our Board of Directors declared the quarterly cash dividend of $17.50 per Preferred
Share, which is equivalent to approximately $0.44 per depositary share. The cash dividend of $12.8 million was paid on February 3,
2014 to our shareholders of record as of the close of business on January 15, 2014.
A $0.28 per common share cash dividend was paid on March 1, 2012 to our shareholders of record as of the close of business on
February 15, 2012. On March 13, 2012, our Board of Directors increased the quarterly common share dividend by 123 percent to
$0.625 per share. The increased cash dividend of $0.625 per share was paid on June 1, 2012, August 31, 2012 and December 3,
2012 to our common shareholders of record as of the close of business on April 27, 2012, August 15, 2012 and November 23, 2012,
respectively. On February 11, 2013, our Board of Directors approved a reduction to our quarterly cash dividend rate by 76 percent
to $0.15 per share. Our Board of Directors took this step in order to improve the future cash flows available for investment in the
Phase II expansion at Bloom Lake, as well as to preserve our investment-grade credit ratings. The decreased dividend of $0.15 per
share was paid on March 1, 2013, June 3, 2013, September 3, 2013 and December 2, 2013 to our common shareholders of record
as of the close of business on February 22, 2013, May 17, 2013, August 15, 2013 and November 22, 2013, respectively.
NOTE 17 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of Accumulated other comprehensive income (loss) within Cliffs shareholders’ equity and related tax effects allocated
to each are shown below as of December 31, 2013, 2012 and 2011:
As of December 31, 2011:
Postretirement benefit liability
Foreign currency translation adjustments
Unrealized net gain on derivative financial instruments
Unrealized gain on securities
As of December 31, 2012:
Postretirement benefit liability
Foreign currency translation adjustments
Unrealized net gain on derivative financial instruments
Unrealized gain on securities
As of December 31, 2013:
Postretirement benefit liability
Foreign currency translation adjustments
Unrealized net loss on derivative financial instruments
Unrealized gain on securities
Pre-tax
Amount
(In Millions)
Tax
Benefit
(Provision)
After-tax
Amount
$
$
$
$
$
$
(615.9) $
207.0
$
312.5
1.7
2.5
—
(0.5)
0.1
(299.2) $
206.6
$
(576.7) $
194.0
$
316.3
12.4
3.3
—
(3.7)
(1.2)
(244.7) $
189.1
$
(299.3) $
94.4
$
106.7
(30.0)
9.3
—
9.1
(3.1)
(213.3) $
100.4
$
(408.9)
312.5
1.2
2.6
(92.6)
(382.7)
316.3
8.7
2.1
(55.6)
(204.9)
106.7
(20.9)
6.2
(112.9)
149
The following tables reflect the changes in Accumulated other comprehensive income (loss) related to Cliffs shareholders’ equity for
December 31, 2013, 2012 and 2011:
Postretirement
Benefit Liability,
net of tax
Unrealized
Net Gain
(Loss) on
Securities,
net of tax
(In Millions)
Unrealized
Net Gain
(Loss) on
Foreign
Currency
Translation
Net
Unrealized
Gain (Loss)
on Derivative
Financial
Instruments,
net of tax
Accumulated
Other
Comprehensive
Income (Loss)
Balance December 31, 2012
$
(382.7) $
2.1
$
316.3
$
8.7
$
(55.6)
Other comprehensive
income (loss) before
reclassifications
Net loss (gain) reclassified
from accumulated other
comprehensive income
(loss)
Balance March 31, 2013
Other comprehensive loss
before reclassifications
Net loss (gain) reclassified
from accumulated other
comprehensive income
(loss)
Balance June 30, 2013
Other comprehensive
income (loss) before
reclassifications
Net loss (gain) reclassified
from accumulated other
comprehensive income
(loss)
Balance September 30, 2013
Other comprehensive
income (loss) before
reclassifications
Net loss (gain) reclassified
from accumulated other
comprehensive income
(loss)
Balance December 31, 2013
$
$
$
$
$
$
(5.0)
(0.3)
(1.1)
2.5
6.4
(377.4) $
0.1
4.7
$
3.3
—
319.6
$
(2.0)
1.7
$
(1.5)
(2.0)
(152.0)
(42.2)
—
(2.2)
$
167.6
$
(42.7) $
22.8
12.1
37.8
8.1
(370.8) $
(0.6)
6.3
3.6
6.3
3.5
0.9
(365.1) $
10.7
$
190.4
$
(14.4) $
—
16.2
154.5
$
(4.9) $
(83.7) $
(16.6) $
49.3
5.7
$
(204.9) $
0.4
6.2
$
$
— $
106.7
$
10.1
$
(20.9) $
16.2
(112.9)
4.5
(51.4)
(197.7)
9.5
(239.6)
23.4
(178.4)
(In Millions)
Unrealized
Net Gain
(Loss) on
Securities, net
of tax
Unrealized Net
Gain on Foreign
Currency
Translation
Net Unrealized
Gain on
Derivative
Financial
Instruments,
net of tax
Accumulated
Other
Comprehensive
Income (Loss)
Postretirement
Benefit Liability,
net of tax
Balance December 31, 2010
Change during 2011
Balance December 31, 2011
Change during 2012
Balance December 31, 2012
$
$
$
$
(305.1) $
(103.8) $
(408.9) $
26.2
(382.7) $
33.6
$
(31.0) $
2.6
$
(0.5)
2.1
$
314.7
$
(2.2) $
312.5
$
3.8
316.3
$
2.7
$
(1.5) $
1.2
7.5
8.7
$
$
45.9
(138.5)
(92.6)
37.0
(55.6)
150
The following table reflects the details about Accumulated other comprehensive income (loss) components related to Cliffs
shareholders’ equity for the year ended December 31, 2013:
Details about Accumulated Other
Comprehensive Income (Loss)
Components
Amortization of Pension and
Postretirement Benefit Liability:
Prior-service costs
Net actuarial loss
Unrealized gain (loss) on marketable
securities:
Sale of marketable securities
Impairment
Unrealized gain (loss) on derivative
financial instruments:
Australian dollar foreign exchange
contracts
Canadian dollar foreign exchange
contracts
Total Reclassifications for the Period
(In Millions)
Amount of (Gain)/Loss
Reclassified into Income
Year Ended
December 31, 2013
Affected Line Item in the
Statement of Unaudited
Condensed Consolidated
Operations
$
$
$
$
$
$
$
(0.6)
41.4
(1)
(1)
40.8 Total before taxes
(14.3)
Income tax expense
26.5 Net of taxes
(0.2)
5.3
Other non-operating income
(expense)
Other non-operating income
(expense)
5.1 Total before taxes
(0.1)
Income tax expense
5.0 Net of taxes
17.0 Product revenues
15.3
Cost of goods sold and
operating expenses
32.3 Total before taxes
(10.2)
Income tax expense
22.1 Net of taxes
53.6
(1)
These accumulated other comprehensive income components are included in the net periodic benefit cost recognized for
the year ended December 31, 2013. See NOTE 13 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS for further
information.
151
NOTE 18 - RELATED PARTIES
Three of our five U.S. iron ore mines and one of our two Eastern Canadian iron ore mines are owned with various joint venture partners
that are integrated steel producers or their subsidiaries. We are the manager of each of the mines we co-own and rely on our joint
venture partners to make their required capital contributions and to pay for their share of the iron ore pellets and concentrate that we
produce. The joint venture partners are also our customers. The following is a summary of the mine ownership of these iron ore
mines at December 31, 2013:
Mine
Empire
Tilden
Hibbing
Bloom Lake
Cliffs Natural
Resources
ArcelorMittal
U.S. Steel
Canada
WISCO
79.0%
85.0%
23.0%
82.8%
21.0%
—
62.3%
—
—
15.0%
14.7%
—
—
—
—
17.2%
ArcelorMittal has a unilateral right to put its interest in the Empire mine to us, but has not exercised this right to date.
Product revenues from related parties were as follows:
(In Millions)
Year Ended December 31,
2013
2012
2011
Product revenues from related parties
$
1,664.8
$
1,660.8
$
2,192.4
Total product revenues
5,346.6
5,520.9
6,321.3
Related party product revenue as a percent of total product revenue
31.1%
30.1%
34.7%
Amounts due from related parties recorded in Accounts receivable, net and Other current assets, including customer supply agreements
and provisional pricing arrangements, were $132.0 million and $149.8 million at December 31, 2013 and 2012, respectively. Amounts
due to related parties recorded in Other current liabilities, including provisional pricing arrangements and liabilities to related parties,
were $25.1 million and $20.2 million at December 31, 2013 and 2012, respectively.
In 2002, we entered into an agreement with Ispat that restructured the ownership of the Empire mine and increased our ownership
from 46.7 percent to 79.0 percent in exchange for the assumption of all mine liabilities. Under the terms of the agreement, we
indemnified Ispat from obligations of Empire in exchange for certain future payments to Empire and to us by Ispat of $120.0 million,
recorded at a present value of $11.3 million and $19.3 million at December 31, 2013 and December 31, 2012, respectively. At December
31, 2013, the remaining balance of $11.3 million was recorded in Other current assets and at December 31, 2012, $10.0 million of
the remaining balance was recorded in Other current assets. The fair value of the receivable of $11.9 million and $21.3 million at
December 31, 2013 and December 31, 2012, respectively, is based on a discount rate of 1.28 percent and 2.85 percent, respectively,
which represents the estimated credit-adjusted risk-free interest rate for the period the receivable is outstanding.
Supply agreements with one of our customers include provisions for supplemental revenue or refunds based on the customer’s annual
steel pricing for the year the product is consumed in the customer’s blast furnace. The supplemental pricing is characterized as an
embedded derivative. Refer to NOTE 3 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for further information.
152
NOTE 19 - EARNINGS PER SHARE
The following table summarizes the computation of basic and diluted earnings per share attributable to Cliffs shareholders:
Net Income from Continuing Operations
attributable to Cliffs shareholders
Income (Loss) and Gain on Sale from Discontinued
Operations, net of tax
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS
SHAREHOLDERS
PREFERRED STOCK DIVIDENDS
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS COMMON
SHAREHOLDERS
Weighted Average Number of Shares:
Basic
Depositary Shares
Employee Stock Plans
Diluted
Earnings (loss) per Common Share Attributable to
Cliffs Common Shareholders - Basic:
Continuing operations
Discontinued operations
Earnings (loss) per Common Share Attributable to
Cliffs Common Shareholders - Diluted:
Continuing operations
Discontinued operations
(In Millions, Except Per Share Amounts)
Year Ended December 31,
2013
2012
2011
411.5
$
(935.3) $
1,599.0
2.0
35.9
20.1
413.5
$
(899.4) $
1,619.1
(48.7)
—
—
364.8
$
(899.4) $
1,619.1
151.7
22.1
0.5
174.3
142.4
—
—
142.4
2.39
$
(6.57) $
0.01
0.25
2.40
$
(6.32) $
2.36
$
(6.57) $
0.01
0.25
2.37
$
(6.32) $
140.2
—
0.8
141.0
11.41
0.14
11.55
11.34
0.14
11.48
$
$
$
$
$
$
$
NOTE 20 - COMMITMENTS AND CONTINGENCIES
We have total contractual obligations and binding commitments of approximately $14.3 billion as of December 31, 2013 compared
with $14.6 billion as of December 31, 2012, primarily related to purchase commitments, principal and interest payments on long-term
debt, lease obligations, pension and OPEB funding minimums, and mine closure obligations. Such future commitments total
approximately $1.2 billion in 2014, $0.9 billion in 2015, $0.7 billion in 2016, $0.6 billion in 2017, $1.0 billion in 2018 and $9.9 billion
thereafter.
Purchase Commitments
In 2011, we began to incur capital commitments related to the expansion of the Bloom Lake mine. The Phase II expansion project
includes expansion of the mine and the mine’s processing capabilities. The capital investment also includes common infrastructure
necessary to sustain current operations and support the expansion. As previously announced, we are continuing to delay certain
components of the Phase II expansion at the Bloom Lake mine, including the completion of the concentrator and load-out facility.
Common infrastructure projects necessary to sustain current operations and support the expansion are continuing as planned. Through
December 31, 2013, approximately $1.3 billion of the total capital investment for the Bloom Lake expansion project had been committed,
of which a total of approximately $1.2 billion had been expended. Of the remaining committed capital, expenditures of approximately
$40 million are expected to be made during 2014.
153
Contingencies
Litigation
We are currently a party to various claims and legal proceedings incidental to our operations. If management believes that a loss
arising from these matters is probable and can reasonably be estimated, we record the amount of the loss, or the minimum estimated
liability when the loss is estimated using a range, and no point within the range is more probable than another. As additional information
becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary. Based on
currently available information, management believes that the ultimate outcome of these matters, individually and in the aggregate,
will not have a material effect on our financial position, results of operations or cash flows. However, litigation is subject to inherent
uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages, additional funding
requirements or an injunction. If an unfavorable ruling were to occur, there exists the possibility of a material impact on the financial
position and results of operations of the period in which the ruling occurs, or future periods. However, we believe that any pending
litigation will not result in a material liability in relation to our consolidated financial statements.
Environmental Matters
We had environmental liabilities of $8.4 million and $15.7 million at December 31, 2013 and 2012, respectively, including obligations
for known environmental remediation exposures at active and closed mining operations and other sites. These amounts have been
recognized based on the estimated cost of investigation and remediation at each site, and include site studies, design and
implementation of remediation plans, legal and consulting fees, and post-remediation monitoring and related activities. If the cost
can only be estimated as a range of possible amounts with no specific amount being more likely, the minimum of the range is accrued.
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 amount of our ultimate liability with respect to these matters may be affected by several uncertainties, primarily the ultimate cost
of required remediation and the extent to which other responsible parties contribute. Refer to NOTE 12 - ENVIRONMENTAL AND
MINE CLOSURE OBLIGATIONS for further information.
Tax Matters
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize
liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be due. If
we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the
period in which we determine that the liability is no longer necessary. We also recognize tax benefits to the extent that it is more likely
than not that our positions will be sustained when challenged by the taxing authorities. To the extent we prevail in matters for which
liabilities have been established, or are required to pay amounts in excess of our liabilities, our effective tax rate in a given period
could be materially affected. An unfavorable tax settlement would require use of our cash and result in an increase in our effective
tax rate in the year of resolution. A favorable tax settlement would be recognized as a reduction in our effective tax rate in the year
of resolution. Refer to NOTE 15 - INCOME TAXES for further information.
NOTE 21 - CASH FLOW INFORMATION
A reconciliation of capital additions to cash paid for capital expenditures for the years ended December 31, 2013, 2012 and 2011 is
as follows:
Capital additions
Cash paid for capital expenditures 1
Difference
Non-cash accruals
Capital leases
Total
(In Millions)
Year Ended December 31,
2013
2012
2011
$
$
$
$
752.3
$
1,335.3
$
861.6
1,127.5
(109.3) $
(109.3) $
—
$
$
207.8
152.5
55.3
(109.3) $
207.8
$
960.9
862.1
98.8
60.1
38.7
98.8
1
Cash paid for capital expenditures for 2011 has been shown net of cash proceeds of $18.6 million from the Pinnacle longwall
sale-leaseback that was completed in October 2011. The adjustment was necessary in 2011 due to the timing of the cash
payments related to the longwall.
154
Cash payments for interest and income taxes in 2013, 2012 and 2011 are as follows:
Taxes paid on income
Interest paid on debt obligations
Non-Cash Financing Activities - Declared Dividends
(In Millions)
2013
2012
2011
$
153.3
$
443.2
$
174.4
207.5
275.3
175.1
On November 11, 2013, our Board of Directors declared the quarterly cash dividend on our 7.00 percent Series A Mandatory
Convertible Preferred Stock, Class A, of $17.50 per share, which is equivalent to approximately $0.44 per depositary share, each
representing 1/40th of a share of Series A preferred stock. The cash dividend of $12.8 million was paid on February 3, 2014 to our
preferred shareholders of record as of the close of business on January 15, 2014.
NOTE 22 - SUBSEQUENT EVENTS
Wabush Mine
On February 11, 2014, the Company announced its plan to idle its Wabush mine in Newfoundland and Labrador by the end of the
first quarter of 2014.
NOTE 23 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The sum of quarterly EPS may not equal EPS for the year due to discrete quarterly calculations.
(In Millions, Except Per Share Amounts)
2013
Quarters
First
Second
Third
Fourth
Year
Revenues from product sales and services
$
1,140.5
$
1,488.5
$
1,546.6
$
1,515.8
$
5,691.4
Sales margin
237.9
268.2
348.7
294.5
1,149.3
Net Income (Loss) from Continuing Operations
attributable to Cliffs shareholders
Income from Discontinued Operations
Net Income (Loss) Attributable to Cliffs Shareholders
Earnings per common share attributable to
Cliffs common shareholders — Basic:
Continuing Operations
Discontinued Operations
Earnings per common share attributable to
Cliffs common shareholders — Diluted:
Continuing Operations
Discontinued Operations
$
$
$
$
$
$
107.0
$
146.0
$
115.2
$
43.3
$
411.5
—
—
2.0
—
2.0
107.0
$
146.0
$
117.2
$
43.3
$
413.5
0.66
$
0.87
$
—
—
0.66
$
0.87
$
0.66
$
0.82
$
—
—
0.66
$
0.82
$
0.67
0.01
0.68
0.65
0.01
0.66
$
$
$
$
0.20
$
—
0.20
$
0.20
$
—
0.20
$
2.39
0.01
2.40
2.36
0.01
2.37
The diluted earnings per share calculation for the first and fourth quarters of 2013 exclude depositary shares that were anti-dilutive
totaling 12.9 million and 25.2 million, respectively.
155
Revenues from product sales and services
$
1,212.4
$
1,579.5
$
1,544.9
$
1,535.9
$
5,872.7
First
Second
Third
Fourth
Year
2012
Quarters
Sales margin
Net Income (Loss) from Continuing Operations
attributable to Cliffs shareholders
Income (Loss) and Gain on Sale from
Discontinued Operations, net of tax
Net Income Attributable to Cliffs Shareholders
Earnings per common share attributable to
Cliffs common shareholders — Basic:
Continuing Operations
Discontinued Operations
Earnings per common share attributable to
Cliffs common shareholders — Diluted:
Continuing Operations
Discontinued Operations
Fourth Quarter Results
291.8
443.5
198.3
238.5
1,172.1
370.3
$
255.7
$
87.8
$ (1,649.1) $
(935.3)
5.5
2.3
(2.7)
30.8
35.9
375.8
$
258.0
$
85.1
$ (1,618.3) $
(899.4)
2.60
0.04
2.64
2.59
0.04
2.63
$
$
$
$
1.79
0.02
1.81
1.79
0.02
1.81
$
$
$
$
0.62
$
(11.58) $
(0.02)
0.22
0.60
$
(11.36) $
0.61
$
(11.58) $
(0.02)
0.22
0.59
$
(11.36) $
(6.57)
0.25
(6.32)
(6.57)
0.25
(6.32)
$
$
$
$
$
$
Upon performing our annual goodwill impairment test in the fourth quarter of 2013, a goodwill impairment charge of $80.9 million was
recorded for our Cliffs Chromite Ontario and Cliffs Chromite Far North reporting units within our Ferroalloys operating segment. We
also recorded an other long-lived asset impairment charge of $154.6 million related to our Wabush operations within our Eastern
Canadian Iron Ore operating segment to reduce those assets to their estimated fair value as of December 31, 2013. All of these
charges impacted Impairment of goodwill and other long-lived assets.
During the fourth quarter of 2012 after performing our annual goodwill impairment test, we determined that $997.3 million and $2.7
million of goodwill associated with our CQIM and Wabush reporting units, respectively, was impaired. We also recorded an asset
impairment charge of $49.9 million related to the Wabush mine pelletizing operations during the period. In addition, during the fourth
quarter, we recorded tax expense of $314.7 million and $226.4 million related to the MRRT starting base deferred tax asset net
valuation allowance and Alternative Minimum Tax credit valuation allowance, respectively.
As discussed in NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, we recorded an adjustment
to correct an immaterial prior period error in the noncontrolling interest related to Bloom Lake. Accordingly, the adjustment was
recorded prospectively in the Statements of Consolidated Operations for the period ended December 31, 2013 and in the Statements
of Consolidated Financial Position as of December 31, 2013. The adjustment to noncontrolling interest related to Bloom Lake was
approximately $45.1 million and resulted in an increase to Net Income (Loss) Attributable to Cliffs Shareholders and a reduction of
Loss (income) attributable to noncontrolling interest and corresponding decrease to Noncontrolling interest in the Statements of
Consolidated Financial Position for the three months ended and year ended December 31, 2013. The adjustments also resulted in
an increase to basic and diluted earnings per common share of $0.29 for the three months ended December 31, 2013. The impact
of the prospective adjustments in the Statements of Consolidated Operations would have resulted in an increase to basic and diluted
earnings per common share of $0.14, $0.03, $0.04 and $0.04 for the first, second, third and fourth quarter, respectively, of the year
ended December 31, 2012.
Refer to NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES, NOTE 5 - PROPERTY, PLANT AND
EQUIPMENT and NOTE 15 - INCOME TAXES for further information.
156
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cliffs Natural Resources Inc.
Cleveland, Ohio
We have audited the internal control over financial reporting of Cliffs Natural Resources Inc. and subsidiaries (the “Company”) as of
December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal
executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to
the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2013, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2013 of the Company
and our report dated February 14, 2014 expressed an unqualified opinion on those financial statements and financial statement
schedule.
/s/ DELOITTE & TOUCHE LLP
Cleveland, Ohio
February 14, 2014
157
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cliffs Natural Resources Inc.
Cleveland, Ohio
We have audited the accompanying statements of consolidated financial position of Cliffs Natural Resources Inc. and subsidiaries
(the "Company") as of December 31, 2013 and 2012, and the related statements of consolidated operations, comprehensive income
(loss), cash flows, and changes in equity for each of the three years in the period ended December 31, 2013. Our audits also included
the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the
responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Cliffs Natural
Resources Inc. and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company's internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control -
Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated February 14, 2014 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Cleveland, Ohio
February 14, 2014
158
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange
Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that
such information is accumulated and communicated to our management, including our President and Chief Operating Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based solely on the definition of
“disclosure controls and procedures” in Rule 13a-15(e) promulgated under the Exchange Act. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our
management, including our President and Chief Operating Officer and our Chief Financial Officer, of the effectiveness of the design
and operation of our disclosure controls and procedures. Based on the foregoing, our President and Chief Operating Officer and
Chief Financial Officer concluded that our disclosure controls and procedures were effective.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is
defined under Rule 13a-15(f) promulgated under the Exchange Act.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of the Company's consolidated financial statements for external purposes in accordance with generally
accepted accounting principles.
Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit the preparation of the consolidated financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance
with appropriate authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect
on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an assessment of the Company's internal control over financial reporting as of December 31, 2013 using the
framework specified in Internal Control - Integrated Framework (1992), published by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on such assessment, management has concluded that the Company's internal control over financial
reporting was effective as of December 31, 2013.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2013 has been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated in their report that appears herein.
February 14, 2014
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting or in other factors that occurred during our last fiscal
quarter or our last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
159
Item 9B.
Other Information
On February 11, 2014, the Board of Directors approved a plan to idle production at our Wabush Scully mine by the end of the first
quarter of 2014. The Wabush Scully mine has a capacity of 5.6 million metric tons per year. The decision to idle was based on the
high cost of the operation. Approximately 500 employees at both the Wabush Scully mine and the Pointe Noire rail and port operation
in Quebec will be impacted by this decision.
As a result of this decision, management expects to record charges between $90 million and $100 million ($70 million and $75 million
after-tax, or $0.40 to $0.43 per diluted share) in 2014. These estimated charges include approximately $40 million for employee-
related costs and the remaining charges consist of potential contractual liabilities, general idle, energy and other related costs. Of
these charges, substantially all will result in future cash outlay.
Amounts related to this action are still being finalized. Additional details of this action will be provided in our Form 10-Q for the quarterly
period ended March 31, 2014. Also, it is possible that charges in addition to those described above may be recognized in future
periods.
160
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
The information required to be furnished by this Item will be set forth in our definitive Proxy Statement to security holders under the
headings "Board Meetings and Committees - Audit Committee", "Business Ethics Policy", "Independence and Related Party
Transactions", "Information Concerning Director Nominees” and “Section 16(a) Beneficial Ownership Reporting Compliance”, and is
incorporated herein by reference and made a part hereof from the Proxy Statement. The information regarding executive officers
required by this Item is set forth in Part I - Item 1. Business hereof under the heading “Executive Officers of the Registrant”, which
information is incorporated herein by reference and made a part hereof.
Item 11.
Executive Compensation
The information required to be furnished by this Item will be set forth in our definitive Proxy Statement to security holders under the
headings “Director Compensation”, “Compensation Committee Report”, “Compensation Committee Interlocks and Insider
Participation” and “Executive Compensation” and is incorporated herein by reference and made a part hereof from the Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required to be furnished by this Item regarding "Securities Authorized for Issuance Under Equity Compensation Plans",
"Related Stockholder Matters" and "Security Ownership" will be set forth in our definitive Proxy Statement to security holders under
the headings "Independence and Related Party Transactions", "Ownership of Equity Securities of the Company" and "Equity
Compensation Plan Information", respectively, and is incorporated herein by reference and made part hereof from the Proxy Statement.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required to be furnished by this Item will be set forth in our definitive Proxy Statement to security holders under the
heading “Independence and Related Party Transactions” and is incorporated herein by reference and made a part hereof from the
Proxy Statement.
Item 14.
Principal Accountant Fees and Services
The information required to be furnished by this Item will be set forth in our definitive Proxy Statement to security holders under the
heading “Ratification of Independent Registered Public Accounting Firm” and is incorporated herein by reference and made a part
hereof from the Proxy Statement.
161
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a)(1) and (2) - List of Financial Statements and Financial Statement Schedules.
The following consolidated financial statements of Cliffs Natural Resources Inc. are included at Item 8. Financial Statements and
Supplementary Data above:
•
•
•
•
•
•
Statements of Consolidated Financial Position - December 31, 2013 and 2012
Statements of Consolidated Operations - Years ended December 31, 2013, 2012 and 2011
Statements of Consolidated Comprehensive Income - Years ended December 31, 2013, 2012 and 2011
Statements of Consolidated Cash Flows - Years ended December 31, 2013, 2012 and 2011
Statements of Consolidated Changes in Equity - Years ended December 31, 2013, 2012 and 2011
Notes to Consolidated Financial Statements
The following consolidated financial statement schedule of Cliffs Natural Resources Inc. is included herein in Item 15(d) and attached
as Exhibit 99(a):
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the SEC are not required under the related
instructions or are inapplicable, and therefore have been omitted.
(3) List of Exhibits - Refer to Exhibit Index on pages 202- 210, which is incorporated herein by reference.
(c) Exhibits listed in Item 15(a)(3) above are incorporated herein by reference.
(d) The schedule listed above in Item 15(a)(1) and (2) is attached as Exhibit 99(a) and incorporated herein by reference.
162
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
CLIFFS NATURAL RESOURCES INC.
By:
/s/ Timothy K. Flanagan
Name:
Timothy K. Flanagan
Title:
Vice President, Corporate
Controller and Chief Accounting Officer
Date:
February 14, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures
*
G. B. Halverson
/s/ T.M. PARADIE
T. M. Paradie
/s/ T.K. FLANAGAN
T. K. Flanagan
*
S. M. Cunningham
*
B. J. Eldridge
*
M. E. Gaumond
*
A. R. Gluski
*
S. M. Green
*
J. K. Henry
*
S. M. Johnson
*
J. F. Kirsch
*
R. K. Riederer
*
T. Sullivan
Title
President, Chief
Executive Officer and Director
(Principal Executive Officer)
Executive Vice President
& Chief Financial Officer
(Principal Financial Officer)
Vice-President, Corporate
Controller & Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Date
February 14, 2014
February 14, 2014
February 14, 2014
February 14, 2014
February 14, 2014
February 14, 2014
February 14, 2014
February 14, 2014
February 14, 2014
February 14, 2014
February 14, 2014
February 14, 2014
February 14, 2014
* The undersigned, by signing his name hereto, does sign and execute this Annual Report on Form 10-K pursuant to a Power of
Attorney executed on behalf of the above-indicated officers and directors of the registrant and filed herewith as Exhibit 24 on behalf
of the registrant.
By: /s/ T.M. PARADIE
(T. M. Paradie, as Attorney-in-Fact)
163
All documents referenced below have been filed pursuant to the Securities Exchange Act of 1934 by Cliffs Natural Resources
Inc., file number 1-09844, unless otherwise indicated.
EXHIBIT INDEX
Exhibit
Number
Exhibit
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Articles of Incorporation and By-Laws of Cliffs Natural Resources Inc.
Third Amended Articles of Incorporation of Cliffs (as filed with the Secretary of State of the State of Ohio on
May 13, 2013 (filed as Exhibit 3.1 to Cliffs' Form 8-K on May 13, 2013 and incorporated herein by reference)
Regulations of Cleveland-Cliffs Inc. (filed as Exhibit 3.2 to Cliffs' Form 10-K for the period ended December
31, 2011 and incorporated herein by reference)
Instruments defining rights of security holders, including indentures
Form of Indenture between Cliffs Natural Resources Inc. and U.S. Bank National Association, as trustee,
dated March 17, 2010 (filed as Exhibit 4.1 to Cliffs' Form S-3 No. 333-165376 on March 10, 2010 and
incorporated herein by reference)
Form of 5.90% Notes due 2020 First Supplemental Indenture between Cliffs Natural Resources Inc. and U.S.
Bank National Association, as trustee, dated March 17, 2010, including Form of 5.90% Notes due 2020 (filed
as Exhibit 4.2 to Cliffs' Form 8-K on March 16, 2010 and incorporated herein by reference)
Form of 4.80% Notes due 2020 Second Supplemental Indenture between Cliffs Natural Resources Inc. and
U.S. Bank National Association, as trustee, dated September 20, 2010, including Form of 4.80% Notes due
2020 (filed as Exhibit 4.3 to Cliffs' Form 8-K on September 17, 2010 and incorporated herein by reference)
Form of 6.25% Notes due 2040 Third Supplemental Indenture between Cliffs Natural Resources Inc. and
U.S. Bank National Association, as trustee, dated September 20, 2010, including Form of 6.25% Notes due
2040 (filed as Exhibit 4.4 to Cliffs' Form 8-K on September 17, 2010 and incorporated herein by reference)
Form of 4.875% Notes due 2021 Fourth Supplemental Indenture between Cliffs and U.S. Bank National
Association, as trustee, dated March 23, 2011, including Form of 4.875% Notes due 2021 (filed as Exhibit
4.1 to Cliffs' Form 8-K on March 23, 2011 and incorporated herein by reference)
Fifth Supplemental Indenture between Cliffs and U.S. Bank National Association, as trustee, dated March
31, 2011 (filed as Exhibit 4(b) to Cliffs' Form 10-Q for the period ended June 30, 2011 and incorporated herein
by reference)
Form of 3.95% Notes due 2018 Sixth Supplemental Indenture between Cliffs and U.S. Bank National
Association, as trustee, dated December 13, 2012, including form of 3.95% Notes due 2018 (filed as Exhibit
4.1 to Cliffs' Form 8-K on December 13, 2012 and incorporated herein by reference)
Form of Common Share Certificate (filed herewith)
Material Contracts
* Form of Change in Control Severance Agreement, effective January 1, 2014 (covering existing grants) (filed
herewith)
* Form of Change in Control Severance Agreement (covering newly hired officers) (filed herewith)
* Cleveland-Cliffs Inc Voluntary Non-Qualified Deferred Compensation Plan (Amended and Restated as of
January 1, 2000) (filed as Exhibit 10.2 to Cliffs' Form 10-K for the period ended December 31, 2011 and
incorporated herein by reference)
* First Amendment to the Cleveland-Cliffs Inc. 2000 Voluntary Non-Qualified Deferred Compensation Plan
(Amended and Restated as of January 1, 2000) (filed as Exhibit 10.4 to Cliffs' Form 10-Q for the period ended
September 30, 2012 and incorporated herein by reference)
* Cliffs Natural Resources Inc. 2005 Voluntary Non-Qualified Deferred Compensation Plan (Effective as of
January 1, 2005) dated November 11, 2008 (filed as Exhibit 10(a) to Cliffs' Form 8-K on November 14, 2008
and incorporated herein by reference)
* First Amendment to Cliffs Natural Resources Inc. 2005 Voluntary Non-Qualified Deferred Compensation
Plan dated September 2, 2009 and effective as of January 1, 2009 (filed as Exhibit 10(a) to Cliffs’ Form 10-
Q for the period ended September 30, 2009 and incorporated herein by reference)
* Second Amendment to Cliffs Natural Resources Inc. 2005 Voluntary Non-Qualified Deferred Compensation
Plan dated November 8, 2011 and effective as of January 1, 2012 (filed as Exhibit 10.6 to Cliffs’ Form 10-K
for the period ended December 31, 2012 and incorporated herein by reference)
* Third Amendment to Cliffs Natural Resources Inc. 2005 Voluntary Non-Qualified Deferred Compensation
Plan, effective November 1, 2012 (filed as Exhibit 10.3 to Cliffs’ Form 10-Q for the period ended September
30, 2012 and incorporated herein by reference)
164
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
* Cliffs Natural Resources Inc. 2012 Non-Qualified Deferred Compensation Plan (effective January 1, 2012)
dated November 8, 2011 (filed as Exhibit 10.1 to Cliffs’ Form 8-K on November 8, 2011 and incorporated
herein by reference)
* Form of Indemnification Agreement between Cleveland-Cliffs Inc and Directors (filed as Exhibit 10.5 to Cliffs’
Form 10-K for the period ended December 31, 2011 and incorporated herein by reference)
* Amended and Restated Cleveland-Cliffs Inc Retirement Plan for Non-Employee Directors effective on July
1, 1995 (filed as Exhibit 10.6 to Cliffs’ Form 10-K for the period ended December 31, 2011 and incorporated
herein by reference)
* Amendment to Amended and Restated Cleveland-Cliffs Inc Retirement Plan for Non-Employee Directors
dated as of January 1, 2001 (filed as Exhibit 10.7 to Cliffs’ Form 10-K for the period ended December 31,
2011 and incorporated herein by reference)
* Second Amendment to the Amended and Restated Cleveland-Cliffs Inc Retirement Plan for Non-Employee
Directors dated and effective January 14, 2003 (filed as Exhibit 10.8 to Cliffs’ Form 10-K for the period ended
December 31, 2011 and incorporated herein by reference)
* Cliffs Natural Resources Inc. Nonemployee Directors’ Compensation Plan (Amended and Restated as of
December 31, 2008) (filed as Exhibit 10(nnn) to Cliffs’ Form 10-K for the period ended December 31, 2008
and incorporated herein by reference)
* Trust Agreement No. 1 (Amended and Restated effective June 1, 1997), dated June 12, 1997, by and
between Cleveland-Cliffs Inc and KeyBank National Association, Trustee, with respect to the Cleveland-Cliffs
Inc Supplemental Retirement Benefit Plan, Severance Pay Plan for Key Employees and certain executive
agreements (filed as Exhibit 10.10 to Cliffs' Form 10-K for the period ended December 31, 2011 and
incorporated herein by reference)
* Trust Agreement No. 1 Amendments to Exhibits, effective as of January 1, 2000, by and between Cleveland-
Cliffs Inc and KeyBank National Association, as Trustee (filed as Exhibit 10.13 to Cliffs' Form 10-K for the
period ended December 31, 2011 and incorporated herein by reference)
* First Amendment to Trust Agreement No. 1, effective September 10, 2002, by and between Cleveland-Cliffs
Inc and KeyBank National Association, as Trustee (filed as Exhibit 10.12 to Cliffs' Form 10-K for the period
ended December 31, 2011 and incorporated herein by reference)
*Second Amendment to Trust Agreement No. 1 between Cliffs Natural Resources Inc. (f/k/a Cleveland-Cliffs
Inc) and KeyBank National Association, Trustee, entered into and effective as of December 31, 2008 (filed
as Exhibit 10(y) to Cliffs’ Form 10-K for the period ended December 31, 2008 and incorporated herein by
reference)
* Amended and Restated Trust Agreement No. 2, effective as of October 15, 2002, by and between Cleveland-
Cliffs Inc and KeyBank National Association, Trustee, with respect to Executive Agreements and
Indemnification Agreements with the Company’s Directors and certain Officers, the Company’s Severance
Pay Plan for Key Employees, and the Retention Plan for Salaried Employees (filed as Exhibit 10.14 to Cliffs’
Form 10-K for the period ended December 31, 2011 and incorporated herein by reference)
*Second Amendment to Amended and Restated Trust Agreement No. 2 between Cliffs Natural Resources
Inc. (f/k/a Cleveland-Cliffs Inc) and KeyBank National Association, Trustee, entered into and effective as of
December 31, 2008 (filed as Exhibit 10(aa) to Cliffs’ Form 10-K for the period ended December 31, 2008 and
incorporated herein by reference)
* Trust Agreement No. 5, dated as of October 28, 1987, by and between Cleveland-Cliffs Inc and KeyBank
National Association, Trustee, with respect to the Cleveland-Cliffs Inc Voluntary Non-Qualified Deferred
Compensation Plan (filed as Exhibit 10.16 to Cliffs’ Form 10-K for the period ended December 31, 2011 and
incorporated herein by reference)
* First Amendment to Trust Agreement No. 5, dated as of May 12, 1989, by and between Cleveland-Cliffs
Inc and KeyBank National Association, Trustee (filed as Exhibit 10.17 to Form 10-K of Cliffs’ for the period
ended December 31, 2011 and incorporated herein by reference)
* Second Amendment to Trust Agreement No. 5, dated as of April 9, 1991, by and between Cleveland-Cliffs
Inc and KeyBank National Association, Trustee (filed as Exhibit 10.18 to Form 10-K of Cliffs’ for the period
ended December 31, 2011 and incorporated herein by reference)
* Third Amendment to Trust Agreement No. 5, dated as of March 9, 1992, by and between Cleveland-Cliffs
Inc and KeyBank National Association, Trustee (filed as Exhibit 10.19 to Cliffs’ Form 10-K for the period ended
December 31, 2011 and incorporated herein by reference)
* Fourth Amendment to Trust Agreement No. 5, dated November 18, 1994, by and between Cleveland-Cliffs
Inc and KeyBank National Association, Trustee (filed as Exhibit 10.20 to Cliffs’ Form 10-K for the period
ended December 31, 2011 and incorporated herein by reference)
* Fifth Amendment to Trust Agreement No. 5, dated May 23, 1997, by and between Cleveland-Cliffs Inc and
KeyBank National Association, Trustee (filed as Exhibit 10.19 to Cliffs’ Form 10-K for the period ended
December 31, 2011 and incorporated herein by reference)
165
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
* Sixth Amendment to Trust Agreement No. 5 between Cliffs Natural Resources Inc. (f/k/a Cleveland-Cliffs
Inc) and KeyBank National Association, Trustee, entered into and effective as of December 31, 2008 (filed
as Exhibit 10(hh) to Cliffs’ Form 10-K for the period ended December 31, 2008 and incorporated herein by
reference)
* Trust Agreement No. 7, dated as of April 9, 1991, by and between Cleveland-Cliffs Inc and KeyBank National
Association, Trustee, with respect to the Cleveland-Cliffs Inc Supplemental Retirement Benefit Plan (filed as
Exhibit 10.23 to Cliffs’ Form 10-K for the period ended December 31, 2011 and incorporated herein by
reference)
* First Amendment to Trust Agreement No. 7, by and between Cleveland-Cliffs Inc and KeyBank National
Association, Trustee, dated as of March 9, 1992 (filed as Exhibit 10.24 to Cliffs’ Form 10-K for the period
ended December 31, 2011 and incorporated herein by reference)
* Second Amendment to Trust Agreement No. 7, dated November 18, 1994, by and between Cleveland-Cliffs
Inc and KeyBank National Association, Trustee (filed as Exhibit 10.25 to Cliffs’ Form 10-K for the period ended
December 31, 2011 and incorporated herein by reference)
* Third Amendment to Trust Agreement No. 7, dated May 23, 1997, by and between Cleveland-Cliffs Inc and
KeyBank National Association, Trustee (filed as Exhibit 10.26 to Cliffs’ Form 10-K for the period ended
December 31, 2011 and incorporated herein by reference)
* Fourth Amendment to Trust Agreement No. 7, dated July 15, 1997, by and between Cleveland-Cliffs Inc
and KeyBank National Association, Trustee (filed as Exhibit 10.27 to Cliffs’ Form 10-K for the period ended
December 31, 2011 and incorporated herein by reference)
* Amendment to Exhibits to Trust Agreement No. 7, effective as of January 1, 2000, by and between Cleveland-
Cliffs Inc and KeyBank National Association, Trustee (filed as Exhibit 10.28 to Cliffs’ Form 10-K for the period
ended December 31, 2011 and incorporated herein by reference)
* Sixth Amendment to Trust Agreement No. 7 between Cliffs Natural Resources Inc. (f/k/a Cleveland-Cliffs
Inc) and KeyBank National Association, Trustee, entered into and effective as of December 31, 2008 (filed
as Exhibit 10(oo) to Cliffs’ Form 10-K for the period ended December 31, 2008 and incorporated herein by
reference)
* Trust Agreement No. 8, dated as of April 9, 1991, by and between Cleveland-Cliffs Inc and KeyBank National
Association, Trustee, with respect to the Cleveland-Cliffs Inc Retirement Plan for Non-Employee Directors
(filed as Exhibit 10.32 to Cliffs’ Form 10-K for the period ended December 31, 2011 and incorporated herein
by reference)
* First Amendment to Trust Agreement No. 8, dated as of March 9, 1992, by and between Cleveland-Cliffs
Inc and KeyBank National Association, Trustee (filed as Exhibit 10.31 to Cliffs’ Form 10-K for the period ended
December 31, 2011 and incorporated herein by reference)
* Second Amendment to Trust Agreement No. 8, dated June 12, 1997, by and between Cleveland-Cliffs Inc
and KeyBank National Association, Trustee (filed as Exhibit 10.32 to Cliffs’ Form 10-K for the period ended
December 31, 2011 and incorporated herein by reference)
*Third Amendment to Trust Agreement No. 8 between Cliffs Natural Resources Inc. (f/k/a Cleveland-Cliffs
Inc) and KeyBank National Association, Trustee, entered into and effective as of December 31, 2008 (filed
as Exhibit 10(ss) to Cliffs’ Form 10-K for the period ended December 31, 2008 and incorporated herein by
reference)
* Trust Agreement No. 9, dated as of November 20, 1996, by and between Cleveland-Cliffs Inc and KeyBank
National Association, Trustee, with respect to the Cleveland-Cliffs Inc Nonemployee Directors’ Supplemental
Compensation Plan (filed as Exhibit 10.34 to Cliffs’ Form 10-K for the period ended December 31, 2011 and
incorporated herein by reference)
*First Amendment to Trust Agreement No. 9 between Cliffs Natural Resources Inc. (f/k/a Cleveland-Cliffs Inc)
and KeyBank National Association, Trustee, entered into and effective as of December 31, 2008 (filed as
Exhibit 10(uu) to Cliffs’ Form 10-K for the period ended December 31, 2008 and incorporated herein by
reference)
* Trust Agreement No. 10, dated as of November 20, 1996, by and between Cleveland-Cliffs Inc and KeyBank
National Association, Trustee, with respect to the Cleveland-Cliffs Inc Nonemployee Directors’ Compensation
Plan (filed as Exhibit 10.36 to Cliffs’ Form 10-K for the period ended December 31, 2011 and incorporated
herein by reference)
* First Amendment to Trust Agreement No. 10 between Cliffs Natural Resources Inc. (f/k/a Cleveland-Cliffs
Inc) and KeyBank National Association, Trustee, entered into and effective as of December 31, 2008 (filed
as Exhibit 10(ww) to Cliffs’ Form 10-K for the period ended February 26, 2009 and incorporated herein by
reference)
* Letter Agreement of Employment by and between Cleveland-Cliffs Inc and Joseph A. Carrabba dated April
29, 2005 (filed as Exhibit 10.38 to Cliffs’ Form 10-K for the period ended December 31, 2011 and incorporated
herein by reference)
166
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
10.56
10.57
10.58
10.59
10.60
10.61
10.62
10.63
10.64
10.65
10.66
* Severance Agreement, by and between Joseph A. Carrabba and Cliffs Natural Resources Inc. and its
affiliates, dated July 17, 2013 (filed as Exhibit 10.2 to Cliffs’ Form 10-Q for the period ended June 30, 2013
and incorporated herein by reference)
* Release by Joseph A. Carrabba in favor of Cliffs Natural Resources Inc. and its affiliates, dated November
18, 2013 (filed herewith)
* Letter Agreement of Employment by and between Cleveland-Cliffs Inc and Laurie Brlas dated November
22, 2006 (filed as Exhibit 10.39 to Cliffs’ Form 10-K for the period ended December 31, 2011 and incorporated
herein by reference)
* Severance Agreement and Release, by and between Laurie Brlas and Cliffs Natural Resources Inc. and
its affiliates, dated August 20, 2013 (filed as Exhibit 10.1 to Cliffs’ Form 10-Q for the period ended September
30, 2013 and incorporated herein by reference)
* Severance Agreement, by and between David B. Blake and Cliffs Natural Resources Inc. and its affiliates,
dated August 21, 2013 (filed as Exhibit 10.2 to Cliffs’ Form 10-Q for the period ended September 30, 2013
and incorporated herein by reference)
* Release by David B. Blake in favor of Cliffs Natural Resources Inc. and its affiliates, dated November 8,
2013 (filed herewith)
* Letter Agreement of Employment by and between Cliffs Natural Resources Inc. and Gary B. Halverson
dated October 23, 2013 (filed herewith)
* Non-employee Director Phantom Stock Unit Award Agreement, by and between Cliffs and James F. Kirsch
dated July 9, 2013 (filed herewith)
* Letter Agreement between Cliffs Natural Resources Inc. and James Kirsch dated December 4, 2013 (filed
herewith)
* Severance Agreement and Release between Cliffs Natural Resources Inc. and Donald J. Gallagher dated
December 30, 2013 (filed herewith)
* Release by Donald J. Gallagher in favor of Cliffs Natural Resources Inc. and its affiliates, dated January 3,
2014 (filed herewith)
* Form of Letter Agreement of Employment between Cliffs Asia Pacific Iron Ore Management Pty Ltd and
Australian Executives (filed herewith)
* Letter Agreement between Cliffs Natural Resources Inc. and William Hart dated October 10, 2013 (filed
herewith)
* Cleveland-Cliffs Inc and Subsidiaries Management Performance Incentive Plan Summary, effective January
1, 2004 (filed as Exhibit 10.47 to Cliffs’ Form 10-K for the period ended December 31, 2011 and incorporated
herein by reference)
* Cliffs Natural Resources Inc. 2012 Executive Management Performance Incentive Plan effective March 13,
2012 (filed as Exhibit 10.3 to Cliffs’ Form 8-K on May 14, 2012 and incorporated herein by reference)
* Amended and Restated Cliffs Natural Resources Inc. 2007 Incentive Equity Plan adopted July 27, 2007
and effective as of May 11, 2010 (filed as Exhibit 10(a) to the Cliffs’ Form 8-K on May 14, 2010 and incorporated
herein by reference)
* First Amendment to Amended and Restated Cliffs Natural Resources Inc. 2007 Incentive Equity Plan dated
January 11, 2011 (filed as Exhibit 10(rr) to Cliffs’ Form 10-K for the period ended December 31, 2010 and
incorporated herein by reference)
* Second Amendment to Amended and Restated Cliffs Natural Resources Inc. 2007 Incentive Equity Plan
effective as of May 8, 2012 (filed as Exhibit 10.2 to Cliffs’ Form 8-K on May 14, 2012 and incorporated herein
by reference)
* 2009 Participant Grant under the 2007 Incentive Equity Plan by and between Cliffs and Joseph A. Carrabba
effective December 17, 2009 subject to Terms and Conditions of the 2009 Participant Grant to Joseph A.
Carrabba (filed as Exhibit 10(qqq) to Cliffs’ Form 10-K for the period ended December 31, 2009 and
incorporated herein by reference)
* 2010 Participant Grant under the 2007 Incentive Equity Plan by and between Cliffs and Joseph A. Carrabba
effective March 8, 2010 subject to Terms and Conditions of the 2009 Participant Grant to Joseph A. Carrabba
(filed herewith)
* Form of Cliffs Natural Resources Inc. 2011 Participant Grant under the Amended and Restated Cliffs 2007
Incentive Equity Plan, as Amended (filed as Exhibit 10(a) to Cliffs’ Form 10-Q for the period ended March 31,
2011 and incorporated herein by reference)
* Form of Cliffs Natural Resources Inc. 2011 Participant Grant (Australia) under the Amended and Restated
Cliffs 2007 Incentive Equity Plan, as Amended (filed as Exhibit 10(b) to Cliffs’ Form 10-Q for the period ended
March 31, 2011 and incorporated herein by reference)
* Form of Cliffs Natural Resources Inc. (U.S.) 2012 Participant Grant under the Amended and Restated 2007
Incentive Equity Plan, as Amended (filed as Exhibit 10.66 to Cliffs’ Form 10-K for the period ended December
31, 2012 and incorporated herein by reference)
167
10.67
10.68
10.69
10.70
10.71
10.72
10.73
10.74
10.75
10.76
10.77
10.78
10.79
10.80
10.81
10.82
10.83
10.84
10.85
10.86
10.87
* Cliffs Natural Resources Inc. 2012 Chile Labor Agreement Grant for Participants (filed as Exhibit 10.67 to
Cliffs’ Form 10-K for the period ended December 31, 2012 and incorporated herein by reference)
* Form of Cliffs Natural Resources Inc. (Australia) 2012 Participant Grant under the Amended and Restated
Cliffs 2007 Incentive Equity Plan (filed as Exhibit 10.68 to Cliffs’ Form 10-K for the period ended December
31, 2012 and incorporated herein by reference)
* Form of Cliffs Natural Resources Inc. (Canada) 2012 Participant Grant under the Amended and Restated
Cliffs 2007 Incentive Equity Plan (filed as Exhibit 10.69 to Cliffs’ Form 10-K for the period ended December
31, 2012 and incorporated herein by reference)
* Form of Cliffs Natural Resources Inc. (China) 2012 Participant Grant under the Amended and Restated
Cliffs 2007 Incentive Equity Plan (filed as Exhibit 10.70 to Cliffs’ Form 10-K for the period ended December
31, 2012 and incorporated herein by reference)
* Form of Cliffs Natural Resources Inc. (Japan) 2012 Participant Grant under the Amended and Restated
Cliffs 2007 Incentive Equity Plan (filed as Exhibit 10.71 to Cliffs’ Form 10-K for the period ended December
31, 2012 and incorporated herein by reference)
* Form of Cliffs Natural Resources Inc. 2013 Performance Share Award Memorandum and Performance
Share Award Agreement under the 2012 Incentive Equity Plan (filed herewith)
* Cliffs Natural Resources Inc. 2012 Incentive Equity Plan effective March 13, 2012 (filed as Exhibit 10.1 to
Cliffs Form 8-K on May 14, 2012 and incorporated herein by reference)
* First Amendment to Cliffs Natural Resources Inc. 2012 Incentive Plan effective September 11, 2012 (filed
as Exhibit 10.2 to Cliffs’ Form 10-Q for the period ended September 30, 2012 and incorporated herein by
reference)
* Form of Cliffs Natural Resources Inc. Restricted Share Units Award Agreement pursuant to 2012 Incentive
Equity Plan (filed as Exhibit 10.74 to Cliffs’ Form 10-K for the period ended December 31, 2012 and
incorporated herein by reference)
* Form of Cliffs Natural Resources Inc. Performance Restricted Share Units Agreement effective May 26,
2011 under the Amended and Restated 2007 Incentive Equity Plan, as amended (filed herewith)
* Form of Cliffs Natural Resources Inc. Restricted Share Unit Award Memorandum and Restricted Share Unit
Award Agreement under the 2012 Incentive Equity Plan (filed herewith)
* Form of Cliffs Natural Resources Inc. Restricted Share Unit Award Memorandum (Graduated Vesting 50%)
and Restricted Share Unit Award Agreement under the 2012 Incentive Equity Plan (filed herewith)
* Form of Cliffs Natural Resources Inc. Restricted Share Unit Award Memorandum (Graduated Vesting 33%)
and Restricted Share Unit Award Agreement under the 2012 Incentive Equity Plan (filed herewith)
* Form of Cliffs Natural Resources Inc. Restricted Share Unit Award Memorandum (3 year Vesting) and
Restricted Share Unit Award Agreement under the 2012 Incentive Equity Plan (filed herewith)
* Form of Cliffs Natural Resources Inc. Restricted Share Unit Award Memorandum (Graduated Vesting) and
Restricted Share Unit Award Agreement under the 2012 Incentive Equity Plan (filed herewith)
* Form of Cliffs Natural Resources Restricted Shares Agreement pursuant to the Amended and Restated
Cliffs 2007 Incentive Equity Plan between the employee participant and the Company or its Subsidiary (filed
as Exhibit 10.62 to Cliffs’ Form 10-K for the period ended December 31, 2011 and incorporated herein by
reference)
* Cliffs Natural Resources Inc. Supplemental Retirement Benefit Plan (as Amended and Restated effective
December 1, 2006) dated December 31, 2008 (filed as Exhibit 10(mmm) to Cliffs’ Form 10-K for the period
ended December 31, 2008 and incorporated herein by reference)
** Pellet Sale and Purchase Agreement, dated and effective as of April 10, 2002, by and among The Cleveland-
Cliffs Iron Company, Cliffs Mining Company, Northshore Mining Company, Northshore Sales Company,
International Steel Group Inc., ISG Cleveland Inc., and ISG Indiana Harbor Inc. (filed herewith)
** First Amendment to Pellet Sale and Purchase Agreement, dated and effective December 16, 2004 by and
among The Cleveland-Cliffs Iron Company, Cliffs Mining Company, Northshore Mining Company, Cliffs Sales
Company (formerly known as Northshore Sales Company), International Steel Group Inc., ISG Cleveland
Inc. and ISG Indiana Harbor (filed herewith)
** Pellet Sale and Purchase Agreement, dated and effective as of December 31, 2002 by and among The
Cleveland-Cliffs Iron Company, Cliffs Mining Company, and Ispat Inland Inc. (filed herewith)
** 2011 Omnibus Agreement, dated as of April 8, 2011 and effective as of March 31, 2011, by and among
ArcelorMittal USA LLC, as successor in interest to Ispat Inland Inc., ArcelorMittal Cleveland Inc. (formerly
known as ISG Cleveland Inc.), ArcelorMittal Indiana Harbor LLC (formerly known as ISG Indiana Harbor
Inc.) and Cliffs Natural Resources Inc., The Cleveland-Cliffs Iron Company, Cliffs Mining Company, Northshore
Mining Company and Cliffs Sales Company (formerly known as Northshore Sales Company) (filed as Exhibit
10(a) to Cliffs’ Form 10-Q for the period ended June 30, 2011 and incorporated herein by reference)
168
10.88
10.89
10.90
12
21
23
24
31.1
31.2
32.1
32.2
95
99(a)
Amended and Restated Multicurrency Credit Agreement entered into as of August 11, 2011, among Cliffs,
certain foreign subsidiaries of the Company from time to time party thereto, Bank of America, N.A., as
Administrative Agent, Swing Line Lender and L/C Issuer, JPMorgan Chase Bank, N.A., as Syndication Agent
and L/C Issuer, Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC, Citigroup
Global Markets Inc., PNC Capital Markets Inc. and U.S. Bank National Association, as Joint Lead Arrangers
and Joint Book Managers, Fifth Third Bank and RBS Citizens, N.A., as Co-Documentation Agents, and the
various institutions from time to time party thereto (filed as Exhibit 10(a) to Cliffs’ Form 8-K on August 17,
2011 and incorporated herein by reference)
Amendment No. 1, dated as of October 16, 2012 to Amended and Restated Multicurrency Credit Agreement
(filed as Exhibit 10.1 to Cliffs’ Form 8-K on October 19, 2012 and incorporated herein by reference)
Amendment No. 2 to the Amended and Restated Multicurrency Credit Agreement dated as of February 8,
2013 (filed as Exhibit 10.92 to Cliffs’ Form 10-K for the period ended December 31, 2012 and incorporated
herein by reference)
Ratio of Earnings To Combined Fixed Charges And Preferred Stock Dividend Requirements (filed herewith)
Subsidiaries of the Registrant (filed herewith)
Consent of Independent Registered Public Accounting Firm (filed herewith)
Power of Attorney (filed herewith)
Certification Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, signed and dated by Gary B. Halverson as of February 14, 2014 (filed herewith)
Certification Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, signed and dated by Terrance M. Paradie as of February 14, 2014 (filed herewith)
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, signed and dated by Gary B. Halverson, President and Chief Executive Officer of Cliffs Natural
Resources Inc., as of February 14, 2014 (filed herewith)
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, signed and dated by Terrance M. Paradie, Executive Vice President and Chief Financial Officer
of Cliffs Natural Resources Inc., as of February 14, 2014 (filed herewith)
Mine Safety Disclosures (filed herewith)
Schedule II – Valuation and Qualifying Accounts (filed herewith)
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
_______________
*
**
Indicates management contract or other compensatory arrangement.
Confidential treatment requested and/or approved as to certain portions, which portions have been omitted and
filed separately with the Securities and Exchange Commission.
169
Exhibit 12
Ratio of Earnings To Combined Fixed Charges
And Preferred Stock Dividend Requirements
(In Millions)
Consolidated pretax income (loss) from
continuing operations
$
489.3
$
(501.8)
$ 2,190.5
$ 1,266.4
$
282.3
Year Ended December 31,
2013
2012
2011
2010
2009
Undistributed earnings of non-consolidated affiliates
Amortization of capitalized interest
Interest expense
Acceleration of debt issuance costs
Interest portion of rental expense
Total Earnings
Interest expense
Acceleration of debt issuance costs
Interest portion of rental expense
Preferred Stock dividend requirements
Fixed Charges Requirements
Fixed Charges and Preferred Stock Dividend
Requirements
RATIO OF EARNINGS TO FIXED
CHARGES
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDEND REQUIREMENTS
$
$
$
$
(74.4)
2.3
184.3
—
2.1
603.6
184.3
—
2.1
48.7
(404.8)
3.7
203.1
0.2
2.8
9.7
3.6
216.5
—
3.6
13.5
3.6
70.1
—
4.6
$
$
(696.8)
$ 2,423.9
$ 1,358.2
203.1
$
216.5
$
70.1
$
$
0.2
2.8
—
—
3.6
—
—
4.6
—
(65.5)
3.0
39.0
—
5.8
264.6
39.0
—
5.8
—
235.1
$
206.1
$
220.1
$
74.7
$
44.8
235.1
$
206.1
$
220.1
$
74.7
$
44.8
2.6
2.6
*
*
11.0
18.2
5.9
11.0
18.2
5.9
(*) For the year ended December 31, 2012, there was a deficiency of earnings to cover the fixed charges of $902.9 million.
SIGNIFICANT SUBSIDIARIES
CLIFFS NATURAL RESOURCES INC. AS OF DECEMBER 31, 2013
Exhibit 21
Name
Cleveland-Cliffs International Holding Company
Cliffs (Gibraltar) Holdings Limited
Cliffs (Gibraltar) Holdings Limited Luxembourg S.C.S.
Cliffs (Gibraltar) Limited
Cliffs Asia Pacific Iron Ore Holdings Pty Ltd
Cliffs Asia Pacific Iron Ore Pty Ltd
Cliffs Canada Finance Inc.
Cliffs Greene B.V.
Cliffs Minnesota Mining Company
Cliffs Natural Resources Holdings Pty Ltd
Cliffs Natural Resources Luxembourg S.à r.l.
Cliffs Natural Resources Pty Ltd
Cliffs Netherlands B.V.
Cliffs Quebec Iron Mining Limited
Cliffs TIOP, Inc.
Cliffs UTAC Holding LLC
Northshore Mining Company
The Bloom Lake Iron Ore Mine Limited Partnership
The Cleveland-Cliffs Iron Company
Tilden Mining Company L.C.
United Taconite LLC
Cliffs' Effective
Ownership
Place of Incorporation
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
82.8%
100%
85%
100%
Delaware, USA
Gibraltar
Luxembourg
Gibraltar
Australia
Australia
Ontario, Canada
The Netherlands
Delaware, USA
Australia
Luxembourg
Australia
The Netherlands
Canada
Michigan, USA
Delaware, USA
Delaware, USA
Quebec, Canada
Ohio, USA
Michigan, USA
Delaware, USA
Consent of Independent Registered Public Accounting Firm
Exhibit 23
We consent to the incorporation by reference in:
Registration Statement No. 333-30391 on Form S-8 pertaining to the 1992 Incentive Equity Plan (as amended and restated
as of May 13, 1997) and the related prospectus;
Registration Statement No. 333-56661 on Form S-8 (as amended by Post-Effective Amendment No. 1) pertaining to the
Northshore Mining Company and Silver Bay Power Company Retirement Saving Plan and the related prospectus;
Registration statement No. 333-06049 on Form S-8 pertaining to the Cliffs Natural Resources Inc. Nonemployee Directors’
Compensation Plan;
Registration Statement No 333-84479 on Form S-8 pertaining to the 1992 Incentive Equity Plan (as amended and restated
as of May 11, 1999);
Registration Statement No. 333-64008 on Form S-8 (as amended by Post-Effective Amendment No. 1 and Post-Effective
Amendment No.2) pertaining to the Cliffs Natural Resources Inc. Nonemployee Directors’ Compensation Plan (as amended
and restated as of January 1, 2004);
Registration Statement No. 333-165021 on Form S-8 pertaining to the 2007 Incentive Equity Plan;
Registration Statement No. 333-172649 on Form S-8 dated March 7, 2011 pertaining to the registration of an additional
9,000,000 Common Shares under the Amended and Restated Cliffs 2007 Incentive Equity Plan; and
Registration Statement No. 333-184620 on Form S-8 pertaining to the Cliffs Natural Resources Inc. 2012 Incentive Equity
Plan
Registration Statement No. 333-186617 on Form S-3 dated February 12, 2013 pertaining to the registration of an
indeterminate number of common shares, preferred stock, depositary shares, warrants and subscription rights as well as
an indeterminate amount of debt securities that may from time to time be issued at indeterminate prices.
of our reports relating to the consolidated financial statements and financial statement schedule of Cliffs Natural Resources Inc.
and the effectiveness of Cliffs Natural Resources Inc.’s internal control over financial reporting dated February 14, 2014, appearing
in the Annual Report on Form 10-K of Cliffs Natural Resources Inc. for the year ended December 31, 2013.
/s/ DELOITTE & TOUCHE LLP
Cleveland, Ohio
February 14, 2014
POWER OF ATTORNEY
Exhibit 24
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Directors and officers of Cliffs Natural Resources Inc., an Ohio
corporation ("Company"), hereby constitute and appoint Gary B. Halverson, Terrance M. Paradie, P. Kelly Tompkins and Timothy
K. Flanagan, and each of them, their true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for
them and in their name, place and stead, to sign on their behalf as a Director or officer of the Company, or both, as the case may
be, an Annual Report on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended
December 31, 2013, and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney or attorneys-
in-fact, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as they might or could do in person, hereby ratifying and
confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Executed as of the 11th day of February, 2014.
/s/ J. F. KIRSCH
J. F. Kirsch
Chairman and Director
/s/ G. B. HALVERSON
G. B. Halverson
President and Chief Operating Officer
/s/ S. M. CUNNINGHAM
S. M. Cunningham, Director
/s/ B. J. ELDRIDGE
B. J. Eldridge, Director
/s/ M. E. GAUMOND
M. E. Gaumond, Director
/s/ A. R. GLUSKI
A. R. Gluski, Director
/s/ S. M. GREEN
S. M. Green, Director
/s/ J. K. HENRY
J. K. Henry, Director
/s/ S. M. JOHNSON
S. M. Johnson, Director
/s/ R. K. RIEDERER
R. K. Riederer, Director
/s/ T. W. SULLIVAN
T. W. Sullivan, Director
/s/ T. M. PARADIE
T. M. Paradie,
Executive Vice President & Chief Financial Officer
/s/ T. K. FLANAGAN
T. K. Flanagan,
Vice President, Corporate Controller &
Chief Accounting Officer
I, Gary B. Halverson, certify that:
CERTIFICATION
Exhibit 31.1
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Cliffs Natural Resources Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date:
February 14, 2014
By:
/s/ Gary B. Halverson
Gary B. Halverson
President and Chief Executive Officer
I, Terrance M. Paradie, certify that:
CERTIFICATION
Exhibit 31.2
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Cliffs Natural Resources Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date:
February 14, 2014
By:
/s/ Terrance M. Paradie
Terrance M. Paradie
Executive Vice President & Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Cliffs Natural Resources Inc. (the “Company”) on Form 10-K for the period ended
December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-K”), I, Gary B. Halverson,
President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:
(1)
(2)
The Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 (15 U.S.C. 78m or 78o(d)); and
The information contained in the Form 10-K fairly presents, in all material respects, the financial condition
and results of operations of the Company as of the dates and for the periods expressed in the Form 10-K.
Date:
February 14, 2014
By:
/s/ Gary B. Halverson
Gary B. Halverson
President and Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Cliffs Natural Resources Inc. (the “Company”) on Form 10-K for the period ended
December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-K”), I, Terrance M.
Paradie, Executive Vice President & Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:
(1)
(2)
The Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 (15 U.S.C. 78m or 78o(d)); and
The information contained in the Form 10-K fairly presents, in all material respects, the financial condition
and results of operations of the Company as of the dates and for the periods expressed in the Form 10-K.
Date:
February 14, 2014
By:
/s/ Terrance M. Paradie
Terrance M. Paradie
Executive Vice President & Chief Financial Officer
Mine Safety Disclosures
Exhibit 95
The operation of our mines located in the United States is subject to regulation by MSHA under the FMSH Act. MSHA inspects
these mines on a regular basis and issues various citations and orders when it believes a violation has occurred under the FMSH
Act. We present information below regarding certain mining safety and health citations that MSHA has issued with respect to our
mining operations. In evaluating this information, consideration should be given to factors such as: (i) the number of citations and
orders will vary depending on the size of the mine; (ii) the number of citations issued will vary from inspector to inspector and mine
to mine, and (iii) citations and orders can be contested and appealed and, in that process, are often reduced in severity and amount,
and are sometimes dismissed.
Under the Dodd-Frank Act, each operator of a coal or other mine is required to include certain mine safety results within its periodic
reports filed with the SEC. As required by the reporting requirements included in §1503(a) of the Dodd-Frank Act, we present the
following items regarding certain mining safety and health matters, for the period presented, for each of our mine locations that are
covered under the scope of the Dodd-Frank Act:
(A) The total number of violations of mandatory health or safety standards that could significantly and substantially
contribute to the cause and effect of a coal or other mine safety or health hazard under section 104 of the FMSH Act
(30 U.S.C. 814) for which the operator received a citation from MSHA;
(B) The total number of orders issued under section 104(b) of the FMSH Act (30 U.S.C. 814(b));
(C) The total number of citations and orders for unwarrantable failure of the mine operator to comply with mandatory
health or safety standards under section 104(d) of the FMSH Act (30 U.S.C. 814(d));
(D) The total number of imminent danger orders issued under section 107(a) of the FMSH Act (30 U.S.C. 817(a));
(E) The total dollar value of proposed assessments from MSHA under the FMSH Act (30 U.S.C. 801 et seq.);
(F) The total number of mining related fatalities;
(G) Legal actions pending before Federal Mine Safety and Health Review Commission involving such coal or other mine
as of the last day of the period;
(H) Legal actions initiated before the Federal Mine Safety and Health Review Commission involving such coal or other
mine during the period; and
(I)
Legal actions resolved before the Federal Mine Safety and Health Review Commission involving such coal or other
mine during the period.
During the year ended December 31, 2013, our U.S. mine locations did not receive any flagrant violations under Section 110(b)(2)
of the FMSH Act and no written notices of a pattern of violations, or the potential to have a pattern of such violations, under section
104(e) of the FMSH Act.
Following is a summary of the information listed above for the year ended December 31, 2013:
(A)
(B)
(C)
(D)
(E)
(F)
(G)
(H)
(I)
Year Ended December 31, 2013
Mine Name/ MSHA ID No.
Operation
Section
104 S&S
Citations
Section
104(b)
Orders
Section
104(d)
Orders
Pinnacle Mine / 4601816
Pinnacle Plant / 4605868
Green Ridge #1 / 4609030
Green Ridge #2 / 4609222
Oak Grove / 0100851
Concord Plant / 0100329
Dingess-Chilton / 4609280
Powellton / 4609217
Saunders Prep / 4602140
Toney Fork / 4609101
Elk Lick Tipple / 4604315
Lower War Eagle / 4609319
Elk Lick Chilton / 4609390
Coal
Coal
Coal
Coal
Coal
Coal
Coal
Coal
Coal
Coal
Coal
Coal
Coal
Tilden / 2000422
Empire / 2001012
Iron Ore
Iron Ore
Northshore Plant / 2100831
Iron Ore
Northshore Mine / 2100209
Iron Ore
Hibbing / 2101600
United Taconite Plant /
2103404
United Taconite Mine /
2103403
Iron Ore
Iron Ore
Iron Ore
118
4
—
—
172
1
6
65
2
13
2
81
—
30
27
19
7
58
44
6
3
—
—
—
—
—
1
6
—
—
—
1
—
—
—
—
—
2
—
—
7
—
—
—
10
—
4
—
—
—
—
4
—
1
—
—
—
1
—
—
Section
107(a)
Citations
&
Orders
Total Dollar
Value of
MSHA
Proposed
Assessments
(1)
— $
398,294
— $
8,979
—
—
—
—
— $
399,248
— $
— $
770
51,104
— $
150,776
— $
— $
— $
1,005
65,741
1,091
— $
183,922
—
—
— $
274,621
— $
76,123
— $
152,228
— $
22,648
1
$
460,002
— $
494,944
— $
15,606
Legal
Actions
Pending
as of
Last Day
of Period
Fatalities
Legal
Actions
Initiated
During
Period
Legal
Actions
Resolved
During
Period
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
35 (2)
2 (3)
—
3 (4)
49 (5)
—
18 (6)
33 (7)
1 (8)
4 (9)
1 (10)
12 (11)
—
6 (12)
5 (13)
15 (14)
6 (15)
14 (16)
10 (17)
1 (18)
31
2
—
—
13
—
16
18
1
5
1
14
—
—
2
2
2
14
6
1
48
5
1
8
12
—
24
18
2
6
1
8
—
5
1
8
6
9
6
—
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
Amounts included under the heading “Total Dollar Value of MSHA Proposed Assessments” are the total dollar amounts for proposed
assessments received from MSHA on or before December 31, 2013.
Included in this number are 15 pending legal actions related to contests of citations and orders referenced in Subpart B of FMSH Act's
procedural rules; 19 pending legal actions related to contests of proposed penalties referenced in Subpart C of FMSH Act's procedural
rules; and 1 pending legal action related to complaints of discharge, discrimination or interference referenced in Subpart E of FMSH Act's
procedural rules.
This number consists of 2 pending legal actions related to contests of proposed penalties referenced in Subpart C of FMSH Act's procedural
rules.
This number consists of 3 pending legal actions related to contests of proposed penalties referenced in Subpart C of FMSH Act's procedural
rules.
Included in this number are 4 pending legal actions related to contests of citations and orders referenced in Subpart B of FMSH Act's
procedural rules; 37 pending legal actions related to contests of proposed penalties referenced in Subpart C of FMSH Act's procedural
rules; 1 pending legal action related to complaints for compensation referenced in Subpart D of FMSH Act's procedural rules; and 7
appeals of judges' decisions or orders to FMSH Act's procedural rules.
Included in this number are 6 pending legal actions related to contests of citations and orders referenced in Subpart B of FMSH Act's
procedural rules and 12 pending legal actions related to contests of proposed penalties referenced in Subpart C of FMSH Act's procedural
rules.
Included in this number are 9 pending legal actions related to contests of citations and orders referenced in Subpart B of FMSH Act's
procedural rules and 24 pending legal actions related to contests of proposed penalties referenced in Subpart C of FMSH Act's procedural
rules.
This number consists of 1 pending legal action related to contests of proposed penalties referenced in Subpart C of FMSH Act's procedural
rules.
This number consists of 4 pending legal actions related to contests of proposed penalties referenced in Subpart C of FMSH Act's procedural
rules.
This number consists of 1 pending legal action related to contests of proposed penalties referenced in Subpart C of FMSH Act's procedural
rules.
Included in this number are 3 pending legal actions related to contests of citations and orders referenced in Subpart B of FMSH Act's
procedural rules and 9 pending legal actions related to contests of proposed penalties referenced in Subpart C of FMSH Act's procedural
rules.
This number consists of 5 pending legal actions related to contests of proposed penalties referenced in Subpart C of FMSH Act's procedural
rules and 1 appeal of judges' decisions or orders to FMSH Act's procedural rules.
(13)
(14)
(15)
(16)
(17)
(18)
This number consists of 5 pending legal actions related to contests of proposed penalties referenced in Subpart C of FMSH Act's procedural
rules.
This number consists of 15 pending legal actions related to contests of proposed penalties referenced in Subpart C of FMSH Act's
procedural rules.
This number consists of 5 pending legal action related to contests of proposed penalties referenced in Subpart C of FMSH Act's procedural
rules; and 1 appeals of judges' decisions or orders to FMSH Act's procedural rules.
Included in this number are 5 pending legal actions related to contests of citations and orders referenced in Subpart B of FMSH Act's
procedural rules; 5 pending legal actions related to contests of proposed penalties referenced in Subpart C of FMSH Act's procedural
rules; and 4 appeals of judges' decisions or orders to FMSH Act's procedural rules.
Included in this number are 2 pending legal actions related to contests of citations and orders referenced in Subpart B of FMSH Act's
procedural rules and 8 pending legal actions related to contests of proposed penalties referenced in Subpart C of FMSH Act's procedural
rules.
This number consists of 1 pending legal action related to contests of proposed penalties referenced in Subpart C of FMSH Act's procedural
rules.
Cliffs Natural Resources Inc. and Subsidiaries
Schedule II – Valuation and Qualifying Accounts
(Dollars in Millions)
Exhibit 99(a)
Balance at
Beginning
of Year
Charged
to Cost
and
Expenses
Additions
Charged
to Other
Accounts
Acquisition
Deductions
Balance at
End of Year
$
$
$
$
$
858.4
8.1
223.9
$
$
$
— $
86.6
$
(65.5)
$
— $
— $
635.8
8.1
— $
— $
— $
— $
— $
— $
15.4
$
864.1
— $
8.1
1.3
$
— $
858.4
8.1
172.7
$
49.1
2.1
$
— $
— $
223.9
$
$
$
Classification
Year Ended December 31, 2013:
Deferred Tax Valuation Allowance
Accounts Receivable Allowance
Year Ended December 31, 2012:
Deferred Tax Valuation Allowance
Accounts Receivable Allowance
Year Ended December 31, 2011:
Deferred Tax Valuation Allowance
SENIOR LEADERSHIP TEAM
Name
Position
President and Chief Executive Officer
Executive Vice President, Corporate Development & Chief Strategy Officer
Executive Vice President, United States Iron Ore
Executive Vice President, Human Resources
Gary B. Halverson
William C. Boor
Terry G. Fedor
Maurice Harapiak
Terrance M. Paradie Executive Vice President & Chief Financial Officer
Clifford T. Smith
P. Kelly Tompkins
David L. Webb
Executive Vice President, Seaborne Iron Ore
Executive Vice President, External Affairs & President, Global Commercial
Executive Vice President, Global Coal
Age
Service
56
48
49
44
46
54
57
57
<1
7
3
<1
6
10
4
3
Age and service with Cliffs at June 02, 2014
DIRECTORS
James F. Kirsch (2010)
Non-Executive Chairman,
Cliffs Natural Resources Inc.
Gary B. Halverson (2013)
President and Chief Executive Officer,
Cliffs Natural Resources Inc.
Susan M. Cunningham 3, 4 (2005)
Senior Vice President, Gulf of Mexico,
Africa and Frontier Ventures and Business
Innovation, Noble Energy Inc.– International
energy exploration and production company
Barry J. Eldridge 2, 4 (2005)
Former Managing Director and
Chief Executive Officer, Portman Limited –
Iron ore mining and production company
Mark E. Gaumond 1, 2 (2013)
Former Senior Vice Chair – Americas,
Ernst & Young – Assurance, tax transaction
and advisory services company
Andrés R. Gluski 1, 4 (2011)
President and Chief Executive Officer,
The AES Corporation – International
independent power production company
Susan M. Green 1, 3 (2007)
Former Deputy General Counsel,
U.S. Congressional Office of Compliance
Janice K. Henry 1, 2 (2009)
Former Senior Vice President,
Chief Financial Officer and Treasurer,
Martin Marietta Materials, Inc. –
Producer of construction aggregates
Stephen M. Johnson 1,3 (2013)
Former Chairman, President and
Chief Executive Officer, McDermott
International, Inc. – Engineering and
construction company
Richard K. Riederer 3, 4 (2002)
Chief Executive Officer, RKR Asset
Management – Consulting organization
Timothy Sullivan 2, 4 (2013)
Former Chairman and Chief Executive
Officer, Gardner Denver Inc. – Manfucturer
of products for energy, industrial and
medical applications
Committees Served:
1 Audit
2 Compensation and Organization
3 Governance and Nominating
4 Strategy and Sustainability
Year in parentheses indicates year he/she
became a director.
INVESTOR AND
CORPORATE INFORMATION
Corporate Office
Cliffs Natural Resources Inc.
200 Public Square, Suite 3300
Cleveland, OH 44114-2315
P: 216.694.5700, F: 216.694.5385
cliffsnaturalresources.com
Transfer Agent and Registrar
Wells Fargo Shareholder Services
P.O. Box 64874
St. Paul, MN 55164-0874
800.468.9716
Annual Meeting
Date: July 29, 2014
Time: 11:30 a.m. ET
Place: North Point
901 Lakeside Avenue
Cleveland, OH 44114
Additional Info
Cliffs’ Annual Report to the SEC (Form
10-K) and proxy statement are available
on Cliffs’ website. Copies of these reports
and other Company publications also
may be obtained by sending requests
to the attention of Investor Relations at
the corporate office, or by telephone at
800.214.0739, or e-mail ir@cliffsnr.com.
Common Shares
NYSE: CLF
Depositary Shares
NYSE: CLV
SENIOR LEADERSHIP TEAM
Name
Position
Gary B. Halverson
William C. Boor
Terry G. Fedor
Maurice Harapiak
Terrance M. Paradie
Clifford T. Smith
P. Kelly Tompkins
David L. Webb
Age and service with Cliffs at June 02, 2014
President and Chief Executive Officer
Executive Vice President, Corporate Development & Chief Strategy Officer
Executive Vice President, United States Iron Ore
Executive Vice President, Human Resources
Executive Vice President & Chief Financial Officer
Executive Vice President, Seaborne Iron Ore
Executive Vice President, External Affairs & President, Global Commercial
Executive Vice President, Global Coal
C L I F F S l 2 0 1 3 A N N U A L R E P O R T
Age
Service
56
48
49
44
46
54
57
57
<1
7
3
<1
6
10
4
3
INVESTOR AND
CORPORATE INFORMATION
DIRECTORS
James F. Kirsch (2010)
Non-Executive Chairman,
Cliffs Natural Resources Inc.
Gary B. Halverson (2013)
President and Chief Executive Officer,
Cliffs Natural Resources Inc.
Susan M. Cunningham 3, 4 (2005)
Senior Vice President, Gulf of Mexico, Africa
and Frontier Ventures and Business Innovation,
Noble Energy Inc.– International energy
exploration and production company
Barry J. Eldridge 2, 4 (2005)
Former Managing Director and
Chief Executive Officer, Portman Limited –
Iron ore mining and production company
Mark E. Gaumond 1, 2 (2013)
Former Senior Vice Chair – Americas,
Ernst & Young – Assurance, tax transaction
and advisory services company
Andrés R. Gluski 1, 4 (2011)
President and Chief Executive Officer,
The AES Corporation – International
independent power production company
Susan M. Green 1, 3 (2007)
Former Deputy General Counsel,
U.S. Congressional Office of Compliance
Janice K. Henry 1, 2 (2009)
Former Senior Vice President,
Chief Financial Officer and Treasurer,
Martin Marietta Materials, Inc. –
Producer of construction aggregates
Stephen M. Johnson 1,3 (2013)
Former Chairman, President and
Chief Executive Officer, McDermott International,
Inc. – Engineering and construction company
Richard K. Riederer 3, 4 (2002)
Chief Executive Officer, RKR Asset Management
– Consulting organization
Timothy Sullivan 2, 4 (2013)
Former Chairman and Chief Executive Officer,
Gardner Denver Inc. – Manufacturer of products
for energy, industrial and medical applications
Corporate Office
Cliffs Natural Resources Inc.
200 Public Square, Suite 3300
Cleveland, OH 44114-2315
P: 216.694.5700, F: 216.694.5385
cliffsnaturalresources.com
Transfer Agent and Registrar
Wells Fargo Shareholder Services
P.O. Box 64874
St. Paul, MN 55164-0874
800.468.9716
Committees Served:
1 Audit
2 Compensation and Organization
3 Governance and Nominating
4 Strategy and Sustainability
Year in parentheses indicates year he/she
became a director.
Annual Meeting
Date: July 29, 2014
Time: 11:30 a.m. ET
Place: North Point
901 Lakeside Avenue
Cleveland, OH 44114
Additional Info
Cliffs’ Annual Report to the SEC (Form
10-K) and proxy statement are available
on Cliffs’ website. Copies of these reports
and other Company publications also may be
obtained by sending requests to the attention of
Investor Relations at the corporate office,
or by telephone at 800.214.0739, or e-mail
ir@cliffsnr.com.
Common Shares
NYSE: CLF
Depositary Shares
NYSE: CLV
cliffsnaturalresources.com
200 Public Square, Suite 3300, Cleveland, OH 44114-2315