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

Annual report pursuant to Section 13 and 15(d)

ACQUISITIONS (Tables)

ACQUISITIONS (Tables)

12 Months Ended

Dec. 31, 2022

Schedule of Fair Value of Purchase Consideration

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
Cash consideration paid related to IRC Section 338(h)(10)	23
Total cash consideration	801
Fair value of settlement of a pre-existing relationship	(20)
Total purchase consideration	$	781


(In millions)	Initial Allocation of Consideration		Measurement Period Adjustments		Final Allocation of Consideration as of December 31, 2022
Cash and cash equivalents	$	9	$	—	$	9
Accounts receivable, net	233		2		235
Inventories	137		(2)		135
Other current assets	4		(1)		3
Property, plant and equipment	179		12		191
Other non-current assets	74		(2)		72
Accounts payable	(122)		—		(122)
Accrued employment costs	(8)		—		(8)

Other current liabilities	(9)		3		(6)



Other non-current liabilities	(21)		—		(21)

Net identifiable assets acquired	476		12		488
Goodwill	279		14		293
Total net assets acquired	$	755	$	26	$	781

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 Cliffs Series B Participating Redeemable Preferred Stock issued	738
Fair value of settlement of a pre-existing relationship	237
Cash consideration	639
Total purchase consideration	$	2,604

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

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
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 cash consideration was 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
Cash consideration pursuant to working capital adjustments	(48)
Total cash consideration	$	639

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

VALUATION ASSUMPTION AND PURCHASE PRICE ALLOCATION

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 stock	618
Other	3
Total purchase consideration	$	1,535

The fair value of AK Steel's debt included in the consideration was calculated as follows:


(In millions)
Credit Facility	$	590
7.500% Senior Secured Notes due July 2023	324
Fair value of debt included in consideration	$	914

Summary of Purchase Price Allocated to Identifiable Intangible Assets and Liabilities Acquired

The purchase price allocated to identifiable intangible assets acquired was:


	(In millions)		Weighted Average Life (In years)
Customer relationships	$	13	15
Supplier relationships	29		18
Trade names and trademarks	7		15
Total identifiable intangible assets	$	49	17

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

Summary of the Purchase Price Allocation to Assets Acquired and Liabilities Assumed

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	$	—	$	35
Accounts receivable, net	349		(3)		346
Inventories	2,115		14		2,129
Other current assets	34		2		36
Property, plant and equipment	4,017		387		4,404
Deferred income taxes	—		285		285
Other non-current assets	158		7		165
Accounts payable	(736)		8		(728)
Accrued employment costs	(271)		5		(266)
State and local taxes	(76)		—		(76)
Other current liabilities	(453)		23		(430)

Pension liability, non-current	(730)		—		(730)
OPEB liability, non-current	(2,465)		—		(2,465)
Other non-current liabilities	(598)		(171)		(769)
Noncontrolling interest	(13)		21		8
Net identifiable assets acquired	1,366		578		1,944
Goodwill	1,230		(570)		660
Total net assets acquired	$	2,596	$	8	$	2,604

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)
State and local taxes	(35)		4		(31)
Other current liabilities	(276)		2		(274)
Long-term debt	(1,179)		—		(1,179)
Pension liability, non-current	(473)		10		(463)
OPEB liability, non-current	(400)		(8)		(408)
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 Common Shares Issues upon Completion of Merger

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 was 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
Shares 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 outstanding AK Steel common stock	$	618

Summary of Unaudited Pro Forma Financial Information

The following table provides unaudited pro forma financial information, prepared in accordance with Topic 805, as if ArcelorMittal USA and AK Steel had been acquired as of January 1, 2019:


	Year Ended
(In millions)	December 31, 2020
Revenues	$	12,837
Net loss attributable to Cliffs shareholders	(520)

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	$	13,549
Net income (loss) attributable to Cliffs shareholders	3,074		(526)