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Table of Contents

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 September 30, 2021
OR
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
clf-20210930_g1.jpg
CLEVELAND-CLIFFS INC.
(Exact Name of Registrant as Specified in Its Charter)
Ohio34-1464672
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
200 Public Square, Cleveland,Ohio44114-2315
(Address of Principal Executive Offices)(Zip Code)
Registrant’s Telephone Number, Including Area Code: (216694-5700
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common shares, par value $0.125 per shareCLFNew 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, a 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 filerAccelerated filer
Non-accelerated filerSmaller 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 500,090,665 as of October 25, 2021.


Table of Contents


TABLE OF CONTENTS
Page Number
DEFINITIONS
PART I - FINANCIAL INFORMATION
Item 1.Financial Statements
Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2021 and December 31, 2020
Statements of Unaudited Condensed Consolidated Operations for the Three and Nine Months Ended September 30, 2021 and 2020
Statements of Unaudited Condensed Consolidated Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2021 and 2020
Statements of Unaudited Condensed Consolidated Cash Flows for the Nine Months Ended September 30, 2021 and 2020
Statements of Unaudited Condensed Consolidated Changes in Equity for the Nine Months Ended September 30, 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


Table of Contents

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 acronymTerm
4.625% 2029 Senior Notes4.625% 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 Notes4.875% Senior Guaranteed Notes due 2031 issued by Cleveland-Cliffs Inc. on February 17, 2021 in an aggregate principal amount of $500 million
2020 AcquisitionsThe AK Steel Merger and AM USA Transaction, together
ABL FacilityAsset-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
Adjusted EBITDAEBITDA, excluding certain items such as EBITDA of noncontrolling interests, extinguishment of debt, severance, acquisition-related costs, acquisition-related loss on equity method investment, amortization of inventory step-up and impacts of discontinued operations
AK SteelAK 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 MergerThe 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 AgreementAgreement and Plan of Merger, dated as of December 2, 2019, among Cleveland-Cliffs Inc., AK Steel and Merger Sub
AM USA TransactionThe acquisition of ArcelorMittal USA, consummated on December 9, 2020
AM USA Transaction AgreementTransaction Agreement, dated as of September 28, 2020, by and between Cleveland-Cliffs Inc. and ArcelorMittal
AOCIAccumulated Other Comprehensive Income (Loss)
ArcelorMittalArcelorMittal S.A., a company organized under the laws of Luxembourg and the former ultimate parent company of ArcelorMittal USA
ArcelorMittal USASubstantially all of the operations of the former ArcelorMittal USA LLC, its subsidiaries and certain affiliates, and Kote and Tek, collectively
ASCAccounting Standards Codification
ASUAccounting Standards Update
BOFBasic Oxygen Furnaces
BoardThe Board of Directors of Cleveland-Cliffs Inc.
CARES ActCoronavirus Aid, Relief, and Economic Security Act
CERCLAComprehensive Environmental Response, Compensation and Liability Act of 1980
COVID-19A novel strain of coronavirus that the World Health Organization declared a global pandemic in March 2020
Dodd-Frank ActDodd-Frank Wall Street Reform and Consumer Protection Act
EAFElectric arc furnace
EBITDAEarnings before interest, taxes, depreciation and amortization
EDCExport Development Canada
EPAU.S. Environmental Protection Agency
EPSEarnings per share
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
FeIron
FMSH ActFederal Mine Safety and Health Act of 1977, as amended
FPTFerrous Processing and Trading Company, including certain related entities
FPT AcquisitionThe purchase of FPT, subject to the terms and conditions set forth in the FPT Acquisition Agreement
FPT Acquisition AgreementSecurities Purchase Agreement, dated as of October 8, 2021, by and between Cleveland-Cliffs Inc. and Anthony Soave Revocable Trust u/a/d January 14, 1987, as amended and restated
GAAPAccounting principles generally accepted in the United States
GHGGreenhouse gas
HBIHot briquetted iron
HibbingIron ore mining property owned by Hibbing Taconite Company, an unincorporated joint venture between subsidiaries of Cliffs and U.S. Steel
HRCHot-rolled coil steel
IRBIndustrial Revenue Bond
Kote and TekI/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 ton2,240 pounds
Merger SubPepper Merger Sub Inc., a direct, wholly owned subsidiary of Cliffs prior to the AK Steel Merger
Metric ton2,205 pounds
1

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Abbreviation or acronymTerm
MSHAU.S. Mine Safety and Health Administration
Net ton2,000 pounds
NPDESNational Pollutant Discharge Elimination System, authorized by the Clean Water Act
OPEBOther postretirement benefits
Platts 62% pricePlatts IODEX 62% Fe Fines CFR North China
RCRAResource Conservation and Recovery Act
RI/FSRemedial Investigation/Feasibility Study
SECU.S. Securities and Exchange Commission
Section 232Section 232 of the Trade Expansion Act of 1962, as amended
Securities ActSecurities Act of 1933, as amended
SunCoke MiddletownMiddletown Coke Company, LLC, a subsidiary of SunCoke Energy, Inc.
Topic 805ASC Topic 805, Business Combinations
Topic 815ASC Topic 815, Derivatives and Hedging
U.S.United States of America
U.S. SteelUnited States Steel Corporation and its subsidiaries, collectively, unless stated otherwise or the context indicates otherwise
UAWUnited Auto Workers
USMCAUnited States-Mexico-Canada Agreement
VIEVariable interest entity
2

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PART I
Item 1.
Financial Statements
Statements of Unaudited Condensed Consolidated Financial Position
Cleveland-Cliffs Inc. and Subsidiaries
(In Millions)
September 30,
2021
December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents$42 $112 
Accounts receivable, net2,348 1,169 
Inventories4,505 3,828 
Other current assets251 189 
Total current assets7,146 5,298 
Non-current assets:
Property, plant and equipment, net8,974 8,743 
Goodwill1,072 1,406 
Deferred income taxes70 537 
Other non-current assets804 787 
TOTAL ASSETS$18,066 $16,771 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$1,828 $1,575 
Accrued employment costs592 460 
Pension and OPEB liabilities, current151 151 
Other current liabilities708 743 
Total current liabilities3,279 2,929 
Non-current liabilities:
Long-term debt5,350 5,390 
Pension and OPEB liabilities, non-current3,773 4,113 
Other non-current liabilities1,374 1,260 
TOTAL LIABILITIES13,776 13,692 
Commitments and contingencies (See Note 18)
Series B Participating Redeemable Preferred Stock - no par value
Authorized, Issued and Outstanding - no shares (2020 - 583,273 shares)
 738 
Equity:
Common shares - par value $0.125 per share
Authorized - 1,200,000,000 shares (2020 - 600,000,000 shares);
Issued - 506,832,537 shares (2020 - 506,832,537 shares);
Outstanding - 500,055,941 shares (2020 - 477,517,372 shares)
63 63 
Capital in excess of par value of shares4,887 5,431 
Retained deficit(894)(2,989)
Cost of 6,776,596 common shares in treasury (2020 - 29,315,165 shares)
(83)(354)
Accumulated other comprehensive income (loss)23 (133)
Total Cliffs shareholders' equity3,996 2,018 
Noncontrolling interest294 323 
TOTAL EQUITY4,290 2,341 
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND EQUITY$18,066 $16,771 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

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Statements of Unaudited Condensed Consolidated Operations
Cleveland-Cliffs Inc. and Subsidiaries
(In Millions, Except Per Share Amounts)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Revenues$6,004 $1,646 $15,098 $3,098 
Operating costs:
Cost of goods sold(4,229)(1,525)(11,838)(3,089)
Selling, general and administrative expenses(112)(59)(311)(149)
Acquisition-related costs(4)(7)(18)(68)
Miscellaneous – net(10)(17)(38)(41)
Total operating costs(4,355)(1,608)(12,205)(3,347)
Operating income (loss)1,649 38 2,893 (249)
Other income (expense):
Interest expense, net(81)(68)(258)(168)
Gain (loss) on extinguishment of debt  (88)133 
Net periodic benefit credits other than service cost component46 9 139 30 
Other non-operating income1 1 5 1 
Total other expense(34)(58)(202)(4)
Income (loss) from continuing operations before income taxes1,615 (20)2,691 (253)
Income tax benefit (expense)(334)22 (559)98 
Income (loss) from continuing operations1,281 2 2,132 (155)
Income from discontinued operations, net of tax1  2  
Net income (loss)1,282 2 2,134 (155)
Income attributable to noncontrolling interest(8)(12)(39)(31)
Net income (loss) attributable to Cliffs shareholders$1,274 $(10)$2,095 $(186)
Earnings (loss) per common share attributable to Cliffs shareholders - basic
Continuing operations$2.46 $(0.02)$3.87 $(0.51)
Discontinued operations    
$2.46 $(0.02)$3.87 $(0.51)
Earnings (loss) per common share attributable to Cliffs shareholders - diluted
Continuing operations$2.33 $(0.02)$3.69 $(0.51)
Discontinued operations    
$2.33 $(0.02)$3.69 $(0.51)
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
September 30,
Nine Months Ended
September 30,
2021202020212020
Net income (loss)$1,282 $2 $2,134 $(155)
Other comprehensive income (loss):
Changes in pension and OPEB, net of tax6 6 20 18 
Changes in foreign currency translation 2 (1)2 
Changes in derivative financial instruments, net of tax83 16 137 17 
Total other comprehensive income89 24 156 37 
Comprehensive income (loss)1,371 26 2,290 (118)
Comprehensive income attributable to noncontrolling interests(8)(12)(39)(31)
Comprehensive income (loss) attributable to Cliffs shareholders$1,363 $14 $2,251 $(149)
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)
Nine Months Ended
September 30,
20212020
OPERATING ACTIVITIES
Net income (loss)$2,134 $(155)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation, depletion and amortization664 184 
Amortization of inventory step-up129 74 
Changes in deferred revenue1 (46)
Deferred income taxes557 (90)
Pension and OPEB credits(59)(11)
Loss (gain) on extinguishment of debt88 (133)
Gain on derivatives (19)
Other79 47 
Changes in operating assets and liabilities, net of business combination:
Receivables and other assets(1,175)260 
Inventories(793)(4)
Pension and OPEB payments and contributions(279)(31)
Payables, accrued expenses and other liabilities302 (127)
Net cash provided (used) by operating activities1,648 (51)
INVESTING ACTIVITIES
Purchase of property, plant and equipment(473)(379)
Acquisition of AK Steel, net of cash acquired (869)
Acquisition of ArcelorMittal USA, net of cash acquired54  
Other investing activities5 8 
Net cash used by investing activities(414)(1,240)
FINANCING ACTIVITIES
Series B Redeemable Preferred Stock redemption(1,343) 
Proceeds from issuance of common shares322  
Proceeds from issuance of debt1,000 1,763 
Debt issuance costs(17)(58)
Repayments of debt(1,346)(1,000)
Borrowings under credit facilities4,353 800 
Repayments under credit facilities(4,160)(400)
Repayments of leased liabilities(70)(9)
SunCoke Middletown distributions to noncontrolling interest owners(57)(48)
Other financing activities14 (54)
Net cash provided (used) by financing activities(1,304)994 
Net decrease in cash and cash equivalents(70)(297)
Cash and cash equivalents at beginning of period112 353 
Cash and cash equivalents at end of period$42 $56 
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
AOCINon-controlling InterestsTotal
December 31, 2020478 $63 $5,431 $(2,989)$(354)$(133)$323 $2,341 
Comprehensive income   41  13 16 70 
Issuance of common stock20  78  244   322 
Stock and other incentive plans1  (22) 17   (5)
Acquisition of ArcelorMittal USA - Measurement period adjustments      (1)(1)
Net distributions to noncontrolling interests      (8)(8)
March 31, 2021499 $63 $5,487 $(2,948)$(93)$(120)$330 $2,719 
Comprehensive income   780  54 15 849 
Stock and other incentive plans1  4  6   10 
Acquisition of ArcelorMittal USA - Measurement period adjustments      (13)(13)
Net distributions to noncontrolling interests      (24)(24)
June 30, 2021500 $63 $5,491 $(2,168)$(87)$(66)$308 $3,541 
Comprehensive income   1,274  89 8 1,371 
Stock and other incentive plans  5  4   9 
Series B Redeemable Preferred Stock redemption  (605)    (605)
1.500% 2025 Convertible Notes repurchase  (4)    (4)
Net distributions to noncontrolling interests      (22)(22)
September 30, 2021500 $63 $4,887 $(894)$(83)$23 $294 $4,290 
(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
AOCINon-controlling InterestsTotal
December 31, 2019271 $37 $3,873 $(2,842)$(391)$(319)$ $358 
Comprehensive income (loss)— — — (52)— 2 3 (47)
Stock and other incentive plans1 — (24)— 26 — — 2 
Acquisition of AK Steel127 16 602 — — — 330 948 
Common stock dividends ($0.06 per share)
— — — (24)— — — (24)
Net distributions to noncontrolling interests— — — — — — (6)(6)
March 31, 2020399 $53 $4,451 $(2,918)$(365)$(317)$327 $1,231 
Comprehensive income (loss)— — — (124)— 11 16 (97)
Stock and other incentive plans — (7)— 9 — — 2 
Net distributions to noncontrolling interests— — — — — — (18)(18)
June 30, 2020399 $53 $4,444 $(3,042)$(356)$(306)$325 $1,118 
Comprehensive income (loss)— — — (10)— 24 1226 
Stock and other incentive plans — 3 — 1 — — 4 
Net distributions to noncontrolling interests— — — — — — (24)(24)
September 30, 2020399 $53 $4,447 $(3,052)$(355)$(282)$313 $1,124 
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 and nine months ended September 30, 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 and in our Quarterly Reports on Form 10-Q for the quarterly periods ended June 30, 2021 and March 31, 2021.
Proposed FPT Acquisition
On October 8, 2021, we entered into the FPT Acquisition Agreement, pursuant to which Cliffs will acquire FPT for an aggregate purchase price of $775 million, on a cash-free, debt-free basis and subject to customary adjustment. We expect to complete the FPT Acquisition in the fourth quarter of 2021. Completion of the FPT Acquisition is subject to various customary closing conditions, including the receipt of required regulatory approvals, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Act, and it is possible factors outside of our control could result in the FPT Acquisition being completed at a later time or not at all. The FPT Acquisition Agreement also contains certain termination rights that may be exercised by either party. We plan to complete the FPT Acquisition as soon as reasonably practicable following the satisfaction or waiver of all applicable conditions.
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. As of September 30, 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 will add approximately 17 million dilutive shares 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)
20212020
Allowance for credit losses as of January 1$(5)$ 
Increase in allowance (5)
Allowance for credit losses as of September 30$(5)$(5)
Inventories
The following table presents the detail of our Inventories in the Statements of Unaudited Condensed Consolidated Financial Position:
(In Millions)
September 30,
2021
December 31,
2020
Product inventories
Finished and semi-finished goods$2,510 $2,125 
Raw materials1,711 1,431 
Total product inventories4,221 3,556 
Manufacturing supplies and critical spares284 272 
Inventories$4,505 $3,828 
Cash Flow Information
A reconciliation of capital additions to cash paid for capital expenditures is as follows:
(In Millions)
Nine Months Ended
September 30,
20212020
Capital additions$572 $333 
Less:
Non-cash accruals64 (89)
Right-of-use assets - finance leases35 43 
Cash paid for capital expenditures including deposits$473 $379 
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Cash payments (receipts) for income taxes and interest are as follows:
(In Millions)
Nine Months Ended
September 30,
20212020
Taxes paid on income$38 $3 
Income tax refunds(15)(119)
Interest paid on debt obligations net of capitalized interest1
231 117 
1 Capitalized interest was $4 million and $38 million for the nine months ended September 30, 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, slabs 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 $1 million and $3 million for the three and nine months ended September 30, 2021, respectively, 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 issued738 
Fair value of settlement of a pre-existing relationship237 
Cash consideration639 
Total purchase consideration$2,604 
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The fair value of Cliffs common shares issued was calculated as follows:
Number of Cliffs common shares issued78,186,671
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 was calculated as follows:
Number of Cliffs Series B Participating Redeemable Preferred Stock issued583,273 
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 was 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 Tek182 
Total cash consideration receivable(48)
Total cash consideration$639 
The cash portion of the purchase price was subject to customary working capital adjustments, and the working capital adjustments were finalized during the second quarter of 2021. We made certain elections under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended, which did not change the final cash consideration.
The fair value of the settlement of a pre-existing relationship was comprised of the following:
(In Millions)
Accounts receivable$97 
Freestanding derivative asset from customer supply agreement140 
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, 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 ConsiderationMeasurement Period AdjustmentsUpdated Allocation
Cash and cash equivalents$35 $ $35 
Accounts receivable, net349 (5)344 
Inventories2,115 14 2,129 
Other current assets34 (1)33 
Property, plant and equipment4,017 372 4,389 
Other non-current assets158 7 165 
Accounts payable(758)27 (731)
Accrued employment costs(271)4 (267)
Pension and OPEB liabilities, current(109) (109)
Other current liabilities(398)(8)(406)
Pension and OPEB liabilities, non-current(3,195) (3,195)
Other non-current liabilities(598)(81)(679)
Noncontrolling interest(13)13  
Net identifiable assets acquired1,366 342 1,708 
Goodwill1,230 (334)896 
Total net assets acquired$2,596 $8 $2,604 
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 measurement period adjustment related to the revaluation of the Company's previously held equity method investment, which is now being consolidated post-acquisition, resulted in a loss of $18 million, within Miscellaneous – net for the nine months ended September 30, 2021.
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.
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