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Item 7. Management’s Discussion and Analysis

2024-02-08 compared with 2023-02-14 · 239 added, 208 removed, 394 unchanged (53% of the section changed)

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Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report discusses our financial condition and results of operations as of and for the years ended December 31, 2023 and 2022.

A discussion related to our financial condition and results of operations for 2021 as compared to 2020 can be found in Part II, Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 11, 2022.

Throughout 2022, we continued to position the Company for long-term success as we generated record revenues, executed our commercial initiatives by improving our average selling prices, revamped our operational footprint, secured multi-year labor agreements with the majority of our USW employees, displayed the unique advantage of our U.S.-centric, internally sourced feedstock and continued to improve our balance sheet.

A discussion related to our financial condition and results of operations for 2022 as compared to 2021 can be found in Part II - Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 14, 2023.

Throughout 2023, we continued to position the Company for long-term success as we had record steel shipments, with particular strength in automotive;

significantly reduced our operational costs with greater emphasis on throughput and productivity;

dramatically improved our balance sheet;

reached our stated net debt target of $3.0 billion;

returned substantial capital to shareholders through share repurchases;

and continued to focus on our goal of reducing GHG emissions, all with an eye toward the future and in line with our consistent strategic objectives.

As of December 31, 2023, we have a record level of liquidity of $4.5 billion.

Our strong balance sheet and operational achievements further strengthens our position as an American leader in the steel industry as we continue to create value for all stakeholders of the Company.

2023 HIGHLIGHTS

• Record revenues of $23 billion

• Second-highest Adjusted EBITDA in company history (second only to 2021)

• Reduced net pension and OPEB liabilities by $2.1 billion

• Reduced outstanding debt by $1.1 billion, including $351 million of open market repurchases

• Increased year-over-year average steel selling price despite significantly lower commodity flat-rolled steel pricing

• Improved commercial contracts by generating substantial increases for our fixed price contracts

• Agreed to 4-year labor agreements with the USW covering 14,000 total employees

• Completed major maintenance cycle, including the reline of the Cleveland #5 blast furnace

• Benefited from vertically integrated footprint amidst raw material shortages related to the Russian invasion of Ukraine

• Returned $240 million in capital to shareholders through share repurchase program

• Net income of $450 million

• Adjusted EBITDA of $1.9 billion

• Revenues of $22 billion and third consecutive year of revenues over $20 billion

• Significantly reduced unit costs year-over-year

• Record steel shipments of 16.4 million net tons

• Record automotive shipments

• Reduced total outstanding long-term debt by $1.1 billion to $3.2 billion

• Net debt of $2.9 billion below stated target of $3.0 billion and lowest net debt level since becoming a steel company

• Reached record liquidity of $4.5 billion

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• Continued progress toward our goal of reducing GHG emissions

• Celebrated 175th anniversary as a company

• Returned $152 million in capital to shareholders through share repurchase program

• Net pension and OPEB liabilities of $586 million are lowest since becoming a steel company

• Successfully implemented Cliffs H surcharge for steel melted with HBI

• Continued focus on our goal of reducing GHG emissions

• Secured award of Nashwauk state mineral leases, which is expected to provide additional long-term iron ore reserves

We also continued our best practices from both a safety and environmental standpoint.

During 2022, our safety TRIR (including contractors) was 1.36 per 200,000 hours worked.

Throughout 2022, we made continued progress towards our goal of reducing GHG emissions with our optimal utilization of HBI and scrap throughout our facilities, as well as more efficient power generation through recycling of off-gases.

We have also formed a partnership with the DOE as part of the Better Climate Challenge initiative, as we aim to build on our GHG emission reduction progress.

During 2023, our safety Total Reportable Incident Rate (including contractors) was 1.22 per 200,000 hours worked.

Throughout 2023, we continued to focus on our goal of reducing GHG emissions with our optimal utilization of HBI and scrap throughout our facilities, as well as efficient power generation through recycling of off-gases.

We have also continued our partnership with the DOE as part of the Better Climate Challenge initiative, which was established in December 2021.

We continue to pursue opportunities such as carbon capture and the use of hydrogen within our facilities.

Additionally, we have started forming partnerships to develop renewable energy sources - such as wind, solar and hydrogen - which will benefit our own environmental footprint while combating the global impacts of climate change.

With the U.S.

government awarding funding for the development of regional hydrogen hubs throughout the country, including near our largest facilities, we expect to dramatically increase our use of hydrogen gas as both a reducing agent and energy source as the clean hydrogen production facilities come online.

Additionally, we have continued forming partnerships to develop renewable and clean energy sources - such as wind, solar and hydrogen - which will benefit our own environmental footprint while combating the global impacts of climate change.

FINANCIAL SUMMARY

Total Revenue Net Income (Loss) Adjusted EBITDA Diluted EPS

See "— Non-GAAP Financial Measures" below for a reconciliation of our Net income (loss) to Adjusted EBITDA.

The following is a summary of our consolidated results for the years ended December 31, 2023, 2022 and 2021 (in millions, except for diluted EPS):

Total Revenue Net Income Adjusted EBITDA Diluted EPS

See "— Non-GAAP Financial Measures" below for a reconciliation of our Net income to Adjusted EBITDA.

ECONOMIC OVERVIEW

Steel market conditions in 2022 were notably volatile, driven by disruptions due to the conflict between Russia and Ukraine, continued supply chain issues, significantly higher energy prices and declines in demand as a result of recessionary fears.

The price for domestic HRC, the most significant index impacting our revenues and profitability, averaged $1,011 per net ton for 2022, 36% lower than 2021, but well above the prior ten-year average of $712 per net ton.

HRC prices receded below $700 per net ton in the fourth quarter of 2022, the lowest level since October 2020.

The large decline in spot steel prices was driven by service center destocking, interest rate hikes driving caution on new business and declining metallics prices, which were driven by lower domestic steel production and excess raw material inventory.

Continued automotive supply chain difficulties also limited the demand for steel from automotive manufacturers.

Looking forward, we expect domestic steel demand to improve as imports have become less attractive, service centers restock inventory, automotive supply chain issues ease and incremental steel demand from the Infrastructure and Jobs Act is realized.

The recently passed CHIPS Act and Inflation Reduction Act should provide meaningful support for overall domestic steel demand in the coming years.

STEEL MARKET OVERVIEW

Steel market conditions in 2023 were marked by notable volatility, driven by both improved light vehicle production but also inconsistent service center buying behavior.

The price for domestic HRC, the most significant index impacting our revenues and profitability, averaged $906 per net ton for 2023, which was 10% lower than 2022.

Demand for steel from automotive manufacturers improved in 2023 as supply chain issues continued to ease and light vehicle sales increased.

North American light vehicle production of 15.6 million units in 2023 was the highest since 2019.

Demand for steel from service centers was adversely impacted at certain points of the year due to recessionary fears and the anticipation of, and ultimate occurrence of, the UAW strike at certain domestic automotive producers.

During 2023, service center inventories were as low as 1.6 months of inventory on hand, significantly lower than the prior ten-year average of 2.2 months of inventory on hand.

Low inventory levels generated significant demand for steel toward the end of 2023 as the UAW strike concluded and service centers needed to meet the continued healthy demand from their end-use customers.

Additionally, steel imports remained unattractive for the majority of 2023 due to low pricing spreads between the U.S.

and other regions.

Looking forward, we expect domestic steel demand to remain healthy as automotive production continues to improve, service centers restock inventory and incremental steel demand stimulated by government legislation is realized.

The Infrastructure and Jobs Act, the CHIPS Act and Inflation Reduction Act should continue to provide meaningful support for overall domestic steel demand in the coming years.

Our extensive portfolio of products should result in increased steel demand from some of our end markets.

The CHIPS Act promotes semiconductor manufacturing in the U.S., which should help support non-residential construction.

Additionally, on-shoring manufacturing in the U.S.

The Infrastructure and Jobs Act was signed into law in November 2021 and includes approximately $550 billion of authorized spending for new investments and programs.

This legislation provides direct spending support for roads, bridges and other infrastructure projects, including upgrades to the domestic power grid and building out a national network of EV chargers.

We expect to continue to benefit from these steel-intensive projects in the coming years as they will consume our hot-rolled, plate, electrical, rail and other steel products.

The CHIPS Act promotes semiconductor manufacturing in the U.S., which should help support non-residential construction as well as machinery and equipment.

Additionally, the on-shoring of manufacturing in the U.S.

should reduce risk of supply chain issues in the future.

The Inflation Reduction Act provides a tax credit for consumers who buy new EVs, which further incentivizes consumers to purchase vehicles in an environment where pent-up demand is still very strong from recent supply chain issues and low dealer inventory levels.

In addition, the Inflation Reduction Act provides incentives for the use of domestic steel for investments in clean energy projects, including wind and solar projects, which consume a substantial amount of steel.

Additional projects from the legislation could create incremental demand for our galvanized, GOES, NOES and other steel products.

We expect to benefit from the spending related to the recently passed legislation in 2023 and beyond.

The largest market for our steel products is the automotive industry in North America, which makes light vehicle production a key driver of demand.

During 2022, North American light vehicle production was approximately 14.3 million units, the highest annual production volume since 2019.

While we have seen modest improvement, automotive production remains below historical levels and continues to be adversely affected by the global semiconductor shortage, as well as other material shortages and supply chain disruptions.

This has caused several outages amongst light vehicle manufacturers.

The long-term outlook for the automotive industry remains positive as pent-up demand is strong due to ongoing production and supply chain issues.

Inventory levels have recently reached the highest level since April 2021, with 1.7 million units of gross stock at the end of 2022, but remain significantly below historical average inventory levels of 2.5 to 3.0 million units of gross stock.

Additionally, the average age of cars on the road in the U.S.

reached an all-time high during 2022, which should support demand as older vehicles need to be replaced.

As the largest supplier of automotive-grade steel in the U.S., we expect to benefit from increased vehicle production in coming years.

The ongoing conflict between Russia and Ukraine has disrupted raw material sourcing for our EAF competitors and has further increased the volatility in their steelmaking input costs.

Approximately two-thirds of all U.S.

imported pig iron, an important feedstock for flat-rolled steel producing EAFs, has historically been sourced from Russia and Ukraine.

Imported pig iron prices

The Inflation Reduction Act provides a tax credit for consumers who buy new EVs, which further incentivizes consumers to purchase vehicles in an environment where pent-up

43 | CLF 2023 FORM 10-K

averaged $687 per metric ton during 2022, which is significantly above the historical average of $440 per metric ton from September 2017 to December 2021.

The recent decline from record levels in pricing is primarily due to lower domestic steel production and surplus raw material inventory as competitors purchased excess raw materials at the beginning of the conflict between Russia and Ukraine to ensure sufficient supply in a time of uncertainty.

Higher than historical imported pig iron costs should continue to support a higher HRC price.

Unlike other flat-rolled producers, we are not reliant on imported pig iron as we produce it in-house at our blast furnaces, using our own iron ore as the primary raw material.

The price for busheling scrap, a necessary input for flat-rolled steel production in EAFs in the U.S., averaged well above the historical ten-year average of $380 per long ton in 2022 and 2021.

The busheling price averaged $533 per long ton in 2022 and $602 per long ton in 2021.

Pricing fell to $350 per long ton during the fourth quarter of 2022, as domestic steel capacity utilization rates declined below 80% and competitors worked through excess raw material inventory.

As prime scrap is a replacement to imported pig iron, we expect the busheling scrap price will continue to average at or above historical levels as the availability of imported pig iron from Russia and Ukraine remains disrupted.

We expect the supply of busheling scrap to further tighten due to decreasing prime scrap generation from original equipment manufacturers and the growth of EAF capacity in the U.S., along with a push for expanded scrap use globally.

demand is still very strong from a low unemployment rate, recent supply chain issues and lower than historical dealer inventory levels.

The Inflation Reduction Act also provides incentives for the use of domestic steel for investments in clean energy projects, including wind and solar projects, which consume a substantial amount of steel.

We expect to benefit from the spending related to this legislation for years to come.

OTHER KEY DRIVERS

The largest market for our steel products is the automotive industry in North America, which makes light vehicle production a key driver of demand.

During 2023, North American light vehicle production was approximately 15.6 million units, up from 14.3 million units in 2022, and the highest level since 2019.

During 2023, light vehicle sales in the U.S.

saw an average seasonally adjusted annualized rate of 15.5 million units sold, representing a 13% increase compared to 2022.

North American light vehicle production in 2024 is estimated to exceed 2023 units, indicating continued strength from the automotive industry.

Additionally, the average age of light vehicles on the road in the U.S.

reached an all-time high during 2023, surpassing the previous record set in 2022, which should support demand as older vehicles need to be replaced.

As a leading supplier of automotive-grade steel in the U.S., we expect to benefit from increased vehicle production over the coming years.

Since 2021, the price for busheling scrap, a necessary input for flat-rolled steel production in EAFs in the U.S., has continued to average well above the prior annual ten-year average of approximately $390 per long ton.

The busheling price averaged $488 per long ton during 2023.

As we are fully integrated and have primarily a blast furnace footprint, increased prices for busheling scrap in the U.S.

bolster our competitive advantage, as we source the majority of our iron feedstock from our stable-cost mining and pelletizing operations in Minnesota and Michigan.

As for iron ore, the Platts 62% price averaged $120 per metric ton in 2022, which is 23% higher than the historical ten-year average.

As for iron ore, the Platts 62% price averaged $120 per metric ton in 2023, which is 24% higher than the prior annual ten-year average.

While higher iron ore prices play a role in increased steel prices, we also directly benefit from higher iron ore prices for the portion of iron ore pellets we sell to third parties.

Federal Reserve has pushed interest rates to the highest level in 15 years in an attempt to slow demand and reduce inflation.

Though we are a firm believer that the U.S.

is the most resilient manufacturing economy in the world, rising interest rates could cause a significant economic downturn and impact various end markets that we serve and overall domestic steel demand.

While we believe there is strong pent-up demand for light vehicles in the U.S., automotive sales could be negatively impacted due to higher interest rates.

The non-residential construction market could also see delays in construction as increased rates drive caution on new business.

If continued rising rates in the U.S.

result in a recession, we believe that end-user demand for steel intensive products could be negatively impacted as a recession would likely result in higher unemployment, lower wages and less disposable income for consumers.

During 2022, we experienced higher costs than the prior year due to inflationary pressures on input and energy costs, as well as lower production volume and higher repair and maintenance spending.

We expect to benefit from lower costs in 2023 and beyond as most inflationary items have started to ease, production volume improves, and repair and maintenance expenses normalize.

OTHER FACTORS

On September 14, 2023, the UAW announced a simultaneous labor strike against three domestic automotive manufacturers, as each of the individual companies were unable to come to terms on a new labor agreement.

The strike originally impacted one assembly plant at each company and was further expanded to additional facilities, including certain parts-distribution centers for each company.

Steel demand remained strong from the automotive industry as the strike was limited to certain facilities, allowing the automotive manufacturers to continue production at other facilities within their footprint.

On October 30, 2023, the UAW strike concluded after the UAW reached tentative labor deals with each of the three domestic automotive manufacturers.

The conclusion of the strike led to increased demand in the fourth quarter of 2023 from automotive customers as well as service centers who had significantly reduced their inventory levels in anticipation of a broader strike.

In January 2023, we announced that we partnered with the USW and filed antidumping and countervailing duty petitions against eight countries related to unfairly traded tin and chromium coated sheet steel products.

Tin mill products are used primarily for packaging applications, particularly canned food.

We produce tin mill products at our Weirton, West Virginia operating facility and sell approximately 300,000 net tons per year, representing approximately two percent of total Company steel sales volumes.

Department of Commerce determined that imports of tin mill products from Canada, China, Germany and South Korea are being unfairly priced and dumped into the United States and that imports from China are being unfairly subsidized.

On January 5, 2024, the U.S.

Department of Commerce announced its final countervailing and antidumping determination of tin mill products.

Department of Commerce imposed countervailing subsidy rates on China ranging from 331.88% to 649.98%, based on the exporter.

Final antidumping duty rates on tin and chromium-coated sheet steel products were imposed on Canada, China, Germany and South Korea ranging from 2.69% to 122.52%.

However, on February 6, 2024, the U.S.

International Trade Commission terminated the investigation on South Korea and reached negative determinations in the investigations on Canada, China and Germany.

As a result, countervailing duties and antidumping duties will not be imposed on imports of tin and chromium-coated steel sheet products from these four countries.

During 2023, we significantly reduced costs compared to the prior year as we had higher production volume, normalized repair and maintenance spending, and inflationary pressures on input and energy costs eased.

We expect to benefit further from reduced costs in 2024 as we have worked through higher cost inventory, production volumes should remain similar, and reductions in coal and alloy costs should mitigate any cost increases.

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STEELMAKING RESULTS

COMPARISON OF 2023 TO 2022

The following is a summary of our Steelmaking segment results included in our consolidated financial statements for the years ended December 31, 2022 and 2021.

The results for 2021 include the FPT operations subsequent to November 18, 2021 and full-year results for all other Steelmaking operations.

The following is a summary of the Steelmaking segment operating results:

The following is a summary of the Steelmaking segment operating results for the years ended December 31, 2023 and 2022 (dollars in millions, except for average selling price and shipments in thousands of net tons):

Total Revenue Gross Margin Adjusted EBITDA Steel Shipments (nt)

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$20,054 $19,237 11% 6% 14% 9% $1,360 $1,171

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The following tables represent our steel shipments by product and total sales by market:

The following tables represent our steel shipments by product and total revenues by market:

Year Ended December 31,

(In thousands of net tons) Volume % Volume % % Change

(In thousands of net tons) 2023 2022 % Change

Steel shipments by product:

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Year Ended December 31,

(In millions) Revenue % Revenue % % Change

(In millions) 2023 2022 % Change

Steelmaking revenues by market:

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Total Steelmaking revenues by market $ 21,331 $ 22,383 (5) %

Revenues increased by 12% during the year ended December 31, 2022, as compared to the prior-year, primarily due to:

• An increase in the direct automotive market of $1,935 million, or 41%, predominantly due to increases in selling prices as a result of favorable renewals of annual fixed price contracts.

• An increase in sales to the steel producers market of $1,341 million, or 63%, which was primarily driven by the inclusion of full-year results from the FPT Acquisition.

• These increases were partially offset by a decrease in the distributors and converters market of $1,283 million, or 17%, predominantly due to service center destocking, interest rate hikes driving caution on new business and pricing for metallics declining, which caused weaker demand from service centers for our steel products and large declines in spot steel pricing.

Revenues decreased by 5% during the year ended December 31, 2023, as compared to the prior year, primarily due to:

• A decrease in revenues from the distributors and converters market of $1,058 million, or 17%, predominantly due to the average HRC price declining, which was partially offset by increased hot-rolled steel shipments;

• A decrease in revenues from the steel producers market of $516 million, or 15%, which was primarily due to the decrease in pricing indices for slabs and busheling scrap.

• These decreases were partially offset by an increase in revenues from the direct automotive market of $779 million, or 12%, predominantly due to increases in selling prices as a result of favorable renewals of annual fixed price contracts and an increase in shipments.

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Gross margin decreased by $1,117 million, or 45%, during the year ended December 31, 2023, as compared to the prior year, primarily due to:

• Increased costs of production (approximately $3.6 billion impact) driven by higher raw materials and utility costs, including natural gas, coal, coke, alloys and scrap, coupled with increased investment in maintenance and labor costs;

• A decrease in sales volumes (approximately $700 million impact) predominantly driven by lower shipments to the distributors and converters end market due to weaker demand.

• This was partially offset by an increase in selling prices (approximately $2.5 billion impact) driven by favorable renewals of annual sales contracts.

• A decrease in selling prices (approximately $2.4 billion impact) predominantly due to lower spot prices, which was partially offset by favorable renewals of annual sales contracts.

• This decrease was partially offset by a decrease in costs of production (approximately $700 million impact) driven by lower raw materials and utility costs, including natural gas, coal, coke, alloys and scrap, coupled with decreased maintenance costs;

• An increase in sales volumes (approximately $500 million impact).

ADJUSTED EBITDA

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Additionally, our Steelmaking Adjusted EBITDA included $549 million and $439 million of Selling, general and administrative expenses for the years ended December 31, 2023 and 2022, respectively.

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CONSOLIDATED RESULTS

COMPARISON OF 2023 TO 2022

REVENUES & GROSS MARGIN

During the year ended December 31, 2022, our consolidated Revenues increased by $2,545 million, compared to 2021.

The increase was primarily due to the increase in the average steel product selling price of $173 per net ton and the inclusion of full-year results from the FPT Acquisition, partially offset by the decrease of 1.1 million net tons of steel shipments from our Steelmaking segment.

REVENUES AND GROSS MARGIN

During the year ended December 31, 2023, our consolidated Revenues decreased by $993 million, compared to 2022.

The decrease was primarily due to the decrease in the average steel product selling price of $189 per net ton, partially offset by the increase of 1.7 million net tons of steel shipments from our Steelmaking segment.

During the year ended December 31, 2023, our consolidated gross margin decreased by $1,127 million, as compared to 2022.

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Selling, general and administrative expenses increased by $112 million during the year ended December 31, 2023, as compared to 2022.

The increase primarily relates to the inclusion of full-year results for the FPT Acquisition in 2022.

Additionally, there were increases related to salaries and benefits and external service costs, partially offset by lower incentive compensation.

The increase primarily relates to employment-related costs, including higher incentive compensation, and external service costs.

GOODWILL IMPAIRMENT

Our 2023 annual goodwill impairment analysis resulted in an impairment charge of $125 million for goodwill related to our Tooling and Stamping reporting unit.

Refer to "— Market Risks" below for further detail.

MISCELLANEOUS – NET

Miscellaneous – net increased by $30 million for the year ended December 31, 2022, as compared to 2021.

The increase in miscellaneous expense was primarily due to the $29 million asset impairment charge associated with the permanent closure of Mountain State Carbon and an increase in idle expenses.

These increases were partially offset by the acquisition-related loss on equity method investment during 2021, which was not repeated in 2022.

INTEREST EXPENSE, NET

Interest expense, net decreased by $61 million for the year ended December 31, 2022, as compared to the prior year.

The decrease was primarily due to debt reduction activities during 2021 and 2022, which reduced interest expense on our senior notes.

The decrease was partially offset by an increase in the ABL Facility interest expense primarily as a result of rising interest rates.

Miscellaneous expense decreased by $110 million for the year ended December 31, 2023, as compared to 2022.

The decrease in miscellaneous expense for the year ended December 31, 2023, was primarily related to the $63 million gain on sale of business, along with lower idle expenses as compared to the prior year.

Additionally, in 2022, we had a $29 million asset impairment, which was not repeated in 2023.

These decreases were partially offset by the higher expenses in 2023 related to our asset retirement obligations for our indefinitely idled and closed operations as a result of our three-year detailed assessment.

LOSS ON EXTINGUISHMENT OF DEBT

The loss on extinguishment of debt of $75 million for the year ended December 31, 2022 primarily resulted from the redemption of all $607 million aggregate principal amount of our outstanding 9.875% 2025 Senior Secured Notes in April 2022 and the redemption of all $294 million aggregate principal amount of our outstanding 1.500% 2025 Convertible Senior Notes in January 2022.

The losses were partially offset by the net gain on extinguishment for the repurchase of $417 million aggregate principal amount of our outstanding IRBs and senior notes of various series.

The loss on extinguishment of debt of $88 million for the year ended December 31, 2021 primarily resulted from the redemption of $396 million aggregate principal amount of 5.750% 2025 Senior Notes, $395 million aggregate principal amount of 4.875% 2024 Senior Secured Notes and $347 million aggregate principal amount of 9.875% 2025 Senior Secured Notes.

Refer to NOTE 8 - DEBT AND CREDIT FACILITIES for further details.

Our effective tax rate is affected by permanent items, primarily depletion.

The losses were partially offset by the net gain on extinguishment for the repurchase of $417 million aggregate principal amount of our outstanding industrial revenue bonds and senior notes of various series.

Our effective tax rate is impacted by state income tax expense and permanent items, primarily depletion.

It also is affected by discrete items that may occur in any given period but are not consistent from period to period.

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Percentage depletion in excess of cost depletion (32) (5) (49) (3)

Valuation allowance 14 2 — —

Unrecognized tax benefits 7 1 2 —

State taxes, net 28 5 71 4

Federal & state provision to return (20) (3) 27 1

Income not subject to tax (11) (2) (9) —

Goodwill impairment 26 4 — —

Other items, net 11 2 4 —

Provision for income tax expense and effective income tax rate including discrete items $ 148 25 % $ 423 23 %

The decrease in income tax expense in 2022, as compared to the prior year, is directly related to the decrease in the pre-tax book income year-over-year.

The decrease in income tax expense in 2023, as compared to the prior year, is predominantly related to the decrease in the pre-tax book income year-over-year.

See NOTE 11 - INCOME TAXES for further information.

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We are focused on maximizing the cash generation of our operations, reducing debt, returning capital to shareholders and aligning capital investments with our strategic priorities and the requirements of our business plan, including regulatory and permission-to-operate related projects.

The following table provides a summary of our cash flows:

The following table provides a summary of our cash flow:

Year Ended December 31,

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Financing activities (1,504) (1,509)

Net decrease in cash and cash equivalents $ (22) $ (64)

Net increase (decrease) in cash and cash equivalents $ 172 $ (22)

Free cash flow 1

$ 1,621 $ 1,480

1 See "— Non-GAAP Financial Measures" for a reconciliation of our free cash flows.

The recent market environment has provided us opportunities to reduce our debt and return capital to shareholders with our own free cash flow generation.

1 See "— Non-GAAP Financial Measures" for a reconciliation of our free cash flow.

The recent market environment has provided us opportunities to reduce our debt and return capital to shareholders with our free cash flow generation.

We also continue to look at the composition of our debt, as we are interested in both extending our average maturity length and increasing our ratio of unsecured debt to secured debt, which can be accomplished with cash provided by operating activities.

During 2023, we took action in alignment with our capital allocation priorities, as follows:

• We redeemed all $294 million in aggregate principal amount outstanding of our 1.500% 2025 Convertible Senior Notes,$66 million aggregate principal amount outstanding of the IRBs and $607 million remaining aggregate principal amount outstanding of our 9.875% 2025 Senior Secured Notes;

• We repurchased $351 million in aggregate principal amount of our outstanding senior notes of various series at an average price of 92% of par.

• Additionally, we returned capital to shareholders through our share repurchase program, repurchasing 12.5 million common shares at a cost of $240 million in the aggregate.

These actions give us additional financial flexibility and will better prepare us to navigate more easily through potentially volatile industry conditions in the future, while also prudently reducing our common share count.

• We issued $750 million aggregate principal amount of our 6.750% 2030 Senior Notes.

The net proceeds from the 6.750% 2030 Senior Notes issuance were used to repay a portion of the borrowings under our ABL Facility.

The transaction increased our financial flexibility and liquidity, extended our debt maturity profile, and was effectively leverage and interest expense neutral.

• We entered into the Fourth ABL Amendment, which, among other things, extended the maturity date of our ABL Facility to June 9, 2028, and increased the overall commitments under our ABL Facility to $4.75 billion, which added $250 million of commitments.

• We used our free cash flow to reduce the total principal of our long-term debt by $1.1 billion.

• We returned capital to shareholders through our share repurchase program, repurchasing 10.4 million common shares at a cost of $152 million in the aggregate.

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These actions with respect to our debt give us additional flexibility and liquidity, along with extending our average debt maturity date, which will better prepare us to navigate more easily through potentially volatile industry conditions in the future.

Additionally, we expect to have opportunities to continue to reduce our debt and return capital to shareholders with our free cash flow generation during 2024.

As of December 31, 2023, we had $1.5 billion aggregate principal amount outstanding of callable notes and had $608 million remaining under the authorization of our share repurchase program.

OPERATING ACTIVITIES

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The variance was driven by:

• A $1,657 million increase in net income after adjustments for non-cash items due to lower gross margins from lower steel sales volume and higher costs.

• A $1,019 million decrease in net income after adjustments for non-cash items due to lower gross margins resulting from a decrease in selling prices for our steel products, which was partially offset by an increase in sales volumes and a decrease in costs of production.

See "— Steelmaking Results" above for further detail on our operating results.

• A $139 million decrease in payments and contributions relating to pension and OPEB plans resulting from improvements to our pension plans' funded status.

The 2021 pension contributions also included $118 million in deferred 2020 pension contributions in connection with the CARES Act.

• A $1,773 million decrease in cash used for working capital primarily driven by lower increases in accounts receivable and inventories.

In 2021, accounts receivable increased due to the unwind of the ArcelorMittal USA factoring agreement as well as rising revenue.

Inventories also increased more in 2021 due to the global semiconductor shortage as well as higher raw material costs.

During 2022, our inventory units declined but this was predominantly offset by higher costs.

• A $110 million decrease in payments and contributions relating to our pension and OPEB plans.

As part of the 2022 USW labor negotiations, we paused the contribution requirement to the Cleveland-Cliffs Steel LLC VEBA plan and introduced certain Medicare-eligible retirees to Medicare Advantage plans.

Additionally, we negotiated favorable Medical Advantage Prescription Drug healthcare rates, which went into effect January 1, 2023.

• A $609 million increase in cash provided for working capital is primarily due to a decrease in inventories resulting from lower costs of steel driven by higher production, cost control and lower raw material costs.

INVESTING ACTIVITIES

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The variance was driven by:

• A $238 million increase in cash used for capital expenditures primarily relating to sustaining capital expenditures, including the completion of a reline of blast furnace #5 at Cleveland Works during the third quarter of 2022.

Sustaining capital spend includes infrastructure, mobile equipment, fixed equipment, product quality, environmental and health and safety.

• A $676 million decrease in cash used for acquisitions primarily relating to the FPT Acquisition made in 2021.

• A $297 million decrease in cash used for capital expenditures.

We incurred higher capital expenditures in 2022 compared to 2023 primarily relating to sustaining capital expenditures, including the completion of a reline of blast furnace #5 at Cleveland Works during the third quarter of 2022.

After elevated spend in 2022 to perform overdue maintenance work at the facilities acquired as part of the 2020 acquisitions, we resumed normalized levels of maintenance capital and operating expense in 2023.

Included within cash used for capital expenditures was $25 million for the year ended December 31, 2023, compared to $12 million for the year ended December 31, 2022, related to our non-owned SunCoke Middletown VIE.

Our capital expenditures primarily relate to sustaining capital spend, which includes infrastructure, mobile equipment, fixed equipment, product quality, environmental, and health and safety.

FINANCING ACTIVITIES

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(In millions) 2023 2022 Variance

Series B Redeemable Preferred Stock redemption $ — $ (1,343) $ 1,343

Net repayments of debt (1,358) (372) (986)

Net borrowings under credit facilities 255 73 182

Net issuance (repurchase) of common shares (240) 322 (562)

Net borrowings (repayments) of debt $ 750 $ (1,358) $ 2,108

Net borrowings (repayments) under credit facilities (1,864) 255 (2,119)

Repurchase of common shares (152) (240) 88

Other (238) (166) (72)

Net cash used by financing activities $ (1,504) $ (1,509) $ 5

The variance was driven by:

• A $1,343 million decrease in cash used in 2022 resulting from the Series B Redeemable Preferred Stock redemption in 2021.

• A $804 million increase in cash used resulting from higher net repayments of debt in 2022, partially offset by increased borrowings on our ABL Facility, as compared to the prior-year.

• A $562 million increase in cash used to repurchase 12.5 million common shares in 2022, compared to 20.0 million common shares issued in 2021.

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Our primary sources of liquidity are Cash and cash equivalents, cash generated from our operations, availability under the ABL Facility and access to capital markets.

We generally maintain minimal cash balances and utilize our access to our ABL Facility to cover fluctuations in our cash requirements.

Cash and cash equivalents, which totaled $26 million as of December 31, 2022, include cash on hand and on deposit.

Cash and cash equivalents, which totaled $198 million as of December 31, 2023, include cash on hand and on deposit, as well as short-term securities held for the primary purpose of general liquidity.

The combination of cash and availability under our ABL Facility gives us $4.5 billion in liquidity as of December 31, 2023.

During 2023, we issued $750 million in aggregate principal amount of our 6.750% 2030 Senior Notes.

We used the net proceeds from the offering to repay a portion of the borrowings under our ABL Facility, increasing our liquidity.

Additionally, during 2023, we entered into the Fourth ABL Amendment to our ABL Facility, increasing the commitments thereunder by $250 million.

We believe our liquidity and access to capital markets will be adequate to fund our cash requirements for the next 12 months and for the foreseeable future.

The ABL Facility, which matures in March 2025, has a maximum borrowing base of $4.5 billion, determined by applying customary advance rates to eligible accounts receivable, inventory and certain mobile equipment.

The ABL Facility includes a $555 million sublimit for the issuance of letters of credit and a $200 million sublimit for swingline loans.

Our ABL Facility, which now matures in June 2028, has a maximum borrowing base of $4.75 billion.

The available borrowing base is determined by applying customary advance rates to eligible accounts receivable, inventory and certain mobile equipment.

Our ABL Facility includes a $555 million sublimit for the issuance of letters of credit and a $200 million sublimit for swingline loans.

As of December 31, 2023, outstanding letters of credit totaled $56 million, which reduced availability.

We issue standby letters of credit with certain financial institutions in order to support business obligations, including, but not limited to, workers' compensation, employee severance, insurance, operating agreements and environmental obligations.

The ABL Facility agreement contains various financial and other covenants.

We issue 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.

Our ABL Facility agreement contains various financial and other covenants.

As of December 31, 2023, we were in compliance with all of our ABL Facility covenants.

We have the capability to issue additional unsecured notes and, subject to the limitations set forth in our existing senior notes indentures, additional secured debt, if we elect to access the debt capital markets.

We have the capability to issue additional unsecured notes and, subject to the limitations set forth in our existing senior notes indentures and ABL Facility, additional secured notes, if we elect to access the debt capital markets.

However, our ability to issue additional notes could be limited by market conditions.

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We anticipate total cash used for capital expenditures during the next 12 months to be between $675 and $725 million, which primarily consists of sustaining capital spend.

With our facilities and equipment in the best shape since the acquisition, we do not expect any major investments until at least 2025.

PURCHASE OBLIGATIONS

In the normal course of business, we are a party to certain off-balance sheet arrangements that are not reflected on our Statements of Consolidated Financial Position.

These arrangements include minimum "take or pay" purchase commitments, such as minimum electric power demand charges, minimum coal, diesel and natural gas purchase commitments, minimum railroad transportation commitments and minimum port facility usage commitments.

Refer to NOTE 20 - COMMITMENTS AND CONTINGENCIES for further information.

The necessary resources that we have invested in our footprint are expected to keep our assets at an automotive-grade level of quality and reliability for years to come.

We have principal long-term debt of $3,192 million with maturities starting in 2026.

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Required contributions are based on minimum funding requirements pursuant to ERISA regulations.

We expect to make $32 million in contributions in 2023.

Contributions in future years can significantly change and will depend on the actual returns on assets, discount rates, government regulations, changes to employee benefits through labor agreements and other demographic factors.

We expect to make $122 million in pension contributions and payments in 2024.

The cash requirements for our OPEB plans consist of VEBA contributions and direct payments from corporate assets primarily for medical and drug costs.

During 2022, we negotiated favorable Medicare Advantage Prescription Drug healthcare rates, which went into effect January 1, 2023.

We also paused the contribution requirement to the Cleveland-Cliffs Steel LLC VEBA plan as part of the 2022 USW labor negotiations.

The reduction in retiree healthcare rates and pause on the VEBA funding requirements is expected to reduce our use of cash from $198 million in 2022 to $73 million in 2023.

We expect to make $66 million in OPEB contributions and payments from corporate assets in 2024.

Contributions and payments in future years can significantly change and will depend on the actual returns on assets, discount rates, actual health care trend rates, government regulations, changes to employee benefits through labor agreements and other demographic factors.

Refer to NOTE 9 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS for further information.

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Refer to NOTE 20 - COMMITMENTS AND CONTINGENCIES and NOTE 13 - ASSET RETIREMENT OBLIGATIONS for further information on our environmental and asset retirement obligations.

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SHARE REPURCHASE PROGRAM

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The share repurchase program does not have a specific expiration date.

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OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of business, we are a party to certain off-balance sheet arrangements that are not reflected on our Statements of Consolidated Financial Position.

These arrangements include unconditional purchase obligations, surety bonds and letters of credit.

Our unconditional purchase obligations include minimum "take or pay" commitments, such as minimum electric power demand charges, minimum coal, diesel and natural gas purchase commitments, minimum railroad transportation commitments and minimum port facility usage commitments.

We use surety bonds and letters of credit to provide financial assurance for certain obligations.

As of December 31, 2023, we had $260 million of outstanding surety bonds and surety-backed letters of credit.

The use of surety bonds and surety-backed letters of credit has no impact on our liquidity.

Additionally, as of December 31, 2023, we had $56 million of outstanding letters of credit issued under our ABL Facility, which reduced our availability thereunder.

Refer to NOTE 20 - COMMITMENTS AND CONTINGENCIES for further information on our unconditional purchase obligations, surety bonds and surety-backed letters of credit.

NON-GAAP FINANCIAL MEASURES

The following provides a description and reconciliation of each of our non-GAAP financial measures to its most directly comparable respective GAAP measure.

The presentation of these measures is not intended to be considered in isolation from, as a substitute for, or as superior to, the financial information prepared and presented in accordance with GAAP.

The presentation of these measures may be different from non-GAAP financial measures used by other companies.

ADJUSTED EBITDA

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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.

The following table provides a reconciliation of our Net income (loss) to Adjusted EBITDA:

The following table provides a reconciliation of our Net income to Adjusted EBITDA:

Year Ended December 31,

(In millions) 2023 2022 2021

Net income (loss) $ 1,376 $ 3,033 $ (81)

Net income $ 450 $ 1,376 $ 3,033

Interest expense, net (289) (276) (337)

Income tax benefit (expense) (423) (773) 111

Income tax expense (148) (423) (773)

Depreciation, depletion and amortization (973) (1,034) (897)

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$ 83 $ 74 $ 75

Gain (loss) on extinguishment of debt (75) (88) 130

Acquisition-related expenses and adjustments (12) (1) (197)

Goodwill impairment (125) — —

Non-cash gain on sale of business 28 — —

Loss on extinguishment of debt — (75) (88)

Asset impairment — (29) —

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EBITDA of noncontrolling interests $ 83 $ 74 $ 75

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The following table provides a summary of our Adjusted EBITDA by segment:

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Other Businesses 43 69

Corporate and eliminations 11 (12)

Eliminations (5) 11

Total Adjusted EBITDA $ 1,911 $ 3,169

FREE CASH FLOW

Free cash flow is a non-GAAP measure defined as operating cash flows less purchase of property, plant and equipment.

Free cash flow is a non-GAAP measure defined as operating cash flow less purchase of property, plant and equipment.

Management believes it is an important measure to assess the cash generation available to service debt, strategic initiatives or other financing activities.

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The following table provides a reconciliation of our operating cash flows to free cash flows:

The following table provides a reconciliation of our operating cash flow to free cash flow:

Year Ended December 31,

(In millions) 2023 2022

Operating cash flows $ 2,423 $ 2,785

Net cash provided by operating activities $ 2,267 $ 2,423

Purchase of property, plant and equipment (646) (943)

Free cash flows $ 1,480 $ 2,080

Free cash flow $ 1,621 $ 1,480

Net debt is a non-GAAP financial measure that management uses in evaluating financial position.

Net debt is defined as long-term debt less cash and cash equivalents.

Management believes net debt is an important measure of our financial position due to the amount of cash and cash equivalents on hand.

The following table provides a reconciliation of our long-term debt to net debt:

(In millions) December 31, 2023 December 31, 2022

Long-term debt $ 3,137 $ 4,249

Cash and cash equivalents 198 26

Net debt $ 2,939 $ 4,223

INFORMATION ABOUT OUR GUARANTORS AND THE ISSUER OF OUR GUARANTEED SECURITIES

The accompanying summarized financial information has been prepared and presented pursuant to SEC Regulation S-X, Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered,” and Rule 13-01 "Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralized a Registrant's Securities." Certain of our subsidiaries (the "Guarantor subsidiaries") have fully and unconditionally, and jointly and severally, guaranteed the obligations under (a) the 5.875% 2027 Senior Notes, the 7.000% 2027 Senior Notes, the 4.625% 2029 Senior Notes and the 4.875% 2031 Senior Notes issued by Cleveland-Cliffs Inc.

on a senior unsecured basis and (b) the 6.750% 2026 Senior Secured Notes on a senior secured basis.

The accompanying summarized financial information has been prepared and presented pursuant to SEC Regulation S-X, Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered,” and Rule 13-01 "Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralized a Registrant's Securities." Certain of our subsidiaries (the "Guarantor subsidiaries") as of December 31, 2023 have fully and unconditionally, and jointly and severally, guaranteed the obligations under (a) the 5.875% 2027 Senior Notes, the 7.000% 2027 Senior Notes, the 4.625% 2029 Senior Notes, the 6.750% 2030 Senior Notes, and the 4.875% 2031 Senior Notes issued by Cleveland-Cliffs Inc.

on a senior unsecured basis and (b) the 6.750% 2026 Senior Secured Notes issued by Cleveland-Cliffs Inc.

on a senior secured basis.

See NOTE 8 - DEBT AND CREDIT FACILITIES for further information.

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Refer to Exhibit 22 , incorporated herein by reference, for the detailed list of entities included within the obligated group as of December 31, 2023.

The guarantee of a Guarantor subsidiary with respect to Cliffs' 6.750% 2026 Senior Secured Notes, the 5.875% 2027 Senior Notes, the 7.000% 2027 Senior Notes, the 4.625% 2029 Senior Notes and the 4.875% 2031 Senior Notes will be automatically and unconditionally released and discharged, and such Guarantor subsidiary’s obligations under the guarantee and the related indentures (the “Indentures”) will be automatically and unconditionally released and discharged, upon the occurrence of any of the following, along with the delivery to the trustee of an officer’s certificate and an opinion of counsel, each stating that all conditions precedent provided for in the applicable Indenture relating to the release and discharge of such Guarantor subsidiary’s guarantee have been complied with:

As of December 31, 2023, the guarantee of a Guarantor subsidiary with respect to Cliffs' 6.750% 2026 Senior Secured Notes, the 5.875% 2027 Senior Notes, the 7.000% 2027 Senior Notes, the 4.625% 2029 Senior Notes, the 6.750% 2030 Senior Notes and the 4.875% 2031 Senior Notes will be automatically and unconditionally released and discharged, and such Guarantor subsidiary’s obligations under the guarantee and the related indentures (the “Indentures”) will be automatically and unconditionally released and discharged, upon the occurrence of any of the following, along with the delivery to the trustee of an officer’s certificate and an opinion of counsel, each stating that all conditions precedent provided for in the applicable Indenture relating to the release and discharge of such Guarantor subsidiary’s guarantee have been complied with:

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(a) any sale, exchange, transfer or disposition of such Guarantor subsidiary (by merger, consolidation, or the sale of) or the capital stock of such Guarantor subsidiary after which the applicable Guarantor subsidiary is no longer a subsidiary of the Company or the sale of all or substantially all of such Guarantor subsidiary’s assets (other than by lease), whether or not such Guarantor subsidiary is the surviving entity in such transaction, to a person which is not the Company or a subsidiary of the Company;

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Non-current liabilities (5,463)

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The following table is summarized combined financial information from the Statements of Condensed Consolidated Operations of the obligated group:

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however, certain risks are beyond our control.

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PRICING RISKS

In the ordinary course of business, we are exposed to market risk and price fluctuations related to the sale of our products, which are impacted primarily by market prices for HRC, and the purchase of energy and raw materials used in our operations, which are impacted by market prices for electricity, natural gas, ferrous and stainless steel scrap, chrome, metallurgical coal, coke, nickel and zinc.

In the ordinary course of business, we are exposed to market risk and price fluctuations related to the sale of our products, which are impacted primarily by market prices for HRC and other related spot pricing indices, and the purchase of energy and raw materials used in our operations, which are impacted by market prices for natural gas, electricity, ferrous and stainless steel scrap, metallurgical coal, coke, zinc, chrome, nickel and other alloys.

Our strategy to address market risk has generally been to obtain competitive prices for our products and services and allow operating results to reflect market price movements dictated by supply and demand;

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We attempt to mitigate these risks by aligning fixed and variable components in our customer pricing contracts, supplier purchasing agreements and derivative financial instruments.

Some customer contracts have fixed-pricing terms, which increases our exposure to fluctuations in raw material and energy costs.

Some customer contracts have fixed pricing terms, which increase our exposure to fluctuations in raw material and energy costs.

To reduce our exposure, we enter into annual, fixed price agreements for certain raw materials.

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There is a risk, however, that the variable-price mechanisms in the sales contracts may not necessarily change in tandem with the variable-price mechanisms in our purchase agreements, negatively affecting our results of operations and cash flows.

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Our strategy to address volatile natural gas rates and electricity rates includes improving efficiency in energy usage, identifying alternative providers and utilizing the lowest cost alternative fuels.

If we are unable to align fixed and variable components between customer contracts and supplier purchase agreements, we use cash-settled commodity price swaps to hedge the market risk associated with the purchase of certain of our raw materials and energy requirements.

Additionally, we routinely use these derivative instruments to hedge a portion of our natural gas and zinc requirements.

During 2022, we initiated hedging programs for electricity and tin.

If we are unable to align fixed and variable components between customer contracts and supplier purchase agreements, we routinely evaluate the use of derivative instruments to hedge market risk.

As a result, we use cash-settled commodity price swaps to hedge a portion of our exposure from our natural gas and electricity requirements.

Our hedging strategy is designed to protect us from excessive pricing volatility.

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Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units and if a quantitative assessment is deemed necessary in determination of the fair value of each reporting unit.

The fair value of each reporting unit is estimated using the guideline public company method, the discounted cash flow methodology, or a combination of both, which considers forecasted cash flows discounted at an estimated weighted average cost of capital.

The fair value of each reporting unit is estimated using the guideline public company method, the discounted cash flow methodology, or a combination of both, which considers forecasted cash flows

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discounted at an estimated weighted average cost of capital.

Assessing the recoverability of our goodwill requires significant assumptions regarding the estimated future cash flows and other factors to determine the fair value of a reporting unit, including, among other things, estimates related to forecasts of future revenues, expected Adjusted EBITDA, expected capital expenditures and working capital requirements, which are based upon our long-range plan estimates.

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Changes in these assumptions could materially affect the determination of fair value for each reporting unit.

No impairment charges were identified in connection with our annual goodwill impairment test with respect to our identified reporting units.

However, our Tooling and Stamping reporting unit fair value was not substantially in excess of its carrying values as of December 31, 2022.

A slower than anticipated resolution of the supply chain issues related to the global semiconductor shortages that have hampered the automotive industry, higher than expected capital requirements, and/or an increase in the discount rate could result in future impairment indicators.

Our 2023 annual goodwill impairment analysis resulted in an impairment charge of $125 million for goodwill related to our Tooling and Stamping reporting unit.

The decline in the fair value of our Tooling and Stamping reporting unit below its carrying value during 2023 resulted from forgoing previous investment and capital plans in favor of other opportunities and an increase in the discount rate.

No impairment charges were identified in connection with our annual goodwill assessment with respect to our other identified reporting units.

We determined that our other identified reporting units were not at risk of failing the goodwill impairment test as of December 31, 2023.

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We estimate fair value using a market approach, an income approach or a cost approach.

For the year ended December 31, 2022, we concluded that there were no additional triggering events resulting in the need for an

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impairment assessment except for the announcement of the permanent closure of Mountain State Carbon, which resulted in a $29 million asset impairment charge.

During the year ended December 31, 2023, we concluded there were no triggering events resulting in the need for an asset impairment assessment except for our Tooling and Stamping operations.

The goodwill impairment we recorded at our Tooling and Stamping operations was deemed a triggering event;

however, the other long-lived assets recoverability assessment did not result in an asset impairment charge.

INTEREST RATE RISK

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Interest payable under our ABL Facility is at a variable rate based upon the applicable base rate plus the applicable base rate margin depending on the excess availability.

As of December 31, 2022, we had $1,864 million outstanding under our ABL Facility.

An increase in prevailing interest rates would increase interest expense and interest paid for any outstanding borrowings under our ABL Facility.

For example, a 100 basis point change to interest rates under our ABL Facility at the December 31, 2022 borrowing level would result in a change of $19 million to interest expense on an annual basis.

For a discussion of the attendant risk, see Part I - Item 1A, Risk Factors - III.

As of December 31, 2023, we had no outstanding borrowings under our ABL Facility.

For a discussion of the attendant risk, see Part I - Item 1A.

Risk Factors - III.

Financial Risks - Our existing and future indebtedness may limit cash flow available to invest in the ongoing needs of our businesses, which could prevent us from fulfilling our obligations under our senior notes, ABL Facility and other debt, and we may be forced to take other actions to satisfy our obligations under our debt, which may not be successful.

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Management believes that the following critical accounting estimates and judgments have a significant impact on our financial statements.

BUSINESS COMBINATIONS

Assets acquired and liabilities assumed in a business combination are recognized and measured based on their estimated fair values at the acquisition date, while the acquisition-related costs are expensed as incurred.

Any excess of the purchase consideration when compared to the fair value of the net tangible and intangible assets acquired is recorded as goodwill.

We engaged independent valuation specialists to assist with the determination of the fair value of assets acquired, liabilities assumed, noncontrolling interest, and goodwill, for the acquisitions.

If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be recorded.

Subsequent to the acquisition date, and not later than one year from the acquisition date, we will record any material adjustments to the initial estimate based on new information obtained that would have existed as of the date of the acquisition.

Any adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period the adjustment arises.

VALUATION OF GOODWILL AND OTHER LONG-LIVED ASSETS

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Refer to "–Market Risks" above for additional information.

MINERAL RESERVES

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IRON ORE MINERAL RESERVES

We regularly evaluate, and engage QPs to review and validate, our mineral reserves and update them as required in accordance with Subpart 1300 of Regulation S-K.

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Technological progress could alleviate such factors or increase capacity of mineral reserves.

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We use our mineral reserve estimates, combined with our estimated annual production levels, to determine the mine closure dates utilized in recording the fair value liability for asset retirement obligations for our active operating mines.

Refer to NOTE 13 - ASSET RETIREMENT OBLIGATIONS, for further information.

We use our mineral reserve estimates, combined with our estimated annual production levels and operating scenarios, to determine the mine closure dates utilized in recording the fair value liability for asset retirement obligations for our active operating mines.

Since the liability represents the present value of the expected future obligation, a significant change in mineral reserves or mine lives could have a substantial effect on the recorded obligation.

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The consolidated asset retirement obligation balance was $459 million as of December 31, 2023, of which $171 million related to active iron ore mine operations.

The total goodwill balance associated with our Steelmaking reportable segment was $956 million as of December 31, 2022.

The total asset balance associated with our Steelmaking reportable segment was $18,070 million as of December 31, 2022, of which $1,559 million related to long-lived assets associated with our combined iron ore mine asset groups.

Depreciation, depletion and amortization expense for our combined iron ore mine asset groups was $161 million for the year ended December 31, 2022.

Increases or decreases in mineral reserves or mine lives could significantly affect these items.

Refer to NOTE 13 - ASSET RETIREMENT OBLIGATIONS for further information.

ASSET RETIREMENT OBLIGATIONS

The accrued closure obligation is predominantly related to our indefinitely idled and closed iron ore mining operations and provides for contractual and legal obligations associated with the eventual closure of those operations.

The accrued closure obligation is related to our indefinitely idled and closed iron ore mining operations and provides for contractual and legal obligations associated with the eventual closure of our active operations.

We perform an in-depth evaluation of the liability every three years in addition to our routine annual assessments.

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The estimated obligations for our active mine sites are particularly sensitive to the impact of changes in mine lives given the difference between the inflation and discount rates.

The closure dates for a majority of our steelmaking facilities are indefinite, and as such, the asset retirement obligations are recorded at present values using estimated ranges of the economic lives of the underlying assets.

Asset retirement obligations at our steelmaking operations primarily include the closure and post-closure care for on-site landfills and other waste containment facilities.

Asset retirement obligations have been recorded at present values using settlement dates based on when we expect these facilities to reach capacity and close.

Changes in the base estimates of legal and contractual closure costs due to changes in legal or contractual requirements, available technology, inflation, overhead or profit rates also could have a significant impact on the recorded obligations.

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In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations.

In projecting future taxable income, we begin with historical results adjusted for the results of discontinued operations and changes in accounting policies and incorporate assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies.

In projecting future taxable income, we begin with historical results adjusted for the results of discontinued operations and changes in accounting policies and incorporate assumptions including the amount of future state, federal and foreign pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies.

These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses.

At December 31, 2023 and 2022, we had a valuation allowance of $396 million and $390 million, respectively, against our deferred tax assets.

At December 31, 2022 and 2021, our U.S.

deferred tax assets were $48 million and $70 million, respectively, and our foreign deferred tax assets were $342 million and $339 million, respectively.

At December 31, 2023 and 2022, the valuation allowance on our U.S.

deferred tax assets was $40 million and $48 million, respectively, and the valuation allowance on our foreign deferred tax assets was $356 million and $342 million, respectively.

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During 2023, we recorded a $14 million valuation allowance against a portion of our Canadian deferred tax assets due to losses in recent years.

We intend to maintain a valuation allowance against these deferred tax assets, unless and until sufficient positive evidence exists to support the realization of such assets.

Our losses in Luxembourg in recent periods represent sufficient negative evidence to require a full valuation allowance against the deferred tax assets in that jurisdiction.

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income tax reform legislation may differ from our current estimates due to changes in the interpretations and assumptions made as well as additional regulatory guidance that may be issued.

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Accounting for uncertainty in income taxes recognized in the financial statements requires that a tax benefit from an uncertain tax position be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on technical merits.

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We sponsor various defined benefit pension plans and OPEB plans for certain current employees and retirees.

For accounting purposes, we use various actuarial assumptions and methodologies to measure the plan obligations, assets and related net periodic benefit expense at the end of each year.

For accounting purposes, we use various actuarial assumptions and methodologies to measure the plan obligations, assets and related net periodic benefit cost or credit at the end of each year.

These assumptions include discount rates, expected return on plan assets, mortality rates, rates of compensation increase, healthcare trend rates and certain demographic assumptions.

Assumptions and calculations are reviewed by management and reflect our best estimates and judgment.

Future changes in assumptions or differences between actual and expected can significantly impact the future funded status of our plans as well as their related net periodic benefit expense.

Future changes in assumptions or differences between actual and expected can significantly impact the future funded status of our plans as well as their related net periodic benefit cost or credit.

We believe discount rates and expected return on assets are the most critical assumptions.

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In 2024, our weighted average expected return on assets for pension and OPEB plans will increase from 7.66% to 7.85% and from 5.87% to 5.94%, respectively.

The increase is primarily related to a shift in investment strategy and asset mix for $2.9 billion of our pension and OPEB assets, to further align to the Company-wide investment strategy.

Cumulative actuarial gains and losses will be amortized to expense using the corridor method, where gains and losses are recognized if they exceed 10% of the greater of the fair value of plan assets or the plans' benefit obligations.

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Refer to NOTE 9 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS for further information.

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FORWARD-LOOKING STATEMENTS

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• continued volatility of steel, iron ore and scrap metal market prices, which directly and indirectly impact the prices of the products that we sell to our customers;

• uncertainties associated with the highly competitive and cyclical steel industry and our reliance on the demand for steel from the automotive industry, which has been experiencing supply chain disruptions, such as the semiconductor shortage, and higher consumer interest rates, which could result in lower steel volumes being demanded;

• potential weaknesses and uncertainties in global economic conditions, excess global steelmaking capacity, oversupply of iron ore, prevalence of steel imports and reduced market demand, including as a result of inflationary pressures, the COVID-19 pandemic, conflicts or otherwise;

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• severe financial hardship, bankruptcy, temporary or permanent shutdowns or operational challenges of one or more of our major customers, including customers in the automotive market, key suppliers or contractors, which, among other adverse effects, could disrupt our operations or lead to reduced demand for our products, increased difficulty collecting receivables, and customers and/or suppliers asserting force majeure or other reasons for not performing their contractual obligations to us;

• disruptions to our operations relating to an infectious disease outbreak or the COVID-19 pandemic, including workforce challenges and the risk that novel variants will prove resistant to existing vaccines or that new or continuing pandemic lockdowns in China will impact our ability to source certain critical supplies in a timely and predictable manner;

• uncertainties associated with the highly competitive and cyclical steel industry and our reliance on the demand for steel from the automotive industry;

• potential weaknesses and uncertainties in global economic conditions, excess global steelmaking capacity, oversupply of iron ore, prevalence of steel imports and reduced market demand;

• severe financial hardship, bankruptcy, temporary or permanent shutdowns or operational challenges of one or more of our major customers, key suppliers or contractors, which, among other adverse effects, could disrupt our operations or lead to reduced demand for our products, increased difficulty collecting receivables, and customers and/or suppliers asserting force majeure or other reasons for not performing their contractual obligations to us;

• risks related to U.S.

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• potential impacts to the environment or exposure to hazardous substances resulting from our operations;

• our ability to maintain adequate liquidity, our level of indebtedness and the availability of capital could limit our financial flexibility and cash flow necessary to fund working capital, planned capital expenditures, acquisitions, and other general corporate purposes or ongoing needs of our business;

• our ability to reduce our indebtedness or return capital to shareholders within the currently expected timeframes or at all;

• adverse changes in credit ratings, interest rates, foreign currency rates and tax laws, including adverse impacts as a result of the Inflation Reduction Act;

• the outcome of, and costs incurred in connection with, lawsuits, claims, arbitrations or governmental proceedings relating to commercial and business disputes, antitrust claims, environmental matters, government investigations, occupational or personal injury claims, property damage, labor and employment matters, or suits involving legacy operations and other matters;

• uncertain availability or cost, due to inflation or otherwise, of critical manufacturing equipment and spare parts;

• supply chain disruptions or changes in the cost, quality or availability of energy sources, including electricity, natural gas and diesel fuel, or critical raw materials and supplies, including iron ore, industrial gases, graphite electrodes, scrap metal, chrome, zinc, coke and metallurgical coal;

• adverse changes in credit ratings, interest rates, foreign currency rates and tax laws;

• the outcome of, and costs incurred in connection with, lawsuits, claims, arbitrations or governmental proceedings relating to commercial and business disputes, antitrust claims, environmental matters, government investigations, occupational or personal injury claims, property-related matters, labor and employment matters, or suits involving legacy operations and other matters;

• supply chain disruptions or changes in the cost, quality or availability of energy sources, including electricity, natural gas and diesel fuel, critical raw materials and supplies, including iron ore, industrial gases, graphite electrodes, scrap metal, chrome, zinc, other alloys, coke and metallurgical coal, and critical manufacturing equipment and spare parts;

• problems or disruptions associated with transporting products to our customers, moving manufacturing inputs or products internally among our facilities, or suppliers transporting raw materials to us;

• the risk that the cost or time to implement a strategic or sustaining capital project may prove to be greater than originally anticipated;

• our ability to consummate any public or private acquisition transactions and to realize any or all of the anticipated benefits or estimated future synergies, as well as to successfully integrate any acquired businesses into our existing businesses;

• uncertainties associated with natural or human-caused disasters, adverse weather conditions, unanticipated geological conditions, critical equipment failures, infectious disease outbreaks, tailings dam failures and other unexpected events;

• cybersecurity incidents relating to, disruptions in, or failures of, information technology systems that are managed by us or third parties that host or have access to our data and systems, including the loss, theft or corruption of sensitive or essential business or personal information and the inability to access or control systems;

• cybersecurity incidents relating to, disruptions in, or failures of, information technology systems that are managed by us or third parties that host or have access to our data or systems, including the loss, theft or corruption of sensitive or essential business or personal information and the inability to access or control systems;

• liabilities and costs arising in connection with any business decisions to temporarily or indefinitely idle or permanently close an operating facility or mine, which could adversely impact the carrying value of associated assets and give rise to impairment charges or closure and reclamation obligations, as well as uncertainties associated with restarting any previously idled operating facility or mine;

57 | CLF 2023 FORM 10-K

• our level of self-insurance and our ability to obtain sufficient third-party insurance to adequately cover potential adverse events and business risks;

3 unchanged sentences

• our ability to maintain satisfactory labor relations with unions and employees;

57 | CLF 2022 FORM 10-K

• unanticipated or higher costs associated with pension and OPEB obligations resulting from changes in the value of plan assets or contribution increases required for unfunded obligations;

12 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis