Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE OF FINANCIAL INSTRUMENTS

v3.8.0.1
FAIR VALUE OF FINANCIAL INSTRUMENTS
 3 Months Ended
Mar. 31, 2018
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS
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 balance1
$
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.