- Third-quarter net income of $2 million
- Third-quarter adjusted EBITDA1 of $126 million
- Third-quarter cash from operations of $246 million
Cleveland-Cliffs Inc. (NYSE: CLF) today reported
third-quarter results for the period ended September 30, 2020.
The Company reported total revenues of $1.6 billion, compared to
the prior year's third-quarter consolidated revenues of $556
million.
The Company recorded net income of $2 million during the third
quarter of 2020. The loss of $0.02 per diluted share attributable
to Cliffs' shareholders included $22 million, or $0.06 per diluted
share, of acquisition costs, severance, and inventory step-up
amortization. This compares to net income of $91 million, or $0.33
per diluted share, recorded in the prior-year third quarter. For
the nine months ended September 30, 2020, the Company recorded a
net loss of $155 million, compared to net income of $230 million
during the same period in 2019.
During the third quarter of 2020, the Company generated $246
million in cash from operations and spent $96 million on capital
expenditures, equating to $150 million in free cash flow
generation.
For the third quarter of 2020, the Company reported adjusted
EBITDA1 of $126 million. This amount includes $50 million in idle
costs and $29 million in corporate margin eliminations related to
intercompany pellet sales.
(In Millions)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Adjusted EBITDA1
Steel and Manufacturing
$
33.3
$
(2.1)
$
(81.8)
$
(4.0)
Mining and Pelletizing
145.3
182.7
309.5
510.7
Corporate and Eliminations
(52.3)
(36.5)
(160.7)
(93.0)
Total Adjusted EBITDA1
$
126.3
$
144.1
$
67.0
$
413.7
Cliffs' Chairman, President, and CEO Lourenco Goncalves said:
“Our strong third quarter results reflect the positive outcome of
the actions we took in Q2, when we saw opportunity when others were
paralyzed. During the almost three months when our main market, the
automotive industry, went through unprecedented shutdowns across
the entire sector, we prepared our inventories and our plants to be
ready as soon as our clients were back in business. As a direct
consequence of that, we generated $150 million in free cash flow
during the quarter.”
Mr. Goncalves added: “Our results demonstrate how quickly and
efficiently we were able to turn things around. The new way of
doing business we have been implementing in our newly acquired
steel assets is demonstrated by our strong cost performance across
the entire company, allowing us to benefit from improved demand and
higher sales prices. While the third quarter started slow with
underlying demand in July not very different from June, business
activity progressively improved through the quarter, achieving in
September shipment rates normalized to prior-year levels. This
momentum has continued into October and, as such, we look forward
to even further improved financial results in the fourth
quarter.”
Mr. Goncalves concluded, “On September 28th we announced the
acquisition of ArcelorMittal USA, a transaction we expect to close
by the end of this year. We continue to be thrilled about the
future of Cleveland-Cliffs with this asset portfolio all under one
roof and the significant optimization opportunities that come with
it. The completion of this deal should also coincide with the
start-up of our Toledo HBI plant, which is currently being
commissioned. With all that, we will be ending this uniquely
challenging year on a high note, and all set for a sensational and
transformative year in 2021.”
Steel and Manufacturing
Three Months Ended September
30, 2020
Nine Months Ended September
30, 2020
Volumes - In
Thousands of Net Tons
Flat-rolled steel shipments
1,117
1,935
Operating Results
- In Millions
Revenues
$
1,261.7
$
2,194.3
Cost of goods sold
(1,239.4)
(2,345.9)
Selling Price -
Per Net Ton
Average net selling price per net ton of
flat-rolled steel
$
1,006
$
1,021
Steel and Manufacturing revenues of $1.3 billion included $920
million, or 73%, of sales to the automotive market; $199 million,
or 16%, of sales to the infrastructure and manufacturing market;
and $143 million, or 11%, of sales to the distributors and
converters market.
Steel and Manufacturing cost of goods sold of $1.2 billion
during the third quarter of 2020 included idle-related costs of
approximately $39 million; amortization of fair value inventory
step-up of $15 million; and depreciation, depletion, and
amortization of $52 million.
Mining and Pelletizing
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Volumes - In
Thousands of Long Tons
Sales volume
4,907
5,750
11,800
13,527
Production volume
4,560
5,159
11,430
14,737
Operating Results
- In Millions
Revenues
$
520.3
590.6
$
1,238.7
1,494.8
Cost of goods sold
(393.3)
(424.8)
(987.8)
(1,033.5)
Per Ton
Information*
Realized product revenue rate
$
98.06
$
95.65
$
96.98
$
103.26
Cash cost of goods sold rate2
$
68.25
$
63.20
$
70.87
$
64.80
Depreciation, depletion &
amortization
3.93
$
3.62
$
4.85
4.35
Total cost of goods sold
$
72.18
$
66.82
$
75.72
$
69.15
*Excludes revenues and expenses related to
domestic freight, which are offsetting and have no impact on sales
margin.
Third-quarter Mining and Pelletizing pellet sales volume of 4.9
million long tons included 1.2 million long tons of intercompany
sales. Cash cost per ton of $68 per long ton included approximately
$2 per long ton of idle costs.
Corporate and Eliminations
Adjusted EBITDA from Corporate and Eliminations for the third
quarter of 2020 included intercompany profit eliminations for iron
ore sales from the Mining and Pelletizing segment to the Steel and
Manufacturing segment of approximately $29 million and corporate
selling, general and administrative expenses of approximately $23
million.
Liquidity
As of October 19, 2020, the Company had total liquidity of
approximately $1.2 billion, consisting of approximately $100
million in cash and approximately $1.1 billion of availability
under its ABL credit facility. During the third quarter, the
Company repaid an additional $150 million in outstanding ABL
borrowings, and has repaid $400 million in borrowings during the
last 6 months.
Outlook and Market Commentary
All outlook projections only refer to Cliffs as currently
positioned, and do not contemplate the pending acquisition of
substantially all of the operations of ArcelorMittal USA, which is
expected to close in the fourth quarter of 2020, subject to the
receipt of regulatory approval and the satisfaction of other
customary closing conditions.
Regarding business outlook, Mr. Goncalves stated: "As we
continue to fulfill orders for our automotive customers at a
remarkably healthy pace, with our facilities back to normalized
operating rates and with current pricing, we would expect further
sequential improvement in our adjusted EBITDA performance in the
fourth quarter. This takes into account increased shipments from
both our Steel & Manufacturing and Mining & Pelletizing
segments, as well as an expected sharp reduction in idle
costs."
The Company has lowered its full-year 2020 capital spending
budget to approximately $500 million. Fourth-quarter expenditures
are expected to be approximately $125 million, including $65
million related to the completion of the Toledo HBI plant and $15
million in capitalized interest.
Conference Call Information
Cleveland-Cliffs Inc. will host a conference call this morning,
October 23, 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, the Company is uniquely positioned to supply both
customized iron ore pellets and steel solutions to a
quality-focused customer base. AK Steel, a wholly-owned subsidiary
of Cleveland-Cliffs, is a leading producer of flat-rolled carbon,
stainless and electrical steel products. The AK Tube and Precision
Partners businesses provide customer solutions with carbon and
stainless steel tubing products, die design and tooling, and hot-
and cold-stamped components. In 2020, Cliffs also expects to be the
sole producer of hot briquetted iron (HBI) in the Great Lakes
region. Headquartered in Cleveland, Ohio, Cleveland-Cliffs employs
approximately 11,000 people across mining and steel manufacturing
operations in the United States and Canada. For more information,
visit www.clevelandcliffs.com or www.aksteel.com.
Forward-Looking Statements
This release 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 release, 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
release 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
cost-effectively achieve planned production rates or levels,
including at our HBI production plant currently under construction;
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; our ability to successfully diversify our product mix
and add new customers; 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 additional
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; unanticipated costs associated with
healthcare, pension and OPEB obligations; the completion of the
Transaction on the anticipated terms and timing or at all,
including the receipt of regulatory approvals and anticipated tax
treatment; our ability to integrate ArcelorMittal USA's businesses
and our existing businesses successfully and to achieve anticipated
synergies from the Transaction; business and management strategies
for the maintenance, expansion and growth of the combined company's
operations following the consummation of the Transaction; potential
litigation relating to the Transaction that could be instituted
against us or our officers and directors; disruptions from the
proposed Transaction that have the potential to harm our or
ArcelorMittal USA's businesses, including current plans and
operations; our ability to retain and hire key personnel, including
within the ArcelorMittal USA businesses following the completion of
the Transaction; potential adverse reactions or changes to business
relationships resulting from the announcement or completion of the
Transaction; and additional debt we incur, or other proposed
financing transactions we may enter into, in connection with the
Transaction may negatively impact our credit profile and limit our
financial flexibility.
For additional factors affecting the business of Cliffs, refer
to “Risk Factors” in Cliffs’ Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2020.
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
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Revenues
$
1,646.0
$
555.6
$
3,063.2
$
1,455.8
Realization of deferred revenue
—
—
34.6
—
Operating costs:
Cost of goods sold
(1,525.4)
(400.7)
(3,088.9)
(1,007.0)
Selling, general and administrative
expenses
(59.6)
(25.5)
(149.2)
(82.2)
Acquisition-related costs
(7.5)
—
(68.4)
—
Miscellaneous – net
(15.5)
(7.8)
(40.5)
(19.0)
Total operating costs
(1,608.0)
(434.0)
(3,347.0)
(1,108.2)
Operating income (loss)
38.0
121.6
(249.2)
347.6
Other income (expense):
Interest expense, net
(68.2)
(25.3)
(167.9)
(76.5)
Gain (loss) on extinguishment of debt
—
—
132.6
(18.2)
Other non-operating income
10.0
0.3
31.2
1.3
Total other expense
(58.2)
(25.0)
(4.1)
(93.4)
Income (loss) from continuing
operations before income taxes
(20.2)
96.6
(253.3)
254.2
Income tax benefit (expense)
22.4
(4.8)
98.5
(23.1)
Income (loss) from continuing
operations
2.2
91.8
(154.8)
231.1
Loss from discontinued operations, net of
tax
(0.3)
(0.9)
—
(1.5)
Net income (loss)
1.9
90.9
(154.8)
229.6
Income attributable to noncontrolling
interest
(11.9)
—
(31.2)
—
Net income (loss) attributable to
Cliffs shareholders
$
(10.0)
$
90.9
$
(186.0)
$
229.6
Earnings (loss) per common share
attributable to Cliffs shareholders - basic
Continuing operations
$
(0.02)
$
0.34
$
(0.51)
$
0.83
Discontinued operations
—
—
—
(0.01)
$
(0.02)
$
0.34
$
(0.51)
$
0.82
Earnings (loss) per common share
attributable to Cliffs shareholders - diluted
Continuing operations
$
(0.02)
$
0.33
$
(0.51)
$
0.80
Discontinued operations
—
—
—
—
$
(0.02)
$
0.33
$
(0.51)
$
0.80
Average number of shares (in
thousands)
Basic
399,399
269,960
365,245
278,418
Diluted
399,399
276,578
365,245
287,755
CLEVELAND-CLIFFS INC. AND
SUBSIDIARIES
STATEMENTS OF UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL POSITION
(In Millions)
September 30,
2020
December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
$
56.0
$
352.6
Accounts receivable, net
653.7
94.0
Inventories
1,795.1
317.4
Income tax receivable, current
9.0
58.6
Other current assets
115.0
75.3
Total current assets
2,628.8
897.9
Non-current assets:
Property, plant and equipment, net
4,550.7
1,929.0
Goodwill
144.0
2.1
Intangible assets, net
190.1
48.1
Income tax receivable, non-current
—
62.7
Deferred income taxes
519.5
459.5
Right-of-use asset, operating lease
207.7
11.7
Other non-current assets
240.1
92.8
TOTAL ASSETS
$
8,480.9
$
3,503.8
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
$
710.7
$
193.2
Accrued liabilities
279.4
126.3
Other current liabilities
224.0
89.9
Total current liabilities
1,214.1
409.4
Non-current liabilities:
Long-term debt
4,309.8
2,113.8
Operating lease liability, non-current
174.1
10.5
Intangible liabilities, net
65.9
—
Pension and OPEB liabilities
1,130.6
311.5
Asset retirement obligations
182.0
163.2
Other non-current liabilities
280.7
137.5
TOTAL LIABILITIES
7,357.2
3,145.9
EQUITY
Total Cliffs shareholders' equity
810.6
357.9
Noncontrolling interest
313.1
—
TOTAL EQUITY
1,123.7
357.9
TOTAL LIABILITIES AND EQUITY
$
8,480.9
$
3,503.8
CLEVELAND-CLIFFS INC. AND
SUBSIDIARIES
STATEMENTS OF UNAUDITED
CONDENSED CONSOLIDATED CASH FLOWS
(In Millions)
Nine Months Ended
September 30,
2020
2019
OPERATING ACTIVITIES
Net income (loss)
$
(154.8)
$
229.6
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities:
Depreciation, depletion and
amortization
183.9
63.1
Amortization of inventory step-up
74.0
—
Deferred income taxes
(89.9)
22.7
Loss (gain) on extinguishment of debt
(132.6)
18.2
Loss (gain) on derivatives
(19.1)
48.4
Other
(13.0)
49.4
Changes in operating assets and
liabilities, net of business combination:
Receivables and other assets
259.8
174.1
Inventories
(4.2)
(147.0)
Payables, accrued expenses and other
liabilities
(157.3)
(70.4)
Net cash provided (used) by operating
activities
(53.2)
388.1
INVESTING ACTIVITIES
Purchase of property, plant and
equipment
(378.9)
(460.7)
Acquisition of AK Steel, net of cash
acquired
(869.3)
—
Other investing activities
8.0
11.2
Net cash used by investing activities
(1,240.2)
(449.5)
FINANCING ACTIVITIES
Repurchase of common shares
—
(252.9)
Proceeds from issuance of debt
1,762.9
720.9
Debt issuance costs
(57.5)
(6.8)
Repurchase of debt
(999.5)
(729.3)
Borrowings under credit facilities
800.0
—
Repayments under credit facilities
(400.0)
—
Dividends paid
(40.8)
(45.1)
SunCoke Middletown distributions to
noncontrolling interest owners
(47.6)
—
Other financing activities
(23.3)
(53.7)
Net cash provided (used) by financing
activities
994.2
(366.9)
Decrease in cash and cash equivalents,
including cash classified within other current assets related to
discontinued operations
(299.2)
(428.3)
Less: decrease in cash and cash
equivalents from discontinued operations, classified within other
current assets
(2.6)
(4.4)
Net decrease in cash and cash
equivalents
(296.6)
(423.9)
Cash and cash equivalents at beginning of
period
352.6
823.2
Cash and cash equivalents at end of
period
$
56.0
$
399.3
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
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Net income (loss)
$
1.9
$
90.9
$
(154.8)
$
229.6
Less:
Interest expense, net
(68.2)
(25.4)
(167.9)
(76.8)
Income tax benefit (expense)
22.4
(4.8)
98.5
(23.1)
Depreciation, depletion and
amortization
(72.4)
(22.2)
(183.9)
(63.1)
Total EBITDA
$
120.1
$
143.3
$
98.5
$
392.6
Less:
EBITDA of noncontrolling interests (A)
$
16.2
$
—
$
41.3
$
—
Gain (loss) on extinguishment of debt
—
—
132.6
(18.2)
Severance costs
(2.4)
—
(38.3)
(1.7)
Acquisition-related costs excluding
severance costs
(5.1)
—
(30.1)
—
Amortization of inventory step-up
(14.6)
—
(74.0)
—
Impact of discontinued operations
(0.3)
(0.8)
—
(1.2)
Total Adjusted EBITDA
$
126.3
$
144.1
$
67.0
$
413.7
(A) EBITDA of noncontrolling interests
includes $11.9 million and $31.2 million for income and $4.3
million and $10.1 million of depreciation, depletion and
amortization for the three and nine months ended September 30,
2020, respectively.
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
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Cost of goods sold
$
393.3
$
424.8
$
987.8
$
1,033.5
Less:
Freight
39.1
40.6
94.3
98.0
Depreciation, depletion &
amortization
19.3
20.8
57.2
58.9
Cash cost of goods sold
$
334.9
$
363.4
$
836.3
$
876.6
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MEDIA: Patricia Persico Director, Corporate
Communications (216) 694-5316 INVESTORS: Paul Finan
Director, Investor Relations (216) 694-6544
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