Table of Contents
Registration No. 333-152974
Joseph A. Carrabba Chairman, President and Chief Executive Officer Cliffs Natural Resources Inc. | Michael J. Quillen Chairman and Chief Executive Officer Alpha Natural Resources, Inc. |
Table of Contents
1100 Superior Avenue
Cleveland, Ohio44114-2544
Attention: Investor Relations
(216) 694-5700
One Alpha Place, P.O. Box 2345
Abingdon, Virginia 24212
Attention: Investor Relations
(276) 619-4410
Table of Contents
Table of Contents
Vice President, Secretary and General
Counsel
Table of Contents
Table of Contents
General Counsel and Secretary
Table of Contents
Page | ||||
1 | ||||
1 | ||||
4 | ||||
8 | ||||
8 | ||||
8 | ||||
8 | ||||
10 | ||||
11 | ||||
11 | ||||
11 | ||||
11 | ||||
11 | ||||
11 | ||||
12 | ||||
12 | ||||
13 | ||||
14 | ||||
14 | ||||
15 | ||||
15 | ||||
15 | ||||
16 | ||||
16 | ||||
17 | ||||
18 | ||||
20 | ||||
24 | ||||
25 | ||||
26 | ||||
27 | ||||
27 | ||||
30 | ||||
38 | ||||
39 | ||||
40 | ||||
40 | ||||
40 | ||||
40 | ||||
40 | ||||
40 | ||||
41 | ||||
41 |
Table of Contents
Page | ||||
42 | ||||
43 | ||||
43 | ||||
43 | ||||
43 | ||||
44 | ||||
44 | ||||
44 | ||||
44 | ||||
44 | ||||
44 | ||||
45 | ||||
46 | ||||
47 | ||||
47 | ||||
48 | ||||
48 | ||||
48 | ||||
48 | ||||
48 | ||||
48 | ||||
59 | ||||
61 | ||||
64 | ||||
75 | ||||
82 | ||||
82 | ||||
82 | ||||
83 | ||||
86 | ||||
86 | ||||
87 | ||||
90 | ||||
92 | ||||
92 | ||||
92 | ||||
93 | ||||
93 | ||||
93 | ||||
96 | ||||
96 | ||||
97 | ||||
97 | ||||
97 |
ii
Table of Contents
Page | ||||
97 | ||||
98 | ||||
98 | ||||
98 | ||||
98 | ||||
99 | ||||
99 | ||||
99 | ||||
101 | ||||
109 | ||||
110 | ||||
112 | ||||
113 | ||||
115 | ||||
115 | ||||
130 | ||||
138 | ||||
142 | ||||
MATERIAL CONTRACTS BETWEEN CLIFFS AND ITS AFFILIATES AND ALPHA AND ITS AFFILIATES | 143 | |||
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CLIFFS | 144 | |||
144 | ||||
148 | ||||
160 | ||||
165 | ||||
166 | ||||
167 | ||||
168 | ||||
169 | ||||
171 | ||||
177 | ||||
177 | ||||
177 | ||||
179 | ||||
179 | ||||
181 | ||||
182 | ||||
210 | ||||
212 | ||||
213 | ||||
214 | ||||
214 |
iii
Table of Contents
Page | ||||
217 | ||||
217 | ||||
224 | ||||
226 | ||||
238 | ||||
238 | ||||
238 | ||||
239 | ||||
F-i | ||||
ANNEXES | ||||
Agreement and Plan of Merger | A-1 | |||
Opinion of Citigroup Global Markets Inc. | B-1 | |||
Opinion of J.P. Morgan Securities Inc. | C-1 | |||
Section 262 of the General Corporation Law of the State of Delaware | D-1 | |||
Section 1701.85 of Chapter 1701 of the Ohio Revised Code | E-1 | |||
Effects of Merger if Restructured | G-1 |
iv
Table of Contents
Q: | Why am I receiving this joint proxy statement/prospectus? | |
A: | The boards of directors of each of Alpha and Cliffs have agreed to the acquisition of Alpha by Cliffs pursuant to the terms of a merger agreement that is described in this joint proxy statement/prospectus. A copy of the merger agreement is attached to this joint proxy statement/prospectus asAnnex A. | |
In order to complete the transactions contemplated by the merger agreement, including the merger, Cliffs shareholders and Alpha stockholders must vote on and approve proposals described in this joint proxy statement/prospectus and all other conditions to the merger must be satisfied or waived. Alpha and Cliffs will hold separate special meetings of their respective shareholders to seek to obtain these approvals. | ||
This joint proxy statement/prospectus contains important information about the merger agreement, the transactions contemplated by the merger agreement, including the merger, and the respective special meetings of the stockholders of Alpha and shareholders of Cliffs, which you should read carefully. The enclosed proxy materials allow you to grant a proxy to vote your shares without attending your respective company’s special meeting in person. | ||
Your vote is very important. We encourage you to submit your proxy as soon as possible. | ||
Q: | What is the proposed transaction for which I am being asked to vote? | |
A: | Alpha stockholders are being asked to adopt the merger agreement at the Alpha special meeting. A copy of the merger agreement is attached to this joint proxy statement/prospectus asAnnex A. The approval of the proposal to adopt the merger agreement by Alpha stockholders is a condition to the obligation of the parties to the merger agreement to complete the merger. See “The Merger — Conditions to Completion of the Merger” on page 92 and “Summary — Conditions to Completion of the Merger” beginning on page 12. | |
Cliffs shareholders are being asked to adopt the merger agreement and approve the issuance of Cliffs common shares pursuant to the terms of the merger agreement at the Cliffs special meeting. The approval of this proposal by the Cliffs shareholders is a condition to the obligation of the parties to the merger agreement to complete the merger. See “The Merger — Conditions to Completion of the Merger” on page 92 and “Summary — Conditions to Completion of the Merger” beginning on page 12. | ||
Q: | Why are Alpha and Cliffs proposing the merger? | |
A: | Alpha and Cliffs both believe that the merger will provide substantial strategic and financial benefits to the stockholders of both companies. The combined company, which we refer to as the combined company, will become one of the largest U.S. mining companies and be positioned as a leading diversified mining and natural resources company. In addition, Alpha is also proposing the merger to provide its stockholders with the opportunity to receive the merger consideration and to offer Alpha stockholders the opportunity to participate in the growth and opportunities of the combined company by receiving Cliffs common shares pursuant to the merger. To review the reasons for the merger in greater detail, see “The Merger — Alpha’s Reasons for the Merger and Recommendation of Alpha’s Board of Directors” beginning on page 59 and “The Merger — Cliffs’ Reasons for the Merger and Recommendation of Cliffs’ Board of Directors” beginning on page 61. |
1
Table of Contents
Q: | What are the positions of the Alpha and Cliffs boards of directors regarding the merger and the proposals relating to the adoption of the merger agreement and the issuance of Cliffs common shares? | |
A: | Both boards of directors have approved the merger agreement and the transactions contemplated by the merger agreement, including the merger, and determined that the transactions contemplated by the merger agreement are advisable and fair to, and in the best interests of, their respective companies and stockholders. The Alpha board of directors recommends that the Alpha stockholders voteforthe proposal to adopt the merger agreement at the Alpha special meeting. The Cliffs board of directors recommends that the Cliffs shareholders voteforthe proposal to adopt the merger agreement and approve the issuance of Cliffs common shares pursuant to the terms of the merger agreement at the Cliffs special meeting. See “The Merger — Alpha’s Reasons for the Merger and Recommendation of Alpha’s Board of Directors” beginning on page 59, “The Merger — Cliffs’ Reasons for the Merger and Recommendation of Cliffs’ Board of Directors” beginning on page 61, “Summary — The Merger — Alpha’s Reasons for the Merger” on page 9 and “Summary — The Merger — Cliffs’ Reasons for the Merger” on page 9. | |
Q: | What vote is needed by Alpha stockholders to adopt the merger agreement? | |
A: | The adoption of the merger agreement requires the affirmative vote of at least a majority of the outstanding shares of Alpha common stock entitled to vote. If you are an Alpha stockholder and you abstain from voting, that will have the same effect as a vote against the adoption of the merger agreement. See “The Alpha Special Meeting — Quorum and Vote Required” beginning on page 40. | |
Q: | What vote is needed by Cliffs shareholders to adopt the merger agreement and approve the issuance of Cliffs common shares pursuant to the terms of the merger agreement? | |
A: | The adoption of the merger agreement and the approval of the issuance of Cliffs common shares pursuant to the terms of the merger agreement requires the affirmative vote of at least two-thirds of the votes entitled to be cast by the holders of outstanding common shares of Cliffs and 3.25% Redeemable Cumulative Convertible Perpetual Preferred Stock of Cliffs, which we refer to asSeries A-2 preferred stock, voting together as a class. If you are a Cliffs shareholder and you abstain from voting, that will have the same effect as a vote against the adoption of the merger agreement and the issuance of Cliffs common shares pursuant to the merger agreement. See “The Cliffs Special Meeting — Quorum and Vote Required” beginning on page 44. | |
The former owners of PinnOak Resources, LLC, or PinnOak, which, held, collectively, as of the record date, 4,000,000 common shares of Cliffs, or approximately 3.5% of all of the common shares of Cliffs issued and outstanding as of the record date, and United Mining Co., Ltd., or United Mining, which held as of the record date 4,311,471 common shares of Cliffs, or approximately 3.8% of the then issued and outstanding common shares of Cliffs, each entered into separate voting agreements with Cliffs, pursuant to which they have agreed, among other things, to vote their respective common shares of Cliffs in favor of the adoption of the merger agreement and the approval of the transactions contemplated thereby, including the merger. | ||
Q: | What will happen in the proposed merger? | |
A: | In the proposed merger, Alpha Merger Sub, Inc., a wholly-owned subsidiary of Cliffs, which we refer to as merger sub, will merge with and into Alpha, with Alpha as the surviving company. Under certain circumstances, the merger may be restructured so that merger sub will be converted from a Delaware corporation to a Delaware limited liability company, Alpha Merger Sub, LLC, and Alpha will merge with and into Alpha Merger Sub, LLC, with Alpha Merger Sub, LLC as the surviving company. The effects of the merger, if it is restructured in this way, are described inAnnex G. After the merger, Alpha will no longer be a public company and will become a wholly-owned subsidiary of Cliffs. See “The Merger Agreement — The Merger; Closing” beginning on page 96. | |
Q: | What will Alpha stockholders receive in the merger? | |
A: | In the merger, holders of Alpha common stock (other than shares of Alpha common stock held by any dissenting Alpha stockholder that has properly exercised appraisal rights in accordance with Delaware law, held in |
2
Table of Contents
treasury by Alpha or owned by Cliffs) will be entitled to receive for each share of Alpha common stock (which will be cancelled in the merger): | ||
• $22.23 in cash, without interest; and | ||
• 0.95 of a fully paid, nonassessable common share of Cliffs. | ||
Although both the cash portion and the share portion of the merger consideration are fixed, due to the fluctuations in the market value of the Cliffs common shares, the value of the Cliffs common shares to be issued in the merger will fluctuate with movements in the price of Cliffs common shares. See “Risk Factors — Risks Relating to the Merger — Because the market price of Cliffs common shares will fluctuate, Alpha stockholders cannot be sure of the value of the merger consideration they will receive” on page 27. | ||
Alpha stockholders will be entitled to receive cash for any fractional common shares of Cliffs that they would otherwise be entitled to receive in the merger. | ||
Q: | What are the potential principal adverse consequences of the merger to the Cliffs shareholders? | |
A: | Following the consummation of the merger, Cliffs shareholders will participate in one of the largest U.S. mining companies with a mine portfolio including nine iron ore facilities and more than 60 coal mines located across North America, South America and Australia. Although the combined company will have a significantly increased size and scope, if the combined company is unable to realize the strategic and financial benefits currently anticipated to result from the merger, then Cliffs shareholders could experience dilution of their economic interest in Cliffs without receiving a commensurate benefit. In addition, it is possible that the merger could result in dilution to Cliffs’ earnings per share. Further, any adverse changes to the financial condition, results of operations, business, competitive position, reputation and business prospects of Alpha could potentially adversely affect the value of the combined company, thereby decreasing the value of the Cliffs common shares after the merger. Please see “Risk Factors — Risks Relating to the Merger” beginning on page 27 and “Risk Factors — Risks Relating to the Combined Company’s Operations After Consummation of the Merger” beginning on page 38 for a further discussion of the material risks associated with the merger. | |
Q: | Do Alpha stockholders have appraisal rights? | |
A: | Yes. Alpha stockholders who do not vote in favor of adopting the merger agreement and who otherwise comply with the requirements of Delaware law will be entitled to appraisal rights to receive the statutorily determined “fair value” of their shares of Alpha common stock as determined by the Delaware Chancery Court, rather than the merger consideration. For a full description of the appraisal rights available to Alpha stockholders, see “Summary — Appraisal Rights of Alpha Stockholders” beginning on page 11 and “The Merger — Appraisal Rights of Alpha Stockholders” beginning on page 87. | |
Q: | Do Cliffs shareholders have dissenters’ rights? | |
A: | Yes. Cliffs shareholders are entitled to exercise dissenters’ rights in connection with the merger, provided they comply with the requirements of Chapter 1701 of the Ohio Revised Code, which we refer to as the Ohio General Corporation Law. For a full description of the dissenters’ rights of Cliffs shareholders, see “Summary — Dissenters’ Rights of Cliffs Shareholders” on page 12 and “The Merger — Dissenters’ Rights of Cliffs Shareholders” beginning on page 90. | |
Q: | Will the rights of Alpha stockholders change as a result of the merger? | |
A: | Yes. Alpha stockholders will become Cliffs shareholders and their rights as Cliffs shareholders will be governed by the Ohio General Corporation Law and Cliffs’ amended articles of incorporation, as amended, which we refer to as the amended articles of incorporation, and regulations, which we refer to as the regulations. For a summary description of those rights, see “Comparison of Rights of Shareholders” beginning on page 217. For a copy of Cliffs’ amended articles of incorporation or regulations, see “Where You Can Find More Information” beginning on page 239. | |
Q: | Will the rights of Cliffs shareholders change as a result of the merger? | |
A: | No. Cliffs shareholders will retain their shares of Cliffs and their rights will continue to be governed by the Ohio General Corporation Law and Cliffs’ amended articles of incorporation and regulations. |
3
Table of Contents
Q: | Where do Cliffs common shares trade? | |
A: | Common shares of Cliffs trade on the New York Stock Exchange, or NYSE, under the symbol “CLF.” | |
Q: | When do you expect to complete the merger? | |
A: | If the merger agreement is adopted at the Alpha special meeting and the merger agreement is adopted and the issuance of Cliffs common shares is approved at the Cliffs special meeting, we expect to complete the merger as soon as possible after the satisfaction of the other conditions to the merger. There may be a substantial period of time between the approval of the proposals by stockholders at the special meetings of Alpha’s stockholders and Cliffs’ shareholders and the effectiveness of the merger. We currently anticipate that, if the necessary approvals of Alpha’s stockholders and Cliffs’ shareholders are obtained, the merger will be completed prior to the end of 2008. See “The Merger Agreement — The Merger; Closing” beginning on page 96. | |
Q: | Who will be the directors of Cliffs after the merger? | |
A: | The directors of Cliffs immediately prior to the merger will continue as directors after the effective time of the merger. In addition, Cliffs has agreed to take all actions required to appoint two members of Alpha’s board of directors, Michael J. Quillen and Glenn A. Eisenberg, to Cliffs’ board after the merger. | |
Q: | Should I send in my stock certificates now? | |
A: | NO, PLEASE DO NOT SEND YOUR STOCK CERTIFICATE(S) WITH YOUR PROXY CARD(S).If the merger is completed, Cliffs will send Alpha stockholders written instructions for sending in their stock certificates or, in the case of book-entry shares, for surrendering their book-entry shares. See “The Alpha Special Meeting — Proxy Solicitations” on page 43 and “The Merger Agreement — Exchange of Shares” beginning on page 98. Cliffs shareholders will not need to send in their share certificates or surrender their book-entry shares. | |
Q: | Who can answer my questions about the merger? | |
A: | If you have any questions about the merger or your special meeting, need assistance in voting your shares, or need additional copies of this joint proxy statement/prospectus or the enclosed proxy card(s), you should contact: |
501 Madison Avenue, 20th Floor
New York, NY 10022
Shareholders may call toll-free:(877) 456-3507
Banks and Brokers call collect:(212) 750-5833
48 Wall Street, 22nd Floor
New York, NY 10005
Banks and Brokers call collect:(212) 269-5550
All others call toll-free:(888) 887-0082
Q: | When and where are the special meetings? | |
A: | The Alpha special meeting will be held at the offices of Alpha located at One Alpha Place, Abingdon, Virginia 24212, at 11 a.m. E.T. on November 21, 2008. | |
The Cliffs special meeting will be held at The Forum Conference Center located at One Cleveland Center, 1375 East Ninth Street, Cleveland, Ohio 44114, at 11 a.m. E.T. on November 21, 2008. |
4
Table of Contents
Q: | Who is eligible to vote at the Alpha and Cliffs special meetings? | |
A: | Owners of Alpha common stock are eligible to vote at the Alpha special meeting if they were stockholders of record at the close of business on October 10, 2008. See “The Alpha Special Meeting — Record Date; Outstanding Shares; Shares Entitled to Vote” on page 40. | |
Owners of Cliffs common shares and shares ofSeries A-2 preferred stock are eligible to vote at the Cliffs special meeting if they were shareholders of record at the close of business on October 6, 2008. See “The Cliffs Special Meeting — Record Date; Outstanding Shares; Shares Entitled to Vote” on page 44. | ||
Q: | What should I do now? | |
A: | You should read this joint proxy statement/prospectus carefully, including the annexes, and return your completed, signed and dated proxy card(s) by mail in the enclosed postage-paid envelope or by submitting your proxy by telephone or over the Internet as soon as possible so that your shares will be represented and voted at your special meeting. You may vote your shares by signing, dating and mailing the enclosed proxy card(s), or by voting by telephone or over the Internet. A number of banks and brokerage firms participate in a program that also permits shareholders whose shares are held in “street name” to direct their vote by telephone or over the Internet. This option, if available, will be reflected in the voting instructions from the bank or brokerage firm that accompany this joint proxy statement/prospectus. If your shares are held in an account at a bank or brokerage firm that participates in such a program, you may direct the vote of these shares by telephone or over the Internet by following the voting instructions enclosed with the proxy form from the bank or brokerage firm. See “The Alpha Special Meeting — How to Vote” beginning on page 41 and “The Cliffs Special Meeting — How to Vote” beginning on page 46. | |
Q: | If I am going to attend my special meeting, should I return my proxy card(s)? | |
A: | Yes. Returning your signed and dated proxy card(s) or voting by telephone or over the Internet ensures that your shares will be represented and voted at your special meeting. See “The Alpha Special Meeting — How to Vote” beginning on page 41 and “The Cliffs Special Meeting — How to Vote” beginning on page 46. | |
Q: | How will my proxy be voted? | |
A: | If you complete, sign and date your proxy card(s) or vote by telephone or over the Internet, your proxy will be voted in accordance with your instructions. If you sign and date your proxy card(s) but do not indicate how you want to vote at your special meeting: | |
• for Alpha stockholders, your shares will be votedfor the adoption of the merger agreement. If you vote for the adoption of the merger agreement at the Alpha special meeting, you will lose the appraisal rights to which you would otherwise be entitled. See “Summary — Appraisal Rights of Alpha Stockholders” beginning on page 11, “The Merger — Appraisal Rights of Alpha Stockholders” beginning on page 87 and “The Alpha Special Meeting — How to Vote” beginning on page 41; and | ||
• for Cliffs shareholders, your shares will be votedforthe adoption of the merger agreement and the issuance of Cliffs common shares. If you vote for the adoption of the merger agreement and the issuance of the Cliffs common shares at the Cliffs special meeting, you will lose the dissenters’ rights to which you would otherwise be entitled. See “Summary — Dissenters’ Rights of Cliffs Shareholders” on page 12, “The Merger — Dissenters’ Rights of Cliffs Shareholders” beginning on page 90 and “The Cliffs Special Meeting — How to Vote” beginning on page 46. |
5
Table of Contents
Q: | Can I change my vote after I mail my proxy card(s) or vote by telephone or over the Internet? | |
A: | Yes. If you are a record holder of Alpha common stock or Cliffs common shares or shares ofSeries A-2 preferred stock, you can change your vote by: | |
• sending a written notice to the corporate secretary of the company in which you hold shares that is received prior to your special meeting and states that you revoke your proxy; | ||
• signing and delivering a new proxy card(s) bearing a later date; | ||
• voting again by telephone or over the Internet and submitting your proxy so that it is received prior to your special meeting; or | ||
• attending your special meeting and voting in person, although your attendance alone will not revoke your proxy. | ||
If your shares are held in a “street name” account, you must contact your broker, bank or other nominee to change your vote. | ||
Q: | What if my shares are held in “street name” by my broker? | |
A: | If a broker holds your shares for your benefit but not in your own name, your shares are in “street name.” In that case, your broker will send you a voting instruction form to use in voting your shares. The availability of telephone and Internet voting depends on your broker’s voting procedures. Please follow the instructions on the voting instruction form they send you. If your shares are held in your broker’s name and you wish to vote in person at your special meeting, you must contact your broker and request a document called a “legal proxy.” You must bring this legal proxy to your respective special meeting in order to vote in person. | |
Q: | What if I don’t provide my broker with instructions on how to vote? | |
A: | Generally, a broker may only vote the shares that it holds for you in accordance with your instructions. However, if your broker has not received your instructions, your broker has the discretion to vote on certain matters that are considered routine. A “broker non-vote” occurs if your broker cannot vote on a particular matter because your broker has not received instructions from you and because the proposal is not routine. Broker non-votes could be counted in determining whether a quorum is present at the respective special meetings of Alpha stockholders and Cliffs shareholders. Nevertheless, since we do not anticipate that there will be any “routine matters” on the agenda for the respective special meetings of Alpha stockholders and Cliffs shareholders, we expect that there will be practical impediments that will prevent us from counting broker non-votes for purposes of a quorum at those special meetings. | |
Alpha Stockholders | ||
If you wish to vote on the proposal to adopt the merger agreement, you must provide instructions to your broker because this proposal is not routine. If you do not provide your broker with instructions, your broker will not be authorized to vote with respect to adopting the merger agreement, and a broker non-vote will occur. This will have the same effect as a voteagainst the adoption of the merger agreement. | ||
Cliffs Shareholders | ||
If you wish to vote on the proposal to adopt the merger agreement and approve the issuance of Cliffs common shares pursuant to the merger agreement, you must provide instructions to your broker because this proposal is not routine. If you do not provide your broker with instructions, your broker will not be authorized to vote with respect to the adoption of the merger agreement and the issuance of Cliffs common shares, and a broker non-vote will occur. This will have the same effect as a voteagainst the adoption of the merger agreement and the issuance of Cliffs common shares. |
6
Table of Contents
Q: | What if I abstain from voting? | |
A: | Your abstention from voting will have the following effect: | |
If you are an Alpha stockholder: | ||
Abstentions will be counted in determining whether a quorum is present at the special meeting. With respect to the proposal to adopt the merger agreement, abstentions will have the same effect as a voteagainstthe proposal to adopt the merger agreement. With respect to the proposal to adjourn the special meeting, if necessary, to solicit further proxies in connection with the merger agreement adoption proposal, abstentions will have the same effect as a voteagainst the proposal to adjourn the Alpha special meeting. | ||
If you are a Cliffs shareholder: | ||
Abstentions will be counted in determining whether a quorum is present at the special meeting. With respect to the proposal to adopt the merger agreement and approve the issuance of Cliffs common shares pursuant to the merger agreement, abstentions will have the same effect as a voteagainst the proposal to adopt the merger agreement and approve the issuance of Cliffs common shares in connection with the merger. With respect to the proposal to adjourn or postpone the special meeting, if necessary, to solicit further proxies in connection with the merger agreement adoption and share issuance proposal, abstentions will have the same effect as a voteagainstthe proposal to adjourn or postpone the Cliffs special meeting, whether a quorum is present or not. | ||
Q: | What does it mean if I receive multiple proxy cards? | |
A: | Your shares may be registered in more than one account, such as brokerage accounts and 401(k) accounts. It is important that you complete, sign, date and return each proxy card or voting instruction card you receive or vote using the telephone or the Internet as described in the instructions included with your proxy card(s) or voting instruction card(s). | |
Q: | Where can I find more information about Cliffs and Alpha? | |
A: | You can find more information about Cliffs and Alpha from various sources described under “Where You Can Find More Information” beginning on page 239. |
7
Table of Contents
• | $22.23 in cash, without interest; and | |
• | 0.95 of a fully paid, nonassessable common share of Cliffs. |
8
Table of Contents
9
Table of Contents
10
Table of Contents
11
Table of Contents
• | adoption of the merger agreement by the Alpha stockholders at the Alpha special meeting; | |
• | adoption of the merger agreement and approval of the issuance of Cliffs common shares pursuant to the terms of the merger agreement by the Cliffs shareholders at the Cliffs special meeting; | |
• | the waiting period (including any extension thereof) applicable to the consummation of the merger under theHart-Scott-Rodino Act, which is referred to as the HSR Act, must have expired or been terminated, and antitrust clearance in Turkey must have been obtained; | |
• | making or obtaining consents, approvals, and actions of, filings with and notices to, the governmental entities required to consummate the merger and the other transactions contemplated by the merger agreement, the failure of which to be made or obtained is reasonably expected to have or result in a material adverse effect on Cliffs or Alpha; | |
• | absence of any order or law of any governmental authority preventing the consummation of the merger; | |
• | approval for listing on the NYSE, upon official notice of issuance, of Cliffs common shares to be issued in connection with the merger; | |
• | continued effectiveness of the registration statement of which this joint proxy statement/prospectus is a part and the absence of any stop order or proceeding seeking a stop order by the SEC suspending the effectiveness of the registration statement; | |
• | accuracy of each party’s representations and warranties in the merger agreement, except as would not reasonably be expected to have or result in a material adverse effect on the party making the representations; |
12
Table of Contents
• | performance in all material respects of each party’s covenants set forth in the merger agreement required to be performed by it at or prior to the closing date of the merger; and | |
• | delivery by both parties of customary officer’s certificates and tax opinions. |
• | by either Cliffs or Alpha if: |
• | the merger is not consummated by January 15, 2009, which date can be extended under certain circumstances to April 15, 2009 (we refer to such date, as possibly extended, as the outside date), unless the failure to consummate the merger by the outside date is the result of a breach of the merger agreement by the party seeking the termination or if such party has not yet held its special meeting of shareholders; | |
• | the shareholders of Cliffs have voted and failed to adopt the merger agreement and approve the issuance of common shares of Cliffs pursuant to the merger agreement; | |
• | the Alpha stockholders have voted and failed to adopt the merger agreement; or | |
• | the other party breaches its representations or warranties or breaches or fails to perform its covenants set forth in the merger agreement, which breach or failure to perform results in a failure of certain of the conditions to the completion of the merger being satisfied and such breach or failure to perform is not cured within 30 days after the receipt of written notice thereof or is incapable of being cured by the outside date; or |
• | by Alpha if: |
• | prior to the receipt of its stockholders’ approval of the proposal to adopt the merger agreement, Alpha (i) receives an unsolicited written proposal after the date of the merger agreement concerning a business combination or acquisition of Alpha that the Alpha board of directors determines in its good faith judgment constitutes, or would reasonably be expected to lead to, a proposal that is more favorable to the Alpha stockholders than the transactions contemplated by the merger agreement, (ii) the Alpha board of directors determines in good faith that failure to take such action would be reasonably likely to be a violation of its fiduciary duties to Alpha stockholders under applicable Delaware law, (iii) provides Cliffs with a written notice that it intends to take such action, (iv) satisfies the conditions for withdrawing (or modifying in a manner adverse to Cliffs) the recommendation by its board of directors of the merger or recommending such superior proposal, and (v) concurrently with the termination of the merger |
13
Table of Contents
agreement, enters into an acquisition agreement with a third party providing for the implementation of the transactions contemplated by such superior proposal; provided that Alpha pays a $350 million termination fee to Cliffs and such superior proposal did not result from Alpha’s breach of its non-solicitation obligations under the merger agreement; |
• | Cliffs materially breaches its covenants to convene the Cliffs special meeting or breaches its obligations to recommend that the Cliffs shareholders vote in favor of the adoption of the merger agreement and the issuance of common shares in connection with the merger; or | |
• | the Cliffs board of directors or any committee thereof (i) withdraws or modifies, or publicly proposes to withdraw or modify, its recommendation that Cliffs’ shareholders adopt the merger agreement and approve the issuance of Cliffs common shares in connection with the merger, or (ii) recommends, adopts or approves, or proposes publicly to recommend, adopt or approve certain transactions involving Cliffs; or |
• | by Cliffs if: |
• | Alpha materially breaches its obligations not to solicit alternative takeover proposals or materially breaches its covenants to convene the Alpha special meeting or breaches its obligations to recommend that the Alpha stockholders vote in favor of the adoption of the merger agreement; or | |
• | the Alpha board of directors or any committee thereof (i) withdraws or adversely modifies or publicly proposes to withdraw or adversely modify, its recommendation of the merger agreement and the transactions contemplated by the merger agreement, including the merger, or (ii) recommends, adopts or approves, or proposes publicly to recommend, adopt or approve a takeover proposal other than the merger agreement. |
14
Table of Contents
• | subject to certain exceptions, amendments to Alpha’s certificate of incorporation require approval by Alpha’s board of directors and holders of a majority of the voting power of the corporation (or, in cases in which class voting is required, by holders of a majority of the voting power of such class), while amendments to the Cliffs’ articles of incorporation require approval by holders of two-thirds of the voting power of the corporation (or, in cases in which class voting is required, by holders of two-thirds of the voting power of such class); | |
• | the Alpha bylaws may be amended and repealed by the Alpha board of directors, while the Cliffs board of directors does not have the power to amend or repeal the Cliffs regulations; | |
• | while the Alpha stockholders do not have the right to vote cumulatively in the election of Alpha’s directors, the Cliffs shareholders, in contrast, may vote cumulatively in the election of Cliffs’ directors; and | |
• | while any action by Alpha stockholders without a meeting requires written consent of holders of not less than the minimum number of votes otherwise required to authorize or take such action at a meeting of the Alpha stockholders, generally, the Cliffs shareholders may take action without a meeting only by unanimous written consent of all shareholders entitled to vote at such meeting. |
15
Table of Contents
Price Range of Common shares | ||||||||||||
Fiscal Year Ended | High | Low | Dividends Paid | |||||||||
December 31, 2006: | ||||||||||||
First Quarter | $ | 27.59 | $ | 20.13 | $ | 0.05 | ||||||
Second Quarter | 25.22 | 15.70 | 0.0625 | |||||||||
Third Quarter | 20.05 | 16.58 | 0.0625 | |||||||||
Fourth Quarter | 24.74 | 18.42 | 0.0625 | |||||||||
December 31, 2007: | ||||||||||||
First Quarter | 32.42 | 23.00 | 0.0625 | |||||||||
Second Quarter | 46.03 | 32.10 | 0.0625 | |||||||||
Third Quarter | 45.00 | 28.20 | 0.0625 | |||||||||
Fourth Quarter | 53.15 | 36.75 | 0.0625 | |||||||||
December 31, 2008: | ||||||||||||
First Quarter | 63.89 | 38.63 | 0.0875 | |||||||||
Second Quarter | 121.95 | 57.32 | 0.0875 | |||||||||
Third Quarter | 118.10 | 42.16 | 0.0875 | |||||||||
Fourth Quarter (through October 21, 2008) | 53.30 | 22.39 | — |
16
Table of Contents
Price Range of Common Stock | ||||||||
Fiscal Year Ended | High | Low | ||||||
December 31, 2006: | ||||||||
First Quarter | $ | 23.60 | $ | 19.25 | ||||
Second Quarter | 27.46 | 17.88 | ||||||
Third Quarter | 20.18 | 14.41 | ||||||
Fourth Quarter | 17.07 | 14.09 | ||||||
December 31, 2007: | ||||||||
First Quarter | 15.85 | 12.32 | ||||||
Second Quarter | 21.07 | 15.43 | ||||||
Third Quarter | 23.50 | 15.92 | ||||||
Fourth Quarter | 35.20 | 22.78 | ||||||
December 31, 2008: | ||||||||
First Quarter | 44.58 | 21.92 | ||||||
Second Quarter | 108.73 | 40.05 | ||||||
Third Quarter | 119.30 | 42.68 | ||||||
Fourth Quarter (through October 21, 2008) | 50.69 | 28.05 |
17
Table of Contents
Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||||||
2008(b) | 2007 | 2007(a) | 2006 | 2005(b) | 2004 | 2003 | ||||||||||||||||||||||
(In millions, except per share data) | ||||||||||||||||||||||||||||
Financial Data: | ||||||||||||||||||||||||||||
Revenue from product sales and services | $ | 1,503.1 | $ | 873.1 | $ | 2,275.2 | $ | 1,921.7 | $ | 1,739.5 | $ | 1,203.1 | $ | 825.1 | ||||||||||||||
Cost of goods sold and operating expenses | (994.3 | ) | (681.7 | ) | (1,813.2 | ) | (1,507.7 | ) | (1,350.5 | ) | (1,053.6 | ) | (835.0 | ) | ||||||||||||||
Other operating income (expense) | (56.6 | ) | (30.6 | ) | (80.4 | ) | (48.3 | ) | (32.5 | ) | (31.9 | ) | (38.4 | ) | ||||||||||||||
Operating income (loss) | 452.2 | 160.8 | 381.6 | 365.7 | 356.5 | 117.6 | (48.3 | ) | ||||||||||||||||||||
Income (loss) from continuing operations | 287.2 | 119.4 | 269.8 | 279.8 | 273.2 | 320.2 | (34.9 | ) | ||||||||||||||||||||
Income (loss) from discontinued operations | — | — | 0.2 | 0.3 | (0.8 | ) | 3.4 | — | ||||||||||||||||||||
Income (loss) before extraordinary gain and cumulative effect of accounting change | 287.2 | 119.4 | 270.0 | 280.1 | 272.4 | 323.6 | (34.9 | ) | ||||||||||||||||||||
Extraordinary gain(g) | — | — | — | — | — | — | 2.2 | |||||||||||||||||||||
Cumulative effect of accounting changes(c) | — | — | — | — | 5.2 | — | — | |||||||||||||||||||||
Net income (loss) | 287.2 | 119.4 | 270.0 | 280.1 | 277.6 | 323.6 | (32.7 | ) | ||||||||||||||||||||
Preferred stock dividends | (1.3 | ) | (2.8 | ) | (5.2 | ) | (5.6 | ) | (5.6 | ) | (5.3 | ) | — | |||||||||||||||
Income (loss) applicable to common shares | 285.9 | 116.6 | 264.8 | 274.5 | 272.0 | 318.3 | (32.7 | ) | ||||||||||||||||||||
Earnings (loss) per common share — basic(d)(e)(f) Continuing operations | 3.04 | 1.43 | 3.19 | 3.26 | 3.08 | 3.70 | (.43 | ) | ||||||||||||||||||||
Discontinued operations | — | — | — | — | (.01 | ) | .04 | — | ||||||||||||||||||||
Cumulative effect of accounting changes and extraordinary gain | — | — | — | — | .06 | — | .03 | |||||||||||||||||||||
Earnings (loss) per common share | 3.04 | 1.43 | 3.19 | 3.26 | 3.13 | 3.74 | (.40 | ) | ||||||||||||||||||||
Earnings (loss) per common share — diluted(d)(e)(f) Continuing operations | 2.73 | 1.14 | 2.57 | 2.60 | 2.46 | 2.92 | (.43 | ) | ||||||||||||||||||||
Discontinued operations | — | — | — | — | (.01 | ) | .03 | — | ||||||||||||||||||||
Cumulative effect of accounting changes and extraordinary gain | — | — | — | — | .05 | — | .03 | |||||||||||||||||||||
Earnings (loss) per common share — diluted(d)(e)(f) | 2.73 | 1.14 | 2.57 | 2.60 | 2.50 | 2.95 | (.40 | ) | ||||||||||||||||||||
Total assets | $ | 4,046.9 | $ | 2,221.0 | $ | 3,075.8 | $ | 1,939.7 | $ | 1,746.7 | $ | 1,232.3 | $ | 881.6 | ||||||||||||||
Debt obligations effectively serviced | 774.8 | 158.6 | 505.8 | 47.2 | 49.6 | 9.1 | 34.6 | |||||||||||||||||||||
Net cash from (used by) operating activities | 82.9 | (37.7 | ) | 288.9 | 428.5 | 514.6 | (141.4 | ) | 42.7 | |||||||||||||||||||
Series A-2 preferred stock | 19.6 | 172.3 | 134.7 | 172.3 | 172.5 | 172.5 | — | |||||||||||||||||||||
Distributions to preferred shareholders cash dividends | 1.3 | 2.8 | 5.5 | 5.6 | 5.6 | 5.3 | — | |||||||||||||||||||||
Distributions to common shareholders cash dividends | ||||||||||||||||||||||||||||
— Per share(d)(e)(f) | .18 | .13 | .25 | .24 | .15 | .03 | — | |||||||||||||||||||||
— Total | 16.9 | 10.2 | 20.9 | 20.2 | 13.1 | 2.2 | — | |||||||||||||||||||||
Repurchases of common shares | — | 2.2 | 2.2 | 121.5 | — | 6.5 | — |
18
Table of Contents
Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||||||
2008(b) | 2007 | 2007(a) | 2006 | 2005(b) | 2004 | 2003 | ||||||||||||||||||||||
(In millions, except per share data) | ||||||||||||||||||||||||||||
Iron ore and coal production and sales statistics (tons in millions — North America; tonnes in millions — Asia-Pacific) | ||||||||||||||||||||||||||||
Production tonnage — North American iron ore | 18.0 | 16.9 | 34.6 | 33.6 | 35.9 | 34.4 | 30.3 | |||||||||||||||||||||
— North American coal | 1.7 | — | 1.1 | — | — | — | — | |||||||||||||||||||||
— Asia-Pacific iron ore | 4.0 | 4.2 | 8.4 | 7.7 | 5.2 | — | — | |||||||||||||||||||||
Production tonnage — North American iron ore (Cliffs share) | 11.5 | 10.8 | 21.8 | 20.8 | 22.1 | 21.7 | 18.1 | |||||||||||||||||||||
Sales tonnage — North American iron ore | 8.2 | 7.9 | 22.3 | 20.4 | 22.3 | 22.6 | 19.2 | |||||||||||||||||||||
— North American coal | 1.6 | — | 1.2 | — | — | — | — | |||||||||||||||||||||
— Asia-Pacific iron ore | 3.9 | 4.1 | 8.1 | 7.4 | 4.9 | — | — | |||||||||||||||||||||
Common shares outstanding (millions)(d)(e)(f) | ||||||||||||||||||||||||||||
— Average for period | 94.0 | 81.4 | 83.0 | 84.1 | 86.9 | 85.2 | 82.0 | |||||||||||||||||||||
— At period end | 102.6 | 82.0 | 87.2 | 81.8 | 87.6 | 86.4 | 84.0 |
(a) | On July 31, 2007, Cliffs completed the acquisition of Cliffs North American Coal LLC (formerly PinnOak), a producer of high-quality, low-volatile metallurgical coal. Results for 2007 include PinnOak’s results since the acquisition. | |
(b) | On April 19, 2005, Cliffs completed the acquisition of 80.4 percent of Portman, an iron ore mining company in Australia. The acquisition was initiated on March 31, 2005 by the purchase of approximately 68.7 percent of Portman’s outstanding shares. Results for 2005 include Portman’s results since the acquisition. On May 21, 2008, Portman authorized a tender offer to repurchase up to 16.5 million shares, or 9.39 percent of its common stock, and as a result of the repurchase of shares pursuant to the tender offer, Cliffs’ ownership interest in Portman increased from 80.4 percent to 85.2 percent on June 24, 2008. See “Information about Cliffs — Business — Strategic Transformation” on page 115. | |
(c) | Effective January 1, 2005, Cliffs adopted Emerging Issues Task Force, or EITF,04-6, “Accounting for Stripping Costs Incurred during Production in the Mining Industry”. | |
(d) | On March 11, 2008, the Cliffs board of directors declared a two-for-one stock split of Cliffs common shares. The record date for the stock split was May 1, 2008 with a distribution date of May 15, 2008. Accordingly, all common shares and per share amounts for all periods presented have been adjusted retroactively to reflect the stock split. | |
(e) | On May 9, 2006, the board of directors of Cliffs approved a two-for-one stock split of its common shares. The record date for the stock split was June 15, 2006 with a distribution date of June 30, 2006. Accordingly, all common shares and per share amounts for all periods presented have been adjusted retroactively to reflect the stock split. | |
(f) | On November 9, 2004, the board of directors of Cliffs approved a two-for-one stock split of its common shares. The record date for the stock split was December 15, 2004, with a distribution date of December 31, 2004. Accordingly, all common shares and per share amounts for all periods presented have been adjusted retroactively to reflect the stock split. | |
(g) | In 2003, Cliffs recognized a $2.2 million extraordinary gain in conjunction with the acquisition of the assets of Eveleth Mines; $3.3 million acquisition and startup costs for this same mine, renamed United Taconite LLC, which is referred to as United Taconite, and $8.7 million of restructuring charges related to a salaried employee reduction program. |
19
Table of Contents
ANR Fund IX Holdings, | ||||||||||||||||||||||||||||
L.P. and Alpha NR | ||||||||||||||||||||||||||||
Alpha Natural Resources, Inc. | Holding, Inc. and | |||||||||||||||||||||||||||
and Subsidiaries | Subsidiaries | |||||||||||||||||||||||||||
Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||||||
2008 | 2007 | 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||||||||
(In thousands, except per share and per ton data) | ||||||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||
Coal revenues | $ | 1,077,555 | $ | 767,362 | $ | 1,647,505 | $ | 1,681,434 | $ | 1,413,174 | $ | 1,079,981 | $ | 694,596 | ||||||||||||||
Freight and handling revenues | 145,187 | 84,799 | 205,086 | 188,366 | 185,555 | 141,100 | 73,800 | |||||||||||||||||||||
Other revenues | 26,385 | 13,778 | 33,241 | 34,743 | 27,926 | 28,347 | 13,453 | |||||||||||||||||||||
Total revenues | 1,249,127 | 865,939 | 1,885,832 | 1,904,543 | 1,626,655 | 1,249,428 | 781,849 | |||||||||||||||||||||
Costs and expenses: | ||||||||||||||||||||||||||||
Cost of coal sales (exclusive of items shown separately) | 824,635 | 635,204 | 1,371,519 | 1,346,733 | 1,184,092 | 920,359 | 626,265 | |||||||||||||||||||||
Increase in fair value of derivative instruments, net | (23,200 | ) | (840 | ) | (8,926 | ) | (402 | ) | — | — | — | |||||||||||||||||
Freight and handling costs | 145,187 | 84,799 | 205,086 | 188,366 | 185,555 | 141,100 | 73,800 | |||||||||||||||||||||
Cost of other revenues | 23,125 | 10,396 | 25,817 | 22,982 | 23,675 | 22,994 | 12,488 | |||||||||||||||||||||
Depreciation and amortization | 89,170 | 73,644 | 159,579 | 140,851 | 73,122 | 55,261 | 35,385 | |||||||||||||||||||||
Selling, general and administrative expense (exclusive of depreciation and amortization shown separately above) | 36,086 | 27,221 | 58,605 | 67,952 | 88,132 | 40,607 | 21,926 | |||||||||||||||||||||
Total costs and expenses | 1,095,003 | 830,424 | 1,811,680 | 1,766,482 | 1,554,576 | 1,180,321 | 769,864 | |||||||||||||||||||||
Income from operations | 154,124 | 35,515 | 74,152 | 138,061 | 72,079 | 69,107 | 11,985 | |||||||||||||||||||||
20
Table of Contents
ANR Fund IX Holdings, | ||||||||||||||||||||||||||||
L.P. and Alpha NR | ||||||||||||||||||||||||||||
Alpha Natural Resources, Inc. | Holding, Inc. and | |||||||||||||||||||||||||||
and Subsidiaries | Subsidiaries | |||||||||||||||||||||||||||
Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||||||
2008 | 2007 | 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||||||||
(In thousands, except per share and per ton data) | ||||||||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||
Interest expense | (27,184 | ) | (20,023 | ) | (40,215 | ) | (41,774 | ) | (29,937 | ) | (20,041 | ) | (7,848 | ) | ||||||||||||||
Interest income | 3,023 | 1,094 | 2,340 | 839 | 1,064 | 531 | 103 | |||||||||||||||||||||
Loss on early extinguishment of debt | (14,669 | ) | — | — | — | — | — | — | ||||||||||||||||||||
Miscellaneous income (expense) | 2 | 554 | (93 | ) | 523 | 91 | 722 | 574 | ||||||||||||||||||||
Total other income (expense), net | (38,828 | ) | (18,375 | ) | (37,968 | ) | (40,412 | ) | (28,782 | ) | (18,788 | ) | (7,171 | ) | ||||||||||||||
Income from continuing operations before income taxes and minority interest | 115,296 | 17,140 | 36,184 | 97,649 | 43,297 | 50,319 | 4,814 | |||||||||||||||||||||
Income tax expense (benefit) | 15,630 | 4,131 | 8,629 | (30,519 | ) | 18,953 | 5,150 | 898 | ||||||||||||||||||||
Minority interest | (201 | ) | (87 | ) | (179 | ) | — | 2,918 | 22,781 | 1,164 | ||||||||||||||||||
Income from continuing operations | 99,867 | 13,096 | 27,734 | 128,168 | 21,426 | 22,388 | 2,752 | |||||||||||||||||||||
Loss from discontinued operations | — | — | — | — | (213 | ) | (2,373 | ) | (490 | ) | ||||||||||||||||||
Net income | $ | 99,867 | $ | 13,096 | $ | 27,734 | $ | 128,168 | $ | 21,213 | $ | 20,015 | $ | 2,262 | ||||||||||||||
Earnings per share data: | ||||||||||||||||||||||||||||
Net income (loss) per share, as adjusted(1) | ||||||||||||||||||||||||||||
Basic and diluted: | ||||||||||||||||||||||||||||
Income from continuing operations | $ | 1.48 | $ | 0.20 | $ | 0.43 | $ | 2.00 | $ | 0.38 | $ | 1.52 | $ | 0.19 | ||||||||||||||
Loss from discontinued operations | — | — | — | — | — | (0.16 | ) | (0.04 | ) | |||||||||||||||||||
Net income per basic share | $ | 1.48 | $ | 0.20 | $ | 0.43 | $ | 2.00 | $ | 0.38 | $ | 1.36 | $ | 0.15 | ||||||||||||||
Net income per diluted share | $ | 1.46 | $ | 0.20 | $ | 0.43 | $ | 2.00 | $ | 0.38 | $ | 1.36 | $ | 0.15 | ||||||||||||||
Pro forma net income (loss) per share(2) | ||||||||||||||||||||||||||||
Basic and diluted: | ||||||||||||||||||||||||||||
Income from continuing operations | $ | 0.35 | $ | 0.25 | ||||||||||||||||||||||||
Loss from discontinued operations | — | (0.07 | ) | |||||||||||||||||||||||||
Net income per basic and diluted share | $ | 0.35 | $ | 0.18 | ||||||||||||||||||||||||
Balance sheet data (at period end): | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 406,494 | $ | 8,655 | $ | 54,365 | $ | 33,256 | $ | 39,622 | $ | 7,391 | $ | 11,246 | ||||||||||||||
Operating and working capital | 311,857 | 109,926 | 157,147 | 116,464 | 35,074 | 56,257 | 32,714 | |||||||||||||||||||||
Total assets | 1,678,936 | 1,146,198 | 1,210,914 | 1,145,793 | 1,013,658 | 477,121 | 379,336 | |||||||||||||||||||||
Notes payable and long-term debt, including current portion | 545,596 | 445,134 | 446,913 | 445,651 | 485,803 | 201,705 | 84,964 | |||||||||||||||||||||
Stockholders’ equity and partners’ capital | 666,744 | 364,889 | 380,836 | 344,049 | 212,765 | 45,933 | 86,367 | |||||||||||||||||||||
Statement of cash flows data: | ||||||||||||||||||||||||||||
Net cash provided by (used in): | ||||||||||||||||||||||||||||
Operating activities | $ | 179,437 | $ | 102,308 | $ | 225,741 | $ | 210,081 | $ | 149,643 | $ | 106,776 | $ | 54,104 | ||||||||||||||
Investing activities | (73,851 | ) | (113,763 | ) | (165,203 | ) | (160,046 | ) | (339,387 | ) | (86,202 | ) | (100,072 | ) | ||||||||||||||
Financing activities | 246,543 | (13,146 | ) | (39,429 | ) | (56,401 | ) | 221,975 | (24,429 | ) | 48,770 | |||||||||||||||||
Capital expenditures | (74,207 | ) | (71,655 | ) | (126,381 | ) | (131,943 | ) | (122,342 | ) | (72,046 | ) | (27,719 | ) |
21
Table of Contents
ANR Fund IX Holdings, | ||||||||||||||||||||||||||||
L.P. and Alpha NR | ||||||||||||||||||||||||||||
Alpha Natural Resources, Inc. | Holding, Inc. and | |||||||||||||||||||||||||||
and Subsidiaries | Subsidiaries | |||||||||||||||||||||||||||
Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||||||
2008 | 2007 | 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||||||||
(In thousands, except per share and per ton data) | ||||||||||||||||||||||||||||
Other data: | ||||||||||||||||||||||||||||
Production: | ||||||||||||||||||||||||||||
Produced/processed | 12,264 | 12,323 | 24,203 | 24,827 | 20,602 | 19,069 | 17,199 | |||||||||||||||||||||
Purchased | 2,521 | 1,584 | 4,189 | 4,090 | 6,284 | 6,543 | 3,938 | |||||||||||||||||||||
Total | 14,785 | 13,907 | 28,392 | 28,917 | 26,886 | 25,612 | 21,137 | |||||||||||||||||||||
Tons Sold: | ||||||||||||||||||||||||||||
Steam | 8,337 | 8,586 | 17,565 | 19,050 | 16,674 | 15,836 | 14,809 | |||||||||||||||||||||
Met | 6,270 | 4,882 | 10,980 | 10,029 | 10,023 | 9,490 | 6,804 | |||||||||||||||||||||
Total | 14,607 | 13,468 | 28,545 | 29,079 | 26,697 | 25,326 | 21,613 | |||||||||||||||||||||
Coal sales realization/ton: | ||||||||||||||||||||||||||||
Steam | $ | 50.83 | $ | 48.42 | $ | 48.75 | $ | 48.73 | $ | 41.33 | $ | 32.66 | $ | 27.14 | ||||||||||||||
Met | $ | 104.27 | $ | 72.02 | $ | 72.07 | $ | 75.09 | $ | 72.24 | $ | 59.31 | $ | 37.35 | ||||||||||||||
Total | $ | 73.77 | $ | 56.98 | $ | 57.72 | $ | 57.82 | $ | 52.93 | $ | 42.64 | $ | 32.14 | ||||||||||||||
Cost of coal sales/ton | $ | 56.45 | $ | 47.16 | $ | 48.05 | $ | 46.31 | $ | 44.35 | $ | 36.34 | $ | 28.98 | ||||||||||||||
Coal margin/ton | $ | 17.32 | $ | 9.82 | $ | 9.67 | $ | 11.51 | $ | 8.58 | $ | 6.30 | $ | 3.16 | ||||||||||||||
(1) | Basic earnings per share is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the periods. Diluted earnings per share is computed by dividing net income or loss by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the periods. Common stock equivalents include the number of shares issuable on exercise of outstanding options less the number of shares that could have been purchased with the proceeds from the exercise of the options based on the average price of common stock during the period. Due to the internal restructuring on February 11, 2005 and initial public offering of common stock completed on February 18, 2005, the calculation of earnings per share for 2005, 2004, and 2003 reflects certain adjustments, as described below. | |
The numerator for purposes of computing basic and diluted net income (loss) per share, as adjusted, includes the reported net income (loss) and a pro forma adjustment for income taxes to reflect the pro forma income taxes for ANR Fund IX Holdings, L.P.’s portion of reported pre-tax income (loss), which would have been recorded if the issuance of the shares of common stock received by ANR Fund IX Holdings, L.P. and Alpha NR Holding, Inc. in exchange for their ownership in ANR Holdings in connection with the February 11, 2005 restructuring had occurred as of January 1, 2003. For purposes of the computation of basic and diluted net income (loss) per share, as adjusted, the pro forma adjustment for income taxes only applies to the percentage interest owned by ANR Fund IX Holding, L.P, the nontaxable affiliate. No pro forma adjustment for income taxes is required for the percentage interest owned by Alpha NR Holding, Inc., because income taxes have already been recorded in the historical results of operations. Furthermore, no pro forma adjustment to reported net income (loss) is necessary subsequent to February 11, 2005 because Alpha is subject to income taxes. | ||
The denominator for purposes of computing basic net income (loss) per share, as adjusted, reflects the retroactive impact of the common shares received by ANR Fund IX Holdings, L.P. and Alpha NR Holding, Inc. in exchange for their ownership in ANR Holdings in connection with the internal restructuring on a weighted-average outstanding share basis as being outstanding as of January 1, 2003. The common shares issued to the minority interest owners of ANR Holdings in connection with the internal restructuring, including the immediately vested shares granted to management, have been reflected as being outstanding as of February 11, 2005 for purposes of computing the basic net income (loss) per share, as adjusted. The unvested shares granted to management on February 11, 2005 that vest monthly over the two-year period from January 1, 2005 to December 31, 2006 are included in the basic net income (loss) per share, as adjusted, computation as they vest on a weighted-average outstanding share basis starting on February 11, 2005. The 33,925,000 new shares issued in connection with the initial public offering have been reflected as being outstanding since February 14, 2005, |
22
Table of Contents
the date of the initial public offering, for purposes of computing the basic net income (loss) per share, as adjusted. | ||
The unvested shares issued to management are considered options for purposes of computing diluted net income (loss) per share, as adjusted. Therefore, for diluted purposes, all remaining unvested shares granted to management are added to the denominator subsequent to February 11, 2005 using the treasury stock method, if the effect is dilutive. In addition, the treasury stock method is used for outstanding stock options, if dilutive, beginning with the November 10, 2004 grant of options to management to purchase units in Alpha Coal Management, LLC that were automatically converted into options to purchase up to 596,985 shares of Alpha common stock at an exercise price of $12.73 per share. | ||
The computations of basic and diluted net income (loss) per share, as adjusted for 2005, 2004, and 2003 are set forth below: |
Year Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(In thousands, except per share amounts) | ||||||||||||
Numerator: | ||||||||||||
Reported income from continuing operations | $ | 21,426 | $ | 22,388 | $ | 2,752 | ||||||
Deduct: Income tax effect of ANR Fund IX Holdings, L.P. income from continuing operations prior to internal restructuring | (91 | ) | (1,149 | ) | (138 | ) | ||||||
Income from continuing operations, as adjusted | 21,335 | 21,239 | 2,614 | |||||||||
Reported loss from discontinued operations | (213 | ) | (2,373 | ) | (490 | ) | ||||||
Add: Income tax effect of ANR Fund IX Holdings, L.P. loss from discontinued operations prior to internal restructuring | 2 | 149 | 27 | |||||||||
Loss from discontinued operations, as adjusted | (211 | ) | (2,224 | ) | (463 | ) | ||||||
Net income, as adjusted | $ | 21,124 | $ | 19,015 | $ | 2,151 | ||||||
Denominator: | ||||||||||||
Weighted average shares — basic | 55,664,081 | 13,998,911 | 13,998,911 | |||||||||
Dilutive effect of stock options and restricted stock grants | 385,465 | — | — | |||||||||
Weighted average shares — diluted | 56,049,546 | 13,998,911 | 13,998,911 | |||||||||
Net income per share, as adjusted — basic and diluted: | ||||||||||||
Income from continuing operations, as adjusted | $ | 0.38 | $ | 1.52 | $ | 0.19 | ||||||
Loss from discontinued operations, as adjusted | — | (0.16 | ) | (0.04 | ) | |||||||
Net income per share, as adjusted | $ | 0.38 | $ | 1.36 | $ | 0.15 | ||||||
(2) | Pro forma net income (loss) per share gives effect to the following transactions as if each of these transactions had occurred on January 1, 2004: the Nicewonder acquisition and related debt refinancing in October 2005, the February 11, 2005 restructuring and initial public offering in February 2005, the issuance in May 2004 of $175.0 million principal amount of 10% senior notes due 2012, and the entry into a $175.0 million revolving credit facility in May 2004. |
23
Table of Contents
Six Months Ended | Year Ended | |||||||
June 30, 2008 | December 31, 2007 | |||||||
(In millions, except | (In millions, except | |||||||
per share data) | per share data) | |||||||
Results of Operations Data: | ||||||||
Total Revenues | $ | 3,099.5 | $ | 4,910.1 | ||||
Earnings from operations | 382.1 | 358.9 | ||||||
Diluted earnings per share from operations | 2.18 | 2.04 |
At June 30, 2008 | ||||
(In millions) | ||||
Balance Sheet Data: | ||||
Total assets | $ | 18,343.6 | ||
Total current liabilities | 1,537.3 | |||
Notes and non-current obligations | 7,556.2 | |||
Total shareholders’ equity | 9,042.2 |
24
Table of Contents
Cliffs | Alpha | |||||||||||||||
Historical per | Historical per | Cliffs | Alpha | |||||||||||||
Share Data | Share Data | Pro Forma | Pro Forma | |||||||||||||
At or for the Year Ended December 31, 2007: | ||||||||||||||||
Income from continuing operations per common share: | ||||||||||||||||
Basic | $ | 3.19 | $ | 0.43 | $ | 2.31 | $ | 2.05 | ||||||||
Diluted | $ | 2.57 | $ | 0.43 | $ | 2.04 | $ | 1.81 | ||||||||
Cash dividends declared per common share | $ | .25 | $ | — | $ | .25 | $ | .24 | ||||||||
Book value per common share | $ | 13.35 | $ | 5.79 | N/A | N/A |
25
Table of Contents
Cliffs | Alpha | |||||||||||||||
Historical per | Historical per | Cliffs | Alpha | |||||||||||||
Share Data | Share Data | Pro Forma | Pro Forma | |||||||||||||
At or for the Six Months Ended June 30, 2008: | ||||||||||||||||
Income from continuing operations per common share: | ||||||||||||||||
Basic | $ | 3.04 | $ | 1.48 | $ | 2.32 | $ | 2.20 | ||||||||
Diluted | $ | 2.73 | $ | 1.46 | $ | 2.18 | $ | 2.07 | ||||||||
Cash dividends declared per common share | $ | .0875 | $ | — | $ | .0875 | $ | .0831 | ||||||||
Book value per common share | $ | 16.02 | $ | 9.46 | $ | 52.39 | $ | 49.77 |
• | the closing prices per share and aggregate market value of Cliffs common shares and Alpha common stock, in each case based on the last reported sales prices as reported by the NYSE Composite Transactions Tape, on July 15, 2008, the last trading day prior to the public announcement of the proposed merger, and October 21, 2008, the last trading day for which this information could be calculated prior to the date of this joint proxy statement/prospectus; and | |
• | the equivalent price per share and equivalent market value of shares of Alpha common stock. |
Cliffs | Alpha | Alpha | ||||||||||
Historical | Historical | Equivalent(1) | ||||||||||
July 15, 2008 | ||||||||||||
Closing price per common share | $ | 111.46 | $ | 94.92 | $ | 128.12 | ||||||
Market value of common shares (in billions)(2) | $ | 11.6 | $ | 6.69 | N/A | |||||||
October 21, 2008 | ||||||||||||
Closing price per common share | $ | 34.42 | $ | 40.47 | $ | 54.93 | ||||||
Market value of common shares (in billions)(3) | $ | 3.67 | $ | 2.85 | N/A |
(1) | The Alpha equivalent price per share reflects the fluctuating value of Cliffs common shares that Alpha stockholders would receive for each share of Alpha common stock if the merger were completed on either July 15, 2008 or October 21, 2008. The Alpha equivalent price per share is equal to the sum of (i) the closing price of a Cliffs common share on the applicable date multiplied by 0.95 and (ii) $22.23. | |
(2) | Based on 104,145,300 Cliffs common shares and 70,495,814 shares of Alpha common stock outstanding as of July 15, 2008 (excluding outstanding shares held in treasury). | |
(3) | Based on 113,502,463 Cliffs common shares and 70,495,814 shares of Alpha common stock outstanding as of October 20, 2008 (excluding outstanding shares held in treasury). |
26
Table of Contents
27
Table of Contents
28
Table of Contents
• | current and prospective employees of Alpha will experience uncertainty about their future roles with the combined company, which might adversely affect Cliffs’ and Alpha’s ability to retain key managers and other employees; and | |
• | the attention of management of each of Cliffs and Alpha may be directed toward the completion of the merger. |
29
Table of Contents
30
Table of Contents
31
Table of Contents
32
Table of Contents
33
Table of Contents
34
Table of Contents
35
Table of Contents
36
Table of Contents
37
Table of Contents
38
Table of Contents
• | the ability of Cliffs to integrate the Alpha businesses with Cliffs’ businesses and achieve the expected benefits from the merger; | |
• | the adoption of the merger agreement at the Alpha special meeting; | |
• | the adoption of the merger agreement and approval of the issuance of Cliffs common shares in connection with the merger at the Cliffs special meeting; | |
• | the timing of the completion of the merger; | |
• | the actual financial position and results of operations of the combined company following the merger, which may differ significantly from the pro forma financial data contained in this joint proxy statement/prospectus; | |
• | changes in demand for iron ore pellets by North American integrated steel producers, or changes in Asian iron ore demand due to changes in steel utilization rates, operational factors, electric furnace production or imports into the United States and Canada of semi-finished steel or pig iron; | |
• | the impact of consolidation and rationalization in the steel industry; | |
• | timing of changes in customer coal inventories; | |
• | changes in, renewal of and acquiring new long-term coal supply arrangements; | |
• | inherent risks of coal mining beyond the combined company’s control; | |
• | competition in coal markets; | |
• | railroad, barge, truck and other transportation performance and costs; |
39
Table of Contents
• | the geological characteristics of Central and Northern Appalachian coal reserves; | |
• | availability of mining and processing equipment and parts; | |
• | the combined company’s assumptions concerning economically recoverable coal reserve estimates; | |
• | environmental laws, including those directly affecting coal mining production, and those affecting customers’ coal usage; | |
• | liability for litigation, administrative actions, and similar disputes; | |
• | inability to timely obtain permits, comply with government regulations or make capital expenditures required to maintain compliance; and | |
• | changes in laws and regulations. |
• | to adopt the merger agreement; and | |
• | to approve adjournments of the Alpha special meeting if necessary to permit further solicitation of proxies if there are not sufficient votes at the time of the Alpha special meeting to approve the proposal to adopt the merger agreement. |
40
Table of Contents
ITEM 1 — | THE MERGER |
ITEM 2 — | APPROVE ADJOURNMENT OF THE SPECIAL MEETING, IF NECESSARY, TO PERMIT FURTHER SOLICITATION OF PROXIES IF THERE ARE NOT SUFFICIENT VOTES AT THE TIME OF THE ALPHA SPECIAL MEETING TO APPROVE THE PROPOSAL TO ADOPT THE MERGER AGREEMENT |
41
Table of Contents
• | Internet: You can vote over the Internet at the Web address shown on your proxy card (http://www.cesvote.com). Internet voting is available 24 hours a day, 7 days a week. If you vote over the Internet, do not return your proxy card(s). |
• | Telephone: In the U.S., Canada and Puerto Rico, you can vote by telephone by calling the toll-free number on your proxy card(s). Telephone voting is available 24 hours a day, 7 days a week. Easy-to-follow voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded. If you vote by telephone, do not return your proxy card(s). | |
• | Mail: You can vote by mail by simply signing, dating and mailing your proxy card(s) in the postage-paid envelope included with this joint proxy statement/prospectus. |
• | sending a written notice to Alpha, at One Alpha Place, P.O. Box 2345, Abingdon, Virginia 24212, attention: Corporate Secretary, bearing a date later than the date of the proxy, that is received prior to the Alpha special meeting and states that you revoke your proxy; | |
• | submitting your proxy again by telephone or over the Internet; | |
• | signing another proxy card(s) bearing a later date and mailing it so that it is received prior to the special meeting; or | |
• | attending the special meeting and voting in person, although attendance at the special meeting will not, by itself, revoke a proxy. |
42
Table of Contents
43
Table of Contents
• | to adopt the merger agreement and approve the issuance of Cliffs common shares pursuant to the terms of the merger agreement; | |
• | to approve the adjournment or postponement of the Cliffs special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the Cliffs special meeting to adopt the merger agreement and approve the proposal to issue Cliffs common shares pursuant to the terms of the merger agreement; and | |
• | to consider and take action upon any other business that may properly come before the Cliffs special meeting or any reconvened meeting following an adjournment or postponement of the Cliffs special meeting. |
44
Table of Contents
ITEM 1 — | THE ADOPTION OF THE MERGER AGREEMENT AND THE ISSUANCE OF CLIFFS COMMON SHARES PURSUANT TO THE MERGER AGREEMENT |
ITEM 2 — | APPROVE ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING, IF NECESSARY, TO PERMIT FURTHER SOLICITATION OF PROXIES IF THERE ARE NOT SUFFICIENT VOTES AT THE TIME OF THE CLIFFS SPECIAL MEETING TO APPROVE THE PROPOSAL TO ADOPT THE MERGER AGREEMENT AND ISSUE CLIFFS COMMON SHARES IN CONNECTION WITH THE MERGER |
45
Table of Contents
• | Internet: You can vote over the Internet at the Web address shown on your proxy card(s). You will be prompted to enter your Control Number from your proxy card. This number will identify you as a shareholder of record. Follow the simple instructions that will be given to you to record your vote. If you vote over the Internet, do not return your proxy card(s). | |
• | Telephone: You can vote by telephone by calling the toll-free number on your proxy card(s). You will be prompted to enter your Control Number from your proxy card. This number will identify you as a shareholder of record. Follow the simple instructions that will be given to you to record your vote. If you vote by telephone, do not return your proxy card(s). | |
• | Mail: You can vote by mail by simply signing, dating and mailing your proxy card(s) in the postage-paid envelope included with this joint proxy statement/prospectus. |
46
Table of Contents
• | sending a written notice to Cliffs, at 1100 Superior Avenue East, Suite 1500, Cleveland, Ohio 44114, attention: Corporate Secretary, bearing a date later than the date of the proxy that is received prior to the Cliffs special meeting and states that you revoke your proxy; | |
• | submitting your proxy again by telephone or over the Internet; | |
• | signing another proxy card(s) bearing a later date and mailing it so that it is received prior to the special meeting; or | |
• | attending the special meeting and voting in person, although attendance at the special meeting will not, by itself, revoke a proxy. |
47
Table of Contents
48
Table of Contents
49
Table of Contents
50
Table of Contents
51
Table of Contents
52
Table of Contents
53
Table of Contents
54
Table of Contents
55
Table of Contents
56
Table of Contents
57
Table of Contents
58
Table of Contents
• | its knowledge of Alpha’s business, operations, financial condition, earnings and prospects and of Cliffs’ business, operations, financial condition, earnings and prospects, taking into account the results of Alpha’s due diligence of Cliffs; | |
• | its knowledge of the current environment in the mining industry, including economic conditions, continued consolidation, current financial market conditions and the likely effects of these factors on Alpha’s, Cliffs’ and the combined company’s potential growth, development, productivity and strategic options; | |
• | the financial terms of the merger, including the fact that, based on the closing prices on the NYSE of Cliffs common shares on July 15, 2008 (the last trading day prior to announcement of the merger agreement), the value of the merger consideration represented an approximate 35% premium over the closing price of Alpha shares as of that date; | |
• | the fact that Alpha stockholders will receive a portion of the merger consideration in cash, giving Alpha stockholders an opportunity to immediately realize value for a portion of their investment and providing certainty of value, and a portion in Cliffs common shares, with the result that the Alpha stockholders will own approximately 37% of the combined company’s equity, and benefit from the expected gains from the merger; | |
• | its belief, after reviewing Alpha’s potential strategic alternatives to the merger with Cliffs, including a merger or other strategic transaction with another third party, and taking into account the preliminary discussions with other third parties (see “— Background of the Merger” beginning on page 48), that it was unlikely that another party would make or accept an offer to engage in a transaction with Alpha that would be more favorable to Alpha and its stockholders than the merger with Cliffs; | |
• | its belief that the two companies would create a larger and more diversified institution that is both better equipped to respond to economic and industry developments and better positioned to develop and build on its strong market shares in iron ore, metallurgical coal and thermal coal; | |
• | the strategic fit and complementary nature of Cliffs’ and Alpha’s respective businesses and the potential presented by the merger with Cliffs for cost savings opportunities, and the related potential impact on the combined company’s earnings; | |
• | the overall competitive positioning of the combined company, which is expected to be a leading diversified mining company and major supplier to the global steel industry; | |
• | the presentation by Alpha’s financial advisor of financial analyses of Alpha on a stand-alone basis, the combination of Alpha and another third party that had expressed an interest in a merger with Alpha, and of the combination of Alpha and Cliffs; | |
• | Citi’s opinion, dated as of July 15, 2008, delivered to the Alpha board of directors to the effect that, as of the date of the opinion, and subject to the considerations and limitations set forth in the opinion, the presentation |
59
Table of Contents
of financial analyses by Citi that accompanied the delivery of the opinion and other factors that Citi deemed relevant, the merger consideration was fair, from a financial point of view, to the holders of Alpha common stock; |
• | the statements by the Chief Executive Officer of Cliffs to Alpha about his conversations with a senior representative of Harbinger Capital Partners, the largest shareholder of Cliffs, about the proposed transaction in a confidential conversation on July 15, 2008, as well as the fact that, in the event that Alpha’s stockholders adopted the merger agreement but the Cliffs shareholders failed to approve the issuance of shares in connection with the merger, Alpha would be entitled in some circumstances to obtain a $100 million termination fee; | |
• | the structure of the merger and the terms and conditions of the merger agreement, including: |
• | the limited closing conditions to Cliffs’ obligations under the merger agreement, including, in particular, the fact that the merger agreement contains no financing contingency or limit on the obligations of Cliffs in the event of a failure of the lender to Cliffs to disburse the financing committed for purposes of this transaction; | |
• | the provisions of the merger agreement that allow Alpha to engage in negotiations with, and provide information to, third parties, under certain circumstances in response to an unsolicited takeover proposal that Alpha’s board of directors determines in good faith, after consultation with its outside legal advisors and its financial advisors, constitutes or could reasonably be expected to lead to a transaction that is more favorable to Alpha stockholders than the merger with Cliffs; | |
• | the provisions of the merger agreement that allow Alpha, under certain circumstances, to terminate the merger agreement prior to its stockholder approval of the merger agreement in order to enter into an alternative transaction in response to an unsolicited takeover proposal that Alpha’s board of directors determines in good faith, after consultation with its outside legal advisors and its financial advisors, is more favorable to Alpha stockholders than the merger with Cliffs; | |
• | the ability of Alpha to obtain abreak-up fee of $350 million from Cliffs in the event that Cliffs fails to consummate the merger under certain circumstances, or a fee of $100 million if Cliffs shareholders fail to adopt the merger agreement and approve the issuance of the Cliffs common shares in connection with the merger (provided that, if Alpha’s stockholders do not adopt the merger agreement, Cliffs will not be required to pay the $100 million termination fee); |
• | the fact that the merger is structured as a reorganization for U.S. federal income tax purposes, which generally allows Alpha stockholders to refrain from recognizing any gain from the receipt of the share portion of the merger consideration; and | |
• | the fact that Alpha stockholders who do not vote in favor of the adoption of the merger agreement and otherwise follow the procedures prescribed by the DGCL will have the appraisal rights in connection with the merger. |
• | the merger agreement’s non-solicitation and stockholder approval covenants, and the requirement that Alpha must pay to Cliffs a termination fee of $350 million if the merger agreement is terminated under certain circumstances (which Alpha’s board of directors understood was a condition to Cliffs’ willingness to enter into the merger agreement and that could limit the willingness of a third party to propose a competing business combination with Alpha), or $100 million if Alpha stockholders fail to adopt the merger agreement (provided that, if Cliffs’ shareholders do not adopt the merger agreement and approve the issuance of Cliffs’ common shares in connection with the merger, Alpha will not be required to pay the $100 million termination fee); |
60
Table of Contents
• | the fact that, under Ohio law, the merger requires the approval of holders of two-thirds of the outstanding shares of Cliffs and the fact that a substantial portion of the outstanding shares of Cliffs are owned by a single shareholder (and its affiliates); | |
�� | • | the difficulty that Cliffs would have completing the merger if the financing outlined in the commitment letter received by Cliffs from J.P. Morgan and JPMCB were not disbursed; |
• | the regulatory and other approvals required in connection with the merger and the possibility that such approvals might not be received in a timely manner and without unacceptable conditions, creating the risk that adverse changes to the financial condition, results of operations, business, competitive position, reputation and business prospects of either Alpha or Cliffs could result in fluctuation in the value of the share portion of the merger consideration to be received by Alpha stockholders, could adversely affect the value of the combined company, or could result in the failure to complete the merger; | |
• | the possibility that management focus and resources at both Alpha and Cliffs would be diverted from other strategic opportunities and from operational matters while working to implement the merger; | |
• | the requirement that Alpha conduct its business only in the ordinary course prior to the completion of the merger and subject to specified restrictions without Cliffs’ prior consent (which consent may not be unreasonably withheld, delayed or conditioned), which might delay or prevent Alpha from undertaking certain business opportunities that might arise pending completion of the merger; and | |
• | the fact that some of Alpha’s directors and executive officers have other interests in the merger that are in addition to, and may be different from, their interests as Alpha stockholders, including as a result of employment and compensation arrangements with Alpha and the manner in which they would be affected by the merger. See “— Interests of Alpha Directors and Executive Officers in the Merger” beginning on page 83. |
• | that Alpha is the largest metallurgical coal supplier in the United States, and that the acquisition of Alpha will provide Cliffs additional exposure to the high-growth steel making raw materials market; | |
• | the strategic nature of the acquisition, which will allow both companies to capitalize on current market dynamics in iron ore and metallurgical coal, as well as create a stronger platform for continued strategic |
61
Table of Contents
investments in the global mining industry. The acquisition will also provide economies of scale that result from creating one of the largest mining companies in the United States; |
• | that the merger will provide Cliffs with premier coal industry management, technical and operational expertise via the addition of Alpha’s management team; | |
• | that the acquisition of Alpha will enhance Cliffs’ product portfolio in steelmaking raw materials and measured diversification into other products. The acquisition will substantially increase Cliffs’ annual production of metallurgical coal and optimize the revenues generated from the combined company’s coal reserves; | |
• | that the acquisition will capitalize on the strong market condition of the U.S. and global steel industries and further solidify Cliffs as a major iron ore and metallurgical coal supplier; | |
• | the expected synergies, including Alpha’s unique coal blending capabilities and preparation plant optimization, that are anticipated to result in approximately $200 million in aggregate synergies beginning in 2010; | |
• | the additional exposure Alpha will provide Cliffs to international markets via Alpha’s equity positions in U.S. port infrastructure and its expanded sales and marketing network; | |
• | Cliffs’ management’s view, based on due diligence and discussions with Alpha’s management, that Alpha and Cliffs share common values with respect tobest-in-class safety standards and practices and the socially responsible processing of the earth’s natural resources; | |
• | that the merger is expected to provide Cliffs with a more balanced portfolio of existing mines and exploratory opportunities, thereby giving Cliffs management more flexibility in its capital allocation decisions; | |
• | that the combined company will have a diverse geographic reach with combined coal operations in North America and Australia, and a number of the properties of the combined company will be in the same geographic region which may facilitate integration of those properties and a possible reduction in operating and administrative costs; | |
• | that the potential synergies expected to be derived from the merger present an opportunity for continued and sustained growth in accordance with Cliffs’ strategic plan for growth, as well as geographic and mineral diversification; | |
• | the Cliffs board’s knowledge of Cliffs’ business, operations, financial condition, earnings and prospects and of Alpha’s business, operations, financial condition, earnings and prospects, taking into account the results of Cliffs’ due diligence of Alpha; | |
• | the Cliffs board’s knowledge of the current environment in the mining industry, including economic conditions, continued consolidation, current financial market conditions and the likely effects of these factors on Cliffs’, Alpha’s, and the combined company’s potential growth, development, productivity and strategic options; | |
• | the information concerning the financial conditions, results of operations, prospects and businesses of Cliffs and Alpha, including the respective companies’ reserves, production volumes, cash flows from operations, recent performance of common shares and the ratio of Cliffs share price to Alpha stock price over various periods, as well as current industry, economic and market conditions; | |
• | the results of the business, legal and financial due diligence review of Alpha’s businesses and operations; | |
• | that the exchange ratio will enable Cliffs shareholders to own approximately 63% of the outstanding stock of the combined company; | |
• | the determination that an exchange ratio that is fixed is appropriate to reflect the strategic purpose of the merger and that a fixed exchange ratio avoids fluctuations caused by near-term market volatility; | |
• | the terms and conditions of the merger agreement, including the following: |
62
Table of Contents
• | the fact that Alpha agreed to pay a termination fee of $100 million to Cliffs in the event that the merger agreement is terminated due to a failure to obtain necessary approval from Alpha stockholders (provided that, if Cliffs shareholders do not adopt the merger agreement and approve the issuance of the Cliffs common shares in connection with the merger, Alpha will not be required to pay the $100 million termination fee); | |
• | the fact that Cliffs may be entitled to receive a $350 million termination fee from Alpha if the merger is not consummated for certain reasons as more fully described in the section titled “The Merger Agreement — Termination Fees” beginning on page 112; | |
• | the fact that the conditions required to be satisfied prior to completion of the merger are customary thereby increasing the likelihood of the consummation of the merger; | |
• | the fact that two members of the Alpha board of directors are expected to be appointed to the Cliffs board of directors, which is expected to provide a degree of continuity and involvement by Alpha directors in the combined company following the merger; and | |
• | the fact that, subject to certain exceptions, Alpha is prohibited from taking certain actions that would be deemed to be a solicitation under the merger agreement, including solicitation, initiation, encouragement of any inquiries or the making of any proposals for certain types of business combination or acquisition of Alpha (or entering into any agreement for such business combination or acquisition of Alpha or any requiring to abandon, terminate or fail to consummate the merger); and |
• | J.P. Morgan’s opinion, including its analysis rendered orally on July 15, 2008 and confirmed in writing on the same date, to the effect that, as of July 15, 2008, and based on and subject to various factors and assumptions set forth in its written opinion, the consideration proposed to be paid by Cliffs to Alpha stockholders in the merger was fair, from a financial point of view, to Cliffs. |
• | the risk that a substantial or extended decline in coal prices would likely make the merger less desirable from a financial point of view; | |
• | the potential dilution to Cliffs shareholders; | |
• | the risk of diverting management’s attention from other strategic opportunities in order to implement merger integration efforts; | |
• | the challenges of combining the businesses, operations and workforces of Cliffs and Alpha and realizing the anticipated cost savings and operating synergies; | |
• | the risk that the parties may incur significant costs and delays resulting from seeking governmental consents and approvals necessary for completion of the proposed merger; | |
• | the terms and conditions of the merger agreement, including: |
• | the requirement that Cliffs must pay to Alpha a termination fee of $350 million if the merger agreement is terminated under circumstances specified in the merger agreement, as described in the section titled “The Merger Agreement — Termination Fees” beginning on page 112; | |
• | the fact that Cliffs agreed to pay a termination fee of $100 million to Alpha in the event that the merger agreement is terminated due to a failure to obtain necessary Cliffs shareholder approval (provided that, if Alpha stockholders fail to adopt the merger agreement, Cliffs will not be required to pay the $100 million termination fee), as described in the section titled “The Merger Agreement — Termination Fees” beginning on page 112; and | |
• | the fact that the terms of the merger agreement provide that, under certain circumstances and subject to certain conditions more fully described in the section titled “The Merger Agreement — Covenants and Agreements — No Solicitation by Alpha” beginning on page 103, Alpha may furnish information to and |
63
Table of Contents
conduct negotiations with a third party in connection with an unsolicited proposal for a business combination or acquisition of Alpha that is likely to lead to a superior proposal and the Alpha board of directors can terminate the merger agreement in order to accept a superior proposal or, under certain circumstances, change its recommendation that Alpha stockholders adopt the merger agreement prior to Alpha stockholders’ approval of the merger agreement; |
• | the fact that Alpha stockholders who dissent from the merger will have appraisal rights, as described in the section titled “— Appraisal Rights of Alpha Stockholders”, beginning on page 87; | |
• | the fact that Cliffs shareholders who dissent from the merger will have dissenters’ rights as described in the section titled “— Dissenters’ Rights of Cliffs Shareholders”, beginning on page 90; and | |
• | the risks described in the section titled “Risk Factors” beginning on page 27. |
64
Table of Contents
65
Table of Contents
(1) | “Historical Met Coal / Management Steam Coal Case” is based on, for committed tonnage, Alpha management estimates of future sales under existing commitments principally covering fiscal years 2008 and 2009 and, for uncommitted tonnage, a constant metallurgical coal price estimate determined by the average of historical monthly metallurgical coal prices for the calendar years 2005, 2006 and 2007, and Alpha management estimates of future steam coal prices; | |
(2) | “Wall Street Consensus Case” is based on, for committed tonnage, Alpha management estimates of future sales under existing commitments principally covering fiscal years 2008 and 2009 and, for uncommitted tonnage, the average of Wall Street equity research estimates, selected by Citi on the basis of availability, of future metallurgical and steam coal prices; | |
(3) | “Company Case 1” is based on, for committed tonnage, Alpha management estimates of future sales under existing commitments principally covering fiscal years 2008 and 2009 and, for uncommitted tonnage, Alpha management estimates of future metallurgical coal prices, which generally assume that such future prices for uncommitted tonnage decline annually beyond fiscal year 2008, and steam coal prices. For fiscal years 2008 through 2011, Alpha management estimates of future metallurgical coal prices generally correlated with those published in Wall Street equity research reports, selected by Citi on the basis of availability. The majority of such Wall Street equity research estimates projected a declining price curve; and | |
(4) | “Company Case 2” is based on, for committed tonnage, Alpha management estimates of future sales under existing commitments principally covering fiscal years 2008 and 2009 and, for uncommitted tonnage, Alpha management estimates of future metallurgical coal prices, which generally assume that such future prices for uncommitted tonnage remain relatively flat through fiscal year 2012, and steam coal prices. Alpha management estimates of future metallurgical coal prices considered Alpha management’s view of current and possible future supply and demand fundamentals of the metallurgical coal market, and the increased level of strategic interest in U.S. metallurgical coal assets demonstrated by international steel companies. |
66
Table of Contents
Implied per Share | ||||
Equity Reference | ||||
Range for Alpha | ||||
Historical Met Coal/Management Steam Coal Case | $ | 39.00 — $ 48.00 | ||
Wall Street Consensus Case | $ | 50.00 — $ 57.00 | ||
Company Case 1 | $ | 82.00 — $ 98.00 | ||
Company Case 2 | $ | 143.00 — $174.00 |
• | International Coal Group, Inc. | |
• | James River Coal Company | |
• | Massey Energy Company | |
• | Walter Industries, Inc. |
67
Table of Contents
Implied per Share | ||||
Equity Reference | ||||
Range for Alpha | ||||
Historical Met Coal / Management Steam Coal Case | ||||
Wall Street Consensus Estimates | $ | 50.00 — $ 60.00 | ||
Wall Street Top Quartile Estimates | $ | 40.00 — $ 45.00 | ||
Wall Street Consensus Case | ||||
Wall Street Consensus Estimates | $ | 100.00 — $120.00 | ||
Wall Street Top Quartile Estimates | $ | 80.00 — $ 95.00 | ||
Company Case 1 | ||||
Wall Street Consensus Estimates | $ | 105.00 — $125.00 | ||
Wall Street Top Quartile Estimates | $ | 85.00 — $100.00 | ||
Company Case 2 | ||||
Wall Street Consensus Estimates | $ | 145.00 — $170.00 | ||
Wall Street Top Quartile Estimates | $ | 120.00 — $140.00 |
68
Table of Contents
(1) | “Wall Street Consensus Case” is based on Cliffs management estimates for fiscal year 2008 and the average of Wall Street equity research estimates, selected by Citi on the basis of availability, of future North America (Metallurgical) Coal prices, North America Iron Ore prices, Asia Pacific Iron Ore prices and Asia Pacific Coal prices for fiscal years 2009 through 2012; |
69
Table of Contents
(2) | “Company Case 1” is based on (i) Cliffs management estimates of future North America Iron Ore prices, Asia Pacific Iron Ore prices and Asia Pacific Coal prices for fiscal years 2008 through 2012 and North America (Metallurgical) Coal prices for fiscal year 2008, and (ii) Alpha management estimates of future North America (Metallurgical) Coal prices for fiscal years 2009 through 2012, which generally assume that such future prices decline annually beyond fiscal year 2009. For fiscal years 2008 through 2011, Alpha management estimates of future North America (Metallurgical) Coal prices generally correlated with those published in Wall Street equity research reports, selected by Citi on the basis of availability. The majority of such Wall Street equity research reports estimates projected a declining price curve; and | |
(3) | “Company Case 2” is based on (i) Cliffs management estimates of future North America Iron Ore prices, Asia Pacific Iron Ore prices and Asia Pacific Coal prices for fiscal years 2008 through 2012 and North America (Metallurgical) Coal prices for fiscal year 2008, and (ii) Alpha management estimates of future North America (Metallurgical) Coal prices for fiscal years 2009 through 2012, which generally assume that such future prices remain relatively flat through fiscal year 2012. Alpha management estimates of future North America (Metallurgical) Coal prices considered Alpha management’s view of current and possible future supply and demand fundamentals of the metallurgical coal market and the increased level of strategic interests in U.S. metallurgical coal assets demonstrated by international steel companies. | |
Estimates of future North America Iron Ore prices, Asia Pacific Iron Ore prices and Asia Pacific Coal prices are identical in Company Case 1 and Company Case 2. |
Implied per Share | ||||
Equity Reference | ||||
Range for Cliffs | ||||
Wall Street Consensus Case | $ | 32.00 — $ 37.00 | ||
Company Case 1 | $ | 118.00 — $146.00 | ||
Company Case 2 | $ | 148.00 — $183.00 |
• | Companhia Vale do Rio Doce S.A., or Vale | |
• | Fortescue Metals Group Ltd. |
70
Table of Contents
• | Kumba Iron Ore Ltd. | |
• | Ferrexpo plc | |
• | Mount Gibson Iron Limited |
Implied per Share | ||||
Equity Reference | ||||
Range for Cliffs | ||||
Wall Street Consensus Case | ||||
Wall Street Consensus Estimates | $ | 70.00 — $ 85.00 | ||
Wall Street Top Quartile Estimates | $ | 50.00 — $ 70.00 | ||
Company Case 1 | ||||
Wall Street Consensus Estimates | $ | 100.00 — $125.00 | ||
Wall Street Top Quartile Estimates | $ | 75.00 — $100.00 | ||
Company Case 2 | ||||
Wall Street Consensus Estimates | $ | 115.00 — $145.00 | ||
Wall Street Top Quartile Estimates | $ | 85.00 — $115.00 |
71
Table of Contents
Implied Value of Consideration | Implied | |||||||||||||||||||||||||||
Alpha | Cliffs | Exchange Ratio | Stock | Cash | Total | Premium | ||||||||||||||||||||||
July 14, 2008 | $ | 98.72 | $ | 113.44 | 0.95 | x | $ | 107.77 | $ | 22.23 | $ | 130.00 | 32 | % | ||||||||||||||
5-Day Average | 92.37 | 105.69 | 0.95 | 100.40 | 22.23 | 122.63 | 33 | |||||||||||||||||||||
10-Day Average | 93.17 | 105.08 | 0.95 | 99.83 | 22.23 | 122.06 | 31 | |||||||||||||||||||||
20-Day Average | 94.53 | 106.39 | 0.95 | 101.07 | 22.23 | 123.30 | 30 | |||||||||||||||||||||
30-Day Average | 92.21 | 105.23 | 0.95 | 99.97 | 22.23 | 122.20 | 33 | |||||||||||||||||||||
60-Day Average | 76.59 | 97.21 | 0.95 | 92.35 | 22.23 | 114.58 | 50 | |||||||||||||||||||||
90-Day Average | 65.42 | 86.05 | 0.95 | 81.75 | 22.23 | 103.98 | 59 | |||||||||||||||||||||
52-Week High | 108.73 | 121.95 | 0.95 | 115.85 | 22.23 | 138.08 | 27 | |||||||||||||||||||||
52-Week Low | 15.92 | 28.20 | 0.95 | 26.79 | 22.23 | 49.02 | 208 |
72
Table of Contents
% Contribution | ||||
Cliffs | Alpha | |||
Wall Street Consensus Case | ||||
EBITDA | ||||
2008E | 68% | 32% | ||
2009E | 59 | 41 | ||
2010E | 55 | 45 | ||
Net Income | ||||
2008E | 73% | 27% | ||
2009E | 62 | 38 | ||
2010E | 56 | 44 | ||
Company Case 1 | ||||
EBITDA | ||||
2008E | 69% | 31% | ||
2009E | 62 | 38 | ||
2010E | 68 | 32 | ||
Net Income | ||||
2008E | 73% | 27% | ||
2009E | 64 | 36 | ||
2010E | 70 | 30 | ||
Company Case 2 | ||||
EBITDA | ||||
2008E | 69% | 31% | ||
2009E | 59 | 41 | ||
2010E | 61 | 39 | ||
Net Income | ||||
2008E | 73% | 27% | ||
2009E | 61 | 39 | ||
2010E | 62 | 38 |
73
Table of Contents
Accretion / (Dilution) | ||||||||
to Cliffs | ||||||||
CFPS | EPS | |||||||
Wall Street Consensus Case | ||||||||
2009E | (7 | )% | (18 | )% | ||||
2010E | (1 | )% | (17 | )% | ||||
Company Case 1 | ||||||||
2009E | (9 | )% | (19 | )% | ||||
2010E | (16 | )% | (26 | )% | ||||
Company Case 2 | ||||||||
2009E | 1 | % | (14 | )% | ||||
2010E | (2 | )% | (13 | %) |
74
Table of Contents
• | reviewed a draft dated July 15, 2008 of the merger agreement; |
75
Table of Contents
• | reviewed certain publicly available business and financial information concerning Cliffs and Alpha and the industries in which they operate; | |
• | compared the financial and operating performance of Cliffs and Alpha with publicly available information concerning certain other companies J.P. Morgan deemed relevant and reviewed the current and historical market prices of Cliffs common shares and Alpha common stock and certain publicly traded securities of such other companies; | |
• | reviewed certain internal financial analyses and forecasts prepared by management of Alpha, certain analyses of Alpha’s business prepared by the management of Cliffs and certain internal financial analyses and forecasts prepared by the management of Cliffs relating to Cliffs’ business, as well as the estimated amount and timing of cost savings and related expenses and synergies expected to result from the merger; and | |
• | performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of its opinion. |
76
Table of Contents
• | Arch Coal, Inc. | |
• | CONSOL Energy Inc. | |
• | Foundation Coal Holdings, Inc. | |
• | Massey Energy Company | |
• | Walter Industries, Inc. |
• | Anglo American plc | |
• | BHP Billiton Group | |
• | Vale | |
• | Rio Tinto plc | |
• | Teck Cominco Limited | |
• | Xstrata plc |
• | Antofagasta plc | |
• | Freeport-McMoRan Copper & Gold Inc. | |
• | Southern Copper Corporation |
77
Table of Contents
• | Kumba Iron Ore Limited | |
• | Mount Gibson Iron Limited |
• | ArcelorMittal USA | |
• | United States Steel Corporation |
Equity Value/ | ||||
Firm Value/ | Operating Cash Flow | |||
EBITDA Multiple | Multiple | |||
2009E | 2009E | |||
Alpha — Comparables | ||||
Range | 3.8x — 7.7x | 6.4x — 10.2x | ||
Median(1) | 7.0x | 8.9x | ||
Cliffs — Comparables | ||||
Diversified Mining range | 4.6x — 7.8x | 6.0x — 7.8x | ||
Diversified Mining median | 5.4x | 6.4x | ||
Base Metals range | 4.1x — 5.8x | 5.5x — 8.1x | ||
Base Metals median | 4.7x | 5.8x | ||
International Iron Ore range | 3.0x — 4.2x | 3.9x — 6.0x | ||
International Iron Ore median | 3.6x | 5.0x | ||
Steel range | 5.1x — 6.2x | 6.5x — 7.8x | ||
Steel median | 5.6x | 7.2x |
(1) | Walter Industries was excluded from the median |
78
Table of Contents
79
Table of Contents
Revenue | EBITDA | Operating Cash Flow | ||||||||||
2009 | 55% | 59% | 59% | |||||||||
2010 | 55% | 60% | 61% |
Revenue | EBITDA | Operating Cash Flow | ||||||||||
2009 | 53% | 58% | 59% | |||||||||
2010 | 54% | 59% | 61% |
(1) | Based on relative contribution, actual capital structure and assuming a 100% stock transaction |
Revenue | EBITDA | Operating Cash Flow | ||||
2009 | 1.2534x | 1.0569x | 1.0003x | |||
2010 | 1.2321x | 0.9969x | 0.9227x |
(1) | Based on relative contribution, actual capital structure and assuming a 100% stock transaction |
80
Table of Contents
81
Table of Contents
• | $22.23 in cash, without interest; and | |
• | 0.95 of a fully paid, nonassessable common share of Cliffs. |
82
Table of Contents
• | special retention bonuses payable upon closing; | |
• | accelerated vesting and exercisability of Alpha stock options and restricted stock issued under Alpha’s equity compensation plans; | |
• | payments under employment agreements and severance plans which, in either case, may be triggered upon the closing of the merger or if the officer’s employment is terminated under certain circumstances following the merger; | |
• | accelerated vesting and payment of deferred compensation for directors under Alpha’s equity compensation plans; | |
• | potential appointment to the Cliffs board of directors following the merger; | |
• | potentially becoming executive officers, employees or consultants of Cliffs after the transaction; | |
• | continued benefits under Cliffs plans for two years following the effective date of the merger that are, in the aggregate, substantially comparable to those provided by Alpha immediately prior to the effective time of the merger; and | |
• | Cliffs’ agreement to indemnify each present and former Alpha officer and director against liabilities arising out of that person’s services as an officer or director, and maintain directors’ and officers’ liability insurance for a period of six years after closing to cover Alpha directors and officers, subject to certain limitations. |
83
Table of Contents
84
Table of Contents
85
Table of Contents
86
Table of Contents
87
Table of Contents
88
Table of Contents
89
Table of Contents
• | must be a record holder of the shares of Cliffs as to which he, she or it seeks relief as of the record date of the Cliffs special meeting; | |
• | must not vote such shares of Cliffs in favor of the adoption of the merger agreement and the approval of the issuance of Cliffs common shares in the merger; and | |
• | must deliver to Cliffs, not later than ten days after the Cliffs special meeting, a written demand for payment to such dissenting shareholder of the fair cash value of the shares as to which he, she or it seeks relief. The written demand must state the dissenting shareholder’s address, the number and class of such shares, and the amount claimed by the dissenting shareholder as the fair cash value of such shares. |
90
Table of Contents
• | the dissenting shareholder has not complied with Section 1701.85 of the Ohio General Corporation Law, unless Cliffs, by its board of directors, waives this failure (however, pursuant to the terms of the merger agreement, Cliffs agreed not to waive, without Alpha’s consent, any failure of a dissenting shareholder to comply with Section 1701.85 of the Ohio General Corporation Law); | |
• | Cliffs abandons or is finally enjoined or prevented from carrying out the transactions contemplated by the merger agreement, or the shareholders of Cliffs rescind their adoption of the merger agreement and approval of the issuance of the Cliffs common shares; | |
• | the dissenting shareholder withdraws his, her or its written demand, with the consent of Cliffs, by its board of directors; or | |
• | Cliffs and the dissenting shareholder have not agreed upon the fair cash value per share of the Cliffs shares and neither the dissenting shareholder nor Cliffs has timely filed or joined in a complaint in an appropriate court. |
91
Table of Contents
• | adoption of the merger agreement by the Alpha stockholders at the Alpha special meeting; | |
• | adoption of the merger agreement and approval of the issuance of Cliffs common shares pursuant to the terms of the merger agreement by the Cliffs shareholders at the Cliffs special meeting; | |
• | the waiting period (including any extension thereof) applicable to the consummation of the merger under the HSR Act must have expired or been terminated, and antitrust clearance in Turkey must have been obtained; | |
• | making or obtaining consents, approvals, and actions of, filings with and notices to, the governmental entities required to consummate the merger and the other transactions contemplated by the merger agreement, the failure of which to be made or obtained is reasonably expected to have or result in a material adverse effect on Cliffs or Alpha; | |
• | absence of any order or law of any governmental authority preventing the consummation of the merger; | |
• | approval for listing of Cliffs common shares to be issued in the merger on the NYSE upon official notice of issuance; | |
• | continued effectiveness of the registration statement of which this joint proxy statement/prospectus is a part and the absence of any stop order or proceeding seeking a stop order by the SEC suspending the effectiveness of the registration statement; | |
• | accuracy of each party’s representations and warranties in the merger agreement, except as would not reasonably be expected to have or result in a material adverse effect on the party making the representations; | |
• | performance in all material respects of each party’s covenants set forth in the merger agreement required to be performed by it at or prior to the closing date of the merger; and | |
• | delivery by both parties of customary officer’s certificates and tax opinions. |
92
Table of Contents
93
Table of Contents
• | a citizen or resident of the United States; | |
• | a corporation created or organized under the laws of the United States or any of its political subdivisions; | |
• | a trust that (i) is subject to the supervision of a court within the United States and the control of one or more United States persons or (ii) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person; or | |
• | an estate that is subject to United States federal income tax on its income regardless of its source. |
94
Table of Contents
• | is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact; or | |
• | provides a correct taxpayer identification number, certifies as to no loss of exemption from backup withholding and that such holder is a U.S. person (including a U.S. resident alien) and otherwise complies with applicable requirements of the backup withholding rules. |
95
Table of Contents
96
Table of Contents
• | $22.23 in cash, without interest; and | |
• | 0.95 of a validly issued, fully paid, nonassessable common share of Cliffs. |
97
Table of Contents
98
Table of Contents
• | due organization, good standing and the requisite corporate power and authority to carry on their respective businesses; | |
• | ownership of subsidiaries; | |
• | capital structure and equity securities; | |
• | corporate power and authority to enter into the merger agreement and due execution, delivery and enforceability of the merger agreement; | |
• | board of directors approval; | |
• | absence of conflicts with charter documents, breaches of contracts and agreements, liens upon assets and violations of applicable law resulting from the execution and delivery of the merger agreement and consummation of the transactions contemplated by the merger agreement; | |
• | absence of required governmental or other third party consents in connection with execution and delivery of the merger agreement and consummation of the transactions contemplated by the merger agreement other than governmental filings specified in the merger agreement; | |
• | timely filing of required documents with the SEC, compliance with the requirements of the Securities Act of 1933, which is referred to as the Securities Act, and the Exchange Act and the absence of untrue statements of material facts or omissions of material facts in those documents; |
99
Table of Contents
• | compliance of financial statements as to form with applicable accounting requirements and SEC rules and regulations and preparation in accordance with U.S. generally accepted accounting principles; | |
• | absence of misleading information contained or incorporated into this joint proxy statement/prospectus or the registration statement of which this joint proxy statement/prospectus forms a part; | |
• | absence of specified changes or events and conduct of business in the ordinary course since December 31, 2007; | |
• | compliance with applicable laws and holding of all necessary permits; | |
• | absence of proceedings before any governmental entity; | |
• | employee benefits matters and ERISA compliance; | |
• | tax matters; | |
• | environmental matters and compliance with environmental laws; | |
• | the affirmative vote required by Alpha stockholders to adopt the merger agreement and the affirmative vote required by Cliffs’ shareholders to adopt the merger agreement and approve the issuance of Cliffs common shares; | |
• | real property and assets; | |
• | intellectual property; | |
• | labor agreements and employee benefits issues; | |
• | certain material contracts; | |
• | insurance; | |
• | interested party transactions; | |
• | receipt of a fairness opinion from each company’s financial advisors; and | |
• | brokers’ or finders’ fees. |
• | any event, circumstance, change, occurrence or state of facts that has a material adverse effect on the business, financial condition or results of operations of such party and its subsidiaries, taken as a whole, other than events, circumstances, changes, occurrences or any state of facts relating to: |
• | changes in industries relating to such party and its subsidiaries in general, other than the effects of any such changes which adversely affect such party and its subsidiaries to a materially greater extent than their competitors in the applicable industries in which such party and its subsidiaries compete; | |
• | general legal, regulatory, political, business, economic, financial or securities market conditions in the United States or elsewhere, other than the effects of any such changes which adversely affect such party and its subsidiaries to a materially greater extent than its competitors in the applicable industries in which such party and its subsidiaries compete; | |
• | the execution or the announcement of the merger agreement, the undertaking and performance of the obligations contemplated by the merger agreement or the consummation of the transactions contemplated by the merger agreement, including the impact thereof on relationships with customers, suppliers, |
100
Table of Contents
distributors, partners or employees, or any litigation arising in relation to the merger agreement or the transactions contemplated by the merger agreement; |
• | acts of war, insurrection, sabotage or terrorism (or the escalation of the foregoing); | |
• | changes in U.S. generally accepted accounting principles or the accounting rules or regulations of the SEC; and | |
• | the fact, in and of itself (and not the underlying causes thereof), that such party or any of its subsidiaries failed to meet any projections, forecasts or revenue or earnings predictions; and |
• | any event, circumstance, change, occurrence or state of facts that prevent or materially delay the ability of such party to consummate the transactions contemplated by the merger agreement. |
• | declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock; | |
• | split, combine or reclassify any of its capital stock; | |
• | except as required in Alpha’s stock plans, purchase, redeem or otherwise acquire any shares of its or its subsidiaries’ capital stock or any other securities of Alpha or any of its subsidiaries or any rights, warrants or options to acquire any of those shares or other securities; | |
• | issue or authorize the issuance of, deliver, sell or encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities; | |
• | amend its certificate of incorporation or by-laws; | |
• | merge or consolidate with any person other than another Alpha entity; | |
• | encumber or dispose of any of its properties or assets, other than dispositions of inventory or equipment in the ordinary course of business consistent with past practice; | |
• | enter into commitments for capital expenditures involving (i) in the case of capital expenditures in respect of individual items of equipment more than $5 million individually or (ii) more than $50 million in the aggregate; | |
• | other than in the ordinary course of business consistent with past practice, incur any indebtedness; | |
• | take certain other actions with respect to employee benefit plans, compensation arrangements and collective bargaining agreements; | |
• | change the accounting principles used by it; | |
• | make acquisitions for consideration in excess of $50 million in the aggregate; | |
• | make, change or rescind any express or deemed election with respect to taxes, settle or compromise any claim or action relating to taxes, or change any of its methods of accounting or of reporting income or deductions for tax purposes; |
101
Table of Contents
• | satisfy claims or liabilities other than satisfaction in the ordinary course of business consistent with past practice, in accordance with their terms or in amounts not to exceed $5 million in 2008 and $2 million in 2009; | |
• | make any loans, advances (other than advances to contract miners in excess of $10 million in the aggregate) or capital contributions to, or investments in, any other person in excess of $10 million in the aggregate; | |
• | modify, amend or terminate any material contract, other than in the ordinary course of business consistent with past practice; | |
• | waive, release, relinquish or assign any material right or claim under a material contract or cancel or forgive any indebtedness owed to Alpha or any of its subsidiaries in excess of $2 million in the aggregate; | |
• | take any action to exempt any person (other than Cliffs and its subsidiaries) or any action taken thereby, except to the extent necessary to take any actions that Alpha or any third party would otherwise be permitted to take pursuant to the provisions of the merger agreement governing Alpha’s non-solicitation obligations, from the provisions of Section 203 of the DGCL or any other state takeover law; or | |
• | authorize, or commit or agree to take, any of the foregoing actions. |
• | declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, except, among other things, for quarterly cash dividends with respect to (i) Cliffs common shares not in excess of $0.25 per common share of Cliffs and (b) theSeries A-2 preferred stock in accordance with the terms thereof; | |
• | split, combine or reclassify any of its capital stock; | |
• | purchase, redeem or otherwise acquire any shares of capital stock of Cliffs or any of its subsidiaries or any other securities of Cliffs or any of its subsidiaries or any rights, warrants or options to acquire any of those shares or other securities, except pursuant to agreements entered into with respect to Cliffs stock plans that are in effect as of the close of business on the date of the merger agreement; | |
• | issue or authorize the issuance of, deliver, sell, or encumber any shares of its capital stock, or any other securities in respect of, in lieu of, or in substitution for, shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any of such shares, voting securities or convertible securities; | |
• | amend its organizational documents; | |
• | merge or consolidate with any person; | |
• | incur any long-term indebtedness or incur short-term indebtedness, other than (1) up to $10 million of short-term indebtedness under lines of credit existing on the date of the merger agreement or (2) indebtedness incurred pursuant to the terms of Cliffs’ financings of the cash portion of the merger consideration; | |
• | change the accounting principles used by it; | |
• | make, change or rescind any express or deemed election with respect to taxes, settle or compromise any claim or action relating to taxes, or change any of its methods of accounting or of reporting income or deductions for tax purposes; | |
• | satisfy any claims or liabilities, other than in the ordinary course of business consistent with past practice or in accordance with their terms or in an amount not to exceed $5 million in the aggregate; |
102
Table of Contents
• | make any loans, advances or capital contributions to, or investments in, any other person, except for loans, advances, capital contributions or investments between any wholly-owned Cliffs subsidiary and Cliffs or another wholly-owned Cliffs subsidiary and except for employee advances for expenses in the ordinary course of business consistent with past practice; or | |
• | authorize, or commit or agree to take, any of the foregoing actions. |
• | direct or indirect acquisition or purchase of a business that constitutes 25% or more of the net revenues, net income or the assets of Alpha and its subsidiaries, taken as a whole; | |
• | direct or indirect acquisition or purchase of 25% or more of any class of equity securities of Alpha; | |
• | tender offer or exchange offer that if consummated would result in any person beneficially owning 25% or more of any class of equity securities of Alpha; or | |
• | merger, consolidation, business combination, asset purchase, recapitalization or similar transaction involving Alpha, other than the transactions contemplated or permitted by the merger agreement. |
• | solicit, initiate or knowingly encourage (including by way of furnishing non-public information), or knowingly facilitate, any inquiries or the making of any proposal that constitutes, or would reasonably be expected to lead to, a company takeover proposal; | |
• | enter into any agreement relating to a company takeover proposal or enter into any agreement, arrangement or understanding requiring Alpha to abandon, terminate or fail to consummate the merger or any other transaction contemplated by the merger agreement; or | |
• | initiate or participate in any way in any discussions or negotiations regarding, or knowingly furnish or disclose to any person (other than to Cliffs) any non-public information with respect to, or take any other action to knowingly facilitate or knowingly further any inquiries or the making of any proposal that constitutes, or would reasonably be expected to lead to, any company takeover proposal. |
• | furnish non-public information with respect to Alpha and its subsidiaries to the person making the company takeover proposal (and its representatives) pursuant to a customary confidentiality agreement not less restrictive of the person than the existing confidentiality agreement between Alpha and Cliffs, provided that all the information is, previously provided to Cliffs or is provided to Cliffs prior to or substantially concurrent with the time it is provided to such person; and |
103
Table of Contents
• | participate in discussions or negotiations with the person making the company takeover proposal (and its representatives) regarding the company takeover proposal. |
• | direct or indirect acquisition or purchase of a business that constitutes 75% or more of the net revenues, net income or the assets of Alpha and its subsidiaries, taken as a whole; | |
• | direct or indirect acquisition or purchase of 75% or more of any class of equity securities of Alpha; | |
• | tender offer or exchange offer that if consummated would result in any person beneficially owning 75% or more of any class of equity securities of Alpha; or | |
• | merger, consolidation, business combination, asset purchase, recapitalization or similar transaction involving Alpha, other than the transactions contemplated or permitted by the merger agreement; |
• | Alpha must provide written notice advising Cliffs that the Alpha board of directors intends to take such action and specifying the reasons therefor, including, if applicable, the terms and conditions of any superior proposal that is the basis of the proposed action by the Alpha board of directors (and any amendment to the amount of consideration or any other material term of the superior proposal will require a new notice to Cliffs); | |
• | for 3 business days following Cliffs’ receipt of this written notice, Alpha must negotiate with Cliffs in good faith to make such adjustments to the terms and conditions of the merger as would enable Alpha to proceed with its recommendation of the merger agreement and the merger and not make such company adverse |
104
Table of Contents
recommendation change or terminate the merger agreement in order to enter into an acquisition agreement with respect to a superior proposal; and |
• | if applicable, at the end of such three-business day period, the Alpha board of directors must continue to believe that the company takeover proposal, if any, constitutes a superior proposal (after taking into account any adjustments to the terms and conditions of the merger agreement made pursuant to the negotiations described in the preceding bullet). |
• | obtaining all necessary actions or nonactions, waivers, clearances, consents and approvals from governmental entities and making all necessary registrations and filings and taking all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any governmental entity; | |
• | obtaining all necessary consents, approvals or waivers from third parties; | |
• | preventing the entry, enactment or promulgation of any injunction or order or law that could materially and adversely affect the ability of Cliffs and Alpha to consummate the transactions under the merger agreement; | |
• | seeking the lifting or rescission of any injunction or order or law that could materially and adversely affect the ability of the parties hereto to consummate the transactions under the merger agreement; | |
• | cooperating to defend against any proceeding or investigation relating to the merger agreement or the transactions contemplated thereby and to cooperate to defend against it and respond thereto; |
105
Table of Contents
• | executing and delivering any additional instruments necessary to complete the merger and the other transactions contemplated by the merger agreement and to fully carry out the purposes of the merger agreement; | |
• | using commercially reasonable efforts to arrange for Alpha’s independent accountants to provide such comfort letters, consents and other services that are reasonably required in connection with Cliffs’ financings of the cash consideration; and | |
• | assisting in the marketing and sale or any other syndication of any such financings by making appropriate officers of Alpha available for due diligence meetings and for participation in the road show and meetings with prospective participants in such financings upon reasonable notice and at reasonable times. |
• | cooperate in all respects with each other in connection with any filing or submission and in connection with any investigation or other inquiry, including any proceeding initiated by a private party; | |
• | keep the other party informed in all material respects of any material communication (and if in writing, provide a copy of such communication) received by such party from, or given by such party to, the FTC, the Antitrust Division or any other governmental entity and of any material communication received or given in connection with any proceeding by a private party, in each case regarding any of the transactions contemplated in the merger agreement; | |
• | permit the other party to review any material communication given by it to, and consult with each other in advance of any meeting or conference with, any such governmental entity or in connection with any proceeding by a private party; | |
• | consult and cooperate with the other party and consider in good faith the views of the other party in connection with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions or proposals made or submitted by or on behalf of Alpha, Cliffs or any of their respective affiliates to any such governmental entity or private party; and | |
• | not participate in any substantive meeting or have any substantive communication with any governmental entity unless it has given the other parties a reasonable opportunity to consult with it in advance and, to the extent permitted by such governmental entity, gives the other the opportunity to attend and participate therein. |
106
Table of Contents
107
Table of Contents
108
Table of Contents
• | preparation of this joint proxy statement/prospectus and of the registration statement onForm S-4, of which this joint proxy statement/prospectus forms a part; | |
• | tax treatment of the merger, and cooperation with respect to obtaining opinions from outside counsel that the merger will constitute a reorganization within the meaning of Section 368(a) of the Code; | |
• | consultations regarding public announcements; | |
• | use of reasonable best efforts by Cliffs to cause the common shares of Cliffs to be issued in the merger to be approved for listing on the NYSE; | |
• | standstill agreements; | |
• | confidentiality agreements; | |
• | ensure exemption underRule 16b-3 of the Exchange Act; | |
• | if Cliffs so requests, a tender offer by Alpha to repurchase Alpha’s 2.375% Convertible Senior Notes due 2015; and | |
• | a payoff letter under Alpha’s existing credit facility. |
• | adoption of the merger agreement by the Alpha stockholders at the Alpha special meeting; | |
• | adoption of the merger agreement and approval of the issuance of Cliffs common shares pursuant to the terms of the merger agreement by the Cliffs shareholders at the Cliffs special meeting; | |
• | expiration or termination of the waiting period (including any extension thereof) applicable to the consummation of the merger under the HSR Act and receipt of antitrust clearance in Turkey; | |
• | making or obtaining all other consents, approvals and actions of, filings with and notices to any governmental entity required to consummate the merger and the other transactions contemplated by the merger agreement, the failure of which to be made or obtained is reasonably expected to have or result in, individually or in the aggregate, a material adverse effect on Cliffs or Alpha; | |
• | absence of any judgment, order, decree or law entered, enacted, promulgated, enforced or issued by any court or other governmental entity of competent jurisdiction or other legal restraint or prohibition that is in effect and prevents the consummation of the merger; | |
• | continued effectiveness of the registration statement on FormS-4 of which this joint proxy statement/prospectus forms a part and absence of any stop order by the SEC or proceedings seeking a stop order, suspending the effectiveness of such registration statement; and | |
• | approval for listing on the NYSE, upon official notice of issuance, of the common shares of Cliffs to be issued in the merger. |
109
Table of Contents
• | the representations and warranties of Alpha set forth in the merger agreement relating to the absence of a material adverse effect on Alpha since December 31, 2007 must be true and correct in all respects both as of the date of the merger agreement and as of the closing date of the merger, as if made at and as of the closing date of the merger; | |
• | the representations and warranties of Alpha set forth in the merger agreement relating to the capital structure of Alpha must be true and correct in all respects (except for any de minimis inaccuracies); | |
• | all other representations and warranties of Alpha set forth in the merger agreement must be true and correct in all respects (without giving effect to any materiality or material adverse effect qualifications contained in them), except where the failure of such other representations and warranties to be so true and correct would not reasonably be expected to have or result in, individually or in the aggregate, a material adverse effect on Alpha; | |
• | Alpha must have performed in all material respects all of its obligations required to be performed by it under the merger agreement at or prior to the closing date of the merger; | |
• | Alpha must have furnished Cliffs with a certificate dated the closing date of the merger signed on its behalf by an executive officer to the effect that the conditions set forth above in the four immediately preceding bullets have been satisfied; and | |
• | Cliffs must have received from Jones Day, its counsel, an opinion dated as of the closing date of the merger, to the effect that the merger will constitute a reorganization within the meeting of Section 368(a) of the Code. |
• | the representations and warranties of Cliffs and merger sub set forth in the merger agreement relating to the absence of a material adverse effect on Cliffs since December 31, 2007 must be true and correct in all respects both as of the date of the merger agreement and as of the closing date of the merger, as if made at and as of the closing date of the merger; | |
• | the representations and warranties of Cliffs and merger sub set forth in the merger agreement relating to the capital structure of Cliffs must be true and correct in all respects (except for any de minimis inaccuracies); | |
• | all other representations and warranties of Cliffs and merger sub set forth in the merger agreement must be true and correct in all respects (without giving effect to any materiality or material adverse effect qualifications contained in them), except where the failure of such other representations and warranties to be so true and correct would not reasonably be expected to have or result in, individually or in the aggregate, a material adverse effect on Cliffs and merger sub; | |
• | Cliffs and merger sub must have performed in all material respects all of its obligations required to be performed by it under the merger agreement at or prior to the closing date of the merger; | |
• | Cliffs and merger sub must have each furnished Alpha with a certificate dated the closing date of the merger signed on its behalf by an executive officer to the effect that the conditions set forth above in the four immediately preceding bullets have been satisfied; and | |
• | Alpha shall have received from Cleary Gottlieb, its counsel, an opinion dated as of the closing date, to the effect that the merger will constitute a reorganization within the meeting of Section 368(a) of the Code. |
• | by the mutual written consent of Cliffs and Alpha; |
110
Table of Contents
• | by either Cliffs or Alpha if: |
• | the parties fail to consummate the merger on or before January 15, 2009, or such later date, if any, as Cliffs and Alpha may agree, unless the failure to consummate the merger by January 15, 2009 or such later date is the result of a breach of the merger agreement by the party seeking the termination or unless such party has not yet held its special meeting; provided that if all conditions to the closing have been fulfilled other than the making or obtaining of the consents, approvals and actions of, filings with and notices to the governmental entities required to consummate the merger and the other transactions contemplated by the merger agreement, the failure of which to be made or obtained is reasonably expected to have or result in a material adverse effect on Alpha or Cliffs, and the expiration or termination of the applicable waiting period under the HSR Act, the outside date will be extended from January 15, 2009 to April 15, 2009; | |
• | the Cliffs special meeting has concluded, the shareholders of Cliffs have voted, and the adoption of the merger agreement and the approval by the Cliffs shareholders of the issuance of common shares of Cliffs pursuant to the merger agreement was not obtained; or | |
• | the Alpha special meeting has concluded, the stockholders of Alpha have voted, and the adoption of the merger agreement by the Alpha stockholders was not obtained; or |
• | by Alpha if: |
• | Cliffs or merger sub breach their representations or warranties or breach or fail to perform their covenants set forth in the merger agreement, which breach or failure to perform results in a failure of certain of the conditions to the completion of the merger being satisfied and such breach or failure to perform is not cured within 30 days after the receipt of written notice thereof or is incapable of being cured by the outside date; | |
• | prior to the receipt of its stockholders’ approval of the proposal to adopt the merger agreement, Alpha (i) receives an unsolicited written takeover proposal after the date of the merger agreement that the Alpha board of directors determines in its good faith judgment constitutes, or would reasonably be expected to lead to, a superior proposal, (ii) provides Cliffs with a written notice that it intends to take such action, (iii) the Alpha board of directors determines in good faith that failure to take such action would be reasonably likely to be a violation of its fiduciary duties to Alpha stockholders under applicable Delaware law, (iv) thereafter satisfies the conditions for withdrawing (or modifying in a manner adverse to Cliffs) the recommendation by its board of directors of the merger or recommending such superior proposal, and (v) concurrently with the termination of the merger agreement, enters into an acquisition agreement with a third party providing for the implementation of the transactions contemplated by such superior proposal; provided that Alpha pays a $350 million termination fee to Cliffs and such superior proposal did not result from Alpha’s breach of its non-solicitation obligations under the merger agreement; | |
• | Cliffs materially breaches its covenants to convene the Cliffs special meeting or breaches its obligations to recommend that Cliffs shareholders vote in favor of the adoption of the merger agreement and the issuance of common shares in connection with the merger; or | |
• | the Cliffs board of directors or any committee thereof (i) withdraws or modifies, or publicly proposes to withdraw or modify, its recommendation that Cliffs shareholders adopt the merger agreement and approve the issuance of Cliffs common shares in connection with the merger, or (ii) recommends, adopts or approves, or proposes publicly to recommend, adopt or approve certain transactions involving Cliffs; or |
• | by Cliffs if: |
• | Alpha breaches its representations or warranties or breaches or fails to perform its covenants in the merger agreement, which breach or failure to perform results in a failure of certain of the conditions to the completion of the merger being satisfied, provided such breach or failure to perform is not cured within 30 days after receipt of a written notice thereof or is incapable of being cured by the outside date; |
111
Table of Contents
• | Alpha materially breaches its obligations not to solicit takeover proposals or materially breaches its covenants to convene the Alpha special meeting or breaches its obligations to recommend that Alpha stockholders vote in favor of adoption of the merger agreement; | |
• | the Alpha board of directors or any committee thereof (i) withdraws or adversely modifies or publicly proposes to withdraw or adversely modify, its recommendation of the merger agreement and the transactions contemplated by the merger agreement, including the merger, or (ii) recommends, adopts or approves, or proposes publicly to recommend, adopt or approve a takeover proposal other than the merger agreement; or | |
• | Alpha materially breaches its obligations not to solicit takeover proposals or breaches certain of its obligations with respect to holding its special meeting of stockholders. |
• | of $350 million if the merger agreement is terminated by Cliffs because (a) Alpha has materially breached its non-solicitation obligations under the merger agreement or has materially breached its covenants to convene the Alpha special meeting for the adoption of the merger agreement or has breached it obligations to recommend that Alpha stockholders vote in favor of such adoption or (b) the Alpha board of directors or any committee thereof (i) withdraws or adversely modifies or publicly proposes to withdraw or adversely modify, its recommendation of the merger agreement and the transactions contemplated by the merger agreement, including the merger, or (ii) recommends, adopts or approves, or proposes publicly to recommend, adopt or approve a takeover proposal other than the merger agreement; | |
• | of $350 million if the merger agreement is terminated by Alpha if, prior to the receipt of its stockholders approval of the proposal to adopt the merger agreement, Alpha (i) receives an unsolicited superior proposal after the date of the merger agreement, (ii) provides Cliffs with a written notice that it intends to take such action, (iii) the Alpha board of directors determines in good faith that failure to take such action would be reasonably likely to be a violation of its fiduciary duties to Alpha stockholders under applicable Delaware law, (iv) thereafter satisfies the conditions for withdrawing (or modifying in a manner adverse to Cliffs) the recommendation by its board of directors of the merger or recommending such superior proposal, and (v) concurrently with the termination of the merger agreement, enters into an acquisition agreement with a third party providing for the implementation of the transactions contemplated by such superior proposal; provided that such superior proposal did not result from Alpha’s material breach of its non-solicitation obligations under the merger agreement; | |
• | of $350 million if the merger agreement is terminated (i) because (x) the merger has not been consummated by the outside date; (y) the Alpha special meeting has concluded the stockholders of Alpha have voted and the adoption of the merger agreement by the Alpha stockholders was not obtained; or (z) Alpha breaches its representations or warranties or breaches or fails to perform its covenants in the merger agreement (other than its obligations described in clause (a) of the first bullet above), which breach or failure to perform results in a failure of certain of the conditions to the completion of the merger being satisfied, provided such breach or failure to perform is not cured within 30 days after receipt of a written notice thereof or is incapable of being cured by the outside date; (ii) prior to such termination, any person publicly announces an alternative takeover proposal relating to Alpha; and (iii) within 12 months of such termination Alpha enters into a definitive agreement with respect to, or consummates, an alternative takeover proposal relating to Alpha; provided that the $350 million termination fee will be payable by Alpha either (A) upon consummation of the alternative takeover transaction or, (B) if the alternative takeover transaction is not consummated, upon the consummation of any other alternative takeover transaction that closes within 24 months from the entry into the definitive agreement for the first alternative takeover transaction; or | |
• | of $100 million if the merger agreement is terminated because the Alpha stockholders voted and did not adopt the merger agreement (however, if the Cliffs shareholders voted and did not adopt the merger |
112
Table of Contents
agreement and approve the issuance of Cliffs common shares pursuant to the merger agreement, Alpha will not be required to pay the $100 million termination fee). |
• | of $350 million if the merger agreement is terminated by Alpha because (i) Cliffs has materially breached its covenant to convene and hold the Cliffs special meeting to adopt the merger agreement and approve the issuance of Cliffs shares in the merger or has breached its covenant to recommend that Cliffs shareholders vote in favor of adoption of the merger agreement and issuance of Cliffs common shares in the merger or (ii) the Cliffs board of directors or any committee thereof has withdrawn or modified, or publicly proposed to withdraw or modify, such recommendation; | |
• | of $350 million if the merger agreement is terminated by either party because: (i) (A) the merger was not consummated by the outside date; (B) Cliffs special meeting has concluded, the shareholders of Cliffs have voted and the adoption of the merger agreement and the approval of the issuance of common shares of Cliffs pursuant to the merger agreement by the Cliffs shareholders were not obtained; or (C) Cliffs or merger sub breach their representations or warranties or breach or fail to perform their covenants (other than their obligations described in clause (i) of the first bullet above) set forth in the merger agreement, which breach or failure to perform results in a failure of certain of the conditions to the completion of the merger being satisfied and such breach or failure to perform is not cured within 30 days after the receipt of written notice thereof or is incapable of being cured by the outside date; (ii) prior to such termination, an alternative proposal concerning Cliffs and meeting certain criteria outlined in the merger agreement that is conditioned upon or designed to cause the termination or failure of the merger or the merger agreement shall have been made public; and (iii) within 12 months of such termination Cliffs or any of the Cliffs’ subsidiaries enters into a definitive agreement with respect to, or consummates, any such alternative proposal; or | |
• | of $100 million if the merger agreement is terminated because the Cliffs shareholders voted and did not adopt the merger agreement and approve the issuance of common shares of Cliffs pursuant to the merger agreement (however, if the Alpha stockholders voted and did not adopt the merger agreement, Cliffs will not be required to pay the $100 million termination fee). |
• | extend the time for the performance of any of the obligations or other acts of the other parties; | |
• | waive any inaccuracies in the representations and warranties of the other parties contained in the merger agreement or in any document delivered pursuant to the merger agreement; or |
113
Table of Contents
• | waive compliance by the other parties with any of the agreements or conditions contained in the merger agreement except as limited by the provisions of the merger agreement described above in the section “— Amendments.” |
114
Table of Contents
115
Table of Contents
116
Table of Contents
117
Table of Contents
Current Estimated | Percent of Total | |||||||
Capacity | North American Capacity | |||||||
(Gross Tons of Raw Ore | ||||||||
in Millions) | ||||||||
All Cliffs’ managed mines | 36.5 | 45.0 | % | |||||
Other U.S. mines | ||||||||
U.S. Steel’s Minnesota ore operations | ||||||||
Minnesota Taconite | 14.6 | 18.0 | ||||||
Keewatin Taconite | 5.4 | 6.6 | ||||||
Total U.S. Steel | 20.0 | 24.6 | ||||||
ArcelorMittal USA Minorca mine | 2.9 | 3.6 | ||||||
Total other U.S. mines | 22.9 | 28.2 | ||||||
Other Canadian mines | ||||||||
Iron Ore Company of Canada | 12.8 | 15.8 | ||||||
ArcelorMittal Mines Canada | 8.9 | 11.0 | ||||||
Total other Canadian mines | 21.7 | 26.8 | ||||||
Total North American mines | 81.1 | 100.0 | % | |||||
118
Table of Contents
Percent of Sales | ||||||||||||
Revenues(1) | ||||||||||||
Customer | 2007 | 2006 | 2005 | |||||||||
ArcelorMittal USA | 44 | % | 44 | % | 43 | % | ||||||
Algoma Steel Inc., or Algoma | 16 | 20 | 22 | |||||||||
Severstal North America, Inc. or, Severstal | 10 | 13 | 12 | |||||||||
U.S. Steel Canada | 7 | 5 | 8 | |||||||||
WCI Steel Inc. | 6 | 9 | 8 | |||||||||
Total | 83 | % | 91 | % | 93 | % | ||||||
(1) | Excluding freight and venture partners’ cost reimbursements. |
119
Table of Contents
Agreement | ||||
Facility | Runs through | |||
Cleveland Works and Indiana Harbor West facilities | 2016 | |||
Indiana Harbor East facility | 2015 | |||
Weirton facility | 2018 |
120
Table of Contents
121
Table of Contents
122
Table of Contents
123
Table of Contents
124
Table of Contents
125
Table of Contents
126
Table of Contents
June 30, | December 31, | |||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Environmental | $ | 13.6 | $ | 12.3 | ||||
Mine closure: | ||||||||
LTV Steel Mining Company, or LTVSMC | 21.1 | 22.5 | ||||||
Operating mines: | ||||||||
North American Iron Ore | 62.2 | 61.8 | ||||||
North American Coal | 21.0 | 20.4 | ||||||
Asia-Pacific Iron Ore | 10.5 | 9.5 | ||||||
Other | 3.4 | 4.3 | ||||||
Total mine closure | 118.2 | 118.5 | ||||||
Total environmental and mine closure obligations | 131.8 | 130.8 | ||||||
Less current portion | 6.8 | 7.6 | ||||||
Long term environmental and mine closure obligations | $ | 125.0 | $ | 123.2 | ||||
127
Table of Contents
June 30, | December 31, | |||||||
2008 | 2007(1) | |||||||
(In millions) | ||||||||
Asset retirement obligation at beginning of period | $ | 96.0 | $ | 62.7 | ||||
Accretion expense | 4.1 | 6.6 | ||||||
PinnOak acquisition | — | 19.9 | ||||||
Sonoma investment | — | 4.3 | ||||||
Reclassification adjustment | (0.9 | ) | 1.1 | |||||
Exchange rate changes | 0.5 | 0.9 | ||||||
Revision in estimated cash flows | (2.6 | ) | 0.5 | |||||
Asset retirement obligation at end of period | $ | 97.1 | $ | 96.0 | ||||
(1) | Represents a12-month rollforward of Cliffs’ asset retirement obligation at December 31, 2007. |
128
Table of Contents
North | North | Corporate & | ||||||||||||||||||
American | American | Asia-Pacific | Support | |||||||||||||||||
Iron Ore | Coal | Iron Ore | Services | Total | ||||||||||||||||
Salaried | 1,007 | 261 | 111 | 241 | 1,620 | |||||||||||||||
Hourly | 3,519 | 789 | 0 | — | 4,308 | |||||||||||||||
Total(1) | 4,526 | 1,050 | 111 | 241 | 5,928 | |||||||||||||||
(1) | Includes Cliffs employees and the employees of the North American joint ventures. |
129
Table of Contents
130
Table of Contents
Total Historical Cost of Mine | ||||
Plant and Equipment (Excluding | ||||
Real Estate and Construction in | ||||
Progress), Net of Applicable | ||||
Accumulated Amortization and | ||||
Location and Name | Depreciation | |||
(In millions) | ||||
Empire | $ | 62.9 | (1) | |
Tilden | 186.6 | (2) | ||
Hibbing | 476.6 | (3) | ||
Northshore | 84.0 | |||
United Taconite | 68.2 | |||
Wabush | 460.1 | (3) | ||
Pinnacle Complex | 61.3 | |||
Oak Grove | 63.1 | |||
Sonoma | 147.4 | (4) | ||
Cockatoo Island | — | (5) | ||
Koolyanobbing | 247.4 | |||
Amapá | 472.7 |
(1) | Includes capitalized financing costs of $5.5 million, net of accumulated amortization. | |
(2) | Includes capitalized financing costs of $14.7 million, net of accumulated amortization. | |
(3) | Does not reflect depreciation, which is recorded by the individual venturers. | |
(4) | Includes capitalized financing costs of $2.7 million, net of accumulated amortization. | |
(5) | Cockatoo Island plant and equipment is fully amortized. |
131
Table of Contents
132
Table of Contents
133
Table of Contents
134
Table of Contents
Current | Mineral Reserves(2)(3) | Mineral | Method of | |||||||||||||||||||||||||||||
Iron Ore | Annual | Current Year | Previous | Rights | Reserve | |||||||||||||||||||||||||||
Mine | Mineralization | Capacity | Proven | Probable | Total | Year | Owned | Leased | Estimation | |||||||||||||||||||||||
Tons in millions(1) | ||||||||||||||||||||||||||||||||
Empire | Negaunee Iron Formation Model (Magnetite) | 5.5 | 10 | — | 10 | 13 | 57 | % | 43 | % | Geologic — Block | |||||||||||||||||||||
Tilden | Negaunee Iron Formation (Hematite / Magnetite) | 8.0 | 210 | 42 | 252 | 259 | 100 | % | 0 | % | Geologic — Block Model | |||||||||||||||||||||
Hibbing Taconite | Biwabik Iron Formation (Magnetite) | 8.0 | 129 | 16 | 145 | 152 | 3 | % | 97 | % | Geologic — Block Model | |||||||||||||||||||||
Northshore | Biwabik Iron Formation (Magnetite) | 4.8 | 303 | 10 | 313 | 318 | 0 | % | 100 | % | Geologic — Block Mode | |||||||||||||||||||||
United Taconite | Biwabik Iron Formation (Magnetite) | 5.2 | 133 | 16 | 149 | 119 | 0 | % | 100 | % | Geologic — Block Model | |||||||||||||||||||||
Wabush | Wabush Iron Formation (Hematite) | 5.5 | 37 | 2 | 39 | 44 | 0 | % | 100 | % | Geologic — Block Model |
(1) | Tons are long tons of pellets of 2,240 pounds. | |
(2) | Estimated standard equivalent pellets, including both proven and probable reserves based on life-of-mine operating schedules. | |
(3) | Cliffs regularly evaluates its reserves estimates and updated them in accordance with SEC Industry Guide 7. |
135
Table of Contents
Current | Mineral Reserves(2)(3) | Mineral | Method of | |||||||||||||||||||||||||||||
Iron Ore | Annual | Current Year | Previous | Rights | Reserve | |||||||||||||||||||||||||||
Mine Project | Mineralization | Capacity | Proven | Probable | Total | Year | Owned | Leased | Estimation | |||||||||||||||||||||||
Tons in millions(1) | ||||||||||||||||||||||||||||||||
Koolyanobbing(4) | Banded Iron Formations Southern Cross Terrane Yilgarn Mineral Field (Hematite, Goethite) | 8.0 | 7 | 88 | 95 | 87 | 0 | % | 100 | % | Geologic — Block Model | |||||||||||||||||||||
Cockatoo Island(5) | Sandstone Yampi Formation Kimberley Mineral Field (Hematite) | 1.2 | — | 0.5 | 0.5 | 0.9 | 0 | % | 100 | % | Geologic — Block Model |
(1) | Tons are metric tonnes of 2,205 pounds. | |
(2) | Reported ore reserves restricted to both proven and probable reserves based on life of mine operating schedules. Koolyanobbing reserves can be derived from up to 15 separate mineral deposits over a100-kilometer operating distance. 7.4 million tonnes of the Koolyanobbing reserves are sourced from current long-term stockpiles. | |
(3) | Cliffs regularly updates its reserves estimates in accordance with SEC Industry Guide 7 and the 2004 Edition of the Joint Ore Reserves Code. | |
(4) | An expansion project was completed in 2006 that increased annual production capacity to 8 million tonnes. | |
(5) | Portman has a 50 percent interest in the Cockatoo Island Joint Venture. Capacity and reserve totals represent 100 percent. |
Current | Proven and Probable | Method of | ||||||||||||||||||||||||
Annual | In- | Moist | Mineral Rights | Reserve | ||||||||||||||||||||||
Mine(2) | Category | Capacity | Place | Recoverable | Owned | Leased | Estimation | Infrastructure | ||||||||||||||||||
Tons in millions(1) | ||||||||||||||||||||||||||
Pinnacle Complex | 4.0 | 0 | % | 100 | % | Geologic — | Mine, Preparation | |||||||||||||||||||
Pocahontas No 3 | Assigned | 126.0 | 62.9 | Block Model | Plant, Load-out | |||||||||||||||||||||
Pocahontas No 4 | Unassigned | 32.8 | 11.1 | |||||||||||||||||||||||
Oak Grove | 2.5 | 0 | % | 100 | % | Geologic — | Mine, Preparation | |||||||||||||||||||
Blue Creek Seam | Assigned | 91.1 | 49.4 | Block Model | Plant, Load-out | |||||||||||||||||||||
Total(3) | 6.5 | 249.9 | 123.4 | |||||||||||||||||||||||
(1) | Short tons of 2,000 pounds. |
136
Table of Contents
(2) | All coal extracted by underground mining using longwall and continuous miner equipment. | |
(3) | All recoverable coal is less than 1 percent sulfur and more than 13,000 Btu/lb. as received. |
Current | Proven and Probable | Method of | ||||||||||||||||||||||||
Annual | Moist | Mineral Rights | Reserve | |||||||||||||||||||||||
Mine(2) | Category | Capacity | In-Place | Recoverable | Owned | Leased | Estimation | Infrastructure | ||||||||||||||||||
Tons in millions(1) | ||||||||||||||||||||||||||
Sonoma Mine | ||||||||||||||||||||||||||
Moranbah Coal Measures B, C and E Seams | Assigned | 3.0 | 48 | 27 | 8 | % | 92 | % | Geologic | Mine, Preparation | ||||||||||||||||
Block Model | Plant, Load-out |
(1) | Metric tonnes of 2,205 pounds. In-place tons at eight percent moisture, recoverable clean tons at nine percent moisture. Reserves listed on 100 percent basis. Cliffs has an effective 45 percent interest in the joint venture. | |
(2) | All coal is extracted by conventional surface mining techniques. |
137
Table of Contents
138
Table of Contents
139
Table of Contents
140
Table of Contents
141
Table of Contents
142
Table of Contents
143
Table of Contents
144
Table of Contents
145
Table of Contents
146
Table of Contents
147
Table of Contents
Three Months | Change Due to | |||||||||||||||||||||||
Ended June 30, | Sales Price | Sales | Freight and | Total | ||||||||||||||||||||
2008 | 2007 | and Rate | Volume | Reimbursements | Change | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Revenues from product sales and services | $ | 643.4 | $ | 432.8 | $ | 202.8 | $ | 2.5 | $ | 5.3 | $ | 210.6 | ||||||||||||
Cost of goods sold and operating expense | (370.8 | ) | (328.4 | ) | (35.1 | ) | (2.0 | ) | (5.3 | ) | (42.4 | ) | ||||||||||||
Sales margin | $ | 272.6 | $ | 104.4 | $ | 167.7 | $ | 0.5 | $ | — | $ | 168.2 | ||||||||||||
Sales tons | 5.5 | 5.4 |
Six Months | Change Due to | |||||||||||||||||||||||
Ended June 30, | Sales Price | Sales | Freight and | Total | ||||||||||||||||||||
2008 | 2007 | and Rate | Volume | Reimbursements | Change | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Revenues from product sales and services | $ | 922.2 | $ | 658.0 | $ | 229.8 | $ | 18.9 | $ | 15.5 | $ | 264.2 | ||||||||||||
Cost of goods sold and operating expense | (585.0 | ) | (516.3 | ) | (39.3 | ) | (13.9 | ) | (15.5 | ) | (68.7 | ) | ||||||||||||
Sales margin | $ | 337.2 | $ | 141.7 | $ | 190.5 | $ | 5.0 | $ | — | $ | 195.5 | ||||||||||||
Sales tons | 8.2 | 7.9 |
148
Table of Contents
Second Quarter | First Six Months | Full Year | ||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2008(1) | 2007 | |||||||||||||||||||
(In millions)(2) | ||||||||||||||||||||||||
Mine: | ||||||||||||||||||||||||
Empire | 1.4 | 1.3 | 2.6 | 2.5 | 4.2 | 4.9 | ||||||||||||||||||
Tilden | 2.2 | 2.3 | 3.8 | 3.7 | 8.4 | 7.2 | ||||||||||||||||||
Hibbing | 2.0 | 2.1 | 4.0 | 3.3 | 8.1 | 7.4 | ||||||||||||||||||
Northshore | 1.5 | 1.3 | 2.8 | 2.6 | 5.7 | 5.2 | ||||||||||||||||||
United Taconite | 1.5 | 1.4 | 2.7 | 2.6 | 5.5 | 5.3 | ||||||||||||||||||
Wabush | 1.1 | 1.1 | 2.1 | 2.2 | 4.6 | 4.6 | ||||||||||||||||||
Total | 9.7 | 9.5 | 18.0 | 16.9 | 36.5 | 34.6 | ||||||||||||||||||
Cliffs’ share of total | 6.3 | 6.0 | 11.5 | 10.8 | 24.0 | 21.8 | ||||||||||||||||||
(1) | Estimate | |
(2) | Tons are long tons of pellets of 2,240 pounds. |
149
Table of Contents
Three Months | Six Months | |||||||
Ended | Ended | |||||||
June 30, 2008 | June 30, 2008 | |||||||
(In millions, except tonnage) | ||||||||
Revenues from product sales and services | $ | 61.5 | $ | 155.4 | ||||
Cost of goods sold and operating expense | (84.5 | ) | (180.9 | ) | ||||
Sales margin | $ | (23.0 | ) | $ | (25.5 | ) | ||
Sales tons (in thousands) | 576 | 1,574 |
Second | First | |||||||||||
Quarter | Six Months | Full Year(1) | ||||||||||
(In millions)(2) | ||||||||||||
Mine: | ||||||||||||
Pinnacle Complex | 618 | 1,250 | 2,600 | |||||||||
Oak Grove | 115 | 492 | 1,000 | |||||||||
Total | 733 | 1,742 | 3,600 | |||||||||
(1) | Estimate | |
(2) | Tons are short tons of 2,000 pounds. |
150
Table of Contents
Three Months | Change Due to | |||||||||||||||||||
Ended June 30, | Sales Price | Sales | Total | |||||||||||||||||
2008 | 2007 | and Rate | Volume | Change | ||||||||||||||||
(In millions) | ||||||||||||||||||||
Revenues from product sales and services | $ | 268.2 | $ | 114.8 | $ | 172.0 | $ | (18.6 | ) | $ | 153.4 | |||||||||
Cost of goods sold and operating expense | (107.3 | ) | (89.6 | ) | (32.1 | ) | 14.4 | (17.7 | ) | |||||||||||
Sales margin | $ | 160.9 | $ | 25.2 | $ | 139.9 | $ | (4.2 | ) | $ | 135.7 | |||||||||
Sales tons | 1.8 | 2.1 |
Six Months | Change Due to | |||||||||||||||||||
Ended June 30, | Sales Price | Sales | Total | |||||||||||||||||
2008 | 2007 | and Rate | Volume | Change | ||||||||||||||||
(In millions) | ||||||||||||||||||||
Revenues from product sales and services | $ | 385.7 | $ | 215.1 | $ | 180.0 | $ | (9.4 | ) | $ | 170.6 | |||||||||
Cost of goods sold and operating expense | (203.4 | ) | (165.4 | ) | (45.2 | ) | 7.2 | (38.0 | ) | |||||||||||
Sales margin | $ | 182.3 | $ | 49.7 | $ | 134.8 | $ | (2.2 | ) | $ | 132.6 | |||||||||
Sales tons | 3.9 | 4.1 |
Second Quarter | First Six Months | Full Year | ||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2008(1) | 2007 | |||||||||||||||||||
(In millions)(2) | ||||||||||||||||||||||||
Mine: | ||||||||||||||||||||||||
Koolyanobbing | 1.9 | 2.1 | 3.7 | 3.9 | 7.7 | 7.7 | ||||||||||||||||||
Cockatoo Island | 0.2 | 0.1 | 0.3 | 0.3 | 0.3 | 0.7 | ||||||||||||||||||
Total | 2.1 | 2.2 | 4.0 | 4.2 | 8.0 | 8.4 | ||||||||||||||||||
(1) | Estimate | |
(2) | Tons are metric tonnes of 2,205 pounds. Cockatoo production reflects Portman’s 50 percent share. |
151
Table of Contents
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
Variance | Variance | |||||||||||||||||||||||
Favorable/ | Favorable/ | |||||||||||||||||||||||
2008 | 2007 | (Unfavorable) | 2008 | 2007 | (Unfavorable) | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Casualty recoveries | $ | 10.0 | $ | 3.2 | $ | 6.8 | $ | 10.0 | $ | 3.2 | $ | 6.8 | ||||||||||||
Royalties and management fee revenue | 7.1 | 4.0 | 3.1 | 10.9 | 6.2 | 4.7 | ||||||||||||||||||
Selling, general and administrative expenses | (52.1 | ) | (21.5 | ) | (30.6 | ) | (96.6 | ) | (42.2 | ) | (54.4 | ) | ||||||||||||
Gain on sale of other assets | 19.5 | — | 19.5 | 21.0 | — | 21.0 | ||||||||||||||||||
Miscellaneous — net | (1.4 | ) | 0.6 | (2.0 | ) | (1.9 | ) | 2.2 | (4.1 | ) | ||||||||||||||
$ | (16.9 | ) | $ | (13.7 | ) | $ | (3.2 | ) | $ | (56.6 | ) | $ | (30.6 | ) | $ | (26.0 | ) | |||||||
152
Table of Contents
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
Variance | Variance | |||||||||||||||||||||||
Favorable/ | Favorable/ | |||||||||||||||||||||||
2008 | 2007 | (Unfavorable) | 2008 | 2007 | (Unfavorable) | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Interest income | $ | 6.3 | $ | 4.6 | $ | 1.7 | $ | 11.9 | $ | 9.9 | $ | 2.0 | ||||||||||||
Interest expense | (9.8 | ) | (2.1 | ) | (7.7 | ) | (17.0 | ) | (3.1 | ) | (13.9 | ) | ||||||||||||
Other — net | 0.3 | (1.2 | ) | 1.5 | 0.3 | 0.1 | 0.2 | |||||||||||||||||
$ | (3.2 | ) | $ | 1.3 | $ | (4.5 | ) | $ | (4.8 | ) | $ | 6.9 | $ | (11.7 | ) | |||||||||
153
Table of Contents
Change due to | ||||||||||||||||||||||||
Sales Price | Sales | Freight and | Total | |||||||||||||||||||||
2007 | 2006 | and Rate | Volume | Reimbursements | Change | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Revenue from product sales and services | $ | 1,745.4 | $ | 1,560.7 | $ | 39.3 | $ | 122.4 | $ | 23.0 | $ | 184.7 | ||||||||||||
Cost of goods sold and operating expenses | (1,347.5 | ) | (1,233.3 | ) | 0.6 | (91.8 | ) | (23.0 | ) | (114.2 | ) | |||||||||||||
Sales margin | $ | 397.9 | $ | 327.4 | $ | 39.9 | $ | 30.6 | $ | — | $ | 70.5 | ||||||||||||
Sales tons | 22.3 | 20.4 |
Company Share | Total | |||||||||||||||
Mine | 2007 | 2006 | 2007 | 2006 | ||||||||||||
(In millions)(1) | ||||||||||||||||
Empire | 3.9 | 3.8 | 4.9 | 4.9 | ||||||||||||
Tilden | 6.1 | 5.9 | 7.2 | 6.9 | ||||||||||||
Hibbing | 1.7 | 1.9 | 7.4 | 8.3 | ||||||||||||
Northshore | 5.2 | 5.1 | 5.2 | 5.1 | ||||||||||||
United Taconite | 3.7 | 3.0 | 5.3 | 4.3 | ||||||||||||
Wabush | 1.2 | 1.1 | 4.6 | 4.1 | ||||||||||||
Total | 21.8 | 20.8 | 34.6 | 33.6 | ||||||||||||
(1) | Long tons of pellets of 2,240 pounds. |
154
Table of Contents
Five Months Ended | ||||
December 31, 2007 | ||||
(In millions, except tonnage) | ||||
Revenues from product sales and services | $ | 85.2 | ||
Cost of goods sold and operating expense | (116.9 | ) | ||
Sales margin | $ | (31.7 | ) | |
Sales tons (in thousands)(1) | 1,171 |
(1) | Tons are short tons of 2,000 pounds. |
Five Months Ended | ||||
Mine | December 31, 2007(1) | |||
(In thousands) | ||||
Oak Grove | 406 | |||
Pinnacle | 558 | |||
Green Ridge | 127 | |||
Total | 1,091 | |||
(1) | Tons are short tons of 2,000 pounds. |
155
Table of Contents
Change Due to | ||||||||||||||||||||
Sales price | Sales | Total | ||||||||||||||||||
2007 | 2006 | and Rate | Volume | Change | ||||||||||||||||
(In millions) | ||||||||||||||||||||
Revenue from product sales and services | $ | 444.6 | $ | 361.0 | $ | 48.9 | $ | 34.7 | $ | 83.6 | ||||||||||
Cost of goods sold and operating expenses | (348.8 | ) | (274.4 | ) | (48.0 | ) | (26.4 | ) | (74.4 | ) | ||||||||||
Sales margin | $ | 95.8 | $ | 86.6 | $ | 0.9 | $ | 8.3 | $ | 9.2 | ||||||||||
Sales tonnes | 8.1 | 7.4 |
Total | ||||||||
Mine | 2007 | 2006 | ||||||
(In millions)(1) | ||||||||
Koolyanobbing | 7.7 | 7.0 | ||||||
Cockatoo Island | 0.7 | 0.7 | ||||||
Total | 8.4 | 7.7 | ||||||
(1) | Metric tonnes of 2,205 pounds. |
156
Table of Contents
Change Due to | ||||||||||||||||||||||||
Sales Price | Sales | Freight and | Total | |||||||||||||||||||||
2006 | 2005 | and Rate | Volume | Reimbursements | Change | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Revenue from product sales and services | $ | 1,560.7 | $ | 1,535.0 | $ | 111.6 | $ | (111.2 | ) | $ | 25.3 | $ | 25.7 | |||||||||||
Cost of goods sold and operating expenses | (1,233.3 | ) | (1,176.4 | ) | (112.3 | ) | 80.7 | (25.3 | ) | (56.9 | ) | |||||||||||||
Sales margin | $ | 327.4 | $ | 358.6 | $ | (0.7 | ) | $ | (30.5 | ) | $ | — | $ | (31.2 | ) | |||||||||
Sales tons | 20.4 | 22.3 |
157
Table of Contents
Company Share | Total | |||||||||||||||
Mine | 2006 | 2005 | 2006 | 2005 | ||||||||||||
(In millions)(1) | ||||||||||||||||
Empire | 3.8 | 3.8 | 4.9 | 4.8 | ||||||||||||
Tilden | 5.9 | 6.7 | 6.9 | 7.9 | ||||||||||||
Hibbing | 1.9 | 2.0 | 8.3 | 8.5 | ||||||||||||
Northshore | 5.1 | 4.9 | 5.1 | 4.9 | ||||||||||||
United Taconite | 3.0 | 3.4 | 4.3 | 4.9 | ||||||||||||
Wabush | 1.1 | 1.3 | 4.1 | 4.9 | ||||||||||||
Total | 20.8 | 22.1 | 33.6 | 35.9 | ||||||||||||
(1) | Long tons of pellets of 2,240 pounds. |
Change Due to | ||||||||||||||||||||
Sales Price | Sales | Total | ||||||||||||||||||
2006 | 2005(1) | and Rate | Volume | Change | ||||||||||||||||
(In millions) | ||||||||||||||||||||
Revenue from product sales and services | $ | 361.0 | $ | 204.5 | $ | 51.5 | $ | 105.0 | $ | 156.5 | ||||||||||
Cost of goods sold and operating expenses | (274.4 | ) | (174.1 | ) | (10.9 | ) | (89.4 | ) | (100.3 | ) | ||||||||||
Sales margin | $ | 86.6 | $ | 30.4 | $ | 40.6 | $ | 15.6 | $ | 56.2 | ||||||||||
Sales tonnes | 7.4 | 4.9 |
(1) | Represents results since the March 31, 2005 acquisition. |
158
Table of Contents
Total | ||||||||
Mine | 2006 | 2005 | ||||||
(In millions)(1) | ||||||||
Koolyanobbing | 7.0 | 4.7 | ||||||
Cockatoo Island | 0.7 | 0.5 | ||||||
Total | 7.7 | 5.2 | ||||||
(1) | Metric tonnes of 2,205 pounds. |
159
Table of Contents
June 30, | December 31, | December 31, | ||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Cash and cash equivalents | $ | 320.4 | $ | 157.1 | $ | 351.7 | ||||||
2006 credit facility | $ | — | $ | — | $ | 500.0 | ||||||
2007 multicurrency credit agreement | 800.0 | 800.0 | — | |||||||||
Senior notes | 325.0 | — | — | |||||||||
Portman facilities | 153.8 | — | — | |||||||||
Senior notes drawn | (325.0 | ) | — | — | ||||||||
Term loans drawn | (200.0 | ) | (200.0 | ) | — | |||||||
Revolving loans drawn | (160.0 | ) | (240.0 | ) | — | |||||||
Letter of credit obligations | (31.4 | ) | (16.2 | ) | — | |||||||
Borrowing capacity available | $ | 562.4 | $ | 343.8 | $ | 500.0 | ||||||
160
Table of Contents
161
Table of Contents
Six Months Ended June 30, | ||||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Borrowings under senior notes | $ | 325.0 | $ | — | ||||
Net cash provided (used) by operating activities | 82.9 | (37.7 | ) | |||||
Proceeds from sale of assets | 38.6 | 1.8 | ||||||
Purchase of minority interest in Portman | (137.8 | ) | — | |||||
Net borrowings (repayments) under revolving credit facility | (80.0 | ) | 125.0 | |||||
Capital expenditures | (59.1 | ) | (46.2 | ) | ||||
Net purchase of marketable securities | (6.7 | ) | (36.0 | ) | ||||
Investment in ventures | (2.2 | ) | (223.7 | ) | ||||
Other | 2.6 | (5.6 | ) | |||||
Increase (decrease) in cash and cash equivalents | $ | 163.3 | $ | (222.4 | ) | |||
Six Months Ended June 30, | ||||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Changes in product inventories | $ | (205.3 | ) | $ | (159.0 | ) | ||
Changes in payables and accrued expenses | (108.4 | ) | 8.1 | |||||
Changes in receivables and other assets | 63.4 | (48.1 | ) | |||||
Cash used by changes in operating assets and liabilities | $ | (250.3 | ) | $ | (199.0 | ) | ||
June 30, 2008 | December 31, 2007 | |||||||||||||||
Amount | Tons(1) | Amount | Tons(1) | |||||||||||||
(In millions) | ||||||||||||||||
North American Iron Ore | $ | 297.1 | 6.7 | $ | 114.3 | 3.4 | ||||||||||
North American Coal | 15.4 | 0.3 | 8.3 | 0.1 | ||||||||||||
Asia-Pacific Iron Ore | 38.0 | 1.3 | 30.2 | 1.1 | ||||||||||||
Other | 10.6 | 0.2 | — | — | ||||||||||||
Total | $ | 361.1 | $ | 152.8 | ||||||||||||
(1) | North American Iron Ore tons are long tons of pellets of 2,240 pounds. North American Coal tons are short tons of 2,000 pounds. Asia-Pacific Iron Ore tons are metric tonnes of 2,205 pounds. |
162
Table of Contents
2007 | 2006 | 2005 | ||||||||||
(In millions) | ||||||||||||
Acquisition of PinnOak (net of $2.6 million of cash acquired) | $ | (343.8 | ) | $ | — | $ | — | |||||
Capital expenditures | (199.5 | ) | (119.5 | ) | (97.8 | ) | ||||||
Investment in ventures | (180.6 | ) | (13.4 | ) | (8.5 | ) | ||||||
Repayment of PinnOak debt | (159.6 | ) | — | — | ||||||||
Net purchase of marketable securities | (44.7 | ) | — | — | ||||||||
Dividends on common and preferred stock | (26.4 | ) | (25.8 | ) | (18.7 | ) | ||||||
Repurchases of common stock | (2.2 | ) | (121.5 | ) | — | |||||||
Net borrowings under credit facility | 440.0 | — | — | |||||||||
Net cash from operating activities | 288.9 | 428.5 | 514.6 | |||||||||
Effect of exchange rate changes on cash | 11.8 | 5.9 | (2.2 | ) | ||||||||
Investment in Portman (net of $24.1 million cash acquired) | — | — | (409.0 | ) | ||||||||
Other | 21.5 | 4.4 | (0.3 | ) | ||||||||
Increase (decrease) in cash and cash equivalents from continuing operations | (194.6 | ) | 158.6 | (21.9 | ) | |||||||
Cash from (used by) discontinued operations | — | 0.3 | (2.2 | ) | ||||||||
Increase (decrease) in cash and cash equivalents | $ | (194.6 | ) | $ | 158.9 | $ | (24.1 | ) | ||||
163
Table of Contents
2007 | 2006 | 2005 | ||||||||||
(In millions) | ||||||||||||
Net proceeds of short-term marketable securities | $ | — | $ | 9.9 | $ | 172.8 | ||||||
Changes in product inventories | 3.2 | (29.9 | ) | 9.8 | ||||||||
Changes in receivables and other assets | 18.0 | 73.0 | (64.8 | ) | ||||||||
Changes in deferred revenues | (34.2 | ) | 62.4 | 0.2 | ||||||||
Changes in payables and accrued expenses | (14.8 | ) | 3.4 | 73.3 | ||||||||
Cash (used by) from changes in operating assets and liabilities | $ | (27.8 | ) | $ | 118.8 | $ | 191.3 | |||||
2007 | 2006 | |||||||||||||||
Amount | Tons(1) | Amount | Tons(1) | |||||||||||||
(In millions) | ||||||||||||||||
North American Iron Ore | $ | 114.3 | 3.4 | $ | 129.5 | 3.8 | ||||||||||
North American Coal | 8.3 | 0.1 | — | — | ||||||||||||
Asia-Pacific Iron Ore | 30.2 | 1.1 | 20.8 | 0.9 | ||||||||||||
Total | $ | 152.8 | $ | 150.3 | ||||||||||||
(1) | North American Iron Ore tons are long tons of pellets of 2,240 pounds; North American Coal tons are short tons of 2,000 pounds; and Asia-Pacific Iron Ore tons are metric tonnes of 2,205 pounds. |
164
Table of Contents
Payments Due by Period(1) | ||||||||||||||||||||
Less Than | 1 - 3 | 3 - 5 | More | |||||||||||||||||
Contractual Obligations | Total | 1 Year | Years | Years | Than 5 Years | |||||||||||||||
(In millions) | ||||||||||||||||||||
Long-term debt | $ | 555.0 | $ | 0.8 | $ | 114.2 | $ | 440.0 | $ | — | ||||||||||
Interest on debt(2) | 122.7 | 23.9 | 48.8 | 50.0 | — | |||||||||||||||
Capital lease obligations | 77.4 | 9.7 | 18.8 | 17.1 | 31.8 | |||||||||||||||
Operating leases | 77.9 | 18.2 | 31.5 | 16.8 | 11.4 | |||||||||||||||
Purchase obligations | ||||||||||||||||||||
Open purchase orders | 227.0 | 180.5 | 28.6 | 17.9 | — | |||||||||||||||
Minimum “take or pay” purchase commitments(3) | 517.0 | 144.3 | 177.3 | 130.1 | 65.3 | |||||||||||||||
Total purchase obligations | 744.0 | 324.8 | 205.9 | 148.0 | 65.3 | |||||||||||||||
Other long-term liabilities | ||||||||||||||||||||
Pension funding minimums | 87.9 | 24.0 | 34.8 | 29.1 | — | |||||||||||||||
Other postretirement benefits claim payments | 125.6 | 16.9 | 24.0 | 22.8 | 61.9 | |||||||||||||||
Mine closure obligations | 118.5 | 3.5 | 0.8 | 15.6 | 98.6 | |||||||||||||||
FIN 48 obligations(4) | 18.7 | 8.3 | 10.4 | — | — | |||||||||||||||
Personal injury | 16.5 | 3.6 | 4.3 | 1.3 | 7.3 | |||||||||||||||
PinnOak contingent consideration | 99.5 | — | 99.5 | — | — | |||||||||||||||
Other(5) | 201.0 | — | — | — | — | |||||||||||||||
Total other long-term liabilities | 667.7 | 56.3 | 173.8 | 68.8 | 167.8 | |||||||||||||||
Total | $ | 2,244.7 | $ | 433.7 | $ | 593.0 | $ | 740.7 | $ | 276.3 | ||||||||||
(1) | Includes Cliffs’ consolidated obligations. | |
(2) | Interest calculated using a variable rate of 5.2 percent in 2008 and 2009 for the $200 million term debt and 5.8 percent from 2010 to 2012. Interest calculated using a variable rate of 5.6 percent from 2008 to 2012 for the $240 million revolving debt. | |
(3) | Includes minimum electric power demand charges, minimum coal, diesel and natural gas obligations, minimum railroad transportation obligations, minimum port facility obligations and minimum water pipeline access obligations for the Sonoma washplant. | |
(4) | Includes accrued interest. | |
(5) | Primarily includes income taxes payable and deferred income tax amounts for which payment timing is non-determinable. |
165
Table of Contents
166
Table of Contents
167
Table of Contents
168
Table of Contents
169
Table of Contents
170
Table of Contents
171
Table of Contents
172
Table of Contents
173
Table of Contents
174
Table of Contents
Pension | OPEB | |||||||||||||||
Funding | Expense | Funding | Expense | |||||||||||||
(In millions) | ||||||||||||||||
2005 | $ | 38.1 | $ | 18.9 | $ | 29.2 | $ | 13.7 | ||||||||
2006 | 40.7 | 23.0 | 30.4 | 9.8 | ||||||||||||
2007 | 32.5 | 17.4 | 23.0 | 4.5 | ||||||||||||
2008 (Estimated) | 24.4 | 15.4 | 16.0 | 3.9 |
Increase in 2008 | ||||||||
Expense | ||||||||
Pension | OPEB | |||||||
(In millions) | ||||||||
Decrease discount rate .25 percent | $ | 1.5 | $ | 0.4 | ||||
Decrease return on assets 1 percent | 5.8 | 1.3 | ||||||
Increase medical trend rate 1 percent | N/A | 4.1 |
175
Table of Contents
176
Table of Contents
Directors | ||||||||||||||||||||||||
(Excluding Those Who are also | Beneficial | Investment Power | Voting Power | Percent of | ||||||||||||||||||||
Named Executive Officers) | Ownership(1) | Sole | Shared | Sole | Shared | Class(2) | ||||||||||||||||||
Ronald C. Cambre | 20,431 | 20,431 | — | 20,431 | — | — | ||||||||||||||||||
Susan M. Cunningham | 5,588 | 5,588 | — | 5,588 | — | — | ||||||||||||||||||
Barry J. Eldridge | 7,960 | 7,960 | — | 7,960 | — | — | ||||||||||||||||||
Susan Green | 1,890 | 1,890 | — | 1,890 | — | — | ||||||||||||||||||
James D. Ireland III | 1,144,422 | 45,966 | 1,098,456 | (3) | 45,966 | 1,098,456 | (3) | 1.01 | % | |||||||||||||||
Francis R. McAllister | 16,499 | 16,499 | — | 16,499 | — | — | ||||||||||||||||||
Roger Phillips | 34,816 | 34,816 | — | 34,816 | — | — | ||||||||||||||||||
Richard K. Riederer | 13,477 | 13,477 | — | 13,477 | — | — | ||||||||||||||||||
Alan Schwartz | 19,782 | 19,782 | — | 19,782 | — | — | ||||||||||||||||||
Named Executive Officers(4) | ||||||||||||||||||||||||
Joseph A. Carrabba | 78,868 | 78,868 | — | 78,868 | — | — | ||||||||||||||||||
Laurie Brlas | — | — | — | — | — | — | ||||||||||||||||||
Donald J. Gallagher | 132,081 | 132,081 | — | 132,081 | — | — | ||||||||||||||||||
William R. Calfee | 69,849 | 69,849 | — | 69,849 | — | — | ||||||||||||||||||
Randy L. Kummer | 63,564 | 63,564 | — | 63,564 | — | — | ||||||||||||||||||
Ronald G. Stovash | 38,000 | 38,000 | — | 38,000 | — | — | ||||||||||||||||||
David H. Gunning | 45,694 | (5) | 45,694 | (5) | — | 45,694 | (5) | — | — | |||||||||||||||
All Directors and Executive Officers as a group, including the named executive officers and Messrs. Stovash and Gunning (21 Persons) | 1,721,439 | 622,983 | 1,098,456 | 622,983 | 1,098,456 | 1.52 | % |
(1) | Under the rules of the SEC, “beneficial ownership” includes having or sharing with others the power to vote or direct the investment of securities. Accordingly, a person having or sharing the power to vote or direct the investment of securities is deemed to “beneficially own” the securities even if he or she has no right to receive any part of the dividends on or the proceeds from the sale of the securities. Also, because “beneficial ownership” extends to persons, such as co-trustees under a trust, who share power to vote or control the disposition of the securities, the very same securities may be deemed “beneficially owned” by two or more persons shown in the table. Information with respect to “beneficial ownership” shown in the table above is based upon information supplied by Cliffs directors, nominees and executive officers and filings made with the SEC or furnished to Cliffs by any shareholder. | |
(2) | Less than one percent, except as otherwise indicated. |
177
Table of Contents
(3) | Of the 1,144,422 shares deemed under the rules of the SEC to be beneficially owned by Mr. Ireland, he is a beneficial holder of 45,966 shares. The remaining 1,098,456 shares are held in trusts, substantially for the benefit of a charitable foundation, as to which Mr. Ireland is a co-trustee with shared voting and investment powers. Of such shares in trusts, Mr. Ireland has an interest in the income or corpus with respect to 93,698 shares. | |
(4) | The named executive officers of Cliffs are its Chief Executive Officer, Joseph A. Carrabba, its Chief Financial Officer, Laurie Brlas, the other three highest paid employees on December 31, 2007, William R. Calfee, Donald J. Gallagher, and Randy Kummer, and Messrs. David Gunning and Ronald Stovash, former Vice Chairman and former Chief Executive Officer and President of PinnOak, respectively, who would have been among the three highest paid employees other than the Chief Executive Officer and Chief Financial Officer but for their termination of employment during 2007. Cliffs and Mr. Kummer terminated their employment relationship effective October 3, 2008. | |
(5) | Includes 10,000 shares beneficially owned by Mr. Gunning’s spouse. |
Beneficial | Investment Power | Voting Power | Percent of | |||||||||||||||||||||
Name and Address | Ownership(1) | Sole | Shared | Sole | Shared | Class | ||||||||||||||||||
Harbinger Capital Partners Master Fund I, Ltd.(2) | 16,616,472 | — | 16,616,472 | — | 16,616,472 | 14.64 | % | |||||||||||||||||
c/o International Fund Services (Ireland) Limited, Third Floor, Bishop’s Square, Redmond’s Hill, Dublin, L2, Ireland |
(1) | Under the rules of the SEC, “beneficial ownership” includes having or sharing with others the power to vote or direct the investment of securities. Accordingly, a person having or sharing the power to vote or direct the investment of securities is deemed to “beneficially own” the securities even if he or she has no right to receive any part of the dividends on or the proceeds from the sale of the securities. Also, because “beneficial ownership” extends to persons, such as co-trustees under a trust, who share power to vote or control the disposition of the securities, the very same securities may be deemed “beneficially owned” by two or more persons shown in the table. Information with respect to “beneficial ownership” shown in the table above is based upon filings made with the SEC or furnished to Cliffs by any shareholder. | |
(2) | The information shown above and in this footnote was taken from Amendment No. 1 to Schedule 13D filed with the SEC on August 14, 2008, jointly by Harbinger Capital Partners Master Fund I, Ltd., Harbinger Capital Partners Offshore Manager, L.L.C., HMC Investors, L.L.C., Harbinger Capital Partners Special Situations Fund, L.P., Harbinger Capital Partners Special Situations GP, LLC, HMC-New York, Inc., Harbert Management Corporation, Philip Falcone, Raymond J. Harbert, and Michael D. Luce. The address for contacting Philip Falcone, the Harbinger Capital Partners Special Situations GP, LLC, HMC-New York, Inc. and Harbinger Capital Partners Special Situations Fund, L.P., is 555 Madison Avenue, 16th Floor, New York, NY 10022. The principal business address for Harbinger Capital Partners Offshore Manager, HMC Investors L.L.C., Harbert Management Corporation, Raymond J. Harbert, and Michael D. Luce is 2100 Third Avenue North, Suite 600, Birmingham, AL, 35203. |
178
Table of Contents
Name | Age | Position(s) | ||||
Executive Officers | ||||||
Joseph A. Carrabba | 56 | Chairman, President and Chief Executive Officer | ||||
Laurie Brlas | 51 | Executive Vice President — Chief Financial Officer | ||||
Donald J. Gallagher | 56 | President, North American Business Unit | ||||
William A. Brake, Jr. | 48 | Executive Vice President — Cliffs Metallics and Chief Technical Officer | ||||
William R. Calfee | 61 | Executive Vice President — Commercial, North American Iron Ore | ||||
William C. Boor | 42 | Senior Vice President — Business Development | ||||
Duke D. Vetor | 50 | Senior Vice President — North American Coal | ||||
George W. Hawk, Jr. | 52 | General Counsel and Secretary | ||||
Directors | ||||||
Ronald C. Cambre | 70 | Director | ||||
Joseph A. Carrabba | 56 | Director | ||||
Susan M. Cunningham | 52 | Director | ||||
Barry J. Eldridge | 62 | Director | ||||
Susan M. Green | 49 | Director | ||||
James D. Ireland III | 58 | Director | ||||
Francis R. McAllister | 66 | Director | ||||
Roger Phillips | 68 | Director | ||||
Richard K. Riederer | 64 | Director | ||||
Alan Schwartz | 68 | Director |
179
Table of Contents
180
Table of Contents
181
Table of Contents
• | Attraction and retention of executive talent in highly competitive executive labor markets; | |
• | Recognition for business performance; | |
• | Maintaining focus on controllable financial results; | |
• | Limiting the potential for undue windfalls or losses to executives; | |
• | Recognition of changes in scope of the business (revenues and profitability); | |
• | Supporting Cliffs’ strategic repositioning by: |
• | Ensuring alignment with shareholder interests. |
182
Table of Contents
• | Oversee development and implementation of Cliffs’ compensation policies and programs for executive officers; | |
• | Review and approve Chief Executive Officer and other elected officer compensation, including setting goals, evaluating performance, and determining results; | |
• | Oversee Cliffs’ equity-based employee incentive compensation plans and approve grants (except grants or awards under plans relating to Director compensation, which are administered by the Cliffs Board Affairs Committee); | |
• | Ensure that the criteria for awards under Cliffs’ incentive and equity plans are appropriately related to its operating performance objectives; | |
• | Oversee certain aspects of regulatory compliance with respect to compensation matters; and | |
• | Review and approve any proposed severance or retention plans or agreements. |
• | Target pay opportunity for executive officers should be at the 62.5th percentile of market levels. | |
• | Align pay with results delivered to shareholders, while recognizing the potentially cyclical nature of the industry in which Cliffs operates. The goal is to avoid undue windfalls to executives in years of good performance or the undue loss of all compensation opportunities in down cycles. | |
• | Focus performance measures on a combination of absolute performance objectives tied to Cliffs’ business plan (profitability and cost control), achievement of key initiatives that reflect the business strategy (e.g., sales initiatives, cost control activities, etc.) and relative objectives reflecting market conditions (relative total shareholder return (which reflects share price appreciation plus reinvested dividends, if any)). | |
• | Provide competitive fixed compensation elements over the short-term (salary) and long-term (retention grants and retirement benefits) to encourage long-term retention of Cliffs’ executives. | |
• | Design pay programs to be as simple and transparent as possible to facilitate focus and understanding. |
183
Table of Contents
184
Table of Contents
185
Table of Contents
Objective | Weight | |||
Pre-Tax Earnings | 50.00 | % | ||
Adjusted Cost Control | 25.00 | % | ||
Corporate Objectives | 25.00 | % | ||
Total | 100.00 | % | ||
186
Table of Contents
• | 2007 pre-tax earnings were reviewed and compared to adjusted maximum performance levels set at the beginning of 2007 of $422 million with an adjusted minimum and target performance levels of $281 million and $351 million. Preliminary results were $380.7 million. This factor was weighted 50 percent, resulting in funding of 35.44 percent of maximum bonuses. | |
• | Adjusted cost control was above the target established for the year, resulting in a funding multiple of 16.38 percent of maximum for this performance factor (weighted 25 percent). | |
• | The Compensation Committee evaluated corporate objectives established at the beginning of the year and rated those objectives at a performance level of 100 percent. This factor was weighted 25 percent, resulting in funding of 25 percent of maximum bonuses. Due to post acquisition performance of PinnOak and at the discretion of the Compensation Committee, Mr. Carrabba’s corporate objectives portion of the bonus was rated less than other named executive officers. | |
• | Bonuses for 2007 under the Executive Management Performance Incentive Plan were paid in the following amounts to the named executive officers: |
Joseph A Carrabba | $ | 1,021,706 | William R. Calfee | $ | 337,240 | |||||||
Laurie Brlas | $ | 367,200 | Randy L. Kummer | $ | 212,023 | |||||||
Donald G. Gallagher | $ | 381,027 | David G. Gunning | $ | 182,448 |
187
Table of Contents
Performance Level | ||||||
Performance Factor | Threshold | Target | Maximum | |||
Relative total | 35th%ile | 55th%ile | 75th%ile | |||
shareholder return | ||||||
Payout | 50% | 100% | 150% | |||
Pre-Tax Return on Net Assets | Calculated payout reduced 50% if Return on Net Assets is below 12% at the end of the three year period (approximately equivalent to the cost of capital on a pre-tax basis) |
188
Table of Contents
AK Steel Holding Corp. | Gerdau Ameristeel Corp. | Rio Tinto plc | ||
Algoma Steel Inc. | IPSCO Inc. | Southern Copper Corp. | ||
Arch Coal | Macarthur Coal | Steel Dynamics Inc. | ||
Companhia Vale ADR | Nucor Corp. | Teck Cominco Ltd | ||
Freeport-McMoran | Oxiana Limited | USX-US Steel Group |
189
Table of Contents
Performance | Restricted | |||||||
Name | Shares | Share Units | ||||||
Joseph A Carrabba | 34,500 | 11,500 | ||||||
Laurie Brlas | 10,800 | 3,600 | ||||||
Donald G. Gallagher | 10,650 | 3,550 | ||||||
William R. Calfee | 8,100 | 2,700 | ||||||
Randy L. Kummer | 6,150 | 2,050 |
190
Table of Contents
• | Automatic vesting of unvested equity incentives uponchange-in-control; | |
• | Two to three times annual base salary and target annual incentive as severance upon termination following a change in control, and continuation of welfare benefits between two to three years; |
191
Table of Contents
• | Full taxgross-up payments on any excise taxes imposed upon any change in control payments; and | |
• | Non-compete, confidentiality and non-solicitation provisions for executives who receive severance payments following a change in control. |
• | a lump sum payment of $548,000, which is equal to two times Mr. Kummer’s base pay; | |
• | a lump sum payment of $160,000, which approximates Mr. Kummer’s expected payout under the Executive Management Performance Incentive Plan, pro-rated for service during 2008; | |
• | payouts for performance shares, retention unit and restricted share unit grants received by Mr. Kummer under Cliffs’ long-term incentive programs will be pro-rated based upon the length of Mr. Kummer’s employment during the applicable incentive periods; | |
• | restricted shares granted to Mr. Kummer in 2006 under the 1992 Incentive Equity Plan became non-forfeitable on October 3, 2008 as if Mr. Kummer had been involuntarily terminated without cause and will be paid in accordance with the terms of Mr. Kummer’s 2006 restricted share award agreement; | |
• | Mr. Kummer and his eligible dependants will be entitled to continuation of health insurance coverage for up to 24 months under certain circumstances; and | |
• | Mr. Kummer will be entitled to relocation assistance for up to 12 months, to the extent such benefits are not available through another employer, and outplacement assistance for up to 12 months. |
192
Table of Contents
193
Table of Contents
Change in | ||||||||||||||||||||||||||||||||
Non-Equity | Pension Value | |||||||||||||||||||||||||||||||
Incentive | and | |||||||||||||||||||||||||||||||
Plan | Nonqualified | |||||||||||||||||||||||||||||||
Stock | Compen- | Deferred | All Other | |||||||||||||||||||||||||||||
Salary | Bonus | Awards | sation | Compensation | Compensation | Total | ||||||||||||||||||||||||||
Name and Principal Position | Year | ($) | ($) | ($) | ($) | Earnings ($) | ($) | ($) | ||||||||||||||||||||||||
(a) | (b) | (c)(1) | (d) | (e)(1)(2) | (f)(1)(3) | (g)(4) | (h)(5) | (i) | ||||||||||||||||||||||||
Joseph A. Carrabba | 2007 | 675,000 | (6) | — | 2,105,673 | 1,089,206 | 159,936 | 63,280 | 4,093,094 | |||||||||||||||||||||||
Chairman, President and | 2006 | 520,833 | (6) | — | 909,353 | 752,083 | 125,300 | 106,382 | 2,413,951 | |||||||||||||||||||||||
Chief Executive Officer | ||||||||||||||||||||||||||||||||
Laurie Brlas | 2007 | 376,250 | (6) | — | 482,586 | 404,825 | 32,225 | 29,361 | 1,325,247 | |||||||||||||||||||||||
Executive Vice President and | 2006 | 22,228 | (6) | 399,700 | (7) | 27,383 | 2,222 | — | 502 | 452,034 | ||||||||||||||||||||||
Chief Financial Officer | ||||||||||||||||||||||||||||||||
Donald J. Gallagher | 2007 | 389,250 | (6) | — | 955,825 | 419,952 | 513,938 | 109,309 | 2,388,274 | |||||||||||||||||||||||
President North American | 2006 | 339,583 | (6) | — | 602,877 | 349,167 | 618,900 | 31,594 | 1,942,121 | |||||||||||||||||||||||
Iron Ore | ||||||||||||||||||||||||||||||||
William R. Calfee | 2007 | 344,750 | (6) | — | 687,210 | 371,715 | 512,590 | 70,168 | 1,986,433 | |||||||||||||||||||||||
Executive Vice | 2006 | 331,750 | (6) | 375,000 | (8) | 1,107,084 | 318,175 | 528,700 | 46,513 | 2,707,222 | ||||||||||||||||||||||
President-Commercial North American Iron Ore | ||||||||||||||||||||||||||||||||
Randy L. Kummer(9) | 2007 | 259,750 | (6) | — | 754,437 | 237,998 | 49,047 | 28,607 | 1,329,840 | |||||||||||||||||||||||
Former Senior Vice President, | 2006 | 244,750 | (6) | — | 791,053 | 199,475 | 34,900 | 18,150 | 1,288,328 | |||||||||||||||||||||||
Human Resources | ||||||||||||||||||||||||||||||||
Ronald G. Stovash(9) | 2007 | 348,718 | — | 1,316,130 | — | — | 1,129,521 | 2,794,369 | ||||||||||||||||||||||||
Former Chief Executive Officer and President, PinnOak | ||||||||||||||||||||||||||||||||
David H. Gunning | 2007 | 184,083 | (6) | — | 715,847 | 200,856 | 193,571 | (10) | 56,294 | (11) | 1,350,651 | |||||||||||||||||||||
Former Vice Chairman of the Board | 2006 | 426,250 | (6) | — | 1,564,430 | 397,625 | 313,800 | 20,522 | 2,722,627 |
(1) | Columns (c), (e) and (f) reflect the salary, equity compensation and non-equity incentive compensation, respectively, of each named executive officer before pre-tax reductions for contributions to the 401(k) Savings Plan and/or the VNQDC Plan. Amounts by which salary, equity compensation and non-equity incentive compensation were reduced in 2007 pursuant to the named executive officers’ elections to make contributions to the VNQDC Plan are as follows: Carrabba — $33,750; Brlas — $26,337; and Calfee — $34,475. These amounts appear in column (b) of the “2007 Nonqualified Deferred Compensation Table” below. | |
(2) | The amounts in column (e) reflect the dollar amount recognized for financial statement reporting purposes for the fiscal years ended December 31, 2007 and December 31, 2006, in accordance with Financial Accounting Standards Board Statement No. 123 (revised 2004), Accounting for Stock-Based Compensation, or SFAS 123R, of awards of restricted shares, performance shares and retention units, and thus includes amounts from awards granted in and prior to 2006 and 2007. For additional information, refer to Note 11 to Cliffs’ audited financial statements for the year ended December 31, 2007 included elsewhere in this joint proxy statement/prospectus, and Notes 11 and 12 to Cliffs’ audited financial statements in Item 8 of Cliffs’ Annual Reports onForm 10-K for the years ended December 31, 2006 and 2005, respectively. These types of awards are discussed in further detail in the “— Compensation Discussion and Analysis” section above under the headings “— Performance Share Program,” “— Retention Units” and “— Restricted Stock Grants.” See the “2007 Grants of Plan-Based Awards Table” for more detail on the awards of restricted shares, retention units and performance shares. Please note that the amounts shown in column (e) for 2006 differ from the amounts shown in column (e) of the 2006 Summary Compensation Table included in Cliffs’ proxy statement for the 2007 annual meeting because the |
194
Table of Contents
amounts shown last year were the value of such awards on the dates granted in 2006 rather than the amounts recognized for financial statement reporting purposes. | ||
(3) | The amounts in column (f) reflect the sum of (i) incentive bonus awards that were earned in 2007 under the Executive Management Performance Incentive Plan, which is discussed in further detail in the “— Compensation Discussion and Analysis” section above under the heading “— Annual Incentive Plan,” and were paid in cash to the named executive officers on February 22, 2008, and (ii) amounts allocated to the named executive officers as performance-based contributions under the 401(k) Savings Plan, which equaled in 2007 for all the participants under the 401(k) Savings Plan 10 percent of their 401(k) eligible wages. To the extent that such performance-based contributions exceeded Code limits for a qualified profit sharing plan, they were credited to the accounts of the executives under the VNQDC Plan. The amounts of the incentive bonus for 2007 for the named executive officers were: Carrabba — $1,021,706; Brlas — $367,200; Gallagher — $381,027; Calfee — $337,240; Kummer — $212,023 and Gunning — $182,448. Mr. Carrabba deferred $99,298 of his 2007 incentive bonus into the VNQDC Plan (as shown in column (b) of the “2007 Nonqualified Deferred Compensation Table” below). The amounts representing the performance-based contributions for 2007 under the 401(k) Savings Plan and/or the VNQDC Plan for the named executive officers are: Carrabba — $67,500; Brlas — $37,625; Gallagher — $38,925; Calfee — $34,475; Kummer — $25,975 and Gunning — $18,408. After reaching the maximum levels of pre-tax contributions to the 401(k) Savings Plan, the balance of the performance-based contributions for 2007 listed were deferred into the VNQDC Plan as follows: Carrabba — $45,000; Brlas — $15,125; Gallagher — $16,425; Calfee — $13,545 and Kummer — $23,449 (as shown in column (c) of the “2007 Nonqualified Compensation Table” below). | |
(4) | The amounts in column (g) reflect the actuarial increase in the present value of the named executive officers’ benefits under the Pension Plan and the Supplemental Retirement Benefit Plan, both of which are discussed in further detail in the “— Compensation Discussion and Analysis” section above under the heading “— Defined Benefit Pension Plan,” determined using interest rate and mortality assumptions consistent with those used in Cliffs’ financial statements and may include amounts that the named executive officer is not currently entitled to receive because his or her benefits are not fully vested. The increase in the value of the benefits in 2007 of the named executive officers under the Pension Plan were: Carrabba — $159,700; Brlas — $32,200; Gallagher — $513,800; Calfee — $512,200 and Kummer — $49,000. The increase in the value of the benefits of the named executive officers under the Supplemental Retirement Benefit Plan in 2007 were zero for each named executive officer. Laurie Brlas and Ronald Stovash were not eligible for pension or Supplemental Retirement Benefit Plan benefits in 2007. The amounts for above market interest in column (g) on deferred compensation in 2007 were: Carrabba — $235; Brlas — $25; Gallagher — $138; Calfee — $390; Kummer — $47 and Gunning — $47. | |
(5) | The amounts in column (h) reflect the combined value of the named executive officer’s perquisites attributable to Cliffs-paid parking, financial services, club memberships, restricted stock dividends, matching contributions made by and on behalf of the executives under the 401(k) Saving Plan and the VNQDC Plan. |
Voluntary | ||||||||||||||||||||||||||||||||||||
Non-Qualified | ||||||||||||||||||||||||||||||||||||
401(k) | Deferred | |||||||||||||||||||||||||||||||||||
Savings | Compensation | |||||||||||||||||||||||||||||||||||
Financial | Plan | Plan | Restricted | |||||||||||||||||||||||||||||||||
Paid | Svcs. | Club | Matching | Matching | Stock | Other | ||||||||||||||||||||||||||||||
Parking | ($) | Memberships | Contributions | Contributions | Dividends | ($) | Total | |||||||||||||||||||||||||||||
($) | (a) | ($) | ($) | ($) | ($) | (b) | ($) | |||||||||||||||||||||||||||||
Joseph A. Carrabba | 2007 | 2,520 | 8,093 | 9,815 | 7,313 | 19,688 | 15,853 | — | 63,280 | |||||||||||||||||||||||||||
Laurie Brlas | 2007 | 2,520 | 10,000 | 1,792 | 9,000 | 6,050 | — | — | 29,361 | |||||||||||||||||||||||||||
Donald J. Gallagher | 2007 | 2,520 | 11,238 | 76,918 | 9,000 | — | 9,634 | — | 109,309 | |||||||||||||||||||||||||||
William R. Calfee | 2007 | 2,520 | 7,457 | 46,401 | 8,570 | 5,220 | — | — | 70,168 | |||||||||||||||||||||||||||
Randy L. Kummer | 2007 | 2,520 | 4,045 | — | 8,400 | — | 13,642 | — | 28,607 | |||||||||||||||||||||||||||
Ronald G. Stovash | 2007 | — | — | 110,496 | — | — | 2,375 | 1,016,650 | 1,129,521 | |||||||||||||||||||||||||||
David H. Gunning | 2007 | 1,050 | — | 1,378 | 7,363 | — | 5,741 | 40,762 | 56,294 |
(a) | Includes tax gross up on financial services paid for Messrs. Carrabba — $184; Gallagher — $293 and Calfee — $287. |
195
Table of Contents
(b) | Other Compensation for Mr. Stovash includes $520 payment as a result of waiving medical benefits, $1,008,130 separation payment and $8,000 vehicle allowance. Other Compensation for Mr. Gunning includes $40,762 paid to him as a consulting fee for serving as Cliffs’ representative on the board of directors of Portman and keeping current management apprised of developments relating to Portman. |
(6) | The salary of the named executive officers includes their base salary before salary reductions for the Benefits Choice Plan, the 401(k) Savings Plan, and the VNQDC Plan. The 2007 401(k) salary deferrals of the named executive officers were: Carrabba — $7,875; Brlas — $11,250; Gallagher — $11,250; Calfee — $15,500; Kummer — $15,500; Stovash — $15,500 and Gunning — $13,806. The 2007catch-up 401(k) salary deferrals for the named executive officers were: Carrabba — $4,800; Brlas — $4,800; Gallagher — $5,000; Calfee — $5,000; Kummer — $5,000; Stovash — $5,000 and Gunning — $5,000. The pre-tax contributions for the compensation earned in 2007 and deferred into the VNQDC Plan on behalf of the named executive officers were: Carrabba — $33,750; Brlas — $26,337 and Calfee — $34,475. | |
(7) | The amount shown in column (d) for Ms. Brlas reflects a signing bonus of $115,000 plus a Management Performance Incentive Plan bonus of $284,700. The Management Performance Incentive Plan bonus was intended to compensate her for the loss of a bonus from her prior employment. | |
(8) | Upon the granting of restricted shares on May 8, 2006, certain executives were then eligible to retire without forfeiting the restricted shares, thereby resulting in the restricted share being taxable to the executive immediately rather than when the restrictions lapsed. For such executives, it was determined to pay an amount in cash in lieu of half of the restricted shares that would otherwise be granted to the executive. Such cash would provide the executives with sufficient funds to pay federal, state and local income taxes on the total value of the restricted shares and the cash payment. The amounts in column (d) for Mr. Calfee reflect the cash paid in lieu of one-half of the restricted shares which would otherwise have been granted to him. | |
(9) | Effective October 3, 2008, Cliffs and Mr. Kummer terminated their employment relationship. Mr. Stovash became employed with Cliffs upon the acquisition of PinnOak on July 31, 2007 and was terminated from Cliffs effective November 5, 2007. | |
(10) | The lump sum present value of the benefits of Mr. Gunning accrued under the Supplemental Retirement Benefit Plan ($537,043) were paid to him upon his retirement on June 1, 2007. | |
(11) | Mr. Gunning retired from Cliffs on June 1, 2007 after 7 years of service. Upon his retirement, Mr. Gunning entered into a consulting agreement with Cliffs effective June 1, 2007. The consulting agreement provides that Mr. Gunning is to be paid an annual fee in quarterly installments in U.S. dollars for his service as a member of the Board of Directors of Portman serving on behalf of Cliffs. The consulting fee is based on the current retainer paid to the independent directors of Portman. Effective March 2008, the Portman directors’ retainers were increased from A$84,404 to A$95,000 (each, Australian dollars). |
196
Table of Contents
All | ||||||||||||||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||||||||||
Stock | Grant | |||||||||||||||||||||||||||||||||||||||
Estimated Possible Payouts under | Awards: | Date Fair | ||||||||||||||||||||||||||||||||||||||
Non-Equity Incentive Plan | Estimated Future Payout(s) | Number of | Market | |||||||||||||||||||||||||||||||||||||
Awards (Executive Management | under Equity Incentive Plan | Shares of | Value of | |||||||||||||||||||||||||||||||||||||
Performance Incentive Plan)(1) | Awards (Performance Shares)(2) | Stock or | Stock | |||||||||||||||||||||||||||||||||||||
Grant | Committee | Threshold | Target | Maximum | Threshold | Target | Maximum | Units | Awards | |||||||||||||||||||||||||||||||
Name | Date | Date | ($) | ($) | ($) | (#) | (#) | (#) | (#) | ($) | ||||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | ||||||||||||||||||||||||||||||
Joseph A. Carrabba | 3/27/2007 | 3/27/2007 | 350,000 | 700,000 | 1,400,000 | — | — | — | — | — | ||||||||||||||||||||||||||||||
3/13/2007 | 3/12/2007 | — | — | — | 31,450 | 62,900 | 94,350 | 11,100 | 2,085,690 | |||||||||||||||||||||||||||||||
Laurie Brlas | 3/27/2007 | 3/27/2007 | 114,000 | 239,148 | 478,296 | — | — | — | — | — | ||||||||||||||||||||||||||||||
3/13/2007 | 3/12/2007 | — | — | — | 10,200 | 20,400 | 30,600 | 3,600 | 676,440 | |||||||||||||||||||||||||||||||
Donald J. Gallagher | 3/27/2007 | 3/27/2007 | 118,200 | 248,220 | 496,440 | — | — | — | — | — | ||||||||||||||||||||||||||||||
3/13/2007 | 3/12/2007 | — | — | — | 10,625 | 21,250 | 31,875 | 3,750 | 704,625 | |||||||||||||||||||||||||||||||
William R. Calfee | 3/27/2007 | 3/27/2007 | 104,400 | 219,492 | 438,984 | — | — | — | — | — | ||||||||||||||||||||||||||||||
3/13/2007 | 3/12/2007 | — | — | — | 5,610 | 11,220 | 16,830 | 1,980 | 372,042 | |||||||||||||||||||||||||||||||
Randy L. Kummer | 3/27/2007 | 3/27/2007 | 65,750 | 138,075 | 276,150 | — | — | — | — | — | ||||||||||||||||||||||||||||||
3/13/2007 | 3/12/2007 | — | — | — | 5,525 | 11,050 | 16,575 | 1,950 | 366,405 | |||||||||||||||||||||||||||||||
Ronald G. Stovash | 2/22/2007 | 2/22/2007 | — | 560,000 | 560,000 | — | — | — | — | — | ||||||||||||||||||||||||||||||
7/31/2007 | 7/31/2007 | — | — | — | — | — | — | 38,000 | 1,316,130 | (3) | ||||||||||||||||||||||||||||||
David H. Gunning(4) | 3/27/2007 | 3/27/2007 | 79,100 | 118,755 | 237,510 | — | — | — | — | — | ||||||||||||||||||||||||||||||
3/13/2007 | 3/12/2007 | — | — | — | 14,705 | 29,410 | 44,115 | 5,190 | 200,777 |
(1) | Except as otherwise indicated, the amounts in column (d) reflect the threshold payment level under the Executive Management Performance Incentive Plan, which is 25 percent of the target amount shown in column (f). The amount shown in column (e) is 50 percent of the amount shown in column (f). These amounts are based on the individual’s current salary and position. Mr. Stovash’s target annual incentive was 80% of base salary and ranged from 0% to 140% of target. | |
(2) | The amounts in column (g) reflect the threshold payout level of performance shares under the 2007 Incentive Equity Plan, which is 50 percent of the target amount shown in column (h). The amount shown in column (i) is 150 percent of such target amount. | |
(3) | Mr. Stovash was granted restricted shares pursuant to his employment with Cliffs in connection with the acquisition of PinnOak Resources Ltd. | |
(4) | Mr. Gunning’s Executive Management Performance Incentive Plan bonus, performance share and retention unit awards are pro-rated for his retirement in 2007. |
197
Table of Contents
Stock Awards(1) | ||||||||||||||||||||||||
Equity | ||||||||||||||||||||||||
Incentive | ||||||||||||||||||||||||
Plan | ||||||||||||||||||||||||
Equity | Awards: | |||||||||||||||||||||||
Incentive | Market or | |||||||||||||||||||||||
Plan | Payout | |||||||||||||||||||||||
Awards: | Value | |||||||||||||||||||||||
Number of | of | |||||||||||||||||||||||
Market | Unearned | Unearned | ||||||||||||||||||||||
Number of | Value of | Shares, | Shares, | |||||||||||||||||||||
Shares or | Shares or | Units | Units or | |||||||||||||||||||||
Units of Stock | Units of | or Other | Other | |||||||||||||||||||||
That | Stock | Rights That | Rights That | |||||||||||||||||||||
Have Not | That Have | Have Not | Have Not | |||||||||||||||||||||
Vested | Not | Vested | Vested | |||||||||||||||||||||
Name | Grant | Vesting | (#) | Vested ($) | (#) | ($) | ||||||||||||||||||
(a) | Date | Date | (b)(2) | (c) | (d) | (e) | ||||||||||||||||||
Joseph A. Carrabba | 05/22/05 | 05/23/08 | 5,066 | (3) | 255,326 | — | — | |||||||||||||||||
03/14/06 | 03/14/09 | 55,812 | (3) | 2,812,925 | — | — | ||||||||||||||||||
05/08/06 | 12/31/08 | 4,980 | (4) | 250,992 | 28,220 | (5) | 1,422,288 | |||||||||||||||||
09/01/06 | 12/31/08 | 4,980 | (6) | 250,992 | 28,220 | (6) | 1,422,288 | |||||||||||||||||
03/13/07 | 12/31/09 | 11,100 | (4) | 559,440 | 62,900 | (5) | 3,170,160 | |||||||||||||||||
Laurie Brlas | 12/11/06 | 12/31/08 | 2,400 | (7) | 120,960 | 13,600 | (7) | 685,440 | ||||||||||||||||
03/13/07 | 12/31/09 | 3,600 | (4) | 181,440 | 20,400 | (5) | 1,028,160 | |||||||||||||||||
Donald J. Gallagher | 03/14/06 | 03/14/09 | 34,884 | (3) | 1,758,154 | — | — | |||||||||||||||||
05/08/06 | 12/31/08 | 2,520 | (4) | 127,008 | 14,280 | (5) | 719,712 | |||||||||||||||||
03/13/07 | 12/31/09 | 3,750 | (4) | 189,000 | 21,250 | (5) | 1,071,000 | |||||||||||||||||
William R. Calfee | 03/14/06 | 03/14/09 | 17,440 | (3) | 878,976 | — | — | |||||||||||||||||
05/08/06 | 12/31/08 | 2,340 | (4) | 117,936 | 13,260 | (5) | 668,304 | |||||||||||||||||
03/13/07 | 12/31/09 | 1,980 | (4) | 99,792 | 11,220 | (5) | 565,488 | |||||||||||||||||
Randy L. Kummer | 03/14/06 | 03/14/09 | 30,232 | (3) | 1,523,693 | 9,520 | (5) | 479,808 | ||||||||||||||||
05/08/06 | 12/31/08 | 1,680 | (4) | 84,672 | 11,050 | (5) | 556,920 | |||||||||||||||||
03/13/07 | 12/31/09 | 1,950 | (4) | 98,280 | — | — | ||||||||||||||||||
Ronald G. Stovash(8) | — | — | — | — | — | — | ||||||||||||||||||
David H. Gunning(9) | 05/08/06 | 12/31/08 | 3,660 | (4) | 184,464 | 20,740 | (5) | 1,045,296 | ||||||||||||||||
03/13/07 | 12/31/09 | 5,190 | (4) | 261,576 | 29,410 | (5) | 1,482,264 |
(1) | Normally, outstanding options would be listed in this table. There are no outstanding stock options for any named executive officers. | |
(2) | The amounts shown in this column reflect the number of unvested restricted shares granted under the Incentive Equity Plan and the number of retention units under the Long-Term Incentive Plan or 2007 Incentive Equity Plan. Unless otherwise indicated, all of these awards vest on the last day of the second year following the year in which the award was granted. | |
(3) | Reflects a grant of restricted shares. | |
(4) | Reflects a grant of retention units. Grant dates of 5/8/06, 9/1/06 and 12/11/06 pertain to the2006-2008 performance period, and the grant date of 3/13/07 pertains to the2007-2009 performance period. | |
(5) | Reflects grants of performance shares. Grant dates of 5/8/06, 9/1/06 and 12/11/06 pertain to the2006-2008 performance period, and the grant date of 3/13/07 pertains to the2007-2009 performance period. | |
(6) | This represents additional performance shares (28,220) and retention units (4,980) for the2006-2008 performance period granted to Mr. Carrabba upon becoming Cliffs’ Chief Executive Officer. |
198
Table of Contents
(7) | This represents performance shares (13,600) and retention units (2,400) for the2006-2008 performance period granted to Ms. Brlas upon becoming Cliffs’ Chief Financial Officer. | |
(8) | Mr. Stovash did not have any outstanding equity as of December 31, 2007. | |
(9) | Mr. Gunning received a grant of restricted shares on 3/14/06 that vests on 3/14/09. The shares became non-forfeitable upon his retirement. Restrictions were removed from 50 percent of the award to satisfy tax obligations. |
Stock Awards | ||||||||
Number of | ||||||||
Shares | Value | |||||||
Acquired on | Realized on | |||||||
Vesting | Vesting | |||||||
Name | (#) | ($) | ||||||
(a) | (b) | (c)(1) | ||||||
Joseph A. Carrabba(2) | 5,066 | (3) | 186,479 | |||||
17,402 | (4) | 1,042,032 | ||||||
2,280 | (5) | 114,912 | ||||||
Laurie Brlas(2) | — | — | ||||||
Donald J. Gallagher | 14,600 | (6) | 527,571 | |||||
18,776 | (4) | 1,124,307 | ||||||
2,460 | (5) | 123,984 | ||||||
William R. Calfee | 18,776 | (4) | 1,124,307 | |||||
2,460 | (5) | 123,984 | ||||||
Randy L. Kummer | 24,336 | (7) | 1,226,534 | |||||
13,280 | (4) | 795,206 | ||||||
1,740 | (5) | 87,696 | ||||||
Ronald G. Stovash(2) | 38,000 | (8) | 1,609,490 | |||||
David H. Gunning | 50,000 | (9) | 1,435,250 | |||||
41,860 | (10) | 1,803,747 | ||||||
25,088 | (4) | 1,502,269 | ||||||
3,286 | (5) | 165,614 |
(1) | The value realized shown in column (c) is computed by multiplying the number of restricted shares, performance shares and retention units by the closing price of a Cliffs common share on the date of vesting. Except as otherwise noted, all awards vested on December 31, 2007. The closing price of a Cliffs common share on December 31, 2007 was $50.40. | |
(2) | The executive did not participate in the Long-Term Incentive Plan for the2004-2006 performance period. | |
(3) | The restricted shares were granted on May 23, 2005. They vested on May 23, 2007 with a fair market value of $36.81. | |
(4) | This represents a performance share award granted on March 8, 2005 for the2005-2007 performance period paid out to participants on February 26, 2008 at a fair market value of $59.88 per share on February 22, 2007. The performance shares would have been, based on the performance criteria, paid out at 175 percent. |
199
Table of Contents
However, because the maximum cap on payments, they were actually paid at 77 percent of the uncapped value. | ||
(5) | This represents an award of retention units under the Long-Term Incentive Plan paid out to participants for the2005-2007 performance period. | |
(6) | Pursuant to Mr. Gallagher’s restricted stock agreement, the shares became non-forfeitable upon his retirement eligibility. The shares vested on May 4, 2007 with a fair market value of $36.14. | |
(7) | The restricted shares were granted on March 8, 2005. They vested on December 31, 2007 with a fair market value of $50.40. | |
(8) | The restricted shares were granted on July 31, 2007. Pursuant to provisions in Mr. Stovash’s restricted share agreement, the shares vested on November 5, 2007 with a fair market value of $42.36 upon his involuntary termination without cause. | |
(9) | The restricted shares were granted on March 10, 2003. They vested on March 12, 2007 with a fair market value of $28.71. | |
(10) | The restricted shares were granted on March 14, 2006. Mr. Gunning retired from Cliffs on June 1, 2007. The grant became non-forfeitable upon his retirement. Restrictions were removed on 50 percent of the shares to satisfy the tax obligation. The balance of the shares will be released on March 14, 2009. |
200
Table of Contents
Number of | ||||||||||||||
Years | Present Value | Payments | ||||||||||||
Credited | of Accumulated | During | ||||||||||||
Service | Benefit | Last Fiscal Year | ||||||||||||
Name | Plan Name | (#) | ($) | ($) | ||||||||||
(a) | (b) | (c) | (d)(2) | (e) | ||||||||||
Joseph A. Carrabba | Salaried Pension Plan | 2.7 | 39,100 | — | ||||||||||
Supplemental Retirement Benefit Plan | 2.7 | 999,400 | — | |||||||||||
Laurie Brlas | Salaried Pension Plan | 1.1 | 11,500 | — | ||||||||||
Supplemental Retirement Benefit Plan | 1.1 | 20,700 | — | |||||||||||
Donald J. Gallagher | Salaried Pension Plan | 26.4 | 731,200 | — | ||||||||||
Supplemental Retirement Benefit Plan | 26.4 | 815,800 | — | |||||||||||
William R. Calfee | Salaried Pension Plan | 35.5 | 1,263,300 | — | ||||||||||
Supplemental Retirement Benefit Plan | 35.5 | 923,000 | — | |||||||||||
Randy L. Kummer | Salaried Pension Plan | 7.3 | 88,700 | — | ||||||||||
Supplemental Retirement Benefit Plan | 7.3 | 63,000 | — | |||||||||||
Ronald G. Stovash(1) | — | — | — | — | ||||||||||
David H. Gunning | Salaried Pension Plan | 6.2 | 190,900 | — | ||||||||||
Supplemental Retirement Benefit Plan | 6.2 | 533,824 | — |
(1) | Mr. Stovash was not eligible to participate in pension benefits. | |
(2) | The present value of accrued benefits were calculated using a 6.00 percent discount rate, the assumption that the executive would receive the benefits at age 65 unless he or she is entitled to an unreduced benefit at an earlier age, and using the RP2000 mortality table. |
201
Table of Contents
Executive | Registrant | Aggregate | Aggregate | |||||||||||||||||
Contributions | Contributions | Earnings in | Aggregate | Balance at | ||||||||||||||||
in Last Fiscal | in Last Fiscal | Last Fiscal | Withdrawals / | Last Fiscal | ||||||||||||||||
Year | Year | Year | Distributions | Year-End | ||||||||||||||||
Name | ($) | ($) | ($) | ($) | ($) | |||||||||||||||
(a) | (b)(1) | (c)(2) | (d)(3) | (e) | (f)(2)(4) | |||||||||||||||
Joseph A. Carrabba | 133,048 | (2) | 64,688 | 9,369 | — | 346,138 | ||||||||||||||
Laurie Brlas | 26,337 | 21,175 | 842 | — | 48,457 | |||||||||||||||
Donald J. Gallagher | — | 16,425 | 2,536,862 | — | 5,006,763 | |||||||||||||||
William R. Calfee | 34,475 | 18,765 | 1,077,551 | — | 2,401,240 | |||||||||||||||
Randy L. Kummer | — | 23,449 | 2,422 | — | 69,319 | |||||||||||||||
Ronald G. Stovash(5) | — | — | — | — | — | |||||||||||||||
David H. Gunning | — | — | 3,005 | 61,704 | — |
(1) | The amounts in column (b) represents pre-tax contributions of salary, incentive bonuses, and performance share and retention unit awards to the VNQDC Plan by the named executive officers. Mr. Carrabba deferred $99,298 of his 2007 bonus and $33,750 of his salary into the VNQDC Plan. Ms. Brlas and Mr. Calfee deferred only salary. All of these amounts are reported as 2007 compensation in the “2007 Summary Compensation Table” above. | |
(2) | The amounts in column (c) reflect the sum of (i) Cliffs’ matching contributions made on behalf of the named executive officers to the VNQDC Plan, and (ii) performance-based contributions authorized under the 401(k) Savings Plan but that were credited to the VNQDC Plan. The matching contributions for the named executive officers were: Carrabba — $19,688; Brlas — $6,050; and Calfee — $5,220. The performance-based contributions to the VNQDC Plan for the named executive officers were: Carrabba — $45,000; Brlas — $15,125; Gallagher — $16,425; Calfee — $13,545; and Kummer — $23,449. All of these amounts are reported as 2007 compensation in the “2007 Summary Compensation Table” above. Please note that the amounts shown in column (b) for Mr. Carrabba and in columns (c) and (f) differ from the amounts shown in the respective columns of the “2007 Nonqualified Deferred Compensation” table included in Cliffs’ proxy statement for the 2007 annual meeting as a result of recent SEC guidance to reflect certain amounts contributed to the VNQDC Plan during 2008. | |
(3) | The amounts in column (d) reflect the sum of (i) interest earned on cash deferrals, (ii) dividends earned on deferred shares, and (iii) the increase (or decrease) in the value of deferred common shares held in the participant’s account from January 1, 2007 through December 31, 2007. The interest earned by the named executive officers was: Carrabba — $9,370; Brlas — $842; Gallagher — $7,623; Calfee — $21,350; |
202
Table of Contents
Kummer — $2,422 and Gunning — $3,005. The dividends earned by the named executive officers were: Gallagher — $22,399 and Calfee — $9,892. A portion of dividends was reinvested into deferred common shares. The change in valuation of the deferred common shares for Messrs. Gallagher and Calfee was $2,506,840 and $1,046,310, respectively. None of these amounts are reported as 2007 compensation in the “2007 Summary Compensation Table” above. | ||
(4) | Mr. Gallagher’s aggregate balance includes 96,356 deferred common shares and Mr. Calfee’s aggregate balance includes 39,800 deferred common shares. Cliffs common shares had a closing market price of $50.40 on December 31, 2007. | |
(5) | Mr. Stovash was not eligible to participate in nonqualified deferred compensation. |
• | Salary through the date of termination; | |
• | Unused vacation pay; | |
• | Accrued and vested benefits under the Pension Plan, Supplemental Retirement Benefit Plan, 401(k) Savings Plan, and VNQDC Plan; | |
• | Undistributed performance shares and unpaid retention units for periods which have been completed; and | |
• | Restricted shares where the restrictions have lapsed. |
• | Severance payments; | |
• | Continued health insurance benefits; | |
• | Out-placement services; and | |
• | Financial services. |
203
Table of Contents
• | $78,000 representing pay until December 31, 2007; | |
• | A lump sum payment of $930,000 representing one year’s salary ($500,000), one year’s target bonus ($400,000), one year’s matching employer contributions under the applicable 401(k) plan ($18,000) and one year’s vehicle allowance; | |
• | Vesting of his restricted shares granted on July 31, 2007 valued at $1,609,490; | |
• | The benefits of his membership in the PinnOak Resources Employee Equity Incentive Plan valued at $2,500,000; | |
• | Continued coverage under Cliffs’ dental plans until December 31, 2007 valued at $65; | |
• | Use, at his own expense, of the Laurel Valley Golf Club and the Duquesne Club; and | |
• | One executive physical examination at the Greenbrier Clinic. |
• | A pro-rata portion of the annual incentive award under the Executive Management Performance Incentive Plan for the year in which he or she retires; | |
• | Any unpaid annual incentive award under the Executive Management Performance Incentive Plan for the year prior to the year of retirement; | |
• | A pro-rata portion of his or her performance shares and retention units will be paid when such shares and units would otherwise be paid; | |
• | A pro-rata portion of any performance based contribution to the 401(k) Savings Plan and the VNQDC Plan for the year of retirement; | |
• | He or she will keep his or her restricted shares and the restrictions on sale of the shares will lapse at the end of the restriction period; | |
• | He or she will be entitled to retiree medical and life insurance for the rest of his or her life and the life of his or her spouse on the same terms as any other salaried employee hired prior to 1993; and | |
• | He or she will become vested in certain matching contributions under the VNQDC Plan provided that the amounts are not withdrawn until the end of the five year vesting period. |
204
Table of Contents
• | The restrictions on the restricted shares lapse immediately; | |
• | The performance shares vest immediately; and | |
• | The retention units vest immediately. |
• | the owners of Cliffs stock immediately prior to the business transaction own more than 55% of the entity resulting from the business transaction in substantially the same proportions as their pre-business transaction ownership of Cliffs stock; | |
• | no one person, or more than one person acting as a group (subject to certain exceptions), owns 30% or more of the combined voting power of the entity resulting from the business transaction; and | |
• | at least a majority of the members of the board of directors of the entity resulting from the business transaction were members of the incumbent board of directors of Cliffs when the business transaction agreement was signed or approved by Cliffs’ board of directors. For purposes of this exception, the incumbent board of directors of Cliffs generally means those directors who were serving as of August 11, 2008 (or a prior date in the case of certain pre-2007 equity awards) or whose appointment or election was endorsed by a majority of the incumbent members prior to the date of such appointment or election. |
205
Table of Contents
206
Table of Contents
Joseph A. Carrabba | ||||||||||||||||||||
Voluntary | Termination | |||||||||||||||||||
Termination | Change in | without | ||||||||||||||||||
or | Control | Cause after | ||||||||||||||||||
for Cause | Involuntary | without | Change in | |||||||||||||||||
Benefit | Termination | Retirement | Termination | Termination | Control | |||||||||||||||
Cash Severance | — | — | — | — | $ | 4,200,000 | ||||||||||||||
Bonus | — | — | — | — | $ | 700,000 | ||||||||||||||
Equity | ||||||||||||||||||||
Restricted Stock | — | — | $ | 3,068,285 | $ | 3,068,285 | $ | 3,068,285 | ||||||||||||
Grants | ||||||||||||||||||||
Performance Shares | — | — | $ | 2,947,611 | $ | 6,014,736 | $ | 6,014,736 | ||||||||||||
Retention Units | — | — | $ | 520,167 | $ | 1,061,424 | $ | 1,061,424 | ||||||||||||
Retirement Benefits | ||||||||||||||||||||
Pension | — | — | — | — | $ | 1,579,307 | ||||||||||||||
Retiree Welfare | — | — | — | — | $ | 122,563 | ||||||||||||||
Nonqualified Deferred | $ | 201,825 | — | $ | 201,825 | $ | 201,825 | $ | 201,825 | |||||||||||
Compensation | ||||||||||||||||||||
Other Benefits | ||||||||||||||||||||
Health & Welfare | — | — | — | — | $ | 32,886 | ||||||||||||||
Outplacement | — | — | — | — | $ | 105,000 | ||||||||||||||
Perquisites | — | — | — | — | $ | 55,545 | ||||||||||||||
TaxGross-Ups | — | — | — | — | $ | 5,971,611 | ||||||||||||||
Total | $ | 201,825 | — | $ | 6,737,888 | $ | 10,346,270 | $ | 23,113,183 | |||||||||||
207
Table of Contents
Laurie Brlas | ||||||||||||||||||||
Voluntary | Termination | |||||||||||||||||||
Termination | Change in | without | ||||||||||||||||||
or | Control | Cause after | ||||||||||||||||||
for Cause | Involuntary | without | Change in | |||||||||||||||||
Benefit | Termination | Retirement | Termination | Termination | Control | |||||||||||||||
Cash Severance | — | — | — | — | $ | 1,824,000 | ||||||||||||||
Bonus | — | — | — | — | $ | 228,000 | ||||||||||||||
Equity | ||||||||||||||||||||
Restricted Stock | — | — | — | — | — | |||||||||||||||
Grants | ||||||||||||||||||||
Performance Shares | — | — | $ | 798,115 | $ | 1,713,600 | $ | 1,713,600 | ||||||||||||
Retention Units | — | — | $ | 140,844 | $ | 302,400 | $ | 302,400 | ||||||||||||
Retirement Benefits | ||||||||||||||||||||
Pension | — | — | — | — | $ | 152,777 | ||||||||||||||
Retiree Welfare | — | — | — | — | — | |||||||||||||||
Nonqualified Deferred | $ | 33,230 | — | $ | 33,230 | $ | 33,230 | $ | 33,230 | |||||||||||
Compensation | ||||||||||||||||||||
Other Benefits | ||||||||||||||||||||
Health & Welfare | — | — | — | — | $ | 32,886 | ||||||||||||||
Outplacement | — | — | — | — | $ | 57,000 | ||||||||||||||
Perquisites | — | — | — | — | $ | 12,338 | ||||||||||||||
TaxGross-Ups | — | — | — | — | $ | 1,815,685 | ||||||||||||||
Total | $ | 33,230 | — | $ | 972,189 | $ | 2,049,230 | $ | 6,171,916 | |||||||||||
William R. Calfee | ||||||||||||||||||||
Voluntary | Termination | |||||||||||||||||||
Termination | Change in | without | ||||||||||||||||||
or | Control | Cause after | ||||||||||||||||||
for Cause | Involuntary | without | Change in | |||||||||||||||||
Benefit | Termination | Retirement | Termination | Termination | Control | |||||||||||||||
Cash Severance | — | — | — | — | $ | 1,670,400 | ||||||||||||||
Bonus | — | $ | 313,200 | — | — | $ | 208,800 | |||||||||||||
Equity | ||||||||||||||||||||
Restricted Stock | — | — | $ | 878,976 | $ | 878,976 | $ | 878,976 | ||||||||||||
Grants | ||||||||||||||||||||
Performance Shares | — | — | $ | 632,906 | $ | 1,233,792 | $ | 1,233,792 | ||||||||||||
Retention Units | — | — | $ | 111,689 | $ | 217,728 | $ | 217,728 | ||||||||||||
Retirement Benefits | ||||||||||||||||||||
Pension | $ | 2,268,187 | $ | 2,268,187 | $ | 2,268,187 | — | $ | 2,455,437 | |||||||||||
Retiree Welfare | $ | 146,020 | $ | 146,020 | $ | 146,020 | — | $ | 148,405 | |||||||||||
Nonqualified Deferred | $ | 2,387,695 | $ | 2,387,695 | $ | 2,387,695 | $ | 2,387,695 | $ | 2,387,695 | ||||||||||
Compensation | ||||||||||||||||||||
Other Benefits | ||||||||||||||||||||
Health & Welfare | — | — | — | — | $ | 32,886 | ||||||||||||||
Outplacement | — | — | — | — | $ | 52,200 | ||||||||||||||
Perquisites | — | — | — | — | $ | 87,341 | ||||||||||||||
TaxGross-Ups | — | — | — | — | — | |||||||||||||||
Total | $ | 4,801,902 | $ | 5,115,102 | $ | 6,425,473 | $ | 4,718,191 | $ | 9,373,660 | ||||||||||
208
Table of Contents
Donald J. Gallagher | ||||||||||||||||||||
Voluntary | Termination | |||||||||||||||||||
Termination | Change in | without | ||||||||||||||||||
or | Control | Cause after | ||||||||||||||||||
for Cause | Involuntary | without | Change in | |||||||||||||||||
Benefit | Termination | Retirement | Termination | Termination | Control | |||||||||||||||
Cash Severance | — | — | — | — | $ | 1,891,200 | ||||||||||||||
Bonus | — | $ | 354,600 | — | — | $ | 236,400 | |||||||||||||
Equity | ||||||||||||||||||||
Restricted Stock | — | — | $ | 1,758,154 | $ | 1,758,154 | $ | 1,758,154 | ||||||||||||
Grants | ||||||||||||||||||||
Performance Shares | — | — | $ | 835,173 | $ | 1,790,712 | $ | 1,790,712 | ||||||||||||
Retention Units | — | — | $ | 147,383 | $ | 316,008 | $ | 316,008 | ||||||||||||
Retirement Benefits | ||||||||||||||||||||
Pension | $ | 1,629,341 | $ | 1,629,341 | $ | 1,629,341 | — | $ | 2,060,387 | |||||||||||
Retiree Welfare | $ | 140,432 | $ | 140,432 | $ | 140,432 | — | $ | 157,608 | |||||||||||
Nonqualified Deferred | $ | 4,990,338 | $ | 4,990,338 | $ | 4,990,338 | $ | 4,990,338 | $ | 4,990,338 | ||||||||||
Compensation | ||||||||||||||||||||
Other Benefits | ||||||||||||||||||||
Health & Welfare | — | — | — | — | $ | 32,886 | ||||||||||||||
Outplacement | — | — | — | — | $ | 59,100 | ||||||||||||||
Perquisites | — | — | — | — | $ | 242,537 | ||||||||||||||
TaxGross-Ups | — | — | — | — | $ | 2,208,140 | ||||||||||||||
Total | $ | 6,760,111 | $ | 7,114,711 | $ | 9,500,821 | $ | 8,855,212 | $ | 15,743,470 | ||||||||||
Randy L. Kummer | ||||||||||||||||||||
Voluntary | Termination | |||||||||||||||||||
Termination | Change in | without | ||||||||||||||||||
or | Control | Cause after | ||||||||||||||||||
for Cause | Involuntary | without | Change in | |||||||||||||||||
Benefit | Termination | Retirement | Termination | Termination | Control | |||||||||||||||
Cash Severance | — | — | — | — | $ | 789,000 | ||||||||||||||
Bonus | — | — | — | — | $ | 131,500 | ||||||||||||||
Equity | ||||||||||||||||||||
Restricted Stock | — | — | $ | 1,523,693 | $ | 1,523,693 | $ | 1,523,693 | ||||||||||||
Grants | ||||||||||||||||||||
Performance Shares | — | — | $ | 504,565 | $ | 1,036,728 | $ | 1,036,728 | ||||||||||||
Retention Units | — | — | $ | 89,041 | $ | 182,952 | $ | 182,952 | ||||||||||||
Retirement Benefits | ||||||||||||||||||||
Pension | $ | 164,472 | — | $ | 164,472 | — | $ | 193,398 | ||||||||||||
Retiree Welfare | — | — | — | — | — | |||||||||||||||
Nonqualified Deferred | $ | 45,870 | — | $ | 45,870 | $ | 45,870 | $ | 45,870 | |||||||||||
Compensation | ||||||||||||||||||||
Other Benefits | ||||||||||||||||||||
Health & Welfare | — | — | — | — | $ | 22,420 | ||||||||||||||
Outplacement | — | — | — | — | $ | 39,450 | ||||||||||||||
Perquisites | — | — | — | — | $ | 4,708 | ||||||||||||||
TaxGross-Ups | — | — | — | — | — | |||||||||||||||
Total | $ | 210,342 | — | $ | 2,327,641 | $ | 2,789,243 | $ | 3,969,719 | |||||||||||
209
Table of Contents
210
Table of Contents
Change in Pension Value | ||||||||||||||||||||
Fees | and Nonqualified | |||||||||||||||||||
Earned or | Stock | Deferred | All Other | |||||||||||||||||
Paid in | Awards | Compensation Earnings | Compensation | Total | ||||||||||||||||
Name | Cash ($) | ($) | ($) | ($) | ($) | |||||||||||||||
(a) | (b)(1) | (c)(2) | (d)(3) | (e)(4) | (f) | |||||||||||||||
R. C. Cambre | 58,000 | 24,660 | — | 4,000 | 86,660 | |||||||||||||||
S. M. Cunningham | 61,000 | 22,393 | — | — | 83,393 | |||||||||||||||
B. J. Eldridge | 63,500 | 24,338 | — | — | 87,838 | |||||||||||||||
S. M. Green | 22,954 | 15,343 | — | — | 38,297 | |||||||||||||||
J. D. Ireland III | 70,000 | 24,660 | 1,196 | — | 95,856 | |||||||||||||||
F. R. McAllister | 73,000 | 24,660 | — | 5,000 | 102,660 | |||||||||||||||
R. Phillips | 56,000 | 29,821 | — | — | 85,821 | |||||||||||||||
R. K. Riederer | 80,000 | 29,821 | — | — | 109,821 | |||||||||||||||
A. Schwartz | 61,000 | 24,660 | — | 3,000 | 88,660 | |||||||||||||||
J. S. Brinzo(5) | 125,000 | 384,263 | — | 16,080 | 525,343 |
(1) | The amounts listed in this column reflect the aggregate cash dollar value of all earnings in 2007 for annual director retainers, chairman retainers and meeting fees, whether received in required retainer shares, voluntary shares, or cash, or a combination thereof. Unless otherwise noted below, the amounts indicated were elected to be paid in cash. | |
Messrs. Cambre, Eldridge, and Schwartz elected to receive $32,500, $44,450, and $15,000, respectively, in Cliffs common shares. Messrs. Cunningham and Green did not meet the established Director Share Ownership Guidelines and were required to receive $15,000 and $6,440, respectively, in Cliffs common shares. Mr. Riederer elected to defer $15,000 in Cliffs common shares and Mr. Ireland elected to defer $15,000 in cash pursuant to the Directors’ Plan. | ||
(2) | The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2007, in accordance with SFAS 123R, of awards of restricted shares and includes amounts from awards granted in and prior to 2007. For additional information specifically regarding Mr. Brinzo’s stock awards, refer to Note 11 to Cliffs’ audited financial statements for the year ended December 31, 2007 included elsewhere in this joint proxy statement/prospectus, and Notes 11 and 12 to Cliffs’ audited financial statements in Item 8 of Cliffs’ Annual Reports onForm 10-K for the years ended December 31, 2006 and 2005, respectively. In 2007, an automatic annual equity grant of 936 restricted shares having a grant date fair market value of $32,474.52 was made to each of the nonemployee directors listed above. Mr. Riederer elected to receive deferred shares in lieu of restricted shares under the Directors’ Plan. | |
As of December 31, 2007, the aggregate number of restricted shares subject to forfeiture held by each Nonemployee Director were as follows: Mr. Cambre — 3,976; Ms. Cunningham — 3,372; Mr. Eldridge — 3,916; Ms. Green — 936, Mr. Ireland — 3,976; Mr. McAllister — 3,976; Mr. Phillips — 3,976; Mr. Riederer — 1,732; and Mr. Schwartz — 3,976. | ||
As of December 31, 2007, the aggregate number of unvested deferred shares credited to Mr. Riederer under the Directors’ Plan was 2,266.5498. | ||
(3) | Mr. Ireland is the only independent director eligible for retirement benefits under the 1984 Plan. The aggregate change in the actuarial present value of Mr. Ireland’s benefit under the 1984 Plan is $1,196. |
211
Table of Contents
(4) | The amounts in this column, except as noted, reflect matching contributions made to educational institutions from the Cliffs Foundation on behalf of the director. | |
The Company donated $5,000 to the Boy Scouts Jamboree on behalf of Mr. McAllister who was the Chairman of the Relationship and Media Team for the U.S. contingent to the World Scout Jamboree in 2007. | ||
(5) | Mr. Brinzo retired as Chairman of the board on May 8, 2007. As former Chief Executive Officer of Cliffs, Mr. Brinzo was not an independent director. The amount of cash compensation received in 2007 was paid pursuant to a compensation package approved by the Compensation Committee on August 17, 2006. | |
Mr. Brinzo received performance share grants as a Cliffs officer for performance periods 2005 to 2007 and 2006 to 2008. The amount listed of $348,263 is the SFAS 123R calculation of the value of outstanding performance shares and retention units for Mr. Brinzo’s service as a director. | ||
Pursuant to Mr. Brinzo’s retirement agreement, he received $8,080 in investment counseling services and secretarial support valued at $3,000. Also, in connection with Mr. Brinzo’s retirement, Cliffs established a $5,000 annual scholarship in the name of Mr. Brinzo to one recipient entering his or her freshman year at Kent State University’s College of Business. Cliffs created this scholarship to honor Mr. Brinzo for his leadership of Cliffs and his dedication to education. |
Number of Securities | ||||||||||||
Remaining Available for | ||||||||||||
Weighted-Average | Future Issuance Under | |||||||||||
Number of Securities to | Exercise Price of | Equity Compensation | ||||||||||
be Issued Upon Exercise | Outstanding | Plans (Excluding | ||||||||||
of Outstanding Options, | Options, Warrants | Securities | ||||||||||
Plan Category | Warrants and Rights | and Rights | Reflected in Column(a)) | |||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation plans approved by security holders | 735,344 | (1) | $ | 5.42 | 2,000,878 | (2) | ||||||
Equity compensation plans not approved by security holders | — | — | — | (3) | ||||||||
Total | 735,344 | $ | 5.42 | 2,000,878 | ||||||||
(1) | Includes 723,544 performance share awards, an award initially denominated in shares, but no shares are actually issued until performance targets are met. The weighted-average exercise price of outstanding options, warrants and rights, column (b), does not take these awards into account. | |
(2) | Includes 1,842,306 common shares remaining available under the 2007 Incentive Equity Plan, which authorizes the Compensation Committee to make awards of option rights, restricted shares, deferred shares, performance shares and performance units (including up to 514,714 restricted shares and deferred shares); and 158,572 common shares remaining available under the Directors’ Plan, which authorizes the award of restricted shares, which we refer to as the annual equity grant, to directors upon their election or re-election to the board at the annual meeting and provides (i) that the directors are required to take $15,000 of the annual retainer in common shares unless they meet the director share ownership guidelines, and (ii) may take up to 100 percent of their retainer and other fees in common shares. | |
(3) | The Management Performance Incentive Plan, the Mine Plan, and the VNQDC Plan provide for the issuance of common shares, but do not provide for a specific amount available under the plans. Descriptions of those plans are set forth either above or below. |
212
Table of Contents
213
Table of Contents
214
Table of Contents
215
Table of Contents
• | the articles of incorporation expressly provide that the corporation is not subject to the statute (Cliffs has not made this election); or | |
• | the board of directors of the corporation approves the chapter 1704 transaction or the acquisition of the shares before the date the shares were acquired. |
216
Table of Contents
217
Table of Contents
218
Table of Contents
219
Table of Contents
220
Table of Contents
221
Table of Contents
222
Table of Contents
223
Table of Contents
224
Table of Contents
225
Table of Contents
226
Table of Contents
227
Table of Contents
Pro | Pro | |||||||||||||||
Cliffs | Alpha | Forma | Forma | |||||||||||||
Historical | Historical | Adjustments | Combined | |||||||||||||
(In millions) | ||||||||||||||||
ASSETS | ||||||||||||||||
CURRENT ASSETS | ||||||||||||||||
Cash and cash equivalents | $ | 320.4 | $ | 406.5 | $ | (190.5 | )(c) | $ | 289.8 | |||||||
(246.6 | )(n) | |||||||||||||||
Trade accounts receivable — net | 291.9 | 257.3 | 549.2 | |||||||||||||
Inventories | 466.8 | 70.7 | 37.1 | (d) | 574.6 | |||||||||||
Supplies and other inventories | 81.6 | 14.7 | 96.3 | |||||||||||||
Derivative assets | 157.9 | 84.2 | 242.1 | |||||||||||||
Other | 124.5 | 49.0 | 270.2 | (d)(m) | 443.7 | |||||||||||
TOTAL CURRENT ASSETS | 1,443.1 | 882.4 | (129.8 | ) | 2,195.7 | |||||||||||
PROPERTY, PLANT AND EQUIPMENT — NET | 2,091.3 | 619.2 | 8,923.8 | (d) | 11,634.3 | |||||||||||
OTHER ASSETS | ||||||||||||||||
Investment in ventures | 265.3 | 8.0 | 39.9 | (d) | 313.2 | |||||||||||
Marketable securities | 102.4 | 102.4 | ||||||||||||||
Deferred income taxes | 42.2 | 81.5 | 15.0 | (d) | ||||||||||||
(138.7 | )(m) | |||||||||||||||
Goodwill | 20.5 | (20.5 | )(d) | 3,943.9 | ||||||||||||
19.0 | (l) | |||||||||||||||
3,924.9 | (d) | |||||||||||||||
Other | 102.6 | 67.3 | (8.7 | )(d) | 154.1 | |||||||||||
11.9 | (b) | |||||||||||||||
(19.0 | )(l) | |||||||||||||||
TOTAL OTHER ASSETS | 512.5 | 177.3 | 3,823.8 | 4,513.6 | ||||||||||||
TOTAL ASSETS | $ | 4,046.9 | $ | 1,678.9 | $ | 12,617.8 | $ | 18,343.6 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||
Accounts payable | $ | 172.5 | $ | 119.7 | $ | 292.2 | ||||||||||
Current portion of long-term debt | 290.0 | $ | (287.5 | )(d) | 2.5 | |||||||||||
Accrued employment costs | 67.7 | 50.1 | 117.8 | |||||||||||||
Accrued expenses | 71.2 | 20.5 | 91.7 | |||||||||||||
Income taxes payable | 103.2 | 5.8 | 109.0 | |||||||||||||
State and local taxes payable | 35.9 | 18.4 | 54.3 | |||||||||||||
Environmental and mine closure obligations | 6.8 | 8.7 | 15.5 | |||||||||||||
Deferred revenue | 9.0 | 7.5 | (7.5 | )(d) | 9.0 | |||||||||||
Other | 49.0 | 49.8 | (2.6 | )(d) | 96.2 | |||||||||||
Below market coal sales contracts acquired-current | 749.1 | (d) | 749.1 | |||||||||||||
TOTAL CURRENT LIABILITIES | 515.3 | 570.5 | 451.5 | 1,537.3 | ||||||||||||
PENSIONS | 98.9 | 98.9 | ||||||||||||||
OTHER POSTRETIREMENT BENEFITS | 114.2 | 57.1 | 171.3 | |||||||||||||
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS | 125.0 | 84.3 | 209.3 | |||||||||||||
DEFERRED INCOME TAXES | 238.5 | 3,193.9 | (d) | 3,293.7 | ||||||||||||
(138.7 | )(m) | |||||||||||||||
SENIOR NOTES | 325.0 | 325.0 | ||||||||||||||
TERM LOAN | 200.0 | 233.1 | 1,900.0 | (b) | 2,111.9 | |||||||||||
11.9 | (b) | |||||||||||||||
(233.1 | )(n) | |||||||||||||||
REVOLVING CREDIT | 160.0 | 16.1 | 55.5 | (b) | 231.6 | |||||||||||
CONTINGENT CONSIDERATION | 178.5 | 178.5 | ||||||||||||||
DEFERRED PAYMENT | 99.1 | 99.1 | ||||||||||||||
OTHER LIABILITIES | 141.5 | 49.9 | (13.5 | )(n) | 177.9 | |||||||||||
BELOW MARKET COAL SALES CONTRACTS ACQUIRED-LONG TERM | 659.0 | (d) | 659.0 | |||||||||||||
TOTAL LIABILITIES | 2,196.0 | 1,011.0 | 5,886.5 | 9,093.5 | ||||||||||||
MINORITY INTEREST | 187.1 | 1.2 | 188.3 | |||||||||||||
3.25% REDEEMABLE CUMULATIVE CONVERTIBLE PERPETUAL PREFERRED STOCK | 19.6 | 19.6 | ||||||||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||||||
Common shares — par value $0.125 per share | 16.8 | 0.7 | 8.7 | (a) | 25.5 | |||||||||||
(0.7 | )(e) | |||||||||||||||
Capital in excess of par value of shares | 149.6 | 411.2 | 7,330.3 | (a) | 7,538.9 | |||||||||||
59.0 | (a) | |||||||||||||||
(411.2 | )(e) | |||||||||||||||
Retained earnings | 1,589.5 | 275.0 | (275.0 | )(e) | 1,589.5 | |||||||||||
Cost of common shares in treasury | (172.5 | ) | (172.5 | ) | ||||||||||||
Accumulated other comprehensive income (loss) | 60.8 | (20.2 | ) | 20.2 | (e) | 60.8 | ||||||||||
TOTAL SHAREHOLDERS’ EQUITY | 1,644.2 | 666.7 | 6,731.3 | 9,042.2 | ||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 4,046.9 | $ | 1,678.9 | $ | 12,617.8 | $ | 18,343.6 | ||||||||
228
Table of Contents
Pro | Pro | |||||||||||||||
Cliffs | Alpha | Forma | Forma | |||||||||||||
Historical | Historical | Adjustments | Combined | |||||||||||||
(In millions, except per share data) | ||||||||||||||||
REVENUES FROM PRODUCT SALES AND SERVICES | ||||||||||||||||
Product | $ | 1,333.6 | $ | 1,077.5 | $ | 347.3 | (g) | $ | 2,758.4 | |||||||
Freight and venture partners’ cost reimbursements | 169.5 | 145.2 | 314.7 | |||||||||||||
Other revenues | 26.4 | 26.4 | ||||||||||||||
1,503.1 | 1,249.1 | 347.3 | 3,099.5 | |||||||||||||
COST OF GOODS SOLD AND OPERATING EXPENSES | (994.3 | ) | (1,082.1 | ) | (300.9 | )(f) | (2,378.1 | ) | ||||||||
(0.8 | )(h) | |||||||||||||||
SALES MARGIN | 508.8 | 167.0 | 45.6 | 721.4 | ||||||||||||
OTHER OPERATING INCOME (EXPENSE) | ||||||||||||||||
Casualty recoveries | 10.0 | 10.0 | ||||||||||||||
Royalties and management fee revenue | 10.9 | 10.9 | ||||||||||||||
Selling, general and administrative expenses | (96.6 | ) | (36.1 | ) | (132.7 | ) | ||||||||||
Gain on sale of other assets | 21.0 | 21.0 | ||||||||||||||
Miscellaneous — net | (1.9 | ) | 23.2 | 21.3 | ||||||||||||
(56.6 | ) | (12.9 | ) | (69.5 | ) | |||||||||||
OPERATING INCOME | 452.2 | 154.1 | 45.6 | 651.9 | ||||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Interest income | 11.9 | 3.0 | 14.9 | |||||||||||||
Interest expense | (17.0 | ) | (27.2 | ) | 26.6 | (i) | (66.2 | ) | ||||||||
(48.6 | )(j) | |||||||||||||||
Loss on early extinguishment of debt | (14.7 | ) | (14.7 | ) | ||||||||||||
Other — net | 0.3 | 0.3 | ||||||||||||||
(4.8 | ) | (38.9 | ) | (22.0 | ) | (65.7 | ) | |||||||||
INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND EQUITY LOSS FROM VENTURES | 447.4 | 115.2 | 23.6 | 586.2 | ||||||||||||
PROVISION FOR INCOME TAXES | (121.6 | ) | (15.6 | ) | (28.5 | )(k) | (165.7 | ) | ||||||||
MINORITY INTEREST | (25.5 | ) | 0.2 | (25.3 | ) | |||||||||||
EQUITY LOSS FROM VENTURES | (13.1 | ) | (13.1 | ) | ||||||||||||
NET INCOME | 287.2 | 99.8 | (4.9 | ) | 382.1 | |||||||||||
PREFERRED STOCK DIVIDENDS | (1.3 | ) | (1.3 | ) | ||||||||||||
INCOME APPLICABLE TO COMMON SHARES | $ | 285.9 | $ | 99.8 | $ | (4.9 | ) | $ | 380.8 | |||||||
EARNINGS PER COMMON SHARE — BASIC | $ | 3.04 | $ | 2.32 | ||||||||||||
EARNINGS PER COMMON SHARE — DILUTED | $ | 2.73 | $ | 2.18 | ||||||||||||
AVERAGE NUMBER OF SHARES (IN THOUSANDS) | ||||||||||||||||
Basic | 94,031 | 69,962 | 163,993 | |||||||||||||
Diluted | 105,087 | 70,508 | 175,595 |
229
Table of Contents
Pro | Pro | |||||||||||||||
Cliffs | Alpha | Forma | Forma | |||||||||||||
Historical | Historical | Adjustments | Combined | |||||||||||||
(In millions, except per share data) | ||||||||||||||||
REVENUES FROM PRODUCT SALES AND SERVICES | ||||||||||||||||
Product | $ | 1,997.3 | $ | 1,647.5 | $ | 749.1 | (g) | $ | 4,393.9 | |||||||
Freight and venture partners’ cost reimbursements | 277.9 | 205.1 | 483.0 | |||||||||||||
Other revenues | 33.2 | 33.2 | ||||||||||||||
2,275.2 | 1,885.8 | 749.1 | 4,910.1 | |||||||||||||
COST OF GOODS SOLD AND OPERATING EXPENSES | (1,813.2 | ) | (1,761.9 | ) | (597.9 | )(f) | (4,174.1 | ) | ||||||||
(1.1 | )(h) | |||||||||||||||
SALES MARGIN | 462.0 | 123.9 | 150.1 | 736.0 | ||||||||||||
OTHER OPERATING INCOME (EXPENSE) | ||||||||||||||||
Casualty recoveries | 3.2 | 3.2 | ||||||||||||||
Royalties and management fee revenue | 14.5 | 14.5 | ||||||||||||||
Selling, general and administrative expenses | (114.2 | ) | (58.6 | ) | (172.8 | ) | ||||||||||
Gain on sale of other assets | 18.4 | 18.4 | ||||||||||||||
Miscellaneous — net | (2.3 | ) | 8.9 | 6.6 | ||||||||||||
(80.4 | ) | (49.7 | ) | (130.1 | ) | |||||||||||
OPERATING INCOME | 381.6 | 74.2 | 150.1 | 605.9 | ||||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Interest income | 20.0 | 2.3 | 22.3 | |||||||||||||
Interest expense | (22.6 | ) | (40.2 | ) | 40.2 | (i) | (119.8 | ) | ||||||||
(97.2 | )(j) | |||||||||||||||
Other — net | 1.7 | (0.1 | ) | 1.6 | ||||||||||||
(0.9 | ) | (38.0 | ) | (57.0 | ) | (95.9 | ) | |||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES, MINORITY INTEREST AND EQUITY LOSS FROM VENTURES | 380.7 | 36.2 | 93.1 | 510.0 | ||||||||||||
PROVISION FOR INCOME TAXES | (84.1 | ) | (8.6 | ) | (31.8 | ) (k) | (124.5 | ) | ||||||||
MINORITY INTEREST | (15.6 | ) | 0.2 | (15.4 | ) | |||||||||||
EQUITY LOSS FROM VENTURES | (11.2 | ) | (11.2 | ) | ||||||||||||
INCOME FROM CONTINUING OPERATIONS | 269.8 | 27.8 | 61.3 | 358.9 | ||||||||||||
PREFERRED STOCK DIVIDENDS | (5.2 | ) | (5.2 | ) | ||||||||||||
INCOME APPLICABLE TO COMMON SHARES | $ | 264.6 | $ | 27.8 | $ | 61.3 | $ | 353.7 | ||||||||
EARNINGS PER COMMON SHARE (Continuing Operations) — BASIC | $ | 3.19 | $ | 2.31 | ||||||||||||
EARNINGS PER COMMON SHARE (Continuing Operations) — DILUTED | $ | 2.57 | $ | 2.04 | ||||||||||||
AVERAGE NUMBER OF SHARES (IN THOUSANDS) | ||||||||||||||||
Basic | 82,988 | 69,962 | 152,950 | |||||||||||||
Diluted | 105,026 | 70,508 | 175,534 |
230
Table of Contents
Note 1. | Basis of Presentation |
Note 2. | Purchase Price (In Millions, Except Share and Per Share Amount) |
231
Table of Contents
Cliffs share consideration: | ||||
Alpha common stock outstanding | $ | 7,023 | ||
Alpha converted senior notes | 315 | |||
Alpha restricted stock units | 1 | |||
Fair value of stock option exchange | 59 | |||
Total estimated stock consideration | 7,398 | |||
Cash consideration: | ||||
Cash paid to Alpha stockholders | 1,637 | |||
Cash portion of Alpha convertible senior notes | 288 | |||
Estimated transaction costs | 126 | |||
Cash portion of Alpha performance shares | 75 | |||
Estimated change of control costs | 20 | |||
Total estimated cash consideration | 2,146 | |||
Total preliminary estimated purchase price | $ | 9,544 | ||
Alpha stock to be acquired (as of June 30, 2008) | 70,482,861 | |||
Senior notes converted to Alpha stock | 3,161,097 | |||
Alpha restricted stock units | 14,093 | |||
Total shares subject to cash consideration | 73,658,051 | |||
Cash consideration per share | $ | 22.23 | ||
Cash paid to Alpha stockholders | $ | 1,637 | ||
232
Table of Contents
Estimated number of shares of Alpha stock to be acquired (as of June 30, 2008) | 70,482,861 | |||
Exchange offer ratio | 0.95 | |||
Cliffs common shares to be issued | 66,958,718 | |||
Average market price of Cliffs common shares | $ | 104.88 | ||
Share consideration | $ | 7,023 | ||
Senior notes converted to Alpha stock | 3,161,097 | |||
Exchange offer ratio | 0.95 | |||
Cliffs common shares to be issued | 3,003,042 | |||
Average market price of Cliffs common shares | $ | 104.88 | ||
Share consideration | $ | 315 | ||
Estimated number of Alpha restricted stock units | 14,093 | |||
Exchange offer ratio | 0.95 | |||
Cliffs common shares to be issued | 13,388 | |||
Average market price of Cliffs common shares | $ | 104.88 | ||
Share consideration | $ | 1 | ||
Note 3. | Pro Forma Adjustments (Table Amounts in Millions) |
233
Table of Contents
Proceeds from term loan | $ | 1,900.0 | ||
Borrowings on revolving credit facility | 55.5 | |||
Cash paid to Alpha stockholders | (1,637.0 | ) | ||
Cash portion of Alpha convertible senior notes | (288.0 | ) | ||
Estimated transaction costs | (126.0 | ) | ||
Cash portion of Alpha performance and restricted stock units | (75.0 | ) | ||
Estimated change of control costs | (20.0 | ) | ||
Net estimated cash consideration | $ | (190.5 | ) | |
234
Table of Contents
Alpha net assets on June 30, 2008 | $ | 666.7 | ||
Adjustment to eliminate historical Alpha goodwill | (20.5 | ) | ||
Adjustment to eliminate historical Alpha debt paid in merger | 287.5 | |||
Adjustment to fair value of inventories* | 37.1 | |||
Adjustment to accelerate amortization of Alpha debt issuance costs | (8.7 | ) | ||
Adjustment to fair value of property, plant and equipment | 8,923.8 | |||
Adjustment to fair value of below market sales contracts (current) | (749.1 | ) | ||
Adjustment to fair value of below market sales contracts (long-term) | (659.0 | ) | ||
Adjustment to fair value of equity method investment | 39.9 | |||
Adjustment to fair value of deferred revenue | 7.5 | |||
Adjustment to fair value of other current liabilities | 2.6 | |||
Adjustment to fair value of deferred tax assets | 15.0 | |||
Adjustment to deferred taxes to reflect fair value adjustments | (2,923.7 | ) | ||
Net assets and liabilities acquired | 5,619.1 | |||
Preliminary allocation to goodwill | 3,924.9 | |||
Total purchase price | $ | 9,544.0 | ||
235
Table of Contents
236
Table of Contents
Note 4. | Combined Pro Forma Reserves (Tons in Millions) |
As of December 31, 2007 | Production Through June 30, 2008 | |||||||||||||||||||||||
Cliffs | Alpha | Total | Cliffs | Alpha | Total | |||||||||||||||||||
Total Reserves, by Company: | ||||||||||||||||||||||||
Iron Ore (1) | 1,003.5 | — | 1,003.5 | (15.5 | ) | — | (15.5 | ) | ||||||||||||||||
Coal (2) | 150.4 | 617.5 | 767.9 | (2.2 | ) | (11.5 | ) | (13.7 | ) | |||||||||||||||
Total | 1,153.9 | 617.5 | 1,771.4 | (17.7 | ) | (11.5 | ) | (29.2 | ) | |||||||||||||||
Total Reserves, by Geographic Region: | ||||||||||||||||||||||||
Iron Ore | ||||||||||||||||||||||||
Michigan | 262.0 | — | 262.0 | (5.3 | ) | — | (5.3 | ) | ||||||||||||||||
Minnesota | 607.0 | — | 607.0 | (5.6 | ) | — | (5.6 | ) | ||||||||||||||||
Canada | 39.0 | — | 39.0 | (0.6 | ) | — | (0.6 | ) | ||||||||||||||||
Australia | 95.5 | — | 95.5 | (4.0 | ) | — | (4.0 | ) | ||||||||||||||||
Total | 1,003.5 | — | 1,003.5 | (15.5 | ) | — | (15.5 | ) | ||||||||||||||||
Coal | ||||||||||||||||||||||||
Kentucky/Pennsylvania/Virginia/West Virginia | 74.0 | 617.5 | 691.5 | (1.3 | ) | (11.5 | ) | (12.8 | ) | |||||||||||||||
Alabama | 49.4 | — | 49.4 | (0.5 | ) | — | (0.5 | ) | ||||||||||||||||
Australia | 27.0 | — | 27.0 | (0.4 | ) | — | (0.4 | ) | ||||||||||||||||
Total | 150.4 | 617.5 | 767.9 | (2.2 | ) | (11.5 | ) | (13.7 | ) | |||||||||||||||
Total | 1,153.9 | 617.5 | 1,771.4 | (17.7 | ) | (11.5 | ) | (29.2 | ) | |||||||||||||||
(1) | Reserves listed on 100 percent basis. Cliffs has an approximately 27 percent interest in a Canadian iron ore joint venture, a 23 percent interest in a United States iron ore joint venture and a 50 percent interest in an Australian iron ore joint venture owned through one of Cliffs’ majority-owned mining ventures. All other iron ore mining ventures are wholly-owned or majority-owned. | |
(2) | Reserves listed on 100 percent basis. Cliffs has an effective 45 percent interest in an Australian coal operation. |
237
Table of Contents
238
Table of Contents
Washington, D.C. 20549
239
Table of Contents
Commission File Number 1-8944 | Period | |
Current Reports onForm 8-K | Filed on January 3, 2008; Filed on January 9, 2008; Filed on March 4, 2008; Filed on March 13, 2008; Filed on March 14, 2008; Filed on April 1, 2008; Filed on April 3, 2008; Filed on April 23, 2008; Filed on May 5, 2008; Filed on May 13, 2008; Filed on May 14, 2008; Filed on May 14, 2008; Filed on May 15, 2008; Filed on May 16, 2008; Filed on May 21, 2008; Filed on May 21, 2008 (amended); Filed on May 23, 2008; Filed on May 30, 2008; Filed on June 12, 2008; Filed on June 30, 2008; Filed on June 30, 2008; Filed on July 1, 2008; Filed on July 9, 2008; Filed on July 9, 2008; Filed on July 11, 2008; Filed on July 15, 2008; Filed on July 16, 2008; Filed on July 17, 2008; Filed on July 22, 2008; Filed on August 14, 2008; Filed on August 22, 2008; Filed on August 22, 2008; Filed on September 2, 2008; Filed on September 11, 2008; Filed on September 11, 2008; Filed on September 19, 2008; Filed on September 22, 2008; Filed on September 30, 2008; Filed on October 1, 2008; Filed on October 3, 2008; Filed on October 6, 2008; Filed on October 6, 2008; Filed on October 9, 2008; Filed on October 10, 2008; Filed on October 14, 2008; Filed on October 15, 2008; and Filed on October 16, 2008. | |
Quarterly Report onForm 10-Q | Quarter ended March 31, 2008 (filed May 6, 2008); and Quarter ended June 30, 2008 (filed July 31, 2008). | |
Annual Report onForm 10-K | Year Ended December 31, 2007 (filed February 29, 2008). | |
Definitive Proxy Statement | Filed on March 26, 2008. |
• | the description of Cliffs common shares contained in the amended current report on Form 8-K filed on May 21, 2008; and | |
• | the description of rights under the rights agreement contained in Form 8-A filed on October 14, 2008. |
1100 Superior Avenue
Cleveland, Ohio44114-2544
Attention: Investor Relations
(216) 694-5700
240
Table of Contents
Commission File No. 1-32423 | Period | |
Current Reports onForm 8-K | Filed on March 6, 2008; Filed on April 3, 2008; Filed on April 7, 2008; Filed on April 9, 2008; Filed on April 15, 2008; Filed on April 21, 2008; Filed on May 16, 2008; Filed on June 23, 2008; Filed on July 2, 2008; Filed on July 16, 2008; Filed on July 17, 2008; Filed on August 13, 2008; Filed on August 25, 2008; and Filed on October 17, 2008. | |
Quarterly Report onForm 10-Q | Quarter ended March 31, 2008 (filed May 5, 2008); and Quarter ended June 30, 2008 (filed August 4, 2008). | |
Annual Report onForm 10-K | Year Ended December 31, 2007 (filed February 29, 2008). | |
Definitive Proxy Statement | Filed on March 27, 2008. |
One Alpha Place, P.O. Box 2345
Abingdon, Virginia 24212
Attention: Investor Relations
(276) 619-4410
241
Table of Contents
Page | ||||
Year Ended December 31, 2007 | ||||
F-1 | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-55 | ||||
F-56 | ||||
F-58 | ||||
F-59 | ||||
Six Months Ended June 30, 2008 | ||||
F-60 | ||||
F-61 | ||||
F-62 | ||||
F-63 |
F-i
Table of Contents
Cleveland-Cliffs Inc and Consolidated Subsidiaries
December 31 | ||||||||
2007 | 2006 | |||||||
(In millions) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 157.1 | $ | 351.7 | ||||
Trade accounts receivable | 84.9 | 32.3 | ||||||
Inventories | 241.9 | 200.9 | ||||||
Supplies and other inventories | 77.0 | 77.5 | ||||||
Deferred and refundable taxes | 19.7 | 9.7 | ||||||
Derivative assets | 69.5 | 32.9 | ||||||
Other | 104.5 | 77.3 | ||||||
TOTAL CURRENT ASSETS | 754.6 | 782.3 | ||||||
NET PROPERTIES | 1,823.9 | 884.9 | ||||||
OTHER ASSETS | ||||||||
Prepaid pensions — salaried | 6.7 | 2.2 | ||||||
Long-term receivables | 38.0 | 43.7 | ||||||
Deferred income taxes | 42.1 | 107.0 | ||||||
Deposits and miscellaneous | 89.5 | 83.7 | ||||||
Investments in ventures | 265.3 | 7.0 | ||||||
Marketable securities | 55.7 | 28.9 | ||||||
TOTAL OTHER ASSETS | 497.3 | 272.5 | ||||||
TOTAL ASSETS | $ | 3,075.8 | $ | 1,939.7 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 149.9 | $ | 142.4 | ||||
Accrued employment costs | 73.2 | 48.0 | ||||||
Other postretirement benefits | 11.2 | 18.3 | ||||||
Income taxes payable | 11.5 | 29.1 | ||||||
State and local taxes payable | 33.6 | 25.6 | ||||||
Environmental and mine closure obligations | 7.6 | 8.8 | ||||||
Accrued expenses | 50.1 | 28.1 | ||||||
Deferred revenue | 28.4 | 62.6 | ||||||
Other | 34.1 | 12.0 | ||||||
TOTAL CURRENT LIABILITIES | 399.6 | 374.9 | ||||||
POSTEMPLOYMENT BENEFIT LIABILITIES | ||||||||
Pensions | 90.0 | 140.4 | ||||||
Other postretirement benefits | 114.8 | 139.0 | ||||||
TOTAL POSTEMPLOYMENT BENEFIT LIABILITIES | 204.8 | 279.4 | ||||||
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS | 123.2 | 95.1 | ||||||
DEFERRED INCOME TAXES | 189.0 | 117.9 | ||||||
REVOLVING CREDIT FACILITY | 240.0 | — | ||||||
TERM LOAN | 200.0 | — | ||||||
CONTINGENT CONSIDERATION | 99.5 | — | ||||||
DEFERRED PAYMENT | 96.2 | — | ||||||
OTHER LIABILITIES | 107.3 | 68.5 | ||||||
TOTAL LIABILITIES | 1,659.6 | 935.8 | ||||||
MINORITY INTEREST | 117.8 | 85.8 | ||||||
3.25% REDEEMABLE CUMULATIVE CONVERTIBLE PERPETUAL PREFERRED STOCK — ISSUED 172,500 SHARES 134,715 AND 172,300 OUTSTANDING IN 2007 AND 2006 | 134.7 | 172.3 | ||||||
SHAREHOLDERS’ EQUITY | ||||||||
Preferred stock — no par value | ||||||||
Class A — 3,000,000 shares authorized and unissued | ||||||||
Class B — 4,000,000 shares authorized and unissued | ||||||||
Common Shares — par value $0.125 a share | ||||||||
Authorized — 224,000,000 shares; | ||||||||
Issued — 134,623,528 shares | 16.8 | 16.8 | ||||||
Capital in excess of par value of shares | 116.6 | 103.2 | ||||||
Retained Earnings | 1,316.2 | 1,078.5 | ||||||
Cost of 47,455,922 Common Shares in treasury (2006 — 52,812,828 shares) | (255.6 | ) | (282.8 | ) | ||||
Accumulated other comprehensive loss | (30.3 | ) | (169.9 | ) | ||||
TOTAL SHAREHOLDERS’ EQUITY | 1,163.7 | 745.8 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 3,075.8 | $ | 1,939.7 | ||||
F-1
Table of Contents
Cleveland-Cliffs Inc and Consolidated Subsidiaries
Year Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(In millions, except per share amounts) | ||||||||||||
REVENUES FROM PRODUCT SALES AND SERVICES | ||||||||||||
Product | $ | 1,997.3 | $ | 1,669.1 | $ | 1,512.2 | ||||||
Freight and venture partners’ cost reimbursements | 277.9 | 252.6 | 227.3 | |||||||||
2,275.2 | 1,921.7 | 1,739.5 | ||||||||||
COST OF GOODS SOLD AND OPERATING EXPENSES | (1,813.2 | ) | (1,507.7 | ) | (1,350.5 | ) | ||||||
SALES MARGIN | 462.0 | 414.0 | 389.0 | |||||||||
OTHER OPERATING INCOME (EXPENSE) | ||||||||||||
Royalties and management fee revenue | 14.5 | 11.7 | 13.1 | |||||||||
Casualty recoveries | 3.2 | — | 12.3 | |||||||||
Selling, general and administrative expenses | (114.2 | ) | (72.4 | ) | (62.1 | ) | ||||||
Gain on sale of assets — net | 18.4 | — | — | |||||||||
Miscellaneous — net | (2.3 | ) | 12.4 | 4.2 | ||||||||
(80.4 | ) | (48.3 | ) | (32.5 | ) | |||||||
OPERATING INCOME | 381.6 | 365.7 | 356.5 | |||||||||
OTHER INCOME (EXPENSE) | ||||||||||||
Interest income | 20.0 | 17.2 | 13.9 | |||||||||
Interest expense | (22.6 | ) | (5.3 | ) | (4.5 | ) | ||||||
Other — net | 1.7 | 10.2 | 2.2 | |||||||||
(0.9 | ) | 22.1 | 11.6 | |||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES, MINORITY INTEREST, EQUITY LOSS FROM VENTURES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE | 380.7 | 387.8 | 368.1 | |||||||||
PROVISION FOR INCOME TAXES | (84.1 | ) | (90.9 | ) | (84.8 | ) | ||||||
MINORITY INTEREST (net of tax $4.7 million, $7.3 million and $5.4 million in 2007, 2006 and 2005) | (15.6 | ) | (17.1 | ) | (10.1 | ) | ||||||
EQUITY LOSS FROM VENTURES | (11.2 | ) | — | — | ||||||||
INCOME FROM CONTINUING OPERATIONS | 269.8 | 279.8 | 273.2 | |||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (net of tax 0.2 million, $0.2 million and $0.4 million in 2007, 2006 and 2005) | 0.2 | 0.3 | (0.8 | ) | ||||||||
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE | 270.0 | 280.1 | 272.4 | |||||||||
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (net of tax $2.8 million) | — | — | 5.2 | |||||||||
NET INCOME | 270.0 | 280.1 | 277.6 | |||||||||
PREFERRED STOCK DIVIDENDS | (5.2 | ) | (5.6 | ) | (5.6 | ) | ||||||
INCOME APPLICABLE TO COMMON SHARES | $ | 264.8 | $ | 274.5 | $ | 272.0 | ||||||
EARNINGS PER COMMON SHARE — BASIC | ||||||||||||
Continuing operations | $ | 3.19 | $ | 3.26 | $ | 3.08 | ||||||
Discontinued operations | — | — | (.01 | ) | ||||||||
Cumulative effect of accounting changes | — | — | .06 | |||||||||
EARNINGS PER COMMON SHARE — BASIC | $ | 3.19 | $ | 3.26 | $ | 3.13 | ||||||
EARNINGS PER COMMON SHARE — DILUTED | ||||||||||||
Continuing operations | $ | 2.57 | $ | 2.60 | $ | 2.46 | ||||||
Discontinued operations | — | — | (.01 | ) | ||||||||
Cumulative effect of accounting changes | — | — | .05 | |||||||||
EARNINGS PER COMMON SHARE — DILUTED | $ | 2.57 | $ | 2.60 | $ | 2.50 | ||||||
AVERAGE NUMBER OF SHARES (In thousands) | ||||||||||||
Basic | 82,988 | 84,144 | 86,912 | |||||||||
Diluted | 105,026 | 107,654 | 111,346 |
F-2
Table of Contents
Year Ended December 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(In millions, brackets indicate cash decrease) | ||||||||||||
CASH FLOW FROM CONTINUING OPERATIONS OPERATING ACTIVITIES | ||||||||||||
Net income | $ | 270.0 | $ | 280.1 | $ | 277.6 | ||||||
(Income) loss from discontinued operations | (0.2 | ) | (0.3 | ) | 0.8 | |||||||
Cumulative effect of accounting change | — | — | (5.2 | ) | ||||||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||||||
Depreciation and amortization | 107.2 | 73.9 | 42.8 | |||||||||
Minority interest | 15.6 | 17.1 | 10.1 | |||||||||
Share-based compensation | 11.8 | 4.9 | — | |||||||||
Equity loss in ventures (net of tax) | 11.2 | — | — | |||||||||
Environmental and closure obligation | 1.3 | (1.6 | ) | 6.0 | ||||||||
Pensions and other postretirement benefits | (35.4 | ) | (40.3 | ) | (35.2 | ) | ||||||
Deferred income taxes | (33.1 | ) | (4.8 | ) | (4.4 | ) | ||||||
Derivatives and currency hedges | (15.4 | ) | (8.0 | ) | 36.7 | |||||||
Gain on sale of assets | (17.9 | ) | (9.9 | ) | (11.3 | ) | ||||||
Excess tax benefit from share-based compensation | (4.3 | ) | (1.2 | ) | — | |||||||
Casualty recoveries | (3.2 | ) | — | (12.3 | ) | |||||||
Proceeds from casualty recoveries | 3.2 | — | 12.3 | |||||||||
Other | 5.9 | (0.2 | ) | 5.4 | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
Receivables & other assets | 18.0 | 73.0 | (64.8 | ) | ||||||||
Product inventories | 3.2 | (29.9 | ) | 9.8 | ||||||||
Deferred revenue | (34.2 | ) | 62.4 | 0.2 | ||||||||
Payables and accrued expenses | (14.8 | ) | 3.4 | 73.3 | ||||||||
Sales of marketable securities | — | 13.6 | 182.8 | |||||||||
Purchases of marketable securities | — | (3.7 | ) | (10.0 | ) | |||||||
Net cash from operating activities | 288.9 | 428.5 | 514.6 | |||||||||
INVESTING ACTIVITIES | ||||||||||||
Acquisition of PinnOak | (343.8 | ) | — | — | ||||||||
Purchase of property, plant and equipment: | (199.5 | ) | (119.5 | ) | (97.8 | ) | ||||||
Investments in ventures | (180.6 | ) | (13.4 | ) | (8.5 | ) | ||||||
Purchase of marketable securities | (85.3 | ) | — | — | ||||||||
Redemption of marketable securities | 40.6 | — | — | |||||||||
Proceeds from sale of assets | 23.2 | 5.5 | 4.4 | |||||||||
Investment in Portman Limited | — | — | (409.0 | ) | ||||||||
Payment of currency hedges | — | — | (9.8 | ) | ||||||||
Net cash used by investing activities | (745.4 | ) | (127.4 | ) | (520.7 | ) | ||||||
FINANCING ACTIVITIES | ||||||||||||
Borrowings under credit facilities | 1,195.0 | — | 175.0 | |||||||||
Repayments under credit facilities | (755.0 | ) | — | (175.0 | ) | |||||||
Repayment of PinnOak debt | (159.6 | ) | — | — | ||||||||
Common Stock dividends | (20.9 | ) | (20.2 | ) | (13.1 | ) | ||||||
Preferred Stock dividends | (5.5 | ) | (5.6 | ) | (5.6 | ) | ||||||
Repayment of capital lease obligations | (4.3 | ) | (3.1 | ) | — | |||||||
Repayment of other borrowings | (2.6 | ) | (0.8 | ) | — | |||||||
Repurchases of Common Stock | (2.2 | ) | (121.5 | ) | — | |||||||
Issuance costs of revolving credit | (1.0 | ) | (1.0 | ) | (2.7 | ) | ||||||
Excess tax benefit from share-based compensation | 4.3 | 1.2 | — | |||||||||
Contributions by minority interest | 1.9 | 1.9 | 2.1 | |||||||||
Proceeds from stock options exercised | — | 0.7 | 5.7 | |||||||||
Net cash from (used by) financing activities | 250.1 | (148.4 | ) | (13.6 | ) | |||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | 11.8 | 5.9 | (2.2 | ) | ||||||||
CASH FROM (USED BY) CONTINUING OPERATIONS | (194.6 | ) | 158.6 | (21.9 | ) | |||||||
CASH FROM (USED BY) DISCONTINUED OPERATIONS | ||||||||||||
— OPERATING | — | 0.3 | (5.2 | ) | ||||||||
— INVESTING | — | — | 3.0 | |||||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (194.6 | ) | 158.9 | (24.1 | ) | |||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 351.7 | 192.8 | 216.9 | |||||||||
CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 157.1 | $ | 351.7 | $ | 192.8 | ||||||
F-3
Table of Contents
Cleveland-Cliffs Inc and Consolidated Subsidiaries
Capital | ||||||||||||||||||||||||||||
in | Accumulated | |||||||||||||||||||||||||||
Excess | Other | |||||||||||||||||||||||||||
Number | of Par | Common | Compre- | |||||||||||||||||||||||||
of | Value | Shares | hensive | |||||||||||||||||||||||||
Common | Common | of | Retained | in | Income | |||||||||||||||||||||||
Shares | Shares | Shares | Earnings | Treasury | (Loss) | Total | ||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||
January 1, 2005 | 43.2 | $ | 16.8 | $ | 92.3 | $ | 565.3 | $ | (169.4 | ) | $ | (81.0 | ) | $ | 424.0 | |||||||||||||
Comprehensive income | ||||||||||||||||||||||||||||
Net income | — | — | — | 277.6 | — | — | 277.6 | |||||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||||||
Minimum pension liability | — | — | — | — | — | (19.5 | ) | (19.5 | ) | |||||||||||||||||||
Unrealized gain on securities | — | — | — | — | — | 1.5 | 1.5 | |||||||||||||||||||||
Unrealized loss on Foreign Currency Translation | — | — | — | — | — | (24.7 | ) | (24.7 | ) | |||||||||||||||||||
Unrealized loss on derivative instruments | — | — | — | — | — | (1.9 | ) | (1.9 | ) | |||||||||||||||||||
Total comprehensive income | — | — | — | — | — | — | 233.0 | |||||||||||||||||||||
Stock options exercised | 0.2 | — | 3.2 | — | 2.5 | — | 5.7 | |||||||||||||||||||||
Stock and other incentive plans | 0.4 | — | 5.0 | — | 2.6 | — | 7.6 | |||||||||||||||||||||
Preferred Stock dividends | — | — | — | (5.6 | ) | — | — | (5.6 | ) | |||||||||||||||||||
Common Stock dividends | — | — | — | (13.1 | ) | — | — | (13.1 | ) | |||||||||||||||||||
December 31, 2005 | 43.8 | 16.8 | 100.5 | 824.2 | (164.3 | ) | (125.6 | ) | 651.6 | |||||||||||||||||||
Comprehensive income | ||||||||||||||||||||||||||||
Net income | — | — | — | 280.1 | — | — | 280.1 | |||||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||||||
Minimum pension and OPEB liability | — | — | — | — | — | 17.9 | 17.9 | |||||||||||||||||||||
Unrealized gain on marketable securities | — | — | — | — | — | 7.9 | 7.9 | |||||||||||||||||||||
Unrealized gain on Foreign Currency Translation | — | — | — | — | — | 34.3 | 34.3 | |||||||||||||||||||||
Unrealized gain on derivative instruments | — | — | — | — | — | 6.3 | 6.3 | |||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | — | 346.5 | |||||||||||||||||||||
Effect of implementing SFAS 158 | — | — | — | — | — | (110.7 | ) | (110.7 | ) | |||||||||||||||||||
Stock options exercised | — | — | 0.3 | — | 0.4 | — | 0.7 | |||||||||||||||||||||
Stock and other incentive plans | 0.4 | — | 2.3 | — | 2.5 | — | 4.8 | |||||||||||||||||||||
Stock split | 42.4 | — | — | — | — | — | — | |||||||||||||||||||||
Repurchases of Common Stock | (4.8 | ) | — | — | — | (121.5 | ) | — | (121.5 | ) | ||||||||||||||||||
Conversion of Preferred Stock | — | — | 0.1 | — | 0.1 | — | 0.2 | |||||||||||||||||||||
Preferred Stock dividends | — | — | — | (5.6 | ) | — | — | (5.6 | ) | |||||||||||||||||||
Common Stock dividends | — | — | — | (20.2 | ) | — | — | (20.2 | ) | |||||||||||||||||||
December 31, 2006 | 81.8 | 16.8 | 103.2 | 1,078.5 | (282.8 | ) | (169.9 | ) | 745.8 | |||||||||||||||||||
Comprehensive income | ||||||||||||||||||||||||||||
Net income | — | — | — | 270.0 | — | — | 270.0 | |||||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||||||
Pension and OPEB liability | — | — | — | — | — | 38.8 | 38.8 | |||||||||||||||||||||
Unrealized net gain on marketable securities | — | — | — | — | — | 0.6 | 0.6 | |||||||||||||||||||||
Unrealized net gain on Foreign Currency Translation | — | — | — | — | — | 86.9 | 86.9 | |||||||||||||||||||||
Unrealized loss on interest rate swap | — | — | — | — | — | (0.9 | ) | (0.9 | ) | |||||||||||||||||||
Unrealized gain on derivative instruments | — | — | — | — | — | 14.2 | 14.2 | |||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | — | 409.6 | |||||||||||||||||||||
Effect of implementing FIN 48 | — | — | — | (7.7 | ) | — | — | (7.7 | ) | |||||||||||||||||||
Stock options exercised | — | — | — | — | 0.2 | — | 0.2 | |||||||||||||||||||||
Stock and other incentive plans | 0.4 | — | 4.1 | — | 2.5 | — | 6.6 | |||||||||||||||||||||
Repurchases of Common Stock | — | — | — | — | (2.2 | ) | — | (2.2 | ) | |||||||||||||||||||
Conversion of Preferred Stock | 5.0 | — | 9.3 | 1.6 | 26.7 | — | 37.6 | |||||||||||||||||||||
Preferred Stock dividends | — | — | — | (5.3 | ) | — | — | (5.3 | ) | |||||||||||||||||||
Common Stock dividends | — | — | — | (20.9 | ) | — | — | (20.9 | ) | |||||||||||||||||||
December 31, 2007 | 87.2 | $ | 16.8 | $ | 116.6 | $ | 1,316.2 | $ | (255.6 | ) | $ | (30.3 | ) | $ | 1,163.7 | |||||||||||||
F-4
Table of Contents
NOTE 1 — | BUSINESS SUMMARY AND SIGNIFICANT ACCOUNTING POLICIES |
Ownership | ||||||
Name | Location | Interest | ||||
Northshore | Minnesota | 100.0 | % | |||
Pinnacle | West Virginia | 100.0 | ||||
Oak Grove | Alabama | 100.0 | ||||
Tilden | Michigan | 85.0 | ||||
Portman | Western Australia | 80.4 | ||||
Empire | Michigan | 79.0 | ||||
United Taconite | Minnesota | 70.0 |
F-5
Table of Contents
Interest | December 31, | |||||||||||||
Investment | Classification | Percentage | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||||
Amapá | Investments in ventures | 30 | $ | 247.2 | $ | — | ||||||||
Wabush | Investments in ventures | 27 | 5.8 | 5.3 | ||||||||||
Cockatoo | Other current liabilities | 50 | (9.9 | ) | (2.9 | ) | ||||||||
Hibbing | Other liabilities | 23 | (0.3 | ) | (9.9 | ) | ||||||||
Other | Investments in ventures | 12.3 | 1.7 | |||||||||||
$ | 255.1 | $ | (5.8 | ) | ||||||||||
F-6
Table of Contents
2007 | 2006 | 2005 | ||||||||||
(In millions) | ||||||||||||
Reimbursements for: | ||||||||||||
Freight | $ | 78.3 | $ | 70.4 | $ | 70.5 | ||||||
Venture partners’ cost | 197.3 | 182.2 | 156.8 | |||||||||
Total reimbursements | $ | 275.6 | $ | 252.6 | $ | 227.3 | ||||||
F-7
Table of Contents
2007 | 2006 | |||||||
(In millions) | ||||||||
Held to maturity — current | $ | 18.9 | $ | — | ||||
Held to maturity — non-current | 25.8 | — | ||||||
44.7 | — | |||||||
Available for sale — non-current | 29.9 | 28.9 | ||||||
Total | $ | 74.6 | $ | 28.9 | ||||
Amortized | Gross Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(In millions) | ||||||||||||||||
Asset backed securities | $ | 23.1 | $ | (1.4 | ) | $ | 21.7 | |||||||||
Floating rate notes | 21.6 | (0.1 | ) | 21.5 | ||||||||||||
Total | $ | 44.7 | $ | — | $ | (1.5 | ) | $ | 43.2 | |||||||
F-8
Table of Contents
(In millions) | ||||
Within 1 year | $ | 18.9 | ||
1 to 5 years | 25.8 | |||
$ | 44.7 | |||
December 31, 2007 | ||||||||||||||||
Amortized | Gross Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(In millions) | ||||||||||||||||
Equity securities | $ | 14.2 | $ | 15.7 | $ | — | $ | 29.9 |
December 31, 2006 | ||||||||||||||||
Amortized | Gross Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(In millions) | ||||||||||||||||
Equity securities | $ | 14.2 | $ | 14.7 | $ | — | $ | 28.9 |
F-9
Table of Contents
F-10
Table of Contents
2007 | 2006 | |||||||||||||||||||||||
Finished | Work-in | Total | Finished | Work-in | Total | |||||||||||||||||||
Goods | Process | Inventory | Goods | Process | Inventory | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
North American Iron Ore | $ | 114.3 | $ | 16.5 | $ | 130.8 | $ | 129.5 | $ | 14.0 | $ | 143.5 | ||||||||||||
North American Coal | 8.3 | 0.8 | 9.1 | — | — | — | ||||||||||||||||||
Asia-Pacific Iron Ore | 30.2 | 71.8 | 102.0 | 20.8 | 36.6 | 57.4 | ||||||||||||||||||
Total | $ | 152.8 | $ | 89.1 | $ | 241.9 | $ | 150.3 | $ | 50.6 | $ | 200.9 | ||||||||||||
F-11
Table of Contents
Asset Class | Basis | Life | ||
Buildings | Straight line | 45 Years | ||
Mining equipment | Straight line | 10 to 20 Years | ||
Processing equipment | Straight line | 15 to 45 Years | ||
Information technology | Straight line | 2 to 7 Years |
Asset Class | Basis | Life | ||
Buildings | Straight line | 30 Years | ||
Mining equipment | Straight line | 2 to 12 Years | ||
Processing equipment | Straight line | 2 to 10 Years | ||
Information technology | Straight line | 2 to 3 Years |
Asset Class | Basis | Life | ||
Plant and equipment | Straight line | 5 -13 Years | ||
Plant and equipment and mine assets | Production output | 12 Years | ||
Motor vehicles, furniture & equipment | Straight line | 3 - 5 Years |
F-12
Table of Contents
December 31, | ||||||||
2007 | 2006 | |||||||
(In millions) | ||||||||
Land rights and mineral rights | $ | 1,174.3 | $ | 469.2 | ||||
Office and information technology | 39.0 | 34.9 | ||||||
Buildings | 57.3 | 51.1 | ||||||
Mining equipment | 221.1 | 101.0 | ||||||
Processing equipment | 244.0 | 214.8 | ||||||
Railroad equipment | 103.3 | 96.4 | ||||||
Electric power facilities | 54.1 | 30.2 | ||||||
Port facilities | 76.6 | 42.9 | ||||||
Interest capitalized during construction | 19.1 | 19.0 | ||||||
Land improvements | 10.1 | 10.0 | ||||||
Other | 32.7 | 10.5 | ||||||
Construction in progress | 123.2 | 27.3 | ||||||
2,154.8 | 1,107.3 | |||||||
Allowance for depreciation and depletion | (330.9 | ) | (222.4 | ) | ||||
$ | 1,823.9 | $ | 884.9 | |||||
2007 | 2006 | 2005 | ||||||||||
(In millions) | ||||||||||||
Depreciation | $ | 69.3 | $ | 42.7 | $ | 32.7 | ||||||
Capitalized interest | 2.0 | 2.0 | 2.0 |
December 31, | ||||||||
2007 | 2006 | |||||||
(In millions) | ||||||||
Land rights | $ | 16.6 | $ | 4.9 | ||||
Mineral rights: | ||||||||
Cost | 1,157.7 | 464.3 | ||||||
Less depletion | 97.3 | 52.1 | ||||||
Net mineral rights | $ | 1,060.4 | $ | 412.2 | ||||
F-13
Table of Contents
F-14
Table of Contents
F-15
Table of Contents
F-16
Table of Contents
F-17
Table of Contents
F-18
Table of Contents
Revised | Initial | |||||||||||
Allocation | Allocation | Change | ||||||||||
(In millions) | ||||||||||||
ASSETS | ||||||||||||
Current assets | $ | 76.0 | $ | 77.2 | $ | (1.2 | ) | |||||
Property, plant and equipment | 149.5 | 133.0 | 16.5 | |||||||||
Mineral rights | 607.7 | 619.9 | (12.2 | ) | ||||||||
Asset held for sale | 14.0 | — | 14.0 | |||||||||
Other assets | 3.6 | 3.6 | — | |||||||||
Total assets | $ | 850.8 | $ | 833.7 | $ | 17.1 | ||||||
LIABILITIES | ||||||||||||
Current liabilities | $ | 63.2 | $ | 61.3 | $ | 1.9 | ||||||
Long-term liabilities | 186.4 | 171.2 | 15.2 | |||||||||
Total liabilities | 249.6 | 232.5 | 17.1 | |||||||||
Purchase price | $ | 601.2 | $ | 601.2 | $ | 0.0 | ||||||
2007 | 2006 | |||||||
(In millions, except | ||||||||
per common share) | ||||||||
Total revenues | $ | 2,428.7 | $ | 2,176.5 | ||||
Income before cumulative effect of accounting change | 252.2 | 245.9 | ||||||
Net income | $ | 252.2 | $ | 245.9 | ||||
Earnings per common share — Basic | $ | 2.98 | $ | 2.86 | ||||
Earnings per common share — Diluted | $ | 2.40 | $ | 2.29 | ||||
F-19
Table of Contents
• | CAC, a wholly owned Cliffs subsidiary, is the conduit for Cliffs’ investment in Sonoma. | |
• | CAWO, a wholly owned subsidiary of CAC, owns the Washplant and receives 40 percent of Sonoma coal production in exchange for providing coal washing services to the remaining Sonoma participants. | |
• | SMM is the appointed operator of the mine assets, non-mine assets, and the Washplant. We own a 45 percent interest in SMM. |
F-20
Table of Contents
• | Sonoma Sales, a wholly owned subsidiary of QCoal, is the sales agent for the participants of the coal extracted and processed in the Sonoma Project. |
• | Paid $34.9 million of the total estimated cost of $37.6 million for an 8.33 percent undivided interest in the Mining Assets and a 45 percent undivided interest in the Non-Mining Assets and other expenditures, and | |
• | Paid $85.2 million of the total estimated cost of $90.1 million to construct the Washplant for a total investment of approximately $127.7 million. |
F-21
Table of Contents
Percent Ownership | ||||||||||||||||
Cleveland- | U.S. Steel | |||||||||||||||
Mine | Cliffs Inc | ArcelorMittal | Canada | Laiwu | ||||||||||||
Empire | 79.0 | 21.0 | — | — | ||||||||||||
Tilden | 85.0 | — | 15.0 | — | ||||||||||||
Hibbing | 23.0 | 62.3 | 14.7 | — | ||||||||||||
United Taconite | 70.0 | — | — | 30.0 | ||||||||||||
Wabush | 26.8 | 28.6 | 44.6 | — |
2007 | 2006 | 2005 | ||||||||||
(In millions) | ||||||||||||
Product revenues to related parties | $ | 754.3 | $ | 649.2 | $ | 704.0 | ||||||
Total product revenues | 1,997.3 | 1,669.1 | 1,512.2 | |||||||||
Related party product revenue as a percent of total product revenue | 37.8 | % | 38.9 | % | 46.6 | % |
F-22
Table of Contents
F-23
Table of Contents
2007 | 2006 | 2005 | ||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Revenues from product sales and services: | ||||||||||||||||||||||||
North American Iron Ore | $ | 1,745.4 | 76.7 | % | $ | 1,560.7 | 81.2 | % | $ | 1,535.0 | 88.2 | % | ||||||||||||
North American Coal | 85.2 | 3.8 | — | 0.0 | — | 0.0 | ||||||||||||||||||
Asia-Pacific Iron Ore | 444.6 | 19.5 | 361.0 | 18.8 | 204.5 | 11.8 | ||||||||||||||||||
Total revenues from product sales and services for reportable segments | $ | 2,275.2 | 100.0 | % | $ | 1,921.7 | 100.0 | % | $ | 1,739.5 | 100.0 | % | ||||||||||||
Sales margin: | ||||||||||||||||||||||||
North American Iron Ore | $ | 397.9 | $ | 327.4 | $ | 358.6 | ||||||||||||||||||
North American Coal | (31.7 | ) | — | — | ||||||||||||||||||||
Asia-Pacific Iron Ore | 95.8 | 86.6 | 30.4 | |||||||||||||||||||||
Sales margin | 462.0 | 414.0 | 389.0 | |||||||||||||||||||||
Other operating income (expense) | (80.4 | ) | (48.3 | ) | (32.5 | ) | ||||||||||||||||||
Other income (expense) | (0.9 | ) | 22.1 | 11.6 | ||||||||||||||||||||
Income from continuing operations before income taxes, minority interest and equity loss from ventures | $ | 380.7 | $ | 387.8 | $ | 368.1 | ||||||||||||||||||
Depreciation, depletion and amortization: | ||||||||||||||||||||||||
North American Iron Ore | $ | 40.7 | $ | 33.0 | $ | 29.3 | ||||||||||||||||||
North American Coal | 17.9 | — | — | |||||||||||||||||||||
Asia-Pacific Iron Ore | 48.6 | 40.9 | 13.5 | |||||||||||||||||||||
Total depreciation, depletion and amortization | $ | 107.2 | $ | 73.9 | $ | 42.8 | ||||||||||||||||||
Capital additions: | ||||||||||||||||||||||||
North American Iron Ore | $ | 64.4 | $ | 80.6 | $ | 63.9 | ||||||||||||||||||
North American Coal | 11.1 | — | — | |||||||||||||||||||||
Asia-Pacific Iron Ore | 39.3 | 31.9 | 45.9 | |||||||||||||||||||||
Other | 120.3 | — | — | |||||||||||||||||||||
Total capital additions | $ | 235.1 | $ | 112.5 | $ | 109.8 | ||||||||||||||||||
Assets: | ||||||||||||||||||||||||
North American Iron Ore | $ | 968.9 | $ | 1,154.0 | $ | 1,079.6 | ||||||||||||||||||
North American Coal | 773.2 | — | — | |||||||||||||||||||||
Asia-Pacific Iron Ore | 1,083.8 | 785.7 | 667.1 | |||||||||||||||||||||
Other | 249.9 | — | — | |||||||||||||||||||||
Total assets | $ | 3,075.8 | $ | 1,939.7 | $ | 1,746.7 | ||||||||||||||||||
F-24
Table of Contents
2007 | 2006 | 2005 | ||||||||||
(In millions) | ||||||||||||
Revenue(1) | ||||||||||||
United States | $ | 1,282.7 | $ | 1,109.2 | $ | 1,007.6 | ||||||
China | 419.9 | 367.4 | 232.6 | |||||||||
Canada | 384.9 | 379.7 | 454.1 | |||||||||
Japan | 135.7 | 74.4 | 54.9 | |||||||||
Other countries | 66.5 | 2.7 | 3.4 | |||||||||
Total revenue | $ | 2,289.7 | $ | 1,933.4 | $ | 1,752.6 | ||||||
Long-lived assets | ||||||||||||
Australia | $ | 691.6 | $ | 522.5 | ||||||||
United States | 1,132.3 | 362.4 | ||||||||||
Total long-lived assets | $ | 1,823.9 | $ | 884.9 | ||||||||
(1) | Revenue is attributed to countries based on the location of the customer and includes bothProduct sales and servicesandRoyalties and management fees. |
2007 | 2006 | |||||||
(In millions) | ||||||||
Environmental | $ | 12.3 | $ | 13.0 | ||||
Mine closure | ||||||||
North American Iron Ore operating mines | 61.8 | 54.7 | ||||||
LTVSMC | 22.5 | 28.2 | ||||||
North American Coal | 20.4 | — | ||||||
Asia-Pacific Iron Ore | 9.5 | 8.0 | ||||||
Asia-Pacific Coal | 4.3 | — | ||||||
Total mine closure | 118.5 | 90.9 | ||||||
Total environmental and mine closure obligations | 130.8 | 103.9 | ||||||
Less current portion | 7.6 | 8.8 | ||||||
Long-term environmental and mine closure obligations | $ | 123.2 | $ | 95.1 | ||||
F-25
Table of Contents
F-26
Table of Contents
F-27
Table of Contents
F-28
Table of Contents
F-29
Table of Contents
2007 | 2006 | |||||||
(In millions) | ||||||||
Asset retirement obligation at beginning of year | $ | 62.7 | $ | 52.5 | ||||
Accretion expense | 6.6 | 5.1 | ||||||
PinnOak acquisition | 19.9 | — | ||||||
Sonoma investment | 4.3 | — | ||||||
Reclassification from environmental obligations | 1.1 | — | ||||||
Exchange rate changes | 0.9 | 0.7 | ||||||
Revision in estimated cash flows | 0.5 | 4.4 | ||||||
Asset retirement obligation at end of year | $ | 96.0 | $ | 62.7 | ||||
F-30
Table of Contents
Capital | Operating | |||||||
Year Ended December 31, | Leases | Leases | ||||||
(In millions) | ||||||||
2008 | $ | 9.7 | $ | 18.2 | ||||
2009 | 10.1 | 16.8 | ||||||
2010 | 8.7 | 14.7 | ||||||
2011 | 8.7 | 10.3 | ||||||
2012 | 8.4 | 6.5 | ||||||
2013 and thereafter | 31.8 | 11.4 | ||||||
Total minimum lease payments | 77.4 | $ | 77.9 | |||||
Amounts representing interest | 21.0 | |||||||
Present value of net minimum lease payments | $ | 56.4 | ||||||
F-31
Table of Contents
2007 | 2006 | 2005 | ||||||||||
(In millions) | ||||||||||||
Defined benefit pension plans | $ | 17.4 | $ | 23.0 | $ | 18.9 | ||||||
Defined contribution pension plans | 5.1 | 4.6 | 4.0 | |||||||||
Other postretirement benefits | 4.5 | 9.8 | 13.7 | |||||||||
Total | $ | 27.0 | $ | 37.4 | $ | 36.6 | ||||||
F-32
Table of Contents
Pension Benefits | Other Benefits | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(In millions) | ||||||||||||||||
Change in benefit obligations: | ||||||||||||||||
Benefit obligations — beginning of year | $ | 706.7 | $ | 698.0 | $ | 272.2 | $ | 301.2 | ||||||||
Service cost (excluding expenses) | 11.4 | 10.1 | 2.1 | 2.2 | ||||||||||||
Interest cost | 38.9 | 38.2 | 14.5 | 14.8 | ||||||||||||
Plan amendments | — | 14.1 | — | — | ||||||||||||
Actuarial gain | (29.8 | ) | (9.9 | ) | (28.0 | ) | (30.8 | ) | ||||||||
Benefits paid | (46.4 | ) | (43.8 | ) | (22.4 | ) | (19.2 | ) | ||||||||
Participant contributions | — | — | 3.3 | 2.9 | ||||||||||||
Federal subsidy on benefits paid | — | — | 1.2 | 1.1 | ||||||||||||
Acquisitions | — | — | �� | 9.8 | — | |||||||||||
Benefit obligations — end of year | $ | 680.8 | $ | 706.7 | $ | 252.7 | $ | 272.2 | ||||||||
Change in plan assets: | ||||||||||||||||
Fair value of plan assets — beginning of year | $ | 568.7 | $ | 511.5 | $ | 114.9 | $ | 86.9 | ||||||||
Actual return on plan assets | 41.5 | 60.3 | 6.7 | 12.8 | ||||||||||||
Employer contributions | 32.5 | 40.7 | 5.2 | 15.4 | ||||||||||||
Benefits paid | (46.4 | ) | (43.8 | ) | (0.1 | ) | (0.2 | ) | ||||||||
Fair value of plan assets — end of year | $ | 596.3 | $ | 568.7 | $ | 126.7 | $ | 114.9 | ||||||||
Funded status at December 31: | ||||||||||||||||
Fair value of plan assets | $ | 596.3 | $ | 568.7 | $ | 126.7 | $ | 114.9 | ||||||||
Benefit obligations | (680.8 | ) | (706.7 | ) | (252.7 | ) | (272.2 | ) | ||||||||
Funded status (plan assets less benefit obligations) | $ | (84.5 | ) | $ | (138.0 | ) | $ | (126.0 | ) | $ | (157.3 | ) | ||||
Amount recognized at December 31 | $ | (84.5 | ) | $ | (138.0 | ) | $ | (126.0 | ) | $ | (157.3 | ) | ||||
Amounts recognized in Statements of Financial Position: | ||||||||||||||||
Noncurrent assets | $ | 6.7 | $ | 2.1 | $ | — | $ | — | ||||||||
Current liabilities | (1.5 | ) | — | (11.2 | ) | (18.3 | ) | |||||||||
Noncurrent liabilities | (89.7 | ) | (140.1 | ) | (114.8 | ) | (139.0 | ) | ||||||||
Net amount recognized | $ | (84.5 | ) | $ | (138.0 | ) | $ | (126.0 | ) | $ | (157.3 | ) | ||||
Amounts recognized in accumulated other comprehensive income: | ||||||||||||||||
Net actuarial loss | $ | 160.0 | $ | 70.8 | ||||||||||||
Prior service (credit) cost | 22.4 | (22.2 | ) | |||||||||||||
Transition asset | — | (15.1 | ) | |||||||||||||
Net amount recognized | $ | 182.4 | $ | 33.5 | ||||||||||||
The estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2008: | ||||||||||||||||
Net actuarial loss | $ | 8.7 | $ | 5.6 | ||||||||||||
Prior service (credit) cost | 3.7 | (5.6 | ) | |||||||||||||
Transition asset | — | 3.0 | ||||||||||||||
Net amount recognized | $ | 12.4 | $ | 3.0 | ||||||||||||
F-33
Table of Contents
Pension Plans | Other Postretirement Benefits | |||||||||||||||||||||||||||||||
Salaried | Hourly | Mining | SERP | Total | Salaried | Hourly | Total | |||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
Fair value of plan assets | $ | 253.4 | $ | 342.8 | $ | 0.1 | $ | — | $ | 596.3 | $ | — | $ | 126.7 | $ | 126.7 | ||||||||||||||||
Benefit obligation | (243.4 | ) | (430.6 | ) | (1.6 | ) | (5.2 | ) | (680.8 | ) | (54.8 | ) | (197.9 | ) | (252.7 | ) | ||||||||||||||||
Funded status | $ | 10.0 | $ | (87.8 | ) | $ | (1.5 | ) | $ | (5.2 | ) | $ | (84.5 | ) | $ | (54.8 | ) | $ | (71.2 | ) | $ | (126.0 | ) |
Pension Benefits | Other Benefits | |||||||||||||||||||||||
2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Service cost | $ | 11.4 | $ | 10.1 | $ | 9.2 | $ | 2.1 | $ | 2.2 | $ | 2.1 | ||||||||||||
Interest cost | 38.9 | 38.2 | 37.0 | 14.5 | 14.8 | 16.2 | ||||||||||||||||||
Expected return on plan assets | (47.1 | ) | (42.6 | ) | (39.3 | ) | (10.1 | ) | (8.2 | ) | (6.5 | ) | ||||||||||||
Amortization: | ||||||||||||||||||||||||
Net (asset) obligation | — | (2.1 | ) | (3.6 | ) | (3.0 | ) | (3.0 | ) | (3.0 | ) | |||||||||||||
Prior service costs | 3.8 | 2.8 | 2.5 | (5.6 | ) | (5.6 | ) | (5.6 | ) | |||||||||||||||
Net actuarial loss (gain) | 10.4 | 16.6 | 13.1 | 6.5 | 9.6 | 10.5 | ||||||||||||||||||
Net periodic benefit cost | $ | 17.4 | $ | 23.0 | $ | 18.9 | $ | 4.4 | $ | 9.8 | $ | 13.7 | ||||||||||||
Current year actuarial (gain) | (24.0 | ) | N/A | N/A | (24.5 | ) | N/A | N/A | ||||||||||||||||
Amortization of net (loss) | (10.4 | ) | N/A | N/A | (6.5 | ) | N/A | N/A | ||||||||||||||||
Current year prior service cost | — | N/A | N/A | — | N/A | N/A | ||||||||||||||||||
Amortization of prior service (cost) credit | (3.8 | ) | N/A | N/A | 5.6 | N/A | N/A | |||||||||||||||||
Amortization of transition asset | — | N/A | N/A | 3.0 | N/A | N/A | ||||||||||||||||||
Total recognized in other comprehensive income | $ | (38.2 | ) | N/A | N/A | $ | (22.4 | ) | N/A | N/A | ||||||||||||||
Total recognized in net periodic cost and other comprehensive income | $ | (20.8 | ) | N/A | N/A | $ | (18.0 | ) | N/A | N/A | ||||||||||||||
Pension Benefits | Other Benefits | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(In millions) | ||||||||||||||||
Effect of change in mine ownership & minority interest | $ | 45.8 | $ | 47.0 | $ | 5.4 | $ | 7.1 | ||||||||
Actual return on plan assets | 41.5 | 60.3 | 6.6 | 12.8 |
F-34
Table of Contents
Pension Benefits | Other Benefits | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Discount rate | 6.00 | % | 5.75 | % | 6.00 | % | 5.75 | % | ||||||||
Rate of compensation increase | 4.13 | 4.16 | 4.50 | 4.50 |
Pension Benefits | Other Benefits | |||||||||||||||||||||||
2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |||||||||||||||||||
Discount rate | 5.75 | % | 5.50/5.75 | %(1) | 5.75 | % | 5.75 | % | 5.50 | % | 5.75 | % | ||||||||||||
Expected return on plan assets | 8.50 | 8.50 | 8.50 | 8.50 | 8.50 | 8.50 | ||||||||||||||||||
Rate of compensation increase | 4.16 | 4.12 | 4.16 | 4.50 | 4.50 | 4.50 |
(1) | Year 2006 SFAS 87 expense was re-measured on September 12, 2006 at 5.75 percent to recognize benefit improvements for salaried participants. |
2007 | 2006 | |||||||
Health care cost trend rate assumed for next year | 7.00 | % | 7.50 | % | ||||
Ultimate health care cost trend rate | 5.00 | 5.00 | ||||||
Year that the ultimate rate is reached | 2012 | 2012 |
Increase | Decrease | |||||||
(In millions) | ||||||||
Effect on total of service and interest cost | $ | 1.6 | $ | (1.3 | ) | |||
Effect on postretirement benefit obligation | 23.5 | (19.8 | ) |
F-35
Table of Contents
Percentage of | ||||||||||||
2008 | Plan Assets at | |||||||||||
Target | December 31, | |||||||||||
Asset Category | Allocation | 2007 | 2006 | |||||||||
Equity securities | 54.2 | % | 53.0 | % | 54.8 | % | ||||||
Debt securities | 31.8 | 32.6 | 31.5 | |||||||||
Hedge funds | 4.0 | 4.2 | 3.9 | |||||||||
Real estate | 10.0 | 10.1 | 9.7 | |||||||||
Cash | — | 0.1 | 0.1 | |||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Assets at December 31, | ||||||||
Asset Category | 2007 | 2006 | ||||||
(In millions) | ||||||||
Equity securities | $ | 315.8 | $ | 311.4 | ||||
Debt securities | 194.0 | 179.1 | ||||||
Hedge funds | 25.3 | 22.4 | ||||||
Real estate | 60.4 | 55.0 | ||||||
Cash | 0.8 | 0.8 | ||||||
Total | $ | 596.3 | $ | 568.7 | ||||
Percentage of | ||||||||||||
2008 | Plan Assets at | |||||||||||
Target | December 31, | |||||||||||
Asset Category | Allocation | 2007 | 2006 | |||||||||
Equity securities | 59.6 | % | 58.8 | % | 60.7 | % | ||||||
Debt securities | 34.1 | 36.0 | 34.0 | |||||||||
Hedge funds | 6.3 | 5.0 | 5.1 | |||||||||
Cash | — | 0.2 | 0.2 | |||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
F-36
Table of Contents
Assets at December 31, | ||||||||
Asset Category | 2007 | 2006 | ||||||
(In millions) | ||||||||
Equity securities | $ | 74.5 | $ | 69.8 | ||||
Debt securities | 45.6 | 39.1 | ||||||
Hedge funds | 6.4 | 5.8 | ||||||
Cash | 0.2 | 0.2 | ||||||
Total | $ | 126.7 | $ | 114.9 | ||||
Other Benefits | ||||||||||||||||
Pension | Direct | |||||||||||||||
Company Contributions | Benefits | VEBA | Payments | Total | ||||||||||||
(In millions) | ||||||||||||||||
2006 | $ | 40.7 | $ | 15.4 | $ | 15.0 | $ | 30.4 | ||||||||
2007 | 32.5 | 5.2 | 17.8 | 23.0 | ||||||||||||
2008 (Expected)* | 24.4 | 4.8 | 11.2 | 16.0 |
* | Because the United Taconite VEBA trust is at least 90 percent funded at December 31, 2007, contributions are not required. Pursuant to the bargaining agreement, benefits can be paid from VEBA trusts that are at least 70 percent funded. |
(In millions) | ||||
Defined benefit pension plans | $ | 15.4 | ||
Defined contribution plans | 5.3 | |||
Other postretirement benefits | 3.9 | |||
Total | $ | 24.6 | ||
F-37
Table of Contents
Other Benefits | ||||||||||||||||
Gross | Less | Net | ||||||||||||||
Pension | Company | Medicare | Company | |||||||||||||
Benefits | Benefits | Subsidy | Payments | |||||||||||||
(In millions) | ||||||||||||||||
2008 | $ | 50.7 | $ | 18.9 | $ | 1.4 | $ | 17.5 | ||||||||
2009 | 49.7 | 19.6 | 1.3 | 18.3 | ||||||||||||
2010 | 49.5 | 20.3 | 1.3 | 19.0 | ||||||||||||
2011 | 50.1 | 20.7 | 1.2 | 19.5 | ||||||||||||
2012 | 54.8 | 20.9 | 1.3 | 19.6 | ||||||||||||
2013-2017 | 255.5 | 105.9 | 7.2 | 98.7 |
December 31, 2007 | ||||||||
Defined | ||||||||
Benefit | Other | |||||||
Pensions | Benefits | |||||||
(In millions) | ||||||||
Fair value of plan assets | $ | 596.3 | $ | 126.7 | ||||
Benefit obligation | 680.8 | 252.7 | ||||||
Underfunded status of plan | $ | (84.5 | ) | $ | (126.0 | ) | ||
Additional shutdown and early retirement benefits | $ | 38.6 | $ | 27.9 | ||||
NOTE 9 — | INCOME TAXES |
2007 | 2006 | 2005 | ||||||||||
(In millions) | ||||||||||||
United States | $ | 312.3 | $ | 304.9 | $ | 345.0 | ||||||
Foreign | 68.4 | 82.9 | 23.1 | |||||||||
$ | 380.7 | $ | 387.8 | $ | 368.1 | |||||||
F-38
Table of Contents
2007 | 2006 | 2005 | ||||||||||
(In millions) | ||||||||||||
Current provision: | ||||||||||||
United States federal | $ | 67.7 | $ | 59.0 | $ | 63.5 | ||||||
United States state & local | 1.0 | 2.1 | 3.3 | |||||||||
Foreign | 48.5 | 34.6 | 22.4 | |||||||||
117.2 | 95.7 | 89.2 | ||||||||||
Deferred provision (benefit): | ||||||||||||
United States federal | (12.7 | ) | 10.4 | 7.3 | ||||||||
United States state & local | (2.9 | ) | (0.5 | ) | 2.8 | |||||||
Foreign | (17.5 | ) | (14.7 | ) | (14.5 | ) | ||||||
(33.1 | ) | (4.8 | ) | (4.4 | ) | |||||||
Total provision on continuing operations | $ | 84.1 | $ | 90.9 | $ | 84.8 | ||||||
2007 | 2006 | 2005 | ||||||||||
(In millions) | ||||||||||||
Tax at U.S. statutory rate of 35 percent | $ | 133.3 | $ | 135.7 | $ | 128.8 | ||||||
Increase (decrease) due to: | ||||||||||||
Percentage depletion in excess of cost depletion | (46.9 | ) | (32.7 | ) | (37.6 | ) | ||||||
Tax effect of foreign operations | (6.6 | ) | (8.6 | ) | — | |||||||
State taxes, net | (2.4 | ) | 1.6 | 5.0 | ||||||||
Manufacturer’s deduction | (4.3 | ) | (1.2 | ) | (0.5 | ) | ||||||
Valuation allowance | 13.0 | — | (8.9 | ) | ||||||||
Other items — net | (2.0 | ) | (3.9 | ) | (2.0 | ) | ||||||
Income tax expense | $ | 84.1 | $ | 90.9 | $ | 84.8 | ||||||
2007 | 2006 | 2005 | ||||||||||
(In millions) | ||||||||||||
Discontinued operations | $ | 0.2 | $ | 0.2 | $ | (0.4 | ) | |||||
Cumulative effect of accounting change | — | — | 2.8 | |||||||||
Other comprehensive (income) loss: | ||||||||||||
Postretirement liability | 20.1 | 9.7 | (10.5 | ) | ||||||||
Mark-to-market adjustments | 7.1 | 6.9 | 0.8 | |||||||||
27.2 | 16.6 | (9.7 | ) | |||||||||
Cumulative effect of implementing SFAS 158 | — | (60.4 | ) | — | ||||||||
Paid in capital — stock options | (4.3 | ) | 1.4 | (2.6 | ) |
F-39
Table of Contents
2007 | 2006 | |||||||
(In millions) | ||||||||
Deferred tax assets: | ||||||||
Pensions | $ | 48.6 | $ | 62.7 | ||||
Postretirement benefits other than pensions | 38.5 | 41.9 | ||||||
Deferred revenue | — | 23.2 | ||||||
Alternative minimum tax credit carryforwards | 20.4 | 12.8 | ||||||
Capital loss carryforwards | 13.2 | 11.9 | ||||||
Development | 13.6 | 11.9 | ||||||
Asset retirement obligations | 18.4 | 7.7 | ||||||
Operating loss carryforwards | 13.4 | 2.2 | ||||||
Product inventories | 10.6 | — | ||||||
Contingent purchase price | 43.7 | — | ||||||
Other liabilities | 49.1 | 31.7 | ||||||
Total deferred tax assets before valuation allowance | 269.5 | 206.0 | ||||||
Deferred tax asset valuation allowance | 26.3 | 11.9 | ||||||
Net deferred tax assets | 243.2 | 194.1 | ||||||
Deferred tax liabilities: | ||||||||
Properties | 257.0 | 135.2 | ||||||
Investment in ventures | 99.4 | 20.5 | ||||||
Product inventories | — | 12.9 | ||||||
Other assets | 17.0 | 28.1 | ||||||
Total deferred tax liabilities | 373.4 | 196.7 | ||||||
Net deferred tax liabilities | $ | (130.2 | ) | $ | (2.6 | ) | ||
F-40
Table of Contents
2007 | 2006 | |||||||
(In millions) | ||||||||
Deferred tax assets: | ||||||||
United States | ||||||||
Current | $ | 17.3 | $ | 9.4 | ||||
Long-term | 42.1 | 107.0 | ||||||
Total United States | 59.4 | 116.4 | ||||||
Foreign | ||||||||
Current | 0.6 | — | ||||||
Total deferred tax assets | 60.0 | 116.4 | ||||||
Deferred tax liabilities: | ||||||||
Foreign | ||||||||
Current | 2.6 | 2.0 | ||||||
Long-term | 187.6 | 117.0 | ||||||
Total deferred tax liabilities | 190.2 | 119.0 | ||||||
Net deferred tax liabilities | $ | (130.2 | ) | $ | (2.6 | ) | ||
F-41
Table of Contents
(In millions) | ||||
Unrecognized tax benefits balance as of January 1, 2007 | $ | 12.3 | ||
Increases for tax positions in prior years | 3.3 | |||
Decreases for tax positions in prior years | (0.4 | ) | ||
Settlements | — | |||
Lapses in statutes of limitations | — | |||
Unrecognized tax benefits balance as of December 31, 2007 | $ | 15.2 | ||
NOTE 10 — | PREFERRED STOCK |
F-42
Table of Contents
2007 | 2006 | |||||||
Number of preferred shares converted | 37,585 | 200 | ||||||
Number of common shares issued from Treasury upon conversion | 4,975,296 | 26,132 | ||||||
Balance of preferred stock outstanding as of December 31, | 134,715 | 172,300 | ||||||
Redemption value at December 31 (in millions) | $ | 899 | $ | 547 |
NOTE 11 — | STOCK PLANS |
Restricted Equity | Deferred Equity | |||||||
Date of Grant | Grant Shares | Grant Shares | ||||||
July 12, 2005 | 12,064 | — | ||||||
September 13, 2005 | 1,128 | — | ||||||
May 8, 2006 | 9,156 | 1,308 | ||||||
July 27, 2007 | 7,488 | 936 |
F-43
Table of Contents
1992 ICE | 2007 ICE | |||||||
Year of Grant | Plan | Plan | ||||||
2005 | 286,884 | (1) | — | |||||
2006 | 313,364 | — | ||||||
2007 | 10,000 | 145,500 |
(1) | 270,964 restricted shares were issued March 8, 2005. As of November 30, 2005, we re-measured the shares for retiree-eligible employees. We immediately vested one-half of the restricted grant awards to those individuals, resulting in an acceleration of $1.9 million of expense. The remaining restricted shares vested December 31, 2007. |
Performance | ||||||||||||||
Shares | ||||||||||||||
Performance Share Plan Year | Outstanding | Forfeitures* | Grant Date | Performance Period | ||||||||||
2007 | 3,740 | October 1, 2007 | 1/1/2007-12/31/2009 | |||||||||||
2007 | 233,860 | 40,000 | July 27, 2007 | 1/1/2007-12/31/2009 | ||||||||||
2006 | 13,600 | December 11, 2006 | 1/1/2006-12/31/2008 | |||||||||||
2006 | 28,220 | September 1, 2006 | 1/1/2006-12/31/2008 | |||||||||||
2006 | 124,230 | 63,370 | May 8, 2006 | 1/1/2006-12/31/2008 | ||||||||||
2006 | 19,710 | 630 | September 1, 2006 | 1/1/2006-12/31/2008 | ||||||||||
2005 | 5,100 | November 15, 2005 | 1/1/2005-12/31/2007 | |||||||||||
2005 | 12,920 | May 23, 2005 | 1/1/2005-12/31/2007 | |||||||||||
2005 | 145,126 | 33,038 | March 8, 2005 | 1/1/2005-12/31/2007 |
* | The 2007 and 2006 Plans are based on assumed forfeitures. The 2005 Plan is based on actual forfeitures. |
F-44
Table of Contents
2007 | 2006 | |||||||
(In millions, | ||||||||
except EPS) | ||||||||
Cost of goods sold | $ | 0.4 | $ | 0.6 | ||||
Selling, general and administrative expense | 12.0 | 9.7 | ||||||
Reduction of operating income from continuing operations before income taxes and minority interest | 12.4 | 10.3 | ||||||
Income tax benefit | (4.3 | ) | (3.6 | ) | ||||
Reduction of net income | $ | 8.1 | $ | 6.7 | ||||
Reduction of earnings per share: | ||||||||
Basic | $ | 0.10 | $ | 0.08 | ||||
Diluted | $ | 0.08 | $ | 0.06 | ||||
F-45
Table of Contents
Grant | Fair Value | |||||||||||||||||||||||||||
Date | Average | (Percent of | ||||||||||||||||||||||||||
Market | Expected | Expected | Risk-Free | Dividend | Grant Date | |||||||||||||||||||||||
Plan Year | Grant Date | Price | Term (Years) | Volatility | Interest Rate | Yield | Market Price) | |||||||||||||||||||||
2007 | 10/1/2007 | $ | 45.89 | 2.2 | 43 | % | 4.46 | 0.72 | 105.95 | % | ||||||||||||||||||
2007 | 7/27/2007 | 34.70 | 2.4 | 43 | 4.46 | 0.72 | 105.95 |
Fair Value | ||||||||||||||||||||||||||||
Average | (Percent of | |||||||||||||||||||||||||||
Grant Date | Expected | Expected | Risk-Free | Dividend | Grant Date | |||||||||||||||||||||||
Plan Year | Grant Date | Market Price | Term (Years) | Volatility | Interest Rate | Yield | Market Price) | |||||||||||||||||||||
2006 | 12/11/2006 | $ | 24.00 | 2.1 | 39 | % | 4.68 | 0.72 | 94.54 | % | ||||||||||||||||||
2006 | 9/1/2006 | 18.73 | 2.3 | 39 | 4.68 | 0.72 | 121.15 | |||||||||||||||||||||
2006 | 5/8/2006 | 24.09 | 2.6 | 39 | 4.68 | 0.72 | 47.10 | |||||||||||||||||||||
2006 | 9/1/2006 | 18.73 | 1.3 | 32 | 4.71 | 0.72 | 121.15 | |||||||||||||||||||||
2005 | 11/15/2005 | 22.05 | 2.1 | 32 | 4.71 | 0.72 | 104.06 | |||||||||||||||||||||
2005 | 5/23/2005 | 14.01 | 2.6 | 32 | 4.71 | 0.72 | 127.94 | |||||||||||||||||||||
2005 | 3/8/2005 | 19.63 | 2.8 | 32 | 4.71 | 0.72 | 112.89 |
Grant Date | Pre-modification | Change in | Revised | |||||||||||||||||
Plan Year | Grant Date | Stock Price | Fair Value(1) | Fair Value | Fair Value | |||||||||||||||
2006 | 12/11/2006 | $ | 24.00 | $ | 4.00 | $ | 41.37 | $ | 45.37 | |||||||||||
2006 | 9/1/2006 | 18.73 | 4.01 | 41.36 | 45.37 | |||||||||||||||
2006 | 5/8/2006 | 24.09 | 4.00 | 18.69 | 22.69 | |||||||||||||||
2006 | 9/1/2006 | 18.73 | 4.01 | 41.36 | 45.37 | |||||||||||||||
2005 | 11/15/2005 | 22.05 | 49.72 | (3.83 | ) | 45.89 | ||||||||||||||
2005 | 5/23/2005 | 14.01 | 39.23 | (3.38 | ) | 35.85 | ||||||||||||||
2005 | 3/8/2005 | 19.63 | 48.05 | (3.73 | ) | 44.32 |
(1) | Represents the fair value immediately preceeding the modification |
F-46
Table of Contents
2007 | 2006 | 2005 | ||||||||||||||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Exercise | Exercise | Exercise | ||||||||||||||||||||||
Shares | Price | Shares | Price | Shares | Price | |||||||||||||||||||
Stock options: | ||||||||||||||||||||||||
Options outstanding at beginning of year | 23,600 | $ | 5.04 | 108,536 | $ | 7.35 | 872,336 | $ | 7.80 | |||||||||||||||
Granted during the year | — | — | — | |||||||||||||||||||||
Exercised | (11,800 | ) | 4.66 | (84,936 | ) | 7.99 | (700,200 | ) | 8.14 | |||||||||||||||
Cancelled or expired | — | — | (63,600 | ) | 4.80 | |||||||||||||||||||
Options outstanding at end of year | 11,800 | 5.42 | 23,600 | 5.04 | 108,536 | 7.35 | ||||||||||||||||||
Options exercisable at end of year | 11,800 | 5.42 | 23,600 | 5.04 | 108,536 | 7.35 | ||||||||||||||||||
Restricted awards: | ||||||||||||||||||||||||
Awarded and restricted at beginning of year | 649,324 | 386,360 | 243,000 | |||||||||||||||||||||
Awarded during the year | 164,692 | 324,416 | 302,252 | |||||||||||||||||||||
Vested | (299,302 | ) | (61,452 | ) | (158,892 | ) | ||||||||||||||||||
Cancelled | — | — | — | |||||||||||||||||||||
Awarded and restricted at end of year | 514,714 | 649,324 | 386,360 | |||||||||||||||||||||
Performance shares: | ||||||||||||||||||||||||
Allocated at beginning of year | 861,672 | 1,644,236 | 2,468,728 | |||||||||||||||||||||
Allocated during the year | 390,888 | 236,160 | 223,624 | |||||||||||||||||||||
Issued | (529,016 | ) | (405,036 | ) | (542,912 | ) | ||||||||||||||||||
Forfeited/cancelled | — | (613,688 | ) | (505,204 | ) | |||||||||||||||||||
Allocated at end of year | 723,544 | 861,672 | 1,644,236 | |||||||||||||||||||||
Vested or expected to vest at December 31, 2007 | 586,506 | |||||||||||||||||||||||
Directors’ retainer and voluntary shares: | ||||||||||||||||||||||||
Awarded at beginning of year | 1,100 | 3,712 | 25,440 | |||||||||||||||||||||
Awarded during the year | — | 2,164 | 4,916 | |||||||||||||||||||||
Issued | — | (4,776 | ) | (26,644 | ) | |||||||||||||||||||
Awarded at end of year | 1,100 | 1,100 | 3,712 | |||||||||||||||||||||
Reserved for future grants or awards at end of year: | ||||||||||||||||||||||||
Employee plans | 1,842,306 | 2,668,592 | 2,542,604 | |||||||||||||||||||||
Directors’ plans | 158,572 | 173,548 | 186,656 | |||||||||||||||||||||
Total | 2,000,878 | 2,842,140 | 2,729,260 | |||||||||||||||||||||
F-47
Table of Contents
Weighted | ||||||||
Average | ||||||||
Grant Date | ||||||||
Shares | Fair Value | |||||||
Nonvested, beginning of year | 1,512,096 | $ | 14.35 | |||||
Granted | 455,892 | 35.10 | ||||||
Vested | (728,630 | ) | 11.73 | |||||
Forfeited/expired | — | — | ||||||
Nonvested, end of year | 1,239,358 | $ | 23.53 | |||||
Outstanding and Exercisable | ||||||||||||
Weighted | ||||||||||||
Number of | Average | Weighted | ||||||||||
Shares | Remaining | Average | ||||||||||
Underlying | Contractual | Exercise | ||||||||||
Range of exercise prices | Options | Life | Price | |||||||||
$5 - $10 | 11,800 | 1.0 | $ | 5.42 |
F-48
Table of Contents
NOTE 12 — | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
Pre-tax | Tax Benefit | After-tax | ||||||||||
Amount | (Provision) | Amount | ||||||||||
(In millions) | ||||||||||||
Year-ended December 31, 2005: | ||||||||||||
Minimum postretirement benefit liability | $ | (107.9 | ) | $ | 7.1 | $ | (100.8 | ) | ||||
Foreign currency translation adjustments | (24.7 | ) | — | (24.7 | ) | |||||||
Unrealized loss on derivative financial instruments | (2.6 | ) | 0.8 | (1.8 | ) | |||||||
Unrealized gain on securities | 2.6 | (0.9 | ) | 1.7 | ||||||||
$ | (132.6 | ) | $ | 7.0 | $ | (125.6 | ) | |||||
Year ended December 31, 2006: | ||||||||||||
Minimum postretirement benefit liability | $ | (80.3 | ) | $ | (2.6 | ) | $ | (82.9 | ) | |||
Foreign currency translation adjustments | 9.6 | — | 9.6 | |||||||||
Unrealized gain on derivative financial instruments | 6.4 | (1.9 | ) | 4.5 | ||||||||
Unrealized gain on securities | 14.7 | (5.1 | ) | 9.6 | ||||||||
Cumulative effect of implementing SFAS 158 | (171.1 | ) | 60.4 | (110.7 | ) | |||||||
$ | (220.7 | ) | $ | 50.8 | $ | (169.9 | ) | |||||
Year ended December 31, 2007: | ||||||||||||
Postretirement benefit liability | $ | (192.5 | ) | $ | 37.7 | $ | (154.8 | ) | ||||
Foreign currency translation adjustments | 96.5 | — | 96.5 | |||||||||
Unrealized net gain on derivative financial instruments | 26.7 | (8.0 | ) | 18.7 | ||||||||
Unrealized loss on interest rate swap | (1.4 | ) | 0.5 | (0.9 | ) | |||||||
Unrealized gain on securities | 15.7 | (5.5 | ) | 10.2 | ||||||||
$ | (55.0 | ) | $ | 24.7 | $ | (30.3 | ) | |||||
F-49
Table of Contents
Unrealized | ||||||||||||||||||||||||||||
Net Gain | ||||||||||||||||||||||||||||
Unrealized | Unrealized | (Loss) on | Accumulated | |||||||||||||||||||||||||
Postretirement | Adoption | Net Gain | Foreign | (Loss) on | Derivative | Other | ||||||||||||||||||||||
Benefit | of SFAS | on | Currency | Interest | Financial | Comprehensive | ||||||||||||||||||||||
Liability | No. 158 | Securities | Translation | Rate Swap | Instruments | Gain (Loss) | ||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||
Balance December 31, 2004 | $ | (81.2 | ) | $ | — | $ | 0.2 | $ | — | $ | — | $ | — | $ | (81.0 | ) | ||||||||||||
Change during 2005 | (19.6 | ) | — | 1.5 | (24.7 | ) | — | (1.8 | ) | (44.6 | ) | |||||||||||||||||
Balance December 31, 2005 | (100.8 | ) | — | 1.7 | (24.7 | ) | — | (1.8 | ) | (125.6 | ) | |||||||||||||||||
Change during 2006 | 17.9 | (110.7 | ) | 7.9 | 34.3 | — | 6.3 | (44.3 | ) | |||||||||||||||||||
Balance December 31, 2006 | (82.9 | ) | (110.7 | ) | 9.6 | 9.6 | — | 4.5 | (169.9 | ) | ||||||||||||||||||
Change during 2007 | (71.9 | ) | 110.7 | 0.6 | 86.9 | (0.9 | ) | 14.2 | 139.6 | |||||||||||||||||||
Balance December 31, 2007 | $ | (154.8 | ) | $ | — | $ | 10.2 | $ | 96.5 | $ | (0.9 | ) | $ | 18.7 | $ | (30.3 | ) | |||||||||||
NOTE 13 — | SHAREHOLDERS’ EQUITY |
NOTE 14 — | FAIR VALUE OF FINANCIAL INSTRUMENTS |
2007 | 2006 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Value | Value | Value | Value | |||||||||||||
(In millions) | ||||||||||||||||
Cash and cash equivalents | $ | 157.1 | $ | 157.8 | $ | 351.7 | $ | 351.7 | ||||||||
Derivative assets | 69.5 | 69.5 | 32.9 | 32.9 | ||||||||||||
Long-term receivable* | 50.0 | 61.4 | 55.7 | 68.4 | ||||||||||||
Marketable securities* | 74.6 | 73.1 | 28.9 | 28.9 | ||||||||||||
Hedge contracts (long-term) | 5.9 | 5.9 | 3.6 | 3.6 | ||||||||||||
Long-term debt* | 446.2 | 445.7 | 6.9 | 6.6 | ||||||||||||
Deferred payment | 96.2 | 96.2 | — | — |
* | Includes current portion. |
F-50
Table of Contents
Book Value | Fair Value | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(In millions) | ||||||||||||||||
Held to maturity — current | $ | 18.9 | $ | — | $ | 19.0 | $ | — | ||||||||
Held to maturity — non-current | 25.8 | — | 24.2 | — | ||||||||||||
Total held to maturity | 44.7 | — | 43.2 | — | ||||||||||||
Available for sale — non-current | 29.9 | 28.9 | 29.9 | 28.9 | ||||||||||||
Total | $ | 74.6 | $ | 28.9 | $ | 73.1 | $ | 28.9 | ||||||||
Asset backed securities | $ | 23.1 | ||||||||||||||
Floating rate notes | 21.6 | |||||||||||||||
$ | 44.7 | |||||||||||||||
F-51
Table of Contents
Carrying | Fair | |||||||
Value | Value | |||||||
(In millions) | ||||||||
Term loan | $ | 200.0 | $ | 200.0 | ||||
Revolving loan | 240.0 | 240.0 | ||||||
Customer borrowings | 6.2 | 5.7 | ||||||
Total | $ | 446.2 | $ | 445.7 | ||||
NOTE 15 — | EARNINGS PER SHARE |
2007 | 2006 | 2005 | ||||||||||||||||||||||
Per | Per | Per | ||||||||||||||||||||||
Amount | Share | Amount | Share | Amount | Share | |||||||||||||||||||
(In millions, except per share) | ||||||||||||||||||||||||
Income from continuing operations | $ | 269.8 | $ | 3.25 | $ | 279.8 | $ | 3.33 | $ | 273.2 | $ | 3.15 | ||||||||||||
Preferred dividend | (5.2 | ) | (.06 | ) | (5.6 | ) | (.07 | ) | (5.6 | ) | (.07 | ) | ||||||||||||
Income from continuing operations applicable to common shares | 264.6 | 3.19 | 274.2 | 3.26 | 267.6 | 3.08 | ||||||||||||||||||
Discontinued operations | 0.2 | — | 0.3 | — | (0.8 | ) | (.01 | ) | ||||||||||||||||
Cumulative effect | — | — | — | — | 5.2 | .06 | ||||||||||||||||||
Income applicable to common shares — basic | 264.8 | $ | 3.19 | 274.5 | $ | 3.26 | 272.0 | $ | 3.13 | |||||||||||||||
Dilutive effect preferred dividend | 5.2 | 5.6 | 5.6 | |||||||||||||||||||||
Income applicable to common shares plus assumed conversions — diluted | $ | 270.0 | $ | 2.57 | $ | 280.1 | $ | 2.60 | $ | 277.6 | $ | 2.50 | ||||||||||||
Average number of shares (in thousands) | ||||||||||||||||||||||||
Basic | 82,988 | 84,144 | 86,912 | |||||||||||||||||||||
Employee stock plans | 528 | 962 | 2,122 | |||||||||||||||||||||
Convertible preferred stock | 21,510 | 22,548 | 22,312 | |||||||||||||||||||||
Diluted | 105,026 | 107,654 | 111,346 | |||||||||||||||||||||
NOTE 16 — | CONTINGENCIES |
F-52
Table of Contents
NOTE 17 — | CASH FLOW INFORMATION |
2007 | 2006 | 2005 | ||||||||||
(In millions) | ||||||||||||
Taxes paid on income | $ | 123.6 | $ | 95.7 | $ | 86.2 | ||||||
Interest paid on debt obligations | 16.6 | 2.7 | 2.0 |
(In millions) | ||||
Fair value of assets acquired | $ | 850.8 | ||
Cash paid | (346.4 | ) | ||
Non-cash debt assumed | (159.6 | ) | ||
Deferred payment | (93.7 | ) | ||
Acquisition costs | (1.5 | ) | ||
Liabilities assumed | $ | 249.6 | ||
2007 | 2006 | 2005 | ||||||||||
(In millions) | ||||||||||||
Capital additions | $ | 235.1 | $ | 112.5 | $ | 109.8 | ||||||
Cash paid for capital expenditures | 199.5 | 119.5 | 97.8 | |||||||||
Difference | $ | 35.6 | $ | (7.0 | ) | $ | 12.0 | |||||
Non-cash accruals | $ | 4.7 | $ | (7.0 | ) | $ | 12.0 | |||||
Capital leases | 30.9 | — | — | |||||||||
Total | $ | 35.6 | $ | (7.0 | ) | $ | 12.0 | |||||
F-53
Table of Contents
NOTE 18 — | QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) |
2007 | ||||||||||||||||||||
Quarters | ||||||||||||||||||||
First | Second | Third | Fourth | Year | ||||||||||||||||
(In millions, except per common share) | ||||||||||||||||||||
Revenues from product sales and services | $ | 325.5 | $ | 547.6 | $ | 619.6 | $ | 782.5 | $ | 2,275.2 | ||||||||||
Sales margin | 61.8 | 129.6 | 107.3 | 163.3 | 462.0 | |||||||||||||||
Income before extraordinary gain and cumulative effect of accounting change | 32.5 | 86.9 | 56.9 | 93.7 | 270.0 | |||||||||||||||
Net income | 32.5 | 86.9 | 56.9 | 93.7 | 270.0 | |||||||||||||||
Earnings per share | ||||||||||||||||||||
Basic | $ | .39 | $ | 1.05 | $ | .67 | $ | 1.07 | $ | 3.19 | ||||||||||
Diluted | .31 | .83 | .54 | .89 | 2.57 |
2006 | ||||||||||||||||||||
Quarters | ||||||||||||||||||||
First | Second | Third | Fourth | Year | ||||||||||||||||
Revenues from product sales and services | $ | 306.4 | $ | 486.2 | $ | 580.1 | $ | 549.0 | $ | 1,921.7 | ||||||||||
Sales margin | 55.4 | 128.7 | 132.5 | 97.4 | 414.0 | |||||||||||||||
Income before extraordinary gain and cumulative effect of accounting change | 37.9 | 83.1 | 89.1 | 70.0 | 280.1 | |||||||||||||||
Net income | 37.9 | 83.1 | 89.1 | 70.0 | 280.1 | |||||||||||||||
Earnings per share | ||||||||||||||||||||
Basic | $ | .42 | $ | .96 | $ | 1.07 | $ | .85 | $ | 3.26 | ||||||||||
Diluted | .34 | .77 | .84 | .67 | 2.60 |
NOTE 19 — | STOCK SPLIT |
F-54
Table of Contents
Schedule II — Valuation and Qualifying Accounts
Additions | ||||||||||||||||||||||||
Charged | ||||||||||||||||||||||||
Balance at | to Cost | Charged | Balance at | |||||||||||||||||||||
Beginning | and | to Other | End of | |||||||||||||||||||||
Classification | of Year | Expenses | Accounts | Acquisition | Deductions | Year | ||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Year Ended December 31, 2007: | ||||||||||||||||||||||||
Deferred Tax Valuation Allowance | $ | 11.9 | $ | 13.0 | $ | 1.4 | $ | — | $ | — | $ | 26.3 | ||||||||||||
Allowance for Doubtful Accounts | — | — | — | — | — | — | ||||||||||||||||||
Year Ended December 31, 2006: | ||||||||||||||||||||||||
Deferred Tax Valuation Allowance | $ | 11.1 | $ | — | $ | 0.8 | $ | — | $ | — | $ | 11.9 | ||||||||||||
Allowance for Doubtful Accounts | 2.9 | (2.9 | ) | — | — | — | — | |||||||||||||||||
Year Ended December 31, 2005: | ||||||||||||||||||||||||
Deferred Tax Valuation Allowance | 8.9 | — | — | 11.1 | 8.9 | 11.1 | ||||||||||||||||||
Allowance for Doubtful Accounts | 4.8 | — | — | — | 1.9 | 2.9 |
F-55
Table of Contents
F-56
Table of Contents
F-57
Table of Contents
F-58
Table of Contents
F-59
Table of Contents
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions, except per share amounts) | ||||||||||||||||
REVENUES FROM PRODUCT SALES AND SERVICES | ||||||||||||||||
Product | $ | 921.6 | $ | 474.6 | $ | 1,333.6 | $ | 740.8 | ||||||||
Freight and venture partners’ cost reimbursements | 87.0 | 73.0 | 169.5 | 132.3 | ||||||||||||
1,008.6 | 547.6 | 1,503.1 | 873.1 | |||||||||||||
COST OF GOODS SOLD AND OPERATING EXPENSES | (582.3 | ) | (418.0 | ) | (994.3 | ) | (681.7 | ) | ||||||||
SALES MARGIN | 426.3 | 129.6 | 508.8 | 191.4 | ||||||||||||
OTHER OPERATING INCOME (EXPENSE) | ||||||||||||||||
Casualty recoveries | 10.0 | 3.2 | 10.0 | 3.2 | ||||||||||||
Royalties and management fee revenue | 7.1 | 4.0 | 10.9 | 6.2 | ||||||||||||
Selling, general and administrative expenses | (52.1 | ) | (21.5 | ) | (96.6 | ) | (42.2 | ) | ||||||||
Gain on sale of other assets | 19.5 | — | 21.0 | — | ||||||||||||
Miscellaneous — net | (1.4 | ) | 0.6 | (1.9 | ) | 2.2 | ||||||||||
(16.9 | ) | (13.7 | ) | (56.6 | ) | (30.6 | ) | |||||||||
OPERATING INCOME | 409.4 | 115.9 | 452.2 | 160.8 | ||||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Interest income | 6.3 | 4.6 | 11.9 | 9.9 | ||||||||||||
Interest expense | (9.8 | ) | (2.1 | ) | (17.0 | ) | (3.1 | ) | ||||||||
Other — net | 0.3 | (1.2 | ) | 0.3 | 0.1 | |||||||||||
(3.2 | ) | 1.3 | (4.8 | ) | 6.9 | |||||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES, MINORITY INTEREST AND EQUITY LOSS FROM VENTURES | 406.2 | 117.2 | 447.4 | 167.7 | ||||||||||||
PROVISION FOR INCOME TAXES | (107.4 | ) | (25.8 | ) | (121.6 | ) | (39.3 | ) | ||||||||
MINORITY INTEREST (net of tax of $9.6, $1.9, $10.9 and $3.9) | (22.4 | ) | (4.5 | ) | (25.5 | ) | (9.0 | ) | ||||||||
EQUITY LOSS FROM VENTURES | (6.2 | ) | — | (13.1 | ) | — | ||||||||||
NET INCOME | 270.2 | 86.9 | 287.2 | 119.4 | ||||||||||||
PREFERRED STOCK DIVIDENDS | (0.4 | ) | (1.4 | ) | (1.3 | ) | (2.8 | ) | ||||||||
INCOME APPLICABLE TO COMMON SHARES | $ | 269.8 | $ | 85.5 | $ | 285.9 | $ | 116.6 | ||||||||
EARNINGS PER COMMON SHARE — BASIC | $ | 2.75 | $ | 1.05 | $ | 3.04 | $ | 1.43 | ||||||||
EARNINGS PER COMMON SHARE — DILUTED | $ | 2.57 | $ | 0.83 | $ | 2.73 | $ | 1.14 | ||||||||
AVERAGE NUMBER OF SHARES (IN THOUSANDS) | ||||||||||||||||
Basic | 98,127 | 81,544 | 94,031 | 81,380 | ||||||||||||
Diluted | 105,227 | 104,664 | 105,087 | 104,508 |
F-60
Table of Contents
June 30, | December 31, | |||||||
2008 | 2007 | |||||||
(Unaudited) | ||||||||
(In millions) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 320.4 | $ | 157.1 | ||||
Accounts receivable | 291.9 | 84.9 | ||||||
Inventories | 466.8 | 241.9 | ||||||
Supplies and other inventories | 81.6 | 77.0 | ||||||
Derivative assets | 157.9 | 69.5 | ||||||
Other | 124.5 | 124.2 | ||||||
TOTAL CURRENT ASSETS | 1,443.1 | 754.6 | ||||||
PROPERTY, PLANT AND EQUIPMENT LESS ACCUMULATED DEPRECIATION AND DEPLETION — $406.1 ($330.9 in 2007) | 2,091.3 | 1,823.9 | ||||||
OTHER ASSETS | ||||||||
Investments in ventures | 265.3 | 265.3 | ||||||
Marketable securities | 102.4 | 55.7 | ||||||
Deferred income taxes | 42.2 | 42.1 | ||||||
Other | 102.6 | 134.2 | ||||||
TOTAL OTHER ASSETS | 512.5 | 497.3 | ||||||
TOTAL ASSETS | $ | 4,046.9 | $ | 3,075.8 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 172.5 | $ | 149.9 | ||||
Accrued employment costs | 67.7 | 73.2 | ||||||
Accrued expenses | 71.2 | 50.1 | ||||||
Income taxes payable | 103.2 | 11.5 | ||||||
State and local taxes payable | 35.9 | 33.6 | ||||||
Environmental and mine closure obligations | 6.8 | 7.6 | ||||||
Deferred revenue | 9.0 | 28.4 | ||||||
Other | 49.0 | 45.3 | ||||||
TOTAL CURRENT LIABILITIES | 515.3 | 399.6 | ||||||
PENSIONS | 98.9 | 90.0 | ||||||
OTHER POSTRETIREMENT BENEFITS | 114.2 | 114.8 | ||||||
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS | 125.0 | 123.2 | ||||||
DEFERRED INCOME TAXES | 238.5 | 189.0 | ||||||
SENIOR NOTES | 325.0 | — | ||||||
TERM LOAN | 200.0 | 200.0 | ||||||
REVOLVING CREDIT | 160.0 | 240.0 | ||||||
CONTINGENT CONSIDERATION | 178.5 | 99.5 | ||||||
DEFERRED PAYMENT | 99.1 | 96.2 | ||||||
OTHER LIABILITIES | 141.5 | 107.3 | ||||||
TOTAL LIABILITIES | 2,196.0 | 1,659.6 | ||||||
MINORITY INTEREST | 187.1 | 117.8 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
3.25% REDEEMABLE CUMULATIVE CONVERTIBLE | ||||||||
PERPETUAL PREFERRED STOCK — ISSUED 172,500 SHARES OUTSTANDING 19,555 AND 134,715 IN 2008 AND 2007 | 19.6 | 134.7 | ||||||
SHAREHOLDERS’ EQUITY | ||||||||
Common Shares — par value $0.125 a share | ||||||||
Authorized — 224,000,000 shares; Issued — 134,623,528 shares | ||||||||
Outstanding — 102,615,681 shares (net of treasury shares) | 16.8 | 16.8 | ||||||
Capital in excess of par value of shares | 149.6 | 116.6 | ||||||
Retained earnings | 1,589.5 | 1,316.2 | ||||||
Cost of 32,007,847 Common Shares in treasury (2007 — 47,455,922 shares) | (172.5 | ) | (255.6 | ) | ||||
Accumulated other comprehensive income (loss) | 60.8 | (30.3 | ) | |||||
TOTAL SHAREHOLDERS’ EQUITY | 1,644.2 | 1,163.7 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 4,046.9 | $ | 3,075.8 | ||||
F-61
Table of Contents
Six Months Ended | ||||||||
June 30, | ||||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
CASH FLOW FROM OPERATIONS | ||||||||
OPERATING ACTIVITIES: | ||||||||
Net income | $ | 287.2 | $ | 119.4 | ||||
Adjustments to reconcile net income to net cash provided (used) by operating activities: | ||||||||
Depreciation, depletion and amortization | 78.1 | 42.4 | ||||||
Minority interest | 25.5 | 9.0 | ||||||
Tax contingency reserve | 18.8 | — | ||||||
Equity loss in ventures | 13.1 | — | ||||||
Share-based compensation | 10.8 | 3.2 | ||||||
Derivatives and currency hedging | (66.1 | ) | (5.7 | ) | ||||
Gain on sale of assets | (14.3 | ) | (0.3 | ) | ||||
Property damage recoveries | (10.0 | ) | — | |||||
Excess tax benefit from share-based compensation | (3.3 | ) | (3.9 | ) | ||||
Deferred income taxes | (3.1 | ) | (10.7 | ) | ||||
Pensions and other postretirement benefits | (2.0 | ) | 1.1 | |||||
Environmental and closure obligations | (0.3 | ) | 2.0 | |||||
Other | (1.2 | ) | 4.8 | |||||
Changes in operating assets and liabilities: | ||||||||
Product inventories | (205.3 | ) | (159.0 | ) | ||||
Receivables and all other assets | (108.4 | ) | 8.1 | |||||
Payables and accrued expenses | 63.4 | (48.1 | ) | |||||
Net cash provided (used) by operating activities | 82.9 | (37.7 | ) | |||||
INVESTING ACTIVITIES: | ||||||||
Purchase of minority interest in Portman | (137.8 | ) | — | |||||
Purchase of property, plant and equipment | (59.1 | ) | (46.2 | ) | ||||
Investment in marketable securities | (27.0 | ) | (36.0 | ) | ||||
Investments in ventures | (2.2 | ) | (223.7 | ) | ||||
Proceeds from sale of assets | 38.6 | 1.8 | ||||||
Redemption of marketable securities | 20.3 | — | ||||||
Proceeds from property damage insurance recoveries | 10.0 | — | ||||||
Net cash used by investing activities | (157.2 | ) | (304.1 | ) | ||||
FINANCING ACTIVITIES: | ||||||||
Borrowings under revolving credit facility | 260.0 | 165.0 | ||||||
Repayment under revolving credit facility | (340.0 | ) | (40.0 | ) | ||||
Borrowings under senior notes | 325.0 | — | ||||||
Excess tax benefit from share-based compensation | 3.3 | 3.9 | ||||||
Contributions by minority interest | 1.8 | 1.5 | ||||||
Common stock dividends | (16.9 | ) | (10.2 | ) | ||||
Preferred stock dividends | (1.3 | ) | (2.8 | ) | ||||
Repayment of other borrowings | (6.8 | ) | (2.4 | ) | ||||
Proceeds from stock options exercised | — | 0.1 | ||||||
Repurchases of common stock | — | (2.2 | ) | |||||
Net cash from financing activities | 225.1 | 112.9 | ||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | 12.5 | 6.5 | ||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 163.3 | (222.4 | ) | |||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 157.1 | 351.7 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 320.4 | $ | 129.3 | ||||
F-62
Table of Contents
NOTE 1 — | BASIS OF PRESENTATION |
Ownership | ||||||||
Name | Location | Interest | Operation | |||||
Northshore | Minnesota | 100.0 | % | Iron Ore | ||||
Pinnacle | West Virginia | 100.0 | % | Coal | ||||
Oak Grove | Alabama | 100.0 | % | Coal | ||||
Portman | Western Australia | 85.2 | % | Iron Ore | ||||
Tilden | Michigan | 85.0 | % | Iron Ore | ||||
Empire | Michigan | 79.0 | % | Iron Ore | ||||
United Taconite | Minnesota | 70.0 | %* | Iron Ore |
* | On July 11, 2008 we acquired the remaining 30 percent from minority interest shareholders, with an effective date of July 1, 2008. |
F-63
Table of Contents
Interest | June 30, | December 31, | ||||||||||||||
Investment | Classification | Percentage | 2008 | 2007 | ||||||||||||
(In millions) | ||||||||||||||||
Amapá | Investments in ventures | 30 | $ | 251.8 | $ | 247.2 | ||||||||||
Wabush | Investments in ventures | 27 | 6.7 | 5.8 | ||||||||||||
Cockatoo | Other current liabilities | 50 | (16.6 | ) | (9.9 | ) | ||||||||||
Hibbing(1) | Investments in ventures | 23 | 0.5 | (0.3 | ) | |||||||||||
Other | Investments in ventures | 6.3 | 12.3 | |||||||||||||
$ | 248.7 | $ | 255.1 | |||||||||||||
(1) | Recorded asOther liabilitiesat December 31, 2007. |
F-64
Table of Contents
NOTE 2 — | ACCOUNTING POLICIES |
Three Months | Six Months | |||||||||||||||
Ended | Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Reimbursements for: | ||||||||||||||||
Freight | $ | 24.6 | $ | 21.1 | $ | 41.6 | $ | 33.3 | ||||||||
Venture partners’ cost | 53.7 | 51.9 | 106.2 | 99.0 | ||||||||||||
Total reimbursements | $ | 78.3 | $ | 73.0 | $ | 147.8 | $ | 132.3 | ||||||||
F-65
Table of Contents
F-66
Table of Contents
June 30, 2008 | December 31, 2007 | |||||||||||||||||||||||
Finished | Work-in | Total | Finished | Work-in | Total | |||||||||||||||||||
Goods | Process | Inventory | Goods | Process | Inventory | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
North American Iron Ore | $ | 297.1 | $ | 9.3 | $ | 306.4 | $ | 114.3 | $ | 16.5 | $ | 130.8 | ||||||||||||
North American Coal | 15.4 | 0.9 | 16.3 | 8.3 | 0.8 | 9.1 | ||||||||||||||||||
Asia-Pacific Iron Ore | 38.0 | 92.8 | 130.8 | 30.2 | 71.8 | 102.0 | ||||||||||||||||||
Other | 10.6 | 2.7 | 13.3 | — | — | — | ||||||||||||||||||
Total | $ | 361.1 | $ | 105.7 | $ | 466.8 | $ | 152.8 | $ | 89.1 | $ | 241.9 | ||||||||||||
F-67
Table of Contents
• | 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. |
F-68
Table of Contents
F-69
Table of Contents
NOTE 3 — | MARKETABLE SECURITIES |
June 30, | December 31, | |||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Held to maturity — current | $ | 0.4 | $ | 18.9 | ||||
Held to maturity — non-current | 26.4 | 25.8 | ||||||
26.8 | 44.7 | |||||||
Available for sale — non-current | 76.0 | 29.9 | ||||||
Total | $ | 102.8 | $ | 74.6 | ||||
F-70
Table of Contents
June 30, 2008 | ||||||||||||||||
Amortized | Gross Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(In millions) | ||||||||||||||||
Asset backed securities | $ | 3.3 | $ | — | $ | (0.6 | ) | $ | 2.7 | |||||||
Floating rate notes | 23.5 | — | (0.9 | ) | 22.6 | |||||||||||
Total | $ | 26.8 | $ | — | $ | (1.5 | ) | $ | 25.3 | |||||||
December 31, 2007 | ||||||||||||||||
Amortized | Gross Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(In millions) | ||||||||||||||||
Asset backed securities | $ | 23.1 | $ | — | $ | (1.4 | ) | $ | 21.7 | |||||||
Floating rate notes | 21.6 | — | (0.1 | ) | 21.5 | |||||||||||
Total | $ | 44.7 | $ | — | $ | (1.5 | ) | $ | 43.2 | |||||||
June 30, | December 31, | |||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Asset backed securities: | ||||||||
Within 1 year | $ | 0.4 | $ | 18.9 | ||||
1 to 5 years | 2.9 | 4.2 | ||||||
$ | 3.3 | $ | 23.1 | |||||
Floating rate notes: | ||||||||
Within 1 year | $ | — | $ | — | ||||
1 to 5 years | 23.5 | 21.6 | ||||||
$ | 23.5 | $ | 21.6 | |||||
June 30, 2008 | ||||||||||||||||
Amortized | Gross Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(In millions) | ||||||||||||||||
Equity securities (without contractual maturity) | $ | 41.2 | $ | 34.8 | $ | — | $ | 76.0 |
December 31, 2007 | ||||||||||||||||
Amortized | Gross Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(In millions) | ||||||||||||||||
Equity securities (without contractual maturity) | $ | 14.2 | $ | 15.7 | $ | — | $ | 29.9 |
F-71
Table of Contents
NOTE 4 — | ACQUISITIONS & OTHER INVESTMENTS |
Finalized | Initial | |||||||||||
Allocation | Allocation | Change | ||||||||||
(In millions) | ||||||||||||
ASSETS | ||||||||||||
Current assets | 80.8 | 77.2 | 3.6 | |||||||||
Property, plant and equipment | 156.7 | 133.0 | 23.7 | |||||||||
Mineral rights | 676.5 | 619.9 | 56.6 | |||||||||
Asset held for sale | 14.0 | — | 14.0 | |||||||||
Other assets | 3.7 | 3.6 | 0.1 | |||||||||
Total assets | $ | 931.7 | $ | 833.7 | $ | 98.0 | ||||||
LIABILITIES | ||||||||||||
Current liabilities | 62.5 | 61.3 | 1.2 | |||||||||
Long-term liabilities | 268.0 | 171.2 | 96.8 | |||||||||
Total liabilities | 330.5 | 232.5 | 98.0 | |||||||||
Purchase price | 601.2 | 601.2 | — | |||||||||
F-72
Table of Contents
NOTE 5 — | DEBT AND CREDIT FACILITIES |
F-73
Table of Contents
NOTE 6 — | SEGMENT REPORTING |
F-74
Table of Contents
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||||||||||||||||||
(In millions) | (In millions) | |||||||||||||||||||||||||||||||
Revenues from product sales and services: | ||||||||||||||||||||||||||||||||
North American Iron Ore | $ | 643.4 | 64 | % | $ | 432.8 | 79 | % | $ | 922.2 | 61 | % | $ | 658.0 | 75 | % | ||||||||||||||||
North American Coal | 61.5 | 6 | % | — | 155.4 | 10 | % | — | ||||||||||||||||||||||||
Asia-Pacific Iron Ore | 268.2 | 27 | % | 114.8 | 21 | % | 385.7 | 26 | % | 215.1 | 25 | % | ||||||||||||||||||||
Other | 35.5 | 3 | % | — | 39.8 | 3 | % | — | ||||||||||||||||||||||||
Total revenues from product sales and services for reportable segments | $ | 1,008.6 | 100 | % | $ | 547.6 | 100 | % | $ | 1,503.1 | 100 | % | $ | 873.1 | 100 | % | ||||||||||||||||
Sales margin: | ||||||||||||||||||||||||||||||||
North American Iron Ore | $ | 272.6 | $ | 104.4 | $ | 337.2 | $ | 141.7 | ||||||||||||||||||||||||
North American Coal | (23.0 | ) | — | (25.5 | ) | — | ||||||||||||||||||||||||||
Asia-Pacific Iron Ore | 160.9 | 25.2 | 182.3 | 49.7 | ||||||||||||||||||||||||||||
Other | 15.8 | — | 14.8 | — | ||||||||||||||||||||||||||||
Sales margin | 426.3 | 129.6 | 508.8 | 191.4 | ||||||||||||||||||||||||||||
Other operating income | (16.9 | ) | (13.7 | ) | (56.6 | ) | (30.6 | ) | ||||||||||||||||||||||||
Other income (expense) | (3.2 | ) | 1.3 | (4.8 | ) | 6.9 | ||||||||||||||||||||||||||
Income from continuing operations before income taxes, minority interest and equity loss from ventures | $ | 406.2 | $ | 117.2 | $ | 447.4 | $ | 167.7 | ||||||||||||||||||||||||
Depreciation, depletion and amortization: | ||||||||||||||||||||||||||||||||
North American Iron Ore | $ | 11.2 | $ | 10.2 | $ | 20.9 | $ | 19.8 | ||||||||||||||||||||||||
North American Coal | 14.2 | — | 27.6 | — | ||||||||||||||||||||||||||||
Asia-Pacific Iron Ore | 13.1 | 11.5 | 27.0 | 22.6 | ||||||||||||||||||||||||||||
Other | 1.5 | — | 2.6 | — | ||||||||||||||||||||||||||||
Total depreciation, depletion and amortization | $ | 40.0 | $ | 21.7 | $ | 78.1 | $ | 42.4 | ||||||||||||||||||||||||
Capital additions(1): | ||||||||||||||||||||||||||||||||
North American Iron Ore | $ | 12.4 | $ | 11.6 | $ | 19.5 | $ | 41.2 | ||||||||||||||||||||||||
North American Coal | 8.0 | — | 19.9 | — | ||||||||||||||||||||||||||||
Asia-Pacific Iron Ore | 6.6 | 1.9 | 35.2 | 3.0 | ||||||||||||||||||||||||||||
Other | 7.2 | — | 11.3 | — | ||||||||||||||||||||||||||||
Total capital additions | $ | 34.2 | $ | 13.5 | $ | 85.9 | $ | 44.2 | ||||||||||||||||||||||||
(1) | Includes capital lease additions. |
F-75
Table of Contents
June 30, | December 31, | |||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Segment assets: | ||||||||
North American Iron Ore | $ | 1,521.3 | $ | 968.9 | ||||
North American Coal | 822.8 | 773.2 | ||||||
Asia-Pacific Iron Ore | 1,270.1 | 1,083.8 | ||||||
Other | 432.7 | 249.9 | ||||||
Total assets | $ | 4,046.9 | $ | 3,075.8 | ||||
NOTE 7 — | COMPREHENSIVE INCOME |
Three Months | Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Net Income | $ | 270.2 | $ | 86.9 | $ | 287.2 | $ | 119.4 | ||||||||
Other comprehensive income: | ||||||||||||||||
Unrealized net gain on marketable securities — net of tax | 12.3 | 4.1 | 11.7 | 3.3 | ||||||||||||
Foreign currency translation | 37.1 | 27.7 | 81.0 | 40.4 | ||||||||||||
Amortization of net periodic benefit — net of tax | (23.9 | ) | 4.1 | (20.8 | ) | 6.9 | ||||||||||
Unrealized gain (loss) on interest rate swap — net of tax | 0.9 | — | (0.5 | ) | — | |||||||||||
Unrealized gain on derivative financial instruments | 14.2 | 4.7 | 19.7 | 7.4 | ||||||||||||
Total other comprehensive income | 40.6 | 40.6 | 91.1 | 58.0 | ||||||||||||
Total comprehensive income | $ | 310.8 | $ | 127.5 | $ | 378.3 | $ | 177.4 | ||||||||
F-76
Table of Contents
NOTE 8 — | PENSIONS AND OTHER POSTRETIREMENT BENEFITS |
Three Months | Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2008 | �� | 2007 | 2008 | 2007 | ||||||||||||
(In millions) | ||||||||||||||||
Service cost | $ | 3.3 | $ | 2.6 | $ | 6.3 | $ | 5.3 | ||||||||
Interest cost | 10.4 | 9.9 | 20.5 | 19.9 | ||||||||||||
Expected return on plan assets | (12.2 | ) | (11.7 | ) | (24.6 | ) | (23.5 | ) | ||||||||
Amortization: | ||||||||||||||||
Prior service costs | 1.0 | 1.0 | 1.9 | 1.9 | ||||||||||||
Net actuarial losses | 2.9 | 3.4 | 5.1 | 6.8 | ||||||||||||
Net periodic benefit cost | $ | 5.4 | $ | 5.2 | $ | 9.2 | $ | 10.4 | ||||||||
Three Months | Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Service cost | $ | 0.8 | $ | 0.5 | $ | 1.5 | $ | 0.9 | ||||||||
Interest cost | 4.0 | 3.8 | 7.7 | 7.6 | ||||||||||||
Expected return on plan assets | (2.7 | ) | (2.6 | ) | (5.4 | ) | (5.1 | ) | ||||||||
Amortization: | ||||||||||||||||
Prior service credits | (1.6 | ) | (1.4 | ) | (3.0 | ) | (2.8 | ) | ||||||||
Net actuarial losses | 1.5 | 2.1 | 2.9 | 4.2 | ||||||||||||
Transition asset | (0.8 | ) | — | (1.5 | ) | — | ||||||||||
Net periodic benefit cost | $ | 1.2 | $ | 2.4 | $ | 2.2 | $ | 4.8 | ||||||||
F-77
Table of Contents
NOTE 9 — | ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS |
June 30, | December 31, | |||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Environmental | $ | 13.6 | $ | 12.3 | ||||
Mine closure: | ||||||||
LTVSMC | 21.1 | 22.5 | ||||||
Operating mines: | ||||||||
North American Iron Ore | 62.2 | 61.8 | ||||||
North American Coal | 21.0 | 20.4 | ||||||
Asia-Pacific Iron Ore | 10.5 | 9.5 | ||||||
Other | 3.4 | 4.3 | ||||||
Total mine closure | 118.2 | 118.5 | ||||||
Total environmental and mine closure obligations | 131.8 | 130.8 | ||||||
Less current portion | 6.8 | 7.6 | ||||||
Long term environmental and mine closure obligations | $ | 125.0 | $ | 123.2 | ||||
F-78
Table of Contents
June 30, | December 31, | |||||||
2008 | 2007(1) | |||||||
(In millions) | ||||||||
Asset retirement obligation at beginning of period | $ | 96.0 | $ | 62.7 | ||||
Accretion expense | 4.1 | 6.6 | ||||||
PinnOak acquisition | — | 19.9 | ||||||
Sonoma investment | — | 4.3 | ||||||
Reclassification adjustment | (0.9 | ) | 1.1 | |||||
Exchange rate changes | 0.5 | 0.9 | ||||||
Revision in estimated cash flows | (2.6 | ) | 0.5 | |||||
Asset retirement obligation at end of period | $ | 97.1 | $ | 96.0 | ||||
(1) | Represents a12-month rollforward of our asset retirement obligation at December 31, 2007. |
NOTE 10 — | INCOME TAXES |
(In millions) | ||||
Unrecognized tax benefits balance as of January 1, 2008 | $ | 15.2 | ||
Increases for tax positions in prior years | 3.3 | |||
Increases for tax positions in current year | 17.5 | |||
Settlements | (4.4 | ) | ||
Unrecognized tax benefits balance as of June 30, 2008 | $ | 31.6 | ||
F-79
Table of Contents
NOTE 11 — | FAIR VALUE OF FINANCIAL INSTRUMENTS |
Quoted Prices in Active | Significant Other | Significant | ||||||||||||||
Markets for Identical | Observable | Unobservable | ||||||||||||||
Assets/Liabilities | Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
(In millions) | ||||||||||||||||
Assets: | ||||||||||||||||
Cash equivalents | $ | 170.2 | $ | 28.6 | $ | — | $ | 198.8 | ||||||||
Derivative assets | — | — | 125.8 | 125.8 | ||||||||||||
Marketable securities | 76.0 | — | — | 76.0 | ||||||||||||
Foreign exchange contracts | — | 44.4 | — | 44.4 | ||||||||||||
Total | $ | 246.2 | $ | 73.0 | $ | 125.8 | $ | 445.0 | ||||||||
Liabilities: | ||||||||||||||||
Interest rate swap | $ | — | $ | 2.2 | $ | — | $ | 2.2 | ||||||||
Total | $ | — | $ | 2.2 | $ | — | $ | 2.2 | ||||||||
F-80
Table of Contents
Derivatives Assets | ||||||||
Three Months | Six Months | |||||||
Ended | Ended | |||||||
June 30, | June 30, | |||||||
2008 | 2008 | |||||||
(In millions) | ||||||||
Beginning balance | $ | 63.9 | $ | 53.8 | ||||
Total gains (losses) | ||||||||
Included in earnings | 244.9 | 270.9 | ||||||
Included in other comprehensive income | — | — | ||||||
Settlements | (183.0 | ) | (198.9 | ) | ||||
Transfers in and/or out of Level 3 | — | — | ||||||
Ending balance — June 30, 2008 | $ | 125.8 | $ | 125.8 | ||||
Total gains (losses) for the period included in earnings attributable to the change in unrealized gains or losses on assets still held at June 30, 2008 | $ | 84.3 | $ | 110.3 | ||||
NOTE 12 — | STOCK PLANS |
F-81
Table of Contents
F-82
Table of Contents
Fair Value | ||||||||||||||||||||||||||
(Percent of | ||||||||||||||||||||||||||
Grant/ | Grant/ | |||||||||||||||||||||||||
Grant/ | Modification | Average | Risk-Free | Modification | ||||||||||||||||||||||
Modification | Date Market | Expected | Expected | Interest | Dividend | Date Market | ||||||||||||||||||||
Plan Year | Date | Price(1) | Term (Years) | Volatility | Rate | Yield | Price) | |||||||||||||||||||
2008 | March 10, 2008 | 52.59 | 2.81 | 43.8 | % | 1.93 | % | 0.62 | % | 58.23 | % | |||||||||||||||
2007 | May 12, 2008 | 90.28 | 1.64 | 45.8 | % | 2.22 | % | 0.39 | % | 143.70 | % | |||||||||||||||
2006 | May 12, 2008 | 90.28 | 0.64 | 53.8 | % | 1.86 | % | 0.39 | % | 143.95 | % |
(1) | Adjusted to reflect 2:1 stock split that occurred on May 15, 2008. |
Pre-Modification | ||||||||||||||
Calculation | Pre-Modification | Change in | Revised | |||||||||||
Plan Year | Method(1) | Fair Value | Fair Value | Fair Value | ||||||||||
2006 | Cumulative | $ | 122.55 | $ | 7.18 | $ | 129.73 | |||||||
2006 | Quarterly | 30.45 | 99.28 | 129.73 | ||||||||||
2007 | Cumulative | 128.71 | 1.25 | 129.96 |
(1) | As a result of the choice given to executive officers between the Cumulative and Quarterly methods under the 2006 Plan, the pre-modification fair value for this plan is presented separately for each election. This was not an option under the 2007 plan, and therefore, a single pre-modification fair value is presented. |
NOTE 13 — | CAPITAL STOCK |
F-83
Table of Contents
June 30, | December 31, | |||||||
2008 | 2007 | |||||||
Number of preferred shares at beginning of the period | 134,715 | 172,300 | ||||||
Number of preferred shares converted | 115,160 | 37,585 | ||||||
Number of preferred shares at end of the period | 19,555 | 134,715 | ||||||
Redemption value at end of the period (in millions) | $ | 310.1 | $ | 898.8 | ||||
Number of common shares issued from Treasury upon conversion | 13,718,012 | 4,975,296 |
NOTE 14 — | EARNINGS PER SHARE |
Three Months | Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
(In millions) | ||||||||||||||||
Net income | $ | 270.2 | $ | 86.9 | $ | 287.2 | $ | 119.4 | ||||||||
Preferred stock dividends | 0.4 | 1.4 | 1.3 | 2.8 | ||||||||||||
Income applicable to common shares | $ | 269.8 | $ | 85.5 | $ | 285.9 | $ | 116.6 | ||||||||
Weighted average number of shares: | ||||||||||||||||
Basic | 98.1 | 81.6 | 94.0 | 81.4 | ||||||||||||
Employee stock plans | 0.5 | 0.4 | 0.4 | 0.5 | ||||||||||||
Convertible preferred stock | 6.6 | 22.6 | 10.7 | 22.6 | ||||||||||||
Diluted | 105.2 | 104.6 | 105.1 | 104.5 | ||||||||||||
Earnings per common share — Basic | $ | 2.75 | $ | 1.05 | $ | 3.04 | $ | 1.43 | ||||||||
Earnings per common share — Diluted | $ | 2.57 | $ | 0.83 | $ | 2.73 | $ | 1.14 | ||||||||
NOTE 15 — | CONTINGENCIES |
F-84
Table of Contents
NOTE 16 — | LEASE OBLIGATIONS |
Total | ||||||||
Capital | Operating | |||||||
Leases | Leases | |||||||
(In millions) | ||||||||
2008 (July 1 — December 31) | $ | 7.6 | $ | 10.7 | ||||
2009 | 13.6 | 20.3 | ||||||
2010 | 13.1 | 18.1 | ||||||
2011 | 12.9 | 13.2 | ||||||
2012 | 12.4 | 9.2 | ||||||
2013 and thereafter | 52.3 | 25.6 | ||||||
Total minimum lease payments | 111.9 | $ | 97.1 | |||||
Amounts representing interest | 29.3 | |||||||
Present value of net minimum lease payments | $ | 82.6 | ||||||
NOTE 17 — | CASH FLOW INFORMATION |
Six Months Ended June 30, | ||||||||
2008 | 2007 | |||||||
(In millions) | ||||||||
Capital additions | $ | 85.9 | $ | 44.2 | ||||
Cash paid for capital expenditures | 59.1 | 46.2 | ||||||
Difference | 26.8 | (2.0 | ) | |||||
Non-cash accruals | $ | 3.8 | $ | (2.0 | ) | |||
Capital leases | 23.0 | — | ||||||
Total | $ | 26.8 | $ | (2.0 | ) | |||
F-85
Table of Contents
NOTE 18 — | SUBSEQUENT EVENTS |
F-86
Table of Contents
F-87
Table of Contents
BY AND AMONG
CLEVELAND-CLIFFS INC,
DAILY DOUBLE ACQUISITION, INC.
AND
ALPHA NATURAL RESOURCES, INC.
Table of Contents
Page | ||||||
ARTICLE I | THE MERGER | A-1 | ||||
Section 1.1 | The Merger | A-1 | ||||
Section 1.2 | Closing | A-1 | ||||
Section 1.3 | Effective Time | A-1 | ||||
Section 1.4 | Effects of the Merger | A-2 | ||||
Section 1.5 | Certificate of Incorporation and By-laws | A-2 | ||||
Section 1.6 | Directors and Officers of the Surviving Corporation | A-2 | ||||
Section 1.7 | Tax Consequences | A-2 | ||||
Section 1.8 | Restructuring | A-2 | ||||
ARTICLE II | EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES AND PAYMENT | A-2 | ||||
Section 2.1 | Effect on Capital Stock | A-2 | ||||
Section 2.2 | Exchange of Certificates | A-3 | ||||
Section 2.3 | Certain Adjustments | A-5 | ||||
Section 2.4 | Dissenters’ Rights | A-5 | ||||
Section 2.5 | Further Assurances | A-6 | ||||
Section 2.6 | Withholding Rights | A-6 | ||||
ARTICLE III | REPRESENTATIONS AND WARRANTIES | A-6 | ||||
Section 3.1 | Representations and Warranties of the Company | A-6 | ||||
Section 3.2 | Representations and Warranties of Parent and Merger Sub | A-19 | ||||
ARTICLE IV | COVENANTS RELATING TO CONDUCT OF BUSINESS | A-30 | ||||
Section 4.1 | Conduct of Business | A-30 | ||||
Section 4.2 | No Solicitation by the Company | A-34 | ||||
ARTICLE V | ADDITIONAL AGREEMENTS | A-36 | ||||
Section 5.1 | Preparation of theForm S-4 and the Joint Proxy Statement; Stockholders Meetings | A-36 | ||||
Section 5.2 | Access to Information; Confidentiality | A-37 | ||||
Section 5.3 | Reasonable Best Efforts; Cooperation | A-38 | ||||
Section 5.4 | Stock Options; Restricted Stock and Performance Shares | A-40 | ||||
Section 5.5 | Indemnification | A-41 | ||||
Section 5.6 | Public Announcements | A-42 | ||||
Section 5.7 | NYSE Listing | A-42 | ||||
Section 5.8 | Stockholder Litigation | A-42 | ||||
Section 5.9 | Tax Treatment | A-42 | ||||
Section 5.10 | Standstill Agreements; Confidentiality Agreements | A-42 | ||||
Section 5.11 | Section 16(b) | A-43 | ||||
Section 5.12 | Employee Benefit Matters | A-43 | ||||
Section 5.13 | Actions with Respect to Existing Debt | A-44 | ||||
Section 5.14 | Parent Board of Directors | A-45 | ||||
Section 5.15 | Dissenters’ Rights | A-46 | ||||
Section 5.16 | Company Credit Facility | A-46 |
A-i
Table of Contents
Page | ||||||
ARTICLE VI | CONDITIONS PRECEDENT | A-46 | ||||
Section 6.1 | Conditions to Each Party’s Obligation to Effect the Merger | A-46 | ||||
Section 6.2 | Conditions to Obligations of Parent and Merger Sub | A-47 | ||||
Section 6.3 | Conditions to Obligations of the Company | A-47 | ||||
ARTICLE VII | TERMINATION | A-48 | ||||
Section 7.1 | Termination | A-48 | ||||
Section 7.2 | Effect of Termination | A-49 | ||||
Section 7.3 | Fees and Expenses | A-49 | ||||
ARTICLE VIII | GENERAL PROVISIONS | A-50 | ||||
Section 8.1 | Nonsurvival of Representations and Warranties | A-50 | ||||
Section 8.2 | Notices | A-51 | ||||
Section 8.3 | Interpretation | A-51 | ||||
Section 8.4 | Counterparts | A-53 | ||||
Section 8.5 | Entire Agreement; No Third-Party Beneficiaries | A-53 | ||||
Section 8.6 | Governing Law | A-53 | ||||
Section 8.7 | Assignment | A-53 | ||||
Section 8.8 | Consent to Jurisdiction | A-53 | ||||
Section 8.9 | Specific Enforcement | A-53 | ||||
Section 8.10 | Amendment | A-54 | ||||
Section 8.11 | Extension; Waiver | A-54 | ||||
Section 8.12 | Severability | A-54 |
A-ii
Table of Contents
Term | Page | |||
1992 IEP | A-20 | |||
1996 Directors’ Plan | A-20 | |||
2005 LTIP | A-5 | |||
2007 Incentive Plan | A-20 | |||
ACM 2004 LTIP | A-7 | |||
Acquisition Agreement | A-35 | |||
Adjusted Option | A-40 | |||
affiliate | A-52 | |||
Agreement | A-1 | |||
Antitrust Law | A-46 | |||
Book-Entry Shares | A-3 | |||
Business Day | A-1 | |||
Cash Consideration | A-3 | |||
Certificate of Merger | A-1 | |||
Closing | A-1 | |||
Closing Date | A-1 | |||
Code | A-1 | |||
Company | A-1 | |||
Company Adverse Recommendation Change | A-35 | |||
Company Benefit Plans | A-11 | |||
Company Certificate | A-3 | |||
Company Charter | A-2 | |||
Company Common Stock | A-1 | |||
Company Disclosure Letter | A-6 | |||
Company Employees | A-43 | |||
Company Entities | A-7 | |||
Company ERISA Affiliate | A-11 | |||
Company Intellectual Property | A-17 | |||
Company Leased Real Property | A-16 | |||
Company Leases | A-16 | |||
Company Material Contract | A-18 | |||
Company No Vote Termination Fee | A-50 | |||
Company Owned Real Property | A-16 | |||
Company Person | A-45 | |||
Company Representatives | A-34 | |||
Company SEC Documents | A-8 | |||
Company Stock Options | A-7 | |||
Company Stock Plans | A-7 | |||
Company Stockholder Approval | A-18 | |||
Company Stockholders Meeting | A-37 | |||
Company Subsidiaries | A-7 | |||
Company Takeover Proposal | A-34 | |||
Company Termination Fee | A-49 | |||
Confidentiality Agreement | A-37 | |||
DGCL | A-1 | |||
Directors’ DCP | A-20 | |||
Dissenting Shares | A-5 |
A-iii
Table of Contents
Term | Page | |||
Dissenting Stockholder | A-5 | |||
Effective Time | A-2 | |||
employee | A-13, 25 | |||
Environment | A-15 | |||
Environmental Claim | A-15 | |||
Environmental Condition | A-16 | |||
Environmental Laws | A-15 | |||
Environmental Permit | A-16 | |||
ERISA | A-11 | |||
Exchange Act | A-8 | |||
Exchange Agent | A-3 | |||
Exchange Fund | A-3 | |||
Form S-4 | A-9 | |||
GAAP | A-9 | |||
Governmental Entity | A-8 | |||
Hazardous Substance | A-16 | |||
HSR Act | A-8 | |||
Indemnified Parties | A-41 | |||
Indenture | A-44 | |||
Joint Proxy Statement | A-8 | |||
knowledge | A-52 | |||
Law | A-16 | |||
Liens | A-52 | |||
material adverse change | A-52 | |||
material adverse effect | A-52 | |||
Merger | A-1 | |||
Merger Consideration | A-3 | |||
Merger Sub | A-1 | |||
Multiemployer Plan | A-12 | |||
Multiple Employer Plan | A-12, 25 | |||
Noteholders | A-44 | |||
Notes | A-44 | |||
Notes Consents | A-44 | |||
Notes Offer to Purchase | A-44 | |||
Notes Tender Offer | A-44 | |||
Notes Tender Offer Documents | A-44 | |||
Notice of Adverse Recommendation | A-35 | |||
Outside Date | A-48 | |||
Parent | A-1 | |||
Parent Adverse Recommendation Change | A-37 | |||
Parent Alternative Proposal | A-50 | |||
Parent Benefit Plans | A-23 | |||
Parent Common Stock | A-1 | |||
Parent Disclosure Letter | A-19 | |||
Parent Entities | A-19 | |||
Parent ERISA Affiliate | A-24 | |||
Parent Intellectual Property | A-28 |
A-iv
Table of Contents
Term | Page | |||
Parent Leased Real Property | A-27 | |||
Parent Leases | A-27 | |||
Parent LTIP | A-20 | |||
Parent Material Contract | A-29 | |||
Parent No Vote Termination Fee | A-50 | |||
Parent Owned Real Property | A-27 | |||
Parent Plan | A-43 | |||
Parent SEC Documents | A-21 | |||
Parent Stock Options | A-20 | |||
Parent Stock Plans | A-20 | |||
Parent Stockholder Approval | A-29 | |||
Parent Stockholders Meeting | A-37 | |||
Parent Subsidiaries | A-19 | |||
Parent Termination Fee | A-50 | |||
PCBs | A-16 | |||
Performance Share | A-41 | |||
Permits | A-10 | |||
Post-Closing Tax Period | A-13 | |||
Pre-Closing Tax Period | A-14 | |||
Prior Plan | A-43 | |||
Recent Parent SEC Reports | A-21 | |||
Recent SEC Reports | A-9 | |||
Release | A-16 | |||
Restricted Share | A-41 | |||
Retiree Plan | A-43 | |||
SEC | A-8 | |||
Securities Act | A-8 | |||
Series A-2 Preferred Stock | A-19 | |||
Stock Consideration | A-3 | |||
subsidiary | A-53 | |||
Successor Plan | A-43 | |||
Superior Proposal | A-34 | |||
Supplemental Indenture | A-45 | |||
Surviving Corporation | A-1 | |||
Takeover Statute | A-18 | |||
Tax Certificates | A-39 | |||
Tax Return | A-14 | |||
Taxes | A-14 | |||
TIA | A-44 | |||
Transferee | A-4 |
A-v
Table of Contents
A-1
Table of Contents
A-2
Table of Contents
A-3
Table of Contents
A-4
Table of Contents
A-5
Table of Contents
A-6
Table of Contents
A-7
Table of Contents
A-8
Table of Contents
A-9
Table of Contents
A-10
Table of Contents
A-11
Table of Contents
A-12
Table of Contents
A-13
Table of Contents
A-14
Table of Contents
A-15
Table of Contents
A-16
Table of Contents
A-17
Table of Contents
A-18
Table of Contents
A-19
Table of Contents
A-20
Table of Contents
A-21
Table of Contents
A-22
Table of Contents
A-23
Table of Contents
A-24
Table of Contents
A-25
Table of Contents
A-26
Table of Contents
A-27
Table of Contents
A-28
Table of Contents
A-29
Table of Contents
A-30
Table of Contents
A-31
Table of Contents
A-32
Table of Contents
A-33
Table of Contents
A-34
Table of Contents
A-35
Table of Contents
A-36
Table of Contents
A-37
Table of Contents
A-38
Table of Contents
A-39
Table of Contents
A-40
Table of Contents
A-41
Table of Contents
A-42
Table of Contents
A-43
Table of Contents
A-44
Table of Contents
A-45
Table of Contents
A-46
Table of Contents
A-47
Table of Contents
A-48
Table of Contents
A-49
Table of Contents
A-50
Table of Contents
A-51
Table of Contents
A-52
Table of Contents
A-53
Table of Contents
A-54
Table of Contents
By: | /s/ Joseph A. Carrabba |
By: | /s/ George W. Hawk |
By: | /s/ Michael J. Quillen |
A-55
Table of Contents
B-1
Table of Contents
B-2
Table of Contents
C-1
Table of Contents
/s/ J.P. Morgan Securities Inc. |
C-2
Table of Contents
Appraisal Rights
D-1
Table of Contents
D-2
Table of Contents
D-3
Table of Contents
D-4
Table of Contents
Dissenting shareholders — compliance with section — fair cash value of shares
E-1
Table of Contents
E-2
Table of Contents
E-3
Table of Contents
• | Immediately before the merger takes place, merger sub will be converted from a Delaware corporation to a Delaware limited liability company, Alpha Merger Sub, LLC. | |
• | At the effective time of the merger, Alpha will be merged with and into the merger sub, the separate corporate existence of Alpha will cease, and merger sub will be the surviving entity, which is referred to as the surviving entity. | |
• | At the effective time of the merger, all the property, rights, privileges, powers and franchises of Alpha and merger sub will be vested in the surviving entity, and all debts, liabilities and duties of Alpha and merger sub will become debts, liabilities and duties of the surviving entity. | |
• | The certificate of formation and the limited liability company operating agreement of merger sub will be the certificate of formation and limited liability company operating agreement of the surviving entity. | |
• | The directors of merger sub (as provided for in its limited liability company operating agreement) immediately before the effective time of the merger will be the directors of the surviving entity, until the earlier of their death, resignation or removal or until their respective successors are duly elected and qualified. Alpha’s officers immediately before the effective time of the merger will be appointed as the officers of the surviving entity until the earlier of their death, resignation or removal or until their respective successors are duly elected and qualified. | |
• | At the effective time of the merger, the capital stock of Alpha and the units of limited liability company interest of merger sub will be treated as follows: |
• | Each unit of limited liability company interest of merger sub that is outstanding immediately before the effective time of the merger will remain outstanding as a unit of limited liability company interest of the surviving entity. | |
• | Each share of Alpha common stock that is owned by Cliffs or any of direct or indirect subsidiary of Cliffs or Alpha immediately before the effective time of the merger or held in treasury by Alpha will automatically be cancelled and retired and will cease to exist, with no consideration being exchanged for those shares. | |
• | Each other share of Alpha common stock that is issued and outstanding immediately before the effective time of the merger (other than shares held by Alpha stockholders who have properly demanded appraisal rights) will be converted into the right to receive, without interest and in accordance with the merger agreement, the merger consideration and cash in lieu of fractional common shares of Cliffs, as described in this joint proxy statement/prospectus. |
G-1
Table of Contents
• | At the effective time of the merger, each certificate representing shares of Alpha common stock that has not been surrendered will represent only the right to receive upon surrender of that certificate the merger consideration, dividends and other distributions on common shares of Cliffs with a record date after the effective time of the merger, dividends and other distributions on shares of Alpha common stock with a record date prior to the effective time of the merger that remain unpaid as of the effective time of the merger and cash, without interest, in lieu of fractional shares. Following the effective time of the merger, no further registrations of transfers on the stock transfer books of Alpha or the surviving entity of the shares of Alpha common stock will be made. If, after the effective time of the merger, Alpha stock certificates are presented to Cliffs, the surviving entity or the exchange agent for any reason, they will be cancelled and exchanged as described above. | |
• | The surviving entity, Cliffs or the exchange agent for the merger will be entitled to deduct and withhold from the merger consideration any amounts it is required to deduct and withhold under the Code, or any provision of state, local or foreign tax law. Such amounts, remitted to the appropriate taxing authority, shall be treated as having been paid to the person on whose behalf the withholding was made. |
G-2