Cliffs(CLF) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements and Supplementary Data For the six months ended June 30, 2025, Cleveland-Cliffs reported a net loss of $953 million, a significant increase from $44 million in the prior-year period, driven by a 7% decrease in revenues to $9.56 billion due to lower selling prices and reduced automotive demand Condensed Consolidated Financial Position (Unaudited) | (In millions) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $6,687 | $6,907 | | Total Assets | $20,471 | $20,947 | | Total Current Liabilities | $3,277 | $3,322 | | Long-term Debt | $7,727 | $7,065 | | Total Liabilities | $14,429 | $14,050 | | Total Equity | $6,042 | $6,897 | Condensed Consolidated Operations (Unaudited) | (In millions, except per share) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $4,934 | $5,092 | $9,563 | $10,291 | | Operating Income (Loss) | ($498) | $6 | ($1,036) | ($32) | | Net Income (Loss) | ($470) | $9 | ($953) | ($44) | | Net Income (Loss) attributable to Cliffs shareholders | ($483) | $2 | ($978) | ($65) | | Diluted EPS | ($0.97) | $0.00 | ($1.97) | ($0.13) | Condensed Consolidated Cash Flows (Unaudited) | (In millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided (used) by operating activities | ($306) | $661 | | Net cash used by investing activities | ($256) | ($331) | | Net cash provided (used) by financing activities | $567 | ($418) | Note 1 - Basis of Presentation and Significant Accounting Policies The company is a vertically integrated North American steel producer focused on value-added sheet products for the automotive industry, operating primarily through its Steelmaking segment - Cleveland-Cliffs is a vertically integrated steel producer focused on value-added sheet products, primarily for the automotive industry, with operations in the United States and Canada[23] - The company completed the acquisition of Stelco Holdings Inc. on November 1, 2024[24] - The company is organized into four operating segments but operates through one primary reportable segment: Steelmaking[25] Note 3 - Acquisitions The Stelco acquisition on November 1, 2024, for approximately $3.2 billion, resulted in $789 million of goodwill, reflecting growth opportunities and synergies within the Steelmaking segment Stelco Acquisition Purchase Consideration | (In millions) | Amount | | :--- | :--- | | Total cash consideration | $2,450 | | Total share exchange consideration | $343 | | Total debt consideration | $415 | | Total purchase consideration | $3,208 | - The preliminary purchase price allocation for the Stelco acquisition resulted in net identifiable assets of $2.42 billion and goodwill of $789 million[42] - Identifiable intangible assets acquired were valued at $1.025 billion, primarily consisting of customer relationships ($953 million) with a weighted average life of 15 years[43] Note 4 - Revenues Total revenues for the six months ended June 30, 2025, decreased to $9.56 billion from $10.29 billion year-over-year, with the Steelmaking segment's automotive market experiencing a 17% decline Revenues by Market (Six Months Ended June 30) | (In millions) | 2025 | 2024 | | :--- | :--- | :--- | | Steelmaking | | | | Automotive | $2,546 | $3,077 | | Infrastructure and manufacturing | $2,843 | $2,813 | | Distributors and converters | $2,661 | $2,814 | | Other | $1,188 | $1,238 | | Total Steelmaking | $9,238 | $9,942 | Revenues by Product Line (Six Months Ended June 30) | (In millions) | 2025 | 2024 | | :--- | :--- | :--- | | Hot-rolled steel | $2,498 | $2,243 | | Cold-rolled steel | $1,236 | $1,460 | | Coated steel | $2,753 | $3,169 | | Stainless and electrical steel | $878 | $941 | | Plate steel | $522 | $650 | | Total Steelmaking | $9,238 | $9,942 | Note 5 - Segment Reporting The Steelmaking segment's Adjusted EBITDA sharply declined to $83 million in Q2 2025 from $306 million in Q2 2024, resulting in a ($101) million loss for the first six months of 2025 Adjusted EBITDA by Segment (Three Months Ended June 30) | (In millions) | 2025 | 2024 | | :--- | :--- | :--- | | Steelmaking | $83 | $306 | | Other Businesses | $16 | $18 | | Intersegment Eliminations | ($2) | ($1) | | Total Adjusted EBITDA | $97 | $323 | Adjusted EBITDA by Segment (Six Months Ended June 30) | (In millions) | 2025 | 2024 | | :--- | :--- | :--- | | Steelmaking | ($101) | $701 | | Other Businesses | $26 | $35 | | Intersegment Eliminations | ($2) | $1 | | Total Adjusted EBITDA | ($77) | $737 | Note 8 - Debt and Credit Facilities Total long-term debt increased to $7.73 billion as of June 30, 2025, primarily due to the issuance of $850 million in Senior Notes, while the company maintained $2.62 billion in available borrowing capacity under its ABL Facility - On February 6, 2025, the company issued $850 million of 7.500% Senior Notes due 2031[63] Long-Term Debt Summary | (In millions) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total principal amount | $7,815 | $7,148 | | Unamortized discounts and issuance costs | ($88) | ($83) | | Total long-term debt | $7,727 | $7,065 | - As of June 30, 2025, the company had $1.38 billion in borrowings under its ABL Facility and $2.62 billion in available borrowing capacity[68] Note 14 - Capital Stock The company did not repurchase common shares in the first six months of 2025, in contrast to repurchasing 37.9 million shares for $733 million in the prior-year period, with $1.4 billion remaining under the current repurchase program - No common shares were repurchased during the three and six months ended June 30, 2025[90] - During the six months ended June 30, 2024, the company repurchased 37.9 million common shares for an aggregate cost of $733 million[90] - As of June 30, 2025, $1.4 billion remained available under the active share repurchase program[90] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 2025's weaker performance to volatile market conditions and weak light vehicle production, leading to the idling of six operations, while emphasizing competitive strengths and a strategy focused on automotive steel, footprint optimization, Stelco synergies, and financial flexibility - Market conditions in Q2 2025 saw higher HRC pricing (average $910/nt, up 16% YoY) and lower imports, but demand was impacted by weak light vehicle production[112] - In 2025, the company decided to fully or partially idle six operations, including facilities at Dearborn Works, Conshohocken, Riverdale, and Steelton, to optimize its footprint and respond to market conditions[114] - The company's strategy focuses on maximizing its automotive steel business, optimizing its integrated footprint, capturing synergies from the Stelco acquisition, and maintaining financial flexibility with a focus on deleveraging[129][134][138][141] - Liquidity as of June 30, 2025, was $2.7 billion, consisting of $61 million in cash and availability under the ABL Facility[166] Steelmaking Results The Steelmaking segment's revenues decreased by 3% in Q2 2025 and 7% in the first six months of 2025, with gross margin falling to -5% in Q2 2025 due to lower average selling prices and increased depreciation from idled facilities Steelmaking Segment Performance (Q2 2025 vs Q2 2024) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Total Revenue | $4,771M | $4,915M | | Gross Margin % | (5)% | 3% | | Adjusted EBITDA | $83M | $306M | | Steel Shipments (k nt) | 4,290 | 3,989 | - The decrease in Q2 2025 gross margin was primarily caused by a lower average selling price (approx. $200 million impact) and an increase in depreciation expense (approx. $120 million impact) from idled facilities[156] Liquidity, Cash Flows and Capital Resources Net cash used by operating activities for the first six months of 2025 was $306 million, a significant reversal from the prior year, driven by lower net income and increased accounts receivable, resulting in negative free cash flow of ($570) million Cash Flow Summary (Six Months Ended June 30) | (In millions) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided (used) by operating activities | ($306) | $661 | | Net cash used by investing activities | ($256) | ($331) | | Net cash provided (used) by financing activities | $567 | ($418) | | Free cash flow | ($570) | $322 | - The negative variance in operating cash flow was driven by a $1.1 billion decrease in net loss after non-cash adjustments and a $266 million increase in accounts receivable[162] - The company anticipates total capital expenditures of approximately $700 million over the next 12 months[164] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from commodity price fluctuations, goodwill valuation, foreign currency exchange rates, and interest rates, utilizing derivatives to hedge some commodity exposures - The company is exposed to price fluctuations in raw materials (natural gas, scrap, coal) and its finished products (HRC), using cash-settled commodity swaps to hedge a portion of its natural gas and electricity exposure[188][192] - The company is subject to foreign currency risk from its Canadian operations, where a 1% change in the Canadian dollar exchange rate would result in a $9 million change in currency exchange income or expense[201] - The company has interest rate risk on its ABL Facility, where a 100 basis point change in interest rates would result in a $14 million change to annual interest expense based on borrowing levels at June 30, 2025[202] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The President and Chief Executive Officer and the Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period[210] - There were no changes in internal control over financial reporting during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, internal controls[211] PART II - OTHER INFORMATION Legal Proceedings The company is actively defending against an ongoing adversary proceeding with Mesabi Metallics Company LLC, with a trial set for May 2027, and discloses environmental proceedings exceeding a $1 million threshold - The company is defending against a lawsuit from Mesabi Metallics alleging tortious interference and antitrust violations, with a trial set for May 2027, and believes the claims are without merit[214] - The company uses a disclosure threshold of $1 million for environmental-related administrative or judicial proceedings involving a governmental authority[215] Risk Factors This section directs readers to the company's Annual Report on Form 10-K for the year ended December 31, 2024, for a comprehensive description of significant business risks and uncertainties - The company directs readers to Part I, Item 1A, "Risk Factors" in its Annual Report on Form 10-K for the year ended December 31, 2024, for a description of the most significant risks[217] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2025, the company did not repurchase shares under its publicly announced program, but acquired 16,947 shares to satisfy tax withholding obligations on employee stock awards, with approximately $1.38 billion remaining available for repurchase Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid | Purchased as Part of Program | Remaining Authorization | | :--- | :--- | :--- | :--- | :--- | | April 1 - 30, 2025 | 5,747 | $8.03 | — | $1,375,931,379 | | May 1 - 31, 2025 | 7,340 | $7.13 | — | $1,375,931,379 | | June 1 - 30, 2025 | 3,860 | $7.17 | — | $1,375,931,379 | | Total | 16,947 | $7.44 | — | | - The shares purchased were delivered to the company to satisfy tax withholding obligations on stock awards and were not part of the publicly announced repurchase program[219] Mine Safety Disclosures The company is committed to achieving zero injuries and incidents across all operations, with detailed mine safety and health information provided in Exhibit 95 of this Quarterly Report - The company's internal objective is to achieve zero injuries and incidents across all operations[220] - Mine safety disclosures required under the Dodd-Frank Act are included in Exhibit 95 of this Quarterly Report[221]