2020 Annual Report
Cleveland-Cliffs Share Performance vs. Peers
One Year
(percent change over 2020)
Three Year
(percent change over three years)
Five Year
(percent change over five years)
CLF
+73%
X
MT
+47%
+31%
STLD
+8%
NUE
– 5%
CLF
+84%
STLD
+47%
NUE
+31%
MT
X
+8%
– 5%
CLF
MT
X
+822%
+137%
+110%
STLD
+106%
NUE
+32%
Jan Apr Jun Sept Dec
Jan-18 Jul Dec Jun-19 Dec Jun-20 Dec
Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20
Message from the CEO
Dear Fellow Shareholders:
steel. Moreover, with the current scarcity of domestic
In the 173 years of our existence
as a company, 2020 proved
to be the most seminal year in
our history. In a year that will be
forever known for the COVID-19
pandemic, Cleveland-Cliffs
prime scrap in the marketplace, our timing to bring
this product to market in 2021 could not be better.
Very importantly, our Toledo plant is the first Direct
Reduction plant that was built with the capability to
utilize hydrogen as reductant, partially replacing natural
gas when hydrogen becomes commercially available.
transformed itself from a mining company supplying
With our leadership position in the steel industry, it is
iron ore pellets to North American steel companies
very important to acknowledge that climate change
into the largest flat-rolled steel producer in North
is one of the most important issues impacting our
America. This transformation was accomplished
industry and our planet, and to take action to mitigate
through the acquisitions of AK Steel and ArcelorMittal
it. In January 2021, we announced our commitment
USA, allowing us to combine many of the best assets,
to reduce greenhouse gas emissions by 25% by the
capabilities and technology in the domestic steel
year 2030. This commitment will cover both Scope
industry. With our much larger operational footprint, we
1 and Scope 2 emissions across our company. We
anticipate significant synergies from asset optimization,
will continue to prioritize the environmentally and
economies of scale and streamlining overhead.
socially responsible operation of the Cleveland-Cliffs
Our competitive advantage as an integrated steel
businesses, as we have done in the past.
company is based on our ability to operate the
As we look back on 2020, we cannot forget the
entire production flow from the extraction of iron
challenges triggered by the pandemic as it had a
ore, to steelmaking, rolling, coating, and all the way
significant impact on our business and operations.
downstream to the manufacturing of complex auto-
At the start of the pandemic, we quickly developed
parts and components. These resources provide us
proactive company-wide processes and protocols
with 100% of our iron ore requirements and maximum
that protected our employees while maintaining our
control of our costs and over the quality of our
productivity. Our decisive action was key in driving
products. Another differentiating factor of Cleveland-
our business achievements. We experienced minimal
Cliffs is that we prioritize value over volume and aim
business disruptions during the remainder of the year
for Return on Invested Capital. Not tonnage sold; not
and actually continued to lay the groundwork for our
market share. That is what makes us a shareholder
exponential growth.
friendly company.
On behalf of our 25,000 employees, thank you very
We also completed construction and began production
much for believing in manufacturing in the United
at our new Direct Reduction plant in Toledo, Ohio.
States and for supporting Cleveland-Cliffs.
This natural-gas-based plant is the most modern of
its kind in the world, and produces high-quality hot
briquetted iron (HBI) which is an environmentally
.
friendly alternative to scrap and imported pig iron used
in the steelmaking process. Both the production and
use of HBI supports our strategy to reduce greenhouse
Lourenco Goncalves
gas emissions associated with the production of
Chairman, President and Chief Executive Officer
1
Acquisitions Position Company
for Long-Term Success
In 2020, Cleveland-Cliffs transformed into the
Our legacy business of producing iron ore pellets,
largest flat-rolled steel producer in North America,
a primary steelmaking raw material input, enables
with 25,000 employees in the United States and
us to deliver the lowest cost production in the
Canada. Our strategic acquisitions of two major
industry, mitigating our exposure to external market
steelmakers uniquely position our company for
factors and price volatility. Moving forward, we are
accelerated growth and long-term success.
positioned for lower and more predictable costs
Cleveland-Cliffs now has a presence across the
entire manufacturing process, which begins at
throughout the supply chain, enabling consistent
performance through market cycles.
the mining phase and goes all the way through
Cleveland-Cliffs serves a diverse range of markets
the manufacturing of steel products, including
due to our expanded portfolio of flat-rolled steel
stamping, tooling and tubing. Our operations
products. We have increased our industry-leading
include 21 steelmaking and finishing plants;
market share in the automotive sector and are the
five iron ore mining and pelletizing operations;
largest supplier of automotive-grade steel in the
one direct reduction facility; one coal mining
United States.
complex and five cokemaking operations; three
tube manufacturing plants; and ten tooling and
stamping operations. We have the scale and
technical capabilities necessary to compete in an
increasingly quality-focused marketplace.
We offer the most comprehensive flat-rolled
steel product selection in the industry, along with
several complementary products and services. Our
portfolio includes flat-rolled carbon steel, stainless,
Revenue
+750%
$17B
Flat-Rolled
Shipments
Pelletizing
Capabilities
+33%
16.5
16.5
mm
mm
tons
tons
28
mm
tons
21
mm
tons
$2B
FY 2019
Pro-Forma
0
FY 2019
Pro-Forma
FY 2019
Pro-Forma
2
electrical, plate, tinplate and
long steel products; carbon
and stainless steel tubing;
and hot and cold stamping
and tooling. With such an
expansive product mix, our
customers can frequently
find the solutions they need
from our offering and we
have the capacity to extend
our reach in new markets like
never before.
Direct Reduction Plant, Toledo, Ohio
Our Enduring Climate Commitment
At Cleveland-Cliffs, we acknowledge that one of
We are happy to report that the much-anticipated
the most important issues impacting our planet
HBI plant in Toledo, Ohio was completed in
is climate change. We also recognize that as a
November and is now operational. With the
major steel company, we are looked upon for our
opening of this facility, we have the distinction
leadership in this area.
of being the only company in the region with the
As a company with a strong track record of
capability to produce high-quality HBI.
environment stewardship, it is a role that we
Our commitment to HBI helps us meet our
embrace fully. In January 2021, we announced
environmental objectives on two fronts. First, our
an ambitious plan to reduce our greenhouse gas
Direct Reduction Plant uses natural gas. In fact,
(GHG) emissions by 25 percent by 2030.
natural gas and direct reduction-grade (DR-grade)
Renewing our pledge to operate our business in
a disciplined, environmentally responsible, and
socially conscious manner, we have identified five
strategic priorities to reach our 2030 objectives:
• Develop domestically sourced, high quality
iron ore pellets are the main raw materials used
in the process. Using natural gas—both as the
reducing gas for the process, as well as providing
heat for the process—allows our Direct Reduction
Plant to produce significantly less GHG emissions.
iron ore feedstock and utilize natural gas in the
Second, the use of high quality HBI over scrap
production of hot briquetted iron (HBI)
• Implement energy efficiency and clean energy
projects
• Invest in the development of carbon capture
technology
during our production of steel will help us reduce
emissions by as much one-third. As we begin
to sell this product to other manufacturers, the
positive environmental impact of this product will
broaden even further.
• Enhance our GHG emissions transparency and
At Cleveland-Cliffs, our commitment to
sustainability focus
• Support public policies that facilitate GHG
reduction in the domestic steel industry
Already, we have made substantial progress
sustainability is core to our values and business
operations. This commitment extends to our
partnerships with stakeholders and the steel value
creation chain. We remain committed to developing
sustainable solutions in the communities where we
towards these goals, especially as it relates to HBI.
operate, and we will continue to make investments
to reduce our environmental footprint.
5
Innovation: Essential to our Transformation
For more than a century, our company has been
collaboration, new products and processes are
committed to innovation. From upstream research
being developed more efficiently and are being
and development to downstream applications,
launched faster.
we have dedicated our technical and engineering
resources to anticipating our customers’ ever-
evolving needs.
For the mining segment, the Cliffs Technology
Group is spearheading efforts in product
development, process improvements, ore reserve
We fully understand that to maintain and expand
optimization, and cost reduction, to name a few.
our leadership status in this industry, we must be
the technological leader as well.
The best example of our commitment to innovation
in the year 2020 is the completion of the Direct
Our Research and Innovation Center (RIC), which
Reduction Plant. State of the art by every measure,
we acquired through AK Steel, is a shining example
this new facility is the most modern, efficient and
of our commitment. We continue to expand the
environmentally friendly Direct Reduction Plant in
capabilities of our 135,000 square foot state-of-
the world. With its opening, it makes Cleveland-
the-art facility to bring new steel products to the
Cliffs the only company in the Great Lakes region
marketplace. Here, our team has developed next-
to produce high-grade, ore-based metallics.
As we continue our historic transformation, we
recognize the role innovation will play in our success.
And we look forward to new breakthroughs that will
help our customers achieve their goals.
generation advanced high strength carbon and
specialty steels that allow automotive customers
to design lighter, more fuel-efficient vehicles that
maintain superior strength and safety performance.
RIC is also providing opportunities for joint
development projects. The Carbon and Stainless
Technical Symposia and other technical workshops
are hosted here, focusing on a wide range of
topics to help customers make steel work better.
With a culture focused on both innovation and
6
2020 Board of Directors
Executive Leadership
LOURENCO GONCALVES
Chairman, President and
Chief Executive Officer
DOUGLAS C. TAYLOR
Lead Director
JOHN T. BALDWIN
Director
ROBERT P. FISHER, JR.
Director
WILLIAM K. GERBER
Director
SUSAN M. GREEN
Director
M. ANN HARLAN
Director
LOURENCO GONCALVES
Chairman, President and
Chief Executive Officer
CLIFFORD T. SMITH
Executive Vice President,
Chief Operating Officer
KEITH A. KOCI
Executive Vice President,
Chief Financial Officer
TERRY G. FEDOR
Executive Vice President,
Chief Operating Officer, Steel Mills
JAMES D. GRAHAM
Executive Vice President,
Chief Legal Officer & Secretary
MAURICE D. HARAPIAK
Executive Vice President, Human Resources
& Chief Administration Officer
TRACI L. FORRESTER
Executive Vice President,
Business Development
RALPH S. MICHAEL, III
Director
BRIAN K. BISHOP
Senior Vice President, Commercial
JANET L. MILLER
Director
ERIC M. RYCHEL
Director
GABRIEL STOLIAR
Director
ARLENE M. YOCUM
Director
8
CELSO L. GONCALVES
Senior Vice President,
Finance & Treasurer
R. CHRISTOPHER CEBULA
Senior Vice President,
Chief Administration Officer, Steel Mills
WENDELL L. CARTER
Senior Vice President,
Flat Rolled Steel Operations
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number: 1-8944
CLEVELAND-CLIFFS INC.
(Exact name of registrant as specified in its charter)
Ohio
(State or Other Jurisdiction of
Incorporation or Organization)
200 Public Square, Cleveland, Ohio
(Address of Principal Executive Offices)
34-1464672
(I.R.S. Employer
Identification No.)
44114-2315
(Zip Code)
Registrant’s telephone number, including area code: (216) 694-5700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Shares, par value $0.125 per share
CLF
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in
Rule 12b-2 of the Exchange Act.
Yes ☒
Yes ☐
NO ☐
No ☒
Yes ☒
Yes ☒
No ☐
No ☐
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
As of June 30, 2020, the aggregate market value of the voting and non-voting common shares held by non-affiliates of the registrant, based on the closing price
of $5.52 per share as reported on the New York Stock Exchange — Composite Index, was $2,171,029,299 (excluded from this figure are the voting shares
beneficially owned by the registrant’s officers and directors).
The number of shares outstanding of the registrant’s common shares, par value $0.125 per share, was 498,885,558 as of February 24, 2021.
Yes ☐
No ☒
Portions of the registrant’s proxy statement for its 2021 annual meeting of shareholders are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Page Number
DEFINITIONS
PART I
Item 1.
Business
Information About Our Executive Officers
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
SIGNATURES
1
4
19
20
34
35
42
43
44
45
45
68
69
142
142
145
146
146
146
146
146
147
153
154
DEFINITIONS
The following abbreviations or acronyms are used in the text. References in this report to the “Company,” “we,” “us,” “our” and “Cliffs” are
to Cleveland-Cliffs Inc. and subsidiaries, collectively. References to “$” is to United States currency.
Abbreviation or acronym
Term
2012 Amended Equity Plan
Cliffs Natural Resources Inc. 2012 Incentive Equity Plan, as amended or amended and restated from time to time
A&R 2015 Equity Plan
Cliffs Natural Resources Inc. Amended and Restated 2015 Equity and Incentive Compensation Plan
ABL Amendment
ABL Facility
Acquisitions
Adjusted EBITDA
AG
AHSS
AK Coal
AK Steel
to Asset-Based Revolving Credit Agreement, dated as of December 9, 2020, among
Second Amendment
Cleveland-Cliffs Inc., the lenders party thereto from time to time and Bank of America, N.A., as administrative
agent
Asset-Based Revolving Credit Agreement, dated as of March 13, 2020, among Cleveland-Cliffs Inc., the lenders
party thereto from time to time and Bank of America, N.A., as administrative agent, as amended as of March 27,
2020, and December 9, 2020, and as may be further amended from time to time
The AK Steel Merger and AM USA Transaction, together
EBITDA, excluding certain items such as EBITDA of noncontrolling interests, extinguishment of debt, severance,
acquisition-related costs, amortization of inventory step-up, impacts of discontinued operations and intersegment
corporate allocations of selling, general and administrative costs
Autogenous grinding
Advanced high-strength steel
AK Coal Resources, Inc., an indirect, wholly owned subsidiary of AK Steel, and related coal mining assets
AK Steel Holding Corporation (n/k/a Cleveland-Cliffs Steel Holding Corporation) and its consolidated subsidiaries,
including AK Steel Corporation (n/k/a Cleveland-Cliffs Steel Corporation), its direct, wholly owned subsidiary,
collectively, unless stated otherwise or the context indicates otherwise
AK Steel Merger
The merger of Merger Sub with and into AK Steel, with AK Steel surviving the merger as a wholly owned
subsidiary of Cleveland-Cliffs Inc., subject to the terms and conditions set forth in the Merger Agreement,
consummated on March 13, 2020
AK Steel Merger Agreement
Agreement and Plan of Merger, dated as of December 2, 2019, among Cleveland-Cliffs Inc., AK Steel and Merger
Sub
AM USA Transaction
The acquisition of ArcelorMittal USA, consummated on December 9, 2020, and the entry into the ABL
Amendment, together
AM USA Transaction
Agreement
Transaction Agreement, dated as of September 28, 2020, by and between Cleveland-Cliffs Inc. and ArcelorMittal
S.A.
AMT
AOCI
APBO
ArcelorMittal
Alternative minimum tax
Accumulated other comprehensive income (loss)
Accumulated postretirement benefit obligation
ArcelorMittal S.A., a company organized under the laws of Luxembourg and the former ultimate parent company
of ArcelorMittal USA
ArcelorMittal USA
Substantially all of the operations of the former ArcelorMittal USA LLC, its subsidiaries and certain affiliates, and
Kote and Tek, collectively
ASC
ASTM
ASU
BART
BNSF
Board
CARES Act
CECL
CERCLA
CFR
Accounting Standards Codification
American Society for Testing and Materials
Accounting Standards Update
Best available retrofit technology
Burlington Northern Santa Fe, LLC
The Board of Directors of Cleveland-Cliffs Inc.
Coronavirus Aid, Relief, and Economic Security Act
Current expected credit losses
Comprehensive Environmental Response, Compensation and Liability Act of 1980
Cost and freight
Clean Water Act
Federal Water Pollution Control Act
CN
Canadian National Railway Company
Compensation Committee
Compensation and Organization Committee of the Board
COVID-19
Directors’ Plan
Dodd-Frank Act
DOE
DR-grade
EAF
EBITDA
A novel strain of coronavirus that the World Health Organization declared a global pandemic in March 2020
Cliffs Natural Resources Inc. Amended and Restated 2014 Nonemployee Directors’ Compensation Plan
Dodd-Frank Wall Street Reform and Consumer Protection Act
U.S. Department of Energy
Direct reduction-grade
Electric arc furnace
Earnings before interest, taxes, depreciation and amortization
EDC Revolving Facility
Credit Facility Agreement, dated November 9, 2020, among Export Development Canada and Cleveland-Cliffs
Inc.'s indirect, wholly owned subsidiaries, Fleetwood Metal Industries Inc. and The Electromac Group Inc.
EGLE
Michigan Department of Environment, Great Lakes and Energy
1
Abbreviation or acronym
Term
Empire
EPA
EPS
ERISA
Iron ore mining property owned by Empire Iron Mining Partnership, an indirect, wholly owned subsidiary of Cliffs
U.S. Environmental Protection Agency
Earnings per share
Employee Retirement Income Security Act of 1974, as amended
Exchange Act
Securities Exchange Act of 1934, as amended
FASB
Fe
FeT
FILO
FIP
FMSH Act
Former ABL Facility
GAAP
GHG
GOES
H/EV
HBI
Hibbing
HRC
IRB
IRC
IT
Kote and Tek
LIBOR
LIFO
Long ton
LS&I
Merger Sub
Metric ton
Minorca
MMBtu
MPCA
MSHA
Net ton
NOL
NOVs
NOx
NOES
Northshore
NPDES
NYSE
OPEB
OSHA
PBO
PHS
Financial Accounting Standards Board
Iron
Total iron
First-in, last-out
Federal implementation plan
Federal Mine Safety and Health Act of 1977, as amended
Amended and Restated Syndicated Facility Agreement, dated as of March 30, 2015, among Cleveland-Cliffs Inc.,
the subsidiary borrowers party thereto, the lenders party thereto and Bank of America, N.A., as administrative
agent, as amended and restated as of February 28, 2018, and as further amended, which was terminated on
March 13, 2020 in connection with entering into the ABL Facility
Accounting principles generally accepted in the United States
Greenhouse gas
Grain oriented electrical steel
Hybrid/electric vehicle
Hot briquetted iron
Iron ore mining property owned by Hibbing Taconite Company, an unincorporated joint venture between
subsidiaries of Cliffs and U.S. Steel
Hot-rolled coil steel
Industrial Revenue Bond
U.S. Internal Revenue Code of 1986, as amended
Information technology
I/N Kote L.P. (n/k/a Cleveland-Cliffs Kote L.P.) and I/N Tek L.P. (n/k/a Cleveland-Cliffs Tek L.P.), former joint
ventures between subsidiaries of the former ArcelorMittal USA LLC and Nippon Steel Corporation
London Interbank Offered Rate
Last-in, first-out
2,240 pounds
Lake Superior & Ishpeming Railroad Company
Pepper Merger Sub Inc., a direct, wholly owned subsidiary of Cliffs prior to the AK Steel Merger
2,205 pounds
Iron ore mining property owned by Cleveland-Cliffs Minorca Mine Inc. (f/k/a ArcelorMittal Minorca Mine Inc.), an
indirect, wholly owned subsidiary of Cliffs acquired in connection with the AM USA Transaction
Million British Thermal Units
Minnesota Pollution Control Agency
U.S. Mine Safety and Health Administration
2,000 pounds
Net operating loss
Notices of violations
Nitrogen oxide
Non-oriented electrical steel
Iron ore mining property owned by Northshore Mining Company, a direct, wholly owned subsidiary of Cliffs
National Pollutant Discharge Elimination System, authorized by the Clean Water Act
New York Stock Exchange
Other postretirement benefits
Occupational Safety and Health Administration
Projected benefit obligation
Press-hardened steel
Platts 62% price
Platts IODEX 62% Fe Fines CFR North China
PPI
Precision Partners
RCRA
RI/FS
Producer Price Indices
PPHC Holdings, LLC, an indirect, wholly owned subsidiary of AK Steel, and its subsidiaries, collectively, unless
stated otherwise or the context indicates otherwise
Resource Conservation and Recovery Act
Remedial Investigation/Feasibility Study
2
Abbreviation or acronym
Term
ROM
S&P
SEC
Section 232
Securities Act
SIP
STRIPS
Run-of-mine coal
Standard & Poor's
U.S. Securities and Exchange Commission
Section 232 of the Trade Expansion Act of 1962
Securities Act of 1933, as amended
State Implementation Plan
Separate Trading of Registered Interest and Principal of Securities
SunCoke Middletown
Middletown Coke Company, LLC, a subsidiary of SunCoke Energy, Inc.
Tilden
TMDL
Topic 805
Topic 815
TSR
Iron ore mining property owned by Tilden Mining Company L.C., an indirect, wholly owned subsidiary of Cliffs
Total maximum daily load
ASC Topic 805, Business Combinations
ASC Topic 815, Derivatives and Hedging
Total shareholder return
Tubular Components
Cleveland-Cliffs Tubular Components LLC (f/k/a AK Tube LLC), an indirect, wholly owned subsidiary of AK Steel
United Taconite
Iron ore mining property owned by United Taconite LLC, an indirect, wholly owned subsidiary of Cliffs
U.S.
U.S. Steel
USMCA
USW
VEBA
VIE
United States of America
U.S. Steel Corporation and its subsidiaries, collectively, unless stated otherwise or the context indicates otherwise
United States-Mexico-Canada Agreement
United Steelworkers
Voluntary employee benefit association trusts
Variable interest entity
3
Item 1.
Business
Introduction
PART I
Cliffs is the largest flat-rolled steel producer in North America. Founded in 1847 as a mine operator, we are
also the largest supplier 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 with quality-focused steel production and
emphasis on the automotive end market. 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.
On March 13, 2020, we completed the acquisition of AK Steel, a leading producer of flat-rolled carbon,
stainless and electrical steel products. These operations consist primarily of seven steelmaking and finishing plants,
two cokemaking operations, three tube manufacturing plants and ten tooling and stamping operations. The Tubular
Components and Precision Partners businesses provide customer solutions with carbon and stainless steel tubing
products, die design and tooling, and hot- and cold-stamped components.
On December 9, 2020, we completed the acquisition of ArcelorMittal USA. These operations include six
steelmaking facilities, eight finishing facilities, two iron ore mining and pelletizing operations, one coal mining complex
and three cokemaking operations. These assets build upon our existing high-end steelmaking and raw material
capabilities, and also open up new markets to us. The combination provides us additional scale and technical
capabilities necessary in a competitive and increasingly quality-focused marketplace.
Competitive Strengths
As the largest flat-rolled steel producer in North America, we benefit from having the size and scale necessary
in a competitive, capital intensive business. Our sizeable operating footprint provides us with the operational leverage,
flexibility and cost performance to achieve competitive margins throughout the business cycle. We also have a unique
vertically integrated profile, which begins at the mining stage and goes all the way through the manufacturing of steel
products, including stamping, tooling and tubing. This positioning gives us both lower and more predictable costs
throughout the supply chain and more control over both our manufacturing inputs and our end product destination.
Our legacy business of producing iron ore pellets, our primary steelmaking raw material
input, is another
competitive advantage. Mini-mills (producers using EAFs) comprise about 70% of steel production in the U.S. Their
primary iron input is scrap metal, which has unpredictable and often volatile pricing. By controlling our iron ore pellet
supply, our primary steelmaking raw material feedstock can be secured at a stable and predictable cost, and not
subject to factors outside of our control.
We are also the largest supplier of automotive-grade steel in the U.S. Compared to other steel end markets,
automotive steel is generally higher quality and more operationally and technologically intensive to produce. As such,
it often generates higher through-the-cycle margins, making it a desirable end market for the steel industry. With our
continued technological
innovation, as well as leading delivery performance, we expect to remain the leader in
supplying this industry.
We offer the most comprehensive flat-rolled steel product selection in the industry, along with several
complementary products and services. A sampling of this offering includes AHSS, hot-dipped galvanized, aluminized,
galvalume, electrogalvanized, galvanneal, HRC, cold-rolled coil, plate, tinplate, GOES, NOES, stainless steels, tool &
die, stamped components, rail and slabs. Across the quality spectrum and the supply chain, our customers can
frequently find the solutions they need from our product selection.
We are the first and the only supplier of HBI in the Great Lakes region. Construction of our Toledo, Ohio,
direct reduction plant was completed in the fourth quarter of 2020. From this modern plant, we offer a high-quality
scrap and pig iron alternative to the several EAFs in the region. Previously, ore-based metallics that compete with our
HBI had to be imported from locations like Russia, Ukraine and Brazil. With growing EAF capacity in the U.S. and
increasing tightness in the scrap market, we expect our Toledo direct reduction plant to generate healthy margins for
us going forward.
4
Strategy
Optimizing Our Fully-Integrated Steelmaking Footprint
We have transformed into a fully-integrated steel enterprise with the size and scale to achieve improved
through-the-cycle margins and are the largest flat-rolled steel producer in North America.
Now that the AM USA Transaction is completed, our focus is on the integration of these facilities within our
footprint. These assets build upon our existing high-end steelmaking and raw material capabilities, and also open up
new markets to us. The combination provides us the additional scale and technical capabilities necessary in a
competitive and increasingly quality-focused marketplace. We have ample opportunities to implement improvements
in logistics, procurement, utilization and quality.
We expect the AM USA Transaction to improve our production capabilities, flexibility, and cost performance.
We have identified approximately $150 million of potential cost synergies through asset optimization, economies of
scale, and duplicative overhead savings. The AM USA Transaction also enhances optionality for future production of
merchant pig iron to complement our HBI offering in the metallics space.
Maximizing Our Commercial Strengths
With the Acquisitions completed, we now have enhanced our offering to a full suite of flat steel products
encompassing all steps of the steel manufacturing process. We have increased our industry-leading market share in
the automotive sector, where our portfolio of high-end products will deliver a broad range of differentiated solutions for
this highly sought after customer base.
We believe we have the broadest flat steel product offering in North America, and can meet customer needs
from a variety of end markets and quality specifications. We have several finishing and downstream facilities with
advanced technological capabilities. We also pride ourselves on our excellent delivery performance, which provides
us opportunities to augment our relationships with current customers given our reputation as a reliable supplier.
We are also proponents of the “value over volume” approach in terms of steel supply. We take our leadership
role in the industry very seriously and intend to manage our steel output in a responsible manner.
Expanding to New Markets
Our Toledo direct reduction plant allows us to offer another unique, high-quality product to discerning raw
material buyers. EAF steelmakers primarily use scrap for their iron feedstock, and our HBI offers a sophisticated
alternative with less impurities, allowing other steelmakers to increase the quality of
their respective end-steel
products and reduce reliance on imported metallics.
The completed Acquisitions provide other potential outlets for HBI, as it can also be used in our integrated
steel operations to increase productivity and help to reduce carbon footprint, allowing for more cost efficient and
environmentally friendly steelmaking.
We are also seeking to expand our customer base with the rapidly growing and desirable electric vehicle
market. At this time, we believe the North American automotive industry is approaching a monumental inflection point,
with the adoption of electrical motors in passenger vehicles. As this market grows, it will require more advanced steel
applications to meet the needs of electric vehicle producers and consumers. With our unique technical capabilities, we
believe we are positioned better than any other North American steelmaker to supply the steel and parts necessary to
fill these needs.
Improving Financial Flexibility
Given the cyclicality of our business, it is important to us to be in the financial position to easily withstand any
negative demand or pricing pressure we may encounter. As such, our top priority for the allocation of our free cash
flow is to improve our balance sheet via the reduction of long-term debt. During the COVID-19 pandemic, we were
able to issue secured debt to provide insurance capital through the uncertain industry conditions that the pandemic
caused. Now that business conditions have improved and we expect to generate healthy free cash flow during 2021,
we have the ability to lower our long-term debt balance.
5
Our stated initial target will be to reduce total debt to less than three times our annual Adjusted EBITDA. We
will continue to review the composition of our debt, as we are interested in both extending our maturity profile and
increasing our ratio of unsecured debt to secured debt, which we demonstrated by executing a series of favorable
II – Item 7.
debt and equity capital markets transactions during February 2021, as described under Part
Management’s Discussion and Analysis of Financial Condition and Results of Operations. These actions will better
prepare us to navigate more easily through potentially volatile industry conditions in the future.
Enhance our Environmental Sustainability
As the Company transforms, our commitment
to operating our business in a more environmentally
responsible manner remains constant. One of the most important issues impacting our industry, our stakeholders and
our planet is climate change. As a result, we are continuing Cliffs’ proactive approach by announcing our plan to
reduce GHG emissions 25% from 2017 levels by 2030. This goal represents combined Scope 1 (direct) and Scope 2
(indirect) GHG emission reductions across all of our operations.
Prior to setting this goal with our newly acquired steel assets, we exceeded our previous 26% GHG reduction
target at our legacy facilities six years ahead of our 2025 goal. In 2019, we reduced our combined Scope 1 and Scope
2 GHG emissions by 42% on a mass basis from 2005 baseline levels. Our goal is to further reduce those emissions in
coming years.
Additionally, many of our steel assets have improved plant and energy efficiency through participation in
programs like the U.S. Department of Energy’s Better Plants program and the EPA’s Energy Star program. With our
longstanding focus on plant and energy efficiency, we aim to build on our previous successes across our newly
integrated enterprise.
Our GHG reduction commitment is based on executing the following five strategic priorities:
•
•
•
•
•
Developing domestically sourced, high quality iron ore feedstock and utilizing natural gas in the
production of HBI;
Implementing energy efficiency and clean energy projects;
Investing in the development of carbon capture technology;
Enhancing our GHG emissions transparency and sustainability focus; and
Supporting public policies that facilitate GHG reduction in the domestic steel industry.
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. As we expand our presence,
we believe such vertical
integration represents a sustainable business model that is in the best interest of all
stakeholders and the surest way to secure a long-term competitive advantage.
We strive to operate responsibly and produce more environmentally friendly iron ore pellets that enable
production of clean steel, which is also the most recycled material on the planet. Additionally, our investment in the
direct reduction plant in Toledo, Ohio, also helps to support environmental stewardship, as the production of HBI is
more environmentally friendly than its substitute, foreign pig iron. From a focus on key environmental processes, such
as steel recycling and water reuse, to corporate and social responsibility, sustainability is central to our values and
operations.
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.
6
The following table lists our main properties, their location and their products and services:
State/
Province
Property
Hibbing (85.3% ownership) Steelmaking Minnesota
Segment
Products and Services
Iron ore pellets
Minorca
Northshore
Tilden
Steelmaking Minnesota
Iron ore pellets
Steelmaking Minnesota
Iron ore pellets
Steelmaking Michigan
Iron ore pellets
United Taconite
Steelmaking Minnesota
Iron ore pellets
Empire (indefinitely idled)
Steelmaking Michigan
Iron ore pellets
Toledo
Princeton
Steelmaking Ohio
Steelmaking West Virginia
HBI
Coal
Mountain State Carbon
Steelmaking West Virginia
Coke
Monessen
Warren
Steelmaking Pennsylvania Coke
Steelmaking Ohio
Coke
Ashland Works (idled)
Steelmaking Kentucky
Burns Harbor
Steelmaking Indiana
Burns Harbor Plate and
Gary Plate
Steelmaking Indiana
Butler Works
Steelmaking Pennsylvania
Cleveland
Coatesville
Columbus
Steelmaking Ohio
Steelmaking Pennsylvania
Steelmaking Ohio
Conshohocken
Steelmaking Pennsylvania
Coshocton Works
Steelmaking Ohio
Dearborn Works
Steelmaking Michigan
Indiana Harbor
Steelmaking Indiana
Kote and Tek
Steelmaking Indiana
Mansfield Works
Steelmaking Ohio
Middletown Works
Steelmaking Ohio
Potential pig iron plant
Hot-rolled, cold-rolled, and hot-dipped galvanized sheet
and coke
Carbon steel plate, high-strength low alloy steel plate,
ASTM grades steel plate
Flat-rolled electrical and stainless steel, stainless and
carbon semi-finished slabs
Hot-rolled and hot-dipped galvanized sheet
Steel plate - carbon, high-strength low-alloy, commercial
allow, military alloy, flame-cut
Hot-dipped galvanized steel
Coiled and discrete plate, military alloy, commercial
alloy, heat-treated carbon
Flat-rolled stainless steel
Carbon semi-finished slabs, hot-dipped galvanized,
AHSS
Hot-rolled, cold-rolled and hot-dipped galvanized sheet
Cold-rolled, hot-dipped galvanized and galvannealed,
electrogalvanized coil
Semi-finished hot bands, high chrome ferritic and
martensitic stainless steels
Hot-rolled, cold-rolled, hot-dipped galvanized,
aluminized sheet and coke
Piedmont
Riverdale
Steelmaking North Carolina Plasma-cuts plate steel products into blanks
Steelmaking Illinois
Hot-rolled sheet
Rockport Works
Steelmaking Indiana
Cold-rolled carbon, coated and stainless steels
Steelton
Weirton
Zanesville Works
Tubular Components
Precision Partners
Steelmaking Pennsylvania Railroad rails, specialty blooms, flat bars
Steelmaking West Virginia
Tinplate, cold-rolled sheet
Steelmaking Ohio
Other
Businesses
Indiana and
Ohio
Other
Businesses
Ontario,
Alabama and
Kentucky
Electrical steels
AHSS tube, electric resistant welded tubing
Cold and hot stamp assembly solutions
7
Customers and Markets
We primarily sell our products to customers in four broad market categories: automotive; infrastructure and
manufacturing, which includes electrical power; distributors and converters; and steel producers, which consume iron
ore and metallics. The following table presents the percentage of our net sales to each of these markets during the
year:
Market
Automotive
Infrastructure and manufacturing
Distributors and converters
Steel producers
2020
45 %
15 %
13 %
27 %
Certain of our flat-rolled steel shipments are sold under fixed base price contracts. These contracts are
typically one year in duration and expire at various times throughout the year. Some of these contracts have a
surcharge mechanism that passes through certain changes in input costs. A certain portion of our flat-rolled steel
shipments are sold based on the spot market at prevailing market prices or under contracts that involve variable
pricing that is tied to an independently published steel index.
We sell our steel products principally to customers in North America. For the vast majority of international
sales, we are not the importer of record and do not bear the responsibility for paying any applicable tariffs.
Automotive Market
The automotive industry is our largest market, and we aim to address the principal needs of major automotive
manufacturers and their suppliers. We specialize in manufacturing difficult-to-produce, high-quality steel products,
combined with demanding delivery performance, customer technical support and collaborative relationships,
to
develop breakthrough steel solutions that help our customers meet their product requirements.
In addition, many of
our competitors do not have the capability to supply the full portfolio of products that we make for our automotive
customers, such as steel for exposed automotive applications, the most sophisticated grades of AHSS and value-
added stainless steel products. The exacting requirements for servicing the automotive market generally allows for
higher selling prices for products sold to that market than for the commodity types of carbon and stainless steels sold
to other markets.
In light of the automotive market’s importance to us, North American light vehicle production has a significant
impact on our total sales and shipments. North American light vehicle production for 2020 declined 20% to
approximately 13 million units from the prior year due to impacts of the COVID-19 pandemic, which forced businesses
to begin to shut down at the end of March 2020 until they slowly re-started near the end of the second quarter. During
the third quarter of 2020, auto makers saw the pent-up demand bring sales back to more normal levels as buyers and
dealers adapted to new procedures and virtual shopping. Fourth quarter 2020 sales were more in line with expected
sales for the time of year, but did not quite return to pre-COVID-19 levels. Currently, we are expecting North American
light vehicle production in 2021 to significantly increase and return to near 2019 levels, which to an extent depends on
continued demand, the level of fiscal stimulus provided under the new Biden Administration, timing of COVID-19
vaccination distribution and how quickly the economy recovers.
Furthermore, during 2020, consumer demand for sport utility vehicles, trucks, crossovers and larger vehicles
continued to increase while demand for smaller sedans and compact cars declined. We benefit from intentionally
targeting larger vehicle platforms to take advantage of consumer preferences, and we have focused on and have
been successful in getting sourced on numerous sport utility vehicles, truck, crossover and larger vehicle platforms.
As a result, a significant portion of the carbon automotive steel that we sell is used to produce these popular larger
vehicles. In addition to benefiting from our exposure to consumers’ strong demand for larger vehicles, these vehicles
also typically contain a higher volume of steel than smaller sedans and compact cars, providing us the opportunity to
sell a greater proportion of our steel products to our automotive customers.
Automotive manufacturers are under pressure to achieve heightened federally mandated fuel economy
standards (the Corporate Average Fuel Economy, or “CAFE,” standards). The CAFE standards generally require
automobile manufacturers to meet an average fuel economy goal across the fleet of vehicles they produce with
certain milestone dates. As a result, our automotive customers continue to explore various avenues for achieving the
standards, including light weighting components and developing more fuel-efficient engines. Light weighting efforts
include the use of alternatives to traditional carbon steels, such as AHSS and other materials. While this could reduce
the aggregate volume of steel consumed by the automotive industry, we expect that demand will increase for current
8
and next-generation AHSS and that our AHSS and other innovative steels will command higher margins. We are
collaborating with our automotive customers and their suppliers to develop innovative solutions using our
developments in light weighting, efficiency, and material strength and formability across our extensive product
portfolio, in combination with our automotive stamping and tube-making capabilities. We are also working with our
customers to develop steels with greater heat resistance for exhaust systems that support new, fuel-efficient engines
that run at higher temperatures.
Automotive manufacturers have also been increasing their development of H/EVs and battery electric
vehicles in order to meet the CAFE standards and growing customer adoption of H/EVs. Many motors used in H/EVs
being sold in the U.S. today are imported from foreign suppliers, but more local sourcing and manufacturing of motors
is expected to occur in the future. As the only North American producer of high-efficiency NOES, which is a critical
component of H/EV motors, we are positioned to potentially benefit from the growth of H/EVs going forward. We
believe our strong foundation in electrical steels and long-standing relationships with automotive manufacturers and
their suppliers will provide us with an advantage in this market as it continues to grow and mature. Likewise, the
growing customer adoption of H/EVs may also increase demand for improvements in the electric grid to support
higher demand for more extensive battery charging, which our GOES could support.
Infrastructure and Manufacturing Market
We sell a variety of our steel products, including plate, carbon, stainless, electrical, tinplate and rail, to the
infrastructure and manufacturing market. This market includes sales to manufacturers of heating, ventilation and air
conditioning equipment, appliances, power transmission and distribution transformers, storage tanks, ships and
railcars, wind towers, machinery parts, heavy equipment, military armor,
food preservation, and railway lines.
Domestic construction activity and the replacement of aging infrastructure directly affects sales of steel to this market.
During 2020, there were nearly 1.4 million new housing starts in the U.S., an increase of approximately 6% from 2019,
and home sales reached nearly 6 million, the highest annual mark since 2006, with the supply of existing homes
having reached all-time lows. The recent strength in home sales has been due to lower mortgage rates and remote
work flexibility and is expected to continue through 2021.
Distributors and Converters Market
Virtually all of the grades of steel we produce are sold to the steel distributors and converters market. This
market generally represents downstream steel service centers, who source various types of steel from us and
fabricate it according to their customers' needs. Our steel is typically sold to this market on a spot basis or under
short-term contracts linked to steel pricing indices. Demand and pricing for this market can be highly dependent on a
variety of factors outside our control, including global and domestic commodity steel production capacity, the relative
health of countries’ economies and whether they are consuming or exporting excess steel capacity, the provisions of
international trade agreements and fluctuations in international currencies and, therefore, are subject to market
changes in steel prices.
The price for domestic HRC, which is an important attribute in the profitability of this end market, averaged
$588 per net ton for the year ended December 31, 2020, 2% lower than the prior year. The price of HRC was
negatively impacted by lower demand related to the COVID-19 pandemic, and hit a low point of $438 per net ton on
April 30, 2020. However, as the industry recovered and supply-demand dynamics improved, the price rebounded
dramatically, rising to a peak of $1,030 per net ton by December 31, 2020 and reaching all time-highs early in 2021.
The improved pricing environment should bolster profitability for this end market during 2021.
Steel Producers Market
The steel producers market represents third-party sales to other steel producers, including those who operate
It includes sales of raw materials and semi-finished and finished goods, including iron ore
blast furnaces and EAFs.
pellets, coal, coke, HBI and steel products.
The merchant portion of our iron ore pellet production is sold pursuant to long-term supply agreements and
through spot contracts. Certain of our supply agreements contain a base price that is adjusted periodically as
specified by the contracts, using one or more adjustment factors. Factors that could result in price adjustments under
our contracts include changes in the Platts 62% price, published Platts international indexed freight rates and changes
in specified PPI, including those for industrial commodities, fuel and steel.
As a result of the Acquisitions, production from our iron ore mines is now predominantly consumed by our
newly acquired steelmaking operations. On a full-year basis, we would expect between 22 million and 24 million long
tons of our iron ore pellets to be consumed by our steelmaking operations. During 2020, 2019 and 2018, we sold 12
9
million, 19 million and 21 million long tons of iron ore product, respectively, to third parties from our share of
production from our iron ore mines.
We produce various grades of iron ore pellets, including standard, fluxed and DR-grade, for use as part of the
steelmaking process. The variation in grade of iron ore pellets results from the specific chemical and metallurgical
properties of the ores at each mine, the requirements of end users' steelmaking processes and whether or not
fluxstone is added in the process. Although the grade or grades of pellets currently delivered to each customer are
based on that customer’s preferences, which depend in part on the characteristics of the customer’s steelmaking
operation, in certain cases our iron ore pellets can be used interchangeably. Standard pellets require less processing,
are generally the least costly pellets to produce and are called “standard” because no ground fluxstone, such as
limestone or dolomite, is added to the iron ore concentrate before turning the concentrate into pellets.
In the case of
fluxed pellets, fluxstone is added to the concentrate, which produces pellets that can perform at higher productivity
levels in the customer’s specific blast furnace and will minimize the amount of fluxstone the customer may be required
to add to the blast furnace. DR-grade pellets require additional processing to make a pellet that contains higher iron
and lower silica content than a standard pellet. Unlike standard or fluxed pellets, DR-grade pellets are produced to be
fed into a direct reduction facility.
Beginning in 2021, we expect to also sell HBI to third-party customers, primarily EAFs with operations in the
Great Lakes region. We expect our Toledo direct reduction plant to begin shipping saleable product to third-party
customers during the first quarter of 2021. The Toledo direct reduction plant has a nameplate production capacity of
1.9 million metric tons, and we expect to reach its productive capacity by the second quarter of 2021.
Applied Technology, Research and Development
We have an extensive history of being an innovator dating back more than a century. From upstream
research and development, to downstream applications, we have dedicated technical and engineering resources that
begin with improving customers' production and manufacturing performance to applications for their end product use.
We have been a leader in iron ore mining and processing technology through the application of new
technology to the centuries-old business of mineral extraction. We have also been a pioneer in iron ore pelletizing
with over 60 years of experience. We are able to produce customized, environmentally friendly pellets to meet blast
furnace specifications and produce standard, fluxed and DR-grade pellets.
We now have a world-class research and development team expanding our capabilities to bring new steel
products to the marketplace. Rapidly evolving and highly competitive markets for our steel products require our
customers to seek new, comprehensive steel solutions, and we believe we are well positioned to deliver the most
robust solutions through our broad portfolio of offerings. Collaboration across our research groups and operations
generates innovative and comprehensive solutions for our customers, which we believe enhances our competitive
advantage.
Creating innovative products and breakthrough solutions is a strategic priority, as we believe differentiation
through producing higher value steels to meet challenging requirements enables us to maintain and enhance our
margins. We conduct a broad range of research and development activities aimed at improving existing products and
processes and developing new ones. Our innovation of steel has produced a highly diversified steel product portfolio.
As part of our underlying strategy to focus on higher-value materials and minimize exposure to commodity products,
we have invested in research and innovation totaling $15 million in 2020. Our ongoing efforts at our state-of-the-art
to enhance technical collaboration have increased the
Research and Innovation Center in Middletown, Ohio,
introduction of new steel solutions to the marketplace.
HBI
We are a pioneer in the development of emerging reduction technologies, a leader in the extraction of value
from challenging resources and a front-runner in the implementation of safe and sustainable technology. We are also
devoted to promoting environmental sustainability, evidenced with the development of our direct reduction plant in
Toledo, Ohio. We expect our introduction of HBI to the Great Lakes EAF market will be notable in the evolution of the
steel industry.
We completed construction of our Toledo direct reduction plant and began production in the fourth quarter of
2020. Our Toledo direct reduction plant is expected to produce 1.9 million metric tons of HBI per year, replacing a
portion of the over 3 million metric tons of ore-based metallics that are imported into the Great Lakes region every
year from Russia, Ukraine, Brazil and Venezuela, as well as approximately 20 million metric tons of scrap used in the
Great Lakes area every year.
10
Carbon Steel
We focus much of our
research and innovation efforts on carbon steel applications for automotive
manufacturers and their suppliers. We are particularly focused on AHSS for the automotive market, and we produce
virtually every AHSS grade currently used by our customers. Our AHSS grades, such as Dual Phase 590, 780, 980
and 1180, have been adopted by our customers for both stamped and roll-formed parts, and our NEXMET® 1000 and
1200 products have demonstrated enhanced strength, formability and opportunities for automotive light weighting in
cold-stamped applications. We are also pursuing application of NEXMET 440EX and NEXMET 490EX in surface-
critical, exposed auto body panels as an alternative to aluminum.
Third Generation Advanced High-Strength Steel
Our third generation NEXMET 1000 and NEXMET 1200 AHSS products enable our customers to achieve
significant light weighting in the unexposed structural components of their vehicles. NEXMET 1200, for example,
offers superior formability similar to conventional Dual Phase 600 steel, but at twice the strength level. We have
expanded the application of the NEXMET technology to our tubular products and stamped components businesses.
These AHSS products allow automotive engineers to design lightweight parts that meet rigorous service and safety
requirements. The NEXMET family of steels helps our customers achieve vehicle weight savings for ambitious fuel
efficiency standards while avoiding significant capital costs required to re-design production facilities to use alternative
materials.
Both galvanized and cold-rolled NEXMET 1000 and NEXMET 1200 AHSS are progressing through product
qualification with several original equipment manufacturer customers. A number of stamping and component
assembly trials have been completed successfully, with more planned and underway. Because the timing of
automotive design and production cycles spans several years, widespread automotive customer adoption of
revolutionary new material such as NEXMET AHSS may also extend over several years. We expect that other
automotive vehicle platforms will incorporate NEXMET AHSS in their designs and that NEXMET AHSS will become a
strong differentiator for us going forward.
Downstream Steel Applications
Our portfolio of steel solutions includes the operations of Precision Partners, which provides advanced-
engineered solutions, tool design and build, hot and cold-stamped components and complex assemblies for the
In addition to Precision Partners, our downstream operations include Tubular Components, which
automotive market.
manufactures advanced tubular products for automotive and other applications using carbon and stainless steels. We
believe that collaboration among our steelmaking operations and our downstream businesses can accelerate the
adoption of our innovative steel products by automotive manufacturers and their Tier 1 suppliers.
Our research and technical experts have undertaken numerous collaborative projects that are generating
robust solutions for our customers. Precision Partners’ expertise in tool design and stamping capabilities has allowed
us to create prototype components using AK Steel’s innovative new materials and present customers with new
potential steel solutions. This approach has and, we expect, will continue to demonstrate to customers that they can
significantly lightweight automotive parts on an accelerated timeline and in a cost-effective manner by using our highly
formable grades of AHSS in place of traditional material types.
In addition, our collaborative projects are enhancing our collective knowledge and experience in the stamping
of new, advanced grades of steel, advanced engineered solutions, and tool design and build. For example, Precision
Partners specializes in hot-stamping PHS for automotive applications. AK Steel’s experience as a leader in PHS and
Precision Partners’ expertise in hot-stamping has enabled these teams to have greater insight into these high-growth
areas and has accelerated product development and customer adoption of these automotive light weighting solutions.
Likewise, collaboration with Tubular Components strategically advances our mission to innovate in AHSS for the
automotive industry, as Tubular Components has been at the forefront of producing tubular products from third-
generation AHSS. We believe the combination of Precision Partners’ stamping and advanced die-making capabilities,
Tubular Component’s leading tube making capabilities and our breakthrough material introductions will enhance our
ability to deliver innovative, steel solutions to our customers.
Precision Partners has recently been awarded contracts with several customers to supply complex
assemblies and stamped automotive parts.
In winning these contracts, Precision Partners has been able to leverage
our hot-stamping tooling leadership, in addition to our innovative hot-stamping process, to capture new strategic
opportunities and demonstrate that Precision Partners is one of the few businesses in North America that has the
technical capabilities to produce a major complex assembly and stamping work of this nature.
11
Competition
We principally compete with domestic and foreign producers of flat-rolled carbon, plate, stainless, rail and
electrical steel, carbon and stainless tubular products, aluminum, carbon fiber, concrete and other materials that may
be used as a substitute for flat-rolled steels in manufactured products. Precision Partners and Tubular Components
both compete against other niche companies in highly fragmented markets.
Price, quality, on-time delivery, customer service and product innovation are the primary competitive factors in
the steel
industry and vary in importance according to the product category and customer requirements. Steel
producers that sell to the automotive market face competition from aluminum manufacturers (and, to a lesser extent,
other materials) as automotive manufacturers attempt to develop vehicles that will enable them to satisfy more
stringent, government-imposed fuel efficiency standards. To address automotive manufacturers’ light weighting needs
that the aluminum industry is targeting, we and others in the steel industry are developing AHSS grades that we
believe provide weight savings similar to aluminum, while being stronger, less costly, more sustainable, easier to
repair and more environmentally friendly. Aluminum penetration has been primarily limited to specific automotive
applications, such as outer panels and closures, rather than entire body designs.
In addition, our automotive
customers who continue to use steel, as opposed to aluminum and other alternative materials, are able to avoid the
significant capital expenditures required to re-tool their manufacturing processes to accommodate the use of non-steel
materials.
Mini-mills (producers using EAFs) comprise about 70% of steel production in the U.S. Their primary raw
material is scrap metal, which has unpredictable and often volatile pricing. Due to the announced mini-mill capacity
additions in the U.S. and increasing demand for scrap from China, we expect the price of scrap to remain elevated
over historical averages, providing our integrated footprint a competitive advantage. Mini-mills also generally offer a
narrower range of products than integrated steel mills, but the increasing use of pig iron and direct reduced iron have
enabled them to modestly expand their product capabilities in recent years. However, we believe mini-mills often do
not have the equipment capabilities to produce the product range that integrated facilities offer, nor do we believe they
possess our depth of customer service, technical support, and research and innovation.
including us,
Domestic steel producers,
face significant competition from foreign producers. For many
reasons, these foreign producers often are able to sell products in the U.S. at prices substantially lower than domestic
producers. Depending on the country of origin, these reasons may include government subsidies; lower labor, raw
material, energy and regulatory costs; less stringent environmental regulations; less stringent safety requirements; the
maintenance of artificially low exchange rates against the U.S. dollar; and preferential trade practices in their home
countries. Since late 2017, import levels of flat-rolled products into the United States have shown a gradual and
steady decline and have recently been more reflective of historical levels before the unprecedented surge that began
in 2014. We believe the decline is at least partially attributable to the implementation of certain trade restrictions on
imported steel over the past five years, including both targeted trade cases and the more broad Section 232 tariffs.
Modifications to these trade restrictions by government officials could directly or indirectly impact import levels in the
future. Import levels are also affected to varying degrees by the relative level of steel production in China and other
countries, the strength of demand for steel outside the U.S. and the relative strength or weakness of the U.S. dollar
into the U.S. accounted for approximately 18% of
against various foreign currencies.
domestic steel market consumption in 2020.
Imports of finished steel
We continue to provide significant pension and healthcare benefits to a great number of our retirees
compared to certain other domestic and foreign steel producers that do not provide such benefits to any or most of
their retirees, which increases our overall cost of production relative to certain other steelmakers. However, we have
taken a number of actions to reduce pension and healthcare benefits costs, including negotiating progressive labor
agreements that have significantly reduced total employment costs at all of our union-represented facilities,
transferring all responsibility for healthcare benefits for various groups of retirees to VEBAs, offering voluntary lump-
sum settlements to pension plan participants, lowering retiree benefit costs for salaried employees, and transferring
pension obligations to highly rated insurance companies. These actions have not only reduced some of the risks
associated with our pension fund obligations, but more importantly have reduced our risk exposure to performance of
the financial markets, which are a principal driver of pension funding requirements. We continue to actively seek
opportunities to reduce pension and healthcare benefits costs.
12
Environment
Our mining, steel and downstream manufacturing operations are subject to various laws and regulations
governing the protection of the environment. We monitor these laws and regulations, which change over time, to
assess whether the changes affect our operations. We conduct our operations in a manner that is protective of public
health and the environment.
Environmental matters and their management continued to be an important focus at each of our operations
throughout 2020, including operations at AK Steel (acquired in March 2020) and ArcelorMittal USA (acquired in
December 2020). In the construction and operation of our facilities, substantial costs have been and will continue to
be incurred to comply with regulatory requirements and avoid undue effect on the environment. In 2020, 2019, and
2018, our capital expenditures relating to environmental matters totaled approximately $34 million, $9 million, and $10
improvements in 2021 is
million, respectively. Our current estimate for capital expenditures for environmental
approximately $51 million for various water treatment, air quality, dust control,
tailings management and other
miscellaneous environmental projects. Additionally, we expect capital expenditures for environmental improvements
for each of 2022 and 2023 to be generally in line with 2021's estimated spending.
Regulatory Developments
Various governmental bodies continually promulgate new or amended laws and regulations that affect us, our
customers, and our suppliers in many areas, including waste discharge and disposal, the classification of materials
and products, air and water discharges and other environmental, health, and safety matters. Although we believe that
our environmental policies and practices are sound and do not expect that the application of any current laws,
regulations or permits would reasonably be expected to result in a material adverse effect on our business or financial
condition, we cannot predict the collective potential adverse impact of the expanding body of laws and regulations.
Moreover, because all domestic steel and mining producers operate under
the same federal environmental
regulations, we do not believe that we are more disadvantaged than our domestic competitors by our need to comply
with these regulations. Some foreign competitors may benefit from less stringent environmental requirements in the
countries where they produce, resulting in lower compliance costs for them and providing those foreign competitors
with a cost advantage on their products.
Specifically, there are several notable proposed or potential rulemakings or activities that could have a
material adverse impact on our facilities in the future depending on their ultimate outcome: Minnesota's potential
revisions to the sulfate wild rice water quality standard; evolving water quality standards for selenium and conductivity;
scope of the Clean Water Act and the definition of “Waters of the United States”; Minnesota's Mercury TMDL and
associated rules governing mercury air emission reductions; Climate Change and GHG Regulation; the Regional
Haze FIP Rule; and the regulation of discharges to groundwater.
Minnesota’s Sulfate Wild Rice Water Quality Standard
The Minnesota Governor established a Wild Rice Task Force by Executive Order in May 2018 that provided
recommendations to the Governor’s Office on wild rice restoration and regulation. The existing water quality standard
for wild rice has not been applied to any of our discharge permits or enforced in decades, and it may be
unenforceable because of legislation and because the water bodies to which the existing standard applies have never
been identified specifically in rule, nor are there criteria for identifying them. The MPCA is complying with the
legislation that prohibits enforcement of the water quality standard until the obsolete standard is updated based on
modern science. For these reasons, the impact of the proposed wild rice water quality standard to our Minnesota iron
ore mining and pelletizing operations is not estimable at this time, but it could have an adverse material impact if we
are required to significantly reduce sulfate in our discharges.
Selenium Discharge Regulation
In Michigan,
the Empire and Tilden mines have implemented compliance plans to manage selenium
according to the permit conditions. The remaining infrastructure needed for management of selenium in stormwater
will likely be completed in 2021. A water treatment system for both facilities is anticipated sometime before 2028. As of
December 31, 2020, included within our Empire asset retirement obligation is a discounted liability of approximately
$100 million, which includes the estimated costs associated with the construction of Empire's portion of the required
infrastructure and expected future operating costs of the treatment facilities. Additionally, included within our Tilden
future capital plan is approximately $20 million for the construction of Tilden's portion of the required infrastructure. We
are continuing to assess and develop cost effective and sustainable treatment technologies.
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In July 2016, the EPA published new selenium fish tissue limits and lower lentic and lotic water column
concentration criteria, which may someday increase the cost for treatment should EGLE adopt these new standards in
lieu of the existing limits required by the Great Lakes Water Quality Initiative. Accordingly, we cannot reasonably
estimate the timing or long-term impact of the water quality criteria to our business.
Mercury TMDL and Minnesota Taconite Mercury Reduction Strategy
In September 2014, Minnesota promulgated the Mercury Air Emissions Reporting and Reduction Rules
mandating mercury air emissions reporting and reductions from certain sources, including taconite facilities. The rule
is applicable to all of our Minnesota iron mining and pelletizing operations and required submittal of a Mercury
Reduction Plan to the MPCA by the end of 2018 with plan implementation requirements becoming effective on
January 1, 2025. In the Mercury Reduction Plan, facilities evaluated if available control technologies can technically
achieve a 72% mercury reduction rate. If available control technologies cannot technically achieve a 72% mercury
reduction rate, the facilities must propose alternative mercury reduction measures. One of the main tenets agreed
upon for evaluating potential mercury reduction technologies during TMDL implementation and 2014 rule development
proceedings was that
the
technology must be technically feasible; must be economically feasible; must not impact pellet quality; and must not
cause excessive corrosion in the indurating furnaces or air pollution control equipment.
the following “Adaptive Management Criteria”:
the selected technology must meet
The Mercury Reduction Plans for our Minnesota facilities were submitted to the MPCA in December 2018.
In
2020, the MPCA provided comments on the plans and we responded in a timely manner. There is currently no
proven technology to cost effectively reduce mercury emissions from taconite furnaces to achieve the targeted 72%
reduction rate, while satisfying all four Adaptive Management Criteria. The Mercury Reduction Plans that were
submitted to the MPCA include documentation that describes the results of detailed engineering analysis and
research testing on potential technologies to support this determination. The results of this analysis will continue to
guide dialogue with the MPCA. Potential impacts to us are not estimable at this time because the revised Mercury
Reduction Plans and additional technical information are currently being reviewed by the MPCA.
Climate Change and GHG Regulation
With the complexities and uncertainties associated with the U.S. and global navigation of the climate change
issue as a whole, one of our potentially significant risks for the future is mandatory carbon pricing obligations.
Policymakers are in the design process of carbon regulation at the state, regional, national and international levels.
The current regulatory patchwork of carbon compliance schemes presents a challenge for multi-facility entities to
identify their near-term risks. Amplifying the uncertainty, the dynamic forward outlook for carbon pricing obligations
presents a challenge to large industrial companies to assess the long-term net impacts of carbon compliance costs on
their operations. Our exposure on this issue includes both the direct and indirect financial risks associated with the
regulation of GHG emissions, as well as potential physical risks associated with climate change adaptation. We are
continuing to review the physical risks related to climate change. As an energy-intensive business, our GHG
emissions inventory includes a broad range of emissions sources, such as iron ore furnaces and kilns, diesel mining
equipment, and integrated steelmaking facilities, among others. As such, our most significant regulatory risks are: (1)
the costs associated with on-site emissions levels (direct impacts), and (2) indirect costs passed through to us from
electrical and fuel suppliers (indirect impacts).
Internationally, mechanisms to reduce emissions are being implemented in various countries, with differing
designs and stringency, according to resources, economic structure and politics. The Paris Agreement to reduce
global GHG emissions and limit global temperature increases to 2 degrees Celsius became effective in November
2016 with 196 signatory countries. On January 20, 2021, President Biden signed an executive order triggering the 30-
day process of rejoining the Paris Agreement, beginning the process of a pledge to reduce U.S. GHG emissions.
During the Obama Administration, the U.S. became a signatory to the Paris Agreement with a pledge to reduce its
GHG emissions by 26-28% from 2005 levels by 2025. Continued attention to issues concerning climate change, the
role of human activity in it and potential mitigation through regulation may have a material impact on our customer
base, operations and financial results in the future.
In the U.S., future federal and/or state carbon regulation potentially presents a significantly greater impact to
our operations. To date, the U.S. Congress has not legislated carbon constraints. In the absence of comprehensive
federal carbon legislation, numerous state, regional and federal regulatory initiatives are under development or are
becoming effective, thereby creating a disjointed approach to GHG control and potential carbon pricing impacts. We
intend to remain active in the discussions related to legislative and regulatory changes at the federal and state levels.
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Due to the potential patchwork of federal, state or regional carbon restriction schemes, our business and
customer base could suffer negative financial impacts over time as a result of increased energy, environmental and
other costs to comply with the limitations that would be imposed on GHG emissions. We believe our exposure can be
reduced substantially by numerous factors, including currently contemplated regulatory flexibility mechanisms, such
as allowance allocations,
fixed process emissions exemptions, offsets and international provisions; emissions
reduction opportunities, including energy efficiency, biofuels and fuel flexibility; and business opportunities associated
with pursuing combined heat and power partnerships and new products, including DR-grade pellets, HBI, fluxed
pellets and other efficiency-improving technologies.
Regional Haze FIP Rule
In June 2005, the EPA finalized amendments to its regional haze rules that require states to establish goals
and emission reduction strategies for improving visibility in all Class I national parks and wilderness areas to natural
background levels by 2064. Among the states with Class I areas are Michigan and Minnesota, in which we currently
own mining operations, and Indiana, in which we own steelmaking operations. The first phase of the regional haze
rule required analysis and installation of BART on eligible emission sources and incorporation of BART and
associated emission limits into SIPs.
EPA disapproved Minnesota's and Michigan's BART SIPs for taconite furnaces and instead promulgated a
Taconite Regional Haze FIP in February 2013. We petitioned the Eighth Circuit Court of Appeals for a review of the
FIP and filed a joint motion for stay of the 2013 FIP, which was granted in June 2013. We reached a settlement
agreement with EPA, which was subsequently published in the Federal Register to implement components of the
settlement agreement in April 2016, with an effective date of May 12, 2016. We believe the 2016 Regional Haze FIP
reflects progress toward a more technically and economically feasible regional haze implementation plan.
In
November 2016, the Eighth Circuit Court of Appeals terminated the June 2013 stay and extended the deadlines in the
original 2013 FIP. Cost estimates associated with implementation of the 2013 and 2016 FIPs are reflected in our five-
year capital plan.
Due to inconsistencies in language describing the procedures for calculating NOx emission limits between the
settlement agreement and the 2016 FIP final rule, we jointly filed a Petition for Reconsideration and Petition for
Judicial Review in June 2016. We have been working toward a settlement agreement with EPA to resolve the
outstanding issue with the emission limit calculation method and anticipate resolution of the issue in 2021. The
outcome of this proceeding is not expected to have a material adverse impact on us.
In 2020, the states began a second decadal review, which examined if additional technological controls are
warranted for certain sources. The states are required to submit their updated Regional Haze SIPs by July 2021. At
this time, we do not expect any state will require additional emission control requirements on our operations. We will
review and comment on SIPs as necessary in the states in which we operate.
Conductivity
Conductivity, the measurement of water’s ability to conduct electricity, is a surrogate parameter that generally
increases as the amount of dissolved minerals in water increases. In December 2016, EPA issued a notice soliciting
public comments on its draft guidance, Field-Based Methods for Developing Aquatic Life Criteria for Specific
Conductivity.
In April 2017, comments were submitted by our trade associations providing objective evidence
indicating the draft methodology was scientifically flawed and unfit for promulgation. EPA confirmed in October 2019
that the 2016 draft guidance was rescinded in accordance with an August 2019 EPA memorandum regarding draft
guidance documents and further expressed that EPA must update the science and subject future recommended
methods or criteria for conductivity to peer review and public comment. Although the adoption of the previously
proposed methodology is unlikely in the states, the Fond du Lac Band in Minnesota adopted certain conductivity
criteria in 2020. We are assessing the impact of those criteria on our Minnesota iron ore mining and pelletizing
operations and evaluating methods to challenge the criteria as a whole or on a site-by-site basis.
Definition of “Waters of the United States” Under the Clean Water Act
The EPA and Army Corps of Engineers published a final rule in October 2019 repealing the 2015 rule that was
to become effective on December 23, 2019. On April 21, 2020, the EPA and the Department of the Army published the
Navigable Waters Protection Rule in the Federal Register to finalize a revised definition of “waters of the United
States” under the Clean Water Act. For the first time, the agencies have streamlined the definition so that it includes
four simple categories of jurisdictional waters, provides clear exclusions for many water features that traditionally have
not been regulated, and defines terms in the regulatory text that have never been defined before. The rule is on
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appeal in various jurisdictions. The rule is not expected to have a material adverse effect on us, but we will continue
to assess the potential impacts to our operations.
Regulation of Discharges to Groundwater
In general, states traditionally have regulated discharges of pollutants to groundwater through various
programs such as wellhead protection programs and regulations related to remediation. In April 2020, the United
States Supreme Court held in County of Maui v. Hawaiʻi Wildlife Fund that EPA (and delegated states) have
jurisdiction under the NPDES program if the discharge to groundwater is the “functional equivalent” of a discharge to
waters of the United States. Until now, the NPDES program has only regulated direct discharges to waters of the
United States from point sources. EPA subsequently issued a guidance document on what the term “functional
equivalent” means. Although we do not anticipate that broadening EPA jurisdiction over groundwater discharges will
materially adversely affect our operations, the impact to our operations is not reasonably estimable at this time.
Raw Materials and Energy
Our steelmaking operations require iron ore, coke, coal, ferrous and carbon and stainless scrap, chrome,
nickel and zinc as primary raw materials. We also consume natural gas, electricity, industrial gases and diesel fuel at
our steelmaking and mining operations. As a vertically integrated steel company, we are able to internally supply a
majority of our raw materials needed for our steelmaking operations. We also attempt to reduce the risk of future
If multi-year contracts are available in the marketplace for those
supply shortages and price volatility in other ways.
raw materials that we cannot supply internally, we may use these contracts to secure sufficient supply to satisfy our
key raw material needs. When multi-year contracts are not available, or are not available on acceptable terms, we
purchase the remainder of our raw materials needs under annual contracts or conduct spot purchases. We also
regularly evaluate alternative sources and substitute materials. Additionally, we may hedge portions of our energy and
raw materials purchases to reduce volatility and risk. We believe that we have secured, or will be able to secure,
adequate supply to fulfill our raw materials and energy requirements for 2021.
The raw materials needed to produce a ton of steel will fluctuate based upon the specifications of the final
steel products, the quality of raw materials and, to a lesser extent, differences among steel production equipment. For
example, generally, in our integrated steelmaking facilities, we consume approximately 1.4 net tons of coal to produce
one net ton of coke. The process to produce one ton of raw steel generally requires approximately 1.4 net tons of iron
ore pellets, 0.4 net tons of coke and 0.3 net tons of steel scrap. At normal operating levels, we also consume
approximately 6 MMBtu’s of natural gas per net ton produced. Additionally, on average, our EAF's require 1.1 net tons
of ferrous or stainless scrap to produce one net ton of high quality steel. We consume approximately 420 kilowatt-
hours of electricity per net ton of steel produced. While these estimated consumption amounts are presented to give
a general sense of raw material and energy consumption used in our steel production, substantial variations may
occur.
Our investment into HBI production provides us access, when needed, to clean iron units in order to make
advanced steel and stainless products. This access to our own production provides us flexibility and allows us to avoid
the risks and carbon footprints of imported iron substitutes. Iron substitutes imported into the U.S. are traditionally
sourced from regions of the world that have historically experienced greater political turmoil and have lower pollution
standards than the U.S. Our investment demonstrates our raw material and company strategy in responsibly
managing the risks of pricing, availability and overall carbon footprint of our critical inputs.
We typically purchase ferrous and stainless steel scrap, natural gas, a substantial portion of our electricity and
most other raw materials at prevailing market prices, which may fluctuate with market supply and demand.
Iron Ore
We own or co-own five active iron ore mines in Minnesota and Michigan. Based on our ownership in these
mines, our share of annual rated iron ore production capacity is approximately 28.0 million long tons, which supplies
all of the iron ore needed for our steelmaking operations. Refer to Part I - Item 2. Properties for additional
information.
Coke and Coal
We own five cokemaking facilities, including two coke batteries located within our steelmaking facilities.
These facilities currently provide over half of the coke requirements for our steelmaking operations and have an
annual rated capacity of approximately 3.9 million tons. Additionally, we have coke supply agreements with suppliers
that provide our remaining requirements. Our purchases of coke are made under annual or multi-year agreements
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with periodic price adjustments. We typically purchase most of our metallurgical coal under annual fixed-price
agreements. We have annual rated metallurgical coal production capacity of 2.3 million net tons from our Princeton
mine, which supplies a portion of our metallurgical coal needs. We believe there are adequate external supplies of
coke and coal available at competitive market prices to meet our needs. Refer to Part I - Item 2. Properties for
additional information.
Steel Scrap and Other Materials
Generally, approximately 43% of our steel scrap requirements are generated internally through normal
operations. We believe that supplies of steel scrap, chrome, nickel and zinc adequate to meet the needs of our
steelmaking operations are readily available from outside sources at competitive market prices.
Energy
We consume a large amount of natural gas, electricity, industrial gases and diesel fuel, which are significant
costs to our operations. The majority of our energy requirements are purchased from outside sources. Access to
long-term, low cost sources of energy in various forms is critically important to our operations.
Natural gas is procured for our operations utilizing a combination of long-term, annual, quarterly, monthly and
spot contracts from various suppliers at market-based pricing. We believe access to low-cost and reliable sources of
natural gas is available to meet our operations’ requirements.
We purchase electricity for all of our operations in either regulated or deregulated markets. Due to the distinct
nature of these markets, we procure electricity through either long-term or annual contracts. Some operations also
use self-generated coke oven gas and/or blast furnace gas to produce electricity, which reduces our need to purchase
electricity from external sources. We also closely monitor developments at the state and federal levels that could
impact electricity availability or cost and incorporate such changes into our electricity supply strategy in order to
maintain reliable, low-cost supply. We believe there is an adequate supply of competitively priced electricity to fulfill
our requirements.
We purchase industrial gases under long-term contracts with various suppliers. We believe we have access
to adequate supplies of industrial gases to meet our needs.
We predominantly purchase diesel fuel for our mining operations under long-term contracts with various
suppliers. We believe we have access to adequate supplies of diesel fuel to meet our needs.
Human Capital
As of December 31, 2020, we employed approximately 25,000 people. Approximately 24,000 were employed
in the U.S., with the remainder employed in Ontario, Canada. Approximately 24,000 employees were employed at
production facilities, with the balance employed in corporate support roles. The vast majority of our approximately
20,000 hourly employees were subject to collective bargaining agreements (approximately 18,500) with various labor
unions. Overall, we have good relations with our workforce and the labor unions that represent our hourly employees.
We believe that our future success largely depends upon our continued ability to attract and retain a highly
skilled workforce. We provide our employees with competitive salaries, incentive-based bonus programs that provide
above-market compensation opportunities when the Company performs well, development programs that enable
continued learning and growth, and a robust benefit package that promotes well-being across all aspects of their lives,
including health care, retirement planning and paid time off. In addition to these programs, we have used targeted,
equity-based grants with vesting conditions to facilitate retention of key personnel. These tools have enabled us to
increase the retention of key personnel, including our corporate and site leadership teams and critical technical talent.
The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are
committed to the health, safety and wellness of our employees. We provide our employees and their families with
access to a variety of innovative, flexible and convenient health and wellness programs, including benefits that
provide protection and security so they can have peace of mind concerning events that may require time away from
work or that impact their financial well-being; that support their physical and mental health by providing tools and
resources to help them improve or maintain their health and encourage engagement in healthy behaviors; and that
offer choice where possible so they can customize their benefits to meet their needs and the needs of their families. In
response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best
interest of our employees, as well as the communities in which we operate, and which comply with government
regulations. This includes having all employees who could perform their work remotely work from home, while
implementing numerous safety measures for employees continuing critical on-site work at our operations.
17
Safety
Safe production is our primary core value as we continue toward achieving a zero injury culture at our
facilities. We constantly monitor our safety performance and make continuous improvements to affect change. Best
practices and incident learnings are shared globally to ensure each facility can administer the most effective policies
and procedures for enhanced workplace safety. Progress toward achieving our objectives is accomplished through a
focus on proactive sustainability initiatives, and results are measured against established industry and company
benchmarks, including our company-wide Total Reportable Incident Rate. During 2020, our Total Reportable Incident
Rate (including contractors) was 0.92 per 200,000 hours worked.
Refer to Exhibit 95 Mine Safety Disclosures (filed herewith) for mine safety information required in accordance
with Section 1503(a) of the Dodd-Frank Act.
Available Information
Our headquarters are located at 200 Public Square, Suite 3300, Cleveland, Ohio 44114-2315, and our
telephone number is (216) 694-5700. We are subject to the reporting requirements of the Exchange Act and its rules
and regulations. The Exchange Act requires us to file reports, proxy statements and other information with the SEC.
The SEC maintains a website that contains reports, proxy statements and other information regarding issuers
that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s home
page at www.sec.gov.
We use our website, www.clevelandcliffs.com, as a channel for routine distribution of important information,
including news releases, investor presentations and financial information. We also make available, free of charge on
our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after we electronically file these documents with, or furnish them to, the SEC.
In addition, our
website allows investors and other interested persons to sign up to receive automatic email alerts when we post news
releases and financial information on our website.
We also make available, free of charge, the charters of the Audit Committee, Strategy and Sustainability
Committee, Governance and Nominating Committee and Compensation and Organization Committee as well as the
Corporate Governance Guidelines and the Code of Business Conduct and Ethics adopted by our Board of Directors.
These documents are available through our investor relations page on our website at www.clevelandcliffs.com. The
SEC filings are available by selecting “Financial Information” and then “SEC Filings,” and corporate governance
materials are available by selecting “Corporate Governance”
the Board Committee Charters, operational
for
governance guidelines and the Code of Business Conduct and Ethics.
References to our website or the SEC’s website do not constitute incorporation by reference of
the
information contained on such websites, and such information is not part of this Annual Report on Form 10-K.
Copies of the above-referenced information are also available, free of charge, by calling (216) 694-5700 or
upon written request to:
Cleveland-Cliffs Inc.
Investor Relations
200 Public Square, Suite 3300
Cleveland, OH 44114-2315
18
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Following are the names, ages and positions of the executive officers of the Company as of February 26,
2021. Unless otherwise noted, all positions indicated are or were held with Cleveland-Cliffs Inc.
Name
Age Position(s) Held
Lourenco Goncalves
Clifford T. Smith
Keith A. Koci
Terry G. Fedor
Traci L. Forrester
63 Chairman, President and Chief Executive Officer (August 2014 – present); and
Chairman, President and Chief Executive Officer of Metals USA Holdings Corp.,
an American manufacturer and processor of steel and other metals (May 2006 –
April 2013).
61 Executive Vice President, Chief Operating Officer
(January 2019 – present);
Executive Vice President, Business Development (April 2015 – January 2019).
56 Executive Vice President, Chief Financial Officer (February 2019 – present); and
Senior Vice President and Chief Financial Officer, Metals USA Holdings Corp. (2013 –
February 2019).
56 Executive Vice President, Chief Operating Officer, Steel Mills (March 2020 – present);
Executive Vice President, Operations (February 2019 – March 2020); and Executive
Vice President, U.S. Iron Ore (January 2014 – January 2019).
49 Executive Vice President, Business Development
(May 2019 – present); Vice
President
(January 2018 – May 2019); Deputy General Counsel & Assistant
Secretary (January 2017 – May 2019); and Assistant General Counsel (August 2013
– January 2017).
James D. Graham
55 Executive Vice President (November 2014 – present); Chief Legal Officer (March
2013 – present); and Secretary (March 2014 – present).
Maurice D. Harapiak
59 Executive Vice President, Human Resources (March 2014 – present); and Chief
Administration Officer (January 2018 – present).
Kimberly A. Floriani
38 Vice President, Corporate Controller & Chief Accounting Officer
(April 2020 –
present); Director, Accounting & Reporting (August 2015 – April 2020); Manager,
Financial Reporting (January 2012 – August 2015).
All executive officers serve at the pleasure of the Board. There are no arrangements or understandings
between any executive officer and any other person pursuant to which an executive officer was selected to be an
officer of the Company. There is no family relationship between any of our executive officers, or between any of our
executive officers and any of our directors.
19
Item 1A.
Risk Factors
An investment in our common shares or other securities is subject to risks inherent in our businesses and the
industries in which we operate. Described below are certain risks and uncertainties, the occurrences of which could
have a material adverse effect on us. The risks and uncertainties described below include known material risks that
we face currently, but our material risks are constantly evolving and the below descriptions may not include future
risks that are not presently known, that are not currently believed to be material or that are common to all businesses.
Although we have extensive risk management policies, practices and procedures in place that are aimed to mitigate
these risks, the occurrence of these uncertainties may nevertheless impair our business operations and adversely
affect the actual outcome of matters as to which forward-looking statements are made. This report is qualified in its
entirety by these risk factors. Before making an investment decision, investors should consider carefully all of the risks
described below together with the other information included in this report and the other reports we file with the SEC.
Management has identified several categories of material risk that we are subject to, including: (I) economic
and market, (II) regulatory, (III) financial, (IV) operational, (V) development and sustainability and (VI) human capital.
Although the risks are organized by these headings, and each risk is discussed separately, many are interrelated.
I.
ECONOMIC AND MARKET RISKS
The ongoing COVID-19 pandemic has had, and is expected to continue to have, an adverse impact on our
businesses.
The ongoing COVID-19 pandemic is continuing to impact countries, communities, supply chains and markets.
Responses by individuals, governments and businesses to the COVID-19 pandemic and efforts to reduce its spread,
including quarantines, travel restrictions, business closures, and mandatory stay-at-home or work-from-home orders,
have led to significant disruptions to overall business and economic activity. While vaccines are now being
manufactured and distributed, it is currently unknown when or whether the economy will return to pre-pandemic levels
of consumer and business activity.
During 2020, the COVID-19 pandemic adversely affected our businesses by temporarily curtailing certain of
our end markets. In particular, the automotive industry, which we rely on directly and indirectly for a significant amount
of our sales, was severely disrupted during the first half of 2020. The slowdown in the automotive industry led, in turn,
to disruptions to our operations. For example, although our steel and mining operations are considered “essential” by
the states in which we operate, certain of our mining and production facilities were idled for various periods during
2020 in response to the decrease in customer demand. While we were able to resume operations at many of these
facilities later in 2020, we cannot predict whether any other production facilities or mines will experience disruptions in
the future as a result of adverse impacts of the COVID-19 pandemic.
In addition, the COVID-19 pandemic has heightened the risk that a significant portion of our workforce and
on-site contractors will suffer illness or otherwise be unable to perform their ordinary work functions. While we
instituted remote work policies where practical across our footprint,
the safe and responsible operation of our
production facilities often requires that workers be on-site. Accordingly, during 2020, we experienced direct and
indirect workforce impacts from COVID-19 at many of our operations. We also may need to reduce our workforce as a
result of declines in our business caused by the COVID-19 pandemic, and there can be no assurance that we will be
able to rehire our workforce once our business has recovered. We may also experience supply chain disruptions or
operational issues with our vendors, as our suppliers and contractors face similar challenges related to the COVID-19
pandemic.
Because the impact of the COVID-19 pandemic continues to evolve, we cannot predict the full extent to which
our businesses, results of operations, financial condition or liquidity will ultimately be impacted. To the extent the
COVID-19 pandemic adversely affects our businesses, it may also have the effect of exacerbating many of the other
risks described in this ‘‘Risk Factors’’ section, any of which could have a material adverse effect on us.
The volatility of commodity prices, including steel and iron ore, affects our ability to generate revenue,
maintain stable cash flows and fund our operations, including growth and expansion projects.
Our profitability is dependent upon the prices of the steel and iron ore products that we sell to our customers
and the prices of the products our customers sell. As an integrated producer of steel and iron ore, we experience
direct impacts of steel price fluctuations through customer sales, as well as direct and indirect impacts of iron ore price
fluctuations through third-party sales and the impacts that fluctuations in iron ore prices have on steel prices. The
prices of steel and iron ore have fluctuated significantly in the past and are affected by factors beyond our control,
including: international demand for raw materials used in steel production; rates of global economic growth, especially
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construction and infrastructure activity that requires significant amounts of steel; changes in the levels of economic
activity in the U.S., China, India, Europe and other industrialized or developing economies; changes in China’s
emissions policies and environmental compliance enforcement practices; changes in the production capacity,
production rate and inventory levels of other steel producers and iron ore suppliers; changes in trade laws; volumes of
unfairly traded imports; imposition or termination of duties, tariffs, import and export controls and other trade barriers
impacting the steel and iron ore markets; weather-related disruptions, infectious disease outbreaks, such as the
COVID-19 pandemic, or natural disasters that may impact the global supply of steel or iron ore; and the proximity,
capacity and cost of infrastructure and transportation.
Our earnings, therefore, may fluctuate with the prices of the products we sell and of the products our
customers sell. To the extent that the prices of steel and iron ore, including the hot-rolled coil steel price, coated and
indexed freight rates,
other specialty steel prices, the Platts 62% Price, pellet premiums and Platts international
significantly decline for an extended period of time, whether due to the COVID-19 pandemic or otherwise, we may
have to further revise our operating plans, including curtailing production, reducing operating costs and capital
expenditures, and discontinuing certain exploration and development programs. We also may have to take
impairments on our goodwill, intangible assets, long-lived assets and/or inventory. Sustained lower prices also could
cause us to further reduce existing mineral reserves if certain reserves no longer can be economically mined or
processed at prevailing prices. We may be unable to decrease our costs in an amount sufficient to offset reductions in
revenues and may incur losses. These events could have a material adverse effect on us.
We sell a significant portion of our steel products to the automotive market and fluctuations or changes in the
automotive market could adversely affect our business operations and financial performance.
For the full-year 2020, approximately 40% of AK Steel’s and ArcelorMittal USA's combined sales were to the
automotive market. Beyond these direct sales to the automotive industry, we make additional sales to distributors and
converters, which may ultimately resell some of that volume to the automotive market. In addition to the size of our
exposure to the automotive industry, we face risks arising from our relative concentration of sales to certain specific
automotive manufacturers, including several significant customers that idled certain automotive production facilities in
2020 in response to the COVID-19 pandemic. In addition, automotive production and sales are cyclical and sensitive
to general economic conditions and other factors, including interest rates, consumer credit, and consumer spending
and preferences, as well as the current COVID-19 pandemic. If automotive production and sales decline, our sales
and shipments to the automotive market are likely to decline in a corresponding manner. Adverse impacts that we
may sustain as a result include, without limitation, lower margins because of the need to sell our steel to less
profitable customers and markets, higher fixed costs from lower steel production if we are unable to sell the same
amount of steel to other customers and markets, and lower sales, shipments, pricing and margins generally as our
competitors face similar challenges and compete vigorously in other markets that we serve. These adverse impacts
would negatively affect our sales, financial results and cash flows. Additionally, the trend toward light weighting in the
automotive industry, which requires lighter gauges of steel at higher strengths, could result in lower steel volumes
required by that industry over time.
Moreover, despite our newly acquired position as the largest flat-rolled steel producer in North America,
competition for automotive business has intensified in recent years, as steel producers and companies producing
alternative materials have focused their efforts on capturing and/or expanding their market share of automotive
business because of less favorable conditions in other markets for steel and other metals, including commodity
products and steel for use in the oil and gas markets. As a result, the potential exists that we may lose market share
to existing or new entrants or that automotive manufacturers will take advantage of the intense competition among
potential suppliers during annual contract renewal negotiations to pressure our pricing and margins in order to
maintain or expand our market share with them, which could negatively affect our sales, financial results and cash
flows.
Global steelmaking overcapacity, steel imports and oversupply of iron ore could lead to lower or more
volatile global steel and iron ore prices, impacting our profitability.
Significant global steel capacity and new or expanded production capacity in North America in recent years
has caused and continues to cause capacity to exceed demand globally, as well as in our primary markets in North
America. Although certain of our U.S. competitors temporarily shut down production capacity during the COVID-19
pandemic, a restart of previously idled capacity and the development of new capacity by our U.S. competitors has
occurred in recent months and may occur in the future in connection with any economic recovery following the
COVID-19 pandemic. In addition, foreign competitors have substantially increased their steel production capacity in
the last few years and in some instances appear to have targeted the U.S. market for imports. Also, some foreign
economies, such as China, have slowed relative to recent historical norms, resulting in an increased volume of steel
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products that cannot be consumed by industries in those foreign steel producers’ own countries. The risk of even
greater levels of imports may continue, depending upon foreign market and economic conditions, changes in trade
agreements and treaties, laws, regulations or government policies affecting trade, the value of the U.S. dollar relative
to other currencies and other variables beyond our control. A significant further increase in domestic steel capacity or
foreign imports could adversely affect our sales, financial results and cash flows. In addition, recent increases in the
market prices of iron ore products could cause new producers to enter the market or existing producers to expand
productive capacity. Excess iron ore supply combined with reduced global steel demand, including in China, could
lead to lower iron ore prices, which would typically contribute to lower steel prices, as iron ore is a principal
steelmaking raw material. Downward pressure on iron ore and/or steel prices could have an adverse effect on our
results of operations, financial condition and profitability.
Severe financial hardship or bankruptcy of one or more of our major customers or key suppliers could
adversely affect our business operations and financial performance.
Sales and operations of a majority of our customers are sensitive to general economic conditions, especially,
with respect to our steel customers, as they affect the North American automotive, housing, construction, appliance,
energy and other industries. Some of our customers are highly leveraged. If there is a significant weakening of current
economic conditions, whether because of operational, cyclical or other issues, including the COVID-19 pandemic, it
could impact significantly the creditworthiness of our customers and lead to other financial difficulties or even
bankruptcy filings by our customers. Failure to receive payment from our customers for products that we have
delivered could adversely affect our results of operations, financial condition and liquidity. The concentration of
customers in a specific industry, such as the automotive industry, may increase our risk because of the likelihood that
circumstances may affect multiple customers at the same time. For example, during the first half of 2020, the
automotive industry was significantly disrupted by the COVID-19 pandemic, which concurrently adversely impacted
multiple customers. Such events could cause us to experience lost sales or losses associated with the potential
inability to collect all outstanding accounts receivable and reduced liquidity. Similarly, if our key suppliers face financial
hardship or need to operate in bankruptcy, such suppliers could experience operational disruption or even face
liquidation, which could result in our inability to secure replacement raw materials on a timely basis, or at all, or cause
us to incur increased costs to do so. Such events could adversely impact our operations, financial results and cash
flows.
II. REGULATORY RISKS
U.S. government actions on trade agreements and treaties, laws, regulations or policies affecting trade could
lead to lower or more volatile global steel or iron ore prices, impacting our profitability.
In recent years, the U.S. government has altered its approach to international trade policy, both generally and
with respect to matters directly and indirectly affecting the steel industry, including by undertaking certain unilateral
trade agreements, and entering into new
actions affecting trade, renegotiating existing bilateral or multilateral
agreements or treaties with foreign countries. For example,
issued a
the U.S. government
proclamation pursuant to Section 232 imposing a 25% tariff on imported steel that was being unfairly traded by certain
the European Union
In retaliation against
foreign competitors at artificially low prices.
subsequently imposed its own tariffs against certain steel products and other goods imported from the U.S. Moreover,
in light of the U.S. government leadership changes resulting from the November 2020 federal congressional and
presidential elections, it is currently uncertain what changes, if any, the U.S. government may make to its recent tariff
and trade policies and priorities. If, for example, the Section 232 tariffs are removed or substantially lessened, whether
through legal challenge, legislation, executive action or otherwise, imports of foreign steel would likely increase and
steel prices in the U.S. would likely fall, which could materially adversely affect our sales, financial results and cash
flows.
the Section 232 tariffs,
in March 2018,
In addition, during 2020, the USMCA was implemented among the U.S., Mexico and Canada in place of the
North American Free Trade Agreement. Because all of our steel manufacturing facilities are located in North America
and one of our principal markets is automotive manufacturing in North America, we believe that the USMCA has the
potential
to positively impact our business by incentivizing automakers and other manufacturers to increase
manufacturing production in North America and to use North American steel. However, it is difficult to predict the short-
and long-term implications of changes in trade policy and,
therefore, whether the USMCA or other new or
renegotiated trade agreements, treaties, laws, regulations or policies that may be implemented in connection with the
recent U.S. government leadership changes, or otherwise, will have a beneficial or detrimental impact on our business
and our customers’ and suppliers’ businesses. Adverse effects could occur directly from a disruption to trade and
commercial transactions and/or indirectly by adversely affecting the U.S. economy or certain sectors of the economy,
impacting demand for our customers’ products and, in turn, negatively affecting demand for our products. Important
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links of the supply chain for some of our key customers, including automotive manufacturers, could be negatively
impacted by the USMCA or other new or renegotiated trade agreements, treaties, laws, regulations or policies. Any of
these actions and their direct and indirect impacts could materially adversely affect our sales, financial results and
cash flows.
Although we may currently benefit from certain antidumping and countervailing duty orders, any such relief is
subject to periodic reviews and challenges, which can result in revocation of the orders or reduction of the duties. In
addition, previously granted and future petitions for trade relief may not be successful or fully effective at preventing
harm. Even if received, it is uncertain if any relief will be continued in the future or will be adequate to counteract
completely the harmful effects of unfairly traded imports.
We are subject to extensive governmental regulation, which imposes, and will continue to impose, potential
significant costs and liabilities on us. Future laws and regulations or the manner in which they are interpreted
and enforced could increase these costs and liabilities or limit our ability to produce our raw materials and
products.
New laws or regulations, or changes in existing laws or regulations, including the response of federal, state,
local and foreign governments to the COVID-19 pandemic or arising out of
the changes in U.S. government
leadership resulting from the November 2020 elections, or the manner of their interpretation or enforcement, could
increase our cost of doing business and restrict our ability to operate our businesses or execute our strategies. This
includes, among other things, changes in the interpretation of MSHA regulations, such as workplace exam rules or
safety around mobile equipment, reevaluation of the National Ambient Air Quality Standards, such as revised nitrogen
dioxide, sulfur dioxide, lead, ozone and particulate matter criteria, changes in the interpretation of OSHA regulations,
such as standards for occupational exposure to noise, certain chemicals or hazardous substances and infectious
diseases, and the possible taxation under U.S. law of certain income from foreign operations.
In addition, we and our operations are subject to various international, foreign, federal, state, provincial and
local laws and regulations relating to protection of the environment and human health and safety, including those
relating to air quality, water pollution, plant, wetlands, natural resources and wildlife protection (including endangered
or threatened species), reclamation, remediation and restoration of properties and related surety bonds or other
financial assurances, land use, the discharge of materials into the environment, the effects that industrial operations
and mining have on groundwater quality, conductivity and availability,
the management of electrical equipment
containing polychlorinated biphenyls, and other related matters. Compliance with numerous governmental permits
and approvals is required for our operations. We cannot be certain that we have been or will be at all times in
complete compliance with such laws, regulations, permits and approvals. If we violate or fail to comply with these
laws, regulations, permits or approvals, we could be fined, required to cease operations, subject to criminal or civil
liability, or otherwise sanctioned by regulators. In particular, federal or state regulatory agencies have the authority,
under certain circumstances following significant health and safety incidents, such as fatalities, to order a facility to be
temporarily or permanently closed. Compliance with the complex and extensive laws and regulations to which we are
subject imposes substantial costs on us, which could increase over time because of heightened regulatory oversight,
adoption of more stringent environmental, health and safety standards and greater demand for remediation services
leading to shortages of equipment, supplies and labor, as well as other factors.
Specifically, there are several notable proposed or recently enacted rulemakings or activities to which we
would be subject or that would further regulate and/or tax us and our customers, which may also require us or our
customers to reduce or otherwise change operations significantly or incur significant additional costs, depending on
their ultimate outcome. These emerging or recently enacted rules, regulations and policy guidance include, but are not
limited to: governmental regulations imposed in response to the COVID-19 pandemic; trade regulations, such as the
USMCA and/or other trade agreements, treaties or policies; tariffs, such as the 25% tariff on imported steel imposed
under Section 232; Minnesota’s potential revisions to the sulfate wild rice water quality standard; evolving water
quality standards for selenium and conductivity; scope of the Clean Water Act and the definition of “Waters of the
United States”; Minnesota’s Mercury TMDL and associated rules governing mercury air emission reductions; Climate
Change and GHG Regulation; the Regional Haze FIP Rule; and the regulation of discharges to water. In addition, the
Biden Administration has indicated via executive orders and in campaign statements that it will propose more stringent
environmental regulation, in particular related to climate change. Any new or more stringent legislation, regulations,
rules, interpretations or orders, when enacted and enforced, could have a material adverse effect on our business,
results of operations, financial condition or profitability.
Our operations may be impacted by the recent enactment, and ongoing consideration, of significant federal
and state laws and regulations relating to certain mine-related issues, such as the stability of tailings basins, mine
drainage and fill activities, reclamation and safety in underground mines. With respect to underground mines, for
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example, these laws and regulations include requirements for constructing and maintaining caches for the storage of
additional self-contained self-rescuers throughout underground mines; installing rescue chambers in underground
mines; continuous tracking of and communication with personnel in the mines; installing cable lifelines from the mine
portal to all sections of the mine to assist in emergency escape; submission and approval of emergency response
plans; and additional safety training. Additionally, there are requirements for the prompt reporting of accidents and
increased fines and penalties for violations of these and existing regulations. These laws and regulations may cause
us to incur substantial additional costs.
Additionally, our operations are subject to the risks of doing business abroad and we must comply with
complex foreign and U.S. laws and regulations, which may include, but are not limited to, the Foreign Corrupt
Practices Act and other anti-bribery laws, regulations related to import/export and trade controls, the European
Union’s General Data Protection Regulation and other U.S. and foreign privacy regulations, and transportation and
logistics regulations. These laws and regulations may increase our costs of doing business in international
jurisdictions and expose our operations and our employees to elevated risk. We require our employees, contractors
and agents to comply with these and all other applicable laws and regulations, but failure to do so could result in
possible administrative, civil or criminal liability and reputational harm to us and our employees. We may also be
indirectly affected through regulatory changes that impact our customers, which in turn could reduce the quantity of
our products they demand or the prices for our products they are willing to pay. Regulatory changes that impact our
suppliers could decrease the supply of products or availability of services they sell to us or could increase the price
they demand for products or services they sell to us.
Our operations inadvertently may impact the environment or cause exposure to hazardous substances,
which could result in material liabilities to us.
Our operations currently use, and have in the past used, hazardous materials, and, from time to time, we
have generated solid and hazardous waste. We have been, and may in the future be, subject to claims under
international, foreign, federal, state, provincial and local laws and regulations for toxic torts, natural resource damages
and other damages as well as for the investigation and clean-up of soil, surface water, sediments, groundwater and
other natural resources and reclamation of properties. Such claims for damages and reclamation may arise out of
current or former conditions at sites that we or our acquired companies currently own, lease or operate, as well as
sites that we or our acquired companies formerly owned, leased or operated, and at contaminated sites that are or
have been owned, leased or operated by our joint venture partners. We may also have liability for contamination at
third-party sites where we have sent hazardous wastes. Our liability for these claims may be strict and/or joint and
several, such that we may be held responsible for more than our share of the contamination or other damages, or
even for entire claims regardless of fault. We are currently subject to potential liabilities relating to investigation and
remediation activities at certain sites. In addition to sites currently owned, leased or operated, these include sites
where we formerly conducted raw material processing or other operations, inactive sites that we currently own,
formerly owned predecessor sites, acquired sites, leased land sites and third-party waste disposal sites. We may be
named as a potentially responsible party at other sites in the future and we cannot be certain that the costs associated
with these additional sites will not exceed any reserves we have established or otherwise be material.
We also are subject
to claims asserting bodily injuries arising from alleged exposure to hazardous
substances. For example, certain of our subsidiaries have been named in lawsuits claiming exposure to asbestos,
many of which have been dismissed and/or settled for non-material amounts. It is likely that similar types of claims will
continue to be filed in the future.
We may be unable to obtain, maintain, renew or comply with permits necessary for our operations or be
required to provide additional
financial assurances, which could reduce our production, cash flows,
profitability and available liquidity.
We must obtain, maintain and comply with numerous permits that require approval of operational plans and
impose strict conditions on various environmental, health and safety matters in connection with our steel production
and processing and mining and other operations. These include permits issued by various federal, state, provincial,
foreign and local agencies and regulatory bodies. The permitting rules are complex and may change over time,
making our ability to comply with the applicable requirements more difficult or impractical and costly, possibly
precluding the continuance of ongoing operations or the development of future operations. Interpretations of rules
may also change over time and may lead to requirements, such as additional financial assurance, making it costlier to
comply. For example, heightened levels of regulatory oversight with respect to our coal operations acquired as part of
the AM USA Transaction could impact, delay or disrupt our ability to obtain new or renewed permits or modifications to
existing permits.
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In addition, the public, including special
interest groups and individuals, have certain rights under various
statutes to comment upon, submit objections to, and otherwise engage in the permitting process, including bringing
citizens’ lawsuits to challenge such permits or activities. Accordingly, required permits may not be issued or renewed
in a timely fashion (or at all), or permits issued or renewed may include conditions that we cannot meet or otherwise
be conditioned in ways that may restrict our ability to conduct our production and mining activities efficiently or include
requirements for additional financial assurances that we may not be able to provide on commercially reasonable
terms (or at all), which could reduce available borrowing capacity under our ABL Facility. Such conditions, restrictions
or requirements could reduce our production, cash flows, profitability or liquidity.
III. FINANCIAL RISKS
Our existing and future indebtedness may limit cash flow available to invest in the ongoing needs of our
businesses, which could prevent us from fulfilling our obligations under our senior notes, ABL Facility and
other debt, and we may be forced to take other actions to satisfy our obligations under our debt, which may
not be successful.
As of December 31, 2020, we had $5,595 million aggregate principal amount of long-term debt outstanding,
$2,195 million of which was secured (excluding $247 million of outstanding letters of credit and $335 million of finance
leases), and $112 million of cash on our balance sheet. On December 9, 2020, in connection with the consummation
of the AM USA Transaction, we amended our ABL Facility to, among other things, increase the tranche A revolver
commitments available under the ABL Facility by an additional $1,500 million. After giving effect to this amendment,
the aggregate principal amount of tranche A revolver commitments under our ABL Facility is $3,350 million, and the
aggregate principal amount of tranche B revolver commitments under our ABL Facility remains at $150 million. As of
December 31, 2020, $1,510 million was outstanding under our ABL Facility, and the principal amount of letters of
credit obligations and other commitments totaled $247 million. As of December 31, 2020, the available borrowing
capacity on our ABL Facility was $1,743 million.
We dedicate a portion of our cash flow from operations to the payment of debt service, reducing the
availability of our cash flow to fund capital expenditures, acquisitions or strategic development initiatives, and other
general corporate purposes. Our ability to make scheduled payments on or to refinance our debt obligations depends
on our ability to generate cash in the future and our financial condition and operating performance, which are subject
to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our
control, including the impact of the COVID-19 pandemic. There can be no assurance that we will maintain a level of
cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our
debt. In addition, any failure to comply with covenants in the instruments governing our debt could result in an event of
default that, if not cured or waived, would have a material adverse effect on us.
Our level of indebtedness could have further consequences, including, but not limited to, increasing our
vulnerability to adverse economic or industry conditions, placing us at a competitive disadvantage compared to other
businesses in the industries in which we operate that are not as leveraged and that may be better positioned to
withstand economic downturns, limiting our flexibility to plan for, or react to, changes in our businesses and the
industries in which we operate, and requiring us to refinance all or a portion of our existing debt. We may not be able
to refinance on commercially reasonable terms or at all, and any refinancing of our debt could be at higher interest
rates and may require us to comply with more onerous covenants, making it more difficult to obtain surety bonds,
letters of credit or other financial assurances that may be demanded by our vendors or regulatory agencies,
particularly during periods in which credit markets are weak.
A portion of our borrowing capacity and outstanding indebtedness bears interest at a variable rate based on
LIBOR. There is considerable uncertainty regarding the publication of LIBOR beyond 2021. The uncertainty regarding
the future of LIBOR, as well as the transition from LIBOR to another benchmark rate or rates, could have adverse
impacts on our outstanding debt that currently uses LIBOR as a benchmark rate and, in turn, could adversely affect
our financial condition and results of operations.
If we are unable to service our debt obligations, we could face substantial liquidity problems and we may be
forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital, including
additional secured or unsecured debt, or restructure or refinance our debt, and we may be unable to continue as a
going concern. We may be unable to consummate any proposed asset sales or recover the carrying value of these
assets, and any proceeds may not be adequate to meet any debt service obligations then due. Any of these examples
potentially could have a material adverse impact on our results of operations, profitability, shareholders’ equity and
capital structure.
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Changes in credit ratings issued by nationally recognized statistical rating organizations could adversely
affect our cost of financing and the market price of our securities.
Credit rating agencies could downgrade our ratings due to various developments, including matters arising
out of the AK Steel Merger or the AM USA Transaction, incurring additional indebtedness and other factors specific to
our businesses, a prolonged cyclical downturn in the steel and mining industries, whether due to the COVID-19
pandemic or otherwise, or macroeconomic trends (such as global or regional recessions), and trends in credit and
capital markets more generally. Any decline in our credit ratings may result in an increase to our cost of future
financing or limit our access to the capital markets, which could harm our financial condition, hinder our ability to
refinance existing indebtedness on acceptable terms, or have an adverse effect on the market price of our securities
and the terms under which we purchase goods and services.
Our actual operating results may differ significantly from our guidance.
From time to time, we release guidance, including that set forth under “Management’s Discussion and
Analysis of Financial Condition and Results of Operations–Outlook” in our Annual Reports on Form 10-K and our
Quarterly Reports on Form 10-Q, regarding our future performance. This guidance, which consists of forward-looking
statements, is prepared by our management and is qualified by, and subject to, the assumptions and the other
information included in our Annual Reports on Form 10-K and our Quarterly Reports on Form 10-Q. Our guidance is
not prepared with a view toward compliance with published guidelines of the American Institute of Certified Public
Accountants, and neither our independent registered public accounting firm nor any other independent or outside
party compiles or examines the guidance and, accordingly, no such person expresses any opinion or any other form
of assurance with respect thereto.
Guidance is based upon a number of assumptions and estimates that, while presented with numerical
specificity, are inherently subject to business, economic and competitive uncertainties and contingencies, many of
which are beyond our control and are based upon specific assumptions with respect to future business decisions,
some of which will change. The principal reason that we release such data is to provide a basis for our management
to discuss our business outlook with analysts and investors. We do not accept any responsibility for any projections or
reports published by any such third parties.
Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of
the guidance furnished by us will not materialize or will vary significantly from actual results. Accordingly, our guidance
is only an estimate of what management believes is realizable as of the date of release. Actual results will vary from
the guidance. Investors should also recognize that the reliability of any forecasted financial data diminishes the further
in the future that the data are forecast. In light of the foregoing, investors are urged to put the guidance in context and
not to place undue reliance on it.
Any failure to successfully implement our operating strategy or the occurrence of any of the risks described in
our Annual Reports on Form 10-K or our Quarterly Reports on Form 10-Q could result in actual operating results
being different than the guidance, and such differences may be adverse and material.
Our assets as of December 31, 2020 include a deferred tax asset, the full value of which we may not be able to
realize.
We recognize deferred tax assets and liabilities based on differences between the financial statement carrying
amounts and the tax basis of assets and liabilities. At December 31, 2020, the net deferred tax asset was $492
million, primarily related to U.S. NOLs. We regularly review our deferred tax assets for recoverability based on our
history of earnings, expectations for future earnings and expected timing of reversals of temporary differences.
Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income. We believe the
recorded net deferred tax asset at December 31, 2020, is fully realizable based on our expected future earnings.
However, our assumptions and estimates are inherently subject to business, economic and competitive uncertainties
and contingencies, many of which are beyond our control and some of which may change. As a result, we could
ultimately lose a portion of our deferred tax asset related to NOLs due to expiration, which could have a material
adverse effect on our results of operations and cash flows.
The ability to use our NOLs and certain other tax attributes to offset future taxable income may be subject to
certain limitations.
If a corporation undergoes an “ownership change” within the meaning of Section 382 of
the IRC, the
corporation’s NOLs and certain other tax attributes arising before the “ownership change” are subject to limitations
after the “ownership change.” An “ownership change” under Section 382 of the IRC generally occurs if one or more
26
shareholders or groups of shareholders who own at least 5% of the corporation’s equity increase their ownership in
the aggregate by more than 50 percentage points over their lowest ownership percentage within a rolling period that
begins on the later of three years prior to the testing date and the date of the last “ownership change.” If an
limit on the amount of pre-
“ownership change” were to occur, Section 382 of the IRC would impose an annual
ownership change NOLs and other tax attributes the corporation could use to reduce its taxable income, potentially
increasing and accelerating the corporation’s liability for income taxes, and also potentially causing tax attributes to
expire unused. The amount of the annual limitation is determined based on a corporation’s value immediately prior to
the ownership change.
As of December 31, 2020, after taking into account limitations (or disallowance) on use, we had $2,510 million
and $1,009 million of available U.S. federal and state NOLs, respectively, including amounts acquired in the AK Steel
Merger. The use of our common shares in the Acquisitions in conjunction with subsequent issuances or sales of our
shares (including transactions that are outside of our control) could cause us to experience an “ownership change.” If
we experience an “ownership change” under Section 382 of the IRC, further limitations (or disallowances) may apply
and similar rules may also apply under state and foreign laws. Consequently, we may not be able to utilize a material
portion of our NOLs and other tax attributes, which, in addition to increasing our U.S. federal and state income tax
liability, could adversely affect our share price, financial condition, results of operations and cash flows.
Holders of our common shares may not receive dividends on their common shares.
We are not required to declare cash dividends on our common shares and, in April 2020, we announced the
suspension of future dividends. Holders of our common shares are entitled to receive only such dividends as our
Board may from time to time declare out of funds legally available for such payments. We are incorporated in Ohio
and governed by the Ohio General Corporation Law, which allows a corporation to pay dividends, in general, in an
amount that cannot exceed its surplus, as determined under Ohio law. Our ability to pay dividends will be subject to
our future earnings, capital requirements and financial condition, as well as our compliance with covenants and
financial ratios related to existing or future indebtedness, business prospects and other factors that our Board may
deem relevant. Additionally, our ABL Facility contains, and agreements governing any of our future debt may contain,
covenants and other restrictions that, in certain circumstances, could limit the level of dividends that we are able to
pay on our common shares.
IV. OPERATIONAL RISKS
We face significant risks relating to our recent acquisitions of
businesses.
the AK Steel and ArcelorMittal USA
During 2020, we completed both the AK Steel Merger and the AM USA Transaction. These recent
transformative acquisitions involve a number of significant risks and uncertainties that may adversely affect us,
including the following:
•
•
•
•
•
•
•
•
•
inability to realize anticipated synergies or other expected benefits or cost savings;
additional debt incurred or assumed in connection with the acquisitions could limit our financial flexibility,
including our ability to acquire additional assets and make further strategic investments in the future;
diversion of financial resources to the new operations or acquired businesses;
assumption of substantial additional environmental exposures, commitments, contingencies and remediation
and reclamation projects;
liabilities for acquired pension and OPEB obligations, which could require us to make significant cash
expenditures and funding contributions in excess of current estimates and contribution rates;
impairment of recorded tangible and intangible asset values, including goodwill, could result in material non-
cash charges to our results of operations in the future;
failure to successfully integrate acquired systems, business processes, policies and procedures;
exposure to unknown liabilities and unforeseen costs that were not discovered during due diligence;
loss of human capital resources and support services historically provided by ArcelorMittal and potential
failure of ArcelorMittal or its affiliates to perform under various contracts entered into in connection with the
AM USA Transaction, including the intellectual property license agreement, slab supply agreement and
27
transition services agreement, which could adversely impact our integration of
operations;
the ArcelorMittal USA
•
•
potential loss of key employees, suppliers or customers; and
other challenges associated with managing the larger, more complex and integrated combined businesses.
If one or more of these risks and uncertainties were to materialize, we could experience reduced sales, higher
costs, lower profitability and other adverse impacts to our operations and businesses.
In addition, in connection with the closing of the AM USA Transaction, we issued approximately 78 million of
our common shares to an indirect, wholly owned subsidiary of ArcelorMittal, equating to approximately 16% of our
then-outstanding common shares. On February 11, 2021, in connection with our sale of 20 million of our common
shares in an underwritten public offering, such subsidiary of ArcelorMittal, as a selling shareholder in the offering, sold
40 million of our common shares. We believe such subsidiary of ArcelorMittal continues to hold approximately 38
million of our common shares, equating to approximately 8% of our outstanding common shares following completion
of such offering. Although ArcelorMittal and its affiliates are subject to certain restrictions and requirements under an
Investor Rights Agreement with respect to its and its affiliates' ownership and voting of our common shares, at such a
level of beneficial ownership, ArcelorMittal and its affiliates may be able to exert influence over us and actions
requiring the approval of our common shareholders. Under the Investor Rights Agreement, ArcelorMittal and its
affiliates are permitted to transfer all of our common shares held by them, subject to certain restrictions on transfers to
persons whose beneficial ownership of our common shares following any such transfer would exceed 5% or 10% of
our then-outstanding common shares. Sales of our shares by ArcelorMittal and its affiliates or other shareholders,
coupled with the increase in the outstanding number of our common shares, may affect the market for, and the market
price of, our common shares in an adverse manner.
We also issued 583,273 shares of Series B Preferred Stock to an indirect, wholly owned subsidiary of
ArcelorMittal
in connection with the closing of the AM USA Transaction. Pursuant to the terms of the Series B
Preferred Stock, from and after the 24-month anniversary of the issue date of the Series B Preferred Stock (the “24-
Month Anniversary”), each holder of a share of Series B Preferred Stock is entitled to receive cash dividends (the
“Additional Dividends”) that will accrue and compound at a significant rate. Although the Series B Preferred Stock is
redeemable at our option 180 days after the issue date, the agreements governing our debt may restrict us from
paying the redemption price at any given time. If we are unable to redeem the Series B Preferred Stock prior to the
24-Month Anniversary and we become obligated to pay the Additional Dividends, we may be required to divert
financial resources from our operations or borrow additional debt in order to satisfy such obligations, which could have
a material adverse effect on our business, financial condition and results of operations.
We have limited ability to control our joint venture operations, rely on our joint venture partners to meet their
payment obligations, and are subject to risks involving the acts or omissions of our joint venture partners.
As part of the AM USA Transaction, we acquired ArcelorMittal USA’s interest in Hibbing and again became the
manager of Hibbing, which we co-own with U.S. Steel. In our steel business, we are party to various joint venture
arrangements primarily related to downstream steel processing operations. Due to shared ownership, we have limited
ability to control our joint venture operations, and we cannot control the actions of our joint venture partners.
Accordingly, we rely on our joint venture partners to make their required capital contributions and to pay for their share
of
to perform their
obligations, we may be required to assume additional material obligations to minimize operational disruption or as part
of a liquidation, including significant capital contributions, costs of environmental remediation, and pension and OPEB
obligations.
If our joint venture partners experience financial hardship or fail
joint venture obligations.
Our operating expenses could increase significantly if the price of raw materials, electrical power, fuel or
other energy sources increases.
Our operations require significant use of energy and raw materials. Energy expenses are sensitive to changes
in electricity, energy transportation and fuel prices, including diesel fuel and natural gas. Although we are self-sufficient
in iron ore, other raw materials or production inputs where we are wholly or partially dependent on third-party
suppliers include industrial gases, graphite electrodes, scrap, chrome, zinc, coke and coal. Prices for electricity,
natural gas, fuel oils and raw materials can fluctuate widely with availability and demand levels from other users,
including fluctuations caused by the impact of the COVID-19 pandemic. During periods of peak usage, although some
operations have contractual arrangements in place whereby they receive certain offsetting payments in exchange for
electricity load reduction, supplies of energy and raw materials in general may be curtailed and we may not be able to
inadequate energy transmission
purchase them at historical rates. A disruption in the transmission of energy,
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infrastructure, or the termination of any of our energy supply contracts could interrupt our energy supply and adversely
affect our operations. While we have some long-term contracts with electrical, natural gas and raw material suppliers,
we are exposed to fluctuations in energy, natural gas and raw material costs that can affect our production costs. As
an example, our Toledo direct reduction plant is subject to changes in the market price of natural gas, which is a key
input in the direct reduction of iron ore pellets to produce HBI. We enter into many market-based pricing supply
contracts for electricity, natural gas and diesel fuel for use in our operations. Those contracts expose us to price
increases in energy costs, which could cause our profitability to decrease significantly. In addition, U.S. public utilities
may impose rate increases and pass through additional capital and operating cost increases to their customers
related to new or pending U.S. environmental regulations or other charges that may require significant capital
investment and use of cleaner fuels in the future. In particular, the recent decision of the U.S. Court of Appeals for the
District of Columbia vacating and remanding the Affordable Clean Energy Rule, as well as recent executive orders
from President Biden regarding the environment and climate change, indicate that new or revised regulations under
the Biden Administration could result in rate increases from U.S. utilities.
The majority of our steel shipments are sold under contracts that do not allow us to pass through all increases
in raw materials, supplies and energy costs. Some of our steel shipments to contract customers include variable-
pricing mechanisms allowing us to adjust the total sales price based on changes in specified raw materials, supplies
and energy costs. Those adjustments, however, rarely reflect all of our underlying raw materials, supplies and energy
cost changes. The scope of the adjustment may also be limited by the terms of the negotiated language, including
limitations on when the adjustment occurs. Our need to consume existing inventories may also delay the impact of a
change in prices of raw materials or supplies. Significant changes in raw material costs may also increase the
potential for inventory value write-downs in the event of a reduction in selling prices and our inability to realize the cost
of the inventory.
Steelmaking facility or mine closures entail substantial costs. If our assumptions underlying our accruals for
closure costs prove to be inaccurate or we prematurely close one or more of our facilities or mines, our
results of operations and financial condition would likely be adversely affected.
If faced with overcapacity in the market or other adverse conditions, including as a result of the COVID-19
pandemic, we may seek to rationalize assets through asset sales, temporary shutdowns, indefinite idles or facility
closures. If we indefinitely idle or permanently close any of our facilities or mines, our production and revenues would
be reduced unless we were able to increase production at our other facilities or mines in an offsetting amount, which
may not be possible, and could result in customers responding negatively by taking current or future business away
from us if we seek to transition production to a different facility. Alternatively, we could fail to meet customer
specifications at the facilities to which products are transitioned, resulting in customer dissatisfaction or claims.
including
The closure of a steelmaking facility or mining operation involves significant closure costs,
reclamation and other environmental costs, the costs of terminating long-term obligations, including customer, energy
and transportation contracts and equipment leases, and certain accounting charges, including asset impairment and
accelerated depreciation.
In addition, a permanent steelmaking facility or mine closure could accelerate and
significantly increase employment legacy costs, including our expense and funding costs for pension and OPEB
obligations and multiemployer pension withdrawal liabilities. A number of employees would be eligible for immediate
retirement under special eligibility rules that apply upon a steelmaking facility or mine closure. All employees eligible
for immediate retirement under the pension plans at the time of the permanent closure also could be eligible for
OPEB, thereby accelerating our obligation to provide these benefits. Certain closures would precipitate a pension
closure liability significantly greater than an ongoing operation liability and may trigger certain severance liability
obligations.
We base our assumptions regarding the life of our mines on detailed studies we perform from time to time, but
those studies and assumptions are subject to uncertainties and estimates that may not be accurate. We recognize the
costs of reclaiming open pits, stockpiles, tailings ponds, roads and other mining support areas based on the estimated
mining life of our property. If our assumptions underlying our accruals for closure costs, including reclamation and
other environmental costs, prove to be inaccurate or insufficient, or our liability in any particular year is greater than
currently anticipated, our results of operations and financial condition could be adversely affected. In addition, if we
were to significantly reduce the estimated life of any of our mines, the mine closure costs would be applied to a
shorter period of production, which would increase costs per ton produced and could adversely affect our results of
operations and financial condition.
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Our sales and competitive position depend on the ability to transport our products to our customers at
competitive rates and in a timely manner.
Disruption of the lake, rail and/or trucking transportation services because of weather-related problems,
including ice and winter weather conditions on the Great Lakes or St. Lawrence Seaway, climate change, strikes, lock-
outs, driver shortages and other disruptions in the trucking industry, rail network constraints, global or domestic
pandemics or epidemics (such as the COVID-19 pandemic) or other infectious disease outbreaks, in each case
causing a business disruption, or other events and lack of alternative transportation options could impair our ability to
move products internally among our facilities and to supply products to our customers at competitive rates or in a
timely manner and, thus, could adversely affect our sales, margins and profitability. Further, dredging issues and
environmental changes, particularly at Great Lakes ports, could impact adversely our ability to move certain of our
products or result in higher freight rates. Similarly, we depend on third-party transportation services for delivery of raw
materials to us, and failures or delays in delivery would have an adverse effect on our ability to maintain steady-state
production operations to meet customer obligations.
Natural or human-caused disasters, weather conditions, disruption of energy, unanticipated geological
conditions, equipment failures, infectious disease outbreaks, and other unexpected events may lead our
customers, our suppliers or our facilities to curtail production or shut down operations.
Operating levels within our industry and the industries of our customers and suppliers are subject
to
unexpected conditions and events that are beyond the industries’ control. Those events, including the occurrence of
an infectious disease or illness, such as the COVID-19 pandemic, could cause industry members or their suppliers to
curtail production or shut down a portion or all of their operations, which could reduce the demand for our products
and adversely affect our sales, margins and profitability. For example, the temporary production shutdowns in the
automotive industry during 2020 as a result of the COVID-19 pandemic and associated reduction in demand for our
products led to our decision to temporarily idle certain steelmaking facilities and iron ore mines.
Our operating levels are subject to conditions beyond our control that can delay deliveries or increase the cost
of production for varying lengths of time. Factors that could cause production disruptions could include adverse
weather conditions (for example, extreme winter weather, tornadoes, floods, and the lack of availability of process
water due to drought) and natural and man-made disasters, lack of adequate raw materials, energy or other supplies,
and infectious disease outbreaks, such as the COVID-19 pandemic. In addition, factors that could adversely impact
production and operations at our mining operations include tailings dam failures, pit wall failures, unanticipated
geological conditions, including variations in the amount of rock and soil overlying deposits of iron ore and coal,
variations in rock and other natural materials, and variations in geologic conditions and processing changes.
Our mining operations, processing facilities, steelmaking and logistics operations depend on critical pieces of
equipment. This equipment may, on occasion, be out of service because of unanticipated failures or unplanned
outages. In addition, most of our mines and production and processing facilities have been in operation for several
decades, and the equipment is aged. In the future, we may experience additional lengthy shutdowns or periods of
reduced production because of equipment failures. Further, remediation of any interruption in production capability
may require us to make large capital expenditures that could have a negative impact on our profitability and cash
flows. Our business interruption insurance would not cover all of the lost revenues associated with equipment failures.
Longer-term business disruptions could result in a loss of customers, which could adversely affect our future sales
levels and revenues.
Many of our production facilities and mines are dependent on one source for electric power, natural gas,
industrial gases and/or certain other raw materials or supplies. A significant interruption in service from our suppliers
due to the COVID-19 pandemic, terrorism or sabotage, weather conditions, natural disasters, equipment failure or any
other cause could result in substantial losses that may not be fully recoverable, either from our business interruption
insurance or responsible third parties.
We incur certain costs when production capacity is idled, as well as increased costs to resume production at
previously idled facilities.
Our decisions concerning which facilities to operate and at what production levels are made based in part
upon our customers’ orders for products, as well as the quality, performance capabilities and cost of our operations.
During depressed market conditions, we may concentrate production at certain facilities and not operate others in
response to customer demand, and as a result we may incur idle costs that could offset our anticipated savings from
not operating the idled facility. For example, due to reduced demand as a result of the COVID-19 pandemic, certain of
our steelmaking facilities and iron ore mines were temporarily idled during portions of 2020 and we continued to incur
30
certain fixed costs at those facilities. We cannot predict whether our operations will experience additional disruptions
in the future.
When we restart idled facilities, we incur certain costs to replenish inventories, prepare the previously idled
facilities for operation, perform the required repair and maintenance activities, and prepare employees to return to
work safely and resume production responsibilities. The amount of any such costs can be material, depending on a
variety of factors, such as the period of idle time, necessary repairs and available employees, and is difficult to project.
We may not have adequate insurance coverage for some business risks.
Our operations are generally subject to a number of hazards and risks, which could result in personal injury or
damage to, or destruction of, equipment, properties or facilities. The insurance that we maintain to address risks that
are typical in our businesses may not provide adequate coverage. Insurance against some risks, such as liabilities for
environmental pollution, tailings basin breaches, or certain hazards or interruption of certain business activities, may
not be available at an economically reasonable cost, or at all. Even if available, we may self-insure where we
determine it is most cost effective to do so. As a result, despite the insurance coverage that we carry, accidents or
other negative developments involving our production, mining, processing or transportation activities causing losses in
excess of policy limits, or losses arising from events not covered under insurance policies, could have a material
adverse effect on our financial condition and cash flows.
A disruption in or failure of our IT systems, including those related to cybersecurity, could adversely affect
our business operations and financial performance.
We rely on the accuracy, capacity, integrity and security of our IT systems for the operation of many of our
business processes and to comply with regulatory, legal and tax requirements. While we maintain some of our critical
IT systems, we are also dependent on third parties to provide important IT services relating to, among other things,
operational process technology at our facilities, human resources, electronic communications and certain finance
functions. Further, in connection with the Acquisitions, we inherited certain legacy hardware and software IT systems
that can be supported only by a very limited number of specialists in the market, and our increased reliance on these
legacy IT systems may increase the risk of IT system disruption or failure, which could adversely affect our operations.
Despite the security measures that we have implemented, including those related to cybersecurity, our IT
systems could be breached or damaged by computer viruses, natural or man-made incidents or disasters, or
unauthorized physical or electronic access or intrusions. Though we have controls in place, we cannot provide
assurance that a cyberattack will not occur. Furthermore, we may have little or no oversight with respect to security
measures employed by third-party service providers, which may ultimately prove to be ineffective at countering
threats. We may also experience increased risk of IT system failures or cyberattacks as many of our employees
continue to work from home as part of our response to the COVID-19 pandemic. In addition, we may experience
increased risk of IT system failures or cyberattacks as transitional activities relating to the Acquisitions are in progress,
since these activities expose each company to the other’s security vulnerabilities, and because the Acquisitions may
attract the attention of potential cyber criminals.
in an interruption of
Failures of our IT systems, whether caused maliciously or inadvertently, may result in the disruption of our
business processes, or in the unauthorized release of sensitive, confidential, personally identifiable or otherwise
protected information, or result in the corruption of data, each of which could adversely affect our businesses. For
example, cybersecurity vulnerabilities could result
the functionality of our automated
manufacturing operating systems, which, if compromised, could cease, threaten, delay or slow down our ability to
produce or process steel or any of our other products for the duration of such interruption, which could result in
reputational harm and may adversely affect our results of operations, financial condition and cash flows. In addition,
any compromise of the security of our IT systems could result in a loss of confidence in our security measures and
subject us to litigation, regulatory investigations and negative publicity that could adversely affect our reputation and
financial condition. Our customers, suppliers and vendors may also access or store certain of our sensitive
information on their IT systems, which, if breached, attacked or accessed by unauthorized persons, could likewise
expose our sensitive information and adversely impact our businesses. Furthermore, as cybersecurity threats
continue to evolve and become more sophisticated, we may be required to incur significant costs and invest additional
resources to protect against and, if required, remediate the damage caused by such disruptions or system failures in
the future.
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V.
DEVELOPMENT AND SUSTAINABILITY RISKS
The cost and time to implement a strategic capital project may prove to be greater than originally anticipated.
From time to time, we undertake strategic capital projects, such as our recently-completed Toledo direct
reduction plant, in order to enhance, expand or upgrade our production and mining capabilities or diversify our
customer base. Our ability to achieve the anticipated production volumes, revenues or otherwise realize acceptable
returns on strategic capital projects that we may undertake is subject to a number of risks, many of which are beyond
our control, including a variety of market (such as a volatile pricing environment for our products), operational,
permitting and labor-related factors. Further, the cost to implement any given strategic capital project ultimately may
prove to be greater and may take more time than originally anticipated. Inability to achieve the anticipated results from
the implementation of our strategic capital projects, incurring unanticipated implementation costs or penalties, or the
inability to meet contractual obligations could adversely affect our results of operations and future earnings and cash
flow generation.
We must continually replace reserves depleted by production. Exploration activities may not result in
additional discoveries.
Our ability to replenish mineral reserves is important to our long-term viability. Depleted reserves must be
replaced by further delineation of existing mineral bodies or by locating new deposits in order to maintain production
levels over the long term. Decisions to defer mine development activities may adversely impact our ability to
substantially increase future mineral production. Resource exploration and development are highly speculative in
nature. Exploration projects involve many risks, require substantial expenditures and may not result in the discovery of
sufficient additional mineral deposits that can be mined economically. Once a mineral body is discovered, it may take
several years from the initial phases of drilling until production is possible, during which time the economic feasibility
of production may change. Substantial expenditures are required to establish recoverable proven and probable
reserves and to construct mining and processing facilities. As a result, there is no assurance that current or future
exploration programs will be successful, and there is a risk that depletion of reserves will not be offset by discoveries
or acquisitions.
We rely on estimates of our recoverable reserves, which is complex due to geological characteristics of the
properties and the number of assumptions made.
We regularly evaluate our iron ore and coal reserves based on revenues and costs and update them as
required in accordance with SEC regulations. We anticipate further updating our mining properties disclosure in
accordance with the SEC’s Final Rule 13-10570, Modernization of Property Disclosures for Mining Registrants, which
became effective February 25, 2019, and which rescinds SEC Industry Guide 7 following a two-year transition period,
which means that we will be required to comply with the new rule no later than our fiscal year beginning January 1,
2021.
Estimates of reserves and future net cash flows necessarily depend upon a number of variable factors and
assumptions, some of which are beyond our control, such as production capacity, effects of regulations by
governmental agencies, future prices for iron ore and coal, future industry conditions and operating costs, severance
and excise taxes, development costs, and costs of extraction and reclamation. Estimating the quantity and grade of
reserves requires us to determine the size, shape and depth of our mineral bodies by analyzing geological data, such
as samplings of drill holes. Estimated reserves could be affected by future industry conditions, future changes in the
SEC’s mining property disclosure requirements, geological conditions and ongoing mine planning. Actual volume and
grade of reserves recovered, production rates, revenues and expenditures with respect to our reserves will likely vary
from estimates, and if such variances are material, our sales and profitability could be adversely affected.
Defects in title or loss of any leasehold interests in our mining properties could limit our ability to mine these
properties or result in significant unanticipated costs.
Many of our operations are conducted on properties we lease, license or as to which we have easements or
other possessory interests. We generally do not maintain title insurance on our properties. A title defect or the loss of
any lease, license, easement or other possessory interest for any mining property could adversely affect our ability to
mine any associated reserves. In addition, from time to time the rights of third parties for competing uses of adjacent,
overlying or underlying lands, such as for roads, easements, public facilities or other mining activities, may affect our
ability to operate as planned if our title is not superior or mutually acceptable arrangements cannot be negotiated. Any
challenge to our title could delay the exploration and development of some reserves, deposits or surface rights, cause
us to incur unanticipated costs, and could ultimately result in the loss of some or all of our interest in those properties.
32
In the event we lose reserves, deposits or surface rights, we may be required to shut down or significantly alter
impacted mining operations, thereby affecting future production, revenues and cash flows.
In order to continue to foster growth in our businesses and maintain stability of our earnings, we must
maintain our social license to operate with our stakeholders.
Maintaining a strong reputation and consistent operational, environmental and safety track record is vital in
order to continue to foster growth and maintain stability in our earnings. As stakeholders’ sustainability expectations
increase and regulatory requirements continue to evolve, maintaining our social
license to operate becomes
increasingly important. Our ability to maintain our reputation and strong operating track record could be threatened,
including by challenges relating to the integration of
the AK Steel and ArcelorMittal USA businesses or by
circumstances outside of our control, such as disasters caused or suffered by other companies in the steel and mining
industries. If we are not able to respond effectively to these and other challenges to our social license to operate, our
reputation could be damaged significantly. Damage to our reputation could adversely affect our operations and ability
to foster growth projects.
VI. HUMAN CAPITAL RISKS
Our profitability could be adversely affected if we fail to maintain satisfactory labor relations.
Our production is dependent upon the efforts of our employees. We are party to labor agreements with
the majority of our operations. Such labor agreements are
various labor unions that represent employees at
negotiated periodically, and, therefore, we are subject to the risk that these agreements may not be able to be
renewed on reasonably satisfactory terms. It is difficult to predict what issues may arise as part of the collective
bargaining process, and whether negotiations concerning these issues will be successful. Due to union activities or
other employee actions, we could experience labor disputes, work stoppages or other disruptions in our production
that could affect us adversely. We have labor agreements that will expire at five locations in 2021 and sixteen
locations in 2022. If we enter into a new labor agreement with any union that significantly increases our labor costs
relative to our competitors or fail to come to an agreement upon expiry, our ability to compete or continuity of
production may be materially and adversely affected.
We may encounter labor shortages for critical operational positions, which could adversely affect our ability
to produce our products.
We are predicting a long-term shortage of skilled workers in heavy industry and in certain highly specialized IT
roles, and competition for the available workers limits our ability to attract and retain employees as well as engage
third-party contractors. As our experienced employees retire, we may have difficulty replacing them at competitive
wages.
in increased
inability to access
government restrictions and regulation, including quarantines of our personnel and potential
facilities, which has adversely affected and could continue to adversely affect our operations.
the ongoing COVID-19 pandemic has resulted and may continue to result
In addition,
Our expenditures for pension and OPEB obligations could be materially higher than we have predicted if our
underlying assumptions differ from actual outcomes, there are regulatory changes or our joint venture
partners fail to perform their obligations that relate to employee pension plans.
We provide defined benefit pension plans and OPEB to certain eligible union and non-union employees,
including our share of expense and funding obligations with respect to our unconsolidated joint ventures. Our pension
and OPEB expenses and our required contributions to our pension and OPEB plans are affected directly by the value
of plan assets, the projected and actual rate of return on plan assets, and the actuarial assumptions we use to
measure our defined benefit pension plan obligations, including the rate at which future obligations are discounted.
We cannot predict whether changing market or economic conditions, regulatory changes or other factors will increase
our pension and OPEB expenses or our funding obligations, diverting funds we would otherwise apply to other uses.
We have calculated our unfunded pension and OPEB obligations based on a number of assumptions. If our
assumptions do not materialize as expected, cash expenditures and costs that we incur could be materially higher.
Moreover, we cannot be certain that regulatory changes will not increase our obligations to provide these or additional
benefits. These obligations also may increase substantially in the event of adverse medical cost trends or unexpected
rates of early retirement, particularly for bargaining unit retirees. In addition, changes in the laws governing pensions
could also materially adversely affect our costs and ability to meet our pension obligations.
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We also contribute to certain multiemployer pension plans, including the Steelworkers’ Pension Trust, for
which we are one of the largest contributing employers. If other contributors were to default on their obligations to
contribute to any such plans, we could become liable for additional unfunded contributions to the plans.
In addition, some of the transactions in which we previously sold or otherwise disposed of our non-core
assets included provisions transferring certain pension and other liabilities to the purchasers or acquirers of those
assets. While we believe that all such transfers were completed properly and are legally binding, if the purchaser fails
to fulfill its obligations, we may be at risk that a court, arbitrator or regulatory body could disagree and determine that
we remain responsible for pension and other liabilities that we intended to and did transfer.
We depend on our senior management team and other key employees, and the loss of these employees could
adversely affect our businesses.
Our success depends in part on our ability to attract, retain, develop and motivate our senior management
and key employees. Achieving this objective may be difficult due to a variety of factors, including fluctuations in the
global economic and industry conditions, competitors’ hiring practices, cost reduction activities, and the effectiveness
of our compensation programs. Competition for qualified personnel can be intense. We must continue to recruit,
retain, develop and motivate our senior management and key personnel in order to maintain our business and support
our projects. A loss of senior management and key personnel could prevent us from capitalizing on business
opportunities, and our operating results could be adversely affected. We are also subject to the risk that the COVID-19
team or other key
pandemic may impact
employees.
the health or effectiveness of members of our senior management
Item 1B.
Unresolved Staff Comments
We have no unresolved comments from the SEC.
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Item 2.
Properties
The following map shows the locations of our operations and offices as of December 31, 2020:
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Corporate Offices
We lease our corporate headquarters in Cleveland, Ohio. We also have leased office space in West Chester,
Ohio and Chicago, Illinois. We own our office space located in Richfield, Ohio, and our Research and Innovation
Center located in Middletown, Ohio.
Steelmaking
Steelmaking and Finishing Facilities
Below is a listing and description of our principal steelmaking and finishing facilities:
Burns Harbor is a fully integrated steelmaking facility located on Lake Michigan in Northwest Indiana, 50 miles
southeast of Chicago. The location allows for prime shipping access to the Port of Indiana, as well as excellent
highway and railroad transport. Burns Harbor’s major production facilities include coke plant operations,
iron
producing, steel producing, hot rolling and finishing and plate rolling and heat treating. The plant operates two blast
furnaces and is capable of producing hot-rolled sheet, cold-rolled sheet and hot dip galvanized sheet. Burns Harbor is
capable of producing nearly 5 million net tons of raw steel annually. Burns Harbor serves key markets including the
automotive, appliance, construction, converters, distribution and pipe and tube markets.
Burns Harbor Plate and Gary Plate are located in Burns Harbor and Gary, Indiana, respectively, and are heat
treating and finishing operations producing carbon steel plate, high-strength low alloy steel plate and ASTM grades
steel plate. These operations serve the construction, distribution, energy, heavy equipment, infrastructure, military,
pipe and tube, rail car and shipbuilding markets.
Butler Works is located in Butler, Pennsylvania, and produces stainless, electrical and carbon steel. Melting
takes place in an EAF that feeds an argon-oxygen decarburization unit for the specialty steels. A ladle metallurgy
furnace feeds two double-strand continuous casters, which are capable of producing 1 million net tons of raw steel
annually. Butler Works also includes a hot rolling mill, annealing and pickling units and two tandem cold rolling mills.
It also has various intermediate and finishing operations for both stainless and electrical steels. Butler Works primarily
serves the power and distribution transformers and stainless and carbon converters markets.
The Cleveland facility is an integrated steelmaking facility strategically located on the Cuyahoga River in
Cleveland, Ohio, with access to the Port of Cleveland and Great Lakes shipping, as well as excellent highway and
railroad transport. The Cleveland facility is supplied with coke from our cokemaking operations in Warren, Ohio.
Cleveland's major production facilities include two blast furnaces, two steel producing facilities, an 84-inch hot strip
mill, a pickling line, a five-stand tandem mill, and a hot dip coating line. The plant's two blast furnaces feed the two
steelmaking facilities, which are capable of producing more than 3 million net tons of raw steel annually. Products
made at this location are hot-rolled, cold-rolled and hot-dipped galvanized sheet and semi-finished slabs. The
Cleveland facility serves the automotive, construction, converters and distribution markets.
The Kote and Tek operations are located in New Carlisle, Indiana, and receive substantially all of their
feedstock from Indiana Harbor via daily unit trains. Cleveland-Cliffs Tek is a continuous cold-rolling plant that is
capable of producing 1.7 million net tons of sheet steel annually through a continuous descale cold mill and 1.0 million
net tons of sheet steel annually through a continuous annealing processing line. Cleveland-Cliffs Kote has separate
lines producing 0.5 million net
tons of
electrogalvanized sheet annually. The principal customers of Kote and Tek are in the automotive and appliance
markets.
tons of hot-dip galvanized and galvannealed and 0.5 million net
Coatesville is a steel plate production facility located in Coatesville, Pennsylvania, about 40 miles west of
Philadelphia, Pennsylvania, and has access to highways and railroads. The facility produces steel from scrap in an
EAF and is capable of producing approximately 0.8 million net tons of raw steel annually. The facility also operates
ingot teeming facilities, a slab caster, two plate mills, heat-treating facilities, quench and temper and flame-cut shape
facilities.
together with the
Conshohocken facility, produces some of the widest, thickest and heaviest steel plates in the industry. Steel plate
products made at this location include carbon, high-strength low-alloy, commercial alloy, military alloy and flame-cut
steel. Coatesville serves the aircraft and aerospace, construction, distribution, energy, heavy equipment, military,
mold and tool and shipbuilding markets.
The Coatesville facility refines more than 450 different steel chemistries and,
Our Columbus operations include a hot-dip galvanizing facility in Columbus, Ohio, and a processing facility in
nearby Obetz, Ohio. These operations are temporarily idled due to the COVID-19 pandemic. These central Ohio
locations are able to utilize highway and rail transport shipping access. Two zinc pots enable the transition between
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coatings to be accomplished in a timely manner while allowing for longer exposed runs. The plant produces hot-dip
galvanized sheet using cold-rolled coils supplied by other Cliffs facilities and is capable of coating 450,000 net tons
annually. The Columbus operations serve the automotive and distribution markets.
Conshohocken is a plate finishing facility located on the Schuylkill River adjacent
to Philadelphia,
Pennsylvania. The area is surrounded by highway and railroad systems that provide shipping access. Coatesville
supplies steel plate to the Conshohocken plant, which operates heat treat, finishing and inspection facilities for steel
plate finishing. The Conshohocken plant has a steckel mill that is currently idled, which is capable of producing coil
and discrete plates. Conshohocken plate products are used in construction and military applications.
Coshocton Works is located in Coshocton, Ohio, and consists of a stainless steel finishing plant containing
two Sendzimer mills and two Z-high mills for cold reduction, four annealing and pickling lines, bell annealing furnaces,
two bright annealing lines, two temper mills, and other processing equipment, including temper rolling, slitting and a
packaging line. Coshocton Works produces various flat-rolled stainless steel products including austenitic (chrome
nickel) stainless steel grades, martensitic (chrome) stainless steel grades and ferritic (chrome) stainless steel grades,
serving the automotive, appliance, distribution and medical markets among others.
Dearborn Works is located in Dearborn, Michigan, with carbon steel melting, casting, cold rolling and finishing
operations for carbon steel. The major production facilities include a blast furnace, basic oxygen furnaces, two ladle
metallurgy furnaces, a vacuum degasser,
two slab casters, a pickling line tandem cold mill and a hot-dipped
galvanizing line. Dearborn Works is capable of producing between 2 and 3 million net tons of raw steel annually.
Products made at this location include carbon slabs, hot dip galvanized ZINCGRIP®, hot dip galvannealed ZINCGRIP
GA steel and AHSS. Dearborn Works serves the automotive, heating, ventilation and air conditioning, converters and
distribution markets. During 2020, the Dearborn Works hot strip mill, anneal and temper operations were permanently
idled as part of our cost reduction efforts.
Indiana Harbor is one of the largest integrated steelmaking facilities in North America and is located in East
Chicago, Indiana, just 20 miles southeast of Chicago, Illinois. The major production facilities include three blast
furnaces, two of which are currently operating, a recycle plant, four basic oxygen furnaces, ladle metallurgy facilities
and vacuum degassing, four continuous casting machines, a slab dimensioning facility, an 80-inch hot strip mill, a
pickling line, a five-stand tandem mill, batch and continuous annealing, a temper mill and two hot-dip galvanizing
lines.
Indiana Harbor currently operates two blast furnaces capable of producing 5.5 million net tons of raw steel
annually and has a diverse facility capable of making a full range of flat products, including AHSS, American
Indiana Harbor is a
Petroleum Institute pipe skelp, motor-laminations, automotive exposed and martinsitic grades.
leader in North American development of new automotive products, and is a primary supplier of coils to Kote and Tek.
Indiana Harbor serves the automotive, appliance, contractor applications, distribution, strip converters and tubular
markets.
Mansfield Works is located in Mansfield, Ohio, and produces high chrome ferritics and martensitic stainless
steels and semi-finished hot bands. The major production facilities include a melt shop with two EAFs, an argon
oxygen decarburization unit, a ladle metallurgy facility, a thin slab continuous caster, a walking beam slab furnace and
a hot rolling mill. The thin slab caster uses an advanced technology production system to meet customer
specifications. Mansfield Works is capable of producing approximately 0.6 million net tons of raw steel annually.
Mansfield Works serves the automotive and appliance for stainless products markets.
Middletown Works is an integrated steel operation with carbon steel melting, casting, hot and cold rolling, and
finishing operations located in Middletown, Ohio. The major production facilities include a coke facility, a blast
furnace, basic oxygen furnaces, a Composition Adjustment by Sealed argon bubbling – Oxygen Blowing (CAS-OB), a
vacuum degasser and a continuous caster for the production of carbon steel, which is capable of producing nearly 3
million net tons of raw steel annually. Middletown Works also has a hot strip mill, pickling lines, a five-stand cold mill,
an electrogalvanizing line, a hot dip carbon and stainless aluminizing line, a hot dip galvanizing line, box annealing
furnaces, temper mills and an open coil annealing facility for finishing products. Products made at this location
include hot-rolled and cold-rolled carbon steels, enameling steels, electrogalvanized ZINCGRIP ELECTRASMOOTH®
steels, hot dip galvanized ZINCGRIP products and aluminized carbon and stainless steels. Middletown Works serves
the automotive, appliance, heating, ventilation and air conditioning, culvert and distribution markets.
Piedmont is a finishing facility located in Newton, North Carolina, 50 miles northwest of Charlotte. The facility
specializes in plasma cutting plate steel products into blanks for machinery and automotive manufacturers and
primarily serves the truck axle blank business. Additionally, it provides services such as part leveling and just-in-time
deliveries.
37
Riverdale is a compact strip mill that produces hot-rolled sheet located in Illinois, 14 miles west of our Indiana
Harbor facility. The location allows for close shipping access to Lake Michigan, and is surrounded by highway and
railroad systems. The Riverdale facility operates two basic oxygen furnaces, a ladle metallurgy facility, continuous
thin slab caster, tunnel furnace and hot strip mill, which are capable of producing approximately 1 million net tons of
thin-slab casting and rolling annually.
The light gauge capabilities and tight gauge tolerances are desired
characteristics for line pipe and structural and mechanical tubing producers. Principal products made at this plant
include hot-rolled black bands in a full range of grades, including high carbon and alloy. The Riverdale facility
primarily serves cold-rolled strip producers who supply the automotive, saw blade and strapping markets.
Rockport Works is located on the Ohio River in southwest Indiana near Rockport, Indiana. Rockport Works
consists of a carbon and stainless steel finishing plant containing a continuous cold rolling mill, a continuous hot-dip
galvanizing and galvannealing line, a continuous carbon and stainless steel pickling line, a continuous stainless steel
annealing and pickling line, hydrogen annealing facilities and a temper mill. Utilizing innovative manufacturing
technologies, the plant incorporates automated guidance vehicles and automated cranes to move the steel through
the various finishing operations. Steels from Rockport Works include a full range of cold-rolled carbon, coated and
stainless steels in either the annealed and pickled or temper rolled surface condition. Product offerings include a wide
variety of AHSS. The Rockport Works hot dip galvanizing and galvannealing line incorporates revolutionary
proprietary technologies, including induction transition heating, which provides rapid, accurate annealing temperature
control.
In addition, the Rockport Works line produces 80-inch sheet steel. Rockport Works serves the automotive,
appliance, heating, ventilation and air conditioning and distribution for carbon and stainless markets.
Steelton is one of only three rail producers in North and South America and is located in Steelton,
Pennsylvania, about 100 miles west of Philadelphia, Pennsylvania. Steelton consists of a 150 net ton direct current
EAF with ladle refining and vacuum degassing, a three-strand continuous jumbo bloom caster and an ingot teeming
facility. Steelton has an annual steelmaking capacity of 1 million net tons. Steelton produces railroad rails, specialty
blooms and flat bars for use in railroad and forging markets.
Our Weirton facility is a tinplate facility located on the northern panhandle of West Virginia along the Ohio
River in the city of Weirton, West Virginia. The location provides shipping access along the Ohio River, as well as
highway and railroad shipping. Products made at this location include cold-rolled and tinplate products serving the
distribution and packaging markets.
Zanesville Works is located on the Muskingum River in Zanesville, Ohio. The finishing facility's products
include regular GOES and cold-rolled NOES. These specialty flat-rolled steels enable customers to create a variety of
products, including generators, transformers and a host of other electrical devices. The primary markets Zanesville
Works serves are the power and distribution transformers markets.
In the aggregate, we have annual production capacity of approximately 23 million net tons of raw steel. Due
to the timing of the Acquisitions and the idling of facilities in response to impacts of the COVID-19 pandemic, our
steelmaking facilities produced a total of 4 million net tons of raw steel during the year ended December 31, 2020.
Direct Reduction Plant, Iron Ore Mines and Pellet Plants
Our direct reduction plant is located in Toledo, Ohio, and is near an existing dock, has rail access and heavy
haul roads for operation logistics. We are leasing the property on which the plant is located. Our Toledo direct
reduction plant, which began production in the fourth quarter of 2020, produces a specialized high quality iron
alternative to scrap and pig iron. The Toledo direct reduction plant has annual capacity of 1.9 million metric tons of
HBI per year, and we expect to reach full production rate by the second quarter of 2021.
All of our iron ore mining operations are open-pit mines. Additional pit development is underway as required
by long-range mine plans. Drilling programs are conducted periodically to collect modeling data and for refining
ongoing operations.
Geologic models are developed for all mines to define the major ore and waste rock types. Computerized
block models for iron ore are constructed that include all relevant geologic and metallurgical data. These are used to
generate grade and tonnage estimates, followed by detailed mine design and life of mine operating schedules.
We currently own or co-own five operating iron ore mines in Michigan and Minnesota, as well as one
indefinitely idled mine in Michigan. Following the AM USA Transaction, we now have an aggregate annual production
capacity of approximately 28 million long tons of iron ore pellets, including our 85.3% share of the Hibbing mine
production. Historically, our share of production capacity was approximately 21 million long tons of iron ore pellets
38
annually. We produced 17 million, 20 million and 20 million long tons of iron ore pellets in 2020, 2019 and 2018,
respectively.
Our iron ore mines produce from deposits located within the Biwabik and Negaunee Iron Formation, which
are classified as Lake Superior type iron formations that formed under similar sedimentary conditions in shallow
marine basins approximately two billion years ago. Magnetite and hematite are the predominant iron oxide ore
minerals present, with lesser amounts of goethite and limonite. Quartz is the predominant waste mineral present, with
lesser amounts of other chiefly iron bearing silicate and carbonate minerals. The ore minerals liberate from the waste
minerals upon fine grinding.
The Hibbing mine is located in the center of Minnesota’s Mesabi Iron Range and is approximately ten miles
north of Hibbing, Minnesota, and five miles west of Chisholm, Minnesota. We own an 85.3% interest in the Hibbing
mine, which has been operating since 1976. A subsidiary of U.S. Steel owns the remaining 14.7% of the Hibbing
mine. Prior to the AM USA Transaction, we owned 23% of Hibbing, ArcelorMittal USA had a 62.3% interest and
U.S. Steel had a 14.7% interest. On December 9, 2020, as a result of the AM USA Transaction, we acquired an
additional 62.3% ownership stake in the Hibbing mine and became the majority owner and mine manager. Each
partner takes its share of production pro rata; however, provisions in the joint venture agreement allow additional or
reduced production to be delivered under certain circumstances.
In 2020, the Hibbing mine produced 5.5 million long
tons of iron ore pellets, of which 1.6 million long tons were for our account. Hibbing owns 3% of the ore reserves and
leases 97% via multiple mineral leases having varying expiration dates. Mining leases routinely are renegotiated and
renewed as they approach their respective expiration dates. Hibbing operations consist of an open pit truck and
shovel mine, a concentrator that utilizes single stage crushing, AG mills and magnetic separation to produce a
magnetite concentrate, which is then delivered to an on-site pellet plant. From the site, pellets are transported by
BNSF rail to a ship loading port at Superior, Wisconsin, operated by BNSF.
The Minorca mine is located in the center of Minnesota’s Mesabi Iron Range near Virginia, Minnesota.
In
2020, the mine produced 2.8 million long tons of iron ore pellets, of which approximately 0.2 million long tons were
produced during the period subsequent to the AM USA Transaction. We own 100% of the Minorca mine, which has
been operating since 1977, and lease 100% of the mineral rights. Mining is conducted on multiple mineral leases
having varying expiration dates. Mining leases routinely are renegotiated and renewed as they approach their
respective expiration dates. This operation includes a concentrating and pelletizing facility, along with two open pit
iron ore mines located approximately seven miles from the processing facilities. The processing operations consist of
a crushing facility, a three-line concentration facility and a single-line straight grate pelletizing plant. Pellets are
transported by CN rail to ports on Lake Superior and shipped to Indiana Harbor located in East Chicago, Indiana.
The Northshore mine is located in northeastern Minnesota, approximately two miles south of Babbitt,
Minnesota, on the northeastern end of the Mesabi Iron Range. Northshore’s processing facilities are located in Silver
In 2020, the Northshore mine produced 3.8 million long tons of iron ore pellets,
Bay, Minnesota, near Lake Superior.
including both standard and DR-grade pellets. We own 100% of the Northshore mine, which has been operating
since 1990, and lease 100% of the mineral rights. Mining is conducted on multiple mineral leases having varying
expiration dates. Mining leases routinely are renegotiated and renewed as they approach their respective expiration
dates. Operations consist of an open pit truck and shovel mine where two stages of crushing occur before the ore is
transported along a wholly owned 47-mile rail line to the plant site in Silver Bay. At the plant site, two additional
stages of crushing occur before the ore is sent to the concentrator. The concentrator utilizes rod mills and magnetic
separation to produce a magnetite concentrate, which is delivered to the pellet plant located on-site. The plant site
has its own ship loading port located on Lake Superior.
The Tilden mine is located on the Marquette Iron Range in Michigan’s Upper Peninsula approximately five
miles south of Ishpeming, Michigan.
In 2020, the Tilden mine produced 6.3 million long tons of iron ore pellets. We
own 100% of the Tilden mine, which has been operating since 1974. We own 91% and lease the remaining 9% of the
ore reserves. Operations consist of an open pit truck and shovel mine, a concentrator that utilizes single stage
crushing, AG mills, magnetite separation and floatation to produce hematite and magnetite concentrates that are then
supplied to the on-site pellet plant. From the site, pellets are transported by our LS&I rail to a ship loading port at
Marquette, Michigan, operated by LS&I.
The United Taconite mine is located on Minnesota’s Mesabi Iron Range in and around the city of Eveleth,
Minnesota. The United Taconite concentrator and pelletizing facilities are located ten miles south of the mine, near
the town of Forbes, Minnesota.
In 2020, the United Taconite mine produced 5.2 million long tons of iron ore pellets.
We own 100% of the United Taconite mine, which has been operating since 1965, and lease 100% of the mineral
rights. Mining is conducted on multiple mineral leases having varying expiration dates. Mining leases routinely are
renegotiated and renewed as they approach their respective expiration dates. United Taconite operations consist of
39
an open pit truck and shovel mine where two stages of crushing occur before the ore is transported by rail, operated
by CN, to the plant site. At the plant site an additional stage of crushing occurs before the ore is sent to the
concentrator. The concentrator utilizes rod mills and magnetic separation to produce a magnetite concentrate, which
is delivered to the on-site pellet plant. From the plant site, pellets are transported by CN rail to a ship loading port at
Duluth, Minnesota, operated by CN.
The Empire mine was indefinitely idled in 2016 and had an annual iron ore pellet production capability of 6
million long tons. We own 47% of the ore reserves and lease the remaining 53%.
Coal Mining and Cokemaking
Princeton is a coal mining complex located in West Virginia that specializes in surface and underground
mining of metallurgical coal to produce coke and pulverized coal injection coal. We have annual rated metallurgical
coal production capacity of 2.3 million net tons from our Princeton mine.
In 2020, the mine produced approximately
1.6 million net tons of coal, of which approximately 0.1 million net tons were produced during the period subsequent to
the AM USA Transaction. We own 100% of the Princeton mine, which has been operating since 1995. We own 52%
leases having varying expiration dates. Mining leases
of the coal reserves and lease 48% via multiple mineral
routinely are renegotiated and renewed as they approach their respective expiration dates. Princeton's operations
consist of two open-pit surface mines, two underground mines, a preparation plant and two rail loadouts.
In 2020, our cokemaking facilities produced between 2.0 million and 2.5 million net tons of coke, of which
approximately 0.6 million net tons were produced during the period subsequent to the respective date of acquisition
for each facility. Mountain State Carbon produces furnace coke and related by-products from its plant in Follansbee,
West Virginia, which consists of
four batteries. Monessen produces furnace coke and related by-products in
Monessen, Pennsylvania, and is temporarily idled due to the COVID-19 pandemic. Warren produces furnace coke
and related by-products from its plant
in Warren, Ohio, and supplies the Cleveland facility. We also operate
cokemaking facilities located within Burns Harbor and Middletown Works.
Other Businesses
Our Tubular operating segment consists of our subsidiary Tubular Components, which has plants in
Walbridge, Ohio; Columbus, Indiana; and Queretaro, Mexico. The Walbridge plant operates six electric resistance
welded tube mills. The Columbus plant also operates six electric resistance welded tube mills and four high-speed
cold saws on leased property. The plant in Queretaro, Mexico is currently in the process of being shut down and has
ceased tube production. The Queretaro plant is located on leased land in a leased building, under a lease that expires
in April 2021. The high-speed cold saw that was operating at the Queretaro plant has already been relocated to the
Columbus plant and the tube mill will be returned to the U.S. and replace an existing, older tube mill currently in
operation.
Our Tooling and Stamping operating segment consists of our subsidiary Precision Partners, which provides
tool design and build, hot- and cold-stamped steel components and complex
advanced-engineered solutions,
these are under long-term lease
assemblies for the automotive market across ten plants, of which certain of
Its facilities feature seven large-bed, hot-stamping presses, providing
agreements, in Ontario, Alabama and Kentucky.
13 lines of production; 81 cold-stamping presses ranging from 150 net tons to 3,000 net tons of pressing capacity; 17
large-bed, high-tonnage tryout presses with prove-out capabilities for new tool builds; and 144 multi-axis welding
assembly cells. We are also in the process of constructing a new Precision Partners facility in Tennessee. We expect
to complete construction and begin production of prototype components in the third quarter of 2021, and expect to
reach commercial production in the first quarter of 2022.
Mineral Policy
We have a corporate policy prescribing internal controls and procedures with respect
to auditing and
estimating of minerals. The procedures contained in the policy include the calculation of mineral estimates at each
property by our engineers, geologists and accountants, as well as third-party consultants. Management compiles and
reviews the calculations, and once finalized, such information is used to prepare the disclosures for our annual and
quarterly reports. The disclosures are reviewed and approved by management, including our chief executive officer
and chief financial officer. Additionally, the long-range mine planning and mineral estimates are reviewed annually by
our Audit Committee. Furthermore, all changes to mineral estimates, other than those due to production, are
adequately documented and submitted to senior operations officers for review and approval. Finally, periodic reviews
of long-range mine plans and mineral reserve estimates are conducted at mine staff meetings, senior management
meetings and by independent experts.
40
Reserves are defined by SEC Industry Standard Guide 7 as that part of a mineral deposit that could be
economically and legally extracted and produced at the time of the reserve determination. All reserves are classified
as proven or probable and are supported by life-of-mine plans.
Reserve estimates are based on pricing that does not exceed the three-year trailing average index price of
iron ore and coal adjusted to realized price. We evaluate and analyze mineral reserve estimates in accordance with
our mineral policy and SEC requirements. The table below identifies the year in which the latest reserve estimate was
completed.
Property
Date of Latest
Economic
Reserve Analysis
Iron ore mines:
Hibbing
Minorca
Northshore
Tilden
United Taconite
Coal mines:
Princeton
2015
2019
2020
2019
2019
2019
Ore reserve estimates for our iron ore mines were estimated from fully designed open pits developed using
three-dimensional modeling techniques. These fully designed pits incorporate design slopes, practical mining shapes
and access ramps to assure the accuracy of our reserve estimates. All operations' reserves have been adjusted net
of production through 2020.
The following represents iron ore mineral reserves:
Iron Ore Mineral Reserves
as of December 31, 2020
(In Millions of Long Tons)
Property
Hibbing1
Minorca
Northshore
Tilden2
United Taconite
Total
Proven
Probable
Proven & Probable
Tonnage
% Grade
Tonnage
% Grade
Tonnage
% Grade3
Process Recovery4
76
113
318
168
158
833
19.7
23.6
25.3
35.2
23.1
25
7
519
418
631
1,600
19.6
25.3
24.1
34.8
22.1
101
120
837
586
789
2,433
19.7
23.7
24.6
34.8
22.3
27%
31%
29%
34%
31%
1 The Hibbing mine is reported on a 100% basis, of which, our ownership is 85.3%.
2 Tilden hematite reported grade is percent FeT; all other properties are percent magnetic iron.
3 Cutoff for Tilden hematite is 25% FeT. Cutoff grades for magnetic ore are 20% for Tilden, 19% for Northshore, 16% for Minorca,
17% for United Taconite and 15% for Hibbing.
4 Process recovery includes all factors for converting crude ore tonnage, shown above, to a dry saleable product.
The following represents recoverable coal reserves:
Recoverable Coal Reserves
as of December 31, 2020
(In Millions of Net Tons)
Property
Princeton Coal
Proven
Probable
ROM
Wet
Recovery
ROM
Wet
Recovery
Proven & Probable
Wet
ROM
Recovery Ash % Sulfur %
Volatile
%
69.5
44.7
26.5
11.0
96.0
55.7
5%
0.7%
18%
41
Item 3.
Legal Proceedings
Legal Proceedings Relating to our Business
Mesabi Metallics Adversary Proceeding. On September 7, 2017, Mesabi Metallics Company LLC (f/k/a Essar
Steel Minnesota LLC) ("Mesabi Metallics") filed a complaint against Cleveland-Cliffs Inc. in the Essar Steel Minnesota
LLC and ESML Holdings Inc. bankruptcy proceeding that is pending in the United States Bankruptcy Court, District of
Delaware. Mesabi Metallics alleges tortious interference with its contractual rights and business relations involving
certain vendors, suppliers and contractors, violations of federal and Minnesota antitrust laws through monopolization,
attempted monopolization and restraint of trade, violation of the automatic stay, and civil conspiracy with unnamed
Doe defendants. Mesabi Metallics amended its complaint to add additional defendants, including, among others, our
subsidiary, Cleveland-Cliffs Minnesota Land Development Company LLC ("Cliffs Minnesota Land"), and to add
additional claims, including avoidance and recovery of unauthorized post-petition transfers of real estate interests,
claims disallowance, civil contempt and declaratory relief. Mesabi Metallics seeks, among other things, unspecified
damages and injunctive relief. Cliffs and Cliffs Minnesota Land filed counterclaims against Mesabi Metallics,
Chippewa Capital Partners ("Chippewa"), and Thomas M. Clarke ("Clarke") for tortious interference and civil
conspiracy, as well as additional claims against Chippewa and Clarke for aiding and abetting tortious interference, for
which we seek, among other things, damages and injunctive relief. Our counterclaim against Clarke for libel was
dismissed on jurisdictional grounds. The parties filed various dispositive motions on certain of the claims, including a
motion for partial summary judgment to settle a dispute over real estate transactions between Cliffs Minnesota Land
and Glacier Park Iron Ore Properties LLC ("GPIOP"). A ruling in favor of Cliffs, Cliffs Minnesota Land and GPIOP was
issued on July 23, 2018,
leases had terminated and upholding Cliffs' and Cliffs
Minnesota Land's purchase and lease of the contested real estate interests. Mesabi Metallics filed a Motion for Leave
to File an Interlocutory Appeal, which was denied on September 10, 2019. Discovery is ongoing. We believe the
claims asserted against us are without merit, and we intend to continue to vigorously defend against any remaining
claims in the lawsuit.
finding that Mesabi Metallics'
Mesabi Trust Arbitration. On December 9, 2019, Mesabi Trust filed a demand for arbitration with the American
Arbitration Association against Northshore and Cleveland-Cliffs Inc. alleging various breaches of a royalty agreement
under which Northshore extracts iron ore from Mesabi Trust lands in return for paying royalties to Mesabi Trust. In its
demand, Mesabi Trust asserts that we improperly based royalty payments for intercompany sales of DR-grade pellets
on artificially low pricing of DR-grade pellet sales to one of our arms’ length third-party customers. Mesabi Trust further
asserts that we paid royalties too soon on DR-grade pellets stockpiled at Northshore and destined for shipment to our
Toledo direct reduction plant. The allegations also include failure to provide access to information and individuals
necessary to determine compliance with the royalty agreement. In addition to seeking damages and costs, Mesabi
Trust seeks declarations as to the methodology and timing for calculating royalties on our intercompany DR-grade
pellet sales, and that Mesabi Trust should have full and unfettered access to all of our information and employees.
During 2020, the parties appointed a three-member arbitration panel and engaged in discovery. The arbitration
hearing is scheduled for May 2021. We believe the claims asserted against us are without merit, and we intend to
vigorously defend against them.
Certain Legacy Legal Proceedings Relating to our Steel Operations. Certain of our acquired subsidiaries have
been named as defendants, among many other named defendants, in numerous lawsuits filed since 1990 claiming
injury allegedly resulting from exposure to asbestos. Similar lawsuits seeking monetary relief continue to be filed in
various jurisdictions in the U.S., which cases are vigorously defended. Although predictions about the outcome of
is unlikely that the
pending litigation is subject to uncertainties, based upon present knowledge, we believe it
resolution in the aggregate of these claims will have a materially adverse effect on our consolidated results of
operations, cash flows or financial condition.
Legal Proceedings Relating to Environmental Matters
SEC regulations require us to disclose certain information about administrative or judicial proceedings
involving the environment and to which a governmental authority is a party if we reasonably believe that such
proceedings may result in monetary sanctions above a stated threshold. Pursuant to SEC regulations, we use a
threshold of $1 million for purposes of determining whether disclosure of any such proceedings is required. We
believe that this threshold is reasonably designed to result in disclosure of any such proceedings that are material to
our business or financial condition. Applying this threshold, we are disclosing the following environmental proceedings
for the period covered by this report:
Dearborn Works Air NOVs. On November 18, 2019, November 26, 2019, and March 16, 2020, EGLE issued
NOVs with respect to the basic oxygen furnace electrostatic precipitator at Dearborn Works alleging violations of
manganese, lead and opacity limits. We are investigating these claims and will work with EGLE to attempt to resolve
42
them. We intend to vigorously contest any claims that cannot be resolved through a settlement. Until a settlement is
reached with EGLE or the claims of the NOVs are otherwise resolved, we cannot reasonably estimate the costs, if
any, associated with any potentially required work.
Additional information for this item relating to certain other environmental proceedings may be found under
the headings EPA Administrative Order In Re: Ashland Coke and Burns Harbor Water Issues in NOTE 21 -
COMMITMENTS AND CONTINGENCIES to the consolidated financial statements in Part II – Item 8. Financial
Statements and Supplementary Data, which information is incorporated herein by reference.
Item 4.
Mine Safety Disclosures
We are committed to protecting the occupational health and well-being of each of our employees. Safety is
one of our core values, and we strive to ensure that safe production is the first priority for all employees. Our internal
objective is to achieve zero injuries and incidents across the Company by focusing on proactively identifying needed
prevention activities, establishing standards and evaluating performance to mitigate any potential
loss to people,
equipment, production and the environment. We have implemented intensive employee training that is geared toward
maintaining a high level of awareness and knowledge of safety and health issues in the work environment through the
development and coordination of requisite information, skills and attitudes. We believe that through these policies, we
have developed an effective safety management system.
Under the Dodd-Frank Act, each operator of a coal or other mine is required to include certain mine safety
results within its periodic reports filed with the SEC. As required by the reporting requirements included in §1503(a) of
the Dodd-Frank Act and Item 104 of Regulation S-K, the required mine safety results regarding certain mining safety
and health matters for each of our mine locations that are covered under the scope of the Dodd-Frank Act are
included in Exhibit 95 of Part IV – Item 15. Exhibits and Financial Statement Schedules of this Annual Report on Form
10-K.
43
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
PART II
Stock Exchange Information
Our common shares (ticker symbol CLF) are listed on the NYSE.
Holders
At February 24, 2021, we had 2,586 shareholders of record.
Shareholder Return Performance
The following graph shows changes over the past five-year period in the value of $100 invested in: (1) Cliffs'
common shares; (2) S&P 500 Index; (3) S&P Small Cap 600 Index; and (4) S&P Metals and Mining Select Industry
Index. The values of each investment are based on price change plus reinvestment of all dividends reported to
shareholders, based on monthly granularity.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2020
1000
800
600
400
200
0
2015
2016
2017
2018
2019
2020
Cleveland-Cliffs Inc.
S&P SmallCap 600 Index
S&P 500 Index
S&P Metals and Mining Select Industry Index
Cleveland-Cliffs Inc.
S&P 500 Index
Return %
Cum $
Return %
Cum $
S&P Small Cap 600 Index
Return %
S&P Metals and Mining Select
Industry Index
Cum $
Return %
Cum $
2015
2016
2017
2018
2019
2020
—
100.00
—
100.00
—
100.00
—
100.00
432.28
532.28
11.93
111.93
26.46
126.46
105.09
205.09
(14.27)
456.32
21.80
136.33
13.15
143.09
20.61
247.36
6.66
486.71
(4.39)
130.35
(8.52)
130.90
(26.76)
181.17
12.60
548.04
31.48
171.38
22.74
160.66
14.70
207.80
77.46
972.55
18.39
202.90
11.24
178.72
15.97
240.98
44
Issuer Purchases of Equity Securities
The following table presents information with respect to repurchases by the Company of our common shares
during the periods indicated:
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of
Shares
(or Units)
Purchased1
Average Price
Paid per Share
(or Unit)
2,293 $
3,594
262
6,149 $
6.69
7.23
12.88
7.27
Total Number of
Shares (or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet be
Purchased Under the
Plans or Programs
— $
—
—
— $
—
—
—
—
Period
October 1 - 31, 2020
November 1 - 30, 2020
December 1 - 31, 2020
Total
1 All shares were delivered to us to satisfy tax withholding obligations due upon the vesting or payment of stock awards.
Item 6.
Selected Financial Data
[Reserved]
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations is designed to
provide a reader of our financial statements with a narrative from the perspective of management on our financial
condition, results of operations, liquidity and other factors that may affect our future results. The following discussion
should be read in conjunction with the consolidated financial statements and related notes that appear in Part II – Item
8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
Overview
The year 2020 represented a transformative period in our Company's 173-year history. During the year, we
completed the vertical integration of our legacy iron ore pellet business with the acquisitions of steelmakers AK Steel
and ArcelorMittal USA, becoming the largest flat-rolled steel producer in North America. Our new unique, vertically
integrated business model provides a competitive advantage over other steelmakers that procure a larger proportion
of their steelmaking raw materials from external sources, and allows us to control our production from upstream
mining to downstream stamping and tubing.
We believe the Acquisitions give us a leading position in the highly desirable automotive end market, where
we supply best-in-class volumes, quality and delivery performance, and give us the most comprehensive flat steel
product offering in the industry. Due to the much larger operational footprint we now have, we anticipate synergies of
approximately $310 million from asset optimization, economies of scale and streamlining overhead, over half of which
has already been set in motion.
We are now focused on maximizing the value of the iron ore pellets we produce from our legacy and recently
acquired mines in Michigan and Minnesota. A majority of the pellets we produce is dedicated to internal consumption,
and we do not rely on external sources of pellets. As such, our new Steelmaking segment captures effectively all of
the production activity in the steelmaking process, which begins at our mines.
In 2020, we also completed construction of and began production at our state-of-the-art direct reduction plant
in Toledo, Ohio. This facility produces high-quality HBI, and is the first of its kind in the Great Lakes region. Our HBI
provides a high-quality and environmentally friendly alternative to the scrap and imported pig iron that our potential
customers currently utilize. We expect to begin selling this product to third parties during the first quarter of 2021 and
reach nameplate capacity at our direct reduction plant during the second quarter of 2021.
Along with these notable accomplishments, we have been able to successfully navigate through the
COVID-19 pandemic while preserving the health and safety of both our workforce and our Company for the long term.
The COVID-19 pandemic caused its fair share of challenges, as disruptions in demand led to lower sales output and
necessitated the unplanned idling of certain production facilities. These production outages, along with the lower
45
demand and lower prices that came as a result of the pandemic, generated weaker results during the year than what
we would normally expect.
As the demand environment began to recover, our results in the second half of the year improved dramatically
and operations at temporarily idled facilities resumed. Now, with steel prices and scrap prices in the U.S. recently
reaching all-time highs, we believe our decisive actions and accomplishments during 2020 will allow us to deliver
strong financial results and free cash flow in 2021. We also believe our new vertically integrated business model is
well-equipped to navigate and succeed through future pricing or demand volatility that is common in our industry.
Despite the ongoing pandemic, we also continued our best practices from both a safety and environmental
standpoint. During 2020, our safety TRIR (including contractors) was 0.92 per 200,000 hours worked. On
environmental matters, we recently made a commitment to reduce GHG emissions 25% by 2030 from 2017 levels, a
higher reduction target than our competitors and a demonstration of the newfound leadership role we plan to take in
the domestic steel industry.
Recent Developments
Acquisition of ArcelorMittal USA
On December 9, 2020, pursuant
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.
to the terms of
The assets of ArcelorMittal USA acquired by us 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 additional information.
Financing Transactions
On December 9, 2020, we entered into the ABL Amendment. The ABL Amendment modified the ABL Facility
to, among other things, increase the amount of tranche A revolver commitments available thereunder by an additional
$1.5 billion and increase certain dollar baskets related to certain negative covenants that apply to the ABL Facility.
After giving effect to the ABL Amendment, the aggregate principal amount of tranche A revolver commitments under
the ABL Facility is $3.35 billion and the aggregate principal amount of tranche B revolver commitments under the ABL
Facility remains at $150 million.
On February 11, 2021, we sold 20 million of our common shares, and the indirect, wholly owned subsidiary of
ArcelorMittal to which approximately 78 million common shares were issued as part of the consideration paid by us in
connection with the closing of the AM USA Transaction sold 40 million common shares, in each case at a price per
share to the underwriter of $16.12, in an underwritten public offering. We also granted the underwriter an option to
purchase up to an additional 9 million common shares from us at a price per share to the underwriter of $16.12. The
underwriter has until March 10, 2021 to exercise such option, which it may do in full, in part or not at all. We did not
receive any proceeds from the sale of the common shares by the selling shareholder in the offering. We intend to use
the net proceeds to us from the offering, plus cash on hand, to redeem up to approximately $334 million aggregate
principal amount of our outstanding 9.875% 2025 Senior Secured Notes. We intend to use any remaining net
proceeds to us following such redemption to reduce borrowings under our ABL Facility.
On February 17, 2021, we issued $500 million aggregate principal amount of 4.625% 2029 Senior Notes and
$500 million aggregate principal amount of 4.875% 2031 Senior Notes in an offering that was exempt from the
registration requirements of the Securities Act. We intend to use the net proceeds from the notes offering to redeem
all of the outstanding 4.875% 2024 Senior Secured Notes and 6.375% 2025 Senior Notes issued by Cleveland-Cliffs
Inc. and all of the outstanding 7.625% 2021 AK Senior Notes, 7.50% 2023 AK Senior Notes and 6.375% 2025 AK
Senior Notes issued by AK Steel Corporation (n/k/a Cleveland-Cliffs Steel Corporation), and pay fees and expenses in
connection with such redemptions, and reduce borrowings under our ABL Facility.
Company Structure
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. Our previous Mining and Pelletizing segment is included within Steelmaking as iron ore pellets are a
46
primary raw material for our steel products. We have one reportable segment - Steelmaking. Our other operating
segments are classified as our Other Businesses.
COVID-19
In December 2019, COVID-19 surfaced in Wuhan, China, and then spread to other countries, including the
United States.
In March 2020, the World Health Organization characterized COVID-19 as a pandemic. Efforts to
contain the spread of COVID-19 intensified throughout 2020, and many countries, including the United States, took
steps to restrict travel, temporarily close businesses and issue quarantine orders.
It remains unclear how long and to
what degree of severity the economic impact of the COVID-19 pandemic will be felt.
On March 27, 2020, the CARES Act was signed into law. The CARES Act, among other things, includes
provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, NOL
carryback periods, AMT credit refunds, modifications to the net interest deduction limitations and technical corrections
to tax depreciation methods for qualified improvement property. During 2020, the CARES Act provided liquidity relief
by enabling us to accelerate the receipt of $60 million of AMT credit refunds in July 2020, defer pension contributions
until January 2021, and defer employer social security payments until 2021 and 2022.
We continue to utilize stringent social distancing procedures in our operating facilities, including checking
employees’ temperatures and symptoms before entering the workplace each day and deep cleaning our operational
facilities. Although we continue to utilize these measures, the outbreak of COVID-19 has heightened the risk that a
significant portion of our workforce will suffer illness or otherwise be unable to perform their ordinary work functions.
Although steel and iron ore production are 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 due primarily to
temporarily reduced product demand. Most of these temporarily idled facilities were restarted during the second
quarter of 2020, and the remaining operations were restarted during the third quarter of 2020. Our Columbus and
Monessen facilities acquired through the AM USA Transaction are temporarily idled due to the COVID-19 pandemic.
We cannot predict whether our operations will experience additional disruptions in the future. We may also
continue to experience supply chain disruptions or operational
issues with our vendors, as our suppliers and
contractors face similar challenges related to the COVID-19 pandemic. Because the impact of the COVID-19
pandemic continues to evolve, we cannot currently predict the extent to which our business, results of operations,
financial condition or liquidity will ultimately be impacted.
To mitigate the impact of the COVID-19 pandemic, we took a number of steps throughout 2020 to solidify our
liquidity position, including issuing $520 million aggregate principal amount of secured debt, adding a $150 million
FILO tranche to our ABL Facility, idling several facilities both temporarily and permanently, temporarily deferring our
Chief Executive Officer’s compensation by 40%, temporarily deferring salaries by up to 20%, temporarily deferring
other salaried employee benefits, and temporarily suspending capital expenditures. Lastly, our Board suspended
future dividends, which was a typical cash obligation of approximately $100 million on an annualized basis.
47
Results of Operations
Overview
For the year ended December 31, 2020, we had a Net loss of $81 million. For the years ended December 31,
2019 and 2018, we had Net income of $293 million and $1,128 million, respectively. Our total revenues, diluted EPS
and Adjusted EBITDA were as follows:
Total Revenues
(In Millions)
$2,332
$1,990
$5,354
$3.71
Diluted Earnings
Per Common Share
$1.03
2018
2019
2020
2018
2019
$(0.32)
2020
Adjusted EBITDA
(In Millions)
$766
$525
$353
2018
2019
2020
See "— Results of Operations — Adjusted EBITDA" below for a reconciliation of our Net Income (loss) to
Adjusted EBITDA.
Revenues
Revenues by Product Line
Year Ended
December 31, 2020
Other 10%
Hot-rolled 7%
Cold-rolled 9%
Iron products
25%
Stainless/electrical
16%
Coated 33%
Revenues from iron products made up 100% of our revenues by product line for the year ended December
31, 2019.
48
During the year ended December 31, 2020, our consolidated Revenues were approximately $5.4 billion, an
increase of approximately $3.4 billion, or 169%, compared to 2019. The increase was due to the addition of
$4.0 billion in revenues as a result of the Acquisitions, partially offset by a decrease in revenue from iron products of
$655 million resulting from lower sales volumes of 6.9 million long tons compared to 2019. The lower sales volumes
of iron products in 2020, as compared to 2019, were partially due to the diversion of pellets for internal consumption
following the Acquisitions. Overall, we experienced lower customer demand during 2020 as a result of the reduced
manufacturing activity caused by the COVID-19 pandemic.
Revenues by Market
The following table represents our consolidated Revenues and percentage of revenues to each of the
markets we supply:
(In Millions)
Year Ended December 31,
2020
2019
Revenue
%
Revenue
%
Automotive
Infrastructure and Manufacturing
Distributors and Converters
Steel producers1
Total revenues
$
$
2,391
45 % $
15 %
13 %
27 %
818
722
1,423
5,354
— — %
— — %
— — %
1,990 100 %
$
1,990
1 Includes Realization of deferred revenue of $35 million for the year ended December 31, 2020.
Automotive Market
North American light vehicle production for 2020 declined 20% to approximately 13 million units from the prior
year due to the impacts of the COVID-19 pandemic, which forced automotive businesses to shut down from the end
of the first quarter of 2020 until near the end of the second quarter of 2020. During the third quarter of 2020, auto
makers saw pent-up demand bring sales back to more normal
levels as buyers and dealers adapted to new
procedures and virtual shopping. Fourth quarter 2020 sales for the automotive industry were more in line with
expected sales for the time of year, returning to near pre-COVID-19 levels.
Infrastructure and Manufacturing
Domestic construction activity and the replacement of aging infrastructure directly affects sales of our carbon,
stainless and electrical steel products, particularly for GOES. Additionally, during 2020, there were nearly 1.4 million
new housing starts in the U.S., an increase of approximately 6% from 2019, and home sales reached nearly 6 million,
the highest annual mark since 2006, despite the supply of existing homes reaching all-time lows. This provides a
positive indication that domestic GOES customers could continue to experience steady demand consistent with the
construction and electrical transformer replacement markets.
Distributors and Converters
Steel distributors and converters typically source from the commodity carbon, stainless and electrical spot
markets. The price for domestic HRC, which is an important attribute in the profitability of this end market, averaged
$588 per net ton for the year ended December 31, 2020. The price of HRC was negatively impacted by lower
demand related to the COVID-19 pandemic, and hit a low point of $438 per net ton on April 30, 2020. However, after
the industry recovered and supply-demand dynamics improved, the price rebounded dramatically, improving to a peak
of $1,030 per net ton by December 31, 2020.
Steel Producers Market
The steel producers market represents third-party sales to other steel producers, including those who operate
It includes sales of raw materials and semi-finished and finished goods, including iron ore
blast furnaces and EAFs.
pellets, coal, coke, HBI and steel products.
Iron ore product revenues declined during 2020, as compared to 2019,
partially as a result of the Acquisitions as our iron ore pellet production was consumed internally and the respective
intercompany revenue was eliminated in consolidation. Additionally, we experienced lower customer demand during
2020 as a result of the reduced manufacturing activity caused by the impacts of the COVID-19 pandemic.
49
Operating Costs
Cost of goods sold
Cost of goods sold increased by $3,688 million for the year ended December 31, 2020, as compared to the
prior year, primarily due to the addition of 4 million net tons of steel shipments resulting from the Acquisitions, partially
offset by lower sales volumes of iron products. During 2020, Cost of goods sold was unfavorably impacted by
temporary idle-related costs of approximately $225 million, resulting from the impacts of the COVID-19 pandemic.
Selling, general and administrative expenses
As a result of the Acquisitions, our Selling, general and administrative expenses increased by $131 million
during the year ended December 31, 2020, as compared to 2019.
Acquisition-related costs
The Acquisition-related costs of $90 million for the year ended December 31, 2020, include severance of
$38 million and other various third-party expenses related to the Acquisitions of $52 million. Refer to NOTE 3 -
ACQUISITIONS for further information on the Acquisitions.
Miscellaneous – net
Miscellaneous – net increased by $33 million for the year ended December 31, 2020, as compared to the
prior year, which was primarily due to an increase in expenses incurred at our Toledo direct reduction plant, primarily
related to the hiring and training of employees leading up to the start of production.
Other Income (Expense)
Interest expense, net
Interest expense, net increased by $137 million for the year ended December 31, 2020, as compared to the
prior year, primarily due to the incremental debt that we incurred in connection with the AK Steel Merger. The
increase was offset partially by an increase in capitalized interest, primarily related to the construction of the Toledo
direct reduction plant.
Gain (loss) on extinguishment of debt
The Gain (loss) on extinguishment of debt of $130 million for the year ended December 31, 2020 primarily
relates to the repurchase of $748 million aggregate principal amount of our outstanding senior notes of various series
using the net proceeds from the issuance of an additional $555 million aggregate principal amount of our 9.875%
2025 Senior Secured Notes on April 24, 2020 and other sources of cash. This compares to a loss on extinguishment
of debt of $18 million for the year ended December 31, 2019, primarily related to the redemption of all of our then-
outstanding 4.875% 2021 Senior Notes and the repurchase of $600 million aggregate principal amount of our 5.75%
2025 Senior Notes. Refer to NOTE 8 - DEBT AND CREDIT FACILITIES for further details.
Other non-operating income
The increase of $54 million in Other non-operating income primarily relates to an increase in net periodic
benefit credits other than service cost component predominantly due to the expected return on assets resulting from
the Acquisitions and increased asset values for the plans held in 2019. Refer to NOTE 10 - PENSIONS AND OTHER
POSTRETIREMENT BENEFITS for further details.
Income Taxes
Our effective tax rate is affected by permanent items, primarily depletion.
It also is affected by discrete items
that may occur in any given period, but are not consistent from period to period. The following represents a summary
of our tax provision and corresponding effective rates:
Income tax benefit (expense)
Effective tax rate
50
(In Millions)
Year Ended December 31,
2020
2019
$
111
$
57 %
(18)
6 %
A reconciliation of our income tax attributable to continuing operations compared to the U.S. federal statutory
rate is as follows:
Tax at U.S. statutory rate
Increase (decrease) due to:
Percentage depletion in excess of cost depletion
Non-taxable income related to noncontrolling interests
Luxembourg legal entity reduction
Valuation allowance release:
Luxembourg legal entity reduction
State taxes, net
Other items, net
(In Millions)
Year Ended December 31,
2020
2019
$
(41)
21 % $
66
21 %
(42)
(9)
—
—
(11)
(8)
22
4
—
—
6
4
(49)
—
846
(16)
—
271
(846)
(271)
—
1
18
—
1
6 %
Provision for income tax expense (benefit) and effective
income tax rate including discrete items
$
(111)
57 % $
The increase in income tax benefit in 2020, as compared to the prior year, is directly related to the increase in
the pre-tax book loss year-over-year. The Luxembourg legal entity reduction relates to initiatives resulting in the
dissolution of entities and settlement of related financial instruments in the year ended December 31, 2019. The 2019
NOL deferred tax asset reduction resulted in tax expense of $846 million, which was fully offset by a decrease in the
valuation allowance.
See NOTE 12 - INCOME TAXES for further information.
Adjusted EBITDA
We evaluate performance 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
industry, although it is not
performance and to compare operating performance to other companies in the steel
necessarily comparable to similarly titled measures used by other companies.
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.
51
The following table provides a reconciliation of our Net income (loss) to Adjusted EBITDA:
Net income (loss)
Less:
Interest expense, net
Income tax benefit (expense)
Depreciation, depletion and amortization
Total EBITDA
Less:
EBITDA from noncontrolling interests1
Gain (loss) on extinguishment of debt
Severance costs
Acquisition-related costs excluding severance costs
Amortization of inventory step-up
Impact of discontinued operations
Total Adjusted EBITDA
(In Millions)
Year Ended December 31,
2020
2019
$
$
$
$
(81) $
(238)
111
(308)
354 $
56 $
130
(38)
(52)
(96)
1
353 $
293
(101)
(18)
(85)
497
—
(18)
(2)
(7)
—
(1)
525
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 provides a summary of our Adjusted EBITDA by segment:
Adjusted EBITDA:
Steelmaking
Other Businesses
Corporate and eliminations
Total Adjusted EBITDA
(In Millions)
Year Ended December 31,
2020
2019
$
$
433 $
47
(127)
353 $
636
—
(111)
525
The year ended December 31, 2020 results were unfavorably impacted by decreased customer demand
resulting from the impacts of the COVID-19 pandemic. As a result of the COVID-19 pandemic, we incurred temporary
idle-related costs resulting from production curtailments, excluding idle depreciation, depletion and amortization
expense, of approximately $214 million during 2020.
Adjusted EBITDA from Corporate and eliminations primarily relates to Selling, general and administrative
expenses at our Corporate headquarters.
The discussion of our Consolidated Results of Operations for 2019 compared to 2018 can be found in Part II,
Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Annual
Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 20, 2020.
Steelmaking
The following is a summary of our Steelmaking segment results included in our consolidated financial
statements for the years ended December 31, 2020 and 2019. These results include the AK Steel operations
subsequent to March 13, 2020, the ArcelorMittal USA operations subsequent to December 9, 2020, and our results
from operations previously reported as part of our Mining and Pelletizing segment.
52
The following is a summary of the Steelmaking segment operating results:
Operating Results - In Millions
Revenues1
Cost of goods sold
Selling Price - Per Ton
Average net selling price per net ton of steel products
Average net selling price per long ton of iron products
Year Ended December 31,
2020
2019
$
$
$
$
4,965 $
(4,749) $
947
114 $
1,990
(1,414)
N/A
107
1 Includes Realization of deferred revenue of $35 million for the year ended December 31, 2020.
The following table represents our segment Revenues by product line:
Hot-rolled steel
Cold-rolled steel
Coated steel
Stainless and electrical steel
Other steel products
Iron products2
Other
Total
(Dollars In Millions,
Sales Volumes In Thousands)
Year Ended December 31,
2020
2019
Revenue
Volume1
Revenue
Volume1
$
386
490
1,747
868
92
1,335
47
633 $
682
1,911
416
141
11,707
N/A
—
—
—
—
—
—
—
—
—
—
1,990
—
18,583
—
$
4,965
$
1,990
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.
Operating Results
Despite the downward pressures on markets as a result of the COVID-19 pandemic during 2020, the
operating results during the second half of the year showed significant signs of improvement heading into 2021, as we
have seen pricing for HRC continue to rise and sales volumes begin to return to normal. Steelmaking revenues
increased by $2,975 million compared to 2019, due to the addition of sales following the Acquisitions. This increase
was partially offset by a decrease in revenue from iron products of $655 million resulting from lower sales volumes of
7 million long tons compared to 2019, partially due to the diversion of pellets for internal consumption following the
Acquisitions, as well as lower overall demand from customers as a result of the impacts of the COVID-19 pandemic.
Cost of goods sold increased $3,335 million during 2020, compared to 2019, predominantly due to additional
sales resulting from the Acquisitions; however, this increase was also unfavorably impacted by idle-related costs of
approximately $225 million, driven by the temporary idling of facilities in response to lower customer demand due to
the COVID-19 pandemic.
As a result, Adjusted EBITDA was $433 million for the year ended December 31, 2020, compared to $636
million for the prior year. Refer to "— Results of Operations" above for additional information.
53
Production
During 2020, we produced 4 million net tons of raw steel, 17 million long tons of iron ore pellets and 1 million
net tons of coke. During 2020, certain of our operations were temporarily idled in response to the COVID-19
pandemic, with most restarting and resuming production in the second quarter of 2020 and the remainder in the third
quarter of 2020. 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 impacts of the COVID-19 pandemic. During 2019, we produced 20 million
long tons of iron ore pellets.
Liquidity, Cash Flows and Capital Resources
Our primary sources of liquidity are Cash and cash equivalents and cash generated from our operations,
availability under the ABL Facility and other financing activities. Our capital allocation decision-making process is
focused on preserving healthy liquidity levels, while maintaining the strength of our balance sheet and creating
financial flexibility to manage through the inherent cyclical demand for our products and volatility in commodity prices.
We are focused on maximizing the cash generation of our operations, reducing debt, and aligning capital investments
with our strategic priorities and the requirements of our business plan, including regulatory and permission-to-operate
related projects.
Since the onset of the COVID-19 pandemic in the U.S., our primary focus has been on maintaining adequate
levels of liquidity to manage through a potentially prolonged economic downturn.
In alignment with this, we made
several operational adjustments, including facility closures, idles and extended maintenance outages. Along with the
cost savings achieved through these operational adjustments, during 2020, we reduced planned capital expenditures
for the year, reduced overhead costs and suspended our quarterly dividend payment. Additionally, on April 17, 2020
and April 24, 2020, we issued $400 million aggregate principal amount and an additional $555 million aggregate
principal amount, respectively, of 9.875% 2025 Senior Secured Notes to further bolster our liquidity position and pay-
down existing debt. We also issued an additional $120 million aggregate principal amount of 6.75% 2026 Senior
Secured Notes on June 19, 2020, the net proceeds of which we used to finance construction of our Toledo direct
reduction plant. Prior to such use, the net proceeds were used to temporarily reduce the outstanding borrowings
under our ABL Facility. We believe these measures have helped us to maintain healthy liquidity levels during the
COVID-19 pandemic.
Now that business conditions have improved and we expect to generate healthy free cash flow during 2021,
we believe we have the ability to lower our long-term debt balance. Our stated initial target will be to reduce total debt
to less than three times our annual Adjusted EBITDA. We also look at the composition of our debt, as well, as we are
interested in both extending our maturity profile and increasing our ratio of unsecured debt to secured debt. These
actions will better prepare us to navigate more easily through potentially volatile industry conditions in the future. In
furtherance of these goals, we consummated certain financing transactions in February 2021.
On February 11, 2021, we sold 20 million common shares and the indirect, wholly owned subsidiary of
ArcelorMittal to which approximately 78 million common shares were issued as part of the consideration paid by us in
connection with the closing of the AM USA Transaction sold 40 million common shares, in each case at a price per
share to the underwriter of $16.12, in an underwritten public offering. We also granted the underwriter an option to
purchase up to an additional 9 million common shares from us at a price per share to the underwriter of $16.12. The
underwriter has until March 10, 2021 to exercise such option, which it may do in full, in part or not at all. We did not
receive any proceeds from the sale of the common shares by the selling shareholder in the offering. We intend to use
the net proceeds to us from the offering, plus cash on hand, to redeem up to approximately $334 million aggregate
principal amount of our outstanding 9.875% 2025 Senior Secured Notes. We intend to use any remaining net
proceeds to us following such redemption to reduce borrowings under our ABL Facility.
On February 17, 2021, we issued $500 million aggregate principal amount of 4.625% 2029 Senior Notes and
$500 million aggregate principal amount of 4.875% 2031 Senior Notes in an offering that was exempt from the
registration requirements of the Securities Act. We intend to use the net proceeds from the notes offering to redeem
all of the outstanding 4.875% 2024 Senior Secured Notes and 6.375% 2025 Senior Notes issued by Cleveland-Cliffs
Inc. and all of the outstanding 7.625% 2021 AK Senior Notes, 7.50% 2023 AK Senior Notes and 6.375% 2025 AK
Senior Notes issued by AK Steel Corporation (n/k/a Cleveland-Cliffs Steel Corporation), and pay fees and expenses in
connection with such redemptions, and reduce borrowings under our ABL Facility.
In connection with the underwritten public offering, we provided notice to redeem $322.4 million aggregate
principal amount of our 9.875% 2025 Senior Secured Notes on March 11, 2021.
In connection with the notes offering,
we provided notice to redeem all of the outstanding 4.875% 2024 Senior Secured Notes, 6.375% 2025 Senior Notes,
54
7.625% 2021 AK Senior Notes, 7.50% 2023 AK Senior Notes and 6.375% 2025 AK Senior Notes on March 12, 2021.
Refer to NOTE 22 – SUBSEQUENT EVENTS for more information regarding February 2021 financing transactions.
The application of the net proceeds to us from the February 2021 financing transactions will shift our debt
horizon, by providing a four-year window in which none of our long-term notes are due, clearing the way for us to fully
focus on operational integration.
Based on our outlook for the next 12 months, which is subject to continued changing demand from customers
and volatility in domestic steel prices, we expect to have ample liquidity through cash generated from operations and
availability under our ABL Facility sufficient to meet the needs of our operations and service our debt obligations.
The following discussion summarizes the significant
items impacting our cash flows during 2020 and
comparative years as well as expected impacts to our future cash flows over the next 12 months. Refer to the
Statements of Consolidated Cash Flows for additional information.
Operating Activities
Net cash used by operating activities was $261 million for the year ended December 31, 2020, compared to
net cash provided by operating activities of $563 million for the year ended December 31, 2019. The change in cash
used by operating activities during 2020, compared to cash provided by operating activities in 2019, was due primarily
to the slowing economy in connection with the COVID-19 pandemic, resulting in reduced customer demand and the
need to temporarily idle many of our operations, which had an adverse effect on our operating results. Our working
capital was negatively impacted as a result of ArcelorMittal USA's accounts receivable factoring arrangement that was
in place prior to the AM USA Transaction. This negatively impacted working capital by $315 million for the year ended
December 31, 2020 and is expected to impact the first quarter of 2021 by approximately $260 million.
Our U.S. Cash and cash equivalents balance at December 31, 2020 was $90 million, or 84% of our
consolidated Cash and cash equivalents balance, excluding cash related to our consolidated VIE of $5 million.
Additionally, we had a cash balance at December 31, 2020 of $4 million classified as part of Other current assets in
the Statements of Consolidated Financial Position related to our discontinued operations.
Investing Activities
Net cash used by investing activities was $2,042 million and $644 million for the years ended December 31,
2020 and 2019, respectively. During the year ended December 31, 2020, we had net cash outflows of $658 million
related to the AM USA Transaction, net of cash acquired. Additionally, during the year ended December 31, 2020, we
had net cash outflows of $869 million related to the AK Steel Merger, net of cash acquired, which included $590
million used to repay the former AK Steel Corporation revolving credit facility and $324 million used to purchase
outstanding 7.50% 2023 AK Senior Notes. Refer to NOTE 3 - ACQUISITIONS for additional details on the
Acquisitions.
Additionally, we had capital expenditures, including capitalized interest, of $525 million and $656 million for
including deposits and
the years ended December 31, 2020 and 2019, respectively. We had cash outflows,
capitalized interest, for the development of the Toledo direct reduction plant of $348 million and $544 million for the
years ended December 31, 2020 and 2019, respectively. During the year ended December 31, 2019, we also had
cash outflows, including deposits and capitalized interest, of $43 million on the upgrades at Northshore. Additionally,
we spent $177 million and $69 million on sustaining capital expenditures during 2020 and 2019, respectively.
fixed
Sustaining capital expenditures include capital expenditures related to infrastructure, mobile equipment,
equipment, product quality, environment, health and safety.
During 2020, in response to the COVID-19 pandemic, we temporarily limited our cash used for capital
expenditures to critical sustaining capital, but have now resumed growth capital spending. During the fourth quarter of
2020, we completed construction of our Toledo direct reduction plant. We anticipate total cash used for capital
expenditures during the next 12 months to be between $600 million and $650 million.
Financing Activities
Net cash provided by financing activities was $2,059 million for the year ended December 31, 2020,
compared to net cash used by financing activities of $394 million for the year ended December 31, 2019. Cash
provided by financing activities for the year ended December 31, 2020 primarily related to the issuances in separate
offerings consummated on March 13, 2020 and June 19, 2020 of $845 million combined aggregate principal amount
of 6.75% 2026 Senior Secured Notes, the issuances in separate offerings consummated on April 17, 2020 and April
24, 2020 of $955 million combined aggregate principal amount of 9.875% 2025 Senior Secured Notes and borrowings
55
of $2,060 million under the ABL Facility. The net proceeds from the initial issuance of $725 million aggregate principal
amount of the 6.75% 2026 Senior Secured Notes on March 13, 2020, along with cash on hand, were used to
purchase $373 million aggregate principal amount of 7.625% 2021 AK Senior Notes and $367 million aggregate
principal amount of 7.50% 2023 AK Senior Notes, in each case issued by AK Steel Corporation (n/k/a Cleveland-Cliffs
Steel Corporation), that we accepted for purchase pursuant to our tender offers for any and all such notes then-
outstanding in connection with the AK Steel Merger and to pay for the $44 million of debt issuance costs in the first
quarter of 2020. The net proceeds from the additional issuance of $555 million aggregate principal amount of the
9.875% 2025 Senior Secured Notes on April 24, 2020 were used to repurchase $736 million aggregate principal
amount of our outstanding senior notes of various series in private exchanges exempt
from the registration
requirements of the Securities Act. The net proceeds from the additional issuance of $120 million aggregate principal
amount of 6.75% 2026 Senior Secured Notes on June 19, 2020 were used to finance construction of our Toledo direct
reduction plant. Prior to such use, the net proceeds were used to temporarily reduce the outstanding borrowings
under our ABL Facility. Additionally, during the year ended December 31, 2020, we repaid $550 million under the ABL
Facility.
Net cash used by financing activities during 2019 primarily related to the repurchase of 24 million common
shares for $253 million in the aggregate under the $300 million share repurchase program, which was active until
December 31, 2019. Additionally, we issued $750 million aggregate principal amount of 5.875% 2027 Senior Notes,
which provided net proceeds of approximately $714 million. The net proceeds from the notes offering, along with
cash on hand, were used to redeem in full all of our then-outstanding 4.875% 2021 Senior Notes and to purchase
In
$600 million aggregate principal amount of our outstanding 5.75% 2025 Senior Notes pursuant to a tender offer.
total, during 2019, we purchased $724 million aggregate principal amount of senior notes for $729 million in cash.
Additional uses of cash from financing activities during 2019 included payments of regular quarterly cash
dividends and a special cash dividend on our common shares of $72 million and a cash payment of $44 million
related to the third and final annual installment of the distribution of Empire partnership equity.
We have temporarily suspended future dividend distributions as a result of
the COVID-19
pandemic in order to preserve cash during this time of economic uncertainty. We anticipate future uses of cash and
cash provided by financing activities during the next 12 months to include opportunistic debt transactions as part of
our liability management strategy, similar to the transactions that occurred during 2020 and February 2021, in addition
to providing supplemental financing to meet cash requirements for business improvement opportunities.
impacts of
The discussion of our Liquidity, Cash Flows and Capital Resources results for 2019 compared to 2018 can be
found in Part II, Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations", in
our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 20, 2020.
56
The following represents our future cash commitments and contractual obligations as of December 31, 2020:
Long-term debt1
Interest on debt1
Operating lease obligations
Finance lease obligations
Purchase obligations:
Open purchase orders
Minimum "take or pay" purchase
commitments2
Total purchase obligations
Other long-term liabilities:
Pension funding minimums
OPEB claim payments
Environmental and asset retirement
obligations
Other
Total other long-term liabilities
$
Total
5,595
1,772
363
394
347
8,853
9,200
887
1,777
589
272
3,525
Payments Due by Period (In Millions)
1 - 3
Less than
Years
1 Year
3 - 5
Years
More than
5 Years
$
34
$
13
$
2,197
$
3,351
303
70
100
342
2,865
3,207
202
144
27
71
444
601
99
173
5
2,708
2,713
178
280
51
99
608
507
72
45
—
1,607
1,607
238
269
42
31
580
361
122
76
—
1,673
1,673
269
1,084
469
71
1,893
7,476
Total
$
20,849
$
4,158
$
4,207
$
5,008
$
1 Refer to NOTE 8 - DEBT AND CREDIT FACILITIES for additional information regarding our debt and related interest rates.
2 Includes minimum railroad and vessel transportation obligations, minimum electric power demand charges, minimum diesel and
natural gas obligations and minimum port facility obligations. Additionally, includes our coke purchase commitments related to our
coke supply agreement with SunCoke Middletown.
Refer to NOTE 21 - COMMITMENTS AND CONTINGENCIES for additional information regarding our future
commitments and obligations.
57
Capital Resources
We expect to fund our business obligations from available cash, current and future operations and existing
and future borrowing arrangements. We also may pursue other funding strategies in the capital markets to strengthen
our liquidity, extend debt maturities and/or fund strategic initiatives. The following represents a summary of key
liquidity measures:
Cash and cash equivalents
Cash and cash equivalents from discontinued operations, included within Other current assets
Less: Cash and cash equivalents from VIE's
Total cash and cash equivalents
Available borrowing base on ABL Facility1
Borrowings
Letter of credit obligations
Borrowing capacity available
(In Millions)
December 31,
2020
$
$
$
$
112
4
(5)
111
3,500
(1,510)
(247)
1,743
1 As of December 31, 2020, the ABL Facility had a maximum borrowing base of $3.5 billion, determined by applying customary
advance rates to eligible accounts receivable, inventory and certain mobile equipment.
Our primary sources of funding are cash and cash equivalents, which totaled $111 million as of December 31,
2020, cash generated by our business, availability under the ABL Facility and other financing activities. Cash and
cash equivalents include cash on hand and on deposit. The combination of cash and availability under the ABL
Facility gives us $1.9 billion in liquidity entering the first quarter of 2021, which is expected to be adequate to fund
operations, letter of credit obligations, sustaining and expansion capital expenditures and other cash commitments for
at least the next 12 months.
As of February 24, 2021, we had total liquidity of approximately $2.6 billion, consisting of approximately $200
million in cash and approximately $2.4 billion of availability under its ABL credit facility, of which approximately $850
million is expected to be used to redeem the senior notes for which notice of redemption was provided in connection
with the offerings consummated in February 2021.
As of December 31, 2020, we were in compliance with the ABL Facility liquidity requirements and, therefore,
the springing financial covenant requiring a minimum Fixed Charge Coverage Ratio of 1.0 to 1.0 was not applicable.
We believe that the cash on hand and the ABL Facility provide us sufficient liquidity to support our operating, investing
and financing activities. We have the capability to issue additional unsecured notes and, subject to the limitations set
forth in our existing senior notes indentures, additional secured debt, if we elect to access the debt capital markets.
However, our ability to issue additional notes could be limited by market conditions.
We intend from time to time to seek to retire or purchase our outstanding senior notes with cash on hand,
borrowings from existing credit sources or new debt financings and/or exchanges for debt or equity securities, in open
market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing
market conditions, our liquidity requirements, contractual restrictions and other factors, and the amounts involved may
be material.
Off-Balance Sheet Arrangements
In the normal course of business, we are a party to certain arrangements that are not reflected on our
Statements of Consolidated Financial Position. These arrangements include minimum "take or pay" purchase
commitments, such as minimum electric power demand charges, minimum coal, diesel and natural gas purchase
commitments, minimum railroad transportation commitments and minimum port facility usage commitments; and
financial instruments with off-balance sheet risk, such as bank letters of credit and bank guarantees.
Information about our Guarantors and the Issuer of our Guaranteed Securities
The accompanying summarized financial
information has been prepared and presented pursuant to SEC
Regulation S-X, Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or
58
Being Registered,” and Rule 13-01 "Financial Disclosures about Guarantors and Issuers of Guaranteed Securities
and Affiliates Whose Securities Collateralized a Registrant's Securities." Certain of our subsidiaries (the "Guarantor
subsidiaries") have fully and unconditionally, and jointly and severally, guaranteed the obligations under (a) the 5.75%
2025 Senior Notes, the 6.375% 2025 Senior Notes, the 5.875% 2027 Senior Notes and the 7.00% 2027 Senior Notes
issued by Cleveland-Cliffs Inc. on a senior unsecured basis and (b) the 4.875% 2024 Senior Secured Notes, the
6.75% 2026 Senior Secured Notes and the 9.875% 2025 Senior Secured Notes on a senior secured basis. See
NOTE 7 - DEBT AND CREDIT FACILITIES for further information.
The following presents the summarized financial information on a combined basis for Cleveland-Cliffs Inc.
(parent company and issuer of the guaranteed obligations) and the Guarantor subsidiaries, collectively referred to as
the obligated group. Transactions between the obligated group have been eliminated.
Information for the non-
Guarantor subsidiaries was excluded from the combined summarized financial information of the obligated group.
Each Guarantor subsidiary is consolidated by Cleveland-Cliffs Inc. as of December 31, 2020. Refer to Exhibit
22.1, incorporated herein by reference, for the detailed list of entities included within the obligated group as of
December 31, 2020 and December 31, 2019.
The guarantee of a Guarantor subsidiary with respect to Cliffs' 5.75% 2025 Senior Notes, 6.375% 2025
Senior Notes, 5.875% 2027 Senior Notes, 7.00% 2027 Senior Notes, 4.875% 2024 Senior Secured Notes, 6.75%
2026 Senior Secured Notes and 9.875% 2025 Senior Secured Notes will be automatically and unconditionally
released and discharged, and such Guarantor subsidiary’s obligations under the guarantee and the related indentures
(the “Indentures”) will be automatically and unconditionally released and discharged, upon the occurrence of any of
the following, along with the delivery to the trustee of an officer’s certificate and an opinion of counsel, each stating
that all conditions precedent provided for in the applicable Indenture relating to the release and discharge of such
Guarantor subsidiary’s guarantee have been complied with:
(a) any sale, exchange, transfer or disposition of such Guarantor subsidiary (by merger, consolidation, or the
sale of) or the capital stock of such Guarantor subsidiary after which the applicable Guarantor subsidiary
is no longer a subsidiary of the Company or the sale of all or substantially all of such Guarantor
subsidiary’s assets (other than by lease), whether or not such Guarantor subsidiary is the surviving entity
in such transaction, to a person which is not the Company or a subsidiary of the Company; provided that
(i) such sale, exchange, transfer or disposition is made in compliance with the applicable Indenture,
including the covenants regarding consolidation, merger and sale of assets and, as applicable,
the obligations of such Guarantor
dispositions of assets that constitute notes collateral, and (ii) all
subsidiary under all debt of the Company or its subsidiaries terminate upon consummation of such
transaction;
(b) designation of any Guarantor subsidiary as an “excluded subsidiary” (as defined in the Indentures); or
(c) defeasance or satisfaction and discharge of the Indentures.
Each entity in the summarized combined financial
information follows the same accounting policies as
described in the consolidated financial statements. The accompanying summarized combined financial information
does not reflect investments of the obligated group in non-Guarantor subsidiaries. The financial information of the
obligated group is presented on a combined basis; intercompany balances and transactions within the obligated group
have been eliminated. The obligated group's amounts due from, amounts due to, and transactions with, non-
Guarantor subsidiaries and related parties have been presented in separate line items.
Summarized Combined Financial Information of the Issuer and Guarantor Subsidiaries:
The following table is summarized combined financial
information from the Statements of Condensed
Consolidated Financial Position of the obligated group:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
(In Millions)
December 31, 2020
December 31, 2019
$
4,903 $
10,535
(2,767)
(10,563)
891
2,382
(393)
(2,792)
59
The following table is summarized combined financial
information from the Statements of Condensed
Consolidated Operations of the obligated group:
Revenues1
Cost of goods sold
Loss from continuing operations
Net loss
Net loss attributable to Cliffs shareholders
(In Millions)
Year Ended
December 31, 2020
$
5,170
(5,008)
(120)
(118)
(118)
1 Includes Realization of deferred revenue of $35 million for the year ended December 31, 2020.
As of December 31, 2020 and 2019, the obligated group had the following balances with non-Guarantor
subsidiaries and other related parties:
Balances with non-Guarantor subsidiaries:
Accounts receivable, net
Accounts payable
Balances with other related parties:
Accounts receivable, net
Other current assets
Accounts payable
Other current liabilities
(In Millions)
December 31, 2020 December 31, 2019
$
$
69 $
(17)
2 $
—
(6)
—
—
—
31
45
—
(2)
Additionally, for the year ended December 31, 2020, the obligated group had Revenues of $893 million and
Cost of goods sold of $602 million, in each case with other related parties.
Market Risks
We are subject to a variety of risks, including those caused by changes in commodity prices and interest
rates. We have established policies and procedures to manage such risks; however, certain risks are beyond our
control.
Pricing Risks
In the ordinary course of business, we are exposed to market risk and price fluctuations related to the sale of
our products, which are impacted primarily by market prices for HRC, and the purchase of energy and raw materials
used in our operations, which are impacted by market prices for electricity, natural gas, ferrous and stainless steel
scrap, chrome, coal, coke, nickel and zinc. Our strategy to address market risk has generally been to obtain
competitive prices for our products and services and allow operating results to reflect market price movements
dictated by supply and demand; however, we make forward physical purchases and enter into hedge contracts to
manage exposure to price risk related to the purchases of certain raw materials and energy used in the production
process.
Our financial results can vary for our operations as a result of fluctuations in market prices. We attempt to
mitigate these risks by aligning fixed and variable components in our customer pricing contracts, supplier purchasing
agreements and derivative financial instruments.
Some customer contracts have fixed-pricing terms, which increase our exposure to fluctuations in raw
material and energy costs. To reduce our exposure, we enter into annual, fixed-price agreements for certain raw
materials. Some of our existing multi-year raw material supply agreements have required minimum purchase
quantities. Under adverse economic conditions, those minimums may exceed our needs. Absent exceptions for force
60
majeure and other circumstances affecting the legal enforceability of the agreements, these minimum purchase
requirements may compel us to purchase quantities of raw materials that could significantly exceed our anticipated
to negotiate
needs or pay damages to the supplier for shortfalls.
in reducing
agreements for new purchase quantities. There is a risk, however, that we would not be successful
purchase quantities, either through negotiation or litigation.
If that occurred, we would likely be required to purchase
more of a particular raw material in a particular year than we need, negatively affecting our results of operations and
cash flows.
In these circumstances, we would attempt
Certain of our customer contracts include variable-pricing mechanisms that adjust selling prices in response
to changes in the costs of certain raw materials and energy, while other of our customer contracts exclude such
mechanisms. We may enter multi-year purchase agreements for certain raw materials with similar variable-price
mechanisms, allowing us to achieve natural hedges between the customer contracts and supplier purchase
agreements. Therefore, in some cases, price fluctuations for energy (particularly natural gas and electricity), raw
materials (such as scrap, chrome, zinc and nickel) or other commodities may be, in part, passed on to customers
rather than absorbed solely by us. There is a risk, however, that the variable-price mechanisms in the sales contracts
may not necessarily change in tandem with the variable-price mechanisms in our purchase agreements, negatively
affecting our results of operations and cash flows.
Our strategy to address volatile natural gas rates and electricity rates includes improving efficiency in energy
usage, identifying alternative providers and utilizing the lowest cost alternative fuels.
If we are unable to align fixed
and variable components between customer contracts and supplier purchase agreements, we use cash-settled
commodity price swaps and options to hedge the market risk associated with the purchase of certain of our raw
materials and energy requirements. Additionally, we routinely use these derivative instruments to hedge a portion of
our natural gas, electricity and zinc requirements. Our hedging strategy is designed to protect us from excessive
pricing volatility. However, since we do not typically hedge 100% of our exposure, abnormal price increases in any of
these commodity markets might still negatively affect operating costs. The following table summarizes the impact of a
10% and 25% change in market price from the December 31, 2020 estimated price on our derivative instruments,
thereby impacting our pre-tax income by the same amount.
Commodity Derivative
Natural gas
Electricity
Zinc
(In Millions)
Positive or Negative Effect on
Pre-tax Income
10% Increase or
Decrease
25% Increase or
Decrease
$
28 $
2
1
69
4
2
Valuation of Goodwill and Other Long-Lived Assets
We assign goodwill arising from acquired companies to the reporting units that are expected to benefit from
the synergies of the acquisition. Goodwill is tested on a qualitative basis for impairment at the reporting unit level on
an annual basis (October 1) and between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could
include a significant change in the business climate, legal factors, operating performance indicators, competition or
sale or disposition of a significant portion of a reporting unit. As necessary, should our qualitative test indicate that it is
more likely than not that the fair value of a reporting unit is less than its carry amount, we perform a quantitative test to
determine the amount of impairment, if any, to the carrying value of the reporting unit and its associated goodwill.
Application of the goodwill impairment test requires judgment, including the identification of reporting units,
assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units and if a quantitative
assessment is deemed necessary in determination of the fair value of each reporting unit. The fair value of each
reporting unit
is estimated using a discounted cash flow methodology, which considers forecasted cash flows
discounted at an estimated weighted average cost of capital. Assessing the recoverability of our goodwill requires
significant assumptions regarding the estimated future cash flows and other factors to determine the fair value of a
reporting unit, including, among other things, estimates related to forecasts of future revenues, expected Adjusted
EBITDA, expected capital expenditures and working capital requirements, which are based upon our long-range plan
estimates. The assumptions used to calculate the fair value of a reporting unit may change from year to year based
on operating results, market conditions and other factors. Changes in these assumptions could materially affect the
determination of fair value for each reporting unit.
61
Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances
that would indicate that the carrying value of the assets may not be recoverable. Such indicators may include: a
significant decline in expected future cash flows; a sustained, significant decline in market pricing; a significant
adverse change in legal or environmental factors or in the business climate; changes in estimates of our recoverable
reserves; and unanticipated competition. Any adverse change in these factors could have a significant impact on the
recoverability of our long-lived assets and could have a material impact on our consolidated statements of operations
and statement of financial position.
A comparison of each asset group's carrying value to the estimated undiscounted net future cash flows
expected to result from the use of the assets, including cost of disposition, is used to determine if an asset is
recoverable. Projected future cash flows reflect management's best estimate of economic and market conditions over
the projected period, including growth rates in revenues and costs, and estimates of future expected changes in
If the carrying value of the asset group is higher than its undiscounted
operating margins and capital expenditures.
net future cash flows, the asset group is measured at fair value and the difference is recorded as a reduction to the
long-lived assets. We estimate fair value using a market approach, an income approach or a cost approach. While
we concluded that an event triggering the need for an impairment assessment did not occur during the year ended
December 31, 2020, a prolonged COVID-19 pandemic could impact the results of operations due to changes to
assumptions that would indicate that the carrying value of our asset groups may not be recoverable.
Interest Rate Risk
Interest payable on our senior notes is at fixed rates.
Interest payable under our ABL Facility is at a variable
rate based upon the applicable base rate plus the applicable base rate margin depending on the excess availability.
As of December 31, 2020, we had $1,510 million outstanding under the ABL Facility. An increase in prevailing interest
rates would increase interest expense and interest paid for any outstanding borrowings under the ABL Facility. For
example, a 100 basis point change to interest rates under the ABL Facility at the December 31, 2020 borrowing level
would result in a change of $15 million to interest expense on an annual basis.
Supply Concentration Risks
Many of our operations and mines rely on one source for each of electric power and natural gas. A significant
interruption or change in service or rates from our energy suppliers could materially impact our production costs,
margins and profitability.
Recently Issued Accounting Pronouncements
Refer to NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES of
the
consolidated financial statements for a description of recent accounting pronouncements, including the respective
dates of adoption and effects on results of operations and financial condition.
Critical Accounting Estimates
Management's discussion and analysis of financial condition and results of operations is based on our
consolidated financial statements, which have been prepared in accordance with GAAP. Preparation of financial
statements requires management to make assumptions, estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, costs and expenses, and the related disclosures of contingencies. Management bases its
estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to
the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. On
a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that
our financial statements are fairly presented in accordance with GAAP. However, because future events and their
effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such
differences could be material. Management believes that the following critical accounting estimates and judgments
have a significant impact on our financial statements.
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,
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
if any,
62
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.
Valuation of Goodwill and Other Long-Lived Assets
The valuation of goodwill and other long-lived assets includes various assumptions and are considered critical
accounting estimates. Refer to "–Market Risks" above for additional information.
Mineral Reserves
We regularly evaluate our mineral reserves and update them as required in accordance with SEC Industry
Guide 7. We perform an in-depth evaluation of our mineral reserve estimates by mine on a periodic basis, in addition
to routine annual assessments. The determination of mineral reserves requires us, with the support of our third-party
experts, to make significant estimates and assumptions related to key inputs including (1) the determination of the
size and scope of the iron ore body through technical modeling, (2) the estimates of future iron ore prices, production
costs and capital expenditures, and (3) management’s mine plan for the proven and probable mineral reserves. The
significant estimates and assumptions could be affected by future industry conditions, geological conditions and
ongoing mine planning. Additional capital and development expenditures may be required to maintain effective
production capacity. Generally, as mining operations progress, haul distances increase. Alternatively, changes in
economic conditions or the expected quality of mineral reserves could decrease capacity of mineral reserves.
Technological progress could alleviate such factors or increase capacity of mineral reserves.
We use our mineral reserve estimates, combined with our estimated annual production levels, to determine
the mine closure dates utilized in recording the fair value liability for asset retirement obligations for our active
operating mines. Refer to NOTE 14 - ASSET RETIREMENT OBLIGATIONS, for further information. Since the liability
represents the present value of the expected future obligation, a significant change in mineral reserves or mine lives
could have a substantial effect on the recorded obligation. We also utilize mineral reserves for evaluating potential
impairments of mine asset groups as they are indicative of future cash flows and in determining maximum useful lives
utilized to calculate depreciation, depletion and amortization of
long-lived mine assets and in determining the
estimated fair value of mineral reserves established through the purchase price allocation in a business combination.
The consolidated asset retirement obligation balance was $342 million as of December 31, 2020, of which $83 million
related to active iron ore mine operations. The total asset balance associated with our Steelmaking reportable
segment was $15,849 million as of December 31, 2020, of which $1,661 million related to long-lived assets
associated with our combined iron ore mine asset groups, and is inclusive of $235 million related to iron ore mineral
reserves acquired through the AM USA Transaction. Depreciation, depletion and amortization expense for the our
combined iron ore mine asset groups was $78 million for the year ended December 31, 2020. Increases or decreases
in mineral reserves or mine lives could significantly affect these items.
Asset Retirement Obligations
The accrued closure obligation is predominantly related to our indefinitely idled and closed iron ore mining
operations and provides for contractual and legal obligations associated with the eventual closure of those operations.
We perform an in-depth evaluation of the liability every three years in addition to our routine annual assessments.
In
2020, we employed third-party specialists to assist in the evaluation. Our obligations are determined based on
detailed estimates adjusted for factors that a market participant would consider (e.g., inflation, overhead and profit),
which are escalated at an assumed rate of inflation to the estimated closure dates, and then discounted using the
current credit-adjusted risk-free interest rate. The estimate also incorporates incremental increases in the closure cost
estimates and changes in estimates of mine lives for our active mine sites. The closure date for each of our active
mine sites is determined based on the exhaustion date of the remaining iron ore reserves, which is dependent on our
estimate of mineral reserves. The estimated obligations for our active mine sites are particularly sensitive to the
impact of changes in mine lives given the difference between the inflation and discount rates. The closure dates for a
majority of our steelmaking facilities are indefinite, and as such, the asset retirement obligations are recorded at
present values using estimated ranges of the economic lives of the underlying assets. Changes in the base estimates
of legal and contractual closure costs due to changes in legal or contractual requirements, available technology,
inflation, overhead or profit rates also could have a significant impact on the recorded obligations. Refer to NOTE 14 -
ASSET RETIREMENT OBLIGATIONS, for further information.
63
Environmental Remediation Costs
We have a formal policy for environmental protection and remediation. Our obligations for known
environmental matters at active and closed operations have been recognized based on estimates of the cost of
If the obligation can only be estimated as a range of possible amounts,
investigation and remediation at each facility.
with no specific amount being more likely,
the range is accrued. Management reviews its
the minimum of
environmental remediation sites quarterly to determine if additional cost adjustments or disclosures are required. The
characteristics of environmental remediation obligations, where information concerning the nature and extent of clean-
up activities is not immediately available and which are subject to changes in regulatory requirements, result in a
significant risk of increase to the obligations as they mature. Expected future expenditures are not discounted to
present value unless the amount and timing of the cash disbursements can be reasonably estimated.
Income Taxes
Our income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect
management's best assessment of estimated future taxes to be paid. We are subject to income taxes in the U.S. and
various foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income
tax expense.
Deferred income taxes arise from temporary differences between tax and financial statement recognition of
In evaluating our ability to recover our deferred tax assets, we consider all available positive
revenue and expense.
and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax
planning strategies and recent financial operations.
In projecting future taxable income, we begin with historical
results adjusted for the results of discontinued operations and changes in accounting policies and incorporate
assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of
temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions
require significant judgment about the forecasts of future taxable income and are consistent with the plans and
estimates we are using to manage the underlying businesses.
At December 31, 2020 and 2019, we had a valuation allowance of $836 million and $441 million, respectively,
against our deferred tax assets. Of these amounts, $439 million and $44 million relate to the U.S. deferred tax assets
at December 31, 2020 and 2019, respectively, and $397 million and $397 million relate to foreign deferred tax assets,
respectively.
At December 31, 2018, we determined that it was appropriate to release all of the valuation allowance related
to U.S. federal deferred tax assets as it is more likely than not that the entire deferred tax asset will be realized before
the end of the carryforward period. See NOTE 12 - INCOME TAXES for further information and considerations
related to the release.
Our losses in Luxembourg in recent periods represent sufficient negative evidence to require a full valuation
allowance against the deferred tax assets in that jurisdiction. We intend to maintain a valuation allowance against the
deferred tax assets related to these operating losses, unless and until sufficient positive evidence exists to support the
realization of such assets.
Changes in tax laws and rates also could affect recorded deferred tax assets and liabilities in the future. The
calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and
regulations in various jurisdictions across our global operations. The ultimate impact of the U.S. income tax reform
legislation may differ from our current estimates due to changes in the interpretations and assumptions made as well
as additional regulatory guidance that may be issued.
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.
We recognize tax liabilities in accordance with ASC 740, Income Taxes, and we adjust these liabilities when
our judgment changes because of evaluation of new information not previously available. Due to the complexity of
some of these uncertainties, the ultimate resolution may result in payment that is materially different from our current
estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in
the period in which they are determined. Refer to NOTE 12 - INCOME TAXES, for further information.
64
Employee Retirement Benefit Obligations
We offer defined benefit pension plans, defined contribution pension plans and OPEB plans, primarily
consisting of retiree healthcare benefits, to most employees in North America as part of a total compensation and
benefits program.
The following is a summary of our U.S. defined benefit pension and OPEB funding and expense:
2018
2019
2020
2021 (Estimated)1
Pension
OPEB
Funding
Expense
(Benefit)
Funding
Expense
(Benefit)
$
28 $
13 $
4 $
16
50
202
22
(31)
(168)
4
25
144
(6)
(2)
8
86
1 The estimated 2021 pension funding includes $118 million, which was deferred as a result of the CARES Act.
Assumptions used in determining the benefit obligations and the value of plan assets for defined benefit
pension plans and OPEB plans, primarily consisting of retiree healthcare benefits, that we offer are evaluated
periodically by management. Critical assumptions, such as the discount rate used to measure the benefit obligations,
the expected long-term rate of return on plan assets, the medical care cost trend, and the rate of compensation
increase are reviewed annually.
The following represents weighted-average assumptions used to determine benefit obligations and net benefit
costs:
Discount rate
Compensation rate increase
Expected return on plan assets
Pension
December 31,
Other Benefits
December 31,
2020
2019
2020
2019
2.34 %
3.27 %
2.71 %
2.71 %
2.56
7.69
2.53
8.25
3.00
6.82
3.00
7.00
The following represents assumed weighted-average health care cost trend rates:
Health care cost trend rate assumed for next year
Ultimate health care cost trend rate
Year that the ultimate rate is reached
December 31,
2020
2019
6.05 %
4.59
2031
6.50 %
5.00
2026
The discount rates used to measure plan liabilities as of the December 31 measurement date are determined
individually for each plan. The discount rates are determined by matching the projected cash flows used to determine
the plan liabilities to a projected yield curve of high-quality corporate bonds available at the measurement date.
Discount rates for expense are calculated using the granular approach for each plan.
Depending on the plan, we use either company-specific base mortality tables or tables issued by the Society
of Actuaries. We adopted the Pri-2012 mortality tables from the Society of Actuaries in 2019. On December 31, 2020,
the assumed mortality improvement projection was updated from generational scale MP-2019 to generational scale
MP-2020 for the Pri-2012 mortality tables.
65
Following are sensitivities of potential further changes in these key assumptions on the estimated 2021
pension and OPEB expense and the pension and OPEB obligations as of December 31, 2020:
Decrease discount rate 0.25%
Decrease return on assets 1.00%
(In Millions)
Increase (Decrease) in
Expense
Increase in
Benefit Obligation
Pension
OPEB
Pension
OPEB
$
(4) $
53
(2) $
8
164 $
N/A
131
N/A
Changes in actuarial assumptions,
rates, mortality,
including discount
compensation levels, plan asset investment performance and healthcare costs, are determined based on analyses of
actual and expected factors. Changes in actuarial assumptions and/or investment performance of plan assets may
have a significant impact on our financial condition due to the magnitude of our retirement obligations.
rates, employee retirement
Refer to NOTE 10 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS for further information.
Forward-Looking Statements
This report contains statements that constitute "forward-looking statements" within the meaning of the federal
securities laws. As a general matter, forward-looking statements relate to anticipated trends and expectations rather
than historical matters. Forward-looking statements are subject to uncertainties and factors relating to our operations
and business environment that are difficult to predict and may be beyond our control. Such uncertainties and factors
may cause actual results to differ materially from those expressed or implied by the forward-looking statements.
These statements speak only as of the date of this report, and we undertake no ongoing obligation, other than that
imposed by law, to update these statements. Uncertainties and risk factors that could affect our future performance
and cause results to differ from the forward-looking statements in this report include, but are not limited to:
•
•
•
•
•
•
•
disruptions to our operations relating to the COVID-19 pandemic, including the heightened risk that a
significant portion of our workforce or on-site contractors may suffer illness or otherwise be unable to
perform their ordinary work functions;
continued volatility of steel and iron ore market prices, which directly and indirectly impact the prices of
the products that we sell to our customers;
uncertainties associated with the highly competitive and cyclical steel industry and our reliance on the
demand for steel
from the automotive industry, which has been experiencing a trend toward light
weighting that could result in lower steel volumes being consumed;
potential weaknesses and uncertainties in global economic conditions, excess global steelmaking
capacity, oversupply of iron ore, prevalence of steel imports and reduced market demand, including as a
result of the COVID-19 pandemic;
severe financial hardship, bankruptcy, temporary or permanent shutdowns or operational challenges, due
to the COVID-19 pandemic or otherwise, of one or more of our major customers, including customers in
the automotive market, key suppliers or contractors, which, among other adverse effects, could lead to
increased difficulty collecting receivables, and customers and/or
reduced demand for our products,
suppliers asserting force majeure or other reasons for not performing their contractual obligations to us;
risks related to U.S. government actions with respect to Section 232, the USMCA and/or other trade
agreements, tariffs, treaties or policies, as well as the uncertainty of obtaining and maintaining effective
antidumping and countervailing duty orders to counteract the harmful effects of unfairly traded imports;
impacts of existing and increasing governmental
including climate change and other
environmental regulation that may be proposed under the Biden Administration, and related costs and
liabilities, including failure to receive or maintain required operating and environmental permits, approvals,
modifications or other authorizations of, or from, any governmental or regulatory authority and costs
related to implementing improvements to ensure compliance with regulatory changes, including potential
financial assurance requirements;
regulation,
•
potential impacts to the environment or exposure to hazardous substances resulting from our operations;
66
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our ability to maintain adequate liquidity, our level of indebtedness and the availability of capital could limit
cash flow necessary to fund working capital, planned capital expenditures, acquisitions, and other general
corporate purposes or ongoing needs of our business;
adverse changes in credit ratings, interest rates, foreign currency rates and tax laws;
limitations on our ability to realize some or all of our deferred tax assets, including our NOLs;
our ability to realize the anticipated synergies and benefits of
integrate the businesses of AK Steel and ArcelorMittal USA into our existing businesses,
uncertainties associated with maintaining relationships with customers, vendors and employees;
the Acquisitions and to successfully
including
additional debt we assumed, incurred or issued in connection with the Acquisitions, as well as additional
debt we incurred in connection with enhancing our liquidity during the COVID-19 pandemic, may
negatively impact our credit profile and limit our financial flexibility;
known and unknown liabilities we assumed in connection with the Acquisitions, including significant
environmental, pension and OPEB obligations;
the ability of our customers,
obligations to us on a timely basis or at all;
joint venture partners and third-party service providers to meet
their
supply chain disruptions or changes in the cost or quality of energy sources or critical raw materials and
supplies, including iron ore, industrial gases, graphite electrodes, scrap, chrome, zinc, coke and coal;
liabilities and costs arising in connection with any business decisions to temporarily idle or permanently
close a mine or production facility, which could adversely impact the carrying value of associated assets
and give rise to impairment charges or closure and reclamation obligations, as well as uncertainties
associated with restarting any previously idled mine or production facility;
problems or disruptions associated with transporting products to our customers, moving products
internally among our facilities or suppliers transporting raw materials to us;
uncertainties associated with natural or human-caused disasters, adverse weather conditions,
unanticipated geological conditions, critical equipment failures, infectious disease outbreaks, tailings dam
failures and other unexpected events;
our level of self-insurance and our ability to obtain sufficient third-party insurance to adequately cover
potential adverse events and business risks;
disruptions in, or failures of, our information technology systems, including those related to cybersecurity;
our ability to successfully identify and consummate any strategic investments or development projects,
cost-effectively achieve planned production rates or levels, and diversify our product mix and add new
customers;
our actual economic iron ore and coal reserves or reductions in current mineral estimates, including
whether we are able to replace depleted reserves with additional mineral bodies to support the long-term
viability of our operations;
the outcome of any contractual disputes with our customers, joint venture partners, lessors, or significant
energy, raw material or service providers, or any other litigation or arbitration;
our ability to maintain our social license to operate with our stakeholders, including by fostering a strong
reputation and consistent operational and safety track record;
our ability to maintain satisfactory labor relations with unions and employees;
availability of workers to fill critical operational positions and potential
labor shortages caused by the
COVID-19 pandemic, as well as our ability to attract, hire, develop and retain key personnel, including
within the acquired AK Steel and ArcelorMittal USA businesses;
unanticipated or higher costs associated with pension and OPEB obligations resulting from changes in
the value of plan assets or contribution increases required for unfunded obligations; and
67
•
potential significant deficiencies or material weaknesses in our internal control over financial reporting.
For additional factors affecting our businesses, refer to Part I – Item 1A. Risk Factors. You are urged to
carefully consider these risk factors.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Information regarding our Market Risk is presented under the caption Market Risks, which is included in Item
7. Management's Discussion and Analysis of Financial Condition and Results of Operations and is incorporated by
reference and made a part hereof.
68
Item 8.
Financial Statements and Supplementary Data
Statements of Consolidated Financial Position
Cleveland-Cliffs Inc. and Subsidiaries
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories
Income tax receivable, current
Other current assets
Total current assets
Non-current assets:
Property, plant and equipment, net
Goodwill
Deferred income taxes
Other non-current assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
Accrued employment costs
State and local taxes
Pension and OPEB liabilities, current
Other current liabilities
Total current liabilities
Non-current liabilities:
Long-term debt
Pension and OPEB liabilities, non-current
Other non-current liabilities
TOTAL LIABILITIES
Commitments and contingencies (See Note 21)
Series B Participating Redeemable Preferred Stock - no par value
Authorized, Issued and Outstanding - 583,273 shares
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)
Capital in excess of par value of shares
Retained deficit
Cost of 29,315,165 common shares in treasury (2019 - 31,802,789 shares)
Accumulated other comprehensive loss
Total Cliffs shareholders' equity
Noncontrolling interest
TOTAL EQUITY
(In Millions)
December 31,
2020
2019
$
112 $
$
$
1,169
3,828
24
165
5,298
8,743
1,406
537
787
16,771 $
1,575 $
460
147
151
596
2,929
5,390
4,113
1,260
13,692
353
94
317
59
75
898
1,929
2
460
215
3,504
193
67
38
4
107
409
2,114
312
311
3,146
738
—
63
5,431
(2,989)
(354)
(133)
2,018
323
2,341
37
3,873
(2,842)
(391)
(319)
358
—
358
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND
EQUITY
$
16,771 $
3,504
The accompanying notes are an integral part of these consolidated financial statements.
69
Statements of Consolidated Operations
Cleveland-Cliffs Inc. and Subsidiaries
Revenues
Realization of deferred revenue
Operating costs:
Cost of goods sold
Selling, general and administrative expenses
Acquisition-related costs
Miscellaneous – net
Total operating costs
Operating income (loss)
Other income (expense):
Interest expense, net
Gain (loss) on extinguishment of debt
Other non-operating income
Total other expense
Income (loss) from continuing operations before income taxes
Income tax benefit (expense)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Income attributable to noncontrolling interest
(In Millions, Except Per Share
Amounts)
Year Ended December 31,
2020
2019
2018
$
5,319 $
1,990 $
2,332
35
—
—
(5,102)
(244)
(90)
(60)
(5,496)
(142)
(238)
130
57
(51)
(193)
111
(82)
1
(81)
(41)
(1,414)
(113)
(7)
(27)
(1,523)
(113)
—
(23)
(1,561)
(1,659)
429
673
(101)
(18)
3
(116)
313
(18)
295
(2)
293
—
(119)
(7)
18
(108)
565
475
1,040
88
1,128
—
Net income (loss) attributable to Cliffs shareholders
$
(122) $
293 $
1,128
Earnings (loss) per common share attributable to Cliffs shareholders -
basic
Continuing operations
Discontinued operations
Earnings (loss) per common share attributable to Cliffs shareholders -
diluted
Continuing operations
Discontinued operations
$
$
$
$
(0.32) $
1.07 $
—
(0.01)
(0.32) $
1.06 $
(0.32) $
1.04 $
—
(0.01)
(0.32) $
1.03 $
3.50
0.30
3.80
3.42
0.29
3.71
The accompanying notes are an integral part of these consolidated financial statements.
70
Statements of Consolidated Comprehensive Income
Cleveland-Cliffs Inc. and Subsidiaries
Net income (loss)
Other comprehensive income (loss):
Changes in pension and OPEB, net of tax
Changes in foreign currency translation
Changes in derivative financial instruments, net of tax
Total other comprehensive income (loss)
Comprehensive income
Comprehensive income attributable to noncontrolling interests
(In Millions)
Year Ended December 31,
2020
2019
2018
$
(81) $
293 $
1,128
181
3
2
186
105
(41)
(35)
—
—
(35)
258
—
(17)
(225)
(3)
(245)
883
—
883
Comprehensive income attributable to Cliffs shareholders
$
64 $
258 $
The accompanying notes are an integral part of these consolidated financial statements.
71
Statements of Consolidated Cash Flows
Cleveland-Cliffs Inc. and Subsidiaries
(In Millions)
Year Ended December 31,
2019
2018
2020
OPERATING ACTIVITIES
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
$
(81) $
293 $
1,128
Depreciation, depletion and amortization
Amortization of inventory step-up
Deferred income taxes
Loss (gain) on extinguishment of debt
Loss (gain) on derivatives
Gain on foreign currency translation
Other
Changes in operating assets and liabilities, net of business combination:
Receivables and other assets
Inventories
Pension and OPEB payments and contributions
Payables, accrued expenses and other liabilities
Net cash provided (used) by operating activities
INVESTING ACTIVITIES
Purchase of property, plant and equipment
Acquisition of ArcelorMittal USA, net of cash acquired
Acquisition of AK Steel, net of cash acquired
Other investing activities
Net cash used by investing activities
FINANCING ACTIVITIES
Repurchase of common shares
Dividends paid
Proceeds from issuance of debt
Debt issuance costs
Repurchase of debt
Borrowings under credit facilities
Repayments under credit facilities
SunCoke Middletown distributions to noncontrolling interest owners
Other financing activities
Net cash provided (used) by financing activities
Effect of exchange rate changes on cash
Decrease in cash and cash equivalents, including cash classified within other
current assets related to discontinued operations
Less: decrease in cash and cash equivalents from discontinued operations,
classified within other current assets
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
308
96
(101)
(130)
(104)
—
11
(42)
(146)
(75)
3
(261)
(525)
(658)
(869)
10
(2,042)
—
(41)
1,763
(76)
(1,023)
2,060
(550)
(61)
(13)
2,059
—
(244)
85
—
17
18
47
—
66
255
(136)
(20)
(62)
563
(656)
—
—
12
(644)
(253)
(72)
721
(7)
(729)
—
—
—
(54)
(394)
—
(475)
(3)
(241)
353
112 $
(5)
(470)
823
353 $
89
—
(461)
7
(110)
(228)
21
52
44
(32)
(31)
479
(296)
—
—
23
(273)
(48)
—
—
(2)
(235)
—
—
—
(91)
(376)
(2)
(172)
(17)
(155)
978
823
The accompanying notes are an integral part of these consolidated financial statements.
72
Statements of Consolidated Changes in Equity
Cleveland-Cliffs Inc. and Subsidiaries
(In Millions)
Cliffs Shareholders
Number
of
Common
Shares
Outstanding
Par Value
of
Common
Shares
Issued
Capital in
Excess of
Par Value
of Shares
Common
Shares
in
Treasury
Retained
Deficit
AOCI
(Loss)
Non-
controlling
Interest
Total
December 31, 2017
297
$
37
$
3,934
$ (4,207) $
(170) $
(39) $
— $
(445)
Adoption of accounting standard
Comprehensive income (loss)
Stock and other incentive plans
Common stock repurchases
Common stock dividends ($0.05 per
share)
December 31, 2018
Comprehensive income (loss)
Stock and other incentive plans
Common stock repurchases
Common stock dividends ($0.27 per
share)
December 31, 2019
Comprehensive income (loss)
Stock and other incentive plans
Acquisition of AK Steel
Acquisition of ArcelorMittal USA
Common stock dividends ($0.06 per
share)
Net distributions to noncontrolling
interests
—
—
1
(5)
—
293
$
—
2
(24)
—
271
$
—
2
127
78
—
—
December 31, 2020
478
$
—
—
—
—
—
37
—
—
—
—
37
—
—
16
10
—
—
63
—
—
(17)
—
—
34
1,128
—
—
(15)
—
—
31
(47)
—
—
(245)
—
—
—
—
—
—
—
—
$
3,917
$ (3,060) $
(186) $
(284) $
— $
—
(44)
—
—
293
—
—
—
48
(253)
(75)
—
(35)
—
—
—
—
—
—
—
$
3,873
$ (2,842) $
(391) $
(319) $
— $
—
(24)
602
980
—
—
(122)
—
—
—
(25)
—
—
37
—
—
—
—
186
—
—
—
—
—
41
—
330
13
—
(61)
34
883
14
(47)
(15)
424
258
4
(253)
(75)
358
105
13
948
1,003
(25)
(61)
$
5,431
$ (2,989) $
(354) $
(133) $
323
$
2,341
The accompanying notes are an integral part of these consolidated financial statements.
73
Notes to Consolidated Financial Statements
Cleveland-Cliffs Inc. and Subsidiaries
NOTE 1 - 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.
the automotive,
AK Steel is a North American producer of flat-rolled carbon, stainless and electrical steel products, primarily
for
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.
infrastructure and manufacturing markets.
Acquisition of ArcelorMittal USA
On December 9, 2020, pursuant
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.
to the terms of
The assets of ArcelorMittal USA we acquired at
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.
the closing of
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
74
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
for impairment when
Investees and equity
investments are included within our Steelmaking segment. We review an investment
circumstances indicate that a loss in value below its carrying amount is other than temporary.
ownership percentages are presented below:
Investee
Combined Metals of Chicago, LLC
Spartan Steel Coating, LLC
Equity Ownership
Percentage
40.0%
48.0%
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
future realizable cash flow; environmental, reclamation and closure
reporting period. Our mineral reserves;
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.
75
Business Combinations
if any,
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,
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
If the initial accounting for the business combination is incomplete by the end of the reporting period in
Acquisitions.
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
the point control
Trade accounts receivable are recorded at
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.
transfers and represent
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
76
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
lives. Depreciation
equipment
continues to be recognized when operations are idled temporarily. Depreciation and depletion are recorded over the
following estimated useful lives:
is computed principally by the straight-line method based on estimated useful
Asset Class
Basis
Life
Land, land improvements and mineral rights
Land and mineral rights
Land improvements
Buildings
Equipment
Units of production
Straight line
Straight line
Straight line/Double declining balance
Life of mine
20 to 45 years
20 to 45 years
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:
Type
Intangible assets:
Customer relationships
Developed technology
Trade names and trademarks
Mining permits
Intangible liabilities:
Basis
Straight line
Straight line
Straight line
Straight line
Useful Life
18 years
17 years
10 years
Life of mine
Above-market supply contracts
Straight line
Contract 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.
77
Asset Impairment
We monitor conditions that may affect the carrying value of our long-lived tangible and intangible assets when
In order to
events and circumstances indicate that the carrying value of the asset groups may not be recoverable.
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
If the plan
assets and the actuarial present value of our retirement obligations on that date, on a plan-by-plan basis.
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
the benefits earned in the current year by the
unrecognized amounts. Service cost represents the value of
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
78
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
If the cost can only be estimated as a range of possible amounts with no point in the range being more likely, the
site.
minimum of the range is accrued. Future expenditures are discounted unless the amount and timing of the cash
It is possible that additional environmental obligations could be
disbursements cannot be reasonably estimated.
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.
79
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
80
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
In August 2018, management determined that there were significant changes in economic factors related to
the Euro.
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
remaining Australian denominated monetary balances will be remeasured prospectively through the
and all
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
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.
interest.
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
to provide alternative financial disclosures (which include
registrant’s financial statements with a requirement
summarized financial
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 -
information of
81
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.
NOTE 2 - 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:
Allowance for credit losses as of January 1
Increase in allowance
Allowance for credit losses as of December 31
Inventories
(In Millions)
2020
2019
$
$
— $
(5)
(5) $
—
—
—
The following table presents the detail of our Inventories in the Statements of Consolidated Financial Position:
Product inventories
Finished and semi-finished goods
Work-in-process
Raw materials
Total product inventories
Manufacturing supplies and critical spares
Inventories
82
(In Millions)
Year Ended December 31,
2020
2019
$
$
2,125 $
—
1,431
3,556
272
3,828 $
114
69
9
192
125
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:
Capital additions
Less:
Non-cash accruals
Right-of-use assets - finance leases
Grants
(In Millions)
Year Ended December 31,
2020
2019
2018
$
483 $
690 $
395
(86)
44
—
15
29
(10)
94
8
(3)
Cash paid for capital expenditures including deposits
$
525 $
656 $
296
Cash payments (receipts) for interest and income taxes are as follows:
Taxes paid on income
Income tax refunds
Interest paid on debt obligations net of capitalized interest1
(In Millions)
2020
2019
2018
$
5 $
— $
(120)
170
(118)
98
3
(11)
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
Fair value of common shares issued as part of consideration in connection
with AM USA Transaction
Fair value of Series B Participating Redeemable Preferred Stock issued as
part of consideration in connection with AM USA Transaction
Fair value of settlement of a pre-existing relationship as part of consideration
in connection with AM USA Transaction
Fair value of common shares issued as consideration in connection with AK
Steel Merger
Fair value of equity awards assumed in connection with AK Steel Merger
Discontinued Operations
(In Millions)
2020
2019
2018
$
990 $
— $
738
237
618
4
—
—
—
—
—
—
—
—
—
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
the historical changes in foreign currency translation recorded in Accumulated other
Australian subsidiaries,
comprehensive loss totaling $228 million was reclassified and recognized as a gain in Income (loss)
from
discontinued operations, net of tax.
83
NOTE 3 - ACQUISITIONS
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
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.
to the terms of
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:
Fair value of Cliffs common shares issued
Fair value of Series B Participating Redeemable Preferred Stock issued
Fair value of settlement of a pre-existing relationship
Cash consideration (subject to customary working capital adjustments)
Total purchase consideration
(In Millions)
990
738
237
631
2,596
$
$
84
The fair value of Cliffs common shares issued is calculated as follows:
Number of Cliffs common shares issued
Closing price of Cliffs common share as of December 9, 2020
Fair value of Cliffs common shares issued (in millions)
78,186,671
12.66
990
$
$
The fair value of Cliffs Series B Participating Redeemable Preferred Stock issued is calculated as follows:
Number of Cliffs Series B Participating Redeemable Preferred Stock issued
Redemption price as of December 9, 2020
Fair value of Cliffs Series B Participating Redeemable Preferred Stock issued (in millions)
The fair value of the estimated cash consideration is comprised of the following:
Cash consideration pursuant to the AM USA Transaction Agreement
Cash consideration for purchase of the remaining JV partners' interest of Kote and Tek
Estimated total cash consideration receivable
Total estimated cash consideration
$
$
$
$
583,273
1,266
738
(In Millions)
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:
Accounts receivable
Freestanding derivative asset from customer supply agreement
Total fair value of settlement of a pre-existing relationship
Valuation Assumption and Preliminary Purchase Price Allocation
(In Millions)
$
$
505
182
(56)
631
97
140
237
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.
to
modification in the future.
the provisional measurements noted below are preliminary and subject
Accordingly,
85
The preliminary purchase price allocation to assets acquired and liabilities assumed in the AM USA
Transaction was:
Cash and cash equivalents
Accounts receivable, net
Inventories
Income tax receivable, current
Other current assets
Property, plant and equipment
Other non-current assets
Accounts payable
Accrued employment costs
State and local taxes
Pension and OPEB liabilities, current
Other current liabilities
Pension and OPEB liabilities, non-current
Other non-current liabilities
Noncontrolling interest
Net identifiable assets acquired
Goodwill
Total net assets acquired
(In Millions)
35
349
2,115
12
22
4,017
158
(758)
(271)
(76)
(109)
(322)
(3,195)
(598)
(13)
1,366
1,230
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.
86
The fair value of the total purchase consideration was determined as follows:
Fair value of AK Steel debt
Fair value of Cliffs common shares issued for AK Steel outstanding common stock
Other
Total purchase consideration
(In Millions)
914
618
3
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:
Number of shares of AK Steel common stock issued and outstanding
Exchange ratio
Shares of Cliffs common shares issued to AK Steel stockholders
Price per share of Cliffs common shares
Fair value of Cliffs common shares issued for outstanding AK Steel common stock
The fair value of AK Steel's debt included in the consideration is calculated as follows:
Credit Facility
7.50% Senior Secured Notes due July 2023
Fair value of debt included in consideration
(In Millions, Except
Per Share
Amounts)
317
0.400
127
4.87
618
(In Millions)
590
324
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.
87
The preliminary purchase price allocation to assets acquired and liabilities assumed in the AK Steel Merger
was:
Initial Allocation of
Consideration
(In Millions)
Measurement Period
Adjustments
Updated Allocation
Cash and cash equivalents
Accounts receivable, net
Inventories
Income tax receivable, current
Other current assets
Property, plant and equipment
Deferred income taxes
Other non-current assets
Accounts payable
Accrued employment costs
State and local taxes
Pension and OPEB liabilities, current
Other current liabilities
Long-term debt
Pension and OPEB liabilities, non-current
Other non-current liabilities
Noncontrolling interest
Net identifiable assets acquired
Goodwill
$
38 $
1 $
666
1,563
3
65
2,184
—
475
(636)
(94)
(35)
(75)
(201)
(1,179)
(873)
(507)
—
1,394
141
(2)
(243)
—
(16)
128
30
(3)
(8)
1
4
(3)
5
—
2
72
(1)
(33)
33
Total net assets acquired
$
1,535 $
— $
39
664
1,320
3
49
2,312
30
472
(644)
(93)
(31)
(78)
(196)
(1,179)
(871)
(435)
(1)
1,361
174
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
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.
is calculated as the excess of
The preliminary purchase price allocated to identifiable intangible assets and liabilities acquired was:
Intangible assets:
Customer relationships
Developed technology
Trade names and trademarks
Total identifiable intangible assets
Intangible liabilities:
Above-market supply contracts
(In Millions)
Weighted Average
Life (In Years)
$
$
$
77
60
11
148
(71)
18
17
10
17
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.
88
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,
2020
2019
Revenues
Net income (loss) attributable to Cliffs shareholders
$
12,837 $
(520)
17,163
(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
the fees charged for
ended December 31, 2020 and 2019, respectively,
management, financial and legal services under the Industrial Franchise Agreement with the former parent.
for the impact of reversal of
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
information should not be considered indicative of the results that would have actually occurred if the
financial
Acquisitions had been consummated on January 1, 2019, nor are they indicative of future results.
89
NOTE 4 - REVENUES
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:
Steelmaking:
Automotive
Infrastructure and manufacturing
Distributors and converters
Steel producers1
Total steelmaking
Other Businesses:
Automotive
Infrastructure and manufacturing
Distributors and converters
Total Other Businesses
Total revenues
(In Millions)
Year Ended December 31,
2020
2019
2018
$
2,062 $
— $
784
696
1,423
4,965
329
34
26
389
—
—
1,990
1,990
—
—
—
—
—
—
—
2,332
2,332
—
—
—
—
$
5,354 $
1,990 $
2,332
1 Includes Realization of deferred revenue of $35 million for the year ended December 31, 2020.
90
The following table represents our consolidated Revenues by product line:
(Dollars In Millions, Sales Volumes in Thousands)
Year Ended December 31,
2020
2019
2018
Revenue
Volume1
Revenue
Volume1
Revenue
Volume1
Steelmaking:
Hot-rolled steel
Cold-rolled steel
Coated steel
Stainless and electrical steel
$
Other steel products
Iron products2
Other
Total steelmaking
Other Businesses:
Other
Total revenues
$
386
490
1,747
868
92
1,335
47
4,965
389
5,354
633 $
682
1,911
416
141
11,707
N/A
—
—
—
—
—
1,990
—
1,990
— $
—
—
—
—
18,583
—
—
—
—
—
—
2,332
—
2,332
—
—
—
—
—
20,563
—
N/A
—
N/A
—
N/A
$
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:
Opening balance as of January 1
Net increase (decrease)
Closing balance as of December 31
(In Millions)
Deferred Revenue (Current)
Deferred Revenue (Long-Term)
2020
2019
2020
2019
$
$
22 $
(15)
7 $
21 $
1
22 $
26 $
(26)
— $
39
(13)
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
Installment amounts received under this arrangement in excess of sales were classified as deferred
through 2013.
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.
NOTE 5 - 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
91
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
financial statements to assess our operating performance and to compare operating
external users of our
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:
Revenues:
Steelmaking1
Other Businesses
Total revenues
Adjusted EBITDA:
Steelmaking
Other Businesses
Corporate and eliminations
Total Adjusted EBITDA
(In Millions)
Year Ended December 31,
2020
2019
2018
4,965 $
1,990 $
2,332
389
—
—
5,354 $
1,990 $
2,332
433 $
636 $
47
(127)
—
(111)
353 $
525 $
872
—
(106)
766
$
$
$
$
1 Includes Realization of deferred revenue of $35 million for the year ended December 31, 2020.
92
The following table provides a reconciliation of our consolidated Net income (loss) to total Adjusted EBITDA:
Net income (loss)
Less:
Interest expense, net
Income tax benefit (expense)
Depreciation, depletion and amortization
Less:
EBITDA from noncontrolling interests1
Gain (loss) on extinguishment of debt
Severance costs
Acquisition-related costs excluding severance costs
Amortization of inventory step-up
Impact of discontinued operations
Foreign exchange remeasurement
Impairment of other long-lived assets
Total Adjusted EBITDA
(In Millions)
Year Ended December 31,
2020
2019
2018
$
(81) $
293 $
1,128
(238)
111
(308)
354
56
130
(38)
(52)
(96)
1
—
—
(101)
(18)
(85)
497
—
(18)
(2)
(7)
—
(1)
—
—
(121)
460
(89)
878
—
(7)
—
—
—
121
(1)
(1)
$
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:
Depreciation, depletion and amortization:
Steelmaking
Other Businesses
Corporate
Total depreciation, depletion and amortization
Capital additions1:
Steelmaking
Other Businesses
Corporate
Total capital additions
(In Millions)
Year Ended December 31,
2020
2019
2018
$
$
$
$
276 $
80 $
27
5
—
5
308 $
85 $
436 $
687 $
45
2
—
3
483 $
690 $
68
—
6
74
393
—
2
395
1 Refer to NOTE 2 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION for additional information.
93
The following summarizes our assets by segment:
Assets:
Steelmaking
Other Businesses
Total segment assets
Corporate
Total assets
(In Millions)
December 31,
2020
2019
$
$
15,849 $
239
16,088
683
16,771 $
2,557
—
2,557
947
3,504
Included in the consolidated financial statements are the following amounts relating to geographic location
based on product destination:
Revenues:
United States
Canada
Other countries
Total revenues
Property, plant and equipment, net:
United States
Canada
Other countries
Total property, plant and equipment, net
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
(In Millions)
2020
2019
2018
$
$
$
$
4,580 $
1,505 $
602
172
448
37
5,354 $
1,990 $
1,847
395
90
2,332
8,647 $
1,929 $
1,286
91
5
—
—
—
—
8,743 $
1,929 $
1,286
The following table indicates the carrying value of each of the major classes of our depreciable assets:
Land, land improvements, and mineral rights
Buildings
Equipment
Other
Construction in progress
Total property, plant and equipment1
Allowance for depreciation and depletion
Property, plant, and equipment, net
(In Millions)
December 31,
2020
2019
$
$
1,213 $
703
6,786
151
1,364
10,217
(1,474)
8,743 $
582
158
1,456
101
730
3,027
(1,098)
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.
94
The net book value of the mineral and land rights are as follows:
Mineral rights:
Cost
Depletion
Net mineral rights
Land rights
(In Millions)
December 31,
2020
2019
$
$
$
773 $
(142)
631 $
361 $
537
(134)
403
12
We recorded depletion expense of $8 million, $8 million and $7 million for the years ended December 31,
2020, 2019, and 2018, respectively.
NOTE 7 - GOODWILL AND INTANGIBLE ASSETS AND LIABILITIES
Goodwill
The following is a summary of goodwill by segment:
Steelmaking
Other Businesses
Total goodwill
(In Millions)
December 31,
2020
2019
$
$
1,232 $
174
1,406 $
2
—
2
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.
95
Intangible Assets and Liabilities
The following is a summary of our intangible assets and liabilities:
Classification1
Gross
Amount
(In Millions)
Accumulated
Amortization
Net
Amount
As of December 31, 2020
Intangible assets:
Customer relationships
Technology
Other non-current assets
Other non-current assets
Trade names and trademarks
Other non-current assets
Mining permits
Total intangible assets
Intangible liabilities:
Other non-current assets
Above-market supply contracts
Other non-current liabilities
As of December 31, 2019
Intangible assets:
$
$
$
77 $
(3) $
60
11
72
(3)
(1)
(25)
74
57
10
47
220 $
(32) $
188
(71) $
7 $
(64)
Mining permits
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.
Other non-current assets
(24) $
72 $
$
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.
96
NOTE 8 - DEBT AND CREDIT FACILITIES
The following represents a summary of our long-term debt:
(In Millions)
December 31, 2020
Annual
Effective
Interest
Rate
Total
Principal
Amount
Unamortized
Debt
Issuance
Costs
Unamortized
Premiums
(Discounts)
Total
Debt
5.00% $
395 $
(3) $
(1) $
Debt Instrument
Issuer1
Senior Secured Notes:
4.875% 2024 Senior Secured Notes
9.875% 2025 Senior Secured Notes
6.75% 2026 Senior Secured Notes
Cliffs
Cliffs
Cliffs
Senior Unsecured Notes:
7.625% 2021 AK Senior Notes
7.50% 2023 AK Senior Notes
6.375% 2025 Senior Notes
6.375% 2025 AK Senior Notes
1.50% 2025 Convertible Senior Notes
5.75% 2025 Senior Notes
7.00% 2027 Senior Notes
AK Steel
AK Steel
Cliffs
AK Steel
Cliffs
Cliffs
Cliffs
7.00% 2027 AK Senior Notes
AK Steel
5.875% 2027 Senior Notes
6.25% 2040 Senior Notes
Cliffs
Cliffs
10.57%
6.99%
7.33%
6.17%
8.11%
8.11%
6.26%
6.01%
9.24%
9.24%
6.49%
6.34%
IRBs due 2024 to 2028
EDC Revolving Facility3
ABL Facility3
Total debt
Less: current debt
Total long-term debt
AK Steel Various
*
Cliffs2
3.25%
2.15%
955
845
34
13
64
29
296
396
73
56
556
263
92
40
3,500
(8)
(20)
—
—
—
—
(4)
(3)
—
—
(4)
(2)
—
—
—
(25)
(9)
—
—
(4)
(2)
(49)
(4)
(8)
(6)
(18)
(3)
2
—
—
391
922
816
34
13
60
27
243
389
65
50
534
258
94
18
1,510
5,424
34
$ 5,390
* Our subsidiaries, Fleetwood Metal Industries Inc. and The Electromac Group Inc., are the borrowers under the EDC Revolving
Facility.
1 Unless otherwise noted, references in this column and throughout this Note 8 - DEBT AND CREDIT FACILITIES to "Cliffs" are to
Cleveland-Cliffs Inc., and references to "AK Steel" are to AK Steel Corporation (n/k/a Cleveland-Cliffs Steel Corporation).
2 Refers to Cleveland-Cliffs Inc. as borrower under our ABL Facility.
3 The total principal amounts for the indicated credit facilities are stated at their respective maximum borrowing capacities.
97
(In Millions)
December 31, 2019
Debt Instrument
Issuer1
Senior Secured Notes:
Annual
Effective
Interest
Rate
Total
Principal
Amount
Debt
Issuance
Costs
Unamortized
Discounts
Total
Debt
4.875% 2024 Senior Notes
Cliffs
5.00% $
400 $
(5) $
(2) $
393
Senior Unsecured Notes:
1.50% 2025 Convertible Senior Notes
5.75% 2025 Senior Notes
5.875% 2027 Senior Notes
6.25% 2040 Senior Notes
Former ABL Facility
Total long-term debt
Cliffs
Cliffs
Cliffs
Cliffs
Cliffs2
6.26%
6.01%
6.49%
6.34%
N/A
316
473
750
298
450
(4)
(3)
(6)
(2)
N/A
(65)
(6)
(27)
(3)
N/A
247
464
717
293
—
$
2,114
1 Unless otherwise noted, references in this column to "Cliffs" are to Cleveland-Cliffs Inc.
2 Refers to Cleveland-Cliffs Inc. and certain of its subsidiaries as borrowers under our Former ABL Facility.
Outstanding Senior Secured Notes
9.875% 2025 Senior Secured Notes
On April 17, 2020, we entered into an indenture among Cliffs, the guarantors party thereto and U.S. Bank
National Association, as trustee and notes collateral agent, relating to the issuance by Cliffs of $400 million aggregate
principal amount of 9.875% 2025 Senior Secured Notes issued at 94.5% of face value.
On April 24, 2020, we issued an additional $555 million aggregate principal amount of 9.875% 2025 Senior
Secured Notes issued at 99.0% of face value. These additional notes are of the same class and series as, and
otherwise identical to, the 9.875% 2025 Senior Secured Notes issued on April 17, 2020, other than with respect to the
date of issuance and issue price.
The 9.875% 2025 Senior Secured Notes were issued in private placement transactions exempt from the
registration requirements of the Securities Act. The 9.875% 2025 Senior Secured Notes bear interest at a rate of
9.875% per annum, payable semi-annually in arrears on April 17 and October 17 of each year, commencing on
October 17, 2020. The 9.875% 2025 Senior Secured Notes will mature on October 17, 2025 and are secured senior
obligations of Cliffs.
The 9.875% 2025 Senior Secured Notes are jointly and severally and fully and unconditionally guaranteed on
a senior secured basis by substantially all of our material domestic subsidiaries and are secured (subject in each case
to certain exceptions and permitted liens) by (i) a first-priority lien, on a pari passu basis with the 6.75% 2026 Senior
Secured Notes and 4.875% 2024 Senior Secured Notes, on substantially all of our assets and the assets of the
guarantors, other than the ABL Collateral (as defined below), and (ii) a second-priority lien on the ABL Collateral,
which is junior to a first-priority lien for the benefit of the lenders under our ABL Facility.
98
The 9.875% 2025 Senior Secured Notes may be redeemed, in whole or in part, at any time at our option upon
not less than 30, and not more than 60, days' prior notice sent to the holders of the 9.875% 2025 Senior Secured
Notes. The following is a summary of redemption prices for our 9.875% 2025 Senior Secured Notes:
Redemption Period
Prior to October 17, 2022 - using proceeds of equity issuance
Prior to October 17, 20222
Beginning on October 17, 2022
Beginning on April 17, 2023
Beginning on April 17, 2024
Beginning on April 17, 2025 and thereafter
Redemption
Price1
109.875 %
Restricted Amount
Up to 35% of original
aggregate principal
100.000
107.406
104.938
102.469
100.000
1 Plus accrued and unpaid interest, if any, up to, but excluding, the redemption date.
2 Plus a "make-whole" premium.
In addition, if a change in control triggering event, as defined in the indenture, occurs with respect to the
9.875% 2025 Senior Secured Notes, we will be required to offer to purchase the notes at a purchase price equal to
101% of their principal amount, plus accrued and unpaid interest, if any, to, but not including, the date of purchase.
The terms of the 9.875% 2025 Senior Secured Notes contain certain customary covenants; however, there
are no financial covenants.
6.75% 2026 Senior Secured Notes
On March 13, 2020, we entered into an indenture among Cliffs, the guarantors party thereto and U.S. Bank
National Association, as trustee and notes collateral agent, relating to the issuance of $725 million aggregate principal
amount of 6.75% 2026 Senior Secured Notes issued at 98.783% of face value.
On June 19, 2020, we issued an additional $120 million aggregate principal amount of 6.75% 2026 Senior
Secured Notes issued at 99.25% of face value. These additional notes are of the same class and series as, and
otherwise identical to, the 6.75% 2026 Senior Secured Notes issued on March 13, 2020, other than with respect to the
date of issuance and issue price.
The 6.75% 2026 Senior Secured Notes were issued in private placement transactions exempt from the
registration requirements of the Securities Act. The 6.75% 2026 Senior Secured Notes bear interest at a rate of
6.75% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, commencing on
September 15, 2020. The 6.75% 2026 Senior Secured Notes mature on March 15, 2026 and are secured senior
obligations of Cliffs.
The 6.75% 2026 Senior Secured Notes are jointly and severally and fully and unconditionally guaranteed on a
senior secured basis by substantially all of our material domestic subsidiaries and are secured (subject in each case
to certain exceptions and permitted liens) by (i) a first-priority lien, on a pari passu basis with the 4.875% 2024 Senior
Secured Notes and 9.875% 2025 Senior Secured Notes, on substantially all of our assets and the assets of the
guarantors, other than the ABL Collateral, and (ii) a second-priority lien on the ABL Collateral, which is junior to a first-
priority lien for the benefit of the lenders under our ABL Facility.
99
The 6.75% 2026 Senior Secured Notes may be redeemed, in whole or in part, at any time at our option upon
not less than 30, and not more than 60, days' prior notice sent to the holders of the 6.75% 2026 Senior Secured
Notes. The following is a summary of redemption prices (expressed as a percentage of the principal amount to be
redeemed) for our 6.75% 2026 Senior Secured Notes:
Redemption Period
Prior to March 15, 2022 - using proceeds of equity issuance
Prior to March 15, 20222
Beginning on March 15, 2022
Beginning on March 15, 2023
Beginning on March 15, 2024
Beginning on March 15, 2025 and thereafter
Redemption
Price1
106.750 %
Restricted Amount
Up to 35% of original
aggregate principal
100.000
105.063
103.375
101.688
100.000
1 Plus accrued and unpaid interest, if any, up to, but excluding, the redemption date.
2 Plus a "make-whole" premium.
In addition, if a change in control triggering event, as defined in the indenture, occurs with respect to the
6.75% 2026 Senior Secured Notes, we will be required to offer to purchase the notes at a purchase price equal to
101% of their principal amount, plus accrued and unpaid interest, if any, to, but not including, the date of purchase.
The terms of the 6.75% 2026 Senior Secured Notes contain certain customary covenants; however, there are
no financial covenants.
4.875% 2024 Senior Secured Notes
Our 4.875% 2024 Senior Secured Notes bear interest at a rate of 4.875% per annum, which is payable semi-
annually in arrears on January 15 and July 15 of each year. The 4.875% 2024 Senior Secured Notes mature on
January 15, 2024 and are secured senior obligations of Cliffs.
Our 4.875% 2024 Senior Secured Notes are jointly and severally and fully and unconditionally guaranteed on
a senior secured basis by substantially all of our material domestic subsidiaries and are secured (subject in each case
to certain exceptions and permitted liens) by (i) a first-priority lien, on a pari passu basis with the 9.875% 2025 Senior
Secured Notes and 6.75% 2026 Senior Secured Notes, on substantially all of our assets and the assets of the
guarantors, other than the ABL Collateral, and (ii) a second-priority lien on the ABL Collateral, which is junior to a first-
priority lien for the benefit of the lenders under our ABL Facility.
The 4.875% 2024 Senior Secured Notes may be redeemed, in whole or in part, at any time at our option upon
not less than 30, and not more than 60, days' prior notice sent to the holders of the 4.875% 2024 Senior Secured
Notes. The following is a summary of redemption prices (expressed as a percentage of the principal amount to be
redeemed) for our 4.875% 2024 Senior Secured Notes:
Redemption Period
Beginning on January 15, 2021
Beginning on January 15, 2022
Beginning on January 15, 2023 and thereafter
Redemption Price1
102.438 %
101.219
100.000
1 Plus accrued and unpaid interest, if any, up to but excluding the redemption date.
In addition, if a change in control triggering event, as defined in the indenture, occurs with respect to the
4.875% 2024 Senior Secured Notes, we will be required to offer to purchase the notes at a purchase price equal to
101% of their principal amount, plus accrued and unpaid interest, if any, to, but not including, the date of purchase.
The terms of the 4.875% 2024 Senior Secured Notes contain certain covenants; however, there are no
financial covenants.
100
Outstanding Senior Unsecured Notes
Cliffs Senior Notes exchanged for AK Steel Corporation Senior Notes
On March 16, 2020, we entered into indentures, in each case among Cliffs, the guarantors party thereto and
U.S. Bank National Association, as trustee, relating to the issuance by Cliffs of $232 million aggregate principal
amount of 6.375% 2025 Senior Notes and $335 million aggregate principal amount of 7.00% 2027 Senior Notes. The
new notes were issued in exchange for equal aggregate principal amounts of 6.375% 2025 AK Senior Notes and
7.00% 2027 AK Senior Notes, respectively, issued by AK Steel Corporation. The 6.375% 2025 Senior Notes and
7.00% 2027 Senior Notes were issued in connection with the AK Steel Merger pursuant to private exchange offers
exempt from the registration requirements of the Securities Act made by Cliffs. Pursuant to the registration rights
agreements executed in connection with the issuance of the new notes, we agreed to file registration statements with
the SEC with respect to registered offers to exchange the 6.375% 2025 Senior Notes and 7.00% 2027 Senior Notes
for publicly registered notes within 365 days of the closing date, with all significant terms and conditions remaining the
same.
The 6.375% 2025 Senior Notes and 7.00% 2027 Senior Notes are unsecured obligations and rank equally in
right of payment with all of our existing and future unsecured and unsubordinated indebtedness. The notes are
guaranteed on a senior unsecured basis by our material direct and indirect wholly owned domestic subsidiaries and,
therefore, are structurally senior to any of our existing and future indebtedness that is not guaranteed by such
guarantors and are structurally subordinated to all existing and future indebtedness and other liabilities of our
subsidiaries that do not guarantee the notes.
In addition, if a change in control triggering event, as defined in the indentures, occurs with respect to the
6.375% 2025 Senior Notes or 7.00% 2027 Senior Notes, we will be required to offer to purchase the notes at a
purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to, but not including,
the date of purchase.
The terms of the 6.375% 2025 Senior Notes and 7.00% 2027 Senior Notes contain certain customary
covenants; however, there are no financial covenants.
6.375% 2025 Senior Notes
The 6.375% 2025 Senior Notes bear interest at a rate of 6.375% per annum, payable semi-annually in arrears
on April 15 and October 15 of each year, commencing on April 15, 2020. The 6.375% 2025 Senior Notes mature on
October 15, 2025.
The 6.375% 2025 Senior Notes may be redeemed, in whole or in part, at any time at our option upon not less
than 30, and not more than 60, days' prior notice sent to the holders of the 6.375% 2025 Senior Notes. The following
is a summary of redemption prices (expressed as a percentage of the principal amount to be redeemed) for our
6.375% 2025 Senior Notes:
Redemption Period
Beginning on October 15, 2020
Beginning on October 15, 2021
Beginning on October 15, 2022 and thereafter
1 Plus accrued and unpaid interest, if any, up to but excluding the redemption date.
7.00% 2027 Senior Notes
Redemption Price1
103.188 %
101.594
100.000
The 7.00% 2027 Senior Notes bear interest at a rate of 7.00% per annum, payable semi-annually in arrears
on March 15 and September 15 of each year, commencing on September 15, 2020. The 7.00% 2027 Senior Notes
mature on March 15, 2027.
101
The 7.00% 2027 Senior Notes may be redeemed, in whole or in part, at any time at our option upon not less
than 30, and not more than 60, days' prior notice sent to the holders of the 7.00% 2027 Senior Notes. The following is
a summary of redemption prices (expressed as a percentage of the principal amount to be redeemed) for our 7.00%
2027 Senior Notes:
Redemption Period
Prior to March 15, 20222
Beginning on March 15, 2022
Beginning on March 15, 2023
Beginning on March 15, 2024
Beginning on March 15, 2025 and thereafter
1 Plus accrued and unpaid interest, if any, up to but excluding the redemption date.
2 Plus a "make-whole" premium.
AK Steel Corporation Unsecured Senior Notes
Redemption Price1
100.000 %
103.500
102.333
101.167
100.000
As of December 31, 2020, AK Steel Corporation had outstanding a total of $132 million aggregate principal
amount of 7.625% 2021 AK Senior Notes, 7.50% 2023 AK Senior Notes, 6.375% 2025 AK Senior Notes and 7.00%
2027 AK Senior Notes. These senior notes are unsecured obligations and rank equally in right of payment with AK
Steel Corporation's guarantees of Cliffs' unsecured and unsubordinated indebtedness. These notes contain no
financial covenants.
The 7.625% 2021 AK Senior Notes, 7.50% 2023 AK Senior Notes, 6.375% 2025 AK Senior Notes and 7.00%
2027 AK Senior Notes may be redeemed, in whole or in part, at any time at our option upon not less than 30, and not
more than 60, days' prior notice sent to the respective holders of such notes.
We may redeem the 7.625% 2021 AK Senior Notes at 100.000% of their principal amount, together with all
accrued and unpaid interest to the date of redemption.
The following is a summary of redemption prices (expressed as a percentage of the principal amount to be
redeemed) for the 7.50% 2023 AK Senior Notes:
Redemption Period
Beginning on July 15, 2020
Beginning on July 15, 2021 and thereafter
Redemption Price1
101.875 %
100.000
1 Plus accrued and unpaid interest, if any, up to but excluding the redemption date.
The following is a summary of redemption prices (expressed as a percentage of the principal amount to be
redeemed) for the 6.375% 2025 AK Senior Notes:
Redemption Period
Beginning on October 15, 2020
Beginning on October 15, 2021
Beginning on October 15, 2022 and thereafter
1 Plus accrued and unpaid interest, if any, up to but excluding the redemption date.
Redemption Price1
103.188 %
101.594
100.000
102
The following is a summary of redemption prices (expressed as a percentage of the principal amount to be
redeemed) for the 7.00% 2027 AK Senior Notes:
Redemption Period
Prior to March 15, 20222
Beginning on March 15, 2022
Beginning on March 15, 2023
Beginning on March 15, 2024
Beginning on March 15, 2025 and thereafter
1 Plus accrued and unpaid interest, if any, up to but excluding the redemption date.
2 Plus a "make-whole" premium.
1.50% 2025 Convertible Senior Notes
Redemption Price1
100.000 %
103.500
102.333
101.167
100.000
The 1.50% 2025 Convertible Senior Notes bear interest at a rate of 1.50% per year, payable semiannually in
arrears on January 15 and July 15 of each year. The 1.50% 2025 Convertible Senior Notes mature on January 15,
2025. The 1.50% 2025 Convertible Senior Notes are senior unsecured obligations and rank senior in right of payment
to any of our indebtedness that is expressly subordinated in right of payment to the 1.50% 2025 Convertible Senior
Notes; equal in right of payment to any of our unsecured indebtedness that is not so subordinated; effectively junior in
right of payment
the assets securing such
the value of
indebtedness; and structurally junior to all
indebtedness and other liabilities (including trade payables) of our
subsidiaries. The terms of the 1.50% 2025 Convertible Senior Notes contain certain customary covenants; however,
there are no financial covenants.
to any of our secured indebtedness to the extent of
Holders may convert their 1.50% 2025 Convertible Senior Notes at their option at any time prior to the close
of business on the business day immediately preceding July 15, 2024, only under the following circumstances: (1)
during any calendar quarter commencing after the calendar quarter ending on March 31, 2018, if the last reported
least 20 trading days (whether or not
sale price of our common shares, par value $0.125 per share,
consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately
preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
(2) during the five-business day period after any five-consecutive trading day period (the “measurement period”) in
which the trading price per $1,000 principal amount of 1.50% 2025 Convertible Senior Notes for each trading day of
the measurement period was less than 98% of the product of the last reported sale price of our common shares and
the conversion rate on each such trading day; (3) if we call the notes for redemption, at any time prior to the close of
business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of
specified corporate events. On or after July 15, 2024 until the close of business on the second scheduled trading day
immediately preceding the maturity date, holders may convert their 1.50% 2025 Convertible Senior Notes at any time,
regardless of the foregoing circumstances. Upon conversion, we will pay or deliver, as the case may be, cash,
common shares or a combination of cash and common shares, at our election.
for at
Upon the issuance of the 1.50% 2025 Convertible Senior Notes the initial conversion rate was 122.4365
common shares per $1,000 principal, with a conversion price of $8.17 per common share. The conversion rate is
subject to adjustment in some circumstances, including the payment of dividends on common shares, but will not be
In addition, following certain corporate events that occur prior to the
adjusted for any accrued and unpaid interest.
maturity date, or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate
for a holder who elects to convert its 1.50% 2025 Convertible Senior Notes in connection with such a corporate event
or notice of redemption, as the case may be. As of December 31, 2020, the conversion rate was 129.2985 common
shares per $1,000 principal amount of 1.50% 2025 Convertible Senior Notes.
We may not redeem the 1.50% 2025 Convertible Senior Notes prior to January 15, 2022. We may redeem all
or any portion of the 1.50% 2025 Convertible Senior Notes, for cash at our option on or after January 15, 2022 if the
last reported sale price of our common shares has been at least 130% of the conversion price then in effect for at
least 20 trading days (whether or not consecutive) during any 30-consecutive trading day period (including the last
trading day of such period) ending on, and including, the trading day immediately preceding the date on which we
provide notice of redemption at a redemption price equal to 100% of the principal amount of the 1.50% 2025
Convertible Senior Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
103
It is our current intent to settle conversions through combination settlement or fully in cash. Our ability to
settle conversions through combination settlement and cash settlement will be subject to restrictions in the agreement
governing our ABL Facility and may be subject to restrictions in agreements governing our future debt.
If we undergo a fundamental change as defined in the indenture, holders may require us to repurchase for
cash all or any portion of their 1.50% 2025 Convertible Senior Notes at a fundamental change repurchase price equal
to 100% of the principal amount of the 1.50% 2025 Convertible Senior Notes to be repurchased, plus accrued and
unpaid interest to, but excluding, the fundamental change repurchase date.
In accounting for the issuance of the notes, we separated the 1.50% 2025 Convertible Senior Notes into
liability and equity components. The carrying amount of the liability component was calculated by measuring the fair
value of similar liabilities that did not have associated convertible features. The carrying amount of the equity
component of $86 million representing the conversion option was determined by deducting the fair value of the liability
component from the par value of the notes. The difference represents the debt discount that is amortized to interest
expense over the term of the notes. The equity component is not remeasured as long as it continues to qualify for
equity classification.
Other Outstanding Unsecured Senior Notes
The following represents a summary of our other unsecured senior notes' maturity and interest payable due
dates:
Debt Instrument
5.75% 2025 Senior Notes
5.875% 2027 Senior Notes
6.25% 2040 Senior Notes
Maturity
March 1, 2025
June 1, 2027
Interest Payable
(until maturity)
March 1 and September 1
June 1 and December 1
October 1, 2040
April 1 and October 1
The senior notes are unsecured obligations and rank equally in right of payment with all our other existing and
future unsecured and unsubordinated indebtedness. There are no subsidiary guarantees of the interest and principal
amounts for the 6.25% 2040 Senior Notes. The 5.75% 2025 Senior Notes and 5.875% 2027 Senior Notes are
guaranteed on a senior unsecured basis by our material direct and indirect wholly owned domestic subsidiaries and,
therefore, are structurally senior to any of our existing and future indebtedness that is not guaranteed by such
guarantors and are structurally subordinated to all existing and future indebtedness and other liabilities of our
subsidiaries that do not guarantee the 5.75% 2025 Senior Notes and 5.875% 2027 Senior Notes.
We may redeem the 5.75% 2025 Senior Notes, in whole or in part, on or after March 1, 2020, at the
redemption prices set forth in the indenture, plus accrued and unpaid interest, if any, to, but not including, the date of
redemption.
We may redeem the 5.875% 2027 Senior Notes, in whole or in part, on or after June 1, 2022, at the
redemption prices set forth in the indenture, plus accrued and unpaid interest, if any, to, but not including, the date of
redemption, and prior to June 1, 2022, at a redemption price equal to 100% of the principal amount thereof plus a
“make-whole” premium set forth in the indenture, plus accrued and unpaid interest, if any, to, but not including, the
date of redemption. We may also redeem up to 35% of the aggregate principal amount of the 5.875% 2027 Senior
Notes on or prior to June 1, 2022 at a redemption price equal to 105.875% of the principal amount thereof, plus
accrued and unpaid interest, if any, to, but not including, the date of redemption with the net cash proceeds of one or
more equity offerings.
The 6.25% 2040 Senior Notes may be redeemed any time at our option upon not less than 30, nor more than
60, days' prior notice is sent to the holders. The 6.25% 2040 Senior Notes are redeemable at a redemption price
equal to the greater of (1) 100% of the principal amount of the notes to be redeemed or (2) the sum of the present
values of the remaining scheduled payments of principal and interest on the notes to be redeemed, discounted to the
redemption date on a semi-annual basis at the treasury rate plus 40 basis points, plus accrued and unpaid interest, if
any, to, but not including, the date of redemption.
In addition, if a change of control triggering event, as defined in the applicable indenture, occurs with respect
to the unsecured notes, we will be required to offer to purchase the notes of the applicable series at a purchase price
equal to 101% of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the date of
purchase.
104
The terms of the unsecured notes contain certain customary covenants; however, there are no financial
covenants.
ABL Facility
On March 13, 2020, in connection with the AK Steel Merger, we entered into a new ABL Facility with various
financial institutions to replace and refinance Cliffs’ Former ABL Facility and AK Steel Corporation’s former revolving
credit facility. The ABL Facility will mature upon the earlier of March 13, 2025 or 91 days prior to the maturity of
certain other material debt and provided for up to $2 billion in borrowings, including a $555 million sublimit for the
issuance of letters of credit and a $125 million sublimit for swingline loans. Availability under the ABL Facility is limited
to an eligible borrowing base, as applicable, determined by applying customary advance rates to eligible accounts
receivable, inventory and certain mobile equipment.
On March 27, 2020, the ABL Facility was amended, by and among Cliffs, the lenders and the administrative
agent. The amendment modified the ABL Facility to, among other things, provide for a new FILO tranche B of
commitments in the aggregate amount of $150 million by exchanging existing commitments under the ABL Facility.
The total commitments under the ABL Facility after giving effect to the amendment remained at $2 billion. The terms
and conditions (other than the pricing) that apply to the FILO tranche are substantially the same as the terms and
conditions that apply to the tranche A facility of the ABL Facility immediately prior to the amendment.
On December 9, 2020, we entered into the ABL Amendment with various financial
institutions. The ABL
Amendment modified the ABL Facility to, among other things, increase the amount of tranche A revolver commitments
available thereunder by an additional $1.5 billion and increase certain dollar baskets related to certain negative
covenants that apply to the ABL Facility. After giving effect to the ABL Amendment, the aggregate principal amount of
tranche A revolver commitments under the ABL Facility is $3.35 billion and the aggregate principal amount of FILO
tranche B revolver commitments under the ABL Facility remains at $150 million.
The ABL Facility and certain bank products and hedge obligations are guaranteed by certain of our existing
wholly owned U.S. subsidiaries and are required to be guaranteed by certain of our future U.S. subsidiaries. Amounts
outstanding under the ABL Facility are secured by (i) a first-priority security interest in the accounts receivable and
other rights to payment, inventory, as-extracted collateral, certain investment property, deposit accounts, securities
accounts, certain general intangibles and commercial tort claims, certain mobile equipment, commodities accounts
and other related assets of ours, the other borrowers and the guarantors, and proceeds and products of each of the
foregoing (collectively, the “ABL Collateral”) and (ii) a second-priority security interest in substantially all of our assets
and the assets of the other borrowers and the guarantors other than the ABL Collateral.
Borrowings under the ABL Facility bear interest, at our option, at a base rate or, if certain conditions are met, a
LIBOR rate, in each case plus an applicable margin. We may amend our ABL Facility to replace the LIBOR rate with
one or more secured overnight financing based rates or an alternative benchmark rate, giving consideration to any
evolving or then-existing convention for similar dollar denominated syndicated credit facilities for such alternative
benchmarks.
The ABL Facility contains customary representations and warranties and affirmative and negative covenants
including, among others, covenants regarding the maintenance of certain financial ratios if certain conditions are
triggered, covenants relating to financial reporting, covenants relating to the payment of dividends on, or purchase or
redemption of, our capital stock, covenants relating to the incurrence or prepayment of certain debt, covenants
relating to the incurrence of liens or encumbrances, covenants relating to compliance with laws, covenants relating to
transactions with affiliates, covenants relating to mergers and sales of all or substantially all of our assets and
limitations on changes in the nature of our business.
The ABL Facility provides for customary events of default, including, among other things, the event of
nonpayment of principal, interest, fees or other amounts, a representation or warranty proving to have been materially
incorrect when made, failure to perform or observe certain covenants within a specified period of time, a cross-default
to certain material
indebtedness, the bankruptcy or insolvency of the Company and certain of its subsidiaries,
monetary judgment defaults of a specified amount, invalidity of any loan documentation, a change of control of the
Company, and ERISA defaults resulting in liability of a specified amount. If an event of default exists (beyond any
applicable grace or cure period), the administrative agent may, and at the direction of the requisite number of lenders
shall, declare all amounts owing under the ABL Facility immediately due and payable, terminate such lenders’
commitments to make loans under the ABL Facility and/or exercise any and all remedies and other rights under the
ABL Facility. For certain events of default related to insolvency and receivership, the commitments of the lenders will
be automatically terminated and all outstanding loans and other amounts will become immediately due and payable.
105
As of December 31, 2020 and 2019, we were in compliance with the ABL Facility liquidity requirements and,
therefore, the springing financial covenant requiring a minimum fixed charge coverage ratio of 1.0 to 1.0 was not
applicable.
The following represents a summary of our borrowing capacity under the ABL Facility:
Available borrowing base on ABL Facility1
Borrowings
Letter of credit obligations2
Borrowing capacity available
(In Millions)
December 31,
2020
$
$
3,500
(1,510)
(247)
1,743
1 As of December 31, 2020, the ABL Facility has a maximum borrowing base of $3.5 billion. The available borrowing base is
determined by applying customary advance rates to eligible accounts receivable, inventory and certain mobile equipment.
2 We issued standby letters of credit with certain financial institutions in order to support business obligations including, but not
limited to, workers' compensation, employee severance, insurance, operating agreements, IRBs and environmental obligations.
Other Financing Arrangements
Industrial Revenue Bonds
AK Steel Corporation had outstanding $66 million aggregate principal amount of fixed-rate, tax-exempt IRBs
as of December 31, 2020. The weighted-average fixed rate of these IRBs is 6.86%. These IRBs are unsecured
senior debt obligations that are equal in ranking with AK Steel Corporation's senior notes and AK Steel Corporation's
guarantees of Cliffs' unsubordinated indebtedness. These IRBs are effectively subordinated to AK Steel Corporation’s
guarantees of Cliffs’ secured indebtedness to the extent of the value of AK Steel Corporation’s assets securing such
In addition, AK Steel Corporation had outstanding $26 million aggregate principal amount of variable-rate
guarantees.
IRBs as of December 31, 2020 that are backed by a letter of credit. These IRBs contain certain customary covenants;
however, there are no financial covenants.
EDC Revolving Facility
On November 9, 2020, our Canadian subsidiaries Fleetwood Metal Industries Inc. and The Electromac Group
Inc. entered into a new revolving facility with Export Development Canada. The EDC Revolving Facility enables our
Tooling and Stamping business to finance the purchase of tooling and related equipment to manufacture and process
long lead-time parts for our automotive customers. The EDC Revolving Facility provides for up to $40 million in
borrowings and expires in November 2022. Borrowings under the EDC Revolving Facility bear interest at a LIBOR
rate plus a base rate. The EDC Revolving Facility is secured by the assets of Fleetwood Metal Industries Inc. and
The Electromac Group Inc. and fully guaranteed by Cliffs. As of December 31, 2020, we had outstanding borrowings
on the EDC Revolving Facility of $18 million.
Debt Extinguishment - 2020
During the year ended December 31, 2020, we used the net proceeds from the offering of the additional
9.875% 2025 Senior Secured Notes to repurchase $736 million aggregate principal amount of our outstanding senior
notes of various series, which resulted in a net debt reduction of $181 million. We also repurchased an additional $35
million aggregate principal amount of our outstanding senior notes of various series and we redeemed $7 million
aggregate principal amount of our outstanding 2020 IRBs, with cash on hand.
Additionally, in connection with the AK Steel Merger, we purchased $364 million aggregate principal amount of
7.625% 2021 AK Senior Notes and $311 million aggregate principal amount of 7.50% 2023 AK Senior Notes upon
early settlement of tender offers made by Cliffs. The net proceeds from the offering of 6.75% 2026 Senior Secured
Notes, along with a portion of the ABL Facility borrowings, were used to fund such purchases. As the 7.625% 2021 AK
Senior Notes and 7.50% 2023 AK Senior Notes were recorded at fair value just prior to being purchased, there was
no gain or loss on extinguishment. Additionally, in connection with the final settlement of the tender offers, we
purchased $9 million aggregate principal amount of the 7.625% 2021 AK Senior Notes and $56 million aggregate
principal amount of the 7.50% 2023 AK Senior Notes with cash on hand.
106
The following is a summary of the debt extinguished and the respective impact on extinguishment:
7.625% 2021 AK Senior Notes
7.50% 2023 AK Senior Notes
4.875% 2024 Senior Secured Notes
6.375% 2025 Senior Notes
1.50% 2025 Convertible Senior Notes
5.75% 2025 Senior Notes
7.00% 2027 Senior Notes
5.875% 2027 Senior Notes
6.25% 2040 Senior Notes
6.375% 2025 AK Senior Notes
Total
(In Millions)
Year Ended
December 31, 2020
Debt Extinguished
$
373 $
367
6
168
20
77
262
195
36
9
$
1,513 $
Gain (Loss) on
Extinguishment
—
3
1
21
1
16
27
49
13
(1)
130
Subsequent to the year ended December 31, 2020, we consummated an underwritten public offering of our
common shares and a private offering of new senior unsecured notes. We intend to use the net proceeds to us from
the underwritten public offering of our common shares, plus cash on hand, to redeem up to approximately $334 million
aggregate principal amount of our outstanding 9.875% 2025 Senior Secured Notes. We intend to use any remaining
net proceeds from the underwritten public offering of our common shares following such redemption to reduce
borrowings under our ABL Facility. We intend to use the net proceeds from the private notes offering to redeem all of
our outstanding 4.875% 2024 Senior Secured Notes, 7.625% 2021 AK Senior Notes, 7.50% 2023 AK Senior Notes,
6.375% 2025 Senior Notes and 6.375% 2025 AK Senior Notes, and pay fees and expenses in connection with such
redemptions, and reduce borrowings under our ABL Facility. Refer to NOTE 22 - SUBSEQUENT EVENTS for further
information regarding the offerings consummated subsequent to the year ended December 31, 2020.
Debt Extinguishment - 2019
During the year ended December 31, 2019, we used the net proceeds from the issuance of $750 million
aggregate principal amount of 5.875% 2027 Senior Notes, along with cash on hand, to redeem in full all of our
outstanding 4.875% 2021 Senior Notes and to fund the repurchase of $600 million aggregate principal amount of our
outstanding 5.75% 2025 Senior Notes in a tender offer.
The following is a summary of the debt extinguished and the respective impact on extinguishment:
4.875% 2021 Senior Notes
5.75% 2025 Senior Notes
Total
(In Millions)
Year Ended
December 31, 2019
Debt Extinguished
(Loss) on
Extinguishment
$
$
124 $
600
724 $
(5)
(13)
(18)
107
Debt Extinguishment - 2018
During the year ended December 31, 2018, we redeemed in full all of our outstanding 5.90% 2020 Senior
Notes and 4.80% 2020 Senior Notes with cash on hand. Additionally, we purchased certain of our 4.875% 2021
Senior Notes and 5.75% 2025 Senior Notes.
The following is a summary of the debt extinguished and the respective impact on extinguishment:
5.90% 2020 Senior Notes
4.80% 2020 Senior Notes
4.875% 2021 Senior Notes
5.75% 2025 Senior Notes
Total
Debt Maturities
(In Millions)
Year Ended
December 31, 2018
Debt Extinguished
(Loss) on
Extinguishment
$
$
89 $
122
14
2
227 $
(3)
(4)
—
—
(7)
The following represents a summary of our debt instrument maturities based on the principal amounts
outstanding at December 31, 2020:
2021
2022
2023
2024
2025
Thereafter
Total maturities of debt
(In Millions)
Maturities of Debt
$
$
34
—
13
457
1,740
3,351
5,595
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
There were no significant assets or liabilities measured at fair value as of December 31, 2020. The following
represents the assets and liabilities measured at fair value as of December 31, 2019:
(In Millions)
December 31, 2019
Quoted Prices
in Active
Markets for
Identical
Assets/
Liabilities
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Cash equivalents - Commercial paper
Other current assets:
Customer supply agreement
Total
$
$
— $
188 $
— $
—
— $
—
188 $
45
45 $
Total
188
45
233
108
The valuation of financial assets classified in Level 2 was determined using a market approach based upon
quoted prices for similar assets in active markets, or other inputs that were observable.
Our supply agreement with ArcelorMittal USA contained provisions for supplemental revenue or refunds
based on the HRC price in the year the iron ore product was consumed in ArcelorMittal USA’s blast furnaces. We
accounted for these provisions as derivative instruments at the time of sale and adjusted the derivative instruments to
fair value through Revenues each reporting period until the product was consumed and the amounts were settled.
the
These instruments were classified as Level 3 assets. Upon the completion of
outstanding derivatives were settled as part of acquisition accounting.
the AM USA Transaction,
The following tables represent a reconciliation of the changes in fair value of financial instruments measured
at fair value on a recurring basis using significant unobservable inputs (Level 3):
Beginning balance - January 1
Total gains included in earnings
Settlements
Settlement of pre-existing relationship
Ending balance - December 31
Total gains for the period included in earnings attributable to the change in unrealized
gains on assets still held at the reporting date
(In Millions)
Level 3 Assets
2020
2019
$
$
$
45 $
122
(27)
(140)
— $
— $
89
79
(123)
—
45
45
The carrying values of certain financial
instruments (e.g. Accounts receivable, net, Accounts payable and
Other current liabilities) approximate fair value and, therefore, have been excluded from the table below. A summary
of the carrying value and fair value of other financial instruments were as follows:
December 31, 2020
December 31, 2019
Classification
Carrying
Value
Fair Value
Carrying
Value
Fair Value
(In Millions)
Senior notes
IRBs due 2024 to 2028
EDC Revolving Facility - outstanding
balance
ABL Facility - outstanding balance
Level 1
Level 1
Level 2
Level 2
$
3,802 $
4,446 $
2,114 $
2,237
94
18
91
18
1,510
1,510
—
—
—
—
—
—
Total
$
5,424 $
6,065 $
2,114 $
2,237
The fair value of both current and long-term debt was determined using quoted market prices.
NOTE 10 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS
We offer defined benefit pension plans, defined contribution pension plans and OPEB plans to a significant
portion of our employees and retirees. Benefits are also provided through multiemployer plans for certain union
members.
As a result of the acquisitions of AK Steel and ArcelorMittal USA, we assumed the obligations under their
defined benefit pension plans, OPEB plans, defined contribution plans and commitments to multiemployer pension
plans according to collective bargaining agreements that cover certain union-represented employees. The AK Steel
defined benefit pension plans and OPEB plans acquired amounted to a benefit obligation, net of assets of
$949 million based on a March 13, 2020 measurement. The ArcelorMittal USA defined benefit pension plans and
OPEB plans acquired amounted to a benefit obligation, net of assets of $3,294 million based on a December 9, 2020
measurement.
Defined Benefit Pension Plans
The defined benefit pension plans are largely noncontributory and limited in participation. Most plans are
closed to new participants with only the legacy iron ore hourly and salaried plans still open. The pension benefit
109
calculations vary by plan, but are generally based on employee's years of service and compensation or a fixed rate
and years of service. Certain salaried plans calculate benefits using a cash balance formula, which earns interest
credits and allocations based on a percent of pay.
OPEB Plans
We offer postretirement health care and life insurance benefits to retirees through various plans. The vast
In lieu of retiree medical coverage, many union-represented
majority of our plans are closed to new participants.
employees receive a 401(k) contribution per hour worked to a restricted Retiree Health Care Account. Cost sharing
features between the employer and retiree vary by plan and several plans include employer caps. Retiree healthcare
coverage is provided through programs administered by insurance companies whose charges are based on benefits
paid. Certain labor agreements require the funding of VEBAs, which, depending on funding levels, may be used to
reimburse the employer for paid benefits.
110
Obligations and Funded Status
The following tables and information provide additional disclosures:
Change in benefit obligations:
Benefit obligations — beginning of year
Service cost
Interest cost
Actuarial loss
Benefits paid
Participant contributions
Acquired through business combinations
Effect of settlement
Other
(In Millions)
Pension Benefits
OPEB
2020
2019
2020
2019
$
1,021 $
906 $
255 $
242
23
64
162
(146)
—
5,535
(94)
—
17
35
112
(62)
—
—
—
13
8
19
14
(89)
22
3,528
—
—
2
10
19
(26)
6
—
—
2
Benefit obligations — end of year
$
6,565 $
1,021 $
3,757 $
255
Change in plan assets:
Fair value of plan assets — beginning of year
Actual return on plan assets
Participant contributions
Employer contributions
Benefits paid
Acquired through business combinations
Effect of settlement
Other
Fair value of plan assets — end of year
Funded status
Amounts recognized in Statements of Financial Position:
Non-current assets
Current liabilities
Non-current liabilities
Total amount recognized
$
749 $
687 $
260 $
472
—
50
(146)
4,301
(94)
—
98
—
16
(62)
—
—
10
45
17
30
(88)
519
—
—
5,332 $
749 $
783 $
(1,233) $
(272) $
(2,974) $
3 $
— $
54 $
(12)
(1,224)
—
(139)
(272)
(2,889)
$
$
$
$
(1,233) $
(272) $
(2,974) $
Amounts recognized in accumulated other comprehensive
loss:
Net actuarial loss
Prior service cost (credit)
Net amount recognized
$
$
164 $
6
170 $
382 $
7
389 $
56 $
(6)
50 $
240
35
1
3
(19)
—
—
—
260
5
49
(4)
(40)
5
73
(8)
65
The accumulated benefit obligation for all defined benefit pension plans was $6,537 million and $1,010 million
at December 31, 2020 and 2019, respectively.
111
Components of Net Periodic Benefit Cost (Credit)
(In Millions)
Pension Benefits
2020
2019
2018
2020
OPEB
2019
2018
Service cost
Interest cost
Expected return on plan assets
Amortization:
Net actuarial loss
Prior service costs (credits)
Settlements
$
23 $
17 $
19 $
8 $
2 $
64
(140)
27
1
(6)
35
(55)
24
1
—
30
(60)
21
2
1
19
(20)
3
(2)
—
10
(17)
5
(2)
—
Net periodic benefit cost (credit)
$
(31) $
22 $
13 $
8 $
(2) $
2
8
(18)
5
(3)
—
(6)
For 2021, we estimate net periodic benefit cost (credit) as follows:
Defined benefit pension plans
OPEB plans
Total
(In Millions)
$
$
(168)
86
(82)
Components of Accumulated Other Comprehensive Loss (Income)
The following includes details on the significant actuarial losses (gains) impacting the benefit obligation:
(In Millions)
Pension Benefits
OPEB
2020
2019
2020
2019
$
181 $
106 $
44 $
(3)
(16)
—
—
162
(332)
(27)
(1)
6
(27)
12
(6)
—
—
112
(44)
(24)
(1)
—
7
(11)
(4)
(10)
(5)
14
(26)
(3)
2
—
(2)
(219) $
50 $
(15) $
26
4
(4)
(9)
3
20
(18)
(5)
2
—
(5)
(6)
Discount rates
Demographic (gains) losses
Mortality
Per capita claims
Other
Actuarial loss on benefit obligation
Actual returns on assets over expected
Amortization of net actuarial loss
Amortization of prior service credits (costs)
Settlements
Other
Total recognized in accumulated other comprehensive loss (income) $
112
Contributions
Annual contributions to the pension plans are made within income tax deductibility restrictions in accordance
with statutory regulations. OPEB plans are not subject to minimum regulatory funding requirements, but rather
amounts are contributed pursuant to bargaining agreements.
Company Contributions (Reimbursements)
2019
2020
2021 (Expected)1
(In Millions)
Pension
Benefits
VEBA
Other Benefits
Direct
Payments
$
16 $
— $
4 $
50
202
—
(16)
25
144
Total
4
25
128
1 Pursuant to the applicable bargaining agreements, benefits can be paid from certain VEBAs that are at least 70% funded (all
VEBAs are over 70% funded at December 31, 2020). Certain agreements with plans holding VEBA assets have capped
healthcare costs. For the ArcelorMittal USA VEBA, depending on funding levels and/or Company profits, we may withdraw
money from the VEBA plans to the extent funds are available for costs in excess of the cap. The 2021 expected pension
contributions include $118 million in deferred 2020 pension contributions in connection with the CARES Act that were paid on
January 4, 2021.
Estimated Future Benefit Payments
2021
2022
2023
2024
2025
2026-2030
Assumptions
(In Millions)
Pension
Benefits
OPEB
$
486 $
462
480
455
433
1,983
191
185
180
178
176
884
The discount rates used to measure plan liabilities as of the December 31 measurement date are determined
individually for each plan. The discount rates are determined by matching the projected cash flows used to determine
the plan liabilities to a projected yield curve of high-quality corporate bonds available at the measurement date.
Discount rates for expense are calculated using the granular approach for each plan.
Depending on the plan, we use either company-specific base mortality tables or tables issued by the Society
of Actuaries. We adopted the Pri-2012 mortality tables from the Society of Actuaries in 2019. On December 31, 2020,
the assumed mortality improvement projection was updated from generational scale MP-2019 to generational scale
MP-2020 for the Pri-2012 mortality tables.
The following represents weighted-average assumptions used to determine benefit obligations:
Discount rate
Interest crediting rate
Compensation rate increase
Pension Benefits
December 31,
OPEB
December 31,
%
2020
2.34
5.25
2.56
%
2019
3.27
6.00
2.53
%
2020
2.71
N/A
3.00
%
2019
3.28
N/A
3.00
113
The following represents weighted-average assumptions used to determine net benefit cost:
Obligation discount rate
Service cost discount rate
Interest cost discount rate
Interest crediting rate
Expected return on plan assets
Compensation rate increase
Pension Benefits
December 31,
OPEB
December 31,
2020
2019
2018
2020
2019
2018
3.02 % 4.27 % 3.58 %
3.28 % 4.29 %
3.60 %
3.34
2.53
5.50
7.69
2.56
4.35
3.92
6.00
8.25
2.53
3.64
3.16
6.00
8.25
2.49
3.35
2.51
N/A
6.82
3.00
4.49
3.94
N/A
7.00
3.00
3.73
3.11
N/A
7.00
3.00
The following represents assumed weighted-average health care cost trend rates:
Health care cost trend rate assumed for next year
Ultimate health care cost trend rate
Year that the ultimate rate is reached
Plan Assets
December 31,
2020
2019
6.05 %
4.59
2031
6.50 %
5.00
2026
Our financial objectives with respect to our pension and VEBA assets are to fully fund the actuarial accrued
liability for each of the plans, to maximize investment returns within reasonable and prudent levels of risk, and to
maintain sufficient liquidity to meet benefit obligations on a timely basis.
Our investment objective is to outperform the expected return on assets assumption used in the plans’
actuarial reports over the life of the plans. The expected return on assets takes into account historical returns and
estimated future long-term returns based on capital market assumptions applied to the asset allocation strategy. The
expected return is net of investment expenses paid by the plans.
In addition, investment performance is monitored on
a quarterly basis by benchmarking to various indices and metrics for the one-, three- and five-year periods.
The asset allocation strategy is determined through a detailed analysis of assets and liabilities by plan, which
defines the overall risk that is acceptable with regard to the expected level and variability of portfolio returns, surplus
(assets compared to liabilities), contributions and pension expense.
The asset allocation review process involves simulating capital market behaviors including global asset class
performance, inflation and interest rates in order to evaluate various asset allocation scenarios and determine the
asset mix with the highest likelihood of meeting financial objectives. The process includes factoring in the current
funded status and likely future funded status levels of the plans by taking into account expected growth or decline in
the contributions over time.
The asset allocation strategy varies by plan. The following table reflects the actual asset allocations for
pension and VEBA assets as of December 31, 2020 and 2019, as well as the 2021 weighted average target asset
allocations. Equity investments include securities in large-cap, mid-cap and small-cap companies located in the U.S.
and worldwide. Fixed income investments primarily include corporate bonds and government debt securities.
114
Pension Assets
VEBA Assets
Asset Category
Equity securities
Fixed income
Hedge funds
Private equity
Structured credit
Real estate
Absolute return fixed income
Total
Percentage of
Plan Assets at
December 31,
2021
Target
Allocation
41.3 %
39.7
5.0
2.2
5.2
5.2
1.4
2020
51.8 %
33.8
2.2
2.1
5.0
3.3
1.8
100.0 % 100.0 % 100.0 %
2019
44.0 %
27.6
5.4
6.6
7.0
9.4
—
Percentage of
Plan Assets at
December 31,
2019
7.2 %
2021
Target
Allocation
20.3 %
69.6
1.1
1.4
1.0
1.1
5.5
2020
22.2 %
66.4
1.8
0.4
0.9
1.8
6.5
100.0 % 100.0 % 100.0 %
79.8
4.8
0.7
2.1
5.4
—
As a practical expedient, in accordance with ASC 820-10, certain investments that are measured at fair value
using the NAV per share have not been classified in the fair value hierarchy below. NAV is based on the value of the
underlying assets owned by the fund, minus its liabilities, and then divided by its number of shares outstanding.
The fair value of our pension assets by asset category is as follows:
(In Millions)
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Investments
Measured at
Net Asset
Value
Total
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
$ 1,163 $ 169 $ — $ — $ — $ — $ 787 $ — $1,950 $ 169
615
161
—
141
512
11
174
—
—
—
—
—
—
—
—
—
—
—
—
295
466
46
—
—
—
—
—
—
22
—
—
—
—
—
—
—
—
—
—
—
118
114
264
174
—
—
195
—
—
—
40
50
52
70
—
40
303
—
—
—
—
—
99
810
161
—
—
476
— 1,281
—
—
—
—
—
—
46
118
114
264
174
99
33
174
—
40
50
52
70
—
Asset Category
Equity securities:
U.S. equities
Global equities
Fixed income:
U.S. government securities1
U.S. corporate bonds
Non U.S. and other bonds
Hedge funds
Private equity
Structured credit
Real estate
Absolute return fixed income
Total
$ 2,431 $ 515 $ 807 $
22 $ 670 $ 212 $1,424 $ — $5,332 $ 749
1 Includes cash equivalents.
115
Assets for OPEB plans include VEBA trusts pursuant to bargaining agreements that are available to fund
retired employees’ life insurance obligations and medical benefits. The fair value of our other benefit plan assets by
asset category is as follows:
Asset Category
Equity securities:
U.S. equities
Global equities
Fixed income:
(In Millions)
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Investments
Measured at
Net Asset
Value
Total
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
$
26 $
12 $ — $ — $ — $ — $
93 $ — $ 119 $
6
7
—
12
7
—
207
12
2
6
14
—
36
1
—
—
(3)
—
—
34
U.S. government securities1
U.S. corporate bonds
62
237
—
166
Hedge funds
Private equity
Structured credit
Real estate
Absolute return fixed income
—
—
—
—
—
—
—
—
—
—
94
127
—
—
—
—
—
—
—
41
—
—
—
—
—
—
—
—
14
3
7
14
—
—
—
—
12
2
6
14
—
49
—
—
—
—
—
—
51
—
—
—
—
—
—
—
—
55
156
364
14
3
7
14
51
Total
$ 331 $ 185 $ 221 $
41 $
38 $
34 $ 193 $ — $ 783 $ 260
1 Includes cash equivalents.
The following represents the fair value measurements of changes in plan assets using significant
unobservable inputs (Level 3):
(In Millions)
Pension Assets
VEBA Assets
2020
2019
2020
2019
$
212 $
229 $
34 $
Beginning balance — January 1
Actual return on plan assets:
Relating to assets still held at the reporting date
Relating to assets sold during the period
Purchases
Sales
Acquired through business combinations
Other
Ending balance — December 31
$
8
6
195
(13)
262
—
670 $
(1)
30
17
(60)
—
(3)
212 $
2
1
—
(1)
2
—
38 $
Following is a description of the inputs and valuation methodologies used to measure the fair value of our
plan assets.
Equity Securities
Equity securities classified as Level 1 investments include U.S. large-, small- and mid-cap investments and
international equities. These investments are comprised of securities listed on an exchange, market or automated
quotation system for which quotations are readily available. The valuation of these securities is determined using a
market approach and is based upon unadjusted quoted prices for identical assets in active markets.
Fixed Income
Fixed income securities classified as Level 1 investments include bonds, government debt securities and
cash equivalents. These investments are comprised of securities listed on an exchange, market or automated
116
quotation system for which quotations are readily available. The valuation of these securities is determined using a
market approach and is based upon unadjusted quoted prices for identical assets in active markets. Also included in
fixed income is a portfolio of U.S. Treasury STRIPS, which are zero-coupon bearing fixed income securities backed by
the full faith and credit of the U.S. government. The securities sell at a discount to par because there are no
incremental coupon payments. STRIPS are not issued directly by the Treasury, but rather are created by a financial
institution, government securities broker or government securities dealer. Liquidity on the issue varies depending on
various market conditions; however, in general, the STRIPS market is slightly less liquid than that of the U.S. Treasury
Bond market. The STRIPS are priced daily through a bond pricing vendor and are classified as Level 2.
Hedge Funds
Hedge funds are alternative investments comprised of direct or indirect investment in offshore hedge funds
with an investment objective to achieve equity-like returns with one half the volatility of equities and moderate
correlation. The valuation techniques used to measure fair value attempt to maximize the use of observable inputs
and minimize the use of unobservable inputs. Considerable judgment is required to interpret the factors used to
develop estimates of fair value. Valuations of the underlying investment funds are obtained and reviewed. The
securities that are valued by the funds are interests in the investment funds and not the underlying holdings of such
investment funds. Thus, the inputs used to value the investments in each of the underlying funds may differ from the
inputs used to value the underlying holdings of such funds. Hedge funds are valued monthly and recorded on a one-
month lag.
Private Equity Funds
Private equity funds are alternative investments that represent direct or indirect investments in partnerships,
venture funds or a diversified pool of private investment vehicles (fund of funds).
Investment commitments are made in private equity funds based on an asset allocation strategy, and capital
calls are made over the life of the funds to fund the commitments. As of December 31, 2020, remaining commitments
total $86 million for our pension and OPEB plans. Committed amounts are funded from plan assets when capital calls
are made. Investment commitments are not pre-funded in reserve accounts.
Private equity investments are valued quarterly and recorded on a one-quarter lag. For private equity
investment values reported on a lag, current market information is reviewed for any material changes in values at the
these
reporting date. Capital distributions for the funds do not occur on a regular frequency.
investments would require sale of the partnership interest.
Liquidation of
Structured Credit
Structured credit funds provide flexibility and access to both complex and illiquid premiums by investing
across global, public and private residential, commercial, corporate and specialty credit markets that are priced based
on valuations provided by independent, third-party pricing agents, if available. Such values generally reflect the last
reported sales price if the security is actively traded. The third-party pricing agents may also value structured credit
investments at an evaluated bid price by employing methodologies that utilize actual market transactions, broker-
supplied valuations or other methodologies designed to identify the market value of such securities.
Structured credit
lock-up period and
withdrawal restrictions on a semi-annual and quarterly basis. For structured credit investment values reported on a
lag, current market information is reviewed for any material changes in values at the reporting date.
investments are valued monthly and certain funds have an initial
Real Estate
The real estate portfolio for the pension plans is an alternative investment comprised of funds with strategic
categories of real estate investments. All real estate holdings are appraised externally at
least annually, and
appraisals are conducted by reputable, independent appraisal firms that are members of the Appraisal Institute. All
external appraisals are performed in accordance with the Uniform Standards of Professional Appraisal Practices. The
property valuations and assumptions about each property are reviewed quarterly by the investment manager and
values are adjusted if there has been a significant change in circumstances relating to the property since the last
external appraisal. The fair values of the funds are updated on either a monthly or quarterly basis. Redemption
requests are considered on a quarterly basis, subject to notice requirements.
The real estate fund of funds investment for the Empire-Tilden, Hibbing and United Taconite VEBA plans
invests in pooled investment vehicles that, in turn, invest in commercial real estate properties. Valuations are
performed quarterly and financial statements are prepared on a semi-annual basis, with annual audited statements.
117
Asset values for this fund are reported with a one-quarter lag, and current market information is reviewed for any
material changes in values at the reporting date. Withdrawals are permitted on the last business day of each quarter
subject to a 95-day prior written notice.
Absolute Return Fixed Income
Absolute return fixed income investments consist of a global fixed income fund with the investment objective
of generating positive absolute returns over a full market cycle. The fund's investments in securities, forward
exchange contracts and futures contracts are reported at fair value on a recurring monthly basis. The fund's trustee
values securities based upon independent pricing sources and futures contracts are valued at closing settled prices.
Redemptions of the fund at NAV are permitted monthly under most circumstances.
Defined Contribution Plans
Most employees are eligible to participate in various defined contribution plans. Certain of these plans have
features with matching contributions or other Company contributions based on our financial results. Company
contributions to these plans are expensed as incurred. Total expense from these plans was $22 million, $3 million and
$3 million in 2020, 2019 and 2018, respectively.
Multiemployer Plans
We contribute to multiemployer pension plans according to collective bargaining agreements that cover
certain union-represented employees. The following risks of participating in these multiemployer plans differ from
single employer pension plans:
•
•
•
•
Employer contributions to a multiemployer plan may be used to provide benefits to employees of other
participating employers.
If a participating employer stops contributing to a multiemployer plan, the remaining participating employers
may need to assume the unfunded obligations of the plan.
If the multiemployer plan becomes significantly underfunded or is unable to pay its benefits, we may be
required to contribute additional amounts in excess of
the rate required by the collective bargaining
agreements.
If we choose to stop participating in a multiemployer plan, we may be required to pay that plan an amount
based on the underfunded status of the plan, referred to as a withdrawal liability.
We are a party to five collective bargaining agreements at our Ashland Works, Mansfield Works, United
Taconite, Tubular Components and the majority of our ArcelorMittal USA locations that require contributions to the
Steelworkers Pension Trust.
We are a party to three collective bargaining agreements at Butler Works, Middletown Works and Zanesville
Works that require contributions to the International Association of Machinists and Aerospace Workers ("IAM")
National Pension Fund's National Pension Plan. The plan voluntarily elected to place itself in the "Red Zone" in April
2019 and has implemented a rehabilitation plan. Additional contributions will be required as part of the rehabilitation
plan until the plan exits the critical status.
118
Expiration
Date of
Collective
Bargaining
Agreement
1/22/2021 to
10/1/2022
5/31/2022 to
5/15/2023
Information with respect to multiemployer plans in which we participate follows:
Pension Fund
EIN/Pension
Plan Number
FIP/RP
Status
Pending/
Implemented
(b)
Pension
Protection
Act Zone
Status (a)
2020
2019
Surcharge
Imposed
(c)
Contributions
2020 2019 2018
23-6648508/499 Green Green
No
$ 14 $
4 $
4
No
Steelworkers Pension
Trust
IAM National Pension
Fund’s National
Pension Plan
American Maritime
Officers Plan
Total
51-6031295/002 Red Green
13-1936709/001 Green Green
Yes
No
16 — —
Yes
— — —
No
7/31/2021
$ 30 $
4 $
4
(a) The most recent Pension Protection Act zone status available in 2020 and 2019 is for each plan's year-end at December 31,
2019 and 2018. The plan's actuary certifies the zone status. Generally, plans in the red zone are less than 65% funded, plans
in the yellow zone are between 65% and 80% funded, and plans in the green zone are at least 80% funded.
(b) The "FIP/RP Status Pending/Implemented" column indicates plans for which a financial improvement plan or a rehabilitation
plan is either pending or has been implemented, as defined by ERISA.
(c) The surcharge represents an additional required contribution due as a result of the critical funding status of the plan.
Prior to the Acquisitions, AK Steel and ArcelorMittal USA made up over 30% of the contributions to the
Steelworkers Pension Trust in the last three years. Only two other employers contributed more than 5% during this
period. As of December 31, 2019 (the last date for which we have information), the Steelworkers Pension Trust had a
total actuarial liability of $5,748 million and assets with a market value of $5,372 million, for a funded ratio of about
93%.
NOTE 11 - STOCK COMPENSATION PLANS
At December 31, 2020, we had outstanding awards under two share-based compensation plans: the A&R
2015 Equity Plan and the 2012 Amended Equity Plan. On March 13, 2020, the maximum number of shares that may
be issued under the A&R 2015 Equity Plan increased by 5.7 million common shares in relation to the outstanding AK
Steel stock-based incentive awards that we converted at a 0.400 rate of exchange. The converted stock-based
incentive awards include 2.0 million stock options, 1.0 million long-term performance plan awards, 0.5 million
performance shares, 0.2 million restricted stock awards and 0.3 million restricted stock units. As of December 31,
2020, there were 4.9 million remaining shares available for grant under the A&R 2015 Equity Plan. No additional
grants were issued from the 2012 Amended Equity Plan after the date of approval of the A&R 2015 Equity Plan;
however, all awards previously granted under the 2012 Amended Equity Plan will continue in accordance with the
terms of the outstanding awards.
119
Stock-Based Compensation Expense
The following table summarizes the total compensation expense recognized for stock-based compensation
awards:
Cost of goods sold
Selling, general and administrative expenses
Acquisition-related costs
Stock based compensation expense
Income tax benefit1
Stock based compensation expense, net of tax
Decrease in basic earnings per common share
Decrease in diluted earnings per common share
1 No income tax benefit in 2018 due to the full valuation allowance.
(In Millions, except per
share amounts)
Year Ended December 31,
2020
2019
2018
(2) $
(2) $
(13)
(2)
(17)
4
(16)
—
(18)
4
(13) $
(14) $
(2)
(13)
—
(15)
—
(15)
(0.03) $
(0.03) $
(0.05) $
(0.05) $
(0.05)
(0.05)
$
$
$
$
The total compensation cost related to outstanding awards not yet recognized is $14 million at December 31,
2020. This expense is expected to be recognized over the remaining weighted-average period of approximately 1.7
years.
Performance Shares
The following table summarizes the performance award activity:
Year Ended December 31,
2020
2019
2018
Weighted
Average
Grant Date
Fair Value
15.58
5.49
12.23
15.63
5.70
10.34
Number of
Shares
1,935,878 $
2,510,853
(1,938,786)
549,154
(604,873)
2,452,226 $
Weighted
Average
Grant Date
Fair Value
14.46
18.31
—
—
15.12
15.58
Number of
Shares
1,424,723 $
572,104
—
—
(60,949)
1,935,878 $
Weighted
Average
Grant Date
Fair Value
13.42
11.93
10.89
10.69
19.33
14.46
Number of
Shares
1,848,312 $
675,599
(489,953)
(560,720)
(48,515)
1,424,723 $
Outstanding at beginning of year
Granted
Distributed
Performance adjustment
Forfeited/canceled
Outstanding at end of year
The 2.5 million awards granted in 2020 include 1.0 million long-term performance plan awards and 0.5 million
performance shares relating to the AK Steel replacement awards. As of December 31, 2020, 0.3 million long-term
performance plan awards and 0.1 million performance shares were outstanding as a result of qualifying termination
events that triggered accelerated performance share payouts and prorated long-term performance plan awards
payouts at target. The long-term performance plan awards are based on a three-year Adjusted EBITDA metric. The
weighted average grant date fair value for the converted performance awards was $4.59 per share.
The outstanding performance shares vest over a period of three years and are intended to be paid out in
common shares. Performance is measured on the basis of relative TSR for the period and measured against the
constituents of the S&P Metals and Mining ETF Index. The number of shares actually earned at the end of the three-
year period will vary, based on performance, from 0% to 200% of the number of performance shares granted.
120
Restricted Stock Units
The following table summarizes the restricted stock units activity:
Year Ended December 31,
2020
2019
2018
Weighted
Average
Grant Date
Fair Value
9.10
4.87
8.58
7.31
7.12
Number of
Shares
2,147,183 $
1,160,928
(1,101,115)
(63,413)
2,143,583 $
Weighted
Average
Grant Date
Fair Value
4.18
11.24
1.95
9.31
9.10
Number of
Shares
4,694,360 $
572,104
(3,058,307)
(60,974)
2,147,183 $
Weighted
Average
Grant Date
Fair Value
3.64
7.53
3.30
5.17
4.18
Number of
Shares
4,403,112 $
685,599
(254,196)
(140,155)
4,694,360 $
Outstanding at beginning of year
Granted
Distributed
Forfeited/canceled
Outstanding at end of year
The 1.2 million restricted stock units granted in 2020 include 0.2 million restricted stock awards relating to AK
Steel replacement awards. The restricted stock awards relating to AK Steel vest ratably on the first, second and third
anniversaries of the grant. We valued the restricted stock awards and restricted stock units at $4.87 per share using
the closing price of our common shares on March 13, 2020, the grant date.
All of the outstanding restricted stock units are subject to continued employment, are retention based, and are
payable in common shares or cash in certain circumstances at a time determined by the Compensation Committee at
its discretion. The restricted stock units that were granted in 2020, 2019 and 2018 cliff vest over three years on
December 31, 2022, December 31, 2021 and December 31, 2020, respectively.
Stock Options
The following table summarizes the stock option activity:
Year Ended December 31,
2020
2019
2018
Outstanding at beginning of year
Granted
Exercised
Forfeited/canceled
Outstanding at end of year
Number of
Shares
563,230 $
2,010,277
(79,973)
(7,726)
2,485,808 $
Weighted
Average
Exercise
Price
10.42
11.86
7.01
41.04
11.60
Number of
Shares
563,230 $
—
—
—
563,230 $
Weighted
Average
Exercise
Price
10.42
—
—
—
10.42
Number of
Shares
599,870 $
—
(36,640)
—
563,230 $
Weighted
Average
Excercise
Price
10.25
—
7.70
—
10.42
Exercisable at end of year
2,172,052 $
11.86
563,230 $
10.42
563,230 $
10.42
Stock options granted to date generally vest over a period from one to three years with an expiration date at
ten years from the date of grant. On March 13, 2020, we granted 2.0 million options as AK Steel replacement awards.
The weighted average fair value of the converted options was $0.51 per share and was calculated using the Black-
Scholes option-pricing model. Qualifying termination events resulted in vest date accelerations and reductions to the
option expiration date from ten years to three years.
The total intrinsic value of options exercised in 2020 and 2018 were immaterial. For options outstanding at
December 31, 2020, the weighted-average remaining contractual life was 3.2 years and the aggregate intrinsic value
was $11 million. For options exercisable at December 31, 2020, the weighted-average remaining contractual life was
2.5 years and the aggregate intrinsic value was $9 million.
121
Nonemployee Directors
Our nonemployee directors are entitled to receive restricted share awards under the Directors’ Plan. For
2020, 2019 and 2018, nonemployee directors were granted a specified number of restricted shares, with a value
equal to $100,000. The number of shares is based on the closing price of our common shares on the date of the
Annual Meeting. The restricted share awards issued under the Directors' Plan generally vest 12 months from the
grant date. The awards are subject to any deferral election and the terms of the Directors’ Plan and an award
agreement.
On March 13, 2020, 0.3 million restricted stock units previously awarded to the members of the AK Steel
board of directors were distributed per the terms of the AK Steel Merger Agreement.
For the last three years, grants of restricted and/or deferred shares have been awarded to elected or re-
elected nonemployee directors as follows:
Year of Grant
Restricted Shares
Deferred Shares
2020
2019
2018
NOTE 12 - INCOME TAXES
253,809
86,477
92,718
54,794
23,659
17,170
Income (loss) from continuing operations before income taxes includes the following components:
United States
Foreign
(In Millions)
2020
2019
2018
$
$
(201) $
8
(193) $
313 $
—
313 $
565
—
565
The components of the income tax provision (benefit) on continuing operations consist of the following:
Current provision (benefit):
United States federal
United States state & local
Foreign
Deferred provision (benefit):
United States federal
United States state & local
Foreign
(In Millions)
2020
2019
2018
$
(2) $
(1) $
—
(1)
(3)
(95)
(11)
(2)
—
—
(1)
19
—
—
(1)
—
1
—
(475)
—
—
Total income tax provision (benefit) from continuing operations
$
(111) $
18 $
(475)
122
Reconciliation of our income tax attributable to continuing operations computed at the U.S. federal statutory
rate is as follows:
Tax at U.S. statutory rate
Increase (decrease) due to:
Percentage depletion in excess of cost
depletion
Non-taxable income related to
noncontrolling interests
Luxembourg legal entity reduction
Valuation allowance release:
Current year activity
Release of U.S. valuation allowance
Luxembourg legal entity reduction
State taxes, net
Other items, net
Provision for income tax expense (benefit)
and effective income tax rate including
discrete items
2020
(In Millions)
2019
2018
$
(41)
21 % $
66
21 % $
119
21 %
(42)
(9)
—
—
—
—
(11)
(8)
22
4
—
—
—
—
6
4
(49)
(16)
(55)
(10)
—
846
—
—
—
271
—
—
(846)
(271)
—
1
—
1
—
162
(80)
(461)
(162)
—
2
—
29
(14)
(81)
(29)
—
—
$
(111)
57 % $
18
6 % $
(475)
(84)%
The increase in income tax benefit from 2019 to 2020 is directly correlated to the increase in pre-tax book loss
from the prior period for both federal and state income tax purposes. The other primary driver of the increase in
income tax benefit is related to income of noncontrolling interests for which no tax is recognized.
The increase in income tax expense from 2018 to 2019 is primarily due to release of the valuation allowance
in the U.S. of $461 million in 2018, which did not recur in 2019. The Luxembourg legal entity reduction relates to
initiatives resulting in the dissolution of certain entities and settlement of related financial instruments in the years
ended December 31, 2019 and 2018. These 2019 and 2018 NOL deferred tax asset reductions resulted in tax
expense of $846 million and $162 million, respectively, which were fully offset by decreases in the respective valuation
allowance.
The components of income taxes for other than continuing operations consisted of the following:
Other comprehensive income:
Postretirement benefit liability
Unrealized net loss on derivative financial instruments
Total
$
$
(52) $
(1)
(53) $
11 $
—
11 $
4
1
5
2020
(In Millions)
2019
2018
123
Significant components of our deferred tax assets and liabilities are as follows:
Deferred tax assets:
Operating loss and other carryforwards
Pension and OPEB liabilities
Property, plant and equipment and mineral rights
State and local
Other liabilities
Total deferred tax assets before valuation allowance
Deferred tax asset valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Investment in partnerships
Property, plant and equipment and mineral rights
Other assets
Total deferred tax liabilities
Net deferred tax assets
(In Millions)
2020
2019
$
1,236 $
228
—
132
190
1,786
(836)
950
(144)
(246)
(68)
(458)
$
492 $
795
114
1
71
70
1,051
(441)
610
(137)
—
(14)
(151)
459
We had gross domestic (including states) and foreign NOLs of $7,444 million and $1,592 million, respectively,
at December 31, 2020. We had gross domestic and foreign NOLs of $3,459 million and $1,592 million, respectively,
at December 31, 2019. The U.S. federal NOLs will begin to expire in 2034 and state NOLs will begin to expire in
2021. The foreign NOLs can be carried forward indefinitely. We had foreign tax credit carryforwards of $6 million at
December 31, 2019, which expired in 2020. We had gross interest expense limitation carryforwards of $80 million
and $55 million for the years ended December 31, 2020 and 2019, respectively. This interest expense can be carried
forward indefinitely.
The changes in the valuation allowance are presented below:
Balance at beginning of year
Change in valuation allowance:
Included in income tax expense (benefit)
Change in deferred assets in other comprehensive income
Increase from acquisitions
Balance at end of year
$
$
(In Millions)
2020
2019
2018
441 $
1,287 $
1,983
(3)
—
398
(846)
—
—
(691)
(5)
—
836 $
441 $
1,287
During 2020, we recorded a $398 million valuation allowance through opening balance sheet adjustments to
reflect the portion of federal and state NOLs that are limited under Section 382 of the IRC acquired through the AK
Steel Merger.
During 2019, a legal entity reduction initiative was completed in Luxembourg resulting in the dissolution of
certain entities and settlement of related financial instruments, triggering the utilization of $1.3 billion of NOL deferred
tax asset and reversal of the intercompany notes deferred tax liability of $447 million.
In addition, prior year
adjustments in Luxembourg and a statutory rate reduction from 26.01% to 24.94% resulted in a net increase to the
operating loss carryforward deferred tax asset of $46 million. The total net deferred tax reduction resulted in an
expense of $846 million which was fully offset by a decrease in the valuation allowance. During 2018, a similar legal
entity reduction initiative was completed resulting in the dissolution of certain Luxembourg entities which resulted in a
decrease in the NOL deferred tax asset of $162 million which was fully offset by a decrease in valuation allowance.
We continue to maintain a full valuation allowance against the remaining Luxembourg net deferred tax assets of
$397 million at December 31, 2020 and 2019. Our losses in Luxembourg in recent periods represent sufficient
negative evidence to require a full valuation allowance against the deferred tax assets in that jurisdiction. We intend
124
to maintain a valuation allowance against the deferred tax assets related to these operating losses, until sufficient
positive evidence exists to support the realization of such assets.
We recorded a $696 million net decrease in the valuation allowance in the year ended December 31, 2018.
As of December 31, 2018, our U.S. operations emerged from a three-year cumulative loss position. As the significant
negative evidence of cumulative losses had been eliminated, we undertook an evaluation of the continuing need for a
valuation allowance on the U.S. deferred tax assets, the majority of which related to the U.S. tax NOLs.
In completing our evaluation of whether a valuation allowance was still needed, we considered all available
positive and negative evidence. Positive evidence considered included the emergence from the three-year
cumulative loss position, our long-term customer contracts with minimum tonnage requirements, the global scarcity of
iron ore pellets, near term forecasts of strong profitability and the recently revised IRC Section 163(j) interest
deduction limitation. Negative evidence included the overall size of the deferred tax asset with limited carryforward
and no carryback opportunity, the finite nature of the iron ore resources we mine, the uncertainty of steel tariffs that
positively impacted our revenue rates in 2018 and the various market signs that the U.S. economy may be nearing the
end of the current expansion.
We also considered that future realization of the deferred tax assets depends on the existence of sufficient
taxable income of the appropriate character during the carryforward period.
In considering sources of taxable income,
we identified that a portion of the deferred tax assets would be utilized by existing taxable temporary differences
In addition, we determined that carryback
reversing in the same periods as existing deductible temporary differences.
opportunities and tax planning strategies do not exist as potential sources of
Lastly,
future taxable income.
forecasting future taxable income was considered, but was challenging in a cyclical industry such as ours as it relies
heavily on the accuracy of key assumptions, particularly about key pricing benchmarks.
Because historical
information is verifiable and more objective than forecast information and due to the
cyclicality of the industry, we developed an estimate of future income based on our historical earnings through the
most recent industry cycle. We adjusted historical earnings for certain non-recurring items as well as to reflect the
current corporate structure by eliminating the impact of discontinued operations and extinguished debt (“core
earnings”). Additionally, we adjusted core earnings to reflect the impact of the recently revised IRC Section 163(j)
interest expense deduction limitation as well as permanent tax adjustments. The IRC Section 163(j) limitation would
limit our interest expense deduction, particularly in down years in the industry cycle, resulting in higher taxable
income.
Based on the core earnings analysis, our average annual book taxable income through the business cycle
was in excess of the estimated $10 million taxable income that would be required annually to fully utilize the deferred
tax assets within the 19-year carryforward period. We ascribed significant weight in our assessment to the core
earnings analysis and the resulting projection of taxable income through the industry cycle. Based on the weight of
this positive evidence, and after considering the other available positive and negative evidence, we determined that it
was appropriate to release all of the valuation allowance related to U.S. federal deferred tax assets at December 31,
2018 as it was more likely than not that the entire amount of the U.S. deferred tax asset would be realized before the
end of the carryforward period. The income tax benefit recorded for the reversal of the valuation allowance against
the U.S. deferred tax assets was $461 million for the year ended December 31, 2018.
We also have a valuation allowance recorded against certain state NOLs and foreign tax credits, which are
expected to expire before utilization. At December 31, 2020 and 2019, we had a valuation allowance recorded
against certain state NOLs of $98 million and $38 million, respectively. At December 31, 2019, we had a valuation
allowance recorded against certain foreign tax credits of $6 million, which expired in 2020.
At December 31, 2020 and 2019, we had no cumulative undistributed earnings of foreign subsidiaries
included in retained earnings. Accordingly, no provision has been made for U.S. deferred taxes related to future
repatriation of earnings.
125
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
2020
(In Millions)
2019
2018
Unrecognized tax benefits balance as of January 1
$
29 $
29 $
Increase for tax positions in current year
Decrease for tax positions of prior year
Lapses in statutes of limitations
Increases from acquisitions
7
(4)
—
75
—
—
—
—
Unrecognized tax benefits balance as of December 31
$
107 $
29 $
33
4
—
(8)
—
29
At December 31, 2020 and 2019, we had $107 million and $29 million, respectively, of unrecognized tax
benefits recorded. Of this amount, $9 million was recorded in Other current liabilities for the year ended December
31, 2020. Additionally, $2 million and $4 million, were recorded in Other non-current liabilities for the years ended
December 31, 2020 and 2019, respectively, and $96 million was recorded in Other non-current assets for both years
in the Statements of Consolidated Financial Position.
If the unrecognized tax benefits were recognized, the entire $11
million would impact the effective tax rate. We do not expect that the amount of unrecognized benefits will change
significantly within the next 12 months. At December 31, 2020 and 2019, we had $1 million and $4 million,
respectively, of accrued interest and penalties related to the unrecognized tax benefits recorded in Other non-current
liabilities in the Statements of Consolidated Financial Position.
Tax years 2016 and forward remain subject to examination for the U.S., and tax years 2008 and forward
remain subject to examination for Canada.
NOTE 13 - LEASE OBLIGATIONS
Our operating leases consist primarily of leases for office space, iron ore vessels, rail cars, processing
equipment and mining equipment. Our finance leases consist primarily of processing equipment and mining
equipment. We use our incremental borrowing rate as the discount rate to determine the present value of the lease
payments, as our leases do not have readily determinable implicit discount rates. Our incremental borrowing rate is
the rate of interest that we would have to borrow on a collateralized basis over a similar term and amount in a similar
economic environment to pay our lease obligations. We determine the incremental borrowing rates for our leases by
adjusting the local risk-free interest rate with a credit risk premium corresponding to our credit rating. From time to
time, we may enter into arrangements for the construction or purchase of an asset and then enter into a financing
arrangement to lease the asset. We recognize leased assets and liabilities under these arrangements when we obtain
control of the asset.
Lease costs are presented below:
Operating leases
Finance leases:
Amortization of lease cost
Interest on lease liabilities
Short-term leases
Total
(In Millions)
Year Ended December 31,
2020
2019
43 $
15
4
13
75 $
4
6
2
6
18
$
$
126
Other information related to leases was as follows:
Cash paid for amounts included in measurement of lease liabilities:
Operating leases within cash flows from operating activities
Finance leases within cash flows from operating activities
Finance leases within cash flows from financing activities
Right-of-use assets obtained in exchange for new finance lease liabilities1
Weighted-average remaining lease term - operating leases (in years)
Weighted-average remaining lease term - finance leases (in years)
Weighted-average discount rate - operating leases
Weighted-average discount rate - finance leases
1 Right-of-use assets obtained in the Acquisitions are not included in this figure.
$
$
$
$
(In Millions)
Year Ended December 31,
2020
2019
43
4
15
44
$
$
$
$
8
5
8 %
4 %
4
2
6
29
10
6
8 %
5 %
Future minimum lease payments under noncancellable finance and operating leases as of December 31,
2020 were as follows:
2021
2022
2023
2024
2025
Thereafter
Total future minimum lease payments
Less: imputed interest
Total lease payments
Less: current portion of lease liabilities
Long-term lease liabilities
(In Millions)
Finance
Leases
Operating Leases
$
100 $
95
78
23
22
76
394
59
335
91
$
244 $
70
53
46
38
34
122
363
99
264
53
211
The current and long-term portions of our finance lease liabilities are included in Other current liabilities and
Other non-current liabilities, respectively. The current and long-term portions of our operating lease liabilities are
included in Other current liabilities and Other non-current liabilities, respectively.
NOTE 14 - ASSET RETIREMENT OBLIGATIONS
The following is a summary of our asset retirement obligations:
Asset retirement obligations1
Less: current portion
Long-term asset retirement obligations
(In Millions)
December 31,
2020
2019
$
$
342 $
7
335 $
165
2
163
1 Includes $190 million and $22 million related to our active operations as of December 31, 2020 and 2019, respectively.
The accrued closure obligation provides for contractual and legal obligations related to our indefinitely idled
and closed operations and for the eventual closure of our active operations. We performed a detailed assessment of
our asset retirement obligations related to our active operations most recently in 2020 in accordance with our
127
accounting policy, which requires us to perform an in-depth evaluation of the liability every three years in addition to
routine annual assessments. In 2020, we employed third-party specialists to assist in the evaluation.
Additionally, we have included in our asset retirement obligation $172 million for our integrated steel facilities
and other operations acquired in the Acquisitions. The closure date for each of our active mine sites was determined
based on the exhaustion date of the remaining mineral reserves and the amortization of the related asset and
accretion of the liability is recognized over the estimated mine lives. The closure date and expected timing of the
capital requirements to meet our obligations for our indefinitely idled or closed mines is determined based on the
unique circumstances of each property. For indefinitely idled or closed mines,
the liability is
recognized over the anticipated timing of remediation. As the majority of our asset retirement obligations at our
steelmaking operations have indeterminate settlement dates, asset retirement obligations have been recorded at
present values using estimated ranges of the economic lives of the underlying assets.
the accretion of
The following is a roll-forward of our asset retirement obligation liability:
Asset retirement obligation as of January 1
Increase from acquisitions
Accretion expense
Remediation payments
Revision in estimated cash flows
Asset retirement obligation as of December 31
(In Millions)
2020
2019
$
$
165 $
172
14
(9)
—
342 $
172
—
10
(1)
(16)
165
The revision in estimated cash flows during the year ended December 31, 2019 for $16 million primarily
relates to an extension of the life-of-mine plan for Tilden mine based on the economic reserve analysis performed
during 2019.
NOTE 15 - DERIVATIVE INSTRUMENTS
Derivatives Not Designated as Hedging Instruments
Customer Supply Agreement
A supply agreement with ArcelorMittal USA provided us supplemental revenue or provided refunds to
ArcelorMittal USA based on the HRC price at the time the iron ore product was consumed in its blast furnaces. The
supplemental pricing is characterized as a freestanding derivative instrument and is required to be accounted for
separately once control transfers to the customer. The derivative instrument, which is finalized based on a future
price, is adjusted to fair value through Revenues each reporting period based upon current market data and forward-
looking estimates provided by management until the pellets are consumed and the amounts are settled. Upon the
completion of the AM USA Transaction, the outstanding derivatives were settled as part of acquisition accounting.
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.
Refer to NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS for additional information.
NOTE 16 - CAPITAL STOCK
Acquisition of AK Steel
As more fully described in NOTE 3 - ACQUISITIONS, we acquired AK Steel on March 13, 2020. At the
effective time of the AK Steel Merger, each share of AK Steel common stock issued and outstanding prior to the
effective time of the AK Steel Merger was converted into, and became exchangeable for, 0.400 Cliffs common shares,
par value $0.125 per share. We issued a total of 127 million Cliffs common shares in connection with the AK Steel
Merger at a fair value of $618 million. Following the closing of the AK Steel Merger, AK Steel's common stock was de-
listed from the NYSE.
128
Acquisition of ArcelorMittal USA
As more fully described in NOTE 3 - ACQUISITIONS, we acquired ArcelorMittal USA on December 9, 2020.
Pursuant to the terms of the AM USA Transaction Agreement, we issued 78,186,671 common shares and 583,273
shares of a new series of our Serial Preferred Stock, Class B, without par value, designated as the “Series B
Participating Redeemable Preferred Stock,” in each case to an indirect, wholly owned subsidiary of ArcelorMittal as
part of the consideration paid by us in connection with the closing of the AM USA Transaction. Refer to Preferred
Stock below for further information.
Preferred Stock
We have 3,000,000 shares of Serial Preferred Stock, Class A, without par value and 4,000,000 shares of
Serial Preferred Stock, Class B, without par value, authorized; no Class A preferred shares are issued or outstanding.
Pursuant to the terms of the AM USA Transaction Agreement, we issued 583,273 shares of a new series of our Serial
Preferred Stock, Class B, without par value, designated Series B Participating Redeemable Preferred Stock, without
par value, to an indirect, wholly owned subsidiary of ArcelorMittal on December 9, 2020.
Series B Participating Redeemable Preferred Stock Terms
The Series B Participating Redeemable Preferred Stock is classified for accounting purposes as temporary
equity as a result of a change in control provision that could, under remote circumstances, require us to redeem the
preferred stock for cash.
The Series B Participating Redeemable Preferred Stock ranks senior to our common shares with respect to
dividend rights and rights on the distribution of assets upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of, and certain bankruptcy events involving, Cliffs. Each share of Series B Participating
Redeemable Preferred Stock entitles its holder to receive a multiple, initially equal to 100 (subject to certain anti-
dilution adjustments, the “Applicable Multiple”), of the aggregate amount per share of all dividends declared on the
common shares.
In addition, from and after the 24-month anniversary of the issue date of the Series B Participating
Redeemable Preferred Stock (the “24-Month Anniversary”), each holder of a share of Series B Participating
Redeemable Preferred Stock is entitled to receive cash dividends (the “Additional Dividends”) accruing and
compounding on a daily basis at the initial rate of 10% per annum on the sum of (i) the Applicable Multiple then in
effect times the volume-weighted average price of the common shares for the 20 consecutive trading days ending on
the trading day immediately preceding the 24-Month Anniversary and (ii) the amount of accumulated and unpaid
dividends on the Series B Participating Redeemable Preferred Stock to, but not including, the 24-Month Anniversary, if
any, which rate will
the end of each six-month period following the 24-Month
Anniversary. Additional Dividends will be payable, when, as and if declared by the Board, in quarterly installments.
increase by 2% per annum at
The Series B Participating Redeemable Preferred Stock is redeemable, in whole or in part, at our option at
any time and from time to time on and after the date that is 180 days after the issue date at a redemption price per
share equal to the Applicable Multiple then in effect times the volume-weighted average price of the common shares
for the 20 consecutive trading days ending on the trading day immediately preceding the date fixed for redemption,
plus accumulated and unpaid dividends to, but not including, the redemption date.
In the event of a change of control of Cliffs, the Series B Participating Redeemable Preferred Stock will be
subject to mandatory redemption at a redemption price per share equal to the Applicable Multiple then in effect times
the volume-weighted average price of the common shares for the 20 consecutive trading days ending on the trading
day immediately preceding the closing date of the transaction constituting such change of control.
In addition, pursuant to the terms of the Series B Participating Redeemable Preferred Stock, we are restricted
from effecting any merger or consolidation with or into another entity unless the Series B Participating Redeemable
Preferred Stock remains outstanding following the merger or consolidation, is exchanged for new preferred stock with
substantially identical terms or is to be redeemed in connection with the closing of such merger or consolidation.
In addition to the foregoing, the Series B Participating Redeemable Preferred Stock is subject to the express
terms of the Serial Preferred Stock, Class B, without par value, as set forth in Cleveland-Cliffs Inc.’s Fourth Amended
Articles of Incorporation, as amended, except that holders of Series B Participating Redeemable Preferred Stock, in
their capacity as such, do not have the right to vote with the other series of Serial Preferred Stock, Class B, without
par value, then outstanding, if any, voting separately as a class, for the election of additional directors of Cleveland-
Cliffs Inc. upon certain defaults by the Company in the payment of dividends, as provided in Cleveland-Cliffs Inc.’s
Fourth Amended Articles of Incorporation, as amended.
129
Dividends
The below table summarizes our recent dividend activity:
Declaration Date
Record Date
Payment Date
Dividend Declared per
Common Share1
2/18/2020
12/2/2019
9/3/2019
5/31/2019
2/19/2019
10/18/2018
4/3/2020
1/3/2020
10/4/2019
7/5/2019
4/5/2019
1/4/2019
4/15/2020 $
1/15/2020
10/15/2019
7/15/2019
4/15/2019
1/15/2019
0.06
0.06
0.10
0.06
0.05
0.05
1 The dividend declared on September 3, 2019 included a special cash dividend of $0.04 per common share.
Subsequent to the dividend paid on April 15, 2020, our Board temporarily suspended future dividends as a
result of the COVID-19 pandemic in order to preserve cash during this time of economic uncertainty.
Share Repurchase Program
In November 2018, we announced that our Board of Directors authorized a program to repurchase
outstanding common shares in the open market or in privately negotiated transactions, up to a maximum of $200
million, excluding commissions and fees.
In April 2019, we announced that our Board of Directors increased the
common share repurchase authorization by an additional $100 million, excluding commissions and fees. During
2019, we repurchased 24 million common shares at a cost of $253 million in the aggregate, including commissions
and fees. The share repurchase program was effective until December 31, 2019.
NOTE 17 - ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of Accumulated other comprehensive loss within Cliffs shareholders’ equity and related tax
effects allocated to each are shown below:
As of December 31, 2020:
Postretirement benefit liability
Foreign currency translation adjustments
Unrealized net loss on derivative financial instruments
As of December 31, 2019:
Postretirement benefit liability
Unrealized net loss on derivative financial instruments
As of December 31, 2018:
Postretirement benefit liability
Unrealized net loss on derivative financial instruments
Pre-tax
Amount
(In Millions)
Tax
Benefit
After-tax
Amount
$
$
$
$
$
$
(221) $
86 $
3
(1)
—
—
(219) $
86 $
(454) $
(4)
(458) $
(408) $
(4)
(412) $
138 $
1
139 $
127 $
1
128 $
(135)
3
(1)
(133)
(316)
(3)
(319)
(281)
(3)
(284)
130
The following table reflects the changes in Accumulated other comprehensive loss related to Cliffs
shareholders’ equity:
(In Millions)
Postretirement
Benefit
Liability,
net of tax
Foreign
Currency
Translation
Derivative
Financial
Instruments,
net of tax
Accumulated
Other
Comprehensive
Loss
December 31, 2017
$
(264) $
225 $
— $
Other comprehensive income (loss) before
reclassifications
Net loss (gain) reclassified from
accumulated other comprehensive loss
December 31, 2018
Other comprehensive loss before
reclassifications
Net loss reclassified from accumulated
other comprehensive loss
December 31, 2019
Other comprehensive income (loss) before
reclassifications
Net loss reclassified from accumulated
other comprehensive loss
(43)
26
(281)
(57)
22
(316)
163
18
3
(228)
—
—
—
—
3
—
(1)
(2)
(3)
(2)
2
(3)
(6)
8
December 31, 2020
$
(135) $
3 $
(1) $
(39)
(41)
(204)
(284)
(59)
24
(319)
160
26
(133)
The following table reflects the details about Accumulated other comprehensive loss components reclassified
from Cliffs shareholders’ equity:
Details about Accumulated Other
Comprehensive Loss Components
Amortization of pension and OPEB liability:
Prior service costs1
Net actuarial loss1
Settlements1
Income tax expense
Changes in foreign currency translation:
Gain on foreign currency translation2
Changes in derivative financial instruments:
Commodity contracts
Income tax expense
Total reclassifications for the period, net of tax
$
$
$
$
$
(In Millions)
Amount of (Gain)/Loss
Reclassified into Income, Net
of Tax
Year Ended December 31,
2020
2019
2018
Affected Line Item in the
Statement of Consolidated
Operations
$
(1) $
(1) $
30
(6)
23
(5)
18 $
29
—
28
(6)
22 $
(1) Other non-operating income
27 Other non-operating income
— Other non-operating income
26 Total before taxes
— Income tax benefit (expense)
26 Net of taxes
— $
— $
(228)
Income (loss) from discontinued
operations, net of tax
10 $
(2)
8 $
3 $
(1)
2 $
(2) Cost of goods sold
— Income tax benefit (expense)
(2) Net of taxes
26 $
24 $
(204)
1 These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. See
NOTE 10 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS for further information.
2 Represents Australian accumulated currency translation adjustments due to the liquidation of our Australian subsidiaries' net
assets.
131
NOTE 18 - RELATED PARTIES
We have certain co-owned joint ventures with companies from the steel and mining industries, including
integrated steel companies, their subsidiaries and other downstream users of steel and iron ore products.
Hibbing is a co-owned joint venture with U.S. Steel, in which, as of December 31, 2020, we own 85.3% and
U.S. Steel owns 14.7%. As a result of the AM USA Transaction, we acquired an additional 62.3% ownership stake in
the Hibbing mine and became the majority owner and mine manager. Prior to the AM USA Transaction, ArcelorMittal
was a related party due to its ownership interest in Hibbing. As such, certain long-term contracts with ArcelorMittal
resulted in Revenues from related parties, and are included within the below.
Revenues from related parties were as follows:
Revenue from related parties
Revenues1
Related party revenues as a percent of Revenues1
Purchases from related parties
(In Millions)
Year Ended December 31,
2020
893
5,354
16.7 %
16
$
$
$
$
$
$
2019
1,015
1,990
2018
1,344
2,332
$
$
51.0 %
57.6 %
— $
—
1 Includes Realization of deferred revenue of $35 million for the year ended December 31, 2020.
The following table presents the classification of related party assets and liabilities in the Statements of
Consolidated Financial Position:
Balance Sheet Location of Assets (Liabilities)
2020
2019
(In Millions)
December 31,
Accounts receivable, net
Other current assets
Accounts payable
Other current liabilities
Other current assets
$
2 $
—
(6)
—
31
45
—
(2)
Our supply agreement with ArcelorMittal USA contained provisions that provided us supplemental revenue or
provided refunds to ArcelorMittal USA based on the HRC price at the time the iron ore product was consumed in its
blast furnaces. The supplemental pricing was categorized as a freestanding derivative. Upon the completion of the
AM USA Transaction, the outstanding derivative was settled as part of acquisition accounting.
NOTE 19 - VARIABLE INTEREST ENTITIES
SunCoke Middletown
We purchase all the coke and electrical power generated from SunCoke Middletown’s plant under long-term
supply agreements and have committed to purchase all the expected production from the facility through 2032. We
consolidate SunCoke Middletown as a VIE because we are the primary beneficiary despite having no ownership
interest in SunCoke Middletown. SunCoke Middletown had income before income taxes of $41 million for the year
ended December 31, 2020, which was included in our consolidated income before income taxes.
132
The assets of the consolidated VIE can only be used to settle the obligations of the consolidated VIE and not
obligations of the Company. The creditors of SunCoke Middletown do not have recourse to the assets or general
credit of the Company to satisfy liabilities of the VIE. The consolidated balance sheet as of December 31, 2020
includes the following amounts for SunCoke Middletown:
Cash and cash equivalents
Inventories
Property, plant and equipment, net
Accounts payable
Other assets (liabilities), net
Noncontrolling interest
NOTE 20 - EARNINGS PER SHARE
The following table summarizes the computation of basic and diluted EPS:
$
(In Millions)
December 31,
2020
5
21
308
(15)
(10)
(309)
(In Millions, Except Per Share Amounts)
Year Ended December 31,
2020
2019
2018
$
(82) $
295 $
1,040
Income (loss) from continuing operations
Income from continuing operations attributable to noncontrolling
interest
Net income (loss) from continuing operations attributable to Cliffs
shareholders
Income (loss) from discontinued operations, net of tax
(41)
(123)
1
—
295
(2)
Net income (loss) attributable to Cliffs shareholders
$
(122) $
293 $
Weighted average number of shares:
Basic
Convertible senior notes
Employee stock plans
Diluted
Earnings (loss) per common share attributable to
Cliffs common shareholders - basic:
Continuing operations
Discontinued operations
Earnings (loss) per common share attributable to
Cliffs common shareholders - diluted:
Continuing operations
Discontinued operations
379
—
—
379
277
4
3
284
$
$
$
$
(0.32) $
1.07 $
—
(0.01)
(0.32) $
1.06 $
(0.32) $
1.04 $
—
(0.01)
(0.32) $
1.03 $
133
—
1,040
88
1,128
297
3
4
304
3.50
0.30
3.80
3.42
0.29
3.71
The following table summarizes the shares that have been excluded from the diluted earnings per share
calculation for the year ended December 31, 2020, as they were anti-dilutive:
Redeemable preferred shares
Convertible senior notes
Shares related to employee stock plans
NOTE 21 - COMMITMENTS AND CONTINGENCIES
Purchase Commitments
(In Millions)
2020
4
2
1
We purchase portions of the principal raw materials required for our steel manufacturing operations under
annual and multi-year agreements, some of which have minimum quantity requirements. We also use large volumes
of natural gas, electricity and industrial gases in our steel manufacturing operations. We negotiate most of our
purchases of chrome, industrial gases and a portion of our electricity under multi-year agreements. Our purchases of
coke are made under annual or multi-year agreements with periodic price adjustments. We typically purchase coal
under annual fixed-price agreements. We also purchase certain transportation services under multi-year contracts
with minimum quantity requirements.
Contingencies
We are currently the subject of, or party to, various claims and legal proceedings incidental to our current and
historical operations. These claims and legal proceedings are subject to inherent uncertainties and unfavorable
rulings could occur. An unfavorable ruling could include monetary damages, additional funding requirements or an
injunction.
If an unfavorable ruling were to occur, there exists the possibility of a material adverse effect on the
financial position and results of operations for the period in which the ruling occurs or future periods. However, based
on currently available information we do not believe that any pending claims or legal proceedings will result in a
material adverse effect in relation to our consolidated financial statements.
Environmental Contingencies
Although we believe our operating practices have been consistent with prevailing industry standards,
hazardous materials may have been released at operating sites or third-party sites in the past, including operating
sites that we no longer own. If we reasonably can, we estimate potential remediation expenditures for those sites
where future remediation efforts are probable based on identified conditions, regulatory requirements, or contractual
obligations arising from the sale of a business or facility. For sites involving government required investigations, we
typically make an estimate of potential remediation expenditures only after the investigation is complete and when we
better understand the nature and scope of the remediation. In general, the material factors in these estimates include
the costs associated with investigations, delineations, risk assessments, remedial work, governmental response and
oversight, site monitoring, and preparation of reports to the appropriate environmental agencies.
The following is a summary of our environmental obligations:
Environmental obligations
Less current portion
Long-term environmental obligations
(In Millions)
December 31,
2020
December 31,
2019
$
$
135 $
18
117 $
2
—
2
We cannot predict the ultimate costs for each site with certainty because of the evolving nature of the
investigation and remediation process. Rather, to estimate the probable costs, we must make certain assumptions.
The most significant of these assumptions is for the nature and scope of the work that will be necessary to investigate
and remediate a particular site and the cost of
that work. Other significant assumptions include the cleanup
technology that will be used, whether and to what extent any other parties will participate in paying the investigation
and remediation costs, reimbursement of past response costs and future oversight costs by governmental agencies,
and the reaction of the governing environmental agencies to the proposed work plans. Costs for future investigation
134
and remediation are not discounted to their present value, unless the amount and timing of the cash disbursements
are readily known. To the extent that we have been able to reasonably estimate future liabilities, we do not believe that
there is a reasonable possibility that we will
incur a loss or losses that exceed the amounts we accrued for the
environmental matters discussed below that would, either individually or in the aggregate, have a material adverse
effect on our consolidated financial condition, results of operations or cash flows. However, since we recognize
amounts in the consolidated financial statements in accordance with GAAP that exclude potential losses that are not
probable or that may not be currently estimable, the ultimate costs of these environmental matters may be higher than
the liabilities we currently have recorded in our consolidated financial statements.
Pursuant to RCRA, which governs the treatment, handling and disposal of hazardous waste, the EPA and
authorized state environmental agencies may conduct inspections of RCRA-regulated facilities to identify areas where
there have been releases of hazardous waste or hazardous constituents into the environment and may order the
facilities to take corrective action to remediate such releases. Likewise, the EPA or the states may require closure or
post-closure care of residual, industrial and hazardous waste management units, including, but not limited to, landfills
and deep injection wells. Environmental regulators have the authority to inspect all of our facilities. While we cannot
predict the future actions of these regulators, it is possible that they may identify conditions in future inspections of
these facilities that they believe require corrective action.
Pursuant to CERCLA, the EPA and state environmental authorities have conducted site investigations at
some of our facilities and other third-party facilities, portions of which previously may have been used for disposal of
materials that are currently regulated. The results of these investigations are still pending, and we could be directed to
these
spend funds for remedial activities at
investigations, however, we cannot reasonably predict whether or when such spending might be required or its
magnitude.
the former disposal areas. Because of
the uncertain status of
On April 29, 2002, AK Steel entered a mutually agreed-upon administrative order with the consent of the EPA
pursuant to Section 122 of CERCLA to perform a RI/FS of the Hamilton plant site located in New Miami, Ohio. The
plant ceased operations in 1990 and all of its former structures have been demolished. AK Steel submitted the
investigation portion of the RI/FS and completed supplemental studies. Until the RI/FS is complete, we cannot
reasonably estimate the additional costs, if any, we may incur for potentially required remediation of the site or when
we may incur them.
EPA Administrative Order In Re: Ashland Coke
On September 26, 2012, the EPA issued an order under Section 3013 of RCRA requiring a plan to be
developed for investigation of four areas at the Ashland Works coke plant. The Ashland Works coke plant ceased
operations in 2011 and all of its former structures have been demolished and removed. In 1981, AK Steel acquired the
plant from Honeywell International Corporation (as successor to Allied Corporation), who had managed the coking
operations there for approximately 60 years. In connection with the sale of the coke plant, Honeywell agreed to
indemnify AK Steel against certain claims and obligations that could arise from the investigation, and we intend to
pursue such indemnification from Honeywell, if necessary. We cannot reasonably estimate how long it will take to
complete the site investigation. On March 10, 2016, the EPA invited AK Steel to participate in settlement discussions
regarding an enforcement action. Settlement discussions between the parties are ongoing, though whether the parties
will reach agreement and any such agreement’s terms are uncertain. Until the site investigation is complete, we
cannot reasonably estimate the costs, if any, we may incur for potential additional required remediation of the site or
when we may incur them.
Burns Harbor Water Issues
time,
limits. Since that
In August 2019, ArcelorMittal Burns Harbor LLC (n/k/a Cleveland-Cliffs Burns Harbor LLC) suffered a loss of
the blast furnace cooling water recycle system, which led to the discharge of cyanide and ammonia in excess of the
the facility has taken numerous steps to prevent
Burns Harbor plant's NPDES permit
recurrence and maintain compliance with its NPDES permit. Since the August 2019 event, we have been engaged in
settlement discussions with the U.S. Department of Justice, the EPA and the State of Indiana to resolve any alleged
violations of environmental laws or regulations. Also, ArcelorMittal Burns Harbor LLC was served with a subpoena on
December 5, 2019, from the United States District Court for the Northern District of Indiana relating to the August
2019 event and has responded to the subpoena requests. In addition, the plaintiffs in Environmental Law & Policy
Center et al. v. ArcelorMittal Burns Harbor LLC et al. (U.S. District Court, N.D. Indiana Case No. 19-cv-473), which
was filed on December 20, 2019, have alleged violations resulting from the August 2019 event and other Clean Water
Act claims. Although we cannot accurately estimate the amount of civil penalty, the cost of any injunctive relief
requirements, or the costs to resolve third-party claims, including potential natural resource damages claims, they are
likely to exceed the reporting threshold in total.
135
In addition to the foregoing matters, we are or may be involved in proceedings with various regulatory
authorities that may require us to pay fines, comply with more rigorous standards or other requirements or incur
capital and operating expenses for environmental compliance. We believe that the ultimate disposition of any such
proceedings will not have, individually or in the aggregate, a material adverse effect on our consolidated financial
condition, results of operations or cash flows.
Tax Matters
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax
regulations. We recognize liabilities for anticipated tax audit issues based on our estimate of whether, and the extent
to which, additional taxes will be due.
If we ultimately determine that payment of these amounts is unnecessary, we
reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer
necessary. We also recognize tax benefits to the extent that it is more likely than not that our positions will be
sustained when challenged by the taxing authorities. To the extent we prevail in matters for which liabilities have been
established, or are required to pay amounts in excess of our liabilities, our effective tax rate in a given period could be
materially affected. An unfavorable tax settlement would require use of our cash and result in an increase in our
effective tax rate in the year of resolution. A favorable tax settlement would be recognized as a reduction in our
effective tax rate in the year of resolution. Refer to NOTE 12 - INCOME TAXES for further information.
Other Contingencies
In addition to the matters discussed above, there are various pending and potential claims against us and our
subsidiaries involving product liability, commercial, employee benefits and other matters arising in the ordinary course
of business. Because of the considerable uncertainties that exist for any claim, it is difficult to reliably or accurately
estimate what the amount of a loss would be if a claimant prevails. If material assumptions or factual understandings
we rely on to evaluate exposure for these contingencies prove to be inaccurate or otherwise change, we may be
required to record a liability for an adverse outcome. If, however, we have reasonably evaluated potential future
liabilities for all of these contingencies, including those described more specifically above, it is our opinion, unless we
otherwise noted, that the ultimate liability from these contingencies, individually or in the aggregate, should not have a
material adverse effect on our consolidated financial position, results of operations or cash flows.
NOTE 22 - SUBSEQUENT EVENTS
On February 11, 2021, we sold 20 million common shares, and the indirect, wholly owned subsidiary of
ArcelorMittal to which approximately 78 million common shares were issued as part of the consideration paid by us in
connection with the closing of the AM USA Transaction sold 40 million common shares, in each case at a price per
share to the underwriter of $16.12, in an underwritten public offering. We also granted the underwriter an option to
purchase up to an additional 9 million common shares from us at a price per share to the underwriter of $16.12. The
underwriter has until March 10, 2021 to exercise such option, which it may do in full, in part or not at all. We did not
receive any proceeds from the sale of the common shares by the selling shareholder in the offering. We intend to use
the net proceeds to us from the offering, plus cash on hand, to redeem up to approximately $334 million aggregate
principal amount of our outstanding 9.875% 2025 Senior Secured Notes. We intend to use any remaining net
proceeds to us following such redemption to reduce borrowings under our ABL Facility.
On February 9, 2021, following pricing of the underwritten public offering, we issued a conditional notice of
partial redemption to holders of the 9.875% 2025 Senior Secured Notes to redeem $322 million aggregate principal
amount of the outstanding 9.875% 2025 Senior Secured Notes on March 11, 2021, at a redemption price equal to
109.875% of the principal amount to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the
redemption date. The conditional notice of partial redemption was subject to the condition precedent that we close the
underwritten public offering of our common shares. As a result, following the closing of the underwritten public
offering, the conditional notice of partial redemption became irrevocable.
On February 17, 2021, we issued $500 million aggregate principal amount of 4.625% 2029 Senior Notes and
$500 million aggregate principal amount of 4.875% 2031 Senior Notes in an offering that was exempt from the
registration requirements of the Securities Act. We intend to use the net proceeds from the notes offering to redeem
all of the outstanding 4.875% 2024 Senior Secured Notes and 6.375% 2025 Senior Notes issued by Cleveland-Cliffs
Inc. and all of the outstanding 7.625% 2021 AK Senior Notes, 7.50% 2023 AK Senior Notes and 6.375% 2025 AK
Senior Notes issued by AK Steel Corporation (n/k/a Cleveland-Cliffs Steel Corporation), and pay fees and expenses in
connection with such redemptions, and reduce borrowings under our ABL Facility.
On February 10, 2021, following pricing of the notes offering, we issued notices of redemption to the holders
of the 4.875% 2024 Senior Secured Notes, 6.375% 2025 Senior Notes, 7.625% 2021 AK Senior Notes, 7.50% 2023
136
AK Senior Notes and 6.375% 2025 AK Senior Notes to redeem all of such notes outstanding on March 12, 2021, at
the redemption prices listed below, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
The notices of redemption with respect to the 4.875% 2024 Senior Secured Notes and the 6.375% 2025 Senior Notes
were subject to the condition precedent that we close the notes offering. As a result, following the closing of the notes
offering, the notices of redemption with respect to the 4.875% 2024 Senior Secured Notes and the 6.375% 2025
Senior Notes became irrevocable. The notices of redemption with respect to the 7.625% 2021 AK Senior Notes,
7.50% 2023 AK Senior Notes and 6.375% 2025 AK Senior Notes were not subject to any conditions and were
irrevocable when issued.
Debt Instrument
4.875% 2024 Senior Secured Notes
6.375% 2025 Senior Notes
7.625% 2021 AK Senior Notes
7.50% 2023 AK Senior Notes
6.375% 2025 AK Senior Notes
1 Plus accrued and unpaid interest, if any, up to but excluding the redemption date.
Redemption
Price1
102.438 %
103.188
100.000
101.875
103.188
137
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
Cleveland-Cliffs Inc.
Opinion on the Financial Statements
We have audited the accompanying statements of consolidated financial position of Cleveland-Cliffs Inc. and
subsidiaries (the "Company") as of December 31, 2020 and 2019, the related statements of consolidated operations,
comprehensive income, cash flows, and changes in equity, for each of the three years in the period ended December
31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and
2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated February 26, 2021, expressed an unqualified opinion on the
Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
to obtain reasonable assurance about whether the financial statements are free of material
perform the audit
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
Mineral Reserves — Asset Retirement Obligations, Valuation of Long-Lived Assets, Depreciation, Depletion
and Amortization of Property, Plant and Equipment and Valuation in Acquisition Accounting —Refer to Notes
3, 5, 6 and 14 to the financial statements
Critical Audit Matter Description
Iron ore mineral reserve estimates, combined with estimated annual production levels, are used to determine the iron
ore mine closure dates utilized in recording the fair value liability for asset retirement obligations for active operating
iron ore mines. Since the liability represents the present value of the expected future obligation, a significant change
in iron ore mineral reserves or iron ore mine lives could have a substantial effect on the recorded obligation. Iron ore
mineral reserve estimates are also used in evaluating potential impairments of iron ore mine asset groups as they are
indicative of future cash flows and in determining maximum useful lives utilized to calculate depreciation, depletion
and amortization of long-lived iron ore mine assets. Further, iron ore mineral reserve estimates are used in estimating
the fair value of mineral reserves established through the purchase price allocation in a business combination. The
Company performs an in-depth evaluation of its iron ore mineral reserve estimates by iron ore mine on a periodic
basis,
reserves requires
management, with the support of management’s experts, to make significant estimates and assumptions related to
in addition to routine annual assessments. The determination of
iron ore mineral
138
key inputs including (1) the determination of the size and scope of the iron ore body through technical modeling, (2)
the estimates of future iron ore prices recognizing that the price shall not exceed the three-year trailing average index
price of iron ore adjusted to the Company’s realized price, production costs and capital expenditures, and (3)
management’s mine plan for the proven and probable iron ore mineral reserves (collectively “the iron ore mineral
reserve inputs”). Changes in any of the judgments or assumptions related to the iron ore mineral reserve inputs can
have a significant impact with respect to the accrual for asset retirement obligations, the impairment of long-lived
asset groups, the amount of depreciation, depletion and amortization expense and the estimated fair value of mineral
reserves established through the purchase price allocation in a business combination. The consolidated asset
retirement obligation balance was $342 million as of December 31, 2020, of which $83 million related to active iron
ore mine operations. The total asset balance associated with the Company’s Steelmaking reportable segment was
$15,849 million as of December 31, 2020, of which $1,661 million related to long-lived assets associated with the
Company’s combined iron ore mine asset groups, and is inclusive of $235 million related to iron ore mineral reserves
acquired through the AM USA Transaction. Depreciation, depletion and amortization expense for the Company’s
combined iron ore mine asset groups was $78 million for the year ended December 31, 2020.
Given the significant judgments and assumptions made by management to estimate iron ore mineral reserves and the
sensitivity of changes to iron ore mineral reserve estimates on the Company’s recorded asset retirement obligations,
long-lived asset
impairment considerations, calculated depreciation, depletion and amortization expense and
estimated fair value of mineral reserves established through the purchase price allocation of a business combination,
performing audit procedures to evaluate the reasonableness of management’s judgments and estimates related to the
iron ore mineral reserve inputs required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s significant judgments and assumptions related to iron ore mineral
reserve quantities and the related iron ore mine closure dates included the following, among others:
• We tested the operating effectiveness of internal controls related to the Company’s estimation of iron ore
mineral reserve quantities and the related iron ore mine closure dates.
• We evaluated the experience, qualifications and objectivity of management’s experts, including in-house iron
ore mine engineers.
•
For an iron ore mine subject to the Company’s routine annual assessment we evaluated management’s
assessment by:
◦
◦
◦
Understanding the process used by management
operational status of current year iron ore mine production.
to survey and analyze the geological and
Evaluating the historical accuracy of management’s technical model as compared to actual iron ore
mine production results.
Comparing the iron ore mine plan, updated for current year depletion, to
▪
▪
Presentations to the Audit Committee.
Information by asset group, asset retirement obligation valuation models, depreciation,
reserve purchase price
depletion and amortization expense calculations and mineral
allocation valuation models.
•
For an iron ore mine subject to the Company’s periodic in-depth evaluation of its iron ore mineral reserve
estimate:
◦ We evaluated management’s determination of the size and scope of the iron ore body, by:
▪
▪
▪
Understanding the process used by management
activities including mineralized resource drill samples.
to complete research and exploration
Understanding the methodology utilized by management
exploration data to the development of a technical model of the iron ore body.
to apply the research and
Evaluating the historical accuracy of management’s technical model as compared to actual
iron ore mine production results.
139
◦ We evaluated management’s estimates of
future iron ore prices, production costs and capital
expenditures (the “financial assumptions”), by:
▪
▪
▪
▪
Understanding and testing the methodology utilized by management for development of the
future iron ore prices recognizing that the price shall not exceed the three-year trailing
average index price of iron ore adjusted to the Company’s realized price.
Evaluated management’s ability to accurately forecast future iron ore prices, production costs
and capital expenditures by comparing actual results to management’s historical forecasts.
Evaluated the reasonableness of management’s estimates of
forecasted information included in analyst reports.
future iron ore prices to
Evaluated the reasonableness of management’s forecast for production costs and capital
expenditures by comparing the forecasts to:
internal
communications to management and the Board of Directors.
results and (2)
(1) historical
◦ We evaluated management’s iron ore mine plan for the proven and probable mineral reserves, by:
▪
▪
Understanding the process used by management to develop the iron ore mine plan for
proven and probable iron ore mineral reserves applying key inputs such as the technical
model of the iron ore body and the financial assumptions.
Comparing the iron ore mine plan to
•
•
•
Presentations to the Audit Committee.
Historical iron ore mine plan(s).
Information by asset group, asset
retirement obligation valuation models,
depreciation, depletion and amortization expense calculations, and mineral reserve
purchase price allocation valuation models.
Acquisitions — AK Steel —Refer to Note 3 to the financial statements
Critical Audit Matter Description
The Company completed the acquisition of AK Steel Holding Corporation for approximately $1.5 billion on March 13,
2020. The Company accounted for the acquisition under the acquisition method of accounting for business
combinations. Accordingly, the purchase price was initially allocated to three operations of the AK Steel business
including Steelmaking, Tooling and Stamping and Tubular using a discounted cash flow model (the “Operations
Allocation”). Following the Operations Allocation, the purchase price was then allocated to the assets acquired and
liabilities assumed comprising the three operations of the AK Steel business based on their respective fair values,
including $174 million goodwill balance assigned to the Tooling and Stamping and Tubular operations. The Operations
Allocation required management
future
revenues and earnings before interest, taxes, depreciation, and amortization (EBITDA) and discount rates.
to make significant estimates and assumptions related to forecasts of
Given the Operations Allocation requires management to make significant estimates and assumptions related to the
forecasts of future revenues and EBITDA (the “Forecasts”), as well as the selection of the discount rates, and
considering to the sensitivity of the allocated goodwill balance to changes in projected future cash flows at the
Steelmaking, Tooling and Stamping, and Tubular operations, performing audit procedures to evaluate the
reasonableness of the Forecasts and selected discount rates required a high degree of auditor judgment and an
increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Forecasts and the selection of the discount rates included the following, among
others:
• We tested the operating effectiveness of internal controls over management’s purchase price allocation, such
as controls related to management’s Forecasts and the selection of the discount rates.
140
• We evaluated the reasonableness of management’s Forecasts by comparing the Forecasts to (1) historical
results, (2) internal communications to management and the Board of Directors, and (3) forecasted
information included in industry reports and other economic indicators.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rates by:
◦
◦
Testing the source information underlying the determination of the discount rates and testing the
mathematical accuracy of the calculation.
Developing a range of independent estimates and comparing those to the discount rates selected by
management.
• We evaluated whether management’s Forecasts were consistent with evidence obtained in other areas of the
audit.
/s/ DELOITTE & TOUCHE LLP
Cleveland, Ohio
February 26, 2021
We have served as the Company's auditor since 2004.
141
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be
disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our
management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure based solely on the definition of “disclosure controls and procedures” in
In designing and evaluating the disclosure controls and
Rule 13a-15(e) promulgated under the Exchange Act.
procedures, management recognized that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of the end of the period covered by this report, we carried out an evaluation under the supervision and with
the participation of our management, including our President and Chief Executive Officer and our Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the
foregoing, our President and Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls
and procedures were effective.
142
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting as such term is defined under Rule 13a-15(f) promulgated under the Exchange Act.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the Company's consolidated financial statements for external
purposes in accordance with generally accepted accounting principles.
Internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit the
preparation of the consolidated financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the Company are being made only in accordance with appropriate authorizations of
management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on
the consolidated financial statements.
its inherent
Because of
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
limitations,
Management conducted an assessment of the Company's internal control over financial reporting as of
December 31, 2020 using the framework specified in Internal Control - Integrated Framework (2013), published by the
Committee of Sponsoring Organizations of the Treadway Commission. We have excluded from our assessment the
internal control over financial reporting at AK Steel, which was acquired on March 13, 2020, and whose assets as of
December 31, 2020 constituted 32% of the Company’s consolidated total assets as of December 31, 2020, and
whose revenues for the period from March 13, 2020 through December 31, 2020, inclusive, constituted 67% of the
Company’s consolidated revenues for the year ended December 31, 2020. Management also excluded from our
assessment the internal control over financial reporting at ArcelorMittal USA, which was acquired on December 9,
2020, and whose assets as of December 31, 2020 constituted 49% of the Company’s consolidated total assets as of
December 31, 2020, and whose revenues for the period from December 9, 2020 through December 31, 2020,
inclusive, constituted 8% of the Company’s consolidated revenues for the year ended December 31, 2020.
Based on such assessment, management has concluded that the Company's internal control over financial
reporting was effective as of December 31, 2020.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2020 has
been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report that
appears herein.
February 26, 2021
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting or in other factors that occurred
during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
143
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
Cleveland-Cliffs Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Cleveland-Cliffs Inc. and subsidiaries (the "Company") as
of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of
the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on
criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
the Treadway Commission (COSO).
In our opinion,
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the
Company and our report dated February 26, 2021, expressed an unqualified opinion on those financial statements.
As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its
assessment the internal control over financial reporting at AK Steel, which was acquired on March 13, 2020, and whose
assets as of December 31, 2020 constituted 32% of the Company’s consolidated total assets as of December 31, 2020,
and whose revenues for the period from March 13, 2020 through December 31, 2020, inclusive, constituted 67% of the
Company’s consolidated revenues for the year ended December 31, 2020. Management also excluded from its
assessment the internal control over financial reporting at ArcelorMittal USA, which was acquired on December 9, 2020,
and whose assets as of December 31, 2020 constituted 49% of the Company’s consolidated total assets as of
December 31, 2020, and whose revenues for the period from December 9, 2020 through December 31, 2020, inclusive,
constituted 8% of the Company’s consolidated revenues for the year ended December 31, 2020. Accordingly, our audit
did not include the internal control over financial reporting at either AK Steel or ArcelorMittal USA.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ DELOITTE & TOUCHE LLP
Cleveland, Ohio
February 26, 2021
144
Item 9B.
Other Information
None.
145
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
The information required to be furnished by this Item will be set forth in our definitive proxy statement for the
2021 Annual Meeting of Shareholders (the "Proxy Statement") under the headings "Board Meetings and Committees
— Audit Committee", "Code of Business Conduct and Ethics", "Independence and Related Party Transactions", and
"Information Concerning Director Nominees”, and is incorporated herein by reference and made a part hereof from the
Proxy Statement. The information regarding executive officers required by this Item is set forth in Part I - Item 1.
Business hereof under the heading “Information About Our Executive Officers”, which information is incorporated
herein by reference and made a part hereof.
Item 11.
Executive Compensation
The information required to be furnished by this Item will be set forth in the Proxy Statement under the
headings “Director Compensation”, "Compensation Discussion and Analysis", “Compensation Committee Report”,
“Compensation Committee Interlocks and Insider Participation”, "Compensation-Related Risk Assessment" and
“Executive Compensation” and is incorporated herein by reference and made a part hereof from the Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The information required to be furnished by this Item will be set forth in the Proxy Statement under the
headings "Ownership of Equity Securities of the Company" and "Equity Compensation Plan Information" and is
incorporated herein by reference and made a part hereof from the Proxy Statement.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required to be furnished by this Item will be set forth in the Proxy Statement under the
heading “Independence and Related Party Transactions” and is incorporated herein by reference and made a part
hereof from the Proxy Statement.
Item 14.
Principal Accountant Fees and Services
The information required to be furnished by this Item will be set forth in the Proxy Statement under the
heading “Ratification of Independent Registered Public Accounting Firm” and is incorporated herein by reference and
made a part hereof from the Proxy Statement.
146
Item 15.
Exhibits and Financial Statement Schedules
(a)(1) - List of Financial Statements
PART IV
The following consolidated financial statements of Cleveland-Cliffs Inc. are included at Item 8. Financial
Statements and Supplementary Data above:
•
•
•
•
•
•
Statements of Consolidated Financial Position - December 31, 2020 and 2019
Statements of Consolidated Operations - Years ended December 31, 2020, 2019 and 2018
Statements of Consolidated Comprehensive Income - Years ended December 31, 2020, 2019 and
2018
Statements of Consolidated Cash Flows - Years ended December 31, 2020, 2019 and 2018
Statements of Consolidated Changes in Equity - Years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
(a)(2) - Financial Statement Schedules
All schedules for which provision is made in the applicable accounting regulation of the SEC are not required
under the related instructions or are inapplicable, and therefore have been omitted or are contained in the applicable
financial statements or the notes thereto.
(a)(3) List of Exhibits
All documents referenced below have been filed pursuant
Cleveland-Cliffs Inc., file number 1-09844, unless otherwise indicated.
to the Securities Exchange Act of 1934 by
Exhibit
Number
Exhibit
2.1
2.2
3.1
3.2
3.3
4.1
4.2
4.3
Plan of purchase, sale, reorganization, arrangement, liquidation or succession
**Agreement and Plan of Merger, dated as of December 2, 2019, by and among Cleveland-Cliffs Inc., AK
Steel Holding Corporation and Pepper Merger Sub Inc. (filed as Exhibit 2.1 to Cliffs' Form 8-K on
December 4, 2019 and incorporated herein by reference)
**Transaction Agreement, dated as of September 28, 2020, by and between Cleveland-Cliffs Inc. and
ArcelorMittal S.A. (filed as Exhibit 2.1 to Cliffs’ Form 10-Q for the period ended September 30, 2020 and
incorporated herein by reference)
Articles of Incorporation and Regulations of Cleveland-Cliffs Inc.
Fourth Amended Articles of Incorporation of Cliffs, as filed with the Secretary of State of the State of Ohio
on September 25, 2020 (filed as Exhibit 3.2 to Cliffs’ Form 8-K on September 28, 2020 and incorporated
herein by reference)
Certificate of Amendment to Fourth Amended Articles of Incorporation of Cliffs, as filed with the Secretary
of State of Ohio on December 7, 2020 (filed as Exhibit 3.1 to Cliffs Form 8-K on December 9, 2020 and
incorporated herein by reference)
Regulations of Cliffs (filed as Exhibit 3.2 to Cliffs’ Form 10-K for the period ended December 31, 2011 and
incorporated herein by reference)
Instruments defining rights of security holders, including indentures
Indenture, dated as of March 17, 2010, between Cliffs Natural Resources Inc. (n/k/a Cleveland-Cliffs Inc.)
and U.S. Bank National Association, as trustee (filed as Exhibit 4.3 to Cliffs’ Registration Statement on
Form S-3 (Registration No. 333-186617) on February 12, 2013 and incorporated herein by reference)
Third Supplemental Indenture, dated as of September 20, 2010, between Cliffs Natural Resources Inc.
(n/k/a Cleveland-Cliffs Inc.) and U.S. Bank National Association, as trustee, including Form of 6.25%
Notes due 2040 (filed as Exhibit 4.4 to Cliffs’ Form 8-K on September 17, 2010 and incorporated herein
by reference)
Fifth Supplemental Indenture, dated as of March 31, 2011, between Cliffs Natural Resources Inc. (n/k/a
Cleveland-Cliffs Inc.) and U.S. Bank National Association, as trustee (filed as Exhibit 4(b) to Cliffs’ Form
10-Q for the period ended June 30, 2011 and incorporated herein by reference)
147
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
Seventh Supplemental Indenture, dated as of May 7, 2013, between Cliffs Natural Resources Inc. (n/k/a
Cleveland-Cliffs Inc.) and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to Cliffs' Form
10-Q for the period ended June 30, 2013 and incorporated herein by reference)
Eighth Supplemental Indenture, dated as of December 19, 2017, by and between Cleveland-Cliffs Inc.
and U.S. Bank National Association, as trustee, including Form of 1.50% Convertible Senior Notes due
2025 (filed as Exhibit 4.2 to Cliffs' Form 8-K on December 19, 2017 and incorporated herein by
reference)
Indenture, dated as of February 27, 2017, among Cliffs Natural Resources Inc. (n/k/a Cleveland-Cliffs
Inc.), the Guarantors party thereto and U.S. Bank National Association, as trustee, including Form of
5.75% Senior Notes due 2025 (filed as Exhibit 4.1 to Cliffs' Form 8-K on August 7, 2017 and incorporated
herein by reference)
First Supplemental Indenture, dated as of August 7, 2017, among Cliffs Natural Resources Inc. (n/k/a
Cleveland-Cliffs Inc.), the Guarantors party thereto and U.S. Bank National Association, as trustee,
including Form of 5.75% Senior Notes due 2025 (filed as Exhibit 4.2 to Cliffs' Form 8-K on August 7, 2017
and incorporated herein by reference)
Second Supplemental Indenture, dated as of September 29, 2017, among Cleveland-Cliffs Inc., the
Additional Guarantors party thereto and U.S. Bank National Association, as trustee (filed as Exhibit 4.11
to Cliffs’ Form 10-K for the period ended December 31, 2017 and incorporated herein by reference)
Third Supplemental Indenture, dated as of October 27, 2017, among Cleveland-Cliffs Inc., the Additional
Guarantors party thereto and U.S. Bank National Association, as trustee (filed as Exhibit 4.12 to Cliffs’
Form 10-K for the period ended December 31, 2017 and incorporated herein by reference)
Fourth Supplemental Indenture, dated as of August 27, 2018, among Cleveland-Cliffs Inc., the Additional
Guarantor party thereto and U.S. Bank National Association, as trustee (filed as Exhibit 4.10 to Cliffs’
Form 10-K for the period ended December 31, 2019 and incorporated herein by reference)
Fifth Supplemental Indenture, dated as of March 13, 2020, among Cleveland-Cliffs Inc., the Additional
Guarantors party thereto and U.S. Bank National Association, as trustee (filed as Exhibit 4.2 to Cliffs’
Form 10-Q for the period ended March 31, 2020 and incorporated herein by reference)
Sixth Supplemental Indenture, dated as of May 22, 2020, among Cleveland-Cliffs Inc., the Additional
Guarantors party thereto and U.S. Bank National Association, as trustee (filed as Exhibit 4.4 to Cliffs’
Form 10-Q for the period ended June 30, 2020 and incorporated herein by reference)
Seventh Supplemental Indenture, dated as of December 9, 2020, among Cleveland-Cliffs Inc., the
Additional Guarantors party thereto and U.S. Bank National Association, as trustee (filed herewith)
Eighth Supplemental
Additional Guarantors party thereto and U.S. Bank National Association, as trustee (filed herewith)
Indenture, dated as of December 19, 2017, by and among Cleveland-Cliffs Inc., the Guarantors party
thereto and U.S. Bank National Association, as trustee and first lien notes collateral agent, including
Form of 4.875% Senior Secured Notes due 2024 (filed as Exhibit 4.1 to Cliffs' Form 8-K on December 19,
2017 and incorporated herein by reference)
Indenture, dated as of December 18, 2020, among Cleveland-Cliffs Inc.,
the
First Supplemental Indenture, dated as of August 27, 2018, among Cleveland-Cliffs Inc., the Additional
Guarantor party thereto and U.S. Bank National Association, as trustee (filed as Exhibit 4.12 to Cliffs’
Form 10-K for the period ended December 31, 2019 and incorporated herein by reference)
Second Supplemental Indenture, dated as of March 13, 2020, among Cleveland-Cliffs Inc., the Additional
Guarantors party thereto and U.S. Bank National Association, as trustee and first lien notes collateral
agent (filed as Exhibit 4.3 to Cliffs' Form 10-Q for the period ended March 31, 2020 and incorporated
herein by reference)
Third Supplemental Indenture, dated as of May 22, 2020, among Cleveland-Cliffs Inc., the Additional
Guarantors party thereto and U.S. Bank National Association, as trustee and first lien notes collateral
agent (filed as Exhibit 4.5 to Cliffs’ Form 10-Q for the period ended June 30, 2020 and incorporated
herein by reference)
Fourth Supplemental
the
Additional Guarantors party thereto and U.S. Bank National Association, as trustee and first lien notes
collateral agent (filed herewith)
Indenture, dated as of December 9, 2020, among Cleveland-Cliffs Inc.,
Fifth Supplemental
the
Additional Guarantors party thereto and U.S. Bank National Association, as trustee and first lien notes
collateral agent (filed herewith)
Indenture, dated as of December 18, 2020, among Cleveland-Cliffs Inc.,
Indenture, dated as of May 13, 2019, among Cleveland-Cliffs Inc., the Guarantors party thereto and U.S.
Bank National Association, as trustee, including Form of 5.875% Senior Notes due 2027 (filed as Exhibit
4.1 to Cliffs' Form 8-K on May 14, 2019 and incorporated herein by reference)
First Supplemental Indenture, dated as of March 13, 2020, among Cleveland-Cliffs Inc., the Additional
Guarantors party thereto and U.S. Bank National Association, as trustee (filed as Exhibit 4.4 to Cliffs'
Form 10-Q for the period ended March 31, 2020 and incorporated herein by reference)
148
4.23
4.24
4.25
4.26
4.27
4.28
4.29
4.30
4.31
4.32
4.33
4.34
4.35
4.36
4.37
4.38
4.39
4.40
4.41
Second Supplemental Indenture, dated as of May 22, 2020, among Cleveland-Cliffs Inc., the Additional
Guarantors party thereto and U.S. Bank National Association, as trustee (filed as Exhibit 4.6 to Cliffs’
Form 10-Q for the period ended June 30, 2020 and incorporated herein by reference)
Third Supplemental Indenture, dated as of December 9, 2020, among Cleveland-Cliffs Inc., the Additional
Guarantors party thereto and U.S. Bank National Association, as trustee (filed herewith)
Fourth Supplemental
Additional Guarantors party thereto and U.S. Bank National Association, as trustee (filed herewith)
Indenture, dated as of March 13, 2020, among Cleveland-Cliffs Inc., the Guarantors party thereto and
U.S. Bank National Association, as trustee and first lien notes collateral agent, including Form of 6.75%
Senior Secured Notes due 2026 (filed as Exhibit 4.1 to Cliffs’ Form 10-Q for the period ended March 31,
2020 and incorporated herein by reference)
Indenture, dated as of December 18, 2020, among Cleveland-Cliffs Inc.,
the
First Supplemental Indenture, dated as of May 22, 2020, among Cleveland-Cliffs Inc., the Additional
Guarantors party thereto and U.S. Bank National Association, as trustee and first lien notes collateral
agent (filed as Exhibit 4.9 to Cliffs’ Form 10-Q for the period ended June 30, 2020 and incorporated
herein by reference)
Second Supplemental Indenture, dated as of June 19, 2020, among Cleveland-Cliffs Inc., the Guarantors
party thereto and U.S. Bank National Association, as trustee and first lien notes collateral agent, including
Form of 6.75% Senior Secured Notes due 2026 (filed as Exhibit 4.10 to Cliffs’ Form 10-Q for the period
ended June 30, 2020 and incorporated herein by reference)
Third Supplemental Indenture, dated as of December 9, 2020, among Cleveland-Cliffs Inc., the Additional
Guarantors party thereto and U.S. Bank National Association, as trustee and first lien notes collateral
agent (filed herewith)
Fourth Supplemental
the
Additional Guarantors party thereto and U.S. Bank National Association, as trustee and first lien notes
collateral agent (filed herewith)
Indenture, dated as of December 18, 2020, among Cleveland-Cliffs Inc.,
Indenture, dated as of March 16, 2020, by and among Cleveland-Cliffs Inc., the Guarantors party thereto
and U.S. Bank National Association, as trustee, including Form of 6.375% Senior Notes due 2025 (filed
as Exhibit 4.5 to Cliffs’ Form 10-Q for the period ended March 31, 2020 and incorporated herein by
reference)
First Supplemental Indenture, dated as of May 22, 2020, among Cleveland-Cliffs Inc., the Additional
Guarantors party thereto and U.S. Bank National Association, as trustee (filed as Exhibit 4.8 to Cliffs’
Form 10-Q for the period ended June 30, 2020 and incorporated herein by reference)
Indenture, dated as of December 9, 2020, among Cleveland-Cliffs Inc.,
Second Supplemental
Additional Guarantors party thereto and U.S. Bank National Association, as trustee (filed herewith)
Third Supplemental
Additional Guarantors party thereto and U.S. Bank National Association, as trustee (filed herewith)
Registration Rights Agreement, dated March 16, 2020, among Cleveland-Cliffs Inc., the Guarantors party
thereto and Credit Suisse Securities (USA) LLC, as dealer manager, with respect to Cleveland-Cliffs
Inc.’s 6.375% Senior Notes due 2025 (filed as Exhibit 4.6 to Cliffs’ Form 10-Q for the period ended March
31, 2020 and incorporated herein by reference)
Indenture, dated as of December 18, 2020, among Cleveland-Cliffs Inc.,
the
the
Indenture, dated as of March 16, 2020, among Cleveland-Cliffs Inc., the Guarantors party thereto and
U.S. Bank National Association, as trustee, including Form of 7.00% Senior Notes due 2027 (filed as
Exhibit 4.7 to Cliffs’ Form 10-Q for the period ended March 31, 2020 and incorporated herein by
reference)
First Supplemental Indenture, dated as of May 22, 2020, among Cleveland-Cliffs Inc., the Additional
Guarantors party thereto and U.S. Bank National Association, as trustee (filed as Exhibit 4.7 to Cliffs’
Form 10-Q for the period ended June 30, 2020 and incorporated herein by reference)
Indenture, dated as of December 9, 2020, among Cleveland-Cliffs Inc.,
Second Supplemental
Additional Guarantors party thereto and U.S. Bank National Association, as trustee (filed herewith)
Third Supplemental
Additional Guarantors party thereto and U.S. Bank National Association, as trustee (filed herewith)
Registration Rights Agreement, dated March 16, 2020, among Cleveland-Cliffs Inc., as issuer,
the
Guarantors party thereto and Credit Suisse Securities (USA) LLC, as dealer manager, with respect to
Cleveland-Cliffs Inc.’s 7.00% Senior Notes due 2027 (filed as Exhibit 4.8 to Cliffs’ Form 10-Q for the
period ended March 31, 2020 and incorporated herein by reference)
Indenture, dated as of December 18, 2020, among Cleveland-Cliffs Inc.,
the
the
Indenture, dated as of April 17, 2020, among Cleveland-Cliffs Inc., the Guarantors party thereto and U.S.
Bank National Association, as trustee and first lien notes collateral agent, including Form of 9.875%
Senior Secured Notes due 2025 (filed as Exhibit 4.1 to Cliffs’ Form 10-Q for the period ended June 30,
2020 and incorporated herein by reference)
149
4.42
4.43
4.44
4.45
4.46
4.47
4.48
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
First Supplemental Indenture, dated as of April 24, 2020, among Cleveland-Cliffs Inc., the Guarantors
party thereto and U.S. Bank National Association, as trustee and first lien notes collateral agent, including
Form of 9.875% Senior Secured Notes due 2025 (filed as Exhibit 4.2 to Cliffs’ Form 10-Q for the period
ended June 30, 2020 and incorporated herein by reference)
Second Supplemental Indenture, dated as of May 22, 2020, among Cleveland-Cliffs Inc., the Additional
Guarantors party thereto and U.S. Bank National Association, as trustee and first lien notes collateral
agent (filed as Exhibit 4.3 to Cliffs’ Form 10-Q for the period ended June 30, 2020 and incorporated
herein by reference)
Third Supplemental Indenture, dated as of December 9, 2020, among Cleveland-Cliffs Inc., the Additional
Guarantors party thereto and U.S. Bank National Association, as trustee and first lien notes collateral
agent (filed herewith)
the
Fourth Supplemental
Additional Guarantors party thereto and U.S. Bank National Association, as trustee and first lien notes
collateral agent (filed herewith)
Indenture, dated as of December 18, 2020, among Cleveland-Cliffs Inc.,
Form of Common Share Certificate (filed as Exhibit 4.1 to Cliffs’ Form 10-Q for the period ended
September 30, 2019 and incorporated herein by reference)
Form of Series B Participating Redeemable Preferred Stock Certificate (included in Exhibit 3.2)
Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934 (filed
herewith)
Material contracts
* Form of Change in Control Severance Agreement (covering newly hired officers) (filed as Exhibit 10.4 to
Cliffs’ Form 8-K/A on September 16, 2014 and incorporated herein by reference)
* Form of 2016 Change in Control Severance Agreement (filed as Exhibit 10.1 to Cliffs’ 10-Q for the
period ended September 30, 2016 and incorporated herein by reference)
* Cleveland-Cliffs Inc. 2012 Non-Qualified Deferred Compensation Plan (effective January 1, 2012) dated
November 8, 2011 (filed as Exhibit 10.1 to Cliffs’ Form 8-K on November 8, 2011 and incorporated herein
by reference)
* Form of Director and Officer Indemnification Agreement between Cleveland-Cliffs Inc. and Directors and
Officers (filed as Exhibit 10.2 to Cliffs’ Form 10-Q for the period ended March 31, 2019 and incorporated
herein by reference)
* Cliffs Natural Resources Inc. Amended and Restated 2014 Nonemployee Directors’ Compensation Plan
(filed as Exhibit 10.1 to Cliffs’ Form 8-K on May 2, 2016 and incorporated herein by reference)
*Form of Restricted Shares Agreement for Nonemployee Directors (filed as Exhibit 10.1 to Cliffs’ Form
10-Q for the period ended June 30, 2018 and incorporated herein by reference)
*Form of Deferred Shares Agreement for Nonemployee Directors (filed as Exhibit 10.2 to Cliffs’ Form 10-
Q for the period ended June 30, 2018 and incorporated herein by reference)
* Trust Agreement No. 1 (Amended and Restated effective June 1, 1997), dated June 12, 1997, by and
between Cleveland-Cliffs Inc and KeyBank National Association, Trustee, with respect to the Cleveland-
Cliffs Inc Supplemental Retirement Benefit Plan, Severance Pay Plan for Key Employees and certain
executive agreements (filed as Exhibit 10.10 to Cliffs’ Form 10-K for the period ended December 31,
2011 and incorporated herein by reference)
* Trust Agreement No. 1 Amendments to Exhibits, effective as of January 1, 2000, by and between
Cleveland-Cliffs Inc and KeyBank National Association, as Trustee (filed as Exhibit 10.11 to Cliffs’ Form
10-K for the period ended December 31, 2011 and incorporated herein by reference)
* First Amendment to Trust Agreement No. 1, effective September 10, 2002, by and between Cleveland-
Cliffs Inc and KeyBank National Association, as Trustee (filed as Exhibit 10.12 to Cliffs’ Form 10-K for the
period ended December 31, 2011 and incorporated herein by reference)
* Second Amendment to Trust Agreement No. 1 between Cliffs Natural Resources Inc. (f/k/a Cleveland-
Cliffs Inc) and KeyBank National Association, Trustee, entered into and effective as of December 31,
2008 (filed as Exhibit 10(y) to Cliffs’ Form 10-K for the period ended December 31, 2008 and
incorporated herein by reference)
* Third Amendment to Trust Agreement No. 1 between Cliffs Natural Resources Inc. (f/k/a Cleveland-
Cliffs Inc) and KeyBank National Association, Trustee, entered into and effective as of July 28, 2014 (filed
as Exhibit 10.15 to Cliffs’ Form 10-K for the period ended December 31, 2014 and incorporated herein by
reference)
* Amended and Restated Trust Agreement No. 2, effective as of October 15, 2002, by and between
Cleveland-Cliffs Inc and KeyBank National Association, Trustee, with respect to Executive Agreements
and Indemnification Agreements with the Company’s Directors and certain Officers, the Company’s
Severance Pay Plan for Key Employees, and the Retention Plan for Salaried Employees (filed as Exhibit
10.14 to Cliffs’ Form 10-K for the period ended December 31, 2011 and incorporated herein by reference)
150
10.14
10.15
10.16
10.17
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
* Second Amendment
to Amended and Restated Trust Agreement No. 2 between Cliffs Natural
Resources Inc. (f/k/a Cleveland-Cliffs Inc) and KeyBank National Association, Trustee, entered into and
effective as of December 31, 2008 (filed as Exhibit 10(aa) to Cliffs’ Form 10-K for the period ended
December 31, 2008 and incorporated herein by reference)
* Third Amendment to Amended and Restated Trust Agreement No. 2 between Cliffs Natural Resources
Inc. (f/k/a Cleveland-Cliffs Inc) and KeyBank National Association, Trustee, entered into and effective as
of July 28, 2014 (filed as Exhibit 10.18 to Cliffs’ Form 10-K for the period ended December 31, 2014 and
incorporated herein by reference)
* Trust Agreement No. 7, dated as of April 9, 1991, by and between Cleveland-Cliffs Inc and KeyBank
National Association, Trustee, with respect to the Cleveland-Cliffs Inc Supplemental Retirement Benefit
Plan (filed as Exhibit 10.23 to Cliffs’ Form 10-K for the period ended December 31, 2011 and
incorporated herein by reference)
* First Amendment to Trust Agreement No. 7, by and between Cleveland-Cliffs Inc and KeyBank National
Association, Trustee, dated as of March 9, 1992 (filed as Exhibit 10.24 to Cliffs’ Form 10-K for the period
ended December 31, 2011 and incorporated herein by reference)
* Second Amendment to Trust Agreement No. 7, dated November 18, 1994, by and between Cleveland-
Cliffs Inc and KeyBank National Association, Trustee (filed as Exhibit 10.25 to Cliffs’ Form 10-K for the
period ended December 31, 2011 and incorporated herein by reference)
* Third Amendment to Trust Agreement No. 7, dated May 23, 1997, by and between Cleveland-Cliffs Inc
and KeyBank National Association, Trustee (filed as Exhibit 10.26 to Cliffs’ Form 10-K for the period
ended December 31, 2011 and incorporated herein by reference)
* Fourth Amendment to Trust Agreement No. 7, dated July 15, 1997, by and between Cleveland-Cliffs Inc
and KeyBank National Association, Trustee (filed as Exhibit 10.27 to Cliffs’ Form 10-K for the period
ended December 31, 2011 and incorporated herein by reference)
* Amendment to Exhibits to Trust Agreement No. 7, effective as of January 1, 2000, by and between
Cleveland-Cliffs Inc and KeyBank National Association, Trustee (filed as Exhibit 10.28 to Cliffs’ Form 10-
K for the period ended December 31, 2011 and incorporated herein by reference)
* Sixth Amendment to Trust Agreement No. 7 between Cliffs Natural Resources Inc. (f/k/a Cleveland-
Cliffs Inc) and KeyBank National Association, Trustee, entered into and effective as of December 31,
2008 (filed as Exhibit 10(oo) to Cliffs’ Form 10-K for the period ended December 31, 2008 and
incorporated herein by reference)
* Seventh Amendment to Trust Agreement No. 7 between Cliffs Natural Resources Inc. (f/k/a Cleveland-
Cliffs Inc) and KeyBank National Association, Trustee, entered into and effective as of July 28, 2014 (filed
as Exhibit 10.34 to Cliffs’ Form 10-K for the period ended December 31, 2014 and incorporated herein by
reference)
* Trust Agreement No. 10, dated as of November 20, 1996, by and between Cleveland-Cliffs Inc and
KeyBank National Association, Trustee, with respect to the Cleveland-Cliffs Inc Nonemployee Directors’
Compensation Plan (filed as Exhibit 10.36 to Cliffs’ Form 10-K for the period ended December 31, 2011
and incorporated herein by reference)
*First Amendment to Trust Agreement No. 10 between Cliffs Natural Resources Inc. (f/k/a Cleveland-
Cliffs Inc) and KeyBank National Association, Trustee, entered into and effective as of December 31,
2008 (filed as Exhibit 10(ww) to Cliffs’ Form 10-K for the period ended February 26, 2009 and
incorporated herein by reference)
* Second Amendment to Trust Agreement No. 10 between Cliffs Natural Resources Inc. (f/k/a Cleveland-
Cliffs Inc) and KeyBank National Association, Trustee, entered into and effective as of July 28, 2014 (filed
as Exhibit 10.45 to Cliffs’ Form 10-K for the period ended December 31, 2014 and incorporated herein by
reference)
* Letter Agreement, by and between Lourenco Goncalves and Cliffs Natural Resources Inc., signed as of
September 11, 2014 (filed as Exhibit 10.1 to Cliffs’ Form 8-K/A on September 16, 2014 and incorporated
herein by reference)
* Cleveland-Cliffs Inc and Subsidiaries Management Performance Incentive Plan Summary, effective
January 1, 2004 (filed as Exhibit 10.47 to Cliffs’ Form 10-K for the period ended December 31, 2011 and
incorporated herein by reference)
* Cliffs Natural Resources Inc. 2017 Executive Management Performance Incentive Plan effective
January 1, 2017 (filed as Exhibit 10.2 to Cliffs' Form 8-K on April 27, 2017 and incorporated herein by
reference)
* Cliffs Natural Resources Inc. Amended and Restated 2012 Incentive Equity Plan (filed as Exhibit 10.1 to
Cliffs’ Form 8-K on August 4, 2014 and incorporated herein by reference)
* Form of Cliffs Natural Resources Inc. Amended and Restated 2012 Incentive Equity Plan Non-Qualified
Stock Option Award Memorandum (3-Year Vesting – January 2015 Grant) and Stock Option Award
Agreement (filed as Exhibit 10.69 to Cliffs’ Form 10-K for the period ended December 31, 2014 and
incorporated herein by reference)
151
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
21
22
23
24
31.1
31.2
32.1
32.2
95
101
* Cliffs Natural Resources Inc. 2015 Equity and Incentive Compensation Plan (filed as Exhibit 10.1 to
Cliffs’ Form 8-K on May 21, 2015 and incorporated herein by reference)
* Cliffs Natural Resources Inc. Amended and Restated 2015 Equity and Incentive Compensation Plan
(filed as Exhibit 10.1 to Cliffs’ Form 8-K on April 27, 2017 and incorporated herein by reference)
* Form of Cleveland-Cliffs Inc. Amended and Restated 2015 Equity and Incentive Compensation Plan
Restricted Stock Unit Award Memorandum and Restricted Stock Unit Award Agreement (filed as Exhibit
10.2 to Cliffs’ Form 10-Q for the period ended March 31, 2018 and incorporated herein by reference)
* Form of Cleveland-Cliffs Inc. Amended and Restated 2015 Equity and Incentive Compensation Plan
Performance Share Award Memorandum and Performance Share Award Agreement (filed as Exhibit 10.3
to Cliffs’ Form 10-Q for the period ended March 31, 2018 and incorporated herein by reference)
* Form of Cleveland-Cliffs Inc. Amended and Restated 2015 Equity and Incentive Compensation Plan
Cash Incentive Award Memorandum (TSR) and Cash Incentive Award Agreement (TSR) (filed as Exhibit
10.4 to Cliffs’ Form 10-Q for the period ended March 31, 2018 and incorporated herein by reference)
* Cliffs Natural Resources Inc. Supplemental Retirement Benefit Plan (as Amended and Restated
effective December 1, 2006) dated December 31, 2008 (filed as Exhibit 10(mmm) to Cliffs’ Form 10-K for
the period ended December 31, 2008 and incorporated herein by reference)
Asset-Based Revolving Credit Agreement, dated as of March 13, 2020, among Cleveland-Cliffs Inc., the
lenders party thereto from time to time and Bank of America, N.A., as administrative agent (filed as
Exhibit 10.1 to Cliffs’ Form 10-Q for the period ended March 31, 2020 and incorporated herein by
reference)
First Amendment to Asset-Based Revolving Credit Agreement, dated as of March 27, 2020, among
Cleveland-Cliffs Inc.,
the lenders party thereto from time to time and Bank of America, N.A., as
administrative agent (filed as Exhibit 10.2 to Cliffs’ Form 10-Q for the period ended March 31, 2020 and
incorporated herein by reference)
Second Amendment to Asset-Based Revolving Credit Agreement, dated as of December 9, 2020, among
Cleveland-Cliffs Inc.,
the lenders party thereto from time to time and Bank of America, N.A., as
administrative agent (filed herewith)
Investor Rights Agreement, dated as of December 9, 2020, by and between Cleveland-Cliffs Inc. and
ArcelorMittal S.A. (filed as Exhibit 10.1 to Cliffs' Form 8-K on December 9, 2020 and incorporated herein
by reference)
Subsidiaries of the Registrant (filed herewith)
Schedule of the obligated group, including the parent and issuer and the subsidiary guarantors that have
guaranteed the obligations under the 4.875% 2024 Senior Secured Notes, the 5.75% 2025 Senior Notes,
the 6.375% 2025 Senior Notes, the 6.75% 2026 Senior Secured Notes, the 5.875% 2027 Senior Notes,
the 7.00% 2027 Senior Notes and the 9.875% 2025 Senior Secured Notes issued by Cleveland-Cliffs Inc.
(filed herewith)
Consent of Independent Registered Public Accounting Firm (filed herewith)
Power of Attorney (filed herewith)
Certification Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002, signed and dated by Lourenco Goncalves as of February 26, 2021 (filed herewith)
Certification Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002, signed and dated by Keith A. Koci as of February 26, 2021 (filed herewith)
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, signed and dated by Lourenco Goncalves, Chairman, President and Chief Executive
Officer of Cleveland-Cliffs Inc., as of February 26, 2021 (filed herewith)
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, signed and dated by Keith A. Koci, Executive Vice President, Chief Financial Officer of
Cleveland-Cliffs Inc., as of February 26, 2021 (filed herewith)
Mine Safety Disclosures (filed herewith)
The following financial information from Cleveland-Cliffs Inc.'s Annual Report on Form 10-K for the year
ended December 31, 2020 formatted in Inline XBRL (Extensible Business Reporting Language) includes:
(i) the Statements of Consolidated Financial Position, (ii) the Statements of Consolidated Operations, (iii)
the Statements of Consolidated Comprehensive Income, (iv) the Statements of Consolidated Cash
Flows, (v) the Statements of Consolidated Changes in Equity, and (vi) Notes to the Consolidated
Financial Statements.
104
The cover page from this Annual Report on Form 10-K, formatted in Inline XBRL.
152
_______________
*
**
Indicates management contract or other compensatory arrangement.
Certain immaterial schedules and exhibits to this exhibit have been omitted pursuant to the provisions
of Regulation S-K, Item 601(a)(5). A copy of any of the omitted schedules and exhibits will be
furnished to the Securities and Exchange Commission upon request.
Item 16.
Form 10-K Summary
None.
153
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
CLEVELAND-CLIFFS INC.
By:
/s/ Kimberly A. Floriani
Name:
Title:
Kimberly A. Floriani
Vice President, Corporate Controller &
Date: February 26, 2021
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures
/s/ C. L. Goncalves
C. L. Goncalves
/s/ K. A. Koci
K. A. Koci
/s/ K. A. Floriani
K. A. Floriani
*
J. T. Baldwin
*
R. P. Fisher, Jr.
*
W. K. Gerber
*
S. M. Green
*
M. A. Harlan
*
R. S. Michael, III
*
J. L. Miller
*
E. M. Rychel
*
G. Stoliar
*
D. C. Taylor
*
A. M. Yocum
Title
Date
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
February 26, 2021
February 26, 2021
Vice President, Corporate Controller
& Chief Accounting Officer
(Principal Accounting Officer)
February 26, 2021
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
* The undersigned, by signing his name hereto, does sign and execute this Annual Report on Form 10-K pursuant to a
Power of Attorney executed on behalf of the above-indicated directors of the registrant and filed herewith as Exhibit 24
on behalf of the registrant.
By:
/s/ K. A. Koci
(K. A. Koci, as Attorney-in-Fact)
154
SIGNIFICANT SUBSIDIARIES
CLEVELAND-CLIFFS INC. AS OF DECEMBER 31, 2020
Exhibit 21
Name
Cleveland-Cliffs Burns Harbor LLC
Cleveland-Cliffs Steel Corporation
Cleveland-Cliffs Steel Holding Corporation
Cleveland-Cliffs Steel LLC
Cliffs Mining Company
Cliffs Minnesota Mining Company
Cliffs TIOP Holding, LLC
Cliffs TIOP, Inc.
Cliffs UTAC Holding LLC
IronUnits LLC
Northshore Mining Company
Cleveland-Cliffs Steel Holdings Inc.
The Cleveland-Cliffs Iron Company
Cliffs' Effective
Ownership
Place of Incorporation
or Formation
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Delaware, USA
Delaware, USA
Delaware, USA
Delaware, USA
Delaware, USA
Delaware, USA
Delaware, USA
Michigan, USA
Delaware, USA
Delaware, USA
Delaware, USA
Ohio, USA
Ohio, USA
The following entities are included in the obligated group, as defined in the Annual Report on Form 10-K of Cleveland
Cliffs Inc. to which this document is being filed as an exhibit, including Cleveland-Cliffs Inc., as the parent and issuer,
and the subsidiary guarantors that have guaranteed the obligations under the 4.875% 2024 Senior Secured Notes,
the 5.75% 2025 Senior Notes, the 6.375% 2025 Senior Notes, the 6.75% 2026 Senior Secured Notes, the 5.875%
2027 Senior Notes, the 7.00% 2027 Senior Notes and the 9.875% 2025 Senior Secured Notes issued by Cleveland-
Cliffs Inc.
EXHIBIT 22
Exact Name of Issuer or Guarantor Subsidiary (1)
Cleveland-Cliffs Inc.
Cleveland-Cliffs Burns Harbor LLC f/k/a ArcelorMittal Burns Harbor LLC
Cleveland-Cliffs Cleveland Works LLC f/k/a ArcelorMittal Cleveland LLC
Cleveland-Cliffs Columbus LLC f/k/a ArcelorMittal Columbus LLC
Cleveland-Cliffs Investments Inc. f/k/a AKS Investments, Inc.
Cleveland-Cliffs Kote Inc. f/k/a ArcelorMittal Kote Inc.
Cleveland-Cliffs Kote L.P. f/k/a I/N Kote L.P.
Cleveland-Cliffs Minorca Mine Inc. f/k/a ArcelorMittal Minorca Mine Inc.
Cleveland-Cliffs Monessen Coke LLC f/k/a ArcelorMittal Monessen LLC
Cleveland-Cliffs Plate LLC f/k/a ArcelorMittal Plate LLC
Cleveland-Cliffs Railways Inc. f/k/a Mittal Steel USA - Railways Inc.
Cleveland-Cliffs Riverdale LLC f/k/a ArcelorMittal Riverdale LLC
Cleveland-Cliffs South Chicago & Indiana Harbor Railway Inc.
f/k/a ArcelorMittal South Chicago & Indiana Harbor Railway Inc.
Cleveland-Cliffs Steel Corporation f/k/a AK Steel Corporation
Cleveland-Cliffs Steel Holding Corporation f/k/a AK Steel Holding
Corporation
Cleveland-Cliffs Steel LLC f/k/a ArcelorMittal USA LLC
Cleveland-Cliffs Steel Management Inc. f/k/a AH Management, Inc.
Cleveland-Cliffs Steel Properties Inc. f/k/a AK Steel Properties, Inc.
Cleveland-Cliffs Steelton LLC f/k/a ArcelorMittal Steelton LLC
Cleveland-Cliffs Steelworks Railway Inc.
f/k/a ArcelorMittal Cleveland Works Railway Inc.
Cleveland-Cliffs Tek Inc. f/k/a ArcelorMittal Tek Inc.
Cleveland-Cliffs Tek Kote Acquisition Corporation
f/k/a Tek Kote Acquisition Corporation
Cleveland-Cliffs Tek L.P. f/k/a I/N Tek L.P.
Cleveland-Cliffs Tubular Components LLC f/k/a AK Tube LLC
Cleveland-Cliffs Weirton LLC f/k/a ArcelorMittal Weirton LLC
Cannon Automotive Solutions - Bowling Green, Inc.
Cleveland-Cliffs Steel Holdings Inc.
Cliffs Mining Company
Cliffs Minnesota Mining Company
Cliffs TIOP Holding, LLC
Cliffs TIOP, Inc.
Cliffs TIOP II, LLC
Cliffs UTAC Holding LLC
Fleetwood Metal Industries, LLC
IronUnits LLC
Lake Superior & Ishpeming Railroad Company
Metallics Sales Company
Mid-Vol Coal Sales, Inc.
Mountain State Carbon, LLC
Northshore Mining Company
Reported as
Issuer or
Guarantor
Subsidiary
Issuer
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(2)
(2)
(2)
(2)
(2)
(2)
(3)
(2)
(2)
(3)
(3)
(3)
(2)
State of
Incorporation
or Organization
IRS Employer
Identification
Number
Ohio
Delaware
Delaware
Delaware
Ohio
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
34-1464672
20-0653414
04-3634649
01-0807137
31-1283531
36-3665216
36-3665288
36-2814042
25-1850170
20-0653500
56-2348283
74-3062732
Delaware
04-3634638
Delaware
31-1267098
Delaware
31-1401455
Delaware
Delaware
Delaware
Delaware
71-0871875
51-0390893
51-0390894
20-0653772
Delaware
04-3634622
Delaware
36-3519946
Ohio
85-4304182
Delaware
Delaware
Delaware
363525438
31-1283531
56-2435202
Delaware
26-0766559
Ohio
Delaware
Delaware
Delaware
Michigan
Delaware
Delaware
Delaware
Delaware
Michigan
Delaware
85-4084783
34-1120353
42-1609117
47-2182060
34-1371049
61-1857848
26-2895214
98-0508950
34-1920747
38-6005761
84-2076079
West Virginia
55-0761501
Delaware
Delaware
31-1267098
84-1116857
Exact Name of Issuer or Guarantor Subsidiary (1)
Precision Partners Holding Company
PPHC Holdings, LLC
Silver Bay Power Company
SNA Carbon, LLC
The Cleveland-Cliffs Iron Company
Tilden Mining Company L.C.
United Taconite LLC
EXHIBIT 22
Reported as
Issuer or
Guarantor
Subsidiary
State of
Incorporation
or Organization
IRS Employer
Identification
Number
(3)
(3)
(2)
(3)
(2)
(2)
(2)
Delaware
Delaware
Delaware
Delaware
Ohio
Michigan
Delaware
22-3639336
31-1283531
84-1126359
31-1267098
34-0677332
34-1804848
42-1609118
(1) The address and phone number of each issuer and guarantor subsidiary is c/o Cleveland-Cliffs Inc., 200 Public Square, Suite
3300, Cleveland, Ohio 44114, (216) 694-5700.
(2) The entity is included as a guarantor subsidiary as of December 31, 2020 and 2019.
(3) The entity is included as a guarantor subsidiary as of December 31, 2020.
POWER OF ATTORNEY
Exhibit 24
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Directors and officers of Cleveland-Cliffs
Inc., an Ohio corporation ("Company"), hereby constitute and appoint C. Lourenco Goncalves, Keith A. Koci, James
D. Graham and Kimberly A. Floriani, and each of them, their true and lawful attorney or attorneys-in-fact, with full
power of substitution and revocation, for them and in their name, place and stead, to sign on their behalf as a
Director or officer of the Company, or both, as the case may be, an Annual Report on Form 10-K pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2020, and to
sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney or
attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they might or
could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Executed as of the 24th day of February, 2021.
/s/ C. L. Goncalves
C. L. Goncalves,
Chairman, President and Chief Executive Officer
/s/ Keith A. Koci
K. A. Koci,
Executive Vice President, Chief Financial Officer
/s/ K. A. Floriani
K. A. Floriani,
Vice President, Corporate Controller & Chief
Accounting Officer
/s/ R. P. Fisher, Jr.
R. P. Fisher, Jr., Director
/s/ S. M. Green
S. M. Green, Director
/s/ R. S. Michael, III
R. S. Michael, III, Director
/s/ E. M. Rychel
E. M. Rychel, Director
/s/ D. C. Taylor
D. C. Taylor, Director
/s/ J. T. Baldwin
J. T. Baldwin, Director
/s/ W. K. Gerber
W. K. Gerber, Director
/s/ M. A. Harlan
M. A. Harlan, Director
/s/ J. L. Miller
J. L. Miller, Director
/s/ G. Stoliar
G. Stoliar, Director
/s/ A. M. Yocum
A. M. Yocum, Director
I, Lourenco Goncalves, certify that:
CERTIFICATION
Exhibit 31.1
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Cleveland-Cliffs Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and
have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected or is reasonably likely to
materially affect the registrant’s internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: February 26, 2021
By:
/s/ Lourenco Goncalves
Lourenco Goncalves
Chairman, President and Chief Executive Officer
I, Keith A. Koci, certify that:
CERTIFICATION
Exhibit 31.2
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Cleveland-Cliffs Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and
have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected or is reasonably likely to
materially affect the registrant’s internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: February 26, 2021
By:
/s/ Keith A. Koci
Keith A. Koci
Executive Vice President, Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Cleveland-Cliffs Inc. (the “Company”) on Form 10-K for the period
ended December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Form
10-K”), I, Lourenco Goncalves, Chairman, President and Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such
officer’s knowledge:
(1)
(2)
The Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
The information contained in the Form 10-K fairly presents, in all material respects, the financial
condition and results of operations of the Company as of the dates and for the periods
expressed in the Form 10-K.
Date:
February 26, 2021
By: /s/ Lourenco Goncalves
Lourenco Goncalves
Chairman, President and Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Cleveland-Cliffs Inc. (the “Company”) on Form 10-K for the period
ended December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Form
10-K”), I, Keith A. Koci, Executive Vice President, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s
knowledge:
(1)
(2)
The Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
The information contained in the Form 10-K fairly presents, in all material respects, the financial
condition and results of operations of the Company as of the dates and for the periods
expressed in the Form 10-K.
Date:
February 26, 2021
By: /s/ Keith A. Koci
Keith A. Koci
Executive Vice President, Chief Financial Officer
Mine Safety Disclosures
Exhibit 95
The operation of our mines located in the United States is subject to regulation by MSHA under the FMSH
Act. MSHA inspects these mines on a regular basis and issues various citations and orders when it believes a
violation has occurred under the FMSH Act. We present information below regarding certain mining safety and
In evaluating this information,
health citations that MSHA has issued with respect to our mining operations.
consideration should be given to factors such as: (i) the number of citations and orders will vary depending on the
size of the mine; (ii) the number of citations issued will vary from inspector to inspector and mine to mine, and (iii)
citations and orders can be contested and appealed and, in that process, are often reduced in severity and amount,
and are sometimes dismissed.
Under the Dodd-Frank Act, each operator of a coal or other mine is required to include certain mine safety
results within its periodic reports filed with the SEC. As required by the reporting requirements included in §1503(a)
of the Dodd-Frank Act, we present the following items regarding certain mining safety and health matters, for the
period presented, for each of our mine locations that are covered under the scope of the Dodd-Frank Act:
(A) The total number of violations of mandatory health or safety standards that could significantly and
substantially contribute to the cause and effect of a coal or other mine safety or health hazard under
section 104 of the FMSH Act (30 U.S.C. 814) for which the operator received a citation from MSHA;
(B) The total number of orders issued under section 104(b) of the FMSH Act (30 U.S.C. 814(b));
(C) The total number of citations and orders for unwarrantable failure of the mine operator to comply with
mandatory health or safety standards under section 104(d) of the FMSH Act (30 U.S.C. 814(d));
(D) The total number of imminent danger orders issued under section 107(a) of the FMSH Act (30 U.S.C.
817(a));
(E) The total dollar value of proposed assessments from MSHA under the FMSH Act (30 U.S.C. 801 et
seq.);
(F) Legal actions pending before the Federal Mine Safety and Health Review Commission involving such
coal or other mine as of the last day of the period;
(G) Legal actions instituted before the Federal Mine Safety and Health Review Commission involving such
coal or other mine during the period; and
(H) Legal actions resolved before the Federal Mine Safety and Health Review Commission involving such
coal or other mine during the period.
During the year ended December 31, 2020, our mine locations did not receive any flagrant violations under
Section 110(b)(2) of the FMSH Act (30 U.S.C. 820(b)(2)) and did not receive any written notices of a pattern of
violations, or the potential to have a pattern of such violations, under section 104(e) of the FMSH Act (30 U.S.C.
814(e)). In addition, there were no mining-related fatalities at any of our mine locations during this same period.
Following is a summary of the information described above for the year ended December 31, 2020:
(A)
(B)
(C)
(D)
(E)
(F)
(G)
(H)
Year Ended December 31, 2020
Mine Name/ MSHA ID No.
Operation
Section
104 S&S
Citations
Section
104(b)
Orders
Section
104(d)
Orders
Tilden / 2000422
Empire / 2001012
Northshore Plant / 2100831
Northshore Mine / 2100209
United Taconite Plant / 2103404
United Taconite Mine / 2103403
Hibbing / 2101600 (8)
Minorca Mine / 2102449 (8)
AK Coal / North Fork / 3610041
Iron Ore
Iron Ore
Iron Ore
Iron Ore
Iron Ore
Iron Ore
Iron Ore
Iron Ore
Coal
Virginia Point No. 1 Surface Mine / 4407172 (8) Coal
Low Gap Surface Mine / 4605741 (8)
Eckman Surface Mine / 4608647 (8)
Redhawk Surface Mine / 4609300 (8)
Dry Branch Surface Mine / 4609395 (8)
Dans Branch Surface Mine / 4609517 (8)
Eckman Loadout / 4603341 (8)
Roadfork Loadout / 4608278 (8)
Eckman Plant / 4609357 (8)
Mine No. 35 / 4608131 (8)
Mine No. 39 / 4609261 (8)
Mine No. 43 / 4609496 (8)
Coal
Coal
Coal
Coal
Coal
Coal
Coal
Coal
Coal
Coal
Coal
24
—
5
—
5
—
4
2
3
—
—
1
—
—
—
—
—
—
—
6
7
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
Total
Dollar
Value of
MSHA
Proposed
Assessm
ents (1)
Legal
Actions
Pending
as of
Last Day
of Period
Section
107(a)
Citations
& Orders
Legal
Actions
Instituted
During
Period
Legal
Actions
Resolved
During
Period
— $594,804
— $
—
— $151,185
— $
2,125
— $ 41,321
—
—
4 (2)
—
1 (3)
— $
5,663
—
— $
— $
—
—
— $
5,443
3 (4)
—
2 (5)
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1 (6)
—
—
1 (7)
5
—
6
2
3
—
—
—
2
—
—
—
—
—
—
—
—
—
—
—
—
6
—
8
2
3
—
—
1
2
—
—
—
—
—
—
—
—
—
—
—
—
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Amounts included under the heading “Total Dollar Value of MSHA Proposed Assessments” are the total dollar amounts for proposed
assessments received from MSHA on or before December 31, 2020.
This number consists of 4 pending legal actions related to appeals of judges' decisions or orders to the Federal Mine Safety and Health
Review Commission referenced in Subpart H of FMSH Act's procedural rules.
This number consists of 1 pending legal action related to contests of proposed penalties referenced in Subpart C of FMSH Act's
procedural rules.
This number consists of 3 pending legal actions related to contests of proposed penalties referenced in Subpart C of FMSH Act's
procedural rules.
This number consists of 2 pending legal actions related to contests of proposed penalties referenced in Subpart C of FMSH Act's
procedural rules.
This number consists of 1 pending legal action related to complaints of discharge, discrimination, or interference referenced in Subpart
E of FMSH Act's procedural rules.
This number consists of 1 pending legal action related to contests of proposed penalties referenced in Subpart C of FMSH Act's
procedural rules.
On December 9, 2020, these locations were acquired by Cleveland-Cliffs Inc. The data herein represents the period of ownership from
December 9, 2020 to December 31, 2020.
EXECUTIVE OFFICERS
Name
Position
Lourenco Goncalves
Chairman, President and Chief Executive Ofcer
Clifford T. Smith
Keith A. Koci
Terry G. Fedor
Traci L. Forrester
James D. Graham
Executive Vice President, Chief Operating Ofcer
Executive Vice President, Chief Financial Ofcer
Executive Vice President, Chief Operating Ofcer, Steel Mills
Executive Vice President, Business Development
Executive Vice President, Chief Legal Ofcer & Secretary
Maurice D. Harapiak
Executive Vice President, Human Resources & Chief Administration Ofcer
Age
63
61
56
56
49
55
59
Service
7
17
2
10
17
14
7
Committees Served
1 – Audit
2 – Compensation and Organization
3 – Governance and Nominating
4 – Strategy and Sustainability
Year in parentheses indicates year he/she became a director.
Janet L. Miller 1, 3 (2019)
Former Chief Legal Ofcer
and Corporate Secretary
University Hospitals
Eric M. Rychel 1, 2 (2016)
Former Executive Vice President,
Chief Financial Ofcer and Treasurer
Aleris Corporation
Gabriel Stoliar 4 (2014)
Managing Partner
Studio Investimentos
Former Executive Vice President
Vale S.A.
Arlene M. Yocum 4 (2020)
Former Executive Vice President
and Managing Executive of Client Service,
PNC Asset Management
DIRECTORS
Lourenco Goncalves 4 (2014)
Chairman, President
and Chief Executive Ofcer
Cleveland-Cliffs Inc.
Douglas C. Taylor 2,4 (2014)
Former Managing Partner
Casablanca Capital LP
John T. Baldwin 1, 2 (2014)
Former Chief Financial Ofcer
Worthington Industries, Inc.
Robert P. Fisher, Jr. 1, 3 (2014)
President and Chief Executive Ofcer
George F. Fisher, Inc.
Former Managing Director
Goldman, Sachs & Co.
William K. Gerber 1 (2020)
Managing Director,
Cabrillo Point Capital LLC
Susan M. Green 3 (2007)
Former Deputy General Counsel
U.S. Congress Ofce of Compliance
M. Ann Harlan 1 (2019)
Former Vice President, General Counsel
and Corporate Secretary
The J.M. Smucker Company
Ralph S. Michael, III 2, 3 (2020)
Chairman, Fifth Third Bank,
Greater Cincinnati Region
THIS PAGE INTENTIONALLY LEFT BLANK
About Cleveland-Cliffs Inc.
Cleveland-Cliffs is the largest flat-rolled steel producer in North America. Founded
in 1847 as a mine operator, Cleveland-Cliffs also is the largest supplier of iron ore
pellets in North America. In 2020, Cleveland-Cliffs acquired two major steelmakers,
AK Steel Corporation and ArcelorMittal USA LLC, vertically integrating its legacy
iron ore business with quality-focused steel production and emphasis on the
automotive end market. Cleveland-Cliffs’ fully integrated portfolio includes custom-
made pellets and Hot Briquetted Iron (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,
Cleveland-Cliffs employs approximately 25,000 people across its mining, steel and
downstream manufacturing operations in the United States and Canada. For more
information, visit www.clevelandcliffs.com.
Investor and Corporate Information
Corporate Office
Annual Meeting
Cleveland-Cliffs Inc.
200 Public Square, Suite 3300
Cleveland, OH 44114
P: 216.694.5700 F: 216.694.5385
clevelandcliffs.com
Transfer Agent and Registrar
Broadridge Corporate Issuer Solutions
P.O. Box 1342
Brentwood, NY 11717
Toll-Free: 1-800-586-1723
Outside the United States:
303-562-9695
In light of the ongoing COVID-19 pandemic and to support the health
and well-being of our employees and shareholders, the 2021 Annual
Meeting of Shareholders of Cleveland-Cliffs Inc. will be held in a
virtual meeting format via live audio webcast on the Internet.
Date: April 28, 2021
Time: 11:30 a.m. EDT
Online at: www.virtualshareholdermeeting.com/CLF2021
Additional Info
Cleveland-Cliffs’ Annual Report
to the SEC (Form 10-K) and proxy statement are available on Cliffs’
website. Copies of these reports and other Company publications
also may be obtained by sending requests to the attention of Investor
Relations at the corporate office, or by telephone at 800.214.0739,
or e-mail: ir@clevelandcliffs.com.
Common Shares
NYSE: CLF
Cleveland-Cliffs Inc.
200 Public Square, Suite 3300 Cleveland, OH 44114-2315
www.clevelandcliffs.com