Cleveland-Cliffs Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Goodwill and Other Intangible Assets and Liabilities

Goodwill and Other Intangible Assets and Liabilities

6 Months Ended

Jun. 30, 2011

Goodwill and Other Intangible Assets and Liabilities

Goodwill and Other Intangible Assets and Liabilities

NOTE 6 – GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES

Goodwill

The following table summarizes changes in the carrying amount of goodwill allocated by reporting unit for the six months ended June 30, 2011 and the year ended December 31, 2010:


	(In Millions)
	June 30, 2011												December 31, 2010⁽¹⁾
	U.S. Iron Ore		Eastern Canadian Iron Ore		North American Coal		Asia Pacific Iron Ore		Other		Total		U.S. Iron Ore		Eastern Canadian Iron Ore		North American Coal		Asia Pacific Iron Ore		Other		Total
Beginning Balance		$ 2.0		$ 3.1		$ 27.9		$ 82.6		$ 80.9		$ 196.5		$ 2.0		$ -		$ -		$ 72.6		$ -		$ 74.6
Arising in business combinations		-		1,026.8		-		-		-		1,026.8		-		3.1		27.9		-		80.9		111.9
Impact of foreign currency translation		-		-		-		4.5		-		4.5		-		-		-		10.0		-		10.0
Other		-		(0.4)		(0.1)		-		-		(0.5)		-		-		-		-		-		-

Ending Balance		$ 2.0		$ 1,029.5		$ 27.8		$ 87.1		$ 80.9		$ 1,227.3		$ 2.0		$ 3.1		$ 27.9		$ 82.6		$ 80.9		$ 196.5

⁽¹⁾Represents a 12-month rollforward of our goodwill by reportable unit at December 31, 2010.

The increase in the balance of Goodwill as of June 30, 2011 is due to the preliminary assignment of $1,026.8 million to Goodwill in the second quarter of 2011 based on the preliminary purchase price allocation for the acquisition of Consolidated Thompson. The balance of $1,227.3 million and $196.5 million at June 30, 2011 and December 31, 2010, respectively, is presented as Goodwill on the Statements of Unaudited Condensed Consolidated Financial Position. Refer to NOTE 5 – ACQUISITIONS AND OTHER INVESTMENTS for additional information.

Goodwill is not subject to amortization and is tested for impairment annually or when events or circumstances indicate that impairment may have occurred.

Other Intangible Assets and Liabilities

Following is a summary of intangible assets and liabilities as of June 30, 2011 and December 31, 2010:


		(In Millions)
		June 30, 2011						December 31, 2010
	Classification	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Definite lived intangible assets:
Permits	Intangible assets, net	$	137.1	$	(20.3)	$	116.8	$	132.4	$	(16.3)	$	116.1
Utility contracts	Intangible assets, net		54.7		(15.8)		38.9		54.7		(10.2)		44.5
Easements (1)	Intangible assets, net		-		-		-		11.7		(0.4)		11.3
Leases	Intangible assets, net		5.5		(2.9)		2.6		5.2		(2.9)		2.3
Unpatented technology	Intangible assets, net		4.0		(2.8)		1.2		4.0		(2.4)		1.6

Total intangible assets		$	201.3	$	(41.8)	$	159.5	$	208.0	$	(32.2)	$	175.8


Below-market sales contracts	Other current liabilities	$	(77.0)	$	24.3	$	(52.7)	$	(77.0)	$	19.9	$	(57.1)
Below-market sales contracts	Below-Market Sales Contracts		(252.3)		107.2		(145.1)		(252.3)		87.9		(164.4)

Total below-market sales contracts		$	(329.3)	$	131.5	$	(197.8)	$	(329.3)	$	107.8	$	(221.5)

(1)	Upon the acquisition of Consolidated Thompson, this intangible asset is now eliminated through intercompany eliminations. The easement agreement is between Wabush and Consolidated Thompson.

The intangible assets are subject to periodic amortization on a straight-line basis over their estimated useful lives as follows:


Intangible Asset		Useful Life (years)
Permits		15 - 28
Utility contracts		5
Easements		30
Leases		1.5 - 4.5
Unpatented technology		5

Amortization expense relating to intangible assets was $4.7 million and $9.6 million, respectively, for the three and six months ended June 30, 2011, and is recognized in Cost of goods sold and operating expenses on the Statements of Unaudited Condensed Consolidated Operations. Amortization expense relating to intangible assets was $4.3 million and $8.3 million, respectively, for the comparable periods in 2010. The estimated amortization expense relating to intangible assets for the remainder of 2011 and each of the five succeeding fiscal years is as follows:


	(In Millions)
	Amount
Year Ending December 31
2011 (remaining six months)	$	9.6
2012		19.2
2013		18.3
2014		18.3
2015		6.4
2016		6.4

Total	$	78.2

The below-market sales contracts are classified as a liability and recognized over the remaining terms of the underlying contracts, which range from 3.5 to 8.5 years. For the three and six months ended June 30, 2011, we recognized $16.6 million and $23.7 million, respectively, in Product revenues related to the below-market sales contracts, compared with $11.8 million for the three and six months ended June 30, 2010. The following amounts will be recognized in earnings for the remainder of 2011 and each of the five succeeding fiscal years:


	(In Millions)
	Amount
Year Ending December 31
2011 (remaining six months)	$	34.6
2012		48.8
2013		45.3
2014		23.0
2015		23.0
2016		23.1

Total	$	197.8

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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