NOTE 8 - FAIR VALUE MEASUREMENTS
The following represents the assets and liabilities measured at fair value:
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Ìý |
(In Millions) |
Ìý |
SeptemberÌý30, 2018 |
Description |
Quoted Prices in Active
Markets for Identical Assets/Liabilities
(Level 1)
|
Ìý |
Significant Other Observable Inputs
(Level 2)
|
Ìý |
Significant Unobservable Inputs
(Level 3)
|
Ìý |
Total |
Assets: |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Cash equivalents |
$ |
0.7 |
|
Ìý |
$ |
596.2 |
|
Ìý |
$ |
� |
|
Ìý |
$ |
596.9 |
|
Derivative assets |
� |
|
Ìý |
0.2 |
|
Ìý |
190.6 |
|
Ìý |
190.8 |
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Total |
$ |
0.7 |
|
Ìý |
$ |
596.4 |
|
Ìý |
$ |
190.6 |
|
Ìý |
$ |
787.7 |
|
Liabilities: |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Derivative liabilities |
$ |
� |
|
Ìý |
$ |
0.1 |
|
Ìý |
$ |
5.7 |
|
Ìý |
$ |
5.8 |
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Total |
$ |
� |
|
Ìý |
$ |
0.1 |
|
Ìý |
$ |
5.7 |
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Ìý |
$ |
5.8 |
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Ìý |
(In Millions) |
Ìý |
DecemberÌý31, 2017 |
Description |
Quoted Prices in Active
Markets for Identical Assets/Liabilities
(Level 1)
|
Ìý |
Significant Other Observable Inputs
(Level 2)
|
Ìý |
Significant Unobservable Inputs
(Level 3)
|
Ìý |
Total |
Assets: |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Cash equivalents |
$ |
66.3 |
|
Ìý |
$ |
550.6 |
|
Ìý |
$ |
� |
|
Ìý |
$ |
616.9 |
|
Derivative assets |
� |
|
Ìý |
� |
|
Ìý |
37.9 |
|
Ìý |
37.9 |
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Total |
$ |
66.3 |
|
Ìý |
$ |
550.6 |
|
Ìý |
$ |
37.9 |
|
Ìý |
$ |
654.8 |
|
Liabilities: |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Derivative liabilities |
$ |
� |
|
Ìý |
$ |
0.3 |
|
Ìý |
$ |
1.7 |
|
Ìý |
$ |
2.0 |
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Total |
$ |
� |
|
Ìý |
$ |
0.3 |
|
Ìý |
$ |
1.7 |
|
Ìý |
$ |
2.0 |
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Financial assets classified in Level 1 include money market funds and treasury bonds. The valuation of these instruments 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. Level 2 assets include commercial paper, certificates of deposit and commodity hedge contracts. Level 2 liabilities include commodity hedge contracts.
The Level 3 assets and liabilities include derivative assets that consist of freestanding derivative instruments related to a customer supply agreement and certain provisional pricing arrangements with our customers.
The supply agreement included in our Level 3 assets includes provisions for supplemental revenue or refunds based on the average annual daily market price for hot-rolled coil steel at the time the iron ore product is consumed in the customer’s blast furnaces. We account for these provisions as derivative instruments at the time of sale and adjust the corresponding asset or liability to fair value as an adjustment to Product revenues each reporting period until the product is consumed and the amounts are settled. We had assets of $186.0 million and $37.9 million at SeptemberÌý30, 2018 and DecemberÌý31, 2017, respectively, related to this supply agreement.
The provisional pricing arrangements included in our Level 3 assets/liabilities specify provisional price calculations, where the pricing mechanisms generally are based on market pricing, with the final revenue rate 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 estimated final revenue rate at the date of sale and the estimated final revenue rate at the measurement date is characterized as a derivative and is required to be accounted for separately once the revenue has been recognized. The derivative instruments are 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 revenue rates are determined. We had assets of $4.6 million and liabilities of $5.7 million related to provisional pricing arrangements at SeptemberÌý30, 2018 compared to liabilities of $1.7 million related to provisional pricing arrangements at DecemberÌý31, 2017.
The following table illustrates information about quantitative inputs and assumptions for the assets and liabilities categorized in Level 3 of the fair value hierarchy:
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Qualitative/Quantitative Information About Level 3 Fair Value Measurements |
Ìý |
Ìý |
(In Millions)
Fair Value at September 30, 2018
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Ìý |
Balance Sheet
Location
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Ìý |
Valuation Technique |
Ìý |
Unobservable Input |
Ìý |
Range or Point Estimate
(Weighted Average)
|
Ìý |
Customer supply agreement |
Ìý |
$ |
186.0 |
|
Ìý |
Derivative assets |
Ìý |
Market Approach |
Ìý |
Management's Estimate of Market Hot-Rolled Coil AGÕæÈËƽ̨AGÕæÈËÊÔÍæ per net ton |
Ìý |
$842 |
Provisional pricing arrangements |
Ìý |
$ |
4.6 |
|
Ìý |
Derivative assets |
Ìý |
Market Approach |
Ìý |
Management's
Estimate of Platts 62% Price
per dry metric ton
|
Ìý |
$68 - $70
($70) |
Provisional pricing arrangements |
Ìý |
$ |
5.7 |
|
Ìý |
Other current liabilities |
Ìý |
Market Approach |
Ìý |
Management's
Estimate of Platts 62% Price
per dry metric ton
|
Ìý |
$68 - $70
($70) |
The significant unobservable input used in the fair value measurement of our customer supply agreement is a forward-looking estimate of the average annual daily market price for hot-rolled coil steel determined by management.
The significant unobservable input used in the fair value measurement of our provisional pricing arrangements is management’s estimate of Platts 62% Price based upon current market data and index pricing,Ìýwhich include forward-looking estimates.
The following tables represent a reconciliation of the changes in fair value of financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
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Ìý |
(In Millions) |
Ìý |
Level 3 Assets |
Ìý |
Three Months Ended
September 30, |
Ìý |
Nine Months Ended
September 30, |
Ìý |
2018 |
Ìý |
2017 |
Ìý |
2018 |
Ìý |
2017 |
Beginning balance1
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$ |
174.6 |
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Ìý |
$ |
70.2 |
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Ìý |
$ |
49.5 |
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Ìý |
$ |
30.1 |
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Total gains |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Included in earnings |
139.0 |
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Ìý |
54.0 |
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Ìý |
341.8 |
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Ìý |
138.5 |
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Settlements |
(123.0 |
) |
Ìý |
(35.2 |
) |
Ìý |
(200.7 |
) |
Ìý |
(79.6 |
) |
Ending balance - September 30 |
$ |
190.6 |
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Ìý |
$ |
89.0 |
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Ìý |
$ |
190.6 |
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Ìý |
$ |
89.0 |
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Total gains for the period included in earnings attributable to the change in unrealized gains on assets still held at the reporting date |
$ |
15.9 |
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Ìý |
$ |
52.9 |
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Ìý |
$ |
141.0 |
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Ìý |
$ |
63.1 |
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Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
1ÌýBeginning balance as of January 1, 2018 includes an $11.6 million adjustment for adoption of Topic 606.
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Ìý |
(In Millions) |
Ìý |
Level 3 Liabilities |
Ìý |
Three Months Ended
September 30, |
Ìý |
Nine Months Ended
September 30, |
Ìý |
2018 |
Ìý |
2017 |
Ìý |
2018 |
Ìý |
2017 |
Beginning balance |
$ |
(3.0 |
) |
Ìý |
$ |
(20.3 |
) |
Ìý |
$ |
(1.7 |
) |
Ìý |
$ |
� |
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Total losses |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Included in earnings |
(3.1 |
) |
Ìý |
(15.3 |
) |
Ìý |
(7.4 |
) |
Ìý |
(35.6 |
) |
Settlements |
0.4 |
|
Ìý |
30.2 |
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Ìý |
3.4 |
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Ìý |
30.2 |
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Ending balance - September 30 |
$ |
(5.7 |
) |
Ìý |
$ |
(5.4 |
) |
Ìý |
$ |
(5.7 |
) |
Ìý |
$ |
(5.4 |
) |
Total losses for the period included in earnings attributable to the change in unrealized losses on liabilities still held at the reporting date |
$ |
(2.7 |
) |
Ìý |
$ |
(10.9 |
) |
Ìý |
$ |
(5.7 |
) |
Ìý |
$ |
(6.4 |
) |
The carrying amount of certain financial instruments (e.g., Accounts receivable, net, Accounts payable and Accrued expenses) approximates fair value and, therefore, has been excluded from the table below. A summary of the carrying amount and fair value of other financial instruments were as follows:
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Ìý |
Ìý |
Ìý |
(In Millions) |
Ìý |
Ìý |
Ìý |
SeptemberÌý30, 2018 |
Ìý |
DecemberÌý31, 2017 |
Ìý |
Classification |
Ìý |
Carrying
Value
|
Ìý |
Fair Value |
Ìý |
Carrying
Value
|
Ìý |
Fair Value |
Long-term debt: |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Secured Notes |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
$400 Million 4.875% 2024 Senior Notes |
Level 1 |
Ìý |
$ |
391.7 |
|
Ìý |
$ |
395.0 |
|
Ìý |
$ |
390.3 |
|
Ìý |
$ |
398.0 |
|
Unsecured Notes |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
Ìý |
$400 Million 5.90% 2020 Senior Notes |
Level 1 |
Ìý |
88.2 |
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Ìý |
91.5 |
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Ìý |
88.6 |
|
Ìý |
88.0 |
|
$500 Million 4.80% 2020 Senior Notes |
Level 1 |
Ìý |
122.0 |
|
Ìý |
125.9 |
|
Ìý |
122.0 |
|
Ìý |
118.8 |
|
$700 Million 4.875% 2021 Senior Notes |
Level 1 |
Ìý |
123.9 |
|
Ìý |
124.8 |
|
Ìý |
138.0 |
|
Ìý |
130.8 |
|
$316.25 Million 1.50% 2025 Convertible Senior Notes |
Level 1 |
Ìý |
232.4 |
|
Ìý |
531.4 |
|
Ìý |
224.1 |
|
Ìý |
352.9 |
|
$1.075 Billion 5.75% 2025 Senior Notes |
Level 1 |
Ìý |
1,047.9 |
|
Ìý |
1,047.8 |
|
Ìý |
1,047.2 |
|
Ìý |
1,029.3 |
|
$800 Million 6.25% 2040 Senior Notes |
Level 1 |
Ìý |
292.8 |
|
Ìý |
255.3 |
|
Ìý |
292.6 |
|
Ìý |
227.1 |
|
ABL Facility |
Level 2 |
Ìý |
� |
|
Ìý |
� |
|
Ìý |
� |
|
Ìý |
� |
|
Fair value adjustment to interest rate hedge |
Level 2 |
Ìý |
1.1 |
|
Ìý |
1.1 |
|
Ìý |
1.4 |
|
Ìý |
1.4 |
|
Total long-term debt |
Ìý |
Ìý |
$ |
2,300.0 |
|
Ìý |
$ |
2,572.8 |
|
Ìý |
$ |
2,304.2 |
|
Ìý |
$ |
2,346.3 |
|
The fair value of long-term debt was determined using quoted market prices based upon current borrowing rates.