Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             .
Commission File Number: 1-8944

CLIFFS NATURAL RESOURCES INC.
(Exact Name of Registrant as Specified in Its Charter)
Ohio
 
34-1464672
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
200 Public Square, Cleveland, Ohio
 
44114-2315
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (216) 694-5700
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES  x                                         NO  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES  x                                         NO  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x             Accelerated filer  o    Non-accelerated filer   o    Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES  o                                         NO  x
The number of shares outstanding of the registrant’s common shares, par value $0.125 per share, was 153,195,289 as of November 3, 2014.


Table of Contents


TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
Page Number
 
 
 
 
 
 
DEFINITIONS
 
 
 
 
 
 
PART I - FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
Statements of Unaudited Condensed Consolidated Operations for the Three and Nine Months Ended September 30, 2014 and 2013
 
 
 
 
Statements of Unaudited Condensed Consolidated Comprehensive Income for the Three and Nine Months Ended September 30, 2014 and 2013
 
 
 
 
Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2014 and December 31, 2013
 
 
 
 
Statements of Unaudited Condensed Consolidated Cash Flows for the Nine Months Ended September 30, 2014 and 2013
 
 
 
 
Notes to Unaudited Condensed Consolidated Financial Statements
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
 
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
Other Information
 
 
 
Item 6.
Exhibits
 
 
 
 
 
 
 
 
Signatures
 
 
 
 
 
 

Table of Contents


DEFINITIONS
The following abbreviations or acronyms are used in the text. References in this report to the “Company,” “we,” “us,” “our” and “Cliffs” are to Cliffs Natural Resources Inc. and subsidiaries, collectively. References to “A$” or “AUD” refer to Australian currency, “C$” or "CAD" to Canadian currency and “$” to United States currency.
Abbreviation or acronym
 
Term
Amapá
 
Anglo Ferrous Amapá Mineração Ltda. and Anglo Ferrous Logística Amapá Ltda.
ArcelorMittal
 
ArcelorMittal (as the parent company of ArcelorMittal Mines Canada, ArcelorMittal USA and ArcelorMittal Dofasco, as well as, many other subsidiaries)
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Updates
Bloom Lake
 
The Bloom Lake Iron Ore Mine Limited Partnership
CEO
 
Chief Executive Officer
Chromite Project
 
Cliffs Chromite Ontario Inc.
CLCC
 
Cliffs Logan County Coal LLC
CODM
 
Chief Operating Decision Maker
CQIM
 
Cliffs Quebec Iron Mining Limited
Dodd-Frank Act
 
Dodd-Frank Wall Street Reform and Consumer Protection Act
EBITDA
 
Earnings before interest, taxes, depreciation and amortization
Empire
 
Empire Iron Mining Partnership
EPA
 
U.S. Environmental Protection Agency
Exchange Act
 
Securities Exchange Act of 1934, as amended
FASB
 
Financial Accounting Standards Board
Fe
 
Iron
FMSH Act
 
Federal Mine Safety and Health Act of 1977
GAAP
 
Accounting principles generally accepted in the United States
GDP
 
Gross Domestic Product
Hibbing
 
Hibbing Taconite Company
ICE Plan
 
Amended and Restated Cliffs 2007 Incentive Equity Plan, as amended
Koolyanobbing
 
Collective term for the operating deposits at Koolyanobbing, Mount Jackson and Windarling
LIBOR
 
London Interbank Offered Rate
LTVSMC
 
LTV Steel Mining Company
MACT
 
Maximum Achievable Control Technology
MMBtu
 
Million British Thermal Units
Moody's
 
Moody's Investors Service, Inc., a subsidiary of Moody's Corporation, and its successors
MRRT
 
Mineral Resources Rent Tax
MSHA
 
U.S. Mine Safety and Health Administration
n/m
 
Not meaningful
Northshore
 
Northshore Mining Company
Oak Grove
 
Oak Grove Resources, LLC
OCI
 
Other comprehensive income (loss)
OPEB
 
Other postretirement employment benefits
Pinnacle
 
Pinnacle Mining Company, LLC
S&P
 
Standard & Poor's Rating Services, a division of Standard & Poor's Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc., and its successors
SEC
 
U.S. Securities and Exchange Commission
Severstal
 
Severstal Dearborn, LLC
Substitute Rating Agency
 
A "nationally recognized statistical rating organization" within the meaning of Section 3 (a)(62) of the Exchange Act, selected by us (as certified by a certificate of officers confirming the decision of our board of directors) as a replacement agency of Moody's or S&P, or both of them, as the case may be
Tilden
 
Tilden Mining Company
TSR
 
Total Shareholder Return
United Taconite
 
United Taconite LLC
U.S.
 
United States of America
VNQDC Plan
 
2005 Voluntary NonQualified Deferred Compensation Plan
VWAP
 
Volume Weighted Average Price
Wabush
 
Wabush Mines Joint Venture
WARN Act
 
Worker Adjustment and Retraining Notification Act
WISCO
 
Wugang Canada Resources Investment Limited, a subsidiary of Wuhan Iron and Steel (Group) Corporation
Worldlink
 
Worldlink Resources Limited
2012 Equity Plan
 
Cliffs Natural Resources Inc. 2012 Incentive Equity Plan
2012 Amended Equity Plan
 
Cliffs Natural Resources Inc. Amended and Restated 2012 Incentive Equity Plan

1
Table of Contents


PART I
Item 1.
Financial Statements
Statements of Unaudited Condensed Consolidated Operations
Cliffs Natural Resources Inc. and Subsidiaries
 
(In Millions, Except Per Share Amounts)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
REVENUES FROM PRODUCT SALES AND SERVICES
 
 
 
 
 
 
 
Product
$
1,190.8

 
$
1,454.6

 
$
3,070.3

 
$
3,928.8

Freight and venture partners' cost reimbursements
107.4

 
92.0

 
268.7

 
246.8


1,298.2

 
1,546.6

 
3,339.0

 
4,175.6

COST OF GOODS SOLD AND OPERATING EXPENSES
(1,170.7
)
 
(1,197.9
)
 
(3,056.3
)
 
(3,320.8
)
SALES MARGIN
127.5

 
348.7

 
282.7

 
854.8

OTHER OPERATING INCOME (EXPENSE)
 
 
 
 
 
 
 
Selling, general and administrative expenses
(62.7
)
 
(70.6
)
 
(166.3
)
 
(167.9
)
Exploration costs
(1.1
)
 
(10.6
)
 
(8.7
)
 
(45.9
)
Impairment of goodwill and other long-lived assets
(7,769.1
)
 
—

 
(7,773.1
)
 
—

Miscellaneous - net
(53.7
)
 
(43.5
)
 
(156.1
)
 
13.3

 
(7,886.6
)
 
(124.7
)
 
(8,104.2
)
 
(200.5
)
OPERATING INCOME (LOSS)
(7,759.1
)
 
224.0

 
(7,821.5
)
 
654.3

OTHER INCOME (EXPENSE)
 
 
 
 
 
 
 
Interest expense, net
(47.4
)
 
(44.7
)
 
(134.9
)
 
(134.5
)
Other non-operating income (expense)
7.1

 
(1.2
)
 
10.5

 
(2.9
)
 
(40.3
)
 
(45.9
)
 
(124.4
)
 
(137.4
)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY LOSS FROM VENTURES
(7,799.4
)
 
178.1

 
(7,945.9
)
 
516.9

INCOME TAX BENEFIT (EXPENSE)
921.4

 
(65.7
)
 
1,012.3

 
(69.0
)
EQUITY LOSS FROM VENTURES, net of tax
(9.2
)
 
(0.5
)
 
(9.8
)
 
(73.9
)
INCOME (LOSS) FROM CONTINUING OPERATIONS
(6,887.2
)
 
111.9

 
(6,943.4
)
 
374.0

INCOME FROM DISCONTINUED OPERATIONS, net of tax
—

 
2.0

 
—

 
2.0

NET INCOME (LOSS)
(6,887.2
)
 
113.9

 
(6,943.4
)
 
376.0

LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTEREST
1,007.6

 
3.3

 
1,004.4

 
(5.8
)
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$
(5,879.6
)
 
$
117.2

 
$
(5,939.0
)
 
$
370.2

PREFERRED STOCK DIVIDENDS
(12.8
)
 
(12.9
)
 
(38.4
)
 
(35.9
)
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS COMMON SHAREHOLDERS
$
(5,892.4
)
 
$
104.3

 
$
(5,977.4
)
 
$
334.3

 
 
 
 
 
 
 
 
EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS - BASIC
 
 
 
 
 
 
 
Continuing operations
$
(38.49
)
 
$
0.67

 
$
(39.05
)
 
$
2.20

Discontinued operations
—

 
0.01

 
—

 
0.01

 
$
(38.49
)
 
$
0.68

 
$
(39.05
)
 
$
2.21

EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS - DILUTED
 
 
 
 
 
 
 
Continuing operations
$
(38.49
)
 
$
0.65

 
$
(39.05
)
 
$
2.13

Discontinued operations
—

 
0.01

 
—

 
0.01

 
$
(38.49
)
 
$
0.66

 
$
(39.05
)
 
$
2.14

AVERAGE NUMBER OF SHARES (IN THOUSANDS)
 
 
 
 
 
 
 
Basic
153,108

 
153,029

 
153,085

 
151,288

Diluted
153,108

 
178,459

 
153,085

 
172,624

CASH DIVIDENDS DECLARED PER DEPOSITARY SHARE
$
0.44

 
$
0.44

 
$
1.32

 
$
1.22

CASH DIVIDENDS DECLARED PER COMMON SHARE
$
0.15

 
$
0.15

 
$
0.45

 
$
0.45

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2
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Statements of Unaudited Condensed Consolidated Comprehensive Income
Cliffs Natural Resources Inc. and Subsidiaries
 
(In Millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$
(5,879.6
)
 
$
117.2

 
$
(5,939.0
)
 
$
370.2

OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
Changes in pension and other post-retirement benefits, net of tax
11.6

 
6.6

 
18.2

 
20.8

Unrealized net gain (loss) on marketable securities, net of tax
(5.8
)
 
4.4

 
(5.6
)
 
7.6

Unrealized net gain (loss) on foreign currency translation
(65.9
)
 
22.8

 
(5.7
)
 
(124.9
)
Unrealized net gain (loss) on derivative financial instruments, net of tax
(20.6
)
 
28.3

 
6.2

 
(23.1
)
OTHER COMPREHENSIVE INCOME (LOSS)
(80.7
)
 
62.1

 
13.1

 
(119.6
)
OTHER COMPREHENSIVE INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTEREST
(0.5
)
 
(0.9
)
 
(1.6
)
 
(3.2
)
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$
(5,960.8
)
 
$
178.4

 
$
(5,927.5
)
 
$
247.4

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3
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Statements of Unaudited Condensed Consolidated Financial Position
Cliffs Natural Resources Inc. and Subsidiaries
 
(In Millions)
 
September 30,
2014
 
December 31,
2013
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
244.0

 
$
335.5

Accounts receivable, net
166.2

 
270.0

Inventories
516.7

 
391.4

Supplies and other inventories
202.2

 
216.0

Income tax receivable
25.4

 
74.1

Other current assets
206.1

 
273.0

TOTAL CURRENT ASSETS
1,360.6

 
1,560.0

PROPERTY, PLANT AND EQUIPMENT, NET
3,207.9

 
11,153.4

OTHER ASSETS
242.7

 
408.5

TOTAL ASSETS
$
4,811.2

 
$
13,121.9

(continued)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4
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Statements of Unaudited Condensed Consolidated Financial Position
Cliffs Natural Resources Inc. and Subsidiaries - (Continued)
 
(In Millions)
 
September 30,
2014
 
December 31,
2013
LIABILITIES
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable
$
295.8

 
$
345.5

Accrued expenses
325.5

 
392.7

Short-term debt and current portion of long-term debt
234.7

 
20.9

Other current liabilities
262.3

 
326.4

TOTAL CURRENT LIABILITIES
1,118.3

 
1,085.5

PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES
230.0

 
294.0

ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
305.4

 
309.7

DEFERRED INCOME TAXES
26.0

 
1,146.5

LONG-TERM DEBT
3,012.5

 
3,022.6

OTHER LIABILITIES
296.3

 
379.3

TOTAL LIABILITIES
4,988.5

 
6,237.6

COMMITMENTS AND CONTINGENCIES (SEE NOTE 18)

 

EQUITY
 
 
 
CLIFFS SHAREHOLDERS' EQUITY
 
 
 
Preferred Stock - no par value
 
 
 
Class A - 3,000,000 shares authorized
 
 
 
7% Series A Mandatory Convertible, Class A, no par value and $1,000 per share liquidation preference (See Note 14)
 
 
 
Issued and Outstanding - 731,223 shares (2013 - 731,250 shares)
731.3

 
731.3

Class B - 4,000,000 shares authorized
 
 
 
Common Shares - par value $0.125 per share
 
 
 
Authorized - 400,000,000 shares (2013 - 400,000,000 shares);
 
 
 
Issued - 159,546,224 shares (2013 - 159,546,224 shares);
 
 
 
Outstanding - 153,162,348 shares (2013 - 153,126,291 shares)
19.8

 
19.8

Capital in excess of par value of shares
2,312.2

 
2,329.5

Retained earnings (deficit)
(2,639.6
)
 
3,407.3

Cost of 6,383,876 common shares in treasury (2013 - 6,419,933 shares)
(291.6
)
 
(305.5
)
Accumulated other comprehensive loss
(101.4
)
 
(112.9
)
TOTAL CLIFFS SHAREHOLDERS' EQUITY
30.7

 
6,069.5

NONCONTROLLING INTEREST
(208.0
)
 
814.8

TOTAL EQUITY
(177.3
)
 
6,884.3

TOTAL LIABILITIES AND EQUITY
$
4,811.2

 
$
13,121.9

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Statements of Unaudited Condensed Consolidated Cash Flows
Cliffs Natural Resources Inc. and Subsidiaries
 
(In Millions)
 
Nine Months Ended
September 30,
 
2014
 
2013
OPERATING ACTIVITIES
 
 
 
Net income (loss)
$
(6,943.4
)
 
$
376.0

Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
 
 
 
Depreciation, depletion and amortization
430.4

 
438.0

Impairment of goodwill and other long-lived assets
7,773.1

 
—

Deferred income taxes
(1,080.7
)
 
(39.5
)
Other
(22.6
)
 
3.8

Changes in operating assets and liabilities:
 
 
 
Receivables and other assets
98.9

 
36.2

Product inventories
(129.2
)
 
(10.8
)
Payables and accrued expenses
(22.5
)
 
(117.8
)
Net cash provided by operating activities
104.0

 
685.9

INVESTING ACTIVITIES
 
 
 
Purchase of property, plant and equipment
(233.2
)
 
(742.2
)
Other investing activities
25.3

 
7.8

Net cash used by investing activities
(207.9
)
 
(734.4
)
FINANCING ACTIVITIES
 
 
 
Net proceeds from issuance of Series A, Mandatory Convertible Preferred Stock, Class A
—

 
709.4

Net proceeds from issuance of common shares
—

 
285.3

Repayment of term loan
—

 
(847.1
)
Borrowings under credit facilities
918.5

 
567.0

Repayment under credit facilities
(705.1
)
 
(512.0
)
Common stock dividends
(69.5
)
 
(68.8
)
Preferred stock dividends
(38.4
)
 
(23.0
)
Other financing activities
(88.1
)
 
51.2

Net cash provided by financing activities
17.4

 
162.0

EFFECT OF EXCHANGE RATE CHANGES ON CASH
(5.0
)
 
(9.9
)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(91.5
)
 
103.6

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
335.5

 
195.2

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
244.0

 
$
298.8

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
See NOTE 19 - CASH FLOW INFORMATION.

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Cliffs Natural Resources Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with SEC rules and regulations and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments) necessary to present fairly, the financial position, results of operations, comprehensive income and cash flows for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. The results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of results to be expected for the year ending December 31, 2014 or any other future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2013.
Basis of Consolidation
The unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly-owned and majority-owned subsidiaries, including the following operations:
Name
 
Location
 
Ownership Interest
 
Operation
Northshore
 
Minnesota
 
100.0%
 
Iron Ore
United Taconite
 
Minnesota
 
100.0%
 
Iron Ore
Wabush
 
Newfoundland and Labrador/ Quebec, Canada
 
100.0%
 
Iron Ore
Bloom Lake
 
Quebec, Canada
 
82.8%
 
Iron Ore
Tilden
 
Michigan
 
85.0%
 
Iron Ore
Empire
 
Michigan
 
79.0%
 
Iron Ore
Koolyanobbing
 
Western Australia
 
100.0%
 
Iron Ore
Pinnacle
 
West Virginia
 
100.0%
 
Coal
Oak Grove
 
Alabama
 
100.0%
 
Coal
CLCC
 
West Virginia
 
100.0%
 
Coal
Intercompany transactions and balances are eliminated upon consolidation.
Also included in our consolidated results are Cliffs Chromite Ontario Inc. and Cliffs Chromite Far North Inc. Cliffs Chromite Ontario Inc. holds a 100 percent interest in each of the Black Label and Black Thor chromite deposits and, together with Cliffs Chromite Far North Inc., a 70 percent interest in the Big Daddy chromite deposit, all located in northern Ontario, Canada.

7
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Equity Method Investments
Investments in unconsolidated ventures that we have the ability to exercise significant influence over, but not control, are accounted for under the equity method. The following table presents the detail of our investments in unconsolidated ventures and where those investments are classified in the Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2014 and December 31, 2013. Parentheses indicate a net liability.
 
 
 
 
 
 
 
 
(In Millions)
Investment
 
Classification
 
Accounting
Method
 
Interest
Percentage
 
September 30,
2014
 
December 31, 2013
Hibbing
 
Other non-current assets1
 
Equity Method
 
23%
 
$
8.1

 
$
(3.9
)
Other
 
Other non-current assets
 
Equity Method
 
Various
 
24.4

 
34.7

 
 
 
 
 
 
 
 
$
32.5

 
$
30.8

                                         
1 At December 31, 2013, the classification for Hibbing was Other liabilities.
Significant Accounting Policies
A detailed description of our significant accounting policies can be found in the audited financial statements for the fiscal year ended December 31, 2013 included in our Annual Report on Form 10-K filed with the SEC. The significant accounting policies requiring updates have been included within the disclosures below.
Foreign Currency
Our financial statements are prepared with the U.S. dollar as the reporting currency. The functional currency of the Company’s Australian subsidiaries is the Australian dollar. The functional currency of all other international subsidiaries is the U.S. dollar. The financial statements of international subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and a weighted average exchange rate for each period for revenues, expenses, gains and losses. Where the local currency is the functional currency, translation adjustments are recorded as Accumulated other comprehensive loss. Income taxes generally are not provided for foreign currency translation adjustments. To the extent that monetary assets and liabilities, inclusive of intercompany notes, are recorded in a currency other than the functional currency, these amounts are remeasured each reporting period, with the resulting gain or loss being recorded in the Statements of Unaudited Condensed Consolidated Operations. Transaction gains and losses resulting from remeasurement of short-term intercompany loans are included in Miscellaneous - net in our Statements of Unaudited Condensed Consolidated Operations. For the three and nine months ended September 30, 2014, net gains of $26.4 million and $8.4 million, respectively, related to the impact of transaction gains and losses resulting from remeasurement. Of these transaction gains and losses, for the three months ended September 30, 2014, gains of $17.7 million and $9.6 million, respectively, and for the nine months ended September 30, 2014 gains of $4.7 million and $4.5 million, respectively, resulted from remeasurement of short-term intercompany loans and cash and cash equivalents. For the three and nine months ended September 30, 2013, a net loss of $14.1 million and a net gain of $36.5 million, respectively, related to the impact of transaction gains and losses resulting from remeasurement. Of these transaction gains and losses, for the three months ended September 30, 2013 losses of $4.5 million and $4.3 million, respectively, and for the nine months ended September 30, 2013 gains of $23.8 million and $7.4 million, respectively, resulted from remeasurement of short-term intercompany loans and cash and cash equivalents.
Recent Accounting Pronouncements
Issued and Not Effective
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern. ASU 2014-15 will explicitly require management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Specifically, ASU 2014-15 provides a definition of the term "substantial doubt" and requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). It also requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans and requires an express statement and other disclosures when substantial doubt is not alleviated. The new standard will be effective for all entities in the first annual period ending after December 15, 2016 and allows for either a full retrospective or modified retrospective transition method. Earlier adoption is permitted.

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We are currently evaluating the impact the adoption of the guidance will have on the Statements of Unaudited Condensed Consolidated Financial Position, Statements of Unaudited Condensed Consolidated Operations or Statements of Unaudited Condensed Consolidated Cash Flows. 
In June 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers.  The new revenue guidance broadly replaces the revenue guidance provided throughout the Codification.  The core principle of the revenue guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.  The new revenue guidance also requires the capitalization of certain contract acquisition costs.  Reporting entities must provide new disclosures providing qualitative and quantitative information on the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.  New disclosures also include qualitative and quantitative information on significant judgments, changes in judgments, and contract acquisition assets.  The update is effective for annual periods and interim periods within those annual periods beginning after December 15, 2016 and may be adopted either retrospectively or retrospectively with the cumulative effect.  Earlier adoption is not permitted. We are still evaluating the impact of the updated guidance on the Statements of Unaudited Condensed Consolidated Financial Position, Statements of Unaudited Condensed Consolidated Operations or Statements of Unaudited Condensed Consolidated Cash Flows. 
NOTE 2 - SEGMENT REPORTING
Our Company’s primary operations are organized and managed according to product category and geographic location: U.S. Iron Ore, Eastern Canadian Iron Ore, Asia Pacific Iron Ore, North American Coal, Ferroalloys and our Global Exploration Group. The U.S. Iron Ore segment is comprised of our interests in five U.S. mines that provide iron ore to the integrated steel industry. The Eastern Canadian Iron Ore segment is comprised of two Eastern Canadian mines that primarily provide iron ore to the seaborne market for Asian steel producers. The Asia Pacific Iron Ore segment is located in Western Australia and provides iron ore to the seaborne market for Asian steel producers. The North American Coal segment is comprised of our four metallurgical coal mines and one thermal coal mine that provide metallurgical coal primarily to the integrated steel industry and thermal coal primarily to the energy industry. There were no intersegment revenues in the first nine months of 2014 or 2013.
The Ferroalloys operating segment is comprised of our interests in chromite deposits held in northern Ontario, Canada and the Global Exploration Group is focused on early involvement in exploration activities to identify new projects for future development or projects that add significant value to existing operations. The Ferroalloys and Global Exploration Group operating segments do not meet reportable segment disclosure requirements and, therefore, are not reported separately. In alignment with our capital allocation strategy, we anticipate decreased levels of exploration spending in our Global Exploration Group and Ferroalloys operation segments throughout 2014 and beyond.

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We have historically evaluated segment performance based on sales margin, defined as revenues less cost of goods sold, and operating expenses identifiable to each segment. Additionally, beginning in the third quarter of 2014, concurrent with the change in control on July 29, 2014, management began to evaluate segment performance based on EBITDA, defined as Net Income (Loss) before interest, income taxes, depreciation, depletion and amortization and Adjusted EBITDA, defined as EBITDA excluding certain items such as impairment charges, impacts of permanently idled or closed facilities, foreign currency remeasurement, severance and other costs associated with the change in control, litigation judgments and intersegment corporate allocations of SG&A costs. Management uses and believes that investors benefit from referring to these measures in evaluating operating and financial results, as well as in planning, forecasting and analyzing future periods as these financial measures approximate the cash flows associated with the operational earnings. The following tables present a summary of our reportable segments for the three and nine months ended September 30, 2014 and 2013, including a reconciliation of segment sales margin to Income (Loss) from Continuing Operations Before Income Taxes and Equity Loss from Ventures and a reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA:
 
(In Millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Revenues from product sales and services:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Iron Ore
$
767.4

 
59
%
 
$
782.4

 
51
%
 
$
1,643.3

 
49
%
 
$
1,894.2

 
45
%
Eastern Canadian Iron Ore
148.0

 
11
%
 
284.2

 
18
%
 
480.3

 
15
%
 
743.4

 
18
%
Asia Pacific Iron Ore
212.3

 
17
%
 
301.7

 
20
%
 
699.6

 
21
%
 
899.5

 
22
%
North American Coal
170.5

 
13
%
 
178.3

 
11
%
 
515.8

 
15
%
 
638.5

 
15
%
Total revenues from product sales and services
$
1,298.2

 
100
%
 
$
1,546.6

 
100
%
 
$
3,339.0

 
100
%
 
$
4,175.6

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales margin:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Iron Ore
$
219.5

 
 
 
$
273.5

 
 
 
$
461.7

 
 
 
$
647.1

 
 
Eastern Canadian Iron Ore
(76.8
)
 
 
 
(22.0
)
 
 
 
(165.0
)
 
 
 
(52.3
)
 
 
Asia Pacific Iron Ore
9.1

 
 
 
99.0

 
 
 
111.4

 
 
 
255.3

 
 
North American Coal
(24.3
)
 
 
 
(1.8
)
 
 
 
(125.4
)
 
 
 
6.6

 
 
Other
—

 
 
 
—

 
 
 
—

 
 
 
(1.9
)
 
 
Sales margin
127.5

 
 
 
348.7

 
 
 
282.7

 
 
 
854.8

 
 
Other operating expense
(7,886.6
)
 
 
 
(124.7
)
 
 
 
(8,104.2
)
 
 
 
(200.5
)
 
 
Other expense
(40.3
)
 
 
 
(45.9
)
 
 
 
(124.4
)
 
 
 
(137.4
)
 
 
Income (loss) from continuing operations before income taxes and equity loss from ventures
$
(7,799.4
)
 
 
 
$
178.1

 
 
 
$
(7,945.9
)
 
 
 
$
516.9

 
 

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(In Millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss)
$
(6,887.2
)
 
 
 
$
113.9

 
 
 
$
(6,943.4
)
 
 
 
$
376.0

 
 
Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
(47.4
)
 
 
 
(44.7
)
 
 
 
(134.9
)
 
 
 
(134.5
)
 
 
Income tax benefit (expense)
921.4

 
 
 
(65.7
)
 
 
 
1,012.3

 
 
 
(69.0
)
 
 
Depreciation, depletion and amortization
(144.0
)
 
 
 
(153.1
)
 
 
 
(430.4
)
 
 
 
(438.0
)
 
 
EBITDA
$
(7,617.2
)
 
 
 
$
377.4

 
 
 
$
(7,390.4
)
 
 
 
$
1,017.5

 
 
Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairment of goodwill and other long-lived assets
$
(7,769.1
)
 
 
 
$
—

 
 
 
$
(7,773.1
)
 
 
 
$
—

 
 
Wabush related costs
(64.0
)
 
 
 
(13.0
)
 
 
 
(122.3
)
 
 
 
(2.3
)
 
 
Wabush sales margin
(20.0
)
 
 
 
(1.3
)
 
 
 
(47.5
)
 
 
 
(44.2
)
 
 
Foreign exchange remeasurement
26.4

 
 
 
(14.1
)
 
 
 
8.4

 
 
 
36.5

 
 
Proxy contest and change in control costs in SG&A
(21.9
)
 
 
 
—

 
 
 
(26.2
)
 
 
 
—

 
 
Litigation judgment
—

 
 
 
(9.6
)
 
 
 
—

 
 
 
(9.6
)
 
 
Severance in SG&A
(1.9
)
 
 
 
(8.1
)
 
 
 
(12.6
)
 
 
 
(8.1
)
 
 
Adjusted EBITDA
$
233.3

 
 
 
$
423.5

 
 
 
$
582.9

 
 
 
$
1,045.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Iron Ore
$
242.1

 
 
 
$
296.9

 
 
 
$
538.4

 
 
 
$
715.9

 
 
Eastern Canadian Iron Ore
(6,423.2
)
 
 
 
(43.8
)
 
 
 
(6,537.6
)
 
 
 
(9.6
)
 
 
Asia Pacific Iron Ore
(330.9
)
 
 
 
138.1

 
 
 
(148.7
)
 
 
 
367.6

 
 
North American Coal
(827.5
)
 
 
 
31.0

 
 
 
(875.6
)
 
 
 
85.4

 
 
Other
(277.7
)
 
 
 
(44.8
)
 
 
 
(366.9
)
 
 
 
(141.8
)
 
 
Total EBITDA
$
(7,617.2
)
 
 
 
$
377.4

 
 
 
$
(7,390.4
)
 
 
 
$
1,017.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Iron Ore
$
248.7

 
 
 
$
305.0

 
 
 
$
556.1

 
 
 
$
738.0

 
 
Eastern Canadian Iron Ore
(33.2
)
 
 
 
(8.6
)
 
 
 
(49.3
)
 
 
 
50.0

 
 
Asia Pacific Iron Ore
46.1

 
 
 
140.9

 
 
 
234.5

 
 
 
375.5

 
 
North American Coal
6.1

 
 
 
37.4

 
 
 
(32.2
)
 
 
 
103.2

 
 
Other
(34.4
)
 
 
 
(51.2
)
 
 
 
(126.2
)
 
 
 
(221.5
)
 
 
Total Adjusted EBITDA
$
233.3

 
 
 
$
423.5

 
 
 
$
582.9

 
 
 
$
1,045.2

 
 

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(In Millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Depreciation, depletion and amortization:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Iron Ore
$
25.9

 
 
 
$
27.3

 
 
 
$
81.2

 
 
 
$
82.3

 
 
Eastern Canadian Iron Ore
43.6

 
 
 
46.8

 
 
 
127.2

 
 
 
130.3

 
 
Asia Pacific Iron Ore
42.2

 
 
 
38.0

 
 
 
123.6

 
 
 
116.1

 
 
North American Coal
30.3

 
 
 
38.8

 
 
 
92.2

 
 
 
99.7

 
 
Other
2.0

 
 
 
2.2

 
 
 
6.2

 
 
 
9.6

 
 
Total depreciation, depletion and amortization
$
144.0

 
 
 
$
153.1

 
 
 
$
430.4

 
 
 
$
438.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital additions1:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Iron Ore
$
8.5

 
 
 
$
15.2

 
 
 
$
37.4

 
 
 
$
39.1

 
 
Eastern Canadian Iron Ore
37.9

 
 
 
181.5

 
 
 
112.2

 
 
 
535.3

 
 
Asia Pacific Iron Ore
3.1

 
 
 
10.4

 
 
 
8.3

 
 
 
8.6

 
 
North American Coal
4.6

 
 
 
2.0

 
 
 
24.8

 
 
 
37.2

 
 
Other
0.5

 
 
 
2.2

 
 
 
3.3

 
 
 
4.9

 
 
Total capital additions
$
54.6

 
 
 
$
211.3

 
 
 
$
186.0

 
 
 
$
625.1

 
 
                                         
1    Includes capital lease additions and non-cash accruals. Refer to NOTE 19 - CASH FLOW INFORMATION.
A summary of assets by segment is as follows:
 
(In Millions)
 
September 30,
2014
 
December 31, 2013
Assets:
 
 
 
U.S. Iron Ore
$
1,715.8

 
$
1,671.6

Eastern Canadian Iron Ore
1,113.2

 
7,915.5

Asia Pacific Iron Ore
577.2

 
1,078.4

North American Coal
904.0

 
1,841.8

Other
217.0

 
455.6

Total segment assets
4,527.2

 
12,962.9

Corporate
284.0

 
159.0

Total assets
$
4,811.2

 
$
13,121.9


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NOTE 3 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The following table presents the fair value of our derivative instruments and the classification of each in the Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2014 and December 31, 2013:
 
(In Millions)
 
Derivative Assets
 
Derivative Liabilities
 
September 30, 2014
 
December 31, 2013
 
September 30, 2014
 
December 31, 2013
Derivative Instrument
Balance Sheet Location
 
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
Derivatives designated as hedging instruments under ASC 815:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Swaps
 
 
$
—

 
 
 
$
—

 
 
 
$
—

 
Other current liabilities
 
$
2.1

Foreign Exchange Contracts
 
 
—

 
Other current assets
 
0.3

 
Other current liabilities
 
17.4

 
Other current liabilities
 
25.8

Total derivatives designated as hedging instruments under ASC 815
 
 
$
—

 
 
 
$
0.3

 
 
 
$
17.4

 
 
 
$
27.9

Derivatives not designated as hedging instruments under ASC 815:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign Exchange Contracts
 
 
$
—

 
 
 
$
—

 
 
 
$
—

 
Other current liabilities
 
$
1.1

Customer Supply Agreement
Other current assets
 
54.5

 
Other current assets
 
55.8

 
 
 
—

 
 
 
—

Provisional Pricing Arrangements
 
 
—

 
Other current assets
 
3.1

 
Other current liabilities
 
23.3

 
Other current liabilities
 
10.3

Total derivatives not designated as hedging instruments under ASC 815
 
 
$
54.5

 
 
 
$
58.9

 
 
 
$
23.3

 
 
 
$
11.4

Total derivatives
 
 
$
54.5

 
 
 
$
59.2

 
 
 
$
40.7

 
 
 
$
39.3

Derivatives Designated as Hedging Instruments
Cash Flow Hedges
Australian and Canadian Dollar Foreign Exchange Contracts
We are subject to changes in foreign currency exchange rates as a result of our operations in Australia and Canada. With respect to Australia, foreign exchange risk arises from our exposure to fluctuations in foreign currency exchange rates because the functional currency of our Asia Pacific operations is the Australian dollar. Our Asia Pacific operations receive funds in U.S. currency for their iron ore sales. The functional currency of our Canadian operations is the U.S. dollar; however, the production costs for these operations primarily are incurred in the Canadian dollar.
We use foreign currency exchange contracts to hedge our foreign currency exposure for a portion of our U.S. dollar sales receipts in our Australian functional currency entities and our entities with Canadian dollar operating costs. For our Australian operations, U.S. dollars are converted to Australian dollars at the currency exchange rate in effect during the period the transaction occurred. For our Canadian operations, U.S. dollars are converted to Canadian dollars at the exchange rate in effect for the period the operating costs are incurred. The primary objective for the use of these instruments is to reduce exposure to changes in currency exchange rates and to protect against undue adverse movement in these exchange rates. These instruments qualify for hedge accounting treatment and are tested for effectiveness at inception and at least once each reporting period. If and when any of our hedge contracts are determined not to be highly effective as hedges, the underlying hedged transaction is no longer likely to occur, or the derivative is terminated, hedge accounting is discontinued.

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As of September 30, 2014, we had outstanding Australian and Canadian foreign currency exchange contracts with notional amounts of $285.0 million and $257.4 million, respectively, in the form of forward contracts with varying maturity dates ranging from October 2014 to September 2015. This compares with outstanding Australian and Canadian foreign currency exchange contracts with a notional amount of $323.0 million and $285.9 million, respectively, as of December 31, 2013.
Changes in fair value of highly effective hedges are recorded as a component of Accumulated other comprehensive loss in the Statements of Unaudited Condensed Consolidated Financial Position. Any ineffectiveness is recognized immediately in income and, as of September 30, 2014 and 2013, there was no material ineffectiveness recorded for foreign exchange contracts that were classified as cash flow hedges. However, certain Canadian hedge contracts were deemed ineffective during the fourth quarter of 2013 and no longer qualified for hedge accounting treatment. All of these de-designated hedges settled and were no longer outstanding by June 30, 2014. The de-designated hedges are discussed within the Derivatives Not Designated as Hedging Instruments section of this footnote. Amounts recorded as a component of Accumulated other comprehensive loss are reclassified into earnings in the same period the forecasted transactions affect earnings. Of the amounts remaining in Accumulated other comprehensive loss related to Australian hedge contracts and Canadian hedge contracts, we estimate that losses of $7.4 million and losses of $5.0 million (net of tax), respectively, will be reclassified into earnings within the next 12 months.
The following summarizes the effect of our derivatives designated as cash flow hedging instruments, net of tax in Accumulated other comprehensive loss in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2014 and 2013:
 
(In Millions)
Derivatives in Cash Flow Hedging Relationships
Amount of Gain (Loss)
Recognized in OCI on Derivatives
 
Location of Gain (Loss)
Reclassified
from Accumulated OCI into Earnings
 
Amount of Gain (Loss)
Reclassified
from Accumulated
OCI into Earnings
(Effective Portion)
 
(Effective Portion)
 
(Effective Portion)
 
Three Months Ended
September 30,
 
 
 
Three Months Ended
September 30,
 
2014
 
2013
 
 
 
2014
 
2013
Australian Dollar Foreign
Exchange Contracts
(hedge designation)
$
(12.6
)
 
$
2.9

 
Product revenues
 
$
1.6

 
$
(8.9
)
Canadian Dollar Foreign Exchange Contracts (hedge designation)
(7.4
)
 
9.2

 
Cost of goods sold and operating expenses
 
(1.0
)
 
(7.3
)
Canadian Dollar Foreign Exchange Contracts
(prior to de-designation)
—

 
—

 
Cost of goods sold and operating expenses
 
—

 
—

Total
$
(20.0
)
 
$
12.1

 
 
 
$
0.6

 
$
(16.2
)
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
September 30,
 
 
 
Nine Months Ended
September 30,
 
2014
 
2013
 
 
 
2014
 
2013
Australian Dollar Foreign
Exchange Contracts
(hedge designation)
$
(3.4
)
 
$
(25.2
)
 
Product revenues
 
$
(11.2
)
 
$
(4.5
)
Canadian Dollar Foreign Exchange Contracts
    (hedge designation)
(9.2
)
 
(9.9
)
 
Cost of goods sold and operating expenses
 
(7.1
)
 
(7.5
)
Canadian Dollar Foreign Exchange Contracts
(prior to de-designation)
—

 
—

 
Cost of goods sold and operating expenses
 
(0.5
)
 
—

 
$
(12.6
)
 
$
(35.1
)
 
 
 
$
(18.8
)
 
$
(12.0
)

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Fair Value Hedges
Interest Rate Hedges
Our fixed-to-variable interest rate swap derivative instruments, with a notional amount of $250.0 million, were de-designated and settled during August 2014. Prior to settlement, the derivatives were designated and qualified as fair value hedges. The objective of the hedges was to offset changes in the fair value of our debt instruments associated with fluctuations in the benchmark LIBOR interest rate as part of our risk management strategy.
Prior to de-designation and settlement, when the interest rate swap derivative instruments were designated and qualified as fair-value hedges, the gain or loss on the hedge instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk were recognized in net income. We included the gain or loss on the derivative instrument and the offsetting loss or gain on the hedged item in Other non-operating income (expense). The net gains recognized in Other non-operating income (expense) for the three and nine months ended September 30, 2014 were $0.1 million and $0.3 million, respectively.
For the period ended September 30, 2013, the fixed-to-variable interest rate swap derivative instruments were designated and qualified as fair-value hedges. The gain or loss on the hedge instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk was recognized in net income. We included the gain or loss on the derivative instrument and the offsetting loss or gain on the hedged item in Other non-operating income (expense). The net gain recognized in Other non-operating income (expense) for both the three and nine months ended September 30, 2013 was $0.1 million.
Derivatives Not Designated as Hedging Instruments
Foreign Exchange Contracts
During the fourth quarter of 2013, we discontinued hedge accounting for Canadian foreign currency exchange contracts for all outstanding contracts associated with the Wabush operation and the Ferroalloys operating segment as projected future cash flows were no longer considered probable, but we continued to hold these instruments as economic hedges to manage currency risk. Subsequent to de-designation, no further foreign currency exchange contracts were entered into for the Wabush operation or the Ferroalloys operating segment. As of September 30, 2014, there were no outstanding de-designated foreign currency exchange rate contracts as all remaining de-designated foreign exchange contracts matured during the second quarter of 2014. This compares with outstanding de-designated foreign currency exchange contracts with a notional amount of $74.8 million as of December 31, 2013.
As a result of discontinued hedge accounting, the instruments were prospectively adjusted to fair value each reporting period through Cost of goods sold and operating expenses on the Statements of Unaudited Condensed Consolidated Operations. For the nine months ended September 30, 2014, the change in fair value of our de-designated foreign currency exchange contracts resulted in net losses of $3.3 million. For the three months ended September 30, 2014, there were no changes in fair value of our de-designated foreign currency exchange contracts as all the remaining contracts had matured during the second quarter of 2014. The amounts that were previously recorded as a component of Accumulated other comprehensive loss prior to de-designation were reclassified to earnings and a corresponding realized gain or loss was recognized when the forecasted cash flow occurred. For the nine months ended September 30, 2014, we reclassified losses of $0.5 million from Accumulated other comprehensive loss related to contracts that matured during the period, and recorded the amounts as Cost of goods sold and operating expenses on the Statements of Unaudited Condensed Consolidated Operations. For the three months ended September 30, 2014 there were no amounts reclassified from Accumulated other comprehensive loss related to contracts that matured during the period as all the remaining contracts matured during the second quarter of 2014 and as of the period ended June 30, 2014, no gains or losses remained in Accumulated other comprehensive loss related to the effective cash flow hedge contracts prior to de-designation.
Customer Supply Agreements
Most of our U.S. Iron Ore long-term supply agreements are comprised of a base price with annual price adjustment factors. The base price is the primary component of the purchase price for each contract. The indexed price adjustment factors are integral to the iron ore supply contracts and vary based on the agreement, but typically include adjustments based upon changes in the Platts 62 percent Fe fines spot price and/or international pellet prices and changes in specified Producer Price Indices, including those for all commodities, industrial commodities, energy and steel. The pricing adjustments generally operate in the same manner, with each factor typically comprising a portion of the price adjustment, although the weighting of each factor varies based upon the specific terms of each agreement. In most cases, these adjustment factors have not been finalized at the time our product is sold. In these cases, we historically have estimated

15
Table of Contents


the adjustment factors at each reporting period based upon the best third-party information available. The estimates are then adjusted to actual when the information has been finalized. The price adjustment factors have been evaluated to determine if they contain embedded derivatives. The price adjustment factors share the same economic characteristics and risks as the host contract and are integral to the host contract as inflation adjustments; accordingly, they have not been separately valued as derivative instruments.
A certain supply agreement with one U.S. Iron Ore customer provides for supplemental revenue or refunds to the customer based on the customer’s average annual steel pricing at the time the product is consumed in the customer’s blast furnace. The supplemental pricing is characterized as a freestanding derivative and is required to be accounted for separately once the product is shipped. The derivative instrument, which is finalized based on a future price, is adjusted to fair value as a revenue adjustment each reporting period until the pellets are consumed and the amounts are settled.
We recognized $62.6 million and $124.6 million as Product revenues in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2014, respectively, related to the supplemental payments. This compares with Product revenues of $53.9 million and $113.4 million for the comparable respective periods in 2013. Derivative assets, representing the fair value of the pricing factors, were $54.5 million and $55.8 million in the September 30, 2014 and December 31, 2013 Statements of Unaudited Condensed Consolidated Financial Position, respectively.
Provisional Pricing Arrangements
Certain of our U.S. Iron Ore, Eastern Canadian Iron Ore and Asia Pacific Iron Ore customer supply agreements specify provisional price calculations, where the pricing mechanisms generally are based on market pricing, with the final revenue rate to be based on market inputs at a specified period in time in the future, per the terms of the supply agreements. The difference between the provisionally agreed-upon price and the estimated final revenue rate is characterized as a freestanding derivative and is required to be accounted for separately once the provisional revenue has been recognized. The derivative instrument is adjusted to fair value through Product revenues each reporting period based upon current market data and forward-looking estimates provided by management until the final revenue rate is determined. At September 30, 2014 we recorded no Other current assets related to our estimate of the final revenue rate with any of our customers. At December 31, 2013, we recorded $3.1 million as Other current assets in the Statements of Unaudited Condensed Consolidated Financial Position related to our estimate of the final revenue rate with our U.S. Iron Ore, Eastern Canadian Iron Ore and Asia Pacific Iron Ore customers. At September 30, 2014 and December 31, 2013, we recorded $23.3 million and $10.3 million, respectively, as Other current liabilities in the Statements of Unaudited Condensed Consolidated Financial Position related to our estimate of the final revenue rate with our U.S. Iron Ore, Eastern Canadian Iron Ore and Asia Pacific Iron Ore customers. These amounts represent the difference between the provisional price agreed upon with our customers based on the supply agreement terms and our estimate of the final revenue rate based on the price calculations established in the supply agreements. As a result, we recognized a net $3.1 million decrease and a net $23.3 million decrease in Product revenues in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2014, respectively, related to these arrangements. This compares with a net $24.3 million increase and a net $6.8 million decrease in Product revenues for the comparable respective periods in 2013.

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The following summarizes the effect of our derivatives that are not designated as hedging instruments in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2014 and 2013:
(In Millions)
Derivatives Not Designated as Hedging Instruments
Location of Gain (Loss) Recognized in
Income on Derivative
Amount of Gain (Loss) Recognized in Income on Derivative
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2014
 
2013
 
2014
 
2013
Foreign Exchange Contracts
Cost of goods sold and operating expenses
$
—

 
$
—

 
$
(3.3
)
 
$
—

Commodity Contracts
Other non-operating income (expense)
—

 
(2.7
)
 
—

 
(2.7
)
Customer Supply Agreement
Product revenues
62.6

 
53.9

 
124.6

 
113.4

Provisional Pricing Arrangements
Product revenues
(3.1
)
 
24.3

 
(23.3
)
 
(6.8
)
 
 
$
59.5

 
$
75.5

 
$
98.0

 
$
103.9

Refer to NOTE 7 - FAIR VALUE MEASUREMENTS for additional information.
NOTE 4 - INVENTORIES
The following table presents the detail of our Inventories in the Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2014 and December 31, 2013:
 
(In Millions)
 
September 30, 2014
 
December 31, 2013
Segment
Finished Goods
 
Work-in Process
 
Total Inventory
 
Finished Goods
 
Work-in
Process
 
Total
Inventory
U.S. Iron Ore
$
279.5

 
$
23.5

 
$
303.0

 
$
92.1

 
$
13.0

 
$
105.1

Eastern Canadian Iron Ore
18.2

 
15.8

 
34.0

 
65.3

 
48.1

 
113.4

Asia Pacific Iron Ore
25.8

 
85.1

 
110.9

 
39.7

 
50.6

 
90.3

North American Coal
52.7

 
16.1

 
68.8

 
59.4

 
23.2

 
82.6

Total
$
376.2

 
$
140.5

 
$
516.7

 
$
256.5

 
$
134.9

 
$
391.4

We recorded lower-of-cost-or-market inventory charges of $5.0 million and $42.1 million in Cost of goods sold and operating expenses in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2014, respectively, for our North American Coal operations. The charges at North American Coal were a result of market pricing declines during the periods. For the three and nine months ended September 30, 2013, we recorded lower-of-cost-or-market inventory charges of $2.6 million and $5.3 million, respectively, for our North American Coal operations. These charges were a result of market pricing declines and costs associated with operational and geological issues.
We recorded lower-of-cost-or-market inventory charges of $2.6 million and $18.6 million in Cost of goods sold and operating expenses in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2014, respectively, for our Eastern Canadian Iron Ore operations. The $2.6 million charge in the third quarter of 2014 is a result of declines in Platts 62 percent Fe fines spot pricing which resulted in a $1.9 million charge for Bloom Lake and is related to a $0.7 million adjustment of the remaining Wabush mine inventory to estimated net realizable value. The charges in the first half of 2014 at Eastern Canadian Iron Ore were a result of declines in Platts 62 percent Fe fines spot pricing and higher inventory costs at both Bloom Lake and Wabush.  Bloom Lake’s higher inventory costs were driven by the timing of maintenance activities and mine development, whereas Wabush’s higher inventory costs were driven by unfavorable production performance up to the idling of the Scully mine operation and adjusting the inventory to estimated net realizable value.

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We recorded a lower-of-cost-or-market inventory charge during the third quarter of 2013 of $5.9 million relating to concentrate inventory primarily driven by extended maintenance shutdowns that resulted in higher costs and reduced fixed-cost leverage. We recorded these charges in Cost of goods sold and operating expenses in the Statements of Unaudited Condensed Consolidated Operations for our Eastern Canadian Iron Ore operations. For the nine months ended September 30, 2013, the lower-of-cost-or-market inventory charge recorded was $10.6 million concentrate inventory. During the first half of 2013, the Wabush concentrate inventory charge was caused by higher costs as a result of transitioning into concentrate-only production and the forest fire that temporarily idled the mine in June.
Additionally, as a result of the idling of our Wabush pellet plant during the second quarter of 2013, we recorded a lower-of-cost-or-market inventory charge during the second quarter of 2013 of $11.1 million relating to Wabush pellets that were contractually committed tons and we recorded an unsaleable inventory impairment charge relating to Wabush pellets of $10.6 million as a result of our idling of the Wabush pellet plant during the second quarter of 2013. All of these charges recorded during the second quarter of 2013 were included in Cost of goods sold and operating expenses in the Statements of Unaudited Condensed Consolidated Operations for the nine months September 30, 2013 for our Eastern Canadian Iron Ore operations.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
The following table indicates the value of each of the major classes of our consolidated depreciable assets as of September 30, 2014 and December 31, 2013:
 
(In Millions)
 
September 30,
2014
 
December 31, 2013
Land rights and mineral rights
$
1,947.6

 
$
7,819.6

Office and information technology
80.7

 
125.7

Buildings
88.9

 
255.2

Mining equipment
1,399.5

 
1,819.3

Processing equipment
361.9

 
2,148.6

Electric power facilities
57.4

 
114.3

Port facilities
27.6

 
99.4

Interest capitalized during construction
18.8

 
23.8

Land improvements
32.5

 
69.3

Other
65.5

 
104.4

Construction in-progress
94.1

 
991.3

 
4,174.5

 
13,570.9

Accumulated depreciation and depletion
(966.6
)
 
(2,417.5
)
 
$
3,207.9

 
$
11,153.4

We recorded depreciation and depletion expense of $141.3 million and $422.1 million in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2014, respectively. This compares with depreciation and depletion expense of $148.3 million and $423.1 million for the three and nine months ended September 30, 2013, respectively.
At September 30, 2014, there was no accumulated amount of capitalized interest included within construction in-progress. At December 31, 2013, $31.4 million of capitalized interest was included within construction in-progress, of which $17.4 million was capitalized during 2013.
At September 30, 2014, we determined that indicators of impairment with respect to certain of our long-lived assets and asset groups existed at September 30, 2014. Our asset groups generally consist of the assets and liabilities of one or more mines, preparation plants and associated reserves for which the lowest level of identifiable cash flows are largely independent of cash flows of other mines, preparation plants and associated reserves and resources. Refer to NOTE 7 - FAIR VALUE MEASUREMENTS for further discussion of the impairment indicators.

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As a result of these assessments, we determined that the cash flows associated with our Eastern Canadian Iron Ore, Asia Pacific Iron Ore, North American Coal and Ferroalloys asset groups were not sufficient to support the recoverability of the carrying value of these productive assets. Accordingly, during the third quarter of 2014, an other long-lived asset impairment charge of $7,674.3 million was recorded as Impairment of goodwill and other long-lived assets in the Statements of Unaudited Condensed Consolidated Operations related to property, plant and equipment. The fair value estimates were calculated primarily using an income approach. Refer to NOTE 7 - FAIR VALUE MEASUREMENTS for further discussion of these impairments and related fair value estimates.
NOTE 6 - GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES
Goodwill
The following table summarizes changes in the carrying amount of goodwill allocated by operating segment for the nine months ended September 30, 2014 and the year ended December 31, 2013:
 
(In Millions)
 
September 30, 2014
 
December 31, 2013
 
U.S. Iron Ore
 
Eastern Canadian Iron Ore
 
Asia Pacific
Iron Ore
 
North American Coal
 
Other
 
Total
 
U.S. Iron Ore
 
Eastern
Canadian Iron Ore
 
Asia Pacific Iron Ore
 
North American Coal
 
Other
 
Total
Beginning Balance
$
2.0

 
$
—

 
$
72.5

 
$
—

 
$
—

 
$
74.5

 
$
2.0

 
$
—

 
$
84.5

 
$
—

 
$
80.9

 
$
167.4

Arising in business combinations
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Impairment
—

 
—

 
(73.5
)
 
—

 
—

 
(73.5
)
 
—

 
—

 
—

 
—

 
(80.9
)
 
(80.9
)
Impact of foreign currency translation
—

 
—

 
1.0

 
—

 
—

 
1.0

 
—

 
—

 
(12.0
)
 
—

 
—

 
(12.0
)
Ending Balance
$
2.0

 
$
—

 
$
—

 
$
—

 
$
—

 
$
2.0

 
$
2.0