CLEVELAND-CLIFFS INC., 10-K filed on 2/26/2021
Annual Report
v3.20.4
Cover - USD ($)
12 Months Ended
Dec. 31, 2020
Feb. 24, 2021
Jun. 30, 2020
Cover [Abstract]      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Dec. 31, 2020    
Document Transition Report false    
Entity File Number 1-8944    
Entity Registrant Name CLEVELAND-CLIFFS INC.    
Entity Incorporation, State or Country Code OH    
Entity Tax Identification Number 34-1464672    
Entity Address, Address Line One 200 Public Square,    
Entity Address, City or Town Cleveland,    
Entity Address, State or Province OH    
Entity Address, Postal Zip Code 44114-2315    
City Area Code 216    
Local Phone Number 694-5700    
Title of 12(b) Security Common Shares, par value $0.125 per share    
Trading Symbol CLF    
Security Exchange Name NYSE    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
ICFR Auditor Attestation Flag true    
Entity Shell Company false    
Entity Public Float     $ 2,171,029,299
Entity Common Stock, Shares Outstanding   498,885,558  
Entity Central Index Key 0000764065    
Current Fiscal Year End Date --12-31    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
Amendment Flag false    
Documents Incorporated by Reference [Text Block] Portions of the registrant’s proxy statement for its 2021 annual meeting of shareholders are incorporated by reference into Part III.    
v3.20.4
Statements Of Condensed Consolidated Financial Position - USD ($)
$ in Millions
Dec. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 112 $ 353
Accounts receivable, net 1,169 94
Inventories 3,828 317
Income tax receivable, current 24 59
Other current assets 165 75
Total current assets 5,298 898
Non-current assets:    
Property, plant and equipment, net 8,743 1,929
Goodwill 1,406 2
Deferred income taxes 537 460
Other non-current assets 787 215
TOTAL ASSETS 16,771 3,504
Current liabilities:    
Accounts payable 1,575 193
Accrued employment costs 460 67
State and local taxes 147 38
Pension and OPEB liabilities, current 151 4
Other current liabilities 596 107
Total current liabilities 2,929 409
Non-current liabilities:    
Long-term debt 5,390 2,114
Pension and OPEB liabilities, non-current 4,113 312
Other non-current liabilities 1,260 311
TOTAL LIABILITIES 13,692 3,146
Commitments and contingencies (See Note 21)
Series B Participating Redeemable Preferred Stock - no par value. Authorized, Issued and Outstanding - 583,273 738 0
Equity:    
Common Shares - par value $0.125 per share, Authorized - 600,000,000 shares (2019 - 600,000,000 shares); Issued - 506,832,537 shares (2019 - 301,886,794) shares); Outstanding - 477,517,372 shares (2019 - 270,084,005) shares) 63 37
Capital in excess of par value of shares 5,431 3,873
Retained deficit (2,989) (2,842)
Cost of 29,315,165 common shares in treasury (2019 - 31,802,789 shares) (354) (391)
Accumulated other comprehensive loss (133) (319)
Total Cliffs shareholders' equity 2,018 358
Noncontrolling interest 323 0
TOTAL EQUITY 2,341 358
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND EQUITY $ 16,771 $ 3,504
v3.20.4
Statements Of Condensed Consolidated Financial Position (Parenthetical) - $ / shares
Dec. 31, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Temporary Equity, Par or Stated Value Per Share $ 0  
Temporary Equity, Shares Authorized 583,273  
Temporary Equity, Shares Issued 583,273  
Temporary Equity, Shares Outstanding 583,273  
Common shares, par value $ 0.125  
Common shares, authorized (in shares) 600,000,000 600,000,000
Common shares, issued (in shares) 506,832,537 301,886,794
Common shares, outstanding (in shares) 477,517,372 270,084,005
Common shares in treasury 29,315,165 31,802,789
v3.20.4
Statements Of Condensed Consolidated Operations - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Income Statement [Abstract]      
Revenues $ 5,319.0 $ 1,990.0 $ 2,332.0
Realization of Deferred Revenue 35.0 0.0 0.0
Operating Costs:      
Cost of goods sold (5,102.0) (1,414.0) (1,523.0)
Selling, general and administrative expenses (244.0) (113.0) (113.0)
Acquisition-related costs (90.0) (7.0) 0.0
Miscellaneous – net (60.0) (27.0) (23.0)
Total operating costs (5,496.0) (1,561.0) (1,659.0)
Operating income (loss) (142.0) 429.0 673.0
Other income (expense):      
Interest expense, net (238.0) (101.0) (119.0)
Gain (loss) on extinguishment of debt 130.0 (18.0) (7.0)
Other non-operating income 57.0 3.0 18.0
Total other expense (51.0) (116.0) (108.0)
Income from continuing operations before income taxes (193.0) 313.0 565.0
Income tax benefit (expense) 111.0 (18.0) 475.0
Income (loss) from continuing operations (82.0) 295.0 1,040.0
Income (loss) from discontinued operations, net of tax 1.0 (2.0) 88.0
Net income (loss) (81.0) 293.0 1,128.0
Income attributable to noncontrolling interest (41.0) 0.0 0.0
Net income (loss) attributable to Cliffs shareholders $ (122.0) $ 293.0 $ 1,128.0
Earnings (loss) per common share attributable to Cliffs shareholders - basic      
Continuing operations $ (0.32) $ 1.07 $ 3.50
Discontinued operations 0 (0.01) 0.30
Decrease in basic earnings per common share (0.32) 1.06 3.80
Earnings (loss) per common share attributable to Cliffs shareholders - diluted      
Continuing operations (0.32) 1.04 3.42
Discontinued operations 0 (0.01) 0.29
Decrease in diluted earnings per common share $ (0.32) $ 1.03 $ 3.71
v3.20.4
Statements Of Condensed Consolidated Comprehensive Income - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement of Comprehensive Income [Abstract]      
Net income (loss) $ (81) $ 293 $ 1,128
Other comprehensive income (loss):      
Changes in pension and OPEB, net of tax 181 (35) (17)
Changes in foreign currency translation 3 0 (225)
Changes in derivative financial instruments, net of tax 2 0 (3)
Total other comprehensive income (loss) 186 (35) (245)
Comprehensive income 105 258 883
Comprehensive income attributable to noncontrolling interests (41) 0 0
Comprehensive income attributable to Cliffs shareholders $ 64 $ 258 $ 883
v3.20.4
Statements Of Condensed Consolidated Cash Flows - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
OPERATING ACTIVITIES      
Net income (loss) $ (81) $ 293 $ 1,128
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:      
Depreciation, depletion and amortization 308 85 89
Amortization of Inventory Step-up 96 0 0
Deferred income taxes (101) 17 (461)
Loss (gain) on extinguishment of debt (130) 18 7
Loss (gain) on derivatives (104) 47 (110)
Gain on foreign currency translation 0 0 (228)
Other 11 66 21
Changes in operating assets and liabilities, net of business combination:      
Receivables and other assets (42) 255 52
Inventories (146) (136) 44
Pension and OPEB payments and contributions (75) (20) (32)
Payables, accrued expenses and other liabilities 3 (62) (31)
Net cash provided (used) by operating activities (261) 563 479
INVESTING ACTIVITIES      
Purchase of property, plant and equipment (525) (656) (296)
Other investing activities 10 12 23
Net cash used by investing activities (2,042) (644) (273)
FINANCING ACTIVITIES      
Repurchase of common shares 0 (253) (48)
Dividends paid (41) (72) 0
Proceeds from issuance of debt 1,763 721 0
Debt issuance costs (76) (7) (2)
Repurchase of debt (1,023) (729) (235)
Borrowings under credit facilities 2,060 0 0
Repayments under credit facilities (550) 0 0
SunCoke Middletown distributions to noncontrolling interest owners (61) 0 0
Other financing activities (13) (54) (91)
Net cash provided (used) by financing activities 2,059 (394) (376)
Decrease in cash and cash equivalents, including cash classified within other current assets related to discontinued operations (3) (5) (17)
Less: decrease in cash and cash equivalents from discontinued operations, classified within other current assets 0 0 (2)
Net decrease in cash and cash equivalents (244) (475) (172)
Cash and cash equivalents at beginning of year 353 823 978
Cash and cash equivalents at end of year 112 353 823
Net decrease in cash and cash equivalents (241) (470) (155)
ArcelorMittal USA [Member]      
INVESTING ACTIVITIES      
Payments to Acquire Businesses, Net of Cash Acquired (658) 0 0
AK Steel [Member]      
INVESTING ACTIVITIES      
Payments to Acquire Businesses, Net of Cash Acquired $ (869) $ 0 $ 0
v3.20.4
Statements of Consolidated Changes in Equity - USD ($)
$ in Millions
Total
AK Steel [Member]
ArcelorMittal USA [Member]
Common Stock [Member]
Common Stock [Member]
AK Steel [Member]
Common Stock [Member]
ArcelorMittal USA [Member]
Capital in Excess of Par Value of Shares [Member]
Capital in Excess of Par Value of Shares [Member]
AK Steel [Member]
Capital in Excess of Par Value of Shares [Member]
ArcelorMittal USA [Member]
Retained Earnings [Member]
Common Shares in Treasury [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Noncontrolling Interest [Member]
Noncontrolling Interest [Member]
AK Steel [Member]
Noncontrolling Interest [Member]
ArcelorMittal USA [Member]
Balance, beginning of period (in shares) at Dec. 31, 2017       297,000,000                      
Balance, beginning of period at Dec. 31, 2017 $ (445)     $ 37     $ 3,934     $ (4,207) $ (170) $ (39) $ 0    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                              
Adoption of accounting standard | Accounting Standards Update 2014-09 34                 34          
Comprehensive income 883                 1,128   (245) 0    
Stock and other incentive plans (in shares)       1,000,000                      
Stock and other incentive plans, APIC             (17)                
Stock and other incentive plans 14                   31        
Common stock repurchases (in shares)       (5,000,000)                      
Common stock repurchased (value) $ (47)                   (47)        
Common Stock, Dividends, Per Share, Declared $ 0.05                            
Common stock dividends $ (15)                 (15)          
Balance, end of period (in shares) at Dec. 31, 2018       293,000,000                      
Balance, end of period at Dec. 31, 2018 424     $ 37     3,917     (3,060) (186) (284) 0    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                              
Comprehensive income 258                 293   (35) 0    
Stock and other incentive plans (in shares)       2,000,000                      
Stock and other incentive plans, APIC             (44)                
Stock and other incentive plans 4                   48        
Common stock repurchases (in shares)       (24,000,000)                      
Common stock repurchased (value) $ (253)                   (253)        
Common Stock, Dividends, Per Share, Declared $ 0.27                            
Common stock dividends $ (75)                 (75)          
Balance, end of period (in shares) at Dec. 31, 2019 270,084,005     271,000,000                      
Balance, end of period at Dec. 31, 2019 $ 358     $ 37     3,873     (2,842) (391) (319) 0    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                              
Comprehensive income 105                 (122)   186 41    
Stock and other incentive plans (in shares)       2,000,000                      
Stock and other incentive plans, APIC             (24)                
Stock and other incentive plans $ 13                   37        
Stock Issued During Period, Shares, Acquisitions         127,000,000 78,000,000                  
Stock Issued During Period, Value, Acquisitions   $ 948 $ 1,003   $ 16 $ 10   $ 602 $ 980            
Noncontrolling Interest, Increase from Business Combination                           $ 330 $ 13
Common Stock, Dividends, Per Share, Declared $ 0.06                            
Common stock dividends $ (25)                 (25)          
Distributions of partnership equity $ (61)                       (61)    
Balance, end of period (in shares) at Dec. 31, 2020 477,517,372     478,000,000                      
Balance, end of period at Dec. 31, 2020 $ 2,341     $ 63     $ 5,431     $ (2,989) $ (354) $ (133) $ 323    
v3.20.4
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business, Consolidation and Presentation
Nature of Business
Cliffs is the largest flat-rolled steel producer in North America. Founded in 1847 as a mine operator, we are also the largest producer of iron ore pellets in North America. In 2020, we acquired two major steelmakers, AK Steel and ArcelorMittal USA, vertically integrating our legacy iron ore business. Our fully-integrated portfolio includes custom-made pellets and HBI; flat-rolled carbon steel, stainless, electrical, plate, tinplate and long steel products; as well as carbon and stainless steel tubing, hot and cold stamping and tooling. Headquartered in Cleveland, Ohio, we employ approximately 25,000 people across our mining, steel and downstream manufacturing operations in the United States and Canada.
Unless otherwise noted, discussion of our business and results of operations in this Annual Report on Form 10-K refers to our continuing operations.
Acquisition of AK Steel
On March 13, 2020, we consummated the AK Steel Merger, pursuant to which, upon the terms and subject to the conditions set forth in the AK Steel Merger Agreement, Merger Sub was merged with and into AK Steel, with AK Steel surviving the AK Steel Merger as a wholly owned subsidiary of Cleveland-Cliffs Inc. Refer to NOTE 3 - ACQUISITIONS for further information.
AK Steel is a North American producer of flat-rolled carbon, stainless and electrical steel products, primarily for the automotive, infrastructure and manufacturing markets. These operations consist primarily of seven steelmaking and finishing plants, two cokemaking operations, three tube manufacturing plants and ten tooling and stamping operations. The acquisition of AK Steel transformed us into a vertically integrated producer of value-added iron ore and steel products.
Acquisition of ArcelorMittal USA
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’s 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’s interests in Kote and Tek. Following the closing of the AM USA Transaction, we own 100% of the interests in Kote and Tek.
The assets of ArcelorMittal USA we acquired at the closing of the AM USA Transaction include six steelmaking facilities, eight finishing facilities, three cokemaking operations, two iron ore mining and pelletizing operations and one coal mining complex.
Refer to NOTE 3 - ACQUISITIONS for further information.
Business Operations
We are vertically integrated from the mining of iron ore and coal; to production of metallics and coke; through iron making, steelmaking, rolling and finishing; and to downstream tubular components, stamping and tooling. We have the unique advantage as a steel producer of being fully or partially self-sufficient with our production of raw materials for steel manufacturing, which includes iron ore pellets, HBI and coking coal.
We have updated our segment structure to coincide with our new business model and are organized into four operating segments based on differentiated products, Steelmaking, Tubular, Tooling and Stamping, and European Operations. Through the third quarter ended September 30, 2020, we had operated through two reportable segments – the Steel and Manufacturing segment and the Mining and Pelletizing segment. However, given the recent
transformation of the business, beginning with our financial statements as of and for the year ended December 31, 2020, we primarily operate through one reportable segment – the Steelmaking segment.
COVID-19
In response to the COVID-19 pandemic, we made various operational changes to adjust to the demand for our products. Although steel and iron ore production have been considered “essential” by the states in which we operate, certain of our facilities and construction activities were temporarily idled during the second quarter of 2020. Most of these temporarily idled facilities were restarted during the second quarter, and the remaining operations were restarted during the third quarter. Dearborn Works' hot strip mill, anneal and temper operations and AK Coal remain permanently idled as part of the permanent cost reduction efforts. Our Columbus and Monessen facilities acquired through the AM USA Transaction are temporarily idled due to the COVID-19 pandemic.
Basis of Consolidation
The condensed consolidated financial statements consolidate our accounts and the accounts of our wholly owned subsidiaries, all subsidiaries in which we have a controlling interest and VIEs for which we are the primary beneficiary. All intercompany transactions and balances are eliminated upon consolidation.
Investments in Affiliates
We have investments in several businesses accounted for using the equity method of accounting. These investments are included within our Steelmaking segment. We review an investment for impairment when circumstances indicate that a loss in value below its carrying amount is other than temporary. Investees and equity ownership percentages are presented below:
InvesteeEquity Ownership Percentage
Combined Metals of Chicago, LLC40.0%
Spartan Steel Coating, LLC48.0%
As of December 31, 2019, our 23% ownership in Hibbing was recorded as an equity method investment. As a result of the acquisition of ArcelorMittal USA, we acquired an additional 62.3% ownership interest in Hibbing. As of December 31, 2020, our ownership in the Hibbing joint venture was 85.3% and was fully consolidated within our operating results with a noncontrolling interest.
We recorded a basis difference for Spartan Steel of $33 million as part of the AK Steel Merger. The basis difference relates to the excess of the fair value over the investee's carrying amount of property, plant and equipment and will be amortized over the remaining useful lives of the underlying assets.
As of December 31, 2020, our investment in affiliates of $105 million was classified in Other non-current assets. As of December 31, 2019, our investment in affiliates of $18 million was classified in Other non-current liabilities.
Significant Accounting Policies
We consider the following policies to be beneficial in understanding the judgments involved in the preparation of our consolidated financial statements and the uncertainties that could impact our financial condition, results of operations and cash flows. Certain prior period amounts have been reclassified to conform with the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our mineral reserves; future realizable cash flow; environmental, reclamation and closure obligations; valuation of business combinations, long-lived assets, inventory, tax assets and post-employment, post-retirement and other employee benefit liabilities; reserves for contingencies and litigation require the use of various management estimates and assumptions. Actual results could differ from estimates. Management reviews its estimates on an ongoing basis. Changes in facts and circumstances may alter such estimates and affect the results of operations and financial position in future periods.
Business Combinations
Assets acquired and liabilities assumed in a business combination are recognized and measured based on their estimated fair values at the acquisition date, while the acquisition-related costs are expensed as incurred. Any excess of the purchase consideration when compared to the fair value of the net tangible and intangible assets acquired, if any, is recorded as goodwill. We engaged independent valuation specialists to assist with the determination of the fair value of assets acquired, liabilities assumed, noncontrolling interest, and goodwill, for the Acquisitions. If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be recorded. Subsequent to the acquisition date, and not later than one year from the acquisition date, we will record any material adjustments to the initial estimate based on new information obtained that would have existed as of the date of the acquisition. Any adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period the adjustment arises.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and on deposit as well as all short-term securities held for the primary purpose of general liquidity. We consider investments in highly liquid debt instruments with an original maturity of three months or less from the date of acquisition and longer maturities when funds can be withdrawn in three months or less without a significant penalty to be cash equivalents. We routinely monitor and evaluate counterparty credit risk related to the financial institutions in which our short-term investment securities are held.
Trade Accounts Receivable and Allowance for Credit Loss
Trade accounts receivable are recorded at the point control transfers and represent the amount of consideration we expect to receive in exchange for transferred goods and do not bear interest. We establish provisions for expected lifetime losses on accounts receivable at the time a receivable is recorded based on historical experience, customer credit quality and forecasted economic conditions. We regularly review our accounts receivable balances and the allowance for credit loss and establish or adjust the allowance as necessary using the specific identification method in accordance with CECL. We evaluate the aggregation and risk characteristics of receivable pools and develop loss rates that reflect historical collections, current forecasts of future economic conditions over the time horizon we are exposed to credit risk, and payment terms or conditions that may materially affect future forecasts.
Inventories
Inventories are generally stated at the lower of cost or net realizable value using average cost, excluding depreciation and amortization. Certain iron ore inventories are stated at the lower of cost or market using the LIFO method.
Refer to NOTE 2 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION for further information.
Derivative Financial Instruments and Hedging Activities
We are exposed to certain risks related to the ongoing operations of our business, including those caused by changes in commodity prices and energy rates. We have established policies and procedures, including the use of certain derivative instruments, to manage such risks, if deemed necessary.
Derivative financial instruments are recognized as either assets or liabilities in the Statements of Consolidated Financial Position and measured at fair value. On the date a qualifying hedging instrument is executed, we designate the hedging instrument as a hedge of the variability of cash flows to be received or paid related to a forecasted transaction (cash flow hedge). We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash flow hedges to specific firm commitments or forecasted transactions. We also formally assess, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of the related hedged items. When it is determined that a derivative is not highly effective as a hedge, we discontinue hedge accounting prospectively and record all future changes in fair value in the period of the instrument's earnings or losses.
For derivative instruments that have been designated as cash flow hedges, the changes in fair value are recorded in Accumulated other comprehensive loss. Amounts recorded in Accumulated other comprehensive loss are
reclassified to earnings or losses in the period the underlying hedged transaction affects earnings or when the underlying hedged transaction is no longer reasonably possible of occurring.
For derivative instruments that have not been designated as cash flow hedges, such as provisional pricing arrangements, changes in fair value are recorded in the period of the instrument's earnings or losses.
Refer to Revenue Recognition below for discussion of derivatives recorded as a result of pricing terms in our sales contracts. Additionally, refer to NOTE 15 - DERIVATIVE INSTRUMENTS for further information.
Property, Plant and Equipment
Our properties are stated at the lower of cost less accumulated depreciation. Depreciation of plant and equipment is computed principally by the straight-line method based on estimated useful lives. Depreciation continues to be recognized when operations are idled temporarily. Depreciation and depletion are recorded over the following estimated useful lives:
Asset ClassBasisLife
Land, land improvements and mineral rights
Land and mineral rightsUnits of productionLife of mine
Land improvementsStraight line
20 to 45 years
BuildingsStraight line
20 to 45 years
EquipmentStraight line/Double declining balance
3 to 20 years
Refer to NOTE 6 - PROPERTY, PLANT AND EQUIPMENT for further information.
Goodwill
Goodwill represents the excess purchase price paid over the fair value of the net assets during an acquisition. Goodwill is not amortized, but is assessed for impairment on an annual basis on October 1 (or more frequently if necessary).
Other Intangible Assets and Liabilities
Intangible assets and liabilities are subject to periodic amortization on a straight-line basis over their estimated useful lives as follows:
TypeBasisUseful Life
Intangible assets:
Customer relationshipsStraight line
18 years
Developed technologyStraight line
17 years
Trade names and trademarksStraight line
10 years
Mining permitsStraight lineLife of mine
Intangible liabilities:
Above-market supply contractsStraight lineContract term
Refer to NOTE 7 - GOODWILL AND INTANGIBLE ASSETS AND LIABILITIES for further information.
Leases
We determine if an arrangement contains a lease at inception. We recognize right-of-use assets and lease liabilities associated with leases based on the present value of the future minimum lease payments over the lease term at the commencement date. Lease terms reflect options to extend or terminate the lease when it is reasonably certain that the option will be exercised. For short-term leases (leases with an initial lease term of 12 months or less), right-of-use assets and lease liabilities are not recognized in the consolidated balance sheet, and lease expense is recognized on a straight-line basis over the lease term.
Refer to NOTE 13 - LEASE OBLIGATIONS for further information.
Asset Impairment
We monitor conditions that may affect the carrying value of our long-lived tangible and intangible assets when events and circumstances indicate that the carrying value of the asset groups may not be recoverable. In order to determine if assets have been impaired, assets are grouped and tested at the lowest level for which identifiable, independent cash flows are available ("asset group"). The measurement of the impairment loss to be recognized is based on the difference between the fair value and the carrying value of the asset group. Fair value can be determined using a market approach, income approach or cost approach.
For the years ended December 31, 2020, 2019 and 2018, no impairment indicators were present that would indicate the carrying value of any of our asset groups may not be recoverable; as a result, no impairment assessments were required.
Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures, establishes a three-level valuation hierarchy for classification of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our own views about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized below:
Level 1 — Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 — Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 — Valuation is based upon other unobservable inputs that are significant to the fair value measurement.
The classification of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement in its entirety.
Refer to NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS and NOTE 10 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS for further information.
Pensions and Other Postretirement Benefits
We offer defined benefit pension plans, defined contribution pension plans and OPEB plans, primarily consisting of retiree healthcare benefits as part of our total compensation and benefits programs.
We recognize the funded or unfunded status of our pension and OPEB obligations on our December 31, 2020 and 2019 Statements of Consolidated Financial Position based on the difference between the market value of plan assets and the actuarial present value of our retirement obligations on that date, on a plan-by-plan basis. If the plan assets exceed the pension and OPEB obligations, the amount of the surplus is recorded as an asset; if the pension and OPEB obligations exceed the plan assets, the amount of the underfunded obligations is recorded as a liability. Year-end balance sheet adjustments to pension and OPEB assets and obligations are recorded as Accumulated other comprehensive loss in the Statements of Consolidated Financial Position.
The actuarial estimates of the PBO and APBO incorporate various assumptions including the discount rates, the rates of increases in compensation, healthcare cost trend rates, mortality, retirement timing and employee turnover. The discount rate is determined based on the prevailing year-end rates for high-grade corporate bonds with a duration matching the expected cash flow timing of the benefit payments from the various plans. The remaining assumptions are based on our estimates of future events by incorporating historical trends and future expectations. The amount of net periodic cost that is recorded in the Statements of Consolidated Operations consists of several components including service cost, interest cost, expected return on plan assets, and amortization of previously unrecognized amounts. Service cost represents the value of the benefits earned in the current year by the participants. Interest cost represents the cost associated with the passage of time. Certain items, such as plan amendments, gains and/or losses resulting from differences between actual and assumed results for demographic
and economic factors affecting the obligations and assets of the plans, and changes in other assumptions are subject to deferred recognition for income and expense purposes. The expected return on plan assets is determined utilizing the weighted average of expected returns for plan asset investments in various asset categories based on historical performance, adjusted for current trends. Service costs are classified within Cost of goods sold, Selling, general and administrative expenses and Miscellaneous – net while the interest cost, expected return on assets, amortization of prior service costs/credits, net actuarial gain/loss, and other costs are classified within Other non-operating income.
Refer to NOTE 10 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS for further information.
Labor Agreements
At December 31, 2020, we employed approximately 25,000 people, of which approximately 18,500 were represented by labor unions under various agreements. We have agreements that will expire at five locations in 2021 and sixteen locations in 2022. Workers at some of our North American facilities are covered by agreements with the USW or other unions that have various expiration dates.
Asset Retirement Obligations
Asset retirement obligations are recognized when incurred and recorded as liabilities at fair value. The fair value of the liability is determined as the discounted value of the expected future cash flows. The asset retirement obligation is accreted over time through periodic charges to earnings. In addition, the asset retirement cost is capitalized and amortized over the life of the related asset. Reclamation costs are adjusted periodically to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. We review, on an annual basis, unless otherwise deemed necessary, the asset retirement obligation for each applicable operation in accordance with the provisions of ASC Topic 410, Asset Retirement and Environmental Obligations. We perform an in-depth evaluation of the liability every three years in addition to our routine annual assessments.
Future reclamation costs for inactive operations are accrued based on management’s best estimate at the end of each period of the costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing maintenance and monitoring costs. Changes in estimates at inactive operations are reflected in earnings in the period an estimate is revised.
Refer to NOTE 14 - ASSET RETIREMENT OBLIGATIONS for further information.
Environmental Remediation Costs
We have a formal policy for environmental protection and restoration. Certain of our operating activities are subject to various laws and regulations governing protection of the environment. We conduct our operations to protect the public health and environment and believe our operations are in compliance with applicable laws and regulations in all material respects. Our environmental liabilities, including obligations for known environmental remediation exposures, have been recognized based on the estimated cost of investigation and remediation at each site. If the cost can only be estimated as a range of possible amounts with no point in the range being more likely, the minimum of the range is accrued. Future expenditures are discounted unless the amount and timing of the cash disbursements cannot be reasonably estimated. It is possible that additional environmental obligations could be incurred, the extent of which cannot be assessed. Potential insurance recoveries have not been reflected in the determination of the liabilities.
Refer to NOTE 21 - COMMITMENTS AND CONTINGENCIES for further information.
Revenue Recognition
Sales are recognized when our performance obligations are satisfied. Generally, our performance obligations are satisfied, control of our products is transferred and revenue is recognized at a single point in time, when title transfers to our customer for product shipped according to shipping terms. Shipping and other transportation costs charged to customers are treated as fulfillment activities and are recorded in both revenue and cost of sales at the time control is transferred to the customer. Refer to NOTE 4 - REVENUES for further information.
Repairs and Maintenance
Repairs, maintenance and replacement of components are expensed as incurred. The cost of major equipment overhauls is capitalized and depreciated over the estimated useful life, which is the period until the next scheduled overhauls. All other planned and unplanned repairs and maintenance costs are expensed when incurred.
Share-Based Compensation
The fair value of each performance share grant is estimated on the date of grant using a Monte Carlo simulation to forecast relative TSR performance. A correlation matrix of historical and projected stock prices was developed for both the Company and its predetermined peer group of mining and metals companies. The fair value assumes that the performance objective will be achieved. The expected term of the grant represents the time from the grant date to the end of the service period. We estimate the volatility of our common shares and that of the peer group of mining and metals companies using daily price intervals for all companies. The risk-free interest rate is the rate at the grant date on zero-coupon government bonds, with a term commensurate with the remaining performance period.
The fair value of the restricted stock units is determined based on the closing price of our common shares on the grant date.
Upon vesting of share-based compensation awards, we issue shares from treasury shares before issuing new shares. Forfeitures are recognized when they occur.
The fair value of stock options is estimated on the date of grant using a Black-Scholes model using the grant date price of our common shares and option exercise price, and assumptions regarding the option’s expected term, the volatility of our common shares, the risk-free interest rate, and the dividend yield over the option’s expected term.
Refer to NOTE 11 - STOCK COMPENSATION PLANS for additional information.
Income Taxes
Income taxes are based on income for financial reporting purposes, calculated using tax rates by jurisdiction, and reflect a current tax liability or asset for the estimated taxes payable or recoverable on the current year tax return and expected annual changes in deferred taxes. Any interest or penalties on income tax are recognized as a component of Income tax benefit (expense).
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized within Net income (loss) in the period that includes the enactment date.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial results of operations.
Accounting for uncertainty in income taxes recognized in the financial statements requires that a tax benefit from an uncertain tax position be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on technical merits.
See NOTE 12 - INCOME TAXES for further information.
Discontinued Operations
During 2018, we committed to a course of action leading to the permanent closure of the Asia Pacific Iron Ore mining operations and sold all of the assets of our Asia Pacific Iron Ore business through a series of sales to third parties. As a result of our exit, management determined that our Asia Pacific Iron Ore mining operations met the criteria to be classified as held for sale and a discontinued operation under ASC Topic 205, Presentation of Financial
Statements. As such, all current and historical Asia Pacific Iron Ore operating results are classified within discontinued operations.
Foreign Currency
Our financial statements are prepared with the U.S. dollar as the reporting currency and the functional currency of all subsidiaries is the U.S. dollar, except for our European Operations for which the functional currency is the Euro. In August 2018, management determined that there were significant changes in economic factors related to our Australian subsidiaries. The change in economic factors was a result of the sale and conveyance of substantially all assets and liabilities of our Australian subsidiaries to third parties, representing a significant change in operations. As such, the functional currency for the Australian subsidiaries changed from the Australian dollar to the U.S. dollar and all remaining Australian denominated monetary balances will be remeasured prospectively through the Statements of Consolidated Operations.
As a result of the liquidation of the Australian subsidiaries' assets, the historical impact of foreign currency translation recorded in Accumulated other comprehensive loss in the Statements of Consolidated Financial Position of $228 million was reclassified and recognized as a gain in Income (loss) from discontinued operations, net of tax in the Statements of Consolidated Operations for the year ended December 31, 2018.
Earnings Per Share
We present both basic and diluted EPS amounts for continuing operations and discontinued operations. Total basic EPS amounts are calculated by dividing Net income (loss) attributable to Cliffs shareholders, less the earnings allocated to our Series B Participating Redeemable Preferred Stock, by the weighted average number of common shares outstanding during the period presented.
Total diluted EPS amounts are calculated by dividing Net income (loss) attributable to Cliffs shareholders by the weighted average number of common shares, common share equivalents under stock plans using the treasury-stock method, common share equivalents of the Series B Participating Redeemable Preferred Stock using the if-converted method and the calculated common share equivalents in excess of the conversion rate related to our 1.50% 2025 Convertible Senior Notes using the treasury-stock method. Common share equivalents are excluded from EPS computations in the periods in which they have an anti-dilutive effect.
See NOTE 8 - DEBT AND CREDIT FACILITIES and NOTE 20 - EARNINGS PER SHARE for further information.
Variable Interest Entities
We assess whether we have a variable interest in legal entities in which we have a financial relationship and, if so, whether or not those entities are VIEs. A VIE is an entity with insufficient equity at risk for the entity to finance its activities without additional subordinated financial support or in which equity investors lack the characteristics of a controlling financial interest. If an entity is determined to be a VIE, we evaluate whether we are the primary beneficiary. The primary beneficiary analysis is a qualitative analysis based on power and economics. We conclude that we are the primary beneficiary and consolidate the VIE if we have both (i) the power to direct the activities of the VIE that most significantly influence the VIE's economic performance and (ii) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. Refer to NOTE 19 - VARIABLE INTEREST ENTITIES for additional information.
Recent Accounting Pronouncements
Issued and Adopted
On March 2, 2020, the SEC issued a final rule that amended the disclosure requirements related to certain registered securities under SEC Regulation S-X, Rule 3-10, which required separate financial statements for subsidiary issuers and guarantors of registered debt securities unless certain exceptions are met. The final rule replaces the previous requirement under Rule 3-10 to provide condensed consolidating financial information in the registrant’s financial statements with a requirement to provide alternative financial disclosures (which include summarized financial information of the parent and any issuers and guarantors, as well as other qualitative disclosures) in either the registrant’s Management's Discussion and Analysis of Financial Condition and Results of Operations or its financial statements, in addition to other simplifications. The final rule is effective for filings on or after January 4, 2021, and early adoption is permitted. We elected to early adopt this disclosure update for the period ended March 31, 2020. As a result, we have excluded the footnote disclosures required under the previous Rule 3-10, and applied the final rule by including the summarized financial information and qualitative disclosures in Part II -
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K and Exhibit 22, filed herewith.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases except for short-term leases. For lessees, leases are classified as either operating or finance leases. We adopted this standard on its effective date of January 1, 2019 using the optional alternative approach, which requires application of the new guidance at the beginning of the standard's effective date. Adoption of the updated standard did not have a material effect on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which introduces a new accounting model, CECL. CECL requires earlier recognition of credit losses, while also providing additional transparency about credit risk. CECL utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. We elected to early adopt this standard on December 31, 2019. Upon adoption, the updated standard did not have a material effect on our consolidated financial statements.
Issued and Not Effective
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This update requires certain convertible instruments to be accounted for as a single liability measured at its amortized cost. Additionally, the update requires the use of the "if-converted" method, removing the treasury stock method, when calculating diluted shares. The two methods of adoption are the full and modified retrospective approaches. We expect to utilize the modified retrospective approach. Using this approach, the guidance shall be applied to transactions outstanding as of the beginning of the fiscal year in which the amendment is adopted. The final rule is effective for fiscal years beginning after December 15, 2021. Early adoption is permitted for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are continuing to evaluate the impact of this update to our consolidated financial statements and would expect to adopt at the required adoption date of January 1, 2022.
v3.20.4
SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION
12 Months Ended
Dec. 31, 2020
Disclosure Text Block [Abstract]  
Supplementary Financial Statement Information
Allowance for Credit Losses
The following is a roll-forward of our allowance for credit losses associated with Accounts receivable, net:
(In Millions)
20202019
Allowance for credit losses as of January 1$ $— 
Increase in allowance(5)— 
Allowance for credit losses as of December 31$(5)$— 
Inventories
The following table presents the detail of our Inventories in the Statements of Consolidated Financial Position:
(In Millions)
Year Ended December 31,
20202019
Product inventories
Finished and semi-finished goods$2,125 $114 
Work-in-process 69 
Raw materials1,431 
Total product inventories3,556 192 
Manufacturing supplies and critical spares272 125 
Inventories$3,828 $317 
The excess of current cost over LIFO cost of iron ore inventories was $104 million and $101 million at December 31, 2020 and 2019, respectively. As of December 31, 2020, the product inventory balance for iron ore inventories decreased, resulting in the liquidation of a LIFO layer. The effect of the inventory reduction was an increase in Cost of goods sold of $30 million in the Statements of Consolidated Operations for the year ended December 31, 2020. As of December 31, 2019, the product inventory balance for iron ore inventories increased, resulting in a LIFO increment in 2019. The effect of the inventory build was an increase in Inventories of $34 million in the Statements of Consolidated Financial Position for the year ended December 31, 2019.
The allowance for obsolete and surplus items in supplies and other inventories was $13 million at both December 31, 2020 and 2019.
Cash Flow Information
A reconciliation of capital additions to cash paid for capital expenditures is as follows:
(In Millions)
Year Ended December 31,
202020192018
Capital additions$483 $690 $395 
Less:
Non-cash accruals(86)15 94 
Right-of-use assets - finance leases44 29 
Grants (10)(3)
Cash paid for capital expenditures including deposits$525 $656 $296 
Cash payments (receipts) for interest and income taxes are as follows:
(In Millions)
202020192018
Taxes paid on income$5 $— $
Income tax refunds(120)(118)(11)
Interest paid on debt obligations net of capitalized interest1
170 98 106 
1 Capitalized interest was $53 million, $25 million and $7 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Non-Cash Investing and Financing Activities
(In Millions)
202020192018
Fair value of common shares issued as part of consideration in connection with AM USA Transaction$990 $— $— 
Fair value of Series B Participating Redeemable Preferred Stock issued as part of consideration in connection with AM USA Transaction738 — — 
Fair value of settlement of a pre-existing relationship as part of consideration in connection with AM USA Transaction237 — — 
Fair value of common shares issued as consideration in connection with AK Steel Merger618 — — 
Fair value of equity awards assumed in connection with AK Steel Merger4 — — 
Discontinued Operations
We had income from discontinued operations, net of tax of $88 million for the year ended December 31, 2018. During 2018, we sold all of the assets of our Asia Pacific Iron Ore mining operations, which had operating losses of $105 million for the year ended December 31, 2018. Additionally, as a result of the liquidation of the net assets of our Australian subsidiaries, the historical changes in foreign currency translation recorded in Accumulated other comprehensive loss totaling $228 million was reclassified and recognized as a gain in Income (loss) from discontinued operations, net of tax.
v3.20.4
ACQUISITIONS
12 Months Ended
Dec. 31, 2020
Business Combinations [Abstract]  
Business Combination Disclosure
In 2020, we acquired two major steelmakers, AK Steel 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; as well as carbon and stainless steel tubing, hot and cold stamping and tooling. The AK Steel Merger combined Cliffs, a producer of iron ore pellets, with AK Steel, 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 achieve improved 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’s 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’s interests in Kote and Tek. Following the closing of the AM USA Transaction, we own 100% of the interests in Kote and Tek.
Following the acquisition, the operating results of ArcelorMittal USA are included in our consolidated financial statements. For the period subsequent to the acquisition (December 9, 2020 through December 31, 2020), ArcelorMittal USA generated Revenues of $446 million and a loss of $40 million included within Net income (loss) attributable to Cliffs shareholders, which included $21 million related to amortization of the fair value inventory step-up.
Additionally, we incurred acquisition-related costs excluding severance costs of $26 million for the year ended December 31, 2020, which were recorded in Acquisition-related costs on the Statements of 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 
Fair value of Series B Participating Redeemable Preferred Stock issued738 
Fair value of settlement of a pre-existing relationship237 
Cash consideration (subject to customary working capital adjustments)631 
Total purchase consideration$2,596 
The fair value of Cliffs common shares issued is calculated as follows:
Number of Cliffs common shares issued78,186,671
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 issued583,273 
Redemption price 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 partners' interest of Kote and Tek182 
Estimated total cash consideration receivable(56)
Total estimated cash consideration$631 
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 agreement140 
Total fair value of settlement of a pre-existing relationship$237 
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, pension and OPEB liabilities, 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)
Cash and cash equivalents$35 
Accounts receivable, net349 
Inventories2,115 
Income tax receivable, current12 
Other current assets22 
Property, plant and equipment4,017 
Other non-current assets158 
Accounts payable(758)
Accrued employment costs(271)
State and local taxes(76)
Pension and OPEB liabilities, current(109)
Other current liabilities(322)
Pension and OPEB liabilities, non-current(3,195)
Other non-current liabilities(598)
Noncontrolling interest(13)
Net identifiable assets acquired1,366 
Goodwill1,230 
Total net assets acquired$2,596 
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 Steelmaking segment. Goodwill is expected to be deductible for U.S. federal income tax purposes.
Acquisition of AK Steel
Overview
On March 13, 2020, pursuant to the AK Steel Merger Agreement, we completed the acquisition of AK Steel, in which we were the acquirer. As a result of the AK Steel Merger, each share of AK Steel common stock issued and outstanding immediately prior to the effective time of the AK Steel 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.
Following the acquisition, the operating results of AK Steel are included in our consolidated financial statements. For the period subsequent to the acquisition (March 13, 2020 through December 31, 2020), AK Steel generated Revenues of $3,573 million and a loss of $302 million included within Net income (loss) attributable to Cliffs shareholders, which included $74 million and $35 million related to amortization of the fair value inventory step-up and severance costs, respectively.
Additionally, we incurred acquisition-related costs excluding severance costs of $26 million for the year ended December 31, 2020, which were recorded in Acquisition-related costs on the Statements of Consolidated Operations.
Refer to NOTE 8 - DEBT AND CREDIT FACILITIES for information regarding debt transactions executed in connection with the AK Steel Merger.
The AK Steel 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 Steel 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 Steel debt$914 
Fair value of Cliffs common shares issued for AK Steel outstanding common stock618 
Other
Total purchase consideration$1,535 
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 outstanding317 
Exchange ratio0.400 
Shares of Cliffs common shares issued to AK Steel stockholders127 
Price per share of Cliffs common shares$4.87 
Fair value of Cliffs common shares issued for outstanding AK Steel common stock$618 
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 2023324 
Fair value of debt included in consideration$914 
Valuation Assumption and Preliminary Purchase Price Allocation
We estimated fair values at March 13, 2020 for the preliminary allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed in connection with the AK Steel Merger. 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 AK Steel Merger, most notably, personal and real property, leases, deferred taxes, asset retirement obligations and intangible assets and liabilities, 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 AK Steel Merger was:
(In Millions)
Initial Allocation of ConsiderationMeasurement Period AdjustmentsUpdated Allocation
Cash and cash equivalents$38 $$39 
Accounts receivable, net666 (2)664 
Inventories1,563 (243)1,320 
Income tax receivable, current— 
Other current assets65 (16)49 
Property, plant and equipment2,184 128 2,312 
Deferred income taxes— 30 30 
Other non-current assets475 (3)472 
Accounts payable(636)(8)(644)
Accrued employment costs(94)(93)
State and local taxes(35)(31)
Pension and OPEB liabilities, current(75)(3)(78)
Other current liabilities(201)(196)
Long-term debt(1,179)— (1,179)
Pension and OPEB liabilities, non-current(873)(871)
Other non-current liabilities(507)72 (435)
Noncontrolling interest— (1)(1)
Net identifiable assets acquired1,394 (33)1,361 
Goodwill141 33 174 
Total net assets acquired$1,535 $— $1,535 
During the period subsequent to the AK Steel 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 Inventories measurement period adjustments of $243 million resulted in a favorable impact of $8 million to Cost of goods sold for the year ended December 31, 2020.
The goodwill resulting from the acquisition of AK Steel 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 Steel Merger is not expected be deductible for income tax purposes.
The preliminary 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 technology60 17
Trade names and trademarks11 10
Total identifiable intangible assets$148 17
Intangible liabilities:
Above-market supply contracts$(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 19 - 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 years ended December 31, 2020 and 2019, as if ArcelorMittal USA and AK Steel had been acquired as of January 1, 2019:
(In Millions)
Year Ended December 31,
20202019
Revenues$12,837 $17,163 
Net income (loss) attributable to Cliffs shareholders(520)(11)
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 Acquisitions occurred on January 1, 2019. Significant pro forma adjustments include the following:
1.The elimination of intercompany revenues between Cliffs and ArcelorMittal USA and AK Steel of $844 million and $1,499 million for the years ended December 31, 2020 and 2019, respectively.
2.The 2020 pro forma net loss was adjusted to exclude $96 million of non-recurring inventory acquisition accounting adjustments incurred during the year ended December 31, 2020. The 2019 pro forma net loss was adjusted to include $362 million of non-recurring inventory acquisition accounting adjustments for the year ended December 31, 2019.
3.The elimination of non-recurring transaction costs incurred by Cliffs, AK Steel and ArcelorMittal USA in connection with the Acquisitions were $93 million for the year ended December 31, 2020. The 2019 pro forma net loss was adjusted to include $93 million of non-recurring transaction cost adjustments for the year ended December 31, 2019.
4.The 2020 pro forma net loss was adjusted to exclude restructuring costs of $1,820 million of non-recurring costs incurred by ArcelorMittal USA prior to the AM USA Transaction.
5.The 2020 and 2019 pro forma net losses were adjusted to exclude $140 million and $129 million for the years ended December 31, 2020 and 2019, respectively, for the impact of reversal of the fees charged for management, financial and legal services under the Industrial Franchise Agreement with the former parent.
6.Total other pro forma adjustments included reduced expenses of $32 million for the year ended December 31, 2020, primarily due to decreased depreciation expense and pension and OPEB expense, offset partially by increased interest and amortization expense.
7.Total other pro forma adjustments included an expense of $76 million for the year ended December 31, 2019, primarily due to increased interest, amortization and pension and OPEB expense, offset partially by decreased depreciation expense.
8.The income tax impact of pro forma transaction adjustments that affect Net income (loss) attributable to Cliffs shareholders at a statutory rate of 24.3% resulted in an increased benefit to Income tax benefit (expense) of $170 million and $117 million for the years ended December 31, 2020 and 2019, respectively.
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 companies. This unaudited pro forma financial information should not be considered indicative of the results that would have actually occurred if the Acquisitions had been consummated on January 1, 2019, nor are they indicative of future results.
v3.20.4
REVENUES
12 Months Ended
Dec. 31, 2020
Revenue from Contract with Customer [Abstract]  
Revenue from Contract with Customer
We generate our revenue through product sales, in which shipping terms generally indicate when we have fulfilled our performance obligations and transferred control of products to our customer. Our revenue transactions consist of a single performance obligation to transfer promised goods. Our contracts with customers usually define the mechanism for determining the sales price, which is generally fixed upon transfer of control, but the contracts generally do not impose a specific quantity on either party. Quantities to be delivered to the customer are generally determined at a point near the date of delivery through purchase orders or other written instructions we receive from the customer. Spot market sales are made through purchase orders or other written instructions. We consider our performance obligation to be complete and recognize revenue when control transfers in accordance with shipping terms.
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring product. We reduce the amount of revenue recognized for estimated returns and other customer credits, such as discounts and volume rebates, based on the expected value to be realized. Payment terms are consistent with terms standard to the markets we serve. Sales taxes collected from customers are excluded from revenues.
Prior to the AM USA Transaction, we had a supply agreement with ArcelorMittal USA, which included supplemental revenue or refunds based on the HRC price in the year the iron ore was consumed in ArcelorMittal USA's blast furnaces. As control transferred prior to consumption, the supplemental revenue was recorded in accordance with Topic 815. All sales occurring subsequent to the AM USA Transaction are intercompany and eliminated in consolidation. Included within Revenues related to Topic 815 for the supplemental revenue portion of the supply agreement is derivative revenue of $122 million, $78 million and $426 million for the years ended December 31, 2020, 2019 and 2018, respectively.
The following table represents our Revenues by market:
(In Millions)
Year Ended December 31,
202020192018
Steelmaking:
Automotive$2,062 $— $— 
Infrastructure and manufacturing784 — — 
Distributors and converters696 — — 
Steel producers1
1,4231,990 2,332 
Total steelmaking4,965 1,990 2,332 
Other Businesses:
Automotive329 — — 
Infrastructure and manufacturing34 — — 
Distributors and converters26 — — 
Total Other Businesses389 — — 
Total revenues$5,354 $1,990 $2,332 
1 Includes Realization of deferred revenue of $35 million for the year ended December 31, 2020.
The following table represents our consolidated Revenues by product line:
(Dollars In Millions, Sales Volumes in Thousands)
Year Ended December 31,
202020192018
Revenue
Volume1
Revenue
Volume1
Revenue
Volume1
Steelmaking:
Hot-rolled steel$386 633 $— — $— — 
Cold-rolled steel490 682 — — — — 
Coated steel1,747 1,911 — — — — 
Stainless and electrical steel868 416 — — — — 
Other steel products92 141 — — — — 
Iron products2
1,335 11,707 1,990 18,583 2,332 20,563 
Other47 N/A— — — — 
Total steelmaking4,965 1,990 2,332 
Other Businesses:
Other389 N/A— N/A— N/A
Total revenues$5,354 $1,990 $2,332 
1 Carbon steel products, stainless and electrical steel and plate steel volumes are stated in net tons. Iron product volumes are stated in long tons.
2 Includes Realization of deferred revenue of $35 million for the year ended December 31, 2020.
Deferred Revenue
The table below summarizes our deferred revenue balances:
(In Millions)
Deferred Revenue (Current)Deferred Revenue (Long-Term)
2020201920202019
Opening balance as of January 1$22 $21 $26 $39 
Net increase (decrease)(15)(26)(13)
Closing balance as of December 31$7 $22 $ $26 
Prior to the AK Steel Merger, our iron ore pellet sales agreement with Severstal Dearborn, LLC, subsequently assumed by AK Steel, required supplemental payments to be paid by the customer during the period from 2009 through 2013. Installment amounts received under this arrangement in excess of sales were classified as deferred revenue in the Statements of Consolidated Financial Position upon receipt of payment and the revenue was recognized over the term of the supply agreement, which had extended until 2022, in equal annual installments. As a result of the termination of that iron ore pellet sales agreement, we realized $35 million of deferred revenue, which was recognized within Realization of deferred revenue in the Statements of Consolidated Operations during the year ended December 31, 2020.
We have certain other sales agreements that require customers to pay in advance. Payments received pursuant to these agreements prior to revenue being recognized are recorded as deferred revenue in Other current liabilities.
v3.20.4
SEGMENT REPORTING
12 Months Ended
Dec. 31, 2020
Segment Reporting [Abstract]  
SEGMENT REPORTING We are vertically integrated from the mining of iron ore and coal; to production of metallics and coke; through iron making, steelmaking, rolling, finishing; and to downstream tubing, stamping and tooling. We are organized into four operating segments based on our differentiated products - Steelmaking, Tubular, Tooling and Stamping, and European Operations. Our previous Mining and Pelletizing segment is included within the Steelmaking operating segment as iron ore pellets are a primary raw material for our steel products. We have one reportable segment - Steelmaking. The operating segment results of our Tubular, Tooling and Stamping, and European Operations that do not constitute reportable segments are combined and disclosed in the Other Businesses category. Our Steelmaking
segment is the largest flat-rolled steel producer supported by being the largest iron ore pellet producer in North America, primarily serving the automotive, infrastructure and manufacturing, and distributors and converters markets. Our Other Businesses primarily include the operating segments that provide customer solutions with carbon and stainless steel tubing products, advanced-engineered solutions, tool design and build, hot- and cold-stamped steel components, and complex assemblies. All intersegment transactions were eliminated in consolidation.
We evaluate performance on an operating segment basis, as well as a consolidated basis, based on Adjusted EBITDA, which is a non-GAAP measure. This measure is used by management, investors, lenders and other external users of our financial statements to assess our operating performance and to compare operating performance to other companies in the steel industry. In addition, management believes Adjusted EBITDA is a useful measure to assess the earnings power of the business without the impact of capital structure and can be used to assess our ability to service debt and fund future capital expenditures in the business.
Our results by segment are as follows:
(In Millions)
Year Ended December 31,
202020192018
Revenues:
Steelmaking1
$4,965 $1,990 $2,332 
Other Businesses389 — — 
Total revenues$5,354 $1,990 $2,332 
Adjusted EBITDA:
Steelmaking$433 $636 $872 
Other Businesses47 — — 
Corporate and eliminations(127)(111)(106)
Total Adjusted EBITDA$353 $525 $766 
1 Includes Realization of deferred revenue of $35 million for the year ended December 31, 2020.
The following table provides a reconciliation of our consolidated Net income (loss) to total Adjusted EBITDA:
(In Millions)
Year Ended December 31,
202020192018
Net income (loss)$(81)$293 $1,128 
Less:
Interest expense, net(238)(101)(121)
Income tax benefit (expense)111 (18)460 
Depreciation, depletion and amortization(308)(85)(89)
354 497 878 
Less:
EBITDA from noncontrolling interests1
56 — — 
Gain (loss) on extinguishment of debt130 (18)(7)
Severance costs(38)(2)— 
Acquisition-related costs excluding severance costs(52)(7)— 
Amortization of inventory step-up(96)— — 
Impact of discontinued operations1 (1)121 
Foreign exchange remeasurement — (1)
Impairment of other long-lived assets — (1)
Total Adjusted EBITDA$353 $525 $766 
1 EBITDA of noncontrolling interests includes $41 million for income and $15 million for depreciation, depletion and amortization for the year ended December 31, 2020.
The following table summarizes our depreciation, depletion and amortization and capital additions by segment:
(In Millions)
Year Ended December 31,
202020192018
Depreciation, depletion and amortization:
Steelmaking$276 $80 $68 
Other Businesses27 — — 
Corporate5 
Total depreciation, depletion and amortization$308 $85 $74 
Capital additions1:
Steelmaking$436 $687 $393 
Other Businesses45 — — 
Corporate2 
Total capital additions$483 $690 $395 
1 Refer to NOTE 2 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION for additional information.
The following summarizes our assets by segment:
(In Millions)
December 31,
20202019
Assets:
Steelmaking$15,849 $2,557 
Other Businesses239 — 
Total segment assets16,088 2,557 
Corporate683 947 
Total assets$16,771 $3,504 
Included in the consolidated financial statements are the following amounts relating to geographic location based on product destination:
(In Millions)
202020192018
Revenues:
United States$4,580 $1,505 $1,847 
Canada602 448 395 
Other countries172 37 90 
Total revenues$5,354 $1,990 $2,332 
Property, plant and equipment, net:
United States$8,647 $1,929 $1,286 
Canada91 — — 
Other countries5 — — 
Total property, plant and equipment, net$8,743 $1,929 $1,286 
v3.20.4
PROPERTY, PLANT AND EQUIPMENT
12 Months Ended
Dec. 31, 2020
Property, Plant and Equipment [Abstract]  
PROPERTY, PLANT AND EQUIPMENT
The following table indicates the carrying value of each of the major classes of our depreciable assets:
(In Millions)
December 31,
20202019
Land, land improvements, and mineral rights$1,213 $582 
Buildings703 158 
Equipment6,786 1,456 
Other151 101 
Construction in progress1,364 730 
Total property, plant and equipment1
10,217 3,027 
Allowance for depreciation and depletion(1,474)(1,098)
Property, plant, and equipment, net$8,743 $1,929 
1 Includes right-of-use assets related to finance leases of $361 million and $49 million as of December 31, 2020 and 2019, respectively.
We recorded depreciation expense of $298 million, $77 million and $66 million for the years ended December 31, 2020, 2019 and 2018, respectively.
We recorded capitalized interest into property, plant and equipment of $53 million, $25 million and $7 million during the years ended December 31, 2020, 2019 and 2018, respectively.
The net book value of the mineral and land rights are as follows:
(In Millions)
December 31,
20202019
Mineral rights:
Cost$773 $537 
Depletion(142)(134)
Net mineral rights$631 $403 
Land rights$361 $12 
We recorded depletion expense of $8 million, $8 million and $7 million for the years ended December 31, 2020, 2019, and 2018, respectively.
v3.20.4
GOODWILL AND INTANGIBLE ASSETS AND LIABILITIES
12 Months Ended
Dec. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets and Liabilities Disclosure
Goodwill
The following is a summary of goodwill by segment:
(In Millions)
December 31,
20202019
Steelmaking$1,232 $
Other Businesses174 — 
Total goodwill$1,406 $
The increase in the balance of goodwill in our Steelmaking segment as of December 31, 2020, compared to December 31, 2019, is due to the preliminary assignment of $1,230 million to Goodwill in 2020 based on the preliminary purchase price allocation for the acquisition of ArcelorMittal USA. The increase in the balance of goodwill for our Other Businesses as of December 31, 2020, compared to December 31, 2019, is due to the preliminary assignment of $174 million to Goodwill in 2020 based on the preliminary purchase price allocation for the acquisition of AK Steel, which was attributable to our Tubular and Tooling and Stamping operating segments.
Intangible Assets and Liabilities
The following is a summary of our intangible assets and liabilities:
(In Millions)
Classification1
Gross AmountAccumulated AmortizationNet Amount
As of December 31, 2020
Intangible assets:
Customer relationshipsOther non-current assets$77 $(3)$74 
TechnologyOther non-current assets60 (3)57 
Trade names and trademarksOther non-current assets11 (1)10 
Mining permitsOther non-current assets72 (25)47 
Total intangible assets$220 $(32)$188 
Intangible liabilities:
Above-market supply contractsOther non-current liabilities$(71)$7 $(64)
As of December 31, 2019
Intangible assets:
Mining permitsOther non-current assets$72 $(24)$48 
1 Amortization of intangible liabilities related to above-market supply contracts and intangible assets related to mining permits is recognized in Cost of goods sold. Amortization of all other intangible assets is recognized in Selling, general and administrative expenses.
Amortization expense related to intangible assets was $8 million and $1 million for the years ended December 31, 2020 and 2019, respectively. Estimated future amortization expense related to intangible assets is $10 million annually for the years 2021 through 2025.    
Income from amortization related to the intangible liabilities was $7 million for the year ended December 31, 2020. Estimated future amortization income related to the intangible liabilities is $8 million annually for the years 2021 through 2025.
v3.20.4
DEBT AND CREDIT FACILITIES
12 Months Ended
Dec. 31, 2020
Debt Disclosure [Abstract]  
DEBT AND CREDIT FACILITIES
The following represents a summary of our long-term debt:
(In Millions)
December 31, 2020
Debt Instrument
Issuer1
Annual Effective Interest RateTotal Principal AmountUnamortized Debt Issuance CostsUnamortized Premiums (Discounts)Total Debt
Senior Secured Notes:
4.875% 2024 Senior Secured NotesCliffs5.00%$395 $(3)$(1)$391 
9.875% 2025 Senior Secured NotesCliffs10.57%955 (8)(25)922 
6.75% 2026 Senior Secured NotesCliffs6.99%845 (20)(9)816 
Senior Unsecured Notes: