Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED FINANCIAL POSITION
CLEVELAND-CLIFFS INC. AND SUBSIDIARIES
(In millions, except share information) September 30,
2023 December 31,
2022
ASSETS
Current assets:
Cash and cash equivalents $ 31 $ 26
Accounts receivable, net 2,122 1,960
Inventories 4,592 5,130
Other current assets 196 306
Total current assets 6,941 7,422
Non-current assets:
Property, plant and equipment, net 8,837 9,070
Goodwill 1,130 1,130
Pension and OPEB, asset 392 356
Other non-current assets 759 777
TOTAL ASSETS $ 18,059 $ 18,755
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 2,076 $ 2,186
Accrued employment costs 467 429
Accrued expenses 263 383
Other current liabilities 488 551
Total current liabilities 3,294 3,549
Non-current liabilities:
Long-term debt 3,458 4,249
Pension liability, non-current 456 473
OPEB liability, non-current 563 585
Deferred income taxes 662 590
Other non-current liabilities 1,362 1,267
TOTAL LIABILITIES 9,795 10,713
Commitments and contingencies (See Note 17)
Equity:
Common shares - par value $ 0.125 per share
Authorized - 1,200,000,000 shares (2022 - 1,200,000,000 shares);
Issued - 531,051,530 shares (2022 - 531,051,530 shares);
Outstanding - 504,849,719 shares (2022 - 513,340,779 shares)
66 66
Capital in excess of par value of shares 4,850 4,871
Retained earnings 1,888 1,334
Cost of 26,201,811 common shares in treasury (2022 - 17,710,751 shares)
( 431 ) ( 310 )
Accumulated other comprehensive income 1,647 1,830
Total Cliffs shareholders' equity 8,020 7,791
Noncontrolling interest 244 251
TOTAL EQUITY 8,264 8,042
TOTAL LIABILITIES AND EQUITY $ 18,059 $ 18,755
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
Table of Contents
STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED OPERATIONS
CLEVELAND-CLIFFS INC. AND SUBSIDIARIES
Three Months Ended
September 30, Nine Months Ended
September 30,
(In millions, except per share amounts) 2023 2022 2023 2022
Revenues $ 5,605 $ 5,653 $ 16,884 $ 17,945
Operating costs:
Cost of goods sold ( 5,125 ) ( 5,305 ) ( 15,661 ) ( 15,367 )
Selling, general and administrative expenses ( 144 ) ( 124 ) ( 420 ) ( 353 )
Miscellaneous – net ( 11 ) ( 37 ) ( 26 ) ( 104 )
Total operating costs ( 5,280 ) ( 5,466 ) ( 16,107 ) ( 15,824 )
Operating income 325 187 777 2,121
Other income (expense):
Interest expense, net ( 70 ) ( 64 ) ( 226 ) ( 205 )
Gain (loss) on extinguishment of debt — 4 — ( 76 )
Net periodic benefit credits other than service cost component 50 49 150 148
Other non-operating income (expense) ( 2 ) ( 1 ) 4 ( 6 )
Total other expense ( 22 ) ( 12 ) ( 72 ) ( 139 )
Income from continuing operations before income taxes 303 175 705 1,982
Income tax expense ( 29 ) ( 10 ) ( 118 ) ( 404 )
Income from continuing operations 274 165 587 1,578
Income from discontinued operations, net of tax 1 — 2 2
Net income 275 165 589 1,580
Income attributable to noncontrolling interest ( 11 ) ( 13 ) ( 35 ) ( 31 )
Net income attributable to Cliffs shareholders $ 264 $ 152 $ 554 $ 1,549
Earnings per common share attributable to Cliffs shareholders - basic
Continuing operations $ 0.52 $ 0.30 $ 1.08 $ 2.98
Discontinued operations — — — —
$ 0.52 $ 0.30 $ 1.08 $ 2.98
Earnings per common share attributable to Cliffs shareholders - diluted
Continuing operations $ 0.52 $ 0.29 $ 1.08 $ 2.95
Discontinued operations — — — —
$ 0.52 $ 0.29 $ 1.08 $ 2.95
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Table of Contents
STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED COMPREHENSIVE INCOME
CLEVELAND-CLIFFS INC. AND SUBSIDIARIES
Three Months Ended
September 30, Nine Months Ended
September 30,
(In millions) 2023 2022 2023 2022
Net income $ 275 $ 165 $ 589 $ 1,580
Other comprehensive income (loss):
Changes in pension and OPEB, net of tax ( 27 ) 93 ( 80 ) 94
Changes in derivative financial instruments, net of tax 31 61 ( 103 ) 102
Changes in foreign currency translation — ( 2 ) — ( 4 )
Total other comprehensive income (loss) 4 152 ( 183 ) 192
Comprehensive income 279 317 406 1,772
Comprehensive income attributable to noncontrolling interests ( 11 ) ( 13 ) ( 35 ) ( 31 )
Comprehensive income attributable to Cliffs shareholders $ 268 $ 304 $ 371 $ 1,741
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Table of Contents
STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED CASH FLOWS
CLEVELAND-CLIFFS INC. AND SUBSIDIARIES
Nine Months Ended
September 30,
(In millions) 2023 2022
OPERATING ACTIVITIES
Net income $ 589 $ 1,580
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization 738 788
Deferred income taxes 132 210
Pension and OPEB credits ( 119 ) ( 81 )
Loss on extinguishment of debt — 76
Impairment of long-lived assets — 29
Other 121 75
Changes in operating assets and liabilities:
Accounts receivable, net ( 164 ) ( 145 )
Inventories 538 ( 348 )
Income taxes 16 ( 109 )
Pension and OPEB payments and contributions ( 84 ) ( 174 )
Payables, accrued employment and accrued expenses ( 95 ) 66
Other, net ( 57 ) ( 33 )
Net cash provided by operating activities 1,615 1,934
INVESTING ACTIVITIES
Purchase of property, plant and equipment ( 481 ) ( 716 )
Acquisition of FPT, net of cash acquired — ( 31 )
Other investing activities 11 20
Net cash used by investing activities ( 470 ) ( 727 )
FINANCING ACTIVITIES
Repurchase of common shares ( 152 ) ( 210 )
Proceeds from issuance of senior notes 750 —
Repayments of senior notes — ( 1,355 )
Borrowings under credit facilities 3,004 4,650
Repayments under credit facilities ( 4,543 ) ( 4,169 )
Debt issuance costs ( 34 ) —
Other financing activities ( 165 ) ( 115 )
Net cash used by financing activities ( 1,140 ) ( 1,199 )
Net increase in cash and cash equivalents 5 8
Cash and cash equivalents at beginning of period 26 48
Cash and cash equivalents at end of period $ 31 $ 56
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Table of Contents
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
Earnings Common
Shares
in
Treasury AOCI Non-controlling Interests Total
December 31, 2022 513.3 $ 66 $ 4,871 $ 1,334 $ ( 310 ) $ 1,830 $ 251 $ 8,042
Comprehensive income (loss) — — — ( 57 ) — ( 179 ) 15 ( 221 )
Stock and other incentive plans 1.8 — ( 39 ) — 30 — — ( 9 )
Net distributions to noncontrolling interests — — — — — — ( 19 ) ( 19 )
March 31, 2023 515.1 $ 66 $ 4,832 $ 1,277 $ ( 280 ) $ 1,651 $ 247 $ 7,793
Comprehensive income (loss) — — — 347 — ( 8 ) 9 348
Stock and other incentive plans 0.1 — 9 — 3 — — 12
Common stock repurchases, net of excise tax ( 6.5 ) — — — ( 95 ) — — ( 95 )
Net distributions to noncontrolling interests — — — — — — ( 14 ) ( 14 )
June 30, 2023 508.7 $ 66 $ 4,841 $ 1,624 $ ( 372 ) $ 1,643 $ 242 $ 8,044
Comprehensive income — — — 264 — 4 11 279
Stock and other incentive plans — — 9 — — — — 9
Common stock repurchases, net of excise tax ( 3.9 ) — — — ( 59 ) — — ( 59 )
Net distributions to noncontrolling interests — — — — — — ( 9 ) ( 9 )
September 30, 2023 504.8 $ 66 $ 4,850 $ 1,888 $ ( 431 ) $ 1,647 $ 244 $ 8,264
(In millions) Number
of
Common
Shares Outstanding Par Value of Common
Shares Issued Capital in
Excess of
Par Value
of Shares Retained
Earnings (Deficit) Common
Shares
in
Treasury AOCI Non-controlling Interests Total
December 31, 2021 500.2 $ 63 $ 4,892 $ ( 1 ) $ ( 82 ) $ 618 $ 284 $ 5,774
Comprehensive income — — — 801 — 97 13 911
Redemption of convertible debt 24.2 3 ( 28 ) — — — — ( 25 )
Stock and other incentive plans 1.3 — ( 16 ) — 11 — — ( 5 )
Common stock repurchases ( 1.0 ) — — — ( 19 ) — — ( 19 )
Net distributions to noncontrolling interests — — — — — — ( 28 ) ( 28 )
March 31, 2022 524.7 $ 66 $ 4,848 $ 800 $ ( 90 ) $ 715 $ 269 $ 6,608
Comprehensive income (loss) — — — 596 — ( 57 ) 5 544
Stock and other incentive plans 0.1 — 7 — 1 — — 8
Common stock repurchases ( 7.5 ) — — — ( 157 ) — — ( 157 )
Net distributions to noncontrolling interests — — — — — — ( 9 ) ( 9 )
June 30, 2022 517.3 $ 66 $ 4,855 $ 1,396 $ ( 246 ) $ 658 $ 265 $ 6,994
Comprehensive income — — — 152 — 152 13 317
Stock and other incentive plans — — 9 — — — — 9
Common stock repurchases ( 2.0 ) — — — ( 34 ) — — ( 34 )
Net distributions to noncontrolling interests — — — — — — ( 18 ) ( 18 )
September 30, 2022 515.3 $ 66 $ 4,864 $ 1,548 $ ( 280 ) $ 810 $ 260 $ 7,268
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CLEVELAND-CLIFFS INC. AND SUBSIDIARIES
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS, CONSOLIDATION AND PRESENTATION
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, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023 or any other future period. 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, 2022 and in our Quarterly Reports on Form 10-Q for the quarterly periods ended June 30, 2023 and March 31, 2023.
NATURE OF BUSINESS
We are the largest flat-rolled steel producer in North America. Founded in 1847 as a mine operator, we are also the largest manufacturer of iron ore pellets in North America. We are vertically integrated from mined raw materials, direct reduced iron and ferrous scrap to primary steelmaking and downstream finishing, stamping, tooling and tubing. We are the largest supplier of steel to the automotive industry in North America and serve a diverse range of markets due to our comprehensive offering of flat-rolled steel products. Headquartered in Cleveland, Ohio, we employ approximately 27,000 people across our operations in the United States and Canada.
BUSINESS OPERATIONS
We are organized into four operating segments based on differentiated products, Steelmaking, Tubular, Tooling and Stamping, and European Operations. We primarily operate through one reportable segment – the Steelmaking segment.
BASIS OF CONSOLIDATION
The unaudited condensed consolidated financial statements consolidate our accounts and the accounts of our wholly owned subsidiaries, all subsidiaries in which we have a controlling interest and VIEs for which we are the primary beneficiary. All intercompany transactions and balances are eliminated upon consolidation.
INVESTMENTS IN AFFILIATES
We have investments in several businesses accounted for using the equity method of accounting. These investments are included within our Steelmaking segment. We review an investment for impairment when circumstances indicate that a loss in value below its carrying amount is other than temporary.
Our investment in affiliates of $ 131 million and $ 133 million as of September 30, 2023 and December 31, 2022, respectively, was classified in Other non-current assets.
SIGNIFICANT ACCOUNTING POLICIES
A detailed description of our significant accounting policies can be found in the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC. There have been no material changes in our significant accounting policies and estimates from those disclosed therein.
RECENT ACCOUNTING PRONOUNCEMENTS AND LEGISLATION
In August 2022, the U.S. government signed the Inflation Reduction Act into law. The Inflation Reduction Act introduced, among other legislation, a 1% excise tax on the fair market value of stock repurchases net of the fair market value of stock issuances during the tax year. The excise tax is effective on net stock repurchases that occur after December 31, 2022. The tax is recorded in equity as a cost of common shares in treasury.
In September 2022, the FASB issued ASU No. 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations . This guidance requires annual and interim disclosure of the key terms of outstanding supplier finance programs and a roll-forward of the related obligations. The new standard does not affect the recognition, measurement or financial statement presentation of the supplier finance program obligations. We have adopted this standard, except for the amendment on roll-forward information, which is effective for fiscal years beginning after December 15, 2023. Refer to NOTE 2 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION for further information.
7
Table of Contents
NOTE 2 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION
ALLOWANCE FOR CREDIT LOSSES
The following is a roll-forward of our allowance for credit losses associated with Accounts receivable, net :
(In millions) 2023 2022
Allowance for credit losses as of January 1 $ ( 4 ) $ ( 4 )
Increase in allowance ( 3 ) ( 1 )
Allowance for credit losses as of September 30 $ ( 7 ) $ ( 5 )
INVENTORIES
The following table presents the detail of our Inventories on the Statements of Unaudited Condensed Consolidated Financial Position:
(In millions) September 30,
2023 December 31,
2022
Product inventories
Finished and semi-finished goods $ 2,616 $ 2,971
Raw materials 1,588 1,794
Total product inventories 4,204 4,765
Manufacturing supplies and critical spares 388 365
Inventories $ 4,592 $ 5,130
SUPPLY CHAIN FINANCE PROGRAMS
We negotiate payment terms directly with our suppliers for the purchase of goods and services. We currently offer voluntary supply chain finance programs that enable our suppliers to sell their Cliffs receivables to financial intermediaries, at the sole discretion of both the suppliers and financial intermediaries. No guarantees are provided by us or our subsidiaries under the supply chain finance programs. The supply chain finance programs allow our suppliers to be paid by the financial intermediaries earlier than the due date on the applicable invoice. Supply chain finance programs that extend terms or provide us an economic benefit are classified as short-term financings. As of September 30, 2023 and December 31, 2022, we had $ 21 million and $ 19 million, respectively, deemed as short-term financings that are classified in Other current liabilities . Additionally , as of September 30, 2023 and December 31, 2022, we had $ 90 million and $ 112 million, respectively, classified as Accounts payable.
CASH FLOW INFORMATION
A reconciliation of capital additions to cash paid for capital expenditures is as follows:
Nine Months Ended
September 30,
(In millions) 2023 2022
Capital additions $ 508 $ 736
Less:
Non-cash accruals ( 98 ) ( 10 )
Equipment financed with seller 47 —
Right-of-use assets - finance leases 78 30
Cash paid for capital expenditures including deposits $ 481 $ 716
Cash payments (receipts) for income taxes and interest are as follows:
Nine Months Ended
September 30,
(In millions) 2023 2022
Income taxes paid $ 91 $ 306
Income tax refunds ( 142 ) ( 3 )
Interest paid on debt obligations net of capitalized interest 1
202 201
1 Capitalized interest was $ 8 million and $ 7 million for the nine months ended September 30, 2023 and 2022, respectively.
8
Table of Contents
NOTE 3 - REVENUES
We generate our revenue through product sales, in which shipping terms indicate when we have fulfilled our performance obligations and transferred control of products to our customer. Our revenue transactions consist of a single performance obligation to transfer promised goods. Our contracts with customers define the mechanism for determining the sales price, which is generally fixed upon transfer of control, but the contracts generally do not impose a specific quantity on either party. Quantities to be delivered to the customer are determined at a point near the date of delivery through purchase orders or other written instructions we receive from the customer. Spot market sales are made through purchase orders or other written instructions. We consider our performance obligation to be complete and recognize revenue when control transfers in accordance with shipping terms.
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring product. We reduce the amount of revenue recognized for estimated returns and other customer credits, such as discounts and volume rebates, based on the expected value to be realized. Payment terms are consistent with terms standard to the markets we serve. Sales taxes collected from customers are excluded from revenues.
The following table represents our Revenues by market:
Three Months Ended
September 30, Nine Months Ended
September 30,
(In millions) 2023 2022 2023 2022
Steelmaking:
Automotive $ 1,958 $ 1,734 $ 5,808 $ 4,985
Infrastructure and manufacturing 1,427 1,462 4,315 4,619
Distributors and converters 1,321 1,468 4,020 5,137
Steel producers
737 847 2,234 2,740
Total Steelmaking 5,443 5,511 16,377 17,481
Other Businesses:
Automotive 133 113 415 359
Infrastructure and manufacturing 9 14 29 43
Distributors and converters 20 15 63 62
Total Other Businesses 162 142 507 464
Total revenues $ 5,605 $ 5,653 $ 16,884 $ 17,945
The following tables represent our Revenues by product line:
Three Months Ended
September 30, Nine Months Ended
September 30,
(In millions) 2023 2022 2023 2022
Steelmaking:
Hot-rolled steel $ 1,269 $ 1,050 $ 3,747 $ 3,495
Cold-rolled steel 651 740 2,038 2,593
Coated steel 1,748 1,757 5,154 5,338
Stainless and electrical steel 568 596 1,757 1,765
Plate 382 432 1,112 1,306
Slab and other steel products 322 370 1,015 1,121
Other 503 566 1,554 1,863
Total Steelmaking 5,443 5,511 16,377 17,481
Other Businesses:
Other 162 142 507 464
Total revenues $ 5,605 $ 5,653 $ 16,884 $ 17,945
9
Table of Contents
NOTE 4 - SEGMENT REPORTING
We are vertically integrated from mined raw materials and direct reduced iron and ferrous scrap to primary steelmaking and downstream finishing, stamping, tooling and tubing. We are organized into four operating segments based on our differentiated products – Steelmaking, Tubular, Tooling and Stamping, and European Operations. We have one reportable segment – Steelmaking. The operating segment results of our Tubular, Tooling and Stamping, and European Operations that do not constitute reportable segments are combined and disclosed in the Other Businesses category. Our Steelmaking segment operates as the largest flat-rolled steel producer supported by being the largest iron ore pellet producer as well as a leading prime scrap processor in North America, primarily serving the automotive, distributors and converters, and infrastructure and manufacturing markets. Our Other Businesses primarily include the operating segments that provide customer solutions with carbon and stainless steel tubing products, advanced-engineered solutions, tool design and build, hot- and cold-stamped steel components, and complex assemblies. All intersegment transactions were eliminated in consolidation.
We evaluate performance on an operating segment basis, as well as a consolidated basis, based on Adjusted EBITDA, which is a non-GAAP measure. This measure is used by management, investors, lenders and other external users of our financial statements to assess our operating performance and to compare operating performance to other companies in the steel industry. In addition, management believes Adjusted EBITDA is a useful measure to assess the earnings power of the business without the impact of capital structure and can be used to assess our ability to service debt and fund future capital expenditures in the business.
Our results by segment are as follows:
Three Months Ended
September 30, Nine Months Ended
September 30,
(In millions) 2023 2022 2023 2022
Revenues:
Steelmaking $ 5,443 $ 5,511 $ 16,377 $ 17,481
Other Businesses 162 142 507 464
Total revenues $ 5,605 $ 5,653 $ 16,884 $ 17,945
Adjusted EBITDA:
Steelmaking $ 603 $ 447 $ 1,608 $ 2,980
Other Businesses 9 9 32 58
Eliminations 2 7 ( 8 ) 8
Total Adjusted EBITDA $ 614 $ 463 $ 1,632 $ 3,046
The following table provides a reconciliation of our consolidated Net income to total Adjusted EBITDA:
Three Months Ended
September 30, Nine Months Ended
September 30,
(In millions) 2023 2022 2023 2022
Net income $ 275 $ 165 $ 589 $ 1,580
Less:
Interest expense, net ( 70 ) ( 64 ) ( 226 ) ( 205 )
Income tax expense ( 29 ) ( 10 ) ( 118 ) ( 404 )
Depreciation, depletion and amortization ( 249 ) ( 237 ) ( 738 ) ( 788 )
623 476 1,671 2,977
Less:
EBITDA of noncontrolling interests 1
20 22 60 57
Gain (loss) on extinguishment of debt — 4 — ( 76 )
Asset impairment — — — ( 29 )
Other, net ( 11 ) ( 13 ) ( 21 ) ( 21 )
Total Adjusted EBITDA $ 614 $ 463 $ 1,632 $ 3,046
1 EBITDA of noncontrolling interests includes the following:
Net income attributable to noncontrolling interests $ 11 $ 13 $ 35 $ 31
Depreciation, depletion and amortization 9 9 25 26
EBITDA of noncontrolling interests $ 20 $ 22 $ 60 $ 57
10
Table of Contents
The following summarizes our assets by segment:
(In millions) September 30,
2023 December 31,
2022
Assets:
Steelmaking $ 17,481 $ 18,070
Other Businesses 819 836
Intersegment eliminations ( 531 ) ( 521 )
Total segment assets 17,769 18,385
Corporate 290 370
Total assets $ 18,059 $ 18,755
The following table summarizes our depreciation, depletion and amortization and capital additions by segment:
Three Months Ended
September 30, Nine Months Ended
September 30,
(In millions) 2023 2022 2023 2022
Depreciation, depletion and amortization:
Steelmaking $ ( 241 ) $ ( 227 ) $ ( 711 ) $ ( 758 )
Other Businesses ( 8 ) ( 10 ) ( 27 ) ( 30 )
Total depreciation, depletion and amortization $ ( 249 ) $ ( 237 ) $ ( 738 ) $ ( 788 )
Capital additions 1 :
Steelmaking $ 217 $ 240 $ 503 $ 712
Other Businesses — 6 3 21
Corporate 1 1 2 3
Total capital additions $ 218 $ 247 $ 508 $ 736
1 Refer to NOTE 2 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION for additional information.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
The following table indicates the carrying value of each of the major classes of our depreciable assets:
(In millions) September 30,
2023 December 31,
2022
Land, land improvements and mineral rights $ 1,388 $ 1,388
Buildings 934 921
Equipment 9,652 9,289
Other 253 238
Construction in progress 611 552
Total property, plant and equipment 1
12,838 12,388
Allowance for depreciation and depletion ( 4,001 ) ( 3,318 )
Property, plant and equipment, net $ 8,837 $ 9,070
1 Includes right-of-use assets related to finance leases of $ 485 million and $ 408 million as of September 30, 2023 and December 31, 2022, respectively.
We recorded depreciation and depletion expense of $ 247 million and $ 732 million for the three and nine months ended September 30, 2023, respectively, and $ 235 million and $ 782 million for the three and nine months ended September 30, 2022, respectively. Depreciation and depletion expense for the nine months ended September 30, 2022 includes $ 23 million of accelerated depreciation related to the decision to indefinitely idle the coke facility at Middletown Works and $ 68 million of accelerated depreciation related to the indefinite idle of the Indiana Harbor #4 blast furnace.
11
Table of Contents
NOTE 6 - GOODWILL AND INTANGIBLE ASSETS AND LIABILITIES
GOODWILL
The following is a summary of Goodwill by segment:
(In millions) September 30,
2023 December 31,
2022
Steelmaking $ 956 $ 956
Other Businesses 174 174
Total goodwill $ 1,130 $ 1,130
INTANGIBLE ASSETS AND LIABILITIES
The following is a summary of our intangible assets and liabilities:
September 30, 2023
December 31, 2022
(In millions) Gross Amount Accumulated Amortization Net Amount Gross Amount Accumulated Amortization Net Amount
Intangible assets 1 :
Customer relationships $ 90 $ ( 17 ) $ 73 $ 90 $ ( 13 ) $ 77
Developed technology 60 ( 13 ) 47 60 ( 10 ) 50
Trade names and trademarks 18 ( 5 ) 13 18 ( 4 ) 14
Mining permits 72 ( 28 ) 44 72 ( 27 ) 45
Supplier relationships 29 ( 2 ) 27 29 ( 1 ) 28
Total intangible assets $ 269 $ ( 65 ) $ 204 $ 269 $ ( 55 ) $ 214
Intangible liabilities 2 :
Above-market supply contracts $ ( 71 ) $ 23 $ ( 48 ) $ ( 71 ) $ 19 $ ( 52 )
1 Intangible assets are classified as Other non-current assets. Amortization related to mining permits is recognized in Cost of goods sold . Amortization of all other intangible assets is recognized in Selling, general and administrative expenses.
2 Intangible liabilities are classified as Other non-current liabilities. Amortization of all intangible liabilities is recognized in Cost of goods sold .
Amortization expense related to intangible assets was $ 3 million for both the three months ended September 30, 2023 and 2022, and $ 10 million for both the nine months ended September 30, 2023 and 2022. Estimated future amortization expense is $ 3 million for the remainder of 2023 and $ 13 million annually for the years 2024 through 2028.
Income from amortization related to the intangible liabilities was $ 1 million for both the three months ended September 30, 2023 and 2022, and $ 4 million for both the nine months ended September 30, 2023 and 2022. Estimated future income from amortization is $ 1 million for the remainder of 2023 and $ 5 million annually for the years 2024 through 2028.
12
Table of Contents
NOTE 7 - DEBT AND CREDIT FACILITIES
The following represents a summary of our long-term debt:
(In millions)
Debt Instrument Issuer 1
Annual Effective
Interest Rate September 30,
2023 December 31,
2022
Senior Secured Notes:
6.750 % 2026 Senior Secured Notes
Cliffs 6.990 % $ 829 $ 829
Senior Unsecured Notes:
7.000 % 2027 Senior Notes
Cliffs 9.240 % 73 73
7.000 % 2027 AK Senior Notes
AK Steel 9.240 % 56 56
5.875 % 2027 Senior Notes
Cliffs 6.490 % 556 556
4.625 % 2029 Senior Notes
Cliffs 4.625 % 368 368
6.750 % 2030 Senior Notes
Cliffs 6.750 % 750 —
4.875 % 2031 Senior Notes
Cliffs 4.875 % 325 325
6.250 % 2040 Senior Notes
Cliffs 6.340 % 235 235
ABL Facility Cliffs 2
Variable 3
325 1,864
Total principal amount 3,517 4,306
Unamortized discounts and issuance costs ( 59 ) ( 57 )
Total long-term debt $ 3,458 $ 4,249
1 Unless otherwise noted, references in this column and throughout this NOTE 7 - DEBT AND CREDIT FACILITIES to "Cliffs" are to Cleveland-Cliffs Inc., and references to "AK Steel" are to AK Steel Corporation (n/k/a Cleveland-Cliffs Steel Corporation).
2 Refers to Cleveland-Cliffs Inc. as borrower under our ABL Facility.
3 Our ABL Facility annual effective interest rate was 7.148 % and 5.602 %, respectively, as of September 30, 2023 and December 31, 2022.
6.750% 2030 Senior Notes - 2023 Offering
On April 14, 2023, we entered into an indenture among Cliffs, the guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee, relating to the issuance of $ 750 million aggregate principal amount of our 6.750% 2030 Senior Notes, which were issued at par. The 6.750% 2030 Senior Notes were issued in a private placement transaction exempt from the registration requirements of the Securities Act.
The 6.750% 2030 Senior Notes bear interest at a rate of 6.750% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, which commenced on October 15, 2023. The 6.750% 2030 Senior Notes mature on April 15, 2030.
The 6.750% 2030 Senior Notes are unsecured senior obligations and rank equally in right of payment with all of our existing and future unsecured and unsubordinated indebtedness. The 6.750% 2030 Senior Notes are guaranteed on a senior unsecured basis by our material direct and indirect wholly owned domestic subsidiaries. The 6.750% 2030 Senior Notes are structurally subordinated to all existing and future indebtedness and other liabilities of our subsidiaries that do not guarantee the 6.750% 2030 Senior Notes.
The 6.750% 2030 Senior Notes may be redeemed, in whole or in part, at any time at our option not less than 10 days nor more than 60 days after prior notice is sent to the holders of the 6.750% 2030 Senior Notes. The 6.750% 2030 Senior Notes are redeemable prior to April 15, 2026, at a redemption price equal to 100 % of the principal amount thereof plus a "make-whole" premium set forth in the indenture. We may also redeem up to 35 % of the aggregate principal amount of the 6.750% 2030 Senior Notes prior to April 15, 2026 at a redemption price equal to 106.750 % of the principal amount thereof with the net cash proceeds of one or more equity offerings. The 6.750% 2030 Senior Notes are redeemable beginning on April 15, 2026, at a redemption price equal to 103.375 % of the principal amount thereof, decreasing to 101.688 % on April 15, 2027, and are redeemable at par beginning on April 15, 2028. In each case, we pay the applicable redemption and "make-whole" premiums plus accrued and unpaid interest, if any, to, but not including, the date of redemption.
In addition, if a change in control triggering event, as defined in the indenture, occurs with respect to the 6.750% 2030 Senior Notes, we will be required to offer to repurchase the notes at a purchase price equal to 101 % of their principal amount, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.
The terms of the 6.750% 2030 Senior Notes contain certain customary covenants; however, there are no financial covenants.
ABL FACILITY
On June 9, 2023, we entered into the Fourth ABL Amendment to our ABL Facility to, among other things, increase the amount of tranche A revolver commitments available thereunder by an additional $ 250 million to an aggregate principal amount of $ 4.75 billion and extend the maturity date of all commitments under the ABL Facility from March 13, 2025 to June 9, 2028. The Fourth ABL Amendment removed the LIBOR option for variable rate loans due to its cessation and replaced it with a SOFR option. Borrowings under the ABL Facility bear interest, at our option, at a base rate or, if certain conditions are met, a SOFR rate, in each
13
Table of Contents
case, plus an applicable tiered margin. The base rate is equal to the greater of the federal funds rate plus 0.5 % or the term SOFR plus 1.25 %.
As of September 30, 2023, we were in compliance with the ABL Facility liquidity requirements and, therefore, the springing financial covenant requiring a minimum fixed charge coverage ratio of 1.0 to 1.0 was not applicable.
The following represents a summary of our borrowing capacity under the ABL Facility:
(In millions) September 30,
2023
Available borrowing base on ABL Facility 1
$ 4,750
Borrowings ( 325 )
Letter of credit obligations 2
( 94 )
Borrowing capacity available $ 4,331
1 As of September 30, 2023, the ABL Facility has a maximum available borrowing base of $ 4.75 billion. The borrowing base is determined by applying customary advance rates to eligible accounts receivable, inventory and certain mobile equipment.
2 We issued standby letters of credit with certain financial institutions in order to support business obligations, including, but not limited to, workers' compensation, operating agreements, employee severance, environmental obligations, and insurance.
DEBT MATURITIES
The following represents a summary of our maturities of debt instruments based on the principal amounts outstanding at September 30, 2023 (in millions):
2023 2024 2025 2026 2027 Thereafter Total
$ — $ — $ — $ 829 $ 685 $ 2,003 $ 3,517
NOTE 8 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS
We offer defined benefit pension plans, defined contribution pension plans and OPEB plans to a significant portion of our employees and retirees. Benefits are also provided through multiemployer plans for certain union members.
The following are the components of defined benefit pension and OPEB costs (credits):
DEFINED BENEFIT PENSION COSTS (CREDITS)
Three Months Ended
September 30, Nine Months Ended
September 30,
(In millions) 2023 2022 2023 2022
Service cost $ 8 $ 11 $ 24 $ 35
Interest cost 59 32 176 95
Expected return on plan assets ( 79 ) ( 93 ) ( 236 ) ( 277 )
Amortization:
Prior service costs 5 1 13 1
Net actuarial loss — 4 2 11
Net periodic benefit credits $ ( 7 ) $ ( 45 ) $ ( 21 ) $ ( 135 )
OPEB COSTS (CREDITS)
Three Months Ended
September 30, Nine Months Ended
September 30,
(In millions) 2023 2022 2023 2022
Service cost $ 2 $ 11 $ 7 $ 32
Interest cost 15 19 47 59
Expected return on plan assets ( 10 ) ( 10 ) ( 31 ) ( 29 )
Amortization:
Prior service costs (credits) ( 4 ) 1 ( 12 ) 1
Net actuarial gain ( 36 ) ( 3 ) ( 109 ) ( 9 )
Net periodic benefit costs (credits) $ ( 33 ) $ 18 $ ( 98 ) $ 54
Based on funding requirements, we made nominal defined benefit pension contributions for the three and nine months ended September 30, 2023. Based on funding requirements, we made $ 1 million of defined benefit pension contributions for both the three and nine months ended September 30, 2022. Based on funding requirements, we made no contributions to our VEBA trust plans for the three and nine months ended September 30, 2023. We made contributions of $ 24 million and $ 80 million to our VEBA trust plans for the three and nine months ended September 30, 2022, respectively.
14
Table of Contents
NOTE 9 - INCOME TAXES
Our 2023 estimated annual effective tax rate before discrete items as of September 30, 2023 is 19 %. The estimated annual effective tax rate is less than the U.S. statutory rate of 21 %, as state income tax expense is less than the percentage depletion in excess of cost depletion. The 2022 estimated annual effective tax rate before discrete items as of September 30, 2022 was 20 %.
For the nine months ended September 30, 2023, income tax expense includes $ 18 million of discrete benefit, as compared to $ 3 million of discrete expense for the nine months ended September 30, 2022.
NOTE 10 - ASSET RETIREMENT OBLIGATIONS
The accrued closure obligation provides for contractual and legal obligations related to our indefinitely idled and closed operations and for the eventual closure of our active operations. The closure date for each of our active mine sites was determined based on the exhaustion date of the remaining mineral reserves, and the amortization of the related asset and accretion of the liability is recognized over the estimated mine lives. The closure date and expected timing of the capital requirements to meet our obligations for our indefinitely idled or closed mines is determined based on the unique circumstances of each property. For indefinitely idled or closed mines, the accretion of the liability is recognized over the anticipated timing of remediation. As the majority of our asset retirement obligations at our steelmaking operations have indeterminate settlement dates, asset retirement obligations have been recorded at present values using estimated ranges of the economic lives of the underlying assets.
The following is a summary of our asset retirement obligations:
(In millions) September 30,
2023 December 31,
2022
Asset retirement obligations 1
$ 522 $ 520
Less: current portion 17 21
Long-term asset retirement obligations $ 505 $ 499
1 Includes $ 275 million and $ 277 million related to our active operations as of September 30, 2023 and December 31, 2022, respectively.
The following is a roll forward of our asset retirement obligation liability:
(In millions) 2023 2022
Asset retirement obligation as of January 1 $ 520 $ 449
Accretion expense 19 21
Reclassification from environmental obligations — 63
Revision in estimated cash flows — 22
Remediation payments ( 17 ) ( 33 )
Asset retirement obligation as of September 30 $ 522 $ 522
NOTE 11 - FAIR VALUE MEASUREMENTS
The carrying values of certain financial instruments (e.g., Accounts receivable, net , Accounts payable and Other current liabilities ) approximate fair value and, therefore, have been excluded from the table below. See NOTE 12 - DERIVATIVE INSTRUMENTS AND HEDGING for information on our derivative instruments, which are accounted for at fair value on a recurring basis.
A summary of the carrying value and fair value of other financial instruments were as follows:
September 30, 2023 December 31, 2022
(In millions) Classification Carrying
Value Fair
Value Carrying
Value Fair
Value
Senior notes Level 1 $ 3,133 $ 2,983 $ 2,385 $ 2,311
ABL Facility - outstanding balance Level 2 325 325 1,864 1,864
Total $ 3,458 $ 3,308 $ 4,249 $ 4,175
The valuation of financial assets classified in Level 2 were determined using a market approach based upon quoted prices for similar assets in active markets or other inputs that were observable.
NOTE 12 - DERIVATIVE INSTRUMENTS AND HEDGING
We are exposed to fluctuations in market prices of raw materials and energy sources. We may use cash-settled commodity swaps to hedge the market risk associated with the purchase of certain of our raw materials and energy requirements. Our hedging strategy is to reduce the effect on earnings from the price volatility of these various commodity exposures, including timing differences between when we incur raw material commodity costs and when we receive sales surcharges from our customers based on those raw materials.
Our commodity contracts are designated as cash flow hedges for accounting purposes, and we record the gains and losses for the derivatives in Accumulated other comprehensive income until we reclassify them into Cost of goods sold when we recognize the
15
Table of Contents
associated underlying operating costs. Refer to NOTE 14 - ACCUMULATED OTHER COMPREHENSIVE INCOME for further information.
Our commodity contracts are classified as Level 2 as values were determined using a market approach based upon quoted prices for similar assets in active markets or other inputs that were observable.
The following table presents the notional amount of our outstanding hedge contracts:
Notional Amount
Commodity Contracts Unit of Measure Maturity Dates September 30,
2023 December 31,
2022
Natural Gas MMBtu October 2023 - August 2026 170,485,000 127,790,000
Electricity Megawatt hours October 2023 - October 2026 3,002,720 432,043
The following table presents the fair value of our cash flow hedges and the classification in the Statements of Unaudited Condensed Consolidated Financial Position:
Balance Sheet Location (In millions) September 30,
2023 December 31,
2022
Other current assets $ 2 $ 15
Other non-current assets 4 30
Other current liabilities ( 79 ) ( 87 )
Other non-current liabilities ( 23 ) ( 10 )
NOTE 13 - CAPITAL STOCK
SHARE REPURCHASE PROGRAM
On February 10, 2022, our Board of Directors authorized a program to repurchase outstanding common shares in the open market or in privately negotiated transactions, which may include purchases pursuant to Rule 10b5-1 plans or accelerated share repurchases, up to a maximum of $ 1 billion. We are not obligated to make any purchases and the program may be suspended or discontinued at any time. The share repurchase program does not have a specific expiration date. During the three and nine months ended September 30, 2023, we repurchased 3.9 million and 10.4 million common shares, respectively, at a cost of $ 58 million and $ 152 million in the aggregate, respectively, excluding excise tax due under the Inflation Reduction Act. During the three and nine months ended September 30, 2022, we repurchased 2.0 million and 10.5 million common shares, respectively, at a cost of $ 34 million and $ 210 million in the aggregate, respectively. As of September 30, 2023, there was $ 608 million remaining under the authorization.
PREFERRED STOCK
We have 3 million shares of Serial Preferred Stock, Class A, without par value, authorized and 4 million shares of Serial Preferred Stock, Class B, without par value, authorized; no preferred shares are issued or outstanding.
16
Table of Contents
NOTE 14 - ACCUMULATED OTHER COMPREHENSIVE INCOME
The following tables reflect the changes in Accumulated other comprehensive income related to Cliffs shareholders’ equity:
Three Months Ended
September 30, Nine Months Ended
September 30,
(In millions) 2023 2022 2023 2022
Foreign Currency Translation
Beginning balance $ ( 1 ) $ ( 1 ) $ ( 1 ) $ 1
Other comprehensive loss before reclassifications — ( 2 ) — ( 4 )
Ending balance $ ( 1 ) $ ( 3 ) $ ( 1 ) $ ( 3 )
Derivative Instruments
Beginning balance $ ( 150 ) $ 109 $ ( 16 ) $ 68
Other comprehensive income (loss) before reclassifications ( 21 ) 154 ( 229 ) 292
Income tax 5 ( 38 ) 56 ( 69 )
Other comprehensive income (loss) before reclassifications, net of tax ( 16 ) 116 ( 173 ) 223
Losses (gains) reclassified from AOCI to net income 1
63 ( 74 ) 93 ( 158 )
Income tax expense (benefit) 2
( 16 ) 19 ( 23 ) 37
Net losses (gains) reclassified from AOCI to net income 47 ( 55 ) 70 ( 121 )
Ending balance $ ( 119 ) $ 170 $ ( 119 ) $ 170
Pension and OPEB
Beginning balance $ 1,794 $ 550 $ 1,847 $ 549
Other comprehensive income before reclassifications — 119 — 119
Income tax — ( 28 ) — ( 28 )
Other comprehensive income before reclassifications, net of tax — 91 — 91
Losses (gains) reclassified from AOCI to net income 3
( 35 ) 3 ( 106 ) 4
Income tax expense (benefit) 2
8 ( 1 ) 26 ( 1 )
Net losses (gains) reclassified from AOCI to net income ( 27 ) 2 ( 80 ) 3
Ending balance $ 1,767 $ 643 $ 1,767 $ 643
Total AOCI Ending Balance $ 1,647 $ 810 $ 1,647 $ 810
1 Amounts recognized in Cost of goods sold in the Statements of Unaudited Condensed Consolidated Operations.
2 Amounts recognized in Income tax expense in the Statements of Unaudited Condensed Consolidated Operations.
3 Amounts recognized in Net periodic benefit credits other than service cost component in the Statements of Unaudited Condensed Consolidated Operations.
NOTE 15 - VARIABLE INTEREST ENTITIES
SUNCOKE MIDDLETOWN
We purchase all the coke and electrical power generated from SunCoke Middletown’s plant under long-term supply agreements and have committed to purchase all the expected production from the facility through 2032. We consolidate SunCoke Middletown as a VIE because we are the primary beneficiary despite having no ownership interest in SunCoke Middletown. SunCoke Middletown had income before income taxes of $ 13 million and $ 40 million for the three and nine months ended September 30, 2023, respectively, compared to $ 14 million and $ 36 million for the three and nine months ended September 30, 2022, respectively, that was included in our consolidated income before income taxes. Additionally, SunCoke Middletown had cash used for capital expenditures of $ 21 million for the nine months ended September 30, 2023, compared to $ 11 million for the nine months ended September 30, 2022, that was included in our consolidated Purchase of property, plant and equipment on the Statements of Unaudited Condensed Consolidated Cash Flows.
17
Table of Contents
The assets of the consolidated VIE can only be used to settle the obligations of the consolidated VIE and not obligations of the Company. The creditors of SunCoke Middletown do not have recourse to the assets or general credit of the Company to satisfy liabilities of the VIE. The Statements of Unaudited Condensed Consolidated Financial Position includes the following amounts for SunCoke Middletown:
(In millions) September 30,
2023 December 31,
2022
Inventories $ 30 $ 28
Property, plant and equipment, net 292 288
Accounts payable ( 24 ) ( 19 )
Other assets (liabilities), net ( 33 ) ( 27 )
Noncontrolling interests ( 265 ) ( 270 )
NOTE 16 - EARNINGS PER SHARE
The following table summarizes the computation of basic and diluted EPS:
Three Months Ended
September 30, Nine Months Ended
September 30,
(In millions, except per share amounts) 2023 2022 2023 2022
Income from continuing operations $ 274 $ 165 $ 587 $ 1,578
Income from continuing operations attributable to noncontrolling interest ( 11 ) ( 13 ) ( 35 ) ( 31 )
Net income from continuing operations attributable to Cliffs shareholders 263 152 552 1,547
Income from discontinued operations, net of tax 1 — 2 2
Net income attributable to Cliffs shareholders $ 264 $ 152 $ 554 $ 1,549
Weighted average number of shares:
Basic 508 516 512 520
Convertible senior notes — — — 2
Employee stock plans 1 3 1 4
Diluted 509 519 513 526
Earnings per common share attributable to Cliffs shareholders - basic:
Continuing operations $ 0.52 $ 0.30 $ 1.08 $ 2.98
Discontinued operations — — — —
$ 0.52 $ 0.30 $ 1.08 $ 2.98
Earnings per common share attributable to Cliffs shareholders - diluted:
Continuing operations $ 0.52 $ 0.29 $ 1.08 $ 2.95
Discontinued operations — — — —
$ 0.52 $ 0.29 $ 1.08 $ 2.95
NOTE 17 - COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
We purchase portions of the principal raw materials required for our steel manufacturing operations under annual and multi-year agreements, some of which have minimum quantity requirements. We also use large volumes of natural gas, electricity and industrial gases in our steel manufacturing operations. We negotiate most of our purchases of chrome, industrial gases and a portion of our electricity under multi-year agreements. Our purchases of coke are made under annual or multi-year agreements with periodic price adjustments. We typically purchase coal under annual fixed-price agreements. We also purchase certain transportation services under multi-year contracts with minimum quantity requirements.
CONTINGENCIES
We are currently the subject of, or party to, various claims and legal proceedings incidental to our current and historical operations. These claims and legal proceedings are subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include monetary damages, additional funding requirements or an injunction. If an unfavorable ruling were to occur, there exists the possibility of a material adverse effect on our financial position and results of operations for the period in which the ruling occurs or future periods. However, based on currently available information, we do not believe that any pending claims or legal proceedings will result in a material adverse effect in relation to our consolidated financial statements.
18
Table of Contents
ENVIRONMENTAL CONTINGENCIES
Although we believe our operating practices have been consistent with prevailing industry standards, hazardous materials may have been released at operating sites or third-party sites in the past, including operating sites that we no longer own. If we reasonably can, we estimate potential remediation expenditures for those sites where future remediation efforts are probable based on identified conditions, regulatory requirements, or contractual obligations arising from the sale of a business or facility. For sites involving government required investigations, we typically make an estimate of potential remediation expenditures only after the investigation is complete and when we better understand the nature and scope of the remediation. In general, the material factors in these estimates include the costs associated with investigations, delineations, risk assessments, remedial work, governmental response and oversight, site monitoring, and preparation of reports to the appropriate environmental agencies.
The following is a summary of our environmental obligations:
(In millions) September 30,
2023 December 31,
2022
Environmental obligations $ 141 $ 141
Less: current portion 25 23
Long-term environmental obligations $ 116 $ 118
We cannot predict the ultimate costs for each site with certainty because of the evolving nature of the investigation and remediation process. Rather, to estimate the probable costs, we must make certain assumptions. The most significant of these assumptions is for the nature and scope of the work that will be necessary to investigate and remediate a particular site and the cost of that work. Other significant assumptions include the cleanup technology that will be used, whether and to what extent any other parties will participate in paying the investigation and remediation costs, reimbursement of past response costs and future oversight costs by governmental agencies, and the reaction of the governing environmental agencies to the proposed work plans. Costs for future investigation and remediation are not discounted to their present value, unless the amount and timing of the cash disbursements are readily known. To the extent that we have been able to reasonably estimate future liabilities, we do not believe that there is a reasonable possibility that we will incur a loss or losses that exceed the amounts we accrued for the environmental matters discussed below that would, either individually or in the aggregate, have a material adverse effect on our consolidated financial condition, results of operations or cash flows. However, since we recognize amounts in the consolidated financial statements in accordance with GAAP that exclude potential losses that are not probable or that may not be currently estimable, the ultimate costs of these environmental matters may be higher than the liabilities we currently have recorded in our consolidated financial statements.
Pursuant to RCRA, which governs the treatment, handling and disposal of hazardous waste, the EPA and authorized state environmental agencies may conduct inspections of RCRA-regulated facilities to identify areas where there have been releases of hazardous waste or hazardous constituents into the environment and may order the facilities to take corrective action to remediate such releases. Likewise, the EPA or the states may require closure or post-closure care of residual, industrial and hazardous waste management units. Environmental regulators have the authority to inspect all of our facilities. While we cannot predict the future actions of these regulators, it is possible that they may identify conditions in future inspections of these facilities that they believe require corrective action.
Pursuant to CERCLA, the EPA and state environmental authorities have conducted site investigations at some of our facilities and other third-party facilities, portions of which previously may have been used for disposal of materials that are currently regulated. The results of these investigations are still pending, and we could be directed to spend funds for remedial activities at the former disposal areas. Because of the uncertain status of these investigations, however, we cannot reasonably predict whether or when such spending might be required or its magnitude.
BURNS HARBOR WATER ISSUES
In August 2019, ArcelorMittal Burns Harbor LLC (n/k/a Cleveland-Cliffs Burns Harbor LLC) suffered a loss of the blast furnace cooling water recycle system, which led to the discharge of cyanide and ammonia in excess of the Burns Harbor plant's NPDES permit limits. Since that time, the facility has taken numerous steps to prevent recurrence and maintain compliance with its NPDES permit. We engaged in settlement discussions with the U.S. Department of Justice, the EPA and the State of Indiana to resolve any alleged violations of environmental laws or regulations arising out of the August 2019 event. Later stages of the settlement discussions included the Environmental Law and Policy Center (ELPC) and Hoosier Environmental Council (HEC), which had filed a lawsuit on December 20, 2019 in the U.S. District Court for the Northern District of Indiana alleging violations resulting from the August 2019 event and other Clean Water Act claims. On February 14, 2022, the United States and the State of Indiana filed a complaint and a proposed consent decree, and on April 21, 2022, the United States, with the consent of all of the parties, filed a motion seeking final approval of the consent decree from the court. The consent decree was approved by the court with an effective date of May 6, 2022. The consent decree requires specified enhancements to the mill's wastewater treatment systems and required us to pay a $ 3 million civil penalty, along with other terms and conditions. Other parties to the consent decree include the United States, the State of Indiana, ELPC and HEC. The ELPC/HEC civil litigation was dismissed with prejudice on May 12, 2022. In addition, ArcelorMittal Burns Harbor LLC was served with a subpoena on December 5, 2019, from the United States District Court for the Northern District of Indiana, relating to the August 2019 event and has responded to the subpoena requests, including follow-up requests. With the resolution of monetary sanctions and injunctive relief requirements under the consent decree, we do not believe that the costs to resolve any other third-party claims, including potential natural resource damages
19
Table of Contents
claims, that may arise out of the August 2019 event are likely to have, individually or in the aggregate, a material adverse effect on our consolidated financial condition, results of operations or cash flows.
In addition to the foregoing matters, we are or may be involved in proceedings with various regulatory authorities that may require us to pay fines, comply with more rigorous standards or other requirements or incur capital and operating expenses for environmental compliance. We believe that the ultimate disposition of any such proceedings will not have, individually or in the aggregate, a material adverse effect on our consolidated financial condition, results of operations or cash flows.
TAX MATTERS
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We also recognize tax benefits to the extent that it is more likely than not that our positions will be sustained when challenged by the taxing authorities. To the extent we prevail in matters for which liabilities have been established, or are required to pay amounts in excess of our liabilities, our effective tax rate in a given period could be materially affected. An unfavorable tax settlement would require use of our cash and result in an increase in our effective tax rate in the year of resolution. A favorable tax settlement would be recognized as a reduction in our effective tax rate in the year of resolution.
OTHER CONTINGENCIES
In addition to the matters discussed above, there are various pending and potential claims against us and our subsidiaries involving product liability, personal injury, commercial, employee benefits and other matters arising in the ordinary course of business. Because of the considerable uncertainties that exist for any claim, it is difficult to reliably or accurately estimate what the amount of a loss would be if a claimant prevails. If material assumptions or factual understandings we rely on to evaluate exposure for these contingencies prove to be inaccurate or otherwise change, we may be required to record a liability for an adverse outcome. If, however, we have reasonably evaluated potential future liabilities for all of these contingencies, including those described more specifically above, it is our opinion, unless we otherwise noted, that the ultimate liability from these contingencies, individually or in the aggregate, should not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
NOTE 18 - SUBSEQUENT EVENTS
On October 6, 2023, we entered into a membership interest purchase agreement for the sale of the legal entities owning, among other things, our closed coal mines in Pennsylvania. As a result of the sale, we anticipate a gain of approximately $ 60 million to be recorded during the fourth quarter of 2023.