CLIFFS NATURAL RESOURCES INC., 10-K filed on 2/9/2017
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2016
Feb. 6, 2017
Jun. 30, 2016
Document and Entity Information [Abstract]
 
 
 
Entity Registrant Name
CLIFFS NATURAL RESOURCES INC. 
 
 
Entity Central Index Key
0000764065 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2016 
 
 
Document Fiscal Year Focus
2016 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
233,074,091 
 
Trading Symbol
clf 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 1,068,236,979 
Statements Of Condensed Consolidated Financial Position (USD $)
In Millions, unless otherwise specified
Dec. 31, 2016
Dec. 31, 2015
CURRENT ASSETS
 
 
Cash and cash equivalents
$ 323.4 
$ 285.2 
Accounts receivable, net
128.7 
40.2 
Inventories
178.4 
329.6 
Supplies and other inventories
91.4 
110.4 
Loans to and accounts receivables from the Canadian Entities
48.6 
72.9 
Insurance coverage receivable
93.5 
Other current assets
54.1 
50.9 
TOTAL CURRENT ASSETS
824.6 
982.7 
PROPERTY, PLANT AND EQUIPMENT, NET
984.4 
1,059.0 
OTHER ASSETS
 
 
OTHER NON-CURRENT ASSETS
114.9 
93.8 
TOTAL ASSETS
1,923.9 
2,135.5 
CURRENT LIABILITIES
 
 
Accounts payable
107.6 
106.3 
Accrued employment costs
56.1 
53.0 
State and local taxes payable
28.3 
35.2 
Accrued expenses
41.1 
32.4 
Accrued interest
40.2 
53.3 
Accrued royalties
26.2 
17.3 
Guarantees
0.2 
96.5 
Insured loss
93.5 
Other current liabilities
91.4 
94.2 
TOTAL CURRENT LIABILITIES
391.1 
581.7 
POSTEMPLOYMENT BENEFIT LIABILITIES
 
 
Pensions
245.7 
209.7 
Other postretirement benefits
34.8 
11.3 
TOTAL POSTEMPLOYMENT BENEFIT LIABILITIES
280.5 
221.0 
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
193.9 
231.2 
LONG-TERM DEBT
2,175.1 
2,699.4 
OTHER LIABILITIES
213.8 
213.8 
TOTAL LIABILITIES
3,254.4 
3,947.1 
COMMITMENTS AND CONTINGENCIES (SEE NOTE 20)
   
   
CLIFFS SHAREHOLDERS' DEFICIT
 
 
Preferred Stock - no par value, Class A - 3,000,000 shares authorized, 7 % Series A Mandatory Convertible, Class A, no par value and $1,000 per share liquidation preference (See Note 15), Issued and Outstanding - none issued (2015 - 731,223)
731.3 
Common Shares - par value $0.125 per share, Authorized - 400,000,000 shares (2015 - 400,000,000 shares); Issued - 238,636,794 shares (2015 - 159,546,224) shares); Outstanding - 233,074,091 shares (2015 - 153,591,930) shares)
29.8 
19.8 
Capital in excess of par value of shares
3,347.0 
2,298.9 
Retained deficit
(4,574.3)
(4,748.4)
Cost of 5,562,703 common shares in treasury (2015 - 5,954,294 shares)
(245.5)
(265.0)
Accumulated other comprehensive loss
(21.3)
(18.0)
TOTAL CLIFFS SHAREHOLDERS' DEFICIT
(1,464.3)
(1,981.4)
NONCONTROLLING INTEREST (DEFICIT)
133.8 
169.8 
TOTAL DEFICIT
(1,330.5)
(1,811.6)
TOTAL LIABILITIES AND DEFICIT
$ 1,923.9 
$ 2,135.5 
Statements Of Condensed Consolidated Financial Position (Parenthetical) (USD $)
Dec. 31, 2016
Dec. 31, 2015
Class of Stock [Line Items]
 
 
Preferred stock, par value
$ 0 
$ 0 
Cumulative Mandatory Convertible
7.00% 
7.00% 
Common shares, par value
$ 0.125 
$ 0.125 
Common shares, authorized (in shares)
400,000,000 
400,000,000 
Common shares, issued (in shares)
238,636,794 
159,546,224 
Common shares, outstanding
233,074,091 
153,591,930 
Common shares in treasury
5,562,703 
5,954,294 
Preferred Class A [Member]
 
 
Class of Stock [Line Items]
 
 
Preferred Stock, Liquidation Preference Per Share
$ 1,000 
$ 1,000 
Preferred stock, shares authorized (in shares)
3,000,000 
3,000,000 
Preferred Shares, Issued and Outstanding, Shares
731,223 
Preferred Class B [Member]
 
 
Class of Stock [Line Items]
 
 
Preferred stock, shares authorized (in shares)
4,000,000 
4,000,000 
Statements Of Condensed Consolidated Operations (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
REVENUES FROM PRODUCT SALES AND SERVICES
 
 
 
Product
$ 1,913.5 
$ 1,832.4 
$ 3,095.2 
Freight and venture partners' cost reimbursements
195.5 
180.9 
278.0 
TOTAL REVENUES
2,109.0 
2,013.3 
3,373.2 
COST OF GOODS SOLD AND OPERATING EXPENSES
(1,719.7)
(1,776.8)
(2,487.5)
SALES MARGIN
389.3 
236.5 
885.7 
OTHER OPERATING INCOME (EXPENSE)
 
 
 
Selling, general and administrative expenses
(117.8)
(110.0)
(154.7)
Impairment of goodwill and other long-lived assets
(3.3)
(635.5)
Miscellaneous - net
(30.7)
28.1 
34.6 
Other operating expense
(148.5)
(85.2)
(755.6)
OPERATING INCOME
240.8 
151.3 
130.1 
OTHER INCOME (EXPENSE)
 
 
 
Interest expense, net
(200.5)
(228.5)
(176.7)
Gain on extinguishment/restructuring of debt
166.3 
392.9 
16.2 
Other non-operating income (expense)
0.4 
(2.6)
10.7 
TOTAL OTHER INCOME (EXPENSE)
(33.8)
161.8 
(149.8)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY LOSS FROM VENTURES
207.0 
313.1 
(19.7)
INCOME TAX BENEFIT (EXPENSE)
12.2 
(169.3)
86.0 
EQUITY LOSS FROM VENTURES, net of tax
(0.1)
(9.9)
INCOME FROM CONTINUING OPERATIONS
219.2 
143.7 
56.4 
LOSS FROM DISCONTINUED OPERATIONS, net of tax
(19.9)
(892.1)
(8,368.0)
NET INCOME (LOSS)
199.3 
(748.4)
(8,311.6)
LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTEREST (Year Ended December 31, 2016 - No loss related to Discontinued Operations, Year Ended December 31, 2015 - Loss of $7.7 million and Year Ended December 31, 2014 - Loss of $1,113.3 million related to Discontinued Operations)
(25.2)
(0.9)
1,087.4 
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
174.1 
(749.3)
(7,224.2)
PREFERRED STOCK DIVIDENDS
(38.4)
(51.2)
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS COMMON SHAREHOLDERS
$ 174.1 
$ (787.7)
$ (7,275.4)
EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS - BASIC
 
 
 
Continuing operations
$ 0.98 
$ 0.63 
$ (0.14)
Discontinued operations
$ (0.10)
$ (5.77)
$ (47.38)
Earnings (loss) per Common Share Attributable to Cliffs Common Shareholders - Basic:
$ 0.88 
$ (5.14)
$ (47.52)
EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS - DILUTED
 
 
 
Continuing operations
$ 0.97 
$ 0.63 
$ (0.14)
Discontinued operations
$ (0.10)
$ (5.76)
$ (47.38)
Earnings (loss) per Common Share Attributable to Cliffs Common Shareholders - Diluted:
$ 0.87 
$ (5.13)
$ (47.52)
AVERAGE NUMBER OF SHARES (IN THOUSANDS)
 
 
 
Basic
197,659 
153,230 
153,098 
Diluted
200,145 
153,605 
153,098 
Statements Of Condensed Consolidated Operations (Parenthetical) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
$ 0 
$ 7.7 
$ 1,113.3 
Statements Of Condensed Consolidated Comprehensive Income (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Statement of Comprehensive Income [Abstract]
 
 
 
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$ 174.1 
$ (749.3)
$ (7,224.2)
OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
Pension and OPEB liability, net of tax
(19.8)
45.2 
(91.0)
Unrealized net gain (loss) on marketable securities, net of tax
1.7 
(7.2)
Unrealized net gain (loss) on foreign currency translation
18.6 
155.6 
(42.3)
Unrealized net gain (loss) on derivative financial instruments, net of tax
(2.6)
20.7 
2.8 
OTHER COMPREHENSIVE INCOME (LOSS)
(3.8)
223.2 
(137.7)
OTHER COMPREHENSIVE LOSS ATTRIBUTABLE TO THE NONCONTROLLING INTEREST
(0.5)
(4.6)
(4.8)
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$ 170.8 
$ (521.5)
$ (7,357.1)
Statements Of Condensed Consolidated Cash Flows (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
OPERATING ACTIVITIES
 
 
 
Net income (loss)
$ 199.3 
$ (748.4)
$ (8,311.6)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
 
 
 
Depreciation, depletion and amortization
115.4 
134.0 
504.0 
Impairment of goodwill and other long-lived assets
76.6 
9,029.9 
Deferred income taxes
159.8 
(1,153.9)
Changes in deferred revenue and below-market sales contracts
(20.5)
(42.6)
(18.0)
Gain on extinguishment/restructuring of debt
(166.3)
(392.9)
(16.2)
Loss on deconsolidation, net of cash deconsolidated
17.5 
668.3 
Loss (gain) on sale of North American Coal mines
(2.1)
(9.3)
419.6 
Other
32.6 
113.0 
(11.6)
Changes in operating assets and liabilities:
 
 
 
Receivables and other assets
43.2 
369.1 
(82.8)
Product inventories
157.8 
(62.0)
37.8 
Payables and accrued expenses
(73.9)
(227.7)
(38.3)
Net cash provided by operating activities
303.0 
37.9 
358.9 
INVESTING ACTIVITIES
 
 
 
Purchase of property, plant and equipment
(69.1)
(80.8)
(284.1)
Investments in DIP and pre-petition financing
(1.5)
(14.0)
Proceeds from DIP and prepetition financing
8.3 
Proceeds (uses) from sale of North American Coal mines
3.6 
(15.2)
155.0 
Other investing activities
0.8 
6.8 
25.5 
Net cash used in investing activities
(57.9)
(103.2)
(103.6)
FINANCING ACTIVITIES
 
 
 
Net proceeds from issuance of common shares
287.4 
Proceeds from first lien notes offering
503.5 
Debt issuance costs
(5.2)
(33.6)
(9.0)
Borrowings under credit facilities
105.0 
309.8 
1,219.5 
Repayment under credit facilities
(105.0)
(309.8)
(1,219.5)
Repayments of equipment loans
(95.6)
(45.4)
(20.9)
Repurchase of debt
(305.4)
(225.9)
(28.8)
Contributions (to)/by joint ventures, net
(3.2)
0.1 
(25.7)
Distributions of partnership equity
(59.9)
(40.6)
Common stock dividends
(92.5)
Preferred stock dividends
(51.2)
(51.2)
Other financing activities
(24.5)
(45.9)
(60.2)
Net cash provided (used) by financing activities
(206.4)
61.0 
(288.3)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(0.5)
(1.4)
(11.6)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
38.2 
(5.7)
(44.6)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
285.2 
290.9 
335.5 
CASH AND CASH EQUIVALENTS AT END OF YEAR
$ 323.4 
$ 285.2 
$ 290.9 
Statements of Consolidated Changes in Equity (USD $)
In Millions, except Share data, unless otherwise specified
Total
Depositary Shares [Member]
Common Stock [Member]
Capital in Excess of Par Value of Shares [Member]
Retained Earnings [Member]
Common Shares in Treasury [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Noncontrolling Interest [Member]
Balance, beginning of period at Dec. 31, 2013
$ 6,884.3 
$ 731.3 
$ 19.8 
$ 2,329.5 
$ 3,407.3 
$ (305.5)
$ (112.9)
$ 814.8 
Balance, beginning of period (in shares) at Dec. 31, 2013
 
 
153,200,000 
 
 
 
 
 
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest [Abstract]
 
 
 
 
 
 
 
 
NET INCOME (LOSS)
(8,311.6)
 
 
 
(7,224.2)
 
 
(1,087.4)
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent
7,357.1 
 
 
 
 
 
(132.9)
 
Comprehensive Income (Loss), Net of Tax, Attributable to Noncontrolling Interest
4.8 
 
 
 
 
 
 
(4.8)
Other Comprehensive Income (Loss), Net of Tax
(137.7)
 
 
 
 
 
 
 
Pension and OPEB liability, net of tax
(91.0)
 
 
 
 
 
 
 
Unrealized net loss on marketable securities, net of tax
(7.2)
 
 
 
 
 
 
 
Total comprehensive income (loss)
(8,449.3)
 
 
 
 
 
 
(1,092.2)
Capital contribution by noncontrolling interest to subsidiary
0.1 
 
 
 
 
 
 
0.1 
Undistributed losses to noncontrolling interest to subsidiary
(25.5)
 
 
 
 
 
 
(25.5)
Stock and other incentive plans
0.1 
 
 
(19.7)
 
19.8 
 
 
Common stock dividends ($0.60 per share)
(92.5)
 
 
 
92.5 
 
 
 
Preferred Stock Dividends
(51.3)
 
 
 
(51.3)
 
 
 
Preferred Stock, Shares Outstanding
 
29,300,000 
 
 
 
 
 
 
Balance, end of period at Dec. 31, 2014
(1,734.3)
731.3 
19.8 
2,309.8 
(3,960.7)
(285.7)
(245.8)
(303.0)
Balance, beginning of period (in shares) at Dec. 31, 2014
 
 
153,200,000 
 
 
 
 
 
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest [Abstract]
 
 
 
 
 
 
 
 
NET INCOME (LOSS)
(748.4)
 
 
 
(749.3)
 
 
0.9 
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent
521.5 
 
 
 
 
 
227.8 
 
Comprehensive Income (Loss), Net of Tax, Attributable to Noncontrolling Interest
4.6 
 
 
 
 
 
 
(4.6)
Other Comprehensive Income (Loss), Net of Tax
223.2 
 
 
 
 
 
 
 
Pension and OPEB liability, net of tax
45.2 
 
 
 
 
 
 
 
Unrealized net loss on marketable securities, net of tax
1.7 
 
 
 
 
 
 
 
Total comprehensive income (loss)
(525.2)
 
 
 
 
 
 
(3.7)
Capital contribution by noncontrolling interest to subsidiary
0.2 
 
 
 
 
 
 
0.2 
Undistributed losses to noncontrolling interest to subsidiary
(0.2)
 
 
 
 
 
 
(0.2)
Noncontrolling Interest, Decrease from Distributions to Noncontrolling Interest Holders
(51.7)
 
 
 
 
 
 
(51.7)
Deconsolidation, Gain (Loss), Amount
528.2 
 
 
 
 
 
 
528.2 
Stock and other incentive plans (in shares)
 
 
300,000 
 
 
 
 
 
Stock and other incentive plans
9.8 
 
 
(10.9)
 
20.7 
 
 
Preferred Stock Dividends
(38.4)
 
 
 
(38.4)
 
 
 
Preferred Stock, Shares Outstanding
 
29,300,000 
 
 
 
 
 
 
Balance, end of period at Dec. 31, 2015
(1,811.6)
731.3 
19.8 
2,298.9 
(4,748.4)
(265.0)
(18.0)
169.8 
Balance, end of period (in shares) at Dec. 31, 2015
153,591,930 
 
153,500,000 
 
 
 
 
 
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest [Abstract]
 
 
 
 
 
 
 
 
NET INCOME (LOSS)
199.3 
 
 
 
174.1 
 
 
25.2 
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent
(170.8)
 
 
 
 
 
(3.3)
 
Comprehensive Income (Loss), Net of Tax, Attributable to Noncontrolling Interest
0.5 
 
 
 
 
 
 
(0.5)
Other Comprehensive Income (Loss), Net of Tax
(3.8)
 
 
 
 
 
 
 
Pension and OPEB liability, net of tax
(19.8)
 
 
 
 
 
 
 
Unrealized net loss on marketable securities, net of tax
 
 
 
 
 
 
 
Total comprehensive income (loss)
195.5 
 
 
 
 
 
 
24.7 
Undistributed losses to noncontrolling interest to subsidiary
(3.2)
 
 
 
 
 
 
(3.2)
Noncontrolling Interest, Decrease from Distributions to Noncontrolling Interest Holders
(57.5)
 
 
 
 
 
 
(57.5)
Stock and other incentive plans (in shares)
 
 
500,000 
 
 
 
 
 
Stock and other incentive plans
13.7 
 
 
(5.8)
 
19.5 
 
 
Preferred Stock, Shares Outstanding
 
 
 
 
 
 
 
Shares issued for debt exchange
 
 
8,200,000 
 
 
 
 
 
Debt for equity exchange (value)
45.2 
 
1.0 
44.2 
 
 
 
 
Stock Issued During Period, Value, Conversion of Convertible Securities
(731.3)
3.5 
727.8 
 
 
 
 
Stock Issued During Period, Shares, Conversion of Units
 
(29,300,000)
26,500,000 
 
 
 
 
 
Common Stock, New Shares, Issued
44,400,000 
 
44,400,000 
 
 
 
 
 
Common stock issuance (value)
287.4 
 
5.5 
281.9 
 
 
 
 
Balance, end of period at Dec. 31, 2016
$ (1,330.5)
$ 0 
$ 29.8 
$ 3,347.0 
$ (4,574.3)
$ (245.5)
$ (21.3)
$ 133.8 
Balance, end of period (in shares) at Dec. 31, 2016
233,074,091 
 
233,100,000 
 
 
 
 
 
Statements of Consolidated Changes in Equity (Parenthetical)
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Class of Stock [Line Items]
 
 
 
Common stock dividends per share
$ 0.00 
$ 0.60 
$ 0.60 
Preferred stock dividends per share
$ 0.00 
$ 1.32 
$ 1.76 
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS SUMMARY AND SIGNIFICANT ACCOUNTING POLICIES
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
We are a leading mining and natural resources company in the U.S. We are 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 also operate the Koolyanobbing iron ore mining complex in Western Australia, which provides iron ore to the seaborne market for Asian steel producers.
Significant Accounting Policies
We consider the following policies to be beneficial in understanding the judgments that are involved in the preparation of our consolidated financial statements and the uncertainties that could impact our financial condition, results of operations and cash flows.
Use of Estimates
The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions related to mineral reserves future realizable cash flow; environmental, reclamation and closure obligations; valuation of long-lived assets; valuation of inventory; valuation of post-employment, post-retirement and other employee benefit liabilities; valuation of tax assets; reserves for contingencies and litigation; the fair value of derivative instruments; and the fair value of loans to and accounts receivable from Canadian entities. Actual results could differ from estimates. On an ongoing basis, management reviews estimates. Changes in facts and circumstances may alter such estimates and affect the results of operations and financial position in future periods.
Basis of Consolidation
The consolidated financial statements include our accounts and the accounts of our wholly owned and majority-owned subsidiaries, including the following operations at December 31, 2016:
Name
 
Location
 
Ownership Interest
 
Operation
 
Status of Operations
Northshore
 
Minnesota
 
100.0%
 
Iron Ore
 
Active
United Taconite
 
Minnesota
 
100.0%
 
Iron Ore
 
Active
Tilden
 
Michigan
 
85.0%
 
Iron Ore
 
Active
Empire
 
Michigan
 
79.0%
 
Iron Ore
 
Indefinitely Idled
Koolyanobbing
 
Western Australia
 
100.0%
 
Iron Ore
 
Active

Intercompany transactions and balances are eliminated upon consolidation.
Equity Method Investments
Investments in unconsolidated ventures that we have the ability to exercise significant influence over, but not control, are accounted for under the equity method.
Hibbing
Our 23% ownership interest in Hibbing is recorded as an equity method investment. As of December 31, 2016 and December 31, 2015, our investment in Hibbing was $8.7 million and $2.4 million, respectively, classified in Other liabilities in the Statements of Consolidated Financial Position.
Our share of equity income (loss) is eliminated against consolidated product inventory upon production, and against Cost of goods sold and operating expenses when sold. This effectively reduces our cost for our share of the mining ventures' production cost, reflecting the cost-based nature of our participation in unconsolidated ventures.
Noncontrolling Interests
Noncontrolling interest is primarily comprised of the 21% noncontrolling interest in the consolidated, but less-than-wholly-owned subsidiary at our Empire mining venture and through the CCAA filing on January 27, 2015, the 17.2% noncontrolling interest in the Bloom Lake operations. Financial results prior to the deconsolidation of the Bloom Lake Group and subsequent expenses directly associated with the Canadian Entities are included in our financial statements. The net loss and income attributable to the noncontrolling interest of the Empire mining venture was $25.2 million and $8.6 million for the years ended December 31, 2016 and December 31, 2015, respectively. There was no net income or loss attributable to the noncontrolling interest related to Bloom Lake for the year ended December 31, 2016. This compares with a net loss attributable to the noncontrolling interest related to Bloom Lake of $7.7 million for the year ended December 31, 2015. See NOTE 14 - DISCONTINUED OPERATIONS for further information.
Cash Equivalents
Cash and cash equivalents include cash on hand and on deposit as well as all short-term securities held for the primary purpose of general liquidity. We consider investments in highly liquid debt instruments with an original maturity of three months or less from the date of acquisition to be cash equivalents. We routinely monitor and evaluate counterparty credit risk related to the financial institutions by which our short-term investment securities are held.
Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We establish provisions for losses on accounts receivable when it is probable that all or part of the outstanding balance will not be collected. We regularly review our accounts receivable balances and establish or adjust the allowance as necessary using the specific identification method. The allowance for doubtful accounts was zero and $7.1 million at December 31, 2016 and 2015, respectively. There was no bad debt expense for the years ended December 31, 2016 and 2014. There was $7.1 million bad debt expense for the year ended December 31, 2015.
Inventories
U.S. Iron Ore
U.S. Iron Ore product inventories are stated at the lower of cost or market. Cost of iron ore inventories is determined using the LIFO method.
We had approximately 1.5 million long tons and 1.3 million long tons of finished goods stored at ports and customer facilities on the lower Great Lakes to service customers at December 31, 2016 and 2015, respectively. We maintain ownership of the inventories until title has transferred to the customer, usually when payment is received. Maintaining ownership of the iron ore products at ports on the lower Great Lakes reduces risk of non-payment by customers.
Asia Pacific Iron Ore
Asia Pacific Iron Ore product inventories are stated at the lower of cost or market. Costs of iron ore inventories are being valued on a weighted average cost basis. We maintain ownership of the inventories until title has transferred to the customer, which generally is when the product is loaded into the vessel.
Supplies and Other Inventories
Supply inventories include replacement parts, fuel, chemicals and other general supplies, which are expected to be used or consumed in normal operations. Supply inventories also include critical spares. Critical spares are replacement parts for equipment that is critical for the continued operation of the mine or processing facilities.
Supply inventories are stated at the lower of cost or market using average cost, less an allowance for obsolete and surplus items. The allowance for obsolete and surplus items was $14.0 million and $31.8 million at December 31, 2016 and 2015, respectively. The decrease in the allowance for obsolete and surplus items during the year ended December 31, 2016, was primarily a result of the disposal of Empire's supplies inventory of approximately $17.4 million that was fully reserved for as of the previous year end.
Derivative Financial Instruments and Hedging Activities
We are exposed to certain risks related to the ongoing operations of our business, including those caused by changes in commodity prices, interest rates and foreign currency exchange rates. We have established policies and procedures, including the use of certain derivative instruments, to manage such risks, if deemed necessary.
Derivative financial instruments are recognized as either assets or liabilities in the Statements of Consolidated Financial Position and measured at fair value. For derivative instruments that have not been designated as cash flow hedges, changes in fair value are recorded in the period of the instrument's earnings or losses.
Refer to NOTE 13 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for further information.
Property, Plant and Equipment
Our properties are stated at the lower of cost less accumulated depreciation or fair value. Depreciation of plant and equipment is computed principally by the straight-line method based on estimated useful lives, not to exceed the mine lives. The U.S. Iron Ore operations use the double-declining balance method of depreciation for certain mining equipment. The Asia Pacific Iron Ore operation uses the production output method for certain mining equipment. Depreciation is provided over the following estimated useful lives:
Asset Class
 
Basis
 
Life
Office and information technology
 
Straight line
 
3 to 15 Years
Buildings
 
Straight line
 
45 Years
Mining equipment
 
Straight line/Double declining balance
 
3 to 20 Years
Processing equipment
 
Straight line
 
10 to 45 Years
Electric power facilities
 
Straight line
 
10 to 45 years
Land improvements
 
Straight line
 
20 to 45 years
Asset retirement obligation
 
Straight line
 
Life of mine
Depreciation continues to be recognized when operations are idled temporarily.
Refer to NOTE 4 - PROPERTY, PLANT AND EQUIPMENT for further information.
Capitalized Stripping Costs
During the development phase, stripping costs are capitalized as a part of the depreciable cost of building, developing and constructing a mine. These capitalized costs are amortized over the productive life of the mine using the units of production method. The production phase does not commence until the removal of more than a de minimis amount of saleable mineral material occurs in conjunction with the removal of overburden or waste material for purposes of obtaining access to an ore body. The stripping costs incurred in the production phase of a mine are variable production costs included in the costs of the inventory produced (extracted) during the period that the stripping costs are incurred.
Stripping costs related to expansion of a mining asset of proven and probable reserves are variable production costs that are included in the costs of the inventory produced during the period that the stripping costs are incurred.
Other Intangible Assets and Liabilities
Other intangible assets are subject to periodic amortization on a straight-line basis over their estimated useful lives as follows:
Intangible Assets
 
Basis
 
Useful Life (years)
Permits - Asia Pacific Iron Ore
 
Units of production
 
Life of mine
Permits - USIO
 
Straight line
 
Life of mine
Asset Impairment
Long-Lived Tangible and Intangible Assets
We monitor conditions that may affect the carrying value of our long-lived tangible and intangible assets when events and circumstances indicate that the carrying value of the asset groups may not be recoverable. In order to determine if assets have been impaired, assets are grouped and tested at the lowest level for which identifiable, independent cash flows are available ("asset group"). An impairment loss exists when projected undiscounted cash flows are less than the carrying value of the asset group. The measurement of the impairment loss to be recognized is based on the difference between the fair value and the carrying value of the asset group. Fair value can be determined using a market approach, income approach or cost approach.
During the year ended December 31, 2016, there were no impairment indicators present; as a result no impairment assessments were required. As a result of the 2015 assessments, there were no material impairment charges related to long-lived tangible or intangible assets at our continuing operations. During 2014, we recorded a long-lived tangible asset impairment charge of $537.8 million and an intangible asset impairment charge of $13.8 million in our Statements of Consolidated Operations related to our continuing operations.
    Refer to NOTE 4 - PROPERTY, PLANT AND EQUIPMENT, NOTE 12 - GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES and NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS for further information.
Fair Value Measurements
Valuation Hierarchy
ASC 820, Fair Value Measurements and Disclosures, establishes a three-level valuation hierarchy for classification of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our own views about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized below:
Level 1 — Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 — Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 — Valuation is based upon other unobservable inputs that are significant to the fair value measurement.
The classification of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement in its entirety. Valuation methodologies used for assets and liabilities measured at fair value are as follows:
Cash Equivalents
Where quoted prices are available in an active market, cash equivalents are classified within Level 1 of the valuation hierarchy. Cash equivalents classified in Level 1 at December 31, 2016 and 2015 include money market funds. Valuation of these instruments is determined using a market approach and is based upon unadjusted quoted prices for identical assets in active markets.
Derivative Financial Instruments
Derivative financial instruments valued using financial models that use as their basis readily observable market parameters are classified within Level 2 of the valuation hierarchy. Such derivative financial instruments include our commodity hedge and foreign currency exchange contracts. Derivative financial instruments that are valued based upon models with significant unobservable market parameters and are normally traded less actively, are classified within Level 3 of the valuation hierarchy.
Refer to NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS and NOTE 7 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS for further information.
Pensions and Other Postretirement Benefits
We offer defined benefit pension plans, defined contribution pension plans and other postretirement benefit plans, primarily consisting of retiree healthcare benefits, to most employees in North America as part of a total compensation and benefits program. We do not have employee pension or post-retirement benefit obligations at our Asia Pacific Iron Ore operations.
We recognize the funded or unfunded status of our postretirement benefit obligations on our December 31, 2016 and 2015 Statements of Consolidated Financial Position based on the difference between the market value of plan assets and the actuarial present value of our retirement obligations on that date, on a plan-by-plan basis. If the plan assets exceed the retirement obligations, the amount of the surplus is recorded as an asset; if the retirement obligations exceed the plan assets, the amount of the underfunded obligations are recorded as a liability. Year-end balance sheet adjustments to postretirement assets and obligations are recorded as Accumulated other comprehensive loss.
The actuarial estimates of the PBO and APBO incorporate various assumptions including the discount rates, the rates of increases in compensation, healthcare cost trend rates, mortality, retirement timing and employee turnover. The discount rate is determined based on the prevailing year-end rates for high-grade corporate bonds with a duration matching the expected cash flow timing of the benefit payments from the various plans. The remaining assumptions are based on our estimates of future events by incorporating historical trends and future expectations. The amount of net periodic cost that is recorded in the Statements of Consolidated Operations consists of several components including service cost, interest cost, expected return on plan assets, and amortization of previously unrecognized amounts. Service cost represents the value of the benefits earned in the current year by the participants. Interest cost represents the cost associated with the passage of time. Certain items, such as plan amendments, gains and/or losses resulting from differences between actual and assumed results for demographic and economic factors affecting the obligations and assets of the plans, and changes in other assumptions are subject to deferred recognition for income and expense purposes. The expected return on plan assets is determined utilizing the weighted average of expected returns for plan asset investments in various asset categories based on historical performance, adjusted for current trends. See NOTE 7 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS for further information.
Asset Retirement Obligations
Asset retirement obligations are recognized when incurred and recorded as liabilities at fair value. The fair value of the liability is determined as the discounted value of the expected future cash flow. The asset retirement obligation is accreted over time through periodic charges to earnings. In addition, the asset retirement cost is capitalized and amortized over the life of the related asset. Reclamation costs are adjusted periodically to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. We review, on an annual basis, unless otherwise deemed necessary, the asset retirement obligation at each mine site in accordance with the provisions of ASC 410, Asset Retirement and Environmental Obligations. We perform an in-depth evaluation of the liability every three years in addition to routine annual assessments.
Future reclamation costs for inactive mines are accrued based on management’s best estimate at the end of each period of the costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing maintenance and monitoring costs. Changes in estimates at inactive mines are reflected in earnings in the period an estimate is revised. See NOTE 11 - ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS for further information.
Environmental Remediation Costs
We have a formal policy for environmental protection and restoration. Our mining and exploration activities are subject to various laws and regulations governing protection of the environment. We conduct our operations to protect the public health and environment and believe our operations are in compliance with applicable laws and regulations in all material respects. Our environmental liabilities, including obligations for known environmental remediation exposures at active and closed mining operations and other sites, have been recognized based on the estimated cost of investigation and remediation at each site. If the cost only can be estimated as a range of possible amounts with no point in the range being more likely, the minimum of the range is accrued. Future expenditures are not discounted unless the amount and timing of the cash disbursements reasonably can be estimated. It is possible that additional environmental obligations could be incurred, the extent of which cannot be assessed. Potential insurance recoveries have not been reflected in the determination of the liabilities. See NOTE 11 - ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS for further information.
Revenue Recognition
We sell our products pursuant to comprehensive supply agreements negotiated and executed with our customers. Revenue is recognized from a sale when persuasive evidence of an arrangement exists, the price is fixed or determinable, the product is delivered in accordance with F.O.B. terms, title and risk of loss have transferred to the customer in accordance with the specified provisions of each supply agreement and collection of the sales price reasonably is assured. Our U.S. Iron Ore and Asia Pacific Iron Ore supply agreements provide that title and risk of loss transfer to the customer either upon loading of the vessel, shipment or, as is the case with some of our U.S. Iron Ore supply agreements, when payment is received. Under certain term supply agreements, we ship the product to ports on the lower Great Lakes or to the customers’ facilities prior to the transfer of title. Our rationale for shipping iron ore products to certain customers and retaining title until payment is received for these products is to minimize credit risk exposure.
Sales are recorded at a sales price specified in the relevant supply agreements resulting in revenue and a receivable at the time of sale. Upon revenue recognition for provisionally priced sales, a freestanding derivative is created for the difference between the sales price used and expected future settlement price. The derivative, which does not qualify for hedge accounting, is adjusted to fair value through Product revenues as a revenue adjustment each reporting period based upon current market data and forward-looking estimates determined by management until the final sales price is determined. The principal risks associated with recognition of sales on a provisional basis include iron ore price fluctuations between the date initially recorded and the date of final settlement. For revenue recognition, we estimate the future settlement rate; however, if significant changes in iron ore prices occur between the provisional pricing date and the final settlement date, we might be required to either return a portion of the sales proceeds received or bill for the additional sales proceeds due based on the provisional sales price. Refer to NOTE 13 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for further information.
In addition, certain supply agreements with one customer include provisions for supplemental revenue or refunds based on the customer’s annual steel pricing for the year the product is consumed in the customer’s blast furnaces. We account for this provision as a free standing derivative instrument at the time of sale and record this provision at fair value until the year the product is consumed and the amounts are settled as an adjustment to revenue. Refer to NOTE 13 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for further information.
Revenue from product sales and services also includes reimbursement for freight charges associated with domestic freight and venture partner cost reimbursements for the U.S. Iron Ore operations and freight associated with CFR based shipments paid on behalf of customers for the Asia Pacific Iron Ore operations. These are included in Freight and venture partners' cost reimbursements separate from Product revenues. Revenue is recognized for the expected reimbursement of services when the services are performed.
Deferred Revenue
The terms of one of our U.S. Iron Ore 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 deferred revenue in the Statements of 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 December 31, 2016 and 2015, installment amounts received in excess of sales totaled $77.1 million and $89.9 million, respectively. As of December 31, 2016, deferred revenue of $16.4 million was recorded in Other current liabilities and $64.2 million was recorded as long-term in Other liabilities in the Statements of Consolidated Financial Position. As of December 31, 2015, deferred revenue of $12.8 million was recorded in Other current liabilities and $77.1 million was recorded as long-term in Other liabilities in the Statements of Consolidated Financial Position.
In 2016 and 2014, due to the payment terms and the timing of cash receipts near year-end, cash receipts exceeded shipments for certain customers. The shipments were completed early in the subsequent years. We considered whether revenue should be recognized on these sales under the “bill and hold” guidance provided by the SEC Staff; however, based upon the assessment performed, revenue recognition on these transactions totaling $3.4 million and $29.3 million were deferred on the Statements of Consolidated Financial Position for the years ended December 31, 2016 and 2014, respectively.
Cost of Goods Sold
Cost of goods sold and operating expenses represents all direct and indirect costs and expenses applicable to the sales of our mining operations. Operating expenses primarily represent the portion of the Tilden mining venture costs for which we do not own; that is, the costs attributable to the share of the mine’s production owned by the other joint venture partner in the Tilden mine. The mining venture functions as a captive cost company; it supplies product only to its owners effectively for the cost of production. Accordingly, the noncontrolling interests’ revenue amounts are stated at cost of production and are offset by an equal amount included in Cost of goods sold and operating expenses resulting in no sales margin reflected for the noncontrolling partner participant. As we are responsible for product fulfillment, we act as a principal in the transaction and, accordingly, record revenue under these arrangements on a gross basis.
The following table is a summary of reimbursements in our U.S. Iron Ore operations for the years ended December 31, 2016, 2015 and 2014:
 
 
(In Millions)
 
 
Year Ended December 31,
 
 
2016
 
2015
 
2014
Reimbursements for:
 
 
 
 
 
 
Freight
 
$
106.8

 
$
105.3

 
$
163.0

Venture partners’ cost
 
68.0

 
52.0

 
108.0

Total reimbursements
 
$
174.8

 
$
157.3

 
$
271.0

In 2014, we began selling a portion of our Asia Pacific Iron Ore product on a CFR basis. As a result, $20.7 million, $23.6 million and $6.9 million of freight was included in Cost of goods sold and operating expenses for the years ended December 31, 2016, 2015 and 2014, respectively.
Where we have joint ownership of a mine, our contracts entitle us to receive royalties and/or management fees, which we earn as the pellets are produced.
Repairs and Maintenance
Repairs, maintenance and replacement of components are expensed as incurred. The cost of major equipment overhauls is capitalized and depreciated over the estimated useful life, which is the period until the next scheduled overhaul, generally five years. All other planned and unplanned repairs and maintenance costs are expensed when incurred.
Share-Based Compensation
The fair value of each performance share grant is estimated on the date of grant using a Monte Carlo simulation to forecast relative TSR performance. Consistent with the guidelines of ASC 718, Stock Compensation, a correlation matrix of historic and projected stock prices was developed for both the Company and its predetermined peer group of mining and metals companies. The fair value assumes that performance goals will be achieved.
The expected term of the grant represents the time from the grant date to the end of the service period for each of the three plan-year agreements. We estimated the volatility of our common shares and that of the peer group of mining and metals companies using daily price intervals for all companies. The risk-free interest rate is the rate at the grant date on zero-coupon government bonds, with a term commensurate with the remaining life of the performance plans.
The fair value of stock options is estimated on the date of grant using a Black-Scholes model using the grant date price of our common shares and option exercise price, and assumptions regarding the option’s expected term, the volatility of our common shares, the risk-free interest rate, and the dividend yield over the option’s expected term.
Upon vesting of share-based compensation awards, we issue shares from treasury shares before issuing new shares.
Refer to NOTE 8 - STOCK COMPENSATION PLANS for additional information.
Income Taxes
Income taxes are based on income for financial reporting purposes, calculated using tax rates by jurisdiction, and reflect a current tax liability or asset for the estimated taxes payable or recoverable on the current year tax return and expected annual changes in deferred taxes. Any interest or penalties on income tax are recognized as a component of income tax expense.
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial results of operations.
Accounting for uncertainty in income taxes recognized in the financial statements requires that a tax benefit from an uncertain tax position be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on technical merits.
See NOTE 9 - INCOME TAXES for further information.
Discontinued Operations
In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the criteria for reporting discontinued operations and requires additional disclosures about discontinued operations. The standard requires that an entity report as a discontinued operation only a disposal that represents a strategic shift in operations that has a major effect on its operations and financial results. ASU 2014-08 is effective prospectively for new disposals that occur within annual periods beginning on or after December 15, 2014. Early adoption was permitted and we adopted ASU 2014-08 during the year ended December 31, 2014.
North American Coal Operations
As we executed our strategy to focus on strengthening our U.S. Iron Ore operations, management determined as of March 31, 2015 that our North American Coal operating segment met the criteria to be classified as held for sale under ASC 205, Presentation of Financial Statements and continued to meet the criteria throughout 2015. In December 2015, we completed the sale of our remaining two metallurgical coal operations, Oak Grove and Pinnacle mines, which marked our exit from the coal business. Our plan to sell the Oak Grove and Pinnacle mine assets represented a strategic shift in our business. For this reason, our previously reported North American Coal operating segment results for all periods, prior to the March 31, 2015 held for sale determination, as well as costs to exit are classified as discontinued operations. Refer to NOTE 14 - DISCONTINUED OPERATIONS for further discussion of our discontinued operations.
Canadian Operations
As more fully described in NOTE 14 - DISCONTINUED OPERATIONS, in January 2015, we announced that the Bloom Lake Group commenced restructuring proceedings in Montreal, Quebec under the CCAA. At that time, we had suspended Bloom Lake operations and for several months had been exploring options to sell certain of our Canadian assets, among other initiatives. Effective January 27, 2015, following the CCAA filing of the Bloom Lake Group, we deconsolidated the Bloom Lake Group and certain other wholly-owned subsidiaries comprising substantially all of our Canadian operations. Additionally, on May 20, 2015, the Wabush Group commenced restructuring proceedings in Montreal, Quebec under the CCAA which resulted in the deconsolidation of the remaining Wabush Group entities that were not previously deconsolidated. The Wabush Group was no longer generating revenues and was not able to meet its obligations as they came due. As a result of this action, the CCAA protections granted to the Bloom Lake Group were extended to include the Wabush Group to facilitate the reorganization of each of their businesses and operations. Our Canadian exit represents a strategic shift in our business. For this reason, our previously reported Eastern Canadian Iron Ore and Ferroalloys operating segment results for all periods prior to the respective deconsolidations as well as costs to exit are classified as discontinued operations.
Foreign Currency
Our financial statements are prepared with the U.S. dollar as the reporting currency. The functional currency of our Australian subsidiaries is the Australian dollar. The functional currency of all other international subsidiaries is the U.S. dollar. The financial statements of international subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and a weighted average exchange rate for each period for revenues, expenses, gains and losses. Where the local currency is the functional currency, translation adjustments are recorded as Accumulated other comprehensive loss. Income taxes generally are not provided for foreign currency translation adjustments. To the extent that monetary assets and liabilities, inclusive of short-term and certain long-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 Consolidated Operations. Transaction gains and losses resulting from remeasurement of intercompany loans are included in Miscellaneous - net in our Statements of Consolidated Operations.
The following represents the net gain related to impact of transaction gains and losses resulting from remeasurement for the years ended December 31, 2016, 2015 and 2014:
 
 
(In Millions)
 
 
2016
 
2015
 
2014
Remeasurement of intercompany loans
 
$
(16.6
)
 
$
11.5

 
$
19.7

Remeasurement of cash and cash equivalents
 
(1.0
)
 
1.5

 
10.6

Other remeasurement
 
0.8

 
3.3

 
(1.3
)
Net gain (loss) related to impact of transaction gains and losses resulting from remeasurement
 
(16.8
)
 
16.3

 
29.0

Earnings Per Share
We present both basic and diluted earnings per share amounts for continuing operations and discontinued operations. Basic earnings per share amounts are calculated by dividing Net Income (Loss) from Continuing Operations Attributable to Cliffs Shareholders less any paid or declared but unpaid dividends on our depositary shares by the weighted average number of common shares outstanding during the period presented. Diluted earnings per share amounts are calculated by dividing Net Income (Loss) from Continuing Operations Attributable to Cliffs Shareholders by the weighted average number of common shares, common share equivalents under stock plans using the treasury stock method and the number of common shares that would be issued under an assumed conversion of our outstanding depositary shares, each representing a 1/40th interest in a share of our Series A Mandatory Convertible Preferred Stock, Class A, under the if-converted method. We currently do not have any outstanding depositary shares. Historically, when we have had outstanding depositary shares, they were convertible into common shares based on the volume weighted average of closing prices of our common shares over the 20 consecutive trading day period ending on the third day immediately preceding the end of that reporting period. Common share equivalents are excluded from EPS computations in the periods in which they have an anti-dilutive effect. See NOTE 19 - EARNINGS PER SHARE for further information.
Recent Accounting Pronouncements
Issued and Adopted
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. The new standard addresses eight specific changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for interim and annual reporting periods beginning after December 15, 2017, and early adoption is permitted. We have adopted the guidance for the period ended December 31, 2016 and have applied this amended accounting guidance to the Statements of Consolidated Cash Flows for all periods presented. The adoption of ASU 2016-15 did not have an impact on prior results reported in the Statements of Consolidated Cash Flows.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern. ASU 2014-15 explicitly requires management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Specifically, ASU 2014-15 provides a definition of the term "substantial doubt" and requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). It also requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans and requires an express statement and other disclosures when substantial doubt is not alleviated. The new standard is effective for all entities in the first annual period ending after December 15, 2016 and for annual periods and interim periods thereafter. We have adopted the guidance for the year ended December 31, 2016. The adoption of ASU 2014-15 did not impact our disclosures in 2016.
In October 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. This update simplifies the presentation of deferred income taxes, by requiring that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. This update is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods; however, early adoption was permitted. This guidance can also be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. We adopted the guidance during the year ended December 31, 2015 and have applied this amended accounting guidance to our deferred tax liabilities and assets for all periods presented. The adoption of ASU 2015-17 did not have an impact on our Statements of Consolidated Operations or Statements of Consolidated Cash Flows.  The impact of the adoption of the guidance resulted in any current deferred tax assets or liabilities being reclassified to non-current deferred tax assets or liabilities on the Statements of Consolidated Financial Position.
Issued and Not Effective
In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. Lessor accounting is similar to the current model but updated to align with certain changes to the lessee model. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenues from Contracts with Customers. The new revenue guidance broadly replaces the revenue guidance provided throughout the Codification.  The core principle of the revenue guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.  The new revenue guidance also requires the capitalization of certain contract acquisition costs.  Reporting entities must prepare new disclosures providing qualitative and quantitative information on the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.  New disclosures also include qualitative and quantitative information on significant judgments, changes in judgments, and contract acquisition assets. At issuance, ASU 2014-09 was effective starting in 2017 for calendar-year public entities, and interim periods within that year. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which defers the adoption of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. During the fourth quarter of 2016, we completed the initial evaluation of the new standard and the related assessment and review of a representative sample of existing revenue contracts with our customers. We determined, on a preliminary basis, that although the timing and pattern of revenue recognition may change, the amount of revenue recognized during the year should remain substantially the same.  We anticipate utilizing the full retrospective transition method. The primary impact of the adoption on our consolidated financial statements will be the additional required disclosures around revenue recognition in the notes to the consolidated financial statements.
SEGMENT REPORTING
SEGMENT REPORTING
NOTE 2 - SEGMENT REPORTING
Our continuing operations are organized and managed according to geographic location: U.S. Iron Ore and Asia Pacific Iron Ore. Our U.S. Iron Ore 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. The Asia Pacific Iron Ore segment is located in Western Australia and provides iron ore to the seaborne market for Asian steel producers. There were no intersegment product revenues in 2016, 2015 or 2014.
We have historically evaluated segment performance based on sales margin, defined as revenues less cost of goods sold and operating expenses identifiable to each segment. Additionally, we evaluate segment performance based on EBITDA, defined as net income (loss) before interest, income taxes, depreciation, depletion and amortization, and Adjusted EBITDA, defined as EBITDA excluding certain items such as extinguishment/restructuring of debt, impacts of discontinued operations, foreign currency remeasurement, severance and contractor termination costs, certain supplies inventory write-offs, impairment of goodwill and other long-lived assets and other costs associated with the proxy contest and change in control. 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 is 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 segments for the years ended December 31, 2016, 2015 and 2014, including a reconciliation of segment sales margin to Income (Loss) from Continuing Operations Before Income Taxes and Equity Loss from Ventures and a reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA:
 
(In Millions)
 
2016
 
2015
 
2014
Revenues from product sales and services:
 
 
 
 
 
 
 
 
 
 
 
U.S. Iron Ore
$
1,554.5

 
74%
 
$
1,525.4

 
76%
 
$
2,506.5

 
74%
Asia Pacific Iron Ore
554.5

 
26%
 
487.9

 
24%
 
866.7

 
26%
Total revenues from product sales and services
$
2,109.0

 
100%
 
$
2,013.3

 
100%
 
$
3,373.2

 
100%
 
 
 
 
 
 
 
 
 
 
 
 
Sales margin:
 
 
 
 
 
 
 
 
 
 
 
U.S. Iron Ore
$
275.7

 
 
 
$
227.1

 
 
 
$
710.4

 
 
Asia Pacific Iron Ore
113.6

 
 
 
9.4

 
 
 
121.7

 
 
Eliminations with discontinued operations

 
 
 

 
 
 
53.6

 
 
Sales margin
389.3

 
 
 
236.5

 
 
 
885.7

 
 
Other operating expense
(148.5
)
 
 
 
(85.2
)
 
 
 
(755.6
)
 
 
Other income (expense)
(33.8
)
 
 
 
161.8

 
 
 
(149.8
)
 
 
Income (loss) from continuing operations before income taxes and equity loss from ventures
$
207.0

 
 
 
$
313.1

 
 
 
$
(19.7
)
 
 
 
(In Millions)
 
2016
 
2015
 
2014
 
 
 
 
 
 
Net income (loss)
$
199.3

 
$
(748.4
)
 
$
(8,311.6
)
Less:
 
 
 
 
 
Interest expense, net
(200.5
)

(231.4
)

(185.2
)
Income tax benefit (expense)
12.2


(163.3
)

1,302.0

Depreciation, depletion and amortization
(115.4
)

(134.0
)

(504.0
)
Total EBITDA
$
503.0

 
$
(219.7
)
 
$
(8,924.4
)
Less:
 
 
 
 
 
Gain on extinguishment/restructuring of debt
$
166.3

 
$
392.9

 
$
16.2

Impact of discontinued operations
(19.9
)
 
(892.0
)
 
(9,332.5
)
Foreign exchange remeasurement
(16.8
)
 
16.3

 
29.0

Severance and contractor termination costs
(0.1
)
 
(10.2
)
 
(23.3
)
Supplies inventory write-off

 
(16.3
)
 

Impairment of goodwill and other long-lived assets


(3.3
)

(635.5
)
Proxy contest and change in control in SG&A




(26.6
)
Total Adjusted EBITDA
$
373.5

 
$
292.9

 
$
1,048.3

 
 
 
 
 
 
EBITDA:
 
 
 
 
 
U.S. Iron Ore
$
342.4


$
317.6


$
805.6

Asia Pacific Iron Ore
128.3


35.3


(352.9
)
Other (including discontinued operations)
32.3


(572.6
)

(9,377.1
)
Total EBITDA
$
503.0

 
$
(219.7
)
 
$
(8,924.4
)
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
U.S. Iron Ore
$
359.6


$
352.1


$
833.5

Asia Pacific Iron Ore
132.9


32.7


252.9

Other
(119.0
)

(91.9
)

(38.1
)
Total Adjusted EBITDA
$
373.5

 
$
292.9

 
$
1,048.3

 
(In Millions)
 
2016
 
2015
 
2014
Depreciation, depletion and amortization:
 
 
 
 
 
U.S. Iron Ore
$
84.0

 
$
98.9

 
$
107.4

Asia Pacific Iron Ore
25.1

 
25.3

 
145.9

Other
6.3

 
6.6

 
7.7

Total depreciation, depletion and amortization
$
115.4

 
$
130.8

 
$
261.0

 
 
 
 
 
 
Capital additions1:
 
 
 
 
 
U.S. Iron Ore
$
62.2

 
$
58.2

 
$
48.4

Asia Pacific Iron Ore
0.2

 
5.4

 
10.8

Other
6.1

 
8.6

 
6.3

Total capital additions
$
68.5

 
$
72.2

 
$
65.5

 
 
 
 
 
 
1 Includes capital lease additions and non-cash accruals. Refer to NOTE 17 - CASH FLOW INFORMATION.

A summary of assets by segment is as follows:
 
(In Millions)
 
December 31,
2016
 
December 31, 2015
 
December 31, 2014
Assets:
 
 
 
 
 
U.S. Iron Ore
$
1,372.5

 
$
1,476.4

 
$
1,464.9

Asia Pacific Iron Ore
155.1

 
202.5

 
306.2

Total segment assets
1,527.6

 
1,678.9

 
1,771.1

Corporate
396.3

 
441.7

 
666.2

Assets of Discontinued Operations

 
14.9

 
709.9

Total assets
$
1,923.9

 
$
2,135.5

 
$
3,147.2


Included in the consolidated financial statements are the following amounts relating to geographic location:
 
(In Millions)
 
2016
 
2015
 
2014
Revenue
 
 
 
 
 
United States
$
1,236.2

 
$
1,206.4

 
$
1,923.2

China
452.5

 
370.8

 
662.7

Canada
267.1

 
282.4

 
430.5

Other countries
153.2

 
153.7

 
356.8

Total revenue
$
2,109.0

 
$
2,013.3

 
$
3,373.2

Property, Plant and Equipment, Net
 
 
 
 
 
United States
$
961.0

 
$
1,012.7

 
$
998.1

Australia
23.4

 
46.3

 
72.4

Total Property, Plant and Equipment, Net
$
984.4

 
$
1,059.0

 
$
1,070.5


Concentrations in Revenue
In 2016, two customers individually accounted for more than 10% of our consolidated product revenue and in 2015 and 2014, three customers individually accounted for more than 10% of our consolidated product revenue. Total product revenue from these customers represents approximately $1.1 billion, $1.3 billion and $1.9 billion of our total consolidated product revenue in 2016, 2015 and 2014, respectively, and is attributable to our U.S. Iron Ore business segment.
The following table represents the percentage of our total revenue contributed by each category of products and services in 2016, 2015 and 2014:
 
 
2016
 
2015
 
2014
Revenue category
 
 
 
 
 
 
Product
 
91
%
 
91
%
 
92
%
Freight and venture partners’ cost reimbursements
 
9
%
 
9
%
 
8
%
Total revenue
 
100
%
 
100
%
 
100
%
INVENTORIES
Inventories
NOTE 3 - INVENTORIES
The following table presents the detail of our Inventories in the Statements of Consolidated Financial Position as of December 31, 2016 and 2015:
 
(In Millions)
 
December 31, 2016
 
December 31, 2015
Segment
Finished Goods
 
Work-in Process
 
Total Inventory
 
Finished Goods
 
Work-in
Process
 
Total
Inventory
U.S. Iron Ore
$
124.4

 
$
12.6

 
$
137.0

 
$
252.3

 
$
11.7

 
$
264.0

Asia Pacific Iron Ore
23.6

 
17.8

 
41.4

 
20.8

 
44.8

 
65.6

Total
$
148.0

 
$
30.4

 
$
178.4

 
$
273.1

 
$
56.5

 
$
329.6


Asia Pacific Iron Ore had no long-term work-in-process stockpiles at December 31, 2016. There were $6.8 million long-term work-in-process stockpiles classified as Other non-current assets in the Statements of Consolidated Financial Position as of December 31, 2015.
U.S. Iron Ore
The excess of current cost over LIFO cost of iron ore inventories was $78.5 million and $87.8 million at December 31, 2016 and 2015, respectively. As of December 31, 2016, the product inventory balance for U.S. Iron Ore declined, resulting in the liquidation of a LIFO layer in 2016. The effect of the inventory reduction was an increase in Cost of goods sold and operating expenses of $8.8 million in the Statements of Consolidated Operations for the year ended December 31, 2016. As of December 31, 2015, the product inventory balance for U.S. Iron Ore increased, resulting in a LIFO increment in 2015. The effect of the inventory build was an increase in Inventories of $118.8 million in the Statements of Consolidated Financial Position for the year ended December 31, 2015.
PROPERTY, PLANT AND EQUIPMENT
PROPERTY, PLANT AND EQUIPMENT
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
The following table indicates the value of each of the major classes of our consolidated depreciable assets as of December 31, 2016 and 2015:
 
(In Millions)
 
December 31,
 
2016
 
2015
Land rights and mineral rights
$
500.5

 
$
500.5

Office and information technology
65.1

 
71.0

Buildings
67.9

 
60.4

Mining equipment
592.2

 
594.0

Processing equipment
552.0

 
516.8

Electric power facilities
49.4

 
46.4

Land improvements
23.5

 
24.8

Asset retirement obligation
19.8

 
87.9

Other
28.1

 
28.2

Construction in-progress
42.8

 
40.3

 
1,941.3

 
1,970.3

Allowance for depreciation and depletion
(956.9
)
 
(911.3
)
 
$
984.4

 
$
1,059.0


We recorded depreciation expense of $106.8 million, $119.2 million and $173.0 million in the Statements of Consolidated Operations for the years ended December 31, 2016, 2015 and 2014, respectively.
For the year ended December 31, 2016, there were no factors present that indicated the carrying value of certain asset groups would not be recoverable; therefore, there were no impairments during 2016. Our asset groups consist of the assets and liabilities of our mines and associated reserves. The lowest level of identifiable cash flows largely are at the U.S. Iron Ore and Asia Pacific Iron Ore segment levels.
For the year ended December 31, 2015, although certain factors indicated that the carrying value of certain asset groups may not be recoverable, an assessment was performed and no further impairment was indicated.
During the second half of 2014, due to lower than previously expected profits as a result of decreased iron ore pricing expectations and increased costs, we determined that indicators of impairment with respect to certain of our long-lived assets or asset groups existed. As a result of these assessments during 2014, we determined that the future cash flows associated with our Asia Pacific Iron Ore asset group and other asset groups were not sufficient to support the recoverability of the carrying value of these productive assets. Accordingly, during 2014, an other long-lived asset impairment charge of $537.8 million was recorded as Impairment of goodwill and other long-lived assets in the Statements of Consolidated Operations related to property, plant and equipment. The fair value estimates were calculated using income and market approaches.
The net book value of the land rights and mineral rights as of December 31, 2016 and 2015 is as follows:
 
(In Millions)
 
December 31,
 
2016
 
2015
Land rights
$
11.6

 
$
11.6

Mineral rights:

 

Cost
$
488.9

 
$
488.9

Depletion
(112.2
)
 
(108.4
)
Net mineral rights
$
376.7

 
$
380.5


Accumulated depletion relating to mineral rights, which was recorded using the unit-of-production method, is included in Cost of goods sold and operating expenses. We recorded depletion expense of $3.8 million, $7.4 million and $79.6 million in the Statements of Consolidated Operations for the years ended December 31, 2016, 2015 and 2014, respectively. As discussed above, during 2014 we performed impairment assessments with respect to certain of our long-lived assets or asset groups. As a result of these assessments, we recorded an other long-lived asset impairment charge related to mineral rights of $297.2 million associated with our Asia Pacific Iron Ore asset group.
DEBT AND CREDIT FACILITIES
DEBT AND CREDIT FACILITIES
NOTE 5 - DEBT AND CREDIT FACILITIES
The following represents a summary of our long-term debt as of December 31, 2016 and 2015:
($ in Millions)
December 31, 2016
Debt Instrument
 
Annual Effective Interest Rate
 
Total Principal Amount
 
Debt Issuance Costs
 
Undiscounted Interest/(Unamortized Discounts)
 
Total Debt
Secured Notes
 
 
 
 
 
 
 
 
 
 
$540 Million 8.25% 2020 First Lien Notes
 
9.97%
 
$
540.0

 
$
(8.0
)
 
$
(25.7
)
 
$
506.3

$218.5 Million 8.00% 2020 1.5 Lien Notes
 
N/A
 
218.5

 

 
65.7

 
284.2

$544.2 Million 7.75% 2020 Second Lien Notes
 
15.55%
 
430.1

 
(5.8
)
 
(85.2
)
 
339.1

Unsecured Notes
 
 
 
 
 
 
 
 
 
 
$400 Million 5.90% 2020 Senior Notes
 
5.98%
 
225.6

 
(0.6
)
 
(0.5
)
 
224.5

$500 Million 4.80% 2020 Senior Notes
 
4.83%
 
236.8

 
(0.7
)
 
(0.2
)
 
235.9

$700 Million 4.875% 2021 Senior Notes
 
4.89%
 
309.4

 
(1.0
)
 
(0.2
)
 
308.2

$800 Million 6.25% 2040 Senior Notes
 
6.34%
 
298.4

 
(2.5
)
 
(3.4
)
 
292.5

ABL Facility
 
N/A
 
550.0

 
N/A

 
N/A

 

Fair Value Adjustment to Interest Rate Hedge
 
 
 
 
 
 
 
 
 
1.9

Total debt
 
 
 

 
 
 
 
 
$
2,192.6

Less current portion
 

 
 
 
 
 
 
 
17.5

Long-term debt
 
 
 
 
 
 
 
 
 
$
2,175.1

($ in Millions)
December 31, 2015
Debt Instrument
 
Annual Effective Interest Rate
 
Total Principal Amount
 
Debt Issuance Costs
 
Undiscounted Interest/(Unamortized Discounts)
 
Total Debt
Secured Notes
 
 
 
 
 
 
 
 
 
 
$540 Million 8.25% 2020 First Lien Notes
 
9.97%
 
$
540.0

 
$
(10.5
)
 
$
(32.1
)
 
$
497.4

$544.2 Million 7.75% 2020 Second Lien Notes
 
15.55%
 
544.2

 
(9.5
)
 
(131.5
)
 
403.2

Unsecured Notes
 
 
 
 
 
 
 
 
 
 
$500 Million 3.95% 2018 Senior Notes
 
6.30%
 
311.2

 
(0.9
)
 
(1.2
)
 
309.1

$400 Million 5.90% 2020 Senior Notes
 
5.98%
 
290.8

 
(1.1
)
 
(0.8
)
 
288.9

$500 Million 4.80% 2020 Senior Notes
 
4.83%
 
306.7

 
(1.1
)
 
(0.4
)
 
305.2

$700 Million 4.875% 2021 Senior Notes
 
4.89%
 
412.5

 
(1.7
)
 
(0.2
)
 
410.6

$800 Million 6.25% 2040 Senior Notes
 
6.34%
 
492.8

 
(4.3
)
 
(5.8
)
 
482.7

ABL Facility
 
N/A
 
550.0

 
N/A

 
N/A

 

Fair Value Adjustment to Interest Rate Hedge
 
 
 
 
 
 
 
 
 
2.3

Long-term debt
 
 
 


 
 
 
 
 
$
2,699.4


Senior Secured Notes
Our First Lien Notes bear interest at a rate of 8.25% per annum. Interest on the First Lien Notes is payable semi-annually in arrears on March 31 and September 30 of each year, commencing on September 30, 2015. The First Lien Notes mature on March 31, 2020 and are secured senior obligations of the Company.
Our 1.5 Lien Notes bear interest at a rate of 8.00% per annum. Interest on the 1.5 Lien Notes is payable semi-annually in arrears on March 31 and September 30 of each year, commencing on September 30, 2016. The 1.5 Lien Notes mature on September 30, 2020 and are secured senior obligations of the Company.
Our Second Lien Notes bear interest at a rate of 7.75% per annum. Interest on the Second Lien Notes is payable semi-annually in arrears on March 31 and September 30 of each year, commencing on September 30, 2015. The Second Lien Notes mature on March 31, 2020 and are secured senior obligations of the Company.
The First Lien Notes are jointly and severally and fully and unconditionally guaranteed on a senior secured basis by substantially all of our material U.S. subsidiaries and are secured (subject in each case to certain exceptions and permitted liens) by (i) a first-priority lien on substantially all of our U.S. assets, other than the ABL Collateral (the "Notes Collateral"), and (ii) a second-priority lien on the U.S. ABL Collateral (as defined below), which is junior to a first-priority lien for the benefit of the lenders under the ABL Facility. The First Lien Notes and guarantees are general senior obligations of the Company and the applicable guarantor; are effectively senior to all of our unsecured indebtedness, to the extent of the value of the collateral; together with other obligations secured equally and ratably with the First Lien Notes, are effectively (i) senior to our existing and future ABL obligations, to the extent and value of the Notes Collateral and (ii) senior to our obligations under the Second Lien Notes, to the extent and value of the collateral; are effectively subordinated to (i) our existing and future ABL obligations, to the extent and value of the ABL Collateral, and (ii) any existing or future indebtedness that is secured by liens on assets that do not constitute a part of the collateral, to the extent of the value of such assets; will rank equally in right of payment with all existing and future senior indebtedness, and any guarantees thereof; will rank equally in priority as to the Notes Collateral with any future debt secured equally and ratably with the First Lien Notes incurred after March 30, 2015; rank senior in right of payment to all existing and future subordinated indebtedness; and structurally subordinated to all existing and future indebtedness and other liabilities of our subsidiaries that do not guarantee the First Lien Notes. The relative priority of the liens securing our First Lien Notes obligations, 1.5 Lien Notes obligations and Second Lien Notes obligations compared to the liens securing our obligations under the ABL Facility and certain other matters relating to the administration of security interests are set forth in intercreditor agreements.
The 1.5 and Second Lien Notes have substantially similar terms to those of the First Lien Notes except with respect to their priority security interest in the collateral. The 1.5 Lien Notes are jointly and severally and fully and unconditionally guaranteed on a senior secured basis by substantially all of our material U.S. subsidiaries and are secured (subject in each case to certain exceptions and permitted liens) on (i) a junior first-priority basis by substantially all of our U.S. assets, other than the ABL Collateral, and (ii) a junior second-priority basis by our ABL Collateral, which secures our ABL obligations on a first-priority basis, the First Lien Notes obligations on a senior second-priority basis and the Second Lien Notes obligations on a third-priority basis. The Second Lien Notes are jointly and severally and fully and unconditionally guaranteed on a senior secured basis by substantially all of our material U.S. subsidiaries and are secured (subject in each case to certain exceptions and permitted liens) by (i) a second-priority lien (junior to the First Lien Notes) on substantially all of our U.S. assets, other than the ABL Collateral, and (ii) a third-priority lien (junior to the ABL Facility and the First Lien Notes) on the U.S. ABL Collateral.
The terms of the secured notes are governed by the secured notes indentures. The secured notes indentures contain customary covenants that, among other things, limit our ability to incur certain secured indebtedness, create liens on principal property and the capital stock or debt of a subsidiary that owns a principal property, use proceeds of dispositions of collateral, enter into certain sale and leaseback transactions, merge or consolidate with another company and transfer or sell all or substantially all of our assets. Upon the occurrence of a “change of control triggering event,” as defined in the secured notes indentures, we are required to offer to repurchase the secured notes at 101% of the aggregate principal amount thereof, plus any accrued and unpaid interest, if any, to, but excluding, the repurchase date.
The secured notes indentures contain customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, failure to pay or acceleration of certain other indebtedness, certain events of bankruptcy and insolvency and failure to pay certain judgments. An event of default under the secured notes indentures will allow either the trustee or the holders of at least 25% in aggregate principal amount of the then-outstanding applicable series of secured notes issued under the applicable indenture to accelerate, or in certain cases, will automatically cause the acceleration of, the amounts due under such series of secured notes.
The following is a summary of redemption prices for each of our secured senior notes:
 
First Lien Notes
 
1.5 Lien Notes
 
Second Lien Notes
 
Percent of Principal
 
Period
 
Percent of Principal
 
Period
 
Percent of Principal
 
Period
Early redemption1,2
100.00
%
Prior to March 31, 2018
 
100.00
%
Prior to September 30, 2017
 
100.00
%
Prior to March 31, 2017
Initial redemption1
108.25
 
Beginning on March 31, 2018
 
104.00
 
Beginning on September 30, 2017
 
103.875
 
Beginning on March 31, 2017
Secondary redemption1
100.00
 
Beginning on June 30, 2019
 
100.00
 
Beginning on September 30, 2019
 
100.00
 
Beginning on March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
1 Plus accrued and unpaid interest, if any, up to but excluding the redemption date.
2 Plus a "make-whole" premium. In addition, we may redeem in the aggregate up to 35% of the original aggregate principal amount (calculated after giving effect to any issuance of additional notes) with the net cash proceeds from certain equity offerings at a redemption price of 108.25%, 108.00% and 107.75% for the First, 1.5 and Second Lien Notes, respectively, so long as at least 65% of the original aggregate principal amount of the notes (calculated after giving effect to any issuance of additional notes) issued remain outstanding after each such redemption.

Unsecured Senior Notes
Our 3.95% senior notes were redeemed in whole on September 16, 2016 at a total redemption price of $301.0 million, which included $283.6 million outstanding aggregate principal. As a result, we recorded a $19.9 million pre-tax loss on full retirement of long-term debt in the third quarter of 2016, which consisted of debt redemption premiums of $17.4 million and expenses of $2.5 million related to the write-off of unamortized debt issuance costs, unamortized bond discount and deferred losses on interest rate swaps. The loss was recorded against the Gain on extinguishment/restructuring of debt in the Statements of Consolidated Operations for the year ended December 31, 2016.
Our 5.90% senior notes are due March 15, 2020. Interest is payable on March 15 and September 15 of each year until maturity.
Our 4.80% senior notes are due October 1, 2020. Interest is payable on April 1 and October 1 of each year until maturity.
Our 4.875% senior notes are due April 1, 2021. Interest is payable on April 1 and October 1 of each year until maturity.
Our 6.25% senior notes are due October 1, 2040. Interest is payable on April 1 and October 1 of each year until maturity.
The senior notes are unsecured obligations and rank equally in right of payment with all our other existing and future unsecured and unsubordinated indebtedness. There are no subsidiary guarantees of the interest and principal amounts.
The senior notes may be redeemed 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 applicable series of notes. The senior notes are redeemable at a redemption price equal to the greater of (1) 100% of the principal amount of the notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest on the notes to be redeemed, discounted to the redemption date on a semi-annual basis at the treasury rate plus 50 basis points with respect to the 2018 senior notes, 35 basis points with respect to the 2020 senior notes, 25 basis points with respect to the 2021 senior notes and 40 basis points with respect to the 2040 senior notes, plus, in each case, accrued and unpaid interest to the date of redemption. However, if the 2021 senior notes are redeemed on or after the date that is three months prior to their maturity date, the 2021 senior notes will be redeemed at a redemption price equal to 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest to the date of redemption.
In addition, if a change of control triggering event occurs with respect to the senior notes, as defined in the agreement, we will be required to offer to purchase the notes of the applicable series at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest, if any, to the date of purchase.
The terms of the senior notes contain certain customary covenants; however, there are no financial covenants.
ABL Facility
On March 30, 2015, we entered into a new senior secured asset-based revolving credit facility with various financial institutions. The ABL Facility will mature upon the earlier of March 30, 2020 or 60 days prior to the maturity of the First Lien Notes and certain other material debt, and provides for up to $550.0 million in borrowings, comprised of (i) a $450.0 million U.S. tranche, including a $250.0 million sublimit for the issuance of letters of credit and a $100.0 million sublimit for U.S. swingline loans, and (ii) a $100.0 million Australian tranche, including a $50.0 million sublimit for the issuance of letters of credit and a $20.0 million sublimit for Australian swingline loans. Availability under both the U.S. tranche and Australian tranche of the ABL Facility is limited to an eligible U.S. borrowing base and Australian borrowing base, as applicable, determined by applying customary advance rates to eligible accounts receivable, inventory and certain mobile equipment.
The ABL Facility and certain bank products and hedge obligations are guaranteed by us and certain of our existing wholly-owned U.S. and Australian subsidiaries and are required to be guaranteed by certain of our future U.S. and Australian subsidiaries; provided, however, that the obligations of any U.S. entity will not be guaranteed by any Australian entity. Amounts outstanding under the ABL Facility will be secured by (i) a first-priority security interest in the ABL Collateral, including, in the case of the Australian tranche only, ABL Collateral owned by a borrower or guarantor that is organized under the laws of Australia, and (ii) a third-priority security interest in the Notes Collateral (as defined herein). The priority of the security interests in the ABL Collateral and the Notes Collateral of the lenders under the ABL Facility and the holders of the First Lien Notes are set forth in intercreditor provisions contained in an ABL intercreditor agreement.
The ABL Collateral generally consists of the following assets: accounts receivable and other rights to payment, inventory, as-extracted collateral, investment property, certain general intangibles and commercial tort claims, certain mobile equipment, commodities accounts, deposit accounts, securities accounts and other related assets and proceeds and products of each of the foregoing.
Borrowings under the ABL Facility bear interest, at our option, at a base rate, an Australian base rate or, if certain conditions are met, a LIBOR rate, in each case plus an applicable margin. The base rate is equal to the greater of the federal funds rate plus ½ of 1%, the LIBOR rate based on a one-month interest period plus 1% and the floating rate announced by BAML as its “prime rate.” The Australian base rate is equal to the LIBOR rate as of 11:00 a.m. on the first business day of each month for a one-month period. The LIBOR rate is a per annum fixed rate equal to LIBOR with respect to the applicable interest period and amount of LIBOR rate loan requested.
The ABL Facility contains customary representations and warranties and affirmative and negative covenants including, among others, covenants regarding the maintenance of certain financial ratios if certain conditions are triggered, covenants relating to financial reporting, covenants relating to the payment of dividends on, or purchase or redemption of our capital stock, covenants relating to the incurrence or prepayment of certain debt, covenants relating to the incurrence of liens or encumbrances, compliance with laws, transactions with affiliates, mergers and sales of all or substantially all of our assets and limitations on changes in the nature of our business.
The ABL Facility provides for customary events of default, including, among other things, the event of nonpayment of principal, interest, fees, or other amounts, a representation or warranty proving to have been materially incorrect when made, failure to perform or observe certain covenants within a specified period of time, a cross-default to certain material indebtedness, the bankruptcy or insolvency of the Company and certain of its subsidiaries, monetary judgment defaults of a specified amount, invalidity of any loan documentation, a change of control of the Company, and ERISA defaults resulting in liability of a specified amount. In the event of a default by us (beyond any applicable grace or cure period, if any), the administrative agent may and, at the direction of the requisite number of lenders, shall declare all amounts owing under the ABL Facility immediately due and payable, terminate such lenders’ commitments to make loans under the ABL Facility and/or exercise any and all remedies and other rights under the ABL Facility. For certain defaults related to insolvency and receivership, the commitments of the lenders will be automatically terminated and all outstanding loans and other amounts will become immediately due and payable.
As of December 31, 2016, we were in compliance with the ABL Facility liquidity requirements and, therefore, the springing financial covenant requiring a minimum fixed charge coverage ratio of 1.0 to 1.0 was not applicable.
As of December 31, 2016, no loans were drawn under the ABL Facility and we had total availability of $333.0 million as a result of borrowing base limitations. As of December 31, 2016, the principal amount of letter of credit obligations totaled $106.0 million, thereby further reducing available borrowing capacity on our ABL Facility to $227.0 million.    
As of December 31, 2015, no loans were drawn under the ABL Facility and we had total availability of $366.0 million as a result of borrowing base limitations. As of December 31, 2015, the principal amount of letter of credit obligations totaled $186.3 million and commodity hedge obligations totaled $0.5 million, thereby further reducing available borrowing capacity to $179.2 million.
Letters of Credit
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. As of December 31, 2016 and December 31, 2015, these letter of credit obligations totaled $106.0 million and $186.3 million, respectively.
Debt Extinguishments/Restructurings
1.5 Lien Notes Exchange
On March 2, 2016, we entered into an indenture among the Company, the guarantors party thereto and U.S. Bank National Association, as trustee and notes collateral agent, relating to our issuance of $218.5 million aggregate principal amount of 8.00% 1.5 Lien Senior Secured Notes due 2020 (the “1.5 Lien Notes”). The 1.5 Lien Notes were issued in exchange offers for certain of our existing senior notes.
We accounted for the 1.5 Lien Notes exchange as a TDR. For an exchange classified as TDR, if the future undiscounted cash flows of the newly issued debt are less than the net carrying value of the original debt, the carrying value of the newly issued debt is adjusted to the future undiscounted cash flow amount, a gain is recorded for the difference and no future interest expense is recorded. All future interest payments on the newly issued debt reduce the carrying value.  Accordingly, we recognized a gain of $174.3 million in the Gain on extinguishment/restructuring of debt in the Statements of Consolidated Operations for the year ended December 31, 2016. As a result, our reported interest expense will be less than the contractual interest payments throughout the term of the 1.5 Lien Notes. Debt issuance costs incurred of $5.2 million related to the notes exchange were expensed and were included in the Gain on extinguishment/restructuring of debt in the Statements of Consolidated Operations for the year ended December 31, 2016. As of December 31, 2016, $17.5 million of the undiscounted interest is recorded as current and classified as Other current liabilities in the Statements of Consolidated Financial Position.
The following is a summary of the debt exchanged for our $218.5 million 1.5 Lien Notes:
($ In Millions)
 
 
Debt Extinguished
 
1.5 Lien Amount Issued
 
Carrying Value1
 
Gain on Restructuring2
$544.2 Million 7.75% 2020 Second Lien Notes
 
$
114.1

 
$
57.0

 
$
77.5

 
$
6.9

$500 Million 3.95% 2018 Senior Notes
 
17.6

 
11.4

 
15.5

 
1.8

$400 Million 5.90% 2020 Senior Notes
 
65.1

 
26.0

 
35.4

 
28.3

$500 Million 4.80% 2020 Senior Notes
 
44.7

 
17.9

 
24.4

 
19.5

$700 Million 4.875% 2021 Senior Notes
 
76.3

 
30.5

 
41.5

 
33.3

$800 Million 6.25% 2040 Senior Notes
 
194.4

 
75.7

 
103.0

 
84.5

 
 
$
512.2

 
$
218.5

 
$
297.3

 
$
174.3

 
 
 
 
 
 
 
 
 
1 Includes undiscounted interest payments
2 Net of amounts expensed for unamortized original issue discount and deferred origination fees

Second Lien Notes Exchange
On March 30, 2015, we also entered into an indenture among the Company, the guarantors and U.S. Bank National Association, as trustee and notes collateral agent, relating to our issuance of $544.2 million aggregate principal amount of 7.75% second lien senior secured notes due 2020 (the "Second Lien Notes"). The Second Lien Notes were issued in exchange offers for certain of our existing senior notes.
The following is a summary of the debt exchanged for our $544.2 million Second Lien Notes:
($ In Millions)
 
 
Debt Extinguished
 
Second Lien Notes Amount Issued
 
Carrying Value1
 
Gain on Restructuring2
$400 Million 5.90% 2020 Senior Notes
 
$
67.0

 
$
57.5

 
$
42.0

 
$
24.5

$500 Million 4.80% 2020 Senior Notes
 
137.8

 
112.9

 
82.4

 
54.6

$700 Million 4.875% 2021 Senior Notes
 
208.5

 
170.3

 
124.3

 
83.1

$800 Million 6.25% 2040 Senior Notes
 
261.3

 
203.5

 
148.5

 
107.3

 
 
$
674.6

 
$
544.2

 
$
397.2

 
$
269.5

 
 
 
 
 
 
 
 
 
1 Includes unamortized discounts
2 Net of amounts expensed for unamortized original issue discount and deferred origination fees


Debt-for-Equity Exchanges
During the year ended December 31, 2016, we entered into a series of privately negotiated exchange agreements whereby we issued an aggregate of 8.2 million common shares in exchange for $10.0 million aggregate principal amount of our 3.95% senior notes due 2018, $20.1 million aggregate principal amount of our 4.80% senior notes due 2020 and $26.8 million aggregate principal amount of our 4.875% senior notes due 2021. There were no exchanges that represented more than 1% of our outstanding common shares during any quarter. Accordingly, we recognized a gain of $11.3 million in Gain on extinguishment/restructuring of debt in the Statements of Consolidated Operations for the year ended December 31, 2016.
Other Debt Redemptions
During the year ended December 31, 2016, we purchased with cash $5.0 million of our outstanding 4.80% senior notes, which resulted in a gain on extinguishment of $0.6 million.
During the year ended December 31, 2015, we purchased with cash $168.8 million of outstanding 3.95% senior notes, $69.0 million of outstanding 4.875% senior notes, $45.9 million of outstanding 6.25% senior notes, $45.6 million of outstanding 4.80% senior notes, and $37.3 million of outstanding 5.90% senior notes, which resulted in a gain on the extinguishment of debt of $137.1 million. In addition, during 2015, we replaced the revolving credit agreement with our ABL Facility, which resulted in a loss on extinguishment of $13.7 million.
Debt Maturities