Cleveland-Cliffs Inc. (NYSE: CLF) today reported
second-quarter results for the period ended June 30, 2020.
The Company reported total revenues of $1.1 billion, compared to
the prior year's second-quarter consolidated revenues of $743
million.
The Company recorded a net loss of $108 million during the
second quarter of 2020, and a loss of $0.31 per diluted share
attributable to Cliffs' shareholders. This compares to net income
of $161 million, or $0.57 per diluted share, recorded in the
prior-year second quarter. For the six months ended June 30, 2020,
the Company recorded a net loss of $157 million, compared to net
income of $139 million during the same period in 2019.
For the second quarter of 2020, the Company reported an adjusted
EBITDA1 loss of $82 million. This amount includes $159 million in
idle costs and $32 million in corporate margin eliminations related
to intercompany pellet sales.
(In Millions)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Adjusted EBITDA1
Steel and Manufacturing
$
(104.0
)
$
(1.1
)
$
(115.1
)
$
(1.9
)
Mining and Pelletizing
82.4
280.5
164.2
328.0
Corporate and Eliminations
(60.4
)
(31.0
)
(108.4
)
(56.5
)
Total Adjusted EBITDA1
$
(82.0
)
$
248.4
$
(59.3
)
$
269.6
Cliffs' Chairman, President, and CEO Lourenco Goncalves said:
“The second quarter was an unusual one, with the full impact of the
COVID-19 pandemic hitting our clients. Our main concern then was
preserving our liquidity during a time we were not able to ship
steel to our clients in all markets we serve, and particularly in
our main end-market, the automotive industry. As of today, our
clients are back to healthy levels of operation, and our liquidity
now sits solidly above the $1.1 billion mark. That happened way
ahead of our conservative assumptions, creating a very exciting
business prospect for a strong second semester.”
Mr. Goncalves added: “In any given year, the second quarter is
always the time when our iron ore clients replenish their pellet
inventories, depleted during the winter. Our success in continuing
to sell pellets during this second quarter was also very important
to our results, showing a clear differentiation between
Cleveland-Cliffs and other companies in our space.”
Mr. Goncalves concluded: “We are excited, but not surprised,
with the potential we are unleashing from the AK Steel footprint.
We have already implemented all the synergy initiatives we
disclosed at the time of the acquisition, with the updated amount
of $151 million coming in much higher than the original target of
$120 million in synergies. In the second half of this year we will
finish the construction of our HBI plant, creating another highly
profitable business for Cleveland-Cliffs in 2021 and beyond. At
this time, based on our unique fully integrated and self-sufficient
footprint, from iron ore pellets to highly sophisticated carbon and
stainless steels and automotive parts, we are laser-focused on
growing our business with our traditional automotive clients and on
adding new ones from the roster of new manufacturers of electric
vehicles, trucks and SUVs.”
Steel and Manufacturing
Three Months Ended June 30,
2020
Six Months Ended June 30,
2020
Volumes - In
Thousands of Net Tons
Flat-rolled steel shipments
619
818
Operating Results
- In Millions
Revenues
$
715.1
$
932.6
Cost of goods sold
(859.9
)
(1,106.5
)
Selling Price -
Per Net Ton
Average net selling price per net ton of
flat-rolled steel
$
1,056
$
1,042
Steel and Manufacturing cost of goods sold of $860 million
during the second quarter of 2020 included idle-related costs of
approximately $119 million and amortization of fair value inventory
step-up of $36 million. Cost of goods sold as a percentage of
Revenues was unfavorably impacted by product sales mix primarily
due to the COVID-19 pandemic, which resulted in lower sales volumes
to automotive customers.
Mining and Pelletizing
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Volumes - In
Thousands of Long Tons
Sales volume
4,759
6,227
6,893
7,777
Production volume
2,038
5,177
6,870
9,578
Operating Results
- In Millions
Revenues
$
489.0
747.2
$
718.4
904.2
Cost of goods sold
(427.2
)
(482.6
)
(594.5
)
(608.7
)
Per Ton
Information*
Revenues from product sales and
services
$
94.73
$
112.64
$
96.21
$
108.89
Cash cost of goods sold rate2
$
77.71
$
67.00
$
72.74
$
65.99
Depreciation, depletion &
amortization
4.03
3.15
5.50
4.90
Total cost of goods sold
$
81.74
$
70.15
$
78.24
$
70.89
*Excludes revenues and expenses related to
domestic freight, which are offsetting and have no impact on sales
margin.
Second-quarter Mining and Pelletizing pellet sales volume of 4.8
million long tons included 1.0 million long tons of intercompany
sales. Cash cost per ton of $78 per long ton included approximately
$8 per long ton of idle costs.
Corporate and Eliminations
The Adjusted EBITDA loss of $60 million from Corporate and
Eliminations for the second quarter of 2020 included: intercompany
profit eliminations for iron ore sales from the Mining and
Pelletizing Segment to the Steel and Manufacturing Segment of $32
million; corporate selling, general and administrative expenses,
net of adjustments, of approximately $18 million; and corporate
allocated selling, general and administrative expenses of $10
million.
Liquidity
As of July 28, 2020, the Company had total liquidity of
approximately $1.125 billion, consisting of approximately $170
million in cash and $955 million of availability under its ABL
credit facility. During the second quarter, the Company repaid $250
million in outstanding ABL borrowings.
Outlook and Market Commentary
Regarding business outlook, Mr. Goncalves stated: "Now that
nearly all our facilities which were idled during the second
quarter have resumed normal operations, during the second half of
2020 we will be able to demonstrate the potential of our new
Cleveland-Cliffs footprint. With demand accelerating faster and
more consistently than originally expected, we were pleased to
record positive adjusted EBITDA during the month of June, way ahead
of our initial forecast made earlier in Q2. Also, we expect idle
costs to be less than $50 million during the third quarter and
minimal in the fourth quarter, which will lead to a significant
improvement in unit cost performance. As the market currently
stands, we expect to see positive free cash flow in the second half
of the year, which includes the capital spending necessary to
complete the Toledo HBI project."
The capital spending expectation for the remainder of the year
is $250 million, which includes approximately $110 million in
remaining HBI spend and $25 million in capitalized interest. The
Company expects to generate over $100 million in cash from working
capital release during the second half of the year.
Conference Call Information
Cleveland-Cliffs Inc. will host a conference call this morning,
July 30, 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 successfully
diversify our product mix and add new customers for our Mining and
Pelletizing segment beyond our traditional blast furnace clientele;
our ability to cost-effectively achieve planned production rates or
levels, including at our HBI production plant currently under
construction, and to resume full operations at certain facilities
that are or were temporarily idled due to the COVID-19 pandemic;
our ability to successfully identify and consummate any strategic
investments or development projects, including our HBI production
plant; the impact of our steelmaking customers reducing their steel
production due to the COVID-19 pandemic, or increased market share
of steel produced using methods other than those used by our
customers, or increased market share of lighter-weight steel
alternatives, including aluminum; our ability to maintain adequate
liquidity, our level of indebtedness and the availability of
capital could limit cash flow available to fund working capital,
planned capital expenditures, acquisitions, and other general
corporate purposes or ongoing needs of our business; our actual
economic iron ore reserves or reductions in current mineral
estimates, including whether any mineralized material qualifies as
a reserve; the outcome of any contractual disputes with our
customers, joint venture partners or significant energy, material
or service providers or any other litigation or arbitration;
problems or uncertainties with sales volume or mix, productivity,
transportation, environmental liabilities, employee-benefit costs
and other risks of the steel and mining industries; impacts of
existing and increasing governmental regulation and related costs
and liabilities, including failure to receive or maintain required
operating and environmental permits, approvals, modifications or
other authorization of, or from, any governmental or regulatory
entity and costs related to implementing improvements to ensure
compliance with regulatory changes; our ability to maintain
appropriate relations with unions and employees; the ability of our
customers, joint venture partners and third-party service providers
to meet their obligations to us on a timely basis or at all; events
or circumstances that could impair or adversely impact the
viability of a production plant or mine and the carrying value of
associated assets, as well as any resulting impairment charges;
uncertainties associated with natural disasters, weather
conditions, unanticipated geological conditions, supply or price of
energy, equipment failures, infectious disease outbreaks and other
unexpected events; adverse changes in interest rates, foreign
currency rates and tax laws; the potential existence of significant
deficiencies or material weakness in our internal control over
financial reporting; our ability to realize the anticipated
benefits of the merger with AK Steel 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 with AK Steel, as well as additional
debt we incurred in connection with enhancing our liquidity during
the COVID-19 pandemic, may negatively impact our credit profile and
limit our financial flexibility; changes in the cost of raw
materials and supplies; supply chain disruptions or poor quality of
raw materials or supplies, including scrap, coal, coke and alloys;
disruptions in, or failures of, our information technology systems,
including those related to cybersecurity; and unanticipated costs
associated with healthcare, pension and OPEB obligations.
For additional factors affecting the business of Cliffs, refer
to “Risk Factors” in Cliffs’ Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 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 June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Revenues
$
1,092.7
$
743.2
$
1,417.2
$
900.2
Realization of deferred revenue
—
—
34.6
—
Operating costs:
Cost of goods sold
(1,207.5
)
(480.2
)
(1,563.5
)
(606.3
)
Selling, general and administrative
expenses
(62.1
)
(29.4
)
(89.6
)
(56.7
)
Acquisition-related costs
(18.4
)
—
(60.9
)
—
Miscellaneous – net
(13.1
)
(6.8
)
(25.0
)
(11.2
)
Total operating costs
(1,301.1
)
(516.4
)
(1,739.0
)
(674.2
)
Operating income (loss)
(208.4
)
226.8
(287.2
)
226.0
Other income (expense):
Interest expense, net
(68.7
)
(26.1
)
(99.7
)
(51.2
)
Gain (loss) on extinguishment of debt
129.4
(17.9
)
132.6
(18.2
)
Other non-operating income
15.2
0.6
21.2
1.0
Total other income (expense)
75.9
(43.4
)
54.1
(68.4
)
Income (loss) from continuing
operations before income taxes
(132.5
)
183.4
(233.1
)
157.6
Income tax benefit (expense)
24.7
(22.0
)
76.1
(18.3
)
Income (loss) from continuing
operations
(107.8
)
161.4
(157.0
)
139.3
Income (loss) from discontinued
operations, net of tax
(0.3
)
(0.6
)
0.3
(0.6
)
Net income (loss)
(108.1
)
160.8
(156.7
)
138.7
Income attributable to noncontrolling
interest
(15.8
)
—
(19.3
)
—
Net income (loss) attributable to
Cliffs shareholders
$
(123.9
)
$
160.8
$
(176.0
)
$
138.7
Earnings (loss) per common share
attributable to Cliffs shareholders - basic
Continuing operations
$
(0.31
)
$
0.59
$
(0.51
)
$
0.49
Discontinued operations
—
—
—
—
$
(0.31
)
$
0.59
$
(0.51
)
$
0.49
Earnings (loss) per common share
attributable to Cliffs shareholders - diluted
Continuing operations
$
(0.31
)
$
0.57
$
(0.51
)
$
0.47
Discontinued operations
—
—
—
—
$
(0.31
)
$
0.57
$
(0.51
)
$
0.47
Average number of shares (in
thousands)
Basic
399,088
275,769
348,302
282,647
Diluted
399,088
285,479
348,302
293,580
CLEVELAND-CLIFFS INC. AND
SUBSIDIARIES
STATEMENTS OF UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL POSITION
(In Millions)
June 30, 2020
December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
$
73.7
$
352.6
Accounts receivable, net
482.2
94.0
Inventories
1,933.6
317.4
Income tax receivable, current
62.6
58.6
Other current assets
90.2
75.3
Total current assets
2,642.3
897.9
Non-current assets:
Property, plant and equipment, net
4,547.9
1,929.0
Goodwill
139.3
2.1
Intangible assets, net
192.6
48.1
Income tax receivable, non-current
4.1
62.7
Deferred income taxes
506.5
459.5
Right-of-use asset, operating lease
213.0
11.7
Other non-current assets
245.0
92.8
TOTAL ASSETS
$
8,490.7
$
3,503.8
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
$
504.8
$
193.2
Accrued liabilities
288.3
126.3
Other current liabilities
244.9
89.9
Total current liabilities
1,038.0
409.4
Non-current liabilities:
Long-term debt
4,451.6
2,113.8
Operating lease liability, non-current
191.5
10.5
Intangible liabilities, net
72.3
—
Pension and OPEB liabilities
1,159.6
311.5
Asset retirement obligations
181.1
163.2
Other non-current liabilities
278.4
137.5
TOTAL LIABILITIES
7,372.5
3,145.9
EQUITY
Total Cliffs shareholders' equity
792.9
357.9
Noncontrolling interest
325.3
—
TOTAL EQUITY
1,118.2
357.9
TOTAL LIABILITIES AND EQUITY
$
8,490.7
$
3,503.8
CLEVELAND-CLIFFS INC. AND
SUBSIDIARIES
STATEMENTS OF UNAUDITED
CONDENSED CONSOLIDATED CASH FLOWS
(In Millions)
Six Months Ended June
30,
2020
2019
OPERATING ACTIVITIES
Net income (loss)
$
(156.7
)
$
138.7
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities:
Depreciation, depletion and
amortization
111.5
40.9
Amortization of inventory step-up
59.4
—
Deferred income taxes
(72.5
)
18.2
Loss (gain) on extinguishment of debt
(132.6
)
18.2
Loss (gain) on derivatives
8.0
(27.2
)
Other
(28.0
)
28.4
Changes in operating assets and
liabilities, net of business combination:
Receivables and other assets
365.7
145.4
Inventories
(126.1
)
(148.7
)
Payables, accrued expenses and other
liabilities
(327.9
)
(62.8
)
Net cash provided (used) by operating
activities
(299.2
)
151.1
INVESTING ACTIVITIES
Purchase of property, plant and
equipment
(282.9
)
(300.9
)
Acquisition of AK Steel, net of cash
acquired
(869.3
)
—
Other investing activities
(0.2
)
8.5
Net cash used by investing activities
(1,152.4
)
(292.4
)
FINANCING ACTIVITIES
Repurchase of common shares
—
(252.9
)
Proceeds from issuance of debt
1,762.9
720.9
Debt issuance costs
(57.9
)
(6.8
)
Repurchase of debt
(999.5
)
(729.3
)
Borrowings under credit facilities
800.0
—
Repayments under credit facilities
(250.0
)
—
Dividends paid
(40.8
)
(28.9
)
Other financing activities
(43.6
)
(10.9
)
Net cash provided (used) by financing
activities
1,171.1
(307.9
)
Decrease in cash and cash equivalents,
including cash classified within other current assets related to
discontinued operations
(280.5
)
(449.2
)
Less: decrease in cash and cash
equivalents from discontinued operations, classified within other
current assets
(1.6
)
(3.2
)
Net decrease in cash and cash
equivalents
(278.9
)
(446.0
)
Cash and cash equivalents at beginning of
period
352.6
823.2
Cash and cash equivalents at end of
period
$
73.7
$
377.2
1 CLEVELAND-CLIFFS INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATION - EBITDA AND ADJUSTED EBITDA
In addition to the consolidated financial statements presented
in accordance with U.S. GAAP, the Company has presented EBITDA and
adjusted EBITDA on a consolidated basis. EBITDA and Adjusted EBITDA
are non-GAAP financial measures that management uses in evaluating
operating performance. The presentation of these measures is not
intended to be considered in isolation from, as a substitute for,
or as superior to, the financial information prepared and presented
in accordance with U.S. GAAP. The presentation of these measures
may be different from non-GAAP financial measures used by other
companies. A reconciliation of these consolidated measures to their
most directly comparable GAAP measures is provided in the table
below.
(In Millions)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Net income (loss)
$
(108.1
)
$
160.8
$
(156.7
)
$
138.7
Less:
Interest expense, net
(68.6
)
(26.3
)
(99.7
)
(51.4
)
Income tax benefit (expense)
24.7
(22.0
)
76.1
(18.3
)
Depreciation, depletion and
amortization
(77.1
)
(21.0
)
(111.5
)
(40.9
)
Total EBITDA
$
12.9
$
230.1
$
(21.6
)
$
249.3
Less:
EBITDA of noncontrolling interests (A)
$
20.5
$
—
$
25.1
$
—
Gain (loss) on extinguishment of debt
129.4
(17.9
)
132.6
(18.2
)
Severance costs
(16.6
)
—
(35.9
)
(1.7
)
Acquisition-related costs excluding
severance costs
(1.8
)
—
(25.0
)
—
Amortization of inventory step-up
(36.2
)
—
(59.4
)
—
Impact of discontinued operations
(0.4
)
(0.4
)
0.3
(0.4
)
Total Adjusted EBITDA
$
(82.0
)
$
248.4
$
(59.3
)
$
269.6
(A) EBITDA of noncontrolling interests
Includes $15.8 million and $19.3 million for income and $4.7
million and $5.8 million of depreciation, depletion and
amortization for the three and six months ended June 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 June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Cost of goods sold
$
427.2
$
482.6
$
594.5
$
608.7
Less:
Freight
38.2
45.8
55.2
57.4
Depreciation, depletion &
amortization
19.2
19.6
37.9
38.1
Cash cost of goods sold
$
369.8
$
417.2
$
501.4
$
513.2
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MEDIA: Patricia Persico Director, Corporate
Communications (216) 694-5316 INVESTORS: Paul Finan
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