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Item 2. Management’s Discussion and Analysis

2024-04-25 compared with 2023-10-25 · 204 added, 238 removed, 336 unchanged (57% of the section changed)

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FINANCIAL SUMMARY

The following is a summary of our consolidated results for the three and nine months ended September 30, 2023 and 2022 (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.

The following is a summary of our consolidated results for the three months ended March 31, 2024 and 2023 (in millions, except for diluted EPS):

Total Revenue Net Loss Adjusted EBITDA Diluted EPS

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

ECONOMIC OVERVIEW

STEEL MARKET OVERVIEW

Steel market conditions in 2023 have been 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 $792 per net ton for the third quarter of 2023, 5% lower than the third quarter of 2022, but above the prior annual ten-year average of approximately $750 per net ton.

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

In 2023, the automotive industry had the highest light vehicle production through the first nine months of a year since 2019.

Demand for steel from service centers was adversely impacted during the third quarter of 2023 due to the anticipation of and ultimate UAW strike at certain domestic automotive producers.

During the third quarter of 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.

These low inventory levels should generate significant demand for steel throughout the remainder of 2023 and beyond as service centers will need to meet the continued healthy demand from their end-use customers.

Additionally, steel imports have remained unattractive for the majority of the first nine months 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 an eventual resolution of the UAW strike should provide meaningful support for steel demand.

The CHIPS Act and Inflation Reduction Act should provide meaningful support for overall domestic steel demand through the remainder of 2023 and beyond.

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

Steel market conditions in the first quarter of 2024 were driven by continued strength in light vehicle production but also inconsistent service center buying behavior and higher import levels.

The price for domestic HRC, the most significant index impacting our revenues and profitability, averaged $941 per net ton for the first quarter of 2024, 8% higher than the first quarter of 2023, and significantly above the prior annual ten-year average of approximately $775 per net ton.

Import levels were elevated at the beginning of the year as HRC pricing spreads between the U.S.

and other regions started increasing in the fourth quarter of 2023.

Demand for steel from automotive manufacturers remained strong throughout the first quarter of 2024 after 2023 North American light vehicle production of 15.7 million units was the highest level since 2019.

Steel demand from service centers was inconsistent during the first quarter of 2024, as service center inventory levels were reduced to 1.9 months on hand as the HRC price declined, after ending 2023 at 2.2 months of inventory on hand.

Looking forward, we expect domestic steel demand to grow as automotive production continues to remain strong, end-user demand for our service center customers remains healthy and incremental steel demand stimulated by recent government legislation is realized.

The Infrastructure and Jobs Act, the CHIPS Act and the Inflation Reduction Act should continue to provide meaningful support for overall domestic steel demand throughout the remainder of 2024 and in the coming years.

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

The Infrastructure and Jobs Act 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.

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

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.

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 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 recently passed legislation for years to come.

should reduce the risk of supply chain issues in the future.

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 the third quarter of 2023, North American light vehicle production was approximately 4.0 million units, down from 4.1 million units in the second quarter of 2023, but higher than any quarterly production volume in 2021 or 2022.

Full-year 2023 North American light vehicle production is estimated to exceed 15 million units, which would also be the highest level since 2019.

North American light vehicle production in 2024 is estimated to exceed 16 million units, implying that any negative impact to production due to the UAW strike is a deferral of demand rather than lost production.

During the first nine months of 2023, light vehicle sales in the U.S.

saw an average seasonally adjusted annualized rate of 15.5 million units sold, representing a 14% increase compared to the same period for 2022.

During the first quarter of 2024, North American light vehicle production was approximately 3.9 million units, up from 3.8 million units in the fourth quarter of 2023, which was adversely impacted by the United Auto Workers strike.

Full-year 2024 North American light vehicle production is estimated to exceed 16.0 million units, which would be the highest level since 2019.

North American light vehicle production in 2025 and beyond is also estimated to exceed 16.0 million units annually, implying continued strong demand for years to come.

During the first quarter of 2024, light vehicle sales in the U.S.

saw an average seasonally adjusted annualized rate of 15.4 million units sold, an increase from 15.1 million units sold rate for same period during 2023.

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

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

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 $380 per long ton since 2021.

The busheling price averaged $446 per long ton during the third quarter of 2023 and $491 per long ton through the first nine months of 2023.

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 $400 per long ton.

The busheling price averaged $464 per long ton during the first quarter of 2024.

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., reduced metallics import availability, and a push for expanded scrap use globally.

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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 $114 per metric ton in the third quarter of 2023, which is 18% higher than the prior annual ten-year average.

As for iron ore, the Platts 62% price averaged $124 per metric ton in the first quarter of 2024, which is 30% 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.

OTHER FACTORS

On September 14, 2023, the UAW announced a simultaneous labor strike against three domestic automotive manufacturers, as each of the individual companies have been 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 has remained strong from the automotive industry as the strike has been limited to certain facilities, allowing the automotive manufacturers to continue production at other facilities within their footprint.

While we have not yet experienced a meaningful impact from the UAW strike, an expanded or prolonged strike could have negative impacts on demand for automotive steel or domestic automotive production.

On April 4, 2024, the DOE issued its final transformer efficiency standards rule that will provide for the continued utilization of GOES in virtually all of our distribution transformer end markets.

With the revised rule, the DOE acknowledged the fundamental importance of GOES and the essential role played by our steel plants in Butler, Pennsylvania and Zanesville, Ohio in effectively sustaining the functionality of the U.S.

electric grid.

The originally proposed distribution transformer rule would have required the use of amorphous metal in nearly all transformer production in the U.S., putting demand for our GOES product at serious risk.

The final rule provides clarity going forward on production requirements, allowing for increased investments in the transformer market, which should ultimately lead to increased GOES demand.

On February 15, 2024, we announced the indefinite idling of our tinplate production plant located in Weirton, West Virginia.

The idling of Weirton occurred in April 2024.

We produced tin mill products primarily used for canned food packaging at our Weirton facility and historically sold approximately 300,000 net tons per year, representing approximately 2% of our total steel sales volumes.

The need to idle our Weirton facility arose as a direct result of the unanimous decision of the U.S.

International Trade Commission negating the implementation of anti-dumping and countervailing duties on imported tin mill products calculated by the Department of Commerce.

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.

On June 21, 2023, the U.S.

Department of Commerce announced its preliminary affirmative determination in the countervailing duty investigation of tin mill products from China and imposed subsidy rates ranging from 89.02% to 542.55%, based on the exporter.

On August 17, 2023, the U.S.

Commerce Department announced that it had set preliminary antidumping duties on imports of tin and chromium-coated sheet steel products from Canada, China and Germany.

The department determined that imports of these tin mill products were sold to the United States at less than normal value.

The department set preliminary antidumping tariffs ranging from 5.29% to 111.98%.

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 started to benefit from lower costs during the first nine months of 2023 and expect that to continue through the rest of 2023 and through 2024, as many inflationary pressures have started to ease, production volume has improved, and repair and maintenance expenses have begun to normalize.

After finding evidence of dumping and subsidization, on January 5, 2024, the Department of Commerce announced duties on four countries, including Canada, China, Germany and South Korea.

Despite these findings, the U.S.

International Trade Commission unanimously rejected these trade remedies on February 6, 2024, which ultimately led to the indefinite idling of our Weirton facility.

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

We expect to continue to reduce costs in 2024, as we have worked through higher cost inventory, production volumes should remain similar, and reductions in even lower natural gas prices and coal and alloy costs should mitigate any inflationary cost increases.

COMPETITIVE STRENGTHS

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This positioning gives us more predictable costs throughout our supply chain and more control over both our manufacturing inputs and our end-product destination.

One of our most critical strengths that differentiates us from others in our industry is a unique and powerful partnership with our unionized workforce, particularly the USW.

With approximately 20,000 employees subject to collective bargaining agreements, our strong and productive labor relationships are key to our long-term success and allow us to work together in achieving our goals.

A clear example of the strength of our relationship is how we partner together to fight against dumped and illegally subsidized imported steel products.

Our deep alignment with our represented employees is also recognized by our political leaders, who often publicly support us as a significant employer of a unionized workforce with a track record of working to maintain and increase middle class jobs.

Our primary competitive strength lies within our automotive steel business.

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The quality of our assets gives us a unique advantage in product offerings and operational efficiencies.

In 2022, we brought our facilities and equipment up to the standard required to maintain and improve the quality and reliability of our supply to the automotive industry, as well as other end markets.

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

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 expenses in 2023.

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.

Our industry leading portfolio of fixed price contracts provides us a competitive advantage, as the steel industry is often viewed as volatile and subject to the market price of steel.

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This model reduces our exposure to volatile pricing and unreliable global sourcing.

The ongoing conflict between Russia and Ukraine has displayed the importance of our U.S.-centric footprint, as our competitors who primarily operate EAF facilities rely on imported pig iron to produce flat-rolled steel, the supply of which has been disrupted by that conflict.

The best example is our legacy business of producing iron ore

The ongoing conflict between Russia and Ukraine, along with other global tensions, has displayed the importance of our U.S.-centric footprint, as our competitors who primarily operate EAF facilities rely on imported pig iron to produce flat-rolled steel, the supply of which has been disrupted.

The best example is our legacy business of producing iron ore pellets.

By controlling our iron ore pellet supply, our primary steelmaking raw material feedstock can be secured at a stable and predictable cost and not be subject to as many factors outside of our control.

We believe we offer the most comprehensive flat-rolled steel product selection in the industry, along with several complementary products and services.

A sampling of our offering includes advanced high-strength steel, hot-dipped galvanized, aluminized, galvalume, electrogalvanized, galvanneal, HRC, cold-rolled coil, plate, tinplate, GOES, NOES, stainless steels, tool and die, stamped components, rail, slab and cast ingot.

A sampling of our offering includes advanced high-strength steel, hot-dipped galvanized, aluminized, galvalume, electrogalvanized, galvanneal, HRC, cold-rolled coil, plate, GOES, NOES, stainless steels, tool and die, stamped components, rail, slab and cast ingot.

Across the quality spectrum and the supply chain, our customers can frequently find the solutions they need from our product selection.

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In November 2021, the Infrastructure and Jobs Act was passed in the U.S., which provides funding to be used for the modernization of the electrical grid and the infrastructure needed to allow for increased EV adoption, both of which require electrical steels.

As a result, we expect to benefit from this position in what we forecast as a rapidly growing market.

Our electrical steel business is expected to achieve strong profitability throughout the remainder of 2023 and in the coming years.

We also recently commissioned our NOES expansion at our Zanesville facility, which will ultimately increase our annual capacity by approximately 70,000 net tons.

Our electrical steel business is expected to achieve strong profitability in the coming years.

During 2023, we commissioned our NOES expansion at our Zanesville facility, which increased our annual capacity by approximately 70,000 net tons.

We are the first and the only producer of HBI in the Great Lakes region.

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MAXIMIZE OUR COMMERCIAL STRENGTHS

We offer a full suite of flat steel products encompassing all steps of the steel manufacturing process.

We offer a full suite of flat steel products encompassing effectively all of our customers' needs.

We are a leading supplier to the automotive sector, where our portfolio of high-end products delivers a broad range of differentiated solutions for this highly sought after customer base.

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These contracts reduce volatility and allow for more predictable through-the-cycle margins.

Our fixed-price contract values significantly improved throughout 2023 compared to 2022.

In addition to our fixed price contracts, we also sell significant volumes under index-linked contracts, which reduces our reliance on spot sales and allows us to improve our efficiency with increased volumes.

Our unique capabilities, driven by our portfolio of assets and technical expertise, give us an advantage in our flat-rolled product offering.

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During 2022, we introduced our MOTOR-MAX™ product line of NOES for high frequency motors and generators.

We also recently introduced our C-STAR™ protection steel, which was developed for the purpose of providing battery support in EVs, but can be used in any type of light vehicle.

During 2023, we introduced our C-STAR™ protection design, which was developed for the purpose of providing EV battery protection for improved safety purposes, but can be used in any type of light vehicle.

These unique product offerings and customer service capabilities enable us to remain a leading steel supplier to the automotive industry.

TAKE ADVANTAGE OF OUR U.S.-CENTRIC, INTERNALLY SOURCED SUPPLY CHAIN

The ongoing conflict between Russia and Ukraine has reinforced the unique advantage of our vertically integrated business model.

Two-thirds of U.S.

imports of pig iron, a critical raw material for flat-rolled EAFs, had historically been sourced from Russia and Ukraine.

This supply remains largely disrupted, driving volatility in input costs and reducing availability for our competitors’ ferrous inputs.

We, on the other hand, produce our pig iron and liquid steel entirely in the U.S., supported by internally sourced iron ore and HBI and supplemented with internally sourced scrap.

In addition, our internally produced pig iron is more environmentally friendly than imported pig iron, which is often made from sintered iron ore fines and with higher coke rates, for example.

While competitors are forced to rely on suppliers who are subject to unpredictable disruptions in their ability to supply materials, we are able to take advantage of our vertically integrated footprint.

We began construction of our Toledo direct reduction plant in 2017, in part because of the uncertainty of the industry sourcing metallics from Russia and Ukraine.

Russia had previously invaded the Crimea peninsula in 2014, and we saw a need for more on-shore metallics capacity in the U.S.

HBI, which is a lower-carbon alternative to imported pig iron, has now become a critical component of our decarbonization strategy.

OPTIMIZE OUR FULLY-INTEGRATED STEELMAKING FOOTPRINT

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We have ample access to scrap along with internally sourced iron ore pellets and HBI.

Our ability to optimize use of these raw materials in our blast furnaces and BOFs ultimately boosts liquid steel output, reduces coke needs and lowers carbon emissions

from our operations.

Our ability to optimize use of these raw materials in our blast furnaces and BOFs ultimately boosts liquid steel output, reduces coke needs and lowers carbon emissions from our operations.

As a result of successful operational improvements, we announced the indefinite idle of the Indiana Harbor #4 blast furnace in the first quarter of 2022.

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During the second quarter of 2023, it was announced that we entered into long-term state mineral leases for more than 2,600 acres of iron ore at the Nashwauk mine site in Itasca County, Minnesota.

The award of these leases resolved years of uncertainty regarding Hibbing Taconite’s mine life.

The award of these leases is expected to resolve years of uncertainty regarding Hibbing Taconite’s mine life.

This ore body is intended to serve as an extension of Hibbing Taconite, as the state’s mineral leases, combined with our own private mineral holdings at Nashwauk, are expected to provide more than two decades of additional ore reserves.

We used 2022 as an opportunity to optimize our steelmaking footprint by dedicating significant resources to bring our facilities and equipment up to the standard required to maintain and improve our supply to the automotive industry.

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

With our facilities and equipment in the best shape since the acquisition of our steelmaking assets and no major investments expected until at least 2026, we are well positioned to benefit from operating efficiencies and improved capabilities in the coming years.

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, positioning us to benefit from operating efficiencies and improved capabilities in the coming years.

PURSUE VALUE-ENHANCING MERGERS AND ACQUISITIONS

We have a proven track record of successfully identifying undervalued assets and completing value-enhancing transactions through mergers and acquisitions.

We continue to be opportunistic in our pursuit of assets that would grow our business and offer opportunities to generate significant synergies.

With our strong balance sheet, proven ability to integrate acquired assets and capture synergies, along with our powerful partnership with both our union and non-union employees, we are confident in our ability to execute value-enhancing mergers and acquisitions.

Our strong partnership with our union-represented employees was crucial in prior mergers and acquisitions, as union support is necessary to successfully complete transactions that include union-represented assets.

We are also the only domestic steel company in recent years to successfully acquire steel producing assets with USW-represented employees.

ADVANCE OUR PARTICIPATION IN THE GREEN ECONOMY

We are seeking to expand our customer base with the rapidly growing and desirable EV market.

We are seeking to expand our customer base with the desirable EV market.

At this time, we believe the North American automotive industry is at a structural inflection point, with the adoption of electrical motors in passenger vehicles.

As this market grows, it will require more advanced steel applications to meet the needs of EV producers and consumers.

These features include the already existing sophisticated steel supply for internal combustion engine vehicle parts, along with the added need for steel-based battery enclosures in EVs.

These features include the already existing sophisticated steel supply for internal combustion engine vehicle parts, along with the added need for steel-based battery enclosures and reinforcement in EVs.

With our unique technical capabilities and leadership in the automotive industry, we believe we are positioned better than any other North American steelmaker to supply the steel and parts necessary to fill these needs.

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This goal represents combined Scope 1 (direct emissions) and Scope 2 (indirect emissions from purchased electricity or other forms of energy) GHG emission reductions across all of our operations.

Our 2022 absolute Scope 1 and Scope 2 GHG emissions were below our reduction goal well ahead of our 2030 target year.

Since 2017, we have reduced our absolute emissions by 32% from 44 million metric tons to 30 million metric tons of CO 2 e in 2022.

We plan to further our efforts towards our GHG emissions reduction goal by focusing on actionable, commercially viable technologies and solutions while supporting research for breakthrough technologies for the primary iron and steel sector.

In an effort to build on our GHG emissions reduction progress, we have continued our partnership with the U.S.

Department of Energy as part of the Better Climate Challenge initiative, which was established in December 2021.

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

With the U.S.

government funding toward the development of regional hydrogen hubs throughout the country, 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.

In May 2023, we completed a successful blast furnace hydrogen injection trial at Middletown Works.

During the trial, hydrogen gas was injected in all 20 tuyeres at the Middletown #3 blast furnace, facilitating the production of clean pig iron.

In this trial, hydrogen served as a partial substitute for the fossil fuels necessary for iron reduction, ultimately replacing the release of CO 2 with the release of H 2 O (water vapor) with no impact to product quality or operating efficiency.

In October 2023, the U.S.

Department of Energy announced the intention to award funding under the Bipartisan Infrastructure Law for seven regional hydrogen hubs, including the Midwest Alliance for Clean Hydrogen.

In 2023 and 2022, our absolute Scope 1 and Scope 2 GHG emissions were below our reduction goal well ahead of our 2030 target year.

We have also made significant progress in reducing our emissions on a per ton basis.

Since 2020, we have reduced our average Scope 1 and 2 emissions of integrated mills from 1.82 to 1.54 metric tons of CO 2 e per metric ton of crude steel produced in 2023, which is 28% lower than the global average.

In March 2024, we were selected by the DOE for award negotiations to receive up to $575 million in total funding for two projects to accelerate industrial decarbonization initiatives.

If awarded, we would receive up to a $500 million federal investment to replace our existing blast furnace at Middletown Works with a 2.5 million ton per annum hydrogen-ready direct reduced iron plant and two 120 megawatt electric melting furnaces to feed molten iron to the existing infrastructure already on site, including the BOF, caster, hot strip mill and various finishing facilities.

The project is designed so that Middletown Works would maintain its existing raw steel production capacity of approximately 3 million net tons per year and would no longer use coke for iron production.

We expect that the process would dramatically reduce carbon emissions intensity with no impact to product quality or capability and would consolidate Middletown Works as the most advanced, lowest GHG emitting integrated iron and steel facility in the world.

Additionally, if awarded, we would receive up to $75 million at our Butler Works facility to replace two of our existing natural gas fired high temperature slab reheat furnaces with four electrified induction slab reheat furnaces, to bring optimum efficiency to our production of electrical steel.

This project would lower carbon emissions, substantially reduce energy costs and improve slab quality.

As a result of both of these projects, we would anticipate generating in excess of $500 million in annual cost savings and yield improvements.

In October 2023, the DOE announced the intention to award funding under the Infrastructure and Jobs Act for seven regional hydrogen hubs, including the Midwest Alliance for Clean Hydrogen.

This hub covering Illinois, Indiana and Michigan was selected for $1 billion in funding and is near our two largest steel plants, Indiana Harbor and Burns Harbor.

We are currently constructing a pipeline to bring hydrogen to our Indiana Harbor blast furnace #7.

The use of hydrogen within our blast furnace is expected to partially displace the release of CO2 with H2O, reducing our overall emissions.

Our future GHG emissions reductions are expected to be driven by the use of direct reduced iron in blast furnaces, the stretching of hot metal with additional scrap, driving more productivity out of fewer blast furnaces, implementing hydrogen use where possible, utilizing carbon capture, procuring more clean energy and operating with higher energy efficiency.

In January 2024, we commissioned a pipeline and successfully completed a hydrogen injection trial at our Indiana Harbor blast furnace #7.

This follows an initial similar trial of hydrogen at our blast furnace in Middletown earlier in 2023.

The use of hydrogen within our blast furnace is expected to partially reduce coke rate and displace the release of CO 2 with H 2 O, reducing our overall emissions.

Our future GHG emissions reductions are expected to be driven by the use of direct reduced iron in electric melting furnaces, direct reduced iron in blast furnaces, the stretching of hot metal with additional scrap, driving more productivity out of fewer blast furnaces, implementing hydrogen use where possible, adopting carbon capture and utilization, procuring more clean energy, electrification of process equipment and operating with higher energy efficiency.

IMPROVE FINANCIAL FLEXIBILITY

Given the cyclicality of our business, it is important to us to be in the financial position to easily withstand economic cycles.

Since the acquisition of our steelmaking assets, we have demonstrated our ability to generate healthy free cash flow and use it to reduce substantial amounts of debt, return capital to shareholders through our share repurchase program and make investments to both improve and grow our business.

During the third quarter of 2023, we reduced the principal amount of outstanding debt by $508 million while returning $58 million in capital to shareholders via share repurchases.

Given the cyclicality of our business, it is important to us to be in the financial position to easily withstand economic cycles and be opportunistic when attractive strategic opportunities arise.

Since the acquisition of our steelmaking assets in 2020, we have demonstrated our ability to generate healthy free cash flow and use it to reduce substantial amounts of debt, return capital to shareholders through share repurchases and make investments to both improve and grow our business.

During the first quarter of 2024, we returned $608 million of capital to shareholders via share repurchases.

Effective April 22, 2024, our Board of Directors authorized a new 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 $1.5 billion.

In 2023, we reduced the principal amount of outstanding long-term debt by $1.1 billion, demonstrating how quickly we can deleverage our balance sheet.

We have also historically shown our ability to take advantage of volatility in the debt markets and repurchase notes at a discount.

During 2022, we repurchased $351 million aggregate principal amount of assorted series of notes at an average price of 92% of par.

We expect to have ample opportunities to reduce our debt with our own free cash flow generation through the remainder of 2023 and in the coming years.

It is also important for us to maintain sufficient liquidity.

Pursuant to the Fourth ABL Amendment, certain assets of Ferrous Processing and Trading Company were pledged as collateral to secure borrowings under the ABL Facility during the third quarter of 2023.

Our liquidity as of September 30, 2023 is the highest in our Company’s history.

We expect to continue to use the financial levers available to us to both opportunistically reduce our debt and return capital to shareholders throughout the remainder of 2024 and beyond.

Going forward, our stated target will be to maintain a net debt ratio of less than two and a half times our trailing-twelve months Adjusted EBITDA, which should provide us ample opportunity and flexibility to execute any strategic, operational or financial opportunities we identify.

It is also important for us to maintain sufficient liquidity, which was above $4 billion as of March 31, 2024.

On March 18, 2024, we issued $825 million aggregate principal amount of our 7.000% 2032 Senior Notes at par and used a portion of the net proceeds from the issuance to repurchase $640 million in aggregate principal amount of our 6.750% 2026 Senior Secured Notes pursuant to a tender offer.

On April 3, 2024, we redeemed the remaining $189 million in aggregate principal amount of our then-outstanding 6.750% 2026 Senior Secured Notes with the remaining portion of the net proceeds from the 7.000% 2032 Senior Notes issuance and available liquidity.

This transaction extended our debt maturity profile and removed our final tranche of secured notes.

STEELMAKING RESULTS

The following is a summary of our Steelmaking segment operating results for the three and nine months ended September 30, 2023 and 2022 (dollars in millions, except for average selling price and shipments in thousands of net tons):

The following is a summary of our Steelmaking segment operating results for the three months ended March 31, 2024 and 2023 (dollars in millions, except for average selling price and shipments in thousands of net tons):

Total Revenue Gross Margin Adjusted EBITDA Steel Shipments (nt)

Q3 2023 Q3 2022 YTD 2023 YTD 2022 Q3 2023 Q3 2022 YTD 2023 YTD 2022 Q3 2023 Q3 2022 YTD 2023 YTD 2022 Q3 2023 Q3 2022 YTD 2023 YTD 2022

2024 2023 2024 2023 2024 2023 2024 2023

STEEL PRODUCT REVENUE:

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Three Months Ended

September 30, Nine Months Ended

September 30,

(In thousands of net tons) 2023 2022 % Change 2023 2022 % Change

(In thousands of net tons) 2024 2023 % Change

Steel shipments by product:

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Three Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2023 2022 % Change 2023 2022 % Change

(In millions) 2024 2023 % Change

Steelmaking revenues by market:

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Total Steelmaking revenues by market $ 5,027 $ 5,126 (2) %

Revenues decreased by 1% during the three months ended September 30, 2023, as compared to the prior-year period, primarily due to:

• A decrease of $147 million, or 10%, in revenues from the distributors and converters market, predominantly due to the average HRC price declining, which was partially offset by increased hot-rolled steel shipments;

• A decrease of $110 million, or 13%, in revenues from the steel producers markets, predominantly due to the decrease in pricing indices for slabs and busheling scrap.

• These decreases were partially offset by an increase in the direct automotive market of $224 million, or 13%, primarily due to increases in selling prices as a result of favorable renewals of annual fixed-price contracts and an increase in shipments.

Revenues decreased by 6% during the nine months ended September 30, 2023, as compared to the prior-year period, primarily due to:

• A decrease of $1,117 million, or 22%, in revenues from the distributors and converters market, predominantly due to the average HRC price declining, which was partially offset by increased hot-rolled steel shipments;

• A decrease of $506 million, or 18%, in revenues from the steel producers markets, predominantly 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 $823 million, or 17%, predominantly due to increases in selling prices as a result of favorable renewals of annual fixed-price contracts and an increase in shipments.

Gross margin increased by $129 million, or 38%, during the three months ended September 30, 2023, as compared to the prior-year period, primarily due to:

• A decrease in costs of production (approximately $500 million) driven by lower raw materials and utilities costs, including natural gas, coal, coke, alloys and scrap, coupled with decreased maintenance costs;

• An increase in sales volume (approximately $100 million impact).

• These increases in gross margin were partially offset by a decrease in selling prices (approximately $400 million impact), predominantly due to lower spot prices, which was partially offset by favorable renewals of annual fixed price contracts.

Gross margin decreased by $1,337 million, or 53%, during the nine months ended September 30, 2023, as compared to the prior-year period, primarily due to:

• 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 fixed price contracts.

• This decrease was partially offset by an increase in sales volume (approximately $600 million impact);

• A decrease in costs of production (approximately $400 million) driven by lower raw materials and utilities costs, including natural gas, coal, coke, alloys and scrap, coupled with decreased maintenance costs.

Revenues decreased by 2% during the three months ended March 31, 2024, as compared to the prior-year period, primarily due to:

• A decrease of $253 million, or 14%, in revenues from the direct automotive market, predominantly due to a decrease in shipments due to proactive customer diversification;

• A decrease of $95 million, or 14%, in revenues from the steel producers markets, predominantly due to the decrease in pricing indices for busheling scrap and lower third-party iron ore sales.

• These decreases were partially offset by an increase of $154 million, or 12%, in revenues from the distributors and converters market, predominantly due to the average HRC price increase and an increase in shipments;

• An increase of $95 million, or 7%, in revenues from the infrastructure and manufacturing market, predominantly due to the average HRC price increase.

Gross margin increased by $176 million, or 187%, during the three months ended March 31, 2024, as compared to the prior-year period, primarily due to:

• An increase in selling prices (approximately $200 million impact), predominantly due to higher spot prices.

• This increase in gross margin was partially offset by a decrease in sales volume (approximately $60 million impact).

ADJUSTED EBITDA

Adjusted EBITDA from our Steelmaking segment for the three months ended September 30, 2023, increased by $156 million, as compared to the three months ended September 30, 2022, primarily due to the increased gross margin from our operations.

Additionally, our Steelmaking Adjusted EBITDA included $138 million and $117 million of Selling, general and administrative expenses for the three months ended September 30, 2023 and 2022, respectively.

Adjusted EBITDA from our Steelmaking segment for the nine months ended September 30, 2023, decreased by $1,372 million, as compared to the nine months ended September 30, 2022, primarily due to the decreased gross margin from our operations.

Additionally, our Steelmaking Adjusted EBITDA included $398 million and $331 million of Selling, general and administrative expenses for the nine months ended September 30, 2023 and 2022, respectively.

Adjusted EBITDA from our Steelmaking segment for the three months ended March 31, 2024, increased by $155 million, as compared to the three months ended March 31, 2023, primarily due to the increased gross margin from our operations.

Additionally, our Steelmaking Adjusted EBITDA included $125 million and $119 million of Selling, general and administrative expenses for the three months ended March 31, 2024 and 2023, respectively.

RESULTS OF OPERATIONS

REVENUES & GROSS MARGIN

During the three and nine months ended September 30, 2023, our consolidated Revenues decreased by $48 million and $1,061 million, respectively, compared to the prior-year periods.

The decrease for the three months ended September 30, 2023, was primarily due to the decrease in the average steel product selling price of $157 per net ton, partially offset by the increase of 0.5 million net tons of steel shipments from our Steelmaking segment.

The decrease for the nine months ended September 30, 2023, was primarily due to the decrease in the average steel product selling price of $235 per net ton, partially offset by the increase of 1.5 million net tons of steel shipments from our Steelmaking segment.

During the three and nine months ended September 30, 2023, our consolidated gross margin increased by $132 million and decreased by $1,355 million, respectively, as compared to the prior-year periods.

During the three months ended March 31, 2024, our consolidated Revenues decreased by $96 million, and our consolidated gross margin increased by $186 million, as compared to the prior-year period.

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

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

During the three and nine months ended September 30, 2023, Selling, general and administrative expenses increased by $20 million and $67 million, respectively, as compared to the prior-year periods.

The increases were primarily related to higher employment-related costs and outside legal fees.

RESTRUCTURING AND OTHER CHARGES

During the three months ended March 31, 2024, we announced the indefinite idle of our Weirton tinplate production plant, resulting in $104 million of restructuring and other charges primarily related to severance, other employee-related benefits and asset retirement obligation charges.

ASSET IMPAIRMENTS

During the three months ended March 31, 2024, we announced the indefinite idle of our Weirton tinplate production plant, resulting in $64 million of asset impairments.

MISCELLANEOUS - NET

During the three and nine months ended September 30, 2023, miscellaneous expense decreased by $26 million and $78 million, respectively, as compared to the prior-year periods.

The decrease in miscellaneous expense for the three months ended September 30, 2023, was primarily related to lower idle expenses and loss on disposal of assets as compared to the prior-year period.

The decrease in miscellaneous expense for the nine months ended September 30, 2023, was also impacted by the higher expenses in 2022 related to our asset retirement obligation, which was caused by rising electricity costs associated with water management systems at closed coal mines in Pennsylvania and an impairment expense, both of which were not repeated during 2023.

During the three months ended March 31, 2024, miscellaneous expense increased by $20 million, as compared to the prior-year period.

The increase in miscellaneous expense is primarily related to increased expenses associated with our indefinitely idled and closed operations.

LOSS ON EXTINGUISHMENT OF DEBT

During the three months ended March 31, 2024, we used a portion of the net proceeds from the issuance of the 7.000% 2032 Senior Notes to repurchase $640 million in aggregate principal amount of our 6.750% 2026 Secured Senior Notes, resulting in a $21 million loss on extinguishment of debt.

Refer to NOTE 7 - DEBT AND CREDIT FACILITIES for further information.

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

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Three Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2024 2023

Income tax expense $ (29) $ (10) $ (118) $ (404)

Income tax benefit $ 8 $ 13

Effective tax rate 13 % 23 %

The changes in income tax expense and the effective tax rate for the three and nine months ended September 30, 2023, as compared to the prior-year periods, are primarily related to the changes in pre-tax income.

Additionally, for the nine months ended September 30, 2023, we had $18 million of discrete benefit, as compared to $3 million of discrete expense for the nine months ended September 30, 2022.

Our 2023 estimated annual effective tax rate before discrete items at September 30, 2023 is 19%.

The changes in income tax benefit and the effective tax rate for the three months ended March 31, 2024, as compared to the prior-year period, are primarily related to depletion in excess of state income tax expense and the impact of immaterial discrete items relative to pre-tax income.

Our 2024 estimated annual effective tax rate before discrete items as of March 31, 2024 is 18%.

This 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 at September 30, 2022 was 20%.

The 2023 estimated annual effective tax rate before discrete items as of March 31, 2023 was 22%.

LIQUIDITY, CASH FLOWS AND CAPITAL RESOURCES

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The following table provides a summary of our cash flow:

Nine Months Ended

September 30,

Three Months Ended

(In millions) 2024 2023

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Financing activities (131) 257

Net increase in cash and cash equivalents $ 5 $ 8

Net increase (decrease) in cash and cash equivalents $ (168) $ 33

Free cash flow 1

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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 the first nine months of 2023, we took action in alignment with our capital allocation priorities, as follows:

During the first quarter of 2024, we took action in alignment with our capital allocation priorities, as follows:

• We issued $825 million aggregate principal amount of our 7.000% 2032 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 size of our ABL Facility to $4.75 billion, which added $250 million of liquidity.

• We used our free cash flow to reduce the total principal of our long-term debt by $789 million.

This includes a reduction of borrowings under the ABL Facility of $508 million during the third quarter of 2023.

A portion of the net proceeds from the 7.000% 2032 Senior Notes issuance was used to repurchase $640 million in aggregate principal amount of our 6.750% 2026 Senior Secured Notes pursuant to a tender offer.

On April 3, 2024, we redeemed the remaining $189 million in aggregate principal amount of our then-outstanding 6.750% 2026 Senior Secured Notes with the remaining portion of

the net proceeds from the 7.000% 2032 Senior Notes issuance and available liquidity.

After this transaction, we no longer have any secured notes outstanding.

• Additionally, we returned capital to shareholders through our share repurchase program, repurchasing 30.4 million common shares at a cost of $608 million in the aggregate.

This includes repurchasing 3.9 million common shares at a cost of $58 million during the third quarter of 2023.

These actions with respect to our debt give us additional financial flexibility and liquidity, along with extending our average 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 the remainder of 2023.

As of September 30, 2023, we maintained in excess of $300 million in pre-payable debt under our ABL Facility and another $1.5 billion in callable notes.

As of September 30, 2023, there was $608 million remaining under the authorization of our share repurchase program.

The debt transactions give us additional flexibility by eliminating our secured notes, 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.

We expect to continue to use the financial levers available to us to both opportunistically reduce our debt and return capital to shareholders throughout the remainder of 2024 and beyond.

OPERATING ACTIVITIES

Nine Months Ended

September 30,

Three Months Ended

(In millions) 2024 2023 Variance

Net income $ 589 $ 1,580 $ (991)

Non-cash adjustments to net income 872 1,097 (225)

Net loss $ (53) $ (42) $ (11)

Non-cash adjustments to net loss 412 237 175

Working capital:

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Total working capital (217) (234) 17

Net cash provided by operating activities $ 1,615 $ 1,934 $ (319)

The variance was driven by:

• A $1,216 million decrease in net income after adjustments for non-cash items primarily 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.

Net cash provided (used) by operating activities $ 142 $ (39) $ 181

The variance was primarily driven by:

• A $164 million increase in net income after non-cash adjustments primarily due to higher gross margins resulting from an increase in selling prices for our steel products, which was partially offset by a decrease in sales volumes.

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

• A $897 million decrease in cash used for working capital.

This was primarily due to a decrease in inventories, as a result of higher sales volumes and lower production costs during the nine months ended September 30, 2023, as compared to the prior-year period.

Cash used for OPEB payments and contributions decreased as well due to reductions in retiree healthcare costs and the pause on the VEBA trust plans funding requirements as part of the 2022 USW labor negotiations.

Additionally, working capital was impacted by a decrease in repair and maintenance costs during the nine months ended September 30, 2023.

INVESTING ACTIVITIES

Nine Months Ended

September 30,

Three Months Ended

(In millions) 2024 2023 Variance

Purchase of property, plant and equipment $ (182) $ (188) $ 6

Acquisitions, net of cash acquired — (31) 31

Other 11 20 (9)

Net cash used by investing activities $ (179) $ (185) $ 6

Cash used for capital expenditures decreased $235 million due to the completion of our major maintenance cycle in 2022.

Included within cash used for capital expenditures was $21 million for the nine months ended September 30, 2023, compared to $11 million for the nine months ended September 30, 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.

Cash used for capital expenditures decreased $6 million in the first quarter of 2024, as compared to the prior-year period.

Included within cash used for capital expenditures was $4 million for the three months ended March 31, 2024, compared to $5 million for the three months ended March 31, 2023, 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 spend.

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 of our steelmaking assets, we do not expect any major investments until at least 2026.

FINANCING ACTIVITIES

Nine Months Ended

September 30,

Three Months Ended

(In millions) 2024 2023 Variance

Proceeds (repayments) of senior notes $ 750 $ (1,355) $ 2,105

Net proceeds (repayments) of senior notes $ 173 $ — $ 173

Net borrowings (repayments) under credit facilities 342 307 35

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Other (38) (50) 12

Net cash used by financing activities $ (1,140) $ (1,199) $ 59

The variance was driven by:

• A $59 million decrease in cash used during the nine months ended September 30, 2023, primarily resulting from lower net repayments of senior notes, partially offset by increased repayments on our ABL Facility, as compared to the prior-year period.

Net cash provided (used) by financing activities $ (131) $ 257 $ (388)

The variance was primarily driven by:

• A $608 million use of cash during the three months ended March 31, 2024 to repurchase 30.4 million of our common shares on the open market.

• A $173 million increase in cash provided from the net proceeds of our $825 million 7.000% 2032 Senior Notes issuance, partially offset by the repurchase of $640 million in aggregate principal amount of our 6.750% 2026 Secured Senior Notes pursuant to a tender offer.

LIQUIDITY AND CAPITAL RESOURCES

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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 $31 million as of September 30, 2023, include cash on hand and on deposit.

The combination of cash and availability under our ABL Facility gives us $4.36 billion in liquidity as of September 30, 2023.

During the second quarter of 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 the second quarter of 2023, we entered into the Fourth ABL Amendment to our ABL Facility, increasing our liquidity by $250 million.

Cash and cash equivalents, which totaled $30 million as of March 31, 2024, include cash on hand and on deposit.

The combination of cash and availability under our ABL Facility gave us $4.03 billion in liquidity as of March 31, 2024.

During the first quarter of 2024, we issued $825 million in aggregate principal amount of 7.000% 2032 Senior Notes.

We used a portion of the net proceeds from the offering to repurchase $640 million in aggregate principal amount of our 6.750% 2026 Secured Senior Notes pursuant to a tender offer.

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.

Our ABL Facility, which now matures in June 2028, has a maximum borrowing base of $4.75 billion, determined by applying customary advance rates to eligible accounts receivable, inventory and certain mobile equipment.

Our ABL Facility, which 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 September 30, 2023, outstanding letters of credit totaled $94 million, which reduced availability.

As of March 31, 2024, outstanding letters of credit totaled $56 million, which reduced availability under our ABL Facility.

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 September 30, 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 and ABL Facility, additional secured notes, if we elect to access the debt capital markets.

As of March 31, 2024, 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 and ABL Facility, to issue 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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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 to Adjusted EBITDA:

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

Three Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2024 2023

Net income $ 275 $ 165 $ 589 $ 1,580

Net loss $ (53) $ (42)

Interest expense, net (64) (77)

Income tax expense (29) (10) (118) (404)

Income tax benefit 8 13

Depreciation, depletion and amortization (230) (242)

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EBITDA of noncontrolling interests 1

$ 20 $ 22 $ 60 $ 57

Gain (loss) on extinguishment of debt — 4 — (76)

Asset impairment — — — (29)

Weirton indefinite idle 2

Loss on extinguishment of debt (21) —

Other, net (4) (2)

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EBITDA of noncontrolling interests $ 21 $ 23

2 Refer to NOTE 2 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION for further information.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2024 2023

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

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

Nine Months Ended

September 30,

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

Three Months Ended

(In millions) 2024 2023

Net cash provided by operating activities $ 1,615 $ 1,934

Net cash provided (used) by operating activities $ 142 $ (39)

Purchase of property, plant and equipment (182) (188)

Free cash flow $ (40) $ (227)

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) March 31,

2024 December 31,

Long-term debt $ 3,664 $ 3,137

Cash and cash equivalents 30 198

Net debt $ 3,634 $ 2,939

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") as of September 30, 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.

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 March 31, 2024 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, the 4.875% 2031 Senior Notes and the 7.000% 2032 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.

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(parent company and issuer of the guaranteed obligations) and the Guarantor subsidiaries, collectively referred to as the obligated group.

between the obligated group have been eliminated.

Transactions between the obligated group have been eliminated.

Information for the non-Guarantor subsidiaries was excluded from the combined summarized financial information of the obligated group.

Each Guarantor subsidiary is consolidated by Cleveland-Cliffs Inc.

as of September 30, 2023.

Refer to Exhibit 22 , incorporated herein by reference, for the detailed list of entities included within the obligated group as of September 30, 2023.

As of September 30, 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:

as of March 31, 2024.

Refer to Exhibit 22 , incorporated herein by reference, for the detailed list of entities included within the obligated group as of March 31, 2024.

As of March 31, 2024, 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, the 4.875% 2031 Senior Notes and the 7.000% 2032 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:

(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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The following table is summarized combined financial information from the Statements of Unaudited Condensed Consolidated Financial Position of the obligated group:

(In millions) September 30, 2023 December 31, 2022

(In millions) March 31, 2024 December 31, 2023

Current assets $ 7,026 $ 7,150

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

Nine Months Ended

(In millions) September 30, 2023

Three Months Ended

(In millions) March 31, 2024

Revenues $ 5,126

Cost of goods sold (4,861)

Income from continuing operations 483

Net income 484

Net income attributable to Cliffs shareholders 484

Loss from continuing operations (61)

Net loss (61)

Net loss attributable to Cliffs shareholders (61)

The obligated group had the following balances with non-Guarantor subsidiaries and other related parties:

(In millions) September 30, 2023 December 31, 2022

(In millions) March 31, 2024 December 31, 2023

Balances with non-Guarantor subsidiaries:

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Accounts payable (11) (11)

Additionally, for the nine months ended September 30, 2023, the obligated group had Revenues of $95 million and Cost of goods sold of $70 million, in each case, with other related parties.

Additionally, for the three months ended March 31, 2024, the obligated group had Revenues of $25 million and Cost of goods sold of $19 million, in each case, with other related parties.

We are subject to a variety of risks, including those caused by changes in commodity prices and interest rates.

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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 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, chrome, metallurgical coal, coke, zinc and nickel.

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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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 evaluate the use of these derivative instruments to hedge a portion of our natural gas, electricity, tin and zinc requirements.

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.

However, since we do not typically hedge 100% of our exposure, abnormal price increases in any of these commodity markets might still negatively affect operating costs.

The following table summarizes the negative effect of a hypothetical change in the fair value of our derivative instruments outstanding as of September 30, 2023, due to a 10% and 25% change in the market price of each of the indicated commodities:

The following table summarizes the negative effect of a hypothetical change in the fair value of our derivative instruments outstanding as of March 31, 2024, due to a 10% and 25% change in the market price of each of the indicated commodities:

Commodity Derivative (In millions) 10% Change 25% Change

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We have an unconditional option to bypass the qualitative test for any reporting unit in any period and proceed directly to performing the quantitative test.

Should our qualitative test indicate that it is more likely than not that the fair value of a reporting

unit is less than its carrying value, we perform a quantitative test to determine the amount of impairment, if any, to the carrying value of the reporting unit and its associated goodwill.

Should our qualitative test indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative test to determine the amount of impairment, if any, to the carrying value of the reporting unit and its associated goodwill.

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.

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

Our Tooling and Stamping reporting unit fair value was not substantially in excess of its carrying values as of September 30, 2023.

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.

OTHER LONG-LIVED ASSETS

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

For the nine months ended September 30, 2023, we concluded that there were no additional triggering events resulting in the need for an impairment assessment.

For the three months ended March 31, 2024, we concluded that there were no additional triggering events resulting in the need for an impairment assessment except for the announcement of the indefinite idle of our Weirton tinplate production plant, which resulted in a $46 million impairment charge to Property, plant and equipment, net for the three months ended March 31, 2024.

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 September 30, 2023, we had $325 million outstanding under our ABL Facility.

As of March 31, 2024, we had $342 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 September 30, 2023 borrowing level would result in a change of $3 million to interest expense on an annual basis.

For example, a 100 basis point change to interest rates under our ABL Facility at the March 31, 2024 borrowing level would result in a change of $3 million to interest expense on an annual basis.

SUPPLY CONCENTRATION RISKS

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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, the UAW strike, 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, infectious disease outbreaks, conflicts or otherwise;

• 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, 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;

• 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;

• 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;

• 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;

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• 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;

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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-Q

Item 2. Management’s Discussion and Analysis