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

Quarterly report pursuant to Section 13 or 15(d)

DISCONTINUED OPERATIONS

DISCONTINUED OPERATIONS

6 Months Ended

Jun. 30, 2018

Discontinued Operations and Disposal Groups [Abstract]

NOTE 16 - DISCONTINUED OPERATIONS

The information below sets forth selected financial information related to operating results of our businesses classified as discontinued operations. While the reclassification of revenues and expenses related to discontinued operations from prior periods have no impact upon previously reported net income, the Statements of Unaudited Condensed Consolidated Operations present the revenues and expenses that were reclassified from the specified line items to discontinued operations and the Statements of Unaudited Condensed Consolidated Financial Position present the assets and liabilities that were reclassified from the specified line items to assets and liabilities of discontinued operations.

The information below sets forth selected financial information related to operating results of our businesses classified as discontinued operations which include our former Asia Pacific Iron Ore, North American Coal and Canadian operations. The charts below provide an asset group breakout for each financial statement line impacted by discontinued operations.



	(In Millions)
	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Loss from Discontinued Operations, net of tax
Asia Pacific Iron Ore	$	(53.3	)	$	(7.3	)	$	(124.7	)	$	41.0
North American Coal	(0.3		)	2.6			0.1			2.6
Canadian Operations	(10.7		)	(49.0		)	(10.6		)	(48.6		)
	$	(64.3	)	$	(53.7	)	$	(135.2	)	$	(5.0	)



	(In Millions)
	June 30, 2018						December 31, 2017
	Asia Pacific Iron Ore		North American Coal		Total		Asia Pacific Iron Ore		North American Coal		Total
Current assets of discontinued operations	$	45.3	$	—	$	45.3	$	118.5	$	—	$	118.5
Non-current assets of discontinued operations	$	—	$	—	$	—	$	20.3	$	—	$	20.3
Current liabilities of discontinued operations	$	114.4	$	2.9	$	117.3	$	71.8	$	3.2	$	75.0
Non-current liabilities of discontinued operations	$	10.3	$	—	$	10.3	$	52.2	$	—	$	52.2



	(In Millions)
	Six Months Ended June 30,
	2018			2017
Net cash provided (used) by operating activities
Asia Pacific Iron Ore	$	(31.7	)	$	92.2
Canadian Operations	(14.6		)	—
	$	(46.3	)	$	92.2

Net cash provided (used) by investing activities
Asia Pacific Iron Ore	$	14.1		$	(0.8	)
	$	14.1		$	(0.8	)

For the six months ended June 30, 2018, we had $28.6 million of non-cash financing activities related to the settlement of capital lease obligations at Asia Pacific Iron Ore.

Asia Pacific Iron Ore Operations

Background

In January 2018, we announced that we would accelerate the time frame for the planned closure of our Asia Pacific Iron Ore mining operations in Australia. In April 2018, we committed to a course of action leading to the permanent closure of the Asia Pacific Iron Ore mining operations and, as planned, completed our final shipment in June 2018. Factors considered in this decision included increasingly discounted prices for lower-iron-content ore and the quality of the remaining iron ore reserves.

During June 2018, we completed a sale of the mobile equipment to a third party and entered into a definitive agreement to sell substantially all of the remaining assets of our Asia Pacific Iron Ore business to Mineral Resources Limited. The sale to Mineral Resources Limited has not been completed as of the date of this report due to the pendency of certain closing conditions. As a result, for the period ended June 30, 2018, management determined that our Asia Pacific Iron Ore operating segment met the criteria to be classified as held for sale and a discontinued operation under ASC 205, Presentation of Financial Statements. As such, all current and historical Asia Pacific Iron Ore operating segment results are included in our financial statements and classified within discontinued operations.

Loss on Discontinued Operations

For the reasons discussed above, our previously reported Asia Pacific Iron Ore operating segment results for all periods prior to June 30, 2018, as well as exit costs, are classified as discontinued operations.



	(In Millions)
	Three Months Ended June 30,						Six Months Ended June 30,
Loss from Discontinued Operations	2018			2017			2018			2017
Revenues from product sales and services	$	70.1		$	98.0		$	129.1		$	273.4
Cost of goods sold and operating expenses	(106.1		)	(97.1		)	(230.2		)	(225.2		)
Sales margin	(36.0		)	0.9			(101.1		)	48.2
Other operating expense	(16.2		)	(3.2		)	(18.8		)	(3.7		)
Other expense	(1.1		)	(1.3		)	(2.2		)	(2.7		)
Loss from discontinued operations before income taxes	(53.3		)	(3.6		)	(122.1		)	41.8
Impairment of long-lived assets	—			—			(2.6		)	—
Income tax expense	—			(3.7		)	—			(0.8		)
Loss from discontinued operations, net of tax	$	(53.3	)	$	(7.3	)	$	(124.7	)	$	41.0

Recorded Assets and Liabilities



	(In Millions)
Assets and Liabilities of Discontinued Operations	June 30, 2018		December 31, 2017
Cash and cash equivalents	$	29.4	$	29.4
Accounts receivable, net	12.5		33.9
Inventories	—		45.0
Supplies and other inventories	—		5.1
Other current assets	3.4		5.1
Total current assets of discontinued operations	45.3		118.5
Property, plant and equipment, net	—		17.2
Other non-current assets	—		3.1
Total assets of discontinued operations	$	45.3	$	138.8

Accounts payable	$	74.3	$	28.2
Accrued liabilities	21.1		28.0
Other current liabilities	19.0		15.6
Total current liabilities of discontinued operations	114.4		71.8
Environmental and mine closure obligations	10.3		28.8
Other liabilities	—		23.4
Total liabilities of discontinued operations	$	124.7	$	124.0

Foreign Currency

The functional currency of our Australian subsidiaries is the Australian 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. Upon the liquidation of substantially all of the Asia Pacific Iron Ore assets, which is expected to occur during the third quarter 2018, the historical cumulative translation adjustments recorded in Accumulated other comprehensive loss in the Statements of Unaudited Condensed Consolidated Financial Position related to that asset group will be recognized as a gain in the Statements of Unaudited Condensed Consolidated Operations. As of June 30, 2018, the balance of currency translation adjustments related to the Asia Pacific Iron Ore asset group in Accumulated other comprehensive loss was a gain of $228.3 million.

Income Taxes

We have not recognized a tax benefit or expense during the three and six months ended June 30, 2018, related to our Asia Pacific Iron Ore operations. For the three and six months ended June 30, 2017, we recognized a tax expense of $3.7 million and $0.8 million, respectively.

Eastern Canada Iron Ore Operations

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. As of June 30, 2018, we had no amounts outstanding classified as Loans to and accounts receivable from the Canadian Entities in the Statements of Unaudited Condensed Consolidated Financial Position in accordance with the Amended Plan, as defined and described below. As of December 31, 2017, we had $51.6 million classified as Loans to and accounts receivable from the Canadian Entities in the Statements of Unaudited Condensed Consolidated Financial Position.

The net proceeds from the sale of the assets of the Bloom Lake Group and the Wabush Group are currently being held by the Monitor. Certain of these proceeds will be utilized to fund the accrued and remaining costs of the CCAA proceedings, and the remaining amounts will be available for distribution to the creditors of the Bloom Lake Group and the Wabush Group in accordance with the Amended Plan (as defined below).

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 estimated a liability, which included the value of our related-party claims against the Bloom Lake Group and the Wabush Group, classified as Contingent claims in the Statements of Unaudited Condensed Consolidated Financial Position. As described below, as of June 30, 2018, the estimated liability has been settled pursuant to the Amended Plan.

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 to be sponsored by us as negotiated between us and the Monitor. By order of the Québec Superior Court of Justice (Commercial Division) (the “Court”) dated April 20, 2018, the Bloom Lake Group and the Wabush Group were authorized to file a joint plan of compromise and arrangement dated April 16, 2018 (the “Original Plan”). Following discussions with various stakeholder groups, the Original Plan was amended by order of the Court dated May 18, 2018. The Bloom Lake Group and the Wabush Group were authorized to file the amended and restated joint plan of compromise and arrangement dated May 16, 2018 (as same may be further amended from time to time, the “Amended Plan”). The Amended Plan was approved by the required majorities of each unsecured creditor class and was sanctioned by the Court by order dated June 29, 2018 (the “Sanction Order”). In addition, the Bloom Lake Group and the Wabush Group will bring a motion before the Court on July 30, 2018 seeking to make further amendments to the Amended Plan to address the manner in which certain distributions under the Amended Plan will be effected.

There are certain conditions precedent to the implementation of the Amended Plan that must be satisfied on or before July 31, 2018, subject to any extension of such date as agreed between the Monitor, the Bloom Lake Group, the Wabush Group and us. Subject to the proposed amendments to the Amended Plan described above and the finalization of certain required arrangements with applicable taxing authorities, the conditions precedent under the Amended Plan are expected to be satisfied by July 31, 2018.

Under the terms of the Amended Plan, we and certain of our wholly-owned subsidiaries have made a C$19.0 million cash contribution to the Wabush Group pension plans and will contribute into the CCAA estate any distributions or payments we may be entitled to receive as creditors of the Bloom Lake Group and the Wabush Group for distribution to other creditors. The Original Plan did not resolve certain employee claims asserted against us and certain of our affiliates outside of the CCAA proceedings. The Amended Plan resolves those employee claims, all claims by the Bloom Lake Group, the Wabush Group and their respective creditors against us as well as all of our claims against the Bloom Lake Group and the Wabush Group.

The net financial impact of the Amended Plan has been recorded in our financial statements.