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UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-Q
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☒
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QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
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For the quarterly
period ended March 31, 2020
OR
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☐
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TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
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For the transition
period from
to
.
Commission File
Number: 1-8944
CLEVELAND-CLIFFS
INC.
(Exact Name of
Registrant as Specified in Its Charter)
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Ohio
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34-1464672
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(State or
Other Jurisdiction of
Incorporation
or Organization)
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(I.R.S.
Employer
Identification
No.)
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200 Public
Square,
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Cleveland,
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Ohio
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44114-2315
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(Address of
Principal Executive Offices)
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(Zip
Code)
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Registrant’s
Telephone Number, Including Area Code: (216) 694-5700
Securities
registered pursuant to Section 12(b) of the Act:
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Title of each
class
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Trading Symbol(s)
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Name of each exchange on which
registered
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Common shares, par value
$0.125 per share
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CLF
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New York Stock
Exchange
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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.
Yes ☒
No ☐
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).
Yes ☒
No ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, 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.
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Large accelerated
filer
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☒
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Accelerated filer
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☐
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Non-accelerated
filer
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☐
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Smaller reporting
company
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☐
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Emerging growth
company
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☐
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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 is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ☐
No ☒
The number of
shares outstanding of the registrant’s common shares, par value
$0.125 per share, was 398,609,923
as of
May 8,
2020.
TABLE OF
CONTENTS
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Page Number
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DEFINITIONS
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PART I -
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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Statements of Unaudited
Condensed Consolidated Financial Position as of March 31, 2020 and
December 31, 2019
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Statements of Unaudited
Condensed Consolidated Operations for the Three Months Ended March
31, 2020 and 2019
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Statements of Unaudited
Condensed Consolidated Comprehensive Loss for the Three Months
Ended March 31, 2020 and 2019
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Statements of Unaudited
Condensed Consolidated Cash Flows for the Three Months Ended March
31, 2020 and 2019
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Statements of Unaudited
Condensed Consolidated Changes in Equity for the Three Months Ended
March 31, 2020 and 2019
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Notes to Unaudited Condensed
Consolidated Financial Statements
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Item 2.
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Management's Discussion and
Analysis of Financial Condition and Results of
Operations
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Item 3.
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Quantitative and Qualitative
Disclosures About Market Risk
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Item 4.
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Controls and
Procedures
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PART II -
OTHER INFORMATION
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Item 1.
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Legal Proceedings
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Item 1A.
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Risk Factors
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Item 2.
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Unregistered Sales of Equity
Securities and Use of Proceeds
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Item 4.
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Mine Safety
Disclosures
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Item 5.
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Other Information
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Item 6.
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Exhibits
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Signatures
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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, unless stated
otherwise or the context indicates otherwise.
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Abbreviation or
acronym
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Term
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A&R 2015 Equity
Plan
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Cliffs Natural Resources Inc.
Amended and Restated 2015 Equity and Incentive Compensation
Plan
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ABL Facility
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Asset-Based Revolving Credit
Agreement, by and among Bank of America, N.A., as Agent, the
Lenders that are parties thereto, as the Lenders, and
Cleveland-Cliffs Inc., as Parent and a Borrower, dated as of March
13, 2020, as amended
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Adjusted EBITDA
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EBITDA excluding certain items
such as EBITDA of noncontrolling interests, impacts of discontinued
operations, extinguishment of debt, severance, acquisition costs,
amortization of inventory step-up and intersegment corporate
allocations of selling, general and administrative
costs
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AK Coal
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AK Coal Resources, Inc., an
indirect, wholly owned subsidiary of AK Steel, and related coal
mining operations
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AK Steel
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AK Steel Holding Corporation and
its consolidated subsidiaries, including AK Steel Corporation, its
direct, wholly owned subsidiary, collectively, unless stated
otherwise or the context indicates otherwise
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AK Tube
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AK Tube LLC, an indirect, wholly
owned subsidiary of AK Steel
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AMT
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Alternative Minimum
Tax
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AOCI
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Accumulated Other Comprehensive
Income
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ArcelorMittal USA
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ArcelorMittal USA LLC (including
many of its United States affiliates, subsidiaries and
representatives. References to ArcelorMittal USA comprise all such
relationships unless a specific ArcelorMittal USA entity is
referenced)
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ASC
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Accounting Standards
Codification
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Atlantic Basin pellet
premium
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Platts Atlantic Basin Blast
Furnace 65% Fe pellet premium
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Board
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The Board of Directors of
Cleveland-Cliffs Inc.
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CARES Act
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Coronavirus Aid, Relief, and
Economic Security Act
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CECL
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Current Expected Credit
Losses
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CERCLA
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Comprehensive Environmental
Response, Compensation and Liability Act
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Compensation
Committee
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Compensation and Organization
Committee of the Board
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COVID-19
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A novel strain of coronavirus
that the World Health Organization declared a global pandemic in
March 2020
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Dodd-Frank Act
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Dodd-Frank Wall Street Reform
and Consumer Protection Act
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DR-grade
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Direct
Reduction-grade
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DRI
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Direct Reduced Iron
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EAF
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Electric Arc
Furnace
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EBITDA
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Earnings before interest, taxes,
depreciation and amortization
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Empire
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Empire Iron Mining
Partnership
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EPA
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U.S. Environmental Protection
Agency
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ERISA
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Employee Retirement Income
Security Act of 1974, as amended
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ERM
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|
Enterprise Risk
Management
|
Exchange Act
|
|
Securities Exchange Act of 1934,
as amended
|
Fe
|
|
Iron
|
Former ABL Facility
|
|
Amended and Restated Syndicated
Facility Agreement by and among Bank of America, N.A., as
Administrative Agent, the Lenders that are parties thereto, as the
Lenders, Cleveland-Cliffs Inc., as Parent and a Borrower, and the
Subsidiaries of Parent party thereto, as Borrowers, dated as of
March 30, 2015, as amended and restated as of February 28, 2018,
and as further amended
|
GAAP
|
|
Accounting principles generally
accepted in the United States
|
HBI
|
|
Hot briquetted iron
|
Hibbing
|
|
Hibbing Taconite Company, an
unincorporated joint venture
|
Hot-rolled coil steel
price
|
|
Estimated average annual daily
market price for hot-rolled coil steel
|
IRBs
|
|
Industrial Revenue
Bonds
|
LIBOR
|
|
London Interbank Offered
Rate
|
LIFO
|
|
Last-in, first-out
|
Long ton
|
|
2,240 pounds
|
Merger
|
|
The merger of Merger Sub with
and into AK Steel, with AK Steel surviving the merger as a wholly
owned subsidiary of Cliffs, subject to the terms and conditions set
forth in the Merger Agreement, effective as of March 13,
2020
|
Merger Agreement
|
|
Agreement and Plan of Merger,
dated as of December 2, 2019, among Cliffs, AK Steel and Merger
Sub
|
Merger Sub
|
|
Pepper Merger Sub Inc., a
direct, wholly owned subsidiary of Cliffs prior to the
Merger
|
Metric ton
|
|
2,205 pounds
|
MMBtu
|
|
Million British Thermal
Units
|
MSHA
|
|
U.S. Mine Safety and Health
Administration
|
Net ton
|
|
2,000 pounds
|
Northshore
|
|
Northshore Mining
Company
|
OPEB
|
|
Other postretirement
benefits
|
Platts 62% Price
|
|
Platts IODEX 62% Fe Fines cost
and freight North China
|
PPI
|
|
Producer Price
Indices
|
Precision Partners
|
|
PPHC Holdings, LLC, an indirect,
wholly owned subsidiary of AK Steel
|
RCRA
|
|
Resource Conservation and
Recovery Act
|
SEC
|
|
U.S. Securities and Exchange
Commission
|
|
|
|
|
Abbreviation or
acronym
|
|
Term
|
Section 232
|
|
Section 232 of the Trade
Expansion Act of 1962, as amended
|
Securities Act
|
|
Securities Act of 1933, as
amended
|
SunCoke Middletown
|
|
Middletown Coke Company, LLC, a
subsidiary of SunCoke Energy, Inc.
|
Tilden
|
|
Tilden Mining Company
L.C.
|
Topic 805
|
|
ASC Topic 805, Business
Combinations
|
Topic 815
|
|
ASC Topic 815, Derivatives and
Hedging
|
TSR
|
|
Total shareholder
return
|
United Taconite
|
|
United Taconite LLC
|
U.S.
|
|
United States of
America
|
U.S. Steel
|
|
Ontario Hibbing Company, a
subsidiary of United States Steel Corporation and a participant in
Hibbing
|
USMCA
|
|
United States-Mexico-Canada
Agreement
|
USW
|
|
United Steelworkers
|
VIE
|
|
Variable Interest
Entity
|
PART
I
|
|
|
Item
1.
|
Financial Statements
|
Statements of Unaudited Condensed Consolidated Financial
Position
Cleveland-Cliffs
Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
(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
|
|
Commitments and contingencies
(See Note 20)
|
|
|
|
Equity:
|
|
|
|
Common shares - par value
$0.125 per share
|
|
|
|
Authorized - 600,000,000 shares
(2019 - 600,000,000 shares);
|
|
|
|
Issued - 428,645,866 shares
(2019 - 301,886,794 shares);
|
|
|
|
Outstanding - 398,587,083
shares (2019 - 270,084,005 shares)
|
53.6
|
|
|
37.7
|
|
Capital in excess of par value
of shares
|
4,450.2
|
|
|
3,872.1
|
|
Retained deficit
|
(2,918.5
|
)
|
|
(2,842.4
|
)
|
Cost of 30,058,783 common
shares in treasury (2019 - 31,802,789 shares)
|
(365.0
|
)
|
|
(390.7
|
)
|
Accumulated other comprehensive
loss
|
(317.1
|
)
|
|
(318.8
|
)
|
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
|
|
The
accompanying notes are an integral part of these
unaudited condensed consolidated financial
statements.
Statements of Unaudited Condensed Consolidated
Operations
Cleveland-Cliffs
Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
(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
|
|
The
accompanying notes are an integral part of these
unaudited
condensed consolidated financial statements.
Statements of Unaudited Condensed Consolidated Comprehensive
Loss
Cleveland-Cliffs
Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
Three Months
Ended
March 31,
|
|
2020
|
|
2019
|
Net loss
|
$
|
(48.6
|
)
|
|
$
|
(22.1
|
)
|
Other comprehensive income
(loss):
|
|
|
|
Changes in pension and OPEB,
net of tax
|
5.6
|
|
|
5.7
|
|
Changes in
foreign currency translation
|
(0.9
|
)
|
|
—
|
|
Changes in
derivative financial instruments, net of tax
|
(3.0
|
)
|
|
2.7
|
|
Total other
comprehensive income
|
1.7
|
|
|
8.4
|
|
Comprehensive
loss
|
(46.9
|
)
|
|
(13.7
|
)
|
Comprehensive
income attributable to noncontrolling interests
|
(3.5
|
)
|
|
—
|
|
Comprehensive
loss attributable to Cliffs shareholders
|
$
|
(50.4
|
)
|
|
$
|
(13.7
|
)
|
The
accompanying notes are an integral part of these
unaudited condensed consolidated financial
statements.
Statements of Unaudited Condensed Consolidated Cash
Flows
Cleveland-Cliffs
Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
(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
|
|
The
accompanying notes are an integral part of these
unaudited condensed consolidated financial
statements.
Statements of
Unaudited Condensed Consolidated Changes in Equity
Cleveland-Cliffs
Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
Number
of
Common
Shares Outstanding
|
|
Par Value of
Common
Shares Issued
|
|
Capital in
Excess of
Par Value
of Shares
|
|
Retained
Deficit
|
|
Common
Shares
in
Treasury
|
|
AOCI
(Loss)
|
|
Non-controlling
Interests
|
|
Total
|
December 31,
2019
|
270.1
|
|
|
$
|
37.7
|
|
|
$
|
3,872.1
|
|
|
$
|
(2,842.4
|
)
|
|
$
|
(390.7
|
)
|
|
$
|
(318.8
|
)
|
|
$
|
—
|
|
|
$
|
357.9
|
|
Comprehensive
income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
(52.1
|
)
|
|
—
|
|
|
1.7
|
|
|
3.5
|
|
|
(46.9
|
)
|
Stock and other
incentive plans
|
1.7
|
|
|
—
|
|
|
(23.6
|
)
|
|
—
|
|
|
25.7
|
|
|
—
|
|
|
—
|
|
|
2.1
|
|
Acquisition of
AK Steel
|
126.8
|
|
|
15.9
|
|
|
601.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
329.8
|
|
|
947.4
|
|
Common stock
dividends ($0.06 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(24.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(24.0
|
)
|
Net
distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5.5
|
)
|
|
(5.5
|
)
|
March 31,
2020
|
398.6
|
|
|
$
|
53.6
|
|
|
$
|
4,450.2
|
|
|
$
|
(2,918.5
|
)
|
|
$
|
(365.0
|
)
|
|
$
|
(317.1
|
)
|
|
$
|
327.8
|
|
|
$
|
1,231.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
Number of
Common
Shares Outstanding
|
|
Par Value of
Common
Shares Issued
|
|
Capital in
Excess of
Par Value
of Shares
|
|
Retained
Deficit
|
|
Common
Shares
in
Treasury
|
|
AOCI
(Loss)
|
|
Total
|
December 31,
2018
|
292.6
|
|
|
$
|
37.7
|
|
|
$
|
3,916.7
|
|
|
$
|
(3,060.2
|
)
|
|
$
|
(186.1
|
)
|
|
$
|
(283.9
|
)
|
|
$
|
424.2
|
|
Comprehensive income
(loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
(22.1
|
)
|
|
—
|
|
|
8.4
|
|
|
(13.7
|
)
|
Stock and other incentive
plans
|
1.7
|
|
|
—
|
|
|
(56.5
|
)
|
|
—
|
|
|
46.5
|
|
|
—
|
|
|
(10.0
|
)
|
Common stock
repurchases
|
(11.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(124.3
|
)
|
|
—
|
|
|
(124.3
|
)
|
Common stock dividends ($0.05
per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(14.5
|
)
|
|
—
|
|
|
—
|
|
|
(14.5
|
)
|
March 31, 2019
|
282.8
|
|
|
$
|
37.7
|
|
|
$
|
3,860.2
|
|
|
$
|
(3,096.8
|
)
|
|
$
|
(263.9
|
)
|
|
$
|
(275.5
|
)
|
|
$
|
261.7
|
|
The
accompanying notes are an integral part of these
unaudited condensed consolidated financial
statements.
Cleveland-Cliffs
Inc. and Subsidiaries
Notes to Unaudited
Condensed Consolidated Financial Statements
NOTE 1 - BASIS
OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business,
Consolidation and Presentation
The
accompanying unaudited condensed
consolidated financial statements have been prepared in
accordance with SEC rules and regulations and, in the opinion of
management, include all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the financial position,
results of operations, comprehensive income (loss), cash flows and
changes in equity for the periods presented. The preparation of
financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. 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. The results of operations for
the three
months ended March 31, 2020
are not necessarily
indicative of results to be expected for the year ending
December 31,
2020 or any
other future period. Due to the acquisition of AK Steel, certain
balances have become material and are no longer being condensed in
our Statements of Unaudited
Condensed Consolidated Financial Position, such as balances for
Right-of-use
asset, operating lease and Operating
lease liability, non-current. As a result, certain prior
period amounts have been reclassified to conform with the current
year presentation. These unaudited condensed
consolidated financial statements should be read in conjunction
with the financial statements and notes included in our Annual
Report on Form 10-K for the year ended December 31,
2019.
Acquisition of AK Steel
On March 13, 2020,
we consummated the Merger, pursuant to which, upon the terms and
subject to the conditions set forth in the Merger Agreement, Merger
Sub was merged with and into AK Steel, with AK Steel surviving the
Merger as a wholly owned subsidiary of Cliffs. Refer to
NOTE 3 -
ACQUISITION OF AK STEEL for further
information.
AK Steel is a
leading North American producer of flat-rolled carbon, stainless
and electrical steel products, primarily for the automotive,
infrastructure and manufacturing markets. The acquisition of AK
Steel has transformed us into a vertically integrated producer of
value-added iron ore and steel products.
COVID-19
In response to the
COVID-19 pandemic, we have made various operational changes to
adjust to the demand for our products. Although steel and iron ore
are considered “essential” by the states in which we operate,
certain of our facilities, including Dearborn Works, all Precision
Partners facilities and approximately 65% of AK Tube production,
have been temporarily idled until market conditions improve. We
have also temporarily shut down construction activities at the HBI
production plant. On April 13, 2020, we announced the temporarily
idling of two of our iron ore mining operations, Northshore in
Minnesota and Tilden in Michigan, and we expect them to restart in
July 2020 and August 2020, respectively. Mansfield Works is idled
for an unknown, extended period of time, and AK Coal has been
indefinitely idled and held for sale. We are also moving forward
with the permanent idle of the Dearborn Works hot strip mill,
anneal and temper operations. Finally, the Hibbing mine, of which
we are a minority participant, has been idled by the joint
venture.
Basis of Consolidation
The unaudited
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 two
variable interest entities for which we are the primary
beneficiary. All intercompany transactions and balances are
eliminated upon consolidation.
Reportable Segments
The acquisition of
AK Steel has transformed us into a vertically integrated producer
of value-added iron ore and steel products and we are organized
according to our differentiated products in two reportable segments
- the new Steel and Manufacturing segment and the Mining and
Pelletizing segment. Our new Steel and Manufacturing
segment includes
the assets acquired through the acquisition of AK Steel and our
previously reported Metallics segment, and our Mining and Pelletizing
segment includes
our three active operating mines and our indefinitely idled
mine.
Significant
Accounting Policies
A detailed
description of our significant accounting policies can be found in
the audited financial statements for the year ended
December 31,
2019 included in our Annual Report
on Form 10-K filed with the SEC. Due to the completion of our
acquisition of AK Steel, there have been several changes in our
significant accounting policies from those disclosed therein. The
significant accounting policies requiring updates have been
included within the disclosures below.
Revenue Recognition
Steel and
Manufacturing
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. We have contracts with a significant portion of our
customers. These contracts usually define the mechanism for
determining the sales price, which is normally fixed upon transfer
of control, but the contracts do not impose a specific quantity on
either party. Quantities to be delivered to the customer are
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. For sales with shipping terms that transfer control
at the destination point, we consider our performance obligation is
complete and recognize revenue when the customer receives the
goods. For sales with shipping terms that transfer control at the
shipping point with us bearing responsibility for freight costs to
the destination, we determine that we fulfilled a single
performance obligation and recognize revenue when we ship the
goods.
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.
Mining and
Pelletizing
We sell a single
product, iron ore pellets, in the North American market. Revenue is
recognized generally when iron ore is delivered to our customers.
Revenue is measured at the point that control transfers and
represents the amount of consideration we expect to receive in
exchange for transferring goods. We offer standard payment terms to
our customers, generally requiring settlement within 30
days.
We enter into
supply contracts of varying lengths to provide customers iron ore
pellets to use in their blast furnaces. Blast furnaces must run
continuously with a constant feed of iron ore in order to be most
efficient. As a result, we ship iron ore in large quantities for
storage and use by customers at a later date. Customers do not
simultaneously receive and consume the benefits of the iron ore.
Based on our assessment of the factors that indicate the pattern of
satisfaction, we transfer control of the iron ore at a point in
time upon shipment or delivery of the product. The customer is able
to direct the use of, and obtain substantially all of the benefits
from, the product at the time the product is
delivered.
Most of our
customer supply agreements specify a provisional price, which is
used for initial billing and cash collection. Revenue is calculated
using the expected revenue rate at the point when control
transfers. The final settlement includes market inputs for a
specified period of time, which may vary by customer, but typically
include one or more of the following: Platts 62% Price, Atlantic
Basin pellet premium and Platts international indexed freight
rates. Changes in the expected revenue rate from the date control
transfers through final settlement of contract terms is recorded in
accordance with Topic 815. Refer to NOTE 14 - DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES for further information on how
our estimated and final revenue rates are determined.
A supply agreement
with a customer provides for supplemental revenue or refunds based
on the hot-rolled coil steel price in the year the iron ore is
consumed in the customer’s blast furnaces. As control transfers
prior to consumption, the supplemental revenue is recorded in
accordance with Topic 815. Refer to NOTE 14 - DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES for further information on
supplemental revenue or refunds.
Included
within Revenues
related to Topic
815 is a derivative loss of $26.8
million and a derivative gain of
$5.5
million for the three months ended
March 31,
2020 and 2019, respectively.
Allowance for Doubtful Accounts
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. We expect credit losses
associated with major auto companies to be lower than other
customer pools.
Deferred Revenue
The table below
summarizes our deferred revenue balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
Deferred
Revenue (Current)
|
|
Deferred
Revenue (Long-Term)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Opening balance as of January
1
|
$
|
22.1
|
|
|
$
|
21.0
|
|
|
$
|
25.7
|
|
|
$
|
38.5
|
|
Decrease
|
(21.8
|
)
|
|
(2.9
|
)
|
|
(25.7
|
)
|
|
—
|
|
Closing balance as of March
31
|
$
|
0.3
|
|
|
$
|
18.1
|
|
|
$
|
—
|
|
|
$
|
38.5
|
|
One of our iron ore
pellet sales agreements required supplemental payments to be paid
by a customer during the period from 2009 through 2013. Installment
amounts received under this arrangement in excess of sales were
classified as deferred revenue in the Statements of
Consolidated Financial Position upon receipt of payment and
the revenue was recognized over the life of the supply agreement,
which had extended until 2022, in equal annual installments. As a
result of the termination of the AK Steel iron ore pellet sales
agreement, we realized $34.6
million of deferred revenue, which was
recognized within Realization
of deferred revenue in the Statements of Unaudited
Condensed Consolidated Operations, during the
three months
ended March 31,
2020.
We have certain
other sales agreements that require customers to pay in advance.
Payments received on these agreements prior to revenue being
recognized is recorded as deferred revenue in Other current
liabilities.
Inventories
Steel and
Manufacturing
Inventories are
stated at the lower of cost or net realizable value. The Steel and
Manufacturing segment determines cost using average cost, excluding
depreciation and amortization.
Mining and
Pelletizing
Inventories are
stated at the lower of cost or market. The Mining and Pelletizing
segment determines cost using the LIFO method.
Property, Plant and Equipment
Our properties are
stated at the lower of cost less accumulated depreciation or fair
value. Depreciation of plant and equipment is computed principally
by the straight-line method based on estimated useful lives.
Depreciation continues to be recognized when operations are idled
temporarily. Depreciation and depletion is recorded over the
following estimated useful lives:
|
|
|
|
|
|
Asset
Class
|
|
Basis
|
|
Life
|
Land, land improvements and
mineral rights
|
|
|
|
|
Land and mineral
rights
|
|
Units of
production
|
|
Life of mine
|
Land improvements
|
|
Straight line
|
|
20 to 45 years
|
Buildings
|
|
Straight line
|
|
40 to 45 years
|
Mining and Pelletizing
equipment
|
|
Straight line/Double declining
balance
|
|
3 to 20 years
|
Steel and Manufacturing
equipment
|
|
Straight line/Double declining
balance
|
|
3 to 20 years
|
Refer to
NOTE 5 - 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 1st (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
|
|
Basis
|
|
Useful
Life
|
Intangible
assets, net
|
|
|
|
|
Customer
relationships
|
|
Straight line
|
|
18
years
|
Developed
technology
|
|
Straight line
|
|
17
years
|
Trade names and
trademarks
|
|
Straight line
|
|
10
years
|
Mining permits
|
|
Straight line
|
|
Life of mine
|
Intangible
liability, net
|
|
|
|
|
Above-market supply
contract
|
|
Straight line
|
|
13
years
|
We monitor
conditions that may affect the carrying value of our long-lived
tangible and intangible assets when events and circumstances
indicate that the carrying value of the asset groups may not be
recoverable. In order to determine if assets have been impaired,
assets are grouped and tested at the lowest level for which
identifiable, independent cash flows are available ("asset group").
An impairment loss exists when the carrying value of the asset
group is greater than its fair value. 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.
Refer to
NOTE 6 - 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. In addition, we have
agreements with both lease and non-lease components for which we
have elected the practical expedient, for each underlying class of
asset, to not separate the components.
Refer to
NOTE 8 -
LEASES for
further information.
Investments in Affiliates
We have investments
in several businesses accounted for using the equity method of
accounting. We review an investment for impairment when
circumstances indicate that a loss in value below its carrying
amount is other than temporary. Investees and equity ownership
percentages are presented below:
|
|
|
|
|
|
Investee
|
|
Segment
Reported Within
|
|
Equity
Ownership Percentage
|
Combined Metals of Chicago,
LLC
|
|
Steel and
Manufacturing
|
|
40.0%
|
Hibbing Taconite
Company
|
|
Mining and
Pelletizing
|
|
23.0%
|
Spartan Steel Coating,
LLC
|
|
Steel and
Manufacturing
|
|
48.0%
|
Recent
Accounting Pronouncements
Issued and
Adopted
On March 2, 2020,
the SEC issued a final rule that amended the disclosure
requirements related to certain registered securities under SEC
Regulation S-X, Rule 3-10, which required separate financial
statements for subsidiary issuers and guarantors of registered debt
securities unless certain exceptions are met. The final rule
replaces the previous requirement under Rule 3-10 to provide
condensed consolidating financial information in the registrant’s
financial statements with a requirement to provide alternative
financial disclosures (which include summarized financial
information of the parent and any issuers and guarantors, as well
as other qualitative disclosures) in either the registrant’s
Management's
Discussion and Analysis of Financial Condition and Results of
Operations or its financial statements, in
addition to other simplifications. The final rule is effective for
filings on or after January 4, 2021, and early adoption is
permitted. We have 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 I - Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations of this Quarterly Report on
Form 10-Q and Exhibit 22.1, filed herewith.
NOTE 2 -
SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION
Revenues
The following table
represents our consolidated Revenues
(excluding
intercompany revenues) by market:
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
Three Months
Ended
March 31,
|
|
2020
|
|
2019
|
Steel and
Manufacturing:
|
|
|
|
Automotive
|
$
|
120.2
|
|
|
$
|
—
|
|
Infrastructure and
manufacturing
|
44.0
|
|
|
—
|
|
Distributors and
converters
|
53.3
|
|
|
—
|
|
Total Steel and
Manufacturing
|
217.5
|
|
|
—
|
|
Mining and
Pelletizing:
|
|
|
|
Steel
producers1
|
141.6
|
|
|
157.0
|
|
Total revenues
|
$
|
359.1
|
|
|
$
|
157.0
|
|
1
Includes
Realization of
deferred revenue of $34.6
million for the three months ended March
31, 2020.
The following table
represents our consolidated Revenues
(excluding
intercompany revenues) by product line:
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
Three Months
Ended
March 31,
|
|
2020
|
|
2019
|
Steel and
Manufacturing:
|
|
|
|
Carbon steel
|
$
|
138.6
|
|
|
$
|
—
|
|
Stainless and electrical
steel
|
59.4
|
|
|
—
|
|
Tubular products, components
and other
|
19.5
|
|
|
—
|
|
Total Steel and
Manufacturing
|
217.5
|
|
|
—
|
|
Mining and
Pelletizing:
|
|
|
|
Iron ore1
|
131.3
|
|
|
145.4
|
|
Freight
|
10.3
|
|
|
11.6
|
|
Total Mining and
Pelletizing
|
141.6
|
|
|
157.0
|
|
Total revenues
|
$
|
359.1
|
|
|
$
|
157.0
|
|
1
Includes
Realization of
deferred revenue of $34.6
million for the three months ended March
31, 2020.
We sell
domestically to customers located primarily in the Midwestern,
Southern and Eastern United States and to foreign customers,
primarily in Canada, Mexico and Western Europe. Net revenues to
customers located outside the United States were
$46.7
million and $43.0
million for the three months ended
March 31,
2020 and 2019, respectively.
Allowance for Credit Losses
The following is a
roll forward of our allowance for credit losses associated
with Accounts
receivable, net:
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
March 31,
2020
|
|
March 31,
2019
|
Allowance for credit losses at
beginning of period
|
$
|
—
|
|
|
$
|
—
|
|
Increase in
allowance
|
1.2
|
|
|
—
|
|
Allowance for credit losses at
end of period
|
$
|
1.2
|
|
|
$
|
—
|
|
Inventories
The following table
presents the detail of our Inventories
in the
Statements of
Unaudited Condensed Consolidated Financial
Position:
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
March 31,
2020
|
|
December 31,
2019
|
Product
inventories
|
|
|
|
Finished and semi-finished
goods
|
$
|
1,358.9
|
|
|
$
|
114.1
|
|
Work-in-process
|
88.0
|
|
|
68.7
|
|
Raw materials
|
343.0
|
|
|
9.4
|
|
Total product
inventories
|
1,789.9
|
|
|
192.2
|
|
Manufacturing supplies and
critical spares
|
358.9
|
|
|
125.2
|
|
Inventories
|
$
|
2,148.8
|
|
|
$
|
317.4
|
|
Accrued Liabilities
The following table
presents the detail of our Accrued
liabilities in the Statements of Unaudited
Condensed Consolidated Financial Position:
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
March 31,
2020
|
|
December 31,
2019
|
Accrued employment
costs
|
$
|
158.3
|
|
|
$
|
61.7
|
|
Accrued interest
|
47.1
|
|
|
29.0
|
|
Accrued dividends
|
24.9
|
|
|
17.8
|
|
Other
|
69.5
|
|
|
17.8
|
|
Accrued
liabilities
|
$
|
299.8
|
|
|
$
|
126.3
|
|
Cash Flow Information
A reconciliation of
capital additions to cash paid for capital expenditures is as
follows:
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
Three Months
Ended
March 31,
|
|
2020
|
|
2019
|
Capital additions
|
$
|
157.7
|
|
|
$
|
129.3
|
|
Less:
|
|
|
|
Non-cash accruals
|
(10.3
|
)
|
|
(11.5
|
)
|
Right-of-use assets - finance
leases
|
29.9
|
|
|
15.1
|
|
Grants
|
—
|
|
|
(8.4
|
)
|
Cash paid for capital
expenditures including deposits
|
$
|
138.1
|
|
|
$
|
134.1
|
|
Cash payments
(receipts) for income taxes and interest are as
follows:
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
Three Months
Ended
March 31,
|
|
2020
|
|
2019
|
Taxes paid on
income
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Income tax refunds
|
(60.4
|
)
|
|
—
|
|
Interest paid on debt
obligations net of capitalized interest1
|
29.7
|
|
|
39.2
|
|
1
Capitalized interest
was $9.7 million
and
$4.0
million for the three months ended March
31, 2020 and 2019, respectively.
Non-Cash
Investing and Financing Activities
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
Three Months
Ended
March 31,
|
|
2020
|
|
2019
|
Fair value of common shares
issued for consideration for business combination
|
$
|
617.6
|
|
|
$
|
—
|
|
Fair value of equity awards
assumed from AK Steel acquisition
|
4.3
|
|
|
—
|
|
Dividends declared
|
24.0
|
|
|
14.5
|
|
On February 18,
2020, our Board declared a quarterly cash dividend on our common
shares of $0.06
per share. The cash
dividend of $23.9
million was paid on April 15, 2020 to
shareholders of record as of the close of business on April 3,
2020.
NOTE 3 -
ACQUISITION OF AK STEEL
Transaction Overview
On March 13, 2020,
pursuant to the Merger Agreement, we completed the acquisition of
AK Steel, in which we were the acquirer. As a result of the Merger,
each share of AK Steel common stock issued and outstanding
immediately prior to the effective time of the 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.
The acquisition
combined Cliffs, North America’s largest producer of iron ore
pellets, with AK Steel, a leading producer of innovative
flat-rolled carbon, stainless and electrical steel products, to
create a vertically integrated producer of value-added iron ore and
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. Together,
Cliffs and AK Steel have a presence across the entire manufacturing
process, from mining to pelletizing to the development and
production of finished high value steel products,
including
Next Generation
Advanced High Strength Steels for automotive and other markets. The
combination is expected to generate cost synergies, primarily from
consolidating corporate functions, reducing duplicative overhead
costs, and procurement and energy cost savings, as well as
operational and supply chain efficiencies. The combined company is
well positioned to provide high-value iron ore and steel solutions
to customers primarily across North America.
Total net revenues
for AK Steel for the most recent pre-acquisition year ended
December 31,
2019 were $6,359.4
million. Following the acquisition,
the operating results of AK Steel were included in our
unaudited condensed
consolidated financial statements and are reported as part of our
Steel and Manufacturing segment. For the period subsequent to the
acquisition (March 13, 2020 through March 31,
2020), AK
Steel's Revenues
were
$217.5
million and Net loss
attributable to Cliffs shareholders was $55.1
million, which includes
$23.2
million and $17.6
million related to amortization of the
fair value inventory step-up and severance costs,
respectively.
Additionally, we
incurred acquisition costs of $23.2
million for the three months
ended March 31,
2020, which
were recorded in Acquisition-related
costs on
the Statements of
Unaudited Condensed Consolidated Operations.
Refer to
NOTE 7 - DEBT AND
CREDIT FACILITIES for information regarding debt
transactions executed in connection with the Merger.
The Merger was
accounted for under the acquisition method of accounting for
business combinations. The acquisition date fair value of the
consideration transferred totaled $1.5
billion. The following tables
summarize the consideration paid for AK Steel and the estimated
fair values of the assets acquired and liabilities assumed at the
acquisition date.
The fair value of
the total purchase consideration was determined as
follows:
|
|
|
|
|
|
(In Millions,
Except Per Share Amounts)
|
Fair value of Cliffs common
shares issued for AK Steel outstanding common stock
|
$
|
617.6
|
|
Fair value of replacement
equity awards
|
4.3
|
|
Fair value of AK Steel
debt
|
913.6
|
|
Total transaction
consideration
|
$
|
1,535.5
|
|
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
Merger is calculated as follows:
|
|
|
|
|
|
(In Millions,
Except Per Share Amounts)
|
Number of shares of AK Steel
common stock issued and outstanding
|
316.9
|
|
Exchange ratio
|
0.400
|
|
Shares of Cliffs common shares
issued to AK Steel stockholders
|
126.8
|
|
Price per share of Cliffs
common shares
|
$
|
4.87
|
|
Fair value of Cliffs common
shares issued for AK Steel outstanding common stock
|
$
|
617.6
|
|
The fair value of
AK Steel's debt included in the consideration is calculated as
follows:
|
|
|
|
|
|
(In
Millions)
|
Credit Facility
|
$
|
590.0
|
|
7.50% Senior Secured Notes due
July 2023
|
323.6
|
|
Fair value of debt included in
consideration
|
$
|
913.6
|
|
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. During the measurement period, we will
continue to obtain information to assist in finalizing the fair
value of net 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 acquisition, most notably,
inventories, including manufacturing supplies and critical spares,
personal and real property, leases, deferred taxes, investments,
asset retirement obligations, OPEB liabilities and intangible
assets/liabilities, and the final allocation will be made when
completed, including the result of any identified goodwill.
Accordingly, the provisional measurements noted below are
preliminary and subject to modification in the future.
The preliminary
purchase price allocation to assets acquired and liabilities
assumed in the Merger was:
|
|
|
|
|
|
(In
Millions)
|
Cash and cash
equivalents
|
$
|
37.7
|
|
Accounts
receivable
|
666.0
|
|
Inventories
|
1,562.8
|
|
Other current
assets
|
67.5
|
|
Property, plant and
equipment
|
2,184.4
|
|
Intangible assets
|
163.0
|
|
Right-of-use asset, operating
lease
|
225.9
|
|
Other non-current
assets
|
85.9
|
|
Accounts payable
|
(636.3
|
)
|
Accrued
liabilities
|
(222.5
|
)
|
Other current
liabilities
|
(181.8
|
)
|
Long-term debt
|
(1,179.4
|
)
|
Deferred income
taxes
|
(19.7
|
)
|
Operating lease liability,
non-current
|
(188.1
|
)
|
Intangible
liability
|
(140.0
|
)
|
Pension and OPEB
liabilities
|
(873.0
|
)
|
Asset retirement
obligations
|
(13.9
|
)
|
Other non-current
liabilities
|
(144.2
|
)
|
Net identifiable assets
acquired
|
$
|
1,394.3
|
|
Goodwill
|
141.2
|
|
Total net assets
acquired
|
$
|
1,535.5
|
|
The goodwill
resulting from the acquisition of AK Steel was assigned to
Precision Partners, our downstream tooling and stamping operations,
and AK Tube, our tubing operations, that are reporting units
included in the Steel and Manufacturing segment. Goodwill is
calculated as the excess of the purchase price over the net
identifiable assets recognized and primarily represents the growth
opportunities in lightweighting solutions to automotive customers,
as well as any synergistic benefits to be realized from the
acquisition of AK Steel. None of the goodwill is expected be
deductible for income tax purposes.
The preliminary
purchase price allocated to identifiable intangible assets and
liabilities acquired was:
|
|
|
|
|
|
|
|
(In
Millions)
|
|
Weighted
Average Life (In Years)
|
Intangible assets:
|
|
|
|
Customer
relationships
|
$
|
91.0
|
|
|
18
|
Developed
technology
|
61.0
|
|
|
17
|
Trade names and
trademarks
|
11.0
|
|
|
10
|
Total identifiable intangible
assets
|
$
|
163.0
|
|
|
17
|
Intangible
liability:
|
|
|
|
Above-market supply
contract
|
$
|
(140.0
|
)
|
|
13
|
The above-market
supply contract relates to a long-term coke supply agreement with
SunCoke Middletown, a consolidated variable interest entity. Refer
to NOTE 18 -
VARIABLE INTEREST ENTITIES for further
information.
Pro Forma Results
The following table
provides unaudited pro forma financial information, prepared in
accordance with Topic 805, for the three months ended
March 31,
2020 and 2019, as if AK Steel had been
acquired as of January 1, 2019:
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
Three Months
Ended March 31,
|
|
2020
|
|
2019
|
Revenues
|
$
|
1,526.4
|
|
|
$
|
1,787.3
|
|
Net loss attributable to Cliffs
shareholders
|
$
|
(17.4
|
)
|
|
$
|
(79.7
|
)
|
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 acquisition occurred
on January 1, 2019. Significant pro forma adjustments include
the following:
|
|
1.
|
The elimination of
intercompany revenues between Cliffs and AK Steel of
$67.8
million and $67.4
million for the three months ended
March 31, 2020 and 2019, respectively.
|
|
|
2.
|
The 2020 pro forma
net income was adjusted to exclude $23.2
million of non-recurring inventory
acquisition accounting adjustments incurred during the three months
ended March 31, 2020. The 2019 pro forma net income was adjusted to
include $84.8
million of non-recurring inventory
acquisition accounting adjustments.
|
|
|
3.
|
The elimination of
nonrecurring transaction costs incurred by Cliffs and AK Steel in
connection with the Merger of $26.6
million for the three months ended
March 31, 2020.
|
|
|
4.
|
Total other pro
forma adjustments included income of $13.1
million and $4.2
million, for the three months ended
March 31, 2020 and 2019, respectively, primarily due to reduced
interest and amortization expense, offset partially by additional
depreciation expense.
|
|
|
5.
|
The income tax
impact of pro forma transaction adjustments that affect
Net loss
attributable to Cliffs shareholders at a statutory rate of
24.3%
resulted in an
income tax expense of $11.6
million and an income tax benefit
of $18.3
million, for the three months ended
March 31, 2020 and 2019, respectively.
|
The unaudited pro
forma financial information does not reflect the potential
realization of revenue synergies or cost savings, nor does it
reflect other costs relating to the integration of the two
companies. This unaudited pro forma financial information should
not be considered indicative of the results that would have
actually occurred if the acquisition had been consummated on
January 1, 2019, nor are they indicative of future
results.
NOTE 4 -
SEGMENT REPORTING
Our Company is a
vertically integrated producer of value-added iron ore and steel
products. Our operations are organized and managed in
two
operating segments
according to our upstream and downstream operations. Our
Mining and
Pelletizing segment is a major supplier of
iron ore pellets to the North American steel industry from our
mines and pellet plants located in Michigan and Minnesota.
Our Steel
and Manufacturing segment is a leading producer
of flat-rolled carbon, stainless and electrical steel products,
primarily for the automotive, infrastructure and manufacturing, and
distributors and converters markets. Our Steel and Manufacturing
segment includes
subsidiaries 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. Although we planned for our HBI production
plant in Toledo, Ohio, now included as part of our
Steel and
Manufacturing segment, to be ready for
production before the end of the second quarter of 2020,
construction is temporarily on hold due to the economic impact of
the COVID-19 pandemic. All intersegment transactions were
eliminated in consolidation.
We evaluate
performance on a segment basis, as well as a consolidated basis,
based on Adjusted EBITDA, which is a non-GAAP measure. This measure
is used by management, investors, lenders and other external users
of our financial statements to assess our operating performance and
to compare operating performance to other companies in the steel
and iron ore industries. In addition, management believes Adjusted
EBITDA is a useful measure to assess the earnings power of the
business without the impact of capital structure and can be used to
assess our ability to service debt and fund future capital
expenditures in the business.
Our results by
segment are as follows:
|
|
|
|
|
|
|
|
|
|
(In Millions,
Except Sales Tons)
|
|
Three Months
Ended
March 31,
|
|
2020
|
|
2019
|
Sales volume (in
thousands):
|
|
|
|
Steel and Manufacturing
consolidated sales (net tons)
|
199
|
|
|
—
|
|
|
|
|
|
Mining and Pelletizing sales
(long tons)
|
2,134
|
|
|
1,550
|
|
Less: Intercompany sales (long
tons)
|
(783
|
)
|
|
—
|
|
Mining and Pelletizing
consolidated sales (long tons)
|
1,351
|
|
|
1,550
|
|
|
|
|
|
Revenues:
|
|
|
|
Steel and Manufacturing
consolidated revenues
|
$
|
217.5
|
|
|
$
|
—
|
|
|
|
|
|
Mining and
Pelletizing1
|
229.4
|
|
|
157.0
|
|
Less: Intercompany
revenues
|
(87.8
|
)
|
|
—
|
|
Mining and Pelletizing
consolidated revenues
|
141.6
|
|
|
157.0
|
|
|
|
|
|
Revenues
|
$
|
359.1
|
|
|
$
|
157.0
|
|
|
|
|
|
Adjusted EBITDA:
|
|
|
|
Steel and
Manufacturing
|
$
|
(11.1
|
)
|
|
$
|
(0.8
|
)
|
Mining and
Pelletizing
|
81.8
|
|
|
47.5
|
|
Corporate and
eliminations
|
(48.0
|
)
|
|
(25.5
|
)
|
Total Adjusted
EBITDA
|
$
|
22.7
|
|
|
$
|
21.2
|
|
1
Includes
Realization of
deferred revenue of $34.6
million for the three months ended March
31, 2020.
The following table
provides a reconciliation of our consolidated Net
loss to
Total Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
(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
interests1
|
$
|
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
|
|
1
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.
The following
summarizes our assets by segment:
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
March 31,
2020
|
|
December 31,
2019
|
Assets:
|
|
|
|
Steel and
Manufacturing
|
$
|
6,442.4
|
|
|
$
|
913.6
|
|
Mining and
Pelletizing
|
1,752.4
|
|
|
1,643.1
|
|
Total segment
assets
|
8,194.8
|
|
|
2,556.7
|
|
Corporate and Other (including
discontinued operations)
|
717.5
|
|
|
947.1
|
|
Total assets
|
$
|
8,912.3
|
|
|
$
|
3,503.8
|
|
The following table
summarizes our capital additions by segment:
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
Three Months
Ended
March 31,
|
|
2020
|
|
2019
|
Capital
additions1:
|
|
|
|
Steel and
Manufacturing
|
$
|
122.9
|
|
|
$
|
82.4
|
|
Mining and
Pelletizing
|
34.2
|
|
|
46.8
|
|
Corporate and Other (including
discontinued operations)
|
0.6
|
|
|
0.1
|
|
Total capital
additions
|
$
|
157.7
|
|
|
$
|
129.3
|
|
1
Refer to NOTE 2 -
SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION for additional
information.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
The following table
indicates the carrying value of each of the major classes of our
depreciable assets:
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
March 31,
2020
|
|
December 31,
2019
|
Land, land improvements and
mineral rights
|
$
|
652.7
|
|
|
$
|
582.2
|
|
Buildings
|
452.5
|
|
|
157.8
|
|
Mining and Pelletizing
equipment
|
1,431.8
|
|
|
1,413.6
|
|
Steel and Manufacturing
equipment
|
2,140.9
|
|
|
42.0
|
|
Other
|
123.0
|
|
|
101.5
|
|
Construction-in-progress
|
1,011.3
|
|
|
730.3
|
|
Total property, plant and
equipment1
|
5,812.2
|
|
|
3,027.4
|
|
Allowance for depreciation and
depletion
|
(1,262.4
|
)
|
|
(1,098.4
|
)
|
Property, plant and equipment,
net
|
$
|
4,549.8
|
|
|
$
|
1,929.0
|
|
1
Includes
right-of-use assets related to finance leases of
$84.2
million and $49.0
million as of March 31, 2020 and
December 31, 2019, respectively.
We recorded
capitalized interest into property, plant and equipment of
$9.7
million and $4.0
million during the three months ended
March 31,
2020 and March 31,
2019,
respectively.
We recorded
depreciation and depletion expense of $35.4
million and $19.6
million for the three months ended
March 31,
2020 and March 31,
2019,
respectively.
NOTE 6 -
GOODWILL AND INTANGIBLE ASSETS AND LIABILITIES
Goodwill
The increase in the
balance of Goodwill as of March 31, 2020
is due to the
preliminary assignment of $141.2
million to Goodwill
in the first
quarter of 2020 based on the preliminary purchase price allocation
for the acquisition of AK Steel. The carrying amount of goodwill
related to our Mining and Pelletizing segment was
$2.1
million as of both March 31, 2020
and
December 31,
2019.
Intangible
Assets and Liabilities
The following is a
summary of our intangible assets and liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
|
Classification
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Net
Amount
|
As of March
31, 2020
|
|
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
Customer
relationships
|
Intangible
assets, net
|
|
$
|
91.0
|
|
|
$
|
(0.5
|
)
|
|
$
|
90.5
|
|
Developed
technology
|
Intangible
assets, net
|
|
61.0
|
|
|
(0.3
|
)
|
|
60.7
|
|
Trade names and
trademarks
|
Intangible
assets, net
|
|
11.0
|
|
|
(0.1
|
)
|
|
10.9
|
|
Mining permits
|
Intangible
assets, net
|
|
72.2
|
|
|
(24.3
|
)
|
|
47.9
|
|
Total intangible
assets
|
|
|
$
|
235.2
|
|
|
$
|
(25.2
|
)
|
|
$
|
210.0
|
|
Intangible
liability:
|
|
|
|
|
|
|
|
Above-market supply
contract
|
Intangible
liability, net
|
|
$
|
(140.0
|
)
|
|
$
|
2.1
|
|
|
$
|
(137.9
|
)
|
|
|
|
|
|
|
|
|
As of December
31, 2019
|
|
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
Mining permits
|
Intangible
assets, net
|
|
$
|
72.2
|
|
|
$
|
(24.1
|
)
|
|
$
|
48.1
|
|
Amortization
expense related to intangible assets was $1.1
million and $0.2
million for the three months ended
March 31,
2020 and 2019, respectively, and is
recognized in Selling,
general and administrative expenses in the Statements of Unaudited
Condensed Consolidated Operations.
Estimated future
amortization expense related to intangible assets at
March 31,
2020 is as
follows:
|
|
|
|
|
|
|
|
(In
Millions)
|
Years ending December
31,
|
|
|
2020 (remaining period of the
year)
|
|
$
|
8.1
|
|
2021
|
|
10.8
|
|
2022
|
|
10.8
|
|
2023
|
|
10.8
|
|
2024
|
|
10.8
|
|
2025
|
|
10.8
|
|
Income from
amortization of the intangible liability was $2.1
million for the three months ended
March 31,
2020 and is
recognized in Cost of goods
sold in
the Statements of Unaudited
Condensed Consolidated Operations.
Estimated future
amortization income related to the intangible liability at
March 31,
2020 is as
follows:
|
|
|
|
|
|
|
|
(In
Millions)
|
Years ending December
31,
|
|
|
2020 (remaining period of the
year)
|
|
$
|
7.0
|
|
2021
|
|
10.9
|
|
2022
|
|
10.9
|
|
2023
|
|
10.9
|
|
2024
|
|
10.9
|
|
2025
|
|
10.9
|
|
NOTE 7 - DEBT
AND CREDIT FACILITIES
The following
represents a summary of our long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
Millions)
|
March 31,
2020
|
Debt
Instrument
|
|
Issuer1
|
|
Annual
Effective
Interest
Rate
|
|
Total
Principal Amount
|
|
Debt Issuance
Costs
|
|
Unamortized
Premiums (Discounts)
|
|
Total
Debt
|
Senior Secured
Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
4.875% 2024 Senior Secured
Notes
|
|
Cliffs
|
|
5.00%
|
|
$
|
400.0
|
|
|
$
|
(4.3
|
)
|
|
$
|
(1.7
|
)
|
|
$
|
394.0
|
|
6.75% 2026 Senior Secured
Notes
|
|
Cliffs
|
|
7.00%
|
|
725.0
|
|
|
(20.3
|
)
|
|
(8.8
|
)
|
|
695.9
|
|
Senior Unsecured
Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
7.625% 2021 AK Senior
Notes
|
|
AK Steel
|
|
7.33%
|
|
33.5
|
|
|
—
|
|
|
0.1
|
|
|
33.6
|
|
7.50% 2023 AK Senior
Notes
|
|
AK Steel
|
|
6.17%
|
|
12.8
|
|
|
—
|
|
|
0.5
|
|
|
13.3
|
|
6.375% 2025 Senior
Notes
|
|
Cliffs
|
|
8.11%
|
|
231.8
|
|
|
(0.9
|
)
|
|
(17.9
|
)
|
|
213.0
|
|
6.375% 2025 AK Senior
Notes
|
|
AK Steel
|
|
8.11%
|
|
38.4
|
|
|
—
|
|
|
(3.0
|
)
|
|
35.4
|
|
1.50% 2025 Convertible Senior
Notes
|
|
Cliffs
|
|
6.26%
|
|
316.3
|
|
|
(4.4
|
)
|
|
(62.2
|
)
|
|
249.7
|
|
5.75% 2025 Senior
Notes
|
|
Cliffs
|
|
6.01%
|
|
473.3
|
|
|
(3.5
|
)
|
|
(5.3
|
)
|
|
464.5
|
|
7.00% 2027 Senior
Notes
|
|
Cliffs
|
|
9.24%
|
|
335.4
|
|
|
(1.3
|
)
|
|
(38.4
|
)
|
|
295.7
|
|
7.00% 2027 AK Senior
Notes
|
|
AK Steel
|
|
9.24%
|
|
56.3
|
|
|
—
|
|
|
(6.4
|
)
|
|
49.9
|
|
5.875% 2027 Senior
Notes
|
|
Cliffs
|
|
6.49%
|
|
750.0
|
|
|
(6.2
|
)
|
|
(26.6
|
)
|
|
717.2
|
|
6.25% 2040 Senior
Notes
|
|
Cliffs
|
|
6.34%
|
|
298.4
|
|
|
(2.1
|
)
|
|
(3.2
|
)
|
|
293.1
|
|
IRBs due 2020 to
2028
|
|
AK Steel
|
|
Various
|
|
99.3
|
|
|
—
|
|
|
2.5
|
|
|
101.8
|
|
ABL Facility
|
|
Cliffs2
|
|
2.33%
|
|
2,000.0
|
|
|
—
|
|
|
—
|
|
|
800.0
|
|
Total long-term
debt
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,357.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Unless
otherwise noted, references in this column to "Cliffs" are to
Cleveland-Cliffs Inc., and references to "AK Steel" are to AK Steel
Corporation.
|
2
Refers to
Cleveland-Cliffs Inc. as borrower under our ABL
Facility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
December 31,
2019
|
Debt Instrument
|
|
Issuer1
|
|
Annual Effective
Interest Rate
|
|
Total Principal
Amount
|
|
Debt Issuance
Costs
|
|
Unamortized
Discounts
|
|
Total Debt
|
Senior Secured
Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
4.875% 2024 Senior
Notes
|
|
Cliffs
|
|
5.00%
|
|
$
|
400.0
|
|
|
$
|
(4.6
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
393.6
|
|
Senior Unsecured
Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
1.50% 2025 Convertible Senior
Notes
|
|
Cliffs
|
|
6.26%
|
|
316.3
|
|
|
(4.6
|
)
|
|
(65.0
|
)
|
|
246.7
|
|
5.75% 2025 Senior
Notes
|
|
Cliffs
|
|
6.01%
|
|
473.3
|
|
|
(3.6
|
)
|
|
(5.5
|
)
|
|
464.2
|
|
5.875% 2027 Senior
Notes
|
|
Cliffs
|
|
6.49%
|
|
750.0
|
|
|
(6.3
|
)
|
|
(27.3
|
)
|
|
716.4
|
|
6.25% 2040 Senior
Notes
|
|
Cliffs
|
|
6.34%
|
|
298.4
|
|
|
(2.2
|
)
|
|
(3.3
|
)
|
|
292.9
|
|
Former ABL
Facility
|
|
Cliffs2
|
|
N/A
|
|
450.0
|
|
|
N/A
|
|
|
N/A
|
|
|
—
|
|
Total long-term
debt
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,113.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
$725 Million
6.75% 2026 Senior Secured Notes Offering
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. The 6.75% 2026 Senior Secured
Notes were issued at 98.783%
of face value. The
6.75% 2026 Senior Secured Notes were issued in a private placement
transaction 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.
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 an equal ranking with the
4.875% 2024 Senior Secured Notes, on substantially all of our
assets and the assets of the guarantors, and (ii) a second-priority
lien on the ABL Collateral (as defined below), which is junior to a
first-priority lien for the benefit of the lenders under our ABL
Facility and pari passu with the 4.875% 2024 Senior Secured
Notes.
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 for
our 6.75% 2026 Senior Secured Notes:
|
|
|
|
|
|
|
Redemption
Period
|
|
Redemption
Price1
|
|
Restricted
Amount
|
Prior to March 15, 2022 - using
proceeds of equity issuance
|
|
106.750
|
%
|
|
Up to 35% of original aggregate
principal
|
Prior to March 15,
20222
|
|
100.000
|
|
|
|
Beginning on March 15,
2022
|
|
105.063
|
|
|
|
Beginning on March 15,
2023
|
|
103.375
|
|
|
|
Beginning on March 15,
2024
|
|
101.688
|
|
|
|
Beginning on March 15, 2025 and
thereafter
|
|
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.
Debt issuance costs
of $20.5
million were incurred related to the
offering of the 6.75% 2026 Senior Secured Notes and are included
in Long-term
debt in
the Statements of Unaudited
Condensed Consolidated Financial Position.
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 $231.8
million aggregate principal amount of
6.375% 2025 Senior Notes and $335.4
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. The 6.375% 2025
Senior Notes and 7.00% 2027 Senior Notes were issued pursuant to
exchange offers made by Cliffs in private placement transactions
exempt from the registration requirements of the Securities Act.
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 for our 6.375% 2025
Senior Notes:
|
|
|
|
|
|
|
Redemption
Period
|
|
Redemption
Price1
|
|
Restricted
Amount
|
Prior to October 15, 2020 -
using proceeds of equity issuance
|
|
106.375
|
%
|
|
Up to 35% of original aggregate
principal
|
Prior to October 15,
20202
|
|
100.000
|
|
|
|
Beginning on October 15,
2020
|
|
103.188
|
|
|
|
Beginning on October 15,
2021
|
|
101.594
|
|
|
|
Beginning on October 15, 2022
and thereafter
|
|
100.000
|
|
|
|
|
|
|
|
|
|
1
Plus accrued
and unpaid interest, if any, up to but excluding the redemption
date.
|
2 Plus
a "make-whole" premium.
|
Debt issuance costs
of $0.9
million were incurred in connection
with the issuance of the 6.375% 2025 Senior Notes and are included
in Long-term
debt in
the Statements of Unaudited
Condensed Consolidated Financial Position.
7.00% 2027
Senior Notes
The 7.00% 2027
Senior Notes bear interest at a rate of
7.00% per annum, payable
semi-annually in arrears on April 15 and October 15 of each year,
commencing on April 15, 2020. The 7.00% 2027 Senior Notes mature on
October 15, 2025.
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 for our 7.00% 2027
Senior Notes:
|
|
|
|
|
Redemption
Period
|
|
Redemption
Price1
|
Prior to March 15,
20222
|
|
100.000
|
%
|
Beginning on March 15,
2022
|
|
103.500
|
|
Beginning on March 15,
2023
|
|
102.333
|
|
Beginning on March 15,
2024
|
|
101.167
|
|
Beginning on March 15, 2025 and
thereafter
|
|
100.000
|
|
|
|
|
|
1 Plus
accrued and unpaid interest, if any, up to but excluding the
redemption date.
|
2 Plus
a "make-whole" premium.
|
Debt issuance costs
of $1.3
million were incurred in connection
with the issuance of the 7.00% 2027 Senior Notes and are included
in Long-term
debt in
the Statements of Unaudited
Condensed Consolidated Financial Position.
AK
Steel Corporation Senior Unsecured Notes
As of March 31,
2020, AK Steel Corporation had outstanding a total of
$141.0
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 certain customary
covenants; however, there are no financial covenants.
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 for the 7.50% 2023 AK Senior
Notes:
|
|
|
|
|
Redemption
Period
|
|
Redemption
Price1
|
Prior to July 15,
2020
|
|
103.750
|
%
|
Beginning on July 15,
2020
|
|
101.875
|
|
Beginning on July 15, 2021 and
thereafter
|
|
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 for the 6.375% 2025 AK Senior
Notes:
|
|
|
|
|
Redemption
Period
|
|
Redemption
Price1
|
Prior to October 15,
20202
|
|
100.000
|
%
|
Beginning on October 15,
2020
|
|
103.188
|
|
|