CLEVELAND-CLIFFS INC., 10-Q filed on 10/23/2019
Quarterly Report
v3.19.3
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2019
Oct. 21, 2019
Cover page.    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2019  
Document Transition Report false  
Entity File Number 1-8944  
Entity Registrant Name CLEVELAND-CLIFFS INC.  
Entity Incorporation, State or Country Code OH  
Entity Tax Identification Number 34-1464672  
Entity Address, Address Line One 200 Public Square,  
Entity Address, City or Town Cleveland,  
Entity Address, State or Province OH  
Entity Address, Postal Zip Code 44114-2315  
City Area Code 216  
Local Phone Number 694-5700  
Title of 12(b) Security Common shares, par value $0.125 per share  
Trading Symbol CLF  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   270,082,088
Entity Central Index Key 0000764065  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Amendment Flag false  
v3.19.3
Statements Of Unaudited Condensed Consolidated Financial Position - USD ($)
$ in Millions
Sep. 30, 2019
Dec. 31, 2018
CURRENT ASSETS    
Cash and cash equivalents $ 399.3 $ 823.2
Accounts receivable, net 164.9 226.7
Finished goods inventories 162.2 77.8
Work-in-process inventories 55.2 10.1
Supplies and other inventories 110.8 93.2
Derivative assets 72.8 91.5
Income tax receivable, current 58.7 117.3
Other current assets 40.7 39.8
TOTAL CURRENT ASSETS 1,064.6 1,479.6
PROPERTY, PLANT AND EQUIPMENT, NET 1,769.9 1,286.0
OTHER ASSETS    
Deposits for property, plant and equipment 41.6 83.0
Income tax receivable, non-current 62.7 121.3
Deferred income taxes 437.5 464.8
Other non-current assets 114.9 94.9
TOTAL OTHER ASSETS 656.7 764.0
TOTAL ASSETS 3,491.2 3,529.6
CURRENT LIABILITIES    
Accounts payable 212.8 186.8
Accrued employment costs 57.3 74.0
Accrued interest 34.1 38.4
Derivative liabilities 32.6 3.7
Partnership distribution payable 0.0 43.5
Other current liabilities 121.7 121.8
TOTAL CURRENT LIABILITIES 458.5 468.2
PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES 233.2 248.7
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS 179.1 172.0
LONG-TERM DEBT 2,109.1 2,092.9
OTHER LIABILITIES 151.4 123.6
TOTAL LIABILITIES 3,131.3 3,105.4
COMMITMENTS AND CONTINGENCIES (REFER TO NOTE 19)
SHAREHOLDERS' EQUITY    
Common Shares - par value $0.125 per share, Authorized - 600,000,000 shares (2018 - 600,000,000 shares); Issued - 301,886,794 shares (2018 - 301,886,794 shares); Outstanding - 270,075,445 shares (2018 - 292,611,569 shares) 37.7 37.7
Capital in excess of par value of shares 3,867.7 3,916.7
Retained deficit (2,889.0) (3,060.2)
Cost of 31,811,349 common shares in treasury (2018 - 9,275,225 shares) (390.9) (186.1)
Accumulated other comprehensive loss (265.6) (283.9)
TOTAL EQUITY 359.9 424.2
TOTAL LIABILITIES AND EQUITY $ 3,491.2 $ 3,529.6
v3.19.3
Statements Of Condensed Consolidated Financial Position (Parenthetical) - $ / shares
Sep. 30, 2019
Dec. 31, 2018
Class of Stock [Line Items]    
Preferred stock, par value $ 0 $ 0
Common Stock, Par or Stated Value Per Share $ 0.125 $ 0.125
Common shares, authorized (in shares) 600,000,000 600,000,000
Common shares, issued (in shares) 301,886,794 301,886,794
Common shares, outstanding 270,075,445 292,611,569
Common shares in treasury 31,811,349 9,275,225
Preferred Class A [Member]    
Class of Stock [Line Items]    
Preferred stock, shares authorized (in shares) 3,000,000 3,000,000
Preferred Class B [Member]    
Class of Stock [Line Items]    
Preferred stock, shares authorized (in shares) 4,000,000 4,000,000
v3.19.3
Statements Of Unaudited Condensed Consolidated Operations - USD ($)
shares in Thousands, $ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Jun. 30, 2019
Mar. 31, 2019
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Sep. 30, 2019
Sep. 30, 2018
REVENUES FROM PRODUCT SALES AND SERVICES                
TOTAL REVENUES $ 555.6     $ 741.8     $ 1,455.8 $ 1,636.1
COST OF GOODS SOLD (400.7)     (480.2)     (1,007.0) (1,028.5)
SALES MARGIN 154.9     261.6     448.8 607.6
OTHER OPERATING EXPENSE                
Selling, general and administrative expenses (25.5)     (29.1)     (82.2) (78.9)
Miscellaneous - net (7.8)     (7.0)     (19.0) (18.7)
Other operating expense (33.3)     (36.1)     (101.2) (97.6)
OPERATING INCOME 121.6     225.5     347.6 510.0
OTHER INCOME (EXPENSE)                
Interest expense, net (25.3)     (29.5)     (76.5) (93.1)
Gain (loss) on extinguishment of debt       0.0     (18.2) 0.2
Other non-operating income 0.3     4.3     1.3 13.1
TOTAL OTHER INCOME (EXPENSE) (25.0)     (25.2)     (93.4) (79.8)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 96.6     200.3     254.2 430.2
INCOME TAX EXPENSE (4.8)     (0.5)     (23.1) (14.4)
INCOME FROM CONTINUING OPERATIONS 91.8     199.8     231.1 415.8
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX (0.9)     238.0     (1.5) 102.8
NET INCOME $ 90.9 $ 160.8 $ (22.1) $ 437.8 $ 165.1 $ (84.3) $ 229.6 $ 518.6
EARNINGS (LOSS) PER COMMON SHARE – BASIC                
Continuing operations (in dollars per share) $ 0.34     $ 0.67     $ 0.83 $ 1.40
Discontinued operations (in dollars per share) 0     0.80     (0.01) 0.35
Earnings (Loss) per Common Share - Basic (in dollars per share) 0.34     1.47     0.82 1.75
EARNINGS (LOSS) PER COMMON SHARE – DILUTED                
Continuing operations (in dollars per share) 0.33     0.64     0.80 1.37
Discontinued operations (in dollars per share) 0     0.77     0 0.34
Earnings (Loss) per Common Share - Diluted (in dollars per share) $ 0.33     $ 1.41     $ 0.80 $ 1.71
AVERAGE NUMBER OF SHARES (IN THOUSANDS)                
Basic 269,960     297,878     278,418 297,587
Diluted 276,578     310,203     287,755 303,518
Product [Member]                
REVENUES FROM PRODUCT SALES AND SERVICES                
TOTAL REVENUES $ 515.0     $ 684.7     $ 1,357.8 $ 1,525.9
Freight [Member]                
REVENUES FROM PRODUCT SALES AND SERVICES                
TOTAL REVENUES $ 40.6     $ 57.1     $ 98.0 $ 110.2
v3.19.3
Statements Of Unaudited Condensed Consolidated Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Statement of Comprehensive Income [Abstract]        
NET INCOME $ 90.9 $ 437.8 $ 229.6 $ 518.6
OTHER COMPREHENSIVE INCOME (LOSS)        
Changes in pension and other post-retirement benefits, net of tax 5.8 6.8 17.3 20.2
Changes in foreign currency translation 0.0 (228.3) 0.0 (225.4)
Changes in derivative financial instruments, net of tax 0.4 0.3 1.0 0.8
OTHER COMPREHENSIVE INCOME (LOSS) 6.2 (221.2) 18.3 (204.4)
TOTAL COMPREHENSIVE INCOME $ 97.1 $ 216.6 $ 247.9 $ 314.2
v3.19.3
Statements Of Unaudited Condensed Consolidated Cash Flows - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
OPERATING ACTIVITIES    
NET INCOME $ 229.6 $ 518.6
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation, depletion and amortization 63.1 68.6
Deferred income taxes 22.7 0.0
Loss (gain) on extinguishment of debt 18.2 (0.2)
Change in derivatives 48.4 (136.4)
Gain on foreign currency translation 0.0 (228.1)
Other 49.4 5.7
Changes in operating assets and liabilities:    
Receivables and other assets 156.5 96.2
Inventories (129.4) (57.1)
Payables, accrued expenses and other liabilities (70.4) (78.6)
Net cash provided by operating activities 388.1 188.7
INVESTING ACTIVITIES    
Purchase of property, plant and equipment (447.9) (111.4)
Deposits for property, plant and equipment (12.8) (83.3)
Other investing activities 11.2 21.0
Net cash provided (used) by investing activities (449.5) (173.7)
FINANCING ACTIVITIES    
Repurchase of common shares (252.9) 0.0
Dividends paid (45.1) 0.0
Proceeds from issuance of debt 720.9 0.0
Debt issuance costs (6.8) (1.5)
Repurchase of debt (729.3) (16.3)
Distributions of partnership equity (44.2) (44.2)
Other financing activities (9.5) (45.7)
Net cash provided (used) by financing activities (366.9) (107.7)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 0.0 (2.3)
DECREASE IN CASH AND CASH EQUIVALENTS, INCLUDING CASH CLASSIFIED WITHIN OTHER CURRENT ASSETS RELATED TO DISCONTINUED OPERATIONS (428.3) (95.0)
LESS: DECREASE IN CASH AND CASH EQUIVALENTS FROM DISCONTINUED OPERATIONS, CLASSIFIED WITHIN OTHER CURRENT ASSETS (4.4) (13.8)
NET DECREASE IN CASH AND CASH EQUIVALENTS (423.9) (81.2)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 823.2 978.3
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 399.3 $ 897.1
v3.19.3
Statements of Unaudited Condensed Consolidated Changes in Equity Statement - USD ($)
$ in Millions
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Treasury Stock [Member]
AOCI Attributable to Parent [Member]
Noncontrolling Interest [Member]
Balance, beginning of period (in shares) at Dec. 31, 2017   297,400,000          
Balance, beginning of period PY at Dec. 31, 2017 $ (444.1) $ 37.7 $ 3,933.9 $ (4,207.3) $ (169.6) $ (39.0) $ 0.2
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Adoption of accounting standard 34.0     34.0      
NET INCOME (LOSS) (84.3)     (84.3)      
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent           7.7  
Other Comprehensive Income (Loss), Net of Tax 7.7            
Comprehensive Income (Loss), Net of Tax, Attributable to Parent (76.6)            
Shares Issued, Shares, Share-based Payment Arrangement, after Forfeiture   300,000          
Shares Issued, Value, Share-based Payment Arrangement, after Forfeiture 1.9   (15.8)   17.7    
Balance, end of period (in shares) at Mar. 31, 2018   297,700,000          
Balance, end of period PY at Mar. 31, 2018 (484.8) $ 37.7 3,918.1 (4,257.6) (151.9) (31.3) 0.2
Balance, beginning of period (in shares) at Dec. 31, 2017   297,400,000          
Balance, beginning of period PY at Dec. 31, 2017 (444.1) $ 37.7 3,933.9 (4,207.3) (169.6) (39.0) 0.2
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
NET INCOME (LOSS) 518.6            
Other Comprehensive Income (Loss), Net of Tax (204.4)            
Balance, end of period (in shares) at Sep. 30, 2018   298,000,000.0          
Balance, end of period PY at Sep. 30, 2018 (86.2) $ 37.7 3,913.3 (3,654.7) (139.1) (243.4) 0.0
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
TOTAL COMPREHENSIVE LOSS 314.2            
Balance, beginning of period (in shares) at Mar. 31, 2018   297,700,000          
Balance, beginning of period PY at Mar. 31, 2018 (484.8) $ 37.7 3,918.1 (4,257.6) (151.9) (31.3) 0.2
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
NET INCOME (LOSS) 165.1     165.1      
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent           9.1  
Other Comprehensive Income (Loss), Net of Tax 9.1            
Comprehensive Income (Loss), Net of Tax, Attributable to Parent 174.2            
Distributions to noncontrolling interest (0.2)           (0.2)
Shares Issued, Shares, Share-based Payment Arrangement, after Forfeiture   100,000          
Shares Issued, Value, Share-based Payment Arrangement, after Forfeiture 4.5   0.2   4.3    
Balance, end of period (in shares) at Jun. 30, 2018   297,800,000          
Balance, end of period PY at Jun. 30, 2018 (306.3) $ 37.7 3,918.3 (4,092.5) (147.6) (22.2) 0.0
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
NET INCOME (LOSS) 437.8     437.8      
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent           (221.2)  
Other Comprehensive Income (Loss), Net of Tax (221.2)            
Comprehensive Income (Loss), Net of Tax, Attributable to Parent 216.6            
Shares Issued, Shares, Share-based Payment Arrangement, after Forfeiture   200,000          
Shares Issued, Value, Share-based Payment Arrangement, after Forfeiture 3.5   (5.0)   8.5    
Balance, end of period (in shares) at Sep. 30, 2018   298,000,000.0          
Balance, end of period PY at Sep. 30, 2018 (86.2) $ 37.7 3,913.3 (3,654.7) (139.1) (243.4) $ 0.0
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
TOTAL COMPREHENSIVE LOSS 216.6            
Balance, beginning of period at Dec. 31, 2018 $ 424.2 $ 37.7 3,916.7 (3,060.2) (186.1) (283.9)  
Balance, beginning of period (in shares) at Dec. 31, 2018 292,611,569 292,600,000          
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
NET INCOME (LOSS) $ (22.1)     (22.1)      
Other Comprehensive Income (Loss), Net of Tax 8.4         8.4  
Shares Issued, Shares, Share-based Payment Arrangement, after Forfeiture   1,700,000          
Shares Issued, Value, Share-based Payment Arrangement, after Forfeiture (10.0)   (56.5)   46.5    
Stock Repurchased During Period, Shares   (11,500,000)          
Common Share Repurchases, Value (124.3)       (124.3)    
Dividends, Common Stock (14.5)     (14.5)      
Balance, end of period at Mar. 31, 2019 261.7 $ 37.7 3,860.2 (3,096.8) (263.9) (275.5)  
Balance, end of period (in shares) at Mar. 31, 2019   282,800,000          
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
TOTAL COMPREHENSIVE LOSS (13.7)            
Balance, beginning of period at Dec. 31, 2018 $ 424.2 $ 37.7 3,916.7 (3,060.2) (186.1) (283.9)  
Balance, beginning of period (in shares) at Dec. 31, 2018 292,611,569 292,600,000          
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
NET INCOME (LOSS) $ 229.6            
Other Comprehensive Income (Loss), Net of Tax $ 18.3            
Stock Repurchased During Period, Shares (24,400,000)            
Common Share Repurchases, Value $ (252.9)            
Balance, end of period at Sep. 30, 2019 $ 359.9 $ 37.7 3,867.7 (2,889.0) (390.9) (265.6)  
Balance, end of period (in shares) at Sep. 30, 2019 270,075,445 270,100,000          
Balance, end of period PY at Sep. 30, 2019           (265.6)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
TOTAL COMPREHENSIVE LOSS $ 247.9            
Balance, beginning of period at Mar. 31, 2019 261.7 $ 37.7 3,860.2 (3,096.8) (263.9) (275.5)  
Balance, beginning of period (in shares) at Mar. 31, 2019   282,800,000          
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
NET INCOME (LOSS) 160.8     160.8      
Other Comprehensive Income (Loss), Net of Tax 3.7         3.7  
Shares Issued, Shares, Share-based Payment Arrangement, after Forfeiture   100,000          
Shares Issued, Value, Share-based Payment Arrangement, after Forfeiture 4.6   3.4   1.2    
Stock Repurchased During Period, Shares   (12,900,000)          
Common Share Repurchases, Value (128.6)       (128.6)    
Dividends, Common Stock (16.6)     (16.6)      
Balance, end of period at Jun. 30, 2019 285.6 $ 37.7 3,863.6 (2,952.6) (391.3) (271.8)  
Balance, end of period (in shares) at Jun. 30, 2019   270,000,000.0          
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
TOTAL COMPREHENSIVE LOSS 164.5            
NET INCOME (LOSS) 90.9     90.9      
Other Comprehensive Income (Loss), Net of Tax 6.2         6.2  
Shares Issued, Shares, Share-based Payment Arrangement, after Forfeiture   100,000          
Shares Issued, Value, Share-based Payment Arrangement, after Forfeiture 4.5   4.1   0.4    
Dividends, Common Stock (27.3)     (27.3)      
Balance, end of period at Sep. 30, 2019 $ 359.9 $ 37.7 $ 3,867.7 $ (2,889.0) $ (390.9) (265.6)  
Balance, end of period (in shares) at Sep. 30, 2019 270,075,445 270,100,000          
Balance, end of period PY at Sep. 30, 2019           $ (265.6)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
TOTAL COMPREHENSIVE LOSS $ 97.1            
v3.19.3
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
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, cash flows and changes in equity 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, 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2019 or any other future period. Certain prior period amounts have been reclassified to conform with the current year presentation. 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, 2018.
We have two reportable segments - the Mining and Pelletizing segment and the Metallics segment. Unless otherwise noted, discussion of our business and results of operations in this Quarterly Report on Form 10-Q refers to our continuing operations.
As more fully described in the Form 10-K for the year ended December 31, 2018, in 2018 we committed to a course of action leading to the permanent closure of the Asia Pacific Iron Ore mining operations. As a result of our exit, 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 Topic 205, Presentation of Financial Statements. As such, all Asia Pacific Iron Ore operating segment results are classified within discontinued operations. Refer to NOTE 13 - DISCONTINUED OPERATIONS for further information.
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, 2019:
Name
 
Location
 
Business Segment
 
Status of Operations
Northshore
 
Minnesota
 
Mining and Pelletizing
 
Active
United Taconite
 
Minnesota
 
Mining and Pelletizing
 
Active
Tilden
 
Michigan
 
Mining and Pelletizing
 
Active
Empire
 
Michigan
 
Mining and Pelletizing
 
Indefinitely Idled
Toledo HBI
 
Ohio
 
Metallics
 
Construction Stage

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, 2019 and December 31, 2018, our investment in Hibbing was $14.0 million and $15.4 million, respectively, classified as Other liabilities in the Statements of Unaudited Condensed Consolidated Financial Position.
Foreign Currency
Our financial statements are prepared with the U.S. dollar as the reporting currency and the functional currency of all subsidiaries is the U.S. dollar. In August 2018, management determined that there were significant changes in economic factors related to our Australian subsidiaries. The change in economic factors was 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 changed from the Australian dollar to the U.S. dollar, requiring all remaining Australian denominated monetary balances to be remeasured through the Statements of Unaudited Condensed Consolidated Operations.
As a result of the liquidation 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 as a gain in Income (loss) from discontinued operations, net of tax in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2018. Refer to NOTE 13 - DISCONTINUED OPERATIONS for further information regarding our Australian subsidiaries.
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, 2018 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.
v3.19.3
NEW ACCOUNTING STANDARDS
9 Months Ended
Sep. 30, 2019
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]  
NEW ACCOUNTING STANDARDS
NOTE 2 - NEW ACCOUNTING STANDARDS
Issued and Adopted
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 are classified as either operating or finance leases. We adopted this standard on its effective date of January 1, 2019 using the optional alternative approach, which requires application of the new guidance at the beginning of the standard's effective date. Adoption of the updated standard did not have a material effect on our consolidated financial statements.
Issued and Not Effective
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments–Credit Losses (Topic 326), which introduces a new accounting model, Current Expected Credit Losses ("CECL"). CECL requires earlier recognition of credit losses, while also providing additional transparency about credit risk. CECL utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. We plan to adopt this standard on its effective date of January 1, 2020, and do not expect the standard to have a material effect on our consolidated financial statements.
v3.19.3
SEGMENT REPORTING
9 Months Ended
Sep. 30, 2019
Segment Reporting [Abstract]  
Segment Reporting Disclosure
NOTE 3 - SEGMENT REPORTING
In alignment with our strategic goals, our Company’s continuing operations are organized and managed in two operating segments according to our differentiated products. Our Mining and Pelletizing segment 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. Our Metallics segment includes our HBI production plant in Toledo, Ohio, which is currently under construction and expected to be completed during the first half of 2020. During the second quarter of 2019, Northshore mine began supplying DR-grade pellets to our Metallics segment, which will be used as feedstock for the HBI production plant when we begin production in 2020. All intersegment sales were eliminated in consolidation.
We evaluate performance based on sales margin, defined as revenues less cost of goods sold 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 are used by management, investors, lenders and other external users of our financial statements to assess our operating performance and to compare operating performance to other companies in the iron ore industry. In addition, management believes EBITDA and Adjusted EBITDA are useful measures to assess the earnings power of the business without the impact of capital structure and can be used to assess our ability to service debt and fund future capital expenditures in the business.
The following tables present a summary of our reportable segments including a reconciliation of segment revenues to total Revenues from product sales and services, segment sales margin to total Sales margin and a reconciliation of Net income to EBITDA and Adjusted EBITDA:    
 
(In Millions)
 
Three Months Ended
September 30, 2019
 
Nine Months Ended
September 30, 2019
 
Mining and Pelletizing
 
Metallics
 
Total
 
Mining and Pelletizing
 
Metallics
 
Total
Operating segment revenues from product sales and services
$
590.6

 
$

 
$
590.6

 
$
1,494.8

 
$

 
$
1,494.8

Elimination of intersegment revenues
(35.0
)
 

 
(35.0
)
 
(39.0
)
 

 
(39.0
)
Total revenues from product sales and services
$
555.6

 
$

 
$
555.6

 
$
1,455.8

 
$

 
$
1,455.8

 
 
 
 
 
 
 
 
 
 
 
 
Operating segment sales margin
$
165.8

 
$

 
$
165.8

 
$
461.3

 
$

 
$
461.3

Elimination of intersegment sales margin
(10.9
)
 

 
(10.9
)
 
(12.5
)
 

 
(12.5
)
Total sales margin
$
154.9

 
$

 
$
154.9

 
$
448.8

 
$

 
$
448.8

Revenues from product sales and services of $741.8 million and $1,636.1 million, respectively, and sales margin of $261.6 million and $607.6 million, respectively, related to our Mining and Pelletizing segment accounted for all of our consolidated revenues and sales margin for the three and nine months ended September 30, 2018.

 
(In Millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
90.9

 
$
437.8

 
$
229.6

 
$
518.6

Less:
 
 
 
 
 
 
 
Interest expense, net
(25.4
)
 
(29.7
)
 
(76.8
)
 
(95.5
)
Income tax expense
(4.8
)
 
(0.5
)
 
(23.1
)
 
(14.4
)
Depreciation, depletion and amortization
(22.2
)
 
(19.2
)
 
(63.1
)
 
(68.6
)
EBITDA
$
143.3

 
$
487.2

 
$
392.6

 
$
697.1

Less:
 
 
 
 
 
 
 
Impact of discontinued operations
$
(0.8
)
 
$
238.2

 
$
(1.2
)
 
$
120.4

Gain (loss) on extinguishment of debt

 

 
(18.2
)
 
0.2

Severance costs

 

 
(1.7
)
 

Foreign exchange remeasurement

 
(0.2
)
 

 
(0.7
)
Impairment of long-lived assets

 
(1.1
)
 

 
(1.1
)
Adjusted EBITDA
$
144.1

 
$
250.3

 
$
413.7

 
$
578.3

 
 
 
 
 
 
 
 
EBITDA:
 
 
 
 
 
 
 
Mining and Pelletizing
$
177.5

 
$
273.1

 
$
494.9

 
$
641.6

Metallics
(2.1
)
 
(1.0
)
 
(4.0
)
 
(2.5
)
Corporate and Other (including discontinued operations)
(32.1
)
 
215.1

 
(98.3
)
 
58.0

Total EBITDA
$
143.3

 
$
487.2

 
$
392.6

 
$
697.1

 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
Mining and Pelletizing
$
182.7

 
$
279.5

 
$
510.7

 
$
657.9

Metallics
(2.1
)
 
(1.0
)
 
(4.0
)
 
(2.5
)
Corporate
(36.5
)
 
(28.2
)
 
(93.0
)
 
(77.1
)
Total Adjusted EBITDA
$
144.1

 
$
250.3

 
$
413.7

 
$
578.3

The following table summarizes our depreciation, depletion and amortization and capital additions:
 
(In Millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Depreciation, depletion and amortization:
 
 
 
 
 
 
 
Mining and Pelletizing
$
20.8

 
$
17.8

 
$
58.9

 
$
49.2

Corporate
1.4

 
1.4

 
4.2

 
4.2

Total depreciation, depletion and amortization
$
22.2

 
$
19.2

 
$
63.1

 
$
53.4

 
 
 
 
 
 
 
 
Capital additions1:
 
 
 
 
 
 
 
Mining and Pelletizing
$
22.1

 
$
51.8

 
$
104.5

 
$
97.2

Metallics
160.5

 
40.6

 
398.0

 
143.6

Corporate
2.1

 
0.2

 
3.1

 
1.1

Total capital additions
$
184.7

 
$
92.6

 
$
505.6

 
$
241.9

 
 
 
 
 
 
 
 
1 Refer to NOTE 16 - CASH FLOW INFORMATION for additional information.

A summary of assets by segment is as follows:
 
(In Millions)
 
September 30,
2019
 
December 31,
2018
Assets:
 
 
 
Mining and Pelletizing
$
1,793.9

 
$
1,694.1

Metallics
708.5

 
265.9

Total segment assets
2,502.4

 
1,960.0

Corporate and Other (including discontinued operations)
988.8

 
1,569.6

Total assets
$
3,491.2

 
$
3,529.6


v3.19.3
REVENUE
9 Months Ended
Sep. 30, 2019
Revenue from Contract with Customer [Abstract]  
Revenue from Contract with Customer
NOTE 4 - REVENUE
We sell primarily a single product, iron ore pellets, in the North American market. Revenue is recognized generally 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 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.
Most 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 published rates: Platts 62% Price, Atlantic Basin pellet premiums, Platts international indexed freight rates and changes in specified PPI, including industrial commodities, fuel 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 12 - 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 hot-rolled coil steel price in the year the iron ore is consumed in the customer’s blast furnaces. As control transfers prior to consumption, the supplemental revenue or refunds are recorded in accordance with ASC Topic 815. Refer to NOTE 12 - DERIVATIVE INSTRUMENTS for further information on supplemental revenue or refunds.
Included within Revenues from product sales and services related to Topic 815 is a derivative loss of $40.9 million and a derivative gain of $43.4 million for the three and nine months ended September 30, 2019, respectively, and derivative gains of $135.9 million and $334.4 million for the three and nine months ended September 30, 2018, respectively.
Deferred Revenue
The table below summarizes our deferred revenue balances:
 
(In Millions)
 
Deferred Revenue (Current)
 
Deferred Revenue (Long-Term)
 
2019
 
2018
 
2019
 
2018
Opening balance as of January 1
$
21.0

 
$
23.8

 
$
38.5

 
$
51.4

Closing balance as of September 30
18.3

 
16.1

 
30.0

 
42.8

Decrease
$
(2.7
)
 
$
(7.7
)
 
$
(8.5
)
 
$
(8.6
)

The terms of one of our pellet supply agreements required supplemental payments to be paid by the customer during the period 2009 through 2012. 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, 2019 and December 31, 2018, installment amounts received in excess of sales totaled $42.8 million and $51.3 million, respectively, related to this agreement. As of September 30, 2019 and December 31, 2018, deferred revenue of $12.8 million was recorded in Other current liabilities and $30.0 million and $38.5 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 $5.5 million and $8.2 million was deferred and included in Other current liabilities in the Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2019 and December 31, 2018, respectively.
v3.19.3
PROPERTY, PLANT AND EQUIPMENT
9 Months Ended
Sep. 30, 2019
Property, Plant and Equipment [Abstract]  
PROPERTY, PLANT AND EQUIPMENT
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
The following table indicates the carrying value of each of the major classes of our depreciable assets:
 
(In Millions)
 
September 30,
2019
 
December 31,
2018
Land rights and mineral rights
$
549.7

 
$
549.6

Office and information technology
72.9

 
70.0

Buildings
101.2

 
87.2

Mining equipment
577.0

 
548.5

Processing equipment
755.5

 
645.8

Electric power facilities
58.7

 
58.7

Land improvements
23.8

 
23.8

Asset retirement obligation
14.8

 
14.8

Other
29.2

 
25.2

Construction-in-progress
668.9

 
284.8

 
2,851.7

 
2,308.4

Allowance for depreciation and depletion
(1,081.8
)
 
(1,022.4
)
 
$
1,769.9

 
$
1,286.0


We recorded capitalized interest into property, plant and equipment of $7.0 million and $16.9 million for the three and nine months ended September 30, 2019, respectively, and $1.8 million and $3.9 million for the three and nine months ended September 30, 2018, respectively.
v3.19.3
DEBT AND CREDIT FACILITIES
9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
DEBT AND CREDIT FACILITIES
NOTE 6 - DEBT AND CREDIT FACILITIES
The following represents a summary of our long-term debt:
(In Millions)
September 30, 2019
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

 
$
(4.9
)
 
$
(1.9
)
 
$
393.2

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

 
(4.8
)
 
(67.7
)
 
243.8

$1.075 Billion 5.75% 2025 Senior Notes
 
6.01%
 
473.3

 
(3.8
)
 
(5.8
)
 
463.7

$750 Million 5.875% 2027 Senior Notes
 
6.49%
 
750.0

 
(6.5
)
 
(28.0
)
 
715.5

$800 Million 6.25% 2040 Senior Notes
 
6.34%
 
298.4

 
(2.2
)
 
(3.3
)
 
292.9

ABL Facility
 
N/A
 
450.0

 
N/A

 
N/A

 

Long-term debt
 
 
 
 
 
 
 
 
 
$
2,109.1

(In Millions)
December 31, 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

 
$
(5.7
)
 
$
(2.2
)
 
$
392.1

Unsecured Notes:
 
 
 
 
 
 
 
 
 
 
$700 Million 4.875% 2021 Senior Notes
 
4.89%
 
124.0

 
(0.2
)
 

 
123.8

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

 
(5.5
)
 
(75.6
)
 
235.2

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

 
(9.9
)
 
(14.6
)
 
1,048.8

$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
 
 
 
 
 
 
 
 
 
0.2

Long-term debt
 
 
 
 
 
 
 
 
 
$
2,092.9


$750 Million 5.875% Senior Notes due 2027 Offering
On May 13, 2019, we entered into an indenture among the Company, the guarantors party thereto and U.S. Bank National Association, as trustee, relating to the issuance of $750 million aggregate principal amount of 5.875% 2027 Senior Notes. The 5.875% 2027 Senior Notes were issued at 96.125% of face value. The 5.875% 2027 Senior Notes were issued in a private transaction exempt from the registration requirements of the Securities Act of 1933. Pursuant to the registration rights agreement executed as part of this offering, we agreed to file a registration statement with the SEC with respect to a registered offer to exchange the 5.875% 2027 Senior Notes for publicly registered notes within 365 days of the closing date, with all significant terms and conditions remaining the same.
The 5.875% 2027 Senior Notes bear interest at a rate of 5.875% per annum, payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2019. The 5.875% 2027 Senior Notes mature on June 1, 2027.
The 5.875% 2027 Senior Notes are unsecured obligations and rank equally in right of payment with all of our existing and future unsecured and unsubordinated indebtedness. The 5.875% 2027 Senior Notes are guaranteed on a senior unsecured basis by our material direct and indirect wholly-owned domestic subsidiaries and, therefore, are structurally senior to any of our existing and future indebtedness that is not guaranteed by such guarantors and are structurally subordinated to all existing and future indebtedness and other liabilities of our subsidiaries that do not guarantee the 5.875% 2027 Senior Notes.
The 5.875% 2027 Senior Notes may be redeemed, in whole or in part, at any time at our option not less than 30 days nor more than 60 days after prior notice is sent to the holders of the 5.875% 2027 Senior Notes. The following is a summary of redemption prices for our 5.875% 2027 Senior Notes:
Redemption Period
 
Redemption Price1
 
Restricted Amount
Prior to June 1, 2022 - using proceeds of equity issuance
 
105.875
%
 
Up to 35% of original aggregate principal
Prior to June 1, 20222
 
100.000
 
 
 
Beginning on June 1, 2022
 
102.938
 
 
 
Beginning on June 1, 2023
 
101.958
 
 
 
Beginning on June 1, 2024
 
100.979
 
 
 
Beginning on June 1, 2025 and thereafter
 
100.000
 
 
 
 
 
 
 
 
 
1  Plus accrued and unpaid interest, if any, up to but excluding the redemption date.
2  Plus a "make-whole" premium.

In addition, if a change in control triggering event, as defined in the indenture, occurs with respect to the 5.875% 2027 Senior Notes, we will be required to offer to purchase the notes at a purchase price equal to 101% of the aggregate principal amount, plus accrued and unpaid interest, if any, to, but not including, the date of purchase.
The terms of the 5.875% 2027 Senior Notes contain certain customary covenants; however, there are no financial covenants.
Debt issuance costs of $6.8 million were incurred related to the offering of the 5.875% 2027 Senior Notes and are included in Long-term debt in the Statements of Unaudited Condensed Consolidated Financial Position.
Debt Extinguishments - 2019
The net proceeds from the issuance of $750 million aggregate principal amount of 5.875% 2027 Senior Notes, along with cash on hand, were used to redeem in full all of our outstanding 4.875% 2021 Senior Notes and to fund the repurchase of $600 million aggregate principal amount of our outstanding 5.75% 2025 Senior Notes in a tender offer. The following is a summary of the debt extinguished and the respective loss on extinguishment:
 
 
(In Millions)
 
 
Nine Months Ended
September 30, 2019
Debt Instrument
 
Debt Extinguished
 
(Loss) on Extinguishment
$700 Million 4.875% 2021 Senior Notes
 
$
124.0

 
$
(5.3
)
$1.075 Billion 5.75% 2025 Senior Notes
 
600.0

 
(12.9
)
 
 
$
724.0

 
$
(18.2
)

Debt Extinguishments - 2018
The following is a summary of the debt extinguished with cash and the respective gain on extinguishment:
 
 
(In Millions)
 
 
Three Months Ended
September 30, 2018
 
Nine Months Ended
September 30, 2018
Debt Instrument
 
Debt Extinguished
 
Gain on Extinguishment
 
Debt Extinguished
 
Gain on Extinguishment
$400 Million 5.90% 2020 Senior Notes
 
$

 
$

 
$
0.5

 
$

$500 Million 4.80% 2020 Senior Notes
 

 

 
0.1

 

$700 Million 4.875% 2021 Senior Notes
 
1.0

 

 
14.2

 
0.1

$1.075 Billion 5.75% 2025 Senior Notes
 

 

 
1.7

 
0.1

 
 
$
1.0

 
$

 
$
16.5

 
$
0.2


Debt Maturities
The following represents a summary of our maturities of debt instruments based on the principal amounts outstanding at September 30, 2019:
 
 
(In Millions)
 
 
Maturities of Debt
2019
 
$

2020
 

2021
 

2022
 

2023
 

2024
 
400.0

2025 and thereafter
 
1,838.0

Total maturities of debt
 
$
2,238.0


ABL Facility
The following represents a summary of our borrowing capacity under the ABL Facility:
 
(In Millions)
 
September 30, 2019
 
December 31, 2018
Available borrowing base on ABL Facility1
$
400.8

 
$
323.7

Letter of credit obligations2
(34.1
)
 
(55.0
)
Borrowing capacity available3
$
366.7

 
$
268.7

 
 
 
 
1 The ABL Facility has a maximum borrowing base of $450 million. The available borrowing base is determined by applying customary advance rates to eligible accounts receivable, inventory and certain mobile equipment.
2 We issued standby letters of credit with certain financial institutions in order to support business obligations including, but not limited to, workers compensation and environmental obligations.
3 As of September 30, 2019 and December 31, 2018, we had no loans drawn under the ABL Facility.

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.