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 (loss) 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 months ended
March 31, 2018
are not necessarily indicative of results to be expected for the year ending
December 31, 2018
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, 2017
.
On January 25, 2018, we announced that we would accelerate the projected time frame for the planned closure of our Asia Pacific Iron Ore mining operations in Australia. On April 6, 2018, we committed to a course of action expected to lead to the permanent closure of the Asia Pacific Iron Ore mining operations and expect our final Asia Pacific Iron Ore shipment to occur by June 30, 2018. Factors considered in this decision include increasingly discounted prices for lower-iron-content ore, the quality of the remaining iron ore reserves and the lack of a legitimate offer from a qualified buyer. As a result, we recorded various adjustments to
Inventories
,
Property, Plant and Equipment
,
Environmental and mine closure obligations
and
Supplies and other inventories
consistent with our current mine plan. Refer to
NOTE 5 - INVENTORIES
,
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
and
NOTE 13 - ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
for further information.
We report our results from continuing operations in two reportable segments: U.S. Iron Ore and Asia Pacific Iron Ore.
Basis of Consolidation
The
unaudited condensed consolidated financial statements
include our accounts and the accounts of our wholly-owned subsidiaries, including the following operations as of
March 31, 2018
:
|
|
|
|
|
|
Name
|
|
Location
|
|
Status of Operations
|
Northshore
|
|
Minnesota
|
|
Active
|
United Taconite
|
|
Minnesota
|
|
Active
|
Tilden
|
|
Michigan
|
|
Active
|
Empire
|
|
Michigan
|
|
Indefinitely Idled
|
Koolyanobbing
1
|
|
Western Australia
|
|
Active
|
|
|
|
|
|
1
On April 6, 2018, we committed to a course of action expected to lead to the permanent closure of the Asia Pacific Iron Ore mining operations and expect our final Asia Pacific Iron Ore shipment to occur by June 30, 2018.
|
Intercompany transactions and balances are eliminated upon consolidation.
Equity Method Investments
Our
23%
ownership interest in Hibbing is recorded as an equity method investment. As of
March 31, 2018
and
December 31, 2017
, our investment in Hibbing was
$7.3 million
and
$11.0 million
, respectively, classified as
Other liabilities
in the
Statements of Unaudited Condensed Consolidated Financial Position
.
Foreign Currency
Our financial statements are prepared with the U.S. dollar as the reporting currency. The functional currency of our Australian subsidiaries is the Australian dollar. The functional currency of all other international subsidiaries is the U.S. dollar. The financial statements of our Australian 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. 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, including short-term intercompany loans, 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 the
Statements of Unaudited Condensed Consolidated Operations
.
The following represents the transaction gains and losses resulting from remeasurement:
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Short-term intercompany loans
|
$
|
(0.2
|
)
|
|
$
|
15.1
|
|
Cash and cash equivalents
|
0.1
|
|
|
(1.2
|
)
|
Other
|
(0.2
|
)
|
|
(0.3
|
)
|
Net impact of transaction gains (losses) resulting from remeasurement
|
$
|
(0.3
|
)
|
|
$
|
13.6
|
|
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, 2017
included in our Annual Report on Form 10-K filed with the SEC. There have been no material changes in our significant accounting policies and estimates from those disclosed therein other than those related to the adoption of Topic 606. Refer to
NOTE 2 - NEW ACCOUNTING STANDARDS
for further information.
NOTE 2 - NEW ACCOUNTING STANDARDS
Adoption of New Accounting Standards
ASC Topic 606, Revenue from Contracts with Customers (Topic 606).
On January 1, 2018, we adopted Topic 606 and applied it to all contracts that were not completed using the modified retrospective method. We recognized the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of
Retained deficit
of
$34.0 million
. The comparative period information has not been restated and continues to be reported under the accounting standards in effect for those periods. We do not expect that the adoption of Topic 606 will have a material impact to our annual net income on an ongoing basis.
Under Topic 606, revenue will generally be recognized upon delivery for our U.S. Iron Ore customers, which is earlier than under the previous guidance. As an example, for certain iron ore shipments where revenue was previously recognized upon title transfer when payment was received, we will now recognize revenue when control transfers, which is generally upon delivery. While we continue to retain title until we receive payment, we determined upon review of our customer contracts that the preponderance of control indicators pass to our customers' favor when we deliver our products; thus, we generally concluded control transfers at that point. As a result of the adoption of Topic 606 and vessel deliveries not occurring during the winter months because of the closure of the Soo Locks and the Welland Canal, our revenues and net income will be relatively lower than historical levels during the first quarter of each year and relatively higher than historical levels during the remaining three quarters in future years. However, the total amount of revenue recognized during the year should remain substantially the same as under previous accounting standards, assuming revenue rates and volumes are consistent between years.
The adoption of Topic 606 will not change the pattern or timing of revenue recognition for Asia Pacific Iron Ore, as control transfers when vessels are loaded, which is the same time title and the risk of loss transfers to our customers.
The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of Topic 606 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in Millions)
|
|
|
Balance at December 31, 2017
|
|
Adjustments due to Topic 606
|
|
Balance at January 1, 2018
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,007.7
|
|
|
$
|
—
|
|
|
$
|
1,007.7
|
|
Accounts receivable, net
|
|
140.6
|
|
|
76.6
|
|
|
217.2
|
|
Inventories
|
|
183.4
|
|
|
(51.4
|
)
|
|
132.0
|
|
Supplies and other inventories
|
|
93.9
|
|
|
—
|
|
|
93.9
|
|
Derivative assets
|
|
39.4
|
|
|
11.6
|
|
|
51.0
|
|
Loans to and accounts receivable from the Canadian Entities
|
|
51.6
|
|
|
—
|
|
|
51.6
|
|
Other current assets
|
|
28.0
|
|
|
—
|
|
|
28.0
|
|
TOTAL CURRENT ASSETS
|
|
1,544.6
|
|
|
36.8
|
|
|
1,581.4
|
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
1,051.0
|
|
|
—
|
|
|
1,051.0
|
|
OTHER ASSETS
|
|
|
|
|
|
|
Deposits for property, plant and equipment
|
|
17.8
|
|
|
—
|
|
|
17.8
|
|
Income tax receivable
|
|
235.3
|
|
|
—
|
|
|
235.3
|
|
Other non-current assets
|
|
104.7
|
|
|
—
|
|
|
104.7
|
|
TOTAL OTHER ASSETS
|
|
357.8
|
|
|
—
|
|
|
357.8
|
|
TOTAL ASSETS
|
|
$
|
2,953.4
|
|
|
$
|
36.8
|
|
|
$
|
2,990.2
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
127.7
|
|
|
$
|
1.4
|
|
|
$
|
129.1
|
|
Accrued expenses
|
|
107.1
|
|
|
—
|
|
|
107.1
|
|
Accrued interest
|
|
31.4
|
|
|
—
|
|
|
31.4
|
|
Contingent claims
|
|
55.6
|
|
|
—
|
|
|
55.6
|
|
Partnership distribution payable
|
|
44.2
|
|
|
—
|
|
|
44.2
|
|
Other current liabilities
|
|
86.2
|
|
|
1.4
|
|
|
87.6
|
|
TOTAL CURRENT LIABILITIES
|
|
452.2
|
|
|
2.8
|
|
|
455.0
|
|
PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES
|
|
257.7
|
|
|
—
|
|
|
257.7
|
|
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
|
|
196.5
|
|
|
—
|
|
|
196.5
|
|
LONG-TERM DEBT
|
|
2,304.2
|
|
|
—
|
|
|
2,304.2
|
|
OTHER LIABILITIES
|
|
186.9
|
|
|
—
|
|
|
186.9
|
|
TOTAL LIABILITIES
|
|
3,397.5
|
|
|
2.8
|
|
|
3,400.3
|
|
EQUITY
|
|
|
|
|
|
|
CLIFFS SHAREHOLDERS' DEFICIT
|
|
(444.3
|
)
|
|
34.0
|
|
|
(410.3
|
)
|
NONCONTROLLING INTEREST
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
TOTAL DEFICIT
|
|
(444.1
|
)
|
|
34.0
|
|
|
(410.1
|
)
|
TOTAL LIABILITIES AND DEFICIT
|
|
$
|
2,953.4
|
|
|
$
|
36.8
|
|
|
$
|
2,990.2
|
|
The impact of adoption on our
Statements of Unaudited Condensed Consolidated Operations
and
Statements of Unaudited Condensed Consolidated Financial Position
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in Millions)
|
|
|
Three Months Ended March 31, 2018
|
|
|
As Reported
|
|
Balances without Adoption of Topic 606
|
|
Effect of Change
|
REVENUES FROM PRODUCT SALES AND SERVICES
|
|
|
|
|
|
|
Product
|
|
$
|
220.7
|
|
|
$
|
279.1
|
|
|
$
|
(58.4
|
)
|
Freight and venture partners' cost reimbursements
|
|
18.3
|
|
|
22.4
|
|
|
(4.1
|
)
|
|
|
239.0
|
|
|
301.5
|
|
|
(62.5
|
)
|
COST OF GOODS SOLD AND OPERATING EXPENSES
|
|
(242.6
|
)
|
|
(286.2
|
)
|
|
43.6
|
|
SALES MARGIN
|
|
(3.6
|
)
|
|
15.3
|
|
|
(18.9
|
)
|
OTHER OPERATING EXPENSE
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
(27.7
|
)
|
|
(27.7
|
)
|
|
—
|
|
Miscellaneous – net
|
|
(8.7
|
)
|
|
(8.7
|
)
|
|
—
|
|
|
|
(36.4
|
)
|
|
(36.4
|
)
|
|
—
|
|
OPERATING LOSS
|
|
(40.0
|
)
|
|
(21.1
|
)
|
|
(18.9
|
)
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
Interest expense, net
|
|
(33.5
|
)
|
|
(33.5
|
)
|
|
—
|
|
Other non-operating income
|
|
4.4
|
|
|
4.4
|
|
|
—
|
|
|
|
(29.1
|
)
|
|
(29.1
|
)
|
|
—
|
|
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
|
(69.1
|
)
|
|
(50.2
|
)
|
|
(18.9
|
)
|
INCOME TAX EXPENSE
|
|
(15.7
|
)
|
|
(15.7
|
)
|
|
—
|
|
LOSS FROM CONTINUING OPERATIONS
|
|
(84.8
|
)
|
|
(65.9
|
)
|
|
(18.9
|
)
|
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
|
|
0.5
|
|
|
0.5
|
|
|
—
|
|
NET LOSS
|
|
(84.3
|
)
|
|
(65.4
|
)
|
|
(18.9
|
)
|
LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
|
|
—
|
|
|
—
|
|
|
—
|
|
NET LOSS ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
|
|
$
|
(84.3
|
)
|
|
$
|
(65.4
|
)
|
|
$
|
(18.9
|
)
|
LOSS PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS – BASIC
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.29
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.06
|
)
|
Discontinued operations
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
(0.29
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.06
|
)
|
LOSS PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS – DILUTED
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.29
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.06
|
)
|
Discontinued operations
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
(0.29
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.06
|
)
|
AVERAGE NUMBER OF SHARES (IN THOUSANDS)
|
|
|
|
|
|
|
Basic
|
|
297,266
|
|
|
297,266
|
|
|
|
Diluted
|
|
297,266
|
|
|
297,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in Millions)
|
|
|
March 31, 2018
|
|
|
As Reported
|
|
Balances without Adoption of Topic 606
|
|
Effect of Change
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
786.6
|
|
|
$
|
786.6
|
|
|
$
|
—
|
|
Accounts receivable, net
|
|
47.2
|
|
|
24.9
|
|
|
22.3
|
|
Inventories
|
|
324.4
|
|
|
332.0
|
|
|
(7.6
|
)
|
Supplies and other inventories
|
|
81.7
|
|
|
81.7
|
|
|
—
|
|
Derivative assets
|
|
93.6
|
|
|
91.3
|
|
|
2.3
|
|
Loans to and accounts receivable from the Canadian Entities
|
|
50.4
|
|
|
50.4
|
|
|
—
|
|
Other current assets
|
|
28.5
|
|
|
28.5
|
|
|
—
|
|
TOTAL CURRENT ASSETS
|
|
1,412.4
|
|
|
1,395.4
|
|
|
17.0
|
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
1,047.3
|
|
|
1,047.3
|
|
|
—
|
|
OTHER ASSETS
|
|
|
|
|
|
|
Deposits for property, plant and equipment
|
|
74.1
|
|
|
74.1
|
|
|
—
|
|
Income tax receivable
|
|
219.9
|
|
|
219.9
|
|
|
—
|
|
Other non-current assets
|
|
109.2
|
|
|
109.2
|
|
|
—
|
|
TOTAL OTHER ASSETS
|
|
403.2
|
|
|
403.2
|
|
|
—
|
|
TOTAL ASSETS
|
|
2,862.9
|
|
|
2,845.9
|
|
|
17.0
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
99.5
|
|
|
$
|
99.2
|
|
|
$
|
0.3
|
|
Accrued expenses
|
|
94.4
|
|
|
94.4
|
|
|
—
|
|
Accrued interest
|
|
28.2
|
|
|
28.2
|
|
|
—
|
|
Contingent claims
|
|
54.3
|
|
|
54.3
|
|
|
—
|
|
Partnership distribution payable
|
|
44.2
|
|
|
44.2
|
|
|
—
|
|
Other current liabilities
|
|
104.3
|
|
|
104.0
|
|
|
0.3
|
|
TOTAL CURRENT LIABILITIES
|
|
424.9
|
|
|
424.3
|
|
|
0.6
|
|
PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES
|
|
251.4
|
|
|
251.4
|
|
|
—
|
|
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
|
|
181.2
|
|
|
181.2
|
|
|
—
|
|
LONG-TERM DEBT
|
|
2,308.2
|
|
|
2,308.2
|
|
|
—
|
|
OTHER LIABILITIES
|
|
182.0
|
|
|
182.0
|
|
|
—
|
|
TOTAL LIABILITIES
|
|
3,347.7
|
|
|
3,347.1
|
|
|
0.6
|
|
EQUITY
|
|
|
|
|
|
|
CLIFFS SHAREHOLDERS' DEFICIT
|
|
(485.0
|
)
|
|
(501.4
|
)
|
|
16.4
|
|
NONCONTROLLING INTEREST
|
|
0.2
|
|
|
0.2
|
|
|
—
|
|
TOTAL DEFICIT
|
|
(484.8
|
)
|
|
(501.2
|
)
|
|
16.4
|
|
TOTAL LIABILITIES AND DEFICIT
|
|
$
|
2,862.9
|
|
|
$
|
2,845.9
|
|
|
$
|
17.0
|
|
The adoption of Topic 606 did not have an impact on net cash flows in our
Statements of Unaudited Condensed Consolidated Cash Flows
.
ASU 2017-07, Retirement Benefits - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
. On January 1, 2018, we adopted the amendments to ASC 715 regarding the presentation of net periodic pension and postretirement benefit costs. We retrospectively adopted the presentation of service cost
separate from the other components of net periodic costs. The interest cost, expected return on assets, amortization of prior service costs, net remeasurement, and other costs have been reclassified from
Cost of goods sold and operating expenses
,
Selling, general and administrative expenses
and
Miscellaneous – net
to
Other non-operating income
.
We elected to apply the practical expedient, which allows us to reclassify amounts disclosed previously in our Pension and other postretirement benefits footnote as the basis for applying retrospective presentation for comparative periods. On a prospective basis, only service costs will be included in amounts capitalized in inventory or property, plant, and equipment.
The effect of the retrospective presentation change related to the net periodic cost of our defined benefit pension and other postretirement employee benefits plans on our
Statements of Unaudited Condensed Consolidated Operations
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in Millions)
|
|
|
Three Months Ended March 31, 2017
|
|
|
As Revised
|
|
Previously Reported
|
|
Effect of Change
|
Cost of goods sold and operating expenses
|
|
$
|
(365.3
|
)
|
|
$
|
(365.9
|
)
|
|
$
|
0.6
|
|
Selling, general and administrative expenses
|
|
$
|
(27.7
|
)
|
|
$
|
(25.7
|
)
|
|
$
|
(2.0
|
)
|
Miscellaneous – net
|
|
$
|
11.5
|
|
|
$
|
11.9
|
|
|
$
|
(0.4
|
)
|
Operating income
|
|
$
|
80.1
|
|
|
$
|
81.9
|
|
|
$
|
(1.8
|
)
|
Other non-operating income
|
|
$
|
2.5
|
|
|
$
|
0.7
|
|
|
$
|
1.8
|
|
Net Loss
|
|
$
|
(29.8
|
)
|
|
$
|
(29.8
|
)
|
|
$
|
—
|
|
Recent Accounting Pronouncements
Issued and Not Effective
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. The new standard requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases except for short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the
Statements of Unaudited Condensed Consolidated Operations
. We plan to adopt the standard on its effective date of January 1, 2019. The new standard may be adopted using either the modified retrospective approach, which requires application of the new guidance at the beginning of the earliest comparative period presented or the optional alternative approach, which requires application of the new guidance at the beginning of the standards effective date. We are currently finalizing our implementation plan, compiling an inventory of existing leases and evaluating the effect the updated standard will have on our consolidated financial statements and related disclosures.
NOTE 3 - SEGMENT REPORTING
Our continuing operations are organized and managed according to geographic location: U.S. Iron Ore and Asia Pacific Iron Ore. Our U.S. Iron Ore segment is a major supplier of iron ore pellets to the North American steel industry from our mines and pellet plants located in Michigan and Minnesota. The Asia Pacific Iron Ore segment is located in Western Australia and provides iron ore to the seaborne market for Asian steel producers. There were no intersegment revenues in the first quarter of
2018
or
2017
.
We evaluate segment performance based on sales margin, defined as revenues less cost of goods sold and operating expenses identifiable to each segment. Additionally, we evaluate performance on a segment basis, as well as a consolidated basis, based on EBITDA and Adjusted EBITDA. These measures allow management and investors to focus on our ability to service our debt as well as illustrate how the business and each operating segment are performing. Additionally, EBITDA and Adjusted EBITDA assist management and investors in their analysis and forecasting as these measures approximate the cash flows associated with operational earnings.
The following tables present a summary of our reportable segments including a reconciliation of segment sales margin to
Loss from Continuing Operations Before Income Taxes
and a reconciliation of
Net Loss
to EBITDA and Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Revenues from product sales and services:
|
|
|
|
|
|
|
|
U.S. Iron Ore
|
$
|
180.0
|
|
|
75
|
%
|
|
$
|
286.2
|
|
|
62
|
%
|
Asia Pacific Iron Ore
|
59.0
|
|
|
25
|
%
|
|
175.4
|
|
|
38
|
%
|
Total revenues from product sales and services
|
$
|
239.0
|
|
|
100
|
%
|
|
$
|
461.6
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
Sales margin:
|
|
|
|
|
|
|
|
U.S. Iron Ore
|
$
|
61.5
|
|
|
|
|
$
|
49.0
|
|
|
|
Asia Pacific Iron Ore
|
(65.1
|
)
|
|
|
|
47.3
|
|
|
|
Sales margin
|
(3.6
|
)
|
|
|
|
96.3
|
|
|
|
Other operating expense
|
(36.4
|
)
|
|
|
|
(16.2
|
)
|
|
|
Other expense
|
(29.1
|
)
|
|
|
|
(112.2
|
)
|
|
|
Loss from continuing operations before income taxes
|
$
|
(69.1
|
)
|
|
|
|
$
|
(32.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Net Loss
|
$
|
(84.3
|
)
|
|
$
|
(29.8
|
)
|
Less:
|
|
|
|
Interest expense, net
|
(33.5
|
)
|
|
(42.8
|
)
|
Income tax benefit (expense)
|
(15.7
|
)
|
|
1.8
|
|
Depreciation, depletion and amortization
|
(23.9
|
)
|
|
(23.2
|
)
|
EBITDA
|
$
|
(11.2
|
)
|
|
$
|
34.4
|
|
Less:
|
|
|
|
Inventory impairments
|
$
|
(18.9
|
)
|
|
$
|
—
|
|
Impairment of long-lived assets
|
(2.6
|
)
|
|
—
|
|
Severance and retention costs
|
(1.5
|
)
|
|
—
|
|
Impact of discontinued operations
|
0.5
|
|
|
0.5
|
|
Foreign exchange remeasurement
|
(0.3
|
)
|
|
13.6
|
|
Loss on extinguishment of debt
|
—
|
|
|
(71.9
|
)
|
Adjusted EBITDA
|
$
|
11.6
|
|
|
$
|
92.2
|
|
|
|
|
|
EBITDA
|
|
|
|
U.S. Iron Ore
|
$
|
72.5
|
|
|
$
|
57.9
|
|
Asia Pacific Iron Ore
|
(63.7
|
)
|
|
51.4
|
|
Other
|
(20.0
|
)
|
|
(74.9
|
)
|
Total EBITDA
|
$
|
(11.2
|
)
|
|
$
|
34.4
|
|
|
|
|
|
Adjusted EBITDA:
|
|
|
|
U.S. Iron Ore
|
$
|
77.1
|
|
|
$
|
64.1
|
|
Asia Pacific Iron Ore
|
(39.6
|
)
|
|
53.8
|
|
Other
|
(25.9
|
)
|
|
(25.7
|
)
|
Total Adjusted EBITDA
|
$
|
11.6
|
|
|
$
|
92.2
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Depreciation, depletion and amortization:
|
|
|
|
U.S. Iron Ore
|
$
|
15.8
|
|
|
$
|
16.4
|
|
Asia Pacific Iron Ore
|
6.7
|
|
|
4.7
|
|
Other
|
1.4
|
|
|
2.1
|
|
Total depreciation, depletion and amortization
|
$
|
23.9
|
|
|
$
|
23.2
|
|
|
|
|
|
Capital additions
1
:
|
|
|
|
U.S. Iron Ore
|
$
|
18.7
|
|
|
$
|
27.1
|
|
Asia Pacific Iron Ore
|
—
|
|
|
0.2
|
|
Other
2
|
60.2
|
|
|
—
|
|
Total capital additions
|
$
|
78.9
|
|
|
$
|
27.3
|
|
|
|
|
|
1
Includes cash paid for capital additions of $71.4 million, including deposits of $59.0 million, and an increase in non-cash accruals of $7.5 million for the three months ended March 31, 2018 compared to cash paid for capital additions of $27.9 million, including deposits of $2.0 million, and a decrease in non-cash accruals of $0.6 million for the three months ended March 31, 2017.
|
2
Includes capital additions related to our HBI project.
|
A summary of assets by segment is as follows:
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
March 31,
2018
|
|
December 31,
2017
|
Assets:
|
|
|
|
U.S. Iron Ore
|
$
|
1,646.8
|
|
|
$
|
1,500.6
|
|
Asia Pacific Iron Ore
|
78.4
|
|
|
138.8
|
|
Total segment assets
|
1,725.2
|
|
|
1,639.4
|
|
Corporate and Other
|
1,137.7
|
|
|
1,314.0
|
|
Total assets
|
$
|
2,862.9
|
|
|
$
|
2,953.4
|
|
NOTE 4 - REVENUE
Revenue is recognized generally when iron ore is delivered to our customers. Revenue is measured at the point control transfers and represents the amount of consideration we expect to receive in exchange for transferring goods. We offer standard payment terms to our customers, generally requiring settlement within 30 days.
We enter into supply contracts of varying lengths to provide customers iron ore to use in their blast furnaces. Blast furnaces run continuously with a constant feed of iron ore and once shut down, cannot easily be restarted. As a result, we ship iron ore in large quantities for storage and use by customers at a later date. Customers do not simultaneously receive and consume the benefits of the iron ore. Based on our assessment of the factors that indicate the pattern of satisfaction, we transfer control of the iron ore at a point in time upon shipment or delivery of the product. The customer is able to direct the use of, and obtain substantially all of the benefits from, the product at the time the product is delivered.
We disaggregate
Revenues from product sales and services
based on geographical location. We sell a single product, iron ore, in the North American and Asian markets. Refer to
NOTE 3 - SEGMENT REPORTING
for further information on disaggregated revenue.
Certain of our U.S. Iron Ore and Asia Pacific Iron Ore customer supply agreements specify a provisional price, which is used for initial billing and cash collection. Revenue recorded in accordance with Topic 606 is calculated using the expected revenue rate at the point when control transfers. The final settlement includes market inputs for a specified period of time, which may vary by customer, but typically include one or more of the following: Platts 62% Price, pellet premiums, Platts international indexed freight rates and changes in specified Producer Price Indices, including industrial
commodities, energy and steel. Changes in the expected revenue rate from the date control transfers through final settlement of contract terms is recorded in accordance with ASC Topic 815. Refer to
NOTE 15 - DERIVATIVE INSTRUMENTS
for further information on how our estimated expected and final revenue rates are determined.
A supply agreement with one U.S. Iron Ore customer provides for supplemental revenue or refunds based on the average annual daily market price for hot-rolled coil steel at the time the iron ore is consumed in the customer’s blast furnaces. As control transfers prior to consumption, the supplemental revenue is recorded in accordance with ASC Topic 815. Refer to
NOTE 15 - DERIVATIVE INSTRUMENTS
for further information on supplemental revenue or refunds.
Included within
Revenues from product sales and services
is derivative revenue related to ASC Topic 815 of
$43.8 million
and
$1.3 million
, for three months ended March 31, 2018 at our U.S. Iron Ore and Asia Pacific Iron Ore segments, respectively.
Practical expedients and exemptions
We have elected to treat all shipping and handling costs as fulfillment costs as a significant portion of these costs are incurred prior to control transfer.
We have various long-term sales contracts with minimum purchase and supply requirement provisions that extend beyond the current reporting period. The portion of our transaction price for these contracts that is allocated entirely to wholly unsatisfied performance obligations is based on market prices that have not yet been determined and therefore is variable in nature. As such, we have not disclosed the value of unsatisfied performance obligations pursuant to the practical expedient.
Deferred Revenue
The table below summarizes our deferred revenue balances:
|
|
|
|
|
|
|
|
|
|
Deferred Revenue (Current)
1
|
|
Deferred Revenue (Long-Term)
|
Opening balance as of January 1, 2018
|
$
|
23.8
|
|
|
$
|
51.4
|
|
Closing balance as of March 31, 2018
|
31.0
|
|
|
51.4
|
|
Increase
|
$
|
7.2
|
|
|
$
|
—
|
|
|
|
|
|
1
The opening balance includes a $1.4 million adjustment from the December 31, 2017 balance due to the adoption of Topic 606.
|
The terms of one of our U.S. Iron Ore pellet supply agreements required supplemental payments to be paid by the customer during the period 2009 through 2012, with the option to defer a portion of the 2009 monthly amount in exchange for interest payments until the deferred amount was repaid in 2013. Installment amounts received under this arrangement in excess of sales were classified as
Other current liabilities
and
Other liabilities
in the
Statements of Unaudited Condensed Consolidated Financial Position
upon receipt of payment. Revenue is recognized over the life of the supply agreement, which extends until 2022, in equal annual installments. As of
March 31, 2018
and
December 31, 2017
, installment amounts received in excess of sales totaled
$64.2 million
related to this agreement. As of
March 31, 2018
and
December 31, 2017
, deferred revenue of
$12.8 million
was recorded in
Other current liabilities
and
$51.4 million
was recorded as long-term in
Other liabilities
in the
Statements of Unaudited Condensed Consolidated Financial Position
, related to this agreement.
Due to the payment terms and the timing of cash receipts near a period end, cash receipts can exceed shipments for certain customers. Revenue recognized on these transactions totaling
$18.2 million
and
$9.6 million
was deferred and included in
Other current liabilities
in the
Statements of Unaudited Condensed Consolidated Financial Position
as of
March 31, 2018
and
December 31, 2017
, respectively.
NOTE 5 - INVENTORIES
The following table presents the detail of our
Inventories
in the
Statements of Unaudited Condensed Consolidated Financial Position
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
|
March 31, 2018
|
|
December 31, 2017
|
Segment
|
|
Finished Goods
|
|
Work-in Process
|
|
Total Inventory
|
|
Finished Goods
|
|
Work-in Process
|
|
Total
Inventory
|
U.S. Iron Ore
|
|
$
|
267.2
|
|
|
$
|
36.0
|
|
|
$
|
303.2
|
|
|
$
|
127.1
|
|
|
$
|
11.3
|
|
|
$
|
138.4
|
|
Asia Pacific Iron Ore
|
|
20.2
|
|
|
1.0
|
|
|
21.2
|
|
|
33.3
|
|
|
11.7
|
|
|
45.0
|
|
Total
|
|
$
|
287.4
|
|
|
$
|
37.0
|
|
|
$
|
324.4
|
|
|
$
|
160.4
|
|
|
$
|
23.0
|
|
|
$
|
183.4
|
|
We recorded lower of cost or net realizable value inventory charges of
$13.0 million
and
$9.1 million
related to finished goods inventory and work-in process inventory, respectively, at Asia Pacific Iron Ore in
Cost of goods sold and operating expenses
in the
Statements of Unaudited Condensed Consolidated Operations
for the three months ended
March 31, 2018
. The charges were a result of the decline in our expected realized revenue rates for future sales of these tons. There were
no
lower of cost or net realizable value inventory adjustments recorded for the three months ended
March 31, 2017
.
We recorded an impairment charge of
$1.4 million
and
$13.2 million
related to finished goods inventory and work-in process inventory, respectively, at Asia Pacific Iron Ore in
Cost of goods sold and operating expenses
in the Statements of Consolidated Operations for the three months ended
March 31, 2018
. Inventory not expected to be sold prior to the closure of operations was impaired. There were
no
inventory impairment adjustments recorded for the three months ended
March 31, 2017
.
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
The following table indicates the value of each of the major classes of our consolidated depreciable assets:
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
March 31,
2018
|
|
December 31,
2017
|
Land rights and mineral rights
|
$
|
549.6
|
|
|
$
|
549.6
|
|
Office and information technology
|
66.3
|
|
|
66.3
|
|
Buildings
|
85.5
|
|
|
86.8
|
|
Mining equipment
|
594.0
|
|
|
594.4
|
|
Processing equipment
|
619.8
|
|
|
617.0
|
|
Electric power facilities
|
57.0
|
|
|
57.0
|
|
Land improvements
|
23.6
|
|
|
23.7
|
|
Asset retirement obligation
|
16.9
|
|
|
19.2
|
|
Other
|
30.3
|
|
|
30.3
|
|
Construction in-progress
|
48.1
|
|
|
35.1
|
|
|
2,091.1
|
|
|
2,079.4
|
|
Allowance for depreciation and depletion
|
(1,043.8
|
)
|
|
(1,028.4
|
)
|
|
$
|
1,047.3
|
|
|
$
|
1,051.0
|
|
We recorded depreciation and depletion expense of
$21.3 million
and
$22.6 million
in the
Statements of Unaudited Condensed Consolidated Operations
for the
three months ended
March 31, 2018
and
March 31, 2017
, respectively.
As of
March 31, 2018
, based on the anticipated closure of the Asia Pacific Iron Ore operations we determined that we would not recover the value of certain long-lived assets at our Asia Pacific Iron Ore operations. As a result, we recorded an impairment of
$2.6 million
in
Miscellaneous – net
in the
Statements of Unaudited Condensed Consolidated Operations
.
NOTE 7 - DEBT AND CREDIT FACILITIES
The following represents a summary of our long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
March 31, 2018
|
Debt Instrument
|
|
Annual Effective
Interest Rate
|
|
Total Principal Amount
|
|
Debt Issuance Costs
|
|
Unamortized Discounts
|
|
Total Debt
|
Secured Notes
|
|
|
|
|
|
|
|
|
|
|
$400 Million 4.875% 2024 Senior Notes
|
|
5.00%
|
|
$
|
400.0
|
|
|
$
|
(6.7
|
)
|
|
$
|
(2.5
|
)
|
|
$
|
390.8
|
|
Unsecured Notes
|
|
|
|
|
|
|
|
|
|
|
$400 Million 5.90% 2020 Senior Notes
|
|
5.98%
|
|
88.9
|
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|
88.6
|
|
$500 Million 4.80% 2020 Senior Notes
|
|
4.83%
|
|
122.4
|
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|
122.1
|
|
$700 Million 4.875% 2021 Senior Notes
|
|
4.89%
|
|
138.4
|
|
|
(0.3
|
)
|
|
(0.1
|
)
|
|
138.0
|
|
$316.25 Million 1.50% 2025 Convertible Senior Notes
|
|
6.26%
|
|
316.3
|
|
|
(6.3
|
)
|
|
(83.2
|
)
|
|
226.8
|
|
$1.075 Billion 5.75% 2025 Senior Notes
|
|
6.01%
|
|
1,075.0
|
|
|
(11.1
|
)
|
|
(16.0
|
)
|
|
1,047.9
|
|
$800 Million 6.25% 2040 Senior Notes
|
|
6.34%
|
|
298.4
|
|
|
(2.3
|
)
|
|
(3.4
|
)
|
|
292.7
|
|
ABL Facility
|
|
N/A
|
|
450.0
|
|
|
N/A
|
|
|
N/A
|
|
|
—
|
|
Fair Value Adjustment to Interest Rate Hedge
|
|
|
|
|
|
|
|
|
|
1.3
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
$
|
2,308.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
December 31, 2017
|
Debt Instrument
|
|
Annual Effective
Interest Rate
|
|
Total Principal Amount
|
|
Debt Issuance Costs
|
|
Unamortized Discounts
|
|
Total Debt
|
Secured Notes
|
|
|
|
|
|
|
|
|
|
|
$400 Million 4.875% 2024 Senior Notes
|
|
5.00%
|
|
$
|
400.0
|
|
|
$
|
(7.1
|
)
|
|
$
|
(2.6
|
)
|
|
$
|
390.3
|
|
Unsecured Notes
|
|
|
|
|
|
|
|
|
|
|
$400 Million 5.90% 2020 Senior Notes
|
|
5.98%
|
|
88.9
|
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|
88.6
|
|
$500 Million 4.80% 2020 Senior Notes
|
|
4.83%
|
|
122.4
|
|
|
(0.3
|
)
|
|
(0.1
|
)
|
|
122.0
|
|
$700 Million 4.875% 2021 Senior Notes
|
|
4.89%
|
|
138.4
|
|
|
(0.3
|
)
|
|
(0.1
|
)
|
|
138.0
|
|
$316.25 Million 1.50% 2025 Convertible Senior Notes
|
|
6.26%
|
|
316.3
|
|
|
(6.6
|
)
|
|
(85.6
|
)
|
|
224.1
|
|
$1.075 Billion 5.75% 2025 Senior Notes
|
|
6.01%
|
|
1,075.0
|
|
|
(11.3
|
)
|
|
(16.5
|
)
|
|
1,047.2
|
|
$800 Million 6.25% 2040 Senior Notes
|
|
6.34%
|
|
298.4
|
|
|
(2.4
|
)
|
|
(3.4
|
)
|
|
292.6
|
|
ABL Facility
|
|
N/A
|
|
550.0
|
|
|
N/A
|
|
|
N/A
|
|
|
—
|
|
Fair Value Adjustment to Interest Rate Hedge
|
|
|
|
|
|
|
|
|
|
1.4
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
$
|
2,304.2
|
|
$1.075 Billion 5.75% 2025 Senior Notes
On February 27, 2017, we entered into an indenture among the Company, the guarantors party thereto and U.S. Bank National Association, as trustee, relating to the issuance of
$500 million
aggregate principal amount of
5.75%
2025 Senior Notes. On August 7, 2017, we issued an additional
$575 million
aggregate principal amount of our
5.75%
2025 Senior Notes. The second tranche was issued at
97.0%
of face value. The
5.75%
2025 Senior Notes were issued in private transactions exempt from the registration requirements of the Securities Act. Pursuant to the registration rights agreement executed as part of these issuances, we filed on February 14, 2018 a registration statement with the
SEC with respect to a registered offer to exchange the
5.75%
2025 Senior Notes for publicly registered notes, with all significant terms and conditions remaining the same.
Debt Maturities
The following represents a summary of our maturities of debt instruments based on the principal amounts outstanding at
March 31, 2018
:
|
|
|
|
|
|
|
|
(In Millions)
|
|
|
Maturities of Debt
|
2018
|
|
$
|
—
|
|
2019
|
|
—
|
|
2020
|
|
211.3
|
|
2021
|
|
138.4
|
|
2022
|
|
—
|
|
2023
|
|
—
|
|
2024 and thereafter
|
|
2,089.7
|
|
Total maturities of debt
|
|
$
|
2,439.4
|
|
ABL Facility
On February 28, 2018, we entered into an amended and restated senior secured asset-based revolving credit facility with various financial institutions. The ABL Facility amends and restates our prior
$550.0 million
Syndicated Facility Agreement, dated as of March 30, 2015. The ABL Facility will mature upon the earlier of February 28, 2023 or 60 days prior to the maturity of certain other material debt, and provides for up to
$450.0 million
in borrowings, comprised of (i) a
$400.0 million
U.S. tranche, including a
$248.8 million
sublimit for the issuance of letters of credit and a
$100.0 million
sublimit for U.S. swingline loans, and (ii) a
$50.0 million
Australian tranche, including a
$24.4 million
sublimit for the issuance of letters of credit and a
$20.0 million
sublimit for Australian swingline loans. Availability under both the U.S. tranche and Australian tranche of the ABL Facility is limited to an eligible U.S. borrowing base and Australian borrowing base, as applicable, determined by applying customary advance rates to eligible accounts receivable, inventory and certain mobile equipment.
The ABL Facility and certain bank products and hedge obligations are guaranteed by us and certain of our existing wholly-owned U.S. and Australian subsidiaries and are required to be guaranteed by certain of our future U.S. and Australian subsidiaries; provided, however, that the obligations of any U.S. entity will not be guaranteed by any Australian entity. Amounts outstanding under the ABL Facility are secured by (i) a first-priority security interest in the accounts receivable and other rights to payment, inventory, as-extracted collateral, certain investment property, deposit accounts, securities accounts, certain general intangibles and commercial tort claims, certain mobile equipment, commodities accounts, deposit accounts, securities accounts and other related assets of ours, the other borrowers and the guarantors, and proceeds and products of each of the foregoing (collectively, the “ABL Collateral”); provided, however, that the ABL Collateral owned by a borrower or guarantor that is organized under the laws of Australia (the “Australian Loan Parties”) shall only secure the Australian tranche and obligations of the borrowers and guarantors organized under the laws of Australia, (ii) a second-priority security interest in substantially all of our assets and the assets of the other borrowers and the guarantors (other than the Australian Loan Parties) other than the ABL Collateral (collectively, the “Notes Collateral” and, together with the ABL Collateral, the “Collateral”) and (iii) solely in the case of the obligations of the Australian Loan Parties under the ABL Facility, a featherweight floating security interest over substantially all assets of the Australian Loan Parties other than ABL Collateral, in each case, subject to certain customary exceptions.
Borrowings under the ABL Facility bear interest, at our option, at a base rate, an Australian base rate or, if certain conditions are met, a LIBOR rate, in each case plus an applicable margin. The base rate is equal to the greatest of the federal funds rate plus ½ of 1%, the LIBOR rate based on a one-month interest period plus 1% and the floating rate announced by Bank of America Merrill Lynch as its “prime rate" and 1%. The Australian base rate is equal to the LIBOR rate as of 11:00 a.m. on the first business day of each month for a one-month period. The LIBOR rate is a per annum fixed rate equal to LIBOR with respect to the applicable interest period and amount of LIBOR rate loan requested.
The ABL Facility contains customary representations and warranties and affirmative and negative covenants including, among others, covenants regarding the maintenance of certain financial ratios if certain conditions are
triggered, covenants relating to financial reporting, covenants relating to the payment of dividends on, or purchase or redemption of, our capital stock, covenants relating to the incurrence or prepayment of certain debt, covenants relating to the incurrence of liens or encumbrances, covenants relating to compliance with laws, covenants relating to transactions with affiliates, covenants relating to mergers and sales of all or substantially all of our assets and limitations on changes in the nature of our business.
The ABL Facility provides for customary events of default, including, among other things, the event of nonpayment of principal, interest, fees, or other amounts, a representation or warranty proving to have been materially incorrect when made, failure to perform or observe certain covenants within a specified period of time, a cross-default to certain material indebtedness, the bankruptcy or insolvency of the Company and certain of its subsidiaries, monetary judgment defaults of a specified amount, invalidity of any loan documentation, a change of control of the Company, and ERISA defaults resulting in liability of a specified amount. If an event of a default exists (beyond any applicable grace or cure period, if any), the administrative agent may and, at the direction of the requisite number of lenders, shall declare all amounts owing under the ABL Facility immediately due and payable, terminate such lenders’ commitments to make loans under the ABL Facility and/or exercise any and all remedies and other rights under the ABL Facility. For certain events of default related to insolvency and receivership, the commitments of the lenders will be automatically terminated and all outstanding loans and other amounts will become immediately due and payable.
As of
March 31, 2018
and
December 31, 2017
, we were in compliance with the ABL Facility liquidity requirements and, therefore, the springing financial covenant requiring a minimum fixed charge coverage ratio of 1.0 to 1.0 was not applicable.
As of
March 31, 2018
and
December 31, 2017
,
no
loans were drawn under the ABL Facility and we had total availability of
$314.1 million
and
$273.2 million
, respectively, as a result of borrowing base limitations. As of
March 31, 2018
and
December 31, 2017
, the principal amount of letter of credit obligations totaled
$46.6 million
and
$46.5 million
, respectively, to support business obligations primarily related to workers compensation and environmental obligations, thereby further reducing available borrowing capacity on our ABL Facility to
$267.5 million
and
$226.7 million
, respectively.
NOTE 8 - FAIR VALUE MEASUREMENTS
The following represents the assets and liabilities of the Company measured at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
March 31, 2018
|
Description
|
Quoted Prices in Active
Markets for Identical Assets/Liabilities
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
36.0
|
|
|
$
|
490.6
|
|
|
$
|
—
|
|
|
$
|
526.6
|
|
Derivative assets
|
—
|
|
|
—
|
|
|
93.6
|
|
|
93.6
|
|
Total
|
$
|
36.0
|
|
|
$
|
490.6
|
|
|
$
|
93.6
|
|
|
$
|
620.2
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
4.2
|
|
|
$
|
4.4
|
|
Total
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
4.2
|
|
|
$
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
December 31, 2017
|
Description
|
Quoted Prices in Active
Markets for Identical Assets/Liabilities
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
66.3
|
|
|
$
|
550.6
|
|
|
$
|
—
|
|
|
$
|
616.9
|
|
Derivative assets
|
—
|
|
|
—
|
|
|
39.4
|
|
|
39.4
|
|
Total
|
$
|
66.3
|
|
|
$
|
550.6
|
|
|
$
|
39.4
|
|
|
$
|
656.3
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
2.4
|
|
|
$
|
2.7
|
|
Total
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
2.4
|
|
|
$
|
2.7
|
|
Financial assets classified in Level 1 include money market funds and treasury bonds. The valuation of these instruments is based upon unadjusted quoted prices for identical assets in active markets.
The valuation of financial assets and liabilities classified in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets or other inputs that are observable. Level 2 assets include commercial paper and certificates of deposit. Level 2 liabilities include commodity hedge contracts.
The Level 3 assets and liabilities include derivative assets that consist of freestanding derivative instruments related to certain supply agreements with one of our U.S. Iron Ore customers and derivative assets and liabilities related to certain provisional pricing arrangements with our U.S. Iron Ore and Asia Pacific Iron Ore customers.
The supply agreement included in our Level 3 assets includes provisions for supplemental revenue or refunds based on the average annual daily market price for hot-rolled coil steel at the time the iron ore product is consumed in the customer’s blast furnaces. We account for these provisions as derivative instruments at the time of sale and adjust the corresponding asset or liability to fair value as an adjustment to
Product revenues
each reporting period until the product is consumed and the amounts are settled. The fair value of the instruments are determined using a market approach based on the estimate of the average annual daily market price for hot-rolled coil steel. This estimate takes into consideration current market conditions and nonperformance risk. We had assets of
$91.2 million
and
$37.9 million
at
March 31, 2018
and
December 31, 2017
, respectively, related to the supply agreement.
The provisional pricing arrangements included in our Level 3 assets/liabilities specify provisional price calculations, where the pricing mechanisms generally are based on market pricing, with the final revenue rate to be based on market inputs at a specified point in time in the future, per the terms of the supply agreements. The difference between the estimated final revenue rate at the date of sale and the estimated final revenue rate at the measurement date is characterized as a derivative and is required to be accounted for separately once the revenue has been recognized. The derivative instrument is adjusted to fair value through
Product revenues
each reporting period based upon current market data and forward-looking estimates provided by management until the final revenue rate is determined. We had assets of
$2.4 million
and
$1.5 million
at
March 31, 2018
and
December 31, 2017
, respectively, related to provisional pricing arrangements. In addition, we had liabilities of
$4.2 million
and
$2.4 million
related to provisional pricing arrangements at
March 31, 2018
and
December 31, 2017
, respectively.
The following table illustrates information about quantitative inputs and assumptions for the assets and liabilities categorized in Level 3 of the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualitative/Quantitative Information About Level 3 Fair Value Measurements
|
|
|
(In Millions)
Fair Value at March 31, 2018
|
|
Balance Sheet
Location
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range or Point Estimate
(Weighted Average)
|
|
Customer supply agreements
|
|
$
|
91.2
|
|
|
Derivative assets
|
|
Market Approach
|
|
Management's Estimate of Market Hot-Rolled Coil Steel per net ton
|
|
$752
|
Provisional pricing arrangements
|
|
$
|
2.4
|
|
|
Derivative assets
|
|
Market Approach
|
|
Management's
Estimate of Platts 62% Price
per dry metric ton
|
|
$63 - $71
($66)
|
Provisional pricing arrangements
|
|
$
|
4.2
|
|
|
Other Current Liabilities
|
|
Market Approach
|
|
Management's
Estimate of Platts 62% Price
per dry metric ton
|
|
$63 - $71
($66)
|
The significant unobservable input used in the fair value measurement of our customer supply agreement is an estimate determined by management including the forward-looking estimate for the average annual daily market price for hot-rolled coil steel.
The significant unobservable inputs used in the fair value measurement of our provisional pricing arrangements are management’s estimates of Platts
62%
Price based upon current market data and index pricing, of which includes forward-looking estimates determined by management.
We recognize any transfers between levels as of the beginning of the reporting period, including both transfers into and out of levels. There were no transfers between Level 1 and Level 2 and no transfers into or out of Level 3 of the fair value hierarchy during the
three months ended
March 31, 2018
and
2017
. The following tables represent a reconciliation of the changes in fair value of financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Level 3 Assets
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Beginning balance
1
|
$
|
51.0
|
|
|
$
|
31.6
|
|
Total gains (losses)
|
|
|
|
Included in earnings
|
49.1
|
|
|
42.1
|
|
Settlements
|
(6.5
|
)
|
|
(14.3
|
)
|
Ending balance - March 31
|
$
|
93.6
|
|
|
$
|
59.4
|
|
Total gains for the period included in earnings attributable to the change in unrealized gains on assets still held at the reporting date
|
$
|
44.5
|
|
|
$
|
33.2
|
|
|
|
|
|
1
Beginning balance as of January 1, 2018 includes an $11.6 million adjustment for adoption of Topic 606.
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Level 3 Liabilities
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Beginning balance
|
$
|
(2.4
|
)
|
|
$
|
(0.5
|
)
|
Total gains (losses)
|
|
|
|
Included in earnings
|
(4.0
|
)
|
|
(8.6
|
)
|
Settlements
|
2.2
|
|
|
—
|
|
Ending balance - March 31
|
$
|
(4.2
|
)
|
|
$
|
(9.1
|
)
|
Total losses for the period included in earnings attributable to the change in unrealized losses on liabilities still held at the reporting date
|
$
|
(4.2
|
)
|
|
$
|
(9.1
|
)
|
The carrying amount of certain financial instruments (e.g.,
Accounts receivable, net
,
Accounts payable
and
Accrued expenses
) approximates fair value and, therefore, has been excluded from the table below. A summary of the carrying amount and fair value of other financial instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Classification
|
|
Carrying
Value
|
|
Fair Value
|
|
Carrying
Value
|
|
Fair Value
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
Secured Notes
|
|
|
|
|
|
|
|
|
|
$400 Million 4.875% 2024 Senior Notes
|
Level 1
|
|
$
|
390.8
|
|
|
$
|
389.0
|
|
|
$
|
390.3
|
|
|
$
|
398.0
|
|
Unsecured Notes
|
|
|
|
|
|
|
|
|
|
$400 Million 5.90% 2020 Senior Notes
|
Level 1
|
|
88.6
|
|
|
89.1
|
|
|
88.6
|
|
|
88.0
|
|
$500 Million 4.80% 2020 Senior Notes
|
Level 1
|
|
122.1
|
|
|
120.3
|
|
|
122.0
|
|
|
118.8
|
|
$700 Million 4.875% 2021 Senior Notes
|
Level 1
|
|
138.0
|
|
|
135.4
|
|
|
138.0
|
|
|
130.8
|
|
$316.25 Million 1.50% 2025 Convertible Senior Notes
|
Level 1
|
|
226.8
|
|
|
340.0
|
|
|
224.1
|
|
|
352.9
|
|
$1.075 Billion 5.75% 2025 Senior Notes
|
Level 1
|
|
1,047.9
|
|
|
1,026.6
|
|
|
1,047.2
|
|
|
1,029.3
|
|
$800 Million 6.25% 2040 Senior Notes
|
Level 1
|
|
292.7
|
|
|
251.1
|
|
|
292.6
|
|
|
227.1
|
|
ABL Facility
|
Level 2
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Fair value adjustment to interest rate hedge
|
Level 2
|
|
1.3
|
|
|
1.3
|
|
|
1.4
|
|
|
1.4
|
|
Total long-term debt
|
|
|
$
|
2,308.2
|
|
|
$
|
2,352.8
|
|
|
$
|
2,304.2
|
|
|
$
|
2,346.3
|
|
The fair value of long-term debt was determined using quoted market prices based upon current borrowing rates.
Items Measured at Fair Value on a Non-Recurring Basis
The following tables present information about the financial assets and liabilities that were measured on a fair value basis. The tables also indicate the fair value hierarchy of the valuation techniques used to determine such fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
|
March 31, 2018
|
Description
|
|
Quoted Prices in Active
Markets for Identical Assets/
Liabilities
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total
|
|
Total Year-to-Date Loss
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Loans to and accounts receivables from the Canadian Entities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
50.4
|
|
|
$
|
50.4
|
|
|
$
|
(1.2
|
)
|
Long-lived assets - Asia Pacific Iron Ore
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
|
December 31, 2017
|
Description
|
|
Quoted Prices in Active
Markets for Identical Assets/
Liabilities
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total
|
|
Total Year-to-Date Gains
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Loans to and accounts receivables from the Canadian Entities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
51.6
|
|
|
$
|
51.6
|
|
|
$
|
3.0
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Guarantees
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
31.4
|
|
To assess the fair value and recoverability of the accounts receivable from the Canadian Entities, we estimated the fair value of the underlying net assets of the Canadian Entities available for distribution to their creditors in relation to the estimated creditor claims and the priority of those claims. These underlying amounts are denominated primarily in Canadian dollars and are remeasured on a quarterly basis.
We determined the fair value and recoverability of our Canadian investments by comparing the estimated fair value of the remaining underlying assets of the Canadian Entities to remaining estimated liabilities. We recorded the Canadian denominated guarantees at book value, which best approximated fair value.
Our estimates involve significant judgment and are based on currently available information, an assessment of the validity of certain claims and estimated payments made by the Canadian Entities. Our ultimate recovery is subject to the final liquidation value of the Canadian Entities.
During the three months ended March 31, 2018, we recorded an impairment of
$2.6 million
for our Asia Pacific Iron Ore reporting segment. Based on the anticipated closure of the Asia Pacific Iron Ore operations, we stated the value of these assets within
Property, plant and equipment
at their estimated fair value.
NOTE 9 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS
We offer defined benefit pension plans, defined contribution pension plans and OPEB plans, primarily consisting of retiree healthcare benefits, to most employees in the U.S. as part of a total compensation and benefits program. We do not have employee retirement benefit obligations at our Asia Pacific Iron Ore operations. The defined benefit pension
plans largely are noncontributory and benefits generally are based on a minimum formula or employees’ years of service and average earnings for a defined period prior to retirement.
On January 1, 2018, we adopted the amendments to ASC 715 regarding the presentation of net periodic pension and postretirement benefit costs. We retrospectively adopted the presentation of service cost separate from the other components of net periodic costs. Service costs are classified within
Cost of goods sold and operating expenses
,
Selling, general and administrative expenses
and
Miscellaneous – net
while the interest cost, expected return on assets, amortization of prior service costs, net remeasurement, and other costs are classified within
Other non-operating income
in our
Statements of Unaudited Condensed Consolidated Operations
.
The following are the components of defined benefit pension and OPEB costs and credits:
Defined Benefit Pension Costs
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Service cost
|
$
|
4.7
|
|
|
$
|
4.8
|
|
Interest cost
|
7.6
|
|
|
7.5
|
|
Expected return on plan assets
|
(15.0
|
)
|
|
(13.5
|
)
|
Amortization:
|
|
|
|
Prior service costs
|
0.5
|
|
|
0.6
|
|
Net actuarial loss
|
5.3
|
|
|
5.3
|
|
Net periodic benefit cost
|
$
|
3.1
|
|
|
$
|
4.7
|
|
Other Postretirement Benefits Credits
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Service cost
|
$
|
0.5
|
|
|
$
|
0.5
|
|
Interest cost
|
2.1
|
|
|
2.1
|
|
Expected return on plan assets
|
(4.6
|
)
|
|
(4.4
|
)
|
Amortization:
|
|
|
|
Prior service credits
|
(0.8
|
)
|
|
(0.7
|
)
|
Net actuarial loss
|
1.2
|
|
|
1.2
|
|
Net periodic benefit credit
|
$
|
(1.6
|
)
|
|
$
|
(1.3
|
)
|
Based on funding requirements, we made pension contributions of
$2.3 million
for the
three months ended
March 31, 2018
, compared to
no
pension contributions for the three months ended
March 31, 2017
. OPEB contributions are typically made on an annual basis in the first quarter of each year, but due to plan funding requirements being met,
no
OPEB contributions were required or made for the
three months ended
March 31, 2018
and
March 31, 2017
.
NOTE 10 - STOCK COMPENSATION PLANS
Employees’ Plans
On February 21, 2018, the Compensation and Organization Committee of the Board of Directors approved grants under the A&R 2015 Equity Plan to certain officers and employees for the 2018 to 2020 performance period. Shares granted under the awards consisted of
0.7 million
restricted stock units and
0.7 million
performance shares.
Restricted stock units granted during 2018 are subject to continued employment, are retention based and are payable in common shares or cash at a time determined by the Compensation Committee at its discretion. The outstanding restricted stock units that were granted in 2018 cliff vest on December 31, 2020.
Performance shares are subject to continued employment, and each performance share, if earned, entitles the holder to be paid out in common shares or cash in certain circumstances. Performance is measured on the basis of relative TSR for the period of January 1, 2018 to December 31, 2020 and measured against the constituents of the S&P Metals and Mining ETF Index at the beginning of the relevant performance period. The final payouts for the outstanding performance period grants will vary from
zero
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.
Determination of Fair Value
The fair value of each performance share grant is estimated on the date of grant using a Monte Carlo simulation to forecast relative TSR performance. A correlation matrix of historic and projected stock prices was developed for both the Company and our predetermined peer group of mining and metals companies. The fair value assumes that performance goals will be achieved.
The expected term of the grant represents the time from the grant date to the end of the service period. We estimate the volatility of our common shares and that of the peer group of mining and metals companies using daily price intervals for all companies. The risk-free interest rate is the rate at the grant date on zero-coupon government bonds with a term commensurate with the remaining life of the performance period.
The following assumptions were utilized to estimate the fair value for the 2018 performance share grant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
Grant Date Market Price
|
|
Average Expected Term (Years)
|
|
Expected Volatility
|
|
Risk-Free Interest Rate
|
|
Dividend Yield
|
|
Fair Value
|
|
Fair Value (Percent of Grant Date Market Price)
|
February 21, 2018
|
|
$
|
7.53
|
|
|
2.86
|
|
86.8%
|
|
2.42%
|
|
—%
|
|
$
|
11.93
|
|
|
158.43%
|
NOTE 11 - INCOME TAXES
Our
2018
estimated annual effective tax rate before discrete items is approximately
0.1%
. The annual effective tax rate differs from the U.S. statutory rate of
21%
primarily due to the deductions for percentage depletion in excess of cost depletion related to U.S. operations and the reversal of valuation allowance from operations in the current year. The
2017
estimated annual effective tax rate before discrete items at
March 31, 2017
was
5.4%
.
For the three months ended
March 31, 2018
and
2017
, we recorded discrete items that resulted in an income tax expense of
$15.7 million
and a benefit of
$0.1 million
, respectively. The current year items relate primarily to a
$14.5 million
reduction of the refundable AMT credit recorded in
Income tax receivable
in our
Statements of Unaudited Condensed Consolidated Financial Position
based on the sequestration guidance issued by the Internal Revenue Service during the period ended
March 31, 2018
. This
$14.5 million
current year expense is a reduction of an asset and will not result in a cash tax outlay.
NOTE 12 - LEASE OBLIGATIONS
We lease certain mining, production and other equipment under operating and capital leases. The capital leases are for varying lengths, generally at market interest rates and contain purchase and/or renewal options at the end of the terms. Some capital lease payments could be accelerated upon cancellation of certain contracts at Asia Pacific Iron Ore. Our operating lease expense was $
1.6 million
for the three months ended
March 31, 2018
, compared with $
1.7 million
for the comparable period in
2017
.
Future minimum payments under capital leases and non-cancellable operating leases as of
March 31, 2018
are as follows:
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Capital Leases
|
|
Operating Leases
|
2018 (April 1 - December 31)
|
$
|
14.7
|
|
|
$
|
3.3
|
|
2019
|
12.0
|
|
|
1.9
|
|
2020
|
11.0
|
|
|
1.8
|
|
2021
|
10.3
|
|
|
1.8
|
|
2022
|
2.1
|
|
|
1.8
|
|
2023 and thereafter
|
—
|
|
|
7.5
|
|
Total minimum lease payments
|
$
|
50.1
|
|
|
$
|
18.1
|
|
Amounts representing interest
|
7.6
|
|
|
|
Present value of net minimum lease payments
1
|
$
|
42.5
|
|
|
|
|
|
|
|
1
The total is comprised of $14.6 million and $27.9 million classified as
Other current liabilities
and
Other liabilities
, respectively, in the Statements of Unaudited Condensed Consolidated Financial Position as of March 31, 2018.
|
NOTE 13 - ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
We had environmental and mine closure liabilities of
$202.5 million
and
$200.1 million
at
March 31, 2018
and
December 31, 2017
, respectively. The following is a summary of the obligations:
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
March 31,
2018
|
|
December 31,
2017
|
Environmental
|
$
|
3.1
|
|
|
$
|
2.9
|
|
Mine closure
|
|
|
|
U.S. Iron Ore
1
|
170.7
|
|
|
168.4
|
|
Asia Pacific Iron Ore
|
28.7
|
|
|
28.8
|
|
Total mine closure
|
199.4
|
|
|
197.2
|
|
Total environmental and mine closure obligations
|
202.5
|
|
|
200.1
|
|
Less current portion
|
21.3
|
|
|
3.6
|
|
Long-term environmental and mine closure obligations
|
$
|
181.2
|
|
|
$
|
196.5
|
|
|
|
|
|
1
U.S. Iron Ore includes our active operating mines, our indefinitely idled Empire mine and a closed mine formerly operating as LTVSMC.
|
As of
March 31, 2018
, we reclassified
$17.7 million
of our mine closure liability from long-term
Environmental and mine closure obligations
to
Other current liabilities
based on our plan to begin reclamation activities at Asia Pacific Iron Ore later this year.
Mine Closure
The accrued mine closure obligation for our active mining operations provides for contractual and legal obligations associated with the eventual closure of the mining operations. The accretion of the liability and amortization of the related asset is recognized over the estimated mine lives for each location.
The following represents a roll forward of our mine closure obligation liability for the three months ended
March 31, 2018
and for the year ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
March 31,
2018
|
|
December 31,
2017
|
Mine closure obligation at beginning of period
|
$
|
197.2
|
|
|
$
|
204.0
|
|
Accretion expense
|
2.7
|
|
|
14.9
|
|
Remediation payments
|
(0.1
|
)
|
|
(5.6
|
)
|
Exchange rate changes
|
(0.5
|
)
|
|
1.5
|
|
Revision in estimated cash flows
|
0.1
|
|
|
(17.6
|
)
|
Mine closure obligation at end of period
|
$
|
199.4
|
|
|
$
|
197.2
|
|
For the year ended
December 31, 2017
, the revision in estimated cash flows relates primarily to updates to our estimates resulting from our three-year in-depth review of our mine closure obligations for each of our U.S. mines. The primary driver of the decrease in estimated cash flows was the Empire mine, as the mine closure obligation was reduced
$26.2 million
as a result of the refinement of the cash flows required for reclamation, remediation and structural removal. Prior estimates were based on RS Means (a common costing methodology used in the construction and demolition industry) costing data while the current estimate was compiled using a more detailed cost build-up approach. The overall decrease in estimated cash flows for our U.S. Iron Ore mines was offset partially by an increase in costs of
$10.1 million
relating to the refinement of expected costs to be incurred at the end of life of mine at our Asia Pacific Iron Ore operations.
NOTE 14 - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The carrying amount of goodwill as of
March 31, 2018
and
December 31, 2017
was
$2.0 million
and related to our U.S. Iron Ore operating segment.
Other Intangible Assets
The following table is a summary of definite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Classification
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Permits
|
Other non-current assets
|
|
$
|
78.8
|
|
|
$
|
(28.9
|
)
|
|
$
|
49.9
|
|
|
$
|
78.8
|
|
|
$
|
(26.5
|
)
|
|
$
|
52.3
|
|
Amortization expense relating to other intangible assets was
$2.6 million
and
$0.6 million
for the
three months ended
March 31, 2018
and
2017
, respectively, and is recognized in
Cost of goods sold and operating expenses
in the
Statements of Unaudited Condensed Consolidated Operations
. Amortization expense of other intangible assets is expected to continue to be immaterial going forward.
NOTE 15 - DERIVATIVE INSTRUMENTS
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
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31, 2018
|
|
December 31, 2017
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Contracts
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
Other current liabilities
|
|
$
|
0.2
|
|
|
Other current liabilities
|
|
$
|
0.3
|
|
Derivatives not designated as hedging instruments under ASC 815:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer supply agreements
|
|
Derivative assets
|
|
$
|
91.2
|
|
|
Derivative assets
|
|
$
|
37.9
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
Provisional pricing arrangements
|
|
Derivative assets
|
|
2.4
|
|
|
Derivative assets
|
|
1.5
|
|
|
Other current liabilities
|
|
4.2
|
|
|
Other current liabilities
|
|
2.4
|
|
Total derivatives not designated as hedging instruments under ASC 815
|
|
|
|
$
|
93.6
|
|
|
|
|
$
|
39.4
|
|
|
|
|
$
|
4.2
|
|
|
|
|
$
|
2.4
|
|
Total derivatives
|
|
|
|
$
|
93.6
|
|
|
|
|
$
|
39.4
|
|
|
|
|
$
|
4.4
|
|
|
|
|
$
|
2.7
|
|
Cash Flow Hedges
Commodity Contracts
As of
March 31, 2018
, we had outstanding natural gas hedge contracts for a notional amount of
3.5 million
MMBtu in the form of forward contracts with varying maturity dates ranging from April 2018 to February 2019. As of
December 31, 2017
, we had outstanding natural gas hedge contracts for a notional amount of
3.5 million
MMBtu in the form of forward contracts with varying maturity dates ranging from January 2018 to November 2018. 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
.
During the three months ended
March 31, 2018
, we recorded an unrealized gain of
$0.4 million
in
Other comprehensive income (loss)
for changes in the fair value of these instruments and
$0.1 million
has been reclassified from
Accumulated other comprehensive loss
into earnings. We had no commodity contracts designated as hedge instruments for the three months ended
March 31, 2017
.
Derivatives Not Designated as Hedging Instruments
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% Price, along with pellet premiums, published Platts international indexed freight rates and changes in specified Producer Price Indices, including those for industrial commodities, fuel and steel. The pricing adjustments generally operate in the same manner, with each factor typically comprising a portion of the price adjustment, although the weighting of each factor varies based upon the specific terms of each agreement. In most cases, these adjustment factors have not been finalized at the time our product is sold. In these cases, we historically have estimated the adjustment factors at each reporting period based upon the best third-party information available. The estimates are then adjusted to actual when the information has been finalized. The price adjustment factors have been evaluated to determine if they contain embedded derivatives. The price adjustment factors share the same economic
characteristics and risks as the host contract and are integral to the host contract as inflation adjustments; accordingly, they have not been separately valued as derivative instruments.
A supply agreement with one U.S. Iron Ore customer provides for supplemental revenue or refunds to the customer based on the average annual daily steel market price for hot-rolled coil steel at the time the iron ore 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 delivered. 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 net derivative revenue of
$41.9 million
and
$17.8 million
in
Product revenues
in the
Statements of Unaudited Condensed Consolidated Operations
for the
three months ended
March 31, 2018
and
2017
, respectively, related to the supplemental payments.
Derivative assets
, representing the fair value of the supplemental revenue, were
$91.2 million
and
$37.9 million
as of
March 31, 2018
and
December 31, 2017
in the
Statements of Unaudited Condensed Consolidated Financial Position
, respectively.
Provisional Pricing Arrangements
Certain of our U.S. 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 based on certain market inputs at a specified period in time in the future, per the terms of the supply agreements. Market inputs are tied to indexed price adjustment factors that are integral to the iron ore supply contracts and vary based on the agreement. The pricing mechanisms typically include adjustments based upon changes in the Platts 62% Price, along with pellet premiums, published Platts international indexed freight rates and changes in specified Producer Price Indices, including those for industrial commodities, fuel 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.
Revenue is recognized generally when iron ore is delivered to our customers. Revenue is measured at the point control transfers and represents the amount of consideration we expect to receive in exchange for transferring goods. Changes in the expected revenue rate from the date control transfers through final settlement of contract terms is recorded in accordance with ASC Topic 815 and is characterized as a freestanding derivative and accounted for separately. Subsequently, the derivative instruments for both U.S. Iron Ore and Asia Pacific Iron Ore are 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
March 31, 2018
, we recorded
$2.4 million
as
Derivative assets
and
$4.2 million
as derivative liabilities classified as
Other current liabilities
related to our estimate of the final revenue rate with our U.S. Iron Ore and Asia Pacific Iron Ore customers in the
Statements of Unaudited Condensed Consolidated Financial Position
. At
December 31, 2017
, we recorded
$1.5 million
as
Derivative assets
and
$2.4 million
as derivative liabilities classified as
Other current liabilities
related to our estimate of the final revenue rate with our U.S. Iron Ore and Asia Pacific Iron Ore customers in the
Statements of Unaudited Condensed Consolidated Financial Position
. These amounts represent the difference between the amount we expect to receive when revenue is initially measured at the point control transfers and our subsequent estimate of the final revenue rate based on the price calculations established in the supply agreements. We recognized net increases of
$3.2 million
and
$15.7 million
in
Product revenues
in the
Statements of Unaudited Condensed Consolidated Operations
for the
three months ended
March 31, 2018
and
2017
, respectively, related to these arrangements.
The following summarizes the effect of our derivatives that are not designated as hedging instruments in the
Statements of Unaudited Condensed Consolidated Operations
:
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
Derivatives Not Designated as Hedging Instruments
|
|
Location of Income (Loss) Recognized on Derivatives
|
|
Amount of Income (Loss) Recognized on Derivatives
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2018
|
|
2017
|
Customer Supply Agreements
|
|
Product revenues
|
|
$
|
41.9
|
|
|
$
|
17.8
|
|
Provisional Pricing Arrangements
|
|
Product revenues
|
|
3.2
|
|
|
15.7
|
|
Commodity Contracts
|
|
Cost of goods sold and operating expenses
|
|
—
|
|
|
(1.3
|
)
|
Total
|
|
|
|
$
|
45.1
|
|
|
$
|
32.2
|
|
Refer to
NOTE 8 - FAIR VALUE MEASUREMENTS
for additional information.
NOTE 16 - SHAREHOLDERS' DEFICIT
The following table reflects the changes in shareholders' deficit attributable to both us and the noncontrolling interests, primarily related to Tilden and Empire. We own
100%
of both mines as of
March 31, 2018
and
85%
and
79%
of each mine, respectively, as of
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Cliffs
Shareholders’
Equity (Deficit)
|
|
Noncontrolling
Interest
|
|
Total Equity
(Deficit)
|
December 31, 2017
|
$
|
(444.3
|
)
|
|
$
|
0.2
|
|
|
$
|
(444.1
|
)
|
Adoption of accounting standard (Note 2)
|
34.0
|
|
|
—
|
|
|
34.0
|
|
Comprehensive loss
|
|
|
|
|
|
Net loss
|
(84.3
|
)
|
|
—
|
|
|
(84.3
|
)
|
Other comprehensive income
|
7.7
|
|
|
—
|
|
|
7.7
|
|
Total comprehensive loss
|
(76.6
|
)
|
|
—
|
|
|
(76.6
|
)
|
Stock and other incentive plans
|
1.9
|
|
|
—
|
|
|
1.9
|
|
March 31, 2018
|
$
|
(485.0
|
)
|
|
$
|
0.2
|
|
|
$
|
(484.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Cliffs
Shareholders’
Equity (Deficit)
|
|
Noncontrolling
Interest
|
|
Total Equity
(Deficit)
|
December 31, 2016
|
$
|
(1,464.3
|
)
|
|
$
|
133.8
|
|
|
$
|
(1,330.5
|
)
|
Comprehensive loss
|
|
|
|
|
|
Net loss
|
(28.1
|
)
|
|
(1.7
|
)
|
|
(29.8
|
)
|
Other comprehensive loss
|
(3.0
|
)
|
|
(5.0
|
)
|
|
(8.0
|
)
|
Total comprehensive loss
|
(31.1
|
)
|
|
(6.7
|
)
|
|
(37.8
|
)
|
Issuance of common shares
|
661.3
|
|
|
—
|
|
|
661.3
|
|
Stock and other incentive plans
|
4.0
|
|
|
—
|
|
|
4.0
|
|
March 31, 2017
|
$
|
(830.1
|
)
|
|
$
|
127.1
|
|
|
$
|
(703.0
|
)
|
The following table reflects the changes in
Accumulated other comprehensive loss
related to Cliffs shareholders’ deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Changes in Pension and Other Post-Retirement Benefits,
net of tax
|
|
Unrealized Net Gain on Foreign Currency Translation
|
|
Net Unrealized Gain (Loss) on Derivative Financial Instruments, net of tax
|
|
Accumulated Other Comprehensive Loss
|
December 31, 2017
|
$
|
(263.9
|
)
|
|
$
|
225.4
|
|
|
$
|
(0.5
|
)
|
|
$
|
(39.0
|
)
|
Other comprehensive income before reclassifications
|
0.5
|
|
|
0.7
|
|
|
0.4
|
|
|
1.6
|
|
Net loss (gain) reclassified from accumulated other comprehensive loss
|
6.2
|
|
|
—
|
|
|
(0.1
|
)
|
|
6.1
|
|
March 31, 2018
|
$
|
(257.2
|
)
|
|
$
|
226.1
|
|
|
$
|
(0.2
|
)
|
|
$
|
(31.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Changes in Pension and Other Post-Retirement Benefits, net of tax
|
|
Unrealized Net Gain (Loss) on Foreign Currency Translation
|
|
Accumulated Other Comprehensive Loss
|
December 31, 2016
|
$
|
(260.6
|
)
|
|
$
|
239.3
|
|
|
$
|
(21.3
|
)
|
Other comprehensive income (loss) before reclassifications
|
3.3
|
|
|
(12.7
|
)
|
|
(9.4
|
)
|
Net loss reclassified from accumulated other comprehensive loss
|
6.4
|
|
|
—
|
|
|
6.4
|
|
March 31, 2017
|
$
|
(250.9
|
)
|
|
$
|
226.6
|
|
|
$
|
(24.3
|
)
|
The following table reflects the details about
Accumulated other comprehensive loss
components related to Cliffs shareholders’ deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
|
Details about Accumulated Other Comprehensive Loss Components
|
|
Amount of (Gain)/Loss Reclassified into Income
|
|
Affected Line Item in the Statement of Unaudited Condensed Consolidated Operations
|
|
Three Months Ended
March 31,
|
|
|
2018
|
|
2017
|
|
Amortization of pension and OPEB liability:
|
|
|
|
|
|
|
Prior service credits
|
|
$
|
(0.3
|
)
|
|
$
|
(0.1
|
)
|
|
Other non-operating income
|
Net actuarial loss
|
|
6.5
|
|
|
6.5
|
|
|
Other non-operating income
|
|
|
$
|
6.2
|
|
|
$
|
6.4
|
|
|
Net of taxes
|
|
|
|
|
|
|
|
Unrealized loss on derivative financial instruments:
|
|
|
|
|
|
|
Commodity contracts
|
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
|
Cost of goods sold and operating expenses
|
|
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
|
Net of taxes
|
|
|
|
|
|
|
|
Total reclassifications for the period, net of tax
|
|
$
|
6.1
|
|
|
$
|
6.4
|
|
|
|
NOTE 17 - RELATED PARTIES
One
of our
four
operating U.S. iron ore mines is a co-owned joint venture with companies that are integrated steel producers or their subsidiaries. We are the manager of such co-owned mine and rely on our joint venture partners to make their required capital contributions and to pay for their share of the iron ore pellets that we produce. Our joint venture partners are also our customers. The following is a summary of the mine ownership of the co-owned iron ore mine at
March 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
Mine
|
|
Cleveland-Cliffs Inc.
|
|
ArcelorMittal
|
|
U.S. Steel
|
Hibbing
|
|
23.0
|
%
|
|
62.3
|
%
|
|
14.7
|
%
|
Product revenues
from related parties were as follows:
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Product revenues from related parties
|
$
|
62.1
|
|
|
$
|
118.5
|
|
Total product revenues
|
$
|
220.7
|
|
|
$
|
412.8
|
|
Related party product revenue as a percent of total product revenue
|
28.1
|
%
|
|
28.7
|
%
|
The following table presents the classification of related party assets and liabilities in the
Statements of Unaudited Condensed Consolidated Financial Position
:
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Balance Sheet
Location
|
|
March 31, 2018
|
|
December 31, 2017
|
Amounts due from related parties
|
Accounts receivable, net
|
|
$
|
7.9
|
|
|
$
|
68.1
|
|
Customer supply agreements and provisional pricing agreements
|
Derivative assets
|
|
91.3
|
|
|
37.9
|
|
Amounts due to related parties
|
Accounts payable
|
|
(1.2
|
)
|
|
—
|
|
Amounts due to related parties
|
Partnership distribution payable
|
|
(44.2
|
)
|
|
(44.2
|
)
|
Amounts due to related parties
|
Other current liabilities
|
|
(0.4
|
)
|
|
(12.3
|
)
|
Amounts due to related parties
|
Other liabilities
|
|
(42.0
|
)
|
|
(41.4
|
)
|
Net amounts due from related parties
|
|
|
$
|
11.4
|
|
|
$
|
8.1
|
|
During 2017, our ownership interest in Empire increased to
100%
as we reached an agreement to distribute the noncontrolling interest net assets of
$132.7 million
to ArcelorMittal, in exchange for its interest in Empire. The net assets were agreed to be distributed in three installments of
$44.2 million
each, the first of which was paid upon the execution of the agreement and the remaining distributions are due in August 2018 and August 2019. The remaining two outstanding installments are reflected in
Partnership distribution payable
and
Other liabilities
in the
Statements of Unaudited Condensed Consolidated Financial Position
as of
March 31, 2018
.
A supply agreement with one U.S. Iron Ore customer provides for supplemental revenue or refunds to the customer based on the average annual daily market price for hot-rolled coil steel at the time the product is consumed in the customer’s blast furnace. The supplemental pricing is characterized as a freestanding derivative. Refer to
NOTE 15 - DERIVATIVE INSTRUMENTS
for further information.
NOTE 18 - EARNINGS PER SHARE
The following table summarizes the computation of basic and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
(In Millions, Except Per Share Amounts)
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Loss from Continuing Operations
|
$
|
(84.8
|
)
|
|
$
|
(30.3
|
)
|
Loss from Continuing Operations Attributable to Noncontrolling Interest
|
—
|
|
|
1.7
|
|
Net Loss from Continuing Operations Attributable to Cliffs Shareholders
|
$
|
(84.8
|
)
|
|
$
|
(28.6
|
)
|
Income from Discontinued Operations, net of tax
|
0.5
|
|
|
0.5
|
|
Net Loss Attributable to Cliffs Shareholders
|
$
|
(84.3
|
)
|
|
$
|
(28.1
|
)
|
Weighted Average Number of Shares:
|
|
|
|
Basic
|
297.3
|
|
|
265.2
|
|
Employee Stock Plans
|
—
|
|
|
—
|
|
Diluted
|
297.3
|
|
|
265.2
|
|
Loss per Common Share Attributable to
Cliffs Common Shareholders - Basic:
|
|
|
|
Continuing operations
|
$
|
(0.29
|
)
|
|
$
|
(0.11
|
)
|
Discontinued operations
|
—
|
|
|
—
|
|
|
$
|
(0.29
|
)
|
|
$
|
(0.11
|
)
|
Loss per Common Share Attributable to
Cliffs Common Shareholders - Diluted:
|
|
|
|
Continuing operations
|
$
|
(0.29
|
)
|
|
$
|
(0.11
|
)
|
Discontinued operations
|
—
|
|
|
—
|
|
|
$
|
(0.29
|
)
|
|
$
|
(0.11
|
)
|
The diluted earnings per share calculation excludes
3.8 million
and
4.6 million
shares for the three months ended
March 31, 2018
and
2017
, respectively, related to equity plan awards that would have been anti-dilutive.
NOTE 19 - COMMITMENTS AND CONTINGENCIES
Contingencies
We are currently the subject of, or party to, various claims and legal proceedings incidental to our operations. If management believes that a loss arising from these matters is probable and can reasonably be estimated, we record the amount of the loss or the minimum estimated liability when the loss is estimated using a range, and no point within the range is more probable than another. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary. Based on currently available information, management believes that the ultimate outcome of these matters, individually and in the aggregate, will not have a material effect on our financial position, results of operations or cash flows. However, these claims and legal proceedings are subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include monetary damages, additional funding requirements or an injunction. If an unfavorable ruling were to occur, there exists the possibility of a material impact on the financial position and results of operations for the period in which the ruling occurs or future periods. However, we do not believe that any pending claims or legal proceedings will result in a material liability in relation to our consolidated financial statements.
Currently, we have recorded a liability in the
Statements of Unaudited Condensed Consolidated Financial Position
related to the following legal matters:
Michigan Electricity Matters.
On February 19, 2015, in connection with various proceedings before FERC with respect to certain cost allocations for continued operation of the Presque Isle Power Plant in Marquette, Michigan, FERC issued an order directing MISO to submit a revised methodology for allocating SSR costs that identified the load serving entities that require the operation of SSR units at the power plant for reliability purposes. On September 17, 2015, FERC
issued an order conditionally approving MISO’s revised allocation methodology. On September 22, 2016, FERC denied requests for rehearing of the February 19 order, rejecting arguments that FERC did not have the authority to order refunds in a cost allocation case and to impose retroactive surcharges to effectuate such refunds. FERC, however, suspended any refunds and surcharges pending its review of a July 25, 2016 ALJ initial decision on the appropriate amount of SSR compensation. This suspension was ultimately lifted after FERC’s Order on Initial Decision of October 19, 2017, affirming in part and reversing in part certain aspects of the ALJ’s decision and FERC’s order on February 28, 2018, directing that refunds and surcharges be effectuated over a ten-month period beginning on the date of the order. Our current estimate of the potential liability to the Empire and Tilden mines is
$13.0 million
in the aggregate, based on a schedule of anticipated surcharges (including interest) for the Escanaba, White Pine and Presque Isle SSRs from Empire and Tilden's electricity supplier. Separate from these SSR compensation issues, Tilden and Empire, along with various Michigan-aligned parties, had filed petitions for review regarding allocation and non-cost SSR issues with the U.S. Court of Appeals for the D.C. Circuit. Oral arguments on those issues were completed on April 6, 2018. We will continue to vigorously challenge the imposition of any retroactive SSR costs before the U.S. Court of Appeals for the D.C. Circuit. As of
March 31, 2018
,
$13.0 million
is included in our
Statements of Unaudited Condensed Consolidated Financial Position
as part of
Accrued expenses
.
CCAA Proceedings
Effective January 27, 2015, following the commencement of CCAA proceedings for the Bloom Lake Group, we deconsolidated the Bloom Lake Group and certain other wholly-owned subsidiaries comprising substantially all of our Canadian operations. Additionally, on May 20, 2015, the Wabush Group commenced CCAA proceedings which resulted in the deconsolidation of the remaining Wabush Group entities that were not previously deconsolidated. As a result of this action, the CCAA protection granted to the Bloom Lake Group was extended to include the Wabush Group to facilitate the reorganization of each of their businesses and operations.
Prior to the deconsolidations, certain of our wholly-owned subsidiaries made loans to the Canadian Entities for the purpose of funding their operations and had accounts receivable generated in the ordinary course of business. The loans, corresponding interest and the accounts receivable were considered intercompany transactions and eliminated in our consolidated financial statements. Since the deconsolidations, the loans, associated interest and accounts receivable are considered related party transactions and have been recognized in our consolidated financial statements at their estimated fair value of
$50.4 million
and
$51.6 million
classified as
Loans to and accounts receivable from the Canadian Entities
in the
Statements of Unaudited Condensed Consolidated Financial Position
as of
March 31, 2018
and
December 31, 2017
, respectively.
As of
March 31, 2018
, CCAA proceedings are ongoing and the majority of the assets of each of the Bloom Lake Group and the Wabush Group have been liquidated. The Monitor appointed by the court in the CCAA proceedings for the Bloom Lake Group and the Wabush Group has conducted a claims process pursuant to which creditors have filed claims against the Bloom Lake Group and the Wabush Group. The Monitor is reviewing all claims filed as part of this claims process. Currently, there is uncertainty as to the amount of the distribution that will be made to the creditors of the Bloom Lake Group and the Wabush Group, including, if any, to us, and whether we could be held liable for claims that may be asserted by or on behalf of the Bloom Lake Group or the Wabush Group or by their respective representatives against non-debtor affiliates of the Bloom Lake Group and the Wabush Group.
The net proceeds of sale of the assets of the Bloom Lake Group and the Wabush Group are currently being held by the Monitor. Certain of these funds will be utilized to fund the accrued and ongoing costs of the CCAA proceedings and the remaining funds will be available for distribution to the creditors of the Bloom Lake Group and the Wabush Group.
During 2017, we became aware that it was probable the Monitor will assert a preference claim against us and/or certain of our affiliates. We have an estimated liability of
$54.3 million
, which includes the value of our related-party claims against the Bloom Lake Group and the Wabush Group, classified as C
ontingent claims
in the
Statements of Unaudited Condensed Consolidated Financial Position
as of
March 31, 2018
.
During March 2018, we entered into a restructuring term sheet with the Bloom Lake Group and the Wabush Group, which documents the proposed terms of a plan of compromise or arrangement in the CCAA proceedings (the “Proposed Plan”) to be sponsored by us as negotiated between us and the Monitor. This Proposed Plan requires both creditor and court approval.
Under the terms of this Proposed Plan, we and certain of our wholly owned subsidiaries have agreed to forego the benefit of any distributions or payments we may be entitled to receive as creditors of the Bloom Lake Group and the Wabush Group and to also make a C
$5.0 million
cash contribution to the Bloom Lake Group and the Wabush Group for distribution to other creditors. It is important to note that the Proposed Plan, as currently drafted, will not resolve certain
employee claims which have been raised outside of the CCAA proceedings against us and certain of our affiliates and which will be addressed separately.
If this Proposed Plan is approved by a majority of the creditors of both the Bloom Lake Group and the Wabush Group, and is also approved by the court in the CCAA proceedings, and is implemented in accordance with its terms, then the Proposed Plan will resolve all of our claims against the Bloom Lake Group and the Wabush Group and all claims by the Bloom Lake Group, the Wabush Group and their respective creditors against us, except as noted above. The net financial impact of the Proposed Plan is materially consistent with amounts previously recorded in our financial statements.
However, if the creditors and the court do not approve the Proposed Plan, it is reasonably possible that future changes to our estimates and the ultimate amount paid on any claims could be material to our results of discontinued operations in future periods. We are not able to reasonably estimate such impact because there would be significant factual and legal issues to be resolved if the Proposed Plan is not approved. We will vigorously defend any claims if the Proposed Plan is not approved and implemented in accordance with its terms.
The motion to authorize the Bloom Lake Group and the Wabush Group to file the Proposed Plan and to schedule meetings of the creditors of the Bloom Lake Group and the Wabush Group to consider and vote to approve or reject the Proposed Plan was approved by the court on April 20, 2018.
NOTE 20 - SUBSEQUENT EVENTS
We have evaluated subsequent events through the date of financial issuance.
NOTE 21 - SUPPLEMENTARY GUARANTOR INFORMATION
The accompanying unaudited condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X, Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.” Certain of our subsidiaries (the "Guarantors") have guaranteed the obligations under the
$1.075 billion
5.75%
2025 Senior Notes issued by Cleveland-Cliffs Inc. See
NOTE 7 - DEBT AND CREDIT FACILITIES
for further information.
The following presents the unaudited condensed consolidating financial information for: (i) the Parent Company and the Issuer of the guaranteed obligations (Cleveland-Cliffs Inc.); (ii) the Guarantor subsidiaries, on a combined basis; (iii) the non-guarantor subsidiaries, on a combined basis; (iv) consolidating eliminations; and (v) Cleveland-Cliffs Inc. and subsidiaries on a consolidated basis. Each Guarantor subsidiary is
100%
owned by the Parent Company as of
March 31, 2018
and
December 31, 2017
. The unaudited condensed consolidating financial information is presented as if the Guarantor structure at
March 31, 2018
existed for all periods presented. As a result, the Guarantor subsidiaries within the unaudited condensed consolidating financial information as of
March 31, 2018
and
December 31, 2017
and for the three months ended
March 31, 2018
and
2017
include results of subsidiaries that were previously less than wholly-owned and were historically non-guarantors until
100%
ownership was obtained.
Each of the Guarantor subsidiaries fully and unconditionally guarantee, on a joint and several basis, the obligations of Cleveland-Cliffs Inc. under the
$1.075 billion
5.75%
2025 Senior Notes. The guarantee of a Guarantor subsidiary will be automatically and unconditionally released and discharged, and such Guarantor subsidiary’s obligations under the guarantee and the related indenture governing the
$1.075 billion
5.75%
2025 Senior Notes (the “Indenture”) will be automatically and unconditionally released and discharged, upon:
(a) any sale, exchange, transfer or disposition of such Guarantor subsidiary (by merger, consolidation, or the sale of) or the capital stock of such Guarantor subsidiary after which the applicable Guarantor subsidiary is no longer a subsidiary of the Company or the sale of all or substantially all of such Guarantor subsidiary’s assets (other than by lease);
(b) upon designation of any Guarantor subsidiary as an “excluded subsidiary” (as defined in the Indenture); and
(c) upon defeasance or satisfaction and discharge of the Indenture.
Each entity in the unaudited consolidating financial information follows the same accounting policies as described in the consolidated financial statements. The accompanying unaudited condensed consolidating financial information has been presented on the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for the subsidiaries’ cumulative results of operations, capital contributions and distributions, and other changes in equity. Elimination entries include consolidating and eliminating entries for investments in subsidiaries, and intra-entity activity and balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Condensed Consolidating Statement of Financial Position
|
As of March 31, 2018
|
(In Millions)
|
|
Cleveland-Cliffs Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
753.6
|
|
|
$
|
1.0
|
|
|
$
|
32.0
|
|
|
$
|
—
|
|
|
$
|
786.6
|
|
Accounts receivable, net
|
5.7
|
|
|
27.7
|
|
|
15.9
|
|
|
(2.1
|
)
|
|
47.2
|
|
Inventories
|
—
|
|
|
303.2
|
|
|
21.2
|
|
|
—
|
|
|
324.4
|
|
Supplies and other inventories
|
—
|
|
|
81.4
|
|
|
0.3
|
|
|
—
|
|
|
81.7
|
|
Derivative assets
|
—
|
|
|
93.6
|
|
|
—
|
|
|
—
|
|
|
93.6
|
|
Loans to and accounts receivable from the Canadian Entities
|
43.5
|
|
|
6.9
|
|
|
—
|
|
|
—
|
|
|
50.4
|
|
Other current assets
|
15.5
|
|
|
7.9
|
|
|
5.1
|
|
|
—
|
|
|
28.5
|
|
TOTAL CURRENT ASSETS
|
818.3
|
|
|
521.7
|
|
|
74.5
|
|
|
(2.1
|
)
|
|
1,412.4
|
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
16.2
|
|
|
956.9
|
|
|
74.2
|
|
|
—
|
|
|
1,047.3
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
|
Deposits for property, plant and equipment
|
—
|
|
|
1.9
|
|
|
72.2
|
|
|
—
|
|
|
74.1
|
|
Income tax receivable
|
219.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
219.9
|
|
Investment in subsidiaries
|
1,185.7
|
|
|
27.4
|
|
|
—
|
|
|
(1,213.1
|
)
|
|
—
|
|
Long-term intercompany notes
|
—
|
|
|
—
|
|
|
242.0
|
|
|
(242.0
|
)
|
|
—
|
|
Other non-current assets
|
8.9
|
|
|
97.9
|
|
|
2.4
|
|
|
—
|
|
|
109.2
|
|
TOTAL OTHER ASSETS
|
1,414.5
|
|
|
127.2
|
|
|
316.6
|
|
|
(1,455.1
|
)
|
|
403.2
|
|
TOTAL ASSETS
|
$
|
2,249.0
|
|
|
$
|
1,605.8
|
|
|
$
|
465.3
|
|
|
$
|
(1,457.2
|
)
|
|
$
|
2,862.9
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
4.6
|
|
|
$
|
71.8
|
|
|
$
|
25.2
|
|
|
$
|
(2.1
|
)
|
|
$
|
99.5
|
|
Accrued expenses
|
11.1
|
|
|
60.0
|
|
|
23.3
|
|
|
—
|
|
|
94.4
|
|
Accrued interest
|
28.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28.2
|
|
Contingent claims
|
54.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
54.3
|
|
Partnership distribution payable
|
—
|
|
|
44.2
|
|
|
—
|
|
|
—
|
|
|
44.2
|
|
Other current liabilities
|
1.8
|
|
|
63.3
|
|
|
39.2
|
|
|
—
|
|
|
104.3
|
|
TOTAL CURRENT LIABILITIES
|
100.0
|
|
|
239.3
|
|
|
87.7
|
|
|
(2.1
|
)
|
|
424.9
|
|
PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES
|
66.1
|
|
|
429.6
|
|
|
(244.3
|
)
|
|
—
|
|
|
251.4
|
|
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
|
—
|
|
|
143.1
|
|
|
38.1
|
|
|
—
|
|
|
181.2
|
|
LONG-TERM DEBT
|
2,308.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,308.2
|
|
LONG-TERM INTERCOMPANY NOTES
|
242.0
|
|
|
—
|
|
|
—
|
|
|
(242.0
|
)
|
|
—
|
|
OTHER LIABILITIES
|
17.5
|
|
|
142.9
|
|
|
21.6
|
|
|
—
|
|
|
182.0
|
|
TOTAL LIABILITIES
|
2,733.8
|
|
|
954.9
|
|
|
(96.9
|
)
|
|
(244.1
|
)
|
|
3,347.7
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
TOTAL CLIFFS SHAREHOLDERS' DEFICIT
|
(484.8
|
)
|
|
650.9
|
|
|
562.0
|
|
|
(1,213.1
|
)
|
|
(485.0
|
)
|
NONCONTROLLING INTEREST
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
TOTAL DEFICIT
|
(484.8
|
)
|
|
650.9
|
|
|
562.2
|
|
|
(1,213.1
|
)
|
|
(484.8
|
)
|
TOTAL LIABILITIES AND DEFICIT
|
$
|
2,249.0
|
|
|
$
|
1,605.8
|
|
|
$
|
465.3
|
|
|
$
|
(1,457.2
|
)
|
|
$
|
2,862.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Condensed Consolidating Statement of Financial Position
|
As of December 31, 2017
|
(In Millions)
|
|
Cleveland-Cliffs Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
948.9
|
|
|
$
|
2.1
|
|
|
$
|
56.7
|
|
|
$
|
—
|
|
|
$
|
1,007.7
|
|
Accounts receivable, net
|
4.5
|
|
|
102.9
|
|
|
33.9
|
|
|
(0.7
|
)
|
|
140.6
|
|
Inventories
|
—
|
|
|
138.4
|
|
|
45.0
|
|
|
—
|
|
|
183.4
|
|
Supplies and other inventories
|
—
|
|
|
88.8
|
|
|
5.1
|
|
|
—
|
|
|
93.9
|
|
Derivative assets
|
—
|
|
|
37.9
|
|
|
1.5
|
|
|
—
|
|
|
39.4
|
|
Loans to and accounts receivable from the Canadian Entities
|
44.7
|
|
|
6.9
|
|
|
—
|
|
|
—
|
|
|
51.6
|
|
Other current assets
|
16.4
|
|
|
7.5
|
|
|
4.1
|
|
|
—
|
|
|
28.0
|
|
TOTAL CURRENT ASSETS
|
1,014.5
|
|
|
384.5
|
|
|
146.3
|
|
|
(0.7
|
)
|
|
1,544.6
|
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
17.5
|
|
|
959.0
|
|
|
74.5
|
|
|
—
|
|
|
1,051.0
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
|
Deposits for property, plant and equipment
|
—
|
|
|
1.3
|
|
|
16.5
|
|
|
—
|
|
|
17.8
|
|
Income tax receivable
|
235.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
235.3
|
|
Investment in subsidiaries
|
1,024.3
|
|
|
29.9
|
|
|
—
|
|
|
(1,054.2
|
)
|
|
—
|
|
Long-term intercompany notes
|
—
|
|
|
—
|
|
|
242.0
|
|
|
(242.0
|
)
|
|
—
|
|
Other non-current assets
|
7.8
|
|
|
91.7
|
|
|
5.2
|
|
|
—
|
|
|
104.7
|
|
TOTAL OTHER ASSETS
|
1,267.4
|
|
|
122.9
|
|
|
263.7
|
|
|
(1,296.2
|
)
|
|
357.8
|
|
TOTAL ASSETS
|
$
|
2,299.4
|
|
|
$
|
1,466.4
|
|
|
$
|
484.5
|
|
|
$
|
(1,296.9
|
)
|
|
$
|
2,953.4
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
7.1
|
|
|
$
|
89.7
|
|
|
$
|
31.6
|
|
|
$
|
(0.7
|
)
|
|
$
|
127.7
|
|
Accrued expenses
|
19.0
|
|
|
59.9
|
|
|
28.2
|
|
|
—
|
|
|
107.1
|
|
Accrued interest
|
31.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31.4
|
|
Contingent claims
|
55.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
55.6
|
|
Partnership distribution payable
|
—
|
|
|
44.2
|
|
|
—
|
|
|
—
|
|
|
44.2
|
|
Other current liabilities
|
2.1
|
|
|
63.5
|
|
|
20.6
|
|
|
—
|
|
|
86.2
|
|
TOTAL CURRENT LIABILITIES
|
115.2
|
|
|
257.3
|
|
|
80.4
|
|
|
(0.7
|
)
|
|
452.2
|
|
PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES
|
66.4
|
|
|
430.6
|
|
|
(239.3
|
)
|
|
—
|
|
|
257.7
|
|
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
|
—
|
|
|
140.6
|
|
|
55.9
|
|
|
—
|
|
|
196.5
|
|
LONG-TERM DEBT
|
2,304.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,304.2
|
|
LONG-TERM INTERCOMPANY NOTES
|
242.0
|
|
|
—
|
|
|
—
|
|
|
(242.0
|
)
|
|
—
|
|
OTHER LIABILITIES
|
15.7
|
|
|
147.2
|
|
|
24.0
|
|
|
—
|
|
|
186.9
|
|
TOTAL LIABILITIES
|
2,743.5
|
|
|
975.7
|
|
|
(79.0
|
)
|
|
(242.7
|
)
|
|
3,397.5
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
TOTAL CLIFFS SHAREHOLDERS' DEFICIT
|
(444.1
|
)
|
|
490.7
|
|
|
563.3
|
|
|
(1,054.2
|
)
|
|
(444.3
|
)
|
NONCONTROLLING INTEREST
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
TOTAL DEFICIT
|
(444.1
|
)
|
|
490.7
|
|
|
563.5
|
|
|
(1,054.2
|
)
|
|
(444.1
|
)
|
TOTAL LIABILITIES AND DEFICIT
|
$
|
2,299.4
|
|
|
$
|
1,466.4
|
|
|
$
|
484.5
|
|
|
$
|
(1,296.9
|
)
|
|
$
|
2,953.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
|
For the Three Months Ended March 31, 2018
|
(In Millions)
|
|
Cleveland-Cliffs Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
REVENUES FROM PRODUCT SALES AND SERVICES
|
|
|
|
|
|
|
|
|
|
Product
|
$
|
—
|
|
|
$
|
169.2
|
|
|
$
|
51.5
|
|
|
$
|
—
|
|
|
$
|
220.7
|
|
Freight and venture partners' cost reimbursements
|
—
|
|
|
10.8
|
|
|
7.5
|
|
|
—
|
|
|
18.3
|
|
|
—
|
|
|
180.0
|
|
|
59.0
|
|
|
—
|
|
|
239.0
|
|
COST OF GOODS SOLD AND OPERATING EXPENSES
|
—
|
|
|
(118.5
|
)
|
|
(124.1
|
)
|
|
—
|
|
|
(242.6
|
)
|
SALES MARGIN
|
—
|
|
|
61.5
|
|
|
(65.1
|
)
|
|
—
|
|
|
(3.6
|
)
|
OTHER OPERATING EXPENSE
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
(20.1
|
)
|
|
(4.3
|
)
|
|
(3.3
|
)
|
|
—
|
|
|
(27.7
|
)
|
Miscellaneous – net
|
(0.2
|
)
|
|
(5.3
|
)
|
|
(3.2
|
)
|
|
—
|
|
|
(8.7
|
)
|
|
(20.3
|
)
|
|
(9.6
|
)
|
|
(6.5
|
)
|
|
—
|
|
|
(36.4
|
)
|
OPERATING INCOME (LOSS)
|
(20.3
|
)
|
|
51.9
|
|
|
(71.6
|
)
|
|
—
|
|
|
(40.0
|
)
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
(31.9
|
)
|
|
(0.8
|
)
|
|
(0.8
|
)
|
|
—
|
|
|
(33.5
|
)
|
Other non-operating income (expense)
|
(0.9
|
)
|
|
0.5
|
|
|
4.8
|
|
|
—
|
|
|
4.4
|
|
|
(32.8
|
)
|
|
(0.3
|
)
|
|
4.0
|
|
|
—
|
|
|
(29.1
|
)
|
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
(53.1
|
)
|
|
51.6
|
|
|
(67.6
|
)
|
|
—
|
|
|
(69.1
|
)
|
INCOME TAX EXPENSE
|
(15.6
|
)
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
(15.7
|
)
|
EQUITY IN INCOME (LOSS) OF SUBSIDIARIES
|
(15.7
|
)
|
|
4.5
|
|
|
—
|
|
|
11.2
|
|
|
—
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
(84.4
|
)
|
|
56.0
|
|
|
(67.6
|
)
|
|
11.2
|
|
|
(84.8
|
)
|
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
|
0.1
|
|
|
0.2
|
|
|
0.2
|
|
|
—
|
|
|
0.5
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
|
$
|
(84.3
|
)
|
|
$
|
56.2
|
|
|
$
|
(67.4
|
)
|
|
$
|
11.2
|
|
|
$
|
(84.3
|
)
|
OTHER COMPREHENSIVE INCOME
|
7.7
|
|
|
5.9
|
|
|
0.8
|
|
|
(6.7
|
)
|
|
7.7
|
|
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
|
$
|
(76.6
|
)
|
|
$
|
62.1
|
|
|
$
|
(66.6
|
)
|
|
$
|
4.5
|
|
|
$
|
(76.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
|
For the Three Months Ended March 31, 2017
|
(In Millions)
|
|
Cleveland-Cliffs Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
REVENUES FROM PRODUCT SALES AND SERVICES
|
|
|
|
|
|
|
|
|
|
Product
|
$
|
—
|
|
|
$
|
247.3
|
|
|
$
|
165.5
|
|
|
$
|
—
|
|
|
$
|
412.8
|
|
Freight and venture partners' cost reimbursements
|
—
|
|
|
38.9
|
|
|
9.9
|
|
|
—
|
|
|
48.8
|
|
|
—
|
|
|
286.2
|
|
|
175.4
|
|
|
—
|
|
|
461.6
|
|
COST OF GOODS SOLD AND OPERATING EXPENSES
|
—
|
|
|
(237.2
|
)
|
|
(128.1
|
)
|
|
—
|
|
|
(365.3
|
)
|
SALES MARGIN
|
—
|
|
|
49.0
|
|
|
47.3
|
|
|
—
|
|
|
96.3
|
|
OTHER OPERATING INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
(19.5
|
)
|
|
(4.4
|
)
|
|
(3.8
|
)
|
|
—
|
|
|
(27.7
|
)
|
Miscellaneous – net
|
(0.1
|
)
|
|
(5.5
|
)
|
|
17.1
|
|
|
—
|
|
|
11.5
|
|
|
(19.6
|
)
|
|
(9.9
|
)
|
|
13.3
|
|
|
—
|
|
|
(16.2
|
)
|
OPERATING INCOME (LOSS)
|
(19.6
|
)
|
|
39.1
|
|
|
60.6
|
|
|
—
|
|
|
80.1
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
(41.6
|
)
|
|
—
|
|
|
(1.2
|
)
|
|
—
|
|
|
(42.8
|
)
|
Loss on extinguishment of debt
|
(71.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(71.9
|
)
|
Other non-operating income (expense)
|
(1.0
|
)
|
|
(0.8
|
)
|
|
4.3
|
|
|
—
|
|
|
2.5
|
|
|
(114.5
|
)
|
|
(0.8
|
)
|
|
3.1
|
|
|
—
|
|
|
(112.2
|
)
|
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
(134.1
|
)
|
|
38.3
|
|
|
63.7
|
|
|
—
|
|
|
(32.1
|
)
|
INCOME TAX BENEFIT (EXPENSE)
|
5.2
|
|
|
(0.8
|
)
|
|
(2.6
|
)
|
|
—
|
|
|
1.8
|
|
EQUITY IN INCOME OF SUBSIDIARIES
|
100.4
|
|
|
3.2
|
|
|
—
|
|
|
(103.6
|
)
|
|
—
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
(28.5
|
)
|
|
40.7
|
|
|
61.1
|
|
|
(103.6
|
)
|
|
(30.3
|
)
|
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax
|
0.4
|
|
|
0.2
|
|
|
(0.1
|
)
|
|
—
|
|
|
0.5
|
|
NET INCOME (LOSS)
|
(28.1
|
)
|
|
40.9
|
|
|
61.0
|
|
|
(103.6
|
)
|
|
(29.8
|
)
|
LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
|
—
|
|
|
1.7
|
|
|
—
|
|
|
—
|
|
|
1.7
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
|
$
|
(28.1
|
)
|
|
$
|
42.6
|
|
|
$
|
61.0
|
|
|
$
|
(103.6
|
)
|
|
$
|
(28.1
|
)
|
OTHER COMPREHENSIVE INCOME (LOSS)
|
(3.0
|
)
|
|
10.8
|
|
|
(17.8
|
)
|
|
7.0
|
|
|
(3.0
|
)
|
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
|
$
|
(31.1
|
)
|
|
$
|
53.4
|
|
|
$
|
43.2
|
|
|
$
|
(96.6
|
)
|
|
$
|
(31.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Condensed Consolidating Statement of Cash Flows
|
For the Three Months Ended March 31, 2018
|
(In Millions)
|
|
Cleveland-Cliffs Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net cash used by operating activities
|
$
|
(54.7
|
)
|
|
$
|
(62.8
|
)
|
|
$
|
(25.4
|
)
|
|
$
|
—
|
|
|
$
|
(142.9
|
)
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
—
|
|
|
(8.1
|
)
|
|
(4.3
|
)
|
|
—
|
|
|
(12.4
|
)
|
Deposits for property, plant and equipment
|
—
|
|
|
(0.8
|
)
|
|
(58.2
|
)
|
|
—
|
|
|
(59.0
|
)
|
Intercompany investing
|
(137.7
|
)
|
|
(4.8
|
)
|
|
—
|
|
|
142.5
|
|
|
—
|
|
Net cash used by investing activities
|
(137.7
|
)
|
|
(13.7
|
)
|
|
(62.5
|
)
|
|
142.5
|
|
|
(71.4
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Debt issuance costs
|
(1.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.5
|
)
|
Intercompany financing
|
—
|
|
|
75.9
|
|
|
66.6
|
|
|
(142.5
|
)
|
|
—
|
|
Other financing activities
|
(1.4
|
)
|
|
(0.5
|
)
|
|
(3.6
|
)
|
|
—
|
|
|
(5.5
|
)
|
Net cash provided (used) by financing activities
|
(2.9
|
)
|
|
75.4
|
|
|
63.0
|
|
|
(142.5
|
)
|
|
(7.0
|
)
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
DECREASE IN CASH AND CASH EQUIVALENTS
|
(195.3
|
)
|
|
(1.1
|
)
|
|
(24.7
|
)
|
|
—
|
|
|
(221.1
|
)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
948.9
|
|
|
2.1
|
|
|
56.7
|
|
|
—
|
|
|
1,007.7
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$
|
753.6
|
|
|
$
|
1.0
|
|
|
$
|
32.0
|
|
|
$
|
—
|
|
|
$
|
786.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Condensed Consolidating Statement of Cash Flows
|
For the Three Months Ended March 31, 2017
|
(In Millions)
|
|
Cleveland-Cliffs Inc.
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net cash provided (used) by operating activities
|
$
|
(99.5
|
)
|
|
$
|
(19.7
|
)
|
|
$
|
94.1
|
|
|
$
|
—
|
|
|
$
|
(25.1
|
)
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
(0.8
|
)
|
|
(24.9
|
)
|
|
(0.2
|
)
|
|
—
|
|
|
(25.9
|
)
|
Deposits for property, plant and equipment
|
—
|
|
|
(2.0
|
)
|
|
—
|
|
|
—
|
|
|
(2.0
|
)
|
Intercompany investing
|
(56.5
|
)
|
|
(0.5
|
)
|
|
(45.0
|
)
|
|
102.0
|
|
|
—
|
|
Other investing activities
|
—
|
|
|
0.5
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
Net cash used by investing activities
|
(57.3
|
)
|
|
(26.9
|
)
|
|
(45.2
|
)
|
|
102.0
|
|
|
(27.4
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common shares
|
661.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
661.3
|
|
Proceeds from issuance of debt
|
500.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
500.0
|
|
Debt issuance costs
|
(8.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8.5
|
)
|
Repurchase of debt
|
(1,115.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,115.5
|
)
|
Distributions of partnership equity
|
—
|
|
|
(8.7
|
)
|
|
—
|
|
|
—
|
|
|
(8.7
|
)
|
Intercompany financing
|
45.1
|
|
|
55.8
|
|
|
1.1
|
|
|
(102.0
|
)
|
|
—
|
|
Other financing activities
|
(0.5
|
)
|
|
(0.7
|
)
|
|
(4.4
|
)
|
|
—
|
|
|
(5.6
|
)
|
Net cash provided (used) by financing activities
|
81.9
|
|
|
46.4
|
|
|
(3.3
|
)
|
|
(102.0
|
)
|
|
23.0
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
|
—
|
|
|
—
|
|
|
1.4
|
|
|
—
|
|
|
1.4
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(74.9
|
)
|
|
(0.2
|
)
|
|
47.0
|
|
|
—
|
|
|
(28.1
|
)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
283.4
|
|
|
2.5
|
|
|
37.5
|
|
|
—
|
|
|
323.4
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$
|
208.5
|
|
|
$
|
2.3
|
|
|
$
|
84.5
|
|
|
$
|
—
|
|
|
$
|
295.3
|
|