Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



	☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019



	☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 1-8944

CLEVELAND-CLIFFS INC.

(Exact Name of Registrant as Specified in Its Charter)



Ohio			34-1464672
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

200 Public Square,	Cleveland,	Ohio	44114-2315
(Address of Principal Executive Offices)			(Zip Code)

Registrant’s Telephone Number, Including Area Code: (216) 694-5700

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common shares, par value $0.125 per share	CLF	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The number of shares outstanding of the registrant’s common shares, par value $0.125 per share, was 270,082,088 as of October 21, 2019.

Table of Contents

TABLE OF CONTENTS


			Page Number

DEFINITIONS				1

PART I - FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2019 and December 31, 2018		2
		Statements of Unaudited Condensed Consolidated Operations for the Three and Nine Months Ended September 30, 2019 and 2018		4
		Statements of Unaudited Condensed Consolidated Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018		5
		Statements of Unaudited Condensed Consolidated Cash Flows for the Nine Months Ended September 30, 2019 and 2018		6
		Statements of Unaudited Condensed Consolidated Changes in Equity for the Three and Nine Months Ended September 30, 2019 and 2018		7
		Notes to Unaudited Condensed Consolidated Financial Statements		9
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		41
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		54
	Item 4.	Controls and Procedures		54

PART II - OTHER INFORMATION
	Item 1.	Legal Proceedings		56
	Item 1A.	Risk Factors		56
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		57
	Item 4.	Mine Safety Disclosures		57
	Item 5.	Other Information		57
	Item 6.	Exhibits		58

Signatures				59

Table of Contents

DEFINITIONS

The following abbreviations or acronyms are used in the text. References in this report to the “Company,” “we,” “us,” “our” and “Cliffs” are to Cleveland-Cliffs Inc. and subsidiaries, collectively.



Abbreviation or acronym		Term
A&R 2015 Equity Plan		Cliffs Natural Resources Inc. Amended and Restated 2015 Equity and Incentive Compensation Plan
ABL Facility		Amended and Restated Syndicated Facility Agreement by and among Bank of America, N.A., as Administrative Agent and Australian Security Trustee, the Lenders that are parties hereto, as the Lenders, Cleveland-Cliffs Inc., as Parent and a Borrower, and the Subsidiaries of Parent party hereto, as Borrowers dated as of March 30, 2015, and Amended and Restated as of February 28, 2018
Adjusted EBITDA		EBITDA excluding certain items such as extinguishment/restructuring of debt, impacts of discontinued operations, foreign currency exchange remeasurement, impairment of other long-lived assets, severance and intersegment corporate allocations of SG&A costs
ArcelorMittal		ArcelorMittal (as the parent company of ArcelorMittal Mines Canada, ArcelorMittal USA and ArcelorMittal Dofasco, as well as many other subsidiaries)
AMT		Alternative Minimum Tax
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
Bloom Lake Group		Bloom Lake General Partner Limited and certain of its affiliates, including Cliffs Quebec Iron Mining ULC
CCAA		Companies' Creditors Arrangement Act (Canada)
Compensation Committee		Compensation and Organization Committee of the Board of Directors
Dodd-Frank Act		Dodd-Frank Wall Street Reform and Consumer Protection Act
DR-grade		Direct Reduction-grade
EBITDA		Earnings before interest, taxes, depreciation and amortization
Empire		Empire Iron Mining Partnership
Exchange Act		Securities Exchange Act of 1934, as amended
FASB		Financial Accounting Standards Board
Fe		Iron
FMSH Act		U.S. Federal Mine Safety and Health Act 1977, as amended
GAAP		Accounting principles generally accepted in the United States
HBI		Hot briquetted iron
Hibbing		Hibbing Taconite Company, an unincorporated joint venture
Hot-rolled coil steel price		Estimated average annual daily market price for hot-rolled coil steel
Long ton		2,240 pounds
Metric ton		2,205 pounds
MMBtu		Million British Thermal Units
MSHA		U.S. Mine Safety and Health Administration
Net ton		2,000 pounds
Northshore		Northshore Mining Company
OPEB		Other postretirement employment benefits
Platts 62% Price		Platts IODEX 62% Fe Fines CFR North China
PPI		Producer Price Indices
SEC		U.S. Securities and Exchange Commission
SG&A		Selling, general and administrative
Tilden		Tilden Mining Company L.C.
Topic 606		ASC Topic 606, Revenue from Contracts with Customers
Topic 815		ASC Topic 815, Derivatives and Hedging
TSR		Total shareholder return
United Taconite		United Taconite LLC
U.S.		United States of America
U.S. Steel		U.S Steel Corporation and all subsidiaries
Wabush Group		Wabush Iron Co. Limited and Wabush Resources Inc., and certain of its affiliates, including Wabush Mines (an unincorporated joint venture of Wabush Iron Co. Limited and Wabush Resources Inc.), Arnaud Railway Company and Wabush Lake Railway Company

Table of Contents

PART I



Item 1.	Financial Statements

Statements of Unaudited Condensed Consolidated Financial Position

Cleveland-Cliffs Inc. and Subsidiaries



	(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

(continued)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Statements of Unaudited Condensed Consolidated Financial Position

Cleveland-Cliffs Inc. and Subsidiaries - (Continued)



	(In Millions)
	September 30, 2019			December 31, 2018
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
COMMITMENTS AND CONTINGENCIES (REFER TO NOTE 19)
EQUITY
SHAREHOLDERS' EQUITY
Preferred Stock - no par value
Class A - 3,000,000 shares authorized
Class B - 4,000,000 shares authorized
Common Shares - par value $0.125 per share
Authorized - 600,000,000 shares (2018 - 600,000,000 shares);
Issued - 301,886,794 shares (2018 - 301,886,794 shares);
Outstanding - 270,075,445 shares (2018 - 292,611,569 shares)	37.7			37.7
Capital in excess of par value of shares	3,867.7			3,916.7
Retained deficit	(2,889.0		)	(3,060.2		)
Cost of 31,811,349 common shares in treasury (2018 - 9,275,225 shares)	(390.9		)	(186.1		)
Accumulated other comprehensive loss	(265.6		)	(283.9		)
TOTAL EQUITY	359.9			424.2
TOTAL LIABILITIES AND EQUITY	$	3,491.2		$	3,529.6

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Statements of Unaudited Condensed Consolidated Operations

Cleveland-Cliffs Inc. and Subsidiaries



	(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

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Statements of Unaudited Condensed Consolidated Comprehensive Income

Cleveland-Cliffs Inc. and Subsidiaries



	(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
OTHER COMPREHENSIVE INCOME (LOSS)
Changes in pension and other post-retirement benefits, net of tax	5.8		6.8			17.3		20.2
Changes in foreign currency translation	—		(228.3		)	—		(225.4		)
Changes in derivative financial instruments, net of tax	0.4		0.3			1.0		0.8
OTHER COMPREHENSIVE INCOME (LOSS)	6.2		(221.2		)	18.3		(204.4		)
TOTAL COMPREHENSIVE INCOME	$	97.1	$	216.6		$	247.9	$	314.2

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Statements of Unaudited Condensed Consolidated Cash Flows

Cleveland-Cliffs Inc. and Subsidiaries



	(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

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Statements of Unaudited Condensed Consolidated Changes in Equity

Cleveland-Cliffs Inc. and Subsidiaries



	(In Millions)
	Number of Common Shares Outstanding		Par Value of Common Shares Issued		Capital in Excess of Par Value of Shares			Retained Deficit			Common Shares in Treasury			Accumulated Other Comprehensive Loss			Total
December 31, 2018	292.6		$	37.7	$	3,916.7		$	(3,060.2	)	$	(186.1	)	$	(283.9	)	$	424.2
Comprehensive income (loss)
Net loss	—		—		—			(22.1		)	—			—			(22.1		)
Other comprehensive income	—		—		—			—			—			8.4			8.4
Total comprehensive loss																	(13.7		)
Stock and other incentive plans	1.7		—		(56.5		)	—			46.5			—			(10.0		)
Common share repurchases	(11.5	)	—		—			—			(124.3		)	—			(124.3		)
Common share dividends ($0.05 per share)	—		—		—			(14.5		)	—			—			(14.5		)
March 31, 2019	282.8		$	37.7	$	3,860.2		$	(3,096.8	)	$	(263.9	)	$	(275.5	)	$	261.7
Comprehensive income
Net income	—		—		—			160.8			—			—			160.8
Other comprehensive income	—		—		—			—			—			3.7			3.7
Total comprehensive income																	164.5
Stock and other incentive plans	0.1		—		3.4			—			1.2			—			4.6
Common share repurchases	(12.9	)	—		—			—			(128.6		)	—			(128.6		)
Common share dividends ($0.06 per share)	—		—		—			(16.6		)	—			—			(16.6		)
June 30, 2019	270.0		$	37.7	$	3,863.6		$	(2,952.6	)	$	(391.3	)	$	(271.8	)	$	285.6
Comprehensive income
Net income	—		—		—			90.9			—			—			90.9
Other comprehensive income	—		—		—			—			—			6.2			6.2
Total comprehensive income																	97.1
Stock and other incentive plans	0.1		—		4.1			—			0.4			—			4.5
Common share dividends ($0.10 per share)	—		—		—			(27.3		)	—			—			(27.3		)
September 30, 2019	270.1		$	37.7	$	3,867.7		$	(2,889.0	)	$	(390.9	)	$	(265.6	)	$	359.9

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	(In Millions)
	Number of Common Shares Outstanding	Par Value of Common Shares Issued		Capital in Excess of Par Value of Shares			Retained Deficit			Common Shares in Treasury			Accumulated Other Comprehensive Loss			Non-Controlling Interest			Total
December 31, 2017	297.4	$	37.7	$	3,933.9		$	(4,207.3	)	$	(169.6	)	$	(39.0	)	$	0.2		$	(444.1	)
Adoption of accounting standard	—	—		—			34.0			—			—			—			34.0
Comprehensive income (loss)
Net loss	—	—		—			(84.3		)	—			—			—			(84.3		)
Other comprehensive income	—	—		—			—			—			7.7			—			7.7
Total comprehensive loss																			(76.6		)
Stock and other incentive plans	0.3	—		(15.8		)	—			17.7			—			—			1.9
March 31, 2018	297.7	$	37.7	$	3,918.1		$	(4,257.6	)	$	(151.9	)	$	(31.3	)	$	0.2		$	(484.8	)
Comprehensive income
Net income	—	—		—			165.1			—			—			—			165.1
Other comprehensive income	—	—		—			—			—			9.1			—			9.1
Total comprehensive income																			174.2
Distributions to noncontrolling interest	—	—		—						—			—			(0.2		)	(0.2		)
Stock and other incentive plans	0.1	—		0.2			—			4.3			—			—			4.5
June 30, 2018	297.8	$	37.7	$	3,918.3		$	(4,092.5	)	$	(147.6	)	$	(22.2	)	$	—		$	(306.3	)
Comprehensive income (loss)
Net income	—	—		—			437.8			—			—			—			437.8
Other comprehensive loss	—	—		—			—			—			(221.2		)				(221.2		)
Total comprehensive income																			216.6
Stock and other incentive plans	0.2	—		(5.0		)	—			8.5			—			—			3.5
September 30, 2018	298.0	$	37.7	$	3,913.3		$	(3,654.7	)	$	(139.1	)	$	(243.4	)	$	—		$	(86.2	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Cleveland-Cliffs Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with SEC rules and regulations and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations, comprehensive income, cash flows and changes in equity for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2019 or any other future period. Certain prior period amounts have been reclassified to conform with the current year presentation. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2018.

We have two reportable segments - the Mining and Pelletizing segment and the Metallics segment. Unless otherwise noted, discussion of our business and results of operations in this Quarterly Report on Form 10-Q refers to our continuing operations.

As more fully described in the Form 10-K for the year ended December 31, 2018, in 2018 we committed to a course of action leading to the permanent closure of the Asia Pacific Iron Ore mining operations. As a result of our exit, management determined that our Asia Pacific Iron Ore operating segment met the criteria to be classified as held for sale and a discontinued operation under ASC Topic 205, Presentation of Financial Statements. As such, all Asia Pacific Iron Ore operating segment results are classified within discontinued operations. Refer to NOTE 13 - DISCONTINUED OPERATIONS for further information.

Basis of Consolidation

The unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries, including the following operations as of September 30, 2019:



Name	Location	Business Segment	Status of Operations
Northshore	Minnesota	Mining and Pelletizing	Active
United Taconite	Minnesota	Mining and Pelletizing	Active
Tilden	Michigan	Mining and Pelletizing	Active
Empire	Michigan	Mining and Pelletizing	Indefinitely Idled
Toledo HBI	Ohio	Metallics	Construction Stage

Intercompany transactions and balances are eliminated upon consolidation.

Equity Method Investments

Our 23% ownership interest in Hibbing is recorded as an equity method investment. As of September 30, 2019 and December 31, 2018, our investment in Hibbing was $14.0 million and $15.4 million, respectively, classified as Other liabilities in the Statements of Unaudited Condensed Consolidated Financial Position.

Foreign Currency

Our financial statements are prepared with the U.S. dollar as the reporting currency and the functional currency of all subsidiaries is the U.S. dollar. In August 2018, management determined that there were significant changes in economic factors related to our Australian subsidiaries. The change in economic factors was a result of the sale and conveyance of substantially all assets and liabilities of our Australian subsidiaries to third parties, representing a significant change in operations. As such, the functional currency for the Australian subsidiaries changed from the Australian dollar to the U.S. dollar, requiring all remaining Australian denominated monetary balances to be remeasured through the Statements of Unaudited Condensed Consolidated Operations.

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As a result of the liquidation of the Australian subsidiaries' assets, the historical impact of foreign currency translation recorded in Accumulated other comprehensive loss in the Statements of Unaudited Condensed Consolidated Financial Position of $228.1 million was reclassified and recognized as a gain in Income (loss) from discontinued operations, net of tax in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2018. Refer to NOTE 13 - DISCONTINUED OPERATIONS for further information regarding our Australian subsidiaries.

Significant Accounting Policies

A detailed description of our significant accounting policies can be found in the audited financial statements for the fiscal year ended December 31, 2018 included in our Annual Report on Form 10-K filed with the SEC. There have been no material changes in our significant accounting policies and estimates from those disclosed therein.

NOT