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Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENTS

v3.10.0.1
FAIR VALUE MEASUREMENTS
6 Months Ended
Jun. 30, 2018
Fair Value Disclosures [Abstract] Ìý
FAIR VALUE MEASUREMENTS
NOTE 8 - FAIR VALUE MEASUREMENTS
The following represents the assets and liabilities measured at fair value:
Ìý
(In Millions)
Ìý
JuneÌý30, 2018
Description
Quoted Prices in Active
Markets for Identical Assets/Liabilities
(Level 1)
Ìý
Significant Other Observable Inputs
(Level 2)
Ìý
Significant Unobservable Inputs
(Level 3)
Ìý
Total
Assets:
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Cash equivalents
$
10.5

Ìý
$
546.5

Ìý
$
—

Ìý
$
557.0

Derivative assets
—

Ìý
0.1

Ìý
174.6

Ìý
174.7

Total
$
10.5

Ìý
$
546.6

Ìý
$
174.6

Ìý
$
731.7

Liabilities:
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Derivative liabilities
$
—

Ìý
$
0.1

Ìý
$
3.0

Ìý
$
3.1

Total
$
—

Ìý
$
0.1

Ìý
$
3.0

Ìý
$
3.1

Ìý
(In Millions)
Ìý
DecemberÌý31, 2017
Description
Quoted Prices in Active
Markets for Identical Assets/Liabilities
(Level 1)
Ìý
Significant Other Observable Inputs
(Level 2)
Ìý
Significant Unobservable Inputs
(Level 3)
Ìý
Total
Assets:
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Cash equivalents
$
66.3

Ìý
$
550.6

Ìý
$
—

Ìý
$
616.9

Derivative assets
—

Ìý
—

Ìý
37.9

Ìý
37.9

Total
$
66.3

Ìý
$
550.6

Ìý
$
37.9

Ìý
$
654.8

Liabilities:
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Derivative liabilities
$
—

Ìý
$
0.3

Ìý
$
1.7

Ìý
$
2.0

Total
$
—

Ìý
$
0.3

Ìý
$
1.7

Ìý
$
2.0


Financial assets classified in Level 1 include money market funds and treasury bonds. The valuation of these instruments is based upon unadjusted quoted prices for identical assets in active markets.
The valuation of financial assets and liabilities classified in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets or other inputs that are observable. Level 2 assets include commercial paper, certificates of deposit and commodity hedge contracts. Level 2 liabilities include commodity hedge contracts.
The Level 3 assets and liabilities include derivative assets that consist of freestanding derivative instruments related to a customer supply agreement and certain provisional pricing arrangements with our customers.
The supply agreement included in our Level 3 assets includes provisions for supplemental revenue or refunds based on the average annual daily market price for hot-rolled coil steel at the time the iron ore product is consumed in the customer’s blast furnaces. We account for these provisions as derivative instruments at the time of sale and adjust the corresponding asset or liability to fair value as an adjustment to Product revenues each reporting period until the product is consumed and the amounts are settled. The fair value of the instruments are determined using a market approach based on the estimate of the average annual daily market price for hot-rolled coil steel. This estimate takes into consideration current market conditions and nonperformance risk. We had assets of $169.4 million and $37.9 million at JuneÌý30, 2018 and DecemberÌý31, 2017, respectively, related to this supply agreement.
The provisional pricing arrangements included in our Level 3 assets/liabilities specify provisional price calculations, where the pricing mechanisms generally are based on market pricing, with the final revenue rate to be based on market inputs at a specified point in time in the future, per the terms of the supply agreements. The difference between the estimated final revenue rate at the date of sale and the estimated final revenue rate at the measurement date is characterized as a derivative and is required to be accounted for separately once the revenue has been recognized. The derivative instruments are adjusted to fair value through Product revenues each reporting period based upon current market data and forward-looking estimates provided by management until the final revenue rates are determined. We had assets of $5.2 million and liabilities of $3.0 million related to provisional pricing arrangements at JuneÌý30, 2018 compared to liabilities of $1.7 million related to provisional pricing arrangements at DecemberÌý31, 2017.
The following table illustrates information about quantitative inputs and assumptions for the assets and liabilities categorized in Level 3 of the fair value hierarchy:
Qualitative/Quantitative Information About Level 3 Fair Value Measurements
Ìý
Ìý
(In Millions)
Fair Value at June 30, 2018
Ìý
Balance Sheet
Location
Ìý
Valuation Technique
Ìý
Unobservable Input
Ìý
Range or Point Estimate
(Weighted Average)
Ìý
Customer supply agreement
Ìý
$
169.4

Ìý
Derivative assets
Ìý
Market Approach
Ìý
Management's Estimate of Market Hot-Rolled Coil Steel per net ton
Ìý
$833
Provisional pricing arrangements
Ìý
$
5.2

Ìý
Derivative assets
Ìý
Market Approach
Ìý
Management's
Estimate of Platts 62% Price
per dry metric ton
Ìý
$68 - $69
($68)
Provisional pricing arrangements
Ìý
$
3.0

Ìý
Other Current Liabilities
Ìý
Market Approach
Ìý
Management's
Estimate of Platts 62% Price
per dry metric ton
Ìý
$68 - $69
($68)

The significant unobservable input used in the fair value measurement of our customer supply agreement is an estimate determined by management including a forward-looking estimate for the average annual daily market price for hot-rolled coil steel.
The significant unobservable input used in the fair value measurement of our provisional pricing arrangements is management’s estimate of Platts 62% Price based upon current market data and index pricing,Ìýwhich include forward-looking estimates determined by management.
We recognize any transfers between levels as of the beginning of the reporting period, including both transfers into and out of levels. There were no transfers between Level 1 and Level 2 and no transfers into or out of Level 3 of the fair value hierarchy during the three and six months ended JuneÌý30, 2018 and 2017. The following tables represent a reconciliation of the changes in fair value of financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
Ìý
(In Millions)
Ìý
Level 3 Assets
Ìý
Three Months Ended
June 30,
Ìý
Six Months Ended
June 30,
Ìý
2018
Ìý
2017
Ìý
2018
Ìý
2017
Beginning balance1
$
93.5

Ìý
$
59.2

Ìý
$
49.5

Ìý
$
30.1

Total gains
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Included in earnings
158.6

Ìý
51.0

Ìý
202.8

Ìý
84.6

Settlements
(77.5
)
Ìý
(40.0
)
Ìý
(77.7
)
Ìý
(44.5
)
Ending balance - June 30
$
174.6

Ìý
$
70.2

Ìý
$
174.6

Ìý
$
70.2

Total gains for the period included in earnings attributable to the change in unrealized gains on assets still held at the reporting date
$
80.6

Ìý
$
17.8

Ìý
$
125.1

Ìý
$
51.0

Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
1ÌýBeginning balance as of January 1, 2018 includes an $11.6 million adjustment for adoption of Topic 606.

Ìý
(In Millions)
Ìý
Level 3 Liabilities
Ìý
Three Months Ended
June 30,
Ìý
Six Months Ended
June 30,
Ìý
2018
Ìý
2017
Ìý
2018
Ìý
2017
Beginning balance
$
—

Ìý
$
—

Ìý
$
(1.7
)
Ìý
$
—

Total losses
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Included in earnings
(3.7
)
Ìý
(20.2
)
Ìý
(4.3
)
Ìý
(20.2
)
Settlements
0.7

Ìý
—

Ìý
3.0

Ìý
—

Ending balance - June 30
$
(3.0
)
Ìý
$
(20.2
)
Ìý
$
(3.0
)
Ìý
$
(20.2
)
Total losses for the period included in earnings attributable to the change in unrealized losses on liabilities still held at the reporting date
$
(3.0
)
Ìý
$
(20.2
)
Ìý
$
(3.0
)
Ìý
$
(20.2
)

The carrying amount of certain financial instruments (e.g., Accounts receivable, net, Accounts payable and Accrued expenses) approximates fair value and, therefore, has been excluded from the table below. A summary of the carrying amount and fair value of other financial instruments were as follows:
Ìý
Ìý
Ìý
(In Millions)
Ìý
Ìý
Ìý
JuneÌý30, 2018
Ìý
DecemberÌý31, 2017
Ìý
Classification
Ìý
Carrying
Value
Ìý
Fair Value
Ìý
Carrying
Value
Ìý
Fair Value
Long-term debt:
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Secured Notes
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
$400 Million 4.875% 2024 Senior Notes
Level 1
Ìý
$
391.3

Ìý
$
388.5

Ìý
$
390.3

Ìý
$
398.0

Unsecured Notes
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
$400 Million 5.90% 2020 Senior Notes
Level 1
Ìý
88.1

Ìý
88.4

Ìý
88.6

Ìý
88.0

$500 Million 4.80% 2020 Senior Notes
Level 1
Ìý
122.0

Ìý
120.5

Ìý
122.0

Ìý
118.8

$700 Million 4.875% 2021 Senior Notes
Level 1
Ìý
124.9

Ìý
124.6

Ìý
138.0

Ìý
130.8

$316.25 Million 1.50% 2025 Convertible Senior Notes
Level 1
Ìý
229.7

Ìý
384.5

Ìý
224.1

Ìý
352.9

$1.075 Billion 5.75% 2025 Senior Notes
Level 1
Ìý
1,047.1

Ìý
1,028.6

Ìý
1,047.2

Ìý
1,029.3

$800 Million 6.25% 2040 Senior Notes
Level 1
Ìý
292.7

Ìý
241.7

Ìý
292.6

Ìý
227.1

ABL Facility
Level 2
Ìý
—

Ìý
—

Ìý
—

Ìý
—

Fair value adjustment to interest rate hedge
Level 2
Ìý
1.2

Ìý
1.2

Ìý
1.4

Ìý
1.4

Total long-term debt
Ìý
Ìý
$
2,297.0

Ìý
$
2,378.0

Ìý
$
2,304.2

Ìý
$
2,346.3


The fair value of long-term debt was determined using quoted market prices based upon current borrowing rates.