Cleveland-Cliffs Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report. Cleveland-Cliffs is a vertically integrated North American steel and iron ore producer; 2021 results include the full year for the 2020 steel acquisitions and FPT only from its November 18, 2021 acquisition date.
Financial performance
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $20.444 billion | $5.354 billion |
| Operating income (loss) | $4.012 billion | $(142) million |
| Net income (loss) | $3.033 billion | $(81) million |
| Net income (loss) attributable to Cliffs shareholders | $2.988 billion | $(122) million |
| Diluted EPS | $5.36 | $(0.32) |
| Adjusted EBITDA (non-GAAP) | $5.262 billion | $353 million |
| Cash from operating activities | $2.785 billion | $(258) million |
| Capital expenditures, cash basis | $705 million | $525 million |
Operating margin was approximately 19.6% in 2021. Operating cash flow less cash capital expenditures was approximately $2.080 billion. Revenue growth primarily reflects the 2020 acquisitions, 12.1 million additional net tons of steel shipments, and a $240-per-net-ton increase in average steel selling price; the reported year-over-year comparison is not like-for-like.
Domestic hot-rolled coil averaged $1,573 per net ton, up 174% from 2020. Steelmaking segment revenue was $19.901 billion and Adjusted EBITDA was $5.422 billion, compared with $4.965 billion and $433 million, respectively, in 2020. Raw steel production was 18 million net tons versus 4 million, with the prior-year figure affected by acquisition timing and pandemic-related idling.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $48 million at year-end, down from $112 million.
- Year-end long-term debt principal was $5.369 billion; carrying value was $5.238 billion. Debt principal included $1.609 billion outstanding under the ABL Facility.
- ABL commitments were increased to $4.5 billion. After borrowings and $175 million of letters of credit, available borrowing capacity was $2.716 billion; cash plus availability provided about $2.8 billion of liquidity.
- Total assets were $18.975 billion, total liabilities $13.201 billion and total equity $5.774 billion. Inventories rose to $5.188 billion from $3.828 billion, while accounts receivable rose to $2.154 billion from $1.169 billion.
- Interest expense, net, was $337 million, up from $238 million. The company reported a $88 million loss on debt extinguishment.
Material changes and notable transactions
- Completed the FPT acquisition for preliminary purchase consideration of $755 million, adding 22 scrap-processing facilities. FPT contributed $153 million revenue and an $18 million loss after acquisition through year-end, including $22 million of inventory step-up amortization.
- Redeemed all Series B preferred stock for $1.343 billion, reducing the diluted share count by approximately 10% before subsequent share issuances and conversions.
- Issued $500 million each of 4.625% notes due 2029 and 4.875% notes due 2031; redeemed or repurchased several notes, including $396 million of 5.750% notes due 2025. These transactions extended maturities and changed the secured/unsecured debt mix.
- In January 2022, redeemed $294 million principal of 1.500% convertible notes for cash and issued 24 million common shares to settle the conversion premium.
- Toledo HBI plant reached its 1.9-million-metric-ton annual nameplate run rate in 2021. Middletown coke operations were idled, and management planned to permanently idle Mountain State Carbon in Q2 2022.
Outlook, commentary and risks
Management expected healthy demand and strong free cash flow to continue into 2022, supported by favorable renewals on fixed-price contracts, infrastructure spending, and anticipated easing of automotive supply constraints. Approximately 45% of flat-rolled shipments were under fixed-base-price contracts, generally of one-year duration; management said 2022 contract prices were expected to be substantially higher. These are expectations, not guarantees, and the filing does not provide a clear numerical 2022 revenue or earnings forecast in the supplied text.
Management projected 2022 capital expenditures of $800–$900 million. It stated that available cash, operating cash generation and ABL capacity should be adequate for operations and commitments over the next 12 months, while emphasizing the cyclical nature of the business.
- Market and operating risks: Steel, scrap and iron ore price volatility; global capacity and imports; automotive exposure and semiconductor-related disruptions; inflation and supply-chain constraints; energy and raw-material cost increases; and transportation or equipment interruptions.
- Financial risks: Leverage, refinancing and interest-rate exposure. A 100-basis-point rate increase on year-end ABL borrowings would raise annual interest expense by about $16 million. The company also has substantial contractual purchase commitments, including $8.590 billion of minimum “take or pay” commitments.
- Environmental and regulatory risks: Potential climate/GHG regulation, selenium and mercury requirements, Minnesota sulfate rules and groundwater discharge regulation. Some potential impacts are not estimable. Environmental obligations were $207 million; asset retirement obligations were $449 million.
- Litigation and contingencies: JSW Steel seeks more than $500 million in treble damages in an antitrust case; Cliffs says it is vigorously defending and believes the claims lack merit. A proposed consent decree for the Burns Harbor water matter includes a $3 million civil penalty and wastewater-system enhancements, subject to final approvals. The company stated it did not expect pending matters, based on information available, to have a material adverse effect.
- Unusual items: A $45 million cash vaccine incentive program expense, acquisition-related inventory step-up amortization, and the debt-extinguishment loss affected 2021 results. The filing identifies no impairment assessment trigger for 2021.
The financial-statement audit received an unqualified opinion, and the auditor also gave an unqualified opinion on internal control over financial reporting. The critical audit matter concerned mineral reserve estimates and their effects on asset retirement obligations, asset valuations and depreciation. FPT was excluded from management’s internal-control assessment because it was acquired late in the year.
Important facts for investors to verify
- How much of 2021’s record earnings and cash flow reflects unusually high steel prices, versus sustainable operating improvements and acquisition effects.
- Whether automotive production and contract renewals deliver the volumes and pricing management anticipated for 2022.
- Debt repayment plans, cash generation, share repurchases under the authorized $1 billion program, and the impact of the January 2022 convertible-note settlement and 24 million shares issued.
- FPT integration, realized synergies, acquisition accounting adjustments and its ongoing contribution to earnings and cash flow.
- Potential costs or operational restrictions from environmental rules and litigation, especially matters whose financial impacts the company says are not currently estimable.
- Mineral reserve assumptions and mine-life estimates, a key audit matter with consequences for closure liabilities, asset values and future costs.