clf-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


			☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021


			☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 1-8944

CLEVELAND-CLIFFS INC.

(Exact Name of Registrant as Specified in Its Charter)

Ohio

34-1464672

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

200 Public Square,

Cleveland,

Ohio

44114-2315

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s Telephone Number, Including Area Code: (216) 694-5700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common shares, par value $0.125 per share

CLF

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The number of shares outstanding of the registrant’s common shares, par value $0.125 per share, was 499,402,288 as of April 26, 2021.

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TABLE OF CONTENTS

Page Number

DEFINITIONS

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

Statements of Unaudited Condensed Consolidated Financial Position as of March 31, 2021 and December 31, 2020

Statements of Unaudited Condensed Consolidated Operations for the Three Months Ended March 31, 2021 and 2020

Statements of Unaudited Condensed Consolidated Comprehensive Income (Loss) for the Three Months Ended March 31, 2021 and 2020

Statements of Unaudited Condensed Consolidated Cash Flows for the Three Months Ended March 31, 2021 and 2020

Statements of Unaudited Condensed Consolidated Changes in Equity for the Three Months Ended March 31, 2021 and 2020

Notes to Unaudited Condensed Consolidated Financial Statements

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

Signatures

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DEFINITIONS

The following abbreviations or acronyms are used in the text. References in this report to the “Company,” “we,” “us,” “our” and “Cliffs” are to Cleveland-Cliffs Inc. and subsidiaries, collectively, unless stated otherwise or the context indicates otherwise.


Abbreviation or acronym						Term

4.625% 2029 Senior Notes						4.625% Senior Guaranteed Notes due 2029 issued by Cleveland-Cliffs Inc. on February 17, 2021 in an aggregate principal amount of $500 million
4.875% 2031 Senior Notes						4.875% Senior Guaranteed Notes due 2031 issued by Cleveland-Cliffs Inc. on February 17, 2021 in an aggregate principal amount of $500 million
ABL Facility						Asset-Based Revolving Credit Agreement, dated as of March 13, 2020, among Cleveland-Cliffs Inc., the lenders party thereto from time to time and Bank of America, N.A., as administrative agent, as amended as of March 27, 2020, and December 9, 2020, and as may be further amended from time to time
Acquisitions						The AK Steel Merger and AM USA Transaction, together
Adjusted EBITDA						EBITDA, excluding certain items such as EBITDA of noncontrolling interests, extinguishment of debt, severance, acquisition-related costs, amortization of inventory step-up and impacts of discontinued operations
AK Steel						AK Steel Holding Corporation (n/k/a Cleveland-Cliffs Steel Holding Corporation) and its consolidated subsidiaries, including AK Steel Corporation (n/k/a Cleveland-Cliffs Steel Corporation), its direct, wholly owned subsidiary, collectively, unless stated otherwise or the context indicates otherwise
AK Steel Merger						The merger of Merger Sub with and into AK Steel, with AK Steel surviving the merger as a wholly owned subsidiary of Cleveland-Cliffs Inc., subject to the terms and conditions set forth in the AK Steel Merger Agreement, consummated on March 13, 2020
AK Steel Merger Agreement						Agreement and Plan of Merger, dated as of December 2, 2019, among Cleveland-Cliffs Inc., AK Steel and Merger Sub
AM USA Transaction						The acquisition of ArcelorMittal USA, consummated on December 9, 2020
AM USA Transaction Agreement						Transaction Agreement, dated as of September 28, 2020, by and between Cleveland-Cliffs Inc. and ArcelorMittal
AOCI						Accumulated Other Comprehensive Income (Loss)
ArcelorMittal						ArcelorMittal S.A., a company organized under the laws of Luxembourg and the former ultimate parent company of ArcelorMittal USA
ArcelorMittal USA						Substantially all of the operations of the former ArcelorMittal USA LLC, its subsidiaries and certain affiliates, and Kote and Tek, collectively
ASC						Accounting Standards Codification
ASU						Accounting Standards Update
Board						The Board of Directors of Cleveland-Cliffs Inc.
CARES Act						Coronavirus Aid, Relief, and Economic Security Act
CERCLA						Comprehensive Environmental Response, Compensation and Liability Act of 1980
COVID-19						A novel strain of coronavirus that the World Health Organization declared a global pandemic in March 2020
Dodd-Frank Act						Dodd-Frank Wall Street Reform and Consumer Protection Act
EAF						Electric arc furnace
EBITDA						Earnings before interest, taxes, depreciation and amortization
EDC						Export Development Canada
EPA						U.S. Environmental Protection Agency
EPS						Earnings per share
Exchange Act						Securities Exchange Act of 1934, as amended
FASB						Financial Accounting Standards Board
Fe						Iron
GAAP						Accounting principles generally accepted in the United States
GHG						Greenhouse gas
HBI						Hot briquetted iron
Hibbing						Iron ore mining property owned by Hibbing Taconite Company, an unincorporated joint venture between subsidiaries of Cliffs and U.S. Steel
HRC						Hot-rolled coil steel
IRB						Industrial Revenue Bond
Kote and Tek						I/N Kote L.P. (n/k/a Cleveland-Cliffs Kote L.P.) and I/N Tek L.P. (n/k/a Cleveland-Cliffs Tek L.P.), former joint ventures between subsidiaries of the former ArcelorMittal USA LLC and Nippon Steel Corporation
Long ton						2,240 pounds
Merger Sub						Pepper Merger Sub Inc., a direct, wholly owned subsidiary of Cliffs prior to the AK Steel Merger
Metric ton						2,205 pounds
MSHA						U.S. Mine Safety and Health Administration
Net ton						2,000 pounds

NPDES						National Pollutant Discharge Elimination System, authorized by the Clean Water Act
OPEB						Other postretirement benefits
Platts 62% price						Platts IODEX 62% Fe Fines CFR North China
RCRA						Resource Conservation and Recovery Act

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Abbreviation or acronym						Term
RI/FS						Remedial Investigation/Feasibility Study
SAAR						Seasonally Adjusted Annualized Rate
SEC						U.S. Securities and Exchange Commission
Section 232						Section 232 of the Trade Expansion Act of 1962, as amended
Securities Act						Securities Act of 1933, as amended
SunCoke Middletown						Middletown Coke Company, LLC, a subsidiary of SunCoke Energy, Inc.
Topic 805						ASC Topic 805, Business Combinations
Topic 815						ASC Topic 815, Derivatives and Hedging
Tubular Components						Cleveland-Cliffs Tubular Components LLC (f/k/a AK Tube LLC), an indirect, wholly owned subsidiary of AK Steel
U.S.						United States of America
U.S. Steel						U.S. Steel Corporation and its subsidiaries, collectively, unless stated otherwise or the context indicates otherwise
USMCA						United States-Mexico-Canada Agreement
USW						United Steelworkers

VIE						Variable interest entity

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PART I


Item 1.			Financial Statements

Statements of Unaudited Condensed Consolidated Financial Position

Cleveland-Cliffs Inc. and Subsidiaries


	(In Millions)
	March 31, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	110	$	112
Accounts receivable, net	1,659		1,169
Inventories	3,932		3,828
Other current assets	160		189
Total current assets	5,861		5,298
Non-current assets:
Property, plant and equipment, net	9,014		8,743
Goodwill	994		1,406
Deferred income taxes	562		537
Other non-current assets	784		787
TOTAL ASSETS	$	17,215	$	16,771
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,743	$	1,575
Accrued employment costs	465		460
Pension and OPEB liabilities, current	151		151
Other current liabilities	574		743
Total current liabilities	2,933		2,929
Non-current liabilities:
Long-term debt	5,734		5,390
Pension and OPEB liabilities, non-current	3,916		4,113
Other non-current liabilities	1,175		1,260
TOTAL LIABILITIES	13,758		13,692
Commitments and contingencies (See Note 18)
Series B Participating Redeemable Preferred Stock - no par value
Authorized, Issued and Outstanding - 583,273 shares	738		738
Equity:
Common shares - par value $0.125 per share
Authorized - 600,000,000 shares (2020 - 600,000,000 shares);
Issued - 506,832,537 shares (2020 - 506,832,537 shares);
Outstanding - 499,214,434 shares (2020 - 477,517,372 shares)	63		63
Capital in excess of par value of shares	5,487		5,431
Retained deficit	(2,948)		(2,989)
Cost of 7,618,103 common shares in treasury (2020 - 29,315,165 shares)	(93)		(354)
Accumulated other comprehensive loss	(120)		(133)
Total Cliffs shareholders' equity	2,389		2,018
Noncontrolling interest	330		323
TOTAL EQUITY	2,719		2,341
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND EQUITY	$	17,215	$	16,771

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Statements of Unaudited Condensed Consolidated Operations

Cleveland-Cliffs Inc. and Subsidiaries


		(In Millions, Except Per Share Amounts)
	Three Months Ended March 31,
		2021		2020
Revenues		$	4,049	$	359
Operating costs:
Cost of goods sold		(3,761)		(356)
Selling, general and administrative expenses		(95)		(28)
Acquisition-related costs		(13)		(42)
Miscellaneous – net		(3)		(12)
Total operating costs		(3,872)		(438)
Operating income (loss)		177		(79)
Other income (expense):
Interest expense, net		(92)		(31)
Gain (loss) on extinguishment of debt		(66)		3
Net periodic benefit credits other than service cost component		47		6

Total other expense		(111)		(22)
Income (loss) from continuing operations before income taxes		66		(101)
Income tax benefit (expense)		(9)		51
Income (loss) from continuing operations		57		(50)
Income from discontinued operations, net of tax		—		1
Net income (loss)		57		(49)
Income attributable to noncontrolling interest		(16)		(3)
Net income (loss) attributable to Cliffs shareholders		$	41	$	(52)

Earnings (loss) per common share attributable to Cliffs shareholders - basic
Continuing operations		$	0.08	$	(0.18)
Discontinued operations		—		—
		$	0.08	$	(0.18)
Earnings (loss) per common share attributable to Cliffs shareholders - diluted
Continuing operations		$	0.07	$	(0.18)
Discontinued operations		—		—
		$	0.07	$	(0.18)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Statements of Unaudited Condensed Consolidated Comprehensive Income (Loss)

Cleveland-Cliffs Inc. and Subsidiaries


		(In Millions)
	Three Months Ended March 31,
		2021		2020
Net income (loss)		$	57	$	(49)
Other comprehensive income (loss):
Changes in pension and OPEB, net of tax		7		6
Changes in foreign currency translation		(1)		(1)
Changes in derivative financial instruments, net of tax		7		(3)
Total other comprehensive income		13		2
Comprehensive income (loss)		70		(47)
Comprehensive income attributable to noncontrolling interests		(16)		(3)
Comprehensive income (loss) attributable to Cliffs shareholders		$	54	$	(50)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Statements of Unaudited Condensed Consolidated Cash Flows

Cleveland-Cliffs Inc. and Subsidiaries


	(In Millions)
	Three Months Ended March 31,
	2021		2020
OPERATING ACTIVITIES
Net income (loss)	$	57	$	(49)
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Depreciation, depletion and amortization	217		35
Amortization of inventory step-up	81		23
Changes in deferred revenue	(3)		(48)
Deferred income taxes	10		(48)
Loss (gain) on extinguishment of debt	66		(3)
Other	(2)		51
Changes in operating assets and liabilities, net of business combination:
Receivables and other assets	(480)		254
Inventories	(172)		(267)
Pension and OPEB payments and contributions	(175)		(13)
Payables, accrued expenses and other liabilities	22		(99)
Net cash used by operating activities	(379)		(164)
INVESTING ACTIVITIES
Purchase of property, plant and equipment	(136)		(138)
Acquisition of AK Steel, net of cash acquired	—		(869)
Other investing activities	1		—
Net cash used by investing activities	(135)		(1,007)
FINANCING ACTIVITIES
Proceeds from issuance of common shares	322		—
Proceeds from issuance of debt	1,000		716
Debt issuance costs	(16)		(44)
Repayments of debt	(902)		(430)
Borrowings under credit facilities	1,158		800
Repayments under credit facilities	(1,010)		—

Other financing activities	(40)		(37)
Net cash provided by financing activities	512		1,005
Net decrease in cash and cash equivalents	(2)		(166)
Cash and cash equivalents at beginning of period	112		353
Cash and cash equivalents at end of period	$	110	$	187

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Statements of Unaudited Condensed Consolidated Changes in Equity

Cleveland-Cliffs Inc. and Subsidiaries


	(In Millions)
	Number of Common Shares Outstanding	Par Value of Common Shares Issued		Capital in Excess of Par Value of Shares		Retained Deficit		Common Shares in Treasury		AOCI		Non-controlling Interests		Total
December 31, 2020	478	$	63	$	5,431	$	(2,989)	$	(354)	$	(133)	$	323	$	2,341
Comprehensive income	—	—		—		41		—		13		16		70
Issuance of common stock	20	—		78		—		244		—		—		322
Stock and other incentive plans	1	—		(22)		—		17		—		—		(5)
Acquisition of ArcelorMittal USA - Measurement period adjustments	—	—		—		—		—		—		(1)		(1)
Net distributions to noncontrolling interests	—	—		—		—		—		—		(8)		(8)
March 31, 2021	499	$	63	$	5,487	$	(2,948)	$	(93)	$	(120)	$	330	$	2,719


	(In Millions)
	Number of Common Shares Outstanding	Par Value of Common Shares Issued		Capital in Excess of Par Value of Shares		Retained Deficit		Common Shares in Treasury		AOCI		Non-controlling Interests		Total
December 31, 2019	271	$	37	$	3,873	$	(2,842)	$	(391)	$	(319)	$	—	$	358
Comprehensive income (loss)	—	—		—		(52)		—		2		3		(47)
Stock and other incentive plans	1	—		(24)		—		26		—		—		2
Acquisition of AK Steel	127	16		602		—		—		—		330		948
Common stock dividends ($0.06 per share)	—	—		—		(24)		—		—		—		(24)
Net distributions to noncontrolling interests	—	—		—		—		—		—		(6)		(6)
March 31, 2020	399	$	53	$	4,451	$	(2,918)	$	(365)	$	(317)	$	327	$	1,231

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Notes to Unaudited Condensed Consolidated Financial Statements

Cleveland-Cliffs Inc. and Subsidiaries

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Business, Consolidation and Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with SEC rules and regulations and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations, comprehensive income (loss), cash flows and changes in equity for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. 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. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021 or any other future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Business Operations

We are vertically integrated from the mining of iron ore and coal; to production of metallics and coke; through iron making, steelmaking, rolling and finishing; and to downstream tubular components, stamping and tooling. We have the unique advantage as a steel producer of being fully or partially self-sufficient with our production of raw materials for steel manufacturing, which includes iron ore pellets, HBI and coking coal.

We are organized into four operating segments based on differentiated products, Steelmaking, Tubular, Tooling and Stamping, and European Operations. We primarily operate through one reportable segment – the Steelmaking segment.

Basis of Consolidation

The unaudited condensed consolidated financial statements consolidate our accounts and the accounts of our wholly owned subsidiaries, all subsidiaries in which we have a controlling interest and VIEs for which we are the primary beneficiary. All intercompany transactions and balances are eliminated upon consolidation.

Investments in Affiliates

We have investments in several businesses accounted for using the equity method of accounting. We review an investment for impairment when circumstances indicate that a loss in value below its carrying amount is other than temporary.

As of March 31, 2021 and December 31, 2020, our investment in affiliates of $116 million and $105 million, respectively, was classified in Other non-current assets.

Significant Accounting Policies

A detailed description of our significant accounting policies can be found in the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC. There have been no material changes in our significant accounting policies and estimates from those disclosed therein.

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Recent Accounting Pronouncements

Issued and Not Effective

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This update requires certain convertible instruments to be accounted for as a single liability measured at its amortized cost. Additionally, the update requires the use of the "if-converted" method, removing the treasury stock method, when calculating diluted shares. The two methods of adoption are the full and modified retrospective approaches. We expect to utilize the modified retrospective approach. Using this approach, the guidance shall be applied to transactions outstanding as of the beginning of the fiscal year in which the amendment is adopted. The final rule is effective for fiscal years beginning after December 15, 2021. Early adoption is permitted for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We expect the adoption of this update to decrease our diluted EPS unless the additional shares under the if-converted method are anti-dilutive. We expect to adopt the update at the required adoption date of January 1, 2022.

NOTE 2 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION

Allowance for Credit Losses

The following is a roll forward of our allowance for credit losses associated with Accounts receivable, net:


	(In Millions)
	2021		2020
Allowance for credit losses as of January 1	$	(5)	$	—
Increase in allowance	(1)		(1)
Allowance for credit losses as of March 31	$	(6)	$	(1)

Inventories

The following table presents the detail of our Inventories in the Statements of Unaudited Condensed Consolidated Financial Position:


	(In Millions)
	March 31, 2021		December 31, 2020
Product inventories
Finished and semi-finished goods	$	2,296	$	2,125
Raw materials	1,372		1,431
Total product inventories	3,668		3,556
Manufacturing supplies and critical spares	264		272
Inventories	$	3,932	$	3,828

Cash Flow Information

A reconciliation of capital additions to cash paid for capital expenditures is as follows:


	(In Millions)
	Three Months Ended March 31,
	2021		2020
Capital additions	$	162	$	158
Less:
Non-cash accruals	23		(10)
Right-of-use assets - finance leases	3		30

Cash paid for capital expenditures including deposits	$	136	$	138

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Cash payments (receipts) for income taxes and interest are as follows:


	(In Millions)
	Three Months Ended March 31,
	2021		2020
Taxes paid on income	$	3	$	—
Income tax refunds	(14)		(60)
Interest paid on debt obligations net of capitalized interest1	75		30

1 Capitalized interest was $1 million and $10 million for the three months ended March 31, 2021 and 2020, respectively.

NOTE 3 - ACQUISITIONS

In 2020, we acquired two major steelmakers, AK Steel and ArcelorMittal USA, vertically integrating our legacy iron ore business with steel production. Our fully-integrated portfolio includes custom-made pellets and HBI; flat-rolled carbon steel, stainless, electrical, plate, tinplate and long steel products; and carbon and stainless steel tubing, hot and cold stamping and tooling. The AK Steel Merger combined Cliffs, a producer of iron ore pellets, with AK Steel, a producer of flat-rolled carbon, stainless and electrical steel products, to create a vertically integrated producer of value-added iron ore and steel products. The AM USA Transaction transformed us into a fully-integrated steel enterprise with the size and scale to expand product offerings and improve through-the cycle margins.

We now have a presence across the entire steel manufacturing process, from mining to pelletizing to the development and production of finished high value steel products. The combination is expected to create significant opportunities to generate additional value from market trends across the entire steel value chain and enable more consistent, predictable performance through normal market cycles.

Acquisition of ArcelorMittal USA

Overview

On December 9, 2020, pursuant to the terms of the AM USA Transaction Agreement, we purchased ArcelorMittal USA from ArcelorMittal. In connection with the closing of the AM USA Transaction, as contemplated by the terms of the AM USA Transaction Agreement, ArcelorMittal’s former joint venture partner in Kote and Tek exercised its put right pursuant to the terms of the Kote and Tek joint venture agreements. As a result, we purchased all of such joint venture partner’s interests in Kote and Tek. Following the closing of the AM USA Transaction, we own 100% of the interests in Kote and Tek.

We incurred acquisition-related costs excluding severance costs of $2 million for the three months ended March 31, 2021, which were recorded in Acquisition-related costs on the Statements of Unaudited Condensed Consolidated Operations.

The AM USA Transaction was accounted for under the acquisition method of accounting for business combinations.

The fair value of the total purchase consideration was determined as follows:


	(In Millions)
Fair value of Cliffs common shares issued	$	990
Fair value of Series B Participating Redeemable Preferred Stock issued	738
Fair value of settlement of a pre-existing relationship	237
Cash consideration (subject to customary working capital adjustments)	635
Total purchase consideration	$	2,600

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The fair value of Cliffs common shares issued is calculated as follows:


Number of Cliffs common shares issued	78,186,671
Closing price of Cliffs common share as of December 9, 2020	$	12.66
Fair value of Cliffs common shares issued (in millions)	$	990

The fair value of Cliffs Series B Participating Redeemable Preferred Stock issued is calculated as follows:


Number of Cliffs Series B Participating Redeemable Preferred Stock issued	583,273
Redemption price per share as of December 9, 2020	$	1,266
Fair value of Cliffs Series B Participating Redeemable Preferred Stock issued (in millions)	$	738

The fair value of the estimated cash consideration is comprised of the following:


	(In Millions)
Cash consideration pursuant to the AM USA Transaction Agreement	$	505
Cash consideration for purchase of the remaining JV partner's interest of Kote and Tek	182
Estimated total cash consideration receivable	(52)
Total estimated cash consideration	$	635

The cash portion of the purchase price is subject to customary working capital adjustments.

The fair value of the settlement of a pre-existing relationship is comprised of the following:


	(In Millions)
Accounts receivable	$	97
Freestanding derivative asset from customer supply agreement	140
Total fair value of settlement of a pre-existing relationship	$	237

Valuation Assumption and Preliminary Purchase Price Allocation

We estimated fair values at December 9, 2020 for the preliminary allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed in connection with the AM USA Transaction. During the measurement period, we will continue to obtain information to assist in finalizing the fair value of assets acquired and liabilities assumed, which may differ materially from these preliminary estimates. If we determine any measurement period adjustments are material, we will apply those adjustments, including any related impacts to net income, in the reporting period in which the adjustments are determined. We are in the process of conducting a valuation of the assets acquired and liabilities assumed related to the AM USA Transaction, most notably, inventories, personal and real property, mineral reserves, leases, investments, deferred taxes, asset retirement obligations and the final allocation will be made when completed, including the result of any identified goodwill. Accordingly, the provisional measurements noted below are preliminary and subject to modification in the future.

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The preliminary purchase price allocation to assets acquired and liabilities assumed in the AM USA Transaction was:


	(In Millions)
	Initial Allocation of Consideration		Measurement Period Adjustments		Updated Allocation
Cash and cash equivalents	$	35	$	—	$	35
Accounts receivable, net	349		—		349
Inventories	2,115		14		2,129
Other current assets	34		(5)		29
Property, plant and equipment	4,017		366		4,383
Other non-current assets	158		8		166
Accounts payable	(758)		2		(756)
Accrued employment costs	(271)		(3)		(274)
Pension and OPEB liabilities, current	(109)		—		(109)
Other current liabilities	(398)		(2)		(400)
Pension and OPEB liabilities, non-current	(3,195)		—		(3,195)
Other non-current liabilities	(598)		35		(563)
Noncontrolling interest	(13)		1		(12)
Net identifiable assets acquired	1,366		416		1,782
Goodwill	1,230		(412)		818
Total net assets acquired	$	2,596	$	4	$	2,600

During the period subsequent to the AM USA Transaction, we made certain measurement period adjustments to the acquired assets and liabilities assumed due to clarification of information utilized to determine fair value during the measurement period.

The goodwill resulting from the acquisition of ArcelorMittal USA primarily represents the growth opportunities in the automotive, construction, appliances, infrastructure and machinery and equipment markets, as well as any synergistic benefits to be realized from the AM USA Transaction, and was assigned to our flat steel operations within our Steelmaking segment. Goodwill from the AM USA Transaction is expected to be deductible for U.S. federal income tax purposes.

Acquisition of AK Steel

Overview

On March 13, 2020, pursuant to the AK Steel Merger Agreement, we completed the acquisition of AK Steel, in which we were the acquirer. As a result of the AK Steel Merger, each share of AK Steel common stock issued and outstanding immediately prior to the effective time of the AK Steel Merger (other than excluded shares) was converted into the right to receive 0.400 Cliffs common shares and, if applicable, cash in lieu of any fractional Cliffs common shares.

The AK Steel Merger was accounted for under the acquisition method of accounting for business combinations. The acquisition date fair value of the consideration transferred totaled $1,535 million. The following tables summarize the consideration paid for AK Steel and the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.

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The fair value of the total purchase consideration was determined as follows:


	(In Millions)
Fair value of AK Steel debt	$	914
Fair value of Cliffs common shares issued for AK Steel outstanding common stock1	618
Other1	3
Total purchase consideration	$	1,535

1 Included as non-cash investing activities in Statements of Unaudited Condensed Consolidated Cash Flows for the three months ended March 31, 2020.

The fair value of Cliffs common shares issued for outstanding shares of AK Steel common stock and with respect to Cliffs common shares underlying converted AK Steel equity awards that vested upon completion of the AK Steel Merger is calculated as follows:


	(In Millions, Except Per Share Amounts)
Number of shares of AK Steel common stock issued and outstanding	317
Exchange ratio	0.400
Number of Cliffs common shares issued to AK Steel stockholders	127
Price per share of Cliffs common shares	$	4.87
Fair value of Cliffs common shares issued for AK Steel outstanding common stock	$	618

The fair value of AK Steel's debt included in the consideration is calculated as follows:


	(In Millions)
Credit Facility	$	590
7.50% Senior Secured Notes due July 2023	324
Fair value of debt included in consideration	$	914

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Valuation Assumption and Purchase Price Allocation

The allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed in connection with the AK Steel Merger is based on estimated fair values at March 13, 2020, and was finalized during the quarter ended March 31, 2021. The following is a summary of the purchase price allocation to assets acquired and liabilities assumed in the AK Steel Merger:


	(In Millions)
	Initial Allocation of Consideration		Measurement Period Adjustments		Final Allocation of Consideration as of March 31, 2021
Cash and cash equivalents	$	38	$	1	$	39
Accounts receivable, net	666		(2)		664
Inventories	1,563		(243)		1,320
Other current assets	68		(16)		52
Property, plant and equipment	2,184		90		2,274
Deferred income taxes	—		69		69
Other non-current assets	475		(4)		471
Accounts payable	(636)		(8)		(644)
Accrued employment costs	(94)		1		(93)
Pension and OPEB liabilities, current	(75)		(3)		(78)
Other current liabilities	(236)		9		(227)
Long-term debt	(1,179)		—		(1,179)
Pension and OPEB liabilities, non-current	(873)		2		(871)
Other non-current liabilities	(507)		72		(435)
Noncontrolling interest	—		(1)		(1)
Net identifiable assets acquired	1,394		(33)		1,361
Goodwill	141		33		174
Total net assets acquired	$	1,535	$	—	$	1,535

During the period subsequent to the AK Steel Merger, we made certain measurement period adjustments to the acquired assets and liabilities assumed due to clarification of information utilized to determine fair value during the measurement period.

The goodwill resulting from the acquisition of AK Steel was assigned to our downstream Tubular and Tooling and Stamping operating segments. Goodwill is calculated as the excess of the purchase price over the net identifiable assets recognized and primarily represents the growth opportunities in light weighting solutions to automotive customers, as well as any synergistic benefits to be realized. Goodwill from the AK Steel Merger is not expected be deductible for income tax purposes.

The purchase price allocated to identifiable intangible assets and liabilities acquired was:


	(In Millions)		Weighted Average Life (In Years)
Intangible assets:
Customer relationships	$	77	18
Developed technology	60		17
Trade names and trademarks	11		10
Total identifiable intangible assets	$	148	17
Intangible liabilities:
Above-market supply contracts	$	(71)	12

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The above-market supply contracts relate to the long-term coke and energy supply agreements with SunCoke Energy, which includes SunCoke Middletown, a consolidated VIE. Refer to NOTE 16 - VARIABLE INTEREST ENTITIES for further information.

Pro Forma Results

The following table provides unaudited pro forma financial information, prepared in accordance with Topic 805, for the three months ended March 31, 2020, as if AK Steel had been acquired as of January 1, 2019:


		(In Millions)
	Three Months Ended March 31,
		2020
Revenues		$	1,526
Net loss attributable to Cliffs shareholders		(17)

The unaudited pro forma financial information has been calculated after applying our accounting policies and adjusting the historical results with pro forma adjustments, net of tax, that assume the AK Steel Merger occurred on January 1, 2019. Significant pro forma adjustments include the following:

1.The elimination of intercompany revenues between Cliffs and AK Steel of $68 million for the three months ended March 31, 2020.

2.The 2020 pro forma net income was adjusted to exclude $23 million of non-recurring inventory acquisition accounting adjustments incurred during the three months ended March 31, 2020.

3.The elimination of nonrecurring transaction costs incurred by Cliffs and AK Steel in connection with the AK Steel Merger of $27 million for the three months ended March 31, 2020.

4.Total other pro forma adjustments included income of $13 million for the three months ended March 31, 2020, primarily due to reduced interest and amortization expense, offset partially by additional depreciation expense.

5.The income tax impact of pro forma transaction adjustments that affect Net loss attributable to Cliffs shareholders at a statutory rate of 24.3% resulted in an income tax expense of $12 million for the three months ended March 31, 2020.

The unaudited pro forma financial information does not reflect the potential realization of synergies or cost savings, nor does it reflect other costs relating to the integration of AK Steel. This unaudited pro forma financial information should not be considered indicative of the results that would have actually occurred if the AK Steel Merger had been consummated on January 1, 2019, nor are they indicative of future results.

NOTE 4 - REVENUES

We generate our revenue through product sales, in which shipping terms generally indicate when we have fulfilled our performance obligations and transferred control of products to our customer. Our revenue transactions consist of a single performance obligation to transfer promised goods. Our contracts with customers usually define the mechanism for determining the sales price, which is generally fixed upon transfer of control, but the contracts generally do not impose a specific quantity on either party. Quantities to be delivered to the customer are generally determined at a point near the date of delivery through purchase orders or other written instructions we receive from the customer. Spot market sales are made through purchase orders or other written instructions. We consider our performance obligation to be complete and recognize revenue when control transfers in accordance with shipping terms.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring product. We reduce the amount of revenue recognized for estimated returns and other customer credits, such as discounts and volume rebates, based on the expected value to be realized. Payment terms are consistent with terms standard to the markets we serve. Sales taxes collected from customers are excluded from revenues.

Prior to the AM USA Transaction, we had a supply agreement with ArcelorMittal USA, which included supplemental revenue or refunds based on the HRC price in the year the iron ore was consumed in ArcelorMittal USA's blast furnaces. As control transferred prior to consumption, the supplemental revenue was recorded in

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accordance with Topic 815. All sales occurring subsequent to the AM USA Transaction are intercompany and eliminated in consolidation. For the three months ended March 31, 2020, we had a derivative loss of $26 million included within Revenues related to Topic 815 for the supplemental revenue portion of the supply agreement.

The following table represents our Revenues by market:


	(In Millions)
	Three Months Ended March 31,
	2021		2020
Steelmaking:
Automotive	$	1,287	$	102
Infrastructure and manufacturing	954		39
Distributors and converters	1,248		52
Steel producers	430		144
Total Steelmaking	3,919		337
Other Businesses:
Automotive	105		16
Infrastructure and manufacturing	10		4
Distributors and converters	15		2
Total Other Businesses	130		22
Total revenues	$	4,049	$	359

The following table represents our Revenues by product line:


	(Dollars In Millions, Sales Volumes in Thousands)
	Three Months Ended March 31,
	2021			2020
	Revenue		Volume1	Revenue		Volume1
Steelmaking:
Hot-rolled steel	$	895	1,182	$	19	31
Cold-rolled steel	632		748	28		40
Coated steel	1,308		1,369	90		99
Stainless and electrical steel	363		167	56		27
Plate steel	244		275	—		—
Other steel products	289		403	—		—
Iron products	70		600	142		1,351
Other	118		N/A	2		N/A
Total steelmaking	3,919			337
Other Businesses:
Other	130		N/A	22		N/A
Total revenues	$	4,049		$	359

1 All steel product volumes are stated in net tons. Iron product volumes are stated in long tons.

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NOTE 5 - SEGMENT REPORTING

We are vertically integrated from the mining of iron ore and coal; to production of metallics and coke; through iron making, steelmaking, rolling, finishing; and to downstream tubing, stamping and tooling. We are organized into four operating segments based on our differentiated products - Steelmaking, Tubular, Tooling and Stamping, and European Operations. Our previous Mining and Pelletizing segment is included within the Steelmaking operating segment as iron ore pellets are a primary raw material for our steel products. We have one reportable segment - Steelmaking. The operating segment results of our Tubular, Tooling and Stamping, and European Operations that do not constitute reportable segments are combined and disclosed in the Other Businesses category. Our Steelmaking segment is the largest flat-rolled steel producer supported by being the largest iron ore pellet producer in North America, primarily serving the automotive, infrastructure and manufacturing, and distributors and converters markets. Our Other Businesses primarily include the operating segments that provide customer solutions with carbon and stainless steel tubing products, advanced-engineered solutions, tool design and build, hot- and cold-stamped steel components, and complex assemblies. All intersegment transactions were eliminated in consolidation.

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.

Our results by segment are as follows:


		(In Millions)
	Three Months Ended March 31,
		2021		2020
Revenues:
Steelmaking		$	3,919	$	337
Other Businesses		130		22
Total revenues		$	4,049	$	359

Adjusted EBITDA:
Steelmaking		$	537	$	44
Other Businesses		11		2
Corporate and eliminations		(35)		(23)
Total Adjusted EBITDA		$	513	$	23

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


		(In Millions)
	Three Months Ended March 31,
		2021		2020
Net income (loss)		$	57	$	(49)
Less:
Interest expense, net		(92)		(31)
Income tax benefit (expense)		(9)		51
Depreciation, depletion and amortization		(217)		(35)
		375		(34)
Less:
EBITDA of noncontrolling interests1		22		4
Gain (loss) on extinguishment of debt		(66)		3
Severance costs		(11)		(19)
Acquisition-related costs excluding severance costs		(2)		(23)
Amortization of inventory step-up		(81)		(23)
Impact of discontinued operations		—		1
Total Adjusted EBITDA		$	513	$	23

1 EBITDA of noncontrolling interests includes $16 million and $3 million for income and $6 million and $1 million for depreciation, depletion and amortization for the three months ended March 31, 2021 and 2020, respectively.

The following summarizes our assets by segment:


	(In Millions)
	March 31, 2021		December 31, 2020
Assets:
Steelmaking	$	16,271	$	15,849
Other Businesses	295		239
Total segment assets	16,566		16,088
Corporate	649		683
Total assets	$	17,215	$	16,771

The following table summarizes our capital additions by segment:


		(In Millions)
	Three Months Ended March 31,
		2021		2020
Capital additions1:
Steelmaking		$	133	$	154
Other Businesses		11		3