Cleveland-Cliffs Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unaudited consolidated results. The company is a vertically integrated North American steel and iron ore producer; 2020 acquisitions of AK Steel and ArcelorMittal USA substantially expanded its steel operations.
Key financial results
Amounts in $ millions, except per-share data and where noted.
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $4,049 | $359 |
| Operating income (loss) | $177 | $(79) |
| Net income (loss) | $57 | $(49) |
| Net income (loss) attributable to Cliffs shareholders | $41 | $(52) |
| Diluted EPS | $0.07 | $(0.18) |
| Adjusted EBITDA, a non-GAAP measure | $513 | $23 |
| Net cash used by operating activities | $(379) | $(164) |
| Capital additions | $162 | $158 |
- Operating margin was approximately 4.4% and net margin approximately 1.4% in Q1 2021, calculated from reported revenue and income.
- Steelmaking Adjusted EBITDA was $537 million, compared with $44 million; Other Businesses contributed $11 million and Corporate and eliminations were $(35) million.
- Raw steel production was 4.8 million net tons; iron ore product production was 6.9 million long tons. Steelmaking average net selling price was $900 per net ton, versus $980.
Financial position and liquidity
- At March 31, 2021, cash and equivalents were $110 million; current assets were $5,861 million and current liabilities $2,933 million.
- Long-term debt was $5,734 million on the balance sheet; principal maturities totaled $5,893 million, including $2,955 million due in 2025. The filing reports debt fair value of $6,451 million.
- ABL borrowings were $1,630 million, with $1,598 million of borrowing capacity available after letters of credit. Cash excluding the consolidated VIE was $106 million; management reported approximately $1.7 billion of cash and available ABL liquidity.
- Total equity was $2,719 million, including $738 million of Series B participating redeemable preferred stock.
Changes versus prior period
- Revenue increased by $3.7 billion, primarily reflecting 3.9 million net tons of additional steel shipments from the acquisitions. Q1 2020 included AK Steel results only from March 13 onward and did not include ArcelorMittal USA; year-over-year comparisons are therefore not like-for-like.
- Domestic hot-rolled coil averaged $1,201 per net ton, up 105% year over year. Despite stronger market pricing, the reported average steel selling price declined, which management attributed largely to the acquired business and product mix.
- Operating cash outflow increased to $379 million. Management cited higher receivables as prices rose, unwinding of the ArcelorMittal USA factoring agreement, and payment of $118 million of pension contributions deferred under the CARES Act.
- Interest expense rose to $92 million from $31 million. A $66 million debt-extinguishment loss reduced reported earnings.
- Goodwill declined by $412 million, largely from measurement-period adjustments to the preliminary ArcelorMittal USA purchase-price allocation.
Outlook, management commentary and risks
- Management said market conditions had rebounded strongly and expected healthy free cash flow for the remaining nine months of 2021, while emphasizing exposure to changing customer demand and volatile steel prices. No specific full-year revenue or earnings guidance was provided.
- Management expected capital expenditures of $650–$700 million over the next 12 months and targeted approximately $150 million of potential acquisition-related cost synergies.
- The company’s stated capital-allocation priority was debt reduction, alongside extending debt maturities and increasing the proportion of unsecured debt. February financing included a $322 million common-share issuance and two $500 million note offerings, used in part to refinance or repay debt.
- Columbus and Monessen facilities were temporarily idled due to pandemic impacts; management anticipated restarting Columbus in Q2 2021. A tentative 53-month labor agreement for Mansfield Works was reached after quarter-end.
- Principal risks include cyclical and volatile steel and iron ore prices, automotive demand and semiconductor-related production interruptions, acquisition integration and synergy delivery, substantial indebtedness, raw-material and energy supply constraints, environmental obligations, and COVID-19 disruption.
- Environmental obligations were $134 million. The filing also describes unresolved Burns Harbor water-discharge matters; the company could not estimate penalties or other costs and stated they were likely to exceed its reporting threshold in total. Management did not believe pending claims would materially affect the consolidated financial statements based on currently available information.
- The company committed to reduce combined Scope 1 and Scope 2 greenhouse-gas emissions 25% from 2017 levels by 2030. Management stated disclosure controls and procedures were effective at quarter-end.
Important facts for investors to verify
- How much of the earnings and Adjusted EBITDA improvement reflects acquisition scale, market pricing, and sustainable operating performance; review the non-GAAP reconciliation and acquisition comparability.
- Whether working-capital needs, including receivables and inventory, reverse sufficiently to support management’s free-cash-flow expectations.
- Debt reduction progress, 2025 maturities, ABL utilization and availability, and the terms and restrictions on debt and guarantees.
- Progress on the targeted $150 million synergies, facility restarts, integration, and planned $650–$700 million capital spending.
- Developments and potential financial exposure relating to Burns Harbor and other environmental, legal, pension and postretirement obligations.