NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The following represents the assets and liabilities of the Company measured at fair value at December 31, 2016 and 2015:



	(In Millions)
	December 31, 2016
Description	Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash equivalents	$	177.0	$	—	$	—	$	177.0
Derivative assets	—		1.5		31.6		33.1
Total	$	177.0	$	1.5	$	31.6	$	210.1
Liabilities:
Derivative liabilities	$	—	$	—	$	0.5	$	0.5
Total	$	—	$	—	$	0.5	$	0.5



	(In Millions)
	December 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
Assets:
Cash equivalents	$	30.0	$	—	$	—	$	30.0
Derivative assets	—		—		7.8		7.8
Total	$	30.0	$	—	$	7.8	$	37.8
Liabilities:
Derivative liabilities	$	—	$	0.6	$	3.4	$	4.0
Total	$	—	$	0.6	$	3.4	$	4.0

Financial assets classified in Level 1 as of December 31, 2016 and December 31, 2015, include money market funds, which are included in Cash and cash equivalents. 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. At December 31, 2016 and December 31, 2015, such derivative financial instruments included our commodity hedge contracts.

The derivative financial assets classified within Level 3 at December 31, 2016 and December 31, 2015 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 coil 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 December 31, 2016 and December 31, 2015. 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:

Qualitative/Quantitative Information About Level 3 Fair Value Measurements

($ in millions)

Fair Value at

December 31, 2016

Balance Sheet Location

Valuation Technique

Unobservable Input

Range or Point Estimate

(Weighted Average)

Provisional Pricing Arrangements

10.3

Other current assets

Market Approach

Management's

Estimate of Platts 62% Price

$80

0.5

Other current liabilities

Customer Supply Agreement

21.3

Other current assets

Market Approach

Hot-Rolled Coil Estimate

$505 - $620 ($555)

The significant unobservable inputs used in the fair value measurement of the reporting entity’s provisional pricing arrangements are management’s estimates of Platts 62% Price based upon current market data, index pricing, and the customer's average annual steel pricing for hot rolled coil, each of which include forward-looking estimates determined by management. Significant increases or decreases in these inputs 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 coil price that is estimated based on current market data, analysts' projections, projections provided by the customer 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, including both transfers into and out of levels. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the years ended December 31, 2016 and 2015. 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 years ended December 31, 2016 and 2015.



	(In Millions)
	Derivative Assets (Level 3)						Derivative Liabilities (Level 3)
	Year Ended December 31,						Year Ended December 31,
	2016			2015			2016			2015
Beginning balance - January 1	$	7.8		$	63.2		$	(3.4	)	$	(9.5	)
Total gains (losses)
Included in earnings	103.8			35.1			(14.1		)	(61.0		)
Settlements	(80.0		)	(90.5		)	17.0			67.1
Transfers into Level 3	—			—			—			—
Transfers out of Level 3	—			—			—			—
Ending balance - December 31	$	31.6		$	7.8		$	(0.5	)	$	(3.4	)
Total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) on assets still held at the reporting date	$	23.7		$	29.1		$	(0.5	)	$	(3.4	)

Gains and losses included in earnings are reported in Product revenues in the Statements of Consolidated Operations for the years ended December 31, 2016 and 2015.

The carrying amount for certain financial instruments (e.g. Accounts receivable, net, Accounts payable and Accrued expenses) approximate fair value and, therefore, have been excluded from the table below. A summary of the carrying amount and fair value of other financial instruments at December 31, 2016 and 2015 were as follows:



		(In Millions)
		December 31, 2016				December 31, 2015
	Classification	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt:
Secured Notes
Senior First Lien Notes—$540 million	Level 1	$	506.3	$	595.0	$	497.4	$	414.5
1.5 Senior Lien Notes—$218 million	Level 2	284.2		229.5		—		—
Senior Second Lien Notes—$544.2 million	Level 1	339.1		439.7		403.2		134.7
Unsecured Notes
Senior Notes—$400 million	Level 1	224.5		219.6		288.9		52.8
Senior Notes—$1.3 billion	Level 1	528.4		455.8		787.9		137.4
Senior Notes—$700 million	Level 1	308.2		283.1		410.6		69.4
Senior Notes—$500 million	Level 1	—		—		309.1		87.1
ABL Facility	Level 2	—		—		—		—
Fair Value Adjustment to Interest Rate Hedge	Level 2	1.9		1.9		2.3		2.3
Total long-term debt		$	2,192.6	$	2,224.6	$	2,699.4	$	898.2

The fair value of long-term debt was determined using quoted market prices or discounted cash flows based upon current borrowing rates.

Items Measured at Fair Value on a Non-Recurring Basis

There were no financial and non-financial assets and liabilities that were measured on a non-recurring fair value basis at December 31, 2016 and 2015.