- U.S. Iron Ore Realized Revenue
increases 32 percent to $105 per long ton
- Increases full-year U.S. Iron Ore
pellet sales volume expectation to 20.5 million long tons
Cleveland-Cliffs Inc. (NYSE: CLF) today reported
first-quarter results for the period ended March 31, 2018.
As previously discussed, on January 1, 2018, Cliffs adopted the
new revenue recognition standard and recognized the cumulative
effect of this change as an addition to the opening balance of
retained earnings of $34 million. Under ASC Topic 606, revenue will
generally be recognized upon delivery for Cliffs' U.S. Iron Ore
customers, which in most cases is earlier than under the previous
standard. Therefore, as a result of the adoption of the standard
and the annual winter closure of the Soo Locks, revenues and net
income will be relatively lower than historical levels during the
first quarter and relatively higher than historical levels during
the remaining nine months.
Comparative period information has not been restated and
continues to be reported under the accounting standards in effect
for those periods.
The Company reported consolidated revenues of $239 million,
compared to the prior year's first-quarter revenues of $462
million. Cost of goods sold was $243 million compared to $365
million reported in the first quarter of 2017.
Consolidated results included a negative earnings contribution
from the Asia Pacific Iron Ore segment, where Cliffs has ceased all
mining activity. Upon the completion of shipping activity, expected
in the second quarter of 2018, this business will be treated as a
discontinued operation and no longer included in continuing
business results.
The Company recorded a net loss of $84 million in the first
quarter, which included a $71 million loss related to Asia Pacific
Iron Ore. This segment loss included $47 million, or $0.16 per
share, in unusual charges related to the closure of the mine. In
addition, the Company recorded $16 million, or $0.05 per share, in
income tax expense primarily related to a recent IRS notice
regarding sequestration of refundable AMT credits.
For the first quarter of 2018, Adjusted EBITDA1 of $12 million
included a $77 million contribution from U.S. Iron Ore, a 20
percent increase from the prior-year quarter. The U.S. Iron Ore
contribution was partially offset by an Asia Pacific Iron Ore
Adjusted EBITDA1 loss of $40 million, which included several
closure-related charges.
(In Millions) Three Months Ended March
31, 2018 2017 Adjusted EBITDA U.S. Iron Ore
$ 77.1 $ 64.1 Asia Pacific Iron Ore
(39.6
) 53.8 Corporate/Other
(25.9 ) (25.7 ) Total
Adjusted EBITDA
$ 11.6 $ 92.2
Lourenco Goncalves, Cliffs' Chairman, President and Chief
Executive Officer, said, “The year started very well for our pellet
business, with better-than-expected performance for both tonnage
shipped and price realization. The Great Lakes ice melting earlier
than forecasted has helped our blast furnace clients to start a
much needed replenishing of their depleted pellet inventories ahead
of their own expectations. To illustrate its strength thus far, we
outperformed our EBITDA from last year's first quarter in U.S. Iron
Ore, despite only recording about half the sales volumes.” Mr.
Goncalves added: "We look forward to the U.S. being the singular
focus of our results for this year, as Asia Pacific is expected to
be treated as a discontinued operation upon its closure. As such,
all results of Asia Pacific, including those recorded this quarter,
should be excluded from our continuing operations by the time we
report next quarter." Mr. Goncalves concluded: “The strength in the
domestic steel market we have seen so far this year is sustainable,
and should support very strong results for Cleveland-Cliffs in
2018. With our enhanced pellet supply contracts, which are based on
the domestic hot rolled steel price, IODEX and Atlantic basin
pellet premium, we expect to deliver significantly increased EBITDA
and cash flow in 2018.”
U.S. Iron Ore
Three Months Ended March 31, 2018 2017
Volumes - In
Thousands of Long Tons
Sales volume
1,611 3,118 Production volume
4,500
4,277
Sales Margin - In
Millions
Revenues from product sales and services
$ 180.0 $
286.2 Cost of goods sold and operating expenses
118.5
237.2 Sales margin
$ 61.5 $ 49.0
Sales Margin -
Per Long Ton
Revenues from product sales and services*
$ 105.03 $
79.35 Cash cost of goods sold and operating expense rate2
57.05 58.37 Depreciation, depletion and amortization
9.81 5.26 Cost of goods sold and operating expenses*
66.86 63.63 Sales margin
$ 38.17
$ 15.72 *Excludes revenues and expenses related to domestic
freight, which are offsetting and have no impact on sales margin.
Revenues and expenses also exclude venture partner cost
reimbursements, where applicable.
U.S. Iron Ore pellet sales volume in the first quarter of 2018
was 1.6 million long tons. The decrease from the first-quarter 2017
volume of 3.1 million was driven by lower carryover tonnage from
the prior year nomination as well as the adoption of ASC Topic
606.
Realized revenues per ton of $105.03 increased 32 percent from
the prior-year period, primarily as a result of a favorable pricing
adjustment that was driven by the substantial increase in domestic
hot-rolled coil steel pricing. The increase was also attributable
to higher pellet premiums and a more favorable customer mix.
Cash cost of goods sold and operating expense rate2 in U.S. Iron
Ore was $57.05 per long ton, a 2 percent decrease from $58.37 per
long ton in the prior year's first quarter. The decrease was driven
by a combination of lower sales volumes and standard cost
methodology, which caused depreciation, depletion and amortization
to comprise a larger portion of overall cost of goods sold.
Asia Pacific Iron Ore
Three Months Ended March 31, 2018 2017
Volumes - In
Thousands of Metric Tons
Sales volume
1,656 3,043 Production volume
1,637
2,671
Sales Margin - In
Millions
Revenues from product sales and services
$ 59.0 $
175.4 Cost of goods sold and operating expenses
124.1
128.1 Sales margin
$ (65.1 ) $ 47.3
Sales Margin -
Per Metric Ton
Revenues from product sales and services*
$ 31.10 $
54.35 Cash cost of goods sold and operating expense rate2
66.36 37.27 Depreciation, depletion and amortization
4.05 1.54 Cost of goods sold and operating expenses*
70.41 38.81 Sales margin
$ (39.31
) $ 15.54 *Excludes revenues and expenses related to
freight, which are offsetting and have no impact on sales margin.
First-quarter 2018 Asia Pacific Iron Ore sales volume decreased
46 percent to 1.7 million metric tons, from 3.0 million metric tons
in the first quarter of 2017. The decrease was driven primarily by
lower production volumes, as a result of operational decisions
reflecting current market and mine conditions.
The realized revenue rate of $31.10 per metric ton decreased by
43 percent from the prior-year quarter as a result of increasing
market discounts for low-grade iron ore and lower iron ore
prices.
Cash cost of goods sold and operating expense rate2 in Asia
Pacific Iron Ore was $66.36 per metric ton, which includes
accounting adjustments that were required based on the planned
closure of the APIO operations. This includes a $22 million, or $13
per metric ton, adjustment to record saleable work-in process and
finished goods inventory at the lower of cost or net realizable
value. It also includes inventory impairments of $15 million, or $9
per metric ton, for inventory that is not expected to be sold; a $4
million, or $3 per metric ton, supplies inventory reserve; and a $2
million, or $1 per ton, unfavorable asset retirement obligation
adjustment.
Other Income Statement Items
Cliffs' net interest expense during the first quarter was $34
million, a 22 percent decrease when compared to the first-quarter
2017 expense of $43 million, as a result of capital structure
optimization initiatives executed by the Company during 2017.
Miscellaneous-net expense of $9 million included, among other
items, $5 million in charges related to the indefinite idle at
Empire mine and a $3 million long-lived asset impairment charge
related to the closure of the Asia Pacific Iron Ore business.
Outlook
2018 Outlook Summary
Per Long Ton Information
U.S. Iron Ore Revenues from product sales and
services (A) $ 102 - $107 Cost of goods sold and operating
expense rate $ 68 - $73 Less: Freight expense rate (B) $ 7
Depreciation, depletion & amortization rate $ 3 Cash cost of
goods sold and operating expense rate2 $ 58 - $63 Sales
volume (million long tons) 20.5 Production volume (million long
tons) 20.0 (A) This expectation is based on the assumption that
iron ore prices, steel prices, and pellet premiums will average for
the remainder of 2018 their respective year-to-date averages. (B)
Freight has an offsetting amount in revenue and has no impact on
sales margin.
U.S. Iron Ore Outlook (Long Tons)
Based on the assumption that iron ore prices, steel prices, and
pellet premiums will average for the remainder of 2018 their
respective year-to-date averages, Cliffs would realize USIO
revenue rates in the range of $102 to $107 per long ton. This
represents an increase from the prior calculation based on the
substantial increase in hot-rolled coil steel prices, partially
offset by lower iron ore prices.
As a result of strong market demand for pellets in the Great
Lakes, Cliffs has increased its full-year sales volume expectation
by 500,000 long tons to 20.5 million long tons. Its production
volume expectation of 20 million tons was maintained.
Cliffs' full-year 2018 U.S. Iron Ore cash cost of goods sold and
operating expense2 expectation was maintained at $58 - $63 per long
ton.
SG&A Expenses and Other Expectations
Cliffs' full-year 2018 SG&A expense expectation of $115
million was maintained. Cliffs also notes that of the $115 million
expectation, approximately $20 million is considered non-cash.
The Company's full-year 2018 interest expense is expected to be
approximately $130 million. Full-year 2018 depreciation, depletion
and amortization associated with U.S. Iron Ore and Corporate/Other
is expected to be approximately $80 million.
Capital Expenditures
Cliffs provided the following updates to its 2018 capital
expenditures budget:
- the Toledo HBI Project spend
expectation was reduced by $25 million to $225 million due to
further development and refined timing of the project spending
plan;
- the sustaining capital expectation of
$85 million was maintained; and
- the Northshore Mine upgrade spend
expectation of $50 million was maintained.
Conference Call Information
Cleveland-Cliffs Inc. will host a conference call this morning,
April 20, 2017, 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 Inc. is the largest and oldest
independent iron ore mining company in the United States. We are a
major supplier of iron ore pellets to the North American steel
industry from our mines and pellet plants located in Michigan and
Minnesota. Additionally, we operate an iron ore mining complex in
Western Australia. By 2020, Cliffs expects to be the sole producer
of hot briquetted iron (HBI) in the Great Lakes region with the
development of its first production plant in Toledo, Ohio. Driven
by the core values of safety, social, environmental and capital
stewardship, our employees endeavor to provide all stakeholders
with operating and financial transparency. For more information,
visit http://www.clevelandcliffs.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 Cliffs’ 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 Cliffs’ future performance and
cause results to differ from the forward-looking statements in this
release include, but are not limited to: uncertainty and weaknesses
in global economic conditions, including downward pressure on
prices caused by oversupply or imported products, the impact of
barriers to trade, the outcomes of trade cases, reduced market
demand and any change to the economic growth rate in China;
continued volatility of iron ore and steel prices and other trends,
including the supply approach of the major iron ore producers,
affecting our financial condition, results of operations or future
prospects specifically, the impact of price-adjustment factors on
our sales contracts; our ability to successfully diversify our
product mix and add new customers beyond our traditional blast
furnace clientele, specifically successful completion of our HBI
production plant; our level of indebtedness could limit cash flow
available to fund working capital, capital expenditures,
acquisitions and other general corporate purposes or ongoing needs
of our business; availability of capital and our ability to
maintain adequate liquidity; risks related to former and current
international operations, including our ability to successfully
conclude the CCAA process in Canada and plan to close our Asia
Pacific business in a manner that minimizes cash outflows and
associated liabilities; our actual economic iron ore reserves or
changes in current mineral estimates, including whether any
mineralized material qualifies as a reserve; the impact of our
customers reducing their steel production due to increased market
share of steel produced using other methods or lighter-weight steel
alternatives; the ability of our customers, joint venture partners
and significant suppliers and service providers to meet their
obligations to us on a timely basis or at all; the outcome of any
litigation or arbitration, including any contractual disputes with
our customers, joint venture partners or significant energy,
material or service providers; our ability to maintain satisfactory
relations with unions and employees; 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; problems or uncertainties with
productivity, tons mined, transportation, capital spending,
mine-closure obligations, environmental liabilities, employee
benefit costs and other risks of the mining industry; our ability
to cost-effectively achieve planned production rates or levels,
including at our HBI production plant; our ability to successfully
identify and consummate any strategic investments or development
projects, including our HBI production plant; changes in sales
volume or mix; our ability to reach agreement with our customers
regarding any modifications to sales contract provisions, renewals
or new arrangements; events or circumstances that could impair or
adversely impact the viability of a 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 and other unexpected events; adverse
changes in currency values, currency exchange rates, interest rates
and tax laws; uncertainty relating to restructurings in the steel
industry and/or affecting the steel industry; and the potential
existence of significant deficiencies or material weaknesses in our
internal control over financial reporting.
For additional factors affecting the business of Cliffs, refer
to Part I – Item 1A. Risk Factors of our Annual Report on Form
10-K for the year ended December 31, 2017. 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 March 31, 2018 2017 REVENUES FROM
PRODUCT SALES AND SERVICES Product
$ 220.7 $ 412.8
Freight and venture partners' cost reimbursements
18.3
48.8
239.0 461.6 COST OF GOODS SOLD AND
OPERATING EXPENSES
(242.6 ) (365.3 ) SALES MARGIN
(3.6 ) 96.3 OTHER OPERATING INCOME (EXPENSE) Selling,
general and administrative expenses
(27.7 ) (27.7 )
Miscellaneous – net
(8.7 ) 11.5
(36.4
) (16.2 ) OPERATING INCOME (LOSS)
(40.0 ) 80.1
OTHER INCOME (EXPENSE) Interest expense, net
(33.5 )
(42.8 ) Loss on extinguishment of debt
— (71.9 ) Other
non-operating income
4.4 2.5
(29.1
) (112.2 ) LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES
(69.1 ) (32.1 ) INCOME TAX BENEFIT (EXPENSE)
(15.7 ) 1.8 LOSS FROM CONTINUING OPERATIONS
(84.8 ) (30.3 ) INCOME FROM DISCONTINUED OPERATIONS,
NET OF TAX
0.5 0.5 NET LOSS
(84.3
) (29.8 ) LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
— 1.7 NET LOSS ATTRIBUTABLE TO CLIFFS
SHAREHOLDERS
$ (84.3 ) $ (28.1 ) LOSS PER
COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS – BASIC Continuing
operations
$ (0.29 ) $ (0.11 ) Discontinued
operations
— —
$ (0.29 )
$ (0.11 ) LOSS PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
– DILUTED Continuing operations
$ (0.29 ) $
(0.11 ) Discontinued operations
— —
$
(0.29 ) $ (0.11 ) AVERAGE NUMBER OF SHARES (IN
THOUSANDS) Basic
297,266 265,164 Diluted
297,266
265,164
CLEVELAND-CLIFFS INC. AND SUBSIDIARIES
STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
POSITION (In Millions) March 31, December
31,
2018 2017
ASSETS
CURRENT ASSETS Cash and cash equivalents
$ 786.6 $
1,007.7 Accounts receivable, net
47.2 140.6 Inventories
324.4 183.4 Supplies and other inventories
81.7 93.9
Derivative assets
93.6 39.4 Loans to and accounts receivable
from the Canadian Entities
50.4 51.6 Other current assets
28.5 28.0 TOTAL CURRENT ASSETS
1,412.4
1,544.6 PROPERTY, PLANT AND EQUIPMENT, NET
1,047.3 1,051.0
OTHER ASSETS Deposits for property, plant and equipment
74.1
17.8 Income tax receivable
219.9 235.3 Other non-current
assets
109.2 104.7 TOTAL OTHER ASSETS
403.2 357.8 TOTAL ASSETS
$
2,862.9 $ 2,953.4
LIABILITIES
CURRENT LIABILITIES Accounts payable
$ 99.5 $ 127.7
Accrued expenses
94.4 107.1 Accrued interest
28.2
31.4 Contingent claims
54.3 55.6 Partnership distribution
payable
44.2 44.2 Other current liabilities
104.3
86.2 TOTAL CURRENT LIABILITIES
424.9 452.2
PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES
251.4 257.7
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
181.2 196.5
LONG-TERM DEBT
2,308.2 2,304.2 OTHER LIABILITIES
182.0 186.9 TOTAL LIABILITIES
3,347.7
3,397.5
EQUITY
CLIFFS SHAREHOLDERS' DEFICIT
(485.0 ) (444.3 )
NONCONTROLLING INTEREST
0.2 0.2 TOTAL DEFICIT
(484.8 ) (444.1 ) TOTAL LIABILITIES AND DEFICIT
$ 2,862.9 $ 2,953.4
CLEVELAND-CLIFFS INC. AND SUBSIDIARIES STATEMENTS OF
UNAUDITED CONDENSED CONSOLIDATED CASH FLOWS (In
Millions) Three Months Ended March 31,
2018 2017 OPERATING ACTIVITIES Net loss
$
(84.3 ) $ (29.8 ) Adjustments to reconcile net loss
to net cash used by operating activities: Depreciation, depletion
and amortization
23.9 23.2 Loss on
extinguishment/restructuring of debt
— 71.9 Gain on
derivatives
(40.8 ) (17.7 ) Other
25.9 0.8
Changes in operating assets and liabilities: Receivables and other
assets
196.3 86.5 Inventories
(193.0 ) (70.0 )
Payables, accrued expenses and other liabilities
(70.9
) (90.0 ) Net cash used by operating activities
(142.9 ) (25.1 ) INVESTING ACTIVITIES Purchase of
property, plant and equipment
(12.4 ) (25.9 )
Deposits for property, plant and equipment
(59.0 )
(2.0 ) Other investing activities
— 0.5 Net
cash used by investing activities
(71.4 ) (27.4 )
FINANCING ACTIVITIES Proceeds from issuance of debt
— 500.0
Debt issuance costs
(1.5 ) (8.5 ) Net proceeds from
issuance of common shares
— 661.3 Repurchase of debt
— (1,115.5 ) Distributions of partnership equity
—
(8.7 ) Other financing activities
(5.5 ) (5.6 ) Net
cash provided (used) by financing activities
(7.0 )
23.0 EFFECT OF EXCHANGE RATE CHANGES ON CASH
0.2 1.4
DECREASE IN CASH AND CASH EQUIVALENTS
(221.1 )
(28.1 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
1,007.7 323.4 CASH AND CASH EQUIVALENTS AT END
OF PERIOD
$ 786.6 $ 295.3
1 CLEVELAND-CLIFFS INC. AND
SUBSIDIARIESNON-GAAP RECONCILIATION - EBITDA AND ADJUSTED
EBITDA
In addition to the consolidated financial statements presented
in accordance with U.S. GAAP, the Company has presented adjusted
EBITDA on a segment basis, and both 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 March
31, 2018 2017 Net Loss
$ (84.3
) $ (29.8 ) Less: Interest expense, net
(33.5
) (42.8 ) Income tax benefit (expense)
(15.7 )
1.8 Depreciation, depletion and amortization
(23.9 )
(23.2 ) EBITDA
$ (11.2 ) $ 34.4
Less: Inventory impairments
$ (18.9 ) $ —
Impairment of long-lived assets
(2.6 ) — Severance
and retention costs
(1.5 ) — Impact of discontinued
operations
0.5 0.5 Foreign exchange remeasurement
(0.3 ) 13.6 Loss on extinguishment of debt
—
(71.9 ) Adjusted EBITDA
$ 11.6 $ 92.2
2 CLEVELAND-CLIFFS INC. AND
SUBSIDIARIESNON-GAAP RECONCILIATION EXPLANATIONS
The Company presents cash cost of goods sold and operating
expense rate per long/metric 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 and operating expenses is useful to investors because it
excludes depreciation, depletion and amortization, which are
non-cash, and freight and venture partners' cost reimbursements,
which have 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.
(In Millions) Three Months Ended March 31,
Three Months Ended March 31,
2018 2017
U.S.
Iron Asia Pacific U.S. Iron Asia
Pacific
Ore Iron Ore Total Ore Iron Ore
Total Cost of goods sold and operating expenses
$
(118.5 ) $ (124.1 ) $
(242.6 ) $ (237.2 ) $ (128.1 ) $ (365.3 ) Less:
Freight and reimbursements
(10.8 ) (7.5
) (18.3 ) (38.8 ) (10.0 ) (48.8 )
Depreciation, depletion & amortization
(15.8 )
(6.7 ) (22.5 ) (16.4 ) (4.7 ) (21.1 )
Cash cost of goods sold and operating expenses
$
(91.9 ) $ (109.9 ) $
(201.8 ) $ (182.0 ) $ (113.4 ) $ (295.4 )
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180420005095/en/
Cleveland-Cliffs Inc.Media Contact:Patricia Persico,
216-694-5316Director, Corporate CommunicationsorInvestor
Contact:Paul Finan, 216-694-6544Director, Investor
Relations
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