Cleveland-Cliffs Inc. (NYSE: CLF) today reported
first-quarter results for the period ended March 31, 2020.
On March 13, 2020, Cleveland-Cliffs completed the acquisition of
AK Steel Holding Corporation ("AK Steel"). The results set forth in
this release only consider the operating results of AK Steel for
the period from March 13, 2020 through March 31, 2020.
The acquisition of AK Steel has transformed Cleveland-Cliffs
into a vertically integrated producer of value-added iron ore and
steel products. The Company is now organized according to its
differentiated products in two reportable segments - the historical
Mining and Pelletizing segment and the new Steel and Manufacturing
segment. The Steel and Manufacturing segment includes the assets of
AK Steel and the previously reported Metallics segment.
The Company reported total revenues of $359 million, compared to
the prior year's first-quarter consolidated revenues of $157
million. Cost of goods sold was $356 million compared to $126
million reported in the first quarter of 2019.
The Company recorded a net loss of $49 million, or $0.18 per
diluted share, which included $66 million, or $0.22 per diluted
share, of acquisition costs, severance, and inventory step-up
amortization. This compares to a net loss of $22 million, or $0.08
per diluted share, recorded in the prior-year quarter.
For the first quarter of 2020, the Company reported adjusted
EBITDA1 of $23 million.
(In Millions)
Three Months Ended March
31,
2020
2019
Adjusted EBITDA1
Steel and Manufacturing
$
(11.1
)
$
(0.8
)
Mining and Pelletizing
81.8
47.5
Corporate and Eliminations
(48.0
)
(25.5
)
Total Adjusted EBITDA1
$
22.7
$
21.2
Cliffs' Chairman, President, and CEO Lourenco Goncalves said,
“Despite the challenge of the COVID-19 pandemic affecting lives and
economic activity, we were able to successfully integrate AK Steel
into the Cleveland-Cliffs way of doing business. Over the past two
months, we took action to preserve the long-term health of both our
employees and our Company. Our actions in the early days of the
pandemic included, among other things: enacting strict social
distancing on the job; continuous cleaning of all facilities;
enhanced safety procedures at all operations; closing or idling
facilities, and extending outages at several operations; cutting
capital, operating, and overhead costs; instituting temporary
executive and salaried pay decreases throughout the organization
with disproportionately high contribution from the top of the
organization; temporarily suspending the construction of the HBI
plant; discontinuing the payment of dividends; and raising
additional capital as insurance. As we start the path to return to
normal levels of business in the second half of the year, we are
confident that we have the ample liquidity and all other means to
remain comfortable through whatever uncertainty that remains.”
Steel and Manufacturing
Steel and Manufacturing segment results only include the results
of AK Steel from March 13, 2020 through March 31, 2020. Prior-year
comparable data is not available as the financial results for AK
Steel prior to the Merger date are not included as part of
consolidated financial results.
Three Months Ended March 31,
2020
Volumes - In
Thousands of Net Tons
Flat-rolled steel shipments
199
Operating Results
- In Millions
Revenues
$
217.5
Cost of goods sold
(246.6
)
Selling Price -
Per Net Ton
Average net selling price per net ton of
flat-rolled steel
$
997
Revenues from March 13, 2020 to March 31, 2020 were unfavorably
impacted by the reduction in sales as a result of the COVID-19
pandemic. Additionally, within cost of goods sold, the Company
recorded amortization on the fair value step-up of inventory of $23
million related to the acquisition.
Mining and Pelletizing
Three Months Ended March
31,
2020
2019
Volumes - In
Thousands of Long Tons
Sales volume
2,134
1,550
Production volume
4,832
4,401
Operating Results
- In Millions
Revenues
$
229.4
157.0
Cost of goods sold
(167.3
)
(126.1
)
Per Ton
Information*
Revenues from product sales and
services
$
99.53
$
93.81
Cash cost of goods sold rate2
$
61.67
$
61.94
Depreciation, depletion &
amortization
8.76
11.94
Total cost of goods sold
$
70.43
$
73.88
*Excludes revenues and expenses related to
domestic freight, which are offsetting and have no impact on sales
margin.
Mining and Pelletizing pellet sales volume in the first quarter
of 2020 was 2.1 million long tons, a 38 percent increase primarily
related to increased intercompany sales. Total intercompany sales
were 783 thousand long tons.
Income Tax
The first-quarter income tax benefit of $51 million was driven
by the U.S. statutory rate as well as a benefit on favorable
permanent items, including depletion.
Liquidity
As of May 5, 2020, the Company had total liquidity of
approximately $1.25 billion, consisting of approximately $430
million in cash and $820 million of availability under its ABL
credit facility.
Outlook and Market Commentary
Regarding business outlook, Mr. Goncalves stated, "Our 2020
Adjusted EBITDA performance and capital needs will be dependent
upon the strength and speed of the recovery of our important
end-markets through the balance of the year, most notably the
automotive industry. Although the pandemic effect led to automotive
plant shutdowns over the past six weeks, the timing and pace of
production restarts as well as consumer sales data have both
exceeded our expectations. If the automotive manufacturers continue
to restart production as they have indicated to us and already
started to do, our operations will normalize throughout the balance
of the second quarter, with a fairly strong second half of the
year.”
Mr. Goncalves added, "With our liquidity in great shape and
stay-at-home restrictions easing, we are planning to restart HBI
construction as soon as possible. The pandemic and associated
manufacturing stoppages have created a severe scarcity of scrap in
the marketplace that further increases demand and magnifies the
value of our HBI.”
Mr. Goncalves concluded, “Our decisive actions and low fixed
cost position have enabled us to navigate through the worst parts
of the crisis successfully, and we are well positioned to meet our
customer demand now that business conditions have begun to
improve.”
Conference Call Information
Cleveland-Cliffs Inc. will host a conference call this morning,
May 11, 2020, at 10 a.m. ET. The call will be broadcast live and
archived on Cliffs' website: www.clevelandcliffs.com
About Cleveland-Cliffs Inc.
Founded in 1847, Cleveland-Cliffs is among the largest
vertically integrated producers of differentiated iron ore and
steel in North America. With an emphasis on non-commoditized
products, Cliffs is uniquely positioned to supply both customized
iron ore pellets and sophisticated steel solutions to a
quality-focused customer base, with an industry-leading market
share in the automotive industry. A commitment to environmental
sustainability is core to our business operations and extends to
how we partner with stakeholders across our communities and the
steel value chain. Headquartered in Cleveland, Ohio,
Cleveland-Cliffs employs approximately 12,000 people across mining
and steel manufacturing operations in the United States, Canada and
Mexico. For more information, visit
http://www.clevelandcliffs.com.
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: severe financial hardship,
bankruptcy, temporary or permanent shutdowns or operational
challenges, due to the ongoing 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 reduced demand for our products,
increased difficulty collecting receivables, and customers and/or
suppliers asserting force majeure or other reasons for not
performing their contractual obligations to us; uncertainty and
weaknesses in global economic conditions, including downward
pressure on prices caused by the COVID-19 pandemic, oversupply of
imported products, reduced market demand and risks related to U.S.
government actions with respect to Section 232, the USMCA and/or
other trade agreements, treaties or policies; uncertainties
associated with the highly competitive and highly cyclical steel
industry and reliance on the demand for steel from the automotive
industry; continued volatility of steel and iron ore prices and
other trends, which may impact the price-adjustment calculations
under certain of our sales contracts; our ability to successfully
diversify our product mix and add new customers for our Mining and
Pelletizing segment beyond our traditional blast furnace clientele;
our ability to cost-effectively achieve planned production rates or
levels, including at our HBI production plant once we restart
construction activities, and to resume full operations at certain
facilities that are temporarily idled due to the COVID-19 pandemic;
our ability to successfully identify and consummate any strategic
investments or development projects, including our HBI production
plant; the impact of our steelmaking customers reducing their steel
production due to the COVID-19 pandemic, or increased market share
of steel produced using methods other than those used by our
customers, or increased market share of lighter-weight steel
alternatives, including aluminum; our ability to maintain adequate
liquidity, our level of indebtedness and the availability of
capital could limit cash flow available to fund working capital,
planned capital expenditures, acquisitions, and other general
corporate purposes or ongoing needs of our business; our actual
economic iron ore reserves or reductions in current mineral
estimates, including whether any mineralized material qualifies as
a reserve; the outcome of any contractual disputes with our
customers, joint venture partners or significant energy, material
or service providers or any other litigation or arbitration;
problems or uncertainties with sales volume or mix, productivity,
transportation, environmental liabilities, employee-benefit costs
and other risks of the steel and mining industries; impacts of
existing and increasing governmental regulation and related costs
and liabilities, including failure to receive or maintain required
operating and environmental permits, approvals, modifications or
other authorization of, or from, any governmental or regulatory
entity and costs related to implementing improvements to ensure
compliance with regulatory changes; our ability to maintain
appropriate relations with unions and employees; the ability of our
customers, joint venture partners and third-party service providers
to meet their obligations to us on a timely basis or at all; events
or circumstances that could impair or adversely impact the
viability of a production plant or mine and the carrying value of
associated assets, as well as any resulting impairment charges;
uncertainties associated with natural disasters, weather
conditions, unanticipated geological conditions, supply or price of
energy, equipment failures, infectious disease outbreaks and other
unexpected events; adverse changes in interest rates, foreign
currency rates and tax laws; the potential existence of significant
deficiencies or material weakness in our internal control over
financial reporting; our ability to realize the anticipated
benefits of the Merger and to successfully integrate the businesses
of AK Steel into our existing businesses, including uncertainties
associated with maintaining relationships with customers, vendors
and employees, as well as realizing the estimated future synergies;
additional debt we assumed or issued in connection with the Merger,
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; changes in
the cost of raw materials and supplies; supply chain disruptions or
poor quality of raw materials or supplies, including scrap, coal,
coke and alloys; disruptions in, or failures of, our information
technology systems, including those related to cybersecurity; and
unanticipated costs associated with healthcare, pension and OPEB
obligations.
For additional factors affecting the business of Cliffs, refer
to Part II – Item 1A. Risk Factors of our Annual Report on Form
10-K for the year ended December 31, 2019. You are urged to
carefully consider these risk factors.
FINANCIAL TABLES FOLLOW
CLEVELAND-CLIFFS INC. AND
SUBSIDIARIES
STATEMENTS OF UNAUDITED
CONDENSED CONSOLIDATED OPERATIONS
(In Millions, Except Per Share
Amounts)
Three Months Ended March
31,
2020
2019
Revenues
$
324.5
$
157.0
Realization of deferred revenue
34.6
—
Operating costs:
Cost of goods sold
(356.0
)
(126.1
)
Selling, general and administrative
expenses
(26.1
)
(27.3
)
Acquisition-related costs
(42.5
)
—
Miscellaneous – net
(13.3
)
(4.4
)
Total operating costs
(437.9
)
(157.8
)
Operating loss
(78.8
)
(0.8
)
Other income (expense):
Interest expense, net
(31.0
)
(25.1
)
Other non-operating income
9.2
0.1
Total other expense
(21.8
)
(25.0
)
Loss from continuing operations before
income taxes
(100.6
)
(25.8
)
Income tax benefit
51.4
3.7
Loss from continuing operations
(49.2
)
(22.1
)
Income from discontinued operations, net
of tax
0.6
—
Net loss
(48.6
)
(22.1
)
Income attributable to noncontrolling
interest
(3.5
)
—
Net loss attributable to Cliffs
shareholders
$
(52.1
)
$
(22.1
)
Loss per common share attributable to
Cliffs shareholders - basic
Continuing operations
$
(0.18
)
$
(0.08
)
Discontinued operations
—
—
$
(0.18
)
$
(0.08
)
Loss per common share attributable to
Cliffs shareholders - diluted
Continuing operations
$
(0.18
)
$
(0.08
)
Discontinued operations
—
—
$
(0.18
)
$
(0.08
)
Average number of shares (in
thousands)
Basic
297,515
289,525
Diluted
297,515
289,525
CLEVELAND-CLIFFS INC. AND
SUBSIDIARIES
STATEMENTS OF UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL POSITION
(In Millions)
March 31, 2020
December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
$
186.9
$
352.6
Accounts receivable, net
560.8
94.0
Inventories
2,148.8
317.4
Income tax receivable, current
61.7
58.6
Other current assets
107.4
75.3
Total current assets
3,065.6
897.9
Non-current assets:
Property, plant and equipment, net
4,549.8
1,929.0
Goodwill
143.3
2.1
Intangible assets, net
210.0
48.1
Income tax receivable, non-current
4.1
62.7
Deferred income taxes
486.4
459.5
Right-of-use asset, operating lease
238.0
11.7
Other non-current assets
215.1
92.8
TOTAL ASSETS
$
8,912.3
$
3,503.8
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
$
825.3
$
193.2
Accrued liabilities
299.8
126.3
Other current liabilities
245.7
89.9
Total current liabilities
1,370.8
409.4
Non-current liabilities:
Long-term debt
4,357.1
2,113.8
Operating lease liability, non-current
201.2
10.5
Intangible liability, net
137.9
—
Pension and OPEB liabilities
1,171.6
311.5
Asset retirement obligations
179.2
163.2
Other non-current liabilities
263.5
137.5
TOTAL LIABILITIES
7,681.3
3,145.9
EQUITY
Total Cliffs shareholders' equity
903.2
357.9
Noncontrolling interest
327.8
—
TOTAL EQUITY
1,231.0
357.9
TOTAL LIABILITIES AND EQUITY
$
8,912.3
$
3,503.8
CLEVELAND-CLIFFS INC. AND
SUBSIDIARIES
STATEMENTS OF UNAUDITED
CONDENSED CONSOLIDATED CASH FLOWS
(In Millions)
Three Months Ended March
31,
2020
2019
OPERATING ACTIVITIES
Net loss
$
(48.6
)
$
(22.1
)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation, depletion and
amortization
34.4
19.9
Deferred income taxes
(47.5
)
(4.1
)
Loss (gain) on derivatives
32.0
(5.7
)
Other
(31.6
)
13.9
Changes in operating assets and
liabilities, net of business combination:
Receivables and other assets
254.1
204.0
Inventories
(244.1
)
(228.9
)
Payables, accrued expenses and other
liabilities
(109.2
)
(88.2
)
Net cash used by operating activities
(160.5
)
(111.2
)
INVESTING ACTIVITIES
Purchase of property, plant and
equipment
(138.1
)
(134.1
)
Acquisition of AK Steel, net of cash
acquired
(869.3
)
—
Other investing activities
(0.1
)
8.5
Net cash used by investing activities
(1,007.5
)
(125.6
)
FINANCING ACTIVITIES
Repurchase of common shares
—
(124.3
)
Dividends paid
(16.9
)
(14.8
)
Proceeds from issuance of debt
716.2
—
Debt issuance costs
(44.4
)
—
Repurchase of debt
(429.9
)
(10.3
)
Borrowings under credit facilities
800.0
—
Other financing activities
(19.9
)
(8.4
)
Net cash provided (used) by financing
activities
1,005.1
(157.8
)
Decrease in cash and cash equivalents,
including cash classified within other current assets related to
discontinued operations
(162.9
)
(394.6
)
Less: increase (decrease) in cash and cash
equivalents from discontinued operations, classified within other
current assets
2.8
(1.6
)
Net decrease in cash and cash
equivalents
(165.7
)
(393.0
)
Cash and cash equivalents at beginning of
period
352.6
823.2
Cash and cash equivalents at end of
period
$
186.9
$
430.2
1 CLEVELAND-CLIFFS INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATION - EBITDA AND ADJUSTED EBITDA
In addition to the consolidated financial statements presented
in accordance with U.S. GAAP, the Company has presented EBITDA and
adjusted EBITDA on a consolidated basis. EBITDA and Adjusted EBITDA
are non-GAAP financial measures that management uses in evaluating
operating performance. The presentation of these measures is not
intended to be considered in isolation from, as a substitute for,
or as superior to, the financial information prepared and presented
in accordance with U.S. GAAP. The presentation of these measures
may be different from non-GAAP financial measures used by other
companies. A reconciliation of these consolidated measures to their
most directly comparable GAAP measures is provided in the table
below.
(In Millions)
Three Months Ended March
31,
2020
2019
Net loss
$
(48.6
)
$
(22.1
)
Less:
Interest expense, net
(31.1
)
(25.1
)
Income tax benefit
51.4
3.7
Depreciation, depletion and
amortization
(34.4
)
(19.9
)
Total EBITDA
$
(34.5
)
$
19.2
Less:
EBITDA of noncontrolling interests (A)
$
4.6
$
—
Severance costs
(19.3
)
(1.7
)
Acquisition costs
(23.2
)
—
Amortization of inventory step-up
(23.2
)
—
Gain (loss) on extinguishment of debt
3.2
(0.3
)
Impact of discontinued operations
0.7
—
Total Adjusted EBITDA
$
22.7
$
21.2
(A) Includes $3.5 million of income attributable to
noncontrolling interests and $1.1 million of depreciation,
depletion and amortization for the three months ended March 31,
2020.
2 CLEVELAND-CLIFFS INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATION EXPLANATIONS
The Company presents Mining and Pelletizing cash cost of goods
sold rate per long ton, which is a non-GAAP financial measure that
management uses in evaluating operating performance. Cliffs
believes the presentation of non-GAAP cash cost of goods sold is
useful to investors because it excludes depreciation, depletion and
amortization, which are non-cash, and freight, which has no impact
on sales margin, thus providing a more accurate view of the cash
outflows related to the sale of iron ore. The presentation of this
measure is not intended to be considered in isolation from, as a
substitute for, or as superior to, the financial information
prepared and presented in accordance with U.S. GAAP. The
presentation of this measure may be different from non-GAAP
financial measures used by other companies. Below is a
reconciliation in dollars of this non-GAAP financial measure to the
Mining and Pelletizing segment cost of goods sold.
(In Millions)
Mining and Pelletizing
Three Months Ended March
31,
2020
2019
Cost of goods sold
$
167.3
$
126.1
Less:
Freight
17.0
11.6
Depreciation, depletion &
amortization
18.7
18.5
Cash cost of goods sold
$
131.6
$
96.0
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200511005254/en/
MEDIA CONTACT: Patricia Persico Director, Corporate
Communications (216) 694-5316
INVESTOR CONTACT: Paul Finan Director, Investor Relations
(216) 694-6544
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