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 |
|
