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Annual report pursuant to Section 13 and 15(d)

DISCONTINUED OPERATIONS

v3.10.0.1
DISCONTINUED OPERATIONS
 12 Months Ended
Dec. 31, 2018
Discontinued Operations and Disposal Groups [Abstract]
DISCONTINUED OPERATIONS
NOTE 13 - DISCONTINUED OPERATIONS
The information below sets forth selected financial information related to operating results of our businesses classified as discontinued operations, which include our former Asia Pacific Iron Ore, North American Coal and Canadian operations. While the reclassification of revenues and expenses related to discontinued operations from prior periods has no impact upon previously reported net income, the Statements of Consolidated Operations present the revenues and expenses that were reclassified from the specified line items to discontinued operations and the Statements of Consolidated Financial Position present the assets and liabilities that were reclassified from the specified line items to assets and liabilities of discontinued operations. The charts below provide an asset group breakout for each financial statement line impacted by discontinued operations.
(In Millions)
Year Ended December 31,
2018
2017
2016
Income (loss) from discontinued operations, net of tax
Asia Pacific Iron Ore
$
118.3

$
21.2

$
96.6

North American Coal
(3.6
)
2.6

(2.4
)
Canadian Operations
(26.5
)
(21.3
)
(17.5
)
$
88.2

$
2.5

$
76.7

(In Millions)
December 31, 2018
December 31, 2017
Asia Pacific Iron Ore
North American Coal
Total
Asia Pacific Iron Ore
North American Coal
Total
Current assets of discontinued operations
$
12.4

$
—

$
12.4

$
118.5

$
—

$
118.5

Non-current assets of discontinued operations
$
—

$
—

$
—

$
20.3

$
—

$
20.3

Current liabilities of discontinued operations
$
3.8

$
2.9

$
6.7

$
71.8

$
3.2

$
75.0

Non-current liabilities of discontinued operations
$
8.3

$
—

$
8.3

$
52.2

$
—

$
52.2

(In Millions)
Year Ended December 31,
2018
2017
2016
Net cash provided (used) by operating activities
Asia Pacific Iron Ore
$
(81.3
)
$
79.6

$
99.8

Canadian Operations
(14.6
)
—

—

$
(95.9
)
$
79.6

$
99.8

Net cash provided (used) by investing activities
Asia Pacific Iron Ore
$
19.8

$
(2.8
)
$
(0.4
)
Canadian Operations
—

(7.7
)
6.8

North American Coal
—

2.1

3.6

$
19.8

$
(8.4
)
$
10.0


Asia Pacific Iron Ore Operations
Background
In January 2018, we announced that we would accelerate the time frame for the planned closure of our Asia Pacific Iron Ore mining operations in Australia. In April 2018, we committed to a course of action leading to the permanent closure of our Asia Pacific Iron Ore mining operations and, as planned, completed our final shipment in June 2018. Factors considered in this decision included increasingly discounted prices for lower-iron-content ore and the quality of the remaining iron ore reserves.
During 2018, we sold all of the assets of our Asia Pacific Iron Ore business through a series of sales to third parties. As a result of our planned exit, management determined that our Asia Pacific Iron Ore operating segment met the criteria to be classified as held for sale and a discontinued operation under ASC Topic 205, Presentation of Financial Statements. As such, all current and historical Asia Pacific Iron Ore operating segment results are classified within discontinued operations.
Income from Discontinued Operations
For the reasons discussed above, our previously reported Asia Pacific Iron Ore operating segment results for all periods presented, as well as exit costs, are classified as discontinued operations.
(In Millions)
Year Ended December 31,
Income from Discontinued Operations
2018
2017
2016
Revenues from product sales and services
$
129.1

$
464.2

$
554.5

Cost of goods sold and operating expenses
(230.7
)
(427.9
)
(440.9
)
Sales margin
(101.6
)
36.3

113.6

Other operating expense
(3.3
)
(9.9
)
(10.4
)
Other expense
(2.3
)
(5.2
)
(6.6
)
Gain on foreign currency translation
228.1

—

—

Impairment of long-lived assets
(2.6
)
—

—

Income from discontinued operations, net of tax
$
118.3

$
21.2

$
96.6


Recorded Assets and Liabilities
(In Millions)
Assets and Liabilities of Discontinued Operations
December 31,
2018
December 31,
2017
Cash and cash equivalents
$
12.4

$
29.4

Accounts receivable, net
—

33.9

Inventories
—

45.0

Supplies and other inventories
—

5.1

Other current assets
—

5.1

Total current assets of discontinued operations
12.4

118.5

Property, plant and equipment, net
—

17.2

Other non-current assets
—

3.1

Total assets of discontinued operations
$
12.4

$
138.8

Accounts payable
$
3.4

$
28.2

Accrued liabilities
0.4

28.0

Other current liabilities
—

15.6

Total current liabilities of discontinued operations
3.8

71.8

Environmental and mine closure obligations
—

28.8

Other liabilities
8.3

23.4

Total liabilities of discontinued operations
$
12.1

$
124.0


Foreign Currency
Historically, the functional currency of our Australian subsidiaries was the Australian dollar. The financial statements of our Australian subsidiaries were previously 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. Translation adjustments were recorded as Accumulated other comprehensive loss. Income taxes were not provided for foreign currency translation adjustments. Concurrent with the sale of assets to Mineral Resources Limited in 2018, management determined that there had been significant changes in economic factors related to our Australian subsidiaries. The change in economic factors is a result of the sale and conveyance of substantially all assets and liabilities of our Australian subsidiaries to third parties, representing a significant change in operations. As such, the functional currency for the Australian subsidiaries was changed from the Australian dollar to the U.S. dollar and all remaining Australian denominated monetary balances will be remeasured prospectively through the Statements of Consolidated Operations.
In addition, as a result of the liquidation of substantially all of the Australian subsidiaries' net assets, the historical changes in foreign currency translation recorded in Accumulated other comprehensive loss in the Statements of Consolidated Financial Position totaling $228.1 million was reclassified and recognized as a gain in Income from discontinued operations, net of tax in the Statements of Consolidated Operations.
North American Coal Operations
As of March 31, 2015, management determined that our North American Coal operating segment met the criteria to be classified as held for sale under ASC Topic 205, Presentation of Financial Statements. The North American Coal segment continued to meet the criteria throughout 2015 until we sold our North American Coal operations during the fourth quarter of 2015. As such, all current and historical North American Coal operating segment results are classified as discontinued operations in our financial statements. Historical results also include our CLCC assets, which were sold during the fourth quarter of 2014.
We have recognized a tax benefit of $1.0 million for the year ended December 31, 2018 included in Income from discontinued operations, net of tax in the Statements of Consolidated Operations related to a loss on our North American Coal investments. There was no tax expense or benefit recognized for the years ended December31, 2017 and 2016.
Canadian Operations
CCAA Proceedings
On January 27, 2015, we announced that the Bloom Lake Group commenced restructuring proceedings in Montreal, Quebec under the CCAA to address the Bloom Lake Group's immediate liquidity issues and to preserve and protect its assets for the benefit of all stakeholders while restructuring and/or sale options were explored. Additionally, on May 20, 2015, the Wabush Group commenced restructuring proceedings in Montreal, Quebec under the CCAA.
During March 2018, we entered into a restructuring term sheet that documented the proposed agreed to terms of a plan of compromise or arrangement with the Bloom Lake Group, the Wabush Group and the Monitor in the CCAA proceedings. By order of the Québec Superior Court of Justice (Commercial Division) (the “Court”) dated April 20, 2018, the Bloom Lake Group and the Wabush Group were authorized to file a joint plan of compromise and arrangement dated April 16, 2018 (the “Original Plan”). Following discussions with various stakeholder groups, the Bloom Lake Group and the Wabush Group were authorized by the Court to amend the Original Plan and to file the amended and restated joint plan of compromise and arrangement dated May 16, 2018 (the “Amended Plan”). The Amended Plan was approved by the required majorities of each unsecured creditor class and was sanctioned by the Court by order dated June 29, 2018. In addition, the Bloom Lake Group and the Wabush Group brought a motion before the Court on July 30, 2018 seeking to make further amendments to the Amended Plan to address the manner in which certain distributions under the Amended Plan would be effected. On July 31, 2018, the conditions precedent to the implementation of the Amended Plan were satisfied and the Amended Plan was implemented.
Under the terms of the Amended Plan, we and certain of our wholly-owned subsidiaries made a C$19.0 million cash contribution to the Wabush Group pension plans and agreed to contribute into the CCAA estate any remaining distributions or payments we may be entitled to receive as creditors of the Bloom Lake Group and the Wabush Group for distribution to other creditors. The Original Plan did not resolve certain employee claims asserted against us and certain of our affiliates outside of the CCAA proceedings. The Amended Plan resolved those employee claims, all claims by the Bloom Lake Group, the Wabush Group and their respective creditors against us as well as all of our claims against the Bloom Lake Group and the Wabush Group.
Loss on Discontinued Operations
Our Canadian exit represented 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.
The chart below provides a breakout of loss from deconsolidation:
(In Millions)
Year Ended December 31,
2018
2017
2016
Investment impairment on deconsolidation1
$
(67.5
)
$
3.0

$
(17.5
)
Guarantees and contingent liabilities
41.0

(24.3
)
—

Total loss from deconsolidation
$
(26.5
)
$
(21.3
)
$
(17.5
)
1 Includes the adjustments to fair value of our remaining interest in the Canadian Entities for the years ended December 31, 2018, 2017 and 2016, and a tax expense resulting from the implementation of the Amended Plan for the year ended December 31, 2018.

Investments in the Canadian Entities
From the date of deconsolidation until the Amended Plan was approved by the required majorities of each unsecured creditor class and was sanctioned by the Court by order dated June 29, 2018 (the “Sanction Order”), we adjusted our investment in the Canadian Entities to zero with a corresponding charge to Income from discontinued operations, net of tax.
Amounts Receivable from the Canadian Entities
Prior to the deconsolidations, certain of our wholly-owned subsidiaries made loans to the Canadian Entities for the purpose of funding their operations and had accounts receivable generated in the ordinary course of business. The loans, corresponding interest and the accounts receivable were considered intercompany transactions and eliminated in our consolidated financial statements. Since the deconsolidations, the loans, associated interest and accounts receivable are considered related party transactions and have been recognized in our consolidated financial statements at their estimated fair value. As of December31, 2017 we had $51.6 million classified as Loans to and accounts receivables from the Canadian Entities in the Statements of Consolidated Financial Position. Following the approval of the Amended Plan, we reversed our outstanding $51.6 million classified within Loans to and accounts receivables from the Canadian Entities with a corresponding charge to Income from discontinued operations, net of tax in the Statements of Consolidated Financial Position for the year ended December31, 2018.
Income Tax Expense
We have recognized tax expense of $15.9 million for the year ended December31, 2018, included in Income from discontinued operations, net of tax related to a gain on our Canadian investments. This expense is primarily the result of the current year receipt of CCAA estate distributions which were immediately contributed back into the CCAA estate as required by the Amended Plan. There was no tax expense or benefit recognized for the years ended December31, 2017 and 2016.
Guarantees and Contingent Liabilities
Under the terms of the approved Amended Plan in 2018, we and certain of our wholly-owned subsidiaries made a C$19.0 million cash contribution included in Income from discontinued operations, net of tax to the Wabush Group pension plans.
During 2017, we became aware that it was probable the Monitor would assert a preference claim against the Company and/or certain of its affiliates. We estimated a liability of $55.6 million, which included the value of our related-party claims against the Bloom Lake Group and the Wabush Group, classified as Contingent claims in the Statements of Consolidated Financial Position as of December31, 2017. Following the approval of the Amended Plan, we reversed our outstanding liability of $55.6 million with a corresponding credit to Income from discontinued operations, net of tax in the Statements of Consolidated Operations for the year ended December31, 2018.
During 2017, the Wabush Scully Mine was sold as part of the ongoing CCAA proceedings for the Wabush Group. We previously recorded liabilities of $37.2 million related to guarantees for certain environmental obligations of the Canadian Entities, classified as Other liabilities in the Statements of Consolidated Financial Position as of December31, 2016. As part of this transaction, we were required to fund the buyer's financial assurance shortfall of $7.7 million in order to complete the conveyance of the environmental remediation obligations to the buyer, which released us from our guarantees and resulted in a net gain of $31.4 million included in Income from discontinued operations, net of tax in the Statements of Consolidated Operations for the year ended December31, 2017.