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DISCONTINUED OPERATIONS | 9 Months Ended
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Sep. 30, 2016
Discontinued Operations and Disposal Groups [Abstract] |
Discontinued Operations | NOTE 14 - DISCONTINUED OPERATIONS The information below sets forth selected financial information related to operating results of our businesses classified as discontinued operations which include our former North American Coal and Canadian operations. The chart below provides an asset group breakout for each financial statement line impacted by discontinued operations.
(In Millions)
|  |  |  | Canadian Operations |  |  |
|  | North American Coal |  | Eastern Canadian Iron Ore | Other | Total Canadian Operations |  | Total of Discontinued Operations
Statements of Unaudited Condensed Consolidated Operations
Loss from Discontinued Operations, net of tax | QTD September 30, 2016 | $ | (1.8 | ) |  | $ | (0.9 | ) | $ | — |  | $ | (0.9 | ) |  | $ | (2.7 | )
Loss from Discontinued Operations, net of tax | QTD September 30, 2015 | $ | (29.8 | ) |  | $ | (14.1 | ) | $ | — |  | $ | (14.1 | ) |  | $ | (43.9 | )
Income (Loss) from Discontinued Operations, net of tax | YTD September 30, 2016 | $ | (3.8 | ) |  | $ | 3.2 |  | $ | — |  | $ | 3.2 |  |  | $ | (0.6 | )
Loss from Discontinued Operations, net of tax | YTD September 30, 2015 | $ | (137.0 | ) |  | $ | (731.9 | ) | $ | (0.1 | ) | $ | (732.0 | ) |  | $ | (869.0 | )
Statements of Unaudited Condensed Consolidated Financial Position
Short-term assets of discontinued operations | As of September 30, 2016 | $ | — |  |  | $ | — |  | $ | — |  | $ | — |  |  | $ | — |
Short-term liabilities of discontinued operations | As of September 30, 2016 | $ | 5.5 |  |  | $ | — |  | $ | — |  | $ | — |  |  | $ | 5.5 |
Short-term assets of discontinued operations | As of December 31, 2015 | $ | 14.9 |  |  | $ | — |  | $ | — |  | $ | — |  |  | $ | 14.9 |
Short-term liabilities of discontinued operations | As of December 31, 2015 | $ | 6.9 |  |  | $ | — |  | $ | — |  | $ | — |  |  | $ | 6.9 |
Non-Cash Operating and Investing Activities
Depreciation, depletion and amortization: | YTD September 30, 2015 | $ | 3.2 |  |  | $ | — |  | $ | — |  | $ | — |  |  | $ | 3.2 |
Purchase of property, plant and equipment | YTD September 30, 2015 | $ | 13.1 |  |  | $ | — |  | $ | — |  | $ | — |  |  | $ | 13.1 |
Impairment of other long-lived assets | YTD September 30, 2015 | $ | 73.4 |  |  | $ | — |  | $ | — |  | $ | — |  |  | $ | 73.4 |
North American Coal Operations Loss on Discontinued Operations Our previously reported North American Coal operating segment results are classified as discontinued operations for all periods presented. The closing of the sale of our Oak Grove and Pinnacle mines on December 22, 2015, completed a strategic shift in our business.
|  | (In Millions)
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Loss from Discontinued Operations |  | 2016 |  | 2015 |  | 2016 |  | 2015
Revenues from product sales and services |  | $ | — |  |  | $ | 78.8 |  |  | $ | — |  |  | $ | 338.1 |
Cost of goods sold and operating expenses |  | — |  |  | (102.9 | ) |  | — |  |  | (377.2 | )
Sales margin |  | — |  |  | (24.1 | ) |  | — |  |  | (39.1 | )
Other operating expense |  | (1.8 | ) |  | (7.4 | ) |  | (3.8 | ) |  | (25.7 | )
Other expense |  | — |  |  | (0.4 | ) |  | — |  |  | (1.4 | )
Loss from discontinued operations before income taxes |  | (1.8 | ) |  | (31.9 | ) |  | (3.8 | ) |  | (66.2 | )
Impairment of long-lived assets |  | — |  |  | — |  |  | — |  |  | (73.4 | )
Income tax benefit |  | — |  |  | 2.1 |  |  | — |  |  | 2.6 |
Loss from discontinued operations, net of tax |  | $ | (1.8 | ) |  | $ | (29.8 | ) |  | $ | (3.8 | ) |  | $ | (137.0 | )
Recorded Assets and Liabilities
|  | (In Millions)
Assets and Liabilities of Discontinued Operations(1) |  | September 30, 2016 |  | December 31, 2015
Other current assets |  | $ | — |  |  | $ | 14.9 |
Total assets of discontinued operations |  | $ | — |  |  | $ | 14.9 |
Accrued liabilities |  | $ | 1.2 |  |  | $ | — |
Other current liabilities(1) |  | 4.3 |  |  | 6.9 |
Total liabilities of discontinued operations |  | $ | 5.5 |  |  | $ | 6.9 |
(1) At September 30, 2016 and December 31, 2015, we had $4.0 million and $7.8 million, respectively, of contingent liabilities associated with our exit from the coal business recorded on our parent company.
Income Taxes We recognized no tax benefit or expense for the three and nine months ended September 30, 2016 in Loss from Discontinued Operations, net of tax, related to our North American Coal investments. For the three and nine months ended September 30, 2015, we recognized a tax benefit of $2.1 million and $2.6 million, respectively, in Loss from Discontinued Operations, net of tax. This benefit was primarily the result of a loss on our North American Coal investments. Canadian Operations Status of CCAA Proceedings On March 8, 2016, certain of the Canadian Entities completed the sale of their port and rail assets located in Pointe-Noire, Quebec to Societe Ferroviaire et Portuaire de Pointe-Noire S.E.C., an affiliate of Investissement Quebec, for CAD$66.75 million in cash and the assumption of certain liabilities. On April 11, 2016, certain of the Canadian Entities completed the sale of the Bloom Lake Mine and Labrador Trough South mineral claims located in Quebec, as well as certain rail assets located in Newfoundland & Labrador, to Quebec Iron Ore Inc., an affiliate of Champion Iron Mines Limited, for CAD$10.5 million in cash and the assumption of certain liabilities. After payment of sale expenses and taxes and repayment of the DIP financing, the net proceeds from these and certain other divestitures by the Canadian Entities are currently being held by the Monitor, on behalf of the Canadian Entities, to fund the costs of the CCAA proceedings and for eventual distribution to creditors of the Canadian Entities pending further order of the Montreal Court. Gain (Loss) on Discontinued Operations Our decision in 2015 to exit Canada represented a strategic shift in our business. For this reason, our previously reported Eastern Canadian Iron Ore and Ferroalloys operating segment results for all periods prior to the respective 2015 deconsolidations as well as costs to exit are classified as discontinued operations.
|  | (In Millions)
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Gain (Loss) from Discontinued Operations |  | 2016 |  | 2015 |  | 2016 |  | 2015
Revenues from product sales and services |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 11.3 |
Cost of goods sold and operating expenses |  | — |  |  | — |  |  | — |  |  | (11.1 | )
Sales margin |  | — |  |  | — |  |  | — |  |  | 0.2 |
Other operating expense |  | — |  |  | — |  |  | — |  |  | (33.8 | )
Other expense |  | — |  |  | — |  |  | — |  |  | (1.0 | )
Loss from discontinued operations before income taxes |  | — |  |  | — |  |  | — |  |  | (34.6 | )
Gain (loss) from deconsolidation |  | (0.9 | ) |  | (13.4 | ) |  | 3.2 |  |  | (697.4 | )
Income tax expense |  | — |  |  | (0.7 | ) |  | — |  |  | — |
Gain (loss) from discontinued operations, net of tax |  | $ | (0.9 | ) |  | $ | (14.1 | ) |  | $ | 3.2 |  |  | $ | (732.0 | )
Canadian Entities loss from deconsolidation totaled $0.9 million and gain from deconsolidation totaled $3.2 million for the three and nine months ended September 30, 2016, respectively, which included the following:
|  | (In Millions)
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2016 |  | 2015 |  | 2016 |  | 2015
Investment impairment on deconsolidation 1 |  | $ | (0.9 | ) |  | $ | (13.9 | ) |  | $ | 3.2 |  |  | $ | (494.3 | )
Contingent liabilities |  | — |  |  | 0.5 |  |  | — |  |  | (203.1 | )
Total gain (loss) from deconsolidation |  | $ | (0.9 | ) |  | $ | (13.4 | ) |  | $ | 3.2 |  |  | $ | (697.4 | )
1 Includes the adjustment to fair value of our remaining interest in the Canadian Entities.
We have no gain or loss from deconsolidation attributable to contingent liabilities for the three and nine months ended September 30, 2016 compared to a gain of $0.5 million and a loss of $203.1 million for the three and nine months ended September 30, 2015, respectively. As a result of the deconsolidation we recorded accrued expenses for the estimated probable loss related to claims that may be asserted against us, primarily under guarantees of certain debt arrangements and leases for a loss on deconsolidation of $203.1 million, for the nine months ended September 30, 2015. Investments in the Canadian Entities Cliffs continues to indirectly own a majority of the interest in the Canadian Entities but has deconsolidated those entities because Cliffs no longer has a controlling interest as a result of the Bloom Filing and the Wabush Filing. At the respective date of deconsolidation, January 27, 2015 or May 20, 2015 and subsequently at each reporting period, we adjusted our investment in the Canadian Entities to fair value with a corresponding charge to Loss from Discontinued Operations, net of tax. As the estimated amount of the Canadian Entities' liabilities exceeded the estimated fair value of the assets available for distribution to its creditors, the fair value of Cliffs’ equity investment is approximately zero. Amounts Receivable from the Canadian Entities Prior to the deconsolidations, various Cliffs wholly-owned entities made loans to the Canadian Entities for the purpose of funding its operations and had accounts receivable generated in the ordinary course of business. The loans, corresponding interest and the accounts receivable were considered intercompany transactions and eliminated in our consolidated financial statements. Since the deconsolidations, the loans, associated interest and accounts receivable are considered related party transactions and have been recognized in our consolidated financial statements at their estimated fair value of $69.3 million and $72.9 million in the Statements of Unaudited Condensed Consolidated Financial Position at September 30, 2016 and December 31, 2015, respectively. Contingent Liabilities Certain liabilities consisting primarily of equipment loans and environmental obligations of the Canadian Entities were secured through corporate guarantees and standby letters of credit. As of September 30, 2016, we have liabilities of $0.2 million and $37.9 million, respectively, in our consolidated results, classified as Guarantees and Other liabilities in the Statements of Unaudited Condensed Consolidated Financial Position. As of December 31, 2015, we had liabilities of $96.5 million and $35.9 million, respectively, in our consolidated results, classified as Guarantees and Other liabilities in the Statements of Unaudited Condensed Consolidated Financial Position. Contingencies The recorded expenses include an accrual for the estimated probable loss related to claims that may be asserted against us, primarily under guarantees of certain debt arrangements and leases. The beneficiaries of those guarantees may seek damages or other related relief as a result of our exit from Canada. Our probable loss estimate is based on the expectation that claims will be asserted against us and negotiated settlements will be reached, and not on any determination that it is probable we would be found liable were these claims to be litigated. Our estimates involve significant judgment and are based on currently available information, an assessment of the validity of certain claims and estimated payments by the Canadian Entities. We are not able to reasonably estimate a range of possible losses in excess of the accrual because there are significant factual and legal issues to be resolved. We believe that it is reasonably possible that future changes to our estimates of loss and the ultimate amount paid on these claims could be material to our results of operations in future periods. Any such losses would be reported in discontinued operations. Items Measured at Fair Value on a Non-Recurring Basis The following table presents information about the financial assets and liabilities that were measured on a fair value basis at September 30, 2016 for the Canadian Operations. The table also indicates the fair value hierarchy of the valuation techniques used to determine such fair value.
|  | (In Millions)
|  | September 30, 2016
Description |  | Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total |  | Total Gains
Assets: |  |  |  |  |  |  |  |  |  |
Loans to and accounts receivables from the Canadian Entities |  | $ | — |  |  | $ | — |  |  | $ | 69.3 |  |  | $ | 69.3 |  |  | $ | 3.2 |
Liabilities: |  |  |  |  |  |  |  |  |  |
Contingent liabilities |  | $ | — |  |  | $ | — |  |  | $ | 38.1 |  |  | $ | 38.1 |  |  | $ | — |
We determined the fair value and recoverability of our Canadian investments by comparing the estimated fair value of the remaining underlying assets of the Canadian Entities to remaining estimated liabilities. We recorded the contingent liabilities at book value which best approximated fair value. Outstanding liabilities include accounts payable and other liabilities, forward commitments, unsubordinated related party payables, lease liabilities and other potential claims. Potential claims include an accrual for the estimated probable loss related to claims that may be asserted against the Bloom Lake Group and Wabush Group under certain contracts. Claimants may seek damages or other related relief as a result of the Canadian Entities' exit from Canada. Based on our estimates, the fair value of liabilities exceeds the fair value of assets. To assess the fair value and recoverability of the amounts receivable from the Canadian Entities, we estimated the fair value of the underlying net assets of the Canadian Entities available for distribution to their creditors in relation to the estimated creditor claims and the priority of those claims. Our estimates involve significant judgment and are based on currently available information, an assessment of the validity of certain claims and estimated payments made by the Canadian Entities. Our ultimate recovery is subject to the final liquidation value of the Canadian Entities. Further, the final liquidation value and ultimate recovery of the creditors of the Canadian Entities, including Cliffs Natural Resources and various subsidiaries, may impact our estimates of contingent liability exposure described previously. DIP Financing In connection with the Wabush Filing on May 20, 2015, the Montreal Court approved an agreement to provide a debtor-in-possession credit facility (the "DIP financing") to the Wabush Group, which provided for borrowings under the facility up to $10.0 million. The DIP financing was secured by a court-ordered charge over the assets of the Wabush Group. As of December 31, 2015, there was $6.8 million drawn and outstanding under the DIP financing funded by Wabush Iron Co. Limited’s parent company, Cliffs Mining Company. During the three months ended March 31, 2016, the Wabush Group made an additional draw of $1.5 million. We subsequently received a repayment of $8.3 million and as a result, there was no outstanding balance due under the DIP financing arrangement from Wabush Iron Co. Limited’s parent company, Cliffs Mining Company as of September 30, 2016. Income Taxes We recognized no tax benefit for the three and nine months ended September 30, 2016 in Gain (loss) from discontinued operations, net of tax. For the three months ended September 30, 2015, we recognized a tax expense of $0.7 million in Gain (loss) from discontinued operations, net of tax. We recognized no tax benefit or expense for the nine months ended September 30, 2015 in Gain (loss) from discontinued operations, net of tax.

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