# CLEVELAND-CLIFFS INC. (CLF) FY 2023 MD&A Verbatim Item 7 Management's Discussion and Analysis from CLEVELAND-CLIFFS INC.'s 10-K for fiscal year 2023. SEC filing source: https://www.sec.gov/Archives/edgar/data/764065/000076406524000038/clf-20231231.htm Accession: 0000764065-24-000038 Filing date: 2024-02-08 Report date: 2023-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/CLF/ All MD&A years: /company/CLF/mda/ Previous year: /company/CLF/mda/fy2022/ (FY 2022) Next year: /company/CLF/mda/fy2024/ (FY 2024) 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. Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report discusses our financial condition and results of operations as of and for the years ended December 31, 2023 and 2022. A discussion related to our financial condition and results of operations for 2022 as compared to 2021 can be found in Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 14, 2023. OVERVIEW Throughout 2023, we continued to position the Company for long-term success as we had record steel shipments, with particular strength in automotive; significantly reduced our operational costs with greater emphasis on throughput and productivity; dramatically improved our balance sheet; reached our stated net debt target of $3.0 billion; returned substantial capital to shareholders through share repurchases; and continued to focus on our goal of reducing GHG emissions, all with an eye toward the future and in line with our consistent strategic objectives. As of December 31, 2023, we have a record level of liquidity of $4.5 billion. Our strong balance sheet and operational achievements further strengthens our position as an American leader in the steel industry as we continue to create value for all stakeholders of the Company. 2023 HIGHLIGHTS •Net income of $450 million •Adjusted EBITDA of $1.9 billion •Revenues of $22 billion and third consecutive year of revenues over $20 billion •Significantly reduced unit costs year-over-year •Record steel shipments of 16.4 million net tons •Record automotive shipments •Reduced total outstanding long-term debt by $1.1 billion to $3.2 billion •Net debt of $2.9 billion below stated target of $3.0 billion and lowest net debt level since becoming a steel company •Reached record liquidity of $4.5 billion 42 | CLF 2023 FORM 10-K Table of Contents •Returned $152 million in capital to shareholders through share repurchase program •Net pension and OPEB liabilities of $586 million are lowest since becoming a steel company •Successfully implemented Cliffs H surcharge for steel melted with HBI •Continued focus on our goal of reducing GHG emissions •Secured award of Nashwauk state mineral leases, which is expected to provide additional long-term iron ore reserves We also continued our best practices from both a safety and environmental standpoint. During 2023, our safety Total Reportable Incident Rate (including contractors) was 1.22 per 200,000 hours worked. Throughout 2023, we continued to focus on our goal of reducing GHG emissions with our optimal utilization of HBI and scrap throughout our facilities, as well as efficient power generation through recycling of off-gases. We have also continued our partnership with the DOE as part of the Better Climate Challenge initiative, which was established in December 2021. We continue to pursue opportunities such as carbon capture and the use of hydrogen within our facilities. With the U.S. government awarding funding for the development of regional hydrogen hubs throughout the country, including near our largest facilities, we expect to dramatically increase our use of hydrogen gas as both a reducing agent and energy source as the clean hydrogen production facilities come online. Additionally, we have continued forming partnerships to develop renewable and clean energy sources - such as wind, solar and hydrogen - which will benefit our own environmental footprint while combating the global impacts of climate change. FINANCIAL SUMMARY The following is a summary of our consolidated results for the years ended December 31, 2023, 2022 and 2021 (in millions, except for diluted EPS): [[GREPCENT_TABLE]] [["Total Revenue","","Net Income","","Adjusted EBITDA","","Diluted EPS"]] [[/GREPCENT_TABLE]] See "— Non-GAAP Financial Measures" below for a reconciliation of our Net income to Adjusted EBITDA. ECONOMIC OVERVIEW STEEL MARKET OVERVIEW Steel market conditions in 2023 were marked by notable volatility, driven by both improved light vehicle production but also inconsistent service center buying behavior. The price for domestic HRC, the most significant index impacting our revenues and profitability, averaged $906 per net ton for 2023, which was 10% lower than 2022. Demand for steel from automotive manufacturers improved in 2023 as supply chain issues continued to ease and light vehicle sales increased. North American light vehicle production of 15.6 million units in 2023 was the highest since 2019. Demand for steel from service centers was adversely impacted at certain points of the year due to recessionary fears and the anticipation of, and ultimate occurrence of, the UAW strike at certain domestic automotive producers. During 2023, service center inventories were as low as 1.6 months of inventory on hand, significantly lower than the prior ten-year average of 2.2 months of inventory on hand. Low inventory levels generated significant demand for steel toward the end of 2023 as the UAW strike concluded and service centers needed to meet the continued healthy demand from their end-use customers. Additionally, steel imports remained unattractive for the majority of 2023 due to low pricing spreads between the U.S. and other regions. Looking forward, we expect domestic steel demand to remain healthy as automotive production continues to improve, service centers restock inventory and incremental steel demand stimulated by government legislation is realized. The Infrastructure and Jobs Act, the CHIPS Act and Inflation Reduction Act should continue to provide meaningful support for overall domestic steel demand in the coming years. Our extensive portfolio of products should result in increased steel demand from some of our end markets. The Infrastructure and Jobs Act was signed into law in November 2021 and includes approximately $550 billion of authorized spending for new investments and programs. This legislation provides direct spending support for roads, bridges and other infrastructure projects, including upgrades to the domestic power grid and building out a national network of EV chargers. We expect to continue to benefit from these steel-intensive projects in the coming years as they will consume our hot-rolled, plate, electrical, rail and other steel products. The CHIPS Act promotes semiconductor manufacturing in the U.S., which should help support non-residential construction as well as machinery and equipment. Additionally, the on-shoring of manufacturing in the U.S. should reduce risk of supply chain issues in the future. The Inflation Reduction Act provides a tax credit for consumers who buy new EVs, which further incentivizes consumers to purchase vehicles in an environment where pent-up 43 | CLF 2023 FORM 10-K Table of Contents demand is still very strong from a low unemployment rate, recent supply chain issues and lower than historical dealer inventory levels. The Inflation Reduction Act also provides incentives for the use of domestic steel for investments in clean energy projects, including wind and solar projects, which consume a substantial amount of steel. We expect to benefit from the spending related to this legislation for years to come. OTHER KEY DRIVERS The largest market for our steel products is the automotive industry in North America, which makes light vehicle production a key driver of demand. During 2023, North American light vehicle production was approximately 15.6 million units, up from 14.3 million units in 2022, and the highest level since 2019. During 2023, light vehicle sales in the U.S. saw an average seasonally adjusted annualized rate of 15.5 million units sold, representing a 13% increase compared to 2022. North American light vehicle production in 2024 is estimated to exceed 2023 units, indicating continued strength from the automotive industry. Additionally, the average age of light vehicles on the road in the U.S. reached an all-time high during 2023, surpassing the previous record set in 2022, which should support demand as older vehicles need to be replaced. As a leading supplier of automotive-grade steel in the U.S., we expect to benefit from increased vehicle production over the coming years. Since 2021, the price for busheling scrap, a necessary input for flat-rolled steel production in EAFs in the U.S., has continued to average well above the prior annual ten-year average of approximately $390 per long ton. The busheling price averaged $488 per long ton during 2023. 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. As for iron ore, the Platts 62% price averaged $120 per metric ton in 2023, which is 24% higher than the prior annual ten-year average. While higher iron ore prices play a role in increased steel prices, we also directly benefit from higher iron ore prices for the portion of iron ore pellets we sell to third parties. OTHER FACTORS On September 14, 2023, the UAW announced a simultaneous labor strike against three domestic automotive manufacturers, as each of the individual companies were unable to come to terms on a new labor agreement. The strike originally impacted one assembly plant at each company and was further expanded to additional facilities, including certain parts-distribution centers for each company. Steel demand remained strong from the automotive industry as the strike was limited to certain facilities, allowing the automotive manufacturers to continue production at other facilities within their footprint. On October 30, 2023, the UAW strike concluded after the UAW reached tentative labor deals with each of the three domestic automotive manufacturers. The conclusion of the strike led to increased demand in the fourth quarter of 2023 from automotive customers as well as service centers who had significantly reduced their inventory levels in anticipation of a broader strike. In January 2023, we announced that we partnered with the USW and filed antidumping and countervailing duty petitions against eight countries related to unfairly traded tin and chromium coated sheet steel products. Tin mill products are used primarily for packaging applications, particularly canned food. We produce tin mill products at our Weirton, West Virginia operating facility and sell approximately 300,000 net tons per year, representing approximately two percent of total Company steel sales volumes. The U.S. Department of Commerce determined that imports of tin mill products from Canada, China, Germany and South Korea are being unfairly priced and dumped into the United States and that imports from China are being unfairly subsidized. On January 5, 2024, the U.S. Department of Commerce announced its final countervailing and antidumping determination of tin mill products. The U.S. Department of Commerce imposed countervailing subsidy rates on China ranging from 331.88% to 649.98%, based on the exporter. Final antidumping duty rates on tin and chromium-coated sheet steel products were imposed on Canada, China, Germany and South Korea ranging from 2.69% to 122.52%. However, on February 6, 2024, the U.S. International Trade Commission terminated the investigation on South Korea and reached negative determinations in the investigations on Canada, China and Germany. As a result, countervailing duties and antidumping duties will not be imposed on imports of tin and chromium-coated steel sheet products from these four countries. During 2023, we significantly reduced costs compared to the prior year as we had higher production volume, normalized repair and maintenance spending, and inflationary pressures on input and energy costs eased. We expect to benefit further from reduced costs in 2024 as we have worked through higher cost inventory, production volumes should remain similar, and reductions in coal and alloy costs should mitigate any cost increases. 44 | CLF 2023 FORM 10-K Table of Contents STEELMAKING RESULTS COMPARISON OF 2023 TO 2022 The following is a summary of the Steelmaking segment operating results for the years ended December 31, 2023 and 2022 (dollars in millions, except for average selling price and shipments in thousands of net tons): [[GREPCENT_TABLE]] [["Total Revenue","","Gross Margin","","Adjusted EBITDA","","Steel Shipments (nt)"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["2022","2023","","2022","2023","","2022","2023","","2022","2023"],["STEEL PRODUCT REVENUE:","","GROSS MARGIN %:","","ADJUSTED EBITDA %:","","AVERAGE SELLING PRICE PER TON OF STEEL PRODUCTS:"],["$20,054","$19,237","","11%","6%","","14%","9%","","$1,360","$1,171"]] [[/GREPCENT_TABLE]] REVENUE The following tables represent our steel shipments by product and total revenues by market: [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["(In thousands of net tons)","2023","","2022","","% Change"],["Steel shipments by product:"],["Hot-rolled steel","5,899","","","","4,326","","","","36","%"],["Cold-rolled steel","2,389","","","","2,286","","","","5","%"],["Coated steel","4,791","","","","4,730","","","","1","%"],["Stainless and electrical steel","682","","","","763","","","","(11)","%"],["Plate","899","","","","880","","","","2","%"],["Slab and other steel products","1,772","","","","1,766","","","","\u2014","%"],["Total steel shipments by product","16,432","","","","14,751","","","","11","%"],["","Year Ended December 31,"],["(In millions)","2023","","2022","","% Change"],["Steelmaking revenues by market:"],["Direct automotive","$","7,440","","","","$","6,661","","","","12","%"],["Infrastructure and manufacturing","5,612","","","","5,869","","","","(4)","%"],["Distributors and converters","5,330","","","","6,388","","","","(17)","%"],["Steel producers","2,949","","","","3,465","","","","(15)","%"],["Total Steelmaking revenues by market","$","21,331","","","","$","22,383","","","","(5)","%"]] [[/GREPCENT_TABLE]] Revenues decreased by 5% during the year ended December 31, 2023, as compared to the prior year, primarily due to: •A decrease in revenues from the distributors and converters market of $1,058 million, or 17%, predominantly due to the average HRC price declining, which was partially offset by increased hot-rolled steel shipments; and •A decrease in revenues from the steel producers market of $516 million, or 15%, which was primarily due to the decrease in pricing indices for slabs and busheling scrap. •These decreases were partially offset by an increase in revenues from the direct automotive market of $779 million, or 12%, predominantly due to increases in selling prices as a result of favorable renewals of annual fixed price contracts and an increase in shipments. 45 | CLF 2023 FORM 10-K Table of Contents GROSS MARGIN Gross margin decreased by $1,117 million, or 45%, during the year ended December 31, 2023, as compared to the prior year, primarily due to: •A decrease in selling prices (approximately $2.4 billion impact) predominantly due to lower spot prices, which was partially offset by favorable renewals of annual sales contracts. •This decrease was partially offset by a decrease in costs of production (approximately $700 million impact) driven by lower raw materials and utility costs, including natural gas, coal, coke, alloys and scrap, coupled with decreased maintenance costs; and •An increase in sales volumes (approximately $500 million impact). ADJUSTED EBITDA Adjusted EBITDA from our Steelmaking segment for the year ended December 31, 2023, decreased by $1,216 million, as compared to 2022, primarily due to the decreased gross margin from our operations. Additionally, our Steelmaking Adjusted EBITDA included $549 million and $439 million of Selling, general and administrative expenses for the years ended December 31, 2023 and 2022, respectively. CONSOLIDATED RESULTS COMPARISON OF 2023 TO 2022 REVENUES AND GROSS MARGIN During the year ended December 31, 2023, our consolidated Revenues decreased by $993 million, compared to 2022. The decrease was primarily due to the decrease in the average steel product selling price of $189 per net ton, partially offset by the increase of 1.7 million net tons of steel shipments from our Steelmaking segment. During the year ended December 31, 2023, our consolidated gross margin decreased by $1,127 million, as compared to 2022. See "— Steelmaking Results" above for further detail on our operating results. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased by $112 million during the year ended December 31, 2023, as compared to 2022. The increase primarily relates to employment-related costs, including higher incentive compensation, and external service costs. GOODWILL IMPAIRMENT Our 2023 annual goodwill impairment analysis resulted in an impairment charge of $125 million for goodwill related to our Tooling and Stamping reporting unit. Refer to "— Market Risks" below for further detail. MISCELLANEOUS – NET Miscellaneous expense decreased by $110 million for the year ended December 31, 2023, as compared to 2022. The decrease in miscellaneous expense for the year ended December 31, 2023, was primarily related to the $63 million gain on sale of business, along with lower idle expenses as compared to the prior year. Additionally, in 2022, we had a $29 million asset impairment, which was not repeated in 2023. These decreases were partially offset by the higher expenses in 2023 related to our asset retirement obligations for our indefinitely idled and closed operations as a result of our three-year detailed assessment. LOSS ON EXTINGUISHMENT OF DEBT The loss on extinguishment of debt of $75 million for the year ended December 31, 2022 primarily resulted from the redemption of all $607 million aggregate principal amount of our outstanding 9.875% 2025 Senior Secured Notes in April 2022 and the redemption of all $294 million aggregate principal amount of our outstanding 1.500% 2025 Convertible Senior Notes in January 2022. The losses were partially offset by the net gain on extinguishment for the repurchase of $417 million aggregate principal amount of our outstanding industrial revenue bonds and senior notes of various series. INCOME TAXES Our effective tax rate is impacted by state income tax expense and permanent items, primarily depletion. It also is affected by discrete items that may occur in any given period but are not consistent from period to period. The following represents a summary of our tax provision and corresponding effective rates: [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["(In millions)","2023","","2022"],["Income tax expense","$","(148)","","","$","(423)"],["Effective tax rate","25","%","","23","%"]] [[/GREPCENT_TABLE]] 46 | CLF 2023 FORM 10-K Table of Contents A reconciliation of our income tax attributable to continuing operations compared to the U.S. federal statutory rate is as follows: [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["(In millions)","2023","","2022"],["Tax at U.S. statutory rate","$","125","","","21","%","","$","377","","","21","%"],["Increase (decrease) due to:"],["Percentage depletion in excess of cost depletion","(32)","","","(5)","","","(49)","","","(3)"],["Valuation allowance","14","","","2","","","\u2014","","","\u2014"],["Unrecognized tax benefits","7","","","1","","","2","","","\u2014"],["State taxes, net","28","","","5","","","71","","","4"],["Federal & state provision to return","(20)","","","(3)","","","27","","","1"],["Income not subject to tax","(11)","","","(2)","","","(9)","","","\u2014"],["Goodwill impairment","26","","","4","","","\u2014","","","\u2014"],["Other items, net","11","","","2","","","4","","","\u2014"],["Provision for income tax expense and effective income tax rate including discrete items","$","148","","","25","%","","$","423","","","23","%"]] [[/GREPCENT_TABLE]] The decrease in income tax expense in 2023, as compared to the prior year, is predominantly related to the decrease in the pre-tax book income year-over-year. See NOTE 11 - INCOME TAXES for further information. CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES OVERVIEW Our capital allocation decision-making process is focused on preserving healthy liquidity levels while maintaining the strength of our balance sheet and creating financial flexibility to manage through the cyclical demand for our products and volatility in commodity prices. We are focused on maximizing the cash generation of our operations, reducing debt, returning capital to shareholders and aligning capital investments with our strategic priorities and the requirements of our business plan, including regulatory and permission-to-operate related projects. The following table provides a summary of our cash flow: [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["(In millions)","2023","","2022"],["Cash flows provided by (used in):"],["Operating activities","$","2,267","","","$","2,423"],["Investing activities","(591)","","","(936)"],["Financing activities","(1,504)","","","(1,509)"],["Net increase (decrease) in cash and cash equivalents","$","172","","","$","(22)"],["Free cash flow1","$","1,621","","","$","1,480"],["1See \"\u2014 Non-GAAP Financial Measures\" for a reconciliation of our free cash flow."]] [[/GREPCENT_TABLE]] The recent market environment has provided us opportunities to reduce our debt and return capital to shareholders with our free cash flow generation. We also continue to look at the composition of our debt, as we are interested in both extending our average maturity length and increasing our ratio of unsecured debt to secured debt, which can be accomplished with cash provided by operating activities. During 2023, we took action in alignment with our capital allocation priorities, as follows: •We issued $750 million aggregate principal amount of our 6.750% 2030 Senior Notes. The net proceeds from the 6.750% 2030 Senior Notes issuance were used to repay a portion of the borrowings under our ABL Facility. The transaction increased our financial flexibility and liquidity, extended our debt maturity profile, and was effectively leverage and interest expense neutral. •We entered into the Fourth ABL Amendment, which, among other things, extended the maturity date of our ABL Facility to June 9, 2028, and increased the overall commitments under our ABL Facility to $4.75 billion, which added $250 million of commitments. •We used our free cash flow to reduce the total principal of our long-term debt by $1.1 billion. •We returned capital to shareholders through our share repurchase program, repurchasing 10.4 million common shares at a cost of $152 million in the aggregate. 47 | CLF 2023 FORM 10-K Table of Contents These actions with respect to our debt give us additional flexibility and liquidity, along with extending our average debt maturity date, which will better prepare us to navigate more easily through potentially volatile industry conditions in the future. Additionally, we expect to have opportunities to continue to reduce our debt and return capital to shareholders with our free cash flow generation during 2024. As of December 31, 2023, we had $1.5 billion aggregate principal amount outstanding of callable notes and had $608 million remaining under the authorization of our share repurchase program. CASH FLOWS OPERATING ACTIVITIES [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["(In millions)","2023","","2022","","Variance"],["Net income","$","450","","","$","1,376","","","$","(926)"],["Non-cash adjustments to net income","1,125","","","1,218","","","(93)"],["Income taxes","122","","","(22)","","","144"],["Pension and OPEB payments and contributions","(94)","","","(204)","","","110"],["Working capital (receivables, inventories, payables and other liabilities)","664","","","55","","","609"],["Net cash provided by operating activities","$","2,267","","","$","2,423","","","$","(156)"]] [[/GREPCENT_TABLE]] The variance was driven by: •A $1,019 million decrease in net income after adjustments for non-cash items due to lower gross margins resulting from a decrease in selling prices for our steel products, which was partially offset by an increase in sales volumes and a decrease in costs of production. See "— Steelmaking Results" above for further detail on our operating results. •A $110 million decrease in payments and contributions relating to our pension and OPEB plans. As part of the 2022 USW labor negotiations, we paused the contribution requirement to the Cleveland-Cliffs Steel LLC VEBA plan and introduced certain Medicare-eligible retirees to Medicare Advantage plans. Additionally, we negotiated favorable Medical Advantage Prescription Drug healthcare rates, which went into effect January 1, 2023. •A $609 million increase in cash provided for working capital is primarily due to a decrease in inventories resulting from lower costs of steel driven by higher production, cost control and lower raw material costs. INVESTING ACTIVITIES [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["(In millions)","2023","","2022","","Variance"],["Purchase of property, plant and equipment","$","(646)","","","$","(943)","","","$","297"],["Acquisitions, net of cash acquired","\u2014","","","(31)","","","31"],["Other","55","","","38","","","17"],["Net cash used by investing activities","$","(591)","","","$","(936)","","","$","345"]] [[/GREPCENT_TABLE]] The variance was driven by: •A $297 million decrease in cash used for capital expenditures. We incurred higher capital expenditures in 2022 compared to 2023 primarily relating to sustaining capital expenditures, including the completion of a reline of blast furnace #5 at Cleveland Works during the third quarter of 2022. After elevated spend in 2022 to perform overdue maintenance work at the facilities acquired as part of the 2020 acquisitions, we resumed normalized levels of maintenance capital and operating expense in 2023. Included within cash used for capital expenditures was $25 million for the year ended December 31, 2023, compared to $12 million for the year ended December 31, 2022, related to our non-owned SunCoke Middletown VIE. Our capital expenditures primarily relate to sustaining capital spend, which includes infrastructure, mobile equipment, fixed equipment, product quality, environmental, and health and safety. FINANCING ACTIVITIES [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["(In millions)","2023","","2022","","Variance"],["Net borrowings (repayments) of debt","$","750","","","$","(1,358)","","","$","2,108"],["Net borrowings (repayments) under credit facilities","(1,864)","","","255","","","(2,119)"],["Repurchase of common shares","(152)","","","(240)","","","88"],["Other","(238)","","","(166)","","","(72)"],["Net cash used by financing activities","$","(1,504)","","","$","(1,509)","","","$","5"]] [[/GREPCENT_TABLE]] 48 | CLF 2023 FORM 10-K Table of Contents LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity are Cash and cash equivalents, cash generated from our operations, availability under the ABL Facility and access to capital markets. Cash and cash equivalents, which totaled $198 million as of December 31, 2023, include cash on hand and on deposit, as well as short-term securities held for the primary purpose of general liquidity. The combination of cash and availability under our ABL Facility gives us $4.5 billion in liquidity as of December 31, 2023. During 2023, we issued $750 million in aggregate principal amount of our 6.750% 2030 Senior Notes. We used the net proceeds from the offering to repay a portion of the borrowings under our ABL Facility, increasing our liquidity. Additionally, during 2023, we entered into the Fourth ABL Amendment to our ABL Facility, increasing the commitments thereunder by $250 million. We believe our liquidity and access to capital markets will be adequate to fund our cash requirements for the next 12 months and for the foreseeable future. Our ABL Facility, which now matures in June 2028, has a maximum borrowing base of $4.75 billion. The available borrowing base is determined by applying customary advance rates to eligible accounts receivable, inventory and certain mobile equipment. Our ABL Facility includes a $555 million sublimit for the issuance of letters of credit and a $200 million sublimit for swingline loans. As of December 31, 2023, outstanding letters of credit totaled $56 million, which reduced availability. We issue standby letters of credit with certain financial institutions in order to support business obligations, including, but not limited to, workers' compensation, operating agreements, employee severance, environmental obligations and insurance. Our ABL Facility agreement contains various financial and other covenants. As of December 31, 2023, we were in compliance with all of our ABL Facility covenants. We have the capability to issue additional unsecured notes and, subject to the limitations set forth in our existing senior notes indentures and ABL Facility, additional secured notes, if we elect to access the debt capital markets. However, our ability to issue additional notes could be limited by market conditions. 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 8 - DEBT AND CREDIT FACILITIES for more information on our ABL Facility and debt. MATERIAL CASH REQUIREMENTS We have material cash requirements for known contractual obligations and commitments for the following: CAPITAL EXPENDITURES We anticipate total cash used for capital expenditures during the next 12 months to be between $675 and $725 million, which primarily consists of sustaining capital spend. After elevated spend in 2022 to perform overdue maintenance work at the facilities acquired as part of the 2020 acquisitions, we resumed normalized levels of maintenance capital and operating expense in 2023. 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. DEBT We have principal long-term debt of $3,192 million with maturities starting in 2026. Refer to NOTE 8 - DEBT AND CREDIT FACILITIES for further information on our long-term debt and interest. LEASE OBLIGATIONS We have future minimum lease payments under noncancellable finance and operating leases. As of December 31, 2023, the current and long-term liabilities for our lease obligations were $90 million and $363 million, respectively. Refer to NOTE 12 - LEASE OBLIGATIONS for further information. POST-RETIREMENT EMPLOYEE BENEFITS We make both required and discretionary pension contributions. Required contributions are based on minimum funding requirements pursuant to ERISA regulations. We expect to make $122 million in pension contributions and payments in 2024. The cash requirements for our OPEB plans consist of VEBA contributions and direct payments from corporate assets primarily for medical and drug costs. We expect to make $66 million in OPEB contributions and payments from corporate assets in 2024. Contributions and payments in future years can significantly change and will depend on the actual returns on assets, discount rates, actual health care trend rates, government regulations, changes to employee benefits through labor agreements and other demographic factors. Refer to NOTE 9 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS for further information. ENVIRONMENTAL AND ASSET RETIREMENT OBLIGATIONS Refer to NOTE 20 - COMMITMENTS AND CONTINGENCIES and NOTE 13 - ASSET RETIREMENT OBLIGATIONS for further information on our environmental and asset retirement obligations. SHARE REPURCHASE PROGRAM On February 10, 2022, our Board of Directors authorized a program to repurchase outstanding common shares in the open market or in privately negotiated transactions, which may include purchases pursuant to Rule 10b5-1 plans or accelerated share repurchases, up to a maximum of $1 billion. As of December 31, 2023, there was $608 million remaining under the authorization. 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. 49 | CLF 2023 FORM 10-K Table of Contents OFF-BALANCE SHEET ARRANGEMENTS In the normal course of business, we are a party to certain off-balance sheet arrangements that are not reflected on our Statements of Consolidated Financial Position. These arrangements include unconditional purchase obligations, surety bonds and letters of credit. Our unconditional purchase obligations include minimum "take or pay" commitments, such as minimum electric power demand charges, minimum coal, diesel and natural gas purchase commitments, minimum railroad transportation commitments and minimum port facility usage commitments. We use surety bonds and letters of credit to provide financial assurance for certain obligations. As of December 31, 2023, we had $260 million of outstanding surety bonds and surety-backed letters of credit. The use of surety bonds and surety-backed letters of credit has no impact on our liquidity. Additionally, as of December 31, 2023, we had $56 million of outstanding letters of credit issued under our ABL Facility, which reduced our availability thereunder. Refer to NOTE 20 - COMMITMENTS AND CONTINGENCIES for further information on our unconditional purchase obligations, surety bonds and surety-backed letters of credit. NON-GAAP FINANCIAL MEASURES The following provides a description and reconciliation of each of our non-GAAP financial measures to its most directly comparable respective GAAP measure. The presentation of these measures is not intended to be considered in isolation from, as a substitute for, or as superior to, the financial information prepared and presented in accordance with GAAP. The presentation of these measures may be different from non-GAAP financial measures used by other companies. ADJUSTED EBITDA We evaluate performance on an operating segment basis, as well as a consolidated basis, based on Adjusted EBITDA, which is a non-GAAP measure. This measure is used by management, investors, lenders and other external users of our financial statements to assess our operating performance and to compare operating performance to other companies in the steel industry. In addition, management believes Adjusted EBITDA is a useful measure to assess the earnings power of the business without the impact of capital structure and can be used to assess our ability to service debt and fund future capital expenditures in the business. The following table provides a reconciliation of our Net income to Adjusted EBITDA: [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["(In millions)","2023","","2022","","2021"],["Net income","$","450","","","$","1,376","","","$","3,033"],["Less:"],["Interest expense, net","(289)","","","(276)","","","(337)"],["Income tax expense","(148)","","","(423)","","","(773)"],["Depreciation, depletion and amortization","(973)","","","(1,034)","","","(897)"],["Total EBITDA","$","1,860","","","$","3,109","","","$","5,040"],["Less:"],["EBITDA from noncontrolling interests1","$","83","","","$","74","","","$","75"],["Acquisition-related expenses and adjustments","(12)","","","(1)","","","(197)"],["Goodwill impairment","(125)","","","\u2014","","","\u2014"],["Non-cash gain on sale of business","28","","","\u2014","","","\u2014"],["Loss on extinguishment of debt","\u2014","","","(75)","","","(88)"],["Asset impairment","\u2014","","","(29)","","","\u2014"],["Other, net","(25)","","","(29)","","","(27)"],["Total Adjusted EBITDA","$","1,911","","","$","3,169","","","$","5,277"],["1 EBITDA of noncontrolling interests includes the following:"],["Net income attributable to noncontrolling interests","$","51","","","$","41","","","$","45"],["Depreciation, depletion and amortization","32","","","33","","","30"],["EBITDA of noncontrolling interests","$","83","","","$","74","","","$","75"]] [[/GREPCENT_TABLE]] 50 | CLF 2023 FORM 10-K Table of Contents The following table provides a summary of our Adjusted EBITDA by segment: [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["(In millions)","2023","","2022"],["Adjusted EBITDA:"],["Steelmaking","$","1,873","","","$","3,089"],["Other Businesses","43","","","69"],["Eliminations","(5)","","","11"],["Total Adjusted EBITDA","$","1,911","","","$","3,169"]] [[/GREPCENT_TABLE]] FREE CASH FLOW Free cash flow is a non-GAAP measure defined as operating cash flow less purchase of property, plant and equipment. Management believes it is an important measure to assess the cash generation available to service debt, strategic initiatives or other financing activities. The following table provides a reconciliation of our operating cash flow to free cash flow: [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["(In millions)","2023","","2022"],["Net cash provided by operating activities","$","2,267","","","$","2,423"],["Purchase of property, plant and equipment","(646)","","","(943)"],["Free cash flow","$","1,621","","","$","1,480"]] [[/GREPCENT_TABLE]] NET DEBT Net debt is a non-GAAP financial measure that management uses in evaluating financial position. Net debt is defined as long-term debt less cash and cash equivalents. Management believes net debt is an important measure of our financial position due to the amount of cash and cash equivalents on hand. The following table provides a reconciliation of our long-term debt to net debt: [[GREPCENT_TABLE]] [["(In millions)","December 31, 2023","","December 31, 2022"],["Long-term debt","$","3,137","","","$","4,249"],["Less: Cash and cash equivalents","198","","","26"],["Net debt","$","2,939","","","$","4,223"]] [[/GREPCENT_TABLE]] 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 December 31, 2023 have fully and unconditionally, and jointly and severally, guaranteed the obligations under (a) the 5.875% 2027 Senior Notes, the 7.000% 2027 Senior Notes, the 4.625% 2029 Senior Notes, the 6.750% 2030 Senior Notes, and the 4.875% 2031 Senior Notes issued by Cleveland-Cliffs Inc. on a senior unsecured basis and (b) the 6.750% 2026 Senior Secured Notes issued by Cleveland-Cliffs Inc. on a senior secured basis. See NOTE 8 - DEBT AND CREDIT FACILITIES for further information. 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, 2023. Refer to Exhibit 22, incorporated herein by reference, for the detailed list of entities included within the obligated group as of December 31, 2023. As of December 31, 2023, the guarantee of a Guarantor subsidiary with respect to Cliffs' 6.750% 2026 Senior Secured Notes, the 5.875% 2027 Senior Notes, the 7.000% 2027 Senior Notes, the 4.625% 2029 Senior Notes, the 6.750% 2030 Senior Notes and the 4.875% 2031 Senior Notes will be automatically and unconditionally released and discharged, and such Guarantor subsidiary’s obligations under the guarantee and the related indentures (the “Indentures”) will be automatically and unconditionally released and discharged, upon the occurrence of any of the following, along with the delivery to the trustee of an officer’s certificate and an opinion of counsel, each stating that all conditions precedent provided for in the applicable Indenture relating to the release and discharge of such Guarantor subsidiary’s guarantee have been complied with: 51 | CLF 2023 FORM 10-K Table of Contents (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: [[GREPCENT_TABLE]] [["","December 31,"],["(In millions)","2023"],["Current assets","$","7,150"],["Non-current assets","10,111"],["Current liabilities","(4,283)"],["Non-current liabilities","(5,463)"]] [[/GREPCENT_TABLE]] The following table is summarized combined financial information from the Statements of Condensed Consolidated Operations of the obligated group: [[GREPCENT_TABLE]] [["","Year Ended"],["(In millions)","December 31, 2023"],["Revenues","$","21,694"],["Cost of goods sold","(20,263)"],["Income from continuing operations","531"],["Net income","532"],["Net income attributable to Cliffs shareholders","532"]] [[/GREPCENT_TABLE]] As of December 31, 2023 and 2022, the obligated group had the following balances with non-Guarantor subsidiaries and other related parties: [[GREPCENT_TABLE]] [["","December 31,"],["(In millions)","2023"],["Balances with non-Guarantor subsidiaries:"],["Accounts receivable, net","$","743"],["Accounts payable","(1,004)"],["Balances with other related parties:"],["Accounts receivable, net","$","5"],["Accounts payable","(11)"]] [[/GREPCENT_TABLE]] Additionally, for the year ended December 31, 2023, the obligated group had Revenues of $110 million and Cost of goods sold of $81 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. 52 | CLF 2023 FORM 10-K Table of Contents 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, 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. 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 December 31, 2023, due to a 10% and 25% change in the market price of each of the indicated commodities: [[GREPCENT_TABLE]] [["","","(In millions)"],["Commodity Derivative","","10% Change","","25% Change"],["Natural gas","","$","53","","","$","131"],["Electricity","","15","","","36"]] [[/GREPCENT_TABLE]] 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 53 | CLF 2023 FORM 10-K Table of Contents 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. Our 2023 annual goodwill impairment analysis resulted in an impairment charge of $125 million for goodwill related to our Tooling and Stamping reporting unit. The decline in the fair value of our Tooling and Stamping reporting unit below its carrying value during 2023 resulted from forgoing previous investment and capital plans in favor of other opportunities and an increase in the discount rate. No impairment charges were identified in connection with our annual goodwill assessment with respect to our other identified reporting units. We determined that our other identified reporting units were not at risk of failing the goodwill impairment test as of December 31, 2023. 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. During the year ended December 31, 2023, we concluded there were no triggering events resulting in the need for an asset impairment assessment except for our Tooling and Stamping operations. The goodwill impairment we recorded at our Tooling and Stamping operations was deemed a triggering event; however, the other long-lived assets recoverability assessment did not result in an asset impairment charge. INTEREST RATE RISK 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, 2023, we had no outstanding borrowings under our ABL Facility. For a discussion of the attendant risk, see Part I - Item 1A. Risk Factors - III. Financial Risks - Our existing and future indebtedness may limit cash flow available to invest in the ongoing needs of our businesses, which could prevent us from fulfilling our obligations under our senior notes, ABL Facility and other debt, and we may be forced to take other actions to satisfy our obligations under our debt, which may not be successful. 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. 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. 54 | CLF 2023 FORM 10-K Table of Contents IRON ORE MINERAL RESERVES We regularly evaluate, and engage QPs to review and validate, our mineral reserves and update them as required in accordance with Subpart 1300 of Regulation S-K. 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 and operating scenarios, to determine the mine closure dates utilized in recording the fair value liability for asset retirement obligations for our active operating mines. Since the liability represents the present value of the expected future obligation, a significant change in mineral reserves or mine lives could have a substantial effect on the recorded obligation. We also utilize mineral reserves for evaluating potential impairments of goodwill and 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. The consolidated asset retirement obligation balance was $459 million as of December 31, 2023, of which $171 million related to active iron ore mine operations. Refer to NOTE 13 - ASSET RETIREMENT OBLIGATIONS for further information. ASSET RETIREMENT OBLIGATIONS The accrued closure obligation is related to our indefinitely idled and closed iron ore mining operations and provides for contractual and legal obligations associated with the eventual closure of our active operations. We perform an in-depth evaluation of the liability every three years in addition to our routine annual assessments. In 2023, 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. Asset retirement obligations at our steelmaking operations primarily include the closure and post-closure care for on-site landfills and other waste containment facilities. Asset retirement obligations have been recorded at present values using settlement dates based on when we expect these facilities to reach capacity and close. Changes in the base estimates of legal and contractual closure costs due to changes in legal or contractual requirements, available technology, inflation, overhead or profit rates also could have a significant impact on the recorded obligations. Refer to NOTE 13 - 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 pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses. At December 31, 2023 and 2022, we had a valuation allowance of $396 million and $390 million, respectively, against our deferred tax assets. At December 31, 2023 and 2022, the valuation allowance on our U.S. deferred tax assets was $40 million and $48 million, respectively, and the valuation allowance on our foreign deferred tax assets was $356 million and $342 million, respectively. 55 | CLF 2023 FORM 10-K Table of Contents During 2023, we recorded a $14 million valuation allowance against a portion of our Canadian deferred tax assets due to losses in recent years. We intend to maintain a valuation allowance against these deferred tax assets, unless and until sufficient positive evidence exists to support the realization of such assets. Our losses in Luxembourg in recent periods represent sufficient negative evidence to require a full valuation allowance against the deferred tax assets in that jurisdiction. 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 11 - INCOME TAXES, for further information. EMPLOYEE RETIREMENT BENEFIT OBLIGATIONS We sponsor various defined benefit pension plans and OPEB plans for certain current employees and retirees. For accounting purposes, we use various actuarial assumptions and methodologies to measure the plan obligations, assets and related net periodic benefit cost or credit at the end of each year. These assumptions include discount rates, expected return on plan assets, mortality rates, rates of compensation increase, healthcare trend rates and certain demographic assumptions. Assumptions and calculations are reviewed by management and reflect our best estimates and judgment. Future changes in assumptions or differences between actual and expected can significantly impact the future funded status of our plans as well as their related net periodic benefit cost or credit. We believe discount rates and expected return on assets are the most critical assumptions. 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. The expected return on plan assets are calculated on a plan-by-plan basis and take into account each plan's strategic asset allocation. The calculation of rates by asset class are based primarily on our future expected returns and take into consideration the duration of the cash flows, active management and fees. The difference between our expected return on plan assets assumptions and the actual returns are recorded in AOCI and ultimately affects future earnings in subsequent years. Although our actual returns will likely differ from our estimate on any given year, the returns over the long term are expected to match our assumptions. In 2024, our weighted average expected return on assets for pension and OPEB plans will increase from 7.66% to 7.85% and from 5.87% to 5.94%, respectively. Cumulative actuarial gains and losses will be amortized to expense using the corridor method, where gains and losses are recognized if they exceed 10% of the greater of the fair value of plan assets or the plans' benefit obligations. The amortization period will vary by plan. The following are sensitivities of potential further changes in these key assumptions on the estimated 2024 pension and OPEB expense and the pension and OPEB obligations as of December 31, 2023: [[GREPCENT_TABLE]] [["","Increase (Decrease) in Expense","","Increase in Benefit Obligation"],["(In millions)","Pension","","OPEB","","Pension","","OPEB"],["Decrease discount rate 0.25%","$","(3)","","","$","1","","","$","93","","","$","22"],["Decrease return on assets 1.00%","41","","","7","","","N/A","","N/A"]] [[/GREPCENT_TABLE]] Refer to NOTE 9 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS for further information. 56 | CLF 2023 FORM 10-K Table of Contents 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; •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; 57 | CLF 2023 FORM 10-K Table of Contents •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; and •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. Forward-looking and other statements in this Annual Report on Form 10-K 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.