Cleveland-Cliffs Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2014

The following represents the assets and liabilities of the Company measured at fair value at September 30, 2014 and December 31, 2013:



	(In Millions)
	September 30, 2014
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	$	120.0	$	—	$	—	$	120.0
Derivative assets	—		—		54.5		54.5
Available-for-sale marketable securities	6.1		—		—		6.1
Foreign exchange contracts	—		—		—		—
Total	$	126.1	$	—	$	54.5	$	180.6
Liabilities:
Derivative liabilities	$	—	$	—	$	23.3	$	23.3
Foreign exchange contracts	—		17.4		—		17.4
Total	$	—	$	17.4	$	23.3	$	40.7



	(In Millions)
	December 31, 2013
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	$	85.0	$	—	$	—	$	85.0
Derivative assets	—		—		58.9		58.9
Available-for-sale marketable securities	21.4		—		—		21.4
Foreign exchange contracts	—		0.3		—		0.3
Total	$	106.4	$	0.3	$	58.9	$	165.6
Liabilities:
Derivative liabilities	$	—	$	2.1	$	10.3	$	12.4
Foreign exchange contracts	—		26.9		—		26.9
Total	$	—	$	29.0	$	10.3	$	39.3

Fair Value, Recurring and Nonrecurring, Valuation Techniques

The following table illustrates information about quantitative inputs and assumptions for the derivative assets and derivative liabilities categorized in Level 3 of the fair value hierarchy:

Qualitative/Quantitative Information About Level 3 Fair Value Measurements

($ in millions)

Fair Value at September 30, 2014

Balance Sheet Location

Valuation Technique

Unobservable Input

Range or Point Estimate

(Weighted Average)

Provisional Pricing Arrangements

23.3

Derivative liabilities

Market Approach

Management's

Estimate of 62% Fe

$78

Customer Supply Agreement

54.5

Derivative assets

Market Approach

Hot-Rolled Steel Estimate

$635 - $665 ($650)

Fair Value, Assets Measured On Recurring Basis, Unobservable Input Reconciliation

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) for the three and nine months ended September 30, 2014 and 2013.



	(In Millions)
	Derivative Assets (Level 3)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Beginning balance	$	33.0		$	45.1		$	58.9		$	62.4
Total gains
Included in earnings	62.6			57.6			124.6			118.0
Settlements	(41.1		)	(36.0		)	(129.0		)	(113.7		)
Transfers into Level 3	—			—			—			—
Transfers out of Level 3	—			—			—			—
Ending balance - September 30	$	54.5		$	66.7		$	54.5		$	66.7
Total gains for the period included in earnings attributable to the change in unrealized gains on assets still held at the reporting date	$	62.6		$	57.6		$	124.6		$	118.0

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation



	(In Millions)
	Derivative Liabilities (Level 3)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Beginning balance	$	(20.2	)	$	(32.0	)	$	(10.3	)	$	(11.3	)
Total gains
Included in earnings	(3.1		)	20.6			(23.3		)	(11.4		)
Settlements	—			—			10.3			11.3
Transfers into Level 3	—			—			—			—
Transfers out of Level 3	—			—			—			—
Ending balance - September 30	$	(23.3	)	$	(11.4	)	$	(23.3	)	$	(11.4	)
Total losses for the period included in earnings attributable to the change in unrealized losses on liabilities still held at the reporting date	$	(3.1	)	$	20.6		$	(23.3	)	$	(11.4	)

Schedule Of Carrying Value And Fair Value Of Financial Instruments

A summary of the carrying amount and fair value of other financial instruments at September 30, 2014 and December 31, 2013 were as follows:



		(In Millions)
		September 30, 2014				December 31, 2013
	Classification	Carrying Value		Fair Value		Carrying Value			Fair Value
Long-term debt:
Senior notes—$700 million	Level 2	$	699.5	$	539.6	$	699.4		$	718.2
Senior notes—$1.3 billion	Level 2	1,289.8		974.7		1,289.6			1,404.9
Senior notes—$400 million	Level 2	398.6		341.8		398.4			432.1
Senior notes—$500 million	Level 2	497.1		433.0		496.5			523.8
Revolving loan	Level 2	—		—		—			—
Equipment loan facilities	Level 2	124.6		124.6		140.8			140.8
Fair value adjustment to interest rate hedge	Level 2	2.9		2.9		(2.1		)	(2.1		)
Total long-term debt		$	3,012.5	$	2,416.6	$	3,022.6		$	3,217.7

Fair Value Measurements, Nonrecurring

The following tables present information about the impairment charges on both financial and nonfinancial assets that were measured on a fair value basis at September 30, 2014 and December 31, 2013. The tables also indicate the fair value hierarchy of the valuation techniques used to determine such fair value.



	(In Millions)
	September 30, 2014
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 Losses
Assets:
Goodwill impairment - Asia Pacific Iron Ore reporting unit	$	—	$	—	$	—	$	—	$	73.5
Other long-lived assets - Property, plant and equipment and Mineral rights:
Asia Pacific Iron Ore reporting unit	—		—		343.4		343.4		291.9
North American Coal reporting unit
CLCC thermal asset group	—		—		62.6		62.6		195.5
Pinnacle asset group	—		—		30.7		30.7		394.5
Oak Grove asset group	—		—		58.2		58.2		237.8
Eastern Canadian Iron Ore reporting unit
Bloom Lake asset group	—		—		937.2		937.2		6,279.2
Wabush asset group	—		—		1.0		1.0		12.8
Ferroalloys reporting unit	—		—		12.2		12.2		259.5
Other reporting units	—		—		—		—		3.1
Other long-lived assets - Intangibles and other long-term assets:
Asia Pacific Iron Ore reporting unit	—		—		11.9		11.9		10.1
Eastern Canadian Iron Ore reporting unit
Wabush asset group	—		—		—		—		15.2
Investment in ventures impairment - Global Exploration	—		—		—		—		9.2
	$	—	$	—	$	1,457.2	$	1,457.2	$	7,782.3

Financial Assets

During the third quarter of 2014, an impairment charge of $9.2 million to investment in ventures was recorded within our Global Exploration operating segment as a decision was made to abandon the investment during the period.

Non-Financial Assets

During the third quarter of 2014, we identified factors that indicate the carrying values of the asset groups in the chart above may not be recoverable. Primary factors include that estimates of long-term price forecasts were updated as part of management’s long-range planning process. Updated estimates of long-term prices for all products, specifically the Platts 62 percent Fe fines spot price, which particularly effects Eastern Canadian Iron Ore and Asia Pacific Iron Ore business segments because their contracts correlate heavily to world market spot pricing, and the benchmark price for premium low-volatile hard coking coal were lower than prior estimates. These estimates were updated based upon current market conditions, macro-economic factors influencing the balance of supply and demand for our products and expectations for future cost and capital expenditure requirements. Additional factors include a new CEO, Lourenco Goncalves, appointed by the Board of Directors in early August 2014 and subsequently identified as the CODM in accordance with ASC 280, Segment Reporting. The new CODM views Eastern Canadian Iron Ore, Asia Pacific Iron Ore, North American Coal and Ferroalloys as non-core assets and has communicated plans to evaluate the business units for a change in strategy including possible divestiture. These factors, among other considerations utilized in the individual impairment assessments, indicate that the carrying value of the respective asset groups in the chart above and Asia Pacific Iron Ore goodwill may not be recoverable.

During the third quarter of 2014, a goodwill impairment charge of $73.5 million was recorded for our Asia Pacific Iron Ore reporting units within our Asia Pacific Iron Ore operating segment. Based on our review of the fair value hierarchy, the inputs used in these fair value measurements were considered Level 3 inputs.

We also recorded impairment charges to property, plant and equipment, mineral rights, intangible assets and other long-term assets during the third quarter of 2014 related to our Wabush operation and Bloom Lake operation within our Eastern Canadian Iron Ore operating segment, our Asia Pacific Iron Ore operating segment and our CLCC thermal operation, Oak Grove operation and Pinnacle operation within our North American Coal operating segment, along with impairments charged to reporting units within our Other reportable segments. A detailed break out of the impairment charges is shown in the chart above. The recorded impairment charges reduce the related assets to their estimated fair value as we determined that the future cash flows associated with these operations were not sufficient to support the recoverability of the carrying value of these assets. Fair value was determined based on management's best estimate within a range of fair values, which is considered a Level 3 input, and resulted in an asset impairment charge of $7,699.6 million. The Level 3 inputs used to determine fair value included models developed and market inputs obtained by management which provided a range of fair value estimates of property, plant and equipment. Management’s models include internally developed long-term cash flow estimates, capital expenditure and cost estimates, market inputs to determine long-term pricing assumptions, discount rates, and foreign exchange rates.



	(In Millions)
	December 31, 2013
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 Losses
Assets:
Goodwill impairment - Ferroalloys reporting unit	$	—	$	—	$	—	$	—	$	80.9
Other long-lived assets - Property, plant and equipment	—		—		46.3		46.3		155.4
Other long-lived assets - Intangibles and long-term deposits	—		—		1.6		1.6		14.5
Investment in ventures impairment - Amapá	—		—		—		—		67.6
	$	—	$	—	$	47.9	$	47.9	$	318.4

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

+ References + Details

- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

+ References + Details

- Definition

Tabular disclosure of the fair value measurement of liabilities using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and gains or losses recognized in other comprehensive income (loss) and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs) by class of liability.

+ References + Details