| NEW ACCOUNTING STANDARDS |
NOTE 2 - NEW ACCOUNTING STANDARDS
Adoption of New Accounting Standards
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 to the opening balance of Retained deficit of $34.0 million. The comparative period information has not been restated and continues to be reported under the accounting standards in effect for those periods. We do not expect that the adoption of Topic 606 will have a material impact to our annual net income on an ongoing basis.
Under Topic 606, revenue will generally be recognized upon delivery for our U.S. Iron Ore customers, which is earlier than under the previous guidance. As an example, for certain iron ore shipments where revenue was previously recognized upon title transfer when payment was received, we will now recognize revenue when control transfers, which is generally upon delivery. While we continue to retain title until we receive payment, we determined upon review of our customer contracts that the preponderance of control indicators pass to our customers' favor when we deliver our products; thus, we generally concluded control transfers at that point. As a result of the adoption of Topic 606 and vessel deliveries not occurring during the winter months because of the closure of the Soo Locks and the Welland Canal, our revenues and net income will be relatively lower than historical levels during the first quarter of each year and relatively higher than historical levels during the remaining three quarters in future years. However, the total amount of revenue recognized during the year should remain substantially the same as under previous accounting standards, assuming revenue rates and volumes are consistent between years.
The adoption of Topic 606 will not change the pattern or timing of revenue recognition for Asia Pacific Iron Ore, as control transfers when vessels are loaded, which is the same time title and the risk of loss transfers to our customers.
The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of Topic 606 were as follows:
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|
Ìý |
Ìý |
($ 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 |
|
|
Cash and cash equivalents |
Ìý |
$ |
1,007.7 |
|
Ìý |
$ |
— |
|
Ìý |
$ |
1,007.7 |
|
Accounts receivable, net |
Ìý |
140.6 |
|
Ìý |
76.6 |
|
Ìý |
217.2 |
|
Inventories |
Ìý |
183.4 |
|
Ìý |
(51.4 |
) |
Ìý |
132.0 |
|
Supplies and other inventories |
Ìý |
93.9 |
|
Ìý |
— |
|
Ìý |
93.9 |
|
Derivative assets |
Ìý |
39.4 |
|
Ìý |
11.6 |
|
Ìý |
51.0 |
|
Loans to and accounts receivable from the Canadian Entities |
Ìý |
51.6 |
|
Ìý |
— |
|
Ìý |
51.6 |
|
Other current assets |
Ìý |
28.0 |
|
Ìý |
— |
|
Ìý |
28.0 |
|
TOTAL CURRENT ASSETS |
Ìý |
1,544.6 |
|
Ìý |
36.8 |
|
Ìý |
1,581.4 |
|
PROPERTY, PLANT AND EQUIPMENT, NET |
Ìý |
1,051.0 |
|
Ìý |
— |
|
Ìý |
1,051.0 |
|
OTHER ASSETS |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Deposits for property, plant and equipment |
Ìý |
17.8 |
|
Ìý |
— |
|
Ìý |
17.8 |
|
Income tax receivable |
Ìý |
235.3 |
|
Ìý |
— |
|
Ìý |
235.3 |
|
Other non-current assets |
Ìý |
104.7 |
|
Ìý |
— |
|
Ìý |
104.7 |
|
TOTAL OTHER ASSETS |
Ìý |
357.8 |
|
Ìý |
— |
|
Ìý |
357.8 |
|
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 |
$ |
127.7 |
|
Ìý |
$ |
1.4 |
|
Ìý |
$ |
129.1 |
|
Accrued expenses |
Ìý |
107.1 |
|
Ìý |
— |
|
Ìý |
107.1 |
|
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 |
|
Other current liabilities |
Ìý |
86.2 |
|
Ìý |
1.4 |
|
Ìý |
87.6 |
|
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 |
196.5 |
|
Ìý |
— |
|
Ìý |
196.5 |
|
LONG-TERM DEBT |
Ìý |
2,304.2 |
|
Ìý |
— |
|
Ìý |
2,304.2 |
|
OTHER LIABILITIES |
Ìý |
186.9 |
|
Ìý |
— |
|
Ìý |
186.9 |
|
TOTAL LIABILITIES |
Ìý |
3,397.5 |
|
Ìý |
2.8 |
|
Ìý |
3,400.3 |
|
EQUITY |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
CLIFFS SHAREHOLDERS' DEFICIT |
Ìý |
(444.3 |
) |
Ìý |
34.0 |
|
Ìý |
(410.3 |
) |
NONCONTROLLING INTEREST |
Ìý |
0.2 |
|
Ìý |
— |
|
Ìý |
0.2 |
|
TOTAL DEFICIT |
Ìý |
(444.1 |
) |
Ìý |
34.0 |
|
Ìý |
(410.1 |
) |
TOTAL LIABILITIES AND DEFICIT |
Ìý |
$ |
2,953.4 |
|
Ìý |
$ |
36.8 |
|
Ìý |
$ |
2,990.2 |
|
The impact of adoption on our Statements of Unaudited Condensed Consolidated Operations and Statements of Unaudited Condensed Consolidated Financial Position is as follows:
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Ìý |
Ìý |
($ in Millions) |
Ìý |
Ìý |
Three Months Ended March 31, 2018 |
Ìý |
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 |
Ìý |
Product |
Ìý |
$ |
220.7 |
|
Ìý |
$ |
279.1 |
|
Ìý |
$ |
(58.4 |
) |
Freight and venture partners' cost reimbursements |
Ìý |
18.3 |
|
Ìý |
22.4 |
|
Ìý |
(4.1 |
) |
Ìý |
Ìý |
239.0 |
|
Ìý |
301.5 |
|
Ìý |
(62.5 |
) |
COST OF GOODS SOLD AND OPERATING EXPENSES |
Ìý |
(242.6 |
) |
Ìý |
(286.2 |
) |
Ìý |
43.6 |
|
SALES MARGIN |
Ìý |
(3.6 |
) |
Ìý |
15.3 |
|
Ìý |
(18.9 |
) |
OTHER OPERATING EXPENSE |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Selling, general and administrative expenses |
Ìý |
(27.7 |
) |
Ìý |
(27.7 |
) |
Ìý |
— |
|
Miscellaneous – net |
Ìý |
(8.7 |
) |
Ìý |
(8.7 |
) |
Ìý |
— |
|
Ìý |
Ìý |
(36.4 |
) |
Ìý |
(36.4 |
) |
Ìý |
— |
|
OPERATING LOSS |
Ìý |
(40.0 |
) |
Ìý |
(21.1 |
) |
Ìý |
(18.9 |
) |
OTHER INCOME (EXPENSE) |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Interest expense, net |
Ìý |
(33.5 |
) |
Ìý |
(33.5 |
) |
Ìý |
— |
|
Other non-operating income |
Ìý |
4.4 |
|
Ìý |
4.4 |
|
Ìý |
— |
|
Ìý |
Ìý |
(29.1 |
) |
Ìý |
(29.1 |
) |
Ìý |
— |
|
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
Ìý |
(69.1 |
) |
Ìý |
(50.2 |
) |
Ìý |
(18.9 |
) |
INCOME TAX EXPENSE |
Ìý |
(15.7 |
) |
Ìý |
(15.7 |
) |
Ìý |
— |
|
LOSS FROM CONTINUING OPERATIONS |
Ìý |
(84.8 |
) |
Ìý |
(65.9 |
) |
Ìý |
(18.9 |
) |
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX |
Ìý |
0.5 |
|
Ìý |
0.5 |
|
Ìý |
— |
|
NET LOSS |
Ìý |
(84.3 |
) |
Ìý |
(65.4 |
) |
Ìý |
(18.9 |
) |
LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST |
Ìý |
— |
|
Ìý |
— |
|
Ìý |
— |
|
NET LOSS ATTRIBUTABLE TO CLIFFS SHAREHOLDERS |
Ìý |
$ |
(84.3 |
) |
Ìý |
$ |
(65.4 |
) |
Ìý |
$ |
(18.9 |
) |
LOSS PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS – BASIC |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Continuing operations |
Ìý |
$ |
(0.29 |
) |
Ìý |
$ |
(0.23 |
) |
Ìý |
$ |
(0.06 |
) |
Discontinued operations |
Ìý |
— |
|
Ìý |
— |
|
Ìý |
— |
|
Ìý |
Ìý |
$ |
(0.29 |
) |
Ìý |
$ |
(0.23 |
) |
Ìý |
$ |
(0.06 |
) |
LOSS PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS – DILUTED |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Continuing operations |
Ìý |
$ |
(0.29 |
) |
Ìý |
$ |
(0.23 |
) |
Ìý |
$ |
(0.06 |
) |
Discontinued operations |
Ìý |
— |
|
Ìý |
— |
|
Ìý |
— |
|
Ìý |
Ìý |
$ |
(0.29 |
) |
Ìý |
$ |
(0.23 |
) |
Ìý |
$ |
(0.06 |
) |
AVERAGE NUMBER OF SHARES (IN THOUSANDS) |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Basic |
Ìý |
297,266 |
|
Ìý |
297,266 |
|
Ìý |
Ìý |
Diluted |
Ìý |
297,266 |
|
Ìý |
297,266 |
|
Ìý |
Ìý |
|
|
|
|
|
|
|
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|
|
|
|
|
|
Ìý |
Ìý |
($ in Millions) |
Ìý |
Ìý |
March 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 |
|
|
Cash and cash equivalents |
Ìý |
$ |
786.6 |
|
Ìý |
$ |
786.6 |
|
Ìý |
$ |
— |
|
Accounts receivable, net |
Ìý |
47.2 |
|
Ìý |
24.9 |
|
Ìý |
22.3 |
|
Inventories |
Ìý |
324.4 |
|
Ìý |
332.0 |
|
Ìý |
(7.6 |
) |
Supplies and other inventories |
Ìý |
81.7 |
|
Ìý |
81.7 |
|
Ìý |
— |
|
Derivative assets |
Ìý |
93.6 |
|
Ìý |
91.3 |
|
Ìý |
2.3 |
|
Loans to and accounts receivable from the Canadian Entities |
Ìý |
50.4 |
|
Ìý |
50.4 |
|
Ìý |
— |
|
Other current assets |
Ìý |
28.5 |
|
Ìý |
28.5 |
|
Ìý |
— |
|
TOTAL CURRENT ASSETS |
Ìý |
1,412.4 |
|
Ìý |
1,395.4 |
|
Ìý |
17.0 |
|
PROPERTY, PLANT AND EQUIPMENT, NET |
Ìý |
1,047.3 |
|
Ìý |
1,047.3 |
|
Ìý |
— |
|
OTHER ASSETS |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Deposits for property, plant and equipment |
Ìý |
74.1 |
|
Ìý |
74.1 |
|
Ìý |
— |
|
Income tax receivable |
Ìý |
219.9 |
|
Ìý |
219.9 |
|
Ìý |
— |
|
Other non-current assets |
Ìý |
109.2 |
|
Ìý |
109.2 |
|
Ìý |
— |
|
TOTAL OTHER ASSETS |
Ìý |
403.2 |
|
Ìý |
403.2 |
|
Ìý |
— |
|
TOTAL ASSETS |
Ìý |
2,862.9 |
|
Ìý |
2,845.9 |
|
Ìý |
17.0 |
|
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 |
$ |
99.2 |
|
Ìý |
$ |
0.3 |
|
Accrued expenses |
Ìý |
94.4 |
|
Ìý |
94.4 |
|
Ìý |
— |
|
Accrued interest |
Ìý |
28.2 |
|
Ìý |
28.2 |
|
Ìý |
— |
|
Contingent claims |
Ìý |
54.3 |
|
Ìý |
54.3 |
|
Ìý |
— |
|
Partnership distribution payable |
Ìý |
44.2 |
|
Ìý |
44.2 |
|
Ìý |
— |
|
Other current liabilities |
Ìý |
104.3 |
|
Ìý |
104.0 |
|
Ìý |
0.3 |
|
TOTAL CURRENT LIABILITIES |
Ìý |
424.9 |
|
Ìý |
424.3 |
|
Ìý |
0.6 |
|
PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES |
Ìý |
251.4 |
|
Ìý |
251.4 |
|
Ìý |
— |
|
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS |
Ìý |
181.2 |
|
Ìý |
181.2 |
|
Ìý |
— |
|
LONG-TERM DEBT |
Ìý |
2,308.2 |
|
Ìý |
2,308.2 |
|
Ìý |
— |
|
OTHER LIABILITIES |
Ìý |
182.0 |
|
Ìý |
182.0 |
|
Ìý |
— |
|
TOTAL LIABILITIES |
Ìý |
3,347.7 |
|
Ìý |
3,347.1 |
|
Ìý |
0.6 |
|
EQUITY |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
CLIFFS SHAREHOLDERS' DEFICIT |
Ìý |
(485.0 |
) |
Ìý |
(501.4 |
) |
Ìý |
16.4 |
|
NONCONTROLLING INTEREST |
Ìý |
0.2 |
|
Ìý |
0.2 |
|
Ìý |
— |
|
TOTAL DEFICIT |
Ìý |
(484.8 |
) |
Ìý |
(501.2 |
) |
Ìý |
16.4 |
|
TOTAL LIABILITIES AND DEFICIT |
Ìý |
$ |
2,862.9 |
|
Ìý |
$ |
2,845.9 |
|
Ìý |
$ |
17.0 |
|
The adoption of Topic 606 did not have an impact on net cash flows in our Statements of Unaudited Condensed 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 715 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 Unaudited Condensed Consolidated OperationsÌýwas as follows:
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|
|
|
Ìý |
Ìý |
($ in Millions) |
Ìý |
Ìý |
Three Months Ended March 31, 2017 |
Ìý |
Ìý |
As Revised |
Ìý |
Previously Reported |
Ìý |
Effect of Change |
Cost of goods sold and operating expenses |
Ìý |
$ |
(365.3 |
) |
Ìý |
$ |
(365.9 |
) |
Ìý |
$ |
0.6 |
|
Selling, general and administrative expenses |
Ìý |
$ |
(27.7 |
) |
Ìý |
$ |
(25.7 |
) |
Ìý |
$ |
(2.0 |
) |
Miscellaneous – net |
Ìý |
$ |
11.5 |
|
Ìý |
$ |
11.9 |
|
Ìý |
$ |
(0.4 |
) |
Operating income |
Ìý |
$ |
80.1 |
|
Ìý |
$ |
81.9 |
|
Ìý |
$ |
(1.8 |
) |
Other non-operating income |
Ìý |
$ |
2.5 |
|
Ìý |
$ |
0.7 |
|
Ìý |
$ |
1.8 |
|
Net Loss |
Ìý |
$ |
(29.8 |
) |
Ìý |
$ |
(29.8 |
) |
Ìý |
$ |
— |
|
Recent Accounting Pronouncements
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 continue to be classified as either operating or finance leases in the Statements of Unaudited Condensed Consolidated Operations. We plan to adopt the standard on its effective date of January 1, 2019. The new standard may be adopted using either the modified retrospective approach, which requires application of the new guidance at the beginning of the earliest comparative period presented or the optional alternative approach, which requires application of the new guidance at the beginning of the standards effective date. 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.
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