Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENTS

v3.10.0.1
FAIR VALUE MEASUREMENTS
 9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS
NOTE 8 - FAIR VALUE MEASUREMENTS
The following represents the assets and liabilities measured at fair value:
 
(In Millions)
 
September 30, 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
$
0.7

 
$
596.2

 
$
—

 
$
596.9

Derivative assets
—

 
0.2

 
190.6

 
190.8

Total
$
0.7

 
$
596.4

 
$
190.6

 
$
787.7

Liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$
—

 
$
0.1

 
$
5.7

 
$
5.8

Total
$
—

 
$
0.1

 
$
5.7

 
$
5.8

 
(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
—

 
—

 
37.9

 
37.9

Total
$
66.3

 
$
550.6

 
$
37.9

 
$
654.8

Liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$
—

 
$
0.3

 
$
1.7

 
$
2.0

Total
$
—

 
$
0.3

 
$
1.7

 
$
2.0


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, certificates of deposit and commodity hedge contracts. Level 2 liabilities include commodity hedge contracts.
The Level 3 assets and liabilities include derivative assets that consist of freestanding derivative instruments related to a customer supply agreement and certain provisional pricing arrangements with our 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. We had assets of $186.0 million and $37.9 million at September 30, 2018 and December 31, 2017, respectively, related to this 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 instruments 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 rates are determined. We had assets of $4.6 million and liabilities of $5.7 million related to provisional pricing arrangements at September 30, 2018 compared to liabilities of $1.7 million related to provisional pricing arrangements at December 31, 2017.
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 September 30, 2018
 
Balance Sheet
Location
 
Valuation Technique
 
Unobservable Input
 
Range or Point Estimate
(Weighted Average)
 
Customer supply agreement
 
$
186.0

 
Derivative assets
 
Market Approach
 
Management's Estimate of Market Hot-Rolled Coil Steel per net ton
 
$842
Provisional pricing arrangements
 
$
4.6

 
Derivative assets
 
Market Approach
 
Management's
Estimate of Platts 62% Price
per dry metric ton
 
$68 - $70
($70)
Provisional pricing arrangements
 
$
5.7

 
Other current liabilities
 
Market Approach
 
Management's
Estimate of Platts 62% Price
per dry metric ton
 
$68 - $70
($70)

The significant unobservable input used in the fair value measurement of our customer supply agreement is a forward-looking estimate of the average annual daily market price for hot-rolled coil steel determined by management.
The significant unobservable input used in the fair value measurement of our provisional pricing arrangements is management’s estimate of Platts 62% Price based upon current market data and index pricing, which include forward-looking estimates.
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
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Beginning balance1
$
174.6

 
$
70.2

 
$
49.5

 
$
30.1

Total gains
 
 
 
 
 
 
 
Included in earnings
139.0

 
54.0

 
341.8

 
138.5

Settlements
(123.0
)
 
(35.2
)
 
(200.7
)
 
(79.6
)
Ending balance - September 30
$
190.6

 
$
89.0

 
$
190.6

 
$
89.0

Total gains for the period included in earnings attributable to the change in unrealized gains on assets still held at the reporting date
$
15.9

 
$
52.9

 
$
141.0

 
$
63.1

 
 
 
 
 
 
 
 
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
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Beginning balance
$
(3.0
)
 
$
(20.3
)
 
$
(1.7
)
 
$
—

Total losses
 
 
 
 
 
 
 
Included in earnings
(3.1
)
 
(15.3
)
 
(7.4
)
 
(35.6
)
Settlements
0.4

 
30.2

 
3.4

 
30.2

Ending balance - September 30
$
(5.7
)
 
$
(5.4
)
 
$
(5.7
)
 
$
(5.4
)
Total losses for the period included in earnings attributable to the change in unrealized losses on liabilities still held at the reporting date
$
(2.7
)
 
$
(10.9
)
 
$
(5.7
)
 
$
(6.4
)

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)
 
 
 
September 30, 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
 
$
391.7

 
$
395.0

 
$
390.3

 
$
398.0

Unsecured Notes
 
 
 
 
 
 
 
 
 
$400 Million 5.90% 2020 Senior Notes
Level 1
 
88.2

 
91.5

 
88.6

 
88.0

$500 Million 4.80% 2020 Senior Notes
Level 1
 
122.0

 
125.9

 
122.0

 
118.8

$700 Million 4.875% 2021 Senior Notes
Level 1
 
123.9

 
124.8

 
138.0

 
130.8

$316.25 Million 1.50% 2025 Convertible Senior Notes
Level 1
 
232.4

 
531.4

 
224.1

 
352.9

$1.075 Billion 5.75% 2025 Senior Notes
Level 1
 
1,047.9

 
1,047.8

 
1,047.2

 
1,029.3

$800 Million 6.25% 2040 Senior Notes
Level 1
 
292.8

 
255.3

 
292.6

 
227.1

ABL Facility
Level 2
 
—

 
—

 
—

 
—

Fair value adjustment to interest rate hedge
Level 2
 
1.1

 
1.1

 
1.4

 
1.4

Total long-term debt
 
 
$
2,300.0

 
$
2,572.8

 
$
2,304.2

 
$
2,346.3


The fair value of long-term debt was determined using quoted market prices based upon current borrowing rates.