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

Annual report pursuant to Section 13 and 15(d)

LEASE OBLIGATIONS

LEASE OBLIGATIONS

12 Months Ended

Dec. 31, 2020

Our operating leases consist primarily of leases for office space, iron ore vessels, rail cars, processing equipment and mining equipment. Our finance leases consist primarily of processing equipment and mining equipment. We use our incremental borrowing rate as the discount rate to determine the present value of the lease payments, as our leases do not have readily determinable implicit discount rates. Our incremental borrowing rate is the rate of interest that we would have to borrow on a collateralized basis over a similar term and amount in a similar economic environment to pay our lease obligations. We determine the incremental borrowing rates for our leases by adjusting the local risk-free interest rate with a credit risk premium corresponding to our credit rating. From time to time, we may enter into arrangements for the construction or purchase of an asset and then enter into a financing arrangement to lease the asset. We recognize leased assets and liabilities under these arrangements when we obtain control of the asset.

Lease costs are presented below:


	(In Millions)
	Year Ended December 31,
	2020		2019
Operating leases	$	43	$	4
Finance leases:
Amortization of lease cost	15		6
Interest on lease liabilities	4		2
Short-term leases	13		6

Total	$	75	$	18

Other information related to leases was as follows:


	(In Millions)
	Year Ended December 31,
	2020			2019
Cash paid for amounts included in measurement of lease liabilities:
Operating leases within cash flows from operating activities	$	43		$	4
Finance leases within cash flows from operating activities	$	4		$	2
Finance leases within cash flows from financing activities	$	15		$	6
Right-of-use assets obtained in exchange for new finance lease liabilities1	$	44		$	29
Weighted-average remaining lease term - operating leases (in years)	8			10
Weighted-average remaining lease term - finance leases (in years)	5			6
Weighted-average discount rate - operating leases	8		%	8		%
Weighted-average discount rate - finance leases	4		%	5		%
1 Right-of-use assets obtained in the Acquisitions are not included in this figure.

Future minimum lease payments under noncancellable finance and operating leases as of December 31, 2020 were as follows:


	(In Millions)
	Finance Leases		Operating Leases
2021	$	100	$	70
2022	95		53
2023	78		46
2024	23		38
2025	22		34
Thereafter	76		122
Total future minimum lease payments	394		363
Less: imputed interest	59		99
Total lease payments	335		264
Less: current portion of lease liabilities	91		53
Long-term lease liabilities	$	244	$	211

The current and long-term portions of our finance lease liabilities are included in Other current liabilities and Other non-current liabilities, respectively. The current and long-term portions of our operating lease liabilities are included in Other current liabilities and Other non-current liabilities, respectively.