AG真人平台AG真人试玩

Quarterly report pursuant to Section 13 or 15(d)

ACQUISITIONS

v3.21.1
ACQUISITIONS
 3 Months Ended
Mar. 31, 2021
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. Our fully-integrated portfolio includes custom-made pellets and HBI; flat-rolled carbon steel, stainless, electrical, plate, tinplate and long steel products; and carbon and stainless steel tubing, hot and cold stamping and tooling. The AK AG真人平台AG真人试玩 Merger combined Cliffs, a 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.
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 combination is expected to create significant opportunities to generate additional value from market trends across the entire steel value chain and enable more consistent, predictable performance through normal market cycles.
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 $2 million for the three months ended March听31, 2021, which were recorded in Acquisition-related costs on the Statements of Unaudited Condensed Consolidated Operations.
The AM USA Transaction was accounted for under the acquisition method of accounting for business combinations.
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 Series B Participating Redeemable Preferred Stock issued 738听
Fair value of settlement of a pre-existing relationship 237听
Cash consideration (subject to customary working capital adjustments) 635听
Total purchase consideration $ 2,600听
The fair value of Cliffs common shares issued is 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 is 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 estimated cash consideration is 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
Estimated total cash consideration receivable (52)
Total estimated cash consideration $ 635听
The cash portion of the purchase price is subject to customary working capital adjustments.
The fair value of the settlement of a pre-existing relationship is 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 Preliminary Purchase Price Allocation
We estimated fair values at December 9, 2020 for the preliminary allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed in connection with the AM USA Transaction. During the measurement period, we will continue to obtain information to assist in finalizing the fair value of assets acquired and liabilities assumed, which may differ materially from these preliminary estimates. If we determine any measurement period adjustments are material, we will apply those adjustments, including any related impacts to net income, in the reporting period in which the adjustments are determined. We are in the process of conducting a valuation of the assets acquired and liabilities assumed related to the AM USA Transaction, most notably, inventories, personal and real property, mineral reserves, leases, investments, deferred taxes, asset retirement obligations and the final allocation will be made when completed, including the result of any identified goodwill. Accordingly, the provisional measurements noted below are preliminary and subject to modification in the future.
The preliminary purchase price allocation to assets acquired and liabilities assumed in the AM USA Transaction was:
(In Millions)
Initial Allocation of Consideration Measurement Period Adjustments Updated Allocation
Cash and cash equivalents $ 35听 $ 鈥斕� $ 35听
Accounts receivable, net 349听 鈥斕� 349听
Inventories 2,115听 14听 2,129听
Other current assets 34听 (5) 29听
Property, plant and equipment 4,017听 366听 4,383听
Other non-current assets 158听 8听 166听
Accounts payable (758) 2听 (756)
Accrued employment costs (271) (3) (274)
Pension and OPEB liabilities, current (109) 鈥斕� (109)
Other current liabilities (398) (2) (400)
Pension and OPEB liabilities, non-current (3,195) 鈥斕� (3,195)
Other non-current liabilities (598) 35听 (563)
Noncontrolling interest (13) 1听 (12)
Net identifiable assets acquired 1,366听 416听 1,782听
Goodwill 1,230听 (412) 818听
Total net assets acquired $ 2,596听 $ 4听 $ 2,600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 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. Goodwill from the AM USA Transaction is expected to be deductible for U.S. federal income tax purposes.
Acquisition of AK AG真人平台AG真人试玩
Overview
On March 13, 2020, pursuant to the AK AG真人平台AG真人试玩 Merger Agreement, 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.
The AK AG真人平台AG真人试玩 Merger was accounted for under the acquisition method of accounting for business combinations. The acquisition date fair value of the consideration transferred totaled $1,535 million. The following tables summarize the consideration paid for AK AG真人平台AG真人试玩 and the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.
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 stock1
618听
Other1
3听
Total purchase consideration $ 1,535听
1 Included as non-cash investing activities in Statements of Unaudited Condensed Consolidated Cash Flows for the three months ended March 31, 2020.
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 is 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
Number 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 AK AG真人平台AG真人试玩 outstanding 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 is calculated as follows:
(In Millions)
Credit Facility $ 590听
7.50% 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 is 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)
Pension and OPEB liabilities, current (75) (3) (78)
Other current liabilities (236) 9听 (227)
Long-term debt (1,179) 鈥斕� (1,179)
Pension and OPEB liabilities, non-current (873) 2听 (871)
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. Goodwill from the AK AG真人平台AG真人试玩 Merger is not expected be deductible for income tax purposes.
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
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 16 - VARIABLE INTEREST ENTITIES for further information.
Pro Forma Results
The following table provides unaudited pro forma financial information, prepared in accordance with Topic 805, for the three months ended March听31, 2020, as if AK AG真人平台AG真人试玩 had been acquired as of January 1, 2019:
(In Millions)
Three Months Ended
March 31,
2020
Revenues $ 1,526听
Net loss attributable to Cliffs shareholders (17)
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 AK AG真人平台AG真人试玩 Merger occurred on January 1, 2019. Significant pro forma adjustments include the following:
1.The elimination of intercompany revenues between Cliffs and AK AG真人平台AG真人试玩 of $68听million for the three months ended March听31, 2020.
2.The 2020 pro forma net income was adjusted to exclude $23听million of non-recurring inventory acquisition accounting adjustments incurred during the three months ended March听31, 2020.
3.The elimination of nonrecurring transaction costs incurred by Cliffs and AK AG真人平台AG真人试玩 in connection with the AK AG真人平台AG真人试玩 Merger of $27听million for the three months ended March听31, 2020.
4.Total other pro forma adjustments included income of $13听million for the three months ended March听31, 2020, primarily due to reduced interest and amortization expense, offset partially by additional depreciation expense.
5.The income tax impact of pro forma transaction adjustments that affect Net loss attributable to Cliffs shareholders at a statutory rate of 24.3% resulted in an income tax expense of $12听million for the three months ended March听31, 2020.
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 AK AG真人平台AG真人试玩. This unaudited pro forma financial information should not be considered indicative of the results that would have actually occurred if the AK AG真人平台AG真人试玩 Merger had been consummated on January 1, 2019, nor are they indicative of future results.