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NEW ACCOUNTING STANDARDS | 6 Months Ended
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Jun. 30, 2018
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] |
NEW ACCOUNTING STANDARDS | NOTE 2 - NEW ACCOUNTING STANDARDS Adoption of New Accounting Standards ASC Topic 606, Revenue from Contracts with Customers (Topic 606). On January 1, 2018, we adopted Topic 606 and applied it to all contracts that were not completed using the modified retrospective method. We recognized the cumulative effect of initially applying Topic 606 as an adjustment of $34.0 million to the opening balance of Retained deficit. The comparative period information has not been restated and continues to be reported under the accounting standards in effect for those periods. We do not expect that the adoption of Topic 606 will have a material impact to our annual net income on an ongoing basis. Under Topic 606, revenue will generally be recognized upon delivery to our customers, which is earlier than under the previous guidance. As an example, for certain iron ore shipments where revenue was previously recognized upon title transfer when payment was received, we will now recognize revenue when control transfers, which is generally upon delivery. While we continue to retain title until we receive payment, we determined upon review of our customer contracts that the preponderance of control indicators pass to our customers' favor when we deliver our products; thus, we generally concluded that control transfers at that point. As a result of the adoption of Topic 606 and vessel deliveries not occurring during the winter months because of the closure of the Soo Locks and the Welland Canal, our revenues and net income will be relatively lower than historical levels during the first quarter of each year and relatively higher than historical levels during the remaining three quarters in future years. However, the total amount of revenue recognized during the year should remain substantially the same as under previous accounting standards, assuming revenue rates and volumes are consistent between years. The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of Topic 606 were as follows:
|  | ($ in Millions)
|  | Balance at December 31, 2017 |  | Adjustments due to Topic 606 |  | Balance at January 1, 2018
ASSETS |  |  |  |  |  |
CURRENT ASSETS |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 978.3 |  |  | $ | — |  |  | $ | 978.3 |
Accounts receivable, net |  | 106.7 |  |  | 76.6 |  |  | 183.3 |
Inventories |  | 138.4 |  |  | (51.4 | ) |  | 87.0 |
Supplies and other inventories |  | 88.8 |  |  | — |  |  | 88.8 |
Derivative assets |  | 37.9 |  |  | 11.6 |  |  | 49.5 |
Current assets of discontinued operations |  | 118.5 |  |  | — |  |  | 118.5 |
Loans to and accounts receivable from the Canadian Entities |  | 51.6 |  |  | — |  |  | 51.6 |
Other current assets |  | 24.4 |  |  | — |  |  | 24.4 |
TOTAL CURRENT ASSETS |  | 1,544.6 |  |  | 36.8 |  |  | 1,581.4 |
PROPERTY, PLANT AND EQUIPMENT, NET |  | 1,033.8 |  |  | — |  |  | 1,033.8 |
OTHER ASSETS |  |  |  |  |  |
Deposits for property, plant and equipment |  | 17.8 |  |  | — |  |  | 17.8 |
Income tax receivable |  | 235.3 |  |  | — |  |  | 235.3 |
Long-term assets of discontinued operations |  | 20.3 |  |  | — |  |  | 20.3 |
Other non-current assets |  | 101.6 |  |  | — |  |  | 101.6 |
TOTAL OTHER ASSETS |  | 375.0 |  |  | — |  |  | 375.0 |
TOTAL ASSETS |  | $ | 2,953.4 |  |  | $ | 36.8 |  |  | $ | 2,990.2 |
LIABILITIES |  |  |  |  |  |
CURRENT LIABILITIES |  |  |  |  |  |
Accounts payable |  | $ | 99.5 |  |  | $ | 1.4 |  |  | $ | 100.9 |
Accrued expenses |  | 79.1 |  |  | — |  |  | 79.1 |
Accrued interest |  | 31.4 |  |  | — |  |  | 31.4 |
Contingent claims |  | 55.6 |  |  | — |  |  | 55.6 |
Partnership distribution payable |  | 44.2 |  |  | — |  |  | 44.2 |
Current liabilities of discontinued operations |  | 75.0 |  |  | — |  |  | 75.0 |
Other current liabilities |  | 67.4 |  |  | 1.4 |  |  | 68.8 |
TOTAL CURRENT LIABILITIES |  | 452.2 |  |  | 2.8 |  |  | 455.0 |
PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES |  | 257.7 |  |  | — |  |  | 257.7 |
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS |  | 167.7 |  |  | — |  |  | 167.7 |
LONG-TERM DEBT |  | 2,304.2 |  |  | — |  |  | 2,304.2 |
NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS |  | 52.2 |  |  | — |  |  | 52.2 |
OTHER LIABILITIES |  | 163.5 |  |  | — |  |  | 163.5 |
TOTAL LIABILITIES |  | 3,397.5 |  |  | 2.8 |  |  | 3,400.3 |
EQUITY |  |  |  |  |  |
CLIFFS SHAREHOLDERS' DEFICIT |  | (444.3 | ) |  | 34.0 |  |  | (410.3 | )
NONCONTROLLING INTEREST |  | 0.2 |  |  | — |  |  | 0.2 |
TOTAL DEFICIT |  | (444.1 | ) |  | 34.0 |  |  | (410.1 | )
TOTAL LIABILITIES AND DEFICIT |  | $ | 2,953.4 |  |  | $ | 36.8 |  |  | $ | 2,990.2 |
The impact of adoption on our Statements of Unaudited Condensed Consolidated Operations and Statements of Unaudited Condensed Consolidated Financial Position is as follows:
| ($ in Millions)
| Three Months Ended June 30, 2018 |  | Six Months Ended June 30, 2018
| As Reported |  | Balances without Adoption of Topic 606 |  | Effect of Change |  | As Reported |  | Balances without Adoption of Topic 606 |  | Effect of Change
REVENUES FROM PRODUCT SALES AND SERVICES |  |  |  |  |  |  |  |  |  |  |
Product | $ | 672.0 |  |  | $ | 568.0 |  |  | $ | 104.0 |  |  | $ | 841.2 |  |  | $ | 795.6 |  |  | $ | 45.6 |
Freight and venture partners' cost reimbursements | 42.3 |  |  | 36.3 |  |  | 6.0 |  |  | 53.1 |  |  | 51.2 |  |  | 1.9 |
| 714.3 |  |  | 604.3 |  |  | 110.0 |  |  | 894.3 |  |  | 846.8 |  |  | 47.5 |
COST OF GOODS SOLD AND OPERATING EXPENSES | (429.8 | ) |  | (368.6 | ) |  | (61.2 | ) |  | (548.3 | ) |  | (530.7 | ) |  | (17.6 | )
SALES MARGIN | 284.5 |  |  | 235.7 |  |  | 48.8 |  |  | 346.0 |  |  | 316.1 |  |  | 29.9 |
OTHER OPERATING EXPENSE |  |  |  |  |  |  |  |  |  |  |
Selling, general and administrative expenses | (26.2 | ) |  | (26.2 | ) |  | — |  |  | (51.3 | ) |  | (51.3 | ) |  | — |
Miscellaneous – net | (4.1 | ) |  | (4.1 | ) |  | — |  |  | (10.2 | ) |  | (10.2 | ) |  | — |
| (30.3 | ) |  | (30.3 | ) |  | — |  |  | (61.5 | ) |  | (61.5 | ) |  | — |
OPERATING INCOME | 254.2 |  |  | 205.4 |  |  | 48.8 |  |  | 284.5 |  |  | 254.6 |  |  | 29.9 |
OTHER INCOME (EXPENSE) |  |  |  |  |  |  |  |  |  |  |
Interest expense, net | (31.2 | ) |  | (31.2 | ) |  | — |  |  | (63.6 | ) |  | (63.6 | ) |  | — |
Gain on extinguishment of debt | 0.2 |  |  | 0.2 |  |  | — |  |  | 0.2 |  |  | 0.2 |  |  | — |
Other non-operating income | 4.4 |  |  | 4.4 |  |  | — |  |  | 8.8 |  |  | 8.8 |  |  | — |
| (26.6 | ) |  | (26.6 | ) |  | — |  |  | (54.6 | ) |  | (54.6 | ) |  | — |
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 227.6 |  |  | 178.8 |  |  | 48.8 |  |  | 229.9 |  |  | 200.0 |  |  | 29.9 |
INCOME TAX BENEFIT (EXPENSE) | 1.8 |  |  | 1.8 |  |  | — |  |  | (13.9 | ) |  | (13.9 | ) |  | — |
INCOME FROM CONTINUING OPERATIONS | 229.4 |  |  | 180.6 |  |  | 48.8 |  |  | 216.0 |  |  | 186.1 |  |  | 29.9 |
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX | (64.3 | ) |  | (64.3 | ) |  | — |  |  | (135.2 | ) |  | (135.2 | ) |  | — |
NET INCOME | 165.1 |  |  | 116.3 |  |  | 48.8 |  |  | 80.8 |  |  | 50.9 |  |  | 29.9 |
LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
NET INCOME ATTRIBUTABLE TO CLIFFS SHAREHOLDERS | $ | 165.1 |  |  | $ | 116.3 |  |  | $ | 48.8 |  |  | $ | 80.8 |  |  | $ | 50.9 |  |  | $ | 29.9 |
INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS – BASIC |  |  |  |  |  |  |  |  |  |  |
Continuing operations | $ | 0.77 |  |  | $ | 0.61 |  |  | $ | 0.16 |  |  | $ | 0.73 |  |  | $ | 0.62 |  |  | $ | 0.10 |
Discontinued operations | (0.22 | ) |  | (0.22 | ) |  | — |  |  | (0.46 | ) |  | (0.45 | ) |  | — |
| $ | 0.55 |  |  | $ | 0.39 |  |  | $ | 0.16 |  |  | $ | 0.27 |  |  | $ | 0.17 |  |  | $ | 0.10 |
INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS – DILUTED |  |  |  |  |  |  |  |  |  |  |
Continuing operations | $ | 0.76 |  |  | $ | 0.60 |  |  | $ | 0.16 |  |  | $ | 0.72 |  |  | $ | 0.62 |  |  | $ | 0.10 |
Discontinued operations | (0.21 | ) |  | (0.21 | ) |  | — |  |  | (0.45 | ) |  | (0.45 | ) |  | — |
| $ | 0.55 |  |  | $ | 0.39 |  |  | $ | 0.16 |  |  | $ | 0.27 |  |  | $ | 0.17 |  |  | $ | 0.10 |
AVERAGE NUMBER OF SHARES (IN THOUSANDS) |  |  |  |  |  |  |  |  |  |  |
Basic | 297,618 |  |  | 297,618 |  |  |  |  | 297,442 |  |  | 297,442 |  |  |
Diluted | 301,275 |  |  | 301,275 |  |  |  |  | 301,143 |  |  | 301,143 |  |  |
|  | ($ in Millions)
|  | June 30, 2018
|  | As Reported |  | Balances without Adoption of Topic 606 |  | Effect of Change
ASSETS |  |  |  |  |  |
CURRENT ASSETS |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 802.5 |  |  | $ | 802.5 |  |  | $ | — |
Accounts receivable, net |  | 152.6 |  |  | 53.0 |  |  | 99.6 |
Inventories |  | 256.4 |  |  | 323.9 |  |  | (67.5 | )
Supplies and other inventories |  | 88.6 |  |  | 88.6 |  |  | — |
Derivative assets |  | 174.7 |  |  | 146.2 |  |  | 28.5 |
Current assets of discontinued operations |  | 45.3 |  |  | 45.3 |  |  | — |
Loans to and accounts receivable from the Canadian Entities |  | — |  |  | — |  |  | — |
Other current assets |  | 26.8 |  |  | 26.8 |  |  | — |
TOTAL CURRENT ASSETS |  | 1,546.9 |  |  | 1,486.3 |  |  | 60.6 |
PROPERTY, PLANT AND EQUIPMENT, NET |  | 1,081.3 |  |  | 1,081.3 |  |  | — |
OTHER ASSETS |  |  |  |  |  |
Deposits for property, plant and equipment |  | 85.7 |  |  | 85.7 |  |  | — |
Income tax receivable |  | 219.9 |  |  | 219.9 |  |  | — |
Non-current assets of discontinued operations |  | — |  |  | — |  |  | — |
Other non-current assets |  | 117.7 |  |  | 117.7 |  |  | — |
TOTAL OTHER ASSETS |  | 423.3 |  |  | 423.3 |  |  | — |
TOTAL ASSETS |  | $ | 3,051.5 |  |  | $ | 2,990.9 |  |  | $ | 60.6 |
LIABILITIES |  |  |  |  |  |
CURRENT LIABILITIES |  |  |  |  |  |
Accounts payable |  | $ | 119.0 |  |  | $ | 117.8 |  |  | $ | 1.2 |
Accrued expenses |  | 85.1 |  |  | 85.1 |  |  | — |
Accrued interest |  | 43.1 |  |  | 43.1 |  |  | — |
Contingent claims |  | — |  |  | — |  |  | — |
Partnership distribution payable |  | 44.2 |  |  | 44.2 |  |  | — |
Current liabilities of discontinued operations |  | 117.3 |  |  | 117.3 |  |  | — |
Other current liabilities |  | 66.2 |  |  | 72.1 |  |  | (5.9 | )
TOTAL CURRENT LIABILITIES |  | 474.9 |  |  | 479.6 |  |  | (4.7 | )
PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES |  | 245.0 |  |  | 245.0 |  |  | — |
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS |  | 172.3 |  |  | 172.3 |  |  | — |
LONG-TERM DEBT |  | 2,297.0 |  |  | 2,297.0 |  |  | — |
NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS |  | 10.3 |  |  | 10.3 |  |  | — |
OTHER LIABILITIES |  | 158.3 |  |  | 158.3 |  |  | — |
TOTAL LIABILITIES |  | 3,357.8 |  |  | 3,362.5 |  |  | (4.7 | )
EQUITY |  |  |  |  |  |
CLIFFS SHAREHOLDERS' DEFICIT |  | (306.3 | ) |  | (371.6 | ) |  | 65.3 |
NONCONTROLLING INTEREST |  | — |  |  | — |  |  | — |
TOTAL DEFICIT |  | (306.3 | ) |  | (371.6 | ) |  | 65.3 |
TOTAL LIABILITIES AND DEFICIT |  | $ | 3,051.5 |  |  | $ | 2,990.9 |  |  | $ | 60.6 |
The adoption of Topic 606 did not have an impact on net cash flows in our Statements of Unaudited Condensed Consolidated Cash Flows. ASU 2017-07, Retirement Benefits - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. On January 1, 2018, we adopted the amendments to ASC 715 regarding the presentation of net periodic pension and postretirement benefit costs. We retrospectively adopted the presentation of service cost separate from the other components of net periodic costs. The interest cost, expected return on assets, amortization of prior service costs, net remeasurement, and other costs have been reclassified from Cost of goods sold and operating expenses, Selling, general and administrative expenses and Miscellaneous – net to Other non-operating income. We elected to apply the practical expedient, which allows us to reclassify amounts disclosed previously in our pension and other postretirement benefits footnote as the basis for applying retrospective presentation for comparative periods. On a prospective basis, only service costs will be included in amounts capitalized in inventory or property, plant, and equipment. The effect of the retrospective presentation change related to the net periodic cost of our defined benefit pension and other postretirement employee benefits plans on our Statements of Unaudited Condensed Consolidated Operations was as follows:
| ($ in Millions)
| Three Months Ended June 30, 2017 |  | Six Months Ended June 30, 2017
| As Revised |  | Without Adoption of ASU 2017-07 |  | Effect of Change |  | As Revised |  | Without Adoption of ASU 2017-07 |  | Effect of Change
Cost of goods sold and operating expenses | $ | (326.6 | ) |  | $ | (327.1 | ) |  | $ | 0.5 |  |  | $ | (563.8 | ) |  | $ | (564.9 | ) |  | $ | 1.1 |
Selling, general and administrative expenses | $ | (26.6 | ) |  | $ | (24.7 | ) |  | $ | (1.9 | ) |  | $ | (51.7 | ) |  | $ | (47.8 | ) |  | $ | (3.9 | )
Miscellaneous – net | $ | (2.9 | ) |  | $ | (2.6 | ) |  | $ | (0.3 | ) |  | $ | 6.6 |  |  | $ | 7.3 |  |  | $ | (0.7 | )
Operating income | $ | 115.2 |  |  | $ | 116.9 |  |  | $ | (1.7 | ) |  | $ | 148.6 |  |  | $ | 152.1 |  |  | $ | (3.5 | )
Other non-operating income | $ | 2.5 |  |  | $ | 0.8 |  |  | $ | 1.7 |  |  | $ | 5.0 |  |  | $ | 1.5 |  |  | $ | 3.5 |
Net Income | $ | 30.1 |  |  | $ | 30.1 |  |  | $ | — |  |  | $ | 0.3 |  |  | $ | 0.3 |  |  | $ | — |
Recent Accounting Pronouncements Issued and Not Effective In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases except for short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the Statements of Unaudited Condensed Consolidated Operations. We plan to adopt the standard on its effective date of January 1, 2019. The new standard may be adopted using either the modified retrospective approach, which requires application of the new guidance at the beginning of the earliest comparative period presented or the optional alternative approach, which requires application of the new guidance at the beginning of the standard's effective date. We have finalized our implementation plan and have compiled an inventory of our existing leases. Based on our analysis to date, the updated standard is not expected to have a material effect on our consolidated financial statements. For example, based on the future minimum payments under non-cancellable operating leases as of June 30, 2018, we would expect to record approximately $16 million, discounted to fair value, in the Statements of Unaudited Condensed Consolidated Financial Position.

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- Definition The entire disclosure of changes in accounting principles, including adoption of new accounting pronouncements, that describes the new methods, amount and effects on financial statement line items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -URI http://asc.fasb.org/topic&trid=2122394 + Details
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