Cleveland-Cliffs Reports Third-Quarter 2022 Results and Announces $1.8 Billion Reduction in Net Pension/OPEB Liabilities
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Cleveland-Cliffs Reports Third-Quarter 2022 Results and Announces $1.8 Billion Reduction in Net Pension/OPEB Liabilities
October 25, 2022 7:00am EDT Download as PDF
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Third-quarter revenue of $5.7 billion
Third-quarter net income of $165 million
Third-quarter Adjusted EBITDA1 of $452 million
$1.8 billion reduction in pro forma pension/OPEB net liabilities from previous remeasurement
CLEVELAND--(BUSINESS WIRE)-- Cleveland-Cliffs Inc. (NYSE: CLF) today reported third-quarter results for the period ended September 30, 2022.
Third-quarter 2022 consolidated revenues were $5.7 billion, compared to the prior-year third-quarter revenues of $6.0 billion. For the third quarter of 2022, the Company recorded net income of $165 million, or $0.29 per diluted share attributable to Cliffs shareholders. In the prior-year third quarter, the Company recorded net income of $1.3 billion, or $2.33 per diluted share.
For the nine months ended September 30, 2022, the Company recorded revenues of $17.9 billion and net income of $1.6 billion, or $2.95 per diluted share. In the first nine months of 2021, the Company recorded revenues of $15.1 billion and net income of $2.1 billion, or $3.69 per diluted share.
Pension/OPEB Liability Reduction
In conjunction with its newly ratified labor agreements with the United Steelworkers, the Company has remeasured its associated pension/OPEB plan assets and obligations. Pro forma pension/OPEB liabilities, net of assets, were reduced by $1.8 billion, or 63%, since the last remeasurement on December 31, 2021. The reduction is due primarily to lower healthcare premiums negotiated separately from the labor agreements. Due to ratification timing, the full impact was not reflected on this quarter's balance sheet. The Company has provided the table below with pro forma information.
(In Millions)
Pension/OPEB2
Actual
Actual
Pro forma
December 31,
2021
September 30,
2022
September 30,
2022
Non-current assets
$
224
$
390
$
390
Current liabilities
(135
)
(134
)
(98
)
Non-current liabilities
(2,961
)
(2,751
)
(1,359
)
Funded Status
$
(2,872
)
$
(2,495
)
$
(1,067
)
The remeasurement reflects updates for plan amendments, discount rates, asset values, and other actuarial assumptions as of September 30, 2022, for the affected plans. The impact of higher interest rates was mostly offset by lower market returns during 2022.
As an additional benefit, Cliffs expects cash flow requirements related to OPEB plans to be reduced by more than $100 million annually, or approximately 50%, going forward.
Third-quarter 2022 Adjusted EBITDA1 was $452 million, compared to Adjusted EBITDA1 of $1.9 billion in the third quarter of 2021. For the first nine months of 2022, the Company reported Adjusted EBITDA1 of $3.0 billion, compared to $3.8 billion for the same period in 2021.
(In Millions)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
Adjusted EBITDA1
Steelmaking
$
436
$
1,934
$
2,967
$
3,796
Other Businesses
9
6
58
25
Eliminations (A)
7
(7
)
8
(15
)
Total Adjusted EBITDA1
$
452
$
1,933
$
3,033
$
3,806
(A) Starting in 2022, the Company has allocated Corporate SG&A to its operating segments. Prior periods have been adjusted to reflect this change. The Eliminations line now only includes sales between segments.
Lourenco Goncalves, Cliffs' Chairman, President, and CEO said: “Our third quarter results were affected by the delayed inventory impact of higher input costs and maintenance activities from prior periods. Now, that all major projects have been concluded and production levels are back to normal, we expect costs to decline meaningfully, into Q4 and further into 2023.”
Mr. Goncalves added: “Shipments to our automotive clients significantly improved in Q3, achieving a level among the highest in six quarters. That allowed us to hold sales volumes steady in Q3, despite much weaker service center activity. We expect this positive trend in automotive shipments to continue into Q4, with the added benefit of improved pricing from our successful renewal of contracts pertaining to the October cycle. As the automotive industry increases production, supply on the spot trade should tighten. That supports pricing going forward.”
Mr. Goncalves continued: “The most important event of our third quarter was the agreement and subsequent ratification of the new 4-year labor contracts with our USW-represented employees, corresponding to over half of our workforce. In parallel, we used our scale to successfully negotiate better healthcare rates for our retirees, achieving a massive reduction in our post-retirement liabilities.”
Mr. Goncalves concluded: “It is well known that the assumption of Pension & OPEB liabilities at the time of the acquisition was the main source of enterprise value we leveraged to in order acquire the U.S. assets from ArcelorMittal in December 2020. Fast forward, our combined total balance of $4.2 billion in liabilities following the acquisition has been made irrelevant, as we now have only $1.1 billion remaining on the books. We also concurrently renegotiated lower healthcare premiums for our non-USW retiree plans, which have not been remeasured yet. The remeasurement of these non-USW plans will happen at year-end, when we expect the total Pension & OPEB liabilities to be even lower than what is shown in the pro-forma's at this time.”
Steelmaking
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
External Sales Volumes
Steel Products (net tons)
3,635
4,153
10,913
12,502
Selling Price - Per Net Ton
Average net selling price per net ton of steel products
$
1,360
$
1,334
$
1,431
$
1,122
Operating Results - In Millions
Revenues
$
5,511
$
5,869
$
17,481
$
14,710
Cost of goods sold
(5,167
)
(4,098
)
(14,948
)
(11,472
)
Gross margin
$
344
$
1,771
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