Cleveland-Cliffs Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES

GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES

12 Months Ended

Dec. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES

NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES

Goodwill

Goodwill represents the excess purchase price paid over the fair value of the net assets of acquired companies and is not subject to amortization. We assign goodwill arising from acquired companies to the reporting units that are expected to benefit from the synergies of the acquisition. Our reporting units are either at the operating segment level or a component one level below our operating segments that constitutes a business for which management generally reviews production and financial results of that component. Decisions often are made as to capital expenditures, investments and production plans at the component level as part of the ongoing management of the related operating segment. We have determined that our Asia Pacific Iron Ore and Ferroalloys operating segments constitute separate reporting units, that CQIM and Wabush within our Eastern Canadian Iron Ore operating segment constitute reporting units, that CLCC within our North American Coal operating segment constitutes a reporting unit and that Northshore within our U.S. Iron Ore operating segment constitutes a reporting unit. Goodwill is allocated among and evaluated for impairment at the reporting unit level in the fourth quarter of each year or as circumstances occur that potentially indicate that the carrying amount of these assets may exceed their fair value.

During the fourth quarter of 2013, a goodwill impairment charge of $80.9 million was recorded for our Cliffs Chromite Ontario and Cliffs Chromite Far North reporting units within our Ferroalloys operating segment. The impairment charge was primarily a result of the decision made in the fourth quarter of 2013 to indefinitely suspend the Chromite Project and to not allocate additional capital for the project given the uncertain timeline and risks associated with the development of necessary infrastructure to bring the project online.

During the fourth quarter of 2012, upon performing our annual goodwill impairment test, a goodwill impairment charge of $997.3 million was recorded for our CQIM reporting unit within the Eastern Canadian Iron Ore operating segment. The impairment charge for our CQIM reporting unit was driven by the project’s lower than anticipated long-term profitability coupled with delays in achieving full operational capacity and higher capital and operating costs. Additionally, the announced delay of the Phase II expansion of the Bloom Lake mine also contributed to the impairment.

Additionally, during the fourth quarter of 2012, a goodwill impairment charge of $2.7 million was recorded for our Wabush reporting unit. This charge was primarily a result of downward long-term pricing estimates and increased costs.

Refer to NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS for further information.

The following table summarizes changes in the carrying amount of goodwill allocated by operating segment for the years ended December 31, 2013 and December 31, 2012:



	(In Millions)
	December 31, 2013																	December 31, 2012
	U.S. Iron Ore		Eastern Canadian Iron Ore			Asia Pacific Iron Ore			North American Coal			Other			Total			U.S. Iron Ore		Eastern Canadian Iron Ore			Asia Pacific Iron Ore		North American Coal			Other		Total
Beginning Balance	$	2.0	$	—		$	84.5		$	—		$	80.9		$	167.4		$	2.0	$	986.2		$	83.0	$	—		$	80.9	$	1,152.1
Arising in business combinations	—		—			—			—			—			—			—		13.8			—		—			—		13.8
Impairment	—		—			—			—			(80.9		)	(80.9		)	—		(1,000.0		)	—		—			—		(1,000.0		)
Impact of foreign currency translation	—		—			(12.0		)	—			—			(12.0		)	—		—			1.5		—			—		1.5
Ending Balance	$	2.0	$	—		$	72.5		$	—		$	—		$	74.5		$	2.0	$	—		$	84.5	$	—		$	80.9	$	167.4
Accumulated Goodwill Impairment Loss	$	—	$	(1,000.0	)	$	—		$	(27.8	)	$	(80.9	)	$	(1,108.7	)	$	—	$	(1,000.0	)	$	—	$	(27.8	)	$	—	$	(1,027.8	)

Other Intangible Assets and Liabilities

Following is a summary of intangible assets and liabilities as of December 31, 2013 and December 31, 2012:



		(In Millions)
		December 31, 2013									December 31, 2012
	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	$	127.4		$	(35.9	)	$	91.5		$	136.1		$	(31.7	)	$	104.4
Utility contracts	Intangible assets, net	54.7			(53.1		)	1.6			54.7			(32.4		)	22.3
Leases	Intangible assets, net	2.4			(0.1		)	2.3			5.7			(3.4		)	2.3
Total intangible assets		$	184.5		$	(89.1	)	$	95.4		$	196.5		$	(67.5	)	$	129.0
Below-market sales contracts	Other current liabilities	$	(23.0	)	$	—		$	(23.0	)	$	(46.0	)	$	—		$	(46.0	)
Below-market sales contracts	Other liabilities	(205.9		)	159.7			(46.2		)	(250.7		)	181.6			(69.1		)
Total below-market sales contracts		$	(228.9	)	$	159.7		$	(69.2	)	$	(296.7	)	$	181.6		$	(115.1	)

Amortization expense relating to intangible assets was $19.9 million, $22.5 million and $17.7 million for the years ended December 31, 2013, 2012 and 2011, and is recognized in Cost of goods sold and operating expenses in the Statements of Consolidated Operations. Additionally, an impairment charge of $9.5 million was recorded related to the utility contracts intangible asset and is recognized in Impairment of goodwill and other long-lived assets in the Statements of Consolidated Operations. The estimated amortization expense relating to intangible assets for each of the five succeeding years is as follows:



	(In Millions)
	Amount
Year Ending December 31
2014	$	9.3
2015	7.7
2016	7.2
2017	6.5
2018	7.5
Total	$	38.2

The below-market sales contract is classified as a liability and recognized over the term of the underlying contract, which has a remaining life of approximately three years. For the years ended December 31, 2013, 2012 and 2011, we recognized $45.9 million, $46.3 million and $57.0 million, respectively, in Product revenues related to below-market sales contracts. The following amounts are estimated to be recognized in Product revenues for each of the five succeeding fiscal years:



	(In Millions)
	Amount
Year Ending December 31
2014	$	23.0
2015	23.0
2016	23.0
2017	0.2
2018	$	—
Total	$	69.2

- 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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