Annual report [Section 13 and 15(d), not S-K Item 405]

ACQUISITIONS

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ACQUISITIONS
 12 Months Ended
Dec. 31, 2024
Business Combinations [Abstract]  
Acquisitions
NOTE 3 - ACQUISITIONS
STELCO ACQUISITION OVERVIEW
On November 1, 2024, pursuant to the Arrangement Agreement, we completed the Stelco Acquisition, in which we were the acquirer. The Stelco Acquisition expands our existing presence in Canada and diversifies our customer base across service centers, construction and other industrial end markets with higher volumes of spot sales.
Following the Stelco Acquisition, the operating results of Stelco are included in our consolidated financial statements. For the period subsequent to the acquisition (November 1, 2024 through December 31, 2024), Stelco generated Revenues of $329 million and a loss of $58 million included within Net income (loss) attributable to Cliffs shareholders.
Additionally, we incurred acquisition related costs of $42 million for the year ended December 31, 2024, in connection with the Stelco Acquisition, which were recorded in Acquisition-related costs on the Statements of Consolidated Operations.
The Stelco Acquisition 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)
Total cash consideration $ 2,450 
Total share exchange consideration 343 
Total debt consideration 415 
Total purchase consideration $ 3,208 
Total consideration shares are calculated as follows:
Number of outstanding Stelco shares 54,448,388 
Number of outstanding share-based compensation awards 2,516,415 
Total consideration shares 56,964,803 
Total estimated cash consideration is calculated as follows:
Number of consideration shares 56,964,803 
Consideration share price per share (CAD) $ 60.00 
Total cash consideration (CAD) (in millions) 3,418 
Exchange rate (November 1, 2024) 0.7168 
Total cash consideration (USD) $ 2,450 
The fair value of share exchange consideration is as follows:
Number of consideration shares 56,964,803 
Fixed share exchange factor 0.454 
Total Cliffs exchange shares 25,862,021 
Cliffs share price at closing date (November 1, 2024) $ 13.27 
Total share exchange consideration (in millions) $ 343 
The fair value of debt consideration includes outstanding obligations with preexisting change-in-control provisions requiring repayment at the time of closing. The debt consideration includes amounts repaid in connection with retiring Stelco's asset-based lending facility and inventory monetization arrangement.
VALUATION ASSUMPTION AND PURCHASE PRICE ALLOCATION
We estimated fair values at November 1, 2024 for the preliminary allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed in connection with the Stelco Acquisition. 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 Stelco Acquisition, most notably, inventories, personal and real property, leases, deferred taxes, employee benefit commitments, financing obligations, environmental obligations, asset retirement obligations and intangible assets, 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 Stelco Acquisition was:
(in Millions)
Cash and cash equivalents $ 341 
Accounts receivable 104 
Inventories 726 
Other current assets 107 
Property, plant and equipment 1,286 
Intangible assets 1,025 
Other non-current assets 250 
Accounts payable (212)
Accrued employment costs (29)
Accrued expenses (6)
Other current liabilities (71)
Pension and OPEB liability, non-current (14)
Deferred income taxes (449)
Asset retirement and environmental obligations (20)
Other non-current liabilities (616)
Net identifiable assets acquired 2,422 
Goodwill 786 
Total net assets acquired $ 3,208 
The goodwill resulting from the Stelco Acquisition primarily represents the growth opportunities through diversification within our customer base across service centers, construction and other industrial end markets with higher volumes of spot sales, as well as any synergistic benefits to be realized from the Stelco Acquisition within our Steelmaking segment. Goodwill is not expected to be deductible for U.S. federal income tax purposes.
The purchase price allocated to identifiable intangible assets acquired was:
(In millions) Weighted Average Life (In years)
Intangible assets:
Customer relationships 953 15
Trade names and trademarks 72 15
Total identifiable intangible assets $ 1,025  15
PRO FORMA RESULTS
The following table provides unaudited pro forma financial information, prepared in accordance with Topic 805, as if Stelco had been acquired as of January 1, 2023:
Year Ended December 31,
(In millions) 2024 2023
Revenues $ 20,874  $ 24,158 
Net income (loss) attributable to Cliffs shareholders (623) 216 
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 Stelco Acquisition occurred on January 1, 2023. Significant non-recurring pro forma adjustments include the following:
1.The 2024 pro forma net loss was adjusted to exclude $23 million of non-recurring inventory acquisition accounting adjustments incurred during the year ended December 31, 2024. The 2023 pro forma net income was adjusted to include $23 million of non-recurring inventory acquisition accounting adjustments for the year ended December 31, 2023.
2.The 2024 pro forma net loss was adjusted to exclude $63 million of transaction costs incurred by Cliffs and Stelco in connection with the Stelco Acquisition for the year ended December 31, 2024. The 2023 pro forma net income was adjusted to include $63 million of transaction cost adjustments for the year ended December 31, 2023.
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 company. This unaudited pro forma financial information should not be
considered indicative of the results that would have actually occurred if the Stelco Acquisition had been consummated on January 1, 2023, nor are they indicative of future results.