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Basis of Presentation and Significant Accounting Policies (Policy)
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Jun. 30, 2011
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| Basis of Presentation and Significant Accounting Policies | Ìý | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Consolidation |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with SEC rules and regulations and in the opinion of management, contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly, the financial position, results of operations 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 six months ended JuneÌý30, 2011 are not necessarily indicative of results to be expected for the year ended DecemberÌý31, 2011 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 DecemberÌý31, 2010. The unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly-owned and majority-owned subsidiaries, including the following subsidiaries: Ìý
Intercompany transactions and balances are eliminated upon consolidation. |
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| Investments |
ÌýÌýÌýÌýÌýÌýÌýÌýÌý The following table presents the detail of our investments in unconsolidated ventures and where those investments are classified on the Statements of Unaudited Condensed Consolidated Financial Position as of JuneÌý30, 2011 and DecemberÌý31, 2010. Parentheses indicate a net liability.
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| Significant Accounting Policies |
Reportable Segments As a result of the acquisition of Consolidated Thompson, we have revised the number of our operating and reportable segments as determined under ASC 280. Our Company's primary operations are organized and managed according to product category and geographic location and now include: U.S. Iron Ore, Eastern Canadian Iron Ore, North American Coal, Asia Pacific Iron Ore, Asia Pacific Coal, Latin American Iron Ore, Alternative Energies, Ferroalloys and our Global Exploration Group. Our historical presentation of segment information consisted of three reportable segments: North American Iron Ore, North American Coal and Asia Pacific Iron Ore. Our restated presentation consists of four reportable segments: U.S. Iron Ore, Eastern Canadian Iron Ore, North American Coal and Asia Pacific Iron Ore. The amounts disclosed in NOTE 2 – SEGMENT REPORTING reflects this restatement. Ìý Significant Accounting Policies A detailed description of our significant accounting policies can be found in the audited financial statements for the fiscal year ended DecemberÌý31, 2010, included in our Annual Report on Form 10-K filed with the SEC. Due to the completion of our acquisition of Consolidated Thompson, there have been several changes in our significant accounting policies and estimates from those disclosed therein. The significant accounting policies requiring updates have been included within the disclosures below. |
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| Inventories |
ÌýÌýÌýÌýÌýÌýÌýÌýÌý Inventories ÌýÌýÌýÌýÌýÌýÌýÌýÌý U.S. Iron OreÌý ÌýÌýÌýÌýÌýÌýÌýÌýÌýÌý Eastern Canadian Iron Ore Iron ore concentrate inventories are stated at the lower of cost or market. The cost of iron ore concentrate inventories is determined using the weighted average cost. For the majority of the iron ore concentrate inventories, we maintain ownership of the inventories until title passes on the bill of lading date, which is the date of the shipment from the port. |
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| Revenue Recognition and Cost of Goods Sold and Operating Expenses |
ÌýÌýÌýÌýÌýÌýÌýÌýÌý Revenue Recognition and Cost of Goods Sold and Operating Expenses ÌýÌýÌýÌýÌýÌýÌýÌýÌý U.S. Iron Ore We recognize revenue based on the gross amount billed to a customer as we earn revenue from the sale of the goods or services. Revenue from product sales also includes reimbursement for freight charges paid on behalf of customers in Freight and Venture Partners' Cost Reimbursements separate from product revenue. Costs of goods sold and operating expenses represents all direct and indirect costs and expenses applicable to the sales and revenues of our mining operations. Operating expenses within this line item primarily represent the portion of the mining venture costs for which we do not own; that is, the costs attributable to the share of the mine's production owned by the other joint venture partners. The mining ventures function as captive cost companies; they supply product only to their owners effectively on a cost basis. Accordingly, the noncontrolling interests' revenue amounts are stated at cost of production and are offset in entirety by an equal amount included in cost of goods sold and operating expenses resulting in no sales margin reflected in noncontrolling interest participants. As we are responsible for product fulfillment, we retain the risks and rewards of a principal in the transaction and accordingly record revenue under these arrangements on a gross basis. Under certain term supply agreements, we ship the product to ports on the lower Great Lakes or to the customer's facilities prior to the transfer of title. Our rationale for shipping iron ore products to certain customers and retaining title until payment is received for these products is to minimize credit risk exposure. In addition, certain supply agreements with one customer include provisions for supplemental revenue or refunds based on the customer's annual steel pricing for the year 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 record this provision at fair value until the year the product is consumed and the amounts are settled as an adjustment to revenue. Where we are joint venture participants in the ownership of a mine, our contracts entitle us to receive royalties and/or management fees, which we earn as the pellets are produced. Revenue is recognized on the sale of services when the services are performed. ÌýÌýÌýÌýÌýÌýÌýÌýÌý Eastern Canadian Iron Ore Ìý Since the acquisition date of Consolidated Thompson, Product Revenues and Costs of goods sold and operating expenses on the Statements of Unaudited Condensed Consolidated Operations reflects our 100 percent ownership interest in Consolidated Thompson. WISCO is aÌýtwenty-five percent equity holder in Bloom Lake, resulting in a noncontrolling interest adjustment for WISCO's ownership percentage to Net income (loss) attributable to noncontrolling interest on the Statements of Unaudited Condensed Consolidated Operations. As WISCO is a twenty-five percent equity holder in Bloom Lake and also our customer, we recognized $88.7 million of related party revenues on the Statements of Unaudited Condensed Consolidated Operations for the three and six months ended JuneÌý30, 2011, and $70.4 million of related party receivables on the Statements of Unaudited Condensed Consolidated Financial Position as of JuneÌý30, 2011. |
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| Retrospective Adjustments |
Retrospective Adjustments In accordance with the business combination guidance in ASC 805, we retrospectively recorded adjustments to the Wabush purchase price allocation that occurred during the second half of 2010 back to the date of acquisition that occurred during the first quarter of 2010. The adjustments were due to further refinements of the fair values of the assets acquired and liabilities assumed. Additionally, we continued to ensure our existing interest in Wabush was incorporating all of the book basis, including amounts recorded in Accumulated other comprehensive income. Due to these adjustments, the financial statements for the six months ended JuneÌý30, 2010 have been retrospectively adjusted for these changes, resulting in a decrease to Income From Continuing Operations Before Income Taxes and Equity Income (Loss) from Ventures of $22.0 million and a decrease to Net Income Attributable to Cliffs Shareholders of $15.9 million, respectively, on the Statements of Unaudited Condensed Consolidated Operations. The adjustments resulted in a decrease to basic and diluted earnings per common share of $0.12 and $0.11 per common share, respectively. In addition, Retained Earnings was decreased by $16.1 million and Accumulated other comprehensive income was increased by $25.3 million, respectively, on the Statements of Unaudited Condensed Consolidated Financial Position as of DecemberÌý31, 2010 for the effect of these retrospective adjustments. Refer to NOTE 5 – ACQUISITIONS AND OTHER INVESTMENTS for further information. Ìý |
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| Recent Accounting Pronouncements |
Ìý Recent Accounting Pronouncements In January 2010, the FASB amended the guidance on fair value to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The amendment also revises the guidance on employers' disclosures about postretirement benefit plan assets to require that disclosures be provided by classes of assets instead of by major categories of assets. The amended guidance is effective for the first reporting period beginning after DecemberÌý15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which is effective for fiscal years beginning after DecemberÌý15, 2010, and for interim periods within those fiscal years. We adopted the provisions of guidance required for the period beginning JanuaryÌý1, 2011; however, adoption of this amendment did not have a material impact on our consolidated financial statements. In December 2010, the FASB issued amended guidance on business combinations in order to clarify the disclosure requirements around pro forma revenue and earnings. The update was issued in response to the diversity in practice about the interpretation of such requirements. The amendment specifies that pro forma revenue and earnings of the combined entity be presented as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The new guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after DecemberÌý15, 2010. We adopted the amended guidance upon our acquisition of Consolidated Thompson. Refer to NOTE 5 – ACQUISITIONS AND OTHER INVESTMENTS for further information. In May 2011, the FASB amended the guidance on fair value as a result of the joint efforts by the FASB and the IASB to develop a single, converged fair value framework. The converged fair value framework provides converged guidance on how to measure fair value and on what disclosures to provide about fair value measurements. The significant amendments to the fair value measurement guidance and the new disclosure requirements include: (1)Ìýthe highest and best use and valuation premise for nonfinancial assets; (2)Ìýthe application to financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risks; (3)Ìýpremiums or discounts in fair value measurement; (4)Ìýfair value of an instrument classified in a reporting entity's shareholders' equity; (5)Ìýfor Level 3 measurements, a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, a description of the valuation process in place, and a narrative description of the sensitivity of the fair value to changes in the unobservable inputs and interrelationships between those inputs; and (6)Ìýthe level in the fair value hierarchy of items that are not measured at fair value in the statement of financial position but whose fair value must be disclosed. The new guidance is effective for interim and annual periods beginning after DecemberÌý15, 2011. We are currently evaluating the impact that the adoption of this amendment will have on our consolidated financial statements. In June 2011, the FASB issued amended guidance on the presentation of comprehensive income in order to improve comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in OCI. The update also facilitates the convergence of GAAP and IFRS. The amendment eliminates the presentation options under ASC 220 and requires entities to report components of comprehensive income in either (1)Ìýa continuous statement of comprehensive income or (2)Ìýtwo separate but consecutive statements. In either presentation option, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statements where the components of net income and the components of OCI are presented. The amendment does not change the items that must be reported in other comprehensive income. The new guidance is effective for fiscal years, and interim periods within those years, beginning after DecemberÌý15, 2011 and the amendments are required to be applied retrospectively. We are currently evaluating which presentation option we will choose and the impact that the adoption of this amendment will have on our consolidated financial statements. |
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