CLEVELAND-CLIFFS INC., 10-K filed on 2/14/2018
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2017
Feb. 12, 2018
Jun. 30, 2017
Document and Entity Information [Abstract]
 
 
 
Entity Registrant Name
CLEVELAND-CLIFFS 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, 2017 
 
 
Document Fiscal Year Focus
2017 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
297,400,968 
 
Trading Symbol
clf 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 2,039,925,087 
Statements Of Condensed Consolidated Financial Position (USD $)
In Millions, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
CURRENT ASSETS
 
 
Cash and cash equivalents
$ 1,007.7 
$ 323.4 
Accounts receivable, net
140.6 
128.7 
Inventories
183.4 
178.4 
Supplies and other inventories
93.9 
91.4 
Derivative assets
39.4 
33.1 
Loans to and accounts receivables from the Canadian Entities
51.6 
48.6 
Other current assets
28.0 
21.0 
TOTAL CURRENT ASSETS
1,544.6 
824.6 
PROPERTY, PLANT AND EQUIPMENT, NET
1,051.0 
984.4 
OTHER ASSETS
 
 
INCOME TAX RECEIVABLE
235.3 
Other non-current assets
122.5 
114.9 
TOTAL ASSETS
2,953.4 
1,923.9 
CURRENT LIABILITIES
 
 
Accounts payable
127.7 
107.6 
Accrued employment costs
56.1 
56.1 
State and local taxes payable
30.2 
28.3 
Accrued expenses
33.7 
41.1 
Accrued interest
31.4 
40.2 
Accrued royalties
17.3 
26.2 
Contingent claims
55.6 
Partnership distribution payable
44.2 
8.7 
Other current liabilities
56.0 
82.9 
TOTAL CURRENT LIABILITIES
452.2 
391.1 
POSTEMPLOYMENT BENEFIT LIABILITIES
 
 
Pensions
222.8 
245.7 
Other postretirement benefits
34.9 
34.8 
TOTAL POSTEMPLOYMENT BENEFIT LIABILITIES
257.7 
280.5 
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
196.5 
193.9 
LONG-TERM DEBT
2,304.2 
2,175.1 
OTHER LIABILITIES
186.9 
213.8 
TOTAL LIABILITIES
3,397.5 
3,254.4 
COMMITMENTS AND CONTINGENCIES (SEE NOTE 20)
   
   
CLIFFS SHAREHOLDERS' DEFICIT
 
 
Common Shares - par value $0.125 per share, Authorized - 600,000,000 shares (2016 - 400,000,000 shares); Issued - 238,636,794 shares (2016 - 238,636,794) shares); Outstanding - 233,074,091 shares (2016 - 233,074,091) shares)
37.7 
29.8 
Capital in excess of par value of shares
3,933.9 
3,347.0 
Retained deficit
(4,207.3)
(4,574.3)
Cost of 4,485,826 common shares in treasury (2016 - 5,562,703 shares)
(169.6)
(245.5)
Accumulated other comprehensive loss
(39.0)
(21.3)
TOTAL CLIFFS SHAREHOLDERS' DEFICIT
(444.3)
(1,464.3)
NONCONTROLLING INTEREST
0.2 
133.8 
TOTAL DEFICIT
(444.1)
(1,330.5)
TOTAL LIABILITIES AND DEFICIT
$ 2,953.4 
$ 1,923.9 
Statements Of Condensed Consolidated Financial Position (Parenthetical) (USD $)
Dec. 31, 2017
Dec. 31, 2016
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)
600,000,000 
400,000,000 
Common shares, issued (in shares)
301,886,794 
238,636,794 
Common shares, outstanding
297,400,968 
233,074,091 
Common shares in treasury
4,485,826 
5,562,703 
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
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 Per Share data, unless otherwise specified
3 Months Ended 12 Months Ended
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
Dec. 31, 2016
Sep. 30, 2016
Jun. 30, 2016
Mar. 31, 2016
Sep. 30, 2015
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
REVENUES FROM PRODUCT SALES AND SERVICES
 
 
 
 
 
 
 
 
 
 
 
 
Product
 
 
 
 
 
 
 
 
 
$ 2,089.2 
$ 1,913.5 
$ 1,832.4 
Freight and venture partners' cost reimbursements
 
 
 
 
 
 
 
 
 
241.0 
195.5 
180.9 
TOTAL REVENUES
600.9 
698.4 
569.3 
461.6 
754.0 
553.3 
496.2 
305.5 
 
2,330.2 
2,109.0 
2,013.3 
COST OF GOODS SOLD AND OPERATING EXPENSES
 
 
 
 
 
 
 
 
 
(1,828.5)
(1,719.7)
(1,776.8)
SALES MARGIN
100.7 
160.2 
145.1 
95.7 
181.5 
85.4 
91.5 
30.9 
 
501.7 
389.3 
236.5 
OTHER OPERATING INCOME (EXPENSE)
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
 
 
 
 
 
 
 
 
(105.8)
(117.8)
(110.0)
Miscellaneous - net
 
 
 
 
 
 
 
 
 
27.7 
(30.7)
24.8 
Other operating expense
 
 
 
 
 
 
 
 
 
78.1 
148.5 
85.2 
OPERATING INCOME
 
 
 
 
 
 
 
 
 
423.6 
240.8 
151.3 
OTHER INCOME (EXPENSE)
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
 
 
 
 
 
 
 
 
 
(132.0)
(200.5)
(228.5)
Gain (loss) on extinguishment/restructuring of debt
 
 
 
 
 
 
 
174.3 
 
(165.4)
166.3 
392.9 
Other non-operating income (expense)
 
 
 
 
 
 
 
 
 
3.2 
0.4 
(2.6)
TOTAL OTHER INCOME (EXPENSE)
 
 
 
 
 
 
 
 
 
(294.2)
(33.8)
161.8 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY LOSS FROM VENTURES
 
 
 
 
 
 
 
 
 
129.4 
207.0 
313.1 
INCOME TAX BENEFIT (EXPENSE)
 
 
 
 
 
 
 
 
 
252.4 
12.2 
(169.3)
EQUITY LOSS FROM VENTURES, net of tax
 
 
 
 
 
 
 
 
 
(0.1)
INCOME FROM CONTINUING OPERATIONS
315.0 
20.6 
76.5 
(30.3)
100.1 
(25.1)
29.9 
114.3 
 
381.8 
219.2 
143.7 
LOSS FROM DISCONTINUED OPERATIONS, net of tax
 
 
 
 
 
 
 
 
 
(18.7)
(19.9)
(892.1)
NET INCOME (LOSS)
 
 
 
 
 
 
 
 
 
363.1 
199.3 
(748.4)
INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST
 
 
 
 
 
 
 
 
 
3.9 
(25.2)
(0.9)
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
309.9 
53.4 
31.8 
(28.1)
 
(25.8)
12.8 
108.0 
79.1 
367.0 
174.1 
(749.3)
PREFERRED STOCK DIVIDENDS
 
 
 
 
 
 
 
 
 
(38.4)
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS COMMON SHAREHOLDERS
 
 
 
 
 
 
 
 
 
$ 367.0 
$ 174.1 
$ (787.7)
EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS - BASIC
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$ 1.06 
$ 0.07 
$ 0.26 
$ (0.11)
$ 0.43 
$ (0.11)
$ 0.07 
$ 0.61 
 
$ 1.34 
$ 0.98 
$ 0.63 
Discontinued operations
$ (0.02)
$ 0.11 
$ (0.16)
$ 0.00 
$ (0.08)
$ (0.01)
$ 0.00 
$ 0.01 
 
$ (0.06)
$ (0.10)
$ (5.77)
Earnings (Loss) per Common Share Attributable to Cliffs Common Shareholders - Basic:
$ 1.04 
$ 0.18 
$ 0.10 
$ (0.11)
$ 0.35 
$ (0.12)
$ 0.07 
$ 0.62 
 
$ 1.28 
$ 0.88 
$ (5.14)
EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS - DILUTED
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$ 1.05 
$ 0.07 
$ 0.26 
$ (0.11)
$ 0.42 
$ (0.11)
$ 0.07 
$ 0.61 
 
$ 1.32 
$ 0.97 
$ 0.63 
Discontinued operations
$ (0.02)
$ 0.11 
$ (0.15)
$ 0.00 
$ (0.08)
$ (0.01)
$ 0.00 
$ 0.01 
 
$ (0.06)
$ (0.10)
$ (5.76)
Earnings (Loss) per Common Share Attributable to Cliffs Common Shareholders - Diluted:
$ 1.03 
$ 0.18 
$ 0.11 
$ (0.11)
$ 0.34 
$ (0.12)
$ 0.07 
$ 0.62 
 
$ 1.26 
$ 0.87 
$ (5.13)
AVERAGE NUMBER OF SHARES (IN THOUSANDS)
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
 
 
288.4 
197.7 
153.2 
Diluted
 
 
 
 
 
 
 
 
 
293.0 
200.1 
153.6 
Statements Of Condensed Consolidated Operations (Parenthetical) (USD $)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
$ 0 
$ 0 
$ 7,700,000 
Statements Of Condensed Consolidated Comprehensive Income (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement of Comprehensive Income [Abstract]
 
 
 
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$ 367.0 
$ 174.1 
$ (749.3)
OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
Pension and OPEB liability, net of tax
11.5 
(19.8)
45.2 
Unrealized net gain on marketable securities, net of tax
1.7 
Unrealized net gain (loss) on foreign currency translation
(13.9)
18.6 
155.6 
Unrealized net gain (loss) on derivative financial instruments, net of tax
(0.5)
(2.6)
20.7 
OTHER COMPREHENSIVE INCOME (LOSS)
(2.9)
(3.8)
223.2 
OTHER COMPREHENSIVE LOSS (INCOME) ATTRIBUTABLE TO THE NONCONTROLLING INTEREST
1.1 
(0.5)
(4.6)
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$ 363.0 
$ 170.8 
$ (521.5)
Statements Of Condensed Consolidated Cash Flows (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
OPERATING ACTIVITIES
 
 
 
Net income (loss)
$ 363.1 
$ 199.3 
$ (748.4)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
87.7 
115.4 
134.0 
Impairment of long-lived assets
76.6 
Deferred income taxes
159.8 
Loss (gain) on extinguishment/restructuring of debt
165.4 
(166.3)
(392.9)
Loss on deconsolidation, net of cash deconsolidated
20.2 
17.5 
668.3 
Other
21.2 
10.0 
61.1 
Changes in operating assets and liabilities:
 
 
 
Receivables and other assets
(248.7)
43.2 
369.1 
Product inventories
(1.8)
157.8 
(62.0)
Payables and accrued expenses
(69.0)
(73.9)
(227.7)
Net cash provided by operating activities
338.1 
303.0 
37.9 
INVESTING ACTIVITIES
 
 
 
Purchase of property, plant and equipment
(151.7)
(69.1)
(80.8)
Other investing activities
(4.3)
11.2 
(22.4)
Net cash used by investing activities
(156.0)
(57.9)
(103.2)
FINANCING ACTIVITIES
 
 
 
Net proceeds from issuance of common shares
661.3 
287.4 
Proceeds from issuance of debt
1,771.5 
503.5 
Debt issuance costs
(28.6)
(5.2)
(33.6)
Borrowings under credit facilities
105.0 
309.8 
Repayment under credit facilities
(105.0)
(309.8)
Repayments on equipment loans
(95.6)
(45.4)
Repurchase of debt
(1,720.7)
(305.4)
(225.9)
Acquisition of noncontrolling interest
(105.0)
Distributions of partnership equity
(52.9)
(59.9)
(40.6)
Preferred stock dividends
(51.2)
Other financing activities
(26.7)
(27.7)
(45.8)
Net cash provided (used) by financing activities
498.9 
(206.4)
61.0 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
3.3 
(0.5)
(1.4)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
684.3 
38.2 
(5.7)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
323.4 
285.2 
290.9 
CASH AND CASH EQUIVALENTS AT END OF YEAR
$ 1,007.7 
$ 323.4 
$ 285.2 
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, 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
(266.2)
 
 
 
 
 
(227.8)
 
OTHER COMPREHENSIVE INCOME
223.2 
 
 
 
 
 
 
 
Pension and OPEB liability, net of tax
45.2 
 
 
 
 
 
 
(4.6)
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
 
 
153,500,000 
 
 
 
 
 
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
3.3 
 
 
 
 
 
3.3 
 
OTHER COMPREHENSIVE INCOME
(3.8)
 
 
 
 
 
 
 
Pension and OPEB liability, net of tax
(19.8)
 
 
 
 
 
 
(0.5)
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 
 
 
 
 
 
Common stock issuance (value)
287.4 
 
5.5 
281.9 
 
 
 
 
Balance, end of period at Dec. 31, 2016
(1,330.5)
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 
 
 
 
 
 
Comprehensive Income (Loss), Net of Tax, Including Portion Attributable to Noncontrolling Interest [Abstract]
 
 
 
 
 
 
 
 
NET INCOME (LOSS)
363.1 
 
 
 
367.0 
 
 
(3.9)
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent
4.0 
 
 
 
 
 
4.0 
 
OTHER COMPREHENSIVE INCOME
(2.9)
 
 
 
 
 
 
 
Pension and OPEB liability, net of tax
11.5 
 
 
 
 
 
 
1.1 
Total comprehensive income (loss)
360.2 
 
 
 
 
 
 
(2.8)
Adjustments to Additional Paid in Capital, Convertible Debt with Conversion Feature
83.4 
 
 
83.4 
 
 
 
 
Undistributed losses to noncontrolling interest to subsidiary
1.8 
 
 
 
 
 
 
1.8 
Noncontrolling Interest, Decrease from Distributions to Noncontrolling Interest Holders
(128.8)
 
 
(17.3)
 
 
5.2 
(116.7)
Stock and other incentive plans (in shares)
 
 
1,000,000 
 
 
 
 
 
Stock and other incentive plans
13.5 
 
 
(62.4)
 
75.9 
 
 
Preferred Stock, Shares Outstanding
 
 
 
 
 
 
 
Common Stock, New Shares, Issued
 
 
63,300,000 
 
 
 
 
 
Common stock issuance (value)
661.3 
 
7.9 
653.4 
 
 
 
 
Noncontrolling Interest, Decrease from Redemptions or Purchase of Interests
(105.0)
 
 
(70.2)
 
 
(18.9)
(15.9)
Balance, end of period at Dec. 31, 2017
$ (444.1)
$ 0 
$ 37.7 
$ 3,933.9 
$ (4,207.3)
$ (169.6)
$ (39.0)
$ 0.2 
Balance, end of period (in shares) at Dec. 31, 2017
297,400,968 
 
297,400,000 
 
 
 
 
 
Statements of Consolidated Changes in Equity (Parenthetical)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Class of Stock [Line Items]
 
 
 
Preferred stock dividends per share
$ 0.00 
$ 0.00 
$ 1.32 
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
Founded in 1847, we are the largest and oldest independent iron ore mining company in the United States. 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. Additionally, we operate an iron ore mining complex in Western Australia. By 2020, we expect to be the sole producer of HBI in the Great Lakes region with the development of our first production plant in Toledo, Ohio.
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 relate 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, 2017:
Name
 
Location
 
Ownership Interest
 
Operation
 
Status of Operations
Northshore
 
Minnesota
 
100.0%
 
Iron Ore
 
Active
United Taconite
 
Minnesota
 
100.0%
 
Iron Ore
 
Active
Tilden1
 
Michigan
 
100.0%
 
Iron Ore
 
Active
Empire1
 
Michigan
 
100.0%
 
Iron Ore
 
Indefinitely Idled
Koolyanobbing
 
Western Australia
 
100.0%
 
Iron Ore
 
Active
 
 
 
 
 
 
 
 
 
1 During 2017, our ownership interest in Tilden and Empire changed. Refer to the Noncontrolling Interests section below for additional information.

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.
Our 23% ownership interest in Hibbing is recorded as an equity method investment. As of December 31, 2017 and 2016, our investment in Hibbing was $11.0 million and $8.7 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
During 2017, our ownership interest in Empire increased to 100% as we reached an agreement to distribute the noncontrolling interest net assets of $132.7 million to ArcelorMittal, in exchange for its interest in Empire. The parties agreed that the net assets were to be distributed in three installments of $44.2 million each, the first of which was paid upon the execution of the agreement and the remaining distributions are due in August 2018 and August 2019. Upon payment of the first installment, we assumed ArcelorMittal's 21% interest and have reflected this ownership percentage change in our consolidated financial statements. We accounted for the increase in ownership as an equity transaction, which resulted in a net $12.1 million decrease in equity attributable to Cliffs' shareholders and a $116.7 million decrease in Noncontrolling interest. The net loss and income attributable to the noncontrolling interest of the Empire mining venture was $3.9 million and $25.2 million for the years ended December 31, 2017 and 2016, respectively.
During 2017, we also acquired the remaining 15% equity interest in Tilden owned by U.S. Steel for $105.0 million. With the closing of this transaction, we now have 100% ownership of the mine. We accounted for the increase in ownership as an equity transaction, which resulted in an $89.1 million decrease in equity attributable to Cliffs' shareholders and a $15.9 million decrease in Noncontrolling interest.
Noncontrolling interest is also comprised of the 17.2% noncontrolling interest in the Bloom Lake operations, through the CCAA filing on January 27, 2015. 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. There was no net income or loss attributable to the noncontrolling interest related to Bloom Lake for the years ended December 31, 2017 and 2016. 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 and longer maturities when funds can be withdrawn in three months or less without a significant penalty to be cash equivalents. We routinely monitor and evaluate counterparty credit risk related to the financial institutions in 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. There was no allowance for doubtful accounts at December 31, 2017 and 2016 and no bad debt expense for the years ended December 31, 2017 and 2016. 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 1.5 million long tons of finished goods stored at ports and customer facilities on the lower Great Lakes to service customers at December 31, 2017 and 2016. 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 net realizable value. Iron ore inventories are 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 net realizable value using average cost, less an allowance for obsolete and surplus items. The allowance for obsolete and surplus items was $16.0 million and $14.0 million at December 31, 2017 and 2016, respectively.
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. On the date a derivative instrument is entered into, we designate a qualifying derivative instrument as a hedge of the variability of cash flows to be received or paid related to a forecasted transaction (cash flow hedge). We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash flow hedges to specific firm commitments or forecasted transactions. We also formally assess both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of the related hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, we discontinue hedge accounting prospectively and record all future changes in fair value in the period of the instrument's earnings or losses.
For derivative instruments that have been designated as cash flow hedges, the changes in fair value are recorded in Accumulated other comprehensive loss. Amounts recorded in Accumulated other comprehensive loss are reclassified to earnings or losses in the period the underlying hedged transaction affects earnings or when the underlying hedged transaction is no longer reasonably possible of occurring.
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 Revenue Recognition below for discussion of derivatives recorded as a result of pricing terms in our sales contracts.
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. Depreciation continues to be recognized when operations are idled temporarily. 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

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 over their estimated useful lives as follows:
Intangible Assets
 
Basis
 
Useful Life
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.
For the years ended December 31, 2017 and 2015, although certain factors indicated that the carrying value of certain asset groups may not be recoverable, an assessment for the potential impairment was performed and an impairment adjustment was not required. During 2016, there were no impairment indicators present; as a result, no impairment assessments were required.
    Refer to NOTE 4 - PROPERTY, PLANT AND EQUIPMENT, NOTE 12 - GOODWILL AND OTHER INTANGIBLE ASSETS 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 include money market funds and treasury bonds. Valuation of these instruments is determined using a market approach and is based upon unadjusted quoted prices for identical assets in active markets. Cash equivalents classified in Level 2 include commercial paper and certificates of deposit. Valuation of these instruments is determined using financial models that use as their basis readily observable market parameters.
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 hedging instruments. 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, 2017 and 2016 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 is recorded as a liability. Year-end balance sheet adjustments to postretirement assets and obligations are recorded as Accumulated other comprehensive loss in the Statements of Consolidated Financial Position.
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 flows. 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 our routine annual assessments. In 2017, we employed a third-party specialist to assist in the evaluation.
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 can only 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 shipping 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 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. The majority of our contracts have pricing mechanisms that require price estimation at the time of delivery with price finalization at a future period. Upon revenue recognition for provisionally priced sales, a derivative is created for the difference between the sales price used and expected future settlement price. The derivative 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, index pellet premiums and index freight 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 inputs 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 average annual steel pricing or an average annual daily market price for hot-rolled coil steel 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 Product revenues. 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, 2017 and 2016, installment amounts received in excess of sales totaled $64.2 million and $77.1 million, respectively. As of December 31, 2017, deferred revenue of $12.8 million was recorded in Other current liabilities and $51.4 million was recorded as long-term in Other liabilities in the Statements of Consolidated Financial Position, related to this agreement. As of December 31, 2016, deferred revenue of $12.8 million was recorded in Other current liabilities and $64.3 million was recorded as long-term in Other liabilities in the Statements of Consolidated Financial Position, related to this agreement.
In 2017 and 2016, due to the payment terms and the timing of cash receipts near year-end, cash receipts exceeded shipments for certain customers. Revenue recognition on these transactions totaling $9.6 million and $3.4 million was deferred on the Statements of Consolidated Financial Position for the years ended December 31, 2017 and 2016, respectively.
Cost of Goods Sold
Cost of goods sold and operating expenses represents all direct and indirect costs and expenses applicable to the sales from our mining operations. Operating expenses primarily represent the portion of the Tilden mining venture costs prior to our 100% ownership; that is, the costs attributable to the share of the mine’s production owned by the other joint venture partner in the Tilden mine until we acquired the remaining 15% noncontrolling interest during 2017. The mining venture functioned as a captive cost company, supplying 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 were responsible for product fulfillment under the venture, we acted as a principal in the transaction and, accordingly, recorded revenue under these arrangements on a gross basis.
In some circumstances, as requested by the customer, we will coordinate and ship our product via vessel directly to the port nearest to the customer's blast furnace. In this type of contract, the customer will pay one amount inclusive of both product and freight. We recognize revenue for both product revenue and the amount reimbursed for the vessel freight to the final port. We separate these revenue types in the Statements of Consolidated Operations. Accordingly, the revenue we record for freight is offset by an equal amount included in Cost of goods sold and operating expenses for costs we incur for that freight, resulting in no impact on sales margin.
The following table is a summary of reimbursements in our U.S. Iron Ore operations for the years ended December 31, 2017, 2016 and 2015:
 
 
(In Millions)
 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
Reimbursements for:
 
 
 
 
 
 
Freight
 
$
166.7

 
$
106.8

 
$
105.3

Venture partners’ cost
 
54.7

 
68.0

 
52.0

Total reimbursements
 
$
221.4

 
$
174.8

 
$
157.3

We sell a portion of our Asia Pacific Iron Ore product on a CFR basis. As a result, $19.6 million, $20.7 million and $23.6 million of freight was included in Cost of goods sold and operating expenses for the years ended December 31, 2017, 2016 and 2015, respectively.
Where we have joint ownership of a mine, such as Hibbing and up to the point at which we purchased the remaining interest in Tilden, our contracts entitle us to receive management fees or royalties, 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. Forfeitures are recognized when they occur.
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
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 commencement of CCAA proceedings for 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 protection granted to the Bloom Lake Group was 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 (loss) related to impact of transaction gains and losses resulting from remeasurement for the years ended December 31, 2017, 2016 and 2015:
 
 
(In Millions)
 
 
2017
 
2016
 
2015
Remeasurement of intercompany loans
 
$
16.6

 
$
(16.6
)
 
$
11.5

Remeasurement of cash and cash equivalents
 
(2.5
)
 
(1.0
)
 
1.5

Other remeasurement
 
(2.7
)
 
0.8

 
3.3

Net gain (loss) related to impact of transaction gains and losses resulting from remeasurement
 
$
11.4

 
$
(16.8
)
 
$
16.3

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) 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) 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.
Holders of the 1.50% 2025 Convertible Senior Notes may convert their notes during any quarter between April 1, 2018 and July 15, 2024 where our share price exceeds 130% of the conversion price for 20 trading days during a 30 trading day period. Holders of the 1.50% 2025 Convertible Senior Notes may also convert their notes during any quarter between April 1, 2018 and July 15, 2024 during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common shares and the conversion price on each such trading day. If our common shares rise in value above the conversion price, diluted EPS will be calculated based on the treasury-stock method with the number of dilutive shares being calculated based on the difference in the average share price and the conversion price. 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 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.  The new standard simplifies hedge accounting through changes to both designation and measurement requirements.  For hedges that qualify as highly effective, the new standard eliminates the requirement to separately measure and record hedge ineffectiveness resulting in better alignment between the presentation of the effects of the hedging instrument and the hedged item in the financial statements.  We elected to early adopt ASU No. 2017-12 for the year ended December 31, 2017. The adoption of this standard required retrospective adoption, but did not impact prior-period financial results.
Issued and Not Effective
In May 2014, the FASB issued ASU No. 2014-09, Revenues from Contracts with Customers (Topic 606). 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. 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. We will adopt the standard on its effective date of January 1, 2018 using the modified retrospective transition method. As of December 31, 2017, we have completed the evaluation of the new standard and the related review and assessment of all existing contracts with our customers. Under Topic 606, revenue will generally be recognized upon delivery for our U.S. Iron Ore customers, which in most cases is earlier than under the previous guidance. As an example, for certain iron ore shipments where revenue is deferred currently as title does not transfer until payment is received, under Topic 606, we will recognize revenue when control transfers, generally upon delivery. Due to the closure of the Soo Locks and the Welland Canal during the winter months, our revenues will be lower than historical levels during the first quarter and higher than historical levels during the remaining three quarters in future years. However, the total amount of revenue recognized during the year should remain substantially the same as under current GAAP. We do not anticipate any significant changes in the timing and pattern of revenue recognition for our Asia Pacific Iron Ore contracts. In addition to the timing impacts, we anticipate the primary impact on a full-year basis 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. As a result of the adoption of the new standard on January 1, 2018, we expect to record a cumulative transition adjustment of between $30 million and $35 million to Retained deficit in our Statements of Consolidated Financial Position related to shipments made in 2017 that would have been recognized as revenue in 2018 under the previous accounting guidance.
In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The new standard requires the service cost component of pension and other postretirement benefit expenses to be included in the same line item as other compensation costs arising from services rendered by employees, with the other components of net benefit cost to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The guidance is effective for fiscal years beginning after December 15, 2017. The adoption of ASU No. 2017-07 in the first quarter of 2018 will impact the Statements of Consolidated Operations by changing our classification of the components of pension and OPEB costs; however, it will not impact our Net Income (Loss). The following represents the estimated impact from the adoption of ASU No. 2017-07 for the year ended December 31, 2017:
 
 
($ in Millions)
 
 
Year Ended
December 31, 2017
 
 
 
 
Estimate
Financial Statement Line Impacted
 
As Reported
 
Adoption of ASU No. 2017-07
 
As Adjusted
Cost of goods sold and operating expenses
 
$
(1,828.5
)
 
$
2.4

 
$
(1,826.1
)
Selling, general and administrative expenses
 
$
(105.8
)
 
$
(7.7
)
 
$
(113.5
)
Miscellaneous - net
 
$
27.7

 
$
(1.7
)
 
$
26.0

Operating income
 
$
423.6

 
$
(7.0
)
 
$
416.6

Other non-operating income
 
$
3.2

 
$
7.0

 
$
10.2

Net Income
 
$
363.1

 
$

 
$
363.1


In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases except for short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. We plan to adopt the standard on its effective date of January 1, 2019. The new standard must be adopted using a modified retrospective approach and requires application of the new guidance at the beginning of the earliest comparative period presented. We are currently finalizing our implementation plan, compiling an inventory of existing leases and evaluating the effect the updated standard will have on our consolidated financial statements and related disclosures.
Nature of Business
Founded in 1847, we are the largest and oldest independent iron ore mining company in the United States. 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. Additionally, we operate an iron ore mining complex in Western Australia. By 2020, we expect to be the sole producer of HBI in the Great Lakes region with the development of our first production plant in Toledo, Ohio.
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.
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 2017, 2016 or 2015.
We evaluate segment performance based on sales margin, defined as revenues less cost of goods sold and operating expenses identifiable to each segment. Additionally, we evaluate performance on a segment basis, as well as a consolidated basis, based on EBITDA and Adjusted EBITDA. These measures allow management and investors to focus on our ability to service our debt as well as illustrate how the business and each operating segment are performing.  Additionally, EBITDA and Adjusted EBITDA assist management and investors in their analysis and forecasting as these measures approximate the cash flows associated with operational earnings.
The following tables present a summary of our reportable segments for the years ended December 31, 2017, 2016 and 2015, including a reconciliation of segment sales margin to Income 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)
 
2017
 
2016
 
2015
Revenues from product sales and services:
 
 
 
 
 
 
 
 
 
 
 
U.S. Iron Ore
$
1,866.0

 
80%
 
$
1,554.5

 
74%
 
$
1,525.4

 
76%
Asia Pacific Iron Ore
464.2

 
20%
 
554.5

 
26%
 
487.9

 
24%
Total revenues from product sales and services
$
2,330.2

 
100%
 
$
2,109.0

 
100%
 
$
2,013.3

 
100%
 
 
 
 
 
 
 
 
 
 
 
 
Sales margin:
 
 
 
 
 
 
 
 
 
 
 
U.S. Iron Ore
$
465.4

 
 
 
$
275.7

 
 
 
$
227.1

 
 
Asia Pacific Iron Ore
36.3

 
 
 
113.6

 
 
 
9.4

 
 
Sales margin
501.7

 
 
 
389.3

 
 
 
236.5

 
 
Other operating expense
(78.1
)
 
 
 
(148.5
)
 
 
 
(85.2
)
 
 
Other income (expense)
(294.2
)
 
 
 
(33.8
)
 
 
 
161.8

 
 
Income from continuing operations before income taxes and equity loss from ventures
$
129.4

 
 
 
$
207.0

 
 
 
$
313.1

 
 
 
(In Millions)
 
2017
 
2016
 
2015
Net income (loss)
$
363.1

 
$
199.3

 
$
(748.4
)
Less:
 
 
 
 
 
Interest expense, net
(132.0
)

(200.5
)

(231.4
)
Income tax benefit (expense)
252.4


12.2


(163.3
)
Depreciation, depletion and amortization
(87.7
)

(115.4
)

(134.0
)
Total EBITDA
$
330.4

 
$
503.0

 
$
(219.7
)
Less:
 
 
 
 
 
Gain (loss) on extinguishment/restructuring of debt
$
(165.4
)
 
$
166.3

 
$
392.9

Impact of discontinued operations
(18.7
)
 
(19.9
)
 
(892.0
)
Foreign exchange remeasurement
11.4

 
(16.8
)
 
16.3

Severance and contractor termination costs

 
(0.1
)
 
(10.2
)
Supplies inventory adjustment
(1.8
)
 

 
(16.3
)
Impairment of other long-lived assets




(3.3
)
Total Adjusted EBITDA
$
504.9

 
$
373.5

 
$
292.9

 
 
 
 
 
 
EBITDA:
 
 
 
 
 
U.S. Iron Ore
$
534.9


$
342.4


$
317.6

Asia Pacific Iron Ore
40.7


128.3


35.3

Other (including discontinued operations)
(245.2
)

32.3


(572.6
)
Total EBITDA
$
330.4

 
$
503.0

 
$
(219.7
)
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
U.S. Iron Ore
$
559.4

 
$
359.6

 
$
352.1

Asia Pacific Iron Ore
50.4

 
132.9

 
32.7

Other
(104.9
)
 
(119.0
)
 
(91.9
)
Total Adjusted EBITDA
$
504.9

 
$
373.5

 
$
292.9

 
(In Millions)
 
2017
 
2016
 
2015
Depreciation, depletion and amortization:
 
 
 
 
 
U.S. Iron Ore
$
66.6

 
$
84.0

 
$
98.9

Asia Pacific Iron Ore
14.3

 
25.1

 
25.3

Other
6.8

 
6.3

 
6.6

Total depreciation, depletion and amortization
$
87.7

 
$
115.4

 
$
130.8

 
 
 
 
 
 
Capital additions1:
 
 
 
 
 
U.S. Iron Ore
$
136.8

 
$
62.2

 
$
58.2

Asia Pacific Iron Ore
2.8

 
0.2

 
5.4

Other2
16.4

 
6.1

 
8.6

Total capital additions
$
156.0

 
$
68.5

 
$
72.2

 
 
 
 
 
 
1 Includes capital lease additions and non-cash accruals. Refer to NOTE 17 - CASH FLOW INFORMATION.
2 Includes spend related to our HBI project.

A summary of assets by segment is as follows:
 
(In Millions)
 
December 31,
2017
 
December 31, 2016
 
December 31, 2015
Assets:
 
 
 
 
 
U.S. Iron Ore
$
1,500.6

 
$
1,372.5

 
$
1,476.4

Asia Pacific Iron Ore
138.8

 
155.1

 
202.5

Total segment assets
1,639.4

 
1,527.6

 
1,678.9

Corporate
1,314.0

 
396.3

 
441.7

Assets of discontinued operations

 

 
14.9

Total assets
$
2,953.4

 
$
1,923.9

 
$
2,135.5


Included in the consolidated financial statements are the following amounts relating to geographic location:
 
(In Millions)
 
2017
 
2016
 
2015
Revenues from product sales and services
 
 
 
 
 
United States
$
1,504.5

 
$
1,236.2

 
$
1,206.4

China
364.7

 
452.5

 
370.8

Canada
206.2

 
267.1

 
282.4

Other countries
254.8

 
153.2

 
153.7

Total revenues from product sales and services
$
2,330.2

 
$
2,109.0

 
$
2,013.3

Property, Plant and Equipment, Net
 
 
 
 
 
United States
$
1,033.8

 
$
961.0

 
$
1,012.7

Australia
17.2

 
23.4

 
46.3

Total Property, Plant and Equipment, Net
$
1,051.0

 
$
984.4

 
$
1,059.0


Concentrations in Revenue
In 2017 and 2016, two customers individually accounted for more than 10% of our consolidated product revenue and in 2015, three customers individually accounted for more than 10% of our consolidated product revenue. Total product revenue from these customers represents $1.3 billion, $1.1 billion and $1.3 billion of our total consolidated product revenue in 2017, 2016 and 2015, respectively, and is attributable to our U.S. Iron Ore business segment.
The following table represents the percentage of our total Revenues from product sales and services contributed by each category of products and services in 2017, 2016 and 2015:
 
 
2017
 
2016
 
2015
Revenue category
 
 
 
 
 
 
Product
 
90
%
 
91
%
 
91
%
Freight and venture partners’ cost reimbursements
 
10
%
 
9
%
 
9
%
Total revenues from product sales and services
 
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, 2017 and 2016:
 
(In Millions)
 
December 31, 2017
 
December 31, 2016
Segment
Finished Goods
 
Work-in Process
 
Total Inventory
 
Finished Goods
 
Work-in
Process
 
Total
Inventory
U.S. Iron Ore
$
127.1

 
$
11.3

 
$
138.4

 
$
124.4

 
$
12.6

 
$
137.0

Asia Pacific Iron Ore
33.3

 
11.7

 
45.0

 
23.6

 
17.8

 
41.4

Total
$
160.4

 
$
23.0

 
$
183.4

 
$
148.0

 
$
30.4

 
$
178.4


U.S. Iron Ore
The excess of current cost over LIFO cost of iron ore inventories was $96.2 million and $78.5 million at December 31, 2017 and 2016, respectively. As of December 31, 2017, the product inventory balance for U.S. Iron Ore increased, resulting in a LIFO increment in 2017. The effect of the inventory build was an increase in Inventories of $6.2 million in the Statements of Consolidated Financial Position for the year ended December 31, 2017. 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 Financial Position for the year ended December 31, 2016.
Asia Pacific Iron Ore
We recorded a lower of cost or net realizable value inventory charge of $1.8 million related to work-in process inventory in Cost of goods sold and operating expenses in the Statements of Consolidated Operations for the year ended December 31, 2017. The charge was predominantly a result of the decline in our realized revenue rate as well as the additional production and transportation costs required to be incurred in order for our work-in process inventory to be ready for sale. There were no LCM inventory adjustments recorded for the year ended December 31, 2016.
PROPERTY, PLANT AND EQUIPMENT
PROPERTY, PLANT AND EQUIPMENT
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
The following table indicates the carrying value of each of the major classes of our consolidated depreciable assets as of December 31, 2017 and 2016:
 
(In Millions)
 
December 31,
 
2017
 
2016
Land rights and mineral rights
$
549.6

 
$
500.5

Office and information technology
66.3

 
65.1

Buildings
86.8

 
67.9

Mining equipment
594.4

 
592.2

Processing equipment
617.0

 
552.0

Electric power facilities
57.0

 
49.4

Land improvements
23.7

 
23.5

Asset retirement obligation
19.2

 
19.8

Other
30.3

 
28.1

Construction in-progress
35.1

 
42.8

 
2,079.4

 
1,941.3

Allowance for depreciation and depletion
(1,028.4
)
 
(956.9
)
 
$
1,051.0

 
$
984.4


We recorded depreciation expense of $78.8 million, $106.8 million and $119.2 million in the Statements of Consolidated Operations for the years ended December 31, 2017, 2016 and 2015, respectively.
Our asset groups consist of the assets and liabilities of our mines and associated reserves. The lowest level of identifiable cash flows largely is at the U.S. Iron Ore and Asia Pacific Iron Ore segment levels. For the years ended December 31, 2017 and 2015, although certain factors indicated that the carrying value of certain asset groups may not be recoverable, an assessment for the potential impairment was performed and an impairment adjustment was not required. 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, additional impairment assessments were not required.
The net book value of the land rights and mineral rights as of December 31, 2017 and 2016 is as follows:
 
(In Millions)
 
December 31,
 
2017
 
2016
Land rights
$
12.4

 
$
11.6

Mineral rights:

 

Cost
$
537.2

 
$
488.9

Depletion
(119.1
)
 
(112.2
)
Net mineral rights
$
418.1

 
$
376.7


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 $6.8 million, $3.8 million and $7.4 million in the Statements of Consolidated Operations for the years ended December 31, 2017, 2016 and 2015, respectively.
DEBT AND CREDIT FACILITIES
DEBT AND CREDIT FACILITIES
NOTE 5 - DEBT AND CREDIT FACILITIES
The following represents a summary of our long-term debt as of December 31, 2017 and 2016:
($ in Millions)
December 31, 2017
Debt Instrument
 
Annual Effective Interest Rate
 
Total Principal Amount
 
Debt Issuance Costs
 
Unamortized Discounts
 
Total Debt
Senior Secured Notes
 
 
 
 
 
 
 
 
 
 
$400 Million 4.875% 2024 Senior Notes
 
5.00%
 
$
400.0

 
$
(7.1
)
 
$
(2.6
)
 
$
390.3

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

 
(0.2
)
 
(0.1
)
 
88.6

$500 Million 4.80% 2020 Senior Notes
 
4.83%
 
122.4

 
(0.3
)
 
(0.1
)
 
122.0

$700 Million 4.875% 2021 Senior Notes
 
4.89%
 
138.4

 
(0.3
)
 
(0.1
)
 
138.0

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

 
(6.6
)
 
(85.6
)
 
224.1

$1.075 Billion 5.75% 2025 Senior Notes
 
6.01%
 
1,075.0

 
(11.3
)
 
(16.5
)
 
1,047.2

$800 Million 6.25% 2040 Senior Notes
 
6.34%
 
298.4

 
(2.4
)
 
(3.4
)
 
292.6

ABL Facility
 
N/A
 
550.0

 
N/A

 
N/A

 

Fair Value Adjustment to Interest Rate Hedge
 
 
 
 
 
 
 
 
 
1.4

Long-term debt
 
 
 
 
 
 
 
 
 
$
2,304.2

($ in Millions)
December 31, 2016
Debt Instrument
 
Annual Effective Interest Rate
 
Total Principal Amount
 
Debt Issuance Costs
 
Undiscounted Interest/(Unamortized Discounts)
 
Total Debt
Senior 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

Long-term debt
 
 
 


 
 
 
 
 
$
2,192.6

Less current portion
 
 
 
 
 
 
 
 
 
17.5

Long-term debt
 
 
 
 
 
 
 
 
 
$
2,175.1


$1.075 Billion 5.75% 2025 Senior Notes - 2017 Offering
On February 27, 2017, we entered into an indenture among the Company, the guarantors party thereto and U.S. Bank National Association, as trustee, relating to the issuance of $500 million aggregate principal amount of 5.75% 2025 Senior Notes. On August 7, 2017, we issued an additional $575 million aggregate principal amount of our 5.75% 2025 Senior Notes. The second tranche was issued at 97.0% of face value. The 5.75% 2025 Senior Notes were issued in private transactions exempt from the registration requirements of the Securities Act. Pursuant to the registration rights agreement executed as part of the offerings, we agreed to file a registration statement with the SEC with respect to a registered offer to exchange the 5.75% 2025 Senior Notes for publicly registered notes within 365 days of the closing date, with all significant terms and conditions remaining the same.
The 5.75% 2025 Senior Notes bear interest at a rate of 5.75% per annum, which is payable semi-annually in arrears on March 1 and September 1 of each year, which commenced on September 1, 2017. The 5.75% 2025 Senior Notes mature on March 1, 2025.
The 5.75% 2025 Senior Notes are general unsecured senior obligations and rank equally in right of payment with all of our existing and future senior unsecured indebtedness and rank senior in right of payment to all of our existing and future subordinated indebtedness. The 5.75% 2025 Senior Notes are effectively subordinated to our existing or future secured indebtedness to the extent of the value of the assets securing such indebtedness. The 5.75% 2025 Senior Notes are guaranteed on a senior unsecured basis by our material direct and indirect wholly-owned domestic subsidiaries and, therefore, are structurally senior to any of our existing and future indebtedness that is not guaranteed by such guarantors and are structurally subordinated to all existing and future indebtedness and other liabilities of our subsidiaries that do not guarantee the 5.75% 2025 Senior Notes.
The terms of the 5.75% 2025 Senior Notes are governed by an indenture, which contains customary covenants that, among other things, limit our and our subsidiaries' ability to create liens on property that secure indebtedness, enter into sale and leaseback transactions and merge, consolidate or amalgamate with another company. Upon the occurrence of a “change of control triggering event,” as defined in the indenture, we are required to offer to repurchase the 5.75% 2025 Senior Notes at 101% of the aggregate principal amount thereof, plus any accrued and unpaid interest, if any, to, but excluding, the repurchase date.
We may redeem the 5.75% 2025 Senior Notes, in whole or in part, on or after March 1, 2020, at the redemption prices set forth in the indenture, plus accrued and unpaid interest, if any, to, but not including, the date of redemption, and prior to March 1, 2020, at a redemption price equal to 100% of the principal amount thereof plus a “make-whole” premium set forth in the indenture, plus accrued and unpaid interest, if any, to, but not including, the date of redemption. We may also redeem up to 35% of the aggregate principal amount of the 5.75% 2025 Senior Notes on or prior to March 1, 2020 at a redemption price equal to 105.75% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of redemption with the net cash proceeds of one or more equity offerings.
The 5.75% 2025 Senior Notes indenture contains 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 indenture will allow either the trustee or the holders of at least 25% in aggregate principal amount of the then-outstanding notes issued under the indenture to accelerate, or in certain cases, will automatically cause the acceleration of, the amounts due under the 5.75% 2025 Senior Notes.
Debt issuance costs of $12.4 million were incurred related to the offering of the 5.75% 2025 Senior Notes, $11.3 million of which is included in Long-term debt in the Statements of Consolidated Financial Position as of December 31, 2017.
$400 Million 4.875% 2024 Senior Secured Notes - 2017 Offering
On December 19, 2017, we entered into an indenture among the Company, the guarantors party thereto and U.S. Bank National Association, as trustee and first lien notes collateral agent, relating to the issuance of $400 million aggregate principal amount of 4.875% 2024 Senior Secured Notes at 99.347% of face value. The 4.875% 2024 Senior Secured Notes were issued in a private transaction exempt from the registration requirements of the Securities Act. The 4.875% 2024 Senior Secured Notes have not been, and will not be, registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act.
The 4.875% 2024 Senior Secured Notes bear interest at a rate of 4.875% per annum, which is payable semi-annually in arrears on January 15 and July 15 of each year, commencing on July 15, 2018. The 4.875% 2024 Senior Secured Notes mature on January 15, 2024 and are secured senior obligations of the Company.
The 4.875% 2024 Senior Secured Notes are jointly and severally and fully and unconditionally guaranteed on a senior secured basis by substantially all of our material domestic subsidiaries and will be secured (subject in each case to certain exceptions and permitted liens) by (i) a first-priority lien on substantially all of our assets and the assets of the Guarantors (other than accounts receivable and other rights to payment, inventory, as-extracted collateral, certain 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 (collectively, the “ABL Collateral”)), and (ii) a second-priority lien on the ABL Collateral, which is junior to a first-priority lien for the benefit of the lenders under the Company’s senior secured asset-based credit facility.
The terms of the 4.875% 2024 Senior Secured Notes are governed by the Secured Notes Indenture. The Secured Notes Indenture contains customary covenants that, among other things, limit our and our subsidiaries’ ability to create certain liens on property that secure indebtedness, use proceeds of dispositions of collateral, enter into 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 Indenture, we are required to offer to repurchase the 4.875% 2024 Senior Secured Notes at 101% of the aggregate principal amount thereof, plus any accrued and unpaid interest, if any, to, but excluding, the repurchase date.
We may redeem any of the Secured Notes beginning on January 15, 2021. The initial redemption price is 102.438% of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The redemption price will decline each year after January 15, 2021 and will be 100% of their principal amount, plus accrued interest, beginning on January 15, 2023. We may also redeem some or all of the 4.875% 2024 Senior Secured Notes at any time and from time to time prior to January 15, 2021 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. We may also redeem up to 10% of the original aggregate principal amount of the 4.875% 2024 Senior Secured Notes (calculated after giving effect to any issuance of additional 4.875% 2024 Senior Secured Notes) per year prior to January 15, 2021 at a redemption price equal to 103% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
In addition, at any time and from time to time on or prior to January 15, 2021, we may redeem in the aggregate up to 35% of the original aggregate principal amount of the Secured Notes (calculated after giving effect to any issuance of additional 4.875% 2024 Senior Secured Notes) with the net cash proceeds of certain equity offerings, at a redemption price of 104.875%, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, so long as at least 65% of the original aggregate principal amount of the 4.875% 2024 Senior Secured Notes (calculated after giving effect to any issuance of additional 4.875% 2024 Senior Secured Notes) issued under the Secured Notes Indenture remain outstanding after each such redemption.
The Secured Notes Indenture contains 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 Indenture will allow either the Trustee or the holders of at least 25% in aggregate principal amount of the then-outstanding 4.875% 2024 Senior Secured Notes to accelerate, or in certain cases, will automatically cause the acceleration of, the amounts due under the 4.875% 2024 Senior Secured Notes.
Debt issuance costs of $7.1 million were incurred related to the offering of the 4.875% 2024 Senior Secured Notes and are included in Long-term debt in the Statements of Consolidated Financial Position as of December 31, 2017.
$316.25 Million 1.50% 2025 Convertible Senior Notes - 2017 Offering
On December 19, 2017, we issued $316.25 million aggregate principal amount of 1.50% 2025 Convertible Senior Notes. The 1.50% 2025 Convertible Senior Notes bear interest at a rate of 1.50% per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018. The 1.50% 2025 Convertible Senior Notes mature on January 15, 2025.
Holders may convert their 1.50% 2025 Convertible Senior Notes at their option at any time prior to the close of business on the business day immediately preceding July 15, 2024, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2018 (and only during such calendar quarter), if the last reported sale price of our common shares, par value $0.125 per share, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five-business day period after any five-consecutive trading day period (the “measurement period”) in which the trading price (as defined below) per $1,000 principal amount of 1.50% 2025 Convertible Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common shares and the conversion rate on each such trading day; (3) if we call the notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after July 15, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 1.50% 2025 Convertible Senior Notes at any time, regardless of the foregoing circumstances. Upon conversion, we will pay or deliver, as the case may be, cash, common shares or a combination of cash and common shares, at our election.
The conversion rate will initially be 122.4365 common shares per $1,000 principal amount of 1.50% 2025 Convertible Senior Notes (equivalent to an initial conversion price of $8.17 per common share). The conversion rate will be subject to adjustment in some circumstances but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 1.50% 2025 Convertible Senior Notes in connection with such a corporate event or notice of redemption, as the case may be.
We may not redeem the 1.50% 2025 Convertible Senior Notes prior to January 15, 2022. We may redeem all or any portion of the 1.50% 2025 Convertible Senior Notes, for cash at our option on or after January 15, 2022 if the last reported sale price of our common shares has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30-consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the 1.50% 2025 Convertible Senior Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 1.50% 2025 Convertible Senior Notes.
It is our current intent to settle conversions through combination settlement with a specified dollar amount per $1,000 principal amount of notes of $1,000.  Our ability to settle conversions through combination settlement and cash settlement will be subject to restrictions in the agreement governing our ABL Facility and may be subject to restrictions in agreements governing our future debt.
If we undergo a fundamental change as defined in the indenture, holders may require us to repurchase for cash all or any portion of their 1.50% 2025 Convertible Senior Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 1.50% 2025 Convertible Senior Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The 1.50% 2025 Convertible Senior Notes are senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the 1.50% 2025 Convertible Senior Notes; equal in right of payment to any of our unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries.
In accounting for the issuance of the notes, we separated the 1.50% 2025 Convertible Senior Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar liabilities that do not have associated convertible features. The carrying amount of the equity component of $85.9 million representing the conversion option was determined by deducting the fair value of the liability component from the par value of the notes. The difference represents the debt discount that is amortized to interest expense over the term of the notes. The equity component is not remeasured as long as it continues to qualify for equity classification.
We allocated the total debt issuance costs incurred to the notes on a prorated basis using the aggregate principal balance. In accounting for the debt issuance costs related to the notes, we allocated the total amount of issuance costs incurred to liability and equity components. The issuance costs attributable to the equity component was netted against the equity component in Capital in excess of par value of shares for a net amount of $83.4 million. Debt issuance costs of $9.1 million were incurred related to the offering of the Secured Notes, $6.6 million of which are included in Long-term debt and $2.5 million of which are included in Capital in excess of par value of shares in the Statements of Consolidated Financial Position as of December 31, 2017.
Other Outstanding Unsecured Senior Notes
The following represents a summary of our unsecured senior notes' maturity and interest payable due dates:
Debt Instrument
 
Maturity
 
Interest Payable
(until maturity)
$400 Million 5.90% 2020 Senior Notes
 
March 15, 2020
 
March 15 and September 15
$500 Million 4.80% 2020 Senior Notes
 
October 1, 2020
 
April 1 and October 1
$700 Million 4.875% 2021 Senior Notes
 
April 1, 2021
 
April 1 and October 1
$800 Million 6.25% 2040 Senior Notes
 
October 1, 2040
 
April 1 and October 1

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 35 basis points with respect to the 5.90% 2020 Senior Notes and 4.80% 2020 Senior Notes, 25 basis points with respect to the 4.875% 2021 Senior Notes and 40 basis points with respect to the 6.25% 2040 Senior Notes, plus, in each case, accrued and unpaid interest to the date of redemption. However, if the 4.875% 2021 Senior Notes are redeemed on or after the date that is three months prior to their maturity date, the 4.875% 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.
Debt Extinguishments - 2017
During the year ended December 31, 2017, we issued 63.25 million common shares in an underwritten public offering. We received net proceeds of $661.3 million at a public offering price of $10.75 per common share. The net proceeds from the issuance of our common shares and the net proceeds from the issuance of $1.075 billion 5.75% 2025 Senior Notes were used to redeem in full all of our outstanding 8.25% 2020 First Lien Notes, 8.00% 2020 1.5 Lien Notes and 7.75% 2020 Second Lien Notes. Additionally, through tender offers, we purchased certain of our 5.90% 2020 Senior Notes, our 4.80% 2020 Senior Notes and our 4.875% 2021 Senior Notes. The aggregate principal amount outstanding of debt redeemed was $1.611 billion, which resulted in a loss on extinguishment of $165.4 million.
The following is a summary of the debt extinguished during the year ended December 31, 2017 and the respective gain (loss) on extingui