AG真人平台AG真人试玩

Annual report pursuant to Section 13 and 15(d)

ACQUISITIONS

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ACQUISITIONS
 12 Months Ended
Dec. 31, 2022
Business Combinations [Abstract] 听
Acquisitions
NOTE 3 - ACQUISITIONS
In 2020, we acquired two major steelmakers, AK AG真人平台AG真人试玩 and ArcelorMittal USA, vertically integrating our legacy iron ore business with steel production. In 2021, we also entered into the scrap business with the FPT Acquisition. We are vertically integrated from mined raw materials, direct reduced iron and ferrous scrap to primary steelmaking and downstream finishing, stamping, tooling and tubing. We now have a presence across the entire steel manufacturing process, from mining to pelletizing to the development and production of finished high value steel products. The AK AG真人平台AG真人试玩 Merger combined Cliffs, a historic producer of iron ore pellets, with AK AG真人平台AG真人试玩, a producer of flat-rolled carbon, stainless and electrical steel products, to create a vertically integrated producer of value-added iron ore and steel products. The AM USA Transaction transformed us into a fully-integrated steel enterprise with the size and scale to expand product offerings and improve through-the-cycle margins. The FPT Acquisition provides us a competitive advantage in sourcing prime scrap, a key raw material for our steelmaking facilities.
FPT ACQUISITION
OVERVIEW
On November 18, 2021, pursuant to the FPT Acquisition Agreement, we completed the FPT Acquisition, in which we were the acquirer. Following the FPT Acquisition, the operating results of FPT are included in our consolidated financial statements. For the period subsequent to the FPT Acquisition (November 18, 2021 through December 31, 2021), FPT generated Revenues of $153听million and a loss of $18听million included within Net income (loss) attributable to Cliffs shareholders, which included $22听million related to amortization of the fair value inventory step-up.
The fair value of the total purchase consideration was determined as follows:
(In millions)
Cash consideration:
Cash consideration pursuant to the FPT Acquisition Agreement $ 778听
Cash consideration paid related to IRC Section 338(h)(10) 23听
Total cash consideration 801听
Fair value of settlement of a pre-existing relationship (20)
Total purchase consideration $ 781听
We made certain elections under Section 338(h)(10) of the IRC with respect to entities acquired in connection with the FPT Acquisition that were finalized during the third quarter of 2022, which changed the final cash consideration.
VALUATION ASSUMPTION AND PURCHASE PRICE ALLOCATION
The allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed in connection with the FPT Acquisition was based on estimated fair values at November 18, 2021, and was finalized during the quarter ended December 31, 2022. The following is a summary of the purchase price allocation to assets acquired and liabilities assumed in the FPT Acquisition:
(In millions) Initial Allocation of Consideration Measurement
Period Adjustments		 Final Allocation of Consideration as of December 31, 2022
Cash and cash equivalents $ 9听 $ 鈥斕� $ 9听
Accounts receivable, net 233听 2听 235听
Inventories 137听 (2) 135听
Other current assets 4听 (1) 3听
Property, plant and equipment 179听 12听 191听
Other non-current assets 74听 (2) 72听
Accounts payable (122) 鈥斕� (122)
Accrued employment costs (8) 鈥斕� (8)
Other current liabilities (9) 3听 (6)
Other non-current liabilities (21) 鈥斕� (21)
Net identifiable assets acquired 476听 12听 488听
Goodwill 279听 14听 293听
Total net assets acquired $ 755听 $ 26听 $ 781听
The goodwill resulting from the FPT Acquisition primarily represents the incremental benefit of providing substantial access to prime scrap for our vertically integrated steelmaking business, as well as any synergistic benefits to be realized from the FPT Acquisition within our AG真人平台AG真人试玩making segment. We have $296听million in goodwill that is deductible for tax purposes from the FPT Acquisition.
The purchase price allocated to identifiable intangible assets acquired was:
(In millions) Weighted Average Life (In years)
Customer relationships $ 13听 15
Supplier relationships 29听 18
Trade names and trademarks 7听 15
Total identifiable intangible assets $ 49听 17
Intangible assets are classified as Other non-current assets on the Statements of Consolidated Financial Position.
ACQUISITION OF ARCELORMITTAL USA
OVERVIEW
On December 9, 2020, pursuant to the terms of the AM USA Transaction Agreement, we purchased ArcelorMittal USA from ArcelorMittal. In connection with the closing of the AM USA Transaction, as contemplated by the terms of the AM USA Transaction Agreement, ArcelorMittal鈥檚 former joint venture partner in Kote and Tek exercised its put right pursuant to the terms of the Kote and Tek joint venture agreements. As a result, we purchased all of such joint venture partner鈥檚 interests in Kote and Tek. Following the closing of the AM USA Transaction, we own 100% of the interests in Kote and Tek.
We incurred acquisition-related costs, excluding severance costs, of $3 million and $26 million for the years ended December听31, 2021 and 2020, respectively, in connection with the AM USA Transaction, which were recorded in Acquisition-related costs in the Statements of Consolidated Operations.
The fair value of the total purchase consideration was determined as follows:
(In millions)
Fair value of Cliffs common shares issued $ 990听
Fair value of Cliffs Series B Participating Redeemable Preferred Stock issued 738听
Fair value of settlement of a pre-existing relationship 237听
Cash consideration 639听
Total purchase consideration $ 2,604听
The fair value of Cliffs common shares issued was calculated as follows:
Number of Cliffs common shares issued 78,186,671
Closing price of Cliffs common share as of December 9, 2020 $ 12.66听
Fair value of Cliffs common shares issued (in millions) $ 990听
The fair value of Cliffs Series B Participating Redeemable Preferred Stock issued was calculated as follows:
Number of Cliffs Series B Participating Redeemable Preferred Stock issued 583,273听
Redemption price per share as of December 9, 2020 $ 1,266听
Fair value of Cliffs Series B Participating Redeemable Preferred Stock issued (in millions) $ 738听
The fair value of the cash consideration was comprised of the following:
(In millions)
Cash consideration pursuant to the AM USA Transaction Agreement $ 505听
Cash consideration for purchase of the remaining JV partner's interest of Kote and Tek 182听
Cash consideration pursuant to working capital adjustments (48)
Total cash consideration $ 639听
The cash portion of the purchase price was subject to customary working capital adjustments, and the working capital adjustments were finalized during the second quarter of 2021. We made certain elections under Section 338(h)(10) of the IRC with respect to entities acquired in connection with the AM USA Transaction, which did not change the final cash consideration.
The fair value of the settlement of a pre-existing relationship was comprised of the following:
(In millions)
Accounts receivable $ 97听
Freestanding derivative asset from customer supply agreement 140听
Total fair value of settlement of a pre-existing relationship $ 237听
VALUATION ASSUMPTION AND PURCHASE PRICE ALLOCATION
The allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed in connection with the AM USA Transaction was based on estimated fair values at December 9, 2020, and was finalized during the quarter ended December听31, 2021. The following is a summary of the purchase price allocation to assets acquired and liabilities assumed in the AM USA Transaction:
(In millions) Initial Allocation of Consideration Measurement
Period Adjustments		 Final Allocation Consideration as of December 31, 2021
Cash and cash equivalents $ 35听 $ 鈥斕� $ 35听
Accounts receivable, net 349听 (3) 346听
Inventories 2,115听 14听 2,129听
Other current assets 34听 2听 36听
Property, plant and equipment 4,017听 387听 4,404听
Deferred income taxes 鈥斕� 285听 285听
Other non-current assets 158听 7听 165听
Accounts payable (736) 8听 (728)
Accrued employment costs (271) 5听 (266)
State and local taxes (76) 鈥斕� (76)
Other current liabilities (453) 23听 (430)
Pension liability, non-current (730) 鈥斕� (730)
OPEB liability, non-current (2,465) 鈥斕� (2,465)
Other non-current liabilities (598) (171) (769)
Noncontrolling interest (13) 21听 8听
Net identifiable assets acquired 1,366听 578听 1,944听
Goodwill 1,230听 (570) 660听
Total net assets acquired $ 2,596听 $ 8听 $ 2,604听
During the period subsequent to the AM USA Transaction, we made certain measurement period adjustments to the acquired assets and liabilities assumed due to clarification of information utilized to determine fair value during the measurement period. The measurement period adjustments related to the revaluation of the Company's previously held equity method investment, which is now being consolidated post-acquisition, resulting in a loss of $31听million, within Miscellaneous 鈥� net for the year ended December 31, 2021.
The goodwill resulting from the acquisition of ArcelorMittal USA primarily represents the growth opportunities in the automotive, construction, appliances, infrastructure and machinery and equipment markets, as well as any synergistic benefits to be realized from the AM USA Transaction, and was assigned to our flat steel operations within our AG真人平台AG真人试玩making segment.
ACQUISITION OF AK STEEL
OVERVIEW
On March 13, 2020, pursuant to the AK AG真人平台AG真人试玩 Merger Agreement (Agreement and Plan of Merger, dated as of December 2, 2019, among Cleveland-Cliffs Inc., AK AG真人平台AG真人试玩 and Merger Sub), we completed the acquisition of AK AG真人平台AG真人试玩, in which we were the acquirer. As a result of the AK AG真人平台AG真人试玩 Merger, each share of AK AG真人平台AG真人试玩 common stock issued and outstanding immediately prior to the effective time of the AK AG真人平台AG真人试玩 Merger (other than excluded shares) was converted into the right to receive 0.400 Cliffs common shares and, if applicable, cash in lieu of any fractional Cliffs common shares.
We incurred acquisition-related costs, excluding severance costs, of $1听million and $26听million for the years ended December听31, 2021 and 2020, respectively, in connection with the AK AG真人平台AG真人试玩 Merger, which were recorded in Acquisition-related costs in the Statements of Consolidated Operations.
The fair value of the total purchase consideration was determined as follows:
(In millions)
Fair value of AK AG真人平台AG真人试玩 debt $ 914听
Fair value of Cliffs common shares issued for AK AG真人平台AG真人试玩 outstanding common stock 618听
Other 3听
Total purchase consideration $ 1,535听
The fair value of Cliffs common shares issued for outstanding shares of AK AG真人平台AG真人试玩 common stock and with respect to Cliffs common shares underlying converted AK AG真人平台AG真人试玩 equity awards that vested upon completion of the AK AG真人平台AG真人试玩 Merger was calculated as follows:
(In millions, except per share amounts)
Number of shares of AK AG真人平台AG真人试玩 common stock issued and outstanding 317听
Exchange ratio 0.400听
Shares of Cliffs common shares issued to AK AG真人平台AG真人试玩 stockholders 127听
Price per share of Cliffs common shares $ 4.87听
Fair value of Cliffs common shares issued for outstanding AK AG真人平台AG真人试玩 common stock $ 618听
The fair value of AK AG真人平台AG真人试玩's debt included in the consideration was calculated as follows:
(In millions)
Credit Facility $ 590听
7.500% Senior Secured Notes due July 2023 324听
Fair value of debt included in consideration $ 914听
VALUATION ASSUMPTION AND PURCHASE PRICE ALLOCATION
The allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed in connection with the AK AG真人平台AG真人试玩 Merger was based on estimated fair values at March 13, 2020, and was finalized during the quarter ended March 31, 2021. The following is a summary of the purchase price allocation to assets acquired and liabilities assumed in the AK AG真人平台AG真人试玩 Merger:
(In millions) Initial Allocation of Consideration Measurement Period Adjustments Final Allocation of Consideration as of March 31, 2021
Cash and cash equivalents $ 38听 $ 1听 $ 39听
Accounts receivable, net 666听 (2) 664听
Inventories 1,563听 (243) 1,320听
Other current assets 68听 (16) 52听
Property, plant and equipment 2,184听 90听 2,274听
Deferred income taxes 鈥斕� 69听 69听
Other non-current assets 475听 (4) 471听
Accounts payable (636) (8) (644)
Accrued employment costs (94) 1听 (93)
State and local taxes (35) 4听 (31)
Other current liabilities (276) 2听 (274)
Long-term debt (1,179) 鈥斕� (1,179)
Pension liability, non-current (473) 10听 (463)
OPEB liability, non-current (400) (8) (408)
Other non-current liabilities (507) 72听 (435)
Noncontrolling interest 鈥斕� (1) (1)
Net identifiable assets acquired 1,394听 (33) 1,361听
Goodwill 141听 33听 174听
Total net assets acquired $ 1,535听 $ 鈥斕� $ 1,535听
During the period subsequent to the AK AG真人平台AG真人试玩 Merger, we made certain measurement period adjustments to the acquired assets and liabilities assumed due to clarification of information utilized to determine fair value during the measurement period.
The goodwill resulting from the acquisition of AK AG真人平台AG真人试玩 was assigned to our downstream Tubular and Tooling and Stamping operating segments. Goodwill is calculated as the excess of the purchase price over the net identifiable assets recognized and primarily represents the growth opportunities in light weighting solutions to automotive customers, as well as any synergistic benefits to be realized.
The purchase price allocated to identifiable intangible assets and liabilities acquired was:
(In millions) Weighted Average Life (In Years)
Intangible assets:
Customer relationships $ 77听 18
Developed technology 60听 17
Trade names and trademarks 11听 10
Total identifiable intangible assets $ 148听 17
Intangible liabilities:
Above-market supply contracts $ (71) 12
Intangible assets are classified as Other non-current assets on the Statements of Consolidated Financial Position. Intangible liabilities are classified as Other non-current liabilities on the Statements of Consolidated Financial Position.
The above-market supply contracts relate to the long-term coke and energy supply agreements with SunCoke Energy, which includes SunCoke Middletown, a consolidated VIE. Refer to NOTE 18 - VARIABLE INTEREST ENTITIES for further information.
PRO FORMA RESULTS
2020 ACQUISITIONS
The following table provides unaudited pro forma financial information, prepared in accordance with Topic 805, as if ArcelorMittal USA and AK AG真人平台AG真人试玩 had been acquired as of January 1, 2019:
Year Ended
(In millions) December 31, 2020
Revenues $ 12,837听
Net loss attributable to Cliffs shareholders (520)
The unaudited pro forma financial information has been calculated after applying our accounting policies and adjusting the historical results with pro forma adjustments, net of tax, that assume the 2020 Acquisitions occurred on January听1, 2019. Significant pro forma adjustments include the following:
1.The elimination of intercompany revenues between Cliffs and ArcelorMittal USA and AK AG真人平台AG真人试玩 of $844听million for the year ended December听31, 2020.
2.The 2020 pro forma net loss was adjusted to exclude $96听million of non-recurring inventory acquisition accounting adjustments incurred during the year ended December听31, 2020.
3.The elimination of non-recurring transaction costs incurred by Cliffs, AK AG真人平台AG真人试玩 and ArcelorMittal USA in connection with the 2020 Acquisitions were $93听million for the year ended December听31, 2020.
4.The 2020 pro forma net loss was adjusted to exclude restructuring costs of $1,820听million of non-recurring costs incurred by ArcelorMittal USA prior to the AM USA Transaction.
5.The 2020 pro forma net loss was adjusted to exclude $140听million for the year ended December 31, 2020, for the impact of reversal of the fees charged for management, financial and legal services under the Industrial Franchise Agreement with the former parent.
6.Total other pro forma adjustments included reduced expenses of $32听million for the year ended December 31, 2020, primarily due to decreased depreciation expense and pension and OPEB expense, offset partially by increased interest and amortization expense.
7.The income tax impact of pro forma transaction adjustments that affect Net income (loss) attributable to Cliffs shareholders at a statutory rate of 24.3% resulted in an increased benefit to Income tax benefit (expense) of $170听million for the year ended December 31, 2020.
FPT ACQUISITION
The following table provides unaudited pro forma financial information, prepared in accordance with Topic 805, as if FPT had been acquired as of January 1, 2020:
Year Ended December 31,
(In millions) 2021 2020
Revenues $ 21,701听 $ 13,549听
Net income (loss) attributable to Cliffs shareholders 3,074听 (526)
The unaudited pro forma financial information has been calculated after applying our accounting policies and adjusting the historical results with pro forma adjustments, net of tax, that assume the FPT Acquisition occurred on January听1, 2020. There were no significant pro forma adjustments for the FPT Acquisition.
The unaudited pro forma financial information does not reflect the potential realization of synergies or cost savings, nor does it reflect other costs relating to the integration of the acquired companies. This unaudited pro forma financial information should not be considered indicative of the results that would have actually occurred if the 2020 Acquisitions had been consummated on January 1, 2019, or if the FPT Acquisition had been consummated on January 1, 2020, nor are they indicative of future results.