|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with SEC rules and regulations and in the opinion of management, contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly, the financial position, results of operations, comprehensive income, and cash flows for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. The results of operations for the three months ended March 31, 2012 are not necessarily indicative of results to be expected for the year ended December 31, 2012 or any other future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2011.
The unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly owned and majority-owned subsidiaries, including the following operations:
Name |
Location | Ownership Interest | Operation | |||||
Northshore |
Minnesota | 100.0 | % | Iron Ore | ||||
United Taconite |
Minnesota | 100.0 | % | Iron Ore | ||||
Wabush |
Labrador/Quebec, Canada | 100.0 | % | Iron Ore | ||||
Bloom Lake |
Quebec, Canada | 75.0 | % | Iron Ore | ||||
Tilden |
Michigan | 85.0 | % | Iron Ore | ||||
Empire |
Michigan | 79.0 | % | Iron Ore | ||||
Koolyanobbing |
Western Australia | 100.0 | % | Iron Ore | ||||
Pinnacle |
West Virginia | 100.0 | % | Coal | ||||
Oak Grove |
Alabama | 100.0 | % | Coal | ||||
CLCC |
West Virginia | 100.0 | % | Coal |
Intercompany transactions and balances are eliminated upon consolidation.
Also included in our consolidated results are Cliffs Chromite Ontario Inc. and Cliffs Chromite Far North Inc., which have a 100 percent interest in the Black Label and Black Thor chromite deposits and a 72 percent interest in the Big Daddy chromite deposit, all located in Northern Ontario, Canada.
The following table presents the detail of our investments in unconsolidated ventures and where those investments are classified in the Statements of Unaudited Condensed Consolidated Financial Position as of March 31, 2012 and December 31, 2011. Parentheses indicate a net liability.
(In Millions) | ||||||||||||
Investment |
Classification | Interest Percentage |
March 31, 2012 |
December 31, 2011 |
||||||||
Amapá |
Investments in ventures | 30 | $ | 492.5 | $ | 498.6 | ||||||
AusQuest |
Investments in ventures | 30 | 3.5 | 3.7 | ||||||||
Cockatoo |
Other liabilities | 50 | (13.9) | (15.0) | ||||||||
Hibbing |
Other liabilities | 23 | (4.4) | (6.8) | ||||||||
Other |
Investments in ventures | 34.9 | 24.3 | |||||||||
|
|
|
|
|||||||||
$ | 512.6 | $ | 504.8 | |||||||||
|
|
|
|
Immaterial Errors
In September 2011, we noted an error in the accounting for the 21 percent noncontrolling interest in the Empire mine. In accordance with applicable GAAP, management quantitatively and qualitatively evaluated the materiality of the error and determined the error to be immaterial to the quarterly reports previously filed for the periods ended March 31, 2011 and June 30, 2011 and also immaterial for the quarterly report for the period ended September 30, 2011. Accordingly, all of the resulting adjustments were recorded prospectively in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2011 and the Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2011. The impact of the immaterial error in the Statements of Unaudited Condensed Consolidated Operations for the three months ended March 31, 2011 would have resulted in an increase in Income from Continuing Operations of $8.4 million and a decrease in Net Income Attributable to Cliffs Shareholders of $37.5 million or $0.28 to basic and diluted earnings per common share. These adjustments should be considered when comparing the operating results for the three months ended March 31, 2012 to the reported results for the three months ended March 31, 2011, as such adjustments are not reflected in the operating results reported for the three months ended March 31, 2011.
Discontinued Operations
On September 27, 2011, we announced our plans to cease and dispose of the operations at the renewaFUEL biomass production facility in Michigan. As we continued to successfully grow our core iron ore mining business, the decision to sell our interest in the renewaFUEL operations was made to allow our management focus and allocation of capital resources to be deployed where we believe we can have the most impact for our stakeholders. On January 4, 2012, we entered into an agreement to sell the renewaFUEL assets to RNFL Acquisition LLC. The results of operations of the renewaFUEL operations are reflected as discontinued operations in the accompanying unaudited condensed consolidated financial statements for all periods presented. We recorded $0.1 million as Loss From Discontinued Operations in the Statements of Unaudited Condensed Consolidated Operations for the period ended March 31, 2012. This compares to losses of $0.4 million for the period ended March 31, 2011.
.
Reportable Segments
As a result of the acquisition of Consolidated Thompson in May 2011, we revised the number of our operating and reportable segments as determined under ASC 280. Our Company's primary operations are organized and managed according to product category and geographic location and now include: U.S. Iron Ore, Eastern Canadian Iron Ore, North American Coal, Asia Pacific Iron Ore, Asia Pacific Coal, Latin American Iron Ore, Ferroalloys and our Global Exploration Group. Our historical presentation of segment information consisted of three reportable segments: North American Iron Ore, North American Coal and Asia Pacific Iron Ore. Our restated presentation consists of four reportable segments: U.S. Iron Ore, Eastern Canadian Iron Ore, North American Coal and Asia Pacific Iron Ore. The amounts disclosed in NOTE 2 – SEGMENT REPORTING reflect this restatement.
Significant Accounting Policies
A detailed description of our significant accounting policies can be found in the audited financial statements for the fiscal year ended December 31, 2011, included in our Annual Report on Form 10-K filed with the SEC. Due to continued market movement away from historical benchmark prices and the evolution of customer supply agreements to meet the requirements of the market, there have been changes in our significant accounting policies from those disclosed therein. The significant accounting policies requiring updates have been included within the disclosures below.
Revenue Recognition and Cost of Goods Sold and Operating Expenses
U.S. Iron Ore, Eastern Canadian Iron Ore and Asia Pacific Iron Ore
We sell our products pursuant to comprehensive supply agreements negotiated and executed with our customers. Revenue is recognized from a sale when persuasive evidence of an arrangement exists, the price is fixed or determinable, the product is delivered in accordance with F.O.B. terms, title and risk of loss have transferred to the customer in accordance with the specified provisions of each supply agreement and collection of the sales price reasonably is assured. Our U.S. Iron Ore, Eastern Canadian Iron Ore and Asia Pacific Iron Ore supply agreements provide that title and risk of loss transfer to the customer either upon loading of the vessel, shipment or, as is the case with some of our U.S. Iron Ore supply agreements, when payment is received. Under certain term supply agreements, we ship the product to ports on the lower Great Lakes or to the customers' facilities prior to the transfer of title. Our rationale for shipping iron ore products to certain customers and retaining title until payment is received for these products is to minimize credit risk exposure.
Iron ore sales are recorded at a sales price specified in the relevant supply agreements resulting in revenue and a receivable at the time of sale. Upon revenue recognition for provisionally priced sales, a freestanding derivative is created for the difference between the sales price used and expected future settlement price. The derivative, which does not qualify for hedge accounting, is adjusted to fair value through Product revenues as a revenue adjustment each reporting period based upon current market data and forward looking estimates determined by management until the final sales price is determined. The principal risks associated with recognition of sales on a provisional basis include iron ore price fluctuations between the date initially recorded and the date of final settlement. For revenue recognition, we estimate the future settlement rate; however, if significant changes in iron ore prices occur between the provisional pricing date and the final settlement date, it is reasonably possible that we could be required to either return a portion of the sales proceeds received or bill for the additional sales proceeds due based on the provisional sales price. Refer to NOTE 3 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for further information.
In addition, certain supply agreements with one customer include provisions for supplemental revenue or refunds based on the customer's annual steel pricing for the year the product is consumed in the customer's blast furnaces. We account for this provision as a derivative instrument at the time of sale and record this provision at fair value until the year the product is consumed and the amounts are settled as an adjustment to revenue. Refer to NOTE 3 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for further information.
Revenue from product sales also includes reimbursement for freight charges paid on behalf of customers in Freight and venture partners' cost reimbursements separate from Product revenues. Revenue is recognized on the sale of services when the services are performed.
Costs of goods sold and operating expenses represents all direct and indirect costs and expenses applicable to the sales and revenues of our mining operations. Operating expenses within this line item primarily represent the portion of the Tilden mining venture costs for which we do not own; that is, the costs attributable to the share of the mine's production owned by the other joint venture partner in the Tilden mine. The mining venture functions as a captive cost company; it supplies product only to its owners effectively on a cost basis. Accordingly, the noncontrolling interests' revenue amounts are stated at cost of production and are offset in entirety by an equal amount included in Cost of goods sold and operating expenses resulting in no sales margin reflected in the noncontrolling interest participant. As we are responsible for product fulfillment, we retain the risks and rewards of a principal in the transaction and, accordingly, record revenue under these arrangements on a gross basis.
Where we are joint venture participants in the ownership of a mine, our contracts entitle us to receive royalties and/or management fees, which we earn as the pellets are produced.
Recent Accounting Pronouncements
In May 2011, the FASB amended the guidance on fair value as a result of the joint efforts by the FASB and the IASB to develop a single, converged fair value framework. The converged fair value framework provides guidance on how to measure fair value and on what disclosures to provide about fair value measurements. The significant amendments to the fair value measurement guidance and the new disclosure requirements include: (1) the highest and best use and valuation premise for nonfinancial assets; (2) the application to financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risks; (3) premiums or discounts in fair value measurement; (4) fair value of an instrument classified in a reporting entity's shareholders' equity; (5) for Level 3 measurements, a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, a description of the valuation process in place, and a narrative description of the sensitivity of the fair value to changes in the unobservable inputs and interrelationships between those inputs; and (6) the level in the fair value hierarchy of items that are not measured at fair value in the Statement of Financial Position but whose fair value must be disclosed. The new guidance is effective for interim and annual periods beginning after December 15, 2011. We adopted the amended guidance beginning in the current period ended as of March 31, 2012. Refer to Note 8 – FAIR VALUE OF FINANCIAL INSTRUMENTS for further information.
|
NOTE 2 – SEGMENT REPORTING
Our Company's primary operations are organized and managed according to product category and geographic location: U.S. Iron Ore, Eastern Canadian Iron Ore, North American Coal, Asia Pacific Iron Ore, Asia Pacific Coal, Latin American Iron Ore, Ferroalloys and our Global Exploration Group. The U.S. Iron Ore segment is comprised of our interests in five U.S. mines that provide iron ore to the integrated steel industry. The Eastern Canadian Iron Ore segment is comprised of two Eastern Canadian mines that primarily provide iron ore to the seaborne market for Asian steel producers. The North American Coal segment is comprised of our five metallurgical coal mines and one thermal coal mine that provide metallurgical coal primarily to the integrated steel industry and thermal coal primarily to the energy industry. The Asia Pacific Iron Ore segment is located in Western Australia and provides iron ore to the seaborne market for Asian steel producers. There are no intersegment revenues.
The Asia Pacific Coal operating segment is comprised of our 45 percent economic interest in Sonoma, located in Queensland, Australia. The Latin American Iron Ore operating segment is comprised of our 30 percent Amapá interest in Brazil. The Ferroalloys operating segment is comprised of our interests in chromite deposits held in Northern Ontario, Canada and the Global Exploration Group is focused on early involvement in exploration activities to identify new world-class projects for future development or projects that add significant value to existing operations. The Asia Pacific Coal, Latin American Iron Ore, Ferroalloys and Global Exploration Group operating segments do not meet reportable segment disclosure requirements and therefore are not reported separately.
We evaluate segment performance based on sales margin, defined as revenues less cost of goods sold and operating expenses identifiable to each segment. This measure of operating performance is an effective measurement as we focus on reducing production costs throughout the Company.
The following table presents a summary of our reportable segments for the three months ended March 31, 2012 and 2011:
(In Millions) | ||||||||||||||||
Three Months Ended March 31, |
||||||||||||||||
2012 | 2011 | |||||||||||||||
Revenues from product sales and services: |
||||||||||||||||
U.S. Iron Ore |
$ | 441.7 | 35% | $ | 510.2 | 43% | ||||||||||
Eastern Canadian Iron Ore |
220.7 | 18% | 127.3 | 11% | ||||||||||||
North American Coal |
189.9 | 15% | 165.0 | 14% | ||||||||||||
Asia Pacific Iron Ore |
359.8 | 28% | 345.4 | 29% | ||||||||||||
Other |
52.6 | 4% | 35.3 | 3% | ||||||||||||
|
|
|
|
|||||||||||||
Total revenues from product sales and services for reportable segments |
$ | 1,264.7 | 100% | $ | 1,183.2 | 100% | ||||||||||
|
|
|
|
|||||||||||||
Sales margin: |
||||||||||||||||
U.S. Iron Ore |
$ | 166.9 | $ | 361.3 | ||||||||||||
Eastern Canadian Iron Ore |
(14.3) | 34.5 | ||||||||||||||
North American Coal |
14.5 | (2.9) | ||||||||||||||
Asia Pacific Iron Ore |
125.0 | 195.8 | ||||||||||||||
Other |
11.4 | 10.8 | ||||||||||||||
|
|
|
|
|||||||||||||
Sales margin |
303.5 | 599.5 | ||||||||||||||
Other operating expense |
(72.4) | (57.4) | ||||||||||||||
Other income (expense) |
(43.5) | 20.9 | ||||||||||||||
|
|
|
|
|||||||||||||
Income from continuing operations before income taxes and equity income (loss) from ventures |
$ | 187.6 | $ | 563.0 | ||||||||||||
|
|
|
|
|||||||||||||
Depreciation, depletion and amortization: |
||||||||||||||||
U.S. Iron Ore |
$ | 23.2 | $ | 17.5 | ||||||||||||
Eastern Canadian Iron Ore |
37.9 | 9.6 | ||||||||||||||
North American Coal |
20.1 | 21.6 | ||||||||||||||
Asia Pacific Iron Ore |
30.0 | 24.0 | ||||||||||||||
Other |
6.1 | 7.1 | ||||||||||||||
|
|
|
|
|||||||||||||
Total depreciation, depletion and amortization |
$ | 117.3 | $ | 79.8 | ||||||||||||
|
|
|
|
|||||||||||||
Capital additions (1): |
||||||||||||||||
U.S. Iron Ore |
$ | 34.8 | $ | 31.6 | ||||||||||||
Eastern Canadian Iron Ore |
130.6 | 3.5 | ||||||||||||||
North American Coal |
39.1 | 27.5 | ||||||||||||||
Asia Pacific Iron Ore |
109.3 | 25.3 | ||||||||||||||
Other |
39.6 | 3.1 | ||||||||||||||
|
|
|
|
|||||||||||||
Total capital additions |
$ | 353.4 | $ | 91.0 | ||||||||||||
|
|
|
|
(1) Includes capital lease additions and non-cash accruals.
A summary of assets by segment is as follows:
(In Millions) | ||||||||
March 31, 2012 |
December 31, 2011 |
|||||||
Segment Assets: |
||||||||
U.S. Iron Ore |
$ | 1,758.9 | $ | 1,691.8 | ||||
Eastern Canadian Iron Ore |
8,008.0 | 7,973.1 | ||||||
North American Coal |
1,948.3 | 1,814.4 | ||||||
Asia Pacific Iron Ore |
1,885.5 | 1,511.2 | ||||||
Other |
984.6 | 1,017.6 | ||||||
|
|
|
|
|||||
Total segment assets |
14,585.3 | 14,008.1 | ||||||
Corporate |
308.0 | 533.6 | ||||||
|
|
|
|
|||||
Total assets |
$ | 14,893.3 | $ | 14,541.7 | ||||
|
|
|
|
|
NOTE 3 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The following table presents the fair value of our derivative instruments and the classification of each in the Statements of Unaudited Condensed Consolidated Financial Position as of March 31, 2012 and December 31, 2011:
(In Millions) | ||||||||||||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||
March 31, 2012 | December 31, 2011 | March 31, 2012 | December 31, 2011 | |||||||||||||||||||||
Derivative Instrument |
Balance Sheet Location |
Fair Value |
Balance Sheet Location |
Fair Value |
Balance Sheet Location |
Fair Value |
Balance Sheet Location |
Fair Value |
||||||||||||||||
Derivatives designated as hedging instruments under ASC 815: |
||||||||||||||||||||||||
Foreign Exchange Contracts |
Derivative assets (current) |
$ | 9.6 | Derivative assets (current) |
$ | 5.2 | Other current liabilities |
$ | 2.5 | Other current liabilities |
$ | 3.5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total derivatives designated as hedging instruments under ASC 815 |
$ | 9.6 | $ | 5.2 | $ | 2.5 | $ | 3.5 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Derivatives not designated as hedging instruments under ASC 815: |
||||||||||||||||||||||||
Foreign Exchange Contracts |
Derivative assets (current) |
$ | - | Derivative assets (current) |
$ | 2.8 | $ | - | $ | - | ||||||||||||||
Customer Supply Agreements |
Derivative assets (current) |
65.1 | Derivative assets (current) |
72.9 | - | - | ||||||||||||||||||
Provisional Pricing Arrangements |
Derivative assets (current) |
4.1 | Derivative assets (current) |
1.2 | Other current liabilities |
1.1 | Other current liabilities |
19.5 | ||||||||||||||||
Accounts receivable |
- | Accounts receivable |
83.8 | - | - | |||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total derivatives not designated as hedging instruments under ASC 815 |
$ | 69.2 | $ | 160.7 | $ | 1.1 | $ | 19.5 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total derivatives |
$ | 78.8 | $ | 165.9 | $ | 3.6 | $ | 23.0 | ||||||||||||||||
|
|
|
|
|
|
|
|
Derivatives Designated as Hedging Instruments
Cash Flow Hedges
Australian and Canadian Dollar Foreign Exchange Contracts
We are subject to changes in foreign currency exchange rates as a result of our operations in Australia and Canada. With respect to Australia, foreign exchange risk arises from our exposure to fluctuations in foreign currency exchange rates because the functional currency of our Asia Pacific operations is the Australian dollar. Our Asia Pacific operations receive funds in U.S. currency for their iron ore and coal sales. The functional currency of our Canadian operations is the U.S. dollar; however the production costs for these operations primarily are incurred in the Canadian dollar.
We use foreign currency exchange derivatives to hedge our foreign currency exposure for a portion of our Australian dollar sales receipts and our Canadian dollar operating costs. For our Australian operations, U.S. currency is converted to Australian dollars at the currency exchange rate in effect during the period the transaction occurred. For our Canadian operations, U.S. dollars are converted to Canadian dollars at the exchange rate in effect for the period the operating costs are incurred. The primary objective for the use of these instruments is to reduce exposure to changes in Australian and U.S. currency exchange rates and Canadian and U.S. currency exchange rates, respectively, and to protect against undue adverse movement in these exchange rates. These instruments are subject to formal documentation, intended to achieve qualifying hedge treatment, and are tested for effectiveness at inception and at least once each reporting period. During the third quarter of 2011, we implemented a global foreign exchange hedging policy to apply to all of our operating segments and our consolidated subsidiaries that engage in foreign exchange risk mitigation. The policy allows for hedging of not more than 75 percent, but not less than 40 percent for up to 12 months and not less than 10 percent for up to 15 months, occurring only during the fourth quarter of each year, of forecasted net currency exposures that are probable to occur. If and when any of our hedge contracts are determined not to be highly effective as hedges, the underlying hedged transaction is no longer likely to occur, or the derivative is terminated, hedge accounting is discontinued.
As of March 31, 2012, we had outstanding Australian and Canadian foreign currency exchange contracts with notional amounts of $425.0 million and $518.4 million, respectively, in the form of forward contracts with varying maturity dates ranging from April 2012 to March 2013. This compares with outstanding Australian foreign currency exchange contracts with a notional amount of $400.0 million as of December 31, 2011. There were no outstanding Canadian foreign currency exchange contracts as of December 31, 2011, as we did not begin entering into Canadian foreign exchange contracts until January 2012.
Changes in fair value of highly effective hedges are recorded as a component of Accumulated other comprehensive loss in the Statements of Unaudited Condensed Consolidated Financial Position. Unrealized gains of $3.0 million and $0.7 million, respectively, were recorded as of March 31, 2012 related to these Australian and Canadian hedge contracts, based on the Australian to U.S. dollar spot rate of 1.03 and the U.S. dollar to Canadian spot rate of 1.00, respectively, as of March 31, 2012. Unrealized gains of $1.9 million were recorded as of March 31, 2011 related to the Australian dollar hedge contracts, based on the Australian to U.S. dollar spot rate of 1.03 at March 31, 2011. Any ineffectiveness is recognized immediately in income and as of March 31, 2012 and 2011, there was no ineffectiveness recorded for these foreign exchange contracts. Amounts recorded as a component of Accumulated other comprehensive loss are reclassified into earnings in the same period the forecasted transaction affects earnings. For the three months ended March 31, 2012, we recorded realized gains of $3.1 million and $0.5 million for these Australian and Canadian hedge contracts, respectively. Of the amounts remaining in Accumulated other comprehensive loss related to Australian hedge contracts and Canadian hedge contracts, we estimate that $4.3 million and $0.7 million, respectively, will be reclassified into earnings within the next 12 months.
The following summarizes the effect of our derivatives designated as hedging instruments in Accumulated other comprehensive loss and the Statements of Unaudited Condensed Consolidated Operations for the three months ended March 31, 2012 and 2011:
(In Millions) | ||||||||||||||||||
Derivatives in Cash Flow Hedging Relationships |
Amount of Gain Recognized in OCI on Derivative (Effective Portion) |
Location of Gain Reclassified From Accumulated OCI into Income (Effective Portion) |
Amount of Gain Reclassified from Accumulated OCI into Income (Effective Portion) |
|||||||||||||||
Three months ended March 31, |
Three months ended March 31, |
|||||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||||
Australian Dollar Foreign Exchange Contracts (hedge designation) |
$ | 3.0 | $ | 1.9 | Product revenue | $ | 3.1 | $ | 0.2 | |||||||||
Canadian Dollar Foreign Exchange Contracts (hedge designation) |
0.7 | — | Cost of goods sold and operating expenses |
0.5 | - | |||||||||||||
Australian Dollar Foreign Exchange Contracts (prior to de-designation) |
— | — | Product revenue | — | 0.2 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 3.7 | $ | 1.9 | $ | 3.6 | $ | 0.4 | ||||||||||
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments
Australian Dollar Foreign Exchange Contracts
Effective July 1, 2008, we discontinued hedge accounting for foreign exchange contracts entered into for all outstanding contracts at the time and continued to hold such instruments as economic hedges to manage currency risk as described above. The outstanding non-designated foreign exchange contracts with a notional amount of $15.0 million as of December 31, 2011, matured as of January 2012.
As a result of discontinuing hedge accounting, the instruments were marked to fair value each reporting period through Changes in fair value of foreign currency contracts, net in the Statements of Unaudited Condensed Consolidated Operations. For the three months ended March 31, 2012, the change in fair value of the foreign currency contracts resulted in a net gain of $0.3 million based on the Australian to U.S. dollar spot rate change until maturity. This compares with the net gain of $4.4 million for the three months ended March 31, 2011 based on the Australian to U.S. dollar spot rate of 1.03 at March 31, 2011. The amounts that previously were recorded as a component of Accumulated other comprehensive loss were reclassified to earnings with a corresponding realized gain or loss recognized in the same period the forecasted transaction affected earnings.
Canadian Dollar Foreign Exchange Contracts and Options
On January 11, 2011, we entered into a definitive agreement with Consolidated Thompson to acquire all of its common shares in an all-cash transaction, including net debt. We hedged a portion of the purchase price on the open market by entering into foreign currency exchange forward contracts and an option contract with a combined notional amount of C$4.7 billion. The hedge contracts were considered economic hedges, which do not qualify for hedge accounting. The forward contracts had various maturity dates and the option contract had a maturity date of April 14, 2011.
During the first quarter of 2011, a swap was executed in order to extend the maturity dates of certain of the forward contracts through the consummation of the Consolidated Thompson acquisition and the repayment of the Consolidated Thompson convertible debentures. The swap and the maturity of the forward contracts resulted in net realized gains of $28.1 million recognized through Changes in fair value of foreign currency contracts, net in the Statements of Unaudited Condensed Consolidated Operations for the three months ended March 31, 2011. For the three months ended March 31, 2011, the change in fair value of these contracts and option resulted in net unrealized gains of $23.5 million based on the Canadian to U.S. dollar spot rate of 1.03 as of March 31, 2011.
Customer Supply Agreements
Most of our U.S. Iron Ore long-term supply agreements are comprised of a base price with annual price adjustment factors, some of which are subject to annual price collars in order to limit the percentage increase or decrease in prices for our iron ore pellets during any given year. The price adjustment factors vary based on the agreement but typically include adjustments based upon changes in international pellet prices and changes in specified Producers Price indices including those for all commodities, industrial commodities, energy and steel. The adjustments generally operate in the same manner, with each factor typically comprising a portion of the price adjustment, although the weighting of each factor varies based upon the specific terms of each agreement. The price adjustment factors have been evaluated to determine if they contain embedded derivatives. The price adjustment factors share the same economic characteristics and risks as the host contract and are integral to the host contract as inflation adjustments; accordingly, they have not been separately valued as derivative instruments.
Certain supply agreements with one U.S. Iron Ore customer provide for supplemental revenue or refunds to the customer based on the customer's average annual steel pricing at the time the product is consumed in the customer's blast furnace. The supplemental pricing is characterized as a freestanding derivative and is required to be accounted for separately once the product is shipped. The derivative instrument, which is finalized based on a future price, is adjusted to fair value as a revenue adjustment each reporting period until the pellets are consumed and the amounts are settled. We recognized $39.2 million and $24.6 million as Product revenues in the Statements of Unaudited Condensed Consolidated Operations for the three months ended March 31, 2012 and 2011, respectively, related to the supplemental payments. Derivative assets, representing the fair value of the pricing factors, were $65.1 million and $72.9 million, respectively, in the March 31, 2012 and December 31, 2011 Statements of Unaudited Condensed Consolidated Financial Position.
Provisional Pricing Arrangements
Certain of our U.S. Iron Ore, Eastern Canadian Iron Ore and Asia Pacific Iron Ore customer supply agreements specify provisional price calculations, where the pricing mechanisms are generally based on market pricing, with the final sales price 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 provisionally agreed-upon price and the estimated final sales price is characterized as a derivative and is required to be accounted for separately once the revenue has been recognized. The derivative instrument is 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 sales price is determined. We have recorded $4.1 million as current Derivative assets and $1.1 million as derivative liabilities, included in Other current liabilities in the Statements of Unaudited Condensed Consolidated Financial Position at March 31, 2012 related to our estimate of final sales price with our U.S. Iron Ore, Eastern Canadian Iron Ore and Asia Pacific Iron Ore customers. At December 31, 2011, we did not have any derivative assets or liabilities recorded due to these arrangements. These amounts represent the difference between the provisional price agreed upon with our customers based on the supply agreement terms and our estimate of the final sales price based on the price calculations established in the supply agreements. As a result, we recognized a net $3.0 million increase in Product revenues in the Statements of Unaudited Condensed Consolidated Operations for the three months ended March 31, 2012 related to these arrangements. There were no amounts recognized related to these arrangements for the three months ended March 31, 2011.
In some instances we are still working to revise components of the pricing calculations referenced within our supply agreements to incorporate new market inputs to the pricing mechanisms as a result of the elimination of historical benchmark pricing. As a result, we record certain shipments made to our U.S. Iron Ore and Eastern Canadian Iron Ore customers based on an agreed-upon provisional price with the customer until final settlement on the market inputs to the pricing mechanisms are finalized. The lack of agreed-upon market inputs results in these pricing provisions being characterized as derivatives. The derivative instrument, which is settled and billed or credited once the determinations of the market inputs to the pricing mechanisms are finalized, is adjusted to fair value through Product revenues each reporting period based upon current market data and forward-looking estimates determined by management. During the three months ended March 31, 2012, we had no shipments to customers under supply agreements in which components of the pricing calculations are still being finalized. We recognized $20.0 million as an increase in Product revenues in the Statements of Unaudited Condensed Consolidated Operations for the three months ended March 31, 2011 under these pricing provisions for certain shipments to our U.S. Iron Ore and Eastern Canadian Iron Ore customers. At March 31, 2012, we had no Derivative assets, derivative liabilities included in Other current liabilities or Accounts receivable in the Statements of Unaudited Condensed Consolidated Financial Position recorded related to these arrangements. At December 31, 2011, we recorded $1.2 million Derivative assets, $19.5 million derivative liabilities included in Other current liabilities and $83.8 million Accounts receivable in the Statements of Unaudited Condensed Consolidated Financial Position recorded related to these arrangements.
The following summarizes the effect of our derivatives that are not designated as hedging instruments in the Statements of Unaudited Condensed Consolidated Operations for the three months ended March 31, 2012 and 2011:
(In Millions) |
||||||||||
Derivatives Not Designated as Hedging Instruments |
Location of Gain Recognized in Income on Derivative |
Amount of Gain Recognized in Income on Derivative |
||||||||
Three Months Ended March 31, |
||||||||||
2012 | 2011 | |||||||||
Foreign Exchange Contracts |
Product Revenues | $ | - | $ | 0.3 | |||||
Foreign Exchange Contracts |
Other Income (Expense) | 0.3 | 56.0 | |||||||
Customer Supply Agreements |
Product Revenues | 39.2 | 24.6 | |||||||
Provisional Pricing Arrangements |
Product Revenues | 3.0 | 20.0 | |||||||
Total |
$ | 42.5 | $ | 100.9 |
Refer to NOTE 8 – FAIR VALUE OF FINANCIAL INSTRUMENTS for additional information.
|
NOTE 4 – INVENTORIES
The following table presents the detail of our Inventories in the Statements of Unaudited Condensed Consolidated Financial Position as of March 31, 2012 and December 31, 2011:
(In Millions) | ||||||||||||||||||||||||
March 31, 2012 | December 31, 2011 | |||||||||||||||||||||||
Segment |
Finished Goods |
Work-in Process |
Total Inventory |
Finished Goods |
Work-in Process |
Total Inventory |
||||||||||||||||||
U.S. Iron Ore |
$ | 250.0 | $ | 25.0 | $ | 275.0 | $ | 100.2 | $ | 8.5 | $ | 108.7 | ||||||||||||
Eastern Canadian Iron Ore |
133.6 | 45.0 | 178.6 | 96.2 | 43.0 | 139.2 | ||||||||||||||||||
North American Coal |
48.0 | 115.1 | 163.1 | 19.7 | 110.5 | 130.2 | ||||||||||||||||||
Asia Pacific Iron Ore |
41.6 | 19.1 | 60.7 | 57.2 | 21.6 | 78.8 | ||||||||||||||||||
Other |
17.2 | 1.3 | 18.5 | 18.0 | 0.8 | 18.8 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 490.4 | $ | 205.5 | $ | 695.9 | $ | 291.3 | $ | 184.4 | $ | 475.7 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 5 – PROPERTY, PLANT AND EQUIPMENT
The following table indicates the value of each of the major classes of our consolidated depreciable assets as of March 31, 2012 and December 31, 2011:
(In Millions) | ||||||||
March 31, 2012 |
December 31, 2011 |
|||||||
Land rights and mineral rights |
$ | 7,969.0 | $ | 7,918.9 | ||||
Office and information technology |
68.4 | 67.0 | ||||||
Buildings |
138.1 | 132.2 | ||||||
Mining equipment |
1,394.7 | 1,323.8 | ||||||
Processing equipment |
1,505.3 | 1,441.8 | ||||||
Railroad equipment |
203.7 | 164.3 | ||||||
Electric power facilities |
58.0 | 57.9 | ||||||
Port facilities |
96.4 | 64.1 | ||||||
Interest capitalized during construction |
24.8 | 22.5 | ||||||
Land improvements |
30.6 | 30.4 | ||||||
Other |
73.3 | 43.2 | ||||||
Construction in progress |
682.4 | 615.4 | ||||||
|
|
|
|
|||||
12,244.7 | 11,881.5 | |||||||
|
|
|
|
|||||
Allowance for depreciation and depletion |
(1,478.0) | (1,356.9) | ||||||
|
|
|
|
|||||
$ | 10,766.7 | $ | 10,524.6 | |||||
|
|
|
|
We recorded depreciation and depletion expense of $111.4 million and $71.7 million in the Statements of Unaudited Condensed Consolidated Operations for the periods ended March 31, 2012 and 2011, respectively.
|
NOTE 6 – ACQUISITIONS
Acquisitions
We allocate the cost of acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. Any excess of cost over the fair value of the net assets acquired is recorded as goodwill.
Consolidated Thompson
On May 12, 2011, we completed our acquisition of Consolidated Thompson by acquiring all of the outstanding common shares of Consolidated Thompson for C$17.25 per share in an all-cash transaction, including net debt, pursuant to the terms of an arrangement agreement dated as of January 11, 2011. Upon the acquisition: (a) each outstanding Consolidated Thompson common share was acquired for a cash payment of C$17.25; (b) each outstanding option and warrant that was "in the money" was acquired for cancellation for a cash payment of C$17.25 less the exercise price per underlying Consolidated Thompson common share; (c) each outstanding performance share unit was acquired for cancellation for a cash payment of C$17.25; (d) all outstanding Quinto Mining Corporation rights to acquire common shares of Consolidated Thompson were acquired for cancellation for a cash payment of C$17.25 per underlying Consolidated Thompson common share; and (e) certain Consolidated Thompson management contracts were eliminated that contained certain change of control provisions for contingent payments upon termination. The acquisition date fair value of the consideration transferred totaled $4.6 billion. Our full ownership of Consolidated Thompson has been included in the unaudited condensed consolidated financial statements since the acquisition date, and the subsidiary is reported as a component of our Eastern Canadian Iron Ore segment.
The acquisition of Consolidated Thompson reflects our strategy to build scale by owning expandable and exportable steelmaking raw material assets serving international markets. Through our acquisition of Consolidated Thompson, we now own and operate an iron ore mine and processing facility near Bloom Lake in Quebec, Canada that produces iron ore concentrate of high quality. WISCO is a 25 percent partner in the Bloom Lake mine. Bloom Lake is designed to achieve an initial production rate of 8.0 million metric tons of iron ore concentrate per year. During the second quarter of 2011 and in January 2012, additional capital investments were approved in order to increase the initial production rate to 16.0 million metric tons of iron ore concentrate per year. We also own two additional development properties, Lamêlée and Peppler Lake, in Quebec. All three of these properties are in proximity to our existing Canadian operations and will allow us to leverage our port facilities and supply this iron ore to the seaborne market. The acquisition also is expected to further diversify our existing customer base.
The following table summarizes the consideration paid for Consolidated Thompson and the estimated fair values of the assets and liabilities assumed at the acquisition date. We are in the process of finalizing the valuation of the assets acquired and liabilities assumed related to the acquisition, most notably, deferred taxes, required liabilities to minority parties and goodwill, and the final allocation will be made when completed. We expect to finalize the purchase price allocation for the acquisition of Consolidated Thompson during the second quarter. Accordingly, the provisional measurements noted below are preliminary and subject to modification in the future.
(In Millions) | ||||||||||||
Initial Allocation |
Revised Allocation |
Change | ||||||||||
Consideration |
||||||||||||
Cash |
$ | 4,554.0 | $ | 4,554.0 | $ | - | ||||||
|
|
|
|
|
|
|||||||
Fair value of total consideration transferred |
$ | 4,554.0 | $ | 4,554.0 | $ | - | ||||||
|
|
|
|
|
|
|||||||
Recognized amounts of identifiable assets acquired and liabilities assumed |
||||||||||||
ASSETS: |
||||||||||||
Cash |
$ | 130.6 | $ | 130.6 | $ | - | ||||||
Accounts receivable |
102.8 | 102.4 | (0.4) | |||||||||
Product inventories |
134.2 | 134.2 | - | |||||||||
Other current assets |
35.1 | 35.1 | - | |||||||||
Mineral rights |
4,450.0 | 4,825.6 | 375.6 | |||||||||
Property, plant and equipment |
1,193.4 | 1,193.4 | - | |||||||||
Intangible assets |
2.1 | 2.1 | - | |||||||||
|
|
|
|
|
|
|||||||
Total identifiable assets acquired |
6,048.2 | 6,423.4 | 375.2 | |||||||||
LIABILITIES: |
||||||||||||
Accounts payable |
(13.6) | (13.6) | - | |||||||||
Accrued liabilities |
(130.0) | (123.8) | 6.2 | |||||||||
Convertible debentures |
(335.7) | (335.7) | - | |||||||||
Other current liabilities |
(41.8) | (47.9) | (6.1) | |||||||||
Long-term deferred tax liabilities |
(831.5) | (1,041.8) | (210.3) | |||||||||
Senior secured notes |
(125.0) | (125.0) | - | |||||||||
Capital lease obligations |
(70.7) | (70.7) | - | |||||||||
Other long-term liabilities |
(25.1) | (32.8) | (7.7) | |||||||||
|
|
|
|
|
|
|||||||
Total identifiable liabilities assumed |
(1,573.4) | (1,791.3) | (217.9) | |||||||||
|
|
|
|
|
|
|||||||
Total identifiable net assets acquired |
4,474.8 | 4,632.1 | 157.3 | |||||||||
Noncontrolling interest in Bloom Lake |
(947.6) | (1,075.4) | (127.8) | |||||||||
Preliminary goodwill |
1,026.8 | 997.3 | (29.5) | |||||||||
|
|
|
|
|
|
|||||||
Total net assets acquired |
$ | 4,554.0 | $ | 4,554.0 | $ | - | ||||||
|
|
|
|
|
|
During the first quarter of 2012, we further refined the fair value of the assets acquired and liabilities assumed to the initial purchase price allocation, which was established during the second quarter of 2011, for Consolidated Thompson. The acquisition date fair value was adjusted to record a $16.4 million increase related to pre-acquisition date Quebec mining duties tax. We recorded $6.1 million and $10.3 million as increases to current and long term liabilities, respectively. This resulted in a reduction of our calculated minimum distribution payable to the minority partner by $2.6 million. These adjustments resulted in a net $13.8 million increase to our goodwill during the period. As our fair value estimates remained materially unchanged from December 31, 2011, the immaterial adjustments made to the initial purchase price allocation during the first quarter of 2012 were recorded in the current period.
In the months during 2011 subsequent to the initial purchase price allocation for Consolidated Thompson, we adjusted the fair values of the assets acquired and liabilities assumed. Based on this process, the acquisition date fair value of the Consolidated Thompson mineral rights, deferred tax liability and noncontrolling interest in Bloom Lake were adjusted to $4,825.6 million, $1,041.8 million and $1,075.4 million, respectively, in the revised purchase price allocation during the fourth quarter of 2011. The change in mineral rights was caused by further refinements to the valuation model, most specifically as it related to potential tax structures that have value from a market participant standpoint and the risk premium used in determining the discount rate. The change in the deferred tax liability primarily was a result of the movement in the mineral rights value and obtaining additional detail of the acquired tax basis in the acquired assets and liabilities. Finally, the change in the noncontrolling interest in Bloom Lake was due to the change in mineral rights and a downward adjustment to the discount for lack of control being used in the valuation. A complete comparison of the initial and revised purchase price allocation has been provided in the table above.
The fair value of the noncontrolling interest in the assets acquired and liabilities assumed in Bloom Lake has been allocated proportionately, based upon WISCO's 25 percent interest in Bloom Lake. We then reduced the allocated fair value of WISCO's ownership interest in Bloom Lake to reflect the noncontrolling interest discount.
The $997.3 million of preliminary goodwill resulting from the acquisition has been assigned to our Eastern Canadian Iron Ore business segment through the Bloom Lake reporting unit. Management believes the preliminary goodwill recognized primarily is attributable to the proximity to our existing Canadian operations and potential for future expansion in Eastern Canada, which will allow us to leverage our port facilities and supply iron ore to the seaborne market. None of the preliminary goodwill is expected to be deductible for income tax purposes. Refer to NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES for further information.
The following unaudited consolidated pro forma information summarizes the results of operations for the three months ended March 31, 2011, as if the Consolidated Thompson acquisition and the related financing had been completed as of January 1, 2010. The pro forma information gives effect to actual operating results prior to the acquisition. The unaudited consolidated pro forma information does not purport to be indicative of the results that actually would have been obtained if the acquisition of Consolidated Thompson had occurred as of the beginning of the periods presented or that may be obtained in the future.
(In Millions, Except Per Common Share) |
||||
Three Months Ended March 31, |
||||
2011 | ||||
REVENUES FROM PRODUCT SALES AND SERVICES |
$ | 1,278.8 | ||
NET INCOME ATTRIBUTABLE TO CLIFFS SHAREHOLDERS |
$ | 400.1 | ||
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS - BASIC |
$ | 2.95 | ||
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS - DILUTED |
$ | 2.94 |
|
NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES
Goodwill
The following table summarizes changes in the carrying amount of goodwill allocated by operating segment for the three months ended March 31, 2012 and the year ended December 31, 2011:
(In Millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2012 | December 31, 2011 (1) | |||||||||||||||||||||||||||||||||||||||||||||||
U.S. Iron Ore |
Eastern Canadian Iron Ore |
North American Coal |
Asia Pacific Iron Ore |
Other | Total | U.S. Iron Ore |
Eastern Canadian Iron Ore |
North American Coal |
Asia Pacific Iron Ore |
Other | Total | |||||||||||||||||||||||||||||||||||||
Beginning Balance |
$ | 2.0 | $ | 986.2 | $ | - | $ | 83.0 | $ | 80.9 | $ | 1,152.1 | $ | 2.0 | $ | 3.1 | $ | 27.9 | $ | 82.6 | $ | 80.9 | $ | 196.5 | ||||||||||||||||||||||||
Arising in business combinations |
- | 13.8 | - | - | - | 13.8 | - | 983.5 | (0.1) | - | - | 983.4 | ||||||||||||||||||||||||||||||||||||
Impairment |
- | - | - | - | - | - | - | - | (27.8) | - | - | (27.8) | ||||||||||||||||||||||||||||||||||||
Impact of foreign currency translation |
- | - | - | 1.0 | - | 1.0 | - | - | - | 0.4 | - | 0.4 | ||||||||||||||||||||||||||||||||||||
Other |
- | - | - | - | - | - | - | (0.4) | - | - | - | (0.4) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Ending Balance |
$ | 2.0 | $ | 1,000.0 | $ | - | $ | 84.0 | $ | 80.9 | $ | 1,166.9 | $ | 2.0 | $ | 986.2 | $ | - | $ | 83.0 | $ | 80.9 | $ | 1,152.1 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Represents a 12-Month rollforward of our goodwill by reportable unit at December 31, 2011. Goodwill is not subject to amortization and is tested for impairment annually or when events or circumstances indicate that impairment may have occurred.
Other Intangible Assets and Liabilities
Following is a summary of intangible assets and liabilities as of March 31, 2012 and December 31, 2011:
Classification |
(In Millions) | |||||||||||||||||||||||||
March 31, 2012 | December 31, 2011 | |||||||||||||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
|||||||||||||||||||||
Definite lived intangible assets: |
||||||||||||||||||||||||||
Permits |
Intangible assets, net | $ | 135.1 | $ | (25.2) | $ | 109.9 | $ | 134.3 | $ | (23.2) | $ | 111.1 | |||||||||||||
Utility contracts |
Intangible assets, net | 54.7 | (24.1) | 30.6 | 54.7 | (21.3) | 33.4 | |||||||||||||||||||
Leases |
Intangible assets, net | 5.5 | (3.0) | 2.5 | 5.5 | (3.0) | 2.5 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total intangible assets |
$ | 195.3 | $ | (52.3) | $ | 143.0 | $ | 194.5 | $ | (47.5) | $ | 147.0 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Below-market sales contracts |
Other current liabilities | $ | (46.0) | $ | - | $ | (46.0) | $ | (77.0) | $ | 24.3 | $ | (52.7) | |||||||||||||
Below-market sales contracts |
Below-market sales contracts | (247.4) | 134.2 | (113.2) | (252.3) | 140.5 | (111.8) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total below-market sales contracts |
$ | (293.4) | $ | 134.2 | $ | (159.2) | $ | (329.3) | $ | 164.8 | $ | (164.5) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The intangible assets are subject to periodic amortization on a straight-line basis over their estimated useful lives as follows:
Intangible Asset |
Useful Life (years) | |
Permits |
15 - 28 | |
Utility contracts |
5 | |
Leases |
1.5 - 4.5 |
Amortization expense relating to intangible assets was $4.8 million and $4.7 million for the three months ended March 31, 2012 and 2011, respectively, and is recognized in Cost of goods sold and operating expenses in the Statements of Unaudited Condensed Consolidated Operations. The estimated amortization expense relating to intangible assets for the remainder of 2012 and each of the five succeeding years is as follows:
(In Millions) | ||||
Amount | ||||
Year Ending December 31 |
||||
2012 (remaining nine months) |
$ | 13.5 | ||
2013 |
17.9 | |||
2014 |
17.9 | |||
2015 |
6.0 | |||
2016 |
6.0 | |||
2017 |
6.0 | |||
|
|
|||
Total |
$ | 67.3 | ||
|
|
The below-market sales contracts are classified as a liability and recognized over the terms of the underlying contracts, which the remaining lives range from 2 to 5 years. For the three months ended March 31, 2012 and 2011, we recognized $1.9 million and $7.1 million, respectively, in Product revenues related to the below-market sales contracts. The following amounts will be recognized in Product revenues for each of the five succeeding fiscal years:
(In Millions) | ||||
Amount | ||||
Year Ending December 31 |
||||
2012 (remaining nine months) |
$ | 44.1 | ||
2013 |
46.0 | |||
2014 |
23.1 | |||
2015 |
23.0 | |||
2016 |
23.0 | |||
2017 |
- | |||
|
|
|||
Total |
$ | 159.2 | ||
|
|
|
NOTE 8 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The following represents the assets and liabilities of the Company measured at fair value at March 31, 2012 and December 31, 2011:
(In Millions) | ||||||||||||||||
March 31, 2012 | ||||||||||||||||
Description |
Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | ||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | - | $ | - | $ | - | $ | - | ||||||||
Derivative assets |
- | - | 69.2 | 69.2 | ||||||||||||
International marketable securities |
30.6 | - | - | 30.6 | ||||||||||||
Foreign exchange contracts |
- | 9.6 | - | 9.6 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 30.6 | $ | 9.6 | $ | 69.2 | $ | 109.4 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Derivative liabilities |
$ | - | $ | - | $ | 1.1 | $ | 1.1 | ||||||||
Foreign exchange contracts |
- | 2.5 | - | 2.5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | - | $ | 2.5 | $ | 1.1 | $ | 3.6 | ||||||||
|
|
|
|
|
|
|
|
(In Millions) | ||||||||||||||||
December 31, 2011 | ||||||||||||||||
Description |
Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | ||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 351.2 | $ | - | $ | - | $ | 351.2 | ||||||||
Derivative assets |
- | - | 157.9 | (1) | 157.9 | |||||||||||
International marketable securities |
27.1 | - | - | 27.1 | ||||||||||||
Foreign exchange contracts |
- | 8.0 | - | 8.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 378.3 | $ | 8.0 | $ | 157.9 | $ | 544.2 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Derivative liabilities |
$ | - | $ | - | $ | 19.5 | $ | 19.5 | ||||||||
Foreign exchange contracts |
- | 3.5 | - | 3.5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | - | $ | 3.5 | $ | 19.5 | $ | 23.0 | ||||||||
|
|
|
|
|
|
|
|
(1) |
Derivative assets includes $83.8 million classified as Accounts receivable in the Statement of Consolidated Financial Position as of December 31, 2011. Refer to NOTE 3 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for further information. |
Financial assets classified in Level 1 at March 31, 2012 and December 31, 2011 include money market funds and available-for-sale marketable securities. The valuation of these instruments is determined using a market approach, taking into account current interest rates, creditworthiness and liquidity risks in relation to current market conditions, and 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 for substantially the full term of the financial instrument. Level 2 securities primarily include derivative financial instruments valued using financial models that use as their basis readily observable market parameters. At March 31, 2012 and December 31, 2011, such derivative financial instruments included our existing foreign currency exchange contracts. The fair value of the foreign currency exchange contracts is based on forward market prices and represents the estimated amount we would receive or pay to terminate these agreements at the reporting date, taking into account creditworthiness, nonperformance risk and liquidity risks associated with current market conditions.
The derivative financial assets classified within Level 3 at March 31, 2012 and December 31, 2011 include a freestanding derivative instrument related to certain supply agreements with one of our U.S. Iron Ore customers. The agreements include provisions for supplemental revenue or refunds based on the customer's annual steel pricing at the time the product is consumed in the customer's blast furnaces. We account for this provision as a derivative instrument at the time of sale and mark this provision 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 instrument is determined using a market approach based on an estimate of the annual realized price of hot rolled steel at the steelmaker's facilities, and takes into consideration current market conditions and nonperformance risk.
The Level 3 derivative assets and liabilities at March 31, 2012 also consisted of derivatives related to certain supply agreements with our U.S. Iron Ore, Eastern Canadian Iron Ore and Asia Pacific Iron Ore customers. These customer supply agreements specify provisional price calculations, where the pricing mechanisms are generally based on market pricing, with the final sales price 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 provisionally agreed-upon price and the estimated final sales price is characterized as a derivative and is required to be accounted for separately once the revenue has been recognized. The derivative instrument is 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 sales price is determined.
The Level 3 derivative assets and liabilities at December 31, 2011 also consisted of derivatives related to certain supply agreements with our U.S. Iron Ore and Eastern Canadian Iron Ore customers. In some instances we are still working to revise components of the pricing calculations referenced within our supply agreements to incorporate new market inputs to the pricing mechanisms as a result of the elimination of historical benchmark pricing. As a result, we record certain shipments made to our U.S. Iron Ore and Eastern Canadian Iron Ore customers based on an agreed-upon provisional price with the customer until final settlement on the market inputs to the pricing mechanisms are finalized. The lack of agreed-upon market inputs results in these pricing provisions being characterized as derivatives. The derivative instrument, which is settled and billed or credited once the determinations of the market inputs to the pricing mechanisms are finalized, is adjusted to fair value through Product revenues each reporting period based upon current market data and forward-looking estimates determined by management. During the three months ended March 31, 2012, we had no shipments to customers under supply agreements in which components of the pricing calculations are still being finalized.
Quantitative Information About Level 3 Fair Value Measurements | ||||||||||||||||
($ in millions) |
Fair Value at 3/31/12 |
Balance Sheet Location |
Valuation Technique |
Unobservable |
Range (Weighted | |||||||||||
Provisional Pricing Arrangement |
$ | 4.1 | Derivative Assets | Market Approach | Managements Estimate of 62% Fe | $130-$175 ($150) | ||||||||||
$ | 1.1 | Other current liabilities | ||||||||||||||
Customer Supply Agreement |
$ | 65.1 | Derivative Assets | Market Approach | Hot-Rolled Steel Estimate | $700-$750 ($700) |
The significant unobservable input used in the fair value measurement of the reporting entity's provisional pricing arrangements is management's estimate of 62% Fe price that is determined based upon current market data, including historical seasonality and forward-looking estimates determined by management. Significant increases or decreases in this input would result in a significantly higher or lower fair-value measurement, respectively.
The significant unobservable input used in the fair-value measurement of the reporting entity's customer supply agreements is the future hot-rolled steel price. Significant increases or decreases in this input would result in a significantly higher or lower fair value measurement, respectively.
These significant estimates are determined by a collaboration of our commercial, finance and treasury departments and are reviewed by management.
Substantially all of the financial assets and liabilities are carried at fair value or contracted amounts that approximate fair value. We had no financial assets and liabilities measured at fair value on a non-recurring basis at March 31, 2012 or December 31, 2011.
There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the first quarter of 2012 or 2011. The following table represents 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) for the three months ended March 31, 2012 and 2011.
(In Millions) | ||||||||
Derivative Assets (Level 3) | ||||||||
Three Months Ended March 31, |
||||||||
2012 | 2011 | |||||||
Beginning balance-January 1 |
$ | 157.9 | $ | 45.6 | ||||
Total gains |
||||||||
Included in earnings |
43.3 | 44.6 | ||||||
Included in other comprehensive income |
- | - | ||||||
Settlements |
(132.0) | (22.1) | ||||||
Transfers into Level 3 |
- | - | ||||||
Transfers out of Level 3 |
- | - | ||||||
|
|
|
|
|||||
Ending balance - March 31 |
$ | 69.2 | $ | 68.1 | ||||
|
|
|
|
|||||
Total gains for the period included in earnings attributable to the change in unrealized gains on assets still held at the reporting date |
$ | 43.3 | $ | 44.6 | ||||
|
|
|
|
|||||
(In Millions) | ||||||||
Derivative Liabilities (Level 3) | ||||||||
Three Months Ended March 31, |
||||||||
2012 | 2011 | |||||||
Beginning balance-January 1 |
$ | (19.5) | $ | - | ||||
Total losses |
||||||||
Included in earnings |
(1.1) | - | ||||||
Included in other comprehensive income |
- | - | ||||||
Settlements |
19.5 | - | ||||||
Transfers into Level 3 |
- | - | ||||||
|
|
|
|
|||||
Ending balance - March 31 |
$ | (1.1) | $ | - | ||||
|
|
|
|
|||||
Total losses for the period included in earnings attributable to the change in unrealized losses on assets still held at the reporting date |
$ | (1.1) | $ | - | ||||
|
|
|
|
Gains and losses included in earnings are reported in Product revenues in the Statements of Unaudited Condensed Consolidated Operations for the three months ended March 31, 2012 and 2011.
The carrying amount and fair value of our long-term receivables and long-term debt at March 31, 2012 and December 31, 2011 were as follows:
(In Millions) | ||||||||||||||||||||
March 31, 2012 | December 31, 2011 | |||||||||||||||||||
Classification | Carrying Value |
Fair Value |
Carrying Value |
Fair Value |
||||||||||||||||
Long-term receivables: |
||||||||||||||||||||
Customer supplemental payments |
Level 2 | $ | 22.3 | $ | 21.2 | $ | 22.3 | $ | 20.8 | |||||||||||
ArcelorMittal USA—Receivable |
Level 2 | 24.8 | 28.6 | 26.5 | 30.7 | |||||||||||||||
Other |
Level 2 | 10.8 | 10.8 | 10.0 | 10.0 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total long-term receivables (1) |
$ | 57.9 | $ | 60.6 | $ | 58.8 | $ | 61.5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Long-term debt: |
||||||||||||||||||||
Term loan—$1.25 billion |
Level 2 | $ | 872.2 | $ | 872.2 | $ | 897.2 | $ | 897.2 | |||||||||||
Senior notes—$700 million |
Level 2 | 699.3 | 738.7 | 699.3 | 726.4 | |||||||||||||||
Senior notes—$1.3 billion |
Level 2 | 1,289.2 | 1,439.1 | 1,289.2 | 1,399.4 | |||||||||||||||
Senior notes—$400 million |
Level 2 | 398.1 | 453.6 | 398.0 | 448.8 | |||||||||||||||
Senior notes—$325 million |
Level 2 | 325.0 | 353.9 | 325.0 | 348.7 | |||||||||||||||
Customer borrowings |
Level 2 | 4.6 | 4.6 | 5.1 | 5.1 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total long-term debt |
$ | 3,588.4 | $ | 3,862.1 | $ | 3,613.8 | $ | 3,825.6 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
(1) Includes current portion. |
The fair value of the long-term receivables and debt are based on the fair market yield curves for the remainder of the term expected to be outstanding.
The terms of one of our U.S. Iron Ore pellet supply agreements require supplemental payments to be paid by the customer during the period 2009 through 2013, with the option to defer a portion of the 2009 monthly amount up to $22.3 million in exchange for interest payments until the deferred amount is repaid in 2013. Interest is payable by the customer quarterly and began in September 2009 at the higher of 9 percent or the prime rate plus 350 basis points. As of March 31, 2012, a receivable of $22.3 million had been recorded in Other non-current assets in the Statement of Unaudited Condensed Consolidated Financial Position reflecting the terms of this deferred payment arrangement. The fair value of the receivable of $21.2 million and $20.8 million at March 31, 2012 and December 31, 2011, respectively, is based on a discount rate of 3.30 percent, which represents the estimated credit-adjusted risk-free interest rate for the period the receivable is outstanding.
In 2002, we entered into an agreement with Ispat that restructured the ownership of the Empire mine and increased our ownership from 46.7 percent to 79.0 percent in exchange for the assumption of all mine liabilities. Under the terms of the agreement, we indemnified Ispat from obligations of Empire in exchange for certain future payments to Empire and to us by Ispat of $120.0 million, recorded at a present value of $24.8 million and $26.5 million at March 31, 2012 and December 31, 2011, respectively. The fair value of the receivable of $28.6 million and $30.7 million at March 31, 2012 and December 31, 2011, respectively, is based on a discount rate of 2.02 percent, which represents the estimated credit-adjusted risk-free interest rate for the period the receivable is outstanding.
The fair value of long-term debt was determined using quoted market prices or discounted cash flows based upon current borrowing rates. The term loan and revolving loan are variable rate interest and approximate fair value. See NOTE 9 — DEBT AND CREDIT FACILITIES for further information.
|
NOTE 9 – DEBT AND CREDIT FACILITIES
The following represents a summary of our long-term debt as of March 31, 2012 and December 31, 2011:
($ in Millions) |
||||||||||||||||||
March 31, 2012 |
||||||||||||||||||
Debt Instrument |
Type | Average Annual Interest Rate |
Final Maturity |
Total Face Amount |
Total Long- term Debt |
|||||||||||||
$1.25 Billion Term Loan |
Variable | 1.37 % | 2016 | 959.5 | (6) | 872.2 | (6) | |||||||||||
$700 Million 4.875% 2021 Senior Notes |
Fixed | 4.88 % | 2021 | 700.0 | 699.3 | (5) | ||||||||||||
$1.3 Billion Senior Notes: |
||||||||||||||||||
$500 Million 4.80% 2020 Senior Notes |
Fixed | 4.80 % | 2020 | 500.0 | 499.1 | (4) | ||||||||||||
$800 Million 6.25% 2040 Senior Notes |
Fixed | 6.25 % | 2040 | 800.0 | 790.1 | (3) | ||||||||||||
$400 Million 5.90% 2020 Senior Notes |
Fixed | 5.90 % | 2020 | 400.0 | 398.1 | (2) | ||||||||||||
$325 Million Private Placement Senior Notes: |
||||||||||||||||||
Series 2008A - Tranche A |
Fixed | 6.31 % | 2013 | 270.0 | 270.0 | |||||||||||||
Series 2008A - Tranche B |
Fixed | 6.59 % | 2015 | 55.0 | 55.0 | |||||||||||||
$1.75 Billion Credit Facility: |
||||||||||||||||||
Revolving Loan |
Variable | - | 2016 | 1,750.0 | - | (1) | ||||||||||||
|
|
|
|
|||||||||||||||
Total |
$ | 5,434.5 | $ | 3,583.8 | ||||||||||||||
|
|
|
|
December 31, 2011 |
||||||||||||||||||
Debt Instrument |
Type | Average Annual Interest Rate |
Final Maturity |
Total Face Amount |
Total Long-term Debt |
|||||||||||||
$1.25 Billion Term Loan |
Variable | 1.40 % | 2016 | $ | 972.0 | (6) | $ | 897.2 | (6) | |||||||||
$700 Million 4.875% 2021 Senior Notes |
Fixed | 4.88 % | 2021 | 700.0 | 699.3 | (5) | ||||||||||||
$1.3 Billion Senior Notes: |
||||||||||||||||||
$500 Million 4.80% 2020 Senior Notes |
Fixed | 4.80 % | 2020 | 500.0 | 499.1 | (4) | ||||||||||||
$800 Million 6.25% 2040 Senior Notes |
Fixed | 6.25 % | 2040 | 800.0 | 790.1 | (3) | ||||||||||||
$400 Million 5.90% 2020 Senior Notes |
Fixed | 5.90 % | 2020 | 400.0 | 398.0 | (2) | ||||||||||||
$325 Million Private Placement Senior Notes: |
||||||||||||||||||
Series 2008A - Tranche A |
Fixed | 6.31 % | 2013 | 270.0 | 270.0 | |||||||||||||
Series 2008A - Tranche B |
Fixed | 6.59 % | 2015 | 55.0 | 55.0 | |||||||||||||
$1.75 Billion Credit Facility: |
||||||||||||||||||
Revolving Loan |
Variable | - | 2016 | 1,750.0 | - | (1) | ||||||||||||
|
|
|
|
|||||||||||||||
Total |
$ | 5,447.0 | $ | 3,608.7 | ||||||||||||||
|
|
|
|
(1) As of March 31, 2012 and December 31, 2011, no revolving loans were drawn under the credit facility and the principal amount of letter of credit obligations totaled $23.5 million for each period respectively, thereby reducing available borrowing capacity to $1,726.5 million for each period, respectively. As of April 26, 2012, we had direct borrowings on our $1.75 billion credit facility in the amount of $425.0 million for purposes of funding general operations.
(2) As of March 31, 2012 and December 31, 2011, the $400 million 5.90 percent senior notes were recorded at a par value of $400 million less unamortized discounts of $1.9 million and $2.0 million, respectively, based on an imputed interest rate of 5.98 percent.
(3)As of March 31, 2012 and December 31, 2011, the $800 million 6.25 percent senior notes were recorded at par value of $800 million less unamortized discounts of $9.9 million in each period, respectively, based on an imputed interest rate of 6.38 percent.
(4) As of March 31, 2012 and December 31, 2011, the $500 million 4.80 percent senior notes were recorded at a par value of $500 million less unamortized discounts of $0.9 million in each period, respectively, based on an imputed interest rate of 4.83 percent.
(5) As of March 31, 2012 and December 31, 2011, the $700 million 4.88 percent senior notes were recorded at a par value of $700 million less unamortized discounts of $0.7 million in each period, respectively, based on an imputed interest rate of 4.89 percent.
(6) As of March 31, 2012 and December 31, 2011, $290.5 and $278.0 million, respectively, had been paid down on the original $1.25 billion term loan and of the remaining term loan $87.2 million and $74.8 million, respectively, was classified as Current portion of term loan. The current classification is based upon the principal payment terms of the arrangement requiring principal payments on each three-month anniversary following the funding of the term loan.
The terms of the private placement senior notes, term loan and credit facility each contain customary covenants that require compliance with certain financial covenants based on: (1) debt to earnings ratio and (2) interest coverage ratio. As of March 31, 2012 and December 31, 2011, we were in compliance with the financial covenants related to both the private placement senior notes and the credit facilities. The terms of the senior notes due in 2020, 2021 and 2040 contain certain customary covenants; however, there are no financial covenants.
Short-term Facilities
Asia Pacific Iron Ore maintains a bank contingent instrument facility and cash advance facility. The facility, which is renewable annually at the bank's discretion, provides A$40 million in credit for contingent instruments, such as performance bonds and the ability to request a cash advance facility to be provided at the discretion of the bank. As of March 31, 2012, the outstanding bank guarantees under this facility totaled A$24.7 million ($25.5 million), thereby reducing borrowing capacity to A$15.3 million ($15.9 million). We have provided a guarantee of the facility, along with certain of our Australian subsidiaries. The facility agreement contains customary covenants that require compliance with certain financial covenants: (1) debt to earnings ratio and (2) interest coverage ratio, both based on the financial performance of the Company. As of March 31, 2012 and December 31, 2011, we were in compliance with these financial covenants.
Letters of Credit
In conjunction with our acquisition of Consolidated Thompson, we issued standby letters of credit with certain financial institutions in order to support Consolidated Thompson's and Bloom Lake's general business obligations. In addition, we issued standby letters of credit with certain financial institutions during the third quarter of 2011 in order to support Wabush's obligations. As of March 31, 2012 and December 31, 2011, these letter of credit obligations totaled $95.0 million. All of these standby letters of credit are in addition to the letters of credit provided for under the amended and restated multicurrency credit agreement.
Debt Maturities
Maturities of debt instruments based on the principal amounts outstanding at March 31, 2012, total approximately $62.3 million in 2012, $369.7 million in 2013, $124.6 million in 2014, $428.8 million in 2015, $299.1 million in 2016 and $2.4 billion thereafter.
|
NOTE 10 – LEASE OBLIGATIONS
We lease certain mining, production and other equipment under operating and capital leases. The leases are for varying lengths, generally at market interest rates and contain purchase and/or renewal options at the end of the terms. Our operating lease expense was $6.3 million for the three months ended March 31, 2012, compared with $5.8 million for the same period in 2011.
Future minimum payments under capital leases and non-cancellable operating leases at March 31, 2012 are as follows:
(In Millions) | ||||||||
Capital Leases |
Operating Leases |
|||||||
2012 (April 1 - December 31) |
$ | 61.3 | $ | 18.2 | ||||
2013 |
72.1 | 24.0 | ||||||
2014 |
66.8 | 19.7 | ||||||
2015 |
55.5 | 12.8 | ||||||
2016 |
40.7 | 8.7 | ||||||
2017 and thereafter |
132.5 | 29.8 | ||||||
|
|
|
|
|||||
Total minimum lease payments |
$ | 428.9 | $ | 113.2 | ||||
|
|
|||||||
Amounts representing interest |
107.4 | |||||||
|
|
|||||||
Present value of net minimum lease payments |
$ | 321.5 | (1) | |||||
|
|
(1) |
The total is comprised of $56.3 million and $265.2 million classified as Other current liabilities and Other liabilities, respectively, in the Statements of Unaudited Condensed Consolidated Financial Position at March 31, 2012 |
|
NOTE 11 – ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
We had environmental and mine closure liabilities of $240.7 million and $235.7 million at March 31, 2012 and December 31, 2011, respectively. The following is a summary of the obligations as of March 31, 2012 and the year ended December 31, 2011:
(In Millions) | ||||||||
March 31, 2012 |
December 31, 2011 |
|||||||
Environmental |
$ | 15.5 | $ | 15.5 | ||||
Mine closure |
||||||||
LTVSMC |
16.7 | 16.5 | ||||||
Operating mines: |
||||||||
U.S Iron Ore |
76.1 | 74.3 | ||||||
Eastern Canadian Iron Ore |
69.8 | 68.0 | ||||||
North American Coal |
36.9 | 36.3 | ||||||
Asia Pacific Iron Ore |
16.7 | 16.3 | ||||||
Other |
9.0 | 8.8 | ||||||
|
|
|
|
|||||
Total mine closure |
225.2 | 220.2 | ||||||
|
|
|
|
|||||
Total environmental and mine closure obligations |
240.7 | 235.7 | ||||||
Less current portion |
13.7 | 13.7 | ||||||
|
|
|
|
|||||
Long term environmental and mine closure obligations |
$ | 227.0 | $ | 222.0 | ||||
|
|
|
|
Mine Closure
Our mine closure obligations are for our four consolidated U.S. operating iron ore mines, our two Eastern Canadian operating iron ore mines, our six operating North American coal mines, our Asia Pacific operating iron ore mines, the coal mine at Sonoma and a closed operation formerly known as LTVSMC.
The accrued closure obligation for our active mining operations provides for contractual and legal obligations associated with the eventual closure of the mining operations. The accretion of the liability and amortization of the related asset is recognized over the estimated mine lives for each location. The following represents a rollforward of our asset retirement obligation liability related to our active mining locations for the three months ended March 31, 2012 and the year ended December 31, 2011:
(In Millions) | ||||||||
March 31, 2012 |
December 31, 2011 (1) |
|||||||
Asset retirement obligation at beginning of period |
$ | 203.7 | $ | 168.3 | ||||
Accretion expense |
4.5 | 16.1 | ||||||
Exchange rate changes |
0.3 | 0.1 | ||||||
Revision in estimated cash flows |
- | 5.9 | ||||||
Payments |
- | (0.7 | ) | |||||
Acquired through business combinations |
- | 14.0 | ||||||
|
|
|
|
|||||
Asset retirement obligation at end of period |
$ | 208.5 | $ | 203.7 | ||||
|
|
|
|
(1) |
Represents a 12-month rollforward of our asset retirement obligation at December 31, 2011. |
|
NOTE 12 – PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The following are the components of defined benefit pension and OPEB expense for the three months ended March 31, 2012 and 2011:
(In Millions) | ||||||||||||||||
Pension Benefits | Other Benefits | |||||||||||||||
Three Months Ended March 31, |
Three Months Ended March 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Service cost |
$ | 8.0 | $ | 5.8 | $ | 3.6 | $ | 2.4 | ||||||||
Interest cost |
12.0 | 13.6 | 5.2 | 5.9 | ||||||||||||
Expected return on plan assets |
(14.8) | (15.5) | (4.3) | (4.3) | ||||||||||||
Amortization: |
||||||||||||||||
Prior service costs |
1.0 | 1.2 | 0.7 | 0.6 | ||||||||||||
Net actuarial loss |
7.4 | 5.2 | 2.9 | 2.9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic benefit cost |
$ | 13.6 | $ | 10.3 | $ | 8.1 | $ | 7.5 | ||||||||
|
|
|
|
|
|
|
|
We made pension contributions of $14.4 million and $23.8 million for the three months ended March 31, 2012 and 2011, respectively. OPEB contributions were $21.9 million for three months ended March 31, 2012 and 2011.
|
NOTE 13 – STOCK COMPENSATION PLANS
Employees' Plans
On March 12, 2012, the Compensation and Organization Committee ("Committee") of the Board of Directors approved a grant under our shareholder-approved ICE Plan for the performance period 2012-2014. A total of 426,610 shares were granted under the award, consisting of 312,540 performance shares and 114,070 restricted share units.
For the outstanding ICE Plan award agreements, each performance share, if earned, entitles the holder to receive a number of common shares within the range between a threshold and maximum number of our common shares, with the actual number of common shares earned dependent upon whether the Company achieves certain objectives and performance goals as established by the Committee. The performance share grants vest over a period of three years and are intended to be paid out in common shares. Performance for the 2010 to 2012 performance period and 2011 to 2013 performance period is measured on the basis of two factors: 1) relative TSR for the period, as measured against a predetermined peer group of mining and metals companies, and 2) three-year cumulative free cash flow. Performance for the 2012 to 2014 performance period is measured on the basis of relative TSR for the period, as measured against a predetermined peer group of mining and metals companies. The final payout for the 2010 to 2012 performance period will vary from zero to 150 percent. The final payouts for the 2011 to 2013 performance period and the 2012 to 2014 performance period will vary from zero to 200 percent of the original grant. The restricted share units are subject to continued employment, are retention based, will vest at the end of the respective performance period for the performance shares, and are payable in common shares at a time determined by the Committee at its discretion.
Upon the occurrence of a change in control, all performance shares, restricted share units, restricted stock and retention units granted to a participant will vest and become nonforfeitable and will be paid out in cash.
Our Board of Directors approved the new 2012 Equity Plan on March 13, 2012, and recommended it to our shareholders to approve at the 2012 Annual Meeting of Shareholders. If approved, the 2012 Equity Plan will be effective as of March 13, 2012.
Determination of Fair Value
The fair value of each grant is estimated on the date of grant using a Monte Carlo simulation to forecast relative TSR performance. A correlation matrix of historic and projected stock prices was developed for both the Company and our predetermined peer group of mining and metals companies. The fair value assumes that performance goals will be achieved.
The expected term of the grant represents the time from the grant date to the end of the service period for each of the three plan year agreements. We estimated the volatility of our common shares and that of the peer group of mining and metals companies using daily price intervals for all companies. The risk-free interest rate is the rate at the grant date on zero-coupon government bonds, with a term commensurate with the remaining life of the performance plans.
The following assumptions were utilized to estimate the fair value for the first quarter 2012 performance share grants:
Grant Date |
Grant Date Market Price |
Average Expected Term (Years) |
Expected Volatility |
Risk- Free Interest Rate |
Dividend Yield |
Fair Value |
Fair Value (Percent of Grant Date Market Price) | |||||||
March 12, 2012 |
63.62 | 2.80 | 56.0% | 0.45% | 3.93% | 77.78 | 122.26% |
The fair value of the restricted share units is determined based on the closing price of the Company's common shares on the grant date. The restricted share units granted under the ICE Plan vest over a period of three years.
|
NOTE 14 – INCOME TAXES
Our tax provision for the three months ended March 31, 2012 was a benefit of $210.8 million. Our tax provision for the same period ended March 31, 2011 was an expense of $142.2 million. The effective tax rate for the first three months of 2012 is approximately a benefit of 112.4 percent, while the effective tax rate for the first three months of 2011 was 25.3 percent. The difference in the effective rate from the prior year primarily is due to the enactment of the MRRT by the Australian federal government. Additionally, the effective rate is impacted by lower pre-tax book income in 2012 over 2011 with similar book to tax differences, and the impact of currency elections on remeasurement of deferred tax assets and liabilities.
Our 2012 estimated annual effective tax rate before discrete items is approximately 23.2 percent. This estimated annual effective tax rate differs from the U.S. statutory rate of 35 percent primarily due to deductions for percentage depletion in excess of cost depletion related to U.S. operations, income not subject to tax, non-taxable income related to noncontrolling interests in partnerships, foreign taxes including MRRT and Quebec Mining Duty and benefits derived from operations outside the U.S., which are taxed at rates lower than the U.S. statutory rate of 35 percent.
In July 2010, the Australian federal government announced its intention to introduce a new MRRT applicable to the mining of iron ore and coal in Australia. The MRRT legislation was passed by the Australian Senate on March 19, 2012 and received Royal Assent on March 29, 2012, thereby enacting the law. The MRRT commencement date is July 1, 2012 and broadly aims to tax existing and future iron ore and coal projects at an effective tax rate of 22.5 percent. Based on valuations and modeling carried out on each of our Australian projects, we will be liable to pay MRRT over the course of the Koolyanobbing mine life, but not for the Cockatoo Island or Sonoma operations. The financial impact of this MRRT enactment is an increase to the balance of deferred tax assets of $334.6 million. From the results of a recoverability analysis undertaken, a valuation allowance of $19.9 million has also been recorded. The net deferred tax asset of $314.7 million represents the amount of allowance available to us to offset any future MRRT liability. The effect of the MRRT will be to increase our consolidated effective tax rate by approximately 3 percent to 4 percent each year over the life of the mines, which also includes the unwinding of the deferred tax asset.
As of March 31, 2012, our valuation allowance against certain deferred tax assets increased by $51.8 million from December 31, 2011. This increase primarily relates to ordinary losses of certain foreign operations for which future utilization is uncertain and a portion of the MRRT depreciable starting base expected not to be realized.
As of March 31, 2012, cumulative undistributed earnings of foreign subsidiaries included in consolidated retained earnings continue to be indefinitely reinvested in international operations. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings, nor is it practical to estimate the amount of income taxes that would have to be provided if we concluded that such earnings will be remitted in the future.
As of March 31, 2012, we had $78.5 million of unrecognized tax benefits recorded in Other liabilities in the Statements of Consolidated Financial Position. If the $78.5 million were recognized, the full amount would impact the effective tax rate. It is reasonably possible that unrecognized tax benefits will decrease in the range of $27.2 million to $29.5 million within the next 12 months due to expected settlements with the taxing authorities. During the three months ended March 31, 2012, we settled an audit for approximately $23.9 million, which previously was recorded. Additionally, we recorded $0.1 million of interest relating to unrecognized tax benefits during the first quarter of 2012.
Tax years that remain subject to examination are years 2009 and forward for the United States, 2005 and forward for Canada, and 2007 and forward for Australia.
|
NOTE 15 – CAPITAL STOCK
Dividends
A $0.14 per share cash dividend was paid on March 1, 2011 and June 1, 2011 to shareholders on record as of February 15, 2011 and April 29, 2011, respectively. On July 12, 2011, our Board of Directors increased the quarterly common share dividend by 100 percent to $0.28 per share. The increased cash dividend was paid on September 1, 2011 and December 1, 2011 to shareholders on record as of the close of business on August 15, 2011 and November 18, 2011, respectively. Additionally, the increased cash dividend was paid on March 1, 2012 to shareholders on record as of the close of business on February 15, 2012. On March 13, 2012, our Board of Directors increased the quarterly common share dividend by 123 percent to $0.625 per share. The increased cash dividend will be payable on June 1, 2012 to shareholders of record on the close of business on April 29, 2012.
|
NOTE 17 – RELATED PARTIES
We co-own three of our five U.S. iron ore mines and one of our two Eastern Canadian iron ore mines with various joint venture partners that are integrated steel producers or their subsidiaries. We are the manager of each of the mines we co-own and rely on our joint venture partners to make their required capital contributions and to pay for their share of the iron ore pellets that we produce. The joint venture partners are also our customers. The following is a summary of the mine ownership of these iron ore mines at March 31, 2012:
Mine |
Cliffs Natural Resources |
ArcelorMittal | U.S. Steel Canada |
WISCO | ||||||||||||
Empire |
79.0 | 21.0 | - | - | ||||||||||||
Tilden |
85.0 | - | 15.0 | - | ||||||||||||
Hibbing |
23.0 | 62.3 | 14.7 | - | ||||||||||||
Bloom Lake |
75.0 | - | - | 25.0 |
ArcelorMittal has a unilateral right to put its interest in the Empire Mine to us, but has not exercised this right to date.
Product revenues to related parties were as follows:
(In Millions) | ||||||||
Three Months Ended March 31, |
||||||||
2012 | 2011 | |||||||
Product revenues to related parties |
$ | 331.9 | $ | 313.6 | ||||
Total product revenues |
1,200.9 | 1,133.0 | ||||||
Related party product revenue as a percent of total product revenue |
27.6 | % | 27.7 | % |
Amounts due from related parties recorded in Accounts receivable and Derivative assets, including customer supply agreements and provisional pricing arrangements, were $129.2 million and $180.4 million at March 31, 2012 and December 31, 2011, respectively. Amounts due to related parties recorded in Other current liabilities, including provisional pricing arrangements and liabilities to minority parties, were $31.8 million and $43.0 million at March 31, 2012 and December 31, 2011, respectively.
|
NOTE 19 – COMMITMENTS AND CONTINGENCIES
Purchase Commitments
In 2011, we incurred capital commitments related to the expansion of our Bloom Lake mine. The expansion project requires a capital investment of over $1.3 billion for the expansion of the mine and the mine's processing capabilities in order to ramp-up production capacity from 8.0 million to 16.0 million metric tons of iron ore concentrate per year. The capital investment also includes the common infrastructure necessary to support the mine's future production levels. Through March 31, 2012, approximately $601 million of the total capital investment required for the Bloom Lake expansion project has been committed, of which a total of approximately $235 million had been expended. Of the remaining committed capital, expenditures of approximately $366 million are expected to be made during the remainder of 2012 and in 2013.
In March 2011, we incurred capital commitments related to bringing Lower War Eagle, a high-volatile metallurgical coal mine in West Virginia, into production. The project requires a capital investment of approximately $113 million, of which $62 million has been committed as of March 31, 2012. Total capital expenditures related to this commitment were approximately $52 million through March 31, 2012. Of the remaining committed capital, expenditures of approximately $10 million are scheduled to be made during the remainder of 2012.
In 2010, our Board of Directors approved a capital project at our Koolyanobbing Operation in Western Australia. The project is expected to increase the production capacity at the Koolyanobbing Operation to approximately 11 million metric tons annually. The improvements consist of enhancements to the existing rail infrastructure and upgrades to various other existing operational constraints. The expansion project requires a capital investment of approximately $275 million, of which approximately $273 million has been committed through March 31, 2012, that will be required to meet the timing of the proposed expansion. Through March 31, 2012, $225 million in capital expenditures had been expended related to this commitment. Of the remaining committed capital, approximately $16 million is expected to be spent throughout 2012, with the remainder of the committed capital to be financed through capital leases.
In 2011, we entered into an agreement with the rail service provider for one of the rail lines used by our Koolyanobbing operations to upgrade the existing rail line. The upgrade is being performed to enhance safety and improve functionality of the rail. The improvements include the replacement of rail and associated parts. As a result, our portion of the related purchase commitment is approximately $33 million for replacements and improvements to the rail structure. Through March 31, 2012, our capital expenditures related to this purchase were approximately $17 million. Remaining expenditures of approximately $16 million are expected to be made throughout 2013 and 2014.
We incurred capital commitments related to an expansion project at our Empire and Tilden mines in Michigan's Upper Peninsula in 2010. The expansion project requires a capital investment of approximately $264 million, of which $210 million has been committed as of March 31, 2012, and is expected to allow for production capacity at the Empire mine to produce at three million tons annually through 2014 and increase Tilden mine production capacity by an additional two million tons annually. Through March 31, 2012, total capital expenditures related to this commitment were approximately $160 million. Of the committed capital, expenditures of approximately $39 million and $11 million are scheduled to be made during the remainder of 2012 and in 2013, respectively.
Contingencies
Litigation
We are currently a party to various claims and legal proceedings incidental to our operations. If management believes that a loss arising from these matters is probable and can reasonably be estimated, we record the amount of the loss, or the minimum estimated liability when the loss is estimated using a range, and no point within the range is more probable than another. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary. Based on currently available information, management believes that the ultimate outcome of these matters, individually and in the aggregate, will not have a material effect on our financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages, additional funding requirements or an injunction. If an unfavorable ruling were to occur, there exists the possibility of a material impact on the financial position and results of operations of the period in which the ruling occurs, or future periods. However, we believe that any pending litigation will not result in a material liability in relation to our unaudited condensed consolidated financial statements.
|
NOTE 20 – CASH FLOW INFORMATION
A reconciliation of capital additions to cash paid for capital expenditures for the three months ended March 31, 2012 and 2011 is as follows:
(In Millions) | ||||||||
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Capital additions |
$ | 353.4 | $ | 91.0 | ||||
Cash paid for capital expenditures |
241.1 | 65.7 | ||||||
|
|
|
|
|||||
Difference |
$ | 112.3 | $ | 25.3 | ||||
|
|
|
|
|||||
Non-cash accruals |
$ | 59.5 | $ | 25.3 | ||||
Capital leases |
52.8 | - | ||||||
|
|
|
|
|||||
Total |
$ | 112.3 | $ | 25.3 | ||||
|
|
|
|
|
NOTE 21 – SUBSEQUENT EVENTS
As of April 26, 2012, we had direct borrowings on our $1.75 billion credit facility in the amount of $425.0 million for purposes of funding general operations.
We have evaluated subsequent events through the date of financial statement issuance.
|
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with SEC rules and regulations and in the opinion of management, contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly, the financial position, results of operations, comprehensive income, and cash flows for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. The results of operations for the three months ended March 31, 2012 are not necessarily indicative of results to be expected for the year ended December 31, 2012 or any other future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2011.
The unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly owned and majority-owned subsidiaries, including the following operations:
Name |
Location | Ownership Interest | Operation | |||||
Northshore |
Minnesota | 100.0 | % | Iron Ore | ||||
United Taconite |
Minnesota | 100.0 | % | Iron Ore | ||||
Wabush |
Labrador/Quebec, Canada | 100.0 | % | Iron Ore | ||||
Bloom Lake |
Quebec, Canada | 75.0 | % | Iron Ore | ||||
Tilden |
Michigan | 85.0 | % | Iron Ore | ||||
Empire |
Michigan | 79.0 | % | Iron Ore | ||||
Koolyanobbing |
Western Australia | 100.0 | % | Iron Ore | ||||
Pinnacle |
West Virginia | 100.0 | % | Coal | ||||
Oak Grove |
Alabama | 100.0 | % | Coal | ||||
CLCC |
West Virginia | 100.0 | % | Coal |
Intercompany transactions and balances are eliminated upon consolidation.
The following table presents the detail of our investments in unconsolidated ventures and where those investments are classified in the Statements of Unaudited Condensed Consolidated Financial Position as of March 31, 2012 and December 31, 2011. Parentheses indicate a net liability.
(In Millions) | ||||||||||||
Investment |
Classification | Interest Percentage |
March 31, 2012 |
December 31, 2011 |
||||||||
Amapá |
Investments in ventures | 30 | $ | 492.5 | $ | 498.6 | ||||||
AusQuest |
Investments in ventures | 30 | 3.5 | 3.7 | ||||||||
Cockatoo |
Other liabilities | 50 | (13.9) | (15.0) | ||||||||
Hibbing |
Other liabilities | 23 | (4.4) | (6.8) | ||||||||
Other |
Investments in ventures | 34.9 | 24.3 | |||||||||
|
|
|
|
|||||||||
$ | 512.6 | $ | 504.8 | |||||||||
|
|
|
|
Immaterial Errors
In September 2011, we noted an error in the accounting for the 21 percent noncontrolling interest in the Empire mine. In accordance with applicable GAAP, management quantitatively and qualitatively evaluated the materiality of the error and determined the error to be immaterial to the quarterly reports previously filed for the periods ended March 31, 2011 and June 30, 2011 and also immaterial for the quarterly report for the period ended September 30, 2011. Accordingly, all of the resulting adjustments were recorded prospectively in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2011 and the Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2011. The impact of the immaterial error in the Statements of Unaudited Condensed Consolidated Operations for the three months ended March 31, 2011 would have resulted in an increase in Income from Continuing Operations of $8.4 million and a decrease in Net Income Attributable to Cliffs Shareholders of $37.5 million or $0.28 to basic and diluted earnings per common share. These adjustments should be considered when comparing the operating results for the three months ended March 31, 2012 to the reported results for the three months ended March 31, 2011, as such adjustments are not reflected in the operating results reported for the three months ended March 31, 2011.
Discontinued Operations
On September 27, 2011, we announced our plans to cease and dispose of the operations at the renewaFUEL biomass production facility in Michigan. As we continued to successfully grow our core iron ore mining business, the decision to sell our interest in the renewaFUEL operations was made to allow our management focus and allocation of capital resources to be deployed where we believe we can have the most impact for our stakeholders. On January 4, 2012, we entered into an agreement to sell the renewaFUEL assets to RNFL Acquisition LLC. The results of operations of the renewaFUEL operations are reflected as discontinued operations in the accompanying unaudited condensed consolidated financial statements for all periods presented. We recorded $0.1 million as Loss From Discontinued Operations in the Statements of Unaudited Condensed Consolidated Operations for the period ended March 31, 2012. This compares to losses of $0.4 million for the period ended March 31, 2011.
Reportable Segments
As a result of the acquisition of Consolidated Thompson in May 2011, we revised the number of our operating and reportable segments as determined under ASC 280. Our Company's primary operations are organized and managed according to product category and geographic location and now include: U.S. Iron Ore, Eastern Canadian Iron Ore, North American Coal, Asia Pacific Iron Ore, Asia Pacific Coal, Latin American Iron Ore, Ferroalloys and our Global Exploration Group. Our historical presentation of segment information consisted of three reportable segments: North American Iron Ore, North American Coal and Asia Pacific Iron Ore. Our restated presentation consists of four reportable segments: U.S. Iron Ore, Eastern Canadian Iron Ore, North American Coal and Asia Pacific Iron Ore. The amounts disclosed in NOTE 2 – SEGMENT REPORTING reflect this restatement.
Significant Accounting Policies
A detailed description of our significant accounting policies can be found in the audited financial statements for the fiscal year ended December 31, 2011, included in our Annual Report on Form 10-K filed with the SEC. Due to continued market movement away from historical benchmark prices and the evolution of customer supply agreements to meet the requirements of the market, there have been changes in our significant accounting policies from those disclosed therein. The significant accounting policies requiring updates have been included within the disclosures below.
|
Name |
Location | Ownership Interest | Operation | |||||
Northshore |
Minnesota | 100.0 | % | Iron Ore | ||||
United Taconite |
Minnesota | 100.0 | % | Iron Ore | ||||
Wabush |
Labrador/Quebec, Canada | 100.0 | % | Iron Ore | ||||
Bloom Lake |
Quebec, Canada | 75.0 | % | Iron Ore | ||||
Tilden |
Michigan | 85.0 | % | Iron Ore | ||||
Empire |
Michigan | 79.0 | % | Iron Ore | ||||
Koolyanobbing |
Western Australia | 100.0 | % | Iron Ore | ||||
Pinnacle |
West Virginia | 100.0 | % | Coal | ||||
Oak Grove |
Alabama | 100.0 | % | Coal | ||||
CLCC |
West Virginia | 100.0 | % | Coal |
(In Millions) | ||||||||||||
Investment |
Classification | Interest Percentage |
March 31, 2012 |
December 31, 2011 |
||||||||
Amapá |
Investments in ventures | 30 | $ | 492.5 | $ | 498.6 | ||||||
AusQuest |
Investments in ventures | 30 | 3.5 | 3.7 | ||||||||
Cockatoo |
Other liabilities | 50 | (13.9) | (15.0) | ||||||||
Hibbing |
Other liabilities | 23 | (4.4) | (6.8) | ||||||||
Other |
Investments in ventures | 34.9 | 24.3 | |||||||||
|
|
|
|
|||||||||
$ | 512.6 | $ | 504.8 | |||||||||
|
|
|
|
|
(In Millions) | ||||||||||||||||
Three Months Ended March 31, |
||||||||||||||||
2012 | 2011 | |||||||||||||||
Revenues from product sales and services: |
||||||||||||||||
U.S. Iron Ore |
$ | 441.7 | 35% | $ | 510.2 | 43% | ||||||||||
Eastern Canadian Iron Ore |
220.7 | 18% | 127.3 | 11% | ||||||||||||
North American Coal |
189.9 | 15% | 165.0 | 14% | ||||||||||||
Asia Pacific Iron Ore |
359.8 | 28% | 345.4 | 29% | ||||||||||||
Other |
52.6 | 4% | 35.3 | 3% | ||||||||||||
|
|
|
|
|||||||||||||
Total revenues from product sales and services for reportable segments |
$ | 1,264.7 | 100% | $ | 1,183.2 | 100% | ||||||||||
|
|
|
|
|||||||||||||
Sales margin: |
||||||||||||||||
U.S. Iron Ore |
$ | 166.9 | $ | 361.3 | ||||||||||||
Eastern Canadian Iron Ore |
(14.3) | 34.5 | ||||||||||||||
North American Coal |
14.5 | (2.9) | ||||||||||||||
Asia Pacific Iron Ore |
125.0 | 195.8 | ||||||||||||||
Other |
11.4 | 10.8 | ||||||||||||||
|
|
|
|
|||||||||||||
Sales margin |
303.5 | 599.5 | ||||||||||||||
Other operating expense |
(72.4) | (57.4) | ||||||||||||||
Other income (expense) |
(43.5) | 20.9 | ||||||||||||||
|
|
|
|
|||||||||||||
Income from continuing operations before income taxes and equity income (loss) from ventures |
$ | 187.6 | $ | 563.0 | ||||||||||||
|
|
|
|
|||||||||||||
Depreciation, depletion and amortization: |
||||||||||||||||
U.S. Iron Ore |
$ | 23.2 | $ | 17.5 | ||||||||||||
Eastern Canadian Iron Ore |
37.9 | 9.6 | ||||||||||||||
North American Coal |
20.1 | 21.6 | ||||||||||||||
Asia Pacific Iron Ore |
30.0 | 24.0 | ||||||||||||||
Other |
6.1 | 7.1 | ||||||||||||||
|
|
|
|
|||||||||||||
Total depreciation, depletion and amortization |
$ | 117.3 | $ | 79.8 | ||||||||||||
|
|
|
|
|||||||||||||
Capital additions (1): |
||||||||||||||||
U.S. Iron Ore |
$ | 34.8 | $ | 31.6 | ||||||||||||
Eastern Canadian Iron Ore |
130.6 | 3.5 | ||||||||||||||
North American Coal |
39.1 | 27.5 | ||||||||||||||
Asia Pacific Iron Ore |
109.3 | 25.3 | ||||||||||||||
Other |
39.6 | 3.1 | ||||||||||||||
|
|
|
|
|||||||||||||
Total capital additions |
$ | 353.4 | $ | 91.0 | ||||||||||||
|
|
|
|
(1) Includes capital lease additions and non-cash accruals.
(In Millions) | ||||||||
March 31, 2012 |
December 31, 2011 |
|||||||
Segment Assets: |
||||||||
U.S. Iron Ore |
$ | 1,758.9 | $ | 1,691.8 | ||||
Eastern Canadian Iron Ore |
8,008.0 | 7,973.1 | ||||||
North American Coal |
1,948.3 | 1,814.4 | ||||||
Asia Pacific Iron Ore |
1,885.5 | 1,511.2 | ||||||
Other |
984.6 | 1,017.6 | ||||||
|
|
|
|
|||||
Total segment assets |
14,585.3 | 14,008.1 | ||||||
Corporate |
308.0 | 533.6 | ||||||
|
|
|
|
|||||
Total assets |
$ | 14,893.3 | $ | 14,541.7 | ||||
|
|
|
|
|
(In Millions) | ||||||||||||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||
March 31, 2012 | December 31, 2011 | March 31, 2012 | December 31, 2011 | |||||||||||||||||||||
Derivative Instrument |
Balance Sheet Location |
Fair Value |
Balance Sheet Location |
Fair Value |
Balance Sheet Location |
Fair Value |
Balance Sheet Location |
Fair Value |
||||||||||||||||
Derivatives designated as hedging instruments under ASC 815: |
||||||||||||||||||||||||
Foreign Exchange Contracts |
Derivative assets (current) |
$ | 9.6 | Derivative assets (current) |
$ | 5.2 | Other current liabilities |
$ | 2.5 | Other current liabilities |
$ | 3.5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total derivatives designated as hedging instruments under ASC 815 |
$ | 9.6 | $ | 5.2 | $ | 2.5 | $ | 3.5 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Derivatives not designated as hedging instruments under ASC 815: |
||||||||||||||||||||||||
Foreign Exchange Contracts |
Derivative assets (current) |
$ | - | Derivative assets (current) |
$ | 2.8 | $ | - | $ | - | ||||||||||||||
Customer Supply Agreements |
Derivative assets (current) |
65.1 | Derivative assets (current) |
72.9 | - | - | ||||||||||||||||||
Provisional Pricing Arrangements |
Derivative assets (current) |
4.1 | Derivative assets (current) |
1.2 | Other current liabilities |
1.1 | Other current liabilities |
19.5 | ||||||||||||||||
Accounts receivable |
- | Accounts receivable |
83.8 | - | - | |||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total derivatives not designated as hedging instruments under ASC 815 |
$ | 69.2 | $ | 160.7 | $ | 1.1 | $ | 19.5 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total derivatives |
$ | 78.8 | $ | 165.9 | $ | 3.6 | $ | 23.0 | ||||||||||||||||
|
|
|
|
|
|
|
|
(In Millions) | ||||||||||||||||||
Derivatives in Cash Flow Hedging Relationships |
Amount of Gain Recognized in OCI on Derivative (Effective Portion) |
Location of Gain Reclassified From Accumulated OCI into Income (Effective Portion) |
Amount of Gain Reclassified from Accumulated OCI into Income (Effective Portion) |
|||||||||||||||
Three months ended March 31, |
Three months ended March 31, |
|||||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||||
Australian Dollar Foreign Exchange Contracts (hedge designation) |
$ | 3.0 | $ | 1.9 | Product revenue | $ | 3.1 | $ | 0.2 | |||||||||
Canadian Dollar Foreign Exchange Contracts (hedge designation) |
0.7 | — | Cost of goods sold and operating expenses |
0.5 | - | |||||||||||||
Australian Dollar Foreign Exchange Contracts (prior to de-designation) |
— | — | Product revenue | — | 0.2 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 3.7 | $ | 1.9 | $ | 3.6 | $ | 0.4 | ||||||||||
|
|
|
|
|
|
|
|
(In Millions) |
||||||||||
Derivatives Not Designated as Hedging Instruments |
Location of Gain Recognized in Income on Derivative |
Amount of Gain Recognized in Income on Derivative |
||||||||
Three Months Ended March 31, |
||||||||||
2012 | 2011 | |||||||||
Foreign Exchange Contracts |
Product Revenues | $ | - | $ | 0.3 | |||||
Foreign Exchange Contracts |
Other Income (Expense) | 0.3 | 56.0 | |||||||
Customer Supply Agreements |
Product Revenues | 39.2 | 24.6 | |||||||
Provisional Pricing Arrangements |
Product Revenues | 3.0 | 20.0 | |||||||
Total |
$ | 42.5 | $ | 100.9 |
|
(In Millions) | ||||||||||||||||||||||||
March 31, 2012 | December 31, 2011 | |||||||||||||||||||||||
Segment |
Finished Goods |
Work-in Process |
Total Inventory |
Finished Goods |
Work-in Process |
Total Inventory |
||||||||||||||||||
U.S. Iron Ore |
$ | 250.0 | $ | 25.0 | $ | 275.0 | $ | 100.2 | $ | 8.5 | $ | 108.7 | ||||||||||||
Eastern Canadian Iron Ore |
133.6 | 45.0 | 178.6 | 96.2 | 43.0 | 139.2 | ||||||||||||||||||
North American Coal |
48.0 | 115.1 | 163.1 | 19.7 | 110.5 | 130.2 | ||||||||||||||||||
Asia Pacific Iron Ore |
41.6 | 19.1 | 60.7 | 57.2 | 21.6 | 78.8 | ||||||||||||||||||
Other |
17.2 | 1.3 | 18.5 | 18.0 | 0.8 | 18.8 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 490.4 | $ | 205.5 | $ | 695.9 | $ | 291.3 | $ | 184.4 | $ | 475.7 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions) | ||||||||
March 31, 2012 |
December 31, 2011 |
|||||||
Land rights and mineral rights |
$ | 7,969.0 | $ | 7,918.9 | ||||
Office and information technology |
68.4 | 67.0 | ||||||
Buildings |
138.1 | 132.2 | ||||||
Mining equipment |
1,394.7 | 1,323.8 | ||||||
Processing equipment |
1,505.3 | 1,441.8 | ||||||
Railroad equipment |
203.7 | 164.3 | ||||||
Electric power facilities |
58.0 | 57.9 | ||||||
Port facilities |
96.4 | 64.1 | ||||||
Interest capitalized during construction |
24.8 | 22.5 | ||||||
Land improvements |
30.6 | 30.4 | ||||||
Other |
73.3 | 43.2 | ||||||
Construction in progress |
682.4 | 615.4 | ||||||
|
|
|
|
|||||
12,244.7 | 11,881.5 | |||||||
|
|
|
|
|||||
Allowance for depreciation and depletion |
(1,478.0) | (1,356.9) | ||||||
|
|
|
|
|||||
$ | 10,766.7 | $ | 10,524.6 | |||||
|
|
|
|
|
(In Millions) | ||||||||||||
Initial Allocation |
Revised Allocation |
Change | ||||||||||
Consideration |
||||||||||||
Cash |
$ | 4,554.0 | $ | 4,554.0 | $ | - | ||||||
|
|
|
|
|
|
|||||||
Fair value of total consideration transferred |
$ | 4,554.0 | $ | 4,554.0 | $ | - | ||||||
|
|
|
|
|
|
|||||||
Recognized amounts of identifiable assets acquired and liabilities assumed |
||||||||||||
ASSETS: |
||||||||||||
Cash |
$ | 130.6 | $ | 130.6 | $ | - | ||||||
Accounts receivable |
102.8 | 102.4 | (0.4) | |||||||||
Product inventories |
134.2 | 134.2 | - | |||||||||
Other current assets |
35.1 | 35.1 | - | |||||||||
Mineral rights |
4,450.0 | 4,825.6 | 375.6 | |||||||||
Property, plant and equipment |
1,193.4 | 1,193.4 | - | |||||||||
Intangible assets |
2.1 | 2.1 | - | |||||||||
|
|
|
|
|
|
|||||||
Total identifiable assets acquired |
6,048.2 | 6,423.4 | 375.2 | |||||||||
LIABILITIES: |
||||||||||||
Accounts payable |
(13.6) | (13.6) | - | |||||||||
Accrued liabilities |
(130.0) | (123.8) | 6.2 | |||||||||
Convertible debentures |
(335.7) | (335.7) | - | |||||||||
Other current liabilities |
(41.8) | (47.9) | (6.1) | |||||||||
Long-term deferred tax liabilities |
(831.5) | (1,041.8) | (210.3) | |||||||||
Senior secured notes |
(125.0) | (125.0) | - | |||||||||
Capital lease obligations |
(70.7) | (70.7) | - | |||||||||
Other long-term liabilities |
(25.1) | (32.8) | (7.7) | |||||||||
|
|
|
|
|
|
|||||||
Total identifiable liabilities assumed |
(1,573.4) | (1,791.3) | (217.9) | |||||||||
|
|
|
|
|
|
|||||||
Total identifiable net assets acquired |
4,474.8 | 4,632.1 | 157.3 | |||||||||
Noncontrolling interest in Bloom Lake |
(947.6) | (1,075.4) | (127.8) | |||||||||
Preliminary goodwill |
1,026.8 | 997.3 | (29.5) | |||||||||
|
|
|
|
|
|
|||||||
Total net assets acquired |
$ | 4,554.0 | $ | 4,554.0 | $ | - | ||||||
|
|
|
|
|
|
(In Millions, Except Per Common Share) |
||||
Three Months Ended March 31, |
||||
2011 | ||||
REVENUES FROM PRODUCT SALES AND SERVICES |
$ | 1,278.8 | ||
NET INCOME ATTRIBUTABLE TO CLIFFS SHAREHOLDERS |
$ | 400.1 | ||
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS - BASIC |
$ | 2.95 | ||
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS - DILUTED |
$ | 2.94 |
|
(In Millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2012 | December 31, 2011 (1) | |||||||||||||||||||||||||||||||||||||||||||||||
U.S. Iron Ore |
Eastern Canadian Iron Ore |
North American Coal |
Asia Pacific Iron Ore |
Other | Total | U.S. Iron Ore |
Eastern Canadian Iron Ore |
North American Coal |
Asia Pacific Iron Ore |
Other | Total | |||||||||||||||||||||||||||||||||||||
Beginning Balance |
$ | 2.0 | $ | 986.2 | $ | - | $ | 83.0 | $ | 80.9 | $ | 1,152.1 | $ | 2.0 | $ | 3.1 | $ | 27.9 | $ | 82.6 | $ | 80.9 | $ | 196.5 | ||||||||||||||||||||||||
Arising in business combinations |
- | 13.8 | - | - | - | 13.8 | - | 983.5 | (0.1) | - | - | 983.4 | ||||||||||||||||||||||||||||||||||||
Impairment |
- | - | - | - | - | - | - | - | (27.8) | - | - | (27.8) | ||||||||||||||||||||||||||||||||||||
Impact of foreign currency translation |
- | - | - | 1.0 | - | 1.0 | - | - | - | 0.4 | - | 0.4 | ||||||||||||||||||||||||||||||||||||
Other |
- | - | - | - | - | - | - | (0.4) | - | - | - | (0.4) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Ending Balance |
$ | 2.0 | $ | 1,000.0 | $ | - | $ | 84.0 | $ | 80.9 | $ | 1,166.9 | $ | 2.0 | $ | 986.2 | $ | - | $ | 83.0 | $ | 80.9 | $ | 1,152.1 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Represents a 12-Month rollforward of our goodwill by reportable unit at December 31, 2011. Goodwill is not subject to amortization and is tested for impairment annually or when events or circumstances indicate that impairment may have occurred.
Classification |
(In Millions) | |||||||||||||||||||||||||
March 31, 2012 | December 31, 2011 | |||||||||||||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
|||||||||||||||||||||
Definite lived intangible assets: |
||||||||||||||||||||||||||
Permits |
Intangible assets, net | $ | 135.1 | $ | (25.2) | $ | 109.9 | $ | 134.3 | $ | (23.2) | $ | 111.1 | |||||||||||||
Utility contracts |
Intangible assets, net | 54.7 | (24.1) | 30.6 | 54.7 | (21.3) | 33.4 | |||||||||||||||||||
Leases |
Intangible assets, net | 5.5 | (3.0) | 2.5 | 5.5 | (3.0) | 2.5 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total intangible assets |
$ | 195.3 | $ | (52.3) | $ | 143.0 | $ | 194.5 | $ | (47.5) | $ | 147.0 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Below-market sales contracts |
Other current liabilities | $ | (46.0) | $ | - | $ | (46.0) | $ | (77.0) | $ | 24.3 | $ | (52.7) | |||||||||||||
Below-market sales contracts |
Below-market sales contracts | (247.4) | 134.2 | (113.2) | (252.3) | 140.5 | (111.8) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total below-market sales contracts |
$ | (293.4) | $ | 134.2 | $ | (159.2) | $ | (329.3) | $ | 164.8 | $ | (164.5) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Asset |
Useful Life (years) | |
Permits |
15 - 28 | |
Utility contracts |
5 | |
Leases |
1.5 - 4.5 |
(In Millions) | ||||
Amount | ||||
Year Ending December 31 |
||||
2012 (remaining nine months) |
$ | 13.5 | ||
2013 |
17.9 | |||
2014 |
17.9 | |||
2015 |
6.0 | |||
2016 |
6.0 | |||
2017 |
6.0 | |||
|
|
|||
Total |
$ | 67.3 | ||
|
|
(In Millions) | ||||
Amount | ||||
Year Ending December 31 |
||||
2012 (remaining nine months) |
$ | 44.1 | ||
2013 |
46.0 | |||
2014 |
23.1 | |||
2015 |
23.0 | |||
2016 |
23.0 | |||
2017 |
- | |||
|
|
|||
Total |
$ | 159.2 | ||
|
|
|
(In Millions) | ||||||||||||||||
March 31, 2012 | ||||||||||||||||
Description |
Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | ||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | - | $ | - | $ | - | $ | - | ||||||||
Derivative assets |
- | - | 69.2 | 69.2 | ||||||||||||
International marketable securities |
30.6 | - | - | 30.6 | ||||||||||||
Foreign exchange contracts |
- | 9.6 | - | 9.6 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 30.6 | $ | 9.6 | $ | 69.2 | $ | 109.4 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Derivative liabilities |
$ | - | $ | - | $ | 1.1 | $ | 1.1 | ||||||||
Foreign exchange contracts |
- | 2.5 | - | 2.5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | - | $ | 2.5 | $ | 1.1 | $ | 3.6 | ||||||||
|
|
|
|
|
|
|
|
(In Millions) | ||||||||||||||||
December 31, 2011 | ||||||||||||||||
Description |
Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | ||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 351.2 | $ | - | $ | - | $ | 351.2 | ||||||||
Derivative assets |
- | - | 157.9 | (1) | 157.9 | |||||||||||
International marketable securities |
27.1 | - | - | 27.1 | ||||||||||||
Foreign exchange contracts |
- | 8.0 | - | 8.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 378.3 | $ | 8.0 | $ | 157.9 | $ | 544.2 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Derivative liabilities |
$ | - | $ | - | $ | 19.5 | $ | 19.5 | ||||||||
Foreign exchange contracts |
- | 3.5 | - | 3.5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | - | $ | 3.5 | $ | 19.5 | $ | 23.0 | ||||||||
|
|
|
|
|
|
|
|
(1) |
Derivative assets includes $83.8 million classified as Accounts receivable in the Statement of Consolidated Financial Position as of December 31, 2011. Refer to NOTE 3 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for further information. |
Quantitative Information About Level 3 Fair Value Measurements | ||||||||||||||||
($ in millions) |
Fair Value at 3/31/12 |
Balance Sheet Location |
Valuation Technique |
Unobservable |
Range (Weighted | |||||||||||
Provisional Pricing Arrangement |
$ | 4.1 | Derivative Assets | Market Approach | Managements Estimate of 62% Fe | $130-$175 ($150) | ||||||||||
$ | 1.1 | Other current liabilities | ||||||||||||||
Customer Supply Agreement |
$ | 65.1 | Derivative Assets | Market Approach | Hot-Rolled Steel Estimate | $700-$750 ($700) |
(In Millions) | ||||||||
Derivative Assets (Level 3) | ||||||||
Three Months Ended March 31, |
||||||||
2012 | 2011 | |||||||
Beginning balance-January 1 |
$ | 157.9 | $ | 45.6 | ||||
Total gains |
||||||||
Included in earnings |
43.3 | 44.6 | ||||||
Included in other comprehensive income |
- | - | ||||||
Settlements |
(132.0) | (22.1) | ||||||
Transfers into Level 3 |
- | - | ||||||
Transfers out of Level 3 |
- | - | ||||||
|
|
|
|
|||||
Ending balance - March 31 |
$ | 69.2 | $ | 68.1 | ||||
|
|
|
|
|||||
Total gains for the period included in earnings attributable to the change in unrealized gains on assets still held at the reporting date |
$ | 43.3 | $ | 44.6 |
(In Millions) | ||||||||
Derivative Liabilities (Level 3) | ||||||||
Three Months Ended March 31, |
||||||||
2012 | 2011 | |||||||
Beginning balance-January 1 |
$ | (19.5) | $ | - | ||||
Total losses |
||||||||
Included in earnings |
(1.1) | - | ||||||
Included in other comprehensive income |
- | - | ||||||
Settlements |
19.5 | - | ||||||
Transfers into Level 3 |
- | - | ||||||
|
|
|
|
|||||
Ending balance - March 31 |
$ | (1.1) | $ | - | ||||
|
|
|
|
|||||
Total losses for the period included in earnings attributable to the change in unrealized losses on assets still held at the reporting date |
$ | (1.1) | $ | - | ||||
|
|
|
|
(In Millions) | ||||||||||||||||||||
March 31, 2012 | December 31, 2011 | |||||||||||||||||||
Classification | Carrying Value |
Fair Value |
Carrying Value |
Fair Value |
||||||||||||||||
Long-term receivables: |
||||||||||||||||||||
Customer supplemental payments |
Level 2 | $ | 22.3 | $ | 21.2 | $ | 22.3 | $ | 20.8 | |||||||||||
ArcelorMittal USA—Receivable |
Level 2 | 24.8 | 28.6 | 26.5 | 30.7 | |||||||||||||||
Other |
Level 2 | 10.8 | 10.8 | 10.0 | 10.0 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total long-term receivables (1) |
$ | 57.9 | $ | 60.6 | $ | 58.8 | $ | 61.5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Long-term debt: |
||||||||||||||||||||
Term loan—$1.25 billion |
Level 2 | $ | 872.2 | $ | 872.2 | $ | 897.2 | $ | 897.2 | |||||||||||
Senior notes—$700 million |
Level 2 | 699.3 | 738.7 | 699.3 | 726.4 | |||||||||||||||
Senior notes—$1.3 billion |
Level 2 | 1,289.2 | 1,439.1 | 1,289.2 | 1,399.4 | |||||||||||||||
Senior notes—$400 million |
Level 2 | 398.1 | 453.6 | 398.0 | 448.8 | |||||||||||||||
Senior notes—$325 million |
Level 2 | 325.0 | 353.9 | 325.0 | 348.7 | |||||||||||||||
Customer borrowings |
Level 2 | 4.6 | 4.6 | 5.1 | 5.1 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total long-term debt |
$ | 3,588.4 | $ | 3,862.1 | $ | 3,613.8 | $ | 3,825.6 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
(1) Includes current portion. |
|
($ in Millions) |
||||||||||||||||||
March 31, 2012 |
||||||||||||||||||
Debt Instrument |
Type | Average Annual Interest Rate |
Final Maturity |
Total Face Amount |
Total Long- term Debt |
|||||||||||||
$1.25 Billion Term Loan |
Variable | 1.37 % | 2016 | 959.5 | (6) | 872.2 | (6) | |||||||||||
$700 Million 4.875% 2021 Senior Notes |
Fixed | 4.88 % | 2021 | 700.0 | 699.3 | (5) | ||||||||||||
$1.3 Billion Senior Notes: |
||||||||||||||||||
$500 Million 4.80% 2020 Senior Notes |
Fixed | 4.80 % | 2020 | 500.0 | 499.1 | (4) | ||||||||||||
$800 Million 6.25% 2040 Senior Notes |
Fixed | 6.25 % | 2040 | 800.0 | 790.1 | (3) | ||||||||||||
$400 Million 5.90% 2020 Senior Notes |
Fixed | 5.90 % | 2020 | 400.0 | 398.1 | (2) | ||||||||||||
$325 Million Private Placement Senior Notes: |
||||||||||||||||||
Series 2008A - Tranche A |
Fixed | 6.31 % | 2013 | 270.0 | 270.0 | |||||||||||||
Series 2008A - Tranche B |
Fixed | 6.59 % | 2015 | 55.0 | 55.0 | |||||||||||||
$1.75 Billion Credit Facility: |
||||||||||||||||||
Revolving Loan |
Variable | - | 2016 | 1,750.0 | - | (1) | ||||||||||||
|
|
|
|
|||||||||||||||
Total |
$ | 5,434.5 | $ | 3,583.8 | ||||||||||||||
|
|
|
|
December 31, 2011 |
||||||||||||||||||
Debt Instrument |
Type | Average Annual Interest Rate |
Final Maturity |
Total Face Amount |
Total Long-term Debt |
|||||||||||||
$1.25 Billion Term Loan |
Variable | 1.40 % | 2016 | $ | 972.0 | (6) | $ | 897.2 | (6) | |||||||||
$700 Million 4.875% 2021 Senior Notes |
Fixed | 4.88 % | 2021 | 700.0 | 699.3 | (5) | ||||||||||||
$1.3 Billion Senior Notes: |
||||||||||||||||||
$500 Million 4.80% 2020 Senior Notes |
Fixed | 4.80 % | 2020 | 500.0 | 499.1 | (4) | ||||||||||||
$800 Million 6.25% 2040 Senior Notes |
Fixed | 6.25 % | 2040 | 800.0 | 790.1 | (3) | ||||||||||||
$400 Million 5.90% 2020 Senior Notes |
Fixed | 5.90 % | 2020 | 400.0 | 398.0 | (2) | ||||||||||||
$325 Million Private Placement Senior Notes: |
||||||||||||||||||
Series 2008A - Tranche A |
Fixed | 6.31 % | 2013 | 270.0 | 270.0 | |||||||||||||
Series 2008A - Tranche B |
Fixed | 6.59 % | 2015 | 55.0 | 55.0 | |||||||||||||
$1.75 Billion Credit Facility: |
||||||||||||||||||
Revolving Loan |
Variable | - | 2016 | 1,750.0 | - | (1) | ||||||||||||
|
|
|
|
|||||||||||||||
Total |
$ | 5,447.0 | $ | 3,608.7 | ||||||||||||||
|
|
|
|
(1) As of March 31, 2012 and December 31, 2011, no revolving loans were drawn under the credit facility and the principal amount of letter of credit obligations totaled $23.5 million for each period respectively, thereby reducing available borrowing capacity to $1,726.5 million for each period, respectively. As of April 26, 2012, we had direct borrowings on our $1.75 billion credit facility in the amount of $425.0 million for purposes of funding general operations.
(2) As of March 31, 2012 and December 31, 2011, the $400 million 5.90 percent senior notes were recorded at a par value of $400 million less unamortized discounts of $1.9 million and $2.0 million, respectively, based on an imputed interest rate of 5.98 percent.
(3)As of March 31, 2012 and December 31, 2011, the $800 million 6.25 percent senior notes were recorded at par value of $800 million less unamortized discounts of $9.9 million in each period, respectively, based on an imputed interest rate of 6.38 percent.
(4) As of March 31, 2012 and December 31, 2011, the $500 million 4.80 percent senior notes were recorded at a par value of $500 million less unamortized discounts of $0.9 million in each period, respectively, based on an imputed interest rate of 4.83 percent.
(5) As of March 31, 2012 and December 31, 2011, the $700 million 4.88 percent senior notes were recorded at a par value of $700 million less unamortized discounts of $0.7 million in each period, respectively, based on an imputed interest rate of 4.89 percent.
(6) As of March 31, 2012 and December 31, 2011, $290.5 and $278.0 million, respectively, had been paid down on the original $1.25 billion term loan and of the remaining term loan $87.2 million and $74.8 million, respectively, was classified as Current portion of term loan. The current classification is based upon the principal payment terms of the arrangement requiring principal payments on each three-month anniversary following the funding of the term loan.
|
(In Millions) | ||||||||
Capital Leases |
Operating Leases |
|||||||
2012 (April 1 - December 31) |
$ | 61.3 | $ | 18.2 | ||||
2013 |
72.1 | 24.0 | ||||||
2014 |
66.8 | 19.7 | ||||||
2015 |
55.5 | 12.8 | ||||||
2016 |
40.7 | 8.7 | ||||||
2017 and thereafter |
132.5 | 29.8 | ||||||
|
|
|
|
|||||
Total minimum lease payments |
$ | 428.9 | $ | 113.2 | ||||
|
|
|||||||
Amounts representing interest |
107.4 | |||||||
|
|
|||||||
Present value of net minimum lease payments |
$ | 321.5 | (1) | |||||
|
|
(1) |
The total is comprised of $56.3 million and $265.2 million classified as Other current liabilities and Other liabilities, respectively, in the Statements of Unaudited Condensed Consolidated Financial Position at March 31, 2012 |
|
(In Millions) | ||||||||
March 31, 2012 |
December 31, 2011 |
|||||||
Environmental |
$ | 15.5 | $ | 15.5 | ||||
Mine closure |
||||||||
LTVSMC |
16.7 | 16.5 | ||||||
Operating mines: |
||||||||
U.S Iron Ore |
76.1 | 74.3 | ||||||
Eastern Canadian Iron Ore |
69.8 | 68.0 | ||||||
North American Coal |
36.9 | 36.3 | ||||||
Asia Pacific Iron Ore |
16.7 | 16.3 | ||||||
Other |
9.0 | 8.8 | ||||||
|
|
|
|
|||||
Total mine closure |
225.2 | 220.2 | ||||||
|
|
|
|
|||||
Total environmental and mine closure obligations |
240.7 | 235.7 | ||||||
Less current portion |
13.7 | 13.7 | ||||||
|
|
|
|
|||||
Long term environmental and mine closure obligations |
$ | 227.0 | $ | 222.0 | ||||
|
|
|
|
(In Millions) | ||||||||
March 31, 2012 |
December 31, 2011 (1) |
|||||||
Asset retirement obligation at beginning of period |
$ | 203.7 | $ | 168.3 | ||||
Accretion expense |
4.5 | 16.1 | ||||||
Exchange rate changes |
0.3 | 0.1 | ||||||
Revision in estimated cash flows |
- | 5.9 | ||||||
Payments |
- | (0.7 | ) | |||||
Acquired through business combinations |
- | 14.0 | ||||||
|
|
|
|
|||||
Asset retirement obligation at end of period |
$ | 208.5 | $ | 203.7 | ||||
|
|
|
|
(1) |
Represents a 12-month rollforward of our asset retirement obligation at December 31, 2011. |
|
(In Millions) | ||||||||||||||||
Pension Benefits | Other Benefits | |||||||||||||||
Three Months Ended March 31, |
Three Months Ended March 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Service cost |
$ | 8.0 | $ | 5.8 | $ | 3.6 | $ | 2.4 | ||||||||
Interest cost |
12.0 | 13.6 | 5.2 | 5.9 | ||||||||||||
Expected return on plan assets |
(14.8) | (15.5) | (4.3) | (4.3) | ||||||||||||
Amortization: |
||||||||||||||||
Prior service costs |
1.0 | 1.2 | 0.7 | 0.6 | ||||||||||||
Net actuarial loss |
7.4 | 5.2 | 2.9 | 2.9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic benefit cost |
$ | 13.6 | $ | 10.3 | $ | 8.1 | $ | 7.5 | ||||||||
|
|
|
|
|
|
|
|
|
Grant Date |
Grant Date Market Price |
Average Expected Term (Years) |
Expected Volatility |
Risk- Free Interest Rate |
Dividend Yield |
Fair Value |
Fair Value (Percent of Grant Date Market Price) | |||||||
March 12, 2012 |
63.62 | 2.80 | 56.0% | 0.45% | 3.93% | 77.78 | 122.26% |
|
Mine |
Cliffs Natural Resources |
ArcelorMittal | U.S. Steel Canada |
WISCO | ||||||||||||
Empire |
79.0 | 21.0 | - | - | ||||||||||||
Tilden |
85.0 | - | 15.0 | - | ||||||||||||
Hibbing |
23.0 | 62.3 | 14.7 | - | ||||||||||||
Bloom Lake |
75.0 | - | - | 25.0 |
(In Millions) | ||||||||
Three Months Ended March 31, |
||||||||
2012 | 2011 | |||||||
Product revenues to related parties |
$ | 331.9 | $ | 313.6 | ||||
Total product revenues |
1,200.9 | 1,133.0 | ||||||
Related party product revenue as a percent of total product revenue |
27.6 | % | 27.7 | % |
|
(In Millions) | ||||||||
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Capital additions |
$ | 353.4 | $ | 91.0 | ||||
Cash paid for capital expenditures |
241.1 | 65.7 | ||||||
|
|
|
|
|||||
Difference |
$ | 112.3 | $ | 25.3 | ||||
|
|
|
|
|||||
Non-cash accruals |
$ | 59.5 | $ | 25.3 | ||||
Capital leases |
52.8 | - | ||||||
|
|
|
|
|||||
Total |
$ | 112.3 | $ | 25.3 | ||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|