CLEVELAND-CLIFFS INC. (CLF) FY 2021 MD&A

Item 7. 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. The following discussion should be read in conjunction with the consolidated financial statements and related notes that appear in Part II – Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

Overview

The year 2021 represented a period of record financial performance in our Company's 174-year history. The advantages of our unique, vertically integrated business model as well as the immediate benefits of the transformational acquisitions we completed in 2020 were on full display during the year as we achieved these phenomenal results. Our commercial actions, along with a healthy demand environment for steel, drove substantially higher selling prices for the majority of products we sell, and we adjusted production to meet the needs of our order book. Combined with this, we believe we were able to manage costs better than our peers due to our vertically integrated footprint, which reduces the impact of material price inflation on our major cost inputs. As a result, we produced record revenues, record net income, record Adjusted EBITDA and record operating cash flow in 2021.

The HRC index averaged $1,573 per net ton for 2021, a record year that was also 174% higher than 2020. The record prices for steel products in 2021 resulted from both supply and demand factors, each driven by a rapid recovery from the impacts of the COVID-19 pandemic. Stay-at-home mandates and fiscal stimulus drove strong demand for consumer goods, such as HVAC products and appliances. Demand from machinery and equipment producers has also been robust. The demand for light vehicles was also strong; however, automotive supply chain difficulties have limited the demand for steel from automotive manufacturers. On the supply side, spot steel availability was limited throughout the year.

We expect healthy demand to continue into 2022 as we start to see the impacts of the Infrastructure and Jobs Act of 2021, growing environmentally-focused capital projects, healthy economic conditions and pent-up automotive demand, as supply chain issues begin to show signs of waning. With strong demand and steel prices in the U.S. reaching all-time highs in 2021, we were well positioned to negotiate our fixed price contracts, which represent approximately 45% of our volumes, at favorable levels, which should enable us to deliver strong financial results and free cash flow in 2022, even if HRC pricing falls considerably.

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As a result of our healthy free cash flow in 2021, we were able to complete several strategic and financial transactions, including the FPT Acquisition. FPT is one of the largest processors of prime scrap in the country, representing approximately 15% of the entire U.S. merchant market. We believe this acquisition is a complementary addition to our footprint, as prime scrap demand is expected to grow with new flat-rolled EAF capacity set to come online over the next five years and as the worldwide focus on decarbonization continues. We expect to be able to leverage our long-standing flat-rolled automotive and other customer relationships into recycling partnerships to further grow our prime scrap presence. Additionally, FPT allows us to optimize productivity at our existing EAFs and BOFs and furthers our commitment to environmentally-friendly, low-carbon intensity steelmaking with a cleaner materials mix.

Another use of our robust cash flow was the complete redemption of our Series B Participating Redeemable Preferred Stock for $1,343 million during the third quarter of 2021. This transaction reduced our diluted share count by approximately 10%, providing a meaningful return to our shareholders. During February 2021, we executed a series of favorable debt and equity capital market transactions in an effort to extend our average debt maturity profile and increase our ratio of unsecured debt to secured debt. We also completed additional financing transactions, including the redemption of all $396 million aggregate principal amount of our 5.750% 2025 Senior Notes in June 2021, and provided notice of our election to redeem all remaining $294 million aggregate principal amount of our 1.500% 2025 Convertible Senior Notes in December 2021, which was completed in January 2022.

In 2021, we reached full run-rate nameplate annual capacity at our state-of-the-art direct reduction plant in Toledo, Ohio. This facility produces high-quality HBI and is the first of its kind in the Great Lakes region. While we originally expected to be a merchant seller of HBI, following the 2020 Acquisitions, we have instead maximized the value of our HBI by utilizing it primarily in our blast furnaces, which allows us to improve costs and productivity while reducing our coke rates and reducing our carbon emissions. As a result of our internal usage of HBI, coupled with our ongoing evaluation of coke use strategies, we idled our coke facility at Middletown Works in 2021 and we intend to permanently idle our Mountain State Carbon coke plant in 2022.

Along with these notable accomplishments, we have been able to continue successfully navigating through the COVID-19 pandemic while preserving the health and safety of both our workforce and our Company for the long term. The health and safety of our employees has always been our top priority. In an effort to best protect our workforce and our Company, we launched a vaccine incentive program in July 2021 that was developed in partnership with our labor unions. Throughout the 45 days the program was in place, the vaccination rate more than doubled, and we achieved a total vaccination rate of over 75% throughout our workforce. The initiative resulted in a payout of $45 million in total cash incentives to our vaccinated workforce. The successful vaccination program allowed us to operate efficiently and safely throughout the remainder of 2021 and into 2022.

We also continued our best practices from both a safety and environmental standpoint. During 2021, our safety TRIR (including contractors) was 1.37 per 200,000 hours worked. Throughout 2021, we made continued progress towards our goal of reducing GHG emissions with our increased usage of HBI and scrap in our facilities, as well as more efficient recycling of gases at certain facilities. We are also partnering with the U.S. Department of Energy as part of the Better Climate Challenge initiative, as we aim to build on our GHG emission reduction progress.

Recent Developments

Acquisition of FPT

On November 18, 2021, we completed the acquisition of FPT, a leading prime ferrous scrap processor in the U.S. These operations consist of 22 scrap processing facilities, primarily in the Midwest region of the U.S. Refer to NOTE 3 - ACQUISITIONS for additional information.

Financing Transactions

On December 1, 2021, we issued a notice of redemption for all $294 million in aggregate principal amount outstanding of the 1.500% 2025 Convertible Senior Notes. The 1.500% 2025 Convertible Senior Notes were redeemed on January 18, 2022, through a combination settlement, with the aggregate principal amount of $294 million paid in cash, and 24 million common shares delivered to noteholders, with a fair value of $499 million in settlement of the premium due per the terms of the indenture, plus cash in respect of the accrued and unpaid interest of the 1.500% 2025 Convertible Senior Notes to, but not including, the redemption date per the terms of the indenture.

On December 17, 2021, we entered into the Third ABL Amendment. The Third ABL Amendment modified our ABL Facility to, among other things, increase the amount of tranche A revolver commitments available thereunder by an additional $1 billion and exchange $150 million of tranche B revolver commitments available thereunder for tranche

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A revolver commitments. After giving effect to the Third ABL Amendment, the aggregate principal amount of tranche A revolver commitments under our ABL Facility is $4.5 billion and there are no longer any tranche B revolver commitments. This action increased our liquidity by $1.0 billion. The increase is a result of a larger projected borrowing base driven by more favorable market conditions.

Share Repurchase Program

On February 10, 2022, our Board of Directors authorized a program to repurchase our outstanding common shares in the open market or in privately negotiated transactions, which may include purchases pursuant to Rule 10B5-1 plans or accelerated share repurchases, up to a maximum of $1 billion. We are not obligated to make any purchases and the program may be suspended or discontinued at any time. The share repurchase program does not have a specific expiration date.

Results of Operations

Overview

Our total revenues, net income (loss), diluted EPS and Adjusted EBITDA were as follows:

See "— Results of Operations — Adjusted EBITDA" below for a reconciliation of our Net Income (loss) to Adjusted EBITDA.

The results for 2021 include the FPT operations subsequent to November 18, 2021 and full-year results for all other operations. The results for 2020 include AK Steel operations subsequent to March 13, 2020, ArcelorMittal USA operations subsequent to December 9, 2020, and our results from operations previously reported as part of our historical Mining and Pelletizing segment.

Revenues

During the year ended December 31, 2021, our consolidated Revenues increased by $15,090 million, compared to 2020. The increase was primarily due to the addition of 12.1 million net tons of steel shipments from our Steelmaking segment resulting from the 2020 Acquisitions, along with an increase in the average steel product selling price of $240 per net ton.

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Revenues by Product Line

The following represents our consolidated Revenues by product line for the years ended:

The change in product mix for 2021, compared to 2020, is due primarily to the inclusion of full-period results for the 2020 Acquisitions. The results for 2020 include AK Steel operations subsequent to March 13, 2020, ArcelorMittal USA operations subsequent to December 9, 2020, and our results from operations previously reported as part of our historical Mining and Pelletizing segment.

Revenues by Market

The following table represents our consolidated Revenues and percentage of revenues attributable to each of the markets we supply:

The change in percentages of net revenues to each market in 2021 compared to 2020 was driven primarily by the AM USA Transaction, which increased overall sales to automotive customers, but reduced the total percentage exposure, increased exposure to infrastructure and manufacturing and distributors and converters customers, and drove more in-house iron ore sales, which reduced the percentage of sales to steel producers.

Automotive Market

The largest end user for our steel products is the automotive industry in North America, which makes light vehicle production a key driver of demand. During 2021, North American light vehicle production was approximately 13.0 million units, the same as the prior year. Production the past two years has been down approximately 3.0 million units compared to the prior ten-year average, primarily due to the global semiconductor shortage, as well as other material shortages and supply chain disruptions resulting from the COVID-19 pandemic. This has caused several outages amongst light vehicle manufacturers despite strong consumer demand. In light of these production outages, we have been able to redirect certain volumes originally intended for this end market to the spot market, where demand has been strong and pricing has reached all-time highs. The percentage of sales to the automotive market should increase in 2022 as fixed price contract prices increase and volumes expand as the material shortage issues ease.

During 2021, light vehicle sales in the U.S. were 15.1 million units, representing a 3% increase over the prior year. These improved sales, combined with continued production difficulties, brought light vehicle inventories to an all-time low of 22 days' supply during the third quarter of 2021.

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Infrastructure and Manufacturing

We sell a variety of our steel products, including plate, carbon, stainless, electrical, tinplate and rail, to the infrastructure and manufacturing market. This market includes sales to manufacturers of HVAC, appliances, power transmission and distribution transformers, storage tanks, ships and railcars, wind towers, machinery parts, heavy equipment, military armor, food preservation, and railway lines. Domestic construction activity and the replacement of aging infrastructure directly affects sales of steel to this market. Residential construction spending surged in 2021 due to overwhelming demand for new houses. Nonresidential construction spending was slightly down in 2021; however, the sector saw a surge in spending in the second half of the year that will likely continue into 2022 with the passing of the Infrastructure and Jobs Act of 2021. The Infrastructure and Jobs Act of 2021 is also expected to increase demand for steel products related to renewable energy as well as the modernization of the U.S. electrical grid. Our plate products can be used in windmills, which we estimate contain 130 metric tons of steel per megawatt of electrical generating capacity. Additionally, we estimate solar panels consume 40 metric tons of steel per megawatt of electrical generating capacity. We also expect to see an increase in charging stations for EVs, which we will benefit from as we are the sole producer of electrical steel in the U.S.

Distributors and Converters

Virtually all of the grades of steel we produce are sold to the steel distributors and converters market. This market generally represents downstream steel service centers, which source various types of steel from us and fabricate it according to their customers' needs, which also includes automotive customers. Our steel is typically sold to this market on a spot basis or under short-term contracts linked to steel pricing indices. Demand and pricing for this market can be highly dependent on a variety of factors outside our control, including global and domestic commodity steel production capacity, the relative health of countries’ economies and whether they are consuming or exporting excess steel production, the provisions of international trade agreements and fluctuations in international currencies and, therefore, are subject to market changes in steel prices.

The price for domestic HRC, which is an important attribute in the profitability of this end market, averaged $1,573 per net ton for the year ended December 31, 2021, 174% higher than the prior year. The record prices for steel products in 2021 resulted from both supply and demand factors, each driven by a rapid recovery since the onset of the COVID-19 pandemic in 2020.

Steel Producers Market

The steel producers market represents third-party sales to other steel producers, including those who operate blast furnaces and EAFs. It includes sales of raw materials and semi-finished and finished goods, including iron ore pellets, coal, coke, HBI, scrap and steel products.

The increase in revenues from the steel producers market for 2021, as compared to 2020, is primarily due to the inclusion of full-period results for the AK Steel and ArcelorMittal USA operations. This was partially offset by a decrease in iron ore product revenues during 2021, as compared to 2020, primarily as a result of the 2020 Acquisitions, as our iron ore pellet production is now predominately consumed internally and the respective intercompany revenue is eliminated in consolidation.

The largest component of sales to this market during the year ended December 31, 2021 was third-party slab sales, which are primarily made under a long-term supply agreement that was initiated in connection with the closing of the AM USA Transaction. Additionally, while it has fallen from peak 2021 levels in recent months, the price of iron ore has also risen dramatically over the past year, which, along with strong demand, has been an important factor in rising steel prices globally. The Platts 62% Price averaged $159 per metric ton during 2021, a 46% increase compared to the prior year. 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.

Operating Costs

Cost of goods sold

Cost of goods sold increased by $10,808 million for the year ended December 31, 2021, as compared to 2020, primarily due to the addition of 12.1 million net tons of steel shipments resulting from the 2020 Acquisitions.

Selling, general and administrative expenses

As a result of the 2020 Acquisitions, our Selling, general and administrative expenses increased by $178 million during the year ended December 31, 2021, as compared to 2020.

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Acquisition-related costs

The following table represents the components of Acquisition-related costs:

Refer to NOTE 3 - ACQUISITIONS for further information on the acquisitions.

Miscellaneous – net

Miscellaneous – net increased by $20 million for the year ended December 31, 2021, as compared to 2020. The increase in miscellaneous expense was primarily due to the acquisition-related loss on equity method investment during 2021.

Other Income (Expense)

Interest expense, net

Interest expense, net increased by $99 million for the year ended December 31, 2021, as compared to the prior year. The increase during 2021 was primarily due to borrowings on our ABL Facility, a decrease in capitalized interest during 2021 due to the completion of our Toledo direct reduction plant in December 2020 and the full-year interest on the incremental debt that we incurred in connection with the AK Steel Merger.

Gain (loss) on extinguishment of debt

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

This compares to a gain on extinguishment of debt of $130 million for the year ended December 31, 2020 primarily related to the repurchase of $748 million aggregate principal amount of our outstanding senior notes of various series using the net proceeds from the issuance of an additional $555 million aggregate principal amount of our 9.875% 2025 Senior Secured Notes on April 24, 2020 and other sources of cash. Refer to NOTE 8 - DEBT AND CREDIT FACILITIES for further details.

Net periodic benefit credits (costs) other than service cost component

The increase of $156 million in Net periodic benefit credits (costs) other than service cost component primarily relates to the expected return on assets component. The higher return is primarily attributable to the full-year effect of additional pension and OPEB plan assets acquired in the 2020 Acquisitions. Refer to NOTE 10 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS for further details.

Income Taxes

Our effective tax rate is affected by 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 and corresponding effective rates:

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A reconciliation of our income tax attributable to continuing operations compared to the U.S. federal statutory rate is as follows:

The increase in income tax expense in 2021, as compared to the prior year, is directly related to the increase in the pre-tax book income year-over-year.

See NOTE 12 - INCOME TAXES for further information.

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.

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

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

Adjusted EBITDA from our Steelmaking segment for the year ended December 31, 2021, increased by $4,989 million, as compared to 2020. The results were favorably impacted by the operating results of the acquired steelmaking operations. Our Steelmaking Adjusted EBITDA included $232 million of Selling, general and administrative expenses for the year ended December 31, 2021.

Adjusted EBITDA from Corporate and eliminations primarily relates to Selling, general and administrative expenses at our Corporate headquarters.

The discussion of our Consolidated Results of Operations for 2020 compared to 2019 can be found in Part II, Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 26, 2021.

Steelmaking

The following is a summary of our Steelmaking segment results included in our consolidated financial statements for the years ended December 31, 2021 and 2020. The results for 2021 include the FPT operations

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subsequent to November 18, 2021 and full-year results for all other Steelmaking operations. The results for 2020 include the AK Steel operations subsequent to March 13, 2020, the ArcelorMittal USA operations subsequent to December 9, 2020, and our results from operations previously reported as part of our Mining and Pelletizing segment.

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

The following table represents our segment Revenues by product line:

Operating Results

Steelmaking revenues for 2021 increased by $14,936 million as compared to 2020, primarily due to the addition of sales following the 2020 Acquisitions. Results for the year ended December 31, 2021 were also impacted positively by the increase in the price for domestic HRC, which is the most significant index driving our revenues and profitability. The HRC index averaged $1,573 per net ton for 2021, 174% higher than 2020. The price of HRC reached an all-time high in 2021, as a direct result of favorable supply-demand dynamics driven by a rapid recovery since the onset of the COVID-19 pandemic in 2020. We have also benefited from higher steel shipments due to stronger demand.

Cost of goods sold for 2021 increased by $10,630 million as compared to 2020, predominantly due to additional sales as discussed above.

As a result, Adjusted EBITDA was $5,422 million for the year ended December 31, 2021, compared to $433 million for the prior year. Adjusted EBITDA for 2021 was positively impacted by the addition of sales following the 2020 Acquisitions, the increase in the price for HRC and the higher demand for steel products, as discussed above.

Production

Our steelmaking facilities produced a total of 18 million net tons of raw steel during the year ended December 31, 2021. Due to the timing of the 2020 Acquisitions and the idling of facilities in response to impacts of the COVID-19 pandemic, our steelmaking facilities produced a total of 4 million net tons of raw steel during the year ended December 31, 2020.

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Liquidity, Cash Flows and Capital Resources

Our primary sources of liquidity are Cash and cash equivalents and cash generated from our operations, availability under the ABL Facility and other financing activities. 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 inherent cyclical demand for our products and volatility in commodity prices. We are focused on maximizing the cash generation of our operations, reducing debt, and aligning capital investments with our strategic priorities and the requirements of our business plan, including regulatory and permission-to-operate related projects.

Following the onset of the COVID-19 pandemic in the U.S. in 2020, our primary focus was to maintain adequate levels of liquidity to manage through a potentially prolonged economic downturn. Now that business conditions have improved, allowing us to generate a healthy free cash flow during 2021, we have had the ability to make investments to both improve and grow our business, particularly as it pertains to scrap metal. We entered into the scrap business on November 18, 2021 with the FPT Acquisition. We were also able to reduce our diluted share count and effectively return capital to shareholders via the cash redemption of all of the outstanding shares of our Series B Participating Redeemable Preferred Stock during the third quarter of 2021. In December 2021, we also increased our liquidity by amending our ABL Facility to increase the aggregate revolver commitments from $3.5 billion to $4.5 billion. Additionally, we expect to be able to return capital to shareholders in 2022 through our share repurchase program, which was authorized by our Board on February 10, 2022.

In addition, we anticipate that the current strong market environment will provide us ample opportunities to reduce our debt with our own 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. On January 18, 2022, we took action to reduce our debt by redeeming all of our then-outstanding 1.500% 2025 Convertible Senior Notes. The notes were redeemed through a combination settlement, with the aggregate principal amount of $294 million paid in cash, and 24 million common shares delivered to noteholders per the terms of the indenture.

In furtherance of these goals, we also consummated the following financing transactions during 2021:

On February 11, 2021, we sold 20 million common shares at a price per share of $16.12, in an underwritten public offering. We used the net proceeds from the offering, plus cash on hand, to redeem $322 million aggregate principal amount of our outstanding 9.875% 2025 Senior Secured Notes. Prior to such use, the net proceeds were used to temporarily reduce the outstanding borrowings under our ABL Facility.

On February 17, 2021, we issued $500 million aggregate principal amount of 4.625% 2029 Senior Notes and $500 million aggregate principal amount of 4.875% 2031 Senior Notes in an offering that was exempt from the registration requirements of the Securities Act. We used the net proceeds from the notes offering to redeem all of the outstanding 4.875% 2024 Senior Secured Notes and 6.375% 2025 Senior Notes issued by Cleveland-Cliffs Inc. and all of the outstanding 7.625% 2021 AK Senior Notes, 7.500% 2023 AK Senior Notes and 6.375% 2025 AK Senior Notes issued by AK Steel Corporation (n/k/a Cleveland-Cliffs Steel Corporation), and pay fees and expenses in connection with such redemptions, and reduce borrowings under our ABL Facility.

Additionally, on June 28, 2021, we redeemed the entirety of our outstanding 5.750% 2025 Senior Notes using available liquidity. Pursuant to the terms of the indenture governing the 5.750% 2025 Senior Notes, we paid $415 million, including $396 million aggregate principal amount, plus make-whole premiums and accrued and unpaid interest to, but not including, the redemption date.

These actions give us additional financial flexibility and will better prepare us to navigate more easily through potentially volatile industry conditions in the future.

Based on our outlook for the next 12 months, which is subject to continued changing demand from customers and volatility in domestic steel prices, we expect to have ample liquidity through cash generated from operations and availability under our ABL Facility sufficient to meet the needs of our operations, service and repay our debt obligations and return capital to shareholders.

The following discussion summarizes the significant items impacting our cash flows during 2021 and comparative years as well as expected impacts to our future cash flows over the next 12 months. Refer to the Statements of Consolidated Cash Flows for additional information.

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Operating Activities

Net cash provided by operating activities was $2,785 million for the year ended December 31, 2021, compared to net cash used by operating activities of $258 million for the year ended December 31, 2020. The year-over-year improvement was driven by improved operating results, partially offset by changes in working capital. Changes in working capital included increases in inventory primarily related to the global semiconductor shortage and increased raw material and production costs, as well as increases in receivables primarily related to rising prices. Additionally, we had incremental pension and OPEB payments and contributions of $268 million, which included $118 million of deferred 2020 pension contributions in connection with the CARES Act.

Investing Activities

Net cash used by investing activities was $1,379 million and $2,042 million for the years ended December 31, 2021 and 2020, respectively. During the year ended December 31, 2021, we had net cash outflows of $761 million related to the FPT Acquisition, net of cash acquired. We had total capital expenditures of $705 million and $525 million for the years ended December 31, 2021 and 2020, respectively. Included in the total capital expenditures, we had cash outflows for expansion capital expenditures relating to the development of our Toledo direct reduction plant of $64 million and $348 million for the years ended December 31, 2021 and 2020, respectively. Additionally, included in the total capital expenditures, we spent $641 million and $177 million primarily on sustaining capital expenditures during the years ended December 31, 2021 and 2020, respectively. Sustaining capital spend includes infrastructure, mobile equipment, fixed equipment, product quality, environment, health and safety.

During the year ended December 31, 2020, we had net cash outflows of $658 million related to the AM USA Transaction, net of cash acquired. Additionally, during the year ended December 31, 2020, we had net cash outflows of $869 million related to the AK Steel Merger, net of cash acquired, which included $590 million used to repay the former AK Steel Corporation revolving credit facility and $324 million used to purchase outstanding 7.500% 2023 AK Senior Notes.

We anticipate total cash used for capital expenditures during the next 12 months to be between $800 and $900 million.

Financing Activities

Net cash used by financing activities was $1,470 million for the year ended December 31, 2021, compared to net cash provided by financing activities of $2,059 million for the year ended December 31, 2020. Cash outflows from financing activities for the year ended December 31, 2021 included the redemption of all 583,273 shares outstanding of our Series B Participating Redeemable Preferred Stock at a redemption price of $1,343 million during the third quarter of 2021, along with $1.4 billion for repayments of debt. We used available liquidity to redeem all $396 million aggregate principal amount outstanding of our 5.750% 2025 Senior Notes. We used the net proceeds from the issuance of the 20 million common shares, and cash on hand, to redeem $322 million in aggregate principal amount of 9.875% 2025 Senior Secured Notes. We used the net proceeds from the issuances of the 4.625% 2029 Senior Notes and 4.875% 2031 Senior Notes to redeem all of the outstanding 4.875% 2024 Senior Secured Notes, 6.375% 2025 Senior Notes, 7.625% 2021 AK Senior Notes, 7.500% 2023 AK Senior Notes and 6.375% 2025 AK Senior Notes, and pay fees and expenses in connection with such redemptions, and reduce borrowings under our ABL Facility.

Cash inflows from financing activities for the year ended December 31, 2021 included the issuances of $500 million aggregate principal amount of 4.625% 2029 Senior Notes, $500 million aggregate principal amount of 4.875% 2031 Senior Notes and 20 million common shares for proceeds of $322 million, along with net borrowings of $73 million under credit facilities.

Net cash provided by financing activities for the year ended December 31, 2020 primarily related to the issuances of $845 million aggregate principal amount of 6.750% 2026 Senior Secured Notes, $955 million aggregate principal amount of 9.875% 2025 Senior Secured Notes and net borrowings of $1,510 million under our ABL Facility. The net proceeds from the initial issuance of $725 million aggregate principal amount of the 6.750% 2026 Senior Secured Notes, along with cash on hand, were used to purchase $373 million aggregate principal amount of 7.625% 2021 AK Senior Notes and $367 million aggregate principal amount of 7.500% 2023 AK Senior Notes and to pay for the $44 million of debt issuance costs in the first quarter of 2020. The net proceeds from the additional issuance of $555 million aggregate principal amount of the 9.875% 2025 Senior Secured Notes were used to repurchase $736 million aggregate principal amount of our outstanding senior notes.

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The discussion of our Liquidity, Cash Flows and Capital Resources results for 2020 compared to 2019 can be found in Part II, Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 26, 2021.

The following represents our future cash commitments and contractual obligations as of December 31, 2021:

Refer to NOTE 20 - COMMITMENTS AND CONTINGENCIES for additional information regarding our future commitments and obligations.

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Capital Resources

We expect to fund our business obligations from available cash, current and future operations and existing and future borrowing arrangements. We also may pursue other funding strategies in the capital markets to strengthen our liquidity, extend debt maturities and/or fund strategic initiatives. The following represents a summary of key liquidity measures:

Our primary sources of funding are cash and cash equivalents, which totaled $48 million as of December 31, 2021, cash generated by our business, availability under our ABL Facility and other financing activities. Cash and cash equivalents include cash on hand and on deposit. The combination of cash and availability under our ABL Facility gives us $2.8 billion in liquidity entering the first quarter of 2022, which is expected to be adequate to fund operations, letter of credit obligations, capital expenditures and other cash commitments for at least the next 12 months.

As of December 31, 2021, we were in compliance with the ABL Facility liquidity requirements and, therefore, the springing financial covenant requiring a minimum Fixed Charge Coverage Ratio of 1.0 to 1.0 was not applicable. We believe that the cash on hand and our ABL Facility provide us sufficient liquidity to support our operating, investing and financing activities. We have the capability to issue additional unsecured notes and, subject to the limitations set forth in our existing senior notes indentures, additional secured debt, if we elect to access the debt capital markets. However, our ability to issue additional notes could be limited by market conditions.

We intend from time to time to seek to retire 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 repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors, and the amounts involved may be material.

Off-Balance Sheet Arrangements

In the normal course of business, we are a party to certain arrangements that are not reflected on our Statements of Consolidated Financial Position. These arrangements include minimum "take or pay" purchase commitments, such as minimum electric power demand charges, minimum coal, diesel and natural gas purchase commitments, minimum railroad transportation commitments and minimum port facility usage commitments; and financial instruments with off-balance sheet risk, such as bank letters of credit and bank guarantees.

Information about our Guarantors and the Issuer of our Guaranteed Securities

The accompanying summarized financial information has been prepared and presented pursuant to SEC Regulation S-X, Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered,” and Rule 13-01 "Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralized a Registrant's Securities." Certain of our subsidiaries (the "Guarantor subsidiaries") have fully and unconditionally, and jointly and severally, guaranteed the obligations under (a) the 5.875% 2027 Senior Notes, the 7.000% 2027 Senior Notes, the 4.625% 2029 Senior Notes and the 4.875% 2031 Senior Notes issued by Cleveland-Cliffs Inc. on a senior unsecured basis and (b) the 6.750% 2026 Senior Secured

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Notes and the 9.875% 2025 Senior Secured Notes on a senior secured basis. See NOTE 8 - 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 December 31, 2021. Refer to Exhibit 22, incorporated herein by reference, for the detailed list of entities included within the obligated group as of December 31, 2021.

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 9.875% 2025 Senior Secured Notes, the 4.625% 2029 Senior Notes and the 4.875% 2031 Senior Notes will be automatically and unconditionally released and discharged, and such Guarantor subsidiary’s obligations under the guarantee and the related indentures (the “Indentures”) will be automatically and unconditionally released and discharged, upon the occurrence of any of the following, along with the delivery to the trustee of an officer’s certificate and an opinion of counsel, each stating that all conditions precedent provided for in the applicable Indenture relating to the release and discharge of such Guarantor subsidiary’s guarantee have been complied with:

(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.

Summarized Combined Financial Information of the Issuer and Guarantor Subsidiaries:

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

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

As of December 31, 2021 and 2020, the obligated group had the following balances with non-Guarantor subsidiaries and other related parties:

Additionally, for the year ended December 31, 2021, the obligated group had Revenues of $139 million and Cost of goods sold of $117 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 the purchase of energy and raw materials used in our operations, which are impacted by market prices for electricity, natural gas, ferrous and stainless steel scrap, chrome, metallurgical coal, coke, nickel and zinc. 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

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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.

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 use cash-settled commodity price swaps and options to hedge the market risk associated with the purchase of certain of our raw materials and energy requirements. Additionally, we routinely use these derivative instruments to hedge a portion of our natural gas and zinc requirements. 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 December 31, 2021, due to a 10% and 25% change in the market price of each of the indicated commodities:

Valuation of Goodwill and Other Long-Lived Assets

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 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. As necessary, should our qualitative test indicate that it is more likely than not that the fair value of a reporting unit is less than its carry amount, 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 a discounted cash flow methodology, 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.

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

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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 year ended December 31, 2021, we concluded that an event triggering the need for an impairment assessment did not occur.

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 December 31, 2021, we had $1,609 million outstanding under our ABL Facility. An increase in prevailing interest rates would increase interest expense and interest paid for any outstanding borrowings under our ABL Facility. For example, a 100 basis point change to interest rates under our ABL Facility at the December 31, 2021 borrowing level would result in a change of $16 million to interest expense on an annual basis.

Additionally, a portion of our borrowing capacity and outstanding indebtedness under the ABL Facility bears interest at a variable rate based on LIBOR. For a discussion of the attendant risk, see Part I - Item 1A, Risk Factors - III. Financial Risks - Our existing and future indebtedness may limit cash flow available to invest in the ongoing needs of our businesses, which could prevent us from fulfilling our obligations under our senior notes, ABL Facility and other debt, and we may be forced to take other actions to satisfy our obligations under our debt, which may not be successful.

Supply Concentration Risks

Many of our operations and mines rely on one source for 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.

Recently Issued Accounting Pronouncements

Refer to NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES of the consolidated financial statements for a description of recent accounting pronouncements, including the respective dates of adoption and effects on results of operations and financial condition.

Critical Accounting Estimates

Management's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. Preparation of financial statements requires management to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and the related disclosures of contingencies. Management bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are fairly presented in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Management believes that the following critical accounting estimates and judgments have a significant impact on our financial statements.

Business Combinations

Assets acquired and liabilities assumed in a business combination are recognized and measured based on their estimated fair values at the acquisition date, while the acquisition-related costs are expensed as incurred. Any excess of the purchase consideration when compared to the fair value of the net tangible and intangible assets acquired, if any, is recorded as goodwill. We engaged independent valuation specialists to assist with the

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determination of the fair value of assets acquired, liabilities assumed, noncontrolling interest, and goodwill, for the acquisitions. If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be recorded. Subsequent to the acquisition date, and not later than one year from the acquisition date, we will record any material adjustments to the initial estimate based on new information obtained that would have existed as of the date of the acquisition. Any adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period the adjustment arises.

Valuation of Goodwill and Other Long-Lived Assets

The valuation of goodwill and other long-lived assets includes various assumptions and are considered critical accounting estimates. Refer to "–Market Risks" above for additional information.

Mineral Reserves

We regularly evaluate, and engage QPs to review and validate, our mineral reserves and update them as required in accordance with Subpart 1300 of Regulation S-K. We perform an in-depth evaluation of our mineral reserve estimates by mine on a periodic basis, in addition to routine annual assessments. The determination of mineral reserves requires us and third-party QPs to make significant estimates and assumptions related to key inputs, including, but not limited to, (1) the determination of the size and scope of the iron ore body through technical modeling, (2) the estimates of future iron ore prices, production costs and capital expenditures, and (3) management’s mine plan for the proven and probable mineral reserves. The significant estimates and assumptions could be affected by future industry conditions, geological conditions and ongoing mine planning. Additional capital and development expenditures may be required to maintain effective production capacity. Generally, as mining operations progress, haul distances increase. Alternatively, changes in economic conditions or the expected quality of mineral resources and reserves could decrease effective production capacity. Technological progress could alleviate such factors or increase capacity of mineral reserves.

We use our mineral reserve estimates, combined with our estimated annual production levels, to determine the mine closure dates utilized in recording the fair value liability for asset retirement obligations for our active operating mines. Refer to NOTE 14 - ASSET RETIREMENT OBLIGATIONS, for further information. Since the liability represents the present value of the expected future obligation, a significant change in mineral reserves or mine lives could have a substantial effect on the recorded obligation. We also utilize mineral reserves for evaluating potential impairments of mine asset groups as they are indicative of future cash flows and in determining maximum useful lives utilized to calculate depreciation, depletion and amortization of long-lived mine assets and in determining the estimated fair value of mineral reserves established through the purchase price allocation in a business combination. The consolidated asset retirement obligation balance was $449 million as of December 31, 2021, of which $208 million related to active iron ore mine operations. The total asset balance associated with our Steelmaking reportable segment was $18,326 million as of December 31, 2021, of which $1,622 million related to long-lived assets associated with our combined iron ore mine asset groups, and is inclusive of $231 million related to iron ore mineral reserves acquired through the AM USA Transaction. Depreciation, depletion and amortization expense for our combined iron ore mine asset groups was $172 million for the year ended December 31, 2021. Increases or decreases in mineral reserves or mine lives could significantly affect these items.

Asset Retirement Obligations

The accrued closure obligation is predominantly related to our indefinitely idled and closed iron ore mining operations and provides for contractual and legal obligations associated with the eventual closure of those operations. We perform an in-depth evaluation of the liability every three years in addition to our routine annual assessments. In 2020, we employed third-party specialists to assist in the evaluation. Our obligations are determined based on detailed estimates adjusted for factors that a market participant would consider (e.g., inflation, overhead and profit), which are escalated at an assumed rate of inflation to the estimated closure dates and then discounted using the current credit-adjusted risk-free interest rate. The estimate also incorporates incremental increases in the closure cost estimates and changes in estimates of mine lives for our active mine sites. The closure date for each of our active mine sites is determined based on the exhaustion date of the remaining mineral reserves, which is dependent on our estimate of mineral reserves. The estimated obligations for our active mine sites are particularly sensitive to the impact of changes in mine lives given the difference between the inflation and discount rates. The closure dates for a majority of our steelmaking facilities are indefinite, and as such, the asset retirement obligations are recorded at present values using estimated ranges of the economic lives of the underlying assets. Changes in the base estimates of legal and contractual closure costs due to changes in legal or contractual requirements, available technology,

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inflation, overhead or profit rates also could have a significant impact on the recorded obligations. Refer to NOTE 14 - ASSET RETIREMENT OBLIGATIONS, for further information.

Environmental Remediation Costs

We have a formal policy for environmental protection and remediation. Our obligations for known environmental matters at active and closed operations have been recognized based on estimates of the cost of investigation and remediation at each facility. If the obligation can only be estimated as a range of possible amounts, with no specific amount being more likely, the minimum of the range is accrued. Management reviews its environmental remediation sites quarterly to determine if additional cost adjustments or disclosures are required. The characteristics of environmental remediation obligations, where information concerning the nature and extent of clean-up activities is not immediately available and which are subject to changes in regulatory requirements, result in a significant risk of increase to the obligations as they mature. Expected future expenditures are discounted to present value unless the amount and timing of the cash disbursements cannot be reasonably estimated.

Income Taxes

Our income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management's best assessment of estimated future taxes to be paid. We are subject to income taxes in the U.S. and various foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax expense.

Deferred income taxes arise from temporary differences between tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, we begin with historical results adjusted for the results of discontinued operations and changes in accounting policies and incorporate assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses.

At December 31, 2021 and 2020, we had a valuation allowance of $409 million and $836 million, respectively, against our deferred tax assets. Of these amounts, $70 million and $439 million relate to the U.S. deferred tax assets at December 31, 2021 and 2020, respectively, and $339 million and $397 million relate to foreign deferred tax assets, respectively.

Our losses in Luxembourg in recent periods represent sufficient negative evidence to require a full valuation allowance against the deferred tax assets in that jurisdiction. We intend to maintain a valuation allowance against the deferred tax assets related to these operating losses, unless and until sufficient positive evidence exists to support the realization of such assets.

Changes in tax laws and rates also could affect recorded deferred tax assets and liabilities in the future. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various jurisdictions across our global operations. The ultimate impact of U.S. income tax reform legislation may differ from our current estimates due to changes in the interpretations and assumptions made as well as additional regulatory guidance that may be issued.

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

We recognize tax liabilities in accordance with ASC 740, Income Taxes, and we adjust these liabilities when our judgment changes because of evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined. Refer to NOTE 12 - INCOME TAXES, for further information.

Employee Retirement Benefit Obligations

We offer defined benefit pension plans, defined contribution pension plans and OPEB plans, primarily consisting of retiree healthcare benefits, to most employees in North America as part of a total compensation and benefits program.

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The following is a summary of our U.S. defined benefit pension and OPEB funding and expense:

Assumptions used in determining the benefit obligations and the value of plan assets for defined benefit pension plans and OPEB plans, primarily consisting of retiree healthcare benefits, that we offer are evaluated periodically by management. Critical assumptions, such as the discount rate used to measure the benefit obligations, the expected long-term rate of return on plan assets, the medical care cost trend, and the rate of compensation increase are reviewed annually.

The following represents weighted-average assumptions used to determine benefit obligations and net benefit costs:

For the pension plans, the weighted-average expected return on plan assets for 2022 is 6.87%, an increase from 6.84% in 2021. For the OPEB plans, the weighted-average expected return on plan assets for 2022 is 4.86%, a decrease from 5.20% in 2021.

The following represents assumed weighted-average health care cost trend rates:

The discount rates used to measure plan liabilities as of the December 31 measurement date are determined individually for each plan. The discount rates are determined by matching the projected cash flows used to determine the plan liabilities to a projected yield curve of high-quality corporate bonds available at the measurement date. Discount rates for expense are calculated using the granular approach for each plan.

Depending on the plan, we use either company-specific base mortality tables or tables issued by the Society of Actuaries. We use the Pri-2012 mortality tables from the Society of Actuaries with adjustments for blue collar, white collar or no collar depending on the plan. On December 31, 2021, the assumed mortality improvement projection was updated from generational scale MP-2020 to generational scale MP-2021 for the Pri-2012 mortality tables.

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Following are sensitivities of potential further changes in these key assumptions on the estimated 2022 pension and OPEB expense and the pension and OPEB obligations as of December 31, 2021:

Changes in actuarial assumptions, including discount rates, employee retirement rates, mortality, compensation levels, plan asset investment performance and healthcare costs, are determined based on analyses of actual and expected factors. Changes in actuarial assumptions and/or investment performance of plan assets may have a significant impact on our financial condition due to the magnitude of our retirement obligations.

Refer to NOTE 10 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS for further information.

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:

•disruptions to our operations relating to the ongoing COVID-19 pandemic, including the heightened risk that a significant portion of our workforce or on-site contractors may suffer illness or otherwise be unable to perform their ordinary work functions;

•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 a trend toward light weighting and supply chain disruptions, such as the semiconductor shortage, that could result in lower steel volumes being consumed;

•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 the prolonged COVID-19 pandemic;

•severe financial hardship, bankruptcy, temporary or permanent shutdowns or operational challenges, due to the ongoing COVID-19 pandemic or otherwise, of one or more of our major customers, including customers in the automotive market, key suppliers or contractors, which, among other adverse effects, could 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

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improvements to ensure compliance with regulatory changes, including potential financial assurance requirements;

•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;

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

•supply chain disruptions or changes in the cost or quality 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;

•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;

•disruptions in, or failures of, our information technology systems, including those related to cybersecurity;

•liabilities and costs arising in connection with any business decisions to temporarily 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 ability to realize the anticipated synergies and benefits of our recent acquisition transactions and to successfully integrate the acquired businesses into our existing businesses, including uncertainties associated with maintaining relationships with customers, vendors and employees and known and unknown liabilities we assumed in connection with the acquisitions;

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

•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 ability to successfully identify and consummate any strategic capital investments or development projects, cost-effectively achieve planned production rates or levels, and diversify our product mix and add new customers;

•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;

•availability of workers to fill critical operational positions and potential labor shortages caused by the ongoing COVID-19 pandemic, as well as our ability to attract, hire, develop and retain key personnel;

•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;

•the amount and timing of any repurchases of our common shares; and

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•potential significant deficiencies or material weaknesses in our internal control over financial reporting.

For additional factors affecting our businesses, refer to Part I – Item 1A. Risk Factors. You are urged to carefully consider these risk factors.