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EX-31.1 - EXHIBIT 31.1 - CLEVELAND-CLIFFS INC.clf-2015930ex311.htm
EX-32.2 - EXHIBIT 32.2 - CLEVELAND-CLIFFS INC.clf-2015930ex322.htm
EX-10.1 - EXHIBIT 10.1 - CLEVELAND-CLIFFS INC.clf-2015930ex101.htm
EX-32.1 - EXHIBIT 32.1 - CLEVELAND-CLIFFS INC.clf-2015930ex321.htm
EX-10.2 - EXHIBIT 10.2 - CLEVELAND-CLIFFS INC.clf-2015930ex102.htm
EX-95 - EXHIBIT 95 - CLEVELAND-CLIFFS INC.clf-2015930ex95.htm
EX-31.2 - EXHIBIT 31.2 - CLEVELAND-CLIFFS INC.clf-2015930ex312.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             .
Commission File Number: 1-8944
CLIFFS NATURAL RESOURCES INC.
(Exact Name of Registrant as Specified in Its Charter)
Ohio
 
34-1464672
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
200 Public Square, Cleveland, Ohio
 
44114-2315
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (216) 694-5700
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES  x                                         NO  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES  x                                         NO  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x             Accelerated filer  o    Non-accelerated filer   o    Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES  o                                         NO  x
The number of shares outstanding of the registrant’s common shares, par value $0.125 per share, was 153,422,672 as of October 26, 2015.




TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
Page Number
 
 
 
 
 
 
DEFINITIONS
 
 
 
 
 
 
PART I - FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
Statements of Unaudited Condensed Consolidated Operations for the Three and Nine Months Ended September 30, 2015 and 2014
 
 
 
 
Statements of Unaudited Condensed Consolidated Comprehensive Income for the Three and Nine Months Ended September 30, 2015 and 2014
 
 
 
 
Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2015 and December 31, 2014
 
 
 
 
Statements of Unaudited Condensed Consolidated Cash Flows for the Nine Months Ended September 30, 2015 and 2014
 
 
 
 
Notes to Unaudited Condensed Consolidated Financial Statements
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
 
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 6.
Exhibits
 
 
 
 
 
 
 
 
Signatures
 
 
 
 
 
 



DEFINITIONS
The following abbreviations or acronyms are used in the text. References in this report to the “Company,” “we,” “us,” “our” and “Cliffs” are to Cliffs Natural Resources Inc. and subsidiaries, collectively. References to “A$” or “AUD” refer to Australian currency, “C$” or "CAD" to Canadian currency and “$” to United States currency.
Abbreviation or acronym
 
Term
ABL Facility
 
Syndicated Facility Agreement by and among Bank of America, N.A., as Administrative Agent and Australian Security Trustee, the Lenders that are parties hereto, Cliffs Natural Resources Inc., as Parent and a Borrower, and the Subsidiaries of Parent party hereto, as Borrowers dated as of March 30, 2015
ArcelorMittal
 
ArcelorMittal (as the parent company of ArcelorMittal Mines Canada, ArcelorMittal USA and ArcelorMittal Dofasco, as well as, many other subsidiaries)
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Updates
BAML
 
Bank of America Merrill Lynch
Bloom Lake
 
The Bloom Lake Iron Ore Mine Limited Partnership
Bloom Lake Group
 
Bloom Lake General Partner Limited and certain of its affiliates, including Cliffs Quebec Iron Mining ULC
Canadian Entities
 
Bloom Lake Group, Wabush Group and certain other wholly-owned Canadian subsidiaries
CCAA
 
Companies' Creditors Arrangement Act (Canada)
CEO
 
Chief Executive Officer
CFR
 
Cost and freight
Chromite Project
 
Cliffs Chromite Ontario Inc.
CLCC
 
Cliffs Logan County Coal LLC
CODM
 
Chief Operating Decision Maker
Dodd-Frank Act
 
Dodd-Frank Wall Street Reform and Consumer Protection Act
DR-pellets
 
Direct Reduction pellets
EAF
 
Electric Arc Furnace
EBITDA
 
Earnings before interest, taxes, depreciation and amortization
Empire
 
Empire Iron Mining Partnership
Essar Algoma
 
Essar Steel Algoma Inc.
Exchange Act
 
Securities Exchange Act of 1934, as amended
FASB
 
Financial Accounting Standards Board
Fe
 
Iron
FERC
 
Federal Energy Regulatory Commission
FMSH Act
 
Federal Mine Safety and Health Act of 1977
GAAP
 
Accounting principles generally accepted in the United States
Hibbing
 
Hibbing Taconite Company
Koolyanobbing
 
Collective term for the operating deposits at Koolyanobbing, Mount Jackson and Windarling
LIBOR
 
London Interbank Offered Rate
LTVSMC
 
LTV Steel Mining Company
MISO
 
Midcontinent Independent System Operator, Inc.
MMBtu
 
Million British Thermal Units
Monitor
 
FTI Consulting Canada Inc.
Moody's
 
Moody's Investors Service, Inc., a subsidiary of Moody's Corporation, and its successors
MSHA
 
U.S. Mine Safety and Health Administration
Northshore
 
Northshore Mining Company
Oak Grove
 
Oak Grove Resources, LLC
OCI
 
Other comprehensive income (loss)
OPEB
 
Other postretirement employment benefits
Pinnacle
 
Pinnacle Mining Company, LLC
Preferred Share
 
7.00 percent Series A Mandatory Convertible Preferred Stock, Class A, without par value
S&P
 
Standard & Poor's Rating Services, a division of Standard & Poor's Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc., and its successors
SEC
 
U.S. Securities and Exchange Commission
SSR
 
System Support Resource
Securities Act
 
Securities Act of 1933
Substitute Rating Agency
 
A "nationally recognized statistical rating organization" within the meaning of Section 3(a)(62) of the Exchange Act, selected by us (as certified by a certificate of officers confirming the decision of our Board of Directors) as a replacement agency of Moody's or S&P, or both of them, as the case may be
Tilden
 
Tilden Mining Company
TSR
 
Total Shareholder Return
United Taconite
 
United Taconite LLC

1


U.S.
 
United States of America
USW
 
United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union
Wabush
 
Wabush Mines Joint Venture
Wabush Group
 
Wabush Iron Co. Limited and Wabush Resources Inc., and certain of its affiliates, including Wabush Mines (an unincorporated joint venture of Wabush Iron Co. Limited and Wabush Resources Inc.), Arnaud Railway Company and Wabush Lake Railway Company
2012 Equity Plan
 
Cliffs Natural Resources Inc. 2012 Incentive Equity Plan
2012 Amended Equity Plan
 
Cliffs Natural Resources Inc. Amended and Restated 2012 Incentive Equity Plan
2015 Equity Plan
 
Cliffs Natural Resources Inc. 2015 Equity and Incentive Compensation Plan

2


PART I
Item 1.
Financial Statements
Statements of Unaudited Condensed Consolidated Operations
Cliffs Natural Resources Inc. and Subsidiaries
 
(In Millions, Except Per Share Amounts)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
REVENUES FROM PRODUCT SALES AND SERVICES
 
 
 
 
 
 
 
Product
$
542.5

 
$
901.9

 
$
1,399.9

 
$
2,161.7

Freight and venture partners' cost reimbursements
50.7

 
77.8

 
137.4

 
181.2


593.2

 
979.7

 
1,537.3

 
2,342.9

COST OF GOODS SOLD AND OPERATING EXPENSES
(538.1
)
 
(723.5
)
 
(1,344.1
)
 
(1,713.2
)
SALES MARGIN
55.1

 
256.2

 
193.2

 
629.7

OTHER OPERATING INCOME (EXPENSE)
 
 
 
 
 
 
 
Selling, general and administrative expenses
(22.4
)
 
(49.7
)
 
(82.2
)
 
(131.1
)
Impairment of goodwill and other long-lived assets

 
(377.0
)
 
(3.3
)
 
(378.6
)
Miscellaneous - net
(3.5
)
 
27.7

 
19.1

 
15.7

 
(25.9
)
 
(399.0
)
 
(66.4
)
 
(494.0
)
OPERATING INCOME (EXPENSE)
29.2

 
(142.8
)
 
126.8

 
135.7

OTHER INCOME (EXPENSE)
 
 
 
 
 
 
 
Interest expense, net
(61.7
)
 
(45.8
)
 
(168.2
)
 
(128.3
)
Gain on extinguishment of debt
79.2

 

 
392.9

 

Other non-operating income (expense)
(0.1
)
 
7.7

 
(3.0
)
 
10.1

 
17.4

 
(38.1
)
 
221.7

 
(118.2
)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY LOSS FROM VENTURES
46.6

 
(180.9
)
 
348.5

 
17.5

INCOME TAX BENEFIT (EXPENSE)
3.4

 
(84.1
)
 
(169.9
)
 
(121.3
)
EQUITY LOSS FROM VENTURES, NET OF TAX
(0.1
)
 
(9.2
)
 
(0.1
)
 
(9.8
)
INCOME (LOSS) FROM CONTINUING OPERATIONS
49.9

 
(274.2
)
 
178.5

 
(113.6
)
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX
(43.9
)
 
(6,613.0
)
 
(869.0
)
 
(6,829.8
)
NET INCOME (LOSS)
6.0

 
(6,887.2
)
 
(690.5
)
 
(6,943.4
)
LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
4.6

 
1,007.6

 
1.5

 
1,004.4

(Three Months Ended September 30, 2015 - No loss related to Discontinued Operations, Nine Months Ended September 30, 2015 - Loss of $7.7 million related to Discontinued Operations, Three and Nine Months Ended September 30, 2014 - Loss of $1,010.1 million and $1,026.8 million, respectively, related to Discontinued Operations)
 
 
 
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$
10.6

 
$
(5,879.6
)
 
$
(689.0
)
 
$
(5,939.0
)
PREFERRED STOCK DIVIDENDS
(25.6
)
 
(12.8
)
 
(38.4
)
 
(38.4
)
NET LOSS ATTRIBUTABLE TO CLIFFS COMMON SHAREHOLDERS
$
(15.0
)
 
$
(5,892.4
)
 
$
(727.4
)
 
$
(5,977.4
)
EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS - BASIC
 
 
 
 
 
 
 
Continuing operations
$
0.19

 
$
(1.89
)
 
$
0.87

 
$
(1.14
)
Discontinued operations
(0.29
)
 
(36.60
)
 
(5.62
)
 
(37.91
)
 
$
(0.10
)
 
$
(38.49
)
 
$
(4.75
)
 
$
(39.05
)
EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS - DILUTED
 
 
 
 
 
 
 
Continuing operations
$
0.19

 
$
(1.89
)
 
$
0.87

 
$
(1.14
)
Discontinued operations
(0.29
)
 
(36.60
)
 
(5.62
)
 
(37.91
)
 
$
(0.10
)
 
$
(38.49
)
 
$
(4.75
)
 
$
(39.05
)
AVERAGE NUMBER OF SHARES (IN THOUSANDS)
 
 
 
 
 
 
 
Basic
153,237

 
153,108

 
153,213

 
153,085

Diluted
153,237

 
153,108

 
153,213

 
153,085

CASH DIVIDENDS DECLARED PER DEPOSITARY SHARE
$
0.88

 
$
0.44

 
$
1.32

 
$
1.32

CASH DIVIDENDS DECLARED PER COMMON SHARE
$

 
$
0.15

 
$

 
$
0.45

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


Statements of Unaudited Condensed Consolidated Comprehensive Income
Cliffs Natural Resources Inc. and Subsidiaries
 
(In Millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
NET INCOME (LOSS) ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$
10.6

 
$
(5,879.6
)
 
$
(689.0
)
 
$
(5,939.0
)
OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
Changes in pension and other post-retirement benefits, net of tax
6.6

 
11.6

 
36.0

 
18.2

Unrealized net gain (loss) on marketable securities, net of tax
0.1

 
(5.8
)
 
1.6

 
(5.6
)
Unrealized net gain (loss) on foreign currency translation
(11.4
)
 
(65.9
)
 
157.1

 
(5.7
)
Unrealized net gain (loss) on derivative financial instruments, net of tax
9.2

 
(20.6
)
 
16.7

 
6.2

OTHER COMPREHENSIVE INCOME (LOSS)
4.5

 
(80.7
)
 
211.4

 
13.1

OTHER COMPREHENSIVE LOSS (INCOME) ATTRIBUTABLE TO THE NONCONTROLLING INTEREST
(0.7
)
 
(0.5
)
 
9.3

 
(1.6
)
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$
14.4

 
$
(5,960.8
)
 
$
(468.3
)
 
$
(5,927.5
)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


Statements of Unaudited Condensed Consolidated Financial Position
Cliffs Natural Resources Inc. and Subsidiaries
 
(In Millions)
 
September 30,
2015
 
December 31,
2014
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
270.2

 
$
271.3

Accounts receivable, net
53.4

 
122.7

Inventories
351.7

 
260.1

Supplies and other inventories
118.0

 
118.6

Income tax receivable
3.1

 
217.6

Short-term assets of discontinued operations
141.4

 
330.6

Other current assets
138.1

 
128.0

TOTAL CURRENT ASSETS
1,075.9

 
1,448.9

PROPERTY, PLANT AND EQUIPMENT, NET
1,052.6

 
1,070.5

OTHER ASSETS
 
 
 
Long-term assets of discontinued operations

 
400.1

Other non-current assets
143.0

 
244.5

TOTAL OTHER ASSETS
143.0

 
644.6

TOTAL ASSETS
$
2,271.5

 
$
3,164.0

(continued)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


Statements of Unaudited Condensed Consolidated Financial Position
Cliffs Natural Resources Inc. and Subsidiaries - (Continued)
 
(In Millions)
 
September 30,
2015
 
December 31,
2014
LIABILITIES
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable
$
102.3

 
$
166.1

Accrued expenses
149.8

 
201.7

Short-term liabilities of discontinued operations
182.2

 
400.6

Other current liabilities
235.6

 
190.2

TOTAL CURRENT LIABILITIES
669.9

 
958.6

PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES
209.1

 
259.7

ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
211.9

 
165.6

LONG-TERM DEBT
2,721.6

 
2,843.3

LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS

 
436.1

OTHER LIABILITIES
218.5

 
235.0

TOTAL LIABILITIES
4,031.0

 
4,898.3

COMMITMENTS AND CONTINGENCIES (SEE NOTE 20)

 

EQUITY
 
 
 
CLIFFS SHAREHOLDERS' DEFICIT
 
 
 
Preferred Stock - no par value
 
 
 
Class A - 3,000,000 shares authorized
 
 
 
7% Series A Mandatory Convertible, Class A, no par value and $1,000 per share liquidation preference
 
 
 
Issued and Outstanding - 731,223 shares (2014 - 731,223 shares)
731.3

 
731.3

Class B - 4,000,000 shares authorized
 
 
 
Common Shares - par value $0.125 per share
 
 
 
Authorized - 400,000,000 shares (2014 - 400,000,000 shares);
 
 
 
Issued - 159,546,224 shares (2014 - 159,546,224 shares);
 
 
 
Outstanding - 153,404,664 shares (2014 - 153,246,754 shares)
19.8

 
19.8

Capital in excess of par value of shares
2,307.6

 
2,309.8

Retained deficit
(4,688.1
)
 
(3,960.7
)
Cost of 6,141,560 common shares in treasury (2014 - 6,299,470 shares)
(277.5
)
 
(285.7
)
Accumulated other comprehensive loss
(25.1
)
 
(245.8
)
TOTAL CLIFFS SHAREHOLDERS' DEFICIT
(1,932.0
)
 
(1,431.3
)
NONCONTROLLING INTEREST (DEFICIT)
172.5

 
(303.0
)
TOTAL DEFICIT
(1,759.5
)
 
(1,734.3
)
TOTAL LIABILITIES AND DEFICIT
$
2,271.5

 
$
3,164.0

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


Statements of Unaudited Condensed Consolidated Cash Flows
Cliffs Natural Resources Inc. and Subsidiaries
 
(In Millions)
 
Nine Months Ended
September 30,
 
2015
 
2014
OPERATING ACTIVITIES
 
 
 
Net loss
$
(690.5
)
 
$
(6,943.4
)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
 
 
 
Depreciation, depletion and amortization
99.1

 
430.4

Impairment of goodwill and other long-lived assets
76.6

 
7,773.1

Deferred income taxes
160.0

 
(1,080.7
)
Gain on extinguishment of debt
(392.9
)
 

Loss on deconsolidation, net of cash deconsolidated
654.8

 

Other
52.7

 
(22.6
)
Changes in operating assets and liabilities:
 
 
 
Receivables and other assets
293.1

 
98.9

Product inventories
(76.2
)
 
(129.2
)
Payables, accrued expenses and other current liabilities
(236.2
)
 
(22.5
)
Net cash provided (used) by operating activities
(59.5
)
 
104.0

INVESTING ACTIVITIES
 
 
 
Purchase of property, plant and equipment
(57.9
)
 
(233.2
)
Other investing activities
0.7

 
25.3

Net cash used by investing activities
(57.2
)
 
(207.9
)
FINANCING ACTIVITIES
 
 
 
Proceeds from first lien notes offering
503.5

 

Debt issuance costs
(33.6
)
 
(2.1
)
Repurchase of debt
(225.9
)
 

Borrowings under credit facilities
309.8

 
918.5

Repayment under credit facilities
(309.8
)
 
(705.1
)
Repayment of equipment loans
(36.9
)
 
(15.7
)
Distributions of partnership equity
(31.7
)
 

Common stock dividends

 
(69.5
)
Preferred stock dividends
(38.4
)
 
(38.4
)
Other financing activities
(38.8
)
 
(70.3
)
Net cash provided by financing activities
98.2

 
17.4

EFFECT OF EXCHANGE RATE CHANGES ON CASH
(2.2
)
 
(5.0
)
DECREASE IN CASH AND CASH EQUIVALENTS
(20.7
)
 
(91.5
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
290.9

 
335.5

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
270.2

 
$
244.0

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
See NOTE 17 - CASH FLOW INFORMATION.

7


Cliffs Natural Resources Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
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, include 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 and nine months ended September 30, 2015 are not necessarily indicative of results to be expected for the year ending December 31, 2015 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, 2014.
As more fully described in NOTE 14 - DISCONTINUED OPERATIONS, in January 2015, we announced that the Bloom Lake Group commenced restructuring proceedings in Montreal, Quebec under the CCAA. At that time, we had recently suspended Bloom Lake operations and for several months had been exploring options to sell certain of our Canadian assets, among other initiatives. Effective January 27, 2015, following the CCAA filing of the Bloom Lake Group, we deconsolidated the Bloom Lake Group and certain other wholly-owned subsidiaries comprising substantially all of our Canadian operations. Additionally, on May 20, 2015, the Wabush Group commenced restructuring proceedings in Montreal, Quebec under the CCAA which resulted in the deconsolidation of the remaining Wabush Group entities that were not previously deconsolidated. The Wabush Group was no longer generating revenues and was not able to meet its obligations as they came due. As a result of this action, the CCAA protections granted to the Bloom Lake Group were extended to include the Wabush Group to facilitate the reorganization of each of their businesses and operations. Financial results prior to the respective deconsolidations of the Bloom Lake and Wabush Groups and subsequent expenses directly associated with the Canadian Entities are included in our financial statements and classified within discontinued operations.
Additionally, as we continue to re-focus our strategy on strengthening our U.S. Iron Ore operations, management determined that our North American Coal operating segment as of the period ended March 31, 2015 met the criteria to be classified as held for sale under ASC 205 - Presentation of Financial Statements. As such, all current and historical North American Coal operating segment results are included in our financial statements and classified within discontinued operations.
We now report our results from continuing operations in two reportable segments: U.S. Iron Ore and Asia Pacific Iron Ore.

8


Basis of Consolidation
The unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly-owned and majority-owned subsidiaries, including the following operations as of September 30, 2015:
Name
 
Location
 
Ownership Interest
 
Operation
 
Status of Operations
Northshore
 
Minnesota
 
100.0%
 
Iron Ore
 
Active
United Taconite
 
Minnesota
 
100.0%
 
Iron Ore
 
Active
Tilden
 
Michigan
 
85.0%
 
Iron Ore
 
Active
Empire
 
Michigan
 
79.0%
 
Iron Ore
 
Active
Koolyanobbing
 
Western Australia
 
100.0%
 
Iron Ore
 
Active
Pinnacle
 
West Virginia
 
100.0%
 
Coal
 
Active - Held for Sale
Oak Grove
 
Alabama
 
100.0%
 
Coal
 
Active - Held for Sale
Wabush1
 
Newfoundland and Labrador/ Quebec, Canada
 
100.0%
 
Iron Ore
 
Permanent closure
Bloom Lake1
 
Quebec, Canada
 
82.8%
 
Iron Ore
 
Care-and-maintenance
1 As of January 27, 2015 and May 20, 2015, we deconsolidated substantially all of our Canadian operations following the CCAA filing. See NOTE 14 - DISCONTINUED OPERATIONS for further information.
Intercompany transactions and balances are eliminated upon consolidation.
Equity Method Investments
Investments in unconsolidated ventures that we have the ability to exercise significant influence over, but not control, are accounted for under the equity method. 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 September 30, 2015 and December 31, 2014.
 
 
 
 
 
 
 
 
(In Millions)
Investment
 
Classification
 
Accounting
Method
 
Interest
Percentage
 
September 30,
2015
 
December 31,
2014
Hibbing
 
Other non-current assets
 
Equity Method
 
23%
 
$
2.1

 
$
3.1

Other
 
Other non-current assets
 
Equity Method
 
Various
 
1.1

 
1.0

 
 
 
 
 
 
 
 
$
3.2

 
$
4.1


9


Foreign Currency
Our financial statements are prepared with the U.S. dollar as the reporting currency. The functional currency of our Australian subsidiaries is the Australian dollar. The functional currency of all other international subsidiaries is the U.S. dollar. The financial statements of international subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and a weighted average exchange rate for each period for revenues, expenses, gains and losses. Where the local currency is the functional currency, translation adjustments are recorded as Accumulated other comprehensive loss. Income taxes generally are not provided for foreign currency translation adjustments. To the extent that monetary assets and liabilities, inclusive of intercompany notes, are recorded in a currency other than the functional currency, these amounts are remeasured each reporting period, with the resulting gain or loss being recorded in the Statements of Unaudited Condensed Consolidated Operations. Transaction gains and losses resulting from remeasurement of short-term intercompany loans are included in Miscellaneous - net in our Statements of Unaudited Condensed Consolidated Operations. For the three and nine months ended September 30, 2015, net gains of $2.4 million and $15.2 million, respectively, related to the impact of transaction gains and losses resulting from remeasurement. Of these amounts, for the three months ended September 30, 2015, gains of $0.1 million and $1.3 million, respectively, and for the nine months ended September 30, 2015, gains of $11.1 million and $2.0 million, respectively, resulted from remeasurement of short-term intercompany loans and cash and cash equivalents. For the three and nine months ended September 30, 2014, net gains of $25.8 million and $8.4 million, respectively, related to the impact of transaction gains and losses resulting from remeasurement. Of these transaction gains and losses, for the three months ended September 30, 2014, gains of $17.7 million and $9.6 million, respectively, and for the nine months ended September 30, 2014, gains of $4.7 million and $4.5 million, respectively, resulted from remeasurement of short-term intercompany loans and cash and cash equivalents.
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, 2014 included in our Annual Report on Form 10-K filed with the SEC. The significant accounting policies requiring updates have been included within the disclosures below.
Derivative Financial Instruments and Hedging Activities
According to our global hedge policy, the policy allows for hedging 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, of forecasted net currency exposures that are probable to occur. Full hedge compliance under the policy has been waived through December 31, 2015. The waiver was a result of the evaluation of the potential risk of being over hedged and the uncertainty of the 2015 currency exposures. During 2015, we have not entered into any new foreign currency exchange contracts to hedge our foreign currency exposure and we do not expect to enter into any during the remainder of 2015. In the future, we may enter into additional hedging instruments as needed in order to further hedge our exposure to changes in foreign currency exchange rates.
Recent Accounting Pronouncements
Issued and Not Effective
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which specifies that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The new standard does not apply to inventory that is measured using LIFO; therefore, it is not applicable to our U.S. Iron Ore inventory values, but does apply to our Asia Pacific Iron Ore inventories which are valued using the average cost method. The update is effective for financial statement periods beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in ASU 2015-11 should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We do not expect the adoption of this pronouncement to have an impact on our financial statements and related disclosures.    
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU requires retrospective adoption and will be effective for us beginning in our first quarter of 2016. Early adoption is permitted. We do not expect this adoption to have an impact on our Statements of Unaudited Condensed Consolidated Operations or Statements of Unaudited Condensed Consolidated Cash Flows.  The impact of the adoption of the guidance will result in reclassification of the unamortized debt issuance costs on the Statements of Unaudited Condensed Consolidated Financial Position, which were $40.1 million and $25.6 million at September 30, 2015 and December 31, 2014, respectively.

10


In May 2014, the FASB issued ASU 2014-09, Revenues from Contracts with Customers. The new revenue guidance broadly replaces the revenue guidance provided throughout the Codification.  The core principle of the revenue guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.  The new revenue guidance also requires the capitalization of certain contract acquisition costs.  Reporting entities must prepare new disclosures providing qualitative and quantitative information on the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.  New disclosures also include qualitative and quantitative information on significant judgments, changes in judgments, and contract acquisition assets. At issuance, ASU 2014-09 was effective starting in 2017 for calendar-year public entities, and interim periods within that year. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which defers the adoption of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are still evaluating the impact of the updated guidance on the Statements of Unaudited Condensed Consolidated Financial Position, Statements of Unaudited Condensed Consolidated Operations or Statements of Unaudited Condensed Consolidated Cash Flows.
NOTE 2 - SEGMENT REPORTING
Our continuing operations are organized and managed according to product category and geographic location: U.S. Iron Ore and Asia Pacific Iron Ore. 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 Asia Pacific Iron Ore segment is located in Western Australia and provides iron ore to the seaborne market for Asian steel producers. There were no intersegment product revenues in the first nine months of 2015 or 2014.
We have historically evaluated segment performance based on sales margin, defined as revenues less cost of goods sold, and operating expenses identifiable to each segment. Additionally, beginning in the third quarter of 2014, concurrent with the change in control on July 29, 2014, management began to evaluate segment performance based on EBITDA, defined as net income (loss) before interest, income taxes, depreciation, depletion and amortization, and Adjusted EBITDA, defined as EBITDA excluding certain items such as impairment of goodwill and other long-lived assets, impacts of discontinued operations, extinguishment of debt, severance and contractor termination costs, foreign currency remeasurement, and intersegment corporate allocations of selling, general and administrative costs. Management uses and believes that investors benefit from referring to these measures in evaluating operating and financial results, as well as in planning, forecasting and analyzing future periods as these financial measures approximate the cash flows associated with the operational earnings.

11


The following tables present a summary of our reportable segments for the three and nine months ended September 30, 2015 and 2014, including a reconciliation of segment sales margin to Income (Loss) from Continuing Operations Before Income Taxes and Equity Loss from Ventures and a reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA:
 
(In Millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Revenues from product sales and services:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Iron Ore
$
471.0

 
79
%
 
$
767.4

 
78
%
 
$
1,152.5

 
75
%
 
$
1,643.3

 
70
%
Asia Pacific Iron Ore
122.2

 
21
%
 
212.3

 
22
%
 
384.8

 
25
%
 
699.6

 
30
%
Total revenues from product sales and services
$
593.2

 
100
%
 
$
979.7

 
100
%
 
$
1,537.3

 
100
%
 
$
2,342.9

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales margin:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Iron Ore
$
48.7

 
 
 
$
219.5

 
 
 
$
177.7

 
 
 
$
461.7

 
 
Asia Pacific Iron Ore
6.4

 
 
 
9.1

 
 
 
15.5

 
 
 
111.4

 
 
Eliminations with discontinued operations

 
 
 
27.6

 
 
 

 
 
 
56.6

 
 
Sales margin
55.1

 
 
 
256.2

 
 
 
193.2

 
 
 
629.7

 
 
Other operating expense
(25.9
)
 
 
 
(399.0
)
 
 
 
(66.4
)
 
 
 
(494.0
)
 
 
Other income (expense)
17.4

 
 
 
(38.1
)
 
 
 
221.7

 
 
 
(118.2
)
 
 
Income (loss) from continuing operations before income taxes and equity loss from ventures
$
46.6

 
 
 
$
(180.9
)
 
 
 
$
348.5

 
 
 
$
17.5

 
 

12


 
(In Millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Net Income (Loss)
$
6.0

 
$
(6,887.2
)
 
$
(690.5
)
 
$
(6,943.4
)
Less:
 
 
 
 
 
 
 
Interest expense, net
(62.3
)
 
(47.4
)
 
(170.7
)
 
(134.9
)
Income tax benefit (expense)
4.8

 
921.4

 
(167.3
)
 
1,012.3

Depreciation, depletion and amortization
(35.6
)
 
(144.0
)
 
(99.1
)
 
(430.4
)
EBITDA
$
99.1

 
$
(7,617.2
)
 
$
(253.4
)
 
$
(7,390.4
)
Less:
 
 
 
 
 
 
 
Impairment of goodwill and other long-lived assets
$


$
(377.0
)

$
(3.3
)

$
(378.6
)
Impact of discontinued operations
(44.8
)
 
(7,543.0
)
 
(865.9
)
 
(7,737.1
)
Gain on extinguishment of debt
79.2

 

 
392.9

 

Severance and contractor termination costs
2.2

 
(2.6
)
 
(9.3
)
 
(19.3
)
Foreign exchange remeasurement
2.4

 
25.8

 
15.2

 
8.4

Adjusted EBITDA
$
60.1

 
$
279.6

 
$
217.0

 
$
736.2

 
 
 
 
 
 
 
 
EBITDA:
 
 
 
 
 
 
 
U.S. Iron Ore
$
69.2

 
$
241.9

 
$
239.6

 
$
538.2

Asia Pacific Iron Ore
11.1

 
(302.2
)
 
38.7

 
(150.8
)
Other
18.8

 
(7,556.9
)
 
(531.7
)
 
(7,777.8
)
Total EBITDA
$
99.1

 
$
(7,617.2
)
 
$
(253.4
)
 
$
(7,390.4
)
 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
U.S. Iron Ore
$
72.3

 
$
249.5

 
$
254.6

 
$
559.1

Asia Pacific Iron Ore
9.7

 
49.7

 
32.8

 
225.5

Other
(21.9
)
 
(19.6
)
 
(70.4
)
 
(48.4
)
Total Adjusted EBITDA
$
60.1

 
$
279.6

 
$
217.0

 
$
736.2

 
(In Millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Depreciation, depletion and amortization:
 
 
 
 
 
 
 
U.S. Iron Ore
$
27.9

 
$
25.9

 
$
71.6

 
$
81.2

Asia Pacific Iron Ore
6.1

 
42.2

 
19.1

 
123.6

Other
1.6

 
2.0

 
5.2

 
5.9

Total depreciation, depletion and amortization
$
35.6

 
$
70.1

 
$
95.9

 
$
210.7

 
 
 
 
 
 
 
 
Capital additions1:
 
 
 
 
 
 
 
U.S. Iron Ore
$
15.0

 
$
8.5

 
$
35.8

 
$
37.4

Asia Pacific Iron Ore
0.3

 
3.1

 
4.8

 
8.3

Other
2.4

 
0.5

 
6.0

 
3.3

Total capital additions
$
17.7

 
$
12.1

 
$
46.6

 
$
49.0

                                         
1    Includes capital lease additions and non-cash accruals. Refer to NOTE 17 - CASH FLOW INFORMATION.

13


A summary of assets by segment is as follows:
 
(In Millions)
 
September 30,
2015
 
December 31,
2014
Assets:
 
 
 
U.S. Iron Ore
$
1,498.3

 
$
1,464.9

Asia Pacific Iron Ore
210.5

 
274.6

Other
26.3

 
147.0

Total segment assets
1,735.1

 
1,886.5

Corporate
395.0

 
546.8

Assets of Discontinued Operations
141.4

 
730.7

Total assets
$
2,271.5

 
$
3,164.0

NOTE 3 - INVENTORIES
The following table presents the detail of our Inventories in the Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2015 and December 31, 2014:
 
(In Millions)
 
September 30, 2015
 
December 31, 2014
Segment
Finished Goods
 
Work-in Process
 
Total Inventory
 
Finished Goods
 
Work-in
Process
 
Total
Inventory
U.S. Iron Ore
$
260.3

 
$
23.3

 
$
283.6

 
$
132.1

 
$
13.5

 
$
145.6

Asia Pacific Iron Ore
18.5

 
49.6

 
68.1

 
26.4

 
88.1

 
114.5

Total
$
278.8

 
$
72.9

 
$
351.7

 
$
158.5

 
$
101.6

 
$
260.1

Asia Pacific Iron Ore had long-term work-in-process stockpiles of $12.0 million classified as Other non-current assets in the Statements of Unaudited Condensed Consolidated Financial Position at September 30, 2015. There were no long-term work-in-process stockpiles as of December 31, 2014.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
The following table indicates the value of each of the major classes of our consolidated depreciable assets as of September 30, 2015 and December 31, 2014:
 
(In Millions)
 
September 30,
2015
 
December 31,
2014
Land rights and mineral rights
$
500.6

 
$
500.5

Office and information technology
68.5

 
73.7

Buildings
60.1

 
59.8

Mining equipment
583.8

 
585.1

Processing equipment
514.4

 
510.2

Electric power facilities
46.4

 
46.8

Land improvements
24.8

 
24.7

Other
99.8

 
55.0

Construction in-progress
34.5

 
14.4

 
1,932.9

 
1,870.2

Allowance for depreciation and depletion
(880.3
)
 
(799.7
)
 
$
1,052.6

 
$
1,070.5


14


We recorded depreciation and depletion expense related to our continuing operations of $34.6 million and $92.8 million in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2015, respectively. This compares with depreciation and depletion expense related to our continuing operations of $67.7 million and $203.8 million for the three and nine months ended September 30, 2014, respectively.
NOTE 5 - DEBT AND CREDIT FACILITIES
The following represents a summary of our long-term debt as of September 30, 2015 and December 31, 2014:
($ in Millions)
 
September 30, 2015
 
Debt Instrument
 
Type
 
Annual Effective Interest Rate
 
Final Maturity
 
Total Face Amount
 
Total Debt
 
$700 Million 4.875% 2021 Senior Notes
 
Fixed
 
4.89%
 
2021
 
$
412.5

 
$
412.3

(1)
$1.3 Billion Senior Notes:
 
 
 
 
 
 
 
 
 
 
 
$500 Million 4.80% 2020 Senior Notes
 
Fixed
 
4.83%
 
2020
 
306.7

 
306.3

(2)
$800 Million 6.25% 2040 Senior Notes
 
Fixed
 
6.34%
 
2040
 
492.8

 
487.0

(3)
$400 Million 5.90% 2020 Senior Notes
 
Fixed
 
5.98%
 
2020
 
290.8

 
289.9

(4)
$500 Million 3.95% 2018 Senior Notes
 
Fixed
 
6.36%
 
2018
 
311.2

 
309.9

(5)
$540 Million 8.25% 2020 First Lien Notes
 
Fixed
 
9.97%
 
2020
 
540.0

 
506.4

(6)
$544.2 Million 7.75% 2020 Second Lien Notes
 
Fixed
 
15.55%
 
2020
 
544.2

 
407.4

(7)
$550 Million ABL Facility:
 
 
 
 
 
 
 
 
 
 
 
ABL Facility
 
Variable
 
N/A
 
2020
 
550.0

 

(8)
Fair Value Adjustment to Interest Rate Hedge
 
 
 
 
 
 
 
 
 
2.4

 
Long-term debt
 
 
 
 
 
 
 
$
3,448.2

 
$
2,721.6

 
($ in Millions)
 
December 31, 2014
 
Debt Instrument
 
Type
 
Annual Effective Interest Rate
 
Final Maturity
 
Total Face Amount
 
Total Debt
 
$700 Million 4.875% 2021 Senior Notes
 
Fixed
 
4.88%
 
2021
 
$
690.0

 
$
689.5

(1)
$1.3 Billion Senior Notes:
 
 
 
 
 
 
 
 
 
 
 
$500 Million 4.80% 2020 Senior Notes
 
Fixed
 
4.83%
 
2020
 
490.0

 
489.4

(2)
$800 Million 6.25% 2040 Senior Notes
 
Fixed
 
6.34%
 
2040
 
800.0

 
790.5

(3)
$400 Million 5.90% 2020 Senior Notes
 
Fixed
 
5.98%
 
2020
 
395.0

 
393.7

(4)
$500 Million 3.95% 2018 Senior Notes
 
Fixed
 
5.17%
 
2018
 
480.0

 
477.4

(5)
$1.125 Billion Credit Facility:
 
 
 
 
 
 
 
 
 
 
 
Revolving Credit Agreement
 
Variable
 
2.94%
 
2017
 
1,125.0

 

(9)
Fair Value Adjustment to Interest Rate Hedge
 
 
 
 
 
 
 
 
 
2.8

 
Long-term debt
 
 
 
 
 
 
 
$
3,980.0

 
$
2,843.3

 
(1)
During the third quarter of 2015, we purchased $10.7 million of outstanding 4.875 percent senior notes that were trading at 50.0 percent of par which resulted in a gain on extinguishment of $5.3 million. In addition, during the first quarter of 2015, we purchased $58.3 million of outstanding 4.875 percent senior notes that were trading at 52.0 percent of par, which resulted in a gain on extinguishment of $20.0 million. Also during the first quarter, on March 27, 2015, we exchanged as part of a tender offer $208.5 million of the 4.875 percent senior notes for $170.3 million of the 7.75 percent second lien notes at a discount of $46.0 million based on an imputed interest rate of 15.55 percent, resulting in a gain on extinguishment of $83.1 million, net of amounts expensed for unamortized original issue discount and deferred origination fees.

15


As of September 30, 2015, the $700.0 million 4.875 percent senior notes were recorded at a par value of $412.5 million less unamortized discounts of $0.2 million, based on an imputed interest rate of 4.89 percent. As of December 31, 2014, the $700.0 million 4.875 percent senior notes were recorded at a par value of $690.0 million less unamortized discounts of $0.5 million based on an imputed interest rate of 4.88 percent.
(2)
During the third quarter of 2015, we purchased $1.8 million of outstanding 4.80 percent senior notes that were trading at 50.0 percent of par, which resulted in a gain on extinguishment of $0.9 million. In addition, during the first quarter of 2015, we purchased $43.8 million of outstanding 4.80 percent senior notes that were trading at 54.3 percent of par, which resulted in a gain on extinguishment of $15.6 million. Also during the first quarter, on March 27, 2015, we exchanged as part of a tender offer $137.8 million of the 4.80 percent senior notes for $112.9 million of the 7.75 percent second lien notes at a discount of $30.5 million based on an imputed interest rate of 15.55 percent, resulting in a gain on extinguishment of $54.6 million, net of amounts expensed for unamortized original issue discount and deferred origination fees.
As of September 30, 2015, the $500.0 million 4.80 percent senior notes were recorded at a par value of $306.7 million less unamortized discounts of $0.4 million, based on an imputed interest rate of 4.83 percent. As of December 31, 2014, the $500.0 million 4.80 percent senior notes were recorded at a par value of $490.0 million less unamortized discounts of $0.6 million based on an imputed interest rate of 4.83 percent.
(3)
During the first quarter of 2015, we purchased $45.9 million of outstanding 6.25 percent senior notes that were trading at 52.5 percent of par, which resulted in a gain on extinguishment of $15.0 million. Also during the first quarter, on March 27, 2015, we exchanged as part of a tender offer $261.3 million of the 6.25 percent senior notes for $203.5 million of the 7.75 percent second lien notes at a discount of $55.0 million based on an imputed interest rate of 15.55 percent, resulting in a gain on extinguishment of $107.3 million, net of amounts expensed for unamortized original issue discount and deferred origination fees.
As of September 30, 2015, the $800 million 6.25 percent senior notes were recorded at a par value of $492.8 million less unamortized discounts of $5.8 million, based on an imputed interest rate of 6.34 percent. As of December 31, 2014, the $800 million 6.25 percent senior notes were recorded at a par value of $800.0 million less unamortized discounts of $9.5 million based on an imputed interest rate of 6.34 percent.
(4)
During the third quarter of 2015, we purchased $36.0 million of outstanding 5.90 percent senior notes that were trading at 50.0 percent of par, which resulted in a gain on extinguishment of $18.0 million. In addition, during the first quarter of 2015, we purchased $1.3 million of outstanding 5.90 percent senior notes that were trading at 58.0 percent of par, which resulted in a gain on extinguishment of $0.3 million. Also during the first quarter, on March 27, 2015, we exchanged as part of a tender offer $67.0 million of the 5.90 percent senior notes for $57.5 million of the 7.75 percent second lien notes at a discount of $15.5 million based on an imputed interest rate of 15.55 percent, resulting in a gain on extinguishment of $24.5 million, net of amounts expensed for unamortized original issue discount and deferred origination fees.
As of September 30, 2015, the $400.0 million 5.90 percent senior notes were recorded at a par value of $290.8 million less unamortized discounts of $0.9 million, based on an imputed interest rate of 5.98 percent. As of December 31, 2014, the $400.0 million 5.90 percent senior notes were recorded at a par value of $395.0 million less unamortized discounts of $1.3 million based on an imputed interest rate of 5.98 percent.
(5)
During the third quarter, on August 28, 2015, we purchased for cash as part of a tender offer, $124.8 million of the 3.95 percent senior notes for $68.6 million, resulting in a gain on extinguishment of $54.9 million, net of amounts expensed for reacquisition costs, unamortized original issue discount and deferred origination fees. In addition, during the first quarter of 2015, we purchased $44.0 million of outstanding 3.95 percent senior notes that were trading at 77.5 percent of par, which resulted in a gain on the extinguishment of debt of $7.1 million.
As of September 30, 2015, the $500.0 million 3.95 percent senior notes were recorded at a par value of $311.2 million less unamortized discounts of $1.3 million, based on an imputed interest rate of 6.36 percent. As of December 31, 2014, the $500.0 million 3.95 percent senior notes were recorded at a par value of $480.0 million less unamortized discounts of $2.6 million based on an imputed interest rate of 5.17 percent.
(6)
As of September 30, 2015, the $540.0 million 8.25 percent first lien notes were recorded at a par value of $540.0 million less unamortized discounts of $33.6 million, based on an imputed interest rate of 9.97 percent.

16


(7)
As of September 30, 2015, the $544.2 million 7.75 percent second lien notes were recorded at a par value of $544.2 million less unamortized discounts of $136.8 million, based on an imputed interest rate of 15.55 percent. See NOTE 6 - FAIR VALUE MEASUREMENTS for further discussion of unamortized discount as a result of the exchange offers.
(8)
As of September 30, 2015, no loans were drawn under the ABL Facility and we had total availability of $442.9 million as a result of borrowing base limitations. As of September 30, 2015, the principal amount of letter of credit obligations totaled $187.3 million, thereby further reducing available borrowing capacity on our ABL Facility to $255.6 million.
(9)
As of December 31, 2014, we had no revolving loans drawn under the revolving credit agreement which had $1.125 billion availability. As of December 31, 2014, the principal amount of letter of credit obligations totaled $149.5 million, thereby reducing available borrowing capacity on the revolving credit agreement to $975.5 million.
Revolving Credit Facility
As of March 30, 2015, we eliminated the revolving credit agreement which was last amended on January 22, 2015 (Amendment No. 6). The revolving credit agreement was replaced with our ABL Facility.
As of December 31, 2014, we were in compliance with all applicable financial covenants related to the revolving credit agreement.
ABL Facility
On March 30, 2015, we entered into a new senior secured asset-based revolving credit facility with various financial institutions. The ABL Facility will mature upon the earlier of March 30, 2020 or 60 days prior to the maturity of the New First Lien Notes (as defined below) and certain other material debt, and provides for up to $550.0 million in borrowings, comprised of (i) a $450.0 million U.S. tranche, including a $250.0 million sublimit for the issuance of letters of credit and a $100.0 million sublimit for U.S. swingline loans, and (ii) a $100.0 million Australian tranche, including a $50.0 million sublimit for the issuance of letters of credit and a $20.0 million sublimit for Australian swingline loans. Availability under both the U.S. tranche and Australian tranche of the ABL Facility is limited to an eligible U.S. borrowing base and Australian borrowing base, as applicable, determined by applying customary advance rates to eligible accounts receivable, inventory and certain mobile equipment.
The ABL Facility and certain bank products and hedge obligations are guaranteed by us and certain of our existing wholly-owned U.S. and Australian subsidiaries and are required to be guaranteed by certain of our future U.S. and Australian subsidiaries; provided, however, that the obligations of any U.S. entity will not be guaranteed by any Australian entity. Amounts outstanding under the ABL Facility will be secured by (i) a first-priority security interest in the ABL Collateral (as defined herein), including, in the case of the Australian tranche only, ABL Collateral owned by a borrower or guarantor that is organized under the laws of Australia, and (ii) a third-priority security interest in the Notes Collateral (as defined herein). The priority of the security interests in the ABL Collateral and the Notes Collateral of the lenders under the ABL Facility and the holders of the First Lien Notes are set forth in intercreditor provisions contained in an ABL intercreditor agreement.
The ABL Collateral generally consists of the following assets: accounts receivable and other rights to payment, inventory, as-extracted collateral, investment property, certain general intangibles and commercial tort claims, certain mobile equipment, commodities accounts, deposit accounts, securities accounts and other related assets and proceeds and products of each of the foregoing.
Borrowings under the ABL Facility bear interest, at our option, at a base rate, an Australian base rate or, if certain conditions are met, a LIBOR rate, in each case plus an applicable margin. The base rate is equal to the greater of the federal funds rate plus ½ of 1 percent, the LIBOR rate based on a one-month interest period plus 1 percent and the floating rate announced by BAML as its “prime rate.” The Australian base rate is equal to the LIBOR rate as of 11:00 a.m. on the first business day of each month for a one-month period. The LIBOR rate is a per annum fixed rate equal to LIBOR with respect to the applicable interest period and amount of LIBOR rate loan requested.
The ABL Facility contains customary representations and warranties and affirmative and negative covenants including, among others, covenants regarding the maintenance of certain financial ratios if certain conditions are triggered, covenants relating to financial reporting, covenants relating to the payment of dividends on, or purchase or redemption of our capital stock, covenants relating to the incurrence or prepayment of certain debt, covenants relating to the incurrence of liens or encumbrances, compliance with laws, transactions with affiliates, mergers and sales of all or substantially all of our assets and limitations on changes in the nature of our business.

17


The ABL Facility provides for customary events of default, including, among other things, the event of nonpayment of principal, interest, fees, or other amounts, a representation or warranty proving to have been materially incorrect when made, failure to perform or observe certain covenants within a specified period of time, a cross-default to certain material indebtedness, the bankruptcy or insolvency of the Company and certain of its subsidiaries, monetary judgment defaults of a specified amount, invalidity of any loan documentation, a change of control of the Company, and ERISA defaults resulting in liability of a specified amount. In the event of a default by us (beyond any applicable grace or cure period, if any), the administrative agent may and, at the direction of the requisite number of lenders, shall declare all amounts owing under the ABL Facility immediately due and payable, terminate such lenders’ commitments to make loans under the ABL Facility and/or exercise any and all remedies and other rights under the ABL Facility. For certain defaults related to insolvency and receivership, the commitments of the lenders will be automatically terminated and all outstanding loans and other amounts will become immediately due and payable.
As of September 30, 2015, we were in compliance with the ABL Facility liquidity requirements and, therefore, the springing financial covenant requiring a minimum fixed charge coverage ratio of 1.0 to 1.0 was not applicable.
$540 Million 8.25 percent 2020 Senior Secured First Lien Notes - 2015 Offering

On March 30, 2015, we entered into an indenture among the Company, the guarantors party thereto and U.S. Bank National Association, as trustee and notes collateral agent, relating to our issuance of $540 million aggregate principal amount of 8.25 percent Senior First Lien Notes due 2020 (the "First Lien Notes"). The First Lien Notes were sold on March 30, 2015 in a private transaction exempt from the registration requirements of the Securities Act.
The First Lien Notes bear interest at a rate of 8.25 percent per annum. Interest on the First Liens Notes is payable semi-annually in arrears on March 31 and September 30 of each year, commencing on September 30, 2015. The First Lien Notes mature on March 31, 2020 and are secured senior obligations of the Company.
The First Lien Notes are jointly and severally and fully and unconditionally guaranteed on a senior secured basis by substantially all of our material U.S. subsidiaries and are secured (subject in each case to certain exceptions and permitted liens) by (i) a first-priority lien on substantially all of our U.S. assets, other than the ABL Collateral (the "Notes Collateral"), and (ii) a second-priority lien on the U.S. ABL Collateral, which is junior to a first-priority lien for the benefit of the lenders under the ABL Facility. The First Lien Notes and guarantees are general senior obligations of the Company and the applicable guarantor; are effectively senior to all of our unsecured indebtedness, to the extent of the value of the collateral; together with other obligations secured equally and ratably with the First Lien Notes, are effectively (i) senior to our existing and future ABL obligations, to the extent and value of the Notes Collateral and (ii) senior to our obligations under the Second Lien Notes, to the extent and value of the collateral; are effectively subordinated to (i) our existing and future ABL obligations, to the extent and value of the ABL Collateral, and (ii) any existing or future indebtedness that is secured by liens on assets that do not constitute a part of the collateral, to the extent of the value of such assets; will rank equally in right of payment with all existing and future senior indebtedness, and any guarantees thereof; will rank equally in priority as to the Notes Collateral with any future debt secured equally and ratably with the First Lien Notes incurred after March 30, 2015; rank senior in right of payment to all existing and future subordinated indebtedness; and structurally subordinated to all existing and future indebtedness and other liabilities of our subsidiaries that do not guarantee the First Lien Notes. The relative priority of the liens securing our First Lien Notes obligations and Second Lien Notes obligations compared to the liens securing our obligations under the ABL Facility and certain other matters relating to the administration of security interests are set forth in intercreditor agreements.
The terms of the First Lien Notes are governed by the First Lien Notes indenture. The First Lien Notes indenture contains customary covenants that, among other things, limit our ability to incur secured indebtedness, create liens on principal property and the capital stock or debt of a subsidiary that owns a principal property, use proceeds of dispositions of collateral, enter into sale and leaseback transactions, merge or consolidate with another company, and transfer or sell all or substantially all of our assets. Upon the occurrence of a “change of control triggering event,” as defined in the indenture, we are required to offer to repurchase the First Lien Notes at 101 percent of the aggregate principal amount thereof, plus any accrued and unpaid interest, if any, to, but excluding, the repurchase date.
We may redeem any of the First Lien Notes beginning on March 31, 2018. The initial redemption price is 108.25 percent of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The redemption price will decline after 2018 and will be 100 percent of their principal amount, plus accrued interest, beginning on June 30, 2019. We may also redeem some or all of the First Lien Notes at any time and from time to time prior to March 31, 2018 at a price equal to 100 percent of the principal amount thereof plus a “make-whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, at any time and from time to time on or prior to March 31, 2018, we may redeem in the aggregate up to 35 percent of the original aggregate principal amount of the First Lien Notes (calculated after giving effect to any issuance of additional First Lien Notes) with the net

18


cash proceeds of certain equity offerings, at a redemption price of 108.25 percent, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, so long as at least 65 percent of the original aggregate principal amount of the First Lien Notes (calculated after giving effect to any issuance of additional First Lien Notes) issued under the First Lien Notes indenture remain outstanding after each such redemption.
The First Lien Notes indenture contains customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, failure to pay or acceleration of certain other indebtedness, certain events of bankruptcy and insolvency, and failure to pay certain judgments. An event of default under the First Lien indenture will allow either the trustee or the holders of at least 25 percent in aggregate principal amount of the then-outstanding First Lien Notes issued under such indenture to accelerate, or in certain cases, will automatically cause the acceleration of the amounts due under the First Lien Notes.
$544 Million 7.75 percent Senior Secured Second Lien Notes - 2015 Offering
On March 30, 2015, we also entered into an indenture among the Company, the guarantors and U.S. Bank National Association, as trustee and notes collateral agent, relating to our issuance of $544.2 million aggregate principal amount of 7.75 percent second lien senior secured notes due 2020 (the "Second Lien Notes"). The Second Lien Notes were issued on March 30, 2015 in exchange offers for certain of our existing senior notes.
The Second Lien Notes bear interest at a rate of 7.75 percent per annum. Interest on the Second Lien Notes is payable semi-annually in arrears on March 31 and September 30 of each year, commencing on September 30, 2015. The Second Lien Notes mature on March 31, 2020 and are secured senior obligations of the Company.
The Second Lien Notes have substantially similar terms to those of the First Lien Notes except with respect to their priority security interest in the collateral. The Second Lien Notes are jointly and severally and fully and unconditionally guaranteed on a senior secured basis by substantially all of our material U.S. subsidiaries and are secured (subject in each case to certain exceptions and permitted liens) by (i) a second-priority lien (junior to the First Lien Notes) on substantially all of our U.S. assets, other than the ABL Collateral, and (ii) a third-priority lien (junior to the ABL Facility and the First Lien Notes) on the U.S. ABL Collateral.
The Company may redeem any of the Second Lien Notes beginning on March 31, 2017. The initial redemption price is 103.875 percent of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The redemption price will decline each year after March 31, 2017 and will be 100 percent of their principal amount, plus accrued interest, beginning on March 31, 2019. The Company may also redeem some or all of the Second Lien Notes at any time and from time to time prior to March 31, 2017 at a price equal to 100 percent of the principal amount thereof plus a “make-whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, at any time and from time to time on or prior to March 31, 2017, the Company may redeem in the aggregate up to 35 percent of the original aggregate principal amount of the Second Lien Notes (calculated after giving effect to any issuance of additional Second Lien Notes) with the net cash proceeds of certain equity offerings, at a redemption price of 107.75 percent, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, so long as at least 65 percent of the original aggregate principal amount of the Second Lien Notes (calculated after giving effect to any issuance of additional Second Lien Notes) issued under the Second Lien Notes Indenture remain outstanding after each such redemption.    
Letters of Credit
We issued standby letters of credit with certain financial institutions in order to support business obligations including, but not limited to, workers compensation and environmental obligations. As of September 30, 2015 and December 31, 2014, these letter of credit obligations totaled $187.3 million and $149.5 million, respectively.

19


Debt Maturities
The following represents a summary of our maturities of debt instruments, excluding borrowings on the ABL Facility, based on the principal amounts outstanding at September 30, 2015:
 
(In Millions)
 
Maturities of Debt
2015 (October 1 - December 31)
$

2016

2017

2018
311.2

2019

2020
1,681.7

2021 and thereafter
905.3

Total maturities of debt
$
2,898.2

NOTE 6 - FAIR VALUE MEASUREMENTS
The following represents the assets and liabilities of the Company measured at fair value at September 30, 2015 and December 31, 2014:
 
(In Millions)
 
September 30, 2015
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
$
80.0

 
$

 
$

 
$
80.0

Derivative assets

 

 
10.4

 
10.4

Total
$
80.0

 
$

 
$
10.4

 
$
90.4

Liabilities:

 

 

 

Derivative liabilities
$

 
$

 
$
0.8

 
$
0.8

Total
$

 
$

 
$
0.8

 
$
0.8


20


 
(In Millions)
 
December 31, 2014
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:
 
 
 
 
 
 
 
Derivative assets
$

 
$

 
$
63.2

 
$
63.2

Available-for-sale marketable securities
4.3

 

 

 
4.3

Total
$
4.3

 
$

 
$
63.2

 
$
67.5

Liabilities:

 

 

 

Derivative liabilities
$

 
$

 
$
9.5

 
$
9.5

Foreign exchange contracts

 
31.5

 

 
31.5

Total
$

 
$
31.5

 
$
9.5

 
$
41.0

Financial assets classified in Level 1 at September 30, 2015 includes money market funds. Financial assets classified in Level 1 at December 31, 2014 include available-for-sale marketable securities. 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 securities primarily include derivative financial instruments valued using financial models that use as their basis readily observable market parameters. At December 31, 2014, 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 September 30, 2015 and December 31, 2014 primarily relate to 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 adjust 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 also consisted of derivatives related to certain provisional pricing arrangements with our U.S. Iron Ore and Asia Pacific Iron Ore customers at September 30, 2015 and December 31, 2014. These provisional pricing arrangements 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 at the date of sale and the estimated final revenue rate 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 revenue rate is determined.
The following table illustrates information about quantitative inputs and assumptions for the derivative assets and derivative liabilities categorized in Level 3 of the fair value hierarchy:

21


Qualitative/Quantitative Information About Level 3 Fair Value Measurements
 
 
(In Millions)
Fair Value at September 30, 2015
 
Balance Sheet Location
 
Valuation Technique
 
Unobservable Input
 
Range or Point Estimate per ton
(Weighted Average)
 
Provisional Pricing Arrangements
 
$
0.6

 
Other current assets
 
Market Approach
 
Management's
Estimate of 62% Fe
 
$56
 
$
0.8

 
Other current liabilities
 
 
 
Customer Supply Agreement
 
$
9.8

 
Other current assets
 
Market Approach
 
Hot-Rolled Steel Estimate
 
$470 - $515 ($489)
The significant unobservable input used in the fair value measurement of the reporting entity’s provisional pricing arrangements is management’s estimate of 62 percent Fe fines spot price 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 agreement is the future hot-rolled steel price that is estimated based on projections provided by the customer, current market data, analysts' projections 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.
We recognize any transfers between levels as of the beginning of the reporting period. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the three and nine months ended September 30, 2015 or 2014. 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) for the three and nine months ended September 30, 2015 and 2014.
 
(In Millions)
 
Derivative Assets (Level 3)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Beginning balance
$
7.7

 
$
33.0

 
$
63.2

 
$
57.7

Total gains (losses)
 
 
 
 
 
 
 
Included in earnings
15.0

 
62.6

 
28.1

 
124.6

Settlements
(12.3
)
 
(41.1
)
 
(80.9
)
 
(127.8
)
Transfers into Level 3

 

 

 

Transfers out of Level 3

 

 

 

Ending balance - September 30
$
10.4

 
$
54.5

 
$
10.4

 
$
54.5

Total gains for the period included in earnings attributable to the change in unrealized gains on assets still held at the reporting date
$
12.2

 
$
62.6

 
$
22.7

 
$
124.6


22


 
(In Millions)
 
Derivative Liabilities (Level 3)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Beginning balance
$
(8.0
)
 
$
(20.2
)
 
$
(9.5
)
 
$
(1.0
)
Total gains (losses)
 
 
 
 
 
 
 
Included in earnings
(13.7
)
 
2.3

 
(45.4
)
 
(17.9
)
Settlements
20.9

 

 
54.1

 
1.0

Transfers into Level 3

 

 

 

Transfers out of Level 3

 

 

 

Ending balance - September 30
$
(0.8
)
 
$
(17.9
)
 
$
(0.8
)
 
$
(17.9
)
Total gains (losses) for the period included in earnings attributable to the change in unrealized losses on liabilities still held at the reporting date
$
(0.5
)
 
$
2.3

 
$
(0.8
)
 
$
(17.9
)
Gains and losses included in earnings are reported in Product revenues in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2015 and 2014.
The carrying amount for 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 at September 30, 2015 and December 31, 2014 were as follows:
 
 
 
(In Millions)
 
 
 
September 30, 2015
 
December 31, 2014
 
Classification
 
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
Long-term debt:
 
 
 
 
 
 
 
 
 
Senior Notes—$700 million
Level 1
 
$
412.3

 
$
115.4

 
$
689.5

 
$
367.3

Senior Notes—$1.3 billion
Level 1
 
793.3

 
242.4

 
1,279.9

 
704.0

Senior Notes—$400 million
Level 1
 
289.9

 
99.6

 
393.7

 
228.1

Senior Notes—$500 million
Level 1
 
309.9

 
162.6

 
477.4

 
312.0

Senior First Lien Notes —$540 million
Level 1
 
506.4

 
477.9

 

 

Senior Second Lien Notes —$544.2 million
Level 1
 
407.4

 
217.7

 

 

ABL Facility
Level 2
 

 

 

 

Fair value adjustment to interest rate hedge
Level 2
 
2.4

 
2.4

 
2.8

 
2.8

Total long-term debt
 
 
$
2,721.6

 
$
1,318.0

 
$
2,843.3

 
$
1,614.2

The fair value of long-term debt was determined using quoted market prices based upon current borrowing rates. The asset based revolving credit facility is variable rate interest and approximates fair value. See NOTE 5 - DEBT AND CREDIT FACILITIES for further information.

23


Items Measured at Fair Value on a Non-Recurring Basis
The following tables present information about the financial and non-financial assets and liabilities that were measured on a fair value basis at March 31, 2015 and December 31, 2014. There were no financial and non-financial assets and liabilities that were measured on a non-recurring fair value basis at September 30, 2015. The tables also indicate the fair value hierarchy of the valuation techniques used to determine such fair value.
 
 
(In Millions)
 
 
March 31, 2015
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
Liabilities: