Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENTS

v3.19.3
FAIR VALUE MEASUREMENTS
 9 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS
NOTE 7 - FAIR VALUE MEASUREMENTS
The following represents the assets and liabilities measured at fair value:
 
(In Millions)
 
September 30, 2019
 
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
$
—

 
$
272.5

 
$
—

 
$
272.5

Derivative assets
—

 
—

 
72.8

 
72.8

Total
$
—

 
$
272.5

 
$
72.8

 
$
345.3

Liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$
—

 
$
2.4

 
$
30.2

 
$
32.6

Total
$
—

 
$
2.4

 
$
30.2

 
$
32.6

 
(In Millions)
 
December 31, 2018
 
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
$
0.8

 
$
542.6

 
$
—

 
$
543.4

Derivative assets
—

 
0.1

 
91.4

 
91.5

Total
$
0.8

 
$
542.7

 
$
91.4

 
$
634.9

Liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$
—

 
$
3.7

 
$
—

 
$
3.7

Total
$
—

 
$
3.7

 
$
—

 
$
3.7


Financial assets classified in Level 1 included money market funds. 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 consist of a freestanding derivative instrument related to a certain supply agreement and derivative assets and liabilities related to certain provisional pricing arrangements with our customers.
The supply agreement included in our Level 3 assets contains provisions for supplemental revenue or refunds based on the hot-rolled coil steel price in the year the iron ore product is consumed in the customer’s blast furnaces. We account for these provisions as a derivative instrument at the time of sale and adjust the derivative instrument to fair value through Product revenues each reporting period until the product is consumed and the amounts are settled. We had assets of $71.2 million and $89.3 million at September 30, 2019 and December 31, 2018, 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 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 instrument 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 $1.6 million and $2.1 million related to provisional pricing arrangements at September 30, 2019 and December 31, 2018, respectively. In addition, we had liabilities of $30.2 million related to provisional pricing arrangements at September 30, 2019.
The following table illustrates information about qualitative and 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, 2019
 
Balance Sheet
Location
 
Valuation Technique
 
Unobservable Input
 
Range or Point Estimate
(Weighted Average)
 
 
Customer supply agreement
 
$
71.2

 
Derivative assets
 
Market Approach
 
Management's Estimate of Hot-Rolled Coil Steel Price per net ton
 
$631 - $700
$(633)
 
Provisional pricing arrangements
 
$
1.6

 
Derivative assets
 
Market Approach
 
Management's Estimate of Platts 62% Price per dry metric ton for respective contract period
 
$100
 
Provisional pricing arrangements
 
$
30.2

 
Derivative liabilities
 
Market Approach
 
PPI Estimates
 
172 - 214
(198)
 
 
 
Management's Estimate of Platts 62% Price per dry metric ton for respective contract period
 
$87 - $100
$(96)
 
 
Atlantic Basin Pellet Premium per metric ton
 
$59

The significant unobservable input used in the fair value measurement of our customer supply agreement is a forward-looking estimate of the hot-rolled coil steel price determined by management.
The significant unobservable inputs used in the fair value measurement of our provisional pricing arrangements for our derivative assets and liabilities include management's estimate of Platts 62% Price based upon current market data and index pricing, which includes forward-looking estimates determined by management. Our significant unobservable inputs used in the fair value measurement of our provisional pricing arrangements for our derivative liabilities also include estimates for PPI data and the Atlantic Basin pellet premium.
The following tables reconcile 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,
 
2019
 
2018
 
2019
 
2018
Beginning balance
$
118.1

 
$
174.6

 
$
91.4

 
$
49.5

Total gains (losses) included in earnings
(6.5
)
 
139.0

 
83.1

 
341.8

Settlements
(38.8
)
 
(123.0
)
 
(101.7
)
 
(200.7
)
Ending balance - September 30
$
72.8

 
$
190.6

 
$
72.8

 
$
190.6

Total gains (losses) for the period included in earnings attributable to the change in unrealized gains on assets still held at the reporting date
$
(6.5
)
 
$
15.9

 
$
81.8

 
$
141.0


 
(In Millions)
 
Level 3 Liabilities
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Beginning balance
$
—

 
$
(3.0
)
 
$
—

 
$
(1.7
)
Total losses included in earnings
(34.4
)
 
(3.1
)
 
(39.7
)
 
(7.4
)
Settlements
4.2

 
0.4

 
9.5

 
3.4

Ending balance - September 30
$
(30.2
)
 
$
(5.7
)
 
$
(30.2
)
 
$
(5.7
)
Total losses for the period included in earnings attributable to the change in unrealized losses on liabilities still held at the reporting date
$
(30.2
)
 
$
(2.7
)
 
$
(30.2
)
 
$
(5.7
)

The carrying values of certain financial instruments (e.g., Accounts receivable, net, Accounts payable and Other current liabilities) approximates fair value and, therefore, have been excluded from the table below. A summary of the carrying value and fair value of other financial instruments were as follows:
 
 
 
(In Millions)
 
 
 
September 30, 2019
 
December 31, 2018
 
Classification
 
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
Long-term debt:
 
 
 
 
 
 
 
 
 
Secured Notes
 
 
 
 
 
 
 
 
 
$400 Million 4.875% 2024 Senior Notes
Level 1
 
$
393.2

 
$
408.9

 
$
392.1

 
$
370.2

Unsecured Notes
 
 
 
 
 
 
 
 
 
$700 Million 4.875% 2021 Senior Notes
Level 1
 
—

 
—

 
123.8

 
122.3

$316.25 Million 1.50% 2025 Convertible Senior Notes
Level 1
 
243.8

 
345.8

 
235.2

 
352.4

$1.075 Billion 5.75% 2025 Senior Notes
Level 1
 
463.7

 
466.2

 
1,048.8

 
962.0

$750 Million 5.875% 2027 Senior Notes
Level 1
 
715.5

 
712.2

 
—

 
—

$800 Million 6.25% 2040 Senior Notes
Level 1
 
292.9

 
254.4

 
292.8

 
232.8

ABL Facility
Level 2
 
—

 
—

 
—

 
—

Fair value adjustment to interest rate hedge
Level 2
 
—

 
—

 
0.2

 
0.2

Total long-term debt
 
 
$
2,109.1

 
$
2,187.5

 
$
2,092.9

 
$
2,039.9


The fair value of long-term debt was determined using quoted market prices.