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Quarterly report pursuant to Section 13 or 15(d)

DISCONTINUED OPERATIONS DISCONTINUED OPERATIONS

v2.4.1.9
DISCONTINUED OPERATIONS DISCONTINUED OPERATIONS
 3 Months Ended
Mar. 31, 2015
Discontinued Operations and Disposal Groups [Abstract] Ìý
Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]
NOTE 14 - DISCONTINUED OPERATIONS
The information below sets forth selected financial information related to operating results of our businesses classified as discontinued operations. While the reclassification of revenues and expenses related to discontinued operations from prior periods have no impact upon previously reported net income, the Statements of Unaudited Condensed Consolidated Operations present the revenues and expenses that were reclassified from the specified line items to discontinued operations and the Statements of Unaudited Condensed Consolidated Financial Position present the assets and liabilities that were reclassified from the specified line items to assets and liabilities of discontinued operations.
The chart below provides an asset group breakout for each financial statement line impacted by discontinued operations.
Ìý
Ìý
Ìý
Ìý
Canadian Operations
Ìý
Ìý
Ìý
Ìý
Ìý
North American Coal
Ìý
Eastern Canadian Iron Ore
Other
Total Canadian Operations
Ìý
Total of Discontinued Operations
Statements of Unaudited Condensed Consolidated Operations
Loss from Discontinued Operations, net of tax
YTD
March 31, 2015
$
(75.7
)
Ìý
$
(852.7
)
$
(0.1
)
$
(852.8
)
Ìý
$
(928.5
)
Loss from Discontinued Operations, net of tax
YTD
March 31, 2014
$
(46.3
)
Ìý
$
(91.2
)
$
(2.9
)
$
(94.1
)
Ìý
$
(140.4
)
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Statements of Unaudited Condensed Consolidated Financial Position
Short-term assets of discontinued operations
As of
March 31, 2015
$
188.6

Ìý
$
8.6

$
—

$
8.6

Ìý
$
197.2

Long-term assets of discontinued operations
As of
March 31, 2015
$
—

Ìý
$
—

$
—

$
—

Ìý
$
—

Short-term liabilities of discontinued operations
As of
March 31, 2015
$
197.7

Ìý
$
67.3

$
—

$
67.3

Ìý
$
265.0

Long-term liabilities of discontinued operations
As of
March 31, 2015
$
—

Ìý
$
125.2

$
—

$
125.2

Ìý
$
125.2

Short-term assets of discontinued operations
As of
December 31, 2014
$
143.8

Ìý
$
183.5

$
3.3

$
186.8

Ìý
$
330.6

Long-term assets of discontinued operations
As of
December 31, 2014
$
130.4

Ìý
$
256.0

$
13.7

$
269.7

Ìý
$
400.1

Short-term liabilities of discontinued operations
As of
December 31, 2014
$
81.3

Ìý
$
316.3

$
3.0

$
319.3

Ìý
$
400.6

Long-term liabilities of discontinued operations
As of
December 31, 2014
$
125.9

Ìý
$
304.6

$
5.6

$
310.2

Ìý
$
436.1

Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Non-Cash Operating and Investing Activities
Depreciation, depletion and amortization:
YTD
March 31, 2015
$
3.2

Ìý
$
—

$
—

$
—

Ìý
$
3.2

Purchase of property, plant and equipment
YTD
March 31, 2015
$
2.5

Ìý
$
—

$
—

$
—

Ìý
$
2.5

Impairment of long-lived assets
YTD
March 31, 2015
$
73.4

Ìý
$
—

$
—

$
—

Ìý
$
73.4

Depreciation, depletion and amortization:
YTD
March 31, 2014
$
29.9

Ìý
$
41.2

$
0.1

$
41.3

Ìý
$
71.2

Purchase of property, plant and equipment
YTD
March 31, 2014
$
10.0

Ìý
$
75.6

$
—

$
75.6

Ìý
$
85.6

Impairment of long-lived assets
YTD
March 31, 2014
$
—

Ìý
$
—

$
—

$
—

Ìý
$
—


North American Coal Operations
Background
As we continue to refine our strategy to one that focuses on strengthening our U.S. Iron Ore operations, management has determined that our North American Coal operating segment as of March 31, 2015 met the criteria to be classified as held for sale under ASC 205 - Presentation of Financial Statements. As such, all current and historical North American Coal operating segment results are included in our financial statement and classified within discontinued operations. Consistent with our strategy to extract maximum value from our current assets, we plan to sell the North American Coal assets within the current year. In the first quarter of 2015, as part of the held for sale classification assigned to North American Coal, an impairment of $73.4 million was recorded. The impairment charge was to reduce the assets to their estimated fair value which was determined based on potential sales scenarios.
Loss on Discontinued Operations
Our planned sale of the Oak Grove and Pinnacle mine assets represents 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, are classified as discontinued operations. This includes our CLCC assets, which were sold during the fourth quarter of 2014.
Ìý
Ìý
(In Millions)
Ìý
Ìý
Three Months Ended
March 31,
Loss from Discontinued Operations
Ìý
2015
Ìý
2014
REVENUES FROM PRODUCT SALES AND SERVICES
Ìý
$
116.6

Ìý
$
166.2

COST OF GOODS SOLD AND OPERATING EXPENSES
Ìý
(107.3
)
Ìý
(214.6
)
SALES MARGIN
Ìý
9.3

Ìý
(48.4
)
OTHER OPERATING EXPENSE
Ìý
(11.3
)
Ìý
(4.5
)
OTHER EXPENSE
Ìý
(0.4
)
Ìý
(0.6
)
LOSS FROM DISCONTINUED OPERATIONS BEFORE INCOME TAXES
Ìý
(2.4
)
Ìý
(53.5
)
IMPAIRMENT OF LONG-LIVED ASSETS
Ìý
(73.4
)
Ìý
—

INCOME TAX BENEFIT
Ìý
0.1

Ìý
7.2

LOSS FROM DISCONTINUED OPERATIONS, net of tax
Ìý
$
(75.7
)
Ìý
$
(46.3
)

Items Measured at Fair Value on a Non-Recurring Basis
The following table presents information about the impairment charge on non-financial assets that was measured on a fair value basis at MarchÌý31, 2015. The tables also indicate the fair value hierarchy of the valuation techniques used to determine such fair value.
Ìý
Ìý
(In Millions)
Ìý
Ìý
March 31, 2015
Description
Ìý
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
Ìý
Total Losses
Assets:
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Other long-lived assets - Property, plant and equipment and Mineral rights: North American Coal operating unit
Ìý
$
—

Ìý
$
—

Ìý
$
20.4

Ìý
$
20.4

Ìý
$
(73.4
)
Ìý
Ìý
$
—

Ìý
$
—

Ìý
$
20.4

Ìý
$
20.4

Ìý
$
(73.4
)

We determined the fair value and recoverability of our North American Coal operating segment by comparing the estimated fair value of the underlying assets and liabilities to the estimated sales price of the operating segment held for sale.

Recorded Assets and Liabilities
Ìý
Ìý
(In Millions)
Assets and Liabilities of Discontinued Operations
Ìý
MarchÌý31,
2015
Ìý
DecemberÌý31,
2014
Accounts receivable, net
Ìý
$
42.7

Ìý
$
44.8

Inventories
Ìý
59.7

Ìý
50.3

Supplies and other inventories
Ìý
28.4

Ìý
28.2

Other current assets
Ìý
29.4

Ìý
20.5

Property, plant and equipment, net
Ìý
20.4

Ìý
94.7

Other non-current assets
Ìý
8.0

Ìý
35.7

Total assets of discontinued operations
Ìý
$
188.6

Ìý
$
274.2

Ìý
Ìý
Ìý
Ìý
Ìý
Accounts payable
Ìý
$
23.3

Ìý
$
22.4

Accrued liabilities
Ìý
16.7

Ìý
27.9

Other current liabilities
Ìý
34.7

Ìý
31.0

Pension and postemployment benefit liabilities1
Ìý
56.7

Ìý
55.8

Environmental and mine closure obligations
Ìý
34.4

Ìý
33.9

Other liabilities
Ìý
31.9

Ìý
36.2

Total liabilities of discontinued operations
Ìý
$
197.7

Ìý
$
207.2


1ÌýThis does not include a liability of approximately $330 million, which is the most recent estimate of Pinnacle and Oak Grove’s combined share of the underfunded liability under the UMWA 1974 Pension Plan.

Income Taxes
We have recognized a tax benefit of $0.1 million in discontinued operations, which primarily relates to a loss on our North American Coal investments.
Canadian Operations
Background
On November 30, 2013, we suspended indefinitely our Chromite Project in Northern Ontario. The Chromite Project remained suspended throughout 2014. Our Wabush Scully iron ore mine in Newfoundland and Labrador was idled by the end of the first quarter of 2014 and subsequently began to commence permanent closure in the fourth quarter of 2014. During 2014, we also limited exploration spending on the Labrador Trough South property in Québec. In November 2014, we announced that we were pursuing exit options for our Eastern Canadian Iron Ore operations. In December 2014, iron ore production at the Bloom Lake mine was suspended and the Bloom Lake mine was placed in "care-and-maintenance" mode. Together, the suspension of exploration efforts, shutdown of the Wabush Scully mine and the cessation of operations at our Bloom Lake mine represent a complete curtailment of our Canadian operations.
On January 27, 2015, we announced that the Bloom Lake Group commenced restructuring proceedings (the "Filing") under the CCAA with the Québec Superior Court (Commercial Division) in Montreal (the “Courtâ€). The Bloom Lake Group was no longer generating any revenues and was not able to meet its obligations as they came due. The Filing addressed the Bloom Lake Group's immediate liquidity issues and permits the Bloom Lake Group to preserve and protect its assets for the benefit of all stakeholders while restructuring and sale options are explored. As part of the CCAA process, the Court approved the appointment of a monitor and certain other financial advisors.
As a result of the Filing, we no longer have a controlling interest in the Bloom Lake Group. For this reason, we deconsolidated the Bloom Lake Group and certain other wholly-owned subsidiaries (collectively, the "Canadian Entities") effective January 27, 2015, which resulted in a pretax impairment loss on deconsolidation and other charges, totaling $818.7 million. The pretax loss on deconsolidation includes the derecognition of the carrying amounts of the Canadian Entities assets, liabilities and accumulated other comprehensive loss and the recording of our remaining interests at fair value.
Subsequent to deconsolidation, we utilized the cost method to account for our investment in the Canadian Entities, which has been reflected as zero in our Statements of Unaudited Condensed Consolidated Financial Position at MarchÌý31, 2015 based on the estimated fair value of the Canadian Entities' net assets. Loans to and accounts receivable from the Canadian Entities are recorded at an estimated fair value of $112.1 million classified as Other current assets in the Statements of Unaudited Condensed Consolidated Financial Position at MarchÌý31, 2015.
Loss on Discontinued 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 January 27, 2015 deconsolidation as well as costs to exit are classified as discontinued operations.
Ìý
Ìý
(In Millions)
Ìý
Ìý
Three Months Ended
March 31,
Loss from Discontinued Operations
Ìý
2015
Ìý
2014
REVENUES FROM PRODUCT SALES AND SERVICES
Ìý
$
11.3

Ìý
$
158.3

COST OF GOODS SOLD AND OPERATING EXPENSES
Ìý
(11.1
)
Ìý
(208.0
)
ELIMINATIONS WITH CONTINUING OPERATIONS
Ìý
—

Ìý
(28.7
)
SALES MARGIN
Ìý
0.2

Ìý
(78.4
)
OTHER OPERATING EXPENSE
Ìý
(33.3
)
Ìý
(58.6
)
OTHER EXPENSE
Ìý
(1.0
)
Ìý
(1.4
)
LOSS FROM DISCONTINUED OPERATIONS BEFORE INCOME TAXES
Ìý
(34.1
)
Ìý
(138.4
)
PRETAX EXIT COSTS
Ìý
(818.7
)
Ìý
—

INCOME TAX BENEFIT
Ìý
—

Ìý
44.3

LOSS FROM DISCONTINUED OPERATIONS, net of tax
Ìý
$
(852.8
)
Ìý
$
(94.1
)

The first quarter Canadian Entities pretax exit costs totaled $818.7 million and included the following:
Ìý
Ìý
(In Millions)
Ìý
Ìý
Three Months Ended
March 31,
Pretax Exit Costs
Ìý
2015
Investment Impairment on Deconsolidation
Ìý
$
(476.0
)
Contingent Liabilities
Ìý
(342.7
)
Total Pretax Exit Costs
Ìý
$
(818.7
)

Investments in the Canadian Entities
Cliffs continues to indirectly own a majority of the interest in the Canadian Entities but has deconsolidated those entities because Cliffs no longer has a controlling interest. At the date of deconsolidation, January 27, 2015, we adjusted our investment in the Canadian Entities to fair value with a corresponding charge to LOSS FROM DISCONTINUED OPERATIONS, net of tax. As the estimated amount of the Canadian Entities' liabilities exceeded the estimated fair value of the assets available for distribution to its creditors, the fair value of Cliffs’ equity investment is approximately zero.
Amounts Receivable from the Canadian Entities
Prior to deconsolidation, various Cliffs wholly-owned entities made loans to the Canadian Entities for the purpose of funding its 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. As of the deconsolidation date, 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 of $112.1 million classified as Other current assets in the Statements of Unaudited Condensed Consolidated Financial Position at MarchÌý31, 2015.
Contingent Liabilities
Certain liabilities consisting primarily of equipment loans and capital leases of the Bloom Lake Group were secured through corporate guarantees and standby letters of credit. Upon the filing of CCAA and subsequent to the deconsolidation, we recorded liabilities of $166.1 million in our consolidated results, classified as Other current liabilities in the Statements of Unaudited Condensed Consolidated Financial Position at March 31, 2015.
Additionally, certain liabilities of subsidiaries of the Canadian Entities for which we have joint and several liability were recorded in our consolidated results to reflect obligations of deconsolidated entities which did not file in CCAA but do not have the ability to fund their share of liabilities. As such, subsequent to deconsolidation we recorded liabilities of $51.4 million and $125.2 million classified as Short-term liabilities of discontinued operations and Long-term liabilities of discontinued operations, respectively, in the Statements of Unaudited Condensed Consolidated Financial Position at MarchÌý31, 2015.
Contingencies
The recorded expenses include an accrual for the estimated probable loss related to claims that may be asserted against us, primarily under guarantees of certain debt arrangements and leases. The beneficiaries of those guarantees may seek damages or other related relief as a result of our exit from Canada. Our probable loss estimate is based on the expectation that claims will be asserted against us and negotiated settlements will be reached, and not on any determination that it is probable we would be found liable were these claims to be litigated. Given the early stage of our exit and the Filing, our estimates involve significant judgment and are based on currently available information, an assessment of the validity of certain claims and estimated payments by the Canadian Entities. We are not able to reasonably estimate a range of possible losses in excess of the accrual because there are significant factual and legal issues to be resolved. We believe that it is reasonably possible that future changes to our estimates of loss and the ultimate amount paid on these claims could be material to our results of operations in future periods. Any such losses would be reported in discontinued operations.
Items Measured at Fair Value on a Non-Recurring Basis
The following table presents information about the financial assets and liabilities that was measured on a fair value basis at MarchÌý31, 2015. The tables also indicate the fair value hierarchy of the valuation techniques used to determine such fair value.
Ìý
Ìý
(In Millions)
Ìý
Ìý
March 31, 2015
Description
Ìý
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
Ìý
Total Losses
Assets:
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Loans to and accounts receivables from the Canadian Entities
Ìý
$
—

Ìý
$
—

Ìý
$
112.1

Ìý
$
112.1

Ìý
$
(476.0
)
Liabilities:
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Ìý
Contingent liabilities and joint and several liabilities
Ìý
$
—

Ìý
$
—

Ìý
$
342.7

Ìý
$
342.7

Ìý
$
(342.7
)

We determined the fair value and recoverability of our Canadian investments by comparing the estimated fair value of the underlying assets of the Canadian Entities to estimated liabilities at the time of the Filing. We recorded the contingent liabilities and joint and several liabilities at the historical book value which best approximated fair value.
Outstanding liabilities include accounts payable and other liabilities, forward commitments, unsubordinated related party payables, lease liabilities and other potential claims. Potential claims include an accrual for the estimated probable loss related to claims that may be asserted against the Bloom Lake Group under certain contracts. Claimants may seek damages or other related relief as a result of the Bloom Lake Group's exit from Canada. Based on our estimates, the fair value of liabilities exceeds the fair value of assets.
To assess the fair value and recoverability of the amounts receivable from the Canadian Entities, we estimated the fair value of the underlying net assets of the Canadian Entities available for distribution to their creditors in relation to the estimated creditor claims and the priority of those claims.
Our estimates involve significant judgment and are based on currently available information, an assessment of the validity of certain claims and estimated payments made by the Canadian Entities. Our ultimate recovery is subject to the final liquidation value of the Canadian Entities. Further, the final liquidation value and ultimate recovery of the creditors of the Canadian Entities, including Cliffs Natural Resources and various subsidiaries, may impact our estimates of contingent liability exposure described previously.
Recorded Assets and Liabilities
Ìý
Ìý
(In Millions)
Assets and Liabilities of Discontinued Operations
Ìý
March 31,
2015
Accounts receivable, net
Ìý
$
3.0

Income tax receivable
Ìý
1.8

Other non-current assets
Ìý
3.8

Total Assets
Ìý
$
8.6

Ìý
Ìý
Ìý
Accounts payable
Ìý
$
0.5

Accrued expenses
Ìý
51.1

Other liabilities
Ìý
140.9

Total Liabilities
Ìý
$
192.5

Ìý
Ìý
(In Millions)
Assets and Liabilities of Discontinued Operations
Ìý
DecemberÌý31,
2014
Cash and cash equivalents
Ìý
$
19.7

Accounts receivable, net
Ìý
37.9

Inventories
Ìý
16.3

Supplies and other inventories
Ìý
48.5

Income tax receivable
Ìý
20.1

Other current assets
Ìý
44.3

Property, plant and equipment, net
Ìý
249.8

Other non-current assets
Ìý
19.9

Total Assets
Ìý
$
456.5

Ìý
Ìý
Ìý
Accounts payable
Ìý
$
83.6

Accrued expenses
Ìý
200.0

Other current liabilities
Ìý
35.7

Pension and postemployment benefit liabilities
Ìý
79.8

Environmental and mine closure obligations
Ìý
56.5

Other liabilities
Ìý
173.9

Total Liabilities
Ìý
$
629.5


Income Taxes
Canadian deferred tax assets relating to both historical and current year net operating losses were included in our equity investment in the Canada Subsidiaries that has been reduced to zero. Due to the valuation allowance position in all jurisdictions, there is no income tax benefit related to the deconsolidation charges recognized in the consolidated financials dated March 31, 2015.