- Earnings per share from continuing
operations increases 171 percent to $0.76 per share
- U.S. Iron Ore realized revenue rate
increases 16 percent to $113 per long ton
- Full-year U.S. Iron Ore pellet sales
volume expectation increases to 21 million long tons
Cleveland-Cliffs Inc. (NYSE: CLF) today reported
second-quarter results for the period ended June 30, 2018.
The Company reported consolidated revenues of $714 million,
compared to the prior year's second-quarter revenues of $471
million. Cost of goods sold was $430 million compared to $327
million reported in the second quarter of 2017.
The Company recorded income from continuing operations of $229
million in the second quarter, or $0.76 per diluted share, compared
to $84 million, or $0.28 per diluted share, in the second quarter
of 2017. Net income for the quarter was $165 million, which
included a $64 million, or $0.21 per diluted share, loss from
discontinued operations, primarily associated with the Company's
Asia Pacific Iron Ore assets. This compares to net income of $30
million in the second quarter of 2017. For the six months ended
June 30, 2018, net income was $81 million, compared to $0.3 million
during the same period in 2017.
For the second quarter of 2018, the Company reported adjusted
EBITDA1 of $276 million, a 103 percent increase from the
prior-year's second quarter adjusted EBITDA1 of $136 million.
(In Millions) Three Months Ended Six
Months Ended June 30, June 30, 2018
2017
2018 2017 Adjusted EBITDA1 U.S. Iron Ore
$ 301.3 $ 161.5
$ 378.4 $ 225.6
Corporate/Other
(25.6 ) (26.0 )
(50.4 )
(50.5 ) Total Adjusted EBITDA1
$ 275.7 $ 135.5
$ 328.0 $ 175.1
Lourenco Goncalves, Cleveland-Cliffs' Chairman, President and
Chief Executive Officer, said, “Our second quarter is a definitive
statement about the new Cliffs and our earnings power. After almost
four years of consistent execution of a well-designed and
thoroughly implemented strategy, our company has become a very
powerful cash-generating enterprise. With the announced sale of the
Asia Pacific Iron Ore segment, we have now completed our multi-year
transformation back to our roots as a supplier of high-grade iron
units to the Great Lakes steel industry. This transformation has
enabled us to take full advantage of our unique position within the
Great Lakes steel market and, with that, the following quarters
should be a continuation of this strong second quarter, with the
added positive contribution of the usual favorable seasonality of
warmer weather during the entire second half of the year. As a
consequence, we expect to generate in 2018 a level of free cash
flow that we have not seen in years." Mr. Goncalves added, “Going
forward, we expect 2019 to be a continuation of a great 2018, based
on the renewed strength of American manufacturing, the multi-year
positive impact of the tax reform implemented in 2018 in the United
States, and our strong position as the supplier of iron ore pellets
within the Great Lakes region.” Mr. Goncalves concluded, "Our
strategy is not only to protect our strong market position in the
Great Lakes, but to grow and evolve with the continuously changing
steel industry by supplying high-performance ore-based metallics to
Electric Arc Furnaces, starting in 2020. This evolution should
further improve our already tremendous profitability in the coming
years."
U.S. Iron Ore
Three Months Ended Six Months Ended June
30, June 30, 2018 2017
2018
2017
Volumes - In Thousands of Long Tons Sales
volume
5,968 4,310
7,579 7,428 Production volume
5,512 4,691
10,012 8,968
Sales Margin - In
Millions Revenues from product sales and services
$ 714.3 $ 471.3
$ 894.3 $ 757.5 Cost of
goods sold and operating expenses
429.8 326.6
548.3 563.8 Sales margin
$ 284.5
$ 144.7
$ 346.0 $ 193.7
Sales
Margin - Per Long Ton Revenues from product sales and
services*
$ 112.60 $ 96.75
$ 110.99 $
89.43 Cash cost of goods sold and operating expense rate2
62.32 59.30
61.20 58.90 Depreciation, depletion and
amortization
2.61 3.87
4.14 4.46
Cost of goods sold and operating expenses*
64.93
63.17
65.34 63.36 Sales margin
$
47.67 $ 33.58
$ 45.65 $
26.07 * 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 second quarter of 2018
was 6.0 million long tons. The 38 percent increase from the
second-quarter 2017 volume of 4.3 million long tons was driven by
increased customer demand and the impact of the previously
disclosed adoption of the new revenue recognition accounting
standard.
Realized revenues per ton of $112.60 increased 16 percent from
the prior-year period, primarily as a result of increased steel
pricing and pellet premiums, which are magnified by favorable
contract structures.
Cash cost of goods sold and operating expense rate2 in U.S. Iron
Ore was $62.32 per long ton, compared to $59.30 per long ton in the
prior year's second quarter. The increase was driven by higher
costs related to product mix, energy rates, repairs, and royalties,
as well as higher employee-related expenses.
Other Income Statement Items
During June 2018, Cliffs completed a sale of the mobile
equipment in Australia to a third party and entered into a
definitive agreement to sell substantially all of the remaining
assets of the Asia Pacific Iron Ore business to Mineral Resources
Limited. The sale to Mineral Resources Limited has not been
completed due to the pendency of certain closing conditions. As a
result, for the period ended June 30, 2018 management determined
that the Asia Pacific Iron Ore operating segment met the criteria
to be classified as held for sale and a discontinued operation
under ASC 205, Presentation of Financial Statements. As such, all
current and historical Asia Pacific Iron Ore operating segment
results are classified within discontinued operations.
Miscellaneous-net expense of $4 million included, among other
items, $5 million in charges related to the indefinite idle at
Empire mine.
Outlook
2018 Outlook Summary Per Long Ton Information
U.S. Iron Ore Revenues from product sales and
services (A) $105 - $110 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) 21.0 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 $105 to $110 per long ton. This
represents an increase from the prior calculation based on the
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 21 million long tons. Its production volume
expectation of 20 million long tons is being maintained.
Cliffs' full-year 2018 U.S. Iron Ore cash cost of goods sold and
operating expense2 expectation is being maintained at $58 - $63 per
long ton.
SG&A Expenses and Other Expectations
Cliffs' full-year 2018 SG&A expense expectation of $115
million is being maintained. Cliffs also notes that of the $115
million expectation, approximately $20 million is considered
non-cash.
The Company's full-year 2018 net interest expense expectation is
being lowered by $10 million to $120 million, as income on
short-term instruments has increased in the current rate
environment.
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 $200 million due to
further development and refined timing of the project spending
plan;
- the sustaining capital expectation was
reduced by $10 million to $75 million; and
- the Northshore Mine upgrade spend
expectation of $50 million is being maintained.
Conference Call Information
Cleveland-Cliffs Inc. will host a conference call this morning,
July 20, 2018, 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. 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, reduced market
demand and risks related to U.S. government actions with respect to
Section 232 of the Trade Expansion Act (as amended by the Trade Act
of 1974), the North American Free Trade Agreement and/or other
trade agreements, treaties or policies; 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 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; 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; risks related to former
international operations, including our ability to successfully
conclude the CCAA process in Canada and to close
our Asia Pacific business in a manner that minimizes cash
outflows and associated liabilities, including, among other things,
our ability to successfully complete the sale of the assets of our
Asia Pacific Iron Ore business and our ability to reach negotiated
settlements with other third parties in Australia; our ability to
successfully diversify our product mix and add new customers beyond
our traditional blast furnace clientele; our actual economic iron
ore reserves or reductions in current mineral estimates, including
whether any mineralized material qualifies as a reserve; our
ability to maintain appropriate relations with unions and
employees; 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; the
ability of our customers and joint venture partners to meet their
obligations to us on a timely basis or at all; problems or
uncertainties with productivity, tons mined, transportation,
mine-closure obligations, environmental liabilities,
employee-benefit costs and other risks of the mining industry; our
ability to reach agreement with our customers regarding any
modifications to sales contract provisions, renewals or new
arrangements; our actual levels of capital spending; 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; changes
in sales volume or mix; 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;
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; 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; and the potential existence of significant deficiencies or
material weakness 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
Six Months Ended June 30, June
30, 2018 2017
2018 2017 REVENUES
FROM PRODUCT SALES AND SERVICES Product
$ 672.0 $
417.0
$ 841.2 $ 664.3 Freight and venture partners'
cost reimbursements
42.3 54.3
53.1
93.2
714.3 471.3
894.3 757.5 COST OF
GOODS SOLD AND OPERATING EXPENSES
(429.8 ) (326.6 )
(548.3 ) (563.8 ) SALES MARGIN
284.5 144.7
346.0 193.7 OTHER OPERATING INCOME (EXPENSE) Selling,
general and administrative expenses
(26.2 ) (26.6 )
(51.3 ) (51.7 ) Miscellaneous – net
(4.1
) (2.9 )
(10.2 ) 6.6
(30.3
) (29.5 )
(61.5 ) (45.1 ) OPERATING INCOME
254.2 115.2
284.5 148.6 OTHER INCOME (EXPENSE)
Interest expense, net
(31.2 ) (30.1 )
(63.6
) (71.5 ) Gain (loss) on extinguishment of debt
0.2
(4.9 )
0.2 (76.8 ) Other non-operating income
4.4
2.5
8.8 5.0
(26.6
) (32.5 )
(54.6 ) (143.3 ) INCOME FROM
CONTINUING OPERATIONS BEFORE INCOME TAXES
227.6 82.7
229.9 5.3 INCOME TAX BENEFIT (EXPENSE)
1.8 1.1
(13.9 ) — INCOME FROM CONTINUING
OPERATIONS
229.4 83.8
216.0 5.3 LOSS FROM
DISCONTINUED OPERATIONS, NET OF TAX
(64.3 ) (53.7 )
(135.2 ) (5.0 ) NET INCOME
165.1 30.1
80.8 0.3 LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
— 1.7
— 3.4 NET INCOME
ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$ 165.1 $
31.8
$ 80.8 $ 3.7 INCOME (LOSS)
PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS – BASIC
Continuing operations
$ 0.77 $ 0.28
$
0.73 $ 0.03 Discontinued operations
(0.22 )
(0.18 )
(0.46 ) (0.01 )
$ 0.55 $
0.10
$ 0.27 $ 0.02 INCOME (LOSS)
PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS – DILUTED
Continuing operations
$ 0.76 $ 0.28
$
0.72 $ 0.03 Discontinued operations
(0.21 )
(0.18 )
(0.45 ) (0.02 )
$ 0.55 $
0.10
$ 0.27 $ 0.01 AVERAGE
NUMBER OF SHARES (IN THOUSANDS) Basic
297,618 296,070
297,442 280,617 Diluted
301,275 300,711
301,143 285,247
CLEVELAND-CLIFFS INC. AND
SUBSIDIARIES STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL POSITION (In Millions) June 30,
December 31,
2018 2017
ASSETS
CURRENT ASSETS Cash and cash equivalents
$ 802.5 $
978.3 Accounts receivable, net
152.6 106.7 Inventories
256.4 138.4 Supplies and other inventories
88.6 88.8
Derivative assets
174.7 37.9 Current assets of discontinued
operations
45.3 118.5 Loans to and accounts receivable from
the Canadian Entities
— 51.6 Other current assets
26.8 24.4 TOTAL CURRENT ASSETS
1,546.9
1,544.6 PROPERTY, PLANT AND EQUIPMENT, NET
1,081.3 1,033.8
OTHER ASSETS Deposits for property, plant and equipment
85.7
17.8 Income tax receivable
219.9 235.3 Non-current assets of
discontinued operations
— 20.3 Other non-current assets
117.7 101.6 TOTAL OTHER ASSETS
423.3
375.0 TOTAL ASSETS
$ 3,051.5 $
2,953.4
LIABILITIES
CURRENT LIABILITIES Accounts payable
$ 119.0 $ 99.5
Accrued expenses
85.1 79.1 Accrued interest
43.1 31.4
Contingent claims
— 55.6 Partnership distribution payable
44.2 44.2 Current liabilities of discontinued operations
117.3 75.0 Other current liabilities
66.2 67.4
TOTAL CURRENT LIABILITIES
474.9 452.2
PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES
245.0 257.7
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
172.3 167.7
LONG-TERM DEBT
2,297.0 2,304.2 NON-CURRENT LIABILITIES OF
DISCONTINUED OPERATIONS
10.3 52.2 OTHER LIABILITIES
158.3 163.5 TOTAL LIABILITIES
3,357.8
3,397.5
EQUITY
CLIFFS SHAREHOLDERS' DEFICIT
(306.3 ) (444.3 )
NONCONTROLLING INTEREST
— 0.2 TOTAL DEFICIT
(306.3 ) (444.1 ) TOTAL LIABILITIES AND DEFICIT
$ 3,051.5 $ 2,953.4
CLEVELAND-CLIFFS INC. AND SUBSIDIARIES STATEMENTS OF
UNAUDITED CONDENSED CONSOLIDATED CASH FLOWS (In
Millions) Six Months Ended June 30, 2018
2017 OPERATING ACTIVITIES Net income
$ 80.8 $
0.3 Adjustments to reconcile net income to net cash provided (used)
by operating activities: Depreciation, depletion and amortization
49.4 44.8 Loss (gain) on extinguishment of debt
(0.2
) 76.8 Loss on deconsolidation
— 48.6 Gain on
derivatives
(123.5 ) (19.1 ) Other
12.6 10.8
Changes in operating assets and liabilities: Receivables and other
assets
61.8 68.3 Inventories
(125.6 ) (106.6 )
Payables, accrued expenses and other liabilities
(4.6
) (56.1 ) Net cash provided (used) by operating activities
(49.3 ) 67.8 INVESTING ACTIVITIES Purchase of
property, plant and equipment
(42.1 ) (44.3 )
Deposits for property, plant and equipment
(72.3 )
(5.1 ) Proceeds on sales of assets
14.6 1.1
Net cash used by investing activities
(99.8 ) (48.3 )
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
(15.3 ) (1,154.0 ) Distributions of partnership
equity
— (8.7 ) Other financing activities
(8.9
) (13.9 ) Net cash used by financing activities
(25.7
) (23.8 ) EFFECT OF EXCHANGE RATE CHANGES ON CASH
(1.0 ) 2.4 DECREASE IN CASH AND CASH
EQUIVALENTS, INCLUDING CASH CLASSIFIED WITHIN CURRENT ASSETS OF
DISCONTINUED OPERATIONS
(175.8 ) (1.9 )
LESS: INCREASE IN CASH AND CASH
EQUIVALENTS CLASSIFIED WITHIN CURRENT ASSETS OF DISCONTINUED
OPERATIONS
— 40.5 NET DECREASE IN CASH AND CASH
EQUIVALENTS
(175.8 ) (42.4 ) CASH AND CASH
EQUIVALENTS AT BEGINNING OF PERIOD
978.3 312.8
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$ 802.5
$ 270.4
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 Six
Months Ended June 30, June 30, 2018
2017
2018 2017 Net Income
$ 165.1 $
30.1
$ 80.8 $ 0.3 Less: Interest expense, net
(32.3 ) (31.4 )
(65.8 ) (74.2 ) Income
tax benefit (expense)
1.8 (2.6 )
(13.9 ) (0.8
) Depreciation, depletion and amortization
(25.5 )
(21.6 )
(49.4 ) (44.8 ) EBITDA
$ 221.1
$ 85.7
$ 209.9 $ 120.1
Less: Impact of discontinued operations
$ (54.7
) $ (45.4 )
$ (117.8 ) $ 6.5 Foreign
exchange remeasurement
(0.1 ) 0.5
(0.5
) 15.3 Gain (loss) on extinguishment of debt
0.2
(4.9 )
0.2 (76.8 ) Adjusted EBITDA
$
275.7 $ 135.5
$ 328.0 $
175.1
2 CLEVELAND-CLIFFS INC. AND
SUBSIDIARIES
NON-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) U.S. Iron Ore Three Months
Ended June 30, Six Months Ended June 30,
2018 2017
2018 2017 Cost of goods sold
and operating expenses
$ 429.8 $ 326.6
$
548.3 $ 563.8 Less: Freight and reimbursements
42.3
54.3
53.1 93.2 Depreciation, depletion & amortization
15.6 16.7
31.4 33.1 Cash cost of
goods sold and operating expenses
$ 371.9 $
255.6
$ 463.8 $ 437.5
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180720005046/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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