CLEVELAND-CLIFFS INC. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity and other factors that may affect our future results. We believe it is important to read our Management's Discussion and Analysis of Financial Condition and Results of Operations in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023, as well as other publicly available information. OVERVIEW We are a leading North America-based steel producer with focus on value-added sheet products, particularly for the automotive industry. We are vertically integrated from the mining of iron ore, production of pellets and direct reduced iron, and processing of ferrous scrap through primary steelmaking and downstream finishing, stamping, tooling, and tubing. Headquartered in Cleveland, Ohio, we employ approximately 28,000 people across our operations in the United States and Canada. Unless otherwise noted, discussion of our business and results of operations in this Quarterly Report on Form 10-Q refers to our continuing operations on a stand-alone basis without giving effect to the pending Stelco Acquisition. 20 Table of Contents FINANCIAL SUMMARY The following is a summary of our consolidated results for the three and six months ended June 30, 2024 and 2023 (in millions, except for diluted EPS): 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. ECONOMIC OVERVIEW STEEL MARKET OVERVIEW Steel market conditions in the first half of 2024 have been 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 $782 per net ton for the second quarter of 2024, 27% lower than the second quarter of 2023, and ended the quarter near multi-year low prices. Import levels were elevated in the first half of 2024 as HRC pricing spreads between the U.S. and other regions started increasing in the fourth quarter of 2023. Steel demand from service centers remained inconsistent during the second quarter of 2024, as service center inventory levels were reduced to 1.8 months on hand as the HRC price declined, after ending 2023 at 2.2 months of inventory on hand. Additionally, service centers remain hesitant to carry inventory as interest rates remain elevated. Looking forward, we expect domestic steel demand to grow as automotive production continues to remain strong, steel imports are now unattractive, other end-user demand is healthy, and incremental steel demand stimulated by recent government legislation and manufacturing on-shoring is realized. The Infrastructure and Jobs Act, the CHIPS Act and the Inflation Reduction Act should 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 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 second quarter of 2024, North American light vehicle production was approximately 4.2 million units, up from 3.9 million units in the first quarter of 2024. Full-year 2024 North American light vehicle production is estimated to be 15.8 million units, which would be the highest level since 2019. North American light vehicle production in 2025 and beyond is expected to continue to increase from 2024 levels and is estimated to exceed 16.0 million units annually by 2026, implying continued strong demand for years to come. During the second quarter of 2024, light vehicle sales in the U.S. saw an average seasonally adjusted annualized rate of 15.6 million units sold, an increase from 15.4 million units sold rate in the first quarter of 2024. Additionally, the average age of light vehicles on the road in the U.S. is at an all-time high of 12.6 years, which should support demand as older vehicles need to be replaced. As the 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 $400 per long ton. The busheling price averaged $429 per long ton during the second 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. 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. 21 Table of Contents As for iron ore, the Platts 62% price averaged $112 per metric ton in the second quarter of 2024, which is 17% 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 July 10, 2024, the United States and Mexico announced key measures to protect the North American steel markets from unfair trade. Both countries are expected to implement policies to jointly prevent tariff evasion on steel being exported from Mexico to the United States. It will be required that steel imported from Mexico must be melted and poured in Mexico, Canada or the United States to be eligible for Section 232 exemptions. This will effectively put a 25% tariff on any steel that is transshipped through Mexico that originated in China or other countries outside of North America. We believe it is vital all members adhere to the USMCA and view this as a positive development to ensuring fair trade in the North American steel market. 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. 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 As a leading North America-based steel producer, we benefit from having the size and scale necessary in a competitive, capital intensive business. Our sizeable operating footprint provides us with the operational leverage and flexibility to achieve competitive margins throughout the business cycle. We also have a unique vertically integrated profile from mined raw materials, direct reduced iron, and ferrous scrap to primary steelmaking and downstream finishing, stamping, tooling and tubing. 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. We are a leading supplier of automotive-grade steel in the U.S. Compared to other steel end markets, automotive steel is generally higher quality, more operationally and technologically intensive to produce, and requires significantly more devotion to customer service than other steel end markets. This dedication to service and the infrastructure in place to meet our automotive customers’ demanding needs took decades to develop. We have continued to invest capital and resources to meet the requirements needed to serve the automotive industry and intend to maintain our position as an industry leader going forward. Due to its demanding nature, the automotive steel business typically generates higher through-the-cycle margins, making it a desirable end market. Demand for our automotive-grade steel is expected to remain strong in the coming years as a result of a healthy unemployment rate, pent-up automotive demand arising out of supply chain issues and the replacement of older vehicles. Our footprint provides us with a competitive advantage in supplying automotive and other highly demanding end markets, as we are able to produce a wide range of high-quality products. Our integrated facilities utilize domestic internally sourced iron ore as the primary feedstock, which allows us to produce a high-quality product with low residual content. We also possess the breadth and depth related to customer service, technical support, and research and development, which are necessary to supply the demanding needs of the automotive industry. Since the acquisition of our steelmaking assets in 2020, we have dedicated significant resources to maintain and upgrade our facilities and equipment. The quality of our assets gives us a unique advantage in product offerings and operational efficiencies. After elevated spend in 2022 to perform overdue maintenance work at the facilities acquired as part of our 2020 acquisitions, we resumed normalized levels of maintenance capital and operating expenses in 2023, which has continued throughout 2024. 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. 22 Table of Contents 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. Our fixed price contracts mitigate pricing volatility and support us in achieving healthy margins through the cycle. Our ability to source our primary feedstock domestically and internally is a competitive strength. This model reduces our exposure to volatile pricing and unreliable global sourcing. 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, 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. We are currently a leading producer of electrical steels referred to as GOES and NOES in the U.S. The U.S. Infrastructure and Jobs Act 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. Because of these incentives and our current customer base, our electrical steel business is expected to continue to achieve strong profitability in the coming years. We are the first and the only producer of HBI in the Great Lakes region. Construction of our Toledo direct reduction plant was completed in the fourth quarter of 2020 and reached full run-rate nameplate annual capacity of 1.9 million metric tons during the middle of 2021. From this modern plant, we produce a high-quality, low-cost and low-carbon intensive HBI product that can be used in our blast furnaces as a productivity enhancer, or in our BOFs and EAFs as a premium scrap alternative. We use HBI to stretch our hot metal production, lowering carbon intensity and reliance on coke. With increasing tightness in the scrap and metallics markets combined with our own internal needs, we expect our Toledo direct reduction plant to support healthy margins for us going forward. STRATEGY MAXIMIZE OUR COMMERCIAL STRENGTHS 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. As a result of our exposure to these high-end markets, we have the highest fixed price contractual volumes in our industry. Approximately 40-45% of our volumes are sold under these contracts. These contracts reduce volatility and allow for more predictable through-the-cycle margins. In addition to our fixed price contracts, we also sell significant volumes under index-linked contracts. Our unique capabilities, driven by our portfolio of assets and technical expertise, give us an advantage in our flat-rolled product offering. We offer products that have superior formability, surface quality, strength and corrosion resistance for the automotive industry. In addition, our state-of-the-art Research and Innovation Center in Middletown, Ohio gives us the ability to collaborate with our customers and create new products and develop new and efficient steel manufacturing processes. During 2022, we introduced our MOTOR-MAX™ product line of NOES for high frequency motors and generators. 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. OPTIMIZE OUR FULLY-INTEGRATED STEELMAKING FOOTPRINT We are a fully-integrated steel enterprise with the size and scale to achieve margins above industry averages for flat-rolled steel. Our focus remains on realizing our inherent cost advantage in flat-rolled steel while also lowering carbon emissions. The combination of our ferrous raw materials, including iron ore, scrap and HBI, allows us to do so relative to peers who must rely on more unpredictable and unreliable raw material sourcing strategies. 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. 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. The indefinite idle reduced our operational blast furnaces from eight to seven. Our strategic use of HBI in our blast furnaces and maximizing scrap usage in our BOFs has allowed us to achieve the same steel production with one less blast furnace in our footprint. 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. 23 Table of Contents 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. With our strong balance sheet, proven ability to integrate acquired assets and capture synergies, along with our powerful partnership with our union and non-union employees, we are confident in our ability to identify and execute value-enhancing mergers and acquisitions. We have remained active in our opportunistic pursuit of value-enhancing mergers and acquisitions and recently announced that we entered into the Arrangement Agreement to acquire Stelco. On July 15, 2024, we announced that we had entered into the Arrangement Agreement pursuant to which we plan to acquire Stelco. The Stelco Acquisition confirms our commitment and leadership in integrated steel production in North America and is expected to strengthen our cost position by incorporating one of the lowest cost flat-rolled steelmaking assets in North America within our footprint. The Stelco Acquisition has the full endorsement of the USW and, when complete, will bring an additional 1,800 USW-represented employees into our workforce. When complete, the Stelco Acquisition will expand our existing footprint in Canada and diversify our customer base across service centers, construction and other industrial end markets with higher volumes of spot sales. As a result of the Stelco Acquisition, our exposure to the North American spot market is expected to double, giving us further insight into spot market dynamics and diversifying our customer base further toward spot customers. We expect the Stelco Acquisition to close in the fourth quarter of 2024, subject to approval by Stelco shareholders and other customary closing conditions. Going forward, we will continue to be opportunistic in our pursuit of assets that would grow our business and offer opportunities to generate significant synergies. Our strong partnership with our union-represented employees was crucial in prior mergers and acquisitions as well as our recently announced entry into the Arrangement Agreement pursuant to which we will acquire Stelco. We remain the only domestic steel company in recent years to successfully acquire steel producing assets with USW-represented employees. EXPLORE ATTRACTIVE DOWNSTREAM OPPORTUNITIES On July 22, 2024, we announced our investment plan for our new electrical distribution transformer production plant at our recently indefinitely idled Weirton, West Virginia facility. We intend to invest approximately $150 million to repurpose a warehouse to commence production of three-phase distribution transformers used in electric power distribution transformers. We expect to receive $50 million in support from the West Virginia Economic Development Authority in relation to the project, which reduces our net capital investment to approximately $100 million. Our Weirton facility benefits from the ability to use existing building assets, infrastructure and re-employment opportunities for members of the workforce that were previously employed at our indefinitely idled Weirton tinplate mill. This project is also expected to increase demand for American-made GOES produced at our Butler Works steel mill as well as for our carbon and stainless steel products used in the manufacturing of distribution transformers. We believe that distribution transformers are critical to America’s electrical infrastructure maintenance and expansion, and we look to benefit from a market that is undersupplied in the United States and currently experiencing extended lead times with a strong demand outlook. This project is expected to take approximately 18 months to complete. ADVANCE OUR PARTICIPATION IN THE GREEN ECONOMY 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 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. We also have the right products to meet the growing demand for renewable energy as well as for the modernization of the U.S. electrical grid. We offer plate products that can be used in windmills, which we estimate contain 130 tons of steel per megawatt of electricity. In addition, panels for solar power are heavy consumers of galvanized steel, where we are a leading producer. We estimate solar panels consume 40 tons of steel per megawatt of electricity. We are currently a leading producer of electrical steel in the U.S., which can facilitate the modernization of the U.S. electrical grid. Along with charging networks, electrical steels are also needed in the motors of EVs. ENHANCE OUR ENVIRONMENTAL SUSTAINABILITY Our commitment to operating our business in a more environmentally responsible manner remains constant. A major issue impacting our industry, our stakeholders and our planet is climate change. In May 2024, we announced our commitment to new GHG emissions reductions targets after we successfully achieved our prior commitment set in 2021 to reduce Scope 1 (direct emissions) and Scope 2 (indirect emissions from purchased electricity or other forms of energy) GHG emissions by 25% by 2030, relative to 2017 levels, well ahead of our 2030 target year. Our new goals set forth below, relative to 2023 levels, are all supported by ongoing and planned technological developments with respect to our ironmaking and steelmaking practices. • A target to reduce Scope 1 and 2 GHG emissions intensity per metric ton of crude steel by 30% by 2035; • A target to reduce material upstream Scope 3 GHG emissions intensity per metric ton of crude steel by 20% by 2035; and 24 Table of Contents • A long-term target aligned with the Paris Agreement’s 1.5 degrees Celsius scenario to reduce Scope 1, 2 and material upstream 3 emissions intensity per metric ton of crude steel to near net zero by 2050. Additionally, we have 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. Our future GHG emissions reductions are expected to be primarily 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, enhancing 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. 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 its 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. 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. 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 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 second quarter of 2024, we returned $124 million of capital to shareholders via share repurchases under our current $1.5 billion share repurchase program that was effective April 22, 2024. We also reduced the principal amount of our outstanding long-term debt by $157 million in the second quarter of 2024. We have a track record of demonstrating that we can quickly deleverage our balance sheet and have also historically shown our ability to take advantage of volatility in the debt markets and repurchase notes at a discount. 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. At the end of the second quarter of 2024, our net debt to trailing-twelve months Adjusted EBITDA leverage ratio was 2.1x, which provides us flexibility to execute additional attractive strategic, operational or financial opportunities we identify. It is also important for us to maintain sufficient liquidity, which was $3.7 billion as of June 30, 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. 25 Table of Contents STEELMAKING RESULTS The following is a summary of our Steelmaking segment operating results for the three and six months ended June 30, 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) Q2 2024 Q2 2023 YTD 2024 YTD 2023 Q2 2024 Q2 2023 YTD 2024 YTD 2023 Q2 2024 Q2 2023 YTD 2024 YTD 2023 Q2 2024 Q2 2023 YTD 2024 YTD 2023 STEEL PRODUCT REVENUE: GROSS MARGIN %: ADJUSTED EBITDA %: AVERAGE SELLING PRICE PER TON OF STEEL PRODUCTS: $ 4,487 $ 5,274 $ 9,116 $ 9,883 3% 11% 4% 7% 6% 13% 7% 9% $1,125 $1,255 $1,150 $1,193 REVENUES The following tables represent our steel shipments by product and total revenues by market: Three Months Ended June 30, Six Months Ended June 30, (In thousands of net tons) 2024 2023 % Change 2024 2023 % Change Steel shipments by product: Hot-rolled steel 1,393 1,462 (5) % 2,659 2,952 (10) % Cold-rolled steel 632 645 (2) % 1,295 1,242 4 % Coated steel 1,171 1,244 (6) % 2,387 2,412 (1) % Stainless and electrical steel 151 181 (17) % 296 355 (17) % Plate 207 254 (19) % 408 452 (10) % Slab and other steel products 435 416 5 % 884 874 1 % Total steel shipments by product 3,989 4,202 (5) % 7,929 8,287 (4) % Three Months Ended June 30, Six Months Ended June 30, (In millions) 2024 2023 % Change 2024 2023 % Change Steelmaking revenues by market: Direct automotive $ 1,460 $ 1,980 (26) % $ 3,077 $ 3,850 (20) % Infrastructure and manufacturing 1,421 1,591 (11) % 2,813 2,888 (3) % Distributors and converters 1,402 1,441 (3) % 2,814 2,699 4 % Steel producers 632 796 (21) % 1,238 1,497 (17) % Total Steelmaking revenues by market $ 4,915 $ 5,808 (15) % $ 9,942 $ 10,934 (9) % Revenues decreased by 15% during the three months ended June 30, 2024, as compared to the prior-year period, primarily due to: • A decrease of $520 million, or 26%, in revenues from the direct automotive market, predominantly due to a decrease in shipments due to proactive customer diversification; • A decrease of $170 million, or 11%, in revenues from the infrastructure and manufacturing market, predominantly due to a decrease in shipments; and • A decrease of $164 million, or 21%, in revenues from the steel producers markets, predominantly due to the decrease in pricing indices for slabs and busheling scrap. 26 Table of Contents Revenues decreased by 9% during the six months ended June 30, 2024, as compared to the prior-year period, primarily due to: • A decrease of $773 million, or 20%, in revenues from the direct automotive market, predominantly due to a decrease in shipments due to proactive customer diversification; and • A decrease of $259 million, or 17%, in revenues from the steel producers markets, predominantly due to the decrease in pricing indices for slabs and busheling scrap. GROSS MARGIN Gross margin decreased by $484 million, or 77%, during the three months ended June 30, 2024, as compared to the prior-year period, primarily due to: • A decrease in average selling price (approximately $370 million impact), predominantly due to lower spot prices and lower direct automotive mix; and • A decrease in sales volume (approximately $125 million impact). • These decreases were partially offset by a decrease in cost of production (approximately $40 million impact) driven by lower raw materials and utilities costs, including natural gas, coal, coke, alloys and scrap. Gross margin decreased by $308 million, or 43%, during the six months ended June 30, 2024, as compared to the prior-year period, primarily due to: • A decrease in sales volume (approximately $190 million impact); and • A decrease in average selling price (approximately $125 million impact), predominantly due to lower spot prices and lower direct automotive mix. • These decreases were partially offset by a decrease in cost of production (approximately $15 million impact) driven by lower raw materials and utilities costs, including natural gas, coal, coke, alloys and scrap. ADJUSTED EBITDA Adjusted EBITDA from our Steelmaking segment for the three months ended June 30, 2024, decreased by $459 million, as compared to the three months ended June 30, 2023, primarily due to the decreased gross margin from our operations. Additionally, our Steelmaking Adjusted EBITDA included $96 million and $141 million of Selling, general and administrative expenses for the three months ended June 30, 2024 and 2023, respectively. Adjusted EBITDA from our Steelmaking segment for the six months ended June 30, 2024, decreased by $304 million, as compared to the six months ended June 30, 2023, primarily due to the decreased gross margin from our operations. Additionally, our Steelmaking Adjusted EBITDA included $221 million and $260 million of Selling, general and administrative expenses for the six months ended June 30, 2024 and 2023, respectively. RESULTS OF OPERATIONS REVENUES & GROSS MARGIN During the three and six months ended June 30, 2024, our consolidated Revenues decreased by $892 million and $988 million, respectively, compared to the prior-year periods. During the three and six months ended June 30, 2024, our consolidated gross margin decreased by $482 million and $296 million, respectively, as compared to the prior-year periods. See "— Steelmaking Results" above for further detail on our operating results. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES During the three and six months ended June 30, 2024, Selling, general and administrative expenses decreased by $46 million and $41 million, respectively. The decreases primarily relate to lower employment-related costs. RESTRUCTURING AND OTHER CHARGES & ASSET IMPAIRMENTS On February 15, 2024, we announced the indefinite idle of our Weirton tinplate production plant. This resulted in restructuring and other charges primarily related to severance, other employee-related benefits and asset retirement obligation charges of $25 million and $129 million for the three and six months ended June 30, 2024, respectively. Additionally, this resulted in asset impairments of $15 million and $79 million for the three and six months ended June 30, 2024, respectively. 27 Table of Contents LOSS ON EXTINGUISHMENT OF DEBT During the six months ended June 30, 2024, we used a portion of the net proceeds from the issuance of the 7.000% 2032 Senior Notes to repurchase $829 million in aggregate principal amount of our 6.750% 2026 Secured Senior Notes. This resulted in $6 million and $27 million of losses on extinguishment of debt for the three and six months ended June 30, 2024, respectively. Refer to NOTE 7 - DEBT AND CREDIT FACILITIES for further information. INCOME TAXES 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. The following represents a summary of our tax provision: Three Months Ended June 30, Six Months Ended June 30, (In millions) 2024 2023 2024 2023 Income tax benefit (expense) $ 15 $ (102) $ 23 $ (89) The changes in income tax benefit for the three and six months ended June 30, 2024, as compared to the income tax expense for the prior-year periods, are primarily related to depletion in excess of state income tax expense and the impact of immaterial discrete items relative to changes in pre-tax income. LIQUIDITY, CASH FLOWS AND CAPITAL RESOURCES OVERVIEW Our capital allocation decision-making process is focused on preserving healthy liquidity levels while maintaining the strength of our balance sheet and creating financial flexibility to manage through the cyclical demand for our products and volatility in commodity prices. 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 flow: Six Months Ended June 30, (In millions) 2024 2023 Cash flows provided by (used in): Operating activities $ 661 $ 848 Investing activities (331) (310) Financing activities (418) (530) Net increase (decrease) in cash and cash equivalents $ (88) $ 8 Free cash flow 1 $ 322 $ 529 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, as follows: • During the first quarter of 2024, we issued $825 million aggregate principal amount of our 7.000% 2032 Senior Notes. 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 these transactions, we no longer have any secured notes outstanding. • Additionally, during the six months ended June 30, 2024, we returned capital to shareholders through our share repurchase programs, repurchasing 37.9 million common shares at a cost of $733 million in the aggregate. 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. Our financial flexibility has allowed us to remain active in our opportunistic pursuit of value-enhancing mergers and acquisitions. On July 15, 2024, we announced that we had entered into the Arrangement Agreement pursuant to which we will acquire Stelco. Going forward, we will continue to use the financial levers available to us in order to continue to pursue assets that would grow our business, reduce our debt and return capital to shareholders. 28 Table of Contents CASH FLOWS OPERATING ACTIVITIES Six Months Ended June 30, (In millions) 2024 2023 Variance Net income (loss) $ (44) $ 314 $ (358) Non-cash adjustments to net income (loss) 636 500 136 Working capital: Accounts receivable, net 67 (333) 400 Inventories 227 403 (176) Income taxes (12) 169 (181) Pension and OPEB payments and contributions (62) (58) (4) Payables, accrued employment and accrued expenses (176) (78) (98) Other, net 25 (69) 94 Total working capital 69 34 35 Net cash provided by operating activities $ 661 $ 848 $ (187) The variance was primarily driven by: • A $222 million decrease in net income after non-cash adjustments primarily due to lower gross margins resulting from a decrease in both volume and selling prices for our steel products. See "— Steelmaking Results" above for further detail on our operating results. INVESTING ACTIVITIES Six Months Ended June 30, (In millions) 2024 2023 Variance Purchase of property, plant and equipment $ (339) $ (319) $ (20) Other investing activities 8 9 (1) Net cash used by investing activities $ (331) $ (310) $ (21) Our capital expenditures primarily relate to sustaining capital spend, which includes infrastructure, mobile equipment, fixed equipment, product quality, environmental, and health and safety spend. As a result, our cash used for capital expenditures was consistent, as compared to the prior-year period. Included within cash used for capital expenditures was $8 million for the three months ended June 30, 2024, compared to $7 million for the three months ended June 30, 2023, related to our non-owned SunCoke Middletown VIE. We anticipate total cash used for capital expenditures during the next 12 months to be between $800 and $900 million, which primarily consists of sustaining capital spend as well as initial spend on our capital projects at Middletown Works, Butler Works and Weirton. FINANCING ACTIVITIES Six Months Ended June 30, (In millions) 2024 2023 Variance Net proceeds (repayments) of senior notes $ (20) $ 750 $ (770) Net borrowings (repayments) under credit facilities 370 (1,031) 1,401 Repurchase of common shares (733) (94) (639) Other financing activities (35) (155) 120 Net cash used by financing activities $ (418) $ (530) $ 112 The variance was primarily driven by: • A $631 million decrease in cash used resulting from higher net repayments of debt during the six months ended June 30, 2023, along with increased borrowings on our ABL Facility during the six months ended June 30, 2024, as compared to the prior-year period. • A $639 million increase in cash used to repurchase 37.9 million of our common shares on the open market during the six months ended June 30, 2024, as compared to the prior-year period. 29 Table of Contents • A $120 million decrease in cash used for other financing activities during the six months ended June 30, 2024, as compared to the prior-year period, primarily driven by a decrease in both fixed asset financing payments and finance lease payments. LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity are Cash and cash equivalents, cash generated from our operations, availability under our 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 $110 million as of June 30, 2024, include cash on hand and on deposit. The combination of cash and availability under our ABL Facility gave us $3.74 billion in liquidity as of June 30, 2024. During the first six months 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 and available liquidity to repurchase $829 million in aggregate principal amount of our 6.750% 2026 Secured Senior Notes pursuant to a tender offer and subsequent redemption. 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. On July 14, 2024, we entered into the Arrangement Agreement, pursuant to which we will acquire all of the issued and outstanding common shares of Stelco from the holders thereof. We expect to incur and/or assume $2.25-$2.75 billion of debt to complete the Stelco Acquisition. Immediately following completion of the Stelco Acquisition, we expect to have $6.0-$6.5 billion of outstanding indebtedness. 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 June 30, 2024, outstanding letters of credit totaled $46 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 June 30, 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. We intend from time to time to seek to redeem or repurchase our outstanding senior notes with cash on hand, borrowings from existing credit sources or new debt financings and/or exchanges for debt or equity securities, in open market purchases, privately negotiated transactions or otherwise. Such redemptions or repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors, and the amounts involved may be material. Refer to NOTE 7 - DEBT AND CREDIT FACILITIES for more information on our ABL Facility and debt. 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 We evaluate performance on an operating segment basis, as well as a consolidated basis, based on Adjusted EBITDA, which is a non-GAAP measure. This measure is used by management, investors, lenders and other external users of our financial statements to assess our operating performance and to compare operating performance to other companies in the steel industry. In addition, management believes Adjusted EBITDA is a useful measure to assess the earnings power of the business without the impact of capital structure and can be used to assess our ability to service debt and fund future capital expenditures in the business. 30 Table of Contents The following table provides a reconciliation of our Net income (loss) to Adjusted EBITDA: Three Months Ended June 30, Six Months Ended June 30, (In millions) 2024 2023 2024 2023 Net income (loss) $ 9 $ 356 $ (44) $ 314 Less: Interest expense, net (69) (79) (133) (156) Income tax benefit (expense) 15 (102) 23 (89) Depreciation, depletion and amortization (228) (247) (458) (489) Total EBITDA $ 291 $ 784 $ 524 $ 1,048 Less: EBITDA of noncontrolling interests 1 $ 15 $ 17 $ 36 $ 40 Weirton indefinite idle 2 (40) — (217) — Loss on extinguishment of debt (6) — (27) — Other, net (1) (8) (5) (10) Total Adjusted EBITDA $ 323 $ 775 $ 737 $ 1,018 1 EBITDA of noncontrolling interests includes the following: Net income attributable to noncontrolling interests $ 7 $ 9 $ 21 $ 24 Depreciation, depletion and amortization 8 8 15 16 EBITDA of noncontrolling interests $ 15 $ 17 $ 36 $ 40 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 June 30, Six Months Ended June 30, (In millions) 2024 2023 2024 2023 Adjusted EBITDA: Steelmaking $ 306 $ 765 $ 701 $ 1,005 Other Businesses 18 15 35 23 Corporate and eliminations (1) (5) 1 (10) Total Adjusted EBITDA $ 323 $ 775 $ 737 $ 1,018 FREE CASH FLOW Free cash flow is a non-GAAP financial 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. The following table provides a reconciliation of our operating cash flow to free cash flow: Six Months Ended June 30, (In millions) 2024 2023 Net cash provided by operating activities $ 661 $ 848 Purchase of property, plant and equipment (339) (319) Free cash flow $ 322 $ 529 31 Table of Contents NET DEBT 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) June 30, 2024 December 31, 2023 Long-term debt $ 3,507 $ 3,137 Less: Cash and cash equivalents 110 198 Net debt $ 3,397 $ 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 June 30, 2024 have fully and unconditionally, and jointly and severally, guaranteed the obligations under 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. See NOTE 7 - DEBT AND CREDIT FACILITIES for further information. The following presents the summarized financial information on a combined basis for Cleveland-Cliffs Inc. (parent company and issuer of the guaranteed obligations) and the Guarantor subsidiaries, collectively referred to as the obligated group. 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 June 30, 2024. Refer to Exhibit 22 , incorporated herein by reference, for the detailed list of entities included within the obligated group as of June 30, 2024. As of June 30, 2024, the guarantee of a Guarantor subsidiary with respect to 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; provided that (i) such sale, exchange, transfer or disposition is made in compliance with the applicable Indenture, including the covenants regarding consolidation, merger and sale of assets and, as applicable, dispositions of assets that constitute notes collateral, and (ii) all the obligations of such Guarantor subsidiary under all debt of the Company or its subsidiaries terminate upon consummation of such transaction; (b) designation of any Guarantor subsidiary as an “excluded subsidiary” (as defined in the Indentures); or (c) defeasance or satisfaction and discharge of the Indentures. Each entity in the summarized combined financial information follows the same accounting policies as described in the consolidated financial statements. The accompanying summarized combined financial information does not reflect investments of the obligated group in non-Guarantor subsidiaries. The financial information of the obligated group is presented on a combined basis; intercompany balances and transactions within the obligated group have been eliminated. The obligated group's amounts due from, amounts due to, and transactions with, non-Guarantor subsidiaries and related parties have been presented in separate line items. 32 Table of Contents SUMMARIZED COMBINED FINANCIAL INFORMATION OF THE ISSUER AND GUARANTOR SUBSIDIARIES The following table is summarized combined financial information from the Statements of Unaudited Condensed Consolidated Financial Position of the obligated group: (In millions) June 30, 2024 December 31, 2023 Current assets $ 6,675 $ 7,150 Non-current assets 9,985 10,111 Current liabilities (4,137) (4,283) Non-current liabilities (5,791) (5,463) The following table is summarized combined financial information from the Statements of Unaudited Condensed Consolidated Operations of the obligated group: Six Months Ended (In millions) June 30, 2024 Revenues $ 10,131 Cost of goods sold (9,724) Loss from continuing operations (55) Net loss (52) Net loss attributable to Cliffs shareholders (52) The obligated group had the following balances with non-Guarantor subsidiaries and other related parties: (In millions) June 30, 2024 December 31, 2023 Balances with non-Guarantor subsidiaries: Accounts receivable, net $ 760 $ 743 Accounts payable (1,025) (1,004) Balances with other related parties: Accounts receivable, net $ 8 $ 5 Accounts payable (14) (11) Additionally, for the six months ended June 30, 2024, the obligated group had Revenues of $46 million and Cost of goods sold of $36 million, in each case, with other related parties. MARKET RISKS We are subject to a variety of risks, including those caused by changes in commodity prices and interest rates. We have established policies and procedures to manage such risks; however, certain risks are beyond our control. 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, 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; however, we make forward physical purchases and enter into hedge contracts to manage exposure to price risk related to the purchases of certain raw materials and energy used in the production process. Our financial results can vary for our operations as a result of fluctuations in market prices. 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 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. Some of our existing multi-year raw material supply agreements have required minimum purchase quantities. Under adverse economic conditions, those minimums may exceed our needs. Absent exceptions for force majeure and other circumstances affecting the legal enforceability of the agreements, these minimum purchase requirements may compel us to purchase quantities of raw materials that could significantly exceed our anticipated needs or pay damages to the supplier for shortfalls. In these circumstances, we would attempt to negotiate agreements for new purchase quantities. There is a risk, however, that we would not be successful in reducing purchase quantities, either through negotiation or litigation. If that occurred, we would likely be required to purchase more of a particular raw material in a particular year than we need, negatively affecting our results of operations and cash flows. 33 Table of Contents Certain of our customer contracts include variable-pricing mechanisms that adjust selling prices in response to changes in the costs of certain raw materials and energy, while other of our customer contracts exclude such mechanisms. We may enter into multi-year purchase agreements for certain raw materials with similar variable-price mechanisms, allowing us to achieve natural hedges between the customer contracts and supplier purchase agreements. Therefore, in some cases, price fluctuations for energy (particularly natural gas and electricity), raw materials (such as scrap, chrome, zinc and nickel) or other commodities may be, in part, passed on to customers rather than absorbed solely by us. 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. 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 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 June 30, 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 Natural gas $ 54 $ 136 Electricity 15 38 Any resulting changes in fair value would be recorded as adjustments to AOCI, net of income taxes, or recognized in net earnings, as appropriate. These hypothetical losses would be partially offset by the benefit of lower prices paid for the related commodities. VALUATION OF GOODWILL AND OTHER LONG-LIVED ASSETS GOODWILL We assign goodwill arising from acquired companies to the reporting units that are expected to benefit from the synergies of the acquisition. Goodwill is tested on a qualitative or quantitative basis for impairment at the reporting unit level on an annual basis (October 1) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. 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. 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. 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. The assumptions used to calculate the fair value of a reporting unit may change from year to year based on operating results, market conditions and other factors. Changes in these assumptions could materially affect the determination of fair value for each reporting unit. OTHER LONG-LIVED ASSETS Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances that would indicate that the carrying value of the assets may not be recoverable. Such indicators may include: a significant decline in expected future cash flows; a sustained, significant decline in market pricing; a significant adverse change in legal or environmental factors or in the business climate; changes in estimates of our recoverable reserves; and unanticipated competition. Any adverse change in these factors could have a significant impact on the recoverability of our long-lived assets and could have a material impact on our consolidated statements of operations and statements of financial position. A comparison of each asset group's carrying value to the estimated undiscounted net future cash flows expected to result from the use of the assets, including cost of disposition, is used to determine if an asset is recoverable. Projected future cash flows reflect management's best estimate of economic and market conditions over the projected period, including growth rates in revenues and costs, and estimates of future expected changes in operating margins and capital expenditures. If the carrying value of the asset group is higher than its undiscounted net future cash flows, the asset group is measured at fair value and the difference is recorded as a reduction to the long-lived assets. We estimate fair value using a market approach, an income approach or a cost approach. For the three and six months ended June 30, 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 six months ended June 30, 2024. 34 Table of Contents INTEREST RATE RISK Interest payable on our senior notes is at fixed rates. 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 June 30, 2024, we had $370 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 June 30, 2024 borrowing level would result in a change of $4 million to interest expense on an annual basis. SUPPLY CONCENTRATION RISKS Many of our operations and mines rely on one source each of electric power and natural gas. A significant interruption or change in service or rates from our energy suppliers could materially impact our production costs, margins and profitability. FORWARD-LOOKING STATEMENTS This report contains statements that constitute "forward-looking statements" within the meaning of the federal securities laws. As a general matter, forward-looking statements relate to anticipated trends and expectations rather than historical matters. Forward-looking statements are subject to uncertainties and factors relating to our operations and business environment that are difficult to predict and may be beyond our control. Such uncertainties and factors may cause actual results to differ materially from those expressed or implied by the forward-looking statements. These statements speak only as of the date of this report, and we undertake no ongoing obligation, other than that imposed by law, to update these statements. Investors are cautioned not to place undue reliance on forward-looking statements. Uncertainties and risk factors that could affect our future performance and cause results to differ from the forward-looking statements in this report include, but are not limited to: • 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; • 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. government actions with respect to Section 232, the USMCA and/or other trade agreements, tariffs, treaties or policies, as well as the uncertainty of obtaining and maintaining effective antidumping and countervailing duty orders to counteract the harmful effects of unfairly traded imports; • impacts of existing and increasing governmental regulation, including potential environmental regulations relating to climate change and carbon emissions, and related costs and liabilities, including failure to receive or maintain required operating and environmental permits, approvals, modifications or other authorizations of, or from, any governmental or regulatory authority and costs related to implementing improvements to ensure compliance with regulatory changes, including potential financial assurance requirements, and reclamation and remediation obligations; • 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, or to repurchase our common shares; • 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; • 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; 35 Table of Contents • 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 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; • our level of self-insurance and our ability to obtain sufficient third-party insurance to adequately cover potential adverse events and business risks; • uncertainties associated with our ability to meet customers’ and suppliers’ decarbonization goals and reduce our GHG emissions in alignment with our own announced targets; • challenges to maintaining our social license to operate with our stakeholders, including the impacts of our operations on local communities, reputational impacts of operating in a carbon-intensive industry that produces GHG emissions, and our ability to foster a consistent operational and safety track record; • our actual economic mineral reserves or reductions in current mineral reserve estimates, and any title defect or loss of any lease, license, easement or other possessory interest for any mining property; • our ability to maintain satisfactory labor relations with unions and employees; • 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; • uncertain availability or cost of skilled workers to fill critical operational positions and potential labor shortages caused by experienced employee attrition or otherwise, as well as our ability to attract, hire, develop and retain key personnel; • the amount and timing of any repurchases of our common shares; • potential significant deficiencies or material weaknesses in our internal control over financial reporting; • the risk that the Stelco Acquisition may not be consummated; • the risk that the Stelco Acquisition may be less accretive than expected, or may be dilutive, to our earnings per share, which may negatively affect the market price of our common shares; • the risk that adverse reactions or changes to business or regulatory relationships may result from the announcement or completion of the Stelco Acquisition; • the possibility of the occurrence of any event, change or other circumstance that could give rise to the right of one or both of Cliffs or Stelco to terminate the Arrangement Agreement, including, but not limited to, the companies' inability to obtain necessary regulatory approvals; • the risk of shareholder litigation relating to the Stelco Acquisition that could be instituted against Stelco, Cliffs or their respective directors and officers; • the possibility that Cliffs and Stelco will incur significant transaction and other costs in connection with the Stelco Acquisition, which may be in excess of those we anticipate; • the risk that the financing transactions to be undertaken in connection with the Stelco Acquisition may have a negative impact on the combined company's credit profile, financial condition or financial flexibility; • the possibility that the anticipated benefits of the Stelco Acquisition are not realized to the same extent as projected and that the integration of the acquired business into our existing business, including uncertainties associated with maintaining relationships with customers, vendors and employees, is not as successful as expected; • the risk that future synergies from the Stelco Acquisition may not be realized or may take longer than expected to achieve; • the possibility that the business and management strategies currently in place or implemented in the future for the maintenance, expansion and growth of the combined company's operations may not be as successful as anticipated; • the risk associated with the retention and hiring of key personnel, including those of Stelco; • the risk that any announcements relating to, or the completion of, the Stelco Acquisition could have adverse effects on the market price of our common shares; and • the risk of any unforeseen liabilities and future capital expenditures related to the Stelco Acquisition. 36 Table of Contents For additional factors affecting our business, refer to Part II – Item 1A. Risk Factors of this Quarterly Report on Form 10-Q . You are urged to carefully consider these risk factors. Forward-looking and other statements in this Quarterly Report on Form 10-Q regarding our GHG reduction plans and goals are not an indication that these statements are necessarily material to investors or required to be disclosed in our filings with the SEC. In addition, historical, current and forward-looking GHG-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve and assumptions that are subject to change in the future. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information regarding our market risk is presented under the caption "Market Risks," which is included in our Annual Report on Form 10-K for the year ended December 31, 2023, and Part I – Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q.