ÐÇ¿Õ´«Ã½

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             .

Commission File Number: 1-8944

CLEVELAND-CLIFFS INC

(Exact Name of Registrant as Specified in Its Charter)

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

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   X   NO         

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   X   Accelerated filer          Non-accelerated filer         

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

YES          NO   X  

As of October 31, 2007, there were 41,832,680 Common Shares (par value $.25 per share) outstanding.

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Definitions

The following abbreviations or acronyms are used in the text. References in this report to the “Company”, “we”, “us”, “our” and “Cliffs” are to ÐÇ¿Õ´«Ã½ Inc and subsidiaries, collectively. References to “A$” refer to Australian currency, “C$” to Canadian currency and “$” to United States currency.

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PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED OPERATIONS

See notes to unaudited condensed consolidated financial statements.

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CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CONDENSED CONSOLIDATED FINANCIAL POSITION

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CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CONDENSED CONSOLIDATED FINANCIAL POSITION

See notes to unaudited condensed consolidated financial statements.

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CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED CASH FLOWS

See notes to unaudited condensed consolidated financial statements.

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CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

NOTE 1 – BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly, the financial position, results of operations and cash flows for the periods presented. The interim results are not necessarily indicative of results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in ÐÇ¿Õ´«Ã½’ Annual Report on Form 10-K for the year ended December 31, 2006.

The unaudited condensed consolidated financial statements include our accounts and the accounts of our consolidated subsidiaries, including:

Intercompany accounts are eliminated in consolidation.

Our investments in ventures include our 30 percent equity interest in Amapa, a joint venture located in Brazil, our 45 percent effective interest in Sonoma, a joint venture located in Australia, our 23 percent equity interest in Hibbing, an unincorporated joint venture in Minnesota, and our 26.83 percent equity interest in Wabush, an unincorporated joint venture located in Canada, and Portman’s 50 percent non-controlling interest in Cockatoo Island.

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Investments in joint ventures in which our ownership is 50 percent or less, or in which we do not have control but have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method. Our share of equity income (loss) is eliminated against consolidated product inventory upon production, and against cost of goods sold and operating expenses when sold. This effectively reduces our cost for our share of the mining venture’s production to its cost, reflecting the cost-based nature of our participation in unconsolidated ventures. However, as Sonoma is not operational, preproduction costs incurred to date are recorded in Miscellaneous-net on the Statements of Unaudited Condensed Consolidated Operations.

Our 30 percent ownership interest in Amapa, in which we do not have control but have the ability to exercise influence over operating and financial policies, is accounted for under the equity method. Accordingly our share of the results from Amapa are reflected as Equity loss from ventures on the Statements of Unaudited Condensed Consolidated Operations.

The following table presents the detail of our Investments in ventures and where those investments are classified on the Statements of Condensed Consolidated Financial Position. Parentheses indicate a net liability.

* Recorded as Investments in ventures at December 31, 2006

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NOTE 2 – ACCOUNTING POLICIES

Revenue Recognition

North American Iron Ore

Revenue is recognized on the sale of products when title to the product has transferred to the customer in accordance with the specified provisions of each term supply agreement and all applicable criteria for revenue recognition have been satisfied. Most of our North American Iron Ore term supply agreements provide that title transfers to the customer when payment is received. Under some term supply agreements, we ship the product to ports on the lower Great Lakes and/or to the customer’s facilities prior to the transfer of title. Certain supply agreements with one customer include provisions for supplemental revenue or refunds based on the

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customer’s annual steel pricing at the time the product is consumed in the customer’s blast furnaces. We account for this provision as a derivative instrument at the time of sale and record this provision at fair value until the product is consumed and the amounts are settled as an adjustment to revenue. Revenue in the third quarter and first nine months of 2007 included $0.4 million and $2.1 million, respectively, of unfavorable mark-to-fair value adjustments on derivative instruments related to 2006 sales. Revenue in the third quarter and first nine months of 2006 included $6.5 million and $20.8 million, respectively, of favorable mark-to-fair value adjustments on derivative instruments related to 2005 sales. Revenue from North American Iron Ore product sales in the third quarter included reimbursement for freight charges ($23.7 million in 2007 and $18.4 million in 2006) paid on behalf of customers and cost reimbursements ($51.3 million in 2007 and $45.5 million in 2006) from venture partners for their share of North American Iron Ore mine costs. Revenue from iron ore product sales for the first nine months included reimbursement for freight charges ($57.0 million in 2007 and $55.5 million in 2006) paid on behalf of customers and cost reimbursements ($150.3 million in 2007 and $136.3 million in 2006) from venture partners for their share of the first nine months of North American Iron Ore mine costs.

North American Coal

PinnOak recognizes revenue and a related receivable when title passes to the customers. For domestic coal sales, this generally occurs when coal is loaded into rail cars at the mine or delivered to the customers’ adjacent processing facilities. For export coal sales, this generally occurs when coal is loaded into the vessels at the terminal. Revenue from product sales since the July 31, 2007 acquisition included reimbursement for freight charges of $2.2 million, paid on behalf of customers.

Asia-Pacific Iron Ore

Portman’s sales revenue is recognized at the F.O.B. point, which is generally when the product is loaded into the vessel at the terminal.

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Deferred Revenue

The terms of one of our North American Iron Ore pellet supply agreements require bi-monthly installments equaling 1/24th of the estimated total purchase value of the calendar-year nomination. Revenue from this supply agreement is recognized when title has transferred upon shipment of pellets. Installment amounts received in excess of sales totaled $42.9 million and was recorded as Deferred revenue on the September 30, 2007 Statements of Condensed Consolidated Financial Position.

Two of our North American Iron Ore customers purchased and paid for a total of 1.2 million tons of pellets in December 2006 under terms of take-or-pay contracts. The inventory was stored at our facilities in upper lakes stockpiles. At the request of the customers, the ore was not shipped. The Company considered whether revenue should be recognized on these sales under the “bill and hold” guidance discussed in SEC Staff Accounting Bulletin No. 104 Topic No. 13, but because a fixed shipment schedule was not established prior to year-end, revenue recognition on these transactions, totaling $62.6 million, was deferred on the December 31, 2006 Statements of Condensed Consolidated Financial Position until the product was delivered in 2007.

Derivative Financial Instruments

Portman receives funds in United States currency for its iron ore sales. Portman uses forward exchange contracts, call options, collar options and convertible collar options, designated as cash flow hedges, to hedge its foreign currency exposure for a portion of its sales receipts. United States currency is converted to Australian dollars at the currency exchange rate in effect at the time of the transaction. At September 30, 2007, Portman had $319.5 million of outstanding exchange rate contracts in the form of call options, collar options and forward exchange contracts with varying maturity dates ranging from October 2007 to July 2010, and a fair value adjustment of $30.2 million based on the September 30, 2007 exchange rate. We had $23.7 million and $6.3 million of foreign currency hedge contracts recorded as Derivative assets on the September 30, 2007 and December 31, 2006 Statements of Condensed Consolidated Financial Position, respectively. We also had $9.1 million and $3.6 million of foreign currency hedge contracts recorded as non-current assets as Deposits and

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miscellaneous on the Statements of Condensed Consolidated Financial Position at September 30, 2007 and December 31, 2006, respectively. Changes in fair value for highly effective hedges are recorded as a component of Accumulated other comprehensive loss on the Statements of Condensed Consolidated Financial Position. In the first nine months of 2007 and 2006, ineffectiveness resulted in a loss of $4.3 million and a gain of $1.3 million, respectively, which were recorded in Miscellaneous-net on the Statements of Unaudited Condensed Consolidated Operations.

Certain supply agreements with one customer provide for supplemental revenue or refunds based on the customer’s average annual steel pricing at the time the product is consumed in the customer’s blast furnace. The supplemental pricing is characterized as an embedded derivative instrument and is required to be accounted for separately from the base contract price. The supplemental revenue is recognized at the point of sale on an estimated basis. The derivative instrument, which is finalized based on a future price, is marked to fair value as a revenue adjustment each reporting period until the pellets are consumed and the amounts are settled. We recognized $26.1 million and $36.2 million in the third quarter of 2007 and 2006, respectively, and $55.7 million and $85.1 million in the first nine months of 2007 and 2006, respectively, as Iron Ore revenues in the Statements of Unaudited Condensed Consolidated Operations related to the supplemental payments. Derivative assets, representing the fair value of the pricing provision, were $34.8 million and $26.6 million, respectively, on the September 30, 2007 and December 31, 2006 Statements of Condensed Consolidated Financial Position.

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Inventories

The following table presents the detail of our Product inventories on the Statements of Condensed Consolidated Financial Position.

North American Iron Ore

Product inventories are stated at the lower of cost or market. Cost of product inventories is determined using the LIFO method. We maintain ownership of the inventories until title has transferred to the customer, usually when payment is made. Maintaining iron ore products at ports on the lower Great Lakes reduces risk of non-payment by customers, as we retain title to the product until payment is received from the customer. We track the movement of inventory and verify the quantities on hand. Supplies and other inventories reflect the weighted average cost method.

Asia-Pacific Iron Ore

Product inventories are stated at the lower of cost or market. Cost of product inventories is determined using a weighted average method. We maintain ownership of the inventories until title has transferred to the customer at the F.O.B. point, which is generally when the product is loaded into the vessel.

North American Coal

At acquisition, the fair value of PinnOak’s inventory was determined utilizing estimated selling price less costs to sell.

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Preferred Stock

In January 2004, we completed an offering of $172.5 million of redeemable cumulative convertible perpetual preferred stock, without par value, issued at $1,000 per share. The preferred stock pays quarterly cash dividends at a rate of 3.25 percent per annum, has a liquidation preference of $1,000 per share and is convertible into our common shares at an adjusted rate of 66.1881 common shares per share of preferred stock, which is equivalent to an adjusted conversion price of $15.11 per share at September 30, 2007, subject to further adjustment in certain circumstances. Each share of preferred stock may be converted by the holder if during any quarter ending after March 31, 2004 the closing sale price of our common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of the preceding quarter exceeds 110 percent of the applicable conversion price on such trading day ($16.62 at September 30, 2007; this threshold was met as of September 30, 2007). The satisfaction of this condition allows conversion of the preferred stock during the quarter ending December 31, 2007. As of September 30, 2007, 11,340 shares of preferred stock had been converted to 750,371 common shares, reducing our preferred issuance to $161.2 million.

Recent Accounting Pronouncements

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Liabilities Including an Amendment of FASB Statement No. 115 (SFAS 159). This Statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. The Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted. We are evaluating the impact, if any, of the adoption of this Statement on our consolidated financial statements.

In September 2006, FASB issued Statement No. 157, Accounting for Fair Value Measurements (SFAS 157). SFAS 157 clarifies the principle that fair value should be

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based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years, with early adoption permitted. We are evaluating the impact, if any, of the adoption of this Statement on our consolidated financial statements.

NOTE 3 – PINNOAK ACQUISITION

On July 31, 2007, we completed our acquisition of 100 percent of PinnOak, a privately-owned United States producer of high-quality, low-volatile metallurgical coal. The acquisition furthers our growth strategy and expands our diversification of products for the integrated steel industry. The purchase price of PinnOak and its subsidiary operating companies was $450 million in cash, of which $108.4 million is deferred until December 31, 2009, plus the non-cash assumption of approximately $160 million in debt, which was repaid at closing. The deferred payment has been discounted using a six percent credit-adjusted risk free rate and is recorded as $93.7 million of Deferred payment on the Statements of Condensed Consolidated Financial Position as of September 30, 2007. The purchase agreement also includes a contingent earn-out, which ranges from $0 to approximately $300 million dependent upon PinnOak’s performance in 2008 and 2009. The earn-out, if any, would be payable in 2010 and treated as additional purchase price. The assets acquired consist primarily of coal mining rights and mining equipment.

A portion of the purchase price for the acquisition was financed through both the Company’s Credit Agreement, dated June 23, 2007 and the subsequent Credit Agreement dated July 26, 2007. The July 26, 2007 Credit Agreement was replaced by the Multicurrency Credit Agreement dated as of August 17, 2007. See NOTE 4 – DEBT AND CREDIT FACILITY for further information.

PinnOak’s operations include two complexes comprising three underground mines – the Pinnacle and Green Ridge mines in southern West Virginia and the Oak

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Grove mine near Birmingham, Alabama. Combined, the mines have rated capacity to produce in excess of seven million tons of premium-quality metallurgical coal annually.

The statements of condensed consolidated financial position of the Company as of September 30, 2007 reflect the acquisition of PinnOak, effective July 31, 2007, under the purchase method of accounting. The total cost of the acquisition has been allocated to the assets acquired and the liabilities assumed based upon their estimated fair values at the date of the acquisition. The preliminary allocation resulted in an excess of fair value of acquired net assets over cost. As the acquisition involved a contingent earn-out, a liability has been recorded totaling $100 million, representing the lessor of the maximum amount of contingent consideration or the excess prior to the pro rata allocation of purchase price. The estimated purchase price allocation is preliminary and is subject to revision. A third party valuation of the assets acquired and liabilities assumed is being conducted, and the final allocation will be made when completed. The following represents the preliminary allocation of the aggregate purchase price as of July 31, 2007:

The following unaudited pro forma information summarizes the results of operations for the three-month and nine-month periods ended September 30, 2007 and September 30, 2006, as if the PinnOak acquisition had been completed as of January 1, 2006. The pro forma information gives effect to actual operating results prior to the acquisition. Adjustments made to cost of goods sold for depletion, inventory effects and depreciation for mining equipment, reflecting the preliminary allocation of purchase price to coal mining reserves, inventory and plant and equipment, interest expense and

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income taxes related to the acquisition, are reflected in the pro forma information. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred as of the beginning of the periods presented or that may be obtained in the future.

NOTE 4 – DEBT AND CREDIT FACILITY

On August 17, 2007, we entered into a five-year unsecured credit facility with a syndicate of 13 financial institutions, which replaced a $500 million credit facility scheduled to expire in 2011 and a $150 million credit facility scheduled to expire in 2008. The new facility provides $800 million in borrowing capacity, comprised of $200 million in term loans and $600 million in revolving loans, swing loans and letters of credit. Loans are drawn with a choice of interest rates and maturities, subject to the term of the agreement. Interest rates are either (1) a range from LIBOR plus .45 percent to LIBOR plus 1.125 percent based on debt and earnings or (2) the prime rate.

The Credit Agreement replaces our existing $500 million Multicurrency Credit Agreement dated June 23, 2006 between Cliffs and various lenders which was scheduled to expire June 23, 2011. The Credit Agreement also replaces a Credit Agreement dated July 26, 2007 among Cliffs and Bank of America as Administrative

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Agent and Letter of Credit issuer, and the other lenders party thereto providing for a $150 million revolving credit facility scheduled to expire July 24, 2008. We incurred $0.8 million of expense, recorded in Other-net on the Statements of Unaudited Condensed Consolidated Operations, related to the accelerated write-off of debt issuance costs due to the replacement of the $500 million facility. The credit facility has financial covenants based on funded debt, earnings and interest expense. As of September 30, 2007, we were in compliance with the covenants in the credit agreement.

As of September 30, 2007, $390 million was drawn in revolving loans and the principle amount of letter of credit obligations totaled $10 million. We had $200 million drawn in term loans; $200 million of borrowing capacity was available under the $800 million credit facility. The weighted average interest rate on all of our debt was 6.17 percent as of September 30, 2007.

Portman is party to a A$40 million multi-option credit facility, which was finalized in April 2007. The facility has two covenants: (1) debt to earnings ratio and (2) interest coverage ratio. The floating interest rate is 20 basis points over the 90-day bank bill swap rate in Australia. At September 30, 2007, the outstanding bank commitments were A$12.4 million, reducing borrowing capacity to A$27.6 million. As of September 30, 2007, Portman was in compliance with the covenants in the credit facility.

NOTE 5 – OTHER INVESTMENTS

Amapa

On March 5, 2007, we acquired a 30 percent interest in Amapa, a Brazilian iron ore project (Amapa Project), through the acquisition of 100 percent of the shares of Centennial Amapa for $133.2 million. The remaining 70 percent of the Amapa Project is owned by MMX, which is managing the construction and operations of the Amapa Project while we are supplying supplemental technical support. Total project funding requirements are estimated to be $525 million, with approximately $395 million to be funded with project debt, which we guarantee our 30 percent share until the project meets certain performance criteria. As of September 30, 2007, approximately $23 million of project debt was guaranteed by Cliffs’ 100 percent subsidiary, Centennial Amapa. Total additional capital

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contributions of approximately $133 million (Company share $40 million) will be required to maintain the debt to equity ratio required under the loan agreements. As of September 30, 2007 capital contributions have totaled approximately $89 million (Company share $26.7 million).

The Amapa Project consists of a significant iron ore deposit, a 192-kilometer railway connecting the mine location to an existing port facility and 71 hectares of real estate on the banks of the Amazon River, reserved for a loading terminal. The Amapa Project is currently under construction and is targeted to produce 6.5 million tonnes of fines products annually once fully operational. Production of sinter is expected to begin in late 2007. Commissioning of the concentrator is expected to occur in the first quarter of 2008.

Sonoma

On April 18, 2007, we executed agreements to participate in Sonoma, a coking and thermal coal joint venture located in Queensland, Australia. As of September 30, 2007, we invested $93.6 million to acquire and develop mining tenements and related infrastructure including the construction of a washplant, which will produce coal to meet the growing global demand. Our total investment in Sonoma is estimated to be $132 million, of which $114 million is expected to occur in 2007. Pursuant to a combination of interrelated agreements, our non-controlling participation will result in a 45 percent economic interest in the collective operations of Sonoma.

Sonoma is expected to commence production of marketable coal in late-2007. Production from Sonoma will include an approximately equal mix of hard coking coal and thermal coal.

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NOTE 6 – SEGMENT REPORTING

As a result of the PinnOak acquisition, our operating segments have changed. Our company is organized and managed according to product category and geographic location: North American Iron Ore, North American Coal, Asia-Pacific Iron Ore, Asia-Pacific Coal and Latin American Iron Ore. The North American Iron Ore segment is comprised of our interests in six North American mines which provide iron ore to the integrated steel industry. The North American Coal segment, comprised of PinnOak, which was acquired on July 31, 2007, provides metallurgical coal to the integrated steel industry. The Asia-Pacific Iron Ore segment, comprised of our interests in Portman is located in Western Australia and provides iron ore to steel producers in China and Japan. There are no intersegment revenues.

The Asia-Pacific Coal operating segment is comprised of our 45 percent effective interest in the Sonoma Coal Project in Queensland, Australia, which is in the development stage. The Latin American Iron Ore operating segment is comprised of our 30 percent Amapa interest in Brazil, which is also in the development stage. As a result, the Asia-Pacific Coal and Latin American Iron Ore operating segments do not meet reportable segment disclosure requirements and therefore are not separately reported.

In the past, we have evaluated segment results based on segment operating income. As a result of the PinnOak acquisition and our focus on reducing production costs, we now evaluate segment performance based on sales margin, defined as revenues less cost of goods sold identifiable to each segment. This measure of operating performance is an effective measurement as we continue to focus on reducing production costs throughout the Company.

The following table presents a summary of our reportable segments for the three-month and nine-month periods ended September 30, 2007 and 2006:

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A summary of assets by segment is as follows: