Cleveland-Cliffs Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

ACQUISITIONS (Tables)

ACQUISITIONS (Tables)

3 Months Ended

Mar. 31, 2021

Schedule of Business Acquisitions by Acquisition, by Acquisition

The fair value of the total purchase consideration was determined as follows:


	(In Millions)
Fair value of Cliffs common shares issued	$	990
Fair value of Series B Participating Redeemable Preferred Stock issued	738
Fair value of settlement of a pre-existing relationship	237
Cash consideration (subject to customary working capital adjustments)	635
Total purchase consideration	$	2,600

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
Fair value of Cliffs common shares issued (in millions)	$	990

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
Redemption price per share as of December 9, 2020	$	1,266
Fair value of Cliffs Series B Participating Redeemable Preferred Stock issued (in millions)	$	738

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
Cash consideration for purchase of the remaining JV partner's interest of Kote and Tek	182
Estimated total cash consideration receivable	(52)
Total estimated cash consideration	$	635

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
Freestanding derivative asset from customer supply agreement	140
Total fair value of settlement of a pre-existing relationship	$	237

The fair value of the total purchase consideration was determined as follows:


	(In Millions)
Fair value of AK Steel debt	$	914
Fair value of Cliffs common shares issued for AK Steel outstanding common stock1	618
Other1	3
Total purchase consideration	$	1,535

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 AK Steel's debt included in the consideration is calculated as follows:


	(In Millions)
Credit Facility	$	590
7.50% Senior Secured Notes due July 2023	324
Fair value of debt included in consideration	$	914

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

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	$	—	$	35
Accounts receivable, net	349		—		349
Inventories	2,115		14		2,129
Other current assets	34		(5)		29
Property, plant and equipment	4,017		366		4,383
Other non-current assets	158		8		166
Accounts payable	(758)		2		(756)
Accrued employment costs	(271)		(3)		(274)
Pension and OPEB liabilities, current	(109)		—		(109)
Other current liabilities	(398)		(2)		(400)
Pension and OPEB liabilities, non-current	(3,195)		—		(3,195)
Other non-current liabilities	(598)		35		(563)
Noncontrolling interest	(13)		1		(12)
Net identifiable assets acquired	1,366		416		1,782
Goodwill	1,230		(412)		818
Total net assets acquired	$	2,596	$	4	$	2,600

The following is a summary of the purchase price allocation to assets acquired and liabilities assumed in the AK Steel Merger:


	(In Millions)
	Initial Allocation of Consideration		Measurement Period Adjustments		Final Allocation of Consideration as of March 31, 2021
Cash and cash equivalents	$	38	$	1	$	39
Accounts receivable, net	666		(2)		664
Inventories	1,563		(243)		1,320
Other current assets	68		(16)		52
Property, plant and equipment	2,184		90		2,274
Deferred income taxes	—		69		69
Other non-current assets	475		(4)		471
Accounts payable	(636)		(8)		(644)
Accrued employment costs	(94)		1		(93)
Pension and OPEB liabilities, current	(75)		(3)		(78)
Other current liabilities	(236)		9		(227)
Long-term debt	(1,179)		—		(1,179)
Pension and OPEB liabilities, non-current	(873)		2		(871)
Other non-current liabilities	(507)		72		(435)
Noncontrolling interest	—		(1)		(1)
Net identifiable assets acquired	1,394		(33)		1,361
Goodwill	141		33		174
Total net assets acquired	$	1,535	$	—	$	1,535

Schedule of Business Acquisitions by Acquisition, Equity Interest Issued or Issuable

The fair value of Cliffs common shares issued for outstanding shares of AK Steel common stock and with respect to Cliffs common shares underlying converted AK Steel equity awards that vested upon completion of the AK Steel Merger is calculated as follows:


	(In Millions, Except Per Share Amounts)
Number of shares of AK Steel common stock issued and outstanding	317
Exchange ratio	0.400
Number of Cliffs common shares issued to AK Steel stockholders	127
Price per share of Cliffs common shares	$	4.87
Fair value of Cliffs common shares issued for AK Steel outstanding common stock	$	618

Finite-Lived and Indefinite-Lived Intangible Assets Acquired as Part of Business Combination

The purchase price allocated to identifiable intangible assets and liabilities acquired was:


	(In Millions)		Weighted Average Life (In Years)
Intangible assets:
Customer relationships	$	77	18
Developed technology	60		17
Trade names and trademarks	11		10
Total identifiable intangible assets	$	148	17
Intangible liabilities:
Above-market supply contracts	$	(71)	12

Business Acquisition, Pro Forma Information

The following table provides unaudited pro forma financial information, prepared in accordance with Topic 805, for the three months ended March 31, 2020, as if AK Steel had been acquired as of January 1, 2019:


		(In Millions)
	Three Months Ended March 31,
		2020
Revenues		$	1,526
Net loss attributable to Cliffs shareholders		(17)