Cleveland-Cliffs Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

STOCK COMPENSATION PLANS

Year of Grant

Restricted Shares

Deferred Shares

STOCK COMPENSATION PLANS

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

NOTE 9 - STOCK COMPENSATION PLANS

At December 31, 2019, we had outstanding awards under various share-based compensation plans, which are described below. The following table summarizes the share-based compensation expense that we recorded in continuing operations:



	(In Millions, except per share amounts)
	2019			2018		2017
Cost of goods sold and operating expenses	$	2.0		$	1.7	$	1.9
Selling, general and administrative expenses	15.6			13.4		16.3
Reduction of operating income from continuing operations before income taxes	17.6			15.1		18.2
Income tax benefit¹	(3.7		)	—		—
Reduction of net income from continuing operations attributable to Cliffs shareholders	$	13.9		$	15.1	$	18.2
Reduction of continuing operations earnings per common share attributable to Cliffs shareholders:
Basic	$	0.05		$	0.05	$	0.06
Diluted	$	0.05		$	0.05	$	0.06

¹No income tax benefit in 2018 and 2017 due to the full valuation allowance.

Employees’ Plans

The A&R 2015 Equity Plan was approved by our Board of Directors on February 21, 2017 and by our shareholders on April 25, 2017. The A&R 2015 Equity Plan increased the maximum number of shares that may be issued by 15.0 million common shares.

Following is a summary of approved grants by the Compensation Committee:



Grant Year	Vesting Date	Plan Issued Under	Restricted Stock Units Granted	Performance Shares Granted
2019	12/31/2021	A&R 2015 Equity Plan	572,104	572,104
2018	12/31/2020	A&R 2015 Equity Plan	685,599	675,599
2017	12/31/2019	A&R 2015 Equity Plan	532,358	249,106
2017	12/31/2019	Amended 2015 Equity Plan	553,725	553,725

Performance Shares

The outstanding performance shares vest over a period of three years and are intended to be paid out in common shares. Performance is measured on the basis of relative TSR for the period and measured against the constituents of the S&P Metals and Mining ETF Index at the beginning of the relevant performance period. The final payout for the outstanding performance period grants will vary from 0% to 200% of the original grant depending on whether and to what extent the Company achieves certain objectives and performance goals as established by the Compensation Committee.

Following is a summary of our performance share award agreements outstanding as of December 31, 2019:



Performance Share Plan Year	Performance Shares Granted	Forfeitures to Date	Expected to Vest	Grant Date	Grant Date Fair Value		Performance Period
2019	572,104	15,879	556,225	2/19/2019	$	18.31	1/1/2019 - 12/31/2021
2018	675,599	35,320	640,279	2/21/2018	$	11.93	1/1/2018 - 12/31/2020
2017	249,106	—	249,106	6/26/2017	$	10.74	5/31/2017 - 12/31/2019
2017	553,725	63,457	490,268	2/21/2017	$	19.69	1/1/2017 - 12/31/2019

The performance shares granted on February 21, 2017 were paid at 161.2% of the original grant based on the final performance evaluation versus the performance goals that were established in the grants. The performance shares granted on June 26, 2017 were paid at 200.0%.

Restricted Stock Units

All of the outstanding restricted stock units are subject to continued employment, are retention based, and are payable in common shares or cash in certain circumstances at a time determined by the Compensation Committee at its discretion. The restricted stock units that were granted in 2017 vested on December 31, 2019. The restricted stock units that were granted in 2019 and 2018 cliff vest in three years on December 31, 2021 and December 31, 2020, respectively.

Stock Options

The 412,710 stock options that were granted during the first quarter of 2015 vested on December 31, 2017, are exercisable at a strike price of $7.70 and expire on January 12, 2025. The 250,000 stock options that were granted in the fourth quarter of 2014 vested in equal thirds on each of December 31, 2015, 2016 and 2017 and are exercisable at a strike price of $13.83 and expire on November 17, 2021. As of December 31, 2019, 563,230 stock options remain outstanding and are exercisable with a weighted average price of $10.42.

Employee Stock Purchase Plan

On March 26, 2015, upon recommendation by the Compensation Committee, our Board of Directors approved and adopted, subject to the approval of Cliffs' shareholders at the 2015 Annual Meeting, the Cliffs Natural Resources Inc. 2015 Employee Stock Purchase Plan. This plan was approved by our shareholders at the 2015 Annual Meeting held May 19, 2015. Ten million common shares have been reserved for issuance under this plan; however, as of December 31, 2019, this program has not been made active and no common shares have been purchased. We sought shareholder approval of this plan for the purpose of qualifying the reserved common shares for special tax treatment under Section 423 of the IRC of 1986, as amended.

Nonemployee Directors

Our nonemployee directors are entitled to receive restricted share awards under the Directors’ Plan. For 2019, 2018 and 2017, nonemployee directors were granted a specified number of restricted shares, with a value equal to $100,000. The number of shares is based on the closing price of our common shares on the date of the Annual Meeting. The awards are subject to any deferral election and pursuant to the terms of the Directors’ Plan and an award agreement.

On April 23, 2018, our Governance and Nominating Committee of the Board of Directors approved the acceleration of vesting of the restricted share awards granted to the nonemployee directors prior to April 2018, which were generally subject to a vesting period of three years. Effective April 30, 2018 and under the terms of the Directors' Plan, the vesting of these outstanding awards was accelerated. The Governance and Nominating Committee also approved a change to the vesting period for all future awards under the Directors' Plan. The nonemployee director restricted share awards granted on April 25, 2018 and all future awards are subject to a vesting period of one year.

For the last three years, grants of restricted and/or deferred shares have been awarded to elected or re-elected nonemployee directors as follows:

Other Information

Stock option, restricted awards and performance share activity under our long-term equity plans and Directors’ Plans are as follows:



	2019		2018		2017
	Shares		Shares		Shares
Stock options:
Outstanding at beginning of year	563,230		599,870		599,870
Exercised	—		(36,640	)	—
Forfeited/canceled	—		—		—
Outstanding at end of year	563,230		563,230		599,870
Restricted awards:
Outstanding and restricted at beginning of year	4,804,248		4,776,483		5,461,783
Granted during the year	682,240		795,487		1,196,731
Vested and issued	(3,168,195	)	(627,567	)	(1,813,315	)
Forfeited/canceled	(60,974	)	(140,155	)	(68,716	)
Outstanding and restricted at end of year	2,257,319		4,804,248		4,776,483
Performance shares:
Outstanding at beginning of year	1,424,723		1,848,312		1,368,469
Granted during the year	572,104		675,599		802,831
Vested and issued	—		(489,953	)	—
Forfeited/canceled	(60,949	)	(609,235	)	(322,988	)
Outstanding at end of year	1,935,878		1,424,723		1,848,312
Vested or expected to vest as of December 31, 2019¹	4,756,427
Directors’ retainer and voluntary shares:
Outstanding at beginning of year	—		—		—
Granted during the year	31,075		27,300		25,476
Vested and issued	(31,075	)	(27,300	)	(25,476	)
Outstanding at end of year	—		—		—
Reserved for future grants or awards at end of year:
Employee plans	9,931,740
Directors’ plans	389,692
Total	10,321,432

¹ We assume all shares will vest until the date of vesting or forfeiture.

A summary of our outstanding share-based award activity for the year ended December 31, 2019 is as follows:



	Shares		Weighted Average Grant Date Fair Value
Outstanding, beginning of year	6,792,201		$	6.90
Granted	1,285,419		$	14.18
Vested and issued	(3,199,270	)	$	2.20
Forfeited/canceled	(121,923	)	$	12.21
Outstanding, end of year	4,756,427		$	11.90

The total compensation cost related to outstanding awards not yet recognized is $16.0 million at December 31, 2019. The weighted average remaining period for the awards outstanding at December 31, 2019 is approximately 1.2 years.