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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             .
Commission File Number: 1-8944
clf-logoa01a01a10.jpg
CLEVELAND-CLIFFS INC.
(Exact Name of Registrant as Specified in Its Charter)
Ohio
 
34-1464672
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
200 Public Square, Cleveland, Ohio
 
44114-2315
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (216) 694-5700
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES                                           NO  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES                                           NO  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES                                           NO  
The number of shares outstanding of the registrant’s common shares, par value $0.125 per share, was 298,018,441 as of October 17, 2018.



Table of Contents


TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
Page Number
 
 
 
 
 
 
DEFINITIONS
 
 
 
 
 
 
PART I - FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2018 and December 31, 2017
 
 
 
 
Statements of Unaudited Condensed Consolidated Operations for the Three and Nine Months Ended September 30, 2018 and 2017
 
 
 
 
Statements of Unaudited Condensed Consolidated Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017
 
 
 
 
Statements of Unaudited Condensed Consolidated Cash Flows for the Nine Months Ended September 30, 2018 and 2017
 
 
 
 
Notes to Unaudited Condensed Consolidated Financial Statements
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
 
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
Other Information
 
 
 
Item 6.
Exhibits
 
 
 
 
 
 
 
 
Signatures
 
 
 
 
 
 


Table of Contents


DEFINITIONS
The following abbreviations or acronyms are used in the text. References in this report to the “Company,” “we,” “us,” “our” and “Cliffs” are to Cleveland-Cliffs Inc. and subsidiaries, collectively. References to “C$” refer to Canadian currency and “$” to United States currency.
Abbreviation or acronym
 
Term
A&R 2015 Equity Plan
 
Amended and Restated Cliffs Natural Resources Inc. 2015 Equity and Incentive Compensation Plan
ABL Facility
 
Amended and Restated Syndicated Facility Agreement by and among Bank of America, N.A., as Administrative Agent and Australian Security Trustee, the Lenders that are parties hereto, as the Lenders, Cleveland-Cliffs Inc., as Parent and a Borrower, and the Subsidiaries of Parent party hereto, as Borrowers dated as of March 30, 2015, and Amended and Restated as of February 28, 2018
Adjusted EBITDA
 
EBITDA excluding certain items such as impacts of discontinued operations, foreign currency exchange remeasurement, extinguishment of debt, impairment of long-lived assets and intersegment corporate allocations of SG&A costs
ArcelorMittal
 
ArcelorMittal (as the parent company of ArcelorMittal Mines Canada, ArcelorMittal USA and ArcelorMittal Dofasco, as well as many other subsidiaries)
ALJ
 
Administrative Law Judge
AMT
 
Alternative Minimum Tax
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Update
Bloom Lake Group
 
Bloom Lake General Partner Limited and certain of its affiliates, including Cliffs Quebec Iron Mining ULC
Canadian Entities
 
Bloom Lake Group, Wabush Group and certain other wholly-owned Canadian subsidiaries
CCAA
 
Companies' Creditors Arrangement Act (Canada)
Compensation Committee
 
Compensation and Organization Committee of the Board of Directors
Dodd-Frank Act
 
Dodd-Frank Wall Street Reform and Consumer Protection Act
DR-grade
 
Direct Reduction-grade
EBITDA
 
Earnings before interest, taxes, depreciation and amortization
Empire
 
Empire Iron Mining Partnership
Exchange Act
 
Securities Exchange Act of 1934, as amended
FASB
 
Financial Accounting Standards Board
Fe
 
Iron
FERC
 
Federal Energy Regulatory Commission
FMSH Act
 
U.S. Federal Mine Safety and Health Act 1977, as amended
GAAP
 
Accounting principles generally accepted in the United States
HBI
 
Hot briquetted iron
Hibbing
 
Hibbing Taconite Company, an unincorporated joint venture
Koolyanobbing
 
Collective term for the operating deposits at Koolyanobbing, Mount Jackson and Windarling
Long ton
 
2,240 pounds
LTVSMC
 
LTV Steel Mining Company
Metric ton
 
2,205 pounds
MISO
 
Midcontinent Independent System Operator, Inc.
MMBtu
 
Million British Thermal Units
MSHA
 
U.S. Mine Safety and Health Administration
Monitor
 
FTI Consulting Canada Inc.
Net ton
 
2,000 pounds
Northshore
 
Northshore Mining Company
OPEB
 
Other postretirement employment benefits
Platts 62% Price
 
Platts IODEX 62% Fe Fines Spot Price
SEC
 
U.S. Securities and Exchange Commission
SG&A
 
Selling, general and administrative
Securities Act
 
Securities Act of 1933, as amended
Senior Notes Due 2020
 
5.90% senior notes due March 2020 and 4.80% senior notes due October 2020
SSR
 
System support resource
Tilden
 
Tilden Mining Company L.C.
Topic 606
 
ASC Topic 606, Revenue from Contracts with Customers
Topic 815
 
ASC Topic 815, Derivatives and Hedging
TSR
 
Total shareholder return
United Taconite
 
United Taconite LLC
U.S.
 
United States of America
U.S. Steel
 
U.S Steel Corporation and all subsidiaries
USW
 
United Steelworkers
Wabush Group
 
Wabush Iron Co. Limited and Wabush Resources Inc., and certain of its affiliates, including Wabush Mines (an unincorporated joint venture of Wabush Iron Co. Limited and Wabush Resources Inc.), Arnaud Railway Company and Wabush Lake Railway Company

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PART I
Item 1.
Financial Statements
Statements of Unaudited Condensed Consolidated Financial Position
Cleveland-Cliffs Inc. and Subsidiaries
 
(In Millions)
 
September 30,
2018
 
December 31,
2017
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
897.1

 
$
978.3

Accounts receivable, net
141.4

 
106.7

Inventories
187.9

 
138.4

Supplies and other inventories
88.2

 
88.8

Derivative assets
190.8

 
37.9

Income tax receivable
110.3

 
13.3

Current assets of discontinued operations
16.1

 
118.5

Loans to and accounts receivable from the Canadian Entities

 
51.6

Other current assets
18.8

 
11.1

TOTAL CURRENT ASSETS
1,650.6

 
1,544.6

PROPERTY, PLANT AND EQUIPMENT, NET
1,144.8

 
1,033.8

OTHER ASSETS
 
 
 
Deposits for property, plant and equipment
94.6

 
17.8

Income tax receivable
113.6

 
235.3

Non-current assets of discontinued operations

 
20.3

Other non-current assets
121.4

 
101.6

TOTAL OTHER ASSETS
329.6

 
375.0

TOTAL ASSETS
$
3,125.0

 
$
2,953.4

(continued)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Statements of Unaudited Condensed Consolidated Financial Position
Cleveland-Cliffs Inc. and Subsidiaries - (Continued)
 
(In Millions)
 
September 30,
2018
 
December 31,
2017
LIABILITIES
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable
$
140.8

 
$
99.5

Accrued expenses
95.1

 
79.1

Accrued interest
26.2

 
31.4

Contingent claims

 
55.6

Partnership distribution payable
43.1

 
44.2

Current liabilities of discontinued operations
14.2

 
75.0

Other current liabilities
61.3

 
67.4

TOTAL CURRENT LIABILITIES
380.7

 
452.2

PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES
225.0

 
257.7

ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
174.4

 
167.7

LONG-TERM DEBT
2,300.0

 
2,304.2

NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS
9.3

 
52.2

OTHER LIABILITIES
121.8

 
163.5

TOTAL LIABILITIES
3,211.2

 
3,397.5

COMMITMENTS AND CONTINGENCIES (REFER TO NOTE 20)

 

EQUITY
 
 
 
CLIFFS SHAREHOLDERS' DEFICIT
 
 
 
Preferred Stock - no par value
 
 
 
Class A - 3,000,000 shares authorized
 
 
 
Class B - 4,000,000 shares authorized
 
 
 
Common Shares - par value $0.125 per share
 
 
 
Authorized - 600,000,000 shares (2017 - 600,000,000 shares);
 
 
 
Issued - 301,886,794 shares (2017 - 301,886,794 shares);
 
 
 
Outstanding - 298,007,453 shares (2017 - 297,400,968 shares)
37.7

 
37.7

Capital in excess of par value of shares
3,913.3

 
3,933.9

Retained deficit
(3,654.7
)
 
(4,207.3
)
Cost of 3,879,341 common shares in treasury (2017 - 4,485,826 shares)
(139.1
)
 
(169.6
)
Accumulated other comprehensive loss
(243.4
)
 
(39.0
)
TOTAL CLIFFS SHAREHOLDERS' DEFICIT
(86.2
)
 
(444.3
)
NONCONTROLLING INTEREST

 
0.2

TOTAL DEFICIT
(86.2
)
 
(444.1
)
TOTAL LIABILITIES AND DEFICIT
$
3,125.0

 
$
2,953.4

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Statements of Unaudited Condensed Consolidated Operations
Cleveland-Cliffs Inc. and Subsidiaries
 
(In Millions, Except Per Share Amounts)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
REVENUES FROM PRODUCT SALES AND SERVICES
 
 
 
 
 
 
 
Product
$
684.7

 
$
530.7

 
$
1,525.9

 
$
1,195.0

Freight and venture partners' cost reimbursements
57.1

 
66.0

 
110.2

 
159.2


741.8

 
596.7

 
1,636.1

 
1,354.2

COST OF GOODS SOLD AND OPERATING EXPENSES
(480.2
)
 
(438.9
)
 
(1,028.5
)
 
(1,002.7
)
SALES MARGIN
261.6

 
157.8

 
607.6

 
351.5

OTHER OPERATING INCOME (EXPENSE)
 
 
 
 
 
 
 
Selling, general and administrative expenses
(30.1
)
 
(23.8
)
 
(81.4
)
 
(75.5
)
Miscellaneous – net
(6.0
)
 
(5.3
)
 
(16.2
)
 
1.3

 
(36.1
)
 
(29.1
)
 
(97.6
)
 
(74.2
)
OPERATING INCOME
225.5

 
128.7

 
510.0

 
277.3

OTHER INCOME (EXPENSE)
 
 
 
 
 
 
 
Interest expense, net
(29.5
)
 
(27.6
)
 
(93.1
)
 
(99.1
)
Gain (loss) on extinguishment of debt

 
(88.6
)
 
0.2

 
(165.4
)
Other non-operating income
4.3

 
2.6

 
13.1

 
7.6

 
(25.2
)
 
(113.6
)
 
(79.8
)
 
(256.9
)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
200.3

 
15.1

 
430.2

 
20.4

INCOME TAX BENEFIT (EXPENSE)
(0.5
)
 
7.2

 
(14.4
)
 
7.2

INCOME FROM CONTINUING OPERATIONS
199.8

 
22.3

 
415.8

 
27.6

INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
238.0

 
30.6

 
102.8

 
25.6

NET INCOME
437.8

 
52.9

 
518.6

 
53.2

LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST

 
0.5

 

 
3.9

NET INCOME ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$
437.8

 
$
53.4

 
$
518.6

 
$
57.1

INCOME PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS – BASIC
 
 
 
 
 
 
 
Continuing operations
$
0.67

 
$
0.08

 
$
1.40

 
$
0.11

Discontinued operations
0.80

 
0.10

 
0.35

 
0.09

 
$
1.47

 
$
0.18

 
$
1.75

 
$
0.20

INCOME PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS – DILUTED
 
 
 
 
 
 
 
Continuing operations
$
0.64

 
$
0.08

 
$
1.37

 
$
0.11

Discontinued operations
0.77

 
0.10

 
0.34

 
0.08

 
$
1.41

 
$
0.18

 
$
1.71

 
$
0.19

AVERAGE NUMBER OF SHARES (IN THOUSANDS)
 
 
 
 
 
 
 
Basic
297,878

 
296,079

 
297,587

 
285,771

Diluted
310,203

 
301,075

 
303,518

 
290,512

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Statements of Unaudited Condensed Consolidated Comprehensive Income
Cleveland-Cliffs Inc. and Subsidiaries
 
(In Millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
NET INCOME ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$
437.8

 
$
53.4

 
$
518.6

 
$
57.1

OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
Changes in pension and other post-retirement benefits, net of tax
6.8

 
7.5

 
20.2

 
18.9

Changes in foreign currency translation
(228.3
)
 
0.5

 
(225.4
)
 
(13.6
)
Changes in derivative financial instruments, net of tax
0.3

 

 
0.8

 

OTHER COMPREHENSIVE INCOME (LOSS)
(221.2
)
 
8.0

 
(204.4
)
 
5.3

OTHER COMPREHENSIVE INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTEREST

 
(5.7
)
 

 
(1.1
)
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$
216.6

 
$
55.7

 
$
314.2

 
$
61.3

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Statements of Unaudited Condensed Consolidated Cash Flows
Cleveland-Cliffs Inc. and Subsidiaries
 
(In Millions)
 
Nine Months Ended
September 30,
 
2018
 
2017
OPERATING ACTIVITIES
 
 
 
Net income
$
518.6

 
$
53.2

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
68.6

 
66.3

Loss (gain) on extinguishment of debt
(0.2
)
 
165.4

Loss on deconsolidation

 
16.3

Gain on derivatives
(136.4
)
 
(47.5
)
Gain on foreign currency translation
(228.1
)
 

Other
5.7

 
19.0

Changes in operating assets and liabilities:
 
 
 
Receivables and other assets
96.2

 
68.9

Inventories
(57.1
)
 
(26.1
)
Payables, accrued expenses and other liabilities
(78.6
)
 
(108.8
)
Net cash provided by operating activities
188.7

 
206.7

INVESTING ACTIVITIES
 
 
 
Purchase of property, plant and equipment
(111.4
)
 
(62.7
)
Deposits for property, plant and equipment
(83.3
)
 
(16.2
)
Proceeds on sales of assets
18.5

 
2.2

Other investing activities
2.5

 
(7.7
)
Net cash used by investing activities
(173.7
)
 
(84.4
)
FINANCING ACTIVITIES
 
 
 
Net proceeds from issuance of common shares

 
661.3

Proceeds from issuance of debt

 
1,057.8

Debt issuance costs
(1.5
)
 
(12.0
)
Repurchase of debt
(16.3
)
 
(1,720.7
)
Acquisition of noncontrolling interest

 
(105.0
)
Distributions of partnership equity
(44.2
)
 
(53.0
)
Other financing activities
(45.7
)
 
(17.0
)
Net cash used by financing activities
(107.7
)
 
(188.6
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(2.3
)
 
3.7

DECREASE IN CASH AND CASH EQUIVALENTS, INCLUDING CASH CLASSIFIED WITHIN CURRENT ASSETS OF DISCONTINUED OPERATIONS
(95.0
)
 
(62.6
)
LESS: INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CLASSIFIED WITHIN CURRENT ASSETS OF DISCONTINUED OPERATIONS
(13.8
)
 
23.1

NET DECREASE IN CASH AND CASH EQUIVALENTS
(81.2
)
 
(85.7
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
978.3

 
312.8

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
897.1

 
$
227.1

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Cleveland-Cliffs Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with SEC rules and regulations and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations, comprehensive income and cash flows for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of results to be expected for the year ending December 31, 2018 or any other future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2017.
As more fully described in NOTE 16 - DISCONTINUED OPERATIONS, on January 25, 2018, we announced that we would accelerate the time frame for the planned closure of our Asia Pacific Iron Ore mining operations in Australia. On April 6, 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 was completed during August 2018. As of 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.
We now operate in one reportable segment – U.S. Iron Ore. Unless otherwise noted, discussion of our business and results of operations in this Quarterly Report on Form 10-Q refers to our continuing operations.
Basis of Consolidation
The unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries, including the following operations as of September 30, 2018:
Name
 
Location
 
Status of Operations
Northshore
 
Minnesota
 
Active
United Taconite
 
Minnesota
 
Active
Tilden
 
Michigan
 
Active
Empire
 
Michigan
 
Indefinitely Idled
Koolyanobbing1
 
Western Australia
 
Substantially All Assets Sold
 
 
 
 
 
1 During June 2018, we completed the final planned shipment from Asia Pacific Iron Ore and commenced selling its assets. As of September 30, 2018, substantially all of the Asia Pacific Iron Ore assets were sold. Refer to NOTE 16 - DISCONTINUED OPERATIONS.
Intercompany transactions and balances are eliminated upon consolidation.
Equity Method Investments
Our 23% ownership interest in Hibbing is recorded as an equity method investment. As of September 30, 2018 and December 31, 2017, our investment in Hibbing was $7.2 million and $11.0 million, respectively, classified as Other liabilities in the Statements of Unaudited Condensed Consolidated Financial Position.

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Foreign Currency
Our financial statements are prepared with the U.S. dollar as the reporting currency. Historically, the functional currency of our Australian subsidiaries has been the Australian dollar. Concurrent with the sale of assets to Mineral Resources Limited in August 2018, management determined that there have been significant changes in economic factors related to our Australian subsidiaries. The change in economic factors is a result of the sale and conveyance of substantially all assets and liabilities of our Australian subsidiaries to third parties, representing a significant change in operations. As such, the functional currency for the Australian subsidiaries has changed from the Australian dollar to the U.S. dollar and all Australian denominated monetary balances will be remeasured through the Statements of Unaudited Condensed Consolidated Operations on a prospective basis.
In addition, as a result of the liquidation of substantially all of the Australian subsidiaries' assets, the historical impact of foreign currency translation recorded in Accumulated other comprehensive loss in the Statements of Unaudited Condensed Consolidated Financial Position of $228.1 million was reclassified and recognized in Income from Discontinued Operations, net of tax in the Statements of Unaudited Condensed Consolidated Operations. Refer to NOTE 16 - DISCONTINUED OPERATIONS for further information regarding our Australian subsidiaries.
The functional currency of all other subsidiaries is the U.S. dollar. To the extent that monetary assets and liabilities, including short-term intercompany loans, are recorded in a currency other than the functional currency, these amounts are remeasured each reporting period, with the resulting gain or loss being recorded in the Statements of Unaudited Condensed Consolidated Operations. Transaction gains and losses resulting from remeasurement of short-term intercompany loans are included in Miscellaneous – net in the Statements of Unaudited Condensed Consolidated Operations.
The following represents the transaction gains and losses resulting from remeasurement:
 
 
(In Millions)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
Short-term intercompany loans
 
$
(0.2
)
 
$
0.1

 
$
(0.5
)
 
$
16.7

Other
 

 
(1.4
)
 
(0.2
)
 
(2.7
)
Net impact of transaction gains (losses) resulting from remeasurement
 
$
(0.2
)
 
$
(1.3
)
 
$
(0.7
)
 
$
14.0

Significant Accounting Policies
A detailed description of our significant accounting policies can be found in the audited financial statements for the fiscal year ended December 31, 2017 included in our Annual Report on Form 10-K filed with the SEC. There have been no material changes in our significant accounting policies and estimates from those disclosed therein other than those related to the adoption of Topic 606 and the change in functional currency related to our Australian subsidiaries. Refer to NOTE 2 - NEW ACCOUNTING STANDARDS for further information related to the adoption of Topic 606.
NOTE 2 - NEW ACCOUNTING STANDARDS
Adoption of New Accounting Standards
ASC Topic 606, Revenue from Contracts with Customers (Topic 606). On January 1, 2018, we adopted Topic 606 and applied it to all contracts that were not completed using the modified retrospective method. We recognized the cumulative effect of initially applying Topic 606 as an adjustment of $34.0 million to the opening balance of Retained deficit. The comparative period information has not been restated and continues to be reported under the accounting standards in effect for those periods. We do not expect that the adoption of Topic 606 will have a material impact to our annual net income on an ongoing basis.
Under Topic 606, revenue is generally recognized upon delivery to our customers, which is earlier than under the previous guidance. As an example, for certain iron ore shipments where revenue was previously recognized upon title transfer when payment was received, we now recognize revenue when control transfers, which is generally upon delivery. While we continue to retain title until we receive payment, we determined upon review of our customer contracts that the preponderance of control indicators pass to our customers' favor when we deliver our products; thus, we generally concluded that control transfers at that point. As a result of the adoption of Topic 606 and vessel deliveries not occurring

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during the winter months because of the closure of the Soo Locks and the Welland Canal, our revenues and net income will be relatively lower than historical levels during the first quarter of each year and relatively higher than historical levels during the remaining three quarters in future years. However, the total amount of revenue recognized during the year should remain substantially the same as under previous accounting standards, assuming revenue rates and volumes are consistent between years.

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The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of Topic 606 were as follows:
 
 
($ in Millions)
 
 
Balance at December 31, 2017
 
Adjustments due to Topic 606
 
Balance at January 1, 2018
ASSETS
 
 
 
 
 
 
CURRENT ASSETS
 
 
 


 


Cash and cash equivalents
 
$
978.3

 
$

 
$
978.3

Accounts receivable, net
 
106.7

 
76.6

 
183.3

Inventories
 
138.4

 
(51.4
)
 
87.0

Supplies and other inventories
 
88.8

 

 
88.8

Derivative assets
 
37.9

 
11.6

 
49.5

Income tax receivable
 
13.3

 

 
13.3

Current assets of discontinued operations
 
118.5

 

 
118.5

Loans to and accounts receivable from the Canadian Entities
 
51.6

 

 
51.6

Other current assets
 
11.1

 

 
11.1

TOTAL CURRENT ASSETS
 
1,544.6

 
36.8

 
1,581.4

PROPERTY, PLANT AND EQUIPMENT, NET
 
1,033.8

 

 
1,033.8

OTHER ASSETS
 
 
 
 
 
 
Deposits for property, plant and equipment
 
17.8

 

 
17.8

Income tax receivable
 
235.3

 

 
235.3

Non-current assets of discontinued operations
 
20.3

 

 
20.3

Other non-current assets
 
101.6

 

 
101.6

TOTAL OTHER ASSETS
 
375.0

 

 
375.0

TOTAL ASSETS
 
$
2,953.4

 
$
36.8

 
$
2,990.2

 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
Accounts payable
 
$
99.5

 
$
1.4

 
$
100.9

Accrued expenses
 
79.1

 

 
79.1

Accrued interest
 
31.4

 

 
31.4

Contingent claims
 
55.6

 

 
55.6

Partnership distribution payable
 
44.2

 

 
44.2

Current liabilities of discontinued operations
 
75.0

 

 
75.0

Other current liabilities
 
67.4

 
1.4

 
68.8

TOTAL CURRENT LIABILITIES
 
452.2

 
2.8

 
455.0

PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES
 
257.7

 

 
257.7

ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
 
167.7

 

 
167.7

LONG-TERM DEBT
 
2,304.2

 

 
2,304.2

NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS
 
52.2

 

 
52.2

OTHER LIABILITIES
 
163.5

 

 
163.5

TOTAL LIABILITIES
 
3,397.5

 
2.8

 
3,400.3

EQUITY
 
 
 
 
 
 
CLIFFS SHAREHOLDERS' DEFICIT
 
(444.3
)
 
34.0

 
(410.3
)
NONCONTROLLING INTEREST
 
0.2

 

 
0.2

TOTAL DEFICIT
 
(444.1
)
 
34.0

 
(410.1
)
TOTAL LIABILITIES AND DEFICIT
 
$
2,953.4

 
$
36.8

 
$
2,990.2


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The impact of adoption on our Statements of Unaudited Condensed Consolidated Operations and Statements of Unaudited Condensed Consolidated Financial Position is as follows:
 
($ in Millions)
 
Three Months Ended
 September 30, 2018
 
Nine Months Ended
 September 30, 2018
 
As Reported
 
Balances without Adoption of Topic 606
 
Effect of Change
 
As Reported
 
Balances without Adoption of Topic 606
 
Effect of Change
REVENUES FROM PRODUCT SALES AND SERVICES
 
 
 
 
 
 
 
 
 
 
 
Product
$
684.7

 
$
675.6

 
$
9.1

 
$
1,525.9

 
$
1,471.2

 
$
54.7

Freight and venture partners' cost reimbursements
57.1

 
56.5

 
0.6

 
110.2

 
107.7

 
2.5

 
741.8

 
732.1

 
9.7

 
1,636.1

 
1,578.9

 
57.2

COST OF GOODS SOLD AND OPERATING EXPENSES
(480.2
)
 
(475.9
)
 
(4.3
)
 
(1,028.5
)
 
(1,006.6
)
 
(21.9
)
SALES MARGIN
261.6

 
256.2

 
5.4

 
607.6

 
572.3

 
35.3

OTHER OPERATING EXPENSE
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
(30.1
)
 
(30.1
)
 

 
(81.4
)
 
(81.4
)
 

Miscellaneous – net
(6.0
)
 
(6.0
)
 

 
(16.2
)
 
(16.2
)
 

 
(36.1
)
 
(36.1
)
 

 
(97.6
)
 
(97.6
)
 

OPERATING INCOME
225.5

 
220.1

 
5.4

 
510.0

 
474.7

 
35.3

OTHER INCOME (EXPENSE)
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
(29.5
)
 
(29.5
)
 

 
(93.1
)
 
(93.1
)
 

Gain on extinguishment of debt

 

 

 
0.2

 
0.2

 

Other non-operating income
4.3

 
4.3

 

 
13.1

 
13.1

 

 
(25.2
)
 
(25.2
)
 

 
(79.8
)
 
(79.8
)
 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
200.3

 
194.9

 
5.4

 
430.2

 
394.9

 
35.3

INCOME TAX EXPENSE
(0.5
)
 
(0.5
)
 

 
(14.4
)
 
(14.4
)
 

INCOME FROM CONTINUING OPERATIONS
199.8

 
194.4

 
5.4

 
415.8

 
380.5

 
35.3

INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
238.0

 
238.0

 

 
102.8

 
102.8

 

NET INCOME ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$
437.8

 
$
432.4

 
$
5.4

 
$
518.6

 
$
483.3

 
$
35.3

INCOME PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS – BASIC
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.67

 
$
0.65

 
$
0.02

 
$
1.40

 
$
1.28

 
$
0.12

Discontinued operations
0.80

 
0.80

 

 
0.35

 
0.35

 

 
$
1.47

 
$
1.45

 
$
0.02

 
$
1.75

 
$
1.63

 
$
0.12

INCOME PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS – DILUTED
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.64

 
$
0.62

 
$
0.02

 
$
1.37

 
$
1.25

 
$
0.12

Discontinued operations
0.77

 
0.77

 

 
0.34

 
0.34

 

 
$
1.41

 
$
1.39

 
$
0.02

 
$
1.71

 
$
1.59

 
$
0.12

AVERAGE NUMBER OF SHARES (IN THOUSANDS)
 
 
 
 
 
 
 
 
 
 
 
Basic
297,878

 
297,878

 
 
 
297,587

 
297,587

 
 
Diluted
310,203

 
310,203

 
 
 
303,518

 
303,518

 
 

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Table of Contents


 
 
($ in Millions)
 
 
September 30, 2018
 
 
As Reported
 
Balances without Adoption of Topic 606
 
Effect of Change
ASSETS
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 


Cash and cash equivalents
 
$
897.1

 
$
897.1

 
$

Accounts receivable, net
 
141.4

 
34.8

 
106.6

Inventories
 
187.9

 
257.5

 
(69.6
)
Supplies and other inventories
 
88.2

 
88.2

 

Derivative assets
 
190.8

 
156.6

 
34.2

Income tax receivable
 
110.3

 
110.3

 

Current assets of discontinued operations
 
16.1

 
16.1

 

Other current assets
 
18.8

 
18.8

 

TOTAL CURRENT ASSETS
 
1,650.6

 
1,579.4

 
71.2

PROPERTY, PLANT AND EQUIPMENT, NET
 
1,144.8

 
1,144.8

 

OTHER ASSETS
 
 
 
 
 
 
Deposits for property, plant and equipment
 
94.6

 
94.6

 

Income tax receivable
 
113.6

 
113.6

 

Other non-current assets
 
121.4

 
121.4

 

TOTAL OTHER ASSETS
 
329.6

 
329.6

 

TOTAL ASSETS
 
$
3,125.0

 
$
3,053.8

 
$
71.2

 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
Accounts payable
 
$
140.8

 
$
140.1

 
$
0.7

Accrued expenses
 
95.1

 
95.1

 

Accrued interest
 
26.2

 
26.2

 

Partnership distribution payable
 
43.1

 
43.1

 

Current liabilities of discontinued operations
 
14.2

 
14.2

 

Other current liabilities
 
61.3

 
61.5

 
(0.2
)
TOTAL CURRENT LIABILITIES
 
380.7

 
380.2

 
0.5

PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES
 
225.0

 
225.0

 

ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
 
174.4

 
174.4

 

LONG-TERM DEBT
 
2,300.0

 
2,300.0

 

NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS
 
9.3

 
9.3

 

OTHER LIABILITIES
 
121.8

 
121.8

 

TOTAL LIABILITIES
 
3,211.2

 
3,210.7

 
0.5

EQUITY
 
 
 
 
 
 
CLIFFS SHAREHOLDERS' DEFICIT
 
(86.2
)
 
(156.9
)
 
70.7

TOTAL LIABILITIES AND DEFICIT
 
$
3,125.0

 
$
3,053.8

 
$
71.2

The adoption of Topic 606 did not have an impact on net cash flows in our Statements of Unaudited Condensed Consolidated Cash Flows.
ASU 2017-07, Retirement Benefits - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. On January 1, 2018, we adopted the amendments to ASC 715 regarding the presentation of net periodic pension and postretirement benefit costs. We retrospectively adopted the presentation of service cost

12

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separate from the other components of net periodic costs. The interest cost, expected return on assets, amortization of prior service costs, net remeasurement, and other costs have been reclassified from Cost of goods sold and operating expenses, Selling, general and administrative expenses and Miscellaneous – net to Other non-operating income.  We elected to apply the practical expedient, which allows us to reclassify amounts disclosed previously in our pension and other postretirement benefits footnote as the basis for applying retrospective presentation for comparative periods. On a prospective basis from adoption, only service costs will be included in amounts capitalized in inventory or property, plant, and equipment.
The effect of the retrospective presentation change related to the net periodic cost of our defined benefit pension and other postretirement employee benefits plans on our Statements of Unaudited Condensed Consolidated Operations was as follows:
 
($ in Millions)
 
Three Months Ended September 30, 2017
 
Nine Months Ended
September 30, 2017
 
As Revised
 
Without Adoption of ASU 2017-07
 
Effect of Change
 
As Revised
 
Without Adoption of ASU 2017-07
 
Effect of Change
Cost of goods sold and operating expenses
$
(438.9
)
 
$
(439.5
)
 
$
0.6

 
$
(1,002.7
)
 
$
(1,004.4
)
 
$
1.7

Selling, general and administrative expenses
$
(23.8
)
 
$
(21.8
)
 
$
(2.0
)
 
$
(75.5
)
 
$
(69.6
)
 
$
(5.9
)
Miscellaneous – net
$
(5.3
)
 
$
(4.9
)
 
$
(0.4
)
 
$
1.3

 
$
2.4

 
$
(1.1
)
Operating income
$
128.7

 
$
130.5

 
$
(1.8
)
 
$
277.3

 
$
282.6

 
$
(5.3
)
Other non-operating income
$
2.6

 
$
0.8

 
$
1.8

 
$
7.6

 
$
2.3

 
$
5.3

Net Income
$
52.9

 
$
52.9

 
$

 
$
53.2

 
$
53.2

 
$

Recent Accounting Pronouncements
Issued and Not Effective
In August 2018, the FASB issued ASU No. 2018-14, Defined Benefit Plans (Topic 715-20) - Changes to the Disclosure Requirements for Defined Benefit Plans. Certain of the existing required disclosures were modified for clarification or removed and additional disclosures were added. The new standard is effective for the year ending December 31, 2020, will be applied on a retrospective basis and early adoption is permitted. Based on our analysis to date, the updated standard is not expected to have a material impact on our consolidated financial statements, but will affect our footnote disclosures. We expect to early adopt this new standard during the fourth quarter of 2018.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases except for short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the Statements of Unaudited Condensed Consolidated Operations. We plan to adopt the standard on its effective date of January 1, 2019. We will apply the standard on the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption as permitted by ASU 2018-11. Based on our analysis to date, the updated standard is not expected to have a material effect on our consolidated financial statements. For example, based on the future minimum payments under non-cancellable operating leases as of September 30, 2018, we would expect to record right–of–use assets and lease liabilities of approximately $19 million, discounted to fair value, in the Statements of Unaudited Condensed Consolidated Financial Position.
Issued and Adopted
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) - Changes to the Disclosure Requirements for Fair Value Measurement. The new standard removes or modifies certain existing disclosure requirements and adds additional disclosure requirements. We have evaluated the impact of the adoption of this new accounting standard update and determined that it will not have a material effect on our consolidated financial statements. However, we do expect an overall reduction in both our quarterly and annual disclosures related to fair value measurement. We are adopting the standard effective for the period ended September 30, 2018.

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Table of Contents


NOTE 3 - SEGMENT REPORTING
We operate in one reportable segment – U.S. Iron Ore. U.S. Iron Ore is a major supplier of iron ore pellets to the North American steel industry from our mines and pellet plants located in Michigan and Minnesota.
We evaluate segment performance based on sales margin, defined as revenues less cost of goods sold and operating expenses identifiable to each segment. Additionally, we evaluate performance on a segment basis, as well as a consolidated basis, based on EBITDA and Adjusted EBITDA. These measures allow management and investors to focus on our ability to service our debt as well as illustrate how the business and each operating segment are performing.  Additionally, EBITDA and Adjusted EBITDA assist management and investors in their analysis and forecasting as these measures approximate the cash flows associated with operational earnings.
The following tables present a summary of our reportable segment including a reconciliation of segment sales margin to Income from Continuing Operations Before Income Taxes and a reconciliation of Net Income to EBITDA and Adjusted EBITDA:
 
(In Millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Revenues from product sales and services:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Iron Ore
$
741.8

 
100
%
 
$
596.7

 
100
%
 
$
1,636.1

 
100
%
 
$
1,354.2

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales margin
$
261.6

 
 
 
$
157.8

 
 
 
$
607.6

 
 
 
$
351.5

 
 
Other operating expense
(36.1
)
 
 
 
(29.1
)
 
 
 
(97.6
)
 
 
 
(74.2
)
 
 
Other expense
(25.2
)
 
 
 
(113.6
)
 
 
 
(79.8
)
 
 
 
(256.9
)
 
 
Income from continuing operations before income taxes
$
200.3

 
 
 
$
15.1

 
 
 
$
430.2

 
 
 
$
20.4

 
 

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Table of Contents


 
(In Millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Net Income
$
437.8

 
$
52.9

 
$
518.6

 
$
53.2

Less:
 
 
 
 
 
 
 
Interest expense, net
(29.7
)
 
(28.9
)
 
(95.5
)
 
(103.1
)
Income tax benefit (expense)
(0.5
)
 
7.6

 
(14.4
)
 
6.8

Depreciation, depletion and amortization
(19.2
)
 
(21.5
)
 
(68.6
)
 
(66.3
)
EBITDA
$
487.2

 
$
95.7

 
$
697.1

 
$
215.8

Less:
 
 
 
 
 
 
 
Impact of discontinued operations
$
238.2

 
$
34.8

 
$
120.4

 
$
41.3

Foreign exchange remeasurement
(0.2
)
 
(1.3
)
 
(0.7
)
 
14.0

Gain (loss) on extinguishment of debt

 
(88.6
)
 
0.2

 
(165.4
)
Impairment of long-lived assets
(1.1
)
 

 
(1.1
)
 

Adjusted EBITDA
$
250.3

 
$
150.8

 
$
578.3

 
$
325.9

 
 
 
 
 
 
 
 
EBITDA
 
 
 
 
 
 
 
U.S. Iron Ore
$
273.1

 
$
168.9

 
$
641.6

 
$
381.8

Corporate and Other1
214.1

 
(73.2
)
 
55.5

 
(166.0
)
Total EBITDA
$
487.2

 
$
95.7

 
$
697.1

 
$
215.8

 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
U.S. Iron Ore
$
279.5

 
$
174.2

 
$
657.9

 
$
399.8

Corporate and Other1
(29.2
)
 
(23.4
)
 
(79.6
)
 
(73.9
)
Total Adjusted EBITDA
$
250.3

 
$
150.8

 
$
578.3

 
$
325.9

 
 
 
 
 
 
 
 
1Corporate and Other includes activity from discontinued operations and immaterial costs related to the HBI project.
The following table summarizes our depreciation, depletion and amortization expense and capital additions:
 
(In Millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Depreciation, depletion and amortization:
 
 
 
 
 
 
 
U.S. Iron Ore
$
17.8

 
$
16.5

 
$
49.2

 
$
49.6

Corporate and Other
1.4

 
1.7

 
4.2

 
5.4

Total depreciation, depletion and amortization
$
19.2

 
$
18.2

 
$
53.4

 
$
55.0

 
 
 
 
 
 
 
 
Capital additions1:
 
 
 
 
 
 
 
U.S. Iron Ore
$
51.8

 
$
19.2

 
$
97.2

 
$
70.9

Corporate and Other2
40.8

 
7.1

 
144.7

 
7.1

Total capital additions
$
92.6

 
$
26.3

 
$
241.9

 
$
78.0

 
 
 
 
 
 
 
 
1 Includes cash paid for capital additions of $194.6 million, including deposits of $83.3 million, lease additions of $7.6 million, and an increase in non-cash accruals of $42.2 million, partially offset by governmental grants received of $2.5 million for the nine months ended September 30, 2018, compared to cash paid for capital additions of $77.4 million, including deposits of $16.2 million, and an increase in non-cash accruals of $0.6 million for the nine months ended September 30, 2017.
2 Includes capital additions related to our HBI project.

15

Table of Contents


A summary of assets by segment is as follows:
 
(In Millions)
 
September 30,
2018
 
December 31,
2017
Assets:
 
 
 
U.S. Iron Ore
$
1,798.8

 
$
1,500.6

Corporate and Other1
1,310.1

 
1,314.0

Assets of Discontinued Operations
16.1

 
138.8

Total assets
$
3,125.0

 
$
2,953.4

 
1Corporate and Other includes assets related to the HBI project.
NOTE 4 - REVENUE
We sell a single product, iron ore pellets, in the North American market. Generally, revenue is recognized when iron ore is delivered to our customers. Revenue is measured at the point that control transfers and represents the amount of consideration we expect to receive in exchange for transferring goods. We offer standard payment terms to our customers, generally requiring settlement within 30 days.
We enter into supply contracts of varying lengths to provide customers iron ore pellets to use in their blast furnaces. Blast furnaces run continuously with a constant feed of iron ore and once shut down, cannot easily be restarted. As a result, we ship iron ore in large quantities for storage and use by customers at a later date. Customers do not simultaneously receive and consume the benefits of the iron ore. Based on our assessment of the factors that indicate the pattern of satisfaction, we transfer control of the iron ore at a point in time upon shipment or delivery of the product. The customer is able to direct the use of, and obtain substantially all of the benefits from, the product at the time the product is delivered.
Certain of our customer supply agreements specify a provisional price, which is used for initial billing and cash collection. Revenue recorded in accordance with Topic 606 is calculated using the expected revenue rate at the point when control transfers. The final settlement includes market inputs for a specified period of time, which may vary by customer, but typically include one or more of the following: Platts 62% Price, pellet premiums, international indexed freight rates and changes in specified Producer Price Indices, including industrial commodities, energy and steel. Changes in the expected revenue rate from the date control transfers through final settlement of contract terms is recorded in accordance with Topic 815. Refer to NOTE 15 - DERIVATIVE INSTRUMENTS for further information on how our estimated and final revenue rates are determined.
A supply agreement with one customer provides for supplemental revenue or refunds based on the average annual daily market price for hot-rolled coil steel at the time the iron ore is consumed in the customer’s blast furnaces. Since, in this case, control transfers prior to consumption, the supplemental revenue is recorded in accordance with ASC Topic 815. Refer to NOTE 15 - DERIVATIVE INSTRUMENTS for further information on supplemental revenue or refunds.
Included within Revenues from product sales and services is derivative revenue related to Topic 815 of $135.9 million and $334.4 million, for three and nine months ended September 30, 2018, respectively.
Practical expedients and exemptions
We have elected to treat all shipping and handling costs as fulfillment costs because a significant portion of these costs are incurred prior to control transfer.
We have various long-term sales contracts with minimum purchase and supply requirement provisions that extend beyond the current reporting period. The portion of our transaction price for these contracts that is allocated entirely to wholly unsatisfied performance obligations is based on market prices that have not yet been determined and therefore is variable in nature. As such, we have not disclosed the value of unsatisfied performance obligations pursuant to the practical expedient.

16

Table of Contents


Deferred Revenue
The table below summarizes our deferred revenue balances:
 
Deferred Revenue (Current)1
 
Deferred Revenue (Long-Term)
Opening balance as of January 1, 2018
$
23.8

 
$
51.4

Closing balance as of September 30, 2018
16.1

 
42.8

Decrease
$
(7.7
)
 
$
(8.6
)
 
 
 
 
1 The opening balance includes a $1.4 million adjustment from the December 31, 2017 balance due to the adoption of Topic 606.
The terms of one of our pellet supply agreements required supplemental payments to be paid by the customer during the period 2009 through 2012, with the option to defer a portion of the 2009 monthly amount in exchange for interest payments until the deferred amount was repaid in 2013. Installment amounts received under this arrangement in excess of sales were classified as Other current liabilities and Other liabilities in the Statements of Unaudited Condensed Consolidated Financial Position upon receipt of payment. Revenue is recognized over the life of the supply agreement, which extends until 2022, in equal annual installments. As of September 30, 2018 and December 31, 2017, installment amounts received in excess of sales totaled $55.6 million and $64.2 million, respectively, related to this agreement. As of September 30, 2018 and December 31, 2017, deferred revenue of $12.8 million was recorded in Other current liabilities and $42.8 million and $51.4 million, respectively, was recorded as long-term in Other liabilities in the Statements of Unaudited Condensed Consolidated Financial Position, related to this agreement.
Due to the payment terms and the timing of cash receipts near a period end, cash receipts can exceed shipments for certain customers. Revenue recognized on these transactions totaling $3.3 million and $9.6 million was deferred and included in Other current liabilities in the Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2018 and December 31, 2017, respectively.
NOTE 5 - INVENTORIES
The following table presents the detail of our Inventories in the Statements of Unaudited Condensed Consolidated Financial Position:
 
 
(In Millions)
 
 
September 30, 2018
 
December 31, 2017
Finished Goods
 
$
171.8

 
$
127.1

Work-in-Process
 
16.1

 
11.3

Total Inventories
 
$
187.9

 
$
138.4


17

Table of Contents


NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
The following table indicates the value of each of the major classes of our consolidated depreciable assets:
 
(In Millions)
 
September 30,
2018
 
December 31,
2017
Land rights and mineral rights
$
549.6

 
$
549.6

Office and information technology
67.8

 
65.8

Buildings
84.1

 
85.2

Mining equipment
538.7

 
533.9

Processing equipment
619.0

 
610.9

Electric power facilities
58.7

 
56.9

Land improvements
24.2

 
23.7

Asset retirement obligation
16.9

 
16.9

Other
25.2

 
25.2

Construction in-progress
168.7

 
32.6

 
2,152.9

 
2,000.7

Allowance for depreciation and depletion
(1,008.1
)
 
(966.9
)
 
$
1,144.8

 
$
1,033.8

NOTE 7 - DEBT AND CREDIT FACILITIES
The following represents a summary of our long-term debt:
(In Millions)
September 30, 2018
Debt Instrument
 
Annual Effective
Interest Rate
 
Total Principal Amount
 
Debt Issuance Costs
 
Unamortized Discounts
 
Total Debt
Secured Notes
 
 
 
 
 
 
 
 
 
 
$400 Million 4.875% 2024 Senior Notes
 
5.00%
 
$
400.0

 
$
(6.0
)
 
$
(2.3
)
 
$
391.7

Unsecured Notes
 
 
 
 
 
 
 
 
 
 
$400 Million 5.90% 2020 Senior Notes
 
5.98%
 
88.4

 
(0.1
)
 
(0.1
)
 
88.2

$500 Million 4.80% 2020 Senior Notes
 
4.83%
 
122.3

 
(0.2
)
 
(0.1
)
 
122.0

$700 Million 4.875% 2021 Senior Notes
 
4.89%
 
124.2

 
(0.3
)
 

 
123.9

$316.25 Million 1.50% 2025 Convertible Senior Notes
 
6.26%
 
316.3

 
(5.8
)
 
(78.1
)
 
232.4

$1.075 Billion 5.75% 2025 Senior Notes
 
6.01%
 
1,073.3

 
(10.3
)
 
(15.1
)
 
1,047.9

$800 Million 6.25% 2040 Senior Notes
 
6.34%
 
298.4

 
(2.3
)
 
(3.3
)
 
292.8

ABL Facility
 
N/A
 
450.0

 
N/A

 
N/A

 

Fair Value Adjustment to Interest Rate Hedge
 
 
 
 
 
 
 
 
 
1.1

Long-term debt
 
 
 
 
 
 
 
 
 
$
2,300.0


18

Table of Contents


(In Millions)
December 31, 2017
Debt Instrument
 
Annual Effective
Interest Rate
 
Total Principal Amount
 
Debt Issuance Costs
 
Unamortized Discounts
 
Total Debt
Secured Notes
 
 
 
 
 
 
 
 
 
 
$400 Million 4.875% 2024 Senior Notes
 
5.00%
 
$
400.0

 
$
(7.1
)
 
$
(2.6
)
 
$
390.3

Unsecured Notes
 
 
 
 
 
 
 
 
 
 
$400 Million 5.90% 2020 Senior Notes
 
5.98%
 
88.9

 
(0.2
)
 
(0.1
)
 
88.6

$500 Million 4.80% 2020 Senior Notes
 
4.83%
 
122.4

 
(0.3
)