EX-99.1 2 clf-20199308xkex991.htm EXHIBIT 99.1 Exhibit
EXHIBIT 99.1

clevelandcliffsa06.jpg
NEWS RELEASE
Cleveland-Cliffs Inc. Reports Third-Quarter 2019 Results
•
Net income of $91 million, or $0.33 per diluted share
•
Adjusted EBITDA1 of $144 million

CLEVELAND—October 23, 2019—Cleveland-Cliffs Inc. (NYSE: CLF) today reported third-quarter results for the period ended September 30, 2019.
The Company reported consolidated revenues of $556 million, compared to the prior year's third-quarter consolidated revenues of $742 million. Cost of goods sold was $401 million compared to $480 million reported in the third quarter of 2018.
The Company recorded net income of $91 million, or $0.33 per diluted share. This compares to net income of $438 million, or $1.41 per diluted share recorded in the prior-year quarter, which included a one-time gain of $228 million related to historical changes in foreign currency translation. For the nine months ended September 30, 2019, net income was $230 million, compared to $519 million during the same period in 2018.
For the third quarter of 2019, the Company reported adjusted EBITDA1 of $144 million.
 
(In Millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Adjusted EBITDA1
 
 
 
 
 
 
 
    Mining and Pelletizing
$
182.7

 
$
279.5

 
$
510.7

 
$
657.9

    Metallics
(2.1
)
 
(1.0
)
 
(4.0
)
 
(2.5
)
    Corporate
(36.5
)
 
(28.2
)
 
(93.0
)
 
(77.1
)
Total Adjusted EBITDA1
$
144.1

 
$
250.3

 
$
413.7

 
$
578.3

“This past quarter was a story of continued execution at both the operational level and at our HBI site under construction in Toledo. While irrational behavior by one major supplier in the pellet marketplace has dampened the Atlantic Basin pellet premium, our business remains on solid footing with a very strong balance sheet supporting our world-class operations in Minnesota and in Michigan." Mr. Goncalves concluded, "We believe the currently weak steel prices in the United States are temporary, and the cyclicality associated with our business should be largely mitigated as we start-up HBI next year. With that, Cliffs is

1

well-positioned to become an even stronger free-cash-flow generating enterprise, with limited cash needs and the ability to return even more capital to our shareholders."

Mining and Pelletizing
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
Volumes - In Thousands of Long Tons
 
 
 
 
 
 
 
 
Sales volume
 
5,750

 
6,481

 
13,527

 
14,060

Production volume
 
5,159

 
4,719

 
14,737

 
14,731

Sales Margin - In Millions
 
 
 
 
 
 
 
 
Revenues from product sales and services
 
$
590.6

 
$
741.8

 
$
1,494.8

 
$
1,636.1

Cost of goods sold
 
(424.8
)
 
(480.2
)
 
(1,033.5
)
 
(1,028.5
)
Sales margin
 
$
165.8

 
$
261.6

 
$
461.3

 
$
607.6

Sales Margin - Per Long Ton
 
 
 
 
 
 
 
 
Revenues from product sales and services*
 
$
95.65

 
$
105.65

 
$
103.26

 
$
108.53


 
 
 
 
 
 
 
 
Cash cost of goods sold rate2
 
63.20

 
62.54

 
64.80

 
61.81

Depreciation, depletion and amortization
 
3.62

 
2.75

 
4.35

 
3.50

Cost of goods sold*
 
66.82

 
65.29

 
69.15

 
65.31

Sales margin
 
$
28.83

 
$
40.36

 
$
34.11

 
$
43.22

 
 
 
 
 
 
 
 
 
*Excludes revenues and expenses related to domestic freight, which are offsetting and have no impact on sales margin.
Mining and Pelletizing pellet sales volume in the third quarter of 2019 was 5.8 million long tons, an 11 percent decrease from the prior-year quarter on reduced customer nominations, partially offset by intercompany sales to the Toledo HBI plant.
Realized revenues were $96 per long ton in the third quarter of 2019. The quarter's results were negatively impacted by an unfavorable true-up of previously sold volumes due to lower pellet premiums and HRC prices.

2


Outlook
 
 
2019 Outlook Summary
Per Long Ton Information
Mining and Pelletizing
Cost of goods sold rate
$73 - $78
Less:
 
    Freight expense rate (A)
$7
    Depreciation, depletion & amortization rate
$4
Cash cost of goods sold rate2
$62 - $67
 
 
Sales volume (million long tons)
19.5
Production volume (million long tons)
20.0
 
(A) Freight has an offsetting amount in revenue and has no impact on sales margin.

Mining and Pelletizing Outlook (Long Tons)
Based on the assumption that relevant pricing indices will average for the remainder of 2019 their respective year-to-date averages, Cliffs would expect to realize Mining and Pelletizing revenue rates in the range of $101 to $106 per long ton. Assuming spot prices as of October 22, 2019, including an iron ore price of $86 per metric ton, a hot-rolled coil steel price of $479 per short ton, and a pellet premium of $36 per metric ton, will average these levels for the remainder of 2019, Cliffs would expect to realize Mining and Pelletizing revenue rates in the range of $97 to $102 per long ton for the full-year 2019.

The 2019 sales volume expectation was revised to 19.5 million long tons, driven by seaborne export economics and timing. Cliffs' full-year 2019 Mining and Pelletizing cash cost of goods sold rate2 expectation is maintained at $62 to $67 per long ton.

Other Outlook
Cliffs' full-year 2019 SG&A expense expectation of $120 million is being maintained. Cliffs also notes that of the $120 million expectation, approximately $20 million is considered non-cash. The Company's full-year 2019 net interest expense expectation is maintained at $100 million. Full-year 2019 depreciation, depletion and amortization is expected to be approximately $85 million.

The Company has lowered its effective tax rate expectation for 2019 to approximately 10 percent, from its previous expectation of 12-14 percent.  Due to the Company's NOL position, its cash tax payments are expected to be zero.

Cliffs' 2019 total capital expenditures expectation was reduced to approximately $625-$675 million, from its previous expectation of $650-$700 million.


3


Conference Call Information
Cleveland-Cliffs Inc. will host a conference call this morning, October 23, 2019, at 9 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. The company is 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, Cliffs' employees endeavor to provide all stakeholders with operating and financial transparency. For more information, visit http://www.clevelandcliffs.com.



4


Forward-Looking Statements
This report 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 our 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 report, and we undertake no ongoing obligation, other than that imposed by law, to update these statements. Uncertainties and risk factors that could affect our future performance and cause results to differ from the forward-looking statements in this report 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 United States-Mexico-Canada Agreement and/or other trade agreements, treaties or policies; continued volatility of iron ore and steel prices and other trends, which may impact the price-adjustment calculations under our sales contracts; our ability to successfully diversify our product mix and add new customers beyond our traditional blast furnace clientele; our ability to cost-effectively achieve planned production rates or levels, including at our HBI plant; our ability to successfully identify and consummate any strategic investments or development projects, including our HBI 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; our actual economic iron ore reserves or reductions in current mineral estimates, including whether any mineralized material qualifies as a reserve; 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; problems or uncertainties with sales volume or mix, productivity, tons mined, transportation, mine closure obligations, environmental liabilities, employee-benefit costs and other risks of the mining industry; 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; our ability to maintain adequate liquidity, our level of indebtedness and the availability of capital could limit cash flow available to fund working capital, planned capital expenditures, acquisitions and other general corporate purposes or ongoing needs of our business; our ability to continue to pay cash dividends, and the amount and timing of any cash dividends; our ability to maintain appropriate relations with unions and employees; the ability of our customers, joint venture partners and third party service providers to meet their obligations to us on a timely basis or at all; events or circumstances that could impair or adversely impact the viability of a mine or production plant 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 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 II – Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2018. You are urged to carefully consider these risk factors.
SOURCE: Cleveland-Cliffs Inc.
MEDIA CONTACT:
 
INVESTOR CONTACT:
Patricia Persico
Director, Corporate Communications
(216) 694-5316
  
Paul Finan
Director, Investor Relations
(216) 694-6544
FINANCIAL TABLES FOLLOW
###

5


CLEVELAND-CLIFFS INC. AND SUBSIDIARIES
STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED OPERATIONS

 
(In Millions, Except Per Share Amounts)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
REVENUES FROM PRODUCT SALES AND SERVICES
 
 
 
 
 
 
 
Product
$
515.0

 
$
684.7

 
$
1,357.8

 
$
1,525.9

Freight
40.6

 
57.1

 
98.0

 
110.2


555.6

 
741.8

 
1,455.8

 
1,636.1

COST OF GOODS SOLD
(400.7
)
 
(480.2
)
 
(1,007.0
)
 
(1,028.5
)
SALES MARGIN
154.9

 
261.6

 
448.8

 
607.6

OTHER OPERATING EXPENSE
 
 
 
 
 
 
 
Selling, general and administrative expenses
(25.5
)
 
(29.1
)
 
(82.2
)
 
(78.9
)
Miscellaneous – net
(7.8
)
 
(7.0
)
 
(19.0
)
 
(18.7
)
 
(33.3
)
 
(36.1
)
 
(101.2
)
 
(97.6
)
OPERATING INCOME
121.6

 
225.5

 
347.6

 
510.0

OTHER INCOME (EXPENSE)
 
 
 
 
 
 
 
Interest expense, net
(25.3
)
 
(29.5
)
 
(76.5
)
 
(93.1
)
Gain (loss) on extinguishment of debt
—

 
—

 
(18.2
)
 
0.2

Other non-operating income
0.3

 
4.3

 
1.3

 
13.1

 
(25.0
)
 
(25.2
)
 
(93.4
)
 
(79.8
)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
96.6

 
200.3

 
254.2

 
430.2

INCOME TAX EXPENSE
(4.8
)
 
(0.5
)
 
(23.1
)
 
(14.4
)
INCOME FROM CONTINUING OPERATIONS
91.8

 
199.8

 
231.1

 
415.8

INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX
(0.9
)
 
238.0

 
(1.5
)
 
102.8

NET INCOME
$
90.9

 
$
437.8

 
$
229.6

 
$
518.6

 
 
 
 
 
 
 
 
EARNINGS (LOSS) PER COMMON SHARE – BASIC
 
 
 
 
 
 
 
Continuing operations
$
0.34

 
$
0.67

 
$
0.83

 
$
1.40

Discontinued operations
—

 
0.80

 
(0.01
)
 
0.35

 
$
0.34

 
$
1.47

 
$
0.82

 
$
1.75

EARNINGS (LOSS) PER COMMON SHARE – DILUTED
 
 
 
 
 
 
 
Continuing operations
$
0.33

 
$
0.64

 
$
0.80

 
$
1.37

Discontinued operations
—

 
0.77

 
—

 
0.34

 
$
0.33

 
$
1.41

 
$
0.80

 
$
1.71

AVERAGE NUMBER OF SHARES (IN THOUSANDS)
 
 
 
 
 
 
 
Basic
269,960

 
297,878

 
278,418

 
297,587

Diluted
276,578

 
310,203

 
287,755

 
303,518



6


CLEVELAND-CLIFFS INC. AND SUBSIDIARIES
STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED FINANCIAL POSITION

 
(In Millions)
 
September 30,
2019
 
December 31,
2018
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
399.3

 
$
823.2

Accounts receivable, net
164.9

 
226.7

Finished goods inventories
162.2

 
77.8

Work-in-process inventories
55.2

 
10.1

Supplies and other inventories
110.8

 
93.2

Derivative assets
72.8

 
91.5

Income tax receivable, current
58.7

 
117.3

Other current assets
40.7

 
39.8

TOTAL CURRENT ASSETS
1,064.6

 
1,479.6

PROPERTY, PLANT AND EQUIPMENT, NET
1,769.9

 
1,286.0

OTHER ASSETS
 
 
 
Deposits for property, plant and equipment
41.6

 
83.0

Income tax receivable, non-current
62.7

 
121.3

Deferred income taxes
437.5

 
464.8

Other non-current assets
114.9

 
94.9

TOTAL OTHER ASSETS
656.7

 
764.0

TOTAL ASSETS
$
3,491.2

 
$
3,529.6

LIABILITIES
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable
$
212.8

 
$
186.8

Accrued employment costs
57.3

 
74.0

Accrued interest
34.1

 
38.4

Derivative liabilities
32.6

 
3.7

Partnership distribution payable
—

 
43.5

Other current liabilities
121.7

 
121.8

TOTAL CURRENT LIABILITIES
458.5

 
468.2

PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES
233.2

 
248.7

ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
179.1

 
172.0

LONG-TERM DEBT
2,109.1

 
2,092.9

OTHER LIABILITIES
151.4

 
123.6

TOTAL LIABILITIES
3,131.3

 
3,105.4

EQUITY
 
 
 
TOTAL EQUITY
359.9

 
424.2

TOTAL LIABILITIES AND EQUITY
$
3,491.2

 
$
3,529.6


7


CLEVELAND-CLIFFS INC. AND SUBSIDIARIES
STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED CASH FLOWS


 
(In Millions)
 
Nine Months Ended
September 30,
 
2019
 
2018
OPERATING ACTIVITIES
 
 
 
Net income
$
229.6

 
$
518.6

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
63.1

 
68.6

Deferred income taxes
22.7

 
—

Loss (gain) on extinguishment of debt
18.2

 
(0.2
)
Change in derivatives
48.4

 
(136.4
)
Gain on foreign currency translation
—

 
(228.1
)
Other
49.4

 
5.7

Changes in operating assets and liabilities:
 
 
 
Receivables and other assets
156.5

 
96.2

Inventories
(129.4
)
 
(57.1
)
Payables, accrued expenses and other liabilities
(70.4
)
 
(78.6
)
Net cash provided by operating activities
388.1

 
188.7

INVESTING ACTIVITIES
 
 
 
Purchase of property, plant and equipment
(447.9
)
 
(111.4
)
Deposits for property, plant and equipment
(12.8
)
 
(83.3
)
Other investing activities
11.2

 
21.0

Net cash used by investing activities
(449.5
)
 
(173.7
)
FINANCING ACTIVITIES
 
 
 
Repurchase of common shares
(252.9
)
 
—

Dividends paid
(45.1
)
 
—

Proceeds from issuance of debt
720.9

 
—

Debt issuance costs
(6.8
)
 
(1.5
)
Repurchase of debt
(729.3
)
 
(16.3
)
Distributions of partnership equity
(44.2
)
 
(44.2
)
Other financing activities
(9.5
)
 
(45.7
)
Net cash used by financing activities
(366.9
)
 
(107.7
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
—

 
(2.3
)
DECREASE IN CASH AND CASH EQUIVALENTS, INCLUDING CASH CLASSIFIED WITHIN OTHER CURRENT ASSETS RELATED TO DISCONTINUED OPERATIONS
(428.3
)
 
(95.0
)
LESS: DECREASE IN CASH AND CASH EQUIVALENTS FROM DISCONTINUED OPERATIONS, CLASSIFIED WITHIN OTHER CURRENT ASSETS
(4.4
)
 
(13.8
)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(423.9
)
 
(81.2
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
823.2

 
978.3

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
399.3

 
$
897.1



8


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
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
90.9

 
$
437.8

 
$
229.6

 
$
518.6

Less:
 
 
 
 
 
 
 
Interest expense, net
(25.4
)
 
(29.7
)
 
(76.8
)
 
(95.5
)
Income tax expense
(4.8
)
 
(0.5
)
 
(23.1
)
 
(14.4
)
Depreciation, depletion and amortization
(22.2
)
 
(19.2
)
 
(63.1
)
 
(68.6
)
EBITDA
$
143.3

 
$
487.2

 
$
392.6

 
$
697.1

Less:
 
 
 
 
 
 
 
Impact of discontinued operations
$
(0.8
)
 
$
238.2

 
$
(1.2
)
 
$
120.4

Gain (loss) on extinguishment of debt
—

 
—

 
(18.2
)
 
0.2

Severance costs
—

 
—

 
(1.7
)
 
—

Foreign exchange remeasurement
—

 
(0.2
)
 
—

 
(0.7
)
Impairment of long-lived assets
—

 
(1.1
)
 
—

 
(1.1
)
Adjusted EBITDA
$
144.1

 
$
250.3

 
$
413.7

 
$
578.3




9


2 CLEVELAND-CLIFFS INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATION EXPLANATIONS
The Company presents cash cost of goods sold rate per long 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 is useful to investors because it excludes depreciation, depletion and amortization, which are non-cash, and freight, which has 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. Below is a reconciliation in dollars of this non-GAAP financial measure to the Mining and Pelletizing segment cost of goods sold.
 
 
(In Millions)
 
 
Mining and Pelletizing
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Cost of goods sold
 
$
424.8

 
$
480.2

 
$
1,033.5

 
$
1,028.5

Less:
 
 
 
 
 
 
 
 
Freight
 
40.6

 
57.1

 
98.0

 
110.2

Depreciation, depletion & amortization
 
20.8

 
17.8

 
58.9

 
49.2

Cash cost of goods sold
 
$
363.4

 
$
405.3

 
$
876.6

 
$
869.1





10