clf-20200930

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


			☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020


			☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 1-8944

CLEVELAND-CLIFFS INC.

(Exact Name of Registrant as Specified in Its Charter)

Ohio

34-1464672

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

200 Public Square,

Cleveland,

Ohio

44114-2315

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s Telephone Number, Including Area Code: (216) 694-5700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common shares, par value $0.125 per share

CLF

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

The number of shares outstanding of the registrant’s common shares, par value $0.125 per share, was 399,241,687 as of October 22, 2020.

Page Number

DEFINITIONS

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2020 and December 31, 2019

Statements of Unaudited Condensed Consolidated Operations for the Three and Nine Months Ended September 30, 2020 and 2019

Statements of Unaudited Condensed Consolidated Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019

Statements of Unaudited Condensed Consolidated Cash Flows for the Nine Months Ended September 30, 2020 and 2019

Statements of Unaudited Condensed Consolidated Changes in Equity for the Three and Nine Months Ended September 30, 2020 and 2019

Notes to Unaudited Condensed Consolidated Financial Statements

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

Signatures

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.


Abbreviation or acronym						Term

ABL Facility						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

Adjusted EBITDA						EBITDA excluding certain items such as EBITDA of noncontrolling interests, extinguishment of debt, severance, acquisition-related costs, amortization of inventory step-up, impacts of discontinued operations and intersegment corporate allocations of selling, general and administrative costs
AK Coal						AK Coal Resources, Inc., an indirect, wholly owned subsidiary of AK Steel, and related coal mining assets
AK Steel						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
AK Tube						AK Tube LLC, an indirect, wholly owned subsidiary of AK Steel
AMT						Alternative Minimum Tax
AOCI						Accumulated Other Comprehensive Income (Loss)
ArcelorMittal S.A.						ArcelorMittal S.A., an entity formed under the laws of Luxembourg and the ultimate parent entity of ArcelorMittal USA
ArcelorMittal USA						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)
ASC						Accounting Standards Codification

Atlantic Basin Pellet Premium						Platts Atlantic Basin Blast Furnace 65% Fe pellet premium
Board						The Board of Directors of Cleveland-Cliffs Inc.



CARES Act						Coronavirus Aid, Relief, and Economic Security Act


CERCLA						Comprehensive Environmental Response, Compensation and Liability Act

Compensation Committee						Compensation and Organization Committee of the Board
COVID-19						A novel strain of coronavirus that the World Health Organization declared a global pandemic in March 2020
Dodd-Frank Act						Dodd-Frank Wall Street Reform and Consumer Protection Act
DR-grade						Direct Reduction-grade

EAF						Electric Arc Furnace
EBITDA						Earnings before interest, taxes, depreciation and amortization
Empire						Empire Iron Mining Partnership
EPA						U.S. Environmental Protection Agency
ERISA						Employee Retirement Income Security Act of 1974, as amended

Exchange Act						Securities Exchange Act of 1934, as amended

Fe						Iron
FILO						First-in, last-out
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


Abbreviation or acronym						Term
Precision Partners						PPHC Holdings, LLC (an indirect, wholly owned subsidiary of AK Steel) and its subsidiaries, collectively, unless stated otherwise or the context indicates otherwise
RCRA						Resource Conservation and Recovery Act
SEC						U.S. Securities and Exchange Commission
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


Transaction						The purchase of substantially all of the operations of ArcelorMittal USA, subject to the terms and conditions set forth in the Transaction Agreement
Transaction Agreement						Transaction Agreement, by and between Cliffs and ArcelorMittal S.A., dated as of September 28, 2020
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

VIE						Variable Interest Entity


Item 1.			Financial Statements

Statements of Unaudited Condensed Consolidated Financial Position

Cleveland-Cliffs Inc. and Subsidiaries


	(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
Commitments and contingencies (See Note 18)
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 - 399,229,917 shares (2019 - 270,084,005 shares)	53.6		37.7
Capital in excess of par value of shares	4,446.3		3,872.1
Retained deficit	(3,052.5)		(2,842.4)
Cost of 29,415,949 common shares in treasury (2019 - 31,802,789 shares)	(354.8)		(390.7)
Accumulated other comprehensive loss	(282.0)		(318.8)
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

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 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

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Statements of Unaudited Condensed Consolidated Comprehensive Income (Loss)

Cleveland-Cliffs Inc. and Subsidiaries


	(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
Other comprehensive income:
Changes in pension and OPEB, net of tax	6.6		5.8		18.2		17.3
Changes in foreign currency translation	1.6		—		1.4		—
Changes in derivative financial instruments, net of tax	15.7		0.4		17.2		1.0
Total other comprehensive income	23.9		6.2		36.8		18.3
Comprehensive income (loss)	25.8		97.1		(118.0)		247.9
Comprehensive income attributable to noncontrolling interests	(11.9)		—		(31.2)		—
Comprehensive income (loss) attributable to Cliffs shareholders	$	13.9	$	97.1	$	(149.2)	$	247.9

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)
	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

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		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 share 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
Comprehensive income (loss)	—	—		—		(123.9)		—		11.2		15.8		(96.9)
Stock and other incentive plans	0.6	—		(6.6)		—		9.1		—		—		2.5
Common share dividends	—	—		—		(0.1)		—		—		—		(0.1)
Net distributions to noncontrolling interests	—	—		—		—		—		—		(18.3)		(18.3)
June 30, 2020	399.2	$	53.6	$	4,443.6	$	(3,042.5)	$	(355.9)	$	(305.9)	$	325.3	$	1,118.2
Comprehensive income (loss)	—	—		—		(10.0)		—		23.9		11.9		25.8
Stock and other incentive plans	—	—		2.7		—		1.1		—		—		3.8
Net distributions to noncontrolling interests	—	—		—		—		—		—		(24.1)		(24.1)
September 30, 2020	399.2	$	53.6	$	4,446.3	$	(3,052.5)	$	(354.8)	$	(282.0)	$	313.1	$	1,123.7


	(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		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 share repurchases	(11.5)	—		—		—		(124.3)		—		(124.3)
Common share 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
Comprehensive income	—	—		—		160.8		—		3.7		164.5
Stock and other incentive plans	0.1	—		3.4		—		1.2		—		4.6
Common share repurchases	(12.9)	—		—		—		(128.6)		—		(128.6)
Common share dividends ($0.06 per share)	—	—		—		(16.6)		—		—		(16.6)
June 30, 2019	270.0	$	37.7	$	3,863.6	$	(