Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v2.4.1.9
INCOME TAXES
 12 Months Ended
Dec. 31, 2014
Income Tax Disclosure [Abstract]  
Income Taxes
NOTE 9 - INCOME TAXES
Income (Loss) from Continuing Operations Before Income Taxes and Equity Income (Loss) from Ventures includes the following components:
 
 
(In Millions)
 
 
2014
 
2013
 
2012
United States
 
$
(1,884.2
)
 
$
837.7

 
$
838.6

Foreign
 
(7,719.5
)
 
(348.4
)
 
(1,340.4
)
 
 
$
(9,603.7
)
 
$
489.3

 
$
(501.8
)

The components of the provision (benefit) for income taxes on continuing operations consist of the following:
 
 
(In Millions)
 
 
2014
 
2013
 
2012
Current provision (benefit):
 
 
 
 
 
 
United States federal
 
$
(159.9
)
 
$
101.3

 
$
71.1

United States state & local
 
(0.6
)
 
4.0

 
7.6

Foreign
 
17.2

 
87.9

 
50.2

 
 
(143.3
)
 
193.2

 
128.9

Deferred provision (benefit):
 
 
 
 
 
 
United States federal
 
(258.9
)
 
23.3

 
221.2

United States state & local
 
(43.0
)
 
3.0

 
1.4

Foreign
 
(856.8
)
 
(164.4
)
 
(95.6
)
 
 
(1,158.7
)
 
(138.1
)
 
127.0

Total provision on income (loss) from continuing
    operations
 
$
(1,302.0
)
 
$
55.1

 
$
255.9


Reconciliation of our income tax attributable to continuing operations computed at the U.S. federal statutory rate is as follows:
 
 
(In Millions)
 
 
2014
 
2013
 
2012
Tax at U.S. statutory rate of 35 percent
 
$
(3,361.3
)
 
35.0
 %
 
$
171.3

 
35.0
 %
 
$
(175.6
)
 
35.0
 %
Increase (decrease) due to:
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange remeasurement
 
(4.1
)
 
—

 
(2.6
)
 
(0.5
)
 
62.3

 
(12.4
)
Non-taxable income related to noncontrolling interests
 
290.1

 
(3.0
)
 
(1.5
)
 
(0.3
)
 
61.0

 
(12.0
)
Impact of tax law change
 
13.0

 
(0.1
)
 
—

 
—

 
(357.1
)
 
71.2

Percentage depletion in excess of cost depletion
 
(87.9
)
 
0.9

 
(97.6
)
 
(19.9
)
 
(109.1
)
 
21.7

Impact of foreign operations
 
592.0

 
(6.2
)
 
(10.2
)
 
(2.1
)
 
65.2

 
(13.0
)
Income not subject to tax
 
(46.5
)
 
0.5

 
(106.6
)
 
(21.8
)
 
(108.0
)
 
21.5

Goodwill impairment
 
22.7

 
(0.2
)
 
20.5

 
4.2

 
202.2

 
(40.3
)
State taxes, net
 
(43.6
)
 
0.5

 
5.6

 
1.1

 
7.3

 
(1.5
)
Settlement of financial guaranty
 
(343.3
)
 
3.6

 
—

 
—

 
—

 
—

Manufacturer’s deduction
 
—

 
—

 
(7.9
)
 
(1.6
)
 
(4.7
)
 
0.9

Valuation allowance
 
1,660.6

 
(17.3
)
 
73.0

 
14.9

 
634.5

 
(126.5
)
Tax uncertainties
 
0.2

 
—

 
19.6

 
5.3

 
(14.8
)
 
2.9

Prior year adjustment in current year
 
(10.4
)
 
0.1

 
(11.4
)
 
(3.6
)
 
(5.7
)
 
1.1

Other items — net
 
16.5

 
(0.2
)
 
2.9

 
0.6

 
(1.6
)
 
0.4

Income tax (benefit) expense
 
$
(1,302.0
)
 
13.6
 %
 
$
55.1

 
11.3
 %
 
$
255.9

 
(51.0
)%

The components of income taxes for other than continuing operations consisted of the following:
 
 
(In Millions)
 
 
2014
 
2013
 
2012
Other comprehensive (income) loss:
 
 
 
 
 
 
Pension/OPEB liability
 
$
39.8

 
$
100.0

 
$
13.8

Mark-to-market adjustments
 
3.6

 
2.0

 
1.7

Other
 
(1.1
)
 
(12.4
)
 
2.6

Total
 
$
42.3

 
$
89.6

 
$
18.1

 
 
 
 
 
 
 
Paid in capital — acquisition of noncontrolling interest
 
$
—

 
$
102.1

 
$
—

Paid in capital — stock based compensation
 
$
(4.8
)
 
$
3.5

 
$
(12.8
)
Discontinued Operations
 
$
—

 
$
(2.0
)
 
$
10.4


Significant components of our deferred tax assets and liabilities as of December 31, 2014 and 2013 are as follows:
 
 
(In Millions)
 
 
2014
 
2013
Deferred tax assets:
 
 
 
 
Pensions
 
$
108.3

 
$
88.4

MRRT starting base allowance
 
—

 
300.3

Postretirement benefits other than pensions
 
63.0

 
58.0

Alternative minimum tax credit carryforwards
 
267.7

 
299.2

Investments in ventures
 
6.0

 
—

Asset retirement obligations
 
48.9

 
61.7

Operating loss carryforwards
 
1,083.5

 
524.4

Product inventories
 
32.3

 
16.4

Property, plant and equipment and mineral rights
 
901.6

 
56.0

State and local
 
41.9

 
—

Lease liabilities
 
14.1

 
31.9

Other liabilities
 
153.6

 
138.3

Total deferred tax assets before valuation allowance
 
2,720.9

 
1,574.6

Deferred tax asset valuation allowance
 
(2,224.5
)
 
(864.1
)
Net deferred tax assets
 
496.4

 
710.5

Deferred tax liabilities:
 

 

Property, plant and equipment and mineral rights
 
(20.0
)
 
(1,400.8
)
Investment in ventures
 
(198.0
)
 
(196.4
)
Intangible assets
 
(7.3
)
 
(33.5
)
Income tax uncertainties
 
(49.5
)
 
(48.5
)
Product inventories
 
(16.6
)
 
(12.8
)
Other assets
 
(80.2
)
 
(93.0
)
Total deferred tax liabilities
 
(371.6
)
 
(1,785.0
)
Net deferred tax assets (liabilities)
 
$
124.8

 
$
(1,074.5
)

The deferred tax amounts are classified in the Statements of Consolidated Financial Position as current or long-term consistently with the underlying asset or liability that generates the basis difference between financial reporting and tax. Following is a summary:
 
 
(In Millions)
 
 
2014
 
2013
Deferred tax assets:
 
 
 
 
United States
 
$
165.9

 
$
7.2

Foreign
 
 
 
 
Current
 
2.2

 
29.4

Long-term
 
12.0

 
41.5

Total deferred tax assets
 
180.1

 
78.1

Deferred tax liabilities:
 
 
 
 
United States
 
—

 
175.3

Foreign
 
 
 
 
Current
 
4.0

 
6.1

Long-term
 
51.3

 
971.2

Total deferred tax liabilities
 
55.3

 
1,152.6

Net deferred tax assets (liabilities)
 
$
124.8

 
$
(1,074.5
)

At December 31, 2014 and 2013, we had $267.7 million and $299.2 million, respectively, of gross deferred tax assets related to U.S. alternative minimum tax credits that can be carried forward indefinitely.
We had gross domestic (including states) and foreign net operating loss carryforwards of $1.9 billion, and $6.0 billion, respectively, at December 31, 2014. We had gross state and foreign net operating loss carryforwards at December 31, 2013 of $157.9 million and $3.5 billion, respectively. The U.S. Federal net operating losses will begin to expire in 2035 and state net operating losses will begin to expire in 2019. The foreign net operating losses will begin to expire in 2015. We had foreign tax credit carryforwards of $5.8 million at December 31, 2014 and December 31, 2013. The foreign tax credit carryforwards will begin to expire in 2020. Additionally, there is a net operating loss carryforward of $540.7 million for Alternative Minimum Tax. No benefit has been recorded in the financials for this attribute as ASC 740 does not allow for the recording of deferred taxes under alternative taxing systems. However, the future economic realizable benefit for this attribute is expected to be approximately $108.1 million.
We recorded a $1,361.0 million net increase in the valuation allowance of certain deferred tax assets where management believes that realization of the related deferred tax assets is not more likely than not. Of this amount, a $18.2 million increase relates to ordinary losses of certain state operations for which future utilization is currently uncertain, a $291.0 million decrease relates to the reversal of our valuation allowance on MRRT tax credits due to the repeal of the MRRT legislation, and a $28.6 million decrease relates to the change in available Alternative Minimum Tax credits after carryback of current year losses. A $1,273.2 million increase relates to foreign deferred tax assets that management has determined it is more likely than not that the assets will not be realized. A $402.5 million increase relates to U.S. regular tax net operating losses where it has been determined that the full benefit of these losses will not be realized as we are perpetual Alternative Minimum taxpayers.
At December 31, 2014, we had no cumulative undistributed earnings of foreign subsidiaries included in consolidated retained earnings. At December 31, 2013, cumulative undistributed earnings of foreign subsidiaries included in consolidated retained earnings amounted to $1.2 billion. The change in undistributed earnings resulted from transactions executed during 2014 which triggered the realization of losses with respect to the value in our investment in Cliffs Quebec Iron Mines. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of earnings.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
 
 
 
(In Millions)
 
 
2014
 
2013
 
2012
Unrecognized tax benefits balance as of January 1
 
$
74.4

 
$
55.5

 
$
102.1

Increases for tax positions in prior years
 
3.4

 
13.6

 
2.7

Increases for tax positions in current year
 
2.5

 
5.3

 
11.1

Increase due to foreign exchange
 
(0.2
)
 
—

 
—

Settlements
 
(0.5
)
 
—

 
(60.4
)
Lapses in statutes of limitations
 
(3.7
)
 
—

 
—

Other
 
(1.2
)
 
—

 
—

Unrecognized tax benefits balance as of December 31
 
$
74.7

 
$
74.4

 
$
55.5


At December 31, 2014 and 2013, we had $74.7 million and $74.4 million, respectively, of unrecognized tax benefits recorded. Of this amount, $25.2 million and $25.9 million were recorded in Other liabilities and $49.5 million and $48.5 million were recorded as Other non-current assets in the Statements of Consolidated Financial Position for both years. If the $74.7 million were recognized, the full amount would impact the effective tax rate. We do not expect that the amount of unrecognized tax benefits will change significantly within the next twelve months. At December 31, 2014 and 2013, we had $2.1 million and $1.2 million, respectively, of accrued interest and penalties related to the unrecognized tax benefits recorded in Other liabilities in the Statements of Consolidated Financial Position.
On July 18, 2013, the FASB issued Accounting Standards Update No. 2013-11. Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (ASU 2013-11). ASU 2013-11 requires the netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions except where the deferred tax asset or other carryforward are not available for use. The adoption of the pronouncement does not have an impact in the presentation of our financial statement.
Tax years that remain subject to examination are years 2010 and forward for the U.S., 2006 and forward for Canada, and 2007 and forward for Australia.