| NEW ACCOUNTING STANDARDS |
NOTE 2 - NEW ACCOUNTING STANDARDS
Issued and Adopted
ASC Topic 606, Revenue from Contracts with Customers (Topic 606). On January 1, 2018, we adopted Topic 606 and applied it to all contracts that were not completed using the modified retrospective method. We recognized the cumulative effect of initially applying Topic 606 as an adjustment of $34.0 million to the opening balance of Retained deficit. The comparative period information has not been retrospectively revised and continues to be reported under the accounting standards in effect for those periods. On a prospective basis, we do not expect that the adoption of Topic 606 will have a material impact to our annual net income.
Under Topic 606, revenue is generally recognized upon delivery to our customers, which is earlier than under the previous guidance. As an example, for certain iron ore shipments where revenue was previously recognized upon title transfer when payment was received, we will now recognize revenue when control transfers, which is generally upon delivery. While we continue to retain title until we receive payment in many cases, we determined upon review of our customer contracts that the preponderance of control indicators pass to our customers' favor when we deliver our products; thus, we generally concluded that control transfers at that point. As a result of the adoption of Topic 606 and vessel deliveries not occurring during the winter months because of the closure of the Soo Locks and the Welland Canal, our revenues and net income will be relatively lower than historical levels during the first quarter of each year and relatively higher than historical levels during the remaining three quarters in 2018 and future years. However, the total amount of revenue recognized during the year should remain substantially the same as under previous accounting standards, assuming revenue rates and volumes are consistent between years.
The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of Topic 606 were as follows:
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|
|
|
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|
|
|
Ìý |
Ìý |
(In Millions) |
Ìý |
Ìý |
Balance at December 31, 2017 |
Ìý |
Adjustments due to Topic 606 |
Ìý |
Balance at January 1, 2018 |
ASSETS |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
CURRENT ASSETS |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Cash and cash equivalents |
Ìý |
$ |
978.3 |
|
Ìý |
$ |
— |
|
Ìý |
$ |
978.3 |
|
Accounts receivable, net |
Ìý |
106.7 |
|
Ìý |
76.6 |
|
Ìý |
183.3 |
|
Inventories |
Ìý |
138.4 |
|
Ìý |
(51.4 |
) |
Ìý |
87.0 |
|
Supplies and other inventories |
Ìý |
88.8 |
|
Ìý |
— |
|
Ìý |
88.8 |
|
Derivative assets |
Ìý |
37.9 |
|
Ìý |
11.6 |
|
Ìý |
49.5 |
|
Income tax receivable, current |
Ìý |
13.3 |
|
Ìý |
— |
|
Ìý |
13.3 |
|
Loans to and accounts receivables from the Canadian Entities |
Ìý |
51.6 |
|
Ìý |
— |
|
Ìý |
51.6 |
|
Current assets of discontinued operations |
Ìý |
118.5 |
|
Ìý |
— |
|
Ìý |
118.5 |
|
Other current assets |
Ìý |
11.1 |
|
Ìý |
— |
|
Ìý |
11.1 |
|
TOTAL CURRENT ASSETS |
Ìý |
1,544.6 |
|
Ìý |
36.8 |
|
Ìý |
1,581.4 |
|
PROPERTY, PLANT AND EQUIPMENT, NET |
Ìý |
1,033.8 |
|
Ìý |
— |
|
Ìý |
1,033.8 |
|
OTHER ASSETS |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Deposits for property, plant and equipment |
Ìý |
17.8 |
|
Ìý |
— |
|
Ìý |
17.8 |
|
Income tax receivable, non-current |
Ìý |
235.3 |
|
Ìý |
— |
|
Ìý |
235.3 |
|
Non-current assets of discontinued operations |
Ìý |
20.3 |
|
Ìý |
— |
|
Ìý |
20.3 |
|
Other non-current assets |
Ìý |
101.6 |
|
Ìý |
— |
|
Ìý |
101.6 |
|
TOTAL OTHER ASSETS |
Ìý |
375.0 |
|
Ìý |
— |
|
Ìý |
375.0 |
|
TOTAL ASSETS |
Ìý |
$ |
2,953.4 |
|
Ìý |
$ |
36.8 |
|
Ìý |
$ |
2,990.2 |
|
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
LIABILITIES |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
CURRENT LIABILITIES |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Accounts payable |
Ìý |
$ |
99.5 |
|
Ìý |
$ |
1.4 |
|
Ìý |
$ |
100.9 |
|
Accrued employment costs |
Ìý |
52.7 |
|
Ìý |
— |
|
Ìý |
52.7 |
|
State and local taxes payable |
Ìý |
30.2 |
|
Ìý |
— |
|
Ìý |
30.2 |
|
Accrued interest |
Ìý |
31.4 |
|
Ìý |
— |
|
Ìý |
31.4 |
|
Contingent claims |
Ìý |
55.6 |
|
Ìý |
— |
|
Ìý |
55.6 |
|
Partnership distribution payable |
Ìý |
44.2 |
|
Ìý |
— |
|
Ìý |
44.2 |
|
Current liabilities of discontinued operations |
Ìý |
75.0 |
|
Ìý |
— |
|
Ìý |
75.0 |
|
Other current liabilities |
Ìý |
63.6 |
|
Ìý |
1.4 |
|
Ìý |
65.0 |
|
TOTAL CURRENT LIABILITIES |
Ìý |
452.2 |
|
Ìý |
2.8 |
|
Ìý |
455.0 |
|
PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES |
Ìý |
257.7 |
|
Ìý |
— |
|
Ìý |
257.7 |
|
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS |
Ìý |
167.7 |
|
Ìý |
— |
|
Ìý |
167.7 |
|
LONG-TERM DEBT |
Ìý |
2,304.2 |
|
Ìý |
— |
|
Ìý |
2,304.2 |
|
NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS |
Ìý |
52.2 |
|
Ìý |
— |
|
Ìý |
52.2 |
|
OTHER LIABILITIES |
Ìý |
163.5 |
|
Ìý |
— |
|
Ìý |
163.5 |
|
TOTAL LIABILITIES |
Ìý |
3,397.5 |
|
Ìý |
2.8 |
|
Ìý |
3,400.3 |
|
EQUITY |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
CLIFFS SHAREHOLDERS' EQUITY (DEFICIT) |
Ìý |
(444.3 |
) |
Ìý |
34.0 |
|
Ìý |
(410.3 |
) |
NONCONTROLLING INTEREST |
Ìý |
0.2 |
|
Ìý |
— |
|
Ìý |
0.2 |
|
TOTAL EQUITY (DEFICIT) |
Ìý |
(444.1 |
) |
Ìý |
34.0 |
|
Ìý |
(410.1 |
) |
TOTAL LIABILITIES AND EQUITY (DEFICIT) |
Ìý |
$ |
2,953.4 |
|
Ìý |
$ |
36.8 |
|
Ìý |
$ |
2,990.2 |
|
The impact of adoption on our Statements of Consolidated Operations and Statements of Consolidated Financial Position is as follows:
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Ìý |
($ in Millions) |
Ìý |
Year Ended
December 31, 2018
|
Ìý |
As Reported |
Ìý |
Balances without Adoption of Topic 606 |
Ìý |
Effect of Change |
REVENUES FROM PRODUCT SALES AND SERVICES |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Product |
$ |
2,172.3 |
|
Ìý |
$ |
2,108.1 |
|
Ìý |
$ |
64.2 |
|
Freight and venture partners' cost reimbursements |
160.1 |
|
Ìý |
156.2 |
|
Ìý |
3.9 |
|
Ìý |
2,332.4 |
|
Ìý |
2,264.3 |
|
Ìý |
68.1 |
|
COST OF GOODS SOLD AND OPERATING EXPENSES |
(1,522.8 |
) |
Ìý |
(1,513.2 |
) |
Ìý |
(9.6 |
) |
SALES MARGIN |
809.6 |
|
Ìý |
751.1 |
|
Ìý |
58.5 |
|
OTHER OPERATING INCOME (EXPENSE) |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Selling, general and administrative expenses |
(116.8 |
) |
Ìý |
(116.8 |
) |
Ìý |
— |
|
Miscellaneous - net |
(19.6 |
) |
Ìý |
(19.6 |
) |
Ìý |
— |
|
Ìý |
(136.4 |
) |
Ìý |
(136.4 |
) |
Ìý |
— |
|
OPERATING INCOME |
673.2 |
|
Ìý |
614.7 |
|
Ìý |
58.5 |
|
OTHER INCOME (EXPENSE) |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Interest expense, net |
(118.9 |
) |
Ìý |
(118.9 |
) |
Ìý |
— |
|
Loss on extinguishment of debt |
(6.8 |
) |
Ìý |
(6.8 |
) |
Ìý |
— |
|
Other non-operating income |
17.2 |
|
Ìý |
17.2 |
|
Ìý |
— |
|
Ìý |
(108.5 |
) |
Ìý |
(108.5 |
) |
Ìý |
— |
|
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
564.7 |
|
Ìý |
506.2 |
|
Ìý |
58.5 |
|
INCOME TAX BENEFIT |
475.2 |
|
Ìý |
487.5 |
|
Ìý |
(12.3 |
) |
INCOME FROM CONTINUING OPERATIONS |
1,039.9 |
|
Ìý |
993.7 |
|
Ìý |
46.2 |
|
INCOME FROM DISCONTINUED OPERATIONS, net of tax |
88.2 |
|
Ìý |
88.2 |
|
Ìý |
— |
|
NET INCOME ATTRIBUTABLE TO CLIFFS SHAREHOLDERS |
$ |
1,128.1 |
|
Ìý |
$ |
1,081.9 |
|
Ìý |
$ |
46.2 |
|
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS - BASIC |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Continuing operations |
$ |
3.50 |
|
Ìý |
$ |
3.34 |
|
Ìý |
$ |
0.16 |
|
Discontinued operations |
0.30 |
|
Ìý |
0.30 |
|
Ìý |
— |
|
Ìý |
$ |
3.80 |
|
Ìý |
$ |
3.64 |
|
Ìý |
$ |
0.16 |
|
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS - DILUTED |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Continuing operations |
$ |
3.42 |
|
Ìý |
$ |
3.27 |
|
Ìý |
$ |
0.15 |
|
Discontinued operations |
0.29 |
|
Ìý |
0.29 |
|
Ìý |
— |
|
Ìý |
$ |
3.71 |
|
Ìý |
$ |
3.56 |
|
Ìý |
$ |
0.15 |
|
AVERAGE NUMBER OF SHARES (IN THOUSANDS) |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Basic |
297,176 |
|
Ìý |
297,176 |
|
Ìý |
Ìý |
Diluted |
304,141 |
|
Ìý |
304,141 |
|
Ìý |
Ìý |
The increased revenue recognized under Topic 606 is due to higher tons shipped and a higher realized revenue rate in December 2018 versus December 2017. Under the previous accounting standard, December 2017 shipments would have been recognized as 2018 sales due to the fact that title and risk of loss does not transfer until payment is received from our customers.
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|
Ìý |
Ìý |
(In Millions) |
Ìý |
Ìý |
December 31, 2018 |
Ìý |
Ìý |
As Reported |
Ìý |
Balances without Adoption of Topic 606 |
Ìý |
Effect of Change |
ASSETS |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
CURRENT ASSETS |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Cash and cash equivalents |
Ìý |
$ |
823.2 |
|
Ìý |
$ |
823.2 |
|
Ìý |
$ |
— |
|
Accounts receivable, net |
Ìý |
226.7 |
|
Ìý |
108.7 |
|
Ìý |
118.0 |
|
Inventories |
Ìý |
87.9 |
|
Ìý |
141.3 |
|
Ìý |
(53.4 |
) |
Supplies and other inventories |
Ìý |
93.2 |
|
Ìý |
93.2 |
|
Ìý |
— |
|
Derivative assets |
Ìý |
91.5 |
|
Ìý |
60.7 |
|
Ìý |
30.8 |
|
Income tax receivable, current |
Ìý |
117.3 |
|
Ìý |
117.3 |
|
Ìý |
— |
|
Current assets of discontinued operations |
Ìý |
12.4 |
|
Ìý |
12.4 |
|
Ìý |
— |
|
Other current assets |
Ìý |
27.4 |
|
Ìý |
27.4 |
|
Ìý |
— |
|
TOTAL CURRENT ASSETS |
Ìý |
1,479.6 |
|
Ìý |
1,384.2 |
|
Ìý |
95.4 |
|
PROPERTY, PLANT AND EQUIPMENT, NET |
Ìý |
1,286.0 |
|
Ìý |
1,286.0 |
|
Ìý |
— |
|
OTHER ASSETS |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Deposits for property, plant and equipment |
Ìý |
83.0 |
|
Ìý |
83.0 |
|
Ìý |
— |
|
Income tax receivable, non-current |
Ìý |
121.3 |
|
Ìý |
121.3 |
|
Ìý |
— |
|
Deferred income taxes |
Ìý |
464.8 |
|
Ìý |
477.1 |
|
Ìý |
(12.3 |
) |
Other non-current assets |
Ìý |
94.9 |
|
Ìý |
94.9 |
|
Ìý |
— |
|
TOTAL OTHER ASSETS |
Ìý |
764.0 |
|
Ìý |
776.3 |
|
Ìý |
(12.3 |
) |
TOTAL ASSETS |
Ìý |
$ |
3,529.6 |
|
Ìý |
$ |
3,446.5 |
|
Ìý |
$ |
83.1 |
|
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
LIABILITIES |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
CURRENT LIABILITIES |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Accounts payable |
Ìý |
$ |
186.8 |
|
Ìý |
$ |
184.9 |
|
Ìý |
$ |
1.9 |
|
Accrued employment costs |
Ìý |
74.0 |
|
Ìý |
74.0 |
|
Ìý |
— |
|
State and local taxes payable |
Ìý |
35.5 |
|
Ìý |
35.5 |
|
Ìý |
— |
|
Accrued interest |
Ìý |
38.4 |
|
Ìý |
38.4 |
|
Ìý |
— |
|
Partnership distribution payable |
Ìý |
43.5 |
|
Ìý |
43.5 |
|
Ìý |
— |
|
Current liabilities of discontinued operations |
Ìý |
6.7 |
|
Ìý |
6.7 |
|
Ìý |
— |
|
Other current liabilities |
Ìý |
83.3 |
|
Ìý |
83.7 |
|
Ìý |
(0.4 |
) |
TOTAL CURRENT LIABILITIES |
Ìý |
468.2 |
|
Ìý |
466.7 |
|
Ìý |
1.5 |
|
PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES |
Ìý |
248.7 |
|
Ìý |
248.7 |
|
Ìý |
— |
|
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS |
Ìý |
172.0 |
|
Ìý |
172.0 |
|
Ìý |
— |
|
LONG-TERM DEBT |
Ìý |
2,092.9 |
|
Ìý |
2,092.9 |
|
Ìý |
— |
|
NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS |
Ìý |
8.3 |
|
Ìý |
8.3 |
|
Ìý |
— |
|
OTHER LIABILITIES |
Ìý |
115.3 |
|
Ìý |
115.3 |
|
Ìý |
— |
|
TOTAL LIABILITIES |
Ìý |
3,105.4 |
|
Ìý |
3,103.9 |
|
Ìý |
1.5 |
|
EQUITY |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
CLIFFS SHAREHOLDERS' EQUITY |
Ìý |
424.2 |
|
Ìý |
342.6 |
|
Ìý |
81.6 |
|
TOTAL LIABILITIES AND EQUITY |
Ìý |
$ |
3,529.6 |
|
Ìý |
$ |
3,446.5 |
|
Ìý |
$ |
83.1 |
|
The adoption of Topic 606 did not have an impact on net cash flows in our Statements of Consolidated Cash Flows.
ASU 2017-07, Retirement Benefits - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.ÌýOn January 1, 2018, we adopted the amendments to ASC Topic 715, Compensation - Retirement Benefits regarding the presentation of net periodic pension and postretirement benefit costs. We retrospectively adopted the presentation of service cost separate from the other components of net periodic costs. The interest cost, expected return on assets, amortization of prior service costs, net remeasurement, and other costs have been reclassified fromÌýCost of goods sold and operating expenses, Selling, general and administrative expenses and Miscellaneous - net toÌýOther non-operating income.Ìý We elected to apply the practical expedient, which allows us to reclassify amounts disclosed previously in our pension and other postretirement benefits footnote as the basis for applying retrospective presentation for comparative periods. On a prospective basis, only service costs will be included in amounts capitalized in inventory or property, plant, and equipment.
The effect of the retrospective presentation change related to the net periodic cost of our defined benefit pension and other postretirement employee benefits plans on our Statements of Consolidated OperationsÌýwas as follows:
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|
Ìý |
(In Millions) |
Ìý |
Year Ended December 31, 2017 |
Ìý |
Year Ended December 31, 2016 |
Ìý |
As Adjusted |
Ìý |
Without Adoption of ASU 2017-07 |
Ìý |
Effect of Change |
Ìý |
As Adjusted |
Ìý |
Without Adoption of ASU 2017-07 |
Ìý |
Effect of Change |
Cost of goods sold and operating expenses |
$ |
(1,398.4 |
) |
Ìý |
$ |
(1,400.7 |
) |
Ìý |
$ |
2.3 |
|
Ìý |
$ |
(1,274.4 |
) |
Ìý |
$ |
(1,278.7 |
) |
Ìý |
$ |
4.3 |
|
Selling, general and administrative expenses |
$ |
(102.9 |
) |
Ìý |
$ |
(95.1 |
) |
Ìý |
$ |
(7.8 |
) |
Ìý |
$ |
(115.8 |
) |
Ìý |
$ |
(106.3 |
) |
Ìý |
$ |
(9.5 |
) |
Miscellaneous - net |
$ |
25.5 |
|
Ìý |
$ |
27.0 |
|
Ìý |
$ |
(1.5 |
) |
Ìý |
$ |
(33.6 |
) |
Ìý |
$ |
(32.0 |
) |
Ìý |
$ |
(1.6 |
) |
Operating income |
$ |
390.2 |
|
Ìý |
$ |
397.2 |
|
Ìý |
$ |
(7.0 |
) |
Ìý |
$ |
130.7 |
|
Ìý |
$ |
137.5 |
|
Ìý |
$ |
(6.8 |
) |
Other non-operating income |
$ |
10.2 |
|
Ìý |
$ |
3.2 |
|
Ìý |
$ |
7.0 |
|
Ìý |
$ |
7.3 |
|
Ìý |
$ |
0.5 |
|
Ìý |
$ |
6.8 |
|
Net income |
$ |
363.1 |
|
Ìý |
$ |
363.1 |
|
Ìý |
$ |
— |
|
Ìý |
$ |
199.3 |
|
Ìý |
$ |
199.3 |
|
Ìý |
$ |
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In August 2018, the FASB issued ASU No. 2018-14, Defined Benefit Plans (Topic 715-20) - Changes to the Disclosure Requirements for Defined Benefit Plans. Certain of the existing required disclosures were modified for clarification or removed and additional disclosures were added. We elected to early adopt ASU No. 2018-14 for the year ended December 31, 2018. The effect of the adoption is an overall reduction in our annual disclosures related to defined benefit plans. The adoption of this standard required retrospective adoption, but did not impact prior-period financial results.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) - Changes to the Disclosure Requirements for Fair Value Measurement. The new standard removes or modifies certain existing disclosure requirements and adds additional disclosure requirements related to fair value measurement. We elected to early adopt ASU No. 2018-13 for the year ended December 31, 2018. The affect of the adoption is an overall reduction in our quarterly and annual disclosures related to fair value measurement.
Issued and Not Effective
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 be classified as either operating or finance leases in the Statements of Consolidated Operations. We adopted this standard on its effective date of January 1, 2019 using the optional alternative approach, which requires application of the new guidance at the beginning of the standard's effective date. We have compiled an inventory of our existing leases and have finalized our implementation plan. Based on our analysis, the updated standard will not have a material effect on our consolidated financial statements.
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