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~~June 30, ~~2019~~2020



	☐	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 ~~270,082,088~~399,198,070 as of ~~October 21, 2019.~~July 27, 2020.

Table of Contents

TABLE OF CONTENTS


			Page Number

DEFINITIONS				1

PART I - FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Statements of Unaudited Condensed Consolidated Financial Position as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019		23
		Statements of Unaudited Condensed Consolidated Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019		4
		Statements of Unaudited Condensed Consolidated Comprehensive Income (Loss) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019		5
		Statements of Unaudited Condensed Consolidated Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019		6
		Statements of Unaudited Condensed Consolidated Changes in Equity for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019		7
		Notes to Unaudited Condensed Consolidated Financial Statements		98
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		41
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		5461
	Item 4.	Controls and Procedures		5462

PART II - OTHER INFORMATION
	Item 1.	Legal Proceedings		5663
	Item 1A.	Risk Factors		5663
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		5763
	Item 4.	Mine Safety Disclosures		5763
	Item 5.	Other Information		5763
	Item 6.	Exhibits		5864

Signatures				5966

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.~~collectively, unless stated otherwise or the context indicates otherwise.



Abbreviation or acronym		Term
~~A&R 2015 Equity Plan~~		~~Cliffs Natural Resources Inc. Amended and Restated 2015 Equity and Incentive Compensation Plan~~
ABL Facility		~~Amended and Restated Syndicated Facility~~Asset-Based Revolving Credit Agreement, by and among Bank of America, N.A., as ~~Administrative~~ Agent, ~~and Australian Security Trustee,~~ the Lenders that are parties ~~hereto,~~thereto, as the Lenders, and Cleveland-Cliffs Inc., as Parent and a Borrower, ~~and the Subsidiaries of Parent party hereto, as Borrowers~~ dated as of March ~~30, 2015, and Amended and Restated~~13, 2020, as ~~of February 28, 2018~~amended
Adjusted EBITDA		EBITDA excluding certain items such as ~~extinguishment/restructuring~~EBITDA of noncontrolling interests, extinguishment of debt, severance, acquisition-related costs, amortization of inventory step-up, impacts of discontinued operations ~~foreign currency exchange remeasurement, impairment of other long-lived assets, severance~~ and intersegment corporate allocations of ~~SG&A~~selling, general and administrative costs
~~ArcelorMittal~~AK Coal		~~ArcelorMittal (as~~AK Coal Resources, Inc., an indirect, wholly owned subsidiary of AK Steel, and related coal mining operations
AK Steel		AK Steel Holding Corporation and its consolidated subsidiaries, including AK Steel Corporation, its direct, wholly owned subsidiary, collectively, unless stated otherwise or the ~~parent company~~context indicates otherwise
AK Tube		AK Tube LLC, an indirect, wholly owned subsidiary of ~~ArcelorMittal Mines Canada, ArcelorMittal USA and ArcelorMittal Dofasco, as well as many other subsidiaries)~~AK Steel
AMT		Alternative Minimum Tax
AOCI		Accumulated Other Comprehensive Income (Loss)
ArcelorMittal USA		ArcelorMittal USA LLC (including many of its United States affiliates, subsidiaries and representatives. References to ArcelorMittal USA comprise all such relationships unless a specific ArcelorMittal USA entity is referenced)
ASC		Accounting Standards Codification
~~ASU~~Atlantic Basin pellet premium		~~Accounting Standards Update~~Platts Atlantic Basin Blast Furnace 65% Fe pellet premium
~~Bloom Lake Group~~Board		~~Bloom Lake General Partner Limited and certain~~The Board of ~~its affiliates, including Cliffs Quebec Iron Mining ULC~~Directors of Cleveland-Cliffs Inc.
~~CCAA~~CARES Act		~~Companies' Creditors Arrangement~~Coronavirus Aid, Relief, and Economic Security Act ~~(Canada)~~
CECL		Current Expected Credit Losses
CERCLA		Comprehensive Environmental Response, Compensation and Liability Act
Compensation Committee		Compensation and Organization Committee of the Board
COVID-19		A novel strain of ~~Directors~~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
DR-grade		Direct Reduction-grade
EAF		Electric Arc Furnace
EBITDA		Earnings before interest, taxes, depreciation and amortization
Empire		Empire Iron Mining Partnership
EPA		U.S. Environmental Protection Agency
ERISA		Employee Retirement Income Security Act of 1974, as amended
Exchange Act		Securities Exchange Act of 1934, as amended
~~FASB~~		~~Financial Accounting Standards Board~~
Fe		Iron
~~FMSH Act~~FILO		~~U.S. Federal Mine Safety~~First-in, last-out
Former ABL Facility		Amended and ~~Health Act 1977,~~Restated Syndicated Facility Agreement by and among Bank of America, N.A., as Administrative Agent, the Lenders that are parties thereto, as the Lenders, Cleveland-Cliffs Inc., as Parent and a Borrower, and the Subsidiaries of Parent party thereto, as Borrowers, dated as of March 30, 2015, as amended and restated as of February 28, 2018, and as further amended
GAAP		Accounting principles generally accepted in the United States
HBI		Hot ~~briquetted iron~~Briquetted Iron
Hibbing		Hibbing Taconite Company, an unincorporated joint venture
Hot-rolled coil steel price		Estimated average annual daily market price for hot-rolled coil steel
IRBs		Industrial Revenue Bonds
LIBOR		London Interbank Offered Rate
LIFO		Last-in, first-out
Long ton		2,240 pounds
Merger		The merger of Merger Sub with and into AK Steel, with AK Steel surviving the merger as a wholly owned subsidiary of Cliffs, subject to the terms and conditions set forth in the Merger Agreement, effective as of March 13, 2020
Merger Agreement		Agreement and Plan of Merger, dated as of December 2, 2019, among Cliffs, AK Steel and Merger Sub
Merger Sub		Pepper Merger Sub Inc., a direct, wholly owned subsidiary of Cliffs prior to the Merger
Metric ton		2,205 pounds
MMBtu		Million British Thermal Units
MSHA		U.S. Mine Safety and Health Administration
Net ton		2,000 pounds
Northshore		Northshore Mining Company
OPEB		Other postretirement ~~employment~~ benefits
Platts 62% Price		Platts IODEX 62% Fe Fines ~~CFR~~cost and freight North China
~~PPI~~Precision Partners		~~Producer Price Indices~~PPHC Holdings, LLC (an indirect, wholly owned subsidiary of AK Steel) and its subsidiaries, collectively, unless stated otherwise or the context indicates otherwise
RCRA		Resource Conservation and Recovery Act
SEC		U.S. Securities and Exchange Commission
~~SG&A~~Section 232		~~Selling, general and administrative~~Section 232 of the Trade Expansion Act of 1962, as amended
Securities Act		Securities Act of 1933, as amended

Table of Contents



Abbreviation or acronym		Term
SunCoke Middletown		Middletown Coke Company, LLC, a subsidiary of SunCoke Energy, Inc.
Tilden		Tilden Mining Company L.C.
Topic ~~606~~805		ASC Topic ~~606, Revenue from Contracts with Customers~~805, Business Combinations
Topic 815		ASC Topic 815, Derivatives and Hedging
~~TSR~~		~~Total shareholder return~~
United Taconite		United Taconite LLC
U.S.		United States of America
U.S. Steel		~~U.S~~Ontario Hibbing Company, a subsidiary of United States Steel Corporation and ~~all subsidiaries~~a participant in Hibbing
~~Wabush Group~~USMCA		Wabush Iron Co. Limited and Wabush Resources Inc., and certain of its affiliates, including Wabush Mines (an unincorporated joint venture of Wabush Iron Co. Limited and Wabush Resources Inc.), Arnaud Railway Company and Wabush Lake Railway CompanyUnited States-Mexico-Canada Agreement
VIE		Variable Interest Entity

Table of Contents

PART I



Item 1.	Financial Statements

Statements of Unaudited Condensed Consolidated Financial Position

Cleveland-Cliffs Inc. and Subsidiaries

(In Millions)
September 30,
2019 December 31,
2018
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 399.3
$ 823.2
Accounts receivable, net 164.9
226.7
Finished goods inventories 162.2
77.8
Work-in-process inventories 55.2
10.1
Supplies and other inventories 110.8
93.2
Derivative assets 72.8
91.5
Income tax receivable, current 58.7
117.3
Other current assets 40.7
39.8
TOTAL CURRENT ASSETS 1,064.6
1,479.6
PROPERTY, PLANT AND EQUIPMENT, NET 1,769.9
1,286.0
OTHER ASSETS
Deposits for property, plant and equipment 41.6
83.0
Income tax receivable, non-current 62.7
121.3
Deferred income taxes 437.5
464.8
Other non-current assets 114.9
94.9
TOTAL OTHER ASSETS 656.7
764.0
TOTAL ASSETS $ 3,491.2
$ 3,529.6

~~(continued)~~

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

~~Table of Contents~~

~~Statements of Unaudited Condensed Consolidated Financial Position~~

~~Cleveland-Cliffs Inc. and Subsidiaries - (Continued)~~

(In Millions)
September 30,
2019 December 31,
2018
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 212.8
$ 186.8
Accrued employment costs 57.3
74.0
Accrued interest 34.1
38.4
Derivative liabilities 32.6
3.7
Partnership distribution payable —
43.5
Other current liabilities 121.7
121.8
TOTAL CURRENT LIABILITIES 458.5
468.2
PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES 233.2
248.7
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS 179.1
172.0
LONG-TERM DEBT 2,109.1
2,092.9
OTHER LIABILITIES 151.4
123.6
TOTAL LIABILITIES 3,131.3
3,105.4
COMMITMENTS AND CONTINGENCIES (REFER TO NOTE 19)

EQUITY
SHAREHOLDERS' EQUITY ��
Preferred Stock - no par value
Class A - 3,000,000 shares authorized
Class B - 4,000,000 shares authorized
Common Shares - par value $0.125 per share
Authorized - 600,000,000 shares (2018 - 600,000,000 shares);
Issued - 301,886,794 shares (2018 - 301,886,794 shares);
Outstanding - 270,075,445 shares (2018 - 292,611,569 shares) 37.7
37.7
Capital in excess of par value of shares 3,867.7
3,916.7
Retained deficit (2,889.0 ) (3,060.2 )
Cost of 31,811,349 common shares in treasury (2018 - 9,275,225 shares) (390.9 ) (186.1 )
Accumulated other comprehensive loss (265.6 ) (283.9 )
TOTAL EQUITY 359.9
424.2
TOTAL LIABILITIES AND EQUITY $ 3,491.2
$ 3,529.6



	(In Millions)
	June 30, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	73.7		$	352.6
Accounts receivable, net	482.2			94.0
Inventories	1,933.6			317.4
Income tax receivable, current	62.6			58.6
Other current assets	90.2			75.3
Total current assets	2,642.3			897.9
Non-current assets:
Property, plant and equipment, net	4,547.9			1,929.0
Goodwill	139.3			2.1
Intangible assets, net	192.6			48.1
Income tax receivable, non-current	4.1			62.7
Deferred income taxes	506.5			459.5
Right-of-use asset, operating lease	213.0			11.7
Other non-current assets	245.0			92.8
TOTAL ASSETS	$	8,490.7		$	3,503.8
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	504.8		$	193.2
Accrued liabilities	288.3			126.3
Other current liabilities	244.9			89.9
Total current liabilities	1,038.0			409.4
Non-current liabilities:
Long-term debt	4,451.6			2,113.8
Operating lease liability, non-current	191.5			10.5
Intangible liabilities, net	72.3			—
Pension and OPEB liabilities	1,159.6			311.5
Asset retirement obligations	181.1			163.2
Other non-current liabilities	278.4			137.5
TOTAL LIABILITIES	7,372.5			3,145.9
Commitments and contingencies (See Note 18)
Equity:
Common shares - par value $0.125 per share
Authorized - 600,000,000 shares (2019 - 600,000,000 shares);
Issued - 428,645,866 shares (2019 - 301,886,794 shares);
Outstanding - 399,159,988 shares (2019 - 270,084,005 shares)	53.6			37.7
Capital in excess of par value of shares	4,443.6			3,872.1
Retained deficit	(3,042.5		)	(2,842.4		)
Cost of 29,485,878 common shares in treasury (2019 - 31,802,789 shares)	(355.9		)	(390.7		)
Accumulated other comprehensive loss	(305.9		)	(318.8		)
Total Cliffs shareholders' equity	792.9			357.9
Noncontrolling interest	325.3			—
TOTAL EQUITY	1,118.2			357.9
TOTAL LIABILITIES AND EQUITY	$	8,490.7		$	3,503.8

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

Table of Contents

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,
2019 2018 2019 2018
REVENUES FROM PRODUCT SALES AND SERVICES
Product $ 515.0
$ 684.7
$ 1,357.8
$ 1,525.9
Freight 40.6
57.1
98.0
110.2

555.6
741.8
1,455.8
1,636.1
COST OF GOODS SOLD (400.7 ) (480.2 ) (1,007.0 ) (1,028.5 )
SALES MARGIN 154.9
261.6
448.8
607.6
OTHER OPERATING EXPENSE
Selling, general and administrative expenses (25.5 ) (29.1 ) (82.2 ) (78.9 )
Miscellaneous – net (7.8 ) (7.0 ) (19.0 ) (18.7 )
(33.3 ) (36.1 ) (101.2 ) (97.6 )
OPERATING INCOME 121.6
225.5
347.6
510.0
OTHER INCOME (EXPENSE)
Interest expense, net (25.3 ) (29.5 ) (76.5 ) (93.1 )
Gain (loss) on extinguishment of debt —
—
(18.2 ) 0.2
Other non-operating income 0.3
4.3
1.3
13.1
(25.0 ) (25.2 ) (93.4 ) (79.8 )
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 96.6
200.3
254.2
430.2
INCOME TAX EXPENSE (4.8 ) (0.5 ) (23.1 ) (14.4 )
INCOME FROM CONTINUING OPERATIONS 91.8
199.8
231.1
415.8
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX (0.9 ) 238.0
(1.5 ) 102.8
NET INCOME $ 90.9
$ 437.8
$ 229.6
$ 518.6

EARNINGS (LOSS) PER COMMON SHARE – BASIC
Continuing operations $ 0.34
$ 0.67
$ 0.83
$ 1.40
Discontinued operations —
0.80
(0.01 ) 0.35
$ 0.34
$ 1.47
$ 0.82
$ 1.75
EARNINGS (LOSS) PER COMMON SHARE – DILUTED
Continuing operations $ 0.33
$ 0.64
$ 0.80
$ 1.37
Discontinued operations —
0.77
—
0.34
$ 0.33
$ 1.41
$ 0.80
$ 1.71
AVERAGE NUMBER OF SHARES (IN THOUSANDS)
Basic 269,960
297,878
278,418
297,587
Diluted 276,578
310,203
287,755
303,518



	(In Millions, Except Per Share Amounts)
	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenues	$	1,092.7		$	743.2		$	1,417.2		$	900.2
Realization of deferred revenue	—			—			34.6			—
Operating costs:
Cost of goods sold	(1,207.5		)	(480.2		)	(1,563.5		)	(606.3		)
Selling, general and administrative expenses	(62.1		)	(29.4		)	(89.6		)	(56.7		)
Acquisition-related costs	(18.4		)	—			(60.9		)	—
Miscellaneous – net	(13.1		)	(6.8		)	(25.0		)	(11.2		)
Total operating costs	(1,301.1		)	(516.4		)	(1,739.0		)	(674.2		)
Operating income (loss)	(208.4		)	226.8			(287.2		)	226.0
Other income (expense):
Interest expense, net	(68.7		)	(26.1		)	(99.7		)	(51.2		)
Gain (loss) on extinguishment of debt	129.4			(17.9		)	132.6			(18.2		)
Other non-operating income	15.2			0.6			21.2			1.0
Total other income (expense)	75.9			(43.4		)	54.1			(68.4		)
Income (loss) from continuing operations before income taxes	(132.5		)	183.4			(233.1		)	157.6
Income tax benefit (expense)	24.7			(22.0		)	76.1			(18.3		)
Income (loss) from continuing operations	(107.8		)	161.4			(157.0		)	139.3
Income (loss) from discontinued operations, net of tax	(0.3		)	(0.6		)	0.3			(0.6		)
Net income (loss)	(108.1		)	160.8			(156.7		)	138.7
Income attributable to noncontrolling interest	(15.8		)	—			(19.3		)	—
Net income (loss) attributable to Cliffs shareholders	$	(123.9	)	$	160.8		$	(176.0	)	$	138.7

Earnings (loss) per common share attributable to Cliffs shareholders - basic
Continuing operations	$	(0.31	)	$	0.59		$	(0.51	)	$	0.49
Discontinued operations	—			—			—			—
	$	(0.31	)	$	0.59		$	(0.51	)	$	0.49
Earnings (loss) per common share attributable to Cliffs shareholders - diluted
Continuing operations	$	(0.31	)	$	0.57		$	(0.51	)	$	0.47
Discontinued operations	—			—			—			—
	$	(0.31	)	$	0.57		$	(0.51	)	$	0.47
Average number of shares (in thousands)
Basic	399,088			275,769			348,302			282,647
Diluted	399,088			285,479			348,302			293,580

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

Table of Contents

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,
2019 2018 2019 2018
NET INCOME $ 90.9
$ 437.8
$ 229.6
$ 518.6
OTHER COMPREHENSIVE INCOME (LOSS)
Changes in pension and other post-retirement benefits, net of tax 5.8
6.8
17.3
20.2
Changes in foreign currency translation —
(228.3 ) —
(225.4 )
Changes in derivative financial instruments, net of tax 0.4
0.3
1.0
0.8
OTHER COMPREHENSIVE INCOME (LOSS) 6.2
(221.2 ) 18.3
(204.4 )
TOTAL COMPREHENSIVE INCOME $ 97.1
$ 216.6
$ 247.9
$ 314.2



	(In Millions)
	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net income (loss)	$	(108.1	)	$	160.8		$	(156.7	)	$	138.7
Other comprehensive income (loss):
Changes in pension and OPEB, net of tax	6.0			5.8			11.6			11.5
Changes in foreign currency translation	0.7			—			(0.2		)	—
Changes in derivative financial instruments, net of tax	4.5			(2.1		)	1.5			0.6
Total other comprehensive income	11.2			3.7			12.9			12.1
Comprehensive income (loss)	(96.9		)	164.5			(143.8		)	150.8
Comprehensive income attributable to noncontrolling interests	(15.8		)	—			(19.3		)	—
Comprehensive income (loss) attributable to Cliffs shareholders	$	(112.7	)	$	164.5		$	(163.1	)	$	150.8

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

Table of Contents

Statements of Unaudited Condensed Consolidated Cash Flows

Cleveland-Cliffs Inc. and Subsidiaries


	(In Millions)						(In Millions)
	Nine Months Ended September 30,						Six Months Ended June 30,
	2019			2018			2020			2019
OPERATING ACTIVITIES
Net income	$	229.6		$	518.6
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)							$	(156.7	)	$	138.7
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation, depletion and amortization	63.1			68.6			111.5			40.9
Amortization of inventory step-up							59.4			—
Deferred income taxes	22.7			—			(72.5		)	18.2
Loss (gain) on extinguishment of debt	18.2			(0.2		)	(132.6		)	18.2
Change in derivatives	48.4			(136.4		)
Gain on foreign currency translation	—			(228.1		)
Loss (gain) on derivatives							8.0			(27.2		)
Other	49.4			5.7			(28.0		)	28.4
Changes in operating assets and liabilities:
Changes in operating assets and liabilities, net of business combination:
Receivables and other assets	156.5			96.2			365.7			145.4
Inventories	(129.4		)	(57.1		)	(126.1		)	(148.7		)
Payables, accrued expenses and other liabilities	(70.4		)	(78.6		)	(327.9		)	(62.8		)
Net cash provided by operating activities	388.1			188.7
Net cash provided (used) by operating activities							(299.2		)	151.1
INVESTING ACTIVITIES
Purchase of property, plant and equipment	(447.9		)	(111.4		)	(282.9		)	(300.9		)
Deposits for property, plant and equipment	(12.8		)	(83.3		)
Acquisition of AK Steel, net of cash acquired							(869.3		)	—
Other investing activities	11.2			21.0			(0.2		)	8.5
Net cash used by investing activities	(449.5		)	(173.7		)	(1,152.4		)	(292.4		)
FINANCING ACTIVITIES
Repurchase of common shares	(252.9		)	—			—			(252.9		)
Dividends paid	(45.1		)	—
Proceeds from issuance of debt	720.9			—			1,762.9			720.9
Debt issuance costs	(6.8		)	(1.5		)	(57.9		)	(6.8		)
Repurchase of debt	(729.3		)	(16.3		)	(999.5		)	(729.3		)
Distributions of partnership equity	(44.2		)	(44.2		)
Borrowings under credit facilities							800.0			—
Repayments under credit facilities							(250.0		)	—
Dividends paid							(40.8		)	(28.9		)
Other financing activities	(9.5		)	(45.7		)	(43.6		)	(10.9		)
Net cash used by financing activities	(366.9		)	(107.7		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH	—			(2.3		)
DECREASE IN CASH AND CASH EQUIVALENTS, INCLUDING CASH CLASSIFIED WITHIN OTHER CURRENT ASSETS RELATED TO DISCONTINUED OPERATIONS	(428.3		)	(95.0		)
LESS: DECREASE IN CASH AND CASH EQUIVALENTS FROM DISCONTINUED OPERATIONS, CLASSIFIED WITHIN OTHER CURRENT ASSETS	(4.4		)	(13.8		)
NET DECREASE IN CASH AND CASH EQUIVALENTS	(423.9		)	(81.2		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	823.2			978.3
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	399.3		$	897.1
Net cash provided (used) by financing activities							1,171.1			(307.9		)
Decrease in cash and cash equivalents, including cash classified within other current assets related to discontinued operations							(280.5		)	(449.2		)
Less: decrease in cash and cash equivalents from discontinued operations, classified within other current assets							(1.6		)	(3.2		)
Net decrease in cash and cash equivalents							(278.9		)	(446.0		)
Cash and cash equivalents at beginning of period							352.6			823.2
Cash and cash equivalents at end of period							$	73.7		$	377.2

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 Accumulated
Other
Comprehensive
Loss Total
December 31, 2018 292.6
$ 37.7
$ 3,916.7
$ (3,060.2 ) $ (186.1 ) $ (283.9 ) $ 424.2
Comprehensive income (loss)
Net loss —
—
—
(22.1 ) —
—
(22.1 )
Other comprehensive income —
—
—
—
—
8.4
8.4
Total comprehensive loss (13.7 )
Stock and other incentive plans 1.7
—
(56.5 ) —
46.5
—
(10.0 )
Common share repurchases (11.5 ) —
—
—
(124.3 ) —
(124.3 )
Common share dividends ($0.05 per share) —
—
—
(14.5 ) —
—
(14.5 )
March 31, 2019 282.8
$ 37.7
$ 3,860.2
$ (3,096.8 ) $ (263.9 ) $ (275.5 ) $ 261.7
Comprehensive income
Net income —
—
—
160.8
—
—
160.8
Other comprehensive income —
—
—
—
—
3.7
3.7
Total comprehensive income 164.5
Stock and other incentive plans 0.1
—
3.4
—
1.2
—
4.6
Common share repurchases (12.9 ) —
—
—
(128.6 ) —
(128.6 )
Common share dividends ($0.06 per share) —
—
—
(16.6 ) —
—
(16.6 )
June 30, 2019 270.0
$ 37.7
$ 3,863.6
$ (2,952.6 ) $ (391.3 ) $ (271.8 ) $ 285.6
Comprehensive income
Net income —
—
—
90.9
—
—
90.9
Other comprehensive income —
—
—
—
—
6.2
6.2
Total comprehensive income 97.1
Stock and other incentive plans 0.1
—
4.1
—
0.4
—
4.5
Common share dividends ($0.10 per share) —
—
—
(27.3 ) —
—
(27.3 )
September 30, 2019 270.1
$ 37.7
$ 3,867.7
$ (2,889.0 ) $ (390.9 ) $ (265.6 ) $ 359.9



	(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	270.1	$	37.7	$	3,872.1		$	(2,842.4	)	$	(390.7	)	$	(318.8	)	$	—		$	357.9
Comprehensive income (loss)	—	—		—			(52.1		)	—			1.7			3.5			(46.9		)
Stock and other incentive plans	1.7	—		(23.6		)	—			25.7			—			—			2.1
Acquisition of AK Steel	126.8	15.9		601.7			—			—			—			329.8			947.4
Common share dividends ($0.06 per share)	—	—		—			(24.0		)	—			—			—			(24.0		)
Net distributions to noncontrolling interests	—	—		—			—			—			—			(5.5		)	(5.5		)
March 31, 2020	398.6	$	53.6	$	4,450.2		$	(2,918.5	)	$	(365.0	)	$	(317.1	)	$	327.8		$	1,231.0
Comprehensive income (loss)	—	—		—			(123.9		)	—			11.2			15.8			(96.9		)
Stock and other incentive plans	0.6	—		(6.6		)	—			9.1			—			—			2.5
Common share dividends	—	—		—			(0.1		)	—			—			—			(0.1		)
Net distributions to noncontrolling interests	—	—		—			—			—			—			(18.3		)	(18.3		)
June 30, 2020	399.2	$	53.6	$	4,443.6		$	(3,042.5	)	$	(355.9	)	$	(305.9	)	$	325.3		$	1,118.2

~~Table of Contents~~

(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 Accumulated
Other
Comprehensive
Loss Non-Controlling Interest Total
December 31, 2017 297.4
$ 37.7
$ 3,933.9
$ (4,207.3 ) $ (169.6 ) $ (39.0 ) $ 0.2
$ (444.1 )
Adoption of accounting standard —
—
—
34.0
—
—
—
34.0
Comprehensive income (loss)
Net loss —
—
—
(84.3 ) —
—
—
(84.3 )
Other comprehensive income —
—
—
—
—
7.7
—
7.7
Total comprehensive loss (76.6 )
Stock and other incentive plans 0.3
—
(15.8 ) —
17.7
—
—
1.9
March 31, 2018 297.7
$ 37.7
$ 3,918.1
$ (4,257.6 ) $ (151.9 ) $ (31.3 ) $ 0.2
$ (484.8 )
Comprehensive income
Net income —
—
—
165.1
—
—
—
165.1
Other comprehensive income —
—
—
—
—
9.1
—
9.1
Total comprehensive income 174.2
Distributions to noncontrolling interest —
—
—
—
—
(0.2 ) (0.2 )
Stock and other incentive plans 0.1
—
0.2
—
4.3
—
—
4.5
June 30, 2018 297.8
$ 37.7
$ 3,918.3
$ (4,092.5 ) $ (147.6 ) $ (22.2 ) $ —
$ (306.3 )
Comprehensive income (loss)
Net income —
—
—
437.8
—
—
—
437.8
Other comprehensive loss —
—
—
—
—
(221.2 ) (221.2 )
Total comprehensive income 216.6
Stock and other incentive plans 0.2
—
(5.0 ) —
8.5
—
—
3.5
September 30, 2018 298.0
$ 37.7
$ 3,913.3
$ (3,654.7 ) $ (139.1 ) $ (243.4 ) $ —
$ (86.2 )



	(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			Total
December 31, 2018	292.6		$	37.7	$	3,916.7		$	(3,060.2	)	$	(186.1	)	$	(283.9	)	$	424.2
Comprehensive income (loss)	—		—		—			(22.1		)	—			8.4			(13.7		)
Stock and other incentive plans	1.7		—		(56.5		)	—			46.5			—			(10.0		)
Common share repurchases	(11.5	)	—		—			—			(124.3		)	—			(124.3		)
Common share dividends ($0.05 per share)	—		—		—			(14.5		)	—			—			(14.5		)
March 31, 2019	282.8		$	37.7	$	3,860.2		$	(3,096.8	)	$	(263.9	)	$	(275.5	)	$	261.7
Comprehensive income	—		—		—			160.8			—			3.7			164.5
Stock and other incentive plans	0.1		—		3.4			—			1.2			—			4.6
Common share repurchases	(12.9	)	—		—			—			(128.6		)	—			(128.6		)
Common share dividends ($0.06 per share)	—		—		—			(16.6		)	—			—			(16.6		)
June 30, 2019	270.0		$	37.7	$	3,863.6		$	(2,952.6	)	$	(391.3	)	$	(271.8	)	$	285.6

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

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~~Cleveland-Cliffs Inc. and Subsidiaries~~

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~~six months ended ~~September~~June 30, ~~2019~~2020 are not necessarily indicative of results to be expected for the year ending December 31, ~~2019~~2020 or any other future period. ~~Certain~~Due to the acquisition of AK Steel, certain balances have become material and are no longer being condensed in our Statements of Unaudited Condensed Consolidated Financial Position, such as balances for Right-of-use asset, operating lease and Operating lease liability, non-current. As a result, certain prior period amounts have been reclassified to conform with the current year presentation. 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, ~~2018.~~

~~We have 2 reportable segments - the Mining~~2019 and ~~Pelletizing segment and the Metallics segment. Unless otherwise noted, discussion of~~in our ~~business and results of operations in this~~ Quarterly Report on Form 10-Q ~~refers~~for the three months ended March 31, 2020.

Acquisition of AK Steel

On March 13, 2020, we consummated the Merger, pursuant to ~~our continuing operations.~~

~~As more fully described~~which, upon the terms and subject to the conditions set forth in the ~~Form 10-K for~~Merger Agreement, Merger Sub was merged with and into AK Steel, with AK Steel surviving the ~~year ended December 31, 2018, in 2018 we committed to~~Merger as a ~~course~~wholly owned subsidiary of ~~action leading to the permanent closure of the Asia Pacific Iron Ore mining operations.~~ ~~As a result of our exit, management determined that our Asia Pacific Iron Ore operating segment met the criteria to be classified as held for sale and a discontinued operation under~~ ~~ASC Topic 205, Presentation of Financial Statements. As such, all Asia Pacific Iron Ore operating segment results are classified within discontinued operations.~~Cliffs. Refer to NOTE 133 - ~~DISCONTINUED OPERATIONS~~ACQUISITION OF AK STEEL for further information.

AK Steel is a leading North American producer of flat-rolled carbon, stainless and electrical steel products, primarily for the automotive, infrastructure and manufacturing markets. The acquisition of AK Steel has transformed us into a vertically integrated producer of value-added iron ore and steel products.

COVID-19

In response to the COVID-19 pandemic, we made various operational changes to adjust to the demand for our products. Although steel and iron ore production have been considered “essential” by the states in which we operate, certain of our facilities and construction activities were temporarily idled during the second quarter of 2020. Nearly all of these temporarily idled facilities were restarted as of June 30, 2020, with the exception of the Dearborn hot-end operations and Mansfield operations, which were restarted in July 2020, and the Northshore mine, which we plan to restart in early August 2020.

Basis of Consolidation

The unaudited condensed consolidated financial statements ~~include~~consolidate our accounts and the accounts of our ~~wholly-owned~~wholly owned subsidiaries, ~~including~~all subsidiaries in which we have a controlling interest and two variable interest entities for which we are the ~~following operations as of September 30, 2019:~~



~~Name~~	~~Location~~	~~Business Segment~~	~~Status of Operations~~
~~Northshore~~	~~Minnesota~~	~~Mining and Pelletizing~~	~~Active~~
~~United Taconite~~	~~Minnesota~~	~~Mining and Pelletizing~~	~~Active~~
~~Tilden~~	~~Michigan~~	~~Mining and Pelletizing~~	~~Active~~
~~Empire~~	~~Michigan~~	~~Mining and Pelletizing~~	~~Indefinitely Idled~~
~~Toledo HBI~~	~~Ohio~~	~~Metallics~~	~~Construction Stage~~

~~Intercompany~~primary beneficiary. All intercompany transactions and balances are eliminated upon consolidation.

~~Equity Method Investments~~Reportable Segments

~~Our 23% ownership interest~~The acquisition of AK Steel has transformed us into a vertically integrated producer of value-added iron ore and steel products and we are organized according to our differentiated products in ~~Hibbing is recorded as an equity method investment. As of September 30, 2019~~two reportable segments - the new Steel and ~~December 31, 2018, our investment in Hibbing was $14.0 million and $15.4 million, respectively, classified as~~ ~~Other liabilities~~ ~~in the Statements of Unaudited Condensed Consolidated Financial Position.~~

~~Foreign Currency~~

~~Our financial statements are prepared with the U.S. dollar as the reporting currency~~Manufacturing segment and the ~~functional currency of all subsidiaries is~~Mining and Pelletizing segment. Our new Steel and Manufacturing segment includes the U.S. dollar. In August 2018, management determined that there were significant changes in economic factors related to our Australian subsidiaries. The change in economic factors was a result of the sale and conveyance of substantially all assets and liabilities of our Australian subsidiaries to third parties, representing a significant change in operations. As such, the functional currency for the Australian subsidiaries changed from the Australian dollar to the U.S. dollar, requiring all remaining Australian denominated monetary balances to be remeasuredacquired through the ~~Statements~~acquisition of ~~Unaudited Condensed Consolidated Operations.~~AK Steel and our previously reported Metallics segment, and our Mining and Pelletizing segment includes our three active operating mines and our indefinitely idled mine.

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AsInvestments 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 ~~result~~loss in value below its carrying amount is other than temporary. Investees and equity ownership percentages are presented below:



Investee	Segment Reported Within	Equity Ownership Percentage
Combined Metals of Chicago, LLC	Steel and Manufacturing	40.0%
Hibbing Taconite Company	Mining and Pelletizing	23.0%
Spartan Steel Coating, LLC	Steel and Manufacturing	48.0%

We recorded a basis difference for Spartan Steel of $32.5 million as part of our acquisition of AK Steel. The basis difference relates to the excess of the ~~liquidation~~fair value over the investee's carrying amount of property, plant and equipment and will be amortized over the remaining useful lives of the ~~Australian subsidiaries' assets, the historical impact of foreign currency translation recorded in~~ ~~Accumulated other comprehensive loss~~ ~~in the Statements of Unaudited Condensed Consolidated Financial Position of $228.1 million was reclassified and recognized as a gain in~~ ~~Income (loss) from discontinued operations, net of tax~~ in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2018. Refer to NOTE 13 - DISCONTINUED OPERATIONS for further information regarding our Australian subsidiaries.underlying assets.

Significant Accounting Policies

A detailed description of our significant accounting policies can be found in the audited financial statements ~~for the fiscal year ended December 31, 2018~~ included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC, which were updated and can be found in the unaudited condensed consolidated financial statements included in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020 filed with the SEC. There have been no material changes in our significant accounting policies and estimates from those disclosed therein.

~~NOTE 2 - NEW ACCOUNTING STANDARDS~~Recent Accounting Pronouncements

Issued and Adopted

~~In February 2016,~~On March 2, 2020, the ~~FASB~~SEC issued a final rule that amended the disclosure requirements related to certain registered securities under SEC Regulation S-X, Rule 3-10, which required separate financial statements for subsidiary issuers and guarantors of registered debt securities unless certain exceptions are met. The final rule replaces the previous requirement under Rule 3-10 to provide condensed consolidating financial information in the registrant’s financial statements with a requirement to provide alternative financial disclosures (which include summarized financial information of the parent and any issuers and guarantors, as well as other qualitative disclosures) in either the registrant’s ~~ASU No. 2016-02, Leases (Topic 842)~~Management's Discussion and Analysis of Financial Condition and Results of Operations. or its financial statements, in addition to other simplifications. The ~~new standard requires lessees~~final rule is effective for filings on or after January 4, 2021, and early adoption is permitted. We elected to ~~recognize~~early adopt this disclosure update for the period ended March 31, 2020. As a ~~right-of-use asset~~result, we have excluded the footnote disclosures required under the previous Rule 3-10, and applied the final rule by including the summarized financial information and qualitative disclosures in Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q and Exhibit 22.1, filed herewith.

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NOTE 2 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION

Revenues

The following table represents our consolidated Revenues (excluding intercompany revenues) by market:



	(In Millions)
	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Steel and Manufacturing:
Automotive	$	363.8	$	—	$	484.0	$	—
Infrastructure and manufacturing	203.4		—		247.4		—
Distributors and converters	147.9		—		201.2		—
Total Steel and Manufacturing	715.1		—		932.6		—
Mining and Pelletizing:
Steel producers¹	377.6		743.2		519.2		900.2
Total revenues	$	1,092.7	$	743.2	$	1,451.8	$	900.2

¹ Includes Realization of deferred revenue of $34.6 million for the six months ended June 30, 2020.

The following table represents our consolidated Revenues (excluding intercompany revenues) by product line:



	(In Millions)
	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Steel and Manufacturing:
Carbon steel	$	431.8	$	—	$	570.4	$	—
Stainless and electrical steel	222.5		—		281.9		—
Tubular products, components and other	60.8		—		80.3		—
Total Steel and Manufacturing	715.1		—		932.6		—
Mining and Pelletizing:
Iron ore¹	349.7		697.4		481.0		842.8
Freight	27.9		45.8		38.2		57.4
Total Mining and Pelletizing	377.6		743.2		519.2		900.2
Total revenues	$	1,092.7	$	743.2	$	1,451.8	$	900.2

¹ Includes Realization of deferred revenue of $34.6 million for the six months ended June 30, 2020.

We sell domestically to customers located primarily in the Midwestern, Southern and Eastern United States and to foreign customers, primarily in Canada, Mexico and Western Europe. Net revenues to customers located outside the United States were $176.0 million and $222.7 million for the three and six months ended June 30, 2020, respectively, and $136.4 million and $179.4 million for the three and six months ended June 30, 2019, respectively.

Allowance for Credit Losses

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



	(In Millions)
	2020		2019
Allowance for credit losses as of January 1	$	—	$	—
Increase in allowance	4.3		—
Allowance for credit losses as of June 30	$	4.3	$	—

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Inventories

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



	(In Millions)
	June 30, 2020		December 31, 2019
Product inventories
Finished and semi-finished goods	$	1,026.4	$	114.1
Work-in-process	89.5		68.7
Raw materials	438.0		9.4
Total product inventories	1,553.9		192.2
Manufacturing supplies and critical spares	379.7		125.2
Inventories	$	1,933.6	$	317.4

Deferred Revenue

The table below summarizes our deferred revenue balances:



	(In Millions)
	Deferred Revenue (Current)						Deferred Revenue (Long-Term)
	2020			2019			2020			2019
Opening balance as of January 1	$	22.1		$	21.0		$	25.7		$	38.5
Net decrease	(17.2		)	(5.5		)	(25.7		)	(4.2		)
Closing balance as of June 30	$	4.9		$	15.5		$	—		$	34.3

Prior to the Merger, our iron ore pellet sales agreement with Severstal, subsequently assumed by AK Steel, required supplemental payments to be paid by the customer during the period 2009 through 2013. Installment amounts received under this arrangement in excess of sales were classified as deferred revenue in the Statements of Consolidated Financial Position upon receipt of payment and the revenue was recognized over the term of the supply agreement, which had extended until 2022, in equal annual installments. As a result of the termination of that iron ore pellet sales agreement, we realized $34.6 million of deferred revenue, which was recognized within Realization of deferred revenue in the Statements of Unaudited Condensed Consolidated Operations, during the six months ended June 30, 2020.

We have certain other sales agreements that require customers to pay in advance. Payments received pursuant to these agreements prior to revenue being recognized are recorded as deferred revenue in Other current liabilities.

Accrued Liabilities

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



	(In Millions)
	June 30, 2020		December 31, 2019
Accrued employment costs	$	153.8	$	61.7
Accrued interest	71.5		29.0
Accrued dividends	1.1		17.8
Other	61.9		17.8
Accrued liabilities	$	288.3	$	126.3

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Cash Flow Information

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



	(In Millions)
	Six Months Ended June 30,
	2020			2019
Capital additions	$	230.7		$	320.9
Less:
Non-cash accruals	(91.6		)	3.6
Right-of-use assets - finance leases	39.4			24.8
Grants	—			(8.4		)
Cash paid for capital expenditures including deposits	$	282.9		$	300.9

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



	(In Millions)
	Six Months Ended June 30,
	2020			2019
Taxes paid on income	$	0.2		$	0.1
Income tax refunds	(60.4		)	(117.9		)
Interest paid on debt obligations net of capitalized interest¹	63.0			53.2

¹Capitalized interest was $23.3 million and $9.9 million for the six months ended June 30, 2020 and 2019, respectively.

Non-Cash Investing and Financing Activities



	(In Millions)
	Six Months Ended June 30,
	2020		2019
Fair value of common shares issued for consideration for business combination	$	617.6	$	—
Fair value of equity awards assumed from AK Steel acquisition	3.9		—

NOTE 3 - ACQUISITION OF AK STEEL

Transaction Overview

On March 13, 2020, pursuant to the Merger Agreement, we completed the acquisition of AK Steel, in which we were the acquirer. As a result of the Merger, each share of AK Steel common stock issued and outstanding immediately prior to the effective time of the 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 acquisition combined Cliffs, North America’s largest producer of iron ore pellets, with AK Steel, a leading producer of innovative flat-rolled carbon, stainless and electrical steel products, to create a vertically integrated producer of value-added iron ore and 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. Together, Cliffs and AK Steel have a presence across the entire manufacturing process, from mining to pelletizing to the development and production of finished high value steel products, including Next Generation Advanced High Strength Steels for automotive and other markets. We expect the combination will generate additional cost synergies, which we have identified and already set into motion savings of approximately $150 million, primarily from consolidating corporate functions, reducing duplicative overhead costs, and procurement and energy cost savings, as well as operational and supply chain efficiencies. The combined company is well positioned to provide high-value iron ore and steel solutions to customers primarily across North America.

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Total net revenues for AK Steel for the most recent pre-acquisition year ended December 31, 2019 were $6,359.4 million. Following the acquisition, the operating results of AK Steel are included in our unaudited condensed consolidated financial statements and are reported as part of our Steel and Manufacturing segment. For the three months ended June 30, 2020, AK Steel generated Revenues of $715.1 million and a ~~lease liability~~ loss of $206.5 million included within Net income (loss) attributable to Cliffs shareholders, which included $36.2 million and $15.1 million related to amortization of the fair value inventory step-up and severance costs, respectively. For the period subsequent to the acquisition (March 13, 2020 through June 30, 2020), AK Steel generated Revenues of $932.6 million and a loss of $261.6 million included within Net income (loss) attributable to Cliffs shareholders, which included $59.4 million and $32.7 million related to amortization of the fair value inventory step-up and severance costs, respectively.

Additionally, we incurred acquisition-related costs excluding severance costs of $1.8 million and $25.0 million for the three and six months endedJune 30, 2020, respectively, which were recorded in Acquisition-related costs on the ~~balance sheet~~Statements of Unaudited Condensed Consolidated Operations.

Refer to NOTE 7 - DEBT AND CREDIT FACILITIES for ~~all~~information regarding debt transactions executed in connection with the Merger.

The Merger was accounted for under the acquisition method of accounting for business combinations. The acquisition date fair value of the consideration transferred totaled $1.5 billion. 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.

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



	(In Millions)
Fair value of Cliffs common shares issued for AK Steel outstanding common stock	$	617.6
Fair value of replacement equity awards	3.9
Fair value of AK Steel debt	913.6
Total purchase consideration	$	1,535.1

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 Merger is calculated as follows:



	(In Millions, Except Per Share Amounts)
Number of shares of AK Steel common stock issued and outstanding	316.9
Exchange ratio	0.400
Shares of Cliffs common shares issued to AK Steel stockholders	126.8
Price per share of Cliffs common shares	$	4.87
Fair value of Cliffs common shares issued for AK Steel outstanding common stock	$	617.6

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



	(In Millions)
Credit Facility	$	590.0
7.50% Senior Secured Notes due July 2023	323.6
Fair value of debt included in consideration	$	913.6

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Valuation Assumption and Preliminary Purchase Price Allocation

We estimated fair values at March 13, 2020 for the preliminary allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed. 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 acquisition, most notably, inventories, including manufacturing supplies and critical spares, personal and real property, leases, ~~except~~investments, deferred taxes, asset retirement obligations, pension and OPEB liabilities and intangible assets and liabilities, 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.

The preliminary purchase price allocation to assets acquired and liabilities assumed in the Merger was:



	(In Millions)
	Initial Allocation of Consideration			Measurement Period Adjustments			June 30, 2020
Cash and cash equivalents	$	37.7		$	2.0		$	39.7
Accounts receivable	666.0			(3.2		)	662.8
Inventories	1,562.8			(37.8		)	1,525.0
Other current assets	67.5			(14.5		)	53.0
Property, plant and equipment	2,184.4			2.9			2,187.3
Intangible assets	163.0			(15.0		)	148.0
Right of use asset, operating leases	225.9			(16.3		)	209.6
Other non-current assets	85.9			25.9			111.8
Accounts payable	(636.3		)	(2.9		)	(639.2		)
Accrued liabilities	(222.5		)	(2.1		)	(224.6		)
Other current liabilities	(181.8		)	7.0			(174.8		)
Long-term debt	(1,179.4		)	—			(1,179.4		)
Deferred income taxes	(19.7		)	(1.7		)	(21.4		)
Operating lease liability, non-current	(188.1		)	—			(188.1		)
Intangible liabilities	(140.0		)	65.0			(75.0		)
Pension and OPEB liabilities	(873.0		)	—			(873.0		)
Asset retirement obligations	(13.9		)	—			(13.9		)
Other non-current liabilities	(144.2		)	(5.7		)	(149.9		)
Net identifiable assets acquired	1,394.3			3.6			1,397.9
Goodwill	141.2			(4.0		)	137.2
Total net assets acquired	$	1,535.5		$	(0.4	)	$	1,535.1

During the second quarter of 2020, 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 Inventories measurement period adjustments of $37.8 million, resulted in a favorable impact of $7.8 million to Cost of goods sold for ~~short-term leases. For lessees, leases~~the three months ended June 30, 2020.

The goodwill resulting from the acquisition of AK Steel was assigned to Precision Partners, our downstream tooling and stamping operations, and AK Tube, our tubing operations, that are ~~classified~~reporting units included in the Steel and Manufacturing segment. Goodwill is calculated as ~~either operating or finance leases. We adopted this standard on its effective date~~the excess of the purchase price over the net identifiable assets recognized and primarily represents the growth opportunities in lightweighting solutions to automotive customers, as well as any synergistic benefits to be realized from the acquisition of AK Steel. None of the goodwill is expected be deductible for income tax purposes.

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



	(In Millions)			Weighted Average Life (In Years)
Intangible assets:
Customer relationships	$	77.0		18
Developed technology	60.0			17
Trade names and trademarks	11.0			10
Total identifiable intangible assets	$	148.0		17
Intangible liabilities:
Above-market supply contracts	$	(75.0	)	12

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 and six months ended June 30, 2020 and 2019, as if AK Steel had been acquired as of January 1, ~~2019 using~~2019:



	(In Millions)
	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
Revenues	$	979.1		$	2,233.8	$	2,427.7		$	4,021.1
Net income (loss) attributable to Cliffs shareholders	(125.3		)	184.9		(163.7		)	128.3

The unaudited pro forma financial information has been calculated after applying our accounting policies and adjusting the ~~optional alternative approach, which requires application~~historical results with pro forma adjustments, net of tax, that assume the acquisition occurred on January 1, 2019. Significant pro forma adjustments include the following:


1.	The elimination of intercompany revenues between Cliffs and AK Steel of $113.6 million and $259.2 million for the three and six months ended June 30, 2020, respectively, and $189.9 million and $257.3 million for the three and six months ended June 30, 2019, respectively.

The 2020 pro forma net loss was adjusted to exclude $36.2 million and $59.4 million of non-recurring inventory acquisition accounting adjustments incurred during the three and six months ended June 30, 2020, respectively. The 2019 pro forma net income was adjusted to include $18.5 million and $74.2 million of non-recurring inventory acquisition accounting adjustments for the three and six months ended June 30, 2019, respectively.


3.	The elimination of nonrecurring transaction costs incurred by Cliffs and AK Steel in connection with the Merger of $1.8 million and $28.4 million for the three and six months ended June 30, 2020, respectively.


4.	Total other pro forma adjustments included expense of $12.3 million and $1.0 million for the three and six months ended June 30, 2020, respectively, and expense of $4.0 million and $6.9 million for the three and six months ended June 30, 2019, respectively, primarily due to reduced interest and amortization expense, offset partially by additional depreciation expense and pension and OPEB expense.

The income tax impact of pro forma transaction adjustments that affect Net income (loss) attributable to Cliffs shareholders at a statutory rate of 24.3% resulted in an income tax benefit of $1.6 million and an income tax expense of $3.3 million for the three and six months ended June 30, 2020, respectively, and an income tax expense of $8.0 million and an income tax benefit of $2.8 million, for the three and six months ended June 30, 2019, respectively.

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 the ~~new guidance at the beginning~~two companies. This unaudited pro forma financial

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information should not be considered indicative of the ~~standard's effective date. Adoption of~~results that would have actually occurred if the ~~updated standard did not have a material effect~~acquisition had been consummated on ~~our consolidated financial statements.~~

~~Issued and Not Effective~~

~~In June 2016, the FASB issued~~ ~~ASU No. 2016-13, Financial Instruments–Credit Losses (Topic 326),~~ which introduces a new accounting model, Current Expected Credit Losses ("CECL"). CECL requires earlier recognition of credit losses, while also providing additional transparency about credit risk. CECL utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. We plan to adopt this standard on its effective date of January 1, ~~2020, and do not expect the standard to have a material effect on our consolidated financial statements.~~2019, nor are they indicative of future results.

NOTE 34 - SEGMENT REPORTING

~~In alignment with our strategic goals, our Company’s continuing~~Our Company is a vertically integrated producer of value-added iron ore and steel products. Our operations are organized and managed in 2 operating segments according to our ~~differentiated products.~~upstream and downstream operations. Our Steel and Manufacturing segment is a leading producer of flat-rolled carbon, stainless and electrical steel products, primarily for the automotive, infrastructure and manufacturing, and distributors and converters markets. Our Steel and Manufacturing segment includes subsidiaries 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. Construction of our HBI production plant in Toledo, Ohio, now included as part of our Steel and Manufacturing segment, is expected to be completed in the fourth quarter of 2020. Our Mining and Pelletizing segment is a major supplier of iron ore pellets to the North American steel industry from our mines and pellet plants located in Michigan and Minnesota. Our Metallics segment includes our HBI production plant in Toledo, Ohio, which is currently under construction and expected to be completed during the first half of 2020. During the second quarter of 2019, Northshore mine began supplying DR-grade pellets to our Metallics segment, which will be used as feedstock for the HBI production plant when we begin production in 2020. All intersegment ~~sales~~transactions were eliminated in consolidation.

We ~~evaluate performance based on sales margin, defined as revenues less cost of goods sold identifiable to each segment. Additionally, we~~ evaluate performance on a segment basis, as well as a consolidated basis, based on Adjusted EBITDA, ~~and Adjusted EBITDA. These measures are~~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 and iron ore ~~industry.~~industries. In addition, management believes ~~EBITDA and~~ Adjusted EBITDA ~~are~~is a useful ~~measures~~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, Except Sales Tons)
	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Sales volume (in thousands):
Steel and Manufacturing (net tons)	619			—			818			—

Mining and Pelletizing sales (long tons)	4,759			6,227			6,893			7,777
Less: Intercompany sales (long tons)	(1,041		)	(38		)	(1,824		)	(38		)
Mining and Pelletizing consolidated sales (long tons)	3,718			6,189			5,069			7,739

Revenues:
Steel and Manufacturing net sales to external customers	$	715.1		$	—		$	932.6		$	—

Mining and Pelletizing net sales¹	489.0			747.2			718.4			904.2
Less: Intercompany sales	(111.4		)	(4.0		)	(199.2		)	(4.0		)
Mining and Pelletizing net sales to external customers	377.6			743.2			519.2			900.2

Total revenues	$	1,092.7		$	743.2		$	1,451.8		$	900.2

Adjusted EBITDA:
Steel and Manufacturing	$	(104.0	)	$	(1.1	)	$	(115.1	)	$	(1.9	)
Mining and Pelletizing	82.4			280.5			164.2			328.0
Corporate and eliminations	(60.4		)	(31.0		)	(108.4		)	(56.5		)
Total Adjusted EBITDA	$	(82.0	)	$	248.4		$	(59.3	)	$	269.6

¹ Includes Realization of deferred revenue of $34.6 million for the six months ended June 30, 2020.

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The following ~~tables present a summary of our reportable segments including~~table provides a reconciliation of ~~segment revenues~~our consolidated Net income (loss) to total ~~Revenues from product sales and services, segment sales margin to total~~ ~~Sales margin~~ ~~and a reconciliation of~~ ~~Net income~~ ~~to EBITDA and~~ Adjusted EBITDA:

(In Millions)

Three Months Ended
September 30, 2019
Nine Months Ended
September 30, 2019
Mining and Pelletizing Metallics Total Mining and Pelletizing Metallics Total
Operating segment revenues from product sales and services $ 590.6
$ —
$ 590.6
$ 1,494.8
$ —
$ 1,494.8
Elimination of intersegment revenues (35.0 ) —
(35.0 ) (39.0 ) —
(39.0 )
Total revenues from product sales and services $ 555.6
$ —
$ 555.6
$ 1,455.8
$ —
$ 1,455.8

Operating segment sales margin $ 165.8
$ —
$ 165.8
$ 461.3
$ —
$ 461.3
Elimination of intersegment sales margin (10.9 ) —
(10.9 ) (12.5 ) —
(12.5 )
Total sales margin $ 154.9
$ —
$ 154.9
$ 448.8
$ —
$ 448.8



	(In Millions)
	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net income (loss)	$	(108.1	)	$	160.8		$	(156.7	)	$	138.7
Less:
Interest expense, net	(68.6		)	(26.3		)	(99.7		)	(51.4		)
Income tax benefit (expense)	24.7			(22.0		)	76.1			(18.3		)
Depreciation, depletion and amortization	(77.1		)	(21.0		)	(111.5		)	(40.9		)
Total EBITDA	$	12.9		$	230.1		$	(21.6	)	$	249.3
Less:
EBITDA of noncontrolling interests¹	$	20.5		$	—		$	25.1		$	—
Gain (loss) on extinguishment of debt	129.4			(17.9		)	132.6			(18.2		)
Severance costs	(16.6		)	—			(35.9		)	(1.7		)
Acquisition-related costs excluding severance costs	(1.8		)	—			(25.0		)	—
Amortization of inventory step-up	(36.2		)	—			(59.4		)	—
Impact of discontinued operations	(0.4		)	(0.4		)	0.3			(0.4		)
Total Adjusted EBITDA	$	(82.0	)	$	248.4		$	(59.3	)	$	269.6

~~Revenues from product sales and services~~¹EBITDA of ~~$741.8~~noncontrolling interests includes $15.8 million and ~~$1,636.1~~$19.3 million ~~respectively,~~for income and ~~sales margin of $261.6~~$4.7 million and ~~$607.6~~$5.8 million ~~respectively, related to our Mining~~of depreciation, depletion and ~~Pelletizing segment accounted for all of our consolidated revenues and sales margin~~amortization for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2020, respectively.

The following summarizes our assets by segment:



	(In Millions)
	June 30, 2020		December 31, 2019
Assets:
Steel and Manufacturing	$	6,201.6	$	913.6
Mining and Pelletizing	1,685.1		1,643.1
Total segment assets	7,886.7		2,556.7
Corporate and Other (including discontinued operations)	604.0		947.1
Total assets	$	8,490.7	$	3,503.8

The following table summarizes our capital additions by segment:



	(In Millions)
	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Capital additions¹:
Steel and Manufacturing	$	55.6	$	155.1	$	178.8	$	237.5
Mining and Pelletizing	17.4		35.6		51.6		82.4
Corporate and Other	—		0.9		0.3		1.0
Total capital additions	$	73.0	$	191.6	$	230.7	$	320.9

¹ Refer to NOTE 2 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION for additional information.

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(In Millions)
Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Net income $ 90.9
$ 437.8
$ 229.6
$ 518.6
Less:
Interest expense, net (25.4 ) (29.7 ) (76.8 ) (95.5 )
Income tax expense (4.8 ) (0.5 ) (23.1 ) (14.4 )
Depreciation, depletion and amortization (22.2 ) (19.2 ) (63.1 ) (68.6 )
EBITDA $ 143.3
$ 487.2
$ 392.6
$ 697.1
Less:
Impact of discontinued operations $ (0.8 ) $ 238.2
$ (1.2 ) $ 120.4
Gain (loss) on extinguishment of debt —
—
(18.2 ) 0.2
Severance costs —
—
(1.7 ) —
Foreign exchange remeasurement —
(0.2 ) —
(0.7 )
Impairment of long-lived assets —
(1.1 ) —
(1.1 )
Adjusted EBITDA $ 144.1
$ 250.3
$ 413.7
$ 578.3

EBITDA:
Mining and Pelletizing $ 177.5
$ 273.1
$ 494.9
$ 641.6
Metallics (2.1 ) (1.0 ) (4.0 ) (2.5 )
Corporate and Other (including discontinued operations) (32.1 ) 215.1
(98.3 ) 58.0
Total EBITDA $ 143.3
$ 487.2
$ 392.6
$ 697.1

Adjusted EBITDA:
Mining and Pelletizing $ 182.7
$ 279.5
$ 510.7
$ 657.9
Metallics (2.1 ) (1.0 ) (4.0 ) (2.5 )
Corporate (36.5 ) (28.2 ) (93.0 ) (77.1 )
Total Adjusted EBITDA $ 144.1
$ 250.3
$ 413.7
$ 578.3

~~The following table summarizes our depreciation, depletion and amortization and capital additions:~~

(In Millions)
Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Depreciation, depletion and amortization:
Mining and Pelletizing $ 20.8
$ 17.8
$ 58.9
$ 49.2
Corporate 1.4
1.4
4.2
4.2
Total depreciation, depletion and amortization $ 22.2
$ 19.2
$ 63.1
$ 53.4

Capital additions¹:

Mining and Pelletizing $ 22.1
$ 51.8
$ 104.5
$ 97.2
Metallics 160.5
40.6
398.0
143.6
Corporate 2.1
0.2
3.1
1.1
Total capital additions $ 184.7
$ 92.6
$ 505.6
$ 241.9

¹Refer to NOTE 16 - CASH FLOW INFORMATION for additional information.

~~Table of Contents~~

~~A summary of assets by segment is as follows:~~

(In Millions)
September 30,
2019 December 31,
2018
Assets:
Mining and Pelletizing $ 1,793.9
$ 1,694.1
Metallics 708.5
265.9
Total segment assets 2,502.4
1,960.0
Corporate and Other (including discontinued operations) 988.8
1,569.6
Total assets $ 3,491.2
$ 3,529.6

~~NOTE 4 - REVENUE~~

We sell primarily a single product, iron ore pellets, in the North American market. Revenue is recognized generally when iron ore is delivered to our customers. Revenue is measured at the point that control transfers and represents the amount of consideration we expect to receive in exchange for transferring goods. We offer standard payment terms to our customers, generally requiring settlement within 30 days.

We enter into supply contracts of varying lengths to provide customers iron ore pellets to use in their blast furnaces. Blast furnaces run continuously with a constant feed of iron ore and, once shut down, cannot easily be restarted. As a result, we ship iron ore in large quantities for storage and use by customers at a later date. Customers do not simultaneously receive and consume the iron ore. Based on our assessment of the factors that indicate the pattern of satisfaction, we transfer control of the iron ore at a point in time upon shipment or delivery of the product. The customer is able to direct the use of, and obtain substantially all of the benefits from, the product at the time the product is delivered.

Most of our customer supply agreements specify a provisional price, which is used for initial billing and cash collection. Revenue recorded in accordance with Topic 606 is calculated using the expected revenue rate at the point when control transfers. The final settlement includes market inputs for a specified period of time, which may vary by customer, but typically include one or more of the following published rates: Platts 62% Price, Atlantic Basin pellet premiums, Platts international indexed freight rates and changes in specified PPI, including industrial commodities, fuel and steel. Changes in the expected revenue rate from the date control transfers through final settlement of contract terms is recorded in accordance with Topic 815. Refer to NOTE 12 - DERIVATIVE INSTRUMENTS for further information on how our estimated and final revenue rates are determined.

A supply agreement with one customer provides for supplemental revenue or refunds based on the hot-rolled coil steel price in the year the iron ore is consumed in the customer’s blast furnaces. As control transfers prior to consumption, the supplemental revenue or refunds are recorded in accordance with ASC Topic 815. Refer to NOTE 12 - DERIVATIVE INSTRUMENTS for further information on supplemental revenue or refunds.

~~Included within~~ ~~Revenues from product sales and services~~ ~~related to Topic 815 is a derivative loss of $40.9 million and a derivative gain of $43.4 million for the three and nine months ended September 30, 2019, respectively, and derivative gains of~~ ~~$135.9 million~~ ~~and~~ ~~$334.4 million~~ ~~for the three and nine months ended September 30, 2018, respectively.~~

~~Deferred Revenue~~

~~The table below summarizes our deferred revenue balances:~~

(In Millions)
Deferred Revenue (Current) Deferred Revenue (Long-Term)
2019 2018 2019 2018
Opening balance as of January 1 $ 21.0
$ 23.8
$ 38.5
$ 51.4
Closing balance as of September 30 18.3
16.1
30.0
42.8
Decrease $ (2.7 ) $ (7.7 ) $ (8.5 ) $ (8.6 )

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The terms of one of our pellet supply agreements required supplemental payments to be paid by the customer during the period 2009 through 2012. Installment amounts received under this arrangement in excess of sales were classified as ~~Other current liabilities~~ ~~and~~ ~~Other liabilities~~ in the Statements of Unaudited Condensed Consolidated Financial Position upon receipt of payment. Revenue is recognized over the life of the supply agreement, which extends until 2022, in equal annual installments. As of September 30, 2019 and December 31, 2018, installment amounts received in excess of sales totaled $42.8 million and $51.3 million, respectively, related to this agreement. As of September 30, 2019 and December 31, 2018, deferred revenue of $12.8 million was recorded in ~~Other current liabilities~~ ~~and $30.0 million and $38.5 million, respectively, was recorded as long-term in~~ ~~Other liabilities~~ ~~in the Statements of Unaudited Condensed Consolidated Financial Position, related to this agreement.~~

Due to the payment terms and the timing of cash receipts near a period end, cash receipts can exceed shipments for certain customers. Revenue recognized on these transactions totaling $5.5 million and $8.2 million was deferred and included in ~~Other current liabilities~~ ~~in the Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2019 and December 31, 2018, respectively.~~

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT

The following table indicates the carrying value of each of the major classes of our depreciable assets:

(In Millions)
September 30,
2019 December 31,
2018
Land rights and mineral rights $ 549.7
$ 549.6
Office and information technology 72.9
70.0
Buildings 101.2
87.2
Mining equipment 577.0
548.5
Processing equipment 755.5
645.8
Electric power facilities 58.7
58.7
Land improvements 23.8
23.8
Asset retirement obligation 14.8
14.8
Other 29.2
25.2
Construction-in-progress 668.9
284.8
2,851.7
2,308.4
Allowance for depreciation and depletion (1,081.8 ) (1,022.4 )
$ 1,769.9
$ 1,286.0



	(In Millions)
	June 30, 2020			December 31, 2019
Land, land improvements and mineral rights	$	653.2		$	582.2
Buildings	454.4			157.8
Steel and Manufacturing equipment	2,147.9			42.0
Mining and Pelletizing equipment	1,448.6			1,413.6
Other	123.4			101.5
Construction-in-progress	1,058.3			730.3
Total property, plant and equipment¹	5,885.8			3,027.4
Allowance for depreciation and depletion	(1,337.9		)	(1,098.4		)
Property, plant and equipment, net	$	4,547.9		$	1,929.0

¹Includes right-of-use assets related to finance leases of $93.7 million and $49.0 million as of June 30, 2020 and December 31, 2019, respectively.

We recorded capitalized interest into property, plant and equipment of ~~$7.0~~$13.6 million and ~~$16.9~~$23.3 million during the three and six months ended June 30, 2020, respectively, and $5.9 million and $9.9 million for the three and ~~nine~~six months ended ~~September~~June 30, 2019, ~~respectively,~~respectively.

We recorded depreciation and ~~$1.8~~depletion expense of $75.3 million and ~~$3.9~~$110.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2020, respectively, and $20.9 million and $40.5 million for the three and six months ended June 30, 2019, respectively.

NOTE 6 - GOODWILL AND INTANGIBLE ASSETS AND LIABILITIES

Goodwill

The increase in the balance of Goodwill as of June 30, 2020, compared to December 31, 2019, is due to the preliminary assignment of $137.2 million to Goodwill in 2020 based on the preliminary purchase price allocation for the acquisition of AK Steel. The carrying amount of goodwill related to our Mining and Pelletizing segment was $2.1 million as of both June 30, 2020 and December 31, 2019.

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Intangible Assets and Liabilities

The following is a summary of our intangible assets and liabilities:



		(In Millions)
	Classification¹	Gross Amount			Accumulated Amortization			Net Amount
As of June 30, 2020
Intangible assets:
Customer relationships	Intangible assets, net	$	77.0		$	(1.5	)	$	75.5
Developed technology	Intangible assets, net	60.0			(1.2		)	58.8
Trade names and trademarks	Intangible assets, net	11.0			(0.4		)	10.6
Mining permits	Intangible assets, net	72.2			(24.5		)	47.7
Total intangible assets		$	220.2		$	(27.6	)	$	192.6
Intangible liabilities:
Above-market supply contracts	Intangible liabilities, net	$	(75.0	)	$	2.7		$	(72.3	)

As of December 31, 2019
Intangible assets:
Mining permits	Intangible assets, net	$	72.2		$	(24.1	)	$	48.1

¹Amortization of intangible liabilities related to above-market supply contracts and intangible assets related to mining permits is recognized in Cost of goods sold. Amortization of all other intangible assets is recognized in Selling, general and administrative expenses.

Amortization expense related to intangible assets was $2.4 million and $3.5 million for the three and six months ended June 30, 2020, respectively, and $0.2 million and $0.4 million for the three and six months ended June 30, 2019, respectively.

Estimated future amortization expense related to intangible assets at June 30, 2020 is as follows:



	(In Millions)
Years ending December 31,
2020 (remaining period of the year)	$	5.0
2021	10.0
2022	10.0
2023	10.0
2024	10.0
2025	10.0

Income from amortization related to the intangible liabilities was $0.6 million and $2.7 million for the three and six months ended June 30, 2020, respectively.

Estimated future amortization income related to the intangible liabilities at June 30, 2020 is as follows:



	(In Millions)
Years ending December 31,
2020 (remaining period of the year)	$	4.1
2021	8.2
2022	8.2
2023	8.2
2024	8.2
2025	8.2

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NOTE 67 - DEBT AND CREDIT FACILITIES

The following represents a summary of our long-term debt:

(In Millions)
September 30, 2019
Debt Instrument
Annual Effective
Interest Rate
Total Principal Amount Debt Issuance Costs Unamortized Discounts Total Debt
Secured Notes:
$400 Million 4.875% 2024 Senior Notes 5.00% $ 400.0
$ (4.9 ) $ (1.9 ) $ 393.2
Unsecured Notes:
$316.25 Million 1.50% 2025 Convertible Senior Notes 6.26% 316.3
(4.8 ) (67.7 ) 243.8
$1.075 Billion 5.75% 2025 Senior Notes 6.01% 473.3
(3.8 ) (5.8 ) 463.7
$750 Million 5.875% 2027 Senior Notes 6.49% 750.0
(6.5 ) (28.0 ) 715.5
$800 Million 6.25% 2040 Senior Notes 6.34% 298.4
(2.2 ) (3.3 ) 292.9
ABL Facility N/A 450.0
N/A
N/A
—
Long-term debt $ 2,109.1



(In Millions)
June 30, 2020
Debt Instrument	Issuer¹	Annual Effective Interest Rate	Total Principal Amount		Debt Issuance Costs			Unamortized Premiums (Discounts)			Total Debt
Senior Secured Notes:
4.875% 2024 Senior Secured Notes	Cliffs	5.00%	$	394.5	$	(4.0	)	$	(1.6	)	$	388.9
9.875% 2025 Senior Secured Notes	Cliffs	10.57%	955.2		(8.7		)	(26.7		)	919.8
6.75% 2026 Senior Secured Notes	Cliffs	6.99%	845.0		(22.6		)	(9.4		)	813.0
Senior Unsecured Notes:
7.625% 2021 AK Senior Notes	AK Steel	7.33%	33.5		—			0.1			33.6
7.50% 2023 AK Senior Notes	AK Steel	6.17%	12.8		—			0.5			13.3
6.375% 2025 Senior Notes	Cliffs	8.11%	64.3		(0.2		)	(4.8		)	59.3
6.375% 2025 AK Senior Notes	AK Steel	8.11%	38.4		—			(2.9		)	35.5
1.50% 2025 Convertible Senior Notes	Cliffs	6.26%	296.3		(3.9		)	(55.6		)	236.8
5.75% 2025 Senior Notes	Cliffs	6.01%	396.2		(2.8		)	(4.3		)	389.1
7.00% 2027 Senior Notes	Cliffs	9.24%	88.0		(0.3		)	(9.8		)	77.9
7.00% 2027 AK Senior Notes	AK Steel	9.24%	56.3		—			(6.2		)	50.1
5.875% 2027 Senior Notes	Cliffs	6.49%	555.5		(4.5		)	(19.0		)	532.0
6.25% 2040 Senior Notes	Cliffs	6.34%	262.7		(1.9		)	(2.8		)	258.0
IRBs due 2024 to 2028	AK Steel	Various	92.0		—			2.3			94.3
ABL Facility	Cliffs²	2.79%	2,000.0		—			—			550.0
Total long-term debt											$	4,451.6

¹ Unless otherwise noted, references in this column to "Cliffs" are to Cleveland-Cliffs Inc., and references to "AK Steel" are to AK Steel Corporation.

²Refers to Cleveland-Cliffs Inc. as borrower under our ABL Facility.

(In Millions)
December 31, 2018
Debt Instrument
Annual Effective
Interest Rate
Total Principal Amount Debt Issuance Costs Unamortized Discounts Total Debt
Secured Notes:
$400 Million 4.875% 2024 Senior Notes 5.00% $ 400.0
$ (5.7 ) $ (2.2 ) $ 392.1
Unsecured Notes:
$700 Million 4.875% 2021 Senior Notes 4.89% 124.0
(0.2 ) —
123.8
$316.25 Million 1.50% 2025 Convertible Senior Notes 6.26% 316.3
(5.5 ) (75.6 ) 235.2
$1.075 Billion 5.75% 2025 Senior Notes 6.01% 1,073.3
(9.9 ) (14.6 ) 1,048.8
$800 Million 6.25% 2040 Senior Notes 6.34% 298.4
(2.3 ) (3.3 ) 292.8
ABL Facility N/A 450.0
N/A
N/A
—
Fair Value Adjustment to Interest Rate Hedge 0.2
Long-term debt $ 2,092.9



(In Millions)
December 31, 2019
Debt Instrument	Issuer¹	Annual Effective Interest Rate	Total Principal Amount		Debt Issuance Costs			Unamortized Discounts			Total Debt
Senior Secured Notes:
4.875% 2024 Senior Notes	Cliffs	5.00%	$	400.0	$	(4.6	)	$	(1.8	)	$	393.6
Senior Unsecured Notes:
1.50% 2025 Convertible Senior Notes	Cliffs	6.26%	316.3		(4.6		)	(65.0		)	246.7
5.75% 2025 Senior Notes	Cliffs	6.01%	473.3		(3.6		)	(5.5		)	464.2
5.875% 2027 Senior Notes	Cliffs	6.49%	750.0		(6.3		)	(27.3		)	716.4
6.25% 2040 Senior Notes	Cliffs	6.34%	298.4		(2.2		)	(3.3		)	292.9
Former ABL Facility	Cliffs²	N/A	450.0		N/A			N/A			—
Total long-term debt											$	2,113.8

~~$750 Million 5.875%~~¹Unless otherwise noted, references in this column to "Cliffs" are to Cleveland-Cliffs Inc.

² Refers to Cleveland-Cliffs Inc. and certain of its subsidiaries as borrowers under our Former ABL Facility.

Table of Contents

9.875% 2025 Senior Secured Notes ~~due 2027 Offering~~Offerings

On ~~May 13, 2019,~~April 17, 2020, we entered into an indenture among ~~the Company,~~Cliffs, the guarantors party thereto and U.S. Bank National Association, as trustee and notes collateral agent, relating to the issuance by Cliffs of ~~$750~~$400.0 million aggregate principal amount of ~~5.875% 2027~~9.875% 2025 Senior ~~Notes. The 5.875% 2027 Senior~~Secured Notes ~~were~~ issued at ~~96.125%~~94.5% of face value.

On April 24, 2020, we issued an additional $555.2 million aggregate principal amount of 9.875% 2025 Senior Secured Notes issued at 99.0% of face value. These additional notes are of the same class and series as, and otherwise identical to, the 9.875% 2025 Senior Secured Notes issued on April 17, 2020, other than with respect to the date of issuance and issue price.

The ~~5.875% 2027~~9.875% 2025 Senior Secured Notes were issued in a private ~~transaction~~placement transactions exempt from the registration requirements of the Securities Act of 1933. Pursuant to the registration rights agreement executed as part of this offering, we agreed to file a registration statement with the SEC with respect to a registered offer to exchange the 5.875% 2027Act. The 9.875% 2025 Senior ~~Notes for publicly registered notes within 365 days of the closing date, with all significant terms and conditions remaining the same.~~

~~The 5.875% 2027 Senior~~Secured Notes bear interest at a rate of ~~5.875%~~9.875% per annum, payable semi-annually in arrears on ~~June 1~~April 17 and ~~December 1~~October 17 of each year, commencing on ~~December 1, 2019.~~October 17, 2020. The ~~5.875% 2027~~9.875% 2025 Senior Secured Notes will mature on ~~June 1, 2027.~~

~~Table of Contents~~

October 17, 2025.

The ~~5.875% 2027~~9.875% 2025 Senior Secured Notes are ~~unsecured obligations~~jointly and ~~rank equally in right of payment with all of our existing~~severally and ~~future unsecured~~fully and ~~unsubordinated indebtedness. The 5.875% 2027 Senior Notes are~~unconditionally guaranteed on a senior ~~unsecured~~secured basis by substantially all of our material ~~direct and indirect wholly-owned~~ domestic subsidiaries and ~~therefore,~~ are ~~structurally senior~~secured (subject in each case to ~~any~~certain exceptions and permitted liens) by (i) a first-priority lien, on a pari passu basis with the 6.75% 2026 Senior Secured Notes and 4.875% 2024 Senior Secured Notes, on substantially all of our ~~existing~~assets and ~~future indebtedness that~~the assets of the guarantors, other than the ABL Collateral (as defined below), and (ii) a second-priority lien on the ABL Collateral, which is ~~not guaranteed by such guarantors and are structurally subordinated~~junior to ~~all existing and future indebtedness and other liabilities~~a first-priority lien for the benefit of the lenders under our ~~subsidiaries that do not guarantee the 5.875% 2027 Senior Notes.~~ABL Facility.

The ~~5.875% 2027~~9.875% 2025 Senior Secured Notes may be redeemed, in whole or in part, at any time at our option upon not less than 30, ~~days nor~~and not more than 60, ~~days after~~days' prior notice is sent to the holders of the ~~5.875% 2027~~9.875% 2025 Senior Secured Notes. The following is a summary of redemption prices for our ~~5.875% 2027~~9.875% 2025 Senior Secured Notes:



Redemption Period	Redemption Price¹		Restricted Amount
Prior to ~~June 1,~~August 15, 2020 - using proceeds of a regulatory debt facility	103.000	%	Up to 35% of original aggregate principal
Prior to October 17, 2022 - using proceeds of equity issuance	~~105.875~~109.875	%	Up to 35% of original aggregate principal
Prior to ~~June 1,~~October 17, 2022²	100.000
Beginning on ~~June 1,~~October 17, 2022	~~102.938~~107.406
Beginning on ~~June 1,~~April 17, 2023	~~101.958~~104.938
Beginning on ~~June 1,~~April 17, 2024	~~100.979~~102.469
Beginning on ~~June 1,~~April 17, 2025 and thereafter	100.000

¹ Plus accrued and unpaid interest, if any, up to, but excluding, the redemption date.
² Plus a "make-whole" premium.

In addition, if a change in control triggering event, as defined in the indenture, occurs with respect to the ~~5.875%~~9.875% 2025 Senior Secured Notes, we will be required to offer to purchase the notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to, but not including, the date of purchase.

The terms of the 9.875% 2025 Senior Secured Notes contain certain customary covenants; however, there are no financial covenants.

Debt issuance costs of $9.1 million were incurred related to the offerings of the 9.875% 2025 Senior Secured Notes and are included in Long-term debt in the Statements of Unaudited Condensed Consolidated Financial Position.

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6.75% 2026 Senior Secured Notes Offerings

On March 13, 2020, we entered into an indenture among Cliffs, the guarantors party thereto and U.S. Bank National Association, as trustee and notes collateral agent, relating to the issuance of $725.0 million aggregate principal amount of 6.75% 2026 Senior Secured Notes issued at 98.783% of face value.

On June 19, 2020, we issued an additional $120.0 million aggregate principal amount of 6.75% 2026 Senior Secured Notes issued at 99.25% of face value. These additional notes are of the same class and series as, and otherwise identical to, the 6.75% 2026 Senior Secured Notes issued on March 13, 2020, other than with respect to the date of issuance and issue price.

The 6.75% 2026 Senior Secured Notes were issued in private placement transactions exempt from the registration requirements of the Securities Act. The 6.75% 2026 Senior Secured Notes bear interest at a rate of 6.75% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, commencing on September 15, 2020. The 6.75% 2026 Senior Secured Notes mature on March 15, 2026.

The 6.75% 2026 Senior Secured Notes are jointly and severally and fully and unconditionally guaranteed on a senior secured basis by substantially all of our material domestic subsidiaries and are secured (subject in each case to certain exceptions and permitted liens) by (i) a first-priority lien, on a pari passu basis with the 4.875% 2024 Senior Secured Notes and 9.875% 2025 Senior Secured Notes, on substantially all of our assets and the assets of the guarantors, other than the ABL Collateral, and (ii) a second-priority lien on the ABL Collateral, which is junior to a first-priority lien for the benefit of the lenders under our ABL Facility.

The 6.75% 2026 Senior Secured Notes may be redeemed, in whole or in part, at any time at our option upon not less than 30, and not more than 60, days' prior notice sent to the holders of the 6.75% 2026 Senior Secured Notes. The following is a summary of redemption prices for our 6.75% 2026 Senior Secured Notes:



Redemption Period	Redemption Price¹		Restricted Amount
Prior to March 15, 2022 - using proceeds of equity issuance	106.750	%	Up to 35% of original aggregate principal
Prior to March 15, 2022²	100.000
Beginning on March 15, 2022	105.063
Beginning on March 15, 2023	103.375
Beginning on March 15, 2024	101.688
Beginning on March 15, 2025 and thereafter	100.000

¹ Plus accrued and unpaid interest, if any, up to, but excluding, the redemption date.
² Plus a "make-whole" premium.

In addition, if a change in control triggering event, as defined in the indenture, occurs with respect to the 6.75% 2026 Senior Secured Notes, we will be required to offer to purchase the notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to, but not including, the date of purchase.

The terms of the 6.75% 2026 Senior Secured Notes contain certain customary covenants; however, there are no financial covenants.

Debt issuance costs of $23.7 million were incurred related to the offerings of the 6.75% 2026 Senior Secured Notes and are included in Long-term debt in the Statements of Unaudited Condensed Consolidated Financial Position.

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Cliffs Senior Notes exchanged for AK Steel Corporation Senior Notes

On March 16, 2020, we entered into indentures, in each case among Cliffs, the guarantors party thereto and U.S. Bank National Association, as trustee, relating to the issuance by Cliffs of $231.8 million aggregate principal amount of 6.375% 2025 Senior Notes and $335.4 million aggregate principal amount of 7.00% 2027 Senior Notes. The new notes were issued in exchange for equal aggregate principal amounts of 6.375% 2025 AK Senior Notes and 7.00% 2027 AK Senior Notes, respectively. The 6.375% 2025 Senior Notes and 7.00% 2027 Senior Notes were issued pursuant to exchange offers made by Cliffs in private placement transactions exempt from the registration requirements of the Securities Act. Pursuant to the registration rights agreements executed in connection with the issuance of the new notes, we agreed to file registration statements with the SEC with respect to registered offers to exchange the 6.375% 2025 Senior Notes and 7.00% 2027 Senior Notes for publicly registered notes within 365 days of the closing date, with all significant terms and conditions remaining the same.

The 6.375% 2025 Senior Notes and 7.00% 2027 Senior Notes are unsecured obligations and rank equally in right of payment with all of our existing and future unsecured and unsubordinated indebtedness. The notes are guaranteed on a senior unsecured basis by our material direct and indirect wholly owned domestic subsidiaries and, therefore, are structurally senior to any of our existing and future indebtedness that is not guaranteed by such guarantors and are structurally subordinated to all existing and future indebtedness and other liabilities of our subsidiaries that do not guarantee the notes.

In addition, if a change in control triggering event, as defined in the indentures, occurs with respect to the 6.375% 2025 Senior Notes or 7.00% 2027 Senior Notes, we will be required to offer to purchase the notes at a purchase price equal to 101% of ~~the aggregate~~their principal amount, plus accrued and unpaid interest, if any, to, but not including, the date of purchase.

The terms of the ~~5.875%~~6.375% 2025 Senior Notes and 7.00% 2027 Senior Notes contain certain customary covenants; however, there are no financial covenants.

6.375% 2025 Senior Notes

The 6.375% 2025 Senior Notes bear interest at a rate of 6.375% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, commencing on April 15, 2020. The 6.375% 2025 Senior Notes mature on October 15, 2025.

The 6.375% 2025 Senior Notes may be redeemed, in whole or in part, at any time at our option upon not less than 30, and not more than 60, days' prior notice sent to the holders of the 6.375% 2025 Senior Notes. The following is a summary of redemption prices for our 6.375% 2025 Senior Notes:



Redemption Period	Redemption Price¹		Restricted Amount
Prior to October 15, 2020 - using proceeds of equity issuance	106.375	%	Up to 35% of original aggregate principal
Prior to October 15, 2020²	100.000
Beginning on October 15, 2020	103.188
Beginning on October 15, 2021	101.594
Beginning on October 15, 2022 and thereafter	100.000

¹ Plus accrued and unpaid interest, if any, up to but excluding the redemption date.
² Plus a "make-whole" premium.

Debt issuance costs of ~~$6.8~~$0.9 million were incurred ~~related~~in connection with the issuance of the 6.375% 2025 Senior Notes and are included in Long-term debt in the Statements of Unaudited Condensed Consolidated Financial Position.

7.00% 2027 Senior Notes

The 7.00% 2027 Senior Notes bear interest at a rate of 7.00% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, commencing on September 15, 2020. The 7.00% 2027 Senior Notes mature on March 15, 2027.

Table of Contents

The 7.00% 2027 Senior Notes may be redeemed, in whole or in part, at any time at our option upon not less than 30, and not more than 60, days' prior notice sent to the ~~offering~~holders of the ~~5.875%~~7.00% 2027 Senior Notes. The following is a summary of redemption prices for our 7.00% 2027 Senior Notes:



Redemption Period	Redemption Price¹
Prior to March 15, 2022²	100.000	%
Beginning on March 15, 2022	103.500
Beginning on March 15, 2023	102.333
Beginning on March 15, 2024	101.167
Beginning on March 15, 2025 and thereafter	100.000

¹ Plus accrued and unpaid interest, if any, up to but excluding the redemption date.
² Plus a "make-whole" premium.

Debt issuance costs of $1.3 million were incurred in connection with the issuance of the 7.00% 2027 Senior Notes and are included in Long-term debt in the Statements of Unaudited Condensed Consolidated Financial Position.

~~Debt Extinguishments - 2019~~AK Steel Corporation Senior Unsecured Notes

~~The net proceeds from the issuance~~As of ~~$750~~June 30, 2020, AK Steel Corporation had outstanding a total of $141.0 million aggregate principal amount of ~~5.875% 2027~~7.625% 2021 AK Senior Notes, 7.50% 2023 AK Senior Notes, ~~along with cash on hand, were used to redeem in full all of our outstanding 4.875% 2021~~6.375% 2025 AK Senior Notes and 7.00% 2027 AK Senior Notes. These senior notes are unsecured obligations and rank equally in right of payment with AK Steel Corporation's guarantees of Cliffs' unsecured and unsubordinated indebtedness. These notes contain certain customary covenants; however, there are no financial covenants.

We may redeem the 7.625% 2021 AK Senior Notes at 100.000% of their principal amount, together with all accrued and unpaid interest to ~~fund~~ the date of redemption.

The following is a summary of redemption prices for the 7.50% 2023 AK Senior Notes:



Redemption Period	Redemption Price¹
Prior to July 15, 2020	103.750	%
Beginning on July 15, 2020	101.875
Beginning on July 15, 2021 and thereafter	100.000

¹ Plus accrued and unpaid interest, if any, up to but excluding the redemption date.

The following is a summary of redemption prices for the 6.375% 2025 AK Senior Notes:



Redemption Period	Redemption Price¹
Prior to October 15, 2020²	100.000	%
Beginning on October 15, 2020	103.188
Beginning on October 15, 2021	101.594
Beginning on October 15, 2022 and thereafter	100.000

¹ Plus accrued and unpaid interest, if any, up to but excluding the redemption date.
² Plus a "make-whole" premium.

Table of Contents

The following is a summary of redemption prices for the 7.00% 2027 AK Senior Notes:



Redemption Period	Redemption Price¹
Prior to March 15, 2022²	100.000	%
Beginning on March 15, 2022	103.500
Beginning on March 15, 2023	102.333
Beginning on March 15, 2024	101.167
Beginning on March 15, 2025 and thereafter	100.000

¹ Plus accrued and unpaid interest, if any, up to but excluding the redemption date.
² Plus a "make-whole" premium.

Industrial Revenue Bonds

AK Steel Corporation had outstanding $66.0 million aggregate principal amount of fixed-rate, tax-exempt IRBs as of June 30, 2020. The weighted-average fixed rate of the unsecured IRBs is 6.86%. The IRBs are unsecured senior debt obligations that are equal in ranking with AK Steel Corporation's senior unsecured notes and AK Steel Corporation's guarantees of Cliffs' unsecured and unsubordinated indebtedness. In addition, AK Steel Corporation had outstanding $26.0 million aggregate principal amount of variable-rate IRBs as of June 30, 2020 that are backed by a letter of credit. These IRBs contain certain customary covenants; however, there are no financial covenants.

Debt Extinguishments - 2020

On April 24, 2020, we used the net proceeds from the offering of the additional 9.875% 2025 Senior Secured Notes to repurchase ~~of $600~~$736.4 million aggregate principal amount of our outstanding ~~5.75% 2025~~senior notes of various series, which resulted in debt reduction of $181.2 million. During the second quarter of 2020, we also repurchased an additional $11.2 million aggregate principal amount of our outstanding senior notes of various series with cash on hand. On June 1, 2020, we redeemed $7.3 million aggregate principal amount of our outstanding 2020 IRBs.

On March 13, 2020, in connection with the Merger, we purchased $364.2 million aggregate principal amount of 7.625% 2021 AK Senior Notes and $310.7 million aggregate principal amount of 7.50% 2023 AK Senior Notes upon early settlement of tender offers made by Cliffs. The net proceeds from the offering of 6.75% 2026 Senior Secured Notes, along with a portion of the ABL Facility borrowings, were used to fund such purchases. As the 7.625% 2021 AK Senior Notes and 7.50% 2023 AK Senior Notes were recorded at fair value just prior to being purchased, there was no gain or loss on extinguishment. Additionally, in aconnection with the final settlement of the tender ~~offer.~~ offers, on March 27, 2020, we purchased $8.5 million aggregate principal amount of the 7.625% 2021 AK Senior Notes and $56.5 million aggregate principal amount of the 7.50% 2023 AK Senior Notes with cash on hand.

The following is a summary of the debt extinguished and the respective ~~loss~~gain on extinguishment:

(In Millions)

Nine Months Ended
September 30, 2019
Debt Instrument Debt Extinguished (Loss) on Extinguishment
$700 Million 4.875% 2021 Senior Notes $ 124.0
$ (5.3 )
$1.075 Billion 5.75% 2025 Senior Notes 600.0
(12.9 )
$ 724.0
$ (18.2 )



	(In Millions)
	Three Months Ended June 30, 2020				Six Months Ended June 30, 2020
Debt Instrument	Debt Extinguished		Gain on Extinguishment		Debt Extinguished		Gain on Extinguishment
7.625% 2021 AK Senior Notes	$	—	$	—	$	372.7	$	0.4
7.50% 2023 AK Senior Notes	—		—		367.2		2.8
4.875% 2024 Senior Secured Notes	5.5		0.5		5.5		0.5
6.375% 2025 Senior Notes	167.5		21.3		167.5		21.3
1.50% 2025 Convertible Senior Notes	20.0		1.3		20.0		1.3
5.75% 2025 Senior Notes	77.1		16.3		77.1		16.3
7.00% 2027 Senior Notes	247.3		28.4		247.3		28.4
5.875% 2027 Senior Notes	194.5		48.7		194.5		48.7
6.25% 2040 Senior Notes	35.7		12.9		35.7		12.9
	$	747.6	$	129.4	$	1,487.5	$	132.6

1625

Table of Contents

Debt Extinguishments - ~~2018~~2019

The following is a summary of the debt extinguished with cash and the respective ~~gain~~loss on extinguishment:

(In Millions)

Three Months Ended
September 30, 2018

Nine Months Ended
September 30, 2018
Debt Instrument Debt Extinguished Gain on Extinguishment Debt Extinguished Gain on Extinguishment
$400 Million 5.90% 2020 Senior Notes $ —
$ —
$ 0.5
$ —
$500 Million 4.80% 2020 Senior Notes —
—
0.1
—
$700 Million 4.875% 2021 Senior Notes 1.0
—
14.2
0.1
$1.075 Billion 5.75% 2025 Senior Notes —
—
1.7
0.1
$ 1.0
$ —
$ 16.5
$ 0.2



	(In Millions)
	Three Months Ended June 30, 2019					Six Months Ended June 30, 2019
Debt Instrument	Debt Extinguished		(Loss) on Extinguishment			Debt Extinguished		(Loss) on Extinguishment
4.875% 2021 Senior Notes	$	114.0	$	(5.0	)	$	124.0	$	(5.3	)
5.75% 2025 Senior Notes	600.0		(12.9		)	600.0		(12.9		)
	$	714.0	$	(17.9	)	$	724.0	$	(18.2	)

ABL Facility

On March 13, 2020, in connection with the Merger, we entered into a new ABL Facility with various financial institutions to replace and refinance Cliffs’ Former ABL Facility and AK Steel Corporation’s former revolving credit facility. The ABL Facility will mature upon the earlier of March 13, 2025 or 91 days prior to the maturity of certain other material debt and provides for up to $2.0 billion in borrowings, including a $555.0 million sublimit for the issuance of letters of credit and a $125.0 million sublimit for swingline loans. Availability under the ABL Facility is limited to an eligible borrowing base, as applicable, determined by applying customary advance rates to eligible accounts receivable, inventory and certain mobile equipment.

The ABL Facility and certain bank products and hedge obligations are guaranteed by us and certain of our existing wholly owned U.S. subsidiaries and are required to be guaranteed by certain of our future U.S. subsidiaries. Amounts outstanding under the ABL Facility are secured by (i) a first-priority security interest in the accounts receivable and other rights to payment, inventory, as-extracted collateral, certain investment property, deposit accounts, securities accounts, certain general intangibles and commercial tort claims, certain mobile equipment, commodities accounts and other related assets of ours, the other borrowers and the guarantors, and proceeds and products of each of the foregoing (collectively, the “ABL Collateral”) and (ii) a second-priority security interest in substantially all of our assets and the assets of the other borrowers and the guarantors other than the ABL Collateral.

Borrowings under the ABL Facility bear interest, at our option, at a base rate or, if certain conditions are met, a LIBOR rate, in each case plus an applicable margin. We may amend this agreement to replace the LIBOR rate with one or more secured overnight financing based rates or an alternative benchmark rate, giving consideration to any evolving or then existing convention for similar dollar denominated syndicated credit facilities for such alternative benchmarks.

The ABL Facility contains customary representations and warranties and affirmative and negative covenants including, among others, covenants regarding the maintenance of certain financial ratios if certain conditions are triggered, covenants relating to financial reporting, covenants relating to the payment of dividends on, or purchase or redemption of, our capital stock, covenants relating to the incurrence or prepayment of certain debt, covenants relating to the incurrence of liens or encumbrances, covenants relating to compliance with laws, covenants relating to transactions with affiliates, covenants relating to mergers and sales of all or substantially all of our assets and limitations on changes in the nature of our business.

The ABL Facility provides for customary events of default, including, among other things, the event of nonpayment of principal, interest, fees or other amounts, a representation or warranty proving to have been materially incorrect when made, failure to perform or observe certain covenants within a specified period of time, a cross-default to certain material indebtedness, the bankruptcy or insolvency of the Company and certain of its subsidiaries, monetary judgment defaults of a specified amount, invalidity of any loan documentation, a change of control of the Company, and ERISA defaults resulting in liability of a specified amount. If an event of default exists (beyond any applicable grace or cure period), the administrative agent may, and at the direction of the requisite number of lenders shall, declare all amounts owing under the ABL Facility immediately due and payable, terminate such lenders’ commitments to make loans under the ABL Facility and/or exercise any and all remedies and other rights under the ABL Facility. For certain events of default related to insolvency and receivership, the commitments of the lenders will be automatically terminated and all outstanding loans and other amounts will become immediately due and payable.

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On March 27, 2020, the ABL Facility was amended, by and among Cliffs, the lenders and the administrative agent. The amendment modified the ABL Facility to, among other things, provide for a new FILO tranche of commitments in the aggregate amount of $150.0 million by exchanging existing commitments under the ABL Facility. The total commitments under the ABL Facility after giving effect to the amendment remain at $2.0 billion. The terms and conditions (other than the pricing) that apply to the FILO tranche are substantially the same as the terms and conditions that apply to the tranche A facility of the ABL Facility immediately prior to the amendment.

As of June 30, 2020, we were in compliance with the ABL Facility liquidity requirements and, therefore, the springing financial covenant requiring a minimum fixed charge coverage ratio of 1.0 to 1.0 was not applicable.

The following represents a summary of our borrowing capacity under the ABL Facility:



	(In Millions)
	June 30, 2020
Available borrowing base on ABL Facility¹	$	1,652.1
Borrowings	(550.0		)
Letter of credit obligations²	(198.5		)
Borrowing capacity available	$	903.6

¹As of June 30, 2020, the ABL Facility has a maximum borrowing base of $2.0 billion. The available borrowing base is determined by applying customary advance rates to eligible accounts receivable, inventory and certain mobile equipment.

²We issued standby letters of credit with certain financial institutions in order to support business obligations including, but not limited to, workers' compensation, employee severance, IRBs and environmental obligations.

Debt Maturities

The following represents a summary of our maturities of debt instruments based on the principal amounts outstanding at ~~September~~June 30, ~~2019:~~2020:

(In Millions)
Maturities of Debt
2019 $ —
2020 —
2021 —
2022 —
2023 —
2024 400.0
2025 and thereafter 1,838.0
Total maturities of debt $ 2,238.0

~~ABL Facility~~

~~The following represents a summary of our borrowing capacity under the ABL Facility:~~

(In Millions)
September 30, 2019 December 31, 2018
Available borrowing base on ABL Facility¹
$ 400.8
$ 323.7
Letter of credit obligations²
(34.1 ) (55.0 )
Borrowing capacity available³
$ 366.7
$ 268.7

¹The ABL Facility has a maximum borrowing base of $450 million. The available borrowing base is determined by applying customary advance rates to eligible accounts receivable, inventory and certain mobile equipment.
²We issued standby letters of credit with certain financial institutions in order to support business obligations including, but not limited to, workers compensation and environmental obligations.
³As of September 30, 2019 and December 31, 2018, we had no loans drawn under the ABL Facility.



	(In Millions)
	Maturities of Debt
2020 (remaining period of year)	$	—
2021	33.5
2022	—
2023	12.8
2024	456.5
Thereafter	4,137.9
Total maturities of debt	$	4,640.7

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NOTE 78 - FAIR VALUE MEASUREMENTS

The following represents the assets and liabilities measured at fair value:


	(In Millions)								(In Millions)
	September 30, 2019								June 30, 2020
	Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash equivalents	$	—	$	272.5	$	—	$	272.5
Derivative assets	—		—		72.8		72.8
Cash equivalents - Money market funds									$	21.8	$	—		$	—	$	21.8
Other current assets:
Commodity contracts									—		5.4			—		5.4
Customer supply agreement									—		—			27.3		27.3
Provisional pricing arrangement									—		—			8.0		8.0
Other non-current assets:
Commodity contracts									—		0.7			—		0.7
Total	$	—	$	272.5	$	72.8	$	345.3	$	21.8	$	6.1		$	35.3	$	63.2
Liabilities:
Derivative liabilities	$	—	$	2.4	$	30.2	$	32.6
Other current liabilities:
Commodity contracts									$	—	$	(17.2	)	$	—	$	(17.2	)
Foreign exchange contracts									—		(1.0		)	—		(1.0		)
Other non-current liabilities:
Commodity contracts									—		(1.1		)	—		(1.1		)
Foreign exchange contracts									—		(0.4		)	—		(0.4		)
Total	$	—	$	2.4	$	30.2	$	32.6	$	—	$	(19.7	)	$	—	$	(19.7	)


	(In Millions)								(In Millions)
	December 31, 2018								December 31, 2019
	Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total
Assets:
Cash equivalents	$	0.8	$	542.6	$	—	$	543.4
Derivative assets	—		0.1		91.4		91.5
Cash equivalents - Commercial paper									$	—	$	187.6		$	—		$	187.6
Other current assets:
Customer supply agreement									—		—			44.5			44.5
Provisional pricing arrangement									—		—			1.3			1.3
Total	$	0.8	$	542.7	$	91.4	$	634.9	$	—	$	187.6		$	45.8		$	233.4
Liabilities:
Derivative liabilities	$	—	$	3.7	$	—	$	3.7
Other current liabilities:
Commodity contracts									$	—	$	(3.2	)	$	—		$	(3.2	)
Provisional pricing arrangement									—		—			(1.1		)	(1.1		)
Total	$	—	$	3.7	$	—	$	3.7	$	—	$	(3.2	)	$	(1.1	)	$	(4.3	)

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Financial assets classified in Level 1 ~~included~~include money market funds. The valuation of these instruments is based upon unadjusted quoted prices for identical assets in active markets.

The valuation of financial assets and liabilities classified in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable. ~~Level 2 assets~~Our foreign exchange contracts include ~~commercial paper, certificates of deposit~~Canadian dollars, and our commodity hedge ~~contracts. Level 2 liabilities~~contracts primarily include ~~commodity hedge contracts.~~those related to natural gas, electricity and zinc.

The Level 3 assets ~~and liabilities~~ consist of a freestanding derivative instrument related to a certain supply agreement and derivative assets ~~and~~related to certain provisional pricing arrangements with our customers. The Level 3 liabilities consist of derivative liabilities related to certain provisional pricing arrangements with our customers.

The supply agreement included in our Level 3 assets contains provisions for supplemental revenue or refunds based on the hot-rolled coil steel price in the year the iron ore product is consumed in the customer’s blast furnaces. We account for these provisions as a derivative instrument at the time of sale and adjust the derivative instrument to fair value through ~~Product revenues~~Revenues each reporting period until the product is consumed and the amounts are settled. ~~We had assets of $71.2 million and $89.3 million at September 30, 2019 and December 31, 2018, respectively, related to this supply agreement.~~

The provisional pricing arrangements included in our Level 3 assets/liabilities specify provisional price calculations, where the pricing mechanisms generally are based on market pricing, with the final revenue rate to be based

~~Table of Contents~~

on market inputs at a specified point in time in the future, per the terms of the supply agreements. The difference between the estimated final revenue rate at the date of sale and the estimated final revenue rate at the measurement date is characterized as a derivative ~~instrument~~ and is required to be accounted for separately once the revenue has been recognized. The derivative instruments are adjusted to fair value through ~~Product revenues~~Revenues each reporting period based upon current market data and forward-looking estimates provided by management until the final revenue rates are determined. We had assets of $1.6 million and $2.1 million related to provisional pricing arrangements at September 30, 2019 and December 31, 2018, respectively. In addition, we had liabilities of $30.2 million related to provisional pricing arrangements at September 30, 2019.

The following table illustrates information about ~~qualitative and~~ quantitative inputs and assumptions for the derivative assets and derivative liabilities categorized in Level 3 of the fair value hierarchy:

Qualitative/Quantitative Information About Level 3 Fair Value Measurements

(In Millions)
Fair Value at September 30, 2019

Balance Sheet
Location
Valuation Technique Unobservable Input
Range or Point Estimate
(Weighted Average)

Customer supply agreement $ 71.2
Derivative assets Market Approach Management's Estimate of Hot-Rolled Coil Steel Price per net ton $631 - $700
$(633)
Provisional pricing arrangements $ 1.6
Derivative assets Market Approach Management's Estimate of Platts 62% Price per dry metric ton for respective contract period $100
Provisional pricing arrangements $ 30.2
Derivative liabilities Market Approach PPI Estimates 172 - 214
(198)
Management's Estimate of Platts 62% Price per dry metric ton for respective contract period $87 - $100
$(96)
Atlantic Basin Pellet Premium per metric ton $59

Qualitative/Quantitative Information About Level 3 Fair Value Measurements

Fair Value at June 30, 2020

(In Millions)

Balance Sheet

Location

Valuation Technique

Unobservable Input

Range or Point Estimate (Weighted Average)

Customer supply agreement

27.3

Other current assets

Market Approach

Management's estimate of hot-rolled coil steel price per net ton

$562 - $639
$(564)

Provisional pricing arrangements

8.0

Other current assets

Market Approach

Management's

estimate of Platts 62% price per dry metric ton

$94

Atlantic Basin Pellet Premium

$32

The significant unobservable input used in the fair value measurement of our customer supply agreement iswas a forward-looking estimate of the hot-rolled coil steel price determined by management.

The significant unobservable inputs used in the fair value measurement of our provisional pricing arrangements ~~for our derivative assets and liabilities include management's~~at June 30, 2020 were the forward-looking estimate of Platts 62% ~~Price~~price and the Atlantic Basin Pellet Premium based upon current market data ~~and index pricing, which includes forward-looking estimates~~ determined by management. Our significant unobservable inputs used in the fair value measurement of our provisional pricing arrangements for our derivative liabilities also include estimates for PPI data and the Atlantic Basin pellet premium.

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The following tables ~~reconcile~~represent a reconciliation of the changes in fair value of financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

(In Millions)
Level 3 Assets
Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Beginning balance $ 118.1
$ 174.6
$ 91.4
$ 49.5
Total gains (losses) included in earnings (6.5 ) 139.0
83.1
341.8
Settlements (38.8 ) (123.0 ) (101.7 ) (200.7 )
Ending balance - September 30 $ 72.8
$ 190.6
$ 72.8
$ 190.6
Total gains (losses) for the period included in earnings attributable to the change in unrealized gains on assets still held at the reporting date $ (6.5 ) $ 15.9
$ 81.8
$ 141.0



	(In Millions)
	Level 3 Assets
	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Beginning balance	$	19.6		$	106.7		$	45.8		$	91.4
Total gains included in earnings	40.0			74.3			13.8			89.6
Settlements	(24.3		)	(62.9		)	(24.3		)	(62.9		)
Ending balance	$	35.3		$	118.1		$	35.3		$	118.1
Total gains for the period included in earnings attributable to the change in unrealized gains on assets still held at the reporting date	$	33.6		$	73.0		$	13.6		$	88.3

(In Millions)
Level 3 Liabilities
Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Beginning balance $ —
$ (3.0 ) $ —
$ (1.7 )
Total losses included in earnings (34.4 ) (3.1 ) (39.7 ) (7.4 )
Settlements 4.2
0.4
9.5
3.4
Ending balance - September 30 $ (30.2 ) $ (5.7 ) $ (30.2 ) $ (5.7 )
Total losses for the period included in earnings attributable to the change in unrealized losses on liabilities still held at the reporting date $ (30.2 ) $ (2.7 ) $ (30.2 ) $ (5.7 )



	(In Millions)
	Level 3 Liabilities
	Three Months Ended June 30,					Six Months Ended June 30,
	2020		2019			2020			2019
Beginning balance	$	—	$	(9.8	)	$	(1.1	)	$	—
Total gains (losses) included in earnings	—		4.5			(0.6		)	(5.3		)
Settlements	—		5.3			1.7			5.3
Ending balance	$	—	$	—		$	—		$	—

~~Table of Contents~~

The carrying values of certain financial instruments (e.g., Accounts receivable, net, Accounts payable and Other current liabilities) ~~approximates~~approximate fair value and, therefore, have been excluded from the table below. A summary of the carrying value and fair value of other financial instruments were as follows:

(In Millions)
September 30, 2019 December 31, 2018
Classification
Carrying
Value
Fair Value
Carrying
Value
Fair Value
Long-term debt:
Secured Notes
$400 Million 4.875% 2024 Senior Notes Level 1 $ 393.2
$ 408.9
$ 392.1
$ 370.2
Unsecured Notes
$700 Million 4.875% 2021 Senior Notes Level 1 —
—
123.8
122.3
$316.25 Million 1.50% 2025 Convertible Senior Notes Level 1 243.8
345.8
235.2
352.4
$1.075 Billion 5.75% 2025 Senior Notes Level 1 463.7
466.2
1,048.8
962.0
$750 Million 5.875% 2027 Senior Notes Level 1 715.5
712.2
—
—
$800 Million 6.25% 2040 Senior Notes Level 1 292.9
254.4
292.8
232.8
ABL Facility Level 2 —
—
—
—
Fair value adjustment to interest rate hedge Level 2 —
—
0.2
0.2
Total long-term debt $ 2,109.1
$ 2,187.5
$ 2,092.9
$ 2,039.9



		(In Millions)
		June 30, 2020				December 31, 2019
	Classification	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt:
Senior Notes	Level 1	$	3,807.3	$	3,681.8	$	2,113.8	$	2,237.0
IRBs due 2024 to 2028	Level 1	94.3		86.0		—		—
ABL Facility - outstanding balance	Level 2	550.0		550.0		—		—
Total long-term debt		$	4,451.6	$	4,317.8	$	2,113.8	$	2,237.0

The fair value of long-term debt was determined using quoted market prices.

NOTE 89 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS

We offer defined benefit pension plans, defined contribution pension plans and OPEB plans, primarily consisting of retiree healthcare benefits, to most employees as part of a total compensation and benefits program. The defined benefit pension plans are noncontributory and benefits generally are based on a minimum formula or employees’ years of service and average earnings for a defined period prior to retirement.

~~On August 12, 2019, Cliffs Mining Company,~~As a result of the acquisition of AK Steel, we assumed the obligations under AK Steel's defined benefit pension plans and OPEB plans. Noncontributory pension and various healthcare and life insurance benefits are provided to a significant portion of our ~~subsidiary, ceased performing manager duties at Hibbing~~employees and ~~transitioned those duties~~retirees. AK Steel also contributes to ArcelorMittal. In connection with this transition, Cliffs Mining Company and ArcelorMittal entered into a transition agreement, pursuant to which the Ore Mining Companies Pension Plan previously sponsored by Cliffs Mining Company is now sponsored by ArcelorMittal Hibbing Management LLC. In connection with the transfer of manager duties at Hibbing, Hibbing employees previously employed by Cliffs Mining Company concluded their employment and became employed by an ArcelorMittal controlled group entity. All non-Hibbing active and retired participants were transferred to our salariedmultiemployer pension ~~plan. This transition did not have a material impact on our consolidated financial statements in the three or nine months ended~~ ~~September 30, 2019~~.plans according

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to collective bargaining agreements that cover certain union-represented employees and defined contribution pension plans. The AK Steel pension and OPEB plans were remeasured as of March 13, 2020.

The following are the components of defined benefit pension and OPEB ~~costs:~~costs (credits):

Defined Benefit Pension Costs (Credits)


	(In Millions)												(In Millions)
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Service cost	$	4.6		$	4.7		$	12.9		$	14.0		$	5.3		$	4.2		$	10.6		$	8.3
Interest cost	8.9			7.6			26.2			22.7			14.9			8.6			23.1			17.3
Expected return on plan assets	(13.7		)	(15.0		)	(41.0		)	(45.0		)	(36.7		)	(13.7		)	(55.2		)	(27.3		)
Amortization:
Prior service costs	0.3			0.6			0.9			1.7			0.3			0.3			0.5			0.6
Net actuarial loss	5.9			5.3			17.7			15.9			6.6			5.9			13.3			11.8
Net periodic benefit cost	$	6.0		$	3.2		$	16.7		$	9.3
Net periodic benefit cost (credit)													$	(9.6	)	$	5.3		$	(7.7	)	$	10.7

~~Other Postretirement Employment Benefits Credits~~OPEB Costs (Credits)


	(In Millions)												(In Millions)
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Service cost	$	0.5		$	0.6		$	1.3		$	1.6		$	1.4		$	0.4		$	1.9		$	0.8
Interest cost	2.3			2.1			7.0			6.2			4.3			2.4			6.5			4.7
Expected return on plan assets	(4.2		)	(4.6		)	(12.6		)	(13.8		)	(4.6		)	(4.2		)	(9.1		)	(8.4		)
Amortization:
Prior service credits	(0.5		)	(0.7		)	(1.5		)	(2.2		)	(0.5		)	(0.5		)	(1.0		)	(1.0		)
Net actuarial loss	1.3			1.3			3.8			3.8			0.7			1.2			1.4			2.5
Net periodic benefit credit	$	(0.6	)	$	(1.3	)	$	(2.0	)	$	(4.4	)
Net periodic benefit cost (credit)													$	1.3		$	(0.7	)	$	(0.3	)	$	(1.4	)

As a result of the CARES Act enacted on March 27, 2020, we have deferred pension contributions starting in the second quarter of 2020. Based on prior funding requirements, we made defined benefit pension contributions of ~~$5.6~~$0.2 million and ~~$12.3~~$4.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020, respectively, compared to defined benefit pension contributions of ~~$18.3~~$3.5 million and ~~$23.9~~$6.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively. OPEB contributions for our voluntary employee benefit association trust plans are typically made on an annual basis in the first quarter of each year, but due to plan funding requirements being met, 0 OPEB contributions for our voluntary employee benefit association trust plans were required or made for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~

~~NOTE 9 - STOCK COMPENSATION PLANS~~

~~Employees’ Plans~~

On February 19, 2019, the Compensation Committee approved grants under the A&R 2015 Equity Plan to certain officers and employees for the 2019 to 2021 performance period. Shares granted under the awards consisted of 0.6 million restricted stock units and 0.6 million performance shares.

Restricted stock units granted during 2019 are subject to continued employment, are retention based and are payable in common shares. The outstanding restricted stock units that were granted in 2019 cliff vest on December 31, 2021.

Performance shares are subject to continued employment, and each performance share, if earned, entitles the holder to be paid out in common shares. Performance is measured on the basis of relative TSR for the period of January 1, 2019 to December 31, 2021 and measured against the constituents of the SPDR S&P Metals and Mining ETF Index at the beginning of the relevant performance period. The final payouts for the outstanding performance period grants will vary from 0 to 200% of the original grant depending on whether and to what extent the Company achieves certain objectives and performance goals as established by the Compensation Committee.

~~Table of Contents~~

~~Determination of Fair Value~~

The fair value of each performance share grant is estimated on the date of grant using a Monte Carlo simulation to forecast relative TSR performance. A correlation matrix of historical and projected share prices was developed for both the Company and our predetermined peer group of mining and metals companies. The fair value assumes that the objective will be achieved.

The expected term of the grant represents the time from the grant date to the end of the service period. We estimate the volatility of our common shares and that of the peer group using daily price intervals for all companies. The risk-free interest rate is the rate at the grant date on zero-coupon government bonds with a term commensurate with the remaining life of the performance period.

~~The following assumptions were utilized to estimate the fair value for the 2019 performance share grant:~~

Grant Date Grant Date Market Price Average Expected Term (Years) Expected Volatility Risk-Free Interest Rate Dividend Yield Fair Value Fair Value (Percent of Grant Date Market Price)
February 19, 2019 $ 11.24
2.87 67.5% 2.55% —% $ 18.31
162.90%

2019.

NOTE 10 - INCOME TAXES

Our ~~2019~~2020 estimated annual effective tax rate before discrete items as of ~~September~~June 30, ~~2019~~2020 is ~~9.6%~~31.1%. The estimated annual effective tax rate differs from the U.S. statutory rate of 21.0% primarily due to the deduction for percentage depletion in excess of cost depletion related to our Mining and Pelletizing segment ~~operations.~~operations, as well as non-deductible transaction costs, executive officers' compensation, global intangible low-taxed income and income of noncontrolling interests for which no tax is recognized. The ~~2018~~2019 estimated annual effective tax rate before discrete items as of ~~September~~June 30, ~~2018~~2019 was ~~0.1%, which was significantly lower due to the reversal of valuation allowances~~12.1%. The increase in the ~~same period.~~estimated annual effective tax rate before discrete items is driven by the change in the mix of income, as well as transaction costs and other acquisition-related charges that were incurred only in 2020.

Table of Contents

For the three and ~~nine~~six months ended ~~September~~June 30, 2020, we recorded discrete items that resulted in an income tax expense of $0.3 million and benefit of $3.7 million, respectively. The discrete adjustments are primarily related to interest on uncertain tax positions in the quarter and the refund of amounts sequestered by the Internal Revenue Service on previously filed AMT credit refunds. For the three and six months ended June 30, 2019, we recorded discrete items that resulted in an income tax benefit of ~~$0.5~~$0.4 million and ~~$1.3~~$0.8 million, respectively. For the three and nine months ended September 30, 2018, we recorded discrete items that resulted in an income tax expense of $0.2 million and $13.9 million, respectively. The $13.9 million expense relates primarily to a $14.5 million reduction of the refundable AMT credit recorded in ~~Income tax receivable, non-current~~ in our Statements of Unaudited Condensed Consolidated Financial Position based on sequestration guidance issued by the Internal Revenue Service during the first quarter of 2018. This position was subsequently reversed by the Internal Revenue Service during the fourth quarter of 2018. The prior-year period expense was a reduction of an asset and did not result in a cash tax outlay.

NOTE 11 - ~~ENVIRONMENTAL AND MINE CLOSURE~~ASSET RETIREMENT OBLIGATIONS

The following is a summary of our ~~environmental and mine closure~~asset retirement obligations:

(In Millions)
September 30,
2019 December 31,
2018
Environmental $ 2.1
$ 2.5
Mine closure¹
179.5
172.4
Total environmental and mine closure obligations 181.6
174.9
Less current portion 2.5
2.9
Long-term environmental and mine closure obligations $ 179.1
$ 172.0

¹ Includes our active operating mines, our indefinitely idled Empire mine and a closed mine formerly operating as LTV Steel Mining Company.



	(In Millions)
	June 30, 2020		December 31, 2019
Asset retirement obligations¹	$	183.3	$	165.3
Less current portion	2.2		2.1
Long-term asset retirement obligations	$	181.1	$	163.2

~~Mine Closure~~¹ Includes $33.0 million and $22.0 million related to our active operations as of June 30, 2020 and December 31, 2019, respectively.

The accrued closure obligation ~~for~~is predominantly related to our ~~active~~indefinitely idled and closed iron ore mining operations and provides for contractual and legal obligations associated with the eventual closure of those operations. Additionally, we have included in our asset retirement obligation $13.9 million for our integrated steel facilities acquired in the ~~mining operations.~~Merger. The closure date for each of our active mine sites was determined based on the exhaustion date of the remaining iron ore ~~reserves. The~~reserves and the amortization of the related asset and

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accretion of the liability is recognized over the estimated mine ~~lives for our active operations.~~lives. The closure date and expected timing of the capital requirements to meet our obligations for our indefinitely idled or closed mines is determined based on the unique circumstances of each property. For indefinitely idled or closed mines, the accretion of the liability is recognized over the anticipated timing of remediation. As the majority of our asset retirement obligations at our steelmaking operations have indeterminate settlement dates, asset retirement obligations have been recorded at present values using estimated ranges of the economic lives of the underlying assets.

The following is a roll forward of our ~~mine closure~~asset retirement obligation liability:

(In Millions)

Nine Months Ended
September 30, 2019

Year Ended
December 31, 2018
Asset retirement obligation at beginning of period $ 172.4
$ 168.4
Accretion expense 7.6
9.5
Remediation payments (0.5 ) (1.0 )
Revision in estimated cash flows —
(4.5 )
Asset retirement obligation at end of period $ 179.5
$ 172.4



	(In Millions)
	2020			2019
Asset retirement obligation as of January 1	$	165.3		$	172.4
Increase from AK Steel acquisition	13.9			—
Accretion expense	4.9			5.1
Remediation payments	(0.8		)	(0.4		)
Asset retirement obligation as of June 30	$	183.3		$	177.1

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NOTE 12 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The following table presents the fair value of our derivative instruments and the classification of each in the Statements of Unaudited Condensed Consolidated Financial Position:

(In Millions)
Derivative Assets Derivative Liabilities
September 30, 2019 December 31, 2018 September 30, 2019 December 31, 2018
Derivative Instrument
Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
Value
Derivatives designated as hedging instruments under ASC 815:
Commodity contracts $ —
Derivative assets $ 0.1
Derivative liabilities $ 2.4
Derivative liabilities $ 3.7
Derivatives not designated as hedging instruments under ASC 815:
Customer supply agreement Derivative assets $ 71.2
Derivative assets $ 89.3
$ —
$ —
Provisional pricing arrangements Derivative assets 1.6
Derivative assets 2.1
Derivative liabilities 30.2
—
Total derivatives not designated as hedging instruments under ASC 815 $ 72.8
$ 91.4
$ 30.2
$ —
Total derivatives $ 72.8
$ 91.5
$ 32.6
$ 3.7



	Derivatives designated as hedging instruments under Topic 815:						Derivatives not designated as hedging instruments under Topic 815:
Derivative Asset (Liability)	June 30, 2020			December 31, 2019			June 30, 2020			December 31, 2019
Other current assets:
Customer supply agreement	$	—		$	—		$	27.3		$	44.5
Provisional pricing arrangements	—			—			8.0			1.3
Commodity contracts	1.6			—			3.8			—
Other non-current assets:
Commodity contracts	0.6			—			0.1			—
Other current liabilities:
Provisional pricing arrangements	—			—			—			(1.1		)
Commodity contracts	(14.2		)	(3.2		)	(3.0		)	—
Foreign exchange contracts	(1.0		)	—			—			—
Other non-current liabilities:
Commodity contracts	(0.9		)	—			(0.2		)	—
Foreign exchange contracts	(0.4		)	—			—			—

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Derivatives Designated as Hedging Instruments - Cash Flow Hedges

~~Commodity~~Exchange rate fluctuations affect a portion of revenues and operating costs that are denominated in foreign currencies, and we use forward currency and currency option contracts to reduce our exposure to certain of these currency price fluctuations. Contracts to purchase Canadian dollars are designated as cash flow hedges for accounting purposes, and we record the gains and losses for the derivatives and premiums paid for option contracts in Accumulated other comprehensive loss until we reclassify them into Cost of goods sold when we recognize the associated underlying operating costs.

We are exposed to fluctuations in market prices of raw materials and energy sources. We may use cash-settled commodity swaps and options to hedge the market risk associated with the purchase of certain of our raw materials and energy requirements. Our hedging strategy is to reduce the effect on earnings from the price volatility of these various commodity exposures, including timing differences between when we incur raw material commodity costs and when we receive sales surcharges from our customers based on those raw materials. Independent of any hedging activities, price changes in any of these commodity markets could negatively affect operating costs.

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The following table presents our outstanding hedge contracts:

(In Millions)

September 30, 2019

December 31, 2018

June 30, 2020

December 31, 2019

Notional Amount

Unit of Measure

Varying Maturity Dates

Notional Amount

Unit of Measure

Varying Maturity Dates

Unit of Measure

Maturity Dates

Notional Amount

Commodity contracts:

Natural gas

7.0

MMBtu

October 2019 - November 2020

1.8

MMBtu

January 2019 - August 2019

MMBtu

July 2020 - December 2021

39.2

20.1

Diesel

2.4

Gallons

October 2019 - December 2019

11.0

Gallons

January 2019 - December 2019

Gallons

—

0.8

Zinc

Pounds

July 2020 - December 2021

18.2

—

Electricity

Megawatt hours

July 2020 - December 2021

1.5

—

Foreign exchange contracts:

Canadian dollars

CAD

July 2020 - December 2021

48.7

—

Estimated gains (losses) before tax expected to be reclassified into Cost of goods sold within the next 12 months for our existing derivatives that qualify as cash flow hedges are presented below:



	(In Millions)
Hedge:	Estimated Gains (Losses)
Natural gas	$	(4.6	)
Zinc	0.6
Electricity	(1.0		)

Derivatives Not Designated as Hedging Instruments

Customer Supply Agreement

A supply agreement with one customer provides for supplemental revenue or refunds to the customer based on the hot-rolled coil steel price at the time the iron ore product is consumed in the customer’s blast furnaces. The supplemental pricing is characterized as a freestanding derivative instrument and is required to be accounted for separately once control transfers to the customer. The derivative instrument, which is finalized based on a future price, is adjusted to fair value through ~~Product revenues~~Revenues each reporting period based upon current market data and forward-looking estimates provided by management until the pellets are consumed and the ~~price is~~amounts are settled.

Provisional Pricing Arrangements

Certain of our supply agreements specify provisional price calculations, where the pricing mechanisms generally are based on market pricing, with the final revenue rate based on certain market inputs at a specified period in time in the future, per the terms of the supply agreements. Market inputs are tied to indexed price adjustment factors that are integral to the iron ore supply contracts and vary based on the agreement. The pricing mechanisms typically include adjustments based upon changes in the Platts 62% Price, Atlantic Basin pellet premiums and Platts international indexed freight ~~rates and changes in specified PPI, including those for industrial commodities, fuel and steel.~~rates. The pricing adjustments generally operate in the same manner, with each factor typically comprising a portion of the price adjustment, although the weighting of each factor varies based upon the specific terms of each agreement. The price adjustment factors have been evaluated to determine if they qualify as embedded derivatives. The price adjustment factors share the same economic characteristics and risks as the host sales contract and are integral to the host sales contract as inflation adjustments; accordingly, they have not been separately valued as derivative instruments.

Revenue is recognized generally upon delivery to our customers. Revenue is measured at the point that control transfers and represents the amount of consideration we expect to receive in exchange for transferring goods. Changes in the expected revenue rate from the date that control transfers through final settlement of contract terms is recorded in accordance with Topic 815 and is characterized as a derivative instrument and accounted for separately. Subsequently,

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the derivative instruments are adjusted to fair value through ~~Product revenues~~Revenues each reporting period based upon current market data and forward-looking estimates provided by management until the final revenue rate is determined.

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The following summarizes the effect of our derivatives that are not designated as hedging instruments in the Statements of Unaudited Condensed Consolidated Operations:

(In Millions)
Derivatives Not Designated as Hedging Instruments Location of Gain (Loss) Recognized in Income on Derivatives Three Months Ended
September 30, Nine Months Ended
September 30,

2019 2018 2019 2018
Customer supply agreements Product revenues $ 7.6
$ 139.7
$ 82.2
$ 337.1
Provisional pricing arrangements Product revenues (48.5 ) (3.8 ) (38.8 ) (2.7 )
Total $ (40.9 ) $ 135.9
$ 43.4
$ 334.4



		(In Millions)
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivatives	Three Months Ended June 30,				Six Months Ended June 30,
		Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020			2019
Customer supply agreements	Revenues	$	31.2	$	57.5	$	5.6		$	74.6
Provisional pricing arrangements	Revenues	8.8		17.3		7.6			5.7
Foreign exchange contracts	Other non-operating income	0.1		—		—			—
Commodity contracts	Cost of goods sold	1.2		—		(4.7		)	—
Total		$	41.3	$	74.8	$	8.5		$	80.3

Refer to NOTE 78 - FAIR VALUE MEASUREMENTS for additional information.

~~NOTE 13 - DISCONTINUED OPERATIONS~~

The information below sets forth selected financial information related to operating results of our businesses classified as discontinued operations, which include our former Asia Pacific Iron Ore, North American Coal and Canadian operations. While the reclassification of revenues and expenses related to discontinued operations from prior periods have no impact upon previously reported ~~Net income, the Statements of Unaudited Condensed Consolidated Operations present the revenues and expenses that were reclassified from the specified line items to~~ ~~Income (loss) from discontinued operations, net of tax~~ ~~and the Statements of Unaudited Condensed Consolidated Financial Position present the assets and liabilities that were reclassified from the specified line items to~~ ~~Other current assets~~, ~~Other current liabilities~~ ~~and~~ ~~Other liabilities. The charts below provide an asset group breakout for each financial statement line impacted by discontinued operations.~~

(In Millions)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2019 2018 2019 2018
Income (loss) from discontinued operations, net of tax
Asia Pacific Iron Ore $ (0.1 ) $ 242.3
$ (1.1 ) $ 117.6
North American Coal (0.8 ) (4.3 ) (0.4 ) (4.2 )
Canadian Operations —
—
—
(10.6 )
$ (0.9 ) $ 238.0
$ (1.5 ) $ 102.8

(In Millions)
Nine Months Ended
September 30,
2019 2018
Net cash used by operating activities
Asia Pacific Iron Ore $ (1.9 ) $ (77.0 )
Canadian Operations —
(14.6 )
$ (1.9 ) $ (91.6 )

Net cash provided by investing activities
Asia Pacific Iron Ore $ 0.1
$ 17.8
$ 0.1
$ 17.8

For the nine months ended September 30, 2018, we had $27.1 million of non-cash financing activities related to the release of asset retirement obligations at Asia Pacific Iron Ore as part of the sale of substantially all remaining assets.

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~~Asia Pacific Iron Ore Operations~~

~~Background~~

In January 2018, we announced that we would accelerate the time frame for the planned closure of our Asia Pacific Iron Ore mining operations in Australia. In April 2018, we committed to a course of action leading to the permanent closure of the Asia Pacific Iron Ore mining operations and, as planned, completed our final shipment in June 2018. Factors considered in this decision included increasingly discounted prices for lower-iron-content ore and the quality of the remaining iron ore reserves.

~~During 2018, we sold all of the assets of our Asia Pacific Iron Ore business through a series of sales to third parties.~~ ~~As a result of our exit, management determined that our Asia Pacific Iron Ore operating segment met the criteria to be classified as held for sale and a discontinued operation under~~ ~~ASC Topic 205, Presentation of Financial Statements. As such, all Asia Pacific Iron Ore operating segment results are classified within discontinued operations.~~

~~Income~~ (~~Loss) from Discontinued Operations~~

(In Millions)

Three Months Ended
September 30,
Nine Months Ended
September 30,
Income (Loss) from Discontinued Operations 2019 2018 2019 2018
Revenues from product sales and services $ —
$ —
$ —
$ 129.1
Cost of goods sold —
(0.5 ) —
(230.7 )
Sales margin —
(0.5 ) —
(101.6 )
Other operating expense —
14.8
(0.8 ) (4.0 )
Other expense (0.1 ) (0.1 ) (0.3 ) (2.3 )
Gain on foreign currency translation —
228.1
—
228.1
Impairment of long-lived assets —
—
—
(2.6 )
Income (loss) from discontinued operations, net of tax $ (0.1 ) $ 242.3
$ (1.1 ) $ 117.6

~~Gain on Foreign Currency Translation~~

~~As a result of the liquidation of the Australian subsidiaries' net assets, the historical changes in foreign currency translation recorded in~~ ~~Accumulated other comprehensive loss~~ ~~in the Statements of Unaudited Condensed Consolidated Financial Position totaling $228.1 million was reclassified and recognized as a gain in~~ ~~Income (loss) from discontinued operations, net of tax~~ ~~in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2018.~~

~~Canadian Operations~~

During 2015, we announced that the Bloom Lake Group and the Wabush Group commenced restructuring proceedings in Montreal, Quebec under the CCAA to address the immediate liquidity issues and to preserve and protect their assets for the benefit of all stakeholders while restructuring and/or sale options were explored.

The Bloom Lake Group and the Wabush Group filed a joint plan of compromise and arrangement that was approved by the required majorities of each unsecured creditor class and was sanctioned by the Court in June 2018. During July 2018, amendments were made to the plan to address the manner in which certain distributions under the plan would be effected and the plan was implemented.

During the third quarter of 2018, under the terms of the amended plan, we and certain of our wholly-owned subsidiaries made a C$19.0 million cash contribution to the Wabush Group pension plans and agreed to contribute into the CCAA estate any remaining distributions or payments we may be entitled to receive as creditors of the Bloom Lake Group and the Wabush Group for distribution to other creditors. The original plan did not resolve certain employee claims asserted against us and certain of our affiliates outside of the CCAA proceedings. The amended plan resolved those employee claims, all claims by the Bloom Lake Group, the Wabush Group and their respective creditors against us as well as all of our claims against the Bloom Lake Group and the Wabush Group.

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NOTE 1413 - SHAREHOLDERS' EQUITY

Acquisition of AK Steel

As more fully described in NOTE 3 - ACQUISITION OF AK STEEL, we acquired AK Steel on March 13, 2020. At the effective time of the Merger, each share of AK Steel common stock issued and outstanding prior to the effective time of the Merger was converted into, and became exchangeable for, 0.400 Cliffs common shares, par value $0.125 per share. We issued a total of 126.8 million Cliffs common shares in connection with the Merger at a fair value of $617.6 million. Following the closing of the Merger, AK Steel's common stock was de-listed from the New York Stock Exchange.

Dividends

The below table summarizes our recent dividend activity:



Declaration Date	Record Date	Payment Date	Dividend Declared per Common Share¹
2/18/2020	4/3/2020	4/15/2020	$	0.06
12/2/2019	1/3/2020	1/15/2020	0.06
9/3/2019	10/4/2019	10/15/2019	0.10
5/31/2019	7/5/2019	7/15/2019	0.06
2/19/2019	4/5/2019	4/15/2019	0.05
10/18/2018	1/4/2019	1/15/2019	0.05

¹The dividend declared on September 3, 2019 included a special cash dividend of $0.04 per common share.

Subsequent to the dividend paid on April 15, 2020, our Board temporarily suspended future dividends as a result of the COVID-19 pandemic in order to preserve cash during this time of economic uncertainty.

Preferred Stock

We have 3,000,000 Class A preferred shares authorized and 4,000,000 Class B preferred shares authorized; no preferred shares are issued or outstanding.

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Share Repurchase Program

OnIn November ~~26,~~ 2018, ~~we announced~~our Board authorized a program to repurchase outstanding common shares in the open market or in privately negotiated transactions, up to a maximum of $200 million, excluding commissions and fees. OnIn April ~~24,~~ 2019, ~~we announced that~~ our Board ~~of Directors~~ increased the common share repurchase authorization by an additional $100 million, excluding commissions and fees. During the ~~nine~~six months ended ~~September~~June 30, 2019 we repurchased 24.4 million common shares at a cost of $252.9 million in the aggregate, including commissions and fees. ~~As of September 30, 2019, there was $0.2 million available under the authorization.~~ The share repurchase program iswas effective until December 31, 2019.

~~Dividends~~

On September 3, 2019, our Board of Directors declared a regular quarterly cash dividend on our common shares of $0.06 per share. In addition, on September 3, 2019, our Board of Directors declared a special cash dividend of $0.04 per share, for a total dividend distribution of $0.10 per share. We have accrued dividends recorded of $28.2 million in ~~Other current liabilities~~ in the Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2019. Subsequent to quarter end, on October 15, 2019, both the regular and special cash dividends were paid to shareholders of record as of the close of business on October 4, 2019.

On May 31, 2019, our Board of Directors declared a quarterly cash dividend on our common shares of $0.06 per share. The cash dividend was paid on July 15, 2019, to our shareholders of record as of the close of business on July 5, 2019. On each of October 18, 2018 and February 19, 2019, our Board of Directors declared a quarterly cash dividend on our common shares of $0.05 per share. The cash dividends were paid on January 15, 2019 and April 15, 2019, to our shareholders of record as of the close of business on January 4, 2019 and April 5, 2019, respectively.

NOTE 1514 - ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables reflect the changes in Accumulated other comprehensive loss related to shareholders’ ~~equity (deficit):~~equity:

(In Millions)
Postretirement Benefit Liability, net of tax Derivative Financial Instruments, net of tax Accumulated Other Comprehensive Loss
December 31, 2018 $ (281.1 ) $ (2.8 ) $ (283.9 )
Other comprehensive income before reclassifications 0.2
2.5
2.7
Net loss reclassified from accumulated other comprehensive loss 5.5
0.2
5.7
March 31, 2019 $ (275.4 ) $ (0.1 ) $ (275.5 )
Other comprehensive income (loss) before reclassifications 0.3
(2.3 ) (2.0 )
Net loss reclassified from accumulated other comprehensive loss 5.5
0.2
5.7
June 30, 2019 $ (269.6 ) $ (2.2 ) $ (271.8 )
Other comprehensive income (loss) before reclassifications 0.3
(0.5 ) (0.2 )
Net loss reclassified from accumulated other comprehensive loss 5.5
0.9
6.4
September 30, 2019 $ (263.8 ) $ (1.8 ) $ (265.6 )



	(In Millions)
	Postretirement Benefit Liability, net of tax			Foreign Currency Translation			Derivative Financial Instruments, net of tax			Accumulated Other Comprehensive Loss
December 31, 2019	$	(315.7	)	$	—		$	(3.1	)	$	(318.8	)
Other comprehensive loss before reclassifications	—			(0.9		)	(5.2		)	(6.1		)
Net loss reclassified from accumulated other comprehensive loss	5.6			—			2.2			7.8
March 31, 2020	$	(310.1	)	$	(0.9	)	$	(6.1	)	$	(317.1	)
Other comprehensive income before reclassifications	0.4			0.7			1.4			2.5
Net loss reclassified from accumulated other comprehensive loss	5.6			—			3.1			8.7
June 30, 2020	$	(304.1	)	$	(0.2	)	$	(1.6	)	$	(305.9	)

~~Table of Contents~~

(In Millions)
Postretirement Benefit Liability, net of tax Foreign Currency Translation Derivative Financial Instruments, net of tax Accumulated Other Comprehensive Loss
December 31, 2017 $ (263.9 ) $ 225.4
$ (0.5 ) $ (39.0 )
Other comprehensive income before reclassifications 0.5
0.7
0.4
1.6
Net loss (gain) reclassified from accumulated other comprehensive loss 6.2
—
(0.1 ) 6.1
March 31, 2018 $ (257.2 ) $ 226.1
$ (0.2 ) $ (31.3 )
Other comprehensive income before reclassifications 0.2
2.2
0.2
2.6
Net loss reclassified from accumulated other comprehensive loss 6.5
—
—
6.5
June 30, 2018 $ (250.5 ) $ 228.3
$ —
$ (22.2 )
Other comprehensive income (loss) before reclassifications 0.3
(0.2 ) 0.2
0.3
Net loss (gain) reclassified from accumulated other comprehensive loss 6.5
(228.1 ) 0.1
(221.5 )
September 30, 2018 $ (243.7 ) $ —
$ 0.3
$ (243.4 )



	(In Millions)
	Postretirement Benefit Liability, net of tax			Derivative Financial Instruments, net of tax			Accumulated Other Comprehensive Loss
December 31, 2018	$	(281.1	)	$	(2.8	)	$	(283.9	)
Other comprehensive income before reclassifications	0.2			2.5			2.7
Net loss reclassified from accumulated other comprehensive loss	5.5			0.2			5.7
March 31, 2019	$	(275.4	)	$	(0.1	)	$	(275.5	)
Other comprehensive income (loss) before reclassifications	0.3			(2.3		)	(2.0		)
Net loss reclassified from accumulated other comprehensive loss	5.5			0.2			5.7
June 30, 2019	$	(269.6	)	$	(2.2	)	$	(271.8	)

2936

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The following table reflects the details about Accumulated other comprehensive loss components related to shareholders’ ~~equity (deficit):~~equity:


	(In Millions)													(In Millions)
Details about Accumulated Other Comprehensive Loss Components	Amount of (Gain)/Loss Reclassified into Income, Net of Tax												Affected Line Item in the Statement of Unaudited Condensed Consolidated Operations	Amount of (Gain)/Loss Reclassified into Income, Net of Tax												Affected Line Item in the Statement of Unaudited Condensed Consolidated Operations
	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018				2020			2019			2020			2019
Amortization of pension and OPEB liability:
Prior service credits	$	(0.2	)	$	(0.1	)	$	(0.6	)	$	(0.5	)	Other non-operating income	$	(0.2	)	$	(0.2	)	$	(0.5	)	$	(0.4	)	Other non-operating income
Net actuarial loss	7.2			6.6			21.5			19.7			Other non-operating income	7.3			7.1			14.7			14.3			Other non-operating income
	$	7.0		$	6.5		$	20.9		$	19.2			$	7.1		$	6.9		14.2			13.9			Total before taxes
	(1.5		)	—			(4.4		)	—			Income tax expense	(1.5		)	(1.4		)	(3.0		)	(2.9		)	Income tax benefit (expense)
	$	5.5		$	6.5		$	16.5		$	19.2		Net of taxes	$	5.6		$	5.5		$	11.2		$	11.0		Net of taxes

Changes in foreign currency translation:
Gain on foreign currency translation	$	—		$	(228.1	)	$	—		$	(228.1	)	Income (loss) from discontinued operations, net of tax
	$	—		$	(228.1	)	$	—		$	(228.1	)

Unrealized loss (gain) on derivative financial instruments:
Unrealized loss on derivative financial instruments:
Commodity contracts	$	1.2		$	0.1		$	1.7		$	—		Cost of goods sold	$	3.9		$	0.2		$	6.7		$	0.5		Cost of goods sold
	(0.3		)	—			(0.4		)	—			Income tax expense	(0.8		)	—			(1.4		)	(0.1		)	Income tax benefit (expense)
	$	0.9		$	0.1		$	1.3		$	—		Net of taxes	$	3.1		$	0.2		$	5.3		$	0.4		Net of taxes

Total reclassifications for the period, net of tax	$	6.4		$	(221.5	)	$	17.8		$	(208.9	)		$	8.7		$	5.7		$	16.5		$	11.4

~~Table of Contents~~

~~NOTE 16 - CASH FLOW INFORMATION~~

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

(In Millions)
Nine Months Ended September 30,
2019 2018
Capital additions¹
$ 505.6
$ 242.0
Less:
Non-cash accruals 26.1
42.2
Right-of-use assets – finance leases 29.3
7.6
Grants (10.5 ) (2.5 )
Cash paid for capital expenditures including deposits $ 460.7
$ 194.7

¹ Includes capital additions related to discontinued operations of $0.1 million, for the nine months ended September 30, 2018.

~~Non-Cash Financing Activities - Declared Dividends~~

On September 3, 2019, our Board of Directors declared a regular quarterly and special cash dividend on our common shares, for a total of $0.10 per share. The cash dividend of $27.0 million was paid on Octobe~~r 15, 2019~~ ~~to shareholders of record as of the close of business on October 4, 2019.~~

NOTE 1715 - RELATED PARTIES

We have certain co-owned joint ventures with companies from the steel and mining industries, including integrated steel companies, their subsidiaries and other downstream users of steel and iron ore products. In addition, we have certain long-term contracts, and from time to time, enter into other sales agreements with these parties, and as a result, generate Revenues from related parties.

Hibbing is a co-owned joint venture with companies that are integrated steel producers or their subsidiaries. ~~In 2018, we tendered our resignation as the mine manager of the Hibbing mine and we transitioned this role to the majority owner in August 2019.~~ The following is a summary of the mine ownership of the co-owned iron ore mine at ~~September~~June 30, ~~2019~~:2020:


Mine	Cleveland-Cliffs Inc.	ArcelorMittal	U.S. Steel	Cleveland-Cliffs Inc.	ArcelorMittal USA	U.S. Steel
Hibbing	23.0%	62.3%	14.7%	23.0%	62.3%	14.7%

The tables below summarize our material related party transactions:

~~Product revenues~~Revenues from related parties were as follows:

(In Millions)
Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Product revenues from related parties $ 262.0
$ 392.4
$ 718.9
$ 863.8
Total product revenues $ 515.0
$ 684.7
$ 1,357.8
$ 1,525.9
Related party product revenue as a percent of total product revenue 50.9 % 57.3 % 52.9 % 56.6 %



	(In Millions)
	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenue from related parties	$	281.8		$	452.4		$	292.6		$	499.3
Revenues¹	$	1,092.7		$	743.2		$	1,451.8		$	900.2
Related party revenues as a percent of Revenues¹	25.8		%	60.9		%	20.2		%	55.5		%
Purchases from related parties	$	9.7		$	—		$	12.2		$	—

~~Table~~¹ Includes Realization of ~~Contents~~deferred revenue

of $34.6 million for the six months ended June 30, 2020.

The following table presents the classification of related party assets and liabilities in the Statements of Unaudited Condensed Consolidated Financial Position:


	(In Millions)						(In Millions)
Balance Sheet Location	September 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Accounts receivable, net	$	108.7		$	176.0		$	91.6		$	31.1
Derivative assets	71.2			89.3
Other current assets	0.2			—			35.3			44.5
Derivative liabilities	(26.1		)	—
Partnership distribution payable	—			(43.5		)
Accounts payable							(2.4		)	—
Other current liabilities	(1.4		)	(1.8		)	(2.0		)	(2.0		)
	$	152.6		$	220.0

Other current assets

A supply agreement with one customer provides for supplemental revenue or refunds to the customer based on the hot-rolled coil steel price at the time the product is consumed in the customer’s blast furnaces. The supplemental pricing is characterized as a freestanding derivative. Refer to NOTE 12 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for further information.

~~During 2017,~~NOTE 16 - VARIABLE INTEREST ENTITIES

SunCoke Middletown

We purchase all the coke and electrical power generated from SunCoke Middletown’s plant under long-term supply agreements. SunCoke Middletown is a VIE because we have committed to purchase all the expected production from the facility through 2032 and we are the primary beneficiary. Therefore, we consolidate SunCoke Middletown’s financial results with our financial results, even though we have no ownership interest in ~~Empire increased to 100% as we reached an agreement to distribute~~SunCoke Middletown. SunCoke Middletown had income before income taxes of $16.0 million and $19.5 million for the ~~noncontrolling interest net~~three and six months ended June 30, 2020, respectively, that was included in our consolidated income before income taxes.

The assets of ~~$132.7 million~~the consolidated VIE can only be used to ~~ArcelorMittal, in exchange~~settle the obligations of the consolidated VIE and not obligations of the Company. The creditors of SunCoke Middletown do not have recourse to the assets or general credit of the Company to satisfy liabilities of the VIE. The consolidated balance sheet as of June 30, 2020 includes the following amounts for ~~its interest in Empire. The net assets were agreed to be distributed in three installments of $44.2 million each, the balance of which was recorded in~~ SunCoke Middletown:



	(In Millions)
	June 30, 2020
Cash and cash equivalents	$	1.0
Inventories	21.2
Property, plant and equipment, net	309.2
Accounts payable	(5.6		)
Other assets (liabilities), net	(1.2		)
Noncontrolling interests	(324.6		)

~~Partnership distribution payable~~ ~~in the Statements of Unaudited Condensed Consolidated Financial Position. The final installment was paid in August 2019.~~

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NOTE 1817 - EARNINGS PER SHARE

The following table summarizes the computation of basic and diluted earnings per share:


	(In Millions, Except Per Share Amounts)										(In Millions, Except Per Share Amounts)
	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018		2019			2018		2020			2019			2020			2019
Income from continuing operations	$	91.8		$	199.8	$	231.1		$	415.8
Income (loss) from continuing operations											$	(107.8	)	$	161.4		$	(157.0	)	$	139.3
Income from continuing operations attributable to noncontrolling interest											(15.8		)	—			(19.3		)	—
Net income (loss) from continuing operations attributable to Cliffs shareholders											(123.6		)	161.4			(176.3		)	139.3
Income (loss) from discontinued operations, net of tax	(0.9		)	238.0		(1.5		)	102.8		(0.3		)	(0.6		)	0.3			(0.6		)
Net income	$	90.9		$	437.8	$	229.6		$	518.6
Net income (loss) attributable to Cliffs shareholders											$	(123.9	)	$	160.8		$	(176.0	)	$	138.7

Weighted average number of shares:
Basic	270.0			297.9		278.4			297.6		399.1			275.8			348.3			282.6
Convertible senior notes	3.7			8.0		5.8			1.9		—			6.7			—			6.9
Employee stock plans	2.9			4.3		3.6			4.0		—			3.0			—			4.1
Diluted	276.6			310.2		287.8			303.5		399.1			285.5			348.3			293.6

Earnings (loss) per common share - basic:
Earnings (loss) per common share attributable to Cliffs shareholders - basic:
Continuing operations	$	0.34		$	0.67	$	0.83		$	1.40	$	(0.31	)	$	0.59		$	(0.51	)	$	0.49
Discontinued operations	—			0.80		(0.01		)	0.35		—			—			—			—
	$	0.34		$	1.47	$	0.82		$	1.75	$	(0.31	)	$	0.59		$	(0.51	)	$	0.49

Earnings (loss) per common share - diluted:
Earnings (loss) per common share attributable to Cliffs shareholders - diluted:
Continuing operations	$	0.33		$	0.64	$	0.80		$	1.37	$	(0.31	)	$	0.57		$	(0.51	)	$	0.47
Discontinued operations	—			0.77		—			0.34		—			—			—			—
	$	0.33		$	1.41	$	0.80		$	1.71	$	(0.31	)	$	0.57		$	(0.51	)	$	0.47

The following table summarizes the shares that have been excluded from the diluted earnings per share calculation as they were anti-dilutive:



	(In Millions)
	Three Months Ended June 30,		Six Months Ended June 30,
	2020	2019	2020	2019
Shares related to employee stock plans	1.8	—	1.8	—

There was 0 dilution during the three and six months ended June 30, 2020 related to the common share equivalents for the convertible senior notes as our common shares average price did not rise above the conversion price.

3238

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NOTE 1918 - COMMITMENTS AND CONTINGENCIES

Purchase Commitments

HBI production plant

In 2017, we began to incur capital commitments related to the construction of our HBI production plant in Toledo, ~~Ohio. We now~~Ohio; however, due to the COVID-19 pandemic, we temporarily halted construction in March 2020. In June 2020, we resumed construction and expect to ~~reach commercial production ahead of schedule,~~complete the project in the ~~first half~~fourth quarter of 2020. ~~Due~~In total, to complete the ~~advanced construction timeline and more certain visibility of the start–up date, a portion of the budgeted contingency has been allocated. In total,~~project, we expect to spend approximately ~~$830 million plus a contingency of up to 20%~~$1 billion on the HBI production plant, excluding capitalized interest, ~~through~~of which $894.3 million was paid as of June 30, 2020. As of ~~September~~June 30, ~~2019,~~2020, we have contracts and purchase orders in place for ~~approximately $390~~$92.2 million. ~~We expect cash capital expenditures of approximately $180 million during the remaining three months of 2019 and approximately $245 million during 2020.~~

Contingencies

We are currently the subject of, or party to, various claims and legal proceedings incidental to our operations. These claims and legal proceedings are subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include monetary damages, additional funding requirements or an injunction. If an unfavorable ruling were to occur, there exists the possibility of a material effect on the financial position and results of operations for the period in which the ruling occurs or future periods. However, based on currently available information we do not believe that any pending claims or legal proceedings will result in a material effect in relation to our consolidated financial statements.

Environmental Contingencies

Although we believe our operating practices have been consistent with prevailing industry standards, hazardous materials may have been released at operating sites or third-party sites in the past, including operating sites that we no longer own. If we reasonably can, we estimate potential remediation expenditures for those sites where future remediation efforts are probable based on identified conditions, regulatory requirements or contractual obligations arising from the sale of a business or facility. For sites involving government required investigations, we typically make an estimate of potential remediation expenditures only after the investigation is complete and when we better understand the nature and scope of the remediation. In general, the material factors in these estimates include the costs associated with investigations, delineations, risk assessments, remedial work, governmental response and oversight, site monitoring, and preparation of reports to the appropriate environmental agencies.

The following is a summary of our environmental obligations:



	(In Millions)
	June 30, 2020		December 31, 2019
Environmental obligations	$	41.4	$	2.0
Less current portion	6.5		0.3
Long-term environmental obligations	$	34.9	$	1.7

We cannot predict the ultimate costs for each site with certainty because of the evolving nature of the investigation and remediation process. Rather, to estimate the probable costs, we must make certain assumptions. The most significant of these assumptions is for the nature and scope of the work that will be necessary to investigate and remediate a particular site and the cost of that work. Other significant assumptions include the cleanup technology that will be used, whether and to what extent any other parties will participate in paying the investigation and remediation costs, reimbursement of past response costs and future oversight costs by governmental agencies, and the reaction of the governing environmental agencies to the proposed work plans. Costs for future investigation and remediation are not discounted to their present value, unless the amount and timing of the cash disbursements are readily known. To the extent that we have been able to reasonably estimate future liabilities, we do not believe that there is a reasonable possibility that we will incur a loss or losses that exceed the amounts we accrued for the environmental matters discussed below that would, either individually or in the aggregate, have a material adverse effect on our consolidated financial condition, results of operations or cash flows. However, since we recognize amounts in the consolidated financial statements in accordance with GAAP that exclude potential losses that are not probable or that may not be currently estimable, the ultimate costs of these environmental matters may be higher than the liabilities we currently have recorded in our consolidated financial statements.

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Except as we expressly note below, we do not currently anticipate any material effect on our consolidated financial position, results of operations or cash flows as a result of compliance with current environmental regulations. Moreover, because all domestic steel and iron ore producers operate under the same federal environmental regulations, we do not believe that we are more disadvantaged than our domestic competitors by our need to comply with these regulations. Some foreign competitors may benefit from less stringent environmental requirements in the countries where they produce, resulting in lower compliance costs for them and providing those foreign competitors with a cost advantage on their products.

According to RCRA, which governs the treatment, handling and disposal of hazardous waste, the EPA and authorized state environmental agencies may conduct inspections of RCRA-regulated facilities to identify areas where there have been releases of hazardous waste or hazardous constituents into the environment and may order the facilities to take corrective action to remediate such releases. Environmental regulators may inspect our major iron ore and steelmaking facilities. While we cannot predict the future actions of these regulators, it is possible that they may identify conditions in future inspections of these facilities which they believe require corrective action.

Under authority from CERCLA, the EPA and state environmental authorities have conducted site investigations at certain of our facilities and other third-party facilities, portions of which previously may have been used for disposal of materials that are currently regulated. The results of these investigations are still pending, and we could be directed to spend funds for remedial activities at the former disposal areas. Because of the uncertain status of these investigations, however, we cannot reliably predict whether or when such spending might be required or its magnitude.

On April 29, 2002, AK Steel entered a mutually agreed-upon administrative order on consent with the EPA pursuant to Section 122 of CERCLA to perform a Remedial Investigation/Feasibility Study (“RI/FS”) of the Hamilton Plant site located in New Miami, Ohio. The plant ceased operations in 1990 and all of its former structures have been demolished. AK Steel submitted the investigation portion of the RI/FS and completed supplemental studies. We currently have accrued $0.7 million for the remaining cost of the RI/FS. Until the RI/FS is complete, we cannot reliably estimate the additional costs, if any, we may incur for potentially required remediation of the site or when we may incur them.

On September 26, 2012, the EPA issued an order under Section 3013 of RCRA requiring a plan to be developed for investigation of four areas at the Ashland Works coke plant. The Ashland Works coke plant ceased operations in 2011 and all of its former structures have been demolished and removed. In 1981, AK Steel acquired the plant from Honeywell International Corporation (as successor to Allied Corporation), who had managed the coking operations there for approximately 60 years. In connection with the sale of the coke plant, Honeywell agreed to indemnify AK Steel against certain claims and obligations that could arise from the investigation, and we intend to pursue such indemnification from Honeywell, if necessary. We cannot reliably estimate how long it will take to complete the site investigation. On March 10, 2016, the EPA invited AK Steel to participate in settlement discussions regarding an enforcement action. Settlement discussions between the parties are ongoing, though whether the parties will reach agreement and any such agreement’s terms are uncertain. We currently have accrued $1.4 million for the projected cost of the investigation and known remediation. Until the site investigation is complete, we cannot reliably estimate the costs, if any, we may incur for potential additional required remediation of the site or when we may incur them.

On May 12, 2014, the Michigan Department of Environment, Great Lakes, and Energy (“EGLE”) (previously the Michigan Department of Environmental Quality) issued to Dearborn Works an Air Permit to Install No. 182-05C (the “PTI”) to increase the emission limits for the blast furnace and other emission sources. The PTI was issued as a correction to a prior permit to install that did not include certain information during the prior permitting process. On July 10, 2014, the South Dearborn Environmental Improvement Association (“SDEIA”), Detroiters Working for Environmental Justice, Original United Citizens of Southwest Detroit and the Sierra Club filed a Claim of Appeal of the PTI in the State of Michigan, Wayne County Circuit Court, Case No. 14-008887-AA. The appellants and EGLE required the intervention of Severstal Dearborn, LLC (later merged into AK Steel Corporation) in this action as an additional appellee. The appellants allege multiple deficiencies with the PTI and the permitting process. On July 2, 2019, the Circuit Court dismissed the PTI appeal and ruled that EGLE appropriately issued the permit modification. The appellants have appealed that decision. Until the appeal is resolved, we cannot determine what the ultimate permit limits will be. Until the permit limits are determined and final, we cannot reliably estimate the costs we may incur, if any, or when we may incur them.

On August 21, 2014, the SDEIA filed a Complaint under the Michigan Environmental Protection Act (“MEPA”) in the State of Michigan, Wayne County Circuit Court, Case No. 14-010875-CE. The plaintiffs allege that the air emissions from Dearborn Works are impacting the air, water and other natural resources, as well as the public trust in such resources. The plaintiffs are requesting, among other requested relief, that the court assess and determine the sufficiency of the PTI’s limitations. On October 15, 2014, the court ordered a stay of the proceedings until a final order is issued in Wayne County Circuit Court Case No. 14-008887-AA (discussed above). When the proceedings resume, we intend to vigorously

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contest these claims. Until the claims in this complaint are resolved, we cannot reliably estimate the costs we may incur, if any, or when we may incur them.

On November 18, 2019, November 26, 2019, and March 16, 2020, EGLE issued Notices of Violations (“NOVs”) with respect to the basic oxygen furnace electrostatic precipitator at Dearborn Works alleging violations of manganese, lead and opacity limits. We are investigating these claims and will work with EGLE to attempt to resolve them. We intend to vigorously contest any claims which cannot be resolved through a settlement. Until a settlement is reached with EGLE or the claims of the NOVs are otherwise resolved, we cannot reliably estimate the costs, if any, associated with any potentially required work.

In addition to the foregoing matters, we are or may be involved in proceedings with various regulatory authorities that may require us to pay fines, comply with more rigorous standards or other requirements or incur capital and operating expenses for environmental compliance. We believe that the ultimate disposition of the proceedings will not have, individually or in the aggregate, a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Other Contingencies

In addition to the matters discussed above, there are various pending and potential claims against us and our subsidiaries involving product liability, commercial, employee benefits, and other matters arising in the ordinary course of business. Because of the considerable uncertainties which exist for any claim, it is difficult to reliably or accurately estimate what the amount of a loss would be if a claimant prevails. If material assumptions or factual understandings we rely on to evaluate exposure for these contingencies prove to be inaccurate or otherwise change, we may be required to record a liability for an adverse outcome. If, however, we have reasonably evaluated potential future liabilities for all of these contingencies, including those described more specifically above, it is our opinion, unless we otherwise noted, that the ultimate liability from these contingencies, individually and in the aggregate, should not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

NOTE 2019 - SUBSEQUENT EVENTS

We have evaluated subsequent events through the date of financial statement issuance.

~~NOTE 21 - SUPPLEMENTARY GUARANTOR INFORMATION~~

The accompanying unaudited condensed consolidating 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.” Certain of our subsidiaries (the "Guarantors") have guaranteed the obligations under the 5.75% 2025 Senior Notes and the 5.875% 2027 Senior Notes issued by Cleveland-Cliffs Inc. See NOTE 6 - DEBT AND CREDIT FACILITIES for further information.

The following presents the unaudited condensed consolidating financial information for: (i) the Parent Company and the Issuer of the guaranteed obligations (Cleveland-Cliffs Inc.); (ii) the Guarantor subsidiaries, on a combined basis; (iii) the non-guarantor subsidiaries, on a combined basis; (iv) consolidating eliminations; and (v) Cleveland-Cliffs Inc. and subsidiaries on a consolidated basis. Each Guarantor subsidiary is 100% owned by the Parent Company as of September 30, 2019 and December 31, 2018. The unaudited condensed consolidating financial information is presented as if the Guarantor structure at September 30, 2019 existed for all periods presented.

Each of the Guarantor subsidiaries fully and unconditionally guarantees, on a joint and several basis, the obligations of Cleveland-Cliffs Inc. under the 5.75% 2025 Senior Notes and the 5.875% 2027 Senior Notes. The guarantee of a Guarantor subsidiary will be automatically and unconditionally released and discharged, and such Guarantor subsidiary’s obligations under the guarantee and the related indentures governing the 5.75% 2025 Senior Notes and the 5.875% 2027 Senior Notes (the “Indentures”) will be automatically and unconditionally released and discharged, upon:

~~(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 unaudited consolidating financial information follows the same accounting policies as described in the consolidated financial statements. The accompanying unaudited condensed consolidating financial information has been presented on the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for the subsidiaries’ cumulative results of operations, capital contributions

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~~and distributions, and other changes in equity. Elimination entries include consolidating and eliminating entries for investments in subsidiaries, and intra-entity activity and balances.~~

Unaudited Condensed Consolidating Statement of Financial Position
As of September 30, 2019
(In Millions)
Cleveland-Cliffs Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 396.2
$ 0.4
$ 2.7
$ —
$ 399.3
Accounts receivable, net 7.4
161.4
0.2
(4.1 ) 164.9
Finished goods inventories —
162.2
—
—
162.2
Work-in-process inventories —
55.2
—
—
55.2
Supplies and other inventories —
110.8
—
—
110.8
Derivative assets —
72.8
—
—
72.8
Income tax receivable, current 58.7
—
—
—
58.7
Other current assets 9.3
22.9
8.5
—
40.7
TOTAL CURRENT ASSETS 471.6
585.7
11.4
(4.1 ) 1,064.6
PROPERTY, PLANT AND EQUIPMENT, NET 12.3
1,706.8
50.8
—
1,769.9
OTHER ASSETS
Deposits for property, plant and equipment —
27.1
14.5
—
41.6
Income tax receivable, non-current 58.6
4.1
—
—
62.7
Deferred income taxes 436.3
—
1.2
—
437.5
Investment in subsidiaries 1,780.5
39.7
—
(1,820.2 ) —
Long-term intercompany notes —
—
121.3
(121.3 ) —
Other non-current assets 15.6
98.0
1.3
—
114.9
TOTAL OTHER ASSETS 2,291.0
168.9
138.3
(1,941.5 ) 656.7
TOTAL ASSETS $ 2,774.9
$ 2,461.4
$ 200.5
$ (1,945.6 ) $ 3,491.2
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 4.7
$ 207.8
$ 4.4
$ (4.1 ) $ 212.8
Accrued employment costs 17.1
40.1
0.1
—
57.3
Accrued interest 34.1
—
—
—
34.1
Derivative liabilities 2.4
30.2
—
—
32.6
Partnership distribution payable —
—
—
—
—
Other current liabilities 38.5
75.9
7.3
—
121.7
TOTAL CURRENT LIABILITIES 96.8
354.0
11.8
(4.1 ) 458.5
PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES 63.3
414.2
(244.3 ) —
233.2
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS —
159.7
19.4
—
179.1
LONG-TERM DEBT 2,109.1
—
—
—
2,109.1
LONG-TERM INTERCOMPANY NOTES 121.3
—
—
(121.3 ) —
OTHER LIABILITIES 24.5
120.8
6.1
—
151.4
TOTAL LIABILITIES 2,415.0
1,048.7
(207.0 ) (125.4 ) 3,131.3
EQUITY
TOTAL EQUITY 359.9
1,412.7
407.5
(1,820.2 ) 359.9
TOTAL LIABILITIES AND EQUITY $ 2,774.9
$ 2,461.4
$ 200.5
$ (1,945.6 ) $ 3,491.2

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Unaudited Condensed Consolidating Statement of Financial Position
As of December 31, 2018
(In Millions)
Cleveland-Cliffs Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 819.8
$ 0.7
$ 2.7
$ —
$ 823.2
Accounts receivable, net 9.2
221.3
0.3
(4.1 ) 226.7
Finished goods inventories —
77.8
—
—
77.8
Work-in-process inventories —
10.1
—
—
10.1
Supplies and other inventories —
93.2
—
—
93.2
Derivative assets 0.1
91.4
—
—
91.5
Income tax receivable, current 117.3
—
—
—
117.3
Other current assets 10.0
16.9
12.9
—
39.8
TOTAL CURRENT ASSETS 956.4
511.4
15.9
(4.1 ) 1,479.6
PROPERTY, PLANT AND EQUIPMENT, NET 13.3
1,221.9
50.8
—
1,286.0
OTHER ASSETS
Deposits for property, plant and equipment —
68.4
14.6
—
83.0
Income tax receivable, non-current 117.2
4.1
—
—
121.3
Deferred income taxes 463.6
—
1.2
—
464.8
Investment in subsidiaries 1,262.3
50.8
—
(1,313.1 ) —
Long-term intercompany notes —
—
121.3
(121.3 ) —
Other non-current assets 8.0
85.4
1.5
—
94.9
TOTAL OTHER ASSETS 1,851.1
208.7
138.6
(1,434.4 ) 764.0
TOTAL ASSETS $ 2,820.8
$ 1,942.0
$ 205.3
$ (1,438.5 ) $ 3,529.6
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 5.3
$ 181.4
$ 4.2
$ (4.1 ) $ 186.8
Accrued employment costs 28.5
45.4
0.1
—
74.0
Accrued interest 38.4
—
—
—
38.4
Derivative liabilities 3.7
—
—
—
3.7
Partnership distribution payable —
43.5
—
—
43.5
Other current liabilities 26.9
86.7
8.2
—
121.8
TOTAL CURRENT LIABILITIES 102.8
357.0
12.5
(4.1 ) 468.2
PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES 64.3
414.4
(230.0 ) —
248.7
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS —
152.1
19.9
—
172.0
LONG-TERM DEBT 2,092.9
—
—
—
2,092.9
LONG-TERM INTERCOMPANY NOTES 121.3
—
—
(121.3 ) —
OTHER LIABILITIES 15.3
99.5
8.8
—
123.6
TOTAL LIABILITIES 2,396.6
1,023.0
(188.8 ) (125.4 ) 3,105.4
EQUITY
TOTAL EQUITY 424.2
919.0
394.1
(1,313.1 ) 424.2
TOTAL LIABILITIES AND EQUITY $ 2,820.8
$ 1,942.0
$ 205.3
$ (1,438.5 ) $ 3,529.6

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Unaudited Condensed Consolidating Statement of Operations and Comprehensive Income
For the Three Months Ended September 30, 2019
(In Millions)
Cleveland-Cliffs Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
REVENUES FROM PRODUCT SALES AND SERVICES
Product $ —
$ 515.0
$ —
$ —
$ 515.0
Freight —
40.6
—
—
40.6
—
555.6
—
—
555.6
COST OF GOODS SOLD —
(400.7 ) —
—
(400.7 )
SALES MARGIN —
154.9
—
—
154.9
OTHER OPERATING EXPENSE
Selling, general and administrative expenses (20.7 ) (4.7 ) (0.1 ) —
(25.5 )
Miscellaneous – net —
(7.7 ) (0.1 ) —
(7.8 )
(20.7 ) (12.4 ) (0.2 ) —
(33.3 )
OPERATING INCOME (LOSS) (20.7 ) 142.5
(0.2 ) —
121.6
OTHER INCOME (EXPENSE)
Interest income (expense), net (24.9 ) (0.6 ) 0.2
—
(25.3 )
Other non-operating income (expense) (0.9 ) (3.4 ) 4.6
—
0.3
(25.8 ) (4.0 ) 4.8
—
(25.0 )
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (46.5 ) 138.5
4.6
—
96.6
INCOME TAX EXPENSE (4.8 ) —
—
—
(4.8 )
EQUITY IN INCOME OF SUBSIDIARIES 142.2
4.6
—
(146.8 ) —
INCOME FROM CONTINUING OPERATIONS 90.9
143.1
4.6
(146.8 ) 91.8
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX —
(0.3 ) (0.6 ) —
(0.9 )
NET INCOME $ 90.9
$ 142.8
$ 4.0
$ (146.8 ) $ 90.9
OTHER COMPREHENSIVE INCOME 6.2
6.8
—
(6.8 ) 6.2
TOTAL COMPREHENSIVE INCOME $ 97.1
$ 149.6
$ 4.0
$ (153.6 ) $ 97.1

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Unaudited Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
For the Three Months Ended September 30, 2018
(In Millions)
Cleveland-Cliffs Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
REVENUES FROM PRODUCT SALES AND SERVICES
Product $ —
$ 684.7
$ —
$ —
$ 684.7
Freight —
57.1
—
—
57.1
—
741.8
—
—
741.8
COST OF GOODS SOLD —
(480.2 ) —
—
(480.2 )
SALES MARGIN —
261.6
—
—
261.6
OTHER OPERATING EXPENSE
Selling, general and administrative expenses (23.1 ) (5.7 ) (0.3 ) —
(29.1 )
Miscellaneous – net —
(6.5 ) (0.5 ) —
(7.0 )
(23.1 ) (12.2 ) (0.8 ) —
(36.1 )
OPERATING INCOME (LOSS) (23.1 ) 249.4
(0.8 ) —
225.5
OTHER INCOME (EXPENSE)
Interest income (expense), net (29.2 ) (0.4 ) 0.1
—
(29.5 )
Other non-operating income (expense) (0.9 ) 0.1
5.1
—
4.3
(30.1 ) (0.3 ) 5.2
—
(25.2 )
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (53.2 ) 249.1
4.4
—
200.3
INCOME TAX EXPENSE (0.3 ) —
(0.2 ) —
(0.5 )
EQUITY IN INCOME OF SUBSIDIARIES 471.0
4.7
—
(475.7 ) —
INCOME FROM CONTINUING OPERATIONS 417.5
253.8
4.2
(475.7 ) 199.8
INCOME FROM DISCONTINUED OPERATIONS, net of tax 20.3
12.9
204.8
—
238.0
NET INCOME $ 437.8
$ 266.7
$ 209.0
$ (475.7 ) $ 437.8
OTHER COMPREHENSIVE INCOME (LOSS) (221.2 ) 6.1
(230.5 ) 224.4
(221.2 )
TOTAL COMPREHENSIVE INCOME (LOSS) $ 216.6
$ 272.8
$ (21.5 ) $ (251.3 ) $ 216.6

~~Table of Contents~~

Unaudited Condensed Consolidating Statement of Operations and Comprehensive Income
For the Nine Months Ended September 30, 2019
(In Millions)
Cleveland-Cliffs Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
REVENUES FROM PRODUCT SALES AND SERVICES
Product $ —
$ 1,357.8
$ —
$ —
$ 1,357.8
Freight —
98.0
—
—
98.0
—
1,455.8
—
—
1,455.8
COST OF GOODS SOLD —
(1,007.0 ) —
—
(1,007.0 )
SALES MARGIN —
448.8
—
—
448.8
OTHER OPERATING EXPENSE
Selling, general and administrative expenses (67.1 ) (14.7 ) (0.4 ) —
(82.2 )
Miscellaneous – net —
(17.9 ) (1.1 ) —
(19.0 )
(67.1 ) (32.6 ) (1.5 ) —
(101.2 )
OPERATING INCOME (LOSS) (67.1 ) 416.2
(1.5 ) —
347.6
OTHER INCOME (EXPENSE)
Interest income (expense), net (75.0 ) (1.9 ) 0.4
—
(76.5 )
Loss on extinguishment of debt (18.2 ) —
—
—
(18.2 )
Other non-operating income (expense) (3.0 ) (9.8 ) 14.1
—
1.3
(96.2 ) (11.7 ) 14.5
—
(93.4 )
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (163.3 ) 404.5
13.0
—
254.2
INCOME TAX EXPENSE (22.7 ) (0.3 ) (0.1 ) —
(23.1 )
EQUITY IN INCOME OF SUBSIDIARIES 415.5
13.3
—
(428.8 ) —
INCOME FROM CONTINUING OPERATIONS 229.5
417.5
12.9
(428.8 ) 231.1
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX 0.1
(0.3 ) (1.3 ) —
(1.5 )
NET INCOME $ 229.6
$ 417.2
$ 11.6
$ (428.8 ) $ 229.6
OTHER COMPREHENSIVE INCOME 18.3
20.1
—
(20.1 ) 18.3
TOTAL COMPREHENSIVE INCOME $ 247.9
$ 437.3
$ 11.6
$ (448.9 ) $ 247.9

~~Table of Contents~~

Unaudited Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
For the Nine Months Ended September 30, 2018
(In Millions)
Cleveland-Cliffs Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
REVENUES FROM PRODUCT SALES AND SERVICES
Product $ —
$ 1,525.9
$ —
$ —
$ 1,525.9
Freight —
110.2
—
—
110.2
—
1,636.1
—
—
1,636.1
COST OF GOODS SOLD —
(1,028.5 ) —
—
(1,028.5 )
SALES MARGIN —
607.6
—
—
607.6
OTHER OPERATING EXPENSE
Selling, general and administrative expenses (62.9 ) (15.3 ) (0.7 ) —
(78.9 )
Miscellaneous – net (0.4 ) (16.9 ) (1.4 ) —
(18.7 )
(63.3 ) (32.2 ) (2.1 ) —
(97.6 )
OPERATING INCOME (LOSS) (63.3 ) 575.4
(2.1 ) —
510.0
OTHER INCOME (EXPENSE)
Interest income (expense), net (91.9 ) (1.8 ) 0.6
—
(93.1 )
Gain on extinguishment of debt 0.2
—
—
—
0.2
Other non-operating income (expense) (2.6 ) 0.8
14.9
—
13.1
(94.3 ) (1.0 ) 15.5
—
(79.8 )
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (157.6 ) 574.4
13.4
—
430.2
INCOME TAX EXPENSE (13.8 ) (0.2 ) (0.4 ) —
(14.4 )
EQUITY IN INCOME OF SUBSIDIARIES 665.7
13.8
—
(679.5 ) —
INCOME FROM CONTINUING OPERATIONS 494.3
588.0
13.0
(679.5 ) 415.8
INCOME FROM DISCONTINUED OPERATIONS, net of tax 24.3
12.8
65.7
—
102.8
NET INCOME $ 518.6
$ 600.8
$ 78.7
$ (679.5 ) $ 518.6
OTHER COMPREHENSIVE INCOME (LOSS) (204.4 ) 18.0
(227.5 ) 209.5
(204.4 )
TOTAL COMPREHENSIVE INCOME (LOSS) $ 314.2
$ 618.8
$ (148.8 ) $ (470.0 ) $ 314.2

~~Table of Contents~~

Unaudited Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2019
(In Millions)
Cleveland-Cliffs Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net cash provided (used) by operating activities $ (11.0 ) $ 402.8
$ (3.7 ) $ —
$ 388.1
INVESTING ACTIVITIES
Purchase of property, plant and equipment (1.2 ) (446.7 ) —
—
(447.9 )
Deposits for property, plant and equipment —
(12.3 ) (0.5 ) —
(12.8 )
Intercompany investing (83.6 ) (1.2 ) —
84.8
—
Other investing activities —
10.4
0.8
—
11.2
Net cash provided (used) by investing activities (84.8 ) (449.8 ) 0.3
84.8
(449.5 )
FINANCING ACTIVITIES
Repurchase of common shares (252.9 ) —
—
—
(252.9 )
Dividends paid (45.1 ) —
—
—
(45.1 )
Proceeds from issuance of debt 720.9
—
—
—
720.9
Debt issuance costs (6.8 ) —
—
—
(6.8 )
Repurchase of debt (729.3 ) —
—
—
(729.3 )
Distributions of partnership equity —
(44.2 ) —
—
(44.2 )
Intercompany financing —
83.1
1.7
(84.8 ) —
Other financing activities (14.6 ) 7.8
(2.7 ) —
(9.5 )
Net cash provided (used) by financing activities (327.8 ) 46.7
(1.0 ) (84.8 ) (366.9 )
DECREASE IN CASH AND CASH EQUIVALENTS, INCLUDING CASH CLASSIFIED WITHIN OTHER CURRENT ASSETS RELATED TO DISCONTINUED OPERATIONS (423.6 ) (0.3 ) (4.4 ) —
(428.3 )
LESS: DECREASE IN CASH AND CASH EQUIVALENTS FROM DISCONTINUED OPERATIONS, CLASSIFIED WITHIN OTHER CURRENT ASSETS —
—
(4.4 ) —
(4.4 )
NET DECREASE IN CASH AND CASH EQUIVALENTS (423.6 ) (0.3 ) —
—
(423.9 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 819.8
0.7
2.7
—
823.2
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 396.2
$ 0.4
$ 2.7
$ —
$ 399.3

~~Table of Contents~~

Unaudited Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2018
(In Millions)
Cleveland-Cliffs Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net cash provided (used) by operating activities $ (100.6 ) $ 425.6
$ (136.3 ) $ —
$ 188.7
INVESTING ACTIVITIES
Purchase of property, plant and equipment (1.1 ) (110.2 ) (0.1 ) —
(111.4 )
Deposits for property, plant and equipment —
(78.1 ) (5.2 ) —
(83.3 )
Intercompany investing 185.7
(6.3 ) 120.7
(300.1 ) —
Other investing activities —
3.1
17.9
—
21.0
Net cash provided (used) by investing activities 184.6
(191.5 ) 133.3
(300.1 ) (173.7 )
FINANCING ACTIVITIES
Debt issuance costs (1.5 ) —
—
—
(1.5 )
Repurchase of debt (16.3 ) —
—
—
(16.3 )
Distributions of partnership equity —
(44.2 ) —
—
(44.2 )
Intercompany financing (120.7 ) (188.6 ) 9.2
300.1
—
Other financing activities (1.9 ) (1.5 ) (42.3 ) —
(45.7 )
Net cash used by financing activities (140.4 ) (234.3 ) (33.1 ) 300.1
(107.7 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH —
—
(2.3 ) —
(2.3 )
DECREASE IN CASH AND CASH EQUIVALENTS, INCLUDING CASH CLASSIFIED WITHIN OTHER CURRENT ASSETS RELATED TO DISCONTINUED OPERATIONS (56.4 ) (0.2 ) (38.4 ) —
(95.0 )
LESS: DECREASE IN CASH AND CASH EQUIVALENTS FROM DISCONTINUED OPERATIONS, CLASSIFIED WITHIN OTHER CURRENT ASSETS —
—
(13.8 ) —
(13.8 )
NET DECREASE IN CASH AND CASH EQUIVALENTS (56.4 ) (0.2 ) (24.6 ) —
(81.2 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 948.9
2.1
27.3
—
978.3
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 892.5
$ 1.9
$ 2.7
$ —
$ 897.1



Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations ~~("MD&A")~~ is designed to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity and other factors that may affect our future results. We believe it is important to read our ~~MD&A~~Management's Discussion and Analysis of Financial Condition and Results of Operations in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 and our Quarterly Report on Form 10-Q for the three months ended March 31, 2020, as well as other publicly available information.

Overview

Founded in 1847, Cleveland-Cliffs ~~Inc.~~ is among the largest ~~and oldest independent~~vertically integrated producers of differentiated iron ore ~~mining company~~and steel in ~~the United States. We~~North America. With an emphasis on non-commoditized products, we are ~~a major supplier of~~uniquely positioned to supply both customized iron ore pellets and steel solutions to ~~the North American~~a quality-focused customer base. AK Steel, a wholly-owned subsidiary of Cleveland-Cliffs, is a leading producer of flat-rolled carbon, stainless and electrical steel ~~industry from our mines~~products. The AK Tube and ~~pellet plants located in Michigan~~Precision Partners businesses provide customer solutions with carbon and ~~Minnesota. By~~stainless steel tubing products, die design and tooling, and hot- and cold-stamped components. In 2020, we expect to be the sole producer of HBI in the Great Lakes ~~region with~~region. Headquartered in Cleveland, Ohio, we employ approximately 11,000 people across mining and steel manufacturing operations in the ~~development~~United States and Canada.

During the second quarter of 2020, the COVID-19 pandemic negatively disrupted, to varying degrees, effectively all of the end markets that we serve. As a result, we saw decreased demand for our ~~first~~steel and raw material products from the industrial markets that were impacted, most notably the automotive industry. Conditions have since improved and automotive customers have resumed production ~~plant~~ in ~~Toledo, Ohio. Driven by~~previously idled facilities, but we have not yet seen conditions fully normalize due to supply chain issues and other concerns related to the ~~core values~~COVID-19 pandemic, and it remains unclear how long the economic impact of ~~safety, social, environmental~~the COVID-19 pandemic will be felt. In response to the COVID-19 pandemic and ~~capital stewardship,~~the corresponding reduction in demand, we made several operational adjustments to keep both our employees ~~endeavor to provide all stakeholders with operating~~ and ~~financial transparency.~~Company healthy for the long term. See "–COVID-19" below.

Table of Contents

The largest market for our steel products is the automotive industry in North America, which makes light vehicle production a key driver of demand. In the first six months of 2020, North American light vehicle production was approximately 5.1 million units, a 40% reduction from the prior year’s comparable period. The reduction is a result of automotive plants shutting down throughout the United States in response to the COVID-19 pandemic, with second quarter of 2020 production falling by 69% from the prior year period.

In our Steel and Manufacturing segment, we also sell our steel products to the infrastructure, manufacturing, electrical power, distributors and converters markets, which have all been challenged by the COVID-19 pandemic, though to a lesser extent than the automotive market. Similar to the automotive sector, our sales to these markets generally declined during the second quarter of 2020 and we expect them to increase during the second half of the year.

For our Mining and Pelletizing segment, the key driver of our business is demand for ~~steelmaking~~ raw materials from U.S. steelmakers. During the first ~~eight~~six months of ~~2019,~~2020, the U.S. produced approximately 5936 million metric tons of crude steel, which is ~~4% higher~~18% lower than the same period in ~~2018,~~2019, representing about 5%4% of total global crude steel production. U.S. total steel capacity utilization was approximately ~~81%~~67% in the first ~~eight~~six months of ~~2019,~~2020, which is an approximate ~~3% increase~~17% decrease from the same period in ~~2018. Through the first eight months of 2019, global crude steel production increased about 4% compared~~2019. Due to the ~~same period in 2018, driven by an approximate 9% increase in Chinese crude steel production.~~

~~For~~timing of the ~~first nine months of 2019,~~COVID-19 pandemic and the U.S. response, we expect production and utilization rates to remain below prior-year levels until economic conditions in the global iron ore market were at their most favorable levels since 2014. In January 2019, a tailings dam operated by Vale S.A., the largest iron ore miner in the world, suffered a catastrophic failure resulting in hundreds of fatalities in Brumadinho, Brazil. The fallout of this disaster has led to multiple disruptions in iron ore supply. Due in large part to these disruptions and China's healthy steel production levels, the Platts 62% Price, a key component in our supply contracts, averaged $95 per metric ton in the first nine months of 2019, a 38% increase compared to $69 per metric ton in the first nine months of 2018.

The Atlantic Basin pellet premium, another important pricing factor in our contracts, averaged $64 per metric ton for the first nine months of 2019, a 10% increase compared to the same period in 2018. Despite this year-over-year increase, the market for pellets has deteriorated rapidly over the past quarter. Given both the weak steel market conditions in Europe and declining demand for high-quality iron ore products in China, pellet suppliers have lowered premiums dramatically. This has driven the Atlantic Basin Pellet Premium index to a current three-year low, representing a substantial deterioration from the multi-year highs seen earlier in the year.improve.

The price for domestic hot-rolled coil steel, ~~which is~~ an important attribute in the ~~calculation~~pricing for our iron ore pellets and certain of ~~supplemental revenue in one customer supply agreement,~~our steel products, averaged ~~$625~~$539 per net ton for the first ~~nine~~six months of ~~2019, 26%~~2020, 18% lower than the same period last year. ~~While purchasers scrambled~~The price of hot-rolled coil steel has been negatively impacted by lower demand related to ~~place~~the COVID-19 pandemic; however, we are encouraged that there were numerous domestic steel ~~orders~~capacity curtailments in response, which should help improve steel supply-demand dynamics in the ~~wake~~United States.

The two other important indices that impact pricing in our Mining and Pelletizing segment are the Platts 62% Price and the Atlantic Basin pellet premium. The Platts 62% Price averaged $91 per metric ton in the first six months of 2020 and 2019. The Platts 62% Price increased significantly during the ~~Section 232 tariffs implemented last year,~~second quarter of 2020, as Chinese demand for iron ore remained strong and other iron ore producing countries struggled to meet production targets due to the ~~U.S.~~COVID-19 pandemic. The Atlantic Basin pellet premium averaged $30 per metric ton for the first six months of 2020, a 56% decrease compared to the same period in 2019, as weakness in the European steel market has since cooled and prices have moved substantially lower due to inventory destocking and increased supply, in a market with effectively flat apparent demand. In addition, scrap steel prices are at three-year lows due to lack of exportdriven reduced demand ~~putting additional pressure on pricing in the steel supply chain.~~for higher quality raw materials.

For the three and ~~nine~~six months ended ~~September~~June 30, 2020, our consolidated Revenues, including Realization of deferred revenue of $34.6 million for the six months ended June 30, 2020, were $1,092.7 million and $1,451.8 million, respectively. For the three and six months ended June 30, 2019, our consolidated ~~revenues~~Revenues were ~~$555.6~~$743.2 million and ~~$1,455.8~~$900.2 million, respectively. For the three and six months ended June 30, 2020 we had net loss from continuing operations attributable to Cliffs shareholders of $0.31 and $0.51 per diluted share, respectively, ~~with~~and negative consolidated Adjusted EBITDA of $82.0 million and $59.3 million, respectively. For the three and six months ended June 30, 2019, we had net income from continuing operations attributable to Cliffs shareholders of ~~$0.33~~$0.57 and ~~$0.80~~$0.47 per diluted share, respectively, and consolidated Adjusted EBITDA of $248.4 million and $269.6 million, respectively. ~~For the three and nine months ended September 30, 2018,~~See "– Results of Operations – Segment Information" below for a reconciliation of our consolidated ~~revenues were $741.8 million~~Net Income (loss) to Adjusted EBTIDA.

Strategy

Our key strategic initiatives include:

Maximizing our Commercial Strengths

With the acquisition of AK Steel, we now offer a full suite of products encompassing all steps of the iron ore and ~~$1,636.1 million, respectively, with net income from continuing operations~~steel manufacturing process. From mining to pelletizing to the development and production of ~~$0.64~~finished high-value steel products, we are uniquely positioned to supply both customized iron ore pellets and ~~$1.37 per diluted~~flat-rolled carbon, stainless and electrical steel products in the United States. We have an industry-leading market share ~~respectively.~~in the automotive industry, where our portfolio of high-end products delivers a broad range of differentiated solutions for this highly sought after customer base.

~~Third Quarter 2019 Recent Developments~~

~~Hibbing Mine Management~~

~~On August 12, 2019,~~Our product offering is generally geared toward the high-quality end of the spectrum, compared to other suppliers of steel and iron ore in the domestic and global marketplace. Since 2015, our subsidiary ~~Cliffs Mining Company, ceased performing manager duties at Hibbing~~AK Steel has de-emphasized the marketing of commodity-grade steel such as hot-rolled coil and ~~transitioned those duties~~focused on high-end applications and solutions, emphasizing niche products primarily for the automotive industry, which is well known for its extremely selective buying behavior. The AK Steel expertise, equipment capabilities and delivery reliability differentiate us from what most U.S.-based steelmakers are capable of offering. It also allows for the ability to ~~ArcelorMittal. In connection~~minimize the pricing influence of volatile market indices with this transition, Cliffs Mining Company and ArcelorMittal entered into a transition agreement, pursuant to which the Ore Mining Companies Pension Plan previously sponsored by Cliffs Mining Company is now sponsored by ArcelorMittal Hibbing Management LLC. In connection with the transfer of manager duties at Hibbing, Hibbing employees previously employed by Cliffs Mining Company are now employed by an ArcelorMittal controlled group entity. All non-Hibbing active and retired participants were transferred to our salaried pension plan.

~~Common Share Dividends~~

~~On September 3, 2019, our Board of Directors declared a regular quarterly cash dividend~~more focus on our common shares of $0.06 per share. In addition to the regular dividend, on September 3, 2019, our Board of Directors declared a special cash dividend of $0.04 per share, for a total dividend distribution of $0.10 per share. Both the regular and special cash dividends were paid on October 15, 2019 to shareholders of record as of the close of business on October 4, 2019.fixed-price agreements.

Table of Contents

~~Results~~We also produce iron ore pellets, the most advanced and sophisticated iron ore product in the marketplace. The major global iron ore producers primarily sell iron ore fines, a commodity-grade product that makes up the vast majority of ~~Operations~~the seaborne iron ore trade. Our pellets are iron ore fines that have been further processed into homogenous feedstock that allow for enhanced efficiency within a blast furnace, offering steelmakers improved productivity and environmental performance. The sophisticated and tailor-made nature of our pellets allows us to charge a premium when compared to other iron ore products available in the marketplace.

Our Toledo HBI production plant, when operational, will allow us to offer another unique, high-quality product to discerning raw material buyers. EAF steelmakers primarily use scrap for their iron feedstock, and our HBI will offer a sophisticated alternative with less impurities, allowing the steelmakers to increase the quality of their respective end steel products and reduce reliance on imported metallics.

Expanding our Customer Base and Product Offering

The ~~following~~acquisition of AK Steel allows us to benefit from a larger and more diverse base of customers, with less overall emphasis on commodity-linked contracts as part of our new Steel and Manufacturing business. This expansion of our customer base into the automotive industry, as well as other steel consuming manufacturers, is expected to generate more predictable earnings and cash flows due to the focus on value-added and non-commoditized products, and less exposure to volatile commodity indices. We will now generally supply more advanced steel products than EAF steelmakers, who have gained market share from other blast furnaces on less advanced commodity-grade steels. As currently configured, EAFs are largely unable to supply the highly-specified products that we primarily sell.

We are also seeking to expand our customer base with the rapidly growing and attractive electric vehicle market. We believe, at this time, the North American automotive industry is approaching a ~~summary~~monumental inflection point, with the adoption of electrical engines in passenger vehicles. As this market grows, it will require more advanced steel applications to meet the needs of electric vehicle producers and consumers. With AK Steel’s unique technical capabilities, we believe we are positioned better than any other North American steelmaker to supply the steel and parts necessary to fill these needs.

Additionally, although we have a different customer base compared to other blast furnace steelmakers, we cannot ignore the ongoing shift of steelmaking share in the U.S. away from the blast furnace producers to the EAF steelmakers. Over the past 25 years, the market share of EAFs has nearly doubled. However, as EAFs have moved to higher-value steel products, they require more high-quality iron ore-based metallics instead of lower-grade scrap as raw material feedstock. As a result of this trend, one of our top strategic priorities will be to become a critical supplier of the EAF market by providing these specialized metallics.

Once operational, we expect our HBI production plant to partially replace the over three million metric tons of ore-based metallics that are imported into the Great Lakes region every year from Russia, Ukraine, Brazil and Venezuela, as well as the nearly 20 million metric tons of scrap used in the Great Lakes area every year. The Toledo site is in close proximity to over 20 EAFs, giving us a natural competitive freight advantage over import competitors. Not only will this production plant create another outlet for our high-margin pellets, but it also presents an attractive economic opportunity for us. As the only producer of DR-grade pellets in the Great Lakes region and with access to abundant, low-cost natural gas, we will be in a unique position to serve clients in the area and grow our customer base.

The acquisition of AK Steel provides another potential outlet for HBI as it can also be used in integrated steel operations to increase productivity and reduce carbon footprint, allowing for more cost efficient and environmentally friendly steelmaking.

Protecting our Mining and Pelletizing ~~results for the three months ended September 30, 2019 and 2018:~~

(In Millions)
Changes due to:
Three Months Ended
September 30,
Revenue
and cost rate
Sales volume Freight Total change
2019 2018
Revenues from product sales and services $ 590.6
$ 741.8
$ (63.2 ) $ (71.4 ) $ (16.6 ) $ (151.2 )
Cost of goods sold (424.8 ) (480.2 ) (7.7 ) 46.5
16.6
55.4
Sales margin $ 165.8
$ 261.6
$ (70.9 ) $ (24.9 ) $ —
$ (95.8 )

Three Months Ended
September 30,
Per Ton Information 2019 2018 Difference Percent change
Realized product revenue rate¹
$ 95.65
$ 105.65
$ (10.00 ) (9.5 )%
Cash cost of goods sold rate^1,2
63.20
62.54
0.66
1.1 %
Depreciation, depletion & amortization 3.62
2.75
0.87
31.6 %
Total cost of goods sold 66.82
65.29
1.53
2.3 %
Sales margin $ 28.83
$ 40.36
$ (11.53 ) (28.6 )%

Sales tons³ (In thousands)
5,750
6,481

Production tons³(In thousands)
5,159
4,719

¹ Excludes revenues and expenses related to domestic freight, which are offsetting and have no impact on sales margin.
² Cash cost of goods sold rate is a non-GAAP financial measure. Refer to "Non-GAAP Reconciliation" for reconciliation in dollars back to our consolidated financial statements.
³ Tons are long tons. Includes Cliffs' 23% share of the Hibbing mine production. Includes intercompany sales to our Metallics segment of 346 thousand long tons, for the three months ended September 30, 2019.

Sales margin was $165.8 million for the three months ended September 30, 2019, compared with $261.6 million for the three months ended September 30, 2018. Sales margin decreased 28.6% to $28.83 per long ton during the three months ended September 30, 2019, compared to the three months ended September 30, 2018.Business

~~Revenue decreased by $134.6 million during~~We are the ~~three months ended September 30, 2019, compared~~market-leading iron ore producer in the U.S., supplying differentiated iron ore pellets under long-term contracts to major North American blast furnace steel producers. We have the ~~prior-year period, excluding~~unique advantage of being a low-cost, high-quality, iron ore pellet producer with significant transportation and logistics advantages to serve the ~~domestic freight decrease~~Great Lakes steel market. The pricing structure and long-term nature of ~~$16.6 million, driven by:~~our existing contracts, along with our cost-effective operating profile, position our Mining and Pelletizing segment as a strong cash flow generator in most commodity pricing environments.

~~Lower sales volume~~We recognize the importance of ~~0.7 million long tons, which resulted~~our current strong position in ~~decreased revenue~~the North American blast furnace steel industry, and one of ~~$71 million, due~~our top priorities is to ~~decreased~~protect and enhance the market position of our Mining and Pelletizing business. This involves continuing to deliver high-quality, custom-made pellets that allow our customers to remain competitive in the quality, production efficiency, and environmental friendliness of their steel products. Protecting this business also involves continually evaluating opportunities to preserve our customer ~~demand;~~base, expand our production capacity and increase ore


•	~~A decrease in the average year-to-date realized product revenue rate of~~ ~~$10.00~~ ~~per long ton, or~~ ~~9.5%, during the three months ended September 30, 2019, compared to the prior-year period, which resulted in a decrease of~~ ~~$63.2 million, predominantly due to:~~


◦	~~A decrease in the hot-rolled coil steel price, which negatively affected the realized revenue rate by $20 per long ton, or $117 million, during the third quarter of 2019; and~~


◦	~~Lower full-year estimated pellet premiums, which negatively affected the realized revenue rate by $5 per long ton, or $27 million.~~


◦	These decreases were offset partially by an increase in the full-year estimated Platts 62% Price as of September 30, 2019, compared to the prior-year period's full-year estimated Platts 62% Price, which positively affected the realized revenue rate by $17 per long ton, or $96 million.

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~~Cost~~reserve life. In 2017, we achieved key accomplishments toward these goals by acquiring the remaining minority stake in our Tilden and Empire mines as well as additional real estate interests in Minnesota. In 2018, we began supplying pellets under two new customer supply agreements in the Great Lakes region. In 2019, we completed the upgrades at our Northshore mine to begin commercially producing DR-grade pellets.

The acquisition of ~~goods sold decreased $38.8 million during~~AK Steel is central to protecting our Mining and Pelletizing business, as sales to AK Steel accounted for 29% of our iron ore product revenue for the ~~three months~~year ended ~~September 30, 2019, excluding the domestic freight decrease~~December 31, 2019. The acquisition of ~~$16.6 million, compared~~AK Steel is expected to ~~the same period in 2018. This is predominantly due to:~~

~~A decrease in sales~~ensure pellet volume ~~of 0.7~~commitments for approximately six million long tons of pellets annually in a normalized environment, to complement our existing long-term minimum volume pellet offtake agreements with other key integrated steel producers and pellets to be eventually consumed at our Toledo HBI production plant.

Second Quarter 2020 Recent Developments

Financing Transactions

On April 17, 2020, we issued $400.0 million aggregate principal amount of 9.875% 2025 Senior Secured Notes in an offering that was exempt from the registration requirements of the Securities Act. We used the net proceeds from this offering for general corporate purposes, including to strengthen our balance sheet and increase our liquidity.

On April 24, 2020, we issued an additional $555.2 million aggregate principal amount of 9.875% 2025 Senior Secured Notes in an offering that was exempt from the registration requirements of the Securities Act. These additional notes are of the same class and series as, and otherwise identical to, the 9.875% 2025 Senior Secured Notes issued on April 17, 2020, other than with respect to the date of issuance and issue price. We used the net proceeds from the offering of these additional notes to repurchase $736.4 million aggregate principal amount of our outstanding senior notes of various series, which resulted in ~~decreased costs~~a net principal debt reduction of ~~$47~~$181.2 million.

~~This decrease~~On June 19, 2020, we issued an additional $120.0 million aggregate principal amount of 6.75% 2026 Senior Secured Notes in an offering that was ~~offset partially~~exempt from the registration requirements of the Securities Act. These additional notes are of the same class and series as, and otherwise identical to, the 6.75% 2026 Senior Secured Notes issued on March 13, 2020, other than with respect to the date of issuance and issue price. We intend to use the net proceeds from this offering to finance the construction of our HBI production plant. Pending such use, the net proceeds were used to temporarily reduce the outstanding borrowings under our ABL Facility.

COVID-19

In December 2019, COVID-19 surfaced in Wuhan, China, and has since spread to other countries, including the United States. In March 2020, the World Health Organization characterized COVID-19 as a pandemic. Efforts to contain the spread of COVID-19 intensified throughout the first quarter and second quarter of 2020 and many countries, including the United States, took steps to restrict travel, temporarily close businesses and issue quarantine orders, and it remains unclear how long the economic impact of the COVID-19 pandemic will be felt.

On March 27, 2020, President Trump signed into law the CARES Act. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, AMT credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. We have evaluated the impact the CARES Act will have on our business and are receiving liquidity relief due to our ability to accelerate the receipt of approximately $60 million of AMT credit refunds, originally receivable in 2021 and 2022 but instead were collected in July 2020, and defer pension contributions and employer social security payments of approximately $90 million.

The COVID-19 pandemic continued to disrupt our operations during the second quarter of 2020. Although we implemented stringent social distancing procedures in our operating facilities, including checking employees’ temperatures and symptoms before entering the workplace each day and deep cleaning our operational facilities throughout each day, the outbreak of COVID-19 has heightened the risk that a significant portion of our workforce will suffer illness or otherwise be unable to perform their ordinary work functions.

Although steel and iron ore production have been considered “essential” by ~~an increase~~the states in which we operate, certain of our facilities and construction activities were temporarily idled during the second quarter. Nearly all of these temporarily idled facilities were restarted as of June 30, 2020, with the exception of the Dearborn hot-end operations and Mansfield operations, which restarted in July 2020, and the Northshore mine, which we plan to restart in early August 2020. We cannot predict whether our operations will experience additional disruptions in the ~~cost~~future. We may also continue to experience supply chain disruptions or operational issues with our vendors, as our suppliers and contractors face similar challenges related to the COVID-19 pandemic. Because the impact of ~~goods sold rate~~the COVID-19 pandemic continues to evolve, we cannot currently predict the extent to which our business, results of ~~$1.53 per long ton,~~operations, financial condition or ~~2.3%,~~liquidity will ultimately be impacted.

To mitigate the impact of the COVID-19 pandemic, we have taken a number of steps during the ~~three~~first six months ~~ended September 30, 2019, compared~~of 2020 to solidify our liquidity position, including issuing $520 million aggregate principal amount of secured debt, adding a $150 million FILO tranche to our ABL facility, idling several facilities both temporarily and permanently, temporarily reducing our Chief Executive Officer’s compensation by 40%, temporarily reducing salaries by up to 20%, temporarily reducing other salaried employee benefits, and temporarily suspending capital expenditures. We have increased the ~~prior-year period,~~synergy target associated with our acquisition of AK Steel by $30 million to $150 million. Lastly, our Board of Directors has suspended future dividends, which ~~resulted in~~is a typical cash obligation of approximately $100 million on an ~~increase~~annualized basis.

In light of ~~$7.7 million, predominantly due to an unfavorable change in~~ the ~~full-year standard cost driven by:~~


◦	Lower ore recovery, which increased costs by $5 million, or $1 per long ton, increased commodity supply usage of $5 million, or $1 per long ton, increased maintenance costs of $4 million, or $1 per long ton, and increased depreciation of $3 million, or $1 per long ton; and


◦	~~An unfavorable~~sudden onset and unknown impact ~~of $8 million, or $1 per long ton, to the full-year standard cost as a result of an expected LIFO layer liquidation in the prior year which was not recurring.~~


◦	~~These increases were offset partially by decreased royalties and labor costs of $7 million, or $1 per long ton.~~

~~Production~~

Production increased by 9% for the three months ended September 30, 2019, when compared to the same period in 2018. The increase in production volume primarily is attributable to increased operating times due to the timing and duration of ~~planned annual shutdowns and maintenance at United Taconite and Tilden, respectively.~~the COVID-19 pandemic, our previously released guidance for the fiscal year ending December 31, 2020, should not be relied upon.

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Results of Operations - Consolidated

The following is a summary of ~~Mining and Pelletizing~~our consolidated results of operations for the ~~nine~~three and six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

Revenues

The following table presents our sales volumes and Revenues by reportable segment:

(In Millions)
Changes due to:
Nine Months Ended
September 30,
Revenue
and cost rate
Sales volume Freight Total change
2019 2018
Revenues from product sales and services $ 1,494.8
$ 1,636.1
$ (78.0 ) $ (51.1 ) $ (12.2 ) $ (141.3 )
Cost of goods sold (1,033.5 ) (1,028.5 ) (50.6 ) 33.4
12.2
(5.0 )
Sales margin $ 461.3
$ 607.6
$ (128.6 ) $ (17.7 ) $ —
$ (146.3 )



	(In Millions, Except Sales Tons)
	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Sales volume (in thousands):
Steel and Manufacturing (net tons)	619			—			818			—

Mining and Pelletizing sales (long tons)	4,759			6,227			6,893			7,777
Less: Intercompany sales (long tons)	(1,041		)	(38		)	(1,824		)	(38		)
Mining and Pelletizing consolidated sales (long tons)	3,718			6,189			5,069			7,739

Revenues:
Steel and Manufacturing net sales to external customers	$	715.1		$	—		$	932.6		$	—

Mining and Pelletizing net sales¹	489.0			747.2			718.4			904.2
Less: Intercompany sales	(111.4		)	(4.0		)	(199.2		)	(4.0		)
Mining and Pelletizing net sales to external customers	377.6			743.2			519.2			900.2
										—
Total revenues	$	1,092.7		$	743.2		$	1,451.8		$	900.2

Nine Months Ended
September 30,
Per Ton Information 2019 2018 Difference Percent change
Realized product revenue rate¹
$ 103.26
$ 108.53
$ (5.27 ) (4.9 )%
Cash cost of goods sold rate^1,2
64.80
61.81
2.99
4.8 %
Depreciation, depletion & amortization 4.35
3.50
0.85
24.3 %
Total cost of goods sold 69.15
65.31
3.84
5.9 %
Sales margin $ 34.11
$ 43.22
$ (9.11 ) (21.1 )%

Sales tons³(In thousands)
13,527
14,060

Production tons³(In thousands)
14,737
14,731

¹ Excludes revenues and expenses related to domestic freight, which are offsetting and have no impact on sales margin.
² Cash cost of goods sold rate is a non-GAAP financial measure. Refer to "Non-GAAP Reconciliation" for reconciliation in dollars back to our consolidated financial statements.
³ Tons are long tons. Includes Cliffs' 23% share of the Hibbing mine production. Includes intercompany sales to our Metallics segment of 384 thousand long tons, for the nine months ended September 30, 2019.

~~Sales margin was $461.3~~¹ Includes Realization of deferred revenue of $34.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019, compared with $607.6~~2020.

Revenues increased by $349.5 million, or 47.0%, for the ~~nine~~three months ended ~~September~~June 30, ~~2018. Sales margin decreased 21.1% to $34.11 per long ton in the first nine months of 2019 compared to the first nine months of 2018.~~

~~Revenue decreased by $129.1 million during the nine months ended September 30, 2019,~~2020, compared to the prior-year ~~period, excluding~~period. Revenues, including Realization of deferred revenue, increased by $551.6 million, or 61.3%, for the ~~domestic freight decrease of $12.2 million, driven by:~~

~~A decrease in the average year-to-date realized product revenue rate of $5.27 per long ton, or 4.9%, during the nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to the prior-year ~~period,~~period. The increases were due to the addition of revenues from our new Steel and Manufacturing segment as a result of the AK Steel acquisition, which ~~resulted in~~was completed on March 13, 2020, and were partially offset by a decrease in the sales volumes and realized revenue rates within the Mining and Pelletizing segment.

Refer to “– Results of ~~$78 million, predominantly due to:~~


◦	~~A decrease in the hot-rolled coil steel price, which negatively affected the realized~~Operations – Segment Information" for additional information regarding the specific factors that impacted revenue ~~rate by $20 per long ton, or $267 million, during the nine months ended September 30, 2019.~~


◦	This decrease was offset partially by higher full-year estimated Platts 62% Price as of September 30, 2019, compared to the prior-year period, which positively affected the realized revenue rate by $15 per long ton, or $204 million.

~~Lower sales volume of 0.5 million long tons, which resulted in decreased revenue of $51 million, due to decreased customer demand.~~

~~Cost of goods sold increased $17.2 million~~ during the ~~nine months ended September 30, 2019, excluding the domestic freight decrease of $12.2 million, compared to the same period in 2018. This is predominantly due to:~~

~~An unfavorable change in the full-year standard cost driven by:~~period.

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◦	Increased stripping and lower ore recovery, which together increased costs by $19 million, or $1 per long ton, increased commodity supply usage of $11 million, or $1 per long ton, increased depreciation of $10 million, or $1 per long ton, and increased maintenance of $9 million, or $1 per long ton;


◦	~~An unfavorable impact of $19 million, or $1 per long ton, to the full-year standard cost as a result of an expected LIFO layer liquidation in the prior year which was not recurring;~~


◦	~~Offset partially by decreased royalties and labor costs of $16 million, or $1 per long ton.~~

~~This increase was offset partially by a decrease in sales volume of 0.5 million long tons, which resulted in decreased costs of $33 million period-over-period.~~

~~Production~~

~~Production for the nine months ended September 30, 2019 was consistent with the same period in 2018.~~

~~Other~~ Operating ~~Expense~~Costs

The following is a summary of ~~Other~~Total operating ~~expense~~costs:


	(In Millions)																		(In Millions)
	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended June 30,									Six Months Ended June 30,
	2019			2018			Variance Favorable/ (Unfavorable)			2019			2018			Variance Favorable/ (Unfavorable)			2020			2019			Variance Favorable/ (Unfavorable)			2020			2019			Variance Favorable/ (Unfavorable)
Cost of goods sold																			$	(1,207.5	)	$	(480.2	)	$	(727.3	)	$	(1,563.5	)	$	(606.3	)	$	(957.2	)
Selling, general and administrative expenses	$	(25.5	)	$	(29.1	)	$	3.6		$	(82.2	)	$	(78.9	)	$	(3.3	)	(62.1		)	(29.4		)	(32.7		)	(89.6		)	(56.7		)	(32.9		)
Acquisition-related costs																			(18.4		)	—			(18.4		)	(60.9		)	—			(60.9		)
Miscellaneous – net:
Empire idle costs	(5.5		)	(4.5		)	(1.0		)	(14.8		)	(14.1		)	(0.7		)	(3.7		)	(5.3		)	1.6			(7.0		)	(9.3		)	2.3
Metallics startup costs	(2.0		)	(1.1		)	(0.9		)	(3.9		)	(2.5		)	(1.4		)
HBI production plant startup costs																			(7.1		)	(1.1		)	(6.0		)	(15.0		)	(1.9		)	(13.1		)
Other	(0.3		)	(1.4		)	1.1			(0.3		)	(2.1		)	1.8			(2.3		)	(0.4		)	(1.9		)	(3.0		)	—			(3.0		)
Total Miscellaneous – net	(7.8		)	(7.0		)	(0.8		)	(19.0		)	(18.7		)	(0.3		)	(13.1		)	(6.8		)	(6.3		)	(25.0		)	(11.2		)	(13.8		)
	$	(33.3	)	$	(36.1	)	$	2.8		$	(101.2	)	$	(97.6	)	$	(3.6	)
Total operating costs																			$	(1,301.1	)	$	(516.4	)	$	(784.7	)	$	(1,739.0	)	$	(674.2	)	$	(1,064.8	)

~~Other Income (Expense)~~Cost of goods sold

The ~~following is~~increases for the three and six months ended June 30, 2020, were primarily due to the addition of activity from the Steel and Manufacturing segment, including Cost of goods sold of $859.9 million and $1,106.5 million, respectively, which were unfavorably impacted by idle related costs of approximately $119 million, resulting from the COVID-19 pandemic. Cost of goods sold was partially offset by lower sales volume at the Mining and Pelletizing segment for a ~~summary~~decrease of ~~Other income (expense)~~:$55.4 million and $14.2 million for the three and six months ended June 30, 2020, respectively, which were unfavorably impacted by idle related costs of approximately $50 million, in each case, resulting from the COVID-19 pandemic.

Refer to “– Results of Operations – Segment Information” for additional information regarding the specific factors that impacted our operating results during the period.

(In Millions)
Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 Variance
Favorable/
(Unfavorable) 2019 2018
Variance
Favorable/
(Unfavorable)
Interest expense, net $ (25.3 ) $ (29.5 ) $ 4.2
$ (76.5 ) $ (93.1 ) $ 16.6
Gain (loss) on extinguishment of debt —
—
—
(18.2 ) 0.2
(18.4 )
Other non-operating income (expense):
Net periodic benefit costs other than service cost component (0.3 ) 3.4
(3.7 ) (0.4 ) 10.7
(11.1 )
Other 0.6
0.9
(0.3 ) 1.7
2.4
(0.7 )
$ (25.0 ) $ (25.2 ) $ 0.2
$ (93.4 ) $ (79.8 ) $ (13.6 )
Selling, general and administrative expenses

We had additional Selling, general and administrative expenses for the three and six months ended June 30, 2020 for costs incurred related to AK Steel, which were partially offset by lower incentive compensation costs.

Acquisition-related costs

The Acquisition-related costs for the three and six months ended June 30, 2020, include severance of $16.6 million and $35.9 million, respectively. Refer to NOTE 3 - ACQUISITION OF AK STEEL for further information on the acquisition.

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Other Income (Expense)

The following is a summary of Total other income (expense):



	(In Millions)
	Three Months Ended June 30,									Six Months Ended June 30,
	2020			2019			Variance Favorable/ (Unfavorable)			2020			2019			Variance Favorable/ (Unfavorable)
Interest expense, net	$	(68.7	)	$	(26.1	)	$	(42.6	)	$	(99.7	)	$	(51.2	)	$	(48.5	)
Other non-operating income (expense):
Gain (loss) on extinguishment of debt	129.4			(17.9		)	147.3			132.6			(18.2		)	150.8
Net periodic benefit credits (costs) other than service costs component	15.1			(0.1		)	15.2			20.6			(0.2		)	20.8
Other	0.1			0.7			(0.6		)	0.6			1.2			(0.6		)
Total other income (expense)	$	75.9		$	(43.4	)	$	119.3		$	54.1		$	(68.4	)	$	122.5

The increases in Interest expense, net ~~for the three and nine months ended September 30, 2019 was $4.2 million and $16.6 million lower than the prior-year periods, respectively,~~were primarily due to the incremental debt associated with the acquisition of AK Steel. These increases were offset partially by an increase in capitalized interest primarily related to construction of the HBI production ~~plant and upgrades at the Northshore~~ plant. ~~Additionally, debt restructuring activities during 2018 reduced 2019 interest expense.~~

The ~~loss~~gain on extinguishment of debt ~~of $18.2 million~~ for the ~~nine~~three months ended ~~September~~June 30, ~~2019, primarily related to the redemption of all of our then-outstanding 4.875% Senior Notes due 2021 and~~2020, resulted from the repurchase of ~~$600~~$747.6 million aggregate principal amount of our ~~5.75%~~outstanding senior notes of various series using the net proceeds from the additional $555.2 million 9.875% 2025 Senior Secured Notes issuance and other sources of cash. The six months ended June 30, 2020 were also impacted by the purchase of $56.5 million aggregate principal amount of 7.50% 2023 AK Senior Notes ~~due 2025 completed during the second quarter~~and $8.5 million aggregate principal amount of ~~2019.~~

7.625% 2021 AK Senior Notes pursuant to tender offers. Refer to NOTE 87 - DEBT AND CREDIT FACILITIES for further details.

The increases in net periodic benefit credits other than service cost component were primarily due to expected return on assets due to the acquisition of AK Steel pension assets and increased asset values for the plans held in 2019. Refer to NOTE 9 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS for further detail on the components of net periodic benefit ~~costs~~credits other than service cost component.

Income Taxes

Our effective tax rate is impacted by permanent items, primarily depletion. It also is affected by discrete items that may occur in any given period but are not consistent from period to period. The following represents a summary of our tax provision and corresponding effective rates:


	(In Millions)																		(In Millions, Except Percentages)
	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended June 30,									Six Months Ended June 30,
	2019			2018			Variance			2019			2018			Variance			2020			2019			Variance			2020			2019			Variance
Income tax expense	$	(4.8	)	$	(0.5	)	$	(4.3	)	$	(23.1	)	$	(14.4	)	$	(8.7	)
Income tax benefit (expense)																			$	24.7		$	(22.0	)	$	46.7		$	76.1		$	(18.3	)	$	94.4
Effective tax rate	5.0		%	0.2		%	4.8		%	9.1		%	3.3		%	5.8		%	18.6		%	12.0		%	6.6		%	32.6		%	11.6		%	21.0		%

The difference in the effective rate and income tax expense from the comparable prior-year periods primarily relates to the ~~reversal~~mix of ~~valuation allowances in the prior year~~income and certain non-deductible transaction related items, as well as discrete items recorded in each period.

For the three and nine months ended September 30, 2019, we recorded discrete items that resulted in an income tax benefit of $0.5 million and $1.3 million, respectively. For the three and nine months ended September 30, 2018, we recorded discrete items that resulted in an income tax expense of $0.2 million and $13.9 million, respectively. The $13.9 million expense relates primarily to a $14.5 million reduction of the refundable AMT credit recorded in ~~Income tax receivable, non-current~~ in our Statements of Unaudited Condensed Consolidated Financial Position based on the sequestration guidance issued by the Internal Revenue Service during the first quarter of 2018. This position was subsequently reversed by the Internal Revenue Service during the fourth quarter of 2018. The prior-year period expense was a reduction of an asset and did not result in a cash tax outlay.

Our ~~2019~~2020 estimated annual effective tax rate before discrete items is ~~9.6%~~31.1%. This estimated annual effective tax rate differs from the U.S. statutory rate of 21% primarily due to the deduction for percentage depletion in excess of cost depletion related to our Mining and Pelletizing segment ~~operations.~~operations, as well as non-deductible transaction costs, executive officers' compensation, global intangible low-taxed income and income of noncontrolling interests for which no tax is recognized. The ~~2018~~2019 estimated annual effective tax rate before discrete items at ~~September~~June 30, ~~2018~~2019 was ~~0.1%, which was significantly lower due to the reversal~~12.1%.

Table of ~~valuation allowances~~Contents

The increase in the ~~same period.~~estimated effective tax rate before discrete items is driven by the change in the mix of income, as well as transaction costs and other acquisition-related charges that were incurred in 2020 but not in 2019.

~~Income (Loss) from Discontinued Operations, net of tax~~

~~During~~For the three and ~~nine~~six months ended ~~September~~June 30, 2020, we recorded discrete items that resulted in an income tax expense of $0.3 million and benefit of $3.7 million, respectively. The discrete adjustments are primarily related to interest on uncertain tax positions and the refund of amounts sequestered by the Internal Revenue Service on previously filed AMT credit refunds. For the three and six months ended June 30, 2019, we recorded ~~a loss from discontinued operations~~discrete items that resulted in an income tax benefit of ~~$0.9~~$0.4 million and ~~$1.5~~$0.8 million, respectively. ~~During the three and nine months ended September 30, 2018, we recorded income of $238.0 million and $102.8 million~~, ~~respectively,~~primarily due to the exit from our Asia Pacific Iron Ore operations. As a result of the liquidation of the Australian subsidiaries' net assets, the historical changes in foreign currency translation recorded in ~~Accumulated other comprehensive loss~~ ~~in the Statements of Unaudited Condensed Consolidated Financial Position totaling $228.1 million was reclassified and recognized as a gain in~~ ~~Income (loss) from discontinued operations, net of tax. Refer to NOTE 13 - DISCONTINUED OPERATIONS for further information.~~

~~EBITDA and~~ Results of Operations - Segment Information

Adjusted EBITDA

We evaluate performance on a segment basis, as well as a consolidated basis, based on ~~EBITDA and~~ Adjusted EBITDA, which ~~are~~is a non-GAAP ~~measures. These measures are~~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 and iron ore ~~industry.~~industries, although it is not necessarily comparable to similarly titled measures used by other companies. In addition, management believes ~~EBITDA and~~ Adjusted EBITDA ~~are~~is a useful ~~measures~~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 consolidated Net income (loss) to Adjusted EBITDA:



	(In Millions)
	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net income (loss)	$	(108.1	)	$	160.8		$	(156.7	)	$	138.7
Less:
Interest expense, net	(68.6		)	(26.3		)	(99.7		)	(51.4		)
Income tax benefit (expense)	24.7			(22.0		)	76.1			(18.3		)
Depreciation, depletion and amortization	(77.1		)	(21.0		)	(111.5		)	(40.9		)
EBITDA	$	12.9		$	230.1		$	(21.6	)	$	249.3
Less:
EBITDA of noncontrolling interests¹	$	20.5		$	—		$	25.1		$	—
Gain (loss) on extinguishment of debt	129.4			(17.9		)	132.6			(18.2		)
Severance costs	(16.6		)	—			(35.9		)	(1.7		)
Acquisition-related costs excluding severance costs	(1.8		)	—			(25.0		)	—
Amortization of inventory step-up	(36.2		)	—			(59.4		)	—
Impact of discontinued operations	(0.4		)	(0.4		)	0.3			(0.4		)
Adjusted EBITDA	$	(82.0	)	$	248.4		$	(59.3	)	$	269.6

¹EBITDA of noncontrolling interests includes $15.8 million and $19.3 million for income and $4.7 million and $5.8 million for depreciation, depletion and amortization for the three and six months ended June 30, 2020, respectively.

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

(In Millions)
Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Net income $ 90.9
$ 437.8
$ 229.6
$ 518.6
Less:
Interest expense, net (25.4 ) (29.7 ) (76.8 ) (95.5 )
Income tax expense (4.8 ) (0.5 ) (23.1 ) (14.4 )
Depreciation, depletion and amortization (22.2 ) (19.2 ) (63.1 ) (68.6 )
EBITDA $ 143.3
$ 487.2
$ 392.6
$ 697.1
Less:
Impact of discontinued operations $ (0.8 ) $ 238.2
$ (1.2 ) $ 120.4
Gain (loss) on extinguishment of debt —
—
(18.2 ) 0.2
Severance costs —
—
(1.7 ) —
Foreign exchange remeasurement —
(0.2 ) —
(0.7 )
Impairment of other long-lived assets —
(1.1 ) —
(1.1 )
Adjusted EBITDA $ 144.1
$ 250.3
$ 413.7
$ 578.3

EBITDA:
Mining and Pelletizing $ 177.5
$ 273.1
$ 494.9
$ 641.6
Metallics (2.1 ) (1.0 ) (4.0 ) (2.5 )
Corporate and Other (including discontinued operations) (32.1 ) 215.1
(98.3 ) 58.0
Total EBITDA $ 143.3
$ 487.2
$ 392.6
$ 697.1

Adjusted EBITDA:
Mining and Pelletizing $ 182.7
$ 279.5
$ 510.7
$ 657.9
Metallics (2.1 ) (1.0 ) (4.0 ) (2.5 )
Corporate (36.5 ) (28.2 ) (93.0 ) (77.1 )
Total Adjusted EBITDA $ 144.1
$ 250.3
$ 413.7
$ 578.3



	(In Millions)
	Three Months Ended June 30,									Six Months Ended June 30,
	2020			2019			Change			2020			2019			Change
Adjusted EBITDA:
Steel and Manufacturing	$	(104.0	)	$	(1.1	)	$	(102.9	)	$	(115.1	)	$	(1.9	)	$	(113.2	)
Mining and Pelletizing	82.4			280.5			(198.1		)	164.2			328.0			(163.8		)
Corporate and eliminations	(60.4		)	(31.0		)	(29.4		)	(108.4		)	(56.5		)	(51.9		)
Total Adjusted EBITDA	$	(82.0	)	$	248.4		$	(330.4	)	$	(59.3	)	$	269.6		$	(328.9	)

Adjusted EBITDA ~~decreased $343.9 million~~from the Steel and ~~$304.5 million~~Manufacturing segment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, respectively, on a consolidated basis~~2020, was unfavorably impacted by decreased customer demand resulting from the ~~comparable periods~~COVID-19 pandemic. As a result, we incurred idle related costs resulting from production curtailments of approximately $119 million. Additionally, Cost of goods sold as a percentage of Revenues was unfavorably impacted by product sales mix primarily due to the COVID-19 pandemic, which resulted in ~~2018. The unfavorable variance~~lower sales volumes to automotive customers.

Adjusted EBITDA from the Mining and Pelletizing segment for the three months ended ~~September~~June 30, 2020 decreased $198.1 million, as compared to the three months ended June 30, 2019, primarily due to lower Revenues of $258.2 million, which was partially offset by lower Cost of goods sold of $55.4 million. The lower Revenues were driven primarily ~~by the impact of the $238.2 million from~~ ~~Income (loss) from discontinued operations, net of tax~~ during the prior-year period that did not recur in 2019 and a decrease in sales margin of $106.7 million. The unfavorable variance for the nine months ended September 30, 2019, was driven primarily by the impact of the $120.4 million from ~~Income (loss) from discontinued operations, net of tax~~ ~~during the prior-year period that did not recur in 2019, a decrease in sales margin of $158.8 million and a loss on extinguishment of debt totaling $18.2 million.~~

Adjusted EBITDA decreased $106.2 million and $164.6 million for the three and nine months ended September 30, 2019, respectively, from the comparable periods in 2018. The unfavorable variance for the three and nine months ended September 30, 2019 was driven by a decrease in sales ~~margin~~volume of ~~$106.7~~1.5 million long tons due to reduced customer demand associated with the COVID-19 pandemic and ~~$158.8~~a decrease in the average year-to-date realized product revenue rate, predominantly due to lower pellet premiums. The lower Cost of goods sold was primarily driven by the decrease in sales volume, which was partially offset by idle costs of $40 million, ~~respectively,~~excluding idle depreciation, depletion and amortization expense, as a result of the temporary idling of operations in response to reduced customer demand driven by the COVID-19 pandemic, that were incurred during the three months ended June 30, 2020.

Adjusted EBITDA from the Mining and Pelletizing segment for the six months ended June 30, 2020 decreased $163.8 million, as compared to the ~~prior-year periods.~~six months ended June 30, 2019, primarily due to lower Revenues of $185.8 million, which was partially offset by lower Cost of goods sold of $14.2 million. The lower Revenues were driven primarily by a decrease in sales volume of 0.9 million long tons and a decrease in the average year-to-date realized product revenue rate, predominantly due to lower pellet premiums. The lower Cost of goods sold was primarily driven by the decrease in sales volume, which was partially offset by idle costs of $40 million, excluding idle depreciation, depletion and amortization expense, as a result of the temporary idling of operations in response to reduced customer demand driven by the COVID-19 pandemic, that were incurred during the six months ended June 30, 2020.

Adjusted EBITDA from Corporate and eliminations for the three months ended June 30, 2020 and 2019 includes intercompany profit eliminations for iron ore sales from the Mining and Pelletizing segment to the Steel and Manufacturing segment of $31.8 million and $1.6 million, respectively. Additionally, Adjusted EBITDA from Corporate and eliminations for the three months ended June 30, 2020 and 2019 includes corporate Selling, general and administrative expenses, net of adjustments, of $17.8 million and $22.4 million, respectively, and corporate allocated Selling, general and administrative expenses of $9.8 million and $5.8 million, respectively.

Adjusted EBITDA from Corporate and eliminations for the six months ended June 30, 2020 and 2019 includes intercompany profit eliminations for iron ore sales from the Mining and Pelletizing Segment to the Steel and Manufacturing segment of $61.7 million and $1.6 million, respectively. Additionally, Adjusted EBITDA from Corporate and eliminations for the six months ended June 30, 2020 and 2019 includes corporate Selling, general and administrative expenses, net of adjustments, of $26.7 million and $42.2 million, respectively, and corporate allocated Selling, general and administrative expenses of $18.0 million and $10.6 million, respectively.

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Steel and Manufacturing

The following is a summary of Steel and Manufacturing segment results included in our consolidated financial results for the three and six months ended June 30, 2020. These results include the AK Steel operations within our Steel and Manufacturing segment subsequent to March 13, 2020.

Flat-Rolled Steel Shipments by Product Category

The following is a summary of the Steel and Manufacturing segment operating results:



	Three Months Ended			Six Months Ended
	June 30, 2020			June 30, 2020
Volumes - In Thousands of Net Tons
Flat-rolled steel shipments	619			818
Operating Results - In Millions
Revenues	$	715.1		$	932.6
Cost of goods sold	$	(859.9	)	$	(1,106.5	)
Adjusted EBITDA¹	$	(104.0	)	$	(115.1	)
Selling Price - Per Net Ton
Average net selling price per net ton of flat-rolled steel	$	1,056		$	1,042
Revenues Attributable to International Customers
Revenues to customers outside the United States (In Millions)	$	52.0		$	70.9
Revenues to customers outside the United States as a percent of total revenues	7.3		%	7.6		%

¹ We had negative Adjusted EBITDA for the three and six months ended June 30, 2019, of $1.1 million and $1.9 million, respectively, for costs incurred at our HBI production plant.

The following table presents the percentage of revenues to each of our Steel and Manufacturing markets:



	Three Months Ended		Six Months Ended
Market	June 30, 2020		June 30, 2020
Automotive	51	%	52	%
Infrastructure and Manufacturing	28	%	26	%
Distributors and Converters	21	%	22	%

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Operating Results

Adjusted EBITDA for the three and six months ended June 30, 2020 was unfavorably impacted by decreased customer demand resulting from the COVID-19 pandemic. Cost of goods sold for the three and six months ended June 30, 2020 was unfavorably impacted by idle related costs of approximately $119 million, driven by the temporary idling of facilities in response to lower customer demand due to the COVID-19 pandemic. Additionally, Cost of goods sold as a percentage of Revenues was unfavorably impacted by product sales mix primarily due to the COVID-19 pandemic, which resulted in lower sales volumes to our automotive customers.

Production

Although steel production has been considered “essential” by the states in which we operate, certain of our facilities, including Dearborn Works, Mansfield Works, all Precision Partners stamping facilities and approximately 65% of AK Tube production were temporarily idled during the three months ended June 30, 2020 in response to the COVID-19 pandemic. Dearborn Works hot strip mill, anneal and temper operations and AK Coal were permanently idled as part of the permanent cost reduction efforts.

Mining and Pelletizing

The following is a summary of Mining and Pelletizing segment results for the three months ended June 30, 2020 and 2019:



	(In Millions)
	Three Months Ended June 30,
	2020			2019			Change			Percent change
Volumes - In Thousands of Long Tons^1,2
Sales tons	4,759			6,227			(1,468		)	(23.6	)%
Production tons	2,038			5,177			(3,139		)	(60.6	)%
Operating Results - In Millions²
Revenues	$	489.0		$	747.2		$	(258.2	)	(34.6	)%
Cost of goods sold	$	(427.2	)	$	(482.6	)	$	55.4		(11.5	)%
Adjusted EBITDA	$	82.4		$	280.5		$	(198.1	)	(70.6	)%

¹ Includes Cliffs' 23% share of the Hibbing mine production.

² Includes intercompany sales to our Steel and Manufacturing segment of 1,041 thousand long tons, for the three months ended June 30, 2020 and 38 thousand long tons for the three months ended June 30, 2019.

The following table presents certain operating results on a per ton basis:



	Three Months Ended June 30,
Per Ton Information	2020		2019		Change			Percent change
Realized product revenue rate¹	$	94.73	$	112.64	$	(17.91	)	(15.9	)%

Cash cost of goods sold rate^1,2	$	77.71	$	67.00	$	10.71		16.0	%
Depreciation, depletion & amortization	4.03		3.15		0.88			27.9	%
Total cost of goods sold	$	81.74	$	70.15	$	11.59		16.5	%

¹ Excludes revenues and expenses related to freight, which are offsetting.

² Cash cost of goods sold rate is a non-GAAP financial measure. Refer to "–Non-GAAP Reconciliation" for a reconciliation of this non-GAAP financial measure to the most directly comparable financial measure calculated and presented in accordance with GAAP.

Adjusted EBITDA decreased by $198.1 million during the three months ended June 30, 2020, compared to the prior-year period, primarily due to the decrease in revenues of $258.2 million, offset partially by the decrease in cost of goods sold of $55.4 million, as discussed below.

Revenues decreased by $250.6 million during the three months ended June 30, 2020, compared to the prior-

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year period, excluding a decrease in domestic freight of $7.6 million, driven by:

Lower sales volume of 1.5 million long tons, primarily due to reduced demand as customers idled their blast furnaces in response to the COVID-19 pandemic, which resulted in decreased revenue of $165 million.

A decrease in the average year-to-date realized product revenue rate of $17.91 per long ton, or 15.9%, during the three months ended June 30, 2020, compared to the prior-year period, which resulted in a decrease of $86 million, predominantly due to lower pellet premiums, which negatively affected the realized revenue rate by $16 per long ton or $76 million.

Cost of goods sold decreased $47.8 million during the three months ended June 30, 2020, excluding the domestic freight decrease of $7.6 million, compared to the same period in 2019. This is predominantly due to a decrease in sales volume, as discussed above, of 1.5 million long tons, which resulted in decreased costs of $103 million period-over-period. This was offset partially by idle costs of $50 million as a result of the temporary idling of operations in response to reduced customer demand driven by the COVID-19 pandemic, that were incurred during the three months ended June 30, 2020.

Production

Production for the three months ended June 30, 2020, decreased 60.6% compared to the same period in 2019, predominantly due to the idling of the Tilden, Northshore and Hibbing mines in response to the COVID-19 pandemic and resulting decreased customer demand.

Mining and Pelletizing

The following is a summary of Mining and Pelletizing segment results for the six months ended June 30, 2020 and 2019:



	(In Millions)
	Six Months Ended June 30,
	2020			2019			Change			Percent change
Volumes - In Thousands of Long Tons^1,2
Sales tons	6,893			7,777			(884		)	(11.4	)%
Production tons	6,870			9,578			(2,708		)	(28.3	)%
Operating Results - In Millions²
Revenues	$	718.4		$	904.2		$	(185.8	)	(20.5	)%
Cost of goods sold	$	(594.5	)	$	(608.7	)	$	14.2		(2.3	)%
Adjusted EBITDA	$	164.2		$	328.0		$	(163.8	)	(49.9	)%

¹ Includes Cliffs' 23% share of the Hibbing mine production.

² Includes intercompany sales to our Steel and Manufacturing segment of 1,824 thousand long tons, for the six months ended June 30, 2020 and 38 thousand long tons for the six months ended June 30, 2019.

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The following table presents certain operating results on a per ton basis:



	Six Months Ended June 30,
Per Ton Information	2020		2019		Change			Percent change
Realized product revenue rate^1,3	$	96.21	$	108.89	$	(12.68	)	(11.6	)%

Cash cost of goods sold rate^1,2	$	72.74	$	65.99	$	6.75		10.2	%
Depreciation, depletion & amortization	5.50		4.90		0.60			12.2	%
Total cost of goods sold	$	78.24	$	70.89	$	7.35		10.4	%

¹ Excludes revenues and expenses related to freight, which are offsetting.

³ Includes Realization of deferred revenue of $34.6 million for the six months ended June 30, 2020.

Adjusted EBITDA decreased by $163.8 million during the six months ended June 30, 2020, compared to the prior-year period, primarily due to the decrease in revenues of $185.8 million, offset partially by the decrease in cost of goods sold of $14.2 million, as discussed below.

Revenues decreased by $183.6 million during the six months ended June 30, 2020, compared to the prior-year period, excluding a decrease in domestic freight of $2.2 million, driven by:

Lower sales volume of 0.9 million long tons, primarily due to reduced demand as customers idled their blast furnaces in response to the COVID-19 pandemic, which resulted in decreased revenue of $96 million.

A decrease in the average year-to-date realized product revenue rate of $12.68 per long ton, or 11.6%, during the six months ended June 30, 2020, compared to the prior-year period, which resulted in a decrease of $88 million, predominantly due to:


◦	Lower pellet premiums which negatively affected the realized revenue rate by $12 per long ton or $83 million; and


◦	A decrease in the hot-rolled coil steel price, which negatively affected the realized revenue rate by $5 per long ton, or $35 million, during the six months ended June 30, 2020.


◦	These decreases were offset partially by the realization of deferred revenue of $35 million, or $5 per long ton, as a result of the termination of the AK Steel iron ore pellet sales agreement.

Cost of goods sold decreased $12.0 million during the six months ended June 30, 2020, excluding the domestic freight decrease of $2.2 million, compared to the same period in 2019. This is predominantly due to a decrease in sales volume, as discussed above, of 0.9 million long tons, which resulted in decreased costs of $62 million period-over-period. This was offset partially by idle costs of $50 million as a result of the temporary idling of operations in response to reduced customer demand driven by the COVID-19 pandemic, that were incurred during the six months ended June 30, 2020.

Production

Production for the six months ended June 30, 2020, decreased 28.3% compared to the same period in 2019, predominantly due to the idling of the Tilden, Northshore and Hibbing mines in response to the COVID-19 pandemic and resulting decrease in customer demand.

Liquidity, Cash Flows and Capital Resources

Our primary sources of liquidity are Cash and cash equivalents and cash generated from our ~~operating~~operations, availability under the ABL Facility and other financing activities. Our capital allocation decision-making process is focused on ~~returning capital to shareholders~~preserving healthy liquidity levels while maintaining the strength of our balance sheet and creating financial flexibility to manage through the inherent cyclical demand for our products and volatility in commodity prices. We are focused on maximizing the cash generation of our operations, reducing ~~operating costs,~~debt, and aligning capital investments with our strategic priorities and the requirements of our business plan, including regulatory and permission-to-operate related projects.

~~During~~

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Since the ~~first nine months~~onset of ~~2019, we took action~~the COVID-19 pandemic in the United States, our primary focus has been on maintaining adequate levels of liquidity to manage through a potentially prolonged economic downturn. In alignment with ~~our~~this, we have made several operational adjustments, including facility closures, idles, and extended maintenance outages. Along with the cost savings achieved through these operational adjustments, we have reduced planned capital ~~allocation priorities. First, we repurchased 24.4 million common shares~~expenditures for ~~$252.9 million in~~ the ~~aggregate under the $300 million share repurchase program~~year, reduced overhead costs and ~~increased~~suspended our quarterly ~~cash~~ dividend ~~by 20%, along with declaring a special cash dividend. Second,~~payment. Additionally, on April 17, 2020 and April 24, 2020, we ~~focused on protecting~~issued $400.0 million aggregate principal amount and an additional $555.2 million aggregate principal amount, respectively, of 9.875% 2025 Senior Secured Notes to further bolster our ~~business by allocating capital to both sustaining our existing operations~~liquidity position and our two major expansion capital projects: the HBI plant in Toledo, Ohio and the completion of the upgrade to the Northshore plant to replace up to 3.5 million long tons of blast furnace pellet production with DR-grade pellet production. Finally, using the net proceeds from the issuance of our 5.875% Senior Notes due 2027, along with cash generated by operations, we redeemed in full all of our outstanding 4.875% Senior Notes due 2021 and repurchased $600reduce debt. We also issued an additional $120.0 million aggregate principal amount of 6.75% 2026 Senior Secured Notes on June 19, 2020, the net proceeds of which we intend to use to finance construction of our HBI production plant. Pending such use, the net proceeds were used to temporarily reduce the outstanding ~~5.75% Senior Notes due 2025 pursuant~~borrowings under our ABL Facility. We believe these measures will allow us to ~~a tender offer. Accordingly, we have no debt maturing until 2024.~~remain comfortable with our liquidity levels for an extended market downturn related to the COVID-19 pandemic.

Based on our outlook for the next 12 months, which is subject to continued changing demand from ~~steelmakers that utilize our products~~customers and volatility in iron ore and domestic steel prices, we expect to ~~generate~~have ample liquidity through cash generated from operations and availability under our ABL Facility sufficient to meet the needs of our operations and service our debt ~~obligations and fund our dividends.~~

~~Refer to “Outlook” for additional guidance regarding expected future results, including projections on sales volume and production.~~obligations.

The following discussion summarizes the significant items impacting our cash flows during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 as well as expected impacts to our future cash flows over the next 12 months. Refer to the Statements of Unaudited Condensed Consolidated Cash Flows for additional information.

Operating Activities

Net cash used by operating activities was $299.2 million for the six months ended June 30, 2020, compared to net cash provided by operating activities ~~was $388.1 million and $188.7~~of $151.1 million for the ~~nine months ended September 30, 2019 and September 30, 2018, respectively.~~comparable period in 2019. The incremental increase in cash ~~provided~~used by operating activities during the first ~~nine~~six months of ~~2019~~2020, compared to ~~2018 primarily~~2019, was due primarily to the ~~collection~~slowing economy in connection with the COVID-19 pandemic resulting in reduced customer demand and the need to temporary idle many of ~~the $117.3 million income tax receivable in the current year and prior-year uses of cash by~~ our ~~discontinued~~ operations, which ~~were not recurring in the current period.~~had an adverse effect on our operating results.

Our U.S. cash and cash equivalents balance at ~~September~~June 30, ~~2019~~2020 was ~~$397.7~~$55.8 million, or ~~99.6%~~77% of our consolidated total cash and cash equivalents balance, excluding cash related to our VIE, of ~~$399.3~~$72.7 million. Additionally, we had a cash balance at ~~September~~June 30, ~~2019~~2020 of ~~$8.0~~$5.3 million classified as part of Other current assets in the Statements of Unaudited Condensed Consolidated Financial Position ~~which will be utilized~~related to ~~support the completion of our exit from Australia.~~discontinued operations.

Investing Activities

Net cash used by investing activities was ~~$449.5~~$1,152.4 million and $292.4 million for the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019, ~~compared with $173.7 million for the comparable period in 2018.~~respectively. During the first ~~nine~~six months of ~~2019,~~2020, we had net cash outflows of $869.3 million for the acquisition of AK Steel, net of cash acquired. This includes $590.0 million to pay off AK Steel Corporation's former revolving credit facility and $323.6 million to purchase outstanding 7.50% 2023 AK Senior Notes. Additionally, we had capital expenditures including capitalized interest of $282.9 million and $300.9 million for the six months ended June 30, 2020 and 2019, respectively.

During the six months ended June 30, 2020, we had cash outflows, including deposits and capitalized interest, of approximately ~~$355~~$210 million on development of the HBI production plant. This compares to net cash outflows, including deposits and capitalized interest, during the first six months of 2019 of approximately $230 million on development of the HBI production plant and approximately $40 million on the upgrades at Northshore. This compares to net cash outflows, including deposits, during the first nine months of 2018 of approximately $120 million on development of the HBI production plant and approximately $30 million on the upgrades at Northshore. Additionally, we spent approximately ~~$49~~$70 million and ~~$45~~$30 million on sustaining capital expenditures during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Sustaining capital spend includes infrastructure, mobile equipment, fixed equipment, product quality, environment, health and safety.

In response to the COVID-19 pandemic, we temporarily limited our cash used for capital expenditures to critical sustaining capital, but have now resumed growth capital spending, including the restart of Toledo HBI production plant construction in June. The HBI production plant is expected to be completed during the fourth quarter of 2020. We anticipate total cash used for capital expenditures during the next 12 months to be approximately ~~$540~~$450 million, ~~excluding amounts attributable to~~including capitalized interest. Included within this estimate is approximately ~~$115~~$220 million for sustaining capital, ~~and $425~~$190 million related to ~~development~~completion of the HBI production ~~plant.~~plant and $40 million for other growth capital.

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Financing Activities

Net cash provided by financing activities was $1,171.1 million for the six months ended June 30, 2020, compared to net cash used by financing activities ~~in the first nine months~~ of ~~2019 was $366.9 million, compared to $107.7~~$307.9 million for the comparable period in ~~2018.~~ 2019. Cash provided by financing activities for the six months ended June 30, 2020, primarily related to the issuances of $845.0 million aggregate principal amount of 6.75% 2026 Senior Secured Notes, $955.2 million aggregate principal amount of 9.875% 2025 Senior Secured Notes and borrowings of $800.0 million under the ABL Facility. The net proceeds from the initial issuance of $725.0 million aggregate principal amount of the 6.75% 2026 Senior Secured Notes, along with cash on hand, were used to purchase $372.7 million aggregate principal amount of 7.625% 2021 AK Senior Notes and $367.2 million aggregate principal amount of 7.50% 2023 AK Senior Notes and to pay for the $44.4 million of debt issuance costs in the first quarter of 2020. The net proceeds from the additional issuance of $555.2 million aggregate principal amount of the 9.875% 2025 Senior Secured Notes were used to repurchase $736.4 million aggregate principal amount of our outstanding senior notes. Additionally, during the second quarter of 2020, we repaid $250.0 million under the ABL Facility.

Net cash used by financing activities during the first ~~nine~~six months of 2019 primarily related to the repurchase of 24.4 million common shares for $252.9 million in the aggregate under the ~~$300~~$300.0 million share repurchase program. Additionally, we issued ~~$750~~$750.0 million aggregate principal amount of 5.875% 2027 Senior Notes, which provided net proceeds of approximately $714 million. The net proceeds from the notes offering, along with cash on hand, were used to redeem in full all of our then-outstanding 4.875% 2021 Senior Notes and to purchase ~~$600~~$600.0 million aggregate principal amount of our outstanding 5.75% 2025 Senior Notes pursuant to a tender offer. In total, during the first ~~nine~~six months of 2019, we purchased $724.0 million aggregate principal amount of senior notes for $729.3 million in cash.

Additional uses of cash from financing activities during the first ~~nine~~six months of 2020 and 2019, included payments of cash dividends on our common shares of ~~$45.1~~$40.8 million and $28.9 million, respectively.

We have temporarily suspended future dividend distributions as a ~~cash payment of $44.2 million related to the third and final annual installment~~result of the ~~distribution~~COVID-19 pandemic in order to preserve cash during this time of Empire partnership equity. Uses of cash from financing activities during the first nine months of 2018 primarily related to a cash payment of $44.2 million for the second annual installment of distribution of the Empire partnership equity, $41.4 million for repayments of lease liabilities related to the discontinuation of our Asia Pacific Iron Ore operations and the repurchase of debt for $16.3 million.

economic uncertainty. We anticipate future uses of cash for financing activities during the next 12 months to include ~~regular quarterly cash dividend payments~~opportunistic debt transactions as part of ~~approximately $16 million per quarter. Additionally, we declared a special cash dividend~~our liability management strategy, such as the transactions that occurred during the second quarter of ~~$0.04 per common share, or approximately $11 million, which was paid on October 15, 2019.~~2020.

Capital Resources

The following represents a summary of key liquidity measures:


	(In Millions)						(In Millions)
	September 30, 2019			December 31, 2018			June 30, 2020
Cash and cash equivalents	$	399.3		$	823.2		$	73.7
Cash and cash equivalents from discontinued operations, included within other current assets	8.0			12.4
Cash and cash equivalents from discontinued operations, included within Other current assets							5.3
Less: Cash and cash equivalents from variable interest entities							(1.0		)
Total cash and cash equivalents	$	407.3		$	835.6		$	78.0

Available borrowing base on ABL Facility¹	$	400.8		$	323.7		$	1,652.1
ABL Facility loans drawn	—			—
Borrowings							(550.0		)
Letter of credit obligations	(34.1		)	(55.0		)	(198.5		)
Borrowing capacity available	$	366.7		$	268.7		$	903.6

¹ The ABL Facility has a maximum borrowing base of $450 million. The available borrowing base is determined by applying customary advance rates to eligible accounts receivable, inventory and certain mobile equipment.

¹ As of June 30, 2020, the ABL Facility had a maximum borrowing base of $2.0 billion. The available borrowing base is determined by applying customary advance rates to eligible accounts receivable, inventory and certain mobile equipment.

Our primary sources of funding are cash on hand, which totaled ~~$407.3~~$78.0 million as of ~~September~~June 30, ~~2019,~~2020, cash generated by our business, availability under the ABL Facility and other financing activities. The combination of cash and availability under the ABL Facility gives us ~~$774.0~~$981.6 million in liquidity entering the ~~fourth~~third quarter of ~~2019,~~2020, which is expected to be adequate to fund operations, letter of credit obligations, sustaining and expansion capital expenditures and other cash commitments for at least the next 12 months.

As of ~~September~~June 30, ~~2019,~~2020, we were in compliance with the ABL Facility liquidity requirements and, therefore, the springing financial covenant requiring a minimum fixed charge coverage ratio of 1.0 to 1.0 was not applicable.

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Off-Balance Sheet Arrangements

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

Information about our Guarantors and the Issuer of our Guaranteed Securities

The accompanying summarized financial information has been prepared and presented pursuant to SEC Regulation S-X, Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered,” and Rule 13-01 "Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralized a Registrant's Securities." Certain of our subsidiaries (the "Guarantor subsidiaries") have fully and unconditionally, and jointly and severally, guaranteed the obligations under (a) the 5.75% 2025 Senior Notes, the 6.375% 2025 Senior Notes, the 5.875% 2027 Senior Notes and the 7.00% 2027 Senior Notes issued by Cleveland-Cliffs Inc. on a senior unsecured basis and (b) the 4.875% 2024 Senior Secured Notes, the 6.75% 2026 Senior Secured Notes and the 9.875% 2025 Senior Secured Notes on a senior secured basis. See NOTE 7 - DEBT AND CREDIT FACILITIES for further information.

The following presents the summarized financial information on a combined basis for Cleveland-Cliffs Inc. (parent company and issuer of the guaranteed obligations) and the Guarantor subsidiaries, collectively referred to as the obligated group. Transactions between the obligated group have been eliminated. Information for the non-Guarantor subsidiaries was excluded from the combined summarized financial information of the obligated group.

Each Guarantor subsidiary is consolidated by Cleveland-Cliffs Inc. as of June 30, 2020. Refer to Exhibit 22.1, filed herewith, for the detailed list of entities included within the obligated group as of June 30, 2020 and December 31, 2019.

The guarantee of a Guarantor subsidiary with respect to Cliffs' 5.75% 2025 Senior Notes, 6.375% 2025 Senior Notes, 5.875% 2027 Senior Notes, 7.00% 2027 Senior Notes, 4.875% 2024 Senior Secured Notes, 6.75% 2026 Senior Secured Notes and 9.875% 2025 Senior Secured Notes will be automatically and unconditionally released and discharged, and such Guarantor subsidiary’s obligations under the guarantee and the related indentures (the “Indentures”) will be automatically and unconditionally released and discharged, upon the occurrence of any of the following, along with the delivery to the trustee of an officer’s certificate and an opinion of counsel, each stating that all conditions precedent provided for in the applicable Indenture relating to the release and discharge of such Guarantor subsidiary’s guarantee have been complied with:

(a) any sale, exchange, transfer or disposition of such Guarantor subsidiary (by merger, consolidation, or the sale of) or the capital stock of such Guarantor subsidiary after which the applicable Guarantor subsidiary is no longer a subsidiary of the Company or the sale of all or substantially all of such Guarantor subsidiary’s assets (other than by lease), whether or not such Guarantor subsidiary is the surviving entity in such transaction, to a person which is not the Company or a subsidiary of the Company; provided that (i) such sale, exchange, transfer or disposition is made in compliance with the applicable Indenture, including the covenants regarding consolidation, merger and sale of assets and, as applicable, dispositions of assets that constitute notes collateral, and (ii) all the obligations of such Guarantor subsidiary under all debt of the Company or its subsidiaries terminate upon consummation of such transaction;

(b) designation of any Guarantor subsidiary as an “excluded subsidiary” (as defined in the Indentures); or

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.

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Summarized Combined Financial Information of the Issuer and Guarantor Subsidiaries:

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



	(In Millions)
	June 30, 2020		December 31, 2019
Current assets	$	2,464.5	$	891.0
Non-current assets	5,104.5		2,381.8
Current liabilities	715.3		392.9
Non-current liabilities	6,344.6		2,791.7

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



	(In Millions)
	Six Months Ended
	June 30, 2020
Revenues¹	$	1,414.2
Cost of goods sold	(1,546.0		)
Loss from continuing operations	(168.0		)
Net loss	(167.3		)
Net loss attributable to Cliffs shareholders	(167.3		)

¹ Includes Realization of deferred revenue of $34.6 million for the six months ended June 30, 2020.

As of June 30, 2020 and December 31, 2019, the obligated group had the following balances with non-Guarantor subsidiaries and other related parties:



	(In Millions)
	June 30, 2020			December 31, 2019
Balances with non-Guarantor subsidiaries:
Accounts receivable, net	$	6.6		$	—
Accounts payable	(14.0		)	—

Balances with other related parties:
Accounts receivable, net	$	91.6		$	31.1
Other current assets	35.3			44.5
Accounts payable	(2.4		)	—
Other current liabilities	(2.0		)	(2.0		)

Additionally, for the six months ended June 30, 2020, the obligated group had Revenues of $292.6 million and Cost of goods sold of $243.0 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.

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Pricing Risks

Commodity Price Risk

~~Our consolidated revenues include the sale of primarily a single product, iron ore pellets, in the North American market.~~ Our financial results can vary ~~significantly~~for our operations as a result of fluctuations in market prices. We attempt to mitigate commodity price risk 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 multi-year purchase agreements for certain raw materials with similar variable-price mechanisms, allowing us to achieve natural hedges between the customer pricing contracts and supplier purchasing 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, diesel 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 pricing contracts and supplier purchasing agreements, we use cash-settled commodity price swaps and options to hedge the market ~~prices~~risk associated with the purchase of certain of our raw materials and energy requirements. Additionally, we routinely use these derivative instruments to hedge a portion of our natural gas, electricity and zinc requirements. Our hedging strategy is designed to protect us from excessive pricing volatility. However, since we do not typically hedge 100% of our exposure, abnormal price increases in any of these commodity markets might still negatively affect operating costs. The following table summarizes the impact of a 10% and 25% change in market price from the June 30, 2020 estimated price on our derivative instruments, thereby impacting our pre-tax income by the same amount.



	Positive or Negative Effect on Pre-tax Income (In Millions)
Commodity Derivative	10% Increase or Decrease		25% Increase or Decrease
Natural gas	$	9.0	$	22.3
Electricity	3.4		8.6
Zinc	1.3		3.4
Other	1.3		1.3

Additionally, our iron ore pellet revenue is impacted by pricing of iron ore, hot-rolled coil steel and iron ore pellet premiums. World market prices for these commodities have fluctuated historically and are affected by numerous factors beyond our control. The world market price that is most commonly utilized in our iron ore sales contracts is the Platts 62% Price, which can fluctuate widely due to numerous factors, such as global economic growth or contraction, change in demand for steel or changes in availability of supply.

~~Customer Supply Agreement~~

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A supply agreement with one Mining and Pelletizing customer provides for supplemental revenue or refunds based on the hot-rolled coil steel price at the time the iron ore product is consumed in the customer’s blast furnaces. At ~~September~~June 30, ~~2019~~2020, we had derivative assets of ~~$71.2~~$27.3 million, representing the fair value of the pricing factors, based upon the amount of unconsumed long tons and an estimated average hot-rolled coil steel price for the period in which the iron ore is expected to be consumed in the customer's blast furnaces, subject to final pricing at a future date. We estimate that a $75 positive or negative change in the hot-rolled coil steel price realized from the ~~September~~June 30, ~~2019~~2020 estimates would cause the fair value of the derivative instrument to increase or decrease by ~~approximately $24~~$24.5 million, respectively, thereby impacting our consolidated revenues by the same amount. We have not entered into any hedging programs to mitigate the risk of adverse price fluctuations.

~~Provisional Pricing Arrangements~~

Refer to NOTE 12 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for further information.

~~Certain~~Foreign Currency Exchange Rate Risk

Exchange rate fluctuations affect a portion of Precision Partner's operating costs, reported within the Steel and Manufacturing segment, that are denominated in Canadian dollars, and we use forward currency contracts to reduce our ~~customer supply agreements specify provisional~~exposure to certain of these currency price calculations, where the pricing mechanisms generally are based on market pricing, with the final revenue rate based on market inputs at a specified point in time in the future, per the terms of the supply agreements.fluctuations. At ~~September~~June 30, ~~2019~~2020, we had ~~derivative assets~~outstanding option and forward currency contracts with a total contract value of ~~$1.6~~$35.9 million ~~and derivative liabilities~~for the purchase of ~~$30.2~~Canadian dollars. Based on the contracts outstanding at June 30, 2020, a 10% change in the U.S. dollar-to-Canadian dollar exchange rate would result in a pre-tax impact of $1.8 million ~~reflected as part of our revenue, representing~~on the fair value of these contracts, which would offset the ~~provisional price calculations. We estimate that~~effect of a ~~positive or negative $10~~ change in ~~fourth quarter pricing from management's estimate of~~ the Platts 62% Price would cause the fair value of the net derivative instrument position for provisional pricing arrangements to increase or decrease by approximately $14 million, respectively. Additionally, we estimate that a positive or negative $10 change in fourth quarter pricing from management's estimate of the Atlantic Basin Pellet Premium would cause the fair value of the net derivative instrument position for provisional pricing arrangements to increase or decrease by approximately $11 million, respectively. We have not entered into any hedging programs to mitigate the risk of adverse price fluctuations.

~~Volatile Energy and Fuel Costs~~

The cost of energy is an important factor affecting production costs at our iron ore operations. Our consolidated operations consumed 11.0 million MMBtu’s of natural gas at an average delivered price of $3.31 per MMBtu during the first nine months of 2019. Additionally, our consolidated operations consumed 13.2 million gallons of diesel fuel at an average delivered price of $2.15 per gallon during the first nine months of 2019.

Our strategy to address volatile natural gas and diesel rates includes improving efficiency in energy usage, identifying alternative providers and utilizing the lowest cost alternative fuels. We utilize a hedging program to manage the price risk of natural gas and diesel at our operations. We will continue to monitor relevant energy markets for risk mitigation opportunities and may make additional forward purchases or employ other hedging instruments in the future as warranted and deemed appropriate by management. Basedexchange rate on the ~~expected consumption~~underlying operating costs. Refer to NOTE 12 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for the remaining three months of 2019, a 10% change in our current average year-to-date prices for both natural gas and diesel fuel would result in a change of approximately $2.5 million in our annual fuel and energy cost.further information.

In the ordinary course of business, there may also be increases in prices relative to electricity costs at our mine sites. Specifically, Tilden has entered into large curtailable special contracts with Wisconsin Electric Power Company. Charges under those special contracts are subject to a power supply cost recovery mechanism that is based on variations in the utility's actual fuel and purchase power expenses.

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Valuation of 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 statement 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. ~~As of~~While we concluded that an event triggering the need for an impairment assessment did not occur during the six months ended ~~September~~June 30, ~~2019~~2020, ~~no impairment factors were present~~a prolonged COVID-19 pandemic could impact the results of operations due to changes to assumptions that would indicate that the carrying value of our asset groups may not be ~~recoverable; as a result, no impairment assessment was required.~~recoverable.

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. Additionally, we have outstanding IRBs with fixed and variable rates. As of ~~September~~June 30, ~~2019~~,2020, we had ~~no amounts drawn on~~$550.0 million outstanding under the ABL Facility. An increase in prevailing interest rates would increase interest expense and interest paid for any outstanding borrowings from the ABL Facility. For example, a 100 basis point change to interest rates under the ABL Facility at the current borrowing level would result in a change of $5.6 million to interest expense on an annual basis.

Supply Concentration Risks

Many of our operations and mines rely on one source each of electric power and natural gas. A significant interruption or change in service or rates from our energy suppliers could materially impact our production costs, margins and profitability.

~~Outlook~~



		~~2019 Outlook Summary~~
~~Per Long Ton Information~~		~~Mining and Pelletizing~~
~~Cost of goods sold rate~~		~~$73 - $78~~
~~Less:~~
~~Freight expense rate~~¹		$7
~~Depreciation, depletion & amortization rate~~		$4
~~Cash cost of goods sold rate~~		~~$62 - $67~~

~~Sales volume (million long tons)~~		~~19.5~~
~~Production volume (million long tons)~~		~~20.0~~

¹~~Freight has an offsetting amount in revenue and has no impact on sales margin.~~

~~Mining and Pelletizing Outlook~~ ~~(Long Tons)~~

Based on the assumption that relevant pricing indices will average for the remainder of 2019 their respective year-to-date averages, we would expect to realize Mining and Pelletizing revenue rates in the range of $101 to $106 per long ton. Assuming spot prices as of October 22, 2019, including an iron ore price of $86 per metric ton, a hot-rolled coil steel price of $479 per short ton, and a pellet premium of $36 per metric ton, will average these levels for the remainder of 2019, we would expect to realize Mining and Pelletizing revenue rates in the range of $97 to $102 per long ton for the full-year 2019.

The 2019 sales volume expectation was revised to 19.5 million long tons, driven by seaborne export economics and timing. Our full-year 2019 Mining and Pelletizing cash cost of goods sold rate expectation is maintained at $62 to $67 per long ton.

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~~Other Outlook~~

Our full-year 2019 SG&A expense expectation of $120 million is being maintained. We also note that of the $120 million expectation, approximately $20 million is considered non-cash. Our full-year 2019 net interest expense expectation is maintained at $100 million. Full-year 2019 depreciation, depletion and amortization is expected to be approximately $85 million.

We have lowered our effective tax rate expectation for 2019 to approximately 10 percent, from our previous expectation of 12-14 percent. Due to our net operating loss position, our cash tax payments are expected to be zero.

~~Our 2019 total capital expenditures expectation was reduced to approximately $625-$675 million, from our previous expectation of $650-$700 million.~~

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. 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:

severe financial hardship, bankruptcy, temporary or permanent shutdowns or operational challenges, due to the ongoing COVID-19 pandemic or otherwise, of one or more of our major customers, including customers in the automotive market, key suppliers or contractors, which, among other adverse effects, could lead to reduced demand for our products, increased difficulty collecting receivables, and customers and/or suppliers asserting force majeure or other reasons for not performing their contractual obligations to us;

uncertainty and weaknesses in global economic conditions, including downward pressure on prices caused by the COVID-19 pandemic, oversupply orof imported products, reduced market demand and risks related to U.S. government actions with respect to Section 232, of the ~~Trade Expansion Act (as amended by the Trade Act of 1974), the United States-Mexico-Canada Agreement~~USMCA and/or other trade agreements, treaties or policies;

uncertainties associated with the highly competitive and highly cyclical steel industry and reliance on the demand for steel from the automotive industry;

continued volatility of steel and iron ore ~~and steel~~ prices and other trends, which may impact the price-adjustment calculations under certain of our sales contracts;

our ability to successfully diversify our product mix and add new customers for our Mining and Pelletizing segment beyond our traditional blast furnace clientele;

our ability to cost-effectively achieve planned production rates or levels, including at our HBI ~~plant;~~production plant currently under construction, and to resume full operations at certain facilities that are or were temporarily idled due to the COVID-19 pandemic;

our ability to successfully identify and consummate any strategic investments or development projects, including our HBI production plant;

the impact of our steelmaking customers reducing their steel production due to the COVID-19 pandemic, or increased market share of steel produced using methods other ~~methods~~than those used by our customers, or increased market share of lighter-weight steel ~~alternatives;~~alternatives, including aluminum;

our ability to maintain adequate liquidity, our level of indebtedness and the availability of capital could limit cash flow available to fund working capital, planned capital expenditures, acquisitions, and other general corporate purposes or ongoing needs of our business;

our actual economic iron ore reserves or reductions in current mineral estimates, including whether any mineralized material qualifies as a reserve;

the outcome of any contractual disputes with our customers, joint venture partners or significant energy, material or service providers or any other litigation or arbitration;

problems or uncertainties with sales volume or mix, productivity, ~~tons mined,~~ transportation, ~~mine closure obligations,~~ environmental liabilities, employee-benefit costs and other risks of the steel and mining ~~industry;~~industries;

impacts of existing and increasing governmental regulation and related costs and liabilities, including failure to receive or maintain required operating and environmental permits, approvals, modifications or other authorization of, or from, any governmental or regulatory entity and costs related to implementing improvements to ensure compliance with regulatory changes;

our ability to maintain adequate liquidity, our level of indebtedness and the availability of capital could limit cash flow available to fund working capital, planned capital expenditures, acquisitions and other general corporate purposes or ongoing needs of our business;

~~our ability to continue to pay cash dividends, and the amount and timing of any cash dividends;~~

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~~our ability to maintain~~ appropriate relations with unions and employees;

the ability of our customers, joint venture partners and ~~third party~~third-party service providers to meet their obligations to us on a timely basis or at all;

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events or circumstances that could impair or adversely impact the viability of a ~~mine~~production plant or ~~production plant~~mine and the carrying value of associated assets, as well as any resulting impairment charges;

uncertainties associated with natural disasters, weather conditions, unanticipated geological conditions, supply or price of energy, equipment failures, infectious disease outbreaks and other unexpected events;

adverse changes in interest rates, foreign currency rates and tax laws; ~~and~~

the potential existence of significant deficiencies or material weakness in our internal control over financial ~~reporting.~~reporting;

our ability to realize the anticipated benefits of the Merger and to successfully integrate the businesses of AK Steel into our existing businesses, including uncertainties associated with maintaining relationships with customers, vendors and employees, as well as realizing additional future synergies;

additional debt we assumed or issued in connection with the Merger, as well as additional debt we incurred in connection with enhancing our liquidity during the COVID-19 pandemic, may negatively impact our credit profile and limit our financial flexibility;

changes in the cost of raw materials and supplies;

supply chain disruptions or poor quality of raw materials or supplies, including scrap, coal, coke and alloys;

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

unanticipated costs associated with healthcare, pension and OPEB obligations.

For additional factors affecting our business, refer to Part II – Item 1A. Risk ~~Factors.~~Factors of this Quarterly Report on Form 10-Q. You are urged to carefully consider these risk factors.

Non-GAAP ~~Reconciliation~~Reconciliations

We present cash cost of goods sold rate per long ton, which is a non-GAAP financial measure that management uses in evaluating operating performance. We believe our presentation of non-GAAP cash cost of goods sold is useful to investors because it excludes depreciation, depletion and amortization, which are non-cash, and freight, which has no impact on sales margin, thus providing a more accurate view of the cash outflows related to the sale of iron ore. The presentation of this measure 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 this measure may be different from non-GAAP financial measures used by other companies. Below is a reconciliation in dollars of this non-GAAP financial measure to our Mining and Pelletizing segment cost of goods sold.


	(In Millions)								(In Millions)
	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Cost of goods sold	$	424.8	$	480.2	$	1,033.5	$	1,028.5	$	427.2	$	482.6	$	594.5	$	608.7
Less:
Freight	40.6		57.1		98.0		110.2		38.2		45.8		55.2		57.4
Depreciation, depletion & amortization	20.8		17.8		58.9		49.2		19.2		19.6		37.9		38.1
Cash cost of goods sold	$	363.4	$	405.3	$	876.6	$	869.1	$	369.8	$	417.2	$	501.4	$	513.2

Refer to " – Results of Operations – Segment Information" above for a reconciliation of the non–GAAP measure, Adjusted EBITDA.



Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Information regarding our ~~Market Risk~~market risk is presented under the caption ~~Market~~"Market Risks,," which is included in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, and ~~in the~~Part I – Item 2. Management's Discussion and Analysis ~~section~~of Financial Condition and Results of Operations of this ~~report.~~Quarterly Report on Form 10-Q.

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Item 4.	Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based solely on the definition of “disclosure controls and procedures” in Rule 13a-15(e) promulgated under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

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As of the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective.

~~There have been~~The Company acquired AK Steel during March 2020. We are currently integrating the processes and internal controls of AK Steel. Except for the AK Steel acquisition, there was no ~~changes~~change in ~~our~~the Company’s internal control over financial reporting ~~or in other factors~~during the quarter ended June 30, 2020 that ~~occurred during our last fiscal quarter that have~~ materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal control over financial reporting due to the COVID-19 pandemic. We are continually monitoring and assessing the impact of the COVID-19 pandemic on our internal controls to minimize the impact on their design and operating effectiveness.

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PART II - OTHER INFORMATION



Item 1.	Legal Proceedings

~~Mesabi Metallics Adversary Proceeding. On September 7, 2017, Mesabi Metallics Company LLC (f/k/a Essar Steel Minnesota LLC) ("Mesabi Metallics") filed a complaint against Cleveland-Cliffs Inc. in~~We have described the ~~Essar Steel Minnesota LLC and ESML Holdings Inc. bankruptcy proceeding that is~~material pending in the United States Bankruptcy Court, District of Delaware. Mesabi Metallics alleges tortious interference with its contractual rights and business relations involving certain vendors, suppliers and contractors, violations of federal and Minnesota antitrust laws through monopolization, attempted monopolization and restraint of trade, violation of the automatic stay, and civil conspiracy with unnamed Doe defendants. Mesabi Metallics amended its complaintlegal proceedings to add additional defendants, including, among others, our subsidiary, Cleveland-Cliffs Minnesota Land Development Company LLC ("Cliffs Minnesota Land"), and to add additional claims, including avoidance and recovery of unauthorized post-petition transfers of real estate interests, claims disallowance, civil contempt and declaratory relief. Mesabi Metallics seeks, among other things, unspecified damages and injunctive relief. Cliffs and Cliffs Minnesota Land filed counterclaims against Mesabi Metallics, Chippewa Capital Partners ("Chippewa"), and Thomas M. Clarke ("Clarke") for tortious interference and civil conspiracy, as well as additional claims against Chippewa and Clarke for aiding and abetting tortious interference, for which we ~~seek, among other things, damages and injunctive relief. Our counterclaim against Clarke for libel was dismissed~~are a party in our Annual Report on jurisdictional grounds. The parties filed various dispositive motions on certain of the claims, including a motion for partial summary judgment to settle a dispute over real estate transactions between Cliffs Minnesota Land and Glacier Park Iron Ore Properties LLC ("GPIOP"). A ruling in favor of Cliffs, Cliffs Minnesota Land and GPIOP was issued on July 23, 2018, finding that Mesabi Metallics' leases had terminated and upholding Cliffs' and Cliffs Minnesota Land's purchase and lease of the contested real estate interests. Mesabi Metallics filed a Motion for Leave to File an Interlocutory Appeal, which was denied on September 10, 2019. We believe the claims asserted against us are unmeritorious and intend to continue to vigorously defend any remaining claims in the lawsuit.

~~Seneca Coal Resources Litigation~~. We were a plaintiff in a lawsuit we filed against Seneca Coal Resources, LLC ("Seneca") and others on December 20, 2016, alleging, among other things, breach of the Unit Purchase Agreement dated December 22, 2015 ("UPA"), wherein Seneca purchased certain of our coal properties. We amended the complaint to include claims of fraudulent transfers and violations of the Racketeer Influenced and Corrupt Organizations provisions of the Organized Crime Control Act of 1970 against individual defendants, including Clarke. This dispute was pending in the Delaware Superior Court. On July 2, 2018, Seneca filed suit against us, a subsidiary of ours, and certain of our employees, in the Delaware Chancery Court, alleging that we failed to disclose certain liabilities in connection with the UPA and seeking monetary damages or, alternatively, reformation of the UPA. The lawsuit filed in Chancery Court asserted identical claims to those that Seneca filed as counterclaims in Delaware Superior Court on the same day, and the two cases proceeded as one consolidated matter in the Superior Court. We filed motions to dismiss certain claims against us and to dismiss all claims against our employees individually. On October 14, 2018, while our motion to dismiss was pending, Mission Coal Company, LLC and ten of its affiliates, including Seneca and certain of our former coal properties, filed a petition in the U.S. Bankruptcy CourtForm 10-K for the ~~Northern District~~year ended December 31, 2019, and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. Additional information for this item relating to certain environmental and other contingencies may be found in NOTE 18 - COMMITMENTS AND CONTINGENCIES to the consolidated financial statements in Part I – Item 1. Financial Statements of ~~Alabama for relief under Chapter 11 of Title 11 of the U.S. Bankruptcy Code. On December 4, 2018, the Court entered an order staying all proceedings in~~ this ~~litigation due to Mission Coal Company's bankruptcy filing. On August 20, 2019, pursuant to a stipulation among the parties, the Court dismissed this litigation in its entirety with prejudice.~~Quarterly Report on Form 10-Q and is incorporated herein by reference.



Item 1A.	Risk Factors

~~Our Annual~~We caution readers that our business activities involve risks and uncertainties that could cause actual results to differ materially from those currently expected by management. We described the most significant risks that could impact our results in Part II, Item 1A, "Risk Factors" in our Quarterly Report on Form ~~10-K~~10-Q for the ~~year~~quarter ended ~~December~~March 31, ~~2018, includes a detailed discussion of our risk factors.~~2020.

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Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information with respect to repurchases by the Company of our common shares during the periods indicated.

ISSUER PURCHASES OF EQUITY SECURITIES

Period
Total Number of Shares
(or Units) Purchased¹

Average Price Paid per Share
(or Unit)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs²
July 1 - 31, 2019 1,502
$ 10.72
—
$ 229,356
August 1 - 31, 2019 3,615
$ 8.45
—
$ 229,356
September 1 - 30, 2019 13,951
$ 11.45
—
$ 229,356
Total 19,068
$ 10.83
—

¹ All 19,068 shares were delivered to us to satisfy tax withholding obligations due upon the vesting or payment of stock awards.
² On November 26, 2018, we announced a new share repurchase program which was authorized by our Board of Directors, pursuant to which we may buy back our outstanding common shares in the open market or in private negotiated transactions up to a maximum of $200 million, excluding commissions and fees. On April 25, 2019, we announced that our Board of Directors increased the common share repurchase authorization by an additional $100 million, excluding commissions and fees. The program may be executed through open-market purchases, including through Rule 10b5-1 agreements, or privately negotiated transactions. The authorization is effective until December 31, 2019.



Period	Total Number of Shares (or Units) Purchased¹	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
April 1 - 30, 2020	2,369	$	3.80	—	$	—
May 1 - 31, 2020	263,594	$	4.45	—	$	—
June 1 - 30, 2020	20,662	$	5.78	—	$	—
Total	286,625	$	4.54	—

¹ All shares were delivered to us to satisfy tax withholding obligations due upon the vesting or payment of stock awards.



Item 4.	Mine Safety Disclosures

We are committed to protecting the occupational health and well-being of each of our employees. Safety is one of our core values and we strive to ensure that safe production is the first priority for all employees. Our internal objective is to achieve zero injuries and incidents across the Company by focusing on proactively identifying needed prevention activities, establishing standards and evaluating performance to mitigate any potential loss to people, equipment, production and the environment. We have implemented intensive employee training that is geared toward maintaining a high level of awareness and knowledge of safety and health issues in the work environment through the development and coordination of requisite information, skills and attitudes. We believe that through these policies we have developed an effective safety management system.

Under the Dodd-Frank Act, each operator of a coal or other mine is required to include certain mine safety results within its periodic reports filed with the SEC. As required by the reporting requirements included in §1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K, the required mine safety results regarding certain mining safety and health matters for each of our mine locations that are covered under the scope of the Dodd-Frank Act are included in Exhibit 95 of Part II –Item 6. Exhibits of this Quarterly Report on Form 10-Q.



Item 5.	Other Information

None.

5763

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Item 6.	Exhibits

All documents referenced below have been filed pursuant to the Securities Exchange Act of 1934 by Cleveland-Cliffs Inc., file number 1-09844, unless otherwise indicated.

Table of Contents



Exhibit Number		Exhibit
4.1		Indenture, dated as of April 17, 2020, by and among Cleveland-Cliffs Inc., the guarantors party thereto and U.S. Bank National Association, as trustee and first lien notes collateral agent (relating to Cleveland-Cliffs Inc.’s 9.875% Senior Secured Notes due 2025) (including Form of ~~Common Share Certificate~~Note) (filed herewith).
4.2		First Supplemental Indenture, dated as of April 24, 2020, by and among Cleveland-Cliffs Inc., the guarantors party thereto and U.S. Bank National Association, as trustee and first lien notes collateral agent (relating to Cleveland-Cliffs Inc.’s 9.875% Senior Secured Notes due 2025) (including Form of Note) (filed herewith).
4.3		Second Supplemental Indenture, dated as of May 22, 2020, by and among Cleveland-Cliffs Inc., the additional guarantors party thereto and U.S. Bank National Association, as trustee and first lien notes collateral agent (relating to Cleveland-Cliffs Inc.’s 9.875% Senior Secured Notes due 2025) (filed herewith).
4.4		Sixth Supplemental Indenture, dated as of May 22, 2020, by and among Cleveland-Cliffs Inc., the additional guarantors party thereto and U.S. Bank National Association, as trustee (relating to Cleveland-Cliffs Inc.’s 5.75% Senior Notes due 2025) (filed herewith).
4.5		Third Supplemental Indenture, dated as of May 22, 2020, by and among Cleveland-Cliffs Inc., the additional guarantors party thereto and U.S. Bank National Association, as trustee and first lien notes collateral agent (relating to Cleveland-Cliffs Inc.’s 4.875% Senior Secured Notes due 2024) (filed herewith).
4.6		Second Supplemental Indenture, dated as of May 22, 2020, by and among Cleveland-Cliffs Inc., the additional guarantors party thereto and U.S. Bank National Association, as trustee (relating to Cleveland-Cliffs Inc.’s 5.875% Senior Guaranteed Notes due 2027) (filed herewith).
4.7		First Supplemental Indenture, dated as of May 22, 2020, by and among Cleveland-Cliffs Inc., the additional guarantors party thereto and U.S. Bank National Association, as trustee (relating to Cleveland-Cliffs Inc.’s 7.00% Senior Guaranteed Notes due 2027) (filed herewith).
4.8		First Supplemental Indenture, dated as of May 22, 2020, by and among Cleveland-Cliffs Inc., the additional guarantors party thereto and U.S. Bank National Association, as trustee (relating to Cleveland-Cliffs Inc.’s 6.375% Senior Guaranteed Notes due 2025) (filed herewith).
4.9		First Supplemental Indenture, dated as of May 22, 2020, by and among Cleveland-Cliffs Inc., the additional guarantors party thereto and U.S. Bank National Association, as trustee and first lien notes collateral agent (relating to Cleveland-Cliffs Inc.’s 6.75% Senior Secured Notes due 2026) (filed herewith).
4.10		Second Supplemental Indenture, dated as of June 19, 2020, by and among Cleveland-Cliffs Inc., the guarantors party thereto and U.S. Bank National Association, as trustee and first lien notes collateral agent (relating to Cleveland-Cliffs Inc.’s 6.75% Senior Secured Notes due 2026) (including Form of Note) (filed herewith).
22.1		Schedule of the obligated group, including the parent and issuer and the subsidiary guarantors that have guaranteed the obligations under the 4.875% 2024 Senior Secured Notes, the 5.75% 2025 Senior Notes, the 6.375% 2025 Senior Notes, the 6.75% 2026 Senior Secured Notes, the 5.875% 2027 Senior Notes, the 7.00% 2027 Senior Notes and the 9.875% 2025 Senior Secured Notes issued by Cleveland-Cliffs Inc. (filed herewith).
31.1		Certification Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed and dated by Lourenco Goncalves as of ~~October 23, 2019~~July 30, 2020 (filed herewith).
31.2		Certification Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed and dated by Keith A. Koci as of ~~October 23, 2019~~July 30, 2020 (filed herewith).
32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by Lourenco Goncalves, Chairman, President and Chief Executive Officer of Cleveland-Cliffs Inc., as of ~~October 23, 2019~~July 30, 2020 (filed herewith).
32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by Keith A. Koci, Executive Vice President, Chief Financial Officer of Cleveland-Cliffs Inc., as of ~~October 23, 2019~~July 30, 2020 (filed herewith).
95		Mine Safety Disclosures (filed herewith).
101		The following financial information from Cleveland-Cliffs Inc.'s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2019~~2020 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Statements of Unaudited Condensed Consolidated ~~Statements of~~ Financial Position, (ii) the Statements of Unaudited Condensed Consolidated ~~Statements of~~ Operations, (iii) the Statements of Unaudited Condensed Consolidated Comprehensive Income (Loss), (iv) the Statements of ~~Comprehensive Income, (iv) the~~Unaudited Condensed Consolidated ~~Statements of~~ Cash Flows, (v) the Statements of Unaudited Condensed Consolidated ~~Statements of~~ Changes in Equity, and (vi) Notes to the Unaudited Condensed Consolidated Financial Statements.
104		The cover page from this Quarterly Report on Form 10-Q, formatted in Inline ~~XBRL.~~XBRL and contained in Exhibit 101.

5865

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		CLEVELAND-CLIFFS INC.

		By:	/s/ ~~R. Christopher Cebula~~Kimberly A. Floriani
			Name:	~~R. Christopher Cebula~~Kimberly A. Floriani
			Title:	Vice President, Corporate Controller & Chief Accounting Officer

Date:	~~October 23, 2019~~July 30, 2020

5966



	(In Millions)
	Three Months Ended September 30, 2019								Nine Months Ended September 30, 2019
	Mining and Pelletizing			Metallics		Total			Mining and Pelletizing			Metallics		Total
Operating segment revenues from product sales and services	$	590.6		$	—	$	590.6		$	1,494.8		$	—	$	1,494.8
Elimination of intersegment revenues	(35.0		)	—		(35.0		)	(39.0		)	—		(39.0		)
Total revenues from product sales and services	$	555.6		$	—	$	555.6		$	1,455.8		$	—	$	1,455.8

Operating segment sales margin	$	165.8		$	—	$	165.8		$	461.3		$	—	$	461.3
Elimination of intersegment sales margin	(10.9		)	—		(10.9		)	(12.5		)	—		(12.5		)
Total sales margin	$	154.9		$	—	$	154.9		$	448.8		$	—	$	448.8



	(In Millions)
	Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
Debt Instrument	Debt Extinguished		Gain on Extinguishment		Debt Extinguished		Gain on Extinguishment
$400 Million 5.90% 2020 Senior Notes	$	—	$	—	$	0.5	$	—
$500 Million 4.80% 2020 Senior Notes	—		—		0.1		—
$700 Million 4.875% 2021 Senior Notes	1.0		—		14.2		0.1
$1.075 Billion 5.75% 2025 Senior Notes	—		—		1.7		0.1
	$	1.0	$	—	$	16.5	$	0.2



Grant Date	Grant Date Market Price		Average Expected Term (Years)	Expected Volatility	Risk-Free Interest Rate	Dividend Yield	Fair Value		Fair Value (Percent of Grant Date Market Price)
February 19, 2019	$	11.24	2.87	67.5%	2.55%	—%	$	18.31	162.90%



	(In Millions)
	Nine Months Ended September 30, 2019			Year Ended December 31, 2018
Asset retirement obligation at beginning of period	$	172.4		$	168.4
Accretion expense	7.6			9.5
Remediation payments	(0.5		)	(1.0		)
Revision in estimated cash flows	—			(4.5		)
Asset retirement obligation at end of period	$	179.5		$	172.4



Unaudited Condensed Consolidating Statement of Financial Position
As of September 30, 2019
(In Millions)
	Cleveland-Cliffs Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	396.2	$	0.4	$	2.7		$	—		$	399.3
Accounts receivable, net	7.4		161.4		0.2			(4.1		)	164.9
Finished goods inventories	—		162.2		—			—			162.2
Work-in-process inventories	—		55.2		—			—			55.2
Supplies and other inventories	—		110.8		—			—			110.8
Derivative assets	—		72.8		—			—			72.8
Income tax receivable, current	58.7		—		—			—			58.7
Other current assets	9.3		22.9		8.5			—			40.7
TOTAL CURRENT ASSETS	471.6		585.7		11.4			(4.1		)	1,064.6
PROPERTY, PLANT AND EQUIPMENT, NET	12.3		1,706.8		50.8			—			1,769.9
OTHER ASSETS
Deposits for property, plant and equipment	—		27.1		14.5			—			41.6
Income tax receivable, non-current	58.6		4.1		—			—			62.7
Deferred income taxes	436.3		—		1.2			—			437.5
Investment in subsidiaries	1,780.5		39.7		—			(1,820.2		)	—
Long-term intercompany notes	—		—		121.3			(121.3		)	—
Other non-current assets	15.6		98.0		1.3			—			114.9
TOTAL OTHER ASSETS	2,291.0		168.9		138.3			(1,941.5		)	656.7
TOTAL ASSETS	$	2,774.9	$	2,461.4	$	200.5		$	(1,945.6	)	$	3,491.2
LIABILITIES
CURRENT LIABILITIES
Accounts payable	$	4.7	$	207.8	$	4.4		$	(4.1	)	$	212.8
Accrued employment costs	17.1		40.1		0.1			—			57.3
Accrued interest	34.1		—		—			—			34.1
Derivative liabilities	2.4		30.2		—			—			32.6
Partnership distribution payable	—		—		—			—			—
Other current liabilities	38.5		75.9		7.3			—			121.7
TOTAL CURRENT LIABILITIES	96.8		354.0		11.8			(4.1		)	458.5
PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES	63.3		414.2		(244.3		)	—			233.2
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS	—		159.7		19.4			—			179.1
LONG-TERM DEBT	2,109.1		—		—			—			2,109.1
LONG-TERM INTERCOMPANY NOTES	121.3		—		—			(121.3		)	—
OTHER LIABILITIES	24.5		120.8		6.1			—			151.4
TOTAL LIABILITIES	2,415.0		1,048.7		(207.0		)	(125.4		)	3,131.3
EQUITY
TOTAL EQUITY	359.9		1,412.7		407.5			(1,820.2		)	359.9
TOTAL LIABILITIES AND EQUITY	$	2,774.9	$	2,461.4	$	200.5		$	(1,945.6	)	$	3,491.2



Unaudited Condensed Consolidating Statement of Financial Position
As of December 31, 2018
(In Millions)
	Cleveland-Cliffs Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	819.8	$	0.7	$	2.7		$	—		$	823.2
Accounts receivable, net	9.2		221.3		0.3			(4.1		)	226.7
Finished goods inventories	—		77.8		—			—			77.8
Work-in-process inventories	—		10.1		—			—			10.1
Supplies and other inventories	—		93.2		—			—			93.2
Derivative assets	0.1		91.4		—			—			91.5
Income tax receivable, current	117.3		—		—			—			117.3
Other current assets	10.0		16.9		12.9			—			39.8
TOTAL CURRENT ASSETS	956.4		511.4		15.9			(4.1		)	1,479.6
PROPERTY, PLANT AND EQUIPMENT, NET	13.3		1,221.9		50.8			—			1,286.0
OTHER ASSETS
Deposits for property, plant and equipment	—		68.4		14.6			—			83.0
Income tax receivable, non-current	117.2		4.1		—			—			121.3
Deferred income taxes	463.6		—		1.2			—			464.8
Investment in subsidiaries	1,262.3		50.8		—			(1,313.1		)	—
Long-term intercompany notes	—		—		121.3			(121.3		)	—
Other non-current assets	8.0		85.4		1.5			—			94.9
TOTAL OTHER ASSETS	1,851.1		208.7		138.6			(1,434.4		)	764.0
TOTAL ASSETS	$	2,820.8	$	1,942.0	$	205.3		$	(1,438.5	)	$	3,529.6
LIABILITIES
CURRENT LIABILITIES
Accounts payable	$	5.3	$	181.4	$	4.2		$	(4.1	)	$	186.8
Accrued employment costs	28.5		45.4		0.1			—			74.0
Accrued interest	38.4		—		—			—			38.4
Derivative liabilities	3.7		—		—			—			3.7
Partnership distribution payable	—		43.5		—			—			43.5
Other current liabilities	26.9		86.7		8.2			—			121.8
TOTAL CURRENT LIABILITIES	102.8		357.0		12.5			(4.1		)	468.2
PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES	64.3		414.4		(230.0		)	—			248.7
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS	—		152.1		19.9			—			172.0
LONG-TERM DEBT	2,092.9		—		—			—			2,092.9
LONG-TERM INTERCOMPANY NOTES	121.3		—		—			(121.3		)	—
OTHER LIABILITIES	15.3		99.5		8.8			—			123.6
TOTAL LIABILITIES	2,396.6		1,023.0		(188.8		)	(125.4		)	3,105.4
EQUITY
TOTAL EQUITY	424.2		919.0		394.1			(1,313.1		)	424.2
TOTAL LIABILITIES AND EQUITY	$	2,820.8	$	1,942.0	$	205.3		$	(1,438.5	)	$	3,529.6



Unaudited Condensed Consolidating Statement of Operations and Comprehensive Income
For the Three Months Ended September 30, 2019
(In Millions)
	Cleveland-Cliffs Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES FROM PRODUCT SALES AND SERVICES
Product	$	—		$	515.0		$	—		$	—		$	515.0
Freight	—			40.6			—			—			40.6
	—			555.6			—			—			555.6
COST OF GOODS SOLD	—			(400.7		)	—			—			(400.7		)
SALES MARGIN	—			154.9			—			—			154.9
OTHER OPERATING EXPENSE
Selling, general and administrative expenses	(20.7		)	(4.7		)	(0.1		)	—			(25.5		)
Miscellaneous – net	—			(7.7		)	(0.1		)	—			(7.8		)
	(20.7		)	(12.4		)	(0.2		)	—			(33.3		)
OPERATING INCOME (LOSS)	(20.7		)	142.5			(0.2		)	—			121.6
OTHER INCOME (EXPENSE)
Interest income (expense), net	(24.9		)	(0.6		)	0.2			—			(25.3		)
Other non-operating income (expense)	(0.9		)	(3.4		)	4.6			—			0.3
	(25.8		)	(4.0		)	4.8			—			(25.0		)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	(46.5		)	138.5			4.6			—			96.6
INCOME TAX EXPENSE	(4.8		)	—			—			—			(4.8		)
EQUITY IN INCOME OF SUBSIDIARIES	142.2			4.6			—			(146.8		)	—
INCOME FROM CONTINUING OPERATIONS	90.9			143.1			4.6			(146.8		)	91.8
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX	—			(0.3		)	(0.6		)	—			(0.9		)
NET INCOME	$	90.9		$	142.8		$	4.0		$	(146.8	)	$	90.9
OTHER COMPREHENSIVE INCOME	6.2			6.8			—			(6.8		)	6.2
TOTAL COMPREHENSIVE INCOME	$	97.1		$	149.6		$	4.0		$	(153.6	)	$	97.1



	(In Millions)
							Changes due to:
	Three Months Ended September 30,						Revenue and cost rate			Sales volume			Freight			Total change
	2019			2018			Revenue and cost rate			Sales volume			Freight			Total change
Revenues from product sales and services	$	590.6		$	741.8		$	(63.2	)	$	(71.4	)	$	(16.6	)	$	(151.2	)
Cost of goods sold	(424.8		)	(480.2		)	(7.7		)	46.5			16.6			55.4
Sales margin	$	165.8		$	261.6		$	(70.9	)	$	(24.9	)	$	—		$	(95.8	)